-----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, QKBwDxjdy6mmpII9sI1UWp3EGqlJIgOoKK3fwanyOkBkeSVZeTKrCS6QrBaANCb8 Q1vtfJou3umxvAFarKIAsQ== 0000950123-97-003630.txt : 19970430 0000950123-97-003630.hdr.sgml : 19970430 ACCESSION NUMBER: 0000950123-97-003630 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19970429 EFFECTIVENESS DATE: 19970501 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS FUND BD II FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0000941729 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 060904249 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-58131 FILM NUMBER: 97590367 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07259 FILM NUMBER: 97590368 BUSINESS ADDRESS: STREET 1: FINANCIAL SERVICES LEGAL DIVISION STREET 2: ONE TOWER SQUARE CITY: HARTFORD STATE: CT ZIP: 06183 BUSINESS PHONE: 2032777379 MAIL ADDRESS: STREET 1: FINANCIAL SERVICES LEGAL DIVISION STREET 2: ONE TOWER SQUARE CITY: HARTFORD STATE: CT ZIP: 06183 485BPOS 1 TRAVELERS FUND BD II FOR VARIABLE ANNUITIES 1 Registration No. 33-58131 811-7259 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 2 and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 2 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES ----------------------------------------------- (Exact Name of Registrant) THE TRAVELERS LIFE AND ANNUITY COMPANY -------------------------------------- (Name of Depositor) ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183 --------------------------------------------- (Address of Depositor's Principal Executive Offices) Depositor's Telephone Number, including area code: (860) 277-0111 ERNEST J. WRIGHT Secretary The Travelers Life and Annuity Company One Tower Square Hartford, Connecticut 06183 --------------------------- (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: _____________________ It is proposed that this filing become effective (check appropriate box) - ---- immediately upon filing pursuant to paragraph (b) of Rule 485. X on May 1, 1997 pursuant to paragraph (b) of Rule 485. - --- - ---- 60 days after filing pursuant to paragraph (a)(1) of Rule 485. - ---- on __________ pursuant to paragraph (a)(1) of Rule 485. If appropriate, check the following box: - --- this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant hereby declares that an indefinite amount of Variable Annuity Contract units was registered under the Securities Act of 1933. A Rule 24f-2 Notice for the fiscal year ended December 31, 1996 was filed on February 28, 1997. 2 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES Cross-Reference Sheet Form N-4
ITEM NO. CAPTION IN PROSPECTUS - --- --------------------- 1. Cover Page Prospectus 2. Definitions Glossary of Special Terms 3. Synopsis Prospectus Summary 4. Condensed Financial Information Condensed Financial Information 5. General Description of Registrant, The Insurance Company; The Separate Depositor, and Portfolio Companies Account and the Underlying Funds 6. Deductions and Expenses Charges and Deductions; Distribution of Variable Annuity Contracts 7. General Description of Variable The Contract Annuity Contracts 8. Annuity Period The Annuity Period 9. Death Benefit Death Benefit 10. Purchases and Contract Value The Contract; Distribution of Variable Annuity Contracts 11. Redemptions Surrenders and Redemptions 12. Taxes Federal Tax Considerations 13. Legal Proceedings Legal Proceedings and Opinions 14. Table of Contents of the Statement Appendix B - Contents of the Statement of Additional Information of Additional Information CAPTION IN STATEMENT OF ADDITIONAL INFORMATION -------------------------------------------- 15. Cover Page Cover Page 16. Table of Contents Table of Contents 17. General Information and History The Insurance Company 18. Services Principal Underwriter; Distribution and Management Agreement 19. Purchase of Securities Being Offered Valuation of Assets 20. Underwriters Principal Underwriter 21. Calculation of Performance Data Performance Information 22. Annuity Payments Not Applicable 23. Financial Statements Financial Statements
3 PART A Information Required in a Prospectus 4 TRAVELERS VINTAGE VARIABLE ANNUITY (FUND BD II) CONTRACT PROFILE MAY 1, 1997 THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY DESCRIBED IN THE FULL PROSPECTUS WHICH IS ATTACHED TO THIS PROFILE. PLEASE READ THE PROSPECTUS CAREFULLY. THE TERMS "WE," "US," "OUR" AND THE "COMPANY" REFER TO TRAVELERS LIFE AND ANNUITY COMPANY. "YOU" AND "YOUR" REFER TO THE CONTRACT OWNER. 1. THE VARIABLE ANNUITY CONTRACT. The Contract offered by Travelers Life and Annuity Company is a variable annuity that is intended for retirement savings or other long-term investment purposes. The Contract provides a death benefit as well as guaranteed income options. Generally, an individual Contract will be issued; however in some states, a group contract may be issued, and you will receive a Certificate. For convenience, we refer to both Contracts and Certificates as "Contracts." Under a tax-qualified Contract, you can make one or more payments, as you choose, on a tax-deferred basis. Under a non tax-qualified Contract, you can make one or more payments with after-tax dollars. You direct your payment(s) to one or more of the variable funding options listed in Section 4 and/or to the Fixed Account. We guarantee money directed to the Fixed Account as to principal and interest. The initial interest rate is guaranteed for a one-year period. After that, interest is declared each calendar quarter by the Company. The variable funding options are designed to produce a higher rate of return than the Fixed Account, however, this is not guaranteed. You may also lose money in the variable funding options. You can transfer between the funding options as frequently as you wish without any current tax implications. Currently there is no charge for transfers, nor a limit to the number of transfers allowed. The Company may, in the future, charge a fee for any transfer request, or limit the number of transfers allowed. The Company, at the minimum, would always allow one transfer every six months. You may transfer between the Fixed Account and the funding options twice a year (during the 30 days after the six-month contract date anniversary), provided the amount is not greater than 15% of the Fixed Account value on that date. The Contract, like all deferred variable annuity contracts, has two phases: the accumulation phase and the income phase. During the accumulation phase, under a tax-qualified contract, your tax-deferred contributions accumulate on a tax-deferred basis and are taxed as income when you make a withdrawal, presumably when you are in a lower tax bracket. During the accumulation phase, under a tax-nonqualified contract, earnings on your after-tax contributions accumulate on a tax-deferred basis and are taxed as income when you make a withdrawal. The income phase occurs when you begin receiving regular payments from your Contract. The amount of money you accumulate in your Contract determines the amount of income (annuity payments) you receive during the income phase. 2. ANNUITY PAYMENTS (THE INCOME PHASE). You may choose to receive income payments from the Fixed Account or the variable funding options. If you want to receive regular income payments from your annuity, you can choose one of the following annuity options: Option 1 -- payments for your life (life annuity) -- assuming that you are the annuitant; Option 2 -- payments for your life with an added guarantee that payments will continue to your beneficiary for a certain number of months (120, 180 or 240, as you select), if you should die during that period; Option 3 -- Joint and Last Survivor Annuity, in which payments are made for your life and the life of another person (usually your spouse). This option can also be elected with payments continuing at a reduced rate after the death of one payee. There are also two Income Options: Fixed Amount -- the cash surrender value of your Contract will be paid to you in equal payments; or Fixed Period -- the cash surrender value will be used to make payments for a fixed time period. If you should die before the end of the Fixed Period, the remaining amount would go to your beneficiary. Once you make an election of an annuity option or an income option and once payments begin, it cannot be changed. During the income phase, you have the same investment choices you had 5 during the accumulation phase. If amounts are directed to the funding options, the dollar amount of your payments may increase or decrease. 3. PURCHASE. You may purchase the Contract with an initial payment of at least $5,000. You may make additional payments of at least $500 at any time during the accumulation phase. (In some states, additional payments are not allowed.) 4. INVESTMENT OPTIONS. You can direct your money into the Fixed Account or any or all of the following variable funding options. They are described in the prospectuses for the funds. The Concert Allocation Series "Select Portfolios" invest exclusively in shares of 29 underlying mutual funds ("Fund of Funds"), as described in the Fund prospectus. Depending on market conditions, you may make or lose money in any of these variable options: Smith Barney Income and Growth Portfolio Alliance Growth Portfolio Van Kampen American Capital Enterprise Portfolio Smith Barney International Equity Portfolio Smith Barney Pacific Basis Portfolio TBC Managed Income Portfolio Putnam Diversified Income Portfolio G.T. Global Strategic Income Portfolio Smith Barney High Income Portfolio MFS Total Return Portfolio Smith Barney Money Market Portfolio AIM Capital Appreciation Portfolio Smith Barney Total Return Portfolio MFS Emerging Growth Portfolio Select High Growth Portfolio Select Growth Portfolio Select Balanced Portfolio Select Conservative Portfolio Select Income Portfolio 5. EXPENSES. The Contract has insurance features and investment features, and there are costs related to each. For contracts with a value of less than $40,000, the Company deducts an annual administrative charge of $30. The annual insurance charge varies depending on which death benefit you choose. For the standard death benefit, the insurance charge is 1.02% of the amounts you direct to the variable funding options; for the enhanced death benefit (if available) the insurance charge is 1.30%. There is a related sub-account administrative charge of .15% annually of the amounts directed to the variable funding options, regardless of which death benefit is elected. Each funding option other than the Select Portfolios have investment charges for management and other expenses. The charges range from 0.60% to 1.25% annually, of the average daily net asset balance of the funding option, depending on the funding option. For the Select Portfolios, the management fee is 0.35% plus a prorata portion of the management fees and other expenses of the underlying funds. If you withdraw money, the Company may deduct a withdrawal charge (0% to 6%) of the purchase payments from the contract. If you withdraw all amounts under the contract, or if you begin receiving annuity payments, the Company may be required by your state to deduct a premium tax of 0%-5%. The following table is designed to help you understand the Contract charges. The column "Total Annual Insurance Charges" shows the total of the $30 annual contract charge (which is represented as .021% below), the mortality and expense risk ("insurance") charge of 1.02% for the standard death benefit and 1.30% for the enhanced death benefit and, for each, the sub-account charge of .15%. The column "Total Annual Funding Option Expenses" shows the investment charges for each portfolio. The columns under the heading "Examples" show you how much you would pay under the Contract for a one-year period and for a 10-year period. The examples assume that you invested $1,000 in a Contract that earns 5% annually and that you withdraw your money at the end of year 1 and at the end of year 10. For year 1, the Total Annual Insurance Charges are assessed as well as the withdrawal charges. For year 10, the example shows the aggregate of all the annual charges assessed during that time, but no withdrawal charge is shown. For these examples, the premium tax is assumed to be 0%. In the table below, "(a)" represents charges and expenses for the Standard Death Benefit, and "(b)" represents charges and 2 6 expenses for the Enhanced Death Benefit. "Total Annual Insurance Charges" includes the mortality and expense risk charge and the administrative charges. The charges below reflect any expense reimbursement or fee waiver. For more detailed information, see the Fee Table in the Contract Prospectus. For the five Concert Allocation Series Select Portfolios which invest in underlying funds exclusively, the charges include an estimate of the prorata underlying funding option expenses. Such expenses range from .46% to 1.74%, as described fully in the Fund prospectus.
EXAMPLES: TOTAL ANNUAL TOTAL ANNUAL EXPENSES TOTAL ANNUAL FUNDING OPTION TOTAL ANNUAL AT END OF: PORTFOLIO NAME INSURANCE CHARGES EXPENSES CHARGES 1 YEAR 10 YEARS - -------------------------------------------------------------------------------------------------------------------- Smith Barney Income and Growth..................... 1.19%(a) 0.73% 1.92%(a) $ 80(a) $224(a) 1.47%(b) 2.20%(b) 82(b) 253(b) Alliance Growth.................. 1.19%(a) 0.87% 2.06%(a) 81(a) 239(a) 1.47%(b) 2.34%(b) 84(b) 268(b) Van Kampen American Capital Enterprise............. 1.19 %(a) 0.83 % 2.02 %(a) 81 (a) 235 (a) 1.47%(b) 2.30%(b) 83(b) 264(b) Smith Barney International Equity........... 1.19%(a) 1.10% 2.29%(a) 83(a) 263(a) 1.47%(b) 2.57%(b) 86(b) 291(b) Smith Barney Pacific Basin....... 1.19%(a) 1.34% 2.53%(a) 86(a) 287(a) 1.47%(b) 2.81%(b) 88(b) 314(b) TBC Managed Income............... 1.19%(a) 0.92% 2.11%(a) 81(a) 244(a) 1.47%(b) 2.39%(b) 84(b) 273(b) Putnam Diversified Income........ 1.19%(a) 0.96% 2.15%(a) 82(a) 248(a) 1.47%(b) 2.43%(b) 85(b) 277(b) G.T. Global Strategic Income..... 1.19%(a) 1.23% 2.42%(a) 85(a) 276(a) 1.47%(b) 2.70%(b) 87(b) 303(b) Smith Barney High Income......... 1.19%(a) 0.84% 2.03%(a) 81(a) 236(a) 1.47%(b) 2.31%(b) 83(b) 265(b) MFS Total Return................. 1.19%(a) 0.91% 2.10%(a) 81(a) 243(a) 1.47%(b) 2.38%(b) 84(b) 272(b) Smith Barney Money Market........ 1.19%(a) 0.65% 1.84%(a) 79(a) 216(a) 1.47%(b) 2.12%(b) 82(b) 245(b) AIM Capital Appreciation......... 1.19%(a) 0.96% 2.15%(a) 82(a) 248(a) 1.47%(b) 2.43%(b) 85(b) 277(b) Smith Barney Total Return........ 1.19%(a) 0.83% 2.02%(a) 81(a) 235(a) 1.47%(b) 2.30%(b) 83(b) 264(b) MFS Emerging Growth.............. 1.19%(a) 0.95% 2.14%(a) 82(a) 247(a) 1.47%(b) 2.42%(b) 85(b) 276(b) Concert Allocation Series Select Portfolios Select High Growth............. 1.19%(a) 1.26% 2.45%(a) 85(a) 279(a) 1.47%(b) 2.73%(b) 88(b) 306(b) Select Growth.................. 1.19%(a) 1.20% 2.39%(a) 84(a) 273(a) 1.47%(b) 2.67%(b) 87(b) 300(b) Select Balanced................ 1.19%(a) 1.13% 2.32%(a) 84(a) 266(a) 1.47%(b) 2.60%(b) 86(b) 294(b) Select Conservative............ 1.19%(a) 1.11% 2.30%(a) 83(a) 264(a) 1.47%(b) 2.58%(b) 86(b) 292(b) Select Income.................. 1.19%(a) 1.05% 2.24%(a) 83(a) 258(a) 1.47%(b) 2.52%(b) 86(b) 286(b)
3 7 6. TAXES. The payments you make to a qualified Contract during the accumulation phase are made with before-tax dollars. You will be taxed on your purchase payments and on any earnings when you make a withdrawal or begin receiving annuity or income payments. Under a non tax-qualified Contract, payments to the contract are made with after tax dollars, and any earnings will accumulate tax-deferred. You will be taxed on these earnings when they are withdrawn from the Contract. For owners of tax-qualified Contracts, if you reach a certain age, you may be required by federal tax laws to begin receiving payments from your annuity or risk paying a penalty tax. In those cases, we can calculate and pay you the minimum required distribution amounts. If you are younger than 59 1/2 when you take money out, you may be charged a 10% federal penalty tax on the amount withdrawn. 7. ACCESS TO YOUR MONEY. You can take out money any time during the accumulation phase. A withdrawal charge may apply. The amount of the charge depends on a number of factors, including the length of time since the purchase payment was made (6% if withdrawn within one year, gradually decreasing to 0% for payments held by the company for 7 years or more). After the first contract year, you may withdraw up to 15% (10% in New York) of the contract value (as of the end of the prior year end) without a withdrawal charge. Of course, you may also have to pay income taxes and a tax penalty on any money you take out. 8. PERFORMANCE. The value of the Contract will vary depending upon the investment performance of the funding options you choose. The following chart shows total returns for each funding option for the time periods shown. These numbers reflect the insurance charges, administrative charge, investment charges and all other expenses of the funding option. The numbers do not reflect any withdrawal charge, or any applicable taxes which, if applied, would reduce such performance. Past performance is not a guarantee of future results. LAST TEN CALENDAR YEARS (OR FULL YEARS SINCE INCEPTION):
- ----------------------------------------------------------------------------------------------------------- PORTFOLIO NAME 1996 1995 1994 INCEPTION DATE - ----------------------------------------------------------------------------------------------------------- Smith Barney Income and Growth.................. 18.36%(a) 31.51%(a) --(a) 06/20/94 18.02%(b) 31.14%(b) --(b) Alliance Growth................................. 27.85%(a) 33.28%(a) --(a) 06/24/94 27.49%(b) 32.90%(b) --(b) Van Kampen American Capital Enterprise.......... 21.47%(a) 31.12%(a) --(a) 06/21/94 21.13%(b) 30.75%(b) --(b) Smith Barney International Equity............... 16.32%(a) 9.97%(a) --(a) 06/20/94 15.99%(b) 9.66%(b) --(b) Smith Barney Pacific Basin...................... 8.03%(a) 1.19%(a) --(a) 06/21/94 7.73%(b) 0.91%(b) --(b) TBC Managed Income.............................. 1.79%(a) 14.55%(a) --(a) 06/28/94 1.51%(b) 14.23%(b) --(b) Putnam Diversified Income....................... 6.95%(a) 16.01%(a) --(a) 06/20/94 6.65%(b) 15.68%(b) --(b) G.T. Global Strategic Income.................... 17.39%(a) 18.58%(a) --(a) 06/21/94 17.06%(b) 18.25%(b) --(b) Smith Barney High Income........................ 11.80%(a) 17.68%(a) --(a) 06/22/94 11.48%(b) 17.35%(b) --(b) MFS Total Return Portfolio...................... 13.14%(a) 24.21%(a) --(a) 06/20/94 12.82%(b) 23.87%(b) --(b) Smith Barney Money Market....................... 3.71%(a) 4.17%(a) --(a) 06/20/94 3.42%(b) 3.88%(b) --(b) AIM Capital Appreciation........................ 13.55%(a) --(a) --(a) 10/10/95 13.23%(b) --(b) --(b) Smith Barney Total Return....................... 23.93%(a) 23.43%(a) 6.00%(a) 12/03/93 23.59%(b) 23.09%(b) 5.70%(b)
Those funding options not illustrated above do not yet have one full year of performance history. 4 8 9. DEATH BENEFIT. Assuming you are the Annuitant, if you die before you move to the income phase, the person you have chosen as your beneficiary will receive a death benefit. The death benefit paid depends on your age at the time of your death. The value of the death benefit will be determined at the close of the business day on which the Company's Home Office receives due proof of death. In most states, you may choose (at time of purchase) between the standard death benefit and the enhanced death benefit. Under the standard death benefit, if you die before you reach age 85 and before the maturity date, the death benefit equals the greatest of: (1) the contract value; (2) the total purchase payments made under the Contract less all partial withdrawals; or (3) the contract on the latest fifth contract year anniversary occurring on or before your 75(th) birthday. Assuming you are the annuitant, if you die on or after age 85 and before the maturity date, the death benefit payable will be the contract value, less any applicable premium tax or outstanding loans. On or after June 1, 1997, if approved in your state, you may select the following new enhanced death benefit. If you die before you reach age 80 and before the maturity date, the enhanced death benefit equals the greatest of (1) the contract value; (2) the 5% Roll-Up Death Benefit Value; or (3) the maximum of all annual Step-Up Death Benefit Values. See the Contract prospectus for a complete explanation of this enhanced death benefit. If you die on or after age 80, different death benefit values will be payable to your beneficiary. See the Contract prospectus for details. Assuming you are the annuitant, if you die on or after age 90 and before the maturity date, the death benefit payable will be the contract value less any applicable premium tax or outstanding loans. For contracts sold prior to June 1, 1997 (or before state approval is received) under the enhanced death benefit, if you die before you reach age 85 and before the maturity date, the death benefit equals the greatest of: (1) the contract value; or (2) the guaranteed death benefit (i.e., up to a maximum of 200% of your purchase payments) as of your 75(th) birthday. See the Contract prospectus for a complete explanation of "guaranteed death benefit". Assuming you are the annuitant, if you die on or after age 85 and before the maturity date, the death benefit payable will be the contract value, less any applicable premium tax or outstanding loans. In all cases described above amounts will be reduced by any applicable premium tax, outstanding loans or withdrawals not previously deducted. This death benefit may not be available in all states. Certain states may have varying age requirements. Please refer to the Contract prospectus. 10. OTHER INFORMATION RIGHT TO RETURN If you cancel the Contract within twenty days after you receive it, you will receive a full refund of the Contract value (including charges). Where state law requires a longer period, or the return of purchase payments, the Company will comply. You bear the investment risk during the right to return period; therefore, the Contract Value returned may be greater or less than your purchase payment. If the Contract is purchased as an Individual Retirement Annuity, and is returned within the first seven days after delivery, your full purchase payment will be refunded; during the remainder of the right to return period, the Contract Value (including charges) will be refunded. The Contract Value will be determined at the close of business on the day we receive a written request for a refund. WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use in connection with (1) individual nonqualified purchases; (2) Individual Retirement Annuities (IRAs) and (3) qualified retirement plans. Qualified contracts include contracts qualifying under Section 401(a), 403(b), or 408(b) of the Internal Revenue Code of 1986, as amended. 5 9 ADDITIONAL FEATURES This Contract has other features you may be interested in. These include: DOLLAR COST AVERAGING. This is a program that allows you to invest a fixed amount of money in funding options each month, theoretically giving you a lower average cost per unit over time than a single one-time purchase. Dollar Cost Averaging requires regular investments regardless of fluctuating price levels, and does not guarantee profits or prevent losses in a declining market. Potential investors should consider their financial ability to continue purchases through periods of low price levels. SYSTEMATIC WITHDRAWAL OPTION. Before the maturity date, you can arrange to have money sent to you at set intervals throughout the year. Of course, any applicable income and penalty taxes will apply on amounts withdrawn. AUTOMATIC REBALANCING. You may elect to have the Company periodically reallocate the values in your contract to match your original (or your latest) funding option allocation request. 11. INQUIRIES. If you need more information, please contact us at (800) 842-8573 or: Travelers Life and Annuity Company Annuity Services One Tower Square Hartford, CT 06183 6 10 TRAVELERS VINTAGE PROSPECTUS This prospectus describes Travelers Vintage, a flexible premium variable annuity contract (the "Contract") issued by The Travelers Life and Annuity Company (the "Company"). The Contract is available in connection with certain retirement plans that qualify for special federal income tax treatment ("qualified Contracts") as well as those that do not qualify for such treatment ("nonqualified Contracts"). Vintage may be issued as an individual Contract or as a group Contract. In states where only group Contracts are available, you will be issued a certificate summarizing the provisions of the group Contract. For convenience, this prospectus refers to both Contracts and Certificates as "Contracts." You can choose to have your purchase payments accumulate on a fixed basis (i.e. a Fixed Account funded through the Company's general account) and/or a variable basis (i.e., one or more of the sub-accounts ("funding options") of the Travelers Fund BD II for Variable Annuities ("Fund BD II")). Your contract value will vary daily to reflect the investment experience of the funding options you select and any interest credited to the Fixed Account. The variable funding options currently available are: Smith Barney Income and Growth Portfolio, Alliance Growth Portfolio, Van Kampen American Capital Enterprise Portfolio, Smith Barney International Equity Portfolio, Smith Barney Pacific Basin Portfolio, TBC Managed Income Portfolio, Putnam Diversified Income Portfolio, G.T. Global Strategic Income Portfolio, Smith Barney High Income Portfolio, MFS Total Return Portfolio, AIM Capital Appreciation Portfolio, and Smith Barney Money Market Portfolio of the Travelers Series Fund, Inc.; Total Return Portfolio of the Smith Barney Series Fund; MFS Emerging Growth Portfolio of the Travelers Series Trust; and Select High Growth Portfolio, Select Growth Portfolio, Select Balanced Portfolio, Select Conservative Portfolio and Select Income Portfolio of the Smith Barney Concert Allocation Series Inc. The Fixed Account funding option is described in Appendix B. Unless specified otherwise, this prospectus refers to the variable funding options. The contracts and/or some of the funding options may not be available in all states. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE VARIABLE FUNDING OPTIONS. THESE PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. This Prospectus provides the information that you should know before investing in the Contract. You can receive additional information about Fund BD II by requesting a copy of the Statement of Additional Information ("SAI") dated May 1, 1997. The SAI has been filed with the Securities and Exchange Commission ("SEC") and is incorporated by reference into this Prospectus. To request a copy, write to The Travelers Life and Annuity Insurance Company, Annuity Services, One Tower Square, Hartford, Connecticut 06183-9061, or call 1-800-842-8573. The Table of Contents of the SAI appears in Appendix C of this Prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT. PROSPECTUS DATED MAY 1, 1997 11 TABLE OF CONTENTS INDEX OF SPECIAL TERMS................. 2 FEE TABLE.............................. 3 THE ANNUITY CONTRACT................... 5 Purchase Payments...................... 5 Accumulation Units..................... 5 The Funding Options.................... 6 Substitutions and Additions............ 7 CHARGES AND DEDUCTIONS................. 7 Withdrawal Charge...................... 7 Free Withdrawal Allowance.............. 7 Administrative Charges................. 7 Mortality and Expense Risk Charge...... 8 Reduction or Elimination of Contract Charges.............................. 8 Funding Option Expenses................ 8 Premium Tax............................ 8 Changes in Taxes Based Upon Premium or Value................................ 9 OWNERSHIP PROVISIONS................... 9 Types of Ownership..................... 9 Beneficiary............................ 9 Annuitant.............................. 10 TRANSFERS.............................. 10 Dollar Cost Averaging.................. 10 SURRENDERS AND REDEMPTIONS............. 10 Systematic Withdrawals................. 11 Loans.................................. 11 DEATH BENEFIT.......................... 11 Death Proceeds Before the Maturity Date................................. 12 Death Proceeds After the Maturity Date................................. 14 THE ANNUITY PERIOD..................... 14 Maturity Date.......................... 14 Allocation of Annuity.................. 14 Variable Annuity....................... 14 Fixed Annuity.......................... 15 PAYMENT OPTIONS........................ 15 Election of Options.................... 15 Annuity Options........................ 16 Income Options......................... 16 MISCELLANEOUS CONTRACT PROVISIONS...... 17 Right to Return........................ 17 Termination............................ 17 Required Reports....................... 17 Suspension of Payments................. 17 Transfers of Contract Values to Other Annuities............................ 17 THE SEPARATE ACCOUNT................... 18 Mixed and Shared Funding............... 18 Performance Information................ 18 FEDERAL TAX CONSIDERATIONS............. 19 General Taxation of Annuities.......... 19 Types of Contracts: Qualified or Nonqualified......................... 19 Nonqualified Annuity Contracts......... 19 Qualified Annuity Contracts............ 20 Penalty Tax for Premature Distributions........................ 20 Diversification Requirements for Variable Annuities................... 20 Ownership of the Investments........... 20 Mandatory Distributions for Qualified Plans................................ 21 OTHER INFORMATION...................... 21 The Insurance Company.................. 21 Distribution Of Variable Annuity Contracts............................ 21 Conformity with State and Federal Laws................................. 22 Voting Rights.......................... 22 Legal Proceedings and Opinions......... 22 APPENDIX A: Condensed Financial Information.......................... 23 APPENDIX B: The Fixed Account.......... 24 APPENDIX C: Table of Contents of the Statement of Additional Information.......................... 25
INDEX OF SPECIAL TERMS The following terms are italicized throughout the prospectus. Refer to the page listed for an explanation of each term. Accumulation Unit...................... 5 Annuitant.............................. 9 Annuity Payments....................... 12 Annuity Unit........................... 13 Cash Surrender Value................... 10 Contract Date.......................... 5 Contract Owner (You, Your)............. 4 Contract Value......................... 5 Contract Year.......................... 5 Fixed Account.......................... 24 Funding Option(s)...................... 5 Income Payments........................ 14 Maturity Date.......................... 5 Purchase Payment....................... 4 Written Request........................ 5
2 12 FEE TABLE - -------------------------------------------------------------------------------- CONTRACT OWNER TRANSACTION EXPENSES WITHDRAWAL CHARGE (as a percentage of purchase payments): LENGTH OF TIME FROM PURCHASE PAYMENT
(NUMBER OF YEARS) CHARGE 1 6% 2 6% 3 6% 4 3% 5 2% 6 1% 7 and thereafter 0%
- ---- ANNUAL CONTRACT ADMINISTRATIVE CHARGE $30 (Waived if contract value is $40,000 or more) ANNUAL SEPARATE ACCOUNT CHARGES: (as a percentage of the average daily net assets of the Separate Account)
STANDARD ENHANCED DEATH BENEFIT DEATH BENEFIT -------------------------------------------------------------------------------------------- Mortality and Expense Risk Charge.................... 1.02% 1.30% Administrative Expense Charge........................ 0.15% 0.15% ------------- ------------- Total Separate Account Charges..................... 1.17% 1.45% FUNDING OPTION EXPENSES: (as a percentage of average daily net assets of the Funding Option)
MANAGEMENT OTHER FEE (AFTER EXPENSES (AFTER TOTAL FUNDING REIMBURSEMENT) REIMBURSEMENT) OPTION EXPENSES ------------------------------------------------------------------------------------------------------ Smith Barney Income and Growth Portfolio 0.65% 0.08% 0.73% Alliance Growth Portfolio 0.80% 0.07% 0.87% Van Kampen American Capital Enterprise Portfolio 0.70% 0.13% 0.83% Smith Barney International Equity Portfolio 0.90% 0.20%* 1.10% Smith Barney Pacific Basin Portfolio 0.90% 0.44%(1)* 1.34% TBC Managed Income Portfolio 0.65% 0.27% 0.92% Putnam Diversified Income Portfolio 0.75% 0.21% 0.96% G.T. Global Strategic Income Portfolio 0.80% 0.43%(1)* 1.23% Smith Barney High Income Portfolio 0.60% 0.24% 0.84% MFS Total Return Portfolio 0.80% 0.11% 0.91% Smith Barney Money Market Portfolio 0.60% 0.05%(1) 0.65% AIM Capital Appreciation Portfolio 0.80% 0.16% 0.96% Smith Barney Total Return Portfolio 0.55% 0.28%(2) 0.83% MFS Emerging Growth Portfolio 0.75% 0.20%(2) 0.95% Select High Growth Portfolio(3) 0.35%(3) 0.91%(3) 1.26%(3) Select Growth Portfolio(3) 0.35%(3) 0.85%(3) 1.20%(3) Select Balanced Portfolio(3) 0.35%(3) 0.78%(3) 1.13%(3) Select Conservative Portfolio(3) 0.35%(3) 0.76%(3) 1.11%(3) Select Income Portfolio(3) 0.35%(3) 0.70%(3) 1.05%(3)
NOTES: The purpose of the Fee Table is to assist Contract Owners in understanding the various costs and expenses that a Contract Owner will bear, directly or indirectly. See "Charges and Deductions" in this prospectus for additional information. Expenses shown do not include premium taxes, which may be applicable. (1) Other expenses are as of October 31, 1996, taking into account the current expense limitations agreed to by the Managers. The Managers waived all of their fees for the period and reimbursed the Funds for their expenses. If such fees were not waived and expenses were not reimbursed, Total Funding Option Expenses for the Travelers Series Fund Inc. Portfolios would have been: Smith Barney Pacific Basin Portfolio, 1.58%; G.T. Global Strategic Income Portfolio, 1.38%; Smith Barney Money Market Portfolio, 0.74%. 3 13 (2) Other expenses for the Smith Barney Series Fund Total Return Portfolio and the Travelers Series Trust MFS Emerging Growth Portfolio are as of December 31, 1996 taking into account the current expense limitations agreed to by the Managers. For the MFS Emerging Growth Portfolio, The Managers have waived all of their fees for the period and reimbursed the Fund for their expenses. Total Underlying Expenses for this fund without the fees waived and the expenses reimbursed would have been 2.09%. (3) The Concert Allocation Series Select Portfolios (a "Fund of Funds") invest in the shares of other mutual funds. Their management fee is .35% and they have no expenses. The other expenses shown are based on the expected weighted average of underlying fund expense ratios (which include a management fee and other expenses) as of October 31, 1996, the underlying funds' fiscal year end. See the Fund prospectus for information regarding the equity/fixed income (including money market) investment target and range for each portfolio, and for the expense ratios for the underlying funds. Such ratios range from 0.46% to 1.74%. * Travelers Series Fund Inc. Portfolios, Smith Barney International Equity, Smith Barney Pacific Basin and G.T. Global Strategic Income earned credits from the Custodian which reduced the service fees incurred. When these credits are taken into consideration, Total Funding Option Expenses are 1.05%, 1.17% and 1.11% respectively. EXAMPLE* Assuming a 5% annual return on assets, a $1,000 investment would be subject to the following expenses: (a) If the Contract is surrendered or if certain income options are elected at the end of the period shown,**: (b) If the Contract is not surrendered at the end of the period shown or if it is annuitized:
- -------------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ENHANCED DEATH BENEFIT 1 YEAR 3 YEARS 1 YEAR 3 YEARS - -------------------------------------------------------------------------------------------------------------------------- Smith Barney Income and Growth Portfolio............................ $ 80(a) $ 120(a) $ 82(a) $ 129(a) 20(b) 60(b) 22(b) 69(b) Alliance Growth Portfolio........................................... 81(a) 125(a) 84(a) 133(a) 21(b) 65(b) 24(b) 73(b) Van Kampen American Capital Enterprise Portfolio.................... 81(a) 123(a) 83(a) 132(a) 21(b) 63(b) 23(b) 72(b) Smith Barney International Equity Portfolio......................... 83(a) 132(a) 86(a) 140(a) 23(b) 72(b) 26(b) 80(b) Smith Barney Pacific Basin Portfolio................................ 86(a) 139(a) 88(a) 147(a) 26(b) 79(b) 28(b) 87(b) TBC Managed Income Portfolio........................................ 81(a) 126(a) 84(a) 135(a) 21(b) 66(b) 24(b) 75(b) Putnam Diversified Income Portfolio................................. 82(a) 127(a) 85(a) 136(a) 22(b) 67(b) 25(b) 76(b) G.T. Global Strategic Income Portfolio.............................. 85(a) 135(a) 87(a) 144(a) 25(b) 75(b) 27(b) 84(b) Smith Barney High Income Portfolio.................................. 81(a) 124(a) 83(a) 132(a) 21(b) 64(b) 23(b) 72(b) MFS Total Return Portfolio.......................................... 81(a) 126(a) 84(a) 134(a) 21(b) 66(b) 24(b) 74(b) Smith Barney Money Market Portfolio................................. 79(a) 118(a) 82(a) 126(a) 19(b) 58(b) 22(b) 66(b) MFS Emerging Growth Portfolio....................................... 82(a) 127(a) 85(a) 135(a) 22(b) 67(b) 25(b) 75(b) AIM Capital Appreciation Portfolio.................................. 82(a) 127(a) 85(a) 136(a) 22(b) 67(b) 25(b) 76(b) Smith Barney Total Return Portfolio................................. 81(a) 123(a) 83(a) 132(a) 21(b) 63(b) 23(b) 72(b) Select High Growth Portfolio........................................ 85(a) 136(a) 88(a) 145(a) 25(b) 76(b) 28(b) 85(b) Select Growth Portfolio............................................. 84(a) 135(a) 87(a) 143(a) 24(b) 75(b) 27(b) 83(b) Select Balanced Portfolio........................................... 84(a) 132(a) 86(a) 141(a) 24(b) 72(b) 26(b) 81(b) Select Conservative Portfolio....................................... 83(a) 132(a) 86(a) 140(a) 23(b) 72(b) 26(b) 80(b) Select Income Portfolio............................................. 83(a) 130(a) 86(a) 138(a) 23(b) 70(b) 26(b) 78(b)
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE EXAMPLE REFLECTS THE $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL CHARGE OF 0.021% OF ASSETS. ** THE WITHDRAWAL CHARGE IS WAIVED IF ANNUITY PAYOUT HAS BEGUN OR IF AN INCOME OPTION OF AT LEAST FIVE YEARS' DURATION IS BEGUN AFTER THE FIRST CONTRACT YEAR. (SEE "CHARGES AND DEDUCTIONS.") 4 14 CONDENSED FINANCIAL INFORMATION - -------------------------------------------------------------------------------- This information is located in Appendix A, page 23. THE ANNUITY CONTRACT - -------------------------------------------------------------------------------- Travelers Vintage Annuity is a contract between you (the contract owner) and Travelers Life and Annuity Company (called "us" or the "Company"). Residents of certain states, where applicable, will be issued certificates representing participation in a master group contract owned by a trustee of an existing trust. These certificates contain the same provisions as the individual contracts. Under this contract, you make purchase payments to us and we credit them to your account. The Company promises to pay you an income, in the form of annuity or income payments, beginning on a future date that you choose, the maturity date. The purchase payments accumulate tax deferred in the funding options of your choice. We offer multiple variable funding options, and one fixed account option. The contract owner assumes the risk of gain or loss according to the performance of the variable funding options. The contract value is the amount of purchase payments, plus or minus any investment experience or interest. The contract value also reflects all withdrawals made and charges deducted. There is generally no guarantee that at the maturity date the contract value will equal or exceed the total purchase payments made under the Contract, except as specified or elected under the Death Benefit provisions described in this prospectus. The date the Contract and its benefits became effective is referred to as the contract date. Each anniversary of this contract date is called a contract year. Certain changes and elections must be made in writing to the Company. Where the term "written request" is used, it means that written information must be sent to the Company's Home Office in a form and content satisfactory to us. PURCHASE PAYMENTS The initial purchase payment must be at least $5,000. Additional payments of at least $500 may be made under the Contract at any time. Under certain circumstances, we may waive the minimum purchase payment requirement. Purchase payments over $1,000,000 may be made with our prior consent. In some states, we do not accept additional purchase payments. The initial purchase payment is due and payable before the Contract becomes effective. We will apply the initial purchase payment within two business days after we receive it at our Home Office. Subsequent purchase payments will be credited to a Contract within one business day. Our business day ends when the New York Stock Exchange closes, usually 4:00 p.m. Eastern time. ACCUMULATION UNITS An accumulation unit is used to calculate the value of a Contract. An accumulation unit works like a share of a mutual fund. Each funding option has a corresponding accumulation unit value. The accumulation units are valued each business day and may increase or decrease from day to day. The number of accumulation units we will credit to your Contract once we receive a purchase payment is determined by dividing the amount directed to each funding option by the value of the accumulation unit. We calculate the value of an accumulation unit for each funding option each day after the New York Stock Exchange closes. After the value is calculated, your account is credited. During the annuity period (i.e., after the maturity date), you are credited with annuity units. 5 15 THE FUNDING OPTIONS You choose which of the following variable funding options to have your purchase payments allocated to. You will find detailed information about the options and their inherent risks in the current prospectuses for the funding options which must accompany this prospectus. Since each option has varying degrees of risk, please read the prospectuses carefully before investing. Additional copies of the prospectuses may be obtained by contacting your registered representative or by calling 1-800-842-8573. The current funding options are listed below, along with their investment advisers and any subadviser:
INVESTMENT FUNDING OPTION OBJECTIVE INVESTMENT MANAGER SUB-ADVISER - ------------------------------------------------------------------------------------------------------------------ Smith Barney Income and current income and Smith Barney Mutual Funds Growth Portfolio long-term growth of Management Inc. ("SBMFM") income and capital Alliance Growth Portfolio long-term growth of Travelers Investment Advisors Alliance Capital capital ("TIA") Management L.P. Van Kampen American Capital capital appreciation TIA American Capital Asset Enterprise Portfolio Management, Inc Smith Barney International total return on assets SBMFM Equity Portfolio from growth of capital and income Smith Barney Pacific Basin long-term capital SBMFM Portfolio appreciation TBC Managed Income Portfolio high current income TIA The Boston Company Asset consistent with Management, Inc. prudent risk of capital Putnam Diversified Income high current income TIA Putnam Investment Management, Portfolio consistent with Inc. preservation of capital G.T. Global Strategic Income high current income and, TIA GT Asset Management Inc. Portfolio secondarily, capital appreciation Smith Barney High Income high current income SBMFM Portfolio MFS Total Return Portfolio above-average income TIA Massachusetts Financial (compared to a Services Company portfolio entirely invested in equity securities) consistent with the prudent employment of capital Smith Barney Money Market maximum current income SBMFM Portfolio and preservation of capital AIM Capital Appreciation capital appreciation TIA AIM Capital Management, Inc. Portfolio Smith Barney Total Return total return, consisting SBMFM Portfolio of long-term capital appreciation and income MFS Emerging Growth Portfolio long-term growth of Travelers Asset Management Massachusetts Financial capital International Corporation Services Company (TAMIC) Select High Growth Portfolio capital appreciation TIA Select Growth Portfolio long-term growth of TIA capital Select Balanced Portfolio a balance of growth of TIA capital and income Select Conservative Portfolio income and, secondarily, TIA long-term growth of capital Select Income Portfolio high current income TIA
6 16 SUBSTITUTIONS AND ADDITIONS If any of the funding options should become unavailable for allocating purchase payments, or if we believe that further investment in a funding option becomes inappropriate for the purposes of the Contract, we may substitute another funding option. However, we will not make any substitutions without notifying you and obtaining any applicable state and SEC approval. From time to time we may make new funding options available. CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- WITHDRAWAL CHARGE No sales charges are deducted from purchase payments when they are applied under the Contract. However, a withdrawal charge will be deducted, if any or all of the contract value is withdrawn during the first six years following a purchase payment. The length of time from when we receive the purchase payment to the time of withdrawal determines the amount of the charge. The withdrawal charge is equal to a percentage of the amount of purchase payments withdrawn from the Contract and is calculated as follows:
LENGTH OF TIME FROM PURCHASE PAYMENT WITHDRAWAL (NUMBER OF YEARS) CHARGE 1 6% 2 6% 3 6% 4 3% 5 2% 6 1% 7 and thereafter 0%
For purposes of the withdrawal charge calculation, withdrawals will be deemed to be taken first from any free withdrawal amount (as described below); next from remaining purchase payments (on a first-in, first-out basis); and then from contract earnings (in excess of any free withdrawal amount). Unless you instruct us otherwise, we will deduct the withdrawal charge from the amount requested. We will not deduct a withdrawal charge (1) from payments we make due to the death of the contract owner or the death of the annuitant with no contingent annuitant surviving; (2) if an annuity payout has begun; or (3) if an income option of at least five years' duration is begun after the first contract year. FREE WITHDRAWAL ALLOWANCE There is a 15% free withdrawal allowance available each year after the first contract year. The available withdrawal amount will be calculated as of the end of the previous contract year. The free withdrawal allowance applies to partial withdrawals and to full withdrawals, except those transferred directly to annuity contracts issued by other financial institutions. ADMINISTRATIVE CHARGES An administrative charge of $30 is deducted annually from Contracts with a value of less than $40,000. This charge compensates us for expenses incurred in establishing and maintaining the Contract. The charge is deducted from the contract value on the fourth Friday of August of each year by cancelling accumulation units applicable to each funding option on a pro rata basis. This charge will be prorated from the date of purchase to the next charge deduction date. A prorated charge will also be made if the Contract is completely withdrawn or terminated. We will not 7 17 deduct a Contract administrative charge: (1) if the distribution results from the death of the contract owner or the annuitant with no contingent annuitant surviving, (2) after an annuity payout has begun, or (3) if the contract value on the date of assessment is equal to or greater than $40,000. An administrative charge is deducted on each business day from amounts allocated to the variable funding options in order to compensate the Company for certain administrative and operating expenses. The charge equals, on an annual basis, 0.15% of the daily net asset value allocated to each of the variable funding options. MORTALITY AND EXPENSE RISK CHARGE Each business day, the Company deducts a mortality and expense risk charge from amounts held in the variable funding options. The deduction is reflected in our calculation of accumulation and annuity unit values. We reserve the right to lower the mortality and expense risk charge at any time. The mortality risk portion of the insurance charge compensates us for guaranteeing to provide annuity payments according to the terms of the Contract regardless of how long the annuitant lives and for guaranteeing to provide the standard or the enhanced death benefit if an annuitant dies prior to the maturity date. The expense risk portion compensates us for the risk that the charges under the Contract, which cannot be increased during the duration of the Contract, will be insufficient to cover actual costs. For those contract owners who have elected a standard death benefit provision, the insurance charge is equivalent, on an annual basis, to 1.02% of the daily net asset value of amounts held in the Separate Account. For those contract owners who have elected an enhanced death benefit provision, the insurance charge is equivalent, on an annual basis, to 1.30% of the daily net asset value of amounts held in the Separate Account. REDUCTION OR ELIMINATION OF CONTRACT CHARGES The withdrawal charge, the administrative charges, and the mortality and expense risk charge under the Contract may be reduced or eliminated when certain sales or administration of the Contract result in savings or reduction of sales or administrative expenses and/or mortality and expense risks. Any such reduction will be based on the following: (1) the size and type of group to which sales are to be made; (2) the total amount of purchase payments to be received; and (3) any prior or existing relationship with the Company. There may be other circumstances, of which the Company is not presently aware, which could result in fewer sales expenses administrative charges or mortality and expense risk charges. For certain trusts, the Company may change the order in which purchase payments and earnings are withdrawn in order to determine the withdrawal charge. In no event will reduction or elimination of the withdrawal charge or the administrative charge be permitted where such reduction or elimination will be unfairly discriminatory to any person. FUNDING OPTION EXPENSES The deductions from and expenses paid out of the assets of the various funding options are summarized in the fee table and are described in the accompanying prospectuses. PREMIUM TAX Certain state and local governments charge premium taxes ranging from 0% to 5%, depending upon jurisdiction. The Company is responsible for paying these taxes and will determine the method used to recover premium tax expenses incurred. Where required, the Company will deduct any applicable premium taxes from the contract value either upon death, surrender, 8 18 annuitization, or at the time purchase payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. CHANGES IN TAXES BASED UPON PREMIUM OR VALUE If there is any change in a law assessing taxes against the Company based upon the premiums, contract gains or value of the contract, we reserve the right to charge you proportionately for this tax. OWNERSHIP PROVISIONS - -------------------------------------------------------------------------------- TYPES OF OWNERSHIP Contract Owner (you). The Contract belongs to the contract owner named in the contract (on the Specifications page), or to any other person to whom the Contract is subsequently assigned. An assignment of ownership or a collateral assignment may be made only for nonqualified contracts. You have sole power during the annuitant's lifetime to exercise any rights and to receive all benefits given in the contract provided you have not named an irrevocable beneficiary and provided the Contract is not assigned. You receive all payments while the annuitant is alive unless you direct them to an alternate recipient. An alternate recipient does not become the contract owner. Joint Owner. For nonqualified contracts only, joint owners may be named in a written request before the Contract is in effect. Joint owners may independently exercise transfers allowed under the Contract. All other rights of ownership must be exercised by joint action. Joint owners own equal shares of any benefits accruing or payments made to them. All rights of a joint owner end at death if the other joint owner survives. The entire interest of the deceased joint owner in the Contract will pass to the surviving joint owner. Succeeding Owner. For nonqualified contracts only, if joint owners are not named, the contract owner may name a succeeding owner in a written request. The succeeding owner becomes the contract owner if living when the contract owner dies. The succeeding owner has no interest in the Contract before then. The contract owner may change or delete a succeeding owner by written request. BENEFICIARY The beneficiary is named by you in a written request. The beneficiary has the right to receive any remaining contractual benefits upon the death of the annuitant or the contract owner. If more than one beneficiary survives the annuitant, the beneficiaries will share equally in benefits unless different shares are recorded with the Company by written request before the death of the annuitant or contract owner. With nonqualified contracts, as discussed under "Death Benefit,"the beneficiary named in the Contract may differ from the designated beneficiary (for example, the joint owner or a contingent annuitant). In such cases, the designated beneficiary receives the contract (rather than the beneficiary) upon your death. Unless an irrevocable beneficiary has been named, you have the right to change any beneficiary by written request during the lifetime of the annuitant and while the Contract continues. 9 19 ANNUITANT The annuitant is designated in the contract (on the Specifications page), and is the individual on whose life the maturity date and the amount of the monthly annuity payments depend. The annuitant may not be changed after the Contract is in effect. For nonqualified contracts only, the contract owner may also name one individual as a contingent annuitant by written request before the Contract becomes effective. A contingent annuitant may not be changed, deleted or added to the Contract after the Contract becomes effective. TRANSFERS - -------------------------------------------------------------------------------- Before the maturity date, you may transfer all or part of the contract value between funding options. There are no charges or restrictions on the amount or frequency of transfers currently; however, we reserve the right to charge a fee for any transfer request, and to limit the number of transfers to one in any six-month period. Since different funding options have different expenses, a transfer of contract values from one funding option to another could result in your investment becoming subject to higher or lower expenses. DOLLAR COST AVERAGING Dollar cost averaging (or "automated transfers") allows you to transfer a set dollar amount to other funding options on a monthly or quarterly basis so that more accumulation units are purchased in a funding option if the value per unit is low and less accumulation units are purchased if the value per unit is high. Therefore, a lower-than-average value per unit may be achieved over the long run. You may elect automated transfers through written request or other method acceptable to the Company. You must have a minimum total Contract Value of $5,000 to enroll in the Dollar Cost Averaging program. The minimum total automated transfer amount is $400. You may establish automated transfers of Contract Values from the Fixed Account, subject to certain restrictions. Automated transfers from the Fixed Account may not deplete your Fixed Account Value in less than twelve months from your enrollment in the Dollar Cost Averaging program. You may start or stop participation in the Dollar Cost Averaging program at any time, but you must give the Company at least 30 days' notice to change any automated transfer instructions that are currently in place. All provisions and terms of the Contract apply to automated transfers, including provisions relating to the transfer of money between funding options. We reserve the right to suspend or modify transfer privileges at any time and to assess a processing fee for this service. SURRENDERS AND REDEMPTIONS - -------------------------------------------------------------------------------- Any time before the maturity date, you may redeem all or any portion of the cash surrender value, that is, the contract value, less any withdrawal charge and any premium tax not previously deducted. You must submit a written request specifying the fixed or variable funding option(s) from which amounts are to be withdrawn. The cash surrender value will be determined as of the close of business after we receive your surrender request at the Home Office. The cash surrender value may be more or less than the purchase payments made depending on the contract value at the time of surrender. We may defer payment of any cash surrender value for a period of not more than seven days after the request is received, but it is our intent to pay as soon as possible. We cannot process 10 20 withdrawal requests that are not in good order. We will contact you if there is a deficiency causing a delay and will advise what is needed to act upon the withdrawal request. SYSTEMATIC WITHDRAWALS Before the maturity date, you may choose to withdraw a specified dollar amount (at least $100) on a monthly, quarterly, semiannual or annual basis. Any applicable withdrawal charges (in excess of the free withdrawal allowance) and any applicable premium taxes will be deducted. To elect systematic withdrawals, you must have a minimum contract value of $15,000. We will surrender accumulation units from all funding options in which you have an interest, unless you instruct us otherwise. You may begin or discontinue systematic withdrawals at any time by notifying us in writing, but at least 30 days' notice must be given to change any systematic withdrawal instructions that are currently in place. We reserve the right to discontinue offering systematic withdrawals or to assess a processing fee for this service upon 30 days' written notice to contract owners (where allowed by state law). Each systematic withdrawal is subject to federal income taxes on the taxable portion. In addition, a 10% federal penalty tax may be assessed on systematic withdrawals if the contract owner is under age 59 1/2. You should consult with your tax adviser regarding the tax consequences of systematic withdrawals. LOANS Loans may be available under your Contract. If available, all loan provisions are described in your Contract or loan agreement. DEATH BENEFIT - -------------------------------------------------------------------------------- Before the maturity date, a death benefit is payable to the beneficiary when either the annuitant, contract owner or the first of joint owners dies and there is no contingent annuitant. Two different types of death benefits are available under the Contract: a Standard Death Benefit and an Enhanced Death Benefit (the Enhanced Death Benefit may not be available in all jurisdictions). Death benefits are payable upon receipt at our Home Office of due proof of death. A beneficiary may request that a death benefit payable under the Contract be applied to one of the settlement options available under the Contract, subject to the contract provisions. (See also "Nonqualified Annuity Contracts.") For nonqualified contracts, if the contract owner (including the first of joint owners) dies before the maturity date, a distribution may be required under the minimum distribution requirements of the federal tax law. If so required, we will recalculate the value of the death benefit under the provisions of "Death Proceeds Before the Maturity Date," below. The value of the death benefit, as recalculated, will be credited to the party taking distributions upon the death of the contract owner with the annuitant or contingent annuitant surviving. This will generally be the surviving joint owner or succeeding owner, or otherwise the beneficiary in accordance with all the circumstances and the terms of the Contract. This party may differ from the beneficiary who was named by the contract owner in a written request and who would receive any remaining contractual benefits upon the death of the annuitant. This party may be paid in a single lump sum, or by other options, but should take distributions as required by minimum distribution rules of the federal tax law. If your spouse is the surviving joint owner, he or she may elect to continue the Contract as owner rather than taking a distribution under the Contract. (See "Nonqualified Annuity Contracts" in this prospectus.) In this case, all references to age in the "Death Proceeds Before the Maturity Date" section will be based on the contract owner's age rather than the annuitant's age. 11 21 DEATH PROCEEDS BEFORE THE MATURITY DATE STANDARD DEATH BENEFIT. Under the standard death benefit, if the annuitant dies BEFORE AGE 75 and before the maturity date, the Company will pay to the beneficiary a death benefit in an amount equal to the greatest of (1), (2) or (3) below, each reduced by any applicable premium tax or outstanding loans not previously deducted: 1) the contract value; 2) the total purchase payments made under the Contract; or 3) the contract value on the latest fifth contract year anniversary immediately preceding the date on which the Company receives due proof of death. IF THE ANNUITANT DIES ON OR AFTER AGE 75, BUT BEFORE AGE 85 (AGE 90 IN FLORIDA) and before the maturity date, the Company will pay to the Beneficiary a death benefit in an amount equal to the greatest of (1), (2) or (3) below, each reduced by any applicable premium tax or prior loans not previously deducted: 1) the contract value; 2) the total purchase payments made under the Contract; or 3) the contract value on the latest fifth contract year anniversary occurring on or before the annuitant's 75th birthday. IF THE ANNUITANT DIES ON OR AFTER AGE 85 and before the MATURITY DATE, the Company will pay to the beneficiary a death benefit in an amount equal to the contract value, less any applicable premium tax or outstanding loans. NEW ENHANCED DEATH BENEFIT FOR CONTRACTS ISSUED ON OR AFTER JUNE 1, 1997 (WHERE STATE APPROVAL HAS BEEN RECEIVED) IF THE ANNUITANT DIES BEFORE AGE 80 AND BEFORE THE MATURITY DATE, the Company will pay to the beneficiary the greatest of (1), (2) or (3) below, each reduced by any applicable premium tax or outstanding loans: 1) the contract value; 2) the Roll-Up Death Benefit Value (as described below) available at the Death Report Date; or 3) the maximum of all Step-Up Death Benefit Values (as described below) in effect on the Death Report Date. IF THE ANNUITANT DIES ON OR AFTER AGE 80, BUT BEFORE AGE 90 AND BEFORE THE maturity date, the Company will pay to the beneficiary the greatest of (1), (2) or (3) below, each reduced by any applicable premium tax or outstanding loans as of the Death Report Date: 1) the contract value; 2) the Roll-Up Death Benefit Value (as described below) available at the annuitant's 80th birthday, plus any additional purchase payments and less any Partial Surrender Reductions (as described below) which occur after the annuitant's 80th birthday; or 3) the maximum of all Step-Up Death Benefit Values (as described below) in effect on the Death Report Date which are associated with any contract date anniversary occurring on or before the annuitant's 80th birthday. IF THE ANNUITANT DIES ON OR AFTER AGE 90 AND BEFORE THE MATURITY DATE, the death benefit payable as of the Death Report Date will be the Contract Value, less any applicable premium tax or outstanding loans. 12 22 THE 5% ROLL-UP DEATH BENEFIT VALUE. On the contract date, the Roll-Up Death Benefit Value is equal to the purchase payment. On each contract date anniversary, the Roll-Up Death Benefit Value will be recalculated as follows: a) the Roll-Up Death Benefit Value as of the previous contract date anniversary; b) plus any purchase payments during the previous contract year; c) minus any Partial Surrender Reductions (as described below) during the previous contract year; d) the sum of (a) through (c) increased by 5% equals the new Roll-Up Death Benefit Value. On dates other than the contract date anniversary, the Roll-Up Death Benefit Value equals: a) the Roll-Up Death Benefit Value on the previous contract date anniversary; b) plus any purchase payments made since the previous contract date anniversary; c) minus any Partial Surrender Reductions (as described below) since the previous contract date anniversary. The maximum Roll-Up Death Benefit payable equals 200% of the difference between all purchase payments and all Partial Surrender Reductions (as described below). ANNUAL STEP-UP DEATH BENEFIT VALUE. A separate Step-Up Death Benefit Value will be established on each anniversary of the contract date which occurs on or prior to the Death Report Date and will initially equal the contract value on that anniversary. After a Step-Up Death Benefit Value has been established, it will be recalculated each time a purchase payment is made or a partial surrender is taken until the Death Report Date. Step-Up Death Benefit Values will be recalculated by increasing them by the amount of each applicable Purchase Payment and by reducing them by a Partial Surrender Reduction (as described below) for each applicable partial surrender. Recalculations of Step-Up Death Benefit Values related to any purchase payments or any partial surrenders will be made in the order that such purchase payment or partial surrenders occur. THE PARTIAL SURRENDER REDUCTION referenced above is equal to (1) the amount of a Death Benefit Value (Step-Up or Roll-Up) immediately prior to the reduction for the partial surrender, multiplied by (2) the amount of the partial surrender divided by the contract value immediately prior to the partial surrender. If state approval has not been received for the above New Enhanced Death Benefit, and for contracts sold prior to such approval, the following will apply: ENHANCED DEATH BENEFIT FOR CONTRACTS ISSUED BEFORE JUNE 1, 1997. Under the enhanced death benefit, if the annuitant dies BEFORE AGE 75 and before the maturity date, the Company will pay to the beneficiary a death benefit equal to the greater of (1) the guaranteed death benefit, or (2) the contract value less any applicable premium tax or outstanding loans. The guaranteed death benefit is equal to the purchase payments made to the Contract (minus surrenders, outstanding loans, and applicable premium tax) increased by 5% on each contract date anniversary, but not beyond the contract date anniversary following the annuitant's 75th birthday, with a maximum guaranteed death benefit of 200% of the total of purchase payments minus surrenders and outstanding loans and minus applicable premium tax. IF THE ANNUITANT DIES ON OR AFTER AGE 75, BUT BEFORE AGE 85 and before the MATURITY DATE, the Company will pay to the beneficiary a death benefit in an amount equal to the greater of (1) the guaranteed death benefit as of the annuitant's 75th birthday, plus additional purchase payments, minus surrenders and applicable premium tax; or (2) the contract value less any applicable premium tax and outstanding loans. IF THE ANNUITANT DIES ON OR AFTER AGE 85 but before the maturity date, the Company will pay to the Beneficiary a death benefit equal to the contract value less any applicable premium tax and outstanding loans. 13 23 NOTE: IF AN ANNUITANT WHO IS NOT ALSO AN OWNER OR A JOINT OWNER DIES PRIOR TO THE MATURITY DATE while this Contract is in effect and while the contingent annuitant is living: 1) the contract value will not be payable upon the annuitant's death; 2) the contingent annuitant becomes the annuitant; and 3) all other rights and benefits provided by this Contract will continue in effect. When a contingent annuitant becomes the annuitant, the maturity date remains the same as previously in effect, unless otherwise provided. DEATH PROCEEDS AFTER THE MATURITY DATE If the annuitant dies on or after the maturity date, the Company will pay the beneficiary a death benefit consisting of any benefit remaining under the annuity or income option then in effect. THE ANNUITY PERIOD - -------------------------------------------------------------------------------- MATURITY DATE Annuity payments will ordinarily begin on the maturity date stated in the Contract. If no maturity date is elected, the maturity date will be the annuitant's 70th birthday for qualified contracts and the annuitant's 75th birthday, or ten years after the contract date, if later, for nonqualified contracts. (In those states that require a later maturity date, the Company will comply. Refer to your Contract.) The maturity date is the date on which the Company will begin paying the first of a series of annuity or income payments in accordance with the settlement option selected by the contract owner. Annuity or income payments will begin on the maturity date unless the Contract has been fully surrendered or the proceeds have been paid to the beneficiary prior to that date. The Company may require proof that the annuitant is alive before annuity payments are made. For nonqualified Contracts, at least 30 days before the original maturity date, a contract owner may elect to extend the maturity date to any time prior to the annuitant's 85th birthday or, for qualified Contracts, to a later date with the Company's consent. Certain annuity options taken at the maturity date may be used to meet the minimum required distribution requirements of federal tax law, or a program of partial surrenders may be used instead. These mandatory distribution requirements take effect generally upon the death of the contract owner, or with qualified contracts upon the later of the April 1 following the contract owner's attainment of age 70 1/2 or the year of retirement; or upon the death of the contract owner. Independent tax advice should be sought regarding the election of minimum required distributions. ALLOCATION OF ANNUITY When an annuity option is elected, it may be elected as a variable annuity, a fixed annuity, or a combination of both. (In Florida, the variable annuity option is not available under this contract.) If, at the time annuity payments begin, no election has been made to the contrary, the contract value shall be applied to provide an annuity funded by the same funding options. At least 15 days prior to the maturity date, you may reallocate the basis on which annuity payments will be determined. (See "Transfers.") VARIABLE ANNUITY You may choose an annuity payout that fluctuates depending on the investment experience of variable funding options. The number of annuity units credited to the Contract is determined by dividing the first monthly annuity payment attributable to each funding option by the corresponding annuity unit value as of 14 days before the date annuity payments begin. The number of annuity units (but not their value) remains fixed during the annuity period. 14 24 DETERMINATION OF FIRST ANNUITY PAYMENT. The Contract contains tables used to determine the first monthly annuity payment. The amount applied to effect an annuity will be the contract value as of 14 days before the date annuity payments begin less any applicable premium taxes not previously deducted. The amount of the first monthly payment depends on the annuity option elected. A formula for determining the adjusted age is contained in the Contract. The total first monthly annuity payment is determined by multiplying the benefit per $1,000 of value shown in the tables of the Contract by the number of thousands of dollars of value of the Contract applied to that annuity option. The Company reserves the right to require satisfactory proof of age of any person on whose life annuity payments are based before making the first payment under any of the settlement options. DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS. The dollar amount of the second and subsequent annuity payments is not predetermined and may change from month to month based on the investment experience of the applicable funding option. The total amount of each annuity payment will be equal to the sum of the basic payments in each funding option. The actual amounts of these payments are determined by multiplying the number of annuity units credited to each funding option by the corresponding annuity unit value as of the date 14 days before payment is due. FIXED ANNUITY You may choose a fixed annuity that provides payments which do not vary during the annuity period. We will calculate the dollar amount of the first fixed annuity payment as described under "Variable Annuity" above, except that amount applied to effect the annuity will be the cash surrender value, determined as of the date annuity payments begin. If it would produce a larger payment, the first fixed annuity payment will be determined using the Life Annuity Tables in effect on the maturity date. PAYMENT OPTIONS - -------------------------------------------------------------------------------- ELECTION OF OPTIONS While the annuitant is alive, you can change your annuity or income option selection any time up to the maturity date. Income options differ from annuity options in that the amount of the payments made under income options are not based upon the life of any person. Therefore, the annuitant may outlive the payment period. Once annuity or income payments have begun, no further elections are allowed. During the annuitant's lifetime, if you do not elect otherwise before the maturity date, we will pay you (or another designated payee) the first of a series of monthly annuity payments based on the life of the annuitant, in accordance with Annuity Option 2 (Life Annuity with 120 monthly payments assured). For certain qualified contracts, Annuity Option 4 (Joint and Last Survivor joint Life Annuity -- Annuity Reduced on Death of Primary Payee) will be the automatic option as described in the contract. The minimum amount that can be placed under an annuity or income option will be $2,000 unless we agree to a lesser amount. If any monthly periodic payment due is less than $100, the Company reserves the right to make payments at less frequent intervals, or to pay the cash surrender value in a lump sum. On the maturity date, we will pay the amount due under the Contract in one lump sum (except in Florida, where this is not permitted), or in accordance with the payment option that you select. You must elect an option in writing, in a form satisfactory to the Company. Any election made during the lifetime of the annuitant must be made by the contract owner. 15 25 ANNUITY OPTIONS Subject to the conditions described in "Election of Options" above, all or any part of the cash surrender value of the Contract may be paid under one or more of the following annuity options. Payments under the annuity options may be elected on a monthly, quarterly, semiannual or annual basis. Option 1 -- Life Annuity -- No Refund. The Company will make annuity payments during the lifetime of the annuitant, terminating with the last payment preceding death. This option offers the maximum periodic payment, since there is no assurance of a minimum number of payments or provision for a death benefit for beneficiaries. Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Assured. The Company will make monthly annuity payments during the lifetime of the annuitant, with the agreement that if, at the death of that person, payments have been made for less than 120, 180 or 240 months, as elected, payments will be continued during the remainder of the period to the beneficiary. Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will make annuity payments during the joint lifetime of the two persons on whose lives payments are based, and during the lifetime of the survivor. No further payments will be made following the death of the survivor. Option 4 -- Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of Primary Payee. The Company will make annuity payments during the lifetime of the annuitant and a second person. One will be designated as the primary payee, the other will be designated as the secondary payee. On the death of the secondary payee, the Company will continue to make annuity payments to the primary payee in the same amount that would have been payable during the joint lifetime of the two persons. On the death of the primary payee, the Company will continue to make annuity payments to the secondary payee in an amount equal to 50% of the payments which would have been made during the lifetime of the primary payee. No further payments will be made once both payees have died. Option 5 -- Other Annuity Options. The Company will make any other arrangements for annuity payments as may be mutually agreed upon. INCOME OPTIONS Instead of one of the annuity options described above, and subject to the conditions described under "Election of Options," all or part of the Contract's cash surrender value (or, if required by state law, contract value) may be paid under one or more of the following income options, provided that they are consistent with federal tax law qualification requirements. Payments under the income options may be elected on a monthly, quarterly, semiannual or annual basis: Option 1 -- Payments of a Fixed Amount. The Company will make equal payments of the amount elected until the cash surrender value applied under this option has been exhausted. The first payment and all later payments will be paid from each funding option or the Fixed Account in proportion to the cash surrender value attributable to each funding option and/or Fixed Account. The final payment will include any amount insufficient to make another full payment. Option 2 -- Payments for a Fixed Period. The Company will make payments for the period selected. The amount of each payment will be equal to the remaining cash surrender value applied under this option divided by the number of remaining payments. Option 3 -- Other Income Options. The Company will make any other arrangements for Income Payments as may be mutually agreed upon. The amount applied to effect an income option will be the cash surrender value as of 14 days before the date income payments begins, less any applicable premium taxes not previously deducted and any applicable withdrawal charge. The cash surrender value used to determine the 16 26 amount of any income payment will be determined on the same basis as the cash surrender value during the accumulation period, including the deduction for mortality and expense risks and the Administrative Expense Charge. MISCELLANEOUS CONTRACT PROVISIONS - -------------------------------------------------------------------------------- RIGHT TO RETURN You may return the Contract for a full refund of the contract value (including charges) within twenty days after you receive it (the "right to return period"). You bear the investment risk during the right to return period; therefore, the contract value returned may be greater or less than your purchase payment. If the Contract is purchased as an Individual Retirement Annuity and is returned within the first seven days after delivery, your purchase payment will be refunded in full; during the remainder of the right to return period, the contract value (including charges) will be refunded. The contract value will be determined following the close of the business day on which we receive a written request for a refund. Where state law requires a longer period, or the return of purchase payments or other variation of this provision, the Company will comply. Refer to your contract for any state-specific information. TERMINATION No purchase payments after the first are required to keep the Contract in effect. However, the Company reserves the right to terminate the Contract on any business day if the contract value as of that date is less than $1,000 and no purchase payments have been made for at least two years, unless otherwise specified by state law. Termination will not occur until 31 days after the Company has mailed notice of termination to the contract owner at his or her last known address and to any assignee of record. If the Contract is terminated, the Company will pay to the contract owner the cash surrender value (contract value, in the states that so require), less any applicable administrative charge or premium tax. REQUIRED REPORTS As often as required by law, but at least once in each contract year before the due date of the first annuity payment, we will furnish a report showing the number of accumulation units credited to the Contract and the corresponding accumulation unit value(s) as of the date of the report for each funding option to which the contract owner has allocated amounts during the applicable period. The Company will keep all records required under federal or state laws. SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of any payment of any payment or determination of values benefit or on any business day (1) when the New York Stock Exchange ("Exchange") is closed; (2) when trading on the Exchange is restricted; (3) when an emergency exists as determined by the SEC so the sale of securities held in the Separate Account may not reasonably occur or so that the Company may not reasonably determine the value of the Separate Account's net assets; or (4) during any other period when the SEC, by order, so permits for the protection of security holders. TRANSFERS OF CONTRACT VALUES TO OTHER ANNUITIES We may permit contract owners to transfer their contract values into other annuities offered by us or our affiliated insurance companies under rules then in effect. 17 27 THE SEPARATE ACCOUNT - -------------------------------------------------------------------------------- The Travelers Fund BD II for Variable Annuities ("Fund BD II") was established on October 22, 1993 and is registered with the SEC as a unit investment trust ("separate account") under the Investment Company Act of 1940, as amended (the "1940 Act"). The assets of Fund BD II will be invested exclusively in the shares of the variable funding options. The assets of Fund BD II are held for the exclusive benefit of the owners of this separate account, according to the laws of Connecticut. Income, gains and losses, whether or not realized, from assets allocated to Fund BD II are, in accordance with the Contracts, credited to or charged against Fund BD II without regard to other income, gains and losses of the Company. The assets held by Fund BD II are not chargeable with liabilities arising out of any other business which the Company may conduct. Obligations under the Contract are obligations of the Company. All investment income and other distributions of the funding options are payable to Fund BD II. All such income and/or distributions are reinvested in shares of the respective funding options at net asset value. Shares of the funding options are currently sold only to life insurance company separate accounts to fund variable annuity and variable life insurance contracts. Fund shares are not sold to the general public. MIXED AND SHARED FUNDING It is conceivable that in the future it may be disadvantageous for both variable annuity and variable life insurance separate accounts, or for variable separate accounts of different insurance companies, to invest simultaneously in the same portfolios (called "mixed" and "shared" funding). Currently neither the insurance companies nor the portfolios foresee any such disadvantages to the companies or to variable contract owners. Each portfolio's board of trustees, directors or managers intends to monitor events in order to identify any material conflicts between such policy owners and to determine what action, if any, should be taken in response thereto. PERFORMANCE INFORMATION From time to time, we may advertise different types of historical performance for the Underlying Funds available through Fund BD II. The Company may advertise the "standardized average annual total returns" of each, calculated in a manner prescribed by the SEC, as well as the "non-standardized total return," as described below. "Standardized average annual total return" will show the percentage rate of return of a hypothetical initial investment of $1,000 for the most recent one-, five- and ten-year periods (or fractional periods thereof). This standardized calculation reflects the deduction of all applicable charges made to the Contract including the withdrawal charge. It excludes premium taxes which may be imposed by certain states. "Non-standardized total return" will be calculated in a similar manner, except non-standardized total returns will not reflect the deduction of any applicable withdrawal charge or the $30 annual contract administrative charge, which would decrease the level of performance shown if reflected in these calculations. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. Advertisements may include data comparing performance to well-known indices of market performance (including, but not limited to, the Dow Jones Industrial Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan Stanley Capital International's EAFE Index). Advertisements may also include published editorial comments and performance rankings compiled by independent organizations (including, but not limited to, Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that monitor the performance of Fund BD II and the funding options. 18 28 The total return quotations are based upon historical earnings and are not necessarily representative of future performance. A contract owner's contract value at redemption may be more or less than original cost. The SAI contains more detailed information about these performance calculations, including actual examples of each type of performance advertised. FEDERAL TAX CONSIDERATIONS - -------------------------------------------------------------------------------- The following description of the federal income tax consequences under this Contract is not exhaustive and is not intended to cover all situations and is not meant to provide tax advice. Because of the complexity of the law and the fact that the tax results will vary depending on many factors, you should consult your tax advisor regarding your personal situation. For your information, a more detailed discussion is contained in the SAI. GENERAL TAXATION OF ANNUITIES Congress has recognized the value of saving for retirement by providing certain tax benefits, in the form of tax deferral, for money put into an annuity. The Internal Revenue Code (Code) governs how this money is ultimately taxed, depending upon the type of contract, qualified or non-qualified, and the manner in which the money is distributed, as briefly described below. TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED If you purchase an annuity contract with proceeds of an eligible rollover distribution from any pension plan, specially sponsored program, or individual retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a qualified contract. Some examples of qualified contracts are: IRAs, 403(b) annuities, pension and profit-sharing plans (including 401(k) plans), and Keogh Plans and certain other qualified deferred compensation plans. If you purchase the contract on an individual basis with after-tax dollars and not under one of the programs described above, your contract is referred to as nonqualified. NONQUALIFIED ANNUITY CONTRACTS As the owner of a nonqualified annuity, you do not receive any tax benefit (deduction or deferral of income) on purchase payments, but you will not be taxed on increases in the value of your contract until a distribution occurs -- either as a withdrawal (distribution made prior to the maturity date), or as annuity payments. When a withdrawal is made, you are taxed on the amount of the withdrawal that is considered earnings. Similarly, when you receive an annuity payment, part of each payment is considered a return of your purchase payments and will not be taxed. The remaining portion of the annuity payment (i.e., any earnings) will be considered ordinary income for tax purposes. If a nonqualified annuity is owned by other than an individual, however, (e.g., by a corporation), increases in the value of the contract attributable to purchase payments made after February 28, 1986 are includable in income annually. Furthermore, for contracts issued after April 22, 1987, if you transfer the contract without adequate consideration, all deferred increases in value will be includable in your income at the time of the transfer. If you make a partial withdrawal, this money will generally be taxed as first coming from earnings, (income in the contract), and then from your purchase payments. These withdrawn earnings are includable in your income. (See "Penalty Tax for Premature Distributions" below). There is income in the contract to the extent the cash value exceeds your investment in the contract. The investment in the contract equals the total purchase payments you paid less any amount received previously which was excludable from gross income. Any direct or indirect borrowing against the 19 29 value of the contract or pledging of the contract as security for a loan will be treated as a cash distribution under the tax law. Federal tax law requires that nonqualified annuity contracts meet minimum mandatory distribution requirements upon the death of the contract owner, including the first of joint owners. If these requirements are not met, the surviving joint owner, or the beneficiary, will have to pay taxes prior to distribution. The distribution required depends, among other things, upon whether an annuity option is elected or whether the new contract owner is the surviving spouse. We will administer Contracts in accordance with these rules and we will notify you when you should begin receiving payments. QUALIFIED ANNUITY CONTRACTS Under a qualified annuity, since amounts paid into the contract have not yet been taxed, the full amount of all distributions, including lump-sum withdrawals and annuity payments, are taxed at the ordinary income tax rate, unless the distribution is transferred to an eligible rollover account or contract. The Contract is available as a vehicle for IRA rollovers and for other qualified contracts. There are special rules which govern the taxation of qualified contracts, including requirements for mandatory distributions and contribution limits. We have provided a more complete discussion in the SAI. PENALTY TAX FOR PREMATURE DISTRIBUTIONS Taxable distributions taken before the contract owner has reached the age of 59 1/2 will be subject to a 10% additional tax penalty unless the distribution is taken in a series of periodic distributions, for life or life expectancy, or unless the distribution follows the death or disability of the contract owner. Other exceptions may be available in certain tax-qualified plans. The Code requires that any nonqualified variable annuity contracts based on a separate account shall not be treated as an annuity for any period if investments made in the account are not adequately diversified. Final tax regulations define how separate accounts must be diversified. The Company monitors the diversification of investments constantly and believes that its accounts are adequately diversified. The consequence of any failure is essentially the loss to the Contract Owner of tax deferred treatment. The Company intends to administer all contracts subject to this provision of law in a manner that will maintain adequate diversification. DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES The Code requires that any nonqualified variable annuity contracts based on a separate account shall not be treated as an annuity for any period if investments made in the account are not adequately diversified. Final tax regulations define how separate accounts must be diversified. The Company monitors the diversification of investments constantly and believes that its accounts are adequately diversified. The consequence of any failure is essentially the loss to the Contract Owner of tax deferred treatment. The Company intends to administer all contracts subject to this provision of law in a manner that will maintain adequate diversification. OWNERSHIP OF THE INVESTMENTS Assets in the separate accounts, also referred to as segregated asset accounts must owned by the Company and not by the Contract Owner for federal income tax purposes. Otherwise, the deferral of taxes is lost and income and gains from the accounts would be includible annually in the Contract Owner's gross income. The Internal Revenue Service has stated in published rulings that a variable contract owner will be considered the owner of the assets of a segregated asset account if the owner possesses an incident of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department announced, in connection with the issuance of temporary 20 30 regulations concerning investment diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor, rather than the insurance company, to be treated as the owner of the assets of the account." This announcement, dated September 15, 1986, also stated that the guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular subaccounts [of a segregated asset account] without being treated as owners of the underlying assets." As of the date of this prospectus, no such guidance has been issued. The Company does not know if such guidance will be issued, or if it is, what standards it may set. Furthermore, the Company does not know if such guidance may be issued with retroactive effect. New regulations are generally issued with a prospective-only effect as to future sales or as to future voluntary transactions in existing contracts. The Company therefore reserves the right to modify the contract as necessary to attempt to prevent Contract Owners from being considered the owner of the assets of the separate account. MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS Federal tax law requires that minimum annual distributions begin by April 1st of the calendar year following the calendar year in which an IRA owner attains age 70 1/2. Participants in qualified plans and 403(b) annuities may defer minimum distributions until the later of April 1st of the calendar year following the calendar year in which they attain age 70 1/2. Distributions must begin or be continued according to required patterns following the death of the contract owner or annuitant of both qualified and nonqualified annuities. OTHER INFORMATION - -------------------------------------------------------------------------------- THE INSURANCE COMPANY The Travelers Life and Annuity Company (the "Company") is a stock insurance company chartered in 1973 in the State of Connecticut and continuously engaged in the insurance business since that time. The Company is licensed to conduct a life insurance business in a majority of the states of the United States, and intends to seek licensure in the remaining states, except New York. The Company is an indirect wholly owned subsidiary of Travelers Group Inc., a financial services holding company. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS The Company intends to sell the Contracts in all jurisdictions where it is licensed to do business and where the Contract is approved. The Contracts will be sold by life insurance sales agents who represent the Company, and who are licensed registered representatives of the Company or certain other registered broker-dealers. Such sales representatives may receive compensation of up to 6.5% of the payments made under the Contracts. From time to time the Company may pay or permit other promotional incentives, in cash, credit or other compensation. Any sales representative or employee will have been qualified to sell Variable Annuities under applicable federal and state laws. Each broker-dealer is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, and all are members of the National Association of Securities Dealers, Inc. Tower Square Securities, Inc., an affiliate of the Company, is the principal underwriter for the Contracts; however, it is currently anticipated that an affiliated broker-dealer may become the principal underwriter for the Contracts during 1997. 21 31 CONFORMITY WITH STATE AND FEDERAL LAWS The Contract is governed by the laws of the state in which it is delivered. Any paid-up annuity, cash surrender value or death benefits that are available under the Contract are not less than the minimum benefits required by the statutes of the state in which the Contract is delivered. We reserve the right to make any changes, including retroactive changes, in the Contract to the extent that the change is required to meet the requirements of any law or regulation issued by any governmental agency to which the company, the Contract or the contract owner is subject. VOTING RIGHTS The Company is the legal owner of the shares of the funding options. However, we believe that when a funding option solicits proxies in conjunction with a vote of shareholders we are required to obtain from you and from other owners instructions on how to vote those shares. When we receive those instructions, we will vote all of the shares we own in proportion to those instructions. This will also include any shares we own on our own behalf. Should we determine that we are no longer required to comply with the above, we will vote on the shares in our own right. LEGAL PROCEEDINGS AND OPINIONS There are no pending material legal proceedings affecting Fund BD II. Legal matters in connection with the federal laws and regulations affecting the issue and sale of the Contract described in this Prospectus, as well as the organization of the Company, its authority to issue variable annuity contracts under Connecticut law and the validity of the forms of the variable annuity contracts under Connecticut law, have been reviewed by the General Counsel of the Company. 22 32 APPENDIX A - -------------------------------------------------------------------------------- CONDENSED FINANCIAL INFORMATION THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES ACCUMULATION UNIT VALUES
PERIOD FROM NOVEMBER 8, 1995 YEAR ENDING (DATE OPERATIONS COMMENCED) DECEMBER 31, 1996 TO DECEMBER 31, 1995 STANDARD ENHANCED STANDARD ENHANCED - --------------------------------------------------------------------------------------------------------------------------------- TRAVELERS SERIES FUND INC. ALLIANCE GROWTH PORTFOLIO Unit Value at beginning of period $ 1.396 $ 1.390 $ 1.047 $ 1.046 Unit Value at end of period 1.785 1.772 1.396 1.390 Number of units outstanding at end of period 24,031,009 3,613,086 1,573,668 452,737 VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO Unit Value at beginning of period $ 1.362 $ 1.356 $ 1.039 $ 1.037 Unit Value at end of period 1.655 1.643 1.362 1.356 Number of units outstanding at end of period 11,360,286 1,644,330 764,534 329,130 TBC MANAGED INCOME PORTFOLIO Unit Value at beginning of period $ 1.142 $ 1.137 $ 0.997 $ 0.995 Unit Value at end of period 1.163 1.154 1.142 1.137 Number of units outstanding at end of period 2,635,535 265,598 225,876 89,569 G.T. GLOBAL STRATEGIC INCOME PORTFOLIO Unit Value at beginning of period $ 1.121 $ 1.116 $ 0.945 $ 0.944 Unit Value at end of period 1.316 1.306 1.121 1.116 Number of units outstanding at end of period 1,832,502 463,308 32,765 79,526 SMITH BARNEY HIGH INCOME PORTFOLIO Unit Value at beginning of period $ 1.162 $ 1.157 $ 0.988 $ 0.986 Unit Value at end of period 1.300 1.291 1.162 1.157 Number of units outstanding at end of period 7,719,068 970,188 242,593 331,521 SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO Unit Value at beginning of period $ 1.050 $ 1.046 $ 0.955 $ 0.954 Unit Value at end of period 1.222 1.213 1.050 1.046 Number of units outstanding at end of period 16,854,894 2,009,974 556,129 200,940 SMITH BARNEY INCOME AND GROWTH PORTFOLIO Unit Value at beginning of period $ 1.291 $ 1.285 $ 0.981 $ 0.980 Unit Value at end of period 1.528 1.517 1.291 1.285 Number of units outstanding at end of period 11,905,953 1,606,074 596,201 146,469 SMITH BARNEY MONEY MARKET PORTFOLIO Unit Value at beginning of period $ 1.058 $ 1.054 $ 1.016 $ 1.014 Unit Value at end of period 1.098 1.090 1.058 1.054 Number of units outstanding at end of period 22,961,508 2,362,442 2,373,923 819,856 PUTNAM DIVERSIFIED INCOME PORTFOLIO Unit Value at beginning of period $ 1.170 $ 1.165 $ 1.009 $ 1.007 Unit Value at end of period 1.252 1.243 1.170 1.165 Number of units outstanding at end of period 10,424,494 1,460,865 823,783 126,460 SMITH BARNEY PACIFIC BASIN PORTFOLIO Unit Value at beginning of period $ 0.910 $ 0.906 $ 0.899 $ 0.898 Unit Value at end of period 0.983 0.977 0.910 0.906 Number of units outstanding at end of period 2,754,609 467,106 37,278 19,544 MFS TOTAL RETURN PORTFOLIO Unit Value at beginning of period $ 1.216 $ 1.211 $ 0.979 $ 0.977 Unit Value at end of period 1.376 1.366 1.216 1.211 Number of units outstanding at end of period 16,650,570 1,810,076 912,547 101,550 AIM CAPITAL APPRECIATION PORTFOLIO Unit Value at beginning of period $ 0.958 $ 0.957 $ 1.000 $ 1.000 Unit Value at end of period 1.088 1.084 0.958 0.957 Number of units outstanding at end of period 29,460,488 4,246,308 2,536,732 908,266 THE TRAVELERS SERIES TRUST MFS EMERGING GROWTH PORTFOLIO Unit Value at beginning of period $ 1.000 $ 1.000 $ -- $ -- Unit Value at end of period 1.005 1.005 -- -- Number of units outstanding at end of period 2,505,629 466,025 -- -- SMITH BARNEY SERIES FUND: TOTAL RETURN PORTFOLIO Unit Value at beginning of period $ 1.251 $ 1.247 $ 1.010 $ 1.010 Unit Value at end of period 1.550 1.541 1.251 1.247 Number of units outstanding at end of period 14,921,227 2,043,711 651,440 148,894
The financial statements of Fund BD II are contained in the Annual Report to Contract Owners, which is incorporated by reference in the Statement of Additional Information. The financial statements of The Travelers Life and Annuity Company are contained in the Statement of Additional Information. 23 33 APPENDIX B - -------------------------------------------------------------------------------- THE FIXED ACCOUNT The Fixed Account is secured by part of the general assets of the Company. The general assets of the Company include all assets of the Company other than those held in Fund BD II or any other separate account sponsored by the Company or its affiliates. The staff of the SEC does not generally review the disclosure in the prospectus relating to the Fixed Account. Disclosure regarding the Fixed Account and the general account may, however, be subject to certain provisions of the federal securities laws relating to the accuracy and completeness of statements made in the prospectus. Under the Fixed Account, the Company assumes the risk of investment gain or loss, guarantees a specified interest rate, and guarantees a specified periodic annuity payment. The investment gain or loss of Fund BD II or any of the funding options does not affect the Fixed Account portion of the contract owner's contract value, or the dollar amount of fixed annuity payments made under any payout option. We guarantee that, at any time, the Fixed Account contract value will not be less than the amount of the purchase payments allocated to the Fixed Account, plus interest credited as described above, less any applicable premium taxes or prior surrenders. If the contract owner effects a surrender, the amount available from the Fixed Account will be reduced by any applicable withdrawal charge as described under "Charges and Deductions" in this prospectus. Purchase payments allocated to the Fixed Account and any transfers made to the Fixed Account become part of the Company's general account which supports insurance and annuity obligations. Neither the general account nor any interest therein is registered under, nor subject to the provisions of the Securities Act of 1933 or Investment Company Act of 1940. We will invest the assets of the Fixed Account at our discretion. Investment income from such Fixed Account assets will be allocated to us and to the Contracts participating in the Fixed Account. Investment income from the Fixed Account allocated to us includes compensation for mortality and expense risks borne by us in connection with Fixed Account Contracts. The amount of such investment income allocated to the Contracts will vary from year to year in our sole discretion at such rate or rates as the Company prospectively declares from time to time. The initial rate for any allocations into the Fixed Account is guaranteed for one year from the date of such allocation. Subsequent renewal rates will be guaranteed for the calendar quarter. We also guarantee that for the life of the Contract we will credit interest at not less than 3% per year. Any interest credited to amounts allocated to the Fixed Account in excess of 3% per year will be determined in our sole discretion. You assume the risk that interest credit to the Fixed Account may not exceed the minimum guarantee of 3% for any given year. TRANSFERS You may make transfers from the Fixed Account to any other available funding option(s) twice a year during the 30 days following the semi-annual anniversary of the Contract effective date. The transfers are limited to an amount of up to 15% of the Fixed Account Value on the semi-annual Contract effective date anniversary. (This restriction does not apply to transfers from the Dollar Cost Averaging Program.) Amounts previously transferred from the Fixed Account to other funding options may not be transferred back to the Fixed Account for a period of at least 6 months from the date of transfer. We reserve the right to waive either of these restrictions. Automated transfers from the Fixed Account to any of the funding options may begin at any time. Automated transfers from the Fixed Account may not deplete your Fixed Account value in a period of less than twelve months from your enrollment in the Dollar Cost Averaging program. 24 34 APPENDIX C - -------------------------------------------------------------------------------- CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The Statement of Additional Information contains more specific information and financial statements relating to The Travelers Life and Annuity Company. A list of the contents of the Statement of Additional Information is set forth below: The Insurance Company Principal Underwriter Distribution and Management Agreement Valuation of Assets Performance Data Independent Accountants Financial Statements - -------------------------------------------------------------------------------- Copies of the Statement of Additional Information dated May 1, 1997 (Form No. L-12540S) are available without charge. To request a copy, please clip this coupon on the dotted line, enter your name and address in the spaces provided below, and mail to: The Travelers Life and Annuity Company, Annuity Services, One Tower Square, Hartford, Connecticut 06183-9061. Name: - -------------------------------------------------------------------------------- Address: ================================================================================ 25 35 VINTAGE STATEMENT OF ADDITIONAL INFORMATION dated May 1, 1997 for THE TRAVELERS FUND BDII FOR VARIABLE ANNUITIES ISSUED BY THE TRAVELERS LIFE AND ANNUITY COMPANY This Statement of Additional Information ("SAI") is not a prospectus but relates to, and should be read in conjunction with, the Individual Variable Annuity Contract Prospectus dated May 1, 1997. A copy of the Prospectus may be obtained by writing to The Travelers Life and Annuity Company, Annuity Services, One Tower Square, Hartford, Connecticut 06183-9061, or by calling 1-800-842-8573. TABLE OF CONTENTS THE INSURANCE COMPANY.................................................. 2 PRINCIPAL UNDERWRITER.................................................. 2 DISTRIBUTION AND MANAGEMENT AGREEMENT.................................. 2 PERFORMANCE INFORMATION................................................ 2 VALUATION OF ASSETS.................................................... 5 TELEPHONE TRANSFERS.................................................... 6 FEDERAL TAX CONSIDERATIONS............................................. 6 INDEPENDENT ACCOUNTANTS................................................ 9 FINANCIAL STATEMENTS................................................... F-1
36 THE INSURANCE COMPANY The Travelers Life and Annuity Company (the "Company"), is a stock insurance company chartered in 1973 in Connecticut. It is a wholly owned subsidiary of The Travelers Insurance Company, which is indirectly owned, through a wholly owned subsidiary, by Travelers Group Inc., a financial services holding company engaged, through its subsidiaries, principally in four business segments: (i) Investment Services; (ii) Consumer Finance Services; (iii) Life Insurance Services; and (iv) Property and Casualty Insurance Services. PRINCIPAL UNDERWRITER Tower Square Securities, Inc. ("Tower Square"), a wholly-owned subsidiary of the Company, serves as principal underwriter for Fund BDII and the Contracts. The offering is continuous. Tower Square's principal executive offices are located at One Tower Square, Hartford, Connecticut. It is anticipated that an affiliated broker-dealer will become the principal underwriter during 1997. DISTRIBUTION AND MANAGEMENT AGREEMENT Under the terms of the Distribution and Management Agreement among Fund BDII, the Company and Tower Square, the Company provides all administrative services and mortality and expense risk guarantees related to variable annuity contracts sold by the Company in connection with the Fund BDII. Tower Square performs the sales functions related to the Contracts. The Company reimburses Tower Square for commissions paid, other sales expenses and certain overhead expenses connected with sales functions. The Company also pays all costs (including costs associated with the preparation of sales literature); all costs of qualifying Fund BDII and the variable annuity contract with regulatory authorities; the costs of proxy solicitation; and all custodian, accountant's and legal fees. The Company also provides without cost to the Fund BDII all necessary office space, facilities, and personnel to manage its affairs. PERFORMANCE INFORMATION From time to time, the Company may advertise several types of historical performance for funding options of Fund BDII. The Company may advertise the "standardized average annual total returns" of the funding options available through the Separate Account, calculated in a manner prescribed by the Securities and Exchange Commission, as well as the "non-standardized total return," as described below: 2 37 STANDARDIZED METHOD. Quotations of average annual total return are computed according to a formula in which a hypothetical initial investment of $1,000 is allocated to an funding option, and then related to ending redeemable values over one-, five- and ten-year periods, or inception, if a funding option has not been in existence for one of the prescribed periods. These quotations reflect the deduction of all recurring charges during each period (on a pro rata basis in the case of fractional periods). The deduction for the annual contract administrative charge ($30) is converted to a percentage of assets based on the actual fee collected, divided by the average net assets per contract sold under the Prospectus to which this SAI relates. Each quotation assumes a total redemption at the end of each period with the assessment of any applicable withdrawal charge at that time. NON-STANDARDIZED METHOD. Non-standardized "total return" will be calculated in a manner similar to "standardized" as describe above. However, non-standardized total return will not reflect the deduction of any applicable withdrawal charge or the $30 annual contract administrative charge, which, if reflected, would decrease the level of performance shown. The withdrawal charge is not reflected because the Contract is designed for long-term investment. GENERAL. Within the guidelines prescribed by the SEC and the National Association of Securities Dealers, Inc. ("NASD"), performance information may be quoted numerically or may be presented in a table, graph or other illustration. Advertisements may include data comparing performance to well-known indices of market performance (including, but not limited to, the Dow Jones Industrial Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan Stanley Capital International's EAFE Index). Advertisements may also include published editorial comments and performance rankings compiled by independent organizations (including, but not limited to, Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that monitor the performance of Fund BDII and the funding options. For funding options that were in existence before they became available under Fund BDII, the standardized average total return and non-standardized total return quotations will show the investment performance that such funding options would have achieved (reduced by the applicable charges) had they been held available under the Contract for the period quoted. The total return quotations are based upon historical earnings and are not necessarily representative of future performance. A Contract Owner's Contract Value at redemption may be more or less than original cost. Average annual total returns for each of the funding options available under Fund BDII computed according to the standardized and non-standardized methods for the period ending December 31, 1996 are set forth in the following table. 3 38 STANDARDIZED TOTAL RETURN CALCULATIONS
- ---------------------------------------------------------------------------------------------- Portfolio Name Regular Since Enhanced Since Inception 1 Year Inception 1 Year Inception Date - ---------------------------------------------------------------------------------------------- Smith Barney Income and 12.36% 16.33% 12.02% 15.99% 6/20/94 Growth Alliance Growth 21.85% 23.97% 21.49% 23.61% 6/20/94 American Capital 15.47% 20.22% 15.13% 19.87% 6/21/94 Enterprise Smith Barney 10.32% 6.07% 9.99% 5.76% 6/20/94 International Equity Smith Barney Pacific Basin 2.03% -3.08% 1.73% -3.35% 6/21/94 TBC Managed Income -4.21% 3.94% -4.49% 3.63% 6/28/94 Putnam Diversified Income 0.95% 7.14% 0.64% 6.82% 6/20/94 G.T. Global Strategic 11.39% 9.39% 11.06% 9.07% 6/21/94 Income Smith Barney High Income 5.80% 8.85% 5.48% 8.52% 6/22/94 MFS Total Return 7.14% 11.42% 6.82% 11.09% 6/20/94 Portfolio Smith Barney Money Market -2.29% 1.45% -2.58% 1.14% 6/20/94 AIM Capital Appreciation 7.55% 2.24% 7.23% 1.94% 10/10/95 Smith Barney Total Return 17.93% 17.40% 17.58% 17.06% 12/3/93 MFS Emerging Growth N/A -5.48% N/A -5.52% 8/30/96
NONSTANDARDIZED TOTAL RETURN CALCULATIONS
- ---------------------------------------------------------------------------------------------- Regular Since Enhanced Since Inception Portfolio Name 1 Year Inception 1 Year Inception Date - ---------------------------------------------------------------------------------------------- Smith Barney Income and 18.38% 18.21% 18.05% 17.88% 6/20/94 Growth Alliance Growth 27.87% 25.68% 27.51% 25.33% 6/20/94 American Capital 21.49% 22.01% 21.15% 21.67% 6/21/94 Enterprise Smith Barney 16.34% 8.23% 16.01% 7.93% 6/20/94 International Equity Smith Barney Pacific Basin 8.05% -0.66% 7.75% -0.93% 6/21/94 TBC Managed Income 1.82% 6.18% 1.53% 5.88% 6/28/94 Putnam Diversified Income 6.97% 9.26% 6.67% 8.96% 6/20/94 G.T. Global Strategic 17.41% 11.45% 17.08% 11.14% 6/21/94 Income Smith Barney High Income 11.82% 10.92% 11.50% 10.61% 6/22/94 MFS Total Return 13.16% 13.42% 12.84% 13.10% 6/20/94 Portfolio Smith Barney Money Market 3.73% 3.75% 3.44% 3.46% 6/20/94 AIM Capital Appreciation 13.57% 7.11% 13.25% 6.81% 10/10/95 Smith Barney Total Return 23.96% 18.13% 23.61% 17.80% 12/3/93 MFS Emerging Growth N/A 0.53% N/A 0.48% 8/30/96
4 39 VALUATION OF ASSETS The value of the assets of each funding option is determined on each business as of the close of the New York Stock Exchange. Each security traded on a national securities exchange is valued at the last reported sale price on the business day. If there has been no sale on that day, then the value of the security is taken to be the mean between the reported bid and asked prices on the business day or on the basis of quotations received from a reputable broker or any other recognized source. Any security not traded on a securities exchange but traded in the over-the-counter-market and for which market quotations are readily available is valued at the mean between the quoted bid and asked prices on the business day or on the basis of quotations received from a reputable broker or any other recognized source. Securities traded on the over-the-counter-market and listed securities with no reported sales are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. Short-term investments for which a quoted market price is available are valued at market. Short-term investments maturing in more than sixty days for which there is no reliable quoted market price are valued by "marking to market" (computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity.) "Marking to market" takes in account unrealized appreciation or depreciation due to changes in interest rates or other factors which would influence the current fair values of such securities. Short-term investments maturing in sixty days or less for which there is no reliable quoted market price are valued at amortized cost which approximates market. NET INVESTMENT FACTOR THE CONTRACT VALUE: The value of an Accumulation Unit on any business day is determined by multiplying the value on the immediately preceding business day by the net investment factor for the valuation period just ended. The net investment factor is used to measure the investment performance of a funding option from one valuation period to the next. The net investment factor for a funding option for any valuation period is equal to the sum of 1.000000 plus the net investment rate (the gross investment rate less any applicable funding option deductions during the valuation period relating to the mortality and expense risk charge and the administrative expense charge). The gross investment rate of a funding option is equal to (a) minus (b), divided by (c) where: (a) = investment income plus capital gains and losses (whether realized or unrealized); (b) = any deduction for applicable taxes (presently zero); and (c) = the value of the assets of the funding option at the beginning of the valuation period. The gross investment rate may be either positive or negative. A Sub-Account's assets are based on the net asset value of the funding option, and investment income includes any distribution whose ex-dividend date occurs during the valuation period. 5 40 ACCUMULATION UNIT VALUE. The value of the accumulation unit for each funding option was initially established at $1.00. The value of an accumulation unit on any business day is determined by multiplying the value on the preceding business day by the net investment factor for the business day just ended. The net investment factor is calculated for each funding option and takes into account the investment performance, expenses and the deduction of certain expenses. ANNUITY UNIT VALUE. The initial Annuity Unit Value applicable to each funding option was established at $1.00. An Annuity Unit Value as of any business day is equal to (a) the value of the Annuity Unit on the preceding business day, multiplied by (b) the corresponding net investment factor for the business day just ended, divided by (c) the assumed net investment factor for the valuation period. (For example, the assumed net investment factor based on an annual assumed net investment rate of 3.0% for a valuation period of one day is 1.000081 and, for a period of two days, is 1.000081 x 1.000081.) TELEPHONE TRANSFERS A contract owner may place a transfer request by telephone. The telephone transfer privilege is available automatically; no special election is necessary for a contract owner to have this privilege. All transfers must be in accordance with the terms of the Contract. Transfer instructions are currently accepted on each business day between 9:00 a.m. and 4:00 p.m., Eastern time, at 1-800-842-8573. Once instructions have been accepted, they may not be rescinded; however, new telephone instructions may be given the following day. If the transfer instructions are not in good order, the Company will not execute the transfer and will promptly notify the caller. The Company will make a reasonable effort to record each telephone transfer conversation, but in the event that no recording is effective or available, the contract owner will remain liable for each telephone transfer effected. Additionally, the Company is not liable for acting upon instructions believed to be genuine and in accordance with the procedures described above. As a result of this policy, the contract owner may bear the risk of loss in the event that the Company follows instructions that prove to be fraudulent. FEDERAL TAX CONSIDERATIONS The following description of the federal income tax consequences under this Contract is not exhaustive and is not intended to cover all situations. Because of the complexity of the law and the fact that the tax results will vary according to the factual status of the individual involved, tax advice may be needed by a person contemplating purchase of an annuity contract and by a contract owner or beneficiary who may make elections under a contract. For further information, please consult a qualified tax adviser. MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS Federal tax law requires that minimum annual distributions begin by April 1st of the calendar year following the calendar year in which a participant under a qualified plan, a Section 403(b) annuity, or an IRA attains age 701/2. Distributions must also begin or be continued according to required patterns following the death of the contract owner or the annuitant. 6 41 NONQUALIFIED ANNUITY CONTRACTS Individuals may purchase tax-deferred annuities without tax law funding limits. The purchase payments receive no tax benefit, deduction or deferral, but increases in the value of the contract are generally deferred from tax until distribution. If a nonqualified annuity is owned by other than an individual, however, (e.g., by a corporation), the increases in value attributable to purchase payments made after February 28, 1986 are includable in income annually. Furthermore, for contracts issued after April 22, 1987, all deferred increases in value will be includable in the income of a contract owner when the contract owner transfers the contract without adequate consideration. If two or more annuity contracts are purchased from the same insurer within the same calendar year, distributions from any of them will be taxed based upon the amount of income in all of the same calendar year series of annuities. This will generally have the effect of causing taxes to be paid sooner on the deferred gain in the contracts. Those receiving partial distributions made before the maturity date will generally be taxed on an income-first basis to the extent of income in the contract. If you are exchanging another annuity contract for this annuity, certain pre-August 14, 1982 deposits into an annuity contract that have been placed in the contract by means of a tax-deferred exchange under Section 1035 of the Code may be withdrawn first without income tax liability. This information on deposits must be provided to the Company by the other insurance company at the time of the exchange. There is income in the contract generally to the extent the cash value exceeds the investment in the contract. The investment in the contract is equal to the amount of premiums paid less any amount received previously which was excludable from gross income. Any direct or indirect borrowing against the value of the contract or pledging of the contract as security for a loan will be treated as a cash distribution under the tax law. The federal tax law requires that nonqualified annuity contracts meet minimum mandatory distribution requirements upon the death of the contract owner, including the first of joint owners. Failure to meet these requirements will cause the surviving joint owner, or the beneficiary to lose the tax benefits associated with annuity contracts, i.e., primarily the tax deferral prior to distribution. The distribution required depends, among other things, upon whether an annuity option is elected or whether the new contract owner is the surviving spouse. Contracts will be administered by the Company in accordance with these rules and the Company will make a notification when payments should be commenced. INDIVIDUAL RETIREMENT ANNUITIES To the extent of earned income for the year and not exceeding $2,000 per individual, an individual may make deductible contributions to an individual retirement annuity (IRA). There are certain limits on the deductible amount based on the adjusted gross income of the individual and spouse and based on their participation in a retirement plan. If an individual is married and the spouse does not have earned income, the individual may establish IRAs for the individual and spouse. Purchase payments may then be made annually into IRAs for both spouses in the maximum amount of 100% of earned income up to a combined limit of $4,000. 7 42 The Code provides for the purchase of a Simplified Employee Pension (SEP) plan. A SEP is funded through an IRA with an annual employer contribution limit of 15% of compensation up to $30,000 for each participant. SIMPLE Plan IRA Form Effective January 1, 1997, employers may establish a savings incentive match plan for employees ("SIMPLE plan") under which employees can make elective salary reduction contributions to an IRA based on a percentage of compensation of up to $6,000. (Alternatively, the employer can establish a SIMPLE cash or deferred arrangement under IRS Section 401(k)). Under a SIMPLE plan IRA, the employer must either make a matching contributionof 100% on the first 3% or 7% contribution for all eligible employees. Early withdrawals are subject to the 10% early withdrawal penalty generally applicable to IRAs, except that an early withdrawal by an employee under a SIMPLE plan IRA, within the first two years of participation, shall be subject to a 25% early withdrawal tax. QUALIFIED PENSION AND PROFIT-SHARING PLANS Under a qualified pension or profit-sharing plan, purchase payments made by an employer are not currently taxable to the participant and increases in the value of a contract are not subject to taxation until received by a participant or beneficiary. Distributions are taxable to the participant or beneficiary as ordinary income in the year of receipt. Any distribution that is considered the participant's "investment in the contract" is treated as a return of capital and is not taxable. Certain lump-sum distributions may be eligible for special forward averaging tax treatment for certain classes of individuals. FEDERAL INCOME TAX WITHHOLDING The portion of a distribution which is taxable income to the recipient will be subject to federal income tax withholding as follows: 1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR ARRANGEMENTS OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS There is a mandatory 20% tax withholding for plan distributions that are eligible for rollover to an IRA or to another retirement plan but that are not directly rolled over. A distribution made directly to a participant or beneficiary may avoid this result if: (a) a periodic settlement distribution is elected based upon a life or life expectancy calculation, or (b) a term-for-years settlement distribution is elected for a period of ten years or more, payable at least annually, or (c) a minimum required distribution as defined under the tax law is taken after the attainment of the age of 70 1/2 or as otherwise required by law. A distribution including a rollover that is not a direct rollover will be subject to the 20% withholding, and a 10% additional tax penalty may apply to any amount not added back in the rollover. The 20% withholding may be recovered when the participant or beneficiary files a 8 43 personal income tax return for the year if a rollover was completed within 60 days of receipt of the funds, except to the extent that the participant or spousal beneficiary is otherwise underwithheld or short on estimated taxes for that year. 2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS) To the extent not described as requiring 20% withholding in 1 above, the portion of a non-periodic distribution which constitutes taxable income will be subject to federal income tax withholding, if the aggregate distributions exceed $200 for the year, unless the recipient elects not to have taxes withheld. If no such election is made, 10% of the taxable distribution will be withheld as federal income tax. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. 3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE YEAR) The portion of a periodic distribution which constitutes taxable income will be subject to federal income tax withholding under the wage withholding tables as if the recipient were married claiming three exemptions. A recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by providing a completed election form. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. As of January 1, 1997, a recipient receiving periodic payments (e.g., monthly or annual payments under an annuity option) which total $14,850 or less per year, will generally be exempt from periodic withholding. Recipients who elect not to have withholding made are liable for payment of federal income tax on the taxable portion of the distribution. All recipients may also be subject to penalties under the estimated tax payment rules if withholding and estimated tax payments are not sufficient to cover tax liabilities. Recipients who do not provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding. Additionally, U.S citizens residing outside of the country, or U.S. legal residents temporarily residing outside the country, are not permitted to elect out of withholding. INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P., independent accountants, 100 Pearl Street, Hartford, Connecticut, are the independent auditors for Fund BDII. The services provided to Fund BDII included primarily the audit of the Fund's financial statements. Financial statements for the year ended December 31, 1996 of Fund BDII appear in the Fund's annual report, which is incoporated by reference in this SAI. Such financial statements have been audited by Coopers & Lybrand L.L.P., as indicated in their report thereon in reliance upon the authority of said firm as experts in accounting and auditing. The financial statements of The Travelers Life and Annuity Company as of December 31, 1996 and 1995, and for each of the years in the three-year period ended December 31, 1996, have been included herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing. 9 44 THE TRAVELERS LIFE AND ANNUITY COMPANY STATEMENTS OF INCOME AND RETAINED EARNINGS
(for the year ended December 31, in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------- REVENUES Premiums $ 9,357 $ 2,652 $ 3,498 Net investment income 89,040 63,209 66,093 Realized investment gains (losses) (9,613) 18,713 (2,074) Other 16,223 17,466 18,702 - ---------------------------------------------------------------------------------------------------------- Total revenues 105,007 102,040 86,219 - ---------------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES Current and future insurance benefits 56,448 52,390 55,596 Amortization of deferred acquisition costs and value of insurance in force 3,286 1,563 - Other operating expenses 5,691 4,651 2,758 - ---------------------------------------------------------------------------------------------------------- Total benefits and expenses 65,425 58,604 58,354 - ---------------------------------------------------------------------------------------------------------- Income before federal income taxes 39,582 43,436 27,865 - ---------------------------------------------------------------------------------------------------------- Federal income taxes: Current 29,456 2,555 4,742 Deferred expense (benefit) (15,665) 11,964 4,798 - ---------------------------------------------------------------------------------------------------------- Total federal income taxes 13,791 14,519 9,540 - ---------------------------------------------------------------------------------------------------------- Net income 25,791 28,917 18,325 Retained earnings beginning of year 157,907 128,990 110,665 Dividends to parent 16,000 - - - ---------------------------------------------------------------------------------------------------------- Retained earnings end of year $167,698 $157,907 $128,990 - ----------------------------------------------------------------------------------------------------------
See notes to financial statements. 9 45 THE TRAVELERS LIFE AND ANNUITY COMPANY BALANCE SHEETS
(at December 31, in thousands) 1996 1995 - ----------------------------------------------------------------------------------------------------------------- ASSETS Fixed maturities, available for sale at fair value (cost, $672,173; $678,293) $ 694,535 $ 724,639 Equity securities, at fair value (cost, $6,654; $9,453) 9,554 13,099 Mortgage loans 90,542 125,813 Real estate held for sale, net of accumulated depreciation of $0; $524 10,111 8,995 Policy loans 1,750 - Short-term securities 70,755 51,381 Other investments 69,754 65,805 - ----------------------------------------------------------------------------------------------------------------- Total investments 947,001 989,732 - ----------------------------------------------------------------------------------------------------------------- Separate accounts 1,187,812 886,688 Deferred acquisition costs and value of insurance in force 40,027 22,560 Deferred federal income taxes 57,616 41,158 Other assets 21,827 24,501 - ----------------------------------------------------------------------------------------------------------------- Total assets $2,254,283 $1,964,639 - ----------------------------------------------------------------------------------------------------------------- LIABILITIES Future policy benefits $ 654,534 $ 671,027 Contractholder funds 86,097 11,947 Separate accounts 1,124,605 856,867 Other liabilities 17,179 61,247 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 1,882,415 1,601,088 - ----------------------------------------------------------------------------------------------------------------- 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 167,698 157,907 Unrealized investment gains, net of taxes 33,856 35,330 - ----------------------------------------------------------------------------------------------------------------- Total shareholder's equity 371,868 363,551 - ----------------------------------------------------------------------------------------------------------------- Total liabilities and shareholder's equity $2,254,283 $1,964,639 - -----------------------------------------------------------------------------------------------------------------
See notes to financial statements. 10 46 THE TRAVELERS LIFE AND ANNUITY COMPANY STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash
(for the year ended December 31, in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Premiums collected $ 6,472 $ 1,950 $ 3,498 Net investment income received 71,083 66,219 57,240 Benefits and claims paid (70,331) (71,710) (72,298) Interest credited to contractholders (813) - - Operating expenses paid (5,482) (3,013) (4,400) Income taxes refunded (paid) (23,931) (35,305) 1,030 Other (6,857) (6,772) 22,507 - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities (29,859) (48,631) 7,577 - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investments Fixed maturities 20,301 11,752 29,043 Mortgage loans 37,789 24,137 60,260 Proceeds from sales of investments Fixed maturities 978,970 459,971 41,671 Equity securities 12,818 11,823 9,373 Mortgage loans 22,437 7,013 23,327 Real estate held for sale - - 34,181 Purchases of investments Fixed maturities (994,443) (515,098) (204,412) Equity securities (5,412) (156) (375) Mortgage loans (21,450) (4,890) (5,607) Policy loans (1,750) - - Short-term securities, (purchases) sales, net (19,688) (5,051) (1,146) Other investments, (purchases) sales, net (6,160) 9,274 682 Securities transactions in course of settlement (51,703) 45,727 5,722 - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (28,291) 44,502 (7,281) - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Contractholder fund deposits 96,490 5,707 - Contractholder fund withdrawals (22,340) (1,874) - Dividends to parent company (16,000) - - - ------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 58,150 3,833 - - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash $ - $ (296) $ 296 - ------------------------------------------------------------------------------------------------------------- Cash at December 31 $ - $ - $ 296 - -------------------------------------------------------------------------------------------------------------
See notes to financial statements. 11 47 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS The Travelers Life and Annuity Company (the Company) is a wholly owned subsidiary of The Travelers Insurance Company (TIC), which is a wholly owned subsidiary of The Travelers Insurance Group Inc. (TIGI), which is an indirect wholly owned subsidiary of Travelers Group Inc. (Travelers Group), a financial services holding company engaged, through its subsidiaries, principally in four business segments: (i) Investment Services; (ii) Consumer Finance Services; (iii) Property & Casualty Insurance Services; and (iv) Life Insurance Services (through TIC and its subsidiaries). The periodic reports of Travelers Group provide additional business and financial information concerning that company and its consolidated subsidiaries. The Company offers fixed and variable deferred annuities and individual life insurance to individuals and small businesses. It also provides single premium group annuity close-out contracts and individual structured settlement annuities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies used in the preparation of the accompanying financial statements follow. Basis of presentation 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. Certain prior year amounts have been reclassified to conform with the 1996 presentation. Investments Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities are valued based upon quoted market prices, or if quoted market prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. Fixed maturities are classified as "available for sale" and are reported at fair value, with unrealized investment gains and losses, net of income taxes, charged or credited directly to shareholder's equity. Equity securities, which include common and nonredeemable preferred stocks, are classified as "available for sale" and 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. 12 48 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Mortgage loans are carried at amortized cost. A mortgage loan is considered impaired when it is probable that the Company will be unable to collect principal and interest amounts due. For mortgage loans that are determined to be impaired, a reserve is established for the difference between the amortized cost and fair market value of the underlying collateral. In estimating fair value, the Company uses interest rates reflecting the higher returns required in the current real estate financing market. Impaired loans were insignificant at December 31, 1996 and 1995. Real estate held for sale is carried at the lower of cost or fair value less estimated costs to sell. Fair value of foreclosed properties is established at the time of foreclosure by internal analysis or external appraisers, using discounted cash flow analyses and other acceptable techniques. Thereafter, an allowance for losses on real estate held for sale is established if the carrying value of the property exceeds its current fair value less estimated costs to sell. There was no such allowance at December 31, 1996 and 1995. Short-term securities, consisting primarily of money market instruments and other debt issues purchased with a maturity of less than one year, are carried at amortized cost which approximates market. Accrual of income, 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. 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 Separate account liabilities primarily represent structured settlement annuity obligations, which provide guaranteed levels of return or benefits to contractholders. The separate account assets supporting these obligations, which are legally segregated and are not subject to claims that arise out of any other business of the Company, are primarily carried at fair value. Earnings on structured settlement contracts, generally net investment income less policyholder benefits and operating expenses, are included in other revenues. 13 49 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued In addition, the Company has other separate accounts, representing funds for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholders. Each of these accounts have specific investment objectives. The assets and liabilities of these accounts are carried at fair value, and amounts assessed to the contractholders for management services are included in revenues. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses. Deferred Acquisition Costs and Value of Insurance In Force Costs of acquiring individual life insurance and annuity business, principally commissions and certain expenses related to policy issuance, underwriting and marketing, all of which vary with and are primarily related to the production of new business, are deferred. Acquisition costs relating to traditional life insurance are amortized in relation to anticipated premiums; universal life in relation to estimated gross profits; and annuity contracts employing a level yield method. A 10- to 25-year amortization period is used for life insurance, and a 10- to 20-year period is employed for annuities. Deferred acquisition costs are reviewed periodically for recoverability to determine if any adjustment is required. Adjustments, if any are charged to income. The value of insurance in force represents the actuarially determined present value of anticipated profits to be realized from annuities contracts at the date of acquisition using the same assumptions that were used for computing related liabilities where appropriate. The value of insurance in force was the actuarially determined present value of the projected future profits discounted at an interest rate of 16% for the business acquired. The value of the business in force is amortized using current interest crediting rates to accrete interest and amortized employing a level yield method. The value of insurance in force is reviewed periodically for recoverability to determine if any adjustment is required. Adjustments, if any are charged to income. Future Policy Benefits Benefit reserves represent liabilities for future insurance policy benefits. Benefit reserves for life insurance and annuity policies have been computed based upon mortality, morbidity, persistency and interest assumptions applicable to these coverages, which range from 4.5% 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. 14 50 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Contractholder Funds Contractholder funds represent receipts from the issuance of universal life and certain individual annuity contracts. Contractholder Fund balances are increased by such receipts and credited interest and reduced by withdrawals, mortality charges and administrative expenses charged to the contractholders. Interest rates credited to contractholder funds range from 3.9% to 7.0%. Permitted Statutory Accounting Practices The Company, domiciled in the State of Connecticut, prepares statutory financial statements in accordance with the accounting practices prescribed or permitted by the State of Connecticut Insurance Department. Prescribed statutory accounting practices include certain publications of the National Association of Insurance Commissioners as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The impact of any permitted accounting practices on the statutory surplus of the Company is not material. Premiums Premiums are recognized as revenues when due. Reserves are established for the portion of premiums that will be earned in future periods. Other Revenues Other revenues include surrender, mortality and administrative charges and fees as earned on investment and other insurance contracts. Other revenues also include structured settlement policyholder revenues, which relate to contracts issued through a separate account of the Company, net of the related policyholder benefits and expenses. Federal Income Taxes The provision for federal income taxes is comprised of two components, current income taxes and deferred income taxes. Deferred federal income taxes arise from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. The deferred federal income tax asset is recognized to the extent that future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. 15 51 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Future Application of Accounting Standards In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 125 (FAS 125), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." FAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. These standards are based on consistent application of a financial-components approach that focuses on control. Under that 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 consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The requirements of FAS No. 125 are effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and are to be applied prospectively. However, in December 1996 the FASB issued FAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125," which delays until January 1, 1998 the effective date for certain provisions. The adoption of the provisions of this statement effective January 1, 1997 will not have a material impact on results of operations, financial condition or liquidity and the Company is currently evaluating the impact of the provisions whose effective date has been delayed until January 1, 1998. 3. CHANGES IN ACCOUNTING PRINCIPLES Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes accounting standards for the impairment of long-lived assets and certain identifiable intangibles to be disposed. This statement requires a write down to fair value when long-lived assets to be held and used are impaired. The statement also requires long-lived assets to be disposed (e.g., real estate held for sale) be carried at the lower of cost or fair value less cost to sell, and does not allow such assets to be depreciated. The adoption of this standard did not have a material impact on the Company's financial condition, results of operations or liquidity. Accounting for Stock-Based Compensation The Company participates in a stock option plan sponsored by Travelers Group that provides for the granting of stock options in Travelers Group common stock to officers and key employees. The Company applies Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations in accounting for stock options. Since stock options are issued at fair market value on the date of award, no compensation cost has been recognized for these awards. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). This statement provides an alternative to APB 25 whereby fair values may be ascribed to options using a valuation model and amortized to compensation cost over the vesting period of the options. Had the Company applied FAS 123 in accounting for stock options, net income would have been reduced by an insignificant amount in 1996 and 1995. 16 52 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 3. CHANGES IN ACCOUNTING PRINCIPLES, Continued Accounting by Creditors for Impairment of a Loan Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," which describe how impaired loans should be measured when determining the amount of a loan loss accrual. These statements amended existing guidance on the measurement of restructured loans in a troubled debt restructuring involving a modification of terms. Their adoption did not have a material impact on the Company's financial condition, results of operations or liquidity. 4. 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, 1996 and 1995 was $90.7 million and $97.7 million, respectively. At December 31, 1996 and 1995, $2.2 billion and $601.2 million, respectively, was ceded to non-affiliates. 5. SHAREHOLDER'S EQUITY Unrealized Investment Gains (Losses) An analysis of the change in unrealized gains and losses on investments is shown in Note 12. Shareholder's Equity and Dividend Availability The Company's statutory net income was $17.9 million, $23.0 million and $5.7 million for the years ended December 31, 1996, 1995 and 1994, respectively. Statutory capital and surplus was $254.1 million and $257.8 million at December 31, 1996 and 1995, respectively. The Company is currently subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to its parent without prior approval of insurance regulatory authorities. Statutory surplus of $14.8 million is available in 1997 for dividend payments by the Company without prior approval of the Connecticut Insurance Department. 17 53 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Company does not hold or issue derivative instruments for trading purposes. The carrying value of derivative instruments was not significant at December 31, 1996 and 1995. Fair Value of Certain Financial Instruments The Company uses various financial instruments in the normal course of its business. Fair values of financial instruments which are considered insurance contracts are not required to be disclosed and are not included in the amounts discussed. At December 31, 1996, investments in fixed maturities had a carrying value and a fair value of $694.5 million, compared with a carrying value and a fair value of $724.6 million at December 31, 1995. See Note 12. At December 31, 1996 and 1995, mortgage loans had a carrying value of $90.5 million and $125.8 million, respectively, which approximates fair value. In estimating fair value, the Company used interest rates reflecting the higher returns required in the current real estate financing market. The carrying values of $2.1 million and $1.9 million of financial instruments classified as other assets approximated their fair values at December 31, 1996 and 1995, respectively. The carrying values of $13.3 million and $55.3 million of financial instruments classified as other liabilities also approximated their fair values at December 31, 1996 and 1995, respectively. Fair value is determined using various methods including discounted cash flows, as appropriate for the various financial instruments. The assets of separate accounts providing a guaranteed return had a carrying value and a fair value of $896.9 million and $901.0 million, respectively, at December 31, 1996, compared to a carrying value and a fair value of $869.1 million and $923.0 million, respectively, at December 31, 1995. The liabilities of separate accounts providing a guaranteed return had a carrying value and a fair value of $808.7 million and $695.3 million, respectively, at December 31, 1996, compared to a carrying value and a fair value of $839.1 million and $766.3 million, respectively, at December 31, 1995. The carrying values of short-term securities and policy loans approximated their fair values. 18 54 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 7. COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance Sheet Risk The Company has, in the normal course of business, provided fixed rate loan commitments and commitments to partnerships. The off-balance sheet risks of fixed rate loan commitments, commitments to partnerships and forward contracts were not significant at December 31, 1996 and 1995. 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, 1996, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition or liquidity. 8. BENEFIT PLANS Pension Plans The Company participates in a qualified, noncontributory defined benefit pension plan sponsored by Travelers Group covering the majority of Travelers Group's U.S. employees. Benefits for the qualified plan are based on an account balance formula. Under this formula, each employee's accrued benefit can be expressed as an account that is credited with amounts based upon the employee's pay, length of service and a specified interest rate, all subject to a minimum benefit level. This plan is funded in accordance with the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The Company also participates in a nonqualified, noncontributory defined benefit pension plan sponsored by an affiliate covering the majority of the Company's U.S. employees. Contributions are based on benefits paid. The Company's share of net pension expense was not significant for 1996, 1995 or 1994. Other Benefit Plans In addition to pension benefits, the Company provides certain health care and life insurance benefits for retired employees through a plan sponsored by TIGI. Retirees may elect certain prepaid health care benefit plans. Life insurance benefits are generally set at a fixed amount. Beginning January 1, 1996, these plans were amended to restrict benefit eligibility to retirees and certain retiree-eligible employees. The cost recognized by the Company for these benefits represents its allocated share of the total costs of the plan, net of retiree contributions. The Company's share of the total cost of the plan for 1996, 1995 and 1994 was not significant. 19 55 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 8. BENEFIT PLANS, Continued Savings, Investment and Stock Ownership Plan Under the savings, investment and stock ownership plan available to substantially all employees of TIGI, the Company matches a portion of employee contributions. Effective April 1, 1993, the match decreased from 100% to 50% of an employee's first 5% contribution and a variable match based on the profitability of TIGI and its subsidiaries was added through December 31, 1995. Effective January 1, 1996, the match remained at 50% of an employee's first 5% contribution with a maximum of $1,000. Effective January 1, 1997, employee contributions will be matched with Travelers Group stock options. The Company's expense was not significant for 1996, 1995 or 1994. 9. 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 TIC. Settlements for these functions between TIC and its affiliates are made regularly. 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. TIGI and its subsidiaries maintain 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, 1996 and 1995, the pool totaled approximately $2.9 billion and $2.2 billion, respectively. The Company's share of the pool amounted to $68.2 million and $49.5 million at December 31, 1996 and 1995, 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 $250 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 sells structured settlement annuities to an affiliate, Travelers Property Casualty Corp., (TAP), formerly Travelers/Aetna Property Casualty Corp. Such deposits were $36.9 million, $36.6 million and $37.6 million for 1996, 1995 and 1994, respectively. The Company began marketing variable annuity products through its affiliate, Smith Barney, Inc., in 1995. Deposits related to these products were $300.0 million and $20.5 million in 1996 and 1995, respectively. 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 1996, 1995 and 1994. 20 56 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 10. FEDERAL INCOME TAXES
(in thousands) 1996 1995 1994 -------------------------------------------------------------------------------------------- Effective tax rate Income before federal income taxes $ 39,582 $43,436 $27,865 Statutory tax rate 35% 35% 35% ------------------------------------------------------------------------------------------- Expected federal income taxes $ 13,854 $15,203 $ 9,753 Tax effect of: Nontaxable investment income (15) (13) (90) Adjustments to benefit and other reserves - - (117) Other, net (48) (671) (6) -------------------------------------------------------------------------------------------- Federal income taxes $ 13,791 $14,519 $ 9,540 -------------------------------------------------------------------------------------------- Effective tax rate 35% 33% 34% ------------------------------------------------------------------------------------------- Composition of federal income taxes Current: United States $ 29,435 $ 2,555 $ 4,742 Foreign 21 - - -------------------------------------------------------------------------------------------- Total 29,456 2,555 4,742 -------------------------------------------------------------------------------------------- Deferred: United States (15,665) 11,964 4,798 -------------------------------------------------------------------------------------------- Federal income taxes $ 13,791 $14,519 $ 9,540 --------------------------------------------------------------------------------------------
21 57 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 10. FEDERAL INCOME TAXES, Continued The net deferred tax assets at December 31, 1996 and 1995 were comprised of the tax effects of temporary differences related to the following assets and liabilities:
(in thousands) 1996 1995 ------------------------------------------------------------------------------------------ Deferred tax assets: Benefit, reinsurance and other reserves $79,484 $ 67,104 Other 3,043 2,570 ------------------------------------------------------------------------------------------ Total 82,527 69,674 ------------------------------------------------------------------------------------------ Deferred tax liabilities: Investments, Net 12,113 19,625 Deferred acquisition costs and value of insurance in force 10,066 6,285 Other 662 536 ------------------------------------------------------------------------------------------ Total 22,841 26,446 ------------------------------------------------------------------------------------------ Net deferred tax asset before valuation allowance 59,686 43,228 Valuation allowance for deferred tax assets (2,070) (2,070) ------------------------------------------------------------------------------------------ Net deferred tax asset after valuation allowance $57,616 $41,158 ------------------------------------------------------------------------------------------
Starting in 1994 and continuing for at least five years, TIC and its life insurance subsidiaries, including the Company, will file a consolidated federal income tax return. Federal income taxes are allocated to each member on a separate return basis adjusted for credits and other amounts required by the consolidation process. Any resulting liability will be paid currently to TIC. Any credits for losses will be paid by TIC to the extent that such credits are for tax benefits that have been utilized in the consolidated federal income tax return. A net deferred tax asset valuation allowance of $2.1 million has been established to reduce the deferred tax asset on investment losses to the amount that, based upon available evidence, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future capital gains in the Company's consolidated life insurance company federal income tax return through 1998, and the consolidated federal income tax return of Travelers Group commencing in 1999, or a change in circumstances which causes the recognition of the benefits to become more likely than not. There was no change in the valuation allowance during 1996. The initial recognition of any benefit provided by the reversal of the valuation allowance will be recognized by reducing goodwill. 22 58 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 10. FEDERAL INCOME TAXES, Continued In management's judgment, the $57.6 million "net deferred tax asset after valuation allowance" as of December 31, 1996, is fully recoverable against expected future years' taxable ordinary income and capital gains. At December 31, 1996, the Company has no ordinary or capital loss carryforwards. The "policyholders surplus account", which arose under prior tax law, is generally that portion of the gain from operations that has not been subjected to tax, plus certain deductions. The balance of this account, which, under provisions of the Tax Reform Act of 1984, will not increase after 1983, is estimated to be $2.0 million. This amount has not been subjected to current income taxes but, under certain conditions that management considers to be remote, may become subject to income taxes in future years. At current rates, the maximum amount of such tax (for which no provision has been made in the financial statements) would be approximately $700 thousand. 11. NET INVESTMENT INCOME
(For the year ended December 31, in thousands) 1996 1995 1994 --------------------------------------------------------------------------------------- Gross investment income Fixed maturities $54,029 $49,486 $44,354 Equity securities 411 497 827 Mortgage loans 15,491 11,644 17,178 Real estate held for sale 3,480 2,476 6,299 Other 19,770 2,552 4,480 --------------------------------------------------------------------------------------- 93,181 66,655 73,138 --------------------------------------------------------------------------------------- Investment expenses 4,141 3,446 7,045 --------------------------------------------------------------------------------------- Net investment income $89,040 $63,209 $66,093 ---------------------------------------------------------------------------------------
23 59 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 12. INVESTMENTS AND INVESTMENT GAINS (LOSSES) Realized investment gains (losses) for the periods were as follows:
(For the year ended December 31, in thousands) 1996 1995 1994 ----------------------------------------------------------------------------------------- Realized Fixed maturities $(11,491) $(4,240) $ (908) Equity securities 4,613 6,138 1,675 Mortgage loans 1,979 725 36 Real estate held for sale (73) (35) - Other (4,641) 16,125 (2,877) ----------------------------------------------------------------------------------------- Realized investment gains (losses) $ (9,613) $18,713 $(2,074) -----------------------------------------------------------------------------------------
Changes in net unrealized investment gains (losses) that are included as a separate component of shareholder's equity were as follows:
(For the year ended December 31, in thousands) 1996 1995 1994 ------------------------------------------------------------------------------------------ Unrealized Fixed maturities $(23,953) $111,551 $(65,205) Equity securities (746) 1,834 (27) Other 22,431 4,390 (28) ------------------------------------------------------------------------------------------ (2,268) 117,775 (65,260) Related taxes (794) 41,221 (22,841) ------------------------------------------------------------------------------------------ Change in unrealized investment gains (losses) (1,474) 76,554 (42,419) Balance beginning of year 35,330 (41,224) 1,195 ------------------------------------------------------------------------------------------ Balance end of year $ 33,856 $ 35,330 $(41,224) ------------------------------------------------------------------------------------------
Fixed Maturities Proceeds from sales of fixed maturities classified as available for sale were $979.0 million and $460.0 million in 1996 and 1995, respectively. Gross gains of $8.4 million and $7.9 million and gross losses of $19.9 million and $10.3 million in 1996 and 1995, respectively, were realized on those sales. 24 60 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued The amortized cost and fair values of investments in fixed maturities were as follows:
December 31, 1996 ---------------------------------------------------------------------------------------------------- Gross Gross Amortized unrealized unrealized Fair (in thousands) cost gains losses value ---------------------------------------------------------------------------------------------------- Available for sale: Mortgage-backed securities - CMOs and pass through securities $ 88,138 $ 1,637 $ 629 $ 89,146 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 115,059 10,371 61 125,369 Obligations of states and political subdivisions 3,500 255 -- 3,755 Debt securities issued by foreign governments 56,097 1,473 1,269 56,301 All other corporate bonds 409,294 13,862 3,277 419,879 Redeemable preferred stock 85 -- -- 85 ---------------------------------------------------------------------------------------------------- Total $672,173 $27,598 $5,236 $694,535 ----------------------------------------------------------------------------------------------------
25 61 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
December 31, 1995 ------------------------------------------------------------------------------------------ Gross Gross Amortized unrealized unrealized Fair (in thousands) cost gains losses value ------------------------------------------------------------------------------------------ Available for sale: Mortgage-backed securities - CMOs and pass through securities $ 89,044 $ 2,545 $ 378 $ 91,211 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 160,988 24,267 1 185,254 Obligations of states and political subdivisions 3,500 499 - 3,999 All other corporate bonds 424,676 21,576 2,162 444,090 Redeemable preferred stock 85 - - 85 ------------------------------------------------------------------------------------------ Total $678,293 $48,887 $2,541 $724,639 ------------------------------------------------------------------------------------------
The amortized cost and fair value of fixed maturities available for sale at December 31, 1996, 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.
Maturity Amortized Fair (in thousands) cost value ------------------------------------------------------------------------- Due in one year or less $ 11,184 $ 11,204 Due after 1 year through 5 years 50,397 50,366 Due after 5 years through 10 years 169,634 173,049 Due after 10 years 352,820 370,770 ------------------------------------------------------------------------- 584,035 605,389 Mortgage-backed securities 88,138 89,146 ------------------------------------------------------------------------- Total $672,173 $694,535 -------------------------------------------------------------------------
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. 26 62 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued At December 31, 1996 and 1995, the Company held CMOs with a market value of $67.7 million and $68.6 million, respectively. The Company's CMO holdings are 100% and approximately 94% collateralized by GNMA, FNMA or FHLMC securities at December 31, 1996 and 1995, respectively. Equity Securities The cost and market values of investments in equity securities were as follows:
December 31, 1996 ---------------------------------------------------------------------------------------------------- Gross Gross unrealized unrealized Fair (in thousands) Cost gains losses value ----------------------------------------------------------------------------------------------------- Common stocks $1,630 $2,845 $83 $4,392 Nonredeemable preferred stocks 5,024 138 - 5,162 ---------------------------------------------------------------------------------------------------- Total $6,654 $2,983 $83 $9,554 ----------------------------------------------------------------------------------------------------
December 31, 1995 ---------------------------------------------------------------------------------------------------- Gross Gross unrealized unrealized Fair (in thousands) Cost gains losses value ---------------------------------------------------------------------------------------------------- Common stocks $3,310 $3,374 $ 68 $ 6,616 Nonredeemable preferred stocks 6,143 340 - 6,483 ---------------------------------------------------------------------------------------------------- Total $9,453 $3,714 $ 68 $13,099 ----------------------------------------------------------------------------------------------------
Proceeds from sales of equity securities were $12.8 million and $11.8 million in 1996 and 1995, respectively. Gross gains of $4.7 million and $4.9 million and gross losses of $155 thousand and $474 thousand in 1996 and 1995, respectively, were realized on those sales. Real estate held for sale and mortgage loans Underperforming assets include delinquent mortgage loans, loans in the process of foreclosure, foreclosed loans and loans modified at interest rates below market. 27 63 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued At December 31, 1996 and 1995, the Company's real estate held for sale and mortgage loan portfolios consisted of the following:
(in thousands) 1996 1995 --------------------------------------------------------------------------- Current mortgage loans $ 90,394 $108,142 Underperforming mortgage loans 148 17,671 --------------------------------------------------------------------------- Total 90,542 125,813 --------------------------------------------------------------------------- Real estate held for sale 10,111 8,995 --------------------------------------------------------------------------- Total $100,653 $134,808 ---------------------------------------------------------------------------
Aggregate annual maturities on mortgage loans at December 31, 1996 are as follows:
(in thousands) --------------------------------------------------- Past maturity $ 1,677 1997 5,662 1998 316 1999 5,088 2000 5,734 2001 5,678 Thereafter 66,387 --------------------------------------------------- Total $90,542 ---------------------------------------------------
Concentrations At December 31, 1996 the Company had investments of $75.1 million in the State of Israel and $40.6 million in Merrill Lynch Trust Series 45. In 1995, the Company had no concentration of credit risk in a single investee exceeding 10% of shareholder's equity. The Company participates in a short-term investment pool maintained by an affiliate. See Note 9. Included in fixed maturities are below investment grade assets totaling $40.7 million and $59.0 million at December 31, 1996 and 1995, 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 loans. 28 64 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued The Company also had concentrations of investments, primarily fixed maturities, in the following industries:
(in thousands) 1996 1995 ------------------------------------------------------------------------------------------ Foreign governments $108,850 $ - Finance 90,222 25,853 Transportation 86,819 44,118 ------------------------------------------------------------------------------------------
Below investment grade assets included in the totals of the previous table were as follows:
(in thousands) 1996 1995 ---------------------------------------------------------------------------------------- Foreign governments $6,567 $ - Finance 2,386 451 Transportation 776 18,648 ----------------------------------------------------------------------------------------
Concentrations of mortgage loans by property type at December 31, 1996 and 1995 were as follows:
(in thousands) 1996 1995 ----------------------------------------------------------------------------------------- Agricultural $33,501 $29,820 Office 22,533 32,024 Retail 20,024 27,870 -----------------------------------------------------------------------------------------
The Company monitors creditworthiness of counterparties to all financial instruments by using controls that include credit approvals, limits and other monitoring procedures. Collateral for fixed maturities often includes pledges of assets, including stock and other assets, guarantees and letters of credit. The Company's underwriting standards with respect to new mortgage loans generally require loan to value ratios of 75% or less at the time of mortgage origination. Non-Income Producing Investments Investments included in the balance sheets that were non-income producing for the preceding 12 months were insignificant. Restructured Investments The Company had mortgage loan and debt securities which were restructured at below market terms totaling approximately $1.0 million and $17.7 million at December 31, 1996 and 1995, respectively. The new terms typically defer a portion of contract interest payments to varying future periods. The accrual of interest is suspended on all restructured assets, and interest income is reported only as payment is received. Gross interest income on restructured assets that would have been recorded in accordance with the original terms of such assets was insignificant in 1996 and amounted to $4.9 million in 1995. Interest on these assets, included in net investment income, was insignificant in 1996 and amounted to $2.0 million in 1995. 29 65 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 13. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES At December 31, 1996, the Company had $740.6 million of life and annuity deposit funds and reserves. Of that total, $659.0 million were not subject to discretionary withdrawal based on contract terms. The remaining $81.6 million were life and annuity products that were subject to discretionary withdrawal by the contractholders. Included in the amount that is subject to discretionary withdrawal were $50.4 million of liabilities that are surrenderable with market value adjustments. An additional $31.2 million of the life insurance and individual annuity liabilities are subject to discretionary withdrawals with an average surrender charge of 6.7%. 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. 14. 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, in thousands) 1996 1995 1994 ------------------------------------------------------------------------------------------------------------ Net income from continuing operations $ 25,791 $ 28,917 $ 18,325 Adjustments to reconcile net income to cash provided by operating activities Realized (gains) losses 9,613 (18,713) 2,074 Deferred federal income taxes (15,665) 11,964 4,798 Amortization of deferred policy acquisition costs and value of insurance in force 3,286 1,563 - Additions to deferred policy acquisition costs (20,753) (3,109) (21,014) Investment income accrued 1,308 (819) 1,085 Premium balances receivable (3,561) (2,277) - Insurance reserves and accrued expenses (16,459) (20,081) (16,062) Other (13,419) (46,076) 18,371 ------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities $(29,859) $(48,631) $ 7,577 ------------------------------------------------------------------------------------------------------------
15. NONCASH INVESTING AND FINANCING ACTIVITIES Significant noncash investing and financing activities include: a) the transfer of $2.6 million of real estate held for sale and mortgage loans from one of the Company's separate accounts to the general account in 1995, b) acquisition of real estate through foreclosures of mortgage loans amounting to $1.1 million, $0 and $10.3 million in 1996, 1995 and 1994, respectively. 30 66 VINTAGE STATEMENT OF ADDITIONAL INFORMATION Individual Variable Annuity Contract issued by The Travelers Life and Annuity Company One Tower Square Hartford, Connecticut 06183 May, 1997 10 67 VINTAGE ANNUITY ANNUAL REPORT December 31, 1996 The Travelers Fund BD II for Variable Annuities TravelersLife and Annuity A Member of TravelersGroup[LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Tower Square Hartford, CT 06183 68 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS: Investments in eligible funds at market value: Travelers Series Fund Inc.: Alliance Growth Portfolio, 2,918,162 shares (cost $44,405,174)............................. $ 48,966,764 Van Kampen American Capital Enterprise Portfolio, 1,343,721 shares (cost $19,453,154)...... 21,244,226 TBC Managed Income Portfolio, 309,691 shares (cost $3,335,308)............................. 3,313,698 G.T. Global Strategic Income Portfolio, 253,089 shares (cost $2,972,864)................... 3,006,700 Smith Barney High Income Portfolio, 942,925 shares (cost $11,026,143)...................... 11,164,229 Smith Barney International Equity Portfolio, 1,807,787 shares (cost $21,951,774)........... 22,705,810 Smith Barney Income and Growth Portfolio, 1,358,832 shares (cost $19,155,043).............. 20,464,013 Smith Barney Money Market Portfolio, 27,673,051 shares (cost $27,673,051).................. 27,673,051 Putnam Diversified Income Portfolio, 1,277,767 shares (cost $14,771,881)................... 14,783,770 Smith Barney Pacific Basin Portfolio, 315,107 shares (cost $3,109,988)..................... 3,163,679 MFS Total Return Portfolio, 1,915,813 shares (cost $24,158,789)............................ 25,231,256 AIM Capital Appreciation Portfolio, 3,301,416 shares (cost $34,463,713).................... 36,414,613 The Travelers Series Trust: MFS Emerging Growth Portfolio, 275,528 shares (cost $3,000,407)............................ 2,906,816 Smith Barney Series Fund: Total Return Portfolio, 1,652,878 shares (cost $23,680,295)................................ 25,999,765 ----------------- Total Investments (cost $253,157,584)..................................................... $ 267,038,390 RECEIVABLES: Dividends................................................................................... 56,333 Purchase payments and transfers from other Travelers accounts............................... 2,370,836 Other assets................................................................................. 4,851 ------------------- Total Assets............................................................................... 269,470,410 ------------------- LIABILITIES: Payable for contract surrenders and transfers to other Travelers accounts.................... 191,971 Accrued liabilities.......................................................................... 35,255 ------------------- Total Liabilities.......................................................................... 227,226 ------------------- NET ASSETS: $ 269,243,184 ===================
See Notes to Financial Statements -1- 69 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME: Dividends.................................................................................... $ 6,107,224 EXPENSES: Insurance charges............................................................................ $ 1,333,944 Administrative charges....................................................................... 189,960 ----------------- Total expenses.............................................................................. 1,523,904 ------------------- Net investment income...................................................................... 4,583,320 ------------------- REALIZED GAIN AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain from investment transactions: Proceeds from investments sold.............................................................. 36,697,606 Cost of investments sold.................................................................... 36,099,281 ----------------- Net realized gain.......................................................................... 598,325 Change in unrealized gain (loss) on investments: Unrealized loss at December 31, 1995........................................................ (125,174) Unrealized gain at December 31, 1996........................................................ 13,880,806 ----------------- Net change in unrealized gain (loss) for the year.......................................... 14,005,980 ------------------- Net realized gain and change in unrealized gain (loss).................................... 14,604,305 ------------------- Net increase in net assets resulting from operations......................................... $ 19,187,625 ===================
See Notes to Financial Statements -2- 70 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD NOVEMBER 8, 1995 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1995
1996 1995 ---- ---- OPERATIONS: Net investment income........................................................................ $ 4,583,320 $ 245,834 Net realized gain (loss) from investment transactions........................................ 598,325 (509) Net change in unrealized gain (loss) on investments.......................................... 14,005,980 (125,174) ----------------- ------------------- Net increase in net assets resulting from operations........................................ 19,187,625 120,151 ----------------- ------------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 182,948,181 and 14,991,745 units, respectively).............................. 226,873,244 17,056,576 Participant transfers from other Travelers accounts (applicable to 55,121,934 and 321,920 units, respectively).................................. 65,242,361 372,855 Administrative charges (applicable to 15,382 units)................................................................ (18,946) - Contract surrenders (applicable to 1,897,753 and 1,879 units, respectively)..................................... (2,337,255) (2,206) Participant transfers to other Travelers accounts (applicable to 50,981,143 and 229,855 units, respectively).................................. (55,932,256) (260,930) Other payments to participants (applicable to 810,905 units)............................................................... (1,058,035) - ----------------- ------------------- Net increase in net assets resulting from unit transactions................................ 232,769,113 17,166,295 ----------------- ------------------- Net increase in net assets................................................................ 251,956,738 17,286,446 NET ASSETS: Beginning of period.......................................................................... 17,286,446 - ----------------- ------------------- End of period................................................................................ $ 269,243,184 $ 17,286,446 ================= ===================
See Notes to Financial Statements -3- 71 NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Fund BD II for Variable Annuities ("Fund BD II") is a separate account of The Travelers Life and Annuity Company ("Travelers Life"), which is a wholly owned subsidiary of The Travelers Insurance Company ("The Travelers"), an indirect wholly owned subsidiary of Travelers Group Inc., and is available for funding certain variable annuity contracts issued by Travelers Life. Fund BD II is registered under the Investment Company Act of 1940, as amended, as a unit investment trust. Participant purchase payments applied to Fund BD II are invested in one or more eligible funds in accordance with the selection made by the contract owner. As of December 31, 1996, the eligible funds available under Fund BD II are: Alliance Growth Portfolio, Van Kampen American Capital Enterprise Portfolio (formerly American Capital Enterprise Portfolio), TBC Managed Income Portfolio, G.T. Global Strategic Income Portfolio, Smith Barney High Income Portfolio, Smith Barney International Equity Portfolio, Smith Barney Income and Growth Portfolio, Smith Barney Money Market Portfolio, Putnam Diversified Income Portfolio, Smith Barney Pacific Basin Portfolio, MFS Total Return Portfolio, and AIM Capital Appreciation Portfolio of Travelers Series Fund Inc. (formerly Smith Barney/Travelers Series Fund Inc.); MFS Emerging Growth Portfolio of The Travelers Series Trust; and Total Return Portfolio of Smith Barney Series Fund. Travelers Series Fund Inc. is incorporated under Maryland law. Smith Barney Series Fund and The Travelers Series Trust are registered as Massachusetts business trusts. All eligible funds are managed by affiliates of The Travelers. The following is a summary of significant accounting policies consistently followed by Fund BD II in the preparation of its financial statements. SECURITY VALUATION. Investments are valued daily at the net asset values per share of the underlying funds. FEDERAL INCOME TAXES. The operations of Fund BD II form a part of the total operations of Travelers Life and are not taxed separately. Travelers Life is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended (the "Code"). Under existing federal income tax law, no taxes are payable on the investment income of Fund BD II. Fund BD II is not taxed as a "regulated investment company" under Subchapter M of the Code. OTHER. 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 expenses during the reporting period. Actual results could differ from those estimates. Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. 2. INVESTMENTS Purchases and sales of investments aggregated $273,450,623 and $36,697,606, respectively, for the year ended December 31, 1996. Realized gains and losses from investment transactions are reported on an identified cost basis. The cost of investments in eligible funds was $253,157,584 at December 31, 1996. Gross unrealized appreciation for all investments at December 31, 1996 was $13,996,007. Gross unrealized depreciation for all investments at December 31, 1996 was $115,201. -4- 72 NOTES TO FINANCIAL STATEMENTS - CONTINUED 3. CONTRACT CHARGES Insurance charges are paid for the mortality and expense risks assumed by Travelers Life. For contracts with a standard death benefit provision, these charges are equivalent to 1.02% of the average net assets of Fund BD II on an annual basis. For contracts with an enhanced death benefit provision, these charges are equivalent to 1.30% of the average net assets of Fund BD II on an annual basis. Administrative fees are paid for administrative expenses incurred by Travelers Life. This charge is equivalent to 0.15% of the average net assets of Fund BD II on an annual basis. For contracts in the accumulation phase with a contract value less than $40,000, an annual charge of $30 (prorated for partial periods) is deducted from participant account balances and paid to Travelers Life to cover contract administrative charges. No sales charge is deducted from participant purchase payments when they are received. However, Travelers Life generally assesses a contingent deferred sales charge of up to 6% if a participant's purchase payment is surrendered within six years of its payment date. Contract surrender payments include $26,151 of contingent deferred sales charges for the year ended December 31, 1996. No deductions were taken for the period November 8, 1995 (date operations commenced) to December 31, 1995. -5- 73 NOTES TO FINANCIAL STATEMENTS - CONTINUED 4. NET CONTRACT OWNERS' EQUITY
DECEMBER 31, 1996 --------------------------------------------------- ACCUMULATION UNIT NET UNITS VALUE ASSETS ----- ------ ------ Travelers Series Fund Inc. Alliance Growth Portfolio Standard.............................................. 24,031,009 $ 1.785 $ 42,891,960 Enhanced.............................................. 3,613,086 1.772 6,403,241 Van Kampen American Capital Enterprise Portfolio Standard.............................................. 11,360,286 1.655 18,797,963 Enhanced.............................................. 1,644,330 1.643 2,701,654 TBC Managed Income Portfolio Standard.............................................. 2,635,535 1.163 3,063,848 Enhanced.............................................. 265,598 1.154 306,598 G.T. Global Strategic Income Portfolio Standard.............................................. 1,832,502 1.316 2,411,175 Enhanced.............................................. 463,308 1.306 605,312 Smith Barney High Income Portfolio Standard.............................................. 7,719,068 1.300 10,032,935 Enhanced.............................................. 970,188 1.291 1,252,088 Smith Barney International Equity Portfolio Standard.............................................. 16,854,894 1.222 20,594,877 Enhanced.............................................. 2,009,974 1.213 2,438,585 Smith Barney Income and Growth Portfolio Standard.............................................. 11,905,953 1.528 18,193,877 Enhanced.............................................. 1,606,074 1.517 2,436,913 Smith Barney Money Market Portfolio Standard.............................................. 22,961,508 1.098 25,204,164 Enhanced.............................................. 2,362,442 1.090 2,574,838 Putnam Diversified Income Portfolio Standard.............................................. 10,424,494 1.252 13,047,868 Enhanced.............................................. 1,460,865 1.243 1,815,551 Smith Barney Pacific Basin Portfolio Standard.............................................. 2,754,609 0.983 2,709,112 Enhanced.............................................. 467,106 0.977 456,150 MFS Total Return Portfolio Standard.............................................. 16,650,570 1.376 22,910,883 Enhanced.............................................. 1,810,076 1.366 2,473,038 AIM Capital Appreciation Portfolio Standard.............................................. 29,460,488 1.088 32,050,014 Enhanced.............................................. 4,246,308 1.084 4,603,683 The Travelers Series Trust MFS Emerging Growth Portfolio Standard.............................................. 2,505,629 1.005 2,518,893 Enhanced.............................................. 466,025 1.005 468,275 Smith Barney Series Fund Total Return Portfolio Standard.............................................. 14,921,227 1.550 23,130,231 Enhanced.............................................. 2,043,711 1.541 3,149,458 ----------------- Net Contract Owners' Equity............................................................... $ 269,243,184 =================
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VAN KAMPEN AMERICAN CAPITAL ALLIANCE GROWTH PORTFOLIO ENTERPRISE PORTFOLIO -------------------------------- ------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- INVESTMENT INCOME: Dividends................................................. $ 1,749,884 $ 71,580 $ 65,661 $ 38,960 ------------- ----------------- ------------------- ----------------- EXPENSES: Insurance charges......................................... 239,371 2,554 107,644 1,306 Administrative fees....................................... 33,611 275 15,377 135 ------------- ----------------- ------------------- ----------------- Net investment income (loss)........................ 1,476,902 68,751 (57,360) 37,519 ------------- ----------------- ------------------- ----------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold........................ 115,510 55,534 179,400 155 Cost of investments sold.............................. 97,909 56,573 156,110 158 ------------- ----------------- ------------------- ----------------- Net realized gain (loss)............................ 17,601 (1,039) 23,290 (3) ------------- ----------------- ------------------- ----------------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............ (42,615) - (18,558) - Unrealized gain (loss) end of period.................. 4,561,590 (42,615) 1,791,072 (18,558) ------------- ----------------- ------------------- ----------------- Net change in unrealized gain (loss) for the period. 4,604,205 (42,615) 1,809,630 (18,558) ------------- ----------------- ------------------- ----------------- Net increase (decrease) in net assets resulting from operations........................... 6,098,708 25,097 1,775,560 18,958 ------------- ----------------- ------------------- ----------------- UNIT TRANSACTIONS: Participant purchase payments............................. 34,649,407 2,815,148 16,501,913 1,430,843 Participant transfers from other Travelers accounts....... 7,299,315 67,993 2,552,870 37,768 Administrative charges.................................... (3,897) - (1,313) - Contract surrenders....................................... (387,974) (503) (141,838) - Participant transfers to other Travelers accounts......... (1,038,182) (82,106) (587,799) - Other payments to participants............................ (147,805) - (87,345) - ------------- ----------------- ------------------- ----------------- Net increase in net assets resulting from unit transactions.............................. 40,370,864 2,800,532 18,236,488 1,468,611 ------------- ----------------- ------------------- ----------------- Net increase in net assets.......................... 46,469,572 2,825,629 20,012,048 1,487,569 NET ASSETS: Beginning of period................................... 2,825,629 - 1,487,569 - ------------- ----------------- ------------------- ----------------- End of period......................................... $ 49,295,201 $ 2,825,629 $ 21,499,617 $ 1,487,569 ============= ================= =================== =================
TBC MANAGED INCOME PORTFOLIO ------------------------------------ 1996 1995 ---- ---- INVESTMENT INCOME: Dividends................................................. $ 144,329 $ 18,181 ----------------- ------------------ EXPENSES: Insurance charges......................................... 20,601 252 Administrative fees....................................... 2,972 35 ----------------- ------------------ Net investment income (loss)........................ 120,756 17,894 ----------------- ------------------ REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold........................ 443,906 60 Cost of investments sold.............................. 463,432 60 ----------------- ------------------ Net realized gain (loss)............................ (19,526) - ----------------- ------------------ Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............ (13,530) - Unrealized gain (loss) end of period.................. (21,610) (13,530) ----------------- ------------------ Net change in unrealized gain (loss) for the period. (8,080) (13,530) ----------------- ------------------ Net increase (decrease) in net assets resulting from operations........................... 93,150 4,364 ----------------- ------------------ UNIT TRANSACTIONS: Participant purchase payments............................. 3,072,427 275,352 Participant transfers from other Travelers accounts....... 349,692 80,000 Administrative charges.................................... (212) - Contract surrenders....................................... (12,989) - Participant transfers to other Travelers accounts......... (491,338) - Other payments to participants............................ - - ----------------- ------------------ Net increase in net assets resulting from unit transactions............................. 2,917,580 355,352 ----------------- ------------------ Net increase in net assets.......................... 3,010,730 359,716 NET ASSETS: Beginning of period................................... 359,716 - ----------------- ------------------ End of period......................................... $ 3,370,446 $ 359,716 ================= ==================
-8- 76 NOTES TO FINANCIAL STATEMENTS - CONTINUED
G.T. GLOBAL STRATEGIC SMITH BARNEY INCOME PORTFOLIO HIGH INCOME PORTFOLIO --------------------------------- ----------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- INVESTMENT INCOME: Dividends................................................. $ 239,292 $ 4,427 $ 625,383 $ 27,093 ---------------- ---------------- ------------- --------------- EXPENSES: Insurance charges......................................... 14,195 102 54,325 283 Administrative fees....................................... 1,970 12 7,674 39 ---------------- ---------------- ------------- --------------- Net investment income (loss)........................ 223,127 4,313 563,384 26,771 ---------------- ---------------- ------------- --------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold........................ 12,114 64 118,732 142 Cost of investments sold.............................. 11,608 63 118,637 144 ---------------- ---------------- ------------- --------------- Net realized gain (loss)............................ 506 1 95 (2) ---------------- ---------------- ------------- --------------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............ (1,453) - (21,008) - Unrealized gain (loss) end of period.................. 33,836 (1,453) 138,086 (21,008) ---------------- ---------------- ------------- --------------- Net change in unrealized gain (loss) for the period. 35,289 (1,453) 159,094 (21,008) ---------------- ---------------- ------------- --------------- Net increase (decrease) in net assets resulting from operations........................... 258,922 2,861 722,573 5,761 ---------------- ---------------- ------------- --------------- UNIT TRANSACTIONS: Participant purchase payments............................. 2,320,799 122,591 9,279,640 659,877 Participant transfers from other Travelers accounts....... 331,095 - 1,222,919 - Administrative charges.................................... (164) - (580) - Contract surrenders....................................... (13,081) - (76,933) - Participant transfers to other Travelers accounts......... (6,536) - (462,926) - Other payments to participants............................ - - (65,308) - ---------------- ---------------- ------------- --------------- Net increase in net assets resulting from unit transactions.............................. 2,632,113 122,591 9,896,812 659,877 ---------------- ---------------- ------------- --------------- Net increase in net assets.......................... 2,891,035 125,452 10,619,385 665,638 NET ASSETS: Beginning of period................................... 125,452 - 665,638 - ---------------- ---------------- ------------- --------------- End of period......................................... $ 3,016,487 $ 125,452 $ 11,285,023 $ 665,638 ================ ================ ============= ===============
SMITH BARNEY SMITH BARNEY INCOME INTERNATIONAL EQUITY PORTFOLIO AND GROWTH PORTFOLIO ------------------------------- -------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- INVESTMENT INCOME: Dividends................................................. $ 22,493 $ 836 $ 455,102 $ 15,676 --------------- --------------- -------------- ----------------- EXPENSES: Insurance charges......................................... 107,608 751 97,155 759 Administrative fees....................................... 16,122 83 13,920 98 --------------- --------------- -------------- ----------------- Net investment income (loss)........................ (101,237) 2 344,027 14,819 --------------- --------------- -------------- ----------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold........................ 4,446,920 35,908 82,485 396 Cost of investments sold.............................. 3,960,097 35,387 69,287 385 --------------- --------------- -------------- ----------------- Net realized gain (loss)............................ 486,823 521 13,198 11 --------------- --------------- -------------- ----------------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............ 20,347 - 1,435 - Unrealized gain (loss) end of period.................. 754,036 20,347 1,308,970 1,435 --------------- --------------- -------------- ----------------- Net change in unrealized gain (loss) for the period. 733,689 20,347 1,307,535 1,435 --------------- --------------- -------------- ----------------- Net increase (decrease) in net assets resulting from operations........................... 1,119,275 20,870 1,664,760 16,265 --------------- --------------- -------------- ----------------- UNIT TRANSACTIONS: Participant purchase payments............................. 17,392,360 760,996 15,205,943 911,643 Participant transfers from other Travelers accounts....... 10,287,941 12,389 3,567,741 29,913 Administrative charges.................................... (1,790) - (1,280) - Contract surrenders....................................... (168,200) (75) (178,977) - Participant transfers to other Travelers accounts......... (6,285,736) - (444,378) - Other payments to participants............................ (104,568) - (140,840) - --------------- --------------- -------------- ----------------- Net increase in net assets resulting from unit transactions.............................. 21,120,007 773,310 18,008,209 941,556 --------------- --------------- -------------- ----------------- Net increase in net assets.......................... 22,239,282 794,180 19,672,969 957,821 NET ASSETS: Beginning of period................................... 794,180 - 957,821 - --------------- --------------- -------------- ----------------- End of period......................................... $ 23,033,462 $ 794,180 $ 20,630,790 $ 957,821 =============== =============== ============== =================
-9- 77 NOTES TO FINANCIAL STATEMENTS - CONTINUED 5. SCHEDULE OF FUND BD II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD NOVEMBER 8, 1995 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1995 (CONTINUED)
SMITH BARNEY PUTNAM MONEY MARKET PORTFOLIO DIVERSIFIED INCOME PORTFOLIO ----------------------------- ----------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- INVESTMENT INCOME: Dividends.................................................. $ 734,489 $ 8,627 $ 775,071 $ 44,601 ------------- ------------- ------------- ------------- EXPENSES: Insurance charges.......................................... 161,431 2,031 77,461 704 Administrative fees........................................ 22,917 275 11,041 100 ------------- ------------- ------------- ------------- Net investment income (loss)......................... 550,141 6,321 686,569 43,797 ------------- ------------- ------------- ------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold......................... 22,760,375 44,352 361,079 21 Cost of investments sold............................... 22,760,375 44,352 356,390 21 ------------- ------------- ------------- ------------- Net realized gain (loss)............................. - - 4,689 - ------------- ------------- ------------- ------------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............. - - (29,630) - Unrealized gain (loss) end of period................... - - 11,889 (29,630) ------------- ------------- ------------- ------------- Net change in unrealized gain (loss) for the period.. - - 41,519 (29,630) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations............................ 550,141 6,321 732,777 14,167 ------------- ------------- ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments.............................. 44,038,947 3,527,872 12,719,514 1,086,983 Participant transfers from other Travelers accounts........ 16,886,657 8,446 1,427,681 15,623 Administrative charges..................................... (945) - (1,014) - Contract surrenders........................................ (461,230) - (283,811) - Participant transfers to other Travelers accounts.......... (36,332,462) (166,900) (827,078) (5,584) Other payments to participants............................. (277,845) - (15,839) - ------------- ------------- ------------- ------------- Net increase in net assets resulting from unit transactions............................... 23,853,122 3,369,418 13,019,453 1,097,022 ------------- ------------- ------------- ------------- Net increase in net assets........................... 24,403,263 3,375,739 13,752,230 1,111,189 NET ASSETS: Beginning of period.................................... 3,375,739 - 1,111,189 - ------------- ------------- ------------- ------------- End of period.......................................... $ 27,779,002 $ 3,375,739 $ 14,863,419 $ 1,111,189 ============= ============= ============= =============
SMITH BARNEY PACIFIC BASIN PORTFOLIO ----------------------------- 1996 1995 ---- ---- INVESTMENT INCOME: Dividends.................................................. $ 19,513 $ 149 ------------- ------------- EXPENSES: Insurance charges.......................................... 17,947 48 Administrative fees........................................ 2,375 6 ------------- ------------- Net investment income (loss)......................... (809) 95 ------------- ------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold......................... 7,758,018 19 Cost of investments sold............................... 7,712,954 18 ------------- ------------- Net realized gain (loss)............................. 45,064 1 ------------- ------------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............. 1,836 - Unrealized gain (loss) end of period................... 53,691 1,836 ------------- ------------- Net change in unrealized gain (loss) for the period.. 51,855 1,836 ------------- ------------- Net increase (decrease) in net assets resulting from operations............................ 96,110 1,932 ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments.............................. 2,993,075 49,035 Participant transfers from other Travelers accounts........ 8,020,835 673 Administrative charges..................................... (370) - Contract surrenders........................................ (11,727) - Participant transfers to other Travelers accounts.......... (7,984,301) - Other payments to participants............................. - - ------------- ------------- Net increase in net assets resulting from unit transactions............................... 3,017,512 49,708 ------------- ------------- Net increase in net assets........................... 3,113,622 51,640 NET ASSETS: Beginning of period.................................... 51,640 - ------------- ------------- End of period.......................................... $ 3,165,262 $ 51,640 ============= =============
-10- 78 NOTES TO FINANCIAL STATEMENTS - CONTINUED
AIM CAPITAL MFS TOTAL RETURN PORTFOLIO APPRECIATION PORTFOLIO ----------------------------- ----------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- INVESTMENT INCOME: Dividends.................................................. $ 832,634 $ 26,481 $ 35,100 $ 3,038 ------------- ------------- ------------- ------------- EXPENSES: Insurance charges.......................................... 121,785 857 197,164 4,240 Administrative fees........................................ 17,434 127 27,944 313 ------------- ------------- ------------- ------------- Net investment income (loss)......................... 693,415 25,497 (190,008) (1,515) ------------- ------------- ------------- ------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold......................... 122,229 62 189,761 90 Cost of investments sold............................... 113,231 61 187,142 93 ------------- ------------- ------------- ------------- Net realized gain (loss)............................. 8,998 1 2,619 (3) ------------- ------------- ------------- ------------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............. 140 - (25,475) - Unrealized gain (loss) end of period................... 1,072,467 140 1,950,900 (25,475) ------------- ------------- ------------- ------------- Net change in unrealized gain (loss) for the period.. 1,072,327 140 1,976,375 (25,475) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations............................ 1,774,740 25,638 1,788,986 (26,993) ------------- ------------- ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments.............................. 19,949,329 1,186,910 27,035,886 3,256,149 Participant transfers from other Travelers accounts........ 3,146,849 22,680 5,567,585 72,615 Administrative charges..................................... (1,570) - (4,115) - Contract surrenders........................................ (144,598) (627) (343,921) (500) Participant transfers to other Travelers accounts.......... (517,750) (2,120) (636,435) (2,115) Other payments to participants............................. (55,560) - (53,445) - ------------- ------------- ------------- ------------- Net increase in net assets resulting from unit transactions............................... 22,376,700 1,206,843 31,565,555 3,326,149 ------------- ------------- ------------- ------------- Net increase in net assets........................... 24,151,440 1,232,481 33,354,541 3,299,156 NET ASSETS: Beginning of period.................................... 1,232,481 - 3,299,156 - ------------- ------------- ------------- ------------- End of period.......................................... $ 25,383,921 $ 1,232,481 $ 36,653,697 $ 3,299,156 ============= ============= ============= =============
MFS EMERGING GROWTH PORTFOLIO TOTAL RETURN PORTFOLIO ----------------------------- ----------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- INVESTMENT INCOME: Dividends.................................................. $ 13,776 $ - $ 394,497 $ 2,394 ------------- ------------- ------------- ------------- EXPENSES: Insurance charges.......................................... 2,585 - 114,672 733 Administrative fees........................................ 351 - 16,252 91 ------------- ------------- ------------- ------------- Net investment income (loss)......................... 10,840 - 263,573 1,570 ------------- ------------- ------------- ------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold......................... - - 107,077 135 Cost of investments sold............................... - - 92,109 132 ------------- ------------- ------------- ------------- Net realized gain (loss)............................. - - 14,968 3 ------------- ------------- ------------- ------------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............. - - 3,337 - Unrealized gain (loss) end of period................... (93,591) - 2,319,470 3,337 ------------- ------------- ------------- ------------- Net change in unrealized gain (loss) for the period.. (93,591) - 2,316,133 3,337 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations............................ (82,751) - 2,594,674 4,910 ------------- ------------- ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments.............................. 2,458,877 - 19,255,127 973,177 Participant transfers from other Travelers accounts........ 622,001 - 3,959,180 24,755 Administrative charges..................................... - - (1,696) - Contract surrenders........................................ (647) - (111,329) (501) Participant transfers to other Travelers accounts.......... (10,312) - (307,023) (2,105) Other payments to participants............................. - - (109,480) - ------------- ------------- ------------- ------------- Net increase in net assets resulting from unit transactions............................... 3,069,919 - 22,684,779 995,326 ------------- ------------- ------------- ------------- Net increase in net assets........................... 2,987,168 - 25,279,453 1,000,236 NET ASSETS: Beginning of period.................................... - - 1,000,236 - ------------- ------------- ------------- ------------- End of period.......................................... $ 2,987,168 $ - $ 26,279,689 $ 1,000,236 ============= ============= ============= =============
-11- 79 NOTES TO FINANCIAL STATEMENTS - CONTINUED 5. SCHEDULE OF FUND BD II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD NOVEMBER 8, 1995 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1995 (CONTINUED)
COMBINED ---------------------------------- 1996 1995 ---- ---- INVESTMENT INCOME: Dividends................................................. $ 6,107,224 $ 262,043 ------------------ --------------- EXPENSES: Insurance charges......................................... 1,333,944 14,620 Administrative fees....................................... 189,960 1,589 ------------------ --------------- Net investment income (loss)........................ 4,583,320 245,834 ------------------ --------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold........................ 36,697,606 136,938 Cost of investments sold.............................. 36,099,281 137,447 ------------------ --------------- Net realized gain (loss)............................ 598,325 (509) ------------------ --------------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of period............ (125,174) - Unrealized gain (loss) end of period.................. 13,880,806 (125,174) ------------------ --------------- Net change in unrealized gain (loss) for the period. 14,005,980 (125,174) ------------------ --------------- Net increase (decrease) in net assets resulting from operations........................... 19,187,625 120,151 ------------------ --------------- UNIT TRANSACTIONS: Participant purchase payments............................. 226,873,244 17,056,576 Participant transfers from other Travelers accounts....... 65,242,361 372,855 Administrative charges.................................... (18,946) - Contract surrenders....................................... (2,337,255) (2,206) Participant transfers to other Travelers accounts......... (55,932,256) (260,930) Other payments to participants............................ (1,058,035) - ------------------ --------------- Net increase in net assets resulting from unit transacions............................... 232,769,113 17,166,295 ------------------ --------------- Net increase in net assets.......................... 251,956,738 17,286,446 NET ASSETS: Beginning of period................................... 17,286,446 - ------------------ --------------- End of period......................................... $ 269,243,184 $ 17,286,446 ================== ===============
-12- 80 NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SCHEDULE OF ACCUMULATION UNITS FOR FUND BD II FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD NOVEMBER 8, 1995 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1995
VAN KAMPEN AMERICAN CAPITAL ALLIANCE GROWTH PORTFOLIO ENTERPRISE PORTFOLIO --------------------------------- ----------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Accumulation units beginning of period................ 2,026,405 - 1,093,664 - Accumulation units purchased and transferred from other Travelers accounts.......... 26,601,698 2,088,195 12,436,976 1,093,664 Accumulation units redeemed and transferred to other Travelers accounts............ (984,008) (61,790) (526,024) - -------------- --------------- --------------- -------------- Accumulation units end of period...................... 27,644,095 2,026,405 13,004,616 1,093,664 ============== =============== =============== ==============
TBC MANAGED INCOME PORTFOLIO ------------------------------------ 1996 1995 ---- ---- Accumulation units beginning of period................ 315,445 - Accumulation units purchased and transferred from other Travelers accounts.......... 3,034,567 315,445 Accumulation units redeemed and transferred to other Travelers accounts............ (448,879) - ---------------- ----------------- Accumulation units end of period...................... 2,901,133 315,445 ================ =================
G.T. GLOBAL STRATEGIC SMITH BARNEY INCOME PORTFOLIO HIGH INCOME PORTFOLIO --------------------------------- ----------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Accumulation units beginning of period................ 112,291 - 574,114 - Accumulation units purchased and transferred from other Travelers accounts.......... 2,200,023 112,291 8,612,189 574,114 Accumulation units redeemed and transferred to other Travelers accounts............ (16,504) - (497,047) - -------------- --------------- --------------- -------------- Accumulation units end of period...................... 2,295,810 112,291 8,689,256 574,114 ============== =============== =============== ==============
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO ------------------------------------- 1996 1995 ---- ---- Accumulation units beginning of period................ 757,069 - Accumulation units purchased and transferred from other Travelers accounts.......... 23,544,001 757,142 Accumulation units redeemed and transferred to other Travelers accounts............ (5,436,202) (73) ---------------- ----------------- Accumulation units end of period...................... 18,864,868 757,069 ================ =================
SMITH BARNEY INCOME SMITH BARNEY AND GROWTH PORTFOLIO MONEY MARKET PORTFOLIO --------------------------------- ----------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Accumulation units beginning of period................ 742,670 - 3,193,779 - Accumulation units purchased and transferred from other Travelers accounts.......... 13,297,626 742,670 56,287,533 3,351,749 Accumulation units redeemed and transferred to other Travelers accounts............ (528,269) - (34,157,362) (157,970) -------------- --------------- --------------- -------------- Accumulation units end of period...................... 13,512,027 742,670 25,323,950 3,193,779 ============== =============== =============== ==============
PUTNAM DIVERSIFIED INCOME PORTFOLIO ------------------------------------- 1996 1995 ---- ---- Accumulation units beginning of period................ 950,243 - Accumulation units purchased and transferred from other Travelers accounts.......... 11,872,273 955,065 Accumulation units redeemed and transferred to other Travelers accounts............ (937,157) (4,822) ---------------- ----------------- Accumulation units end of period...................... 11,885,359 950,243 ================ =================
-13- 81 NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SCHEDULE OF ACCUMULATION UNITS FOR FUND BD II FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD NOVEMBER 8, 1995 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1995 (CONTINUED)
SMITH BARNEY MFS PACIFIC BASIN PORTFOLIO TOTAL RETURN PORTFOLIO ----------------------------------- --------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Accumulation units beginning of period............ 56,822 - 1,014,097 - Accumulation units purchased and transferred from other Travelers accounts...... 11,406,814 56,822 17,996,071 1,016,359 Accumulation units redeemed and transferred to other Travelers accounts........ (8,241,921) - (549,522) (2,262) --------------- ---------------- ---------------- ------------- Accumulation units end of period.................. 3,221,715 56,822 18,460,646 1,014,097 =============== ================ ================ =============
AIM CAPITAL APPRECIATION PORTFOLIO -------------------------------------- 1996 1995 ---- ---- Accumulation units beginning of period............ 3,444,998 - Accumulation units purchased and transferred from other Travelers accounts...... 31,258,008 3,447,731 Accumulation units redeemed and transferred to other Travelers accounts........ (996,210) (2,733) -------------- ------------------ Accumulation units end of period.................. 33,706,796 3,444,998 ============== ===================
MFS EMERGING TOTAL RETURN GROWTH PORTFOLIO PORTFOLIO ----------------------------------- --------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Accumulation units beginning of period............ - - 800,334 - Accumulation units purchased and transferred from other Travelers accounts...... 2,982,336 - 16,540,000 802,418 Accumulation units redeemed and transferred to other Travelers accounts........ (10,682) - (375,396) (2,084) --------------- ---------------- ---------------- -------------- Accumulation units end of period.................. 2,971,654 - 16,964,938 800,334 =============== ================ ================ ==============
-14- 82 REPORT OF INDEPENDENT ACCOUNTANTS To the Owners of Variable Annuity Contracts of The Travelers Fund BD II for Variable Annuities: We have audited the accompanying statement of assets and liabilities of The Travelers Fund BD II for Variable Annuities as of December 31, 1996, and the related statement of operations for the year then ended and the statement of changes in net assets for each of the applicable periods ended December 31, 1996 and 1995. These financial statements are the responsibility of 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. Our procedures included confirmation of shares owned as of December 31, 1996, by correspondence with the underlying funds. 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 Fund BD II for Variable Annuities as of December 31, 1996, the results of its operations for the year then ended, and the changes in its net assets for each of the applicable periods ended December 31, 1996 and 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 7, 1997 -15- 83 This page intentionally left blank. 84 Independent Accountants COOPERS & LYBRAND L.L.P. Hartford, Connecticut This report is prepared for the general information of contract owners and is not an offer of shares of The Travelers Fund BD II for Variable Annuities or Fund BD II's underlying funds. It should not be used in connection with any offer except in conjunction with the Prospectuses for the Variable Annuity products offered by The Travelers Life and Annuity Company and the Prospectuses of the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. FNDBDII (Annual) (12-96) Printed in U.S.A. 85 PART C Other Information Item 24. Financial Statements and Exhibits (a) The financial statements of the Registrant and the Report of Independent Accountants are contained in the Registrant's Annual Report and are incorporated in the Statement of Additional Information by reference. The financial statements of the Registrant are: Statement of Assets and Liabilities as of December 31, 1996 Statement of Operations for the year ended December 31, 1996 Statement of Changes in Net Assets for the year ended December 31, 1996 and for the period November 8, 1995 (date operations commenced) to December 31, 1995. Statement of Investments as of December 31, 1996 Notes to Financial Statements The audited financial statements of The Travelers Life and Annuity Company and the report of Independent Accountants are contained in the Statement of Additional Information. These consolidated financial statements include: Statements of Income and Retained Earnings for the years ended December 31, 1996, 1995 and 1994 Balance Sheet as of December, 1996 and 1995 Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994 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 Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 2. Not Applicable. 3. Distribution and Management Agreement among the Registrant, The Travelers Life and Annuity Company and Tower Square Securities, Inc. (Incorporated herein by reference to Exhibit 3 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4, filed September 8, 1995.) 3(b). Form of Selling Agreement. (Incorporated herein by reference to Exhibit 3(b) to Post-Effective Amendment No. 1 to the Registration Statement on Form N-4, filed April 23, 1996.) 4. Variable Annuity Contracts. (Incorporated herein by reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 5. Form of Applications. (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4, filed September 8, 1995.) 86 6(a). Charter of The Travelers Life and Annuity Company, as amended on April 10, 1990. (Incorporated herein by reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 6(b). By-Laws of The Travelers Life and Annuity Company, as amended on October 20, 1994. (Incorporated herein by reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 7. None. 8. None. 9. Opinion of Counsel as to the legality of securities being registered. 10(a). Consent of Coopers & Lybrand L.L.P., Independent Accountants. 10(b). Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants. 11. None. 12. None. 13. Schedule for computation of each performance quotation - Standardized and Non-Standardized. 15(a). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Michael A. Carpenter, Jay S. Benet, George C. Kokulis, Ian R. Stuart and Katherine M. Sullivan. 15(b). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as a signatory for Michael A. Carpenter, Robert I. Lipp, Charles O. Prince III, Marc P. Weill, and Irwin R. Ettinger. (Incorporated herein by reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 27. Financial Data Schedules 87 Item 25. Directors and Officers of the Depositor
Name and Principal Positions and Offices Business Address with Depositor - ---------------- -------------- Michael A. Carpenter* Director, Chairman of the Board President and Chief Executive Officer Jay S. Benet* Director and Senior Vice President George C. Kokulis* Director and Senior Vice President Robert I. Lipp* Director Ian R. Stuart* Director, Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Controller Katherine M. Sullivan* Director and Senior Vice President and General Counsel Marc P. Weill** Director and Senior Vice President Stuart Baritz** Senior Vice President Elizabeth C. Georgakopoulos* Senior Vice President Barry Jacobson* Senior Vice President Russell H. Johnson* Senior Vice President Warren H. May* Senior Vice President Christine M. Modie* Senior Vice President David A. Tyson* Senior Vice President F. Denney Voss* Senior Vice President Paula Burton* Vice President Charles N. Vest* Vice President and Actuary Donald R. Munson, Jr.* Second Vice President Ernest J. Wright* Vice President and Secretary Kathleen A. McGah* Assistant Secretary and Counsel
Principal Business Address: * The Travelers Life and Annuity Company ** Travelers Group Inc. One Tower Square 388 Greenwich Street Hartford, Connecticut 06183 New York, New York 10013 88 Item 26. Persons Controlled by or under Common Control with the Travelers Life and Annuity Company or Registrant OWNERSHIP OF THE TRAVELERS LIFE AND ANNUITY COMPANY
Company State of Organization Ownership Principal Business - ------- ---------------------- --------- ------------------ Travelers Group Inc. Delaware Publicly Held ---------------- Associated Madison Companies Inc. Delaware 100.00 ---------------- PFS Services Inc. Georgia 100.00 ---------------- The Travelers Insurance Group, Inc. Connecticut 100.00 ---------------- The Travelers Insurance Company Connecticut 100.00 Insurance The Travelers Life and Annuity Company Connecticut 100.00 Insurance
- -------------------------------------------------------------------------------- PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRAVELERS LIFE AND ANNUITY COMPANY
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ AC Health Ventures, Inc. Delaware 100.00 Inactive AMCO Biotech, Inc. Delaware 100.00 Inactive Associated Madison Companies, Inc. Delaware 100.00 Holding company. American National Life Insurance (T & C), Ltd. Turks and Caicos Islands 100.00 Insurance ERISA Corporation New York 100.00 Inactive Mid-America Insurance Services, Inc. Georgia 100.00 Third party administrator National Marketing Corporation Pennsylvania 100.00 Inactive PFS Services, Inc. Georgia 100.00 General partner and holding company The Travelers Insurance Group Inc. Connecticut 100.00 Holding company
3/18/97 89
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ Constitution Plaza, Inc. Connecticut 100.00 Real estate brokerage KP Properties Corporation Massachusetts 100.00 Real estate KPI 85, Inc. Massachusetts 100.00 Real estate KRA Advisers Corporation Massachusetts 100.00 Real estate KRP Corporation Massachusetts 100.00 Real estate La Metropole S.A. Belgium 98.83 P-C insurance/ reinsurance The Prospect Company Delaware 100.00 Investments 89th & York Avenue Corporation New York 100.00 Real estate 979 Third Avenue Corporation Delaware 100.00 Real estate Meadow Lane, Inc. Georgia 100.00 Real estate development Panther Valley, Inc. New Jersey 100.00 Real estate management Prospect Management Services Company Delaware 100.00 Real estate management The Travelers Asset Funding Corporation Connecticut 100.00 Investment adviser Travelers Capital Funding Corporation Connecticut 100.00 Furniture/equipment The Travelers Insurance Company Connecticut 100.00 Insurance The Plaza Corporation Connecticut 100.00 Holding company The Copeland Companies New Jersey 100.00 Holding company American Odyssey Funds Management, Inc. New Jersey 100.00 Investment advisor American Odyssey Funds, Inc. Maryland 100.00 Investment management Copeland Administrative Services, Inc. New Jersey 100.00 Administrative services Copeland Associates, Inc. Delaware 100.00 Fixed/variable annuities Copeland Associates Agency of Ohio, Inc. Ohio 99.00 Fixed/variable annuities Copeland Associates of Alabama, Inc. Alabama 100.00 Fixed/variable annuities Copeland Associates of Montana, Inc. Montana 100.00 Fixed/variable annuities Copeland Benefits Management Company New Jersey 51.00 Investment marketing Copeland Equities, Inc. New Jersey 100.00 Fixed/variable annuities H.C. Copeland Associates, Inc. of Massachusetts Massachusetts 100.00 Fixed annuities Copeland Financial Services, Inc. New Jersey 100.00 Investment advisory services. Copeland Healthcare Services, Inc. New Jersey 100.00 Life insurance marketing H.C. Copeland and Associates, Inc. of Texas Texas 100.00 Fixed/variable annuities
2 90
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ Three Parkway Inc. - I Pennsylvania 100.00 Investment real estate Three Parkway Inc. - II Pennsylvania 100.00 Investment real estate Three Parkway Inc. - III Pennsylvania 100.00 Investment real estate Tower Square Securities, Inc. Connecticut 100.00 Broker dealer Travelers Asset Management International Corporation New York 100.00 Investment adviser Travelers Distribution Company Delaware 100.00 Travelers Investment Adviser, Inc. Delaware 100.00 Investment Advisor Travelers/Net Plus Agency of Ohio, Inc. Ohio 100.00 Insurance agency Travelers/Net Plus Insurance Agency, Inc. Massachusetts 100.00 Insurance agency Travelers/Net Plus, Inc. Connecticut 100.00 The Travelers Life and Annuity Company Connecticut 100.00 Life insurance Travelers Insurance Holdings Inc. Georgia 100.00 Holding company AC RE, Ltd. Bermuda 100.00 Reinsurance American Financial Life Insurance Company Texas 100.00 Insurance Primerica Life Insurance Company Massachusetts 100.00 Life insurance National Benefit Life Insurance Company New York 100.00 Insurance Primerica Financial Services (Canada) Ltd. Canada 100.00 Holding company PFSL Investments Canada Ltd. Canada 100.00 Mutual fund dealer Primerica Financial Services Ltd. Canada 82.82 General agent Primerica Life Insurance Company of Canada Canada 100.00 Life insurance The Travelers Insurance Corporation Proprietary Limited Australia 100.00 Inactive Travelers Canada Corporation Canada 100.00 Inactive Travelers Mortgage Securities Corporation Delaware 100.00 Collateralized obligations Travelers of Ireland Limited Ireland 99.90 Data processing Travelers Property Casualty Corp. Delaware 82.00 Holding company The Aetna Casualty and Surety Company Connecticut 100.00 Insurance company AE Development Group, Inc. Connecticut 100.00 Aetna Casualty & Surety Company of Canada Canada 100.00 Aetna Casualty and Surety Company of America Connecticut 100.00 Insurance company Aetna Casualty and Surety Company of Illinois Illinois 100.00 Insurance company
3 91
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ Aetna Casualty Company of Connecticut Connecticut 100.00 Insurance company Aetna Commercial Insurance Company Connecticut 100.00 Insurance company Aetna Excess and Surplus Lines Company Connecticut 100.00 Insurance Company Aetna Lloyds of Texas Insurance Company Texas 100.00 Insurance company Aetna National Accounts U.K. Limited United Kingdom 100.00 Insurance company Axia Services, Inc. New York 100.00 Farmington Casualty Company Connecticut 100.00 Insurance company Farmington Management, Inc. Connecticut 100.00 Urban Diversified Properties, Inc. Connecticut 100.00 The Standard Fire Insurance Company Connecticut 100.00 AE Properties, Inc. California 100.00 Aetna Insurance Company Connecticut 100.00 Insurance company Aetna Insurance Company of Illinois Illinois 100.00 Insurance company Aetna Personal Security Insurance Company Connecticut 100.00 Insurance company Community Rehabilitation Investment Corporation Connecticut 100.00 The Automobile Insurance Company of Hartford, Connecticut Connecticut 100.00 Insurance company The Travelers Indemnity Company Connecticut 100.00 P-C insurance Commercial Insurance Resources, Inc. Delaware 100.00 Holding company Gulf Insurance Company Missouri 100.00 P-C insurance Atlantic Insurance Company Texas 100.00 P-C insurance Gulf Risk Services, Inc. Delaware 100.00 Claims/risk management Gulf Underwriters Insurance Company Missouri 100.00 P-C ins/surplus lines Select Insurance Company Texas 100.00 P-C insurance Countersignature Agency, Inc. Florida 100.00 Countersign ins policies First Floridian Auto and Home Insurance Company Florida 100.00 Insurance company First Trenton Indemnity Company New Jersey 100.00 P-C insurance Laramia Insurance Agency, Inc. North Carolina 100.00 Flood insurance Secure Affinity Agency, Inc. Delaware 100.00 P-C insurance agency The Charter Oak Fire Insurance Company Connecticut 100.00 P-C insurance The Parker Realty and Insurance Agency, Inc. Vermont 58.00 Real estate
4 92
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ The Phoenix Insurance Company Connecticut 100.00 P-C insurance Constitution State Service Company Montana 100.00 Service company The Travelers Indemnity Company of America Georgia 100.00 P-C insurance The Travelers Indemnity Company of Connecticut Connecticut 100.00 Insurance The Travelers Indemnity Company of Illinois Illinois 100.00 P-C insurance The Premier Insurance Company of Massachusetts Massachusetts 100.00 Insurance The Travelers Home and Marine Insurance Company Indiana 100.00 P-C insurance The Travelers Indemnity Company of Missouri Missouri 100.00 P-C insurance The Travelers Lloyds Insurance Company Texas 100.00 Non-life insurance The Travelers Marine Corporation California 100.00 General insurance brokerage TI Home Mortgage Brokerage, Inc. Delaware 100.00 Mortgage brokerage services TravCo Insurance Company Indiana 100.00 P-C insurance Travelers Bond Investments, Inc. Connecticut 100.00 Bond investments Travelers General Agency of Hawaii, Inc. Hawaii 100.00 Insurance agency Travelers Medical Management Services Inc. Delaware 100.00 Managed care Travelers Specialty Property Casualty Company, Inc. Connecticut 100.00 Insurance management Primerica Convention Services, Inc. Georgia 100.00 Primerica Finance Corporation Delaware 100.00 Holding company PFS Distributors, Inc. Georgia 100.00 General partner PFS Investments Inc. Georgia 100.00 Broker dealer PFS T.A., Inc. Delaware 100.00 Joint venture partner Primerica Financial Services Home Mortgages, Inc. Georgia 100.00 Mortgage loan broker Primerica Financial Services, Inc. Nevada 100.00 General agency Primerica Financial Services Agency of New York, Inc. New York 100.00 General agency licensing Primerica Financial Services Insurance Marketing of Connecticut, Inc. Connecticut 100.00 General agency licensing Primerica Financial Services Insurance Marketing of Idaho, Inc. Idaho 100.00 General agency licensing Primerica Financial Services Insurance Marketing of Nevada, Inc. Nevada 100.00 General agency licensing Primerica Financial Services Insurance Marketing of Pennsylvania, Inc. Pennsylvania 100.00 General agency licensing Primerica Financial Services Insurance Marketing of the Virgin Islands, Inc. United States Virgin Islands 100.00 General agency licensing Primerica Financial Services Insurance Marketing of Wyoming, Inc. Wyoming 100.00 General agency licensing
5 93
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ Primerica Financial Services Insurance Marketing, Inc. Delaware 100.00 General agency licensing Primerica Financial Services of Alabama, Inc. Alabama 100.00 General agency licensing Primerica Financial Services of Arizona, Inc. Arizona 100.00 General agency licensing Primerica Financial Services of Kentucky Inc. Kentucky 100.00 General agency licensing Primerica Financial Services of New Mexico, Inc. New Mexico 100.00 General agency licensing Primerica Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 General agency licensing Primerica Insurance Marketing Services of Puerto Rico, Inc. Puerto Rico 100.00 Insurance agency Primerica Insurance Services of Louisiana, Inc. Louisiana 100.00 General agency licensing Primerica Insurance Services of Maryland, Inc. Maryland 100.00 General agency licensing Primerica Services, Inc. Georgia 100.00 Print operations RCM Acquisition Inc. Delaware 100.00 Investments SCN Acquisitions Company Delaware 100.00 Investments SL&H Reinsurance, Ltd. Nevis 100.00 Reinsurance Southwest Service Agreements, Inc. North Carolina 100.00 Warranty/service agreements Southwest Warranty Corporation Florida 100.00 Extended automobile warranty Berg Associates New Jersey 100.00 Inactive CCC Holdings, Inc. Delaware 100.00 Holding company Commercial Credit Company Delaware 100.00 Holding company. American Health and Life Insurance Company Maryland 100.00 LH&A Insurance Brookstone Insurance Company Vermont 100.00 Insurance managers CC Finance Company, Inc. New York 100.00 Consumer lending CC Financial Services, Inc. Hawaii 100.00 Consumer lending CCC Fairways, Inc. Delaware 100.00 Investment company Chesapeake Appraisal and Settlement Services Inc. Maryland 100.00 Appraisal/title Chesapeake Appraisal and Settlement Services Agency of Ohio Inc. Ohio 100.00 Appraisal/Title City Loan Financial Services, Inc. Ohio 100.00 Direct loan Commercial Credit Banking Corporation Oregon 100.00 Consumer finance Commercial Credit Consumer Services, Inc. Minnesota 100.00 Consumer finance Commercial Credit Corporation [AL] Alabama 100.00 Consumer finance Commercial Credit Corporation [CA] California 100.00 Consumer finance
6 94
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ Commercial Credit Corporation [HI] Hawaii 100.00 Financial services Commercial Credit Corporation [IA] Iowa 100.00 Consumer finance Commercial Credit of Alabama, Inc. Delaware 100.00 Consumer lending Commercial Credit of Mississippi, Inc. Delaware 100.00 Consumer finance Commercial Credit Corporation [KY] Kentucky 100.00 Consumer finance Certified Insurance Agency, Inc. Kentucky 100.00 Insurance agency Commercial Credit Investment, Inc. Kentucky 100.00 Investment company National Life Insurance Agency of Kentucky, Inc. Kentucky 100.00 Insurance agency Union Casualty Insurance Agency, Inc. Kentucky 100.00 Insurance agency Commercial Credit Corporation [MD] Maryland 100.00 Consumer finance Action Data Services, Inc. Missouri 100.00 Data processing Commercial Credit Plan, Incorporated [OK] Oklahoma 100.00 Consumer finance Commercial Credit Corporation [NY] New York 100.00 Consumer finance Commercial Credit Corporation [SC] South Carolina 100.00 Consumer finance Commercial Credit Corporation [WV] West Virginia 100.00 Consumer finance Commercial Credit Corporation NC North Carolina 100.00 Consumer finance Commercial Credit Europe, Inc. Delaware 100.00 Inactive Commercial Credit Far East Inc. Delaware 100.00 Inactive Commercial Credit Insurance Services, Inc. Maryland 100.00 Insurance broker Commercial Credit Insurance Agency (P&C) of Mississippi, Inc. Mississippi 100.00 Insurance agency Commercial Credit Insurance Agency of Alabama, Inc. Alabama 100.00 Insurance agency Commercial Credit Insurance Agency of Hawaii, Inc. Hawaii 100.00 Insurance agency Commercial Credit Insurance Agency of Kentucky, Inc. Kentucky 100.00 Insurance agency Commercial Credit Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 Insurance agency Commercial Credit Insurance Agency of Nevada, Inc. Nevada 100.00 Credit LH&A, P-C insurance Commercial Credit Insurance Agency of New Mexico, Inc. New Mexico 100.00 Insurance agency/ Broker Commercial Credit Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance agency/ broker Commercial Credit International, Inc. Delaware 100.00 Holding company Commercial Credit International Banking Corporation Oregon 100.00 International lending Commercial Credit Corporation CCC Limited Canada 100.00 Second mortgage loans
7 95
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ Commercial Credit Services do Brazil Ltda. Brazil 99.00 Inactive Commercial Credit Services Belgium S.A. Belgium 100.00 Inactive Commercial Credit Limited Delaware 100.00 Inactive Commercial Credit Loan, Inc. [NY] New York 100.00 Consumer finance Commercial Credit Loans, Inc. [DE] Delaware 100.00 Consumer finance Commercial Credit Loans, Inc. [OH] Ohio 100.00 Consumer finance Commercial Credit Loans, Inc. [VA] Virginia 100.00 Consumer finance Commercial Credit Management Corporation Maryland 100.00 Intercompany services Commercial Credit Plan Incorporated [TN] Tennessee 100.00 Consumer finance Commercial Credit Plan Incorporated [UT] Utah 100.00 Consumer finance Commercial Credit Plan Incorporated of Georgetown Delaware 100.00 Consumer finance Commercial Credit Plan Industrial Loan Company Virginia 100.00 Consumer finance Commercial Credit Plan, Incorporated [CO] Colorado 100.00 Consumer finance Commercial Credit Plan, Incorporated [DE] Delaware 100.00 Consumer finance Commercial Credit Plan, Incorporated [GA] Georgia 100.00 Consumer finance Commercial Credit Plan, Incorporated [MO] Missouri 100.00 Consumer finance Commercial Credit Securities, Inc. Delaware 100.00 Broker dealer DeAlessandro & Associates, Inc. Delaware 100.00 Inactive Park Tower Holdings, Inc. Delaware 100.00 Holding company CC Retail Services, Inc. Delaware 100.00 Leasing, financing Troy Textiles, Inc. Delaware 100.00 Inactive Commercial Credit Development Corporation Delaware 100.00 Direct loan Myers Park Properties, Inc. Delaware 100.00 Inactive Travelers Home Mortgage Services of Alabama, Inc. Delaware 100.00 Inactive Penn Re, Inc. North Carolina 100.00 Management company Plympton Concrete Products, Inc. Delaware 100.00 Inactive Resource Deployment, Inc. Texas 100.00 Management company The Travelers Bank Delaware 100.00 Banking services The Travelers Bank USA Delaware 100.00 Credit card bank Travelers Home Equity, Inc. North Carolina 100.00 Financial services
8 96
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ CC Consumer Services of Alabama, Inc. Alabama 100.00 Financial services CC Home Lenders Financial, Inc. Georgia 100.00 Financial services CC Home Lenders, Inc. Ohio 100.00 Financial services Commercial Credit Corporation [TX] Texas 100.00 Consumer finance Commercial Credit Financial of Kentucky, Inc. Kentucky 100.00 Consumer finance Commercial Credit Financial of West Virginia, Inc. West Virginia 100.00 Consumer finance Commercial Credit Plan Consumer Discount Company Pennsylvania 100.00 Financial services Commercial Credit Services of Kentucky, Inc. Kentucky 100.00 Financial services. Travelers Home Mortgage Services, Inc. North Carolina 100.00 Financial services Triton Insurance Company Missouri 100.00 P-C insurance Verochris Corporation Delaware 100.00 Joint venture company AMC Aircraft Corp. Delaware 100.00 Aviation World Service Life Insurance Company Colorado 100.00 Life insurance Greenwich Street Capital Partners, Inc. Delaware 100.00 Investments Greenwich Street Investments, Inc. Delaware 100.00 Investments Greenwich Street Capital Partners Offshore Holdings, Inc. Delaware 100.00 Investments Mirasure Insurance Company, Ltd. Bermuda 100.00 Inactive Pacific Basin Investments Ltd. Delaware 100.00 Inactive Primerica Corporation Wyoming 100.00 Inactive Primerica, Inc. Delaware 100.00 Name saver Smith Barney Corporate Trust Company Delaware 100.00 Trust company Smith Barney Holdings Inc. Delaware 100.00 Holding company Nextco Inc. Delaware 100.00 Purchasing R-H Capital, Inc. Delaware 100.00 Investments R-H Sports Enterprises Inc Georgia 100.00 Sports representation SB Cayman Holdings I Inc. Delaware 100.00 Holding company Greenwich (Cayman) I Limited Cayman Islands 100.00 Corporate services Greenwich (Cayman) II Limited Cayman Islands 100.00 Corporate services Greenwich (Cayman) III Limited Cayman Islands 100.00 Corporate services SB Cayman Holdings II Inc. Delaware 100.00 Holding company
9 97
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ SB Cayman Holdings III Inc. Delaware 100.00 Holding company SB Cayman Holdings IV Inc. Delaware 100.00 Holding company Smith Barney (Delaware) Inc. Delaware 100.00 Holding company 1345 Media Corp. Delaware 100.00 Holding company Corporate Realty Advisors, Inc. Delaware 100.00 Realty trust adviser IPO Holdings Inc. Delaware 100.00 Holding company Institutional Property Owners, Inc. V Delaware 100.00 Investments Institutional Property Owners, Inc. VI Delaware 100.00 General partner MLA 50 Corporation Delaware 100.00 Limited partner MLA GP Corporation Delaware 100.00 General partner Smith Barney Acquisition Corporation Delaware 100.00 Offshore fund adviser Smith Barney Global Capital Management, Inc. Delaware 100.00 Investment management Smith Barney Realty, Inc. Delaware 100.00 Investments Smith Barney Risk Investors, Inc. Delaware 100.00 Investments Smith Barney Venture Corp. Delaware 100.00 Investments Smith Barney (Ireland) Limited Ireland 100.00 Fund management Smith Barney Asia Inc. Delaware 100.00 Investment banking Smith Barney Asset Management Group (Asia) Pte. Ltd. Singapore 100.00 Asset management Smith Barney Canada Inc. Canada 100.00 Investment dealer Smith Barney Capital Services Inc. Delaware 100.00 Derivative product transactions Smith Barney Cayman Islands, Ltd. Cayman Islands 100.00 Securities trading Smith Barney Commercial Corp. Delaware 100.00 Commercial credit Smith Barney Commercial Corporation Asia Limited Hong Kong 99.00 Commodities trading Smith Barney Europe Holdings, Ltd. United Kingdom 100.00 Holding corp. Smith Barney Europe, Ltd. United Kingdom 100.00 Securities brokerage Smith Barney Futures Management Inc. Delaware 100.00 Commodities pool operator Smith Barney Offshore Fund Ltd. Delaware 100.00 Commodity pool Smith Barney Overview Fund PLC Dublin 100.00 Commodity fund Smith Barney Inc. Delaware 100.00 Broker dealer SBHU Life Agency, Inc. Delaware 100.00 Insurance brokerage
10 98
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ Robinson-Humphrey Insurance Services Inc. Georgia 100.00 Insurance brokerage Robinson-Humphrey Insurance Services of Alabama, Inc. Alabama 100.00 Insurance brokerage SBHU Life Agency of Arizona, Inc. Arizona 100.00 Insurance brokerage SBHU Life Agency of Indiana, Inc. Indiana 100.00 Insurance brokerage SBHU Life Agency of Utah, Inc. Utah 100.00 Insurance brokerage SBHU Life Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 Insurance brokerage SBS Insurance Agency of Hawaii, Inc. Hawaii 100.00 Insurance brokerage SBS Insurance Agency of Idaho, Inc. Idaho 100.00 Insurance brokerage SBS Insurance Agency of Maine, Inc. Maine 100.00 Insurance brokerage SBS Insurance Agency of Montana, Inc. Montana 100.00 Insurance brokerage SBS Insurance Agency of Nevada, Inc. Nevada 100.00 Insurance brokerage SBS Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance brokerage SBS Insurance Agency of South Dakota, Inc. South Dakota 100.00 Insurance brokerage SBS Insurance Agency of Wyoming, Inc. Wyoming 100.00 Insurance brokerage SBS Insurance Brokerage Agency of Arkansas, Inc. Arkansas 100.00 Insurance brokerage SBS Insurance Brokers of Kentucky, Inc. Kentucky 100.00 Insurance brokerage SBS Insurance Brokers of New Hampshire, Inc. New Hampshire 100.00 Insurance brokerage SBS Insurance Brokers of North Dakota, Inc. North Dakota 100.00 Insurance brokerage SBS Life Insurance Agency of Puerto Rico, Inc. Puerto Rico 100.00 Insurance brokerage SLB Insurance Agency of Maryland, Inc. Maryland 100.00 Insurance brokerage Smith Barney Life Agency Inc. Louisiana 100.00 Insurance brokerage Smith Barney (Hong Kong) Limited Hong Kong 100.00 Broker dealer Smith Barney (Netherlands) Inc. Delaware 100.00 Broker dealer Smith Barney International Incorporated Oregon 100.00 Broker dealer Smith Barney (Singapore) Pte Ltd Singapore 100.00 Commodities Smith Barney Pacific Holdings, Inc. British Virgin Islands 100.00 Holding company Smith Barney (Asia) Limited Hong Kong 100.00 Broker dealer Smith Barney (Pacific) Limited Hong Kong 100.00 Commodities dealer Smith Barney Securities Pte Ltd Singapore 100.00 Securities brokerage Smith Barney Puerto Rico Inc. Puerto Rico 100.00 Broker dealer
11 99
% of Voting Securities Owned Directly State of or Indirectly by Organization The Travelers Inc. Principal Business ------------ ----------------- ------------------ The Robinson-Humphrey Company, Inc. Delaware 100.00 Broker dealer Smith Barney Mortgage Brokers Inc. Delaware 100.00 Mortgage brokerage Smith Barney Mortgage Capital Corp. Delaware 100.00 Mortgage-backed securities Smith Barney Mortgage Capital Group, Inc. Delaware 100.00 Mortgage trading Smith Barney Mutual Funds Management Inc. Delaware 100.00 Investment management Smith Barney Asset Management Co., Ltd. Japan 100.00 Investment advisor Smith Barney Strategy Advisers Inc. Delaware 100.00 Investment management E.C. Tactical Management S.A. Luxembourg 100.00 Investment management Smith Barney Offshore, Inc. Delaware 100.00 Decathlon Fund advisor Decathlon Offshore Limited Cayman Islands 100.00 Commodity fund Smith Barney S.A. France 100.00 Commodities trading Smith Barney Asset Management France S.A. France 100.00 Com. based asset management Smith Barney Securities Investment Consulting Co. Ltd. Taiwan 99.00 Investrment analysis Smith Barney Shearson (Chile) Corredora de Seguro Limitada Chile 100.00 Insurance brokerage Structured Mortgage Securities Corporation Delaware 100.00 Mortgage-backed securities The Travelers Investment Management Company Connecticut 100.00 Investment advisor Smith Barney Private Trust Company New York 100.00 Trust company. Smith Barney Private Trust Company of Florida Florida 100.00 Trust company Tinmet Corporation Delaware 100.00 Inactive Travelers Group Diversified Distribution Services, Inc. Delaware 100.00 Alternative marketing Travelers Group Exchange, Inc. Delaware 100.00 Insurance agency Travelers Services Inc. Delaware 100.00 Holding company Tribeca Management Inc. Delaware 100.00 TRV Employees Investments, Inc. Delaware 100.00 Investments TRV/RCM Corp. Delaware 100.00 Inactive TRV/RCM LP Corp. Delaware 100.00 Inactive
12 100 Item 27. Number of Contract Owners As of March 1, 1997, 5,449 contract owners held qualified and non-qualified contracts offered through the Registrant. Item 28. Indemnification Section 33-320a of the Connecticut General Statutes ("C.G.S.") regarding indemnification of directors and officers of Connecticut corporations provides in general that Connecticut corporations shall indemnify their officers, directors and certain other defined individuals against judgments, fines, penalties, amounts paid in settlement and reasonable expenses actually incurred in connection with proceedings against the corporation. The corporation's obligation to provide such indemnification generally does not apply unless (1) the individual is successful on the merits in the defense of any such proceeding; or (2) a determination is made (by persons specified in the statute) that the individual acted in good faith and in the best interests of the corporation; or (3) the court, upon application by the individual, determines in view of all of the circumstances that such person is fairly and reasonably entitled to be indemnified, and then for such amount as the court shall determine. With respect to proceedings brought by or in the right of the corporation, the statute provides that the corporation shall indemnify its officers, directors and certain other defined individuals, against reasonable expenses actually incurred by them in connection with such proceedings, subject to certain limitations. C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut corporation cannot indemnify a director or officer to an extent either greater or less than that authorized by the statute, e.g., pursuant to its certificate of incorporation, by-laws, or any separate contractual arrangement. However, the statute does specifically authorize a corporation to procure indemnification insurance to provide greater indemnification rights. The premiums for such insurance may be shared with the insured individuals on an agreed basis. Travelers Group Inc. also provides liability insurance for its directors and officers and the directors and officers of its subsidiaries, including the Depositor. This insurance provides for coverage against loss from claims made against directors and officers in their capacity as such, including, subject to certain exceptions, liabilities under the Federal securities laws. Rule 484 Undertaking Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liability (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 101 Item 29. Principal Underwriter (a) Tower Square Securities, Inc. One Tower Square Hartford, Connecticut 06183 Tower Square Securities, Inc. also serves as principal underwriter for the following : The Travelers Growth and Income Stock Account for Variable Annuities The Travelers Quality Bond Account for Variable Annuities The Travelers Money Market Account for Variable Annuities The Travelers Timed Growth and Income Stock Account for Variable Annuities The Travelers Timed Short-Term Bond Account for Variable Annuities The Travelers Timed Aggressive Stock Account for Variable Annuities The Travelers Timed Bond Account for Variable Annuities The Travelers Fund U for Variable Annuities The Travelers Fund VA for Variable Annuities The Travelers Fund BD for Variable Annuities The Travelers Fund ABD for Variable Annuities The Travelers Fund ABD II for Variable Annuities The Travelers Separate Account QP for Variable Annuities The Travelers Separate Account QP II for Variable Annuities The Travelers Fund UL for Variable Life Insurance The Travelers Fund UL II for Variable Life Insurance The Travelers Variable Life Insurance Separate Account One The Travelers Variable Life Insurance Separate Account Three The Travelers Variable Life Insurance Separate Account Two The Travelers Variable Life Insurance Separate Account Four
(b) Name and Principal Positions and Offices Business Address * With Underwriter ------------------ ---------------- Russell H. Johnson Chairman of the Board, Chief Executive Officer, President and Chief Operating Officer William F. Scully, III Member, Board of Directors, Senior Vice President, Treasurer and Chief Financial Officer Joanne K. Russo Member, Board of Directors Senior Vice President Cynthia P. Macdonald Vice President, Chief Compliance Officer and Assistant Secretary Kathleen A. McGah General Counsel and Secretary Jay S. Benet Member, Board of Directors George C. Kokulis Member, Board of Directors Warren H. May Member, Board of Directors Donald R. Munson, Jr. Senior Vice President Stuart L. Baritz Vice President
102
(b) Name and Principal Positions and Offices Business Address * With Underwriter ------------------ ---------------- Michael P. Kiley Vice President Tracey Kiff-Judson Second Vice President Robin A. Jones Second Vice President Whitney F. Burr Second Vice President Marlene M. Ibsen Second Vice President John J. Williams, Jr. Director and Assistant Compliance Officer Susan M. Cursio Director and Operations Manager Dennis D. D'Angelo Director Thomas P. Tooley Director Nancy S. Waldrop Assistant Treasurer
* Principal business address: One Tower Square, Hartford, Connecticut 06183 (c) Not Applicable. Item 30. Location of Accounts and Records (1) The Travelers Life and Annuity Company One Tower Square Hartford, Connecticut 06183 Item 31. Management Services Not applicable. Item 32. Undertakings The undersigned Registrant hereby undertakes: (a) To file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for so long as payments under the variable annuity contracts may be accepted; (b) To include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information; and (c) To deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. The Company hereby represents: (a) That the aggregate charges under the 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. 103 SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this post-effective amendment to this registration statement and has duly caused this post-effective amendment to this registration statement to be signed on its behalf, in the City of Hartford, State of Connecticut, on this 29th day of April, 1997. THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES (Registrant) THE TRAVELERS LIFE AND ANNUITY COMPANY (Depositor) By: *IAN R. STUART -------------------------------------- Ian R. Stuart Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Controller As required by the Securities Act of 1933, this post-effective amendment to this registration statement has been signed by the following persons in the capacities indicated on April 29, 1997.
*MICHAEL A. CARPENTER Director, Chairman of the Board, President - ------------------------------ (Michael A. Carpenter) and Chief Executive Officer *JAY S. BENET Director - ------------------------------ (Jay S. Benet) *GEORGE C. KOKULIS Director - ----------------------------- (George C. Kokulis *ROBERT I. LIPP Director - ------------------------------ (Robert I. Lipp) *IAN R. STUART Director, Senior Vice President, Chief - ------------------------------ (Ian R. Stuart) Financial Officer, Chief Accounting Officer and Controller *KATHERINE M. SULLIVAN - ------------------------------ Director, Senior Vice President and (Katherine M. Sullivan) General Counsel *MARC P. WEILL Director - ------------------------------ (Marc P. Weill)
*By: Ernest J. Wright, Attorney-in-Fact 104 EXHIBIT INDEX -------------
Exhibit No. Description Method of Filing - --- ----------- ---------------- 1. Resolution of The Travelers Life and Annuity Company Board of Directors authorizing the establishment of the Registrant. (Incorporated herein by reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 3(a). Distribution and Management Agreement. (Incorporated herein by reference to Exhibit 3 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4, filed September 8, 1995.) 3(b). Form of Selling Agreement. (Incorporated herein by reference to Exhibit 3(b) to Post-Effective Amendment No. 1 to the Registration Statement on Form N-4, filed April 23, 1996.) 4. Variable Annuity Contracts. (Incorporated herein reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 5. Form of Applications. (Incorporated herein by reference to Exhibit 5 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4, filed September 8, 1995.) 6(a). Charter of The Travelers Life and Annuity Company, as amended on April 10, 1990. (Incorporated herein by reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 6(b). By-Laws of The Travelers Life and Annuity Company, as amended on October 20, 1994. (Incorporated herein by reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 9. Opinion of Counsel as to the legality of securities being Electronically registered by Registrant. 10(a). Consent of Coopers & Lybrand L.L.P., Independent Electronically Accountants. 10(b). Consent of KPMG Peat Marwick LLP, Independent Electronically Certified Public Accountants.
105
Exhibit No. Description Method of Filing - --- ----------- ---------------- 13. Schedule for computation of each performance quotation - Electronically Standardized and Non-Standardized. 15(a). Powers of Attorney authorizing Ernest J. Wright and Electronically Kathleen A. McGah as signatory for Michael A. Carpenter, Jay S. Benet, George C. Kokulis, Ian R. Stuart and Katherine M. Sullivan. 15(b). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as signatory for Michael A. Carpenter, Robert I. Lipp, Charles O. Prince III, Marc P. Weill, and Irwin R. Ettinger. (Incorporated herein by reference to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on March 17, 1995.) 27. Financial Data Schedules. Electronically
EX-9 2 OPINION OF COUNSEL 1 EXHIBIT 9 April 28, 1997 The Travelers Life and Annuity Company The Travelers Fund BD II for Variable Annuities One Tower Square Hartford, Connecticut 06183 Gentlemen: With reference to the Post-Effective Amendment No. 2 to the Registration Statement on Form N-4 filed by The Travelers Life and Annuity Company and The Travelers Fund BD II for Variable Annuities with the Securities and Exchange Commission covering Flexible Premium Variable Annuity Contracts, I have examined such documents and such law as I have considered necessary and appropriate, and on the basis of such examination, it is my opinion that: 1. The Travelers Life and Annuity Company is duly organized and existing under the laws of the State of Connecticut and has been duly authorized to do business and to issue variable annuity contracts by the Insurance Commissioner of the State of Connecticut. 2. The Travelers Fund BD II for Variable Annuities is a duly authorized and validly existing separate account established pursuant to Section 38a-433 of the Connecticut General Statutes. 3. The variable annuity contracts covered by the above Registration Statement, and all Post-Effective Amendments related thereto, have been approved and authorized by the Insurance Commissioner of the State of Connecticut and when issued will be valid, legal and binding obligations of The Travelers Life and Annuity Company and of The Travelers Fund BD II for Variable Annuities. 4. Assets of The Travelers Fund BD II for Variable Annuities are not chargeable with liabilities arising out of any other business The Travelers Life and Annuity Company may conduct. I hereby consent to the filing of this opinion as an exhibit to the above-referenced Post-Effective Amendment and to the reference to this opinion under the caption "Legal Proceedings and Opinion" in the Prospectus constituting a part of such Post-Effective Amendment. Very truly yours, Katherine M. Sullivan General Counsel The Travelers Insurance Company EX-10.A 3 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT (10a) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Post-Effective Amendment No. 2 to the Registration Statement of The Travelers Fund BD II for Variable Annuities (the "Fund") on Form N-4 (File No. 33-58131) of our report dated February 7, 1997, on our audit of the financial statements of the Fund, which report is included in the Fund's Annual Report for the year ended December 31, 1996 which is incorporated by reference in this Post-Effective Amendment to the Registration Statement. We also consent to the reference to our Firm as experts in accounting and auditing under the caption "Independent Accountants" in the Statement of Additional Information. COOPERS & LYBRAND L.L.P. Hartford, Connecticut April 24, 1997 EX-10.B 4 CONSENT OF KPMG PEAT MARWICK LLP 1 Exhibit 10(b) Consent of Independent Certified Accountants The Board of Directors The Travelers Life and Annuity Company: We consent to the use of our report included herein and to the reference to our firm as experts under the heading "Independent Accountants". KPMG Peat Marwick LLP Hartford, Connecticut April 23, 1997 EX-13 5 SCHEDULE FOR COMPUTATION OF EACH PERFORM. QUOTAT. 1 EXHIBIT 13 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS The standardized and nonstandardized average annual total returns are computed according to the formula described below. A hypothetical initial investment of $1,000 is applied to the fund, and then related to ending redeemable values as of the most recent fiscal year end for the calendar year-to-date (nonstandardized only), and over a 1-year, 3-year (nonstandardized only), 5-year, and 10-year period, or since inception if a fund has not been in existence for one of the prescribed periods. T = (ERV/P)1/n - 1 where: T = average annual total return P = a hypothetical initial payment of $1,000 n = the applicable year (1, 3, 5, 10) or portion thereof ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of each of the periods Both the standardized and nonstandardized performance returns reflect the deduction for the management fees and other expenses for a fund, the mortality and expense risk charge and the sub-account administrative charge. For Underlying Funds that were in existence prior to the date they became available under Fund BD II, the standardized average total return and nonstandardized total return quotations will show the investment performance that such funds would have achieved (reduced by the applicable fees/charges) had they been held under the Contract for the period quoted. The total return quotations are based upon historical earnings and are not necessarily representative of future performance. An Owner's Contract Value at redemption may be more or less than original cost. Standardized Method The standardized returns take into consideration all fees and/or charges applicable to the fund or contract. Under the standardized method, the $30 annual contract administrative charge is reflected in the calculation and is assumed to be deducted at the end of August of each year. It is expressed as a percentage of assets based on the actual fees collected divided by the average net assets for contracts sold under the prospectus for each year for which performance is shown. Each standardized average annual total return quotation assumes a total redemption at the end of each period with the assessment of any applicable contingent deferred sales charge (6%, 6%, 6%, 3%, 2%, 1%) at that time. Nonstandardized Method Nonstandardized returns do not reflect the deduction of any applicable contingent deferred sales charge or the $30 annual contract administrative charge, which, if reflected, would decrease the level of performance shown. The contingent deferred sales charge is not reflected because the contract is designed for long-term investment. For a Schedule of the Computation of the Total Return Quotations, both Standardized and Nonstandardized, see attached. 2 1 PAGE 1
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KASB - ALLIANCE GROWTH STOCK PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .985459 .000750 08/31/94 1.036952 -.15 -.145 .000750 09/30/94 1.054122 .000750 12/30/94 1.047185 .000750 03/31/95 1.119181 .000160 06/30/95 1.271698 .000160 08/31/95 1.347942 -.19 -.142 .000160 09/29/95 1.380993 .000160 12/29/95 1.395807 1,000.00 716.431 .000160 03/29/96 1.481497 .000210 06/28/96 1.555539 .000210 08/30/96 1.513253 -.15 -.097 -.30 -.198 .000210 09/30/96 1.630989 .000210 12/31/96 1.784859 -.08 -.047 -.12 -.065 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 716.288 999.449 ACCOUNT VALUE 1,278.47 1,783.88 SURRENDER VALUE 1,218.47 1,723.88 TOTAL RETURN 21.85 % 72.39 % % ANNUALIZED RETURN 23.97 % %
3
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KBSB - MFS EMERGING GROWTH PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 08/30/96 1.000000 1000.00 1000.000 .000210 12/31/96 1.005293 -.07 -.071 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 999.929 ACCOUNT VALUE 1,005.22 SURRENDER VALUE 945.22 TOTAL RETURN - 5.48 % % % ANNUALIZED RETURN % %
4
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KCSB - AIM CAPITAL APPRECIATION PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 10/10/95 1.000000 1,000.00 1,000.000 .000160 12/29/95 .957880 1,000.00 1,043.972 .000160 03/29/96 1.007039 .000210 06/28/96 1.051683 .000210 08/30/96 1.013934 -.15 -.143 -.19 -.186 .000210 09/30/96 1.083106 .000210 12/31/96 1.087899 -.08 -.071 -.07 -.068 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 1,043.758 999.746 ACCOUNT VALUE 1,135.50 1,087.62 SURRENDER VALUE 1,075.50 1,027.62 TOTAL RETURN 7.55 % 2.76 % % ANNUALIZED RETURN 2.24 % %
5
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KESB - AMCAP GROWTH STOCK PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/21/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .986273 .000750 08/31/94 1.061716 -.15 -.142 .000750 09/30/94 1.039042 .000750 12/30/94 1.038598 .000750 03/31/95 1.122009 .000160 06/30/95 1.247025 .000160 08/31/95 1.327909 -.19 -.144 .000160 09/29/95 1.361487 .000160 12/29/95 1.361968 1,000.00 734.232 .000160 03/29/96 1.464234 .000210 06/28/96 1.516666 .000210 08/30/96 1.476913 -.15 -.099 -.29 -.199 .000210 09/30/96 1.587437 .000210 12/31/96 1.654709 -.08 -.049 -.11 -.067 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 734.083 999.448 ACCOUNT VALUE 1,214.69 1,653.80 SURRENDER VALUE 1,154.69 1,593.80 TOTAL RETURN 15.47 % 59.38 % % ANNUALIZED RETURN 20.22 % %
6
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KFSB - TBC MANAGED INCOME PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/28/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .997936 .000750 08/31/94 1.009924 -.13 -.131 .000750 09/30/94 1.000974 .000750 12/30/94 .996653 .000750 03/31/95 1.030866 .000160 06/30/95 1.086949 .000160 08/31/95 1.091827 -.17 -.154 .000160 09/29/95 1.101802 .000160 12/29/95 1.141791 1,000.00 875.817 .000160 03/29/96 1.112265 .000210 06/28/96 1.110061 .000210 08/30/96 1.113044 -.14 -.125 -.23 -.208 .000210 09/30/96 1.131743 .000210 12/31/96 1.162515 -.07 -.061 -.08 -.069 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 875.631 999.438 ACCOUNT VALUE 1,017.93 1,161.86 SURRENDER VALUE 957.93 1,101.86 TOTAL RETURN -4.21 % 10.19 % % ANNUALIZED RETURN 3.94 % %
7
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KGSB - GT GLOBAL STRATEGIC INCOME PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/21/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .994712 .000750 08/31/94 1.002719 -.15 -.146 .000750 09/30/94 .995774 .000750 12/30/94 .944948 .000750 03/31/95 .971239 .000160 06/30/95 1.035311 .000160 08/31/95 1.036243 -.16 -.157 .000160 09/29/95 1.062162 .000160 12/29/95 1.120662 1,000.00 892.330 .000160 03/29/96 1.119396 .000210 06/28/96 1.166372 .000210 08/30/96 1.209982 -.15 -.121 -.24 -.195 .000210 09/30/96 1.251707 .000210 12/31/96 1.315783 -.08 -.061 -.09 -.068 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 892.148 999.434 ACCOUNT VALUE 1,173.87 1,315.04 SURRENDER VALUE 1,113.87 1,255.04 TOTAL RETURN 11.39 % 25.50 % % ANNUALIZED RETURN 9.39 % %
8
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KHSB - SB HIGH INCOME PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/22/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 1.000743 .000750 08/31/94 1.008728 -.14 -.143 .000750 09/30/94 1.007761 .000750 12/30/94 .987591 .000750 03/31/95 1.035328 .000160 06/30/95 1.082768 .000160 08/31/95 1.103795 -.17 -.153 .000160 09/29/95 1.115852 .000160 12/29/95 1.162368 1,000.00 860.313 .000160 03/29/96 1.186133 .000210 06/28/96 1.199365 .000210 08/30/96 1.214741 -.14 -.119 -.24 -.200 .000210 09/30/96 1.249875 .000210 12/31/96 1.299760 -.08 -.059 -.09 -.068 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 860.135 999.435 ACCOUNT VALUE 1,117.97 1,299.03 SURRENDER VALUE 1,057.97 1,239.03 TOTAL RETURN 5.80 % 23.90 % % ANNUALIZED RETURN 8.85 % %
9
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KISB - SB INTERNATIONAL EQUITY PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 1.026673 .000750 08/31/94 1.049587 -.15 -.144 .000750 09/30/94 1.022658 .000750 12/30/94 .954944 .000750 03/31/95 .917500 .000160 06/30/95 1.011661 .000160 08/31/95 1.031348 -.17 -.161 .000160 09/29/95 1.050095 .000160 12/29/95 1.050280 1,000.00 952.127 .000160 03/29/96 1.137381 .000210 06/28/96 1.185893 .000210 08/30/96 1.175684 -.15 -.127 -.23 -.197 .000210 09/30/96 1.194989 .000210 12/31/96 1.221893 -.08 -.066 -.08 -.069 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 951.934 999.428 ACCOUNT VALUE 1,163.16 1,221.19 SURRENDER VALUE 1,103.16 1,161.19 TOTAL RETURN 10.32 % 16.12 % % ANNUALIZED RETURN 6.07 % %
10
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KJSB - SB INCOME & GROWTH PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .986696 .000750 08/31/94 1.023616 -.15 -.146 .000750 09/30/94 1.011679 .000750 12/30/94 .981491 .000750 03/31/95 1.062254 .000160 06/30/95 1.135578 .000160 08/31/95 1.184840 -.18 -.149 .000160 09/29/95 1.217392 .000160 12/29/95 1.290871 1,000.00 774.671 .000160 03/29/96 1.361130 .000210 06/28/96 1.398072 .000210 08/30/96 1.380298 -.15 -.106 -.27 -.195 .000210 09/30/96 1.439629 .000210 12/31/96 1.528131 -.08 -.052 -.10 -.067 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 774.513 999.442 ACCOUNT VALUE 1,183.56 1,527.28 SURRENDER VALUE 1,123.56 1,467.28 TOTAL RETURN 12.36 % 46.73 % % ANNUALIZED RETURN 16.33 % %
11
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KMSB - SB MONEY MARKET PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 1.000609 .000750 08/31/94 1.004912 -.15 -.148 .000750 09/30/94 1.007300 .000750 12/30/94 1.015687 .000750 03/31/95 1.026068 .000160 06/30/95 1.037078 .000160 08/31/95 1.044340 -.16 -.157 .000160 09/29/95 1.047683 .000160 12/29/95 1.058195 1,000.00 945.005 .000160 03/29/96 1.067946 .000210 06/28/96 1.077435 .000210 08/30/96 1.084213 -.14 -.132 -.22 -.206 .000210 09/30/96 1.087590 .000210 12/31/96 1.097670 -.07 -.066 -.08 -.070 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 944.807 999.419 ACCOUNT VALUE 1,037.09 1,097.03 SURRENDER VALUE 977.09 1,037.03 TOTAL RETURN -2.29 % 3.70 % % ANNUALIZED RETURN 1.45 % %
12
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KPSB - PUTNAM DIVERSIFIED INCOME PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 1.000680 .000750 08/31/94 1.011665 -.15 -.147 .000750 09/30/94 1.014679 .000750 12/30/94 1.008510 .000750 03/31/95 1.055554 .000160 06/30/95 1.102322 .000160 08/31/95 1.112083 -.17 -.153 .000160 09/29/95 1.121984 .000160 12/29/95 1.170101 1,000.00 854.627 .000160 03/29/96 1.163590 .000210 06/28/96 1.172571 .000210 08/30/96 1.186659 -.14 -.120 -.24 -.203 .000210 09/30/96 1.215280 .000210 12/31/96 1.251655 -.07 -.059 -.09 -.069 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 854.449 999.428 ACCOUNT VALUE 1,069.47 1,250.94 SURRENDER VALUE 1,009.47 1,190.94 TOTAL RETURN .95 % 19.09 % % ANNUALIZED RETURN 7.14 % %
13
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KRSB - SB TOTAL RETURN PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 12/03/93 0.928042 1,000.00 1,077.537 .000750 08/31/94 1.046264 -.59 -.566 .000750 12/30/94 1.013044 .000750 03/31/95 1.078553 .000160 06/30/95 1.177547 .000160 08/31/95 1.205359 -.19 -.161 .000160 09/29/95 1.214969 .000160 12/29/95 1.250571 1,000.00 799.635 .000160 03/29/96 1.344771 .000210 06/28/96 1.395509 .000210 08/30/96 1.372228 -.15 -.108 -.29 -.213 .000210 09/30/96 1.406871 .000210 12/31/96 1.550156 -.08 -.053 -.11 -.071 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 799.474 1,076.526 ACCOUNT VALUE 1,239.31 1,668.78 SURRENDER VALUE 1,179.31 1,638.78 TOTAL RETURN 17.93 % 63.88 % % ANNUALIZED RETURN 17.40 % %
14
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KSSB - SB PACIFIC BASIN PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/21/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .997711 .000750 08/31/94 1.031654 -.15 -.144 .000750 09/30/94 1.001746 .000750 12/30/94 .899312 .000750 03/31/95 .872934 .000160 06/30/95 .925707 .000160 08/31/95 .921901 -.16 -.169 .000160 09/29/95 .913159 .000160 12/29/95 .910187 1,000.00 1,098.675 .000160 03/29/96 .959518 .000210 06/28/96 .990012 .000210 08/30/96 .953795 -.14 -.151 -.20 -.206 .000210 09/30/96 .977259 .000210 12/31/96 .983484 -.08 -.077 -.07 -.070 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 1,098.447 999.411 ACCOUNT VALUE 1,080.31 982.90 SURRENDER VALUE 1,020.31 923.93 TOTAL RETURN 2.03 % -7.61 % % ANNUALIZED RETURN -3.08 % %
15
VINTAGE REGULAR DB STANDARDIZED PERFORMANCE KTSB - MFS TOTAL RETURN PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .984592 .000750 08/31/94 1.018774 -.15 -.147 .000750 09/30/94 1.002750 .000750 12/30/94 .978766 .000750 03/31/95 1.035973 .000160 06/30/95 1.098888 .000160 08/31/95 1.124611 -.17 -.152 .000160 09/29/95 1.153454 .000160 12/29/95 1.215923 1,000.00 822.420 .000160 03/29/96 1.250053 .000210 06/28/96 1.268749 .000210 08/30/96 1.259081 -.14 -.114 -.25 -.199 .000210 09/30/96 1.298353 .000210 12/31/96 1.375981 -.08 -.056 -.09 -.068 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 822.251 999.435 ACCOUNT VALUE 1,131.40 1,375.20 SURRENDER VALUE 1,071.40 1,315.20 TOTAL RETURN 7.14 % 31.52 % % ANNUALIZED RETURN 11.42 % %
16 1 PAGE 1
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KASE - ALLIANCE GROWTH STOCK PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .985382 .000750 08/31/94 1.036378 -.15 -.145 .000750 09/30/94 1.053296 .000750 12/30/94 1.045632 .000750 03/31/95 1.116740 .000160 06/30/95 1.268038 .000160 08/31/95 1.343428 -.19 -.142 .000160 09/29/95 1.376065 .000160 12/29/95 1.389856 1,000.00 719.499 .000160 03/29/96 1.474151 .000210 06/28/96 1.546748 .000210 08/30/96 1.503970 -.15 -.098 -.30 -.199 .000210 09/30/96 1.620599 .000210 12/31/96 1.772236 -.08 -.047 -.12 -.065 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 719.354 999.449 ACCOUNT VALUE 1,274.87 1,771.26 SURRENDER VALUE 1,214.87 1,711.26 TOTAL RETURN 21.49 % 71.13 % % ANNUALIZED RETURN 23.61 % %
17
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KBSE - MFS EMERGING GROWTH PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 08/30/96 1.000000 1000.00 1000.000 .000210 12/31/96 1.004828 -.07 -.071 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 999.929 ACCOUNT VALUE 1,004.76 SURRENDER VALUE 944.76 TOTAL RETURN - 5.52 % % % ANNUALIZED RETURN % %
18
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KCSE - AIM CAPITAL APPRECIATION PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 10/10/95 1.000000 1,000.00 1,000.000 .000160 12/29/95 .957290 1,000.00 1,044.616 .000160 03/29/96 1.005716 .000210 06/28/96 1.049570 .000210 08/30/96 1.011401 -.14 -.143 -.19 -.186 .000210 09/30/96 1.080143 .000210 12/31/96 1.084162 -.08 -.071 -.07 -.068 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 1,044.401 999.746 ACCOUNT VALUE 1,132.30 1,083.89 SURRENDER VALUE 1,072.30 1,023.89 TOTAL RETURN 7.23 % 2.39 % % ANNUALIZED RETURN 1.94 % %
19
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KESE - AMCAP GROWTH STOCK PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/21/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .986205 .000750 08/31/94 1.061136 -.15 -.142 .000750 09/30/94 1.038238 .000750 12/30/94 1.037072 .000750 03/31/95 1.119575 .000160 06/30/95 1.243451 .000160 08/31/95 1.323473 -.19 -.144 .000160 09/29/95 1.356636 .000160 12/29/95 1.356166 1,000.00 737.373 .000160 03/29/96 1.456984 .000210 06/28/96 1.508096 .000210 08/30/96 1.467856 -.15 -.100 -.29 -.200 .000210 09/30/96 1.577330 .000210 12/31/96 1.643013 -.08 -.049 -.11 -.067 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 737.223 999.448 ACCOUNT VALUE 1,211.27 1,642.11 SURRENDER VALUE 1,151.27 1,582.11 TOTAL RETURN 15.13 % 58.21 % % ANNUALIZED RETURN 19.87 % %
20
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KFSE - TBC MANAGED INCOME PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/28/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .997920 .000750 08/31/94 1.009429 -.13 -.131 .000750 09/30/94 1.000255 .000750 12/30/94 .995239 .000750 03/31/95 1.028680 .000160 06/30/95 1.083893 .000160 08/31/95 1.088242 -.17 -.154 .000160 09/29/95 1.097942 .000160 12/29/95 1.136987 1,000.00 879.518 .000160 03/29/96 1.106817 .000210 06/28/96 1.103859 .000210 08/30/96 1.106293 -.14 -.126 -.23 -.208 .000210 09/30/96 1.124607 .000210 12/31/96 1.154371 -.07 -.061 -.08 -.069 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 879.331 999.437 ACCOUNT VALUE 1,015.07 1,153.72 SURRENDER VALUE 955.07 1,093.72 TOTAL RETURN -4.49 % 9.37 % % ANNUALIZED RETURN 3.63 % %
21
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KGSE - GT GLOBAL STRATEGIC INCOME PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/21/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .994643 .000750 08/31/94 1.002171 -.15 -.146 .000750 09/30/94 .994999 .000750 12/30/94 .943557 .000750 03/31/95 .969137 .000160 06/30/95 1.032348 .000160 08/31/95 1.032781 -.16 -.158 .000160 09/29/95 1.058379 .000160 12/29/95 1.115890 1,000.00 896.146 .000160 03/29/96 1.113849 .000210 06/28/96 1.159794 .000210 08/30/96 1.202577 -.15 -.122 -.23 -.195 .000210 09/30/96 1.243750 .000210 12/31/96 1.306499 -.08 -.061 -.09 -.068 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 895.963 999.434 ACCOUNT VALUE 1,170.57 1,305.76 SURRENDER VALUE 1,110.57 1,245.76 TOTAL RETURN 11.06 % 24.58 % % ANNUALIZED RETURN 9.07 % %
22
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KHSE - SB HIGH INCOME PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/22/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 1.000680 .000750 08/31/94 1.008181 -.14 -.143 .000750 09/30/94 1.006981 .000750 12/30/94 .986130 .000750 03/31/95 1.033081 .000160 06/30/95 1.079664 .000160 08/31/95 1.100100 -.17 -.153 .000160 09/29/95 1.111869 .000160 12/29/95 1.157405 1,000.00 864.002 .000160 03/29/96 1.180245 .000210 06/28/96 1.192578 .000210 08/30/96 1.207282 -.14 -.119 -.24 -.201 .000210 09/30/96 1.241907 .000210 12/31/96 1.290563 -.08 -.059 -.09 -.068 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 863.823 999.434 ACCOUNT VALUE 1,114.82 1,289.83 SURRENDER VALUE 1,054.82 1,229.83 TOTAL RETURN 5.48 % 22.98 % % ANNUALIZED RETURN 8.52 % %
23
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KISE - SB INTERNATIONAL EQUITY PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 1.026593 .000750 08/31/94 1.049009 -.15 -.144 .000750 09/30/94 1.021856 .000750 12/30/94 .953532 .000750 03/31/95 .915495 .000160 06/30/95 1.008743 .000160 08/31/95 1.027883 -.17 -.162 .000160 09/29/95 1.046336 .000160 12/29/95 1.045789 1,000.00 956.216 .000160 03/29/96 1.131726 .000210 06/28/96 1.179183 .000210 08/30/96 1.168464 -.15 -.128 -.23 -.197 .000210 09/30/96 1.187367 .000210 12/31/96 1.213242 -.08 -.066 -.08 -.069 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 956.022 999.427 ACCOUNT VALUE 1,159.89 1,212.55 SURRENDER VALUE 1,099.89 1,152.55 TOTAL RETURN 9.99 % 15.25 % % ANNUALIZED RETURN 5.76 % %
24
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KJSE - SB INCOME & GROWTH PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .986619 .000750 08/31/94 1.023049 -.15 -.146 .000750 09/30/94 1.010885 .000750 12/30/94 .980034 .000750 03/31/95 1.059933 .000160 06/30/95 1.132304 .000160 08/31/95 1.180863 -.18 -.149 .000160 09/29/95 1.213038 .000160 12/29/95 1.285355 1,000.00 777.995 .000160 03/29/96 1.354368 .000210 06/28/96 1.390158 .000210 08/30/96 1.371823 -.15 -.106 -.27 -.195 .000210 09/30/96 1.430452 .000210 12/31/96 1.517309 -.08 -.052 -.10 -.067 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 777.837 999.442 ACCOUNT VALUE 1,180.22 1,516.46 SURRENDER VALUE 1,120.22 1,456.46 TOTAL RETURN 12.02 % 45.65 % % ANNUALIZED RETURN 15.99 % %
25
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KMSE - SB MONEY MARKET PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 1.000530 .000750 08/31/94 1.004351 -.15 -.148 .000750 09/30/94 1.006507 .000750 12/30/94 1.014181 .000750 03/31/95 1.023835 .000160 06/30/95 1.034101 .000160 08/31/95 1.040838 -.16 -.157 .000160 09/29/95 1.043936 .000160 12/29/95 1.053676 1,000.00 949.058 .000160 03/29/96 1.062646 .000210 06/28/96 1.071332 .000210 08/30/96 1.077557 -.14 -.132 -.22 -.206 .000210 09/30/96 1.080658 .000210 12/31/96 1.089905 -.07 -.067 -.08 -.070 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 948.859 999.419 ACCOUNT VALUE 1,034.17 1,089.27 SURRENDER VALUE 974.17 1,029.27 TOTAL RETURN -2.58 % 2.93 % % ANNUALIZED RETURN 1.14 % %
26
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KPSE - PUTNAM DIVERSIFIED INCOME PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 1.000601 .000750 08/31/94 1.011105 -.15 -.147 .000750 09/30/94 1.013886 .000750 12/30/94 1.007016 .000750 03/31/95 1.053251 .000160 06/30/95 1.099150 .000160 08/31/95 1.108356 -.17 -.153 .000160 09/29/95 1.117977 .000160 12/29/95 1.165112 1,000.00 858.287 .000160 03/29/96 1.157818 .000210 06/28/96 1.165934 .000210 08/30/96 1.179366 -.14 -.120 -.24 -.204 .000210 09/30/96 1.207525 .000210 12/31/96 1.242792 -.07 -.059 -.09 -.069 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 858.107 999.427 ACCOUNT VALUE 1,066.45 1,242.08 SURRENDER VALUE 1,006.45 1,182.08 TOTAL RETURN .64 % 18.21 % % ANNUALIZED RETURN 6.82 % %
27
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KRSE - SB TOTAL RETURN PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 12/03/93 0.930558 1,000.00 1,074.624 .000750 08/31/94 1.046923 -.59 -.565 .000750 08/31/95 1.202763 -.19 -.161 .000160 09/29/95 1.212081 .000160 12/29/95 1.246730 1,000.00 802.098 .000160 03/29/96 1.339712 .000210 06/28/96 1.389285 .000210 08/30/96 1.365451 -.15 -.108 -.29 -.213 .000210 09/30/96 1.399592 .000210 12/31/96 1.541049 -.08 -.054 -.11 -.071 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 801.937 1,073.614 ACCOUNT VALUE 1,235.82 1,654.49 SURRENDER VALUE 1,175.82 1,624.49 TOTAL RETURN 17.58 % 62.45 % % ANNUALIZED RETURN 17.06 % %
28
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KSSE - SB PACIFIC BASIN PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/21/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .997642 .000750 08/31/94 1.031096 -.15 -.144 .000750 09/30/94 1.000974 .000750 12/30/94 .897995 .000750 03/31/95 .871049 .000160 06/30/95 .923065 .000160 08/31/95 .918828 -.16 -.170 .000160 09/29/95 .909910 .000160 12/29/95 .906317 1,000.00 1,103.367 .000160 03/29/96 .954774 .000210 06/28/96 .984434 .000210 08/30/96 .947960 -.14 -.152 -.20 -.207 .000210 09/30/96 .971048 .000210 12/31/96 .976546 -.08 -.077 -.07 -.070 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 1,103.138 999.410 ACCOUNT VALUE 1,077.26 975.97 SURRENDER VALUE 1,017.26 917.41 TOTAL RETURN 1.73 % -8.26 % % ANNUALIZED RETURN -3.35 % %
29
VINTAGE ENHANCED DB STANDARDIZED PERFORMANCE KTSE - MFS TOTAL RETURN PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 ANNUAL FEE ---- ----- ------- ----- ------- ----- -------- ------ ---------- 06/20/94 1.000000 1,000.00 1,000.000 .000750 06/30/94 .984517 .000750 08/31/94 1.018213 -.15 -.147 .000750 09/30/94 1.001965 .000750 12/30/94 .977320 .000750 03/31/95 1.033719 .000160 06/30/95 1.095736 .000160 08/31/95 1.120855 -.17 -.153 .000160 09/29/95 1.149344 .000160 12/29/95 1.210749 1,000.00 825.935 .000160 03/29/96 1.243863 .000210 06/28/96 1.261583 .000210 08/30/96 1.251368 -.14 -.115 -.25 -.199 .000210 09/30/96 1.290091 .000210 12/31/96 1.366261 -.08 -.056 -.09 -.068 .000210
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 825.765 999.434 ACCOUNT VALUE 1,128.21 1,365.49 SURRENDER VALUE 1,068.21 1,305.49 TOTAL RETURN 6.82 % 30.55 % % ANNUALIZED RETURN 11.09 % %
30 EXHIBIT 13 SPOTLIGHT ON VINTAGE ANNUITY - PERFORMANCE UPDATE AS OF 12/31/96 FNAME ----- ALLIANCE GROWTH STOCK UNIT VALUE RETURN ---------- ------ INCEPTION (06/20/94 ): 1.000000 25.68 12/86: 12/91: 12/93: 12/95: 1.395807 27.87 CURRENT 12/96: 1.784859 AMCAP GROWTH STOCK UNIT VALUE RETURN ---------- ------ INCEPTION (06/21/94 ): 1.000000 22.01 12/86: 12/91: 12/93: 12/95: 1.361968 21.49 CURRENT 12/96: 1.654709 TBC MANAGED INCOME UNIT VALUE RETURN ---------- ------ INCEPTION (06/28/94 ): 1.000000 6.18 12/86: 12/91: 12/93: 12/95: 1.141791 1.82 CURRENT 12/96: 1.162515 GT GLOBAL STRATEGIC INCOME UNIT VALUE RETURN ---------- ------ INCEPTION (06/21/94 ): 1.000000 11.45 12/86: 12/91: 12/93: 12/95: 1.120662 17.41 CURRENT 12/96: 1.315783 SB HIGH INCOME 31 FNAME ----- UNIT VALUE RETURN ---------- ------ INCEPTION (06/22/94 ): 1.000000 10.92 12/86: 12/91: 12/93: 12/95: 1.162368 11.82 CURRENT 12/96: 1.299760 SB INTERNATIONAL EQUITY UNIT VALUE RETURN ---------- ------ INCEPTION (06/20/94 ): 1.000000 8.23 12/86: 12/91: 12/93: 12/95: 1.050280 16.34 CURRENT 12/96: 1.221893 SB INCOME & GROWTH UNIT VALUE RETURN ---------- ------ INCEPTION (06/20/94 ): 1.000000 18.21 12/86: 12/91: 12/93: 12/95: 1.290871 18.38 CURRENT 12/96: 1.528131 SB MONEY MARKET UNIT VALUE RETURN ---------- ------ INCEPTION (06/20/94 ): 1.000000 3.75 12/86: 12/91: 12/93: 12/95: 1.058195 3.73 CURRENT 12/96: 1.097670 PUTNAM DIVERSIFIED INCOME UNIT VALUE RETURN ---------- ------ INCEPTION (06/20/94 ): 1.000000 9.26 12/86: 12/91: 12/93: 12/95: 1.170101 6.97 CURRENT 12/96: 1.251655 SB PACIFIC BASIN 32 FNAME ----- UNIT VALUE RETURN ---------- ------ INCEPTION (06/21/94 ): 1.000000 -.66 12/86: 12/91: 12/93: 12/95: .910187 8.05 CURRENT 12/96: .983484 MFS TOTAL RETURN UNIT VALUE RETURN ---------- ------ INCEPTION (06/20/94 ): 1.000000 13.42 12/86: 12/91: 12/93: 12/95: 1.215923 13.16 CURRENT 12/96: 1.375981 SB TOTAL RETURN UNIT VALUE RETURN ---------- ------ INCEPTION (11/21/94 ): 1.000000 23.06 12/86: 12/91: 12/93: 12/95: 1.250571 23.96 CURRENT 12/96: 1.550156 AIM CAPITAL APPRECIATION UNIT VALUE RETURN ---------- ------ INCEPTION (10/10/95 ): 1.000000 7.11 12/86: 12/91: 12/93: 12/95: .957880 13.57 CURRENT 12/96: 1.087899 EX-15.A 6 POWERS OF ATTORNEY 1 EXHIBIT 15 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, MICHAEL A. CARPENTER of Greenwich, Connecticut, Chairman of the Board, President and Chief Executive Officer of The Travelers Life and Annuity Company (hereinafter the "Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-4 or other appropriate form under the Securities Act of 1933 and the Investment Company Act of 1940 for The Travelers Fund BD II for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of June, 1996. Michael A. Carpenter Chairman of the Board, President and Chief Executive Officer The Travelers Life and Annuity Company 2 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, JAY S. BENET of West Hartford, Connecticut, a director of The Travelers Life and Annuity Company (hereinafter the "Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-4 or other appropriate form under the Securities Act of 1933 and the Investment Company Act of 1940 for The Travelers Fund BD II for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of July, 1996. Jay S. Benet Director The Travelers Insurance Company 3 THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, GEORGE C. KOKULIS of Simsbury, Connecticut, a director of The Travelers Life and Annuity Company (hereinafter the "Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-4 or other appropriate form under the Securities Act of 1933 and the Investment Company Act of 1940 for The Travelers Fund BD II for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of July, 1996. George C. Kokulis Director The Travelers Insurance Company 4 THE TRAVELERS FUND BDII FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, IAN R. STUART of East Hampton, Connecticut, Director, Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Controller of The Travelers Life and Annuity Company (hereinafter the "Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-4 or other appropriate form under the Securities Act of 1933 for The Travelers Fund BDII for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of February, 1997. Ian R. Stuart Director, Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Controller The Travelers Life and Annuity Company 5 THE TRAVELERS FUND BDII FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, KATHERINE M. SULLIVAN of Longmeadow, Massachusetts, Director, Senior Vice President and General Counsel of The Travelers Life and Annuity Company (hereinafter the "Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-4 or other appropriate form under the Securities Act of 1933 for The Travelers Fund BD II for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of June, 1996. Katherine M. Sullivan Director, Senior Vice President and General Counsel The Travelers Life and Annuity Company EX-27 7 FINANCIAL DATA SCHEDULE
6 0000941729 FUND BD II YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 253,157,584 267,038,390 2,427,169 4,851 0 269,470,410 0 0 227,226 227,226 0 0 199,446,863 15,081,931 0 0 0 0 13,880,806 269,243,184 6,107,224 0 0 1,523,904 4,583,320 598,325 14,005,980 19,187,625 0 0 0 0 238,070,115 53,705,183 0 251,956,738 0 0 0 0 0 0 1,523,904 126,640,000 0 0 0 0 0 0 0 0 0 0
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