REGISTRATION STATEMENT NO. 333-103909
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
PRE-EFFECTIVE NO. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE TRAVELERS INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
I.R.S. Employer Identification Number: 06-0566090
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P.O. BOX 990026
HARTFORD, CONNECTICUT 06199-0026
(860) 308-1000
(Address, including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
ERNEST J. WRIGHT
Secretary
The Travelers Insurance Company
P. O. Box 990026
Hartford, Connecticut 06199-0026
(860) 308-1000
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(Name, Address, including Zip Code, and Telephone Number,
including Area Code of Agent for Service)
Approximate date of commencement of proposed sale to the public: The
investment option interests covered by this registration statement are to be
issued from time to time after the effective date of this registration
statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box.
If the Registrant elects to deliver its latest Annual Report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. _____
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ___
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering ____.
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering ____.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. ___
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER UNIT OFFERING AMOUNT OF REGISTRATION FEE
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Fixed Annuity Contracts Not Applicable Not Applicable 200,000,000 $18, 400.00
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PART I
INFORMATION REQUIRED IN PROSPECTUS
THE TRAVELERS INSURANCE COMPANY
CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(B)
ITEM NO. FORM S-2 CAPTION HEADING IN PROSPECTUS
1. Forepart of the Registration Statement and Outside Outside Front Cover Page of Registration Statement
Front Cover Page of Prospectus and Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover
Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Inside Front Cover Page
Earnings to Fixed Charges
4. Use of Proceeds Investments by the Company
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of the Contract
9. Description of Securities to be Registered Outside Front Cover Page of Prospectus;
Description of Contracts
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Outside Front Cover Page; Incorporation of
Certain Documents by Reference to
Form 10-K and 10-Q
12. Incorporation of Certain Information by Not Applicable
Reference
13. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
The information in this prospectus is not complete and may be changed. We may not sell this annuity until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell this annuity and is not soliciting an offer to buy this annuity in any state where the offer or sale is not permitted.
The Travelers Insurance Company
Fixed Annuity
The Travelers Insurance Company’s Fixed Annuity is a flexible premium group deferred annuity Contract (“the Contract and/or Certificates”) which provides a guaranteed fixed rate of return for your investment. We offer the Contract to employers for use with retirement plans and programs that qualify for favorable federal tax treatment. Where permitted by state law, we reserve the right to restrict purchase payments into the Contract. If you surrender your Contract, your Cash Value may be subject to a market adjusted value calculation and surrender charges.
This prospectus explains:
- the Contract and Certificate;
- The Travelers Insurance Company;
- the Interest Rates;
- Surrenders and Partial Surrenders;
- Surrender Charges;
- Market Adjusted Value;
- Death Benefit;
- Annuity Payments;
- other aspects of the Contract.
The group annuity contracts may be issued to employers on an unallocated or allocated basis. This Contract is issued by The Travelers Insurance Company. The Company is located at One Cityplace, Hartford, Connecticut 06103-3415. Travelers Distribution LLC, One Cityplace, Hartford, Connecticut 06103-3415 is the principal underwriter and distributor of the Contracts.
This prospectus is accompanied by a copy of The Travelers Insurance Company’s annual report on Form 10-K for the period ended December 31, 2002 and a copy of The Travelers Insurance Company’s un-audited quarterly report on Form 10-Q for the period ended September 30, 2003.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Mutual funds, annuities and insurance products are not deposits of any bank, and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Prospectus dated February 10, 2004.
TABLE OF CONTENTS
| Page | |
| Special Terms | 1 |
| Prospectus Summary | 4 |
| The Insurance Companies | 5 |
| The Contract | 6 |
| Application and Purchase Payments | 6 |
| Interest Periods | 7 |
| Establishment of Interest Rates | 7 |
| Surrenders | 7 |
| Contract Discontinuation | 9 |
| Transfers | 9 |
| Charges and Deductions | 9 |
| Surrender Charge | 10 |
| Contract Discontinuation and Market Adjusted Value | 11 |
| Premium Taxes | 12 |
| Reductions of Charges | 12 |
| Contract Termination | 12 |
| Death Benefit | 13 |
| Distribution Rules | 13 |
| Annuity Options | 13 |
| Election of Maturity Date and Settlement | 14 |
| Change of Maturity Date or Annuity Option | 14 |
| Annuity Options | 14 |
| Investments by the Company | 16 |
| Annual Statement | 16 |
| Amendment of the Contracts | 16 |
| Distribution of the Contracts | 16 |
| Federal Tax Considerations | 17 |
| General | 17 |
| Section 403(b) Plans and Arrangements | 17 |
| Qualified Pension and Profit-Sharing Plans | 18 |
| The Employee Retirement Income Security Act of 1974 | 19 |
| Federal Income Tax Withholding | 19 |
| Tax Advice | 21 |
| Available Information | 21 |
| Financial Statements | 21 |
| Legal Opinion | 22 |
| Experts | 22 |
| Appendix A | 23 |
| Appendix B | F-1 |
| Appendix C | 2 |
Special Terms
In this prospectus, the following terms have the indicated meanings:
Annuitant - The person upon whose life the Contract is issued.
Annuity - Payment of income for a stated period or amount.
Approved Products - Products approved by the Travelers Insurance Company.
Beneficiary(ies) - Beneficiary of this Contract is the Plan Trustee, unless the Plan provides otherwise.
Cash Surrender Value - The Cash Value less surrender charges and any applicable Premium Tax.
Cash Value - the value of net Purchase Payments in Your Account or an Individual Account less the amount of any surrenders, plus interest, sometimes referred to as “Account Value.”
Certificate Date - The date on which a certificate is issued, as shown on the Certificate Specifications page.
Certificate of Participation - A certificate stating the benefits to which each Participant is entitled under this Contract if issued.
Certificate Year - A twelve-month period beginning on the Certificate Date and each anniversary thereof. This may or may not coincide with the Plan year.
Code – The Internal Revenue Code of 1986, as amended, and all related laws and regulations, which are in effect during the term of this Contract.
Company (We, Us, Our) - The Travelers Insurance Company.
Due Proof of Death - (i) A copy of a certified death certificate; (ii) a copy of a certified decree of a court of competent jurisdiction as to the finding of death, (iii) a written statement by a medical doctor who attended the deceased; or (iv) any other proof satisfactory to Us.
Excess Plan Contributions - Plan contributions including excess deferrals, excess contributions, excess aggregate contributions, excess annual additions, and excess nondeductible contributions that require correction by the Plan Administrator, excluding reversions upon Plan Termination.
Fixed Account - Part of the general account of the Company, which may invest in stocks, bonds, money market investments, real estate mortgages, real estate and other investments.
Fixed Annuity - An Annuity with payments that remain fixed as to dollar amount throughout the payment period.
Individual Account - Account Value/Cash Value credited to a Participant or Beneficiary under this Contract.
Maturity Date - The date on which Annuity payments begin.
Our Office - The home offices of The Travelers Insurance Company located at One Cityplace, Hartford Connecticut 06103-3415. Please send all correspondence to P.O. Box 99009, Hartford, Connecticut 06199-0009.
Participant - An eligible person who is a member in Your Plan.
Plan - The Plan or the arrangement under Section 403(b) of the Code used in a retirement plan or program whereby the Purchase Payments and any gains are intended to qualify under Sections 401, 403, or 457 of the Code. We are not a party to the Plan. We do not assume the responsibilities of the Plan Administrator, nor are We bound by the terms of the Plan. All records pertaining to the Plan will be open for inspection by Us.
Plan Administrator - The corporation or other entity so specified on the application or purchase order. If none is specified, the Plan Trustee is the Plan Administrator.
Plan Termination - Termination of Your Plan, including partial Plan Termination, as determined by Us.
Plan Trustee - The trustee specified in the Contract Specifications.
Premium Tax - The amount of tax, if any, charged by the state or municipality. Generally, We will deduct any applicable Premium Tax from the Cash Value either upon Surrender, annuitization, death, or at the time a Purchase Payment is made, but no earlier than when We have the liability under state law.
Purchase Payments - Payments of premium You make on behalf of the Participants under this Contract.
Separation from Service - The termination or permanent severance of a Participant’s employment with the employer for any reason that is a separation from service within the meaning of the Plan. However, termination of a Participant’s employment with the employer as a result of the sale of all or part of the employer’s business (including divisions or subsidiaries of the employer) will not be considered Separation from Service unless the Participant actually loses his/her job or is not immediately included in a pension or profit sharing plan of the successor employer.
Surrender - Funds distributed from the Contract or certificate for retirement, Separation from Service, loans, hardship withdrawals, death, disability, return of Excess Plan Contributions, payment of certain Plan expenses as mutually agreed upon, Contract Discontinuance, or transfers to other Plan funding vehicles. Such surrender may or may not be subject to surrender charges and the market adjusted value calculations.
Surrender Date - The date We receive Your Written Request or a Participant’s Written Request if so authorized, for a Surrender.
Valuation Date - A date on which the Contract is valued.
Written Request – Written information including requests for Contract, Beneficiary, ownership transfers, surrenders or other changes sent to Us in a written form satisfactory to Us and received in good order at Our Office. Requests for changes are subject to any action taken prior to Our receipt of the written information.
You, Your - The Contract owner.
Your Account – Cash Value attributed to Purchase Payments plus interest credited to You under this Contract.
Summary
The Travelers Insurance Company Fixed Annuity is a flexible premium group deferred fixed annuity contract available to certain types of retirement plans and programs that receive favorable tax treatment under the Code such as qualified pension and profit sharing plans, tax deferred annuity plans (for public school teachers and employees and employees of certain other tax-exempt and qualifying employers) and deferred compensation plans of state and local governments.
This prospectus describes both the Contract and the Certificate. The Contract and Certificate have similar features and provisions. An employer as the Contract Owner purchases the Contract to fund its Qualified Plan. The employer can purchase the Contract on an allocated or unallocated basis. If the employer purchases the Contract on an allocated basis, the employee participating in the Qualified Plan (“Participant”) will be issued a Certificate. Generally, allocated contracts are issued to tax deferred annuity plans. If the employer purchases the Contract on an unallocated basis, the employer will be responsible for any accounts for the Participant and no Certificates will be issued by us. Generally, unallocated contracts are issued to qualified pension and profit sharing plans and deferred compensation plans of state and local governments.
The Contract is offered by The Travelers Insurance Company. It is an indirect wholly owned subsidiary of Citigroup Inc. The Contract is available only in those states where it has been approved for sale.
We deposit your Purchase Payments in Our Fixed Account. For each Purchase Payment, We establish an interest rate “period ” and guarantee a rate of interest for that Purchase Payment for twelve months. At the end of the twelve months, We will establish a renewal rate of interest. (See “Guaranteed Interest Rates”).
You may surrender your Contract at any time before the Maturity Date, but the Cash Value may be subject to a surrender charge and/or Our market adjusted value calculations. You may also take partial surrenders from your Contract; partial surrenders may be subject to a surrender charge. However, if your Contract was issued as part of a tax deferred annuity plan, deferred compensation plan or combined qualified plan/tax deferred annuity plan, You or a Participant, if authorized, may take partial surrenders after the first Contract/Certificate Year annually of up to 10% of the Cash Value of Your Account/Individual Account as of the first Valuation Date of any given Contract/Certificate Year without the imposition of a surrender charge. We may waive surrender charges in certain instances. (See “Surrenders”). We also may deduct any applicable premium taxes from the amounts You surrender. A Participant may be subject to income tax and a 10% penalty tax if he or she is younger t han 59½ at the time of the full or partial surrender, and the full or partial surrender may also be subject to income tax withholding. (See “Federal Tax Considerations”).
The market adjusted value calculations reflect the relationship between the interest rate on new deposits for this class of contracts on the date of surrender and the interest rate credited to amounts in Your Contract on the date of surrender. The Company has no specific formula for determining initial interest rates or renewal interest rates. However, such determination will generally reflect interest rates available on the types of debt instruments in which the Company intends to invest the amounts invested in the Contract. In addition, the Company’s management may also consider various other factors in determining these rates for a given period, including regulatory and tax requirements; sales commission and administrative expenses borne by the Company; general economic trends; and competitive factors. (See Investments by the Company.) It is possible that the amount You receive upon surrender may be less than Your Purchase Payments if interest rates increase. It is also po ssible that if interest rates decrease, the amount You receive upon surrender may be Your net Purchase Payments plus accrued interest. On the Maturity Date You specified, the Company will make either a lump sum payment or start to pay a series of payments based on the Annuity Options you select. (See “Annuity Period”).
If a Participant dies before the Maturity Date, the Contract provides for a death benefit which is the Cash Value of the Participant’s Individual Account, less any applicable premium tax as of the date We receive Due Proof of Death. (See “Death Benefit”).
We will deduct any applicable premium taxes from Cash Value either upon death, surrender, annuitization, or at the time You make a Purchase Payment to the Contract. (See “Surrenders Premium Taxes”).
The terms and conditions of the Plan govern what is available to Participants. Participants should carefully consider the features of their employer’s Plan, which may be different from the Contract and Certificate described in this prospectus. In addition, certain features described in this prospectus may vary from your Contract because of differences in applicable state law.
We offer a variety of fixed and variable annuity contracts. They offer features, including variable investment options, fees and/or charges that are different from those described in this prospectus. Upon request, Your agent can provide You with more information about those Contracts.
The Insurance Company
The Travelers Insurance Company is a stock insurance company chartered in 1863 in the state of Connecticut and has been continuously engaged in the insurance business since that time. The Company is licensed to conduct life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands, and the Bahamas. The Company is an indirect wholly owned subsidiary of Citigroup Inc. The Company’s home office is located at One Cityplace, Hartford, Connecticut 06103-3415.
The Contract
Application and Purchase Payments
You may purchase a Contract through an authorized agent. The agent will send Your completed application or order to purchase, along with a minimum Purchase Payment of at least $1,000 for the Contract and $20 for each certificate to Us, and We will determine whether to accept or reject your application or order to purchase. If We accept your application or order to purchase, one of Our legally authorized officers will prepare and execute a Contract within two business days after We receive that application or order. We then will send the Contract to you through your sales representative.
We may:
- accept Purchase Payments up to $3 million without prior approval;
- contact You or Your agent if the application or order form is not properly completed; and/ or
- return your entire application or order form and Purchase Payment within thirty days if not properly completed.
We sell the Contract for use with certain qualified retirement plans. Please be aware that the Contract includes features such as tax deferral on accumulated earnings. Qualified retirement plans provide their own tax deferral benefit. Please consult a tax adviser to determine whether this Contract is an appropriate investment for You. See Appendix A for information concerning qualified plans.
You may make additional Purchase Payments of at least $1,000 ($20 per Certificate) at any time before the Maturity Date. We will apply any subsequent net Purchase Payment You make within two Business Days after We receive it.
Interest Periods
We deposit each net Purchase Payment (i.e., a Purchase Payment less any applicable Premium Tax charge) in our Fixed Account where We credit the Payment with interest daily at an effective annual interest rate between 1.0% and 3.0% for allocated contracts and 1.0% for unallocated contracts, depending on applicable states’ statutory minimum requirements. We may, however, in our sole discretion, credit interest above the statutory minimum requirements. The actual minimum interest rate for your Contract will be on the Contract Specifications page. This rate will not change for the life of the Contract and will apply to any Certificates issues under the Contract.
The amount of interest We credit to a particular net Purchase Payment varies with that Purchase Payment’s interest rate “period”. We establish an interest rate “period ” for each net Purchase Payment, and guarantee that rate for twelve months. At the end of that twelve-month guarantee period, We will determine and credit a renewal interest rate. We guarantee that renewal rate until the end of the current calendar year. After that, We will declare the second and all future renewal rates each subsequent January 1 and guarantee such rates through December 31 of each year.
Establishment of Interest Rates
When you purchase Your Contract, You will know the initial interest rate for your Purchase Payment. The Company has no specific formula for determining interest rates in the future. The interest rates will be declared from time to time as market conditions dictate. (See “Investments by the Company”). The Company may consider various factors in determining interest rates for a given period, including regulatory and tax requirements, sales commissions, administrative expenses, general economic trends, and competitive factors. The Company’s management will make the final determination as to any declared interest rates and any interest in excess of the minimum interest rate allowed under state law. The Company cannot predict nor guarantee the rates of any future declared interest in excess of the minimum rate.
The Company will make the final determination as to guaranteed interest rates to be declared. We cannot predict nor can We guarantee future interest rates.
Surrenders
There are two sets of rules when considering surrenders or partial surrenders from Your Contract. The first are rules and procedures that apply to surrenders and partial surrenders under the Contract; We discuss these provisions in this prospectus. The second are rules specific to Your Plan. Please consult Your Plan for information as to those provisions.
The Contract allows You to make a full or partial surrender by Written Request before the Maturity Date, subject to the surrender charges and in some instances, adjusted market value calculations. In addition, Participants, if so authorized, may make partial surrenders. We may discontinue the Contract or terminate a Participant’s Individual Account under certain circumstances.
We will determine Your Cash Surrender Value (or Cash Surrender Value in an Individual Account) as of the next Valuation Date following Our receipt of a Written Request by You or the Participant, if so authorized. We may defer payment of any surrender up to six months from the date We receive Your notice of surrender, or such lesser period if required by state law. State law requires that if We defer payment for more than 30 days, We will pay the state required annual interest rate on the amount that we defer.
For the purposes of processing partial surrenders, We will take the amount surrendered from the most recent “period” first, and then from each subsequent “period” in descending order on a last-in, first out basis. Upon request, We will inform You of the amount payable upon a full or partial surrender. Any full or partial surrender may be subject to ordinary income tax and, if a Participant is younger than age 59½ at the time of the full or partial surrender, a 10% penalty tax may apply. A full or partial surrender may also be subject to income tax withholding. A Participant may not be able to take partial surrenders from his or her Individual Account before age 59½.. A Participant should discuss his or her options with a qualified tax advisor. (See “Federal Tax Considerations”.)
Transfers
You may transfer amounts from the Fixed Account to products within Your Plan and to Approved Products not issued by Us. If you transfer Cash Value to Approved Products not issued by Us, Your transfers may not exceed 20% per Contract/Certificate Year of the Cash Value in the Fixed Account valued on each Contract/Certificate Year anniversary. We reserve the right to modify the amount available for transfer to Approved Products and to products not issued by Us.
Charges and Deductions
We will deduct the charges described below to cover our costs and expenses, the services provided, and our risks assumed under the Contracts. We incur certain costs and expenses for the distribution and administration of the Contract and for providing the benefits payable thereunder. Our administrative services and risks may include:
- processing applications for and issuing the Contracts and certificates thereunder;
- maintaining Contract owner and Participant records;
- administering Annuity payments;
- furnishing accounting services;
- reconciling and depositing cash receipts;
- providing Contract confirmations and periodic statements;
- providing toll-free inquiry services; and
- the risk that our costs in providing the services will exceed our revenues from Contract charges (which cannot be changed).
The amount of the charge may not necessarily correspond to the costs associated with providing the services or benefits stated in the Contract. We may realize a profit on one or more of the charges, and may use any such profit for any corporate purpose.
Surrender Charge
We do not assess front-end sales charges. We may, however, assess a surrender charge on full and partial surrenders made before the end of the eighth Contract/Certificate Year. The surrender charge for an allocated Contract is calculated based on the age of each Certificate. The surrender charge for an unallocated Contract is calculated based on the age of the Contract. The surrender charge is computed as a percentage of the Cash Value being surrendered and is as follows:
| Contract/Certificate Year | Charge as a Percentage of Cash Value |
|
| 1-2 | 5% | |
| 3-4 | 4% | |
| 5-6 | 3% | |
| 7 | 2% | |
| 8 | 1% | |
| 9+ | 0% |
We will not assess a surrender charge on:
transfers to Approved Products within Your Plan; and
certain
benefit distributions that become payable under the terms of a Plan and other
distributions, including:
- retirement, death, or disability of a Participant (as defined by Code section 72(m)(7));
- Separation from Service;
- hardship withdrawals as defined by the Code;
- minimum distributions as defined by the Code;
- return on Excess Plan Contributions;
- certain Plan expenses as mutually agreed upon between You and Us;
- transfers to an employer stock fund as mutually agreed upon between You and Us; and
- annuitization under this Contract.
If the market adjusted value is greater than the Cash Value of the Contract as of the date of discontinuance, and You chose the Cash Value of the Contract in equal installments over a 5-year period.
Unless payment of surrender charges are provided in a different manner, We will reduce your requested distribution by any applicable surrender charges.
In addition, for Contracts issued to tax deferred annuity plans, deferred compensation plans or combined qualified plans/tax deferred annuity plans, We may allow You or a Participant, if authorized, after the first Contract/Certificate Year to take partial surrenders annually of up to 10% of the Cash Value in Your Account/Individual Account as of the first Valuation Date of any given Contract Year without the imposition of a surrender charge. The free withdrawal allowance does not apply to full surrenders transferred directly to annuity contracts issued by other financial institutions. We reserve the right to modify the free withdrawal amount.
We reserve the right to modify the surrender charge provisions for Contracts issued in the future. This will not affect Your Contract if the Contract is in effect before the modification to the surrender charge is effective.
Contract Discontinuation and Market Adjusted Value
Under certain circumstances, We may discontinue the Contract.
You may discontinue this Contract by Written Request at any time for any reason.
If the Contract is discontinued, any Certificates issued under the Contract will be discontinued.
We reserve the right to discontinue this Contract if:
- the Cash Value of Your Contract is less than the termination amount shown on your Contract Specifications page. We state a termination amount on your Contract Specifications page. In general, this amount is $2,000 of the Cash Value of a Participant’s Individual Account (the amount is $2,000 per Account for an allocated Contract and $20,000 per unallocated Contract). If the Cash Value in a Participant’s Individual Account is less than that stated termination amount, We reserve the right to terminate that Account and move the Cash Value of that Participant’s Individual Account to Your Account. We will move to Your Account at Your direction any Cash Value to which a Participant is not entitled under the Plan upon termination;
- We determine within Our sole discretion and judgment that the Plan or administration of the Plan is not in conformity with applicable law; or
- We receive notice that is satisfactory to Us of Plan Termination.
If you discontinue this Contract because of Plan Termination and the Plan certifies to Us that the Plan Termination is the result of the dissolution or liquidation of the employer under US Code Title 11 procedures, We will distribute the Cash Surrender Value directly to the employees entitled to share in such distributions in accordance with the Plan relating to Plan Termination. Distribution may be in the form of cash payments, Annuity options, or deferred annuities.
The following events will not trigger a market adjusted value:
- retirement, death, or disability of a Participant (as defined by Code section 72(m)(7));
- Separation from Service;
- hardship withdrawals as defined by the Code;
- minimum distributions as defined by the Code;
- return on Excess Plan Contributions;
- certain Plan expenses as mutually agreed upon between You and Us;
- transfers to an employer stock fund as mutually agreed upon between You and Us; and
- annuitization under this Contract.
However, if you discontinue this Contract for any other reason than the events described immediately above or because of Our exercise of Our right to discontinue the Contract, We will determine the market adjusted value of the
Contract. The market adjusted value is the current value as of the date of discontinuance and reflects the relationship between the rate of interest credited to funds on deposit under the Contract at the time of discontinuance to the rate of interest credited on new deposits for this class of contracts at the time of discontinuance. The market adjusted value may be greater than or less than the Cash Value of the Contract.
If the market adjusted value is less than the Cash Value of your Contract as of the date of discontinuance, We will pay You Your choice of:
| (a) | the market adjusted value, less any amounts deducted on surrender, in one lump sum within 60 days of the date of discontinuance; or | ||
| (b) | the Cash Surrender Value of the Contract in equal installments over a 5-year period. We determine the amount deducted on surrender, if any, as of the date of discontinuance and will apply that amount to all installment payments. We will credit interest to the remaining Cash Value during this installment period at a fixed effective annual interest rate of not less than the interest rate required under state insurance law. We will make the first payment no later than 60 days following Our mailing the written notice to You at the most current address available on Our records. We will mail the remaining payments on each anniversary of the discontinuance date for 4 years. Allowable distributions shown of Your Contract Specifications page are not allowed during the 5-year installment period. |
If the market adjusted value is greater than the Cash Value of the Contract as of the date of discontinuance, We will pay You Your Choice of:
| (a) | the Cash Surrender Value of the Contract within 60 days of the date of discontinuance; or | ||
| (b) | the Cash Value of the Contract in equal installments over a 5-year period. We will credit interest on the remaining Cash Value of the Contract during the installment period at a fixed annual rate of interest of not less than the interest rate required under state insurance law. We will make the first payment no later than 60 days following Our mailing of the written notice to You at the most current address available on Our records. We will mail the remaining payments on each anniversary of the discontinuance date for 4 years. We do not allow the allowable distributions shown on Your Contract Specifications page during the 5-year installment period. |
Market Adjusted Value Formula: Payment on a partial or full surrender may be adjusted up or down by the application of the market adjusted value calculation. The market adjusted value formula is:
Market Adjusted Value = Cash Value x (1+RO)5 / (1+R1+.0025)5
Where:
RO is the average interest rate credited to amounts in the Contract on the date of discontinuance, and
R1 is the interest rate on new deposits for this class of contracts on the date of discontinuance.
Premium Taxes
Certain state and local governments impose premium taxes. These taxes currently range from 0% to 5.0%, depending upon the jurisdiction. The Company is responsible for paying these taxes and will determine the method used to recover premium tax expenses incurred. The Company will deduct any applicable premium taxes from the Cash Value either upon death, surrender, annuitization, or at the time the Purchase Payment is made to the Contract, but no earlier than when the Company has a tax liability under state law.
Reductions of Charges
We may reduce or eliminate certain charges or alter the manner in which the particular charge is deducted. Generally, these types of changes will be based on our anticipation of lower sales expenses or perform fewer sales services due to:
- the size of the group participating in the Contract;
- an existing relationship to the contract owner;
- use of mass enrollment procedures; or
- performance of sales functions by a third party which We would otherwise perform.
Please see your Contract for any reduction of charges provisions applicable to You.
Death Benefit
If applicable under Your Plan, We may pay a death benefit in a single sum to the Beneficiary if a Participant dies before the Maturity Date. We also may pay a death benefit under certain circumstances if the Annuitant dies on or after the Maturity Date.
The death benefit before the Maturity Date equals the Cash Value of a Participant’s Individual Account less any applicable premium tax as of the date We receive Due Proof of Death. If the Annuitant dies on or after the Maturity Date, the death benefit will consist of any benefit remaining under the Annuity option then in effect.
We will pay interest on death proceeds of a Participant’s Individual Account in accordance with regulation in effect by the state whose laws apply to the Contract.
Distribution Rules
The distributions required by federal tax law differ for qualified plans depending on the type of Plan. Upon receipt of Due Proof of Death, the Beneficiary will instruct us how to treat the proceeds, subject to the distribution rules discussed below.
In general, the Beneficiary will receive any remaining contractual benefits upon the death of the Participant. The Beneficiary may receive the remaining benefits in a single sum or elect one of the settlement options. If the Participant dies after any mandatory distribution has begun but before his or her entire interest has been distributed, the remaining interest must be paid out at least as rapidly as it was being paid out under the method of payment in effect at the time of death. If the Participant dies before the distribution of his or her entire interest has begun, the entire interest must be distributed within five years after the Participant’s death or an Annuity payable over no longer than life or life expectancy must be distributed to an electing Beneficiary starting within one year of the Participant’s death. A spousal designated Beneficiary may elect to defer distributions until the Participant would have attained the age of 70½.
Please see Your Contract and Your tax advisor for more information.
Annuity Options
Election of Maturity Date and Settlement Options
You can select a Maturity Date when you apply for the Contract and/or when We issue a certificate thereunder; if You do not, the default age for certificate maturity is when a Participant reaches age 70½.
You may elect to have all or a portion of the Cash Surrender Value of an Individual Account paid in a lump sum, or You may elect to have Your Cash Surrender Value or a portion thereof, distributed under any of the Annuity options described below. In addition, any amount payable from the Contact may be applied to an Annuity option. A Participant, if authorized, may apply any proceeds payable from his or her Individual Account to an Annuity Option.
To elect an Annuity option, You must send a Written Request to Our Office at least 30 days before such election is to become effective. If no option is elected for qualified Contracts, We will apply the Cash Surrender Value to Option 4 to provide a Joint and Last Survivor Life Annuity.
You must provide Us with the following information when you elect an Annuity option:
- the Participant’s name, address, date of birth, and social security number;
- the amount to be distributed in the form of an Annuity option;
- the Annuity option which is to be purchased;
- the date the Annuity option payments are to begin;
- if the form of the Annuity provides a death benefit in the event of the Participant’s death, the name, relationship, and address of the Beneficiary as designated by You; and
- any other data We may require.
Change of Maturity Date or Annuity Option
You may change the Maturity Date at any time as long as such change is made in writing and is received by Us at least 30 days before the scheduled Maturity Date or date the Annuity option is scheduled to become effective. Once an Annuity option has begun, it may not be changed.
Annuity Options
You or a Participant, if authorized, may elect any one of the following Annuity options. Annuity payments may be available on a monthly, quarterly, semiannual, or annual basis. The minimum amount that may be applied to Annuity options is $2,000 unless We consent to a smaller amount. If any periodic payments due are less than $100, We reserve the right to make payments at less frequent intervals.
We use the Life Annuity Tables to determine the first monthly payment. They show the dollar amount of the first monthly Annuity payment which can be purchased with each $1,000 applied. The amount applied to an Annuity will be the Cash Surrender Value attributable to a Participant’s Individual Account as of 14 days before the Maturity Date. We reserve the right to require satisfactory proof of age of any person on whose life We base Annuity payments before making the first payment under any of these options.
Any Cash Surrender Value We apply to an Annuity option will provide payments at least equal to those provided if the same amount was applied to purchase a single premium immediate Annuity We offer at that time for the same class of contracts. If it would produce a larger payment, We agree that We will determine the Annuity payment using the Life Annuity Tables in effect on the Maturity Date.
As provided in your Contract, We may adjust the age used to determine Annuity payments, and We may deduct premium taxes from Annuity payments.
Option 1 — Life Annuity — No Refund: The Company will make Annuity payments during the lifetime of the Annuitant ending with the last monthly payment before 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, We will continue making payments to the Beneficiary during the remainder of the period.
Option 3 — Joint And Last Survivor Life Annuity: The Company will make monthly annuity payments during the joint lifetime of the Annuitant and a second person. On the death of either person, We will continue making payments to 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 monthly Annuity payments during the joint lifetime of two persons on whose lives We base the payments. We will designate one of the two persons as the primary payee. We will designate the other person as the secondary payee. On the death of the secondary payee, if survived by the primary payee, We will continue to make monthly Annuity payments to the primary payee in the same amount that would have been payable during the joint lifetime of the two persons.
On the death of the primary payee, if survived by the secondary payee, We will continue to make monthly Annuity payments to the secondary payee in an amount equal to 50% of the payments, which would have been made during the lifetime of the primary payee.
No further payments will be made following the death of the survivor.
Option 5 — Payments For A Fixed Period: The Company will make monthly payments for the period selected. If at the death of the Annuitant payments have been made for less than the period selected, the Company will continue to make payments to the Beneficiary during the remainder of that period.
Option 6 — Other Annuity Options: The Company will make other arrangements for Annuity payments as may be mutually agreed upon by You and Us.
Investments by the Company
We must invest our assets according to applicable state laws regarding the nature, quality and diversification of investments that may be made by life insurance companies. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stocks, real estate mortgages, real estate and certain other investments.
In establishing interest rates, the Company will consider the yields on fixed income securities that are part of the Company’s current investment strategy for the Contracts at the time that the interest rates are established. (See “Establishment of Interest Rates”.) The current investment strategy for the Contracts is to invest in fixed income securities, including public bonds, privately placed bonds, and mortgages, some of which may be zero coupon securities. While this generally describes our investment strategy, We are not obligated to follow any particular strategy except as may be required by federal and state laws.
Annual Statement
After the end of each calendar year, You will receive a statement that will show:
- Your Cash Value as of the end of the preceding year;
- all transactions regarding Your Contract during the year;
- Your Cash Value at the end of the current year; and
- the interest credited to Your Contract.
Amendment of the Contracts
We reserve the right to amend the Contracts to comply with applicable federal or state laws or regulations. We will notify You in writing of any such amendments.
Distribution of the Contracts
Travelers Distribution LLC (“TDLLC”) an affiliate of the Company, is the principal underwriter of the Contracts. TDLLC is registered with the Securities and Exchange Commission under the Act as a broker-dealer, and is a member of the National Association of Securities Dealers, Inc. The Contract is offered through both affiliated and non-affiliated broker dealers.
The principal underwriter enters into selling agreements with certain broker-dealers registered under the Act. Under the selling agreements such broker-dealers may offer Contracts to persons who have established an account with the broker-dealer. In addition, the Company may offer certificates to members of certain other eligible groups. The Company will pay a maximum commission of 6% of the Purchase Payment for the sale of a Contract. Tower Square Securities, Inc., an affiliate of the Company, receives greater compensation for selling the contract than nonaffiliated broker-dealers.
From time to time, the Company may offer customers of certain broker-dealers special interest rates and negotiated commissions. In addition, the Company may offer Contracts to members of certain other eligible groups through trusts or otherwise.
Federal Tax Considerations
General
The Company is taxed as a life insurance company under Subchapter L of the Code. Generally, amounts credited to a contract are not taxable until received by the contract owner, participant or beneficiary, either in the form of annuity payments or other distributions. Tax consequences and limits are described further below for each annuity program.
Note to participants in qualified plans including 401, 403(b), and 457:
While annual plan contribution limits may be increased from time to time by Congress and the IRS for federal income tax purposes, these limits must be adopted by each state for the higher limits to be effective at a state income tax level. In other words, permissible contribution limit for income tax purposes may be different at the federal level from your state’s income tax laws. Please consult your employer or tax adviser regarding this issue.
Section 403(b) Plans and Arrangements
Purchase Payments for a tax deferred annuity contract (including salary reduction contributions) may be made by an employer for employees under annuity plans adopted by public educational organizations and certain organizations which are tax exempt under Section 501(c)(3) of the Code. Within statutory limits, such payments are not currently includable in the gross income of the participants. Increases in the value of the Contract attributable to these Purchase Payments are similarly not subject to current taxation. Instead, both the contributions to the tax sheltered annuity and the income in the Contract are taxable as ordinary income when distributed.
An additional tax of 10% will apply to any taxable distribution received by the participant before the age of 59½, except when due to death, disability, or as part of a series of payments for life or life expectancy, or made after the age of 55 with separation from service. There are other statutory exceptions which may apply in certain situations.
Amounts attributable to salary reductions made to a tax sheltered annuity and income thereon may not be withdrawn prior to attaining the age of 59½, separation from service, death, total and permanent disability, or in the case of hardship as defined by federal tax law and regulations. Hardship withdrawals are available only to the extent of the salary reduction contributions and not from the income attributable to such contributions. These restrictions do not apply to assets held generally as of December 31, 1988.
Distributions must begin by April 1st of the calendar year following the later of the calendar year in which the participant attains the age of 70½ or the calendar year in which the Participant retires. Certain other mandatory distribution rules apply at the death of the participant.
To the extent an eligible rollover distribution is not directly rolled over to another 403(b) contract, an IRA or eligible qualified contract, 20% of the taxable amount must be withheld. In addition, current tax may be avoided on eligible rollover distributions which Were not directly transferred to a qualified retirement program if the participant makes a rollover to a qualified retirement plan or IRA within 60 days of the distribution.
Certain distributions, including most partial or full redemptions or “term-for-years” distributions of less than 10 years, are eligible for direct rollover to another 403 (b) contract, certain qualified plans or to an Individual Retirement Arrangement (IRA) without federal income tax withholding.
Qualified Pension and Profit-Sharing Plans
Under a qualified pension or profit-sharing trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code, a Purchase Payment made by an employer (including salary reduction contributions) is not currently taxable to the participant and increases in the value of a contract are not subject to taxation until received by a participant or beneficiary.
Distributions in the form of annuity payments are taxable to the participant or beneficiary as ordinary income in the year of receipt, except that any distribution that is considered the participant’s “investment in the contract” is treated as a return of capital and is not taxable. Certain eligible rollover distributions including most partial and full surrenders or term-for-years distributions of less than 10 years are eligible for direct rollover to an eligible retirement plan or to an IRA without federal income tax withholding.
If a distribution that is eligible for rollover is not directly rolled over to another qualified retirement plan or IRA, 20% of the taxable amount must be withheld. In addition, current tax may be avoided on eligible rollover distributions which Were not directly transferred to a qualified retirement program if the participant makes a rollover contribution to a qualified retirement plan or IRA within 60 days of the distribution.
Distributions must begin by April 1st of the calendar year following the later of the calendar year in which you attain age 70½ or the calendar year in which you retire, except that if you are a 5% owner as defined in Code Section 416(i)(1)(B), distributions must begin by April 1st of the calendar year following the calendar year in which you attain age 70½. Certain other mandatory distribution rules apply on the death of the participant.
An additional tax of 10% will apply to any taxable distribution received by the participant before the age of 59½, except by reason of death, disability or as part of a series of payments for life or life expectancy, or at early retirement at or after the age of 55. There are other statutory exceptions which may apply in certain situations.
The Employee Retirement Income Security Act of 1974
Under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, certain special provisions may apply to the Contract if the owner of a Section 403(b) plan Contract or the owner of a contract issued to certain qualified plans requests that the Contract be issued to conform to ERISA or if the Company has notice that the Contract was issued pursuant to a plan subject to ERISA.
ERISA requires that certain Annuity options, withdrawals or other payments and any application for a loan secured by the Contract may not be made until the Participant has filed a Qualified Election with the plan administrator. Under certain plans, ERISA also requires that a designation of a beneficiary other than the participant’s spouse be deemed invalid unless the participant has filed a Qualified Election.
A Qualified Election must include either the written consent of the Participant’s spouse, notarized or witnessed by an authorized plan representative, or the participant’s certification that there is no spouse or that the spouse cannot be located.
The Company intends to administer all contracts to which ERISA applies in a manner consistent with the direction of the plan administrator regarding the provisions of the plan, in accordance with applicable law. Because these requirements differ according to the plan, a person contemplating the purchase of an annuity Contract should consider the provisions of the plan.
Federal Income Tax Withholding
The portion of a distribution which is taxable income to the recipient will be subject to federal income tax withholding, generally pursuant to Section 3405 of the Code. The application of this provision is summarized below.
| 1. | Eligible Rollover Distribution From Section 403(b) Plans or Arrangements, From Qualified Pension and Profit-Sharing Plans, or from 457 Plans Sponsored by Governmental Entities | ||
| There is a mandatory 20% tax withholding for plan distributions that are eligible for rollover to an IRA or to another retirement plan but that are not directly rolled over. A distribution made directly to a participant or beneficiary may avoid this result if: |
| (a) | a periodic settlement distribution is elected based upon a life or life expectancy calculation , or | ||
| (b) | a complete term-for-years settlement distribution is elected for a period of ten years or more, payable at least annually, or | ||
| (c) | a minimum required distribution as defined under the tax law is taken after the attainment of the age of 70½ or as otherwise required by law. |
| A distribution including a rollover that is not a direct rollover will require the 20% withholding, and a 10% additional tax penalty may apply to any amount not added back in the rollover. The 20% withholding may be recovered when the participant or beneficiary files a personal income tax return for the year if a rollover was completed within 60 days of receipt of the funds, except to the extent that the participant or spousal beneficiary is otherwise under withheld 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 nonperiodic distribution which constitutes taxable income will be subject to federal income tax withholding, to the extent such aggregate distributions exceed $200 for the year, unless the recipient elects not to have taxes withheld. If an election out is not provided, 10% of the taxable distribution will be withheld as federal income tax. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. | |||
| 3. | Periodic Distributions (distributions payable over a period greater than one year) | ||
| The portion of a periodic distribution which constitutes taxable income will be subject to federal income tax withholding under the wage withholding tables as if the recipient were married claiming three exemptions. A recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by providing a completed election form. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. As of January 1, 2002, a recipient receiving periodic payments (e.g., monthly or annual payments under an Annuity Option) which total $15,360 or less per year, will generally be exempt from the withholding requirements. |
Recipients who elect not to have withholding made are liable for payment of federal income tax on the taxable portion of the distribution. All recipients may also be subject to penalties under the estimated tax payment rules if withholding and estimated tax payments are not sufficient.
Recipients who do not provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding. Additionally, United States citizens residing outside of the country, or U.S. legal residents temporarily residing outside the country, are subject to different withholding rules and cannot elect out of withholding.
Tax Advice
Because of the complexity of the law and the fact that the tax results will vary according to the factual status of the individual involved, tax advice may be needed by a person contemplating purchase of an annuity contract and by an Owner, participant or beneficiary who may make elections under a contract. It should be understood that the foregoing description of the federal income tax consequences under these contracts is not exhaustive and that special rules are provided with respect to situations not discussed here. It should be understood that if a tax benefited plan loses its exempt status, employees could lose some of the tax benefits described. For further information, a qualified tax adviser should be consulted.
Available Information
The Company files reports and other information with the Securities and Exchange Commission (“Commission”), as required by law. You may read and copy this information and other information at the public reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. You may also review this information by accessing the Commission’s website at http://www.sec.gov.
Under the Securities Act of 1933, each Company has filed with the Commission a registration statement (the “Registration Statement”) relating to the Contracts offered by this prospectus. This prospectus has been filed as a part of the Registration Statement and does not contain all of the information set forth in the Registration Statement and the exhibits, and reference is hereby made to such Registration Statement and exhibits for further information relating to the Company and the Contracts. The Registration Statement and the exhibits may be inspected and copied as described above. Although the Company furnishes certificate and contract owners with the Annual Reports on Form 10-K for the year ended December 31, 2002 the Company does not plan to furnish subsequent financial reports.
Financial Statements
The Company’s latest annual report on Form 10-K and the latest quarterly report on Form 10-Q have been filed with the Commission.
The Form 10-K for the period ended December 31, 2002 contains additional information about the Company, including audited financial statements for the Company’s latest fiscal year. The Company filed its Form 10-K on March
15, 2003via Edgar File No. 33-33691. The Company filed its Form 10-Q on November 14, 2003 via Edgar File No. 33-03094.
If requested, the Company will furnish, without charge, a copy of any and all of the documents incorporated by reference, other than exhibits to those documents (unless such exhibits are specifically incorporated by reference in those documents). You may direct your requests to the Company at P.O. Box 99009, Hartford, CT 06199-0009, Attention: Annuity Services. The telephone number is (860) 422-3985. You may also obtain copies of any documents, incorporated by reference into this prospectus by accessing the SEC’s Website (http://www.sec.gov).
Legal Opinion
Legal matters in connection with federal laws and regulations affecting the issue and sale of the Contracts described in this prospectus and the organization of the Company, its authority to issue such Contracts under Connecticut law and the validity of the forms of the Contracts under Connecticut law have been passed on by the Deputy General Counsel of the Company.
Experts
The consolidated financial statements and schedules of The Travelers Insurance Company and subsidiaries as of December 31, 2002 and 2001, and for each of the years in the three-year period ended December 31, 2002, have been incorporated herein in reliance upon the reports of KPMG LLP, independent accountants, also incorporated herein, and upon the authority of said firm as experts in accounting and auditing. The audit reports covering the December 31, 2002 financial statements and schedules refer to changes in the Company’s methods of accounting for goodwill and other intangible assets in 2002, and for derivative instruments and hedging activities and for securitized financial assets in 2001.
Appendix A
Plans eligible to purchase the Contract are pension and profit sharing plans qualified under §401 (a) of the Internal Revenue Code, Section 403 (b) ERISA plans, and eligible state deferred compensation plans under §457 of the Code (“Qualified Plans”). Trustees should consider whether the Plan permits the investment of Plan assets in the Contract, the distribution of such an annuity and payment of death benefits in accordance with the requirements of the federal income tax rules. Assuming continued Plan qualification and operation, earnings on Plan assets will accumulate value on a tax-deferred even if the Plan is not funded by this Contract. Trustees therefore should consider features of the Contract other than tax-deferral before investing in the Contract. In addition, because required minimum distributions must generally begin for annuitants after age 70½, trustees should consider whether that the Contract may not be an appropriate purchase for annuitants approaching or over age 70½.
To apply for this Contract, the trustee or other applicant must complete an application or purchase order for the Group Annuity Contract and make a Purchase Payment. A Group Annuity Contract will then be issued to the applicant. While certificates may or may not be issued, each Purchase Payment is confirmed to the contract owner. Surrenders under the Group Annuity Contract may be made at the election of the contract owner, from the Account established under the Contract. Account surrenders are subject to the same limitations, adjustments and charges as surrenders made under a certificate (see “Surrenders”). Cash Surrender Values may be taken in cash or applied to purchase annuities for the Contract Owners’ Qualified Plan participants.
Because there might not be individual participant accounts, the qualified Group Annuity Contract issued in connection with a Qualified Plan may not provide for death benefits. Annuities purchased for Qualified Plan participants may provide for a payment upon the death of the Annuitant depending on the option chosen (see “Annuity Options”). Additionally, since there might not be Annuitants prior to the actual purchase of an Annuity by the contract owner, the provisions regarding the Maturity Date may not be applicable.
APPENDIX B
The Travelers Insurance Company
Annual Report on Form 10-K
for the period ended December 31, 2002.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Insurance Company:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of income, changes in shareholder's equity, and
cash flows for each of the years in the three-year period ended December 31,
2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers
Insurance Company and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. As discussed in
Note 1 to the consolidated financial statements, the Company changed its method
of accounting for goodwill and other intangible assets in 2002, and its methods
of accounting for derivative instruments and hedging activities and for
securitized financial assets in 2001.
/s/ KPMG LLP
Hartford, Connecticut
January 21, 2003
F-1
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, 2002 2001 2000
---- ---- ----
REVENUES
Premiums $1,924 $2,102 $1,966
Net investment income 2,936 2,831 2,730
Realized investment gains (losses) (322) 125 (77)
Fee income 560 537 528
Other revenues 136 107 107
- --------------------------------------------------------------------------------------------------------------------
Total Revenues 5,234 5,702 5,254
- --------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,711 1,862 1,752
Interest credited to contractholders 1,220 1,179 1,038
Amortization of deferred acquisition costs 393 379 347
General and administrative expenses 407 371 463
- --------------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses 3,731 3,791 3,600
- --------------------------------------------------------------------------------------------------------------------
Income from operations before federal income taxes and cumulative effects of
changes in accounting principles 1,503 1,911 1,654
- --------------------------------------------------------------------------------------------------------------------
Federal income taxes
Current 236 471 462
Deferred 185 159 89
- --------------------------------------------------------------------------------------------------------------------
Total Federal Income Taxes 421 630 551
- --------------------------------------------------------------------------------------------------------------------
Income before cumulative effects of changes in accounting principles 1,082 1,281 1,103
Cumulative effect of change in accounting for derivative instruments and
hedging activities, net of tax -- (6) --
Cumulative effect of change in accounting for securitized financial assets,
net of tax -- (3) --
- --------------------------------------------------------------------------------------------------------------------
Net Income $1,082 $1,272 $1,103
====================================================================================================================
See Notes to Consolidated Financial Statements.
F-2
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
AT DECEMBER 31, 2002 2001
- --------------------------------------------------------------------------------
ASSETS
Fixed maturities, available for sale at fair value
(including $2,687 and $2,330 subject to securities
lending agreements) (cost $35,428; $31,730) $36,434 $32,072
Equity securities, at fair value (cost $328; $471) 332 472
Mortgage loans 1,985 1,995
Real estate 36 55
Policy loans 1,168 1,208
Short-term securities 4,414 3,053
Trading securities, at fair value 1,531 1,880
Other invested assets 4,909 2,485
- --------------------------------------------------------------------------------
Total Investments 50,809 43,220
- --------------------------------------------------------------------------------
Cash 186 146
Investment income accrued 525 487
Premium balances receivable 151 137
Reinsurance recoverables 4,301 4,163
Deferred acquisition costs 3,936 3,461
Separate and variable accounts 21,620 24,837
Other assets 1,467 1,415
- --------------------------------------------------------------------------------
Total Assets $82,995 $77,866
- --------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $26,634 $22,810
Future policy benefits and claims 15,009 14,221
Separate and variable accounts 21,620 24,837
Deferred federal income taxes 1,448 409
Trading securities sold not yet purchased, at fair value 598 891
Other liabilities 6,051 5,518
- --------------------------------------------------------------------------------
Total Liabilities 71,360 68,686
- --------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 5,443 3,864
Retained earnings 5,638 5,142
Accumulated other changes in equity from nonowner sources 454 74
- --------------------------------------------------------------------------------
Total Shareholder's Equity 11,635 9,180
- --------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $82,995 $77,866
================================================================================
See Notes to Consolidated Financial Statements.
F-3
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
($ IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------
COMMON STOCK 2002 2001 2000
- -------------------------------------------------------------------------------------
Balance, beginning of year $100 $100 $100
Changes in common stock -- -- --
- -------------------------------------------------------------------------------------
Balance, end of year $100 $100 $100
=====================================================================================
- -------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
- -------------------------------------------------------------------------------------
Balance, beginning of year $3,864 $3,843 $3,819
Stock option tax benefit (expense) (17) 21 24
Capital contributed by parent 1,596 -- --
- -------------------------------------------------------------------------------------
Balance, end of year $5,443 $3,864 $3,843
=====================================================================================
- -------------------------------------------------------------------------------------
RETAINED EARNINGS
- -------------------------------------------------------------------------------------
Balance, beginning of year $5,142 $4,342 $4,099
Net income 1,082 1,272 1,103
Dividends to parent (586) (472) (860)
- -------------------------------------------------------------------------------------
Balance, end of year $5,638 $5,142 $4,342
=====================================================================================
- -------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES
IN EQUITY FROM NONOWNER SOURCES
- -------------------------------------------------------------------------------------
Balance, beginning of year $74 $104 $(398)
Cumulative effect of accounting for
derivative instruments and hedging activities,
net of tax -- (29) --
Unrealized gains, net of tax 455 68 501
Foreign currency translation, net of tax 3 (3) 1
Derivative instrument hedging activity losses,
net of tax (78) (66) --
- -------------------------------------------------------------------------------------
Balance, end of year $454 $ 74 $104
=====================================================================================
- -------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NONOWNER SOURCES
- -------------------------------------------------------------------------------------
Net income $1,082 $1,272 $1,103
Other changes in equity from nonowner sources 380 (30) 502
- -------------------------------------------------------------------------------------
Total changes in equity from nonowner sources $1,462 $1,242 $1,605
=====================================================================================
- -------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY
- -------------------------------------------------------------------------------------
Changes in total shareholders' equity $2,455 $ 791 $ 769
Balance, beginning of year 9,180 8,389 7,620
- -------------------------------------------------------------------------------------
Balance, end of year $11,635 $9,180 $8,389
=====================================================================================
See Notes to Consolidated Financial Statements.
F-4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, 2002 2001 2000
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,917 $ 2,109 $ 1,986
Net investment income received 2,741 2,430 2,489
Other revenues received 384 867 865
Benefits and claims paid (1,218) (1,176) (1,193)
Interest credited to contractholders (1,220) (1,159) (1,046)
Operating expenses paid (1,022) (1,000) (970)
Income taxes paid (197) (472) (490)
Trading account investments (purchases), sales, net 76 (92) (143)
Other (393) (227) (258)
- ---------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 1,068 1,280 1,240
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 4,459 3,706 4,257
Mortgage loans 374 455 380
Proceeds from sales of investments
Fixed maturities 15,472 14,110 10,840
Equity securities 945 112 397
Real estate held for sale 26 6 244
Purchases of investments
Fixed maturities (23,623) (22,556) (17,836)
Equity securities (867) (50) (7)
Mortgage loans (355) (287) (264)
Policy loans, net 39 41 9
Short-term securities purchases, net (1,320) (914) (810)
Other investments (purchases), sales, net (69) 103 (461)
Securities transactions in course of settlement, net 529 1,086 944
- ---------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (4,390) (4,188) (2,307)
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 8,505 8,308 6,022
Contractholder fund withdrawals (4,729) (4,932) (4,030)
Capital contribution by parent 172 -- --
Dividends to parent company (586) (472) (860)
- ---------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 3,362 2,904 1,132
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash 40 (4) 65
Cash at December 31, previous year 146 150 85
- ---------------------------------------------------------------------------------------------
Cash at December 31, current year $ 186 $ 146 $ 150
=============================================================================================
See Notes to Consolidated Financial Statements.
F-5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
BASIS OF PRESENTATION
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is a wholly owned subsidiary of Citigroup Insurance Holding
Corporation (CIHC), an indirect wholly owned subsidiary of Citigroup Inc.
(Citigroup), a diversified global financial services holding company whose
businesses provide a broad range of financial services to consumer and corporate
customers around the world. The consolidated financial statements include the
accounts of the Company and its insurance and non-insurance subsidiaries on a
fully consolidated basis. The primary insurance entities of the Company are TIC
and its subsidiaries, The Travelers Life and Annuity Company (TLAC), Primerica
Life Insurance Company (Primerica Life), and its subsidiaries, Primerica Life
Insurance Company of Canada, CitiLife Financial Limited (CitiLife) and National
Benefit Life Insurance Company (NBL). Significant intercompany transactions and
balances have been eliminated.
At December 31, 2001, the Company was a wholly owned subsidiary of The Travelers
Insurance Group, Inc. (TIGI). On February 4, 2002, TIGI changed its name to
Travelers Property Casualty Corp. (TPC). TPC completed its initial public
offering (IPO) on March 27, 2002 and on August 20, 2002 Citigroup made a
tax-free distribution of the majority of its remaining interest in TPC, to
Citigroup's stockholders. Prior to the IPO, the common stock of TIC was
distributed by TPC to CIHC so that TIC would remain an indirect wholly owned
subsidiary of Citigroup. See Note 15.
The financial statements and accompanying footnotes of the Company are prepared
in conformity with accounting principles generally accepted in the United States
of America (GAAP). The preparation of financial statements in conformity with
GAAP 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 to the 2002
presentation.
ACCOUNTING CHANGES
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS Effective January 1,
2002, the Company adopted the Financial Accounting Standards Board (FASB)
Statements of Financial Accounting Standards No. 141, "Business Combinations"
(FAS 141) and No. 142, "Goodwill and Other Intangible Assets" (FAS 142). These
standards change the accounting for business combinations by, among other
things, prohibiting the prospective use of pooling-of-interests accounting and
requiring companies to stop amortizing goodwill and certain intangible assets
with an indefinite useful life created by business combinations accounted for
using the purchase method of accounting. Instead, goodwill and intangible assets
deemed to have an indefinite useful life will be subject to an annual review for
impairment. Other intangible assets that are not deemed to have an indefinite
useful life will continue to be amortized over their useful lives. See Note 6.
F-6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company stopped amortizing goodwill on January 1, 2002. During 2001, the
Company reversed $8 million of negative goodwill. Net income adjusted to exclude
the impact of goodwill amortization for the twelve months ended December 31,
2001 is as follows:
Twelve Months
Ended
($ IN MILLIONS) December 31, 2001
-----------------
Net income:
Reported net income $1,272
Negative goodwill reversal (8)
Goodwill amortization 7
------
Adjusted net income $1,271
======
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
Effective January 1, 2002, the Company adopted the FASB Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (FAS 144). FAS 144 establishes a single accounting model for
long-lived assets to be disposed of by sale. A long-lived asset classified as
held for sale is to be measured at the lower of its carrying amount or fair
value less cost to sell. Depreciation (amortization) is to cease. Impairment is
recognized only if the carrying amount of a long-lived asset is not recoverable
from its undiscounted cash flows and is measured as the difference between the
carrying amount and fair value of the asset. Long-lived assets to be abandoned,
exchanged for a similar productive asset, or distributed to owners in a spin-off
are considered held and used until disposed of. Accordingly, discontinued
operations are no longer to be measured on a net realizable value basis, and
future operating losses are no longer recognized before they occur. The
provisions of the new standard are to be applied prospectively.
There has been no impact as of December 31, 2002 on the Company's results of
operations, financial condition or liquidity due to this standard. The Company
does not expect the impact of this standard to be significant in future
reporting periods.
ACCOUNTING STANDARDS NOT YET ADOPTED
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
On January 1, 2003, the Company adopted the FASB Statement of Financial
Accounting Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" (FAS 146). FAS 146 requires that a liability for costs
associated with exit or disposal activities, other than in a business
combination, be recognized when the liability is incurred. Previous generally
accepted accounting principles provided for the recognition of such costs at the
date of management's commitment to an exit plan. In addition, FAS 146 requires
that the liability be measured at fair value and be adjusted for changes in
estimated cash flows. The provisions of the new standard are effective for exit
or disposal activities initiated after December 31, 2002. It is not expected
that FAS 146 will materially affect the Company's consolidated financial
statements.
F-7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
STOCK BASED COMPENSATION
On January 1, 2003, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123 (FAS 123), prospectively for
all awards granted, modified, or settled after December 31, 2002. The
prospective method is one of the adoption methods provided for under FAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
issued in December 2002. FAS 123 requires that compensation cost for all stock
awards be calculated and recognized over the service period (generally equal to
the vesting period). This compensation cost is determined using option pricing
models, intended to estimate the fair value of the awards at the grant date.
Similar to APB 25, the alternative method of accounting, an offsetting increase
to stockholders' equity under FAS 123 is recorded equal to the amount of
compensation expense charged.
Had the Company applied FAS 123 in accounting for Citigroup stock options, net
income would have been the pro forma amounts indicated below:
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2002 2001 2000
($ IN MILLIONS)
-----------------------------------------------------------------------------
Net income, as reported $1,082 $1,272 $1,103
FAS 123 pro forma adjustments, after tax (9) (15) (19)
-----------------------------------------------------------------------------
Net income, pro forma $1,073 $1,257 $1,084
-----------------------------------------------------------------------------
The assumptions used in applying FAS 123 to account for Citigroup stock options
were as follows:
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2002 2001 2000
-----------------------------------------------------------------------------
Expected volatility of Citigroup Stock 36.98% 38.31% 41.5%
Risk-free interest rate 3.65% 4.42% 6.23%
-----------------------------------------------------------------------------
Expected annual dividend per Citigroup share $0.92 $0.92 $0.78
-----------------------------------------------------------------------------
Expected annual forfeiture rate 7% 5% 5%
-----------------------------------------------------------------------------
The adoption of this change in accounting principle will not have a significant
impact on the Company's results of operations, financial condition or liquidity.
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
In January 2003, the FASB released FASB Interpretation No. 46 "Consolidation of
Variable Interest Entities" (FIN 46). This Interpretation changes the method of
determining whether certain entities should be included in the Company's
Consolidated Financial Statements. An entity is subject to FIN 46 and is called
a variable interest entity (VIE) if it has (1) equity that is insufficient to
permit the entity to finance its activities without additional subordinated
financial support from other parties, or (2) equity investors that cannot make
significant decisions about the entity's operations, or that do not absorb the
expected losses or receive the expected returns of the entity. All other
entities are evaluated for consolidation under FAS No. 94, "Consolidation of All
Majority-Owned Subsidiaries." A VIE is consolidated by its primary beneficiary,
which is the party involved with the VIE that has a majority of the expected
losses or a majority of the expected residual returns or both.
F-8
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The provisions of FIN 46 are to be applied immediately to VIEs created after
January 31, 2003, and to VIEs in which an enterprise obtains an interest after
that date. For VIEs in which an enterprise holds a variable interest that it
acquired before February 1, 2003, FIN 46 applies in the first fiscal period
beginning after June 15, 2003. For any VIEs that must be consolidated under FIN
46 that were created before February 1, 2003, the assets, liabilities and
noncontrolling interest of the VIE would be initially measured at their carrying
amounts with any difference between the net amount added to the balance sheet
and any previously recognized interest being recognized as the cumulative effect
of an accounting change. If determining the carrying amounts is not practicable,
fair value at the date FIN 46 first applies may be used to measure the assets,
liabilities and noncontrolling interest of the VIE. FIN 46 also mandates new
disclosures about VIEs, some of which are required to be presented in financial
statements issued after January 31, 2003.
The Company has investments in entities that may be considered to be variable
interests. The carrying value of these investments is approximately $1.3 billion
and primarily consists of interests in security and real estate investment
funds, and below investment grade asset-backed and mortgage-backed securities,
and a collateralized bond obligation. The Company is evaluating the impact of
applying FIN 46 to existing VIEs in which it has variable interests and has not
yet completed this analysis. However, at this time, it is anticipated that the
effect on the Company's Consolidated Balance Sheets could be an increase of less
than $1 billion to assets and liabilities. As the Company continues to evaluate
the impact of applying FIN 46, additional entities may be identified that would
need to be consolidated.
ACCOUNTING POLICIES
INVESTMENTS
Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed
maturities, including instruments subject to securities lending agreements (see
Note 4), are classified as "available for sale" and are reported at fair value,
with unrealized investment gains and losses, net of income taxes, credited or
charged directly to shareholder's equity. Fair values of investments in fixed
maturities are based on quoted market prices or dealer quotes. If quoted market
prices are not available, discounted expected cash flows using market rates
commensurate with the credit quality and maturity of the investment are used to
record fair value. Changes in assumptions could affect the fair values of fixed
maturities. Impairments are realized when investment losses in value are deemed
other-than-temporary. The Company conducts regular reviews to assess whether
other-than-temporary impairments exist. Changing economic conditions - global,
regional, or related to specific issuers or industries - could adversely affect
these values.
Also included in fixed maturities are loan-backed and structured securities,
which are amortized using the retrospective method. The effective yield used to
determine amortization is calculated based upon actual historical and projected
future cash flows, which are obtained from a widely accepted securities data
provider.
Equity securities, which include common and non-redeemable preferred stocks, are
classified as "available for sale" and carried at fair value based primarily on
quoted market prices. Changes in fair values of equity securities are charged or
credited directly to shareholder's equity, net of income taxes.
Mortgage loans are carried at amortized cost. 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.
F-9
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Real estate held for sale is carried at the lower of cost or fair value less
estimated cost to sell. Fair value of foreclosed properties is established at
the time of foreclosure by internal analysis or external appraisers, using
discounted cash flow analyses and other accepted techniques. Thereafter, an
allowance for losses on real estate held for sale is established if the carrying
value of the property exceeds its current fair value less estimated costs to
sell. There was no such allowance at December 31, 2002 and 2001.
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.
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 fair value.
Trading securities and related liabilities are normally held for periods less
than six months. These investments are marked to market with the change
recognized in net investment income during the current period.
Other invested assets include partnership investments and real estate joint
ventures accounted for on the equity method of accounting. Undistributed income
is reported in net investment income. Also included in other invested assets is
an investment in Citigroup Preferred Stock. See Note 14.
Accrual of income 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.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial futures
contracts, swaps, options and forward contracts, as a means of hedging exposure
to interest rate changes, equity price change and foreign currency risk. The
Company also uses derivative financial instruments to enhance portfolio income
and replicate cash market investments. The Company, through Tribeca Citigroup
Investments Ltd., holds and issues derivative instruments in conjunction with
these funding strategies. (See Note 12 for a more detailed description of the
Company's derivative use.) Derivative financial instruments in a gain position
are reported in the consolidated balance sheet in other assets, derivative
financial instruments in a loss position are reported in the consolidated
balance sheet in other liabilities and derivatives purchased to offset embedded
derivatives on variable annuity contracts are reported on other invested assets.
To qualify for hedge accounting, the hedge relationship is designated and
formally documented at inception detailing the particular risk management
objective and strategy for the hedge which includes the item and risk that is
being hedged, the derivative that is being used, as well as how effectiveness is
being assessed. A derivative has to be highly effective in accomplishing the
objective of offsetting either changes in fair value or cash flows for the risk
being hedged.
For fair value hedges, in which derivatives hedge the fair value of assets and
liabilities, changes in the fair value of derivatives are reflected in realized
investment gains and losses, together with changes in the fair value of the
related hedged item. The Company primarily hedges available-for-sale securities.
F-10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
For cash flow hedges, the accounting treatment depends on the effectiveness of
the hedge. To the extent that derivatives are effective in offsetting the
variability of the hedged cash flows, changes in the derivatives' fair value
will not be included in current earnings but are reported in the accumulated
other changes in equity from nonowner sources in shareholder's equity. These
changes in fair value will be included in earnings of future periods when
earnings are also affected by the variability of the hedged cash flows. To the
extent these derivatives are not effective, changes in their fair values are
immediately included in realized investment gains and losses. The Company
primarily hedges foreign denominated funding agreements and floating rate
available-for-sale securities.
For net investment hedges, in which derivatives hedge the foreign currency
exposure of a net investment in a foreign operation, the accounting treatment
will similarly depend on the effectiveness of the hedge. The effective portion
of the change in fair value of the derivative, including any premium or
discount, is reflected in the accumulated other changes in equity from nonowner
sources as part of the foreign currency translation adjustment in shareholder's
equity. The ineffective portion is reflected in realized investment gains and
losses.
Derivatives that are used to hedge instruments that are carried at fair value,
do not qualify or are not designated as hedges, are also carried at fair value
with changes in value reflected in realized investment gains and losses.
The effectiveness of these hedging relationships is evaluated on a retrospective
and prospective basis using quantitative measures of correlation. If a hedge
relationship is found to be ineffective, it no longer qualifies as a hedge and
any gains or losses attributable to such ineffectiveness as well as subsequent
changes in fair value are recognized in realized investment gains and losses.
For those hedge relationships that are terminated, hedge designations removed,
or forecasted transactions that are no longer expected to occur, the hedge
accounting treatment described in the paragraphs above will no longer apply. For
fair value hedges, any changes to the hedged item remain as part of the basis of
the asset or liability and are ultimately reflected as an element of the yield.
For cash flow hedges, any changes in fair value of the end-user derivative
remain in the accumulated other changes in equity from nonowner sources in
shareholder's equity and are included in earnings of future periods when
earnings are also affected by the variability of the hedged cash flow. If the
hedged relationship is discontinued because a forecasted transaction will not
occur when scheduled, any changes in fair value of the end-user derivative are
immediately reflected in realized investment gains and losses.
FINANCIAL INSTRUMENTS WITH EMBEDDED DERIVATIVES:
The Company bifurcates an embedded derivative where the economic characteristics
and risks of the embedded instrument are not clearly and closely related to the
economic characteristics and risks of the host contract, the entire instrument
would not otherwise be remeasured at fair value and a separate instrument with
the same terms of the embedded instrument would meet the definition of a
derivative under FAS 133.
The Company purchases investments that have embedded derivatives, primarily
convertible debt securities. These embedded derivatives are carried at fair
value with changes in value reflected in realized investment gains and losses.
Derivatives embedded in convertible debt securities are classified in the
consolidated balance sheet as fixed maturity securities, consistent with the
host instruments.
The Company markets certain insurance contracts that have embedded derivatives,
primarily variable annuity contracts with put options. These embedded
derivatives are carried at fair value with changes in value
F-11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
reflected in realized investment gains and losses. Derivatives embedded in
variable annuity contracts are classified in the consolidated balance sheet as
future policyholder benefits and claims.
Prior to the adoption of FAS 133 on January 1, 2001, end-user derivatives
designated as qualifying hedges were accounted for consistently with the
associated risk management strategy. Derivatives used for hedging purposes were
generally accounted for using hedge accounting. Changes in value of the
derivatives which were expected to substantially offset the changes in value of
the hedged items qualified for hedge accounting. Hedges were monitored to ensure
that there was a high correlation between the derivative instrument and the
hedged investment. Derivatives that did not qualify for hedge accounting were
marked to market with changes in market value reflected in the consolidated
statement of income as realized gains and losses.
Payments to be received or made under interest rate swaps were accrued and
recognized in net investment income. Swaps hedging available for sale securities
were carried at fair value with unrealized gains and losses, net of taxes,
charged directly to shareholder's equity. Interest rate and currency swaps
hedging liabilities were treated as off-balance sheet instruments. Gains and
losses arising from financial future contracts were used to adjust the basis of
hedged investments and were recognized in net investment income over the life of
the investment. Gains and losses arising from equity index options were marked
to market with changes in market value reflected in realized investment gains
and losses. Forward contracts hedging investments were marked to market based on
changes in the spot rate with changes in market value reflected in realized
investment gains and losses and any forward premium or discount was recognized
in net investment income over the life of the contract. Gains and losses from
forward contracts hedging foreign operations were carried at fair value with
unrealized gains and losses, net of taxes, charged directly to shareholder's
equity.
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. Impairments are realized when investment losses in value are deemed
other-than-temporary. The Company conducts regular reviews to assess whether
other-than-temporary impairments exist. Changing economic conditions - global,
regional, or related to specific issuers or industries - could adversely affect
these investments. Also included in pre-tax revenues 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. The foreign
exchange effects of Canadian operations are included in unrealized gains and
losses.
DEFERRED ACQUISITION COSTS
Costs of acquiring traditional life and health insurance, universal life,
corporate owned life insurance (COLI), deferred annuities and payout annuities
are deferred. These deferred acquisition costs (DAC) include 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. The method for determining amortization of deferred acquisition
costs varies by product type based upon three different accounting
pronouncements: Statement of Financial Accounting Standards No. 60, "Accounting
and Reporting by Insurance Enterprises" (FAS 60), Statement of Financial
Accounting Standards No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases" (FAS 91) and Statement of Financial Accounting Standards No. 97,
"Accounting and Reporting by Insurance Enterprises for Certain Long Duration
Contracts and for Realized Gains and Losses from the Sale of Investments"
(FAS 97).
F-12
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DAC for deferred annuities, both fixed and variable, and payout annuities are
amortized employing a level effective yield methodology per FAS 91 as permitted
by AICPA Practice Bulletin 8. An amortization rate is developed using the
outstanding DAC balance and projected account balances and is applied to actual
account balances to determine the amount of DAC amortization. The projected
account balances are derived using a model that contains assumptions related to
investment returns and persistency. The model rate is evaluated periodically, at
least annually, and the actual rate is reset in the following quarter and
applied prospectively. A new amortization pattern is developed so that the DAC
balances will be amortized over the remaining estimated life of the business.
DAC for these products is currently being amortized over 10-15 years.
DAC for universal life and COLI are amortized in relation to estimated gross
profits from surrender charges, investment, mortality, and expense margins per
FAS 97. Actual profits can vary from management's estimates, resulting in
increases or decreases in the rate of amortization. Re-estimates of gross
profits result in retrospective adjustments to earnings by a cumulative charge
or credit to income. DAC for these products is currently being amortized over
16-25 years.
DAC relating to traditional life, including term insurance, and health insurance
are amortized in relation to anticipated premiums per FAS 60. Assumptions as to
the anticipated premiums are made at the date of policy issuance or acquisition
and are consistently applied over the life of the policy. DAC for these products
is currently being amortized over 5-20 years.
DAC is reviewed to determine if it is recoverable from future income, including
investment income, and if not recoverable, is charged to expenses. All other
acquisition expenses are charged to operations as incurred. See Note 6.
VALUE OF INSURANCE IN FORCE
The value of insurance in force is an asset that was recorded in 1993 at the
time of acquisition of the Company by Citigroup's predecessor. It represents the
actuarially determined present value of anticipated profits to be realized from
life insurance and 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 interest rates ranging from 14% to
18%. Traditional life insurance is amortized in relation to anticipated
premiums; universal life is amortized in relation to estimated gross profits;
and annuity contracts are amortized employing a level yield method. The value of
insurance in force, which is included in other assets, is reviewed periodically
for recoverability to determine if any adjustment is required. Adjustments, if
any, are charged to income. See Note 6.
SEPARATE AND VARIABLE ACCOUNTS
Separate and variable accounts primarily represent funds for which investment
income and investment gains and losses accrue directly to, and investment risk
is borne by, the contractholders. Each account has specific investment
objectives. The assets of each account are legally segregated and are not
subject to claims that arise out of any other business of the Company. The
assets of these accounts are carried at fair value. Certain other separate
accounts provide guaranteed levels of return or benefits and the assets of these
accounts are primarily carried at fair value.
F-13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Amounts assessed to the separate account contractholders for management services
are included in revenues. Deposits, net investment income and realized
investment gains and losses for these accounts are excluded from revenues, and
related liability increases are excluded from benefits and expenses.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets are included in other assets. Prior to the
adoption of FASB Statements of Financial Accounting Standards No. 141, "Business
Combinations" (FAS 141) and No. 142, "Goodwill and Other Intangible Assets"
(FAS 142) in the first quarter of 2002, goodwill was being amortized on a
straight-line basis principally over a 40-year period. The carrying amount
of goodwill and other intangible assets is regularly reviewed for indication
of impairment in value that in the view of management would be
other-than-temporary. If it is determined that goodwill and other intangible
assets are unlikely to be recovered, impairment is recognized on a discounted
cash flow basis. See Note 6.
Upon adoption of FAS 141 and FAS 142, the Company stopped amortizing goodwill
and intangible assets deemed to have an infinite useful life. Instead, these
assets are subject to an annual review for impairment. Other intangible assets
that are not deemed to have an indefinite useful life will continue to be
amortized over their useful lives. See Note 1, Summary of Significant Accounting
Policies, Accounting Changes.
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal life,
COLI, pension investment, guaranteed investment contracts (GIC), and certain
deferred annuity contracts. For universal life and COLI contracts,
contractholder fund balances are increased by receipts for mortality coverage,
contract administration, surrender charges and interest accrued, where one or
more of these elements are not fixed or guaranteed. These balances are decreased
by withdrawals, mortality charges and administrative expenses charged to the
contractholder. Interest rates credited to contractholder funds related to
universal life and COLI range from 4.1% to 6.6%, with a weighted average
interest rate of 4.5%.
Pension investment, GICs and certain annuity contracts do not contain
significant insurance risks and are considered investment-type contracts.
Contractholder fund balances are increased by receipts and credited interest,
and reduced by withdrawals and administrative expenses charged to the
contractholder. Interest rates credited to those investment type contracts range
from 1.45% to 10.0% with a weighted average interest rate of 4.9%.
FUTURE POLICY BENEFITS
Future policy benefits represent liabilities for future insurance policy
benefits. The annuity payout reserves are calculated using the mortality and
interest assumptions used in the actual pricing of the benefit. Mortality
assumptions are based on Company experience and are adjusted to reflect
deviations such as substandard mortality in structured settlement benefits. The
interest rates range from 2.0% to 9.0% with a weighted average of 7.1% for these
products. Traditional life products include whole life and term insurance.
Future policy benefits for traditional life products are estimated on the basis
of actuarial assumptions as to mortality, persistency and interest, established
at policy issue. Interest assumptions applicable to traditional life products
range from 2.5% to 7.0%, with a weighted average of 3.6%. Assumptions
established at policy issue as to mortality and persistency are based on the
Company's experience, which, together with interest assumptions, include a
margin for adverse deviation. Appropriate recognition has been given to
experience rating and reinsurance.
F-14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
GUARANTY FUND AND OTHER INSURANCE RELATED ASSESSMENTS
Included in other liabilities is the Company's estimate of its liability for
guaranty fund and other insurance-related assessments. State guaranty fund
assessments are based upon the Company's share of premium written or received in
one or more years prior to an insolvency occurring in the industry. Once an
insolvency has occurred, the Company recognizes a liability for such assessments
if it is probable that an assessment will be imposed and the amount of the
assessment can be reasonably estimated. At December 31, 2002 and 2001, the
Company had a liability of $22.6 million and $22.3 million, respectively, for
guaranty fund assessments and a related premium tax offset recoverable of $4.2
million and $4.3 million, respectively. The assessments are expected to be paid
over a period of three to five years and the premium tax offsets are expected to
be realized over a period of 10 to 15 years.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries, domiciled principally in Connecticut and
Massachusetts, prepare statutory financial statements in accordance with the
accounting practices prescribed or permitted by the insurance departments of the
states of domicile. Prescribed statutory accounting practices are those
practices that are incorporated directly or by reference in state laws,
regulations, and general administrative rules applicable to all insurance
enterprises domiciled in a particular state. Permitted statutory accounting
practices include practices not prescribed by the domiciliary state, but allowed
by the domiciliary state regulatory authority. The Company does not have any
permitted statutory accounting practices.
PREMIUMS
Premiums are recognized as revenue when due. Premiums for contracts with a
limited number of premium payments, due over a significantly shorter period than
the period over which benefits are provided, are considered income when due. The
portion of premium which is not required to provide for benefits and expenses is
deferred and recognized in income in a constant relationship to insurance
benefits in force.
FEE INCOME
Fee income is recognized on deferred annuity and universal life contracts for
mortality, administrative and equity protection charges according to contract
due dates. Fee income is recognized on variable annuity and universal life
separate accounts either daily, monthly, quarterly or annually as per contract
terms.
OTHER REVENUES
Other revenues include surrender penalties collected at the time of a contract
surrender, and other miscellaneous charges related to annuity and universal life
contracts recognized when received. Also included are revenues from
unconsolidated non-insurance subsidiaries. Amortization of deferred income
related to reinsured blocks of business are recognized in relation to
anticipated premiums and are reported in other revenues.
CURRENT AND FUTURE INSURANCE BENEFITS
Current and future insurance benefits represent charges for mortality and
morbidity related to fixed annuities, universal life, term life and health
insurance benefits.
F-15
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INTEREST CREDITED TO CONTRACTHOLDERS
Interest credited to contractholders represents amounts earned by universal
life, COLI, pension investment, GICS and certain deferred annuity contracts in
accordance with contract provisions.
FEDERAL INCOME TAXES
The provision for federal income taxes is comprised of two components, current
income taxes and deferred income taxes. Deferred federal income taxes arise from
changes during the year in cumulative temporary differences between the tax
basis and book basis of assets and liabilities.
STOCK-BASED COMPENSATION
Prior to January 1, 2003, the Company applied Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related
interpretations in accounting for its stock-based compensation plans. Under APB
25, there is generally no charge to earnings for employee stock option awards
because the options granted under these plans have an exercise price equal to
the market value of the underlying common stock on the grant date.
Alternatively, FAS No. 123, "Accounting for Stock-Based Compensation" (FAS 123),
allows companies to recognize compensation expense over the related service
period based on the grant date fair value of the stock award.
2. BUSINESS DISPOSITION
Effective July 1, 2000, the Company sold 90% of its individual long-term care
insurance business to General Electric Capital Assurance Company and its
subsidiary in the form of indemnity reinsurance arrangements. The proceeds were
$410 million, resulting in a deferred gain of approximately $150 million
after-tax. The deferred gain is amortized in relation to anticipated premiums.
After-tax amortization amounted to $20 million, $21 million and $5 million in
2002, 2001 and 2000, respectively. Earned premiums were $24 million, $25 million
and $138 million in 2002, 2001 and 2000, respectively.
3. OPERATING SEGMENTS
The Company has two reportable business segments that are separately managed due
to differences in products, services, marketing strategy and resource
management. The business of each segment is maintained and reported through
separate legal entities within the Company. The management groups of each
segment report separately to the common ultimate parent, Citigroup Inc.
TRAVELERS LIFE & ANNUITY (TLA) core offerings include individual annuity,
individual life, COLI and group annuity insurance products distributed by TIC
and TLAC principally under the Travelers Life & Annuity name. Among the range of
individual products offered are fixed and variable deferred annuities, payout
annuities and term, universal and variable life insurance. The COLI product is a
variable universal life product distributed through independent specialty
brokers. The group products include institutional pensions, including GICs,
payout annuities, group annuities sold to employer-sponsored retirement and
savings plans and structured finance transactions. The majority of the annuity
business and a substantial portion of the life business written by TLA are
accounted for as investment contracts,
F-16
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
with the result that the deposits collected are reported as liabilities and are
not included in revenues.
The PRIMERICA LIFE INSURANCE business segment consolidates the business of
Primerica Life, Primerica Life Insurance Company of Canada, CitiLife and NBL.
The Primerica Life Insurance business segment offers individual life products,
primarily term insurance, to customers through a sales force of approximately
107,000 representatives. A great majority of the domestic licensed sales force
works on a part-time basis.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1), except that management
also includes receipts on long-duration contracts (universal life-type and
investment contracts) as deposits along with premiums in measuring business
volume. The amount of investments in equity method investees and total
expenditures for additions to long- lived assets other than financial
instruments, long-term customer relationships of a financial institution,
mortgage and other servicing rights, and deferred tax assets, were not material.
F-17
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- -------------------------------------------------------------------------------------------------------
AT AND FOR THE YEAR
ENDED DECEMBER 31, 2002 TRAVELERS LIFE & PRIMERICA LIFE
($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -------------------------------------------------------------------------------------------------------
Business Volume:
Premiums $ 730 $ 1,194 $ 1,924
Deposits 11,906 -- 11,906
------- ------- -------
Total business volume $12,636 $ 1,194 $13,830
Net investment income 2,646 290 2,936
Interest credited to contractholders 1,220 -- 1,220
Amortization of deferred acquisition costs 174 219 393
Total expenditures for deferred acquisition costs 556 323 879
Federal income taxes (FIT) on operating income 325 209 534
Operating income (excludes realized gains or
losses and the related FIT) $ 884 $ 407 $ 1,291
Segment Assets $74,562 $ 8,433 $82,995
- -------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT INFORMATION:
- -------------------------------------------------------------------------------------------------------
AT AND FOR THE YEAR
ENDED DECEMBER 31, 2001 TRAVELERS LIFE & PRIMERICA LIFE
($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -------------------------------------------------------------------------------------------------------
Business Volume:
Premiums $ 957 $ 1,145 $ 2,102
Deposits 13,067 -- 13,067
------- ------- -------
Total business volume $14,024 $ 1,145 $15,169
Net investment income 2,530 301 2,831
Interest credited to contractholders 1,179 -- 1,179
Amortization of deferred acquisition costs 171 208 379
Total expenditures for deferred acquisition costs 553 298 851
Federal income taxes (FIT) on operating income 377 209 586
Operating income (excludes realized gains or
losses and the related FIT) $ 801 $ 399 $ 1,200
Segment Assets $69,836 $ 8,030 $77,866
- -------------------------------------------------------------------------------------------------------
F-18
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- -------------------------------------------------------------------------------------------------------
AT AND FOR THE YEAR
ENDED DECEMBER 31, 2000 TRAVELERS LIFE & PRIMERICA LIFE
($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -------------------------------------------------------------------------------------------------------
Business Volume:
Premiums $ 860 $ 1,106 $ 1,966
Deposits 11,536 -- 11,536
------- ------- -------
Total business volume $12,396 $ 1,106 $13,502
Net investment income 2,450 280 2,730
Interest credited to contractholders 1,038 -- 1,038
Amortization of deferred acquisition costs 166 181 347
Total expenditures for deferred acquisition costs 520 272 792
Federal income taxes (FIT) on operating income 381 197 578
Operating income (excludes realized gains or
losses and the related FIT) $ 777 $ 376 $ 1,153
Segment Assets $62,771 $ 7,522 $70,293
- -------------------------------------------------------------------------------------------------------
F-19
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- ----------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
($ IN MILLIONS) AT AND FOR THE YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------
BUSINESS VOLUME AND REVENUES 2002 2001 2000
- ----------------------------------------------------------------------------------------------
Total business volume $ 13,830 $ 15,169 $ 13,502
Other revenues, including fee income 696 644 635
Elimination of deposits (11,906) (13,067) (11,536)
-------- -------- --------
Revenue from external sources 2,620 2,746 2,601
Net investment income 2,936 2,831 2,730
Realized investment gains (losses) (322) 125 (77)
==============================================================================================
Total revenues $ 5,234 $ 5,702 $ 5,254
==============================================================================================
OPERATING INCOME
- ----------------------------------------------------------------------------------------------
Total operating income of business segments $ 1,291 $ 1,200 $ 1,153
Realized investment gains (losses), net of tax (209) 81 (50)
Cumulative effect of change in accounting for
derivative instruments and hedging activities,
net of tax -- (6) --
Cumulative effect of change in accounting for
securitized financial assets, net of tax -- (3) --
- ----------------------------------------------------------------------------------------------
Income from continuing operations $ 1,082 $ 1,272 $ 1,103
==============================================================================================
ASSETS
- ----------------------------------------------------------------------------------------------
Total assets of business segments $ 82,995 $ 77,866 $ 70,293
==============================================================================================
BUSINESS VOLUME AND REVENUES
- ----------------------------------------------------------------------------------------------
Individual Annuities $ 6,307 $ 7,166 $ 7,101
Group Annuities 7,285 8,383 6,563
Individual Life and Health Insurance and COLI 3,116 2,970 2,550
Other (a) 432 250 576
Elimination of deposits (11,906) (13,067) (11,536)
- ----------------------------------------------------------------------------------------------
Total revenue $ 5,234 $ 5,702 $ 5,254
==============================================================================================
(a) Other represents revenue attributable to unallocated capital and run-off
businesses.
The Company's revenue was derived almost entirely from U.S. domestic business.
Revenue attributable to foreign countries was insignificant.
The Company had no transactions with a single customer representing 10% or more
of its revenue.
F-20
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. INVESTMENTS
FIXED MATURITIES
The amortized cost and fair value of investments in fixed maturities were as
follows:
- --------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 2002 AMORTIZED UNREALIZED UNREALIZED FAIR
($ IN MILLIONS) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 6,975 $ 434 $ 2 $ 7,407
U.S. Treasury securities and obligations of
U.S. Government and government agencies and 2,402 39 19 2,422
authorities
Obligations of states, municipalities and
political subdivisions 297 22 0 319
Debt securities issued by foreign governments
365 30 2 393
All other corporate bonds 20,894 982 608 21,268
Other debt securities 4,348 229 66 4,511
Redeemable preferred stock 147 1 34 114
- --------------------------------------------------------------------------------------------------------
Total Available For Sale $35,428 $ 1,737 $ 731 $36,434
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 2001 AMORTIZED UNREALIZED UNREALIZED FAIR
($ IN MILLIONS) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 6,654 $ 116 $ 57 $ 6,713
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,677 8 63 1,622
Obligations of states, municipalities and
political subdivisions 108 4 1
111
Debt securities issued by foreign governments
810 46 5 851
All other corporate bonds 17,904 482 260 18,126
Other debt securities 4,406 154 86 4,474
Redeemable preferred stock 171 12 8 175
- --------------------------------------------------------------------------------------------------------
Total Available For Sale $31,730 $ 822 $ 480 $32,072
- --------------------------------------------------------------------------------------------------------
F-21
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Proceeds from sales of fixed maturities classified as available for sale were
$15.5 billion, $14.1 billion and $10.8 billion in 2002, 2001 and 2000,
respectively. Gross gains of $741 million, $633 million and $213 million and
gross losses of $309 million, $273 million and $407 million in 2002, 2001 and
2000, respectively, were realized on those sales. Additional losses of $639
million, $153 million and $25 million in 2002, 2001 and 2000, respectively, were
realized due to other-than-temporary losses in value. Impairment activity
increased significantly beginning in the fourth quarter of 2001 and continued
throughout 2002. Impairments were concentrated in telecommunication and energy
company investments.
Fair values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash flows
using market rates commensurate with the credit quality and maturity of the
investment. The fair value of investments for which a quoted market price or
dealer quote is not available amounted to $5.1 billion and $4.6 billion at
December 31, 2002 and 2001, respectively.
The amortized cost and fair value of fixed maturities at December 31, 2002, by
contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
---------------------------------------------------------------------------
AMORTIZED
($ IN MILLIONS) COST FAIR VALUE
---------------------------------------------------------------------------
MATURITY:
Due in one year or less $2,572 $2,605
Due after 1 year through 5 years 10,162 10,430
Due after 5 years through 10 years 8,591 8,768
Due after 10 years 7,128 7,224
---------------------------------------------------------------------------
28,453 29,027
---------------------------------------------------------------------------
Mortgage-backed securities 6,975 7,407
---------------------------------------------------------------------------
Total Maturity $35,428 $36,434
---------------------------------------------------------------------------
The Company makes 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 and
last cash flow tranches. Prepayment protected tranches are preferred because
they provide stable cash flows in a variety of interest rate scenarios. The
Company does invest in other types of CMO tranches if a careful assessment
indicates a favorable risk/return tradeoff. The Company does not purchase
residual interests in CMOs.
At December 31, 2002 and 2001, the Company held CMOs classified as available for
sale with a fair value of $4.7 billion and $4.5 billion, respectively.
Approximately 35% and 38%, respectively, of the Company's CMO holdings are fully
collateralized by GNMA, FNMA or FHLMC securities at December 31, 2002 and 2001.
In addition, the Company held $2.6 billion and $2.1 billion of GNMA, FNMA or
FHLMC mortgage-backed pass-through securities at December 31, 2002 and 2001,
respectively. All of these securities are rated AAA.
F-22
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. The
Company generally receives cash collateral from the borrower, equal to at least
the market value of the loaned securities plus accrued interest, and reinvests
it in short-term securities. The loaned securities remain a recorded asset of
the Company, however, the Company records a liability for the amount of the cash
collateral held, representing its obligation to return the cash collateral
related to these loaned securities, and reports that liability as part of other
liabilities in the consolidated balance sheet. At December 31, 2002 and 2001,
the Company held cash collateral of $2.8 billion and $2.4 billion, respectively.
EQUITY SECURITIES
The cost and fair values of investments in equity securities were as follows:
---------------------------------------------------------------------------------------------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR
($ IN MILLIONS) COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------
DECEMBER 31, 2002
Common stocks $48 $9 $7 $50
Non-redeemable preferred stocks 280 8 6 282
---------------------------------------------------------------------------------------------
Total Equity Securities $328 $17 $13 $332
---------------------------------------------------------------------------------------------
DECEMBER 31, 2001
Common stocks $96 $11 $6 $101
Non-redeemable preferred stocks 375 8 12 371
---------------------------------------------------------------------------------------------
Total Equity Securities $471 $19 $18 $472
---------------------------------------------------------------------------------------------
Proceeds from sales of equity securities were $945 million, $112 million and
$397 million in 2002, 2001 and 2000, respectively. Gross gains of $8 million,
$10 million and $107 million and gross losses of $4 million, $13 million and $9
million in 2002, 2001 and 2000, respectively, were realized on those sales.
Additional losses of $19 million, $96 million and $7 million in 2002, 2001 and
2000, respectively, were realized due to other-than-temporary losses in value.
MORTGAGE LOANS AND REAL ESTATE
At December 31, 2002 and 2001, the Company's mortgage loan and real estate
portfolios consisted of the following:
----------------------------------------------------------------------------
($ IN MILLIONS) 2002 2001
----------------------------------------------------------------------------
Current Mortgage Loans $1,941 $1,976
Underperforming Mortgage Loans 44 19
----------------------------------------------------------------------------
Total Mortgage Loans 1,985 1,995
----------------------------------------------------------------------------
Real Estate - Foreclosed 17 42
Real Estate - Investment 19 13
----------------------------------------------------------------------------
Total Real Estate 36 55
----------------------------------------------------------------------------
Total Mortgage Loans and Real Estate $2,021 $2,050
============================================================================
Underperforming mortgage loans include delinquent mortgage loans over 90 days
past due, loans in the process of foreclosure and loans modified at interest
rates below market.
F-23
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 2002 are shown
below. Actual maturities will differ from contractual maturities because
borrowers may have the right to prepay obligations with or without prepayment
penalties.
-----------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ IN MILLIONS)
-----------------------------------------------------------
Past Maturity $13
2003 183
2004 156
2005 123
2006 198
2007 135
Thereafter 1,177
-----------------------------------------------------------
Total $1,985
===========================================================
TRADING SECURITIES
Trading securities of the Company are held in Tribeca Citigroup Investments Ltd.
The assets and liabilities are valued at fair value as follows:
($ IN MILLIONS) Fair value as of Fair value as of
- --------------- December 31, 2002 December 31, 2001
----------------- -----------------
ASSETS
Trading securities
Convertible bond arbitrage $1,442 $1,798
Merger arbitrage 47 80
Other 42 2
------ ------
$1,531 $1,880
====== ======
LIABILITIES
Trading securities sold not yet purchased
Convertible bond arbitrage $ 520 $ 836
Merger arbitrage 13 51
Other 65 4
------ ------
$ 598 $ 891
====== ======
The Company's trading portfolio investments and related liabilities are normally
held for periods less than six months. See Note 12.
F-24
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
OTHER INVESTED ASSETS
Other invested assets are composed of the following:
--------------------------------------------------------------------------
($ IN MILLIONS) 2002 2001
--------------------------------------------------------------------------
Investment in Citigroup preferred stock $3,212 $987
Partnership investments 1,269 949
Real estate joint ventures 390 520
Other 38 29
--------------------------------------------------------------------------
Total $4,909 $2,485
--------------------------------------------------------------------------
CONCENTRATIONS
At December 31, 2002 and 2001, the Company had an investment in Citigroup
Preferred Stock of $3.2 billion and $987 million, respectively. See Note 14.
The Company maintains a short-term investment pool for its insurance affiliates
in which the Company also participates. See Note 14.
The Company had concentrations of investments, excluding those in federal and
government agencies, primarily fixed maturities at fair value, in the following
industries:
--------------------------------------------------------------------------
($ IN MILLIONS) 2002 2001
--------------------------------------------------------------------------
Electric Utilities $3,979 $3,883
Finance 3,681 1,633
Banking 1,900 1,944
--------------------------------------------------------------------------
The Company held investments in foreign banks in the amount of $869 million and
$954 million at December 31, 2002 and 2001, respectively, which are included in
the table above. The Company defines its below investment grade assets as those
securities rated Ba1 by Moody's Investor Services (or its equivalent) 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 and notes that
are classified as below investment grade. Below investment grade assets included
in the categories of the preceding table include $878 million and $358 million
in Electric Utilities at December 31, 2002 and 2001, respectively, and total
below investment grade assets were $3.8 billion and $2.3 billion at December 31,
2002 and 2001, respectively.
Included in mortgage loans were the following group concentrations:
--------------------------------------------------------------------------
($ IN MILLIONS) 2002 2001
--------------------------------------------------------------------------
STATE
California $788 $788
PROPERTY TYPE
Agricultural $1,212 $1,131
F-25
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, credit 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 consolidated balance sheets that were non-income
producing amounted to $58.5 million and $27.7 million at December 31, 2002 and
2001, respectively.
RESTRUCTURED INVESTMENTS
The Company had mortgage loans and debt securities that were restructured at
below market terms at December 31, 2002 and 2001. The balances of the
restructured investments were insignificant. The new terms typically defer a
portion of contract interest payments to varying future periods. Gross interest
income on restructured assets that would have been recorded in accordance with
the original terms of such loans was insignificant in 2002 and 2001. Interest on
these assets, included in net investment income, was also insignificant in 2002
and 2001.
NET INVESTMENT INCOME
-----------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2002 2001 2000
($ IN MILLIONS)
-----------------------------------------------------------------------------
GROSS INVESTMENT INCOME
Fixed maturities $2,359 $2,328 $2,061
Mortgage loans 167 210 223
Trading 9 131 208
Joint ventures and partnerships 203 71 150
Citigroup preferred stock 178 53 53
Other, including policy loans 104 165 184
-----------------------------------------------------------------------------
Total gross investment income 3,020 2,958 2,879
-----------------------------------------------------------------------------
Investment expenses 84 127 149
-----------------------------------------------------------------------------
Net investment income $2,936 $2,831 $2,730
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) for the periods were as follows:
-----------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2002 2001 2000
($ IN MILLIONS)
-----------------------------------------------------------------------------
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $(207) $207 $(219)
Equity securities (15) (99) 91
Mortgage loans -- 5 27
Real estate held for sale 8 3 25
Derivatives (77) 14 --
Other (31) (5) (1)
-----------------------------------------------------------------------------
Total realized investment gains (losses) $(322) $125 $(77)
-----------------------------------------------------------------------------
F-26
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported in
accumulated other changes in equity from nonowner sources were as follows:
------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2002 2001 2000
($ IN MILLIONS)
------------------------------------------------------------------------------
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $664 $85 $891
Equity securities 3 40 (132)
Other 31 (20) 13
------------------------------------------------------------------------------
Total unrealized investment gains (losses) 698 105 772
------------------------------------------------------------------------------
Related taxes 243 37 271
------------------------------------------------------------------------------
Change in unrealized investment gains (losses) 455 68 501
Balance beginning of year 171 103 (398)
------------------------------------------------------------------------------
Balance end of year $626 $171 $103
------------------------------------------------------------------------------
5. REINSURANCE
Reinsurance is used in order to limit losses, minimize exposure to large risks,
provide additional capacity for future growth and to effect business-sharing
arrangements. Reinsurance is accomplished through various plans of reinsurance,
primarily yearly renewable term coinsurance and modified coinsurance.
Reinsurance involves credit risk and the Company monitors the financial
condition of these reinsurers on an ongoing basis. The Company remains primarily
liable as the direct insurer on all risks reinsured.
Since 1997 universal life business has been reinsured under an 80%/20% quota
share reinsurance program and term life business has been reinsured under a
90%/10% quota share reinsurance program. Maximum retention of $2.5 million is
generally reached on policies in excess of $12.5 million for universal life, and
in excess of $25.0 million for term insurance. For other plans of insurance, it
is the policy of the Company to obtain reinsurance for amounts above certain
retention limits on individual life policies, which limits vary with age and
underwriting classification. Generally, the maximum retention on an ordinary
life risk is $2.5 million. Total in-force business ceded under reinsurance
contracts is $321.9 billion and $285.7 billion at December 31, 2002 and 2001.
Effective July 1, 2000 the Company sold 90% of its individual long-term care
insurance business to General Electric Capital Assurance Company and its
subsidiary in the form of indemnity reinsurance arrangements. Written premiums
ceded per these arrangements were $231.8 million and $233.3 million in 2002 and
2001, respectively, and earned premiums ceded were $233.8 million and $240.1
million in 2002 and 2001, respectively.
The Company also reinsures the guaranteed minimum death benefit (GMDB) on its
variable annuity product. Total variable annuity account balances with GMDB is
$19.1 billion, of which $12.4 billion or 65% is reinsured at December 31, 2002.
GMDB is payable upon the death of a contractholder. When the benefit payable is
greater than the account value of the variable annuity, the difference is called
the net amount at risk (NAR). NAR totals $4.6 billion at December 31, 2002, of
which $3.8 billion or 82% is reinsured. During 2002, substantially all new
contracts written were not reinsured.
Through TIC, the Company writes workers' compensation business. This business is
reinsured through a 100% quota-share agreement with the insurance subsidiaries
of TPC.
F-27
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
FOR THE YEARS ENDING DECEMBER 31,
WRITTEN PREMIUMS 2002 2001 2000
- -------------------------------------------------------------------------------
Direct $ 2,610 $ 2,848 $ 2,634
Assumed from:
Non-affiliated companies -- 1 --
Ceded to:
Travelers Indemnity Company (83) (146) (195)
Non-affiliated companies (614) (591) (465)
- -------------------------------------------------------------------------------
Total Net Written Premiums $ 1,913 $ 2,112 $ 1,974
===============================================================================
EARNED PREMIUMS 2002 2001 2000
- -------------------------------------------------------------------------------
Direct $ 2,652 $ 2,879 $ 2,644
Assumed from:
Non-affiliated companies -- 1 --
Ceded to:
Travelers Indemnity Company (109) (180) (216)
Non-affiliated companies (619) (598) (462)
- -------------------------------------------------------------------------------
Total Net Earned Premiums $ 1,924 $ 2,102 $ 1,966
===============================================================================
Travelers Indemnity Company was an affiliate in 2001, 2000 and for part of 2002.
See Note 15.
Reinsurance recoverables at December 31, 2002 and 2001 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
REINSURANCE RECOVERABLES 2002 2001
-----------------------------------------------------------------------------
Life and Accident and Health Business:
Non-affiliated companies $2,589 $2,282
Property-Casualty Business:
Travelers Indemnity Company 1,712 1,881
-----------------------------------------------------------------------------
Total Reinsurance Recoverables $4,301 $4,163
=============================================================================
Reinsurance recoverables for the life and accident and health business include
$1,351 million and $1,060 million from General Electric Capital Assurance
Company, and also include $472 million and $500 million, from The Metropolitan
Life Insurance Company at December 31, 2002 and 2001, respectively.
6. DEFERRED ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE
The Company has two intangible, amortizable assets, DAC and the value of
insurance in force. The following is a summary of capitalized DAC by type.
F-28
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Deferred &
Payout UL & Traditional Life
IN MILLIONS OF DOLLARS Annuities COLI & Other Total
-------------------------------------------------------------------------------
-------------------------------------------------
Balance December 31, 2000 $ 896 $299 $1,794 $2,989
-------------------------------------------------
Deferred expenses
and other 385 142 324 851
Amortization expense (144) (11) (224) (379)
-------------------------------------------------
Balance December 31, 2001 1,137 430 1,894 3,461
Deferred expenses
and other 348 172 348 868
Amortization expense (132) (24) (237) (393)
-------------------------------------------------
Balance December 31, 2002 $1,353 $578 $2,005 $3,936
-------------------------------------------------------------------------------
The value of insurance in force totaled $130 milllion and $144 million at
December 31, 2002 and 2001, respectively, and is included in other assets.
Amortization expense on the value of insurance in force was $25 million and $26
million for the twelve months ended December 31, 2002 and 2001, respectively.
Amortization expense related to the value of insurance in force is estimated to
be $20 million in 2003, $18 million in 2004, $16 million in 2005, $13 million in
2006 and $12 million in 2007. In 2002 there was an opening balance sheet
reclassification between DAC and the value of insurance in force in the amount
of $11 million. This had no impact on results of operations or shareholder's
equity.
7. DEPOSIT FUNDS AND RESERVES
At December 31, 2002 and 2001, the Company had $38.8 billion and $34.1 billion
of life and annuity deposit funds and reserves, respectively. Of that total,
$21.8 billion and $19.1 billion is not subject to discretionary withdrawal based
on contract terms. The remaining $17.0 billion and $15.0 billion is for life and
annuity products that are subject to discretionary withdrawal by the
contractholder. Included in the amounts that are subject to discretionary
withdrawal is $5.7 billion and $4.2 billion of liabilities that are
surrenderable with market value adjustments. Also included are an additional
$5.5 billion and $5.0 billion of life insurance and individual annuity
liabilities which are subject to discretionary withdrawals, and have an average
surrender charge of 4.7% and 4.7%, respectively. In the payout phase, these
funds are credited at significantly reduced interest rates. The remaining $5.8
billion and $5.8 billion of liabilities are surrenderable without charge.
Approximately 10.0% and 10.2% of these relate to individual life products for
2002 and 2001, respectively. These risks would have to be underwritten again if
transferred to another carrier, which is considered a significant deterrent
against withdrawal by long-term policyholders. Insurance liabilities that are
surrendered or withdrawn are reduced by outstanding policy loans and related
accrued interest prior to payout.
Included in contractholder funds and in the preceding paragraph are GICs
totaling $10.9 billion. The scheduled maturities for these GICs, including
interest, are $4.5 billion, $1.5 billion, $1.3 billion, $1.4 billion and $4.0
billion in 2003, 2004, 2005, 2006 and thereafter. These GICs have a weighted
average interest rate of 4.81% at December 31, 2002.
F-29
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. FEDERAL INCOME TAXES
EFFECTIVE TAX RATE
($ IN MILLIONS)
---------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2002 2001 2000
---------------------------------------------------------------------------
Income before federal income taxes $1,503 $1,911 $1,654
Statutory tax rate 35% 35% 35%
---------------------------------------------------------------------------
Expected federal income taxes 526 669 579
Tax effect of:
Non-taxable investment income (62) (20) (19)
Tax reserve release (43) (18) (12)
Other, net -- (1) 3
---------------------------------------------------------------------------
Federal income taxes $421 $630 $551
===========================================================================
Effective tax rate 28% 33% 33%
---------------------------------------------------------------------------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $217 $424 $429
Foreign 19 47 33
---------------------------------------------------------------------------
Total 236 471 462
---------------------------------------------------------------------------
Deferred:
United States 182 166 96
Foreign 3 (7) (7)
---------------------------------------------------------------------------
Total 185 159 89
---------------------------------------------------------------------------
Federal income taxes $421 $630 $551
===========================================================================
Additional tax benefits (expense) attributable to employee stock plans allocated
directly to shareholder's equity for the years ended December 31, 2002, 2001 and
2000 were $(17) million, $21 million and $24 million, respectively.
F-30
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 2002 and 2001 were comprised of
the tax effects of temporary differences related to the following assets and
liabilities:
- --------------------------------------------------------------------------------
($ IN MILLIONS) 2002 2001
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Benefit, reinsurance and other reserves $422 $539
Operating lease reserves 57 62
Employee benefits 199 104
Other 289 158
- --------------------------------------------------------------------------------
Total 967 863
- --------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of insurance in force (1,097) (968)
Investments, net (1,180) (215)
Other (138) (89)
- --------------------------------------------------------------------------------
Total (2,415) (1,272)
- --------------------------------------------------------------------------------
Net Deferred Tax Liability $(1,448) $(409)
- --------------------------------------------------------------------------------
The Company and its subsidiaries file a consolidated federal income tax return
with Citigroup Inc. Federal income taxes are allocated to each member of the
consolidated group, according to the Tax Sharing Agreement, on a separate return
basis adjusted for credits and other amounts required by the Agreement.
At December 31, 2002 and 2001, the Company had no ordinary or capital loss
carryforwards.
The policyholders' surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been subjected
to tax, plus certain deductions. The balance of this account is approximately
$932 million. Income taxes are not provided for on this amount because under
current U.S. tax rules such taxes will become payable only to the extent such
amounts are distributed as a dividend or exceed limits prescribed by federal
law. Distributions are not currently contemplated from this account. At current
rates the maximum amount of such tax would be approximately $326 million.
F-31
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. SHAREHOLDER'S EQUITY
SHAREHOLDER'S EQUITY AND DIVIDEND AVAILABILITY
The Company's statutory net income, which includes the statutory net income of
all insurance subsidiaries, was $256 million, $330 million and $981 million for
the years ended December 31, 2002, 2001 and 2000, respectively. The Company's
statutory capital and surplus was $6.9 billion and $5.1 billion at December 31,
2002 and 2001, respectively.
Effective January 1, 2001, the Company began preparing its statutory basis
financial statements in accordance with the National Association of Insurance
Commissioners' ACCOUNTING PRACTICES AND PROCEDURES MANUAL - VERSION EFFECTIVE
JANUARY 1, 2001, subject to any deviations prescribed or permitted by its
domicilary insurance commissioners (see Note 1, Summary of Significant
Accounting Policies, Permitted Statutory Accounting Practices). The impact of
this change on the Company's statutory capital and surplus was not significant.
The impact of this change on statutory net income was $119 million in 2001,
related to recording equity method investment earnings as unrealized gains
versus net investment income.
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. A maximum of $966 million is
available by the end of the year 2003 for such dividends without prior approval
of the State of Connecticut Insurance Department, depending upon the amount and
timing of the payments. TLAC may not pay a dividend to TIC without such
approval. Primerica Life may pay up to $148 million to TIC in 2003 without prior
approval of the Massachusetts Insurance Department. The Company paid dividends
of $586 million, $472 million and $860 million in 2002, 2001 and 2000,
respectively.
In connection with the TPC IPO and distribution, the Company's additional
paid-in capital increased $1,596 million during 2002 as follows:
($ IN MILLIONS)
---------------
Citigroup Series YYY Preferred Stock $2,225
TLA Holdings LLC 142
Cash and other assets 189
Pension, post-retirement, and post-
employment benefits payable (279)
Deferred tax assets 98
Deferred tax liabilities (779)
------
$1,596
See Note 15.
F-32
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. SHAREHOLDER'S EQUITY (CONTINUED)
Accumulated Other Changes in Equity from Nonowner Sources, Net of Tax
Changes in each component of Accumulated Other Changes in Equity from Nonowner
Sources were as follows:
NET UNREALIZED ACCUMULATED OTHER
GAIN (LOSS) ON FOREIGN CURRENCY DERIVATIVE CHANGES IN EQUITY
($ IN MILLIONS) INVESTMENT TRANSLATION INSTRUMENTS AND FROM NONOWNER
SECURITIES ADJUSTMENTS HEDGING ACTIVITIES SOURCES
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $(397) $ (1) $ -- $(398)
Unrealized gains on investment securities,
net of tax of $297 451 -- -- 451
Reclassification adjustment for losses
included in net income, net of tax of $(27) 50 -- -- 50
Foreign currency translation adjustment, net
of tax of $1 -- 1 -- 1
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD CHANGE 501 1 -- 502
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 104 -- -- 104
Cumulative effect of change in accounting
for derivative instruments and hedging
activities, net of tax of $(16) 14 -- (43) (29)
Unrealized gains on investment securities,
net of tax of $80 149 -- -- 149
Reclassification adjustment for gains
included in net income, net of tax of $44 (81) -- -- (81)
Foreign currency translation adjustment, net
of tax of $(2) -- (3) -- (3)
Derivative instrument hedging activity
losses, net of tax of $(35) -- -- (66) (66)
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD CHANGE 82 (3) (109) (30)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 186 (3) (109) 74
Unrealized gains on investment securities,
net of tax of $132 246 -- -- 246
Reclassification adjustment for losses
included in net income, net of tax of $(113) 209 -- -- 209
Foreign currency translation adjustment, net
of tax of $2 -- 3 -- 3
Derivative instrument hedging activity losses,
net of tax of $(42) -- -- (78) (78)
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD CHANGE 455 3 (78) 380
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 $ 641 $ -- $(187) $ 454
- -----------------------------------------------------------------------------------------------------------------------------
F-33
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company participates in a qualified, noncontributory defined benefit pension
plan sponsored by Citigroup. The Company's share of the expense related to this
plan was insignificant in 2002, 2001 and 2000.
The Company also participates in a non-qualified, noncontributory defined
benefit pension plan sponsored by Citigroup. During 2002, the Company assumed
TPC's share of the non-qualified pension plan related to inactive employees of
the former Travelers Insurance entities as part of the TPC spin-off. The
Company's share of net expense for this plan was $10 million in 2002, and
insignificant in 2001 and 2000.
In addition, the Company provides certain other postretirement benefits to
retired employees through a plan sponsored by Citigroup. The Company assumed
TPC's share of the postretirement benefits related to inactive employees of the
former Travelers Insurance entities during 2002 as part of the TPC spin-off. The
Company's share of net expense for the other postretirement benefit plans was
$18 million in 2002 and not significant for 2001 and 2000.
401(k) SAVINGS PLAN
Substantially all of the Company's employees are eligible to participate in a
401(k) savings plan sponsored by Citigroup. The Company's expenses in connection
with the 401(k) savings plan were not significant in 2002, 2001 and 2000. See
Note 14.
11. LEASES
Most leasing functions for the company are administered by a Citigroup
subsidiary at December 31, 2002. Net rent expense for the Company was $24
million, $26 million, and $26 million in 2002, 2001 and 2000, respectively.
- --------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING MINIMUM CAPITAL
($ IN MILLIONS) RENTAL PAYMENTS RENTAL PAYMENTS
- --------------------------------------------------------------------------------
2003 $ 43 $ 5
2004 42 5
2005 47 5
2006 54 5
2007 54 6
Thereafter 131 24
- --------------------------------------------------------------------------------
Total Rental Payments $371 $50
================================================================================
Future sublease rental income of approximately $66 million will partially offset
these commitments. Also, the Company will be reimbursed for 50% of the rental
expense for a particular lease, totaling $164 million, by an affiliate.
F-34
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial futures
contracts, swaps, options and forward contracts, as a means of hedging exposure
to interest rate changes, equity price changes and foreign currency risk. The
Company also uses derivative financial instruments to enhance portfolio income
and replicate cash market investments. The Company, through Tribeca Citigroup
Investments Ltd., holds and issues derivative instruments in conjunction with
these funding strategies.
The Company uses exchange traded financial futures contracts to manage its
exposure to changes in interest rates that arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from the
sale or maturity of investments. To hedge against adverse changes in interest
rates, the Company enters long or short positions in financial futures
contracts, which offset asset price changes resulting from changes in market
interest rates until an investment is purchased, or a product is sold. Futures
contracts are commitments to buy or sell at a future date a financial
instrument, at a contracted price, and may be settled in cash or through
delivery.
The Company uses equity option contracts to manage its exposure to changes in
equity market prices that arise from the sale of certain insurance products. To
hedge against adverse changes in the equity market prices, the Company enters
long positions in equity option contracts with major financial institutions.
These contracts allow the Company, for a fee, the right to receive a payment if
the Standard and Poor's 500 Index falls below agreed upon strike prices.
Currency option contracts are used on an ongoing basis to hedge the Company's
exposure to foreign currency exchange rates that result from the Company's
direct foreign currency investments. To hedge against adverse changes in
exchange rates, the Company enters contracts that give it the right, but not the
obligation, to sell the foreign currency within a limited time at a contracted
price that may also be settled in cash, based on differentials in the foreign
exchange rate. These contracts cannot be settled prior to maturity.
The Company enters into interest rate swaps in connection with other financial
instruments to provide greater risk diversification and better match assets and
liabilities. Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed rate and floating
rate interest amounts calculated by reference to an agreed upon notional
principal amount. The Company also enters into basis swaps in which both legs of
the swap are floating with each based on a different index. Generally, no cash
is exchanged at the outset of the contract and no principal payments are made by
either party. A single net payment is usually made by one counterparty at each
due date.
The Company enters into currency swaps in connection with other financial
instruments to provide greater risk diversification and better match assets
purchased in U.S. Dollars with a corresponding liability originated in a foreign
currency. Under currency swaps, the Company agrees with other parties to
exchange, at specified intervals, foreign currency for U.S. Dollars. Generally,
there is an exchange of foreign currency for U.S. Dollars at the outset of the
contract based upon prevailing foreign exchange rates. Swap agreements are not
exchange traded so they are subject to the risk of default by the counterparty.
F-35
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Forward contracts are used on an ongoing basis to hedge the Company's exposure
to foreign currency exchange rates that result from the net investment in the
Company's Canadian Operations as well as direct foreign currency investments. To
hedge against adverse changes in exchange rates, the Company enters into
contracts to exchange foreign currency for U.S. Dollars with major financial
institutions. These contracts cannot be settled prior to maturity. At the
maturity date the Company must purchase the foreign currency necessary to settle
the contracts.
The Company enters into credit default swaps in conjunction with a fixed income
investment to reproduce the investment characteristics of a different
permissible investment. Under credit default swaps, the Company agrees with
other parties to receive, at specified intervals, fixed or floating rate
interest amounts calculated by reference to an agreed notional principal amount
in exchange for the credit default risk of a specified bond. Swap agreements are
not exchange traded so they are subject to the risk of default by the
counterparty.
The Company monitors the creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit approvals,
credit limits and other monitoring procedures.
The following table summarizes certain information related to the Company's
hedging activities for the years ended December 31, 2002 and 2001:
Year Ended Year Ended
In millions of dollars December 31, 2002 December 31, 2001
-----------------------------------------------------------------------------
Hedge ineffectiveness recognized
related to fair value hedges $(18.3) $(4.1)
Hedge ineffectiveness recognized
related to cash flow hedges 14.8 (6.2)
Net gain recorded in accumulated
other changes in equity from
nonowner sources related to net
investment hedges (8.4) 0.8
During the year ended December 31, 2002 the Company recorded a gain of $.3
million from discontinued forecasted transactions. During the year ended
December 31, 2001 there were no discontinued forecasted transactions. The amount
expected to be reclassified from accumulated other changes in equity from
nonowner sources into pre-tax earnings within twelve months from December 31,
2002 is $(27.2) million.
In 2000, these derivative financial instruments were treated as off-balance
sheet instruments. Financial instruments with off-balance sheet risk involve, to
varying degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of these
instruments reflect the extent of involvement the Company has in a particular
class of financial instrument. However, the maximum loss of cash flow associated
with these instruments can be less than these amounts. For swaps, options and
forward contracts, credit risk is limited to the amount that it would cost the
Company to replace the contracts. Financial futures contracts and purchased
listed option contracts have very little credit risk since organized exchanges
are the counterparties.
F-36
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company issues fixed and variable rate
loan commitments and has unfunded commitments to partnerships. All of these
commitments are to unaffiliated entities. The off-balance sheet risk of fixed
and variable rate loan commitments was $240.9 million and $212.2 million at
December 31, 2002 and 2001, respectively. The Company had unfunded commitments
of $630.0 million and $661.5 million to these partnerships at December 31, 2002
and 2001, respectively.
FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS
The Company uses various financial instruments in the normal course of its
business. Certain insurance contracts are excluded by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of Financial
Instruments," and therefore are not included in the amounts discussed.
At December 31, 2002 and 2001, investments in fixed maturities had a carrying
value and a fair value of $36.4 billion and $32.1 billion, respectively. See
Notes 1 and 4.
At December 31, 2002, mortgage loans had a carrying value of $2.0 billion and a
fair value of $2.2 billion and at year-end 2001 had a carrying value of $2.0
billion and a fair value of $2.1 billion. In estimating fair value, the Company
used interest rates reflecting the current real estate financing market.
Included in other invested assets are 2,225 shares of Citigroup Cumulative
Preferred Stock Series YYY, carried at cost of $2,225 million at December 31,
2002, acquired as a contribution from TPC. This Series YYY preferred stock pays
cumulative dividends at 6.767%, has a liquidation value of $1 million per share
and has perpetual duration, is not subject to a sinking fund or mandatory
redemption but may be optionally redeemed by Citigroup at any time on or after
February 27, 2022. Dividends totaling $125 million were received in 2002. There
is no established market for this investment and it is not practicable to
estimate the fair value of the preferred stock.
Included in other invested assets are 987 shares of Citigroup Cumulative
Preferred Stock Series YY, carried at cost of $987 million at December 31, 2002
and 2001. This series YY preferred stock pays cumulative dividends at 5.321%,
has a liquidation value of $1 million per share, and has perpetual duration, is
not subject to a sinking fund or mandatory redemption but may be optionally
redeemed by Citigroup at any time on or after December 22, 2018. Dividends
totaling $53 million were received during 2002, 2001 and 2000, respectively.
There is no established market for this investment and it is not practicable to
estimate the fair value of the preferred stock.
At December 31, 2002, contractholder funds with defined maturities had a
carrying value of $12.5 billion and a fair value of $13.3 billion, compared with
a carrying value and a fair value of $9.5 billion and $10.0 billion at December
31, 2001. The fair value of these contracts is determined by discounting
expected cash flows at an interest rate commensurate with the Company's credit
risk and the expected timing of cash flows. Contractholder funds without defined
maturities had a carrying value of $11.1 billion and a fair value of $10.7
billion at December 31, 2002, compared with a carrying value of $10.6 billion
and a fair value of $10.3 billion at December 31, 2001. These contracts
generally are valued at surrender value.
The carrying values of $321 million and $495 million of financial instruments
classified as other assets approximated their fair values at December 31, 2002
and 2001, respectively. The carrying value of $1.5 billion of financial
instruments classified as other liabilities at both December 31, 2002 and 2001
also approximated their fair values at both December 31, 2002 and 2001. Fair
value is determined using various methods, including discounted cash flows, as
appropriate for the various financial instruments.
F-37
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The assets of separate accounts providing a guaranteed return had a carrying
value and a fair value of $511 million at December 31, 2002, compared with a
carrying value and a fair value of $507 million at December 31, 2001. The
liabilities of separate accounts providing a guaranteed return had a carrying
value and a fair value of $511 million at December 31, 2002, compared with a
carrying value and a fair value of $507 million at December 31, 2001.
The carrying values of cash, trading securities and trading securities sold not
yet purchased are carried at fair value. The carrying values of short-term
securities and investment income accrued approximated their fair values. The
carrying value of policy loans, which have no defined maturities, is considered
to be fair value.
13. COMMITMENTS AND CONTINGENCIES
LITIGATION
TIC and its subsidiaries are defendants or co-defendants in various litigation
matters in the normal course of business. These include civil actions,
arbitration proceedings and other matters arising in the normal course of
business out of activities as an insurance company, a broker and dealer in
securities or otherwise. In the opinion of the Company's management, the
ultimate resolution of these legal proceedings would not be likely to have a
material adverse effect on the Company's results of operations, financial
condition or liquidity.
14. RELATED PARTY TRANSACTIONS
Citigroup and certain of its subsidiaries provide investment management and
accounting services, payroll, internal auditing, benefit management and
administration, property management and investment technology services to the
Company as of December 31, 2002. At December 31, 2001 the majority of these
services were provided by either Citigroup and its subsidiaries or TPC. The
Company paid Citigroup and its subsidiaries $56.9 million and $43.6 million in
2002 and 2001, respectively, for these services. The Company paid TPC $33.6
million and $30.0 million in 2002 and 2001, respectively, for these services.
The amounts due from affiliates related to these services, included in other
assets at December 31, 2002, were insignificant and in 2001 were $88.2 million.
See Note 15.
The Company maintains a short-term investment pool in which its insurance
affiliates participate. The position of each company participating in the pool
is calculated and adjusted daily. At December 31, 2002 and 2001, the pool
totaled approximately $4.2 billion and $5.6 billion, respectively. The Company's
share of the pool amounted to $3.8 billion and $2.6 billion at December 31, 2002
and 2001, respectively, and is included in short-term securities in the
consolidated balance sheets.
F-38
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 2002 and 2001 the Company had outstanding loaned securities to
SSB for $267.1 million and $413.5 million, respectively.
Included in other invested assets is a $3.2 billion and $987 million investment
in Citigroup preferred stock at December 31, 2002 and 2001, respectively,
carried at cost. Dividends received on these investments were $178 million in
2002, and $53 million in each of 2001 and 2000.
The Company had investments in an affiliated joint venture, Tishman Speyer, in
the amount of $186.1 million and $310.9 million at December 31, 2002 and 2001,
respectively. Income of $99.7 million, $65.5 million and $67.0 million was
earned on these investments in 2002, 2001 and 2000, respectively.
The Company also had an investment in Greenwich Street Capital Partners I, an
affiliated private equity investment, in the amount of $21.6 million at both
December 31, 2002 and 2001. Income (loss) of $0, $(41.6) million and $8.1
million were earned on this investment in 2002, 2001 and 2000, respectively.
In the ordinary course of business, the Company purchases and sells securities
through affiliated broker-dealers. These transactions are conducted on an
arm's-length basis.
The Company markets deferred annuity products and life insurance through its
affiliate, Salomon Smith Barney (SSB). Annuity deposits related to these
products were $1.0 billion, $1.5 billion, and $1.8 billion in 2002, 2001 and
2000, respectively. Life premiums were $109.7 million, $96.5 million and $77.0
million in 2002, 2001 and 2000, respectively.
The Company also markets individual annuity and life insurance through
CitiStreet Retirement Services LLC, a division of CitiStreet, a joint venture
between Citigroup and State Street Bank. Deposits received from CitiStreet
Retirement Services, LLC were $1.6 billion in each of 2002 and 2001 and $1.8
billion in 2000.
The Company markets individual annuity products through an affiliate Citibank,
N.A. (Citibank). Deposits received from Citibank were $303 million, $564 million
and $392 million in 2002, 2001 and 2000, respectively.
Primerica Financial Services (PFS), an affiliate, is a distributor of products
for TLA. PFS sold $787 million, $901 million and $1.03 billion of individual
annuities in 2002, 2001 and 2000, respectively.
Primerica Life has entered into a General Agency Agreement with PFS that
provides that PFS will be Primerica Life's general agent for marketing all
insurance of Primerica Life. In consideration of such services, Primerica Life
agreed to pay PFS marketing fees of no less than $10 million per year based upon
U.S. gross direct premiums received by Primerica Life. In each of 2002, 2001,
and 2000 the fees paid by Primerica Life were $12.5 million.
The Company sells structured settlement annuities to the property casualty
subsidiaries of TPC. See Note 15.
F-39
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to officers
and other employees. To further encourage employee stock ownership, Citigroup
introduced the WealthBuilder stock option program during 1997 and the Citigroup
Ownership Program in 2001. Under these programs, all employees meeting
established requirements have been granted Citigroup stock options. During 2000
and 2001, Citigroup introduced the Citigroup 2000 Stock Purchase Plan and
Citigroup 2001 Stock Purchase Program for new employees, which allowed eligible
employees of Citigroup, including the Company's employees, to enter into fixed
subscription agreements to purchase shares at the market value on the date of
the agreements. Enrolled employees are permitted to make one purchase prior to
the expiration date. The Company's charge to income for these plans was
insignificant in 2002, 2001 and 2000.
The Company also participates in the Citigroup Capital Accumulation Program.
Participating officers and other employees receive a restricted stock award in
the form of Citigroup common stock. These restricted stock awards generally vest
after a three-year period and, except under limited circumstances, the stock can
not be sold or transferred during the restricted period by the participant, who
is required to render service to the Company during the restricted period. The
Company's charge to income for this program was insignificant in 2002, 2001 and
2000.
Unearned compensation expense associated with the Citigroup restricted common
stock grants, which represents the market value of Citigroup's common stock at
the date of grant, is included with other assets in the Consolidated Balance
Sheet and is recognized as a charge to income ratably over the vesting period.
The Company's charge to income was insignificant during 2002, 2001 and 2000.
The Company applies Accounting Principles Board Opinion No. 25 (APB 25) and
related interpretations in accounting for stock options. Since stock options
under the Citigroup plans are issued at fair market value on the date of award,
no compensation cost has been recognized for these awards. FAS 123 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.
F-40
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. TRAVELERS PROPERTY CASUALTY SPIN-OFF
On March 27, 2002, Travelers Property Casualty Corp. (TPC), the Company's parent
at December 31, 2001, completed its initial public offering (IPO). On August 20,
2002, Citigroup made a tax-free distribution to its stockholders of a majority
portion of its remaining interest in TPC. Prior to the IPO the following
transactions occurred:
o The common stock of the Company was distributed by TPC to CIHC so the
Company would remain an indirect wholly owned subsidiary of Citigroup.
o The Company sold its home office buildings in Hartford, Connecticut
and a building housing TPC's information systems in Norcross, Georgia
to TPC for $68 million.
o TLA Holdings LLC, a non-insurance subsidiary valued at $142 million,
was contributed to the Company by TPC.
o The Company assumed pension, post-retirement and post-employment
benefits payable to all inactive employees of the former Travelers
Insurance entities and received $189 million of cash and other assets
from TPC to offset these benefit liabilities.
o The Company received 2,225 shares of Citigroup's 6.767% Cumulative
Preferred Stock, Series YYY, with a par value of $1.00 per share and a
liquidation value of $1 million per share as a contribution from TPC.
At December 31, 2001, TPC and its subsidiaries were affiliates of the Company
and provided certain services to the Company. These services included data
processing, facilities management, banking and financial functions, benefits
administration and others. During 2002, the Company began phasing out these
services. At December 31, 2002, the Company still receives certain services from
TPC on a contract basis. The Company paid TPC $33.6 million and $30.0 million in
2002 and 2001, respectively, for these services.
The Company sells structured settlement annuities to the property casualty
insurance subsidiaries of TPC. Such premiums and deposits were $159 million,
$194 million and $191 million for 2002, 2001 and 2000, respectively.
The Company has a license from TPC to use the names "Travelers Life & Annuity,"
"The Travelers Insurance Company," "The Travelers Life and Annuity Company" and
related names in connection with the Company's business.
F-41
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
16. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
- -----------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2002 2001 2000
($ IN MILLIONS)
- -----------------------------------------------------------------------------------------
Net Income $ 1,082 $ 1,281 $ 1,103
Adjustments to reconcile net income to net
cash provided by operating activities:
Realized (gains) losses 322 (125) 77
Deferred federal income taxes 185 159 89
Amortization of deferred policy acquisition
costs 393 379 347
Additions to deferred policy acquisition costs (878) (851) (792)
Investment income (119) (493) (384)
Premium balances (7) 7 20
Insurance reserves and accrued expenses 493 686 559
Other (403) 237 221
- ----------------------------------------------------------------------------------------
Net cash provided by operations $ 1,068 $ 1,280 $ 1,240
- ----------------------------------------------------------------------------------------
17. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include the contribution
of $2,225 million of Citigroup YYY preferred stock and related deferred tax
liability of $779 million; a $17 million COLI asset and $98 million deferred tax
asset related to the transfer of $279 million of pension and postretirement
benefits, transferred for $172 million cash; and the contribution of a
non-insurance company, TLA Holdings, LLC, for $142 million.
F-42
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE
The Travelers Insurance Company and Subsidiaries
Independent Auditors' Report F-1
Consolidated Statements of Income F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Changes In Shareholder's Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Independent Auditors' Report F-44
Schedule I - Summary of Investments - Other than Investments in Related Parties 2002 F-45
Schedule III - Supplementary Insurance Information 2000-2002 F-46
Schedule IV - Reinsurance 2000-2002 F-47
All other schedules are inapplicable for this filing.
F-43
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Insurance Company:
Under date of January 21, 2003, we reported on the consolidated balance sheets
of The Travelers Insurance Company and subsidiaries as of December 31, 2002 and
2001, and the related consolidated statements of income, changes in
shareholder's equity, and cash flows for each of the years in the three-year
period ended December 31, 2002, which are included in this Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedules as listed
in the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangible assets in
2002, and its methods of accounting for derivative instruments and hedging
activities and for securitized financial assets in 2001.
/s/ KPMG LLP
Hartford, Connecticut
January 21, 2003
F-44
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2002
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------
TYPE OF INVESTMENT AMOUNT SHOWN IN
COST VALUE BALANCE SHEET(1)
- ------------------------------------------------------------------------------------------------------
Fixed Maturities:
Bonds:
U.S. Government and government agencies and
Authorities $ 6,416 $ 6,658 $ 6,658
States, municipalities and political subdivisions 297 319 319
Foreign governments 365 393 393
Public utilities 3,261 3,149 3,149
Convertible bonds and bonds with warrants attached 263 269 269
All other corporate bonds 24,679 25,532 25,532
- ------------------------------------------------------------------------------------------------------
Total Bonds 35,281 36,320 36,320
Redeemable preferred stocks 147 114 114
- ------------------------------------------------------------------------------------------------------
Total Fixed Maturities 35,428 36,434 36,434
- ------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks:
Banks, trust and insurance companies 10 10 10
Industrial, miscellaneous and all other 38 40 40
- ------------------------------------------------------------------------------------------------------
Total Common Stocks 48 50 50
Nonredeemable preferred stocks 280 282 282
- ------------------------------------------------------------------------------------------------------
Total Equity Securities 328 332 332
- ------------------------------------------------------------------------------------------------------
Mortgage Loans 1,985 1,985
Real Estate Held For Sale 36 36
Policy Loans 1,168 1,168
Short-Term Securities 4,414 4,414
Trading Securities 1,531 1,531
Other Investments(2,3,4) 1,382 1,382
- ------------------------------------------------------------------------------------------------------
Total Investments $46,272 $47,282
======================================================================================================
(1) Determined in accordance with methods described in Notes 1 and 4 of the
Notes to Consolidated Financial Statements.
(2) Excludes $3.2 billion of Citigroup Inc. preferred stock. See Note 14 of
Notes to Consolidated Financial Statements.
(3) Also excludes $315 million fair value of investment in affiliated
partnership interests.
(4) Includes derivatives marked to market and recorded at fair value in the
balance sheet.
F-45
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
($ IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS, OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND NET BENEFITS,
ACQUISITION AND LOSS BENEFITS PREMIUM INVESTMENT CLAIMS AND
COSTS EXPENSES(1) PAYABLE REVENUE INCOME LOSSES(2)
- ----------------------------------------------------------------------------------------------------------------------------------
2002
----
Travelers Life & Annuity $2,043 $37,774 $461 $ 730 $2,646 $2,404
Primerica Life 1,893 3,261 147 1,194 290 527
- ----------------------------------------------------------------------------------------------------------------------------------
Total $3,936 $41,035 $608 $1,924 $2,936 $2,931
==================================================================================================================================
2001
----
Travelers Life & Annuity $1,672 $33,475 $368 $ 957 $2,530 $2,534
Primerica Life 1,789 3,044 144 1,145 301 507
- ----------------------------------------------------------------------------------------------------------------------------------
Total $3,461 $36,519 $512 $2,102 $2,831 $3,041
==================================================================================================================================
2000
----
Travelers Life & Annuity $1,291 $29,377 $321 $ 860 $2,450 $2,294
Primerica Life 1,698 2,856 140 1,106 280 496
- ----------------------------------------------------------------------------------------------------------------------------------
Total $2,989 $32,233 $461 $1,966 $2,730 $2,790
==================================================================================================================================
- ----------------------------------------------
AMORTIZATION OF
DEFERRED POLICY OTHER
ACQUISITION OPERATING PREMIUMS
COSTS EXPENSES WRITTEN
- ----------------------------------------------
$174 $190 $ 729
219 217 1,184
- ----------------------------------------------
$393 $407 $1,913
==============================================
$171 $154 $ 955
208 217 1,157
- ----------------------------------------------
$379 $371 $2,112
==============================================
$166 $233 $ 859
181 230 1,115
- ----------------------------------------------
$347 $463 $1,974
==============================================
(1) Includes contractholder funds.
(2) Includes interest credited to contractholders.
F-46
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
($ IN MILLIONS)
- --------------------------------------------------------------------------------------------------------
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- --------------------------------------------------------------------------------------------------------
2002
- ----
Life Insurance In Force $549,066 $321,940 $ 3,568 $230,694 1.5%
Premiums:
Life insurance $ 2,227 377 $ -- $ 1,850 --
Accident and health insurance 316 242 -- 74 --
Property casualty 109 109 -- -- --
-------- -------- -------- -------- ----
Total Premiums $ 2,652 $ 728 $ -- $ 1,924 --
======== ======== ======== ======== ====
2001
- ----
Life Insurance In Force $510,457 $285,696 $ 3,636 $228,397 1.6%
Premiums:
Life insurance $ 2,378 $ 352 $ -- $ 2,026 --
Accident and health insurance 321 246 1 76 --
Property casualty 180 180 -- -- --
-------- -------- -------- -------- ----
Total Premiums $ 2,879 $ 778 $ 1 $ 2,102 --
======== ======== ======== ======== ====
2000
- ----
Life Insurance In Force $480,958 $252,498 $ 3,692 $232,152 1.6%
Premiums:
Life insurance $ 2,106 $ 330 $ -- $ 1,776 --
Accident and health insurance 322 132 -- 190 --
Property casualty 216 216 -- -- --
-------- -------- -------- -------- ----
Total Premiums $ 2,644 $ 678 $ -- $ 1,966 --
======== ======== ======== ======== ====
F-47
Appendix C
The Travelers Insurance Company
Un-audited quarterly report on
Form 10-Q for the period
ended September 30, 2003.
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 2003 and 2002 (unaudited)............3
Condensed Consolidated Balance Sheets as of September 30, 2003 and
December 31, 2002 (unaudited)..................................................4
Condensed Consolidated Statements of Changes in
Shareholder's Equity for the three and nine months ended September 30, 2003
and 2002 (unaudited) ..........................................................5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2003 and 2002 (unaudited)......................6
Notes to Condensed Consolidated Financial Statements (unaudited)...............7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................15
ITEM 4. CONTROLS AND PROCEDURES..............................................22
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................23
Signatures....................................................................24
2
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
REVENUES
Premiums $741 $497 $1,707 $1,457
Net investment income 782 717 2,297 2,142
Realized investment gains (losses) 43 (161) 45 (317)
Fee income 158 129 447 414
Other revenues 40 40 96 94
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues 1,764 1,222 4,592 3,790
- ------------------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 683 450 1,537 1,300
Interest credited to contractholders 311 316 933 899
Amortization of deferred acquisition costs 128 97 373 270
General and administrative expenses 115 101 337 296
- ------------------------------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses 1,237 964 3,180 2,765
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations before federal income taxes 527 258 1,412 1,025
- ------------------------------------------------------------------------------------------------------------------------------------
Federal income taxes 155 61 364 285
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $372 $197 $1,048 $740
====================================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
3
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ IN MILLIONS)
SEPTEMBER 30, 2003 DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments (including $2,334 and $2,687 subject to securities
lending agreements) $55,923 $50,809
Separate and variable accounts 24,652 21,620
Reinsurance recoverable 4,428 4,301
Deferred acquisition costs 4,244 3,936
Other assets 2,711 2,329
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $91,958 $82,995
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $29,734 $26,634
Future policy benefits and claims 15,707 15,009
Separate and variable accounts 24,652 21,620
Deferred federal income taxes 2,004 1,448
Other liabilities 6,523 6,649
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 78,620 71,360
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 5,444 5,443
Retained earnings 6,406 5,638
Accumulated other changes in equity from nonowner sources 1,388 454
- ------------------------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 13,338 11,635
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $91,958 $82,995
====================================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $100 $100 $100 $100
Changes in common stock - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $100 $100 $100 $100
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $5,444 $5,471 $5,443 $3,869
Stock option tax benefit - - 1 6
Capital contributed by parent - - - 1,596
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $5,444 $5,471 $5,444 $5,471
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $6,151 $5,257 $5,638 $5,142
Net income 372 197 1,048 740
Dividends to parent (117) (158) (280) (586)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $6,406 $5,296 $6,406 $5,296
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES
IN EQUITY FROM NONOWNER SOURCES
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $1,598 $(2) $454 $74
Foreign currency translation, net of tax - 2 2 4
Unrealized gains (losses), net of tax (242) 380 870 300
Derivative instrument hedging activity gains (losses),
net of tax 32 (96) 62 (94)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $1,388 $284 $1,388 $284
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NONOWNER SOURCES
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $372 $197 $1,048 $740
Other changes in equity from nonowner sources (210) 286 934 210
- ------------------------------------------------------------------------------------------------------------------------------------
Total changes in equity from nonowner sources $162 $483 $1,982 $950
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $13,293 $10,826 $11,635 $9,185
Changes in nonowner sources 162 483 1,982 950
Dividends (117) (158) (280) (586)
Changes in additional paid-in capital - - 1 1,602
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $13,338 $11,151 $13,338 $11,151
====================================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $476 $751
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 5,300 3,101
Equity securities 28 19
Mortgage loans 273 161
Proceeds from sales of investments
Fixed maturities 9,957 11,484
Equity securities 121 937
Real estate held for sale 5 15
Purchases of investments
Fixed maturities (18,249) (17,980)
Equity securities (178) (871)
Mortgage loans (193) (197)
Policy loans, net 20 30
Short-term securities sales, net 45 1,170
Other investment sales (purchases), net 112 (16)
Securities transactions in course of settlement, net (543) (1,568)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,302) (3,715)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 6,647 6,966
Contractholder fund withdrawals (3,588) (3,575)
Capital contribution by parent - 172
Dividends to parent company (280) (586)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,779 2,977
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (47) 13
Cash at beginning of period 186 146
- ----------------------------------------------------------------------------------------------------------
Cash at end of period $139 $159
==========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $1 $2
Income taxes paid $305 $265
=========================================================================================================
See Notes to Condensed Consolidated Financial Statements.
6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is a wholly owned subsidiary of Citigroup Insurance Holding
Corporation (CIHC), an indirect wholly owned subsidiary of Citigroup Inc.
(Citigroup). Citigroup is a diversified global financial services holding
company whose businesses provide a broad range of financial services to
consumer and corporate customers around the world. The condensed
consolidated financial statements and accompanying condensed footnotes of
the Company are prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP) and are unaudited. The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and benefits and expenses during the reporting period.
Actual results could differ from those estimates.
The Company's two reportable business segments are Travelers Life & Annuity
and Primerica Life Insurance. The primary insurance entities of the Company
are TIC and its subsidiaries The Travelers Life and Annuity Company (TLAC),
included in the Travelers Life & Annuity segment, and Primerica Life
Insurance Company (Primerica Life) and its subsidiaries, Primerica Life
Insurance Company of Canada, CitiLife Financial Limited (CitiLife) and
National Benefit Life Insurance Company (NBL), included in the Primerica
Life Insurance segment. The condensed consolidated financial statements
include the accounts of the insurance entities of the Company and Tribeca
Citigroup Investments Ltd., among others, on a fully consolidated basis.
In the opinion of management, the interim financial statements reflect all
adjustments necessary for a fair presentation of results for the periods
reported. The accompanying condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002. The condensed consolidated balance sheet
as of December 31, 2002 was derived from the audited balance sheet included
in the Form 10-K.
Certain financial information that is normally included in annual financial
statements prepared in accordance with GAAP, but is not required for
interim reporting purposes, has been condensed or omitted.
Certain prior year amounts have been reclassified to conform to the 2003
presentation.
2. ACCOUNTING STANDARDS
CHANGES IN ACCOUNTING PRINCIPLES
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
In January 2003, the Financial Accounting Standards Board (FASB) released
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities"
(FIN 46). The provisions of FIN 46 are to be applied immediately to
variable interest entities (VIEs) created after January 31, 2003, and to
VIEs in which an enterprise obtains an interest after that date. In October
2003, the FASB announced that the effective date of FIN 46 was deferred
from July 1, 2003 to periods ending after December 15, 2003 for VIEs
created prior to February 1, 2003. The Company elected to adopt the
remaining provisions of FIN 46 in the third quarter of 2003. FIN 46 changes
the method of determining whether certain entities, including
securitization
7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
entities, should be included in the Company's consolidated financial
statements. An entity is subject to FIN 46 and is called a VIE if it has
(1) equity that is insufficient to permit the entity to finance its
activities without additional subordinated financial support from other
parties, or (2) equity investors that cannot make significant decisions
about the entity's operations, or that do not absorb the expected losses or
receive the expected returns of the entity. All other entities are
evaluated for consolidation under Statement of Financial Accounting
Standards (SFAS) No. 94, "Consolidation of All Majority-Owned Subsidiaries"
(SFAS 94). A VIE is consolidated by its primary beneficiary, which is the
party involved with the VIE that absorbs a majority of the expected losses,
receives a majority of the expected residual returns, or both.
For any VIEs that must be consolidated under FIN 46 that were created
before February 1, 2003, the assets, liabilities and noncontrolling
interest of the VIE are initially measured at their carrying amounts with
any difference between the net amount added to the balance sheet and any
previously recognized interest being recognized as the cumulative effect of
an accounting change. If determining the carrying amounts is not
practicable, fair value at the date FIN 46 first applies may be used to
measure the assets, liabilities and noncontrolling interest of the VIE. The
implementation of FIN 46 on July 1, 2003 resulted in the consolidation of
VIEs increasing both total assets and total liabilities by approximately
$407 million.
The FASB continues to provide additional guidance on implementing FIN 46
through FASB staff positions. In addition, a draft interpretation of FIN 46
has been issued for comment. As this guidance is finalized, the Company
will continue to review the status of VIEs it is involved with. As a result
of changes in the guidance, additional VIEs may ultimately be required to
be consolidated. See Note 4.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." In particular, this Statement clarifies under what
circumstances a contract with an initial net investment meets the
characteristic of a derivative and when a derivative contains a financing
component that warrants special reporting in the statement of cash flows.
This Statement is generally effective for contracts entered into or
modified after June 30, 2003 and did not have a significant impact on the
Company's consolidated financial statements.
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires
that a liability for costs associated with exit or disposal activities,
other than in a business combination, be recognized when the liability is
incurred. Previous generally accepted accounting principles provided for
the recognition of such costs at the date of management's commitment to an
exit plan. In addition, SFAS 146 requires that the liability be measured at
fair value and be adjusted for changes in estimated cash flows. The
provisions of the new standard are effective for exit or disposal
activities initiated after December 31, 2002. The adoption of SFAS 146 did
not affect the Company's consolidated financial statements.
8
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
STOCK-BASED COMPENSATION
On January 1, 2003, the Company adopted the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), prospectively for all awards granted, modified, or settled after
January 1, 2003. The prospective method is one of the adoption methods
provided for under SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," issued in December 2002. SFAS 123 requires that
compensation cost for all stock awards be calculated and recognized over
the service period (generally equal to the vesting period). This
compensation cost is determined using option pricing models, intended to
estimate the fair value of the awards at the grant date. Similar to
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," the alternative method of accounting, an offsetting increase to
stockholders' equity under SFAS 123 is recorded equal to the amount of
compensation expense charged.
Had the Company applied SFAS 123 in accounting for Citigroup stock option
plans for all options granted, net income would have been the pro forma
amounts indicated below:
THIRD QUARTER YEAR-TO-DATE
------------- ------------
IN MILLIONS OF DOLLARS 2003 2002 2003 2002
---- ---- ---- ----
Compensation expense related to As reported $ 1 $ - $ 1 $ -
stock option plans, net of tax Pro forma 2 2 5 7
Net income As reported 372 197 1,048 740
Pro forma 371 195 1,044 733
ACCOUNTING STANDARDS NOT YET ADOPTED
ACCOUNTING AND REPORTING BY INSURANCE ENTERPRISES FOR CERTAIN
NONTRADITIONAL LONG-DURATION CONTRACTS AND FOR SEPARATE ACCOUNTS
In July 2003, Statement of Position 03-01, "Accounting and Reporting by
Insurance Enterprises for Certain Nontraditional Long-Duration Contracts
and for Separate Accounts" (SOP 03-01) was released. SOP 03-01 provides
guidance on accounting and reporting by insurance enterprises for separate
account presentation, accounting for an insurer's interest in a separate
account, transfers to a separate account, valuation of certain liabilities,
contracts with death or other benefit features, contracts that provide
annuitization benefits, and sales inducements to contract holders. SOP
03-01 is effective for financial statements for fiscal years beginning
after December 15, 2003. The Company is currently evaluating the impact
that SOP 03-01 will have on its consolidated financial statements.
3. INVESTMENTS
The Company participates in dollar roll repurchase transactions as a way to
generate investment income. These transactions involve the sale of
mortgage-backed securities with the agreement to repurchase substantially
the same securities from the same counterparty. Cash is received from the
sale, which is invested in the Company's short-term money market pool. The
cash is returned at the end of the roll period when the mortgage-backed
securities are repurchased. The Company will generate additional investment
income based upon the difference between the sale and repurchase prices.
This transaction is recorded as a secured borrowing. The mortgage-backed
securities remain recorded as assets. The cash proceeds are reflected in
short-term investments and a liability is established to reflect the
9
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Company's obligation to repurchase the securities at the end of the roll
period. The collateral amount is classified as Other Liabilities in the
condensed consolidated balance sheets and fluctuates based upon the timing
of the repayments. The balances were $111 million, $1,012 million and $.5
million at September 30, 2003, June 30, 2003 and December 31, 2002,
respectively.
4. VARIABLE INTEREST ENTITIES
In January 2003, the FASB released FIN 46, which changes the method of
determining whether certain entities, including securitization entities,
should be included in the Company's consolidated financial statements.
The implementation of FIN 46 encompassed a review of numerous entities to
determine the impact of adoption and considerable judgment was used in
evaluating whether or not a VIE should be consolidated. The FASB continues
to provide additional guidance on implementing FIN 46 through FASB staff
positions. In addition, a draft interpretation of FIN 46 has been issued
for comment. As this guidance is finalized, the Company will continue to
review the status of VIEs it is involved with. As a result of changes in
the guidance, additional VIEs may ultimately be required to be
consolidated.
The following table represents the carrying amounts and classification of
consolidated assets that are collateral for VIE obligations. The assets in
this table represent two investment vehicles that the Company was involved
with prior to February 1, 2003. These two VIEs are a collateralized debt
obligation and a real estate joint venture:
IN MILLIONS OF DOLLARS SEPTEMBER 30, 2003
------------------------------------------------------------------
Cash $ 3
Investments 396
Other 8
------------------------------
Total assets of consolidated VIEs $407
------------------------------------------------------------------
The debt holders of these VIEs have no recourse to the Company. The
Company's maximum exposure to loss is limited to its investment of
approximately $8 million. The Company regularly becomes involved with VIEs
through its investment activities. This involvement is generally restricted
to small passive debt and equity investments. In addition to the VIEs that
are consolidated in accordance with FIN 46, the Company has no significant
variable interests in other VIEs that are not consolidated because the
Company is not the primary beneficiary.
10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
5. OPERATING SEGMENTS
The Company has two reportable business segments that are separately
managed due to differences in products, services, marketing strategy and
resource management. The business of each segment is maintained and
reported through separate legal entities within the Company. The management
groups of each segment report separately to the Company's ultimate parent,
Citigroup.
TRAVELERS LIFE & ANNUITY (TLA) core offerings include individual annuity,
individual life, corporate owned life insurance (COLI) and group annuity
insurance products distributed by TIC and TLAC principally under the
Travelers Life & Annuity name. Among the range of individual products
offered are fixed and variable deferred annuities, payout annuities and
term, universal and variable life insurance. The COLI product is a variable
universal life product distributed through independent specialty brokers.
The group products include institutional pensions, including guaranteed
investment contracts, payout annuities, group annuities sold to
employer-sponsored retirement and savings plans, structured settlements and
funding agreements. The majority of the annuity business and a substantial
portion of the life business written by TLA are accounted for as investment
contracts, with the result that the deposits collected are reported as
liabilities and are not included in revenues.
The PRIMERICA LIFE INSURANCE business segment consolidates primarily the
business of Primerica Life, Primerica Life Insurance Company of Canada,
CitiLife and NBL. The Primerica Life Insurance business segment offers
individual life products, primarily term insurance, to customers through a
sales force of approximately 107,000 agents. A great majority of the
domestic licensed sales force works on a part-time basis. NBL also provides
statutory disability benefit insurance and other insurance, primarily in
New York, as well as direct response student term life insurance
nationwide. CitiLife was established in September 2000 to underwrite
insurance in Europe.
11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- ---------------------------------------------------------------------------------------------------------------------
AT AND FOR THE THREE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
SEPTEMBER 30, 2003 ($ IN MILLIONS) & ANNUITY INSURANCE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Premiums $428 $313 $741
Net investment income 706 76 782
Interest credited to contractholders 311 - 311
Amortization of deferred acquisition costs 68 60 128
Total expenditures for deferred acquisition costs 156 90 246
Federal income taxes 100 55 155
Net income $265 $107 $372
Segment assets $82,746 $9,212 $91,958
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
AT AND FOR THE THREE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
SEPTEMBER 30, 2002 ($ IN MILLIONS) & ANNUITY INSURANCE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Premiums $197 $300 $497
Net investment income 645 72 717
Interest credited to contractholders 316 - 316
Amortization of deferred acquisition costs 41 56 97
Total expenditures for deferred acquisition costs 132 74 206
Federal income taxes 12 49 61
Net income $101 $96 $197
Segment assets $71,266 $8,369 $79,635
- ---------------------------------------------------------------------------------------------------------------------
The majority of the annuity business and a substantial portion of the life
business written by TLA are accounted for as investment contracts, with the
result that the deposits collected are reported as liabilities and are not
included in revenues. Deposits represent a statistic integral to managing
TLA operations, which management uses for measuring business volumes, and
may not be comparable to similarly captioned measurements used by other
life insurance companies. For the three months ended September 30, 2003 and
2002, deposits collected amounted to $3.5 billion and $2.7 billion,
respectively.
12
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- ---------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
SEPTEMBER 30, 2003 ($ IN MILLIONS) & ANNUITY INSURANCE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Premiums $780 $927 $1,707
Net investment income 2,065 232 2,297
Interest credited to contractholders 933 - 933
Amortization of deferred acquisition costs 200 173 373
Total expenditures for deferred acquisition costs 406 276 682
Federal income taxes 197 167 364
Net income $725 $323 $1,048
Segment assets $82,746 $9,212 $91,958
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
SEPTEMBER 30, 2002 ($ IN MILLIONS) & ANNUITY INSURANCE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Premiums $567 $890 $1,457
Net investment income 1,927 215 2,142
Interest credited to contractholders 899 - 899
Amortization of deferred acquisition costs 106 164 270
Total expenditures for deferred acquisition costs 426 236 662
Federal income taxes 135 150 285
Net income $448 $292 $740
Segment assets $71,266 $8,369 $79,635
- ---------------------------------------------------------------------------------------------------------------------
The majority of the annuity business and a substantial portion of the life
business written by TLA are accounted for as investment contracts, with the
result that the deposits collected are reported as liabilities and are not
included in revenues. Deposits represent a statistic integral to managing
TLA operations, which management uses for measuring business volumes, and
may not be comparable to similarly captioned measurements used by other
life insurance companies. For the nine months ended September 30, 2003 and
2002, deposits collected amounted to $9.2 billion and $9.7 billion,
respectively.
13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
6. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $6.9 billion at December
31, 2002. 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. A maximum of $966 million is available by the end of the year
2003 for such dividends without prior approval of the State of Connecticut
Insurance Department, depending upon the amount and timing of the payments.
TLAC may not pay a dividend to TIC without such approval. Primerica Life
may pay up to $148 million in dividends to TIC in 2003 without prior
approval of the Massachusetts Insurance Department. Primerica Life paid $88
million and $165 million in dividends to TIC during the nine months ended
September 30, 2003 and 2002, respectively. The Company paid $280 million
and $586 million in dividends to its parent during the nine months ended
September 30, 2003 and 2002, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company is a defendant or co-defendant in various litigation matters in
the normal course of business. These include civil actions, arbitration
proceedings and other matters arising in the normal course of business out
of activities as an insurance company, a broker and dealer in securities or
otherwise. In the opinion of the Company's management, the ultimate
resolution of these legal proceedings would not be likely to have a
material adverse effect on the Company's consolidated results of
operations, financial condition or liquidity.
The Company is a member of the Federal Home Loan Bank of Boston (the
"Bank"), and in this capacity has entered into a funding agreement (the
"agreement") with the Bank where a blanket-lien has been granted to
collateralize the Bank's deposits. The Company maintains control of these
assets, and may use, commingle, encumber or dispose of any portion of the
collateral as long as there is no event of default and the remaining
qualified collateral is sufficient to satisfy the collateral maintenance
level. The agreement further states that upon any event of default, the
Bank's recovery is limited to the amount of the member's outstanding
funding agreement. The amount of the Company's liability for funding
agreements with the Bank as of September 30, 2003 is $1 billion, included
in contractholder funds.
14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
The Company's Annual Report on Form 10-K, its quarterly reports on Form 10-Q and
any current reports on Form 8-K, and all amendments to these reports, are
available on the Citigroup website at http://www.citigroup.com by selecting the
"Investor Relations" page and selecting "SEC Filings."
CONSOLIDATED OVERVIEW ($ IN MILLIONS)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2003 2002 2003 2002
---- ---- ---- ----
Revenues $1,764 $1,222 $4,592 $3,790
Insurance benefits and interest credited 994 766 2,470 2,199
Operating expenses 243 198 710 566
------ ------ ------ ------
Income before taxes 527 258 1,412 1,025
Income taxes 155 61 364 285
------ ------ ------ ------
Net income $ 372 $ 197 $1,048 $ 740
====== ====== ====== ======
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is comprised of two business segments, Travelers Life & Annuity and
Primerica Life Insurance.
Net income increased 89% to $372 million for the quarter ended September 30,
2003 from $197 million in the prior year quarter, primarily related to increased
revenues due to higher investment income, higher individual annuity account
balances, group annuity account balances and net written individual life
premiums (business volumes) and better after-tax realized investment gain (loss)
activity, partially offset by higher deferred acquisition costs (DAC)
amortization. Net income included net after-tax realized investment gains of $28
million in the third quarter of 2003, which included after-tax impairment losses
of $12 million, compared to net after-tax realized investment losses of $107
million in the third quarter of 2002. The third quarter 2002 losses were
primarily related to the impairments of investments in the energy and
communications sectors.
Net income for the nine months ended September 30, 2003 increased 42% to $1,048
million, from $740 million in the prior year period, primarily related to better
after-tax realized investment gain (loss) activity and a $39 million tax benefit
related to an adjustment to the Dividends Received Deduction (DRD) in the first
quarter of 2003, partially offset by higher DAC amortization. Net after-tax
realized investment gains were $29 million for the nine months ended September
30, 2003 and losses were $209 million for the prior year period, primarily
related to the third quarter 2002 energy sector impairments and to the second
quarter 2002 impairment of investments in debt securities of WorldCom Inc. in
the amount of $126 million, after-tax.
15
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
The following discussion presents in more detail each business segment's
performance.
TRAVELERS LIFE & ANNUITY
- ------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 2002
($ IN MILLIONS) ---- ----
Revenues $1,352 $839
Insurance benefits and interest credited 859 635
Operating expenses 128 91
------ ----
Income before taxes 365 113
Income taxes 100 12
------ ----
Net income $ 265 $101
====== ====
Travelers Life & Annuity (TLA) core offerings include individual annuity,
individual life, corporate owned life insurance (COLI) and group annuity
insurance products distributed by TIC and The Travelers Life and Annuity Company
(TLAC) principally under the Travelers Life & Annuity name. The Company has a
license from Travelers Property Casualty Corp. to use the names "Travelers Life
& Annuity," The Travelers Insurance Company," "The Travelers Life and Annuity
Company" and related names in connection with the Company's business. Among the
range of individual products offered are fixed and variable deferred annuities,
payout annuities and term, universal and variable life insurance. These products
are primarily distributed through CitiStreet Retirement Services, Smith Barney,
Primerica Financial Services, Citibank, and a nationwide network of independent
agents and the growing outside broker dealer channel. The COLI product is a
variable universal life product distributed through independent specialty
brokers. The group products include institutional pensions, including guaranteed
investment contracts (GICs), payout annuities, group annuities sold to
employer-sponsored retirement and savings plans, structured settlements and
funding agreements. The majority of the annuity business and a substantial
portion of the life business written by TLA are accounted for as investment
contracts, with the result that the deposits collected are reported as
liabilities and are not included in revenues.
TLA's business is significantly affected by movements in the U.S. equity and
fixed income credit markets. U.S. equity and credit market events can have both
positive and negative effects on the deposit, revenue and policy retention
performance of the business. A sustained weakness in the equity markets will
decrease revenues and earnings in variable products. Declines in credit quality
of issuers will have a negative effect on earnings. These statements are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 21.
Net income of $265 million in the third quarter of 2003 increased 162% from $101
million, primarily related to increased revenues due to higher investment
income, favorable business volumes and better after-tax realized investment gain
(loss) activity, partially reduced by higher DAC amortization. Included in net
income are current year after-tax realized investment gains of $29 million and
prior year investment losses of $102 million for the third quarter of 2003 and
2002, respectively, primarily related to the third quarter 2002 impairments of
investments in the energy and communication sectors of the fixed maturity
portfolio.
Net investment income (NII) increased 9% to $706 million and $645 million for
the three months ended September 30, 2003 and 2002, respectively. This increase
was driven by a larger invested asset base from increased business volumes, and
higher equity investment returns as a result of risk arbitrage activity in the
Company's trading portfolio.
16
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
The following table shows net written premiums and deposits by product type for
the quarters ended September 30, 2003 and 2002. The majority of the annuity
business and a substantial portion of the life business written by TLA are
accounted for as investment contracts, such that the premiums are considered
deposits and are not included in revenues. Deposits represent a statistic
integral to managing TLA operations, which management uses for measuring
business volumes, and may not be comparable to similarly captioned measurements
used by other life insurance companies.
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2003 2002
IN MILLIONS OF DOLLARS PREMIUMS DEPOSITS PREMIUMS DEPOSITS
--------- -------- -------- --------
Individual annuities
Fixed $ - $ 115 $ - $ 324
Variable - 1,097 - 949
Individual payout 5 6 7 7
----- ------- ----- -------
Total individual annuities 5 1,218 7 1,280
Group annuities 389 2,020 154 1,243
Individual life insurance:
Direct periodic premiums &
deposits 35 168 34 110
Single premium deposits - 125 - 64
Reinsurance (10) (26) (7) (22)
----- ------- ----- -------
Total individual life insurance 25 267 27 152
Other 9 - 9 -
----- ------- ----- -------
Total $428 $3,505 $197 $2,675
===== ======= ===== =======
Individual annuity deposits in the third quarter of 2003 decreased 5% from the
third quarter of 2002, reflecting a decline in fixed annuity production due to
competitive pressures and the current low interest rate environment, partially
offset by higher variable annuity production due to the increase in equity
market conditions and competitive product features. Individual annuity account
balances increased 17% to $30.8 billion at September 30, 2003, from $26.4
billion at September 30, 2002, reflecting market appreciation of variable
annuity investments in the second and third quarters of 2003, and improved
in-force retention related to lower surrender rates and positive net sales.
Group Annuity written premiums increased 153% primarily related to strong
current quarter production. Deposits (excluding Citigroup's employee pension
plan deposits) in the third quarter of 2003 were up 63% from the comparable
period of 2002, which reflects strong variable GIC sales, an additional $200
million funding agreement sold to the Federal Home Loan Bank of Boston and the
sale of a group pension close out contract of $290 million. Group Annuity
account balances and benefit reserves reached $24.9 billion at September 30,
2003, up 10% from $22.7 billion at September 30, 2002. This volume growth
reflects strong 2003 first quarter fixed GIC production and continued strong
retention in all products.
Deposits for the life insurance business in the third quarter of 2003 were up
76% from the comparable period of 2002, driven by very strong single premium
sales and higher direct periodic deposits. Life insurance in force was $87.1
billion at September 30, 2003, up from $82.3 billion at December 31, 2002.
In the third quarter of 2003, TLA operating expenses increased 41% from the
prior year quarter primarily due to volume-related insurance expenses, and an
increase of $27 million in DAC amortization. The amortization of capitalized DAC
is a significant component of TLA expenses. TLA's recording of DAC varies based
upon product type. DAC for deferred annuities, both fixed and variable, and
payout annuities employs a level yield methodology. DAC for universal life and
COLI are amortized in relation to estimated gross profits, with traditional
life, including term insurance and other products, amortized in relation to
anticipated premiums. Amortization expense has primarily increased due to a
higher amortization rate resulting from the 2002 decrease in market value of
individual annuity account balances.
17
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRIMERICA LIFE INSURANCE
- ------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 2002
($ IN MILLIONS) ---- ----
Revenues $412 $383
Insurance benefits 135 131
Operating expenses 115 107
---- ----
Income before taxes 162 145
Income taxes 55 49
---- ----
Net income $107 $ 96
==== ====
The Primerica Life Insurance business segment offers individual life products,
primarily term insurance, to customers through a sales force of approximately
107,000 agents. A great majority of the domestic licensed sales force works on a
part-time basis.
Net income of $107 million in the third quarter of 2003 increased 11% from $96
million, primarily related to growth in life insurance in force and
volume-related investment income. Included in net income are net after-tax
realized investment losses of $1 million and $6 million in the third quarter of
2003 and 2002, respectively. The prior year losses were primarily due to
impairments of investments in the energy sector of the fixed maturity portfolio.
Total life insurance in force reached $494.2 billion at September 30, 2003, up
from $466.8 billion at December 31, 2002, reflecting good in-force policy
retention and higher volume of sales. The face amount of new term life insurance
sales was $20.3 billion for the three-month period ended September 30, 2003,
compared to $19.6 billion for the prior year period.
NII increased 6% to $76 million in the third quarter of 2003 from the prior year
quarter, primarily related to a larger invested asset base, offset by lower
yields.
The amortization of capitalized DAC, which increased to $60 million in the third
quarter of 2003 from $56 million in the third quarter of 2002, is a significant
component of Primerica Life's expenses. All of Primerica Life's DAC is
associated with term insurance products, which are amortized in relation to
anticipated premiums.
Amortized DAC has remained level as a percentage of direct premiums. The
increase in the amount of amortization over 2002 is associated with growth in
sales and in-force business.
Earned premiums net of reinsurance were $313 million in the third quarter of
2003 compared to $300 million in the prior year period, including $297 million
and $283 million, respectively, for Primerica Life individual term life
policies.
TRAVELERS LIFE & ANNUITY
- ------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 2002
($ IN MILLIONS) ---- ----
Revenues $3,359 $2,625
Insurance benefits and interest credited 2,070 1,805
Operating expenses 367 237
------ ------
Income before taxes 922 583
Income taxes 197 135
------ ------
Net income $ 725 $ 448
====== ======
18
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Net income for the nine months ended September 30, 2003 increased 62% to $725
million from $448 million from the prior year period, primarily related to
better after-tax realized investment gain (loss) activity and a $39 million tax
benefit related to an adjustment to the DRD in the first quarter of 2003,
partially offset by higher DAC amortization. Net income included current year
realized investment gains of $26 million and prior year investment losses of
$202 million for the nine months ended September 30, 2003 and 2002,
respectively, primarily related to the third quarter 2002 energy sector
impairments and second quarter 2002 impairment of investments in debt securities
of WorldCom Inc. in the amount of $122 million, after tax. The DRD benefit
reduced the effective tax rate from 23% for the prior year nine month period
ended September 30, 2002 to 21% in the current year nine month period ended
September 30, 2003.
NII was $2.1 billion and $1.9 billion for the nine months ended September 30,
2003 and 2002, respectively. NII includes dividends from Citigroup Inc. Series
YY and Series YYY preferred stock totaling $137 million and $112 million in 2003
and 2002, respectively. Excluding these dividends NII increased 6% to $1.9
billion for the nine months ended September 30, 2003 compared to $1.8 million in
the prior year period. This increase was driven by a larger invested asset base
from increased business volumes, and higher equity investment returns as a
result of risk arbitrage activity in the Company's trading portfolio.
The following table shows net written premiums and deposits by product type for
the nine months ended September 30, 2003 and 2002. The majority of the annuity
business and a substantial portion of the life business written by TLA are
accounted for as investment contracts, such that the premiums are considered
deposits and are not included in revenues. Deposits represent a statistic
integral to managing TLA operations, which management uses for measuring
business volumes, and may not be comparable to similarly captioned measurements
used by other life insurance companies.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 2002
IN MILLIONS OF DOLLARS PREMIUMS DEPOSITS PREMIUMS DEPOSITS
-------- -------- -------- --------
Individual annuities
Fixed $ - $ 431 $ - $1,099
Variable - 2,853 - 3,148
Individual payout 20 22 19 21
---- ------ ---- ------
Total individual annuities 20 3,306 19 4,268
Group annuities 658 5,223 439 4,833
Individual life insurance:
Direct periodic premiums &
deposits 104 494 102 452
Single premium deposits - 254 - 212
Reinsurance (28) (72) (21) (62)
---- ------ ---- ------
Total individual life insurance 76 676 81 602
Other 26 - 28 -
---- ------ ---- ------
Total $780 $9,205 $ 567 $9,703
==== ====== ===== ======
Individual annuity deposits in the first nine months of 2003 decreased 23% from
the prior year period, reflecting a decline in fixed annuity production due to
competitive pressures and the current low interest rate environment, and lower
variable annuity production due to declining equity market conditions in the
first six months of the year, partially offset by competitive product features.
Group Annuity written premiums increased 50% for the first nine months of 2003,
compared to the 2002 period, primarily related to strong third quarter
production. Deposits (excluding Citigroup's employee pension plan deposits) of
$5.2 billion in the first nine months of 2003 were up 8% from $4.8 billion in
the comparable period of 2002, driven by $1 billion in funding agreements sold
to the Federal Home Loan Bank of Boston.
19
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Deposits for the life insurance business in the first nine months of 2003 were
up 12% from the comparable period of 2002, driven by very strong single premium
sales and higher direct periodic deposits.
For the first nine months of 2003, TLA operating expenses increased 55% from the
comparable prior year nine- month period, primarily due to an increase of $94
million of DAC amortization. Amortization has primarily increased due to a
higher amortization rate resulting from the 2002 decrease in market value of
individual annuity account balances. Also, during the first quarter of 2002, TLA
had a one-time decrease in DAC amortization of $22 million related to changes in
the underlying lapse and interest rate assumptions in the individual annuity
business.
PRIMERICA LIFE INSURANCE
- ------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 2002
($ IN MILLIONS) ---- ----
Revenues $1,233 $1,165
Insurance benefits 400 394
Operating expenses 343 329
------ ------
Income before taxes 490 442
Income taxes 167 150
------ ------
Net income $ 323 $ 292
====== ======
Net income for the nine months ended September 30, 2003 increased 11% to $323
million from $292 million for the nine months ended September 30, 2002. Included
in net income are net after-tax realized investment gains (losses) of $3 million
and $(7) million for the 2003 and 2002 nine-month periods, respectively.
NII increased 8% to $232 million for the nine months of 2003 from the prior
year, primarily related to a larger invested asset base, offset by lower yields.
The amortization of capitalized DAC increased to $173 million in the first nine
months of 2003 from $164 million in the prior year period. Amortized DAC has
remained level as a percentage of direct premiums. The increase in the amount of
amortization over 2002 is associated with growth in sales and in-force business.
Earned premiums net of reinsurance were $927 million in the first nine months of
2003 compared to $890 million in the prior year period, including $879 million
and $842 million, respectively, for Primerica Life individual term life
policies.
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At December 31, 2002, the
Company had adjusted capital in excess of amounts requiring any regulatory
action.
The Company is 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 in the state of domicile. A maximum of $966
million is available by the end of 2003 for such dividends without prior
approval of the State of Connecticut Insurance Department, depending upon the
amount and timing of the payments. TLAC may not pay a dividend to TIC without
such approval. Primerica Life may pay up to $148 million in dividends to TIC
without prior approval of the Massachusetts Insurance Department. Primerica Life
paid $88 million and $165 million in dividends to TIC during the nine months
ended September 30, 2003 and 2002, respectively. The Company paid $280 million
and $586 million in dividends to its parent during the nine months ended
September 30, 2003 and 2002, respectively.
20
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
LEGISLATIVE DEVELOPMENTS
In May 2003, the Jobs and Growth Tax Relief Reconciliation Act of 2003 was
enacted into law. This act makes various changes in individual tax rates. Most
significantly, the legislation extends the 15% maximum capital gains tax rate to
corporate dividends received by individuals, including dividends received by
mutual funds and passed through to mutual fund shareholders. The legislation
also lowers the capital gains tax rate and accelerates the individual income tax
rate reductions enacted in 2001. These changes could have a negative impact on
demand for life and annuity products. This statement is a forward-looking
statement within the meaning of the Private Securities Litigation Reform Act.
See "Forward-Looking Statements" on this page.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 2 of Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "may increase," "may fluctuate," and similar expressions, or future
or conditional verbs such as "will," "should," "would," and "could." These
forward-looking statements involve risks and uncertainties including, but not
limited to, regulatory matters, the resolution of legal proceedings, the impact
that the adoption of recent legislation may have on the demand for life and
annuity products and the potential impact of a decline in credit quality of
investments on earnings.
21
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) as of the end of the period covered by this report.
Based on such evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
22
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.01 Charter of The Travelers Insurance Company (the
"Company"), as effective October 19, 1994, incorporated
by reference to Exhibit 3.01 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1994 (File No. 33-33691) (the "Company's
September 30, 1994 10-Q").
3.02 By-laws of the Company, as effective October 20, 1994,
incorporated by reference to Exhibit 3.02 to the
Company's September 30, 1994 10-Q.
31.01+ Certification of chief financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.02+ Certification of chief executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.01+ Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) REPORTS ON FORM 8-K
None
- --------------------------
+Filed herewith
23
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS INSURANCE COMPANY
-------------------------------
(Registrant)
Date November 14, 2003 /s/ Glenn D. Lammey
--------------------- -----------------------------------------------------
Glenn D. Lammey
Senior Executive Vice President,
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer and Principal Accounting
Officer)
24
The Travelers Insurance Company
Fixed Annuity
| L-23159 | 02/2004 |
PROSPECTUS
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fees: $18, 400 for 200,000,000 in interests of Fixed Annuity
Contracts
Estimate of Printing Costs: $4,000
Cost of Independent Auditors: $ 4,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 33-770 et seq inclusive of the Connecticut General Statutes ("C.G.S.")
regarding indemnification of directors and officers of Connecticut corporations
provides in general that Connecticut corporations shall indemnify their
officers, directors and certain other defined individuals against judgments,
fines, penalties, amounts paid in settlement and reasonable expenses actually
incurred in connection with proceedings against the corporation. The
corporation's obligation to provide such indemnification generally does not
apply unless (1) the individual is wholly successful on the merits in the
defense of any such proceeding; or (2) a determination is made (by persons
specified in the statute) that the individual acted in good faith and in the
best interests of the corporation and in all other cases, his conduct was at
least not opposed to the best interests of the corporation, and in a criminal
case he had no reasonable cause to believe his conduct was unlawful; or (3) the
court, upon application by the individual, determines in view of all of the
circumstances that such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine. With respect
to proceedings brought by or in the right of the corporation, the statute
provides that the corporation shall indemnify its officers, directors and
certain other defined individuals, against reasonable expenses actually incurred
by them in connection with such proceedings, subject to certain limitations.
Citigroup Inc. also provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrant.
This insurance provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to certain
exceptions, liabilities under the federal securities laws.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16. EXHIBITS
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1. Underwriting Agreement. Not Applicable.
2. None
3(a). Charter of The Travelers Insurance Company, as amended on
October 19, 1994. (Incorporated herein by reference to Exhibit
3(a)(i) to the Registration Statement on Form S-2, File No.
33-58677 filed via Edgar on April 18, 1995).
3(b). By-Laws of The Travelers Insurance Company, as amended on
October 20, 1994. (Incorporated herein by reference to Exhibit
3(b)(1) to the Registration Statement on Form S-2, File No.
33-58677 filed via Edgar on April 18, 1995.)
4. Contracts. Filed herewith
5. Opinion Re: Legality, Including Consent. Filed herewith.
8. None.
9. None.
10. None.
11 None.
12. None.
13. None.
15. None.
16. None.
23(a). Consent of Independent Auditors. Filed herewith.
23(b). Consent of Counsel. Filed herewith.
24. Powers of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for George C. Kokulis, Glenn D. Lammey,
Marla Berman Lewitus and Kathleen L. Preston. (Incorporated
herein by reference to Exhibit 5 to the Registration Statement
filed on March 18, 2003.)
25. None.
26. None.
27. None.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows, pursuant to Item 512 of
Regulation S-K:
1. To file, during any period in which offers or sales of the registered
securities are being made, a post-effective amendment to this
registration statement:
i. to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii. to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price set
represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement, and
iii. to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes as follows, pursuant to Item 512(h)
of Regulation S-K:
(h) Request for Acceleration of Effective Date:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hartford, State of
Connecticut, on February 10, 2004.
THE TRAVELERS INSURANCE COMPANY
(Registrant)
By: *Glenn D. Lammey
Glenn D. Lammey, Chief Financial Officer, Chief
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on February 10, 2004.
*GEORGE C. KOKULIS Director, President and Chief Executive
- --------------------------------- Officer (Principal Executive Officer)
(George C. Kokulis)
*GLENN D. LAMMEY Director, Chief Financial Officer, Chief
- --------------------------------- Accounting Officer (Principal Financial
(Glenn D. Lammey) Officer)
*MARLA BERMAN LEWITUS Director
- ---------------------------------
(Marla Berman Lewitus)
*KATHLEEN L. PRESTON Director
- ---------------------------------
(Kathleen L. Preston)
*By: /s/Ernest J. Wright, Attorney-in-Fact
EXHIBIT INDEX
EXHIBIT
LETTER DESCRIPTION METHOD OF FILING
4 Contracts Electronically
5 & 23(b) Opinion Re: Legality & Consent of Counsel Electronically
23(a) Consent of KPMG LLC Independent Auditors. Electronically
[TRAVELERS LIFE & ANNUITY LOGO]
THE TRAVELERS INSURANCE COMPANY
[ONE CITYPLACE] o [HARTFORD], CONNECTICUT o [06103-3415]
A STOCK COMPANY
MAILING ADDRESS: [Qualified Plan Services
P.O. Box 990009
Hartford, CT 06199-0009]
WE ARE PLEASED TO PROVIDE YOU THE BENEFITS OF THIS FIXED ANNUITY CONTRACT.
THIS CONTRACT IS ISSUED IN CONSIDERATION OF THE PURCHASE PAYMENTS.
IT IS SUBJECT TO THE TERMS AND CONDITIONS STATED ON THE
ATTACHED PAGES, ALL OF WHICH ARE PARTS OF IT.
EXECUTED AT HARTFORD, CONNECTICUT
/s/ George C. Kokulis /s/ Ernest J. Wright
--------------------- --------------------
President Secretary
THIS IS A LEGAL CONTRACT BETWEEN YOU AND US.
PLEASE READ YOUR CONTRACT AND ALL ATTACHED FORMS CAREFULLY.
FLEXIBLE PREMIUM GROUP DEFERRED FIXED ANNUITY CONTRACT
TAX QUALIFIED
ELECTIVE OPTIONS NON-PARTICIPATING
THIS CONTRACT IS SUBJECT TO A MARKET VALUE ADJUSTMENT UPON
CONTRACT TERMINATION
VALUES PROVIDED BY THIS CONTRACT ARE GUARANTEED
AS TO FIXED DOLLAR AMOUNT.
TABLE OF CONTENTS
[Contract Specifications Page 3
Definitions Page 5
General Contract Provisions Page 7
Purchase Payments/Cash Value Page 8
Transfers From This Contract To Contracts Not Issued By Us Page 8
Transfers From Contracts Not Issued By Us Page 8
Distributions From the Contract Page 8
Contract Charges Page 9
Death Benefit Provision Page 9
Contract Termination Provision Page 10
Contract Discontinuance Provision Page 10
Settlement Provision Page 12
Annuity Tables Page 14]
Any Amendments, Riders or Endorsements follow the Annuity Tables.
2
CONTRACT SPECIFICATIONS
CONTRACT OWNER [TRUSTEE OF THE ABC RETIREMENT PLAN]
PLAN NAME [THE ABC RETIREMENT PLAN]
CONTRACT NUMBER [SPECIMEN]
CONTRACT DATE [10-15-2003]
PURCHASE PAYMENT/TERMINATION AMOUNTS
MINIMUM AVERAGE PURCHASE PAYMENT AMOUNT: [$10,000] per Contract Year
MAXIMUM SUM OF INITIAL AND SUBSEQUENT PURCHASE PAYMENTS: [$3,000,000] without
prior approval by Our Office]
TERMINATION AMOUNT: [$20,000]
AMOUNTS DEDUCTED ON SURRENDER:
For the purpose of determining the amounts deducted on full or partial
Surrender, the surrender charge is calculated as a percentage of the Cash Value
being surrendered.
CONTRACT YEAR SURRENDER CHARGE
------------- ----------------
[1 - 2 5%
3 - 4 4%
5 - 6 3%
7 2%
8 1%
9+ 0%]
ALLOWABLE DISTRIBUTIONS PRIOR TO CONTRACT DISCONTINUANCE NOT SUBJECT TO AMOUNTS
DEDUCTED ON SURRENDER:
o Transfers to Approved Products (within the Plan), and
o Benefit responsive distributions as follows;
-------------------------------------------
[Retirement,
Separation from Service,
Hardship withdrawals (as defined by the Internal Revenue Code),
Distribution for a loan under the plan
Death,
Disability (as defined by the Internal Revenue Code section 72 [m][7]),
Minimum distributions (as defined by the Internal Revenue Code),
Return of Excess Plan Contributions,
Certain Plan expenses as mutually agreed upon,
Transfers to an employer stock fund, and
Annuitization under this contract ]
Distributions may be in the form of cash payments, Annuity Options or to a
deferred Annuity issued by Us.
3
CONTRACT SPECIFICATIONS
GUARANTEED INTEREST PERIODS: [The initial interest rate for any Purchase Payment
is declared each month and is guaranteed for twelve months. Each Purchase
Payment is placed in an "interest rate period" for accounting purposes. At the
end of the total twelve-month guarantee period, a renewal interest rate will be
determined and guaranteed until the end of that calendar year. The second and
all future renewal rates will be declared each subsequent January 1 and
guaranteed through December 31 of each year.] The initial or renewal rates for
the guaranteed period will never be less than[1.5%].
TRANSFERS
Transfers from this contract to products not issued by Us, may not exceed [20%]
per Contract Year of the Cash Value in the contract as of the first day of the
Contract Year, unless the transfer is an allowable distribution as shown in the
Contract Specifications. We reserve the right to modify the amount available for
transfer.
4
DEFINITIONS
ANNUITANT - The Participant on whose life the Annuity payments are made.
ANNUITY - Payment of income for a stated period or amount.
APPROVED PRODUCT(S) - Products approved by The Travelers Insurance Company.
BENEFICIARY(IES) - The Beneficiary of this contract is the Plan Trustee, unless
the Plan provides otherwise.
CASH SURRENDER VALUE - The Cash Value less any amounts deducted on Surrender
shown in the Contract Specifications page and any applicable Premium Tax.
CASH VALUE - The value of the net Purchase Payments in Your Account less
surrenders, plus interest. Sometimes referred to as "Account Value."
CODE - The Internal Revenue Code of 1986, as amended, and all related laws and
regulations, which are in effect during the term of this contract.
COMMENCEMENT DATE - The date on which Annuity payments are to begin.
CONTRACT DATE - The date this contract is issued as shown in the Contract
Specifications page.
CONTRACT DISCONTINUANCE - Termination of this contract by Us or by Your Written
Request.
CONTRACT OWNER - The person or entity identified in the Contract Specifications
page.
CONTRACT YEAR - The twelve-month period beginning with the Contract Date or any
anniversary thereof. This may or may not coincide with the Plan year.
DUE PROOF OF DEATH - (i) A copy of a certified death certificate; (ii) a copy of
a certified decree of a court of competent jurisdiction as to the finding of
death; (iii) a written statement by a medical doctor who attended the deceased;
or (iv) any other proof satisfactory to Us.
EXCESS PLAN CONTRIBUTIONS - [Plan contributions including excess deferrals,
excess contributions, excess aggregate contributions, excess annual additions,
and excess nondeductible contributions that require correction by the Plan
Administrator, excluding reversions upon Plan Termination.]
OUR OFFICE - The home office of the Travelers Insurance Company or any other
office which We may designate for the purpose of administering this contract.
All correspondence regarding this contract should be sent to Our mailing address
stated on the cover page of this contract.
PARTICIPANT- An eligible person who is a member in Your Plan.
PLAN - The Plan, or arrangement, designated in the Contract Specifications page,
used in a retirement plan or program whereby the Purchase Payments and any gains
are intended to qualify under sections 401or 457 of the Internal Revenue Code,
as amended. We are not a party to the Plan. We do not assume the
responsibilities of the Plan Administrator, nor are We bound by the terms of the
Plan. We will have no obligation to verify that the Plan Administrator is acting
within the scope of his/her authority. All records pertaining to the Plan will
be open for inspection by Us.
PLAN ADMINISTRATOR - The corporation or other entity so specified in the
application or purchase order. If none is specified, the Plan Trustee is the
Plan Administrator.
PLAN TERMINATION - Termination of Your Plan, including partial Plan Termination,
as determined by Us.
PLAN TRUSTEE - The Trustee specified in the Contract Specifications.
5
PREMIUM TAX - The amount of tax, if any, charged by the state or municipality.
We will deduct any applicable Premium Tax from the Cash Value either upon
surrender, annuitization, death, or at the time a Purchase Payment is made, but
no earlier than when We have the liability under state law.
PURCHASE PAYMENTS - Payments of premium You make to this contract.
SEPARATION FROM SERVICE - [The termination or permanent severance of a
Participant's employment with the employer for any reason that is a separation
from service within the meaning of the Plan. However, termination of a
Participant's employment with the employer as a result of the sale of all or
part of the employer's business (including divisions or subsidiaries of the
employer) will not be considered Separation from Service unless the Participant
actually loses his/her job or is not immediately included in a pension or profit
sharing plan of the successor employer.]
SURRENDER DATE - The date We receive Your Written Request or a Participant's
Written Request if so authorized, for Surrender.
VALUATION DATE - The date on which the Contract is valued.
WE, OUR, US - The Travelers Insurance Company.
WRITTEN REQUEST - Written information including requests for contract,
beneficiary, ownership, transfers, surrenders or other changes sent to Us in a
form and content satisfactory to Us and received in good order at Our Office.
Requests for changes are subject to any action taken prior to Our receipt of the
written information.
YOU, YOUR - The Contract Owner.
YOUR ACCOUNT - Cash Value attributed to You under this contract.
6
GENERAL CONTRACT PROVISIONS
OWNERSHIP
This contract belongs to You. You have sole power while the contract is in force
to exercise any rights given in the contract. In order to maintain tax
qualification, this contract may not be sold, assigned, transferred, discounted
or pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose except as may be required or permitted under
applicable law including the Internal Revenue Code.
If permitted by law, and You assign, transfer, discount, or pledge the contract
as collateral for a loan, We must be notified immediately in writing. Any
payment We make before We record the assignment, transfer, discount, or pledge
at Our Office will not be affected. We are not responsible for the validity of
any assignment, transfer, discount or pledge. Your rights and the rights of a
beneficiary may be affected by an assignment, transfer, discount or pledge.
Additional benefits added by rider may or may not be available for assignment,
transfer, discount or pledge.
CREDITOR CLAIMS
No right or benefit to You, the Annuitant/Participant or Beneficiary under this
contract shall be subject to the claims of creditors or any legal process other
than to the extent permitted by law.
CONTROL OF THE CONTRACT
All rights in the contract rest with You, and You are entitled to all amounts
held under this contract. You may elect to exercise any options allowed by the
contract with respect to Your Account. Elections made under the contract must be
made by a Written Request, unless another manner is mutually agreed upon.
ENTIRE CONTRACT
The entire contract between You and Us consists of the contract, and any
attached amendments, riders, or endorsements.
CONTRACT CHANGES
Upon receiving appropriate state approval, if necessary, We may at any time make
any changes, including retroactive changes, to this Contract to the extent that
the change is required to meet the requirements of any federal, state or local
law or regulation. All Contract changes will be made by a written amendment,
rider, or endorsement signed by Our President, Our Chairman, or one of Our home
office authorized officers. Agents do not have authority to alter or modify any
of the terms or conditions of this contract, or to waive any of its provisions.
Any change will not affect the amount or term of any Annuity begun prior to the
change, unless the change is required to conform the contract to any federal or
state statute and will not affect the method by which the Contract Value is
determined.
INCONTESTABILITY
We will not contest this contract from the Contract Date.
REQUIRED REPORTS
We will furnish a report to You as often as required by law, but at least once
in each Contract Year, reporting the status of the Contract as of a date not
more than four months previous to the date of the mailing.
NON-PARTICIPATING
This contract does not share in Our surplus earnings, so You will receive no
dividends under it.
7
PURCHASE PAYMENTS
The Purchase Payments are the payments You make to this contract. An initial
Purchase Payment must be made to the contract and is due and payable before the
contract becomes effective. Each Purchase Payment is payable to Us at Our
Office. The minimum and maximum Purchase Payments are shown in the Contract
Specifications page. We reserve the right to limit the amount of the Purchase
Payment which will be accepted.
Net Purchase Payments are that part of the Purchase Payments applied to the
contract. The net Purchase Payment is equal to the Purchase Payment less any
applicable Premium Tax.
The Plan Administrator will be responsible for maintaining the individual
records for each Participant.
CASH VALUE
The Cash Value on the contract date is the initial net Purchase Payment. On any
date after the contract date, the Cash Value equals:
1. total net Purchase Payment(s) paid; minus
2. any prior partial surrenders and applicable surrender charges; plus
3. any interest earned.
On the Annuity Income Date, the Annuity Value will be reduced by any Premium Tax
payable before it is applied to determine the annuity payments.
[TRANSFERS TO CONTRACTS ISSUED BY US
Under specific conditions, We may allow You to transfer funds in this contract
to contracts issued by Us without incurring a surrender charge as shown on the
Contract Specifications page to the funds being transferred. Once the transfer
is complete and We have established a new account for You, new deferred sales
charges or surrender charges may apply to the new contract in accordance with
the provisions of such contract.
[TRANSFERS FROM THIS CONTRACT TO PRODUCTS NOT ISSUED BY US
Amounts may be transferred from this contract to products not issued by Us as
described on the Contract Specifications page. No transfers will be allowed from
this contract directly into any competing fund (any bond, money market, or other
fixed income investment vehicle), unless it is a benefit responsive
distribution. Amounts previously transferred from this contract to an Approved
Product may not be transferred back into this contract for a period of at least
3 months from the date of transfer.
TRANSFERS FROM CONTRACTS NOT ISSUED BY US
Under Specific conditions, when authorized by state insurance law, We may credit
a Plan up to 4% of the amount transferred to Us from another investment vehicle
as reimbursement to the Plan of any exit penalty assessed by the other
investment vehicle provider. We may recover this credit through reduced
compensation paid to the servicing agent or broker.]
DISTRIBUTIONS FROM THE CONTRACT
CASH SURRENDER VALUE
The Cash Surrender Value will be determined as of the next business day
following receipt of a Written Request by You. We may delay payment of the Cash
Surrender Value for a period not to exceed 6 months.
ALLOWABLE DISTRIBUTIONS
You may request allowable distributions shown in the Contract Specifications
page at any time. Upon receipt of Your Written Request, We will pay You the Cash
Value as applicable for those allowable distributions.
SURRENDER FROM INTEREST RATE PERIODS
For the purpose of processing distributions, withdrawals are taken from the most
recent "interest rate period" first, and each subsequent interest rate period is
accessed for distributions in descending order on a Last-In, First-Out (LIFO)
basis.
8
CONTRACT CHARGES
AMOUNTS DEDUCTED ON SURRENDER
The applicable amounts deducted on Surrender are shown in the Contract
Specifications page. These amounts may be reduced or eliminated to the extent
that We anticipate lower sales expenses or perform fewer sales services due to:
1. the size of the group participating in the contract;
2. an existing relationship to the contract owner;
3. use of mass enrollment procedures, or;
4. performance of sales functions by a third party, which We would
otherwise perform.
DEATH BENEFIT PROVISION
DEATH OF PARTICIPANT
A death benefit is payable in a single sum to the Beneficiary upon the death of
a Participant before the Commencement Date. A death benefit is also payable
under those Annuity Options which provide for death benefits. We will pay the
Beneficiary the death benefit as described below upon receiving Due Proof of
Death along with a Written Request noting the Cash Value and total Purchase
Payments attributable to the Participant under the Contract. In addition, We
will require copies of records and any other reasonable proof We find necessary
to verify the Cash Value and total Purchase Payments attributable to the
Participant under this Contract. At Your Written Request, We will pay the death
benefit to the Participant's beneficiary. When We make a payment to the Plan
Trustee, We will have no obligation to ensure that such payment is applied
according to the terms of the Plan.
DEATH PROCEEDS PRIOR TO THE COMMENCEMENT DATE
If the Participant dies before the Commencement Date, We will pay the
Beneficiary the Cash Value of the Participant's Individual Account less any
applicable Premium Tax as of the date We receive Due Proof of Death.
INTEREST ON DEATH PROCEEDS
We will pay interest on death proceeds of a Participant's Individual Account in
accordance with appropriate state regulations.
DEATH PROCEEDS AFTER THE COMMENCEMENT DATE
If the Annuitant/Participant dies on or after the Commencement Date, We will pay
the Beneficiary a death benefit consisting of any benefit remaining under the
Annuity option then in effect.
9
CONTRACT TERMINATION PROVISION
TERMINATION AMOUNT
If the Cash Value in Your Account is less than the Termination Amount stated in
the Contract Specifications page, We reserve the right to terminate this
Contract.
CONTRACT DISCONTINUANCE PROVISION
You may discontinue this contract by Written Request at any time for any reason.
We reserve the right to discontinue this contract if:
a) the Cash Value of the contract is less than the Termination Amount
shown in the Contract Specifications; or
b) any benefit responsive withdrawal is in excess of 60% of the Cash
Value of the Contract; or
c) We determine in Our sole discretion and judgment, that the Plan or
administration of the Plan is not in conformity with applicable law;
or
d) We receive written notice that is satisfactory to Us of Plan
Termination.
If We discontinue this contract or We receive Your Written Request to
discontinue the contract, We will, in Our sole discretion and judgment:
i) accept no further payments for this contract; and
ii) pay You the Cash Surrender Value, if any.
If this Contract is discontinued by Us, because the amount is less than the
Termination amount, We will distribute the Cash Surrender Value to You no later
than seven days following our mailing the written notice of discontinuance to
You at the most current address available on Our records. Discontinuance of this
contract will not affect payments We are making under any Annuity options, which
began before the date of discontinuance. If the Contract is discontinued, no
further Purchase Payments or transfers will be allowed.
If the Contract is discontinued because of Plan Termination and the Plan
certifies to Us that the Plan Termination is the result of the dissolution or
liquidation of the employer under US Code Title 11 procedures, the Cash
Surrender Value will be distributed directly to the employees entitled to share
in such distributions in accordance with the terms of the Plan. Distribution may
be in the form of cash payments, Annuity options, or deferred annuities as
instructed by You.
If the Plan is terminated or the Contract discontinued for any reason, other
than a) above or plan termination, because of the dissolution or liquidation of
the employer under US Code Title 11 procedures, then upon discontinuance of this
Contract, We will determine the Market Adjusted Value of the contract. The
Market Adjusted Value is the current value as of the date of discontinuance and
reflects the relationship between the rate of interest credited to funds on
deposit under the contract at the time of discontinuance to the rate of interest
credited on new deposits for this class of contracts at the time of
discontinuance. The Market Adjusted Value may be greater than or less than the
Cash Value of the contract.
If the Market Adjusted Value is less than the Cash Value of the Contract as of
the date of discontinuance, We will pay You Your choice of:
a) the Market Adjusted Value, less any amounts deducted on Surrender, in
one lump sum within 60 days of the date of discontinuance; or
b) the Cash Surrender Value of the contract in equal installments over a
5-year period. The amount deducted on Surrender, if any, is determined
as of the date of discontinuance and will apply to all installment
payments. Interest will be credited to the remaining Cash Value of the
contract during this installment period at a fixed effective annual
interest rate as shown in the Contract Specifications. The first
payments will be made no later than 60 days following Our mailing the
written notice to You at the most current address available on Our
records. The remaining payments will be mailed on each anniversary of
the discontinuance date for 4 years. Allowable distributions shown on
the Contract Specifications page are not allowed during the 5-year
installment period.
10
If the Market Adjusted Value is greater than the Cash Value of the contract as
of the date of discontinuance, We will pay You Your choice of:
a) the Cash Surrender Value of the Contract within 60 days of the date of
discontinuance; or
b) the Cash Value of the Contract in installments over a 5-year period.
Interest will be credited to the remaining Cash Value of the contract
during this installment period at a fixed effective annual interest
rate as shown in the Contract Specifications. The first payment will
be made no later than 60 days following Our mailing the written notice
to You at the most current address available on Our records. The
remaining payments will be mailed on each anniversary of the
discontinuance date for 4 years. Allowable distributions shown on the
Contract Specifications page are not allowed during the 5-year
installment period.
5 5
MARKET ADJUSTED VALUE = CASH VALUE X (1+RO) / (1+R1+.0025)
WHERE:
RO IS THE AVERAGE INTEREST RATE CREDITED TO AMOUNTS IN THE CONTRACT ON THE DATE
OF DISCONTINUANCE, AND
RI IS THE INTEREST RATE ON NEW DEPOSITS FOR THIS CLASS OF CONTRACTS ON THE DATE
OF DISCONTINUANCE.
11
SETTLEMENT PROVISION
ELECTION OF SETTLEMENT OPTIONS
Any amount distributed from the contract may be applied to any one of the
Annuity options described below.
Election of any of these options must be made by Written Request to Our Office
at least 30 days prior to the date such election is to become effective. The
form of such Annuity option shall be determined by You. The following
information must be provided with any such request:
a) the Annuitant's/Participant's name, address, date of birth, social
security number; and
b) the amount to be distributed in the form of an Annuity option; and
c) the Annuity option which is to be purchased; and
d) the date the Annuity option payments are to begin; and
e) if the form of the Annuity provides a death benefit in the event of
the Annuitant's/Participant's death, the name, relationship and
address of the Beneficiary as designated by You; and
f) any other data that We may require.
The Beneficiary, as specified in item (e) above, may be changed by You, as long
as We are notified by Written Request while the Annuitant/ Participant is alive.
If the Beneficiary designation is irrevocable, such designation cannot be
changed or revoked without the consent of the Beneficiary. After We receive the
Written Request and the written consent of the Beneficiary (if required), the
new Beneficiary designation will take effect as of the date the notice is
signed. We have no further responsibility for any payment We made before the
Written Request.
MINIMUM AMOUNTS
The minimum amount that can be placed under an Annuity option is $2,000 unless
We consent to a lesser amount. If any periodic payments due are less than $100,
We reserve the right to make payments at less frequent intervals.
MISSTATEMENT
If an Annuitant's/Participant's date of birth was misstated, all benefits of
this contract are what the Cash Value would have purchased at the correct age on
the date of issue of the Annuity option elected.
If an underpayment has been made under this Contract due to misstatement as
described above, We will pay the portion due promptly. If an overpayment has
occurred, the amount due Us will be deducted from subsequent Annuity payments,
as necessary. No interest will be credited or charged in the event of an
underpayment or overpayment. Proof of the Annuitant's/Participant's age may be
filed at any time at Our Office.
RETIRED LIFE CERTIFICATE
We will issue to each person to whom Annuity benefits are being paid under this
contract, a certificate setting forth the benefits to which such person is
entitled under this contract.
FIXED ANNUITY
A fixed annuity is an annuity with payments which remain fixed as to dollar
amount throughout the payment period. The Life Annuity Tables are used to
determine the monthly annuity payment. They show the dollar amount of monthly
annuity payment which can be purchased with each $1,000 applied. The amount
applied to the fixed annuity will be equal to the Cash Surrender Value allocated
to the fixed annuity determined as of the date fixed annuity payments start. If
it would produce a larger payment, the fixed annuity payment will be determined
using the Life Annuity Tables in effect on the Commencement Date.
12
ANNUITY OPTIONS
Subject to conditions stated in ELECTION OF SETTLEMENT OPTIONS and MINIMUM
AMOUNTS, all or any part of the Cash Surrender Value of this contract may be
paid to the Annuitant/Participant under one or more of the Annuity options
below.
OPTION 1. LIFE ANNUITY - NO REFUND
We will make monthly Annuity payments during the lifetime of the person on whose
life the payments are based, ending with the last monthly payment preceding
death.
OPTION 2. LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS ASSURED
We will make monthly Annuity payments during the lifetime of the person on whose
life the payments are based and under the conditions stated below.
If at the death of that person, payments have been made for less than 120, 180,
or 240 months, as elected, We will continue to make payments to the designated
Beneficiary during the remainder of the period.
OPTION 3. JOINT AND LAST SURVIVOR LIFE ANNUITY
We will make monthly Annuity payments during the joint lifetime of the
Annuitant/Participant and a secondary payee, and thereafter during the remaining
lifetime of the survivor, ceasing with the last payment prior to the death of
the survivor.
OPTION 4. JOINT AND LAST SURVIVOR LIFE ANNUITY - ANNUITY REDUCED ON DEATH OF
PRIMARY PAYEE
We will make monthly Annuity payments during the joint lifetime of two persons
on whose lives payments are based. One of the two persons will be designated as
the primary payee. The other will be designated as the secondary payee. On the
death of the secondary payee, if survived by the primary payee, We will continue
to make monthly Annuity payments to the primary payee in the same amount that
would have been payable during the joint lifetime of the two persons.
On the death of the primary payee, if survived by the secondary payee, We will
continue to make monthly Annuity payments to the secondary payee in an amount
equal to 50% of the payments, which would have been made during the lifetime of
the primary payee.
No further payments will be made following the death of the survivor.
OPTION 5. PAYMENTS FOR A FIXED PERIOD
We will make monthly payments for the period selected. If at the death of
Annuitant/Participant, payments have been made for less than the period
selected, We will continue to make payments to the designated Beneficiary during
the remainder of that period.
OPTION 6. OTHER ANNUITY OPTIONS
We will make other arrangements for Annuity payments as may be mutually agreed
upon by You and Us.
13
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1 AND 2- SINGLE LIFE ANNUITIES
UNISEX NUMBER OF MONTHLY PAYMENTS GUARANTEED
ADJUSTED NONE 120 180 240
AGE
[45 2.64 2.63 2.62 2.61
46 2.68 2.68 2.67 2.65
47 2.73 2.73 2.71 2.70
48 2.79 2.78 2.76 2.74
49 2.84 2.83 2.82 2.79
50 2.90 2.89 2.87 2.85
51 2.96 2.95 2.93 2.90
52 3.03 3.01 2.99 2.95
53 3.09 3.08 3.05 3.01
54 3.17 3.15 3.12 3.07
55 3.24 3.22 3.19 3.14
56 3.32 3.29 3.26 3.20
57 3.40 3.37 3.33 3.27
58 3.49 3.46 3.41 3.34
59 3.59 3.55 3.49 3.41
60 3.69 3.64 3.58 3.48
61 3.80 3.74 3.67 3.55
62 3.91 3.85 3.76 3.63
63 4.03 3/96 3.86 3.71
64 4.16 4.08 3.96 3.78
65 4.30 4.20 4.07 3.86
66 4.45 4.34 4.17 3.94
67 4.61 4.47 4.29 4.02
68 4.78 4.62 4.40 4.10
69 4.96 4.77 4.52 4.17
70 5.16 4.93 4.63 4.24
71 5.37 5.10 4.75 4.31
72 5.59 5.27 4.87 4.38
73 5.84 5.45 4.99 4.44
74 6.10 5.64 5.11 4.50
75 6.38 5.83 5.22 4.55
Dollar amounts of the monthly Annuity payments in the above table assumes a year
2000 issue, and are based upon the Annuity 2000 Table] (blended 50%/50%
female/male) with mortality improvements based on Projection Scale G. This table
assumes a net investment rate of 1.5% per Annum, assuming a 365-day year.
Calendar Year in which 1st payment is due:
Adjusted Age is Actual Age:
2003-2005 2006-2010 2011-2015 2016-2020
minus 1 minus 2 minus 3 minus 4
2021-2025 2026-2030 2031-2035 2036 AND LATER
minus 5 minus 6 minus 7 minus 8]
14
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY
UNISEX
ADJUSTED UNISEX ADJUSTED AGE
AGE 45 50 55 60 65 70 75
[45 2.35 2.43 2.49 2.54 2.57 2.60 2.61
50 2.43 2.54 2.64 2.72 2.79 2.83 2.86
55 2.49 2.64 2.79 2.92 3.02 3.10 3.16
60 2.54 2.72 2.92 3.11 3.28 3.42 3.53
65 2.57 2.79 3.02 3.28 3.54 3.77 3.96
70 2.60 2.83 3.10 3.42 3.77 4.13 4.46
75 2.61 2.86 3.16 3.53 3.96 4.46 4.96
OPTION 4 - JOINT AND LAST SURVIVOR LIFE ANNUITY
REDUCED BY 50% ON DEATH OF PRIMARY PAYEE
AGE OF PRIMARY
AND SECONDARY UNISEX DOLLAR AMOUNT
45 2.48
50 2.71
55 3.00
60 3.37
65 3.88
70 4.59
75 5.58
Dollar amounts of the monthly Annuity payments in the above table assumes a year
2000 issue, and are based on the Annuity 2000 Table (blended 50%/50%
female/male) with mortality improvements based on Projection Scale G. This table
assumes a net investment rate of 1.5% per Annum, assuming a 365-day year.
Calendar Year in which 1st payment is due:
Adjusted Age is Actual Age:
2003-2005 2006-2010 2011-2015 2016-2020
minus 1 minus 2 minus 3 minus 4
2021-2025 2026-2030 2031-2035 2036 AND LATER
minus 5 minus 6 minus 7 minus 8]
15
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
THIS TABLE WILL BE USED FOR QUALIFIED CONTRACTS.
OPTION 5 - PAYMENTS FOR A FIXED PERIOD
MONTHLY MONTHLY
NUMBER OF PAYMENT NUMBER OF PAYMENT
YEARS AMOUNT YEARS AMOUNT
[5 17.28 18 5.27
6 14.51 19 5.03
7 12.53 20 4.81
8 11.04 21 4.62
9 9.89 22 4.44
10 8.96 23 4.28
11 8.21 24 4.13
12 7.58 25 3.99
13 7.05 26 3.86
14 6.59 27 3.75
15 6.20 28 3.64
16 5.85 29 3.54
17 5.55 30 3.44
The dollar amounts of the monthly Annuity payments for the fifth option are
based on a net investment rate of 1.5% per annum, assuming a 365-day year.]
16
PENSION/PROFIT SHARING PLAN QUALIFICATION RIDER
If the Contract/certificate owner (hereinafter referred to as "You" or "Your")
of this Contract/certificate (hereinafter referred to as "Contract") requested
that it be issued to comply with Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"), the following conditions, restrictions and
limitations apply to this Contract. The Contract shall constitute an asset of
the qualified pension or profit-sharing plan established under Code Section
401(a) and the regulations thereunder and the Contract shall be subject to the
provisions, terms and conditions of such qualified plan. The amounts held under
this Contract will be used for the exclusive benefit of the employees and their
beneficiaries. The provisions in this rider supersede any contrary provisions in
the Contract.
The Plan is subject to the Employee Retirement Income Security Act (ERISA). We
are not a party to the Plan, nor are we the Plan Administrator. Any
responsibilities related to the appropriateness of any withdrawal, consents (or
revocation thereof), or any other fiduciary decision related to the
administration of the Plan is that of the employer or the Plan Administrator.
OWNER AND ANNUITANT
If the owner of this Contract is an employer, it represents that the plan meets
the requirements of Code Section 401(a). The term employee will mean the
individual for whose benefit the employer established an annuity program under
Code Section 401(a). This employee will be the Annuitant under this Contract.
The Annuitant is the individual on whose life the first Annuity payment is made.
A joint owner or a contingent Annuitant cannot be named under this Contract. The
Annuitant may not be changed after the Contract Date except as provided
hereunder.
TRANSFER OF OWNERSHIP/ASSIGNMENT
This Contract shall not be pledged or otherwise encumbered and it shall not be
sold, assigned, or otherwise transferred to any other person or entity other
than us.
CREDITOR CLAIMS
To the extent permitted by law, no right or benefit of the owner, Annuitant or
Beneficiary under this Contract shall be subject to the claims or creditors or
any legal process.
CONTRIBUTION LIMITS
Contributions may not exceed the limitations in effect under Code Section 402(g)
and 415(c).
ROLLOVERS
To the extent the Annuitant is eligible for a distribution under this Contract,
and provided the distribution is an eligible rollover distribution, the
distribution or a portion of it may be paid directly to an eligible retirement
plan. An eligible retirement plan includes an Individual Retirement Annuity or
Account described in Code Section 408; a Tax Sheltered Annuity plan or
arrangement under Code Section 403(b); a Defined Contribution plan qualified
under Code Section 401; and a governmental Deferred Compensation arrangement
under Code Section 457, as permitted by law. In the case of an eligible
distribution to the surviving spouse however, an eligible retirement plan is an
Individual Retirement Annuity or Account. You must specify the eligible
retirement plan to which such distribution is to be paid in a form and at such
time acceptable to us. Such distribution shall be made as a direct transfer to
the eligible retirement plan so specified. Surrender penalties under this
Contract may apply to all rollover distributions.
Previously taxed amounts in this Contract are not eligible for rollover. Amounts
that are rolled over are generally not taxed until later distributed. An
eligible rollover distribution generally includes any taxable distribution or
portion thereof from this Contract except:
(1) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or the life expectancy) of the Annuitant or the joint lives (or
joint and survivor expectances) of the Annuitant and the Annuitant's
designated beneficiary, or for a specified period of ten years or
more;
(2) any distribution to the extent such distribution is required under
Code Sections 401(a)(9) and 403(b)(10);
(3) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities);
(4) any hardship distribution described in Code Section 403(b)(11) or Code
Section 403(b)(7)(A)(ii) made to the contract owner after 1998, and
(5) any other distribution(s) to the extent provided under the Code.
When an Annuitant receives a distribution directly by check that is eligible for
rollover, then mandatory income tax withholding will be taken from the
distribution. The Annuitant may roll over the balance to an Individual
Retirement Annuity or Account within 60 days of receipt of the check, and may
make up the amount withheld from other sources in the rollover in order to roll
over the maximum without possible early distribution tax penalty on the amount
of the tax withholding.
ELECTION OF SETTLEMENT OPTIONS
On the Maturity Date, or other agreed upon date, We will pay the amount payable
under this Contract in one lump sum or in accordance with the Option elected by
You. While the Annuitant is alive, You may change your Settlement Option
election by Written Request, but only before the Maturity Date. Once annuity
payments have commenced, no further election changes are allowed.
If no election has been made on the Maturity Date and if the Annuitant is living
and has a spouse, We will pay to You the first of a series of monthly annuity
payments based on the life of the Annuitant as primary payee and the Annuitant's
spouse as secondary payee in accordance with the Joint and Last Survivor Life
Annuity-Annuity Reduced on Death of Primary Payee Option. During the Annuitant's
lifetime, if no election has been made and the Annuitant has no spouse on the
Maturity Date, We will pay to You the first of a series of monthly annuity
payments based on the life of the Annuitant, in accordance with the Life Annuity
with Period Certain Annuity option, with 120 monthly payments assured.
REQUIRED MINIMUM DISTRIBUTIONS
DISTRIBUTIONS DURING ANNUITANT'S LIFETIME
In order to meet the qualification requirements of Code Section 401(a), all
plans must meet the required mandatory distribution rules in Code Section
401(a)(9).
Code Section 401(a)(9) states that a plan will not be qualified unless the
entire interest of each employee is distributed to such employee not later than
the "required beginning date" or over the life or life expectancy of such
employee or over the lives or joint life expectancy of such employee and a
designated beneficiary. Generally, the "required beginning date" means April 1
of the calendar year following the later of (1) the calendar year in which the
employee attains age 70 1/2, or (2) the calendar year in which the employee
retires, except that in the event that the employee is a 5% owner, the "required
beginning date" is April 1 of the calendar year in which the employee attains
age 70 1/2.
DISTRIBUTIONS UPON ANNUITANT'S DEATH
If the Annuitant dies on or after the Required Beginning Date (or after
distributions have begun under one of the settlement options under this
Contract), the remaining portion of the Annuitant's interest (if any) shall be
distributed at least as rapidly as the method of distribution in effect as of
the Annuitant's death.
If the Annuitant dies before distribution of his or her interest in the Contract
has begun and unless otherwise permitted under applicable law, the Annuitant's
entire interest will be distributed in accordance with one of the following
three provisions:
a. If the Annuitant's interest is payable to a designated beneficiary,
except as provided in (c) below, the designated beneficiary may elect
to receive the entire interest over the life expectancy of the
designated beneficiary or over a period not extending beyond the life
expectancy of the designated beneficiary, commencing on or before
December 31 of the calendar year immediately following the calendar
year in which the Annuitant died. Such election by the designated
beneficiary must be irrevocable and must be made no later than
September 30 of the calendar year immediately following the calendar
year in which the Annuitant died.
b. If there is no designated beneficiary, or if the beneficiary elects,
the Annuitant's entire interest in the Contract will be distributed by
December 31 of the calendar year containing the fifth anniversary of
the Annuitant's death.
c. If the designated beneficiary is the Annuitant's surviving spouse, the
surviving spouse may elect to receive the entire interest in equal or
substantially equal payments over the life expectancy of the surviving
spouse or over a period not extending beyond the life expectancy of
the surviving spouse, commencing at any date on or before the later
of:
(i) December 31 of the calendar year immediately following the
calendar year in which the Annuitant died; or
(ii) December 31 of the calendar year in which the Annuitant would
have attained age 70 1/2. Such election by the surviving spouse
must be irrevocable and must be made no later than the earlier of
December 31 of the calendar year containing the fifth anniversary
of the Annuitant's death, or the date distributions are required
to begin pursuant to the preceding sentence.
If the surviving spouse dies before distributions begin, the limitations
described above in this section shall be applied as if the surviving spouse were
the Annuitant.
Life expectancies will be calculated in accordance with the applicable
requirements of Federal Law, including the Code and any applicable rules and
regulations.
ANNUITIES DISTRIBUTED UNDER QUALIFIED PLANS
If the applicant for this Contract requested that it be issued to comply with
Section 401(a) of the Code, and this Contract has subsequently been transferred
to the Annuitant, the following conditions, restrictions and limitations apply
to this Contract in addition to the above.
SPOUSAL CONSENT
DEATH BENEFIT - If the Annuitant dies while the Contract continues and the
Annuitant has a spouse at the time of the Annuitant's death, We will pay the
death benefit to a person other than the current spouse of the Annuitant only if
proof of spousal consent, which meets the requirements of Section 417 of the
Code, is furnished to us.
If the Beneficiary is not the current spouse and such spousal consent is not
furnished, We will pay 50% of the death benefit to the current spouse. We will
pay the balance of the death benefit to the Beneficiary.
CASH SURRENDER - Before the due date of the first annuity Payment, 1) if You do
not have a spouse and without the consent of any Beneficiary; or, 2) if You do
have a current spouse then only with the written consent of your spouse, as
required by Section 417 of the Code; We will pay to You all or any portion of
the cash surrender value of the Contract upon receipt of your Written Request
for it.
ADMINISTRATIVE COMPLIANCE/AMENDMENT
If changes in the Code and related law, regulations and rulings require a
distribution greater than described above in order to keep this Annuity
qualified under the Code, we will administer the Contract in accordance with
these laws, regulations and rulings. Notwithstanding any provision to the
contrary in this Contract or the qualified pension or profit-sharing plan of
which this Contract is a part, We reserve the right to amend or modify the
Contract or any rider or endorsement thereto, to the extent necessary to comply
with any law, regulation or other requirement in order to establish or maintain
the qualified status of the plan, following all necessary regulatory approvals.
Any such amendment or modification may be made retroactively effective if
necessary or appropriate to conform to the conditions imposed by such law,
regulation or other requirement.
THE TRAVELERS INSURANCE COMPANY
/s/ George C. Kokulis
PRESIDENT
- --------------------------------------------------------------------------------
CODE SECTION 457 PLAN QUALIFICATION RIDER
- --------------------------------------------------------------------------------
This Rider modifies the contract/certificate (hereinafter referred to as
"contract") to which it is attached for use in connection with a deferred
compensation plan (the "Plan") qualified under Section 457 of the Internal
Revenue Code of 1986, as amended (the "Code"). In the case of a conflict with
any provision in the contract, the provisions of this Rider will control. This
Rider applies and is made a part of the contract as of the earliest date
permitted by applicable law.
The contract is modified as follows:
1. The contract shall constitute an asset of the Plan qualified under Code
Section 457.
2. The amounts held under this contract will be used for the exclusive benefit
of the participants and their beneficiaries, and no portion of the amounts
held under this contract or the proceeds thereof, nor any interests or
rights under this contract shall be subject to the claims of the general
creditors of the contract owner.
3. All distributions under this contract shall be made in accordance with the
requirements of Code Sections 457 and 401(a)(9), including the incidental
death benefit requirements of Code Section 401(a)(9)(G) and Treasury
Regulations thereunder, and distributions made pursuant to a Qualified
Domestic Relations Order (QDRO) under Code Section 414(P)(10), and (11) and
shall be subject to the provisions, terms and conditions of such Plan
regarding distributions.
4. Amounts held under this contract under an eligible governmental Code
Section 457 plan may be rolled over into another eligible governmental Code
Section 457 plan; an Individual Retirement Annuity (IRA) under Code Section
408(B), or an eligible retirement plan including a qualified pension,
profit sharing or stock bonus plan or a Code Section 403(b) Tax Sheltered
Annuity (TSA), if the plan accept such rollovers. Eligible rollover
distributions from an IRA, qualified plan or Code Section 403(b) plan may
be rolled into an eligible governmental Code Section 457 plans. Rollovers
to or from a qualified plan or TSA must be accounted for separately.
If changes in the Code and related law, regulations and rulings require a
distribution greater than described above in order to keep this Annuity
qualified under the Code, we will administer the Contract in accordance with
these laws, regulations and rulings. This contract may be amended by Us at any
time to maintain its qualified status under Section 457 of the Code, following
all necessary regulatory approvals. Any such amendment may be made retroactively
effective if necessary or appropriate to conform to the requirements of the Code
or any State law.
THE TRAVELERS INSURANCE COMPANY
/s/ George C. Kokulis
PRESIDENT
This page has been left blank intentionally.
FLEXIBLE PREMIUM GROUP DEFERRED FIXED ANNUITY CONTRACT
TAX QUALIFIED
ELECTIVE OPTIONS NON-PARTICIPATING
VALUES PROVIDED BY THIS CONTRACT ARE GUARANTEED AS TO
FIXED DOLAR AMOUNT
[TRAVELERS LIFE & ANNUITY LOGO]
THE TRAVELERS INSURANCE COMPANY
ONE CITYPLACE o HARTFORD, CONNECTICUT o 06103-3415
A STOCK COMPANY
MAILING ADDRESS: Qualified Plan Services
P.O. Box 990009
Hartford, CT 06199-0009
WE ARE PLEASED TO PROVIDE YOU THE BENEFITS OF THIS FIXED ANNUITY CONTRACT.
THIS CONTRACT IS ISSUED IN CONSIDERATION OF THE PURCHASE PAYMENTS.
IT IS SUBJECT TO THE TERMS AND CONDITIONS STATED ON THE ATTACHED
PAGES, ALL OF WHICH ARE PARTS OF IT.
RIGHT TO EXAMINE
IF THIS CONTRACT IS ISSUED TO A COMBINATION TAX QUALIFIED/TAX SHELTERED
ANNUITY PLAN, UNDER INTERNAL REVENUE CODE SECTIONS 401/403(B), OR A TAX
SHELTERED ANNUITY PLAN, UNDER INTERNAL REVENUE CODE SECTION 403(B),
PARTICIPANTS MAY RETURN THEIR CERTIFICATE TO US AT OUR OFFICE OR TO OUR
AGENT WITHIN TEN DAYS AFTER DELIVERY TO THE CERTIFICATE OWNER. IF THE
CERTIFICATE IS RETURNED, WE WILL RETURN THE PURCHASE PAYMENT MADE TO
THEIR CERTIFICATE. AFTER A CERTIFICATE IS RETURNED, IT WILL BE
CONSIDERED AS NEVER IN EFFECT.
EXECUTED AT HARTFORD, CONNECTICUT
/s/ George C. Kokulis /s/ Ernest J. Wright
--------------------- --------------------
President Secretary
THIS IS A LEGAL CONTRACT BETWEEN YOU AND US.
PLEASE READ YOUR CONTRACT AND ALL ATTACHED FORMS CAREFULLY.
FLEXIBLE PREMIUM GROUP DEFERRED FIXED ANNUITY CONTRACT
TAX QUALIFIED
ELECTIVE OPTIONS NON-PARTICIPATING
THIS CONTRACT IS SUBJECT TO A MARKET VALUE ADJUSTMENT UPON
CONTRACT TERMINATION
VALUES PROVIDED BY THIS CONTRACT ARE GUARANTEED
AS TO FIXED DOLLAR AMOUNT.
TABLE OF CONTENTS
Contract Specifications Page 3
Definitions Page 5
General Contract Provisions Page 7
Purchase Payments/Cash Value Page 8
Transfers From This Contract To Products Not Issued By Us Page 8
Transfers From Contracts Not Issued By Us Page 8
Distributions Page 8
Contract Charges Page 9
Death Benefit Provision Page 9
Termination Provision Page 10
Contract Discontinuance Provision Page 10
Settlement Provision Page 12
Annuity Tables Page 14
Any Amendments, Riders or Endorsements follow the Annuity Tables.
2
- --------------------------------------------------------------------------------
CONTRACT SPECIFICATIONS
- --------------------------------------------------------------------------------
CONTRACT OWNER [TRUSTEE OF THE ABC RETIREMENT PLAN]
PLAN NAME [THE ABC RETIREMENT PLAN]
CONTRACT NUMBER [SPECIMEN]
CONTRACT DATE [2-02-2004]
- --------------------------------------------------------------------------------
PURCHASE PAYMENT/TERMINATION AMOUNTS
MINIMUM AVERAGE PURCHASE PAYMENT AMOUNT: $1,000 per Individual Account, $10,000
per Contract
MAXIMUM SUM OF INITIAL AND SUBSEQUENT PURCHASE PAYMENTS: $3,000,000 without
prior approval by Our Office
TERMINATION AMOUNT: $2,000 per Individual Account, $20,000 per Contract
AMOUNTS DEDUCTED ON SURRENDER:
For the purpose of determining the amounts deducted on full or partial
Surrender, the surrender charge is calculated as a percentage of the Cash Value
being surrendered.
CONTRACT/CERTIFICATE YEAR SURRENDER CHARGE
------------------------- ----------------
[All Years 0%]
ALLOWABLE DISTRIBUTIONS PRIOR TO CONTRACT DISCONTINUANCE NOT SUBJECT TO AMOUNTS
DEDUCTED ON SURRENDER:
o Transfers to Approved Products (within the Plan), and
o Benefit responsive distributions as follows;
-------------------------------------------
[Retirement,
Separation from Service,
Hardship withdrawals (as defined by the Internal Revenue Code),
Death,
Disability (as defined by the Internal Revenue Code section 72 [m][7]),
Distribution for a loan under the plan,
Minimum distributions (as defined by the Internal Revenue Code),
Return of Excess Plan Contributions,
Certain Plan expenses as mutually agreed upon,
Transfers to an employer stock fund, and
Annuitization under this contract ]
Distributions may be in the form of cash payments, Annuity Options or to a
deferred Annuity issued by Us.
3
- --------------------------------------------------------------------------------
CONTRACT SPECIFICATIONS
- --------------------------------------------------------------------------------
GUARANTEED INTEREST PERIODS: [The initial interest rate for any Purchase Payment
is declared each month and is guaranteed for twelve months. Each Purchase
Payment is placed in an "interest rate period" for accounting purposes. At the
end of the total twelve-month guarantee period, a renewal interest rate will be
determined and guaranteed until the end of that calendar year. The second and
all future renewal rates will be declared each subsequent January 1 and
guaranteed through December 31 of each year.] The initial or renewal rates for
the guaranteed period will never be less than [2.0%].
TRANSFERS
Transfers from this contract and related certificates to products not issued by
Us, may not exceed 20% per Contract/Certificate Year of the Cash Value in the
contract/certificate as of the first day of the Contract Year, unless the
transfer is an allowable distribution as shown in the Contract Specifications.
We reserve the right to modify the amount available for transfer.
FREE WITHDRAWAL ALLOWANCE:
For certificates issued to combination tax qualified plans/tax sheltered annuity
plans (401/403(b)), or tax-sheltered annuity plans (403(b)), [after the first
Certificate Year], You or the Participant, if so authorized, may take partial
surrenders annually of up to [10%] of the Cash Value in a Participant's
Individual Account to the extent permitted by current law, as of the first
Valuation Date of any given Certificate Year without imposition of amounts
deducted on Surrender. The free withdrawal allowance applies to partial
surrenders of any amount and to full surrenders, except those full surrenders
transferred directly to investment vehicles issued by other financial
institutions. We reserve the right to modify the amount available for withdrawal
from the certificates.
4
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DEFINITIONS
- --------------------------------------------------------------------------------
ANNUITANT - The Participant on whose life the Annuity payments are made.
ANNUITY - Payment of income for a stated period or amount.
APPROVED PRODUCT(S) - Products approved by The Travelers Insurance Company.
BENEFICIARY(IES) - Unless the Plan provides otherwise, the person(s) or entity
each Participant elects to receive their vested Cash Value at the time of a
Participant's Death.
CASH SURRENDER VALUE - The Cash Value less any amounts deducted on Surrender
shown in the Contract Specifications page and any applicable Premium Tax.
CASH VALUE - The value of the net Purchase Payments in Your Account or a
Participants Individual Account less surrenders, plus interest. Sometimes
referred to as "Account Value."
CERTIFICATE OF PARTICIPATION - A certificate stating the benefits to which each
Participant is entitled under this contract.
CERTIFICATE YEAR - The twelve-month period beginning with the Certificate Date
or any anniversary thereof.
CODE - The Internal Revenue Code of 1986, as amended, and all related laws and
regulations, which are in effect during the term of this contract.
COMMENCEMENT DATE - The date on which Annuity payments are to begin.
CONTRACT DATE - The date this contract is issued as shown in the Contract
Specifications page.
CONTRACT DISCONTINUANCE - Termination of this contract by Us or by Your Written
Request.
CONTRACT OWNER - The person or entity identified in the Contract Specifications
page.
CONTRACT YEAR - The twelve-month period beginning with the Contract Date or any
anniversary thereof. This may or may not coincide with the Plan year.
DUE PROOF OF DEATH - (i) A copy of a certified death certificate; (ii) a copy of
a certified decree of a court of competent jurisdiction as to the finding of
death; (iii) a written statement by a medical doctor who attended the deceased;
or (iv) any other proof satisfactory to Us.
EXCESS PLAN CONTRIBUTIONS - [Plan contributions including excess deferrals,
excess contributions, excess aggregate contributions, excess annual additions,
and excess nondeductible contributions that require correction by the Plan
Administrator, excluding reversions upon Plan Termination.]
INDIVIDUAL ACCOUNT - Amounts credited to a Participant or Beneficiary under this
contract.
OUR OFFICE - The home office of the Travelers Insurance Company or any other
office which We may designate for the purpose of administering this contract.
All correspondence regarding this contract should be sent to Our mailing address
stated on the cover page of this contract.
PARTICIPANT- An eligible person who is a member in Your Plan.
PLAN - The Plan, or arrangement, designated in the Contract Specifications page,
used in a retirement plan or program whereby the Purchase Payments and any gains
are intended to qualify under sections 401, 457 combination 401/403(b) or 403(b)
of the Internal Revenue Code, as amended. We are not a party to the Plan. We do
not assume the responsibilities of the Plan Administrator, nor are We bound by
the terms of the Plan. We will have no obligation to verify that the Plan
Administrator is acting within the scope of his/her authority. All records
pertaining to the Plan will be open for inspection by Us.
PLAN ADMINISTRATOR - The corporation or other entity so specified in the
application or purchase order. If none is specified, the Plan Trustee is the
Plan Administrator.
5
PLAN TERMINATION - Termination of Your Plan, including partial Plan Termination,
as determined by Us.
PLAN TRUSTEE - The trustee specified in the Contract Specifications.
PREMIUM TAX - The amount of tax, if any, charged by the state or municipality.
We will deduct any applicable Premium Tax from the Cash Value either upon
surrender, annuitization, death, or at the time a Purchase Payment is made, but
no earlier than when We have the liability under state law.
PURCHASE PAYMENTS - Payments You or the Participants make to this contract.
SEPARATION FROM SERVICE - [The termination or permanent severance of the
Participant's employment with the employer for any reason that is a separation
from service within the meaning of the Plan. However, termination of a
Participant's employment with the employer as a result of the sale of all or
part of the employer's business (including divisions or subsidiaries of the
employer) will not be considered Separation from Service unless the Participant
actually loses his/her job or is not immediately included in a pension or profit
sharing plan of the successor employer.]
SURRENDER DATE - The date We receive Your Written Request or a Participant's
Written Request if so authorized, for a Surrender.
VALUATION DATE - The date on which the contract and certificates are valued.
WE, OUR, US - The Travelers Insurance Company.
WRITTEN REQUEST - Written information including requests for contract,
beneficiary, ownership, transfers, surrenders or other changes sent to Us in a
form and content satisfactory to Us and received in good order at Our Office.
Requests for changes are subject to any action taken prior to Our receipt of the
written information.
YOU, YOUR - The Contract Owner.
YOUR ACCOUNT - Cash Value attributed to You under this contract.
6
- --------------------------------------------------------------------------------
GENERAL CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
OWNERSHIP
This contract belongs to You. You have sole power while the contract is in force
to exercise any rights given in the contract. In order to maintain tax
qualification, this contract and any certificates may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose except as may be
required or permitted under applicable law including the Internal Revenue Code.
CREDITOR CLAIMS
No right or benefit to You, the Annuitant/Participant or Beneficiary under this
contract shall be subject to the claims of creditors or any legal process other
than to the extent permitted by law.
CONTROL OF THE CONTRACT
All rights in the contract rest with You, and You are entitled to all amounts
held under this contract. You may elect to exercise any options allowed by the
contract with respect to Your Account or an Individual Account. Elections made
under the contract must be made by a Written Request, unless another manner is
mutually agreed upon.
ENTIRE CONTRACT
The entire contract between You and Us consists of the contract, and any
attached amendments, riders, or endorsements.
CERTIFICATE OF PARTICIPATION
A certificate issued for delivery to Plan Participants stating who may exercise
the rights, privileges and receive the benefits of the certificate. Some of the
provision of this contract will be described in the certificates. Certificates
are issued under the terms of the contract.
CONTRACT AND CERTIFICATE CHANGES
This contract and all related certificates are governed by the law of the state
in which the contract is issued for delivery. Upon receiving appropriate state
approval, if necessary, We may at any time make any changes, including
retroactive changes, to this contract or certificate's to the extent that the
change is required to meet the requirements of any federal, state or local law
or regulation. All contract and certificate changes will be made by a written
amendment, rider, or endorsement signed by Our President, Our Chairman, or one
of Our home office authorized officers. Agents do not have authority to alter or
modify any of the terms or conditions of this contract or certificate's, or to
waive any of its provisions.
Any change will not affect the amount or term of any Annuity begun prior to the
change, unless the change is required to conform the contract and certificate(s)
to any federal or state statute and will not affect the method by which the
contract value and certificate value is determined.
INCONTESTABILITY
We will not contest this contract from the Contract Date.
REQUIRED REPORTS
We will furnish a report to You as often as required by law, but at least once
in each Contract Year, reporting the status of the Contract as of a date not
more than four months previous to the date of the mailing.
NON-PARTICIPATING
This contract and any certificate issued under the contract do not share in Our
surplus earnings, so You will receive no dividends under it.
7
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
- --------------------------------------------------------------------------------
The Purchase Payments are the payments You and/or the Participants make to this
contract or any certificate issued under the contract. An initial Purchase
Payment must be made to the contract and/or certificate and is due and payable
before the contract or a certificate becomes effective. Each Purchase Payment is
payable to Us at Our Office. The minimum and maximum Purchase Payments are shown
in the Contract Specifications page. We reserve the right to limit the amount of
the Purchase Payment which will be accepted. The Plan Administrator will be
responsible for maintaining the individual records for each Participant.
Net Purchase Payments are that part of the Purchase Payments applied to the
contract/certificate. The net Purchase Payment is equal to the Purchase Payment
less any applicable Premium Tax.
The initial net Purchase Payment will be applied within two business days
following its receipt in good order at Our office. At Your direction, We will
establish Individual Accounts and issue a Certificate of Participation for each
Participant in Your Plan and will credit each net Purchase Payment to the
appropriate Individual Account as directed by You.
- --------------------------------------------------------------------------------
CASH VALUE
- --------------------------------------------------------------------------------
The Cash Value on the contract and/or certificate date is the initial net
Purchase Payment. On any date after the contract and/or certificate date, the
Cash Value equals:
1. total net Purchase Payment(s) paid; minus
2. any prior partial surrenders and applicable surrender charges; plus
3. any interest earned.
On the Annuity Income Date, the Annuity Value will be reduced by any Premium Tax
payable before it is applied to determine the annuity payments.
- --------------------------------------------------------------------------------
[TRANSFERS FROM THIS CONTRACT TO PRODUCTS NOT ISSUED BY US
- --------------------------------------------------------------------------------
Amounts may be transferred from this contract and/or certificates to investment
vehicles not issued by Us as described in the Contract Specifications page. No
transfers will be allowed from this contract or certificates directly into any
competing fund (any bond, money market, or other fixed income investment
vehicle), unless it is a benefit responsive distribution. Amounts previously
transferred from this contract or certificates to an Approved Product may not be
transferred back into this contract or certificate(s) for a period of at least 3
months from the date of transfer.
- --------------------------------------------------------------------------------
TRANSFERS TO CONTRACTS ISSUED BY US
- --------------------------------------------------------------------------------
Under specific conditions, We may allow You to transfer funds in this contract
or related certificates to contracts or certificates issued by Us without
incurring a surrender charge as shown on the Contract Specifications page to the
funds being transferred. Once the transfer is complete and We have established a
new account for You and/or Plan Participants, new deferred sales charges or
surrender charges may apply to the new certificate or contract in accordance
with the provisions of such contract.
- --------------------------------------------------------------------------------
TRANSFERS FROM PRODUCTS NOT ISSUED BY US
- --------------------------------------------------------------------------------
Under Specific conditions, when authorized by state insurance law, We may credit
a Plan up to 4% of the amount transferred to Us from another investment vehicle
as reimbursement to the Plan of any exit penalty assessed by the other
investment vehicle provider. We may recover this credit through reduced
compensation paid to the servicing agent or broker.]
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
DISTRIBUTION FROM ONE ACCOUNT TO ANOTHER ACCOUNT
You may, as provided in the Plan, distribute Cash Value from Your Account to one
or more Individual Accounts under this contract. You also may, as required by
the Plan, move Cash Value from any or all Individual Accounts to Your Account.
CASH SURRENDER VALUE
The Cash Surrender Value will be determined as of the next business day
following receipt of a Written Request by You or the Participant if so
authorized. We may delay payment of the Cash Surrender Value for a period not to
exceed 6 months.
8
ALLOWABLE DISTRIBUTIONS
You or the Participant if so authorized, may request allowable distributions
shown in the Contract Specifications page at any time. Upon receipt of a Written
Request, We will pay You or the Participant if so authorized, the Cash Value as
applicable for those allowable distributions.
SURRENDER FROM INTEREST RATE PERIODS
For the purpose of processing distributions, withdrawals are taken from the most
recent "interest rate period" first, and each subsequent interest rate period is
accessed for distributions in descending order on a Last-In, First-Out (LIFO)
basis.
- --------------------------------------------------------------------------------
CONTRACT AND CERTIFICATE CHARGES
- --------------------------------------------------------------------------------
AMOUNTS DEDUCTED ON SURRENDER
The applicable amounts deducted on Surrender are shown in the Contract
Specifications page. These amounts may be reduced or eliminated to the extent
that We anticipate lower sales expenses or perform fewer sales services due to:
1. the size of the group participating in the contract;
2. an existing relationship to the contract owner;
3. use of mass enrollment procedures, or;
4. performance of sales functions by a third party, which We would
otherwise perform.
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISION
- --------------------------------------------------------------------------------
DEATH OF PARTICIPANT
A death benefit is payable in a single sum to the Beneficiary upon the death of
a Participant before the Commencement Date. A death benefit is also payable
under those Annuity Options which provide for death benefits. We will pay the
Beneficiary the death benefit as described below upon receiving Due Proof of
Death. At Your Written Request, We will pay the death benefit to the
Participant's beneficiary. When We make a payment to the Plan Trustee, We will
have no obligation to ensure that such payment is applied according to the terms
of the Plan.
DEATH PROCEEDS PRIOR TO THE COMMENCEMENT DATE
If the Participant dies before the Commencement Date, We will pay the
Beneficiary the Cash Value of the Participant's Individual Account less any
applicable Premium Tax as of the date We receive Due Proof of Death.
INTEREST ON DEATH PROCEEDS
We will pay interest on death proceeds of a Participant's Individual Account in
accordance with appropriate state regulations.
DEATH PROCEEDS AFTER THE COMMENCEMENT DATE
If the Annuitant/Participant dies on or after the Commencement Date, We will pay
the Beneficiary a death benefit consisting of any benefit remaining under the
Annuity option then in effect.
9
- --------------------------------------------------------------------------------
TERMINATION PROVISION
- --------------------------------------------------------------------------------
TERMINATION AMOUNT
If the Cash Value in Your Account is less than the Termination Amount stated in
the Contract Specifications page, We reserve the right to terminate this
Contract.
If the Cash Value in a Participant's Individual Account is less than the
Termination Amount stated in the Contract Specifications, We reserve the right
to terminate that Account and move the Cash Value of that Participant's
Individual Account to Your Account .
- --------------------------------------------------------------------------------
CONTRACT DISCONTINUANCE PROVISION
- --------------------------------------------------------------------------------
You may discontinue this contract by Written Request at any time for any reason.
We reserve the right to discontinue this contract if:
a) the Cash Value of the contract is less than the Termination Amount
shown in the Contract Specifications; or
b) any benefit responsive withdrawal is in excess of 60% of the Cash
Value of the Contract; or
c) We determine in Our sole discretion and judgment, that the Plan or
administration of the Plan is not in conformity with applicable law;
or
d) We receive written notice that is satisfactory to Us of Plan
Termination.
If We discontinue this contract or We receive Your Written Request to
discontinue the contract, We will, in Our sole discretion and judgment:
i) accept no further payments for this contract or certificate(s); and
ii) pay You the Cash Surrender Value, if any.
If this Contract is discontinued by Us, because the amount is less than the
Termination amount, We will distribute the Cash Surrender Value to You no later
than seven days following our mailing the written notice of discontinuance to
You at the most current address available on Our records. Discontinuance of this
contract will not affect payments We are making under any Annuity options, which
began before the date of discontinuance. If the Contract is discontinued, no
further Purchase Payments or transfers will be allowed.
If the Contract is discontinued because of Plan Termination and the Plan
certifies to Us that the Plan Termination is the result of the dissolution or
liquidation of the employer under US Code Title 11 procedures, the Cash
Surrender Value will be distributed directly to the employees entitled to share
in such distributions in accordance with the terms of the Plan. Distribution may
be in the form of cash payments, Annuity options, or deferred annuities as
instructed by You.
If the Plan is terminated or the Contract discontinued for any reason, other
than a) above or plan termination, because of the dissolution or liquidation of
the employer under US Code Title 11 procedures, then upon discontinuance of this
Contract, We will determine the Market Adjusted Value of the contract. The
Market Adjusted Value is the current value as of the date of discontinuance and
reflects the relationship between the rate of interest credited to funds on
deposit under the contract at the time of discontinuance to the rate of interest
credited on new deposits for this class of contracts at the time of
discontinuance. The Market Adjusted Value may be greater than or less than the
Cash Value of the contract.
If the Market Adjusted Value is less than the Cash Value of the Contract as of
the date of discontinuance, We will pay You Your choice of:
a) the Market Adjusted Value, less any amounts deducted on Surrender, in
one lump sum within 60 days of the date of discontinuance; or
b) the Cash Surrender Value of the contract in equal installments over a
5-year period. The amount deducted on Surrender, if any, is determined
as of the date of discontinuance and will apply to all installment
payments. Interest will be credited to the remaining Cash Value of the
contract during this installment period at a fixed effective annual
interest rate as shown in the Contract Specifications. The first
payments will be made no later than 60 days following Our mailing the
written notice to You at the most current address available on Our
records. The remaining payments will be mailed on each anniversary of
the discontinuance date for 4 years. Allowable distributions shown on
the Contract Specifications page are not allowed during the 5-year
installment period.
10
If the Market Adjusted Value is greater than the Cash Value of the contract as
of the date of discontinuance, We will pay You Your choice of:
a) the Cash Surrender Value of the Contract within 60 days of the date of
discontinuance; or
b) the Cash Value of the Contract in installments over a 5-year period.
Interest will be credited to the remaining Cash Value of the contract
during this installment period at a fixed effective annual interest
rate as shown in the Contract Specifications. The first payment will
be made no later than 60 days following Our mailing the written notice
to You at the most current address available on Our records. The
remaining payments will be mailed on each anniversary of the
discontinuance date for 4 years. Allowable distributions shown on the
Contract Specifications page are not allowed during the 5-year
installment period.
5 5
MARKET ADJUSTED VALUE = CASH VALUE X (1+RO) / (1+R1+.0025)
WHERE:
RO IS THE AVERAGE INTEREST RATE CREDITED TO AMOUNTS IN THE CONTRACT ON THE DATE
OF DISCONTINUANCE, AND
RI IS THE INTEREST RATE ON NEW DEPOSITS FOR THIS CLASS OF CONTRACTS ON THE DATE
OF DISCONTINUANCE.
11
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SETTLEMENT PROVISION
- --------------------------------------------------------------------------------
ELECTION OF SETTLEMENT OPTIONS
Any amount distributed from the contract and/or certificates on behalf of a
Participant or a Participant's Beneficiary may be applied to any one of the
Annuity options described below.
Election of any of these options must be made by Written Request to Our Office
at least 30 days prior to the date such election is to become effective. The
form of such Annuity option shall be determined by You or the Participant, if so
authorized. The following information must be provided with any such request:
a) the Annuitant's/Participant's name, address, date of birth, social
security number; and
b) the amount to be distributed in the form of an Annuity option; and
c) the Annuity option which is to be purchased; and
d) the date the Annuity option payments are to begin; and
e) if the form of the Annuity provides a death benefit in the event of
the Annuitant's/Participant's death, the name, relationship and
address of the Beneficiary as designated by You; and
f) any other data that We may require.
The Beneficiary, as specified in item (e) above, may be changed by You or the
Participant if so authorized, as long as We are notified by Written Request
while the Annuitant/Participant is alive. If the Beneficiary designation is
irrevocable, such designation cannot be changed or revoked without the consent
of the Beneficiary. After We receive the Written Request and the written consent
of the Beneficiary (if required), the new Beneficiary designation will take
effect as of the date the notice is signed. We have no further responsibility
for any payment We made before the Written Request.
MINIMUM AMOUNTS
The minimum amount that can be placed under an Annuity option is $2,000 unless
We consent to a lesser amount. If any periodic payments due are less than $100,
We reserve the right to make payments at less frequent intervals.
MISSTATEMENT
If an Annuitant's/Participant's date of birth was misstated, all benefits of
this contract or related certificate will be what the Cash Value would have
purchased at the correct age on the date of issue of the Annuity option elected.
If an underpayment has been made under this contract or related certificate due
to misstatement as described above, We will pay the portion due promptly. If an
overpayment has occurred, the amount due Us will be deducted from subsequent
Annuity payments, as necessary. No interest will be credited or charged in the
event of an underpayment or overpayment. Proof of the Annuitant's/Participant's
age may be filed at any time at Our Office.
RETIRED LIFE CERTIFICATE
We will issue to each person to whom Annuity benefits are being paid under this
contract, a certificate setting forth the benefits to which such person is
entitled under this contract.
FIXED ANNUITY
A fixed annuity is an annuity with payments which remain fixed as to dollar
amount throughout the payment period. The Life Annuity Tables are used to
determine the monthly annuity payment. They show the dollar amount of monthly
annuity payment which can be purchased with each $1,000 applied. The amount
applied to the fixed annuity will be equal to the Cash Surrender Value allocated
to the fixed annuity determined as of the date fixed annuity payments start. If
it would produce a larger payment, the fixed annuity payment will be determined
using the Life Annuity Tables in effect on the Commencement Date.
12
ANNUITY OPTIONS
Subject to conditions stated in ELECTION OF SETTLEMENT OPTIONS and MINIMUM
AMOUNTS, all or any part of the Cash Surrender Value of this contract may be
paid to the Annuitant/Participant under one or more of the Annuity options
below.
OPTION 1. LIFE ANNUITY - NO REFUND
We will make monthly Annuity payments during the lifetime of the person on whose
life the payments are based, ending with the last monthly payment preceding
death.
OPTION 2. LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS ASSURED
We will make monthly Annuity payments during the lifetime of the person on whose
life the payments are based and under the conditions stated below.
If at the death of that person, payments have been made for less than 120, 180,
or 240 months, as elected, We will continue to make payments to the designated
Beneficiary during the remainder of the period.
OPTION 3. JOINT AND LAST SURVIVOR LIFE ANNUITY
We will make monthly Annuity payments during the joint lifetime of the
Annuitant/Participant and a secondary payee, and thereafter during the remaining
lifetime of the survivor, ceasing with the last payment prior to the death of
the survivor.
OPTION 4. JOINT AND LAST SURVIVOR LIFE ANNUITY - ANNUITY REDUCED ON DEATH OF
PRIMARY PAYEE
We will make monthly Annuity payments during the joint lifetime of two persons
on whose lives payments are based. One of the two persons will be designated as
the primary payee. The other will be designated as the secondary payee. On the
death of the secondary payee, if survived by the primary payee, We will continue
to make monthly Annuity payments to the primary payee in the same amount that
would have been payable during the joint lifetime of the two persons.
On the death of the primary payee, if survived by the secondary payee, We will
continue to make monthly Annuity payments to the secondary payee in an amount
equal to 50% of the payments, which would have been made during the lifetime of
the primary payee.
No further payments will be made following the death of the survivor.
OPTION 5. PAYMENTS FOR A FIXED PERIOD
We will make monthly payments for the period selected. If at the death of the
Annuitant/Participant, payments have been made for less than the period
selected, We will continue to make payments to the designated Beneficiary during
the remainder of that period.
OPTION 6. OTHER ANNUITY OPTIONS
We will make other arrangements for Annuity payments as may be mutually agreed
upon by You and Us.
13
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1 AND 2- SINGLE LIFE ANNUITIES
UNISEX NUMBER OF MONTHLY PAYMENTS GUARANTEED
ADJUSTED NONE 120 180 240
AGE
[45 2.64 2.63 2.62 2.61
46 2.68 2.68 2.67 2.65
47 2.73 2.73 2.71 2.70
48 2.79 2.78 2.76 2.74
49 2.84 2.83 2.82 2.79
50 2.90 2.89 2.87 2.85
51 2.96 2.95 2.93 2.90
52 3.03 3.01 2.99 2.95
53 3.09 3.08 3.05 3.01
54 3.17 3.15 3.12 3.07
55 3.24 3.22 3.19 3.14
56 3.32 3.29 3.26 3.20
57 3.40 3.37 3.33 3.27
58 3.49 3.46 3.41 3.34
59 3.59 3.55 3.49 3.41
60 3.69 3.64 3.58 3.48
61 3.80 3.74 3.67 3.55
62 3.91 3.85 3.76 3.63
63 4.03 3/96 3.86 3.71
64 4.16 4.08 3.96 3.78
65 4.30 4.20 4.07 3.86
66 4.45 4.34 4.17 3.94
67 4.61 4.47 4.29 4.02
68 4.78 4.62 4.40 4.10
69 4.96 4.77 4.52 4.17
70 5.16 4.93 4.63 4.24
71 5.37 5.10 4.75 4.31
72 5.59 5.27 4.87 4.38
73 5.84 5.45 4.99 4.44
74 6.10 5.64 5.11 4.50
75 6.38 5.83 5.22 4.55
Dollar amounts of the monthly Annuity payments in the above table assumes a year
2000 issue, and are based upon the Annuity 2000 Table (blended 50%/50%
female/male) with mortality improvements based on Projection Scale G. This table
assumes a net investment rate of 1.5% per Annum, assuming a 365-day year.
Calendar Year in which 1st payment is due:
Adjusted Age is Actual Age:
2003-2005 2006-2010 2011-2015 2016-2020
minus 1 minus 2 minus 3 minus 4
2021-2025 2026-2030 2031-2035 2036 AND LATER
minus 5 minus 6 minus 7 minus 8
14
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY
UNISEX
ADJUSTED UNISEX ADJUSTED AGE
AGE 45 50 55 60 65 70 75
45 2.35 2.43 2.49 2.54 2.57 2.60 2.61
50 2.43 2.54 2.64 2.72 2.79 2.83 2.86
55 2.49 2.64 2.79 2.92 3.02 3.10 3.16
60 2.54 2.72 2.92 3.11 3.28 3.42 3.53
65 2.57 2.79 3.02 3.28 3.54 3.77 3.96
70 2.60 2.83 3.10 3.42 3.77 4.13 4.46
75 2.61 2.86 3.16 3.53 3.96 4.46 4.96
OPTION 4 - JOINT AND LAST SURVIVOR LIFE ANNUITY
REDUCED BY 50% ON DEATH OF PRIMARY PAYEE
AGE OF PRIMARY
AND SECONDARY UNISEX DOLLAR AMOUNT
45 2.48
50 2.71
55 3.00
60 3.37
65 3.88
70 4.59
75 5.58
Dollar amounts of the monthly Annuity payments in the above table assumes a year
2000 issue, and are based on the Annuity 2000 Table (blended 50%/50%
female/male) with mortality improvements based on Projection Scale G. This table
assumes a net investment rate of 1.5% per Annum, assuming a 365-day year.
Calendar Year in which 1st payment is due:
Adjusted Age is Actual Age:
2003-2005 2006-2010 2011-2015 2016-2020
minus 1 minus 2 minus 3 minus 4
2021-2025 2026-2030 2031-2035 2036 AND LATER
minus 5 minus 6 minus 7 minus 8
15
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 5 - PAYMENTS FOR A FIXED PERIOD
MONTHLY MONTHLY
NUMBER OF PAYMENT NUMBER OF PAYMENT
YEARS AMOUNT YEARS AMOUNT
5 17.28 18 5.27
6 14.51 19 5.03
7 12.53 20 4.81
8 11.04 21 4.62
9 9.89 22 4.44
10 8.96 23 4.28
11 8.21 24 4.13
12 7.58 25 3.99
13 7.05 26 3.86
14 6.59 27 3.75
15 6.20 28 3.64
16 5.85 29 3.54
17 5.55 30 3.44
The dollar amounts of the monthly Annuity payments for the fifth option
are based on a net investment rate of 1.5% per annum, assuming a
365-day year.]
16
TAX-SHELTERED ANNUITY (TSA) 403(B) QUALIFICATION RIDER
This Rider may be issued with an individual Contract, a group master contract,
or a group certificate issued under a group master contract, (hereinafter
referred to as "Contract"). This Rider qualifies this Contract to comply with
Section 403(b) of the Internal Revenue Code of 1986, as amended (the "Code") and
applicable regulations. The provisions in this Rider supersede any contrary
provisions in the Contract. The following conditions, restrictions and
limitations apply.
If this Contract is subject to the requirements of Employee Retirement Income
Security Act (ERISA), we are not a party to the Plan, nor are we the Plan
Administrator. Any responsibilities related to the appropriateness of any
withdrawal, consents (or revocation thereof), or any other fiduciary decision
related to the administration of the Plan is that of the employer or the Plan
Administrator.
OWNER AND ANNUITANT
If the owner of this Contract is an employer, it represents that it is an
eligible organization described in Section 403(b)(1)(A) of the Code and that the
plan or arrangement meets the requirements of Code Section 403(b). The term
employee will mean the individual for whose benefit the employer established an
annuity program under Code Section 403(b). This employee will be the Annuitant
under this Contract. If the owner of this Contract is an employee of an eligible
organization as described above, he or she must also be the Annuitant and
represents that he/she is eligible to own this Contract under the requirements
of Code Section 403(b). The Annuitant is the individual on whose life the first
Annuity payment is made. A joint owner or a contingent Annuitant cannot be named
under this Contract. The Annuitant may not be changed after the Contract Date
except as provided hereunder.
TRANSFER OF OWNERSHIP/ASSIGNMENT
In order to maintain tax qualification, this Contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan (except to us) or as
security for the performance of an obligation or for any other purposes except
as may be required or permitted under applicable sections of the Code. The
Annuitant's interest, except as permitted by law, is nonforfeitable. We will
administer this Contract only as a Tax Qualified Contract, under Section 403(b)
of the Code. Certain rules may apply in the case of a transfer under the terms
of a Qualified Domestic Relations Order (QDRO), as defined in Code Section
414(p).
CONTRIBUTION LIMITS
In order to meet the qualification requirements of Code Section 403(b), elective
deferral contributions may not exceed the limitations in effect under Code
Sections 402(g), 414(v) and 415(c). This rule is an individual limitation that
applies to all elective deferral plans, contracts or arrangements in the
aggregate.
ROLLOVERS
To the extent the Annuitant is eligible for a distribution under this Contract,
and provided the distribution is an eligible rollover distribution, the
distribution or a portion of it may be paid directly to an eligible retirement
plan. An eligible retirement plan includes an Individual Retirement Annuity or
Account described in Code Section 408; a Tax Sheltered Annuity plan or
arrangement under Code Section 403(b); a Defined Contribution plan qualified
under Code Section 401; and a governmental Deferred Compensation arrangement
under Code Section 457, as permitted by law. In the case of an eligible
distribution to the surviving spouse however, an eligible retirement plan is an
Individual Retirement Annuity or Account, or another TSA. You must specify the
eligible retirement plan to which such distribution is to be paid in a form and
at such time acceptable to us. Such distribution shall be made as a direct
transfer to the eligible retirement plan so specified. Surrender penalties under
this Contract may apply to all rollover distributions.
Previously taxed amounts in this Contract are not eligible for rollover. Amounts
that are rolled over are generally not taxed until later distributed. An
eligible rollover distribution generally includes any taxable distribution or
portion thereof from this Contract except:
(1) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or the life expectancy) of the Annuitant or the joint lives (or
joint and survivor expectances) of the Annuitant and the Annuitant's
designated beneficiary, or for a specified period of ten years or
more;
(2) any distribution to the extent such distribution is required under
Code Sections 401(a)(9) and 403(b)(10);
(3) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities);
(4) any hardship distribution described in Code Section 403(b)(11) or Code
Section 403(b)(7)(A)(ii) made to the contract owner after 1998, and
(5) any other distribution(s) to the extent provided under the Code.
When an Annuitant receives a distribution directly by check that is eligible for
rollover, then mandatory income tax withholding will be taken from the
distribution. The Annuitant may roll over the balance to an Individual
Retirement Annuity or account within 60 days of receipt of the check, and may
make up the amount withheld from other sources in the rollover in order to roll
over the maximum without possible early distribution tax penalty on the amount
of the tax withholding.
DIRECT TRANSFERS
Direct transfers to another 403(b) arrangement pursuant to Revenue Ruling 90-24
or transfers to purchase service credits under a defined benefit governmental
plan pursuant to Code Section 403(b)(13) as amended from time to time, may be
made in the manner permitted by law.
WITHDRAWAL RESTRICTIONS
To qualify as a Contract which can defer compensation under a Code Section
403(b) plan or arrangement, the withdrawal restrictions under Code Section
403(b)(11) must be met.
Withdrawals attributable to contributions made pursuant to a salary reduction
agreement may be paid only upon or after attainment of age 59 1/2, severance
from employment, death, total or permanent disability (as defined in Code
Section 72(m)(7)) or in the case of hardship (as defined in Code Section
403(b)(11)). The hardship exception applies only to the salary reduction
contributions and not to any income attributable to such contribution. Amounts
may also be distributed pursuant to a QDRO to the extent permitted by law.
These withdrawal restrictions apply to years beginning after December 31, 1988
but only with respect to assets other than those assets held as of the close of
the last year beginning before January 1, 1989.
If contributions attributable to a custodial account described in Section
403(b)(7) of the Code are transferred to this Contract, the following
conditions, restrictions, and limitations apply:
Withdrawals attributable to these transferred contributions may be paid
only upon or after attainment of age 59 1/2, severance from employment,
death, or total and permanent disability (as defined in Code Section
72(m)(7)).
Withdrawals on account of hardship may be made only with respect to assets
attributable to a custodial account as of the close of the last year
beginning before January 1, 1989, and amounts contributed thereafter under
a salary reduction agreement but not to any income attributable to such
conditions.
ELECTION OF SETTLEMENT OPTIONS
On the Maturity Date, or other agreed upon date, We will pay the amount payable
under this contract in one lump sum or in accordance with the Option elected by
You. While the Annuitant is alive, You may change your Settlement Option
election by Written Request, but only before the Maturity Date. Once annuity
payments have commenced, no further election changes are allowed.
If subject to the ERISA and no election has been made on the Maturity Date and
if the Annuitant is living and has a spouse, We will pay to You the first of a
series of monthly annuity payments based on the life of the Annuitant as primary
payee and the Annuitant's spouse as secondary payee in accordance with the Joint
and Last Survivor Life Annuity-Annuity Reduced on Death of Primary Payee Option.
During the Annuitant's lifetime, if no election has been made and the Annuitant
has no spouse on the Maturity Date, We will pay to You the first of a series of
monthly annuity payments based on the life of the Annuitant, in accordance with
the Life Annuity with Period Certain Annuity option,, with 120 monthly payments
assured.
REQUIRED MINIMUM DISTRIBUTIONS
DISTRIBUTIONS DURING ANNUITANT'S LIFETIME
In order to meet the qualification requirements of Code Section 403(b), all
plans must meet the Required Minimum Distribution rules in Code Sections
401(a)(9) and 403(b)(10).
Code Section 401(a)(9) states that a plan will not be qualified unless the
entire interest of each employee is distributed to such employee not later than
the "required beginning date" or over the life or life expectancy of such
employee or over the lives or joint life expectancy of such employee and a
designated beneficiary. Generally, the "required beginning date" means April 1
of the calendar year following the later of (1) the calendar year in which the
employee attains age 70 1/2, or (2) the calendar year in which the employee
retires.
DISTRIBUTIONS UPON ANNUITANT'S DEATH
If the Annuitant dies on or after the Required Beginning Date (or after
distributions have begun under one of the settlement options under this
contract), the remaining portion of the Annuitant's interest (if any) shall be
distributed at least as rapidly as the method of distribution in effect as of
the Annuitant's death.
If the Annuitant dies before distribution of his or her interest in the Contract
has begun and unless otherwise permitted under applicable law, the Annuitant's
entire interest will be distributed in accordance with one of the following
three provisions:
a. If the Annuitant's interest is payable to a designated beneficiary,
except as provided in (c) below, the designated beneficiary may elect
to receive the entire interest over the life expectancy of the
designated beneficiary or over a period not extending beyond the life
expectancy of the designated beneficiary, commencing on or before
December 31 of the calendar year immediately following the calendar
year in which the Annuitant died. Such election by the designated
beneficiary must be irrevocable and must be made no later than
September 30 of the calendar year immediately following the calendar
year in which the Annuitant died.
b. If there is no designated beneficiary, or if the beneficiary elects,
the Annuitant's entire interest in the Contract will be distributed by
December 31 of the calendar year containing the fifth anniversary of
the Annuitant's death.
c. If the designated beneficiary is the Annuitant's surviving spouse, the
surviving spouse may elect to receive the entire interest in equal or
substantially equal payments over the life expectancy of the surviving
spouse or over a period not extending beyond the life expectancy of
the surviving spouse, commencing at any date on or before the later
of:
(i) December 31 of the calendar year immediately following the
calendar year in which the Annuitant died; or
(ii) December 31 of the calendar year in which the Annuitant would
have attained age 70 1/2. Such election by the surviving spouse
must be irrevocable and must be made no later than the earlier of
December 31 of the calendar year containing the fifth anniversary
of the Annuitant's death, or the date distributions are required
to begin pursuant to the preceding sentence.
If the surviving spouse dies before distributions begin, the limitations
described above in this section shall be applied as if the surviving spouse were
the Annuitant.
Life expectancies will be calculated in accordance with the applicable
requirements of Federal Law, including the Code and any applicable rules and
regulations.
ANNUITIES DISTRIBUTED UNDER AN ERISA TSA
SPOUSAL CONSENT
DEATH BENEFIT - If the Annuitant dies while the Contract continues and the
Annuitant has a spouse at the time of the Annuitant's death, We will pay the
death benefit to a person other than the current spouse of the Annuitant only if
proof of spousal consent, which meets the requirements of Section 417 of the
Code, is furnished to us.
If the Beneficiary is not the current spouse and such spousal consent is not
furnished, We will pay 50% of the death benefit to the current spouse. We will
pay the balance of the death benefit to the Beneficiary.
CASH SURRENDER - Before the due date of the first annuity payment, 1) if You do
not have a spouse and without the consent of any Beneficiary; or, 2) if You do
have a current spouse then only with the written consent of your spouse, as
required by Section 417 of the Code; We will pay to You all or any portion of
the cash surrender value of the contract upon receipt of your Written Request
for it.
ADMINISTRATIVE COMPLIANCE/AMENDMENT
If changes in the Code and related law, regulations and rulings require a
distribution greater than described above in order to keep this Annuity
qualified under the Code, we will administer the Contract in accordance with
these laws, regulations and rulings. Notwithstanding any provision in this
Contract or in the 403(b) plan of which this Contract is a part, we reserve the
right to amend or modify the Contract or any rider or any endorsement thereto,
to the extent necessary to comply with any law, regulation or other requirement
in order to establish or maintain the qualified status of such plan, following
any necessary regulatory approvals. Any such amendment or modification may be
made retroactively to conform to the requirements of such law, regulation or
other requirement.
THE TRAVELERS INSURANCE COMPANY
/s/ George C. Kokulis
PRESIDENT
- --------------------------------------------------------------------------------
PENSION/PROFIT SHARING PLAN QUALIFICATION RIDER
- --------------------------------------------------------------------------------
If the Contract/certificate owner (hereinafter referred to as "You" or "Your")
of this Contract/certificate (hereinafter referred to as "Contract") requested
that it be issued to comply with Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"), the following conditions, restrictions and
limitations apply to this Contract. The Contract shall constitute an asset of
the qualified pension or profit-sharing plan established under Code Section
401(a) and the regulations thereunder and the Contract shall be subject to the
provisions, terms and conditions of such qualified plan. The amounts held under
this Contract will be used for the exclusive benefit of the employees and their
beneficiaries. The provisions in this rider supersede any contrary provisions in
the Contract.
The Plan is subject to the Employee Retirement Income Security Act (ERISA). We
are not a party to the Plan, nor are we the Plan Administrator. Any
responsibilities related to the appropriateness of any withdrawal, consents (or
revocation thereof), or any other fiduciary decision related to the
administration of the Plan is that of the employer or the Plan Administrator.
OWNER AND ANNUITANT
If the owner of this Contract is an employer, it represents that the plan meets
the requirements of Code Section 401(a). The term employee will mean the
individual for whose benefit the employer established an annuity program under
Code Section 401(a). This employee will be the Annuitant under this Contract.
The Annuitant is the individual on whose life the first Annuity payment is made.
A joint owner or a contingent Annuitant cannot be named under this Contract. The
Annuitant may not be changed after the Contract Date except as provided
hereunder.
TRANSFER OF OWNERSHIP/ASSIGNMENT
This Contract shall not be pledged or otherwise encumbered and it shall not be
sold, assigned, or otherwise transferred to any other person or entity other
than us.
CREDITOR CLAIMS
To the extent permitted by law, no right or benefit of the owner, Annuitant or
Beneficiary under this Contract shall be subject to the claims or creditors or
any legal process.
CONTRIBUTION LIMITS
Contributions may not exceed the limitations in effect under Code Section 402(g)
and 415(c).
ROLLOVERS
To the extent the Annuitant is eligible for a distribution under this Contract,
and provided the distribution is an eligible rollover distribution, the
distribution or a portion of it may be paid directly to an eligible retirement
plan. An eligible retirement plan includes an Individual Retirement Annuity or
Account described in Code Section 408; a Tax Sheltered Annuity plan or
arrangement under Code Section 403(b); a Defined Contribution plan qualified
under Code Section 401; and a governmental Deferred Compensation arrangement
under Code Section 457, as permitted by law. In the case of an eligible
distribution to the surviving spouse however, an eligible retirement plan is an
Individual Retirement Annuity or Account. You must specify the eligible
retirement plan to which such distribution is to be paid in a form and at such
time acceptable to us. Such distribution shall be made as a direct transfer to
the eligible retirement plan so specified. Surrender penalties under this
Contract may apply to all rollover distributions.
Previously taxed amounts in this Contract are not eligible for rollover. Amounts
that are rolled over are generally not taxed until later distributed. An
eligible rollover distribution generally includes any taxable distribution or
portion thereof from this Contract except:
(1) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or the life expectancy) of the Annuitant or the joint lives (or
joint and survivor expectances) of the Annuitant and the Annuitant's
designated beneficiary, or for a specified period of ten years or
more;
(2) any distribution to the extent such distribution is required under
Code Sections 401(a)(9) and 403(b)(10);
(3) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities);
(4) any hardship distribution described in Code Section 403(b)(11) or Code
Section 403(b)(7)(A)(ii) made to the contract owner after 1998, and
(5) any other distribution(s) to the extent provided under the Code.
When an Annuitant receives a distribution directly by check that is eligible for
rollover, then mandatory income tax withholding will be taken from the
distribution. The Annuitant may roll over the balance to an Individual
Retirement Annuity or Account within 60 days of receipt of the check, and may
make up the amount withheld from other sources in the rollover in order to roll
over the maximum without possible early distribution tax penalty on the amount
of the tax withholding.
ELECTION OF SETTLEMENT OPTIONS
On the Maturity Date, or other agreed upon date, We will pay the amount payable
under this Contract in one lump sum or in accordance with the Option elected by
You. While the Annuitant is alive, You may change your Settlement Option
election by Written Request, but only before the Maturity Date. Once annuity
payments have commenced, no further election changes are allowed.
If no election has been made on the Maturity Date and if the Annuitant is living
and has a spouse, We will pay to You the first of a series of monthly annuity
payments based on the life of the Annuitant as primary payee and the Annuitant's
spouse as secondary payee in accordance with the Joint and Last Survivor Life
Annuity-Annuity Reduced on Death of Primary Payee Option. During the Annuitant's
lifetime, if no election has been made and the Annuitant has no spouse on the
Maturity Date, We will pay to You the first of a series of monthly annuity
payments based on the life of the Annuitant, in accordance with the Life Annuity
with Period Certain Annuity option, with 120 monthly payments assured.
REQUIRED MINIMUM DISTRIBUTIONS
DISTRIBUTIONS DURING ANNUITANT'S LIFETIME
In order to meet the qualification requirements of Code Section 401(a), all
plans must meet the required mandatory distribution rules in Code Section
401(a)(9).
Code Section 401(a)(9) states that a plan will not be qualified unless the
entire interest of each employee is distributed to such employee not later than
the "required beginning date" or over the life or life expectancy of such
employee or over the lives or joint life expectancy of such employee and a
designated beneficiary. Generally, the "required beginning date" means April 1
of the calendar year following the later of (1) the calendar year in which the
employee attains age 70 1/2, or (2) the calendar year in which the employee
retires, except that in the event that the employee is a 5% owner, the "required
beginning date" is April 1 of the calendar year in which the employee attains
age 70 1/2.
DISTRIBUTIONS UPON ANNUITANT'S DEATH
If the Annuitant dies on or after the Required Beginning Date (or after
distributions have begun under one of the settlement options under this
Contract), the remaining portion of the Annuitant's interest (if any) shall be
distributed at least as rapidly as the method of distribution in effect as of
the Annuitant's death.
If the Annuitant dies before distribution of his or her interest in the Contract
has begun and unless otherwise permitted under applicable law, the Annuitant's
entire interest will be distributed in accordance with one of the following
three provisions:
d. If the Annuitant's interest is payable to a designated beneficiary,
except as provided in (c) below, the designated beneficiary may elect
to receive the entire interest over the life expectancy of the
designated beneficiary or over a period not extending beyond the life
expectancy of the designated beneficiary, commencing on or before
December 31 of the calendar year immediately following the calendar
year in which the Annuitant died. Such election by the designated
beneficiary must be irrevocable and must be made no later than
September 30 of the calendar year immediately following the calendar
year in which the Annuitant died.
e. If there is no designated beneficiary, or if the beneficiary elects,
the Annuitant's entire interest in the Contract will be distributed by
December 31 of the calendar year containing the fifth anniversary of
the Annuitant's death.
f. If the designated beneficiary is the Annuitant's surviving spouse, the
surviving spouse may elect to receive the entire interest in equal or
substantially equal payments over the life expectancy of the surviving
spouse or over a period not extending beyond the life expectancy of
the surviving spouse, commencing at any date on or before the later
of:
(i) December 31 of the calendar year immediately following the
calendar year in which the Annuitant died; or
(ii) December 31 of the calendar year in which the Annuitant would
have attained age 70 1/2. Such election by the surviving spouse
must be irrevocable and must be made no later than the earlier of
December 31 of the calendar year containing the fifth anniversary
of the Annuitant's death, or the date distributions are required
to begin pursuant to the preceding sentence.
If the surviving spouse dies before distributions begin, the limitations
described above in this section shall be applied as if the surviving spouse were
the Annuitant.
Life expectancies will be calculated in accordance with the applicable
requirements of Federal Law, including the Code and any applicable rules and
regulations.
ANNUITIES DISTRIBUTED UNDER QUALIFIED PLANS
If the applicant for this Contract requested that it be issued to comply with
Section 401(a) of the Code, and this Contract has subsequently been transferred
to the Annuitant, the following conditions, restrictions and limitations apply
to this Contract in addition to the above.
SPOUSAL CONSENT
DEATH BENEFIT - If the Annuitant dies while the Contract continues and the
Annuitant has a spouse at the time of the Annuitant's death, We will pay the
death benefit to a person other than the current spouse of the Annuitant only if
proof of spousal consent, which meets the requirements of Section 417 of the
Code, is furnished to us.
If the Beneficiary is not the current spouse and such spousal consent is not
furnished, We will pay 50% of the death benefit to the current spouse. We will
pay the balance of the death benefit to the Beneficiary.
CASH SURRENDER - Before the due date of the first annuity Payment, 1) if You do
not have a spouse and without the consent of any Beneficiary; or, 2) if You do
have a current spouse then only with the written consent of your spouse, as
required by Section 417 of the Code; We will pay to You all or any portion of
the cash surrender value of the Contract upon receipt of your Written Request
for it.
ADMINISTRATIVE COMPLIANCE/AMENDMENT
If changes in the Code and related law, regulations and rulings require a
distribution greater than described above in order to keep this Annuity
qualified under the Code, we will administer the Contract in accordance with
these laws, regulations and rulings. Notwithstanding any provision to the
contrary in this Contract or the qualified pension or profit-sharing plan of
which this Contract is a part, We reserve the right to amend or modify the
Contract or any rider or endorsement thereto, to the extent necessary to comply
with any law, regulation or other requirement in order to establish or maintain
the qualified status of the plan, following all necessary regulatory approvals.
Any such amendment or modification may be made retroactively effective if
necessary or appropriate to conform to the conditions imposed by such law,
regulation or other requirement.
THE TRAVELERS INSURANCE COMPANY
/s/ George C. Kokulis
President
This page has been left blank intentionally.
FLEXIBLE PREMIUM GROUP DEFERRED FIXED ANNUITY CONTRACT
TAX QUALIFIED
ELECTIVE OPTIONS NON-PARTICIPATING
VALUES PROVIDED BY THIS CONTRACT ARE GUARANTEED AS TO
FIXED DOLAR AMOUNT
[TRAVELERS LIFE & ANNUITY LOGO]
THE TRAVELERS INSURANCE COMPANY
[ONE CITYPLACE] o [HARTFORD], CONNECTICUT o [06103-3415]
A STOCK COMPANY
MAILING ADDRESS: [Qualified Plan Services
P.O. Box 990009
Hartford, CT 06199-0009]
This certificate is subject to the terms and conditions of the
group annuity contract, and is issued in consideration of the
Purchase Payments. Some of the provisions in the group annuity
contract are explained in this certificate and in any attached
pages, all which are a part of it.
RIGHT TO EXAMINE
If this certificate is issued under a combination tax
qualified plan/tax sheltered annuity plan, under Internal
Revenue Code Sections 401/403(b), or a tax sheltered annuity
plan, under Internal Revenue Code Section 403(b), this
certificate may be cancelled by providing a Written Request
and this certificate to Us at Our mailing address or to Our
Agent within 10 calendar days after its delivery to You. We
will return the full amount of the Purchase Payment(s) made to
this certificate. After the certificate is returned, it will
be considered as if it were never in effect.
EXECUTED AT HARTFORD, CONNECTICUT
/s/ George C. Kokulis /s/ Ernest J. Wright
--------------------- --------------------
President Secretary
THIS IS A LEGAL CONTRACT BETWEEN YOU AND US.
PLEASE READ YOUR CERTIFICATE CAREFULLY.
CERTIFICATE OF PARTICIPATION UNDER A
FLEXIBLE PREMIUM GROUP DEFERRED FIXED ANNUITY CONTRACT
TAX QUALIFIED
ELECTIVE OPTIONS NON-PARTICIPATING
A MARKET VALUE ADJUSTMENT WILL BE IMPOSED IF THE PLAN TERMINATES THE
MASTER CONTRACT. A MARKET VALUE ADJUSTMENT IS NOT IMPOSED FOR BENEFIT
RESPONSIVE WITHDRAWALS.
VALUES PROVIDED BY THIS CERTIFICATE ARE GUARANTEED
AS TO FIXED DOLLAR AMOUNT.
TABLE OF CONTENTS
[Certificate Specifications Page 3
Definitions Page 5
General Provisions Page 7
Purchase Payments/Cash Value Page 8
Transfers From This Certificate To Products Not Issued By Us Page 8
Transfers From Contracts Not Issued By Us Page 8
Distributions Page 8
Contract Charges Page 9
Death Benefit Provision Page 9
Termination Provision Page 10
Contract Discontinuance Provision Page 10
Settlement Provision Page 12
Annuity Tables Page 14]
Any Amendments, Riders or Endorsements follow the Annuity Tables.
2
- --------------------------------------------------------------------------------
CERTIFICATE SPECIFICATIONS
- --------------------------------------------------------------------------------
PARTICIPANT: [JOHN DOE]
ANNUITANT: [JOHN DOE]
CERTIFICATE NUMBER: [SPECIMEN]
CERTIFICATE DATE: [11-15-2003]
ANNUITY COMMENCEMENT DATE [03-15-2020]
CONTRACT OWNER [TRUSTEE OF THE ABC RETIREMENT PLAN]
PLAN NAME [THE ABC RETIREMENT PLAN]
CONTRACT NUMBER [SPECIMEN]
CONTRACT DATE [11-01-2003]
- --------------------------------------------------------------------------------
PURCHASE PAYMENT/TERMINATION AMOUNTS
MINIMUM AVERAGE PURCHASE PAYMENT AMOUNT: [$1,000] per Certificate Year
MAXIMUM SUM OF INITIAL AND SUBSEQUENT PURCHASE PAYMENTS: [$1,000,000] without
prior approval by Our Office]
TERMINATION AMOUNT: [$2,000]
AMOUNTS DEDUCTED ON SURRENDER:
For the purpose of determining the amounts deducted on full or partial
Surrender, the surrender charge is calculated as a percentage of the Cash Value
being surrendered.
CERTIFICATE YEAR SURRENDER CHARGE
---------------- ----------------
[1 - 2 5%
3 - 4 4%
5 - 6 3%
7 2%
8 1%
9+ 0%]
ALLOWABLE DISTRIBUTIONS PRIOR TO CONTRACT DISCONTINUANCE NOT SUBJECT TO AMOUNTS
DEDUCTED ON SURRENDER:
o Transfers to Approved Products (within the Plan), and
o Benefit responsive distributions as follows;
-------------------------------------------
[Retirement,
Separation from Service,
Hardship withdrawals (as defined by the Internal Revenue Code),
Death,
Disability (as defined by the Internal Revenue Code section 72 [m][7]),
Distribution for a loan under the plan,
Minimum distributions (as defined by the Internal Revenue Code),
Return of Excess Plan Contributions,
Certain Plan expenses as mutually agreed upon,
Transfers to an employer stock fund, and
Annuitization under this contract]
Distributions may be in the form of cash payments, Annuity Options or to a
deferred Annuity issued by Us.
3
- --------------------------------------------------------------------------------
CERTIFICATE SPECIFICATIONS
- --------------------------------------------------------------------------------
GUARANTEED INTEREST PERIODS: [The initial interest rate for any Purchase Payment
is declared each month and is guaranteed for twelve months. Each Purchase
Payment is placed in an "interest rate period" for accounting purposes. At the
end of the total twelve-month guarantee period, a renewal interest rate will be
determined and guaranteed until the end of that calendar year. The second and
all future renewal rates will be declared each subsequent January 1 and
guaranteed through December 31 of each year.] The initial or renewal rates for
the guaranteed period will never be less than [1.5%].
TRANSFERS
Transfers from this certificate to investment products not issued by Us, may not
exceed [20%] per certificate Year of the Cash Value in this certificate as of
the first day of the certificate Year, unless the transfer is an allowable
distribution as shown in the Certificate Specifications. We reserve the right to
modify the amount available for transfer.
[FREE WITHDRAWAL ALLOWANCE:
For certificates issued to combination tax qualified plans/tax sheltered annuity
plans (401/403(b)), or tax-sheltered annuity plans (403(b)), after the first
Certificate Year, the Contract Owner or You if so authorized, may take partial
surrenders annually of up to [10%] of the Cash Value in Your Individual Account
to the extent permitted by current law, as of the first Valuation Date of any
given Certificate Year without imposition of amounts deducted on Surrender. The
free withdrawal allowance applies to partial surrenders of any amount and to
full surrenders, except those full surrenders transferred directly to investment
vehicles issued by other financial institutions. We reserve the right to modify
the amount available for withdrawal in this certificate.]
4
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
ANNUITANT - The Participant on whose life the Annuity payments are made.
ANNUITY - Payment of income for a stated period or amount.
APPROVED PRODUCT(S) - Products approved by The Travelers Insurance Company.
BENEFICIARY(IES) - Unless the Plan provides otherwise, the person(s) or entity
You elect to receive Your vested Cash Value at the time of Your Death.
CASH SURRENDER VALUE - The Cash Value less any amounts deducted on Surrender
shown in the Certificate Specifications page and any applicable Premium Tax.
CASH VALUE - The value of the net Purchase Payments in Your Individual Account
less surrenders, plus interest. Sometimes referred to as "Account Value."
CERTIFICATE OF PARTICIPATION - A certificate issued to You which explains the
benefits and provisions to which You are entitled under the contract.
CERTIFICATE YEAR - The twelve-month period beginning with the Certificate Date
or any anniversary thereof.
CODE - The Internal Revenue Code of 1986, as amended, and all related laws and
regulations, which are in effect during the term of this contract.
COMMENCEMENT DATE - The date on which Annuity payments are to begin.
CONTRACT DATE - The date the contract is issued as shown in the Certificate
Specifications page.
CONTRACT DISCONTINUANCE - Termination of the contract and all certificates
issued under the contract by the Contract Owner.
CONTRACT OWNER - The person or entity identified in the Contract Specifications
page.
DUE PROOF OF DEATH - (i) A copy of a certified death certificate; (ii) a copy of
a certified decree of a court of competent jurisdiction as to the finding of
death; (iii) a written statement by a medical doctor who attended the deceased;
or (iv) any other proof satisfactory to Us.
EXCESS PLAN CONTRIBUTIONS - [Plan contributions including excess deferrals,
excess contributions, excess aggregate contributions, excess annual additions,
and excess nondeductible contributions that require correction by the Plan
Administrator, excluding reversions upon Plan Termination.]
INDIVIDUAL ACCOUNT - Amounts credited to a You or Your Beneficiary under this
certificate.
OUR OFFICE - The home office of the Travelers Insurance Company or any other
office which We may designate for the purpose of administering this contract.
All correspondence regarding this certificate should be sent to Our mailing
address stated on the cover page of this contract.
PARTICIPANT- An eligible person who is a member in Your Plan.
PLAN - The Plan, or arrangement, designated in the Contract Specifications page,
used in a retirement plan or program whereby the Purchase Payments and any gains
are intended to qualify under sections [401, 457 combination 401/403 or 403(b)]
of the Internal Revenue Code, as amended. We are not a party to the Plan. We do
not assume the responsibilities of the Plan Administrator, nor are We bound by
the terms of the Plan. We will have no obligation to verify that the Plan
Administrator is acting within the scope of his/her authority. All records
pertaining to the Plan will be open for inspection by Us.
5
PLAN TRUSTEE - The trustee specified in the Certificate Specifications.
PREMIUM TAX - The amount of tax, if any, charged by the state or municipality.
We will deduct any applicable Premium Tax from the Cash Value either upon
surrender, annuitization, death, or at the time a Purchase Payment is made, but
no earlier than when We have the liability under state law.
PURCHASE PAYMENTS - Payments made to this certificate.
SEPARATION FROM SERVICE - [The termination or permanent severance of Your
employment with the employer for any reason that is a separation from service
within the meaning of the Plan. However, termination of Your employment with the
employer as a result of the sale of all or part of the employer's business
(including divisions or subsidiaries of the employer) will not be considered
Separation from Service unless You actually lose Your job or You are not
immediately included in a pension or profit sharing plan of the successor
employer.]
SURRENDER DATE - The date We receive a Written Request for a Surrender.
VALUATION DATE - The date on which this certificate is valued.
WE, OUR, US - The Travelers Insurance Company.
WRITTEN REQUEST - Written information including requests for contract,
beneficiary, ownership, transfers, surrenders or other changes sent to Us in a
form and content satisfactory to Us and received in good order at Our Office.
Requests for changes are subject to any action taken prior to Our receipt of the
written information.
YOU, YOUR - The certificate owner.
YOUR ACCOUNT - Cash Value attributed to You under this certificate.
6
- --------------------------------------------------------------------------------
GENERAL CERTIFICATE PROVISIONS
- --------------------------------------------------------------------------------
OWNERSHIP
The Contract Owner is identified on the Certificate Specifications Page. The
Contract Owner has sole power while the contract is in force to exercise any
rights given in the certificate. In order to maintain tax qualification, the
contract and any certificates may not be sold, assigned, transferred, discounted
or pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose except as may be required or permitted under
applicable law including the Internal Revenue Code.
CREDITOR CLAIMS
No right or benefit to the Contract Owner, You or the Beneficiary under this
certificate shall be subject to the claims of creditors or any legal process
other than to the extent permitted by law.
CONTROL OF THE CERTIFICATE
The Contract Owner or You, if so authorized may elect to exercise any options
allowed by the certificate with respect to Your Individual Account. Elections
made under the certificate must be made by a Written Request, unless another
manner is mutually agreed upon.
ENTIRE CERTIFICATE
The entire certificate between You and Us consists of the certificate, and any
attached amendments, riders, or endorsements.
CERTIFICATE OF PARTICIPATION
A certificate issued to You under the terms of the Plan stating who may exercise
the rights, privileges and receives the benefits of the certificate. Some of the
provisions of the group contract are described in this certificate.
CERTIFICATE CHANGES
The contract and all related certificates are governed by the law of the state
in which the contract is issued for delivery. Upon receiving appropriate state
approval, if necessary, We may at any time make any changes, including
retroactive changes, to the contract and certificates to the extent that the
change is required to meet the requirements of any federal, state or local law
or regulation. All contract and certificate changes will be made by a written
amendment, rider, or endorsement signed by Our President, Our Chairman, or one
of Our home office authorized officers. Agents do not have authority to alter or
modify any of the terms or conditions of the contract or this certificate, or to
waive any of its provisions.
Any change will not affect the amount or term of any Annuity begun prior to the
change, unless the change is required to conform the contract and certificates
to any federal or state statute and will not affect the method by which the
contract value and certificate value is determined.
INCONTESTABILITY
We will not contest this certificate from the Certificate Date.
REQUIRED REPORTS
We will furnish a report as often as required by law, but at least once in each
Certificate Year, reporting the status of the certificate as of a date not more
than four months previous to the date of the mailing.
NON-PARTICIPATING
This certificate does not share in Our surplus earnings, so You will receive no
dividends under it.
7
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
- --------------------------------------------------------------------------------
The Purchase Payments are the payments the Contract Owner and/or You make to
this certificate. An initial Purchase Payment must be made to the certificate
and is due and payable before the certificate becomes effective. Each Purchase
Payment is payable to Us at Our Office. The minimum and maximum Purchase
Payments are shown in the Certificate Specifications page. We reserve the right
to limit the amount of the Purchase Payment which will be accepted.
Net Purchase Payments are that part of the Purchase Payments applied to the
certificate. The net Purchase Payment is equal to the Purchase Payment less any
applicable Premium Tax.
- --------------------------------------------------------------------------------
CASH VALUE
- --------------------------------------------------------------------------------
The Cash Value on the certificate date is the initial net Purchase Payment. On
any date after certificate date, the Cash Value equals:
1. total net Purchase Payment(s) paid; minus
2. any prior partial surrenders and applicable surrender charges; plus 3. any
interest earned.
On the Annuity Income Date, the Annuity Value will be reduced by any Premium Tax
payable before it is applied to determine the annuity payments.
- --------------------------------------------------------------------------------
TRANSFERS TO PRODUCTS NOT ISSUED BY US
- --------------------------------------------------------------------------------
Amounts may be transferred from this certificate to products not issued by Us as
described in the Certificate Specifications page. No transfers will be allowed
from this certificate directly into any competing fund (any bond, money market,
or other fixed income investment vehicle), unless it is a benefit responsive
distribution. Amounts previously transferred from this certificate to an
Approved Product may not be transferred back into this certificate for a period
of at least 3-months from the date of transfer. ]
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
DISTRIBUTION FROM ONE ACCOUNT TO ANOTHER ACCOUNT
The Contract Owner may, as provided in the Plan, distribute Cash Value from the
group Account to Your Individual Account. The Contract Owner also may, as
required by the Plan, move Cash Value from Your Individual Accounts to the group
Account.
CASH SURRENDER VALUE
The Cash Surrender Value will be determined as of the next business day
following receipt of a Written Request by the Contract Owner or You if so
authorized. We may delay payment of the Cash Surrender Value for a period not to
exceed six-months.
ALLOWABLE DISTRIBUTIONS
The Contract Owner or You if so authorized, may request allowable distributions
shown in the Certificate Specifications page at any time. Upon receipt of a
Written Request, We will pay You or the Participant if so authorized, the Cash
Value as applicable for those allowable distributions.
SURRENDER FROM INTEREST RATE PERIODS
For the purpose of processing distributions, withdrawals are taken from the most
recent "interest rate period" first, and each subsequent interest rate period is
accessed for distributions in descending order on a Last-In, First-Out (LIFO)
basis.
8
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISION
- --------------------------------------------------------------------------------
DEATH OF PARTICIPANT
A death benefit is payable in a single sum to the Beneficiary upon the death of
a Participant before the Commencement Date. A death benefit is also payable
under those Annuity Options which provide for death benefits. We will pay the
Beneficiary the death benefit as described below upon receiving Due Proof of
Death. At Your Written Request, We will pay the death benefit to the
Participant's beneficiary. When We make a payment to the Plan Trustee, We will
have no obligation to ensure that such payment is applied according to the terms
of the Plan.
DEATH PROCEEDS PRIOR TO THE COMMENCEMENT DATE
If the Participant dies before the Commencement Date, We will pay the
Beneficiary the Cash Value of the Participant's Individual Account less any
applicable Premium Tax as of the date We receive Due Proof of Death.
INTEREST ON DEATH PROCEEDS
We will pay interest on death proceeds of a Participant's Individual Account in
accordance with appropriate state regulations.
DEATH PROCEEDS AFTER THE COMMENCEMENT DATE
If the Annuitant/Participant dies on or after the Commencement Date, We will pay
the Beneficiary a death benefit consisting of any benefit remaining under the
Annuity option then in effect.
9
- --------------------------------------------------------------------------------
TERMINATION PROVISION
- --------------------------------------------------------------------------------
TERMINATION AMOUNT
If the Cash Value in Your Individual Account is less than the Termination Amount
stated in the Certificate Specifications, We reserve the right to terminate Your
Account and move the Cash Value to the Contract Owners Account .
- --------------------------------------------------------------------------------
CONTRACT DISCONTINUANCE PROVISION
- --------------------------------------------------------------------------------
If the contract is discontinued, all certificates will also be discontinued, and
no further Purchase Payments or transfers will be allowed.
On the date We receive a Written Request to discontinue the contract, or within
31 days after We notify the Contract Owner in writing of Our intent to
discontinue the contract, all Cash Values in the Individual Accounts will be
transferred to the Contract Owners Account.
If the contract is discontinued because of Plan Termination and the Plan
certifies to Us that the Plan Termination is the result of the dissolution or
liquidation of the employer under US Code Title 11 procedures, the Cash
Surrender Value will be distributed directly to the employees entitled to share
in such distributions in accordance with the Plan relating to Plan Termination.
Distribution may be in the form of cash payments, Annuity options, or deferred
annuities. This provision does not apply to 457 Deferred Compensation plans.
If the Plan is terminated or the contract discontinued for any other reason,
then upon discontinuance of the contract, We will determine the Market Adjusted
Value. The Market Adjusted Value is the current value as of the date of
discontinuance and reflects the relationship between the rate of interest at the
time of discontinuance to the rate of interest credited on new deposits for this
class of contracts and certificates at the time of discontinuance. The Market
Adjusted Value may be greater than or less than the Cash Value. If the Market
Adjusted Value is less than the Cash Value of the contract as of the date of
discontinuance, we will pay the Contract Owner the choice of:
a) the Market Adjusted Value, less any amounts deducted on Surrender, in
one lump sum within 60 days of the date of discontinuance; or
b) the Cash Surrender Value of the contract in equal installments over a
5-year period. The amount deducted on Surrender, if any, is determined
as of the date of discontinuance and will apply to all installment
payments. Interest will be credited to the remaining Cash Value of the
contract during this installment period at a fixed effective annual
interest rate as shown in the Contract Specifications. The first
payments will be made no later than 60 days following Our mailing the
written notice to the Contract Owner at the most current address
available on Our records. The remaining payments will be mailed on
each anniversary of the discontinuance date for 4 years. Allowable
distributions shown on the Certificate Specifications page are not
allowed during the 5-year installment period.
If the Market Adjusted Value is greater than the Cash Value of the contract as
of the date of discontinuance, We will pay The Contract Owner a choice of:
a) the Cash Surrender Value of the Contract within 60 days of the date of
discontinuance; or
b) the Cash Value of the Contract in installments over a 5-year period.
Interest will be credited to the remaining Cash Value of the contract
during this installment period at a fixed effective annual interest
rate as shown in the Contract Specifications. The first payment will
be made no later than 60 days following Our mailing the written notice
to You at the most current address available on Our records. The
remaining payments will be mailed on each anniversary of the
discontinuance date for 4 years. Allowable distributions shown on the
Contract Specifications page are not allowed during the 5-year
installment period.
MARKET VALUE ADJUSTMENT FORMULA
5 5
MARKET ADJUSTED VALUE = CASH VALUE X (1+RO) / (1+R1+.0025)
WHERE:
RO IS THE AVERAGE INTEREST RATE CREDITED TO AMOUNTS IN THE CONTRACT ON THE DATE
OF DISCONTINUANCE, AND
RI IS THE INTEREST RATE ON NEW DEPOSITS FOR THIS CLASS OF CONTRACTS ON THE DATE
OF DISCONTINUANCE.
10
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SETTLEMENT PROVISION
- --------------------------------------------------------------------------------
ELECTION OF SETTLEMENT OPTIONS
Any amount distributed from the contract or certificate on behalf of You or Your
Beneficiary, may be applied to any one of the Annuity options described below.
Election of any of these options must be made by Written Request to Our Office
at least 30 days prior to the date such election is to become effective. The
form of such Annuity option shall be determined by the Contract Owner or You if
so, if so authorized. The following information must be provided with any such
request:
a) the Annuitant's/Participant's name, address, date of birth, social
security number; and
b) the amount to be distributed in the form of an Annuity option; and
c) the Annuity option which is to be purchased; and
d) the date the Annuity option payments are to begin; and
e) if the form of the Annuity provides a death benefit in the event of
the Annuitant's/Participant's death, the name, relationship and
address of the Beneficiary as designated by You; and
f) any other data that We may require.
The Beneficiary, as specified in item (e) above, may be changed by the Contract
Owner or You if so authorized, as long as We are notified by Written Request
while the Annuitant/Participant is alive. If the Beneficiary designation is
irrevocable, such designation cannot be changed or revoked without the consent
of the Beneficiary. After We receive the Written Request and the written consent
of the Beneficiary (if required), the new Beneficiary designation will take
effect as of the date the notice is signed. We have no further responsibility
for any payment We made before the Written Request.
MINIMUM AMOUNTS
The minimum amount that can be placed under an Annuity option is $2,000 unless
We consent to a lesser amount. If any periodic payments due are less than $100,
We reserve the right to make payments at less frequent intervals.
MISSTATEMENT
If an Annuitant's/Participant's date of birth was misstated, all benefits of the
certificate will be what the Cash Value would have purchased at the correct age
on the date of issue of the Annuity option elected.
If an underpayment has been made under this certificate due to misstatement as
described above, We will pay the portion due promptly. If an overpayment has
occurred, the amount due Us will be deducted from subsequent Annuity payments,
as necessary. No interest will be credited or charged in the event of an
underpayment or overpayment. Proof of the Annuitant's/Participant's age may be
filed at any time at Our Office.
RETIRED LIFE CERTIFICATE
We will issue a certificate setting forth the benefits to which such person is
entitled under this certificate.
FIXED ANNUITY
A fixed annuity is an annuity with payments which remain fixed as to dollar
amount throughout the payment period. The Life Annuity Tables are used to
determine the monthly annuity payment. They show the dollar amount of monthly
annuity payment which can be purchased with each $1,000 applied. The amount
applied to the fixed annuity will be equal to the Cash Surrender Value allocated
to the fixed annuity determined as of the date fixed annuity payments start. If
it would produce a larger payment, the fixed annuity payment will be determined
using the Life Annuity Tables in effect on the Commencement Date.
11
ANNUITY OPTIONS
Subject to conditions stated in ELECTION OF SETTLEMENT OPTIONS and MINIMUM
AMOUNTS, all or any part of the Cash Surrender Value of this contract may be
paid to the Annuitant/Participant under one or more of the Annuity options
below.
OPTION 1. LIFE ANNUITY - NO REFUND
We will make monthly Annuity payments during the lifetime of the person on whose
life the payments are based, ending with the last monthly payment preceding
death.
OPTION 2. LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS ASSURED
We will make monthly Annuity payments during the lifetime of the person on whose
life the payments are based and under the conditions stated below.
If at the death of that person, payments have been made for less than 120, 180,
or 240 months, as elected, We will continue to make payments to the designated
Beneficiary during the remainder of the period.
OPTION 3. JOINT AND LAST SURVIVOR LIFE ANNUITY
We will make monthly Annuity payments during the joint lifetime of the
Annuitant/Participant and a secondary payee, and thereafter during the remaining
lifetime of the survivor, ceasing with the last payment prior to the death of
the survivor.
OPTION 4. JOINT AND LAST SURVIVOR LIFE ANNUITY - ANNUITY REDUCED ON DEATH OF
PRIMARY PAYEE
We will make monthly Annuity payments during the joint lifetime of two persons
on whose lives payments are based. One of the two persons will be designated as
the primary payee. The other will be designated as the secondary payee. On the
death of the secondary payee, if survived by the primary payee, We will continue
to make monthly Annuity payments to the primary payee in the same amount that
would have been payable during the joint lifetime of the two persons.
On the death of the primary payee, if survived by the secondary payee, We will
continue to make monthly Annuity payments to the secondary payee in an amount
equal to 50% of the payments, which would have been made during the lifetime of
the primary payee.
No further payments will be made following the death of the survivor.
OPTION 5. PAYMENTS FOR A FIXED PERIOD
We will make monthly payments for the period selected. If at the death of the
Annuitant/Participant, payments have been made for less than the period
selected, We will continue to make payments to the designated Beneficiary during
the remainder of that period.
OPTION 6. OTHER ANNUITY OPTIONS
We will make other arrangements for Annuity payments as may be mutually agreed
upon by You and Us.
12
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1 AND 2- SINGLE LIFE ANNUITIES
UNISEX NUMBER OF MONTHLY PAYMENTS GUARANTEED
ADJUSTED NONE 120 180 240
AGE
[45 2.64 2.63 2.62 2.61
46 2.68 2.68 2.67 2.65
47 2.73 2.73 2.71 2.70
48 2.79 2.78 2.76 2.74
49 2.84 2.83 2.82 2.79
50 2.90 2.89 2.87 2.85
51 2.96 2.95 2.93 2.90
52 3.03 3.01 2.99 2.95
53 3.09 3.08 3.05 3.01
54 3.17 3.15 3.12 3.07
55 3.24 3.22 3.19 3.14
56 3.32 3.29 3.26 3.20
57 3.40 3.37 3.33 3.27
58 3.49 3.46 3.41 3.34
59 3.59 3.55 3.49 3.41
60 3.69 3.64 3.58 3.48
61 3.80 3.74 3.67 3.55
62 3.91 3.85 3.76 3.63
63 4.03 3/96 3.86 3.71
64 4.16 4.08 3.96 3.78
65 4.30 4.20 4.07 3.86
66 4.45 4.34 4.17 3.94
67 4.61 4.47 4.29 4.02
68 4.78 4.62 4.40 4.10
69 4.96 4.77 4.52 4.17
70 5.16 4.93 4.63 4.24
71 5.37 5.10 4.75 4.31
72 5.59 5.27 4.87 4.38
73 5.84 5.45 4.99 4.44
74 6.10 5.64 5.11 4.50
75 6.38 5.83 5.22 4.55
Dollar amounts of the monthly Annuity payments in the above table assumes a year
2000 issue, and are based upon the Annuity 2000 Table] (blended 50%/50%
female/male) with mortality improvements based on Projection Scale G. This table
assumes a net investment rate of 1.5% per Annum, assuming a 365-day year.
Calendar Year in which 1st payment is due:
Adjusted Age is Actual Age:
2003-2005 2006-2010 2011-2015 2016-2020
minus 1 minus 2 minus 3 minus 4
2021-2025 2026-2030 2031-2035 2036 AND LATER
minus 5 minus 6 minus 7 minus 8]
13
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY
UNISEX
ADJUSTED UNISEX ADJUSTED AGE
AGE 45 50 55 60 65 70 75
[45 2.35 2.43 2.49 2.54 2.57 2.60 2.61
50 2.43 2.54 2.64 2.72 2.79 2.83 2.86
55 2.49 2.64 2.79 2.92 3.02 3.10 3.16
60 2.54 2.72 2.92 3.11 3.28 3.42 3.53
65 2.57 2.79 3.02 3.28 3.54 3.77 3.96
70 2.60 2.83 3.10 3.42 3.77 4.13 4.46
75 2.61 2.86 3.16 3.53 3.96 4.46 4.96
OPTION 4 - JOINT AND LAST SURVIVOR LIFE ANNUITY
REDUCED BY 50% ON DEATH OF PRIMARY PAYEE
AGE OF PRIMARY
AND SECONDARY UNISEX DOLLAR AMOUNT
45 2.48
50 2.71
55 3.00
60 3.37
65 3.88
70 4.59
75 5.58
Dollar amounts of the monthly Annuity payments in the above table assumes a year
2000 issue, and are based on the Annuity 2000 Table (blended 50%/50%
female/male) with mortality improvements based on Projection Scale G. This table
assumes a net investment rate of 1.5% per Annum, assuming a 365-day year.
Calendar Year in which 1st payment is due:
Adjusted Age is Actual Age:
2003-2005 2006-2010 2011-2015 2016-2020
minus 1 minus 2 minus 3 minus 4
2021-2025 2026-2030 2031-2035 2036 AND LATER
minus 5 minus 6 minus 7 minus 8]
14
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 5 - PAYMENTS FOR A FIXED PERIOD
MONTHLY MONTHLY
NUMBER OF PAYMENT NUMBER OF PAYMENT
YEARS AMOUNT YEARS AMOUNT
[5 17.28 18 5.27
6 14.51 19 5.03
7 12.53 20 4.81
8 11.04 21 4.62
9 9.89 22 4.44
10 8.96 23 4.28
11 8.21 24 4.13
12 7.58 25 3.99
13 7.05 26 3.86
14 6.59 27 3.75
15 6.20 28 3.64
16 5.85 29 3.54
17 5.55 30 3.44
The dollar amounts of the monthly Annuity payments for the fifth option are
based on a net investment rate of 1.5% per annum, assuming a 365-day year.]
15
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16
TAX-SHELTERED ANNUITY (TSA) 403(B) QUALIFICATION RIDER
This Rider may be issued with an individual Contract, a group master contract,
or a group certificate issued under a group master contract, (hereinafter
referred to as "Contract"). This Rider qualifies this Contract to comply with
Section 403(b) of the Internal Revenue Code of 1986, as amended (the "Code") and
applicable regulations. The provisions in this Rider supersede any contrary
provisions in the Contract. The following conditions, restrictions and
limitations apply.
If this Contract is subject to the requirements of Employee Retirement Income
Security Act (ERISA), we are not a party to the Plan, nor are we the Plan
Administrator. Any responsibilities related to the appropriateness of any
withdrawal, consents (or revocation thereof), or any other fiduciary decision
related to the administration of the Plan is that of the employer or the Plan
Administrator.
OWNER AND ANNUITANT
If the owner of this Contract is an employer, it represents that it is an
eligible organization described in Section 403(b)(1)(A) of the Code and that the
plan or arrangement meets the requirements of Code Section 403(b). The term
employee will mean the individual for whose benefit the employer established an
annuity program under Code Section 403(b). This employee will be the Annuitant
under this Contract. If the owner of this Contract is an employee of an eligible
organization as described above, he or she must also be the Annuitant and
represents that he/she is eligible to own this Contract under the requirements
of Code Section 403(b). The Annuitant is the individual on whose life the first
Annuity payment is made. A joint owner or a contingent Annuitant cannot be named
under this Contract. The Annuitant may not be changed after the Contract Date
except as provided hereunder.
TRANSFER OF OWNERSHIP/ASSIGNMENT
In order to maintain tax qualification, this Contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan (except to us) or as
security for the performance of an obligation or for any other purposes except
as may be required or permitted under applicable sections of the Code. The
Annuitant's interest, except as permitted by law, is nonforfeitable. We will
administer this Contract only as a Tax Qualified Contract, under Section 403(b)
of the Code. Certain rules may apply in the case of a transfer under the terms
of a Qualified Domestic Relations Order (QDRO), as defined in Code Section
414(p).
CONTRIBUTION LIMITS
In order to meet the qualification requirements of Code Section 403(b), elective
deferral contributions may not exceed the limitations in effect under Code
Sections 402(g), 414(v) and 415(c). This rule is an individual limitation that
applies to all elective deferral plans, contracts or arrangements in the
aggregate.
ROLLOVERS
To the extent the Annuitant is eligible for a distribution under this Contract,
and provided the distribution is an eligible rollover distribution, the
distribution or a portion of it may be paid directly to an eligible retirement
plan. An eligible retirement plan includes an Individual Retirement Annuity or
Account described in Code Section 408; a Tax Sheltered Annuity plan or
arrangement under Code Section 403(b); a Defined Contribution plan qualified
under Code Section 401; and a governmental Deferred Compensation arrangement
under Code Section 457, as permitted by law. In the case of an eligible
distribution to the surviving spouse however, an eligible retirement plan is an
Individual Retirement Annuity or Account, or another TSA. You must specify the
eligible retirement plan to which such distribution is to be paid in a form and
at such time acceptable to us. Such distribution shall be made as a direct
transfer to the eligible retirement plan so specified. Surrender penalties under
this Contract may apply to all rollover distributions.
Previously taxed amounts in this Contract are not eligible for rollover. Amounts
that are rolled over are generally not taxed until later distributed. An
eligible rollover distribution generally includes any taxable distribution or
portion thereof from this Contract except:
(1) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or the life expectancy) of the Annuitant or the joint lives (or
joint and survivor expectances) of the Annuitant and the Annuitant's
designated beneficiary, or for a specified period of ten years or
more;
(2) any distribution to the extent such distribution is required under
Code Sections 401(a)(9) and 403(b)(10);
(3) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities);
(4) any hardship distribution described in Code Section 403(b)(11) or Code
Section 403(b)(7)(A)(ii) made to the contract owner after 1998, and
(5) any other distribution(s) to the extent provided under the Code.
When an Annuitant receives a distribution directly by check that is eligible for
rollover, then mandatory income tax withholding will be taken from the
distribution. The Annuitant may roll over the balance to an Individual
Retirement Annuity or account within 60 days of receipt of the check, and may
make up the amount withheld from other sources in the rollover in order to roll
over the maximum without possible early distribution tax penalty on the amount
of the tax withholding.
DIRECT TRANSFERS
Direct transfers to another 403(b) arrangement pursuant to Revenue Ruling 90-24
or transfers to purchase service credits under a defined benefit governmental
plan pursuant to Code Section 403(b)(13) as amended from time to time, may be
made in the manner permitted by law.
WITHDRAWAL RESTRICTIONS
To qualify as a Contract which can defer compensation under a Code Section
403(b) plan or arrangement, the withdrawal restrictions under Code Section
403(b)(11) must be met.
Withdrawals attributable to contributions made pursuant to a salary reduction
agreement may be paid only upon or after attainment of age 59 1/2, severance
from employment, death, total or permanent disability (as defined in Code
Section 72(m)(7)) or in the case of hardship (as defined in Code Section
403(b)(11)). The hardship exception applies only to the salary reduction
contributions and not to any income attributable to such contribution. Amounts
may also be distributed pursuant to a QDRO to the extent permitted by law.
These withdrawal restrictions apply to years beginning after December 31, 1988
but only with respect to assets other than those assets held as of the close of
the last year beginning before January 1, 1989.
If contributions attributable to a custodial account described in Section
403(b)(7) of the Code are transferred to this Contract, the following
conditions, restrictions, and limitations apply:
Withdrawals attributable to these transferred contributions may be paid
only upon or after attainment of age 59 1/2, severance from employment,
death, or total and permanent disability (as defined in Code Section
72(m)(7)).
Withdrawals on account of hardship may be made only with respect to assets
attributable to a custodial account as of the close of the last year
beginning before January 1, 1989, and amounts contributed thereafter under
a salary reduction agreement but not to any income attributable to such
conditions.
ELECTION OF SETTLEMENT OPTIONS
On the Maturity Date, or other agreed upon date, We will pay the amount payable
under this contract in one lump sum or in accordance with the Option elected by
You. While the Annuitant is alive, You may change your Settlement Option
election by Written Request, but only before the Maturity Date. Once annuity
payments have commenced, no further election changes are allowed.
If subject to the ERISA and no election has been made on the Maturity Date and
if the Annuitant is living and has a spouse, We will pay to You the first of a
series of monthly annuity payments based on the life of the Annuitant as primary
payee and the Annuitant's spouse as secondary payee in accordance with the Joint
and Last Survivor Life Annuity-Annuity Reduced on Death of Primary Payee Option.
During the Annuitant's lifetime, if no election has been made and the Annuitant
has no spouse on the Maturity Date, We will pay to You the first of a series of
monthly annuity payments based on the life of the Annuitant, in accordance with
the Life Annuity with Period Certain Annuity option,, with 120 monthly payments
assured.
REQUIRED MINIMUM DISTRIBUTIONS
DISTRIBUTIONS DURING ANNUITANT'S LIFETIME
In order to meet the qualification requirements of Code Section 403(b), all
plans must meet the Required Minimum Distribution rules in Code Sections
401(a)(9) and 403(b)(10).
Code Section 401(a)(9) states that a plan will not be qualified unless the
entire interest of each employee is distributed to such employee not later than
the "required beginning date" or over the life or life expectancy of such
employee or over the lives or joint life expectancy of such employee and a
designated beneficiary. Generally, the "required beginning date" means April 1
of the calendar year following the later of (1) the calendar year in which the
employee attains age 70 1/2, or (2) the calendar year in which the employee
retires.
DISTRIBUTIONS UPON ANNUITANT'S DEATH
If the Annuitant dies on or after the Required Beginning Date (or after
distributions have begun under one of the settlement options under this
contract), the remaining portion of the Annuitant's interest (if any) shall be
distributed at least as rapidly as the method of distribution in effect as of
the Annuitant's death.
If the Annuitant dies before distribution of his or her interest in the Contract
has begun and unless otherwise permitted under applicable law, the Annuitant's
entire interest will be distributed in accordance with one of the following
three provisions:
a. If the Annuitant's interest is payable to a designated beneficiary,
except as provided in (c) below, the designated beneficiary may elect
to receive the entire interest over the life expectancy of the
designated beneficiary or over a period not extending beyond the life
expectancy of the designated beneficiary, commencing on or before
December 31 of the calendar year immediately following the calendar
year in which the Annuitant died. Such election by the designated
beneficiary must be irrevocable and must be made no later than
September 30 of the calendar year immediately following the calendar
year in which the Annuitant died.
b. If there is no designated beneficiary, or if the beneficiary elects,
the Annuitant's entire interest in the Contract will be distributed by
December 31 of the calendar year containing the fifth anniversary of
the Annuitant's death.
c. If the designated beneficiary is the Annuitant's surviving spouse, the
surviving spouse may elect to receive the entire interest in equal or
substantially equal payments over the life expectancy of the surviving
spouse or over a period not extending beyond the life expectancy of
the surviving spouse, commencing at any date on or before the later
of:
(i) December 31 of the calendar year immediately following the
calendar year in which the Annuitant died; or
(ii) December 31 of the calendar year in which the Annuitant would
have attained age 70 1/2. Such election by the surviving spouse
must be irrevocable and must be made no later than the earlier of
December 31 of the calendar year containing the fifth anniversary
of the Annuitant's death, or the date distributions are required
to begin pursuant to the preceding sentence.
If the surviving spouse dies before distributions begin, the limitations
described above in this section shall be applied as if the surviving spouse were
the Annuitant.
Life expectancies will be calculated in accordance with the applicable
requirements of Federal Law, including the Code and any applicable rules and
regulations.
ANNUITIES DISTRIBUTED UNDER AN ERISA TSA
SPOUSAL CONSENT
DEATH BENEFIT - If the Annuitant dies while the Contract continues and the
Annuitant has a spouse at the time of the Annuitant's death, We will pay the
death benefit to a person other than the current spouse of the Annuitant only if
proof of spousal consent, which meets the requirements of Section 417 of the
Code, is furnished to us.
If the Beneficiary is not the current spouse and such spousal consent is not
furnished, We will pay 50% of the death benefit to the current spouse. We will
pay the balance of the death benefit to the Beneficiary.
CASH SURRENDER - Before the due date of the first annuity payment, 1) if You do
not have a spouse and without the consent of any Beneficiary; or, 2) if You do
have a current spouse then only with the written consent of your spouse, as
required by Section 417 of the Code; We will pay to You all or any portion of
the cash surrender value of the contract upon receipt of your Written Request
for it.
ADMINISTRATIVE COMPLIANCE/AMENDMENT
If changes in the Code and related law, regulations and rulings require a
distribution greater than described above in order to keep this Annuity
qualified under the Code, we will administer the Contract in accordance with
these laws, regulations and rulings. Notwithstanding any provision in this
Contract or in the 403(b) plan of which this Contract is a part, we reserve the
right to amend or modify the Contract or any rider or any endorsement thereto,
to the extent necessary to comply with any law, regulation or other requirement
in order to establish or maintain the qualified status of such plan, following
any necessary regulatory approvals. Any such amendment or modification may be
made retroactively to conform to the requirements of such law, regulation or
other requirement.
THE TRAVELERS INSURANCE COMPANY
/s/ George C. Kokulis
PRESIDENT
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PENSION/PROFIT SHARING PLAN QUALIFICATION RIDER
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If the Contract/certificate owner (hereinafter referred to as "You" or "Your")
of this Contract/certificate (hereinafter referred to as "Contract") requested
that it be issued to comply with Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"), the following conditions, restrictions and
limitations apply to this Contract. The Contract shall constitute an asset of
the qualified pension or profit-sharing plan established under Code Section
401(a) and the regulations thereunder and the Contract shall be subject to the
provisions, terms and conditions of such qualified plan. The amounts held under
this Contract will be used for the exclusive benefit of the employees and their
beneficiaries. The provisions in this rider supersede any contrary provisions in
the Contract.
The Plan is subject to the Employee Retirement Income Security Act (ERISA). We
are not a party to the Plan, nor are we the Plan Administrator. Any
responsibilities related to the appropriateness of any withdrawal, consents (or
revocation thereof), or any other fiduciary decision related to the
administration of the Plan is that of the employer or the Plan Administrator.
OWNER AND ANNUITANT
If the owner of this Contract is an employer, it represents that the plan meets
the requirements of Code Section 401(a). The term employee will mean the
individual for whose benefit the employer established an annuity program under
Code Section 401(a). This employee will be the Annuitant under this Contract.
The Annuitant is the individual on whose life the first Annuity payment is made.
A joint owner or a contingent Annuitant cannot be named under this Contract. The
Annuitant may not be changed after the Contract Date except as provided
hereunder.
TRANSFER OF OWNERSHIP/ASSIGNMENT
This Contract shall not be pledged or otherwise encumbered and it shall not be
sold, assigned, or otherwise transferred to any other person or entity other
than us.
CREDITOR CLAIMS
To the extent permitted by law, no right or benefit of the owner, Annuitant or
Beneficiary under this Contract shall be subject to the claims or creditors or
any legal process.
CONTRIBUTION LIMITS
Contributions may not exceed the limitations in effect under Code Section 402(g)
and 415(c).
ROLLOVERS
To the extent the Annuitant is eligible for a distribution under this Contract,
and provided the distribution is an eligible rollover distribution, the
distribution or a portion of it may be paid directly to an eligible retirement
plan. An eligible retirement plan includes an Individual Retirement Annuity or
Account described in Code Section 408; a Tax Sheltered Annuity plan or
arrangement under Code Section 403(b); a Defined Contribution plan qualified
under Code Section 401; and a governmental Deferred Compensation arrangement
under Code Section 457, as permitted by law. In the case of an eligible
distribution to the surviving spouse however, an eligible retirement plan is an
Individual Retirement Annuity or Account. You must specify the eligible
retirement plan to which such distribution is to be paid in a form and at such
time acceptable to us. Such distribution shall be made as a direct transfer to
the eligible retirement plan so specified. Surrender penalties under this
Contract may apply to all rollover distributions.
Previously taxed amounts in this Contract are not eligible for rollover. Amounts
that are rolled over are generally not taxed until later distributed. An
eligible rollover distribution generally includes any taxable distribution or
portion thereof from this Contract except:
(1) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or the life expectancy) of the Annuitant or the joint lives (or
joint and survivor expectances) of the Annuitant and the Annuitant's
designated beneficiary, or for a specified period of ten years or
more;
(2) any distribution to the extent such distribution is required under
Code Sections 401(a)(9) and 403(b)(10);
(3) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities);
(4) any hardship distribution described in Code Section 403(b)(11) or Code
Section 403(b)(7)(A)(ii) made to the contract owner after 1998, and
(5) any other distribution(s) to the extent provided under the Code.
When an Annuitant receives a distribution directly by check that is eligible for
rollover, then mandatory income tax withholding will be taken from the
distribution. The Annuitant may roll over the balance to an Individual
Retirement Annuity or Account
within 60 days of receipt of the check, and may make up the amount withheld from
other sources in the rollover in order to roll over the maximum without possible
early distribution tax penalty on the amount of the tax withholding.
ELECTION OF SETTLEMENT OPTIONS
On the Maturity Date, or other agreed upon date, We will pay the amount payable
under this Contract in one lump sum or in accordance with the Option elected by
You. While the Annuitant is alive, You may change your Settlement Option
election by Written Request, but only before the Maturity Date. Once annuity
payments have commenced, no further election changes are allowed.
If no election has been made on the Maturity Date and if the Annuitant is living
and has a spouse, We will pay to You the first of a series of monthly annuity
payments based on the life of the Annuitant as primary payee and the Annuitant's
spouse as secondary payee in accordance with the Joint and Last Survivor Life
Annuity-Annuity Reduced on Death of Primary Payee Option. During the Annuitant's
lifetime, if no election has been made and the Annuitant has no spouse on the
Maturity Date, We will pay to You the first of a series of monthly annuity
payments based on the life of the Annuitant, in accordance with the Life Annuity
with Period Certain Annuity option, with 120 monthly payments assured.
REQUIRED MINIMUM DISTRIBUTIONS
DISTRIBUTIONS DURING ANNUITANT'S LIFETIME
In order to meet the qualification requirements of Code Section 401(a), all
plans must meet the required mandatory distribution rules in Code Section
401(a)(9).
Code Section 401(a)(9) states that a plan will not be qualified unless the
entire interest of each employee is distributed to such employee not later than
the "required beginning date" or over the life or life expectancy of such
employee or over the lives or joint life expectancy of such employee and a
designated beneficiary. Generally, the "required beginning date" means April 1
of the calendar year following the later of (1) the calendar year in which the
employee attains age 70 1/2, or (2) the calendar year in which the employee
retires, except that in the event that the employee is a 5% owner, the "required
beginning date" is April 1 of the calendar year in which the employee attains
age 70 1/2.
DISTRIBUTIONS UPON ANNUITANT'S DEATH
If the Annuitant dies on or after the Required Beginning Date (or after
distributions have begun under one of the settlement options under this
Contract), the remaining portion of the Annuitant's interest (if any) shall be
distributed at least as rapidly as the method of distribution in effect as of
the Annuitant's death.
If the Annuitant dies before distribution of his or her interest in the Contract
has begun and unless otherwise permitted under applicable law, the Annuitant's
entire interest will be distributed in accordance with one of the following
three provisions:
d. If the Annuitant's interest is payable to a designated beneficiary,
except as provided in (c) below, the designated beneficiary may elect
to receive the entire interest over the life expectancy of the
designated beneficiary or over a period not extending beyond the life
expectancy of the designated beneficiary, commencing on or before
December 31 of the calendar year immediately following the calendar
year in which the Annuitant died. Such election by the designated
beneficiary must be irrevocable and must be made no later than
September 30 of the calendar year immediately following the calendar
year in which the Annuitant died.
e. If there is no designated beneficiary, or if the beneficiary elects,
the Annuitant's entire interest in the Contract will be distributed by
December 31 of the calendar year containing the fifth anniversary of
the Annuitant's death.
f. If the designated beneficiary is the Annuitant's surviving spouse, the
surviving spouse may elect to receive the entire interest in equal or
substantially equal payments over the life expectancy of the surviving
spouse or over a period not extending beyond the life expectancy of
the surviving spouse, commencing at any date on or before the later
of:
(i) December 31 of the calendar year immediately following the
calendar year in which the Annuitant died; or
(ii) December 31 of the calendar year in which the Annuitant would
have attained age 70 1/2. Such election by the surviving spouse
must be irrevocable and must be made no later than the earlier of
December 31 of the calendar year containing the fifth anniversary
of the Annuitant's death, or the date distributions are required
to begin pursuant to the preceding sentence.
If the surviving spouse dies before distributions begin, the limitations
described above in this section shall be applied as if the surviving spouse were
the Annuitant.
Life expectancies will be calculated in accordance with the applicable
requirements of Federal Law, including the Code and any applicable rules and
regulations.
ANNUITIES DISTRIBUTED UNDER QUALIFIED PLANS
If the applicant for this Contract requested that it be issued to comply with
Section 401(a) of the Code, and this Contract has subsequently been transferred
to the Annuitant, the following conditions, restrictions and limitations apply
to this Contract in addition to the above.
SPOUSAL CONSENT
DEATH BENEFIT - If the Annuitant dies while the Contract continues and the
Annuitant has a spouse at the time of the Annuitant's death, We will pay the
death benefit to a person other than the current spouse of the Annuitant only if
proof of spousal consent, which meets the requirements of Section 417 of the
Code, is furnished to us.
If the Beneficiary is not the current spouse and such spousal consent is not
furnished, We will pay 50% of the death benefit to the current spouse. We will
pay the balance of the death benefit to the Beneficiary.
CASH SURRENDER - Before the due date of the first annuity Payment, 1) if You do
not have a spouse and without the consent of any Beneficiary; or, 2) if You do
have a current spouse then only with the written consent of your spouse, as
required by Section 417 of the Code; We will pay to You all or any portion of
the cash surrender value of the Contract upon receipt of your Written Request
for it.
ADMINISTRATIVE COMPLIANCE/AMENDMENT
If changes in the Code and related law, regulations and rulings require a
distribution greater than described above in order to keep this Annuity
qualified under the Code, we will administer the Contract in accordance with
these laws, regulations and rulings. Notwithstanding any provision to the
contrary in this Contract or the qualified pension or profit-sharing plan of
which this Contract is a part, We reserve the right to amend or modify the
Contract or any rider or endorsement thereto, to the extent necessary to comply
with any law, regulation or other requirement in order to establish or maintain
the qualified status of the plan, following all necessary regulatory approvals.
Any such amendment or modification may be made retroactively effective if
necessary or appropriate to conform to the conditions imposed by such law,
regulation or other requirement.
THE TRAVELERS INSURANCE COMPANY
/s/ George C. Kokulis
President
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CODE SECTION 457 PLAN QUALIFICATION RIDER
- --------------------------------------------------------------------------------
This Rider modifies the contract/certificate (hereinafter referred to as
"contract") to which it is attached for use in connection with a deferred
compensation plan (the "Plan") qualified under Section 457 of the Internal
Revenue Code of 1986, as amended (the "Code"). In the case of a conflict with
any provision in the contract, the provisions of this Rider will control. This
Rider applies and is made a part of the contract as of the earliest date
permitted by applicable law.
The contract is modified as follows:
1. The contract shall constitute an asset of the Plan qualified under Code
Section 457.
2. The amounts held under this contract will be used for the exclusive benefit
of the participants and their beneficiaries, and no portion of the amounts
held under this contract or the proceeds thereof, nor any interests or
rights under this contract shall be subject to the claims of the general
creditors of the contract owner.
3. All distributions under this contract shall be made in accordance with the
requirements of Code Sections 457 and 401(a)(9), including the incidental
death benefit requirements of Code Section 401(a)(9)(G) and Treasury
Regulations thereunder, and distributions made pursuant to a Qualified
Domestic Relations Order (QDRO) under Code Section 414(P)(10), and (11) and
shall be subject to the provisions, terms and conditions of such Plan
regarding distributions.
4. Amounts held under this contract under an eligible governmental Code
Section 457 plan may be rolled over into another eligible governmental Code
Section 457 plan; an Individual Retirement Annuity (IRA) under Code Section
408(B), or an eligible retirement plan including a qualified pension,
profit sharing or stock bonus plan or a Code Section 403(b) Tax Sheltered
Annuity (TSA), if the plan accept such rollovers. Eligible rollover
distributions from an IRA, qualified plan or Code Section 403(b) plan may
be rolled into an eligible governmental Code Section 457 plans. Rollovers
to or from a qualified plan or TSA must be accounted for separately.
If changes in the Code and related law, regulations and rulings require a
distribution greater than described above in order to keep this Annuity
qualified under the Code, we will administer the Contract in accordance with
these laws, regulations and rulings. This contract may be amended by Us at any
time to maintain its qualified status under Section 457 of the Code, following
all necessary regulatory approvals. Any such amendment may be made retroactively
effective if necessary or appropriate to conform to the requirements of the Code
or any State law.
THE TRAVELERS INSURANCE COMPANY
/s/ George C. Kokulis
PRESIDENT
This page has been left blank intentionally.
FLEXIBLE PREMIUM GROUP DEFERRED FIXED ANNUITY CONTRACT
TAX QUALIFIED
ELECTIVE OPTIONS NON-PARTICIPATING
VALUES PROVIDED BY THIS CERTIFICATE ARE GUARANTEED AS TO
FIXED DOLLAR AMOUNT.
EXHIBITS 5 AND 23(b)
Kathleen A. McGah
Deputy General Counsel
Legal Division - 18CP
Telephone: (860) 308-6894
Fax: (860) 308-5155
February 10, 2004
The Travelers Insurance Company
One Cityplace
Hartford, Connecticut 06183
Gentlemen:
With reference to Pre-Effective No. 1 to the Registration Statement on
Form S-2 filed by The Travelers Insurance Company with the Securities and
Exchange Commission covering registered fixed annuity contracts, I have examined
such documents and such law as I have considered necessary and appropriate, and
on the basis of such examination, it is my opinion that:
1. The Travelers Insurance Company is duly organized and existing under
the laws of the State of Connecticut and has been duly authorized to
do business and to issue fixed annuity contracts by the Insurance
Commissioner of the State of Connecticut.
2. The fixed annuity contracts covered by the above Registration
Statement, and all pre- and post-effective amendments relating
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 Insurance
Company.
I hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the reference to this opinion
under the caption "Legal Opinion" in the Prospectus constituting a part of the
Registration Statement.
Very truly yours,
/s/ Kathleen A. McGah
---------------------
Kathleen A. McGah
Deputy General Counsel
The Travelers Insurance Company
EXHIBITS 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Travelers Insurance Company:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus. Our reports refer to changes
in the Company's methods of accounting for goodwill and other intangible assets
in 2002, and for derivative instruments and hedging activities and for
securitized financial assets in 2001.
/s/ KPMG LLP
Hartford, Connecticut
February 10, 2004