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THE TRAVELERS LIFE AND ANNUITY COMPANY
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE: (800) 334-4298
THE TRAVELERS MARKETLIFESM
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
PROSPECTUS
MAY 1, 1996
This Prospectus describes The Travelers MarketLifesm, an individual variable
universal (flexible premium) life insurance Policy (the "Policy") offered by The
Travelers Life and Annuity Company (the "Company") and funded by The Travelers
Fund UL II for Variable Life Insurance ("Fund UL II"). A Policy Owner may choose
the amount of life insurance coverage desired with a minimum Stated Amount of
$50,000. The premium payment may be allocated by the Policy Owner to one or more
of the mutual funds underlying Fund UL II (the "Investment Options").
The Policy has a Right to Cancel Period during which the Applicant may return
the Policy to the Company for a refund. The Right to Cancel Period expires on
the latest of ten days after you receive the Policy, ten days after we mail or
deliver to you a written Notice of Right to Cancel, or 45 days after the
Applicant signs the application for insurance.
There is no guaranteed minimum Cash Value for a Policy. The Cash Value of the
Policy will vary to reflect the investment performance of the Investment Options
to which premium payments have been allocated, and the Policy Owner bears the
investment risk for all amounts so allocated. Additionally, the Cash Value is
reduced by the various fees and charges assessed under the Policy, as set forth
in this Prospectus. The Policy will remain in effect for as long as the Cash
Surrender Value is sufficient to pay the monthly charges imposed under the
Policy subject to the Continuation of Insurance provision of the Policy, or for
such longer period as may be provided under the Lapse Protection Guarantee.
A Policy Owner will have two options with respect to the death benefit under the
Policy -- the "Level Option" and the "Variable Option." Under either option, the
death benefit will never be less than the Stated Amount (less any outstanding
Policy loans or Monthly Deduction Amounts due and unpaid). A Policy Owner may
also elect to change the death benefit option, subject to certain conditions.
It may not be advantageous to replace your existing life insurance policy or
supplement an existing flexible premium variable life insurance policy with the
Policy described in this Prospectus.
This Policy may be or become a modified endowment Policy under federal tax law.
If it is classified as a modified endowment Policy, any partial withdrawal,
Policy surrender or loan may result in adverse tax consequences or penalties.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
EACH OF THE INVESTMENT OPTIONS. EACH OF THE INVESTMENT OPTION PROSPECTUSES ARE
INCLUDED WITH THE PACKAGE CONTAINING THIS PROSPECTUS. ALL PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE LIFE INSURANCE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED
OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS.................................................... Glossary 1-2
PROSPECTUS SUMMARY........................................................... Summary 1-3
THE INSURANCE COMPANY........................................................ 1
THE POLICY................................................................... 1
The Policy Application..................................................... 1
Beneficiary................................................................ 2
Assignment................................................................. 2
Allocation of Premium Payments............................................. 2
Right to Cancel............................................................ 2
Statements to Policy Owners................................................ 2
CHARGES AND DEDUCTIONS....................................................... 3
Charges Against Premium.................................................... 3
Front-End Sales Charge.................................................. 3
State Premium Tax Charge................................................ 3
Monthly Deduction Amount................................................... 3
Cost of Insurance Charge................................................ 3
Policy Administrative Charge............................................ 3
Charges for Supplemental Benefit Provisions............................. 4
Charges Against the Separate Account....................................... 4
Mortality and Expense Risk Charge....................................... 4
Administrative Expense Charge........................................... 4
Charges Against the Investment Options..................................... 4
Surrender Charges.......................................................... 4
Percent of Premium Charge............................................... 4
Per Thousand of Stated Amount Charge.................................... 5
Maximum Sales Charges...................................................... 5
Reduction or Elimination of Charges........................................ 6
Transaction Charge......................................................... 6
POLICY BENEFITS AND RIGHTS................................................... 6
Cash Value and Cash Surrender Value........................................ 6
Policy Loans............................................................... 7
Lapse and Reinstatement.................................................... 7
Lapse Protection Guarantee................................................. 8
Exchange Rights............................................................ 8
Death Benefit.............................................................. 8
Changes in Death Benefit Option......................................... 10
Payment Options......................................................... 10
Limit on Right to Contest and Suicide Exclusion......................... 11
Misstatement as to Sex and Age.......................................... 11
Changes in Stated Amount................................................ 11
Maturity and Maturity Extension Benefits................................ 12
</TABLE>
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<TABLE>
<S> <C>
THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS.............................. 12
The Travelers Fund UL II for Variable Life Insurance (Fund UL II).......... 12
The Investment Options..................................................... 12
General.................................................................... 17
Accumulation Unit Values................................................... 18
Mixed and Shared Funding................................................... 18
Substitution............................................................... 18
TRANSFER OF CASH VALUE....................................................... 19
DOLLAR-COST AVERAGING (AUTOMATED TRANSFERS).................................. 19
PERFORMANCE INFORMATION...................................................... 19
MISCELLANEOUS................................................................ 22
Voting Rights.............................................................. 22
Disregarding Voting Instructions........................................... 23
Suspension of Valuation.................................................... 23
Dividends.................................................................. 23
Distribution............................................................... 23
Legal Proceedings and Opinion.............................................. 23
Independent Accountants.................................................... 24
Registration Statement..................................................... 24
FEDERAL TAX CONSIDERATIONS................................................... 24
General.................................................................... 24
Taxation of the Company.................................................... 24
Tax Consequences of Life Insurance Policies................................ 24
Tax Consequences of Modified Endowment Contracts........................... 25
Investor Control........................................................... 26
MANAGEMENT................................................................... 27
ILLUSTRATIONS................................................................ 28
APPENDIX..................................................................... 30
A -- Annual Minimum Premiums............................................... 34
B, B(1), B(2) -- Surrender Charges......................................... 35-37
C -- Current Monthly Administrative Charge................................. 38-39
C(1) -- Guaranteed Monthly Administrative Charge........................... 40
Financial Statements -- Travelers Life and Annuity......................... F-1
</TABLE>
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GLOSSARY OF SPECIAL TERMS
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The following terms are used throughout the Prospectus, and have the indicated
meanings:
ACCUMULATION UNIT -- a standard of measurement used to calculate the values
allocated to the Investment Options.
ANNUAL MINIMUM PREMIUM -- the Policy Owner must pay a first premium greater than
or equal to one-quarter of this amount for the Policy to be issued. (Please
refer to Appendix A.)
BENEFICIARY(IES) -- the person(s) named to receive the death benefits of this
Policy at the Insured's death.
CASH SURRENDER VALUE -- the Cash Value less any outstanding Policy loan and
surrender charges.
CASH VALUE -- the current value of Accumulation Units credited to each of the
Investment Options available under the Policy, plus the value of the Loan
Account.
COMPANY'S HOME OFFICE -- the principal executive offices of The Travelers Life
and Annuity Company located at One Tower Square, Hartford, Connecticut 06183.
DEDUCTION DATE -- the day in each Policy Month on which the Monthly Deduction
Amount is deducted from the Policy's Cash Value.
INSURED -- the person on whose life the Policy is issued.
INVESTMENT OPTIONS -- the Portfolios to which you may allocate premiums or Cash
Value through segments of the Separate Account available under Fund UL II.
ISSUE DATE -- the date on which the Policy is issued by the Company for delivery
to the Policy Owner.
LAPSE PROTECTION GUARANTEE -- a benefit which provides that the Policy will not
lapse during the first three Policy Years if a required amount of premium is
paid.
LOAN ACCOUNT -- an account in the Company's general account to which we transfer
the amount of any Policy loan, and to which we credit a fixed rate of interest.
MATURITY DATE -- The anniversary of the Policy Date on which the Insured is age
95.
MINIMUM AMOUNT INSURED -- the amount of Death Benefit required to qualify this
Policy as life insurance under federal tax law.
MONTHLY DEDUCTION AMOUNT -- the amount of charges deducted from the Policy's
Cash Value which includes cost of insurance charges, administrative charges, and
any charges for supplemental benefits.
MONTHLY PREMIUM THRESHOLD -- an amount shown on the Policy Summary page, the
cumulative amount of which must be paid during the first three Policy Years in
order for the Lapse Protection Guarantee to be in effect.
NET AMOUNT AT RISK -- an amount equal to the death benefit minus the Cash Value.
NET PREMIUM -- the amount of each premium payment applied to purchase
Accumulation Units under the Policy, less the deduction of front-end sales
charges and premium tax charges.
PLANNED PREMIUM -- the amount of premium which the Policy Owner chooses to pay
to the Company on a scheduled basis, and for which the Company will bill the
Policy Owner, either annually, semiannually or through automatic monthly
checking account deductions.
POLICY DATE -- the date on which the Policy, benefits and provisions of the
Policy become effective.
POLICY MONTH -- monthly periods computed from the Policy Date.
Glossary-1
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POLICY OWNER (YOU, YOUR OR OWNER) -- the person having rights to benefits under
the Policy during the lifetime of the Insured; the Policy Owner may or may not
be the Insured.
POLICY YEARS -- annual periods computed from the Policy Date.
SEPARATE ACCOUNT -- assets set aside by The Travelers Life and Annuity Company,
the investment experience of which is kept separate from that of other assets of
The Travelers Life and Annuity Company; for example, The Travelers Fund UL II
for Variable Life Insurance.
STATED AMOUNT -- the amount originally selected by the Policy Owner used to
determine the Death Benefit, or as may be increased or decreased as described in
this Prospectus.
VALUATION DATE -- a day on which the Separate Account is valued. A Valuation
Date is any day on which the New York Stock Exchange is open for trading. The
value of Accumulation Units will be determined as of the close of trading on the
New York Stock Exchange.
VALUATION PERIOD -- the period between the close of business on successive
Valuation Dates.
Glossary-2
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PROSPECTUS SUMMARY
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WHAT IS VARIABLE UNIVERSAL LIFE INSURANCE?
The Flexible Premium Variable Universal Life Insurance Policy is designed to
provide insurance protection on the life of the Insured and to build Cash Value.
Like other life insurance it provides an income-tax free death benefit that is
payable to the Beneficiary upon the Insured's death. Unlike traditional,
fixed-premium life insurance, the Policy allows you, as the Owner, to allocate
your premium, or transfer Cash Value to various Investment Options. These
Investment Options include equity, bond, money market and other types of
portfolios. Your Cash Value may increase or decrease daily, depending on
investment return. There is no minimum amount guaranteed as it would be in a
traditional life insurance policy.
SUMMARY OF MARKETLIFE FEATURES
INVESTMENT OPTIONS: You have the ability to choose from a wide variety of
well-known Investment Options. These professionally managed stock, bond and
money market funding options cover a broad spectrum of investment objectives and
risk tolerance. Currently, the following Investment Options (subject to state
availability) are available under Fund UL II:
<TABLE>
<S> <C> <C> <C>
AIM CAPITAL APPRECIATION PORTFOLIO TEMPLETON ASSET ALLOCATION FUND
ALLIANCE GROWTH PORTFOLIO TEMPLETON BOND FUND
DREYFUS STOCK INDEX FUND TEMPLETON STOCK FUND
FIDELITY'S ASSET MANAGER PORTFOLIO TRAVELERS CAPITAL APPRECIATION FUND
FIDELITY'S EQUITY-INCOME PORTFOLIO TRAVELERS CASH INCOME TRUST
FIDELITY'S GROWTH PORTFOLIO TRAVELERS MANAGED ASSETS TRUST
TRAVELERS U.S. GOVERNMENT SECURITIES
FIDELITY'S HIGH INCOME PORTFOLIO PORTFOLIO
MFS TOTAL RETURN PORTFOLIO TRAVELERS ZERO COUPON BOND PORTFOLIO 1998
SMITH BARNEY HIGH INCOME PORTFOLIO TRAVELERS ZERO COUPON BOND PORTFOLIO 2000
SMITH BARNEY INCOME AND GROWTH PORTFOLIO TRAVELERS ZERO COUPON BOND PORTFOLIO 2005
SMITH BARNEY TOTAL RETURN PORTFOLIO UTILITIES PORTFOLIO
</TABLE>
For more information, including the investment objectives and investment
advisers, refer to page 12, and the prospectuses for each Investment Option.
PREMIUMS: When applying for your Policy, you state how much you intend to pay,
and whether you will pay annually, semiannually or monthly via checking account
deductions. You may also make unscheduled premium payments in any amount. No
premium payments will be accepted if receipt of such premiums would disqualify
the Policy as life insurance under applicable federal tax laws (p. 1).
You indicate on your application what percentage of each Net Premium you would
like allocated to the Investment Options. You may change your allocations by
writing to the Company or by calling 1-800-334-4298.
During the underwriting period, any premium paid will be held in a non-interest
bearing account. After the Policy Date and until the applicants' right to cancel
has expired, your Net Premium will be invested in Cash Income Trust. After that,
the value will be distributed to each Investment Option in the percentages
indicated on your application.
RIGHT TO EXAMINE POLICY: You may return your Policy for any reason and receive a
full refund of your premium by mailing us the Policy and a written request for
cancellation within a specified period (p. 2).
Summary-1
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CHARGES AND DEDUCTIONS: Your Policy is subject to the following charges, which
compensate the Company for administering and distributing the Policy as well as
paying Policy benefits and assuming related risks:
POLICY CHARGE
- - Premium Expense Charge -- A sales charge and a premium tax charge are applied
to each premium based on the size of your Policy.
<TABLE>
<CAPTION>
TOTAL
SALES PREMIUM PREMIUM
STATED AMOUNT CHARGE TAX EXPENSE
------------------------- ------ ------- -------
<S> <C> <C> <C>
less than $500,000 2.5% 2.5% 5.0%
$500,000 to $999,999 2.0% 2.5% 4.5%
$1,000,000 and over 0% 2.5% 2.5%
</TABLE>
This charge pays some distribution expenses and state and local premium taxes
(p. 3).
- - Monthly Deduction -- deductions taken from the value of your Policy each month
to cover cost of insurance charges, Policy administrative charges and charges
for optional benefits (p. 3).
- - Surrender Charge -- applies if you surrender your Policy for its full Cash
Value or the Policy lapses, during the first 10 years and for 10 years after
requesting an increase in coverage. The surrender charge consists of a percent
of premium charge and a per thousand of face amount charge (p. 4).
- - Partial Surrender Charge -- applies if you surrender part of the value of your
Policy (p. 4).
ASSET-BASED CHARGES
- - Mortality and Expense Risk Charge -- applied to the assets of the Investment
Options on a daily basis which equals an annual rate of .80% for the first
fifteen years and .45% thereafter (p. 4).
- - Administrative Charge -- applies to the assets of the Investment Options on a
daily basis which equals an annual rate of .10% for the first fifteen years
and 0% thereafter (p. 3).
- - Fund Investment Management Fees -- the purchase of shares of the Investment
Options happens on a net asset value basis. The shares purchased already
reflect the deduction of investment advisory fees and other expenses.
DEATH BENEFITS: At time of application, you select a death benefit option. Under
certain conditions you may be able to change the death benefit option at a later
date. The options available are:
- - Level Option (Option 1): the death benefit will be equal to the Stated Amount
or the Minimum Amount Insured.
- - Variable Option (Option 2): the death benefit will be equal to the greater of
the Stated Amount of the Policy plus the Cash Value or the Minimum Amount
Insured.
POLICY VALUES: As with other types of insurance policies, MarketLife will
accumulate a Cash Value. The Cash Value of the Policy will increase or decrease
to reflect the investment experience of the Investment Options. Monthly charges
and any partial surrenders taken will also decrease the Cash Value. There is no
minimum guaranteed Cash Value.
ACCESS TO POLICY VALUES: You may borrow against your Policy's Cash Surrender
Value. The maximum loan amount allowable is 90% of the Cash Surrender Value.
After year 13, the Company offers zero net cost loans (p. 7).
You may cancel a portion of your Policy while the Insured is living and receive
a portion of the Cash Surrender Value. You may also cancel the entire Policy to
receive the full Cash Surrender Value. Depending on the amount of time the
Policy has been in force, there may be a charge for the partial or full
surrender (p. 4).
Summary-2
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TRANSFERS OF POLICY VALUES: You may transfer all or a portion of your Cash Value
among the Investment Options. You may do this by writing to the Company or
calling 1-800-334-4298 (p. 19).
You can use automated transfers to take advantage of dollar cost
averaging -- investing a fixed amount at regular intervals. For example, you
might have a set amount transferred from a relatively conservative Investment
Option to a more aggressive one, or several others (p. 19).
LAPSE PROTECTION GUARANTEE: This guarantees that, regardless of the performance
of the Investment Options that you select, your Policy will remain in effect for
the first three Policy Years. You are required to pay at least the cumulative
applicable Monthly Premium Threshold displayed on your Policy's Contract Summary
page. Any loans or partial surrenders are deducted from premium paid to
determine if the Lapse Protection Guarantee is in effect.
GRACE PERIOD: If the Cash Surrender Value of your Policy becomes less than the
amount needed to pay the Monthly Deduction Amount, and the lapse protection
rider is not in effect, you will have 61 days to pay a premium that is
sufficient to cover the Monthly Deduction Amount. If the premium is not paid,
your Policy will lapse.
EXCHANGE RIGHTS: During the first two Policy Years, you can exchange this Policy
for one that provides benefits that do not vary with the investment return of
the Investment Options (p. 8).
TAX CONSEQUENCES: Currently, the federal tax law excludes all Death Benefit
payments from the gross income of the Beneficiary (p. 26). At any point in time,
the Policy may become a modified endowment contract ("MEC"). A MEC has an
income-first taxation of all loans, pledges, collateral assignments or partial
surrenders. A 10% penalty tax may be imposed on such income distributed before
the Policy Owner attains age 59 1/2. The Company has established safeguards for
monitoring whether a Policy may become a MEC (p. 26).
Summary-3
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THE INSURANCE COMPANY
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The Travelers Life and Annuity Company (the "Company") is a stock insurance
company which has been continuously engaged in the insurance business since its
incorporation in the state of Connecticut in 1973. The Company writes individual
life insurance and individual and group annuity contracts on a non-participating
basis, and acts as depositor for Fund UL II. The Company is licensed to conduct
life insurance business in a majority of the states of the United States, and
intends to seek licensure in the remaining states, except New York. The
Company's obligations as depositor for Fund UL II may not be transferred without
notice to and consent of Policy Owners.
The Company is a wholly owned subsidiary of The Travelers Insurance Company,
which is an indirect wholly owned subsidiary of Travelers Group Inc. The
Company's principal executive offices are located at One Tower Square, Hartford,
Connecticut 06183, telephone number (860) 277-0111.
The Company is subject to Connecticut law governing insurance companies and is
regulated and supervised by the Connecticut Commissioner of Insurance. An annual
statement in a prescribed form must be filed with the Commissioner on or before
March 1 in each year covering the operations of the Company for the preceding
year and its financial condition on December 31 of such year. The Company's
books and assets are subject to review or examination by the Commissioner, and a
full examination of its operations is conducted at least once every four years.
In addition, the Company is subject to the insurance laws and regulations of any
jurisdiction in which it sells its insurance policies, as well as to various
federal and state securities laws and regulations.
THE POLICY
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The Policy described in this Prospectus is both an insurance product and a
security. The Policy is first and foremost a life insurance Policy with death
benefits, Cash Values and other features traditionally associated with life
insurance. The Policy is deemed to be "variable" because unlike the fixed
benefits of an ordinary whole life insurance Policy, the Cash Value and, under
certain circumstances, the Death Benefit of the Policy may increase or decrease
depending on the investment experience of the Investment Options to which the
Premium Payment has been allocated. As an insurance product, the Policy is
subject to the insurance laws and regulations of each state or jurisdiction in
which it is available for distribution.
THE POLICY APPLICATION
Individuals wishing to purchase a Policy must submit an application to the
Company. As with traditional insurance Policies, a Policy Owner may state the
amount of insurance desired (the "Stated Amount"), which amount may not be less
than $50,000. A Policy Owner may request an increase or decrease in the Stated
Amount of the Policy in writing from time to time. (See "Changes in Stated
Amount," page 11.) No change in the terms or conditions of the Policy will be
made without the consent of the Policy Owner.
A Policy will be issued only on the life of an Insured who supplies evidence of
insurability satisfactory to the Company. Acceptance is subject to the Company's
underwriting rules.
No premium payments will be accepted if receipt of such premiums would
disqualify the Policy as life insurance.
Insurance coverage under a Policy will begin only after the Applicant has
satisfied all outstanding underwriting delivery requirements, and after the
Company has received the first premium. The Policy Date is the date used to
determine all future cyclical transactions on the Policy, e.g., Deduction Dates,
Policy Months and Policy Years. The Policy Date may be prior to, or the same
date as, the date on which the Policy is issued (the "Issue Date"). During the
underwriting period, any premium paid under the Policy will be held in a
non-interest bearing suspense account.
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BENEFICIARY
The Applicant names the Beneficiary in the application for the Policy. The
Policy Owner may change the Beneficiary (unless irrevocably named) during the
Insured's lifetime by sending a written request to the Company. If no
Beneficiary is living when the Insured dies, the Death Benefit will be paid to
the Policy Owner, if living; otherwise, the Death Benefit will be paid to the
Policy Owner's estate.
ASSIGNMENT
The Policy may be assigned as collateral for a loan or other obligation. The
Company is not responsible for any payment made or action taken before receipt
of written notice of such assignment. Proof of interest must be filed with any
claim under a collateral assignment.
ALLOCATION OF PREMIUM PAYMENTS
The first premium will be applied to the Policy on the later of the Policy Date
or the date it is received at the Company's Home Office. During the Applicant's
Right to Cancel Period, the Company will allocate Net Premiums to the Cash
Income Trust. At the end of the Applicant's Right to Cancel Period, the account
value in Cash Income Trust will be allocated (in whole percentages) among the
Investment Option(s) selected on the Application to purchase Accumulation Units.
Net Premium payments received on or after the expiration of the Applicant's
Right to Cancel Period will be allocated among the Investment Options to
purchase Accumulation Units in such Investment Options as directed by the Policy
Owner or, in the absence of directions, as stated in the original application.
The number of Accumulation Units of each Investment Option to be credited to the
Policy once a Premium Payment has been received by the Company will be
determined by dividing the Premium Payment applied to the Investment Option by
the Accumulation Unit Value of the Investment Option next computed following
receipt of the payment.
RIGHT TO CANCEL
An Applicant has a limited right to return the Policy for cancellation by
returning the Policy, by mail or personal delivery, to the Company or to the
agent who sold the Policy. The Policy must be returned either (1) within 10 days
after delivery of the Policy to the Policy Owner, (2) within 45 days of
completion of the Policy application, or (3) within 10 days after the Notice of
Right to Cancel has been mailed or delivered to the Applicant whichever is
latest. The Company will return to the Applicant a refund of the greater of all
premium payments paid for the Policy, or the sum of (1) the difference between
the premium paid, including any fees or charges, and the amounts allocated to
the Investment Option(s), (2) the value of the amounts allocated to the
Investment Option(s) on the date on which the Company receives the returned
Policy, and (3) any fees and other charges imposed on amounts allocated to the
Investment Option(s).
STATEMENTS TO POLICY OWNERS
The Company will maintain all records relating to Fund UL II and the Investment
Options. At least once in each Policy Year, the Company will send to Policy
Owners a statement containing the following information: (1) the Stated Amount
and the Cash Value of the Policy (indicating the number of Accumulation Units
credited to the Policy in each Investment Option and the corresponding
Accumulation Unit Value); (2) the date and amount of each premium payment; (3)
the date and amount of each Monthly Deduction; (4) the amount of any outstanding
Policy loan as of the date of the statement, and the amount of any loan interest
charged on the Loan Account; (5) the date and amount of any partial cash
surrenders and the amount of any partial surrender charges; (6) the annualized
cost of any supplemental benefits purchased under the Policy; and (7) a
reconciliation since the last report of any change in Cash Value and Cash
Surrender Value. The Company will also send any other reports required by any
applicable state or federal laws or regulations.
2
<PAGE> 11
CHARGES AND DEDUCTIONS
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CHARGES AGAINST PREMIUM
FRONT-END SALES CHARGE
Upon receipt of a Premium Payment, and before allocation of the payment among
the Investment Options, the Company deducts a front-end sales charge of 2.5%.
This charge is reduced to 2% for Policies with an initial Stated Amount of
$500,000 or more, and to 0% for Policies with an initial Stated Amount of
$1,000,000 or more. Additional sales charges may be assessed upon any full or
partial surrender. (See "Surrender Charges" page 4.)
Sales charges are intended to cover the Company's actual sales expenses,
including agent sales commissions, advertising and the printing of the
prospectuses. The Company expects to recover the sales expenses of a Policy. To
the extent sales expenses are not covered by the sales charges, the Company will
recover such expenses from its surplus. This surplus may include profit from the
mortality and expense risk charge.
STATE PREMIUM TAX CHARGE
A charge of 2.5% of each premium payment will be deducted for state premium
taxes (except for Policies issued in the Commonwealth of Puerto Rico where no
premium tax is deducted). These taxes vary from state to state and currently
range from 0.75% to 3.5%; 2.5% is an average. Because there is a range of
premium taxes, a Policy Owner may pay a premium tax charge that is higher or
lower than the premium tax actually assessed in his or her jurisdiction.
The Company also reserves the right to charge the assets of each Investment
Option for a reserve for any income taxes payable by the Company on the assets
attributable to that Investment Option. (See "Federal Tax Considerations," page
24.)
MONTHLY DEDUCTION AMOUNT
The Company will deduct from the Cash Value of the Policy a Monthly Deduction
Amount to cover certain charges and expenses incurred in connection with the
Policy. The Monthly Deduction Amount will be deducted pro rata from each of the
Investment Options values attributable to the Policy on the first day of each
Policy Month (the "Deduction Date"), commencing on the Policy Date. The dollar
amount of the Deduction Amount will vary from month to month. The following is a
summary of monthly charges and expenses which make up the Monthly Deduction
Amount:
COST OF INSURANCE CHARGE
Cost of Insurance is deducted from the Policy Cash Value on a monthly basis. The
amount of deduction is a function of the amount of insurance coverage on the
date of the deduction and the current cost per dollar for insurance coverage.
The cost per dollar of insurance coverage varies annually and is based on age,
sex and risk class of the Insured.
POLICY ADMINISTRATIVE CHARGE
For the first three Policy Years, a monthly administrative charge is deducted
from the Cash Value of the Policy. This charge also applies to any increase in
the Stated Amount excluding Cost of Living Adjustments and increases in Stated
Amounts due to Death Benefit Option changes. This charge is used to cover
expenses associated with issuing the Policy.
The amount charged varies by Policy and will be stated in the Policy. The charge
currently varies by issue age, Stated Amount and smoker/non-smoker
classification (see Appendix C for chart of current charges). The current Policy
administrative charge are lower than the guaranteed maximum charge (see Appendix
C(1) for the guaranteed maximum charges).
3
<PAGE> 12
CHARGES FOR SUPPLEMENTAL BENEFIT PROVISIONS
The Company will include a supplemental benefits charge in the Monthly Deduction
Amount if the Policy Owner has elected any of the following supplemental benefit
provisions: Waiver of Monthly Deduction Rider, Child Term Rider, and Primary or
Other Insured Term Rider. The amount of this charge will vary depending upon the
actual supplemental benefits selected.
CHARGES AGAINST THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
A daily charge is deducted from Fund UL II for mortality and expense risks. This
charge is at an annual rate of 0.80% for the first fifteen (15) Policy Years,
and 0.45% thereafter. The mortality risk assumed is that the cost of insurance
charge specified in the Policy may be insufficient to meet actual claims. The
expense risk assumed is that expenses incurred in issuing and administering the
Policies will exceed the administrative charges set forth in the Policy. If all
money collected by the Company from this charge is not needed to cover the
mortality and expenses costs, the excess will be contributed to the Company's
general account.
ADMINISTRATIVE EXPENSE CHARGE
The Company reserves the right to deduct a daily charge from Fund UL II for
administrative expenses incurred by the Company. The charge is equivalent on an
annual basis to 0.10% of the assets in the Investment Options for the first
fifteen (15) Policy Years and 0% thereafter. The administrative expense charge,
is designed to cover administrative costs associated with the maintenance of the
Policies and the maximum fee is set at a level which does not exceed the average
expected cost of the administrative services to be provided while the Policy is
in force.
CHARGES AGAINST THE INVESTMENT OPTIONS
Fund UL II purchases shares of the Investment Options at net asset value. The
net asset value of the Investment Option shares reflects investment advisory
fees and other expenses already deducted from the assets of the Investment
Options. The investment advisory fees and other expenses applicable to each of
the Investment Options are described in the individual prospectuses for the
Investment Options.
SURRENDER CHARGES
There are two types of contingent surrender charges that can apply under the
Policy: a Percent of Premium Charge and a Per Thousand of Stated Amount Charge.
These surrender charges are contingent because they only apply during the first
ten Policy Years (or the first ten years following an increase in Stated
Amount). Both charges apply upon a full surrender of the Policy. Only the
Percent of Premium Charge applies upon a partial surrender.
PERCENT OF PREMIUM CHARGE
A Percent of Premium surrender charge will be assessed upon a full or partial
surrender of the Policy during the first ten Policy Years (or during the first
ten years following an increase in Stated Amount). The charge will be the
smallest of:
(a) 6% of the amount of Cash Value being surrendered; or
(b) 6% of the amount of premiums actually paid within the five years
preceding the surrender; or
(c) 9% of the total Annual Minimum Premiums for each full or partial Policy
Year during the five years preceding the surrender, whether paid or
not. (See Appendix A, "Annual Minimum Premiums.")
4
<PAGE> 13
For example (as illustrated on page 33), a Policy with a Stated Amount of
$150,000 for a 45-year old male who pays a premium of $1,969 per year for five
years (a total of $9,845), and then fully surrenders the Policy for its Cash
Value of $7,466 (assuming a 6% rate of return), the Percent of Premium surrender
charge would be $448, because (a) is $448 (6% of $7,466); (b) is $591 (6% of the
$9,845 in premiums paid); and (c) is approximately $682 (9% of the annual
minimum premium for five years). The smallest, $448, is the applicable charge.
PER THOUSAND OF STATED AMOUNT CHARGE
A Per Thousand of Stated Amount surrender charge is imposed on full surrenders,
but not on partial surrenders, and applies only during the first ten Policy
Years or the ten years following an increase in Stated Amount (other than an
increase due to a Cost of Living Adjustment or a change in Death Benefit
Option). The charge is equal to a specified dollar amount for each $1,000 of
Stated Amount to which it applies, and will apply only to that portion of the
Stated Amount (except for increases excluded above) which has been in effect for
less than ten years.
The Per Thousand of Stated Amount Charge varies by Stated Amount and original
issue age, and increases with the issue age of the Insured. For Stated Amounts
of $499,999 or less, this charge varies in the first year from $2.04 per $1,000
of Stated Amount for issue ages of 4 years or less, to $25.40 per $1,000 of
Stated Amount for issue ages of 65 years or higher. The charge is lower for
Stated Amounts over $499,999, and even lower for Stated Amounts over $999,999.
Additionally, the charge decreases by 10% each year over the ten-year period.
For example, for a 45-year old with a Stated Amount of $150,000, the charge in
the first year is $7.18 for each $1,000 of Stated Amount, or $1,077. The charge
decreases 10%, or approximately $0.72, each year, so in the fifth year, it is
$4.31 for each $1,000 of Stated Amount, or $64.65; in the tenth year, it is
$0.72 for each $1,000, or $108.
No more than 20% of the Per Thousand of Stated Amount Charge is a sales charge.
The remainder is designed to compensate the Company for administrative expenses
not covered by other administrative charges. The administrative expense
component of the Per Thousand of Stated Amount charge is set at a level which
does not exceed the average expected cost of the administrative services to be
provided while the Policy is in force. This administrative charge component of
the Surrender Charge may be reduced or eliminated when sales are made under
certain arrangements. (See "Reduction or Elimination of Sales Charges and
Administrative Charges" below.) The Per Thousand of Stated Amount surrender
charges are set forth in Appendix B, and have been further split into the sales
charge component and the administrative charge component in Appendices B(1) and
B(2), respectively.
MAXIMUM SALES CHARGES
Although the total sales charges assessed under the Policy will vary based on
issue age, sex, year of surrender, amount of premium paid and amount
surrendered, the maximum total sales charge for any Policy will never exceed
26.7% of the total premiums paid.
As stated above, the front-end sales charge for a Policy with no full or partial
surrenders will never exceed 2.5% of actual premiums paid. The sales charges for
a Policy with full or partial surrenders will vary, but in no event will they
exceed the percentage of premiums paid as shown below.
5
<PAGE> 14
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGES (AS A % OF
POLICY YEAR OF SURRENDER PREMIUM PAYMENTS)
- ------------------------ -----------------
<S> <C>
1 26.7%
2 24.9
3 23.1
4 21.2
5 19.4
6 16.1
7 14.4
8 12.5
9 10.6
10 8.8
11+ 2.5
</TABLE>
As the table demonstrates, the maximum sales charge for any Policy is less than
26.7% in every Policy Year other than the first (or in every year after the
first year following an increase). (See the illustrations for an example.)
REDUCTION OR ELIMINATION OF CHARGES
The Company may offer the Policy in arrangements where an employer or trustee
will own a group of policies on the lives of certain employees, or in other
situations where groups of policies will be purchased at one time. The Company
may reduce or eliminate sales charges and administrative charges in such
arrangements to reflect the reduced sales expenses and administrative costs
expected as a result of sales to a particular group.
TRANSACTION CHARGE
The Company reserves the right to limit free transfers of Cash Value from one
Investment Option to another by the Policy Owner to four times in any Policy
Year, and to charge $10 for any additional transfers. There is currently no
charge for transfers.
POLICY BENEFITS AND RIGHTS
- --------------------------------------------------------------------------------
CASH VALUE AND CASH SURRENDER VALUE
The Cash Value of a Policy changes on a daily basis and will be computed on each
Valuation Date. The Cash Value will vary to reflect the investment experience of
the Investment Options, as well as any partial Cash Surrenders, Monthly
Deduction Amount, daily Separate Account charges, and any additional premium
payments. There is no minimum guaranteed Cash Value.
The Cash Value of a particular Policy is related to the net asset value of the
Investment Options to which premium payments on the Policy have been allocated.
The Cash Value on any Valuation Date is calculated by multiplying the number of
Accumulation Units credited to the Policy in each Investment Options as of the
Valuation Date by the current Accumulation Unit Value of that Investment Option,
then adding the collective result for each of the Investment Options credited to
the Policy, and finally adding the value (if any) of the Loan Account. A Policy
Owner may withdraw Cash Value from the Policy, or transfer Cash Value among the
Investment Options on any day that the Company is open for business.
As long as the Policy is in effect, a Policy Owner may elect, without the
consent of the Beneficiary (provided the designation of Beneficiary is not
irrevocable), to surrender the Policy and receive its "Cash Surrender Value";
i.e., the Cash Value of the Policy determined as of the day the Company receives
the Policy Owner's written request, less any outstanding Policy loan, and less
any applicable Surrender Charges. For full surrenders, the Company will pay the
Cash Surrender Value of the Policy within seven days following its receipt of
the written request, or on the date requested by the Policy Owner, whichever is
later. The Policy will terminate on the Deduction
6
<PAGE> 15
Date next following the Company's receipt of the written request, or on the
Deduction Date next following the date on which the Policy Owner requests the
surrender to become effective, whichever is later.
In the case of partial surrenders, the Cash Surrender Value will be equal to the
net amount requested to be surrendered minus any applicable Surrender Charges.
The deduction from Cash Value for a partial surrender will be made on a pro rata
basis against the Cash Value of each of the Investment Options attributable to
the Policy (unless the Policy Owner states otherwise in writing).
In addition to reducing the Cash Value of the Policy, partial cash surrenders
will reduce the Death Benefit payable under the Policy. Under Option 1, the
Stated Amount of the Policy will be reduced by the amount of the partial cash
surrender. Under Option 2, the Cash Value, which is part of the Death Benefit,
will be reduced by the amount of the partial cash surrender. The Company may
require return of the Policy to record such reduction.
POLICY LOANS
A Policy Owner may obtain a cash loan from the Company secured by the Policy not
to exceed 90% of the Policy's Cash Value (determined on the day on which the
Company receives the written loan request), less any surrender penalties which
include a percent of premium charge and per thousand of Stated Amount charge, as
described on page 5 in more detail. No loan requests may be made for amounts of
less than $100. If there is a loan outstanding at the time a subsequent loan
request is made, the amount of the outstanding loan will be added to the new
loan request. The Company will charge interest on the outstanding amounts of the
loan, which interest must be paid in advance by the Policy Owner. The amount of
the loan will be transferred as of the date the loan is made on a pro rata basis
from each of the Investment Options attributable to the Policy (unless the
Policy Owner states otherwise) to another account (the "Loan Account"). Amounts
in the Loan Account will be credited by the Company with a fixed annual rate of
return of 4% (6% in Massachusetts) and will not be affected by the investment
performance of the Investment Options. During the first thirteen Policy Years,
the full Loan Account Value will be charged an annual interest rate of 7.4%;
thereafter 3.85% will be charged. When loan repayments are made, the amount of
the repayment will be deducted from the Loan Account and will be reallocated
based upon premium allocation percentages among the Investment Options
applicable to the Policy (unless the Policy Owner states otherwise). The Company
will make the loan to the Policy Owner within seven days after receipt of the
written loan request.
An outstanding loan amount decreases the Cash Surrender Value. If a loan is not
repaid, it permanently decreases the Cash Surrender Value, which could cause the
Policy to lapse (see "Lapse and Reinstatement" below). For example, if a Policy
has a Cash Surrender Value of $10,000, the Policy Owner may take a loan of 90%
or $9,000, leaving a new Cash Surrender Value of $1,000. In addition, the Death
Benefit actually payable would be decreased because of the outstanding loan.
Furthermore, even if the loan is repaid, the Death Benefit and Cash Surrender
Value may be permanently affected since the Policy Owner was not credited with
the investment experience of an Investment Option on the amount in the Loan
Account while the loan was outstanding. All or any part of a loan secured by a
Policy may be repaid while the Policy is still in effect.
LAPSE AND REINSTATEMENT
Except as provided below under "Lapse Protection Guarantee," the Policy will
remain in effect until the Cash Surrender Value of the Policy is insufficient to
cover the Monthly Deduction Amount. If such event occurs, the Company will give
written notice to the Policy Owner indicating that if the amount shown in the
notice (which will be sufficient to cover the Deduction Amount due) is not paid
within 61 days (the "Late Period"), the Policy may lapse. The Policy will
continue through the Late Period, but if no payment is forthcoming, it will
terminate at the end of
7
<PAGE> 16
the Late Period. If the person Insured under the Policy dies during the Late
Period, the Death Benefit payable under the Policy will be reduced by the
Monthly Deduction Amount due plus the amount of any outstanding loan. (See
"Death Benefit," page 8.)
If the Policy lapses, the Policy Owner may reinstate the Policy upon payment of
the reinstatement premium (and any applicable charges) shown in the Policy. A
request for reinstatement may be made at any time within three years of lapse
(unless a different period is required under applicable state law). The Net
Premium due upon reinstatement is at least one-quarter of the Annual Minimum
Premium, as shown in Appendix A, less any charges or fees, calculated as of the
Deduction Date next following receipt of premium by the Company. The Cash Value
of the Policy upon reinstatement will be equal to the Net Premium. In addition,
the Company reserves the right to require satisfactory evidence of insurability.
LAPSE PROTECTION GUARANTEE
Policy Owners may elect to have a Lapse Protection Guarantee benefit as part of
their Policy (as long as the Insured is not a substandard risk). The Lapse
Protection Guarantee benefit provides that if during the first three Policy
Years (the "Guarantee Period") the total premiums paid under the Policy, less
any Loan Account Value or partial surrenders, equal or exceed the cumulative
applicable Monthly Premium Threshold shown on the Policy Summary Page of the
Policy, a Lapse Protection Guarantee will be in effect. (This guarantee may not
be available in all jurisdictions.) This benefit provides that the Policy will
not lapse during the next Policy Month even if the Cash Surrender Value is
insufficient to pay the Monthly Deduction Amount due, provided the next Policy
Month is within the Guarantee Period. The Premium Threshold will change if the
Policy Owner makes a change in the Stated Amount or adds or eliminates
supplemental benefit riders under the Policy. In such event, the Company will
send the Policy Owner notice of the new applicable Premium Threshold which must
be met until the expiration of the Guarantee Period in order for the guarantee
to remain in effect.
EXCHANGE RIGHTS
Once the Policy is in effect, it may be exchanged at any time during the first
24 months after its issuance for a general account life insurance policy issued
by the Company (or an affiliated company) on the life of the Insured. Benefits
under the new life insurance policy will be as described in that policy. No
evidence of insurability will be required. The Policy Owner has the right to
select the same Death Benefit or Net Amount At Risk as the former Policy. Cost
of insurance rates will be based on the same risk classification as those of the
former Policy. Any outstanding Policy loan must be repaid before the Company
will make an exchange. In addition, there may be an adjustment for the
difference in Cash Value between the two Policies.
DEATH BENEFIT
As with traditional life insurance Policies, the Death Benefit under the Policy
is the amount paid to the Beneficiary upon the Insured's death. The Death
Benefit will be reduced by any outstanding charges, fees and Policy loans. All
or part of the Death Benefit may be paid in cash or applied to one or more of
the payment options described below.
You may elect one of two Death Benefit options. As long as the Policy remains in
effect, the Company guarantees that the Death Benefit under either option will
not be less than the current Stated Amount of the Policy less any outstanding
Policy loan or Deduction Amount due but unpaid. The Death Benefit under either
option may vary with the Cash Value of the Policy. The Death Benefit under
either option may vary with the Cash Value of the Policy. Under Option 1 (the
"Level Option"), the Death Benefit will be equal to the Stated Amount of the
Policy or, if greater, a specified multiple of Cash Value (the "Minimum Amount
Insured"). Under Option 2 (the "Variable Option"), the Death Benefit will be
equal to the Stated Amount of the Policy plus the Cash Value (determined as of
the date of the Insured's death) or, if greater, the Minimum Amount Insured.
8
<PAGE> 17
The Minimum Amount Insured is the amount required to qualify the Policy as a
life insurance Policy under the current federal tax law. Under that law, the
Minimum Amount Insured is equal to a stated percentage of the Cash Value of the
Policy determined as of the first day of each Policy Month. The percentages
differ according to the attained age of the Insured. The Minimum Amount Insured
will be set forth in the Policy and may change as federal income tax laws or
regulations change. The percentages used to calculate the Minimum Amount Insured
decrease after the age of 40. The following is a schedule of the applicable
percentages:
<TABLE>
<CAPTION>
% SHALL
DECREASE BY
A RATABLE
PORTION FOR
ATTAINED AGE EACH FULL
MORE BUT NOT YEAR:
THAN MORE THAN FROM TO
- ---- --------- ---- ---
<S> <C> <C> <C>
0 40 250 250
40 45 250 215
45 50 215 185
50 55 185 150
55 60 150 130
60 65 130 120
65 70 120 115
70 75 115 105
75 90 105 105
90 95 105 100
</TABLE>
Federal tax law imposes another cash funding limitation on cash value life
insurance Policies that, when applicable, may increase the Minimum Amount
Insured in excess of the figures shown in the schedule above. This limitation is
known as the "guideline premium limitation," and it is generally applicable
during the early years of variable universal life insurance Policies.
The following examples demonstrate the relationship between the Death Benefit,
the Cash Surrender Value and the Minimum Amount Insured under Options 1 and 2 of
the Policy. Both sets of examples assume an Insured of age 40, a Minimum Amount
Insured of 250% of Cash Value (assuming the preceding table is controlling as to
Minimum Amount Insured), and no outstanding Policy loan.
OPTION 1 -- "LEVEL" DEATH BENEFIT
STATED AMOUNT: $50,000
In the following examples of an Option 1 "Level" Death Benefit, the Death
Benefit under the Policy is generally equal to the Stated Amount of $50,000.
Since the Policy is designed to qualify as a life insurance Policy, the Death
Benefit cannot be less than the Minimum Amount Insured (or, in this example,
250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 X 250%). Since the Death Benefit in the Policy
is the greater of the Stated Amount ($50,000) or the Minimum Amount Insured
($25,000), the Death Benefit would be $50,000.
EXAMPLE TWO. If the Cash Value of the Policy equals $40,000, the Minimum Amount
Insured would be $100,000 ($40,000 X 250%). The resulting Death Benefit would be
$100,000 since the Death Benefit is the greater of the Stated Amount ($50,000)
or the Minimum Amount Insured ($100,000).
OPTION 2 -- "VARIABLE" DEATH BENEFIT
STATED AMOUNT: $50,000
In the following examples of an Option 2 "Variable" Death Benefit, the Death
Benefit varies with the investment experience of the applicable Investment
Options and will generally be equal to the
9
<PAGE> 18
Stated Amount plus the Cash Value of the Policy (determined on the date of the
Insured's death). The Death Benefit cannot, however, be less than the Minimum
Amount Insured (or, in this example, 250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 X 250%). The Death Benefit ($60,000) would be
equal to the Stated Amount ($50,000) plus the Cash Value ($10,000), unless the
Minimum Amount Insured ($25,000) was greater.
EXAMPLE TWO. If the Cash Value of the Policy equals $60,000, then the Minimum
Amount Insured would be $150,000 ($60,000 X 250%). The resulting Death Benefit
would be $150,000 because the Minimum Amount Insured ($150,000) is greater than
the Stated Amount plus the Cash Value ($50,000 + $60,000 = $110,000).
Death Benefits are payable within seven days of the Company's receipt of
satisfactory proof of the Insured's death. The amount of Death Benefit paid to
the Policy Beneficiary may be adjusted to reflect any Policy loan, any material
misstatements in the Policy application as to age or sex of the Insured, and any
amounts payable to an assignee under a collateral assignment of the Policy. (See
"Assignment," page 2.) If the Insured commits suicide within two years following
the issue date limits on the amount of Death Benefit paid will apply. (See
"Limit on Right to Contest and Suicide Exclusion", page 11) In addition, if the
Insured dies during the 61-day period after the Company gives notice to the
Policy Owner that the Cash Surrender Value of the Policy is insufficient to meet
the Monthly Deduction Amount due against the Cash Value of the Policy, the Death
Benefit actually paid to the Policy Owner's Beneficiary will be reduced by the
amount of the Deduction Amount that is due and unpaid. (See "Cash Value and Cash
Surrender Value," page 6, for effects of partial cash surrenders on Death
Benefits.)
CHANGES IN DEATH BENEFIT OPTION
You may change the Death Benefit option at any time prior to the Insured's death
by sending a written request to the Company. There is no direct consequence of
changing a Death Benefit option, except as described under "Tax Consequences of
Modified Endowment Contracts" on page 26. However, the change could affect
future values of Net Amount At Risk, and with some Option 2 to Option 1 changes
involving substantially funded Policies, there may be a cash distribution which
is included in the gross income of the Policy Owner. The cost of insurance
charge which is based on the Net Amount At Risk may be different in the future.
A change from Option 1 to Option 2 will not be permitted if the change results
in a Stated Amount of less than the minimum amount of $50,000. Contact your
registered representative for more information.
PAYMENT OPTIONS
Proceeds payable under the Policy will be paid in a lump sum, unless the Policy
Owner or Beneficiary selects one of the Company's payment options. Payment of
proceeds which exceed the Death Benefit may be deferred for up to six months
from the date of the request for the payment. A combination of options may be
used. The minimum amount that may be placed under a payment option is $5,000
unless the Company consents to a lesser amount. Proceeds applied under an option
will no longer be affected by the investment experience of the Investment
Options.
10
<PAGE> 19
The following payment options are available under the Policy:
OPTION 1 -- Payments of a Fixed Amount
OPTION 2 -- Payments for a Fixed Period
OPTION 3 -- Amounts Held at Interest
OPTION 4 -- Monthly Life Income
OPTION 5 -- Joint and Survivor Level Amount Monthly Life Income
OPTION 6 -- Joint and Survivor Monthly Life Income-Two-thirds to Survivor
OPTION 7 -- Joint and Last Survivor Monthly Life Income -- Monthly Payment
Reduces on Death of First Person Named
OPTION 8 -- Other Options
The Company will make any other arrangements for periodic payments as may be
agreed upon. If any periodic payment due any payee is less than $50, the Company
may make payments less often. If the Company has declared a higher rate under an
option at the date the first payment under an option is due, the Company will
base the payments on the higher rate.
LIMIT ON RIGHT TO CONTEST AND SUICIDE EXCLUSION
The Company may not contest the validity of the Policy after it has been in
effect during the Insured's lifetime for two years from the Issue Date. If the
Policy is reinstated, the two-year period will be measured from the date of
reinstatement. Each requested increase in Stated Amount is contestable for two
years from its effective date. In addition, if the Insured commits suicide
during the two-year period following issue, subject to state law, the Death
Benefit will be limited to the premiums paid less (i) the amount of any partial
surrender, (ii) the amount of any outstanding Policy loan, and (iii) the amount
of any unpaid Deduction Amount due. During the two-year period following an
increase, the Death Benefit in the case of suicide will be limited to an amount
equal to the Deduction Amount for such increase.
MISSTATEMENT AS TO SEX AND AGE
If there has been a misstatement with regard to sex or age, benefits payable
will be adjusted to what the Policy would have provided with the correct
information. A misstatement with regard to sex or age in a substantially funded
Policy may cause a cash distribution that is includable in whole or in part in
the gross income of the Policy Owner.
CHANGES IN STATED AMOUNT
A Policy Owner may request in writing that the Stated Amount of the Policy be
increased or decreased, provided that the Stated Amount after any decrease may
not be less than the minimum amount of $50,000. For purposes of determining the
cost of insurance charge, a decrease in the Stated Amount will reduce the Stated
Amount in the following order:
1) against the most recent increase in the Stated Amount;
2) to other increases in the reverse order in which they occurred;
3) to the initial Stated Amount.
A decrease in Stated Amount in a substantially funded Policy may cause a cash
distribution that is includable in the gross income of the Policy Owner.
For increases in the Stated Amount, the Company may require a new application
and evidence of insurability as well as an additional premium payment. The
effective date of any increase will be as shown on the new Policy Summary which
the Company will send to the Policy Owner. The effective date of any increase in
the Stated Amount will generally be the Deduction Date next following either the
date of a new application or, if different, the date requested by the Applicant.
There is an additional Policy Administrative Charge and a Per Thousand of Stated
Amount Surrender Charge associated with a requested increase in Stated Amount.
There is no additional charge for a decrease in Stated Amount.
11
<PAGE> 20
MATURITY AND MATURITY EXTENSION BENEFITS
If the Insured is living on the Maturity Date (the anniversary of the Policy
Date on which the Insured is age 95), the Company will pay the Policy Owner the
Cash Value of the Policy, less any outstanding Policy loan or Deduction Amount
due and unpaid. The Policy Owner must surrender the Policy to the Company before
such payment can be made, at which point the Policy will terminate and the
Company will have no further obligations under the Policy.
Upon the Insured's attaining age 94, and at any time during the twelve months
thereafter, the Policy Owner may request that coverage be extended beyond the
Maturity Date (the "Maturity Extension Benefit"). (This Maturity Extension
Benefit may not be available in all jurisdictions.) After the Company has
received such request, but prior to the Maturity date, the Policy will continue
in force until the earlier of the death of the Insured or the date on which the
Policy Owner requests that the Policy terminate. Upon termination of the
Maturity Extension Benefit, a Death Benefit will be paid as follows. On the
Maturity Date, the Death Benefit will be the Cash Value less any Loan Account
Value and less any Deduction Amounts due but not paid. After the Maturity Date,
the Death Benefit will be the Cash Value less any Loan Account Value. The Death
Benefit is based on the experience of the Investment Options selected and is
variable and is not guaranteed. After the Maturity Date, periodic Deduction
Amounts will no longer be charged against the Cash Value and additional premiums
will not be accepted.
The Company intends that the Policy and the Maturity Extension Benefit be
considered life insurance for tax purposes. The Death Benefit is designed to
comply with Section 7702 of the Internal Revenue Code of 1986, as amended, or
other equivalent section of the Code. However, the Company does not give tax
advice, and cannot guarantee that the Death Benefit and Cash Value will be
exempt from any future tax liability. The tax results of any benefits under the
Maturity Extension provision depend upon interpretation of the Internal Revenue
Code. The Policy Owner should consult his or her own personal tax adviser prior
to the exercise of the Maturity Extension Benefit to assess any potential tax
liability.
THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE (FUND UL II)
Fund UL II was established on October 17, 1995 pursuant to the insurance laws of
the state of Connecticut, and is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940, as amended (the "1940 Act"). The assets of Fund UL II will be invested
exclusively in shares of the Investment Options. Fund UL II meets the definition
of a Separate Account under the federal securities laws, and will comply with
the provisions of the 1940 Act. Registration of Fund UL II with the SEC does not
involve supervision by the SEC of the management or investment policies of Fund
UL II. Additionally, the operations of Fund UL II are subject to the provisions
of Section 38a-433 of the Connecticut General Statutes which authorizes the
Connecticut Insurance Commissioner to adopt regulations under it. The Section
contains no restrictions on the investments of Fund UL II, and the Commissioner
has adopted no regulations under the Section that affect Fund UL II.
Under Connecticut law, the assets of Fund UL II will be held for the exclusive
benefit of Policy Owners and the persons entitled to payments under the Policy
offered by this Prospectus. The assets held in Fund UL II are not chargeable
with liabilities arising out of any other business which the Company may
conduct. Any obligations arising under the Policy are general corporate
obligations of the Company.
THE INVESTMENT OPTIONS
You may allocate Premium Payments to one or more of the available Investment
Options. The Investment Options currently available under the Policy may be
added or withdrawn as permitted by applicable law. Please read carefully the
complete risk disclosure in each Portfolio's prospectus
12
<PAGE> 21
before investing. For more detailed information on the investment advisers and
their services and fees, please refer to the prospectuses for the Investment
Options.
The Investment Options currently available under Fund UL II are as follows:
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
AIM Capital Appreciation Seeks capital appreciation by Smith Barney Mutual Funds
Portfolio investing primarily in common Management, Inc.
stock, with emphasis on Subadviser: AIM Capital
medium sized and smaller Management, Inc.
emerging growth companies.
Alliance Growth Portfolio Seeks long-term growth of Smith Barney Mutual Funds
capital by investing Management, Inc.
predominantly in equity Subadviser: Alliance Capital
securities of companies with Management
a favorable outlook for
earnings and whose rate of
growth is expected to exceed
that of the U.S. economy over
time. Current income is only
an incidental consideration.
Dreyfus Stock Index Fund Seeks to provide investment Wells Fargo Nikko Investment
results that correspond to Advisors
the price and yield
performance of publicly
traded common stocks in the
aggregate, as represented by
the Standard & Poor's 500
Composite Stock Price Index.
Fidelity's Asset Manager Seeks high total return with Fidelity Management &
Portfolio reduced risk over the long- Research Company
term by allocating its assets
among stocks, bonds and
short-term fixed-income
instruments.
Fidelity's Equity-Income Seeks reasonable income by Fidelity Management &
Portfolio investing primarily in Research Company
income-producing equity
securities; in choosing these
securities, the portfolio
manager will also consider
the potential for capital
appreciation. The Portfolio's
goal is to achieve a yield
which exceeds the composite
yield on the securities
comprising the Standard &
Poor's 500 Composite Stock
Price Index.
</TABLE>
13
<PAGE> 22
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Fidelity's Growth Portfolio Seeks capital appreciation by Fidelity Management &
investing primarily in common Research Company
stocks of well-known,
established companies and
smaller, emerging growth
companies, although its
investments are not
restricted to any one type of
security. Capital
appreciation may also be
found in other types of
securities, including bonds
and preferred stocks.
Fidelity's High Income Seeks to obtain a high level Fidelity Management &
Portfolio of current income by Research Company
investing primarily in high
yielding, lower rated,
fixed-income (high risk)
securities, while also
considering growth of
capital.
MFS Total Return Portfolio Seeks to obtain above-average Smith Barney Mutual Funds
income (compared to a Management, Inc.
portfolio entirely invested Subadviser: Massachusetts
in equity securities) Financial Services Company.
consistent with the prudent
employment of capital.
Generally, at least 40% of
the Portfolio's assets will
be invested in equity
securities.
Smith Barney High Income Seeks high current income. Smith Barney Mutual Funds
Portfolio Capital appreciation is a Management, Inc.
secondary objective. The
Portfolio will invest at
least 65% of its assets in
high-yielding corporate debt
obligations and preferred
stock.
Smith Barney Income and Seeks current income and Smith Barney Mutual Funds
Growth Portfolio long-term growth of income Management, Inc.
and capital by investing
primarily, but not
exclusively, in common
stocks.
Smith Barney Total Return Seeks to provide total Smith Barney Mutual Funds
Portfolio return, consisting of Management, Inc.
long-term capital
appreciation and income. The
Portfolio will seek to
achieve its goal by investing
primarily in a diversified
portfolio of dividend-paying
common stock.
</TABLE>
14
<PAGE> 23
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Templeton Asset Allocation Seeks high level of total Templeton Global Bond
Fund return with reduced risk over Managers
the long term through a
flexible policy of investing
in stocks of companies in any
nation and debt obligations
of companies and governments
of any nation. Changes in the
asset mix will be adjusted in
an attempt to capitalize on
total return potential
produced by changing economic
conditions throughout the
world.
Templeton Bond Fund Seeks high current income Templeton Investment Counsel,
through a flexible Policy of Inc.
investing primarily in debt
securities of companies,
governments and government
agencies of various nations
throughout the world.
Templeton Stock Fund Seeks capital growth through Templeton Investment Counsel,
a policy of investing Inc.
primarily in common stocks
issued by companies, large
and small, in various nations
throughout the world.
Travelers Cash Income Trust Seeks to provide high current The Travelers Asset
income while emphasizing Management International
preservation of capital and Corporation (TAMIC)
maintaining a high degree of
liquidity by investing in
short-term money market
securities deemed to present
minimal credit risks.
Allocations to this portfolio
are neither insured nor
guaranteed.
Travelers Capital Seeks growth of capital The Travelers Investment
Appreciation Fund through the use of common Management Company (TIMCO)
stocks. Income is not an Subadviser: Janus Capital
objective. The Fund invests Corporation
principally in common stocks
of small to large companies
which are expected to
experience wide fluctuations
in price in both rising and
declining markets.
</TABLE>
15
<PAGE> 24
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Travelers Managed Assets Seeks high total investment TAMIC
Trust return with reduced risk Subadviser: TIMCO
through a fully managed
investment Policy. Assets of
the Managed Assets Trust will
be invested in a portfolio of
U.S. stocks, bonds and money
market securities.
Travelers U.S. Government Selects investments from the TAMIC
Securities Portfolio point of view of an investor
concerned primarily with
highest credit quality,
current income and total
return. The assets of the
U.S. Government Securities
Portfolio will be invested in
direct obligations of the
United States, its agencies
and instrumentalities.
Travelers Utilities Portfolio Seeks to provide current Smith Barney Mutual Funds
income through investment in Management, Inc.
equity and debt securities of
companies in the utility
industries.
Travelers Zero Coupon Bond Seeks to provide as high an TAMIC
Fund Portfolio 1998 investment return as
consistent with the
preservation of capital
investing in primarily zero
coupon securities that pay
cash income but are acquired
by the Portfolio at
substantial discounts from
their values at maturity. The
Zero Coupon Bond Fund
Portfolios may not be
appropriate for Policy Owners
who do not plan to have their
premiums invested in shares
of the Portfolios for the
long term or until maturity.
</TABLE>
16
<PAGE> 25
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Travelers Zero Coupon Bond Seeks to provide as high an TAMIC
Fund Portfolio 2000 investment return as
consistent with the
preservation of capital
investing in primarily zero
coupon securities that pay
cash income but are acquired
by the Portfolio at
substantial discounts from
their values at maturity. The
Zero Coupon Bond Fund
Portfolios may not be
appropriate for Policy Owners
who do not plan to have their
premiums invested in shares
of the Portfolios for the
long term or until maturity.
Travelers Zero Coupon Bond Seeks to provide as high an TAMIC
Fund Portfolio 2005 investment return as
consistent with the
preservation of capital
investing in primarily zero
coupon securities that pay
cash income but are acquired
by the Portfolio at
substantial discounts from
their values at maturity. The
Zero Coupon Bond Fund
Portfolios may not be
appropriate for Policy Owners
who do not plan to have their
premiums invested in shares
of the Portfolios for the
long term or until maturity.
</TABLE>
Each Investment Option is subject to certain investment restrictions which may
not be changed without the approval of a "majority vote of the outstanding
voting securities" of that Fund (as defined in the Investment Company Act of
1940). There is no assurance that the Investment Options will achieve their
stated objectives.
More detailed information regarding the Investment Options may be found in the
current prospectuses for the Investment Options; these prospectuses are included
with and must accompany this Prospectus. Policy Owners are urged to read these
documents carefully before investing.
GENERAL
All investment income of and other distributions to each Investment Option of
Fund UL II arising from the applicable Investment Option are reinvested in
shares of that Investment Option at net asset value. The income and realized
gains or losses on the assets of each Investment Option of Fund UL II are
therefore separate and are credited to or charged against the Investment Option
without regard to income, gains or losses from any other Investment Option or
from any other business of the Company. The Company will purchase shares in the
Investment Options in connection with premium payments allocated to the
applicable Funds in accordance with Policy Owners' directions and will redeem
shares in the Investment Options to meet Policy obligations or make adjustments
in reserves, if any. The Investment Options are required to redeem Fund shares
at net asset value and to make payment within seven days.
17
<PAGE> 26
ACCUMULATION UNIT VALUES
The Accumulation Unit Value for each segment of the Separate Account was
initially established at $1. Thereafter, the Accumulation Unit Values will vary
to reflect the investment experience of the applicable Investment Option and
will be determined on each Valuation Date by multiplying the Accumulation Unit
Value on the preceding Valuation Date by the Net Investment Factor for that
Investment Option for the Valuation Period then ended. The Net Investment Factor
for each of the Investment Options is equal to the net asset value per share of
the corresponding Investment Option at the end of the Valuation Period (plus the
per share amount of any dividends or capital gain distributions by that Fund, if
the dividend date occurs in the Valuation Period then ended, and plus or minus
any per share credit or charge by the Company for any tax reserves) divided by
the net asset value per share of the corresponding Investment Option at the
beginning of the Valuation Period (plus or minus any per share credit or charge
by the Company for any tax reserves), and subtracting from that amount any
applicable administrative expense charge, and mortality and expense risk charge.
Applicants should refer to the prospectuses for each of the Investment Options
for a description of how the assets of each Investment Option are valued. These
valuation procedures directly affect the Accumulation Unit Value of the
Investment Option, and therefore the Cash Value of the Policy.
All valuations made under the Policy (e.g., the determination of Cash Value or
Cash Surrender Value, Policy loans, partial cash surrenders, payment of death
benefits, and the determination of the number of Accumulation Units to be
credited to a Policy with each Net Premium payment), will be made on the
Valuation Date next following the Company's receipt of the request.
MIXED AND SHARED FUNDING
It is conceivable that in the future it may not be advantageous for variable
life insurance and variable annuity Separate Accounts to invest in the
Investment Options simultaneously. Although neither the Company nor the
Investment Options currently foresees any such disadvantages either to variable
life insurance or to variable annuity Policy Owners, the Investment Options'
Boards of Directors intend to monitor events to identify any material conflicts
between such Policy Owners and to determine what action, if any, should be taken
in response thereto. If any of the Investment Options' Boards of Directors
conclude that separate mutual funds should be established for variable life
insurance and variable annuity Separate Accounts, the Company will bear the
attendant expenses, but variable life insurance and variable annuity Policy
Owners would no longer have the economies of scale resulting from a larger
combined fund. Please consult the prospectuses of the Investment Options for
additional information.
SUBSTITUTION
The Company reserves the right, subject to compliance with appropriate state and
federal laws, to make additions to, deletions from, or substitutions for Fund UL
II and the Investment Options which fund the Policy. If shares of any of the
Investment Options should no longer be available for purchase by the Fund UL II,
or if, in the judgment of the Company further investment in such shares becomes
inappropriate for purposes of the Policy, shares of another open-end management
investment company, or a portfolio thereof, may be substituted for shares of the
Investment Options held in the Investment Options. Substitution may be made with
respect to both existing investments and the investment of any future Premium
Payments. However, no substitution of securities will be made without prior
notice to Policy Owners, and without prior approval of the Securities and
Exchange Commission, all to the extent required by the 1940 Act or other
applicable law. Subject to Policy Owner approval, the Company reserves the right
to end Fund UL II's registration under the 1940 Act.
18
<PAGE> 27
TRANSFER OF CASH VALUE
- --------------------------------------------------------------------------------
As long as the Policy remains in effect, the Policy Owner may request that all
or a portion of the Cash Value of a particular Investment Option be transferred
to other Investment Options.
The Company reserves the right to restrict the number of such transfers to four
times in any Policy Year and to charge $10 for each additional transfer;
however, there is currently no charge for transfers. The Policy Owner may make
the request in writing by mailing such request to the Company at its Home
Office, or by telephone (if an authorization form is on file) by calling
1-800-334-4298. The Company will take reasonable steps to ensure that telephone
transfer requests are genuine. These steps may include seeking proper
authorization and identification prior to processing telephone requests.
Additionally, the Company will confirm telephone transfers. Any failure to take
such measures may result in the Company's liability for any losses due to
fraudulent telephone transfer requests.
As a result of a transfer, the number of Accumulation Units credited to the
Investment Option from which the transfer is made will be reduced by the number
obtained by dividing the amount transferred from the Investment Option by the
Accumulation Unit Value of that Investment Option on the Valuation Date on which
the Company receives the transfer request. The number of Accumulation Units
credited to the Investment Option to which the transfer is made will be
increased by the number obtained by dividing the amount transferred to the
Investment Option by the Accumulation Unit Value of that Investment Option on
the Valuation Date on which the Company receives the transfer request.
DOLLAR-COST AVERAGING (AUTOMATED TRANSFERS)
- --------------------------------------------------------------------------------
You may establish automated transfers of Policy Values on a monthly or quarterly
basis from certain of the Investment Option to other Investment Option through
written request or other method acceptable to the Company. You must have a
minimum total Policy Value of $1,000 to enroll in the Dollar-Cost Averaging
program. The minimum total automated transfer amount is $100.
You may start or stop participation in the Dollar-Cost Averaging program at any
time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. Automated transfers
are subject to all of the other provisions and terms of the Policy, including
provisions relating to the transfer of money between Investment Options. The
Company reserves the right to suspend or modify transfer privileges at any time
and to assess a processing fee for this service.
Before transferring any part of the Policy Value, Policy Owners should consider
the risks involved in switching between investments available under this Policy.
Dollar cost averaging requires regular investments regardless of fluctuating
price levels, and does not guarantee profits or prevent losses in a declining
market. Potential investors should consider their financial ability to continue
purchases through periods of low price levels.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, Fund UL II's Investment Options may show the percentage
change in the value of an Accumulation Unit based on the performance of the
Investment Option over a period of time, usually for the past one-, two-,
three-, five-, and ten year periods determined by dividing the increase
(decrease) in value for that unit by the Accumulation Unit Value at the
beginning of the period.
For Investment Options of Fund UL II that invest in underlying funds that were
in existence prior to the date on which the Investment Option became available
under the Policy, average annual rates of return may include periods prior to
the inception of the Investment Option. Performance
19
<PAGE> 28
calculations for Investment Options with pre-existing Investment Options will be
calculated by adjusting the actual returns of the Investment Options to reflect
the charges that would have been assessed under the Investment Options had the
Investment Option been available under Fund UL II during the period shown.
The following performance information represents the percentage change in the
value of an Accumulation Unit of the Investment Options for the periods
indicated, and reflects all expenses of the Investment Options. The following
chart reflects the guaranteed maximum .80% mortality and expense risk charge and
.10% administrative expense risk charge. The rates of return do not reflect the
2.5% front-end sales charge or the 2.5% state premium tax charge (both of which
are deducted from premium payments) nor do they reflect surrender charges or
Monthly Deduction Amounts. The surrender charges and Monthly Deduction Amounts
for a hypothetical Insured are depicted in the Example following the Rates of
Returns. For information about the Charges and Deductions assessed under the
Policy, see page 3. For illustrations of how these charges affect Cash Values
and Death Benefits, see the Illustrations beginning on page 28. The performance
information described in this prospectus, may be used from time to time in
advertisement for the Policy, subject to National Association of Securities
Dealers, Inc. ("NASD") and applicable state approval and guidelines.
AVERAGE ANNUAL RETURNS THROUGH 12/31/95
<TABLE>
<CAPTION>
UNDERLYING INVESTMENT OPTIONS ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- ---------------------------------------------------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio -- -- -- --
Alliance Growth Portfolio 33.67% -- -- --
Capital Appreciation Fund (Janus Sub-Adviser) 37.28% 14.01% 18.14% 10.34%
Dreyfus Stock Index Fund 35.59% 13.67% 15.05% --
Fidelity's Equity-Income Portfolio 34.52% 18.71% 20.35% --
Fidelity's Growth Portfolio 35.08% 16.55% 19.97% --
Smith Barney Income & Growth Portfolio 31.12% -- -- --
Smith Barney Total Return Portfolio 23.88% -- -- --
Utilities Portfolio (Smith Barney Sub-Adviser) 28.05% -- -- --
Templeton's Stock Fund 24.40% 16.99% 16.63% --
BOND FUNDS
Fidelity's High Income Portfolio 19.44% 11.65% 17.94% 10.52%
Smith Barney High Income Portfolio 16.96% -- -- --
Templeton's Bond Fund 13.52% 5.74% 7.35% --
Travelers U.S. Gov't Securities Portfolio 23.36% 7.78% -- --
Travelers Zero Coupon Bond Portfolio 1998 -- -- -- --
Travelers Zero Coupon Bond Portfolio 2000 -- -- -- --
Travelers Zero Coupon Bond Portfolio 2005 -- -- -- --
BALANCED FUNDS
Fidelity's Asset Manager Portfolio 16.37% 9.12% 11.94% --
MFS Total Return Portfolio 25.02% -- -- --
Templeton's Asset Allocation Fund 21.56% 13.48% 14.69% --
Travelers Managed Assets Trust 26.54% 10.06% 10.87% 11.78%
MONEY MARKET FUNDS
Travelers Cash Income Trust(1) 3.48% 2.31% 2.98% --
</TABLE>
The information presented in the above chart represents the percentage change in
the value of an Accumulation Unit of the underlying investment options for the
periods indicated, and reflects all expenses of the underlying funds, as well as
the guaranteed maximum 0.80% mortality and expense risk charge and 0.10%
administrative expense charge against amounts allocated to the underlying funds.
The rates of return do not reflect the 2.5% front-end sales charge or the 2.5%
20
<PAGE> 29
state premium tax charge (both of which are deducted from premium payments) nor
do they reflect surrender charges or monthly deduction amounts. These charges
would reduce the average annual return reflected.
(1) An investment in Cash Income Trust is neither insured nor guaranteed by the
United States Government.
MARKETLIFE HYPOTHETICAL EXAMPLES(2)
Male nonsmoker age 40 with a level death benefit
of $300,000 and annual premium payments of $5,000
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS
------------------------------------ ------------------------------------
TOTAL ACCUMULATED SURRENDER TOTAL ACCUMULATED SURRENDER
UNDERLYING INVESTMENT OPTION INVESTMENT VALUE VALUE INVESTMENT VALUE VALUE
- ----------------------------------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio N/A N/A N/A N/A N/A N/A
Alliance Growth Portfolio $5,000 $ 5,129 $ 2,269 N/A N/A N/A
Capital Appreciation Fund (Janus
Sub-Adviser) $5,000 $ 5,282 $ 2,422 $ 25,000 $30,426 $28,544
Dreyfus Stock Index Fund $5,000 $ 5,211 $ 2,351 $ 25,000 $29,144 $27,262
Fidelity's Equity-Income Portfolio $5,000 $ 5,165 $ 2,305 $ 25,000 $33,333 $31,451
Fidelity's Growth Portfolio $5,000 $ 5,189 $ 2,329 $ 25,000 $31,052 $29,170
Smith Barney Income & Growth
Portfolio $5,000 $ 5,021 $ 2,161 N/A N/A N/A
Smith Barney Total Return Portfolio $5,000 $ 4,715 $ 1,872 N/A N/A N/A
Smith Barney Total Return Portfolio $5,000 $ 4,891 $ 2,038 N/A N/A N/A
Smith Barney Utilities Portfolio $5,000 $ 4,891 $ 2,038 N/A N/A N/A
Templeton's Stock Fund $5,000 $ 4,737 $ 1,893 $ 25,000 $28,968 $27,086
BOND FUNDS
Fidelity's High Income Portfolio $5,000 $ 4,527 $ 1,696 $ 25,000 $27,754 $25,872
Smith Barney High Income Portfolio $5,000 $ 4,423 $ 1,597 N/A N/A N/A
Templeton's Bond Fund $5,000 $ 4,278 $ 1,461 $ 25,000 $21,968 $20,086
Travelers U.S. Gov't Securities
Portfolio $5,000 $ 4,693 $ 1,851 N/A N/A N/A
Travelers Zero Coupon Bond
Portfolio 1998 N/A N/A N/A N/A N/A N/A
Travelers Zero Coupon Bond
Portfolio 2000 N/A N/A N/A N/A N/A N/A
Travelers Zero Coupon Bond
Portfolio 2005 N/A N/A N/A N/A N/A N/A
BALANCED FUNDS
Fidelity's Asset Manager Portfolio $5,000 $ 4,398 $ 1,574 $ 25,000 $24,406 $22,524
MFS Total Return Portfolio $5,000 $ 4,763 $ 1,917 N/A N/A N/A
Templeton's Asset Allocation Fund $5,000 $ 4,617 $ 1,780 $ 25,000 $26,965 $25,083
Travelers Managed Assets Trust $5,000 $ 4,827 $ 1,978 $ 25,000 $25,495 $23,613
MONEY MARKET FUNDS
Travelers Cash Income Trust $5,000 $ 3,856 $ 1,064 $ 25,000 $19,549 $17,667
</TABLE>
The charges used in the above example consist of a front-end sales charge of
2.5%, a state premium tax charge of 2.5%, the guaranteed maximum 0.80% mortality
and expense risk charge and 0.10% administrative expense charge, all expenses of
the underlying funds, and monthly deduction charges including cost of insurance
and a contract administrative charge (in this example, the administrative charge
is 0%).
(2) These hypothetical examples show the effect of the performance quoted on
cash values. Performance, loans and withdrawals will affect the cash value
and death benefit of your policy. Since the values of the portfolios will
fluctuate, the cash value at any time may be more or less than the total
principal investment made, including at the time of surrender of the policy,
when surrender charges may apply.
21
<PAGE> 30
The benefits illustrated above may differ for other policies as a result of
differences in investment allocation, premium timing and amount, death benefit
type, as well as the age and underwriting of the classification of the insured
(which could result in higher costs of insurance). Because MarketLife is a
variable universal life insurance policy, actual performance should always be
considered in conjunction with the level of death benefit and cash values.
EXAMPLE OF POLICY CHARGES
The following chart illustrates the surrender charges and Monthly Deduction
Amounts that would apply under a Policy based on the assumptions listed below.
Surrender charges and Monthly Deduction Amounts generally will be higher for an
Insured who is older than the assumed Insured, and lower for an Insured who is
younger (assuming the Insureds have the same risk classification).
- --------------------------------------------------------------------------------
Male, Age 35
Preferred Non-Smoker
Annual Premium: $850.00
Hypothetical Gross Annual Investment Rate of Return: 8%*
Face Amount: $100,000
Level Death Benefit Option
Current Charges
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
SURRENDER CHARGES SALES CHARGE FOR THE POLICY YEAR
------------------------------- COMPONENT OF ----------------------------
ADMINISTRATIVE SURRENDER COST OF
POLICY CUMULATIVE SALES CHARGE CHARGE CHARGE AS % OF INSURANCE ADMINISTRATIVE
YEAR PREMIUMS COMPONENT COMPONENT CUM. PREM. CHARGES CHARGES
- ------ ---------- ------------ -------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 850.00 $91.20 $ 364.80 10.73% $ 145.00 $96.00
2 $ 1,700.00 $90.40 $ 361.60 5.32% $ 157.00 $96.00
3 $ 2,550.00 $90.00 $ 360.00 3.53% $ 168.00 $96.00
5 $ 4,250.00 $92.80 $ 371.20 2.18% $ 190.00 $ 0
10 $ 8,500.00 $59.40 $ 237.60 0.70% $ 250.00 $ 0
</TABLE>
* Hypothetical results shown above are illustrative only and are based on the
Hypothetical Gross Annual Investment Rate of Return shown above. This
Hypothetical Gross Annual Investment Rate of Return should not be deemed to be
a representation of past or future investment results. Actual investment
results may be more or less than those shown. No representations can be made
that the hypothetical rates assumed can be achieved for any one year or
sustained over any period of time.
MISCELLANEOUS
- --------------------------------------------------------------------------------
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote the
shares of the Investment Options at regular and special meetings of the
shareholders of the Investment Options in accordance with instructions from
Policy Owners (or the Policy beneficiaries, as the case may be) having a voting
interest in Fund UL II. The Company will vote shares for which no instructions
have been given or shares which are not otherwise attributable to Policy Owners
in the same proportion as it votes shares for which it has received
instructions. If the 1940 Act or any rule promulgated thereunder should be
amended, however, or if the Company's present interpretation should change and,
as a result, the Company determines it is permitted to vote the shares of the
Investment Options in its own right, it may elect to do so.
The voting interests of the Policy Owner (or the Beneficiary) in the Investment
Options will be determined as follows: Policy Owners may cast one vote for each
$100 of Cash Value of the Policy allocated to the Investment Option, the assets
of which are invested in the particular Investment Option on the record date for
the shareholder meeting for that Fund. Fractional votes are counted.
22
<PAGE> 31
If, however, a Policy Owner has taken a loan secured by the Policy, amounts
transferred from the Investment Option(s) to the Loan Account in connection with
the loan will not be considered in determining the voting interests of the
Policy Owner.
Policy Owners should review the prospectuses for the Investment Options to
determine matters on which shareholders may vote and the definition of a
majority vote required on some matters.
DISREGARDING VOTING INSTRUCTIONS
When permitted by state insurance regulatory authorities, the Company may
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the investment objective or policies of Fund UL
II or one of the Investment Options, or to approve or disapprove an investment
advisory Policy of one of the Investment Options. In addition, the Company may
disregard voting instructions in favor of changes in the investment policies or
the investment adviser of any of the Investment Options which are initiated by a
Policy Owner if the Company reasonably disapproves of such changes. A change
would be disapproved only if the proposed change is contrary to state law or
prohibited by state regulatory authorities, or if the Company determines that
the change would have an adverse effect on its general account in that the
proposed investment policy for an Investment Option may result in overly
speculative or unsound investments. In the event that the Company does disregard
voting instructions, a summary of that action and the reasons for such action
will be included in the next annual report to Policy Owners.
SUSPENSION OF VALUATION
The Company reserves the right to suspend or postpone the date of any payment of
any benefit or values for any Valuation Period (1) when the New York Stock
Exchange ("Exchange") is closed; (2) when trading on the Exchange is restricted;
(3) when an emergency exists as determined by the SEC so that disposal of the
securities held in the Investment Options is not reasonably practicable or it is
not reasonably practicable to determine the value of the Investment Option's net
assets; or (4) during any other period when the SEC, by order, so permits for
the protection of security holders.
DIVIDENDS
No dividends will be paid under the Policy.
DISTRIBUTION
The Company intends to sell the Policies in all jurisdictions where it is
licensed to do business and where the Policy is approved. The Policies will be
sold by life insurance sales representatives who are registered representatives
of the Company or certain other registered broker-dealers. The maximum
commission payable by the Company for distribution would be no greater than 50%
of the actual premium paid in the first twelve months. Any sales representative
or employee will have been qualified to sell variable life insurance Policies
under applicable federal and state laws. Each broker/dealer is registered with
the Securities and Exchange Commission under the Securities Exchange Act of 1934
and all are members of the National Association of Securities Dealers, Inc.
Tower Square Securities, Inc. ("Tower Square"), an indirect wholly owned
subsidiary of Travelers Group, Inc., serves as principal underwriter of the
Policies described herein.
LEGAL PROCEEDINGS AND OPINION
There are no pending material legal proceedings affecting the Policy, Fund UL II
or any of the Investment Options.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the variable universal life insurance Policy described in this
Prospectus and the organization of the Company, its authority to issue the
Policy under Connecticut law and the validity of the forms of
23
<PAGE> 32
the Policy under Connecticut law have been passed on by the General Counsel of
the Life and Annuities Division of the Company.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., certified public accountants, 100 Pearl Street,
Hartford, Connecticut, are the independent auditors for Fund UL II. The services
provided to Fund UL II will include primarily the examination of Fund UL II's
financial statements.
The balance sheet of The Travelers Life and Annuity Company (the "Company") as
of December 31, 1995 and 1994 and the statements of operations and retained
earnings and cash flows for the years then ended, have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1995
financial statements of the Company refers to a change in the accounting for
investments in accordance with provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," in 1994.
The statements of operations and retained earnings and cash flows of the Company
for the year ended December 31, 1993, have been included herein in reliance upon
the report dated September 16, 1994 of Coopers & Lybrand L.L.P., certified
public accountants, and upon the authority of said firm as experts in accounting
and auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus does
not contain all information set forth in the Registration Statement, its
amendments and exhibits, to which reference is made for further information
concerning Fund UL II, the Investment Options, the Company and the Policy.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
GENERAL
The following general description of tax consequences represents the law in
effect on the date of this Prospectus. This discussion is not intended as tax
advice, and applicants should consult with their own tax advisers before
purchasing a Policy.
Potential purchasers should understand that tax laws can change, even at times
with respect to policies of insurance that have already been issued. Legislative
proposals have been introduced in Congress in recent years that would have
altered some of the tax consequences described below to generally less favorable
results. It is to be expected that such legislative proposals will again come
before Congress from time to time. Previous proposals have generally had
prospective effects as to Policies first issued after a current date, but some
would have had retroactive effect on previously issued policies or on new
voluntary transactions in previously issued policies.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under federal income tax law.
Presently, the Company does not expect to incur any income tax on the earnings
or the realized capital gains attributable to Fund UL II. However, the Company
may assess a charge against the Investment Options for federal income taxes
attributable to those accounts in the event that the Company incurs income or
capital gains or other tax liability attributable to Fund UL under future tax
law.
TAX CONSEQUENCES OF LIFE INSURANCE POLICIES
Death Benefit payments made under life insurance Policies are generally
excludable from the gross income of the Beneficiary under federal and state tax
law unless the Policy was sold or transferred for a valuable consideration. A
gift of the ownership of the Policy will not make the death
24
<PAGE> 33
proceeds includable in the gross income of the Beneficiary. The Death Benefit of
a corporate-owned life insurance policy and annual Cash Value increase in excess
of tax basis may be includable in part in the gross income of the corporation
under certain applications of the alternative minimum tax law.
No part of the investment growth in any cash value life insurance Policy is
generally includable in the gross income of the Policy Owner unless the Policy
matures, or is surrendered, or otherwise terminates with income in the Policy
before death, or unless the Policy is partially surrendered for an amount in
excess of the adjusted cost basis of the Policy. During the first fifteen years
of Policy duration, the "cost-recovery-first" rule for the taxation of partial
surrenders and certain other transactions that reduce future benefits may be
reversed to an income-first rule under the federal tax law. This will occur only
in the case of substantially funded Policies where the reduced Policy Death
Benefit amount compared to the original premiums as actuarially adjusted would
not meet the federal tax definition of life insurance. The Company finds that
most partial surrenders are not taxed in this manner, but rather that the
traditional cost-recovery-first tax rule applies.
Any loan received under the Policy will be treated as indebtedness of the Policy
Owner and no part of the loan under current law will constitute income to the
Policy Owner. If a Policy lapses with an outstanding loan, such loan will be
included in the Policy Owner's gross income to the extent of income in the
Policy. A loan outstanding at the time of maturity, surrender or other
termination of the Policy will be considered a distribution at that point and
will be includable in income to the extent of income in the Policy.
The proceeds of life insurance owned by a decedent are generally includable in
the gross estate of a decedent unless all incidents of ownership in the Policy
were given away more than three years prior to death. This is true regardless of
who receives the proceeds of the Policy. The federal estate tax law does not
require a tax to be paid unless the taxable estate including insurance proceeds
exceeds $600,000 for deaths occurring in 1987 or later. Proceeds of insurance
and other property received by the surviving spouse of a decedent are fully
deductible under federal estate tax law. State and local estate or inheritance
taxes vary greatly in their application to insurance proceeds. The proceeds of
insurance Policies are exempt from state death taxes in a number of states which
otherwise impose such taxes. A number of other states impose no broad-based
death taxes. Other states follow the federal rule.
If ownership of a Policy is given away, the value of the gift for federal, state
or local gift tax purposes approximates the Cash Value of the Policy at the
point of gift. The federal threshold for gift taxes is the same as for estate
taxes. There will be no tax due before accumulated taxable gifts made since 1976
exceed $600,000.
TAX CONSEQUENCES OF MODIFIED ENDOWMENT CONTRACTS
A Policy Owner can purchase a Policy which is a modified endowment contract, or
which becomes a modified endowment contract at a later point in its duration.
The tax consequences of such Policies differ in several respects from those
described above under "Tax Consequences of Life Insurance Policies."
A modified endowment contract is defined under tax law as any policy that
satisfies the present legal definition of a life insurance policy but which
fails to satisfy a 7-pay test. This failure could occur with Policies entered
into after June 21, 1988, or with certain older Policies materially changed
after that date. A Section 1035 exchange of an older contract into a Policy
after that date will not by itself cause the new Policy to be a modified
endowment Policy if the older Policy had not become one prior to the exchange.
However, the new Policy must be re-tested under the 7-pay test rules.
A Policy fails to satisfy the 7-pay test if the cumulative amount of premiums
paid under the Policy at any time during the first seven Policy Years exceeds
the sum of the net level premiums that would have been paid on or before such
time had the Policy provided for paid-up future benefits
25
<PAGE> 34
after the payment of seven level annual premiums. If a material change in the
Policy occurs either during the first seven Policy Years, or later, a new
seven-year testing period is begun. Tax regulations or other guidance will be
needed to fully define those transactions which are material changes. The
Company has established safeguards for monitoring whether a Policy may become a
modified endowment contract.
A modified endowment contract has income-first taxation of all loans, pledges,
collateral assignments or partial surrenders to the extent of income in the
Policy. An additional income tax of 10% may apply to taxable distributions or
deemed taxable distributions prior to the Policy Owner attaining age 59 1/2 with
certain exceptions.
The Death Benefit of a modified endowment contract remains excludable from the
gross income of the Beneficiary to the extent described above in "Tax
Consequences of Life Insurance Policies." Furthermore, no part of the investment
growth of the Cash Value of a modified endowment contract is includable in the
gross income of the Policy Owner unless the Policy matures, is distributed or
partially surrendered, is pledged, collaterally assigned, or borrowed against,
or otherwise terminates with income in the Policy prior to death. A full
surrender of the Policy after age 59 1/2 will have the same tax consequences as
noted above in "Tax Consequences of Life Insurance Policies."
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
Separate Account used to support their Policy. In those circumstances, income
and gains from the Separate Account assets would be includable annually in the
variable Policy Owner's gross income. The IRS has stated in published rulings
that a variable Policy Owner will be considered the owner of Separate Account
assets if the Policy Owner possesses incidents of ownership in those assets,
such as the ability exercise investment control over the assets. The Treasury
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policy Owner), rather than the
insurance company, to be treated as the owner of the assets in the account. This
announcement also stated that guidance would be issued by way of regulations or
rulings on the extent to which policyholders may direct their investments to
particular Investment Options without being treated as owners of the underlying
assets. As of the date of this prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the owners were not owners of Separate Account assets. For example, a Policy
Owner of this Policy has additional flexibility in allocating payments and Cash
Values. These differences could result in the Policy Owner being treated as the
owner of the assets of Fund UL II. In addition, the Company does not know what
standard will be set forth in the regulations or rulings which the Treasury is
expected to issue, nor does the Company know if such guidance will be issued.
The Company therefore reserves the right to modify the Policy as necessary to
attempt to prevent the Policy Owner from being considered the owner of a pro
rata share of the assets of Fund UL II.
The above tax discussion assumes that the Policy qualifies as a life insurance
Policy for federal income tax purposes.
26
<PAGE> 35
MANAGEMENT
- --------------------------------------------------------------------------------
DIRECTORS OF THE TRAVELERS LIFE AND ANNUITY COMPANY
The following are the Directors and Executive Officers of The Travelers Life and
Annuity Company. Unless otherwise indicated, the principal business address for
all individuals is the Company's Home Office at One Tower Square, Hartford,
Connecticut 06183. References to Travelers Group Inc. include, prior to December
31, 1993, Primerica Corporation or its predecessors.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITION SINCE PRINCIPAL BUSINESS
- ----------------------- -------- --------------------------------------------------------
<S> <C> <C>
Michael A. Carpenter 1995 Chairman (since January 1995), President and Chief
Director Executive Officer of The Travelers Life and Annuity
Company since June 1995; President and Chief Executive
Officer of The Travelers Insurance Company; Executive
Vice President of Travelers Group Inc. since January
1995; Chairman, President and Chief Executive Officer
(1989-1994), Kidder Peabody Group Inc.
Robert I. Lipp 1994 Chairman, President and Chief Executive Officer since
Director 1996 of Travelers/Aetna Property Casualty Corp.; Chief
Executive Officer and Director of The Travelers
Insurance Group Inc. since December 1993; Vice Chairman
and Director of Travelers Group Inc. since 1991;
Chairman and Chief Executive Officer of Commercial
Credit Company (1991-1993); Executive Vice President
(1986-1991), Primerica Corporation.
Jay S. Fishman 1994 Director, Vice Chairman and Chief Administrative Officer
Director since April 1996 of Travelers/Aetna Property Casualty
Corp.; Director and Vice Chairman of The Travelers
Insurance Group, Inc.; Senior Vice President since 1991
and Treasurer (1991-1994) of Travelers Group Inc.;
Executive Vice President and Chief Financial Officer
(1989-1991), Consumer Services Group, Commercial Credit
Company.
Charles O. Prince* 1994 Director, Vice President and Secretary since April 1996
Director of Travelers/Aetna Property Casualty Corp.; Executive
Vice President (1995), Senior Vice President and General
Counsel and Secretary of Travelers Group Inc. since
1985.
Marc P. Weill 1994 Senior Vice President-Investments since December 1993
Director and Chief Investment Officer since 1995 of The Travelers
Insurance Group Inc.; Senior Vice President and Chief
Investment Officer of Travelers Group Inc.; Vice
President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
Irwin R. Ettinger* 1994 Executive Vice President (1995) Senior Vice President
Director (1987-1995) and Chief Accounting Officer (1990-present)
of Travelers Group Inc.
Donald T. DeCarlo 1995 General Counsel and Secretary since October, 1994 of The
Director Travelers Insurance Company; Deputy General Counsel
since June 1989 of Travelers Group Inc.; Executive Vice
President since August 1987 of Gulf Insurance Group.
</TABLE>
* Principal business address: Travelers Group Inc., 388 Greenwich Street, New
York, New York.
- --------------------------------------------------------------------------------
27
<PAGE> 36
SENIOR OFFICERS OF THE TRAVELERS LIFE AND ANNUITY COMPANY
The following are the Senior Officers of The Travelers Life and Annuity Company,
other than the Directors listed above, as of the date of this Prospectus. Unless
otherwise indicated, the principal business address for all individuals listed
is One Tower Square, Hartford, Connecticut 06183.
<TABLE>
<CAPTION>
NAME POSITION WITH INSURANCE COMPANY
- ---------------------------------------------------------------------------------------------
<S> <C>
Stuart Baritz Senior Vice President
Jay S. Benet Senior Vice President
George C. Kokulis Senior Vice President
Warren H. May Senior Vice President
Barry L. Mannes * Senior Vice President
Richard F. Morrison Senior Vice President
Thompson Shea Senior Vice President-Audit
David A. Tyson Senior Vice President
F. Denney Voss Senior Vice President
W. Douglas Willet Senior Vice President
Ian R. Stuart Vice President, Chief Financial Officer, Chief
Accounting Officer and Controller
William H. White Vice President and Treasurer
</TABLE>
*Principal business address: Smith Barney Inc., 388 Greenwich Street, New York,
New York.
Information relating to the management of the underlying funds is contained in
the applicable prospectuses.
ILLUSTRATIONS
- --------------------------------------------------------------------------------
The following pages are intended to illustrate how the Account Value, Cash
Surrender Value and Death Benefit can change over time for Policies issued to a
45 year old male and a 45 year old female. The difference between the Account
Value and the Cash Surrender Value in these illustrations represents the
Surrender Charge that would be incurred upon a full surrender of the Policy.
For both male and female age 45, there are two pages of values. One page
illustrates the assumption that the maximum Guaranteed Cost of Insurance Rates,
the monthly administrative charge, mortality and expense risk charge, and
administrative expense charge allowable under the Policy are charged in all
years. The other page illustrates the assumption that the current scale of Cost
of Insurance Rates and other charges are charged in all years. The Cost of
Insurance Rates charged vary by age, sex and underwriting classification, and
the monthly administrative charge varies by age, amount of insurance and
smoker/non-smoker classification for current charges. The illustrations reflect
a deduction of 5% from each annual premium for premium tax (2.5%) and front end
sales charge (2.5%).
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of investment returns. For the first fifteen Policy
Years, the current and guaranteed charges consist of 0.80% for mortality and
expense risks, 0.10% for administrative expenses, and 0.71% for Investment
Option expenses and thereafter 0.45% for mortality and expense risks, 0.00% for
administrative expenses, and 0.71% for Investment Option expenses.
The charge for Investment Option expenses reflected in the illustrations assumes
that Cash Value is allocated equally among all Investment Options and that no
Policy Loans are outstanding, and is an average of the investment advisory fees
and other expenses charged by each of the Investment Options during 1995.
After deduction of these amounts, the illustrated gross annual investment rates
of return of 0%, 6%, and 12% correspond to approximate net annual rates of
- -1.71%, 4.29%, and 10.29%, respectively on a current and guaranteed basis during
the first fifteen Policy Years, and to approximate net
28
<PAGE> 37
annual rates of -1.26%, 4.74%, and 10.74%, respectively on a current and
guaranteed basis thereafter.
The actual charges under a Policy for expenses of the Investment Options will
depend on the actual allocation of Cash Value and may be higher or lower than
those illustrated.
The charge for Investment Option expenses for all illustrations is an average of
the investment advisory fees and other expenses charged by all of the Investment
Options. The Investment Option expenses for some of the Investment Options
reflect an expense reimbursement agreement currently in effect. For the year
ended December 31, 1995, these reimbursement agreements affected the total
operating expenses of the Investment Options as follows:
1. The Company has agreed to reimburse Capital Appreciation Fund (CAF),
Cash Income Trust (CIT), Managed Assets Trust (MAT), the U.S. Government
Securities Portfolio (USGSP) and the Utilities Portfolio, for the amount
by which each fund's aggregate annual expenses, including investment
advisory fees, but excluding brokerage commissions, interest charges and
taxes, exceed 1.25%. In the absence of the reimbursement agreement with
the Company, the operating expenses in 1995 would have been 0.62% for
Utilities Portfolio. The expense reimbursement agreement did not affect
the operating expenses of CIT, CAF, MAT or USGSP during 1995.
2. The administrator and investment adviser for the Dreyfus Stock Index
Fund have agreed to reimburse the Fund for expenses in excess of 0.40%.
In the absence of the reimbursement agreement, such expenses would have
been 0.57% in 1995.
3. No reimbursement arrangements were in effect for the Templeton Stock,
Bond and Asset Allocation Funds during 1995.
4. No reimbursement arrangement affected Fidelity's Equity Income or
Fidelity's Growth Portfolio during 1995. However, a portion of the
brokerage commissions the Fund paid was used to reduce its expenses.
Without this arrangement the expenses would have been 0.71% and 0.81%,
respectively, for the Fidelity High Income and Fidelity Asset Manager
Portfolio.
5. If such fees were not waived and expenses were not reimbursed, total
Investment Option expenses for the Smith Barney/Travelers Series Fund
Portfolios would have been: Smith Barney Income and Growth Portfolio,
0.94%; Alliance Growth Portfolio, 0.97%; Smith Barney High Income
Portfolio, 1.07%; MFS Total Return Portfolio, 1.06%.
Although these reimbursement arrangements are expected to continue in subsequent
years, the effect of discontinuance could be higher expenses charged to Policy
Owners.
As stated above, the examples illustrate values that would result based upon
hypothetical uniform gross investment rates of return of 0%, 6% and 12%. The
values would be different from those shown if the gross rates averaged 0%, 6%,
and 12% over a period of years, but fluctuated above and below those averages.
The illustrations also assume that premiums are paid as indicated, no Policy
loans are made, no increases or decreases to the Stated Amount are requested, no
partial surrenders are made, and no charges for transfers between funds are
incurred.
The illustrations do not reflect any charges for federal income taxes against
Fund UL II, since the Company is not currently deducting such charges from Fund
UL II. However, such charges may be made in the future, and in that event, the
gross annual investment rates of return would have to exceed 0%, 6% and 12% by
an amount sufficient to cover the tax charges in order to produce the Death
Benefits, Account Values and Cash Surrender Values illustrated.
Upon request, the Company will provide a comparable illustration based upon the
proposed Insured's age, sex, underwriting classification, the specified
insurance benefits, and the premium requested. The hypothetical gross annual
investment return assumed in such an illustration will not exceed 12%.
29
<PAGE> 38
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,004 1,079 1,154 0 0
2 3,435 150,000 150,000 150,000 1,977 2,190 2,413 889 1,090
3 5,282 150,000 150,000 150,000 2,912 3,329 3,782 1,876 2,268
4 7,221 150,000 150,000 150,000 3,951 4,640 5,419 2,959 3,607
5 9,258 150,000 150,000 150,000 4,949 5,985 7,204 4,006 4,979
6 11,396 150,000 150,000 150,000 5,906 7,363 9,150 5,013 6,383
7 13,641 150,000 150,000 150,000 6,823 8,780 11,277 5,983 7,871
8 15,999 150,000 150,000 150,000 7,701 10,237 13,606 6,916 9,436
9 18,474 150,000 150,000 150,000 8,541 11,735 16,158 7,846 11,040
10 21,073 150,000 150,000 150,000 9,338 13,271 18,953 8,751 12,684
15 36,153 150,000 150,000 150,000 12,513 21,433 37,465 12,513 21,433
20 55,399 150,000 150,000 150,000 14,501 31,049 68,642 14,501 31,049
<CAPTION>
YEAR 12%
<S> <C>
- ------------------------
<S> <C>
1 8
2 1,299
3 2,694
4 4,339
5 6,125
6 8,133
7 10,368
8 12,805
9 15,463
10 18,366
15 37,465
20 68,642
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
30
<PAGE> 39
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 521 580 640 0 0
2 3,435 150,000 150,000 150,000 999 1,151 1,311 0 113
3 5,282 150,000 150,000 150,000 1,433 1,709 2,014 486 745
4 7,221 150,000 150,000 150,000 2,248 2,694 3,204 1,359 1,778
5 9,258 150,000 150,000 150,000 3,007 3,679 4,476 2,180 2,812
6 11,396 150,000 150,000 150,000 3,709 4,661 5,834 2,948 3,843
7 13,641 150,000 150,000 150,000 4,350 5,637 7,286 3,659 4,868
8 15,999 150,000 150,000 150,000 4,923 6,600 8,835 4,305 5,882
9 18,474 150,000 150,000 150,000 5,425 7,545 10,487 4,884 6,876
10 21,073 150,000 150,000 150,000 5,855 8,469 12,254 5,396 7,882
15 36,153 150,000 150,000 150,000 6,956 12,776 23,384 6,956 12,776
20 55,399 150,000 150,000 150,000 5,767 16,118 40,659 5,767 16,118
<CAPTION>
YEAR 12%
<S> <C>
- ---------------------------------
<S> <C>
1 0
2 263
3 1,032
4 2,257
5 3,561
6 4,945
7 6,418
8 8,034
9 9,792
10 11,667
15 23,384
20 40,659
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
31
<PAGE> 40
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,270 1,363 1,457 117 204
2 4,238 150,000 150,000 150,000 2,493 2,760 3,040 1,374 1,625
3 6,517 150,000 150,000 150,000 3,672 4,194 4,762 2,591 3,081
4 8,910 150,000 150,000 150,000 4,950 5,813 6,790 3,899 4,710
5 11,423 150,000 150,000 150,000 6,169 7,466 8,994 5,152 6,372
6 14,061 150,000 150,000 150,000 7,340 9,164 11,400 6,361 8,076
7 16,831 150,000 150,000 150,000 8,459 10,905 14,029 7,521 9,884
8 19,740 150,000 150,000 150,000 9,532 12,698 16,910 8,638 11,785
9 22,794 150,000 150,000 150,000 10,555 14,540 20,068 9,748 13,733
10 26,001 150,000 150,000 150,000 11,515 16,420 23,519 10,816 15,721
15 44,607 150,000 150,000 150,000 15,406 26,535 46,602 15,406 26,535
20 68,354 150,000 150,000 150,000 17,035 37,798 85,308 17,035 37,798
<CAPTION>
YEAR 12%
- ------------------------------------------
<S> <C>
1 293
2 1,889
3 3,615
4 5,628
5 7,808
6 10,271
7 13,008
8 15,997
9 19,261
10 22,820
15 46,602
20 85,308
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
32
<PAGE> 41
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 715 791 867 0 0
2 4,238 150,000 150,000 150,000 1,365 1,562 1,769 314 499
3 6,517 150,000 150,000 150,000 1,948 2,309 2,705 970 1,309
4 8,910 150,000 150,000 150,000 2,890 3,470 4,134 1,962 2,507
5 11,423 150,000 150,000 150,000 3,751 4,617 5,646 2,879 3,693
6 14,061 150,000 150,000 150,000 4,525 5,741 7,243 3,715 4,858
7 16,831 150,000 150,000 150,000 5,203 6,831 8,926 4,460 5,991
8 19,740 150,000 150,000 150,000 5,773 7,874 10,693 5,104 7,079
9 22,794 150,000 150,000 150,000 6,225 8,856 12,543 5,636 8,109
10 26,001 150,000 150,000 150,000 6,548 9,764 14,477 6,047 9,070
15 44,607 150,000 150,000 150,000 5,930 12,735 25,579 5,930 12,735
20 68,354 150,000 150,000 150,000 126 11,291 40,310 126 11,291
<CAPTION>
YEAR 12%
<S> <C>
- ---------------------------------------------------
<S> <C>
1 0
2 694
3 1,682
4 3,131
5 4,661
6 6,270
7 7,960
8 9,780
9 11,736
10 13,778
15 25,579
20 40,310
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
33
<PAGE> 42
APPENDIX A
ANNUAL MINIMUM PREMIUMS
(Per Thousand of Stated Amount)
<TABLE>
<CAPTION>
AGE MALE FEMALE
- --- ------ ------
<S> <C> <C>
0 2.80 2.42
1 2.69 2.47
2 2.59 2.48
3 2.58 2.47
4 2.58 2.47
5 2.58 2.47
6 2.58 2.47
7 2.60 2.49
8 2.62 2.52
9 2.66 2.56
10 2.72 2.62
11 2.80 2.68
12 2.89 2.76
13 3.01 2.84
14 3.13 2.94
15 3.25 3.04
16 3.38 3.16
17 3.51 3.28
18 3.62 3.40
19 3.72 3.47
20 3.81 3.53
21 3.90 3.60
22 3.98 3.67
23 4.05 3.73
24 4.08 3.71
25 4.13 3.76
26 4.30 3.93
27 4.45 4.09
28 4.61 4.26
29 4.76 4.41
30 4.92 4.60
31 5.12 4.80
32 5.32 5.02
33 5.52 5.22
34 5.74 5.46
35 5.98 5.71
36 6.33 6.01
37 6.66 6.31
38 7.01 6.64
39 7.34 6.97
40 7.69 7.34
41 8.17 7.75
42 8.66 8.18
43 9.14 8.62
44 9.63 9.11
45 10.11 9.59
46 10.79 10.13
47 11.47 10.70
<CAPTION>
AGE MALE FEMALE
- --- ------ ------
<S> <C> <C>
48 12.15 11.29
49 12.83 11.89
50 13.51 12.51
51 14.42 13.18
52 15.34 13.86
53 16.24 14.53
54 17.16 15.29
55 18.07 16.10
56 19.43 17.11
57 20.79 18.20
58 22.16 19.35
59 23.52 20.51
60 24.88 21.68
61 27.11 22.98
62 29.34 24.27
63 31.57 25.59
64 33.80 27.01
65 36.03 28.57
66 38.86 30.12
67 41.70 31.63
68 44.52 33.29
69 47.36 35.39
70 49.76 37.75
71 54.39 40.67
72 59.04 44.16
73 63.71 48.15
74 68.41 52.54
75 72.60 57.27
76 80.21 62.20
77 87.34 67.37
78 94.52 73.00
79 101.76 79.30
80 109.06 86.49
81 120.34 94.56
82 131.76 103.39
83 143.32 112.96
84 155.03 123.28
85 166.88 138.49
86 170.39 149.27
87 177.17 159.84
88 191.28 171.55
89 208.18 185.73
90 241.15 203.75
91 254.21 225.63
92 282.60 250.53
93 314.35 278.47
94 349.51 309.50
</TABLE>
APPENDIX A -- ANNUAL MINIMUM PREMIUMS
34
<PAGE> 43
APPENDIX B
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
(First Year)
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 2.04 1.84 1.63
1 2.04 1.84 1.63
2 2.04 1.84 1.63
3 2.04 1.84 1.63
4 2.04 1.84 1.63
5 2.19 1.97 1.75
6 2.19 1.97 1.75
7 2.21 1.99 1.77
8 2.23 2.01 1.78
9 2.26 2.03 1.81
10 2.39 2.15 1.91
11 2.46 2.21 1.97
12 2.54 2.29 2.03
13 2.65 2.39 2.12
14 2.75 2.48 2.20
15 2.76 2.48 2.21
16 2.77 2.49 2.22
17 2.79 2.51 2.23
18 2.82 2.54 2.26
19 2.90 2.61 2.32
20 2.86 2.57 2.29
21 2.93 2.64 2.34
22 2.99 2.69 2.39
23 3.04 2.74 2.43
24 3.06 2.75 2.45
25 3.08 2.77 2.46
26 3.14 2.83 2.51
27 3.25 2.93 2.60
28 3.37 3.03 2.70
29 3.47 3.12 2.78
30 3.49 3.14 2.79
31 3.64 3.28 2.91
32 3.78 3.40 3.02
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 3.92 3.53 3.14
34 4.08 3.67 3.26
35 4.19 3.77 3.35
36 4.43 3.99 3.54
37 4.66 4.19 3.73
38 4.91 4.42 3.93
39 5.14 4.63 4.11
40 5.69 5.12 4.55
41 6.05 5.45 4.84
42 6.41 5.77 5.13
43 6.76 6.08 5.41
44 7.13 6.42 5.70
45 7.18 6.46 5.74
46 7.66 6.89 6.13
47 8.14 7.33 6.51
48 8.63 7.77 6.90
49 9.11 8.20 7.29
50 10.00 9.00 8.00
51 10.67 9.60 8.54
52 11.35 10.22 9.06
53 12.02 10.82 9.62
54 12.70 11.43 10.16
55 13.01 11.71 10.41
56 13.99 12.69 11.19
57 14.97 13.47 11.98
58 15.96 14.36 12.77
59 16.93 15.24 13.54
60 17.91 16.12 14.33
61 19.52 17.57 15.82
62 21.12 19.01 16.90
63 22.73 20.46 18.18
64 24.34 21.91 19.47
65+ 25.40 22.85 20.32
</TABLE>
APPENDIX B -- PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
35
<PAGE> 44
APPENDIX B(1)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
Sales Charge Component*
(First Year)
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 0.41 0.37 0.33
1 0.41 0.37 0.33
2 0.41 0.37 0.33
3 0.41 0.37 0.33
4 0.41 0.37 0.33
5 0.44 0.39 0.35
6 0.44 0.39 0.35
7 0.44 0.40 0.35
8 0.45 0.40 0.36
9 0.45 0.41 0.36
10 0.48 0.43 0.38
11 0.49 0.44 0.39
12 0.51 0.46 0.41
13 0.53 0.48 0.42
14 0.55 0.50 0.44
15 0.55 0.50 0.44
16 0.55 0.50 0.44
17 0.56 0.50 0.45
18 0.56 0.51 0.45
19 0.58 0.52 0.46
20 0.57 0.51 0.46
21 0.59 0.53 0.47
22 0.60 0.54 0.48
23 0.61 0.55 0.49
24 0.61 0.55 0.49
25 0.62 0.54 0.48
26 0.63 0.57 0.50
27 0.65 0.59 0.52
28 0.67 0.61 0.54
29 0.69 0.62 0.56
30 0.70 0.63 0.56
31 0.73 0.66 0.58
32 0.76 0.68 0.60
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.78 0.71 0.63
34 0.82 0.73 0.65
35 0.84 0.75 0.67
36 0.89 0.80 0.71
37 0.93 0.84 0.75
38 0.98 0.88 0.79
39 1.03 0.93 0.82
40 1.14 1.02 0.91
41 1.21 1.09 0.97
42 1.28 1.15 1.03
43 1.35 1.22 1.08
44 1.43 1.28 1.14
45 1.44 1.29 1.15
46 1.53 1.38 1.23
47 1.63 1.47 1.30
48 1.73 1.55 1.38
49 1.82 1.64 1.46
50 2.00 1.80 1.60
51 2.13 1.92 1.71
52 2.27 2.04 1.82
53 2.40 2.16 1.92
54 2.54 2.29 2.03
55 2.60 2.34 2.08
56 2.80 2.52 2.24
57 2.99 2.69 2.40
58 3.19 2.87 2.55
59 3.39 3.05 2.71
60 3.58 3.22 2.87
61 3.90 3.51 3.12
62 4.22 3.80 3.38
63 4.55 4.09 3.64
64 4.87 4.38 3.89
65+ 5.08 4.57 4.06
</TABLE>
*This is the sales charge portion of the Per Thousand of Stated Amount Surrender
Charge. It equals 20% of the charge shown in Appendix B. It decreases 10% each
year over the 10 year period.
APPENDIX B(1) -- PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE -- SALES CHARGE
COMPONENT
36
<PAGE> 45
APPENDIX B(2)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
Administrative Charge Component*
(First Year)
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 1.63 1.47 1.30
1 1.63 1.47 1.30
2 1.63 1.47 1.30
3 1.63 1.47 1.30
4 1.63 1.47 1.30
5 1.75 1.58 1.40
6 1.75 1.58 1.40
7 1.77 1.59 1.42
8 1.78 1.61 1.42
9 1.81 1.62 1.45
10 1.91 1.72 1.53
11 1.97 1.77 1.58
12 2.03 1.83 1.62
13 2.12 1.91 1.70
14 2.20 1.98 1.76
15 2.21 1.98 1.77
16 2.22 1.99 1.78
17 2.23 2.01 1.78
18 2.26 2.03 1.81
19 2.32 2.09 1.86
20 2.29 2.06 1.83
21 2.34 2.11 1.87
22 2.39 2.15 1.91
23 2.43 2.19 1.94
24 2.45 2.20 1.96
25 2.46 2.17 1.93
26 2.51 2.26 2.01
27 2.60 2.34 2.08
28 2.70 2.42 2.16
29 2.78 2.50 2.22
30 2.79 2.51 2.23
31 2.91 2.62 2.33
32 3.02 2.72 2.42
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 3.14 2.82 2.51
34 3.26 2.94 2.61
35 3.35 3.02 2.68
36 3.54 3.19 2.83
37 3.73 3.35 2.98
38 3.93 3.54 3.14
39 4.11 3.70 3.29
40 4.55 4.10 3.64
41 4.84 4.36 3.87
42 5.13 4.62 4.10
43 5.41 4.86 4.33
44 5.70 5.14 4.56
45 5.74 5.17 4.59
46 6.13 5.51 4.90
47 6.51 5.86 5.21
48 6.90 6.22 5.52
49 7.29 6.56 5.83
50 8.00 7.20 6.40
51 8.54 7.68 6.83
52 9.08 8.18 7.26
53 9.62 8.66 7.70
54 10.16 9.14 8.13
55 10.41 9.37 8.33
56 11.19 10.07 8.95
57 11.98 10.78 9.58
58 12.77 11.49 10.22
59 13.54 12.19 10.83
60 14.33 12.90 11.46
61 15.62 14.06 12.50
62 16.90 15.21 13.52
63 18.18 16.37 14.54
64 19.47 17.53 15.58
65+ 20.32 18.29 16.26
</TABLE>
*This is the administrative portion of the Per Thousand of Stated Amount
Surrender Charge. It equals 80% of the charge shown in Appendix B.
APPENDIX B(2) -- PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE ADMINISTRATIVE
CHARGE
37
<PAGE> 46
APPENDIX C
CURRENT MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
NON-SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20 0.08 0.00 0.00
21 0.08 0.00 0.00
22 0.08 0.00 0.00
23 0.08 0.00 0.00
24 0.08 0.00 0.00
25 0.08 0.00 0.00
26 0.08 0.00 0.00
27 0.08 0.00 0.00
28 0.08 0.00 0.00
29 0.08 0.00 0.00
30 0.08 0.00 0.00
31 0.08 0.00 0.00
32 0.08 0.00 0.00
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.08 0.00 0.00
34 0.08 0.00 0.00
35 0.08 0.00 0.00
36 0.08 0.00 0.00
37 0.08 0.00 0.00
38 0.08 0.00 0.00
39 0.08 0.00 0.00
40 0.08 0.00 0.00
41 0.08 0.00 0.00
42 0.08 0.00 0.00
43 0.08 0.00 0.00
44 0.08 0.00 0.00
45 0.08 0.00 0.00
46 0.08 0.00 0.00
47 0.09 0.00 0.00
48 0.09 0.00 0.00
49 0.10 0.00 0.00
50 0.10 0.00 0.00
51 0.11 0.00 0.00
52 0.11 0.00 0.00
53 0.12 0.00 0.00
54 0.12 0.00 0.00
55 0.12 0.00 0.00
56 0.13 0.00 0.00
57 0.13 0.00 0.00
58 0.14 0.00 0.00
59 0.14 0.00 0.00
60 0.15 0.00 0.00
61 0.15 0.00 0.00
62 0.15 0.00 0.00
63 0.15 0.00 0.00
64 0.15 0.00 0.00
65+ 0.15 0.00 0.00
</TABLE>
APPENDIX C -- CURRENT MONTHLY ADMINISTRATIVE CHARGE
38
<PAGE> 47
APPENDIX C (CONT'D)
CURRENT MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 0.12 0.08 0.00
1 0.12 0.08 0.00
2 0.12 0.08 0.00
3 0.12 0.08 0.00
4 0.12 0.08 0.00
5 0.12 0.08 0.00
6 0.13 0.08 0.00
7 0.14 0.08 0.00
8 0.15 0.08 0.00
9 0.16 0.08 0.00
10 0.16 0.08 0.00
11 0.16 0.08 0.00
12 0.16 0.08 0.00
13 0.16 0.08 0.00
14 0.16 0.08 0.00
15 0.16 0.08 0.00
16 0.16 0.08 0.00
17 0.16 0.08 0.00
18 0.16 0.08 0.00
19 0.16 0.08 0.00
20 0.16 0.08 0.00
21 0.16 0.08 0.00
22 0.16 0.08 0.00
23 0.16 0.08 0.00
24 0.16 0.08 0.00
25 0.16 0.08 0.00
26 0.16 0.09 0.00
27 0.17 0.09 0.00
28 0.17 0.09 0.00
29 0.18 0.09 0.00
30 0.18 0.09 0.00
31 0.18 0.09 0.00
32 0.18 0.09 0.00
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.19 0.09 0.00
34 0.19 0.09 0.00
35 0.19 0.09 0.00
36 0.20 0.09 0.00
37 0.21 0.10 0.00
38 0.22 0.10 0.00
39 0.23 0.10 0.00
40 0.23 0.10 0.00
41 0.24 0.10 0.00
42 0.24 0.10 0.00
43 0.24 0.10 0.00
44 0.24 0.10 0.00
45 0.24 0.10 0.00
46 0.25 0.11 0.00
47 0.26 0.11 0.00
48 0.27 0.11 0.00
49 0.28 0.11 0.00
50 0.29 0.15 0.00
51 0.30 0.15 0.00
52 0.32 0.15 0.00
53 0.33 0.15 0.00
54 0.34 0.15 0.00
55 0.35 0.15 0.00
56 0.35 0.15 0.00
57 0.35 0.15 0.00
58 0.36 0.15 0.00
59 0.36 0.15 0.00
60 0.36 0.15 0.00
61 0.38 0.15 0.00
62 0.38 0.15 0.00
63 0.38 0.15 0.00
64 0.39 0.15 0.00
65+ 0.39 0.15 0.00
</TABLE>
39
<PAGE> 48
APPENDIX C(1)
GUARANTEED MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
SMOKERS AND NON-SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 0.16 0.08 0.00
1 0.16 0.08 0.00
2 0.16 0.08 0.00
3 0.16 0.08 0.00
4 0.16 0.08 0.00
5 0.16 0.08 0.00
6 0.16 0.08 0.00
7 0.16 0.08 0.00
8 0.16 0.08 0.00
9 0.16 0.08 0.00
10 0.16 0.08 0.00
11 0.16 0.08 0.00
12 0.16 0.08 0.00
13 0.16 0.08 0.00
14 0.16 0.08 0.00
15 0.16 0.08 0.00
16 0.16 0.08 0.00
17 0.16 0.08 0.00
18 0.16 0.08 0.00
19 0.16 0.08 0.00
20 0.16 0.08 0.00
21 0.16 0.08 0.00
22 0.16 0.08 0.00
23 0.16 0.08 0.00
24 0.16 0.08 0.00
25 0.16 0.08 0.00
26 0.16 0.09 0.00
27 0.17 0.09 0.00
28 0.17 0.09 0.00
29 0.18 0.09 0.00
30 0.18 0.09 0.00
31 0.18 0.09 0.00
32 0.18 0.09 0.00
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.19 0.09 0.00
34 0.19 0.09 0.00
35 0.19 0.09 0.00
36 0.20 0.09 0.00
37 0.21 0.10 0.00
38 0.22 0.10 0.00
39 0.23 0.10 0.00
40 0.23 0.10 0.00
41 0.24 0.10 0.00
42 0.24 0.10 0.00
43 0.24 0.10 0.00
44 0.24 0.10 0.00
45 0.24 0.10 0.00
46 0.25 0.11 0.00
47 0.26 0.11 0.00
48 0.27 0.11 0.00
49 0.28 0.11 0.00
50 0.29 0.15 0.00
51 0.30 0.15 0.00
52 0.32 0.15 0.00
53 0.33 0.15 0.00
54 0.34 0.15 0.00
55 0.35 0.15 0.00
56 0.35 0.15 0.00
57 0.35 0.15 0.00
58 0.36 0.15 0.00
59 0.36 0.15 0.00
60 0.36 0.15 0.00
61 0.38 0.15 0.00
62 0.38 0.15 0.00
63 0.38 0.15 0.00
64 0.39 0.15 0.00
65+ 0.39 0.15 0.00
</TABLE>
APPENDIX C(1) -- GUARANTEED MONTHLY ADMINISTRATIVE CHARGE
40
<PAGE> 49
MARKETLIFE
PROSPECTUS
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
HARTFORD, CONNECTICUT
L-12539 May, 1996
<PAGE> 50
Independent Auditors' Report
The Board of Directors and Shareholder of
The Travelers Life and Annuity Company:
We have audited the accompanying balance sheet of The Travelers Life and
Annuity Company as of December 31, 1995 and 1994, and the related statements of
operations and retained earnings and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Life and Annuity
Company as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
As discussed in note 3 to the financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," in 1994.
/s/KPMG Peat Marwick LLP
Hartford, Connecticut
January 16, 1996
7
<PAGE> 51
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Life and Annuity Company:
We have audited the statements of operations and retained earnings and cash
flows of The Travelers Life and Annuity Company for the year ended December 31,
1993. These financial statements are the responsibility of Company
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The
Travelers Life and Annuity Company for the year ended December 31, 1993 in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
September 16, 1994
8
<PAGE> 52
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(for the year ended December 31, in thousands) 1995 1994 | 1993
- --------------------------------------------------------------------------------------------|-----------
<S> <C> <C> | <C>
REVENUES |
Premiums $ 2,652 $ 3,498 | $ 4,524
Net investment income 63,209 66,093 | 58,044
Realized investment gains (losses) 18,713 (2,074) | 11,955
Other 17,466 18,702 | 9,102
- --------------------------------------------------------------------------------------------|-----------
102,040 86,219 | 83,625
- --------------------------------------------------------------------------------------------|-----------
|
BENEFITS AND EXPENSES |
Current and future insurance benefits 52,390 55,596 | 67,489
Amortization of deferred acquisition costs |
and value of insurance in force 1,563 - | -
Other operating expenses 4,651 2,758 | 3,075
- --------------------------------------------------------------------------------------------|-----------
58,604 58,354 | 70,564
- --------------------------------------------------------------------------------------------|-----------
|
Income before federal income taxes 43,436 27,865 | 13,061
- --------------------------------------------------------------------------------------------|-----------
|
Federal income taxes: |
Current 2,555 4,742 | 22,124
Deferred 11,964 4,798 | (22,672)
- --------------------------------------------------------------------------------------------|-----------
14,519 9,540 | (548)
- --------------------------------------------------------------------------------------------|-----------
Net income 28,917 18,325 | 13,609
Retained earnings beginning of year 128,990 110,665 | 97,034
Preference stock tax benefit allocated by parent - - | 22
- --------------------------------------------------------------------------------------------|-----------
Retained earnings end of year $ 157,907 $ 128,990 | $ 110,665
- --------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
9
<PAGE> 53
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(at December 31, in thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at market
(cost, $678,293; $624,347) $ 724,639 $ 559,142
Equity securities, at market (cost, $9,453; $14,252) 13,099 16,064
Mortgage loans 125,813 152,359
Real estate held for sale, net of accumulated depreciation of $524; $337 8,995 6,810
Short-term securities 51,381 44,472
Other investments 65,805 72,190
- ---------------------------------------------------------------------------------------------------------------
Total investments 989,732 851,037
- ---------------------------------------------------------------------------------------------------------------
Cash - 296
Investment income accrued 11,030 10,211
Premium balances receivable 2,277 -
Reinsurance recoverables 718 573
Deferred acquisition costs and value of insurance in force 22,560 21,014
Deferred federal income taxes 41,158 94,315
Separate accounts 886,688 820,384
Current federal income taxes 6,691 -
Other assets 3,785 3,539
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 1,964,639 $ 1,801,369
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 671,027 $ 691,108
Contractholder funds 11,947 -
Current federal income taxes - 26,071
Separate accounts 856,867 808,181
Other liabilities 61,247 17,889
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 1,601,088 1,543,249
- ---------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000
shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,314 167,354
Retained earnings 157,907 128,990
Unrealized investment gains (losses), net of taxes 35,330 (41,224)
- ---------------------------------------------------------------------------------------------------------------
Total shareholder's equity 363,551 258,120
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 1,964,639 $ 1,801,369
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
10
<PAGE> 54
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(for the year ended December 31, in thousands) 1995 1994 | 1993
- ------------------------------------------------------------------------------------------|-------------
<S> <C> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Premiums collected $ 1,950 $ 3,498 | $ 4,524
Net investment income received 66,219 57,240 | 53,944
Benefits and claims paid (71,710) (72,298) | (74,660)
Operating expenses paid (3,013) (4,400) | (3,249)
Income taxes refunded (paid) (35,305) 1,030 | (10,661)
Trading account investments, (purchases) sales, net - - | 35,093
Other (6,772) 22,507 | (683)
- ------------------------------------------------------------------------------------------|-------------
Net cash provided by (used in) operating activities (48,631) 7,577 | 4,308
- ------------------------------------------------------------------------------------------|-------------
CASH FLOWS FROM INVESTING ACTIVITIES |
Investment repayments |
Fixed maturities 11,752 29,043 | 29,479
Mortgage loans 24,137 60,260 | 53,835
Proceeds from investments sold, including real estate |
held for sale |
Fixed maturities 459,971 41,671 | 46,001
Equity securities 11,823 9,373 | 7,676
Mortgage loans 7,013 23,327 | 11,835
Real estate held for sale - 34,181 | 26,014
Investments in |
Fixed maturities (515,098) (204,412) | (206,682)
Equity securities (156) (375) | (5,280)
Mortgage loans (4,890) (5,607) | -
Short-term securities, (purchases) sales, net (5,051) (1,146) | (16,430)
Other investments, (purchases) sales, net 9,274 682 | 46,595
Securities transactions in course of settlement 45,727 5,722 | 1,133
- ------------------------------------------------------------------------------------------|-------------
Net cash provided by (used in) investing activities 44,502 (7,281) | (5,824)
- ------------------------------------------------------------------------------------------|-------------
CASH FLOWS FROM FINANCING ACTIVITIES |
Contractholder fund deposits 5,707 - | -
Contractholder fund withdrawals (1,874) - | -
- ------------------------------------------------------------------------------------------|-------------
Net cash provided by financing activities 3,833 - | -
- ------------------------------------------------------------------------------------------|-------------
Net increase (decrease) in cash $ (296) $ 296 | $ (1,516)
- --------------------------------------------------------------------------------------------------------
Cash at December 31 $ - $ 296 $ -
- --------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
11
<PAGE> 55
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), which is an
indirect, wholly owned subsidiary of Travelers Group Inc. (Travelers).
The Company primarily writes single premium group annuity close-out
contracts and individual structured settlement annuities. The single
premium group annuity contracts are typically purchased by
employer-sponsored pension plans upon termination of the plan, asset
reversion or other significant plan changes. The individual structured
settlement contracts are purchased by affiliates, The Travelers
Indemnity Company and its subsidiaries, in connection with the
settlement of certain of its policyholder obligations. In 1995, the
Company also commenced writing individual life and deferred annuity
business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
In December 1992, Primerica Corporation (Primerica) acquired
approximately 27% of The Travelers Corporation's common stock (the 27%
Acquisition). The 27% Acquisition was accounted for as a purchase.
Effective December 31, 1993, Primerica acquired the approximately 73% of
The Travelers Corporation common stock which it did not already own, and
The Travelers Corporation was merged into Primerica, which was renamed
Travelers Group Inc. This was effected through the exchange of .80423
shares of Travelers common stock for each share of The Travelers
Corporation common stock (the Merger). All subsidiaries of The
Travelers Corporation were contributed to The Travelers Insurance Group
Inc. (TIGI).
The 27% Acquisition and the Merger were accounted for as a "step
acquisition", and the purchase accounting adjustments were "pushed down"
as of December 31, 1993 to the subsidiaries of TIGI, including the
Company, and reflect adjustments of assets and liabilities of the
Company to their fair values determined at each acquisition date (i.e.,
27% of values at December 31, 1992 as carried forward and 73% of the
values at December 31, 1993). These assets and liabilities were
recorded at December 31, 1993 based upon management's then best estimate
of their fair values at the respective dates. Evaluation and appraisal
of assets and liabilities, including investments, the value of insurance
in force, other insurance assets and liabilities and related deferred
federal income taxes was completed during 1994. The excess of the 27%
share of assigned value of identifiable net assets over cost at December
31, 1992, which was allocated to the Company through "pushdown"
accounting, was approximately $1.3 million and is being amortized over
ten years on a straight-line basis.
The statements of operations and retained earnings and of cash flows and
the related accompanying notes for the years ended December 31, 1995 and
1994, which are presented on a purchase accounting basis, are separated
from the corresponding 1993 information, which is presented on a
historical accounting basis, to indicate the difference in valuation
bases.
12
<PAGE> 56
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and benefits
and expenses during the reporting period. Actual results could differ
from those estimates.
Certain prior year amounts have been reclassified to conform with the
1995 presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if
quoted market prices are not available, discounted expected cash flows
using market rates commensurate with the credit quality and maturity of
the investment. Fixed maturities are classified as "available for sale"
and are reported at fair value, with unrealized gains and losses, net of
income taxes, charged or credited directly to shareholder's equity.
Equity securities, which include common and nonredeemable preferred
stocks, are carried at market values that are based primarily on quoted
market prices. Changes in market values of equity securities are
charged or credited directly to shareholder's equity, net of applicable
income taxes.
Mortgage loans are carried at amortized cost. 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. Impaired loans were insignificant at December
31, 1995.
Real estate held for sale is carried at the lower of cost or fair value
less estimated costs to sell. Fair value was established at time of
foreclosure by appraisers, either internal or external, using discounted
cash flow analyses and other acceptable techniques. Thereafter, an
allowance for losses on real estate held for sale is established if the
carrying value of the property exceeds its current fair value less
estimated costs to sell. There was no such allowance at December 31,
1995.
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.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax revenues based upon specific identification of the investments
sold on the trade date and, prior to the Merger, included adjustments to
investment valuation reserves. These adjustments reflected changes
considered to be other than temporary in the net realizable value of
investments. Also included are gains and losses arising from the
remeasurement of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
13
<PAGE> 57
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Separate Accounts
Separate account liabilities primarily represent structured settlement
annuity obligations, which provide guaranteed levels of return or
benefits to contractholders. The separate account assets supporting
these obligations, which are legally segregated and are not subject to
claims that arise out of any other business of the Company, are carried
at amortized cost. Earnings on structured settlement contracts,
generally net investment income less policyholder benefits and operating
expenses, are included in other revenues.
In addition, the Company has other separate accounts, representing funds
for which investment income and investment gains and losses accrue
directly to, and investment risk is borne by, the contractholders. Each
of these accounts have specific investment objectives. The assets and
liabilities of these accounts are carried at market value, and amounts
assessed to the contractholders for management services are included in
revenues. Deposits, net investment income and realized investment gains
and losses for these accounts are excluded from revenues, and related
liability increases are excluded from benefits and expenses.
Deferred Acquisition Costs and Value of Insurance In Force
Costs of acquiring individual life insurance and annuity business,
principally commissions and certain expenses related to policy issuance,
underwriting and marketing, all of which vary with and are primarily
related to the production of new business, are deferred. Acquisition
costs relating to traditional life insurance are amortized over the
period of anticipated premiums; universal life in relation to estimated
gross profits; and annuity contracts employing a level yield method. A
10- to 25-year amortization period is used for life insurance, and a 10-
to 15-year period is employed for annuities. Deferred acquisition costs
are reviewed periodically for recoverability to determine if any
adjustment is required.
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from annuities
contracts at the date of the Merger using the same assumptions that were
used for computing related liabilities where appropriate. The value of
insurance in force was the actuarially determined present value of the
projected future profits discounted at an interest rate of 16% for the
business acquired. The value of the business in force is amortized over
the contract period using current interest crediting rates to accrete
interest and using an amortization method based on a level yield method.
The value of insurance in force is reviewed periodically for
recoverability to determine if any adjustment is required.
Future Policy Benefits
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuity policies have
been computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 4.5% to
7.5%, including a provision for adverse deviation. These assumptions
consider Company experience and industry standards and may be revised if
it is determined that the future experience will differ substantially
from that previously assumed. The assumptions vary by plan, age at
issue, year of issue and duration.
14
<PAGE> 58
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life and certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have substantial
mortality or morbidity risk. Account balances are also increased by
interest credited and reduced by withdrawals, mortality charges and
administrative expenses charged to the contractholders. Calculations of
contractholder account balances reflect lapse, withdrawal and interest
rate assumptions based on contract provisions, the Company's experience
and industry standards. Interest rates credited to contractholder funds
range from 4.2% to 6.5%.
Permitted Statutory Accounting Practices
The Company, domiciled in the State of Connecticut, prepares statutory
financial statements in accordance with the accounting practices
prescribed or permitted by the State of Connecticut Insurance
Department. Prescribed statutory accounting practices include a variety
of publications of the National Association of Insurance Commissioners
as well as state laws, regulations, and general administrative rules.
Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The impact of any permitted accounting
practices on the statutory surplus of the Company is not material.
Premiums
Premiums are recognized as revenues when due. Reserves are established
for the portion of premiums that will be earned in future periods.
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment and other insurance contracts. Other
revenues also include structured settlement policyholder revenues, which
relate to contracts issued through a separate account of the Company,
net of the related policyholder benefits and expenses.
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and
liabilities. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely than
not, with a valuation allowance for the portion that is not likely to be
recognized.
15
<PAGE> 59
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Accounting Standards not yet Adopted
Statement of Financial Accounting Standards No. 121, "Accounting for
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement requires the
write down to fair value when long-lived assets to be held and used are
impaired. It also requires long-lived assets to be disposed of (e.g.,
real estate held for sale) to be carried at the lower of cost or fair
value less cost to sell and does not allow such assets to be
depreciated. The adoption of this statement, effective January 1, 1996,
did not have a material effect on results of operations, financial
condition or liquidity.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). This statement addresses
alternative accounting treatments for stock-based compensation, such as
stock options and restricted stock. FAS 123 permits either expensing
the value of stock-based compensation over the period earned or
disclosing in the financial statement footnotes the pro forma impact to
net income as if the value of stock-based compensation awards had been
expensed. The value of awards would be measured at the grant date based
upon estimated fair value, using option pricing models. The
requirements of this statement will be effective for 1996 financial
statements, although earlier adoption is permissible if an entity elects
to expense the cost of stock-based compensation. The Company, along
with affiliated companies, participates in stock option and incentive
plans sponsored by Travelers. The Company is currently evaluating the
disclosure requirements and expense recognition alternatives addressed
by this statement.
3. CHANGES IN ACCOUNTING PRINCIPLES
Accounting by Creditors for Impairment of a Loan
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan," and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," which describe how impaired loans should be measured
when determining the amount of a loan loss accrual. These statements
amended existing guidance on the measurement of restructured loans in a
troubled debt restructuring involving a modification of terms. Their
adoption did not have a material impact on the Company's financial
condition, results of operations or liquidity.
Accounting for Certain Debt and Equity Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115), which addresses accounting and
reporting for investments in equity securities that have a readily
determinable fair value and for all debt securities. Investment
securities have been classified as "available for sale" and are reported
at fair value, with unrealized gains and losses, net of income taxes,
charged or credited directly to shareholder's equity. Previously,
securities classified as available for sale were carried at the lower of
aggregate cost or market value. Initial adoption of this standard
resulted in an increase of approximately $530 thousand (net of taxes) to
net unrealized gains in shareholder's equity. See note 12 for
additional disclosures.
16
<PAGE> 60
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
4. REINSURANCE
The Company participates in reinsurance in order to limit losses,
minimize exposure to large risks, provide capacity for future growth and
to effect business-sharing arrangements. The Company remains primarily
liable as the direct insurer on all risks reinsured.
Life insurance in force ceded to affiliates at December 31, 1995 and
1994 was $97.7 million and $106.0 million, respectively. At December
31, 1995 and 1994, $601.2 million and $0, respectively, was ceded to
non-affiliates.
5. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in note 12.
Additional Paid-in Capital
As a result of the finalization of the evaluations and appraisals used
to assign fair value to assets and liabilities under purchase
accounting, additional paid-in capital was increased by $1.3 million in
1994. It was decreased by $70.4 million in 1993 based upon the initial
evaluations and appraisals.
Shareholder's Equity and Dividend Availability
Statutory net income was $23.0 million and $5.7 million for the years
ended December 31, 1995 and 1994, respectively. Statutory net loss was
$23.0 million for the year ended December 31, 1993.
Statutory capital and surplus was $257.8 million and $233.0 million at
December 31, 1995 and 1994, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $16.4 million is available in 1996 for dividend payments by
the Company without prior approval of the Connecticut Insurance
Department.
17
<PAGE> 61
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has, in the normal course of business, provided fixed rate
loan commitments and commitments to partnerships. The Company does not
hold or issue derivative instruments for trading purposes.
The off-balance-sheet risks of fixed rate loan commitments, commitments
to partnerships and forward contracts were not significant at December
31, 1995 and 1994.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not
included in the amounts discussed.
At December 31, 1995, investments in fixed maturities had a carrying
value and a fair value of $724.6 million, compared with a carrying value
and a fair value of $559.1 million at December 31, 1994. See note 12.
At December 31, 1995 and 1994, mortgage loans had a carrying value of
$125.8 million and $152.4 million, respectively, which approximates fair
value. In estimating fair value, the Company used interest rates
reflecting the higher returns required in the real estate financing
market.
The carrying values of $1.9 million and $2.4 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1995 and 1994, respectively. The carrying values of $55.3
million and $14.2 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1995 and
1994, respectively. Fair value is determined using various methods
including discounted cash flows, as appropriate for the various
financial instruments.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $869.1 million and $923.0 million,
respectively, at December 31, 1995, compared to a carrying value and a
fair value of $820.4 million and $757.2 million, respectively, at
December 31, 1994. The liabilities of separate accounts providing a
guaranteed return had a carrying value and a fair value of $839.1
million and $766.3 million, respectively, at December 31, 1995, compared
to a carrying value and a fair value of $808.2 million and $681.4
million, respectively, at December 31, 1994.
The carrying values of short-term securities and investment income
accrued approximated their fair values.
18
<PAGE> 62
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
7. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
See note 6 for a discussion of financial instruments with off-balance-
sheet risk.
Litigation
The Company is a defendant in various litigation matters. Although
there can be no assurances, as of December 31, 1995, the Company
believes, based on information currently available, that the ultimate
resolution of these legal proceedings would not be likely to have a
material adverse effect on its results of operations, financial
condition or liquidity.
8. BENEFIT PLANS
Pension Plans
The Company participates in qualified and nonqualified, noncontributory
defined benefit pension plans sponsored by an affiliate. Benefits for
the qualified plan are based on an account balance formula. Under this
formula, each employee's accrued benefit can be expressed as an account
that is credited with amounts based upon the employee's pay, length of
service and a specified interest rate, all subject to a minimum benefit
level. This plan is funded in accordance with the Employee Retirement
Income Security Act of 1974 and the Internal Revenue Code. For the
nonqualified plan, contributions are based on benefits paid. The
Company's share of net pension expense was not significant for 1995,
1994 or 1993.
Other Benefit Plans
In addition to pension benefits, the Company provides certain health
care and life insurance benefits for retired employees through a plan
sponsored by TIGI. Covered employees may become eligible for these
benefits if they reach retirement age while working for the Company.
These retirees may elect certain prepaid health care benefit plans.
Life insurance benefits generally are set at a fixed amount. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of employee contributions.
The Company's share of the total cost of the plan for 1995, 1994 and
1993 was not significant.
The Merger resulted in a change in control of The Travelers Corporation
as defined in the applicable plans, and provisions of some employee
benefit plans secured existing compensation and benefit entitlements
earned prior to the change in control, and provided a salary and benefit
continuation floor for employees whose employment was affected. These
merger-related costs were assumed by TIGI.
19
<PAGE> 63
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
8. BENEFIT PLANS
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIGI, the Company matches a portion of
employee contributions. Effective April 1, 1993, the match decreased
from 100% to 50% of an employee's first 5% contribution and a variable
match based on the profitability of TIGI and its subsidiaries was added.
The Company's matching obligation was not significant for 1995, 1994 or
1993.
9. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI, including the
Company, are handled by TIC. Settlements for these functions between
TIC and its affiliates are made regularly. TIC provides various
employee benefit coverages to certain subsidiaries of TIGI. The
premiums for these coverages were charged in accordance with cost
allocation procedures based upon salaries or census. In addition,
investment advisory and management services, data processing services
and claims processing services are provided by affiliated companies.
Charges for these services are shared by the companies on cost
allocation methods based generally on estimated usage by department.
TIGI and its subsidiaries maintain a short-term investment pool in which
the Company participates. The position of each company participating in
the pool is calculated and adjusted daily. At December 31, 1995 and
1994, the pool totaled approximately $2.2 billion and $1.5 billion,
respectively. The Company's share of the pool amounted to $49.5 million
and $44.5 million at December 31, 1995 and 1994, respectively, and is
included in short-term securities in the balance sheet.
The Company's TTM Modified Guaranteed Annuity Contracts are subject to a
limited guarantee agreement by TIC in a principal amount of up to $100
million. TIC's obligation is to pay in full to any owner or beneficiary
of the TTM Modified Guaranteed Annuity Contracts principal and interest
as and when due under the annuity contract to the extent that the
Company fails to make such payment. In addition, TIC guarantees that
the Company will maintain a minimum statutory capital and surplus level.
The Company sells structured settlement annuities to its affiliates, The
Travelers Indemnity Company and its subsidiaries. Such deposits were
$36.6 million, $37.6 million and $48.4 million for 1995, 1994 and 1993,
respectively.
The Company began marketing variable annuity products through its
affiliate, Smith Barney, Inc., in 1995. Deposits related to these
products were $20.5 million in 1995.
Most leasing functions for TIGI and its subsidiaries are handled by TIC.
Leasing expenses are shared by the companies on a cost allocation method
based generally on estimated usage by department.
20
<PAGE> 64
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
(in thousands) 1995 1994 | 1993
----------------------------------------------------------------------------|-------------
<S> <C> <C> | <C>
Effective tax rate |
------------------ |
|
Income before federal income taxes $ 43,436 $ 27,865 | $ 13,061
Statutory tax rate 35% 35% | 35%
----------------------------------------------------------------------------|-------------
|
Expected federal income taxes $ 15,203 $ 9,753 | $ 4,571
Tax effect of: |
Nontaxable investment income (13) (90) | (85)
Adjustments to benefit and other reserves - (117) | (4,705)
Adjustment to deferred tax asset for |
enacted change in tax rates from |
34% to 35% - - | (255)
Other, net (671) (6) | (74)
----------------------------------------------------------------------------|-------------
Federal income taxes $ 14,519 $ 9,540 | $ (548)
----------------------------------------------------------------------------|-------------
|
Effective tax rate 33% 34% | (4)%
----------------------------------------------------------------------------|-------------
|
Composition of federal income taxes |
----------------------------------- |
Current: |
United States $ 2,555 $ 4,742 | $ 22,124
----------------------------------------------------------------------------|-------------
|
Deferred: |
United States 11,964 4,798 | (22,672)
----------------------------------------------------------------------------|-------------
Federal income taxes $ 14,519 $ 9,540 | $ (548)
------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 65
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1995 and 1994 were comprised
of the tax effects of temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 67,104 $ 70,729
Investments - 30,908
Other 2,570 2,766
-----------------------------------------------------------------------------------------------
Total 69,674 104,403
-----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments 19,625 -
Deferred acquisition costs and
value of insurance in force 6,285 7,355
Other 536 663
-----------------------------------------------------------------------------------------------
Total 26,446 8,018
-----------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 43,228 96,385
Valuation allowance for deferred tax assets (2,070) (2,070)
-----------------------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $ 41,158 $ 94,315
-----------------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, TIC and its
life insurance subsidiaries, including the Company, will file a
consolidated federal income tax return. Federal income taxes are
allocated to each member on a separate return basis adjusted for credits
and other amounts required by the consolidation process. Any resulting
liability will be paid currently to TIC. Any credits for losses will be
paid by TIC to the extent that such credits are for tax benefits that
have been utilized in the consolidated federal income tax return.
A net deferred tax asset valuation allowance of $2.1 million has been
established to reduce the deferred tax asset on investment losses to the
amount that, based upon available evidence, is more likely than not to
be realized. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains in the Company's consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of Travelers commencing in 1999,
or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no change in the
valuation allowance during 1995. The initial recognition of any benefit
provided by the reversal of the valuation allowance will be recognized
by reducing goodwill.
22
<PAGE> 66
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES, Continued
In management's judgment, the $41.2 million "net deferred tax asset after
valuation allowance" as of December 31, 1995, is fully recoverable
against expected future years' taxable ordinary income and capital gains.
At December 31, 1995, the Company has no ordinary or capital loss
carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $2.0 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for
which no provision has been made in the financial statements) would be
approximately $700 thousand.
11. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1995 1994 | 1993
---------------------------------------------------------------------------------|--------------
<S> <C> <C> | <C>
Gross investment income |
----------------------- |
Fixed maturities $ 49,486 $ 44,354 | $ 39,189
Equity securities 497 827 | 930
Mortgage loans 11,644 17,178 | 25,258
Real estate held for sale 2,476 6,299 | 19,028
Other 2,552 4,480 | (4,062)
---------------------------------------------------------------------------------|--------------
66,655 73,138 | 80,343
---------------------------------------------------------------------------------|--------------
|
Investment expenses 3,446 7,045 | 22,299
---------------------------------------------------------------------------------|--------------
Net investment income $ 63,209 $ 66,093 | $ 58,044
------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 67
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1995 1994 | 1993
----------------------------------------------------------------------------------|-------------
<S> <C> <C> | <C>
Realized |
-------- |
|
Fixed maturities $ (4,240) $ (908) | $ 8,659
Equity securities 6,138 1,675 | 1,580
Mortgage loans 725 36 | (1,564)
Real estate held for sale (35) - | (8,310)
Other 16,125 (2,877) | 11,590
----------------------------------------------------------------------------------|-------------
Realized investment gains (losses) $ 18,713 $ (2,074) | $ 11,955
------------------------------------------------------------------------------------------------
</TABLE>
Changes in net unrealized investment gains (losses) that are included
as a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1995 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C> | <C>
Unrealized |
---------- |
|
Fixed maturities $ 111,551 $ (65,205) | $ (20,059)
Equity securities 1,834 (27) | (1,389)
Other 4,390 (28) | 8,524
----------------------------------------------------------------------------------|-------------
117,775 (65,260) | (12,924)
Related taxes 41,221 (22,841) | (3,445)
----------------------------------------------------------------------------------|-------------
Change in unrealized investment gains (losses) 76,554 (42,419) | (9,479)
Balance beginning of year (41,224) 1,195 | 10,674
------------------------------------------------------------------------------------------------
Balance end of year $ 35,330 $ (41,224) $ 1,195
------------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$530 thousand (net of taxes) to net unrealized investment gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $460.0 million and $41.7 million in 1995 and 1994, respectively.
Gross gains of $7.9 million and $869 thousand and gross losses of $10.3
million and $1.9 million in 1995 and 1994, respectively, were realized
on those sales.
24
<PAGE> 68
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Prior to December 31, 1993, fixed maturities that were intended to be
held to maturity were recorded at amortized cost and classified as held
for investment. Proceeds from sales of such securities were $16.4
million in 1993, resulting in gross realized gains of $617 thousand.
Prior to December 31, 1993, the carrying values of the trading portfolio
fixed maturities were adjusted to market value as it was likely they
would be sold prior to maturity. Sales of trading portfolio fixed
maturities were $96.6 million in 1993, resulting in gross realized gains
of $12.4 million.
The amortized cost and market values of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1995
------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
(in thousands) cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 89,044 $ 2,545 $ 378 $ 91,211
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 160,988 24,267 1 185,254
Obligations of states and
political subdivisions 3,500 499 - 3,999
All other corporate bonds 424,676 21,576 2,162 444,090
Redeemable preferred stock 85 - - 85
------------------------------------------------------------------------------------------------
Total $ 678,293 $ 48,887 $ 2,541 $ 724,639
------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 69
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
(in thousands) cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 60,102 $ 14 $ 4,624 $ 55,492
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 188,043 25 24,301 163,767
Obligations of states and
political subdivisions 3,000 - 184 2,816
Debt securities issued by
foreign governments 20,076 - 2,157 17,919
All other corporate bonds 352,197 1,140 35,055 318,282
Redeemable preferred stock 929 13 76 866
------------------------------------------------------------------------------------------------
Total $ 624,347 $ 1,192 $ 66,397 $ 559,142
------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and market value of fixed maturities available for
sale at December 31, 1995, by contractual maturity, are shown below.
Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Maturity Amortized Market
(in thousands) cost value
------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 7,858 $ 8,245
Due after 1 year through 5 years 28,392 29,022
Due after 5 years through 10 years 172,831 178,526
Due after 10 years 380,168 417,635
------------------------------------------------------------------------------------------------
589,249 633,428
Mortgage-backed securities 89,044 91,211
------------------------------------------------------------------------------------------------
Total $ 678,293 $ 724,639
------------------------------------------------------------------------------------------------
</TABLE>
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy
is to purchase CMO tranches which are protected against prepayment risk,
primarily planned amortization class (PAC) tranches. Prepayment
protected tranches are preferred because they provide stable cash flows
in a variety of scenarios. The Company does invest in other types of
CMO tranches if a careful assessment indicates a favorable risk/return
tradeoff. The Company does not purchase residual interests in CMOs.
26
<PAGE> 70
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1995 and 1994, the Company held CMOs with a market value
of $68.6 million and $55.5 million, respectively. Approximately 94% and
96% of the Company's CMO holdings are fully collateralized by
GNMA, FNMA or FHLMC securities at December 31, 1995 and 1994,
respectively. Virtually all of these securities are rated AAA.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1995
------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Market
(in thousands) Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 3,310 $ 3,374 $ 68 $ 6,616
Nonredeemable preferred stocks 6,143 340 - 6,483
------------------------------------------------------------------------------------------------
Total $ 9,453 $ 3,714 $ 68 $ 13,099
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Market
(in thousands) Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 6,141 $ 3,177 $ 654 $ 8,664
Nonredeemable preferred stocks 8,111 7 718 7,400
------------------------------------------------------------------------------------------------
Total $ 14,252 $ 3,184 $ 1,372 $ 16,064
------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $11.8 million and $9.4
million in 1995 and 1994, respectively. Gross gains of $4.9 million and
$2.8 million and gross losses of $474 thousand and $369 thousand in
1995 and 1994, respectively, were realized on those sales.
Mortgage loans and real estate held for sale
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market. The Company continues its strategy, adopted in
conjunction with the Merger, to dispose of these real estate assets and
some of the mortgage loans and to reinvest the proceeds to obtain
current market yields.
27
<PAGE> 71
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1995 and 1994, the Company's mortgage loan and real
estate held for sale portfolios consisted of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(in thousands) 1995 1994
------------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 108,142 $ 134,868
Underperforming mortgage loans 17,671 17,491
------------------------------------------------------------------------------
Total 125,813 152,359
------------------------------------------------------------------------------
Real estate held for sale 8,995 6,810
------------------------------------------------------------------------------
Total $ 134,808 $ 159,169
------------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------------
<S> <C>
Past maturity $ 3,437
1996 21,927
1997 5,966
1998 21,237
1999 9,700
2000 6,016
Thereafter 57,530
-----------------------------------------------------
Total $ 125,813
-----------------------------------------------------
</TABLE>
Concentrations
At December 31, 1995 and 1994, the Company had no concentration of
credit risk in a single investee exceeding 10% of shareholder's equity.
The Company participates in a short-term investment pool maintained by
TIGI and its subsidiaries. See note 9.
Included in fixed maturities are below investment grade assets totaling
$59.0 million and $51.1 million at December 31, 1995 and 1994,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or
the equivalent by internal analysts when a public rating does not exist.
Such assets include publicly traded below investment grade bonds and
certain other privately issued bonds that are classified as below
investment grade loans.
28
<PAGE> 72
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company also had significant concentrations of investments,
primarily fixed maturities, in the following industries:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
(in thousands) 1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil and gas $ 63,835 $ 39,749
Transportation 44,119 38,523
Banking 33,168 42,191
Chemical manufacturing 16,032 27,326
--------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals of the previous
table were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
(in thousands) 1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil and gas $ 3,469 $ 4,002
Transportation 18,648 2,678
Banking 632 5,124
--------------------------------------------------------------------------------------------------
</TABLE>
Concentrations of mortgage loans by property type at December 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(in thousands) 1995 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Office $ 32,024 $ 40,559
Agricultural 29,820 32,890
Retail 27,870 31,712
-------------------------------------------------------------------------------------------------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with
respect to new mortgage loans generally require loan to value ratios of
75% or less at the time of mortgage origination.
29
<PAGE> 73
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Investment Valuation Reserves
There were no investment valuation reserves at December 31, 1995, 1994
and 1993. Investment valuation reserve activity during 1993 was as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in thousands) 1993
------------------------------------------------------------------------------------------------
<S> <C>
Beginning of year $ 41,443
Increase 8,355
Impairments, net of gains/recoveries (6,887)
Purchase accounting adjustment (42,911)
------------------------------------------------------------------------------------------------
End of year $ -
------------------------------------------------------------------------------------------------
</TABLE>
Increases in the investment valuation reserves were reflected as
realized investment losses.
Nonincome Producing
Investments included in the balance sheets that were nonincome producing
for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loan and debt securities which were restructured
at below market terms totaling approximately $17.7 million and $17.4
million at December 31, 1995 and 1994, respectively. At December 31,
1993, the Company's restructured assets were recorded at purchase
accounting value. The new terms typically defer a portion of contract
interest payments to varying future periods. The accrual of interest is
suspended on all restructured assets, and interest income is reported
only as payment is received. Gross interest income on restructured
assets that would have been recorded in accordance with the original
terms of such assets amounted to $4.9 million in 1995 and $5.2 million in
1994. Interest on these assets, included in net investment income,
aggregated $2.0 million in 1995 and $1.4 million in 1994.
30
<PAGE> 74
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
13. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1995, the Company had $683.0 million of life and annuity
deposit funds and reserves. Of that total, $671.2 million were not
subject to discretionary withdrawal based on contract terms. The
remaining $11.8 million were life and annuity products that were subject
to discretionary withdrawal by the contractholders. Included in the
amount that is subject to discretionary withdrawal were $8.2 million of
liabilities that are surrenderable with market value adjustments. An
additional $3.6 million of the life insurance and individual annuity
liabilities are subject to discretionary withdrawals with an average
surrender charge of 6.6%. The life insurance risks would have to be
underwritten again if transferred to another carrier, which is considered
a significant deterrent for long-term policyholders. Insurance
liabilities that are surrendered or withdrawn from the Company are
reduced by outstanding policy loans and related accrued interest prior to
payout.
14. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used
in) operating activities:
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1995 1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C> | <C>
Net income $ 28,917 $ 18,325 | $ 13,609
Reconciling adjustments |
Realized (gains) losses (18,713) 2,074 | (11,955)
Deferred federal income taxes 11,964 4,798 | (22,672)
Amortization of deferred policy acquisition costs and |
value of insurance in force 1,563 - | -
Deferred policy acquisition costs (3,109) (21,014) | -
Investment income accrued (819) 1,085 | (9,607)
Insurance reserves (20,081) (16,062) | 80,238
Trading account investments, (purchases) sales, net - - | 35,093
Other (48,353) 18,371 | (80,398)
-----------------------------------------------------------------------------------------|-------------
|
Net cash provided by (used in) operating activities $ (48,631) $ 7,577 | $ 4,308
-------------------------------------------------------------------------------------------------------
</TABLE>
15. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
transfer of $2.6 million and $5.6 million of mortgage loans and real
estate held for sale from one of the Company's separate accounts to the
general account in 1995 and 1994, respectively; b) acquisition of real
estate through foreclosures of mortgage loans amounting to $10.3 million
and $7.7 million in 1994 and 1993, respectively; and c) increases in
investment valuation reserves in 1993 for mortgage loans and real estate
held for sale (see note 12).
31
