<PAGE> 1
VARIABLE UNIVERSAL LIFE
ANNUAL REPORT
DECEMBER 31, 1996
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
[TRAVELERSLIFE LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Travelers Variable Products Funds, 759,956 shares (cost $926,331).............................. $ 917,333
Templeton Variable Products Series Fund, 9,934 shares (cost $216,481).......................... 225,243
Fidelity's Variable Insurance Products Fund, 10,817 shares (cost $247,441)..................... 251,243
Fidelity's Variable Insurance Products Fund II, 563 shares (cost $9,553)....................... 9,526
Dreyfus Stock Index Fund, 2,550 shares (cost $52,165).......................................... 51,720
Travelers Series Fund Inc., 15,520 shares (cost $210,275)...................................... 208,043
Smith Barney Series Fund, 1,431 shares (cost $22,033).......................................... 22,512
-----------
Total Investments (cost $1,684,279)..................................................... $1,685,620
Receivables:
Dividends...................................................................................... 14,002
Premium payments and transfers from other Travelers accounts................................... 823
----------
Total Assets............................................................................ 1,700,445
----------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts........................ 1,048
Accrued liabilities.............................................................................. 762
----------
Total Liabilities....................................................................... 1,810
----------
NET ASSETS: $1,698,635
==========
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 3
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE PERIOD AUGUST 8, 1996 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.......................................................................... $ 23,667
EXPENSES:
Insurance charges.................................................................. $ 1,938
Administrative charges............................................................. 242
--------
Total expenses................................................................... 2,180
--------
Net investment income.......................................................... 21,487
--------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold................................................... 668,134
Cost of investments sold......................................................... 667,029
--------
Net realized gain.............................................................. 1,105
Unrealized gain on investments:
December 31, 1996................................................................ 1,341
--------
Net realized and unrealized gain............................................... 2,446
--------
Net increase in net assets resulting from operations............................... $ 23,933
========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD AUGUST 8, 1996 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
----
<S> <C>
OPERATIONS:
Net investment income....................................................... $ 21,487
Net realized gain from investment transactions.............................. 1,105
Net unrealized gain on investments.......................................... 1,341
-----------
Net increase in net assets resulting from operations...................... 23,933
-----------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 1,060,645 units)........................................... 1,566,170
Participant transfers from other Travelers accounts
(applicable to 677,084 units)............................................. 983,742
Contract surrenders
(applicable to 38,985 units).............................................. (58,243)
Participant transfers to other Travelers accounts
(applicable to 550,220 units)............................................. (816,967)
-----------
Net increase in net assets resulting from unit transactions.............. 1,674,702
-----------
Net increase in net assets............................................. 1,698,635
NET ASSETS:
Beginning of period......................................................... -
-----------
End of period............................................................... $ 1,698,635
===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund UL II for Variable Life Insurance ("Fund UL II") is a
separate account of The Travelers Life and Annuity Company ("Travelers
Life"), a wholly owned subsidiary of The Travelers Insurance Company ("The
Travelers"), an indirect wholly owned subsidiary of Travelers Group Inc.,
and is available for funding certain variable life insurance contracts
issued by Travelers Life. Fund UL II is registered under the Investment
Company Act of 1940, as amended, as a unit investment trust.
Participant premium payments applied to Fund UL II are invested in one or
more eligible funds in accordance with the selection made by the owner. As
of December 31, 1996, the eligible funds available under Fund UL II are:
Managed Assets Trust; Capital Appreciation Fund; Cash Income Trust; U.S.
Government Securities Portfolio, Utilities Portfolio, Zero Coupon Bond Fund
Portfolio Series 1998, Zero Coupon Bond Fund Portfolio Series 2000 and Zero
Coupon Bond Fund Portfolio Series 2005 of The Travelers Series Trust;
Alliance Growth Portfolio, Smith Barney Income and Growth Portfolio, Smith
Barney High Income Portfolio, MFS Total Return Portfolio and AIM Capital
Appreciation Portfolio of Travelers Series Fund Inc.; Total Return Portfolio
of the Smith Barney Series Fund (all of which are managed by affiliates of
The Travelers); Templeton Bond Fund, Templeton Stock Fund and Templeton
Asset Allocation Fund of Templeton Variable Products Series Fund; High
Income Portfolio, Growth Portfolio and Equity-Income Portfolio of Fidelity's
Variable Insurance Products Fund; Asset Manager Portfolio of Fidelity's
Variable Insurance Products Fund II; and Dreyfus Stock Index Fund. All of
the funds are Massachusetts business trusts, except for Travelers Series
Fund Inc. and Dreyfus Stock Index Fund which are incorporated under Maryland
law.
The following is a summary of significant accounting policies consistently
followed by Fund UL II in the preparation of its financial statements.
SECURITY VALUATION. Investments are valued daily at the net asset values
per share of the underlying funds.
FEDERAL INCOME TAXES. The operations of Fund UL II form a part of the total
operations of Travelers Life and are not taxed separately. Travelers Life is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended (the "Code"). Under existing federal income tax law, no taxes
are payable on the investment income of Fund UL II. Fund UL II is not taxed
as a "regulated investment company" under Subchapter M of the Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Security transactions are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date.
2. INVESTMENTS
Purchases and sales of investments aggregated $2,351,308 and $667,029,
respectively, for the period ended December 31, 1996. Realized gains and
losses from investment transactions are reported on an identified cost
basis. The cost of investments in eligible funds was $1,684,279 at December
31, 1996. Gross unrealized appreciation for all investments at December 31,
1996 was $13,051. Gross unrealized depreciation for all investments at
December 31, 1996 was $11,710.
3. CONTRACT CHARGES
Insurance charges and administrative charges of 0.80% and 0.10%,
respectively, of the average net assets of Fund UL II on an annual basis,
are allowed for mortality and expense risks and administrative expenses
assumed by Travelers Life. Contracts are charged 0.45% on an annual basis
and 0% after the first fifteen policy years for mortality and expense risks
and administrative expenses, respectively.
Travelers Life receives contingent surrender charges on full or partial
contract surrenders. Such charges are computed by applying various
percentages to premiums and/or stated contract amounts (as described in the
prospectus). Travelers Life received no contingent surrender charges for
the period August 8, 1996 (date operations commenced) to December 31, 1996.
-4-
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Travelers Variable Products Funds
Managed Assets Trust............................. 2,471 $ 2.221 $ 5,489
Capital Appreciation Fund........................ 77,659 2.153 167,182
Cash Income Trust................................ 510,210 1.479 754,688
U.S. Government Securities Portfolio............. 1,080 1.156 1,249
Utilities Portfolio.............................. 186 1.357 252
Zero Coupon Bond Fund Portfolio Series 1998...... 40 1.054 42
Zero Coupon Bond Fund Portfolio Series 2005...... 42 1.046 44
Templeton Variable Products Series Fund
Templeton Bond Fund.............................. 110 1.165 128
Templeton Stock Fund............................. 139,885 1.448 202,564
Templeton Asset Allocation Fund.................. 16,725 1.357 22,690
Fidelity's Variable Insurance Products Fund
High Income Portfolio............................ 17,292 1.290 22,307
Growth Portfolio................................. 80,468 1.492 120,047
Equity-Income Portfolio.......................... 70,383 1.549 109,031
Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio.......................... 7,858 1.212 9,525
Dreyfus Stock Index Fund........................... 31,576 1.660 52,410
Travelers Series Fund Inc.
Alliance Growth Portfolio........................ 61,648 1.336 82,363
Smith Barney Income and Growth Portfolio......... 12,845 1.267 16,269
Smith Barney High Income Portfolio............... 32,158 1.113 35,806
MFS Total Return Portfolio....................... 9,490 1.232 11,695
AIM Capital Appreciation Portfolio............... 58,901 1.059 62,348
Smith Barney Series Fund
Total Return Portfolio........................... 17,497 1.286 22,506
----------
Net Contract Owners' Equity.................................................................. $1,698,635
==========
</TABLE>
-5-
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
-------- -----------
<S> <C> <C>
TRAVELERS VARIABLE PRODUCTS FUNDS (54.4%)
Managed Assets Trust (Cost $5,275) 339 $ 5,084
Capital Appreciation Fund (Cost $164,242) 4,235 155,517
Cash Income Trust (Cost $755,247) 755,247 755,247
U.S. Government Securities Portfolio (Cost $1,237) 108 1,177
Utilities Portfolio (Cost $250) 19 231
Zero Coupon Bond Fund Portfolio Series 1998 (Cost $42) 4 40
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $38) 4 37
-------- -----------
Total (Cost $926,331) 759,956 917,333
-------- -----------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (13.4%)
Templeton Bond Fund (Cost $127) 11 128
Templeton Stock Fund (Cost $194,194) 8,847 202,423
Templeton Asset Allocation Fund (Cost $22,160) 1,076 22,692
-------- -----------
Total (Cost $216,481) 9,934 225,243
-------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (14.9%)
High Income Portfolio (Cost $21,971) 1,782 22,309
Growth Portfolio (Cost $119,740) 3,850 119,895
Equity-Income Portfolio (Cost $105,730) 5,185 109,039
-------- -----------
Total (Cost $247,441) 10,817 251,243
-------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (0.6%)
Asset Manager Portfolio (Cost $9,553)
Total (Cost $9,553) 563 9,526
-------- -----------
DREYFUS STOCK INDEX FUND (3.1%)
Total (Cost $52,165) 2,550 51,720
-------- -----------
TRAVELERS SERIES FUND INC. (12.3%)
Alliance Growth Portfolio (Cost $82,752) 4,899 82,211
Smith Barney Income and Growth Portfolio (Cost $16,569) 1,081 16,286
Smith Barney High Income Portfolio (Cost $36,978) 3,025 35,816
MFS Total Return Portfolio (Cost $11,790) 876 11,536
AIM Capital Appreciation Portfolio (Cost $62,186) 5,639 62,194
-------- -----------
Total (Cost $210,275) 15,520 208,043
-------- -----------
SMITH BARNEY SERIES FUND (1.3%)
Total Return Portfolio (Cost $22,033)
Total (Cost $22,033) 1,431 22,512
-------- -----------
TOTAL INVESTMENT OPTIONS (100%)
(COST $1,684,279) $ 1,685,620
===========
</TABLE>
-6-
<PAGE> 8
This page intentionally left blank.
-7-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD AUGUST 8, 1996 (DATE OPERATIONS COMMENCED) TO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
U.S.
MANAGED CAPITAL CASH GOVERNMENT
ASSETS APPRECIATION INCOME SECURITIES UTILITIES
TRUST FUND TRUST PORTFOLIO PORTFOLIO
--------- ------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 406 $ 11,690 $ 5,841 $ 73 $ 20
--------- ---------- ------------ -------- ------
EXPENSES:
Insurance charges.......................................... 9 184 1,014 2 -
Administrative charges..................................... 1 23 127 - -
--------- ---------- ------------ -------- ------
Net investment income (loss)......................... 396 11,483 4,700 71 20
--------- ---------- ------------ -------- ------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold......................... 208 48,831 610,976 53 -
Cost of investments sold............................... 197 48,252 610,976 52 -
--------- ---------- ------------ -------- ------
Net realized gain (loss)............................. 11 579 - 1 -
--------- ---------- ------------ -------- ------
Unrealized gain (loss) on investments:
End of period.......................................... (191) (8,725) - (60) (19)
--------- ---------- ------------ -------- ------
Net increase (decrease) in net assets
resulting from operations............................ 216 3,337 4,700 12 1
--------- ---------- ------------ -------- ------
UNIT TRANSACTIONS:
Participant premium payments............................... 213 35,577 1,384,589 - 196
Participant transfers from other Travelers accounts........ 5,304 158,113 187,058 1,289 111
Contract surrenders........................................ (244) (5,130) (32,569) (52) (56)
Participant transfers to other Travelers accounts.......... - (24,715) (789,090) - -
--------- ---------- ------------ -------- ------
Net increase in net assets resulting
from unit transactions............................... 5,273 163,845 749,988 1,237 251
--------- ---------- ------------ -------- ------
Net increase in net assets........................... 5,489 167,182 754,688 1,249 252
NET ASSETS:
Beginning of period.................................... - - - - -
--------- ---------- ------------ -------- ------
End of period.......................................... $ 5,489 $ 167,182 $ 754,688 $ 1,249 $ 252
========= ========== ============ ======== ======
</TABLE>
-8-
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
ZERO ZERO TEMPLETON
COUPON BOND COUPON BOND ASSET FIDELITY'S FIDELITY'S FIDELITY'S
FUND PORTFOLIO FUND PORTFOLIO TEMPLETON TEMPLETON ALLOCATION HIGH INCOME GROWTH EQUITY-INCOME
SERIES 1998 SERIES 2005 BOND FUND STOCK FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2 $ 2 $ - $ - $ - $ - $ - $ -
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
- - - 185 14 17 123 143
- - - 23 2 2 15 18
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
2 2 - (208) (16) (19) (138) (161)
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
- - 38 944 403 222 2,278 1,521
- - 38 899 382 218 2,102 1,456
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
- - - 45 21 4 176 65
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
(2) (1) 1 8,229 532 338 155 3,309
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
- 1 1 8,066 537 323 193 3,213
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
- 34 95 28,786 6,643 9,103 24,191 25,870
42 22 70 170,043 16,563 13,550 101,793 84,495
- (13) (38) (3,739) (966) (645) (5,447) (4,170)
- - - (592) (87) (24) (683) (377)
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
42 43 127 194,498 22,153 21,984 119,854 105,818
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
42 44 128 202,564 22,690 22,307 120,047 109,031
- - - - - - - -
------------ -------------- ---------- ---------- ---------- ----------- --------- -----------
$ 42 $ 44 $ 128 $ 202,564 $ 22,690 $ 22,307 $ 120,047 $ 109,031
============ ============== ========== ========== ========== =========== ========= ===========
</TABLE>
-9-
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD AUGUST 8, 1996 (DATE OPERATIONS COMMENCED) TO DECEMBER
31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY
FIDELITY'S ALLIANCE INCOME AND SMITH BARNEY
ASSET MANAGER DREYFUS STOCK GROWTH GROWTH HIGH INCOME
PORTFOLIO INDEX FUND PORTFOLIO PORTFOLIO PORTFOLO
-------------- ------------ ------------ ------------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ - $ 698 $ 1,721 $ 371 $ 2,042
-------------- ------------ ------------ ------------- ------
EXPENSES:
Insurance charges...................................... 9 41 53 10 36
Administrative charges................................. 1 5 7 1 5
-------------- ------------ ------------ ------------- -------
Net investment income (loss)..................... (10) 652 1,661 360 2,001
-------------- ------------ ------------ ------------- -------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold..................... 50 480 469 101 126
Cost of investments sold........................... 48 423 405 92 128
-------------- ------------ ------------ ------------- -------
Net realized gain (loss)......................... 2 57 64 9 (2)
-------------- ------------ ------------ ------------- -------
Unrealized gain (loss) on investments:
End of period...................................... (27) (445) (541) (283) (1,162)
-------------- ------------ ------------ ------------- -------
Net increase (decrease) in net assets
resulting from operations........................ (35) 264 1,184 86 837
-------------- ------------ ------------ ------------- -------
UNIT TRANSACTIONS:
Participant premium payments........................... 106 14,990 24,811 824 -
Participant transfers from other Travelers accounts.... 9,556 39,157 58,558 15,605 35,064
Contract surrenders.................................... (102) (1,458) (1,638) (246) (95)
Participant transfers to other Travelers accounts...... - (543) (552) - -
-------------- ------------ ------------ ------------- -------
Net increase in net assets resulting
from unit transactions........................... 9,560 52,146 81,179 16,183 34,969
-------------- ------------ ------------ ------------- -------
Net increase in net assets....................... 9,525 52,410 82,363 16,269 35,806
NET ASSETS:
Beginning of period................................ - - - - -
-------------- ------------ ------------ ------------- -------
End of period...................................... $ 9,525 $ 52,410 $ 82,363 $ 16,269 $35,806
============== ============ ============ ============= =======
</TABLE>
-10-
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
MFS TOTAL AIM CAPITAL
RETURN APPRECIATION TOTAL RETURN
PORTFOLIO PORTFOLIO PORTFOLIO COMBINED
--------------- ------------------ ----------------- ---------------------
<S> <C> <C> <C>
$ 385 $ 62 $ 354 $ 23,667
--------------- ------------------ ----------------- ---------------------
9 74 15 1,938
1 9 2 242
--------------- ------------------ ----------------- ---------------------
375 (21) 337 21,487
--------------- ------------------ ----------------- ---------------------
52 1,111 271 668,134
48 1,061 252 667,029
--------------- ------------------ ----------------- ---------------------
4 50 19 1,105
--------------- ------------------ ----------------- ---------------------
(254) 8 479 1,341
--------------- ------------------ ----------------- ---------------------
125 37 835 23,933
--------------- ------------------ ----------------- ---------------------
505 2,516 7,121 1,566,170
11,241 60,691 15,417 983,742
(157) (843) (635) (58,243)
(19) (53) (232) (816,967)
--------------- ------------------ ----------------- ---------------------
11,570 62,311 21,671 1,674,702
--------------- ------------------ ----------------- ---------------------
11,695 62,348 22,506 1,698,635
- - - -
--------------- ------------------ ----------------- ---------------------
$ 11,695 $ 62,348 $ 22,506 $ 1,698,635
================ ================== ================= =====================
</TABLE>
-11-
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of Variable Life Insurance Contracts of
The Travelers Fund UL II for Variable Life Insurance:
We have audited the accompanying statement of assets and liabilities of The
Travelers Fund UL II for Variable Life Insurance as of December 31, 1996, and
the related statements of operations and changes in net assets for the period
August 8, 1996 (date operations commenced) to December 31, 1996. These
financial statements are the responsibility of 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. Our
procedures included confirmation of shares owned as of December 31, 1996, by
correspondence with the underlying funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund UL II for
Variable Life Insurance as of December 31, 1996, the results of its operations
and the changes in its net assets for the period August 8, 1996 (date
operations commenced) to December 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 7, 1997
-12-
