<PAGE> 1
Registration Statement No. 33-63927
811-07411
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 2
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
----------------------------------------------------
(Exact Name of Trust)
THE TRAVELERS LIFE AND ANNUITY COMPANY
--------------------------------------
(Name of Depositor)
One Tower Square, Hartford, Connecticut 06183
----------------------------------------------
(Complete Address of Depositor's Principal Executive Offices)
Ernest J. Wright
Secretary
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
----------------------------
(Name and address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b)
- ------
X on May 1, 1998 pursuant to paragraph (b)
- ------
60 days after filing pursuant to paragraph (a)(1)
- ------
on __________ pursuant to paragraph (a)(1) of Rule 485.
- ------
this post-effective amendment designates a new effective date for a
- ------ previously filed post-effective amendment.
Check the box if it is proposed that this filing will become
- ------ effective on _______ at _____ pursuant to Rule 487. ______
<PAGE> 2
RECONCILIATION AND TIE BETWEEN
FORM N-8B-2 AND PROSPECTUS
--------------------------
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover page
2 Cover page
3 Not applicable
4 The Insurance Company; Distribution
5 The Travelers Fund UL II for Variable Life Insurance
6 The Travelers Fund UL II for Variable Life Insurance
7 Not applicable
8 Not applicable
9 Legal Proceedings and Opinion
10 Prospectus Summary; The Insurance Company; The Travelers Fund UL II for Variable Life Insurance, The Investment
Options; The Policy; Transfers of Cash Value; Cash Value and Cash Surrender Value; Voting Rights; Disregard of
Voting Rights; Dividends; Lapse and Reinstatement
11 Prospectus Summary; The Investment Options
12 Prospectus Summary; The Investment Options
13 Charges and Deductions; Distribution of the Policies
14 The Policy
15 Prospectus Summary; Allocation of Premium Payments
16 The Investment Options; Allocation of Premium Payments
17 Prospectus Summary; Right to Cancel Period; Cash Value and Cash Surrender
Value; Policy Loans; Exchange Rights
18 The Investment Options; Charges and Deductions; Federal Tax
Considerations; Dividends
19 Statements to Policy Owners
20 Not applicable
21 Policy Loans
22 Not applicable
23 Not applicable
24 Not applicable
25 The Insurance Company
26 Not applicable
27 The Insurance Company
28 The Insurance Company; Management
29 The Insurance Company
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 The Insurance Company; Distribution of the Policies
36 Not applicable
37 Not applicable
38 Distribution of the Policies
39 The Insurance Company; Distribution of the Policies
40 Not applicable
41 The Insurance Company; Distribution of the Policies
42 Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
43 Not applicable
44 Allocation of Premium Payments; Accumulation Unit Values
45 Not applicable
46 Cash Value and Cash Surrender Value
47 The Investment Options
48 Not applicable
49 Not applicable
50 Not applicable
51 Prospectus Summary; The Insurance Company; The Policy; Death
Benefits and Lapse and Reinstatement
52 The Investment Options; Substitution
53 Federal Tax Considerations
54 Not applicable
55 Not applicable
56 Not applicable
57 Not applicable
58 Not applicable
59 Financial Statements
</TABLE>
<PAGE> 4
THE TRAVELERS MARKETLIFE(SM)
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
<TABLE>
<S> <C>
FUND UL II
CAPITAL APPRECIATION FUND
MANAGED ASSETS TRUST PROSPECTUSES
MONEY MARKET PORTFOLIO
TRAVELERS SERIES TRUST MAY 1, 1998
</TABLE>
The Travelers Life and Annuity Company, One Tower Square, Hartford, Connecticut
06183 X Telephone: (800) 334-4298
<PAGE> 5
THE TRAVELERS LIFE AND ANNUITY COMPANY
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE: (800) 334-4298
THE TRAVELERS MARKETLIFE(SM)
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
PROSPECTUS
MAY 1, 1998
This Prospectus describes The Travelers MarketLife(sm), 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 (or later if state laws requires).
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
Rider.
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, 1998.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary of Special Terms................................... 4-5
Prospectus Summary.......................................... 6-8
The Insurance Company....................................... 9
The Policy.................................................. 9
Policy Application........................................ 9
Beneficiary............................................... 10
Assignment................................................ 10
Allocation of Premium Payments............................ 10
Right to Cancel........................................... 10
Statements to Policy Owners............................... 10
Charges and Deductions...................................... 11
Charges Against Premium................................... 11
Front-End Sales Charge................................. 11
State Premium Tax Charge............................... 11
Monthly Deduction Amount.................................. 11
Cost of Insurance Charge............................... 11
Policy Administrative Charge........................... 11
Charges for Supplemental Benefit Provisions............ 12
Charges Against the Separate Account...................... 12
Mortality and Expense Risk Charge...................... 12
Administrative Expense Charge.......................... 12
Charges Against the Investment Options.................... 12
Surrender Charges......................................... 12
Percent of Premium Charge.............................. 13
Per Thousand of Stated Amount Charge................... 13
Maximum Sales Charges..................................... 13
Reduction or Elimination of Charges....................... 14
Transaction Charge........................................ 14
Policy Benefits and Rights.................................. 14
Cash Value and Cash Surrender Value....................... 14
Policy Loans.............................................. 14
Lapse and Reinstatement................................... 15
Lapse Protection Guarantee Rider.......................... 16
Exchange Rights........................................... 16
Death Benefit............................................... 16
Changes in Death Benefit Option........................ 16
Payment Options........................................ 18
Limit on Right to Contest and Suicide Exclusion........ 19
Misstatement as to Sex and Age......................... 19
Changes in Stated Amount............................... 19
Maturity Benefits and Maturity Extension Rider......... 20
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
The Separate Account and the Investment Options............. 20
The Travelers Fund UL II for Variable Life Insurance (Fund
UL II)................................................. 20
The Investment Options.................................... 21
General................................................... 24
Accumulation Unit Values.................................. 24
Mixed and Shared Funding.................................. 25
Substitution.............................................. 25
Transfer of Cash Value.................................... 25
Automated Transfers....................................... 26
Performance Information..................................... 26
Example of Policy Charges................................... 29
Miscellaneous............................................... 29
Voting Rights............................................. 29
Disregard of Voting Instructions.......................... 30
Policies Sold Prior to May 1, 1998........................ 30
Suspension of Valuation................................... 30
Dividends................................................. 30
Distribution.............................................. 31
Legal Proceedings and Opinion............................. 31
Independent Accountants................................... 31
Registration Statement.................................... 31
Federal Tax Considerations.................................. 31
General................................................... 31
Tax Status of the Policy.................................. 32
Tax Treatment of Policy Benefits.......................... 33
Year 2000 Compliance........................................ 35
Management.................................................. 36
Senior Officers of the Travelers Life and Annuity Company... 37
Illustrations............................................... 37
Appendix
A -- Annual Minimum Premiums................................ 47
B, B(1), B(2) -- Surrender Charges.......................... 48-50
C -- Current Monthly Administrative Charge.................. 51-52
C(1) -- Guaranteed Monthly Administrative Charge............ 53
Financial Statements -- Fund UL II
Financial Statements -- The Travelers Life and Annuity
Company
</TABLE>
3
<PAGE> 8
GLOSSARY OF SPECIAL TERMS
- --------------------------------------------------------------------------------
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 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 segments of the Separate Account or Portfolio to which
you may allocate premiums or Cash Value 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 RIDER -- a rider which provides that the Policy will
not lapse during the first three Policy Years if a required amount of premium is
paid. (Not available in all states.)
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.
4
<PAGE> 9
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.
5
<PAGE> 10
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
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>
Capital Appreciation Fund TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Dreyfus Stock Index Fund Templeton Asset Allocation Fund (Class 1)
Managed Assets Trust Templeton Bond Fund (Class 1)
Money Market Portfolio Templeton Stock Fund (Class 1)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: TRAVELERS SERIES FUND, INC.:
VIP Equity Income Portfolio AIM Capital Appreciation Portfolio
VIP Growth Portfolio Alliance Growth Portfolio
VIP High Income Portfolio MFS Total Return Portfolio
Smith Barney High Income Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND Smith Barney Large Cap Value Portfolio
II:
VIP II Asset Manager Portfolio TRAVELERS SERIES TRUST:
U.S. Government Securities Portfolio
GREENWICH STREET SERIES FUND: Utilities Portfolio
Total Return Portfoio Zero Coupon Bond Portfolio 1998
Zero Coupon Bond Portfolio 2000
Zero Coupon Bond Portfolio 2005
</TABLE>
Additional Portfolios may be added from time to time. Further information
regarding the investment objectives for each Investment Option (including the
investment manager) is contained under "The Investment Options." Refer to each
Investment Option's prospectus for a complete description of the investment
objectives, restrictions and other material information.
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.
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
6
<PAGE> 11
be invested in the Money Market Portfolio (formerly "Cash Income Trust"). After
that, the cash 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. 10).
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 CHARGES:
- 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
STATED SALES PREMIUM PREMIUM
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. 11).
- 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. 11).
- FULL 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. 12).
- PARTIAL SURRENDER CHARGE -- applies if you surrender part of the value of
your Policy (p. 12).
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 subject to state availability, for
policies issued after May 1, 1998 .25% thereafter (p. 12). (For Policies
issued after July 12, 1995, and prior to May 1, 1998, the charge for the
first fifteen years is .80% and .45% thereafter).
- 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. 12).
- 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.
7
<PAGE> 12
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 100% of the Cash
Surrender Value, subject to state approval. After year 13, the Company
offers zero net cost loans (p. 15). (For Policies issued before May 1,
1998, the maximum loan allowed is 90% of the Cash Surrender Value.) (See
"Policy Loans" (p. 15) for loan impact on coverage and policy values.)
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. 12).
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. 25).
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 to several others (p. 26).
LAPSE PROTECTION GUARANTEE RIDER: 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
Guarantee 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. 16).
TAX CONSEQUENCES: Currently, the federal tax law excludes all Death Benefit
payments from the gross income of the Beneficiary (p. 32). 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. 34).
8
<PAGE> 13
THE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 Life and Annuity
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 Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
THE POLICY
- --------------------------------------------------------------------------------
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 19.) 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.
9
<PAGE> 14
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.
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 Money
Market Portfolio. 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 (or later if required by state law). 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;
10
<PAGE> 15
(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.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
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 charges may be assessed upon any full or partial
surrender. (See "Surrender Charges" page 12.)
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
31.)
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
11
<PAGE> 16
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 charges are lower than the guaranteed maximum charges. (See
Appendix C(1) for the guaranteed maximum charges.)
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.
Subject to state approval for Policies issued after May 1, 1998, this charge is
at an annual rate of 0.80% for the first fifteen (15) Policy Years, and 0.25%
thereafter. For policies issued prior to May 1, 1998, this charge is at an
annual rate of .80% for the first fifteen (15) Policy Years, and .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. Refer to "Policies Sold Prior to May 1, 1998" if applicable.
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.
12
<PAGE> 17
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 (and 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.")
For example (as illustrated on page 42), for 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 $7,485 (assuming a 6% rate of return), the Percent of Premium surrender
charge would be $449, because (a) is $449 (6% of $7,485); (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, $449, 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 $646.50; 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" p.14.) 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.
13
<PAGE> 18
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.
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGES
POLICY YEAR OF SURRENDER (AS A % OF PREMIUM PAYMENTS)
<S> <C>
----------------------------------------------------
<CAPTION>
<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 the mortality and expense risk charge, sales charges and
administrative charges in such arrangements to reflect the reduced sales
expenses, administrative costs and/or mortality and expense risks expected as a
result of sales to a particular group.
In no event will reduction or elimination of the withdrawal charge, mortality
and expense risk charge or the administrative charge be permitted where such
reduction or elimination will be unfairly discriminatory to any person.
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
14
<PAGE> 19
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 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 12 in more detail). For Policy loans taken after January 1,
2001, subject to state availability, it is anticipated the maximum loan amount
will be increased to 100% from 90%. Subject to state law, 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. 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.
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 New York and Massachusetts) and will
not be affected by the investment performance of the Investment Options. 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 maximum loan
is taken or 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
15
<PAGE> 20
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 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," below.)
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 RIDER
Policy Owners may elect to have a Lapse Protection Guarantee Rider as part of
their Policy (as long as the Insured is not a substandard risk). The Lapse
Protection Guarantee Rider 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 rider is
not be available in all jurisdictions.) This rider 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
16
<PAGE> 21
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 on page 19.
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. 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.
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
ATTAINED AGE BY A RATABLE PORTION
- ------------------------- FOR EACH FULL YEAR:
MORE BUT NOT ---------------------
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
17
<PAGE> 22
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 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 10.) Subject to state law, 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
19) 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, then 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 14, 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 Treatment of
Policy Benefits" on page 33. 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
18
<PAGE> 23
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.
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. Subject
to state law, 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 (subject to state law). 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 paid
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.
19
<PAGE> 24
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.
MATURITY BENEFITS AND MATURITY EXTENSION RIDER
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 is not be available in all jurisdictions.) If the Company has received
such request, prior to the Maturity Date, then 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. 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 Rider 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 Rider 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
20
<PAGE> 25
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 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>
Capital Appreciation Fund Seeks growth of capital through the Travelers Asset Management
use of common stocks. Income is not an International Corporation
objective. The Fund invests ("TAMIC")
principally in common stocks of small Subadviser: Janus Capital
to large companies which are expected Corp.
to experience wide fluctuations in
price in both rising and declining
markets.
Dreyfus Stock Index Fund Seeks to provide investment results Mellon Equity
that correspond to 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.
Managed Assets Trust Seeks high total investment return TAMIC
through a fully managed investment Subadviser: Travelers
policy in a portfolio of equity, debt Investment Management Company
and convertible securities. ("TIMCO")
Money Market Portfolio Seeks high current income from short- TAMIC
(formerly "Cash Income term money market instruments while
Trust") preserving capital and maintaining a
high degree of liquidity.
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND
VIP Equity-Income Seeks reasonable income by investing Fidelity Management &
Portfolio primarily in income-producing equity Research Company
securities; in choosing these
securities, the portfolio manager will
also consider the potential for
capital appreciation.
VIP Growth Portfolio Seeks capital appreciation by purchas- Fidelity Management &
ing common stocks of well-known, Research Company
established companies, and small
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.
</TABLE>
21
<PAGE> 26
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
VIP High Income Portfolio Seeks to obtain a high level of Fidelity Management &
current income by investing primarily Research Company
in high yielding, lower-rated,
fixed-income securities, while also
considering growth of capital.
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
VIP II Asset Manager Seeks high total return with reduced Fidelity Management &
Portfolio risk over the long-term by allocating Research Company
its assets among stocks, bonds and
short-term fixed-income instruments.
GREENWICH STREET
SERIES FUND
Total Return Portfolio An equity portfolio that seeks to pro- Mutual Management Corp.
vide total return, consisting of ("MMC")
long-term capital appreciation and
income. The Portfolio will invest
primarily in a diversified portfolio
of dividend-paying common stocks.
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Templeton Asset Seeks a high level of total return Templeton Investment Counsel,
Allocation Fund (Class 1) with reduced risk over the long term Inc.
through a flexible policy of investing
in stocks of companies in any nation
and debt obligations of companies and
governments of any nation.
Templeton Bond Fund Seeks high current income by investing Templeton Global Bond
(Class 1) primarily in debt securities of compa- Managers
nies, governments and government
agencies of various nations throughout
the world.
Templeton Stock Fund Seeks capital growth by investing Templeton Investment Counsel,
(Class 1) primarily in common stocks issued by Inc.
companies, large and small, in various
nations throughout the world.
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Seeks capital appreciation by Travelers Investment Adviser
Portfolio investing principally in common stock, ("TIA")
with emphasis on medium-sized and Subadviser: AIM Capital
smaller emerging growth companies. Management Inc.
Alliance Growth Portfolio Seeks long-term growth of capital by TIA
investing predominantly in equity Subadviser: Alliance Capital
securities of companies with a Management L.P.
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.
</TABLE>
22
<PAGE> 27
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
MFS Total Return Seeks to obtain above-average income TIA
Portfolio (compared to a portfolio entirely Subadviser: MFS
invested in equity securities)
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. Capital MMC
Portfolio appreciation is a secondary objective.
The Portfolio will invest at least 65%
of its assets in high-yielding
corporate debt obligations and
preferred stock.
Smith Barney Large Cap Seeks current income and long-term MMC
Value Portfolio (formerly growth of income and capital by
"Smith Barney Income and investing primarily, but not
Growth Portfolio") exclusively, in common stocks.
TRAVELERS SERIES TRUST
U.S. Government Seeks to select 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 Securi-
ties Portfolio will be invested in
direct obligations of the United
States, its agencies and
instrumentalities.
Utilities Portfolio Seeks to provide current income by MMC
investing in equity and debt
securities of companies in the utility
industries.
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 1998) 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>
23
<PAGE> 28
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 2000) 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.
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 2005) 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.
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
24
<PAGE> 29
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.
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
25
<PAGE> 30
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.
AUTOMATED TRANSFERS
DOLLAR-COST AVERAGING
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.
PORTFOLIO REBALANCING
You may elect to have the Company periodically reallocate values in your policy
to match your original (or your latest) funding option allocation request.
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 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 chart
reflects the guaranteed maximum .80% mortality and expense risk charge and .10%
administrative expense risk charge. The rates of return do not reflect
26
<PAGE> 31
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 11. For illustrations of how these charges affect
Cash Values and Death Benefits, see the Illustrations beginning on page 38. 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.
The table below shows the net annual rates of return for accumulation units of
investment options available through MarketLife.
AVERAGE ANNUAL RETURNS THROUGH 12/31/97
<TABLE>
<CAPTION>
UNDERLYING INVESTMENT OPTIONS ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
----------------------------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio 11.15% N/A N/A N/A
Alliance Growth Portfolio 27.82% N/A N/A N/A
Capital Appreciation Fund (Janus Sub-Adviser) 24.93% 28.90% 18.16% 15.36%
Dreyfus Stock Index Fund 31.67% 29.35% 18.57% N/A
Fidelity VIP Equity-Income Portfolio 26.87% 24.31% 19.01% N/A
Fidelity VIP Growth Portfolio 22.30% 23.04% 16.89% N/A
Smith Barney Large Cap Value Portfolio 25.42% N/A N/A N/A
Total Return Portfolio 15.75% N/A N/A N/A
Utilities Portfolio 24.09% N/A N/A N/A
Templeton Stock Fund (Class 1) 10.84% 18.57% 16.48% N/A
BOND FUNDS
Fidelity VIP High Income Portfolio 16.56% 16.30% 12.87% 11.76%
Smith Barney High Income Portfolio 12.79% N/A N/A N/A
Templeton Bond Fund (Class 1) 1.58% 7.84% 5.48% N/A
U.S. Gov't Securities Portfolio 11.59% 11.41% 7.01% N/A
Zero Coupon Bond Portfolio 1998 5.26% N/A N/A N/A
Zero Coupon Bond Portfolio 2000 6.24% N/A N/A N/A
Zero Coupon Bond Portfolio 2005 10.63% N/A N/A N/A
BALANCED FUNDS
Fidelity VIP II Asset Manager Portfolio 19.50% 16.27% 11.90% N/A
MFS Total Return Portfolio 20.04% N/A N/A N/A
Templeton Asset Allocation Fund (Class 1) 14.44% 17.82% 14.46% N/A
Managed Assets Trust 20.16% 19.46% 12.34% 12.02%
MONEY MARKET FUNDS
Money Market Portfolio(1) 4.11% 3.67% 2.89% N/A
</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, 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% 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 Money Market Portfolio is neither insured nor guaranteed by
the United States Government. There is no assurance that a stable $1.00
value will be maintained.
27
<PAGE> 32
MARKETLIFE HYPOTHETICAL EXAMPLE(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 $5,000 $4,621 $2,706 N/A N/A N/A
Alliance Growth Portfolio 5,000 5,360 3,445 N/A N/A N/A
Capital Appreciation Fund (Janus
Sub-Adviser) 5,000 5,231 3,317 $25,000 $39,038 $37,806
Dreyfus Stock Index Fund 5,000 5,531 3,616 25,000 40,656 39,424
Fidelity VIP Equity-Income
Portfolio 5,000 5,318 3,403 25,000 37,549 36,317
Fidelity VIP Growth Portfolio 5,000 5,115 3,200 25,000 35,471 34,240
Smith Barney Large Cap Value
Portfolio 5,000 5,253 3,338 N/A N/A N/A
Total Return Portfolio 5,000 4,825 2,910 N/A N/A N/A
Utilities Portfolio 5,000 5,194 3,279 25,000 N/A N/A
Templeton Stock Fund (Class 1) 5,000 4,607 2,692 N/A 31,929 30,697
BOND FUNDS
Fidelity VIP High Income Portfolio 5,000 4,860 2,946 25,000 30,478 29,247
Smith Barney High Income Portfolio 5,000 4,693 2,778 N/A N/A N/A
Templeton Bond Fund (Class 1) 5,000 4,197 2,283 25,000 23,754 22,522
Travelers U.S. Gov't Securities
Portfolio 5,000 4,640 2,725 25,000 25,768 24,536
Zero Coupon Bond Portfolio 1998 5,000 4,360 2,445 N/A N/A N/A
Zero Coupon Bond Portfolio 2000 5,000 4,403 2,489 N/A N/A N/A
Zero Coupon Bond Portfolio 2005 5,000 4,598 2,683 N/A N/A N/A
BALANCED FUNDS
Fidelity VIP II Asset Manager
Portfolio 5,000 4,991 3,076 25,000 30,344 29,112
MFS Total Return Portfolio 5,000 5,014 3,100 N/A N/A N/A
Templeton Asset Allocation Fund
(Class 1) 5,000 4,766 2,852 25,000 31,359 30,127
Managed Assets Trust 5,000 5,020 3,105 25,000 31,892 30,661
MONEY MARKET FUNDS
Money Market Portfolio 5,000 4,309 2,394 25,000 22,446 21,214
</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 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%).
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.
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.
28
<PAGE> 33
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). Cost of
insurance rates go up each year as the Insured becomes a year older.
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 FOR THE POLICY YEAR
----------------- SALES CHARGE -----------------------
COMPONENT OF
ADMINISTRATIVE SURRENDER CHARGE COST OF
POLICY CUMULATIVE SALES 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>
(3) 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. 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.
29
<PAGE> 34
DISREGARD OF 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.
FOR POLICIES SOLD PRIOR TO MAY 1, 1998
The following pertains to policies sold between July 12, 1995 and May 1, 1998
(or sold after May 1, 1998 in the states where the new policy has not yet been
approved).
MORTALITY AND EXPENSE RISK CHARGE. The current charge is at an annual rate of
0.80% for years one through fifteen and 0.45% thereafter.
ADMINISTRATIVE EXPENSE CHARGE. The charge is 0.10% for years one through
fifteen and 0.00% thereafter.
ILLUSTRATIONS
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of 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 .63% Investment Option expenses and
thereafter 0.45% for mortality and expense risks, 0.00% for administrative
expenses and 0.63% Investment Option expenses.
The charge for Investment Option expenses reflected in the illustration assumes
that Cash Value is allocated equally among all investment Options and that no
Policy Loans are outstanding, and is the average of the investment advisory fees
and other expenses charged by each of the Investment Options during 1997.
After deduction of these amounts, the illustrated gross annual rates of 0%, 6%
and 12% correspond to approximate net annual rates of -1.53%, 4.47% and 10.47%,
respectively on a current and guaranteed basis for the first fifteen Policy
Years and to approximate net annual rates of -1.08%, 4.92% and 10.92%,
respectively on a current and guaranteed basis thereafter.
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.
30
<PAGE> 35
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. However, it is currently anticipated that Travelers
Distribution Company, an affiliated brokerdealer, may become the principal
underwriter during 1998.
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 the Policy under
Connecticut law have been passed on by the General Counsel of the Company.
INDEPENDENT ACCOUNTANTS
Financial statements as of and for the year ended December 31, 1997 of Fund UL
II, included in the registration statement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The financial statements of The Travelers Life and Annuity Company as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, 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. You
may access the SEC's website (http://www.sec.gov) to view the entire
Registration Statement.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
GENERAL
The following is a general discussion of the federal income tax considerations
relating to the Policies. This discussion is based upon the Company's
understanding of the federal income tax laws as they are currently interpreted
by the Internal Revenue Service ("IRS"). These laws are complex, and tax results
may vary among individuals. A person contemplating the purchase of or the
exercise of elections under a Policy should seek competent tax advice.
31
<PAGE> 36
IT SHOULD BE UNDERSTOOD THAT THIS IS NOT AN EXHAUSTIVE DISCUSSION OF ALL TAX
QUESTIONS THAT MIGHT ARISE UNDER THE POLICIES. NO ATTEMPT HAS BEEN MADE TO
ADDRESS ANY FEDERAL ESTATE TAX OR STATE AND LOCAL TAX CONSIDERATIONS WHICH MAY
ARISE IN CONNECTION WITH A POLICY. FOR COMPLETE INFORMATION, A QUALIFIED TAX
ADVISOR SHOULD BE CONSULTED.
THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF ANY POLICY AND THE FOLLOWING
TAX DISCUSSION IS BASED ON THE COMPANY'S UNDERSTANDING OF FEDERAL INCOME TAX
LAWS AS THEY ARE CURRENTLY INTERPRETED. THE COMPANY CANNOT GUARANTEE THAT THOSE
LAWS OR INTERPRETATIONS WILL REMAIN UNCHANGED.
TAX STATUS OF THE POLICY
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. Guidance as to how Section 7702 is to be applied,
however, is limited. Although the Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702, and while
proposed regulations and other limited, interim guidance has been issued, final
regulations have not been adopted. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy would not provide
the tax advantages normally provided by a life insurance policy.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702) that such a Policy should meet the Section 7702
definition of a life insurance contract. There is less guidance on the
application of the rules with respect to a Policy that is issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk). Thus, it is not clear whether such a Policy would satisfy
Section 7702, particularly if the Policy Owner pays the full amount of premiums
permitted under the Policy.
The Company reserves the right to make changes in the Policy if such changes are
deemed necessary to attempt to assure its qualification as a life insurance
contract for tax purposes.
DIVERSIFICATION
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies) underlying the Policy must be "adequately diversified"
in accordance with Treasury regulations in order for the Policy to qualify as
life insurance. The Treasury Department has issued regulations prescribing the
diversification requirements in connection with variable contracts. The Separate
Account, through the Investment Options, intends to comply with these
requirements. Although the Company does not control the Investment Options, it
intends to monitor the investments of the Investment Options to ensure
compliance with the diversification requirements prescribed by the Treasury
Department.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contract. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contract owner's gross income each year. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to 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
32
<PAGE> 37
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 policy owners received the desired tax benefits because they 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 the
Separate Account. 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 the Separate Account.
The remaining tax discussion assumes that the Policy qualifies as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the Death Benefit under the Policy
should be excludable from the gross income of the Beneficiary.
In addition, the Policy Owner will generally not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, until there is a
distribution. The tax consequences of distribution from, and loans taken from or
secured by, a Policy depend on whether the Policy is classified as a "Modified
Endowment Contract." However, whether a Policy is or is not a Modified Endowment
Contract, upon a complete surrender or lapse of a Policy or when benefits are
paid at a Policy's maturity date, if the amount received plus the amount of
indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, or an assignment of the Policy may have federal income
tax consequences. In addition, federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. Therefore, it is important to check
with a tax adviser prior to the purchase of a policy.
MODIFIED ENDOWMENT CONTRACTS
A modified endowment contract is defined under tax law as any policy that
satisfies the present legal definition of a life insurance contract but which
fails to satisfy a 7-pay test. This failure could occur with contracts entered
into after June 21, 1988, or with certain older contracts materially changed
after that date. A Section 1035 exchange of an older contract into a contract
after that date will not by itself cause the new contract to be a modified
endowment contract if the older contract had not become one prior to the
exchange. However, the new contract must be re-tested under the 7-pay test
rules.
A contract fails to satisfy the 7-pay test if the cumulative amount of premiums
paid under the contract at any time during the first seven contract years
exceeds the sum of the net level premiums that would have been paid on or before
such time had the contract provided for paid-up future benefits after the
payment of seven level annual premiums. If a material change in the contract
occurs either during the first seven contract years, or later, a new seven-year
testing
33
<PAGE> 38
period is begun. A decrease to Stated Amount made in the first seven years will
cause a retest of the cumulative amount of premiums. Decreases made after the
first seven contract years are not considered a material change, provided no
other material changes have occurred prior. 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 contract may
become a modified endowment contract.
Loans and partial withdrawals from, as well as collateral assignments of,
Policies that are modified endowment contracts will be treated as distributions
to the Policy Owner for tax purposes. All pre-death distributions (including
loans, partial withdrawals and collateral assignments) from these Policies will
be included in gross income on an income-first basis to the extent of any income
in the Policy (the cash value less the Policy Owner's investment in the Policy)
immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders) from
modified endowment contracts to the extent they are included in income, unless a
specific exception to the penalty applies. The penalty does not apply to amounts
which are distributed on or after the date on which the taxpayer attains age
59 1/2, because the taxpayer is disabled, or as substantially equal periodic
payments over the taxpayer's life (or life expectancy) or over the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary.
Furthermore, if the loan interest is capitalized by adding the amount due to the
balance of the loan, the amount of the capitalized interest will be treated as
an additional distribution subject to income tax as well as the 10% penalty tax,
if applicable, to the extent of income in the Policy.
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 Contracts." Furthermore, no part of the
investment growth of the Cash Value of a modified endowment contract is
includable in the gross income of the Contract Owner unless the contract
matures, is distributed or partially surrendered, is pledged, collaterally
assigned, or borrowed against, or otherwise terminates with income in the
contract prior to death. A full surrender of the contract after age 59 1/2 will
have the same tax consequences as noted above in "Tax Consequences of Life
Insurance Contracts."
EXCHANGES
Any Policy issued in exchange for a modified endowment contract will be subject
to the tax treatment accorded to modified endowment contracts. However, the
Company believes that any Policy received in exchange for a life insurance
contract that is not a modified endowment contract will generally not be treated
as a modified endowment contract if the face amount of the Policy is greater
than or equal to the death benefit of the policy being exchanged. The payment of
any premiums at the time of or after the exchange may, however, cause the Policy
to become a modified endowment contract. A prospective purchaser should consult
a qualified tax advisor before authorizing the exchange of his or her current
life insurance contract for a Policy.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS
In the case of a pre-death distribution (including a loan, partial withdrawal,
collateral assignment or complete surrender) from a Policy that is treated as a
modified endowment contract, a special aggregation requirement may apply for
purposes of determining the amount of the income on the Policy. Specifically, if
the Company or any of its affiliates issues to the same Policy Owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the Policy with respect to a distribution from any of
those Policies, the income on the Policy for all those Policies will be
aggregated and attributed to that distribution.
34
<PAGE> 39
POLICIES WHICH ARE NOT MODIFIED ENDOWMENT CONTRACTS
Unlike loans from modified endowment contracts, a loan from a Policy that is not
a modified endowment contract will be considered indebtedness of the Owner and
no part of a loan will constitute income to the Owner. However, the treatment of
loans taken after the 13th Policy Year, is unclear; such loans might be
considered a withdrawal instead of indebtedness for federal tax purposes.
Pre-death distributions from a Policy that is not a modified endowment contract
will generally not be included in gross income to the extent that the amount
received does not exceed the Policy Owner's investment in the Policy. (An
exception to this general rule may occur in the case of a decrease or change
that reduces the benefits provided under a Policy in the first 15 years after
the Policy is issued and that results in a cash distribution to the Policy
Owner. Such a cash distribution may be taxed in whole or in part as ordinary
income to the extent of any gain in the Policy.) Further, the 10% penalty tax on
pre-death distributions does not apply to Policies that are not modified
endowment contracts.
Certain changes to Policies that are not modified endowment contracts may cause
such Policies to be treated as modified endowment contracts. A Policy Owner
should therefore consult a tax advisor before effecting any change to a Policy
that is not a modified endowment contract.
TREATMENT OF LOAN INTEREST
If there is any borrowing against the Policy, the interest paid on loans may not
be tax deductible.
THE COMPANY'S INCOME TAXES
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 or 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 II under future tax
law.
YEAR 2000 COMPLIANCE
- --------------------------------------------------------------------------------
Generally, computer programs were designed without considering the impact of the
upcoming change in the century. As a result, software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business, financial condition, and
result of operations of a company could be materially and adversely affected by
the failure of its systems and applications (or those either provided or
operated by third-parties) to properly operate or manage dates beyond the year
1999.
The Company has investigated the nature and extent of the work required for our
computer systems to process beyond the turn of the century, and has made
progress toward achieving this goal, including upgrading and/or replacing
existing systems. We are confirming with our service providers that they are
also in the process of replacing or modifying their systems with the same goal.
We expect that our principal systems will be Year 2000 compliant by early 1999.
While these efforts involve substantial costs, we closely monitor associated
costs and continue to evaluate associated risks based on actual expenses. While
it is likely that these efforts will be successful, if necessary modifications
and conversions are not completed in a timely manner, the Year 2000 requirements
could have a material adverse effect on certain operations of the Company.
35
<PAGE> 40
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>
Jay S. Benet................... 1996 Senior Vice President since February 1994 and Vice
Director President (1990-1994) of The Travelers Life and Annuity
Company; Partner (1986-1990) of Coopers & Lybrand.
Ian R. Stuart.................. 1996 Senior Vice President since November, 1996 Chief
Director Financial Officer; Chief Accounting Officer and
Controller since March 1996, Vice President (1991-1996)
of The Travelers Life and Annuity Company.
Katherine M. Sullivan.......... 1996 Senior Vice President and General Counsel since May
Director 1996 of The Travelers Life and Annuity Company; Senior
Vice President and General Counsel (1994-1996)
Connecticut Mutual; Special Counsel & Chief of Staff
(1988-1994) Aetna Life & Casualty.
George C. Kokulis.............. 1996 Senior Vice President since September 1995, Vice
Director President (1993-1995) of The Travelers Life and Annuity
Company.
Michael A. Carpenter........... 1995 Chairman since June 1996 and President and Chief
Director Executive Officer since June 1995 of The Travelers Life
and Annuity Company; Vice Chairman since February 1998;
Executive Vice President (1995-1998) of Travelers Group
Inc.; Chairman, President and Chief Executive Officer
(1989-1994), Kidder Peabody Group Inc.
Robert I. Lipp................. 1992 Chairman, President and Chief Executive Officer since
Director April 1996 of Travelers Property Casualty Corp.; Chief
Executive Officer and Director since December 1993 of
The Travelers Insurance Group Inc.; 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.
Marc P. Weill*................. 1994 Senior Vice President-Investments since 1993 and Chief
Director Investment Officer since 1995 of The Travelers
Insurance Group Inc.; Senior Vice President and Chief
Investment Officer of Travelers Group Inc. since 1992;
Vice President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
</TABLE>
- ---------------
* Principal business address: Travelers Group Inc., 388 Greenwich Street, New
York, New York
36
<PAGE> 41
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
Barry Jacobson............... Senior Vice President
Russell H. Johnson........... Senior Vice President
Warren H. May................ Senior Vice President
Jay S. Fishman............... Senior Vice President
David A. Tyson............... Senior Vice President
F. Denney Voss............... Senior Vice President
Elizabeth C. Senior Vice President
Georgakopoulos.............
Christine M. Modie........... Senior Vice President
</TABLE>
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 .63% for Investment Option
expenses and thereafter 0.25% for mortality and expense risks, 0.00% for
administrative expenses, and .63% 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 1997.
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
- -1.53%, 4.47%, and 10.47%, respectively on a current and guaranteed basis during
the first fifteen Policy Years, and to approximate net annual rates of -.88%,
5.12%, and 11.12%, respectively on a current and guaranteed basis thereafter.
37
<PAGE> 42
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.
For illustrations shown for policies issued prior to May 1, 1998, see "Policies
Paid Prior to May 1, 1998" for the applicable charges and fees.
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, 1997, these reimbursement agreements affected the total
operating expenses of the Investment Options as follows:
1. For Money Market Portfolio, other expenses have been restated to reflect
the current expense reimbursement arrangement with The Travelers Life
and Annuity Company. Travelers has agreed to reimburse the Fund for the
amount by which its aggregate expenses (including the management fee,
but excluding brokerage commissions, interest charges and taxes) exceeds
0.40%. Without such arrangement, Total Expenses would have been 1.39%
for the Money Market Portfolio.
2. The other expenses reflected in AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio and MFS Total Return are as of October 31,
1997 (the Fund's fiscal year end). Managed Assets Trust, U.S. Government
Securities Portfolio and Utilities Portfolio reflect other expenses as
of December 31, 1997. There were no fees waived or expenses reimbursed
for these funds in 1997.
3. A portion of the brokerage commissions that certain funds pay was used
to reduce Fidelity funds' expenses. In addition, certain funds have
entered into arrangements with their custodian whereby credits realized,
as a result of uninvested cash balances were used to reduce custodian
expenses. Without these reductions, the Total Underlying Fund Expenses
would have been .64% for Asset Manager Portfolio, .57% for Equity Income
Portfolio, .67% for Growth, and .71% for High Income.
4. Total Return Portfolio's Management Fees include 0.20% for fund
administration.
5. Other expenses are as of December 31, 1997 and take into account the
current expense reimbursement arrangement with Travelers. Travelers has
agreed to reimburse the Portfolio for the amount by which the aggregate
expenses (including management, but excluding brokerage commissions,
interest charges and taxes) exceeds .15%. Without such arrangement, the
Total Expenses for the Portfolio would have been as follows: 2.21% for
Zero Coupon Bond Fund Series 1998; 1.80% for Zero Coupon Bond Fund
Series 2000; 1.52% for Zero Coupon Bond Fund Series 2005.
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 illustration will show
average fund expenses or, if requested, actual fund expenses. The hypothetical
gross annual investment return assumed in such an illustration will not exceed
12%.
38
<PAGE> 43
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,005 1,080 1,155 0 0 9
2 3,435 150,000 150,000 150,000 1,979 2,193 2,416 891 1,092 1,302
3 5,282 150,000 150,000 150,000 2,918 3,334 3,788 1,882 2,273 2,700
4 7,221 150,000 150,000 150,000 3,960 4,650 5,430 2,968 3,617 4,350
5 9,258 150,000 150,000 150,000 4,962 6,000 7,221 4,018 4,994 6,141
6 11,396 150,000 150,000 150,000 5,923 7,385 9,176 5,029 6,403 8,159
7 13,641 150,000 150,000 150,000 6,846 8,809 11,314 6,005 7,900 10,405
8 15,999 150,000 150,000 150,000 7,731 10,276 13,658 6,945 9,475 12,857
9 18,474 150,000 150,000 150,000 8,577 11,785 16,227 7,882 11,090 15,532
10 21,073 150,000 150,000 150,000 9,381 13,334 19,043 8,794 12,747 18,456
15 36,153 150,000 150,000 150,000 12,601 21,590 37,748 12,601 21,590 37,748
20 55,399 150,000 150,000 150,000 14,790 31,670 70,005 14,790 31,670 70,005
</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.
39
<PAGE> 44
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 522 581 641 0 0 0
2 3,435 150,000 150,000 150,000 1,001 1,153 1,313 0 115 265
3 5,282 150,000 150,000 150,000 1,436 1,713 2,018 489 749 1,036
4 7,221 150,000 150,000 150,000 2,253 2,700 3,211 1,363 1,784 2,264
5 9,258 150,000 150,000 150,000 3,016 3,688 4,487 2,189 2,820 3,571
6 11,396 150,000 150,000 150,000 3,721 4,675 5,852 2,959 3,856 4,962
7 13,641 150,000 150,000 150,000 4,365 5,657 7,311 3,673 4,887 6,442
8 15,999 150,000 150,000 150,000 4,942 6,626 8,869 4,323 5,906 8,068
9 18,474 150,000 150,000 150,000 5,449 7,578 10,533 4,906 6,907 9,838
10 21,073 150,000 150,000 150,000 5,884 8,511 12,314 5,423 7,924 11,727
15 36,153 150,000 150,000 150,000 7,013 12,880 23,573 7,013 12,880 23,573
20 55,399 150,000 150,000 150,000 5,929 16,498 41,536 5,929 16,498 41,536
</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.
40
<PAGE> 45
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Stated 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% 12%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,271 1,365 1,459 118 206 294
2 4,238 150,000 150,000 150,000 2,496 2,764 3,043 1,377 1,629 1,891
3 6,517 150,000 150,000 150,000 3,679 4,202 4,770 2,597 3,089 3,623
4 8,910 150,000 150,000 150,000 4,961 5,825 6,804 3,909 4,721 5,641
5 11,423 150,000 150,000 150,000 6,185 7,485 9,016 5,167 6,389 7,829
6 14,061 150,000 150,000 150,000 7,361 9,191 11,433 6,381 8,101 10,304
7 16,831 150,000 150,000 150,000 8,488 10,942 14,076 7,548 9,921 13,055
8 19,740 150,000 150,000 150,000 9,568 12,746 16,974 8,671 11,833 16,061
9 22,794 150,000 150,000 150,000 10,600 14,603 20,154 9,793 13,796 19,347
10 26,001 150,000 150,000 150,000 11,569 16,499 23,633 10,870 15,800 22,934
15 44,607 150,000 150,000 150,000 15,515 26,732 46,957 15,515 26,732 46,957
20 68,354 150,000 150,000 150,000 17,393 38,574 87,026 17,393 38,574 87,026
</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.
41
<PAGE> 46
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 792 868 0 0 0
2 4,238 150,000 150,000 150,000 1,368 1,565 1,772 317 502 697
3 6,517 150,000 150,000 150,000 1,953 2,314 2,711 975 1,314 1,687
4 8,910 150,000 150,000 150,000 2,897 3,478 4,143 1,969 2,515 3,140
5 11,423 150,000 150,000 150,000 3,762 4,629 5,661 2,890 3,705 4,675
6 14,061 150,000 150,000 150,000 4,540 5,759 7,266 3,729 4,875 6,292
7 16,831 150,000 150,000 150,000 5,222 6,855 8,957 4,478 6,013 7,989
8 19,740 150,000 150,000 150,000 5,797 7,907 10,736 5,127 7,110 9,823
9 22,794 150,000 150,000 150,000 6,254 8,898 12,601 5,663 8,148 11,794
10 26,001 150,000 150,000 150,000 6,583 9,816 14,553 6,080 9,119 13,854
15 44,607 150,000 150,000 150,000 5,995 12,859 25,811 5,995 12,859 25,811
20 68,354 150,000 150,000 150,000 260 11,683 41,321 260 11,683 41,321
</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.
42
<PAGE> 47
MARKETLIFE POLICIES ISSUED PRIOR TO MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,271 1,365 1,459 118 206 294
2 4,238 150,000 150,000 150,000 2,496 2,764 3,043 1,377 1,629 1,891
3 6,517 150,000 150,000 150,000 3,679 4,202 4,770 2,597 3,089 3,623
4 8,910 150,000 150,000 150,000 4,961 5,825 6,804 3,909 4,721 5,641
5 11,423 150,000 150,000 150,000 6,185 7,485 9,016 5,167 6,389 7,829
6 14,061 150,000 150,000 150,000 7,361 9,191 11,433 6,381 8,101 10,304
7 16,831 150,000 150,000 150,000 8,488 10,942 14,076 7,548 9,921 13,055
8 19,740 150,000 150,000 150,000 9,568 12,746 16,974 8,671 11,833 16,061
9 22,794 150,000 150,000 150,000 10,600 14,603 20,154 9,793 13,796 19,347
10 26,001 150,000 150,000 150,000 11,569 16,499 23,633 10,870 15,800 22,934
15 44,607 150,000 150,000 150,000 15,515 26,732 46,957 15,515 26,732 46,957
20 68,354 150,000 150,000 150,000 17,215 38,207 86,245 17,215 38,207 86,245
</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.
43
<PAGE> 48
MARKETLIFE POLICIES ISSUED PRIOR TO MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 522 581 641 0 0 0
2 3,435 150,000 150,000 150,000 1,001 1,153 1,313 0 115 265
3 5,282 150,000 150,000 150,000 1,436 1,713 2,018 489 749 1,036
4 7,221 150,000 150,000 150,000 2,253 2,700 3,211 1,363 1,784 2,264
5 9,258 150,000 150,000 150,000 3,016 3,688 4,487 2,189 2,820 3,571
6 11,396 150,000 150,000 150,000 3,721 4,675 5,852 2,959 3,856 4,962
7 13,641 150,000 150,000 150,000 4,365 5,657 7,311 3,673 4,887 6,442
8 15,999 150,000 150,000 150,000 4,942 6,626 8,869 4,323 5,906 8,068
9 18,474 150,000 150,000 150,000 5,449 7,578 10,533 4,906 6,907 9,838
10 21,073 150,000 150,000 150,000 5,884 8,511 12,314 5,423 7,924 11,727
15 36,153 150,000 150,000 150,000 7,013 12,880 23,573 7,013 12,880 23,573
20 55,399 150,000 150,000 150,000 5,854 16,326 41,148 5,854 16,326 41,148
</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.
44
<PAGE> 49
MARKETLIFE POLICIES ISSUED PRIOR TO MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,005 1,080 1,155 0 0 9
2 3,435 150,000 150,000 150,000 1,979 2,193 2,416 891 1,092 1,302
3 5,282 150,000 150,000 150,000 2,918 3,334 3,788 1,882 2,273 2,700
4 7,221 150,000 150,000 150,000 3,960 4,650 5,430 2,968 3,617 4,350
5 9,258 150,000 150,000 150,000 4,962 6,000 7,221 4,018 4,994 6,141
6 11,396 150,000 150,000 150,000 5,923 7,385 9,176 5,029 6,403 8,159
7 13,641 150,000 150,000 150,000 6,846 8,809 11,314 6,005 7,900 10,405
8 15,999 150,000 150,000 150,000 7,731 10,276 13,658 6,945 9,475 12,857
9 18,474 150,000 150,000 150,000 8,577 11,785 16,227 7,882 11,090 15,532
10 21,073 150,000 150,000 150,000 9,381 13,334 19,043 8,794 12,747 18,456
15 36,153 150,000 150,000 150,000 12,601 21,590 37,748 12,601 21,590 37,748
20 55,399 150,000 150,000 150,000 14,644 31,374 69,382 14,644 31,374 69,382
</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.
45
<PAGE> 50
MARKETLIFE POLICIES ISSUED PRIOR TO MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 792 868 0 0 0
2 4,238 150,000 150,000 150,000 1,368 1,565 1,772 317 502 697
3 6,517 150,000 150,000 150,000 1,953 2,314 2,711 975 1,314 1,687
4 8,910 150,000 150,000 150,000 2,897 3,478 4,143 1,969 2,515 3,140
5 11,423 150,000 150,000 150,000 3,762 4,629 5,661 2,890 3,705 4,675
6 14,061 150,000 150,000 150,000 4,540 5,759 7,266 3,729 4,875 6,292
7 16,831 150,000 150,000 150,000 5,222 6,855 8,957 4,478 6,013 7,989
8 19,740 150,000 150,000 150,000 5,797 7,907 10,736 5,127 7,110 9,823
9 22,794 150,000 150,000 150,000 6,254 8,898 12,601 5,663 8,148 11,794
10 26,001 150,000 150,000 150,000 6,583 9,816 14,553 6,080 9,119 13,854
15 44,607 150,000 150,000 150,000 5,995 12,859 25,811 5,995 12,859 25,811
20 68,354 150,000 150,000 150,000 212 11,527 40,905 212 11,527 40,905
</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.
46
<PAGE> 51
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
</TABLE>
<TABLE>
<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
47
<PAGE> 52
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
</TABLE>
<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>
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
48
<PAGE> 53
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
</TABLE>
<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>
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
49
<PAGE> 54
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
</TABLE>
<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>
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
50
<PAGE> 55
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 $250,000 $1,000,000
AGE TO $249,999 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
</TABLE>
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------------
ISSUE $50,000 $250,000 $1,000,000
AGE TO $249,999 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
51
<PAGE> 56
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
</TABLE>
<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>
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>
52
<PAGE> 57
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
</TABLE>
<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>
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
53
<PAGE> 58
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Managed Assets Trust, 5,100 shares (cost $85,258) ............................... $ 90,013
Capital Appreciation Fund, 25,798 shares (cost $1,088,981) ...................... 1,194,973
Cash Income Trust, 1,157,528 shares (cost $1,157,528) ........................... 1,157,528
The Travelers Series Trust, 10,372 shares (cost $124,010) ....................... 130,409
Templeton Variable Products Series Fund, 72,427 shares (cost $1,548,414) ........ 1,542,514
Fidelity's Variable Insurance Products Fund, 97,994 shares (cost $2,171,934) .... 2,365,681
Fidelity's Variable Insurance Products Fund II, 14,622 shares (cost $248,975) ... 263,348
Dreyfus Stock Index Fund, 38,321 shares (cost $900,597) ......................... 986,761
Travelers Series Fund Inc, 162,857 shares (cost $2,515,185) ..................... 2,709,373
Greenwich Street Series Fund, 26,954 shares (cost $468,444) ..................... 474,929
--------------
Total Investments (cost $10,309,326) ........................................ $ 10,915,529
Receivables:
Dividends ....................................................................... 20,428
Premium payments and transfers from other Travelers accounts .................... 282,037
Other assets ...................................................................... 49
--------------
Total Assets ................................................................ 11,218,043
--------------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts ......... 10,236
Accrued liabilities ............................................................... 570
--------------
Total Liabilities ........................................................... 10,806
--------------
NET ASSETS: $ 11,207,237
==============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 59
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividends ................................................. $ 163,054
EXPENSES:
Insurance charges ......................................... $ 44,302
Administrative charges .................................... 5,491
--------------
Total expenses .......................................... 49,793
--------------
Net investment income ................................. 113,261
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold .......................... 4,747,592
Cost of investments sold ................................ 4,687,765
--------------
Net realized gain ..................................... 59,827
Change in unrealized gain on investments:
Unrealized gain at December 31, 1996 .................... 1,341
Unrealized gain at December 31, 1997 .................... 606,203
--------------
Net change in unrealized gain for the year ............ 604,862
--------------
Net realized gain and change in unrealized gain ..... 664,689
--------------
Net increase in net assets resulting from operations ...... $ 777,950
==============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 60
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE PERIOD AUGUST 8, 1996 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income ............................................ $ 113,261 $ 21,487
Net realized gain from investment transactions ................... 59,827 1,105
Net change in unrealized gain on investments ..................... 604,862 1,341
------------ -----------
Net increase in net assets resulting from operations ........... 777,950 23,933
------------ -----------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 6,023,535 and 1,060,645 units, respectively) .... 9,467,190 1,566,170
Participant transfers from other Travelers accounts
(applicable to 3,924,751 and 677,084 units, respectively) ...... 6,145,464 983,742
Contract surrenders
(applicable to 597,609 and 38,985 units, respectively) ......... (983,426) (58,243)
Participant transfers to other Travelers accounts
(applicable to 3,898,149 and 550,220 units, respectively) ...... (5,898,576) (816,967)
------------ -----------
Net increase in net assets resulting from unit transactions .. 8,730,652 1,674,702
------------ -----------
Net increase in net assets ................................. 9,508,602 1,698,635
NET ASSETS:
Beginning of period .............................................. 1,698,635 --
------------ -----------
End of period .................................................... $ 11,207,237 $ 1,698,635
============ ===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 61
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, 1997, 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 Greenwich Street Series
Fund (formerly Smith Barney Series Fund) (all of which are managed by affiliates
of The Travelers); Templeton Bond Fund (Class 1 shares), Templeton Stock Fund
(Class 1 shares) and Templeton Asset Allocation Fund (Class 1 shares) 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. Not all funds may be available in all states or
to all contract owners.
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.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Dividend income is recorded on the ex-dividend date.
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.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$13,312,812 and $4,747,592, respectively, for the year ended December 31, 1997.
Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was $10,309,326
at December 31, 1997. Gross unrealized appreciation for all investments at
December 31, 1997 was $614,676. Gross unrealized depreciation for all
investments at December 31, 1997 was $8,473.
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 deducted for
mortality and expense risks and administrative expenses assumed by Travelers
Life during the first fifteen years that a policy is in effect. Beginning in the
sixteenth year that a policy is in effect, these charges are reduced to 0.45%
and 0%, respectively on an annual basis. As of December 31, 1997 all contract
owners had insurance charges and administrative charges of 0.80% and 0.10%,
respectively.
-4-
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES (CONTINUED)
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 $25,191 in satisfaction of such contingent surrender
charges for the year ended December 31, 1997. Travelers Life received no
contingent surrender charges for the period August 8, 1996 (date operations
commenced) to December 31, 1996.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
UNIT NET
UNITS VALUE ASSETS
------- ----------- ----------
<S> <C> <C> <C>
Managed Assets Trust ........................... 33,700 $ 2.671 $ 89,999
Capital Appreciation Fund ...................... 444,866 2.691 1,197,299
Cash Income Trust .............................. 909,353 1.540 1,400,377
The Travelers Series Trust
US Government Securities Portfolio ........... 37,194 1.291 48,004
Utilities Portfolio .......................... 32,611 1.685 54,951
Zero Coupon Bond Fund Portfolio Series 1998... 2,347 1.108 2,602
Zero Coupon Bond Fund Portfolio Series 2000... 8,316 1.113 9,258
Zero Coupon Bond Fund Portfolio Series 2005... 13,500 1.157 15,620
Templeton Variable Products Series Fund
Templeton Bond Fund .......................... 96,130 1.183 113,769
Templeton Stock Fund ......................... 689,681 1.606 1,107,321
Templeton Asset Allocation Fund .............. 212,085 1.553 329,421
Fidelity's Variable Insurance Products Fund
High Income Portfolio ........................ 250,378 1.504 376,662
Growth Portfolio ............................. 449,618 1.826 820,850
Equity-Income Portfolio ...................... 597,615 1.967 1,175,344
Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio ...................... 181,740 1.449 263,400
Dreyfus Stock Index Fund ....................... 460,680 2.187 1,007,491
Travelers Series Fund Inc
Alliance Growth Portfolio .................... 638,546 1.708 1,090,930
Smith Barney Income and Growth Portfolio ..... 185,237 1.589 294,432
Smith Barney High Income Portfolio ........... 170,588 1.256 214,339
MFS Total Return Portfolio ................... 326,125 1.480 482,675
AIM Capital Appreciation Portfolio ........... 541,898 1.177 637,587
Greenwich Street Series Fund
Total Return Portfolio ....................... 318,844 1.489 474,906
-----------
Net Contract Owners' Equity .................... $11,207,237
===========
</TABLE>
-5-
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
----------- ----------
<S> <C> <C>
MANAGED ASSETS TRUST (0.8%)
Total (Cost $85,258) 5,100 $ 90,013
----------- ----------
CAPITAL APPRECIATION FUND (10.9%)
Total (Cost $1,088,981) 25,798 1,194,973
----------- ----------
CASH INCOME TRUST (10.6%)
Total (Cost $1,157,528) 1,157,528 1,157,528
----------- ----------
THE TRAVELERS SERIES TRUST (1.3%)
U.S. Government Securities Portfolio (Cost $47,228) 4,117 47,966
Utilities Portfolio (Cost $48,808) 3,594 54,958
Zero Coupon Bond Fund Portfolio Series 1998 (Cost $2,716) 260 2,603
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $9,445) 918 9,261
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $15,813) 1,483 15,621
----------- ----------
Total (Cost $124,010) 10,372 130,409
----------- ----------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (14.1%)
Templeton Bond Fund (Cost $112,780) 10,288 113,780
Templeton Stock Fund (Cost $1,110,163) 47,528 1,102,179
Templeton Asset Allocation Fund (Cost $325,471) 14,611 326,555
----------- ----------
Total (Cost $1,548,414) 72,427 1,542,514
----------- ----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (21.7%)
High Income Portfolio (Cost $347,743) 27,735 376,648
Growth Portfolio (Cost $753,888) 22,086 819,403
Equity-Income Portfolio (Cost $1,070,303) 48,173 1,169,630
----------- ----------
Total (Cost $2,171,934) 97,994 2,365,681
----------- ----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (2.4%)
Asset Manager Portfolio
Total (Cost $248,975) 14,622 263,348
----------- ----------
DREYFUS STOCK INDEX FUND (9.0%)
Total (Cost $900,597) 38,321 986,761
----------- ----------
TRAVELERS SERIES FUND INC. (24.8%)
Alliance Growth Portfolio (Cost $959,520) 50,218 1,087,213
Smith Barney Income and Growth Portfolio (Cost $275,386) 15,392 293,521
Smith Barney High Income Portfolio (Cost $199,735) 15,899 214,316
MFS Total Return Portfolio (Cost $461,044) 30,099 480,374
AIM Capital Appreciation Portfolio (Cost $619,500) 51,249 633,949
----------- ----------
Total (Cost $2,515,185) 162,857 2,709,373
----------- ----------
GREENWICH STREET SERIES FUND (4.4%)
Total Return Portfolio
Total (Cost $468,444) 26,954 474,929
----------- ----------
TOTAL INVESTMENT OPTIONS (100%)
(COST $10,309,326) $10,915,529
==========
</TABLE>
-6-
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD AUGUST 8, 1996
(DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST CAPITAL APPRECIATION FUND CASH INCOME TRUST
-------------------- ------------------------- ---------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .............................. $ 2,064 $ 406 $ 8 $ 11,690 $ 36,259 $ 5,841
-------- ------- ----------- --------- ----------- -----------
EXPENSES:
Insurance charges ...................... 371 9 5,532 184 5,861 1,014
Administrative charges ................. 46 1 689 23 729 127
-------- ------- ----------- --------- ----------- -----------
Net investment income (loss) ....... 1,647 396 (6,213) 11,483 29,669 4,700
-------- ------- ----------- --------- ----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold ....... 10,996 208 20,971 48,831 4,046,511 610,976
Cost of investments sold ............. 9,921 197 18,398 48,252 4,046,511 610,976
-------- ------- ----------- --------- ----------- -----------
Net realized gain (loss) ........... 1,075 11 2,573 579 -- --
-------- ------- ----------- --------- ----------- -----------
Change in unrealized gain (loss)
on investments:
Unrealized gain (loss)
beginning of period ................ (191) -- (8,725) -- -- --
Unrealized gain (loss)
end of period ...................... 4,755 (191) 105,992 (8,725) -- --
-------- ------- ----------- --------- ----------- -----------
Net change in unrealized gain
(loss) for the period............... 4,946 (191) 114,717 (8,725) -- --
-------- ------- ----------- --------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations .......... 7,668 216 111,077 3,337 29,669 4,700
-------- ------- ----------- --------- ----------- -----------
UNIT TRANSACTIONS:
Participant premium payments ........... 37,766 213 594,332 35,577 5,786,468 1,384,589
Participant transfers from other
Travelers accounts ................. 52,750 5,304 435,944 158,113 586,545 187,058
Contract surrenders .................... (8,752) (244) (101,952) (5,130) (188,106) (32,569)
Participant transfers to other
Travelers accounts ................. (4,922) -- (9,284) (24,715) (5,568,887) (789,090)
-------- ------- ----------- --------- ----------- -----------
Net increase in net assets resulting
from unit transactions ............. 76,842 5,273 919,040 163,845 616,020 749,988
-------- ------- ----------- --------- ----------- -----------
Net increase in net assets ........... 84,510 5,489 1,030,117 167,182 645,689 754,688
======== ======= =========== ========= =========== ===========
NET ASSETS:
Beginning of period .................. 5,489 -- 167,182 -- 754,688 --
-------- ------- ----------- --------- ----------- -----------
End of period ........................ $ 89,999 $ 5,489 $ 1,197,299 $ 167,182 $ 1,400,377 $ 754,688
======== ======= =========== ========= =========== ===========
</TABLE>
-7-
<PAGE> 65
<TABLE>
<CAPTION>
ZERO COUPON BOND ZERO COUPON BOND
U.S. GOVERNMENT FUND PORTFOLIO FUND PORTFOLIO
SECURITIES PORTFOLIO UTILITIES PORTFOLIO SERIES 1998 SERIES 2000
----------------- ----------------- ---------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2,262 $ 73 $ 45 $ 20 $ 141 $ 2 $ 508 $ --
- -------- -------- -------- -------- -------- -------- -------- ----------
194 2 183 -- 2 -- 30 --
24 -- 23 -- -- -- 4 --
- -------- -------- -------- -------- -------- -------- -------- ----------
2,044 71 (161) 20 139 2 474 --
- -------- -------- -------- -------- -------- -------- -------- ----------
17,836 53 1,782 -- 174 -- 1,064 --
16,929 52 1,686 -- 175 -- 1,044 --
- -------- -------- -------- -------- -------- -------- -------- ----------
907 1 96 -- (1) -- 20 --
- -------- -------- -------- -------- -------- -------- -------- ----------
(60) -- (19) -- (2) -- -- --
738 (60) 6,150 (19) (113) (2) (184) --
- -------- -------- -------- -------- -------- -------- -------- ----------
798 (60) 6,169 (19) (111) (2) (184) --
- -------- -------- -------- -------- -------- -------- -------- ----------
3,749 12 6,104 1 27 -- 310 --
- -------- -------- -------- -------- -------- -------- -------- ----------
41,530 -- 8,128 196 (14) -- 3,315 --
3,283 1,289 42,770 111 2,706 42 6,056 --
(1,585) (52) (1,855) (56) (159) -- (423) --
(222) -- (448) -- -- -- -- --
- -------- -------- -------- -------- -------- -------- -------- ----------
43,006 1,237 48,595 251 2,533 42 8,948 --
- -------- -------- -------- -------- -------- -------- -------- ----------
46,755 1,249 54,699 252 2,560 42 9,258 --
1,249 -- 252 -- 42 -- -- --
- -------- -------- -------- -------- -------- -------- -------- ----------
$ 48,004 $ 1,249 $ 54,951 $ 252 $ 2,602 $ 42 $ 9,258 $ --
======== ======== ======== ======== ======== ======== ======== ==========
</TABLE>
-8-
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR
ENDED DECEMBER 31, 1997 AND THE PERIOD AUGUST 8, 1996 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
ZERO COUPON BOND
FUND PORTFOLIO
SERIES 2005 TEMPLETON BOND FUND TEMPLETON STOCK FUND
----------------- ------------------- -------------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................... $ 827 $ 2 $ 17 $ -- $ 32,428 $ --
-------- ---- --------- ----- ----------- ---------
EXPENSES:
Insurance charges ................................... 60 -- 188 -- 4,790 185
Administrative charges .............................. 7 -- 23 -- 612 23
-------- ---- --------- ----- ----------- ---------
Net investment income (loss) .................. 760 2 (194) -- 27,026 (208)
-------- ---- --------- ----- ----------- ---------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................. 11,539 -- 2,010 38 48,702 944
Cost of investments sold ........................ 10,990 -- 1,984 38 41,905 899
-------- ---- --------- ----- ----------- ---------
Net realized gain (loss) ...................... 549 -- 26 -- 6,797 45
-------- ---- --------- ----- ----------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of period ...... (1) -- 1 -- 8,229 --
Unrealized gain (loss) end of period ............ (192) (1) 1,000 1 (7,984) 8,229
-------- ---- --------- ----- ----------- ---------
Net change in unrealized gain (loss) for
the period .................................. (191) (1) 999 1 (16,213) 8,229
-------- ---- --------- ----- ----------- ---------
Net increase (decrease) in net assets
resulting from operations ..................... 1,118 1 831 1 17,610 8,066
-------- ---- --------- ----- ----------- ---------
UNIT TRANSACTIONS:
Participant premium payments ........................ 10,172 34 36,154 95 498,265 28,786
Participant transfers from other Travelers accounts.. 6,064 22 79,416 70 510,409 170,043
Contract surrenders ................................. (1,750) (13) (2,478) (38) (109,716) (3,739)
Participant transfers to other Travelers accounts ... (28) -- (282) -- (11,811) (592)
-------- ---- --------- ----- ----------- ---------
Net increase in net assets resulting
from unit transactions ........................ 14,458 43 112,810 127 887,147 194,498
-------- ---- --------- ----- ----------- ---------
Net increase in net assets .................... 15,576 44 113,641 128 904,757 202,564
NET ASSETS:
Beginning of period ............................. 44 -- 128 -- 202,564 --
-------- ---- --------- ----- ----------- ---------
End of period ................................... $ 15,620 $ 44 $ 113,769 $ 128 $ 1,107,321 $ 202,564
======== ==== ========= ===== =========== =========
</TABLE>
-9-
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON ASSET FIDELITY'S HIGH FIDELITY'S EQUITY-
ALLOCATION FUND INCOME PORTFOLIO FIDELITY'S GROWTH PORTFOLIO INCOME PORTFOLIO
- ------------------------ ------------------------ ---------------------------- ---------------------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5,560 $ -- $ 3,008 $ -- $ 6,210 $ -- $ 14,787 $ --
- --------- -------- --------- -------- --------- --------- ----------- ---------
1,239 14 1,423 17 3,490 123 4,048 143
155 2 181 2 427 15 508 18
- --------- -------- --------- -------- --------- --------- ----------- ---------
4,166 (16) 1,404 (19) 2,293 (138) 10,231 (161)
- --------- -------- --------- -------- --------- --------- ----------- ---------
21,111 403 134,453 222 74,627 2,278 71,633 1,521
19,574 382 133,952 218 71,855 2,102 69,809 1,456
- --------- -------- --------- -------- --------- --------- ----------- ---------
1,537 21 501 4 2,772 176 1,824 65
- --------- -------- --------- -------- --------- --------- ----------- ---------
532 -- 338 -- 155 -- 3,309 --
1,084 532 28,905 338 65,515 155 99,327 3,309
- --------- -------- --------- -------- --------- --------- ----------- ---------
552 532 28,567 338 65,360 155 96,018 3,309
- --------- -------- --------- -------- --------- --------- ----------- ---------
6,255 537 30,472 323 70,425 193 108,073 3,213
- --------- -------- --------- -------- --------- --------- ----------- ---------
163,825 6,643 59,161 9,103 391,611 24,191 283,616 25,870
174,058 16,563 408,795 13,550 379,350 101,793 809,707 84,495
(30,046) (966) (17,011) (645) (85,506) (5,447) (78,809) (4,170)
(7,361) (87) (127,062) (24) (55,077) (683) (56,274) (377)
- --------- -------- --------- -------- --------- --------- ----------- ---------
300,476 22,153 323,883 21,984 630,378 119,854 958,240 105,818
- --------- -------- --------- -------- --------- --------- ----------- ---------
306,731 22,690 354,355 22,307 700,803 120,047 1,066,313 109,031
22,690 -- 22,307 -- 120,047 -- 109,031 --
- --------- -------- --------- -------- --------- --------- ----------- ---------
$ 329,421 $ 22,690 $ 376,662 $ 22,307 $ 820,850 $ 120,047 $ 1,175,344 $ 109,031
========= ======== ========= ======== ========= ========= =========== =========
</TABLE>
-10-
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR
ENDED DECEMBER 31, 1997 AND THE PERIOD AUGUST 8, 1996 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY'S ASSET ALLIANCE
MANAGER PORTFOLIO DREYFUS STOCK INDEX FUND GROWTH PORTFOLIO
--------------------- ------------------------- -------------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .......................................... $ 4,398 $ -- $ 35,376 $ 698 $ -- $ 1,721
--------- ------- ----------- -------- ----------- --------
EXPENSES:
Insurance charges .................................. 882 9 4,820 41 4,148 53
Administrative charges ............................. 109 1 542 5 541 7
--------- ------- ----------- -------- ----------- --------
Net investment income (loss) ................. 3,407 (10) 30,014 652 (4,689) 1,661
--------- ------- ----------- -------- ----------- --------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................. 13,082 50 37,365 480 100,575 469
Cost of investments sold ....................... 12,936 48 30,549 423 83,028 405
--------- ------- ----------- -------- ----------- --------
Net realized gain (loss) ..................... 146 2 6,816 57 17,547 64
--------- ------- ----------- -------- ----------- --------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of period ..... (27) -- (445) -- (541) --
Unrealized gain (loss) end of period ........... 14,373 (27) 86,164 (445) 127,693 (541)
--------- ------- ----------- -------- ----------- --------
Net change in unrealized gain (loss) for
the period ................................. 14,400 (27) 86,609 (445) 128,234 (541)
--------- ------- ----------- -------- ----------- --------
Net increase (decrease) in net assets
resulting from operations .................... 17,953 (35) 123,439 264 141,092 1,184
--------- ------- ----------- -------- ----------- --------
UNIT TRANSACTIONS:
Participant premium payments ....................... 92,210 106 482,167 14,990 367,916 24,811
Participant transfers from other Travelers account.. 172,963 9,556 448,073 39,157 615,480 58,558
Contract surrenders ................................ (22,869) (102) (76,416) (1,458) (110,871) (1,638)
Participant transfers to other Travelers accounts.. (6,382) -- (22,182) (543) (5,050) (552)
--------- ------- ----------- -------- ----------- --------
Net increase in net assets resulting
from unit transactions ....................... 235,922 9,560 831,642 52,146 867,475 81,179
--------- ------- ----------- -------- ----------- --------
Net increase in net assets ................... 253,875 9,525 955,081 52,410 1,008,567 82,363
NET ASSETS:
Beginning of period ............................ 9,525 -- 52,410 -- 82,363 --
--------- ------- ----------- -------- ----------- --------
End of period .................................. $ 263,400 $ 9,525 $ 1,007,491 $ 52,410 $ 1,090,930 $ 82,363
========= ======= =========== ======== =========== ========
</TABLE>
-11-
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SMITH BARNEY INCOME SMITH BARNEY HIGH AIM CAPITAL
AND GROWTH PORTFOLIO INCOME PORTFOLIO MFS TOTAL RETURN PORTFOLIO APPRECIATION PORTFOLIO
- ------------------------- -------------------------- -------------------------- -------------------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 371 $ -- $ 2,042 $ -- $ 385 $ -- $ 62
- --------- -------- --------- -------- --------- -------- --------- --------
964 10 1,108 36 1,054 9 2,387 74
123 1 139 5 131 1 292 9
- --------- -------- --------- -------- --------- -------- --------- --------
(1,087) 360 (1,247) 2,001 (1,185) 375 (2,679) (21)
- --------- -------- --------- -------- --------- -------- --------- --------
35,099 101 26,074 126 14,712 52 42,017 1,111
29,782 92 24,019 128 13,588 48 35,849 1,061
- --------- -------- --------- -------- --------- -------- --------- --------
5,317 9 2,055 (2) 1,124 4 6,168 50
- --------- -------- --------- -------- --------- -------- --------- --------
(283) -- (1,162) -- (254) -- 8 --
18,135 (283) 14,581 (1,162) 19,330 (254) 14,449 8
- --------- -------- --------- -------- --------- -------- --------- --------
18,418 (283) 15,743 (1,162) 19,584 (254) 14,441 8
- --------- -------- --------- -------- --------- -------- --------- --------
22,648 86 16,551 837 19,523 125 17,930 37
- --------- -------- --------- -------- --------- -------- --------- --------
89,861 824 75,443 -- 75,606 505 226,505 2,516
210,747 15,605 99,684 35,064 398,068 11,241 395,085 60,691
(44,026) (246) (12,595) (95) (11,785) (157) (59,627) (843)
(1,067) -- (550) -- (10,432) (19) (4,654) (53)
- --------- -------- --------- -------- --------- -------- --------- --------
255,515 16,183 161,982 34,969 451,457 11,570 557,309 62,311
- --------- -------- --------- -------- --------- -------- --------- --------
278,163 16,269 178,533 35,806 470,980 11,695 575,239 62,348
16,269 -- 35,806 -- 11,695 -- 62,348 --
- --------- -------- --------- -------- --------- -------- --------- --------
$ 294,432 $ 16,269 $ 214,339 $ 35,806 $ 482,675 $ 11,695 $ 637,587 $ 62,348
========= ======== ========= ======== ========= ======== ========= ========
</TABLE>
-12-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR
ENDED DECEMBER 31, 1997 AND THE PERIOD AUGUST 8, 1996 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO COMBINED
----------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................... $ 19,156 $ 354 $ 163,054 $ 23,667
--------- -------- ------------ -----------
EXPENSES:
Insurance charges ....................................... 1,528 15 44,302 1,938
Administrative charges .................................. 186 2 5,491 242
--------- -------- ------------ -----------
Net investment income (loss) ...................... 17,442 337 113,261 21,487
--------- -------- ------------ -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ...................... 15,259 271 4,747,592 668,134
Cost of investments sold ............................ 13,281 252 4,687,765 667,029
--------- -------- ------------ -----------
Net realized gain (loss) .......................... 1,978 19 59,827 1,105
--------- -------- ------------ -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of period .......... 479 -- 1,341 --
Unrealized gain (loss) end of period ................ 6,485 479 606,203 1,341
--------- -------- ------------ -----------
Net change in unrealized gain (loss) for the period 6,006 479 604,862 1,341
--------- -------- ------------ -----------
Net increase (decrease) in net assets
resulting from operations ......................... 25,426 835 777,950 23,933
--------- -------- ------------ -----------
UNIT TRANSACTIONS:
Participant premium payments ............................ 143,153 7,121 9,467,190 1,566,170
Participant transfers from other Travelers accounts ..... 307,511 15,417 6,145,464 983,742
Contract surrenders ..................................... (17,089) (635) (983,426) (58,243)
Participant transfers to other Travelers accounts ....... (6,601) (232) (5,898,576) (816,967)
--------- -------- ------------ -----------
Net increase in net assets resulting
from unit transactions ............................ 426,974 21,671 8,730,652 1,674,702
--------- -------- ------------ -----------
Net increase in net assets ........................ 452,400 22,506 9,508,602 1,698,635
NET ASSETS:
Beginning of period ................................. 22,506 -- 1,698,635 --
--------- -------- ------------ -----------
End of period ....................................... $ 474,906 $ 22,506 $ 11,207,237 $ 1,698,635
========= ======== ============ ===========
</TABLE>
-13-
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL II
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S.
CAPITAL GOVERNMENT
MANAGED APPRECIATION CASH SECURITIES UTILITIES
ASSETS TRUST FUND INCOME TRUST PORTFOLIO PORTFOLIO
------------ ---- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 2,471 77,659 510,210 1,080 186
Units purchased and transferred from
other Travelers accounts ........ 36,681 410,307 4,201,770 37,586 34,029
Units redeemed and transferred to
other Travelers accounts ........ (5,452) (43,100) (3,802,627) (1,472) (1,604)
------- -------- ---------- ------- -------
Units end of year .................. 33,700 444,866 909,353 37,194 32,611
======= ======== ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON ZERO COUPON
BOND FUND BOND FUND BOND FUND
PORTFOLIO PORTFOLIO PORTFOLIO TEMPLETON TEMPLETON
SERIES 1998 SERIES 2000 SERIES 2005 BOND FUND STOCK FUND
----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 40 -- 42 110 139,885
Units purchased and transferred from
other Travelers accounts ........ 2,452 8,703 15,066 98,390 623,191
Units redeemed and transferred to
other Travelers accounts ........ (145) (387) (1,608) (2,370) (73,395)
------ ------ ------- ------- --------
Units end of year .................. 2,347 8,316 13,500 96,130 689,681
====== ====== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
ASSET FIDELITY'S FIDELITY'S FIDELITY'S FIDELITY'S
ALLOCATION HIGH INCOME GROWTH EQUITY-INCOME ASSET MANAGER
FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 16,725 17,292 80,468 70,383 7,858
Units purchased and transferred from
other Travelers accounts ........ 219,569 341,485 453,937 604,747 194,847
Units redeemed and transferred to
other Travelers accounts ........ (24,209) (108,399) (84,787) (77,515) (20,965)
-------- -------- -------- -------- --------
Units end of year .................. 212,085 250,378 449,618 597,615 181,740
======== ======== ======== ======== ========
</TABLE>
-14-
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL II
FOR THE YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY
ALLIANCE INCOME AND SMITH BARNEY MFS
DREYFUS STOCK GROWTH GROWTH HIGH INCOME TOTAL RETURN
INDEX FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 31,576 61,648 12,845 32,158 9,490
Units purchased and transferred from
other Travelers accounts ........ 477,006 649,958 202,047 149,150 332,791
Units redeemed and transferred to
other Travelers accounts ........ (47,902) (73,060) (29,655) (10,720) (16,156)
-------- -------- -------- -------- --------
Units end of year .................. 460,680 638,546 185,237 170,588 326,125
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AIM CAPITAL
APPRECIATION TOTAL RETURN
PORTFOLIO PORTFOLIO COMBINED
--------- --------- --------
<S> <C> <C> <C>
Units beginning of year ............ 58,901 17,497 1,148,524
Units purchased and transferred from
other Travelers accounts ........ 536,587 317,987 9,948,286
Units redeemed and transferred to
other Travelers accounts ........ (53,590) (16,640) (4,495,758)
-------- -------- ----------
Units end of year .................. 541,898 318,844 6,601,052
======== ======== ==========
</TABLE>
-15-
<PAGE> 73
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, 1997, and
the related statement of operations for the year then ended and statement of
changes in net assets for the year ended December 31, 1997 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1997, by correspondence with the
underlying funds. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund UL II for
Variable Life Insurance as of December 31, 1997, the results of its operations
for the year then ended and the changes in its net assets for the year ended
December 31, 1997 and 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 19, 1998
-16-
<PAGE> 74
THE TRAVELERS LIFE AND ANNUITY COMPANY
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Life and Annuity Company:
We have audited the accompanying balance sheets of The Travelers Life and
Annuity Company as of December 31, 1997 and 1996, and the related statements of
income and retained earnings and cash flows for each of the years in the
three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 26, 1998
F-1
<PAGE> 75
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 35,190 $ 17,462 $ 10,691
Net investment income 168,653 151,326 123,197
Realized investment gains (losses) 44,871 (9,613) 18,713
Other 8,163 2,276 1,286
-------- -------- --------
Total Revenues 256,877 161,451 153,887
-------- -------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits 95,639 77,285 73,818
Interest credited to contractholders 35,165 35,607 30,472
Operating expenses, including amortization of deferred acquisition
costs and value of insurance in force 16,498 8,977 6,161
-------- -------- --------
Total Benefits and Expenses 147,302 121,869 110,451
-------- -------- --------
Income before federal income taxes 109,575 39,582 43,436
-------- -------- --------
Federal income taxes:
Current 33,859 29,456 2,555
Deferred expense (benefit) 4,344 (15,665) 11,964
-------- -------- --------
Total Federal Income Taxes 38,203 13,791 14,519
-------- -------- --------
Net income 71,372 25,791 28,917
Retained earnings beginning of year 167,698 157,907 128,990
Dividends to parent 14,000 16,000 -
-------- -------- --------
Retained Earnings End of Year $225,070 $167,698 $157,907
======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 76
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------ ---- ----
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $1,571,121; $1,440,806) $1,678,120 $1,484,670
Equity securities, at fair value (cost, $15,092; $12,396) 16,289 15,902
Mortgage loans 160,247 128,440
Real estate held for sale - 10,111
Policy loans 2,894 1,750
Short-term securities 169,229 81,162
Other invested assets 118,348 88,641
---------- ----------
Total Investments $2,145,127 $1,810,676
---------- ----------
Separate accounts 812,059 290,940
Deferred acquisition costs and value of insurance in force 90,966 40,027
Deferred federal income taxes 33,661 57,617
Other assets 73,414 55,023
---------- ----------
Total Assets $3,155,227 $2,254,283
---------- ----------
LIABILITIES
Future policy benefits $971,602 $967,621
Contractholder funds 818,971 582,183
Separate accounts 812,059 290,716
Other liabilities 86,934 41,895
---------- ----------
Total Liabilities $2,689,566 $1,882,415
---------- ----------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000 shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,314 167,314
Retained earnings 225,070 167,698
Unrealized investment gains, net of taxes 70,277 33,856
---------- ----------
Total Shareholder's Equity 465,661 371,868
---------- ----------
Total Liabilities and Shareholder's Equity $3,155,227 $2,254,283
========== ==========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 77
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 34,553 $ 6,472 $ 1,950
Net investment income received 170,460 71,083 66,219
Benefits and claims paid (90,820) (70,331) (71,710)
Interest credited to contractholders (35,165) (813) -
Operating expenses paid (40,868) (5,482) (3,013)
Income taxes paid (22,440) (23,931) (35,305)
Other (7,702) (6,857) (6,772)
---------- --------- ---------
Net Cash Provided by (Used in) Operating Activities 8,018 (29,859) (48,631)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 81,899 20,301 11,752
Mortgage loans 8,972 37,789 24,137
Proceeds from sales of investments
Fixed maturities 856,846 978,970 459,971
Equity securities 12,404 12,818 11,823
Mortgage loans 5,483 22,437 7,013
Real estate held for sale 4,493 - -
Purchases of investments
Fixed maturities (1,020,803) (994,443) (515,098)
Equity securities (6,382) (5,412) (156)
Mortgage loans (41,967) (21,450) (4,890)
Policy loans (1,144) (1,750) -
Short-term securities, purchases, net (88,067) (19,688) (5,051)
Other investments, (purchases) sales, net (51,502) (6,160) 9,274
Securities transactions in course of settlement 10,526 (51,703) 45,727
---------- --------- ---------
Net Cash Provided by (Used in) Investing Activities (229,242) (28,291) 44,502
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 325,932 96,490 5,707
Contractholder fund withdrawals (89,145) (22,340) (1,874)
Dividends to parent company (14,000) (16,000) -
---------- --------- ---------
Net Cash Provided by Financing Activities $ 222,787 $ 58,150 $ 3,833
---------- --------- ---------
Net increase (decrease) in cash $ 1,563 $ - $ (296)
---------- --------- ---------
Cash at December 31, $ 1,563 $ - $ -
========== ========= =========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 78
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), an indirect wholly
owned subsidiary of Travelers Group Inc. (Travelers Group). The financial
statements and accompanying footnotes of the Company are prepared in
conformity with generally accepted accounting principles. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and benefits and expenses during the
reporting period. Actual results could differ from those estimates.
The accompanying financial statements reflect a change in presentation of
the assets, liabilities and operations of the structured settlement
separate account business of the Company. The assets and liabilities were
previously reported in separate account line items and are now incorporated
in various financial statement classifications. As a result of this change,
invested assets in the amount of $814.5 million and $863.6 million at
December 31, 1997 and 1996, respectively, associated with structured
settlement contract obligations, are reported as investments. The related
structured settlement contract obligations, which were $842.3 million and
$809.1 million at December 31, 1997 and 1996, respectively, are included in
future policy benefits and contractholder funds. Additionally, structured
settlement transactions included in the income statement for the years
ended December 31, 1997, 1996 and 1995 are premiums of $23.2 million, $8.1
million and $8.0 million, respectively, net investment income of $65.9
million, $62.3 million and $60.0 million, respectively, and benefits and
expenses of $66.5 million, $56.4 million and $51.8 million, respectively.
The 1996 and 1995 amounts were previously reported as a net $13.9 million
and $16.2 million, respectively, included in other revenue.
This change in presentation has no effect on net income, total assets,
total liabilities, or shareholder's equity as reflected in the statements
of income and retained earnings, and balance sheets for the periods
presented.
The Company has determined that a change in presentation was warranted
because of the nature of this particular separate account and the change in
product focus of the Company. The assets of the structured settlement
separate account are owned by, and investment risk is borne by, the
Company, which also guarantees the obligations of this separate account.
Consequently, the Company, not the contractholder, bears the risks of this
separate account.
The Company is now offering a variety of variable annuity products where
the investment risk is borne by the contractholder, not the Company, and
the benefits are not guaranteed. The premiums and deposits related to these
products are reported in separate accounts. The Company considers it
necessary to differentiate, for financial statement purposes, the results
of the risks it has assumed from those it has not. See also Note 6.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
F-5
<PAGE> 79
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accounting Changes
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (FAS 132).
FAS 132 supersedes the disclosure requirements in FASB Statements No. 87,
"Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefits Pension Plans and
Termination of Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." FAS 132 addresses disclosure
only and does not address measurement or recognition. In addition to other
disclosure changes, FAS 132 allows employers to disclose total
contributions to multi-employer plans without disaggregating the amounts
attributable to pensions and other postretirement benefits. This statement
is effective for fiscal years beginning after December 15, 1997. Earlier
application is encouraged. Effective December 31, 1997, the Company adopted
FAS 132. The adoption of this standard did not have any impact on results
of operations, financial condition or liquidity.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125
establishes accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. These standards are
based on an approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The requirements of FAS 125 are effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and are to be applied
prospectively. However, in December 1996 the FASB issued Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125," which delays until January
1, 1998 the effective date for certain provisions. Application of FAS 125
prior to the effective date or retroactively is not permitted. The adoption
of the provisions of FAS 125 effective January 1, 1997 did not have a
material impact on results of operations, financial condition or liquidity.
The adoption of the provisions of FAS 127 effective January, 1998 will not
have a material impact on the results of operations, financial condition or
liquidity of the Company.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement
establishes accounting standards for the impairment of long-lived assets
and certain identifiable intangibles to be disposed. This statement
requires a write down to fair value when long-lived assets to be held and
used are impaired. The statement also requires long-lived assets to be
disposed (e.g., real estate held for sale) be carried at the lower of cost
or fair value less cost to sell, and does not allow such assets to be
depreciated. The adoption of this standard did not have a material impact
on the Company's financial condition, results of operations or liquidity.
F-6
<PAGE> 80
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accounting for Stock-Based Compensation
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
This statement establishes financial accounting and reporting standards for
stock-based employee compensation plans as well as transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. This statement defines a fair value-based method of
accounting for employee stock options or similar equity instruments, and
encourages all entities to adopt this method of accounting for all employee
stock compensation plans. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value-based
method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Entities electing
to remain with the accounting method prescribed in APB 25 must make
pro-forma disclosures of net income and earnings per share, as if the fair
value-based method of accounting defined by FAS 123 had been applied. FAS
123 is applicable to fiscal years beginning after December 15, 1995. The
Company has elected to continue to account for its stock-based employee
compensation plans using the accounting method prescribed by APB 25 and,
had the Company applied FAS 123 in accounting for stock options, net income
would have been reduced by an insignificant amount in 1997, 1996 and 1995.
The Company has adopted FAS 123 for its stock-based non-employee
compensation plans.
Accounting Policies
INVESTMENTS
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity
of the investment. Fixed maturities are classified as "available for sale"
and are reported at fair value, with unrealized investment gains and
losses, net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and non-redeemable preferred
stocks, are classified as "available for sale" and are carried at fair
value based primarily on quoted market prices. Changes in fair values of
equity securities are charged or credited directly to shareholder's equity,
net of income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined
to be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the
higher returns required in the current real estate financing market.
Impaired loans were insignificant at December 31, 1997 and 1996.
Real estate held for sale is carried at the lower of cost or fair value
less estimated cost to sell. Fair value of foreclosed properties is
established at the time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other accepted
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.
F-7
<PAGE> 81
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accrual of income, included in other assets, is suspended on fixed
maturities or mortgage loans that are in default, or on which it is likely
that future payments will not be made as scheduled. Interest income on
investments in default is recognized only as payment is received.
Included in investments are invested assets associated with Structured
Settlement Guaranteed Separate Accounts where the investment risk is borne
by the Company. See Note 6.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the
remeasurement of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
POLICY LOANS
Policy loans are carried at the amount of the unpaid balances that are not
in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
SEPARATE ACCOUNTS
The Company has separate account assets and liabilities representing funds
for which investment income and investment gains and losses accrue directly
to, and investment risk is borne by, the contractholders. Each of these
accounts have specific investment objectives. The assets and liabilities of
these accounts are carried at fair value, and amounts assessed to the
contractholders for management services are included in 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.
The Company also has a separate account for structured settlement annuity
obligations where the investment risk is borne by the Company. The assets
and liabilities of this separate account are included in investments,
future policy benefits and contractholder funds for financial reporting
purposes. See Note 6.
DEFERRED ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE
Costs of acquiring individual life insurance and annuity business,
principally commissions and certain expenses related to policy issuance,
underwriting and marketing, all of which vary with and are primarily
related to the production of new business, are deferred. Acquisition costs
relating to traditional life insurance are amortized in relation to
anticipated premiums; universal life in relation to estimated gross
profits; and annuity contracts employing a level yield method. A 10- to
25-year amortization period is used for life insurance, and a 10- to
20-year period is employed for annuities. Deferred acquisition costs are
reviewed periodically for recoverability to determine if any adjustment is
required. Adjustments, if any are charged to income.
F-8
<PAGE> 82
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from annuities
contracts at the date of acquisition using the same assumptions that were
used for computing related liabilities where appropriate. The value of
insurance in force was the actuarially determined present value of the
projected future profits discounted at an interest rate of 16% for the
business acquired. The value of the business in force is amortized using
current interest crediting rates to accrete interest and amortized
employing a level yield method. The value of insurance in force is reviewed
periodically for recoverability to determine if any adjustment is required.
Adjustments, if any, are charged to income.
FUTURE POLICY BENEFITS
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuity policies have
been computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 3.0% to 7.5%,
including a provision for adverse deviation. These assumptions consider
Company experience and industry standards. The assumptions vary by plan,
age at issue, year of issue and duration.
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal
life, certain individual annuity contracts, and structured settlement
contracts. Contractholder fund balances are increased by such receipts and
credited interest and reduced by withdrawals, mortality charges and
administrative expenses charged to the contractholders. Interest rates
credited to contractholder funds range from 3.9% to 7.2%.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, domiciled in the State of Connecticut, prepares statutory
financial statements in accordance with the accounting practices prescribed
or permitted by the State of Connecticut Insurance Department. Prescribed
statutory accounting practices include certain publications of the National
Association of Insurance Commissioners 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 earned on investment and other insurance contracts.
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.
F-9
<PAGE> 83
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Future Application of Accounting Standards
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and
when an asset may be recognized for the recovery of such assessments
through premium tax offsets or policy surcharges. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998,
and the effect of initial adoption is to be reported as a cumulative
catch-up adjustment. Restatement of previously issued financial statements
is not allowed. The Company has not yet determined when it will implement
this SOP and does not anticipate any material impact on the Company's
financial condition, results of operations or liquidity.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. All items
that are required to be recognized under accounting standards as components
of comprehensive income are to be reported in a financial statement that is
displayed with the same prominence as other financial statements. FAS 130
stipulates that comprehensive income reflect the change in equity of an
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income will thus
represent the sum of net income and other comprehensive income, although
FAS 130 does not require the use of the terms comprehensive income or other
comprehensive income. The accumulated balance of other comprehensive income
shall be displayed separately from retained earnings and additional paid-in
capital in the statement of financial position. FAS 130 is effective for
fiscal years beginning after December 15, 1997. The Company anticipates
that the adoption of FAS 130 will result primarily in reporting unrealized
gains and losses on investments in debt and equity securities in
comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (FAS 131). FAS 131 establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires that selected information about those
operating segments be reported in interim financial statements. FAS 131
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise" (FAS 14). FAS 131 requires
that all public enterprises report financial and descriptive information
about its reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decisionmaker
in deciding how to allocate resources and in assessing performance. FAS 131
is effective for fiscal years beginning after December 15, 1997. The
Company's reportable operating segment will not change as a result of the
adoption of FAS 131.
F-10
<PAGE> 84
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide capacity for future growth and to effect
business-sharing arrangements. The Company remains primarily liable as the
direct insurer on all risks reinsured.
Life insurance in force ceded to TIC at December 31, 1997 and 1996 was
$76.4 million and $90.7 million, respectively. Life insurance in force
ceded to non-affiliates at December 31, 1997 and 1996, was $4.5 billion and
$2.2 billion, respectively.
3. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
See Note 11 for an analysis of the change in unrealized gains and losses on
investments.
Shareholder's Equity and Dividend Availability
The Company's statutory net income was $80.3 million, $17.9 million and
$23.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Statutory capital and surplus was $328.2 million and $254.1 million at
December 31, 1997 and 1996, 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 $63.6 million is available in 1998 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, equity options, forward contracts and interest rate swaps as a
means of hedging exposure to foreign currency, equity price changes and/or
interest rate risk on anticipated transactions or existing assets and
liabilities. The Company does not hold or issue derivative instruments for
trading purposes.
These derivative financial instruments have off-balance sheet risk.
Financial instruments with off-balance sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of these
instruments reflect the extent of involvement the Company has in a
particular class of financial instrument. However, the maximum loss of cash
flow associated with these instruments can be less than these amounts. For
forward contracts and interest rate swaps, credit risk is limited to the
amounts calculated to be due the Company on such contracts. Financial
futures contracts and purchased listed option contracts have little credit
risk since organized exchanges are the counterparties.
F-11
<PAGE> 85
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange traded financial futures contracts to manage its
exposure to changes in interest rates which arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from
the sale or maturity of investments. To hedge against adverse changes in
interest rates, the Company enters long or short positions in financial
futures contracts to offset asset price changes resulting from changes in
market interest rates until an investment is purchased or a product is
sold.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 1997 and 1996, the Company held financial futures contracts
with notional amounts of $156.3 million and $20.3 million, respectively. At
December 31, 1997 and 1996, the Company's futures contracts had no fair
value because these contracts are marked to market and settled in cash
daily.
The off-balance sheet risks of equity options, forward contracts, and
interest rate swaps were not significant at December 31, 1997 and 1996.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 1997 and 1996.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1997, investments in fixed maturities had a carrying value
and a fair value of $1.7 billion, compared with a carrying value and a fair
value of $1.5 billion at December 31, 1996. See Notes 1 and 11.
At December 31, 1997 and 1996, mortgage loans had a carrying value of
$160.2 million and $128.4 million, respectively, which approximates fair
value. In estimating fair value, the Company used interest rates reflecting
the higher returns required in the current real estate financing market.
The carrying values of $33.8 million and $22.7 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1997 and 1996, respectively. The carrying values of $72.7
million and $38.5 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1997 and
1996, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
F-12
<PAGE> 86
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 1997, contractholder funds with defined maturities had a
carrying value of $694.9 million and a fair value of $695.9 million,
compared with a carrying value of $546.5 million and a fair value of $545.2
million at December 31, 1996. The fair value of these contracts is
determined by discounting expected cash flows at an interest rate
commensurate with the Company's credit risk and the expected timing of cash
flows. Contractholder funds without defined maturities had a carrying value
of $98.5 million and a fair value of $93.9 million at December 31, 1997,
compared with a carrying value of $26.9 million and a fair value of $25.6
million at December 31, 1996. These contracts generally are valued at
surrender value.
The carrying values of short-term securities and policy loans approximated
their fair values.
5. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
The Company has, in the normal course of business, provided fixed rate loan
commitments and commitments to partnerships.
The off-balance sheet risks of fixed rate loan commitments, commitments to
partnerships and forward contracts were not significant at December 31,
1997 and 1996.
Litigation
The Company is a defendant in various litigation matters in the normal
course of business. Although there can be no assurances, as of December 31,
1997, 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.
6. STRUCTURED SETTLEMENT CONTRACTS
The Company has structured settlement contracts that provide guarantees for
the contractholders independent of the investment performance of the assets
held in the related separate account. The assets held in the separate
account are owned by the Company and contractholders do not share in their
investment performance.
The Company maintains assets sufficient to fund the guaranteed benefits
attributable to the liabilities. Assets held in the separate account cannot
be used to satisfy any other obligations of the Company.
The Company reports the related assets and liabilities in investments,
future policy benefit reserves and contractholder funds.
F-13
<PAGE> 87
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
7. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by an affiliate. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by an affiliate. The Company's share of net expense for the
qualified pension and other postretirement benefit plans was not
significant for 1997, 1996 and 1995. Beginning January 1, 1996, the
Company's other postretirement benefit plans were amended to restrict
benefit eligibility to retirees and certain retiree-eligible employees.
Previously, covered employees could become eligible for postretirement
benefits if they reached retirement age while working for the Company.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Travelers Group. Prior to January 1,
1996, the Company made matching contributions to the 401(k) savings plan on
behalf of participants in the amount of 50% of the first 5% of pre-tax
contributions made by the employee, plus an additional variable matching
contribution based on the profitability of The Travelers Insurance Group
Inc. (TIGI) and its subsidiaries. During 1996, the Company made matching
contributions in an amount equal to the lesser of 100% of the pre-tax
contributions made by the employee or $1,000. Effective January 1, 1997,
the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings
plan were not significant in 1997, 1996 and 1995.
8. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI, including the
Company, are handled by two companies. TIC handles banking functions for
the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles
banking functions for the property-casualty operations, including most of
its property-casualty insurance and non-insurance affiliates. Settlements
between companies are made at least monthly. TIC provides various employee
benefit coverages to certain subsidiaries of TIGI. The premiums for these
coverages were charged in accordance with cost allocation procedures based
upon salaries or census. In addition, investment advisory and management
services, data processing services and claims processing services are
provided by affiliated companies. Charges for these services are shared by
the companies on cost allocation methods based generally on estimated usage
by department.
TIC maintains a short-term investment pool in which the Company
participates. The position of each company participating in the pool is
calculated and adjusted daily. At December 31, 1997 and 1996, the pool
totaled approximately $2.6 billion and $2.9 billion, respectively. The
Company's share of the pool amounted to $145.5 million and $68.2 million at
December 31, 1997 and 1996, 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 $400
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.
F-14
<PAGE> 88
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company sells structured settlement annuities to an affiliate, The
Travelers Indemnity Company. Premiums and deposits were $70.6 million,
$36.9 million and $36.6 million for 1997, 1996 and 1995, respectively.
The Company began marketing variable annuity products through its
affiliate, Salomon Smith Barney, in 1995. Premiums and deposits
related to these products were $615.6 million, $300.0 million and $20.5
million in 1997, 1996 and 1995, respectively.
The Company participates in a stock option plan sponsored by Travelers
Group that provides for the granting of stock options in Travelers Group
common stock to officers and key employees. To further encourage employee
stock ownership, during 1997 Travelers Group introduced the WealthBuilder
stock option program. Under this program, all employees meeting certain
requirements have been granted Travelers Group stock options.
Most leasing functions for TIGI and its subsidiaries are handled by TAP.
Rent expense related to these leases are shared by the companies on a cost
allocation method based generally on estimated usage by department. The
Company's rent expense was insignificant in 1997, 1996 and 1995.
At December 31, 1997 and 1996, the Company had investments in Tribeca
Investments LLC in the amounts of $16.5 million and $7.8 million, included
in other invested assets.
9. FEDERAL INCOME TAXES
($ in thousands)
<TABLE>
<CAPTION>
EFFECTIVE TAX RATE
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
------------------------------- ---- ---- ----
<S> <C> <C> <C>
Income Before Federal Income Taxes $109,575 $39,582 $43,436
Statutory Tax Rate 35% 35% 35%
-------- ------- -------
Expected Federal Income Taxes 38,351 13,854 15,203
Tax Effect of:
Non-taxable investment income (24) (15) (13)
Other, net (124) (48) (671)
-------- ------- -------
Federal Income Taxes 38,203 $13,791 $14,519
======== ======= =======
Effective Tax Rate 35% 35% 33%
-------- ------- -------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States 33,805 $29,435 $2,555
Foreign 54 21 -
-------- ------- -------
Total 33,859 29,456 2,555
-------- ------- -------
Deferred:
United States 4,344 (15,665) 11,964
-------- ------- -------
Total Net Earned Premiums $38,203 $13,791 $14,519
======== ======= =======
</TABLE>
F-15
<PAGE> 89
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax assets at December 31, 1997 and 1996 were comprised of
the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $100,969 $79,484
Other 2,571 3,043
-------- -------
Total 103,540 82,527
-------- -------
Deferred Tax Liabilities:
Investments, net 42,933 12,113
Deferred acquisition costs and value of insurance in force 23,650 10,066
Other 1,226 662
------- -------
Total 67,809 22,841
------- -------
Net Deferred Tax Asset Before Valuation Allowance 35,731 59,686
Valuation Allowance for Deferred Tax Assets (2,070) (2,070)
------- -------
Net Deferred Tax Asset After Valuation Allowance $33,661 $57,616
------- -------
</TABLE>
Starting in 1994 and continuing for at least five years, TIC and its life
insurance subsidiaries, including the Company, has filed, and will file, a
consolidated federal income tax return. Federal income taxes are allocated
to each member on a separate return basis adjusted for credits and other
amounts required by the consolidation process. Any resulting liability has
been, and will be, paid currently to TIC. Any credits for losses have been,
and will be, paid by TIC to the extent that such credits are for tax
benefits that have been utilized in the consolidated federal income tax
return.
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 if
life/non-life consolidation is elected in 1999, the consolidated federal
income tax return of Travelers Group commencing in 1999, or a change in
circumstances which causes the recognition of the benefits to become more
likely than not. There was no change in the valuation allowance during
1997. The initial recognition of any benefit provided by the reversal of
the valuation allowance will be recognized by reducing goodwill.
In management's judgment, the $33.7 million "net deferred tax asset after
valuation allowance" as of December 31, 1997, is fully recoverable against
expected future years' taxable ordinary income and capital gains. At
December 31, 1997, 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 $700 thousand.
F-16
<PAGE> 90
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
10. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $120,900 $113,296 $105,821
Equity securities 704 554 835
Mortgage loans 14,905 18,278 14,974
Real estate held for sale 1,457 3,480 2,476
Other 32,459 19,854 2,537
-------- -------- --------
170,425 155,462 126,643
-------- -------- --------
Investment expenses 1,772 4,136 3,446
-------- -------- --------
Net investment income $168,653 $151,326 $123,197
-------- -------- --------
</TABLE>
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $29,236 $(11,491) $(4,240)
Equity securities 8,385 4,613 6,138
Mortgage loans (8) 1,979 725
Real estate held for sale 2,164 (73) (35)
Other 5,094 (4,641) 16,125
------- -------- -------
Total Realized Investment Gains (Losses) $44,871 $(9,613) $18,713
------- -------- -------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as a
separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $34,451 $(23,953) $111,551
Equity securities (2,394) (746) 1,834
Other 23,975 22,431 4,390
------- -------- --------
Total Unrealized Investment Gains (Losses) 56,032 (2,268) 117,775
Related taxes 19,611 (794) 41,221
------- -------- --------
Change in unrealized investment gains (losses) 36,421 (1,474) 76,554
Balance beginning of year 33,856 35,330 (41,224)
------- -------- -------
Balance End of Year $70,277 $33,856 $35,330
------- -------- -------
</TABLE>
F-17
<PAGE> 91
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $856.8 million and $2.1 billion in 1997 and 1996, respectively. Gross
gains of $38.1 million and $8.4 million and gross losses of $8.9 million
and $19.9 million in 1997 and 1996, respectively, were realized on those
sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a
quoted market price or dealer quote are not available amounted to $485.3
million and $360.1 million at December 31, 1997 and 1996, respectively.
The amortized cost and fair values of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 GROSS GROSS
($ in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 144,921 $ 8,254 $ (223) $ 152,952
U.S. Treasury securities and
obligations of U.S. Government and
government agencies and authorities 248,081 34,111 (123) 282,069
Obligations of states and political
subdivisions 14,560 392 (2) 14,950
Debt securities issued by foreign
governments 85,367 6,194 (228) 91,333
All other corporate bonds 1,077,211 59,972 (1,387) 1,135,796
Redeemable preferred stock 981 48 (9) 1,020
---------- -------- ------- ----------
Total Available For Sale $1,571,121 $108,971 $(1,972) $1,678,120
========== ======== ======= ==========
</TABLE>
F-18
<PAGE> 92
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 GROSS GROSS
($ in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $154,788 $ 3,312 $(901) $157,199
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 255,858 16,855 (61) 272,652
Obligations of states and political
subdivisions 16,124 263 (189) 16,198
Debt securities issued by foreign
governments 109,120 3,215 (1,447) 110,888
All other corporate bonds 904,831 28,204 (5,387) 927,648
Redeemable preferred stock 85 - - 85
---------- ------- ------- ----------
Total Available For Sale $1,440,806 $51,849 $(7,985) $1,484,670
========== ======= ======= ==========
</TABLE>
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1997, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
($ in thousands) AMORTIZED FAIR
COST VALUE
<S> <C> <C>
MATURITY:
Due in one year or less $ 17,978 $ 18,312
Due after 1 year through 5 years 211,272 216,191
Due after 5 years through 10 years 381,690 401,338
Due after 10 years 815,260 889,327
---------- ----------
1,426,200 1,525,168
---------- ----------
Mortgage-backed securities 144,921 152,952
---------- ----------
Total Maturity $1,571,121 $1,678,120
========== ==========
</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,
including planned amortization class (PAC) tranches. Prepayment protected
tranches are preferred because they provide stable cash flows in a variety
of interest rate scenarios. The Company does invest in other types of CMO
tranches if a careful assessment indicates a favorable risk/return
tradeoff. The Company does not purchase residual interests in CMOs.
F-19
<PAGE> 93
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 1997 and 1996, the Company held CMOs with a market value of
$122.8 million and $126.3 million, respectively. The Company's CMO holdings
were 97.5% and 97.6% collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1997 and 1996, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
EQUITY SECURITIES: GROSS GROSS
($ in thousands) UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Common stocks $ 3,318 $ 583 $ (70) $ 3,831
Non-redeemable preferred stocks 11,774 931 (247) 12,458
------- ------ ----- -------
Total Equity Securities $15,092 $1,514 $(317) $16,289
------- ------ ----- -------
DECEMBER 31, 1996
Common stocks $ 2,722 $3,441 $(163) $ 6,000
Non-redeemable preferred stocks 9,674 323 (95) 9,902
------- ------ ----- -------
Total Equity Securities $12,396 $3,764 $(258) $15,902
------- ------ ------ -------
</TABLE>
Proceeds from sales of equity securities were $12.4 million and $20.3
million in 1997 and 1996, respectively. Gross gains of $8.6 million and
$4.7 million and gross losses of $172 thousand and $155 thousand in 1997
and 1996, respectively, were realized on those sales.
Mortgage Loans and Real Estate Held For Sale
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
At December 31, 1997 and 1996, the Company's mortgage loan portfolios and
real estate held for sale consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Current Mortgage Loans $ 160,247 $128,292
Underperforming Mortgage Loans - 148
--------- --------
Total 160,247 128,440
--------- --------
Real Estate Held For Sale - 10,111
--------- --------
Total $ 160,247 $138,551
--------- --------
</TABLE>
F-20
<PAGE> 94
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
($ in thousands)
<S> <C>
Past Maturity $ -
1998 5,108
1999 8,773
2000 8,920
2001 11,352
2002 17,986
Thereafter 108,108
--------
Total $160,247
========
</TABLE>
Joint Venture
In October 1997, TIC and Tishman Speyer Properties (Tishman), a worldwide
real estate owner, developer and manager, formed a joint real estate
venture with an initial equity commitment of $792 million. TIC and certain
of its affiliates committed $420 million in real estate equity and $100
million in cash while Tishman committed $272 million in properties and
cash. Both companies are serving as asset managers for the venture and
Tishman is primarily responsible for the venture's real estate acquisition
and development efforts. The Company's investment in the joint venture
totaled $54.8 million at December 31, 1997.
Concentrations
At December 31, 1997 and 1996, the Company had investments of $50.8 million
and $75.1 million in the State of Israel, respectively. Additionally, in
1996 the Company had $40.6 million in Merrill Lynch Trust Series 45.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 8.
Included in fixed maturities are below investment grade assets totaling
$76.7 million and $81.7 million at December 31, 1997 and 1996,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment grade
bonds.
The Company also had concentrations of investments, primarily fixed
maturities, in the following industries:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Transportation $138,903 $ 86,819
Banking 130,966 71,506
Electric utilities 106,724 76,426
------- ------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
F-21
<PAGE> 95
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Concentrations of mortgage loans by property type at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Agricultural $62,463 $49,801
Office 47,453 35,333
Retail 23,214 21,924
------ ------
</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.
Non-Income Producing Investments
Investments included in the balance sheets that were non-income producing
for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loan and debt securities which were restructured
at below market terms totaling approximately $1.0 million at December 31,
1996. The new terms typically defer a portion of contract interest payments
to varying future periods. The accrual of interest is suspended on all
restructured assets, and interest income is reported only as payment is
received. Gross interest income on restructured assets that would have been
recorded in accordance with the original terms of such assets was
insignificant. Interest on these assets, included in net investment income
was insignificant.
12. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1997, the Company had $1.8 million of life and annuity
deposit funds and reserves. Of that total, $1.5 million were not subject to
discretionary withdrawal based on contract terms. The remaining $.3 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 $.2 million of liabilities that are
surrenderable with market value adjustments. An additional $.1 million of
the life insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 4.8%. The
life insurance risks would have to be underwritten again if transferred to
another carrier, which is considered a significant deterrent for long-term
policyholders. Insurance liabilities that are surrendered or withdrawn from
the Company are reduced by outstanding policy loans and related accrued
interest prior to payout.
F-22
<PAGE> 96
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
13. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used in)
operating activities:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Net Income From Continuing Operations $71,372 $ 25,791 $ 28,917
Adjustments to reconcile net income to cash provided by
operating activities:
Realized (gains) losses (44,871) 9,613 (18,713)
Deferred federal income taxes 4,344 (15,665) 11,964
Amortization of deferred policy acquisition costs and
value of insurance in force 6,036 3,286 1,563
Additions to deferred policy acquisition costs (56,975) (20,753) (3,109)
Investment income accrued 908 1,308 (819)
Premium balances receivable (3,450) (3,561) (2,277)
Insurance reserves and accrued expenses 3,981 (16,459) (20,081)
Other 26,673 (13,419) (46,076)
------ -------- --------
Net cash provided by (used in) operations $8,018 $(29,859) $(48,631)
------ -------- --------
</TABLE>
14. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing and financing activities for
1997, 1996 and 1995.
F-23
<PAGE> 97
MARKETLIFE
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
HARTFORD, CONNECTICUT
L-12539 May, 1998
<PAGE> 98
UNDERTAKING TO FILE REPORTS
---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
--------------------
Section 33-770 of the Connecticut General Statutes regarding indemnification of
directors and officers of Connecticut corporations provides in general that
Connecticut corporations shall indemnify their officers, directors and certain
other defined individuals against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses actually incurred in connection with
proceedings against the corporation. The corporation's obligation to provide
such indemnification generally does not apply unless (1) the individual is
successful on the merits in the defense of any such proceeding; or (2) a
determination is made (by persons specified in the statute) that the individual
acted in good faith and in the best interests of the corporation; or (3) the
court, upon application by the individual, determines in view of all of the
circumstances that such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine. With
respect to proceedings brought by or in the right of the corporation, the
statute provides that the corporation shall indemnify its officers, directors
and certain other defined individuals, against reasonable expenses actually
incurred by them in connection with such proceedings, subject to certain
limitations.
C.G.S. Section 33-770 provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less than
that authorized by the statute, e.g., pursuant to its certificate of
incorporation, by-laws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Travelers Group Inc. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Depositor. This insurance provides for coverage against loss from claims made
against directors and officers in their capacity as such, including, subject to
certain exceptions, liabilities under the federal securities laws.
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
UNDERTAKING TO REPRESENT REASONABLENESS OF CHARGES
--------------------------------------------------
The Company hereby represents that the aggregate charges under the Policy of
the Registrant described herein are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
Company.
<PAGE> 99
CONTENTS OF REGISTRATION STATEMENT
----------------------------------
This Registration Statement comprises the following papers and documents:
- - The facing sheet.
- - The Prospectus.
- - The undertaking to file reports.
- - The signatures.
ATTACHMENTS:
- -----------
A. Consent of Katherine M. Sullivan, General Counsel, to the filing of
her opinion as an exhibit to this Registration Statement and to the
reference to her opinion under the caption "Legal Proceedings and
Opinion" in the Prospectus. (See Exhibit 11 below.)
B. Consent and Actuarial Opinion pertaining to the illustrations
contained in the Prospectus.
C. Consent of Coopers & Lybrand L.L.P., Independent Accountants.
D. Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.
EXHIBITS:
- --------
1. Resolution of the Board of Directors of The Travelers Life and
Annuity Company authorizing the establishment of the Registrant.
(Incorporated herein by reference to Exhibit 1 to Registration
Statement on Form S-6 filed November 2, 1995.)
2. Not applicable.
3(a). Distribution Agreement among the Registrant, The Travelers Life and
Annuity Company and Tower Square Securities, Inc. (Incorporated
herein by reference to Exhibit 3(a) to Registration Statement on
Form S-6 filed November 2, 1995.)
3(b). Specimen Form of Selling Agreement. (Incorporated herein by
reference to Exhibit 3(b) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 filed April 25, 1996.)
3(c). Agents Agreement, including schedule of sales commissions.
(Incorporated herein by reference to Exhibit 3(c) to Post-Effective
Amendment No. 1 to the Registration Statement on Form S-6 filed
April 25, 1997.)
4. None
5. Variable Life Insurance Policy. (Incorporated herein by reference to
Exhibit 5 to Registration Statement on Form S-6 filed November 2,
1995.)
6(a). Charter of The Travelers Life and Annuity Company, as amended on
April 10, 1990. (Incorporated herein by reference to Exhibit 3(a) to
the Registration Statement on Form N-4, File No. 33-58131, filed via
Edgar on March 17, 1995.)
<PAGE> 100
6(b). By-Laws of The Travelers Life and Annuity Company, as amended on
October 20, 1994. (Incorporated herein by reference to Exhibit 3(b)
to the Registration Statement on Form N-4, File No. 33-58131, filed
via Edgar on March 17, 1995.)
7. None
8. None
9. None
10. Application for Variable Life Insurance Policy.
11. Opinion of Counsel regarding the legality of securities being
registered.
12. Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as
signatory for Michael A. Carpenter, Robert I. Lipp, Charles O.
Prince, III, Marc P. Weill, Irwin R. Ettinger, Donald T. DeCarlo and
Christine B. Mead. (Incorporated herein by reference to Exhibit 12
to Registration Statement on Form S-6 filed November 2, 1995.)
12(b) Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for Michael A. Carpenter, Jay S. Benet, George C.
Kokulis, Ian R. Stuart and Katherine M. Sullivan. (Incorporated
herein by reference to Exhibit 12(b) to Post-Effective Amendment No.
1 to the Registration Statement on Form S-6 filed April 25, 1997.)
13. Memorandum concerning transfer and redemption procedures, as
required by Rule 6e-3(T)(b)(12)(ii). (Incorporated herein by
reference to Exhibit 3(b) to Pre-Effective Amendment No. 13 to the
Registration Statement on Form S-6 filed April 25, 1996.)
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, The
Travelers Fund UL II for Variable Life Insurance, certifies that it meets all
of the requirements for effectiveness of this post-effective amendment to this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hartford, State of Connecticut, on the 24th day of April, 1998.
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
(Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
<TABLE>
<S> <C>
By: *IAN R. STUART
-----------------------------------------------
Ian R. Stuart
Senior Vice President, Chief Financial Officer
Chief Accounting Officer and Controller
The Travelers Life and Annuity Company
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to this registration statement has been signed by the following
persons in the capacities indicated on April 24, 1998.
<TABLE>
<S> <C>
*MICHAEL A. CARPENTER Director, Chairman of the Board, President
- ---------------------------------------- and Chief Executive Officer
(Michael A. Carpenter)
*JAY S. BENET Director
- ----------------------------------------
(Jay S. Benet)
*GEORGE C. KOKULIS Director
- ----------------------------------------
(George C. Kokulis)
*ROBERT I. LIPP Director
- ----------------------------------------
(Robert I. Lipp)
*IAN R. STUART Director, Senior Vice President, Chief Financial
- ---------------------------------------- Officer, Chief Accounting Officer and Controller
(Ian R. Stuart)
*KATHERINE M. SULLIVAN Director, Senior Vice President
- ---------------------------------------- and General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ----------------------------------------
(Marc P. Weill)
*By: Ernest J. Wright, Attorney-in-Fact
</TABLE>
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
Attachment
or
Exhibit
No. Description Method of Filing
- ------- ----------- -----------------
<S> <C> <C>
ATTACHMENTS:
A. Consent of Katherine M. Sullivan, General Counsel, to the Electronically
filing of her opinion as an exhibit to this Registration See Exhibit 11
Statement and to the reference to her opinion under
the caption "Legal Proceedings and Opinion" in the
Prospectus. (See Exhibit 11 below.)
B. Consent and Actuarial Opinion pertaining to the illustrations Electronically
contained in the Prospectus.
C. Consent of Coopers & Lybrand L.L.P., Independent Accountants. Electronically
D. Consent of KPMG Peat Marwick LLP, Independent Electronically
Certified Public Accountants.
Exhibits:
1. Resolution of the Board of Directors of The Travelers Life
and Annuity Company authorizing the establishment of the
Registrant. (Incorporated herein by reference to Exhibit 1 to
Registration Statement on Form S-6 filed November 2, 1995.)
3(a). Distribution Agreement between the Registrant, The Travelers
Life and Annuity Company and Tower Square Securities, Inc.
(Incorporated herein by reference to Exhibit 3(a) to Registration
Statement on Form S-6 filed November 2, 1995.)
3(b). Specimen Form of Selling Agreement. (Incorporated herein
by reference to Exhibit 3(b) to Pre-Effective Amendment No.
1 to the Registration Statement on Form S-6 filed April 25, 1996.)
3(c). Agents Agreement, including schedule of sales commissions.
(Incorporated herein by reference to Exhibit 3(c) to Post-Effective
Amendment No. 1 to the Registration Statement on Form S-6
filed April 25, 1997.)
5. Variable Life Insurance Policy. (Incorporated herein by reference
to Exhibit 5 to Registration Statement on Form S-6 filed
November 2, 1995.)
6(a). Charter of The Travelers Life and Annuity Company, as amended
on April 10, 1990. (Incorporated herein by reference to Exhibit 3(a)
to the Registration Statement on Form N-4, File No. 33-58131,
filed via Edgar on March 17, 1995.)
</TABLE>
<PAGE> 103
<TABLE>
<S> <C> <C>
6(b). By-Laws of The Travelers Life and Annuity Company, as amended
on October 20, 1994. (Incorporated herein by reference to
Exhibit 3(b) to the Registration Statement on Form N-4,
File No. 33-58131, filed on March 17, 1995.)
10. Application for Variable Life Insurance Policy. Electronically
11. Opinion of Counsel regarding the legality of securities being Electronically
registered.
12. Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright
as signatory for Michael A. Carpenter, Robert I. Lipp, Charles O.
Prince, III, Marc P. Weill, Irwin R. Ettinger, Donald T. DeCarlo
and Christine B. Mead. (Incorporated herein by reference to Exhibit 12
to Registration Statement on Form S-6 filed November 2, 1995.)
12(b) Powers of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for Michael A. Carpenter, Jay S. Benet,
George C. Kokulis, Ian R. Stuart and Katherine M. Sullivan.
(Incorporated herein by reference to Exhibit 12(b) to Post-Effective
Amendment No. 1 to the Registration Statement n Form S-6
filed April 25, 1997.)
13. Memorandum concerning transfer and redemption procedures,
as required by Rule 6e-3(T)(b)(12)(ii) (Incorporated herein by
reference to Exhibit 13 to Pre-Effective Amendment No. 1 to
the Registration Statement on Form S-6 filed April 25, 1996.)
</TABLE>
<PAGE> 1
April 20, 1998
ACTUARIAL OPINION
The illustrations included in the prospectus have been based on
assumptions and charges which are consistent with the provisions of the
MarketLife contract. The rate structure of the contract has not been designed to
make the relationship between premiums and benefits, as shown in the
illustrations, appear more favorable for contract owners at the ages illustrated
than for contract owners at other ages.
Mahir Dugentas, A.S.A., M.A.A.A.
Director of Life Pricing
<PAGE> 1
ATTACHMENT C
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this post-effective amendment No. 2 to the
registration statement of The Travelers Fund UL II for Variable Life Insurance
(the "Fund") on Form S-6 (File Nos. 33-63927; 811-07411) of our report dated
February 19, 1998, on our audit of the financial statements of the Fund for the
year ended December 31, 1997 which is included in this post-effective amendment
to the registration statement. We also consent to the reference to our Firm as
experts in the registration statement.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 23, 1998
<PAGE> 1
ATTACHMENT D
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Life and Annuity Company
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".
KPMG Peat Marwick LLP
Hartford, Connecticut
April 24, 1998
<PAGE> 1
PART ONE
LIFE INSURANCE APPLICATION [TRAVELERS LOGO]
GENERAL INSTRUCTIONS
- - Please PRINT legibly with black ink.
- - Answer all appropriate questions fully.
- - Please note instructions for each section provided in italicized print.
- - Please complete any necessary supplemental forms.
- - For spouse rider, submit a separate fully completed Part 1 application.
- - The Fair Credit Reporting Act/Medical Information Bureau notice and the
Description of Information Practices must be detached and given to the
Proposed Insured.
- - If additional space is needed for special instructions, please attach a
separate page.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
UNDERWRITING REQUIREMENTS ORDERED:
<S> <C> <C> <C>
[ ] Blood Profile [ ] Paramed Exam* [ ] ECG [ ] Inspection Report
[ ] Urine Specimen [ ] M.D. Exam [ ] Treadmill ECG [ ] APS
</TABLE>
*Be sure to inform the Paramed vendor of the application state for this sale so
they will use the correct Part Two form.
<TABLE>
<CAPTION>
ATTACHED FORMS ARE REQUIRED TO PROCESS THIS CASE:
(Use correct variation of forms for the state in which the application was signed.)
<S> <C> <C>
[ ] HIV Consent Form [ ] Juvenile Supplement [ ] Family Insurance Supplement
[ ] State-Required Replacement Form [ ] State-Required Supplement [ ] VUL Supplement
[ ] Life Financial Supplement [ ] Signed Illustration [ ] Other
--------------------------------------
CONTACT PERSON: Name
---------------------------------------------------------------------------------------------------
Phone ( ) Fax ( )
------------------------------------------------ ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AGENT(S) INFORMATION:
- -------------------------------------------------------------------------------------------------------------------------------
NAME AREA CODE & SOCIAL SECURITY # OR PRODUCER CODE COMMISSION
TELEPHONE NO. (IF APPLICABLE) SPLIT*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -
- -------------------------- ----------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- %
- -
- -------------------------- ----------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- %
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*only if multiple agents
GENERAL AGENCY'S BRANCH/PRODUCER CODE (IF APPLICABLE): /
- - - - - - - - - - - -
OR BANK OR BROKER/DEALER NAME:
-------------------------------------------
SPECIAL INSTRUCTIONS:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[ ] Comments continued on attached separate page
THE TRAVELERS INSURANCE COMPANY
THE TRAVELERS LIFE AND ANNUITY COMPANY
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
<PAGE> 2
<TABLE>
<S> <C> <C>
AGENT - INDICATE COMPANY: [ ] THE TRAVELERS INSURANCE COMPANY [ ] THE TRAVELERS LIFE AND ANNUITY COMPANY
</TABLE>
PART ONE
LIFE INSURANCE APPLICATION [TRAVELERS LOGO]
GENERAL INFORMATION - PROPOSED INSURED
Complete for all policies (please print). Use black ink. Questions must be
answered by the Proposed Insured.
If the Proposed Insured is under age 16, complete Juvenile Supplement.
<TABLE>
<S> <C> <C> <C>
1. Full Name (print as to appear in policy)
--------------------------------------------------------------------------------------
First Middle Last
2. Social Security No. Date of Birth Birthplace
------------- -------------- ------------------------------------------------------
State Country (if other than U.S.)
Sex: [ ] M [ ] F Marital Status: [ ] S [ ] M [ ] D [ ] W Current Citizen of
-------------------------
Country
3. Residence Address Apt. No.
----------------------------------------------------------------------------------- ----------------
Street and number
City State Zip Phone Number ( )
---------------------------------------- ---------- ------------- -----------------------------------
4. If Proposed Insured has resided at address less than one year, show prior address:
Street and Number Apt. No.
----------------------------------------------------------------------------------- ----------------
City State Zip
------------------------------------------------------------------------------ ------------- ---------------------
5. Employer (Name of Firm)
-------------------------------------------------------------------------------------------------------
6. Business Address Suite No.
----------------------------------------------------------------------------------- ---------------
Street and number
City State Zip Phone Number ( )
---------------------------------------- ---------- ------------- -----------------------------------
Check Calling Preference: [ ] Home [ ] Business Best Time To Call
----------------------------------------
7. Occupation (Position or Title) Annual Salary $ Other Income $
--------------------- ------------------ -------------------------
</TABLE>
<TABLE>
<CAPTION>
8. State all life insurance now in effect on Proposed Insured. If "None", so state.
- -------------------------------------------------------------------------------------------------
Company/Year of Issue Face Amount Amount of ADB Personal (P) or
Business (B) Coverage?
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
Will any life insurance, including annuities, in this or any other company be
replaced, discontinued, reduced or changed if insurance now applied for is
issued? (If "YES" provide details below, continue in "ADDITIONAL INFORMATION"
Section) .....[ ] YES [ ] N0
Insured
-----------------------------------------------
Company
-----------------------------------------------
Policy Number
-----------------------------------------
Amount $
----------------------------------------------
THE TRAVELERS INSURANCE COMPANY
THE TRAVELERS LIFE AND ANNUITY COMPANY
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
<PAGE> 3
POLICY INFORMATION
Also complete the LIFE FINANCIAL SUPPLEMENT for face amounts of $1,000,000
and over, the FAMILY INSURANCE SUPPLEMENT for child coverage, and the
VARIABLE LIFE SUPPLEMENT for variable life policies.
<TABLE>
<CAPTION>
COVERAGE INFORMATION:
<S> <C> <C>
9. Life Insurance Product Stated Amount $
----------------------------- --------------------------------------------------------
Duration/Term Period Death Benefit (UL Only): [ ] Level [ ] Increasing
--------------------------------
</TABLE>
<TABLE>
<CAPTION>
10. Supplemental Benefits/Riders (WHERE APPLICABLE AND IF AVAILABLE):
<S> <C>
TERM-ONLY RIDERS: UL- AND VUL-ONLY RIDERS:
[ ] Annual Benefit Increase [ ] Annual Renewable Term $
----------------
[ ] Extension of Premium/Rate Guarantee [ ] COLA
[ ] Premium Waiver [ ] Estate Protector
[ ] Insured Term $ ; Reallocate on Anniversary
----------------- -------
TERM, UL AND VUL RIDERS: [ ] Monthly Deduction Waiver
[ ] Accelerated Benefits [ ] Policy Split Option [ ] Plus Option
[ ] Accidental Death [ ] Scheduled Increase Option %
[ ] Child Term units --------
------- [ ] Specified Amount Payment/Waiver $
-----------------
[ ] [ ] Spousal Term (complete a separate Part 1 on spouse) $
---------------------------------------- --------------
</TABLE>
<TABLE>
<S> <C> <C>
11. A) Premium Payment Plan (check one box): [ ] Annual [ ] Semi-Annual
[ ] Monthly Pre-Authorized Collection/Payor Soc. Sec. No. [ ] Single [ ] Other
---------------------------------
B) Check Billing Preference: [ ] Home [ ] Business [ ] Other
If "Other", list Premium Payor and Billing Address:
----------------------------------------------------------------------
12. A) Quoted Modal Premium $ B) Classic UL only: Selected Premium $
------------------------ ----------------------------------
13. Will this application increase an existing policy? [ ] YES [ ] NO If "YES", Policy #
-----------------------------
Current Stated Face Amount $ New Stated Face Amount $
------------------------------------ ----------------------------------
Current Modal Premium $ New Modal Premium $
----------------------------------------- ---------------------------------------
</TABLE>
POLICY OWNER
Applicant is the owner of any contract issued on this
application unless otherwise noted below. FOR MULTIPLE
OWNERSHIP: Upon owner's death, indicate whether ownership
interests pass to:
<TABLE>
<S> <C>
[ ] Surviving Owner(s) (Joint Tenants) or [ ] Deceased Owner's Estate (Tenants in Common)
</TABLE>
14. Policy Owner's Full Name and Social Security or Tax ID Number
--------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If succeeding ownership is desired, indicate name, address and relationship to
Insured in "ADDITIONAL INFORMATION" section on following page. Succeeding owner
will become owner upon original owner's death.
BENEFICIARY
Payment due to two or more beneficiaries or to the survivor(s) of them
will be in equal shares, unless otherwise requested. The right to
change a beneficiary is reserved.
15. Beneficiary Name (specify full name(s) and relationships)
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
<PAGE> 4
CONSUMER NOTICE
We may provide information about you or your policy or account, including
information from this application, for marketing and administrative purposes
and share such information with our corporate affiliates. You agree that any
such information may be used by us or an affiliate to determine whether you
qualify for or to offer other Travelers Group financial services.
[ ] If checked, you have indicated that you do not wish to have any
such information shared with our affiliate(s).
TOBACCO USE DECLARATION
16. My use of tobacco products, including (but not limited to) cigarettes,
cigars, pipes or any smoking materials, snuff, or chewing tobacco is as
indicated below:
<TABLE>
<S> <C> <C>
[ ] I have NEVER used tobacco products of any form.
[ ] I have not used tobacco products of any form in the past months/ years.
------- -------
[ ] I currently use tobacco.
</TABLE>
GENERAL RISK INFORMATION
Please give details to all "YES"answers in
the Additional Information section below.
<TABLE>
<CAPTION>
HAS THE PROPOSED INSURED:
<S> <C> <C> <C>
YES NO
17. Been postponed, rated or declined for Life, Health, Accident or Sickness Insurance in the
past 5 years?.......................................................................................... [ ] [ ]
(If "YES", state reason(s) and date(s) of such action.)
18. Flown within 5 years as a pilot, student pilot or crew member of any aircraft or
as a passenger on other than a scheduled airline, or expect to make such a flight?
(If "YES", complete the AVIATION SUPPLEMENT.).......................................................... [ ] [ ]
19. Engaged in automobile or motorcycle racing, sports parachuting, skydiving, hang gliding, skin or
scuba diving or any other hazardous sport? (If "YES", complete the AVOCATION SUPPLEMENT.).............. [ ] [ ]
20. A) In the past 5 years, been arrested for or convicted of driving while intoxicated or driving
under the influence? (If "YES", list driver's license number and details.)............................. [ ] [ ]
B) In the past 5 years, been arrested for or convicted of any other motor vehicle violation?........... [ ] [ ]
(If "YES", list driver's license number and details.)
21. Do you intend to reside or travel out of the United States or Canada?.................................. [ ] [ ]
(If "YES", complete the FOREIGN TRAVEL OR RESIDENCE SUPPLEMENT.)
</TABLE>
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 5
MEDICAL HISTORY
1. Print Proposed Insured's name in full:
-------------------------------------
2. Name and address of personal physician:
-------------------------------------
3. Date and reason last consulted:
--------------------------------------------
4. What was the diagnosis and treatment:
-------------------------------------
ANSWER ALL QUESTIONS UNLESS PART TWO (MEDICAL EXAM) IS REQUIRED. For all "YES"
responses, provide in the "DETAILS" section the question number, names and
addresses of doctors, and when and why consulted. Include diagnoses, dates,
duration of illness or injury, and if recovery was full and complete. Complete
MEDICAL SUPPLEMENT if Proposed Insured has or has had a history of high blood
pressure, chest pain, diabetes, seizure, asthma or drug or alcohol abuse.
<TABLE>
<S> <C>
5. Has the Proposed Insured ever had any indication of,
been treated or received medical consultation for: (circle all that apply)........................[ ] YES [ ] NO
Chest Pain Elevated Cholesterol Positive Test for Infection by the AIDS (HIV) virus
Heart Murmur Diabetes AIDS/ARC
Heart Attack Emphysema Arthritis
High Blood Pressure Pneumonia Sexually Transmitted Disease
Stroke Tuberculosis Depression
Paralysis Asthma Anxiety
Seizure Tumor Emotional Disorder
Deformity/Lameness Cancer Alcohol/Drug Abuse
6. Has the Proposed Insured ever had any disorder of: (circle all that apply)........................[ ] YES [ ] NO
Skin Ears Kidney
Neck Thyroid Genitourinary System
Back Heart Immune System
Spine Lungs Nervous System
Bones Breasts Blood
Joints Gastrointestinal System Lymph Nodes
Eyes Liver Blood Vessels
7. Other than above, within the past 5 years, has Proposed Insured had any illness, injury, surgery,
physical exam, consultation, EKG, X-Ray, or other medical test, or been a patient in a hospital
or other medical facility?........................................................................[ ] YES [ ] NO
8. Has the Proposed Insured ever used cocaine, marijuana, heroin or any other illicit drug or been
advised to restrict the use of alcohol or any other drug?.........................................[ ] YES [ ] NO
9. Does the Proposed Insured consume alcoholic beverages? (If "YES", list type,
amount and frequency of use.).....................................................................[ ] YES [ ] NO
10. Height: ft. in. Weight : lbs; weight loss in past 12 mos. lbs.
------- ------- ------- -------
11. Has a parent, brother or sister ever had heart disease, stroke, cancer, diabetes, high blood
pressure or kidney disease?........................................................................[ ] YES [ ] NO
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
12. FAMILY HISTORY Age Condition of Health Age Cause of Death
(if living) (at death)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Father
- ----------------------------------------------------------------------------------------------------
Mother
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Brothers and Sisters
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
DETAILS OF "YES" ANSWERS AND ADDITIONAL INFORMATION
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AUTHORIZATION SECTION
AUTHORIZATION FOR THE RELEASE OF INFORMATION: THE PROPOSED INSURED(S)
authorizes The Travelers, its affiliates, its Reinsurers, insurance support
organizations, and their representatives to obtain medical and other
information in order to evaluate this application for insurance. The Proposed
Insured authorizes any physician, medical facility, insurance company, the
Medical Information Bureau, Inc., employer, consumer reporting agency, or other
organization, institution, or person having information available as to
employment, other insurance coverage, medical care, treatment, supplies or
advice with respect to the Proposed Insured or his/her spouse and children to
furnish such information to The Travelers, its affiliates, its Reinsurers or
their authorized representatives.
This authorization will be valid from the date signed for a period of 2-1/2
years. A photographic copy of this authorization is as valid as the original.
Information given in this application, including health care information, may
be made available without prior authorization to other insurance companies to
which an application for life or health insurance coverage is made, or to which
a claim is submitted.
The Proposed Insured(s) and Applicant, if different, have read this
authorization and understand they have a right to receive a copy.
The Proposed Insured(s) acknowledge receipt of the following notices: "Your
Privacy and the Fair Credit Reporting Act," "Medical Information Bureau
Disclosure Notice", and "Description of Information Practices".
DECLARATION: APPLICANT declares to the best of his/her knowledge and belief
that all of the statements and answers in Part One and Part Two, if required,
are complete and true. APPLICANT UNDERSTANDS AND AGREES THAT: (A) PART ONE AND
PART TWO, IF REQUIRED, AND ANY SUPPLEMENTS WILL FORM THE BASIS FOR ANY
INSURANCE ISSUED; (B) EXCEPT AS STATED IN THE ATTACHED TEMPORARY INSURANCE
AGREEMENT, NO INSURANCE WILL TAKE EFFECT UNTIL: (1) THE CONTRACT IS DELIVERED
TO THE APPLICANT; AND (2) THE FIRST PREMIUM IS PAID IN FULL WHILE THE HEALTH
AND OTHER CONDITIONS RELATING TO INSURABILITY REMAIN AS DESCRIBED IN THIS
APPLICATION; AND (C) NO AGENT IS AUTHORIZED: (1) TO MAKE, ALTER, OR DISCHARGE
ANY CONTRACT; (2) TO WAIVE OR CHANGE ANY CONDITION OR PROVISION OF ANY
CONTRACT, APPLICATION, OR RECEIPT AND (3) TO ACCEPT ANY RISK OR TO PASS ON
INSURABILITY. THE PROPOSED INSURED WILL BE THE APPLICANT OF ANY CONTRACT ISSUED
ON THIS APPLICATION UNLESS OTHERWISE INDICATED BELOW. THE RIGHT TO PRIVACY IS
PROTECTED AS REQUIRED BY LAW.
NOTICE OF INSURANCE FRAUD: Any person who knowingly and with intent to defraud
any insurance company or other person files an application for insurance or
statement of claim containing any materially false information or conceals for
the purpose of misleading, information concerning any fact material thereto
commits a fraudulent insurance act, which is a crime and subjects such person
to criminal and civil penalties. By signing below, I acknowledge that I have
read the above information.
<TABLE>
<S> <C> <C> <C> <C> <C>
Proposed Insured's Name
----------------------------------------------------------------------------------------------------------
Proposed Insured's Signature X
-----------------------------------------------------------------------------------------------------
Applicant's Signature (if other than Proposed Insured)
--------------------------------------------------------------------------
Date / / Application taken at
- --------------------------------- --------------------------------------------------------------------------
City State
Witness' Signature Date / /
--------------------------------------------------------------- -----------------------------------------
Agent's Name
-------------------------------------------------------
</TABLE>
Note: If not personally witnessed by the agent, each
signature must be witnessed by someone present at the
time the application was signed.
<PAGE> 7
AGENT'S CERTIFICATE
To help avoid processing delays, answers to the following
questions MUST be furnished with the application.
<TABLE>
<S> <C> <C>
1. Are you properly "authorized" to write business for The Travelers Insurance Company or The Travelers Life
and Annuity Company in the state where the application was taken? ("Authorized" means that you possess
a current insurance license, with authority to solicit insurance products appropriate to this application;
and that The Travelers has authorized you to represent The Travelers.)..................................... [ ] YES [ ] NO
2. Did anyone assist you in taking or securing the application?............................................... [ ] YES [ ] NO
If "YES", who?
-----------------------------------------------------------------------------------------
3. Who initiated this application?
------------------------------------------------------------------------
4. Did you personally ask the questions and have the application signed in your presence? .................... [ ] YES [ ] NO
5. How long have you known the Proposed Insured?
----------------------------------------------------------
6. Has the Proposed Insured applied for insurance elsewhere in the past 6 months?
(Give details in #14) ................................................................................... [ ] YES [ ] NO
7. a. Will this replace any existing annuity or life insurance?............................................... [ ] YES [ ] NO
b. If "YES", have you given the applicant the appropriate forms regarding replacement?..................... [ ] YES [ ] NO
c. If "YES", have you completed and attached to the application all
applicable state replacement forms?..................................................................... [ ] YES [ ] NO
d. Is this an INTERNAL or EXTERNAL replacement? (Circle one)
8. Is this a 1035 exchange? (If "YES", provide original policy and appropriate forms.)........................ [ ] YES [ ] NO
9. Is the Proposed Insured applying for Long Term Care with The Travelers? ................................... [ ] YES [ ] NO
10. a. Purpose of Insurance:
[ ] Personal (check primary reason):
[ ] Income Protection [ ] Supplemental Savings
[ ] Estate Liquidity [ ] Other
[ ] Business: -----------------------------------------
[ ] Buy/Sell [ ] Key Person [ ] Deferred Compensation
[ ] Executive Bonus [ ] Mortgage/Loan Coverage [ ] Other
---------------------------------
b. If "Buy/Sell", is there like coverage in force or applied for on partner(s)?............................ [ ] YES [ ] NO
c. If there is a Buy/Sell Agreement in place, does the owner and beneficiary of this application
line up with that of the Buy/Sell Agreement?............................................ [ ] N/A [ ] YES [ ] NO
11. If available, is preferred rate being applied for?......................................................... [ ] YES [ ] NO
12. If preferred rate is not available, is standard rate acceptable?........................................... [ ] YES [ ] NO
13. If salary allotment or special plan, give: Mass Marketing Case/Company Name:
----------------------------------------------
Case/Plan Number: Accounting Location Number:
--------------------------------------------- --------------------------------
14. Additional Remarks:
--------------------------------------------------------------------------------------------------------
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</TABLE>
<PAGE> 8
AGENT REPRESENTATION
By signing below, I confirm that the agent representations set forth in the
Travelers Life Insurance Application to which this AGENT REPRESENTATION is
attached are true and accurate. Without limiting the foregoing, I expressly
verify the accuracy of all the information contained in the "AGENT'S
CERTIFICATE" section of this Travelers Life Insurance Application.
I further represent that the Proposed Insured(s) (and the Applicant, if
different), has signed the portions of the application where required, and, to
the best of my knowledge, has read and understands this application.
<TABLE>
<S> <C>
[ ] I did
personally witness the signatures Date
[ ] I did not ------------------------------------
Note: If not personally witnessed by --------------------------------------------------------------------------------
the agent, each signature must be Licensed Agent
witnessed by someone present at the
time the application was signed. --------------------------------------------------------------------------------
Licensed Agent #2 (if applicable)
</TABLE>
NOTES
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<PAGE> 9
PRE-AUTHORIZED COLLECTION
PLEASE ATTACH A VOIDED CHECK AND FIRST TWO MONTH'S PREMIUM. (We will NOT
accept a deposit ticket in place of a voided check.) Make sure your address
and the bank address appear correctly on the check.
<TABLE>
<S> <C> <C> <C>
Name: Phone Number: ( )
------------------------------------------------------ ---------------------------------------------------
Policy Number(s):
-----------------------------------------------------------------------------------------------------------
</TABLE>
I hereby authorize you, the bank, to charge my account in order to cover
monthly premium payments for my policy(ies) with The Travelers Insurance
Company or The Travelers Life and Annuity Company. I understand and agree that
the bank will not be liable for any payment that may not be honored,
intentionally or inadvertently, even if such dishonor results in forfeiture of
insurance.
This authority is to remain in effect until my further written notice. My
signature below is exactly as I sign my personal checks.
<TABLE>
<S> <C>
--------------------------------------------
Bank Name: Please select date of monthly withdrawal
------------------------------------------------------------ (any date from 1 to 28):
-----------------
--------------------------------------------
Bank Address:
----------------------------------------------------------
Checking Account Number:
-----------------------------------------------
SIGNATURE OF DEPOSITOR: DATE SIGNED:
------------------------------------------------ ---------------------------------------
</TABLE>
TEMPORARY INSURANCE AGREEMENT - ACKNOWLEDGEMENT
IMPORTANT: THE TEMPORARY INSURANCE AGREEMENT ATTACHED BELOW PROVIDES A LIMITED
AMOUNT OF INSURANCE PROTECTION FOR A LIMITED PERIOD OF TIME, SUBJECT TO THE
TERMS OF THE AGREEMENT.
The Health Questions must be completed for the Proposed Insured(s) to be
eligible for Life Insurance protection under the terms of the Agreement.
TEMPORARY INSURANCE AGREEMENT - HEALTH QUESTIONS
IF EITHER OF THE QUESTIONS BELOW IS ANSWERED "YES" OR LEFT BLANK, no agent is
authorized to accept money and no insurance coverage will take effect under
this Agreement. No agent is authorized to accept money on a Proposed Insured
over age 65 (age last birthday) as of the date of this Agreement, nor will any
coverage take effect.
Has any person to be insured:
<TABLE>
<S> <C> <C>
1. Within the past 90 days, been admitted or advised to be admitted to a hospital or other
medical facility, or had surgery performed or recommended?................................................. [ ] YES [ ] NO
2. Within the past 2 years, been treated for heart trouble, chest pain, stroke, cancer or AIDS, or had such
treatment recommended by a physician or other medical practitioner?........................................ [ ] YES [ ] NO
</TABLE>
I (We) hereby acknowledge possession of the Temporary Insurance Agreement
bearing the same date and serial number as my (our) application. I (We) certify
that I (We) have read the Temporary Insurance Agreement, and understand and
acknowledge the terms of such Agreement. I (We) declare that the answers to the
Health Questions are true to the best of my (our) knowledge and belief.
<TABLE>
<S> <C> <C> <C>
An Advance Payment in the amount of $ has been made in connection with the application.
-------------------------------------
Signed at this day of , .
---------------------------------------- -------------------- -------------------------- --------------
City State Month Year
X
- ----------------------------------------------------- ---------------------------------------------------------------
Applicant (if other than Proposed Insured) Signature of Proposed Insured (parent/guardian if a minor)
---------------------------------------------------------------
Signature of Additional Proposed Insured
</TABLE>
<PAGE> 10
TO: The Bank named on the reverse side:
In consideration of your compliance with the request and authorization of the
depositor named on the reverse side, The Travelers Insurance Company or The
Travelers Life and Annuity Company agrees that:
1. It will indemnify and hold you harmless from all liability or loss you may
suffer arising out of payment by you pursuant to said authorization of any
debit entry, whether or not genuine, purporting to be initiated by The
Travelers Insurance Company or The Travelers Life and Annuity Company on the
account of any of your depositors, or arising out of the dishonor by you
whether with or without cause, intentionally or inadvertently, or any such
debit entry purporting to be initiated by The Travelers Insurance Company or
The Travelers Life and Annuity Company.
2. It will refund to you any amount erroneously paid by you on any such debit
entry if claim for the amount of such erroneous payment is made by you
within 3 months from the date of the debit entry on which such erroneous
payment was made.
3. It will defend at its own cost and expense any action which might be brought
by any depositor or any other person(s) of your actions taken pursuant to
the foregoing request or in any manner arising by reason of your
participation in the foregoing plan.
THE TRAVELERS INSURANCE COMPANY
THE TRAVELERS LIFE AND ANNUITY COMPANY /s/ A. MICHAEL MATAUA
Authorized in resolutions adopted by the Investment Committee of The Travelers
Insurance Company and The Travelers Life and Annuity Company.
<PAGE> 11
TEMPORARY INSURANCE AGREEMENT
IMPORTANT: THIS AGREEMENT PROVIDES A LIMITED AMOUNT OF INSURANCE PROTECTION FOR
A LIMITED PERIOD OF TIME, SUBJECT TO THE TERMS OF THIS AGREEMENT. No agent is
authorized to change or waive any of the terms of this Agreement. All premium
checks must be made payable to The Travelers. Do not make checks payable to the
agent or leave the payee blank. The payment received must be at least equal to
one modal premium or 10% of the annual premium.
<TABLE>
<S> <C>
Received from a premium of $ in connection with this application for
-------------------------- ----------------------------
life insurance, which bears the same date and serial number as this receipt, in which
--------------------------------------
is named as the Proposed Insured(s).
</TABLE>
TERMS AND CONDITIONS
AMOUNT OF COVERAGE: Subject to the limitations contained in this Agreement, if
money has been accepted by The Travelers as advance payment for the above
referenced Application for Life Insurance, and a Proposed Insured dies while
this temporary insurance is in effect, The Travelers will pay to the
beneficiary named in such application the lesser of: (a) the amount of all
death benefits, if applicable, or (b) $500,000. In no event shall the total
benefit payable under this Agreement and under any other Temporary Insurance
Agreement with The Travelers or its subsidiaries exceed $500,000 with respect
to ALL Proposed Insured(s).
DATE COVERAGE BEGINS: Temporary life insurance under this Agreement will begin
on the date that all of the following requirements have been met:
1. The date this Agreement has been completed; and
2. Part One and Part Two, if required, of the application for insurance has
been fully completed; and
3. All medical examinations or tests are completed if required by the Company's
underwriting rules for the Proposed Insured(s) age, plan or amount of
insurance; and
4. The initial premium has been paid and received by The Travelers' New
Business processing center.
DATE COVERAGE ENDS: Temporary life insurance under this Agreement will end on
the earliest of the following dates:
1. 60 days from the date of this Agreement; or
2. The date insurance begins under the policy applied for; or
3. The date a policy, other than applied for, is offered to the applicant; or
4. The date the Company mails notice to the applicant that the application is
declined, or the applicant is otherwise informed by a representative of the
Company that the application is declined; or
5. The date the applicant requests withdrawal of the application.
CREDIT OR REFUND OF PREMIUM: Any payment submitted to and accepted by The
Travelers will be:
1. Credited toward the first premium as of the policy date if a policy is
issued as applied for;
2. Credited toward the first premium as of the policy date if a policy is
issued other than as applied for and is accepted by the applicant;
3. Refunded if The Travelers declines to issue a policy or the applicant
declines to accept a policy as issued or issued other than as applied for;
or
4. Refunded by The Travelers at the request of the applicant.
DETACH THIS PAGE AND LEAVE WITH APPLICANT ONLY IF
PAYMENT IS MADE WHEN THE APPLICATION IS
DATED AND SIGNED AND PROPOSED INSURED(S) HAS
SIGNED THE ACKNOWLEDGEMENT ON THE FOLLOWING PAGE.
<PAGE> 12
SPECIAL LIMITATIONS
1. In the case of the death of a Proposed Insured by suicide, while this
agreement is in effect, The Travelers' liability shall be limited to the
return of the total premium paid under the application.
2. In no event will a death benefit be paid under both the Agreement and the
policy applied for in the application.
3. Fraud or misrepresentations in the application or in the Health Questions of
this Agreement invalidate this Agreement, and The Travelers' liability is to
refund any premium.
4. There is no coverage under this Agreement if the check or draft submitted
with the application is not honored by the bank.
5. No one is authorized to accept money on a Proposed Insured over age 65 (age
last birthday) on the date of this Agreement, nor will any coverage take
effect.
Acknowledgement:
I understand and agree to all of the terms of this Temporary Insurance
Agreement.
<TABLE>
<S> <C> <C> <C> <C> <C>
Signed at this day of , .
---------------------------------------- -------------------- -------------------------- --------------
City State Month Year
X
- ----------------------------------------------------- ---------------------------------------------------------------
Applicant (if other than Proposed Insured) Signature of Proposed Insured (parent/guardian if a minor)
- ----------------------------------------------------- ---------------------------------------------------------------
Signature of Agent Signature of Additional Proposed Insured
</TABLE>
Notice: The Proposed Insured(s) should retain a copy of this Agreement to
ensure coverage thereunder.
<PAGE> 13
YOUR PRIVACY AND THE FAIR CREDIT REPORTING ACT
This notice must be detached and given to the Proposed Insured
before the application is completed.
Part of our underwriting may include an investigative report with information
obtained in interviews with you, your neighbors, friends or other acquaintances
as to your character, reputation, personal characteristics and mode of living.
If an investigation is made, we will handle it in the strictest confidence.
Your application, with the medical history and other information you furnish,
and the investigative consumer report if made, are the initial basis of our
underwriting evaluation. Your agent supplies information about you that serves
underwriting as well as marketing research purposes. The Fair Credit Reporting
Act requires that no investigative report be made on any consumer unless:
1. the person to be reported on has been given written notice that such a
report may be or has been requested, and
2. that person is informed that he/she has the right to ask for disclosure of
the type of information being sought.
If you wish information on the nature and scope of the Consumer Report which
may be requested, or other investigative report which may be made, write to:
The Travelers, Life and Health Services, One Tower Square, Hartford,
Connecticut 06183.
MEDICAL INFORMATION BUREAU DISCLOSURE NOTICE
Any health care information developed is necessary to classify insurance risks,
conduct normal administrative procedures and process claims, and will be used
for those purposes only by The Travelers and its affiliates. No other use of
this information will be made without first obtaining your written consent.
This information will be treated as confidential except that The Travelers or
its Reinsurer(s) may make a brief report to the Medical Information Bureau,
Inc., a non-profit membership corporation of life insurance companies which
operates an information exchange on behalf of its members. Upon request by
another member insurance company to which you have applied for life or health
insurance coverage or to which a claim is submitted, the Bureau will supply
such company with the information it may have in its files.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. If you question the accuracy of
information in the Bureau's file, you may contact the Bureau and seek a
correction in accordance with the procedures set forth in the federal Fair
Credit Reporting Act. The address of the Bureau's information office is Post
Office Box 105, Essex Station, Boston, Massachusetts 02112, Telephone (617)
426-3660.
The Travelers or its Reinsurer(s) may release information given in your
application file, including health care information, to other life insurance
companies to which you apply for life or health insurance, or to which a claim
is submitted.
DETACH THIS PAGE AND LEAVE WITH APPLICANT
<PAGE> 14
DESCRIPTION OF INFORMATION PRACTICES
This description of Information Practices is being provided in accordance with
the requirements of the Insurance Information and Privacy Protection Law.
NOTICE OF INSURANCE INFORMATION PRACTICES
We must collect a certain amount of necessary and helpful personal
information in order to properly underwrite and administer your
insurance coverage. The amount and type of information collected may
vary depending on the amount and type of insurance for which you have
applied. Our Information Practices provide:
1. Personal information may be collected from sources other than
yourself;
2. Such personal information as well as other personal or
privileged information subsequently collected by us or our
agent, may, in certain circumstances, be disclosed to third
parties without your authorization;
3. You may access and correct all personal information collected;
and
4. Upon request, we will provide you with additional information,
including:
a. The types of personal information collected;
b. The methods employed to collect personal information;
c. The instances when we may disclose personal
information without your authorization; and
d. Your rights to access, correct, amend and delete
recorded personal information.
If you need additional information, please write to us at this
address:
The Travelers Insurance Company
The Travelers Life and Annuity Company
Life and Health Services
One Tower Square
Hartford, CT 06183
<PAGE> 1
EXHIBIT 11
April 20, 1998
The Travelers Life and Annuity Company
The Travelers Fund UL II for
Variable Life Insurance
One Tower Square
Hartford, Connecticut 06183
Gentlemen:
With reference to Post-Effective Amendment No. 2 the Registration Statement
on Form S-6 filed by The Travelers Life and Annuity Company and The Travelers
Fund UL II for Variable Life Insurance with the Securities and Exchange
Commission covering flexible premium individual variable life insurance
policies, I have examined such documents and such law as I have considered
necessary and appropriate, and on the basis of such examination, it is my
opinion that:
1. The Travelers Life and Annuity Company is duly organized and existing
under the laws of the State of Connecticut and has been duly authorized
to do business and to issue variable life insurance policies by the
Insurance Commissioner of the State of Connecticut.
2. The Travelers Fund UL II Variable Life Insurance is a duly authorized
and validly existing separate account established pursuant to Section
38a-433 of the Connecticut General Statutes.
3. The variable life insurance policies covered by the above Registration
Statement, and all pre- and post-effective amendments relating thereto,
have been approved and authorized by the Insurance Commissioner of the
State of Connecticut and when issued will be valid, legal and binding
obligations of The Travelers Life and Annuity Company and of The
Travelers Fund UL II for Variable Life Insurance.
4. Assets of The Travelers Fund UL II for Variable Life Insurance are not
chargeable with liabilities arising out of any other business The
Travelers Life and Annuity Company may conduct.
I hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the reference to this opinion
under the caption "Legal Proceedings and Opinion" in the Prospectus constituting
a part of such Post-Effective Amendment.
Very truly yours,
/s/Katherine M. Sullivan
General Counsel
The Travelers Life and Annuity Company
