<PAGE> 1
Registration Statement No. 33-63927
811-07411
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 3
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact Name of Trust:THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
B. Name of Depositor: THE TRAVELERS LIFE AND ANNUITY COMPANY
C. Complete Address of Depositor's Principal Executive Offices:
One Tower Square,
Hartford, Connecticut 06183
D. Name and Complete Address of Agent for Service:
Ernest J. Wright, Secretary
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
It is proposed that this filing will become effective (check appropriate box):
______ immediately upon filing pursuant to paragraph (b)
__X___ on May 1, 1999 pursuant to paragraph (b)
______ 60 days after filing pursuant to paragraph (a)(1)
______ on __________ pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
______ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
______ 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, 1999
</TABLE>
The Travelers Life and Annuity Company, One Tower Square, Hartford, Connecticut
06183 X Telephone: (800) 334-4298
<PAGE> 5
PROSPECTUS
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"). 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 variable funding options (the "Investment Options").
During the Policy's Right to Cancel Period, 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 you have directed your premium payments. You bear the investment risk
under the policy. The Cash Value is reduced by the various fees and charges
assessed under the Policy, as described in this Prospectus. The Policy will
remain in effect for as long as the Cash Surrender Value can pay the monthly
Policy charges (subject to the Late Period provision), or for a longer period as
may be provided under the Lapse Protection Guarantee Rider.
We offer two death benefits under the Policy -- the "Level Option" and the
"Variable Option." Under either option, the death benefit will never be less
than the Amount Insured (less any outstanding Policy loans or Monthly Deduction
Amounts due and unpaid). You choose one at the time you apply for the Policy,
however you may change the death benefit option, subject to certain conditions.
This Policy may be or become a modified endowment Policy under federal tax law.
So, any partial withdrawal, Policy surrender or loan may result in adverse tax
consequences or penalties.
REPLACING EXISTING INSURANCE WITH THIS POLICY MAY NOT BE TO YOUR ADVANTAGE.
EACH OF THE INVESTMENT OPTION PROSPECTUSES ARE INCLUDED WITH THE PACKAGE
CONTAINING THIS PROSPECTUS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS 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 OF ANY BANK AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER
GOVERNMENT AGENCY.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary of Special Terms.............. 3
Prospectus Summary..................... 5
General Description.................... 9
How the Policy Works................... 9
Beneficiary.......................... 9
Applying Premium Payments............ 9
The Investment Options................. 10
Policy Benefits and Rights............. 13
Transfers of Cash Value.............. 13
Telephone Transfers.................. 13
Automated Transfers.................. 13
Dollar-Cost Averaging............. 13
Portfolio Rebalancing............. 13
Lapse and Reinstatement.............. 13
Lapse Protection Guarantee Rider..... 14
Exchange Rights...................... 14
Right to Cancel...................... 14
Access to Cash Values.................. 14
Policy Loans......................... 14
Cash Value and Cash Surrender
Value............................. 15
Death Benefit.......................... 16
Payment of Proceeds............... 17
Payment Options................... 18
Maturity Benefits...................... 18
Maturity Extension Rider.......... 18
Charges and Deductions................. 19
Charges Against Premium.............. 19
Front-End Sales Charge............ 19
State Premium Tax Charge.......... 19
Monthly Deduction Amount............. 19
Cost of Insurance Charge.......... 19
Policy Administrative Expense
Charge.......................... 19
Charges for Supplemental Benefit
Provisions...................... 20
Charges Against the Separate
Account........................... 20
Mortality and Expense Risk
Charge.......................... 20
Administrative Expense Charge..... 20
Underlying Fund Fees................. 20
Surrender Charges.................... 20
Percent of Premium Charge......... 20
Per Thousand of Stated Amount
Charge.......................... 21
Transfer Charge...................... 21
Reduction or Elimination of
Charges........................... 21
The Separate Account and Valuation..... 21
The Travelers Fund UL II for Variable
Life Insurance (Fund UL II)....... 21
How the Cash Value Varies............ 22
Accumulation Unit Value.............. 22
Net Investment Factor................ 22
Changes to the Policy.................. 23
General.............................. 23
Changes in Stated Amount............. 23
Changes in Death Benefit Option...... 23
Additional Policy Provisions........... 24
Assignment........................... 24
Limit on Right to Contest & Suicide
Exclusion......................... 24
Misstatement as to Sex and Age....... 24
Voting Rights........................ 24
Disregard of Voting Instructions..... 24
Policies Sold Prior to May 1, 1998... 25
Other Matters.......................... 25
Statements to Policy Owners.......... 25
Suspension of Valuation.............. 25
Dividends............................ 26
Mixed and Shared Funding............. 26
Distribution......................... 26
Legal Proceedings and Opinion........ 26
Independent Accountants.............. 26
Federal Tax Considerations............. 27
General.............................. 27
Tax Status of the Policy............. 27
Definition of Life Insurance...... 27
Diversification................... 27
Investor Control.................. 27
Tax Treatment of Policy Benefits..... 28
In General........................ 28
Modified Endowment Contracts...... 28
Exchanges......................... 29
Aggregation of Modified Endowment
Contracts....................... 29
Policies which are not Modified
Endowment Contracts............. 30
Treatment of Loan Interest........ 30
The Company's Income Taxes........ 30
The Company............................ 30
IMSA................................. 31
Year 2000 Compliance................. 31
Management............................. 31
Directors of The Travelers Life and
Annuity Company................... 31
Senior Officers of The Travelers Life
and Annuity Company............... 33
Example of Policy Charges.............. 33
Performance Information................ 33
Illustrations.......................... 37
Appendix
A -- Annual Minimum Premiums........... 46
B -- Surrender Charges................. 47
C -- Current Monthly Administrative
Charge............................... 48
C(1) -- Guaranteed Monthly
Administrative Charge................ 50
Financial Statements -- Fund UL II
Financial Statements -- The Travelers
Life and Annuity Company
</TABLE>
2
<PAGE> 7
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 and charge 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.
3
<PAGE> 8
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.
4
<PAGE> 9
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.
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)
BT INSURANCE FUNDS TRUST: TRAVELERS SERIES FUND, INC.:
EAFE Equity Index Fund AIM Capital Appreciation Portfolio
Small Cap Index Fund Alliance Growth Portfolio
MFS Total Return Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: Putnam Diversified Income Portfolio
VIP Equity Income Portfolio Smith Barney High Income Portfolio
VIP Growth Portfolio Smith Barney Large Cap Value Portfolio
VIP High Income Portfolio
TRAVELERS SERIES TRUST:
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND U.S. Government Securities Portfolio
II: Utilities Portfolio
VIP II Asset Manager Portfolio Zero Coupon Bond Portfolio 2000
Zero Coupon Bond Portfolio 2005
GREENWICH STREET SERIES FUND:
Equity Index Portfolio
Total Return Portfolio
</TABLE>
Additional Portfolios may be added from time to time. For more information see
"The Investment Options." Refer to each Fund'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 be invested in the Money Market Portfolio.
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.
5
<PAGE> 10
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 greater
of 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 plus the Cash Value or the Minimum Amount
Insured.
POLICY VALUES: As with other types of insurance policies, MarketLife will
accumulate a Cash Value. The Cash Value of the Policy will increase or decrease
to reflect the investment experience of the Investment Options. Monthly charges
and any partial surrenders taken will also decrease the Cash Value. There is no
minimum guaranteed Cash Value.
- ACCESS TO POLICY VALUES: You may borrow against your Policy's Cash
Surrender Value. The maximum loan amount allowable is 100% of the Cash
Surrender Value, subject to state approval. After year 13, the Company
offers zero net cost loans. (For Policies issued before May 1, 1998, the
maximum loan allowed is 90% of the Cash Surrender Value.) (See "Policy
Loans" for loan impact on coverage and policy values.)
You may cancel all or a portion of your Policy while the Insured is living and
receive all or a portion of the 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.
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.
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.
LAPSE PROTECTION GUARANTEE RIDER: This Rider allows for your Policy to 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.
LATE 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.
TAX CONSEQUENCES: Currently, the federal tax law excludes all Death Benefit
payments from the gross income of the Beneficiary. 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.
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. These charges are summarized
below, and explained in detail under "Charges and Deductions."
6
<PAGE> 11
POLICY CHARGES:
- SALES AND PREMIUM EXPENSE CHARGES -- 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.
- MONTHLY DEDUCTION -- deductions taken from the value of your Policy each
month to cover cost of insurance charges, the monthly administrative
expense charges and charges for optional benefits.
- 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.
- PARTIAL SURRENDER CHARGE -- applies if you surrender part of the value of
your Policy.
ASSET-BASED CHARGES:
- MORTALITY AND EXPENSE RISK CHARGE -- applies 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. (For Policies issued
prior to May 1, 1998, the charge for the first fifteen years is .80% and
.45% thereafter).
- ADMINISTRATIVE EXPENSE 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.
- UNDERLYING FUND FEES -- the separate account purchases shares of the
Underlying Funds on a net asset value basis. The shares purchased already
reflect the deduction of investment advisory fees and other expenses. The
fees are shown in the table below.
7
<PAGE> 12
UNDERLYING FUND FEES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT OTHER TOTAL
FEE EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
FUND NAME REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
Capital Appreciation Fund 0.75% 0.10% 0.85%
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
Managed Assets Trust 0.50% 0.10% 0.60%
Money Market Portfolio(1) 0.32% 0.08% 0.40%
BT INSURANCE FUNDS TRUST:
Bankers Trust EAFE Index Fund(2) 0.11% 0.54% 0.65%
Bankers Trust Small Cap Index Fund(2) 0.05% 0.40% 0.45%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND:
VIP Equity-Income Portfolio(3) 0.49% 0.08% 0.57%
VIP Growth Portfolio(3) 0.59% 0.07% 0.66%
VIP High Income Portfolio 0.58% 0.12% 0.70%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II:
VIP II Asset Manager Portfolio(3) 0.54% 0.09% 0.63%
GREENWICH STREET SERIES FUND:
Equity Index Portfolio(4) 0.21% 0.09% 0.30%
Total Return Portfolio 0.75% 0.04% 0.79%
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Templeton Asset Allocation Fund 0.60% 0.18% 0.78%
Templeton Bond Fund 0.50% 0.23% 0.73%
Templeton Stock Fund 0.70% 0.19% 0.89%
TRAVELERS SERIES FUND, INC.:
AIM Capital Appreciation Portfolio(5) 0.80% 0.05% 0.85%
Alliance Growth Portfolio(5) 0.80% 0.02% 0.82%
MFS Total Return Portfolio(5) 0.80% 0.04% 0.84%
Putnam Diversified Income Portfolio(5) 0.75% 0.12% 0.87%
Smith Barney High Income Portfolio(5) 0.60% 0.07% 0.67%
Smith Barney Large Cap Value Portfolio(5) 0.65% 0.03% 0.68%
TRAVELERS SERIES TRUST:
Travelers U.S. Government Securities Portfolio 0.32% 0.13% 0.45%
Utilities Portfolio 0.65% 0.15% 0.80%
Zero Coupon Bond Fund Portfolio (Series 2000)(6) 0.10% 0.05% 0.15%
Zero Coupon Bond Fund Portfolio (Series 2005)(6) 0.10% 0.05% 0.15%
</TABLE>
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance 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 0.65% for the Travelers Money Market Portfolio.
(2) These fees reflect an expense reimbursement arrangement whereby the adviser
has agreed to reimburse the funds an amount based on the weighted average
between the management fee and other expenses. Without such arrangement, the
Management Fee and Other Expenses for the Bankers Trust EAFE Index Portfolio
and Small Cap Index Portfolio would have been 0.45% and 1.21%, and 0.35% and
1.23%, respectively.
(3) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
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 Annual
Operating Expenses presented in this table would have been 0.64% for VIP II
Asset Manager Portfolio, 0.58% for VIP Equity Income Portfolio, and 0.68%
for VIP Growth Portfolio.
(4) Other expenses for the Equity Index Portfolio have been restated to reflect
the current expense reimbursement arrangement whereby the adviser has agreed
to reimburse the Portfolio for the amount by which expenses exceed 0.30%.
Without such arrangement, Total Annual Operating Expenses would have been
0.42%. In addition, the Portfolio Management Fee includes 0.06% for fund
administration. Class 2 of this fund has a distribution plan or "Rule 12b-1
plan".
(5) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There were
no fees waived or expenses reimbursed for these funds in 1998.
(6) For the year ended December 31, 1998, Travelers reimbursed the Series 2000
Fund and the Series 2005 Fund for $35,705, and $38,063, in expenses,
respectively. Because such expenses were reimbursed, the actual expense
ratios were 0.15% for each period shown.
8
<PAGE> 13
GENERAL DESCRIPTION
- --------------------------------------------------------------------------------
This prospectus describes an individual flexible premium variable universal life
insurance Policy offered by The Travelers Life and Annuity Company ("Company").
The policy offers:
- Flexible premium payments (you select the timing and amount of the
premium)
- A selection of investment options
- A choice of two death benefit options
- Loans and partial withdrawal privileges
- The ability to increase or decrease the Policy's face amount of insurance
- Additional benefits through the use of optional riders
This Policy 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 a security
because the Cash Value and, under certain circumstances, the Amount Insured, and
Death Benefit may increase or decrease depending on the investment experience of
the Investment Options chosen.
THE APPLICATION. In order to become a policy owner, you must submit an
application to the Company. You must provide evidence of insurability. On the
application, you will also indicate:
- the amount of insurance desired (the "stated amount"); minimum of $50,000
- your choice of the two death benefit options
- the beneficiary(ies), and whether or not the beneficiary is irrevocable
- your choice of investment options.
Our underwriting staff will review the application, and, if approved, we will
issue the Policy.
HOW THE POLICY WORKS
- --------------------------------------------------------------------------------
You make premium payments and direct them to one or more of the available
investment options. The policy's cash value will increase or decrease depending
on the performance of the investment options you select. In the case of death
benefit option 2, the death benefit will also vary based on the investment
options' performance.
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.
Your Policy becomes effective once our underwriting staff has approved the
application and once the first premium payment has been made. The Policy Date is
the date we use to determine all future transactions on the policy, for example,
the deduction dates, policy months, policy years. The Policy Date may be before
or the same date as the Issue Date (the date the policy was issued). During the
underwriting period, any premium paid will be held in a non-interest bearing
account. Your policy will stay in effect as long as the policy's cash surrender
value can pay the policy's monthly charges.
APPLYING PREMIUM PAYMENTS
We apply the first premium on the later of the Policy Date or the date we
receive it at our Home Office. During the Right to Cancel Period, we allocate
net premiums to the Money Market Portfolio. At the end of the Right to Cancel
Period, we direct the net premiums to the investment option(s) selected on the
application, unless you give us other directions.
9
<PAGE> 14
The investment options are segments of the separate account. They correspond to
underlying funds with the same names. The available investment options are
listed below.
We credit your policy with accumulation units of the investment option(s) you
have selected. We calculate the number of accumulation units by dividing your
net premium payment by each investment option's accumulation unit value computed
after we receive your payment.
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, withdrawn or substituted as permitted by applicable state or federal law.
We would notify you before making such a change. 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
term money market instruments while
preserving capital and maintaining a
high degree of liquidity.
BT INSURANCE FUNDS TRUST
EAFE Equity Index Fund Seeks to replicate, before deduction Bankers Trust Global
of expenses, the total return Investment Management
performance of the EAFE index.
Small Cap Index Fund Seeks to replicate, before deduction Bankers Trust Global
of expenses, the total return Investment Management
performance of the Russell 2000 index.
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND
VIP Equity-Income Seeks reasonable income by investing Fidelity Management &
Portfolio primarily in income-producing equity Research Company ("FMR")
securities; in choosing these
securities, the portfolio manager will
also consider the potential for
capital appreciation.
</TABLE>
10
<PAGE> 15
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
VIP Growth Portfolio Seeks capital appreciation by purchas- FMR
ing common stocks of well-known,
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.
VIP High Income Portfolio Seeks to obtain a high level of FMR
current income by investing primarily
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 FMR
Portfolio risk over the long-term by allocating
its assets among stocks, bonds and
short-term fixed-income instruments.
GREENWICH STREET
SERIES FUND
Equity Index Portfolio Seeks to replicate, before deduction TIMCO
of expenses, the total return
performance of the S&P 500 index.
Total Return Portfolio An equity portfolio that seeks to pro- SSBC Fund Management Inc.
vide total return, consisting of ("SSBC")
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.
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
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.
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.
Putnam Diversified Income Seeks high current income consistent TIA
Portfolio with preservation of capital by Subadviser: Putnam Investment
allocating its investments among the Management, Inc.
following three sectors of the
fixed-income securities markets, a
U.S. Government Sector, a High Yield
Sector and an International Sector.
Smith Barney High Income Seeks high current income. Capital SSBC
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 SSBC
Value Portfolio growth of income and capital by
investing primarily, but not
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 SSBC
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 2000 return as consistent with the
and Series 2005) 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>
12
<PAGE> 17
POLICY BENEFITS AND RIGHTS
- --------------------------------------------------------------------------------
TRANSFERS OF CASH VALUE
As long as the Policy remains in effect, you may make transfers of Cash Value
between Investment Options. We reserve the right to restrict the number of free
transfers to four times in any Policy Year and to charge $10 for each additional
transfer; however, there is currently no charge for transfers.
We calculate the number of Accumulation Units involved using the Accumulation
Unit Values we calculate at the end of the business day on which we receive the
transfer request.
TELEPHONE TRANSFERS
The Policy Owner may make the request in writing by mailing such request to the
Company at its Home Office, or by telephone (if an authorization form is on
file) by calling 1-800-334-4298. The Company will take reasonable steps to
ensure that telephone transfer requests are genuine. These steps may include
seeking proper authorization and identification prior to processing telephone
requests. Additionally, the Company will confirm telephone transfers. Any
failure to take such measures may result in the Company's liability for any
losses due to fraudulent telephone transfer requests.
AUTOMATED TRANSFERS
DOLLAR-COST AVERAGING
You may establish automated transfers of Policy Values on a monthly or quarterly
basis from any Investment Option(s) to any other Investment Option(s) 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. 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.
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 can no longer
cover the Monthly Deduction Amount. If this happens we will notify you in
writing that if the amount shown in the notice is not paid within 61 days (the
"Late Period"), the Policy may lapse. The amount shown will be enough to pay the
deduction amount due. The Policy will continue through the Late Period, but if
no payment is received by us, 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 will be reduced by the Monthly Deduction Amount due plus the
amount of any outstanding loan. (See "Death Benefit," below.)
If the Policy lapses, you may reinstate the Policy by paying the reinstatement
premium (and any applicable charges) shown in the Policy. You may request
reinstatement within three years of
13
<PAGE> 18
lapse (unless a different period is required under applicable state law). Upon
reinstatement, the Policy's Cash Value will equal the Net Premium. In addition,
the Company reserves the right to require satisfactory evidence of insurability.
LAPSE PROTECTION GUARANTEE RIDER
You may elect to have a Lapse Protection Guarantee Rider added to the 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 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 during the first 24 months 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. You have the right to select the same Death Benefit or Net Amount At
Risk as the former Policy at the time of exchange. 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 we will make an exchange. In
addition, there may be an adjustment for the difference in Cash Value between
the two Policies.
RIGHT TO CANCEL
An Applicant may cancel the Policy by returning it via mail or personal delivery
to the Company or to the agent who sold the Policy. The Policy must be returned
by the latest of:
(1) 10 days after delivery of the Policy to you
(2) 45 days of completion of the Policy application
(3) 10 days after the Notice of Right to Cancel has been mailed or
delivered to the Applicant whichever is latest, or
(4) later if required by state law.
We will refund the greater of all premium payments 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).
We will make the refund within seven days after we receive your returned policy.
ACCESS TO CASH VALUES
- --------------------------------------------------------------------------------
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
14
<PAGE> 19
written loan request), less any surrender penalties (which include a percent of
premium charge and per thousand of Stated Amount charge). 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.")
For example, if a Policy has a Cash Surrender Value of $10,000, the Policy Owner
may take a loan of 90% or $9,000, leaving a new Cash Surrender Value of $1,000.
In addition, the Death Benefit actually payable would be decreased because of
the outstanding loan. Furthermore, even if the loan is repaid, the Death Benefit
and Cash Surrender Value may be permanently affected since the Policy Owner was
not credited with the investment experience of an Investment Option on the
amount in the Loan Account while the loan was outstanding. All or any part of a
loan secured by a Policy may be repaid while the Policy is still in effect.
CASH VALUE AND CASH SURRENDER VALUE
The Cash Value of a Policy changes on a daily basis and will be computed on each
Valuation Date. The Cash Value will vary to reflect the investment experience of
the Investment Options, as well as any partial Cash Surrenders, Monthly
Deduction Amount, daily Separate Account charges, and any additional premium
payments. There is no minimum guaranteed Cash Value.
The Cash Value of a particular Policy is related to the net asset value of the
Investment Options to which premium payments on the Policy have been allocated.
The Cash Value on any Valuation Date is calculated by multiplying the number of
Accumulation Units credited to the Policy in each Investment Options as of the
Valuation Date by the current Accumulation Unit Value of that Investment Option,
then adding the collective result for each of the Investment Options credited to
the Policy, and finally adding the value (if any) of the Loan Account. A Policy
Owner may withdraw Cash Value from the Policy, or transfer Cash Value among the
Investment Options, on any day that the Company is open for business.
As long as the Policy is in effect, a Policy Owner may elect, without the
consent of the Beneficiary (provided the designation of Beneficiary is not
irrevocable), to surrender the Policy and receive its "Cash Surrender Value";
i.e., the Cash Value of the Policy determined as of the day the Company receives
the Policy Owner's written request, less any outstanding Policy loan, and less
any applicable Surrender Charges. For full surrenders, the Company will pay the
Cash Surrender Value of the Policy within seven days following its receipt of
the written request, or on the date requested by the Policy Owner, whichever is
later. The Policy will terminate on the Deduction
15
<PAGE> 20
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.
DEATH BENEFIT
- --------------------------------------------------------------------------------
The Death Benefit under the Policy is the amount paid to the Beneficiary upon
the Insured's death. The Death Benefit will be reduced by any outstanding
charges, fees and Policy loans. All or part of the Death Benefit may be paid in
cash or applied to one or more of the payment options described in the following
pages.
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
be at least the current Stated Amount of the Policy less any outstanding Policy
loan and unpaid Deduction Amount due. 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 equals a stated percentage of the Policy's Cash Value
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 is set
forth in the Policy and may change as federal income tax laws or regulations
change. The following is a schedule of the applicable percentages. For attained
ages not shown, the applicable percentages will decrease evenly:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE
- ------------ ----------
<S> <C>
0-40 250
45 215
50 185
55 150
60 130
65 120
70 115
75 105
95+ 100
</TABLE>
Federal tax law imposes another cash funding limitation on cash value life
insurance Policies that may increase the Minimum Amount Insured shown above.
This limitation known as the "guideline premium limitation," generally applies
during the early years of variable universal life insurance Policies.
16
<PAGE> 21
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. The examples assume an Insured of age 40, a Minimum Amount Insured
of 250% of Cash Value (assuming the preceding table is controlling as to Minimum
Amount Insured), and no outstanding Policy loan.
OPTION 1 -- "LEVEL" DEATH BENEFIT
STATED AMOUNT: $50,000
In the following examples of an Option 1 "Level" Death Benefit, the Death
Benefit under the Policy is generally equal to the Stated Amount of $50,000.
Since the Policy is designed to qualify as a life insurance Policy, the Death
Benefit cannot be less than the Minimum Amount Insured (or, in this example,
250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 x 250%). Since the Death Benefit in the Policy
is the greater of the Stated Amount ($50,000) or the Minimum Amount Insured
($25,000), the Death Benefit would be $50,000.
EXAMPLE TWO. If the Cash Value of the Policy equals $40,000, the Minimum Amount
Insured would be $100,000 ($40,000 x 250%). The resulting Death Benefit would be
$100,000 since the Death Benefit is the greater of the Stated Amount ($50,000)
or the Minimum Amount Insured ($100,000).
OPTION 2 -- "VARIABLE" DEATH BENEFIT
STATED AMOUNT: $50,000
In the following examples of an Option 2 "Variable" Death Benefit, the Death
Benefit varies with the investment experience of the applicable Investment
Options and will generally be equal to the 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).
PAYMENT OF PROCEEDS
Death Benefits are payable within seven days after we receive satisfactory proof
of the Insured's death. The amount of Death Benefit paid 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.")
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.") 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," for effects of partial surrenders on Death Benefits.)
17
<PAGE> 22
PAYMENT OPTIONS
We will pay policy proceeds in a lump sum, unless you or the Beneficiary select
one of the Company's payment options. We may defer payment of proceeds which
exceed the Death Benefit for up to six months from the date of the request for
the payment. A combination of options may be used. The minimum amount that may
be placed under a payment option is $5,000 unless we consent 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
We will make any other arrangements for periodic payments as may be agreed upon.
If any periodic payment due any payee is less than $100, we may make payments
less often. If we have declared a higher rate under an option on the date the
first payment under an option is due, we will base the payments on the higher
rate.
MATURITY BENEFITS
- --------------------------------------------------------------------------------
The Maturity Date is the anniversary of the Policy Date on which the Insured is
age 95. If the Insured is living on the Maturity Date, the Company will pay you
the Policy's Cash Value less any outstanding Policy loan or unpaid Deduction
Amount. You must surrender the Policy to us before we make a payment, at which
point the Policy will terminate and we will have no further obligations under
the Policy.
MATURITY EXTENSION RIDER
When the Insured reaches age 94, and at any time during the twelve months
thereafter, you may request that coverage be extended beyond the Maturity Date
(the "Maturity Extension Benefit"). This Maturity Extension Benefit may not be
available in all jurisdictions. If we receive such request before the Maturity
Date, the Policy will continue until the earlier of the death of the Insured or
the date on which the Policy Owner requests that the Policy terminate. When the
Maturity Extension Benefit ends, a Death Benefit consisting of the Cash Value
less any Loan Account Value will be paid. The Death Benefit is based on the
experience of the Investment Options selected 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.
We intend that the Policy and the Maturity Extension Rider will 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, we do 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. You should
consult your own personal tax adviser prior to the exercise of the Maturity
Extension Rider to assess any potential tax liability.
18
<PAGE> 23
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
CHARGES AGAINST PREMIUM
FRONT-END SALES CHARGE
When we receive a Premium Payment, and before allocation of the payment among
the Investment Options, we deduct a front-end sales charge. For Stated Amounts
less than $500,000, the charge is 2.5%. The charge is 2% for Stated Amounts from
$500,000 to $999,999, and for Stated Amounts of $1,000,000 or greater, there is
no front-end sales charge. Additional charges may be assessed upon any full or
partial surrender. (See "Surrender Charges.")
Sales charges are intended to cover our actual sales expenses, including agent
sales commissions, advertising and the printing of the prospectuses. We expect
to recover the sales expenses of a Policy. To the extent sales expenses are not
covered by the sales charges, we 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.")
MONTHLY DEDUCTION AMOUNT
We will deduct a Monthly Deduction Amount to cover certain charges and expenses
incurred in connection with the Policy. The Monthly Deduction Amount is deducted
pro rata from each of the Investment Options' values attributable to the Policy.
The amount is deducted on the first day of each Policy Month (the "Deduction
Date"), beginning on the Policy Date. The dollar amount of the Deduction Amount
will vary from month to month. The Monthly Deduction Amount consists of the Cost
of Insurance Charge, Policy Administrative Expense Charge and Charges for any
Supplemental Benefit Provision. These are described below:
COST OF INSURANCE CHARGE
The amount of the Cost of Insurance deduction depends on 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 EXPENSE CHARGE
For the first three Policy Years, an administrative charge is deducted monthly
from the Policy's Cash Value. This charge also applies to increases in the
Stated Amount (excluding Cost of Living Adjustments and increases in Stated
Amounts due to Death Benefit Option changes.) This charge is used to cover
expenses associated with issuing the Policy.
The 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.)
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CHARGES FOR SUPPLEMENTAL BENEFIT PROVISIONS
The Company will include a supplemental benefits charge in the Monthly Deduction
Amount if you have elected any supplemental benefit provision for which there is
a charge. The amount of this charge will vary depending upon the actual
supplemental benefits selected.
CHARGES AGAINST THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge for mortality and expense risks. 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 not be enough 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. Refer to
"Policies Sold Prior to May 1, 1998," if applicable.
ADMINISTRATIVE EXPENSE CHARGE
We deduct a daily charge for administrative expenses incurred by us. The charge
equals an annual rate of 0.10% of the assets in the Investment Options for the
first fifteen (15) Policy Years and 0% thereafter. Refer to "Policies Sold Prior
to May 1, 1998," if applicable.
UNDERLYING FUND FEES
When you allocate money to the Investment Options, the Separate Account
purchases shares of the corresponding Underlying Funds at net asset value. The
net asset value reflects investment advisory fees and other expenses already
deducted. The investment advisory fees and other expenses paid by each of the
underlying Mutual Funds are described in the individual fund prospectuses for
the Investment Options and in the Policy prospectus summary. These are not
direct charges under the Policy; they are indirect because they affect each
Investment Option's accumulation unit value.
SURRENDER CHARGES
There are two types of surrender charges that can apply under the Policy: a
Percent of Premium Charge and a Per Thousand of Stated Amount Charge equal to a
specified amount for each $1,000 of Stated Amount. These surrender charges apply
during the first ten Policy Years (or the first ten years following an increase
in Stated Amount other than an increase for a Cost of Living Adjustment or a
change in Death Benefit option). Both charges apply upon a full surrender of the
Policy. Only the Percent of Premium Charge applies upon a partial surrender. The
maximum surrender charges are included in the Policy and are in compliance with
each state's nonforfeiture law.
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.")
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For example, for a 45-year old male with a Stated Amount of $150,000 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 for 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 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.
This charge is designed to compensate the Company for administrative expenses
not covered by other administrative charges. This charge may be reduced or
eliminated when sales are made under certain arrangements. (See "Reduction or
Elimination of Sales Charges and Administrative Charges" below.) The Per
Thousand of Stated Amount surrender charges are set forth in Appendix B.
TRANSFER CHARGE
There is currently no charge for transfers. 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.
REDUCTION OR ELIMINATION OF CHARGES
We 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. We may reduce or
eliminate the mortality and expense risk charge, sales or surrender 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.
We will not reduce or eliminate the withdrawal charge, mortality and expense
risk charge or the administrative charge if the reduction or elimination will be
unfairly discriminatory to any person.
THE SEPARATE ACCOUNT AND VALUATION
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THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE (FUND UL II)
The Travelers Fund UL II for Variable Life Insurance was established on October
17, 1995 under the insurance laws of the state of Connecticut. It is registered
with the Securities and Exchange Commission ("SEC") as a unit investment trust
under the Investment Company Act of 1940. A
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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. You may access the SEC's website (http://www.sec.gov)
to view the entire Registration Statement. This registration does not mean that
the SEC supervises the management or the investment practices or policies of the
Separate Account.
The assets of Fund UL II are invested exclusively in shares of the Investment
Options. The operations of Fund UL II are also subject to the provisions of
Section 38a-433 of the Connecticut General Statutes which authorizes the
Connecticut Insurance Commissioner to adopt regulations under it. 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. The
assets held in Fund UL II are not chargeable with liabilities arising out of any
other business which the Company may conduct. Any obligations arising under the
Policy are general corporate obligations of the Company.
All investment income of and other distributions to each Investment Option are
reinvested in shares of corresponding underlying fund at net asset value. The
income and realized gains or losses on the assets of each Investment Option are
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 purchases shares of the Fund in
connection with premium payments allocated according to the Policy Owners'
directions, and redeems Fund shares to meet Policy obligations. We will also
make adjustments in reserves, if required. The Investment Options are required
to redeem Fund shares at net asset value and to make payment within seven days.
HOW THE CASH VALUE VARIES. We calculate the Policy's Cash Value each day the
New York Stock Exchange is open for trading (a "valuation date"). A Policy's
Cash Value reflects a number of factors, including Premium Payments, partial
withdrawals, loans, Policy charges, and the investment experience of the
Investment Option(s) chosen. The Policy's Cash Value on a valuation date equals
the sum of all accumulation units for each Investment Option chosen, plus the
Loan Account Value.
The Separate Account purchases shares of the underlying funds at net asset value
(i.e., without a sales charge). The Separate Account receives all dividends and
capital gains distributions from each underlying fund, and reinvests in
additional shares of that fund. The Accumulation Unit Value reflects the
reinvestment of any dividends or capital gains distributions declared by the
underlying fund. The Separate Account will redeem underlying fund shares at
their net asset value, to the extent necessary to make payments under the
Policy.
In order to determine Cash Value, Cash Surrender Value, policy loans and the
number of Accumulation Units to be credited, we use the values calculated as of
the close of business on each valuation date we receive the written request, or
payment in good order, at our Home Office.
ACCUMULATION UNIT VALUE. Accumulation Units measure the value of the Investment
Options. The value for each Investment Option's Accumulation Unit is calculated
on each valuation date. The value equals the Accumulation Unit value for the
preceding valuation period multiplied by the underlying fund's Net Investment
Factor during the next Valuation Period. (For example, to calculate Monday's
valuation date price, we would multiply Friday's Accumulation Unit Value by
Monday's net investment factor.)
The Accumulation Unit Value may increase or decrease. The number of Accumulation
Units credited to your Policy will not change as a result of the Investment
Option's investment experience.
NET INVESTMENT FACTOR. For each Investment Option, the value of its
Accumulation Unit depends of the net rate of return for the corresponding
underlying fund. We determine the net rate of
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return at the end of each Valuation Period (that is, the period of time
beginning at the close of the New York Stock Exchange, and ending at its close
of business on the next Valuation Date). The net rate of return reflects the
investment performance of the investment option, includes any dividends or
capital gains distributed, and is net of the Separate Account charges.
CHANGES TO THE POLICY
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GENERAL
Once the policy is issued, you may make certain changes. Some of these changes
will not require additional underwriting approval; some changes will. Certain
requests must be made in writing, as indicated below:
WRITTEN CHANGES REQUIRING UNDERWRITING APPROVAL:
- increases in the stated amount of insurance;
- changing the death benefit from Option 1 to Option 2
WRITTEN CHANGES NOT REQUIRING UNDERWRITING APPROVAL:
- decreases in the stated amount of insurance
- changing the death benefit from Option 2 to Option 1
- changes to the way your premiums are allocated (Note: you can also make
these changes by telephone)
- changing the beneficiary (unless irrevocably named)
Written requests for changes should be sent to the Company's Home Office at One
Tower Square, Hartford, Connecticut, 06183. The Company's telephone number is
(860) 277-0111.
CHANGES IN STATED AMOUNT
You may request in writing an increase or decrease in the Policy's Stated
Amount, provided that the Stated Amount after any decrease may not be less than
the minimum amount of $50,000. For purposes of determining the cost of insurance
charge, a decrease in the Stated Amount will reduce the Stated Amount in the
following order:
1) against the most recent increase in the Stated Amount;
2) to other increases in the reverse order in which they occurred;
3) to the initial Stated Amount.
A decrease in Stated Amount in a substantially funded Policy may cause a cash
distribution that is includable in the gross income of the Policy Owner.
For increases in the Stated Amount, we may require a new application and
evidence of insurability as well as an additional premium payment. The effective
date of any increase will be shown on the new Policy Summary which we will send.
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.
CHANGES IN DEATH BENEFIT OPTION
You may change the Death Benefit option by sending a written request to the
Company. There is no direct tax consequence of changing a Death Benefit option,
except as described under "Tax Treatment of Policy Benefits." 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 your gross income. 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
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to Option 2 will not be permitted if the change results in a Stated Amount of
less than $50,000. A change from Option 1 to Option 2 also subject to
underwriting. Contact your registered representative for more information.
ADDITIONAL POLICY PROVISIONS
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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.
LIMIT ON RIGHT TO CONTEST AND SUICIDE EXCLUSION
We 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.
VOTING RIGHTS
The Company is the legal owner of the underlying fund shares. However, we
believe that when an underlying fund solicits proxies, we are required to obtain
from policy owners who have chosen those investment options instructions on how
to vote those shares. When we receive those instructions, we will vote all of
the shares we own in proportion to those instructions. This will also include
any shares we own on our own behalf. If we determine that we no longer need to
comply with this voting method, we will vote on the shares in our own right.
DISREGARD OF VOTING INSTRUCTIONS
When permitted by state insurance regulatory authorities, we may disregard
voting instructions if the instructions would cause a change in the investment
objective or policies of the Separate Account or an Investment Option, or if it
would cause the approval or disapproval of an investment advisory Policy of an
Investment Option. In addition, we may disregard voting instructions in favor of
changes in the investment policies or the investment adviser of any Investment
Options which are initiated by a Policy Owner if we reasonably disapprove 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 we
determine that the change would have an adverse effect on our general account
(i.e., if the proposed investment policy for an Investment Option may result in
overly speculative or unsound investments.) If we do disregard voting
instructions, a summary of that action and the reasons for such action would be
included in the next annual report to Policy Owners.
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<PAGE> 29
FOR POLICIES SOLD PRIOR TO MAY 1, 1998
The following pertains to policies sold prior to 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 an average of the Investment Option
expenses and thereafter, 0.45% for mortality and expense risks, 0.00% for
administrative expenses and an average of the 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 the most
recent audited calendar year.
After deduction of these amounts, the illustrated gross annual rates of 0%, 6%
and 12% correspond to approximate net annual rates of -1.52%, 4.48% and 10.48%,
respectively on a current and guaranteed basis for the first fifteen Policy
Years and to approximate net annual rates of -1.07%, 4.93% and 10.93%,
respectively on a current and guaranteed basis thereafter.
OTHER MATTERS
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STATEMENTS TO POLICY OWNERS
We will maintain all records relating to the Separate Account and the Investment
Options. At least once each Policy Year, we will send you a statement containing
the following information:
- 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);
- the date and amount of each premium payment;
- the date and amount of each Monthly Deduction;
- 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;
- the date and amount of any partial cash surrenders and the amount of any
partial surrender charges;
- the annualized cost of any supplemental benefits purchased under the
Policy; and
- a reconciliation since the last report of any change in Cash Value and
Cash Surrender Value.
We will also send any other reports required by any applicable state or federal
laws or regulations.
SUSPENSION OF VALUATION
We reserve 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
the SEC determines that disposal of the securities held in the Underlying Funds
is not reasonably practicable or the value of the Investment Option's net assets
cannot be determined; or (4) during any other period when the SEC, by order, so
permits for the protection of security holders.
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<PAGE> 30
DIVIDENDS
No dividends will be paid under the Policy.
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. This is called mixed funding. Certain funds
may be available to variable products of other companies not affiliated with
Travelers. This is called "shared funding." Although we -- and the funds -- do
not anticipate any 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 that may arise and
to determine what action, if any, should be taken. 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.
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.
CFBDS, Inc. serves as principal underwriter of the Policies.
LEGAL PROCEEDINGS AND OPINION
There are no pending material legal proceedings affecting the Separate Account.
Legal matters in connection with the federal laws and regulations affecting the
issue and sale of the Contract described in this prospectus, as well as the
organization of the Company, its authority to issue variable life contracts
under Connecticut law and the validity of the forms of the variable life
contracts under Connecticut law, have been reviewed by the General Counsel of
the Company.
INDEPENDENT ACCOUNTANTS
Financial statements as of and for the year ended December 31, 1998 of Fund UL
II, included
in the registration statement have been included herein in reliance on the
report of KPMG LLP, independent certified public accountants upon the authority
of said firm as experts in accounting and auditing.
The financial statements of The Travelers Life and Annuity Company as of
December 31, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
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FEDERAL TAX CONSIDERATIONS
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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.
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
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<PAGE> 32
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 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
28
<PAGE> 33
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 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 Treatment
of Policy Benefits." 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 Treatment of Policy Benefits."
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
29
<PAGE> 34
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.
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 on the earnings
or the realized capital gains attributable to Fund UL II. However, the Company
may assess a charge against the Investment Options for federal income taxes
attributable to those accounts in the event that the Company incurs income or
capital gains or other tax liability attributable to Fund UL II under future tax
law.
THE 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 an indirect wholly owned subsidiary of Citigroup 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
30
<PAGE> 35
which it sells its insurance Policies, as well as to various federal and state
securities laws and regulations.
IMSA
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.
YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and systems applications for
conducting its ongoing business functions. In 1996, The Travelers Insurance
Company and its subsidiaries, including the Company, began the process of
identifying, assessing and implementing changes to computer programs to address
the Year 2000 issue and developed a comprehensive plan that encompasses The
Travelers Insurance Company and its insurance subsidiaries, to address the
issue. The issue involves the ability of computer systems that have time
sensitive programs to recognize properly the Year 2000. The inability to do so
could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total cost associated with the required modifications and conversions is
being expensed as incurred in the period 1996 through 1999. The Company also has
third party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
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 Citigroup include,
31
<PAGE> 36
prior to December 31, 1993, Primerica Corporation or its predecessors, and prior
to October 8, 1998, Travelers Group, Inc.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITION SINCE PRINCIPAL BUSINESS
----------------- -------- ------------------
<S> <C> <C>
Jay S. Benet................... 1996 Senior Vice President since February 1994; Chief
Director Financial Officer, Chief Accounting Officer, and
Controller since January, 1999 and Vice President
(1990-1994) of The Travelers Insurance Company; Partner
(1986-1990) of PricewaterhouseCoopers LLP.
Katherine M. Sullivan.......... 1996 Senior Vice President and General Counsel since May
Director 1996 of The Travelers Insurance 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 Insurance
Company.
Michael A. Carpenter........... 1995 Co-chairman, Salomon Smith Barney since October 1998;
Director Chairman since June 1996 and President and Chief
Executive Officer June 1995-1998 of The Travelers
Insurance Company; Vice Chairman since February 1998;
Executive Vice President (1995-1998) of Citigroup 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 Citigroup 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 Citigroup Inc. since 1992; Vice
President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
J. Eric Daniels................ 1998 President and Chief Executive Officer since December
Director 1998 of The Travelers Insurance Company; Chief
Operating Officer of Global Consumer Bank of Citibank.
Since 1993, Vice President Citibank.
</TABLE>
- ---------------
* Principal business address: Citigroup Inc., 153 East 53rd St., New York, New
York 10043
32
<PAGE> 37
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
David A. Tyson............... Senior Vice President
F. Denney Voss............... Senior Vice President
Elizabeth C. Senior Vice President
Georgakopoulos.............
Christine M. Modie........... Senior Vice President
Kathleen Preston............. Senior Vice President
</TABLE>
Information relating to the management of the underlying funds is contained in
the applicable prospectuses.
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 Net 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
FOR THE POLICY YEAR
-----------------------
COST OF
POLICY CUMULATIVE SURRENDER INSURANCE ADMINISTRATIVE
YEAR PREMIUMS CHARGES CHARGES CHARGES
- ------ ---------- --------- --------- --------------
<S> <C> <C> <C> <C>
1 $ 850.00 $456.00 $145.00 $96.00
2 $1,700.00 $452.00 $157.00 $96.00
3 $2,550.00 $450.00 $168.00 $96.00
5 $4,250.00 $464.00 $190.00 $ 0
10 $8,500.00 $297.00 $250.00 $ 0
</TABLE>
Hypothetical results shown above are illustrative only and are based on the
Hypothetical Gross Annual Investment Rate of Return shown above. This
Hypothetical Gross Annual Investment Rate of Return should not be deemed to be a
representation of past or future investment results. Actual investment results
may be more or less than those shown. No representations can be made that the
hypothetical rates assumed can be achieved for any one year or sustained over
any period of time.
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.
33
<PAGE> 38
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 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.
Information about the Charges and Deductions assessed under the Policy, can be
found on page 19. Illustrations of how these charges affect Cash Values and
Death Benefits, begin on page 36. 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.
34
<PAGE> 39
The table below shows the net annual rates of return for accumulation units of
investment options available through MarketLife.
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
<TABLE>
<CAPTION>
FUND
INCEPTION
UNDERLYING INVESTMENT OPTIONS ONE YEAR THREE YEARS FIVE YEARS TEN YEARS DATE
----------------------------- -------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio 16.40% 13.58% -- -- 10/10/95
Alliance Growth Portfolio 27.78% 27.88% -- -- 6/16/94
Capital Appreciation Fund (Janus Sub-
Adviser) 60.18% 36.40% 26.42% 19.85% 3/18/82
Dreyfus Stock Index Fund 26.97% 26.57% 22.38% -- 9/29/89
Fidelity VIP Equity-Income Portfolio 10.59% 16.66% 17.64% 14.53% 10/9/86
Fidelity VIP Growth Portfolio 38.11% 24.25% 20.57% 18.27% 10/9/86
Smith Barney Large Cap Value Portfolio 8.81% 17.41% -- -- 6/16/94
Total Return Portfolio 4.01% 14.35% -- -- 10/16/91
Utilities Portfolio 17.12% 15.65% -- -- 2/4/94
Templeton Stock Fund (Class 1) 0.35% 10.47% 10.14% 11.17% 8/31/88
Bankers Trust EAFE Index Fund 20.43% -- -- -- 8/22/97
Bankers Trust Small Cap Index Fund -3.04% -- -- -- 8/25/97
Equity Index Portfolio 27.31% 27.14% 23.25% -- 10/16/91
BOND FUNDS
Fidelity VIP High Income Portfolio -5.17% 7.67% 7.79% 10.07% 9/19/85
Putnam Diversified Income Portfolio -0.23% 4.51% -- -- 6/16/94
Smith Barney High Income Portfolio -0.45% 7.96% -- -- 6/16/94
Templeton Bond Fund (Class 1) 6.19% 5.36% 4.65% 6.45% 8/31/88
U.S. Gov't Securities Portfolio 9.19% 6.99% 7.14% -- 1/24/92
Zero Coupon Bond Portfolio 2000 6.62% 4.88% -- -- 10/11/95
Zero Coupon Bond Portfolio 2005 11.24% 7.35% -- -- 10/11/95
BALANCED FUNDS
Fidelity VIP II Asset Manager Portfolio 13.97% 15.62% 10.76% -- 9/6/89
MFS Total Return Portfolio 10.63% 14.60% -- -- 6/16/94
Templeton Asset Allocation Fund (Class 1) 5.44% 12.40% 10.64% 11.11% 8/31/88
Managed Assets Trust 20.29% 17.65% 14.71% 13.20% 8/6/82
MONEY MARKET FUND
Money Market Portfolio(1) 4.11% 3.88% 3.45% 4.01% 10/1/81
</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.
35
<PAGE> 40
MARKETLIFE HYPOTHETICAL EXAMPLE*
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 $4,857 $2,942 $25,000 N/A N/A
Alliance Growth Portfolio 5,000 5,362 3,447 25,000 N/A N/A
Capital Appreciation Fund (Janus
Sub-Adviser) 5,000 6,805 4,890 25,000 $44,335 $42,274
Dreyfus Stock Index Fund 5,000 5,326 3,411 25,000 39,547 37,486
Fidelity's VIP Equity-Income
Portfolio 5,000 4,599 2,684 25,000 34,503 32,442
Fidelity's VIP Growth Portfolio 5,000 5,821 3,906 25,000 37,550 35,489
Smith Barney Large Cap Value
Portfolio 5,000 4,521 2,606 25,000 N/A N/A
Total Return Portfolio 5,000 4,308 2,393 25,000 N/A N/A
Utilities Portfolio 5,000 4,889 2,974 25,000 N/A N/A
Templeton Stock Fund (Class 1) 5,000 4,146 2,231 25,000 27,659 25,598
Bankers Trust EAFE Index Fund 5,000 5,036 3,121 25,000 N/A N/A
Bankers Trust Small Cap Index Fund 5,000 3,997 2,082 25,000 N/A N/A
Equity Index Portfolio 5,000 5,341 3,426 25,000 40,538 38,477
BOND FUNDS
Fidelity VIP High Income Portfolio 5,000 3,903 1,988 25,000 25,773 23,712
Putnam Diversified Income
Portfolio 5,000 4,121 2,206 25,000 N/A N/A
Smith Barney High Income Portfolio 5,000 4,111 2,196 25,000 N/A N/A
Templeton Bond Fund (Class 1) 5,000 4,405 2,490 25,000 23,430 21,369
Travelers U.S. Gov't Securities
Portfolio 5,000 4,537 2,622 25,000 25,272 23,211
Travelers Zero Coupon Bond
Portfolio 2000 5,000 4,424 2,509 25,000 N/A N/A
Travelers Zero Coupon Bond
Portfolio 2005 5,000 4,628 2,713 25,000 N/A N/A
BALANCED FUNDS
Fidelity's VIP II Asset Manager
Portfolio 5,000 4,749 2,834 25,000 28,176 26,115
MFS Total Return Portfolio 5,000 4,601 2,686 25,000 N/A N/A
Templeton Asset Allocation Fund
(Class 1) 5,000 4,371 2,456 25,000 28,075 26,014
Managed Assets Trust 5,000 5,029 3,114 25,000 31,672 29,611
MONEY MARKET FUND
Money Market Portfolio 5,000 4,313 2,398 25,000 22,584 20,523
</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.
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 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.
* 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.
36
<PAGE> 41
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.
The illustrations 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.
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 .62% for Investment Option
expenses and thereafter 0.25% for mortality and expense risks, 0.00% for
administrative expenses, and .62% 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 the most
recent audited calendar year.
The Investment Option expenses for some of the Investment Options reflect an
expense reimbursement agreement currently in effect, as shown in the Policy
prospectus summary. Although these reimbursement arrangements are expected to
continue in subsequent years, the effect of discontinuance could be higher
expenses charged to Policy Owners.
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
- -1.52%, 4.48%, and 10.48%, respectively on a current and guaranteed basis during
the first fifteen Policy Years, and to approximate net annual rates of -.87%,
5.13%, and 11.13%, respectively on a current and guaranteed basis thereafter.
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 illustrations do not reflect any charges for federal income taxes against
the Separate Account, since the Company is not currently deducting such charges
from the Separate Account. 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%.
37
<PAGE> 42
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -----------------------------------------------------------------------------------------------------------------
<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 1,980 2,193 2,417 892 1,092 1,303
3 5,282 150,000 150,000 150,000 2,918 3,335 3,789 1,882 2,274 2,701
4 7,221 150,000 150,000 150,000 3,961 4,651 5,432 2,969 3,617 4,352
5 9,258 150,000 150,000 150,000 4,964 6,001 7,224 4,020 4,994 6,144
6 11,396 150,000 150,000 150,000 5,925 7,388 9,179 5,031 6,406 8,162
7 13,641 150,000 150,000 150,000 6,849 8,813 11,319 6,008 7,904 10,410
8 15,999 150,000 150,000 150,000 7,734 10,281 13,664 6,947 9,480 12,863
9 18,474 150,000 150,000 150,000 8,582 11,791 16,235 7,887 11,096 15,540
10 21,073 150,000 150,000 150,000 9,387 13,342 19,055 8,800 12,755 18,468
15 36,153 150,000 150,000 150,000 12,612 21,610 37,784 12,612 21,610 37,784
20 55,399 150,000 150,000 150,000 14,808 31,711 70,099 14,808 31,711 70,099
</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 over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
38
<PAGE> 43
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% --------------------------- ----------------------- -----------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------
<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 1,314 0 115 266
3 5,282 150,000 150,000 150,000 1,437 1,713 2,018 490 749 1,036
4 7,221 150,000 150,000 150,000 2,254 2,701 3,212 1,364 1,784 2,265
5 9,258 150,000 150,000 150,000 3,017 3,690 4,489 2,189 2,822 3,573
6 11,396 150,000 150,000 150,000 3,722 4,677 5,854 2,960 3,858 4,964
7 13,641 150,000 150,000 150,000 4,367 5,659 7,314 3,674 4,889 6,445
8 15,999 150,000 150,000 150,000 4,945 6,629 8,873 4,326 5,909 8,072
9 18,474 150,000 150,000 150,000 5,452 7,582 10,539 4,909 6,911 9,844
10 21,073 150,000 150,000 150,000 5,887 8,516 12,322 5,426 7,929 11,735
15 36,153 150,000 150,000 150,000 7,020 12,893 23,597 7,020 12,893 23,597
20 55,399 150,000 150,000 150,000 5,941 16,525 41,598 5,941 16,525 41,598
</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 over a period of time.
** Guaranteed 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 CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 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 2,497 2,764 3,044 1,378 1,629 1,892
3 6,517 150,000 150,000 150,000 3,680 4,202 4,771 2,598 3,089 3,624
4 8,910 150,000 150,000 150,000 4,962 5,827 6,806 3,910 4,723 5,643
5 11,423 150,000 150,000 150,000 6,187 7,488 9,019 5,169 6,392 7,831
6 14,061 150,000 150,000 150,000 7,364 9,194 11,437 6,384 8,104 10,308
7 16,831 150,000 150,000 150,000 8,491 10,947 14,082 7,551 9,926 13,061
8 19,740 150,000 150,000 150,000 9,573 12,752 16,983 8,676 11,839 16,070
9 22,794 150,000 150,000 150,000 10,606 14,610 20,165 9,799 13,803 19,358
10 26,001 150,000 150,000 150,000 11,576 16,509 23,647 10,877 15,810 22,948
15 44,607 150,000 150,000 150,000 15,529 26,757 47,002 15,529 26,757 47,002
20 68,354 150,000 150,000 150,000 17,415 38,626 87,145 17,415 38,626 87,145
</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 over a period of time.
** Current 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 GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -----------------------------------------------------------------------------------------------------------------
<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 1,954 2,315 2,712 976 1,315 1,688
4 8,910 150,000 150,000 150,000 2,898 3,479 4,145 1,970 2,516 3,142
5 11,423 150,000 150,000 150,000 3,763 4,631 5,663 2,891 3,707 4,677
6 14,061 150,000 150,000 150,000 4,542 5,761 7,268 3,731 4,877 6,293
7 16,831 150,000 150,000 150,000 5,224 6,858 8,961 4,480 6,016 7,993
8 19,740 150,000 150,000 150,000 5,800 7,911 10,742 5,130 7,114 9,829
9 22,794 150,000 150,000 150,000 6,258 8,903 12,608 5,667 8,153 11,801
10 26,001 150,000 150,000 150,000 6,587 9,822 14,562 6,084 9,125 13,863
15 44,607 150,000 150,000 150,000 6,003 12,874 25,840 6,003 12,874 25,840
20 68,354 150,000 150,000 150,000 271 11,712 41,397 271 11,712 41,397
</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 over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
41
<PAGE> 46
MARKETLIFE POLICIES ISSUED BEFORE 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 Face Amount: $150,000
Preferred Non-Smoker Annual Premium: $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 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 1,980 2,193 2,417 892 1,092 1,303
3 5,282 150,000 150,000 150,000 2,918 3,335 3,789 1,882 2,274 2,701
4 7,221 150,000 150,000 150,000 3,961 4,651 5,432 2,969 3,617 4,352
5 9,258 150,000 150,000 150,000 4,964 6,001 7,224 4,020 4,994 6,144
6 11,396 150,000 150,000 150,000 5,925 7,388 9,179 5,031 6,406 8,162
7 13,641 150,000 150,000 150,000 6,849 8,813 11,319 6,008 7,904 10,410
8 15,999 150,000 150,000 150,000 7,734 10,281 13,664 6,947 9,480 12,863
9 18,474 150,000 150,000 150,000 8,582 11,791 16,235 7,887 11,096 15,540
10 21,073 150,000 150,000 150,000 9,387 13,342 19,055 8,800 12,755 18,468
15 36,153 150,000 150,000 150,000 12,612 21,610 37,784 12,612 21,610 37,784
20 55,399 150,000 150,000 150,000 14,663 31,415 69,475 14,663 31,415 69,475
</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 over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
42
<PAGE> 47
MARKETLIFE POLICIES ISSUED BEFORE 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 Face Amount: $150,000
Preferred Non-Smoker Annual Premium: $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 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 1,314 0 115 266
3 5,282 150,000 150,000 150,000 1,437 1,713 2,018 490 749 1,036
4 7,221 150,000 150,000 150,000 2,254 2,701 3,212 1,364 1,784 2,265
5 9,258 150,000 150,000 150,000 3,017 3,690 4,489 2,189 2,822 3,573
6 11,396 150,000 150,000 150,000 3,722 4,677 5,854 2,960 3,858 4,964
7 13,641 150,000 150,000 150,000 4,367 5,659 7,314 3,674 4,889 6,445
8 15,999 150,000 150,000 150,000 4,945 6,629 8,873 4,326 5,909 8,072
9 18,474 150,000 150,000 150,000 5,452 7,582 10,539 4,909 6,911 9,844
10 21,073 150,000 150,000 150,000 5,887 8,516 12,322 5,426 7,929 11,735
15 36,153 150,000 150,000 150,000 7,020 12,893 23,597 7,020 12,893 23,597
20 55,399 150,000 150,000 150,000 5,865 16,352 41,209 5,865 16,352 41,209
</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 over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
43
<PAGE> 48
MARKETLIFE POLICIES ISSUED BEFORE 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 Face Amount: $150,000
Preferred Non-Smoker Annual Premium: $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 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 2,497 2,764 3,044 1,378 1,629 1,892
3 6,517 150,000 150,000 150,000 3,680 4,202 4,771 2,598 3,089 3,624
4 8,910 150,000 150,000 150,000 4,962 5,827 6,806 3,910 4,723 5,643
5 11,423 150,000 150,000 150,000 6,187 7,488 9,019 5,169 6,392 7,831
6 14,061 150,000 150,000 150,000 7,364 9,194 11,437 6,384 8,104 10,308
7 16,831 150,000 150,000 150,000 8,491 10,947 14,082 7,551 9,926 13,061
8 19,740 150,000 150,000 150,000 9,573 12,752 16,983 8,676 11,839 16,070
9 22,794 150,000 150,000 150,000 10,606 14,610 20,165 9,799 13,803 19,358
10 26,001 150,000 150,000 150,000 11,576 16,509 23,647 10,877 15,810 22,948
15 44,607 150,000 150,000 150,000 15,529 26,757 47,002 15,529 26,757 47,002
20 68,354 150,000 150,000 150,000 17,237 38,258 86,362 17,237 38,258 86,362
</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 over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
44
<PAGE> 49
MARKETLIFE POLICIES ISSUED BEFORE 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 Face Amount: $150,000
Preferred Non-Smoker Annual Premium: $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 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 1,954 2,315 2,712 976 1,315 1,688
4 8,910 150,000 150,000 150,000 2,898 3,479 4,145 1,970 2,516 3,142
5 11,423 150,000 150,000 150,000 3,763 4,631 5,663 2,891 3,707 4,677
6 14,061 150,000 150,000 150,000 4,542 5,761 7,268 3,731 4,877 6,293
7 16,831 150,000 150,000 150,000 5,224 6,858 8,961 4,480 6,016 7,993
8 19,740 150,000 150,000 150,000 5,800 7,911 10,742 5,130 7,114 9,829
9 22,794 150,000 150,000 150,000 6,258 8,903 12,608 5,667 8,153 11,801
10 26,001 150,000 150,000 150,000 6,587 9,822 14,562 6,084 9,125 13,863
15 44,607 150,000 150,000 150,000 6,003 12,874 25,840 6,003 12,874 25,840
20 68,354 150,000 150,000 150,000 223 11,556 40,979 223 11,556 40,979
</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 over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
45
<PAGE> 50
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
46
<PAGE> 51
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
47
<PAGE> 52
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
48
<PAGE> 53
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>
49
<PAGE> 54
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
50
<PAGE> 55
ANNUAL REPORT
DECEMBER 31, 1998
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
[TRAVELERS LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 56
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Capital Appreciation Fund, 67,152 shares (cost $4,552,584) .................. $ 4,884,670
Dreyfus Stock Index Fund, 124,298 shares (cost $4,015,088) .................. 4,042,184
Fidelity's Variable Insurance Products Fund, 273,899 shares (cost $6,491,545) 7,214,058
Fidelity's Variable Insurance Products Fund II, 38,967 shares (cost $666,781) 707,638
Greenwich Street Series Fund, 45,735 shares (cost $811,196) ................. 802,641
Managed Assets Trust, 23,344 shares (cost $435,181) ......................... 466,640
Money Market Portfolio, 1,814,516 shares (cost $1,814,516) .................. 1,814,516
Templeton Variable Products Series Fund, 161,165 shares (cost $3,148,588) ... 3,265,956
The Travelers Series Trust, 60,229 shares (cost $732,181) ................... 733,844
Travelers Series Fund Inc., 696,710 shares (cost $11,527,948) ............... 12,335,010
------------
Total Investments (cost $34,195,608) ...................................... $ 36,267,157
Receivables:
Dividends ..................................................................... 54,172
Premium payments and transfers from other Travelers accounts .................. 3,420,732
Other assets .................................................................... 115
------------
Total Assets .............................................................. 39,742,176
------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts ............... 3,343,772
Insurance charges ........................................................... 6,228
Administrative charges ...................................................... 777
------------
Total Liabilities ......................................................... 3,350,777
------------
NET ASSETS: ..................................................................... $ 36,391,399
============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 57
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ..................................................................... $ 1,109,332
EXPENSES:
Insurance charges ............................................................. $ 181,666
Administrative charges ........................................................ 22,708
------------
Total expenses .............................................................. 204,374
------------
Net investment income ..................................................... 904,958
------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .............................................. 156,819,235
Cost of investments sold .................................................... 154,533,547
------------
Net realized gain (loss) .................................................. 2,285,688
Change in unrealized gain (loss) on investments:
Unrealized gain at December 31, 1997 ........................................ 606,203
Unrealized gain at December 31, 1998 ........................................ 2,071,549
------------
Net change in unrealized gain (loss) for the year ......................... 1,465,346
------------
Net realized gain (loss) and change in unrealized gain (loss) ........... 3,751,034
------------
Net increase in net assets resulting from operations .......................... $ 4,655,992
============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 58
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ......................................... $ 904,958 $ 113,261
Net realized gain (loss) from investment transactions ......... 2,285,688 59,827
Net change in unrealized gain (loss) on investments ........... 1,465,346 604,862
------------- -------------
Net increase in net assets resulting from operations ........ 4,655,992 777,950
------------- -------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 13,807,247 and 6,023,535 units, respectively) 23,714,477 9,467,190
Participant transfers from other Travelers accounts
(applicable to 112,904,264 and 3,924,751 units, respectively) 180,481,902 6,145,464
Contract surrenders
(applicable to 1,573,510 and 597,609 units, respectively) ... (2,923,386) (983,426)
Participant transfers to other Travelers accounts
(applicable to 114,570,535 and 3,898,149 units, respectively) (180,744,823) (5,898,576)
------------- -------------
Net increase in net assets resulting from unit transactions ... 20,528,170 8,730,652
------------- -------------
Net increase in net assets .................................. 25,184,162 9,508,602
NET ASSETS:
Beginning of year ............................................. 11,207,237 1,698,635
------------- -------------
End of year ................................................... $ 36,391,399 $ 11,207,237
============= =============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 59
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 Citigroup Inc. (formerly
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, 1998, the eligible funds available under Fund UL II were:
Managed Assets Trust; Capital Appreciation Fund; Money Market Portfolio
(formerly Cash Income Trust); U.S. Government Securities Portfolio, Utilities
Portfolio, 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 Large Cap Value Portfolio (formerly 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 (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.
Effective December 18, 1998, Zero Coupon Bond Fund Portfolio Series 1998 of
The Travelers Series Trust was fully liquidated.
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.
-4-
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$178,419,828 and $156,819,235, respectively, for the year ended December 31,
1998. Realized gains and losses from investment transactions are reported on
an identified cost basis. The cost of investments in eligible funds was
$34,195,608 at December 31, 1998. Gross unrealized appreciation for all
investments at December 31, 1998 was $2,179,408. Gross unrealized
depreciation for all investments at December 31, 1998 was $107,859.
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,
1998 all contract owners had insurance charges and administrative charges of
0.80% and 0.10%, respectively.
Travelers Life receives contingent surrender charges on full or partial
contract surrenders. Such charges are computed by applying various
percentages to premiums and/or stated contract amounts (as described in the
prospectus). Travelers Life received $31,109 and $25,191 in satisfaction of
such contingent surrender charges for the years ended December 31, 1998 and
1997, respectively.
-5-
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Capital Appreciation Fund .......................... 1,136,698 $ 4.311 $ 4,900,354
Dreyfus Stock Index Fund ........................... 2,631,052 2.779 7,311,554
Fidelity's Variable Insurance Products Fund
Equity-Income Portfolio .......................... 1,806,947 2.176 3,931,251
Growth Portfolio ................................. 1,037,155 2.524 2,617,318
High Income Portfolio ............................ 504,806 1.426 720,027
Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio .......................... 428,153 1.652 707,498
Greenwich Street Series Fund
Total Return Portfolio ........................... 518,132 1.549 802,485
Managed Assets Trust ........................... 145,138 3.215 466,548
Money Market Portfolio ......................... 1,134,441 1.603 1,818,755
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund (Class 1 shares) . 477,886 1.638 782,791
Templeton Bond Fund (Class 1 shares) ............. 156,953 1.257 197,289
Templeton Stock Fund (Class 1 shares) ............ 1,418,179 1.611 2,284,793
The Travelers Series Trust
U.S. Government Securities Portfolio ............. 406,054 1.410 572,389
Utilities Portfolio .............................. 51,014 1.974 100,721
Zero Coupon Bond Fund Portfolio Series 2000 ...... 28,611 1.187 33,959
Zero Coupon Bond Fund Portfolio Series 2005 ...... 60,699 1.287 78,142
Travelers Series Fund Inc.
AIM Capital Appreciation Portfolio ............... 1,499,046 1.369 2,052,888
Alliance Growth Portfolio ........................ 1,831,608 2.185 4,001,168
MFS Total Return Portfolio ....................... 919,153 1.638 1,505,540
Smith Barney High Income Portfolio ............... 383,898 1.251 480,156
Smith Barney Large Cap Value Portfolio ........... 592,895 1.730 1,025,773
-----------
Net Contract Owners' Equity ........................ $36,391,399
===========
</TABLE>
-6-
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
CAPITAL APPRECIATION FUND (13.5%)
Total (Cost $4,552,584) ........................................ 67,152 $ 4,884,670
----------- -----------
DREYFUS STOCK INDEX FUND (11.1%)
Total (Cost $4,015,088) ........................................ 124,298 4,042,184
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (19.9%)
Equity-Income Portfolio (Cost $3,610,485) ...................... 153,901 3,912,160
Growth Portfolio (Cost $2,104,206) ............................. 57,538 2,581,729
High Income Portfolio (Cost $776,854) .......................... 62,460 720,169
----------- -----------
Total (Cost $6,491,545) ...................................... 273,899 7,214,058
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (2.0%)
Asset Manager Portfolio
Total (Cost $666,781) ........................................ 38,967 707,638
----------- -----------
GREENWICH STREET SERIES FUND (2.2%)
Total Return Portfolio
Total (Cost $811,196) ........................................ 45,735 802,641
----------- -----------
MANAGED ASSETS TRUST (1.3%)
Total (Cost $435,181) ........................................ 23,344 466,640
----------- -----------
MONEY MARKET PORTFOLIO (5.0%)
Total (Cost $1,814,516) ...................................... 1,814,516 1,814,516
----------- -----------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (9.0%)
Templeton Asset Allocation Fund (Class 1 shares) (Cost $778,273) 34,858 782,909
Templeton Bond Fund (Class 1 shares) (Cost $193,910) ........... 17,825 197,327
Templeton Stock Fund (Class 1 shares) (Cost $2,176,405) ........ 108,482 2,285,720
----------- -----------
Total (Cost $3,148,588) ...................................... 161,165 3,265,956
----------- -----------
THE TRAVELERS SERIES TRUST (2.0%)
U.S. Government Securities Portfolio (Cost $535,664) ........... 44,617 526,475
Utilities Portfolio (Cost $88,733) ............................. 5,864 100,740
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $33,888) ..... 3,131 32,121
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $73,896) ..... 6,617 74,508
----------- -----------
Total (Cost $732,181) ........................................ 60,229 733,844
----------- -----------
TRAVELERS SERIES FUND INC. (34.0%)
AIM Capital Appreciation Portfolio (Cost $5,173,476) ........... 367,620 5,323,144
Alliance Growth Portfolio (Cost $3,408,323) .................... 152,092 4,001,538
MFS Total Return Portfolio (Cost $1,441,370) ................... 88,389 1,505,263
Smith Barney High Income Portfolio (Cost $510,753) ............. 37,843 479,090
Smith Barney Large Cap Value Portfolio (Cost $994,026) ......... 50,766 1,025,975
----------- -----------
Total (Cost $11,527,948) ..................................... 696,710 12,335,010
----------- -----------
TOTAL INVESTMENT OPTIONS (100%)
(COST $34,195,608) ............................................. $36,267,157
===========
</TABLE>
-7-
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND DREYFUS STOCK INDEX FUND EQUITY-INCOME PORTFOLIO
---------------------------- ---------------------------- ----------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .......................... $ 74,869 $ 8 $ 38,721 $ 35,376 $ 85,961 $ 14,787
------------ ------------ ------------ ------------ ------------ ------------
EXPENSES:
Insurance charges .................. 20,764 5,532 18,973 4,820 18,997 4,048
Administrative charges ............. 2,596 689 2,372 542 2,375 508
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) ... 51,509 (6,213) 17,376 30,014 64,589 10,231
------------ ------------ ------------ ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold ... 8,939,564 20,971 29,878,196 37,365 252,634 71,633
Cost of investments sold ......... 7,651,328 18,398 29,148,808 30,549 208,954 69,809
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss) ....... 1,288,236 2,573 729,388 6,816 43,680 1,824
------------ ------------ ------------ ------------ ------------ ------------
Change in unrealized gain (loss) on
investments:
Unrealized gain (loss) beginning
of year ........................ 105,992 (8,725) 86,164 (445) 99,327 3,309
Unrealized gain (loss) end of year 332,086 105,992 27,096 86,164 301,675 99,327
------------ ------------ ------------ ------------ ------------ ------------
Net change in unrealized gain
(loss) for the year .......... 226,094 114,717 (59,068) 86,609 202,348 96,018
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations 1,565,839 111,077 687,696 123,439 310,617 108,073
------------ ------------ ------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments ....... 1,598,260 594,332 1,639,480 482,167 1,065,449 283,616
Participant transfers from other
Travelers accounts ............... 9,781,587 435,944 36,723,998 448,073 1,874,478 809,707
Contract surrenders ................ (358,636) (101,952) (333,118) (76,416) (342,648) (78,809)
Participant transfers to other
Travelers accounts ............... (8,883,995) (9,284) (32,413,993) (22,182) (151,989) (56,274)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from unit
transactions ................... 2,137,216 919,040 5,616,367 831,642 2,445,290 958,240
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
net assets ................... 3,703,055 1,030,117 6,304,063 955,081 2,755,907 1,066,313
NET ASSETS:
Beginning of year ................ 1,197,299 167,182 1,007,491 52,410 1,175,344 109,031
------------ ------------ ------------ ------------ ------------ ------------
End of year ...................... $ 4,900,354 $ 1,197,299 $ 7,311,554 $ 1,007,491 $ 3,931,251 $ 1,175,344
============ ============ ============ ============ ============ ============
</TABLE>
-8-
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO ASSET MANAGER PORTFOLIO TOTAL RETURN PORTFOLIO
- -------------------------- -------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 124,603 $ 6,210 $ 49,003 $ 3,008 $ 44,447 $ 4,398 $ 38,676 $ 19,156
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
12,316 3,490 4,741 1,423 3,774 882 5,776 1,528
1,540 427 593 181 471 109 722 186
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
110,747 2,293 43,669 1,404 40,202 3,407 32,178 17,442
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
172,237 74,627 57,305 134,453 84,980 13,082 173,048 15,259
146,160 71,855 60,868 133,952 81,260 12,936 163,752 13,281
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
26,077 2,772 (3,563) 501 3,720 146 9,296 1,978
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
65,515 155 28,905 338 14,373 (27) 6,485 479
477,523 65,515 (56,685) 28,905 40,857 14,373 (8,555) 6,485
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
412,008 65,360 (85,590) 28,567 26,484 14,400 (15,040) 6,006
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
548,832 70,425 (45,484) 30,472 70,406 17,953 26,434 25,426
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
878,682 391,611 291,102 59,161 316,953 92,210 247,970 143,153
667,426 379,350 195,962 408,795 133,229 172,963 234,893 307,511
(248,686) (85,506) (50,099) (17,011) (65,210) (22,869) (60,314) (17,089)
(49,786) (55,077) (48,116) (127,062) (11,280) (6,382) (121,404) (6,601)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,247,636 630,378 388,849 323,883 373,692 235,922 301,145 426,974
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,796,468 700,803 343,365 354,355 444,098 253,875 327,579 452,400
820,850 120,047 376,662 22,307 263,400 9,525 474,906 22,506
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 2,617,318 $ 820,850 $ 720,027 $ 376,662 $ 707,498 $ 263,400 $ 802,485 $ 474,906
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
-9-
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION
FUND
MANAGED ASSETS TRUST MONEY MARKET PORTFOLIO (CLASS 1 SHARES)
--------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................... $ 16,040 $ 2,064 $ 115,285 $ 36,259 $ 30,464 $ 5,560
------------ ------------ ------------ ------------ ------------ ------------
EXPENSES:
Insurance charges ................... 1,786 371 18,666 5,861 5,100 1,239
Administrative charges .............. 223 46 2,333 729 638 155
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) .... 14,031 1,647 94,286 29,669 24,726 4,166
------------ ------------ ------------ ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold .... 43,382 10,996 40,088,922 4,046,511 138,697 21,111
Cost of investments sold .......... 37,679 9,921 40,088,922 4,046,511 136,460 19,574
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss) ........ 5,703 1,075 -- -- 2,237 1,537
------------ ------------ ------------ ------------ ------------ ------------
Change in unrealized gain (loss) on
investments:
Unrealized gain (loss) beginning of
year ............................ 4,755 (191) -- -- 1,084 532
Unrealized gain (loss) end of year 31,459 4,755 -- -- 4,636 1,084
------------ ------------ ------------ ------------ ------------ ------------
Net change in unrealized gain
(loss) for the year ........... 26,704 4,946 -- -- 3,552 552
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ....... 46,438 7,668 94,286 29,669 30,515 6,255
------------ ------------ ------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments ........ 148,771 37,766 13,513,324 5,786,468 318,867 163,825
Participant transfers from other
Travelers accounts ................ 212,553 52,750 37,931,466 586,545 261,063 174,058
Contract surrenders ................. (21,950) (8,752) (555,249) (188,106) (80,180) (30,046)
Participant transfers to other
Travelers accounts ................ (9,263) (4,922) (50,565,449) (5,568,887) (76,895) (7,361)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from unit
transactions .................... 330,111 76,842 324,092 616,020 422,855 300,476
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets ........................ 376,549 84,510 418,378 645,689 453,370 306,731
NET ASSETS:
Beginning of year ................. 89,999 5,489 1,400,377 754,688 329,421 22,690
------------ ------------ ------------ ------------ ------------ ------------
End of year ....................... $ 466,548 $ 89,999 $ 1,818,755 $ 1,400,377 $ 782,791 $ 329,421
============ ============ ============ ============ ============ ============
</TABLE>
-10-
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON BOND FUND TEMPLETON STOCK FUND U.S. GOVERNMENT SECURITIES
(CLASS 1 SHARES) (CLASS 1 SHARES) PORTFOLIO UTILITIES PORTFOLIO
- --------------------------- --------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 12,130 $ 17 $ 166,239 $ 32,428 $ 46,257 $ 2,262 $ 3,805 $ 45
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,546 188 16,676 4,790 2,991 194 604 183
193 23 2,084 612 374 24 75 23
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,391 (194) 147,479 27,026 42,892 2,044 3,126 (161)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
73,913 2,010 25,950,404 48,702 13,179 17,836 15,147 1,782
75,268 1,984 26,094,788 41,905 12,003 16,929 11,670 1,686
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(1,355) 26 (144,384) 6,797 1,176 907 3,477 96
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,000 1 (7,984) 8,229 738 (60) 6,150 (19)
3,417 1,000 109,315 (7,984) (9,189) 738 12,007 6,150
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,417 999 117,299 (16,213) (9,927) 798 5,857 6,169
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
11,453 831 120,394 17,610 34,141 3,749 12,460 6,104
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
26,582 36,154 895,395 498,265 50,942 41,530 18,753 8,128
121,110 79,416 26,650,363 510,409 456,331 3,283 30,394 42,770
(9,468) (2,478) (212,082) (109,716) (14,039) (1,585) (15,675) (1,855)
(66,157) (282) (26,276,598) (11,811) (2,990) (222) (162) (448)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
72,067 112,810 1,057,078 887,147 490,244 43,006 33,310 48,595
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
83,520 113,641 1,177,472 904,757 524,385 46,755 45,770 54,699
113,769 128 1,107,321 202,564 48,004 1,249 54,951 252
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 197,289 $ 113,769 $ 2,284,793 $ 1,107,321 $ 572,389 $ 48,004 $ 100,721 $ 54,951
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
-11-
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND ZERO COUPON BOND FUND ZERO COUPON BOND FUND
PORTFOLIO PORTFOLIO PORTFOLIO
SERIES 1998 SERIES 2000 SERIES 2005
--------------------- --------------------- ---------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................... $ 6 $ 141 $ 1,849 $ 508 $ 3,678 $ 827
-------- -------- -------- -------- -------- --------
EXPENSES:
Insurance charges ................................... 7 2 122 30 331 60
Administrative charges .............................. 1 -- 16 4 41 7
-------- -------- -------- -------- -------- --------
Net investment income (loss) .................... (2) 139 1,711 474 3,306 760
-------- -------- -------- -------- -------- --------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 2,999 174 17,524 1,064 5,292 11,539
Cost of investments sold .......................... 3,068 175 16,901 1,044 4,973 10,990
-------- -------- -------- -------- -------- --------
Net realized gain (loss) ........................ (69) (1) 623 20 319 549
-------- -------- -------- -------- -------- --------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... (113) (2) (184) -- (192) (1)
Unrealized gain (loss) end of year ................ -- (113) (1,767) (184) 612 (192)
-------- -------- -------- -------- -------- --------
Net change in unrealized gain (loss) for the year 113 (111) (1,583) (184) 804 (191)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations ......................... 42 27 751 310 4,429 1,118
-------- -------- -------- -------- -------- --------
UNIT TRANSACTIONS:
Participant premium payments ........................ 327 (14) 3,385 3,315 28,748 10,172
Participant transfers from other Travelers accounts . 56 2,706 38,105 6,056 35,774 6,064
Contract surrenders ................................. (543) (159) (2,567) (423) (6,320) (1,750)
Participant transfers to other Travelers accounts ... (2,484) -- (14,973) -- (109) (28)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from unit transactions ................ (2,644) 2,533 23,950 8,948 58,093 14,458
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets ........... (2,602) 2,560 24,701 9,258 62,522 15,576
NET ASSETS:
Beginning of year ................................. 2,602 42 9,258 -- 15,620 44
-------- -------- -------- -------- -------- --------
End of year ....................................... $ -- $ 2,602 $ 33,959 $ 9,258 $ 78,142 $ 15,620
======== ======== ======== ======== ======== ========
</TABLE>
-12-
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
AIM CAPITAL APPRECIATION SMITH BARNEY HIGH INCOME
PORTFOLIO ALLIANCE GROWTH PORTFOLIO MFS TOTAL RETURN PORTFOLIO PORTFOLIO
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2,031 $ -- $ 157,237 $ -- $ 41,658 $ -- $ 35,061 $ --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
14,139 2,387 18,971 4,148 7,456 1,054 3,277 1,108
1,767 292 2,371 541 932 131 410 139
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(13,875) (2,679) 135,895 (4,689) 33,270 (1,185) 31,374 (1,247)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
50,364,424 42,017 281,429 100,575 99,593 14,712 137,335 26,074
50,138,696 35,849 211,143 83,028 86,784 13,588 130,279 24,019
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
225,728 6,168 70,286 17,547 12,809 1,124 7,056 2,055
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
14,449 8 127,693 (541) 19,330 (254) 14,581 (1,162)
149,668 14,449 593,215 127,693 63,893 19,330 (31,663) 14,581
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
135,219 14,441 465,522 128,234 44,563 19,584 (46,244) 15,743
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
347,072 17,930 671,703 141,092 90,642 19,523 (7,814) 16,551
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
604,531 226,505 1,009,403 367,916 507,102 75,606 196,364 75,443
62,271,932 395,085 1,692,140 615,480 550,889 398,068 201,227 99,684
(176,136) (59,627) (217,311) (110,871) (73,465) (11,785) (21,906) (12,595)
(61,632,098) (4,654) (245,697) (5,050) (52,303) (10,432) (102,054) (550)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,068,229 557,309 2,238,535 867,475 932,223 451,457 273,631 161,982
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,415,301 575,239 2,910,238 1,008,567 1,022,865 470,980 265,817 178,533
637,587 62,348 1,090,930 82,363 482,675 11,695 214,339 35,806
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 2,052,888 $ 637,587 $ 4,001,168 $ 1,090,930 $ 1,505,540 $ 482,675 $ 480,156 $ 214,339
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
-13-
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY LARGE CAP VALUE
PORTFOLIO COMBINED
------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................... $ 21,312 $ -- $ 1,109,332 $ 163,054
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges ................................... 4,653 964 181,666 44,302
Administrative charges .............................. 581 123 22,708 5,491
------------- ------------- ------------- -------------
Net investment income (loss) .................... 16,078 (1,087) 904,958 113,261
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 29,031 35,099 156,819,235 4,747,592
Cost of investments sold .......................... 23,783 29,782 154,533,547 4,687,765
------------- ------------- ------------- -------------
Net realized gain (loss) ........................ 5,248 5,317 2,285,688 59,827
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 18,135 (283) 606,203 1,341
Unrealized gain (loss) end of year ................ 31,949 18,135 2,071,549 606,203
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year 13,814 18,418 1,465,346 604,862
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ....................... 35,140 22,648 4,655,992 777,950
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant premium payments ........................ 354,087 89,861 23,714,477 9,467,190
Participant transfers from other Travelers accounts . 416,926 210,747 180,481,902 6,145,464
Contract surrenders ................................. (57,784) (44,026) (2,923,386) (983,426)
Participant transfers to other Travelers accounts ... (17,028) (1,067) (180,744,823) (5,898,576)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from unit transactions ................ 696,201 255,515 20,528,170 8,730,652
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ........... 731,341 278,163 25,184,162 9,508,602
NET ASSETS:
Beginning of year ................................. 294,432 16,269 11,207,237 1,698,635
------------- ------------- ------------- -------------
End of year ....................................... $ 1,025,773 $ 294,432 $ 36,391,399 $ 11,207,237
============= ============= ============= =============
</TABLE>
-14-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL II FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND DREYFUS STOCK INDEX FUND EQUITY-INCOME PORTFOLIO
--------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 444,866 77,659 460,680 31,576 597,615 70,383
Units purchased and transferred from
other Travelers accounts ......... 3,060,194 410,307 14,840,446 477,006 1,446,746 604,747
Units redeemed and transferred to
other Travelers accounts ......... (2,368,362) (43,100) (12,670,074) (47,902) (237,414) (77,515)
----------- ----------- ----------- ----------- ----------- -----------
Units end of year .................. 1,136,698 444,866 2,631,052 460,680 1,806,947 597,615
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO ASSET MANAGER PORTFOLIO
------------------------- ------------------------- -------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 449,618 80,468 250,378 17,292 181,740 7,858
Units purchased and transferred from
other Travelers accounts ......... 729,395 453,937 323,773 341,485 296,426 194,847
Units redeemed and transferred to
other Travelers accounts ......... (141,858) (84,787) (69,345) (108,399) (50,013) (20,965)
---------- ---------- ---------- ---------- ---------- ----------
Units end of year .................. 1,037,155 449,618 504,806 250,378 428,153 181,740
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO MANAGED ASSETS TRUST MONEY MARKET PORTFOLIO
--------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 318,844 17,497 33,700 2,471 909,353 510,210
Units purchased and transferred from
other Travelers accounts ......... 319,279 317,987 122,196 36,681 32,514,069 4,201,770
Units redeemed and transferred to
other Travelers accounts ......... (119,991) (16,640) (10,758) (5,452) (32,288,981) (3,802,627)
----------- ----------- ----------- ----------- ----------- -----------
Units end of year .................. 518,132 318,844 145,138 33,700 1,134,441 909,353
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION
FUND TEMPLETON BOND FUND TEMPLETON STOCK FUND
(CLASS 1 SHARES) (CLASS 1 SHARES) (CLASS 1 SHARES)
--------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 212,085 16,725 96,130 110 689,681 139,885
Units purchased and transferred from
other Travelers accounts ......... 363,199 219,569 123,125 98,390 17,899,636 623,191
Units redeemed and transferred to
other Travelers accounts ......... (97,398) (24,209) (62,302) (2,370) (17,171,138) (73,395)
----------- ----------- ----------- ----------- ----------- -----------
Units end of year .................. 477,886 212,085 156,953 96,130 1,418,179 689,681
=========== =========== =========== =========== =========== ===========
</TABLE>
-15-
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL II
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES ZERO COUPON BOND FUND
PORTFOLIO UTILITIES PORTFOLIO PORTFOLIO SERIES 1998
-------------------------- ------------------------ -------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 37,194 1,080 32,611 186 2,347 40
Units purchased and transferred from
other Travelers accounts ......... 381,386 37,586 27,452 34,029 339 2,452
Units redeemed and transferred to
other Travelers accounts ......... (12,526) (1,472) (9,049) (1,604) (2,686) (145)
-------- -------- -------- -------- -------- --------
Units end of year .................. 406,054 37,194 51,014 32,611 -- 2,347
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND ZERO COUPON BOND FUND
PORTFOLIO PORTFOLIO AIM CAPITAL APPRECIATION
SERIES 2000 SERIES SERIES 2005 PORTFOLIO
----------------------- --------------------- ---------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 8,316 -- 13,500 42 541,898 58,901
Units purchased and transferred from
other Travelers accounts ......... 35,127 8,703 52,454 15,066 51,302,755 536,587
Units redeemed and transferred to
other Travelers accounts ......... (14,832) (387) (5,255) (1,608) (50,345,607) (53,590)
------- ------- ------- ------- ----------- --------
Units end of year .................. 28,611 8,316 60,699 13,500 1,499,046 541,898
======= ======= ======= ======= =========== ========
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME
ALLIANCE GROWTH PORTFOLIO MFS TOTAL RETURN PORTFOLIO PORTFOLIO
------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 638,546 61,648 326,125 9,490 170,588 32,158
Units purchased and transferred from
other Travelers accounts ......... 1,437,723 649,958 673,650 332,791 309,772 149,150
Units redeemed and transferred to
other Travelers accounts ......... (244,661) (73,060) (80,622) (16,156) (96,462) (10,720)
---------- ---------- ---------- ---------- ---------- ----------
Units end of year .................. 1,831,608 638,546 919,153 326,125 383,898 170,588
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY LARGE CAP
VALUE PORTFOLIO COMBINED
-------------------------------- --------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Units beginning of year ............ 185,237 12,845 6,601,052 1,148,524
Units purchased and transferred from
other Travelers accounts ......... 452,369 202,047 126,711,511 9,948,286
Units redeemed and transferred to
other Travelers accounts ......... (44,711) (29,655) (116,144,045) (4,495,758)
------------ ------------ ------------ ------------
Units end of year .................. 592,895 185,237 17,168,518 6,601,052
============ ============ ============ ============
</TABLE>
-16-
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
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, 1998, and
the related statement of operations for the year then ended and the statement of
changes in net assets for each of the two years in the period then ended. 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, 1998, 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, 1998, the results of its operations
for the year then ended and the changes in its net assets for each of the two
years in the period then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Hartford, Connecticut
February 17, 1999
-17-
<PAGE> 73
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, 1998 and 1997, and the related statements of
income, changes in retained earnings and accumulated other changes in equity
from non-owner sources and cash flows for each of the years in the three-year
period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 25, 1999
F-1
<PAGE> 74
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 23,677 $ 35,190 $ 17,462
Net investment income 171,003 168,653 151,326
Realized investment gains (losses) 18,493 44,871 (9,613)
Fee income 14,687 5,004 1,336
Other 14,199 3,159 940
- -------------------------------------------------------------------------- ------------- --------------
Total Revenues 242,059 256,877 161,451
- -------------------------------------------------------------------------- ------------- --------------
BENEFITS AND EXPENSES
Current and future insurance benefits 81,371 95,639 77,285
Interest credited to contractholders 51,535 35,165 35,607
Amortization of deferred acquisition costs and
value in insurance in force 17,031 6,036 3,286
Operating expenses 3,937 10,462 5,691
- -------------------------------------------------------------------------- ------------- --------------
Total Benefits and Expenses 153,874 147,302 121,869
- -------------------------------------------------------------------------- ------------- --------------
Income before federal income taxes 88,185 109,575 39,582
- -------------------------------------------------------------------------- ------------- --------------
Federal income taxes:
Current 18,917 33,859 29,456
Deferred expense (benefit) 11,783 4,344 (15,665)
- -------------------------------------------------------------------------- ------------- --------------
Total Federal Income Taxes 30,700 38,203 13,791
- -------------------------------------------------------------------------- ------------- --------------
Net income $ 57,485 $ 71,372 $ 25,791
========================================================================== ============= ==============
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 75
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------ ---------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $1,707,347; $1,571,121) $1,838,681 $1,678,120
Equity securities, at fair value (cost, $25,826; $15,092) 26,685 16,289
Mortgage loans 174,565 160,247
Short-term securities 126,176 169,229
Other invested assets 136,122 121,242
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Investments 2,302,229 2,145,127
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Separate accounts 2,178,474 812,059
Deferred acquisition costs and value of insurance in force 194,213 90,966
Premium balances receivable 16,074 9,288
Deferred federal income taxes 12,395 33,661
Other assets 41,119 61,904
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Assets $4,744,504 $3,153,005
- ------------------------------------------------------------------------------------------ ---------------- -----------------
LIABILITIES
Future policy benefits $963,171 $971,602
Contractholder funds 947,411 818,971
Separate accounts 2,178,474 812,059
Other liabilities 114,690 84,712
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Liabilities 4,203,746 2,687,344
- ------------------------------------------------------------------------------------------ ---------------- -----------------
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 282,555 225,070
Accumulated other changes in equity from non-owner sources 87,889 70,277
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Shareholder's Equity 540,758 465,661
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Liabilities and Shareholder's Equity $4,744,504 $3,153,005
========================================================================================== ================ =================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 76
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ---------------- ----------------- -------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1998 1997 1996
- ------------------------------------------------------ ---------------- ----------------- -------------------
<S> <C> <C> <C>
Balance, beginning of year $225,070 $167,698 $157,907
Net income 57,485 71,372 25,791
Dividends to parent - 14,000 16,000
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, end of year $282,555 $225,070 $167,698
====================================================== ================ ================= ===================
- ------------------------------------------------------ ---------------- ----------------- -------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, beginning of year $70,277 $33,856 $35,330
Unrealized gains (losses), net of tax 17,612 36,421 (1,474)
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, end of year $87,889 $70,277 $33,856
====================================================== ================ ================= ===================
- ------------------------------------------------------ ---------------- ----------------- -------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- ------------------------------------------------------ ---------------- ----------------- -------------------
Net Income $57,485 $71,372 $25,791
Other changes in equity from
non-owner sources 17,612 36,421 (1,474)
- ------------------------------------------------------ ---------------- ----------------- -------------------
Total changes in equity from
non-owner sources $75,097 $107,793 $24,317
====================================================== ================ ================= ===================
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 77
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 22,300 $ 34,553 $ 6,472
Net investment income received 146,158 170,460 71,083
Benefits and claims paid (90,872) (90,820) (70,331)
Interest credited to contractholders (51,535) (35,165) (813)
Operating expenses paid (75,632) (40,868) (5,482)
Income taxes paid (25,214) (22,440) (23,931)
Other (596) (7,702) (6,857)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Provided by (Used in) Operating Activities (75,391) 8,018 (29,859)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 113,456 81,899 20,301
Mortgage loans 25,462 8,972 37,789
Proceeds from sales of investments
Fixed maturities 1,095,976 856,846 978,970
Equity securities 6,020 12,404 12,818
Mortgage loans - 5,483 22,437
Real estate held for sale - 4,493 -
Purchases of investments
Fixed maturities (1,320,704) (1,020,803) (994,443)
Equity securities (13,653) (6,382) (5,412)
Mortgage loans (39,158) (41,967) (21,450)
Policy loans (2,010) (1,144) (1,750)
Short-term securities, (purchases) sales, net 43,054 (88,067) (19,688)
Other investments, (purchases) sales, net 1,110 (51,502) (6,160)
Securities transactions in course of settlement 36,459 10,526 (51,703)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Used in Investing Activities (53,988) (229,242) (28,291)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 211,476 325,932 96,490
Contractholder fund withdrawals (83,036) (89,145) (22,340)
Dividends to parent company - (14,000) (16,000)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Provided by Financing Activities 128,440 222,787 58,150
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net increase (decrease) in cash (939) 1,563 -
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Cash at December 31, $624 $1,563 $ -
=================================================================================== =============== =============== =============
</TABLE>
See Notes to Financial Statements.
F-5
<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 Citigroup Inc. (Citigroup), formerly Travelers Group
Inc. 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 Company offers 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.
ACCOUNTING CHANGES
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). This
statement 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. Effective January 1, 1998, the
Company adopted the collateral provisions of FAS 125 which were not
effective until 1998 in accordance with Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
SFAS 125". The adoption of the collateral provisions of FAS 125 created
additional assets and liabilities on the Company's statement of financial
position related to the recognition of securities provided and received as
collateral. There was no impact on the results of operations from the
adoption of the collateral provisions of FAS 125.
F-6
<PAGE> 79
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted 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 required to
be reported in an annual financial statement that is displayed with the
same prominence as other financial statements. This statement 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 thus represents the sum of net
income and other changes in equity from non-owner sources. The accumulated
balance of other changes in equity from non-owner sources is required to be
displayed separately from retained earnings and additional paid-in capital
in the balance sheet. The adoption of FAS 130 resulted in the Company
reporting unrealized gains and losses on investments in debt and equity
securities in changes in equity from non-owner sources. See Note 3.
Disclosures About Segments of an Enterprise and Related Information
During 1998, Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (FAS
131) became effective. 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. This
statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise". 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. The Company only has one reportable operating segment and
therefore, no additional disclosures are required under FAS 131.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
During the third quarter of 1998, the Company adopted (effective January 1,
1998) the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants' Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and for
determining when specific costs should be capitalized or expensed. The
adoption of SOP 98-1 had no impact on the Company's financial condition,
statement of operations or liquidity.
F-7
<PAGE> 80
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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. The effective yield used to determine amortization is
calculated based upon actual historical and projected future cash flows,
which are obtained from a widely-accepted securities data provider. 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
current real estate financing market. Impaired loans were insignificant at
December 31, 1998 and 1997.
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.
Other invested assets include real estate joint ventures and partnership
investments accounted for on the equity method of accounting. All changes
in equity of these investments are recorded in net investment income.
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.
F-8
<PAGE> 81
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures contracts, options, forward contracts and interest rate swaps and
caps, as a means of hedging exposure to interest rate and foreign currency
risk. Hedge accounting is used to account for derivatives. To qualify for
hedge accounting the changes in value of the derivative must be expected to
substantially offset the changes in value of the hedged item. Hedges are
monitored to ensure that there is a high correlation between the derivative
instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to
adjust the basis of hedged investments and are recognized in net investment
income over the life of the investment.
Forward contracts, and options, and interest rate caps were not significant
at December 31, 1998 and 1997. Information concerning derivative financial
instruments is included in Note 4.
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 fee income.
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.
F-9
<PAGE> 82
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 15 to 20
year amortization period is used for life insurance, and a 7 to 20 year
period is employed for annuities. Deferred acquisition costs are reviewed
periodically for recoverability to determine if any adjustment is required.
Adjustments, if any, are charged to income.
The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from annuity
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
annuity business acquired. The annuity contracts are 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 3.3% 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 (NAIC) 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.
F-10
<PAGE> 83
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The NAIC recently completed a process intended to codify statutory
accounting practices for certain insurance enterprises. As a result of this
process, the NAIC will issue a revised statutory Accounting Practices and
Procedures Manual - version effective January 1, 2001 (the revised Manual)
that will be effective January 1, 2001 for the calendar year 2001 statutory
financial statements. It is expected that the State of Connecticut will
require that, effective January 1, 2001, insurance companies domiciled in
Connecticut prepare their statutory basis financial statements in
accordance with the revised Manual subject to any deviations prescribed or
permitted by the Connecticut insurance commissioner. The Company has not
yet determined the impact that this change will have on its statutory
capital and surplus.
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 comprises 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.
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 plans to implement SOP 97-3 in the first
quarter of 1999 and expects there to be no material impact on the Company's
financial condition, results of operations or liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
F-11
<PAGE> 84
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
If certain conditions are met, a derivative may be specifically designated
as (a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting
designation. FAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Upon initial application of FAS 133, hedging
relationships must be designated anew and documented pursuant to the
provisions of this statement. The Company has not yet determined the impact
that FAS 133 will have on its financial statements.
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, 1998 and 1997 was
$69.6 million and $76.4 million, respectively. Life insurance premiums
ceded were $4.2 million, $2.4 million and $1.3 million in 1998, 1997 and
1996, respectively. Life insurance premiums ceded to non-affiliates were
insignificant. Life insurance in force ceded to non-affiliates at December
31, 1998 and 1997, was $8.8 billion and $4.5 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 (loss) was $(3.2) million, $80.3 million
and $17.9 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Statutory capital and surplus was $328.2 million at both December 31, 1998
and 1997.
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 $32.8 million is available in 1999 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
F-12
<PAGE> 85
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
<TABLE>
<CAPTION>
For the years ended December 31, PRE-TAX AMOUNT TAX EXPENSE/ AFTER-TAX
($ in thousands) (BENEFIT) AMOUNT
---------------------------------------------------------------- --------------- ---------------- --------------
<S> <C> <C> <C>
1998
Unrealized gain on investment securities:
Unrealized holding gains arising during year $45,589 $15,957 $29,632
Less: reclassification adjustment for gains
realized in net income 18,493 6,473 12,020
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $27,096 $9,484 $17,612
================================================================ =============== ================ ==============
1997
Unrealized gain on investment securities:
Unrealized holding gains arising during year $100,903 $35,316 $65,587
Less: reclassification adjustment for gains
realized in net income 44,871 15,705 29,166
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $56,032 $19,611 $36,421
================================================================ =============== ================ ==============
1996
Unrealized gain (loss) on investment securities:
Unrealized holding gains (losses) arising during year $(11,881) $4,158 $(7,723)
Less: reclassification adjustment for losses realized
in net income (9,613) (3,364) (6,249)
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $(2,268) $794 $(1,474)
================================================================ =============== ================ ==============
</TABLE>
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, 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 that it would cost the Company
to replace such contracts. Financial futures contracts and purchased listed
option contracts have little credit risk since organized exchanges are the
counterparties.
F-13
<PAGE> 86
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 and equity prices 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 and equity prices, the Company
enters long or short positions in financial futures contracts which offset
changes in the fair value of investments and liabilities resulting from
changes in market interest rates or equity prices until an investment is
purchased, a product is sold or a liability is settled.
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, 1998 and 1997, the Company held financial futures contracts
with notional amounts of $41.5 million and $156.3 million, respectively. At
December 31, 1998 and 1997, the Company's futures contracts had no fair
value because these contracts are marked to market and settled in cash
daily.
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match an asset with a corresponding liability. Under interest rate swaps,
the Company agrees with other parties to exchange, at specific intervals,
the difference between fixed-rate and floating-rate interest amounts
calculated by reference to a notional principal amount. Generally, no cash
is exchanged at the outset of the contract and no principal payments are
made by either party. A single net payment is usually made by one
counterparty at each due date. Swaps are not exchange traded and are
subject to the risk of default by the counterparty.
As of December 31, 1998 and 1997, the Company held interest rate swap
contracts with notional amounts of $165.3 million and $17.3 million,
respectively. The fair value of these financial instruments was $3.4
million (gain position) and $.7 million (loss position) at December 31,
1998 and was $.7 million (loss position) at December 31, 1997. The fair
values were determined using the discounted cash flow method.
The off-balance sheet risks of forward contracts were not significant at
December 31, 1998 and 1997.
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, 1998 and 1997.
F-14
<PAGE> 87
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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, 1998, investments in fixed maturities had a carrying value
and a fair value of $1.8 billion, compared with a carrying value and a fair
value of $1.7 billion at December 31, 1997. See Notes 1 and 11.
At December 31, 1998, mortgage loans had a carrying value of $174.6 million
and a fair value of $185.7 million and in 1997 had a carrying value of
$160.2 million and a fair value of $172.6 million. In estimating fair
value, the Company used interest rates reflecting the current real estate
financing market.
The carrying values of $36.5 million and $54.4 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1998 and 1997, respectively. The carrying values of $98.4
million and $70.5 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1998 and
1997, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
At December 31, 1998, contractholder funds with defined maturities had a
carrying value of $725.6 million and a fair value of $698.1 million,
compared with a carrying value of $694.9 million and a fair value of $695.9
million at December 31, 1997. 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 $483.0 million and a fair value of $442.5 million at December 31, 1998,
compared with a carrying value of $98.5 million and a fair value of $93.9
million at December 31, 1997. 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
See Note 4.
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,
1998, 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.
F-15
<PAGE> 88
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
These contracts were purchased by the insurance subsidiaries of Travelers
Property Casualty Corp. (TAP), an affiliate of the Company, in connection
with the settlement of certain of their policyholder obligations. Effective
April 1, 1998, all new contracts have been written by TIC.
7. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Citigroup. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by The Travelers Insurance Group Inc. (TIGI), TIC's direct
parent. The Company's share of net expense for the qualified pension and
other postretirement benefit plans was not significant for 1998, 1997 and
1996.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. 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 1998, 1997 and 1996.
F-16
<PAGE> 89
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 & 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, 1998 and 1997, the pool
totaled approximately $2.3 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $93.1 million and $145.5 million at
December 31, 1998 and 1997, 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 $450
million. TIC's obligation is to pay in full to any owner or beneficiary of
the TTM Modified Guaranteed Annuity Contracts principal and interest as and
when due under the annuity contract to the extent that the Company fails to
make such payment. In addition, TIC guarantees that the Company will
maintain a minimum statutory capital and surplus level.
The Company sold structured settlement annuities to the insurance
affiliates of Travelers Property Casualty (TAP). Premiums and deposits were
$8.9 million, $70.6 million and $36.9 million for 1998, 1997 and 1996,
respectively. The reduction in premiums and deposits from 1997 to 1998 was
a result of a decision to use TIC as the primary issuer of structured
settlement annuities and the Company as the assignment company. Policy
reserves and contractholder fund liabilities associated with these
structured settlements were $808.7 and $842.3 million at December 31, 1998
and 1997, respectively.
The Company began marketing variable annuity products through its
affiliate, Salomon Smith Barney Inc. (SSB) in 1995. Premiums and deposits
related to these products were $932.1 million, $615.6 million and $300.0
million in 1998, 1997 and 1996, respectively. In 1996, the Company began
marketing various life products through SSB as well. Premiums related to
such products were $42.1 million, $25.1 million and $20.5 million in 1998,
1997 and 1996, respectively.
During 1998, the Company began marketing deferred annuity products through
its affiliate Primerica Financial Services (Primerica). Deposits received
were $216 million.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 the Company's ultimate parent introduced the WealthBuilder
stock option program. Under this program, all employees meeting certain
requirements are granted Citigroup stock options.
F-17
<PAGE> 90
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 1998, 1997 and 1996.
At December 31, 1998 and 1997, the Company had investments in Tribeca
Investments, L.L.C., an affiliate of the Company in the amounts of $18.3
million and $16.5 million, included in other invested assets.
9. FEDERAL INCOME TAXES ($ in thousands)
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
--------------------------------------------------------- ----------------- ---------------- -----------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
--------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $88,185 $109,575 $39,582
Statutory Tax Rate 35% 35% 35%
--------------------------------------------------------- ----------------- ---------------- -----------------
Expected Federal Income Taxes 30,865 38,351 13,854
Tax Effect of:
Non-taxable investment income (20) (24) (15)
Other, net (145) (124) (48)
--------------------------------------------------------- ----------------- ---------------- -----------------
Federal Income Taxes $30,700 $38,203 $13,791
========================================================= ================= ================ =================
Effective Tax Rate 35% 35% 35%
--------------------------------------------------------- ----------------- ---------------- -----------------
COMPOSITION OF FEDERAL INCOME TAXES 1998 1998 1996
---- ---- ----
Current:
United States $18,794 $33,805 $29,435
Foreign 123 54 21
--------------------------------------------------------- ----------------- ---------------- -----------------
Total 18,917 33,859 29,456
--------------------------------------------------------- ----------------- ---------------- -----------------
Deferred:
United States 11,783 4,344 (15,665)
--------------------------------------------------------- ----------------- ---------------- -----------------
Federal Income Taxes $30,700 $38,203 $13,791
========================================================= ================= ================ =================
</TABLE>
F-18
<PAGE> 91
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax assets at December 31, 1998 and 1997 were comprised of
the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
---- ----
--------------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $121,150 $100,969
Other 2,810 2,571
--------------------------------------------------------------------- ---------------- --------------
Total 123,960 103,540
--------------------------------------------------------------------- ---------------- --------------
Deferred Tax Liabilities:
Investments, net 56,103 42,933
Deferred acquisition costs and value of insurance in force 51,993 23,650
Other 1,399 1,226
--------------------------------------------------------------------- ---------------- --------------
Total 109,495 67,809
--------------------------------------------------------------------- ---------------- --------------
Net Deferred Tax Asset Before Valuation Allowance 14,465 35,731
Valuation Allowance for Deferred Tax Assets (2,070) (2,070)
--------------------------------------------------------------------- ---------------- --------------
Net Deferred Tax Asset After Valuation Allowance $12,395 $33,661
--------------------------------------------------------------------- ---------------- --------------
</TABLE>
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.
The $2.1 million valuation allowance is sufficient to cover any capital
losses on investments that may exceed the capital gains able to be
generated in the life insurance group's consolidated federal income tax
return based upon management's best estimate of the character of the
reversing temporary differences. Reversal of the valuation allowance is
contingent upon the recognition of future capital gains or a change in
circumstances that causes the recognition of the benefits to become more
likely than not. There was no change in the valuation allowance during
1998. The initial recognition of any benefit provided by the reversal of
the valuation allowance will be recognized by reducing goodwill.
F-19
<PAGE> 92
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
In management's judgment, the $12.4 million "net deferred tax asset after
valuation allowance" as of December 31, 1998, is fully recoverable against
expected future years' taxable ordinary income and capital gains. At
December 31, 1998, 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 is
approximately $2 million. Income taxes are not provided for on this amount
because under current U.S. tax rules such taxes will become payable only to
the extent such amounts are distributed as a dividend to exceed limits
prescribed by federal law. Distributions are not contemplated from this
account. At current rates the maximum amount of such tax would be
approximately $700 thousand.
10. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------- --------------- --------------- --------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
-------------------------------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $130,825 $120,900 $113,296
Joint venture and partnership income 22,107 32,336 19,775
Mortgage loans 15,969 14,905 18,278
Other 3,322 2,284 4,113
-------------------------------------------------------------- --------------- --------------- --------------
172,223 170,425 155,462
-------------------------------------------------------------- --------------- --------------- --------------
Investment expenses 1,220 1,772 4,136
-------------------------------------------------------------- --------------- --------------- --------------
Net investment income $171,003 $168,653 $151,326
-------------------------------------------------------------- --------------- --------------- --------------
</TABLE>
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------- --------------- --------------- ---------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
---------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $15,620 $29,236 $(11,491)
Equity securities 1,819 8,385 4,613
Mortgage loans 623 (8) 1,979
Real estate held for sale - 2,164 (73)
Other 431 5,094 (4,641)
---------------------------------------------------------------- --------------- --------------- ---------------
Total Realized Investment Gains (Losses) $18,493 $44,871 $(9,613)
---------------------------------------------------------------- --------------- --------------- ---------------
</TABLE>
F-20
<PAGE> 93
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are included as
accumulated other changes in equity from non-owner sources in shareholder's
equity were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------- --------------- --------------- ---------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
---------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $24,336 $34,451 $(23,953)
Equity securities (338) (2,394) (746)
Other 3,098 23,975 22,431
---------------------------------------------------------------- --------------- --------------- ---------------
Total Unrealized Investment Gains (Losses) 27,096 56,032 (2,268)
Related taxes 9,484 19,611 (794)
---------------------------------------------------------------- --------------- --------------- ---------------
Change in unrealized investment gains (losses) 17,612 36,421 (1,474)
Balance beginning of year 70,277 33,856 35,330
---------------------------------------------------------------- --------------- --------------- ---------------
Balance End of Year $87,889 $70,277 $33,856
---------------------------------------------------------------- --------------- --------------- ---------------
</TABLE>
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $1.1 billion, $.9 billion and $1.0 billion in 1998, 1997 and 1996,
respectively. Gross gains of $32.6 million, $38.1 million and $8.4 million
and gross losses of $17.0 million, $8.9 million and $19.9 million in 1998,
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 $427.0
million and $485.3 million at December 31, 1998 and 1997, respectively.
F-21
<PAGE> 94
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair values of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
------------------------------------------------- ---------------- --------------- ---------------- ---------------
DECEMBER 31, 1998 GROSS GROSS
($ in thousands) AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAINS LOSSES VALUE
------------------------------------------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $220,105 $ 11,571 $(193) $231,483
U.S. Treasury securities and obligations
of U.S. Government and government agencies
and authorities 289,376 53,782 (274) 342,884
Obligations of states and political
subdivisions 28,749 994 (17) 29,726
Debt securities issued by foreign
governments 40,786 2,966 (375) 43,377
All other corporate bonds 1,124,298 75,870 (13,000) 1,187,168
Redeemable preferred stock 4,033 119 (109) 4,043
------------------------------------------------- ---------------- --------------- ---------------- ---------------
Total Available For Sale $1,707,347 $145,302 $(13,968) $1,838,681
------------------------------------------------- ---------------- --------------- ---------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 GROSS GROSS
($ in thousands) AMORTIZED COST UNREALIZED UNREALIZED FAIR
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) $1,678,120
------------------------------------------------- ---------------- --------------- ---------------- ---------------
</TABLE>
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1998, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
F-22
<PAGE> 95
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------- ------------------ ------------------
($ in thousands) AMORTIZED FAIR
COST VALUE
----------------------------------------------------- ------------------ ------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 21,149 $ 21,655
Due after 1 year through 5 years 249,251 256,032
Due after 5 years through 10 years 356,358 379,061
Due after 10 years 860,484 950,450
----------------------------------------------------- ------------------ ------------------
1,487,242 1,607,198
----------------------------------------------------- ------------------ ------------------
Mortgage-backed securities 220,105 231,483
----------------------------------------------------- ------------------ ------------------
Total Maturity $1,707,347 $1,838,681
----------------------------------------------------- ------------------ ------------------
</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.
At December 31, 1998 and 1997, the Company held CMOs with a market value of
$181.6 million and $122.8 million, respectively. The Company's CMO holdings
were 62.9% and 97.5% collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1998 and 1997, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE
($ in thousands) COST GAINS LOSSES
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1998
Common stocks $ 5,185 $889 $(292) $5,782
Non-redeemable preferred stocks 20,641 707 (445) 20,903
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
Total Equity Securities $25,826 $1,596 $(737) $26,685
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
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
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
</TABLE>
F-23
<PAGE> 96
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Proceeds from sales of equity securities were $6.0 million, $12.4 million
and $12.8 million in 1998, 1997 and 1996, respectively. Gross gains of $2.6
million, $8.6 million and $4.7 million and gross losses of $815 thousand,
$172 thousand and $155 thousand in 1998, 1997 and 1996, respectively were
realized on those sales.
Mortgage Loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure and loans modified at interest rates below market.
At December 31, 1998 and 1997, the Company's mortgage loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------- ------------- --------------
($ in thousands) 1998 1997
- ----------------------------------------------------- ------------- --------------
<S> <C> <C>
Current Mortgage Loans $170,635 $160,247
Underperforming Mortgage Loans 3,930 -
- ----------------------------------------------------- ------------- --------------
Total 174,565 160,247
- ----------------------------------------------------- ------------- --------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------- -------
($ in thousands)
<S> <C>
Past Maturity $ 129
1999 11,649
2000 11,309
2001 8,697
2002 16,272
2003 4,998
Thereafter 121,511
- ----------------------------------------------------- -------
Total 174,565
===================================================== =======
</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,
which is included in other invested assets, totaled $62.4 million and $54.8
million at December 31, 1998 and 1997, respectively.
F-24
<PAGE> 97
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
The Company's significant individual investment concentrations included
$53.3 million and $32.7 million in Bellsouth Corp. at December 31, 1998 and
1997, respectively. In addition, there was an investment of $50.8 million
in the State of Israel in 1997.
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
$102.4 million and $76.7 million at December 31, 1998 and 1997,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment grade
bonds.
The Company's three largest industry concentrations of investments,
primarily fixed maturities, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------- ----------- -----------
($ in thousands) 1998 1997
-------------------------------------------- ----------- -----------
<S> <C> <C>
Banking $160,713 $130,966
Transportation 155,116 138,903
Electric utilities 109,027 106,724
-------------------------------------------- ----------- -----------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
Concentrations of mortgage loans by property type at December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------- ----------- -----------
($ in thousands) 1998 1997
-------------------------------------------- ----------- -----------
<S> <C> <C>
Agricultural $78,579 $62,463
Office 51,813 47,453
-------------------------------------------- ----------- -----------
</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
There were no investments included in the balance sheets that were
non-income producing for the preceding 12 months.
F-25
<PAGE> 98
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Restructured Investments
Mortgage loan and debt securities which were restructured at below market
terms at December 31, 1998 and 1997 were insignificant. The new terms of
restructured investments 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, 1998, the Company had $1.9 billion of life and annuity
deposit funds and reserves. Of that total, $1.5 billion were not subject to
discretionary withdrawal based on contract terms. The remaining $.4 billion
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 billion of liabilities that are
surrenderable with market value adjustments. An additional $.2 billion of
life insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 4.6%. The
life insurance risks would have to be underwritten again if transferred to
another carrier, which is considered a significant deterrent for long-term
policyholders. Insurance liabilities that are surrendered or withdrawn from
the Company are reduced by outstanding policy loans and related accrued
interest prior to payout.
13. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used in)
operating activities:
<TABLE>
<CAPTION>
------------------------------------------------------------------ ------------- ------------- -------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in thousands)
------------------------------------------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
Net Income From Continuing Operations $57,485 $71,372 $ 25,791
Adjustments to reconcile net income to cash provided by
operating activities:
Realized (gains) losses (18,493) (44,871) 9,613
Deferred federal income taxes 11,783 4,344 (15,665)
Amortization of deferred policy acquisition costs and
value of insurance in force 17,031 6,036 3,286
Additions to deferred policy acquisition costs (120,278) (56,975) (20,753)
Investment income accrued (3,821) 908 1,308
Premium balances receivable (6,786) (3,450) (3,561)
Insurance reserves and accrued expenses (8,431) 3,981 (16,459)
Other (3,881) 26,673 (13,419)
------------------------------------------------------------------ ------------- ------------- -------------
Net cash provided by (used in) operations $(75,391) $8,018 $(29,859)
------------------------------------------------------------------ ------------- ------------- -------------
</TABLE>
14. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing and financing activities for
1998, 1997 and 1996.
F-26
<PAGE> 99
MARKETLIFE
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
HARTFORD, CONNECTICUT
L-12539 May, 1999
<PAGE> 100
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
Sections 33-770 et seq, inclusive of the Connecticut General Statutes ("C.G.S.")
regarding indemnification of directors and officers of Connecticut corporations
provides in general that Connecticut corporations shall indemnify their
officers, directors and certain other defined individuals against judgments,
fines, penalties, amounts paid in settlement and reasonable expenses actually
incurred in connection with proceedings against the corporation. The
corporation's obligation to provide such indemnification generally does not
apply unless (1) the individual is wholly successful on the merits in the
defense of any such proceeding; or (2) a determination is made (by persons
specified in the statute) that the individual acted in good faith and in the
best interests of the corporation and in all other cases, his conduct was at
least not opposed to the best interests of the corporation, and in a criminal
case he had no reasonable cause to believe his conduct was unlawful; or (3) the
court, upon application by the individual, determines in view of all of the
circumstances that such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine. With respect
to proceedings brought by or in the right of the corporation, the statute
provides that the corporation shall indemnify its officers, directors and
certain other defined individuals, against reasonable expenses actually incurred
by them in connection with such proceedings, subject to certain limitations.
Citigroup Inc. also provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrant.
This insurance provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to certain
exceptions, liabilities under the federal securities laws.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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> 101
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 KPMG LLP, Independent Certified Public Accountants.
D. Powers of Attorney (See Exhibit 12 below)
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 and Principal Underwriting Agreement among the
Registrant, The Travelers Life and Annuity Company and CFBDS, Inc.
(Incorporated herein by reference to Exhibit 3(a) to the Registration
Statement on Form N-4, File No. 333-60215, filed November 9, 1998.)
3(b). Selling Agreement. (Incorporated herein by reference to Exhibit 3(b)
to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-4, File No. 333-60215, filed November 9, 1998.)
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> 102
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. (Incorporated herein
by reference to Exhibit 10 the Post-Effective Amendment No. 2 to the
Registration Statement on form S-6 filed April 24, 1998.)
11. Opinion of Counsel regarding the legality of securities being
registered. (Incorporated herein by reference to Exhibit 11 the
Post-Effective Amendment No. 2 to the Registration Statement on form
S-6 filed April 24, 1998.)
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.)
12(c) Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for J. Eric Daniels and Jay S. Benet.
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> 103
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 26th day of April, 1999.
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
(Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
By: *JAY S. BENET
------------------------------------------------
Jay S. Benet
Senior Vice President, Chief Financial Officer,
Chief Accounting Officer and Controller
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the 26th day of April 1999.
<TABLE>
<CAPTION>
<S> <C>
*MICHAEL A. CARPENTER Director, Chairman of the Board
- ----------------------------------
(Michael A. Carpenter)
*J. ERIC DANIELS Director, President and Chief Executive Officer
- ----------------------------------
(J. Eric Daniels)
*JAY S. BENET Director, Senior Vice President, Chief Financial
- ---------------------------------- Officer, Chief Accounting Officer and Controller
(Jay S. Benet)
*GEORGE C. KOKULIS Director
- ----------------------------------
(George C. Kokulis)
*ROBERT I. LIPP Director
- ----------------------------------
(Robert I. Lipp)
*KATHERINE M. SULLIVAN Director, Senior Vice President
- ---------------------------------- and General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ----------------------------------
(Marc P. Weill)
*By: /s/Ernest J. Wright, Attorney-in-Fact
</TABLE>
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
Attachment
or
Exhibit
No. Description Method of Filing
--- ----------- ----------------
<S> <C> <C>
ATTACHMENTS::
B. Consent and Actuarial Opinion pertaining to the illustrations Electronically
contained in the Prospectus.
C. Consent of KPMG LLP, Independent Certified Public Accountants. Electronically
Public Accountants.
Exhibits:
12(c) Powers of Attorney authorizing Ernest J. Wright or Kathleen A. Electronically
McGah as signatory for J. Eric Daniels and Jay S. Benet.
</TABLE>
<PAGE> 1
ATTACHMENT B
Re: Travelers' MarketLife (File No. 33-63927)
Dear Sir or Madam:
In my capacity as Actuary of The Travelers Life and Annuity Company, I have
provided actuarial advice concerning Travelers' MarketLife product. I also
provided actuarial advice concerning the preparation of the Registration
Statement on Form S-6, File No. 33-63927 (the "Registration Statement") for
filing with the Securities and Exchange Commission under the Securities Act of
1933 in connection with the Policy.
In my opinion the illustrations of benefits under the Policies included in the
prospectus under the caption "Illustrations of Death Benefit, Cash Values and
Cash Surrender Values" are, based on the assumptions stated in the
illustrations, consistent with the provisions of the Policies. Also, in my
opinion the age selected in the illustrations is representative of the manner in
which the Policies operate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/Mahir Dugentas, ASA, MAAA
Pricing Actuary
Product Development
April 20, 1999
<PAGE> 1
ATTACHMENT C
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Life and Annuity Company
We consent to the use of our reports included herein and to the reference to our
firm as experts under the heading "Independent Accountants" in the prospectus.
KPMG LLP
Hartford, Connecticut
April 26, 1999
<PAGE> 1
EXHIBIT 12(c)
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, J. ERIC DANIELS of Farmington, Connecticut, Director, President
and Chief Executive Officer of The Travelers Life and Annuity Company (hereafter
the "Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT,
Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said
Company, or either one of them acting alone, my true and lawful
attorney-in-fact, for me, and in my name, place and stead, to sign registration
statements on behalf of said Company on Form S-6 or other appropriate form under
the Securities Act of 1933 for The Travelers Fund UL II for Variable Life
Insurance, a separate account of the Company dedicated specifically to the
funding of variable life insurance contracts to be offered by said Company, and
further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January 1999.
/s/ J. Eric Daniels
Director, President and Chief Executive Officer
The Travelers Life and Annuity Company
<PAGE> 2
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, JAY S. BENET of West Hartford, Connecticut, Director, Senior
Vice President and Chief Financial Officer, Chief Accounting Officer and
Controller of The Travelers Life and Annuity Company (hereafter the "Company"),
do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said
Company, and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either
one of them acting alone, my true and lawful attorney-in-fact, for me, and in my
name, place and stead, to sign registration statements on behalf of said Company
on Form S-6 or other appropriate form under the Securities Act of 1933 for The
Travelers Fund UL II for Variable Life Insurance, a separate account of the
Company dedicated specifically to the funding of variable life insurance
contracts to be offered by said Company, and further, to sign any and all
amendments thereto, including post-effective amendments, that may be filed by
the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January 1999.
/s/ Jay S. Benet
Director, Senior Vice President
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Life and Annuity Company
