<PAGE> 1
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> 2
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> 3
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> 4
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> 5
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund UL II for Variable Life Insurance ("Fund UL II") is a
separate account of The Travelers Life and Annuity Company ("Travelers
Life"), a wholly owned subsidiary of The Travelers Insurance Company ("The
Travelers"), an indirect wholly owned subsidiary of 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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
Independent Auditors
KPMG LLP
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Fund UL II for Variable Life Insurance
or Fund UL II's underlying funds. It should not be used in connection with any
offer except in conjunction with the Prospectus for The Travelers Fund UL II for
Variable Life Insurance product(s) offered by The Travelers Life and Annuity
Company and the Prospectuses for the underlying funds, which collectively
contain all pertinent information, including the applicable sales commissions.
