<PAGE> 1
Registration Statement No. 333-69773
811-07411
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
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, 2000 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 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 Company; The Travelers Fund UL for Variable
Life Insurance, The Investment Options; The Policy; Transfers of Cash
Value; The Separate Account and Valuation; 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
14 The Policy
15 Prospectus Summary; Applying Premium Payments
16 The Investment Options; Applying Premium Payments
17 Prospectus Summary; Right to Cancel; The Separate Account and Valuation;
Policy Loans; Exchange
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 Company
26 Not applicable
27 The Company
28 The Company; Management
29 The Company
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 The Company; Distribution
36 Not applicable
37 Not applicable
38 Distribution
39 The Company; Distribution
40 Not applicable
41 The Company; Distribution
42 Not applicable
43 Not applicable
44 Applying Premium Payments; Accumulation Unit Values
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
45 Not applicable
46 The Separate Account and Valuation; Access to Cash Values
47 The Investment Options
48 Not applicable
49 Not applicable
50 Not applicable
51 Prospectus Summary; The Company; The Policy; Death
Benefits and Lapse and Reinstatement
52 The Investment Options
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 VARIABLE SURVIVORSHIP LIFE
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
<TABLE>
<S> <C>
PROSPECTUS
MAY 1, 2000
</TABLE>
The Travelers Life and Annuity Company, One Tower Square, Hartford, Connecticut
06183 X Telephone: (800) 334-4298
<PAGE> 5
PROSPECTUS
This Prospectus describes Travelers Variable Survivorship Life, a variable
universal (flexible premium) life insurance Policy (the "Policy") offered by The
Travelers Life and Annuity Company (the "Company"). The Policy is designed to
insure two individuals. We will pay the beneficiary the death benefit upon
second death of the two named Insureds. The Policy Owners ("you") choose the
amount of life insurance coverage desired with a minimum Stated Amount of
$100,000. You direct the net premium payment 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).
The Policy has no guaranteed minimum Cash Value. 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 this 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 and loan interest due but not paid in cash (subject to the Grace
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.
If 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 HAVE APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS COMPLETE OR TRUTHFUL. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE LIFE INSURANCE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED
OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
THE DATE OF THIS PROSPECTUS IS MAY 1, 2000.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary of Special Terms............. 3
Prospectus Summary.................... 5
General Description................... 8
The Application..................... 9
How the Policy Works.................. 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................. 15
Policy Loans........................ 15
Consequences..................... 15
Policy Surrenders................... 15
Full Surrenders.................. 15
Partial Withdrawals.............. 15
Death Benefit......................... 16
Option 1............................ 16
Option 2............................ 17
Payment of Proceeds................. 17
Payment Options..................... 17
Maturity Benefits..................... 18
Maturity Extension Rider............ 18
Coverage Extension Rider............ 18
Charges and Deductions................ 19
Charges Against Premium............. 19
Front-End Sales Charge........... 19
State Premium Tax Charge......... 19
Monthly Deduction Amount............ 20
Cost of Insurance Charge......... 20
Policy Administrative Expense
Charge......................... 20
Charges for Supplemental Benefit
Provisions..................... 20
Charges Against the Separate
Account.......................... 20
Mortality and Expense Risk
Charge......................... 20
Administrative Expense Charge.... 20
Underlying Fund Expenses............ 20
Surrender Charges................... 20
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................. 22
General............................. 22
Changes in Stated Amount............ 23
Changes in Death Benefit Option..... 23
Additional Policy Provisions.......... 23
Assignment.......................... 23
Limit on Right to Contest and
Suicide Exclusion................ 23
Misstatement as to Sex and Age...... 24
Voting Rights....................... 24
Disregard of Voting Instructions.... 24
Other Matters......................... 24
Statements to Policy Owners......... 24
Suspension of Valuation............. 25
Dividends........................... 25
Mixed and Shared Funding............ 25
Distribution........................ 25
Legal Proceedings and Opinion....... 25
Experts............................. 25
Federal Tax Considerations............ 26
The Company........................... 29
IMSA................................ 30
Management............................ 30
Directors of The Travelers Life and
Annuity Company.................. 30
Senior Officers of The Travelers
Life and Annuity Company......... 31
Example of Policy Charges............. 31
Illustrations......................... 31
Appendix A (Performance
Information)........................ A-1
Financial Statements of the Separate
Account
Financial Statements of the Company
</TABLE>
2
<PAGE> 7
GLOSSARY OF SPECIAL TERMS
- --------------------------------------------------------------------------------
ACCUMULATION UNIT -- a standard of measurement used to calculate the values
allocated to the Investment Options.
BENEFICIARY(IES) -- the person(s) named to receive the benefits of this Policy
at the last 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.
DEATH BENEFIT -- the amount payable upon the death of both Insureds.
DEDUCTION DATE -- the day in each Policy Month on which the Monthly Deduction
Amount is deducted from the Policy's Cash Value.
INSUREDS -- the two people on whose lives the Policy is issued.
INVESTMENT OPTIONS -- the segments of the Separate Account to which you may
allocate premiums or Cash Value. Each investment option invests directly in a
corresponding Underlying Fund.
ISSUE DATE -- the date on which a new Policy is issued by the Company for
delivery to the Policy Owner. Policies which replace existing company contracts
will maintain the issue date of the original policy.
LAPSE PROTECTION GUARANTEE RIDER -- a rider which provides that the Policy will
not lapse during the first ten 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 younger Insured
is age 100.
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 LAPSE PROTECTION PREMIUM -- an amount shown on the Policy Summary page,
the cumulative amount of which must be paid during the first ten 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, minus the deduction of any
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(S) (YOU, YOUR OR OWNER) -- the person(s) having rights to benefits
under the Policy during the lifetime of the Insureds; the Policy Owner(s) may or
may not be the Insured(s).
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.
UNDERLYING FUND -- the underlying mutual fund(s) that correspond to each
Investment Option. Each Investment Option invests directly in an Underlying
Fund.
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 and the
Company is open for business. The value of Accumulation Units will be determined
as of 4:00 p.m. Eastern time.
VALUATION PERIOD -- the period between the close of business on successive
Valuation Dates.
4
<PAGE> 9
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
WHAT IS VARIABLE SURVIVORSHIP LIFE INSURANCE?
This Flexible Premium Variable Survivorship Life Insurance Policy is designed to
provide insurance protection on the lives of two Insureds and to build Cash
Value. Like other survivorship life insurance, it provides an income-tax free
death benefit that is payable to the Beneficiary upon the second death of the
two Insureds. 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 will change daily,
depending on investment return. No minimum amount is guaranteed as in a
traditional life insurance policy.
INVESTMENT OPTIONS: You have the ability to choose from a wide variety of
well-known Investment Options. The investment options invest directly in the
Funds. These professionally managed stock, bond and money market funds cover a
broad spectrum of investment objectives and risk tolerance. The following
Investment Options (subject to state availability) are available currently:
<TABLE>
<S> <C>
Capital Appreciation Fund TRAVELERS SERIES FUND INC.
Dreyfus Stock Index Fund AIM Capital Appreciation Portfolio
Managed Assets Trust Alliance Growth Portfolio
Money Market Portfolio MFS Total Return Portfolio
Putnam Diversified Income Portfolio
DEUTSCHE ASSET MANAGEMENT VIT FUNDS(1) Smith Barney High Income Portfolio
EAFE Equity Index Fund Smith Barney Large Capitalization Growth Portfolio
Small(R) Cap Index Fund Smith Barney Large Cap Value Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE TRAVELERS SERIES TRUST
PRODUCTS TRUST U.S. Government Securities Portfolio
Templeton Growth Securities Fund -- Class 1 Utilities Portfolio
Zero Coupon Bond Portfolio 2000
GREENWICH STREET SERIES FUND: Zero Coupon Bond Portfolio 2005
Equity Index Portfolio
Total Return Portfolio VARIABLE INSURANCE PRODUCTS FUND (FIDELITY)
Equity Income Portfolio
JANUS ASPEN SERIES Growth Portfolio
Aggressive Growth Portfolio -- Service Shares High Income Portfolio
Global Technology Portfolio -- Service Shares
Worldwide Growth Portfolio -- Service Shares VARIABLE INSURANCE PRODUCTS FUND II(FIDELITY)
Asset Manager Portfolio
</TABLE>
(1) Formerly BT Insurance Funds Trust
Additional Investment Options 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, with proper authorization, 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.
5
<PAGE> 10
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.
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 Amount Insured will equal the greater of
the Stated Amount or the Minimum Amount Insured.
- VARIABLE OPTION (OPTION 2): the Amount Insured will equal the greater of
the Stated Amount of the Policy plus the Cash Value or the Minimum Amount
Insured.
POLICY VALUES: As with other types of insurance policies, this Policy can
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 up to 100% of your Policy's Cash
Surrender Value. After year 15, the Company offers zero net cost loans.
(See "Policy Loans" for loan impact on coverage and policy values.)
You may cancel all or a portion of your Policy while either of the Insureds are
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 ten Policy Years, regardless of the performance of the
Investment Options that you select. You must pay at least the cumulative Monthly
Lapse Protection Premium displayed on your Policy's Summary page. Any loans or
partial surrenders are deducted from premium paid to determine if the Lapse
Protection Premium Requirement has been met.
GRACE PERIOD: If the Cash Surrender Value of your Policy becomes less than the
amount needed to pay any loan interest due but not paid in cash or 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 to cover the Monthly Deduction
Amount and any loan interest due. 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 older 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 charges, which compensate the
Company for administering and distributing the Policy, as well as paying Policy
benefits and assuming related
6
<PAGE> 11
risks. These charges are summarized below, and explained in detail under
"Charges and Deductions."
POLICY CHARGES:
- SALES AND PREMIUM TAX CHARGES -- A sales charge and a premium tax charge
are applied to each premium based on the size of your Policy. The charges
are banded by Stated Amount as follows:
<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 to $4,999,999 0% 2.5% 2.5%
$5,000,000 and over 0% 0% 0%
</TABLE>
This charge pays some distribution expenses and state and local premium
taxes. Where prohibited by state law, premium taxes will not be charged.
- MONTHLY DEDUCTION -- deductions taken from the value of your Policy each
month to cover cost of insurance charges, administrative expense charges
and charges for optional benefits.
- SURRENDER CHARGE -- applies if you surrender your Policy for all or a
portion of its Cash Value or the Policy lapses, during the first 15 years
and for 15 years after an increase in coverage. The surrender charge
consists of a per thousand of stated amount charge.
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 0.80%
for the first fifteen years and 0.35% thereafter.
- ADMINISTRATIVE EXPENSE CHARGE -- applies to the assets of the Investment
Options on a daily basis which equals an annual rate of 0.10% 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.
These are summarized in the chart below.
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEE EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
FUND NAME REIMBURSEMENT) 12b-1 FEES REIMBURSEMENT) REIMBURSEMENT)
<S> <C> <C> <C> <C>
Capital Appreciation Fund 0.75% 0.08% 0.83%
- --------------------------------------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------------------------------------
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
- --------------------------------------------------------------------------------------------------------------
EAFE Equity Index Fund(2) 0.26% 0.39% 0.65%
- --------------------------------------------------------------------------------------------------------------
Small Cap Index Fund(2) 0.13% 0.32% 0.45%
- --------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- --------------------------------------------------------------------------------------------------------------
Aggressive Growth Portfolio -- Service
Shares(3) 0.65% 0.25% 0.02% 0.92%
- --------------------------------------------------------------------------------------------------------------
Global Technology Portfolio -- Service
Shares(3) 0.65% 0.25% 0.13% 1.03%
- --------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio -- Service Shares(3) 0.65% 0.25% 0.05% 0.95%
- --------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST
- --------------------------------------------------------------------------------------------------------------
Templeton Growth Securities Fund -- Class(5) 0.83% 0.05% 0.88%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEE EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
FUND NAME REIMBURSEMENT) 12b-1 FEES REIMBURSEMENT) REIMBURSEMENT)
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND
- --------------------------------------------------------------------------------------------------------------
Equity Income Portfolio(4) 0.48% 0.08% 0.56%
- --------------------------------------------------------------------------------------------------------------
Growth Portfolio(4) 0.58% 0.07% 0.65%
- --------------------------------------------------------------------------------------------------------------
High Income Portfolio 0.58% 0.11% 0.69%
- --------------------------------------------------------------------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND II
- --------------------------------------------------------------------------------------------------------------
Asset Manager Portfolio(4) 0.53% 0.09% 0.62%
- --------------------------------------------------------------------------------------------------------------
GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------------------------------------
Equity Index Portfolio(7) 0.21% 0.07% 0.28%
- --------------------------------------------------------------------------------------------------------------
Total Return Portfolio(8) 0.75% 0.04% 0.79%
- --------------------------------------------------------------------------------------------------------------
TRAVELERS SERIES FUND INC.
- --------------------------------------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio(6) 0.80% 0.04% 0.84%
- --------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio(6) 0.80% 0.02% 0.82%
- --------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio(6) 0.80% 0.04% 0.84%
- --------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio(6) 0.75% 0.08% 0.83%
- --------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio(6) 0.60% 0.06% 0.66%
- --------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio(6) 0.65% 0.02% 0.67%
- --------------------------------------------------------------------------------------------------------------
Smith Barney Large Capitalization Growth(6) 0.75% 0.11% 0.86%
- --------------------------------------------------------------------------------------------------------------
TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 0.32% 0.16% 0.48%
- --------------------------------------------------------------------------------------------------------------
Utilities Portfolio 0.65% 0.23% 0.88%
- --------------------------------------------------------------------------------------------------------------
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 0.50% for the Travelers Money Market Portfolio.
(2) These fees reflect a voluntary expense reimbursement arrangement whereby the
Adviser has agreed to reimburse the funds. Without such arrangement, the
Management Fee and Other Expenses for the Deutsche VIT EAFE Equity Index
Fund and Small Cap Index Fund would have been 0.45% and 0.69%, and 0.35% and
0.83%, respectively. Effective April 2000, the Trust's name was changed from
BT Insurance Funds Trust to Deutsche Asset Management VIT Funds.
(3) Expenses are based on the estimated expenses that the new Service Shares
Class of each Portfolio expects to incur in its initial fiscal year. All
expenses are shown without the effect of offset arrangements.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds,
or FMR on behalf of certain funds, custodian credits realized as a result of
uninvested cash balances were used to reduce a portion of each applicable
fund's expenses. Without these reductions, the total operating expenses
presented in the table would have been 0.57% for Equity-Income Portfolio,
0.66% for Growth Portfolio, and 0.63% for Asset Manager Portfolio.
(5) On February 8, 2000, a merger and reorganization was approved to merge the
assets of Templeton Stock Fund into Templeton Global Growth Fund (which then
changed its name to Templeton Growth Securities Fund), effective May 1,
2000. The above table shows restated total expenses based upon the fees and
assets of Templeton Global Growth Fund as of December 31, 1999, and not the
assets of the combined fund on May 1, 2000. However if the table reflected
the combined assets, the fund's expenses after May 1, 2000 would be
estimated as: Management Fees 0.80%, Other Expenses 0.05% and Total Fund
Operating Expenses 0.85%. The Fund's administration fee is paid indirectly
through the management fee.
(6) Expenses are as of October 31, 1999 (the Fund's fiscal year end). There were
no fees waived or expenses reimbursed for these funds in 1999.
(7) The Portfolio Management Fee for Equity Index Portfolio includes 0.06% for
fund administration.
(8) The Portfolio Management Fee for the Appreciation Portfolio, the Total
Return, and the Diversified Strategic Income Portfolio includes 0.20% for
fund administration.
GENERAL DESCRIPTION
- --------------------------------------------------------------------------------
This prospectus describes a flexible premium variable survivorship life
insurance policy offered by The Travelers Life and Annuity Company. It provides
life insurance protection on two lives (the
8
<PAGE> 13
insureds), and pays policy proceeds when the last of the two insureds dies while
the policy is in effect. 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 stated 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 with information about the two proposed insureds. The insureds must
provide evidence of insurability. On the application, you will also indicate:
- the amount of insurance desired (the "stated amount"); minimum of
$100,000
- 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.
If your Policy is in effect when the last of the two insureds dies, we will pay
your beneficiary the death benefit plus any additional rider death benefit (less
any outstanding loan account balance and any monthly deduction amount due but
Not paid). Your Policy will stay in effect as long as the Policy's cash
surrender value can pay the Policy's monthly charges and any loan interest due
but not paid in cash.
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.
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.
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.
9
<PAGE> 14
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
- --------------------------------------------------------------------------------
The Investment Options currently available under Fund UL II are listed below.
There is no assurance that an Investment Option will achieve its stated
objectives. We may, add, withdraw or substitute Investment Options from time to
time. Any changes will comply with applicable state and federal laws. We would
notify you before making such a change. For more detailed information on the
investment advisers and their services and fees, please refer to the Investment
Options prospectuses which are included with and must accompany this prospectus.
In addition, Travelers has entered into agreements with either the investment
adviser or distributor of certain of the underlying funds in which the adviser
or distributor pays us a fee for providing administrative services, which fee
may vary. The fee is ordinarily based upon an annual percentage of the average
aggregate net amount invested in the underlying funds on behalf of the Separate
Account. Please read carefully the complete risk disclosure in each Portfolio's
prospectus before investing.
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Capital Appreciation Fund Seeks growth of capital through the use of Travelers Asset Management
common stocks. Income is not an objective. International Company LLC
The Fund invests principally in common ("TAMIC")
stocks of small to large companies which Subadviser: Janus Capital
are expected to experience wide
fluctuations in price in both rising and
declining markets.
Dreyfus Stock Index Fund Seeks to provide investment results that Mellon Equity
correspond to the price and yield perform-
ance of publicly traded common stocks in
the aggregate, as represented by the Stan-
dard & Poor's 500 Composite Stock Price
Index.
Managed Assets Trust Seeks high total investment return through TAMIC
a fully managed investment policy in a Subadviser: Travelers Invest-
portfolio of equity, debt and convertible ment Management Company
securities. ("TIMCO")
Money Market Portfolio Seeks high current income from short-term TAMIC
money market instruments while preserving
capital and maintaining a high degree of
liquidity.
DEUTSCHE ASSET
MANAGEMENT VIT FUNDS
EAFE Equity Index Fund Seeks to replicate, before deduction of Bankers Trust Global Invest-
expenses, the total return performance of ment Management
the EAFE index.
Small Cap Index Fund Seeks to replicate, before deduction of Bankers Trust Global Invest-
expenses, the total return performance of ment Management
the Russell 2000 index.
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS
TRUST
Templeton Growth Securities Seeks capital growth by investing Templeton Global Advisers
Fund -- Class 1 primarily in common stocks issued by Limited
companies, large and small, in various
nations throughout the world.
</TABLE>
10
<PAGE> 15
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
GREENWICH STREET
SERIES FUND
Total Return Portfolio An equity portfolio that seeks to provide SSB Citi Fund Management LLC
total return, consisting of long-term ("SSB Citi")
capital appreciation and income. The
Portfolio will invest primarily in a
diversified portfolio of dividend-paying
common stocks.
Equity Index Portfolio Seeks to replicate, before deduction of TIMCO
expenses, the total return performance of
the S&P 500 index.
JANUS ASPEN SERIES
Aggressive Growth Seeks long-term capital growth by Janus Capital
Portfolio -- Service Shares investing primarily in common stocks
selected for their growth potential,
normally investing at least 50% in the
equity assets of medium-sized companies.
Global Technology Seeks long-term capital growth by Janus Capital
Portfolio -- Service Shares investing primarily in equity securities
of U.S. and foreign companies, normally
investing at least 65% of its total assets
in companies likely to benefit
significantly from advances in technology.
Worldwide Growth Seeks growth of capital in a manner Janus Capital
Portfolio -- Service Shares consistent with preservation of capital by
investing primarily in common stocks of
companies of any size throughout the
world.
TRAVELERS SERIES FUND INC.
AIM Capital Appreciation Seeks capital appreciation by investing Travelers Investment Adviser
Portfolio principally in common stock, with emphasis ("TIA")
on medium-sized and smaller emerging Subadviser: AIM Capital Man-
growth companies. agement Inc.
Alliance Growth Portfolio Seeks long-term growth of capital by TIA
investing predominantly in equity Subadviser: Alliance Capital
securities of companies with a favorable Management L.P.
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 Portfolio Seeks to obtain above-average income TIA
(compared to a portfolio entirely invested Subadviser: MFS
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 with TIA
Portfolio preservation of capital by allocating its Subadviser: Putnam Invest-
investments among the following three sec- ment Management, Inc.
tors 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 SSB Citi
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.
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Smith Barney Large Seeks long-term growth of capital by SSB Citi
Capitalization Growth investing in equity securities of
Portfolio companies with large market
capitalizations.
Smith Barney Large Cap Value Seeks current income and long-term growth SSB Citi
Portfolio of income and capital by investing
primarily, but not exclusively, in common
stocks.
TRAVELERS SERIES TRUST
U.S. Government Securities Seeks to select investments from the point TAMIC
Portfolio of view of an investor concerned primarily
with highest credit quality, current
income and total return. The assets of the
U.S. Government Securities Portfolio will
be invested in direct obligations of the
United States, its agencies and
instrumentalities.
Utilities Portfolio Seeks to provide current income by invest- SSB Citi
ing 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 and return as consistent with the preservation
Series 2005) 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.
VARIABLE INSURANCE
PRODUCTS FUND
Equity-Income Portfolio Seeks reasonable income by investing pri- Fidelity Management &
marily in income-producing equity securi- Research Company
ties; in choosing these securities, the ("FMR")
portfolio manager will also consider the
potential for capital appreciation.
Growth Portfolio Seeks capital appreciation by purchasing FMR
common stocks of well-known, established
companies, and small emerging growth com-
panies, 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.
High Income Portfolio Seeks to obtain a high level of current FMR
income by investing primarily in high
yielding, lower-rated, fixed-income
securities, while also considering growth
of capital.
VARIABLE INSURANCE
PRODUCTS FUND II
Asset Manager Portfolio Seeks high total return with reduced risk FMR
over the long-term by allocating its
assets among stocks, bonds and short-term
fixed-income instruments.
</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, we do not currently charge for transfers. We also reserve the
right to restrict transfers by any market timing firm or any other third party
authorized to initiate transfers on behalf of multiple contract owners. We may,
among other things, not accept: 1) the transfer instructions of any agent acting
under a power of attorney on behalf of more than one owner, or 2) the transfer
or exchange instructions of individual owners who have executed pre-authorized
transfer forms which are submitted by market timing firms or other third parties
on behalf of more than one owner. We further reserve the right to limit
transfers that we determine will disadvantage other contract owners.
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
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 described 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 and loan interest due but not paid in cash. If this
happens, we will notify you in writing that if the amount shown in the notice is
not paid within 61 days (the "Grace Period"), the Policy may lapse. The amount
shown will be enough to pay the deduction amount due. The Policy will continue
through
13
<PAGE> 18
the Grace Period, but if no payment is received by us, it will terminate at the
end of the Grace Period. If the last of the two Insureds dies during the Grace
Period, the Death Benefit payable will be reduced by the Monthly Deduction
Amount due plus the amount of any outstanding loan and unpaid loan interest.
(See "Death Benefit," below.)
If the Policy lapses, you may reinstate the Policy by paying the reinstatement
premium (and any applicable charges) stated in the lapse notice. You may request
reinstatement within three years of lapse (unless a different period is required
under applicable state law). Upon reinstatement, the Policy's Cash Value will
equal the Net Premium plus any cash value as of the date of the lapse. In
addition, we reserve the right to require satisfactory evidence of insurability
of both Insureds.
LAPSE PROTECTION GUARANTEE RIDER
You may elect to have a Lapse Protection Guarantee Rider added to the Policy. It
is available only with Death Benefit Option 1 and may not be available in all
jurisdictions. The Rider provides that if, during the first ten Policy Years,
the total premiums paid, less any Loan Account Value or partial surrenders,
equals or exceeds the cumulative Monthly Coverage Protection Premium shown in
the Policy, a Lapse Protection Guarantee will apply. With this rider, the Policy
will not lapse on a monthly deduction day even if the Cash Surrender Value is
not enough to cover the Monthly Deduction Amount due or any loan interest due
but not paid in cash, provided the following monthly deduction day is within the
first ten Policy Years.
The Monthly Coverage Protection Premium will change to reflect any increases you
make to the Stated Amount or changes to supplemental benefit riders under the
Policy. If you make a change, we will send you an updated Monthly Coverage
Protection Premium that must be met until the ten-year period expires. The rider
will be cancelled if you switch to Death Benefit Option 2.
EXCHANGE RIGHTS
Once the Policy is in effect, you may exchange during the first 24 months for a
general account survivorship life insurance policy issued by the Company (or an
affiliated company) on the lives of the Insureds. 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 the Policy Owner,
(2) 45 days of completion of the Policy application, or
(3) 10 days after the Notice of Right to Cancel has been mailed or
delivered to the Applicant whichever is latest
(or later if required by state law).
We will refund the greater of all premium payments paid (less any loan account
value), 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, (3) any fees and other charges imposed
on amounts allocated to the Investment Option(s) and (4) any loan account value.
We will make the refund within seven days after we receive your returned policy.
14
<PAGE> 19
ACCESS TO CASH VALUES
- --------------------------------------------------------------------------------
POLICY LOANS
You may borrow up to 100% of the Policy's Cash Surrender Value. This amount will
be determined on the day we receive the written loan request. The loan request
must be at least $500 (unless state law requires a different minimum). We will
make the loan within seven days of our receipt of the written loan request.
If you have a loan outstanding and request a second loan, we will add the amount
of the outstanding loan to the loan request. We charge interest on the
outstanding amount of the loan(s), and you must pay this interest in advance.
During the first fifteen Policy Years, the full Loan Account Value will be
charged an annual interest rate of 7.4%; thereafter 3.85% will be charged.
We will transfer the amount of the loan from each Investment Option on a pro
rata basis, as of the date the loan is made. We transfer the loan amount to the
Loan Account, and credit the Loan Account with a fixed annual rate of 4% (6% in
New York and Massachusetts). Amounts held in the Loan Account will not be
affected by the investment performance of the Investment Options. As you repay
the loan, we deduct the amount of the loan repayment from the Loan Account and
reallocate the payments among the Investment Options according to your current
instructions. You may repay all or any part of a loan secured by the Policy
while the Policy is still in effect.
CONSEQUENCES. Your Cash Surrender Value is reduced by the amount of any
outstanding loan(s). If a loan is not repaid, it permanently decreases the Cash
Surrender Value, which could cause the Policy to lapse. Additionally, the Death
Benefit payable will be decreased by the value of any outstanding loan. Also,
even if a loan is repaid, the Death Benefit and Cash Surrender Value may be
permanently affected since you do not receive any investment experience on the
outstanding loan amount held in the Loan Account.
POLICY SURRENDERS
You may withdraw all or a portion of the Cash Value from the Policy on any day
that the Company is open for business.
FULL SURRENDERS. As long as the Policy is in effect, you may surrender the
Policy and receive its Cash Surrender Value. (You may request a surrender
without the beneficiary's consent provided the beneficiary has not been
designated "irrevocable." If so, you will need the beneficiary's consent.) The
Cash Surrender Value will be determined as of the date we receive the written
request at our Home Office. The Cash Surrender Value is the Cash Value, minus
any outstanding Policy loans, and any surrender charge.
For full surrenders, we will pay you within seven days after we receive the
request, or on the date you specify, whichever is later. The Policy will
terminate on the date we receive your written surrender request (or the date you
specified, if later).
PARTIAL WITHDRAWALS. You may request a partial withdrawal from the Policy. The
amount paid to you will be the net amount requested. We will deduct the net
amount surrendered plus any applicable surrender charge pro rata from all
Investment Options, unless you give us other written instructions.
In addition to reducing the Policy's Cash Value, partial withdrawals will reduce
the Death Benefit payable under the Policy. Under Option 1, the Policy's Stated
Amount will be reduced by the withdrawal amount. Under Option 2, the Policy's
Cash Value, which is part of the Death Benefit, will be reduced by the
withdrawal amount. We may require you to return the Policy to record this
reduction.
15
<PAGE> 20
DEATH BENEFIT
- --------------------------------------------------------------------------------
The Death Benefit under the Policy is the amount paid to the Beneficiary upon
the second death of the two Insureds. 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. 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 last 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 younger 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 OF
YOUNGER INSURED 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.
The following examples demonstrate the relationship between the Death Benefit,
the Cash Surrender Value and the Minimum Amount Insured under Death Benefit
Option 1. The examples assume two Insureds, both 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
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 $100,000. 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
16
<PAGE> 21
Stated Amount ($100,000) or the Minimum Amount Insured ($25,000), the Death
Benefit would be $100,000.
EXAMPLE TWO. If the Cash Value of the Policy equals $60,000, the Minimum Amount
Insured would be $150,000 ($40,000 x 250%). The resulting Death Benefit would be
$150,000 since the Death Benefit is the greater of the Stated Amount ($100,000)
or the Minimum Amount Insured ($150,000).
OPTION 2 -- VARIABLE DEATH BENEFIT
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 second 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 ($110,000) would be
equal to the Stated Amount ($100,000) 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 $100,000, then the Minimum
Amount Insured would be $250,000 ($100,000 x 250%). The resulting Death Benefit
would be $250,000 because the Minimum Amount Insured ($250,000) is greater than
the Stated Amount plus the Cash Value ($100,000 + $100,000 = $200,000).
PAYMENT OF PROCEEDS
Death Benefits are payable within seven days after we receive satisfactory proof
of the Second Insured's death. The amount of Death Benefit paid may be adjusted
to reflect any Policy loan, any Monthly Deductions Amount due but unpaid, 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".) If no beneficiary is living when both Insureds
have died, 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.
Subject to state law, if one or both of the Insureds commit 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 Second 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.)
PAYMENT OPTIONS
We will pay policy proceeds in a lump sum, unless you or the Beneficiary selects
one of the Company's payment options. 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
17
<PAGE> 22
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 following riders may not be available in all jurisdictions.
If at least one 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 younger Insured reaches age 99, 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 a request before the
Maturity Date, the Policy will continue until the earlier of the last Insured's
death or the date on which you request that the Policy terminate. When the
Maturity Extension Benefit ends, a Death Benefit consisting of the Cash Value
less any loan outstanding 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, the Company does not give tax advice,
and cannot guarantee that the Death Benefit and Cash Value will be exempt from
any future tax liability. The tax results of any benefits under the Maturity
Extension provision depend upon interpretation of the Internal Revenue Code. You
should consult your own personal tax adviser prior to the exercise of the
Maturity Extension Rider to assess any potential tax liability.
COVERAGE EXTENSION RIDER
The Coverage Extension rider allows coverage to be extended beyond the maturity
date as long as there is cash value in the contract. Upon request from the
owner, the Company will continue to keep the policy in force until the death of
both Insureds or request for payment of the full cash surrender value, as
defined by this rider, prior to the last death of both Insureds. The death
benefit will equal the amount insured, less any outstanding loans. It can be
selected only from the policy anniversary when the younger Insured is age 99 to
the Maturity Date. Any monthly deduction amounts due must be paid upon maturity
for this rider to take effect. There is no charge for this rider, however, it is
available only if each Insureds' issue age is 80 or less.
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CHARGES AND DEDUCTIONS
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GENERAL
We deduct the charges described below. The charges are for services and benefits
we provide, costs and expenses we incur, and risks we assume under the Policies.
Services and benefits we provide include:
- the ability for you to make withdrawals and surrenders under the
Policies;
- the ability for you to obtain a loan under the Policies;
- the death benefit paid on the death of the Insured;
- the available funding option and related programs (including dollar-cost
averaging and portfolio rebalancing);
- administration of the various elective options available under the
Policies; and
- the distribution of various reports to policy owners.
Costs and expenses we incur include:
- expenses associated with underwriting applications, increases in the
stated amount, and riders;
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Policies;
- sales and marketing expenses including commission payments to your sales
agent; and
- other costs of doing business.
Risks we assume include:
- that insureds may live for a shorter period of time than estimated
resulting in the payment of greater death benefits than expected; and
- that the costs of providing the services and benefits under the Policies
will exceed the charges deducted.
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%. For
Stated Amounts from $500,000 to $999,999, the charge is 2.0%, 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.")
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 and in Oregon where no premium tax is deducted). These taxes owed
by the Company 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 or not assessed against the Company in his or her
jurisdiction. For Policies with a Stated Amount of $5,000,000 or more, there is
no premium tax deduction.
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.")
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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 Provisions. 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
Insureds.
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 increases due
to the scheduled increase option rider and increases in Stated Amounts due to
Death Benefit Option changes). This charge is used to cover expenses associated
with issuing the Policy. The amount charged varies by issue age and will be
stated in the Policy. Additionally, there is a monthly $10 charge until the
Maturity Date which is used to cover expenses associated with maintaining the
policy.
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 0.35% thereafter. This charge compensates us for various
risks assumed, benefits provided and expenses incurred.
ADMINISTRATIVE EXPENSE CHARGE. We deduct a daily charge for administrative
expenses incurred by the Company. The charge equals on an annual basis 0.10% of
the amounts in the Investment Options for the first fifteen (15) Policy Years
and 0% thereafter.
UNDERLYING FUND EXPENSES
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 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
A contingent surrender charge may apply under the Policy. The charge, calculated
as a Per Thousand of Stated Amount Charge equals a specified amount for each
$1,000 of Stated Amount. The maximum surrender charge is included in each
Policy. The charges are in compliance with each state's nonforfeiture law. These
surrender charges apply during the first 15 Policy Years (or the first 15 years
following an increase in Stated Amount other than an increase due to a scheduled
increase option rider or a change in Death Benefit option). The charge applies
to a full or partial surrender of the Policy.
The Per Thousand of Stated Amount Charge varies by original issue ages, sexes
and smoker/ nonsmoker status, and increases with the issue ages of the Insureds.
The charge decreases by 1/15 (approximately 6.6%) each year over the
fifteen-year period. For example, for a 65-year old male nonsmoker and a
65-year-old female nonsmoker with a Stated
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Amount of $1,000,000, the maximum charge in the first year is $31.54 for each
$1,000 of Stated Amount, or $31,540.00. The charge decreases 1/15, or
approximately $2.10, each year, so in the fifth year, it is $23.13 for each
$1,000 of Stated Amount, or $23,130.00; in the fifteenth year, it is $2.10 for
each $1,000 of stated amount, or $2,100.00. As an extreme example, for a 70-year
old male smoker and a 70-year-old female smoker with a Stated Amount of
$1,000,000, the maximum charge in the first year is $35.71 for each $1,000 of
Stated Amount. The charge decreases by 1/15 each year.
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 vary by issue age and will be stated
in the Policy.
TRANSFER CHARGE
There is currently no charge for transfers between Investment Options. We
reserve the right to limit free transfers of Cash Value 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 November
10, 1983 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 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 the 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
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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
4:00 p.m. Eastern time 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 on the net rate of return for the corresponding
underlying fund. We determine the net rate of return at the end of each
Valuation Period (that is, the period of time beginning at 4:00 p.m. Eastern
time, and ending at 4:00 p.m. Eastern time 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
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- changes to the way your premiums are allocated (Note: with proper
authorization on file, 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
A Policy Owner may request an increase after the first year or decrease after
the second policy year in the Policy's Stated Amount, provided that the Stated
Amount after any decrease may not be less than the minimum amount of $100,000.
The request must be made in writing while both Insureds are under age 85. 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
Provided both Insureds are alive, you may change the Death Benefit option from
Option 1 to Option 2. If at least one of the Insureds is alive, you may request
a change from Option 2 to Option 1. All requests must be made in writing. 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 to Option 2 will not be permitted if the change results
in a Stated Amount of less than $100,000. Subject to state law, a change from
Option 1 to Option 2 is 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
The Company may not contest the validity of the Policy after it has been in
effect during the lifetime of at least one of the Insureds 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
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requested increase in Stated Amount is contestable for two years from its
effective date (subject to state law). In addition, if one or both of 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 approved 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.
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
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- 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.
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. However, it is
anticipated that Travelers Distribution LLC, an affiliated company, will become
principal underwriter some time in 2000.
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.
EXPERTS
The Financial Statements of Fund ULII as of December 31, 1999 and for the year
ended December 31, 1999 have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants and upon the authority of said firm as experts in accounting and
auditing.
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The Financial Statements of The Travelers Life and Annuity Company as of
December 31, 1999 and 1998, and for each of the years in the three-year period
ended December 31, 1999, 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.
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
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the Investment Options to ensure compliance with the diversification
requirements prescribed by the Treasury Department.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contract. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contract owner's gross income each year. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policy Owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement 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.
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MODIFIED ENDOWMENT CONTRACTS
A modified endowment contract is defined under tax law as any policy that
satisfies the present legal definition of a life insurance contract but which
fails to satisfy a 7-pay test. This failure could occur with contracts entered
into after June 21, 1988, or with certain older contracts materially changed
after that date. A Section 1035 exchange of an older contract into a contract
after that date will not by itself cause the new contract to be a modified
endowment contract if the older contract had not become one prior to the
exchange. However, the new contract must be re-tested under the 7-pay test
rules.
A contract fails to satisfy the 7-pay test if the cumulative amount of premiums
paid under the contract at any time during the first seven contract years
exceeds the sum of the net level premiums that would have been paid on or before
such time had the contract provided for paid-up future benefits after the
payment of seven level annual premiums. If a material change in the contract
occurs either during the first seven contract years, or later, a new seven-year
testing 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
28
<PAGE> 33
modified endowment contract. A prospective purchaser should consult a qualified
tax advisor before authorizing the exchange of his or her current life insurance
contract for a Policy.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS
In the case of a pre-death distribution (including a loan, partial withdrawal,
collateral assignment or complete surrender) from a Policy that is treated as a
modified endowment contract, a special aggregation requirement may apply for
purposes of determining the amount of the income on the Policy. Specifically, if
the Company or any of its affiliates issues to the same Policy Owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the Policy with respect to a distribution from any of
those Policies, the income on the Policy for all those Policies will be
aggregated and attributed to that distribution.
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 15th 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 is a stock insurance company chartered in
1973 in Connecticut and continuously engaged in the insurance business since
that time. It 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 is an indirect wholly owned subsidiary of
Citigroup Inc. The Company's Home Office is located at One Tower Square,
Hartford, Connecticut 06183.
The Company is an indirect wholly owned subsidiary of Citigroup Inc., a
financial services holding company. The Company's principal executive offices
are located at One Tower Square, Hartford, Connecticut 06183, telephone number
(860) 277-0111.
29
<PAGE> 34
The Company is subject to Connecticut law governing insurance companies and is
regulated and supervised by the Connecticut Commissioner of Insurance. An annual
statement in a prescribed form must be filed with the Commissioner on or before
March 1 in each year covering the operations of the Company for the preceding
year and its financial condition on December 31 of such year. The Company's
books and assets are subject to review or examination by the Commissioner, and a
full examination of its operations is conducted at least once every four years.
In addition, the Company is subject to the insurance laws and regulations of any
jurisdiction in which it sells its insurance Policies, as well as to various
federal and state securities laws and regulations.
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.
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, 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>
George C. Kokulis.......... 1996 President and Chief Executive Officer since April
2000,
Director Executive Vice President (7/1999 to 3/2000), Senior
Vice President (1995-1999), Vice President (1993-1995)
of The Travelers Life and Annuity Company.
Katherine M. Sullivan...... 1996 Senior Vice President since May 1996 and General
Director Counsel from May 1996 to August 1999 of The Travelers
Life and Annuity Company; Senior Vice President and
General Counsel (1994-1996) Connecticut Mutual;
Special Counsel & Chief of Staff (1988-1994) Aetna
Life & Casualty.
Marc P. Weill*............. 1994 Senior Vice President-Investments since 1993 and Chief
Director Investment Officer since 1995 of The Travelers
Insurance Life and Annuity Company; 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.
</TABLE>
- ---------------
* Principal business address: Citigroup Inc., 153 East 53rd St., New York, New
York 10043
30
<PAGE> 35
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
Glenn D. Lammey...................... Executive Vice President, Chief
Financial Officer, Chief Accounting
Officer and Controller
Marla Berman Lewitus................. Senior Vice President and General
Counsel
Brendan Lynch........................ Senior Vice President
Warren H. May........................ Senior Vice President
Kathleen A. Preston.................. Senior Vice President
Mary Jean Thornton................... Executive Vice President and
Chief Information Officer
David A. Tyson....................... Senior Vice President
F. Denney Voss....................... 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.
<TABLE>
<S> <C> <C>
Male, Age 65 Female, Age 65 Face Amount: $1,000,000
Preferred Non-Smoker Preferred Non-Smoker Level Death Benefit Option
Annual Premium: $11,923.37 Current Charges
Hypothetical Gross Annual Investment
Rate of Return: 8%
</TABLE>
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
FOR THE POLICY YEAR
--------------------------
ADMINISTRATIVE
CUMULATIVE SALES AND COST OF CHARGES AND
POLICY GROSS PREMIUM TAX SURRENDER INSURANCE MONTHLY
YEAR PREMIUM CHARGES CHARGES CHARGES POLICY CHARGES
------ ---------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
1 $ 11,923.37 $ 298.08 $31,540.00 $ 171.44 $3,240.00
2 $ 23,846.74 $ 596.17 $29,440.00 $ 571.11 $3,240.00
3 $ 35,770.11 $ 894.25 $27,340.00 $1,061.61 $3,240.00
5 $ 59,616.85 $1,490.42 $23,130.00 $2,347.34 $ 120.00
10 $119,233.70 $2,980.84 $12,620.00 $6,846.63 $ 120.00
</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.
31
<PAGE> 36
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
65 year old male and a 65 year old female. The difference between the Cash 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.
There are two examples of values. One example illustrates 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 example illustrates that the current
scale of Cost of Insurance Rates and other charges are charged in all years. The
Cost of Insurance Rates charged vary by age, sex and underwriting
classification, and the monthly administrative charge varies by age, amount of
insurance and smoker/non-smoker classification for current charges. The
illustrations reflect a deduction of 5% from each annual premium for premium tax
(2.5%) and front end sales charge (2.5%).
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of investment returns. For the first fifteen Policy
Years, the current and guaranteed charges consist of 0.80% for mortality and
expense risks, 0.10% for administrative expenses, and 0.65% for Investment
Option expenses and thereafter, 0.35% for mortality and expense risks, 0.00% for
administrative expenses, and 0.65% 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 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
32
<PAGE> 37
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
- -1.55%, 4.45%, and 10.45%, respectively on a current and guaranteed basis during
the first fifteen Policy Years, and to approximate net annual rates of -1.00%,
5.00%, and 11.00%, respectively on a current and guaranteed basis thereafter.
The actual charges under a Policy for expenses of the Investment Options will
depend on the actual allocation of Cash Value and may be higher or lower than
those illustrated.
The illustrations do not reflect any charges for federal income taxes against
Fund UL II, since the Company is not currently deducting such charges from Fund
UL II. However, such charges may be made in the future, and in that event, the
gross annual investment rates of return would have to exceed 0%, 6% and 12% by
an amount sufficient to cover the tax charges in order to produce the Death
Benefits, Account Values and Cash Surrender Values illustrated.
Upon request, the Company will provide a comparable illustration based upon the
proposed Insured's age, sex, underwriting classification, the specified
insurance benefits, and the premium requested. The illustration will show
average fund expenses or, if requested, actual fund expenses. The hypothetical
gross annual investment return assumed in such an illustration will not exceed
12%.
33
<PAGE> 38
VARIABLE SURVIVORSHIP LIFE
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES
Male Preferred Nonsmoker Age 65 and Female Preferred Nonsmoker Age 65
Stated Amount 1,000,000
Annual Premium $11,923.37
<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 12,520 1,000,000 1,000,000 1,000,000 7,922 8,504 9,089 0 0 0
2 25,665 1,000,000 1,000,000 1,000,000 15,002 16,646 18,364 0 0 0
3 39,468 1,000,000 1,000,000 1,000,000 21,096 24,249 27,685 0 0 345
4 53,961 1,000,000 1,000,000 1,000,000 29,148 34,317 40,181 3,908 9,077 14,941
5 69,178 1,000,000 1,000,000 1,000,000 35,837 43,570 52,701 12,707 20,440 29,571
6 85,157 1,000,000 1,000,000 1,000,000 40,929 51,722 65,004 19,899 30,692 43,974
7 101,934 1,000,000 1,000,000 1,000,000 44,111 58,390 76,750 25,181 39,460 57,820
8 119,550 1,000,000 1,000,000 1,000,000 44,962 63,070 87,470 28,142 46,250 70,650
9 138,047 1,000,000 1,000,000 1,000,000 42,957 65,126 96,549 28,237 50,406 81,829
10 157,469 1,000,000 1,000,000 1,000,000 37,480 63,805 103,243 24,860 51,185 90,623
15 270,154 0 0 1,000,000 0 0 62,968 0 0 60,868
20 413,970 0 0 0 0 0 0 0 0 0
</TABLE>
VARIABLE SURVIVORSHIP LIFE
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES
Male Preferred Nonsmoker Age 65 and Female Preferred Nonsmoker Age 65
Stated Amount 1,000,000
Annual Premium $11,923.37
<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 12,520 1,000,000 1,000,000 1,000,000 8,062 8,649 9,239 0 0 0
2 25,665 1,000,000 1,000,000 1,000,000 15,603 17,274 19,021 0 0 0
3 39,468 1,000,000 1,000,000 1,000,000 22,537 25,780 29,309 0 0 1,969
4 53,961 1,000,000 1,000,000 1,000,000 31,869 37,256 43,351 6,629 12,016 18,111
5 69,178 1,000,000 1,000,000 1,000,000 40,351 48,524 58,130 17,221 25,394 35,000
6 85,157 1,000,000 1,000,000 1,000,000 47,844 59,425 73,560 26,814 38,395 52,550
7 101,934 1,000,000 1,000,000 1,000,000 54,163 69,748 89,587 35,233 50,818 70,657
8 119,550 1,000,000 1,000,000 1,000,000 59,471 79,625 106,388 42,651 62,805 89,568
9 138,047 1,000,000 1,000,000 1,000,000 63,743 89,009 124,062 49,023 74,289 109,342
10 157,469 1,000,000 1,000,000 1,000,000 66,989 97,887 142,738 54,369 85,267 130,118
15 270,154 1,000,000 1,000,000 1,000,000 72,093 138,281 261,202 69,993 136,181 259,102
20 413,970 1,000,000 1,000,000 1,000,000 67,815 184,690 468,028 67,815 184,690 468,028
</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.
34
<PAGE> 39
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 40
APPENDIX A
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, we may show investment performance for the investment
options, the percentage change in the value of an Accumulation Unit based on the
performance of the Investment Option over a period of time, determined by
dividing the increase (decrease) in value for that unit by the Accumulation Unit
Value at the beginning of the period.
For Investment Options of Fund UL II that invest in underlying funds that were
in existence prior to the date on which the Investment Option became available
under the Policy, average annual rates of return may include periods prior to
the inception of the Investment Option. Performance calculations for Investment
Options with pre-existing Investment Options will be calculated by adjusting the
actual returns of the Investment Options to reflect the charges that would have
been assessed under the Investment Options had the Investment Option been
available under Fund UL II during the period shown.
The following performance information represents the percentage change in the
value of an Accumulation Unit of the Investment Options for the periods
indicated, and reflects all expenses of the Investment Options. The chart
reflects the guaranteed maximum 0.80% mortality and expense risk charge and
0.10% administrative expense risk charge. The rates of return do not reflect the
front-end sales charge or the 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.
The surrender charges and Monthly Deduction Amounts for a hypothetical Insured
are depicted in the Example following the Rates of Returns. See "Charges and
Deductions" for more information regarding fees assessed under the Policy. For
illustrations of how these charges affect Cash Values and Death Benefits, see
"Illustrations." The performance information described in this prospectus may be
used from time to time in advertisement for the Policy, subject to National
Association of Securities Dealers, Inc. ("NASD") and applicable state approval
and guidelines.
The table below shows the net annual rates of return for accumulation units of
investment options available through the Variable Survivorship Life Policy.
AVERAGE ANNUAL RETURNS THROUGH 12/31/99
<TABLE>
<CAPTION>
FUND
INCEPTION
UNDERLYING INVESTMENT OPTIONS 1 YEAR 3 YEAR 5 YEAR 10 YEAR DATE
----------------------------- ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
STOCK FUNDS:
AIM Capital Appreciation Portfolio 41.58% 22.24% -- -- 10/10/95
Alliance Growth Portfolio 30.97% 28.85% 29.60% -- 06/16/94
Capital Appreciation Fund 51.97% 44.82% 39.07% 23.30% 03/18/82
EAFE Equity Index Fund 26.33% -- -- -- 08/22/97
Small Cap Index Fund 19.00% -- -- -- 08/25/97
Dreyfus Stock Index Fund 19.46% 25.93% 26.82% 16.58% 09/29/89
Equity Income Portfolio 5.36% 13.92% 17.48% 13.41% 10/09/86
Growth Portfolio 36.09% 31.98% 28.46% 18.79% 10/09/86
Aggressive Growth n/a n/a n/a n/a n/a
Global Technology n/a n/a n/a n/a n/a
Worldwide Growth n/a n/a n/a n/a n/a
Equity Index Portfolio 19.59% 26.22% 27.39% -- 10/16/91
Smith Barney Large Cap Growth 30.05% -- -- -- 05/06/98
Smith Barney Large Cap Value -0.83% 10.61% 16.16% -- 06/16/94
</TABLE>
A-1
<PAGE> 41
<TABLE>
<CAPTION>
FUND
INCEPTION
UNDERLYING INVESTMENT OPTIONS 1 YEAR 3 YEAR 5 YEAR 10 YEAR DATE
----------------------------- ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Total Return Portfolio 20.89% 13.33% 17.46% -- 10/16/91
Templeton Growth Securities Fund 27.85% 12.45% 16.41% 12.50% 08/31/88
Utilities Portfolio (SB) -0.97% 12.90% 14.42% -- 02/04/94
BOND FUNDS
High Income Portfolio 7.16% 5.81% 9.83% 11.41% 09/19/85
Putnam Diversified Income Portfolio 0.20% 2.18% 5.87% -- 06/16/94
Smith Barney High Income Portfolio 1.67% 4.51% 8.37% -- 06/16/94
US Govt Securities -4.99% 5.00% 7.48% -- 01/24/92
Zero Coupon Bond 2000 2.39% 5.06% -- -- 10/11/95
Zero Coupon Bond 2005 -6.27% 4.88% -- -- 10/11/95
BALANCED FUNDS
Asset Mgr Portfolio 10.06% 14.45% 14.54% 12.08% 09/06/89
MFS Total Return Portfolio 1.71% 10.54% 13.77% -- 06/16/94
Managed Assets Trust 13.16% 17.82% 18.32% 12.00% 08/06/82
MONEY MARKET FUNDS
Money Market(1) 4.04% 4.08% 3.76% 3.69% 10/01/81
</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.
A-2
<PAGE> 42
HYPOTHETICAL EXAMPLE(1)
Male Preferred Nonsmoker Age 65 and Female Preferred Nonsmoker Age 65 with a
level death benefit
of $1,000,000 and an annual investment of $11,923.37
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS
------------------------------------ ------------------------------------
TOTAL ACCUMULATED SURRENDER TOTAL ACCUMULATED SURRENDER
UNDERLYING INVESTMENT OPTIONS INVESTMENT VALUE VALUE INVESTMENT VALUE VALUE
- ----------------------------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio 11,923 12,320 0 N/A N/A N/A
Alliance Growth Portfolio 11,923 11,266 0 59,617 100,881 77,751
Capital Appreciation Fund 11,923 13,357 0 59,617 130,655 107,525
EAFE Equity Index Fund 11,923 10,806 0 N/A N/A N/A
Small Cap Index Fund 11,923 10,081 0 N/A N/A N/A
Dreyfus Stock Index Fund 11,923 10,126 0 59,617 93,343 70,213
Equity Income Portfolio 11,923 8,739 0 59,617 71,485 48,355
Growth Portfolio 11,923 11,774 0 59,617 97,728 74,598
Aggressive Growth N/A N/A N/A N/A N/A N/A
Global Technology N/A N/A N/A N/A N/A N/A
Worldwide Growth N/A N/A N/A N/A N/A N/A
Equity Index Portfolio 11,923 10,139 0 59,617 94,847 71,717
Smith Barney Large Cap Growth 11,923 11,174 0 N/A N/A N/A
Smith Barney Large Cap Value 11,923 8,133 0 59,617 68,790 45,660
Total Return Portfolio 11,923 10,268 0 59,617 71,444 48,314
Templeton Growth Securities Fund 11,923 10,956 0 59,617 69,293 46,163
Utilities Portfolio (SB) 11,923 8,119 0 59,617 65,373 42,243
BONDS FUNDS:
High Income Portfolio 11,923 8,915 0 59,617 57,065 33,935
Putnam Diversified Income Portfolio 11,923 8,233 0 59,617 50,661 27,531
Smith Barney High Income Portfolio 11,923 8,377 0 59,617 54,625 31,495
U.S. Govt Securities 11,923 7,727 0 59,617 53,184 30,054
Zero Coupon Bond Portfolio 2000 11,923 8,448 0 N/A N/A N/A
Zero Coupon Bond Portfolio 2005 11,923 7,602 0 N/A N/A N/A
BALANCED FUNDS:
Asset Mgr Portfolio 11,923 9,200 0 59,617 65,604 42,474
MFS Total Return Portfolio 11,923 8,381 0 59,617 64,135 41,005
Managed Assets Trust 11,923 9,505 0 59,617 73,248 50,118
MONEY MARKET FUND:
Travelers Money Market 11,923 8,609 0 59,617 47,515 24,385
</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, the 0.10% administration expense charges, 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 of the classification of the insured
(which could result in higher costs of insurance). Because this is a variable
universal life insurance policy, actual performance should always be considered
in conjunction with the level of death benefit and cash values.
(1) 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.
A-3
<PAGE> 43
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 44
ANNUAL REPORT
DECEMBER 31, 1999
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 45
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
BT Insurance Funds Trust, 37,556 shares (cost $474,890) ............................ $ 485,472
Capital Appreciation Fund, 139,048 shares (cost $13,959,917) ....................... 15,128,425
Dreyfus Stock Index Fund, 237,186 shares (cost $8,549,801) ......................... 9,119,796
Fidelity's Variable Insurance Products Fund, 420,445 shares (cost $11,388,087) ..... 13,307,429
Fidelity's Variable Insurance Products Fund II, 74,865 shares (cost $1,302,334) .... 1,397,728
Greenwich Street Series Fund, 69,985 shares (cost $1,320,813) ...................... 1,458,014
Managed Assets Trust, 44,354 shares (cost $859,891) ................................ 936,763
Money Market Portfolio, 7,336,067 shares (cost $7,336,067) ......................... 7,336,067
Templeton Variable Products Series Fund, 217,152 shares (cost $4,661,360) .......... 4,914,376
The Travelers Series Trust, 112,152 shares (cost $1,362,030) ....................... 1,323,353
Travelers Series Fund Inc., 1,080,689 shares (cost $22,143,901) .................... 23,915,595
-----------
Total Investments (cost $73,359,091) ............................................. $ 79,323,018
Receivables:
Dividends .......................................................................... 12,267
Premium payments and transfers from other Travelers accounts ....................... 6,314,069
Other assets ......................................................................... 11
-------------
Total Assets ..................................................................... 85,649,365
-------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts ...................... 6,303,726
Insurance charges .................................................................. 14,874
Administrative charges ............................................................. 1,860
Accrued liabilities .................................................................. 8
-------------
Total Liabilities ................................................................ 6,320,468
-------------
NET ASSETS: ............................................................................ $ 79,328,897
=============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 46
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................................. $ 2,182,985
EXPENSES:
Insurance charges ..................................................... $ 397,527
Administrative charges ................................................ 49,690
------------
Total expenses ...................................................... 447,217
------------
Net investment income ............................................. 1,735,768
------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ...................................... 650,438,540
Cost of investments sold ............................................ 643,284,634
------------
Net realized gain (loss) .......................................... 7,153,906
Change in unrealized gain (loss) on investments:
Unrealized gain at December 31, 1998 ................................ 2,071,549
Unrealized gain at December 31, 1999 ................................ 5,963,927
------------
Net change in unrealized gain (loss) for the year ................. 3,892,378
------------
Net realized gain (loss) and change in unrealized gain (loss) ... 11,046,284
------------
Net increase in net assets resulting from operations .................. $ 12,782,052
============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 47
THE TRAVELERS FUND UL II
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income ................................................... $ 1,735,768 $ 904,958
Net realized gain (loss) from investment transactions ................... 7,153,906 2,285,688
Net change in unrealized gain (loss) on investments ..................... 3,892,378 1,465,346
------------- -------------
Net increase in net assets resulting from operations .................. 12,782,052 4,655,992
------------- -------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 18,476,388 and 13,807,247 units, respectively) ......... 35,436,722 23,714,477
Participant transfers from other Travelers accounts
(applicable to 355,543,526 and 112,904,264 units, respectively) ....... 735,676,151 180,481,902
Contract surrenders
(applicable to 2,397,489 and 1,573,510 units, respectively) ........... (5,462,769) (2,923,386)
Participant transfers to other Travelers accounts
(applicable to 358,082,881 and 114,570,535 units, respectively) ....... (735,489,577) (180,744,823)
Other payments to participants
(applicable to 1,822 units) ........................................... (5,081) -
------------- -------------
Net increase in net assets resulting from unit transactions ........... 30,155,446 20,528,170
------------- -------------
Net increase in net assets .......................................... 42,937,498 25,184,162
NET ASSETS:
Beginning of year ....................................................... 36,391,399 11,207,237
------------- -------------
End of year ............................................................. $ 79,328,897 $ 36,391,399
============= =============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 48
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., 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. Fund UL II is comprised of the
MarketLife product.
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, 1999, the eligible funds available under Fund UL II were:
Managed Assets Trust; Capital Appreciation Fund; Money Market Portfolio;
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, Smith Barney High Income Portfolio, MFS Total Return
Portfolio, Putnam Diversified Income Portfolio and AIM Capital Appreciation
Portfolio of Travelers Series Fund Inc.; Total Return Portfolio and Equity
Index Portfolio of Greenwich Street Series Fund (all of which are managed by
affiliates of The Travelers); Templeton Bond Fund (Class 1), Templeton Stock
Fund (Class 1) and Templeton Asset Allocation Fund (Class 1) 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;
EAFE Equity Index Fund and Small Cap Index Fund of BT Insurance Funds Trust;
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> 49
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$682,448,115 and $650,438,540, respectively, for the year ended December 31,
1999. Realized gains and losses from investment transactions are reported on
an average cost basis. The cost of investments in eligible funds was
$73,359,091 at December 31, 1999. Gross unrealized appreciation for all
investments at December 31, 1999 was $6,180,613. Gross unrealized
depreciation for all investments at December 31, 1999 was $216,686.
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by
Travelers Life. Each business day, Travelers Life deducts a mortality and
expense risk charge which is reflected in the calculation of unit values.
This charge equals, on an annual basis, 0.80% of the amounts held in each
funding option for 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% for Travelers Marketlife policies issued prior to May
1, 1998, 0.25% for Travelers Marketlife policies issued after May 1, 1998
and 0.35% for Travelers Variable Survivorship life on an annual basis. As of
December 31, 1999 all contract owners had insurance charges of 0.80%
Administrative charges are paid for administrative expenses. This fee is
also deducted each business day and reflected in the calculation of unit
values. This charge equals, on an annual basis, 0.10% of the amounts held in
each funding option for the first fifteen years the policy is in effect.
Beginning in the sixteenth year that a policy is in effect, these charges
are eliminated. As of December 31,1999 all contract owners had
administrative charges of 0.10%.
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 $95,933 and $31,109 in satisfaction of
such contingent surrender charges for the years ended December 31, 1999 and
1998, respectively.
4. CHANGE IN ACCOUNTING
On January 1, 1999, in conjunction with the implementation of a new system,
Fund UL II changed its basis of reporting realized gains and losses for
investment transactions from an identified basis to an average cost basis.
The accounting change had no effect on net assets.
-5-
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
BT Insurance Funds Trust
EAFE Equity Index Fund ................................................... 297,463 $ 1.136 $ 337,893
Small Cap Index Fund ..................................................... 130,058 1.134 147,490
Capital Appreciation Fund .................................................. 2,419,189 6.559 15,868,506
Dreyfus Stock Index Fund ................................................... 3,193,292 3.322 10,606,961
Fidelity's Variable Insurance Products Fund
Equity-Income Portfolio .................................................. 2,431,810 2.293 5,575,316
Growth Portfolio ......................................................... 1,989,627 3.437 6,839,129
High Income Portfolio .................................................... 585,771 1.529 895,564
Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio .................................................. 768,105 1.819 1,397,422
Greenwich Street Series Fund
Equity Index Portfolio ................................................... 100,009 1.106 110,617
Total Return Portfolio ................................................... 719,187 1.873 1,347,095
Managed Assets Trust ....................................................... 257,384 3.639 936,573
Money Market Portfolio ..................................................... 4,596,491 1.668 7,666,544
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund (Class 1) ................................ 625,303 1.995 1,247,175
Templeton Bond Fund (Class 1) ............................................ 193,736 1.173 227,181
Templeton Stock Fund (Class 1) ........................................... 1,668,788 2.061 3,439,831
The Travelers Series Trust
U.S. Government Securities Portfolio ..................................... 641,970 1.339 859,667
Utilities Portfolio ...................................................... 122,243 1.955 238,992
Zero Coupon Bond Fund Portfolio Series 2000 .............................. 48,323 1.215 58,726
Zero Coupon Bond Fund Portfolio Series 2005 .............................. 137,305 1.207 165,687
Travelers Series Fund Inc.
AIM Capital Appreciation Portfolio ....................................... 2,347,246 1.940 4,554,365
Alliance Growth Portfolio ................................................ 4,047,929 2.863 11,590,475
MFS Total Return Portfolio ............................................... 1,512,701 1.666 2,520,211
Putnam Diversified Income Portfolio ...................................... 455,112 1.011 459,999
Smith Barney High Income Portfolio ....................................... 436,981 1.272 555,712
Smith Barney Large Cap Value Portfolio ................................... 980,217 1.716 1,681,766
-----------
Net Contract Owners' Equity ...................................................................................... $79,328,897
===========
</TABLE>
-6-
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
BT INSURANCE FUNDS TRUST (0.6%)
EAFE Equity Index Fund (Cost $333,495) 24,850 $ 337,958
Small Cap Index Fund (Cost $141,395) 12,706 147,514
----------- -----------
Total (Cost $474,890) 37,556 485,472
----------- -----------
CAPITAL APPRECIATION FUND (19.1%)
Total (Cost $13,959,917) 139,048 15,128,425
----------- -----------
DREYFUS STOCK INDEX FUND (11.5%)
Total (Cost $8,549,801) 237,186 9,119,796
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (16.8%)
Equity-Income Portfolio (Cost $5,216,966) 216,814 5,574,287
Growth Portfolio (Cost $5,221,004) 124,486 6,838,017
High Income Portfolio (Cost $950,117) 79,145 895,125
----------- -----------
Total (Cost $11,388,087) 420,445 13,307,429
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (1.8%)
Asset Manager Portfolio
Total (Cost $1,302,334) 74,865 1,397,728
----------- -----------
GREENWICH STREET SERIES FUND (1.8%)
Equity Index Portfolio (Cost $102,425) 3,085 110,642
Total Return Portfolio (Cost $1,218,388) 66,900 1,347,372
----------- -----------
Total (Cost $1,320,813) 69,985 1,458,014
----------- -----------
MANAGED ASSETS TRUST (1.2%)
Total (Cost $859,891) 44,354 936,763
----------- -----------
MONEY MARKET PORTFOLIO (9.2%)
Total (Cost $7,336,067) 7,336,067 7,336,067
----------- -----------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (6.2%)
Templeton Asset Allocation Fund (Class 1) (Cost $1,153,790) 53,365 1,247,145
Templeton Bond Fund (Class 1) (Cost $236,490) 22,745 227,226
Templeton Stock Fund (Class 1) (Cost $3,271,080) 141,042 3,440,005
----------- -----------
Total (Cost $4,661,360) 217,152 4,914,376
----------- -----------
</TABLE>
-7-
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
THE TRAVELERS SERIES TRUST (1.7%)
U.S. Government Securities Portfolio (Cost $892,813) 76,025 $ 859,844
Utilities Portfolio (Cost $239,711) 15,025 239,046
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $58,914) 5,541 58,739
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $170,592) 15,561 165,724
----------- -----------
Total (Cost $1,362,030) 112,152 1,323,353
----------- -----------
TRAVELERS SERIES FUND INC. (30.1%)
AIM Capital Appreciation Portfolio (Cost $9,687,052) 497,559 10,299,480
Alliance Growth Portfolio (Cost $7,127,472) 255,384 8,397,018
MFS Total Return Portfolio (Cost $2,562,258) 155,333 2,521,059
Putnam Diversified Income Portfolio (Cost $456,612) 40,182 460,087
Smith Barney High Income Portfolio (Cost $600,784) 46,013 555,836
Smith Barney Large Cap Value Portfolio (Cost $1,709,723) 86,218 1,682,115
----------- -----------
Total (Cost $22,143,901) 1,080,689 23,915,595
----------- -----------
TOTAL INVESTMENT OPTIONS (100%)
(COST $73,359,091) $79,323,018
===========
</TABLE>
-8-
<PAGE> 53
This page intentionally left blank
-9-
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
EAFE EQUITY INDEX FUND SMALL CAP INDEX FUND
------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................ $ 9,057 $ - $ 3,462 $ -
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges ........................................ 80 - 48 -
Administrative charges ................................... 10 - 6 -
------------- ------------- ------------- -------------
Net investment income (loss) ......................... 8,967 - 3,408 -
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ......................... 9,468 - 2,534 -
Cost of investments sold ............................... 9,125 - 2,527 -
------------- ------------- ------------- -------------
Net realized gain (loss) ............................. 343 - 7 -
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ............... - - - -
Unrealized gain (loss) end of year ..................... 4,463 - 6,119 -
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year .... 4,463 - 6,119 -
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ............................ 13,773 - 9,534 -
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant premium payments ............................. 1,934 - 23 -
Participant transfers from other Travelers accounts ...... 332,711 - 140,318 -
Contract surrenders ...................................... (3,091) - (2,384) -
Participant transfers to other Travelers accounts ........ (7,434) - (1) -
Other payments to participants ........................... - - - -
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from unit transactions ..................... 324,120 - 137,956 -
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ................ 337,893 - 147,490 -
NET ASSETS:
Beginning of year ...................................... - - - -
------------- ------------- ------------- -------------
End of year ............................................ $ 337,893 $ - $ 147,490 $ -
============= ============= ============= =============
<CAPTION>
CAPITAL APPRECIATION FUND
----------------------------------
1999 1998
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................ $ 199,040 $ 74,869
------------- -------------
EXPENSES:
Insurance charges ........................................ 70,272 20,764
Administrative charges ................................... 8,784 2,596
------------- -------------
Net investment income (loss) ......................... 119,984 51,509
------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ......................... 127,243,897 8,939,564
Cost of investments sold ............................... 124,152,005 7,651,328
------------- -------------
Net realized gain (loss) ............................. 3,091,892 1,288,236
------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ............... 332,086 105,992
Unrealized gain (loss) end of year ..................... 1,168,508 332,086
------------- -------------
Net change in unrealized gain (loss) for the year .... 836,422 226,094
------------- -------------
Net increase (decrease) in net assets
resulting from operations ............................ 4,048,298 1,565,839
------------- -------------
UNIT TRANSACTIONS:
Participant premium payments ............................. 3,269,696 1,598,260
Participant transfers from other Travelers accounts ...... 149,612,053 9,781,587
Contract surrenders ...................................... (887,296) (358,656)
Participant transfers to other Travelers accounts ........ (145,074,599) (8,883,995)
Other payments to participants ........................... - -
------------- -------------
Net increase (decrease) in net assets
resulting from unit transactions ..................... 6,919,854 2,137,216
------------- -------------
Net increase (decrease) in net assets ................ 10,968,152 3,703,055
NET ASSETS:
Beginning of year ...................................... 4,900,354 1,197,299
------------- -------------
End of year ............................................ $ 15,868,506 $ 4,900,354
============= =============
</TABLE>
-10-
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO HIGH INCOME PORTFOLIO
- ------------------------------ ------------------------------ ------------------------------ -------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 135,626 $ 38,721 $ 191,104 $ 85,961 $ 311,656 $ 124,603 $ 70,671 $ 49,003
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
52,870 18,973 39,676 18,997 32,020 12,316 6,523 4,741
6,609 2,372 4,960 2,375 4,002 1,540 815 593
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
76,147 17,376 146,468 64,589 275,634 110,747 63,333 43,669
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
97,379,615 29,878,196 597,942 252,634 230,086 172,237 124,435 57,305
96,392,640 29,148,808 554,689 208,954 196,558 146,160 133,821 60,868
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
986,975 729,388 43,253 43,680 33,528 26,077 (9,386) (3,563)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
27,096 86,164 301,675 99,327 477,523 65,515 (56,685) 28,905
569,995 27,096 357,321 301,675 1,617,013 477,523 (54,992) (56,685)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
542,899 (59,068) 55,646 202,348 1,139,490 412,008 1,693 (85,590)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,606,021 687,696 245,367 310,617 1,448,652 548,832 55,640 (45,484)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,381,601 1,639,480 1,765,268 1,065,449 1,742,272 878,682 222,352 291,102
108,487,595 36,723,998 639,875 1,874,478 1,801,905 667,426 83,218 195,962
(735,493) (333,118) (730,264) (342,648) (542,829) (248,686) (88,109) (50,099)
(108,443,070) (32,413,993) (275,030) (151,989) (226,852) (49,786) (97,564) (48,116)
(1,247) - (1,151) - (1,337) - - -
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,689,386 5,616,367 1,398,698 2,445,290 2,773,159 1,247,636 119,897 388,849
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
3,295,407 6,304,063 1,644,065 2,755,907 4,221,811 1,796,468 175,537 343,365
7,311,554 1,007,491 3,931,251 1,175,344 2,617,318 820,850 720,027 376,662
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 10,606,961 $ 7,311,554 $ 5,575,316 $ 3,931,251 $ 6,839,129 $ 2,617,318 $ 895,564 $ 720,027
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
-11-
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
ASSET MANAGER PORTFOLIO EQUITY INDEX PORTFOLIO
----------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .................................................. $ 56,544 $ 44,447 $ - $ -
----------- ----------- ----------- -----------
EXPENSES:
Insurance charges .......................................... 7,891 3,774 152 -
Administrative charges ..................................... 987 471 19 -
----------- ----------- ----------- -----------
Net investment income (loss) ........................... 47,666 40,202 (171) -
----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................... 233,338 84,980 6,103 -
Cost of investments sold ................................. 228,232 81,260 5,967 -
----------- ----------- ----------- -----------
Net realized gain (loss) ............................... 5,106 3,720 136 -
----------- ----------- ----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ................. 40,857 14,373 - -
Unrealized gain (loss) end of year ....................... 95,394 40,857 8,217 -
----------- ----------- ----------- -----------
Net change in unrealized gain (loss) for the year ...... 54,537 26,484 8,217 -
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations .............................. 107,309 70,406 8,182 -
----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant premium payments ............................... 332,908 316,953 662 -
Participant transfers from other Travelers accounts ........ 528,429 133,229 109,725 -
Contract surrenders ........................................ (118,035) (65,210) (7,889) -
Participant transfers to other Travelers accounts .......... (160,687) (11,280) (63) -
Other payments to participants ............................. - - - -
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from unit transactions ....................... 582,615 373,692 102,435 -
----------- ----------- ----------- -----------
Net increase (decrease) in net assets .................. 689,924 444,098 110,617 -
NET ASSETS:
Beginning of year ........................................ 707,498 263,400 - -
----------- ----------- ----------- -----------
End of year .............................................. $ 1,397,422 $ 707,498 $ 110,617 $ -
=========== =========== =========== ===========
<CAPTION>
TOTAL RETURN PORTFOLIO
------------------------------
1999 1998
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends .................................................. $ 56,611 $ 38,676
----------- -----------
EXPENSES:
Insurance charges .......................................... 7,468 5,776
Administrative charges ..................................... 934 722
----------- -----------
Net investment income (loss) ........................... 48,209 32,178
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................... 105,351 173,048
Cost of investments sold ................................. 102,692 163,752
----------- -----------
Net realized gain (loss) ............................... 2,659 9,296
----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ................. (8,555) 6,485
Unrealized gain (loss) end of year ....................... 128,984 (8,555)
----------- -----------
Net change in unrealized gain (loss) for the year ...... 137,539 (15,040)
----------- -----------
Net increase (decrease) in net assets
resulting from operations .............................. 188,407 26,434
----------- -----------
UNIT TRANSACTIONS:
Participant premium payments ............................... 302,453 247,970
Participant transfers from other Travelers accounts ........ 174,995 234,893
Contract surrenders ........................................ (60,556) (60,314)
Participant transfers to other Travelers accounts .......... (60,689) (121,404)
Other payments to participants ............................. - -
----------- -----------
Net increase (decrease) in net assets
resulting from unit transactions ....................... 356,203 301,145
----------- -----------
Net increase (decrease) in net assets .................. 544,610 327,579
NET ASSETS:
Beginning of year ........................................ 802,485 474,906
----------- -----------
End of year .............................................. $ 1,347,095 $ 802,485
=========== ===========
</TABLE>
-12-
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION TEMPLETON BOND FUND
MANAGED ASSETS TRUST MONEY MARKET PORTFOLIO FUND (CLASS 1) (CLASS 1)
- ----------------------------- ------------------------------ ------------------------------ -------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 47,603 $ 16,040 $ 208,307 $ 115,285 $ 133,806 $ 30,464 $ 7,557 $ 12,130
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
5,197 1,786 33,484 18,666 8,069 5,100 1,492 1,546
650 223 4,185 2,333 1,009 638 186 193
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
41,756 14,031 170,638 94,286 124,728 24,726 5,879 10,391
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
28,700 43,382 199,337,049 40,088,922 137,071 138,697 113,737 73,913
27,391 37,679 199,337,049 40,088,922 139,841 136,460 119,157 75,268
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,309 5,703 - - (2,770) 2,237 (5,420) (1,355)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
31,459 4,755 - - 4,636 1,084 3,417 1,000
76,872 31,459 - - 93,355 4,636 (9,264) 3,417
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
45,413 26,704 - - 88,719 3,552 (12,681) 2,417
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
88,478 46,438 170,638 94,286 210,677 30,515 (12,222) 11,453
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
216,077 148,771 18,371,838 13,513,324 298,633 318,867 142,532 26,582
243,370 212,553 218,183,818 37,931,466 153,923 261,063 24,612 121,110
(63,543) (21,950) (764,210) (555,249) (114,783) (80,180) (13,578) (9,468)
(14,357) (9,263) (230,114,295) (50,565,449) (84,066) (76,895) (111,452) (66,157)
- - - - - - - -
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
381,547 330,111 5,677,151 324,092 253,707 422,855 42,114 72,067
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
470,025 376,549 5,847,789 418,378 464,384 453,370 29,892 83,520
466,548 89,999 1,818,755 1,400,377 782,791 329,421 197,289 113,769
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 936,573 $ 466,548 $ 7,666,544 $ 1,818,755 $ 1,247,175 $ 782,791 $ 227,181 $ 197,289
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
-13-
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON STOCK U.S. GOVERNMENT SECURITIES
FUND (CLASS 1) PORTFOLIO
-------------------------------- --------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................... $ 231,144 $ 166,239 $ 55 $ 46,257
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges ....................................... 24,636 16,676 5,037 2,991
Administrative charges .................................. 3,079 2,084 629 374
------------- ------------- ------------- -------------
Net investment income (loss) ........................ 203,429 147,479 (5,611) 42,892
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................ 97,089,877 25,950,404 49,199 13,179
Cost of investments sold .............................. 96,139,573 26,094,788 51,439 12,003
------------- ------------- ------------- -------------
Net realized gain (loss) ............................ 950,304 (144,384) (2,240) 1,176
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .............. 109,315 (7,984) (9,189) 738
Unrealized gain (loss) end of year .................... 168,925 109,315 (32,969) (9,189)
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year ... 59,610 117,299 (23,780) (9,927)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ........................... 1,213,343 120,394 (31,631) 34,141
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant premium payments ............................ 586,856 895,395 134,083 50,942
Participant transfers from other Travelers accounts ..... 100,975,933 26,650,363 246,413 456,331
Contract surrenders ..................................... (241,745) (212,082) (30,946) (14,039)
Participant transfers to other Travelers accounts ....... (101,379,349) (26,276,598) (30,641) (2,990)
Other payments to participants .......................... - - - -
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from unit transactions .................... (58,305) 1,057,078 318,909 490,244
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ............... 1,155,038 1,177,472 287,278 524,385
NET ASSETS:
Beginning of year ..................................... 2,284,793 1,107,321 572,389 48,004
------------- ------------- ------------- -------------
End of year ........................................... $ 3,439,831 $ 2,284,793 $ 859,667 $ 572,389
============= ============= ============= =============
<CAPTION>
UTILITIES PORTFOLIO
--------------------------------
1999 1998
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................... $ 11,441 $ 3,805
------------- -------------
EXPENSES:
Insurance charges ....................................... 1,319 604
Administrative charges .................................. 165 75
------------- -------------
Net investment income (loss) ........................ 9,957 3,126
------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................ 27,466 15,147
Cost of investments sold .............................. 25,417 11,670
------------- -------------
Net realized gain (loss) ............................ 2,049 3,477
------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .............. 12,007 6,150
Unrealized gain (loss) end of year .................... (665) 12,007
------------- -------------
Net change in unrealized gain (loss) for the year ... (12,672) 5,857
------------- -------------
Net increase (decrease) in net assets
resulting from operations ........................... (666) 12,460
------------- -------------
UNIT TRANSACTIONS:
Participant premium payments ............................ 84,903 18,753
Participant transfers from other Travelers accounts ..... 92,153 30,394
Contract surrenders ..................................... (16,064) (15,675)
Participant transfers to other Travelers accounts ....... (22,055) (162)
Other payments to participants .......................... - -
------------- -------------
Net increase (decrease) in net assets
resulting from unit transactions .................... 138,937 33,310
------------- -------------
Net increase (decrease) in net assets ............... 138,271 45,770
NET ASSETS:
Beginning of year ..................................... 100,721 54,951
------------- -------------
End of year ........................................... $ 238,992 $ 100,721
============= =============
</TABLE>
-14-
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND ZERO COUPON BOND FUND ZERO COUPON BOND FUND AIM CAPITAL APPRECIATION
PORTFOLIO SERIES 1998 PORTFOLIO SERIES 2000 PORTFOLIO SERIES 2005 PORTFOLIO
- ----------------------------- ------------------------------ ------------------------------ -------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $ 6 $ - $ 1,849 $ - $ 3,678 $ - $ 2,031
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- 7 354 122 935 331 26,824 14,139
- 1 44 16 117 41 3,353 1,767
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- (2) (398) 1,711 (1,052) 3,306 (30,177) (13,875)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- 2,999 2,043 17,524 8,085 5,292 115,254,018 50,364,424
- 3,068 2,102 16,901 8,288 4,973 114,018,484 50,138,696
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- (69) (59) 623 (203) 319 1,235,534 225,728
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- (113) (1,767) (184) 612 (192) 149,668 14,449
- - (175) (1,767) (4,868) 612 612,428 149,668
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- 113 1,592 (1,583) (5,480) 804 462,760 135,219
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- 42 1,135 751 (6,735) 4,429 1,668,117 347,072
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- 327 5,680 3,385 30,951 28,748 2,273,185 604,531
- 56 19,836 38,105 73,021 35,774 133,209,337 62,271,932
- (543) (1,879) (2,567) (9,508) (6,320) (238,987) (176,136)
- (2,484) (5) (14,973) (184) (109) (134,410,175) (61,632,098)
- - - - - - - -
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- (2,644) 23,632 23,950 94,280 58,093 833,360 1,068,229
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- (2,602) 24,767 24,701 87,545 62,522 2,501,477 1,415,301
- 2,602 33,959 9,258 78,142 15,620 2,052,888 637,587
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ - $ - $ 58,726 $ 33,959 $ 165,687 $ 78,142 $ 4,554,365 $ 2,052,888
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
-15-
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND UL II OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO MFS TOTAL RETURN PORTFOLIO
------------------------------ ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................ $ 295,413 $ 157,237 $ 137,794 $ 41,658
------------ ------------ ------------ ------------
EXPENSES:
Insurance charges ........................................ 44,147 18,971 15,507 7,456
Administrative charges ................................... 5,518 2,371 1,938 932
------------ ------------ ------------ ------------
Net investment income (loss) ......................... 245,748 135,895 120,349 33,270
------------ ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ......................... 12,091,294 281,429 122,107 99,593
Cost of investments sold ............................... 11,267,691 211,143 120,650 86,784
------------ ------------ ------------ ------------
Net realized gain (loss) ............................. 823,603 70,286 1,457 12,809
------------ ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ............... 593,215 127,693 63,893 19,330
Unrealized gain (loss) end of year ..................... 1,269,546 593,215 (41,199) 63,893
------------ ------------ ------------ ------------
Net change in unrealized gain (loss) for the year .... 676,331 465,522 (105,092) 44,563
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ............................ 1,745,682 671,703 16,714 90,642
------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments ............................. 1,910,552 1,009,403 676,530 507,102
Participant transfers from other Travelers accounts ...... 19,153,955 1,692,140 546,504 550,889
Contract surrenders ...................................... (517,827) (217,311) (127,200) (73,465)
Participant transfers to other Travelers accounts ........ (14,701,709) (245,697) (97,877) (52,303)
Other payments to participants ........................... (1,346) - - -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from unit transactions ..................... 5,843,625 2,238,535 997,957 932,223
------------ ------------ ------------ ------------
Net increase (decrease) in net assets ................ 7,589,307 2,910,238 1,014,671 1,022,865
NET ASSETS:
Beginning of year ...................................... 4,001,168 1,090,930 1,505,540 482,675
------------ ------------ ------------ ------------
End of year ............................................ $ 11,590,475 $ 4,001,168 $ 2,520,211 $ 1,505,540
============ ============ ============ ============
<CAPTION>
PUTNAM DIVERSIFIED INCOME
PORTFOLIO
------------------------------
1999 1998
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................ $ - $ -
------------ ------------
EXPENSES:
Insurance charges ........................................ 206 -
Administrative charges ................................... 26 -
------------ ------------
Net investment income (loss) ......................... (232) -
------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ......................... 1,022 -
Cost of investments sold ............................... 1,011 -
------------ ------------
Net realized gain (loss) ............................. 11 -
------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ............... - -
Unrealized gain (loss) end of year ..................... 3,475 -
------------ ------------
Net change in unrealized gain (loss) for the year .... 3,475 -
------------ ------------
Net increase (decrease) in net assets
resulting from operations ............................ 3,254 -
------------ ------------
UNIT TRANSACTIONS:
Participant premium payments ............................. 35 -
Participant transfers from other Travelers accounts ...... 457,889 -
Contract surrenders ...................................... (1,167) -
Participant transfers to other Travelers accounts ........ (12) -
Other payments to participants ........................... - -
------------ ------------
Net increase (decrease) in net assets
resulting from unit transactions ..................... 456,745 -
------------ ------------
Net increase (decrease) in net assets ................ 459,999 -
NET ASSETS:
Beginning of year ...................................... - -
------------ ------------
End of year ............................................ $ 459,999 $ -
============ ============
</TABLE>
-16-
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME SMITH BARNEY LARGE CAP VALUE
PORTFOLIO PORTFOLIO COMBINED
- -------------------------------- -------------------------------- --------------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ 33,483 $ 35,061 $ 42,611 $ 21,312 $ 2,182,985 $ 1,109,332
- ------------- ------------- ------------- ------------- ------------- -------------
3,867 3,277 9,453 4,653 397,527 181,666
483 410 1,182 581 49,690 22,708
- ------------- ------------- ------------- ------------- ------------- -------------
29,133 31,374 31,976 16,078 1,735,768 904,958
- ------------- ------------- ------------- ------------- ------------- -------------
97,738 137,335 146,365 29,031 650,438,540 156,819,235
105,172 130,279 143,113 23,783 643,284,634 154,533,547
- ------------- ------------- ------------- ------------- ------------- -------------
(7,434) 7,056 3,252 5,248 7,153,906 2,285,688
- ------------- ------------- ------------- ------------- ------------- -------------
(31,663) 14,581 31,949 18,135 2,071,549 606,203
(44,948) (31,663) (27,608) 31,949 5,963,927 2,071,549
- ------------- ------------- ------------- ------------- ------------- -------------
(13,285) (46,244) (59,557) 13,814 3,892,378 1,465,346
- ------------- ------------- ------------- ------------- ------------- -------------
8,414 (7,814) (24,329) 35,140 12,782,052 4,655,992
- ------------- ------------- ------------- ------------- ------------- -------------
118,579 196,364 567,119 354,087 35,436,722 23,714,477
62,015 201,227 322,548 416,926 735,676,151 180,481,902
(46,331) (21,906) (99,055) (57,784) (5,462,769) (2,923,386)
(67,121) (102,054) (110,290) (17,028) (735,489,577) (180,744,823)
- - - - (5,081) -
- ------------- ------------- ------------- ------------- ------------- -------------
67,142 273,631 680,322 696,201 30,155,446 20,528,170
- ------------- ------------- ------------- ------------- ------------- -------------
75,556 265,817 655,993 731,341 42,937,498 25,184,162
480,156 214,339 1,025,773 294,432 36,391,399 11,207,237
- ------------- ------------- ------------- ------------- ------------- -------------
$ 555,712 $ 480,156 $ 1,681,766 $ 1,025,773 $ 79,328,897 $ 36,391,399
============= ============= ============= ============= ============= =============
</TABLE>
-17-
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF UNITS FOR FUND UL II
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
EAFE EQUITY INDEX FUND SMALL CAP INDEX FUND CAPITAL APPRECIATION FUND
---------------------------- --------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............... - - - - 1,136,698 444,866
Units purchased and transferred from
other Travelers accounts ............ 307,507 - 132,394 - 29,498,495 3,060,194
Units redeemed and transferred to
other Travelers accounts ............ (10,044) - (2,336) - (28,216,004) (2,368,362)
------------ ------------ ------------ ------------ ------------ ------------
Units end of year ..................... 297,463 - 130,058 - 2,419,189 1,136,698
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
---------------------------- --------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............... 2,631,052 460,680 1,806,947 597,615 1,037,155 449,618
Units purchased and transferred from
other Travelers accounts ............ 37,195,085 14,840,446 1,064,816 1,446,746 1,222,924 729,395
Units redeemed and transferred to
other Travelers accounts ............ (36,632,845) (12,670,074) (439,953) (237,414) (270,452) (141,858)
------------ ------------ ------------ ------------ ------------ ------------
Units end of year ..................... 3,193,292 2,631,052 2,431,810 1,806,947 1,989,627 1,037,155
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
HIGH INCOME PORTFOLIO ASSET MANAGER PORTFOLIO EQUITY INDEX PORTFOLIO
---------------------------- --------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............... 504,806 250,378 428,153 181,740 - -
Units purchased and transferred from
other Travelers accounts ............ 203,325 323,773 502,768 296,426 107,719 -
Units redeemed and transferred to
other Travelers accounts ............ (122,360) (69,345) (162,816) (50,013) (7,710) -
------------ ------------ ------------ ------------ ------------ ------------
Units end of year ..................... 585,771 504,806 768,105 428,153 100,009 -
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO MANAGED ASSETS TRUST MONEY MARKET PORTFOLIO
---------------------------- --------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............... 518,132 318,844 145,138 33,700 1,134,441 909,353
Units purchased and transferred from
other Travelers accounts ............ 274,684 319,279 135,257 122,196 144,320,269 32,514,069
Units redeemed and transferred to
other Travelers accounts ............ (73,629) (119,991) (23,011) (10,758) (140,858,219) (32,288,981)
------------ ------------ ------------ ------------ ------------ ------------
Units end of year ..................... 719,187 518,132 257,384 145,138 4,596,491 1,134,441
============ ============ ============ ============ ============ ============
</TABLE>
-18-
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF UNITS FOR FUND UL II
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION TEMPLETON BOND FUND TEMPLETON STOCK FUND
FUND (CLASS 1) (CLASS 1) (CLASS 1)
-------------------------- -------------------------- --------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............... 477,886 212,085 156,953 96,130 1,418,179 689,681
Units purchased and transferred from
other Travelers accounts ............ 259,755 363,199 141,448 123,125 57,222,214 17,899,636
Units redeemed and transferred to
other Travelers accounts ............ (112,338) (97,398) (104,665) (62,302) (56,971,605) (17,171,138)
----------- ----------- ----------- ----------- ----------- -----------
Units end of year ..................... 625,303 477,886 193,736 156,953 1,668,788 1,418,179
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES ZERO COUPON BOND FUND
PORTFOLIO UTILITIES PORTFOLIO PORTFOLIO SERIES 1998
-------------------------- -------------------------- --------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............... 406,054 37,194 51,014 32,611 - 2,347
Units purchased and transferred from
other Travelers accounts ............ 281,407 381,386 90,088 27,452 - 339
Units redeemed and transferred to
other Travelers accounts ............ (45,491) (12,526) (18,859) (9,049) - (2,686)
----------- ----------- ----------- ----------- ----------- -----------
Units end of year ..................... 641,970 406,054 122,243 51,014 - -
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND ZERO COUPON BOND FUND AIM CAPITAL APPRECIATION
PORTFOLIO SERIES 2000 PORTFOLIO SERIES 2005 PORTFOLIO
-------------------------- -------------------------- --------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............... 28,611 8,316 60,699 13,500 1,499,046 541,898
Units purchased and transferred from
other Travelers accounts ............ 21,285 35,127 84,479 52,454 90,645,661 51,302,755
Units redeemed and transferred to
other Travelers accounts ............ (1,573) (14,832) (7,873) (5,255) (89,797,461) (50,345,607)
----------- ----------- ----------- ----------- ----------- -----------
Units end of year ..................... 48,323 28,611 137,305 60,699 2,347,246 1,499,046
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME
ALLIANCE GROWTH PORTFOLIO MFS TOTAL RETURN PORTFOLIO PORTFOLIO
-------------------------- -------------------------- --------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............... 1,831,608 638,546 919,153 326,125 - -
Units purchased and transferred from
other Travelers accounts ............ 8,471,909 1,437,723 729,801 673,650 456,279 -
Units redeemed and transferred to
other Travelers accounts ............ (6,255,588) (244,661) (136,253) (80,622) (1,167) -
----------- ----------- ----------- ----------- ----------- -----------
Units end of year ..................... 4,047,929 1,831,608 1,512,701 919,153 455,112 -
=========== =========== =========== =========== =========== ===========
</TABLE>
-19-
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF UNITS FOR FUND UL II
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME SMITH BARNEY LARGE CAP VALUE
PORTFOLIO PORTFOLIO COMBINED
---------------------------- ---------------------------- -----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 383,898 170,588 592,895 185,237 17,168,518 6,601,052
Units purchased and transferred from
other Travelers accounts ......... 143,450 309,772 506,895 452,369 374,019,914 126,711,511
Units redeemed and transferred to
other Travelers accounts ......... (90,367) (96,462) (119,573) (44,711) (360,482,192) (116,144,045)
------------ ------------ ------------ ------------ ------------ ------------
Units end of year .................. 436,981 383,898 980,217 592,895 30,706,240 17,168,518
============ ============ ============ ============ ============ ============
</TABLE>
-20-
<PAGE> 65
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, 1999, 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1999, 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, 1999, 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.
/s/ KPMG LLP
Hartford, Connecticut
February 18, 2000
-21-
<PAGE> 66
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.
FNDULII (Annual) (12-99) Printed in U.S.A.
<PAGE> 67
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
- ---------------------
Hartford, Connecticut
January 18, 2000
F-1
<PAGE> 68
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $25,270 $23,677 $35,190
Net investment income 177,179 171,003 168,653
Realized investment gains (losses) (4,973) 18,493 44,871
Fee income 54,749 17,718 5,004
Other revenues 13,045 11,168 3,159
- ----------------------------------------------------------------------------------------------------------------------------
Total Revenues 265,270 242,059 256,877
- ----------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 78,072 81,371 95,639
Interest credited to contractholders 56,216 51,535 35,165
Amortization of deferred acquisition costs 38,902 15,956 4,944
Operating expenses 11,326 5,012 11,554
- ----------------------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses 184,516 153,874 147,302
- ----------------------------------------------------------------------------------------------------------------------------
Income before federal income taxes 80,754 88,185 109,575
- ----------------------------------------------------------------------------------------------------------------------------
Federal income taxes:
Current 21,738 18,917 33,859
Deferred expense 6,410 11,783 4,344
- ----------------------------------------------------------------------------------------------------------------------------
Total Federal Income Taxes 28,148 30,700 38,203
============================================================================================================================
Net income $52,606 $57,485 $71,372
============================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 69
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $1,764,329; $1,707,347) $1,713,948 $1,838,681
Equity securities, at fair value (cost, $34,373; $25,826) 33,169 26,685
Mortgage loans 155,719 174,565
Short-term securities 81,119 126,176
Other invested assets 190,622 136,122
- --------------------------------------------------------------------------------------------------------------------------
Total Investments 2,174,577 2,302,229
- --------------------------------------------------------------------------------------------------------------------------
Separate accounts 4,795,165 2,178,474
Deferred acquisition costs 350,088 177,808
Deferred federal income taxes 74,478 12,395
Premium balances receivable 22,420 16,074
Other assets 84,605 57,524
- --------------------------------------------------------------------------------------------------------------------------
Total Assets $7,501,333 $4,744,504
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $950,959 $963,171
Contractholder funds 1,174,636 947,411
Separate accounts 4,795,165 2,178,474
Other liabilities 114,408 114,690
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities 7,035,168 4,203,746
- --------------------------------------------------------------------------------------------------------------------------
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 167,316 167,314
Retained earnings 335,161 282,555
Accumulated other changes in equity from non-owner sources (39,312) 87,889
- --------------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 466,165 540,758
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $7,501,333 $4,744,504
==========================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 70
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $282,555 $225,070 $167,698
Net income 52,606 57,485 71,372
Dividends to parent - - 14,000
===========================================================================================================
Balance, end of year $335,161 $282,555 $225,070
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------
Balance, beginning of year $87,889 $70,277 $33,856
Unrealized gains (losses), net of tax (127,201) 17,612 36,421
===========================================================================================================
Balance, end of year $(39,312) $87,889 $70,277
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------
Net Income $52,606 $57,485 $71,372
Other changes in equity from
non-owner sources (127,201) 17,612 36,421
- -----------------------------------------------------------------------------------------------------------
Total changes in equity from
non-owner sources $(74,595) $75,097 $107,793
===========================================================================================================
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 71
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $24,804 $22,300 $34,553
Net investment income received 150,107 146,158 170,460
Benefits and claims paid (94,503) (90,872) (90,820)
Interest credited to contractholders (50,219) (51,535) (35,165)
Operating expenses paid (235,166) (122,327) (64,698)
Income taxes paid (29,369) (25,214) (22,440)
Other, including fee income 46,028 (46,099) (16,128)
- ----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities (188,318) (75,391) 8,018
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 213,402 113,456 81,899
Mortgage loans 28,002 25,462 8,972
Proceeds from sales of investments
Fixed maturities 774,096 1,095,976 856,846
Equity securities 5,146 6,020 12,404
Mortgage loans - - 5,483
Real estate held for sale - - 4,493
Purchases of investments
Fixed maturities (1,025,110) (1,320,704) (1,020,803)
Equity securities (12,524) (13,653) (6,382)
Mortgage loans (8,520) (39,158) (41,967)
Policy loans, net (5,316) (2,010) (1,144)
Short-term securities (purchases) sales, net 45,057 43,054 (88,067)
Other investments (purchases) sales, net (44,621) 1,110 (51,502)
Securities transactions in course of settlement, net (7,033) 36,459 10,526
- ----------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (37,421) (53,988) (229,242)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 308,953 211,476 325,932
Contractholder fund withdrawals (83,817) (83,036) (89,145)
Dividends to parent company - - (14,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 225,136 128,440 222,787
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (603) (939) 1,563
============================================================================================================================
Cash at December 31, $21 $624 $1,563
============================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 72
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). 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.
Certain prior year amounts have been reclassified to conform to the 1999
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> 73
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
ACCOUNTING BY INSURANCE AND OTHER ENTERPRISES FOR INSURANCE - RELATED
ASSESSMENTS
In January 1999, the Company adopted (effective January 1, 1999) 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. The adoption of this SOP
had no impact on the Company's financial condition, results of operations
or liquidity.
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. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
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, 1999 and 1998.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.
F-7
<PAGE> 74
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Other invested assets include partnership investments and real estate joint
ventures accounted for on the equity method of accounting. All changes in
equity of these investments are recorded in net investment income.
Accrual of investment 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.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures, options, forward contracts and interest rate swaps, as a means of
hedging exposure to foreign currency, equity price changes and/or interest
rate risk on anticipated transactions or existing assets and liabilities.
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 interest rate options were not significant at
December 31, 1999 and 1998. 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.
F-8
<PAGE> 75
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DEFERRED ACQUISITION COSTS
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 seven 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.
VALUE OF INSURANCE IN FORCE
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 10.0%.
OTHER LIABILITIES
Included in Other Liabilities is the Company's estimate of its liability
for guaranty fund and other insurance-related assessments. State guaranty
fund assessments are based upon the Company's share of premium written or
received in one or more years prior to an insolvency occurring in the
industry. Once an insolvency has occurred, the Company recognizes a
liability for such assessments if it is probable that an assessment will be
imposed and the amount of the assessment can be reasonably estimated. At
December 31, 1999, the Company's liability for guaranty fund assessments
was not significant.
F-9
<PAGE> 76
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
The NAIC recently completed a process intended to codify statutory
accounting practices for certain insurance enterprises. As a result of this
process, the NAIC issued a revised statutory Accounting Practices and
Procedures Manual - version effective January 1, 2001 (the revised Manual)
that will be effective for years beginning January 1, 2001. 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.
FEE INCOME
Fee income includes mortality and equity protection charges and fees earned
on Universal Life and Deferred Annuity businesses.
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 June 1998, the Financial Accounting Standards Board (FASB) 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,
F-10
<PAGE> 77
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
including certain derivative instruments embedded 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. 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. Upon initial application of FAS 133, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. FAS 133 was to be effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. However, in June 1999 the FASB issued
Statement of Financial Standards No. 137, "Deferral of the Effective Date
of FASB Statement No. 133" (FAS 137) which allows entities that have not
adopted FAS 133 to defer its effective date to all fiscal quarters of all
fiscal years beginning after June 15, 2000. The Company expects to adopt
the deferral provisions of FAS 137 and 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 additional capacity for future growth and
to effect business-sharing arrangements. Reinsurance is accomplished
through various plans of reinsurance, primarily yearly renewable term
coinsurance and modified coinsurance. The Company remains primarily liable
as the direct insurer on all risks reinsured.
Total in-force business ceded under reinsurance contracts is $12.8 billion
and $8.8 billion at December 31, 1999 and 1998, including $63 million and
$70 million, respectively to TIC. Total life insurance premiums ceded were
$6.5 million, $4.2 million and $2.4 million in 1999, 1998 and 1997,
respectively. Ceded premiums paid to TIC were immaterial for these same
periods.
3. SHAREHOLDER'S EQUITY
Shareholder's Equity and Dividend Availability
The Company's statutory net income (loss) was $(23.4) million, $(3.2)
million and $80.3 million for the years ended December 31, 1999, 1998 and
1997, respectively.
Statutory capital and surplus was $294 million and $328 million at December
31, 1999 and 1998, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $29.4 million is available in 2000 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
F-11
<PAGE> 78
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accumulated Other Changes in Equity from Non-Owner Sources, Net of Tax
Changes in each component of Accumulated Other Changes in Equity From Non-Owner
Sources were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NET ACCUMULATED
UNREALIZED FOREIGN OTHER CHANGES
GAINS ON CURRENCY IN EQUITY FROM
INVESTMENT TRANSLATION NON-OWNER
($ in thousands) SECURITIES ADJUSTMENT SOURCES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $33,856 $ -- $33,856
Unrealized gains on investment securities,
net of tax of $35,316 65,587 -- 65,587
Less: reclassification adjustment for gains
included in net income, net of tax of $(15,705) (29,166) -- (29,166)
- --------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 36,421 -- 36,421
- --------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 70,277 -- 70,277
Unrealized gain on investment securities,
net of tax of $15,957 29,632 -- 29,632
Less: reclassification adjustment for gains
included in net income, net of tax of $(6,473) (12,020) -- (12,020)
- --------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 17,612 -- 17,612
- --------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 87,889 -- 87,889
Unrealized gains on investment securities,
net of tax of $(70,234) (130,433) -- (130,433)
Less: reclassification adjustment for losses
included in net income, net of tax of $1,741 3,232 -- 3,232
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE (127,201) -- (127,201)
====================================================================================================================
BALANCE, DECEMBER 31, 1999 $ (39,312) $ -- $ (39,312)
====================================================================================================================
</TABLE>
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, interest rate swaps, options and forward contracts as a means of
hedging exposure to interest rate, equity price, and foreign currency 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
F-12
<PAGE> 79
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
associated with these instruments can be less than these amounts. For
interest rate swaps, options, and forward contracts, credit risk is limited
to the amounts that it would cost the Company to replace the contracts.
Financial futures contracts and purchased listed option contracts have very
little credit risk since organized exchanges are the counterparties. The
Company as a writer of option contracts has no credit risk since the
counterparty has no performance obligation after it has paid a cash
premium.
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 that arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from
the sale or maturity of investments. To hedge against adverse changes in
interest rates, the Company enters long or short positions in financial
futures contracts which offset asset price changes resulting from changes
in market interest rates until an investment is purchased or a product is
sold.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 1999 and 1998, the Company held financial futures
contracts with notional amounts of $48.7 million and $41.5 million,
respectively. The deferred gains and/or losses on these contracts were not
significant at December 31, 1999 and 1998. At December 31, 1999 and
1998, 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 assets and liabilities. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated by
reference to an agreed 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. Swap agreements are not exchange traded so they are
subject to the risk of default by the counterparty.
As of December 31, 1999 and 1998, the Company held interest rate swap
contracts with notional amounts of $231.1 million and $165.3 million,
respectively. The fair value of these financial instruments was $9.5
million (loss position) at December 31, 1999, and was $3.4 million (gain
position) and $.7 million (loss position) at December 31, 1998. The fair
values were determined using the discounted cash flow method. At December
31, 1999, the Company held swap contracts with affiliate counterparties
with a notional amount of $43.7 million and a fair value of $4.7 million
(loss position).
F-13
<PAGE> 80
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company uses equity option contracts to manage its exposure to changes
in equity market prices that arise from the sale of certain insurance
products. To hedge against adverse changes in the equity market prices, the
Company enters long positions in equity option contracts with major
financial institutions. These contracts allow the Company, for a fee, the
right to receive a payment if the Standard and Poor's 500 Index falls below
agreed upon strike prices.
At December 31, 1999 and 1998, the Company held equity option contracts
with notional amounts of $275.4 million and zero, respectively. The fair
value of these financial instruments was $32.6 million (gain position) at
December 31, 1999. The fair values were determined using the discounted
cash flow method.
The off-balance sheet risks of interest rate options and forward contracts
were not significant at December 31, 1999 and 1998.
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 and
joint ventures. The off-balance sheet risk of these financial instruments
was not significant at December 31, 1999 and 1998.
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, 1999, investments in fixed maturities had a carrying value
and a fair value of $1.8 billion and $1.7 billion, respectively, compared
with a carrying value and a fair value of $1.7 billion and $1.8 billion,
respectively, at December 31, 1998. See Notes 1 and 10.
At December 31, 1999, mortgage loans had a carrying value of $155.7 million
and a fair value of $156.0 million and in 1998 had a carrying value of
$174.6 million and a fair value of $185.7 million. In estimating fair
value, the Company used interest rates reflecting the current real estate
financing market.
The carrying values of short-term securities and policy loans totaling
$91.3 million and $131.1 million in 1999 and 1998, respectively,
approximated their fair values and are included in other invested assets.
The carrying values of $57.6 million and $36.5 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1999 and 1998, respectively. The carrying values of $100.2
million and $98.4 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1999 and
1998, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
F-14
<PAGE> 81
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 1999, contractholder funds with defined maturities had a
carrying value of $878.9 million and a fair value of $780.5 million,
compared with a carrying value of $725.6 million and a fair value of $698.1
million at December 31, 1998. 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 $481.8 million and a fair value of $409.2 million at December 31, 1999,
compared with a carrying value of $483.0 million and a fair value of $442.5
million at December 31, 1998. These contracts generally are valued at
surrender value.
5. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 4.
Litigation
In the ordinary course of business, the Company is a defendant or
co-defendant in various litigation matters incidental to and typical of the
businesses in which it is engaged. In the opinion of the Company's
management, the ultimate resolution of these legal proceedings would not be
likely to have a material adverse effect on its results of operations,
financial condition or liquidity.
6. 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 1999, 1998 and
1997.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. 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 1999, 1998 and 1997.
7. 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
F-15
<PAGE> 82
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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, 1999 and 1998, the pool
totaled approximately $2.6 billion and $2.3 billion, respectively. The
Company's share of the pool amounted to $31.4 million and $93.1 million at
December 31, 1999 and 1998, 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 Corp. (TAP). Premiums and
deposits were $8.9 million and $70.6 million for 1998 and 1997,
respectively. The reduction in premiums and deposits from 1997 to 1998 was
a result of a decision during 1998 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 $766.4 million and $808.7 million at December
31, 1999 and 1998, respectively.
The Company began distributing variable annuity products through its
affiliate, the Financial Consultants of Salomon Smith Barney (SSB) in 1995.
Premiums and deposits related to these products were $1.1 billion, $932.1
million and $615.6 million in 1999, 1998 and 1997, respectively. In 1996,
the Company began marketing various life products through SSB as well. New
premiums related to such products were $40.8 million, $44.5 million and
$24.4 million in 1999, 1998 and 1997, respectively.
During 1998, the Company began distributing deferred annuity products
through its affiliates Primerica Financial Services (Primerica), Citibank,
N.A. (Citibank) and The Copeland Companies (Copeland). Deposits received
from Primerica were $763 million and $216 million. Deposits from Citibank
and Copeland were immaterial for 1999 and 1998.
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 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements are granted
Citigroup stock options.
Most leasing functions for TIGI and its subsidiaries are handled by TAP.
Rent expense related to these leases is shared by the companies on a cost
allocation method based generally on estimated usage by department. The
Company's rent expense was insignificant in 1999, 1998 and 1997.
F-16
<PAGE> 83
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 1999 and 1998, the Company had investments in Tribeca
Investments, L.L.C., an affiliate of the Company, in the amounts of $22.3
million and $18.3 million, respectively, included in other invested assets.
The Company has loaned $16.6 million of Corporate Bonds to SSB as of
December 31, 1999.
8. FEDERAL INCOME TAXES
The net deferred tax assets at December 31, 1999 and 1998 were comprised of
the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in thousands) 1999 1998
---- ----
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $161,629 $121,150
Investments, net 14,270 --
Other 2,394 2,810
----------------------------------------------------------------------------------------------------------------
Total 178,293 123,960
----------------------------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Investments, net -- (56,103)
Deferred acquisition costs and value of insurance in force (100,537) (51,993)
Other (1,208) (1,399)
----------------------------------------------------------------------------------------------------------------
Total (101,745) (109,495)
----------------------------------------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset Before Valuation Allowance 76,548 14,465
Valuation Allowance for Deferred Tax Assets (2,070) (2,070)
----------------------------------------------------------------------------------------------------------------
Net Deferred Tax Asset After Valuation Allowance $74,478 $12,395
----------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE> 84
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
TIC and its life insurance subsidiaries, including the Company, 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
1999. The initial recognition of any benefit provided by the reversal of
the valuation allowance will be recognized by reducing goodwill.
In management's judgment, the $74.5 million "net deferred tax asset after
valuation allowance" as of December 31, 1999, is fully recoverable against
expected future years' taxable ordinary income and capital gains. At
December 31, 1999, the Company had 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 or 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 $700 thousand.
9. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $136,039 $130,825 $120,900
Joint venture and partnership income 22,175 22,107 32,336
Mortgage loans 16,126 15,969 14,905
Other 4,417 3,322 2,284
--------------------------------------------------------------------------------------------------------------
178,757 172,223 170,425
--------------------------------------------------------------------------------------------------------------
Investment expenses 1,578 1,220 1,772
--------------------------------------------------------------------------------------------------------------
Net investment income $177,179 $171,003 $168,653
--------------------------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE> 85
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
10. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $2,657 $15,620 $29,236
Equity Securities 1,193 1,819 8,385
Other 1,025 525 2,180
Joint venture and partnerships (9,848) 529 5,070
--------------------------------------------------------------------------------------------------------------
Total Realized Investment Gains (Losses) $(4,973) $18,493 $44,871
--------------------------------------------------------------------------------------------------------------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as
accumulated other changes in equity from non-owner sources in shareholder's
equity were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $(181,715) $24,336 $34,451
Other (13,979) 2,760 21,581
--------------------------------------------------------------------------------------------------------------
Total unrealized investment gains (losses) (195,694) 27,096 56,032
Related taxes (68,493) 9,484 19,611
--------------------------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (127,201) 17,612 36,421
Balance beginning of year 87,889 70,277 33,856
--------------------------------------------------------------------------------------------------------------
Balance End of Year $(39,312) $87,889 $70,277
--------------------------------------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE> 86
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fixed Maturities
The amortized cost and fair values of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1999 AMORTIZED COST UNREALIZED UNREALIZED FAIR
($ in thousands) GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $211,864 $2,103 $(7,818) $206,149
U.S. Treasury securities and obligations
of U.S. Government and government agencies
and authorities 116,082 2,613 (3,704) 114,991
Obligations of states and political
subdivisions 29,801 7 (3,312) 26,496
Debt securities issued by foreign
governments 44,159 2,813 (198) 46,774
All other corporate bonds 1,358,769 10,351 (52,811) 1,316,309
Redeemable preferred stock 3,654 41 (466) 3,229
-----------------------------------------------------------------------------------------------------------------
Total Available For Sale $1,764,329 $17,928 $(68,309) $1,713,948
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1998 AMORTIZED COST UNREALIZED UNREALIZED FAIR
($ in thousands) 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>
Proceeds from sales of fixed maturities classified as available for sale
were $774 million, $1.1 billion and $857 million in 1999, 1998 and 1997,
respectively. Gross gains of $24.6 million, $32.6 million and $38.1 million
and gross losses of $22.0 million, $17.0 million and $8.9 million in 1999,
1998 and 1997, respectively were realized on those sales.
F-20
<PAGE> 87
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 $486.2
million and $427.0 million at December 31, 1999 and 1998, respectively.
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1999, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AMORTIZED FAIR
($ in thousands) COST VALUE
-------------------------------------------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $40,556 $40,092
Due after 1 year through 5 years 327,632 322,082
Due after 5 years through 10 years 451,635 441,307
Due after 10 years 732,642 704,318
-------------------------------------------------------------------------------------------
1,552,465 1,507,799
-------------------------------------------------------------------------------------------
Mortgage-backed securities 211,864 206,149
-------------------------------------------------------------------------------------------
Total Maturity $1,764,329 $1,713,948
-------------------------------------------------------------------------------------------
</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, 1999 and 1998, the Company held CMOs with a market value of
$167.7 million and $181.6 million, respectively. The Company's CMO holdings
were 65.9% and 62.9% collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1999 and 1998, respectively.
F-21
<PAGE> 88
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED
($ in thousands) COST GAINS LOSSES FAIR VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Common stocks $4,966 $ 730 $ (256) $5,440
Non-redeemable preferred stocks 29,407 533 (2,211) 27,729
------------------------------------------------------------------------------------------------------------------
Total Equity Securities $34,373 $1,263 $(2,467) $33,169
------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $5.1 million, $6.0 million
and $12.4 million in 1999, 1998 and 1997, respectively. Gross gains of $1.5
million, $2.6 million and $8.6 million were realized on those sales during
1999, 1998 and 1997, respectively.
Gross losses were insignificant during the same periods.
Mortgage Loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure and loans modified at interest rates below market.
At December 31, 1999 and 1998, the Company's mortgage loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
($ in thousands) 1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $151,814 $170,635
Underperforming Mortgage Loans 3,905 3,930
-----------------------------------------------------------------------------------
Total $155,719 $174,565
-----------------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1999 are as
follows:
<TABLE>
----------------------------------------------------------------
<S> <C>
($ in thousands)
2000 $20,791
2001 1,563
2002 6,292
2003 4,896
2004 4,167
Thereafter 118,010
================================================================
Total $155,719
================================================================
</TABLE>
F-22
<PAGE> 89
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
Significant individual investment concentrations included:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
($ in thousands) 1999 1998
---------------------------------------------------------------------
<S> <C> <C>
Tishman Speyer Joint Venture $63,199 $62,400
Bell South Corp. 23,689 53,322
---------------------------------------------------------------------
</TABLE>
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 7.
Included in fixed maturities are below investment grade assets totaling
$141.4 million and $102.4 million at December 31, 1999 and 1998,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds and notes that are classified as below
investment grade bonds.
The Company's industry concentrations of investments, primarily fixed
maturities, were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
($ in thousands) 1999 1998
---------------------------------------------------------------------
<S> <C> <C>
Banking $152,848 $160,713
Transportation 139,519 155,116
Electric utilities 103,897 109,027
Finance 103,385 69,916
Oil & Gas 102,739 45,172
---------------------------------------------------------------------
</TABLE>
The Company held investments in Foreign Banks in the amount of $125 million
and $115 million at December 31, 1999 and 1998, respectively, which are
included in the table above.
Below investment grade assets included in the preceding table were not
significant.
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often includes
pledges of assets, including stock and other assets, guarantees and letters
of credit. The Company's underwriting standards with respect to new
mortgage loans generally require loan to value ratios of 75% or less at the
time of mortgage origination.
Non-Income Producing Investments
Investments included in the December 31, 1999 and 1998 balance sheets that
were non-income producing were insignificant.
F-23
<PAGE> 90
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, 1999 and 1998 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.
11. DEPOSIT FUNDS AND RESERVES
At December 31, 1999, the Company had $2.1 billion of life and annuity
deposit funds and reserves. Of that total, $1.4 billion were not subject to
discretionary withdrawal based on contract terms. The remaining $.7 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 $.5 billion of liabilities that are
surrenderable with market value adjustments. The remaining $.2 billion of
life insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 4.9%. The
life insurance risks would have to be underwritten again if transferred to
another carrier, which is considered a significant deterrent for long-term
policyholders. Insurance liabilities that are surrendered or withdrawn from
the Company are reduced by outstanding policy loans and related accrued
interest prior to payout.
12. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by (used in)
operating activities:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
($ in thousands)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $ 52,606 $ 57,485 $ 71,372
Adjustments to reconcile net income to cash provided by
operating activities:
Realized gains (4,973) (18,493) (44,871)
Deferred federal income taxes 6,410 11,783 4,344
Amortization of deferred policy acquisition costs 38,902 15,956 4,944
Additions to deferred policy acquisition costs (211,182) (120,278) (56,975)
Investment income accrued (27,072) (3,821) 908
Premium balances (466) (6,786) (3,450)
Insurance reserves (16,431) (8,431) 3,981
Other (26,112) (2,806) 27,765
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations $(188,318) $(75,391) $8,018
------------------------------------------------------------------------------------------------------------------
</TABLE>
13. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing and financing activities
for 1999, 1998 and 1997.
F-24
<PAGE> 91
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.
<PAGE> 92
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.
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). Specimen Form of Selling Agreement. (Incorporated herein by reference to
Exhibit 3(b) 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. To be filed in
a subsequent amendment.
4. None
5. Form of Variable Life Insurance Policy. (Incorporated herein by reference
to Exhibit 5 to Post-Effective Amendment No. 3 to the Registration
Statement on Form S-6, File No. 333-69773, filed December 28, 1998.)
<PAGE> 93
6(a). Charter of The Travelers Life and Annuity Company, as amended on April
10, 1990. (Incorporated herein by reference to Exhibit 6(a) to the
Registration Statement on Form N-4, File No. 333-40191, filed November
13, 1997.)
6(b). By-Laws of The Travelers Life and Annuity Company, as amended on October
20, 1994. (Incorporated herein by reference to Exhibit 6(b) to the
Registration Statement on Form N-4, File No. 333-40191, filed November
13, 1997.)
7. None
8. None
9. None
10. Application for Variable Life Insurance Policy. To be filed by amendment.
11. Opinion of Counsel regarding the legality of securities being registered.
(Incorporated herein by reference to Exhibit 11 to Post-Effective
Amendment No. 3 to the Registration Statement on Form S-6, File No.
333-69771, filed December 28, 1998.)
12(a). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Michael A. Carpenter, Jay S. Benet, George C. Kokulis,
Robert I. Lipp, Ian R. Stuart, Katherine M. Sullivan and Marc P. Weill.
(Incorporated herein by reference to Exhibits 12 and 12(b) to the
Registration Statement and Post-Effective Amendment No. 1 on Form S-6
filed November 2, 1995 and April 25, 1997.)
12(b). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for George C. Kokulis, Katherine M. Sullivan and Glenn D.
Lammey. (Incorporated herein by reference to Exhibit 12(b) to
Post-Effective Amendment No. 4 to the Registration Statement on Form S-6,
File No. 33-63927 filed April 25, 2000
<PAGE> 94
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 registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Hartford, state of Connecticut, on the 25th day of April 2000.
THE TRAVELERS FUND UL II FOR VARIABLE LIFE INSURANCE
(Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
By:*GLENN D. LAMMEY
-----------------------------------------
Glenn D. Lammey, 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 25th day of April 2000.
*GEORGE C. KOKULIS Director, President and Chief Executive Officer
- ---------------------- (Principal Executive Officer)
(George C. Kokulis)
*KATHERINE M. SULLIVAN Director
- ----------------------
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ----------------------
(Marc P. Weill)
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
Attachment
or
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <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
</TABLE>
<PAGE> 1
ATTACHMENT B
Re: Travelers' Variable Survivorship Life (File No. 333-69773)
The Travelers Fund UL II for Variable Life Insurance
Dear Sir or Madam:
In my capacity as Actuary of The Travelers Life and Annuity Company, I
have provided actuarial advice concerning Travelers' Variable Survivorship Life
product. I also provided actuarial advice concerning the preparation of the
Registration Statement on Form S-6, File No. 333-69773 (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 25, 2000
<PAGE> 1
ATTACHMENT C
Consent of Independent Certified Public Accountants
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 under the heading "Experts" in the prospectus.
/s/KPMG LLP
Hartford, Connecticut
April 25, 2000
