<PAGE> 1
Registration Statement No. 333-71349
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-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 III FOR VARIABLE LIFE INSURANCE
B. Name of Depositor: THE TRAVELERS INSURANCE 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 Insurance 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)
______ on ___________ 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.
E. Title of securities being registered:
Variable Life Insurance Policies.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940 the
Registrant hereby declares that an indefinite amount of its Variable
Life Insurance Policies is being registered under the Securities Act of
1933.
F. Approximate date of proposed public offering:
As soon as practicable following the effectiveness of the Registration
Statement
<PAGE> 2
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
______ Check the box if it is proposed that this filing will become effective
on ____ at ___ pursuant to Rule 487. ______
<PAGE> 3
RECONCILIATION AND TIE BETWEEN
FORM N-8B-2 AND THE 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 III for Variable Life Insurance
6 The Travelers Fund UL III for Variable Life Insurance
7 Not applicable
8 Not applicable
9 Legal Proceedings and Opinion
10 Prospectus Summary; The Company; The Travelers Fund UL III
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
45 Not applicable
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
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> 5
TRAVELERS
CORPORATE OWNED VARIABLE
UNIVERSAL LIFE INSURANCE POLICIES
PROSPECTUS
This Prospectus describes Travelers corporate owned variable universal (flexible
premium) life insurance Policies (the "Policy") offered by The Travelers
Insurance Company (the "Company"). The policy is designed generally for use by
corporations and employers. The Policy Owner ("you") chooses the amount of life
insurance coverage desired with a minimum Stated Amount of $50,000. You direct
the net premium payment to one or more of the variable funding options (the
"Investment Options") and/or the Fixed Account.
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 Contract Value. The Contract 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 Contract Value is reduced by the various fees and charges
assessed under the Policy, as described in this Prospectus. The Policy will
remain in effect for as long as the Cash Surrender Value can pay the monthly
Policy charges (subject to the Grace Period provision).
We offer three death benefits under the Policy -- the "Level Option," the
"Variable Option," and the "Annual Increase Option." Under any 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, 1999.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary of Special Terms............. 3
Prospectus Summary.................... 5
General Description................... 10
Group or Individual Policy.......... 10
The Application..................... 10
How the Policy Works.................. 10
Applying Premium Payments........... 10
The Investment Options.............. 11
The Fixed Accounts.................. 16
Policy Benefits and Rights.......... 17
Transfers of Contract Value......... 17
Investment Options............... 17
Fixed Account.................... 17
Telephone Transfers.............. 17
Automated Transfers................. 17
Dollar Cost Averaging............ 17
Portfolio Rebalancing............ 17
Lapse and Reinstatement............. 18
Insured Term Rider.................. 18
Exchange Rights..................... 18
Right to Cancel..................... 18
Access to Contract Values............. 18
Policy Loans........................ 18
Consequences..................... 19
Policy Surrenders................... 19
Full Surrenders.................. 19
Partial Withdrawals.............. 19
Death Benefit......................... 19
Option 1............................ 20
Option 2............................ 21
Option 3............................ 21
Payment of Proceeds................. 21
Payment Options..................... 21
Maturity Benefits..................... 22
Charges and Deductions................ 22
Charges Against Premium............. 22
Front-End Sales Charge........... 22
Monthly Deduction Amount............ 22
Cost of Insurance Charge......... 22
Monthly Policy Charge............ 23
Charges Against the Separate
Account.......................... 23
Mortality and Expense Risk
Charge......................... 23
Underlying Fund Expenses............ 23
Transfer Charge..................... 23
Reduction or Elimination of
Charges.......................... 23
The Separate Account and Valuation.... 23
The Travelers Fund UL III for
Variable Life Insurance (Fund UL
III)............................. 23
How the Contract Value Varies.... 24
Accumulation Unit Value.......... 24
Net Investment Factor............ 24
Changes to the Policy................. 25
General............................. 25
Changes in Stated Amount............ 25
Changes in Death Benefit Option..... 25
Additional Policy Provisions.......... 26
Assignment.......................... 26
Limit on Right to Contest and
Suicide Exclusion................ 26
Misstatement as to Sex and Age...... 26
Voting Rights....................... 26
Disregard of Voting Instructions.... 26
Other Matters......................... 27
Statements to Policy Owners......... 27
Suspension of Valuation............. 27
Dividends........................... 27
Mixed and Shared Funding............ 27
Distribution........................ 27
Legal Proceedings and Opinion....... 28
Independent Accountants............. 28
Federal Tax Considerations............ 29
General............................. 29
Tax Status of the Policy............ 29
Definition of Life Insurance..... 29
Diversification.................. 29
Investor Control................. 29
Tax Treatment of Policy Benefits.... 30
In General....................... 30
Modified Endowment Contracts..... 31
Exchanges........................ 31
Aggregation of Modified Endowment
Contracts...................... 32
Policies Which are not Modified
Endowment Contracts............ 32
Treatment of Loan Interest....... 32
The Company's Income taxes....... 32
The Company........................... 32
IMSA................................ 33
Year 2000 Compliance................ 33
Management.......................... 34
Directors of The Travelers
Insurance Company.............. 34
Senior Officers of The Travelers
Insurance Company.............. 35
Example of Policy Charges............. 35
Illustrations......................... 36
Appendix A (Performance
Information)........................ A-1
Appendix B (Target Premiums).......... B-1
Appendix C (Cash Value Accumulation
Test Factors)....................... C-1
Financial Statements.................. F-1
</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 Insured's death.
CASH SURRENDER VALUE -- the Contract Value less any outstanding Policy loans.
CONTRACT VALUE -- the current value of Accumulation Units credited to each of
the Investment Options available under the Policy, plus the value of the Fixed
Account and the value of the Loan Account.
COMPANY'S HOME OFFICE -- the principal executive offices of The Travelers
Insurance Company located at One Tower Square, Hartford, Connecticut 06183.
DEATH BENEFIT -- the amount payable to the Beneficiary if the Insured dies while
the policy is in force.
DEDUCTION DATE -- the day in each Policy Month on which the Monthly Deduction
Amount is deducted from the Policy's Contract Value.
FIXED ACCOUNT -- part of the General Account of the Company.
GENERAL ACCOUNT -- made up of all our assets other than those held in the
Separate Account.
INSURED -- the person on whose life the Policy is issued and who is named on
Schedule A of the Application.
INVESTMENT OPTIONS -- the segments of the Separate Account to which you may
allocate premiums or Contract Value. Each investment option invests directly in
a corresponding Underlying Fund.
ISSUE DATE -- the date on which the Policy is issued by the Company for delivery
to the Policy Owner.
LOAN ACCOUNT -- an account in the Company's general account to which we transfer
the amount of any Policy loan, and to which we credit a fixed rate of interest.
MATURITY DATE -- The anniversary of the Policy Date on which the Insured is age
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
Contract Value which includes cost of insurance charges, administrative charges,
and any charges for benefits associated with any rider(s).
NET AMOUNT AT RISK -- the Amount Insured for the month divided by 1.0032734
minus the Contract Value.
NET PREMIUM -- the amount of each premium payment, minus the deduction of any
front-end sales expense 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.
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 Insured; the Policy Owner 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 Insurance Company, the
investment experience of which is kept separate from that of other assets of The
Travelers Insurance Company; for example, The Travelers Fund UL III 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.
TARGET PREMIUM -- the level annual premium above which the sales expense charges
are reduced. Refer to Appendix B.
UNDERLYING FUND -- the underlying mutual fund(s) that correspond to each
Investment Option. Each Investment Option invests directly in a 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 the close of trading on the New York Stock Exchange.
VALUATION PERIOD -- the period between the close of business on successive
Valuation Dates.
4
<PAGE> 9
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
WHAT IS CORPORATE OWNED VARIABLE UNIVERSAL LIFE INSURANCE?
This Flexible Premium Variable Life Insurance Policy is designed for
corporations and employees to provide insurance protection on the life of
Insured employees and to build Contract Value. In addition, under certain
circumstances, individuals may purchase a Policy. Like other life insurance, it
provides an income-tax free death benefit that is payable to the Beneficiary
upon the death of the Insured. Unlike traditional, fixed-premium life insurance,
the Policy allows you, as the owner, to allocate your premium, or transfer
Contract Value to various Investment Options and a Fixed Account. These
Investment Options include equity, bond, money market and other types of
portfolios. Your Contract Value will change daily, depending on investment
return. No minimum amount is guaranteed as in a traditional life insurance
policy.
SUMMARY OF FEATURES
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>
EMERGING MARKETS BALANCED
Warburg Pincus Trust Emerging Markets Salomon Brothers Total Return Fund
Portfolio MFS Total Return Portfolio
Fidelity VIP II Asset Manager Portfolio
INTERNATIONAL
Lazard International Stock Portfolio INDEX
Smith Barney International Equity Portfolio Bankers Trust EAFE Index Fund
Bankers Trust Small Cap Index Fund
SMALL CAP Equity Index Portfolio
Delaware Premium Small Cap Value Series
Dreyfus Small Cap Portfolio BOND
Travelers Disciplined Small Cap Stock Travelers U.S. Government Securities
Portfolio Portfolio
Travelers Convertible Bond Portfolio
MID CAP Putnam Diversified Income Portfolio
Salomon Brothers Cap Fund Travelers High Yield Bond Trust
MFS Emerging Growth Portfolio Salomon Brothers Strategic Bond Fund
MFS Mid Cap Growth Portfolio Greenwich Street Diversified Strategic Income
Strong Schaefer Value Fund II Portfolio
Travelers Disciplined Mid-Cap Stock Portfolio American Odyssey Intermediate-Term Bond
Aim Capital Appreciation Portfolio Fund
Montgomery Variable Series: Growth Fund
MONEY MARKET
LARGE CAP Travelers Money Market Portfolio
Fidelity Large Cap Portfolio
Fidelity Equity Income REAL ESTATE
NWQ Large Cap Portfolio Delaware Investment REIT Series
OpCap Trust Equity Portfolio
Alliance Growth Portfolio NON-STYLE SPECIFIC
Capital Appreciation (Janus) Utilities Portfolio
Dreyfus Capital Appreciation Portfolio Social Awareness Stock Portfolio
Van Kampen Enterprise Portfolio Jurika & Voyles Core Equity Portfolio
Salomon Brothers Investors Fund MFS Research Portfolio
Smith Barney Large Capitalization Growth Strategic Stock Portfolio
Portfolio
</TABLE>
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.
5
<PAGE> 10
FIXED ACCOUNT: The Fixed Account is funded by the assets of the General
Account. The Contract Value allocated to the Fixed Account is credited with
interest daily at a rate declared by the
5.1
<PAGE> 11
Company. The interest rate declared is at the Company's sole discretion, but may
never be less than 3%.
PREMIUMS: When applying for your Policy, you state how much you intend to pay,
and whether you will pay annually, semiannually or monthly. You may also make
unscheduled premium payments in any amount, subject to the limitations described
in this prospectus.
You indicate on your application what percentage of each Net Premium you would
like allocated to the Investment Options and/or the Fixed Account. You may not
allocate less than 5% of each Net Premium to any Investment Option and/or Fixed
Account. You may change your allocations by writing to the Company or by calling
1-800-842-9368.
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
unless you purchase the Contract in a state which permits us to refund Contract
Value. Then you may invest your Net Premium in any Investment Option during the
right to cancel period. After that, the Contract Value will be distributed to
each Investment Option in the percentages indicated on your application.
RIGHT TO EXAMINE POLICY: You may return your Policy for any reason and receive
a full refund of your premium or Contract, as required by state law, 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 Contract Value or the Minimum
Amount Insured.
- ANNUAL INCREASE OPTION (OPTION 3): the Amount Insured will equal the
Stated Amount of the Policy plus Premiums, minus withdrawals, accumulated
at a specified interest rate not to exceed 10% on an annual basis.
POLICY VALUES: As with other types of insurance policies, this Policy can
accumulate a Contract Value. The Contract 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 Contract Value.
There is no minimum guaranteed Contract Value allocated to the Investment
Options. As discussed below, any premium payments allocated to the Fixed Account
is credited with a minimum guarantee of 3% in any given year.
- ACCESS TO POLICY VALUES: You may borrow up to 100% of your Policy's Cash
Surrender Value. (See "Policy Loans" for loan impact on coverage and
policy values.)
You may cancel all or a portion of your Policy while the Insured is living and
receive all or a portion of the Cash Surrender Value.
TRANSFERS OF POLICY VALUES: You may transfer all or a portion of your Contract
Value among the Investment Options. There are restrictions on the transfer of
your Contract Value to and from the Fixed Account. 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.
GRACE PERIOD: If the Cash Surrender Value of your Policy becomes less than the
amount needed to pay the Monthly Deduction Amount, you will have 61 days to pay
a premium to cover the Monthly Deduction Amount. If the premium is not paid,
your Policy will lapse.
EXCHANGE RIGHTS: During the first two Policy Years, you can elect to
irrevocably transfer all Contract value in the Investment Options to the Fixed
Account.
6
<PAGE> 12
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 risks. These charges are summarized below, and
explained in detail under "Charges and Deductions."
POLICY CHARGES:
- SALES EXPENSES CHARGES -- We deduct a sales charge from each premium
payment received which is guaranteed never to exceed 9% of such Target
Premium in all years and 5% on amounts in excess of the Target Premium in
all years. On a current basis, the sales expense charge is 7% of the
Target Premium for Contract Years 1-7 and 3.5% thereafter.
- MONTHLY DEDUCTION -- deductions taken from the value of your Policy each
month to cover cost of insurance charges, Policy Fee of $5.00 and charges
for optional rider(s).
- SURRENDER CHARGE -- There is no surrender charge.
ASSET-BASED CHARGES: (Not Assessed on Contract Values in the Fixed
Account)
- MORTALITY AND EXPENSE RISK CHARGE -- applies to the assets of the
Investment Options on a daily basis which currently equals an annual rate
of .45% for Policy Years 1 through 4, .25% for Policy Years 5 through 20,
and .05% thereafter. It is guaranteed not to exceed .75% in all years.
- 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 Fund Fees are summarized below:
TRAVELERS CORPORATE VARIABLE LIFE
1999 FUND EXPENSES
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FUND NAME FEE EXPENSES EXPENSES
--------- ---------- -------- --------
<S> <C> <C> <C>
Capital Appreciation Fund.................................. 0.75% 0.10% 0.85%
Travelers High Yield Bond Trust............................ 0.50% 0.32% 0.82%
Money Market Portfolio(1).................................. 0.32% 0.08% 0.40%
AMERICAN ODYSSEY FUNDS, INC.
American Odyssey Intermediate Term Bond Portfolio.......... 0.49% 0.11% 0.60%
BT INSURANCE FUNDS TRUST:
Bankers Trust EAFE Index Fund(2)........................... 0.11% 0.54% 0.65%
Bankers Trust Small Cap Index Fund(2)...................... 0.05% 0.40% 0.45%
DELAWARE GROUP PREMIUM FUND, INC.
Delaware Investments REIT Series(3)........................ 0.58% 0.27% 0.85%
Delaware Premium Small Cap Value Series.................... 0.75% 0.10% 0.85%
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Capital Appreciation Portfolio..................... 0.75% 0.06% 0.81%
Dreyfus Small Cap Portfolio................................ 0.75% 0.02% 0.77%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager Portfolio(4).......................... 0.54% 0.09% 0.63%
GREENWICH STREET SERIES
Equity Index Portfolio(5).................................. 0.21% 0.09% 0.30%
Diversified Strategic Income Portfolio(6).................. 0.65% 0.13% 0.78%
</TABLE>
7
<PAGE> 13
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FUND NAME FEE EXPENSES EXPENSES
--------- ---------- -------- --------
<S> <C> <C> <C>
MONTGOMERY FUND III
Montgomery Variable Series Growth Fund(7).................. 1.00% 0.25% 1.25%
OCC ACCUMULATION TRUST
OCC Accumulation Trust Equity Portfolio.................... 0.80% 0.14% 0.94%
SALOMON BROTHERS VARIABLE SERIES FUND, INC.
Salomon Brothers Variable Capital Fund(8).................. 0.85% 0.15% 1.00%
Salomon Brothers Variable Investors Fund(8)................ 0.70% 0.30% 1.00%
Salomon Brothers Variable Strategic Bond Fund(8)........... 0.75% 0.25% 1.00%
Salomon Brothers Variable Total Return Fund(8)............. 0.80% 0.20% 1.00%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schaefer Value Fund II(9)........................... 1.00% 0.20% 1.20%
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Portfolio(10)..................... 0.80% 0.05% 0.85%
Alliance Growth Portfolio(10).............................. 0.80% 0.02% 0.82%
MFS Total Return Portfolio(10)............................. 0.80% 0.04% 0.84%
Putnam Diversified Income Portfolio(10).................... 0.75% 0.12% 0.87%
Smith Barney International Equity Portfolio(10)............ 0.90% 0.10% 1.00%
Smith Barney Large Capitalization Growth Portfolio(11)..... 0.75% 0.25% 1.00%
Van Kampen Enterprise Portfolio(10)........................ 0.70% 0.03% 0.73%
TRAVELERS SERIES TRUST
Convertible Bond Portfolio(12)............................. 0.60% 0.20% 0.80%
Disciplined Mid Cap Portfolio(13).......................... 0.70% 0.25% 0.95%
Disciplined Small Cap Stock Portfolio(12).................. 0.80% 0.20% 1.00%
Equity-Income Portfolio(13)................................ 0.75% 0.20% 0.95%
Jurika & Voyles Core Equity Portfolio(14).................. 0.75% 0.25% 1.00%
Large Cap Portfolio(13).................................... 0.75% 0.20% 0.95%
Lazard International Stock Portfolio....................... 0.83% 0.42% 1.25%
MFS Emerging Growth Portfolio.............................. 0.75% 0.14% 0.89%
MFS Mid Cap Growth Portfolio(12)........................... 0.80% 0.20% 1.00%
MFS Research Portfolio(12)................................. 0.80% 0.20% 1.00%
NWQ Large Cap Portfolio(14)................................ 0.75% 0.25% 1.00%
Social Awareness Stock Portfolio........................... 0.65% 0.19% 0.84%
Strategic Stock Portfolio(12).............................. 0.60% 0.30% 0.90%
U.S. Government Securities Portfolio....................... 0.32% 0.13% 0.45%
Utilities Portfolio........................................ 0.65% 0.15% 0.80%
WARBURG PINCUS TRUST
Warburg Pincus Trust Emerging Markets Portfolio(15)........ 0.002% 0.012% 1.40%
</TABLE>
- ---------------
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage
commissions, interest charges and taxes) exceeds 0.40%. Without such
arrangement, Total Expenses would have been 0.65% for the Travelers Money
Market Portfolio.
(2) These fees reflect an expense reimbursement arrangement whereby the adviser
has agreed to reimburse the funds an amount based on the weighted average
between the management fee and other expenses. Without such arrangement,
the Management Fee and Other Expenses for the Bankers Trust EAFE Index
Portfolio and Small Cap Index Portfolio would have been 0.45% and 1.21%,
and 0.35% and 1.23% respectively.
(3) The adviser for the Delaware REIT Series has agreed to voluntarily waive
its fee and pay the expenses of the Series to the extent that the Series'
annual operating expenses, exclusive of taxes, interest, brokerage
commissions and extraordinary expenses, do not exceed 0.85% of its average
daily net assets through October 31, 1999. Without such arrangements, the
Total Annual Operating Expenses for the Portfolio would have been 1.02%.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized, as a result of uninvested cash balances were used to
reduce custodian expenses. Without these reductions,
8
<PAGE> 14
the Total Annual Operating Expenses presented in this table would have been
0.64% for VIP II Asset Manager Portfolio, 0.58% for VIP Equity Income
Portfolio, and 0.68% for VIP Growth Portfolio.
(5) Other expenses for the Equity Index Portfolio have been restated to reflect
the current expense reimbursement arrangement whereby the adviser has
agreed to reimburse the Portfolio for the amount by which expenses exceed
0.30%. Without such arrangement, Total Annual Operating Expenses would have
been 0.42%. In addition, the Portfolio Management Fee includes 0.06% for
fund administration. Class 2 of this fund has a distribution plan or "Rule
12b-1 plan".
(6) The Portfolio Management Fee for the Smith Barney Appreciation Portfolio
and the Diversified Strategic Income Portfolio includes 0.20% for fund
administration.
(7) The investment manager of the Montgomery Variable Series: Growth Fund has
agreed to reduce some or all of its management fees if necessary to keep
Total Annual Operating Expenses, expressed on an annualized basis, at or
below one and one quarter percent (1.25%) of its average net assets. Absent
this waiver of fees, the Portfolio's Total Annual Operating Expenses would
equal 1.40%.
(8) SBAM has waived all of its Management Fees for the following Salomon
Brothers Funds for the period ended December 31, 1998. If such fees were
not waived or expenses reimbursed, the actual annualized Total Annual
Operating Expenses for the Investors Fund, the High Yield Bond Fund, the
Capital Fund, the Strategic Bond Fund, and the Total Return Fund would have
been 2.07%, 2.04%, 3.26%, 1.79%, and 2.90%, respectively.
(9) The Adviser for Strong Schafer Value Fund II has voluntarily agreed to cap
the Fund's Total Annual Operating Expenses at 1.20%. The adviser has no
current intention to, but may in the future, discontinue or modify any
waiver of fees or absorption of expenses at its discretion without further
notification. Absent the waiver of fees, the Total Annual Operating
Expenses would be 2.00%.
(10) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There
were no fees waived or expenses reimbursed for these funds in 1998.
(11) The Manager waived all or part of its fees for the period ended October 31,
1998. If such fees were not waived, the annualized Total Annual Operating
Expenses for the Smith Barney Large Capitalization Growth Portfolio would
have been 1.77%.
(12) Travelers Insurance has agreed to reimburse the Convertible Bond Portfolio,
the Strategic Stock Portfolio, the Disciplined Small Cap Stock Portfolio,
the MFS Mid Cap Growth Portfolio, and the MFS Research Portfolio for
expenses for the period ended December 31, 1998. If such expenses were not
reimbursed, the actual annualized Total Annual Operating Expenses would
have been 1.86%, 1.51%, 2.98%, 1.62%, and 1.37% respectively.
(13) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolios for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%.
Without such arrangements, the Total Annual Operating Expenses for the
Portfolios would have been 1.22% for the Travelers Disciplined Mid Cap
Stock Portfolio, 1.23% for the Large Cap Portfolio, and 1.09% for the
Equity Income Portfolio.
(14) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolios for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 1.00%.
Without such arrangements, the annualized Total Annual Operating Expenses
for the Portfolios would have been 1.64% for the NWQ Large Cap Portfolio
and 1.89% for the Jurika and Voyles Core Equity Portfolio.
(15) Fee waivers and expense reimbursements or credits reduced expenses for the
Warburg Pincus Emerging Markets Portfolio during 1998, but this may be
discontinued at any time. Absent this waiver of fees, the Portfolio's
Management Fees, Other Expenses and Total Annual Operating Expenses would
equal 1.25%, 6.96% and 8.21%, respectively. The Portfolio's other expenses
are based on annualized estimates of expenses for the fiscal year ending
December 31, 1998, net of any fee waivers or expense reimbursements.
9
<PAGE> 15
GENERAL DESCRIPTION
- --------------------------------------------------------------------------------
This prospectus describes a flexible premium variable life insurance policy
offered by The Travelers Insurance Company to corporations and employers and
individuals under certain circumstances. It provides life insurance protection
on the life (of an Insured), and pays policy proceeds when the Insured 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 three death benefit options
- Loans and partial withdrawal privileges
- The ability to increase or decrease the Policy's face amount of insurance
- Additional benefits through the use of an optional rider
This Policy is both an insurance product and a security. The Policy is first and
foremost a life insurance Policy with death benefits, Contract Values and other
features traditionally associated with life insurance. The Policy is a security
because the Contract 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.
GROUP OR INDIVIDUAL POLICY. The policy may be issued either as an individual or
group policy. Under an individual or group policy, the Insured generally will be
an employee. The Certificate, and Group Policy, and Individual Policies are
hereafter collectively referred to as the "Policy."
THE APPLICATION. In order to become a policy owner, you must submit an
application with information about the proposed insured. The insured must sign a
life insurance consent form and provide evidence of insurability, as required.
On the application, you will also indicate:
- the amount of insurance desired (the "stated amount"); minimum of $50,000
- your choice of the three 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 and the Fixed Account. The Policy's Contract 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 Insured dies, we will pay your beneficiary
the Death Benefit Option plus any additional rider Death Benefit. Your Policy
will stay in effect as long as the Policy's Cash Surrender Value can pay the
Policy's monthly charges.
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
10
<PAGE> 16
Portfolio unless state law permits us to refund Contract Value under the Right
to Cancel provision. Then, you may invest your Net Premium in any Investment
Option. At the end of the Right to Cancel Period, we direct the net premiums to
the Investment Option(s) and/or the Fixed Account selected on the application,
unless you give us other directions.
Any premium allocation must be at least 5% and must be in whole percentages. You
may make additional payments at any time while your Policy is in force. We
reserve the right to require evidence of insurability before accepting
additional premium payments which result in an increased Net Amount at Risk. We
will return any additional premium payments which would exceed the limits
prescribed by federal income tax laws or regulations which would prevent the
Policy from qualifying as life insurance.
The investment options are segments of the separate account. They correspond to
underlying funds with the same names. The available investment options are
listed below.
We credit your policy with accumulation units of the investment option(s) you
have selected. We calculate the number of accumulation units by dividing your
net premium payment by each investment option's accumulation unit value computed
after we receive your payment.
THE INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Investment Options currently available under Fund UL III 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.
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 Travelers Asset Management
use of common stocks. Income is not an International Corporation
objective. The Fund invests ("TAMIC")
principally in common stocks of small Subadviser: Janus Capital
to large companies which are expected Corp.
to experience wide fluctuations in
price in both rising and declining
markets.
High Yield Bond Trust Seeks generous income. The assets of TAMIC
the High Yield Bond Trust will be
invested in bonds which, as a class,
sell at discounts from par value and
are typically high risk securities.
Money Market Portfolio Seeks high current income from short- TAMIC
term money market instruments while
preserving capital and maintaining a
high degree of liquidity.
AMERICAN ODYSSEY FUNDS, INC.
Intermediate-Term Bond Seeks maximum long-term total return American Odyssey Funds
Fund by investing primarily in Management, Inc.
intermediate-term corporate debt Subadviser: TAMIC
securities, U.S. government
securities, mortgage-related
securities and asset-backed
securities, as well as money market
instruments.
</TABLE>
11
<PAGE> 17
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
BT INSURANCE FUNDS TRUST
EAFE Equity Index Fund Seeks to replicate, before deduction Bankers Trust Global
of expenses, the total return Investment Management
performance of the EAFE index.
Small Cap Index Fund Seeks to replicate, before deduction Bankers Trust Global
of expenses, the total return Investment Management
performance of the Russell 2000 index.
DELAWARE GROUP PREMIUM
FUND, INC.
REIT Series Seeks to achieve maximum long-term Delaware Management Company,
total return. Capital appreciation is Inc.
a secondary objective. The Series Subadviser:
seeks to achieve its objectives by Lincoln Investment
investing in securities of companies Management, Inc.
primarily engaged in the real estate
industry. Under normal circumstances,
at least 65% of the Series total
assets will be invested in equity
securities of real estate investment
trusts ("REITs"). The Series operates
as a nondiversified fund as defined by
the Investment Company Act of 1940.
Small Cap Value Series Seeks capital appreciation by Delaware Management
investing in small-to mid-cap common Company, Inc.
stocks whose market value appears low
relative to their underlying value or
future earnings and growth potential.
Emphasis will also be placed on
securities of companies that may be
temporarily out of favor or whose
value is not yet recognized by the
market.
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
VIP II Asset Manager Seeks high total return with reduced Fidelity Management &
Portfolio risk over the long-term by allocating Research Company ("FMR")
its assets among stocks, bonds and
short-term fixed-income instruments.
GREENWICH STREET SERIES
FUND
Diversified Strategic Seeks high current income by investing SSBC Funds Management Inc.
Income Portfolio primarily in the following fixed ("SSBC")
income securities: U.S. Gov't and Subadviser:
mortgage-related securities, foreign Smith Barney Global Capital
gov't bonds and corporate bonds rated Management, Inc.
below investment grade.
Equity Index Portfolio Seeks to replicate, before deduction Travelers Investment
of expenses, the total return Management Company ("TIMCO")
performance of the S&P 500 Index.
MONTGOMERY FUND III
Montgomery Variable Seeks capital appreciation. Under Montgomery Asset Management
Series Growth Fund normal conditions, it invests at least
65% of its assets in equity
securities.
</TABLE>
12
<PAGE> 18
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
OCC ACCUMULATION TRUST
Equity Portfolio Seeks long-term capital appreciation OpCap Advisors
through investment in securities
(primarily equity securities) of
companies that are believed by the
adviser to be undervalued in the
marketplace in relation to factors
such as the companies' assets or
earnings.
SALOMON BROTHERS VARIABLE
SERIES FUND, INC.
Salomon Brothers Variable Seeks long-term growth of capital. Salomon Brothers Asset
Investors Fund Current income is a secondary Management ("SBAM")
objective.
Salomon Brothers Variable Seeks above-average income (compared SBAM
Total Return Fund to a portfolio invested entirely in
equity securities). Secondarily, seeks
opportunities for growth of capital
and income.
Salomon Brothers Variable Seeks high level of current income. As SBAM
Strategic Bond Fund a secondary objective, the Portfolio
will seek capital appreciation.
Salomon Brothers Variable Seeks capital appreciation through SBAM
Capital Fund investments primarily in common stock,
or securities convertible to common
stocks, which are believed to have
above-average price appreciation
potential and which may also involve
above-average risk.
STRONG VARIABLE INSURANCE
FUNDS, INC.
Strong Schafer Value Seeks primarily long-term capital Strong Capital Management,
Fund II appreciation. Current income is a Inc. Subadviser: Schafer
secondary objective when selecting Capital Management Inc.
investments.
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Seeks capital appreciation by Travelers Investment Advisers
Portfolio investing principally in common stock, ("TIA") Subadviser: AIM
with emphasis on medium-sized and Capital Management, Inc.
smaller emerging growth companies.
Alliance Growth Portfolio Seeks long-term growth of capital by TIA
investing predominantly in equity Subadviser: Alliance Capital
securities of companies with a Management L.P.
favorable outlook for earnings and
whose rate of growth is expected to
exceed that of the U.S. economy over
time. Current income is only an
incidental consideration.
MFS Total Return Seeks to obtain above-average income TIA
Portfolio (compared to a portfolio entirely Subadviser: Massachusetts
invested in equity securities) Finance Services Company
consistent with the prudent employment ("MFS")
of capital. Generally, at least 40% of
the Portfolio's assets will be
invested in equity securities.
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Putnam Diversified Seeks high current income consistent TIA
Income Portfolio with preservation of capital. The Subadviser: Putnam
Portfolio will allocate its Investment
investments among the U.S. Government Management, Inc.
Sector, the High Yield Sector, and the
International Sector of the fixed
income securities markets.
Smith Barney Total return on assets from growth of SSBC
International Equity capital and income by investing at
Portfolio least 65% of its assets in a
diversified portfolio of equity
securities of established non-U.S.
issuers.
Smith Barney Large Seeks long-term growth of capital by SSBC
Capitalization Growth investing in equity securities of
Portfolio companies with large market
capitalizations.
Van Kampen Enterprise Capital appreciation through SSBC
Portfolio investment in securities believed to Subadviser: Van Kampen Asset
have above-average potential for Management, Inc.
capital appreciation. Any income
received on such securities is
incidental to the objective of capital
appreciation.
TRAVELERS SERIES TRUST
Convertible Bond Seeks current income and capital TAMIC
Portfolio appreciation by investing in
convertible securities and in
combinations of nonconvertible
fixed-income securities and warrants
or call options that together resemble
convertible securities ("synthetic
convertible securities").
Disciplined Mid Cap Stock Seeks growth of capital by investing TAMIC.
Portfolio primarily in a broadly diversified Subadviser: TIMCO
portfolio of common stocks.
Disciplined Small Cap Seeks long term capital appreciation TAMIC.
Stock Portfolio by investing primarily (at least 65% Subadviser: TIMCO
of its total assets) in the common
stocks of U.S. Companies with
relatively small market
capitalizations at the time of
investment.
Equity Income Portfolio Seeks reasonable income by investing TAMIC
at least 65% in income-producing Subadviser: FMR
equity securities. The balance may be
invested in all types of domestic and
foreign securities, including bonds.
The Portfolio seeks to achieve a yield
that exceeds that of the securities
comprising the S&P 500. The Subadviser
also considers the potential for
capital appreciation.
Jurika & Voyles Core Seeks long-term capital appreciation. TAMIC.
Equity Portfolio The Portfolio invests primarily in the Subadviser: Jurika & Voyles
common stock of quality companies of L.P.
all market capitalizations that offer
current value and significant future
growth potential
</TABLE>
14
<PAGE> 20
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Large Cap Portfolio Seeks long-term growth of capital by TAMIC
investing primarily in equity Subadviser: FMR
securities of companies with large
market capitalizations.
Lazard International Seeks capital appreciation by TAMIC
Stock Portfolio investing primarily in the equity Subadviser: Lazard Asset
securities of non-United States Management
companies (i.e., incorporated or
organized outside the United States).
MFS Emerging Growth Seeks long-term growth of capital. TAMIC
Portfolio Dividend and interest income from Subadviser: MFS
portfolio securities, if any, is
incidental.
MFS Mid Cap Growth Seeks to obtain long-term growth of TAMIC
Portfolio capital by investing under normal Subadviser: MFS
market conditions, at least 65% of its
total assets in equity securities of
companies with medium market
capitalization which the investment
adviser believes have above-average
growth potential.
MFS Research Portfolio Seeks to provide long-term growth of TAMIC
capital and future income. Subadviser: MFS
Social Awareness Stock Long-term capital appreciation and SSBC
Portfolio retention of net investment income.
The Portfolio seeks to fulfill this
objective by selecting investments,
primarily common stocks, which meet
the social criteria established for
the Portfolio. Social criteria
currently excludes companies that
derive a significant portion of their
revenues from the production of
tobacco, tobacco products, alcohol, or
military defense systems, or in the
provision of military defense related
services or gambling services.
Strategic Stock Portfolio Seeks to provide an above-average TAMIC
total return through a combination of Subadviser: TIMCO
potential capital appreciation and
dividend income by investing primarily
in high dividend yielding stocks
periodically selected from the
companies included in (i) the Dow
Jones Industrial Average and (ii) a
subset of the Standard & Poor's
Industrial Index.
NWQ Large Cap Portfolio Seeks to achieve consistent superior TAMIC
total return with minimum risk to Subadviser: NWQ
principal Investment Management
Company
</TABLE>
15
<PAGE> 21
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
U.S. Government Seeks to select investments from the TAMIC
Securities Portfolio point of view of an investor concerned
primarily with highest credit quality,
current income and total return. The
assets of the U.S. Government
Securities Portfolio will be invested
in direct obligations of the United
States, its agencies and
instrumentalities.
Utilities Portfolio Provide current income by investing in SSBC
equity and debt securities of
companies in the utility industries.
WARBURG PINCUS TRUST
Emerging Markets Seeks long-term growth of capital by Warburg Pincus Asset
Portfolio investing primarily in equity Management, Inc.
securities of non-U.S issuers
consisting of companies in emerging
securities markets.
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Seeks primarily to provide long-term The Dreyfus Corporation
Portfolio capital growth consistent with the Subadviser: Fayez Sarofim &
preservation of capital; current Co.
income is a secondary investment
objective. The portfolio invests
primarily in the common stocks of
domestic and foreign issuers.
Small Cap Portfolio Seeks to maximize capital The Dreyfus Corporation
appreciation.
</TABLE>
THE FIXED ACCOUNT
- --------------------------------------------------------------------------------
The Fixed Account is secured by part of the general assets of the Company. The
general assets of the Company include all assets of the Company other than those
held in separate account sponsored by the Company.
The staff of the Securities and Exchange Commission (SEC) does not generally
review the disclosure in the prospectus relating to the Fixed Account.
Disclosure regarding the Fixed Account and the general account may, however, be
subject to certain provisions of the federal securities laws relating to the
accuracy and completeness of statements made in the prospectus.
Under the Fixed Account, the Company assumes the risk of investment gain or loss
and guarantees a specified interest rate. The investment gain or loss of the
Separate Account or any of the variable Investment Options does not affect the
Fixed Account portion of the Policy owner's Contract Value.
We guarantee that, at any time, the Fixed Account Contract Value will not be
less than the amount of the premium payments allocated to the Fixed Account,
plus interest credited, less any prior surrenders or loans. If the Policy owner
effects a surrender, the amount available from the Fixed Account will be reduced
by any applicable charges as described under "Charges and Deductions" in this
prospectus.
Premium payments allocated to the Fixed Account and any transfers made to the
Fixed Account become part of the Company's general account which supports
insurance and annuity obligations. Neither the general account nor any interest
therein is registered under, nor subject to the provisions of, the Securities
Act of 1933 or Investment Company Act of 1940. We will invest the
16
<PAGE> 22
assets of the Fixed Account at our discretion. Investment income from such Fixed
Account assets will be allocated to us and to the Policies participating in the
Fixed Accounts.
Investment income from the Fixed Account allocated to us includes compensation
for mortality and expense risks borne by us in connection with Fixed Account
Policies. The amount of such investment income allocated to the Policies will
vary in our sole discretion at such rate or rates as we prospectively declare
from time to time.
Rates for any allocations into the Fixed Account are guaranteed for the calendar
quarter. We also guarantee that for the life of the Policy we will credit
interest at not less than 3% per year. Any interest credited to amounts
allocated to the Fixed Account in excess of 3% per year will be determined in
our sole discretion. You assume the risk that interest credited to the Fixed
Account may not exceed the minimum guarantee of 3% for any given year.
POLICY BENEFITS AND RIGHTS
- --------------------------------------------------------------------------------
TRANSFERS OF CONTRACT VALUE
INVESTMENT OPTIONS
As long as the Policy remains in effect, you may make transfers of Contract
Value between Investment Options. We reserve the right to restrict the number of
free transfers to six times in any Policy Year and to charge $10 for each
additional transfer; however, we do not currently charge for transfers. Amounts
transferred under the Automated Transfer programs described below are not
counted for purposes of this limit on transfers.
We calculate the number of Accumulation Units involved using the Accumulation
Unit Values on the Valuation Date on which we receive the transfer request.
FIXED ACCOUNT
You may make transfers from the Fixed Account to any other available investment
option(s) twice a year during the 30 days following the semi-annual or annual
anniversary of the Policy Date. The transfers are limited to an amount of up to
25% of the Fixed Account Value on the semi-annual or annual contract effective
date anniversary. (This restriction does not apply to transfers under the Dollar
Cost Averaging Program.) Amounts previously transferred from the Fixed Account
to other Investment Options may not be transferred back to the Fixed Account for
a period of at least six months from the date of transfer. We reserve the right
to waive either of these restrictions.
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 1-800-842-9368. 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 Contract 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
17
<PAGE> 23
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 Contract 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
The Policy will remain in effect until the Cash Surrender Value of the Policy
can no longer cover the Monthly Deduction Amount. If this happens, we will
notify you in writing that if the amount shown in the notice is not paid within
61 days (the "Late Period"), the Policy may lapse. The amount shown will be
enough to pay the deduction amount due. The Policy will continue through the
Late Period, but if no payment is received by us, it will terminate at the end
of the Late Period. If the Insured dies during the Late Period, the Death
Benefit payable will be reduced by the Monthly Deduction Amount due plus the
amount of any outstanding loan. (See "Death Benefit," below.)
If the Policy lapses, you may reinstate the Policy by paying the reinstatement
premium (and any applicable charges) 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 Contract Value
will equal the Net Premium. In addition, we reserve the right to require
satisfactory evidence of insurability of the Insured.
INSURED TERM RIDER
You may choose to purchase the Insured Term Rider as an addition to the Policy.
This rider may not be available in all states.
EXCHANGE RIGHTS
Once the Policy is in effect, you may choose during the first 24 months to
irrevocably transfer all Contract Value of the Investment Options to the Fixed
Account. Upon election of this option, no future transfers to the Investment
Options will be permitted. All future premium payments will be allocated to the
Fixed Account. No evidence of insurability is required to exercise this Option.
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
(4) later if required by state law.
We will refund the premium payments paid, 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
18
<PAGE> 24
which the Company receives the returned Policy, and (3) any fees and other
charges imposed on amounts allocated to the Investment Option(s), depending on
state law. We will make the refund within seven days after we receive your
returned policy.
ACCESS TO CONTRACT 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 loan request in writing in a form
acceptable to us. We reserve the right to limit loan requests to at least $500.
We will make the loan within seven days of our receipt of the written loan
request. The annual loan interest rate is 5%.
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), is charged daily and is payable at the end of
each Policy Year.
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. Loan amounts will be transferred
from the Fixed Account and when insufficient amounts are available in the
Investment Options. We transfer the loan amount to the Loan Account, and credit
the Loan Account with a fixed annual rate as shown in the Policy. Amounts held
in the Loan Account will not 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 and the Fixed Account 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 could also be decreased because of an 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 Contract 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 Contract Value,
minus any outstanding Policy loans.
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 deduction date following our receipt of the surrender request
(or following the date you specified, if later).
PARTIAL WITHDRAWALS. You may request a partial withdrawal from the Policy at
any time after the first policy year. We reserve the right to limit partial
withdrawals to at least $500. We will deduct the amount surrendered pro rata
from all Investment Options, unless you give us other written instructions.
In addition to reducing the Policy's Contract Value, partial withdrawals will
reduce the Death Benefit payable under the Policy. We will reduce the Stated
Amount by the amount necessary to
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<PAGE> 25
prevent any increase in the Net Amount at Risk. We may require you to return the
Policy to record this reduction.
DEATH BENEFIT
- --------------------------------------------------------------------------------
The Death Benefit under the Policy is the amount paid to the Beneficiary upon
the death of the Insured. The Death Benefit will be reduced by any unpaid
Monthly Deduction Amount. 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 these Death Benefit options. As long as the Policy remains
in effect, the Company guarantees that the Death Benefit under any option will
be at least the current Stated Amount of the Policy less any outstanding Policy
loan and unpaid Monthly Deduction Amount. The Amount Insured under any option
may vary with the Contract Value of the Policy. Under Option 1 (the "Level
Option"), the Amount Insured will be equal to the Stated Amount of the Policy
or, if greater, a specified multiple of Contract Value (the "Minimum Amount
Insured"). Under Option 2 (the "Variable Option"), the Amount Insured will be
equal to the Stated Amount of the Policy plus the Contract Value (determined as
of the date of the last Insured's death) or, if greater, the Minimum Amount
Insured. Under Option 3, (the Annual Increase Option), the Amount Insured will
be equal to stated amount of the policy plus Premium Payments minus any partial
surrenders.
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 to a stated percentage of the Policy's Contract
Value determined as of the first day of each Policy Month. The percentages
differ according to the attained age of the Insured and the definition of life
insurance under Section 7702 selected by you. (Cash Value Accumulation Test or
Guideline Premium Cash Value Corridor Test. 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 the
Guideline Premium Cash Value Corridor Test. 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.
In the Cash Value Accumulation Test, the factors at the end of a Policy Year are
set forth in Appendix C.
The following examples demonstrate the relationship between the Death Benefit,
the Cash Surrender Value and the Minimum Amount Insured under Death Benefit
Options 1. The examples assume an Insured of age 40, a Minimum Amount Insured of
250% of Contract Value (assuming the preceding table is controlling as to
Minimum Amount Insured), and no outstanding Policy loan.
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<PAGE> 26
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 $50,000. Since the
Policy is designed to qualify as a life insurance Policy, the Death Benefit
cannot be less than the Minimum Amount Insured (or, in this example, 250% of the
Contract Value).
EXAMPLE ONE. If the Contract Value of the Policy equals $10,000, the Minimum
Amount Insured would be $25,000 ($10,000 x 250%). Since the Death Benefit in the
Policy is the greater of the Stated Amount ($50,000) or the Minimum Amount
Insured ($25,000), the Death Benefit would be $50,000.
EXAMPLE TWO. If the Contract Value of the Policy equals $40,000, the Minimum
Amount Insured would be $100,000 ($40,000 x 250%). The resulting Death Benefit
would be $100,000 since the Death Benefit is the greater of the Stated Amount
($50,000) or the Minimum Amount Insured ($100,000).
OPTION 2 -- VARIABLE DEATH BENEFIT
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 Contract Value
of the Policy (determined on the date of the Insured's death). The Death Benefit
cannot, however, be less than the Minimum Amount Insured (or, in this example,
250% of the Contract Value).
EXAMPLE ONE. If the Contract Value of the Policy equals $10,000, the Minimum
Amount Insured would be $25,000 ($10,000 x 250%). The Death Benefit ($60,000)
would be equal to the Stated Amount ($50,000) plus the Contract Value ($10,000),
unless the Minimum Amount Insured ($25,000) was greater.
EXAMPLE TWO. If the Contract Value of the Policy equals $60,000, then the
Minimum Amount Insured would be $150,000 ($60,000 x 250%). The resulting Death
Benefit would be $150,000 because the Minimum Amount Insured ($150,000) is
greater than the Stated Amount plus the Contract Value ($50,000 + $60,000 =
$110,000).
OPTION 3 -- ANNUAL INCREASE OPTION
In the following examples of an Option 3 Annual Increase Option, the Death
Benefit is generally equal to the Stated Amount of $50,000 plus premium payments
paid minus partial surrenders, accumulated at the specified interest rates.
EXAMPLE ONE. If the Contract Value of the Policy equals $10,000, the Minimum
Amount Insured would be $25,000 ($10,000 x 250%). The Death Benefit ($52,650)
would be equal to the Stated Amount ($50,000) plus premium payments ($2,500)
aggregated at 6.00% for one year, unless the Minimum Amount Insured ($25,000)
was greater.
EXAMPLE TWO. If the Contract Value of the Policy equals $40,000, the Minimum
Amount Insured would be $100,000 ($40,000 x 250%). The Death Benefit would be
$100,000 since the Death Benefit is greater of the Stated Amount plus Premium
Payments Aggregated at 6.00% for one year ($54,000) or the Minimum Amount
Insured ($100,000).
PAYMENT OF PROCEEDS
Death Benefits are payable within seven days after we receive satisfactory proof
of the Insured's death. The amount of Death Benefit paid may be adjusted to
reflect any Policy loan, any material misstatements in the Policy application as
to age or sex of the Insured, and any amounts payable to an assignee under a
collateral assignment of the Policy. (See "Assignment".) If no beneficiary is
living when the Insured has 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.
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<PAGE> 27
Subject to state law, if the Insured commits suicide within two years following
the Issue Date limits on the amount of Death Benefit paid will apply. (See
"Limit on Right to Contest and Suicide Exclusion") In addition, if the Insured
dies during the 61-day period after the Company gives notice to the Policy Owner
that the Cash Surrender Value of the Policy is insufficient to meet the Monthly
Deduction Amount due against the Contract 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 "Contract 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. We may defer payment of proceeds which
exceed the Death Benefit for up to six months from the date of the request for
the payment. A combination of options may be used. The minimum amount that may
be placed under a payment option is $5,000 unless we consent to a lesser amount.
Proceeds applied under an option will no longer be affected by the investment
experience of the Investment Options.
The following payment options are available under the Policy:
OPTION 1 -- Payments of a Fixed Amount
OPTION 2 -- Payments for a Fixed Period
OPTION 3 -- Amounts Held at Interest
OPTION 4 -- Monthly Life Income
OPTION 5 -- Joint and Survivor Level Amount Monthly Life Income
OPTION 6 -- Joint and Survivor Monthly Life Income-Two-thirds to Survivor
OPTION 7 -- Joint and Last Survivor Monthly Life Income-Monthly Payment
Reduces on Death of First Person Named
OPTION 8 -- Other Options
We will make any other arrangements for periodic payments as may be agreed upon.
If any periodic payment due any payee is less than $50, we may make payments
less often. If we have declared a higher rate under an option on the date the
first payment under an option is due, we will base the payments on the higher
rate.
MATURITY BENEFITS
- --------------------------------------------------------------------------------
The maturity date is the anniversary of the Policy Date on which the younger
Insured is age 100. If the Insured is living on the Maturity Date, the Company
will pay you the Policy's Contract 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.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
CHARGES AGAINST PREMIUM
FRONT-END SALES EXPENSE CHARGES. When we receive a Premium Payment, and before
allocation of the payment among the Investment Options, we deduct a front-end
sales charge. The current charge is 7.0% of the Target Premium for the first
seven Policy Years and 3.5% thereafter. The sales charge is guaranteed not to
exceed 9% of such Target Premium payments in all Contract Years and 5% on
amounts in excess of the Target Premium.
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<PAGE> 28
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 and the Fixed Account 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, Monthly Policy Charge
and Charges for any Rider(s).
COST OF INSURANCE CHARGE. The amount of the Cost of Insurance deduction depends
on of the amount of insurance coverage on the date of the deduction and the
current cost per dollar for insurance coverage. The cost per dollar of insurance
coverage varies annually and is based on age, sex and risk class of the Insured
and duration from issue.
MONTHLY POLICY CHARGE. This $5 charge is used to cover expenses associated with
maintaining the policy.
CHARGES AGAINST THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. We deduct a daily charge for mortality and
expense risks. This current charge is at an annual rate of 0.45% for Policy
Years 1-4; .25% for Policy Years 5-20, and .05% thereafter. It is guaranteed not
to exceed .75% for all years. The mortality risk assumed is that the cost of
insurance charge specified in the Policy may not be enough to meet actual
claims. The expense risk assumed is that expenses incurred in issuing and
administering the Policies will exceed the administrative charges set forth in
the Policy.
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 to each of the
underlying Mutual Funds are described in the individual fund prospectuses. These
are not direct charges under the Policy; they are indirect because they affect
each Investment Option's accumulation unit value.
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.")
TRANSFER CHARGE
There is currently no charge for transfers between Investment Options. We
reserve the right to limit free transfers of Contract 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 a corporation, 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 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 any charges if the reduction or elimination will
be unfairly discriminatory to any person.
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<PAGE> 29
THE SEPARATE ACCOUNT AND VALUATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND UL III FOR VARIABLE LIFE INSURANCE (FUND UL III)
The Travelers Fund III for Variable Life Insurance was established on January
15, 1999 under the insurance laws of the state of Connecticut. It is registered
with the SEC as a unit investment trust under the Investment Company Act of
1940. A Registration Statement has been filed with the SEC 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 are invested exclusively in shares of the Investment Options.
The operations of Fund 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 III 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 III
are not chargeable with liabilities arising out of any other business which the
Company may conduct. Any obligations arising under the Policy are general
corporate obligations of the Company.
All investment income of and other distributions to each Investment Option are
reinvested in shares of corresponding underlying fund at net asset value. The
income and realized gains or losses on the assets of each Investment Option are
separate and are credited to or charged against the Investment Option without
regard to income, gains or losses from any other Investment Option or from any
other business of the Company. The Company purchases shares of the Fund UL III
in connection in the Investment Options in connection with premium payments
allocated to the Policy Owners' directions, and redeems Fund UL III units 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 CONTRACT VALUE VARIES. We calculate the Policy's Contract Value each
day the New York Stock Exchange is open for trading (a "valuation date") and we
are open for business. A Policy's Contract 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 Contract
Value on a valuation date equals the sum of all accumulation units for each
Investment Option chosen, plus the Loan Account Value and the Fixed 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 Contract Value, Cash Surrender Value, policy loans and the
number of Accumulation Units to be credited, we use the values calculated as of
the close of business on each valuation date we receive the written request, or
payment in good order, at our Home Office.
ACCUMULATION UNIT VALUE. Accumulation Units measure the value of the Investment
Options. The value for each Investment Option's Accumulation Unit is calculated
on each valuation date. The value equals the Accumulation Unit value for the
preceding valuation period multiplied by the underlying fund's Net Investment
Factor during the next Valuation Period. (For example, to calculate Monday's
valuation date price, we would multiply Friday's Accumulation Unit Value by
Monday's net investment factor.)
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<PAGE> 30
The Accumulation Unit Value may increase or decrease. The number of Accumulation
Units credited to your Policy will not change as a result of the Investment
Option's investment experience.
NET INVESTMENT FACTOR. For each Investment Option, the value of its
Accumulation Unit depends of the net rate of return for the corresponding
underlying fund. We determine the net rate of return at the end of each
Valuation Period (that is, the period of time beginning at the close of the New
York Stock Exchange, and ending at its close of business on the next Valuation
Date). The net rate of return reflects the investment performance of the
investment option, includes any dividends or capital gains distributed, and is
net of the Separate Account and underlying Investment Option charges.
CHANGES TO THE POLICY
- --------------------------------------------------------------------------------
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;
WRITTEN CHANGES NOT REQUIRING UNDERWRITING APPROVAL:
- decreases in the stated amount of insurance
- changing the death benefit option
- changes to the way your premiums are allocated (Note: you can also make
these changes by telephone)
- changing the beneficiary (unless irrevocably named)
Written requests for changes should be sent to the Company's Home Office at One
Tower Square, Hartford, Connecticut, 06183. The Company's telephone number is
(860) 422-3985.
CHANGES IN STATED AMOUNT
After the first policy year, a Policy Owner may request in writing an increase
or decrease in the Policy's Stated Amount, provided that the Stated Amount after
any decrease may not be less than the minimum amount of $50,000. For purposes of
determining the cost of insurance charge, a decrease in the Stated Amount will
reduce the Stated Amount in the following order:
1) against the most recent increase in the Stated Amount;
2) to other increases in the reverse order in which they occurred;
3) to the initial Stated Amount.
A decrease in Stated Amount in a substantially funded Policy may cause a cash
distribution that is includable in the gross income of the Policy Owner.
For increases in the Stated Amount, we may require a new application and
evidence of insurability as well as an additional premium payment. The effective
date of any increase will be shown on the new Policy Summary which we will send.
The effective date of any increase in the Stated Amount will generally be the
Deduction Date next following either the date of a new application or, if
different, the date requested by the Applicant. There is no additional charge
for a decrease in Stated Amount.
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<PAGE> 31
CHANGES IN DEATH BENEFIT OPTION
After the first policy year, if the Insured is alive you may change the Death
Benefit option by sending a written request to the Company. The Stated Amount
will be adjusted so the Net Amount at risk remains level. There is no other
direct 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. The cost of insurance charge which is based on the
Net Amount At Risk may be different in the future. The following Changes in
Death Benefit Options are permissible:
Option 1-2
Option 2-1
Option 3-1
It is not permitted to change from Option 3 to 2; Option 1 to 3, and 2 to 3.
ADDITIONAL POLICY PROVISIONS
- --------------------------------------------------------------------------------
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 or the Insured for two years from the Issue Date.
Subject to state law, if the Policy is reinstated, the two-year period will be
measured from the date of reinstatement. Each requested increase in Stated
Amount is contestable for two years from its effective date (subject to state
law). In addition, if the Insured commits suicide during the two-year period
following issue, subject to state law, the Death Benefit will be limited to the
premiums paid less (i) the amount of any partial surrender, (ii) the amount of
any outstanding Policy loan, and (iii) the amount of any unpaid Deduction Amount
due. During the two-year period following an increase, the Death Benefit in the
case of suicide will be limited to an amount equal to the Deduction Amount paid
for such increase.
MISSTATEMENT AS TO SEX AND AGE
If there has been a misstatement with regard to sex or age, benefits payable
will be adjusted to what the Policy would have provided with the correct
information. A misstatement with regard to sex or age in a substantially funded
Policy may cause a cash distribution that is includable in whole or in part in
the gross income of the Policy Owner.
VOTING RIGHTS
The Company is the legal owner of the underlying fund shares. However, we
believe that when an underlying fund solicits proxies, we are required to obtain
from policy owners who have chosen those investment options instructions on how
to vote those shares. When we receive those instructions, we will vote all of
the shares we own in proportion to those instructions. This will also include
any shares we own on our own behalf. If we determine that we no longer need to
comply with this voting method, we will vote on the shares in our own right.
DISREGARD OF VOTING INSTRUCTIONS
When permitted by state insurance regulatory authorities, we may disregard
voting instructions if the instructions would cause a change in the investment
objective or policies of the Separate Account or an Investment Option, or if it
would cause the approval or disapproval of an investment advisory Policy of an
Investment Option. In addition, we may disregard voting instructions in favor of
changes in the investment policies or the investment adviser of any
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<PAGE> 32
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
- --------------------------------------------------------------------------------
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 Contract Value of the Policy (indicating the
number of Accumulation Units credited to the Policy in each Investment
Option and the corresponding Accumulation Unit Value);
- the date and amount of each premium payment;
- the date and amount of each Monthly Deduction;
- the amount of any outstanding Policy loan as of the date of the
statement, and the amount of any loan interest charged on the Loan
Account;
- the date and amount of any partial cash surrenders and the amount of any
partial surrender charges;
- the annualized cost of any supplemental benefits purchased under the
Policy; and
- a reconciliation since the last report of any change in Contract 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 associated with the Separate Account 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 so 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. We reserve the right to suspend or postpone the date of any
payment of any benefit or values associated with the fixed account for up to six
months.
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
27
<PAGE> 33
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 35%
of the actual premium paid in the first twelve months. Any sales representative
or employee will be qualified to sell variable life insurance Policies under
applicable federal and state laws. Each broker/dealer is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 and
all are members of the National Association of Securities Dealers, Inc.
CFBDS, Inc. serves as principal underwriter of the Policies.
LEGAL PROCEEDINGS AND OPINION
There are no pending material legal proceedings affecting the Separate Account.
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc. et al, was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and other
state laws by an affiliate of the Company, Primerica Financial Services, Inc.
and certain of its affiliates. Plaintiffs seek unspecified compensatory and
punitive damages and other relief. In October 1997, defendants answered the
complaint, denied liability and asserted numerous affirmative defenses. In
February 1998, the Superior Court of Richmond County transferred the lawsuit to
the Superior Court of Gwinnett County, Georgia. The plaintiffs appealed the
transfer order, and in December 1998 the Court of Appeals of the state of
Georgia reversed the lower court's decision. Later in December 1998, defendants
petitioned the Georgia Supreme Court to hear the appeal from the decision of the
Court of Appeals. Pending appeal, proceedings in the trial court have been
stayed. Defendants intend to vigorously contest the litigation.
Legal matters in connection with the federal laws and regulations affecting the
issue and sale of the Contract described in this prospectus, as well at the
organization of the Company, its authority to issue variable annuity contracts
under Connecticut law and the validity of the forms of the variable annuity
contracts under Connecticut law, have been passed on by the General Counsel of
the Company.
INDEPENDENT ACCOUNTANTS
As of December 31, 1998, there were no Separate Account financial statements
because Fund
UL III became effective on January 15, 1999. The consolidated financial
statements of The Travelers Insurance Company and Subsidiaries as of December
31, 1998 and 1997 and for each of the years in the three-year period ended
December 31, 1998, have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
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FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
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 IRS Code ("Code") sets forth a definition of a life
insurance contract for federal tax purposes. Guidance as to how Section 7702 is
to be applied, however, is limited. Although the Secretary of the Treasury (the
"Treasury") is authorized to prescribe regulations implementing Section 7702,
and while proposed regulations and other limited, interim guidance has been
issued, final regulations have not been adopted. If a Policy were determined not
to be a life insurance contract for purposes of Section 7702, such Policy would
not provide the tax advantages normally provided by a life insurance policy.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702) that such a Policy should meet the Section 7702
definition of a life insurance contract. There is less guidance on the
application of the rules with respect to a Policy that is issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk). Thus, it is not clear whether such a Policy would satisfy
Section 7702, particularly if the Policy Owner pays the full amount of premiums
permitted under the Policy.
The Company reserves the right to make changes in the Policy if such changes are
deemed necessary to attempt to assure its qualification as a life insurance
contract for tax purposes.
DIVERSIFICATION
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies) underlying the Policy must be "adequately diversified"
in accordance with Treasury regulations in order for the Policy to qualify as
life insurance. The Treasury Department has issued regulations prescribing the
diversification requirements in connection with variable contracts. The Separate
Account, through the Investment Options, intends to comply with these
requirements. Although the Company does not control the Investment Options, it
intends to monitor the investments of the Investment Options to ensure
compliance with the diversification requirements prescribed by the Treasury
Department.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support
29
<PAGE> 35
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 the
choice of more investment options to which to allocate premium payments and cash
values and may be able to transfer among investment options more frequently than
in such rulings. In addition, the Policy Owner may have the choice of certain
investment options which may be more similar to each other in their investment
objective and policies than in such rulings. 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 Contract 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 Contract 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.
30
<PAGE> 36
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
Consequences of Life Insurance Contracts." Furthermore, no part of the
investment growth of the Contract Value of a modified endowment contract is
includable in the gross income of the Contract Owner unless the contract
matures, is distributed or partially surrendered, is pledged, collaterally
assigned, or borrowed against, or otherwise terminates with income in the
contract prior to death. A full surrender of the contract after age 59 1/2 will
have the same tax consequences as noted above in "Tax Consequences of Life
Insurance Contracts."
EXCHANGES
Any Policy issued in exchange for a modified endowment contract will be subject
to the tax treatment accorded to modified endowment contracts. However, the
Company believes that any Policy received in exchange for a life insurance
contract that is not a modified endowment contract will generally not be treated
as a modified endowment contract if the face amount of the Policy is greater
than or equal to the death benefit of the policy being exchanged. The payment of
any premiums at the time of or after the exchange may, however, cause the Policy
to become a
31
<PAGE> 37
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.
Pre-death distributions from a Policy that is not a modified endowment contract
will generally not be included in gross income to the extent that the amount
received does not exceed the Policy Owner's investment in the Policy. (An
exception to this general rule may occur in the case of a decrease or change
that reduces the benefits provided under a Policy in the first 15 years after
the Policy is issued and that results in a cash distribution to the Policy
Owner. Such a cash distribution may be taxed in whole or in part as ordinary
income to the extent of any gain in the Policy.) Further, the 10% penalty tax on
pre-death distributions does not apply to Policies that are not modified
endowment contracts.
Certain changes to Policies that are not modified endowment contracts may cause
such Policies to be treated as modified endowment contracts. A Policy Owner
should therefore consult a tax advisor before effecting any change to a Policy
that is not a modified endowment contract.
TREATMENT OF LOAN INTEREST
If there is any borrowing against the Policy, the interest paid on loans may not
be tax deductible.
THE COMPANY'S INCOME TAXES
The Company is taxed as a life insurance company under federal income tax law.
Presently, the Company does not expect to incur any income tax or the earnings
or the realized capital gains attributable to Fund UL III. 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 III under future
tax law.
THE COMPANY
- --------------------------------------------------------------------------------
The Travelers Insurance Company (the "Company") is a stock insurance company
chartered in 1864 in Connecticut and has been engaged in the insurance business
since that time. The Company writes individual life insurance and individual and
group annuity contracts on a non-participating basis, and acts as depositor for
the Separate Account assets. The Company is licensed to conduct life insurance
business in all states of the United States, the District of Columbia, Puerto
Rico, Guam, the U.S. and British Virgin Islands, and the Bahamas. The Company's
obligations as depositor for Fund UL III may not be transferred without notice
to and consent of Policy Owners.
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) 422-3985.
32
<PAGE> 38
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.
YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
necessary to address the Year 2000 issue and developed a comprehensive plan to
address the issue. This issue involves the ability of computer systems that have
time sensitive programs to recognize properly the Year 2000. The inability to do
so could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed as incurred in the period 1996 through 1999. The Company has incurred
approximately $22 million to date on these efforts. The Company also has third
party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
33
<PAGE> 39
MANAGEMENT
- --------------------------------------------------------------------------------
DIRECTORS OF THE TRAVELERS INSURANCE COMPANY
The following are the Directors and Executive Officers of The Travelers
Insurance 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>
Jay S. Benet................... 1996 Senior Vice President since February 1994; Chief
Director Financial Officer, Chief Accounting Officer, and
Controller since January, 1999 and Vice President
(1990-1994) of The Travelers Insurance Company; Partner
(1986-1990) of Coopers & Lybrand.
Katherine M. Sullivan.......... 1996 Senior Vice President and General Counsel since May
Director 1996 of The Travelers Insurance Company; Senior Vice
President and General Counsel (1994-1996) Connecticut
Mutual; Special Counsel & Chief of Staff (1988-1994)
Aetna Life & Casualty.
George C. Kokulis.............. 1996 Senior Vice President since September 1995, Vice
Director President (1993-1995) of The Travelers Insurance
Company.
Michael A. Carpenter........... 1995 Co-chairman, Salomon Smith Barney since October 1998;
Director Chairman since June 1996 and President and Chief
Executive Officer June 1995-1998 of The Travelers
Insurance Company; Vice Chairman since February 1998;
Executive Vice President (1995-1998) of Citigroup Inc.;
Chairman, President and Chief Executive Officer
(1989-1994), Kidder Peabody Group Inc.
Robert I. Lipp................. 1992 Chairman, President and Chief Executive Officer since
Director April 1996 of Travelers Property Casualty Corp.; Chief
Executive Officer and Director since December 1993 of
The Travelers Insurance Group Inc.; Vice Chairman and
Director of Citigroup Inc. since 1991; Chairman and
Chief Executive Officer of Commercial Credit Company
(1991-1993); Executive Vice President (1986-1991),
Primerica Corporation.
Marc P. Weill*................. 1994 Senior Vice President-Investments since 1993 and Chief
Director Investment Officer since 1995 of The Travelers
Insurance Group Inc.; Senior Vice President and Chief
Investment Officer of Citigroup Inc. since 1992; Vice
President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
J. Eric Daniels................ 1998 President and Chief Executive Officer since December
Director 1998 of The Travelers Insurance Company; Chief
Operating Officer of Global Consumer Bank of Citibank;
since 1993, vice president, Citibank.
</TABLE>
- ---------------
* Principal business address: Citigroup Inc., 153 East 53rd St., New York, New
York 10043
34
<PAGE> 40
SENIOR OFFICERS OF THE TRAVELERS INSURANCE COMPANY
The following are the Senior Officers of The Travelers Insurance Company, other
than the Directors listed above, as of the date of this Prospectus. Unless
otherwise indicated, the principal business address for all individuals listed
is One Tower Square, Hartford, Connecticut 06183.
<TABLE>
<CAPTION>
NAME POSITION WITH INSURANCE COMPANY
---- -------------------------------
<S> <C>
Stuart Baritz................ Senior Vice President
Barry Jacobson............... Senior Vice President
Russell H. Johnson........... Senior Vice President
Warren H. May................ Senior Vice President
Jay S. Fishman............... Senior Vice President
David A. Tyson............... Senior Vice President
F. Denney Voss............... Senior Vice President
Elizabeth C. Senior Vice President
Georgakopoulos.............
Christine M. Modie........... Senior Vice President
</TABLE>
Information relating to the management of the underlying funds is contained in
the applicable prospectuses.
EXAMPLE OF POLICY CHARGES
- --------------------------------------------------------------------------------
The following chart illustrates the Monthly Deduction Amounts that would apply
under a Policy based on the assumptions listed below. Monthly Deduction Amounts
generally will be higher for an Insured who is older than the assumed Insured,
and lower for an Insured who is younger (assuming the Insureds have the same
risk classification). Cost of insurance rates go up each year as the Insured
becomes a year older.
Male, Age 45
Guarantee Issue
Non-Smoker
Annual Premium: $25,000 for seven years
Hypothetical Gross Annual Investment
Rate of Return: 8%
Face Amount: $436,557
Level Death Benefit Option
Current Charges
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
FOR THE POLICY YEAR
-----------------------
COST OF
POLICY CUMULATIVE INSURANCE ADMINISTRATIVE
YEAR PREMIUMS SALES LOAD CHARGES CHARGES
- ------ ---------- ---------- --------- --------------
<S> <C> <C> <C> <C>
1 $ 25,000 $1,750 $ 497 $60
2 $ 50,000 $1,750 $1,337 $60
3 $ 75,000 $1,750 $1,430 $60
5 $125,000 $1,750 $1,306 $60
10 $175,000 $ 0 $1,674 $60
</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.
35
<PAGE> 41
ILLUSTRATIONS
- --------------------------------------------------------------------------------
The following pages are intended to illustrate how the Contract Value, Cash
Surrender Value and Death Benefit can change over time for Policies issued to a
45 year old male. The difference between the Contract Value and the Cash
Surrender Value in these illustrations represents the Surrender Charge that
would be incurred upon a full surrender of the Policy. The illustrations assume
that premiums are paid as indicated, no Policy loans are made, no increases or
decreases to the Stated Amount are requested, no partial surrenders are made,
and no charges for transfers between funds are incurred.
For all illustrations, there are two pages of values. One page illustrates the
assumption that the maximum Guaranteed Cost of Insurance Rates, the monthly
administrative charge, mortality and expense risk charge, and administrative
expense charge allowable under the Policy are charged in all years. The other
page illustrates the assumption that the current scale of Cost of Insurance
Rates and other charges are charged in all years. The Cost of Insurance Rates
charged vary by age, sex and underwriting classification and number of years
from Policy issue, and the monthly administrative charge varies by age, amount
of insurance and smoker/non-smoker classification for current charges. The
current illustrations reflect a deduction from each Target Premium of 7% for
years 1-7 and 3.5% thereafter. The illustrations reflect 0% deduction for
premiums over Target Premiums in all years.
The guaranteed illustrations reflect a deduction from each Target Premium of 9%
in all years and 5% on amounts paid in excess of the Target Premium.
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of investment returns. For the first four policy years
the current charges consist of .45% mortality and expense risk charge, .25% in
years 5-20 and .05% thereafter. In all policy years, the guaranteed charges
consist of a .75% mortality and expense risk. For all policy years the current
and guaranteed charges consist of .87% for Investment Option Expenses.
The charge for Investment Option expenses reflected in the illustrations assumes
that Contract Value is allocated equally among all Investment Options and that
no Policy Loans are outstanding, and is an average of the investment advisory
fees and other expenses charged by each of the Investment Options during the
most recent audited calendar year. The Investment Option expenses for some of
the Investment Options reflect an expense reimbursement agreement currently in
effect, as shown in the Policy prospectus summary. Although these reimbursement
arrangements are expected to continue in subsequent years, the effect of
discontinuance could be higher expenses charged to Policy Owners.
After deduction of these amounts, the illustrated gross annual investment rates
of return of 0%, 6%, and 12% correspond to approximate net annual rates of
- -1.32%, 4.68% and 10.68%, respectively on a current basis for years 1-4; then to
approximate net annual rates of -1.14%; 4.60%; 10.88% in years 5-20 and to
approximate net annual rates of -0.92%; 5.08%; 11.08% thereafter. On a
guaranteed basis the annual gross investment rates of 6.0% and 12% correspond to
approximate net annual rates of -1.62%; 4.38% and 10.38% in all years.
The actual charges under a Policy for expenses of the Investment Options will
depend on the actual allocation of Contract Value and may be higher or lower
than those illustrated.
The illustrations do not reflect any charges for federal income taxes against
Fund UL III, since the Company is not currently deducting such charges from Fund
UL III. 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, Contract 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%.
36
<PAGE> 42
$25,000 ANNUAL PREMIUM FOR 7 YEARS
$436,577 SPECIFIED AMOUNT CASH VALUE ACCUMULATION TEST
MALE GUARANTEED ISSUE/NON TOBACCO AGE 45
DEATH BENEFIT OPTION 1 GUARANTEED VALUES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS ---------------------------- ------------------------------- -------------------------------
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ -------- -------- --------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 20,379 20,379 436,577 21,682 21,682 436,577 22,986 22,986 436,577
2 52,500 40,370 40,370 436,577 44,264 44,264 436,577 48,316 48,316 436,577
3 78,750 59,986 59,986 436,577 67,800 67,800 436,577 76,263 76,263 436,577
4 105,000 79,235 79,235 436,577 92,348 92,348 436,577 107,126 107,126 436,577
5 131,250 98,123 98,123 436,577 117,964 117,964 436,577 141,241 141,241 436,577
6 157,500 116,654 116,654 436,577 144,713 144,713 436,577 178,989 178,989 437,044
7 183,750 134,825 134,825 436,577 172,656 172,656 436,577 220,238 220,238 522,381
8 192,938 130,074 130,074 436,577 177,931 177,931 436,577 240,339 240,339 553,964
9 202,584 125,115 125,115 436,577 183,271 183,271 436,577 262,155 262,155 587,448
10 212,714 119,914 119,914 436,577 188,670 188,670 436,577 285,816 285,816 622,944
11 223,349 114,442 114,442 436,577 194,120 194,120 436,577 311,462 311,462 660,568
12 234,517 108,671 108,671 436,577 199,622 199,622 436,577 339,253 339,253 700,447
13 246,243 102,569 102,569 436,577 205,175 205,175 436,577 369,360 369,360 742,711
14 258,555 96,101 96,101 436,577 210,778 210,778 436,577 401,967 401,967 787,500
15 271,482 89,216 89,216 436,577 216,422 216,422 436,577 437,261 437,261 834,961
16 285,057 81,849 81,849 436,577 222,093 222,093 436,577 475,431 475,431 885,244
17 299,309 73,913 73,913 436,577 227,770 227,770 436,577 516,660 516,660 938,508
18 314,275 65,305 65,305 436,577 233,427 233,427 436,577 561,136 561,136 994,919
19 329,989 55,911 55,911 436,577 239,039 239,039 436,577 609,054 609,054 1,054,650
20 346,488 45,604 45,604 436,577 244,583 244,583 436,577 660,621 660,621 1,117,885
21 363,812 34,260 34,260 436,577 250,045 250,045 436,577 716,081 716,081 1,184,817
22 382,003 21,745 21,745 436,577 255,414 255,414 436,577 775,703 775,703 1,255,651
23 401,103 7,910 7,910 436,577 260,682 260,682 436,577 839,788 839,788 1,330,602
24 421,158 0 0 436,577 265,833 265,833 436,577 908,640 908,640 1,409,896
25 442,216 0 0 0 270,834 270,834 436,577 982,539 982,539 1,493,760
26 464,327 0 0 0 275,634 275,634 436,577 1,061,733 1,061,733 1,582,425
27 487,543 0 0 0 280,164 280,164 436,577 1,146,428 1,146,428 1,676,128
28 511,921 0 0 0 284,338 284,338 436,577 1,236,786 1,236,786 1,775,102
29 537,517 0 0 0 288,060 288,060 436,577 1,332,951 1,332,951 1,879,587
30 564,392 0 0 0 291,239 291,239 436,577 1,435,131 1,435,131 2,071,674
</TABLE>
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed as a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner and prevailing rates. The death benefit
and cash value would be different from those shown if the actual rate rates of
return averaged 0%, 6% and 12% over a period of years but also fluctuated above
or below those averages for individual policy years. No representation can be
made by the company that these hypothetical rates of returns can be achieved for
any one year or sustained over any period of time.
37
<PAGE> 43
$25,000 ANNUAL PREMIUM FOR 7 YEARS
$436,577 SPECIFIED AMOUNT CASH VALUE ACCUMULATION TEST
MALE GUARANTEED ISSUE/NON TOBACCO AGE 45
DEATH BENEFIT OPTION 1 CURRENT VALUES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS ---------------------------- ------------------------------- -------------------------------
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ -------- -------- --------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 22,389 22,389 436,577 23,767 23,767 436,577 25,145 25,145 436,577
2 52,500 43,638 43,638 436,577 47,782 47,782 436,577 52,093 52,093 436,577
3 78,750 64,493 64,493 436,577 72,820 72,820 436,577 81,833 81,833 436,577
4 105,000 85,046 85,046 436,577 99,025 99,025 436,577 114,771 114,771 436,577
5 131,250 105,515 105,515 436,577 126,704 126,704 436,577 151,549 151,549 436,577
6 157,500 125,839 125,839 436,577 155,860 155,860 436,577 192,429 192,429 469,860
7 183,750 145,998 145,998 436,577 186,539 186,539 442,450 237,489 237,489 563,298
8 192,938 142,776 142,776 436,577 194,206 194,206 447,630 261,414 261,414 602,540
9 202,584 139,478 139,478 436,577 202,177 202,177 453,046 287,736 287,736 644,771
10 212,714 136,098 136,098 436,577 210,466 210,466 458,716 316,698 316,698 690,253
11 223,349 132,634 132,634 436,577 219,090 219,090 464,659 348,569 348,569 739,267
12 234,517 129,011 129,011 436,577 228,007 228,007 470,759 383,548 383,548 791,903
13 246,243 125,213 125,213 436,577 237,227 237,227 477,018 421,934 421,934 848,428
14 258,555 121,179 121,179 436,577 246,725 246,725 483,364 463,985 463,985 909,001
15 271,482 116,878 116,878 436,577 256,502 256,502 489,796 510,024 510,024 973,903
16 285,057 112,264 112,264 436,577 266,551 266,551 496,313 560,393 560,393 1,043,440
17 299,309 107,346 107,346 436,577 276,907 276,907 502,998 615,542 615,542 1,118,125
18 314,275 102,073 102,073 436,577 287,565 287,565 509,865 675,884 675,884 1,198,371
19 329,989 96,541 96,541 436,577 298,621 298,621 517,098 742,112 742,112 1,285,056
20 346,488 90,730 90,730 436,577 310,093 310,093 524,731 814,804 814,804 1,378,790
21 363,812 84,803 84,803 436,577 322,620 322,620 533,802 896,232 896,232 1,482,893
22 382,003 78,565 78,565 436,577 335,667 335,667 543,352 985,837 985,837 1,595,799
23 401,103 72,013 72,013 436,577 349,272 349,272 553,404 1,084,494 1,084,494 1,718,327
24 421,158 65,138 65,138 436,577 363,472 363,472 563,983 1,193,165 1,193,165 1,851,380
25 442,216 57,918 57,918 436,577 378,299 378,299 575,130 1,312,896 1,312,896 1,996,002
26 464,327 50,482 50,482 436,577 393,866 393,866 587,025 1,445,133 1,445,133 2,153,853
27 487,543 42,644 42,644 436,577 410,125 410,125 599,620 1,590,884 1,590,884 2,325,941
28 511,921 33,940 33,940 436,577 426,902 426,902 612,713 1,750,706 1,750,706 2,512,708
29 537,517 24,214 24,214 436,577 444,189 444,189 626,348 1,925,815 1,925,815 2,715,581
30 564,392 13,583 13,583 436,577 462,103 462,103 667,066 2,118,098 2,118,098 3,057,568
</TABLE>
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed as a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner and prevailing rates. The death benefit
and cash value would be different from those shown if the actual rate rates of
return averaged 0%, 6% and 12% over a period of years but also fluctuated above
or below those averages for individual policy years. No representation can be
made by the company that these hypothetical rates of returns can be achieved for
any one year or sustained over any period of time.
38
<PAGE> 44
$28,631 ANNUAL PREMIUM FOR 20 YEARS
$500,000 SPECIFIED AMOUNT GUIDELINE PREMIUM TEST
MALE GUARANTEED ISSUE/NON TOBACCO AGE 45
DEATH BENEFIT OPTION 2 GUARANTEED VALUES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 0% HYPOTHETICAL 12% HYPOTHETICAL
PLUS ---------------------------- ------------------------------- -------------------------------
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ -------- -------- --------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 30,063 23,232 23,232 523,232 24,717 24,717 524,717 26,204 26,204 526,204
2 60,125 45,895 45,895 545,895 50,317 50,317 550,317 54,921 54,921 554,921
3 90,188 67,987 67,987 567,987 76,829 76,829 576,829 86,404 86,404 586,404
4 120,250 89,504 89,504 589,504 104,277 104,277 604,277 120,922 120,922 620,922
5 150,313 110,429 110,429 610,429 132,677 132,677 632,677 158,766 158,766 658,766
6 180,375 130,748 130,748 630,748 162,045 162,045 662,045 200,253 200,253 700,253
7 210,438 150,424 150,424 650,424 192,376 192,376 692,376 245,714 245,714 745,714
8 240,500 169,435 169,435 669,435 223,678 223,678 723,678 295,525 295,525 795,525
9 270,563 187,740 187,740 687,740 255,941 255,941 755,941 350,086 350,086 850,086
10 300,626 205,312 205,312 705,312 289,165 289,165 789,165 409,845 409,845 909,845
11 330,688 222,125 222,125 722,125 323,358 323,358 823,358 475,306 475,306 975,306
12 360,751 238,164 238,164 738,164 358,530 358,530 858,530 547,030 547,030 1,047,030
13 390,813 253,410 253,410 753,410 394,694 394,694 894,694 625,635 625,635 1,125,635
14 420,876 267,840 267,840 767,840 431,856 431,856 931,856 711,799 711,799 1,211,799
15 450,938 281,418 281,418 781,418 470,007 470,007 970,007 806,252 806,252 1,306,252
16 481,001 294,085 294,085 794,085 509,120 509,120 1,009,120 909,783 909,783 1,409,783
17 511,063 305,766 305,766 805,766 549,143 549,143 1,049,143 1,023,238 1,023,238 1,523,238
18 541,126 316,376 316,376 816,376 590,010 590,010 1,090,010 1,147,541 1,147,541 1,647,541
19 571,188 325,824 325,824 825,824 631,650 631,650 1,131,650 1,283,708 1,283,708 1,783,708
20 601,251 334,022 334,022 834,022 673,985 673,985 1,173,985 1,432,859 1,432,859 1,932,859
21 631,314 315,266 315,266 815,266 689,757 689,757 1,189,757 1,567,490 1,567,490 2,067,490
22 662,879 295,543 295,543 795,543 704,914 704,914 1,204,914 1,714,768 1,714,768 2,214,768
23 696,023 274,789 274,789 774,789 719,347 719,347 1,219,347 1,875,927 1,875,927 2,375,927
24 730,824 252,913 252,913 752,913 732,915 732,915 1,232,915 2,052,301 2,052,301 2,552,301
25 767,366 229,777 229,777 729,777 745,421 745,421 1,245,421 2,245,310 2,245,310 2,745,310
26 805,734 205,191 205,191 705,191 756,599 756,599 1,256,599 2,456,466 2,456,466 2,956,466
27 846,021 178,913 178,913 678,913 766,124 766,124 1,266,124 2,687,385 2,687,385 3,187,385
28 888,322 150,658 150,658 650,658 773,598 773,598 1,273,598 2,939,802 2,939,802 3,439,802
29 932,738 120,127 120,127 620,127 778,595 778,595 1,278,595 3,215,617 3,215,617 3,715,617
30 979,375 87,080 87,080 587,080 780,724 780,724 1,280,724 3,516,986 3,516,986 4,016,986
</TABLE>
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed as a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner and prevailing rates. The death benefit
and cash value would be different from those shown if the actual rate rates of
return averaged 0%, 6% and 12% over a period of years but also fluctuated above
or below those averages for individual policy years. No representation can be
made by the company that these hypothetical rates of returns can be achieved for
any one year or sustained over any period of time.
39
<PAGE> 45
$28,631 ANNUAL PREMIUM FOR 20 YEARS
$500,000 SPECIFIED AMOUNT GUIDELINE PREMIUM TEST
MALE GUARANTEED ISSUE/NON TOBACCO AGE 45
DEATH BENEFIT OPTION 2 CURRENT VALUES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 0% HYPOTHETICAL 12% HYPOTHETICAL
PLUS ---------------------------- ------------------------------- -------------------------------
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ -------- -------- --------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1................... 30,063 25,619 25,619 525,619 27,195 27,195 527,195 28,772 28,772 528,772
2................... 60,125 49,788 49,788 549,788 54,515 54,515 554,515 59,433 59,433 559,433
3................... 90,188 73,390 73,390 573,390 82,858 82,858 582,858 93,105 93,105 593,105
4................... 120,250 96,524 96,524 596,524 112,365 112,365 612,365 130,206 130,206 630,206
5................... 150,313 119,423 119,423 619,423 143,350 143,350 643,350 171,398 171,398 671,398
6................... 180,375 142,051 142,051 642,051 175,833 175,833 675,833 217,055 217,055 717,055
7................... 210,438 164,373 164,373 664,373 209,846 209,846 709,846 267,624 267,624 767,624
8................... 240,500 187,176 187,176 687,176 246,302 246,302 746,302 324,531 324,531 824,531
9................... 270,563 209,565 209,565 709,565 284,373 284,373 784,373 387,461 387,461 887,461
10................... 300,626 231,536 231,536 731,536 324,131 324,131 824,131 457,061 457,061 957,061
11................... 330,688 253,092 253,092 753,092 365,655 365,655 865,655 534,055 534,055 1,034,055
12................... 360,751 274,119 274,119 774,119 408,908 408,908 908,908 619,122 619,122 1,119,122
13................... 390,813 294,605 294,605 794,605 453,958 453,958 953,958 713,121 713,121 1,213,121
14................... 420,876 314,464 314,464 814,464 500,798 500,798 1,000,798 816,928 816,928 1,316,928
15................... 450,938 333,662 333,662 833,662 549,471 549,471 1,049,471 931,566 931,566 1,431,566
16................... 481,001 352,150 352,150 852,150 600,010 600,010 1,100,010 1,058,155 1,058,155 1,558,155
17................... 511,063 369,961 369,961 869,961 652,532 652,532 1,152,532 1,198,023 1,198,023 1,698,023
18................... 541,126 387,040 387,040 887,040 707,070 707,070 1,207,070 1,352,551 1,352,551 1,852,551
19................... 571,188 403,556 403,556 903,556 763,888 763,888 1,263,888 1,523,504 1,523,504 2,023,504
20................... 601,251 419,495 419,495 919,495 823,077 823,077 1,323,077 1,712,650 1,712,650 2,212,650
21................... 631,314 408,371 408,371 908,371 857,410 857,410 1,357,410 1,894,749 1,894,749 2,394,749
22................... 662,879 396,958 396,958 896,958 893,085 893,085 1,393,085 2,096,622 2,096,622 2,596,622
23................... 696,023 385,271 385,271 885,271 930,186 930,186 1,430,186 2,320,476 2,320,476 2,820,476
24................... 730,824 373,316 373,316 873,316 968,789 968,789 1,468,789 2,568,753 2,568,753.. 3,068,753
25................... 767,366 361,084 361,084 861,084 1,008,957 1,008,957 1,508,957 2,844,149 2,844,149 3,344,149
26................... 805,734 348,764 348,764 848,764 1,050,962 1,050,962 1,550,962 3,149,867 3,149,867 3,649,867
27................... 846,021 336,128 336,128 836,128 1,094,664 1,094,664 1,594,664 3,489,032 3,489,032 3,989,032
28................... 888,322 322,626 322,626 822,626 1,139,580 1,139,580 1,639,580 3,864,777 3,864,777 4,364,777
29................... 932,738 308,132 308,132 808,132 1,185,636 1,185,636 1,685,636 4,281,025 4,281,025 4,781,025
30................... 979,375 292,858 292,858 792,858 1,233,099 1,233,099 1,733,099 4,742,484 4,742,484 5,242,484
</TABLE>
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed as a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner and prevailing rates. The death benefit
and cash value would be different from those shown if the actual rate rates of
return averaged 0%, 6% and 12% over a period of years but also fluctuated above
or below those averages for individual policy years. No representation can be
made by the company that these hypothetical rates of returns can be achieved for
any one year or sustained over any period of time.
40
<PAGE> 46
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 III that invest in underlying funds that were
in existence before 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 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 .75% mortality and expense risk charge. The
rates of return do not reflect the front-end sales charge (which is deducted
from premium payments) nor do they reflect 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 Contract 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 Life Policy.
A-1
<PAGE> 47
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
COLI FUND PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION SINCE
THE FUND DATE YTD 1 YR 3 YR 5 YR 10 YR INCEPTION
- ----------------------------------------- --------- ------ ------ ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Warburg Pincus Trust Emerging Markets
Portfolio.............................. Dec-97 -16.49% -16.49% -- -- -- -16.49%
Lazard International Stock Portfolio
(Equity)............................... Aug-96 12.15% 12.15% -- -- -- 11.58%
Smith Barney International Equity
Portfolio.............................. Jun-94 5.99% 5.99% 8.29% -- -- 6.82%
Delaware Premium Small Cap Value Series
(Value)................................ Dec-93 -5.23% -5.23% 15.23% -- -- 12.64%
Dreyfus Small Cap Portfolio (Blend)...... Aug-90 -3.89% -3.89% 9.04% 12.20% 25.88%
Travelers Disciplined Small Cap Stock
Portfolio (Blend)...................... May-98 -- -- -- -- -- -11.00%
Delaware Investments REIT Series......... May-98 -- -- -- -- -- -9.21%
Salomon Brothers Cap Fund................ Feb-98 -- -- -- -- -- 17.64%
Strong Schaefer Value Fund II (Value).... Oct-97 1.57% 1.57% -- -- -- 0.37%
Travelers Disciplined Mid-Cap Portfolio
(Blend)................................ Apr-97 -- -- -- -- -- -11.00%
MFS Emerging Growth Portfolio (Growth)... Aug-96 33.71% 33.71% -- -- -- 25.71%
AIM Capital Appreciation (Growth)........ Oct-95 16.57% 16.57% 14.13% -- -- 11.64%
Montgomery Variable Series: Growth Fund
(Growth)............................... Feb-96 2.46% 2.46% -- -- -- 19.17%
MFS Mid Cap Growth Portfolio............. Mar-98 -- -- -- -- -- 0.26%
Large Cap Portfolio (Fidelity)........... Aug-96 34.93% 34.93% -- -- -- 30.94%
Equity Income Portfolio (Fidelity)....... Aug-96 11.86% 11.86% -- -- -- 23.58%
NWQ Large Cap Portfolio (Value).......... Jul-98 -- -- -- -- -- -0.23%
OpCap OCC Accumulation Trust Equity
Portfolio (Value)...................... Aug-88 11.33% 11.33% 19.90% 19.75% 17.23% 16.67%
Alliance Growth (Blend).................. Dec-85 20.68% 20.68% 23.99% 20.07% 15.97% 15.12%
Capital Appreciation (Janus) (Growth).... Dec-85 60.91% 60.91% 37.14% 27.12% 20.74% 16.44%
Dreyfus Capital Appreciation Portfolio
(Growth)............................... Apr-93 29.59% 29.59% 27.34% 23.01% -- 21.05%
Salomon Brothers Investors Fund
(Value)................................ Feb-98 -- -- -- -- -- 10.12%
Smith Barney Large Capitalization Growth
Portfolio Growth)...................... May-98 -- -- -- -- -- 24.24%
Van Kampen American Cap Enterprise
Portfolio (Growth)..................... Jun-94 24.39% 24.39% 24.79% -- -- 24.21%
Salomon Brothers Total Return Fund....... Feb-98 -- -- -- -- -- 5.38%
MFS Total Return Portfolio............... Jun-94 11.16% 11.16% 15.20% -- -- 14.93%
Fidelity VIP II Asset Manager
Portfolio.............................. Sep-89 14.51% 14.51% 16.19% 11.29% -- 12.45%
Bankers Trust EAFE Index Fund............ Oct-97 20.88% 20.88% -- -- -- 14.76%
Bankers Trust Small Cap Index Fund....... Oct-97 -2.59% -2.59% -- -- -- -6.32%
Equity Index Portfolio................... Oct-91
Travelers U.S. Government Securities
Portfolio.............................. Jan-92 9.69% 9.69% 7.49% 7.65% -- 7.87%
Travelers Convertible Bond Portfolio..... May-98 -- -- -- -- -- -1.65%
Putnam Diversified Income Portfolio...... Jun-94 0.22% 0.22% 4.98% 7.17%
Travelers High Yield Bond Trust.......... Jun-83 6.07% 6.07% 12.43% 9.94% 8.98% 8.59%
Salomon Brothers Strategic Bond Fund..... Feb-98 -- -- -- -- -- 5.84%
Smith Barney Diversified Strategic
Income................................. Dec-92 5.39% 5.39% 7.16% 6.43% -- 7.46%
American Odyssey Intermediate Bond
Fund................................... May-93 7.98% 7.98% 6.13% 5.77% -- 5.80%
Travelers Money Market Portfolio......... Dec-87 4.58% 4.58% 4.28% 3.78% 4.42% 4.62%
Utilities Portfolio...................... Feb-94 17.62% 17.62% 16.20% -- -- 15.69%
Social Awareness Stock Portfolio......... May-92 31.60% 31.60% 25.80% 20.70% -- 17.86%
Jurika & Voyles Core Equity Portfolio.... Jul-98 -- -- -- -- -- 3.68%
MFS Research Portfolio................... Mar-98 -- -- -- -- -- 5.43%
Strategic Stock Portfolio................ May-98 -- -- -- -- -- -5.93%
</TABLE>
A-2
<PAGE> 48
APPENDIX B
TARGET PREMIUMS
ALL UNDERWRITING CLASSES
STANDARD AND PREFERRED
SMOKER AND NON-SMOKER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGE MALE FEMALE UNISEX
--- ---- ------ ------
<S> <C> <C> <C>
20... 25.49885 21.35312 24.67777
21... 26.25533 22.05852 25.42278
22... 27.04281 22.79038 26.19845
23... 27.86586 23.54970 27.00937
24... 28.72917 24.33773 27.85695
25... 29.63486 25.15422 28.74463
26... 30.58643 26.00205 29.67441
27... 31.58335 26.88113 30.64690
28... 32.62452 27.79141 31.66258
29... 33.71079 28.73438 32.72066
30... 34.84316 29.71150 33.82174
31... 36.02088 30.72326 34.96677
32... 37.24380 31.77143 36.15529
33... 38.51130 32.85823 37.38654
34... 39.82501 33.98300 38.66183
35... 41.18470 35.14808 39.98270
36... 42.59063 36.35310 41.34755
37... 44.04142 37.59596 42.75638
38... 45.53736 38.87592 44.20922
39... 47.07884 40.19069 45.70492
40... 48.66485 41.53957 47.24193
41... 50.29448 42.92135 48.82045
42... 51.96862 44.33684 50.44101
43... 53.68801 45.78699 52.10416
44... 55.45241 47.27608 53.81251
45... 57.26368 48.80417 55.56579
46... 59.12431 50.37449 57.36606
47... 61.03580 51.99103 59.21574
48... 63.00258 53.65371 61.11856
49... 65.02827 55.36365 63.07747
50... 67.11449 57.12257 65.09434
</TABLE>
<TABLE>
<CAPTION>
AGE MALE FEMALE UNISEX
--- ---- ------ ------
<S> <C> <C> <C>
51... 69.26320 58.93024 67.16829
52... 71.47047 60.78640 69.29887
53... 73.73607 62.68726 71.48414
54... 76.05516 64.63067 73.71929
55... 78.42689 66.61974 76.00345
56... 80.85354 68.65902 78.34017
57... 83.34160 70.75893 80.73560
58... 85.90006 72.93427 83.20014
59... 88.53960 75.19989 85.74576
60... 91.26869 77.56483 88.37912
61... 94.09169 80.03119 91.10324
62... 97.00755 82.59477 93.91915
63... 100.01297 85.23864 96.81869
64... 103.10493 87.94870 99.79450
65... 106.28342 90.71791 102.84656
66... 109.56101 93.55528 105.98510
67... 112.96034 96.48236 109.23156
68... 116.51614 99.53950 112.62104
69... 120.26554 102.77254 116.19089
70... 124.23658 106.21512 119.96965
71... 128.44465 109.89099 123.97439
72... 132.88796 113.80393 128.20151
73... 137.54435 117.93734 132.63054
74... 142.38323 122.27404 137.23573
75... 147.39278 126.80803 142.00609
76... 152.58944 131.55967 146.95678
77... 158.02373 136.57999 152.13912
78... 163.78802 141.95257 157.64536
79... 169.99253 147.77602 163.58178
80... 176.72991 154.13846 170.04077
</TABLE>
B-1
<PAGE> 49
APPENDIX C
CASH VALUE ACCUMULATION TEST FACTORS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
- -------- ---- ------ ------
<S> <C> <C> <C>
20 633.148% 729.902% 634.212%
21 614.665% 706.514% 615.406%
22 596.465% 683.789% 596.908%
23 578.611% 661.708% 578.729%
24 560.815% 640.288% 560.856%
25 543.379% 619.481% 543.379%
26 526.258% 599.296% 526.258%
27 509.509% 579.740% 509.509%
28 493.139% 560.793% 493.139%
29 477.198% 542.436% 477.198%
30 461.701% 524.666% 461.701%
31 446.663% 507.462% 446.663%
32 432.102% 490.804% 432.102%
33 418.008% 474.701% 418.008%
34 404.389% 459.135% 404.389%
35 391.242% 444.108% 391.242%
36 378.572% 429.635% 378.572%
37 366.371% 415.712% 366.371%
38 354.629% 402.342% 354.629%
39 343.340% 389.510% 343.340%
40 332.495% 377.202% 332.495%
41 322.076% 365.390% 322.076%
42 312.066% 354.046% 312.066%
43 302.451% 343.130% 302.451%
44 293.213% 332.625% 293.213%
45 284.333% 322.505% 284.333%
46 275.796% 312.743% 275.796%
47 267.583% 303.331% 267.583%
48 259.681% 294.258% 259.681%
49 252.082% 285.511% 252.082%
50 244.777% 277.080% 244.777%
51 237.768% 268.956% 237.768%
52 231.048% 261.136% 231.048%
53 224.616% 253.611% 224.616%
54 218.462% 246.362% 218.462%
55 212.574% 239.368% 212.574%
56 206.935% 232.606% 206.935%
57 201.529% 226.050% 201.529%
58 196.343% 219.684% 196.343%
59 191.366% 213.506% 191.366%
</TABLE>
<TABLE>
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
- -------- ---- ------ ------
<S> <C> <C> <C>
60 186.595% 207.521% 186.595%
61 182.029% 201.744% 182.029%
62 177.668% 196.192% 177.668%
63 173.510% 190.877% 173.510%
64 169.549% 185.796% 169.549%
65 165.775% 180.933% 165.775%
66 162.175% 176.268% 162.175%
67 158.734% 171.774% 158.734%
68 155.443% 167.434% 155.443%
69 152.298% 163.242% 152.296%
70 149.296% 159.205% 149.296%
71 146.446% 155.337% 146.446%
72 143.754% 151.657% 143.754%
73 141.225% 148.174% 141.225%
74 138.855% 144.893% 138.855%
75 142.252% 142.252% 142.252%
76 140.077% 140.077% 140.077%
77 138.021% 138.021% 138.021%
78 136.067% 136.067% 136.067%
79 134.206% 134.206% 134.206%
80 132.698% 132.698% 132.698%
81 131.020% 131.020% 131.020%
82 129.445% 129.445% 129.445%
83 127.981% 127.981% 127.981%
84 126.623% 126.623% 126.623%
85 120.411% 120.411% 120.411%
86 119.280% 119.280% 119.280%
87 118.211% 118.211% 118.211%
88 117.185% 117.185% 117.185%
89 116.182% 116.182% 116.182%
90 115.177% 115.177% 115.177%
91 114.146% 114.146% 114.146%
92 113.058% 113.058% 113.058%
93 111.887% 111.887% 111.887%
94 110.625% 110.625% 110.625%
95 109.295% 109.295% 109.295%
96 107.982% 107.982% 107.982%
97 106.958% 106.958% 106.958%
98 106.034% 106.034% 106.034%
99 103.603% 103.603% 103.603%
</TABLE>
C-1
<PAGE> 50
TRAVELERS
CORPORATE OWNED VARIABLE
LIFE INSURANCE POLICIES
L- 2-99
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in retained earnings and
accumulated other changes in equity from non-owner sources and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers
Insurance Company and Subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 25, 1999
F-1
<PAGE> 52
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $1,740 $1,583 $1,387
Net investment income 2,185 2,037 1,950
Realized investment gains 149 199 65
Other revenues 440 354 284
- ------------------------------------------------------------------------------------------------
Total Revenues 4,514 4,173 3,686
- ------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,475 1,341 1,187
Interest credited to contractholders 876 829 863
Amortization of deferred acquisition costs and value of 311 293 281
insurance in force
General and administrative expenses 469 427 380
- ------------------------------------------------------------------------------------------------
Total Benefits and Expenses 3,131 2,890 2,711
- ------------------------------------------------------------------------------------------------
Income from continuing operations before federal income 1,383 1,283 975
taxes
- ------------------------------------------------------------------------------------------------
Federal income taxes:
Current expense 442 434 284
Deferred 39 10 58
- ------------------------------------------------------------------------------------------------
Total Federal Income Taxes 481 444 342
- ------------------------------------------------------------------------------------------------
Income from continuing operations 902 839 633
Discontinued operations, net of income taxes
Gain on disposition (net of taxes of $0, $0 and $14) - - 26
- ------------------------------------------------------------------------------------------------
Income from Discontinued Operations - - 26
================================================================================================
Net income $ 902 $ 839 $ 659
================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 53
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $23,893 $21,511
$22,973, $20,682)
Equity securities, at fair value (cost, $474, $480) 518 512
Mortgage loans 2,606 2,869
Real estate held for sale 143 134
Policy loans 1,857 1,872
Short-term securities 1,098 1,102
Trading securities, at market value 1,186 800
Other invested assets 2,251 1,702
- ---------------------------------------------------------------------------------------------
Total Investments 33,552 30,502
- ---------------------------------------------------------------------------------------------
Cash 65 58
Investment income accrued 393 338
Premium balances receivable 99 106
Reinsurance recoverables 3,387 3,753
Deferred acquisition costs and value of insurance in force 2,567 2,312
Separate and variable accounts 15,313 11,319
Other assets 1,172 1,052
- ---------------------------------------------------------------------------------------------
Total Assets $56,548 $49,440
- ---------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,739 $14,913
Future policy benefits and claims 12,326 12,361
Separate and variable accounts 15,305 11,309
Deferred federal income taxes 422 409
Trading securities sold not yet purchased, at market value 873 462
Other liabilities 2,783 2,661
- ---------------------------------------------------------------------------------------------
Total Liabilities 48,448 42,115
- ---------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized, 100 100
issued and outstanding
Additional paid-in capital 3,800 3,187
Retained earnings 3,602 2,810
Accumulated other changes in equity from non-owner sources 598 535
Unrealized gain on Citigroup Inc. stock, net of tax - 693
- ---------------------------------------------------------------------------------------------
Total Shareholder's Equity 8,100 7,325
- ---------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $56,548 $49,440
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 54
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ IN MILLIONS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED 1998 1997 1996
EARNINGS
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $2,810 $2,471 $2,312
Net income 902 839 659
Dividends to parent 110 500 500
- --------------------------------------------------------------------------
Balance, end of year $3,602 $2,810 $2,471
==========================================================================
- --------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------
Balance, beginning of year $ 535 $ 223 $ 449
Unrealized gains (losses), net of tax 62 313 (226)
Foreign currency translation, net of 1 (1) -
tax
- --------------------------------------------------------------------------
Balance, end of year $ 598 $ 535 $ 223
==========================================================================
- --------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------
Net Income $ 902 $ 839 $ 659
Other changes in equity from
non-owner sources 63 312 (226)
- --------------------------------------------------------------------------
Total changes in equity from
non-owner sources $ 965 $1,151 $ 433
==========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 55
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $1,763 $1,519 $1,387
Net investment income received 2,021 2,059 1,910
Other revenues received 255 180 131
Benefits and claims paid (1,127) (1,230) (1,060)
Interest credited to contractholders (918) (853) (820)
Operating expenses paid (587) (445) (343)
Income taxes paid (506) (368) (328)
Trading account investments, (purchases) sales, net (38) (54) -
Other 12 18 (70)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 875 826 807
Net cash used in discontinued operations - - (350)
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Operations 875 826 457
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 2,608 2,259 1,928
Mortgage loans 722 663 917
Proceeds from sales of investments
Fixed maturities 13,390 7,592 9,101
Equity securities 212 341 479
Mortgage loans - 207 178
Real estate held for sale 53 169 210
Purchases of investments
Fixed maturities (18,072) (11,143) (11,556)
Equity securities (194) (483) (594)
Mortgage loans (457) (771) (470)
Policy loans, net 15 38 (23)
Short-term securities, (purchases) sales, net (495) (2) 498
Other investments, purchases, net (550) (260) (137)
Securities transactions in course of settlement 192 311 (52)
Net cash provided by investing activities of - - 348
discontinued operations
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Investing Activities (2,576) (1,079) 827
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net - (50) (23)
Contractholder fund deposits 4,383 3,544 2,493
Contractholder fund withdrawals (2,565) (2,757) (3,262)
Dividends to parent company (110) (500) (500)
Other - - 9
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Financing Activities 1,708 237 (1,283)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 7 (16) 1
- ---------------------------------------------------------------------------------------------------
Cash at December 31, $ 65 $ 58 $ 74
===================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 56
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 Insurance Company (TIC) and, collectively with its subsidiaries
(the Company) is a wholly owned subsidiary of The Travelers Insurance Group
Inc. (TIGI), an indirect wholly owned subsidiary of Citigroup Inc.
(Citigroup), formerly Travelers Group Inc. The consolidated financial
statements include the accounts of TIC and its insurance and non-insurance
subsidiaries on a fully consolidated basis. The primary insurance
subsidiaries of the Company are The Travelers Life and Annuity Company (TLAC)
and Primerica Life Insurance Company (Primerica Life) and its subsidiary
National Benefit Life Insurance Company (NBL).
As discussed in Note 2 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the Company
were sold to Metropolitan Life Insurance Company (MetLife). Also in January
1995, the group medical component was exchanged for a 42% interest in The
MetraHealth Companies, Inc. (MetraHealth). The Company's interest in
MetraHealth was sold on October 2, 1995 and a final contingent payment was
made during 1996. The Company's discontinued operations reflect the results
of the gain from the contingent payment in 1996.
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.
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
F-6
<PAGE> 57
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 consolidated statement of financial position
related to the recognition of securities provided and received as collateral.
There was no impact on the Company's results of operations from the adoption
of the collateral provisions of FAS 125.
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. All items that are required to be recognized under accounting
standards as components of comprehensive income are required to be reported
in an annual financial statement that is displayed with the same prominence
as other financial statements. This statement stipulates that comprehensive
income reflect the change in equity of an enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Comprehensive income thus represents the sum of net income and other
changes in equity from non-owner sources. The accumulated balance of other
changes in equity from non-owner sources is required to be displayed
separately from retained earnings and additional paid-in capital in the
consolidated balance sheet. The adoption of FAS 130 resulted primarily in the
Company reporting unrealized gains and losses on investments in debt and
equity securities in changes in equity from non-owner sources. See Note 5.
F-7
<PAGE> 58
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Disclosures About Segments of an Enterprise and Related Information
During 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information" (FAS
131). FAS 131 establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise". FAS 131 requires that all public enterprises report financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decisionmaker in deciding how to allocate resources and in assessing
performance. As a result of the adoption of FAS 131, the Company has two
reportable operating segments, Travelers Life and Annuity and Primerica Life
Insurance. See Note 17.
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
did not have a material impact on the Company's financial condition,
statement 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 nonredeemable preferred stocks,
are classified as "available for sale" and carried at fair value based
primarily on quoted market prices. Changes in fair values of equity
securities are charged or credited directly to shareholder's equity, net of
income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined to
be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the higher
returns required in the current real estate financing market. Impaired loans
were insignificant at December 31, 1998 and 1997.
F-8
<PAGE> 59
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Real estate held for sale is carried at the lower of cost or fair value less
estimated cost to sell. Fair value of foreclosed properties is established at
the time of foreclosure by internal analysis or external appraisers, using
discounted cash flow analyses and other accepted techniques. Thereafter, an
allowance for losses on real estate held for sale is established if the
carrying value of the property exceeds its current fair value less estimated
costs to sell. There was no such allowance at December 31, 1998 and 1997.
Trading securities and related liabilities are normally held for periods less
than six months. These investments are marked to market with the change
recognized in net investment income during the current period.
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.
Accrual of income 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 contracts, options, forward contracts and interest rate swaps and
caps, as a means of hedging exposure to interest rate and foreign currency
risk. Hedge accounting is used to account for derivatives. To qualify for
hedge accounting the changes in value of the derivative must be expected to
substantially offset the changes in value of the hedged item. Hedges are
monitored to ensure that there is a high correlation between the derivative
instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to adjust
the basis of hedged investments and are recognized in net investment income
over the life of the investment.
Payments to be received or made under interest rate swaps are accrued and
recognized in net investment income. Swaps are carried at fair value with
unrealized gains and losses, net of taxes, charged or credited directly to
shareholder's equity.
Forward contracts, and options, and interest rate caps were not significant
at December 31, 1998 and 1997. Information concerning derivative financial
instruments is included in Note 6.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the remeasurement
of the local currency value of foreign investments to U.S. dollars, the
functional currency of the Company. The foreign exchange effects of Canadian
operations are included in unrealized gains and losses.
F-9
<PAGE> 60
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
DEFERRED ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE
Costs of acquiring individual life insurance, annuities and long-term care
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, including term
insurance and long-term care insurance, are amortized in relation to
anticipated premiums; universal life in relation to estimated gross profits;
and annuity contracts employing a level yield method. For life insurance, a
15 to 20 year amortization period is used; for long-term care business, a 10
to 20 year period is used, and a 7 to 20 year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.
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 life insurance,
annuities and health 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 interest rates
ranging from 14% to 18%. Traditional life insurance and guaranteed renewable
health policies are amortized in relation to anticipated premiums; universal
life is amortized in relation to estimated gross profits; and 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.
SEPARATE AND VARIABLE ACCOUNTS
Separate and variable accounts primarily represent funds for which investment
income and investment gains and losses accrue directly to, and investment
risk is borne by, the contractholders. Each account has specific investment
objectives. The assets of each account are legally segregated and are not
subject to claims that arise out of any other business of the Company. The
assets of these accounts are carried at market value. Certain other separate
accounts provide guaranteed levels of return or benefits and the assets of
these accounts are primarily carried at market value. Amounts assessed to the
contractholders for management services are included in revenues. Deposits,
net investment income and realized investment gains and losses for these
accounts are excluded from revenues, and related liability increases are
excluded from benefits and expenses.
GOODWILL
Goodwill represents the cost of acquired businesses in excess of net assets
and is being amortized on a straight-line basis principally over a 40-year
period. The carrying amount is regularly reviewed for indication of
impairment in value that in the view of management would be other than
temporary. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.
F-10
<PAGE> 61
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal life,
corporate owned life insurance, pension investment and certain deferred
annuity 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 3.5% to 9.1%.
FUTURE POLICY BENEFITS
Benefit reserves represent liabilities for future insurance policy benefits.
Benefit reserves for life insurance and annuities have been computed based
upon mortality, morbidity, persistency and interest assumptions applicable to
these coverages, which range from 2.5% to 10.0%, including adverse deviation.
These assumptions consider Company experience and industry standards. The
assumptions vary by plan, age at issue, year of issue and duration.
Appropriate recognition has been given to experience rating and reinsurance.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, whose insurance subsidiaries are domiciled principally in
Connecticut and Massachusetts, prepares statutory financial statements in
accordance with the accounting practices prescribed or permitted by the
insurance departments of the states of domicile. 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 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 will issue a revised statutory Accounting Practices and Procedures
Manual version effective January 1, 2001 (the revised Manual) that will be
effective January 1, 2001 for the calendar year 2001 statutory financial
statements. It is expected that the State of Connecticut will require that,
effective January 1, 2001, insurance companies domiciled in Connecticut
prepare their statutory basis financial statements in accordance with the
revised Manual subject to any deviations prescribed or permitted by the
Connecticut insurance commissioner. The Company has not yet determined the
impact that this change will have on the statutory capital and surplus of its
insurance subsidiaries.
PREMIUMS
Premiums are recognized as revenues when due. Reserves are established for
the portion of premiums that will be earned in future periods and for
deferred profits on limited-payment policies that are being recognized in
income over the policy term.
OTHER REVENUES
Other revenues include surrender, mortality and administrative charges and
fees earned on investment, universal life and other insurance contracts.
Other revenues also include gains and losses on dispositions of assets other
than realized investment gains and losses and revenues of non-insurance
subsidiaries.
F-11
<PAGE> 62
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INTEREST CREDITED TO CONTRACTHOLDERS
Interest credited to contractholders represents amounts earned by universal
life, corporate owned life insurance, pension investment and certain deferred
annuity contracts in accordance with contract provisions.
FEDERAL INCOME TAXES
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income taxes
arise from changes during the year in cumulative temporary differences
between the tax basis and book basis of assets and liabilities. The deferred
federal income tax asset is recognized to the extent that future realization
of the tax benefit is more likely than not, with a valuation allowance for
the portion that is not likely to be recognized.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, how to measure that liability, and when
an asset may be recognized for the recovery of such assessments through
premium tax offsets or policy surcharges. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998, and the effect
of initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company plans to implement SOP 97-3 in the first quarter of 1999 and expects
there to be no material impact on the Company's financial condition, results
of operations or liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments 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. FAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Upon initial application of FAS 133, hedging relationships must be
designated anew and documented pursuant to the provisions of this statement.
The Company has not yet determined the impact that FAS 133 will have on its
consolidated financial statements.
F-12
<PAGE> 63
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. DISPOSITIONS AND DISCONTINUED OPERATIONS
On January 3, 1995, the Company and its affiliates completed the sale of
their group life and related non-medical group insurance businesses to
MetLife for $350 million and formed the MetraHealth joint venture by
contributing their group medical businesses to MetraHealth, in exchange for
shares of common stock of MetraHealth. No gain was recognized as a result of
this transaction.
On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation. During 1996
the Company received a contingency payment based on MetraHealth's 1995
results. In conjunction with this payment, certain reserves associated with
the group medical business and exit costs related to the discontinued
operations were reevaluated resulting in a final after-tax gain of $26
million.
3. COMMERCIAL PAPER AND LINES OF CREDIT
TIC issues commercial paper directly to investors. No commercial paper was
outstanding at December 31, 1998 or 1997. TIC maintains unused credit
availability under bank lines of credit at least equal to the amount of the
outstanding commercial paper. No interest was paid in 1998 and interest
expense was not significant in 1997.
Citigroup, Commercial Credit Company (CCC) (an indirect wholly owned
subsidiary of Citigroup) and TIC have an agreement with a syndicate of banks
to provide $1.0 billion of revolving credit, to be allocated to any of
Citigroup, CCC or TIC. TIC's participation in this agreement is limited to
$250 million. The agreement consists of a five-year revolving credit facility
that expires in 2001. At December 31, 1998, $700 million was allocated to
Citigroup, $300 million was allocated to CCC and $0 was allocated to TIC.
Under this facility TIC is required to maintain certain minimum equity and
risk-based capital levels. At December 31, 1998, TIC was in compliance with
these provisions. There were no amounts outstanding under this agreement at
December 31, 1998 and 1997. If TIC had borrowings outstanding on this
facility, the interest rate would be based upon LIBOR plus a negotiated
margin.
4. 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.
Beginning in 1997, new universal life business was reinsured under an 80%/20%
quota share reinsurance program and new term life business was reinsured
under a 90%/10% quota share reinsurance program. Maximum retention of $1.5
million is generally reached on policies in excess of $7.5 million. For other
plans of insurance, it is the policy of the Company to obtain reinsurance for
amounts above certain retention limits on individual life policies, which
limits vary with age and underwriting classification. Generally, the maximum
retention on an ordinary life risk is $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-13
<PAGE> 64
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
<TABLE>
<CAPTION>
WRITTEN PREMIUMS 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,310 $2,148 $1,982
Assumed from:
Non-affiliated companies - 1 5
Ceded to:
Affiliated companies (242) (280) (284)
Non-affiliated companies (317) (273) (309)
----------------------------------------------------------------------
Total Net Written Premiums $1,751 $1,596 $1,394
======================================================================
</TABLE>
<TABLE>
<CAPTION>
EARNED PREMIUMS 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Direct $1,949 $2,170 $1,897
Assumed from:
Non-affiliated companies - 1 5
Ceded to:
Affiliated companies (251) (321) (219)
Non-affiliated companies (308) (291) (315)
----------------------------------------------------------------------
Total Net Earned Premiums $1,390 $1,559 $1,368
======================================================================
</TABLE>
Reinsurance recoverables at December 31, 1998 and 1997 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
REINSURANCE RECOVERABLES 1998 1997
-----------------------------------------------------------
<S> <C> <C>
Life and Accident and Health Business:
Non-affiliated companies $1,297 $1,362
Property-Casualty Business:
Affiliated companies 2,090 2,391
-----------------------------------------------------------
Total Reinsurance Recoverables $3,387 $3,753
===========================================================
</TABLE>
Total reinsurance recoverables at December 31, 1998 and 1997 include $640
million and $697 million, respectively, from MetLife in connection with the
sale of the Company's group life and related businesses.
F-14
<PAGE> 65
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
Additional paid-in capital increased during 1998 primarily due to the
conversion of Citigroup common stock to Citigroup preferred stock. This
increase in stockholder's equity was offset by a decrease in unrealized
investment gains due to the same transaction. See Note 13.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments is
shown in Note 13.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $702 million, $754 million and $656 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company's statutory capital and surplus was $4.95 billion and $4.12
billion at December 31, 1998 and 1997, 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 $504 million is available in 1999 for dividend payments by the Company
without prior approval of the Connecticut Insurance Department. In addition,
under a revolving credit facility, the Company is required to maintain
certain minimum equity and risk based capital levels. The Company is in
compliance with these covenants at December 31, 1998 and 1997.
F-15
<PAGE> 66
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES, NET OF TAX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED FOREIGN CURRENCY ACCUMULATED OTHER
GAIN ON TRANSLATION CHANGES IN EQUITY FROM
INVESTMENT ADJUSTMENTS NON-OWNER SOURCES
(for the year ended December 31, $ in millions) SECURITIES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Balance, beginning of year $545 $(10) $535
Current-year change 62 1 63
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $607 $(9) $598
==========================================================================================================================
1997
Balance, beginning of year $232 $(9) $223
Current-year change 313 (1) 312
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $545 $(10) $535
==========================================================================================================================
1996
Balance, beginning of year $458 $(9) $449
Current-year change (226) - (226)
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $232 $(9) $223
==========================================================================================================================
</TABLE>
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF OTHER CHANGES IN EQUITY FROM
NON-OWNER SOURCES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Pre-tax Tax expense After-tax
(for the year ended December 31, $ in millions) amount (benefit) amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 244 $ 85 $ 159
Less: reclassification adjustment for gains
realized in net income 149 52 97
- ---------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities 95 33 62
Foreign currency translation adjustments 3 2 1
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $ 98 $ 35 $ 63
=========================================================================================================
1997
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 681 $ 239 $ 442
Less: reclassification adjustment for gains
realized in net income 199 70 129
- ---------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities 482 169 313
Foreign currency translation adjustments (1) - (1)
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $ 481 $ 169 $ 312
=========================================================================================================
1996
Unrealized gain on investment securities:
Unrealized holding losses arising during year $(283) $ (99) $(184)
Less: reclassification adjustment for gains
realized in net income 65 23 42
- ---------------------------------------------------------------------------------------------------------
Net unrealized loss on investment securities (348) (122) (226)
Foreign currency translation adjustments - - -
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $(348) $(122) $(226)
=========================================================================================================
</TABLE>
F-16
<PAGE> 67
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. 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 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 associated with these instruments can
be less than these amounts. For interest rate swaps, options and forward
contracts, credit risk is limited to the amount that it would cost the
Company to replace the contracts. Financial futures contracts have little
credit risk since organized exchanges are the counterparties. The Company is
a writer of option contracts and as such 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 which arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from the
sale or maturity of investments. To hedge against adverse changes in interest
rates, the Company enters long or short positions in financial futures
contracts 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, 1998 and 1997, the Company held financial futures contracts
with notional amounts of $459 million and $625 million, respectively. These
financial futures had a deferred gain of $3.3 million and a deferred loss of
$.1 million in 1998 and a deferred gain of $.7 million, and a deferred loss
of $4.1 million in 1997. Total gains of $1.5 million and losses of $5.8
million from financial futures were deferred at December 31, 1998 and 1997,
respectively, relating to anticipated investment purchases and investment
product sales, and are reported as other liabilities. At December 31, 1998
and 1997, the Company's futures contracts had no fair value because these
contracts were marked to market and settled in cash daily.
F-17
<PAGE> 68
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match an asset with a corresponding liability. Under interest rate swaps, the
Company agrees with other parties to exchange, at specific intervals, the
difference between fixed-rate and floating-rate interest amounts calculated
by reference to an agreed notional principal amount. The Company also enters
into basis swaps in which both legs of the swap are floating with each based
on a different index. 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 and are subject to the risk of default by the
counterparty.
At December 31, 1998 and 1997, the Company held interest rate swap contracts
with notional amounts of $1,077.9 million and $234.7 million, respectively.
The fair value of these financial instruments was $5.6 million (gain
position) and $19.6 million (loss position) at December 31, 1998 and was $.3
million (gain position) and $2.5 million (loss position) at December 31,
1997. The fair values were determined using the discounted cash flow method.
The off-balance sheet risks of options and forward contracts were not
significant at December 31, 1998 and 1997.
The Company purchased a 5-year interest rate cap, with a notional amount of
$200 million, from Travelers Group Inc. in 1995 to hedge against losses that
could result from increasing interest rates. This instrument, which does not
have off-balance sheet risk, gave the Company the right to receive payments
if interest rates exceeded specific levels at specific dates. The premium of
$2 million paid for this instrument was being amortized over its life. The
interest rate cap asset was terminated in 1998. The fair value at December
31, 1997 was $0.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable rate
loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant at
December 31, 1998 and 1997.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered insurance
contracts are not required to be disclosed and are not included in the
amounts discussed.
At December 31, 1998 and 1997, investments in fixed maturities had a carrying
value and a fair value of $23.9 billion and $21.5 billion, respectively. See
Notes 1 and 13.
At December 31, 1998 mortgage loans had a carrying value of $2.6 billion and
a fair value of $2.8 billion and in 1997 had a carrying value of $2.9 billion
and a fair value of $3.0 billion. In estimating fair value, the Company used
interest rates reflecting the current real estate financing market.
F-18
<PAGE> 69
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The carrying values of $144 million and $143 million of financial instruments
classified as other assets approximated their fair values at December 31,
1998 and 1997, respectively. The carrying values of $2.3 billion and $2.0
billion of financial instruments classified as other liabilities also
approximated their fair values at December 31, 1998 and 1997, respectively.
Fair value is determined using various methods, including discounted cash
flows, as appropriate for the various financial instruments.
At December 31, 1998, contractholder funds with defined maturities had a
carrying value and a fair value of $3.3 billion, compared with a carrying
value and a fair value of $2.3 billion at December 31, 1997. The fair value
of these contracts is determined by discounting expected cash flows at an
interest rate commensurate with the Company's credit risk and the expected
timing of cash flows. Contractholder funds without defined maturities had a
carrying value of $10.4 billion and a fair value of $10.2 billion at December
31, 1998, compared with a carrying value of $9.7 billion and a fair value of
$9.5 billion at December 31, 1997. These contracts generally are valued at
surrender value.
The assets of separate accounts providing a guaranteed return had a carrying
value and a fair value of $235 million at December 31, 1998, compared with a
carrying value and a fair value of $260 million at December 31, 1997. The
liabilities of separate accounts providing a guaranteed return had a carrying
value and a fair value of $209 million and $206 million, respectively, at
December 31, 1998, compared with a carrying value and a fair value of $209
million and $206 million, respectively, at December 31, 1997.
The carrying values of cash, trading securities and trading securities sold
not yet purchased are carried at fair value. The carrying values of
short-term securities and investment income accrued approximated their fair
values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
7. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 6 for a discussion of financial instruments with off-balance sheet
risk.
F-19
<PAGE> 70
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Litigation
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc. et al. was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and
other state laws by an affiliate of the Company, Primerica Financial
Services, Inc. and certain of its affiliates. Plaintiffs seek unspecified
compensatory and punitive damages and other relief. In October 1997,
defendants answered the complaint, denied liability and asserted numerous
affirmative defenses. In February 1998, the Superior Court of Richmond County
transferred the lawsuit to the Superior Court of Gwinnett County, Georgia.
The plaintiffs appealed the transfer order, and in December 1998 the Court of
Appeals of the State of Georgia reversed the lower court's decision. Later in
December 1998, defendants petitioned the Georgia Supreme Court to hear the
appeal from the decision of the Court of Appeals. Pending appeal, proceedings
in the trial court have been stayed. Defendants intend to vigorously contest
the litigation.
The Company is also a defendant or co-defendant in various other litigation
matters in the normal course of business. Although there can be no
assurances, as of December 31, 1998, the Company believes, based on
information currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.
8. 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 TIGI. The Company's share of net expense for the qualified
pension and other postretirement benefit plans was not significant for 1998,
1997 and 1996. Through plans sponsored by TIGI, the Company also provides
defined contribution pension plans for certain agents. Company contributions
are primarily a function of production. The expense for these plans was not
significant in 1998, 1997 and 1996.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in a
401(k) savings plan sponsored by Citigroup. During 1996, the Company made
matching contributions in an amount equal to the lesser of 100% of the
pre-tax contributions made by the employee or $1,000. Effective January 1,
1997, the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings plan
were not significant in 1998, 1997 and 1996.
F-20
<PAGE> 71
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and expenses,
for certain subsidiaries and affiliates of TIGI are handled by two companies.
The Travelers Insurance Company (Life Department) handles banking functions
for the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements between
companies are made at least monthly. The Company provides various employee
benefits coverages to employees of 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 shared with affiliated companies. Charges for these services are
shared by the companies on cost allocation methods based generally on
estimated usage by department.
The Company maintains a short-term investment pool in which its insurance
affiliates participate. The position of each company participating in the
pool is calculated and adjusted daily. At December 31, 1998 and 1997, the
pool totaled approximately $2.3 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $793 million and $725 million at
December 31, 1998 and 1997, respectively, and is included in short-term
securities in the consolidated balance sheet.
Included in short-term investments is a 90 day variable rate note receivable
from Citigroup issued on August 28, 1998 and renewed on November 25, 1998.
The rate is based upon the AA financial commercial paper rate plus 14 basis
points. The rate at December 31, 1998 is 5.47%. The balance at December 31,
1998 is $500 million. Interest accrued at December 31, 1998 was $2.2 million.
Interest earned during 1998 was $9.4 million. Citigroup repaid this note on
February 25, 1999.
The Company sells structured settlement annuities to the insurance
subsidiaries of TAP in connection with the settlement of certain policyholder
obligations. Such premiums and deposits were $104 million, $88 million, and
$40 million for 1998, 1997 and 1996, respectively. Reserves and
contractholder funds related to these annuities amounted to $787 million and
$795 million in 1998 and 1997, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney Inc. (SSB). Premiums and
deposits related to these products were $1.3 billion, $1.0 billion, and
$820 million in 1998, 1997 and 1996, respectively.
During the year the Company lent out $78.5 million par of debentures to SSB
for $84.8 million in cash collateral. Loaned debentures totaling $37.6
million with cash collateral of $39.7 million remained outstanding at
December 31, 1998.
The Company sold $27.4 million par of 6.125% U.S. Treasury bonds to SSB for
$31.1 million.
F-21
<PAGE> 72
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company purchased $36 million par of 6.56% Chase Commercial Mortgage
Securities Corp. bonds from SSB for $35.9 million.
Primerica Life has entered into a General Agency Agreement with Primerica
Financial Service, Inc. (Primerica), that provides that Primerica will be
Primerica Life's general agent for marketing all insurance of Primerica Life.
In consideration of such services, Primerica Life agreed to pay Primerica
marketing fees of no less than $10 million based upon U.S. gross direct
premiums received by Primerica Life. In 1998 the fees paid by Primerica Life
were $12.5 million.
In 1998 Primerica became a distributor of products for Travelers Life and
Annuity. During the year Primerica sold $256 million of deferred annuities.
Included in other invested assets is a $987 million investment in Citigroup
preferred stock at December 31, 1998, carried at cost. Also, included in
other invested assets is a $1.15 billion investment in common stock of
Citigroup at December 31, 1997, carried at fair value.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements have been
granted Citigroup stock options.
The Company applies APB 25 and related interpretations in accounting for
stock options. Since stock options under the Citigroup plans are issued at
fair market value on the date of award, no compensation cost has been
recognized for these awards. FAS 123 provides an alternative to APB 25
whereby fair values may be ascribed to options using a valuation model and
amortized to compensation cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Citigroup stock options,
net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1998 1997 1996
($ IN MILLIONS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $902 $839 $659
FAS 123 pro forma adjustments, after tax (13) (9) (3)
-----------------------------------------------------------------------------------------------------
Net income, pro forma $889 $830 $656
</TABLE>
The Company had an interest rate cap agreement with Citigroup. See Note 6.
F-22
<PAGE> 73
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by TAP.
In 1996, TAP assumed the obligations for several leases. Rent expense related
to all leases are shared by the companies on a cost allocation method based
generally on estimated usage by department. Rent expense was $18 million, $15
million, and $24 million in 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
---------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING
($ in millions) RENTAL PAYMENTS
---------------------------------------------------
<S> <C>
1999 $ 47
2000 50
2001 54
2002 44
2003 42
Thereafter 296
---------------------------------------------------
Total Rental Payments $533
===================================================
</TABLE>
Future sublease rental income of approximately $86 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of the
rental expense for a particular lease totaling $207 million, by an affiliate.
Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-23
<PAGE> 74
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. FEDERAL INCOME TAXES
($ in millions)
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,383 $1,283 $ 975
Statutory Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
Expected Federal Income Taxes 484 449 341
Tax Effect of:
Non-taxable investment income (5) (4) (3)
Other, net 2 (1) 4
----------------------------------------------------------------------------------
Federal Income Taxes $ 481 $ 444 $ 342
==================================================================================
Effective Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $ 418 $ 410 $ 263
Foreign 24 24 21
---------------------------------------------------------------------------------
Total 442 434 284
---------------------------------------------------------------------------------
Deferred:
United States 40 10 57
Foreign (1) - 1
---------------------------------------------------------------------------------
Total 39 10 58
----------------------------------------------------------------------------------
Federal Income Taxes $ 481 $ 444 $ 342
=================================================================================
</TABLE>
Additional tax benefits attributable to employee stock plans allocated
directly to shareholder's equity for the years ended December 31, 1998, 1997
and 1996 were $17 million, $17 million and $8 million, respectively.
F-24
<PAGE> 75
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1998 and 1997 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in millions) 1998 1997
---- ----
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 616 $ 561
Operating lease reserves 76 80
Other employee benefits 103 102
Other 135 127
----------------------------------------------------------------------------------
Total 930 870
----------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of 673 608
insurance in force
Investments, net 489 484
Other 90 87
----------------------------------------------------------------------------------
Total 1,252 1,179
----------------------------------------------------------------------------------
Net Deferred Tax Liability Before Valuation (322) (309)
Allowance
Valuation Allowance for Deferred Tax Assets (100) (100)
----------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (422) $ (409)
----------------------------------------------------------------------------------
</TABLE>
The Company and its life insurance subsidiaries will file a consolidated
federal income tax return. Federal income taxes are allocated to each member
of the consolidated group on a separate return basis adjusted for credits and
other amounts required by the consolidation process. Any resulting liability
will be paid currently to the Company. Any credits for losses will be paid by
the Company to the extent that such credits are for tax benefits that have
been utilized in the consolidated federal income tax return.
The $100 million valuation allowance is sufficient to cover any capital
losses on investments that may exceed the capital gains able to be generated
in the life insurance group's consolidated federal income tax return based
upon management's best estimate of the character of the reversing temporary
differences. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains or a change in circumstances that causes
the recognition of the benefits to become more likely than not. There was no
change in the valuation allowance during 1998. The initial recognition of any
benefit produced by the reversal of the valuation allowance will be
recognized by reducing goodwill.
At December 31, 1998, the Company had no ordinary or capital loss
carryforwards.
F-25
<PAGE> 76
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 $932 million. Income taxes are not provided for on this amount
because under current U.S. tax rules such taxes will become payable only to
the extent such amounts are distributed as a dividend to exceed limits
prescribed by federal law. Distributions are not contemplated from this
account. At current rates the maximum amount of such tax would be
approximately $326 million.
12. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,598 $1,460 $1,387
Mortgage loans 295 291 334
Policy loans 131 137 156
Other, including trading 226 238 171
----------------------------------------------------------------------
2,250 2,126 2,048
----------------------------------------------------------------------
Investment expenses 65 89 98
----------------------------------------------------------------------
Net investment income $2,185 $2,037 $1,950
----------------------------------------------------------------------
</TABLE>
13. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $111 $71 $(63)
Equity securities 6 (9) 47
Mortgage loans 21 59 49
Real estate held for sale 16 67 33
Other (5) 11 (1)
----------------------------------------------------------------------
Total Realized Investment Gains $149 $199 $65
----------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 77
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
($ in millions)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $ 91 $ 446 $ (323)
Equity securities 13 25 (35)
Other (169) 520 220
-------------------------------------------------------------------------------------------------
Total Unrealized Investment Gains (Losses) (65) 991 (138)
-------------------------------------------------------------------------------------------------
Related taxes (20) 350 (43)
-------------------------------------------------------------------------------------------------
Change in unrealized investment gains (45) 641 (95)
(losses)
Transferred to paid in capital, net of tax (585) -- --
Balance beginning of year 1,228 587 682
-------------------------------------------------------------------------------------------------
Balance End of Year $ 598 $ 1,228 $ 587
-------------------------------------------------------------------------------------------------
</TABLE>
Included in Other in 1998 is the unrealized loss on Citigroup common stock of
$167 million prior to the conversion to preferred stock. Also included in
Other were unrealized gains of $506 million and $203 million, which were
reported in 1997 and 1996, respectively, related to appreciation of Citigroup
common stock.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale were
$13.4 billion, $7.6 billion and $9.1 billion in 1998, 1997 and 1996,
respectively. Gross gains of $314 million, $170 million and $107 million and
gross losses of $203 million, $99 million and $175 million in 1998, 1997 and
1996, respectively, were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a quoted
market price or dealer quote are not available amounted to $4.8 billion and
$5.1 billion at December 31, 1998 and 1997, respectively.
F-27
<PAGE> 78
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 4,717 $ 147 $ 11 $ 4,853
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,563 186 3 1,746
Obligations of states, municipalities and
political subdivisions 239 18 -- 257
Debt securities issued by foreign governments 634 41 3 672
All other corporate bonds 13,025 532 57 13,500
Other debt securities 2,709 106 38 2,777
Redeemable preferred stock 86 3 1 88
- ---------------------------------------------------------------------------------------------------------
Total Available For Sale $22,973 $ 1,033 $ 113 $23,893
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,842 $ 124 $ 2 $ 3,964
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,580 149 1 1,728
Obligations of states, municipalities and
political subdivisions 78 8 -- 86
Debt securities issued by foreign governments 622 31 4 649
All other corporate bonds 11,787 459 17 12,229
Other debt securities 2,761 88 7 2,842
Redeemable preferred stock 12 1 -- 13
- --------------------------------------------------------------------------------------------------------------
Total Available For Sale $20,682 $ 860 $ 31 $21,511
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE> 79
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1998, by
contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
($ in millions) AMORTIZED FAIR
COST VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 1,296 $ 1,305
Due after 1 year through 5 years 6,253 6,412
Due after 5 years through 10 years 5,096 5,310
Due after 10 years 5,611 6,013
- -----------------------------------------------------------------
18,256 19,040
- -----------------------------------------------------------------
Mortgage-backed securities 4,717 4,853
- -----------------------------------------------------------------
Total Maturity $22,973 $23,893
- -----------------------------------------------------------------
</TABLE>
The Company makes investments in collateralized mortgage obligations (CMOs).
CMOs typically have high credit quality, offer good liquidity, and provide a
significant advantage in yield and total return compared to U.S. Treasury
securities. The Company's investment strategy is to purchase CMO tranches which
are protected against prepayment risk, including planned amortization class
(PAC) tranches. Prepayment protected tranches are preferred because they provide
stable cash flows in a variety of interest rate scenarios. The Company does
invest in other types of CMO tranches if a careful assessment indicates a
favorable risk/return tradeoff. The Company does not purchase residual interests
in CMOs.
At December 31, 1998 and 1997, the Company held CMOs classified as available for
sale with a fair value of $3.4 billion and $2.1 billion, respectively.
Approximately 54% and 72%, respectively, of the Company's CMO holdings are fully
collateralized by GNMA, FNMA or FHLMC securities at December 31, 1998 and 1997.
In addition, the Company held $1.4 billion and $1.9 billion of GNMA, FNMA or
FHLMC mortgage-backed pass-through securities at December 31, 1998 and 1997,
respectively. Virtually all of these securities are rated AAA.
F-29
<PAGE> 80
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Common stocks $129 $ 44 $ 3 $170
Non-redeemable preferred stocks 345 10 7 348
- ------------------------------------------------------------------------------------------------
Total Equity Securities $474 $ 54 $ 10 $518
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
Common stocks $179 $ 34 $ 11 $202
Non-redeemable preferred stocks 301 13 4 310
- ------------------------------------------------------------------------------------------------
Total Equity Securities $480 $ 47 $ 15 $512
- ------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $212 million, $341 million
and $479 million in 1998, 1997 and 1996, respectively. Gross gains of $30
million, $53 million and $64 million and gross losses of $24 million, $62
million and $11 million in 1998, 1997 and 1996, respectively, were realized
on those sales.
Mortgage Loans and Real Estate Held For Sale
At December 31, 1998 and 1997, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following ($ in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,370 $2,866
Underperforming Mortgage Loans 236 3
- ------------------------------------------------------------------------------------
Total Mortgage Loans 2,606 2,869
- ------------------------------------------------------------------------------------
Real Estate Held For Sale - Foreclosed 112 117
Real Estate Held For Sale - Investment 31 17
- ------------------------------------------------------------------------------------
Total Real Estate 143 134
- ------------------------------------------------------------------------------------
Total Mortgage Loans and Real Estate Held for Sale $2,749 $3,003
====================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.
F-30
<PAGE> 81
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
- -----------------------------------------------------------------------
<S> <C>
Past Maturity $ 186
1999 188
2000 196
2001 260
2002 118
2003 206
Thereafter 1,452
- -----------------------------------------------------------------------
Total $2,606
=======================================================================
</TABLE>
Joint Venture
In October 1997, the Company and Tishman Speyer Properties (Tishman), a
worldwide real estate owner, developer and manager, formed a real estate
joint venture with an initial equity commitment of $792 million. The
Company and certain of its affiliates originally committed $420 million in
real estate equity and $100 million in cash while Tishman originally
committed $272 million in properties and cash. Both companies are serving
as general partners for the venture and Tishman is primarily responsible
for the venture's real estate acquisition and development efforts. The
Company's carrying value of this investment was $252.4 million and $204.8
million at December 31, 1998 and 1997, respectively.
Trading Securities
Trading securities of the Company are held in a subsidiary that is a
broker/dealer, Tribeca Investments L.L.C.
<TABLE>
<CAPTION>
($ in millions)
- -------------------------------------------------------------------------------------
TRADING SECURITIES OWNED 1998 1997
------ ------
<S> <C> <C>
Convertible bond arbitrage $ 754 $ 370
Merger arbitrage 427 352
Other 5 78
- -------------------------------------------------------------------------------------
Total $1,186 $ 800
- -------------------------------------------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Convertible bond arbitrage $ 521 $ 249
Merger arbitrage 352 213
- -------------------------------------------------------------------------------------
Total $ 873 $ 462
- -------------------------------------------------------------------------------------
</TABLE>
The Company's trading portfolio investments and related liabilities are
normally held for periods less than six months. Therefore, expected future
cash flows for these assets and liabilities are expected to be realized in
less than one year.
F-31
<PAGE> 82
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1998 and 1997, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's
equity.
The Company maintains a short-term investment pool for its insurance
affiliates in which the Company also participates. See Note 9.
Included in fixed maturities are below investment grade assets totaling
$2.1 billion and $1.4 billion at December 31, 1998 and 1997, respectively.
The Company defines its below investment grade assets as those securities
rated "Ba1" or below by external rating agencies, or the equivalent by
internal analysts when a public rating does not exist. Such assets include
publicly traded below investment grade bonds and certain other privately
issued bonds that are classified as below investment grade.
The Company had concentrations of investments, primarily fixed maturities,
in the following industries:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
($ in millions) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
Banking $2,131 $2,215
Electric Utilities 1,513 1,377
Finance 1,346 1,556
Asset-Backed Credit Cards 1,013 778
-----------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
At December 31, 1998 and 1997, concentrations of mortgage loans of $751
million and $794 million, respectively, were for properties located in
highly populated areas in the state of California.
Other mortgage loan investments are relatively evenly dispersed throughout
the United States, with no significant holdings in any one state.
Significant concentrations of mortgage loans by property type at December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
($ in millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Office $1,185 $1,382
Agricultural 887 771
------------------------------------------------------------------------
</TABLE>
F-32
<PAGE> 83
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 consolidated balance sheets that were
non-income producing for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loans and debt securities that were restructured
at below market terms at December 31, 1998 and 1997. The balances of the
restructured investments were insignificant. The new terms typically defer
a portion of contract interest payments to varying future periods. The
accrual of interest is suspended on all restructured assets, and interest
income is reported only as payment is received. Gross interest income on
restructured assets that would have been recorded in accordance with the
original terms of such loans was insignificant in 1998 and in 1997.
Interest on these assets, included in net investment income was
insignificant in 1998 and 1997.
14. DEPOSIT FUNDS AND RESERVES
At December 31, 1998, the Company had $25.7 billion of life and annuity
deposit funds and reserves. Of that total, $13.8 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $11.9
billion is for life and annuity products that are subject to discretionary
withdrawal by the contractholder. Included in the amount that is subject to
discretionary withdrawal is $2.4 billion of liabilities that are
surrenderable with market value adjustments. Also included are an
additional $5.1 billion of life insurance and individual annuity
liabilities which are subject to discretionary withdrawals, and have an
average surrender charge of 4.7%. In the payout phase, these funds are
credited at significantly reduced interest rates. The remaining $4.4
billion of liabilities are surrenderable without charge. More than 14.2% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-33
<PAGE> 84
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $902 $839 $633
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized gains (149) (199) (65)
Deferred federal income taxes 39 10 58
Amortization of deferred policy acquisition costs and
value of insurance in force 311 293 281
Additions to deferred policy acquisition costs (566) (471) (350)
Investment income accrued (55) 14 2
Premium balances receivable 7 3 (6)
Insurance reserves and accrued expenses 335 131 (1)
Other 51 206 255
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 875 826 807
Net cash used in discontinued operations - - (350)
Net cash provided by operations $875 $826 $457
--------------------------------------------------------------------------------------------------------------
</TABLE>
16. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include the
transfer of Citigroup common stock to Citigroup preferred stock valued at
$987 million in 1998 and the conversion of $119 million of real estate held
for sale to other invested assets as a joint venture in 1997.
F-34
<PAGE> 85
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
17. OPERATING SEGMENTS
The Company has two reportable business segments that are separately managed due
to differences in products, services, marketing strategy and resource
management. The business of each segment is maintained and reported through
separate legal entities within the Company. The management groups of each
segment report separately to the common ultimate parent, Citigroup Inc.
The TRAVELERS LIFE AND ANNUITY business segment consolidates primarily the
business of Travelers Insurance Company and The Travelers Life and Annuity
Company. The Travelers Life and Annuity business segment offers fixed and
variable deferred annuities, payout annuities and term, universal and variable
life and long-term care insurance to individuals and small businesses. It also
provides group pension products, including guaranteed investment contracts and
group annuities for employer-sponsored retirement and savings plans.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company and National Benefit Life Insurance Company.
The Primerica Life business segment offers individual life products, primarily
term insurance, to customers through a nationwide sales force of approximately
80,000 full and part-time licensed Personal Financial Analysts.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1), except that management
also includes receipts on long-duration contracts (universal life-type and
investment contracts) as deposits along with premiums in measuring business
volume.
BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1998 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 683 $ 1,057 $ 1,740
Deposits 7,693 -- 7,693
------- ------- -------
Total business volume $ 8,376 $ 1,057 $ 9,433
Net investment income 1,965 220 2,185
Interest credited to contractholders 876 -- 876
Amortization of deferred acquisition costs and value of
insurance in force 115 196 311
Federal income taxes on Operating Income 260 170 430
Operating Income (excludes realized gains or losses and
the related FIT) $ 493 $ 312 $ 805
Segment Assets $49,646 $ 6,902 $56,548
</TABLE>
F-35
<PAGE> 86
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1997 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume
Premiums $ 548 $ 1,035 $ 1,583
Deposits 5,276 -- 5,276
------- ------- -------
Total business volume $ 5,824 $ 1,035 $ 6,859
Net investment income 1,836 201 2,037
Interest credited to contractholders 829 -- 829
Amortization of deferred acquisition costs and value of
insurance in force 96 197 293
Federal income taxes on Operating Income 221 153 374
Operating Income (excludes realized gains or losses and
the related FIT) $ 427 $ 283 $ 710
Segment Assets $42,330 $ 7,110 $49,440
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1996 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 357 $ 1,030 $ 1,387
Deposits 3,502 -- 3,502
------- ------- -------
Total business volume $ 3,859 $ 1,030 $ 4,889
Net investment income 1,775 175 1,950
Interest credited to contractholders 863 -- 863
Amortization of deferred acquisition costs and value of
insurance in force 83 198 281
Federal income taxes on Operating Income 189 130 319
Operating Income (excludes realized gains or losses and
the related FIT) $ 356 $ 235 $ 591
Segment Assets $37,564 $ 5,409 $42,973
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures for
additions to long-lived assets other than financial instruments, long-term
customer relationships of a financial institution, mortgage and other servicing
rights, deferred policy acquisition costs, and deferred tax assets, were not
material.
F-36
<PAGE> 87
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
($ in millions)
<TABLE>
<CAPTION>
REVENUES 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Total business volume $ 9,433 $ 6,859 $ 4,889
Net investment income 2,185 2,037 1,950
Realized investment gains 149 199 65
Other revenues 440 354 284
Elimination of deposits (7,693) (5,276) (3,502)
- -------------------------------------------------------------------------------
Total revenues $ 4,514 $ 4,173 $ 3,686
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total operating income of business segments $805 $710 $591
Realized investment gains net of tax 97 129 42
- --------------------------------------------------------------------------------
Income from continuing operations $902 $839 $633
================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets of business segments $56,548 $49,440 $42,973
================================================================================
</TABLE>
<TABLE>
<CAPTION>
REVENUE BY PRODUCTS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Annuities $ 4,198 $ 3,303 $ 2,635
Group and Payout Annuities 5,326 3,737 2,194
Individual Life & Health Insurance 2,270 2,102 1,956
Other (a) 413 307 403
Elimination of deposits (7,693) (5,276) (3,502)
- --------------------------------------------------------------------------------
Total Revenue $ 4,514 $ 4,173 $ 3,686
================================================================================
</TABLE>
(a) Other represents revenue attributable to unallocated capital and run-off
business.
The Company's revenue was derived almost entirely from U.S. domestic business.
Revenue attributable to foreign countries was insignificant.
The Company had no transactions with a single customer representing 10% or more
of its revenue.
F-37
<PAGE> 88
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> 89
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:
1. The facing sheet.
2. The Prospectus.
3. The undertaking to file reports.
4. The signatures.
Written consents of the following persons:
A Consent of Katherine M. Sullivan, General Counsel, to 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 Insurance Company
authorizing the establishment of the Registrant. (Incorporated herein
by reference to Exhibit 1 to the Registration Statement on S-6, File
No. 333-71349, filed January 28, 1999.)
2. Not Applicable.
3(a). Distribution and Principal Underwriting Agreement among the Registrant,
The Travelers Insurance Company and CFBDS, Inc. (Incorporated herein by
reference to Exhibit 3(a) to Pre-Effective Amendment N. 1 to the
Registration Statement on Form N-4, File No. 333-60227, filed November
9, 1998.)
3(b). Selling Agreement. (Incorporated herein by reference to Exhibit 3(ba)
to Pre-Effective Amendment N. 1 to the Registration Statement on Form
N-4, File No. 333-60227, filed November 9, 1998.)
3(c). Agents Agreements, including schedule of sales commissions. To be filed
by amendment.
4. None
5. Variable Life Insurance Contracts.
<PAGE> 90
6(a). Charter of The Travelers Insurance Company, as amended on October 19,
1994. (Incorporated herein by reference to Exhibit 6(a) to the
Registration Statement filed on Form N-4, File No. 333-40193, filed
November 13, 1997.)
6(b). By-Laws of The Travelers Insurance Company, as amended on October 20,
1994. (Incorporated herein by reference to Exhibit 6(b) to the
Registration Statement filed on Form N-4, File No. 333-40193, filed
November 13, 1997.)
7. None
8. Participation Agreements. To be filed by amendment.
9. None
10. Application for Variable Life Insurance Contracts.
11. Opinion of counsel as to the legality of the securities being
registered (Incorporated herein by reference to Exhibit 11 to the
Registration Statement on S-6, File No. 333-71349, filed January 28,
1999.)
12. Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Jay S. Benet, Michael A. Carpenter, J. Eric Daniels,
George C. Kokulis, Robert I. Lipp, Katherine M. Sullivan and Marc P.
Weill. (Incorporated herein by reference to Exhibit 12 to the
Registration Statement on S-6, File No. 333-71349, filed January 28,
1999.)
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, The
Travelers Fund UL III for Variable Life Insurance, has duly caused this
registration statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the city of Hartford and state of Connecticut, on the 16th
day of April 1999.
THE TRAVELERS FUND UL III FOR VARIABLE LIFE INSURANCE
(Registrant)
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By: *JAY S. BENET
-----------------------------------------------
Jay S. Benet
Senior Vice President, Chief Financial Officer,
Chief Accounting Officer and Controller
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the 16th day of April 1999.
*MICHAEL A. CARPENTER Director, Chairman of the Board
- ----------------------------
(Michael A. Carpenter)
*J. ERIC DANIELS Director, President and Chief Executive Officer
- ----------------------------
(J. Eric Daniels)
*JAY S. BENET Director, Senior Vice President, Chief Financial
- ---------------------------- Officer, Chief Accounting Officer and Controller
(Jay S. Benet)
*GEORGE C. KOKULIS Director and Senior Vice President
- ----------------------------
(George C. Kokulis)
*ROBERT I. LIPP Director
- ----------------------------
(Robert I. Lipp)
*KATHERINE M. SULLIVAN Director, Senior Vice President and
- ---------------------------- General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director and Senior Vice President
- ----------------------------
(Marc P. Weill)
*By: -----------------------------------
Ernest J. Wright, Attorney-in-Fact
<PAGE> 92
EXHIBIT INDEX
Written Consents Method of Filing
- ---------------- ----------------
B. Consent and Actuarial Opinion pertaining Electronically
to the illustrations contained in the
prospectus.
C. Consent of KPMG LLP, Independent Certified Electronically
Public Accountants.
EXHIBITS
3(c). Agents Agreements, including schedule of To be filed by
sales commissions. amendment
5. Variable Life Insurance Contracts. Electronically
8. Participation Agreement. To be filed by
amendment
10. Application for Variable Life Insurance Electronically
Contracts
<PAGE> 1
ATTACHMENT B
Re: Travelers' Corporate Owned Life Insurance ("COLI") (File No. 333-71349)
The Travelers Fund UL III for Variable Life Insurance
Dear Sir or Madam:
In my capacity as Actuary of The Travelers Insurance Company, I have provided
actuarial advice concerning Travelers' COLI product. I also provided actuarial
advice concerning the preparation of the Registration Statement on Form S-6,
File No. 333-71349 (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/ Mark S. Reilly, FSA, MAAA
Pricing Actuary
Product Development
April 16, 1999
<PAGE> 1
ATTACHMENT C
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Insurance Company
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants" in the prospectus.
KPMG LLP
Hartford, Connecticut
April __, 1999
<PAGE> 1
THE TRAVELERS INSURANCE COMPANY - ONE TOWER SQUARE - HARTFORD, CT 06183
A STOCK COMPANY
CORPORATE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
We will pay the Death Benefit to the Beneficiary upon receipt at Our Office of
Due Proof of the Insured's Death while this policy is in force. Refer to the
"Death Benefit" provision on Page 5 and to the "Policy Values" section on Page 6
for information on determining the amount payable at death.
READ YOUR POLICY CAREFULLY
This is a legal contract between you and us.
RIGHT TO CANCEL
We want you to be satisfied with the policy you have purchased. We urge you to
examine it closely. If, for any reason, you are not satisfied, you may return
the policy to us or to the agent from whom it was purchased to be cancelled
within the latest of:
1. 10 days after the policy was delivered to you; or
2. 10 days after we have mailed or delivered the Notice of the Right to
Cancel to you; or
3. 45 days after the date the application for this policy was signed.
Within 7 days after our receipt of your request In Writing for a refund, we will
refund to you the Contract Value of the policy on the date we receive the
returned policy; plus any charges and expenses which may have been deducted;
less any Loan Account value. After the policy is returned, it will be considered
as if it were never in effect.
Signed at Hartford, Connecticut
/s/ M.A. CARPENTER
President
CORPORATE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
INSURANCE PAYABLE AT INSURED'S DEATH
NON-PARTICIPATING
THE AMOUNT AND DURATION OF THE DEATH BENEFIT AND OTHER VALUES PROVIDED BY THIS
POLICY ARE BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT(S). ALL
SEPARATE ACCOUNT VALUES ARE VARIABLE, MAY INCREASE OR DECREASE, AND ARE NOT
GUARANTEED AS TO FIXED DOLLAR AMOUNT.
L-15310
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Right to Cancel Policy Jacket
Policy Summary Page 3
Definitions Page 4
Benefits--Basic Policy Page 5
Policy Values Page 6
Premium and Valuation Provisions Page 8
Fixed Account Provisions Page 8
Separate Account Option Valuation Page 9
Transfers Between Investment Options Page 9
Continuation of Insurance, Grace Period and Reinstatement Page 10
Exchange Option Page 10
Ownership Rights Page 11
General Provisions Page 11
Settlement Options
A copy of the application and any riders follows the Settlement
Options.
</TABLE>
L-15310
<PAGE> 3
POLICY SUMMARY
<TABLE>
<CAPTION>
POLICY NUMBER: STATED AMOUNT: $ 100,000
INSURED : JOHN DOE POLICY DATE: MAY 01, 1999
AGE: 35 ISSUE DATE: MAY 01, 1999
MATURITY DATE: MAY 01, 2064
MONTHLY DEDUCTION DAY: 1ST DAY OF MONTH
- ----------------------------------------------------------------------------------------------
BENEFIT DESCRIPTION
- ----------------------------------------------------------------------------------------------
<S> <C>
INITIAL STATED AMOUNT: $ 100,000
INITIAL TARGET STATED AMOUNT: $ 100,000
INITIAL PREMIUM: $ 469
PLANNED PREMIUM: $ 469
PLANNED PREMIUMS PAYABLE: ANNUALLY
TARGET PREMIUM: [$ 4118]
INSURANCE OPTION: [1] (LEVEL)
MINIMUM STATED AMOUNT [$ 50,000]
MINIMUM ANNUAL EFFECTIVE RATE: 3%
MAXIMUM CHANGE AGE [80]
MINIMUM INCREASE AMOUNT: [$ 5,000]
MINIMUM LOAN AMOUNT: WE RESERVE THE RIGHT TO LIMIT THE MINIMUM LOAN AMOUNT TO $500
MAXIMUM LOAN AMOUNT: 100% OF (CONTRACT VALUE MINUS SURRENDER PENALTIES INCLUDING
INDEBTEDNESS) AS OF THE DATE WE RECEIVE YOUR LOAN REQUEST.
INTEREST RATE
CHARGED TO LOAN ACCOUNTS: 5% CHARGED IN ARREARS
ANNUAL INTEREST RATE
CREDITED TO LOAN ACCOUNTS: 4%
DEATH BENEFIT INTEREST FACTOR: 1.00327374
FULL SURRENDER CHARGE: [NONE]
MINIMUM PARTIAL SURRENDER
AMOUNT: WE RESERVE THE RIGHT TO LIMIT THE MINIMUM PARTIAL SURRENDER
AMOUNT TO $500
SALES EXPENSE CHARGE: GUARANTEED NOT TO EXCEED [9%] UP TO TARGET PREMIUM ALL YEARS.
[5%] ABOVE TARGET PREMIUM ALL YEARS.
MONTHLY ADMINISTRATIVE
EXPENSE CHARGE: [$5.00] PER MONTH [ALL] YEARS, PLUS [$0.00] PER THOUSAND OF
STATED AMOUNT. THIS LOAD APPLIES TO THE INITIAL STATED
AMOUNT AND ANY APPLIED FOR INCREASES IN COVERAGE. THE
DURATION OF THE LOAD IS MEASURED FROM THE SEGMENT EFFECTIVE
DATE.
RATE CLASS: MALE PREFERRED NONSMOKER
PAGE 3(A)
</TABLE>
<PAGE> 4
POLICY SUMMARY
POLICY NUMBER: STATED AMOUNT: $ 100,000
INSURED : JOHN DOE POLICY DATE: MAY 01, 1999
AGE: 35 ISSUE DATE: MAY 01, 1999
MATURITY DATE: MAY 01, 2064
MONTHLY DEDUCTION DAY: 1ST DAY OF MONTH
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT:
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
- --------------------------------------------------------------------------------
INVESTMENT OPTIONS:
[ALLIANCE GROWTH PORTFOLIO
AMERICAN ODYSSEY INTERMEDIATE BOND FUND
BANKERS TRUST SMALL CAP INDEX FUND
JANUS CAPITAL APPRECIATION FUND
DELAWARE PREMIUM SMALL CAP VALUE SERIES
DREYFUS CAPITAL APPRECIATION PORTFOLIO
DREYFUS SMALL CAP PORTFOLIO
DREYFUS STOCK INDEX
FIDELITY EQUITY INCOME
FIDELITY LARGE CAP PORTFOLIO
FIDELITY VIP II ASSET MANAGER PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
MFS TOTAL RETURN PORTFOLIO
NWQ LARGE CAP PORTFOLIO
OPCAP OCC ACCUMULATION TRUST EQUITY PORTFOLIO
PUTNAM DIVERSIFIED INCOME PORTFOLIO
SALOMON BROTHERS CAP FUND
SALOMON BROTHERS STRATEGIC BOND FUND
SALOMON BROTHERS TOTAL RETURN FUND
STRATEGIC STOCK PORTFOLIO
TRAVELERS CONVERTIBLE BOND PORTFOLIO
TRAVELERS HIGH YIELD BOND TRUST
TRAVELERS MONEY MARKET
TRAVELERS U.S. GOVERNMENT SECURITIES PORTFOLIO
WARBURG PINCUS TRUST EMERGING MARKETS PORTFOLIO
AIM CAPITAL APPRECIATION FUND
BANKERS TRUST EAFE INDEX FUND
DELAWARE INVESTMENTS REIT FUND
JANUS CAPITAL APPRECIATION FUND
JURIKA & VOYLES CORE EQUITY PORTFOLIO
MONTGOMERY VARIABLE SERIES
SALOMON BROS INVESTORS FUND
SMITH BARNEY DIVERSIFIED STRATEGIC GROWTH PORTFOLIO
SMITH BARNEY LARGE CAPITALIZATION GROWTH PORTFOLIO
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
STRONG SCHAEFER VALUE FUND II
TRAVELERS DISCIPLINED SMALL CAPITALIZATION PORTFOLIO
TRAVELERS DISCIPLINED MED. CAPITALIZATION PORTFOLIO
VAN KEMPEN AMERICAN CAPITALIZATION ENTERPRISE PORTFOLIO]
PAGE 3(B)
<PAGE> 5
POLICY SUMMARY
POLICY NUMBER: STATED AMOUNT: $ 100,000
INSURED : JOHN DOE POLICY DATE: MAY 01, 1999
AGE: 35 ISSUE DATE: MAY 01, 1999
MATURITY DATE: MAY 01, 2064
MONTHLY DEDUCTION DAY: 1ST DAY OF MONTH
- --------------------------------------------------------------------------------
THE MAXIMUM INVESTMENT OPTION DAILY DEDUCTION FOR ALL INVESTMENT OPTIONS (IN
BASIS POINTS) IS [.2055] FOR ALL POLICY YEARS.
INFORMATION ABOUT THE SEPARATE ACCOUNT IS PROVIDED IN THE PROSPECTUS FOR THE
SEPARATE ACCOUNT. YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS.
WE RESERVE THE RIGHT TO LIMIT FREE TRANSFERS AMONG THE INVESTMENT OPTIONS TO SIX
TIMES IN ANY POLICY YEAR AND TO CHARGE A $10 FEE FOR EACH ADDITIONAL TRANSFER
THAT WE ALLOW.
WE WILL ALLOCATE ANY NET PREMIUM TO ANY INVESTMENT OPTION WHICH HAD BEEN
SELECTED DURING THE RIGHT TO CANCEL PERIOD.
PREMIUM FOR THE BASIC POLICY MAY BE PAID UNTIL THE MATURITY DATE. CHARGES FOR
RIDERS ARE PAYABLE TO THE EXPIRY DATE. NO INSURANCE WILL BE IN EFFECT UNLESS AT
LEAST ONE DEDUCTION AMOUNT HAS BEEN PAID.
INSURANCE UNDER THIS POLICY MAY END BEFORE THE MATURITY DATE IF PREMIUM PAYMENT
AND/OR INVESTMENT EXPERIENCE ARE INSUFFICIENT TO CONTINUE INSURANCE TO SUCH
DATE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF MAXIMUM MONTHLY GUARANTEED COST OF INSURANCE RATES
(MONTHLY RATE FOR EACH $1,000 OF COVERAGE)
- --------------------------------------------------------------------------------
POLICY MAXIMUM POLICY MAXIMUM POLICY MAXIMUM
YEAR RATE YEAR RATE YEAR RATE
- ---- ------- ---- ------- ------ -------
<S> <C> <C> <C> <C> <C>
1 0.0181 23 1.0932 45 8.2619
2 0.1935 24 1.1894 46 9.0119
3 0.2077 25 1.2942 47 9.8582
4 0.2236 26 1.4109 48 10.8223
5 0.2420 27 1.5430 49 11.9024
6 0.2629 28 1.6923 50 13.0775
7 0.2854 29 1.8597 51 14.3247
8 0.3097 30 2.0454 52 15.6263
9 0.3365 31 2.2459 53 16.9762
10 0.3649 32 2.4605 54 18.3754
11 0.3950 33 2.6886 55 19.8343
12 0.4277 34 2.9344 56 21.3788
13 0.4620 35 3.2068 57 23.0518
14 0.4989 36 3.5147 58 24.9371
15 0.5399 37 3.8670 59 27.2442
16 0.5852 38 4.2723 60 30.4453
17 0.6381 39 4.7329 61 35.4922
18 0.6968 40 5.2401 62 44.5151
19 0.7640 41 5.7847 63 62.8314
20 0.8380 42 6.3595 64 83.3333
21 0.9180 43 6.9577 65 83.3333
22 1.0030 44 7.5852
- --------------------------------------------------------------------------------
</TABLE>
RATE CLASS: MALE PREFERRED NONSMOKER
THE RATES USED FOR THE COST OF INSURANCE DEDUCTION ARE GUARANTEED NOT TO EXCEED
THE MAXIMUM RATES SHOWN ABOVE. THE RATES ARE BASED ON THE 1980 COMMISSIONER'S
STANDARD ORDINARY MORTALITY TABLE. THE COST OF INSURANCE IS DEDUCTED ON THE
MONTHLY DEDUCTION DAY.
PAGE 3 (COI)
<PAGE> 6
POLICY SUMMARY
POLICY NUMBER: STATED AMOUNT: $ 100,000
INSURED : JOHN DOE POLICY DATE: MAY 01, 1999
AGE: 35 ISSUE DATE: MAY 01, 1999
MATURITY DATE: MAY 01, 2064
MONTHLY DEDUCTION DAY: 1ST DAY OF MONTH
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MINIMUM AMOUNT INSURED: THE FOLLOWING PERCENTAGE OF THE CASH VALUE ARE THE
MINIMUM AMOUNT INSURED ON ANY POLICY ANNIVERSARY.
- --------------------------------------------------------------------------------
POLICY MAXIMUM POLICY MAXIMUM POLICY MAXIMUM
YEAR RATE YEAR RATE YEAR RATE
- ---- ------- ---- ------- ------ -------
<S> <C> <C> <C> <C> <C>
1 250% 23 142% 45 105%
2 250% 24 138% 46 105%
3 250% 25 134% 47 105%
4 250% 26 130% 48 105%
5 250% 27 128% 49 105%
6 250% 28 126% 50 105%
7 243% 29 124% 51 105%
8 236% 30 122% 52 105%
9 229% 31 120% 53 105%
10 222% 32 119% 54 105%
11 215% 33 118% 55 105%
12 209% 34 117% 56 104%
13 203% 35 116% 57 103%
14 197% 36 115% 58 102%
15 191% 37 113% 59 101%
16 185% 38 111% 60 101%
17 178% 39 109% 61 101%
18 171% 40 107% 62 101%
19 164% 41 105% 63 101%
20 157% 42 105% 64 101%
21 150% 43 105% 65 100%
22 146% 44 105%
- --------------------------------------------------------------------------------
</TABLE>
RATE CLASS: MALE PREFERRED NONSMOKER
PAGE 3(C)
<PAGE> 7
DEFINITIONS
ACCUMULATION UNIT: a standard of measurement used to determine the values in
each Investment Option.
AGE: the Insured's age as of the Insured's last birthday.
BENEFICIARY(IES): the person(s) named to receive the benefits of this policy at
the Insured's death.
CASH SURRENDER VALUE: the Contract Value less any Indebtedness and applicable
surrender penalties.
CONTRACT VALUE: the sum of the values held in the Investment Options, the Loan
Account and the Fixed Account.
DEATH BENEFIT: the amount payable to the Beneficiary if the Insured dies while
the policy is in force.
DEDUCTION AMOUNT: a monthly charge, deducted from the Contract Value, which is
comprised of the cost of insurance charge and any other monthly charge shown on
the Policy Summary and any charge for supplemental benefits.
DEDUCTION DAY: is the day of each month on which the Deduction Amount is
deducted. Shown on the Policy Summary.
DUE PROOF OF THE INSURED'S DEATH: a copy of a certified death certificate; a
copy of a certified decree of a court of a competent jurisdiction as to the
finding of death; a written statement by a medical doctor who attended the
deceased; or any other proof satisfactory to us.
FIXED ACCOUNT: a part of the General Account of the Company.
GENERAL ACCOUNT: the General Account is made up of all of our assets other than
those held in any separate investment account.
IN WRITING: in a written form satisfactory to us and received at Our Office.
INDEBTEDNESS: any amount you owe to us as a result of a policy loan.
Indebtedness consists of principal amount plus any accrued interest.
INSURED: the person on whose life this policy is issued. Shown on the Policy
Summary.
INVESTMENT OPTION: an open-ended management investment company, or a portfolio
thereof, to which values may be directed under the Separate Account. Shown on
the Policy Summary.
ISSUE DATE: the date on which we issue the policy. Shown on the Policy Summary.
LOAN ACCOUNT: the account to which we transfer the amount of any policy loan and
to which we credit interest.
MATURITY DATE: an anniversary of the Policy Date on which the policy matures
(see Maturity Benefit, page 5). Shown on the Policy Summary.
MAXIMUM INVESTMENT OPTION DAILY DEDUCTION: the maximum charge that we deduct
from each Investment Option to cover our mortality and expense risk charges.
Shown on the Policy Summary.
MINIMUM AMOUNT INSURED: a stated percentage of the Contract Value determined as
of the first day of the Policy Month. Shown on the Policy Summary.
NET AMOUNT AT RISK: the Amount Insured for the month divided by the Death
Benefit Interest Factor minus the Contract Value.
NET PREMIUM: actual premium minus the sales expense charges. The sales expense
charge is shown on the Policy Summary. We may, at Our discretion, apply a lower
percentage of premium charges.
OUR OFFICE: The Travelers Insurance Company, Policyholder Services, One Tower
Square, Hartford, Connecticut 06183-5071 or any other office which we may
designate for the purpose of administering this policy.
OWNER: The Owner has all rights under this Policy and is named in the
Application.
POLICY ANNIVERSARY: an anniversary of the Policy Date.
POLICY DATE: the date on which the policy becomes effective. Shown on the Policy
Summary.
POLICY MONTH: twelve one-month periods during the Policy Year, each of which
begins on the Policy Date or the monthly Deduction Day.
POLICY YEAR: each successive twelve-month period; the first beginning with the
Policy Date.
SEC: the Securities and Exchange Commission.
L-15311 Page 4
<PAGE> 8
SEPARATE ACCOUNT: an account which We established for this class of policies and
certain other policies. The Separate Account is shown on the Policy Summary and
is divided into segments that correspond to the Investment Options.
STATED AMOUNT: a dollar amount used to determine the Death Benefit of the
policy. Shown on the Policy Summary.
VALUATION DATE: a day on which policy values are determined. This is any day on
which the New York Stock Exchange is open for trading and we are open for
business.
VALUATION PERIOD: the period between successive valuations.
VARIABLE ACCOUNT: one or more Variable Accounts are named on the Policy Summary,
each of which is a Separate Account.
WE, US, OUR: The Travelers Insurance Company.
YOU, YOUR: the owner(s) of this policy.
BENEFITS--BASIC POLICY
DEATH BENEFIT
Upon receipt at Our Office of Due Proof of the Insured's Death while the policy
is in force, we will pay to the Beneficiary the Death Benefit of the policy. The
Death Benefit will be the Amount Insured at the time of death, less any:
1. Indebtedness; and
2. amount payable to an assignee under a collateral assignment of the
policy; and
3. monthly Deduction Amount due but not paid.
The Death Benefit may be limited as provided under the Misstatement, Contest and
Suicide provisions on Page 11 and 12 of this policy. The Death Benefit depends
on the Death Benefit Option in effect at the date of death and any increase or
decrease you have made to the Initial Stated Amount. Benefits provided by any
rider attached to this policy will end according to the termination provision(s)
therein.
MATURITY BENEFIT
If the Insured is living on the Maturity Date, we will pay you the Contract
Value as of the Maturity Date, less any:
1. Indebtedness;
2. monthly Deduction Amount due but not paid; and
3. amount payable to an assignee under a collateral assignment of the
policy.
Upon maturity, insurance will end and we will have no other obligation under
this policy.
DEATH BENEFIT OPTIONS AND AMOUNT INSURED
There are three Death Benefit Options, which are as follows:
Under Option 1 (the Level Death Benefit Option), the Amount Insured is the
greater of the Stated Amount or any Minimum Amount Insured on the Insured's date
of death.
Under Option 2 (the Variable Death Benefit Option), the Amount Insured is the
greater of the Stated Amount plus the Contract Value, or any Minimum Amount
Insured on the Insured's date of death.
Under Option 3 (the Annual Increase Option), the Amount Insured is the greater
of :
1. (a) plus (b) where:
a. is the Stated Amount as of the Insured's date of death; and
b. is the greater of zero and the lesser of (i) and (ii) where:
(i) is the Option 3 maximum increase shown on the Policy Summary; and
(ii)is the total premium payments less any partial surrenders (all
accumulated to the Insured's date of death at the interest rate; or
2. any Minimum Amount Insured on the Insured's date of death.
L-15311 Page 5
<PAGE> 9
REQUESTED CHANGES IN DEATH BENEFIT OPTIONS
At any time after the first Policy Year, you may change your Death Benefit
option under your policy from Option 1 to Option 2; or from Option 2 to Option
1; or from Option 3 to Option 1. You may not make a change to Option 3 or from
Option 3 to Option 2. We will adjust the Stated Amount such that the Net Amount
at Risk remains constant. The effective date of the change will be the Monthly
Deduction Day on or following the date we approve the request for the change.
The remaining Amount Insured and the remaining Stated Amount in effect after any
change may not be less than the respective minimum amounts shown on the Policy
Summary.
REQUESTED CHANGES IN STATED AMOUNT
Increases -- At any time after the first Policy Year and prior to the earlier of
the Insured's attaining the Maximum Change Age or his/her death, you may request
an increase to the Stated Amount. The minimum amount of the increase is $5,000.
The request must be made In Writing to Our Office. The increase will be
effective on the date shown on the supplemental Policy Summary we will send you.
We will require evidence of insurability satisfactory to us if you request an
increase. We reserve the right to limit the number of increases to the Stated
Amount to one each policy year.
Decreases -- At any time after the first Policy Year, you may request a decrease
to the Stated Amount. The decrease will be effective on the later of the monthly
Deduction Day on or following our receipt of your request at Our Office, or the
monthly Deduction Day on or immediately following the date you request it to be
effective. We reserve the right to limit the number of decreases to the Stated
Amount to one each policy year.
The decrease will be applied as follows: first against the most recent increase
in the Stated Amount; then to other increases in the Stated Amount in the
reverse order in which they occurred; and last, to the Initial Stated Amount.
After any change, the Stated Amount in effect may not be less than the Minimum
Stated Amount shown on the Policy Summary or which would disqualify this policy
as a contract for life insurance. We will send you a supplemental Policy Summary
reflecting any change.
POLICY VALUES
CONTRACT VALUE
The Contract Value on the Policy Date is equal to the Net Premium. On each
Valuation Date, the Contract Value is equal to the sum of the accumulated values
in the Investment Options and the Fixed Account plus any Loan Account value. The
accumulated value of an Investment Option equals a times b where:
a is the number of Accumulation Units on the Valuation Date; and
b is the then current Accumulation Unit Value for that Investment
Option.
Policy values on other days are calculated in a manner consistent with this
method.
DEDUCTION AMOUNT
The first monthly Deduction Day is the Policy Date. The monthly Deduction Day is
shown on the Policy Summary.
The Deduction Amount will be charged monthly against each Investment Option and
the Fixed Account in proportion to the value of each Investment Option and the
Fixed Account on each monthly Deduction Day. The Deduction Amount is equal to:
1. the cost of insurance; plus
2. the charge(s) associated with any rider(s); plus
3. the administrative charge shown on the Policy Summary; plus
4. the cost of supplemental benefits,if any, for which a separate
charge is shown on the Policy Summary; plus
5. any other applicable charges shown on the Policy Summary.
L-15311 Page 6
<PAGE> 10
The maximum guaranteed cost of insurance for any month is equal to c times the
result of a minus b where:
a is the Amount Insured for the month divided by the Death Benefit
Interest Factor shown on the Policy Summary;
b is the Contract Value on the monthly Deduction Day;
c is the cost shown in the Maximum Monthly Guaranteed Cost of
Insurance table on the Policy Summary at the Insured's age,
divided by $1,000.
The maximum guaranteed cost of insurance rates shown on the Policy Summary are
based on the Insured's age, sex and rate class for the Initial Stated Amount and
each increase in the Stated Amount. We may use rates lower than those shown. We
will base any future changes in these rates only on our future expectations as
to investment earnings, mortality, expenses and persistency.
The monthly Deduction Amount for the following month will be taken out of the
Contract Value on the monthly Deduction Day shown on the Policy Summary. If the
Cash Surrender Value is not enough to pay the Deduction Amount due and no
further premiums are paid, the Grace Period will go into effect (see Grace
Period, Page 10).
CASH SURRENDER VALUE
The Cash Surrender Value is equal to the Contract Value less any Loan Account
value and applicable surrender penalties as shown on the Policy Summary. It will
not be less than the minimum Cash Surrender Value required by the insurance laws
of the state in which this policy is delivered. A detailed statement of the
method of calculating the Cash Surrender Values has been filed with the
insurance department of the state in which this policy is delivered.
CASH SURRENDER
While the Insured is living and this policy is in force, you may request, In
Writing, a full or partial surrender. You may do so without the consent of any
Beneficiary, unless irrevocably named. We will calculate your Cash Surrender
Value as of the day we receive your request In Writing and will pay this amount
within seven days after such request. Surrender charges apply as shown on the
Policy Summary.
If you request a full surrender, the policy will end on the effective date of
the surrender.
A partial surrender may be made at any time after the first Policy Year while
this policy is in force. We will not make a partial surrender to you for less
than the Minimum Partial Surrender Amount shown on the Policy Summary. The
amount of any partial cash surrender may not exceed the Cash Surrender Value. If
you request a partial surrender, the Contract Value will be reduced by the
amount surrendered, including any applicable surrender penalty. We will reduce
the Stated Amount by the amount necessary to prevent an increase in the Net
Amount at Risk. The Death Benefit and Amount Insured will also be reduced as a
result of the Cash Surrender. The deduction from the Contract Value will be made
on a pro-rata basis against the Contract Value of each Investment Option unless
you request otherwise In Writing. Partial Surrenders will be transferred from
the Fixed Account only when insufficient amounts are available in your
Investment Options. After the reduction, the Amount Insured must be no less than
the Minimum Amount Insured shown on the Policy Summary.
POLICY LOANS
We will make a loan to you with the policy as security if you assign this policy
to us while it is in force. The loan must be requested In Writing. The amount of
the loan and all existing Indebtedness may not be more than the maximum loan
value shown on the Policy Summary as of the loan date. The loan date is the date
we process the loan. We will not make a loan to you or increase an outstanding
loan for less than the Minimum Loan Amount shown on the Policy Summary.
The loan interest rate is shown on the Policy Summary. Interest is charged daily
and is payable at the end of each Policy Year. Unpaid interest will be added to
existing Indebtedness as of the due date and will be charged interest at the
same rate as the rest of the loan.
When you take a loan, we will transfer an amount equal to the Policy Loan from
the Investment Options to the Loan Account in proportion to the Contract Value
in each Investment Option as of the loan date. Loan Amounts will be transferred
from the Fixed Account only when insufficient amounts are available in the
Investment Options. Any loan
L-15311 Page 7
<PAGE> 11
interest that becomes due and unpaid will also be transferred. The Loan Account
will be maintained while a loan is outstanding and will be credited interest at
a rate at least equal to the Annual Interest Rate Credited to Loan Accounts as
shown on the Policy Summary.
While the Insured is living and the policy is still in effect, all or part of
any loan may be repaid. Payment received while there is an outstanding loan on
the policy will be applied as follows: first towards repayment of any loan
interest due; next toward repayment of the loan principal; and last as a premium
payment to the policy. When you repay part or all of the loan, we will transfer
an amount equal to the amount you repay from the Loan Account to the Investment
Options or the Fixed Account. We reserve the right to require that any loan
repayments resulting from loans transferred from the Fixed Account must be
allocated to the Fixed Account; otherwise loan repayments will be allocated
among the Investment Options using the Fund allocation factors in effect on the
date of the repayment.
The Grace Period provision will go into effect if the Indebtedness exceeds the
Contract Value less applicable surrender charges.
PREMIUM AND VALUATION PROVISIONS
PREMIUM
An initial lump sum premium payment must be made to the policy and is due and
payable before the policy becomes effective. All premiums are payable at Our
Office or to one of our authorized representatives.
PREMIUM ALLOCATION
Net Premiums will be allocated among the Investment Options and the Fixed
Account based upon the allocation that you choose. Any allocation must be at
least 5% and must be a whole percentage, with the sum of the fund allocations
equal to 100%.
Any subsequent Net Premiums will be allocated according to your most recently
chosen factors.
You may change the allocation for future Net Premiums at any time while your
policy is in force. To do so, you must notify us In Writing. The change will
take effect on the date we receive your written request.
ADDITIONAL PREMIUM PAYMENTS
You may make additional premium payments at any time while your policy is in
force. We reserve the right to require evidence of insurability before accepting
additional premium payments which result in an increased net amount at risk.
We will return any additional premium payments made which would exceed the
limits prescribed by federal income tax laws or regulations which would prevent
the policy from qualifying as life insurance.
FIXED ACCOUNT PROVISIONS
The Fixed Account is funded by the General Account of the Company. In addition
to allocating your Net Premiums to the Investment Options, you may direct all or
part of your Net Premiums into the Fixed Account.
The accumulated value in the Fixed Account is zero unless some or all of the
Contract Value is allocated to the Fixed Account. The accumulated value in the
Fixed Account on the Policy Date is equal to the portion of the net premium
allocated to the Fixed Account. Interest will be credited daily on any Contract
Value allocated to the Fixed Account and the portion of the Fixed Account's
Deduction Amount will be charged monthly. The guaranteed minimum annual
effective rate is shown on the Policy Summary. Interest in excess of the minimum
guaranteed may be credited.
You may transfer amounts between the Fixed Account and the Investment Options
without penalty or adjustment, subject to the following limitations. We reserve
the right to limit the number of transfers between the Fixed and Separate
Account to two in any Policy Year.
Transfers from the Fixed Account must be made within 30 days after your Policy
Anniversary or semi-anniversary. We reserve the right to limit the amount
transferred from the Fixed Account to the Investment Options to 25% of the
Contract Value in the Fixed Account.
L-15311 Page 8
<PAGE> 12
Transfers to the Fixed Account may not be made prior to the first Policy
Anniversary or within 12 months of any prior transfer. We reserve the right to
restrict the amount transferred to the Fixed Account to 20% of the portion of
the Contract Value attributable to the Investment Options at the end of the
prior Valuation Period. We reserve the right to refuse transfers to the Fixed
Account if the Fixed Account is greater than or equal to 30% of the Contract
Value.
SEPARATE ACCOUNT OPTION VALUATION
ACCUMULATION UNITS
The number of Accumulation Units to be credited to each Investment Option once a
premium payment has been received by us will be determined by dividing the
premium applied to that Investment Option by the current Accumulation Unit Value
of that Investment Option.
ACCUMULATION UNIT VALUE
The value of an Accumulation Unit for each Investment Option was initially set
at $1.00. We will determine the Accumulation Unit value for each Investment
Option on each Valuation Date by multiplying the value on the immediately
preceding Valuation Date by the corresponding net investment factor (see Net
Investment Factor provision, Page 9) for that Investment Option for the
Valuation Period just ended.
The value of an Accumulation Unit on any date other than a Valuation Date will
be equal to its value as of the next Valuation Date.
NET INVESTMENT FACTOR
The net investment factor is a factor applied to measure the investment
performance of an Investment Option from one Valuation Period to the next. The
net investment factor for an Investment Option for any Valuation Period is
determined by dividing a by b and subtracting c where:
a is
1. the net asset value per share of the Investment Option as of
the Valuation Date; plus
2. the per-share amount of any dividend or capital gain
distributions by the Investment Option if the ex-dividend date
occurs in the Valuation Period just ended; plus or minus
3. a per-share charge or credit, as we may determine on the
Valuation Date for tax reserves; and
b is
1. the net asset value per share of the Investment Option as of
the last prior Valuation Date; plus or minus
2. the per-share or per-unit charge or credit for tax reserves as
of the end of the last prior Valuation Date; and
c is the applicable Investment Option deduction for the Valuation
Period.
Assets in each Investment Option will be valued at fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
TRANSFERS BETWEEN INVESTMENT OPTIONS
As long as this policy is in effect, you may request that we transfer all or a
part of the Contract Value (minus Loan Account value) from an Investment Option
to any other Investment Option available under this policy at the time of
request. Such transfers must be in accordance with our rules. We reserve the
right to limit the number of free transfers between Investment Options as shown
on the Policy Summary. We reserve the right to charge the reasonable
administrative fee specified on the Policy Summary for transfers beyond that
number.
Transfers between Investment Options will result in the addition or deletion of
Accumulation Units having a total value equal to the dollar amount being
transferred to or from a particular Investment Option. The number of
Accumulation Units will be determined by dividing the amount transferred by the
Accumulation Unit Value of the Investment Options involved as of the next
Valuation Date after we receive your request for transfer at Our Office.
L-15311 Page 9
<PAGE> 13
For transfers to and from the Fixed Account, please see the Fixed Account
Provision.
CONTINUATION OF INSURANCE, GRACE PERIOD AND REINSTATEMENT
CONTINUATION OF INSURANCE
Subject to the Grace Period provision below, if sufficient premium payments are
not made, this policy will continue until the day on which the Cash Surrender
Value would not be enough to pay the monthly Deduction Amount due, or until the
Maturity Date, if earlier. The Continuation of Insurance benefit will not be
less than the minimum benefit required by the insurance laws of the state in
which this policy is delivered.
GRACE PERIOD
Thirty days after the Cash Surrender Value is insufficient to pay the Deduction
Amount due, we will send you a notice of required premium to your last known
address. If the required premium is not paid within 31 days after the notice is
sent, the policy will lapse. The policy will have no Contract Value. The policy
will continue through the Grace Period, but if the required payment has not been
received at Our Office, the policy will terminate at the end of the Grace
Period. If the Insured dies during the Grace Period, the Death Benefit payable
will be reduced by any Deduction Amount due but not paid and by any
Indebtedness.
REINSTATEMENT
This policy may be reinstated at any time within three years from the date to
which the monthly Deduction Amount had been paid, if:
1. the policy was not surrendered for cash; and
2. evidence of insurability acceptable to us is furnished; and
3. all monthly Deduction Amounts past due are paid; and
4. premium at least equal to the following three monthly Deduction
Amounts is paid; and
5. all Indebtedness is repaid or restored.
Upon reinstatement, the Contract Value of the policy prior to applying any
premiums or loan repayments will be the Contract Value at the end of the Grace
Period.
The effective date of the reinstated policy will be the Deduction Date on or
next following the date the application for reinstatement is approved by us.
Unless you have specified otherwise, all amounts will be allocated based on the
Fund allocation factors in effect at the start of the Grace Period.
EXCHANGE OPTION
At any time during the first two Policy Years, you may request, In Writing, to
elect to irrevocably transfer all Investment Option Contract Values to the Fixed
Account.
Upon election of this option, no future transfers to the Investment Options will
be allowed and all future premiums will be allocated to the Fixed Account.
L-15311 Page 10
<PAGE> 14
Upon election of this option, future Contract Values will not be affected by the
investment experience of any Separate Account. No evidence of insurability is
required to exercise this option.
OWNERSHIP RIGHTS
OWNERSHIP
The original owner(s) is (are) shown on the application(s). During the Insured's
lifetime, you may, without the consent of any Beneficiary unless irrevocably
named, exercise all rights and options that this policy provides and that we
permit.
Ownership is transferable by assignment. No assignment is binding on us until we
receive a copy of the assignment In Writing. We will not determine if an
assignment is valid. Proof of interest must be filed with any claim under a
collateral assignment.
BENEFICIARY
The original Beneficiary is stated in the application. Unless the Beneficiary is
irrevocably named, you may name a new Beneficiary during the Insured's lifetime
and while this policy is in force by notifying us In Writing. Any change will be
effective from the date you signed the notice of change, even if the Insured is
not living when we receive the notice. We will have no further responsibility
for any payment we made before we received the notice at Our Office.
If no Beneficiary survives the Insured, you will be the Beneficiary. If you are
the Insured, your estate will be the Beneficiary. The rights of any collateral
assignee may affect the interest of the Beneficiary.
GENERAL PROVISIONS
ENTIRE CONTRACT
The entire contract consists of this policy and the application, a copy of which
is attached. The policy is issued in consideration of the application and the
payment of premium. We will not use any statement to void this policy or to deny
a claim under it, unless that statement is contained in an attached written
application. All statements in the application will be considered as being made
to the best knowledge and belief of the applicant and not as promises of truth.
CHANGES
This policy may only be altered by a written agreement signed by one of our
officers.
NO DIVIDENDS
This policy is non-participating. It does not share in our surplus earnings, so
you will receive no dividends under it.
MISSTATEMENT
If the age and/or sex of the Insured was incorrectly stated in the application,
all benefits will be adjusted to the amount which the premiums paid would have
purchased at the correct age and/or sex, based on the most recent cost of
insurance charge.
Proof of age may be filed at any time at Our Office.
SUICIDE
If, within two years from the Issue Date, the Insured dies due to suicide, while
sane or insane, the Death Benefit will be limited to the premiums paid, less any
Loan Account value and amount of any partial surrenders.
L-15311 Page 11
<PAGE> 15
If you have applied for an increase to the Stated Amount, this Suicide provision
will be measured from the effective date of the increase with respect to payment
of the increase amount.
If this policy is reinstated, this Suicide provision will be measured from the
reinstatement date.
CONTEST
No misstatements made in any application for this policy will be used to contest
payment of any Death Benefit after the policy has been in force during the
Insured's lifetime for two years from the Issue Date.
If you have applied for an increase to the Stated Amount, this Contest provision
will be measured from the effective date of the increase with respect to payment
of the increase amount.
If this policy is reinstated, this Contest provision will be measured from the
reinstatement date.
SEPARATE ACCOUNT
We have exclusive and absolute ownership and control of the assets of the
Separate Account and its Investment Options. The assets of the Separate Account
will be available to cover the liabilities of our general account only to the
extent that those assets exceed the reserves and other policy liabilities of the
Separate Account arising under the variable life insurance policies supported by
the Separate Account. The assets of the Separate Account will be valued on each
Valuation Date. Our determination of the value of an Accumulation Unit by the
method described in the policy will be conclusive. To the extent required by
law, the investment policy of the Separate Account will not be changed without
the approval of the Insurance Commissioner of Connecticut. This approval process
is on file with the Commissioner of the state where this policy is issued for
delivery.
SUBSTITUTION OF SEPARATE ACCOUNT OR INVESTMENT OPTION
If the use of a Separate Account or Investment Option is no longer possible, or
in our judgment becomes inappropriate for the purposes of this policy, we may
substitute another Separate Account or Investment Option without your consent.
Substitution may be made with respect to both existing premium payments and
investment of future premium payments. However, no such substitution will be
made without notice to you and without prior approval of the Securities and
Exchange Commission and the approval of the Insurance Commissioner of the state
where this policy is issued for delivery, to the extent required by law. We may
also add other Investment Options under the policy.
EMERGENCY PROCEDURE
We reserve the right to suspend or postpone the date of any payment of any
benefit or values (including the payments of cash surrenders and policy loans)
(1) when the New York Stock Exchange is closed (except for holidays or
weekends); (2) when trading on the Exchange is restricted; (3) when an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the securities held in the Separate Account is not reasonably practicable or
it is not reasonably practicable to determine the value of the Separate
Account's net assets; or (4) when the Securities and Exchange Commission has
ordered that the right of surrender be suspended for your protection; or (5)
during any other period when the Securities and Exchange Commission, by order,
so permits for your protection. We reserve the right to suspend or postpone the
date of any payment of any benefit or values (including the payments of cash
surrenders and policy loans) for up to six months when policy values are being
withdrawn from the Fixed Account. Any provision of this policy which specifies a
Valuation Date or provides for surrenders or loans will be superseded by this
Emergency Procedure.
VOTING RIGHTS
You, or the Beneficiary after the Insured's death, will be entitled to certain
voting rights with respect to the Investment Options to which you have allocated
premiums.
If current law requires, you will be entitled to instruct us how to vote at
meetings of the shareholders of the Investment Options. We will determine the
number of votes to which you will be entitled to instruct us. If there is a
change in the law which permits us to vote the shares of the Investment Options
without direction from you, we reserve the right to do so.
L-15311 Page 12
<PAGE> 16
MATURITY OF AN INVESTMENT OPTION
If any Contract Value is attributable to an Investment Option having a specified
maturity date, the Contract Value in that Investment Option as of such maturity
date will be allocated to the money market Investment Option specified on the
Policy Summary, unless you request otherwise. We will send written notice to
your last known address at least thirty days in advance of the maturity date of
that Investment Option. To select an allocation to an Investment Option other
than the money market Investment Option, we must receive your notification In
Writing at least seven days before the maturity date of that Investment Option.
ANNUAL STATEMENT
As often as required by law, but at least once in each Policy Year, we will send
you a statement showing:
1. the Contract Value, Stated Amount and Amount Insured; and
2. the premiums paid, deductions, surrenders and loans made during the
preceding Policy Year; and
3. total Loan Account value.
ILLUSTRATIVE REPORTS
You may request an up-to-date illustrative report of values based on past
results and current assumptions.
We will provide the illustrative report within a reasonable time. We may charge
a reasonable service fee, not to exceed $15 (unless prohibited by state law).
L-15311 Page 13
<PAGE> 17
INSURED TERM INSURANCE RIDER
This Rider is made a part of the policy to which it is attached. Except where
this Rider provides otherwise, it is subject to all conditions of the policy.
This Rider has no contract value associated with it.
DEFINITIONS
Base Death Benefit - The maximum of (a) and (b) where: (a) is the Stated Amount
of the policy and (b) is the minimum Insurance Amount.
Insured - The Insured as specified in the Policy Summary.
Insured Term Benefit - The amount equal to the greater of (a) or (b) where (a)
is the Target Stated Amount less the Base Policy Death Benefit and (b) is equal
to zero.
Stated Term Amount - Initial Target Stated Amount less Initial Stated Amount.
Target Stated Amount - The total amount of insurance coverage, including both
the base policy and the term insurance. The initial Target Stated Amount is
shown on the Policy Summary. No increases to the Insured Term Benefit amount
will be allowed.
BENEFIT
If the Insured's death occurs while the policy and this Rider are in force, then
We will pay the Insured Term Benefit to the Beneficiary upon Our receipt of Due
Proof of the Insured's death. We will deduct from the Insured Term Benefit any
unpaid charges accruing to Us at the time of death. If no Beneficiary survives
the Insured, You will be the Beneficiary. If You are the Insured, Your estate
will be the Beneficiary. The rights of any collateral assignee may affect the
interest of the Beneficiary.
CHANGE IN TARGET STATED AMOUNT
You may request an increase or a decrease in your Target Stated Amount. An
increase to the Target Stated Amount will be allocated amongst the Stated Amount
and the Stated Term Amount in proportion to the amounts on the Issue Date. The
minimum amount of increase in the Target Stated Amount is the Minimum Insurance
Amount as shown on the Policy Summary.
TERM
Subject to the Termination provision, this Rider is effective until the Rider
Expiry Date shown on the Policy Summary.
CHARGE
This Rider is issued in consideration of the application for it and the
deduction of the additional charge as shown on the Policy Summary. The maximum
additional charge per $1,000 is equal to the Guaranteed Cost of Insurance Rates.
We may use rates less than those shown, which will be based upon Our
expectations as to future experience.
The cost per $1,000 of the Insured Term Benefit is determined on each Deduction
Day. It is based on the age, sex, rate class and duration of the Insured.
ISSUE DATE
The Issue Date of this Rider is the same as that of the policy unless otherwise
shown on the Policy Summary.
CONTEST
When applied to this Rider, this provision will be measured from the Issue Date
of the Rider.
MISSTATEMENT
If the age and/or sex of the Insured was incorrectly stated in the application,
all benefits under this Rider will be adjusted to the amount that the charge
paid would have purchased at the correct age and/or sex.
SUICIDE
If within two years from the Issue Date of this Rider, the Insured's death
occurs and is due to suicide while sane or insane, the amount payable under this
Rider will be limited to the charges paid under this Rider.
L-15319
<PAGE> 18
TERMINATION
This Rider will terminate on the earliest of:
1. subject to the Grace Period provision of the policy, the date on which the
Cash Surrender Value would not be enough to pay charges due for the policy
and the Rider; or
2. the policy termination or maturity; or
3. the Rider Expiry Date.
THE TRAVELERS INSURANCE COMPANY
/s/ M.A. CARPENTER
President
L-15319
<PAGE> 1
THE TRAVELERS INSURANCE COMPANY - ONE TOWER SQUARE - HARTFORD, CT - 06183
================================================================================
VARIABLE LIFE SUPPLEMENT
================================================================================
This supplement accompanies an application for a Variable Universal Life
Insurance Policy to be issued by The Travelers Insurance Company.
ALL QUESTIONS MUST BE ANSWERED COMPLETELY AND THE APPLICATION AND SUPPLEMENT
MUST BE SIGNED IN ORDER FOR THE COMPANY TO PROCESS THE APPLICATION. MAY BE
REFERENCED BY ATTACHMENT.
Proposed Insured(s)
----------------------------------
First, Middle, Last
Date of Birth
----------------------------------
Social Security Number
----------------------------------
FUND INFORMATION
================================================================================
<TABLE>
<CAPTION>
Select one or more funds and indicate percentage of allocation. Total must equal 100%;
allocations must be whole percentages of 5% or more.
<S> <C> <C> <C>
[ ] Alliance Growth Portfolio % [ ] MFS Research Portfolio %
----------- -----------
[ ] American Odyssey Intermediate Bond Fund % [ ] MFS Total Return Portfolio %
----------- -----------
[ ] Bankers Trust Small Cap Index Fund % [ ] NWQ Large Cap Portfolio %
----------- -----------
[ ] Capital Appreciation Fund (Janus) % [ ] OpCap OCC Accumulation Trust Equity Portfolio %
----------- -----------
[ ] Delaware Small Cap Value Series % [ ] Putnam Diversified Income Portfolio %
----------- -----------
[ ] Dreyfus Capital Appreciation Portfolio % [ ] Salomon Brothers Cap Fund %
----------- -----------
[ ] Dreyfus Small Cap Portfolio % [ ] Salomon Brothers Strategic Bond Fund %
----------- -----------
[ ] Dreyfus Stock Index Fund % [ ] Salomon Brothers Total Return Fund %
----------- -----------
[ ] Fidelity VIP Equity Income Portfolio % [ ] Strategic Stock Portfolio %
----------- -----------
[ ] Fidelity Large Cap Portfolio % [ ] Travelers Convertible Bond Portfolio %
----------- -----------
[ ] Fidelity VIP II Asset Manager Portfolio % [ ] Travelers High Yield Bond Trust %
----------- -----------
[ ] Lazard International Stock Portfolio % [ ] Smith Barney Money Market Portfolio %
----------- -----------
[ ] MFS Emerging Growth Portfolio % [ ] Travelers U.S. Government Securities Portfolio %
----------- -----------
[ ] MFS Mid Cap Growth Portfolio % [ ] Warburg Pincus Trust Emerging Markets Portfolio %
----------- -----------
[ ] AIM Capital Appreciation Portfolio % [ ] Smith Barney Diversified Strategic Income Fund %
----------- -----------
[ ] Bankers Trust EAFE Index Fund % [ ] Smith Barney Large Capitalization Growth Portfolio %
----------- -----------
[ ] Delaware Investments REIT Series % [ ] Smith Barney International Equity Portfolio %
----------- -----------
[ ] Utilities Portfolio % [ ] Social Awareness Stock Portfolio %
----------- -----------
[ ] Jurika & Voyles Core Equity Portfolio % [ ] Strong Schafer Value Fund II %
----------- -----------
[ ] Montgomery Variable Series: Growth Fund % [ ] Travelers Disciplined Small Cap Portfolio %
----------- -----------
[ ] Salomon Brothers Investors Fund % [ ] Travelers Disciplined Mid Cap Portfolio %
----------- -----------
[ ] Van Kampen American Cap. Enterprise Portfolio %
-----------
L-15325
</TABLE>
<PAGE> 2
SUITABILITY
================================================================================
a. Have you received the prospectus relating to the policy applied for?
Yes [ ] No [ ]
Date of prospectus:___________________ Date of prospectus supplement(s):
_________________
b. Do you understand that the Contract Value and Death Benefit associated with
the policy you have applied for may increase or decrease depending upon the
investment experience of the investment options which you have selected?
Yes [ ] No[ ]
c. With this in mind, is the policy in accord with your insurance objectives and
anticipated financial needs? [ ] Yes [ ] No
APPLICANT declares to the best of his/her knowledge and belief that all of the
statements made in his/her application and supplement, if required, are complete
and true.
ALL VALUES AND BENEFITS PROVIDED BY THE BASIC POLICY APPLIED FOR ARE VARIABLE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. EXCEPT AS STATED IN THE
TEMPORARY INSURANCE AGREEMENT/ADVANCE PAYMENT RECEIPT CORRESPONDING TO THIS
APPLICATION, THE COMPANY WILL APPLY THE FIRST NET PREMIUM PAYMENT TO THE CREDIT
OF THE BASIC POLICY APPLIED FOR AS OF THE VALUATION DATE ON OR NEXT FOLLOWING
THE POLICY DATE.
Except as stated in the Employer-Sponsored Temporary Life Insurance Binder
Agreement, no insurance will take effect until:
(1) the policy is delivered to the Applicant; and (2) the first modal premium is
paid in full while the health and other conditions relating to insurability
remain as described in the application. No agent is authorized: (1) to make,
alter, or discharge any policy; (2) to waive or change any condition or
provision of any policy, application or receipt; and (3) to accept any risk or
to pass on insurability. The Proposed Insured will be the Applicant of any
policy issued on this application unless otherwise indicated. The right to
privacy is protected as required by law.
I have paid to______________ the sum of $ _________ and hold a receipt bearing
the number _________ Dated _____________ at (city or town/state)________________
- ---------------------------------------------------
Owner/Designated Representative (Signature in Full)
- ---------------------------------------------------
Witnessed by (Licensed Resident Agent)
- ---------------------------------------------------
Signature of Principal
- ---------------------------------------------------
Signature of Broker/Dealer
L-15325
<PAGE> 3
THE TRAVELERS INSURANCE COMPANY - ONE TOWER SQUARE - HARTFORD, CT - 06183
================================================================================
APPLICATION FOR CORPORATE OWNED LIFE INSURANCE
================================================================================
NAME OF POLICY OWNER:
-----------------------------------------------------------
ADDRESS OF POLICY OWNER:
--------------------------------------------------------
CORPORATE (OWNER) TAX ID #: ISSUE DATE OF POLICY:
------------------- ------------
<TABLE>
<S> <C>
PLAN OF INSURANCE: [ ] Guideline Premium Test [ ] Cash Value Accumulation Test
PREMIUM PAYMENT PLAN: [ ] Single [ ] Annual [ ] Semi-Annual [ ] Quarterly [ ] Monthly
DEATH BENEFIT OPTION: [ ] Level Death [ ] Variable Death [ ] Annual Increase Death
Benefit Benefit Benefit
</TABLE>
BENEFICIARY: The Corporation shall be the sole beneficiary unless otherwise
specified.
-------------------------------------------------------------------
-------------------------------------------------------------------
Is the right to change the Beneficiary and to exercise all other policy rights
without the consent of the Beneficiary reserved to the Owner? [ ] Yes [ ] No
It is agreed that:
1. This application, which includes the attached Schedule A, will be the basis
for any policies issued in response to it.
2. Application is made to Us for individual life insurance policies on the lives
of the individuals specified in Schedule A.
3. The amount of insurance for each policy applied for shall be the amount
specified for each individual in Schedule A.
4. Each policy applied for shall be of the plan specified in the Plan of
Insurance section above.
For the most recent 90 days, have all of the Proposed Insureds been actively at
work for at least 30 hours per week, at their usual place of business,
performing their regular occupations? [ ] Yes [ ] No
During the most recent 90 days, have any of the Proposed Insureds been
hospitalized or absent from work (other than for recreational days and holidays)
for more than 5 consecutive workdays? [ ] Yes [ ] No
AGENT'S STATEMENT: Will this insurance replace, change or use the cash value of
any existing insurance policy or annuity? [ ] Yes [ ]No
Is this insurance intended to be a 1035 tax-free exchange? [ ] Yes [ ] No
If you answered "Yes" to either of these replacement questions, has the required
replacement paperwork been completed? [ ] Yes [ ] No
List company name, amount and attach applicable forms required by state
in which application is signed.
- --------------------------------------------------------------------------------
- ----------------------------- -----------------------------------------------
Signature of Agent Signature of Owner / Designated Representative
Dated Dated
------------------------ ------------------------------------------
L-15236
<PAGE> 4
SCHEDULE A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPOSED DATE OF INITIAL BASE TERM INITIAL PLANNED SMOKER/
INSURED SEX BIRTH SS# POLICY INSURANCE PREMIUM PREMIUM NONSMOKER
DEATH BENEFIT RIDER ("S" OR "N")
=================================================================================================================
</TABLE>
I represent that I have read the questions and answers on this application, and
declare that they are complete and true to the best of my knowledge and belief.
Furthermore, I understand that this application will become a part of any policy
issued. I agree that no Agent/Representative of the Company shall: have the
authority to waive a complete answer to any question on this Application;
transfer insurability; make or alter any contract; or, waive any of the
Company's other rights or requirements. I further agree that no insurance shall
take effect unless and until the Policy has been delivered to and accepted by
me; and, the initial modal premium is paid during the lifetime and prior to any
change in health of the Proposed Insured.
Signed for the Policy Owner by the following duly authorized official:
- ------------------------ --------------- -------------
Signature Title Date
L-15236
<PAGE> 5
THE TRAVELERS INSURANCE COMPANY - ONE TOWER SQUARE - HARTFORD, CT - 06183
================================================================================
APPLICATION FOR SIMPLIFIED ISSUE LIFE INSURANCE
================================================================================
NAME OF POLICY OWNER:
--------------------------------------------------------
ADDRESS OF POLICY OWNER:
--------------------------------------------------------
--------------------------------------------------------
CORPORATE TAX ID #: --------------------------------------------------------
OWNER TAX ID # (IF OTHER
THAN CORPORATION) --------------------------------------------------------
PLAN OF INSURANCE:
--------------------------------------------------------
BENEFICIARY: The Corporation shall be the sole beneficiary unless
otherwise specified.
--------------------------------------------------------
--------------------------------------------------------
Will this insurance replace, change or use the cash value of any existing
insurance policy or annuity?
[ ] Yes [ ] No
(If you answered "Yes" to this question, list company name, amount and attach
applicable forms required by state in which application is signed.)
- -------------------------------- ------------------------------
Signature of Agent Signature of Owner
Dated Dated
--------------------------- -------------------------
SECTION B:
For the most recent 90 days, have you been actively at work for at least 30
hours per week, at your employer's usual place of business, performing your
customary duties of your regular occupation? [ ] Yes [ ] No
During the most recent 90 days, have you been hospitalized or were you absent
from work (other than for recreational days and holidays) for more than 5
consecutive workdays? [ ] Yes [ ] No
Have you used any tobacco products within the past 12 months? [ ] Yes [ ] No
If "Yes" how much (i.e., units per week/month) and date last used:
<TABLE>
<S> <C> <C> <C>
[ ] Cigarettes ______ [ ] Cigars _______ [ ] Pipe ______ [ ] Smokeless tobacco ______
</TABLE>
L-15240
<PAGE> 6
SECTION C
1. PERSONAL PHYSICIAN (Give full name, address and phone # of your doctor who
you consult for routine check-ups and physicals):
-------------------------------
- --------------------------------------------------------------------------------
DATE AND REASON LAST CONSULTED:
----------------------------------------------
<TABLE>
<S> <C>
2. PROPOSED INSURED: Height _____ Weight ______ Amount of weight loss in past 12 months ______
3. Have you within the past 2 years:
a) Flown or plan to fly as a pilot, student pilot or crew member or intend to do so? [ ] Yes [ ] No
b) Engaged in scuba diving, vehicle racing, parachute jumping or any form of motorcycling, or any
other hazardous sport or hobby? [ ] Yes [ ] No
4. In the past 10 years have you:
a) Used Drugs not prescribed by a doctor? [ ] Yes [ ] No
b) Been treated for alchoholism? [ ] Yes [ ] No
c) Been advised to have medical treatment or counseling from a commonly recognized
practitioner or organization for alcohol or drug use? [ ] Yes [ ] No
5. Have you in the past 10 years:
a) Been diagnosed or treated for Acquired Immune Deficiency Syndrome (AIDS) by a member
of the medical profession? [ ] Yes [ ] No
b) Been diagnosed or treated for immune deficiency (other than AIDS), anemia or other
blood disorder (other than for HIV)? [ ] Yes [ ] No
c) Had recurrent fever, fatigue or unexplained weight loss? [ ] Yes [ ] No
6. Other than the above, have you ever been diagnosed or treated for:
a) Chest pain, high blood pressure, stroke, or disease of the heart, blood vessels, or lungs;
[ ] Yes [ ] No
b) Diabetes, mental or emotional disorder; disease of the brain or nervous system, convulsions;
[ ] Yes [ ] No
c) Cancer; tumor; disease of the stomach, intestines, liver or kidneys? [ ] Yes [ ] No
7. Have you in the last five years, been advised to have any diagnostic test, hospitalization or
surgery by any licensed physician, practitioner or health facility that has not yet been performed?
[ ] Yes [ ] No
</TABLE>
FOR ALL QUESTIONS ANSWERED "YES," FURNISH DETAILS.
------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I represent that the above statements are true and complete to the best of my
knowledge and belief. I understand that this application will become a part of
any policy issued . I also understand that any misrepresentations contained in
this application and relied on by the Company may be used to reduce or deny a
claim or void the contract if: (1) it is within its contestable period; and (2)
if such misrepresentation materially affects the acceptance of the risk.
Dated At
- ----------------------------- ------------------- --------------------
Signature of Proposed Insured (City, State)
L-15240
<PAGE> 7
AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION
I authorize The Travelers Insurance Company (referred to as The Travelers), its
Reinsurers, insurance support organizations, and their authorized
representatives to obtain medical and other information in order to evaluate
this application for insurance. I authorize any physician, medical practitioner,
hospital, clinic, other medical or medically related facility, insurance
company, the Medical Information Bureau, Inc., employer, consumer reporting
agency, or other insurance coverage, medical care, treatment, supplies or advice
with respect to me to furnish such information to The Travelers, its Reinsurers
or their authorized representatives.
This authorization will be valid from the date signed for a period of 2 1/2
years. I agree that a photographic copy of this authorization is as valid as the
original. Information given in my application, including health care
information, may be made available without my prior authorization to other
insurance companies to which I make application for life or health insurance
coverage or to which a claim is submitted.
I have read this authorization and understand that I have a right to receive a
copy. I acknowledge receipt of the notice regarding: "Notification Regarding Use
and Release of Information to the Medical Information Bureau, Inc. and Other
Life Insurance Companies"
Dated At
- ----------------------------- ---------------- --------------------
Signature of Proposed Insured (City, State)
L-15240
================================================================================
THE TRAVELERS INSURANCE COMPANY
NOTIFICATION REGARDING USE AND RELEASE OF INFORMATION TO THE MEDICAL
INFORMATION BUREAU, INC. AND OTHER LIFE INSURANCE COMPANIES
Any health care information developed is necessary to classify insurance risks,
conduct normal administrative procedures and process claims, and will be used
for those purposes only. No other use of this information will be made without
first obtaining your written consent.
This information will be treated as confidential except that The Travelers
Insurance Company or its Reinsurer(s) may make a brief report to the Medical
Information Bureau, Inc., a non-profit membership corporation of life insurance
companies which operates an information exchange on behalf of its members. Upon
request by another member insurance company to which you have applied for life
or health insurance coverage or to which a claim is submitted, the Bureau will
supply such company with the information it may have in its files.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your files. Medical information will be disclosed
only to your attending physician.
If you question the accuracy of information in the Bureau's file, you may
contact the Bureau and seek a correction in accordance with the procedures set
forth in the federal Fair Credit Reporting Act. The address of the Bureau's
information office: Post Office Box 105, Essex Station, Boston, Massachusetts
02112, Telephone: (617)426-3660.
The Travelers Insurance Company or its Reinsurer(s) may release information
given in your application file, including health care information, to other life
insurance companies to which you apply for life or health insurance or to which
a claim is submitted.
L-15240
<PAGE> 8
THE TRAVELERS INSURANCE COMPANY - ONE TOWER SQUARE - HARTFORD, CT - 06183
================================================================================
EMPLOYER-SPONSORED TEMPORARY LIFE INSURANCE BINDER AGREEMENT
================================================================================
This Temporary Life Insurance Binder Agreement (the "Agreement") is made by and
between The Travelers Insurance Company (the "Company") and _________________
(the "Owner").
In offering this Agreement, the Company has relied upon the attached census of
employees to be insured as well as information provided by the Employer.
While this Agreement is in effect, the Employer is not and will not become a
party to any other Agreement to provide life insurance coverage on any of the
employees listed in the Census without the prior agreement of the Company.
Subject to the terms of this Agreement and in consideration of the deposit
received, temporary life insurance will be provided from the Effective Date for
the qualified Proposed Insureds listed in the census.
1. Definitions:
(a) Proposed Insured - an individual 70 years of age or less applying for
permanent insurance who is listed in this Agreement and has been actively at
work for the last 90 days for at least 30 hours per week.
(b) Effective Date - the date on which temporary life insurance begins. The
Effective Date under this Agreement is ______________.
(c) Termination Date - the date on which temporary life insurance for each
Proposed Insured ends.
It will be the earlier of:
(1) the date on which the policy on the Proposed Insured is issued; or
(2) the date on which a full or partial refund of the Deposit is mailed
to the Employer because an application is declined or withdrawn; or
(3) _____________ days after the Effective date; or
(d) Binder Premium - the amount of premium deposit needed to effect the
temporary life insurance coverage on the Proposed Insureds contemplated by
this Agreement. The Binder Premium for the coverage provided by this
Agreement is $__________________.
2. Binder Coverage - the amount of temporary life insurance per Proposed Insured
provided by this Agreement is the amount to be applied for as stated on the
attached census subject to a per life maximum of $1,000,000 for all current
applications pending with the Company and its subsidiaries.
3. Death Benefits - For any death benefits to be paid under this Agreement.
Owner must represent and warrant that under applicable state law it has an
insurable interest in the insured employee and has obtained from the insured
employee any consent required by such law.
4. Suicide and Material Misrepresentation - If a Proposed Insured commits
suicide, or death is caused in whole or in part by any intentionally
self-inflicted injury or if there is found to be a material misrepresentation on
the application, the Company's only liability as to such a Proposed Insured
shall be return the applicable portion of the premium to the Employer.
5. Beneficiary - any death benefits claimed under this Agreement shall be
payable to the employer unless an alternative beneficiary is named in the
application.
6. Amendments - this Agreement may only be modified or amended in writing by the
Company through its duly authorized officers.
TEMPORARY INSURANCE IS PROVIDED UNDER THE TERMS OF THIS AGREEMENT FOR THE
QUALIFIED ACTIVELY AT WORK PROPOSED INSUREDS WHO ARE LISTED IN THE ATTACHED
CENSUS.
Offered by: Title:
------------------------------- --------------------------------
Signature Date The Travelers Insurance Company
Accepted by:
------------------------------------ ----------------------------
Company Officer Title Date Company
Witnessed by:
------------------------------- -------------- ------------------
Broker Date Broker/Agent # Firm
L-15242
<PAGE> 9
THE TRAVELERS INSURANCE COMPANY - ONE TOWER SQUARE - HARTFORD, CT - 06183
================================================================================
LIFE INSURANCE CONSENT FORM
================================================================================
EMPLOYER INFORMATION: Business Name:
Business Address:
INSURED INFORMATION: NAME (LAST/FIRST/MI):
Social Security Number:
Date of Birth:
SECTION 1: PARTICIPATION
[ ] Yes, I agree to allow my Employer to purchase insurance on my life. I
understand that my Employer will have all present and future rights of ownership
and will also be the beneficiary of the policy.
I further authorize my Employer to increase the amount of insurance on my life
as needed in the future in order to fulfill the objectives of the plan without
further notice to me.
I consent to and authorize my Employer or its successors to continue to be the
owner and beneficiary of this policy(s) indefinitely, including after my
employment terminates with my Employer, whenever and for whatever reason this
may occur.
[ ] No, I do not want my Employer to purchase insurance on my life.
SECTION 2: EMPLOYEE INFORMATION
During the most recent 90 days, have you been actively at work for at least 30
hours per week, at your employer's usual place of business, performing your
customary duties of your regular occupation?
[ ] Yes [ ] No
During the most recent 90 days, have you been hospitalized or were you absent
from work (other than for recreational days and holidays) for more than 5
consecutive workdays? [ ] Yes [ ] No
Have you used any tobacco products within the past 12 months?[ ] Yes [ ] No
If "Yes" how much (i.e., units per week/month) and date last used:
<TABLE>
<S> <C> <C> <C>
[ ] Cigarettes______ [ ] Cigars______ [ ] Pipe_______ [ ] Smokeless tobacco______
</TABLE>
- -------------------------- -----------------------------------
Date Signature of Insured
L-15235
