<PAGE> 1
Registration Statement No. 333-94779
811-09215
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; How the Policy Works; Transfers of Contract 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 How the Policy Works
15 Prospectus Summary; Applying Premium Payments
16 The Investment Options; Applying Premium Payments
17 Prospectus Summary; Right to Cancel; The Separate Account and
Valuation; Surrender, Policy Loans; Exchange Rights
18 The Investment Options; Charges and Deductions; Federal Tax
Considerations; Dividends
19 Statements to Policy Owners
20 Not applicable
21 Policy Loans
22 Not applicable
23 Not applicable
24 Not applicable
25 The 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 Contract Values
47 The Investment Options
48 Not applicable
49 Not applicable
50 Not applicable
51 Prospectus Summary; The Company; How the Policy Works; 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 2000
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 and a minimum
Target Premium of $100,000. 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, 2000.
<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........... 11
The Investment Options................ 11
The Fixed Account..................... 17
Policy Benefits and Rights............ 17
Transfers of Contract Value......... 17
Investment Options............... 17
Fixed Account.................... 18
Automated Transfers................. 18
Dollar Cost Averaging............ 18
Portfolio Rebalancing............ 18
Lapse and Reinstatement............. 18
Insured Term Rider.................. 19
Exchange Rights..................... 19
Right to Cancel..................... 19
Access to Contract Values............. 19
Policy Loans........................ 19
Consequences..................... 20
Policy Surrenders................... 20
Full Surrenders.................. 20
Partial Withdrawals.............. 21
Death Benefit......................... 21
Option 1............................ 22
Option 2............................ 22
Option 3............................ 22
Payment of Proceeds................. 23
Payment Options..................... 23
Maturity Benefits..................... 23
Charges and Deductions................ 24
General............................... 24
Charges Against Premium............. 24
Front-End Sales Expense
Charges........................ 24
Monthly Deduction Amount............ 25
Cost of Insurance Charge......... 25
Monthly Policy Charge............ 25
Monthly Per $1,000 Charge........ 25
Charges Against the Separate
Account.......................... 25
Mortality and Expense Risk
Charge......................... 25
Underlying Fund Expenses............ 25
Transfer Charge..................... 25
Reduction or Elimination of
Charges.......................... 25
The Separate Account and Valuation.... 26
The Travelers Fund UL III for
Variable Life Insurance (Fund UL
III)............................. 26
How the Contract Value Varies.... 26
Accumulation Unit Value.......... 26
Net Investment Factor............ 27
Changes to the Policy................. 27
General............................. 27
Changes in Stated Amount............ 27
Changes in Death Benefit Option..... 28
Additional Policy Provisions.......... 28
Assignment.......................... 28
Limit on Right to Contest and
Suicide Exclusion................ 28
Misstatement as to Sex and Age...... 28
Voting Rights....................... 28
Disregard of Voting Instructions.... 29
Other Matters......................... 29
Statements to Policy Owners......... 29
Suspension of Valuation............. 29
Dividends........................... 30
Mixed and Shared Funding............ 30
Distribution........................ 30
Legal Proceedings and Opinion....... 30
Experts............................. 30
Federal Tax Considerations............ 31
General............................. 31
Tax Status of the Policy............ 31
Definition of Life Insurance..... 31
Diversification.................. 31
Investor Control................. 32
Tax Treatment of Policy Benefits.... 32
In General....................... 32
Modified Endowment Contracts..... 33
Exchanges........................ 33
Aggregation of Modified Endowment
Contracts...................... 34
Policies Which Are Not Modified
Endowment Contracts............ 34
Treatment of Loan Interest....... 34
The Company's Income Taxes....... 34
The Company........................... 34
IMSA................................ 35
Management.......................... 35
Directors of The Travelers
Insurance Company.............. 35
Senior Officers of The Travelers
Insurance Company.............. 36
Example of Policy Charges............. 36
Illustrations......................... 37
Appendix A (Performance
Information)........................ A-1
Appendix B (Target Premiums).......... B-1
Appendix C (Cash Value Accumulation
Test Factors)....................... C-1
Financial Statements -- Fund UL III...
Financial Statements -- The Travelers
Insurance Company...................
</TABLE>
2
<PAGE> 7
GLOSSARY OF SPECIAL TERMS
- --------------------------------------------------------------------------------
ACCUMULATION UNIT -- a standard of measurement used to calculate the values
allocated to the Investment Options.
AMOUNT INSURED -- Under Option 1, 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 Amount Insured will be equal to
the Stated Amount of the Policy plus the Contract Value (determined as of the
date of the Insured's death) or, if greater, the Minimum Amount Insured. Under
Option 3, the Amount Insured will be equal to the Stated Amount of the policy
plus premium payments minus any partial surrenders.
ANDESA, TPA, INC. -- The third party administrator for this product, located at
1605 North Cedar Crest Blvd., Suite 502, Allentown, PA 18104-2351.
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.
3
<PAGE> 8
OUTSTANDING POLICY LOAN -- Amount owed the Company as a result of policy loans
including both principal and accrued interest.
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. This date will not be on the 29th, 30th, or 31st of any
month.
POLICY MONTH -- monthly periods computed from the Policy Date.
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.
SURRENDER VALUE -- Cash Surrender Value plus any additional amount paid upon a
full cash surrender.
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.
UNDERWRITING PERIOD - the time period from when we receive a completed
Application (see page 10) until the Issue Date.
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. 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 Emerging Markets Portfolio Fidelity VIP II Asset Manager Portfolio -
Initial Class
INTERNATIONAL Janus Aspen Series Balanced Portfolio -
Janus Aspen Series Worldwide Growth Portfolio - Service Shares
Service Shares MFS Total Return Portfolio
Lazard International Stock Portfolio Salomon Brothers Variable Total Return Fund
Smith Barney International Equity Portfolio
INDEX
SMALL CAP Deutsche VIT EAFE Equity Index Fund
Delaware Small Cap Value Series Deutsche VIT Small Cap Index Fund
Dreyfus Small Cap Portfolio Smith Barney Equity Index Portfolio
Franklin Small Cap Fund - Class 2
Travelers Disciplined Small Cap Stock Portfolio BOND
American Odyssey Intermediate-Term Bond Fund
MID CAP Salomon Brothers Variable Strategic Bond Fund
Aim Capital Appreciation Portfolio Smith Barney Diversified Strategic Income
MFS Emerging Growth Portfolio Portfolio
MFS Mid Cap Growth Portfolio Travelers Convertible Bond Portfolio
Salomon Brothers Variable Capital Fund Travelers High Yield Bond Trust
Strong Schafer Value Fund II Travelers U.S. Government Securities Portfolio
Travelers Disciplined Mid Cap Stock Portfolio
Van Kampen Enterprise Portfolio MONEY MARKET
Travelers Money Market Portfolio
LARGE CAP
Alliance Growth Portfolio REAL ESTATE
Capital Appreciation Fund (Janus) Delaware Investments REIT Series
Dreyfus Appreciation Portfolio
Equity Income Portfolio (Fidelity) NON-STYLE SPECIFIC
Fidelity VIP II Contrafund(R) Portfolio - Janus Aspen Series Global Technology Portfolio -
Service Class 2 Service Shares
Large Cap Portfolio (Fidelity)
MFS Research Portfolio
Salomon Brothers Variable Investors Fund
Smith Barney Large Cap Growth Portfolio
Social Awareness Stock Portfolio (Smith Barney)
Strategic Stock 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.
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 Company. The interest rate declared is
at the Company's sole discretion, but may never be less than 3%.
5
<PAGE> 10
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 and allocations must be in whole percentages. You may change your
allocations by writing to the Company or by calling 1-800-334-4298.
During the Underwriting Period, any premium paid will be held in a non-interest
bearing account. After the Policy Date and until the applicants' right to cancel
has expired, your Net Premium will be invested in the Money Market Portfolio
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.
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> 11
TAX CONSEQUENCES: Currently, the federal tax law excludes all Death Benefit
payments from the gross income of the Beneficiary. At any point in time, the
Policy may become a modified endowment contract ("MEC"). A MEC has an
income-first taxation of all loans, pledges, collateral assignments or partial
surrenders. A 10% penalty tax may be imposed on such income distributed before
the Policy Owner attains age 59 1/2. The Company has established safeguards for
monitoring whether a Policy may become a MEC.
CHARGES AND DEDUCTIONS: Your Policy is subject to 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 12% of such Target
Premium in all years and 8% on amounts in excess of the Target Premium in
all years. On a current basis, the Sales Expense Charge is 10% of the
premiums received up to the Target Premium for Policy Years 1 and 2, 8%
for Policy Years 3 through 7, and 3.5% thereafter. On a current basis the
Sales Expense Charge on premium received in excess of the Target Premium
is 6% for Policy Years 1 and 2, 4% for Policy Years 3 through 7, and 3.5%
thereafter. For these purposes an increase in Stated Amount is treated as
a newly issued contract. Currently, 2.25% of the Sales Expense Charge is
designed to compensate us for state premium taxes owed by the Company
associated with the receipt of premium, which cost is borne by the Policy
Owner. These taxes vary from state to state, and 2.25% is an average. In
some states, there may be no premium taxes associated with premium.
Likewise, 1.25% of the Sales Expense Charge is designed to compensate us
for federal taxes associated with the receipt of premium, which cost is
borne by the Policy Owner.
- MONTHLY DEDUCTION -- deductions taken from the value of your Policy each
month to cover cost of insurance charges, a current Policy Fee of $5.00
(guaranteed not to exceed $10), a sales expense charge of $.10 a month
per $1,000 of Stated Amount 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 .20% for Policy Years 1 through 25, 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:
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL
FUND NAME FEE FEES EXPENSES EXPENSES
- --------- ---------- ----- -------- --------
<S> <C> <C> <C> <C>
Capital Appreciation Fund.......................... 0.75% 0.08% 0.83%
Travelers High Yield Bond Trust.................... 0.50% 0.31% 0.81%
Money Market Portfolio(1).......................... 0.32% 0.08% 0.40%
AMERICAN ODYSSEY FUNDS, INC.
Intermediate-Term Bond Fund........................ 0.49% 0.10% 0.59%
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
EAFE Equity Index Fund(2).......................... 0.26% 0.39% 0.65%
Small Cap Index Fund(2)............................ 0.13% 0.32% 0.45%
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL
FUND NAME FEE FEES EXPENSES EXPENSES
- --------- ---------- ----- -------- --------
<S> <C> <C> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series (3).................................... 0.64% 0.21% 0.85%
Small Cap Value Series............................. 0.75% 0.10% 0.85%
DREYFUS VARIABLE INVESTMENT FUND
Appreciation Portfolio(4).......................... 0.75% 0.03% 0.78%
Small Cap Portfolio................................ 0.75% 0.03% 0.78%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio - Initial Class(5)......... 0.53% 0.09% 0.62%
Contrafund Portfolio - Service Class 2(6).......... 0.58% 0.25% 0.07% 0.90%
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST
Franklin Small Cap Fund - Class 2(12).............. 0.55% 0.25% 0.27% 1.07%
GREENWICH STREET SERIES
Diversified Strategic Income Portfolio(9).......... 0.65% 0.13% 0.78%
Equity Index Portfolio - Class I Shares(8)......... 0.21% 0.07% 0.28%
JANUS ASPEN SERIES
Balanced Portfolio - Service Shares(7)............. 0.65% 0.25% 0.02% 0.92%
Global Technology Portfolio - Service Shares(7).... 0.65% 0.25% 0.13% 1.03%
Worldwide Growth Portfolio - Service Shares(7)..... 0.65% 0.25% 0.05% 0.95%
SALOMON BROTHERS VARIABLE SERIES FUND, INC.
Capital Fund(10)................................... 0.00% 1.00% 1.00%
Investors Fund(10)................................. 0.53% 0.45% 0.98%
Strategic Bond Fund(10)............................ 0.27% 0.73% 1.00%
Total Return Fund(10).............................. 0.15% 0.85% 1.00%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schafer Value Fund II(11)................... 1.00% 0.20% 1.20%
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Portfolio(13)............. 0.80% 0.04% 0.84%
Alliance Growth Portfolio(13)...................... 0.80% 0.02% 0.82%
MFS Total Return Portfolio(13)..................... 0.80% 0.04% 0.84%
Smith Barney International Equity Portfolio(13).... 0.90% 0.10% 1.00%
Smith Barney Large Capitalization Growth
Portfolio(13).................................... 0.75% 0.11% 0.86%
Van Kampen Enterprise Portfolio(13)................ 0.70% 0.03% 0.73%
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio(14)..................... 0.60% 0.20% 0.80%
Disciplined Mid Cap Stock Portfolio(15)............ 0.70% 0.25% 0.95%
Disciplined Small Cap Stock Portfolio(14).......... 0.80% 0.20% 1.00%
Equity Income Portfolio............................ 0.75% 0.13% 0.88%
Large Cap Portfolio................................ 0.75% 0.12% 0.87%
Lazard International Stock Portfolio............... 0.83% 0.23% 1.06%
MFS Emerging Growth Portfolio...................... 0.75% 0.12% 0.87%
MFS Mid Cap Growth Portfolio(14)................... 0.80% 0.20% 1.00%
MFS Research Portfolio............................. 0.80% 0.19% 0.99%
Social Awareness Stock Portfolio................... 0.64% 0.16% 0.80%
Strategic Stock Portfolio(14)...................... 0.60% 0.30% 0.90%
U.S. Government Securities Portfolio............... 0.32% 0.16% 0.48%
WARBURG PINCUS TRUST
Emerging Markets Portfolio(16)..................... 0.00% 1.40% 1.40%
</TABLE>
- ---------------
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with Travelers Insurance Company. Travelers has
agreed to reimburse the Portfolio for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage
commissions, interest charges and taxes) exceeds 0.40%. Without such
arrangement, Total Expenses would have been 0.50% for the MONEY MARKET
PORTFOLIO.
8
<PAGE> 13
(2) These fees reflect a voluntary expense reimbursement arrangement whereby
the Adviser has agreed to reimburse the funds. Without such arrangement,
the Management Fee and Other Expenses for the Deutsche VIT EAFE EQUITY
INDEX FUND and SMALL CAP INDEX FUND would have been 0.45% and 0.69%, and
0.35% and 0.83%, respectively. Effective April 2000, the Trust's name was
changed from BT Insurance Funds Trust to Deutsche Asset Management VIT
Funds.
(3) The investment adviser for the REIT SERIES is Delaware Management Company
("DMC"). Effective May 1, 2000 through October 31, 2000, DMC has
voluntarily agreed to waive its management fee and reimburse the Series for
expenses to the extent that total expenses will not exceed 0.85%. Without
such an arrangement, Total Annual Operating Expenses for the fund would
have been 0.96%.
(4) Formerly known as Dreyfus Capital Appreciation Portfolio.
(5) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds,
or FMR on behalf of certain funds, custodian, credits realized as a result
of uninvested cash balances were used to reduce a portion of each
applicable fund's expenses. Without these reductions, the total operating
expenses presented in the table would have been 0.57% for EQUITY-INCOME
PORTFOLIO, 0.66% for GROWTH PORTFOLIO, and 0.63% for ASSET MANAGER
PORTFOLIO.
(6) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds
custodian, credits realized as a result of uninvested cash balances were
used to reduce a portion of each applicable fund's expenses. Without these
reductions, the Total Annual Operating Expenses presented in the table
would have been 0.89% for ASSET MANAGER PORTFOLIO - SERVICE CLASS 2, 0.78%
for CONTRAFUND PORTFOLIO - SERVICE CLASS, and 0.95% for CONTRAFUND
PORTFOLIO - SERVICE CLASS 2. Service Class 2 expenses are based on
estimated expenses for the first year.
(7) Expenses are based on the estimated expenses that the new Service Shares
Class of each Portfolio expects to incur in its initial fiscal year. All
expenses are shown without the effect of offset arrangements.
(8) The Portfolio Management Fee for EQUITY INDEX PORTFOLIO includes 0.06% for
fund administration.
(9) The Portfolio Management Fee for the APPRECIATION PORTFOLIO, the TOTAL
RETURN, and the DIVERSIFIED STRATEGIC INCOME PORTFOLIO includes 0.20% for
fund administration.
(10) The Adviser has waived all or a portion of its Management Fees for the year
ended December 31, 1999. 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, the SMALL CAP GROWTH FUND, and the TOTAL 'RETURN FUND would have
been 1.15%, 1.80%, 1.99%, 1.48%, 16.36%, and 1.65%, respectively.
(11) The Adviser for STRONG SCHAFER VALUE FUND II has voluntarily agreed to cap
the 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 1.57%.
(12) Franklin Small Cap Fund -- Class 2 (previously offered as Franklin Small
Cap Investments Fund). On 2/8/00, a merger and reorganization was approved
that merged the assets of Franklin Small Cap Investments Fund into Franklin
Small Cap Fund, effective 5/1/00. The above table shows restated total
expenses based upon the new fees and assets of Franklin Small Cap Fund as
of 12/31/99, and not the assets of the combined fund on 5/1/00. However if
the table reflected both the new fees and the combined assets, the fund's
expenses after 5/1/00 would be estimated as: Management Fees 0.55%,
Distribution and Service Fee 0.25%, Other expenses 0.27% and Total Annual
Operating Expenses 1.07%. The Fund's Class 2 distribution plan or "Rule
12b-1 Plan" is described in the Fund's prospectus.
(13) Expenses are as of October 31, 1999 (the Fund's fiscal year end). There
were no fees waived or expenses reimbursed for these funds in 1999.
(14) Travelers Insurance Company has agreed to reimburse the CONVERTIBLE BOND
PORTFOLIO, the STRATEGIC STOCK PORTFOLIO, the DISCIPLINED SMALL CAP STOCK
PORTFOLIO, and the MFS MID CAP GROWTH PORTFOLIO for expenses for the period
ended December 31, 1999 which exceeded 0.80%, 0.90%, 1.00% and 1.00%
respectively. Without such voluntary arrangements, the actual annualized
Total Annual Operating Expenses would have been 1.23%, 0.99%, 1.49%, and
1.07% respectively.
(15) Other Expenses reflect the current expense reimbursement arrangement with
Travelers Insurance Company. Travelers has agreed to reimburse the
Portfolio for the amount by which its 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 Portfolio would have been 0.99% for the DISCIPLINED MID
CAP STOCK PORTFOLIO.
(16) Fee waivers, expense reimbursements, or expense credits reduced expenses
for the WARBURG PINCUS EMERGING MARKETS PORTFOLIO during 1999, but this may
be discontinued at any time. Without such arrangements, the Portfolio's
Management Fees, Other Expenses and Total Annual Operating Expenses would
equal 1.25%, 1.88% and 3.13%, respectively. The Portfolio's other expenses
are based on annualized estimates of expenses for the fiscal year ending
December 31, 1999, net of any fee waivers or expense reimbursements.
9
<PAGE> 14
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 completed 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 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
10
<PAGE> 15
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 Issue Date or the date we receive
it at our Home Office. During the Right to Cancel Period, we allocate net
premiums to the Money Market Portfolio 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 Company LLC
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.
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
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.
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
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
REIT Series Seeks to achieve maximum long-term Delaware Management Company,
total return. Capital appreciation is Inc.
a secondary objective. The Series Subadviser: Lincoln
seeks to achieve its objectives by Investment Management, Inc.
investing in securities of companies
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 Company,
investing in small to mid-cap common Inc.
stocks whose market value appears low Subadviser: Lincoln
relative to their underlying value or Investment Management, Inc.
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.
DREYFUS VARIABLE
INVESTMENT FUND
Appreciation Portfolio Seeks primarily to provide long-term The Dreyfus Corporation
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>
12
<PAGE> 17
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
FRANKLIN TEMPLETON
VARIABLE INSURANCE
PRODUCTS TRUST
Franklin Small Cap Fund - Seeks long-term capital growth; the Franklin Advisers, Inc.
Class 2 Fund seeks to accomplish its objective Subadviser: Templeton
by investing primarily (normally at Investment Counsel, Inc.
least 65% of its assets) in equity
securities of smaller capitalization
growth companies.
GREENWICH STREET SERIES
FUND
Diversified Strategic Seeks high current income by investing SSB Citi Fund Management LLC.
Income Portfolio primarily in the following fixed ("SSB Citi")
income securities: U.S. Gov't and
mortgage-related securities, foreign
gov't bonds and corporate bonds rated
below investment grade.
Equity Index Portfolio - Seeks to replicate, before deduction Travelers Investment
Class I Shares of expenses, the total return Management Company ("TIMCO")
performance of the S&P 500 Index.
JANUS ASPEN SERIES
Balanced Portfolio - Seeks current income and long-term Janus
Service Shares growth of capital, consistent with
preservation of capital and balanced
by current income. It pursues its
objective by normally investing 40-60%
of its assets in securities selected
primarily for their growth potential
and 40-60% of its assets in securities
selected primarily for their income
potential. This Portfolio normally
invests at least 25% of its assets in
fixed-income securities.
Global Technology Seeks long-term growth of capital. It Janus
Portfolio - Service pursues its objective by investing
Shares primarily in equity securities of US
and foreign companies selected for
their growth potential. Normally, it
invests at least 65% of its total
assets in securities of companies that
the portfolio manager believes will
benefit significantly from advances or
improvements in technology.
Worldwide Growth Seeks long-term growth of capital in a Janus
Portfolio - Service manner consistent with the
Shares preservation of capital. It pursues
its objective by investing primarily
in common stocks of companies of any
size throughout the world. The
Portfolio normally invests in issuers
from at least five different
countries, including the United
States. The Portfolio may at times
invest in fewer than five countries or
even a single country.
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
SALOMON BROTHERS VARIABLE
SERIES FUND
Capital Fund Seeks capital appreciation through Salomon Brothers Asset
investments primarily in common stock, Management ("SBAM")
or securities convertible to common
stocks, which are believed to have
above-average price appreciation
potential and which may also involve
above-average risk.
Investors Fund Seeks long-term growth of capital. SBAM
Current income is a secondary
objective.
Strategic Bond Fund Seeks high level of current income. As SBAM
a secondary objective, the Portfolio
will seek capital appreciation.
Total Return Fund Seeks above-average income (compared SBAM
to a portfolio invested entirely in
equity securities). Secondarily, seeks
opportunities for growth of capital
and income.
STRONG VARIABLE INSURANCE
FUNDS, INC.
Strong Schafer Value Fund Seeks primarily long-term capital Strong Capital Management,
II appreciation. Current income is a Inc.
secondary objective when selecting Subadviser: Schafer Capital
investments. Management Inc.
TRAVELERS SERIES FUND INC.
AIM Capital Appreciation Seeks capital appreciation by Travelers Investment Advisers
Portfolio investing principally in common stock, ("TIA")
with emphasis on medium-sized and Subadviser: AIM Capital
smaller emerging growth companies. Management, Inc.
Alliance Growth Portfolio Seeks long-term growth of capital by TIA
investing predominantly in equity Subadviser: Alliance Capital
securities of companies with a Management L.P.
favorable outlook for earnings and
whose rate of growth is expected to
exceed that of the U.S. economy over
time. Current income is only an
incidental consideration.
MFS Total Return Seeks to obtain above-average income TIA
Portfolio (compared to a portfolio entirely Subadviser: Massachusetts
invested in equity securities) Financial 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.
Smith Barney Seeks total return on assets from SSB Citi
International Equity growth of capital and income by
Portfolio investing at least 65% of its assets
in a diversified portfolio of equity
securities of established non-U.S.
issuers.
</TABLE>
14
<PAGE> 19
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
TRAVELERS SERIES FUND INC. (CONT'D)
Smith Barney Large Seeks long-term growth of capital by SSB Citi
Capitalization Growth investing in equity securities of
Portfolio companies with large market
capitalizations.
Van Kampen Enterprise Seeks capital appreciation through SSB Citi
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.
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.
</TABLE>
15
<PAGE> 20
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
THE TRAVELERS SERIES TRUST (CONT'D)
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 Seeks long-term capital appreciation SSB Citi
Portfolio and 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.
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.
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio - Seeks high total return with reduced Fidelity Management &
Initial Class risk over the long-term by allocating Research Company ("FMR")
its assets among stocks, bonds and
short-term fixed-income instruments.
Contrafund Portfolio - Seeks long-term capital appreciation FMR
Service Class 2 by investing primarily in common
stocks of companies whose value the
advisor believes is not fully
recognized by the public.
</TABLE>
16
<PAGE> 21
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
WARBURG PINCUS TRUST
Emerging Markets Seeks long-term growth of capital by Credit Suisse Asset
Portfolio investing primarily in equity Management, LLC
securities of non-U.S issuers
consisting of companies in emerging
securities markets.
</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 Monthly Deduction Amount allocated to the Fixed
Account, 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 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.
We 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
17
<PAGE> 22
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 Contract 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.
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 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.
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<PAGE> 23
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 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 effective loan interest rate charged is 5.00%. The annual
effective loan interest rate credited is 4.40% in years 1 - 10, 4.50% in years
11 - 25, and 4.70% in years 26 plus.
If you have a loan outstanding and request a second loan, we will add the amount
of the outstanding loan to the loan request. 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 unless otherwise specified. Loan
amounts will be transferred from the Fixed Account 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.
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<PAGE> 24
CONSEQUENCES. Your Cash Surrender Value is reduced by the amount of any
outstanding loan(s). If a loan is not repaid, it permanently decreases the Cash
Surrender Value, which could cause the Policy to lapse. Additionally, the Death
Benefit payable will be decreased 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).
If the Policy has not been assigned at any time and a full surrender is
requested in the first seven Policy Years we will pay an additional amount at
the time of surrender as follows:
<TABLE>
<C> <S>
- ------------------------------------------------------------------------------------------
POLICY YEAR OF FULL SURRENDER ADDITIONAL PAYMENT
- ------------------------------------------------------------------------------------------
1 8% of first year premium received up to
Target Premium plus 5.5% of all other
premiums.
- ------------------------------------------------------------------------------------------
2 6% of the sum of premium received up to
Target Premium in each of the first two
Policy Years plus 5.5% of all other
premiums.
- ------------------------------------------------------------------------------------------
3 3.5% of the sum of premium received up to
Target Premium in each of the first three
Policy Years plus 3.5% of all other
premiums.
- ------------------------------------------------------------------------------------------
4 1.5% of the sum of premium received up to
Target Premium in each of the first four
Policy Years plus 1.5% of all other
premiums.
- ------------------------------------------------------------------------------------------
5 1.5% of the sum of premium received up to
Target Premium in each of the first five
Policy Years plus 1% of all other premiums.
- ------------------------------------------------------------------------------------------
6 1% of the sum of premium received up to
Target Premium in each of the first six
Policy Years.
- ------------------------------------------------------------------------------------------
7 .5% of the sum of premium received up to
Target Premium in each of the first six
Policy Years.
- ------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 25
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 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 and outstanding Policy loans. All or part of the Death
Benefit may be paid in cash or applied to one or more of the payment options
described in the following pages.
You may elect one of 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.
21
<PAGE> 26
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.
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 than the Stated Amount plus premium
payments aggregated at 6.00% for one year ($52,650) or the Minimum Amount
Insured ($100,000).
22
<PAGE> 27
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 unpaid Monthly Deduction Amount, 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.
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 Contract Value 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 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.
23
<PAGE> 28
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for service and benefits
we provide, costs and expenses we incur, and risks we assume under the Policies,
services and benefits we provide include:
- the ability for you to make withdrawals and surrenders under the
Policies;
- the ability for you to obtain a loan under the Policies;
- the death benefit paid on the death of the Insured;
- the available funding options and related programs (including dollar-cost
averaging and portfolio rebalancing);
- administration of the various elective options available under the
Policies; and
- the distribution of various reports to policy owners.
Costs and expenses we incur include:
- expenses associated with underwriting applications and increases in the
Stated Amount;
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Policies;
- sales and marketing expenses including commission payments to your sales
agent; and
- other costs of doing business.
Risks we assume include:
- that insureds may live for a shorter period of time than estimated
resulting in the payment of greater Death Benefits than expected; and
- that the costs of providing the services and benefits under the Policies
will exceed the charges deducted.
CHARGES AGAINST PREMIUM
- FRONT-END SALES 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 10% of the premiums
received up to the Target Premium for Policy Years 1 and 2, 8% for Policy
Years 3 through 7, and 3.5% thereafter. The current charge on premium
received in excess of the Target Premium is 6% for Policy Years 1 and 2,
4% for Policy Years 3 through 7, and 3.5% thereafter. The sales charge is
guaranteed not to exceed 12% of such Target Premium payments in all
Contract Years and 10% on amounts in excess of the Target Premium. For
these purposes an increase in Stated Amount is treated as a newly issued
contract. Currently, 2.25% of the Sales Expense Charge is designed to
compensate us for state premium taxes owed by the Company associated with
the receipt of premium, which cost is borne by the Policy Owner. These
taxes vary from state to state, and 2.25% is an average. In some states,
there may be no premium taxes associated with premium. Likewise, 1.25% of
the Sales Expense Charge is designed to compensate us for federal taxes
associated with the receipt of premium, which cost is borne by the Policy
Owner.
24
<PAGE> 29
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 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, risk class of the Insured and
duration from issue.
MONTHLY POLICY CHARGE. This current $5 charge is used to cover expenses
associated with maintaining the policy. This charge is guaranteed not to exceed
$10.
MONTHLY PER $1,000 CHARGE. A sales expense charge of $.10 per $1,000 of the
Stated Amount for the first 20 Policy Years. For purposes of this charge an
increase in Stated Amount is considered a new 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 0.20% for Policy
Years 1-25, and .05% thereafter. It is guaranteed not to exceed .75% for all
years. This charge compensates us for various risks assumed, benefits provided
and expenses incurred.
UNDERLYING FUND EXPENSES
When you allocate money to the Investment Options, the Separate Account
purchases shares of the corresponding Underlying Funds at net asset value. The
net asset value reflects investment advisory fees and other expenses already
deducted. The investment advisory fees and other expenses paid by each of the
underlying Mutual Funds are described in the individual fund prospectuses. 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 six 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.
25
<PAGE> 30
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 underlying
funds in connection with the Investment Options associated with premium payments
allocated at 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.)
26
<PAGE> 31
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
- changing the beneficiary (unless irrevocably named)
Written requests for changes should be sent to the Company c/o Andesa, TPA, Inc.
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.
27
<PAGE> 32
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 following
changes in Death Benefit Options are permissible:
Options 1-2
Options 2-1
Options 3-1
It is not permitted to change from Option 3 to 2; Option 1 to 3, and 2 to 3.
If the Option is changed from Option 1 to Option 2 the Stated Amount will be
reduced by the amount of the Contract Value at the time of the change. If the
Option is changed from Option 2 to Option 1 the Stated Amount will be increased
by the amount of the Contract Value at the time of the Option change. If the
Option is changed from Option 3 to Option 1 the Stated Amount will be increased
by the amount of accumulated premiums paid at the time of the option change.
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.
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
28
<PAGE> 33
include any shares we own on our own behalf. If we determine that we no longer
need to comply with this voting method, we will vote on the shares in our own
right.
DISREGARD OF VOTING INSTRUCTIONS
When permitted by state insurance regulatory authorities, we may disregard
voting instructions if the instructions would cause a change in the investment
objective or policies of the Separate Account or an Investment Option, or if it
would cause the approval or disapproval of an investment advisory Policy of an
Investment Option. In addition, we may disregard voting instructions in favor of
changes in the investment policies or the investment adviser of any Investment
Options which are initiated by a Policy Owner if we reasonably disapprove of
such changes. A change would be disapproved only if the proposed change is
contrary to state law or prohibited by state regulatory authorities, or if we
determine that the change would have an adverse effect on our general account
(i.e., if the proposed investment policy for an Investment Option may result in
overly speculative or unsound investments.) If we do disregard voting
instructions, a summary of that action and the reasons for such action would be
included in the next annual report to Policy Owners.
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.
29
<PAGE> 34
DIVIDENDS
No dividends will be paid under the Policy.
MIXED AND SHARED FUNDING
It is conceivable that in the future it may not be advantageous for variable
life insurance and variable annuity Separate Accounts to invest in the
Investment Options simultaneously. This is called mixed funding. Certain funds
may be available to variable products of other companies not affiliated with
Travelers. This is called "shared funding." Although we -- and the funds -- do
not anticipate any disadvantages either to variable life insurance or to
variable annuity Policy Owners, the Investment Options' Boards of Directors
intend to monitor events to identify any material conflicts that may arise and
to determine what action, if any, should be taken. If any of the Investment
Options' Boards of Directors conclude that separate mutual funds should be
established for variable life insurance and variable annuity Separate Accounts,
the Company will bear the attendant expenses, but variable life insurance and
variable annuity Policy Owners would no longer have the economies of scale
resulting from a larger combined fund. Please consult the prospectuses of the
Investment Options for additional information.
DISTRIBUTION
The Company intends to sell the Policies in all jurisdictions where it is
licensed to do business and where the Policy is approved. The Policies will be
sold by life insurance sales representatives who are registered representatives
of the Company or certain other registered broker-dealers. The maximum first
year 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.
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 Deputy General
Counsel of the Company.
EXPERTS
The financial statements of Fund UL III as of December 31, 1999 and for the
period from September 8, 1999 (date operations commenced) to December 31, 1999,
included in the registration statement have been included herein in reliance on
the report of KPMG LLP, independent certified public accountants, upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance Company and
subsidiaries as of December 31, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
30
<PAGE> 35
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.
31
<PAGE> 36
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contract. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contract owner's gross income each year. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policy Owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular Investment Options without being treated as owners of
the underlying assets." As of the date of this prospectus, no such guidance has
been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the policy owners received the desired tax benefits because they were not owners
of separate account assets. For example, a Policy Owner of this Policy has 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
32
<PAGE> 37
circumstances of each Owner or beneficiary. Therefore, it is important to check
with a tax adviser prior to the purchase of a policy.
MODIFIED ENDOWMENT CONTRACTS
A modified endowment contract is defined under tax law as any policy that
satisfies the present legal definition of a life insurance contract but which
fails to satisfy a 7-pay test. This failure could occur with contracts entered
into after June 21, 1988, or with certain older contracts materially changed
after that date. A Section 1035 exchange of an older contract into a contract
after that date will not by itself cause the new contract to be a modified
endowment contract if the older contract had not become one prior to the
exchange. However, the new contract must be re-tested under the 7-pay test
rules.
A contract fails to satisfy the 7-pay test if the cumulative amount of premiums
paid under the contract at any time during the first seven contract years
exceeds the sum of the net level premiums that would have been paid on or before
such time had the contract provided for paid-up future benefits after the
payment of seven level annual premiums. If a material change in the contract
occurs either during the first seven contract years, or later, a new seven-year
testing 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
33
<PAGE> 38
will generally not be treated as a modified endowment contract if the face
amount of the Policy is greater than or equal to the death benefit of the policy
being exchanged. The payment of any premiums at the time of or after the
exchange may, however, cause the Policy to become a modified endowment contract.
A prospective purchaser should consult a qualified tax advisor before
authorizing the exchange of his or her current life insurance contract for a
Policy.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS
In the case of a pre-death distribution (including a loan, partial withdrawal,
collateral assignment or complete surrender) from a Policy that is treated as a
modified endowment contract, a special aggregation requirement may apply for
purposes of determining the amount of the income on the Policy. Specifically, if
the Company or any of its affiliates issues to the same Policy Owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the Policy with respect to a distribution from any of
those Policies, the income on the Policy for all those Policies will be
aggregated and attributed to that distribution.
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
34
<PAGE> 39
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) 277-0111.
The Company is subject to Connecticut law governing insurance companies and is
regulated and supervised by the Connecticut Commissioner of Insurance. An annual
statement in a prescribed form must be filed with the Commissioner on or before
March 1 in each year covering the operations of the Company for the preceding
year and its financial condition on December 31 of such year. The Company's
books and assets are subject to review or examination by the Commissioner, and a
full examination of its operations is conducted at least once every four years.
In addition, the Company is subject to the insurance laws and regulations of any
jurisdiction in which it sells its insurance Policies, as well as to various
federal and state securities laws and regulations.
IMSA
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
MANAGEMENT
- --------------------------------------------------------------------------------
DIRECTORS OF THE TRAVELERS 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>
George C. Kokulis.......... 1996 President and Chief Executive Officer since April
2000,
Director Executive Vice President (7/1999 to 3/2000), Senior
Vice President (1995-1999), Vice President (1993-1995)
of The Travelers Insurance Company.
Katherine M. Sullivan...... 1996 Senior Vice President since May 1996 and General
Director Counsel from May 1996 to August 1999 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.
</TABLE>
35
<PAGE> 40
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITION SINCE PRINCIPAL BUSINESS
----------------- -------- ------------------
<S> <C> <C>
Marc P. Weill*............. 1994 Senior Vice President-Investments since 1993 and Chief
Director Investment Officer since 1995 of The Travelers
Insurance Company; Senior Vice President and Chief
Investment Officer of Citigroup Inc. since 1992; Vice
President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
</TABLE>
- ---------------
* Principal business address: Citigroup Inc., 153 East 53rd St., New York, New
York 10043
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
Jay S. Fishman....................... Senior Vice President
Barry Jacobson....................... Senior Vice President
Russell H. Johnson................... Senior Vice President
Glenn D. Lammey...................... Executive Vice President, Chief
Financial Officer, Chief Accounting
Officer and Controller
Marla Berman Lewitus................. Senior Vice President and General
Counsel
Brendan Lynch........................ Senior Vice President
Warren H. May........................ Senior Vice President
Kathleen A. Preston.................. Senior Vice President
Mary Jean Thornton................... Executive Vice President and
Chief Information Officer
David A. Tyson....................... Senior Vice President
F. Denney Voss....................... Senior Vice President
</TABLE>
Information relating to the management of the underlying funds is contained in
the applicable prospectuses.
EXAMPLE OF POLICY CHARGES
- --------------------------------------------------------------------------------
The following chart illustrates the 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: $436,577
Level Death Benefit Option
Current Charges
36
<PAGE> 41
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
FOR THE POLICY YEAR
-----------------------
COST OF
POLICY CUMULATIVE INSURANCE ADMINISTRATIVE PER $1,000
YEAR PREMIUMS SALES LOAD CHARGES CHARGES CHARGE
- ------ ---------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 25,000 $2,500 $ 356 $60 $524
2 $ 50,000 $2,500 $ 494 $60 $524
3 $ 75,000 $2,000 $ 609 $60 $524
5 $125,000 $2,000 $ 613 $60 $524
10 $175,000 $ 0 $ 960 $60 $524
</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.
ILLUSTRATIONS
- --------------------------------------------------------------------------------
The following pages are intended to illustrate how the Contract Value, Surrender
Value and Death Benefit can change over time for Policies issued to a 45 year
old male. 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, monthly load per $1,000 of stated amount, mortality and
expense risk charge, and sales 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 per $1,000 load per Stated Amount
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 10% for years 1-2, 8% years 3-7 and 3.5% thereafter. The current
illustrations reflect a deduction on all excess premium of 6% in years 1-2, 4%
years 3-7 and 3.5% thereafter.
The guaranteed illustrations reflect a deduction from each Target Premium of 12%
in all years and 8% 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 twenty-five policy
years the current charges consist of .20% mortality and expense risk charge and
.05% thereafter. In all policy years, the guaranteed charges consist of a .75%
mortality and expense risk charge. For all policy years the current and
guaranteed charges consist of .85% 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.
37
<PAGE> 42
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
- -1.05%, 4.95% and 10.95%, respectively on a current basis for years 1-25; and to
approximate net annual rates of -0.90%; 5.10%; 11.10% thereafter. On a
guaranteed basis the annual gross investment rates of 0%, 6.0% and 12%
correspond to approximate net annual rates of -1.60%; 4.40% and 10.40% 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%.
38
<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 21,328 23,328 436,577 22,649 24,649 436,577 23,969 25,969 436,577
2 53,813 42,292 45,292 436,577 46,276 49,276 436,577 50,419 53,419 436,577
3 82,753 63,407 66,032 436,577 71,477 74,102 436,577 80,203 82,828 436,577
4 113,141 84,223 85,723 436,577 97,857 99,357 436,577 113,192 114,692 436,577
5 145,048 104,862 106,737 436,577 125,598 127,473 436,577 149,866 151,741 436,577
6 178,550 125,232 126,732 436,577 154,683 156,183 436,577 190,528 192,028 465,218
7 213,728 145,366 146,241 436,577 185,214 186,089 439,307 235,449 236,324 558,459
8 224,414 142,456 142,456 436,577 193,066 193,066 445,003 259,650 259,650 598,474
9 235,635 139,488 139,488 436,577 201,243 201,243 450,953 286,353 286,353 641,672
10 247,417 136,433 136,433 436,577 209,738 209,738 457,129 315,785 315,785 688,263
11 259,787 133,012 133,012 436,577 218,336 218,336 463,060 347,860 347,860 737,762
12 272,777 129,399 129,399 436,577 227,199 227,199 469,092 383,066 383,066 790,906
13 286,416 125,544 125,544 436,577 236,310 236,310 475,173 421,654 421,654 847,865
14 300,736 121,435 121,435 436,577 245,680 245,680 481,315 463,945 463,945 908,924
15 315,773 117,050 117,050 436,577 255,319 255,319 487,537 510,289 510,289 974,409
16 331,562 112,174 112,174 436,577 265,096 265,096 493,603 560,766 560,766 1,044,134
17 348,140 106,968 106,968 436,577 275,155 275,155 499,816 616,040 616,040 1,119,030
18 365,547 101,392 101,392 436,577 285,502 285,502 506,207 676,545 676,545 1,199,543
19 383,824 95,401 95,401 436,577 296,139 296,139 512,800 742,749 742,749 1,286,160
20 403,015 88,940 88,940 436,577 307,066 307,066 519,609 815,152 815,152 1,379,379
21 423,166 81,891 81,891 436,577 318,464 318,464 526,927 893,851 893,851 1,478,954
22 444,325 74,633 74,633 436,577 330,405 330,405 534,835 980,502 980,502 1,587,164
23 466,541 66,655 66,655 436,577 342,636 342,636 542,891 1,075,059 1,075,059 1,703,378
24 489,868 57,854 57,854 436,577 355,154 355,154 551,077 1,178,181 1,178,181 1,828,131
25 514,361 48,110 48,110 436,577 367,956 367,956 559,405 1,290,585 1,290,585 1,962,083
26 540,079 41,539 41,539 436,577 383,632 383,632 571,772 1,422,550 1,422,550 2,120,194
27 567,083 34,316 34,316 436,577 399,872 399,872 584,631 1,567,597 1,567,597 2,291,895
28 595,437 26,365 26,365 436,577 416,694 416,694 598,062 1,726,989 1,726,989 2,478,667
29 625,209 17,590 17,590 436,577 434,110 434,110 612,136 1,902,087 1,902,087 2,682,123
30 656,470 7,871 7,871 436,577 452,129 452,129 652,669 2,094,356 2,094,356 3,023,295
</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> 44
$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 19,062 19,062 436,577 20,300 20,300 436,577 21,540 21,540 436,577
2 53,813 37,753 37,753 436,577 41,436 41,436 436,577 45,271 45,271 436,577
3 82,753 56,086 56,086 436,577 63,458 63,458 436,577 71,445 71,445 436,577
4 113,141 74,068 74,068 436,577 86,418 86,418 436,577 100,344 100,344 436,577
5 145,048 91,702 91,702 436,577 110,368 110,368 436,577 132,278 132,278 436,577
6 178,550 108,991 108,991 436,577 135,366 135,366 436,577 167,605 167,605 436,577
7 213,728 125,930 125,930 436,577 161,467 161,467 436,577 206,413 206,413 489,588
8 224,414 120,693 120,693 436,577 165,586 165,586 436,577 224,676 224,676 517,862
9 235,635 115,243 115,243 436,577 169,699 169,699 436,577 244,499 244,499 547,882
10 247,417 109,545 109,545 436,577 173,793 173,793 436,577 265,997 265,997 579,749
11 259,787 103,567 103,567 436,577 177,853 177,853 436,577 289,302 289,302 613,569
12 272,777 97,281 97,281 436,577 181,871 181,871 436,577 314,556 314,556 649,455
13 286,416 90,652 90,652 436,577 185,836 185,836 436,577 341,917 341,917 687,528
14 300,736 83,642 83,642 436,577 189,736 189,736 436,577 371,552 371,552 727,914
15 315,773 76,201 76,201 436,577 193,550 193,550 436,577 403,633 403,633 770,747
16 331,562 682,56 68,256 436,577 197,248 197,248 436,577 438,331 438,331 816,163
17 348,140 59,719 59,719 436,577 200,787 200,787 436,577 475,813 475,813 864,309
18 365,547 50,480 50,480 436,577 204,121 204,121 436,577 516,250 516,250 915,334
19 383,824 40,421 40,421 436,577 207,195 207,195 436,577 559,821 559,821 969,397
20 403,015 29,407 29,407 436,577 209,955 209,955 436,577 606,714 606,714 1,026,665
21 423,166 17,836 17,836 436,577 212,893 212,893 436,577 657,699 657,699 1,088,220
22 444,325 5,045 5,045 436,577 215,454 215,454 436,577 712,522 712,522 1,153,378
23 466,541 0 0 0 217,587 217,587 436,577 771,459 771,459 1,222,339
24 489,868 0 0 0 219,221 219,221 436,577 834,793 834,793 1,295,310
25 514,361 0 0 0 220,256 220,256 436,577 902,782 902,782 1,372,504
26 540,079 0 0 0 220,551 220,551 436,577 975,656 975,656 1,454,135
27 567,083 0 0 0 219,925 219,925 436,577 1,053,608 1,053,608 1,540,421
28 595,437 0 0 0 218,141 218,141 436,577 1,136,788 1,136,788 1,631,580
29 625,209 0 0 0 214,915 214,915 436,577 1,225,333 1,225,333 1,727,835
30 656,470 0 0 0 209,928 209,928 436,577 1,319,434 1,319,434 1,904,661
</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> 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 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 30,063 21,737 21,737 521,737 23,149 23,149 523,149 24,563 245,63 524,563
2 61,628 42,933 42,933 542,933 47,117 47,117 547,117 51,474 51,474 551,474
3 94,772 63,586 63,586 563,586 71,930 71,930 571,930 80,968 80,968 580,968
4 129,573 83,691 83,691 583,691 97,609 97,609 597,609 113,298 113,298 613,298
5 166,115 103,232 103,232 603,232 124,168 124,168 624,168 148,732 148,732 648,732
6 204,483 122,192 122,192 622,192 151,619 151,619 651,619 187,566 187,566 687,566
7 244,770 140,536 140,536 640,536 179,955 179,955 679,955 230,106 230,106 730,106
8 287,071 158,240 158,240 658,240 209,180 209,180 709,180 276,702 276,702 776,702
9 331,487 175,262 175,262 675,262 239,281 239,281 739,281 327,722 327,722 827,722
10 378,124 191,575 191,575 691,575 270,255 270,255 770,255 383,584 383,584 883,584
11 427,092 207,153 207,153 707,153 302,104 302,104 802,104 444,754 444,754 944,754
12 478,509 221,980 221,980 721,980 334,836 334,836 834,836 511,753 511,753 1,011,753
13 532,497 236,036 236,036 736,036 368,459 368,459 868,459 585,156 585,156 1,085,156
14 589,185 249,298 249,298 749,298 402,976 402,976 902,976 665,591 665,591 1,165,591
15 648,707 261,729 261,729 761,729 438,373 438,373 938,373 753,737 753,737 1,253,737
16 711,205 273,270 273,270 773,270 474,617 474,617 974,617 850,323 850,323 1,350,323
17 776,827 283,846 283,846 783,846 511,652 511,652 1,011,652 956,130 956,130 1,456,130
18 845,731 293,370 293,370 793,370 549,408 549,408 1,049,408 1,072,013 1,072,013 1,572,013
19 918,080 301,752 301,752 801,752 587,807 587,807 1,087,807 1,198,906 1,198,906 1,698,906
20 994,047 308,902 308,902 808,902 626,766 626,766 1,126,766 1,337,845 1,337,845 1,837,845
21 1,043,749 290,552 290,552 790,552 640,528 640,528 1,140,528 1,462,807 1,462,807 1,962,807
22 1,095,937 271,224 271,224 771,224 653,589 653,589 1,153,589 1,599,436 1,599,436 2,099,436
23 1,150,734 250,853 250,853 750,853 665,836 665,836 1,165,836 1,748,865 1,748,865 2,248,865
24 1,208,270 229,352 229,352 729,352 677,124 677,124 1,177,124 1,912,318 1,912,318 2,412,318
25 1,268,684 206,579 206,579 706,579 687,250 687,250 1,187,250 2,091,094 2,091,094 2,591,094
26 1,332,118 182,345 182,345 682,345 695,947 695,947 1,195,947 2,286,572 2,286,572 2,786,572
27 1,398,724 156,408 156,408 656,408 702,880 702,880 1,202,880 2,500,220 2,500,220 3,000,220
28 1,468,660 128,482 128,482 628,482 707,650 707,650 1,207,650 2,733,609 2,733,609 3,233,609
29 1,542,093 98,270 98,270 598,270 709,823 709,823 1,209,823 2,988,459 2,988,459 3,488,459
30 1,619,198 65,530 65,530 565,530 709,001 709,001 1,209,001 3,266,729 3,266,729 3,766,729
</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.
41
<PAGE> 46
$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 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 30,063 24,413 26,703 524,413 25,924 28,214 525,924 27,436 29,726 527,436
2 61,628 48,368 51,804 548,368 52,923 56,359 552,923 57,661 61,097 557,661
3 94,772 72,437 75,443 572,437 81,651 84,657 581,651 91,616 94,622 591,616
4 129,573 96,093 97,811 596,093 111,637 113,355 611,637 129,119 130,837 629,119
5 166,115 119,501 121,648 619,501 143,106 145,253 643,106 170,730 172,877 670,730
6 204,483 142,512 144,230 642,512 175,979 177,697 675,979 216,736 218,454 716,736
7 244,770 165,165 166,167 665,165 210,357 211,359 710,357 267,656 268,658 767,656
8 287,071 188,741 188,741 688,741 247,673 247,673 747,673 325,461 325,461 825,461
9 331,487 211,934 211,934 711,934 286,695 286,695 786,695 389,451 389,451 889,451
10 378,124 234,699 234,699 734,699 327,460 327,460 827,460 460,254 460,254 960,254
11 427,092 256,585 256,585 756,585 369,581 369,581 869,581 538,128 538,128 1,038,128
12 478,509 277,895 277,895 777,895 413,431 413,431 913,431 624,163 624,163 1,124,163
13 532,497 298,563 298,563 798,563 459,021 459,021 959,021 719,177 719,177 1,219,177
14 589,185 318,581 318,581 818,581 506,421 506,421 1,006,421 824,137 824,137 1,324,137
15 648,707 337,936 337,936 837,936 555,702 555,702 1,055,702 940,112 940,112 1,440,112
16 711,205 356,312 356,312 856,312 606,623 606,623 1,106,623 1,067,968 1,067,968 1,567,968
17 776,827 373,986 373,986 873,986 659,541 659,541 1,159,541 1,209,287 1,209,287 1,709,287
18 845,731 390,923 390,923 890,923 714,510 714,510 1,214,510 1,365,502 1,365,502 1,865,502
19 918,080 407,083 407,083 907,083 771,586 771,586 1,271,586 1,538,196 1,538,196 2,038,196
20 994,047 422,418 422,418 922,418 830,814 830,814 1,330,814 1,729,114 1,729,114 2,229,114
21 1,043,749 409,310 409,310 909,310 863,010 863,010 1,363,010 1,909,305 1,909,305 2,409,305
22 1,095,937 396,117 396,117 896,117 896,574 896,574 1,396,574 2,109,005 2,109,005 2,609,005
23 1,150,734 382,161 382,161 882,161 930,872 930,872 1,430,872 2,329,635 2,329,635 2,829,635
24 1,208,270 367,356 367,356 867,356 965,850 965,850 1,465,850 2,573,398 2,573,398 3,073,398
25 1,268,684 351,618 351,618 851,618 1,001,442 1,001,442 1,501,442 2,842,731 2,842,731 3,342,731
26 1,332,118 340,645 340,645 840,645 1,044,490 1,044,490 1,544,490 3,150,106 3,150,106 3,650,106
27 1,398,724 329,014 329,014 829,014 1,088,957 1,088,957 1,588,957 3,490,828 3,490,828 3,990,828
28 1,468,660 316,671 316,671 816,671 1,134,857 1,134,857 1,634,857 3,868,541 3,868,541 4,368,541
29 1,542,093 303,547 303,547 803,547 1,182,186 1,182,186 1,682,186 4,287,280 4,287,280 4,787,280
30 1,619,198 289,558 289,558 789,558 1,230,924 1,230,924 1,730,924 4,751,515 4,751,515 5,251,515
</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.
42
<PAGE> 47
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 48
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> 49
TRAVELERS CORPORATE VARIABLE LIFE 2000
PERFORMANCE UPDATE AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
INCEPTION ------------------------------------------------------------ SINCE
INVESTMENT OPTION DATE MO QTR YTD 1 YR 3 YR 5 YR 10 YR INCEPTION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM Capital
Appreciation
Portfolio 10-Oct-95 16.59% 35.57% 41.48% 41.48% 22.14% -- -- 17.63%
- --------------------------------------------------------------------------------------------------------------
Alliance Growth
Portfolio 20-Jun-94 9.66% 25.99% 31.12% 31.12% 28.95% 29.75% -- 27.61%
- --------------------------------------------------------------------------------------------------------------
American Odyssey
Intermediate-Term
Bond Fund 1-May-93 0.01% 0.23% 0.49% 0.49% 4.75% 6.15% -- 4.53%
- --------------------------------------------------------------------------------------------------------------
Capital Appreciation
Fund (Janus) 31-Dec-85 13.64% 34.57% 52.29% 52.29% 45.08% 39.31% 23.68% 18.17%
- --------------------------------------------------------------------------------------------------------------
Delaware Investments
REIT Series 6-May-98 4.50% -0.25% -3.60% -3.60% -- -- -- -8.00%
- --------------------------------------------------------------------------------------------------------------
Delaware Small Cap
Value Series 23-Dec-93 1.64% 1.20% -5.84% -5.84% 5.35% 11.27% -- 9.60%
- --------------------------------------------------------------------------------------------------------------
Deutsche VIT EAFE
Equity Index Fund 23-Oct-97 9.05% 17.59% 26.23% 26.23% -- -- -- 19.55%
- --------------------------------------------------------------------------------------------------------------
Deutsche VIT Small
Cap Index Fund 7-Oct-97 11.01% 17.97% 18.90% 18.90% -- -- -- 3.90%
- --------------------------------------------------------------------------------------------------------------
Dreyfus Appreciation
Portfolio 5-Apr-93 2.37% 10.70% 10.41% 10.41% 21.83% 24.40% -- 18.95%
- --------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap
Portfolio 30-Aug-90 10.54% 20.15% 22.05% 22.05% 10.53% 14.88% -- 34.51%
- --------------------------------------------------------------------------------------------------------------
Equity Income
Portfolio
(Fidelity) 30-Aug-96 4.62% 5.07% 3.90% 3.90% 14.83% -- -- 16.95%
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset
Manager Portfolio-
Initial Class 6-Sep-89 4.10% 8.54% 10.03% 10.03% 14.45% 14.54% 12.07% 11.72%
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP
Contrafund
Portfolio-Service
Class 2 12-Jan-00 NOT AVAILABLE
- --------------------------------------------------------------------------------------------------------------
Franklin Small Cap
Fund-Class 2 1-May-98 15.45% 39.37% 72.13% 72.13% -- -- -- 31.44%
- --------------------------------------------------------------------------------------------------------------
Janus Aspen Series
Balanced
Portfolio-Service
Shares 13-Sep-93 NOT AVAILABLE
- --------------------------------------------------------------------------------------------------------------
Janus Aspen Series
Global Technology
Portfolio-Service
Shares 15-Jan-00 NOT AVAILABLE
- --------------------------------------------------------------------------------------------------------------
Janus Aspen Series
Worldwide Growth
Portfolio-Service
Shares 13-Sep-93 NOT AVAILABLE
- --------------------------------------------------------------------------------------------------------------
Large Cap Portfolio
(Fidelity) 30-Aug-96 8.85% 20.51% 28.19% 28.19% -- -- -- 29.72%
- --------------------------------------------------------------------------------------------------------------
Lazard International
Stock Portfolio 1-Aug-96 6.89% 10.27% 20.61% 20.61% 13.06% -- -- 13.76%
- --------------------------------------------------------------------------------------------------------------
MFS Emerging Growth
Portfolio 30-Aug-96 27.67% 54.37% 75.44% 75.44% 41.02% -- -- 38.50%
- --------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth
Portfolio 23-Mar-98 17.94% 41.94% 62.79% 62.79% -- -- -- 31.45%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE> 50
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
INCEPTION ------------------------------------------------------------ SINCE
INVESTMENT OPTION DATE MO QTR YTD 1 YR 3 YR 5 YR 10 YR INCEPTION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MFS Research
Portfolio 23-Mar-98 9.48% 21.45% 22.58% 22.58% -- -- -- 15.28%
- --------------------------------------------------------------------------------------------------------------
MFS Total Return
Portfolio 20-Jun-94 0.54% 2.34% 1.62% 1.62% 10.52% 13.79% -- 11.96%
- --------------------------------------------------------------------------------------------------------------
Salomon Brothers
Variable Capital
Fund 17-Feb-98 4.78% 13.10% 20.99% 20.99% -- -- -- 20.54%
- --------------------------------------------------------------------------------------------------------------
Salomon Brothers
Variable Investors
Fund 17-Feb-98 2.01% 7.01% 10.60% 10.60% -- -- -- 10.88%
- --------------------------------------------------------------------------------------------------------------
Salomon Brothers
Variable Strategic
Bond Fund 17-Feb-98 0.79% 1.42% -0.62% -0.62% -- -- -- 2.43%
- --------------------------------------------------------------------------------------------------------------
Salomon Brothers
Variable Total
Return Fund 17-Feb-98 -1.20% 0.73% -0.22% -0.22% -- -- -- 2.48%
- --------------------------------------------------------------------------------------------------------------
Smith Barney
Diversified
Strategic Income
Portfolio 16-Oct-91 0.01% 0.91% 0.71% 0.71% 4.36% 7.57% -- 5.64%
- --------------------------------------------------------------------------------------------------------------
Smith Barney Equity
Index Portfolio 30-Nov-91 5.82% 14.49% 19.49% 19.49% 26.12% 27.29% -- 19.96%
- --------------------------------------------------------------------------------------------------------------
Smith Barney
International
Equity Portfolio 20-Jun-94 18.37% 47.12% 66.34% 66.34% 21.29% 18.06% -- 15.23%
- --------------------------------------------------------------------------------------------------------------
Smith Barney Large
Cap Growth
Portfolio 6-May-98 5.06% 23.37% 29.70% 29.70% -- -- -- 33.21%
- --------------------------------------------------------------------------------------------------------------
Social Awareness
Stock Portfolio
(Smith Barney) 1-May-92 6.08% 11.68% 14.75% 14.75% 23.79% 24.41% -- 16.97%
- --------------------------------------------------------------------------------------------------------------
Strategic Stock
Portfolio 6-May-98 -0.68% -0.85% 3.94% 3.94% -- -- -- -1.62%
- --------------------------------------------------------------------------------------------------------------
Strong Schafer Value
Fund II 10-Oct-97 0.65% 6.71% -3.83% -3.83% -- -- -- -1.84%
- --------------------------------------------------------------------------------------------------------------
Travelers Convertible
Bond Portfolio 1-May-98 5.80% 9.30% 17.60% 17.60% -- -- -- 10.36%
- --------------------------------------------------------------------------------------------------------------
Travelers Disciplined
Mid Cap Stock
Portfolio 1-Apr-97 6.32% 18.71% 12.40% 12.40% -- -- -- 22.31%
- --------------------------------------------------------------------------------------------------------------
Travelers Disciplined
Small Cap Stock
Portfolio 1-May-98 9.57% 15.44% 19.32% 19.32% -- -- -- 3.21%
- --------------------------------------------------------------------------------------------------------------
Travelers High Yield
Bond Trust 10-Jun-83 0.77% 1.14% 3.40% 3.40% 8.00% 10.63% 8.75% 7.76%
- --------------------------------------------------------------------------------------------------------------
Travelers Money
Market Portfolio 31-Dec-87 0.40% 1.13% 3.95% 3.95% 4.00% 3.67% 3.61% 4.06%
- --------------------------------------------------------------------------------------------------------------
Travelers U.S.
Government
Securities
Portfolio 24-Jan-92 -0.96% -0.87% -5.12% -5.12% 4.93% 7.44% -- 5.67%
- --------------------------------------------------------------------------------------------------------------
Van Kampen Enterprise
Portfolio 21-Jun-94 11.22% 23.57% 24.64% 24.64% 25.24% 25.70% -- 23.83%
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus
Emerging Markets
Portfolio 31-Dec-97 15.44% 37.90% 79.95% 79.95% -- -- -- 22.21%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 51
APPENDIX B
TARGET PREMIUM PER $1,000
OF STATED AMOUNT
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> 52
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<PAGE> 53
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> 54
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 55
TRAVELERS
CORPORATE OWNED VARIABLE
UNIVERSAL LIFE INSURANCE 2000
L-20680 May 2000
<PAGE> 56
ANNUAL REPORT
DECEMBER 31, 1999
THE TRAVELERS FUND UL III
FOR VARIABLE LIFE INSURANCE
[TRAVELERSLIFE&ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 57
THE TRAVELERS FUND UL III
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
American Odyssey Funds, Inc., 215,350 shares (cost $2,224,193) .............. $ 2,231,030
BT Insurance Funds Trust, 110,301 shares (cost $1,203,251) .................. 1,309,220
Capital Appreciation Fund, 87,496 shares (cost $7,867,569) .................. 9,519,600
Dreyfus Variable Investment Fund, 10,560 shares (cost $539,237) ............. 578,674
Fidelity's Variable Insurance Products Fund II, 17,444 shares (cost $311,671) 325,686
Greenwich Street Series Fund, 79,889 shares (cost $2,647,546) ............... 2,864,818
High Yield Bond Trust, 137,101 shares (cost $1,285,198) ..................... 1,298,343
Money Market Portfolio, 16,969,655 shares (cost $16,969,655) ................ 16,969,655
Salomon Brothers Variable Series Funds Inc., 136,647 shares (cost $1,611,208) 1,674,630
The Travelers Series Trust, 658,391 shares (cost $11,591,160) ............... 13,605,335
Travelers Series Fund Inc., 324,715 shares (cost $7,083,724) ................ 8,096,414
Warburg Pincus Trust, 18,753 shares (cost $231,326) ......................... 265,911
--------------
Total Investments (cost $53,565,738) ........................................ $ 58,739,316
Receivables:
Dividends ................................................................. 37,827
Premium payments and transfers from other Travelers accounts .............. 2,789,999
--------------
Total Assets ............................................................ 61,567,142
--------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts ............. 16,274
Insurance charges ......................................................... 6,483
--------------
Total Liabilities ....................................................... 22,757
NET ASSETS: ................................................................. $ 61,544,385
==============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 58
THE TRAVELERS FUND UL III
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE PERIOD SEPTEMBER 8, 1999 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................... $ 421,230
EXPENSES:
Insurance charges ........................................... 37,853
----------
Net investment income ................................... 383,377
----------
REALIZED GAIN (LOSS) AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ............................ $1,063,861
Cost of investments sold .................................. 1,055,635
----------
Net realized gain (loss) ................................ 8,226
Unrealized gain (loss) on investments:
Unrealized gain at December 31, 1999 ...................... 5,173,578
----------
Net realized gain (loss) and unrealized gain (loss) ..... 5,181,804
----------
Net increase in net assets resulting from operations .......... $5,565,181
==========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 59
THE TRAVELERS FUND UL III
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD SEPTEMBER 8, 1999 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1999
<TABLE>
<CAPTION>
OPERATIONS:
<S> <C>
Net investment income. . . . . . . . . . . . . . . . . . . . . . . $ 383,377
Net realized gain (loss) from investment transactions. . . . . . . 8,226
Unrealized gain (loss) on investments. . . . . . . . . . . . . . . 5,173,578
------------
Net increase in net assets resulting from operations . . . . . . . 5,565,181
------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 53,893,509 units) . . . . . . . . . . . . . . . . . 56,405,022
Participant transfers from other Travelers accounts
(applicable to 744,740 units). . . . . . . . . . . . . . . . . . . 839,753
Contract surrenders
(applicable to 409,730 units). . . . . . . . . . . . . . . . . . . (425,818)
Participant transfers to other Travelers accounts
(applicable to 828,645 units). . . . . . . . . . . . . . . . . . . (839,753)
------------
Net increase in net assets resulting from unit transactions. . . . 55,979,204
------------
Net increase in net assets . . . . . . . . . . . . . . . . . . . . 61,544,385
NET ASSETS:
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . -
------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,544,385
============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS
1.SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund UL III for Variable Life Insurance ("Fund UL III") is a
separate account of The Travelers Insurance Company ("The Travelers"), an
indirect wholly owned subsidiary of Citigroup Inc., and is available for funding
certain variable life insurance contracts issued by The Travelers. Fund UL III
is registered under the Investment Company Act of 1940, as amended, as a unit
investment trust. Fund UL III is comprised of Travelers Corporate Owned Variable
Universal Life Insurance Policies.
Participant premium payments applied to Fund UL III are invested in one or more
eligible funds in accordance with the selection made by the owner. As of
December 31, 1999, the eligible funds available under Fund UL III were: High
Yield Bond Trust; Capital Appreciation Fund; Money Market Portfolio; American
Odyssey Intermediate-Term Bond Fund of American Odyssey Funds, Inc; U.S.
Government Securities Portfolio, Utilities Portfolio, Equity Income Portfolio,
Large Cap Portfolio, MFS Emerging Growth Portfolio, Lazard International Stock
Portfolio, Disciplined Mid Cap Stock Portfolio, MFS Research Portfolio, MFS Mid
Cap Growth Portfolio, Strategic Stock Portfolio, Convertible Bond Portfolio,
Disciplined Small Cap Stock Portfolio, Jurika & Voyles Core Equity Portfolio,
NWQ Large Cap Portfolio and Social Awareness Stock Portfolio of The Travelers
Series Trust; AIM Capital Appreciation Portfolio, Alliance Growth Portfolio, MFS
Total Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney
International Equity Portfolio, Smith Barney Large Capitalization Growth
Portfolio, and Van Kampen Enterprise Portfolio of Travelers Series Fund Inc.;
Equity Index Portfolio and Diversified Strategic Income Portfolio of Greenwich
Street Series Fund (all of which are managed by affiliates of The Travelers);
EAFE Equity Index Fund and Small Cap Index Fund of BT Insurance Funds Trust;
Salomon Brothers Variable Capital Fund, Salomon Brothers Variable Investors
Fund, Salomon Brothers Variable Strategic Bond Fund and Salomon Brothers
Variable Total Return Fund of Salomon Brothers Variable Series Funds Inc.; REIT
Series and Small Cap Value Series of Delaware Group Premium Fund, Inc.; Capital
Appreciation Portfolio and Small Cap Portfolio of Dreyfus Variable Investment
Fund; Montgomery Variable Series: Growth Fund of Montgomery Funds III; Equity
Portfolio of OCC Accumulation Trust; Strong Schafer Value Fund II of Strong
Variable Insurance Funds, Inc.; Asset Manager Portfolio of Fidelity's Variable
Insurance Products Fund II; and Emerging Markets Portfolio of the Warburg Pincus
Trust. All of the funds are Massachusetts business trusts, except for Travelers
Series Fund Inc., American Odyssey Funds, Inc., and Salomon Brothers Variable
Series Funds Inc., which are incorporated under Maryland law; Strong Variable
Insurance Funds, Inc., which is a Wisconsin corporation; and Montgomery Funds
III which is a Delaware business trust. Not all funds may be available in all
states or to all contract owners.
The following is a summary of significant accounting policies consistently
followed by Fund UL III in the preparation of its financial statements.
SECURITY VALUATION. Investments are valued daily at the net asset values per
share of the underlying funds.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES. The operations of Fund UL III form a part of the total
operations of The Travelers and are not taxed separately. The Travelers is taxed
as a life insurance company under the Internal Revenue Code of 1986, as amended
(the "Code"). Under existing federal income tax law, no taxes are payable on the
investment income of Fund UL III. Fund UL III is not taxed as a "regulated
investment company" under Subchapter M of the Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2.INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$54,621,373 and $1,063,861, respectively, for the period ended December 31,
1999. Realized gains and losses from investment transactions are reported on an
average cost basis. The cost of investments in eligible funds was $53,565,738 at
December 31, 1999. Gross unrealized appreciation for all investments at December
31, 1999 was $5,200,808. Gross unrealized depreciation for all investments at
December 31, 1999 was $27,230.
-4-
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3.CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by The
Travelers. Each business day, The Travelers deducts a mortality and expense risk
charge, which is reflected in the calculation of unit values. This charge
equals, on an annual basis, 0.45% for Policy Years 1-4 (contracts in this
category are identified as Price 1 in Note 4); 0.25% for Policy Years 5-20
(contracts in this category are identified as Price 2 in Note 4); and 0.05%
thereafter (contracts in this category are identified as Price 3 in Note 4), of
the amounts held in each variable funding option.
4.NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
American Odyssey Funds, Inc. .................
American Odyssey Intermediate-Term Bond Fund
Price 1 ................................... 2,298,702 $ 1.007 $ 2,313,999
Price 2 ................................... - 1.007 -
Price 3 ................................... - 1.008 -
BT Insurance Funds Trust
EAFE Equity Index Fund
Price 1 .................................. 172,586 1.133 195,573
Price 2 .................................. - 1.134 -
Price 3 .................................. - 1.134 -
Small Cap Index Fund
Price 1 .................................. 1,003,936 1.192 1,196,711
Price 2 .................................. - 1.193 -
Price 3 .................................. - 1.193 -
Capital Appreciation Fund
Price 1 .................................. 7,652,695 1.334 10,211,999
Price 2 .................................. - 1.335 -
Price 3 .................................. - 1.334 -
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio
Price 1 .................................. 176,578 1.040 183,559
Price 2 .................................. - 1.040 -
Price 3 .................................. - 1.041 -
Small Cap Portfolio
Price 1 .................................. 348,184 1.135 395,043
Price 2 .................................. - 1.135 -
Price 3 .................................. - 1.136 -
</TABLE>
-5-
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio
Price 1 ................................... 306,860 $ 1.061 $ 325,651
Price 2 ................................... - 1.062 -
Price 3 ................................... - 1.062 -
Greenwich Street Series Fund
Equity Index Portfolio
Price 1 ................................... 2,769,408 1.094 3,030,931
Price 2 ................................... - 1.095 -
Price 3 ................................... - 1.096 -
High Yield Bond Trust
Price 1 ................................... 1,362,519 1.014 1,381,414
Price 2 ................................... - 1.014 -
Price 3 ................................... - 1.015 -
Money Market Portfolio
Price 1 ................................... 16,799,562 1.016 17,061,075
Price 2 ................................... - 1.016 -
Price 3 ................................... - 1.017 -
Salomon Brothers Variable Series Funds Inc. ...
Salomon Brothers Variable Capital Fund
Price 1 ................................... 43,155 1.106 47,738
Price 2 ................................... - 1.107 -
Price 3 ................................... - 1.107 -
Salomon Brothers Variable Investors Fund
Price 1 ................................... 1,560,318 1.074 1,676,205
Price 2 ................................... - 1.075 -
Price 3 ................................... - 1.074 -
Salomon Brothers Variable Strategic Bond Fund
Price 1 ................................... 5,843 1.020 5,962
Price 2 ................................... - 1.021 -
Price 3 ................................... - 1.022 -
</TABLE>
-6-
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
The Travelers Series Trust
Equity Income Portfolio
Price 1 ................................... 1,441,520 $ 1.060 $ 1,527,512
Price 2 ................................... - 1.060 -
Price 3 ................................... - 1.061 -
Large Cap Portfolio
Price 1 ................................... 2,618,902 1.199 3,140,871
Price 2 ................................... - 1.200 -
Price 3 ................................... - 1.201 -
Lazard International Stock Portfolio
Price 1 ................................... 3,303,214 1.082 3,575,206
Price 2 ................................... - 1.083 -
Price 3 ................................... - 1.084 -
MFS Emerging Growth Portfolio
Price 1 ................................... 3,916,098 1.526 5,974,249
Price 2 ................................... - 1.527 -
Price 3 ................................... - 1.527 -
MFS Mid Cap Growth Portfolio
Price 1 ................................... 82,194 1.310 107,702
Price 2 ................................... - 1.311 -
Price 3 ................................... - 1.311 -
MFS Research Portfolio
Price 1 ................................... 42,994 1.142 49,092
Price 2 ................................... - 1.142 -
Price 3 ................................... - 1.143 -
Convertible Bond Portfolio
Price 1 ................................... 43,662 1.078 47,053
Price 2 ................................... - 1.078 -
Price 3 ................................... - 1.078 -
Disciplined Mid Cap Stock Portfolio
Price 1 ................................... 43,107 1.117 48,134
Price 2 ................................... - 1.117 -
Price 3 ................................... - 1.117 -
U.S. Government Securities Portfolio
Price 1 ................................... 62,467 0.982 61,342
Price 2 ................................... - 0.982 -
Price 3 ................................... - 0.983 -
Utilities Portfolio
Price 1 ................................... 45,475 0.956 43,474
Price 2 ................................... - 0.956 -
Price 3 ................................... - 0.957 -
</TABLE>
-7-
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Travelers Series Fund Inc.
AIM Capital Appreciation Portfolio
Price 1 ........................................ 949,091 $ 1.358 $ 1,288,552
Price 2 ........................................ - 1.358 -
Price 3 ........................................ - 1.359 -
Alliance Growth Portfolio
Price 1 ........................................ 4,193,981 1.265 5,304,043
Price 2 ........................................ - 1.265 -
Price 3 ........................................ - 1.266 -
MFS Total Return Portfolio
Price 1 ........................................ 1,345,156 1.029 1,383,721
Price 2 ........................................ - 1.029 -
Price 3 ........................................ - 1.030 -
Putnam Diversified Income Portfolio
Price 1 ........................................ 62,467 1.009 63,032
Price 2 ........................................ - 1.009 -
Price 3 ........................................ - 1.010 -
Smith Barney International Equity Portfolio
Price 1 ........................................ 156,528 1.310 204,977
Price 2 ........................................ - 1.310 -
Price 3 ........................................ - 1.310 -
Smith Barney Large Capitalization Growth Portfolio
Price 1 ........................................ 301,335 1.107 333,695
Price 2 ........................................ - 1.108 -
Price 3 ........................................ - 1.108 -
Van Kampen Enterprise Portfolio
Price 1 ........................................ 85,037 1.176 100,001
Price 2 ........................................ - 1.176 -
Price 3 ........................................ - 1.177 -
Warburg Pincus Trust
Emerging Markets Portfolio
Price 1 ........................................ 206,300 1.289 265,869
Price 2 ........................................ - 1.289 -
Price 3 ........................................ - 1.290 -
-----------
Net Contract Owners' Equity ................................................... $61,544,385
===========
</TABLE>
-8-
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
--------------------------- ---------------------------
<S> <C> <C>
AMERICAN ODYSSEY FUNDS, INC. (3.8%)
American Odyssey Intermediate-Term Bond Fund
Total (Cost $2,224,193) 215,350 $2,231,030
--------------------------- ---------------------------
BT INSURANCE FUNDS TRUST (2.2%)
EAFE Equity Index Fund (Cost $186,595) 14,383 195,603
Small Cap Index Fund (Cost $1,016,656) 95,918 1,113,617
--------------------------- ---------------------------
Total (Cost $1,203,251) 110,301 1,309,220
--------------------------- ---------------------------
CAPITAL APPRECIATION FUND (16.2%)
Total (Cost $7,867,569) 87,496 9,519,600
--------------------------- ---------------------------
DREYFUS VARIABLE INVESTMENT FUND (1.0%)
Capital Appreciation Portfolio (Cost $178,992) 4,605 183,589
Small Cap Portfolio (Cost $360,245) 5,955 395,085
--------------------------- ---------------------------
Total (Cost $539,237) 10,560 578,674
--------------------------- ---------------------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (0.6%)
Asset Manager Portfolio
Total (Cost $311,671) 17,444 325,686
--------------------------- ---------------------------
GREENWICH STREET SERIES FUND (4.9%)
Equity Index Portfolio
Total (Cost $2,647,546) 79,889 2,864,818
--------------------------- ---------------------------
HIGH YIELD BOND TRUST (2.2%)
Total (Cost $1,285,198) 137,101 1,298,343
--------------------------- ---------------------------
MONEY MARKET PORTFOLIO (28.9%)
Total (Cost $16,969,655) 16,969,655 16,969,655
--------------------------- ---------------------------
SALOMON BROTHERS VARIABLE SERIES FUNDS INC. (2.8%)
Salomon Brothers Variable Capital Fund (Cost $46,009) 3,494 47,757
Salomon Brothers Variable Investors Fund (Cost $1,559,015) 132,535 1,620,906
Salomon Brothers Variable Strategic Bond Fund (Cost $6,184) 618 5,967
--------------------------- ---------------------------
Total (Cost $1,611,208) 136,647 1,674,630
--------------------------- ---------------------------
</TABLE>
-9-
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
NO.OF MARKET
SHARES VALUE
--------------------------- ---------------------------
<S> <C> <C>
THE TRAVELERS SERIES TRUST (23.2%)
Equity Income Portfolio (Cost $1,441,625) 94,134 $1,416,715
Large Cap Portfolio (Cost $2,747,629) 139,604 2,947,030
Lazard International Stock Portfolio (Cost $3,072,045) 212,655 3,325,927
MFS Emerging Growth Portfolio (Cost $4,000,167) 186,411 5,558,764
MFS Mid Cap Growth Portfolio (Cost $89,107) 6,557 107,725
MFS Research Portfolio (Cost $44,558) 3,760 49,111
Convertible Bond Portfolio (Cost $44,539) 4,027 47,071
Disciplined Mid Cap Stock Portfolio (Cost $44,546) 3,085 48,152
U.S. Government Securities Portfolio (Cost $62,434) 5,424 61,349
Utilities Portfolio (Cost $44,510) 2,734 43,491
--------------------------- ---------------------------
Total (Cost $11,591,160) 658,391 13,605,335
--------------------------- ---------------------------
TRAVELERS SERIES FUND INC. (13.8%)
AIM Capital Appreciation Portfolio (Cost $930,324) 55,555 1,149,988
Alliance Growth Portfolio (Cost $4,233,573) 150,365 4,943,988
MFS Total Return Portfolio (Cost $1,283,027) 80,139 1,300,649
Putnam Diversified Income Portfolio (Cost $62,433) 5,506 63,039
Smith Barney International Equity Portfolio (Cost $172,697) 8,925 204,998
Smith Barney Large Capitalization Growth Portfolio (Cost $312,536) 20,871 333,730
Van Kampen Enterprise Portfolio (Cost $89,134) 3,354 100,022
--------------------------- ---------------------------
Total (Cost $7,083,724) 324,715 8,096,414
--------------------------- ---------------------------
WARBURG PINCUS TRUST (0.4%)
Emerging Markets Portfolio
Total (Cost $231,326) 18,753 265,911
--------------------------- ---------------------------
TOTAL INVESTMENT OPTIONS (100%)
(COST $53,565,738) $58,739,316
===========================
</TABLE>
-10-
<PAGE> 67
This page intentionally left blank
-11-
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL III OPERATIONS AND CHANGES IN NET ASSETS FOR THE PERIOD
SEPTEMBER 8,1999 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DREYFUS
AMERICAN ODYSSEY CAPITAL CAPITAL
INTERMEDIATE-TERM EAFE EQUITY SMALL CAP APPRECIATION APPRECIATION
BOND FUND INDEX FUND INDEX FUND FUND PORTFOLIO
----------------- ----------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .......................................... $ - $ 8,490 $ 41,366 $ - $ 1,347
------------ ---------- ------------ ------------ ------------
EXPENSES:
Insurance charges .................................. 1,589 93 727 6,182 111
------------ ---------- ------------ ------------ ------------
Net investment income (loss) .................. (1,589) 8,397 40,639 (6,182) 1,236
------------ ---------- ------------ ------------ ------------
REALIZED GAIN (LOSS) AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................... 5,564 743 2,601 24,089 1,137
Cost of investments sold ......................... 5,545 719 2,469 21,019 1,133
------------ ---------- ------------ ------------ ------------
Net realized gain (loss) ...................... 19 24 132 3,070 4
------------ ---------- ------------ ------------ ------------
Unrealized gain (loss) on investments:
End of period ..................................... 6,837 9,008 96,961 1,652,031 4,597
------------ ---------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ..................... 5,267 17,429 137,732 1,648,919 5,837
------------ ---------- ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments ....................... 2,316,200 179,571 1,066,449 8,458,556 180,492
Participant transfers from other Travelers accounts 8,482 - - 169,647 -
Contract surrenders ................................ (15,950) (1,427) (7,470) (65,123) (2,770)
Participant transfers to other Travelers accounts .. - - - - -
------------ ---------- ------------ ------------ ------------
Net increase in net assets
resulting from unit transactions ............ 2,308,732 178,144 1,058,979 8,563,080 177,722
------------ ---------- ------------ ------------ ------------
Net increase in net assets .................. 2,313,999 195,573 1,196,711 10,211,999 183,559
NET ASSETS:
Beginning of period ........................... - - - - -
------------ ---------- ------------ ------------ ------------
End of period ................................. $ 2,313,999 $ 195,573 $ 1,196,711 $ 10,211,999 $ 183,559
============ ========== ============ ============ ============
</TABLE>
-12-
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SALOMON
SALOMON SALOMON BROTHERS
BROTHERS BROTHERS VARIABLE
DREYFUS SMALL ASSET MANAGER EQUITY INDEX HIGH YIELD MONEY MARKET VARIABLE VARIABLE STRATEGIC BOND
CAP PORTFOLIO PORTFOLIO PORTFOLIO BOND TRUST PORTFOLIO CAPITAL FUND INVESTORS FUND FUND
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ 131,476 $ 1,455 $ 8,228 $ 298
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
152 159 1,832 919 10,821 23 1,147 6
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(152) (159) (1,832) (919) 120,655 1,432 7,081 292
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,171 1,315 7,469 3,259 958,747 177 3,975 75
1,143 1,292 7,090 3,236 958,747 170 3,832 75
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
28 23 379 23 - 7 143 -
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
34,840 14,015 217,271 13,145 - 1,748 61,891 (217)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
34,716 13,879 215,818 12,249 120,655 3,187 69,115 75
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
210,214 314,252 2,675,972 1,378,638 17,920,543 44,911 1,618,377 6,116
152,682 - 161,165 - - - - -
(2,569) (2,480) (22,024) (9,473) (140,370) (360) (11,287) (229)
- - - - (839,753) - - -
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
360,327 311,772 2,815,113 1,369,165 16,940,420 44,551 1,607,090 5,887
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
395,043 325,651 3,030,931 1,381,414 17,061,075 47,738 1,676,205 5,962
- - - - - - - -
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 395,043 $ 325,651 $ 3,030,931 $ 1,381,414 $17,061,075 $ 47,738 $ 1,676,205 $ 5,962
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
-13-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL III OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD SEPTEMBER 8,1999 (DATE OPERATIONS COMMENCED) TO
DECEMBER 31, 1999 (CONTINUED)
<TABLE>
<CAPTION>
MFS MFS
LAZARD EMERGING MID CAP
EQUITY INCOME LARGE CAP INTERNATIONAL GROWTH GROWTH
PORTFOLIO PORTFOLIO STOCK PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .......................................... $ 86,489 $ 132,932 $ - $ - $ -
----------- ----------- ----------- ----------- -----------
EXPENSES:
Insurance charges .................................. 954 1,987 2,310 3,268 50
----------- ----------- ----------- ----------- -----------
Net investment income (loss) .................. 85,535 130,945 (2,310) (3,268) (50)
----------- ----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................. 3,455 7,174 8,137 12,877 387
Cost of investments sold ....................... 3,425 6,667 7,898 11,032 354
----------- ----------- ----------- ----------- -----------
Net realized gain (loss) .................... 30 507 239 1,845 33
----------- ----------- ----------- ----------- -----------
Unrealized gain (loss) on investments:
End of period .................................... (24,910) 199,401 253,882 1,558,597 18,618
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations .................... 60,655 330,853 251,811 1,557,174 18,601
----------- ----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant premium payments ....................... 1,451,441 2,830,134 3,346,754 4,450,651 89,835
Participant transfers from other Travelers accounts 25,448 - - - -
Contract surrenders ................................ (10,032) (20,116) (23,359) (33,576) (734)
Participant transfers to other Travelers accounts .. - - - - -
----------- ----------- ----------- ----------- -----------
Net increase in net assets
resulting from unit transactions ............... 1,466,857 2,810,018 3,323,395 4,417,075 89,101
----------- ----------- ----------- ----------- -----------
Net increase in net assets ..................... 1,527,512 3,140,871 3,575,206 5,974,249 107,702
NET ASSETS:
Beginning of period ............................. - - - - -
----------- ----------- ----------- ----------- -----------
End of period ................................... $ 1,527,512 $ 3,140,871 $ 3,575,206 $ 5,974,249 $ 107,702
=========== =========== =========== =========== ===========
</TABLE>
-14-
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
DISCIPLINED U.S.
MFS CONVERTIBLE MID CAP GOVERNMENT AIM CAPITAL ALLIANCE MFS TOTAL
RESEARCH BOND STOCK SECURITIES UTILITIES APPRECIATION GROWTH RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------- ---------- --------- ---------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ - $ - $ -
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
23 23 23 40 22 751 3,288 909
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
(23) (23) (23) (40) (22) (751) (3,288) (909)
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
175 172 177 176 164 2,593 11,858 3,100
169 169 170 178 170 2,288 10,675 3,060
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
6 3 7 (2) (6) 305 1,183 40
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
4,553 2,532 3,607 (1,085) (1,019) 219,664 710,415 17,622
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
4,536 2,512 3,591 (1,127) (1,047) 219,218 708,310 16,753
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
44,914 44,895 44,902 62,773 44,866 1,077,003 4,458,264 1,333,763
- - - - - - 169,647 42,412
(358) (354) (359) (304) (345) (7,669) (32,178) (9,207)
- - - - - - - -
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
44,556 44,541 44,543 62,469 44,521 1,069,334 4,595,733 1,366,968
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
49,092 47,053 48,134 61,342 43,474 1,288,552 5,304,043 1,383,721
- - - - - - - -
- ------------ ---------- --------- ---------- ----------- ------------ ------------- --------------
$ 49,092 $ 47,053 $ 48,134 $ 61,342 $ 43,474 $ 1,288,552 $ 5,304,043 $ 1,383,721
============ ========== ========= ========== =========== ============ ============= ==============
</TABLE>
-15-
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL III OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD SEPTEMBER 8,1999 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1999 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY
PUTNAM SMITH BARNEY LARGE
DIVERSIFIED INTERNATIONAL CAPITALIZATION VAN KAMPEN
INCOME EQUITY GROWTH ENTERPRISE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ - $ - $ 681 $ -
--------- --------- --------- ---------
EXPENSES:
Insurance charges ................................. 40 67 164 48
--------- --------- --------- ---------
Net investment income (loss) .................. (40) (67) 517 (48)
--------- --------- --------- ---------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................. 178 204 1,359 372
Cost of investments sold ........................ 178 185 1,293 354
--------- --------- --------- ---------
Net realized gain (loss) ..................... - 19 66 18
--------- --------- --------- ---------
Unrealized gain (loss) on investments:
End of period ................................... 606 32,301 21,194 10,888
--------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 566 32,253 21,777 10,858
--------- --------- --------- ---------
UNIT TRANSACTIONS:
Participant premuim payments ...................... 62,772 62,772 314,438 89,862
Participant transfers from other Travelers accounts - 110,270 - -
Contract surrenders ............................... (306) (318) (2,520) (719)
Participant transfers to other Travelers accounts . - - - -
--------- --------- --------- ---------
Net increase in net assets
resulting from unit transactions .............. 62,466 172,724 311,918 89,143
--------- --------- --------- ---------
Net increase in net assets .................... 63,032 204,977 333,695 100,001
NET ASSETS:
Beginning of period ............................. - - - -
--------- --------- --------- ---------
End of period ................................... $ 63,032 $ 204,977 $ 333,695 $ 100,001
========= ========= ========= =========
</TABLE>
-16-
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
EMERGING
MARKETS
PORTFOLIO COMBINED
- ------------- ----------------
<S> <C>
$ 8,468 $ 421,230
- ------------ ------------
125 37,853
- ------------ ------------
8,343 383,377
- ------------ ------------
981 1,063,861
900 1,055,635
- ------------ ------------
81 8,226
- ------------ ------------
34,585 5,173,578
- ------------ ------------
43,009 5,565,181
- ------------ ------------
224,692 56,405,022
- 839,753
(1,832) (425,818)
- (839,753)
- ------------ ------------
222,860 55,979,204
- ------------ ------------
265,869 61,544,385
- -
- ------------ ------------
$ 265,869 $ 61,544,385
============ ============
</TABLE>
-17-
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL III
FOR THE PERIOD SEPTEMBER 8,1999 (DATE OPERATIONS COMMENCED) TO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
AMERICAN
ODYSSEY
INTERMEDIATE- CAPITAL DREYFUS CAPITAL
TERM EAFE EQUITY SMALL CAP INDEX APPRECIATION APPRECIATION
BOND FUND INDEX FUND FUND FUND PORTFOLIO
--------------- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Units beginning of period .......... - - - - -
Units purchased and transferred from
other Travelers accounts ......... 2,314,606 173,986 1,011,120 7,711,777 179,350
Units redeemed and transferred to
other Travelers accounts ......... (15,904) (1,400) (7,184) (59,082) (2,772)
---------- ---------- ---------- ---------- ----------
Units end of period ................ 2,298,702 172,586 1,003,936 7,652,695 176,578
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DREYFUS SMALL CAP ASSET MANAGER EQUITY INDEX HIGH YIELD MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO BOND TRUST PORTFOLIO
--------------- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Units beginning of period .......... - - - - -
Units purchased and transferred from
other Travelers accounts ......... 350,747 309,313 2,791,294 1,371,980 17,767,544
Units redeemed and transferred to
other Travelers accounts ......... (2,563) (2,453) (21,886) (9,461) (967,982)
----------- ----------- ----------- ----------- -----------
Units end of period ................ 348,184 306,860 2,769,408 1,362,519 16,799,562
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SALOMON BROTHERS SALOMON BROTHERS SALOMON BROTHERS
VARIABLE CAPITAL VARIABLE INVESTORS VARIABLE STRATEGIC EQUITY INCOME LARGE CAP
FUND FUND BOND FUND PORTFOLIO PORTFOLIO
--------------- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Units beginning of period .......... - - - - -
Units purchased and transferred from
other Travelers accounts ......... 43,504 1,571,346 6,071 1,451,445 2,637,905
Units redeemed and transferred to
other Travelers accounts ......... (349) (11,028) (228) (9,925) (19,003)
---------- ---------- ---------- ---------- ----------
Units end of period ................ 43,155 1,560,318 5,843 1,441,520 2,618,902
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
LAZARD
INTERNATIONAL
STOCK MFS EMERGING MFS MID CAP MFS RESEARCH CONVERTIBLE BOND
PORTFOLIO GROWTH PORTFOLIO GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Units beginning of period .......... - - - - -
Units purchased and transferred from
other Travelers accounts ......... 3,326,495 3,946,576 82,887 43,344 44,013
Units redeemed and transferred to
other Travelers accounts ......... (23,281) (30,478) (693) (350) (351)
---------- ---------- ---------- ---------- ----------
Units end of period ................ 3,303,214 3,916,098 82,194 42,994 43,662
========== ========== ========== ========== ==========
</TABLE>
-18-
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL III
FOR THE PERIOD SEPTEMBER 8,1999 (DATE OPERATIONS COMMENCED) TO
DECEMBER 31, 1999 (CONTINUED)
<TABLE>
<CAPTION>
DISCIPLINED MID U.S. GOVERNMENT AIM CAPITAL ALLIANCE
CAP STOCK SECURITIES UTILITIES APPRECIATION GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ --------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Units beginning of period .......... - - - - -
Units purchased and transferred from
other Travelers accounts ......... 43,456 62,772 45,828 956,055 4,223,472
Units redeemed and transferred to
other Travelers accounts ......... (349) (305) (353) (6,964) (29,491)
---------- ---------- ---------- ---------- ----------
Units end of period ................ 43,107 62,467 45,475 949,091 4,193,981
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PUTNAM SMITH BARNEY SMITH BARNEY
MFS TOTAL DIVERSIFIED INTERNATIONAL LARGE VAN KAMPEN
RETURN INCOME EQUITY CAPITALIZATION ENTERPRISE
PORTFOLIO PORTFOLIO PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
------------------ --------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Units beginning of period .......... - - - - -
Units purchased and transferred from
other Travelers accounts ......... 1,354,209 62,772 156,833 303,778 85,735
Units redeemed and transferred to
other Travelers accounts ......... (9,053) (305) (305) (2,443) (698)
---------- ---------- ---------- ---------- ----------
Units end of period ................ 1,345,156 62,467 156,528 301,335 85,037
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
EMERGING
MARKETS
PORTFOLIO COMBINED
------------------ ---------------
<S> <C> <C>
Units beginning of period .......... - -
Units purchased and transferred from
other Travelers accounts ......... 208,036 54,638,249
Units redeemed and transferred to
other Travelers accounts ......... (1,736) (1,238,375)
=========== ===========
Units end of period ................ 206,300 53,399,874
=========== ===========
</TABLE>
-19-
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
To the Owners of Variable Life Insurance of The Travelers Fund UL III for
Variable Life Insurance:
We have audited the accompanying statement of assets and liabilities of The
Travelers Fund UL III for Variable Life Insurance as of December 31, 1999, and
the related statements of operations and changes in net assets for the period
September 8, 1999 (date operations commenced) to December 31, 1999. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1999, by correspondence with the
underlying funds. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund UL III for
Variable Life Insurance as of December 31, 1999, the results of its operations
and the changes in its net assets for the period September 8, 1999 (date
operations commenced) to December 31, 1999, in conformity with generally
accepted accounting principles.
/s/KPMG LLP
Hartford, Connecticut
February 18, 2000
-20-
<PAGE> 77
Independent Auditors
KPMG LLP
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Fund UL III for Variable Life Insurance
or Fund UL III's underlying funds. It should not be used in connection with any
offer except in conjunction with the Prospectus for The Travelers Fund UL III
product(s) for Variable Life Insurance offered by The Travelers Insurance
Company and the Prospectuses for the underlying funds, which collectively
contain all pertinent information, including the applicable sales commissions.
Fund UL III (Annual) (12-99) Printed in U.S.A.
<PAGE> 78
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 18, 2000
F-1
<PAGE> 79
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $1,738 $1,740 $1,583
Net investment income 2,506 2,185 2,037
Realized investment gains 113 149 199
Other revenues 521 440 354
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Revenues 4,878 4,514 4,173
- -------------------------------------------------------------------------------------------------- ------------- -------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,515 1,475 1,341
Interest credited to contractholders 937 876 829
Amortization of deferred acquisition costs 315 275 252
General and administrative expenses 519 505 468
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Benefits and Expenses 3,286 3,131 2,890
- -------------------------------------------------------------------------------------------------- ------------- -------------
Income from continuing operations before federal income taxes 1,592 1,383 1,283
- -------------------------------------------------------------------------------------------------- ------------- -------------
Federal income tax expense
Current 409 442 434
Deferred 136 39 10
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Federal Income Taxes 545 481 444
- -------------------------------------------------------------------------------------------------- ------------- -------------
Net income $1,047 $902 $839
================================================================================================== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 80
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in millions)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $24,500, $22,973) $23,866 $23,893
Equity securities, at fair value (cost, $691, $474) 784 518
Mortgage loans 2,285 2,606
Real estate held for sale 236 143
Policy loans 1,258 1,857
Short-term securities 1,283 1,098
Trading securities, at market value 1,678 1,186
Other invested assets 2,098 2,251
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments 33,488 33,552
- ----------------------------------------------------------------------------------------------------------------------------
Cash 85 65
Investment income accrued 395 393
Premium balances receivable 178 99
Reinsurance recoverables 3,234 3,387
Deferred acquisition costs 2,688 2,317
Separate and variable accounts 22,199 15,313
Other assets 1,264 1,422
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $63,531 $56,548
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $17,567 $16,739
Future policy benefits and claims 12,563 12,326
Separate and variable accounts 22,194 15,305
Deferred federal income taxes 23 422
Trading securities sold not yet purchased, at market value 1,098 873
Other liabilities 2,466 2,783
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 55,911 48,448
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,819 3,800
Retained earnings 4,099 3,602
Accumulated other changes in equity from non-owner sources (398) 598
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 7,620 8,100
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $63,531 $56,548
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 81
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $3,602 $2,810 $2,471
Net income 1,047 902 839
Dividends to parent 550 110 500
- -----------------------------------------------------------------------------------------------------------
Balance, end of year $4,099 $3,602 $2,810
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------
Balance, beginning of year $598 $535 $223
Unrealized gains (losses), net of tax (996) 62 313
Foreign currency translation, net of tax 0 1 (1)
- -----------------------------------------------------------------------------------------------------------
Balance, end of year $(398) $598 $535
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------
Net Income $1,047 $902 $839
Other changes in equity from non-owner sources (996) 63 312
- -----------------------------------------------------------------------------------------------------------
Total changes in equity from non-owner sources $51 $965 $1,151
===========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 82
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $1,715 $1,763 $1,519
Net investment income received 2,365 2,021 2,059
Other revenues received 537 419 373
Benefits and claims paid (1,094) (1,127) (1,230)
Interest credited to contractholders (958) (918) (853)
Operating expenses paid (1,013) 751) (638)
Income taxes paid (393) (506) (368)
Trading account investments purchases, net (80) (38) (54)
Other (104) 12 18
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 975 875 826
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 4,103 2,608 2,259
Mortgage loans 662 722 663
Proceeds from sales of investments
Fixed maturities 12,562 13,390 7,592
Equity securities 100 212 341
Mortgage loans - - 207
Real estate held for sale 219 53 169
Purchases of investments
Fixed maturities (18,129) (18,072) (11,143)
Equity securities (309) (194) (483)
Mortgage loans (470) 457) (771)
Policy loans, net 599 15 38
Short-term securities (purchases) sales, net 316 495) (2)
Other investments purchases, net (413) (550) (260)
Securities transactions in course of settlement, net (463) 192 311
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,223) (2,576) (1,079)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net - - (50)
Contractholder fund deposits 5,764 4,383 3,544
Contractholder fund withdrawals (4,946) (2,565) (2,757)
Dividends to parent company (550) (110) (500)
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 268 1,708 237
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 20 7 (16)
- ---------------------------------------------------------------------------------------------------------------------
Cash at December 31, $85 $65 $58
====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 83
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), together 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). The consolidated financial statements include the accounts of
the Company and its insurance and non-insurance subsidiaries on a fully
consolidated basis. The primary insurance entities of the Company are TIC
and its subsidiaries, The Travelers Life and Annuity Company (TLAC),
Primerica Life Insurance Company (Primerica Life), and its subsidiaries,
Primerica Life Insurance Company of Canada and National Benefit Life
Insurance Company (NBL).
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 to the 1999
presentation.
ACCOUNTING CHANGES
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). This
statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. FAS 125 provides standards
for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. Effective January 1, 1998, the
Company adopted the collateral provisions of FAS 125 that 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.
F-6
<PAGE> 84
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use During the third quarter of 1998, the Company adopted
(effective January 1, 1998) the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants' Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and for determining when specific costs should be capitalized
or expensed. The adoption of SOP 98-1 did not have a material impact on the
Company's financial condition, results of operations or liquidity.
Accounting by Insurance and Other Enterprises for Insurance - Related
Assessments
In January 1999, the Company adopted (effective January 1, 1999) Statement
of Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and
when an asset may be recognized for the recovery of such assessments
through premium tax offsets or policy surcharges. The adoption of this SOP
had no impact on the Company's financial condition, results of operations
or liquidity.
ACCOUNTING POLICIES
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity
of the investment. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
The effective yield used to determine amortization is calculated based upon
actual historical and projected future cash flows, which are obtained from
a widely-accepted securities data provider. Fixed maturities are classified
as "available for sale" and are reported at fair value, with unrealized
investment gains and losses, net of income taxes, charged or credited
directly to shareholder's equity.
Equity securities, which include common and 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, 1999 and 1998.
F-7
<PAGE> 85
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, 1999 and 1998.
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.
Other invested assets include partnership investments and real estate joint
ventures accounted for on the equity method of accounting. Undistributed
income is reported in net investment income.
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, interest rate swaps,
currency swaps, and equity swaps, 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 hedging investments are carried
at fair value with unrealized gains and losses, net of taxes, charged or
credited directly to shareholder's equity. Interest rate and currency swaps
hedging liabilities are off-balance sheet.
Forward contracts, interest rate options and equity swaps were not
significant at December 31, 1999 and 1998. Information concerning
derivative financial instruments is included in Note 5.
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-8
<PAGE> 86
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
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 seven to 20-year period is
employed for annuities. Deferred acquisition costs are reviewed
periodically for recoverability to determine if any adjustment is required.
Adjustments, if any, are charged to income.
VALUE OF INSURANCE IN FORCE
The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from 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. Adjustments, if
any, are charged to income.
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. If it is determined that goodwill is unlikely to be recovered,
impairment is recognized on a discounted cash flow basis.
F-9
<PAGE> 87
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 10.0%.
FUTURE POLICY BENEFITS
Future policy benefits 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.
OTHER LIABILITIES
Included in Other Liabilities is the Company's estimate of its liability
for guaranty fund and other insurance-related assessments. State guaranty
fund assessments are based upon the Company's share of premium written or
received in one or more years prior to an insolvency occurring in the
industry. Once an insolvency has occurred, the Company recognizes a
liability for such assessments if it is probable that an assessment will be
imposed and the amount of the assessment can be reasonably estimated. At
December 31, 1999, the Company had a liability of $21.9 million for
guaranty fund assessments and a related premium tax offset recoverable of
$4.7 million. The assessments are expected to be paid over a period of
three to five years and the premium tax offsets are expected to be realized
over a period of 10 to 15 years.
SECURITIES LOANED
Securities loaned are recorded at the amount of cash received as
collateral. The Company receives cash collateral in an amount in excess of
the market value of securities loaned. The Company monitors the market
value of securities loaned on a daily basis with additional collateral
obtained as necessary.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries, domiciled principally in Connecticut
and Massachusetts, prepare 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 for years beginning January 1, 2001. It is expected
that the State of Connecticut will require that, effective January 1, 2001,
insurance companies domiciled in Connecticut prepare their statutory basis
financial statements in accordance with the revised Manual subject to any
deviations prescribed or permitted
F-10
<PAGE> 88
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 management fees for variable annuity separate
accounts; surrender, mortality and administrative charges and fees earned
on investment, universal life and other insurance contracts; and revenues
of non-insurance subsidiaries.
CURRENT AND FUTURE INSURANCE BENEFITS
Current and future insurance benefits represent charges for mortality and
morbidity related to fixed annuities, universal life, term life and health
insurance benefits.
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.
A deferred federal income tax asset is recognized to the extent that future
realization of the tax benefit is more likely than not, with a valuation
allowance for the portion that is not likely to be recognized.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). In June 1999, the
FASB issued Statement of Financial Standards No. 137 "Deferral of the
Effective Date of FASB Statement No. 133" (FAS 137) which allows entities
which have not adopted FAS 133 to defer its effective date to all fiscal
quarters of all fiscal years beginning after June 15, 2000. FAS 133
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 consolidated 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
recognized asset or liability or of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
F-11
<PAGE> 89
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting
designation. Upon initial application of FAS 133, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. The Company adopted the deferral provisions of FAS 137,
effective January 1, 2000 and has not yet determined the impact that FAS
133 will have on its consolidated financial statements.
2. COMMERCIAL PAPER AND LINES OF CREDIT
TIC has issued commercial paper directly to investors in prior years. No
commercial paper was outstanding at December 31, 1999 or December 31, 1998.
TIC must maintain bank lines of credit at least equal to the amount of the
outstanding commercial paper. Citigroup and TIC have an agreement with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to Citigroup or the Company. TIC's participation in this
agreement is limited to $250 million. The agreement consists of a five-year
revolving credit facility that expires in June 2001. At December 31, 1999
and 1998, no credit under this agreement was allocated to TIC. Under this
facility the Company is required to maintain certain minimum equity and
risk-based capital levels. At December 31, 1999, the Company was in
compliance with these provisions. If TIC had borrowings outstanding on this
facility, the interest rate would be based upon LIBOR plus a contractually
negotiated margin.
3. 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.
Since 1997 universal life business was reinsured under an 80%/20% quota
share reinsurance program and term life business was reinsured under a
90%/10% quota share reinsurance program. Prior to 1997, the Company
reinsured all of its life business via first dollar quota share treaties on
an 80%/20% basis. 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. Total inforce business ceded under
reinsurance contracts is $222.5 billion and $201.3 billion at December 31,
1999 and 1998.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-12
<PAGE> 90
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
<TABLE>
<CAPTION>
WRITTEN PREMIUMS 1999 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,274 $2,310 $2,148
Assumed from:
Non-affiliated companies - - 1
Ceded to:
Affiliated companies (206) (242) (280)
Non-affiliated companies (322) (317) (273)
------------------------------------------------------------------------------------------------------
Total Net Written Premiums $1,746 $1,751 $1,596
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
EARNED PREMIUMS 1999 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,248 $1,949 $2,170
Assumed from:
Non-affiliated companies - - 1
Ceded to:
Affiliated companies (193) (251) (321)
Non-affiliated companies (327) (308) (291)
------------------------------------------------------------------------------------------------------
Total Net Earned Premiums $1,728 $1,390 $1,559
======================================================================================================
</TABLE>
Reinsurance recoverables at December 31, 1999 and 1998 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
REINSURANCE RECOVERABLES 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Life and Accident and Health Business:
Non-affiliated companies $1,221 $1,297
Property-Casualty Business:
Affiliated companies 2,013 2,090
------------------------------------------------------------------------------------------------------
Total Reinsurance Recoverables $3,234 $3,387
======================================================================================================
</TABLE>
Total reinsurance recoverables at December 31, 1999 and 1998 include $569
million and $640 million, respectively, from The Metropolitan Life
Insurance Company in connection with the sale of the Company's group life
insurance and related businesses in 1995.
F-13
<PAGE> 91
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. SHAREHOLDER'S EQUITY
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes the statutory net income
of all insurance subsidiaries, was $890 million, $702 million and $754
million for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company's statutory capital and surplus was $5.03 billion and $4.95
billion at December 31, 1999 and 1998, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $679 million is available in 2000 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
was in compliance with these covenants at December 31, 1999 and 1998. The
Company paid dividends of $550 million, $110 million and $500 million in
1999, 1998 and 1997, respectively.
F-14
<PAGE> 92
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. SHAREHOLDER'S EQUITY (continued)
Accumulated Other Changes in Equity from Non-Owner Sources, Net of Tax
Changes in each component of Accumulated Other Changes in Equity from Non-Owner
Sources were as follows:
<TABLE>
<CAPTION>
ACCUMULATED OTHER
NET UNREALIZED FOREIGN CHANGES IN EQUITY FROM
GAIN (LOSS) ON CURRENCY NON-OWNER SOURCES
INVESTMENT SECURITIES TRANSLATION
($ in millions) ADJUSTMENTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $232 $(9) $223
Unrealized gain on investment securities,
net of tax of $239 442 - 442
Less: reclassification adjustment for gains
included in net income, net of tax of $70 129 - 129
Foreign currency translation adjustment,
net of tax of $0 - (1) (1)
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 313 (1) 312
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 545 (10) 535
Unrealized gains on investment securities,
net of tax of $85 159 - 159
Less: reclassification adjustment for gains
included in net income, net of tax of $52 97 - 97
Foreign currency translation adjustment,
net of tax of $2 - 1 1
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 62 1 63
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 607 (9) 598
Unrealized losses on investment securities,
net of tax of $497 (923) - (923)
Less: reclassification adjustment for gains
included in net income, net of tax of $40 73 - 73
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE (996) - (996)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $(389) $(9) $(398)
===============================================================================================================================
</TABLE>
F-15
<PAGE> 93
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, interest rate swaps, currency swaps, options and forward contracts
as a means of hedging exposure to interest rate, equity price, and foreign
currency risk on anticipated transactions or existing assets and
liabilities. The Company, through a subsidiary that is a broker/dealer,
Tribeca Investments LLC (Tribeca) holds and issues derivative instruments
for trading purposes. All of 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, currency 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 and purchased
listed option contracts have little credit risk since organized exchanges
are the counterparties. The Company as a writer of option contracts has no
credit risk since the counterparty has no performance obligation after it
has paid a cash premium.
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange-traded financial futures contracts to manage its
exposure to changes in interest rates 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, 1999 and 1998, the Company held financial futures contracts
with notional amounts of $255 million and $459 million, respectively. These
financial futures had a deferred gain of $1.8 million and a deferred loss
of $.5 million in 1999, and a deferred gain of $3.3 million and a deferred
loss of $.1 million in 1998. Total gains of $6.9 million and $1.5 million
from financial futures were deferred at December 31, 1999 and 1998,
respectively, relating to anticipated investment purchases and investment
product sales, and are reported as other liabilities. At December 31, 1999
and 1998, the Company's futures contracts had no fair value because these
contracts were marked to market and settled in cash daily.
F-16
<PAGE> 94
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 assets and liabilities. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated by
reference to an agreed notional principal amount. 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 so they are subject to the risk of
default by the counterparty.
At December 31, 1999 and 1998, the Company held interest rate swap
contracts with notional amounts of $1,498.2 million and $1,077.9 million,
respectively. The fair value of these financial instruments was $25.3
million (gain position) and $26.3 million (loss position) at December 31,
1999 and was $5.6 million (gain position) and $19.6 million (loss position)
at December 31, 1998. The fair values were determined using the discounted
cash flow method. At December 31, 1999, the Company held swap contracts
with affiliate counterparties with a notional amount of $207.5 million and
a fair value of $22.6 million (loss position).
The Company enters into currency swaps in connection with other financial
instruments to provide greater risk diversification and better match assets
purchased in U.S. Dollars with corresponding funding agreements issued in
foreign currencies. Under currency swaps, the Company agrees with other
parties to exchange, at specified intervals, foreign currency for U.S.
Dollars based upon interest amounts calculated by reference to an agreed
notional principal amount. Generally, there is an exchange of foreign
currency for U.S. Dollars at the outset of the contract based upon the
prevailing foreign exchange rate. Swap agreements are not exchange traded
so they are subject to the risk of default by the counterparty.
At December 31, 1999 and 1998, the Company held currency swap contracts
with notional amounts of $732.7 million and $10.0 million, respectively.
The fair value of these financial instruments was $59.2 million (loss
position) at December 31, 1999 and $.4 million (gain position) at December
31, 1998. The fair values were determined using the discounted cash flow
method.
The Company uses equity option contracts to manage its exposure to changes
in equity market prices that arise from the sale of certain insurance
products. To hedge against adverse changes in the equity market prices, the
Company enters long positions in equity option contracts with major
financial institutions. These contracts allow the Company, for a fee, the
right to receive a payment if the Standard and Poor's 500 Index falls below
agreed upon strike prices.
At December 31, 1999 and 1998, the Company held equity options with
notional amounts of $275.4 million and zero, respectively. The fair value
of these financial instruments was $32.6 million (gain position) at
December 31, 1999. The fair value of these contracts represent the
estimated replacement cost as quoted by independent third party brokers.
The off-balance sheet risks of interest rate options, equity swaps and
forward contracts were not significant at December 31, 1999 and 1998.
The off-balance sheet risk of derivative instruments held for trading
purposes was not significant at December 31, 1999 and 1998.
F-17
<PAGE> 95
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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, 1999 and 1998. The Company had unfunded commitments to
partnerships with a value of $459.7 million at December 31, 1999.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Certain insurance contracts are excluded by Statement of
Financial Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments", and therefore are not included in the amounts
discussed.
At December 31, 1999 and 1998, investments in fixed maturities had a
carrying value and a fair value of $23.9 billion and $23.9 billion,
respectively. See Notes 1 and 12.
At December 31, 1999 mortgage loans had a carrying value of $2.3 billion
and a fair value of $2.3 billion and in 1998 had a carrying value of $2.6
billion and a fair value of $2.8 billion. In estimating fair value, the
Company used interest rates reflecting the current real estate financing
market.
Citigroup Preferred Stock included in other invested assets had a carrying
value and fair value of $987 million at December 31, 1999 and 1998.
At December 31, 1999, contractholder funds with defined maturities had a
carrying value of $5.0 billion and a fair value of $4.7 billion, compared
with a carrying value and a fair value of $3.3 billion at December 31,
1998. The fair value of these contracts is determined by discounting
expected cash flows at an interest rate commensurate with the Company's
credit risk and the expected timing of cash flows. Contractholder funds
without defined maturities had a carrying value of $10.1 billion and a fair
value of $9.9 billion at December 31, 1999, compared with a carrying value
of $10.4 billion and a fair value of $10.2 billion at December 31, 1998.
These contracts generally are valued at surrender value.
The carrying values of $228 million and $144 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1999 and 1998, respectively. The carrying values of $1.2
billion and $2.3 billion of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1999 and
1998, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $251 million at December 31, 1999,
compared with a carrying value and a fair value of $235 million at December
31, 1998. The liabilities of separate accounts providing a guaranteed
return had a carrying value and a fair value of $251 million at December
31, 1999, compared with a carrying value and a fair value of $209 million
and $206 million, respectively, at December 31, 1998.
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.
F-18
<PAGE> 96
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 5 for a discussion of financial instruments with off-balance sheet
risk.
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, on defendants' motion, the
Superior Court of Richmond County transferred the lawsuit to the Superior
Court of Gwinnett County, Georgia. Plaintiffs appealed the transfer order,
and in December 1998 the Court of Appeals of the State of Georgia reversed
the lower court's decision. Defendants petitioned the Georgia Supreme Court
to hear an appeal from the decision of the Court of Appeals, and the
petition was granted in May 1998. In September 1999, oral argument on
defendants' petition was heard and, on February 28, 2000, the Georgia
Supreme Court affirmed the Georgia Court of Appeals and remanded the matter
to the Superior Court of Richmond County. In March 2000, defendants moved
the Georgia Supreme Court to reconsider its February 28, 2000 decision, and
that motion remains pending. Proceedings in the trial court have been
stayed pending appeal. 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, 1999, 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.
7. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Citigroup. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by TIGI. The Company's share of net expense for the qualified
pension and other postretirement benefit plans was not significant for
1999, 1998 and 1997. 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 1999, 1998 and 1997.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. Effective January 1, 1997,
the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings
plan were not significant in 1999, 1998 and 1997.
F-19
<PAGE> 97
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. 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 Company handles banking functions for the life and
annuity operations of Travelers Life & Annuity and some of its
non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements
between companies are made at least monthly. 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, 1999 and 1998, the
pool totaled approximately $2.6 billion and $2.3 billion, respectively. The
Company's share of the pool amounted to $1.0 billion and $793 million at
December 31, 1999 and 1998, respectively, and is included in short-term
securities in the consolidated balance sheet.
Included in short-term investments at December 31, 1998 was a 90-day
variable rate note receivable from Citigroup. The rate was based upon the
AA financial commercial paper rate plus 14 basis points. The rate at
December 31, 1998 was 5.47%. The balance, which was $500 million at
December 31, 1998, was paid in full on February 25, 1999. Interest accrued
at December 31, 1998 was $2.2 million. Interest earned was $3.9 million and
$9.4 million in 1999 and 1998, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney Financial Consultants (SSB).
Premiums and deposits related to these products were $1.4 billion, $1.3
billion, and $1.0 billion in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998 the Company had outstanding loaned securities
to SSB for $123.0 million and $39.7 million, respectively.
Included in other invested assets is a $987 million investment in Citigroup
preferred stock at December 31, 1999 and 1998, carried at cost.
The Company sells structured settlement annuities to the insurance
subsidiaries of Travelers Property Casualty Corp. (TAP) in connection with
the settlement of certain policyholder obligations. Such premiums and
deposits were $156 million, $104 million, and $88 million for 1999, 1998
and 1997, respectively. Reserves and contractholder funds related to these
annuities amounted to $798 million and $787 million in 1999 and 1998,
respectively.
In the ordinary course of business, the Company purchases and sells
securities through affiliated broker-dealers. These transactions are
conducted on an arm's length basis.
F-20
<PAGE> 98
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Primerica Life has entered into a General Agency Agreement with Primerica
Financial Services, 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 each of 1999 and 1998 the
fees paid by Primerica Life were $12.5 million.
In 1998 Primerica became a distributor of products for Travelers Life &
Annuity. Primerica sold $903 million and $256 million of deferred annuities
in 1999 and 1998, respectively.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements have been
granted Citigroup stock options.
The Company applies Accounting Principles Board Opinion No. 25 (APB 25) and
related interpretations in accounting for stock options. Since stock
options under the Citigroup plans are issued at fair market value on the
date of award, no compensation cost has been recognized for these awards.
FAS 123 provides an alternative to APB 25 whereby fair values may be
ascribed to options using a valuation model and amortized to compensation
cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Citigroup stock options,
net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $1,047 $902 $839
FAS 123 pro forma adjustments, after tax (16) (13) (9)
------------------------------------------------------------------------------------------------------
Net income, pro forma $1,031 $889 $830
------------------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE> 99
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by
TAP. Rent expense related to all leases is shared by the companies on a
cost allocation method based generally on estimated usage by department.
Net rent expense was $30 million, $24 million, and $15 million in 1999,
1998 and 1997, respectively.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING RENTAL
($ in millions) PAYMENTS
--------------------------------------------------------------------------
<S> <C>
2000 $38
2001 42
2002 41
2003 41
2004 41
Thereafter 273
--------------------------------------------------------------------------
Total Rental Payments $476
=========================================================================
</TABLE>
Future sublease rental income of approximately $79 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of
the rental expense for a particular lease totaling $195 million, by an
affiliate. Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-22
<PAGE> 100
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. FEDERAL INCOME TAXES
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
($ in millions)
--------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,592 $1,383 $1,283
Statutory Tax Rate 35% 35% 35%
--------------------------------------------------------------------------------------------------------
Expected Federal Income Taxes 557 484 449
Tax Effect of:
Non-taxable investment income (19) (5) (4)
Other, net 7 2 (1)
--------------------------------------------------------------------------------------------------------
Federal Income Taxes $ 545 $ 481 $ 444
========================================================================================================
Effective Tax Rate 34% 35% 35%
--------------------------------------------------------------------------------------------------------
</TABLE>
COMPOSITION OF FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
Current:
<S> <C> <C> <C>
United States $377 $418 $410
Foreign 32 24 24
--------------------------------------------------------------------------------------------------------
Total 409 442 434
--------------------------------------------------------------------------------------------------------
Deferred:
United States 143 40 10
Foreign (7) (1) --
--------------------------------------------------------------------------------------------------------
Total 136 39 10
--------------------------------------------------------------------------------------------------------
Federal Income Taxes $545 $481 $444
========================================================================================================
</TABLE>
Additional tax benefits attributable to employee stock plans allocated
directly to shareholder's equity were $17 million for each of the years
ended December 31, 1999, 1998 and 1997.
F-23
<PAGE> 101
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1999 and 1998 were
comprised of the tax effects of temporary differences related to the
following assets and liabilities:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
($ in millions) 1999 1998
---- ----
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 645 $ 616
Operating lease reserves 70 76
Investments, net 11 --
Other employee benefits 106 103
Other 142 135
-----------------------------------------------------------------------------------------------------------------
Total 974 930
-----------------------------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of insurance in force (773) (673)
Investments, net -- (489)
Other (124) (90)
-----------------------------------------------------------------------------------------------------------------
Total (897) (1,252)
-----------------------------------------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset Before Valuation Allowance 77 (322)
Valuation Allowance for Deferred Tax Assets (100) (100)
-----------------------------------------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (23) $ (422)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company and its life insurance subsidiaries 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
1999. The initial recognition of any benefit produced by the reversal of
the valuation allowance will be recognized by reducing goodwill.
At December 31, 1999, the Company had no ordinary or capital loss
carryforwards.
F-24
<PAGE> 102
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 or exceed
limits prescribed by federal law. Distributions are not contemplated from
this account. At current rates the maximum amount of such tax would be
approximately $326 million.
11. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,806 $1,598 $1,460
Mortgage loans 235 295 291
Joint ventures and partnerships 141 74 55
Trading 141 43 57
Other, including policy loans 287 240 263
------------------------------------------------------------------------------------------------------
2,610 2,250 2,126
------------------------------------------------------------------------------------------------------
Investment expenses 104 65 89
------------------------------------------------------------------------------------------------------
Net investment income $2,506 $2,185 $2,037
------------------------------------------------------------------------------------------------------
</TABLE>
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $(23) $111 $ 71
Equity securities 7 6 (9)
Mortgage loans 29 21 59
Real estate held for sale 108 16 67
Other (8) (5) 11
------------------------------------------------------------------------------------------------------
Total Realized Investment Gains $113 $149 $199
------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE> 103
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $(1,554) $ 91 $ 446
Equity securities 49 13 25
Other (30) (169) 520
-------------------------------------------------------------------------------------------------------------
Total Unrealized Investment Gains (Losses) (1,535) (65) 991
-------------------------------------------------------------------------------------------------------------
Related taxes (539) (20) 350
-------------------------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (996) (45) 641
Transferred to paid in capital, net of tax -- (585) --
Balance beginning of year 598 1,228 587
-------------------------------------------------------------------------------------------------------------
Balance End of Year $ (398) $ 598 $1,228
-------------------------------------------------------------------------------------------------------------
</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 $506 million, which were reported in
1997, related to appreciation of Citigroup common stock.
F-26
<PAGE> 104
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Fixed Maturities
The amortized cost and fair value of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1999 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 5,081 $ 22 $ 224 $ 4,879
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,032 14 53 993
Obligations of states, municipalities and
political subdivisions 214 -- 31 183
Debt securities issued by foreign governments 811 35 10 836
All other corporate bonds 13,938 69 384 13,623
Other debt securities 3,319 30 99 3,250
Redeemable preferred stock 105 4 7 102
-------------------------------------------------------------------------------------------------------------------
Total Available For Sale $24,500 $ 174 $ 808 $23,866
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1998 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) 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>
F-27
<PAGE> 105
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Proceeds from sales of fixed maturities classified as available for sale
were $12.6 billion, $13.4 billion and $7.6 billion in 1999, 1998 and 1997,
respectively. Gross gains of $200 million, $314 million and $170 million
and gross losses of $223 million, $203 million and $99 million in 1999,
1998 and 1997, 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 $4.8 billion at December 31, 1999 and 1998, respectively.
The amortized cost and fair value of fixed maturities at December 31, 1999,
by contractual maturity, are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
AMORTIZED
($ in millions) COST FAIR VALUE
--------------------------------------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $1,624 $1,622
Due after 1 year through 5 years 6,633 6,599
Due after 5 years through 10 years 5,257 5,132
Due after 10 years 5,905 5,634
--------------------------------------------------------------------------------------
19,419 18,987
--------------------------------------------------------------------------------------
Mortgage-backed securities 5,081 4,879
--------------------------------------------------------------------------------------
Total Maturity $24,500 $23,866
--------------------------------------------------------------------------------------
</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, 1999 and 1998, the Company held CMOs classified as
available for sale with a fair value of $3.8 billion and $3.4 billion,
respectively. Approximately 52% and 54%, respectively, of the Company's CMO
holdings are fully collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1999 and 1998. In addition, the Company held $1.1 billion and
$1.4 billion of GNMA, FNMA or FHLMC mortgage-backed pass-through securities
at December 31, 1999 and 1998, respectively. Virtually all of these
securities are rated AAA.
F-28
<PAGE> 106
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
EQUITY SECURITIES: UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Common stocks $195 $123 $ 4 $314
Non-redeemable preferred stocks 496 15 41 470
-------------------------------------------------------------------------------------------------------------------
Total Equity Securities $691 $138 $45 $784
-------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998
Common stocks $129 $44 $ 3 $170
Non-redeemable preferred stocks 345 10 7 348
-------------------------------------------------------------------------------------------------------------------
Total Equity Securities $474 $54 $10 $518
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $100 million, $212 million
and $341 million in 1999, 1998 and 1997, respectively. Gross gains of $15
million, $30 million and $53 million and gross losses of $8 million, $24
million and $62 million in 1999, 1998 and 1997, respectively, were realized
on those sales.
Mortgage Loans and Real Estate Held For Sale
At December 31, 1999 and 1998, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
($ in millions) 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,228 $2,370
Underperforming Mortgage Loans 57 236
--------------------------------------------------------------------------------------------------
Total Mortgage Loans 2,285 2,606
--------------------------------------------------------------------------------------------------
Real Estate Held For Sale - Foreclosed 223 112
Real Estate Held For Sale - Investment 13 31
--------------------------------------------------------------------------------------------------
Total Real Estate 236 143
--------------------------------------------------------------------------------------------------
Total Mortgage Loans and Real Estate Held for Sale $2,521 $2,749
==================================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in
the process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
F-29
<PAGE> 107
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
-----------------------------------------------------------------------
<S> <C>
Past Maturity $ 39
2000 162
2001 172
2002 137
2003 131
2004 140
Thereafter 1,504
-----------------------------------------------------------------------
Total $2,285
=======================================================================
</TABLE>
Trading Securities
Trading securities of the Company are held in Tribeca.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
($ in millions) 1999 1998
-------------------------------------------------------------------------------------------
TRADING SECURITIES OWNED
<S> <C> <C>
Convertible bond arbitrage $1,045 $754
Merger arbitrage 421 427
Other 212 5
-------------------------------------------------------------------------------------------
Total $1,678 $1,186
-------------------------------------------------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Convertible bond arbitrage $799 $521
Merger arbitrage 299 352
-------------------------------------------------------------------------------------------
Total $1,098 $873
-------------------------------------------------------------------------------------------
</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-30
<PAGE> 108
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1999 and 1998, the Company had an investment in Citigroup
Preferred Stock of $987 million. See Note 8.
The Company maintains a short-term investment pool for its insurance
affiliates in which the Company also participates. See Note 8.
The Company had concentrations of investments, primarily fixed maturities,
in the following industries:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
($ in millions) 1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Banking $1,906 $2,131
Electric Utilities 1,653 1,513
Finance 1,571 1,346
--------------------------------------------------------------------------
</TABLE>
The Company held investments in Foreign Banks in the amount of $1,012
million and $997 million at December 31, 1999 and 1998, respectively, which
are included in the table above. Also, below investment grade assets
included in the preceding table were not significant.
Included in fixed maturities are below investment grade assets totaling
$2.2 billion and $2.1 billion at December 31, 1999 and 1998, respectively.
The Company defines its below investment grade assets as those securities
rated "Ba1" or below by external rating agencies, or the equivalent by
internal analysts when a public rating does not exist. Such assets include
publicly traded below investment grade bonds and certain other privately
issued bonds and notes that are classified as below investment grade.
Mortgage loan investments are relatively evenly dispersed throughout the
United States, with no significant holdings in any one state. Also, there
is no significant mortgage loan investment in a particular property type.
F-31
<PAGE> 109
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, 1999 and 1998. 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 1999 and in 1998.
Interest on these assets, included in net investment income was
insignificant in 1999 and 1998.
13. DEPOSIT FUNDS AND RESERVES
At December 31, 1999, the Company had $27.0 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 $13.2
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 $2.1 billion of liabilities that are
surrenderable with market value adjustments. Also included are an
additional $4.9 billion of life insurance and individual annuity
liabilities which are subject to discretionary withdrawals, and have an
average surrender charge of 4.6%. In the payout phase, these funds are
credited at significantly reduced interest rates. The remaining $6.2
billion of liabilities are surrenderable without charge. More than 12.7% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-32
<PAGE> 110
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $ 1,047 $ 902 $ 839
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized gains (113) (149) (199)
Deferred federal income taxes 136 39 10
Amortization of deferred policy acquisition costs 315 275 252
Additions to deferred policy acquisition costs (686) (566) (471)
Investment income (221) (202) (32)
Premium balances (23) 23 (64)
Insurance reserves and accrued expenses 421 348 111
Other 99 205 380
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operations $ 975 $ 875 $ 826
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
15. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include the
acquisition of real estate through foreclosures of mortgage loans amounting
to $205 million in 1999, 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-33
<PAGE> 111
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
16. 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 & ANNUITY business segment consolidates primarily the
business of The Travelers Insurance Company and The Travelers Life and
Annuity Company. Travelers Life & Annuity offers individual annuity, group
annuity, individual life and long-term care products distributed by the
Company and TLAC under the Travelers name. Among the range of individual
products offered are fixed and variable deferred annuities, payout
annuities and term, universal and variable life and long-term care
insurance. The group products include institutional pensions, including
guaranteed investment contracts, payout annuities, group annuities to
employer-sponsored retirement and savings plans and structured finance
transactions.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company, Primerica Life Insurance Company of
Canada 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 & PRIMERICA LIFE
1999 ($ in millions) ANNUITY INSURANCE TOTAL
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 666 $ 1,072 $ 1,738
Deposits 11,220 -- 11,220
------- ------- -------
Total business volume $11,886 $ 1,072 $12,958
Net investment income 2,249 257 2,506
Interest credited to contractholders 937 -- 937
Amortization of deferred acquisition costs 127 188 315
Federal income taxes on Operating Income 319 186 505
Operating Income (excludes realized gains or
losses and the related FIT) $ 619 $ 355 $ 974
Segment Assets $56,615 $ 6,916 $63,531
-----------------------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE> 112
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE & PRIMERICA LIFE
1998 ($ 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 88 187 275
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 $56,548
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE PRIMERICA LIFE
1997 ($ 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 68 184 252
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 $49,440
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures
for additions to long-lived assets other than financial instruments,
long-term customer relationships of a financial institution, mortgage and
other servicing rights, deferred policy acquisition costs, and deferred tax
assets, were not material.
F-35
<PAGE> 113
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
($ in millions)
----------------------------------------------------------------------------------------------------------
REVENUES 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total business volume $12,958 $9,433 $6,859
Net investment income 2,506 2,185 2,037
Realized investment gains 113 149 199
Other revenues 521 440 354
Elimination of deposits (11,220) (7,693) (5,276)
----------------------------------------------------------------------------------------------------------
Total revenues $4,878 $4,514 $4,173
==========================================================================================================
OPERATING INCOME 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total operating income of business segments $ 974 $805 $710
Realized investment gains net of tax 73 97 129
----------------------------------------------------------------------------------------------------------
Income from continuing operations $1,047 $902 $839
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets of business segments $63,531 $56,548 $49,440
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
REVENUE BY PRODUCTS 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Annuities $5,694 $4,198 $3,303
Group and Payout Annuities 7,275 5,326 3,737
Individual Life and Health Insurance 2,434 2,270 2,102
Other (a) 695 413 307
Elimination of deposits (11,220) (7,693) (5,276)
----------------------------------------------------------------------------------------------------------
Total Revenue $4,878 $4,514 $4,173
==========================================================================================================
</TABLE>
(a) Other represents revenue attributable to unallocated capital and run-off
businesses.
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-36
<PAGE> 114
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> 115
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:
<TABLE>
<S> <C>
1. The facing sheet.
2. The Prospectus consisting of 51 pages.
3. The undertaking to file reports.
4. The signatures.
Written consents of the following persons:
A Consent of Kathleen A. McGah, Deputy General Counsel, to the filing of
her opinion as an exhibit to this Registration Statement and to the
reference to her opinion under the caption "Legal Proceedings and
Opinion" in the Prospectus. (See Exhibit 11 below.)
B. Consent and Actuarial Opinion pertaining to the illustrations contained
in the prospectus.
C. Consent of KPMG LLP, Independent Certified Public Accountants.
D. Powers of Attorney. (See Exhibit 12 below.)
EXHIBITS
1. Resolution of the Board of Directors of The Travelers 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). Specimen Selling Agreement, including schedules of sales commissions.
4. None
5. Variable Life Insurance Contracts.
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.)
</TABLE>
<PAGE> 116
<TABLE>
<S> <C>
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. Specimen Participation Agreements.
9. None
10. Application for Variable Life Insurance Contracts.
11. Opinion of counsel as to the legality of the securities being
registered.
12(a). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Jay S. Benet, J. Eric Daniels, George C. Kokulis,
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.)
12(b). Power of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for George C. Kokulis, Katherine M. Sullivan and
Glenn D. Lammey.
</TABLE>
<PAGE> 117
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 6th
day of April 2000.
THE TRAVELERS FUND UL III FOR VARIABLE LIFE INSURANCE
(Registrant)
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By:*GLENN D. LAMMEY
--------------------------------------------
Glenn D. Lammey, Chief Financial Officer,
Chief Accounting Officer and Controller
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the 6th day of April 2000.
<TABLE>
<S> <C>
*GEORGE C. KOKULIS Director, President and
- ----------------------- Chief Executive Officer (Principal
(George C. Kokulis) Executive Officer)
*KATHERINE M. SULLIVAN Director
- -----------------------
(Katherine M. Sullivan)
*MARC P. WEILL Director
- -----------------------
(Marc P. Weill)
</TABLE>
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 118
EXHIBIT INDEX
<TABLE>
<CAPTION>
Written Consents Method of Filing
- ---------------- ----------------
<S> <C>
A. Consent of Kathleen A. McGah, Deputy General Counsel, Electronically
to the filing of her opinion as an exhibit to this Registration See Exhibit 11
Statement and to the reference to her opinion under the caption
"Legal Proceedings and Opinion" in the Prospectus.
(See Exhibit 11 below.)
B. Consent and Actuarial Opinion pertaining to the Electronically
illustrations contained in the prospectus.
C. Consent of KPMG LLP, Independent Certified Public Accountants. Electronically
D. Powers of Attorney Electronically
See Exhibit 12
EXHIBITS
3(b). Specimen Selling Agreements, including schedule of sales Electronically
commissions.
5. Variable Life Insurance Contracts. Electronically
8. Specimen Participation Agreement. Electronically
10. Application for Variable Life Insurance Contracts Electronically
11. Opinion of counsel as to the legality of securities being
Electronically registered.
1(b). Powers of Attorney authorizing Ernest J. Wright and Kathleen A. Electronically
McGah as signatory for George C. Kokulis, Katherine M. Sullivan and
Glenn D. Lammey.
</TABLE>
<PAGE> 1
Attachment B
Re: Travelers' Corporate Owned Life Insurance ("COLI 2000") (File No.
333-94779)
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 2000 product. I also provided
actuarial advice concerning the preparation of the Registration Statement on
Form S-6, File No. 333-94779 (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,
Mark S. Reilly, FSA, MAAA
- -------------------------
Pricing Actuary
Product Development
April 18, 2000
<PAGE> 1
Attachment C
Consent of Independent Certified Public Accountants
Board of Directors
The Travelers Insurance Company
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Hartford, Connecticut
April 18, 2000
<PAGE> 1
EXHIBIT 3(b)
SELLING AGREEMENT
THIS AGREEMENT is made among Travelers Insurance Company ("TIC"), Travelers Life
and Annuity Company ("TLAC"), (collectively the "Insurance Companies") and
CFBDS,Inc. (Underwriter) _______________________("Broker/Dealer"), together with
its affiliated insurance agencies (collectively the "Selling Entities") as are
specified on the Schedule Pages attached to this agreement as Exhibit 1 (the
"Schedule Pages").
In consideration of the mutual promises contained in this agreement, the parties
agree as follows:
1. Purpose and Background. The Underwriter, the Insurance Companies,
Broker/Dealer and Selling Entities enter into this agreement for the purpose of
authorizing Broker/Dealer, through certain of its insurance licensed agents to
solicit applications for such life insurance (including variable life), annuity
contracts (including fixed, variable, and modified guaranteed annuity products),
long term care insurance contracts and such other insurance products as shall be
mutually agreed upon (collectively the "Insurance Policies") as are listed on
the Schedule Pages. The Schedules Page may be amended from time to time to add
other Insurance Policies and to note any additional insurance agency affiliates.
2. Licensing and Appointment. The Insurance Companies have each respectively
appointed Underwriter to serve as the distributor and principal underwriter of
the variable life or variable annuity Insurance Policies. The Underwriter is
registered with the SEC, the National Association of Securities Dealers, Inc.
("NASD") and all appropriate state securities regulatory authorities as a
broker/dealer.
The Underwriter hereby appoints the Broker/Dealer to distribute the variable
Insurance Policies listed on the Schedule Pages through its registered
representatives ("Registered Representatives").
3. Securities Licensing/NASD Compliance. Broker/Dealer shall at all times when
performing its functions under this agreement, be registered as a securities
broker with the SEC and NASD and licensed or registered as a securities
broker/dealer in the states and other local jurisdictions that require such
licensing or registration in connection with sales of variable products.
Broker/Dealer agrees to abide by all applicable state and federal rules and
regulations promulgated thereunder. For the purpose of compliance with any such
laws or regulations, Broker/Dealer acknowledges and agrees that in performing
Broker/Dealer services covered by this Agreement, it is acting in the capacity
of an independent broker and dealer as defined by the By-Laws of the NASD and
not as an agent or employee of either Underwriter or any registered investment
company.
<PAGE> 2
4. Insurance Licensing. Broker/Dealer (and if appropriate Insurance Selling
Entities) agree that at all times when performing its functions under this
agreement, the entity soliciting sales of the Insurance Policies will be validly
licensed as an insurance agency in the states and other jurisdictions that
require such licensing or registration in connection with sales or solicitation
of the Insurance Policies. If applicable, Broker/Dealer represents that it or
its insurance agency affiliate is properly authorized under applicable state law
to receive insurance commissions generated from sales of the Insurance Policies.
Broker/Dealer and Selling Entities each represent that they will engage in the
solicitation and sale of Insurance Policies in accordance with applicable
insurance and securities laws and regulations.
Broker/Dealer represents and warrants that it is authorized and licensed as an
agent under applicable state insurance laws to solicit, negotiate and effect the
contracts of insurance contemplated hereunder. In the event Broker/Dealer is not
licensed as such, an insurance agency affiliated with Broker/Dealer shall be
licensed as an agent under applicable state insurance laws to solicit, negotiate
and effect the contracts of insurance contemplated hereunder.
5. Appointment of Broker/Dealer. The Insurance Companies (and with respect to
any variable life insurance or annuity product, Underwriter) hereby authorize
the Broker/Dealer to sell those Insurance Policies listed on the Schedule Page,
as such page may be amended from time to time, including the variable Insurance
Policies through its validly appointed and licensed registered representatives
(the "Registered Representatives"). Broker/Dealer is also appointed to perform
certain administrative services necessary to facilitate the solicitation and
sales of the Insurance Policies.
Broker/Dealer or, if applicable, Selling Entities, each are appointed general
agencies of Insurance Companies and each is authorized to sell the Insurance
Policies listed on the Schedule Pages.
Pursuant to the appointments described in this Section 5, Broker/Dealer and
Selling Entities must comply with the following requirements:
(a) All securities services provided in connection with the sale of
insurance securities will be through registered representatives of
Broker/Dealer;
(b) Unregistered employees will not engage in any securities
activities, nor receive any compensation based on transactions in insurance
securities or the provision of securities advice;
(c) Broker/Dealer will maintain books and records relating to
transactions in insurance securities at its home office;
2
<PAGE> 3
(d) Customers purchasing variable Insurance Policies will make their
checks payable to Insurance Companies;
For the purpose of compliance with any applicable state insurance laws or
regulations promulgated under them, Broker/Dealer acknowledges and agrees that
solely in performing the insurance-selling functions reflected by this
Agreement, it or its Registered Representative is acting as the agent of the
Insurance Companies, and in that capacity is authorized only to solicit
applications from the public for the Insurance Policies.
6. Responsibility for Registered Representatives Activities. Broker/Dealer will
select and supervise persons whom it will train to solicit applications for the
Insurance Policies in conformance with applicable state and federal laws and
regulations. Persons engaged in the sale of variable Insurance Policies will be
registered representatives of Broker/Dealer in accordance with the rules of the
NASD. All individuals soliciting sales of Insurance Policies will be properly
licensed and appointed to the Insurance Companies in accordance with the state
insurance laws of those jurisdictions in which the Insurance Policies may
lawfully be distributed.
The Insurance Companies shall have authority to determine whether to appoint or
terminate each Registered Representative as an insurance agent of the Insurance
Companies. Broker/Dealer agrees to cooperate in supplying information or making
recommendations necessary to complete such insurance agent appointments.
In jurisdictions which require that Insurance Companies perform background
information prior to appointment, Broker/Dealer agrees to provide such
information as may be necessary to perform such review, including but not
limited to obtaining permission from each Registered Representative who seeks
such appointment.
Upon request by Insurance Companies, Broker/Dealer and/or any such Selling
Entities shall furnish such appropriate records as may be necessary to establish
supervision of its Registered Representatives in connection with sales of the
Insurance Policies. Upon Insurance Companies' review of such supervisory
materials, Broker/Dealer shall make such changes to its registered
representatives' rules of conduct as Insurance Companies may reasonably request
but only to the extent that such requests relate to sales of the Insurance
Policies.
Broker/Dealer shall notify Insurance Companies if any Registered Representative
ceases to be a registered representative of Broker/Dealer or ceases to maintain
the proper licensing required for the sale of the Insurance Policies or fails to
meet material rules and standards imposed by either Broker/Dealer or the Selling
Entities.
If Registered Representative or Broker/Dealer agrees to deliver on behalf of
Insurance Company policies, annual reports, policy statements, billing notices,
miscellaneous reports of policy values and other pertinent information, or other
materials relating to the
3
<PAGE> 4
Policy that the Broker/Dealer warrants it will deliver such documents on a
timely basis. Broker/Dealer will be responsible for complying with all
applicable insurance laws concerning the fulfillment of such delivery
obligations.
7. Suitability of Sales of Contract. With regard to variable insurance policies,
Broker/Dealer will review all contract and policy applications for suitability,
completeness, and correctness as to form. Broker/Dealer shall also be
responsible for ensuring compliance with NASD suitability rules and standards
applicable to purchases of the Insurance Policies. Broker/Dealer is also
responsible for ensuring that all sales are in compliance with applicable state
insurance laws and regulations.
Broker/Dealer will promptly, but in no case later than the end of the business
day that Broker/Dealer receives applications and payment, forward to the
applicable Insurance Company, at addresses provided, all such applications found
suitable and in good form, together with any payments received with such
applications. Broker/Dealer will immediately return to the applicant all
applications deemed by Broker/Dealer to be unsuitable or not complete and
correct as to form together with any payments received. The Insurance Companies
reserve the right to reject any Insurance Product application and return any
payment made in connection with an application which is rejected. Insurance
Policies issued will be forwarded to Broker/Dealer or at the direction of
Broker/Dealer to the Registered Representative for delivery to the Contract
Owner. Broker/Dealer shall obtain and retain a written receipt for each Contract
which Broker/Dealer delivers.
The parties acknowledge that sales and solicitations may, where consistent with
state insurance laws and regulations, be conducted either without an
application, or on a basis where an application is submitted subsequent to a
sale. If such sales procedures are permitted, Broker/Dealer agrees that it will
continue to be responsible for compliance with applicable laws concerning, among
other things, suitability and policy delivery requirements. Broker/Dealer agrees
to hold Underwriter harmless for any failure to follow such rules or
regulations.
8. Solicitation/Representatives Concerning the Contracts. Broker/Dealer will
perform the selling functions required by this Agreement in accordance with the
terms and conditions of any applicable prospectus(es). With regard to
non-variable insurance policies, selling entity shall make no representations
concerning such policies not contained in the contract. Broker/Dealer will make
only representations included in the prospectus or in any authorized
supplemental material. No sales solicitations, including the delivery of
supplemental sales literature or other such materials, shall occur, be delivered
to, or used with a prospective purchaser unless accompanied or preceded by
appropriate and then-current prospectus(es).
Any material prepared or used by Broker/Dealer or its Registered Representative,
which describes in whole or in part or refers by name or form to any of the
Insurance Companies' Insurance Policies or underlying funds or uses the name of
the Insurance
4
<PAGE> 5
Companies, Underwriter, or Travelers Group Inc., or the logos or service marks
of any of them, or the name, logos or service marks of any "Affiliated Company"
of any of them, as that term is defined in Section 2(a)(2) of the Investment
Company Act of 1940, must be approved by Underwriter in writing prior to any
such use.
Broker/Dealer and Selling Entities acknowledge that information pertaining to
Underwriter and Insurance Companies is proprietary in nature. Selling Entities
agree that they will not disclose any information concerning Insurance Companies
or Underwriter's products, services or programs to any person for consideration
or otherwise unless Broker/Dealer and/or Selling Entities consent to such use in
writing. Broker/Dealer and Selling Entities agree that, following the
termination of this Agreement for any reason, they will not enter into any plan,
program scheme or course of action which would systematically attempt to induce
any Contract owner(s) away from Travelers, except that Broker Dealer may always
recommend a move to another company's product if such move would be more
suitable than Traveler's product for a particular client or clients or in the
event of a detrimental change in the financial stability of Travelers which
Broker Dealer believes would jeopardize their clients.
9. Use of Confidential Customer Information. The parties to this agreement agree
to safeguard customer information provided by contract owners during the
application and underwriting process. Specifically, the parties understand that
the Insurance Companies provide a "Privacy Promise" substantially in the form
attached hereto as Exhibit 2 as amended from time to time as may be required by
applicable law. The parties agree to cooperate with each other to meet the terms
of this Privacy Promise.
10. Compensation. Compensation payable to Broker/Dealer on sales of the Variable
Insurance Policies sold by Registered Representatives will be paid to
Broker/Dealer, or as necessary to meet any legal requirements, to a licensed
insurance affiliate, in accordance with the compensation schedule(s) set forth
on the Schedule Pages. Such Schedule Pages may be amended from time to time and
compensation will be paid in accordance with the compensation schedule in effect
at the time the premium payments are received by the applicable Insurance
Company (in the case of annuities) or at the time the applications are received
(in the case of life insurance). The Insurance Companies reserve the privilege
of revising the compensation schedules set forth in the Schedule Pages at any
time with prior written notice to Broker/Dealer. Submission of business
following receipt of such notice shall operate to ratify acceptance of such
amendment.
11. Assignment of Agreement. This Agreement may not be assigned except by mutual
consent and will continue, subject to the termination by any party on written
notice to the other party, except that in the event Broker/Dealer ceases to be a
registered Broker/Dealer or a member of the NASD, this Agreement will
immediately terminate. Underwriter reserves the right to designate, at its sole
discretion, an alternative Principal Underwriter for the distribution of the
Contracts covered by this Agreement with prior
5
<PAGE> 6
written notice to Broker/Dealer except in the event that TIC replaces
Underwriter as discussed below.
The parties understand that if TIC replaces Underwriter any such substituted
party will automatically assume all of Underwriter's rights and duties under
this agreement. TIC may assume such functions itself, or assign these to
affiliated, properly licensed broker-dealers. TIC will notify Broker/Dealer if
any such substitution occurs.
12. Indemnification. No party to this Agreement will be liable for any
obligation, act or omission of the other. Each party to this Agreement will hold
harmless and indemnify the (1) Registered Investment Companies which are used to
fund the Contracts, (2) Insurance Companies, (3) Underwriter, (4) Broker/Dealer,
and (5) Selling Entities, as appropriate, for any loss or expense suffered as a
result of the violation or noncompliance by any party to this agreement of any
of the terms of this agreement or of any applicable law or regulation. No party
nor any of its employees or agents will be liable to the other party for any
direct, special or consequential damages arising out of or in connection with
the performance of any services pursuant to the Agreement. Each party to this
agreement agrees to indemnify and hold harmless any other affected party for any
losses, claims, damages or liabilities (or actions in respect thereof) which
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact required to be stated or necessary to make the statements made
not misleading in the connection with the solicitation, sale, or administration
of the of the Insurance Policies.
13. Notices. All notices to the Insurance Companies or Underwriter relating to
this Agreement should be sent to the attention of :
Travelers Life & Annuity
One Tower Square
Hartford, CT 06183-6091
Attention: General Counsel
All notices to Broker/Dealer will be duly given if mailed or faxed to the
address provided to Insurance Companies by Broker/Dealer from time to time.
14. Independent Contractors. Underwriter and Insurance Companies are independent
contractors with respect to Broker/Dealer, Selling Entities, and to Registered
Representatives.
15. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the state of Connecticut.
16. Amendment of Agreement. Insurance Companies reserve the right to amend this
Agreement at any time, and the submission of an application by Broker/Dealer
after notice of any such amendment has been sent to the other parties shall
constitute the other parties' agreement to any such amendment. Following
provision of notice of a change in
6
<PAGE> 7
compensation schedules, submission of additional business shall operate to
ratify acceptance of such schedules.
17. Termination. This Agreement may be terminated, without cause, by any party
upon thirty (30) days' prior written notice, and may be terminated, for failure
to perform satisfactorily or other cause, by any party immediately; and shall be
terminated if Broker/Dealer shall cease to be a registered Broker/Dealer under
the Securities Exchange Act of 1934, as amended, or a member of the NASD.
Notwithstanding, the following sections shall survive any such termination:
Sections 3, 6, 8, 9, 10, 12, 15, 18, 19, and 20.
18. Waiver Upon Termination. Failure of any party to terminate this Agreement
for any of the causes set forth in this agreement will not constitute a waiver
of the right to terminate this Agreement at a later time for any of these
causes.
19. Books and Records. Broker/Dealer shall maintain all books and records
required by applicable laws and regulations in connection with the offer and
sale of the Insurance Policies. The books, accounts and records of Broker/Dealer
relating to the sale of the Insurance Policies shall be maintained so as to
clearly and accurately disclose the nature and details of all transactions.
Underwriter and Insurance Companies reserve the right to request reasonable
periodic inspection of such books and records as relate to the sale and
solicitation of the Insurance Products.
20. Cooperation with Regulatory Investigations. Broker/Dealer, Selling Entities
and Insurance Companies and Insurance Companies agree to cooperate fully in any
insurance, securities or other regulatory investigation, inquiry, inspection, or
proceeding or in any judicial proceeding arising in connection with the
Insurance Policies. Broker/Dealer and Insurance Compaines shall cooperate with
each other to resolve any customer complaint, and each agrees to promptly notify
the other upon receipt of notice of any investigation, claim, or proceeding
involving the Insurance Policies or any situation which would materially affect
the respective party's ability to perform its obligations hereunder. Each of the
parties to this agreement agrees that it will promptly notify the other parties
of any material claim of which it becomes aware involving the sale or
solicitation of the Insurance Policies.
21. Fidelity Bond. Broker/Dealer represents that all of its directors, officers,
employees and Registered Representatives are and shall be continuously covered
by a blanket fidelity bond, covering for larceny and embezzlement, issued by a
reputable bonding company. This bond shall be maintained at Broker/Dealer's
expense and shall be, at least, of the form, type and amount required under the
NASD Conduct Rules.
22. Counterparts. This Agreement may be executed in one or more counterpart,
each of which shall be deemed in all respects an original.
7
<PAGE> 8
In reliance on the representations set forth and in consideration of the
undertakings described herein, the parties represented below do hereby contract
and agree. This agreement is effective, _______________
<TABLE>
<CAPTION>
Travelers Insurance Company The Travelers Life & Annuity
Company
<S> <C>
By: ____________________________ By: ______________________
Name:___________________________ Name: ____________________
Title: _________________________ Title: ___________________
Date: __________________________ Date: _____________________
CFBDS, Inc ___________________________
Broker Dealer
By:_____________________________ By: ______________________
Name:___________________________ Name: ____________________
Title:__________________________ Title: ___________________
Date:___________________________ Date: _____________________
________________________________ __________________________
Insurance Agency Insurance Agency
By:_____________________________ By: ______________________
Name:___________________________ Name: ____________________
Title:__________________________ Title: ___________________
Date: __________________________ Date: ____________________
________________________________ ___________________________
Insurance Agency Insurance Agency
By: ____________________________ By: ______________________
Name:___________________________ Name: ____________________
Title:__________________________ Title: ___________________
Date: __________________________ Date: ____________________
</TABLE>
8
<PAGE> 9
EXHIBIT 1
SELLING AGREEMENT SCHEDULE PAGE
Broker/Dealer and Selling Entities are authorized to solicit applications for
the life insurance policies, annuity contracts, long term care contracts, and
the other insurance products listed below
I. Life Insurance
Travelers Corporate Variable Life
Travelers Corporate Variable Life 2000
All products described herein are subject to state availability. Compensation
Schedules for each product described above are listed on the following pages.
Consistent with the terms of the Selling Agreement, Compensation Schedules may
be changed at any time.
Payment of compensation for any product is subject to the following conditions
and limitations, in addition to any applicable provision of the Selling
Agreement.
9
<PAGE> 10
1. CHARGEBACKS OF COMMISSIONS.
A. If the Insurance Companies return all or a portion of a
premium paid with respect to an Insurance Product,
Broker/Dealer shall be obligated to refund to Insurance
Companies applicable commissions on the amount of such
premium only where:
(i) consistent with the Selling Agreement, the Insurance
Product solicited is returned as not taken under the
policy "free look" provisions;
(ii) premiums are refunded due to overpayments, errors in
billing or in the timing of automatic premium collection
deductions, or errors resulting in policy reissue;
(iii) the check delivered in payment of any contract premium
does not clear and the premium collection deductions, or
errors resulting in policy reissue;
(iv) the Insurance policy on which commission payments were
made is terminated or premium is refunded because the
Registered Representative(s) or Broker-Dealer who sold
the Insurance Policy committed an act, error or omission
which materially contributed to the termination of the
Insurance Policy or the need to return premium;
(v) the issuing Insurance Company rejects the application;
(vi) a judicial or regulatory authority directs the issuing
Insurance Company to return premium payments without
assessment of a surrender charge;
(vii) the applicant's initial premium on a 1035 exchange is
returned because the expected rollover amount from
another policy or contract is not transferred due to the
exchange not meeting the legal requirements to qualify
for a tax-free exchange;
(viii) the issuing Insurance Company returns unearned premium on
a life insurance contract as required by the provisions
of the policy;
(ix) the issuing Insurance Company determines that it has a
legal liability to return premiums on a life insurance
contract within the first year after the Insurance
Product is issued; or
10
<PAGE> 11
(x) the issuing Insurance Company and Broker/Dealer mutually
agree to return all or a portion of a premium with
respect to a particular contract or policy.
(xi) the Insurance Policy is surrendered within 90 days from
the date of issuance. In any case, Broker/Dealer and/or
Insurance Companies may offset amounts paid in commission
on surrendered policies from future sales.
B. The chargeback for Travelers Corporate Variable Life is as follows:
If the policy is surrendered after 90 days, but within the first two
policy years and the policy belonged to a case, the Broker/Dealer shall
be obligated to refund to the underwriter the following amounts:
(i) If the surrender is within the first policy year, 6% of
first year premium up to target premium plus 2% on all
first year premium in excess of target premium plus any
bonus amount associated with the policy.
(ii) If the surrender is after the first policy year, but
before completion of the second, 3% of first year premium
up to target premium plus 1% on all first year premium in
excess of target premium plus 50% of any bonus associated
with the policy.
11
<PAGE> 12
C. The chargeback schedule for Travelers Corporate Variable Life 2000 is as
follows:
If the policy is surrendered after 90 days, but within the first two
policy years and the policy belonged to a case, the Broker/Dealer shall
be obligated to refund to the underwriter the following amounts:
(i) If the surrender is within the first policy year, 15% of first year
premium up to target premium plus 3.5% on all first year premium in
excess of target premium.
(ii) If the surrender is after the first policy year, but before
completion of the second, 7% of cumulative target premiums plus
3.5% on cumulative premium in excess of cumulative target premium.
(iii) If the surrender is after the second policy year, but before
completion of the third policy year, 3.5% of cumulative target
premiums plus 2.5% on cumulative premiums in excess of cumulative
target premiums.
D. If the policy is surrendered within the first five policy years and the
policy does not belong to a case, the Broker/Dealer shall be obligated to
refund to the underwriter the following amounts:
<TABLE>
<CAPTION>
Year of Surrender % of First Year Compensation Refunded
----------------- -------------------------------------
<S> <C>
1 100
2 80
3 60
4 40
5 20
</TABLE>
The Insurance Company may offset amounts paid in commission on
surrendered policies from future sales.
A case is defined as a group of policies sold together to a corporation
for purposes of funding non-qualified benefits, etc.
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<PAGE> 13
2. FREE LOOK PROVISION. If any Contract or Policy is redeemed at any time or if
within forth-five (45) days after confirmation by the Insurance Companies of any
premium payments credited to a Contract or Policy, that Contract is tendered for
full or partial surrender, or the life at risk thereunder dies, then, at the
option of the Insurance Companies, no commission will be payable with respect to
such premium payments and any commission previously paid for said premium
payments must be refunded to the applicable Insurance Company or Underwriter as
directed by Underwriter. Insurance Companies agrees to notify Broker/Dealer with
ten (10) business days after the request for repurchase or redemption, or
notification of death of the life at risk is received by the applicable
Insurance Company.
3. REBATING. If Broker/Dealer or any Registered Representative of Broker/Dealer
rebates or offers to rebate all or any part of a premium on an Insurance Policy
issued by the Insurance Companies in violation of applicable state insurance
laws or regulations, or if Broker/Dealer or any Registered Representative of
Broker/Dealer shall withhold any premium on an Insurance Policy issued by the
Insurance Companies, the same may be grounds for termination of this Agreement
by Insurance Companies. If Broker/Dealer induces or attempts to induce any
Policy or Contract Owner to relinquish an Insurance Policy except under
circumstances where there is reasonable grounds for believing the policy,
contract or certificate is not suitable for such person, Broker-Dealers right to
receive any compensation under this agreement shall cease and terminate.
13
<PAGE> 14
COMMISSION SCHEDULES FOR
LIFE INSURANCE PRODUCTS
A2
This Schedule is attached to and is made a part of the Agreement. It is subject
to the terms and conditions contained in the Agreement.
Pursuant to the Agreement, the Insurance Companies may terminate or amend this
Schedule at their sole discretion. If any such changes are made, we will notify
you.
The compensation arrangements described below shall govern commission payouts.
Commissions based on premium will be calculated only on premiums actually
received in good order by the Insurance Companies. Commissions will be paid only
on an as-earned basis. Commissions will be paid to Broker/Dealer unless state
insurance laws require that commission payments be made to an insurance agency.
1. We will pay commissions and allowances on premiums paid for
additional benefits or increases in benefits of any kind at the same
rate as is being allowed at the time of addition, or increase for the
premiums of the policies to which they are added. We will not pay
compensation: on premiums for a policy which is a conversion of
employee Special Protection Plan, Employee Life Insurance-Plan 1 or
group life insurance; on extra premiums for a policy which are
charged due to temporary flat substandard rating because of physical
impairments; or on premiums of a policy which are waived under any
provision of such policy.
2. If you convert one of our term policies to a different form, we will
pay compensation in accordance with our rules applying to such
policies at the time of conversion.
3. Where, in our judgment, a policy replaces a policy previously issued
by us on the same policyholder (other than as a term conversion), the
commission payable for the first year of insurance on the new policy
will be adjusted in accordance with our procedures in effect at the
time of such replacement.
4. Compensation on all universal life policies which would otherwise be
payable, will not be paid on remittances received for policies
following a partial withdrawal until the sum of such remittances
equals the amount of the withdrawal at which time we will pay
compensation on subsequent remittances.
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<PAGE> 15
5. While recognizing the opportunity for flexibility in policyholder
service options inherent to universal life forms of insurance,
evidence of manipulation by any Registered Representative of
universal life policies, contributions, loans, surrenders or
replacements, not deemed by us to be in the best interest of then
policyholder or us shall cause divestiture of your rights to
continuing compensation and termination of this contract.
6. If we return the premiums on a policy or any portion of such premiums
for any cause, Broker/Dealer will refund to us on demand, the amount
of compensation you received on such returned premiums.
7. Initial compensation payable under this Schedule will be payable at
the time of the receipt and acceptance of premium by the Insurance
Companies. The amount, if any, and the time of payment of
compensation on replacements, changes, exchanges, term renewals,
premium payments paid in advance, or similar policy issuance
situations shall be governed by the Insurance Companies' underwriting
and administrative rules then in effect.
8. As used in the attached compensation schedules, the following
definitions apply:
"TARGET PREMIUM" means the premium paid to Travelers Corporate
Variable Universal Life that receives new commission rates in the
first year and renewal commission rates in the renewal years.
"TAMRA PREMIUM" means the paid premium level in any year above which
will receive a reduced excess commission rate for Travelers Corporate
Variable Universal Life.
"EXCESS PREMIUM" means the premium paid to Travelers Corporate
Variable Universal Life that is above the target premium in any year.
"PRODUCTION LEVEL" is measured by the amount of premiums paid to a
maximum of the 7-Pay premium associated with the full initial death
benefit for business issued and paid in 1999-2000.
15
<PAGE> 16
COMMISSION SCHEDULE FOR TRAVELERS CORPORATE VARIABLE LIFE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Excess Up To Excess Above Commission on
New Target Renewal Years Renewal Years TAMRA Premium TAMRA Premium Assets Years 8-
Premium 2-4 5-7 Years 1-7 Years 1-7 20
- ------------------------------------------------------------------------------------------------------------------------
15% 10% 4.5% 3.5% 2% 0.20%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bonus Production
Level
- ------------------------------------------------------------------------------------------------------------------------
0-4,999,999 0%
- ------------------------------------------------------------------------------------------------------------------------
5,000,000-
9,999,999 2%
- ------------------------------------------------------------------------------------------------------------------------
10,000,000-
24,999,999 3%
- ------------------------------------------------------------------------------------------------------------------------
25,000,000-
49,999,999 5%
- ------------------------------------------------------------------------------------------------------------------------
50,000,000+ 6%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Commission paid on all premiums years 8+: 0%
Bonus commission will be retroactive to the first dollar of paid target premium
only. Production levels will be measured from 1999 through 2000 year end for
the purposes of qualifying for a bonus.
COMMISSION SCHEDULE FOR TRAVELERS CORPORATE VARIABLE LIFE 2000
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Excess Commission on Commission on Commission on
Renewal Renewal Premium Assets Assets Assets
New Target Premium Yrs. 2-4 Yrs. 5-7 Yrs. 1-7 Yrs. 8-15 Yrs. 16-25 Yrs. 26+
- ----------------------------------------------------------------------------------------------------------------------------
18% 10% 4.5% 3.5% 0.20% 0.10% 0.05%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bonus Production Level
- ----------------------------------------------------------------------------------------------------------------------------
0-9,999,999 0%
- ----------------------------------------------------------------------------------------------------------------------------
10,000,000+ 3%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Bonus commission will be retroactive to the first dollar of paid target premium
only. Production levels will be measured on a calendar year for the purposes of
qualifying for the bonus.
16
<PAGE> 17
Pursuant to Section 16 of your Selling Agreement dated _______________, 1999,
the Selling Agreement is hereby amended to authorize you to sell Travelers
Corporate Variable Life 2000 . Compensation payable for sales of Travelers
Corporate Variable Life 2000 will be as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Excess Commission on Commission on Commission on
Renewal Renewal Premium Assets Assets Assets
New Target Premium Yrs. 2-4 Yrs. 5-7 Yrs. 1-7 Yrs. 8-15 Yrs. 16-25 Yrs. 26+
- --------------------------------------------------------------------------------------------------------------------------
18% 10% 4.5% 3.5% 0.20% 0.10% 0.05%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bonus Production Level
- --------------------------------------------------------------------------------------------------------------------------
0-9,999,999 0%
- --------------------------------------------------------------------------------------------------------------------------
10,000,000+ 3%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Bonus commission will be retroactive to the first dollar of paid target premium
only. Production levels will be measured on a calendar year for the purpose of
qualifying for the bonus. Commission will be paid consistent with applicable
law.
Chargebacks of Commissions:
<TABLE>
<S> <C>
A. If the Insurance Companies return all or a portion of a premium paid
with respect to an Insurance Product, Broker/Dealer shall be
obligated to refund to Insurance Companies applicable commissions on
the amount of such premium only where:
(i) consistent with the Selling Agreement, the Insurance
Product solicited is returned as not taken under the policy
"free look" provisions;
(ii) premiums are refunded due to overpayments, errors in
billing or in the timing of automatic premium collection
deductions, or errors resulting in policy reissue;
(iii) the check delivered in payment of any contract premium does
not clear and the premium collection deductions, or errors
resulting in policy reissue;
(iv) the Insurance policy on which commission payments were made
is terminated or premium is refunded because the Registered
Representative(s) or Broker-Dealer who sold the Insurance
Policy committed an act, error or omission which materially
contributed to the termination of the Insurance Policy or
the need to return premium;
(v) the issuing Insurance Company rejects the application;
(vi) a judicial or regulatory authority directs the issuing
Insurance Company to return premium payments without
assessment of a surrender charge;
(vii) the applicant's initial premium on a 1035 exchange is
returned because the expected rollover amount from another
policy or contract is not transferred due to the exchange
not meeting the legal requirements to qualify for a
tax-free exchange;
(viii) the issuing Insurance Company returns unearned premium on a
life insurance contract as required by the provisions of
the policy;
(ix) the issuing Insurance Company determines that it has a
legal liability to return premiums on a life insurance
contract within the first year after the Insurance Product
is issued; or
(x) the issuing Insurance Company and Broker/Dealer mutually
agree to return all or a portion of a premium with respect
to a particular contract or policy;
(xi) the Insurance Policy is surrendered within 90 days from the
date of issuance. In any case, Broker/Dealer and/or
Insurance Companies may offset amounts paid in commission
on surrendered policies from future sales.
</TABLE>
<PAGE> 18
- 2 -
The chargeback schedule for Travelers Corporate Variable Life 2000 is as
follows:
If the policy is surrendered after 90 days, but within the first three policy
years and the policy belonged to a case, the Broker/Dealer shall be obligated to
refund to the underwriter the following amounts:
(i) If the surrender is within the first policy year, 15% of
first year premium up to target premium plus 3.5% on all
first year premium in excess of target premium.
(ii) If the surrender is after the first policy year, but before
completion of the second, 7% of cumulative target premiums
plus 3.5% on cumulative premium in excess of cumulative
target premium.
(iii) If the surrender is after the second policy year, but
before completion of the third policy year, 3.5% of
cumulative target premiums plus 2.5% on cumulative premiums
in excess of cumulative target premiums.
Chargeback for a policy that does not belong to a case will be the same as that
for Travelers Corporate Variable Life.
As noted in Section 16 of the Selling Agreement, submission of applications for
Travelers Corporate Variable Life 2000 ratifies your consent to this Amendment.
The Travelers Insurance Company
The Travelers Life & Annuity Company
- -------------------------------
Stephen A. Miller
Vice President
#805
<PAGE> 1
EXHIBIT 5
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/ [SIG]
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.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<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
</TABLE>
A copy of the application and any riders follows the Settlement Options.
<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
RENEWAL 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
MINIMUM PARTIAL SURRENDER
AMOUNT: WE RESERVE THE RIGHT TO LIMIT THE MINIMUM
PARTIAL SURRENDER AMOUNT TO $500
SALES EXPENSE CHARGE: GUARANTEED NOT TO EXCEED [12%] UP TO TARGET PREMIUM ALL YEARS.
[8%] ABOVE TARGET PREMIUM ALL YEARS.
MONTHLY ADMINISTRATIVE
EXPENSE CHARGE: [$5.00] PER MONTH (GUARANTEED NOT TO EXCEED $10.00) [ALL]
YEARS, PLUS [$0.10] 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:
[FIXED FUND
ALLIANCE GROWTH PORTFOLIO
AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND
BANKERS TRUST SMALL CAP INDEX FUND
CAPITAL APPRECIATION FUND (JANUS)
DREYFUS CAPITAL APPRECIATION PORTFOLIO
DREYFUS SMALL CAP PORTFOLIO
EQUITY INCOME PORTFOLIO (FIDELITY)
EQUITY INDEX PORTFOLIO (GREENWICH STREET)
FIDELITY CONTRAFUND PORTFOLIO - SERVICE CLASS
FIDELITY VIP II ASSET MANAGER PORTFOLIO
LARGE CAP PORTFOLIO (FIDELITY)
FRANKLIN SMALL CAP INVESTMENTS FUND CLASS 2
JANUS BALANCED PORTFOLIO
JANUS GLOBAL TECHNOLOGY PORTFOLIO
JANUS WORLDWIDE GROWTH PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
MFS TOTAL RETURN PORTFOLIO
SALOMON BROTHERS VARIABLE CAPITAL FUND
SALOMON BROTHERS VARIABLE STRATEGIC BOND FUND
SALOMON BROTHERS VARIABLE TOTAL RETURN FUND
STRATEGIC STOCK PORTFOLIO
TRAVELERS CONVERTIBLE BOND PORTFOLIO
TRAVELERS HIGH YIELD BOND TRUST
TRAVELERS MONEY MARKET PORTFOLIO
TRAVELERS U.S. GOVERNMENT SECURITIES PORTFOLIO
WARBURG PINCUS TRUST EMERGING MARKETS PORTFOLIO
AIM CAPITAL APPRECIATION PORTFOLIO
BANKERS TRUST EAFE EQUITY INDEX FUND
DELAWARE SMALL CAP VALUE SERIES
DELAWARE INVESTMENTS REIT SERIES
DIVERSIFIED STRATEGIC GROWTH PORTFOLIO (GREENWICH STREET)
LAZARD INTERNATIONAL STOCK PORTFOLIO
SALOMON BROTHERS VARIABLE INVESTORS FUND
SMITH BARNEY LARGE CAPITALIZATION GROWTH PORTFOLIO
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
STRONG SCHAFER VALUE FUND II
TRAVELERS DISCIPLINED SMALL CAP PORTFOLIO
TRAVELERS DISCIPLINED MID CAP PORTFOLIO
VAN KAMPEN 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 0.1810 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
- --------------------------------------------------------------------------
MINIMUM AMOUNT INSURED: THE FOLLOWING PERCENTAGE OF THE CASH VALUE ARE THE
MINIMUM AMOUNT INSURED ON ANY POLICY ANNIVERSARY.
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
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.
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. This date will not be on
the 29th, 30th or 31st of any given month.
POLICY YEAR: each successive twelve-month period; the first beginning with the
Policy Date.
RENEWAL STATED AMOUNT: a dollar amount used to determine the Death Benefit of
the policy subsequent to the first Policy Year. Shown on the Policy Summary.
SEC: the Securities and Exchange Commission.
<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. It is equal to the Initial Stated Amount for the first Policy Year and
the Renewal Stated Amount thereafter. Shown on the Policy Summary.
UNDERWRITING PERIOD: the time from when We receive a completed application until
the Issue Date of the policy.
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.
REQUESTED CHANGES IN DEATH BENEFIT OPTIONS
<PAGE> 9
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 monthly 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.
The maximum guaranteed cost of insurance for any month is equal to C times the
result of A minus B where:
<PAGE> 10
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 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.
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. 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 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
<PAGE> 11
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.
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.
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
<PAGE> 12
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.
For transfers to and from the Fixed Account, please see the Fixed Account
Provision.
<PAGE> 13
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.
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.
<PAGE> 14
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.
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.
<PAGE> 15
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.
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.
<PAGE> 16
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).
<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.
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 110% of the Guaranteed Cost of
Insurance Rates plus $ 0.01 per month per $1,000 for the first 20 years. 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.
<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/ [SIG]
President
<PAGE> 1
EXHIBIT 8
PARTICIPATION AGREEMENT FOR INSURANCE MUTUAL FUNDS
Among
[Name of Fund]
and
THE TRAVELERS INSURANCE COMPANY AND
THE TRAVELERS LIFE AND ANNUITY COMPANY
THIS AGREEMENT effective May 1, 1998, made and entered into by and among
THE TRAVELERS INSURANCE COMPANY and THE TRAVELERS LIFE AND ANNUITY COMPANY
("Travelers" or "Company"), Connecticut corporations, on their own behalf and on
behalf of each segregated asset account of Travelers set forth on Schedule A as
may be amended from time to time (each such account hereinafter referred to as
the "Account"), and those series (the "Series"), set forth on Schedule B as may
be amended from time to time, of the (the "Fund"), a
Maryland Corporation, and L.P.(the "Underwriter").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act") and its shares
are registered under the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, the Fund was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life contracts
and variable annuity contracts to be offered by insurance companies which have
entered into participation agreements with the Fund ("Participating Insurance
Companies"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by appropriate corporate resolution of the Travelers'
Board of Directors to set aside and invest assets attributable to one or more
annuity contracts; and
WHEREAS, (the "Adviser") is registered as an
investment adviser with the Securities and Exchange Commission ("SEC") under the
Investment Advisers Act of 1940.
<PAGE> 2
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended, (the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. ("NASD"); and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act (the
"Contracts"); and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Funds on behalf of
each Account to fund certain of the aforesaid variable life and variable annuity
contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter on behalf of the Fund agrees to sell to Travelers
those Fund shares which each Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Fund. For purposes of this Section
1.1, Travelers shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that (i) Travelers has received such orders prior to the close of
regular trading on the New York Stock Exchange, Inc. (the "NYSE") (currently
4:00 p.m., Eastern time) on that Business Day, and (ii) the Fund receives notice
of such order by 11:00 a.m. Eastern Standard Time on the next Business Day.
Business Day shall have the meaning as defined in the Fund prospectus. Orders
that Travelers has received after the close of regular trading on the NYSE will
be treated as though received on the next Business Day. Each communication of
orders by Travelers will constitute a representation that such orders were
received by it prior to the close of regular trading on the NYSE on the Business
Day on which the purchase or redemption order is priced in accordance with Rule
22c-1 under the 1940 Act. Other procedures relating to the handling of orders
will be in accordance with the prospectus and statement of additional
information of the relevant series of shares of the Fund or with oral or written
instructions that the Underwriter or the Fund will forward to Travelers from
time to time.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Travelers and its
Accounts on each Business Day and the Fund shall use reasonable efforts to
calculate such net asset value on each Business Day. However, the Board of
Directors of the Fund (the "Board") may refuse to sell Fund shares to any
person, or suspend or terminate the offering of Fund shares if such action is
required by law or by
2
<PAGE> 3
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Fund.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts, and
other eligible accounts. No shares of any Fund will be sold to the general
public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Article XI of this Agreement is in effect to govern
such sales.
1.5. The Fund agrees to redeem for cash, on Travelers' request, any full
or fractional shares of the Fund held by Travelers or the Accounts, executing
such requests on a daily basis at the net asset value next computed after the
Fund or its designee receives the redemption request. For purposes of this
Section 1.5, Travelers shall be the designee of the Fund for receipt of
redemption requests from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
redemption request by 11:00 a.m. on the next Business Day.
1.6. Travelers shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1. Payment shall be in federal funds transmitted by wire. For purpose
of Section 2.9, upon receipt by the Fund of the federal funds so wired, such
funds shall cease to be the responsibility of Travelers and shall become the
responsibility of the Fund.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to Travelers or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Fund shall furnish same-day notice by facsimile or telephone,
(if by telephone, it must be followed by written confirmation) to Travelers of
any income, dividends or capital gain distributions payable on the Fund's
shares. Travelers hereby elects to receive all such income dividends and capital
gain distributions in additional shares of that Fund. Travelers reserves the
right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify Travelers of the
number of shares so issued as payment of such dividends and distributions.
1.9. The Fund shall use its best efforts to make the net asset value per
share for each Fund available to Travelers on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Eastern Standard Time. Neither the Fund, any Series, the Distributor, the
Adviser nor any of their affiliates shall be liable for any information provided
to
3
<PAGE> 4
the Company pursuant to this Agreement which information is based on incorrect
information supplied by the Company to the Fund, the Distributor or the Adviser.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. Travelers further represents and
warrants that it is an insurance company duly organized and in good standing
under the laws of the state of Connecticut and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 38a-433 of the Connecticut General Statutes.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with applicable law and that the Fund is and
shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund, Adviser or Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify Travelers immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.4. Travelers represents and warrants that the Contracts are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contracts, under applicable provisions of the Code and that it will make
every effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses, and the Fund and the Underwriter represent that their respective
operations are, and shall at all times remain, in material compliance with the
laws of the states of Maryland and Delaware, respectively, to the extent
required to perform this Agreement.
4
<PAGE> 5
2.6. The Underwriter represents and warrants that it is a NASD member in
good standing and is registered as a broker-dealer with the SEC. The Underwriter
further represents that it will sell and distribute the Fund shares in
accordance with all applicable state and federal securities laws and
regulations, including the 1933 Act, the 1934 Act, and the 1940 Act and the
Rules promulgated thereunder.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the state of Maryland and that it does and will
comply with the 1940 Act and the Rules promulgated thereunder.
2.8. The Adviser represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the Fund in compliance with any applicable
state and federal securities laws.
2.9. The Fund, Adviser and Underwriter each represent and warrant that
all of their respective directors, officers, employees, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-1 under the 1940 Act or
related provisions as may be promulgated from time to time. Such bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company, as determined solely in the discretion of the Fund, Adviser or
Underwriter, respectively.
2.10. Travelers represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund, in an amount not less than the minimal coverage as required currently
by entities subject to the requirements of Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. Such bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
2.11. Travelers represents and warrants that (i) neither it nor any of
its "affiliates" (as such term is defined in 29C.F.R. 2510.3-21(e)) is a
"fiduciary" of any employee benefit plan as such term is defined in section
3(21) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and section 4975 of the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) the receipt of fees hereunder will not constitute a
non-exempt "prohibited transaction" as such term is defined in section 406 of
ERISA and section 4975 of the Code.
2.12. Each party to this Agreement will maintain all records required by
law, including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Upon request by the Fund
or the Underwriter, Travelers agrees promptly to make copies or, if required,
originals of all records pertaining to the performance of services under this
Agreement available to the Fund, the Adviser or the Underwriter, as the case may
be. The Fund
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<PAGE> 6
agrees that Travelers will have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to the
requirements of any state insurance department. Each party also agrees promptly
to notify the other parties if it experiences any difficulty in maintaining the
records in an accurate and complete manner. This provision shall survive
termination of the Agreement.
ARTICLE III. Prospectuses and Proxy Solicitations
3.1. The Underwriter shall provide Travelers, at Travelers' expense,
with as many copies of the Fund's current prospectus (and any supplements
thereto) as Travelers may reasonably request. If requested by Travelers in lieu
thereof, the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and Statement of Additional Information and
other assistance as is reasonably necessary in order for Travelers once each
year (or more frequently if the prospectus for the Fund is amended) to have the
Prospectuses for the Contracts and the Fund printed simultaneously. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts which are invested in the Fund, in order to
update disclosure as required by the 1933 Act and/or the 1940 Act, the cost of
printing shall be borne by the Fund. If Travelers chooses to receive
camera-ready film or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus, the Fund will reimburse Travelers in an amount equal to
the product of A and B, where A is the number of such prospectuses distributed
to owners of the Contracts which are invested in the Fund, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information ("SAI") for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such SAI is available from
the Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such SAI to Travelers and to any owner/participant of a Contract or
prospective owner/participant who requests such SAI.
3.3. The Fund, at its expense, shall provide Travelers with copies of
its proxy material, reports to stockholders and other communications to
stockholders in such quantity as Travelers shall reasonably require for
distributing to Contract owners/participants.
3.4. If and to the extent required by law Travelers shall:
(i) solicit voting instructions from owners of or participants in
the Contract;
(ii) vote the Fund shares in accordance with instructions received
from owners of or participants in the Contract; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Fund for which
instructions have been received (so long as and to the extent that
the SEC continues to interpret the 1940 Act to require pass-through
voting privileges for variable contract owners). Travelers reserves
the right to vote Fund shares held in any segregated asset account
in its own right, to the extent permitted by law; provided,
however, that if Travelers votes
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Fund shares in any segregated asset account in its own right, it
shall not vote against management of the Fund unless it is required
to do so to fulfill its fiduciary duty to owners of Contracts.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(a) of the 1940 Act and, if and when
applicable, 16(b). Further, the Fund will act in accordance with the SEC's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of directors and with whatever rules the SEC may promulgate with
respect thereto.
ARTICLE IV. Sales Material and Information
4.1. Travelers will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAI's, reports, proxies, sales
literature and other promotional materials, applications for exemptive relief,
requests for no action letters, and all amendments, if any, on an annual basis.
4.2. Travelers shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or their respective designee(s) shall
furnish, or shall cause to be furnished, to Travelers or its designee, each
piece of sales literature or other promotional material in which Travelers
and/or its separate account(s), is named. No such material will be used until
any required governmental or self-regulatory authority (i.e., NASD) has approved
the material, if necessary.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of Travelers or concerning Travelers, the
Accounts, or the Contracts other than the information or representations
contained in the disclosure memoranda for the Contracts, as such document may be
amended or supplemented from time to time, or in published reports for each
Account which are in the public domain or approved by Travelers for distribution
to Contract owners, or in sales literature or other promotional material
approved by Travelers or its designee, except with the permission of Travelers.
4.5. The Fund will provide to Travelers at least one complete copy of
all registration statements, prospectuses, SAI, reports, proxy statements, sales
literature and other promotional
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<PAGE> 8
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares, on an
annual basis.
4.6. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published or designed for use in a newspaper, magazine or
other periodical, radio, television, Internet, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e. any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
ARTICLE V. Fees and Expenses
5.1. The Fund and/or Adviser shall pay to Travelers certain
administrative fees for administrative expenses and costs with respect to the
Contracts. Travelers will provide certain administrative services to owners of
the Contracts, as set forth on Schedule C. The administrative fees are set forth
on Schedule D.
5.2. To the extent permitted under applicable law, all expenses incident
to performance by the Fund under this Agreement shall be paid by the Fund. The
Fund shall see to it that all of its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus, registration statements and amendments thereto, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares. At its own expense, Travelers will distribute
such materials to the owners of the Contracts to the extent required by
applicable law, rules or regulations.
ARTICLE VI. Indemnification
6.1 Indemnification By Travelers
6.1(a). Travelers agrees to indemnify and hold harmless the Underwriter,
the Adviser, the Fund and each director of the Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
6.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of Travelers) or litigation
(including legal
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<PAGE> 9
and other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained
in the Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading; PROVIDED that this
agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to Travelers by or on behalf of the Fund, the Underwriter
or the Adviser for use in the Registration Statement or prospectus
for the Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund
not supplied by Travelers or persons under its control) or wrongful
conduct of Travelers or persons under its control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of Travelers or persons under
its control; or
(iv) arise as a result of any failure by Travelers to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Travelers in this Agreement
or arise out of or result from any other material breach of this
Agreement by Travelers, as limited by and in accordance with the
provisions of Sections 6.1(b) and 6.1(c) hereof.
6.1(b). Travelers shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or
9
<PAGE> 10
gross negligence in the performance of such Indemnified Party's duties under
this Agreement or to the Fund, whichever is applicable, or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.
6.1(c). Travelers shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Travelers in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Travelers of any
such claim shall not relieve Travelers from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, Travelers shall be entitled to participate, at
its own expense, in the defense of such action. Travelers also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from Travelers to such party of Travelers' election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and Travelers will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
6.1(d). The Indemnified Parties will promptly notify Travelers of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
6.2. Indemnification by the Underwriter
6.2(a). The Underwriter agrees to indemnify and hold harmless Travelers
and each of its directors and officers and each person, if any, who controls
Travelers within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 6.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading; PROVIDED that this
agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished
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<PAGE> 11
to the Adviser, the Underwriter or Fund by or on behalf of
Travelers for use in the Registration Statement or prospectus for
the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Adviser, the Underwriter, the Fund or
persons under their control) or wrongful conduct of the Fund,
Adviser or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the disclosure memoranda, or sales
literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to Travelers by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Adviser, Underwriter
or the Fund to provide the services and furnish the materials under
the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or Underwriter
in this Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser or Underwriter; as limited
by and in accordance with the provisions of Sections 6.2(b) and
6.2(c) hereof; or
(vi) arise as a result of the Company's providing the Fund
inaccurate information, which causes the Fund to calculate its NAV
incorrectly.
6.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties under this Agreement, or to
Travelers or the Account, as applicable, or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
Travelers or the Account, whichever is applicable.
6.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
11
<PAGE> 12
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
6.2(d). Travelers agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
6.3 Exclusion of Consequential Damages. Notwithstanding anything in this
Agreement to the contrary, in no event shall any party to this Agreement, its
affiliates or any of its or their respective directors, officers, employees,
agents or subcontractors be liable under any theory of tort, contract, strict
liability or other legal equitable theory for lost profits, exemplary, punitive,
special, indirect or consequential damages, each of which is hereby excluded by
Agreement of the parties regardless of whether such damages were foreseeable or
whether any party or any entity has been advised of the possibility of such
damages.
ARTICLE VII. Applicable Law
7.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of New York.
7.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE VIII. Termination
8.1. This Agreement shall terminate:
(a) at the option of any party upon 180 days' advance written
notice to the other parties; or
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(b) at the option of Travelers to the extent that shares of Funds
are not reasonably available to meet the requirements of the
Contracts as determined by Travelers in its sole reasonable
discretion; or
(c) at the option of the Fund in the event that formal
administrative proceedings are instituted against Travelers by the
NASD, the SEC, an Insurance Commissioner or any other regulatory
body regarding Travelers duties under this Agreement or related to
the sale of the Contracts, with respect to the operation of any
Account, or the purchase of the Fund shares, provided, however,
that the Fund or the Adviser determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of Travelers
to perform its obligations under this Agreement; or
(d) at the option of Travelers in the event that formal
administrative proceedings are instituted against the Fund, the
Underwriter or the Adviser by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body,
provided, however, that Travelers determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Fund,
the Underwriter or the Adviser to perform its obligations under
this Agreement; or
(e) with respect to any Account, upon requisite approval of the
State Insurance Department and Contract owners, if necessary; or
(f) at the option of Travelers, in the event any of the Fund's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by Travelers; or
(g) at the option of Travelers, if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if Travelers
reasonably believes that the Fund may fail to so qualify; or
(h) at the option of the Fund, the Adviser or the Underwriter, if
(1) the Fund, the Adviser or the Underwriter, respectively, shall
determine in good faith that Travelers has suffered a material
adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse
change or material adverse publicity will have a material adverse
impact upon the business and operations of the Fund, the Adviser or
the Underwriter, (2) the Fund, the Adviser or the Underwriter shall
notify Travelers in writing of such determination and its intent to
terminate this Agreement, and (3) after considering the actions
taken by Travelers and any other changes in
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<PAGE> 14
circumstances since the giving of such notice, such determination
of the Fund, the Adviser or the Underwriter shall continue to apply
on the sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of termination; or
(i) at the option of Travelers, if (1) Travelers shall determine in
good faith that either the Fund, the Adviser or the Underwriter has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and such
material adverse change or material adverse publicity will have a
material adverse impact upon the business and operations of
Travelers, (2) Travelers shall notify the Fund , the Adviser and
the Underwriter in writing of such determination and its intent to
terminate the Agreement, and (3) after considering the actions
taken by the Fund, the Adviser and/or the Underwriter and any other
changes in circumstances since the giving of such notice, such
determination shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall be
the effective date of termination; or
(j) at the option of the Fund, the Adviser or the Underwriter, if
Travelers gives the Fund, the Adviser and the Underwriter the
written notice specified in Section 8.1(a) hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement; PROVIDED,
however any termination under this Section 8.1(j) shall be
effective forty five (45) days after the notice specified in
Section 8.1(a) was given; or
(k) at the option of Travelers or the Fund upon the determination
by a majority of the Board, or a majority of the disinterested
directors of the Board, that an irreconcilable material conflict
exists among the interests of: (1) the contract owners of variable
insurance products of all some or all of the relevant separate
accounts; or (2) the interests of the insurance companies or other
eligible accounts investing in the Fund as set forth in Article XI
of this Agreement; or
(l) at the option of the Fund in the event that any of the
Contracts are not issued or sold in accordance with applicable
federal and/or state law. Such termination will be effective
immediately upon notice by the Fund.
8.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 8.1(a) may be exercised for any
reason or for no reason.
8.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to terminate
which notice shall set forth the basis for such termination. Furthermore,
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<PAGE> 15
(a) In the event that any termination is based upon the provisions
of Section 8.1(a), 8.1(h), 8.1(i) or 8.1(j) of this Agreement, such
prior written notice shall be given in advance of the effective
date of termination as required by such provisions; and
(b) in the event that any termination is based upon the provisions
of Section 8.1(c) or 8.1(d) of this Agreement, such prior written
notice shall be given at least ninety (90) days before the
effective date of termination.
8.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at Travelers' option, continue to
make available additional Fund shares pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (the "Existing Contracts"). Specifically, without limitation,
the owners of the Existing Contracts shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest in the
Fund upon the making of additional purchase payments under the Existing
Contracts. However, the availability of additional shares hereunder will be
subject to the restrictions and limitations set forth in Article XI, as
applicable.
Travelers agrees (i) to terminate the availability of shares of the Fund
to Contracts other than Existing Contracts and (ii) to request approval from the
SEC to replace shares of the Fund with other investments for existing Contracts
and, if and when granted such approval, thereafter to so replace the shares of
the Fund, in each case as soon as reasonable practicable.
8.5. Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VI to indemnify other parties
will survive and not be affected by any termination of this Agreement. In
addition, each party's obligations under Section 2.12 will survive and not be
affected by any termination of this Agreement. Finally, with respect to Existing
Contracts, all provisions of this Agreement also will survive and not be
affected by any termination of this Agreement.
ARTICLE IX. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the applicable party at the address set forth below or at such
other address as may be specified in writing to the other parties.
If to the Fund:
If to Travelers: Travelers Insurance Company
One Tower Square
15
<PAGE> 16
Hartford, Connecticut 06183
Attention: General Counsel
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<PAGE> 17
If to the Underwriter:
ARTICLE X. Miscellaneous
10.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability for obligations entered into on behalf of the Fund. To the extent such
claims relate to a specific Series of the Fund, such persons must look solely to
the property attributable to that Series.
10.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, without the express written consent of the affected party, shall
not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain.
10.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including the SEC, the NASD and state
insurance regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby. Each party hereto
further agrees to furnish any state insurance department with any information or
reports in connection with services provided under this Agreement if such state
so requests.
10.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
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10.8. No part of this Agreement may be assigned without the prior
written consent of the other parties. Such consent will not be unreasonably
withheld.
ARTICLE XI. Potential Conflicts
11.1. The Board will monitor the Fund for the existence of any
irreconcilable material conflict among the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by insurance companies participating in the Fund
("Participating Insurance Companies") or by variable annuity and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Board will promptly inform Travelers
if it determines that an irreconcilable material conflict exists and the
implications thereof.
11.2. Travelers will report any potential or existing conflicts of which
it is aware to the Fund Board. Travelers agrees to assist the Board in carrying
out its responsibilities, as delineated in the mixed and shared funding
exemptive order received by the Fund (the "Exemptive Order") by providing the
Board with all information necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by Travelers to
inform the Board whenever contract owner voting instructions are to be
disregarded. Traveler's responsibilities hereunder will be carried out with a
view only to the interest of contract owners.
11.3. If it is determined by a majority of the Board, or a majority of
its disinterested directors, that an irreconcilable material conflict exists,
Travelers will, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested directors), take whatever steps
are necessary to remedy or eliminate the irreconcilable material conflict, up to
and including: (a) withdrawing the assets allocable to some or all of the
Accounts from the Fund or any designated portfolio and reinvesting such assets
in a different investment medium, including (but not limited to) another
portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contract owners or variable life insurance contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected contract owners the option of making such a change;
and (b) establishing a new registered management investment company or managed
separate account.
11.4. If a material irreconcilable conflict arises because of a decision
by Travelers to disregard contract owner voting instructions, and Traveler's
judgment represents a minority position or would preclude a majority vote,
Travelers may be required, at the Fund's election, to withdraw the affected
subaccount of the Account's investment in the Fund and terminate this
18
<PAGE> 19
Agreement with respect to such subaccount; provided, however, that such
withdrawal and termination will be limited to the extent required by the
foregoing irreconcilable material conflict as determined a majority of the
disinterested trustees of the Board. No charge or penalty will be imposed as a
result to such withdrawal.
11.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Travelers conflicts with the
majority of other state insurance regulators, then Travelers will withdraw the
affected subaccount of the Account's investment in the Fund and terminate this
Agreement with respect to such subaccount, provided, however, that such
withdrawal and termination will be limited to the extent required by the
foregoing irreconcilable material conflict as determined by a majority of the
disinterested directors of the Board. No charge or penalty will be imposed as a
result of such withdrawal.
11.6. For purposes of Sections 11.3 through 11.6 of this Agreement, a
majority of the disinterested members of the Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund or the Adviser (or any other investment adviser to the
Fund) be required to establish a new funding medium for the Contracts. Travelers
will not be required by Section 11.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
contract owners materially affected by the irreconcilable material conflict.
11.7. Travelers will at least annually submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out the duties imposed upon it as delineated in the Exemptive Order,
and said reports, materials and data will be submitted more frequently if deemed
appropriate by the Board.
11.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) as amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then: (a) the Fund and/or
the Participating Insurance Companies, as appropriate, will take such steps as
may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable, and (b) Sections 3.4,
3.5, 11.1, 11.2, 11.3, 11.4, and 11.5 of this Agreement will continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
11.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event within 90 days
after the end of each fiscal year;
19
<PAGE> 20
(b) the Company's quarterly statements (statutory) (and GAAP,
if any), as soon as practical and in any event within 45
days after the end of each quarterly period;
(c) any financial statement, proxy statement, notice or report
of the Company sent to stockholders and/or policyholders,
as soon as practical after the delivery thereof to
stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities
and Exchange Commission or any state insurance regulator,
as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
THE TRAVELERS INSURANCE COMPANY
By its authorized officer,
By:
------------------------------------------
Title: Senior Vice President
---------------------------------------
Date:
----------------------------------------
20
<PAGE> 21
THE TRAVELERS LIFE AND ANNUITY COMPANY
By its authorized officer,
By:
------------------------------------------
Title: Senior Vice President
---------------------------------------
Date:
----------------------------------------
Fund:
By its authorized officer,
By:
------------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
Underwriter:
By its authorized officer,
By:
------------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
Adviser:
---------------------------------------------
By its authorized officer,
By:
------------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
21
<PAGE> 22
Schedule A
Separate Account(s)
Travelers Separate Account QP for Variable Annuities
Travelers Separate Account ABD for Variable Annuities
Travelers Separate Account ABD II for Variable Annuities
Travelers Separate Account TM for Variable Annuities
Travelers Separate Account TM II for Variable Annuities
Travelers Separate Account Five for Variable Annuities
Travelers Separate Account Six for Variable Annuities
22
<PAGE> 23
Schedule B
Mutual Funds
23
<PAGE> 24
SCHEDULE C
ADMINISTRATIVE SERVICES FOR THE FUND
MAINTENANCE OF BOOKS AND RECORDS
- - Maintaining a record of share purchases to assist transfer agent in
recording issuances of shares.
- - Performing miscellaneous account services to assist transfer agent in
recording transfers of shares (via net purchase orders).
- - Reconciliation and balancing of the separate account at the Fund level in
the general ledger and reconciliation of cash accounts at general
account.
PURCHASE ORDERS
- - Determination of net amount of cash flow into Fund.
- - Reconciliation and deposit of receipts at Fund and confirmation thereof.
REDEMPTION ORDERS
- - Determination of net amount required for redemptions by Fund.
- - Notification to Fund of cash required to meet payments for redemption.
REPORTS
- - Periodic information reporting to the Fund as mutually agreed to in
writing by the Insurer and the Fund.
FUND-RELATED CONTRACT OWNER SERVICES
- - Telephonic support for Contract owners and Policy Holders with respect to
inquiries about the Fund (not including information about performance or
related to sales).
OTHER ADMINISTRATIVE SUPPORT
- - Sub-Accounting services as mutually agreed to in writing by the Insurer
and the Fund.
- - Providing other adminstrative support to the Fund as mutually agreed to
in writing by the Insurer and the Fund.
24
<PAGE> 25
- - Relieving the Fund of other usual or incidental administrative services
provided to individual shareholders as mutually agreed to in writing by
the Insurer and the Fund.
- - Preparation of reports to certain third-party reporting services as
mutually agreed to in writing by the Insurer and the Fund.
25
<PAGE> 26
Schedule D
Fees
The applicable annual fee shall be forty basis points (.40%) of the aggregate
investments in the portfolios of the Fund by all separate accounts of the
Insurer related to Contracts as a percentage of the average daily net asset
value of such investments.
26
<PAGE> 1
Exhibit 10
THE TRAVELERS INSURANCE COMPANY - ONE TOWER SQUARE - HARTFORD, CT - 06183
- -------------------------------------------------------------------------------
APPLICATION FOR CORPORATE OWNED LIFE INSURANCE
- -------------------------------------------------------------------------------
NAME OF CORPORATION: _____________________________________________________
NAME OF POLICY OWNER: _____________________________________________________
ADDRESS OF POLICY OWNER: _____________________________________________________
POLICY OWNER TAX ID #: _________________ POLICY DATE: ______________
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
Benefit Benefit Increase Death
Benefit
BENEFICIARY: _____________________________________________________
_____________________________________________________
Is the Beneficiary designation irrevocable? _____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 Travelers Insurance Company 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.
Based on information provided by the Corporation, it is my understanding that
for the most recent 90 days, 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
Based on information provided by the Corporation, it is my understanding that
during the most recent 90 days, none of the Proposed Insureds have been
hospitalized or absent from work (other than 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 on these insureds?
_____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 forms 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:______________________
<PAGE> 2
SCHEDULE A
<TABLE>
<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
<PAGE> 3
THE TRAVELERS INSURANCE COMPANY - ONE TOWER SQUARE - HARTFORD, CT - 06183
- ------------------------------------------------------------------------------
SUPPLEMENT FOR SIMPLIFIED ISSUE LIFE INSURANCE
- ------------------------------------------------------------------------------
NAME OF PROPOSED INSURED:______________________________________________________
PROPOSED INSURED SSN: __________________PROPOSED INSURED DOB:_______GENDER:____
NAME OF POLICY OWNER: ________________________________________________________
ADDRESS OF POLICY OWNER:_______________________________________________________
___________________________________________________________
BENEFICIARY: ___________________________________________________________
___________________________________________________________
- ------------------------------------ --------------------------------------
Signature of Agent Signature of Owner
Dated:______________________________ Dated:________________________________
- ------------------------------------------------------------------------------
SECTION B:
1. Personal Physician (Give full name, address and telephone number of your
doctor who you consult for routine check-ups and physicals):___________________
_______________________________________________________________________________
Date and Reason last consulted: ______________________________________________
2. Proposed Insured: Height __________ Weight __________ Amount of weight loss
in past 12 months ______________
(If weight loss, please explain below)
<TABLE>
<CAPTION>
<S> <C>
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 in the future? _____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 alcoholism? _____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
</TABLE>
<PAGE> 4
SECTION B CONTINUED:
<TABLE>
<S> <C>
5. In the past 10 years have you:
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 been hospitalized 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)
Name of Proposed Insured (printed):____________________________________________
<PAGE> 5
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 26 months.
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-A
- -------------------------------------------------------------------------------
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-A
<PAGE> 1
Exhibit 11
April 6, 2000
The Travelers Insurance Company
The Travelers Fund UL III for Variable Life Insurance
One Tower Square
Hartford, Connecticut 06183
Gentlemen:
With reference to the Registration Statement, File No. 333-94779, on Form
S-6 filed by The Travelers Insurance Company and The Travelers Fund UL III for
Variable Life Insurance with the Securities and Exchange Commission covering
variable life insurance policies, I have examined such documents and such law as
I have considered necessary and appropriate, and on the basis of such
examination, it is my opinion that:
1. The Travelers Insurance Company is duly organized and
existing under the laws of the State of Connecticut and has
been duly authorized to do business and to issue variable
life insurance policies by the Insurance Commission of the
State of Connecticut.
2. The Travelers Fund UL III for Variable Life Insurance is a
duly authorized and validly existing separate account
established pursuant to Section 38a-433 of the Connecticut
General Statutes.
3. The variable life insurance policies covered by the above
Registration Statement, will be approved and authorized by
the Insurance Commissioner of the State of Connecticut and
when issued will be valid, legal and binding obligations of
The Travelers Insurance Company and The Travelers Fund UL
III for Variable Life Insurance.
4. Assets of The Travelers Fund UL III for Variable Life
Insurance are not chargeable with liabilities arising out of
any other business The Travelers Insurance Company may
conduct.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this opinion under the caption
"Legal Proceedings and Opinion" in the Prospectus constituting a part of the
Registration Statement.
Very truly yours,
/s/Kathleen A. McGah
Deputy General Counsel
The Travelers Insurance Company
<PAGE> 1
THE TRAVELERS FUND UL III FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, GEORGE C. KOKULIS of Simsbury, Connecticut, Director,
President and Chief Executive Officer of The Travelers Insurance Company
(hereafter the "Company"), do hereby make, constitute and appoint ERNEST J.
WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of
said Company, or either one of them acting alone, my true and lawful
attorney-in-fact, for me, and in my name, place and stead, to sign registration
statements on behalf of said Company on Form S-6 or other appropriate form under
the Securities Act of 1933 for The Travelers Fund UL III for Variable Life
Insurance, a separate account of the Company dedicated specifically to the
funding of variable life insurance contracts to be offered by said Company, and
further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of
April 2000.
/s/George C. Kokulis
Director, President and
Chief Executive Officer
The Travelers Insurance Company
<PAGE> 2
THE TRAVELERS FUND UL III FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, KATHERINE M. SULLIVAN of Longmeadow, Massachusetts, a
Director of The Travelers Insurance Company (hereafter the "Company"), do hereby
make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and
KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them
acting alone, my true and lawful attorney-in-fact, for me, and in my name, place
and stead, to sign registration statements on behalf of said Company on Form S-6
or other appropriate form under the Securities Act of 1933 for The Travelers
Fund UL III for Variable Life Insurance, a separate account of the Company
dedicated specifically to the funding of variable life insurance contracts to be
offered by said Company, and further, to sign any and all amendments thereto,
including post-effective amendments, that may be filed by the Company on behalf
of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of
March 2000.
/s/ Katherine M. Sullivan
Director
The Travelers Insurance Company
<PAGE> 3
THE TRAVELERS FUND UL III FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, GLENN D. LAMMEY of Simsbury, Connecticut, Chief Financial
Officer, Chief Accounting Officer and Controller of The Travelers Insurance
Company (hereafter the "Company"), do hereby make, constitute and appoint ERNEST
J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary
of said Company, or either one of them acting alone, my true and lawful
attorney-in-fact, for me, and in my name, place and stead, to sign registration
statements on behalf of said Company on Form S-6 or other appropriate form under
the Securities Act of 1933 for The Travelers Fund UL III for Variable Life
Insurance, a separate account of the Company dedicated specifically to the
funding of variable life insurance contracts to be offered by said Company, and
further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of
March 2000.
/s/ Glenn D. Lammey
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Insurance Company
