<PAGE> 1
ANNUAL REPORT
DECEMBER 31, 1998
THE TRAVELERS FUND U
FOR VARIABLE ANNUITIES
[Travelers Life & Annuity Logo]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
THE TRAVELERS FUND U
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
American Odyssey Funds, Inc, 100,174,407 shares (cost $1,272,119,270) ................ $1,462,550,218
Capital Appreciation Fund, 9,670,058 shares (cost $390,090,039) ...................... 703,400,024
Dreyfus Stock Index Fund, 14,098,835 shares (cost $323,295,720) ...................... 458,494,127
Dreyfus Variable Investment Fund, 76,621 shares (cost $3,646,631) .................... 4,130,658
Fidelity's Variable Insurance Products Fund, 50,745,359 shares (cost $1,081,504,059) . 1,563,969,344
Fidelity's Variable Insurance Products Fund II, 26,705,008 shares (cost $400,949,686) 484,962,953
High Yield Bond Trust, 2,757,464 shares (cost $25,526,235) ........................... 27,161,021
Managed Assets Trust, 13,465,838 shares (cost $193,315,949) .......................... 269,182,111
Templeton Variable Products Series Fund, 28,812,922 shares (cost $550,672,389) ....... 608,442,345
The Travelers Series Trust, 7,993,731 shares (cost $109,444,039) ..................... 125,213,637
Travelers Series Fund Inc, 8,803,383 shares (cost $148,781,661) ...................... 175,707,028
--------------
Total Investments (cost $4,499,345,678) .............................................. $5,883,213,466
Receivables:
Dividends ............................................................................ 4,708,723
Purchase payments and transfers from other Travelers accounts ........................ 7,595,768
Other assets ......................................................................... 11,523
--------------
Total Assets ......................................................................... 5,895,529,480
--------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts ........................ 6,724,449
Insurance charges .................................................................... 1,596,904
Accrued liabilities .................................................................. 12,769
--------------
Total Liabilities .................................................................... 8,334,122
--------------
NET ASSETS: $5,887,195,358
==============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 3
THE TRAVELERS FUND U
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends .................................................................. $366,919,897
EXPENSES:
Insurance charges .......................................................... 65,378,641
------------
Net investment income ...................................................... 301,541,256
------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ............................................. $ 465,819,528
Cost of investments sold ................................................... 340,260,334
-------------
Net realized gain (loss) ................................................... 125,559,194
Change in unrealized gain (loss) on investments:
Unrealized gain at December 31, 1997 ....................................... 956,362,708
Unrealized gain at December 31, 1998 ....................................... 1,383,867,788
-------------
Net change in unrealized gain (loss) for the year .......................... 427,505,080
------------
Net realized gain (loss) and change in unrealized gain (loss) .............. 553,064,274
------------
Net increase in net assets resulting from operations ....................... $854,605,530
============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
THE TRAVELERS FUND U
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income ......................................... $ 301,541,256 $ 161,930,807
Net realized gain (loss) from investment transactions ......... 125,559,194 72,407,656
Net change in unrealized gain (loss) on investments ........... 427,505,080 435,174,112
--------------- ---------------
Net increase in net assets resulting from operations .......... 854,605,530 669,512,575
--------------- ---------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 372,315,281 and 395,816,541 units, respectively) 788,454,196 732,814,435
Participant transfers from other Travelers accounts
(applicable to 481,886,548 and 397,904,050 units, respectively) 991,422,546 771,742,729
Administrative and asset allocation charges
(applicable to 11,515,000 and 10,568,739 units, respectively) . (20,522,746) (17,242,427)
Contract surrenders
(applicable to 168,802,399 and 121,741,746 units, respectively) (364,757,379) (231,169,965)
Participant transfers to other Travelers accounts
(applicable to 504,720,342 and 364,257,359 units, respectively) (1,021,491,251) (687,667,857)
Other payments to participants
(applicable to 4,642,537 and 3,523,791 units, respectively) ... (10,989,089) (6,638,728)
--------------- ---------------
Net increase in net assets resulting from unit transactions ... 362,116,277 561,838,187
--------------- ---------------
Net increase in net assets .................................... 1,216,721,807 1,231,350,762
NET ASSETS:
Beginning of year ............................................. 4,670,473,551 3,439,122,789
--------------- ---------------
End of year ................................................... $ 5,887,195,358 $ 4,670,473,551
=============== ===============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund U for Variable Annuities ("Fund U") is a separate account of
The Travelers Insurance Company ("The Travelers"), an indirect wholly owned
subsidiary of Citigroup Inc. (formerly Travelers Group Inc.), and is available
for funding certain variable annuity contracts issued by The Travelers. Fund U
is registered under the Investment Company Act of 1940, as amended, as a unit
investment trust.
Participant purchase payments applied to Fund U are invested in one or more
eligible funds in accordance with the selection made by the contract owner. As
of December 31, 1998, the eligible funds available under Fund U were: Managed
Assets Trust; High Yield Bond Trust; Capital Appreciation Fund; U.S. Government
Securities Portfolio, Social Awareness Stock Portfolio, Utilities Portfolio and
Disciplined Mid Cap Stock Portfolio of The Travelers Series Trust; American
Odyssey Core Equity Fund, American Odyssey Emerging Opportunities Fund, American
Odyssey International Equity Fund, American Odyssey Long-Term Bond Fund,
American Odyssey Intermediate-Term Bond Fund and American Odyssey Global
High-Yield Bond Fund, (formerly American Odyssey Short-Term Bond Fund) of
American Odyssey Funds, Inc.; Alliance Growth Portfolio, Smith Barney High
Income Portfolio, Smith Barney International Equity Portfolio, Smith Barney
Large Cap Value Portfolio, (formerly Smith Barney Income and Growth Portfolio),
Putnam Diversified Income Portfolio and MFS Total Return Portfolio of Travelers
Series Fund Inc. (all of which are managed by affiliates of The Travelers);
Templeton Bond Fund (Class 1 shares), Templeton Stock Fund (Class 1 shares) and
Templeton Asset Allocation Fund (Class 1 shares) of Templeton Variable Products
Series Fund; High Income Portfolio, Growth Portfolio and Equity-Income Portfolio
of Fidelity's Variable Insurance Products Fund; Asset Manager Portfolio of
Fidelity's Variable Insurance Products Fund II; Dreyfus Stock Index Fund; and
Small Cap Portfolio of Dreyfus Variable Investment Fund. All of the funds are
Massachusetts business trusts, except for American Odyssey Funds, Inc., Dreyfus
Stock Index Fund and Travelers Series Fund Inc. which are incorporated under
Maryland law. Not all funds may be available in all states or to all contract
owners.
Effective May 1, 1996, G.T. Global Strategic Income Portfolio of Travelers
Series Fund Inc. is no longer available to new contract owners under Fund U.
The following is a summary of significant accounting policies consistently
followed by Fund U 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 U 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 U. Fund U is not taxed as a "regulated investment
company" under Subchapter M of the Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
-4-
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$1,159,666,636 and $465,819,528 respectively, for the year ended December 31,
1998. Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was
$4,499,345,678 at December 31, 1998. Gross unrealized appreciation for all
investments at December 31, 1998 was $1,403,634,326. Gross unrealized
depreciation for all investments at December 31, 1998 was $19,766,538.
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by The
Travelers. These charges are equivalent to 1.25% of the average net assets of
Fund U on an annual basis. Additionally, for certain contracts in the
accumulation phase, a semi-annual charge of $15 (prorated for partial periods)
is deducted from participant account balances and paid to The Travelers to cover
administrative charges.
No sales charge is deducted from participant purchase payments when they are
received. However, The Travelers assesses a 5% contingent deferred sales charge
if a participant's purchase payment is surrendered within five years of its
payment date. Contract surrender payments include $4,408,181 and $3,008,227 of
contingent deferred sales charges for the years ended December 31, 1998 and
1997, respectively.
Participants in American Odyssey Funds, Inc. (the "Funds"), may elect to enter
into a separate asset allocation advisory agreement with Copeland Financial
Services, Inc. ("Copeland"), an affiliate of The Travelers. Under this
arrangement, Copeland provides asset allocation advice and charges participants
an annual fee, plus a one-time set-up fee of $30. The annual fee, which
decreases as a participant's assets in the Funds increase, is equivalent to an
amount of up to 1.50% of the participant's assets in the Funds. These fees
totaled $13,404,283 and $11,010,765, for the years ended December 31, 1998 and
1997, respectively.
4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE
Approximately $31,559,000 and $25,260,000 of the net assets of Fund U were held
on behalf of an affiliate of The Travelers as of December 31, 1998 and 1997,
respectively. Transactions with this affiliate during the years ended December
31, 1998 and 1997, comprised participant purchase payments of approximately
$7,573,000 and $5,887,000 and contract surrenders of approximately $5,810,000
and $1,691,000, respectively.
-5-
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------
ACCUMULATION ANNUITY UNIT NET
UNITS UNITS VALUE ASSETS
<S> <C> <C> <C> <C>
American Odyssey Funds, Inc
American Odyssey Core Equity Fund .............. 187,856,988 15,130 $2.445 $ 459,338,707
American Odyssey Emerging Opportunities Fund ... 187,711,004 6,144 1.390 260,993,787
American Odyssey Intermediate-Term Bond Fund ... 93,432,585 23,495 1.317 123,044,905
American Odyssey International Equity Fund ..... 161,676,128 13,694 1.806 292,007,309
American Odyssey Long-Term Bond Fund ........... 170,041,767 25,189 1.456 247,546,565
American Odyssey Global High-Yield Bond Fund ... 70,744,301 2,952 1.125 79,558,468
Capital Appreciation Fund
Qualified ...................................... 104,701,967 30,046 6.033 631,875,343
Non-qualified .................................. 11,492,664 81,653 6.257 72,419,571
Dreyfus Stock Index Fund .......................... 147,319,359 211,272 3.110 458,811,708
Dreyfus Variable Investment Fund
Small Cap Portfolio ............................ 4,814,869 -- 0.860 4,141,281
Fidelity's Variable Insurance Products Fund
Equity-Income Portfolio ........................ 243,694,109 269,690 2.335 569,681,542
Growth Portfolio ............................... 295,899,892 80,589 3.033 897,633,995
High Income Portfolio .......................... 49,283,050 63,928 1.939 95,668,301
Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio ........................ 226,483,130 172,192 2.135 484,014,757
High Yield Bond Trust
Qualified ...................................... 6,954,217 5,241 3.432 23,886,196
Non-qualified .................................. 1,001,509 9,234 3.468 3,505,127
Managed Assets Trust
Qualified ...................................... 53,802,720 97,378 4.462 240,481,766
Non-qualified .................................. 5,892,971 65,444 4.802 28,614,136
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund (Class 1 shares) 105,739,956 83,792 2.176 230,261,889
Templeton Bond Fund (Class 1 shares) ........... 9,828,287 34,459 1.447 14,273,474
Templeton Stock Fund (Class 1 shares) .......... 164,430,295 49,156 2.211 363,615,535
</TABLE>
-6-
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------
ACCUMULATION ANNUITY UNIT NET
UNITS UNITS VALUE ASSETS
<S> <C> <C> <C> <C>
The Travelers Series Trust
Social Awareness Stock Portfolio ............... 13,304,949 -- $2.842 $ 37,811,626
Disciplined Mid Cap Stock Portfolio ............ 1,388,007 -- 1.040 1,443,350
US Government Securities Portfolio ............. 36,314,931 24,293 1.602 58,218,268
Utilities Portfolio ............................ 16,377,929 -- 1.969 32,242,764
Travelers Series Fund Inc
Alliance Growth Portfolio ...................... 31,608,776 4,257 2.664 84,214,600
GT Global Strategic Income Portfolio ........... 239,757 -- 1.446 346,697
MFS Total Return Portfolio ..................... 22,732,253 19,187 1.798 40,904,588
Putnam Diversified Income Portfolio ............ 7,549,029 -- 1.275 9,624,915
Smith Barney International Equity Portfolio .... 8,375,884 -- 1.408 11,790,989
Smith Barney High Income Portfolio ............. 2,256,378 -- 1.400 3,159,821
Smith Barney Large Cap Value Portfolio ......... 13,019,264 18,586 1.999 26,063,378
--------------
Net Contract Owners' Equity ....................... $5,887,195,358
==============
</TABLE>
-7-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
-------------- --------------
<S> <C> <C>
AMERICAN ODYSSEY FUNDS, INC. (24.9%)
American Odyssey Core Equity Fund (Cost $337,267,230) 22,285,432 $ 459,302,763
American Odyssey Emerging Opportunities Fund (Cost $271,875,601) 19,931,710 260,906,082
American Odyssey Intermediate-Term Bond Fund (Cost $114,183,514) 11,054,995 123,042,089
American Odyssey International Equity Fund (Cost $242,285,655) 17,346,644 292,290,958
American Odyssey Long-Term Bond Fund (Cost $223,272,832) 21,539,184 247,485,222
American Odyssey Global High-Yield Bond Fund (Cost $83,234,438) 8,016,442 79,523,104
-------------- --------------
Total (Cost $1,272,119,270) 100,174,407 1,462,550,218
-------------- --------------
CAPITAL APPRECIATION FUND (11.9%)
Total (Cost $390,090,039) 9,670,058 703,400,024
-------------- --------------
DREYFUS STOCK INDEX FUND (7.8%)
Total (Cost $323,295,720) 14,098,835 458,494,127
-------------- --------------
DREYFUS VARIABLE INVESTMENT FUND (0.1%)
Small Cap Portfolio
Total (Cost $3,646,631) 76,621 4,130,658
-------------- --------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (26.6%)
Equity-Income Portfolio (Cost $429,712,702) 22,434,450 570,283,727
Growth Portfolio (Cost $552,128,880) 20,013,823 898,020,219
High Income Portfolio (Cost $99,662,477) 8,297,086 95,665,398
-------------- --------------
Total (Cost $1,081,504,059) 50,745,359 1,563,969,344
-------------- --------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (8.2%)
Asset Manager Portfolio
Total (Cost $400,949,686) 26,705,008 484,962,953
-------------- --------------
HIGH YIELD BOND TRUST (0.5%)
Total (Cost $25,526,235) 2,757,464 27,161,021
-------------- --------------
MANAGED ASSETS TRUST (4.6%)
Total (Cost $193,315,949) 13,465,838 269,182,111
-------------- --------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (10.3%)
Templeton Asset Allocation Fund (Class 1 shares) (Cost $185,676,734) 10,251,485 230,248,348
Templeton Bond Fund (Class 1 shares) (Cost $13,997,495) 1,289,548 14,275,291
Templeton Stock Fund (Class 1 shares) (Cost $350,998,160) 17,271,889 363,918,706
-------------- --------------
Total (Cost $550,672,389) 28,812,922 608,442,345
-------------- --------------
</TABLE>
-8-
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
-------------- --------------
<S> <C> <C>
THE TRAVELERS SERIES TRUST (2.1%)
Social Awareness Stock Portfolio (Cost $27,238,499) 1,455,318 $ 37,721,833
Disciplined Mid Cap Stock Portfolio (Cost $1,259,845) 99,013 1,419,849
U.S. Government Securities Portfolio (Cost $54,626,254) 4,564,485 53,860,922
Utilities Portfolio (Cost $26,319,441) 1,874,915 32,211,033
-------------- --------------
Total (Cost $109,444,039) 7,993,731 125,213,637
-------------- --------------
TRAVELERS SERIES FUND INC. (3.0%)
Alliance Growth Portfolio (Cost $66,891,549) 3,201,722 84,237,298
G.T. Global Strategic Income Portfolio (Cost $389,279) 30,704 346,644
MFS Total Return Portfolio (Cost $35,497,985) 2,402,123 40,908,153
Putnam Diversified Income Portfolio (Cost $9,720,622) 802,067 9,624,801
Smith Barney International Equity Portfolio (Cost $10,698,871) 827,889 11,375,201
Smith Barney High Income Portfolio (Cost $3,346,925) 249,772 3,162,107
Smith Barney Large Cap Value Portfolio (Cost $22,236,430) 1,289,106 26,052,824
-------------- --------------
Total (Cost $148,781,661) 8,803,383 175,707,028
-------------- --------------
TOTAL INVESTMENT OPTIONS (100%)
(COST $4,499,345,678) $5,883,213,466
==============
</TABLE>
-9-
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
AMERICAN ODYSSEY CORE AMERICAN ODYSSEY EMERGING
EQUITY FUND OPPORTUNITIES FUND
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 46,677,574 $ 8,890,605 $ -- $ --
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges ................................. 5,425,624 4,324,513 3,115,429 2,631,943
------------- ------------- ------------- -------------
Net investment income (loss) ...................... 41,251,950 4,566,092 (3,115,429) (2,631,943)
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 49,606,277 33,809,653 12,399,704 9,117,630
Cost of investments sold .......................... 23,755,070 18,900,898 9,569,848 7,875,469
------------- ------------- ------------- -------------
Net realized gain (loss) .......................... 25,851,207 14,908,755 2,829,856 1,242,161
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 131,243,327 61,748,969 12,099,286 (2,810,922)
Unrealized gain (loss) end of year ................ 122,035,533 131,243,327 (10,969,519) 12,099,286
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year . (9,207,794) 69,494,358 (23,068,805) 14,910,208
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ......................... 57,895,363 88,969,205 (23,354,378) 13,520,426
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments ..................... 81,763,760 72,351,602 53,638,920 53,062,153
Participant transfers from other Travelers accounts 37,206,594 39,457,117 45,760,051 59,831,562
Administrative and asset allocation charges ....... (4,838,233) (4,157,185) (2,732,557) (2,270,384)
Contract surrenders ............................... (33,129,517) (18,618,898) (18,278,210) (11,252,387)
Participant transfers to other Travelers accounts . (77,563,428) (60,229,334) (43,769,243) (42,177,386)
Other payments to participants .................... (305,480) (370,330) (168,407) (171,002)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from unit transactions .................. 3,133,696 28,432,972 34,450,554 57,022,556
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ............. 61,029,059 117,402,177 11,096,176 70,542,982
NET ASSETS:
Beginning of year ................................. 398,309,648 280,907,471 249,897,611 179,354,629
------------- ------------- ------------- -------------
End of year ....................................... $ 459,338,707 $ 398,309,648 $ 260,993,787 $ 249,897,611
============= ============= ============= =============
<CAPTION>
AMERICAN ODYSSEY INTERMEDIATE-
TERM BOND FUND
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 565,998 $ 6,362,517
------------- -------------
EXPENSES:
Insurance charges ................................. 1,455,856 1,219,677
------------- -------------
Net investment income (loss) ...................... (889,858) 5,142,840
------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 7,357,934 3,205,114
Cost of investments sold .......................... 7,043,316 3,200,127
------------- -------------
Net realized gain (loss) .......................... 314,618 4,987
------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 223,245 (528,747)
Unrealized gain (loss) end of year ................ 8,858,575 223,245
------------- -------------
Net change in unrealized gain (loss) for the year . 8,635,330 751,992
------------- -------------
Net increase (decrease) in net assets
resulting from operations ......................... 8,060,090 5,899,819
------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments ..................... 20,537,920 20,362,793
Participant transfers from other Travelers accounts 33,156,307 11,369,417
Administrative and asset allocation charges ....... (1,326,654) (1,193,329)
Contract surrenders ............................... (9,223,413) (5,682,281)
Participant transfers to other Travelers accounts . (34,887,500) (14,300,408)
Other payments to participants .................... (84,470) (172,098)
------------- -------------
Net increase (decrease) in net assets
resulting from unit transactions .................. 8,172,190 10,384,094
------------- -------------
Net increase (decrease) in net assets ............. 16,232,280 16,283,913
NET ASSETS:
Beginning of year ................................. 106,812,625 90,528,712
------------- -------------
End of year ....................................... $ 123,044,905 $ 106,812,625
============= =============
</TABLE>
-10-
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
AMERICAN ODYSSEY INTERNATIONAL AMERICAN ODYSSEY LONG-TERM AMERICAN ODYSSEY GLOBAL HIGH-
EQUITY FUND BOND FUND YIELD BOND FUND CAPITAL APPRECIATION FUND
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 14,854,934 $ 5,135,358 $ 4,470,572 $ 11,895,892 $ 19,922 $ 2,958,254 $ 14,135,170 $ 2,303
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
3,312,672 2,640,266 2,935,546 2,337,838 886,667 667,260 6,012,974 3,750,873
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
11,542,262 2,495,092 1,535,026 9,558,054 (866,745) 2,290,994 8,122,196 (3,748,570)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
10,797,636 8,016,768 14,957,547 3,220,247 3,729,374 4,614,750 21,971,380 20,574,412
7,100,512 5,087,628 14,409,510 3,176,907 3,686,621 4,459,522 10,392,975 11,695,390
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
3,697,124 2,929,140 548,037 43,340 42,753 155,228 11,578,405 8,879,022
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
32,965,656 31,222,016 8,825,835 (1,239,032) (234,573) (325,577) 92,967,437 38,122,844
50,005,303 32,965,656 24,212,390 8,825,835 (3,711,334) (234,573) 313,309,985 92,967,437
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
17,039,647 1,743,640 15,386,555 10,064,867 (3,476,761) 91,004 220,342,548 54,844,593
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
32,279,033 7,167,872 17,469,618 19,666,261 (4,300,753) 2,537,226 240,043,149 59,975,045
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
53,964,961 49,655,210 45,702,320 43,961,028 14,988,891 9,944,329 79,270,131 61,332,506
36,619,915 34,564,644 40,315,496 17,572,634 51,325,396 10,615,108 161,977,456 105,427,417
(3,204,340) (2,561,423) (2,986,144) (2,500,236) (894,268) (632,821) (630,932) (418,474)
(20,115,640) (10,872,958) (16,952,126) (9,654,059) (5,092,328) (4,318,250) (27,972,894) (14,568,400)
(36,562,094) (35,630,438) (51,796,437) (20,429,789) (34,330,232) (9,902,383) (104,303,975) (74,419,737)
(90,422) (169,216) (102,409) (152,034) (30,199) (113,177) (877,684) (445,397)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
30,612,380 34,985,819 14,180,700 28,797,544 25,967,260 5,592,806 107,462,102 76,907,915
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
62,891,413 42,153,691 31,650,318 48,463,805 21,666,507 8,130,032 347,505,251 136,882,960
229,115,896 186,962,205 215,896,247 167,432,442 57,891,961 49,761,929 356,789,663 219,906,703
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 292,007,309 $ 229,115,896 $ 247,546,565 $ 215,896,247 $ 79,558,468 $ 57,891,961 $ 704,294,914 $ 356,789,663
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
-11-
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND SMALL CAP PORTFOLIO EQUITY-INCOME PORTFOLIO
--------------------------- ------------------- ---------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 5,800,637 $ 10,714,171 $ 41,649 $ -- $ 32,590,206 $ 36,205,951
------------ ------------ ------------ ---- ------------ ------------
EXPENSES:
Insurance charges ................................. 4,491,740 2,476,800 15,334 -- 6,842,230 5,331,099
------------ ------------ ------------ ---- ------------ ------------
Net investment income (loss) ...................... 1,308,897 8,237,371 26,315 -- 25,747,976 30,874,852
------------ ------------ ------------ ---- ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 16,018,909 17,192,210 5,622,928 -- 33,293,579 10,920,493
Cost of investments sold .......................... 8,909,613 11,339,403 5,896,492 -- 21,077,424 7,824,612
------------ ------------ ------------ ---- ------------ ------------
Net realized gain (loss) .......................... 7,109,296 5,852,807 (273,564) -- 12,216,155 3,095,881
------------ ------------ ------------ ---- ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 58,505,927 23,075,429 -- -- 127,348,119 63,108,308
Unrealized gain (loss) end of year ................ 135,198,407 58,505,927 484,027 -- 140,571,025 127,348,119
------------ ------------ ------------ ---- ------------ ------------
Net change in unrealized gain (loss) for the year . 76,692,480 35,430,498 484,027 -- 13,222,906 64,239,811
------------ ------------ ------------ ---- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ......................... 85,110,673 49,520,676 236,778 -- 51,187,037 98,210,544
------------ ------------ ------------ ---- ------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments ..................... 80,671,020 58,093,375 694,477 -- 74,658,757 73,087,953
Participant transfers from other Travelers accounts 134,900,117 115,423,432 10,602,881 -- 52,447,275 60,443,386
Administrative and asset allocation charges ....... (609,730) (366,845) (2,208) -- (642,381) (607,813)
Contract surrenders ............................... (20,907,506) (9,085,710) (23,435) -- (35,527,251) (24,170,321)
Participant transfers to other Travelers accounts . (88,144,761) (68,604,399) (7,366,668) -- (72,713,766) (48,152,884)
Other payments to participants .................... (696,649) (115,024) (544) -- (1,851,500) (962,104)
------------ ------------ ------------ ---- ------------ ------------
Net increase (decrease) in net assets
resulting from unit transactions .................. 105,212,491 95,344,829 3,904,503 -- 16,371,134 59,638,217
------------ ------------ ------------ ---- ------------ ------------
Net increase (decrease) in net assets ............. 190,323,164 144,865,505 4,141,281 -- 67,558,171 157,848,761
NET ASSETS:
Beginning of year ................................. 268,488,544 123,623,039 -- -- 502,123,371 344,274,610
------------ ------------ ------------ ---- ------------ ------------
End of year ....................................... $458,811,708 $268,488,544 $ 4,141,281 $ -- $569,681,542 $502,123,371
============ ============ ============ ==== ============ ============
</TABLE>
-12-
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO ASSET MANAGER PORTFOLIO HIGH YIELD BOND TRUST
- ----------------------------- ----------------------------- ----------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 88,523,163 $ 18,425,361 $ 11,574,745 $ 5,890,375 $ 57,148,255 $ 47,759,578 $ 1,876,659 $ 15,556
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
9,216,556 7,146,619 1,275,579 1,049,495 5,831,150 5,305,939 348,176 260,229
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
79,306,607 11,278,742 10,299,166 4,840,880 51,317,105 42,453,639 1,528,483 (244,673)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
33,362,222 24,444,197 16,425,963 7,602,544 37,768,088 32,100,976 6,813,491 2,578,842
17,803,231 13,454,359 14,802,190 7,111,302 31,507,759 26,194,585 5,931,421 2,421,860
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
15,558,991 10,989,838 1,623,773 491,242 6,260,329 5,906,391 882,070 156,982
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
197,882,791 109,388,267 14,018,911 6,850,898 81,897,954 56,292,058 2,694,688 (294,882)
345,891,339 197,882,791 (3,997,079) 14,018,911 84,013,267 81,897,954 1,634,786 2,694,688
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
148,008,548 88,494,524 (18,015,990) 7,168,013 2,115,313 25,605,896 (1,059,902) 2,989,570
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
242,874,146 110,763,104 (6,093,051) 12,500,135 59,692,747 73,965,926 1,350,651 2,901,879
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
85,134,952 88,418,316 14,356,459 14,091,057 35,223,767 39,588,152 3,200,947 3,005,673
72,900,644 60,466,620 24,860,418 28,094,443 20,421,148 17,071,727 11,597,997 7,899,649
(882,746) (822,318) (100,706) (97,833) (446,135) (477,687) (25,851) (23,482)
(49,161,771) (32,703,324) (8,203,135) (4,651,218) (37,864,291) (30,895,086) (2,675,319) (1,421,335)
(88,261,829) (85,247,732) (29,256,156) (20,517,566) (42,546,794) (40,149,202) (10,956,362) (4,345,577)
(1,185,267) (887,690) (221,371) (264,286) (1,650,068) (748,322) (73,257) (3,332)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
18,543,983 29,223,872 1,435,509 16,654,597 (26,862,373) (15,610,418) 1,068,155 5,111,596
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
261,418,129 139,986,976 (4,657,542) 29,154,732 32,830,374 58,355,508 2,418,806 8,013,475
636,215,866 496,228,890 100,325,843 71,171,111 451,184,383 392,828,875 24,972,517 16,959,042
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
$ 897,633,995 $ 636,215,866 $ 95,668,301 $ 100,325,843 $ 484,014,757 $ 451,184,383 $ 27,391,323 $ 24,972,517
============= ============= ============= ============= ============= ============= ============ ============
</TABLE>
-13-
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND
MANAGED ASSETS TRUST (CLASS 1 SHARES)
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................ $ 16,770,815 $ 6,205,545 $ 14,789,784 $ 18,290,587
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges ................................ 3,028,890 2,562,979 3,122,304 3,062,408
------------- ------------- ------------- -------------
Net investment income (loss) ..................... 13,741,925 3,642,566 11,667,480 15,228,179
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................... 14,756,579 12,128,997 44,487,185 6,959,543
Cost of investments sold ......................... 9,793,241 8,044,626 30,642,639 4,323,827
------------- ------------- ------------- -------------
Net realized gain (loss) ......................... 4,963,338 4,084,371 13,844,546 2,635,716
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ......... 50,173,134 21,106,864 58,515,862 46,716,039
Unrealized gain (loss) end of year ............... 75,866,162 50,173,134 44,571,614 58,515,862
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year 25,693,028 29,066,270 (13,944,248) 11,799,823
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ........................ 44,398,291 36,793,207 11,567,778 29,663,718
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments .................... 17,146,878 13,354,087 22,415,693 29,819,461
Participant transfers from other Travelers
accounts.......................................... 25,803,164 9,386,195 10,995,174 27,405,717
Administrative and asset allocation charges ...... (209,695) (199,651) (219,356) (232,938)
Contract surrenders .............................. (19,187,264) (13,291,153) (16,288,049) (13,059,121)
Participant transfers to other Travelers accounts (18,642,309) (11,464,116) (55,068,273) (21,734,497)
Other payments to participants ................... (1,172,090) (519,445) (1,130,546) (416,000)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from unit transactions ................. 3,738,684 (2,734,083) (39,295,357) 21,782,622
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ............ 48,136,975 34,059,124 (27,727,579) 51,446,340
NET ASSETS:
Beginning of year ................................ 220,958,927 186,899,803 257,989,468 206,543,128
------------- ------------- ------------- -------------
End of year ...................................... $ 269,095,902 $ 220,958,927 $ 230,261,889 $ 257,989,468
============= ============= ============= =============
<CAPTION>
TEMPLETON BOND FUND
(CLASS 1 SHARES)
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ........................................ $ 946,710 $ 1,005,721
------------ ------------
EXPENSES:
Insurance charges ................................ 177,689 177,975
------------ ------------
Net investment income (loss) ..................... 769,021 827,746
------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................... 2,499,690 1,993,943
Cost of investments sold ......................... 2,747,815 2,193,935
------------ ------------
Net realized gain (loss) ......................... (248,125) (199,992)
------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ......... (6,936) 434,185
Unrealized gain (loss) end of year ............... 277,796 (6,936)
------------ ------------
Net change in unrealized gain (loss) for the year 284,732 (441,121)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ........................ 805,628 186,633
------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments .................... 1,447,960 1,962,402
Participant transfers from other Travelers
accounts.......................................... 1,459,526 2,532,910
Administrative and asset allocation charges ...... (11,467) (12,870)
Contract surrenders .............................. (1,271,679) (1,146,266)
Participant transfers to other Travelers accounts (2,480,553) (2,968,811)
Other payments to participants ................... (35,014) (52,933)
------------ ------------
Net increase (decrease) in net assets
resulting from unit transactions ................. (891,227) 314,432
------------ ------------
Net increase (decrease) in net assets ............ (85,599) 501,065
NET ASSETS:
Beginning of year ................................ 14,359,073 13,858,008
------------ ------------
End of year ...................................... $ 14,273,474 $ 14,359,073
============ ============
</TABLE>
-14-
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON STOCK FUND DISCIPLINED MID CAP U.S. GOVERNMENT SECURITIES
(CLASS 1 SHARES) SOCIAL AWARENESS STOCK PORTFOLIO STOCK PORTFOLIO PORTFOLIO
- ----------------------------- --------------------------- ------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 42,669,054 $ 31,921,343 $ 672,066 $ -- $ 4,339 $ -- $ 4,731,069 $ 1,615,375
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
4,894,283 4,753,477 354,599 199,138 5,912 -- 559,905 333,628
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
37,774,771 27,167,866 317,467 (199,138) (1,573) -- 4,171,164 1,281,747
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
54,346,711 15,642,843 2,308,800 2,405,937 272,115 -- 12,327,483 5,298,145
41,692,625 9,428,086 1,206,061 1,536,523 295,499 -- 11,025,709 5,276,990
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
12,654,086 6,214,757 1,102,739 869,414 (23,384) -- 1,301,774 21,155
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
63,878,387 63,671,755 4,220,553 1,538,479 -- -- 1,220,341 (410,466)
12,920,546 63,878,387 10,483,334 4,220,553 160,004 -- (765,332) 1,220,341
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
(50,957,841) 206,632 6,262,781 2,682,074 160,004 -- (1,985,673) 1,630,807
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
(528,984) 33,589,255 7,682,987 3,352,350 135,047 -- 3,487,265 2,933,709
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
50,998,219 64,146,771 7,266,564 4,741,486 169,583 -- 4,550,126 2,406,952
38,910,545 69,490,662 9,104,448 6,270,168 1,552,025 -- 46,331,070 11,976,942
(410,794) (444,821) (59,197) (37,243) (658) -- (40,986) (30,564)
(25,811,154) (17,629,008) (1,702,931) (740,129) (50,215) -- (6,460,221) (2,904,036)
(98,707,032) (58,163,799) (5,233,159) (3,826,457) (362,432) -- (23,056,732) (5,724,252)
(712,616) (473,316) (467) (5,922) -- -- (166,160) (299,040)
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
(35,732,832) 56,926,489 9,375,258 6,401,903 1,308,303 -- 21,157,097 5,426,002
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
(36,261,816) 90,515,744 17,058,245 9,754,253 1,443,350 -- 24,644,362 8,359,711
399,877,351 309,361,607 20,753,381 10,999,128 -- -- 33,573,906 25,214,195
- ------------- ------------- ------------ ------------ ----------- ----------- ------------ ------------
$ 363,615,535 $ 399,877,351 $ 37,811,626 $ 20,753,381 $ 1,443,350 $ -- $ 58,218,268 $ 33,573,906
============= ============= ============ ============ =========== =========== ============ ============
</TABLE>
-15-
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO ALLIANCE GROWTH PORTFOLIO
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 1,230,537 $ 27,055 $ 3,806,491 $ --
------------ ------------ ------------ ------------
EXPENSES:
Insurance charges ................................. 318,646 222,475 755,688 349,477
------------ ------------ ------------ ------------
Net investment income (loss) ...................... 911,891 (195,420) 3,050,803 (349,477)
------------ ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 3,706,928 5,569,359 6,101,233 7,627,872
Cost of investments sold .......................... 2,799,586 4,633,398 4,284,568 6,038,843
------------ ------------ ------------ ------------
Net realized gain (loss) .......................... 907,342 935,961 1,816,665 1,589,029
------------ ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 3,616,391 434,813 7,226,780 1,556,758
Unrealized gain (loss) end of year ................ 5,891,592 3,616,391 17,345,749 7,226,780
------------ ------------ ------------ ------------
Net change in unrealized gain (loss) for the year . 2,275,201 3,181,578 10,118,969 5,670,022
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ......................... 4,094,434 3,922,119 14,986,437 6,909,574
------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments ..................... 3,282,295 2,367,935 17,511,898 10,180,634
Participant transfers from other Travelers accounts 14,975,019 5,149,882 30,296,505 23,132,744
Administrative and asset allocation charges ....... (24,711) (20,910) (107,469) (56,348)
Contract surrenders ............................... (1,966,420) (1,110,018) (2,842,283) (1,191,443)
Participant transfers to other Travelers accounts . (9,004,651) (7,198,624) (16,431,733) (15,845,145)
Other payments to participants .................... (253,985) (34,926) (37,359) (17,930)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from unit transactions .................. 7,007,547 (846,661) 28,389,559 16,202,512
------------ ------------ ------------ ------------
Net increase (decrease) in net assets ............. 11,101,981 3,075,458 43,375,996 23,112,086
NET ASSETS:
Beginning of year ................................. 21,140,783 18,065,325 40,838,604 17,726,518
------------ ------------ ------------ ------------
End of year ....................................... $ 32,242,764 $ 21,140,783 $ 84,214,600 $ 40,838,604
============ ============ ============ ============
<CAPTION>
G.T. GLOBAL STRATEGIC INCOME
PORTFOLIO
-----------------------
1998 1997
--------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 33,319 $ --
--------- -----------
EXPENSES:
Insurance charges ................................. 4,206 3,965
--------- -----------
Net investment income (loss) ...................... 29,113 (3,965)
--------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 890,614 1,067,860
Cost of investments sold .......................... 878,724 1,070,343
--------- -----------
Net realized gain (loss) .......................... 11,890 (2,483)
--------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 6,975 (17,848)
Unrealized gain (loss) end of year ................ (42,635) 6,975
--------- -----------
Net change in unrealized gain (loss) for the year . (49,610) 24,823
--------- -----------
Net increase (decrease) in net assets
resulting from operations ......................... (8,607) 18,375
--------- -----------
UNIT TRANSACTIONS:
Participant purchase payments ..................... 77,651 123,067
Participant transfers from other Travelers accounts 842,460 941,113
Administrative and asset allocation charges ....... (592) (410)
Contract surrenders ............................... (23,054) (5,913)
Participant transfers to other Travelers accounts . (871,710) (1,085,386)
Other payments to participants .................... -- --
--------- -----------
Net increase (decrease) in net assets
resulting from unit transactions .................. 24,755 (27,529)
--------- -----------
Net increase (decrease) in net assets ............. 16,148 (9,154)
NET ASSETS:
Beginning of year ................................. 330,549 339,703
--------- -----------
End of year ....................................... $ 346,697 $ 330,549
========= ===========
</TABLE>
-16-
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME SMITH BARNEY INTERNATIONAL SMITH BARNEY HIGH INCOME
MFS TOTAL RETURN PORTFOLIO PORTFOLIO EQUITY PORTFOLIO PORTFOLIO
- --------------------------- ------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,488,852 $ -- $ 385,914 $ -- $ -- $ -- $ 214,361 $ --
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
408,402 199,212 108,989 61,932 138,274 117,740 35,412 15,519
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
1,080,450 (199,212) 276,925 (61,932) (138,274) (117,740) 178,949 (15,519)
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
662,935 704,949 1,403,350 537,067 48,181,535 22,681,375 923,721 1,583,102
455,479 560,548 1,323,174 512,314 48,355,372 21,755,857 886,215 1,523,489
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
207,456 144,401 80,176 24,753 (173,837) 925,518 37,506 59,613
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
3,538,470 741,116 368,087 7,763 (372,217) 232,286 97,305 (2,005)
5,410,168 3,538,470 (95,821) 368,087 676,330 (372,217) (184,818) 97,305
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
1,871,698 2,797,354 (463,908) 360,324 1,048,547 (604,503) (282,123) 99,310
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
3,159,604 2,742,543 (106,807) 323,145 736,436 203,275 (65,668) 143,404
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
8,301,748 6,984,348 2,366,619 1,600,107 2,672,639 3,079,005 1,128,337 505,322
9,974,351 6,767,609 3,239,345 2,933,717 56,343,156 27,489,522 1,572,316 2,184,323
(43,407) (24,629) (10,084) (7,150) (19,768) (17,994) (5,146) (3,054)
(1,227,990) (843,909) (816,530) (227,392) (522,579) (367,146) (93,320) (113,936)
(3,091,160) (1,457,134) (1,678,866) (847,287) (57,640,335) (27,796,673) (1,202,278) (1,565,040)
(60,584) (223,206) -- (7,393) (782) (853) (19,263) --
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
13,852,958 11,203,079 3,100,484 3,444,602 832,331 2,385,861 1,380,646 1,007,615
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
17,012,562 13,945,622 2,993,677 3,767,747 1,568,767 2,589,136 1,314,978 1,151,019
23,892,026 9,946,404 6,631,238 2,863,491 10,222,222 7,633,086 1,844,843 693,824
- ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
$ 40,904,588 $ 23,892,026 $ 9,624,915 $ 6,631,238 $ 11,790,989 $ 10,222,222 $ 3,159,821 $ 1,844,843
============ ============ =========== =========== ============ ============ =========== ===========
</TABLE>
-17-
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY LARGE CAP VALUE
PORTFOLIO COMBINED
--------------------------- ---------------------------------
1998 1997 1998 1997
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................ $ 897,102 $ -- $ 366,919,897 $ 213,321,547
------------ ------------ --------------- ---------------
EXPENSES:
Insurance charges ................................ 299,909 188,264 65,378,641 51,390,740
------------ ------------ --------------- ---------------
Net investment income (loss) ..................... 597,193 (188,264) 301,541,256 161,930,807
------------ ------------ --------------- ---------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................... 2,825,617 1,921,937 465,819,528 263,520,765
Cost of investments sold ......................... 1,987,645 1,472,268 340,260,334 191,113,109
------------ ------------ --------------- ---------------
Net realized gain (loss) ......................... 837,972 449,669 125,559,194 72,407,656
------------ ------------ --------------- ---------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ......... 3,440,973 569,228 956,362,708 521,188,596
Unrealized gain (loss) end of year ............... 3,816,394 3,440,973 1,383,867,788 956,362,708
------------ ------------ --------------- ---------------
Net change in unrealized gain (loss) for the year 375,421 2,871,745 427,505,080 435,174,112
------------ ------------ --------------- ---------------
Net increase (decrease) in net assets
resulting from operations ........................ 1,810,586 3,133,150 854,605,530 669,512,575
------------ ------------ --------------- ---------------
UNIT TRANSACTIONS:
Participant purchase payments .................... 5,310,704 4,588,711 788,454,196 732,814,435
Participant transfers from other Travelers
accounts.......................................... 5,931,747 7,844,069 991,422,546 771,742,729
Administrative and asset allocation charges ...... (36,531) (24,015) (20,522,746) (17,242,427)
Contract surrenders .............................. (1,366,854) (646,268) (364,757,379) (231,169,965)
Participant transfers to other Travelers accounts (5,560,783) (3,883,801) (1,021,491,251) (687,667,857)
Other payments to participants ................... (62,496) (13,752) (10,989,089) (6,638,728)
------------ ------------ --------------- ---------------
Net increase (decrease) in net assets
resulting from unit transactions ................. 4,215,787 7,864,944 362,116,277 561,838,187
------------ ------------ --------------- ---------------
Net increase (decrease) in net assets ............ 6,026,373 10,998,094 1,216,721,807 1,231,350,762
NET ASSETS:
Beginning of year ................................ 20,037,005 9,038,911 4,670,473,551 3,439,122,789
------------ ------------ --------------- ---------------
End of year ...................................... $ 26,063,378 $ 20,037,005 $ 5,887,195,358 $ 4,670,473,551
============ ============ =============== ===============
</TABLE>
-18-
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF ACCUMULATION AND ANNUITY UNITS FOR FUND U FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
AMERICAN ODYSSEY CORE EQUITY AMERICAN ODYSSEY EMERGING AMERICAN ODYSSEY INTERMEDIATE-
FUND OPPORTUNITIES FUND TERM BOND FUND
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 185,895,286 170,552,375 162,145,977 122,877,399 86,914,035 78,210,833
Accumulation units purchased and
transferred from other Travelers accounts 51,119,051 58,428,972 69,443,965 77,727,787 42,470,104 26,651,019
Accumulation units redeemed and
transferred to other Travelers accounts . (49,141,159) (43,086,005) (43,868,898) (38,452,393) (35,926,504) (17,947,773)
Annuity units ........................... (1,060) (56) (3,896) (6,816) (1,555) (44)
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 187,872,118 185,895,286 187,717,148 162,145,977 93,456,080 86,914,035
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AMERICAN ODYSSEY INTERNATIONAL AMERICAN ODYSSEY LONG-TERM AMERICAN ODYSSEY GLOBAL
EQUITY FUND BOND FUND HIGH-YIELD BOND FUND
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 143,959,193 121,895,846 159,728,032 137,075,188 48,928,831 44,076,761
Accumulation units purchased and
transferred from other Travelers accounts 52,587,915 52,973,318 61,724,429 48,535,075 55,863,221 17,830,368
Accumulation units redeemed and
transferred to other Travelers accounts . (34,858,767) (30,909,935) (51,384,748) (25,882,158) (34,044,625) (12,978,267)
Annuity units ........................... 1,481 (36) (757) (73) (174) (31)
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 161,689,822 143,959,193 170,066,956 159,728,032 70,747,253 48,928,831
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND DREYFUS STOCK INDEX FUND SMALL CAP PORTFOLIO
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 94,040,565 72,194,703 109,316,975 66,097,845 -- --
Accumulation units purchased and
transferred from other Travelers accounts 51,253,792 47,297,634 78,673,391 78,601,880 13,843,963 --
Accumulation units redeemed and
transferred to other Travelers accounts . (28,979,462) (25,446,797) (40,448,140) (35,378,941) (9,029,094) --
Annuity units ........................... (8,565) (4,975) (11,595) (3,809) -- --
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 116,306,330 94,040,565 147,530,631 109,316,975 4,814,869 --
============ ============ ============ ============ =========== ===========
</TABLE>
-19-
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF ACCUMULATION AND ANNUITY UNITS FOR FUND U FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO HIGH INCOME PORTFOLIO
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 237,049,548 205,636,010 289,001,967 274,892,066 48,895,121 40,308,612
Accumulation units purchased and
transferred from other Travelers
accounts................................. 57,116,973 70,273,387 62,734,395 73,683,743 19,272,033 22,127,341
Accumulation units redeemed and
transferred to other Travelers accounts . (50,174,806) (38,828,756) (55,736,282) (59,552,587) (18,815,614) (13,536,496)
Annuity units ........................... (27,916) (31,093) (19,599) (21,255) (4,562) (4,336)
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 243,963,799 237,049,548 295,980,481 289,001,967 49,346,978 48,895,121
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ASSET MANAGER PORTFOLIO HIGH YIELD BOND TRUST MANAGED ASSETS TRUST
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 240,063,870 249,049,606 7,646,747 5,979,031 59,004,559 59,836,913
Accumulation units purchased and
transferred from other Travelers
accounts................................. 28,144,055 32,778,964 4,396,698 3,557,047 10,499,495 6,534,335
Accumulation units redeemed and
transferred to other Travelers accounts . (41,539,270) (41,750,923) (4,072,453) (1,888,669) (9,624,228) (7,357,445)
Annuity units ........................... (13,333) (13,777) (791) (662) (21,313) (9,244)
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 226,655,322 240,063,870 7,970,201 7,646,747 59,858,513 59,004,559
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND TEMPLETON BOND FUND TEMPLETON STOCK FUND
(CLASS 1 SHARES) (CLASS 1 SHARES) (CLASS 1 SHARES)
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 124,603,105 113,808,987 10,501,579 10,260,252 180,875,987 154,614,154
Accumulation units purchased and
transferred from other Travelers
accounts ................................ 15,521,675 28,216,450 2,078,814 3,345,768 39,423,108 60,857,537
Accumulation units redeemed and
transferred to other Travelers accounts . (34,295,026) (17,416,553) (2,715,176) (3,103,811) (55,795,848) (34,571,726)
Annuity units ........................... (6,006) (5,779) (2,471) (630) (23,796) (23,978)
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 105,823,748 124,603,105 9,862,746 10,501,579 164,479,451 180,875,987
============ ============ ============ ============ =========== ===========
</TABLE>
-20-
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF ACCUMULATION AND ANNUITY UNITS FOR FUND U FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK DISCIPLINED MID CAP STOCK U.S. GOVERNMENT SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 9,539,133 6,355,111 -- -- 22,809,036 19,054,429
Accumulation units purchased and
transferred from other Travelers accounts 6,610,923 5,536,731 1,841,704 -- 32,683,383 10,234,153
Accumulation units redeemed and
transferred to other Travelers accounts . (2,845,107) (2,352,709) (453,697) -- (19,145,101) (6,476,699)
Annuity units ........................... -- -- -- -- (8,094) (2,847)
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 13,304,949 9,539,133 1,388,007 -- 36,339,224 22,809,036
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
G.T. GLOBAL STRATEGIC
UTILITIES PORTFOLIO ALLIANCE GROWTH PORTFOLIO INCOME PORTFOLIO
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 12,539,047 13,258,249 19,535,233 10,808,561 222,251 242,281
Accumulation units purchased and
transferred from other Travelers accounts 10,054,198 5,140,992 20,780,277 18,359,347 606,119 745,987
Accumulation units redeemed and
transferred to other Travelers accounts . (6,215,316) (5,860,194) (8,702,013) (9,632,343) (588,613) (766,017)
Annuity units ........................... -- -- (464) (332) -- --
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 16,377,929 12,539,047 31,613,033 19,535,233 239,757 222,251
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO PUTNAM DIVERSIFIED INCOME SMITH BARNEY INTERNATIONAL
PORTFOLIO EQUITY PORTFOLIO
--------------------------- --------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 14,655,213 7,302,057 5,170,756 2,374,774 7,634,378 5,777,413
Accumulation units purchased and
transferred from other Travelers accounts 10,669,351 9,064,304 4,334,575 3,681,522 42,750,259 22,030,896
Accumulation units redeemed and
transferred to other Travelers accounts . (2,568,202) (1,711,148) (1,956,302) (885,540) (42,008,753) (20,173,931)
Annuity units ........................... (4,922) -- -- -- -- --
------------ ------------ ------------ ------------ ----------- -----------
Accumulation and annuity units
end of year ............................. 22,751,440 14,655,213 7,549,029 5,170,756 8,375,884 7,634,378
============ ============ ============ ============ =========== ===========
</TABLE>
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF ACCUMULATION AND ANNUITY UNITS FOR FUND U FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME SMITH BARNEY LARGE CAP VALUE
PORTFOLIO PORTFOLIO COMBINED
-------------------------- --------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
----------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year ....................... 1,306,786 552,595 10,871,165 6,133,368 2,292,854,375 1,999,225,419
Accumulation units purchased and
transferred from other Travelers accounts 1,882,320 2,031,576 5,821,643 7,474,458 854,201,829 793,720,591
Accumulation units redeemed and
transferred to other Travelers accounts . (932,728) (1,277,385) (3,653,910) (2,735,572) (689,519,842) (499,960,773)
Annuity units ........................... -- -- (1,048) (1,089) (160,436) (130,862)
----------- ------------ ------------ ------------ ------------- -------------
Accumulation and annuity units
end of year ............................. 2,256,378 1,306,786 13,037,850 10,871,165 2,457,375,926 2,292,854,375
=========== ============ ============ ============ ============= =============
</TABLE>
-22-
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
To the Owners of Variable Annuity Contracts of
The Travelers Fund U for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Fund U for Variable Annuities as of December 31, 1998, and the related
statement of operations for the year then ended and the statement of changes in
net assets for each of the two years in the period then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1998, by correspondence with the
underlying funds. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund U for
Variable Annuities as of December 31, 1998, the results of its operations for
the year then ended and the changes in its net assets for each of two years in
the period then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Hartford, Connecticut
February 17, 1999
<PAGE> 25
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 U for Variable Annuities or Fund
U's underlying funds. It should not be used in connection with any offer except
in conjunction with the Prospectus for The Travelers Fund U for Variable
Annuities product(s) offered by The Travelers Insurance Company and the
Prospectuses for the underlying funds, which collectively contain all pertinent
information, including the applicable sales commissions.
