SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 15
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
(Exact Name of Trust)
THE TRAVELERS INSURANCE COMPANY
(Name of Depositor)
One Tower Square, Hartford, Connecticut 06183
(Complete Address of Depositor's Principal Executive Offices)
Ernest J. Wright
Assistant Secretary
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
(Name and Complete Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X_ on May 1, 1995 pursuant to paragraph (b) of Rule 485
____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
____ on May 1, 1995 pursuant to paragraph (a)(1) of Rule 485
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
AN INDEFINITE AMOUNT OF VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS WAS REGIS-
TERED PURSUANT TO RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF 1940. A RULE
24F-2 NOTICE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 WAS FILED ON FEBRUARY
27, 1995.
Check the box if it is proposed that this filing will become effective in
_______ at _____ pursuant to Rule 487. ______
<PAGE>
RECONCILIATION AND TIE BETWEEN
FORM N-8B-2 AND THE PROSPECTUS
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
1 Cover page
2 Cover page
3 Not applicable
4 The Insurance Company; Distribution of the Contracts
5 The Travelers Fund UL for Variable Life Insurance
6 The Travelers Fund UL for Variable Life Insurance
7 Not applicable
8 Not applicable
9 Legal Proceedings and Opinion
10 Prospectus Summary; The Underlying Funds; The Contract;
Contract Benefits and Rights; Voting Rights; Dividends
11 Prospectus Summary; The Underlying Funds; Underlying Fund
Investment Advisers
12 Prospectus Summary; The Underlying Funds; Underlying Fund
Investment Advisers
13 Charges and Deductions; Distribution of the Contracts
14 The Contract
15 Allocation of Premium Payments
16 The Underlying Funds; Allocation of Premium Payments
17 Prospectus Summary; Cash Value and Cash Surrender Value;
Exchange Rights
18 The Underlying Funds; Charges and Deductions; Federal Tax
Considerations
19 Statements to Contract Owners
20 Not applicable
21 Contract Loans
22 Not applicable
23 Not applicable
24 Not applicable
25 The Insurance Company
26 Not applicable
27 The Insurance Company
28 The Insurance Company; Management
29 The Insurance Company
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 Distribution of the Contracts
36 Not applicable
<PAGE>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
37 Not applicable
38 Distribution of the Contracts
39 The Insurance Company; Distribution of the Contracts
40 Not applicable
41 The Insurance Company; Distribution of the Contracts
42 Not applicable
43 Not applicable
44 Allocation of Premium Payments; Accumulation Unit Values
45 Not applicable
46 Cash Value and Cash Surrender Value
47 The Underlying Funds
48 Not applicable
49 Not applicable
50 Not applicable
51 Prospectus Summary; The Insurance Company; The Contract;
Contract
Benefits and Rights; Beneficiary
52 The Underlying Funds; Underlying Fund Investment Advisers
53 Federal Tax Considerations
54 Not applicable
55 Not applicable
56 Not applicable
57 Not applicable
58 Not applicable
59 Not applicable
<PAGE>
<PAGE>
The Travelers MarketLifesm
Individual Variable Universal Life Insurance Contracts
The Travelers Fund UL for Variable Life Insurance
PROSPECTUS
May 1, 1995
The Travelers Insurance Company, One Tower Square, Hartford, Connecticut 06183
* Telephone: (800) 334-4298
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PROSPECTUS
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This Prospectus describes The Travelers MarketLifesm, an individual variable
universal (flexible premium) life insurance contract (the "Contract") offered
by The Travelers Insurance Company (the "Company") and funded by The Travelers
Fund UL for Variable Life Insurance ("Fund UL"). A Contract Owner may choose
the amount of life insurance coverage desired with a minimum Stated Amount of
$50,000. The premium payment may be allocated by the Contract Owner to one or
more of the mutual funds underlying Fund UL (the "Underlying Funds").
The Contract has a Right to Cancel Period during which the Applicant may
return the Contract to the Company for a refund. The Right to Cancel Period
expires on the latest of ten days after you receive the Contract, 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.
There is no guaranteed minimum Cash Value for a Contract. The Cash Value of
the Contract will vary up or down to reflect the investment performance of the
Underlying Funds to which the premium payment has been allocated, and the
Contract Owner bears the investment risk for all amounts so allocated.
Additionally, the Cash Value is reduced by the various fees and charges
assessed under the Contract, as set forth in this Prospectus. The Contract will
remain in effect for as long as the Cash Surrender Value is sufficient to pay
the monthly charges imposed under the Contract subject to the Continuation of
Insurance provision of the Contract, or for such longer period as may be
provided under the Lapse Protection Guarantee.
A Contract Owner will have two options with respect to the death benefit
under the Contract - the "Level Option" and the "Variable Option." Under either
option, the death benefit will never be less than the Stated Amount (less any
outstanding contract loans or monthly deduction amounts due and unpaid). A
Contract Owner may also elect to change the death benefit option, subject to
certain conditions.
It may not be advantageous to replace your existing life insurance policy or
supplement an existing flexible premium variable life insurance policy with the
Contract described in this Prospectus.
This Contract may be or become a modified endowment contract under federal
tax law. If it is classified as a modified endowment contract, any partial
withdrawal, contract surrender or loan may result in adverse tax consequences
or penalties.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
EACH OF THE UNDERLYING FUNDS. EACH OF THE UNDERLYING FUND PROSPECTUSES ARE
INCLUDED WITH THE PACKAGE CONTAINING THIS PROSPECTUS. ALL PROSPECTUSES SHOULD
BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
VARIABLE LIFE INSURANCE CONTRACTS 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, 1995.
<PAGE>
Table of Contents
GLOSSARY OF SPECIAL TERMS.......................... GLOSSARY - 1
PROSPECTUS SUMMARY.................................. SUMMARY - 1
THE INSURANCE COMPANY........................................ 1
THE SEPARATE ACCOUNT AND THE UNDERLYING FUNDS................ 1
The Travelers Fund UL for Variable Life Insurance (Fund UL).. 1
The Underlying Funds......................................... 2
Underlying Fund Investment Advisers.......................... 4
General...................................................... 4
Conflicts of Interest........................................ 5
Substitution................................................. 5
THE CONTRACT................................................. 5
The Contract Application..................................... 5
Allocation of Premium Payments............................... 6
Accumulation Unit Values..................................... 6
Right to Cancel.............................................. 7
CHARGES AND DEDUCTIONS....................................... 7
CHARGES AGAINST PREMIUM...................................... 7
Front-End Sales Charge....................................... 7
State Premium Tax Charge..................................... 7
MONTHLY DEDUCTION AMOUNT..................................... 7
Cost of Insurance Charge..................................... 8
Contract Administrative Charge............................... 8
Charges for Supplemental Benefit Provisions.................. 9
CHARGES AGAINST THE SEPARATE ACCOUNT......................... 9
Mortality and Expense Risk Charge............................ 9
Administrative Expense Charge................................ 9
CHARGES AGAINST THE UNDERLYING FUNDS......................... 9
SURRENDER CHARGES............................................ 10
Percent of Premium Charge.................................... 10
Per Thousand of Stated Amount Charge......................... 10
MAXIMUM SALES CHARGES........................................ 11
TRANSACTION CHARGE........................................... 11
REDUCTION OR ELIMINATION OF CHARGES.......................... 11
CONTRACT BENEFITS AND RIGHTS................................. 12
DEATH BENEFIT................................................ 12
Changes in Death Benefit Option.............................. 14
Changes in Stated Amount..................................... 14
Maturity and Maturity Extension Benefits..................... 15
Cash Value and Cash Surrender Value.......................... 15
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Transfer of Cash Value........................................ 16
Dollar-Cost Averaging (Automated Transfers)................... 16
Contract Loans................................................ 17
Lapse and Reinstatement....................................... 18
Lapse Protection Guarantee.................................... 18
Exchange Rights............................................... 18
PAYMENT OPTIONS............................................... 19
PERFORMANCE INFORMATION....................................... 19
OTHER MATTERS................................................. 22
Voting Rights................................................. 22
Disregard of Voting Instructions.............................. 23
Statements to Contract Owners................................. 23
Limit on Right to Contest..................................... 23
Misstatement as to Sex and Age................................ 23
Suspension of Valuation....................................... 24
Beneficiary................................................... 24
Assignment.................................................... 24
Dividends..................................................... 24
FEDERAL TAX CONSIDERATIONS.................................... 24
General....................................................... 24
Taxation of the Company....................................... 24
Tax Consequences of Life Insurance Contracts.................. 25
Tax Consequences of Modified Endowment Contracts.............. 25
Investor Control.............................................. 26
DISTRIBUTION OF THE CONTRACTS................................. 27
MANAGEMENT.................................................... 28
LEGAL PROCEEDINGS AND OPINION................................. 29
INDEPENDENT ACCOUNTANTS....................................... 29
REGISTRATION STATEMENT........................................ 30
ILLUSTRATIONS................................................. 31
APPENDIX A-Annual Minimum Premiums............................ 41
APPENDIX B-Per Thousand of Stated Amount Surrender Charge..... 42
APPENDIX B(1)-Per Thousand of Stated Amount Surrender Charge.. 43
APPENDIX B(2)-Per Thousand of Stated Amount Surrender Charge.. 44
APPENDIX C-Current Monthly Administrative Charge.............. 45
APPENDIX C(1)-Guaranteed Monthly Administrative Charge........ 47
FINANCIAL STATEMENTS-Fund UL.................................. UL-1
FINANCIAL STATEMENTS-The Travelers Insurance Company.......... F-1
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GLOSSARY OF SPECIAL TERMS
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The following terms are used throughout the Prospectus, and have the indicated
meanings:
Accumulation Unit - the basic measure used to determine the Cash Value of the
Contract.
Annual Minimum Premium - the Contract Owner must pay a first premium greater
than or equal to one-quarter of this amount for the Contract to be
issued. (Please refer to Appendix A.)
Cash Surrender Value - the Cash Value less any outstanding contract loan and
surrender charges.
Cash Value - the current value of Accumulation Units credited to the Contract
plus 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.
Contract Date - the date on which the Contract, benefits and provisions of the
Contract become effective.
Contract Month - monthly periods computed from the Contract Date.
Contract Owner - the person having rights to benefits under the Contract during
the lifetime of the Insured; the Contract Owner may or may not be the
Insured.
Contract Years - annual periods computed from the Contract Date.
Deduction Date - the day in each Contract Month on which the Monthly Deduction
Amount is deducted from the Contract's Cash Value.
Insured - the person on whose life the Contract is issued.
Issue Date - the date on which the Contract is issued by the Company for
delivery to the Contract Owner.
Lapse Protection Guarantee - a benefit which provides that the Contract will
not lapse during the first three Contract Years if a required amount of
premium is paid.
Loan Account - an account established for assets transferred from the
Sub-Accounts as a result of requested loans. These accounts are credited
with fixed rates of interest and do not depend on the investment
experience of Fund UL and the Underlying Funds.
Maturity Date - The anniversary of the Contract date on which the insured is
age 95.
Minimum Amount Insured - the amount of Death Benefit required to qualify this
Contract as life insurance under federal tax law.
Monthly Deduction Amount - the amount of charges deducted from the Contract's
Cash Value which includes Cost of Insurance charges, administrative
charges, and any charges for supplemental benefits.
Monthly Premium Threshold - an amount shown on the Contract Summary page, the
cumulative amount of which must be paid during the first three Contract
Years in order for the Lapse Protection Guarantee to be in effect.
Net Amount At Risk - an amount equal to the Death Benefit minus the Cash Value.
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GLOSSARY - 1
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Net Premium - the amount of each premium payment applied to purchase
Accumulation Units under the Contract, less the deduction of front-end
sales charges and premium tax charges.
Planned Premium - the amount of premium which the Contract Owner chooses to pay
to the Company on a scheduled basis, and for which the Company will
bill the Contract Owner, either annually or semiannually.
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 for Variable Life Insurance.
Stated Amount - the amount originally selected by the Contract Owner used to
determine the Death Benefit, or as may be increased or decreased as
described in this Prospectus.
Sub-Account - the portion of the assets of the Separate Account which is
allocated to a particular Underlying Fund.
Underlying Fund(s) - an open-end diversified management investment company
which serves as an investment option under the Separate Account.
Valuation Date - generally, a day on which the Sub-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 and Annuity 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.
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GLOSSARY - 2
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PROSPECTUS SUMMARY
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Introduction
The Contract described in this Prospectus is an individual variable universal
life insurance contract which provides for flexible premium payments to be
allocated to one or more of the Underlying Funds. The Contract is then credited
with Accumulation Units in the applicable Sub-Accounts, the assets of which are
invested in the corresponding Underlying Fund. The Contract is first and
foremost a life insurance contract with death benefits, cash values and other
features traditionally associated with life insurance. The Contract is
"variable" because unlike the fixed benefits of an ordinary whole life
insurance contract, the Cash Value and, under certain circumstances, the Death
Benefit of the Contract may increase or decrease depending on the investment
experience of the Underlying Funds to which the premium payment has been
allocated. The Contract will remain in effect until the Cash Surrender Value is
insufficient to cover the Monthly Deduction Amount subject to the Continuation
of Insurance provision of the Contract, or for such longer periods as may be
provided under the Lapse Protection Guarantee.
The Separate Account and the Underlying Funds
The Contract is funded by The Travelers Fund UL for Variable Life Insurance
("Fund UL"), a registered unit investment trust separate account established by
The Travelers Insurance Company (the "Company"). The following Sub-Accounts are
available under the Contract, each of which invests exclusively in one of the
following Underlying Funds:
Capital Appreciation Fund
Cash Income Trust
Managed Assets Trust
U.S. Government Securities Portfolio
Utilities Portfolio
Templeton Bond Fund
Templeton Stock Fund
Templeton Asset Allocation Fund
Fidelity's High Income Portfolio
Fidelity's Equity-Income Portfolio
Fidelity's Growth Portfolio
Fidelity's Asset Manager Portfolio
Dreyfus Stock Index Fund
Smith Barney Income and Growth Portfolio
Alliance Growth Portfolio
Smith Barney High Income Portfolio
MFS Total Return Portfolio
Smith Barney Total Return Portfolio
For a more complete description of the investment objectives for each of the
funds listed above, as well as the investment advisers which provide investment
management and advisory services for the funds, please refer to "The Underlying
Funds" on page 2, and the prospectuses for each of the Underlying Funds.
Premium Payments
The Contract Owner must pay a first premium greater than or equal to
one-quarter of the Annual Minimum Premium for the Contract to be issued. (See
Appendix A.) After the first premium, Contract Owners may elect to be billed
annually or semiannually for all future premium payments ("Planned Premiums").
Payment of Planned Premiums will not guarantee that the Contract will remain
in effect. However, Contract Owners may elect to have a Lapse Protection
Guarantee benefit as part of their Contract (as long as the Insured is not a
substandard risk). The Lapse Protection Guarantee benefit provides that if
payments during the first three Contract Years, less any applicable loans and
partial surrenders, equal or
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SUMMARY - 1
<PAGE>
exceed the cumulative applicable Monthly Premium Threshold shown in the
Contract, a Lapse Protection Guarantee will be in effect for the first three
Contract Years. (See "Lapse and Reinstatement," page 18, and "Lapse Protection
Guarantee," page 18.) No premiums can be accepted if they would disqualify the
Contract as life insurance under federal tax law.
During the Applicant's Right to Cancel Period (as described below), Net
Premium will be invested in Cash Income Trust (a money market fund). After the
expiration of the Right to Cancel Period, the values in Cash Income Trust will
be allocated to the Underlying Fund(s) selected on the Contract Application.
Once the premium payment has been allocated to the designated Underlying
Fund(s), the Contract will be credited with Accumulation Units in the
applicable Sub-Account. (See "Allocation of Premium Payments," page 6.)
Right to Cancel
An Applicant has a limited right to return the Contract for cancellation and
receive a full refund of the premium payment made. The Applicant must return
the Contract, by mail or hand delivery, to the Company or to the agent who sold
the Contract, to be cancelled within 10 days after the Contract has been
delivered to the Applicant, or within 45 days after completion of the
application, or within 10 days after the Notice of Right to Cancel has been
mailed or delivered to the Applicant, whichever is latest. The Company will
return to the Applicant within seven days thereafter an amount equal to the
greater of the premiums paid for the Contract, or the sum of (1) the difference
between the premium paid, including any fees or other charges, and the amounts
allocated to the Underlying Fund(s), (2) the value of the amounts allocated to
the Underlying Fund(s) on the date we receive the returned Contract, and (3)
any fees and other charges imposed on amounts allocated to the Underlying
Fund(s).
Charges and Deductions
In order to cover expenses associated with the distribution of the Contract,
the Company will deduct a front-end sales charge and surrender charges. The
front-end sales charge is equal to 2.5% of each Premium Payment made under the
Contract, and may be reduced for Stated Amounts of $500,000 or more. The sales
charge for a Contract with no full or partial surrenders will never exceed 2.5%
of actual premiums paid. However, the sales charges for a Contract with full or
partial surrenders may be as much as 26.7% of premiums paid based on surrender
penalties which are assessed under the Contract. (See "Maximum Sales Charges,"
page 11.)
There are two types of surrender charges that can apply to the Contract: a
Percent of Premium Charge and a Per Thousand of Stated Amount Charge. Both
charges apply to a full surrender of the Contract, but only the Percent of
Premium Charge applies to a partial surrender. The Percent of Premium Charge
and a portion of the Per Thousand of Stated Amount Charge are intended to cover
sales expenses. (See "Surrender Charges," page 10.)
The Company will deduct a 2.5% State Premium Tax Charge from each premium
payment before allocation of the payment to purchase Accumulation Units in the
Sub-Accounts (except in the Commonwealth of Puerto Rico where no premium tax is
deducted). (See "State Premium Tax Charge," page 7.)
In addition, the Company will make monthly deductions beginning on the
Contract Date on a pro rata basis from the Cash Value in each of the
Sub-Accounts. The Deduction Amount will vary from month to month and includes
the cost of insurance charges, contract administrative charges and charges for
supplemental benefits. The contract administrative charges apply during the
first three Contract Years
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SUMMARY - 2
<PAGE>
and during the three years following any increase in Stated Amount. (See
"Monthly Deduction Amount," page 7.)
For Contracts issued prior to July 12, 1995, the Company assesses a daily
charge against the assets of Fund UL at an annual rate of 0.60% of such assets
to cover the Company's assumption of mortality and expense risks under the
Contract. For Contracts issued on or after July 12, 1995, where insurance
department approval has been received, the mortality and expense risk charge is
0.80% for the first fifteen (15) years; after the fifteenth Contract year, the
charge will be reduced to 0.45%. The charge will be made pro rata among the
Sub-Accounts. The Contract provides that the charge for mortality and expense
risk will not exceed 0.80%. For Contracts issued on or after July 12, 1995,
where approved, the charge for mortality and expense risks will not exceed
0.45% after the fifteenth contract year. The Contract also provides that the
Company may make a daily charge from Fund UL for administrative expenses
incurred by the Company at an annual rate of 0.10% of assets in the Separate
Account. For Contracts issued prior to July 12, 1995, there is no
administrative charge. For Contracts issued on or after July 12, 1995, where
approved, the administrative charge will be 0.10% of assets in the Separate
Account for the first fifteen (15) Contract Years; after the fifteenth Contract
Year, there will be no administrative charge. The Company may also set up a
provision for income taxes against the assets of the Separate Account. (See
"Charges Against the Separate Account," page 9.)
The administrative charges made by the Company do not exceed the average
expected cost of administrative services provided by the Company. Sales charges
and administrative charges under the Contract may be reduced or eliminated when
sales are made under certain arrangements. (See "Reduction or Elimination of
Charges," page 11.)
The Separate Account purchases shares of the Underlying Funds at net asset
value. The net asset value of the Underlying Fund shares reflects investment
advisory fees and other expenses already deducted from the assets of the Funds.
Applicants should review the prospectuses of the Underlying Funds for a
description of the charges assessed against the assets of each of the
Underlying Funds.
Death Benefit
A Contract Owner may choose one of two options to be used for the calculation
of the Death Benefit amount payable under the Contract. Under Option 1 (the
"Level Option"), the Death Benefit will be equal to the greater of the Stated
Amount of the Contract or the Minimum Amount Insured. Under Option 2 (the
"Variable Option"), the Death Benefit will be equal to the greater of the
Stated Amount of the Contract plus the Cash Value (determined as of the date of
the Insured's death) or the Minimum Amount Insured. A Contract Owner may change
the Death Benefit option subject to certain conditions. (See "Death Benefit,"
page 12 and "Changes in Death Benefit Option," page 14.)
Cash Value
As with many other types of insurance contracts, each Contract will have a
Cash Value. The Cash Value of the Contract will increase or decrease to reflect
the investment experience of the Underlying Funds applicable to the Contract.
The Cash Value will also vary to reflect partial cash surrenders and Monthly
Deduction Amounts. There is no minimum guaranteed Cash Value and the Contract
Owner bears the investment risk associated with an investment in the Underlying
Funds. (See "Cash Value and Cash Surrender Value," page 15.)
Contract Loans
A Contract Owner may obtain a cash loan from the Company secured by the
Contract. For Contract loans taken prior to July 12, 1995, the maximum loan
amount is 80% of the Contract's Cash Value
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SUMMARY - 3
<PAGE>
(determined at the time the Company receives the written loan request), less
any surrender penalties which include a percent of premium charge and per
thousand of stated amount charge as described on pages 10-11. The Company will
charge interest on the outstanding amounts of the loan, which interest must be
paid in advance by the Contract Owner. During the first ten Contract Years, the
full Loan Account Value will be charged an annual interest rate of 7.4% (6% in
the Virgin Islands). During Contract Years 11, 12 and 13, 25%, 50% and 75%,
respectively, of the Loan Account Value will be charged a reduced rate of 3.85%
(5.66% in New York and Massachusetts). Thereafter, 100% of the Loan Account
Value will be charged the reduced rate. The amount of the loan will be
transferred on a pro rata basis from each of the Sub-Accounts attributable to
the Contract (unless the Contract Owner states otherwise in writing) to a loan
account (the "Loan Account"). The Company will credit amounts in the Loan
Account with a fixed annual rate of interest of 4% (6% in New York and
Massachusetts). (See "Contract Loans," page 17.)
For Contract loans taken after June 12, 1995, a Contract Owner may obtain a
cash loan from the Company secured by the Contract not to exceed 90% of the
Contract's Cash Value (determined at the time the Company receives the written
loan request), less any surrender penalties. The Company will charge interest
on the outstanding amounts of the loan, which interest must be paid in advance
by the Contract Owner. During the first thirteen Contract Years, the full Loan
Account Value will be charged an annual interest rate of 7.4% and thereafter
the interest will be 3.85%. The amount of the loan will be transferred on a pro
rata basis from each of the Sub-Accounts attributable to the Contract (unless
the Contract Owner states otherwise in writing) to a loan account (the "Loan
Account"). The Company will credit amounts in the Loan Account with a fixed
annual rate of interest of 4% (6% in New York and Massachusetts). (See
"Contract Loans," page 17.)
Lapse
Except as provided below under "Lapse Protection Guarantee," if the Cash
Surrender Value of a Contract on any Deduction Date is insufficient to cover
the Monthly Deduction Amount due, the Company will send written notice to the
Contract Owner indicating that if an amount sufficient to cover the Deduction
Amount due is not paid within 61 days, the Contract may lapse. An outstanding
loan amount decreases the Cash Surrender Value and could, therefore, cause the
Contract to lapse. (See "Contract Loans," page 17, and "Lapse and
Reinstatement," page 18.)
Lapse Protection Guarantee
If during the first three Contract Years the total premiums paid under the
Contract, less any Loan Account Value or partial surrenders, equal or exceed
the cumulative applicable Monthly Premium Threshold shown on the Contract
Summary page, a Lapse Protection Guarantee will be in effect. The benefit
provides that the Contract will not lapse during the next Contract Month (if
during the first three Contract Years) even if the Cash Surrender Value is
insufficient to pay the Monthly Deduction Amount. (See "Lapse Protection
Guarantee," page 18.)
Exchange Rights
Once the Contract is in effect it may be exchanged at any time during the
first two Contract Years for a general account fixed life insurance contract on
the life of the Insured without submitting proof of insurability. (See
"Exchange Rights," page 18.)
Tax Consequences
The current federal tax law generally excludes all Death Benefit payments
from the gross income of the Contract beneficiary. (See "Tax Consequences of
Life Insurance Contracts," page 25.)
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SUMMARY - 4
<PAGE>
At any point in time, the Contract may become a modified endowment contract
if it fails to satisfy a 7-pay test. (See "Tax Consequences of Modified
Endowment Contracts," page 25.) The Company has established safeguards for
monitoring whether a contract may become a modified endowment contract. A
modified endowment contract has income-first taxation of all loans, pledges,
collateral assignments or partial surrenders to the extent of income in the
Contract. A 10% penalty tax may be imposed on such income distributed before
the Contract Owner attains age 591/2.
The Company may charge each of the Sub-Accounts in Fund UL for its portion of
any income tax charged to the Company on the Separate Account or its assets.
(See "Federal Tax Considerations," page 24.)
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SUMMARY - 5
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THE INSURANCE COMPANY
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The Travelers Insurance Company (the "Company"), an indirect wholly owned
subsidiary of Travelers Group Inc., is a stock insurance company chartered in
1864 in Connecticut and has been continuously engaged in the insurance business
since that time. 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 principal
executive offices are located at One Tower Square, Hartford, Connecticut 06183,
telephone number (203) 277-0111.
The Company writes individual life insurance and annuity contracts on a
nonparticipating basis. The Company acts as depositor for Fund UL. Effective
February 1, 1995 Travelers Equities Sales, Inc ("TESI") became the principal
underwriter for the Contracts. The Company's obligations as depositor for Fund
UL may not be transferred without notice to and consent of Contract Owners.
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 or his agents at all times, 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 contracts, as well as to various federal and state
securities laws and regulations.
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THE SEPARATE ACCOUNT AND THE UNDERLYING FUNDS
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The Travelers Fund UL for Variable Life Insurance (Fund UL)
Fund UL was established on November 10, 1983 pursuant to the insurance laws
of the state of Connecticut, and is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940, as amended (the "1940 Act"). The assets of Fund UL will be invested
exclusively in shares of the Underlying Funds. Fund UL meets the definition of
a separate account under the federal securities laws, and will comply with the
provisions of the 1940 Act. Registration of Fund UL with the SEC does not
involve supervision by the SEC of the management or investment policies of Fund
UL. Additionally, the operations of Fund UL are subject to the provisions of
Section 38a-433 of the Connecticut General Statutes which authorizes the
Connecticut Insurance Commissioner to adopt regulations under it. The Section
contains no restrictions on the investments of Fund UL, and the Commissioner
has adopted no regulations under the Section that affect Fund UL.
Under Connecticut law, the assets of Fund UL will be held for the exclusive
benefit of Contract Owners and the persons entitled to payments under the
Contract offered by this Prospectus. The assets held in Fund UL are not
chargeable with liabilities arising out of any other business which the Company
may conduct. Any obligations arising under the Contract are general corporate
obligations of the Company.
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1
<PAGE>
The Underlying Funds
Premium Payments applied to Fund UL will be invested in one or more of the
available Underlying Funds at net asset value in accordance with the selection
made by the Contract Owner. The Underlying Funds currently available under the
Contract may be added or withdrawn as permitted by applicable law. Please read
carefully the complete risk disclosure in the Portfolio's prospectus before
investing. The Underlying Funds currently available under the Contract are as
follows:
Capital Appreciation Fund. The objective of Capital Appreciation Fund is growth
of capital through the use of common stocks. Income is not an objective. The
Fund invests principally in common stocks of small to large companies which are
expected to experience wide fluctuations in price in both rising and declining
markets. (Prior to May 1, 1994, the Fund was known as Aggressive Stock Trust.)
Cash Income Trust. Cash Income Trust seeks to provide high current income while
emphasizing preservation of capital and maintaining a high degree of liquidity
by investing in short-term money market securities deemed to present minimal
credit risks.
Managed Assets Trust. The objective of Managed Assets Trust is high total
investment return with reduced risk through a fully managed investment policy.
Assets of the Managed Assets Trust will be invested in a portfolio of U.S.
stocks, bonds and money market securities.
U.S. Government Securities Portfolio. The U.S. Government Securities Portfolio
selects investments from the point of view of an investor concerned primarily
with highest credit quality, current income and total return. The assets of the
U.S. Government Securities Portfolio will be invested in direct obligations of
the United States, its agencies and instrumentalities.
Utilities Portfolio. The Utilities Portfolio seeks to provide current income
through investment in equity and debt securities of companies in the utility
industries.
Templeton Bond Fund. The objective of the Templeton Bond Fund is high current
income through a flexible policy of investing primarily in debt securities of
companies, governments and government agencies of various nations throughout
the world.
Templeton Stock Fund. The objective of the Templeton Stock Fund is capital
growth through a policy of investing primarily in common stocks issued by
companies, large and small, in various nations throughout the world.
Templeton Asset Allocation Fund. The objective of the Templeton Asset
Allocation Fund is a high level of total return with reduced risk over the long
term through a flexible policy of investing in stocks of companies in any
nation and debt obligations of companies and governments of any nation. Changes
in the asset mix will be adjusted in an attempt to capitalize on total return
potential produced by changing economic conditions throughout the world.
Fidelity's High Income Portfolio. The High Income Portfolio seeks to obtain a
high level of current income by investing primarily in high yielding,
lower-rated, fixed-income (high risk) securities, while also considering growth
of capital.
Fidelity's Equity-Income Portfolio. The Equity-Income Portfolio seeks
reasonable income by investing primarily in income-producing equity securities;
in choosing these securities, the portfolio manager will also consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the Standard &
Poor's 500 Composite Stock Price Index.
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2
<PAGE>
Fidelity's Growth Portfolio. The Growth Portfolio seeks capital appreciation by
investing primarily in common stocks of well-known, established companies and
smaller, emerging growth companies, although its investments are not restricted
to any one type of security. Capital appreciation may also be found in other
types of securities, including bonds and preferred stocks.
Fidelity's Asset Manager Portfolio. The Asset Manager Portfolio seeks high
total return with reduced risk over the long-term by allocating its assets
among stocks, bonds and short-term fixed-income instruments.
Dreyfus Stock Index Fund. The objective of the Dreyfus Stock Index Fund is to
provide investment results that correspond to the price and yield performance
of publicly traded common stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index.
Smith Barney Income and Growth Portfolio. The objective of the Income and
Growth Portfolio is current income and long-term growth of income and capital
by investing primarily, but not exclusively, in common stocks.
Alliance Growth Portfolio. The objective of the Growth Portfolio is long-term
growth of capital by investing predominantly in equity securities of companies
with a 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.
Smith Barney High Income Portfolio. The investment objective of the High Income
Portfolio is high current income. Capital appreciation is a secondary
objective. The Portfolio will invest at least 65% of its assets in
high-yielding corporate debt obligations and preferred stock.
MFS Total Return Portfolio. The Total Return Portfolio's objective is to obtain
above-average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital. Generally, at
least 40% of the Portfolio's assets will be invested in equity securities.
Smith Barney Total Return Portfolio. The investment objective of the Smith
Barney Total Return Portfolio is to provide total return, consisting of
long-term capital appreciation and income. The Portfolio will seek to achieve
its goal by investing primarily in a diversified portfolio of dividend-paying
common stock.
Each Underlying Fund is subject to certain investment restrictions which may
not be changed without the approval of a "majority vote of the outstanding
voting securities" of that Fund (as defined in the Investment Company Act of
1940). There is no assurance that the Underlying Funds will achieve their
stated objectives.
More detailed information regarding the Underlying Funds may be found in the
current prospectuses for the Underlying Funds; these prospectuses are included
with and must accompany this Prospectus. Contract Owners are urged to read
these documents carefully before investing.
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3
<PAGE>
Underlying Fund Investment Advisers
The Underlying Funds receive investment management and advisory services from
the following investment professionals:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FUND INVESTMENT ADVISER SUB-ADVISER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Travelers Investment Management
Capital Appreciation Fund Company (TIMCO) Janus Capital Corporation
- -------------------------------------------------------------------------------------------------------------------
Travelers Asset Management International
Cash Income Trust Corporation (TAMIC) --
- -------------------------------------------------------------------------------------------------------------------
Managed Assets Trust TAMIC TIMCO
- -------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Portfolio TAMIC ---
- -------------------------------------------------------------------------------------------------------------------
Utilities Portfolio Smith Barney Mutual Funds Management Inc. ---
- -------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund Templeton Investment Counsel, Inc. ---
- -------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund Templeton Investment Counsel, Inc. ---
- -------------------------------------------------------------------------------------------------------------------
Templeton Bond Fund Templeton Global Bond Managers ---
- -------------------------------------------------------------------------------------------------------------------
Fidelity's High Income Portfolio Fidelity Management & Research Company ---
- -------------------------------------------------------------------------------------------------------------------
Fidelity's Equity-Income Portfolio Fidelity Management & Research Company ---
- -------------------------------------------------------------------------------------------------------------------
Fidelity's Growth Portfolio Fidelity Management & Research Company ---
- -------------------------------------------------------------------------------------------------------------------
Fidelity's Asset Manager Portfolio Fidelity Management & Research Company ---
- -------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund Wells Fargo Nikko Investment Advisors ---
- -------------------------------------------------------------------------------------------------------------------
Smith Barney Income and Growth Portfolio Smith Barney Mutual Funds Management Inc.
- -------------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio Smith Barney Mutual Funds Management Inc. Alliance Capital Management L.P.
- -------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio Smith Barney Mutual Funds Management Inc.
- -------------------------------------------------------------------------------------------------------------------
Massachusetts Financial Services
MFS Total Return Portfolio Smith Barney Mutual Funds Management Inc. Company
- -------------------------------------------------------------------------------------------------------------------
Smith Barney Total Return Portfolio Smith Barney Mutual Funds Management Inc.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
For more detailed information on these investment advisers and their services
and fees, please refer to the prospectuses for the Underlying Funds.
General
All investment income of and other distributions to each Sub-Account of Fund
UL arising from the applicable Underlying Fund are reinvested in shares of that
Underlying Fund at net asset value. The income and realized gains or losses on
the assets of each Sub-Account of Fund UL are therefore separate and are
credited to or charged against the Sub-Account without regard to income, gains
or losses from any other Sub-Account or from any other business of the Company.
The Company will purchase shares in the Underlying Funds in connection with
premium payments allocated to the applicable Funds in accordance with Contract
Owners' directions and will redeem shares in the Underlying Funds to meet
Contract obligations or make adjustments in reserves, if any. The Underlying
Funds are required to redeem Fund shares at net asset value and to make payment
within seven days.
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4
<PAGE>
Conflicts of Interest
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
Underlying Funds simultaneously. Although neither the Company nor the
Underlying Funds currently foresees any such disadvantages either to variable
life insurance or to variable annuity Contract Owners, the Underlying Funds'
Boards of Directors intend to monitor events to identify any material conflicts
between such Contract Owners and to determine what action, if any, should be
taken in response thereto. If any of the Underlying Funds' 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 Contract
Owners would no longer have the economies of scale resulting from a larger
combined fund. Please consult the prospectuses of the Underlying Funds for
additional information.
Substitution
The Company reserves the right, subject to compliance with appropriate state
and federal laws, to make additions to, deletions from, or substitutions for
Fund UL and the Sub-Accounts which fund the Contract. If shares of any of the
Underlying Funds should no longer be available for purchase by the appropriate
Sub-Account, or if, in the judgment of the Company further investment in such
shares becomes inappropriate for purposes of the Contract, shares of another
Underlying Fund may be substituted for shares of the Underlying Funds held in
the Sub-Accounts. Substitution may be made with respect to both existing
investments and the investment of any future Premium Payments. However, no
substitution of securities will be made without prior notice to Contract
Owners, and without prior approval of the Securities and Exchange Commission,
all to the extent required by the 1940 Act or other applicable law. Subject to
Contract Owner approval, the Company reserves the right to end Fund UL's
registration under the 1940 Act.
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THE CONTRACT
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The Contract described in this Prospectus is both an insurance product and a
security. However, the Contract is first and foremost a life insurance contract
with death benefits, cash values and other features traditionally associated
with life insurance. The Contract is deemed to be "variable" because unlike the
fixed benefits of an ordinary whole life insurance contract, the Cash Value
and, under certain circumstances, the Death Benefit of the Contract may
increase or decrease depending on the investment experience of the Underlying
Funds to which the Premium Payment has been allocated. As an insurance product,
the Contract is subject to the insurance laws and regulations of each state or
jurisdiction in which it is available for distribution.
The Contract Application
Individuals wishing to purchase a Contract must submit an application to the
Company. As with traditional insurance contracts, a Contract Owner may state
the amount of insurance desired (the "Stated Amount"), which amount may not be
less than $50,000. A Contract Owner may request an increase or decrease in the
Stated Amount of the Contract in writing from time to time. (See "Changes in
Stated Amount," page 14.) No change in the terms or conditions of the Contract
will be made without the consent of the Contract Owner.
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5
<PAGE>
A Contract will be issued only on the life of an Insured who supplies
evidence of insurability satisfactory to the Company. Acceptance is subject to
the Company's underwriting rules.
Insurance coverage under a Contract will begin only after the Applicant has
satisfied all outstanding underwriting delivery requirements, and after the
Company has received the first premium. The Contract Date is the date used to
determine all future cyclical transactions on the Contract, e.g., Deduction
Dates, Contract Months and Contract Years. The Contract Date may be prior to,
or the same date as, the date on which the Contract is issued (the "Issue
Date"). During the underwriting period, any premium paid under the Contract
will be held in a non-interest bearing suspense account.
Allocation of Premium Payments
The first premium will be applied to the Contract on the later of the
Contract Date or the date it is received at the Company's Home Office. During
the Applicant's Right to Cancel Period, the Company will allocate Net Premiums
to the Cash Income Trust. At the end of the Applicant's Right to Cancel Period,
the account value in Cash Income Trust will be allocated (in whole percentages)
among the Underlying Fund(s) selected on the Application to purchase
Accumulation Units in the applicable Sub-Accounts. Net Premium payments
received on or after the expiration of the Applicant's Right to Cancel Period
will be allocated among the Sub-Accounts to purchase Accumulation Units in such
Sub-Accounts as directed by the Contract Owner or, in the absence of
directions, as stated in the original application. The number of Accumulation
Units of each Sub-Account to be credited to the Contract once a Premium Payment
has been received by the Company will be determined by dividing the Premium
Payment applied to the Sub-Account by the Accumulation Unit Value of the
Sub-Account next computed following receipt of the payment.
Accumulation Unit Values
The Accumulation Unit Value for each Sub-Account of Fund UL was initially
established at $1. Thereafter, the Accumulation Unit Value for each Sub-Account
will vary to reflect the investment experience of the applicable Underlying
Fund and will be determined on each Valuation Date by multiplying the
Accumulation Unit Value of the particular Sub-Account on the preceding
Valuation Date by the Net Investment Factor for that Sub-Account for the
Valuation Period then ended. The Net Investment Factor for each of the
Sub-Accounts is equal to the net asset value per share of the corresponding
Underlying Fund at the end of the Valuation Period (plus the per share amount
of any dividends or capital gain distributions by that Fund, if the dividend
date occurs in the Valuation Period then ended, and plus or minus any per share
credit or charge by the Company for any tax reserves) divided by the net asset
value per share of the corresponding Underlying Fund at the beginning of the
Valuation Period (plus or minus any per share credit or charge by the Company
for any tax reserves), and subtracting from that amount any applicable
administrative expense charge, and mortality and expense risk charge.
Applicants should refer to the prospectuses for each of the Underlying Funds
for a description of how the assets of each Underlying Fund are valued. These
valuation procedures directly affect the Accumulation Unit Value of the
Sub-Account, and therefore the Cash Value of the Contract.
All valuations made under the Contract (e.g., the determination of Cash Value
or Cash Surrender Value, contract loans, partial cash surrenders, payment of
Death Benefits, and the determination of the number of Accumulation Units to be
credited to a Contract with each Net Premium payment), will be made on the
Valuation Date next following the Company's receipt of the request.
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6
<PAGE>
Right to Cancel
An Applicant has a limited right to return the Contract for cancellation by
returning the Contract, by mail or personal delivery, to the Company or to the
agent who sold the Contract. The Contract must be returned either (1) within 10
days after delivery of the Contract to the Contract Owner, (2) within 45 days
of completion of the contract application, or (3) within 10 days after the
Notice of Right to Cancel has been mailed or delivered to the Applicant
(whichever is latest). The Company will return to the Applicant a refund of the
greater of all premium payments paid for the Contract, or the sum of (1) the
difference between the premium paid, including any fees or charges, and the
amounts allocated to the Underlying Fund(s), (2) the value of the amounts
allocated to the Underlying Fund(s) on the date on which the Company receives
the returned Contract, and (3) any fees and other charges imposed on amounts
allocated to the Underlying Fund(s).
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CHARGES AND DEDUCTIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CHARGES AGAINST PREMIUM
Front-End Sales Charge
Upon receipt of a Premium Payment, and before allocation of the payment among
the Underlying Funds, the Company will deduct a front-end sales charge of 2.5%.
This charge will be reduced to 2% for Contracts with an initial Stated Amount
of $500,000 or more, and to 0% for Contracts with an initial Stated Amount of
$1,000,000 or more.
There will be additional sales charges assessed upon any full or partial
surrender. (See "Surrender Charges" below.)
Sales charges are intended to cover the Company's actual sales expenses,
including agent sales commissions, advertising and the printing of the
prospectuses. The Company expects to recover the sales expenses of a contract.
To the extent sales expenses are not covered by the sales charges, the Company
will recover such expenses from its surplus. This surplus may include profit
from the mortality and expense risk charge.
State Premium Tax Charge
A charge of 2.5% of each premium payment will be deducted for state premium
taxes (except for Contracts issued in the Commonwealth of Puerto Rico where no
premium tax is deducted). These taxes vary from state to state and currently
range from 0.75% to 3.5%; 2.5% is an average. Because there is a range of
premium taxes, a contract owner may pay a premium tax charge that is higher or
lower than the premium tax actually assessed in his or her jurisdiction.
The Company also reserves the right to charge the assets of each Sub-Account
for a reserve for any income taxes payable by the Company on the assets
attributable to that Sub-Account. (See "Federal Tax Considerations," page 24.)
MONTHLY DEDUCTION AMOUNT
In addition to deductions from premium payments, the Company will deduct from
the Cash Value of the Contract a Monthly Deduction Amount to cover certain
charges and expenses incurred in connection
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7
<PAGE>
with the Contract. The Monthly Deduction Amount will be deducted pro rata from
each of the Sub-Accounts attributable to the Contract on the first day of each
Contract Month (the "Deduction Date"), commencing on the Contract Date. The
dollar amount of the Deduction Amount will vary from month to month.
The following is a summary of monthly charges and expenses which make up the
Monthly Deduction Amount.
Cost of Insurance Charge
The cost of insurance charge, which is deducted monthly, may vary from month
to month since it depends on a number of variables that are determined on each
Deduction Date. This charge is equal to the difference between the Death
Benefit payable under the Contract and the Cash Value of the Contract, each
determined on the Deduction Date, multiplied by a monthly "cost of insurance
rate," i.e., a monthly rate charged for each dollar of insurance coverage. The
cost of insurance rate varies annually and is based on the attained age, sex
and risk class of the insured (except in the state of Montana where no
distinction is made on the basis of sex). The cost of insurance rate for
preferred and standard risks will not exceed those based on the 1980
Commissioners Standard Ordinary Mortality Tables ("1980 Tables"). Substandard
risks will have monthly deductions based on cost of insurance rates which may
be higher than those set forth in the 1980 Tables. A table of guaranteed cost
of insurance rates per $1,000 will be included in each Contract; however, the
Company reserves the right to use rates (current rates) less than those shown
in the 1980 Tables. Although guaranteed rates do not distinguish between
preferred and standard, or smoker and non-smoker underwriting classifications,
there will be separate current cost of insurance tables for these two groups.
Any changes in the cost of insurance rates will be made uniformly for all
Insureds in the same class. The cost of insurance charge is to cover the
Company's expected mortality cost for basic insurance coverage, not including
supplemental benefit provisions.
Because the Cash Value and, under certain conditions, the Death Benefit of a
Contract may vary from month to month, the cost of insurance charge may also
vary on each Deduction Date. In addition, Applicants should note that the cost
of insurance charge is based on the difference between the Death Benefit
payable under the Contract and the Cash Value of the Contract. For Option 1, an
increase in the Cash Value or a decrease in the Death Benefit would result in a
smaller cost of insurance charge assuming that everything else remains the
same; while a decrease in the Cash Value or an increase in the Death Benefit
would result in a larger cost of insurance charge. (See also "Changes in Death
Benefit Option," page 14 and "Changes in Stated Amount," page 14 for a
discussion of the effect of changes in the Stated Amount on the cost of
insurance.)
Contract Administrative Charge
The Company deducts a monthly administrative charge from the Cash Value of
the Contract during the first three Contract Years, and upon any increase in
the Stated Amount for three years from the date of the increase. The amount of
this charge will be shown in the Contract. The Company currently assesses a
contract administrative charge that varies by issue age, stated amount and
smoker/non-smoker classification (see Appendix C). The current contract
administrative charge may be lower than the guaranteed maximum charge which
varies only by issue age and stated amount (see Appendix C(1)). The
administrative charge does not apply to Cost of Living Adjustment increases or
to an increase in Stated Amount resulting from a change in a
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8
<PAGE>
Death Benefit Option. The proceeds from this charge are expected to pay for the
expenses associated with the issuance of the Contract, and is set at a level
which does not exceed the average expected cost of these administrative
services. The monthly administrative charge may be reduced or eliminated when
sales are made under certain arrangements. (See "Reduction or Elimination of
Charges," page 11.)
Charges for Supplemental Benefit Provisions
The Company will include a supplemental benefits charge in the Monthly
Deduction Amount if the Contract Owner has elected any of the following
supplemental benefit provisions: Waiver of Monthly Deduction Rider, Child Term
Rider, and Primary or Other Insured Term Rider. The amount of this charge will
vary depending upon the actual supplemental benefits selected.
CHARGES AGAINST THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge
A daily charge is deducted from Fund UL for mortality and expense risks
assumed by the Company. For Contracts issued prior to July 12, 1995, the
current charge is at an annual rate of 0.60% of the assets in the Separate
Account, however, the Contract provides that the maximum charge for mortality
and expense risks will not exceed 0.80%. For Contracts issued after July 12,
1995, the mortality and expense risk charge is 0.80% for the first fifteen (15)
Contract Years, and will be 0.45% thereafter. The mortality risk assumed is
that the actual cost of insurance charge specified in the Contract may be
insufficient to meet actual claims. The expense risk assumed is that expenses
incurred in issuing and administering the Contracts will exceed the
administrative charges set forth in the Contract. If all money collected by the
Company from this charge is not needed to cover the mortality and expenses
costs, the excess will be contributed to the Company's general account.
Administrative Expense Charge
The Company reserves the right to deduct a daily charge from Fund UL for
administrative expenses incurred by the Company. For Contracts issued prior to
July 12, 1995, the maximum charge is equivalent on an annual basis to 0.10% of
the assets in the Separate Account, however, the Company does not currently
asses this charge. For Contracts issued on or after July 12, 1995, the charge
is equivalent on an annual basis to 0.10% of the assets in the Separate Account
for the first fifteen (15) Contract Years and 0% thereafter. The administrative
expense charge, is designed to cover administrative costs associated with the
maintenance of the Contracts and the maximum fee is set at a level which does
not exceed the average expected cost of the administrative services to be
provided while the Contract is in force.
CHARGES AGAINST THE UNDERLYING FUNDS
Fund UL purchases shares of the Underlying Funds at net asset value. The net
asset value of the Underlying Fund shares reflects investment advisory fees and
other expenses already deducted from the assets of the Underlying Funds. The
investment advisory fees and other expenses applicable to each of the
Underlying Funds are described in the individual prospectuses for the
Underlying Funds.
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9
<PAGE>
SURRENDER CHARGES
There are two types of contingent surrender charges that can apply under the
Contract: a Percent of Premium Charge and a Per Thousand of Stated Amount
Charge. These surrender charges are contingent because they only apply during
the first ten Contract Years (or the first ten years following an increase in
Stated Amount). Both charges apply upon a full surrender of the Contract. Only
the Percent of Premium Charge applies upon a partial surrender.
Percent of Premium Charge
A Percent of Premium surrender charge will be assessed upon a full or partial
surrender of the Contract during the first ten Contract Years (or during the
first ten years following an increase in Stated Amount). The charge will be the
smallest of:
(a) 6% of the amount of Cash Value being surrendered; or
(b) 6% of the amount of premiums actually paid within the five years preceding
the surrender; or
(c) 9% of the total Annual Minimum Premiums for each full or partial Contract
Year during the five years preceding the surrender, whether paid or not.
(See Appendix A, "Annual Minimum Premiums.")
For example (as illustrated on page 35), a Contract with a Stated Amount of
$150,000 for a 45-year old male who pays a premium of $1,969 per year for five
years (a total of $9,845), and then fully surrenders the Contract for its Cash
Value of $7,443 (assuming a 6% rate of return), the Percent of Premium
surrender charge would be $447, because (a) is $447 (6% of $7,443); (b) is $591
(6% of the $9,845 in premiums paid); and (c) is approximately $682 (9% of the
annual minimum premium for five years). The smallest, $447, is the applicable
charge.
Per Thousand of Stated Amount Charge
A Per Thousand of Stated Amount surrender charge is imposed on full
surrenders, but not on partial surrenders, and applies only during the first
ten Contract Years or the ten years following an increase in Stated Amount
(other than an increase due to a Cost of Living Adjustment or a change in Death
Benefit Option). The charge is equal to a specified dollar amount for each
$1,000 of Stated Amount to which it applies, and will apply only to that
portion of the Stated Amount (except for increases excluded above) which has
been in effect for less than ten years.
The Per Thousand of Stated Amount Charge varies by Stated Amount and original
issue age, and increases with the issue age of the Insured. For Stated Amounts
of $499,999 or less, this charge varies in the first year from $2.04 per $1,000
of Stated Amount for issue ages of 4 years or less, to $25.40 per $1,000 of
Stated Amount for issue ages of 65 years or higher. The charge is lower for
Stated Amounts over $499,999, and even lower for Stated Amounts over $999,999.
Additionally, the charge decreases by 10% each year over the ten-year period.
For example, for a 45-year old with a Stated Amount of $150,000, the charge in
the first year is $7.18 for each $1,000 of Stated Amount, or $1,077. The charge
decreases 10%, or approximately $0.72, each year, so in the fifth year, it is
$4.31 for each $1,000 of Stated Amount, or $646.50; in the tenth year, it is
$0.72 for each $1,000, or $108.
No more than 20% of the Per Thousand of Stated Amount Charge is a sales
charge. The remainder is designed to compensate the Company for administrative
expenses not covered by other administrative charges. The administrative
expense component of the Per Thousand of
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10
<PAGE>
Stated Amount charge is set at a level which does not exceed the average
expected cost of the administrative services to be provided while the Contract
is in force. This administrative charge component of the Surrender Charge may
be reduced or eliminated when sales are made under certain arrangements. (See
"Reduction or Elimination of Sales Charges and Administrative Charges" below.)
The Per Thousand of Stated Amount surrender charges are set forth in Appendix
B, and have been further split into the sales charge component and the
administrative charge component in Appendices B(1) and B(2), respectively.
MAXIMUM SALES CHARGES
Although the total sales charges assessed under the Contract will vary based
on issue age, sex, year of surrender, amount of premium paid and amount
surrendered, the maximum total sales charge for any Contract will never exceed
26.7% of the total premiums paid.
As stated above, the front-end sales charge for a Contract with no full or
partial surrenders will never exceed 2.5% of actual premiums paid. The sales
charges for a Contract with full or partial surrenders will vary, but in no
event will they exceed the percentage of premiums paid as shown below.
Maximum Sales Charges
Contract Year of Surrender (as a % of Premium Payments)
1 26.7%
2 24.9
3 23.1
4 21.2
5 19.4
6 16.1
7 14.4
8 12.5
9 10.6
10 8.8
11+ 2.5
As the table demonstrates, the maximum sales charge for any Contract is less
than 26.7% in every Contract Year other than the first (or in every year after
the first year following an increase).
For example (as depicted in the illustration on page 31), a Contract with a
Stated Amount of $150,000 for a 45-year old male who paid an initial premium of
$1,969 (approximately 130% of the Annual Minimum Premium), and who surrendered
during the first year, would have a maximum sales load of $383 (19.5% of actual
premium paid). If, instead, he paid $1,969 per year for five years (or $9,845)
and surrendered in the sixth year, the maximum sales load would be $944 (9.6%
of actual premiums paid).
TRANSACTION CHARGE
The Company reserves the right to limit free transfers of Cash Value from one
Sub-Account to another by the Contract Owner to four times in any Contract
Year, and to charge $10 for any additional transfers. There is currently no
charge for transfers.
REDUCTION OR ELIMINATION OF CHARGES
The Company may offer the Contract in arrangements where an employer or
trustee will own a group of policies on the lives of certain employees, or in
other situations where groups of policies will be purchased at one time. The
Company may reduce or eliminate sales charges and administrative charges in
such arrangements to reflect the reduced sales expenses and administrative
costs expected as a result of sales to a particular group.
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11
<PAGE>
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CONTRACT BENEFITS AND RIGHTS
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DEATH BENEFIT
As with traditional life insurance contracts, the Death Benefit under the
Contract is the amount paid to the named beneficiary upon the Insured's death.
The Death Benefit will be reduced by any outstanding charges, fees and contract
loans. All or part of the Death Benefit may be paid in cash or applied under
one or more of the payment options described on page 19.
Each Contract Owner may elect one of two Death Benefit options set forth in
the Contract for calculating the amount of the Death Benefit. Under Option 1
(the "Level Option"), the Death Benefit will be equal to the Stated Amount of
the Contract or, if greater, a specified multiple of Cash Value (the "Minimum
Amount Insured"). Under Option 2 (the "Variable Option"), the Death Benefit
will be equal to the Stated Amount of the Contract plus the Cash Value
(determined as of the date of the Insured's death) or, if greater, the Minimum
Amount Insured. The Minimum Amount Insured is the amount required to qualify
the Contract as a life insurance contract under the current federal tax law.
Under that law, the Minimum Amount Insured is equal to a stated percentage of
the Cash Value of the Contract determined as of the first day of each Contract
Month. The percentages differ according to the attained age of the Insured. The
Minimum Amount Insured will be set forth in the Contract and may change as
federal income tax laws or regulations change. The percentages used to
calculate the Minimum Amount Insured decrease after the age of 40. The
following is a schedule of the applicable percentages:
% Shall Decrease
by a Ratable Portion
Attained Age for Each Full Year:
More But Not
Than More Than From To
- ---- --------- ---------- ---------
0 40 250 250
40 45 250 215
45 50 215 185
50 55 185 150
55 60 150 130
60 65 130 120
65 70 120 115
70 75 115 105
75 90 105 105
90 95 105 100
The federal tax law imposes another cash funding limitation on cash value
life insurance contracts that, when applicable, may increase the Minimum Amount
Insured in excess of the figures shown in the schedule above. This limitation
is known as the "guideline premium limitation," and it is generally applicable
during the early years of variable universal life insurance contracts.
The following examples demonstrate the relationship between the Death
Benefit, the Cash Surrender Value and the Minimum Amount Insured under Options
1 and 2 of the Contract. Both sets of examples assume an Insured of age 40, a
Minimum Amount Insured of 250% of Cash Value (assuming the preceding table is
controlling as to Minimum Amount Insured), and no outstanding contract loan.
OPTION 1 - Stated Amount: $50,000
In the following examples of an Option 1 "Level" Death Benefit, the Death
Benefit under the Contract is generally equal to the Stated Amount of $50,000.
Since the Contract is designed to qualify as a life
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12
<PAGE>
insurance contract, the Death Benefit cannot be less than the Minimum Amount
Insured (or, in this example, 250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Contract equals $10,000, the Minimum
Amount Insured would be $25,000 ($10,000 x 250%). If the Death Benefit in the
Contract is the greater of the Stated Amount ($50,000) or the Minimum Amount
Insured ($25,000), then the Death Benefit would be $50,000.
EXAMPLE TWO. If the Cash Value of the Contract 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).
EXAMPLE THREE. If the Insured is age 41, and the Cash Value of the Contract
equals $44,000, the Minimum Amount Insured would be $106,920 ($44,000 x 243%)
(243% is the applicable percentage for a 41-year old insured). The Death
Benefit would be equal to $106,920 which is the greater of the Stated Amount
($50,000) and the Minimum Amount Insured ($106,920).
EXAMPLE FOUR. The Death Benefit may also increase or decrease with the
investment experience of the applicable Underlying Funds to the extent the
Minimum Amount Insured exceeds the Stated Amount. Consequently, if the 41-year
old Insured has a Cash Value equal to $35,000 instead of $44,000, the Death
Benefit would be $85,050 ($35,000 x 243%).
OPTION 2 - Stated Amount: $50,000
In the following examples of an Option 2 "Variable" Death Benefit, the Death
Benefit will vary with the investment experience of the applicable Underlying
Funds and will generally be equal to the Stated Amount plus the Cash Value of
the Contract (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 Cash Value).
EXAMPLE ONE. If the Cash Value of the Contract 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 Cash Value ($10,000),
unless the Minimum Amount Insured ($25,000) was greater.
EXAMPLE TWO. If the Cash Value of the Contract 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 Cash Value ($50,000 + $60,000 =
$110,000).
EXAMPLE THREE. If the Insured is age 41, and the Cash Value of the Contract
equals $65,000, the Minimum Amount Insured would be $157,950 ($65,000 x 243%)
(243% is the applicable percentage for a 41-year old Insured). The resulting
Death Benefit under the Contract would be equal to $157,950 because the Minimum
Amount Insured ($157,950) is greater than the Stated Amount plus the Cash Value
($50,000 + $65,000 = $115,000).
EXAMPLE FOUR. The Death Benefit may also increase or decrease with the
investment experience of the applicable Underlying Funds. Consequently, if a
41-year old Insured has a Cash Value of $50,000 instead of $65,000, the Death
Benefit would be $121,500 because the Minimum Amount Insured ($50,000 x 243% =
$121,500) is greater than the Stated Amount plus the Cash Value ($50,000 +
$50,000 = $100,000).
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13
<PAGE>
As long as the Contract remains in effect, the Company guarantees that the
Death Benefit under either option will not be less than the current Stated
Amount of the Contract less any outstanding contract loan or Deduction Amount
due but unpaid. The Death Benefit under either option may vary with the Cash
Value of the Contract. Under Option 1, the Death Benefit equals the Stated
Amount and will vary only when the Minimum Amount Insured exceeds the Stated
Amount of the Contract. Under Option 2, the Death Benefit equals the Stated
Amount plus the Cash Value, unless the Minimum Amount Insured is greater, in
which case the Death Benefit is the greater amount.
Death Benefits are payable within seven days of the Company's receipt of
satisfactory proof of the Insured's death. The amount of Death Benefit actually
paid to the Contract beneficiary may be adjusted to reflect any contract loan,
suicide by the Insured within two years after the Issue Date of the Contract,
any material misstatements in the contract application as to age or sex of the
Insured, and any amounts payable to an assignee under a collateral assignment
of the Contract. (See "Assignment," page 24.) In addition, if the Insured dies
during the 61-day period after the Company gives notice to the Contract Owner
that the Cash Surrender Value of the Contract is insufficient to meet the
Monthly Deduction Amount due against the Cash Value of the Contract, the Death
Benefit actually paid to the Contract Owner's beneficiary will be reduced by
the amount of the Deduction Amount that is due and unpaid. (See "Cash Value and
Cash Surrender Value," page 15, for effects of partial cash surrenders on Death
Benefits.)
Changes in Death Benefit Option
A Contract Owner may change the Death Benefit option at any time prior to the
Insured's death by sending a written request to the Company. There is no direct
consequence of changing a Death Benefit option, except as described under "Tax
Consequences of Modified Endowment Contracts" on page 25. However, the change
could affect future values of Net Amount at Risk, and with some Option 2 to
Option 1 changes involving substantially funded Contracts, there may be a cash
distribution which is included in the gross income of the Contract Owner.
Consequently, the cost of insurance charge which is based on the Net Amount at
Risk may be different in the future. If the change is from Option 2 to Option
1, the Stated Amount of the Contract will be increased by the Cash Value
(determined on the day the Company receives the written change request or on
the date the change is requested to become effective, if later). If the change
is from Option 1 to Option 2, the Stated Amount of the Contract will be
decreased by the Cash Value (determined on the date the Company receives the
written change request) so that the Death Benefit payable under Option 2 at the
time of the change will equal that which would have been payable under Option
1. A person who wishes a level Net Amount at Risk and an increasing Death
Benefit may choose to change from Option 1 to Option 2. Likewise, a person who
wishes a level Death Benefit and a decreasing Net Amount at Risk would choose
Option 1, not Option 2. No change from Option 1 to Option 2 will be permitted
if the change results in a Stated Amount of less than the minimum amount of
$50,000.
Changes in Stated Amount
A Contract Owner may request in writing that the Stated Amount of the
Contract be increased or decreased, 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.
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14
<PAGE>
A decrease in Stated Amount in a substantially funded Contract may cause a
cash distribution that is includable in the gross income of the Contract Owner.
For increases in the Stated Amount, the Company may require a new application
and evidence of insurability as well as an additional premium payment. The
effective date of any increase will be as shown on the new Contract Summary
which the Company will send to the Contract Owner. The effective date of any
increase in the Stated Amount will generally be the Deduction Date next
following either the date of a new application or, if different, the date
requested by the Applicant. There is an additional Contract Administrative
Charge and a Per Thousand of Stated Amount Surrender Charge associated with a
requested increase in Stated Amount. There is no additional charge for a
decrease in Stated Amount.
Maturity and Maturity Extension Benefits
If the Insured is living on the Maturity Date (the anniversary of the
Contract Date on which the Insured is age 95), the Company will pay the
Contract Owner the Cash Value of the Contract, less any outstanding contract
loan or Deduction Amount due and unpaid. The Contract Owner must surrender the
Contract to the Company before such payment can be made, at which point the
Contract will terminate and the Company will have no further obligations under
the Contract.
Upon the Insured's attaining age 94, and at any time during the twelve months
thereafter, the Contract Owner may request that coverage be extended beyond the
Maturity Date (the "Maturity Extension Benefit"). (This Maturity Extension
Benefit may not be available in all jurisdictions.) After the Company has
received such request, but prior to the Maturity date, the Contract will
continue in force until the earlier of the death of the Insured or the date on
which the Contract Owner requests that the Contract terminate. Upon termination
of the Maturity Extension Benefit, a Death Benefit will be paid as follows. On
the Maturity Date, the Death Benefit will be the Cash Value less any Loan
Account Value and less any Deduction Amounts due but not paid. After the
Maturity Date, the Death Benefit will be the Cash Value less any Loan Account
Value. The Death Benefit is based on the experience of the Sub-Accounts
selected and is variable and is not guaranteed. After the Maturity Date,
periodic Deduction Amounts will no longer be charged against the Cash Value and
additional premiums will not be accepted.
The Company intends that the Contract and the Maturity Extension Benefit be
considered life insurance for tax purposes. The Death Benefit is designed to
comply with Section 7702 of the Internal Revenue Code of 1986, as amended, or
other equivalent section of the Code. However, the Company does not give tax
advice, and cannot guarantee that the Death Benefit and Cash Value will be
exempt from any future tax liability. The tax results of any benefits under the
Maturity Extension provision depend upon interpretation of the Internal Revenue
Code. The Contract Owner should consult his or her own personal tax adviser
prior to the exercise of the Maturity Extension Benefit to assess any potential
tax liability.
Cash Value and Cash Surrender Value
The Cash Value of a Contract changes on a daily basis and will be computed on
each Valuation Date. The Cash Value will vary to reflect the investment
experience of the Underlying Funds, as well as any partial Cash Surrenders,
Monthly Deduction Amount, daily Separate Account charges, and any additional
premium payments. There is no minimum guaranteed Cash Value.
The Cash Value of a particular Contract is related to the net asset value of
the Underlying Funds to which premium payments on the Contract have been
allocated. The Cash Value on any Valuation Date is calculated by multiplying
the number of Accumulation Units credited to the Contract in each Sub-Account
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15
<PAGE>
as of the Valuation Date by the current Accumulation Unit Value of that
Sub-Account, then adding the collective result for each of the Sub-Accounts
credited to the Contract, and finally adding the value (if any) of the Loan
Account.
As long as the Contract is in effect, a Contract Owner may elect, without the
consent of the beneficiary (provided the designation of beneficiary is not
irrevocable), to surrender the Contract and receive its "Cash Surrender Value";
i.e., the Cash Value of the Contract determined as of the day the Company
receives the Contract Owner's written request, less any outstanding contract
loan, and less any applicable Surrender Charges. For full surrenders, the
Company will pay the Cash Surrender Value of the Contract within seven days
following its receipt of the written request, or on the date requested by the
Contract Owner, whichever is later. The Contract will terminate on the
Deduction Date next following the Company's receipt of the written request, or
on the Deduction Date next following the date on which the Contract Owner
requests the surrender to become effective, whichever is later.
In the case of partial surrenders, the Cash Surrender Value will be equal to
the net amount requested to be surrendered minus any applicable Surrender
Charges. The deduction from Cash Value for a partial surrender will be made on
a pro rata basis against the Cash Value of each of the Sub-Accounts
attributable to the Contract (unless the Contract Owner states otherwise in
writing).
In addition to reducing the Cash Value of the Contract, partial cash
surrenders will reduce the Death Benefit payable under the Contract. Under
Option 1, the Stated Amount of the Contract will be reduced by the amount of
the partial cash surrender. Under Option 2, the Cash Value, which is part of
the Death Benefit, will be reduced by the amount of the partial cash surrender.
The Company may require return of the Contract to record such reduction.
Transfer of Cash Value
As long as the Contract remains in effect, the Contract Owner may request
that all or a portion of the Cash Value of a particular Sub-Account be
transferred to other Sub-Accounts. The Contract Owner may make the request in
writing by mailing such request to the Company at its Home Office, or by
telephone by calling 1-800-334-4298 (proper authorization and identification
will be required for telephone transfers). The Company reserves the right to
restrict the number of such transfers to four times in any Contract Year and to
charge $10 for each additional transfer; however, there is currently no charge
for transfers.
As a result of a transfer, the number of Accumulation Units credited to the
Sub-Account from which the transfer is made will be reduced by the number
obtained by dividing the amount transferred from the Sub-Account by the
Accumulation Unit Value of that Sub-Account on the Valuation Date on which the
Company receives the transfer request. The number of Accumulation Units
credited to the Sub-Account to which the transfer is made will be increased by
the number obtained by dividing the amount transferred to the Sub-Account by
the Accumulation Unit Value of that Sub-Account on the Valuation Date on which
the Company receives the transfer request.
Dollar-Cost Averaging (Automated Transfers)
You may establish automated transfers of Contract Values on a monthly or
quarterly basis from certain of the Sub-Accounts to other Sub-Accounts through
written request or other method acceptable to the Company. You must have a
minimum total Contract Value of $1,000 to enroll in the Dollar-Cost Averaging
program. The minimum total automated transfer amount is $100.
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16
<PAGE>
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 Contract,
including provisions relating to the transfer of money between Sub-Accounts.
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, Contract Owners should
consider the risks involved in switching between investments available under
this Contract. 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.
Contract Loans
A Contract Owner may obtain a cash loan from the Company secured by the
Contract not to exceed 90% of the Contract's Cash Value (determined on the day
on which the Company receives the written loan request), less any surrender
penalties which include a percent of premium charge and per thousand of stated
amount charge, as described on pages 10-11 in more detail. (For Contract loans
taken prior to July 12, 1995, the loan amount will be 80% of the Contract's
Cash Value.) No loan requests may be made for amounts of less than $100. If
there is a loan outstanding at the time a subsequent loan request is made, the
amount of the outstanding loan will be added to the new loan request. The
Company will charge interest on the outstanding amounts of the loan, which
interest must be paid in advance by the Contract Owner. For Contracts issued
prior to July 12, 1995 (or where state approval has not been received for the
new Contract), during the first ten Contract Years, the full Loan Account Value
will be charged an annual interest rate of 7.4% (6% in the Virgin Islands).
During Contract Years 11, 12 and 13, 25%, 50% and 75% of the Loan Account
Value, respectively, will be charged a reduced rate of 3.85% (5.66% in New York
and Massachusetts). Thereafter, 100% of the Loan Account Value will be charged
the reduced rate. For Contracts issued after July 12, 1995, where approved,
during the first thirteen Contract Years, the full Loan Account Value will be
charged an annual interest rate of 7.4%; thereafter 3.85% will be charged.
The amount of the loan will be transferred as of the date the loan is made on
a pro rata basis from each of the Sub-Accounts attributable to the Contract
(unless the Contract Owner states otherwise) to another account (the "Loan
Account"). Amounts in the Loan Account will be credited by the Company with a
fixed annual rate of return of 4% (6% in New York and Massachusetts) and will
not be affected by the investment performance of the Underlying Funds. When
loan repayments are made, the amount of the repayment will be deducted from the
Loan Account and will be reallocated based upon premium allocation percentages
among the Sub-Accounts applicable to the Contract (unless the Contract Owner
states otherwise). The Company will make the loan to the Contract Owner within
seven days after receipt of the written loan request.
An outstanding loan amount decreases the Cash Surrender Value. If a loan is
not repaid, it permanently decreases the Cash Surrender Value, which could
cause the Contract to lapse (see "Lapse and Reinstatement" below). For example,
if a Contract has a Cash Surrender Value of $10,000, the Contract Owner may
take a loan of 80% or $8,000, leaving a new Cash Surrender Value of $2,000. In
addition, the Death Benefit actually payable would be decreased because of the
outstanding loan. Furthermore, even if the loan is repaid, the Death Benefit
and Cash Surrender Value may be permanently affected since the Contract Owner
was not credited with the investment experience of an Underlying Fund on the
amount in the Loan Account while the loan was outstanding. All or any part of a
loan secured by a Contract may be repaid while the Contract is still in effect.
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17
<PAGE>
Lapse and Reinstatement
Except as provided below under "Lapse Protection Guarantee," the Contract
will remain in effect until the Cash Surrender Value of the Contract is
insufficient to cover the Monthly Deduction Amount. If such event occurs, the
Company will give written notice to the Contract Owner indicating that if the
amount shown in the notice (which will be sufficient to cover the Deduction
Amount due) is not paid within 61 days (the "Late Period"), the Contract may
lapse. The Contract will continue through the Late Period, but if no payment is
forthcoming, it will terminate at the end of the Late Period. If the person
insured under the Contract dies during the Late Period, the Death Benefit
payable under the Contract will be reduced by the Monthly Deduction Amount due
plus the amount of any outstanding loan. (See "Death Benefit," page 12.)
If the Contract lapses, the Contract Owner may reinstate the Contract upon
payment of the reinstatement premium (and any applicable charges) shown in the
Contract. A request for reinstatement may be made at any time within three
years of lapse (five years for contracts issued in Montana). The Net Premium
due upon reinstatement is at least one-quarter of the Annual Minimum Premium,
as shown in Appendix A, less any charges or fees, calculated as of the
Deduction Date next following receipt of premium by the Company. The Cash Value
of the Contract upon reinstatement will be equal to the Net Premium. In
addition, the Company reserves the right to require satisfactory evidence of
insurability.
Lapse Protection Guarantee
Contract Owners may elect to have a Lapse Protection Guarantee benefit as
part of their Contract (as long as the Insured is not a substandard risk). The
Lapse Protection Guarantee benefit provides that if during the first three
Contract Years (the "Guarantee Period") the total premiums paid under the
Contract, less any Loan Account Value or partial surrenders, equal or exceed
the cumulative applicable Monthly Premium Threshold shown on the Contract
Summary Page of the Contract, a Lapse Protection Guarantee will be in effect.
(This guarantee may not be available in all jurisdictions.) This benefit
provides that the Contract will not lapse during the next Contract Month even
if the Cash Surrender Value is insufficient to pay the Monthly Deduction Amount
due, provided the next Contract Month is within the Guarantee Period.
The Premium Threshold will change if the Contract Owner makes a change in the
Stated Amount or adds or eliminates supplemental benefit riders under the
Contract. In such event, the Company will send the Contract Owner notice of the
new applicable Premium Threshold which must be met until the expiration of the
Guarantee Period in order for the guarantee to remain in effect.
Exchange Rights
Once the Contract is in effect, it may be exchanged at any time during the
first 24 months after its issuance for a general account life insurance
contract issued by the Company (or an affiliated company) on the life of the
Insured. Benefits under the new life insurance contract will be as described in
that contract. No evidence of insurability will be required. The Contract Owner
has the right to select the same Death Benefit or Net Amount at Risk as the
former Contract. Cost of insurance rates will be based on the same risk
classification as those of the former Contract. Any outstanding contract loan
must be repaid before the Company will make an exchange. In addition, there may
be an adjustment for the difference in Cash Value between the two contracts.
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<PAGE>
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PAYMENT OPTIONS
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Proceeds payable under the Contract will be paid in a lump sum, unless the
Contract Owner selects one of the Company's payment options. Payment of
proceeds which exceed the Death Benefit may be deferred 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 the Company consents to a lesser amount. Proceeds applied under an
option will no longer be affected by the investment experience of the
Underlying Funds.
The following payment options are available under the Contract:
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
The Company will make any other arrangements for periodic payments as may be
agreed upon. If any periodic payment due any payee is less than $50, the
Company may make payments less often. If the Company has declared a higher rate
under an option at the date the first payment under an option is due, the
Company will base the payments on the higher rate.
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PERFORMANCE INFORMATION
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From time to time, Fund UL's Sub-Accounts may show the percentage change in
the value of an Accumulation Unit based on the performance of the Sub-Account
over a period of time, usually for the past one-, two-, three-, five-, and
ten-year periods determined by dividing the increase (decrease) in value for
that unit by the Accumulation Unit Value at the beginning of the period.
For Sub-Accounts of Fund UL that invest in Underlying Funds that were in
existence prior to the date on which the Underlying Fund became available under
the Contract, average annual rates of return may include periods prior to the
inception of the Sub-Account. Performance calculations for Sub-Accounts with
pre-existing Underlying Funds will be calculated by adjusting the actual
returns of the Underlying Funds to reflect the charges that would have been
assessed under the Sub-Accounts had the Underlying Fund been available under
Fund UL during the period shown. The first chart applies to contracts issued
prior to July 12, 1995, or later in those states where the new contract has not
been approved. It assumes that the current charges of 0.60% were assessed
against the Sub-Accounts during the entire period. The second chart applies to
contracts issued after July 12, 1995, where approved. It assumes that current
total charges of 0.90% were assessed during the entire period.
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19
<PAGE>
The following performance information represents the percentage change in the
value of an Accumulation Unit of the Sub-Accounts for the periods indicated,
and reflects all expenses of the Underlying Funds. Chart A reflects the current
0.60% mortality and expense risk charge and 0.0% administrative expense risk
charge against the Sub-Accounts. Chart B reflects the current .80% mortality
and expense risk charge and .10 administrative expense risk charge. The rates
of return do not reflect the 2.5% front-end sales charge or the 2.5% state
premium tax charge (both of which are deducted from premium payments) nor do
they reflect surrender charges or monthly deduction amounts. The surrender
charges and monthly deduction amounts for a hypothetical Insured are depicted
in the Example following the Rates of Returns. For information about the
Charges and Deductions assessed under the Contract, see page 6. For
illustrations of how these charges affect Cash Values and Death Benefits, see
the Illustrations beginning on page 31.
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CHART A
AVERAGE ANNUAL RATES OF RETURN
(Contracts issued prior to July 12, 1995, or later, where new contract is not
approved)
(ASSUMING DEDUCTION OF CURRENT SUB-ACCOUNT CHARGES)1
FOR PERIODS ENDED DECEMBER 31, 1994
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SUB-ACCOUNTS 1 Year 3 Years 5 Years 10 Years
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Capital Appreciation Fund (5.31)% 8.13% 9.64% 9.88%
Cash Income Trust 2.45 % 2.23% 3.98% -
Managed Assets Trust (2.55)% 3.46% 6.17% 10.99%
U.S. Government Securities Portfolio (6.17)% - - -
Utilities Portfolio2
Templeton Stock Fund (2.78)% 11.31% 9.10% -
Templeton Asset Allocation Fund (3.54)% 9.12% 8.57% -
Templeton Bond Fund (5.44)% 3.20% 5.99% -
Fidelity's High Income Portfolio (2.13)% 12.77% 13.35% -
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Fidelity's Equity-Income Portfolio 6.42 % 13.29% 9.85% -
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Fidelity's Growth Portfolio (0.61)% 8.62% 10.21% -
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Fidelity's Asset Manager Portfolio (6.65)% 7.70% 10.05% -
Dreyfus Stock Index Fund 0.27 % 5.08% 7.51% -
Smith Barney Income and Growth Portfolio2
Alliance Growth Portfolio2
Smith Barney High Income Portfolio2
MFS Total Return Portfolio2
Smith Barney Total Return Portfolio2
1 These returns assume that the Contract's current mortality and expense risk
charge of 0.60% and administrative expense charge of 0.0% were deducted for
all periods. The Contract's guaranteed maximum charges are 0.80% for
mortality and expense risks and 0.10% for administrative expenses.
2 One year's performance not available.
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20
<PAGE>
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CHART B
AVERAGE ANNUAL RATES OF RETURN
(Contracts issued after July 12, 1995, where approved)
(ASSUMING DEDUCTION OF CURRENT SUB-ACCOUNT CHARGES)1
FOR PERIODS ENDED DECEMBER 31, 1994
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SUB-ACCOUNTS 1 Year 3 Years 5 Years 10 Years
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Capital Appreciation Fund (5.64)% 7.87% 9.73% 9.81%
Cash Income Trust 2.15 % 1.93% 3.68% -
Managed Assets Trust (2.85)% 3.16% 5.87% 10.69%
U.S. Government Securities Portfolio (6.47)% - - -
Utilities Portfolio2
Templeton Stock Fund (3.08)% 11.00% 8.79% -
Templeton Asset Allocation Fund (3.84)% 8.82% 8.27% -
Templeton Bond Fund (5.74)% 2.90% 5.69% -
Fidelity's High Income Portfolio (2.43)% 12.47% 13.05% -
Fidelity's Equity-Income Portfolio 6.12 % 12.99% 9.54% -
Fidelity's Growth Portfolio (0.91)% 8.32% 9.91% -
Fidelity's Asset Manager Portfolio (6.95)% 7.40% 9.75% -
Dreyfus Stock Index Fund (0.03)% 4.78% - -
Smith Barney Income and Growth Portfolio2
Alliance Growth Portfolio2
Smith Barney High Income Portfolio2
MFS Total Return Portfolio2
Smith Barney Total Return Portfolio2
1 These returns assume that the Contract's current mortality and expense risk
charge of 0.80% and administrative expense charge of 0.10% were deducted for
all periods. The Contract's guaranteed maximum charges are 0.80% for
mortality and expense risks and 0.10% for administrative expenses.
2 One year's performance not available.
EXAMPLE OF CONTRACT CHARGES
The following chart illustrates the surrender charges and Monthly Deduction
Amounts that would apply under a Contract based on the assumptions listed
below. Surrender charges and Monthly Deduction Amounts generally will be higher
for an Insured who is older than the assumed Insured, and lower for an Insured
who is younger (assuming the Insureds have the same risk classification). Cost
of insurance rates go up each year as the Insured becomes a year older.
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21
<PAGE>
Male, Age 35
Preferred Non-Smoker
Annual Premium: $ 850.00
Hypothetical Gross Annual Investment Rate of Return: 8% 4
Face Amount: $100,000
Level Death Benefit Option
Current Charges
<TABLE>
<CAPTION>
Total Monthly Deduction
- -----------------------------------------------------------------------------------------
Surrender Charges for the Policy Year
- --------------------------------------------- ------------------------
Policy Cumulative Sales Charge Administrative Sales Charge
Year Premiums Component Charge Component of Cost of
Component Surrender Charge Insurance
as % of Cum. Prem. Charges Administrative
--------------
Charges
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 850.00 $91.20 $364.80 10.73% $145.00 $96.00
2 $1,700.00 $90.40 $361.60 5.32% $157.00 $96.00
3 $2,550.00 $90.00 $360.00 3.53% $168.00 $96.00
5 $4,250.00 $92.80 $371.20 2.18% $190.00 $ 0
10 $8,500.00 $59.40 $237.60 0.70% $250.00 $ 0
</TABLE>
4 Hypothetical investment results shown above are illustrative only and should
not be deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown.
Hypothetical investment results may be different from those shown if the actual
rates of return averaged 8%, but fluctuated above or below that average for
individual policy years.
No representations can be made that the hypothetical rates assumed can be
achieved for any one year or sustained over any period of time.
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OTHER MATTERS
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- -------------------------------------------------------------------------------
Voting Rights
In accordance with its view of present applicable law, the Company will vote
the shares of the Underlying Funds at regular and special meetings of the
shareholders of the Underlying Funds in accordance with instructions from
Contract Owners (or the contract beneficiaries, as the case may be) having a
voting interest in Fund UL. The Company will vote shares for which no
instructions have been given or shares which are not otherwise attributable to
Contract Owners in the same proportion as it votes shares for which it has
received instructions. If the 1940 Act or any rule promulgated thereunder
should be amended, however, or if the Company's present interpretation should
change and, as a result, the Company determines it is permitted to vote the
shares of the Underlying Funds in its own right, it may elect to do so.
The voting interests of the Contract Owner (or the beneficiary) in the
Underlying Funds will be determined as follows: Contract Owners may cast one
vote for each $100 of Cash Value of the Contract allocated to the Sub-Account,
the assets of which are invested in the particular Underlying Fund on the
record date for the shareholder meeting for that Fund. Fractional votes are
counted. If, however, a Contract Owner has taken a loan secured by the
Contract, amounts transferred from the Sub-Account(s) to the Loan Account in
connection with the loan will not be considered in determining the voting
interests of the Contract Owner.
Contract Owners should review the prospectuses for the Underlying Funds to
determine matters on which shareholders may vote and the definition of a
majority vote required on some matters.
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22
<PAGE>
Disregard of Voting Instructions
When permitted by state insurance regulatory authorities, the Company may
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the investment objective or policies of Fund
UL or one of the Underlying Funds, or to approve or disapprove an investment
advisory contract of one of the Underlying Funds. In addition, the Company may
disregard voting instructions in favor of changes in the investment policies or
the investment adviser of any of the Underlying Funds which are initiated by a
Contract Owner if the Company reasonably disapproves 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 the Company determines that
the change would have an adverse effect on its general account in that the
proposed investment policy for an Underlying Fund may result in overly
speculative or unsound investments. In the event that the Company does
disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next annual report to Contract Owners.
Statements to Contract Owners
The Company will maintain all records relating to Fund UL and the
Sub-Accounts. At least once in each Contract Year, the Company will send to
Contract Owners a statement containing the following information: (1) the
Stated Amount and the Cash Value of the Contract (indicating the number of
Accumulation Units credited to the Contract in each Sub-Account and the
corresponding Accumulation Unit Value); (2) the date and amount of each premium
payment; (3) the date and amount of each Monthly Deduction; (4) the amount of
any outstanding contract loan as of the date of the statement, and the amount
of any loan interest charged on the Loan Account; (5) the date and amount of
any partial cash surrenders and the amount of any partial surrender charges;
(6) the annualized cost of any supplemental benefits purchased under the
Contract; and (7) a reconciliation since the last report of any change in Cash
Value and Cash Surrender Value. The Company will also send any other reports
required by any applicable state or federal laws or regulations.
Limit on Right to Contest
The Company may not contest the validity of the Contract after it has been in
effect during the Insured's lifetime for two years from the Issue Date. If the
Contract 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. 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 contract 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 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 Contract would have provided with the correct
information. A misstatement with regard to sex or age in a substantially funded
Contract may cause a cash distribution that is includable in whole or in part
in the gross income of the Contract Owner.
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23
<PAGE>
Suspension of Valuation
The Company reserves the right to suspend or postpone the date of any payment
of any benefit or values for any Valuation Period (1) when the New York Stock
Exchange is closed; (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 Sub-Accounts is not reasonably
practicable or it is not reasonably practicable to determine the value of the
Sub-Account's net assets; or (4) during any other period when the Securities
and Exchange Commission, by order, so permits for the protection of security
holders.
Beneficiary
The Applicant names the beneficiary in the application for the Contract. The
Contract Owner may change the beneficiary (unless irrevocably named) during the
Insured's lifetime by sending a written request to the Company. If no
beneficiary is living when the Insured dies, the Death Benefit will be paid to
the Contract Owner, if living; otherwise, the Death Benefit will be paid to the
Contract Owner's estate.
Assignment
The Contract 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.
Dividends
No dividends will be paid under the Contract.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FEDERAL TAX CONSIDERATIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
General
The following general description of tax consequences represents the law in
effect on the date of this Prospectus. This discussion is not intended as tax
advice, and applicants should consult with their own tax advisers before
purchasing a Contract.
Potential purchasers should understand that tax laws can change, even at
times with respect to policies of insurance that have already been issued.
Legislative proposals have been introduced in Congress in recent years that
would have altered some of the tax consequences described below to generally
less favorable results. It is to be expected that such legislative proposals
will again come before Congress from time to time. Previous proposals have
generally had prospective effects as to contracts first issued after a current
date, but some would have had retroactive effect on previously issued policies
or on new voluntary transactions in previously issued policies.
Taxation of the Company
The Company is taxed as a life insurance company under federal income tax
law. Presently, the Company does not expect to incur any income tax on the
earnings or the realized capital gains attributable to Fund UL. However, the
Company may assess a charge against the Sub-Accounts for federal
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24
<PAGE>
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
under future tax law.
Tax Consequences of Life Insurance Contracts
Death Benefit payments made under life insurance contracts are generally
excludable from the gross income of the beneficiary under federal and state tax
law unless the contract was sold or transferred for a valuable consideration. A
gift of the ownership of the Contract will not make the death proceeds
includable in the gross income of the beneficiary. The Death Benefit of a
corporate-owned life insurance policy and annual cash value increase in excess
of tax basis may be includable in part in the gross income of the corporation
under certain applications of the alternative minimum tax law.
No part of the investment growth in any cash value life insurance contract is
generally includable in the gross income of the Contract Owner unless the
policy matures, or is surrendered, or otherwise terminates with income in the
Contract before death, or unless the Contract is partially surrendered for an
amount in excess of the adjusted cost basis of the policy. During the first
fifteen years of contract duration, the "cost-recovery-first" rule for the
taxation of partial surrenders and certain other transactions that reduce
future benefits may be reversed to an income-first rule under the federal tax
law. This will occur only in the case of substantially funded contracts where
the reduced contract Death Benefit amount compared to the original premiums as
actuarially adjusted would not meet the federal tax definition of life
insurance. The Company finds that most partial surrenders are not taxed in this
manner, but rather that the traditional cost-recovery-first tax rule applies.
Any loan received under the Contract will be treated as indebtedness of the
Contract Owner and no part of the loan under current law will constitute income
to the Contract Owner. A loan outstanding at the time of maturity, surrender or
other termination of the Contract will be considered a distribution at that
point and will be includable in income to the extent of income in the Contract.
The proceeds of life insurance owned by a decedent are generally includable
in the gross estate of a decedent unless all incidents of ownership in the
Contract were given away more than three years prior to death. This is true
regardless of who receives the proceeds of the Contract. The federal estate tax
law does not require a tax to be paid unless the taxable estate including
insurance proceeds exceeds $600,000 for deaths occurring in 1987 or later.
Proceeds of insurance and other property received by the surviving spouse of a
decedent are fully deductible under federal estate tax law. State and local
estate or inheritance taxes vary greatly in their application to insurance
proceeds. The proceeds of insurance contracts are exempt from state death taxes
in a number of states which otherwise impose such taxes. A number of other
states impose no broad-based death taxes. Other states follow the federal rule.
If ownership of a contract is given away, the value of the gift for federal,
state or local gift tax purposes approximates the Cash Value of the Contract at
the point of gift. The federal threshold for gift taxes is the same as for
estate taxes. There will be no tax due before accumulated taxable gifts made
since 1976 exceed $600,000.
Tax Consequences of Modified Endowment Contracts
A Contract Owner can purchase a contract which is a modified endowment
contract, or which becomes a modified endowment contract at a later point in
its duration. The tax consequences of such contracts differ in several respects
from those described above under "Tax Consequences of Life Insurance
Contracts."
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
25
<PAGE>
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. 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.
A modified endowment contract has income-first taxation of all loans,
pledges, collateral assignments or partial surrenders to the extent of income
in the contract. An additional income tax of 10% may apply to taxable
distributions or deemed taxable distributions prior to the Contract Owner
attaining age 591/2, with certain exceptions.
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 Cash Value of a modified endowment contract is
includable in the gross income of the Contract Owner unless the contract
matures, is distributed or partially surrendered, is pledged, collaterally
assigned, or borrowed against, or otherwise terminates with income in the
contract prior to death. A full surrender of the contract after age 591/2 will
have the same tax consequences as noted above in "Tax Consequences of Life
Insurance Contracts."
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 account used to support their contract. In those circumstances, income
and gains from the separate account assets would be includable annually in the
variable contract owners gross income. 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 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 Sub-Accounts 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 owners were not owners of separate account assets. For
example, a Policy Owner of this Policy has additional flexibility in allocating
payments and cash values. These differences could result in the Policy Owner
being treated as the owner of the
- -------------------------------------------------------------------------------
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26
<PAGE>
assets of Fund UL. 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 Fund UL.
The above tax discussion assumes that the Policy qualifies as a life
insurance contract for federal income tax purposes.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. The Contracts will
be sold by life insurance sales representatives who are registered
representatives of the Company or certain other registered broker-dealers. The
maximum commission payable by the Company for distribution would be no greater
than 50% of the actual premium paid in the first twelve months. Any sales
representative or employee will have been qualified to sell variable life
insurance contracts 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.
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27
<PAGE>
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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 Travelers Group Inc. include, prior to
December 31, 1993, Primerica Corporation or its predecessors.
<TABLE>
<CAPTION>
Name and Principal
Business Address Business Experience During the Past Five Years
<S> <C>
Robert I. Lipp Director of The Travelers Insurance Company since December 1992;
Chairman and President of The Travelers Insurance Company since
September 1994; Director and Chief Executive Officer of The Travelers
Insurance Group Inc. since December 1993; Vice Chairman and Director of
Travelers Group Inc. since 1991; Chairman and Chief Executive Officer of
Commercial Credit Company (1991-1993); Executive Vice President (1986-1991), Primerica Corporation.
Jay S. Fishman Director of The Travelers Insurance Company since February 1994 and Chief
Financial Officer since December 1993; Director since February 1994 and
Chief Financial Officer since December 1993 of The Travelers Insurance
Group Inc.; Senior Vice President since 1991 and Treasurer (1991-1994) of
Travelers Group Inc.; Executive Vice President and Chief Financial Officer
(1989-1991), Consumer Services Group, Commercial Credit.
Charles O. Prince, III Director of The Travelers Insurance Company since February 1994; Senior
65 East 55th Street Vice President and General Counsel and Corporate Secretary of Travelers
Travelers Group Group Inc. since 1985.
New York, New York
Marc P. Weill Director since February 1994, Chief Investment Officer since January 1995
and Senior Vice President-Investments since December 1993 of The
Travelers Insurance Company; Senior Vice President of Travelers Group Inc.
since 1992; Vice President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
Donald T. DeCarlo Director since April 1995 of The Travelers Insurance Company; General
Counsel and Secretary since October, 1994 of The Travelers Insurance
Company; Deputy General Counsel since June 1989 of Travelers Group Inc.;
Executive Vice President since August 1987 of Gulf Insurance Group.
Irwin R. Ettinger Director since September 1994 of The Travelers Insurance Company. Senior
65 East 55th Street Vice President (1987-present) and Chief Accounting Officer (1990-present),
The Travelers Inc. Travelers Group Inc.
New York, New York
Michael A. Carpenter Director since January 1995 of The Travelers Insurance Company, Executive
Vice President since 1995 of Travelers Group Inc.; Chairman, President and
Chief Executive Officer (1989-1994), Kidder Peabody Group Inc.
</TABLE>
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28
<PAGE>
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.
NAME POSITION WITH INSURANCE COMPANY
Jay S. Benet Senior Vice President
Robert E. Evans Senior Vice President
Thomas E. Helfrich Senior Vice President
Barry L. Mannes * Senior Vice President
James L. Morgan Senior Vice President and Chief Accounting Officer
Richard F. Morrison Senior Vice President
Thompson Shea Senior Vice President-Audit
David A. Tyson Senior Vice President
Denney Voss Senior Vice President
William H. White Vice President and Treasurer
Donald T. DeCarlo General Counsel and Secretary
* Principal business address: Smith Barney Inc., 388 Greenwich Street, New
York, New York.
Information relating to the management of the Underlying Funds is contained
in the Underlying Fund prospectuses.
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LEGAL PROCEEDINGS AND OPINION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
There are no pending material legal proceedings affecting the Contract, Fund
UL or any of the Underlying Funds.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the variable universal life insurance contract described in
this Prospectus and the organization of the Company, its authority to issue the
Contract under Connecticut law and the validity of the forms of the Contract
under Connecticut law have been passed on by the General Counsel of the Life
and Annuities Division of the Company.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Coopers & Lybrand L.L.P., Independent Accountants, 100 Pearl Street,
Hartford, Connecticut, are the independent auditors for Fund UL. The services
provided to Fund UL include primarily the examination of Fund UL's financial
statements. The financial statements of Fund UL have been audited by Coopers &
Lybrand L.L.P., as indicated in their reports thereon, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
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29
<PAGE>
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REGISTRATION STATEMENT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus does
not contain all information set forth in the Registration Statement, its
amendments and exhibits, to which reference is made for further information
concerning Fund UL, the Underlying Funds, the Company and the Contract.
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30
<PAGE>
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ILLUSTRATIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The following pages are intended to illustrate how the Account Value, Cash
Surrender Value and Death Benefit can change over time for Contracts issued to
a 45 year old male and a 45 year old female. The difference between the Account
Value and the Cash Surrender Value in these illustrations represents the
Surrender Charge that would be incurred upon a full surrender of the Contract.
For both male and female age 45, there are two pages of values. One page
illustrates the assumption that the maximum Guaranteed Cost of Insurance Rates,
the monthly administrative charge, mortality and expense risk charge, and
administrative expense charge allowable under the Contract 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
the monthly administrative charge varies by age, amount of insurance and
smoker/non-smoker classification for current charges. The illustrations reflect
a deduction of 5% from each annual premium for premium tax (2.5%) and front end
sales charge (2.5%).
The values shown in these illustrations vary according to assumptions used
for charges, and gross rates of investment returns. For contracts issued on or
after July 12, 1995, for the first fifteen policy years, the current and
guaranteed charges consist of 0.80% for mortality and expense risks, 0.10% for
administrative expenses, and 0.81% for Underlying Fund expenses and thereafter
0.45% for mortality and expense risks, 0.00% for administrative expenses, and
0.81% for Underlying Fund expenses. For contracts issued prior to July 12,
1995, the current charges consist of 0.60% for mortality and expense risks,
0.00% for administrative expenses, and 0.75% for Underlying Fund expenses. The
guaranteed charges consist of 0.80% for mortality and expense risks, 0.10% for
administrative expenses, and 0.75% for Underlying Fund expenses.
The charge for Underlying Fund expenses reflected in the illustrations
assumes that Cash Value is allocated equally among all Sub-Accounts and that no
Policy Loans are outstanding, and is an average of the investment advisory fees
and other expenses charged by each of the Underlying Funds during 1994.
For contracts issued on or after July 12, 1995, 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 -1.71%, 4.29%, and 10.29%,
respectively on a current and guaranteed basis during the first fifteen policy
years, and to approximate net annual rates of -1.26%, 4.74%, and 10.74%,
respectively on a current and guaranteed basis thereafter.
For contracts issued before July 12, 1995, 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 -1.35%, 4.65%, and 10.65%,
respectively on a current basis, and to -1.65%, 4.35%, and 10.35%, respectively
on a guaranteed basis. The actual charges under a Policy for expenses of the
Underlying Funds will depend on the actual allocation of Cash Value and may be
higher or lower than those illustrated.
The charge for Underlying Fund expenses for all illustrations is an average
of the investment advisory fees and other expenses charged by all of the
Underlying Funds. The Underlying Fund expenses for some of the Underlying Funds
reflect an expense reimbursement agreement currently in effect. For the year
ended December 31, 1994,these reimbursement agreements affected the total
operating expenses of the Underlying Funds as follows:
1. The Company has agreed to reimburse Capital Appreciation Fund (CAF), Cash
Income Trust (CIT), Managed Assets Trust (MAT), the U.S. Government
Securities Portfolio (USGSP) and the Utilities Portfolio, for the amount
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31
<PAGE>
by which each fund's aggregate annual expenses, including investment advisory
fees, but excluding brokerage commissions, interest charges and taxes,
exceed 1.25%. In the absence of the reimbursement agreement with the
Company, the operating expenses in 1994 would have been 6.40% for CIT and
3.49% (annualized) for Utilities Portfolio. The expense reimbursement
agreement did not affect the operating expenses of CAF, MAT or USGSP during
1994.
2. The administrator and investment adviser for the Dreyfus Stock Index Fund
have agreed to reimburse the Fund for expenses in excess of 0.40%. In the
absence of the reimbursement agreement, such expenses would have been 0.57%
in 1994.
3. No reimbursement arrangements were in effect for the Templeton Stock, Bond
and Asset Allocation Funds during 1994.
4. No reimbursement arrangement affected Fidelity's High Income Portfolio
during 1994. However, a portion of the brokerage commissions the Fund paid
was used to reduce its expenses. Without this arrangement the expenses would
have been 0.60%, 0.70% and 0.81%, respectively, for the Equity-Income
Portfolio, Growth Portfolio and Asset Manager Portfolio.
5. If such fees were not waived and expenses were not reimbursed, Total
Underlying Expenses for the Smith Barney/Travelers Series Fund Portfolios
would have been: Smith Barney Income and Growth Portfolio, 2.08%; Alliance
Growth Portfolio, 1.76%; Smith Barney High Income Portfolio, 2.60%; MFS
Total Return Portfolio, 2.51%. If such fees were not waived and expenses
were not reimbursed, Total Underlying Expenses for the Smith Barney Series
Fund Total Return Portfolio would have been 4.14%.
Although these reimbursement arrangements are expected to continue in
subsequent years, the effect of discontinuance could be higher expenses charged
to Contract Owners.
As stated above, the examples illustrate values that would result based upon
hypothetical uniform gross investment rates of return of 0%, 6% and 12%. The
values would be different from those shown if the gross rates averaged 0%, 6%,
and 12% over a period of years, but fluctuated above and below those averages.
The illustrations also assume that premiums are paid as indicated, no
contract 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.
The illustrations do not reflect any charges for federal income taxes against
Fund UL, since the Company is not currently deducting such charges from Fund
UL. However, such charges may be made in the future, and in that event, the
gross annual investment rates of return would have to exceed 0%, 6% and 12% by
an amount sufficient to cover the tax charges in order to produce the Death
Benefits, Account Values and Cash Surrender Values illustrated.
Upon request, the Company will provide a comparable illustration based upon
the proposed Insured's age, sex, underwriting classification, the specified
insurance benefits, and the premium requested. The hypothetical gross annual
investment return assumed in such an illustration will not exceed 12%.
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32
<PAGE>
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
Female, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,595.63
Death Benefit Cash Value Cash Surrender Value
----------------------- ------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------
1 1,675 150,000 150,000 150,000 520 579 639 0 0 0
2 3,435 150,000 150,000 150,000 997 1,148 1,308 0 110 261
3 5,282 150,000 150,000 150,000 1,428 1,704 2,008 481 741 1,027
4 7,221 150,000 150,000 150,000 2,241 2,686 3,195 1,352 1,770 2,249
5 9,258 150,000 150,000 150,000 2,997 3,666 4,461 2,171 2,800 3,547
6 11,396 150,000 150,000 150,000 3,695 4,644 5,813 2,935 3,827 4,926
7 13,641 150,000 150,000 150,000 4,331 5,613 7,255 3,641 4,846 6,389
8 15,999 150,000 150,000 150,000 4,899 6,568 8,792 4,283 5,851 7,991
9 18,474 150,000 150,000 150,000 5,395 7,504 10,430 4,855 6,838 9,735
10 21,073 150,000 150,000 150,000 5,819 8,417 12,179 5,362 7,830 11,592
15 36,153 150,000 150,000 150,000 6,886 12,647 23,151 6,886 12,647 23,151
20 55,399 150,000 150,000 150,000 5,660 15,862 40,055 5,660 15,862 40,055
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
33
<PAGE>
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
Female, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,595.63
Death Benefit Cash Value Cash Surrender Value
----------------------- -------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -------------------------------------------------------------------------------
1 1,675 150,000 150,000 150,000 1,002 1,077 1,153 0 0 7
2 3,435 150,000 150,000 150,000 1,973 2,186 2,409 886 1,086 1,295
3 5,282 150,000 150,000 150,000 2,906 3,321 3,774 1,871 2,261 2,687
4 7,221 150,000 150,000 150,000 3,941 4,628 5,405 2,950 3,596 4,326
5 9,258 150,000 150,000 150,000 4,933 5,966 7,182 3,991 4,962 6,105
6 11,396 150,000 150,000 150,000 5,884 7,337 9,117 4,992 6,358 8,100
7 13,641 150,000 150,000 150,000 6,794 8,743 11,230 5,956 7,834 10,321
8 15,999 150,000 150,000 150,000 7,665 10,188 13,542 6,883 9,387 12,741
9 18,474 150,000 150,000 150,000 8,496 11,672 16,072 7,801 10,977 15,377
10 21,073 150,000 150,000 150,000 9,284 13,193 18,840 8,697 12,606 18,253
15 36,153 150,000 150,000 150,000 12,404 21,237 37,113 12,404 21,237 37,113
20 55,399 150,000 150,000 150,000 14,323 30,648 67,729 14,323 30,648 67,729
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Current cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
34
<PAGE>
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
Male, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,968.75
Death Benefit Cash Value Cash Surrender Value
----------------------- ------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------
1 2,067 150,000 150,000 150,000 714 790 866 0 0 0
2 4,238 150,000 150,000 150,000 1,362 1,559 1,765 311 496 690
3 6,517 150,000 150,000 150,000 1,943 2,303 2,699 965 1,304 1,676
4 8,910 150,000 150,000 150,000 2,881 3,459 4,122 1,954 2,497 3,120
5 11,423 150,000 150,000 150,000 3,738 4,601 5,627 2,867 3,678 4,643
6 14,061 150,000 150,000 150,000 4,507 5,718 7,216 3,698 4,836 6,245
7 16,831 150,000 150,000 150,000 5,179 6,800 8,886 4,438 5,962 7,922
8 19,740 150,000 150,000 150,000 5,743 7,834 10,639 5,076 7,041 9,726
9 22,794 150,000 150,000 150,000 6,188 8,805 12,471 5,601 8,061 11,664
10 26,001 150,000 150,000 150,000 6,504 9,700 14,383 6,006 9,010 13,684
15 44,607 150,000 150,000 150,000 5,850 12,482 25,293 5,850 12,582 25,293
20 68,354 150,000 150,000 150,000 19 11,002 39,576 19 11,002 39,576
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
35
<PAGE>
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
Male, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,968.75
Death Benefit Cash Value Cash Surrender Value
----------------------- -------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -------------------------------------------------------------------------------
1 2,067 150,000 150,000 150,000 1,268 1,362 1,456 115 203 292
2 4,238 150,000 150,000 150,000 2,489 2,756 3,035 1,371 1,622 1,884
3 6,517 150,000 150,000 150,000 3,664 4,185 4,752 2,583 3,073 3,606
4 8,910 150,000 150,000 150,000 4,936 5,798 6,773 3,885 4,696 5,612
5 11,423 150,000 150,000 150,000 6,150 7,443 8,967 5,135 6,350 7,782
6 14,061 150,000 150,000 150,000 7,312 9,130 11,359 6,335 8,044 10,230
7 16,831 150,000 150,000 150,000 8,423 10,859 13,970 7,487 9,838 12,949
8 19,740 150,000 150,000 150,000 9,486 12,637 16,829 8,594 11,724 15,916
9 22,794 150,000 150,000 150,000 10,499 14,462 19,960 9,692 13,655 19,153
10 26,001 150,000 150,000 150,000 11,447 16,323 23,378 10,748 15,624 22,679
15 44,607 150,000 150,000 150,000 15,270 26,291 46,161 15,270 26,291 46,161
20 68,354 150,000 150,000 150,000 16,814 37,293 84,151 16,814 37,293 84,151
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Current cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
36
<PAGE>
MARKETLIFE PRIOR TO JULY 12TH
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
Male, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,968.75
Death Benefit Cash Value Cash Surrender Value
----------------------- -------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -------------------------------------------------------------------------------
1 2,067 150,000 150,000 150,000 1,274 1,366 1,459 121 207 294
2 4,238 150,000 150,000 150,000 2,505 2,769 3,045 1,386 1,634 1,893
3 6,517 150,000 150,000 150,000 3,695 4,211 4,773 2,612 3,097 3,626
4 8,910 150,000 150,000 150,000 4,986 5,842 6,809 3,932 4,737 5,646
5 11,423 150,000 150,000 150,000 6,223 7,511 9,024 5,203 6,414 7,836
6 14,061 150,000 150,000 150,000 7,414 9,227 11,445 6,431 8,135 10,316
7 16,831 150,000 150,000 150,000 8,556 10,992 14,092 7,612 9,971 13,071
8 19,740 150,000 150,000 150,000 9,655 12,813 16,997 8,753 11,900 16,084
9 22,794 150,000 150,000 150,000 10,707 14,688 20,185 9,900 13,881 19,378
10 26,001 150,000 150,000 150,000 11,698 16,606 23,673 10,999 15,907 22,974
15 44,607 150,000 150,000 150,000 15,777 27,002 47,083 15,777 27,002 47,083
20 68,354 150,000 150,000 150,000 17,243 37,941 84,832 17,243 37,941 84,832
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Current cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
37
<PAGE>
MARKETLIFE PRIOR TO JULY 12TH
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
Male, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,968.75
Death Benefit Cash Value Cash Surrender Value
------------------------ -------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------
1 2,067 150,000 150,000 150,000 715 789 864 0 0 0
2 4,238 150,000 150,000 150,000 1,365 1,558 1,761 314 496 686
3 6,517 150,000 150,000 150,000 1,947 2,301 2,690 969 1,302 1,668
4 8,910 150,000 150,000 150,000 2,887 3,457 4,108 1,959 2,495 3,107
5 11,423 150,000 150,000 150,000 3,748 4,597 5,604 2,877 3,675 4,621
6 14,061 150,000 150,000 150,000 4,521 5,713 7,182 3,711 4,832 6,213
7 16,831 150,000 150,000 150,000 5,196 6,792 8,838 4,454 5,954 7,877
8 19,740 150,000 150,000 150,000 5,765 7,824 10,573 5,097 7,032 9,660
9 22,794 150,000 150,000 150,000 6,215 8,792 12,383 5,626 8,048 11,576
10 26,001 150,000 150,000 150,000 6,536 9,684 14,268 6,036 8,995 13,569
15 44,607 150,000 150,000 150,000 5,909 12,545 24,945 5,909 12,545 24,945
20 68,354 0* 150,000 150,000 0* 10,597 37,806 0* 10,597 37,806
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
* Insufficient cash value would be developed to continue the contract without
additional premium payments.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
38
<PAGE>
MARKETLIFE PRIOR TO JULY 12TH
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
Female, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,595.63
Death Benefit Cash Value Cash Surrender Value
----------------------- -------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -------------------------------------------------------------------------------
1 1,675 150,000 150,000 150,000 1,007 1,081 1,155 0 0 9
2 3,435 150,000 150,000 150,000 1,986 2,197 2,417 898 1,096 1,303
3 5,282 150,000 150,000 150,000 2,930 3,342 3,790 1,893 2,280 2,702
4 7,221 150,000 150,000 150,000 3,980 4,663 5,434 2,987 3,629 4,353
5 9,258 150,000 150,000 150,000 4,992 6,020 7,228 4,046 5,012 6,148
6 11,396 150,000 150,000 150,000 5,965 7,414 9,185 5,069 6,431 8,168
7 13,641 150,000 150,000 150,000 6,900 8,850 11,328 6,056 7,941 10,419
8 15,999 150,000 150,000 150,000 7,800 10,329 13,676 7,010 9,528 12,875
9 18,474 150,000 150,000 150,000 8,663 11,853 16,251 7,968 11,158 15,556
10 21,073 150,000 150,000 150,000 9,485 13,420 19,075 8,898 12,833 18,488
15 36,153 150,000 150,000 150,000 12,812 21,806 37,849 12,812 21,806 37,849
20 55,399 150,000 150,000 150,000 14,660 31,153 68,254 14,660 31,153 68,254
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Current cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
39
<PAGE>
MARKETLIFE PRIOR TO JULY 12TH
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
Female, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,595.63
Death Benefit Cash Value Cash Surrender Value
----------------------- ------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------
1 1,675 150,000 150,000 150,000 521 579 638 0 0 0
2 3,435 150,000 150,000 150,000 998 1,148 1,305 0 110 258
3 5,282 150,000 150,000 150,000 1,432 1,703 2,002 485 740 1,021
4 7,221 150,000 150,000 150,000 2,246 2,684 3,194 1,357 1,768 2,238
5 9,258 150,000 150,000 150,000 3,005 3,663 4,444 2,178 2,797 3,531
6 11,396 150,000 150,000 150,000 3,705 4,639 5,786 2,944 3,822 4,900
7 13,641 150,000 150,000 150,000 4,345 5,607 7,217 3,654 4,840 6,353
8 15,999 150,000 150,000 150,000 4,916 6,560 8,740 4,299 5,844 7,939
9 18,474 150,000 150,000 150,000 5,417 7,494 10,360 4,876 6,828 9,665
10 21,073 150,000 150,000 150,000 5,845 8,404 12,087 5,386 7,817 11,500
15 36,153 150,000 150,000 150,000 6,937 12,616 22,867 6,937 12,616 22,867
20 55,399 150,000 150,000 150,000 5,573 15,427 38,496 5,573 15,427 38,496
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
40
<PAGE>
APPENDIX A
ANNUAL MINIMUM PREMIUMS
(Per Thousand of Stated Amount)
Age Male Female
- ----------------
0 2.80 2.42
1 2.69 2.47
2 2.59 2.48
3 2.58 2.47
4 2.58 2.47
5 2.58 2.47
6 2.58 2.47
7 2.60 2.49
8 2.62 2.52
9 2.66 2.56
10 2.72 2.62
11 2.80 2.68
12 2.89 2.76
13 3.01 2.84
14 3.13 2.94
15 3.25 3.04
16 3.38 3.16
17 3.51 3.28
18 3.62 3.40
19 3.72 3.47
20 3.81 3.53
21 3.90 3.60
22 3.98 3.67
23 4.05 3.73
24 4.08 3.71
25 4.13 3.76
26 4.30 3.93
27 4.45 4.09
28 4.61 4.26
29 4.76 4.41
30 4.92 4.60
31 5.12 4.80
32 5.32 5.02
33 5.52 5.22
34 5.74 5.46
35 5.98 5.71
36 6.33 6.01
37 6.66 6.31
38 7.01 6.64
39 7.34 6.97
40 7.69 7.34
41 8.17 7.75
42 8.66 8.18
43 9.14 8.62
44 9.63 9.11
45 10.11 9.59
46 10.79 10.13
47 11.47 10.70
Age Male Female
- -----------------
48 12.15 11.29
49 12.83 11.89
50 13.51 12.51
51 14.42 13.18
52 15.34 13.86
53 16.24 14.53
54 17.16 15.29
55 18.07 16.10
56 19.43 17.11
57 20.79 18.20
58 22.16 19.35
59 23.52 20.51
60 24.88 21.68
61 27.11 22.98
62 29.34 24.27
63 31.57 25.59
64 33.80 27.01
65 36.03 28.57
66 38.86 30.12
67 41.70 31.63
68 44.52 33.29
69 47.36 35.39
70 49.76 37.75
71 54.39 40.67
72 59.04 44.16
73 63.71 48.15
74 68.41 52.54
75 72.60 57.27
76 80.21 62.20
77 87.34 67.37
78 94.52 73.00
79 101.76 79.30
80 109.06 86.49
81 120.34 94.56
82 131.76 103.39
83 143.32 112.96
84 155.03 123.28
85 166.88 138.49
86 170.39 149.27
87 177.17 159.84
88 191.28 171.55
89 208.18 185.73
90 241.15 203.75
91 254.21 225.63
92 282.60 250.53
93 314.35 278.47
94 349.51 309.50
Appendix A - Annual Minimum Premiums
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
41
<PAGE>
APPENDIX B
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
(First Year)
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
- ----------------------------------
0 2.04 1.84 1.63
1 2.04 1.84 1.63
2 2.04 1.84 1.63
3 2.04 1.84 1.63
4 2.04 1.84 1.63
5 2.19 1.97 1.75
6 2.19 1.97 1.75
7 2.21 1.99 1.77
8 2.23 2.01 1.78
9 2.26 2.03 1.81
10 2.39 2.15 1.91
11 2.46 2.21 1.97
12 2.54 2.29 2.03
13 2.65 2.39 2.12
14 2.75 2.48 2.20
15 2.76 2.48 2.21
16 2.77 2.49 2.22
17 2.79 2.51 2.23
18 2.82 2.54 2.26
19 2.90 2.61 2.32
20 2.86 2.57 2.29
21 2.93 2.64 2.34
22 2.99 2.69 2.39
23 3.04 2.74 2.43
24 3.06 2.75 2.45
25 3.08 2.71 2.41
26 3.14 2.83 2.51
27 3.25 2.93 2.60
28 3.37 3.03 2.70
29 3.47 3.12 2.78
30 3.49 3.14 2.79
31 3.64 3.28 2.91
32 3.78 3.40 3.02
33 3.92 3.53 3.14
34 4.08 3.67 3.26
35 4.19 3.77 3.35
36 4.43 3.99 3.54
37 4.66 4.19 3.73
38 4.91 4.42 3.93
39 5.14 4.63 4.11
40 5.69 5.12 4.55
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
41 6.05 5.45 4.84
42 6.41 5.77 5.13
43 6.76 6.08 5.41
44 7.13 6.42 5.70
45 7.18 1.84 1.63
46 7.66 1.84 1.63
47 8.14 1.84 1.63
48 8.63 1.84 1.63
49 9.11 1.84 1.63
50 10.00 1.84 1.63
51 10.67 1.84 1.63
52 11.35 1.84 1.63
53 12.02 1.84 1.63
54 12.70 1.84 1.63
55 13.01 1.84 1.63
56 13.99 1.84 1.63
57 14.97 1.84 1.63
58 15.96 1.84 1.63
59 16.93 1.84 1.63
60 17.91 1.84 1.63
61 19.52 1.84 1.63
62 21.12 1.84 1.63
63 22.73 1.84 1.63
64 24.34 1.84 1.63
65+ 25.40 1.84 1.63
Appendix B - Per Thousand of Stated Amount Surrender Charge
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
42
<PAGE>
APPENDIX B(1)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
Sales Charge Component*
(First Year)
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
- ----------------------------------
0 0.41 0.37 0.33
1 0.41 0.37 0.33
2 0.41 0.37 0.33
3 0.41 0.37 0.33
4 0.41 0.37 0.33
5 0.44 0.39 0.35
6 0.44 0.39 0.35
7 0.44 0.40 0.35
8 0.45 0.40 0.36
9 0.45 0.41 0.36
10 0.48 0.43 0.38
11 0.49 0.44 0.39
12 0.51 0.46 0.41
13 0.53 0.48 0.42
14 0.55 0.50 0.44
15 0.55 0.50 0.44
16 0.55 0.50 0.44
17 0.56 0.50 0.45
18 0.56 0.51 0.45
19 0.58 0.52 0.46
20 0.57 0.51 0.46
21 0.59 0.53 0.47
22 0.60 0.54 0.48
23 0.61 0.55 0.49
24 0.61 0.55 0.49
25 0.62 0.54 0.48
26 0.63 0.57 0.50
27 0.65 0.59 0.52
28 0.67 0.61 0.54
29 0.69 0.62 0.56
30 0.70 0.63 0.56
31 0.73 0.66 0.58
32 0.76 0.68 0.60
33 0.78 0.71 0.63
34 0.82 0.73 0.65
35 0.84 0.75 0.67
36 0.89 0.80 0.71
37 0.93 0.84 0.75
38 0.98 0.88 0.79
39 1.03 0.93 0.82
40 1.14 1.02 0.91
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
41 1.21 1.09 0.97
42 1.28 1.15 1.03
43 1.35 1.22 1.08
44 1.43 1.28 1.14
45 1.44 1.29 1.15
46 1.53 1.38 1.23
47 1.63 1.47 1.30
48 1.73 1.55 1.38
49 1.82 1.64 1.46
50 2.00 1.80 1.60
51 2.13 1.92 1.71
52 2.27 2.04 1.82
53 2.40 2.16 1.92
54 2.54 2.29 2.03
55 2.60 2.34 2.08
56 2.80 2.52 2.24
57 2.99 2.69 2.40
58 3.19 2.87 2.55
59 3.39 3.05 2.71
60 3.58 3.22 2.87
61 3.90 3.51 3.12
62 4.22 3.80 3.38
63 4.55 4.09 3.64
64 4.87 4.38 3.89
65+ 5.08 4.57 4.06
* This is the sales charge portion of the Per Thousand of Stated Amount
Surrender Charge. It equals 20% of the charge shown in Appendix B. It
decreases 10% each year over the 10 year period.
Appendix B(1) - Per Thousand of Stated Amount Surrender Charge - Sales Charge
Component
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
43
<PAGE>
APPENDIX B(2)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
Administrative Charge Component*
(First Year)
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
- ----------------------------------
0 1.63 1.47 1.30
1 1.63 1.47 1.30
2 1.63 1.47 1.30
3 1.63 1.47 1.30
4 1.63 1.47 1.30
5 1.75 1.58 1.40
6 1.75 1.58 1.40
7 1.77 1.59 1.42
8 1.78 1.61 1.42
9 1.81 1.62 1.45
10 1.91 1.72 1.53
11 1.97 1.77 1.58
12 2.03 1.83 1.62
13 2.12 1.91 1.70
14 2.20 1.98 1.76
15 2.21 1.98 1.77
16 2.22 1.99 1.78
17 2.23 2.01 1.78
18 2.26 2.03 1.81
19 2.32 2.09 1.86
20 2.29 2.06 1.83
21 2.34 2.11 1.87
22 2.39 2.15 1.91
23 2.43 2.19 1.94
24 2.45 2.20 1.96
25 2.46 2.17 1.93
26 2.51 2.26 2.01
27 2.60 2.34 2.08
28 2.70 2.42 2.16
29 2.78 2.50 2.22
30 2.79 2.51 2.23
31 2.91 2.62 2.33
32 3.02 2.72 2.42
33 3.14 2.82 2.51
34 3.26 2.94 2.61
35 3.35 3.02 2.68
36 3.54 3.19 2.83
37 3.73 3.35 2.98
38 3.93 3.54 3.14
39 4.11 3.70 3.29
40 4.55 4.10 3.64
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
41 4.84 4.36 3.87
42 5.13 4.62 4.10
43 5.41 4.86 4.33
44 5.70 5.14 4.56
45 5.74 5.17 4.59
46 6.13 5.51 4.90
47 6.51 5.86 5.21
48 6.90 6.22 5.52
49 7.29 6.56 5.83
50 8.00 7.20 6.40
51 8.54 7.68 6.83
52 9.08 8.18 7.26
53 9.62 8.66 7.70
54 10.16 9.14 8.13
55 10.41 9.37 8.33
56 11.19 10.07 8.95
57 11.98 10.78 9.58
58 12.77 11.49 10.22
59 13.54 12.19 10.83
60 14.33 12.90 11.46
61 15.62 14.06 12.50
62 16.90 15.21 13.52
63 18.18 16.37 14.54
64 19.47 17.53 15.58
65+ 20.32 18.29 16.26
* This is the administrative portion of the Per Thousand of Stated Amount
Surrender Charge. It equals 80% of the charge shown in Appendix B.
Appendix B(2) - Per Thousand of Stated Amount Surrender Charge - Administrative
Charge
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
44
<PAGE>
APPENDIX C
CURRENT MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
NON-SMOKERS
Stated Amount
Issue ----------------------------
Age $50,000 $250,000 $1,000,000
to to and
$249,999 $999,999 above
- ----------------------------------
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20 0.08 0.00 0.00
21 0.08 0.00 0.00
22 0.08 0.00 0.00
23 0.08 0.00 0.00
24 0.08 0.00 0.00
25 0.08 0.00 0.00
26 0.08 0.00 0.00
27 0.08 0.00 0.00
28 0.08 0.00 0.00
29 0.08 0.00 0.00
30 0.08 0.00 0.00
31 0.08 0.00 0.00
32 0.08 0.00 0.00
33 0.08 0.00 0.00
34 0.08 0.00 0.00
Stated Amount
Issue ----------------------------
Age $50,000 $250,000 $1,000,000
to to and
$249,999 $999,999 above
35 0.08 0.00 0.00
36 0.08 0.00 0.00
37 0.08 0.00 0.00
38 0.08 0.00 0.00
39 0.08 0.00 0.00
40 0.08 0.00 0.00
41 0.08 0.00 0.00
42 0.08 0.00 0.00
43 0.08 0.00 0.00
44 0.08 0.00 0.00
45 0.08 0.00 0.00
46 0.08 0.00 0.00
47 0.09 0.00 0.00
48 0.09 0.00 0.00
49 0.10 0.00 0.00
50 0.10 0.00 0.00
51 0.11 0.00 0.00
52 0.11 0.00 0.00
53 0.12 0.00 0.00
54 0.12 0.00 0.00
55 0.12 0.00 0.00
56 0.13 0.00 0.00
57 0.13 0.00 0.00
58 0.14 0.00 0.00
59 0.14 0.00 0.00
60 0.15 0.00 0.00
61 0.15 0.00 0.00
62 0.15 0.00 0.00
63 0.15 0.00 0.00
64 0.15 0.00 0.00
65+ 0.15 0.00 0.00
Appendix C - Current Monthly Administrative Charge
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
45
<PAGE>
APPENDIX C (Cont'd)
CURRENT MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
SMOKERS
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$449,999 $999,999 above
- ----------------------------------
0 0.12 0.08 0.00
1 0.12 0.08 0.00
2 0.12 0.08 0.00
3 0.12 0.08 0.00
4 0.12 0.08 0.00
5 0.12 0.08 0.00
6 0.13 0.08 0.00
7 0.14 0.08 0.00
8 0.15 0.08 0.00
9 0.16 0.08 0.00
10 0.16 0.08 0.00
11 0.16 0.08 0.00
12 0.16 0.08 0.00
13 0.16 0.08 0.00
14 0.16 0.08 0.00
15 0.16 0.08 0.00
16 0.16 0.08 0.00
17 0.16 0.08 0.00
18 0.16 0.08 0.00
19 0.16 0.08 0.00
20 0.16 0.08 0.00
21 0.16 0.08 0.00
22 0.16 0.08 0.00
23 0.16 0.08 0.00
24 0.16 0.08 0.00
25 0.16 0.08 0.00
26 0.16 0.09 0.00
27 0.17 0.09 0.00
28 0.17 0.09 0.00
29 0.18 0.09 0.00
30 0.18 0.09 0.00
31 0.18 0.09 0.00
32 0.18 0.09 0.00
33 0.19 0.09 0.00
34 0.19 0.09 0.00
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
35 0.19 0.09 0.00
36 0.20 0.09 0.00
37 0.21 0.10 0.00
38 0.22 0.10 0.00
39 0.23 0.10 0.00
40 0.23 0.10 0.00
41 0.24 0.10 0.00
42 0.24 0.10 0.00
43 0.24 0.10 0.00
44 0.24 0.10 0.00
45 0.24 0.10 0.00
46 0.25 0.11 0.00
47 0.26 0.11 0.00
48 0.27 0.11 0.00
49 0.28 0.11 0.00
50 0.29 0.15 0.00
51 0.30 0.15 0.00
52 0.32 0.15 0.00
53 0.33 0.15 0.00
54 0.34 0.15 0.00
55 0.35 0.15 0.00
56 0.35 0.15 0.00
57 0.35 0.15 0.00
58 0.36 0.15 0.00
59 0.36 0.15 0.00
60 0.36 0.15 0.00
61 0.38 0.15 0.00
62 0.38 0.15 0.00
63 0.38 0.15 0.00
64 0.39 0.15 0.00
65+ 0.39 0.15 0.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
46
<PAGE>
APPENDIX C(1)
GUARANTEED MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
Smokers and Non-Smokers
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
- ----------------------------------
0 0.16 0.08 0.00
1 0.16 0.08 0.00
2 0.16 0.08 0.00
3 0.16 0.08 0.00
4 0.16 0.08 0.00
5 0.16 0.08 0.00
6 0.16 0.08 0.00
7 0.16 0.08 0.00
8 0.16 0.08 0.00
9 0.16 0.08 0.00
10 0.16 0.08 0.00
11 0.16 0.08 0.00
12 0.16 0.08 0.00
13 0.16 0.08 0.00
14 0.16 0.08 0.00
15 0.16 0.08 0.00
16 0.16 0.08 0.00
17 0.16 0.08 0.00
18 0.16 0.08 0.00
19 0.16 0.08 0.00
20 0.16 0.08 0.00
21 0.16 0.08 0.00
22 0.16 0.08 0.00
23 0.16 0.08 0.00
24 0.16 0.08 0.00
25 0.16 0.08 0.00
26 0.16 0.09 0.00
27 0.17 0.09 0.00
28 0.17 0.09 0.00
29 0.18 0.09 0.00
30 0.18 0.09 0.00
31 0.18 0.09 0.00
32 0.18 0.09 0.00
33 0.19 0.09 0.00
34 0.19 0.09 0.00
Stated Amount
Issue ----------------------------
Age $50,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
35 0.19 0.09 0.00
36 0.20 0.09 0.00
37 0.21 0.10 0.00
38 0.22 0.10 0.00
39 0.23 0.10 0.00
40 0.23 0.10 0.00
41 0.24 0.10 0.00
42 0.24 0.10 0.00
43 0.24 0.10 0.00
44 0.24 0.10 0.00
45 0.24 0.10 0.00
46 0.25 0.11 0.00
47 0.26 0.11 0.00
48 0.27 0.11 0.00
49 0.28 0.11 0.00
50 0.29 0.15 0.00
51 0.30 0.15 0.00
52 0.32 0.15 0.00
53 0.33 0.15 0.00
54 0.34 0.15 0.00
55 0.35 0.15 0.00
56 0.35 0.15 0.00
57 0.35 0.15 0.00
58 0.36 0.15 0.00
59 0.36 0.15 0.00
60 0.36 0.15 0.00
61 0.38 0.15 0.00
62 0.38 0.15 0.00
63 0.38 0.15 0.00
64 0.39 0.15 0.00
65+ 0.39 0.15 0.00
Appendix C(1) - Guaranteed Monthly Administrative Charge
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
47
<PAGE>
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
ANNUAL REPORT
DECEMBER 31, 1994
TRAVELERS INSURANCE
A Member of TRAVELERSGROUP (logo with umbrella)
<PAGE>
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments in eligible mutual funds at market value:
Managed Assets Trust, 64,033 shares (cost $861,965) $822,825
High Yield Bond Trust, 27,060 shares (cost $234,277) 229,737
Capital Appreciation Fund, 15,903 shares (cost $392,748) 389,632
Cash Income Trust, 1,202,693 shares (cost $1,202,693) 1,202,693
The Travelers Series Trust:
U.S. Government Securities Portfolio, 10,207 shares (cost $108,668) 107,988
Utilities Portfolio, 233 shares (cost $2,374) 2,373
Templeton Variable Products Series Fund:
Templeton Bond Fund, 6,763 shares (cost $73,110) 73,442
Templeton Stock Fund, 47,819 shares (cost $829,064) 810,058
Templeton Asset Allocation Fund, 57,915 shares (cost $918,688) 908,683
Fidelity's Variable Insurance Products Fund:
High Income Portfolio, 23,523 shares (cost $254,028) 253,104
Growth Portfolio, 34,010 shares (cost $707,153) 737,686
Equity-Income Portfolio, 32,138 shares (cost $494,111) 493,316
Fidelity's Variable Insurance Products Fund II:
Asset Manager Portfolio, 101,861 shares (cost $1,436,538) 1,404,667
Dreyfus Stock Index Fund, 3,630 shares (cost $47,169) 46,968
American Odyssey Funds, Inc.:
American Odyssey Core Equity Fund, 17 shares (cost $176) 174
American Odyssey Emerging Opportunities Fund, 2,138 shares (cost $24,691) 25,316
American Odyssey International Equity Fund, 1,312 shares (cost $15,150) 14,116
American Odyssey Long-Term Bond Fund, 596 shares (cost $5,694) 5,588
American Odyssey Short-Term Bond Fund, 2 shares (cost $18) 17
Dividends receivable 7,643
Receivable for premium payments and transfers from other Travelers accounts 41,602
Other assets 74
----------
Total Assets 7,577,702
----------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts 2,921
Accrued liabilities 586
----------
Total Liabilities 3,507
----------
NET ASSETS: $7,574,195
----------
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $121,624
EXPENSES:
Insurance charges 27,551
-------
Net investment income 94,073
-------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss from investment transactions:
Proceeds from investments sold $2,997,217
Cost of investments sold 3,003,766
---------
Net realized loss (6,549)
Change in unrealized gain (loss) on investments:
Unrealized gain at December 31, 1993 61,022
Unrealized loss at December 31, 1994 (79,932)
--------
Net change in unrealized gain (loss) for the year (140,954)
---------
Net realized and change in unrealized gain (loss) (147,503)
---------
Net decrease in net assets resulting from operations $(53,430)
---------
---------
</TABLE>
See Notes to Financial Statements
<PAGE>
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
1994 1993
<CAPTION> ------- -----
<S> <C> <C>
OPERATIONS:
Net investment income $ 94,073 $ 57,183
Net realized gain (loss) from investment transactions (6,549) 29,322
Net change in unrealized gain (loss) on investments (140,954) 8,491
--------- -------
Net increase (decrease) in net assets resulting from operations (53,430) 94,996
--------- -------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 4,481,114 and 396,000 units, respectively) 5,311,444 583,533
Participant transfers from other Travelers accounts
(applicable to 4,833,697 and 249,026 units, respectively) 5,175,800 365,710
Contract surrenders
(applicable to 723,287 and 196,242 units, respectively) (835,173) (287,721)
Participant transfers to other Travelers accounts
(applicable to 2,824,076 and 278,333 units, respectively) (3,873,682) (396,105)
----------- --------
Net increase in net assets resulting from unit transactions 5,778,389 265,417
---------- --------
Net increase in net assets 5,724,959 360,413
NET ASSETS:
Beginning of year 1,849,236 1,488,823
--------- ---------
End of year $ 7,574,195 $ 1,849,236
--------- ---------
--------- ----------
</TABLE>
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund UL for Variable Life Insurance ("Fund UL") is a
separate account of The Travelers Insurance Company ("Travelers
Insurance"), an indirect wholly owned subsidiary of The Travelers
Inc., and is available for funding certain variable life insurance
contracts issued by Travelers Insurance. Fund UL is registered
under the Investment Company Act of 1940, as amended, as a unit
investment trust. Travelers Insurance interest in the net assets
of Fund UL was $564,068 at December 31, 1994.
Premium payments applied to Fund UL are invested in one or more
eligible mutual funds in accordance with the selection made by the
owner. The eligible mutual funds currently available under Fund UL
are: Managed Assets Trust; High Yield Bond Trust; Capital
Appreciation Fund (formerly Aggressive Stock Trust); Cash Income
Trust; U.S. Government Securities Portfolio and Utilities 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
Short-Term Bond Fund of American Odyssey Funds, Inc. (all of which
are managed by affiliates of Travelers Insurance); Templeton Bond
Fund, Templeton Stock Fund and Templeton Asset Allocation Fund of
Templeton Variable Products Series Fund; High Income Portfolio,
Growth Portfolio and Equity-Income Portfolio of Fidelity's Variable
Insurance Products Fund; Asset Manager Portfolio of Fidelity's
Variable Insurance Products Fund II; and Dreyfus Stock Index Fund
(formerly Dreyfus Life and Annuity Index Fund, Inc.). All of the
mutual funds are Massachusetts business trusts, except for American
Odyssey Funds, Inc. and Dreyfus Stock Index Fund which are
incorporated under Maryland law.
The following is a summary of significant accounting policies
consistently followed by Fund UL in the preparation of its
financial statements.
SECURITY VALUATION.
Investments are valued daily at the net asset values per share of
the underlying mutual funds.
FEDERAL INCOME TAXES.
The operations of Fund UL form a part of the total operations of
Travelers Insurance and are not taxed separately. Travelers
Insurance is taxed as a life insurance company under the Internal
Revenue Code of 1986, as amended ("Code"). Under existing federal
income tax law, no taxes are payable on the investment income of
Fund UL. Fund UL is not taxed as a "regulated investment company"
under Subchapter M of the Code.
OTHER.
Security transactions are accounted for on the trade date.
Dividend income is recorded on the ex-dividend date.
2. INVESTMENTS
Purchases and sales of investments aggregated $8,823,720 and
$2,997,217, respectively, for the year ended December 31, 1994.
Realized gains and losses from investment transactions are reported
on an identified cost basis. The cost of investments in eligible
mutual funds was $7,608,315 at December 31, 1994. Gross unrealized
appreciation for all investments at December 31, 1994 was $31,490.
Gross unrealized depreciation for all investments at December 31,
1994 was $111,422.
3. CONTRACT CHARGES
Insurance charges and administrative charges up to a maximum of
0.80% and 0.10%, respectively, of the value of Fund UL on an annual
basis, are allowed for mortality and expense risks and
administrative expenses assumed by Travelers Insurance. For the
year ended December 31, 1994, the insurance charges were 0.60%, and
the administrative charges were waived by Travelers Insurance.
Travelers Insurance, as principal underwriter, received contingent
surrender charges on full or partial contract surrenders. Such
charges are computed by applying various percentages to premiums
and/or stated contract amounts. Travelers Insurance received
$8,349 and $6,192 in satisfaction of such surrender charges for the
years ended December 31, 1994 and 1993, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
4. NET CONTRACT OWNERS' EQUITY
<CAPTION>
DECEMBER 31, 1994
--------------------------------------
<S> <C> <C> <C>
UNIT NET
UNITS VALUE ASSETS
------ ------ ------
Managed Assets Trust 528,467 $1.561 $825,175
High Yield Bond Trust 140,750 1.638 230,626
Capital Appreciation Fund 314,029 1.252 393,449
Cash Income Trust 884,251 1.384 1,224,045
The Travelers Series Trust:
U.S. Government Securities Portfolio 116,232 0.930 108,174
Utilities Portfolio 2,389 0.993 2,373
Templeton Variable Products Series Fund:
Templeton Bond Fund 78,212 0.941 73,631
Templeton Stock Fund 847,795 0.960 814,072
Templeton Asset Allocation Fund 965,750 0.946 914,426
Fidelity's Variable Insurance Products Fund:
High Income Portfolio 265,914 0.953 253,535
Growth Portfolio 757,016 0.976 739,380
Equity-Income Portfolio 485,631 1.020 495,429
Fidelity's Variable Insurance Products Fund II:
Asset Manager Portfolio 1,529,545 0.919 1,405,900
Dreyfus Stock Index Fund 47,428 1.007 47,780
American Odyssey Funds, Inc.:
American Odyssey Core Equity Fund 178 1.005 179
American Odyssey Emerging Opportunities Fund 23,653 1.084 25,653
American Odyssey International Equity Fund 15,535 0.941 14,619
American Odyssey Long-Term Bond Fund 5,737 1.000 5,738
American Odyssey Short-Term Bond Fund 11 1.000 11
----------
Net Contract Owners' Equity $7,574,195
----------
----------
</TABLE>
<PAGE>
<TABLE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET
ASSETS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
MANAGED ASSETS TRUST
--------------------
1994 1993
------ -----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 70,237 $51,598
------- -------
EXPENSES:
Insurance charges................................ 5,908 6,266
Administrative charges........................... -- 775
-------- --------
Net investment income (loss)................... 64,329 44,557
-------- --------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 238,758 167,809
Cost of investments sold....................... 242,915 151,853
--------- --------
Net realized gain (loss)...................... (4,157) 15,956
--------- --------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. 46,522 43,240
Unrealized gain (loss) end of year............ (39,140) 46,522
-------- -------
Net change in unrealized gain (loss)
for the year................................ (85,662) 3,282
-------- --------
Net increase (decrease) in net assets
resulting from operations...................... (25,490) 63,795
-------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 183,898 312,132
Participant transfers from other Travelers accounts 69,184 121,805
Contract surrenders.............................. (123,712) (160,137)
Participant transfers to other Travelers accounts (185,767) (81,352)
-------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ (56,397) 192,448
-------- ---------
Net increase (decrease) in net assets.................... (81,887) 256,243
NET ASSETS
Beginning of year.............................. 907,062 650,819
-------- ---------
End of year.................................... $825,175 $907,062
------- ---------
------- ---------
<CAPTION>
HIGH YIELD BOND TRUST
----------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 11,348 $ 5,415
------- ---------
EXPENSES:
Insurance charges................................ 772 614
Administrative charges........................... -- 76
-------- ---------
Net investment income (loss)................... 10,576 4,725
-------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 101,106 75,437
Cost of investments sold....................... 106,114 70,374
------- ---------
Net realized gain (loss)...................... (5,008) 5,063
-------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. 2,981 4,035
Unrealized gain (loss) end of year............ (4,540) 2,981
-------- ---------
Net change in unrealized gain (loss)
for the year................................ (7,521) (1,054)
-------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (1,953) 8,734
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 45,381 61,876
Participant transfers from other Travelers accounts 149,268 104,894
Contract surrenders.............................. (40,505) (34,710)
Participant transfers to other Travelers accounts (74,029) (50,151)
--------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 80,115 81,909
--------- ---------
Net increase (decrease) in net assets.................... . 78,162 90,643
NET ASSETS
Beginning of year.............................. 152,464 61,821
--------- ---------
End of year.................................... $ 230,626 $ 152,464
-------- ---------
-------- ---------
<CAPTION>
CAPITAL
APPRECIATION FUND
-----------------
<S> <C> <C>
1994 1993
INVESTMENT INCOME: ---- ----
Dividends........................................ $ 841 $ 552
-------- ---------
EXPENSES:
Insurance charges................................ 1,554 738
Administrative charges........................... -- 91
--------- ---------
Net investment income (loss)................... (713) (277)
--------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 39,915 25,170
Cost of investments sold....................... 33,059 16,867
-------- ---------
Net realized gain (loss)...................... 6,856 8,303
-------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. 11,519 5,256
Unrealized gain (loss) end of year............ (3,117) 11,519
--------- ---------
Net change in unrealized gain (loss)
for the year................................ (14,636) 6,263
--------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (8,493) 14,289
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 152,844 33,126
Participant transfers from other Travelers accounts 187,041 53,238
Contract surrenders.............................. (55,126 (27,287)
Participant transfers to other Travelers accounts (24,764) (4,951)
--------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 259,995 54,126
--------- ---------
Net increase (decrease) in net assets.................... 251,502 68,415
NET ASSETS
Beginning of year.............................. 141,947 73,532
-------- ---------
End of year.................................... $ 393,449 $141,947
-------- ---------
-------- ---------
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
<CAPTION>
CASH
INCOME TRUST
-------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 29,710 $ 14,000
-------- ---------
EXPENSES:
Insurance charges................................ 6,114 5,182
Administrative charges........................... -- 640
--------- ---------
Net investment income (loss)................... 23,596 8,178
--------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 2,478,281 297,507
Cost of investments sold....................... 2,478,281 297,507
-------- ---------
Net realized gain (loss)...................... -- --
-------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ -- --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ -- --
--------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 23,596 8,178
-------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 2,960,609 176,399
Participant transfers from other Travelers accounts 1,334,856 85,773
Contract surrenders.............................. (207,394) (65,587)
Participant transfers to other Travelers accounts (3,535,385) (259,651)
----------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 552,686 (63,066)
----------- ---------
Net increase (decrease) in net assets.................... 576,282 (54,888)
NET ASSETS
Beginning of year.............................. 647,763 702,651
---------- ---------
End of year.................................... $ 1,224,045 $647,763
----------- ---------
----------- ---------
<CAPTION>
U.S. GOVERNMENT
SECURITIES PORTFOLIO
----------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ -- $ --
-------- ---------
EXPENSES:
Insurance charges................................ 324 --
Administrative charges........................... -- --
--------- ---------
Net investment income (loss)................... (324) --
--------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 8,194 --
Cost of investments sold....................... 8,507 --
--------- ---------
Net realized gain (loss)...................... (313) --
--------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (680) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (680) --
----------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (1,317) --
----------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 32,322 --
Participant transfers from other Travelers accounts 86,590 --
Contract surrenders.............................. (7,983) --
Participant transfers to other Travelers accounts (1,438) --
-------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 109,491 --
--------- ---------
Net increase (decrease) in net assets.................... 108,174 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 108,174 $ --
------------- ---------
------------- ---------
<CAPTION>
UTILITIES PORTFOLIO
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ -- $ --
----------- ---------
EXPENSES:
Insurance charges................................ 3 --
Administrative charges........................... -- --
----------- ---------
Net investment income (loss)................... (3) --
----------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 46 --
Cost of investments sold....................... 47 --
---------- ---------
Net realized gain (loss)...................... (1) --
---------- ---------
Change in unrealized gain (loss) on investments: -- --
Unrealized gain (loss) end of year............ (1) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (1) --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (5) --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 2,180 --
Participant transfers from other Travelers accounts 305 --
Contract surrenders.............................. (89) --
Participant transfers to other Travelers accounts (18) --
---------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 2,378 --
--------- ---------
Net increase (decrease) in net assets.................... 2,373 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 2,373 $ --
---------- ---------
---------- ---------
<CAPTION>
TEMPLETON BOND FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 11 $ --
-------- ---------
EXPENSES:
Insurance charges................................ 160 --
Administrative charges........................... -- --
-------- ---------
Net investment income (loss)................... (149) . --
-------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 24,059 --
Cost of investments sold....................... 24,114 --
--------- ---------
Net realized gain (loss)...................... (55) --
--------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ 332 --
--------- ---------
Net change in unrealized gain (loss)
for the year................................ 332 --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 128 --
----------- --------
UNIT TRANSACTIONS:
Participant premium payments..................... 44,718 --
Participant transfers from other Travelers accounts 43,641 --
Contract surrenders.............................. (5,011) --
Participant transfers to other Travelers accounts (9,845) --
------------ ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 73,503 --
----------- ---------
Net increase (decrease) in net assets.................... 73,631 --
NET ASSETS
Beginning of year.............................. -- --
----------- ---------
End of year.................................... $73,631 $ --
----------- ---------
----------- ---------
</TABLE>
<PAGE>
<TABLE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 (CONTINUED)
<CAPTION>
TEMPLETON STOCK FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 120 $ --
--------- ---------
EXPENSES:
Insurance charges................................ 2,207 --
Administrative charges........................... -- --
---------- ---------
Net investment income (loss)................... (2,087) --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 17,171 --
Cost of investments sold....................... 17,388 --
---------- ---------
Net realized gain (loss)...................... (217) --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (19,006) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (19,006) --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (21,310) --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 390,647 --
Participant transfers from other Travelers accounts 534,732 --
Contract surrenders.............................. (77,915) --
Participant transfers to other Travelers accounts (12,082) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 835,382 --
---------- ---------
Net increase in net assets.................... 814,072
NET ASSETS
Beginning of year.............................. -- --
----------- ---------
End of year.................................... $ 814,072 $ --
----------- ---------
----------- ---------
<CAPTION>
TEMPLETON ASSET
ALLOCATION FUND
----------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 97 $ --
---------- ---------
EXPENSES:
Insurance charges................................ 2,572 --
Administrative charges........................... -- --
---------- ---------
Net investment income (loss)................... (2,475) --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 13,283 --
Cost of investments sold....................... 13,585 --
----------- ---------
Net realized gain (loss)...................... (302) --
------------ ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (10,005) --
------------- ---------
Net change in unrealized gain (loss)
for the year................................ (10,005) --
------------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (12,782) --
------------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 277,719 --
Participant transfers from other Travelers accounts 714,112 --
Contract surrenders.............................. (59,628) --
Participant transfers to other Travelers accounts (4,995) --
------------- ---------
Net increase in net assets resulting
from unit transactions........................ 927,208 --
------------- ---------
Net increase in net assets.................... 914,426 --
NET ASSETS
Beginning of year.............................. -- --
------------- ---------
End of year.................................... $ 914,426 $ --
------------- ---------
------------- ---------
<CAPTION>
FIDELITY'S HIGH
INCOME PORTFOLIO
-----------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 408 $ --
------------ ---------
EXPENSES:
Insurance charges................................ 644 --
Administrative charges........................... -- --
------------- ---------
Net investment income (loss)................... (236) --
------------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 11,230 --
Cost of investments sold....................... 12,052 --
------------ ---------
Net realized gain (loss)...................... (822) --
------------ ---------
Change in unrealized gain (loss) on investments: -- --
Unrealized gain (loss) end of year............ (924) --
------------- ---------
Net change in unrealized gain (loss)
for the year................................ (924) --
------------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (1,982) --
------------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 107,547 --
Participant transfers from other Travelers accounts 180,024 --
Contract surrenders.............................. (26,639) --
Participant transfers to other Travelers accounts (5,415) --
------------- ---------
Net increase in net assets resulting
from unit transactions........................ 255,517 --
------------- ---------
Net increase in net assets.................... 253,535 --
NET ASSETS
Beginning of year.............................. -- --
------------- ---------
End of year.................................... $ 253,535 $ --
------------- ---------
------------- ---------
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
<CAPTION>
FIDELITY'S
GROWTH PORTFOLIO
-------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 651 $ --
---------- ---------
EXPENSES:
Insurance charges................................ 1,988 --
Administrative charges........................... -- --
---------- ---------
Net investment income (loss)................... (1,337) --
----------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 18,549 --
Cost of investments sold....................... 20,245 , --
---------- ---------
Net realized gain (loss)...................... (1,696) --
----------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ 30,533 --
----------- ---------
Net change in unrealized gain (loss)
for the year................................ 30,533 --
----------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 27,500 --
----------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 312,051 --
Participant transfers from other Travelers accounts 487,427 --
Contract surrenders.............................. (79,931) --
Participant transfers to other Travelers accounts (7,667) --
----------- ---------
Net increase in net assets resulting
from unit transactions........................ 711,880 --
----------- ---------
Net increase in net assets.................... 739,380 --
NET ASSETS
Beginning of year.............................. -- --
----------- ---------
End of year.................................... $ 739,380 $ --
--------- ---------
--------- ---------
<CAPTION>
FIDELITY'S EQUITY-
INCOME PORTFOLIO
--------------------
1994 1993
INVESTMENT INCOME: ----- -----
<S> <C> <C>
Dividends........................................ $ 5,526 $ --
--------- ---------
EXPENSES:
Insurance charges................................ 1,064 --
Administrative charges........................... -- --
---------- ---------
Net investment income (loss)................... 4,462 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 14,686 --
Cost of investments sold....................... 14,486 --
---------- ---------
Net realized gain (loss)...................... 200 --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (795) --
----------- ---------
Net change in unrealized gain (loss)
for the year................................ (795) --
------------ ---------
Net increase (decrease) in net assets
resulting from operations...................... 3,867 --
----------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 184,990 --
Participant transfers from other Travelers accounts 343,599 --
Contract surrenders.............................. (34,496) --
Participant transfers to other Travelers accounts (2,531) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 491,562 --
----------- ---------
Net increase in net assets.................... 495,429 --
NET ASSETS
Beginning of year.............................. --- --
----------- ---------
End of year.................................... $ 495,429 $ ----
----------- ---------
----------- ---------
<CAPTION>
FIDELITY'S ASSET
MANAGER PORTFOLIO
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 871 $ --
------------ ---------
EXPENSES:
Insurance charges................................ 4,081 --
Administrative charges........................... -- --
------------ ---------
Net investment income (loss)................... (3,210) --
------------ ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 26,613 --
Cost of investments sold....................... 27,788 --
------------ ---------
Net realized gain (loss)...................... (1,175) --
------------ ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (31,871) --
------------- ---------
Net change in unrealized gain (loss)
for the year................................ (31,871) --
------------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (36,256) --
------------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 591,289 --
Participant transfers from other Travelers accounts 972,105 --
Contract surrenders.............................. (111,946) --
Participant transfers to other Travelers accounts (9,292) --
------------- ---------
Net increase in net assets resulting
from unit transactions........................ 1,442,156 --
------------- ---------
Net increase in net assets.................... 1,405,900 --
NET ASSETS
Beginning of year.............................. -- --
----------- ---------
End of year.................................... $ 1,405,900 $ --
-------------- ---------
-------------- ---------
<CAPTION>
DREYFUS STOCK
INDEX FUND
-----------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 807 $ --
------------- ---------
EXPENSES:
Insurance charges................................ 112 --
Administrative charges........................... -- --
------------ ---------
Net investment income (loss)................... 695 --
------------ ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 4,995 --
Cost of investments sold....................... 4,858 --
------------- ---------
Net realized gain (loss)...................... 137 --
------------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (201) --
------------- ---------
Net change in unrealized gain (loss)
for the year................................ (201) --
------------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 631 --
------------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 17,235 --
Participant transfers from other Travelers accounts 34,387 --
Contract surrenders.............................. (4,088) --
Participant transfers to other Travelers accounts (385) --
------------- ---------
Net increase in net assets resulting
from unit transactions........................ 47,149 --
------------- ---------
Net increase in net assets.................... 47,780 --
NET ASSETS
Beginning of year.............................. -- --
------------ ---------
End of year.................................... $ 47,780 $ --
------------ ---------
------------ ---------
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 (CONTINUED)
<CAPTION>
AMERICAN ODYSSEY
CORE EQUITY FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 3 $ --
----------- ---------
EXPENSES:
Insurance charges................................ -- --
Administrative charges........................... -- --
---------- ---------
Net investment income ................... 3 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. -- --
Cost of investments sold....................... -- --
---------- ---------
Net realized gain (loss)...................... -- --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (2) --
-------- ---------
Net change in unrealized gain (loss)
for the year................................ (2) --
--------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 1 --
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 10 --
Participant transfers from other Travelers accounts 176 --
Contract surrenders.............................. (8) --
Participant transfers to other Travelers accounts -- --
--------- ---------
Net increase in net assets resulting
from unit transactions........................ 178 --
---------- ---------
Net increase in net assets.................... 179 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 179 $ --
---------- ---------
---------- ---------
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN
NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1993
<CAPTION>
AMERICAN ODYSSEY
EMERGING OPPORTUNITIES
FUND
---------------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 339 $ --
---------- ---------
EXPENSES:
Insurance charges................................ 25 --
Administrative charges........................... -- --
---------- ---------
Net investment income ......................... 314 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 148 --
Cost of investments sold....................... 142 --
---------- ---------
Net realized gain (loss)...................... 6 --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ 625 --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ 625 --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 945 --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 3,320 --
Participant transfers from other Travelers accounts 21,735 --
Contract surrenders.............................. (327) --
Participant transfers to other Travelers accounts (20) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 24,708 --
---------- ---------
Net increase in net assets.................... 25,653 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 25,653 $ --
---------- ---------
---------- ---------
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN
NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1993
<CAPTION>
AMERICAN ODYSSEY
INTERNATIONAL EQUITY FUND
--------------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 504 $ --
-------- ---------
EXPENSES:
Insurance charges................................ 20 --
Administrative charges........................... -- --
-------- ---------
Net investment income ......................... 484 --
-------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 85 --
Cost of investments sold....................... 87 --
--------- ---------
Net realized gain (loss)...................... (2) --
--------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (1,033) --
--------- ---------
Net change in unrealized gain (loss)
for the year................................ (1,033) --
--------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (551) --
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 3,257 --
Participant transfers from other Travelers accounts 12,193 --
Contract surrenders.............................. (232) --
Participant transfers to other Travelers accounts (48) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 15,170 --
---------- ---------
Net increase in net assets.................... 14,619 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 14,619 $ --
---------- ---------
---------- ---------
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
<CAPTION>
AMERICAN ODYSSEY
LONG-TERM BOND FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 150 $ --
---------- ---------
EXPENSES:
Insurance charges................................ 3 --
Administrative charges........................... -- --
---------- ---------
Net investment income................... 147 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 98 --
Cost of investments sold....................... 98 --
---------- ---------
Net realized gain (loss)...................... -- --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (106) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (106) --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 41 --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 1,410 --
Participant transfers from other Travelers accounts 4,424 --
Contract surrenders.............................. (136) --
Participant transfers to other Travelers accounts (1) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 5,697 --
---------- ---------
Net increase in net assets.................... 5,738 --
NET ASSETS
Beginning of year.............................. -- --
---------- --------
End of year.................................... $ 5,738 $ --
---------- --------
---------- --------
<CAPTION>
AMERICAN ODYSSEY
SHORT-TERM BOND FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 1 $ --
---------- ---------
EXPENSES:
Insurance charges................................ -- --
Administrative charges........................... -- --
---------- ---------
Net investment income ................... 1 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. -- --
Cost of investments sold....................... -- --
---------- ---------
Net realized gain (loss)...................... -- --
---------- --------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (1) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (1) --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... -- --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 17 --
Participant transfers from other Travelers accounts 1 --
Contract surrenders.............................. (7) --
Participant transfers to other Travelers accounts -- --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 11 --
---------- ---------
Net increase in net assets.................... 11 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 11 $ --
---------- ---------
---------- ---------
<CAPTION>
COMBINED
-----------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 121,624 $ 71,565
----------- ---------
EXPENSES:
Insurance charges................................ 27,551 12,800
Administrative charges........................... -- 1,582
----------- ---------
Net investment income ......................... 94,073 57,183
----------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 2,997,217 565,923
Cost of investments sold....................... 3,003,766 536,601
----------- ---------
Net realized gain (loss)...................... (6,549) 29,322
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. 61,022 52,531
Unrealized gain (loss) end of year............ (79,932) 61,022
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (140,954) 8,491
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (53,430) 94,996
----------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 5,311,444 583,533
Participant transfers from other Travelers accounts 5,175,800 365,710
Contract surrenders.............................. (835,173) (287,721)
Participant transfers to other Travelers accounts (3,873,682) (396,105)
------------ ----------
Net increase in net assets resulting
from unit transactions........................ 5,778,389 265,417
----------- ---------
Net increase in net assets.................... 5,724,959 360,413
NET ASSETS
Beginning of year.............................. 1,849,236 1,488,823
----------- ---------
End of year.................................... $ 7,574,195 $1,849,236
----------- ---------
----------- ---------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of Variable Life Insurance Contracts of
The Travelers Fund UL for Variable Life Insurance:
We have audited the accompanying statement of assets and
liabilities of
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
as of December 31, 1994, and the related statement of operations
for the year then ended, and the statement of changes in net assets
for each of the two years in the period then ended. These financial
statements are the responsibility of management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of shares owned as of December 31, 1994, by
correspondence with the underlying mutual funds. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The
Travelers Fund UL for Variable Life Insurance as of December 31,
1994, the results of its operations for the year then ended, and
the changes in its net assets for each of the two years in the
period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 8, 1995
<PAGE>
Independent Accountants
-------------------------
COOPERS & LYBRAND, L.L.P.
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 for Variable Life Insurance or Fund UL's underlying mutual
funds. It should not be used in connection with any offer except
in conjunction with the Variable Universal Life Insurance
Prospectus and the Prospectuses of the underlying mutual funds,
which collectively contain all pertinent information, including the
applicable selling commissions.
VG-156 (Annual) (12-94) Printed in U.S.A.
<PAGE> 1
Independent Auditors' Report
The Board of Directors and Shareholder of
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, 1994 and 1993, and the
related consolidated statements of operations and retained earnings and cash
flows for the year ended December 31, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for the year ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", in 1994.
/s/KPMG PEAT MARWICK LLP
Hartford, Connecticut
January 17, 1995
16
<PAGE> 2
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the consolidated statements of operations and retained earnings
and cash flows of The Travelers Insurance Company and Subsidiaries for the year
ended December 31, 1993. These consolidated financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of The Travelers Insurance Company and Subsidiaries for the year
ended December 31, 1993 in conformity with generally accepted accounting
principles.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
January 24, 1994
17
<PAGE> 3
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the consolidated statements of operations and retained earnings
and cash flows for The Travelers Insurance Company and Subsidiaries for the
year ended December 31, 1992. These consolidated financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of The Travelers Insurance Company and Subsidiaries
for the year ended December 31, 1992 in conformity with generally accepted
accounting principles.
As discussed in Notes 2, 5, 10 and 13 to the consolidated financial statements,
the Company changed its method of accounting for postretirement benefits other
than pensions, accounting for income taxes and accounting for foreclosed assets
in 1992.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
February 9, 1993, except for Notes 2 and 5,
as to which the date is January 24, 1994
18
<PAGE> 4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------|------------------------------
(for the year ended December 31, in millions) 1994 | 1993 1992
- --------------------------------------------------------------------------|------------------------------
|
<S> <C> | <C> <C>
REVENUES |
Premiums $ 3,861 | $ 2,725 $ 2,686
Net investment income 1,849 | 1,884 2,101
Realized investment gains (losses) 14 | (21) (747)
Other 1,023 | 859 785
- --------------------------------------------------------------------------|------------------------------
6,747 | 5,447 4,825
- --------------------------------------------------------------------------|------------------------------
BENEFITS AND EXPENSES |
Current and future insurance benefits 3,421 | 3,121 3,000
Interest credited to contractholders 967 | 1,206 1,456
Claim settlement expenses 193 | 231 264
Amortization of deferred acquisition costs and value of |
insurance in force 284 | 55 61
General and administrative expenses 1,025 | 751 987
- --------------------------------------------------------------------------|------------------------------
5,890 | 5,364 5,768
- --------------------------------------------------------------------------|------------------------------
|
Income (loss) before federal income taxes |
and cumulative effects |
of changes in accounting principles 857 | 83 (943)
- --------------------------------------------------------------------------|------------------------------
|
Federal income taxes: |
Current 36 | 20 2
Deferred 276 | (78) (340)
- --------------------------------------------------------------------------|------------------------------
312 | (58) (338)
- --------------------------------------------------------------------------|------------------------------
|
Income (loss) before cumulative effects of changes |
in accounting principles 545 | 141 (605)
Cumulative effect of change in accounting |
for postretirement benefits other than |
pensions, net of tax - | - (126)
Cumulative effect of change in accounting |
for income taxes - | - 350
- --------------------------------------------------------------------------|------------------------------
|
Net income (loss) 545 | 141 (381)
Retained earnings beginning of year 1,017 | 888 1,281
Dividends to parent company - | (14) (14)
Preference stock tax benefit allocated by parent - | 2 2
- --------------------------------------------------------------------------|------------------------------
Retained earnings end of year $ 1,562 | $ 1,017 $ 888
- --------------------------------------------------------------------------|------------------------------
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(at December 31, in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at market in 1994 (cost, $18,579);
at lower of aggregate cost or market in 1993 (market, $18,284) $17,260 $18,045
Bonds, held for investment (market, $18) - 18
Equity securities, at market (cost, $173; $199) 169 220
Mortgage loans 4,938 6,845
Real estate held for sale, net of accumulated depreciation of $9; $0 383 954
Policy loans 1,581 1,366
Short-term securities 2,279 1,376
Other investments 885 687
- ---------------------------------------------------------------------------------------------------------
Total investments 27,495 29,511
- ---------------------------------------------------------------------------------------------------------
Cash 102 50
Investment income accrued 362 379
Premium balances receivable 215 224
Reinsurance recoverable 2,915 2,883
Deferred acquisition costs and value of insurance in force 1,939 1,794
Deferred federal income taxes 950 855
Separate and variable accounts 5,160 4,666
Other assets 1,397 979
- ---------------------------------------------------------------------------------------------------------
Total assets $40,535 $41,341
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,354 $17,850
Future policy benefits 11,480 11,263
Policy and contract claims 1,222 1,274
Separate and variable accounts 5,128 4,644
Short-term debt 74 -
Other liabilities 1,923 2,007
- ---------------------------------------------------------------------------------------------------------
Total liabilities 36,181 37,038
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,452 3,179
Unrealized investment gains (losses), net of taxes (760) 7
Retained earnings 1,562 1,017
- ---------------------------------------------------------------------------------------------------------
Total shareholder's equity 4,354 4,303
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $40,535 $41,341
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1994 | 1993 1992
- ----------------------------------------------------------------------------|--------------------------------
<S> <C> | <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Premiums collected $ 3,722 | $ 2,530 $ 2,594
Net investment income received 1,895 | 1,794 2,134
Other revenues received 734 | 568 568
Benefits and claims paid (3,572) | (2,902) (3,123)
Interest credited to contractholders (922) | (1,154) (1,404)
Operating expenses paid (972) | (859) (869)
Income taxes (paid) refunded (27) | 25 (2)
Trading account investments, (purchases) sales, net - | (1,576) (364)
Other (141) | 202 522
- ----------------------------------------------------------------------------|--------------------------------
Net cash provided by (used in) operating activities 717 | (1,372) 56
- ----------------------------------------------------------------------------|--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES |
Investment repayments |
Fixed maturities 2,783 | 2,624 2,084
Mortgage loans 1,337 | 1,210 1,063
Proceeds from investments sold |
Fixed maturities 1,370 | 102 175
Equity securities 359 | 75 173
Mortgage loans 557 | 310 254
Real estate 728 | 949 235
Investments in |
Fixed maturities (4,767) | (3,269) (2,471)
Equity securities (340) | (51) (119)
Mortgage loans (94) | (246) (63)
Policy loans, net (215) | (2) (184)
Short-term securities, (purchases) sales, net (903) | 860 (615)
Other investments, (purchases) sales, net (50) | 53 191
Securities sold under repurchase agreement (209) | - -
Cash from disposition of operations 53 | - 5
- ----------------------------------------------------------------------------|--------------------------------
Net cash provided by investing activities 609 | 2,615 728
- ----------------------------------------------------------------------------|--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES |
Issuance (redemption) of short-term debt, net 74 | - -
Contractholder fund deposits 2,197 | 3,159 3,047
Contractholder fund withdrawals (3,529) | (4,418) (5,003)
Dividends to parent company - | (14) (14)
Return of capital to parent company (23) | - -
Contributions from parent company - | - 500
Other 7 | 6 2
- ----------------------------------------------------------------------------|--------------------------------
Net cash used in financing activities (1,274) | (1,267) (1,468)
- ----------------------------------------------------------------------------|--------------------------------
Net increase (decrease) in cash $ 52 | $ (24) $ (684)
- ----------------------------------------------------------------------------|--------------------------------
|
Cash at December 31 $ 102 | $ 50 $ 74
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Travelers Insurance Company and its subsidiaries (the Company) is a
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIG).
TIG is an indirect wholly owned subsidiary of The Travelers Inc.
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
In December 1992, Primerica Corporation (Primerica) acquired
approximately 27% of the common stock of the Company's then parent, The
Travelers Corporation (the Acquisition). The Acquisition was accounted
for as a purchase. In connection with the Acquisition, Primerica
transferred 100% of the preferred provider organization and third party
administrator networks of Transport Life Insurance Company (a wholly
owned subsidiary of Primerica) to The Travelers Corporation, which
contributed them to the Company. The Company realized an increase to
shareholder's equity of $23 million related to this contribution.
Effective December 31, 1993, Primerica acquired the approximately 73% of
The Travelers Corporation common stock which it did not already own, and
The Travelers Corporation was merged into Primerica, which was renamed
The Travelers Inc. This was effected through the exchange of .80423
shares of The Travelers Inc. common stock for each share of The
Travelers Corporation common stock (the Merger). All subsidiaries of
The Travelers Corporation were contributed to TIG. In conjunction with
the Merger, The Travelers Inc. contributed Travelers Insurance Holdings
Inc. (formerly Primerica Insurance Holdings, Inc.) and its subsidiaries
(TIHI) to TIG, which in turn contributed TIHI to the Company.
TIHI is an intermediate holding company whose primary subsidiaries are
Primerica Life Insurance Company (Primerica Life) and its subsidiary
National Benefit Life Insurance Company (NBL), and Transport Life
Insurance Company (Transport). Through its subsidiaries, TIHI primarily
offers individual insurance and specialty accident and health insurance.
The Company realized an increase to shareholder's equity of $2.1 billion
at December 31, 1993 related to the contribution of TIHI. At December
31, 1993 and subsequent, TIHI is included in the Life and Annuities
segment.
The consolidated financial statements and the accompanying notes reflect
the historical operations of the Company for the years ended December 31,
1993 and 1992. The results of operations of TIHI and its subsidiaries
are not included in the 1993 and 1992 financial statements. The
Company's consolidated balance sheet and related data at December 31,
1994 and 1993 include TIHI on a fully consolidated basis. The
Acquisition and the Merger are being accounted for as a "step
acquisition." The consolidated balance sheet and related data at
December 31, 1993 reflect adjustments of assets and liabilities of the
Company (except TIHI) to their fair values determined at each acquisition
date (i.e., 27% of values at December 31, 1992 as carried forward and 73%
of the values at December 31, 1993). These assets and liabilities are
reflected in the consolidated balance sheet at December 31, 1993 based
upon management's then best estimate of their fair values. Evaluation and
appraisal of assets and liabilities, including investments, the value of
insurance in force, reinsurance recoverable, other insurance assets and
liabilities and related deferred income taxes were completed during 1994.
22
<PAGE> 8
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The excess of the 27% share of assigned value of identifiable net assets
over cost at December 31, 1992, which was allocated to the Company
through the "pushdown" basis of accounting, was approximately $56
million and is being amortized over ten years on a straight-line basis.
The excess of the purchase price of the common stock over the fair value
of the 73% of net assets acquired at December 31, 1993, which was
allocated to the Company through the "pushdown" basis of accounting, was
approximately $340 million and is being amortized over 40 years on a
straight-line basis.
The consolidated statement of operations and retained earnings, the
consolidated statement of cash flows and the related accompanying notes
for the year ended December 31, 1994, which are presented on a purchase
accounting basis, are separated from the corresponding 1993 and 1992
information, which is presented on a historical accounting basis, to
indicate the difference in valuation bases.
Principles of Consolidation
The financial statements have been prepared in conformity with generally
accepted accounting principles and include the Company and its
significant insurance and noninsurance subsidiaries. Certain prior
year amounts have been reclassified to conform with the 1994
presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if
quoted market prices are not available, discounted expected cash flows
using market rates commensurate with the credit quality and maturity of
the investment. Securities 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. As of December 31, 1993, in conjunction with the Merger, the
majority of fixed maturities were classified as "available for sale" and
recorded at the lower of aggregate cost or market value. Fixed
maturities classified as "held for investment" were carried at amortized
cost.
Equity securities, which include common and nonredeemable preferred
stocks, are 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. Real estate held for sale
is carried at the lower of cost or fair value less estimated costs to
sell. Fair value was established at time of foreclosure by appraisers,
both internal and external, using discounted cash flow analyses and
other acceptable techniques.
23
<PAGE> 9
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Accrual of income is suspended on fixed maturities or mortgage loans
that are in default, or on which it is likely that future interest
payments will not be made as scheduled. Interest income on investments
in default is recognized only as payment is received.
Gains or losses arising from futures contracts used to hedge investments
are treated as basis adjustments and are recognized in income over the
life of the hedged investments.
Gains and losses arising from forward contracts used to hedge foreign
investments in the Company's U.S. portfolios are a component of realized
investment gains and losses. Gains and losses arising from forward
contracts used to hedge investments in foreign operations (primarily
Canadian) are reflected directly in shareholder's equity, net of income
taxes.
Interest rate swaps are used to manage interest rate risk in the
investment portfolio and are marked to market with unrealized gains and
losses recorded as a component of shareholder's equity, net of income
taxes. Rate differentials on interest rate swap agreements are accrued
between settlement dates and are recognized as an adjustment to interest
income from the related investment.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax revenues based upon specific identification of the investments
sold on the trade date and, prior to the Merger, included adjustments to
investment valuation reserves. These adjustments reflected changes
considered to be other than temporary in the net realizable value of
investments. Also included are gains and losses arising from the
translation of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Deferred Acquisition Costs
Costs of acquiring individual life insurance, annuities, and health
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 and guaranteed
renewable health contracts are amortized over the period of anticipated
premiums; universal life in relation to estimated gross profits; and
annuity contracts employing a level yield method. For life insurance, a
10- to 25-year amortization period is used; for guaranteed renewable
health, a 10-year period, and a 10- to 15-year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.
24
<PAGE> 10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Value of Insurance In Force
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from life insurance,
annuities and health contracts at the date of the Merger 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% for the business acquired. The
value of the business in force is amortized over the contract period
using current interest crediting rates to accrete interest and using
amortization methods based on the specified products. Traditional life
insurance and guaranteed renewable health policies are amortized over
the period of anticipated premiums; universal life is amortized in
relation to estimated gross profits; and annuity contracts are amortized
employing a level yield method. The value of insurance in force is
reviewed periodically for recoverability to determine if any adjustment
is required.
Separate and Variable Accounts
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to,
and investment risk is borne by, the contractholders. Each account has
specific investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets of these accounts are carried at
market value. Certain other separate accounts provide guaranteed levels
of return or benefits and the assets of these accounts are carried at
amortized cost, except at December 31, 1993 the assets and liabilities
of these accounts were recorded at the value assigned at the acquisition
dates. 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
The excess of the 27% share of assigned value of identifiable assets
over cost at December 31, 1992 allocated to the Company as a result of
the Acquisition amounted to approximately $56 million and is being
amortized over 10 years on a straight-line basis. Goodwill resulting
from the excess of the purchase price over the fair value of the 73% of
net assets acquired related to the Merger amounted to approximately $340
million at December 31, 1993 and is being amortized over 40 years on a
straight-line basis. TIHI has goodwill of $246 million.
25
<PAGE> 11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life, pension investment and certain individual annuity contracts. Such
receipts are considered deposits on investment contracts that do not
have substantial mortality or morbidity risk. Account balances are also
increased by interest credited and reduced by withdrawals, mortality
charges and administrative expenses charged to the contractholders.
Calculations of contractholder account balances for investment contracts
reflect lapse, withdrawal and interest rate assumptions based on
contract provisions, the Company's experience and industry standards.
Interest rates credited to contractholder funds range from 3.4% to 8.0%.
Contractholder funds also include other funds that policyholders leave
on deposit with the Company.
Benefit Reserves
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for traditional life insurance, annuities,
and accident and health policies have been computed based upon
mortality, morbidity, persistency and interest assumptions applicable to
these coverages, which range from 2.5% to 12.0%, including adverse
deviation. These assumptions consider Company experience and industry
standards and may be revised if it is determined that the future
experience will differ substantially from that previously assumed. The
assumptions vary by plan, age at issue, year of issue and duration.
Appropriate recognition has been given to experience rating and
reinsurance.
Operating Leases
At December 31, 1993, operating leases were recorded at the value
assigned at the acquisition dates and included in the consolidated
balance sheet as a component of other liabilities. This liability is
being amortized over the average lease period.
Permitted Statutory Accounting Practices
The Company, domiciled principally in Connecticut and Massachusetts,
prepares statutory financial statements in accordance with the
accounting practices prescribed or permitted by the insurance
departments of those states. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners 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.
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. At December 31, 1993, the
deferred profits on limited-payment policies were recorded at the values
assigned at the acquisition dates.
26
<PAGE> 12
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment, universal life and other insurance
contracts. Other revenues also include gains and losses on dispositions
of assets and operations other than realized investment gains and
losses, revenues of noninsurance subsidiaries, and the pretax operating
results of real estate joint ventures.
Interest Credited to Contractholders
Interest credited to contractholders represents amounts earned by
universal life, pension investment and certain individual 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 in the Company's deferred federal income tax
asset during the year. The deferred federal income tax asset is
recognized to the extent that future realization of the tax benefit is
more likely than not, with a valuation allowance for the portion that is
not likely to be recognized.
Accounting Standards not yet Adopted
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(FAS 118), and Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS 114), describe
how impaired loans should be measured when determining the amount of a
loan loss accrual. These statements also amend existing guidance on the
measurement of restructured loans in a troubled debt restructuring
involving a modification of terms. The adoption of these statements,
effective January 1, 1995, will not have a material effect on results of
operations or financial position.
2. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for Certain Debt and Equity Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115), which addresses accounting and
reporting for investments in equity securities that have a readily
determinable fair value and for all debt securities. Investment
securities have been classified as "available for sale" and are
reported at fair value, with unrealized gains and losses, net of income
taxes, charged or credited directly to shareholder's equity. Previously,
securities classified as available for sale were carried at the lower
of aggregate cost or market value. Initial adoption of this standard
resulted in an increase of approximately $232 million (net of taxes) to
net unrealized gains which is included in shareholder's equity. This
increase included an unrealized gain of $133 million (net of income
taxes) on TIHI's investment in the common stock of The Travelers Inc.
See note 15 for additional disclosures.
27
<PAGE> 13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Offsetting of Amounts Related to Certain Contracts
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts" (Interpretation 39). The general principle of
Interpretation 39 states that amounts due from and due to another party
may not be offset in the consolidated balance sheet unless a right of
setoff exists and the parties intend to exercise the right of setoff.
Implementation of Interpretation 39 did not have a material impact on the
Company's financial position; however, assets and liabilities were both
increased by $68 million as of December 31, 1994.
Accounting and Reporting for Reinsurance Contracts
In the first quarter of 1993, the Company implemented Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113).
FAS 113 requires the reporting of reinsurance receivables and prepaid
reinsurance premiums as assets and precludes the immediate recognition
of gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113 did not
have an impact on the Company's earnings, however, assets and
liabilities increased by like amounts. See note 5 for additional
reinsurance disclosures.
Postretirement Benefits Other Than Pensions
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). As required, the Company changed its method of
accounting for retiree benefit plans effective January 1, 1992, to
accrue for the Company's share of the costs of postretirement benefits
over the service period rendered by employees. Previously these
benefits were charged to expense when paid. The Company elected
to recognize immediately the liability for postretirement benefits as
the cumulative effect of a change in accounting principle. This
resulted in a noncash after-tax charge to net income of $126 million.
See note 10 for additional information relating to FAS 106.
Accounting for Income Taxes
In the third quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109)
with retroactive application to January 1, 1992. FAS 109 establishes new
principles for calculating and reporting the effects of federal income
taxes in financial statements. FAS 109 replaces the income statement
orientation inherent in the prior income tax accounting standard with a
balance sheet approach. Under the new approach, deferred tax assets and
liabilities are generally determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. FAS 109 allows recognition of deferred tax assets
if 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.
28
<PAGE> 14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
The implementation of FAS 109 resulted in a one time increase to
earnings of $350 million in the first quarter of 1992. This increase in
earnings was principally due to tax rate differences and the recognition
of a portion of previously unrecognized deferred tax assets. See note
13 for further discussion of FAS 109.
Accounting for Foreclosed Assets
In February 1993, The Travelers Corporation announced its intent to
accelerate the sale of foreclosed real estate and, effective December
31, 1992, changed its method of accounting for foreclosed assets in
compliance with the American Institute of Certified Public Accountants'
Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP
92-3). This guidance requires that in-substance foreclosures and
foreclosed assets held for sale be carried at the lower of cost or
fair value less estimated costs to sell. Previously, all foreclosed
assets were carried at cost less accumulated depreciation. This
accounting change resulted in a pretax charge of $412 million to
realized investment losses in 1992.
3. ACQUISITIONS AND DISPOSITIONS
In December 1994, the Company and its affiliates sold its group dental
insurance business to Metropolitan Life Insurance Company (MetLife) and
realized a gain on the sale of $9 million (aftertax).
On January 3, 1995, the Company and its affiliates completed the sale of
its group life and related businesses to MetLife, and completed the
formation of The MetraHealth Companies, Inc. (MetraHealth), a joint
venture of the medical businesses of the Company and its affiliates and
MetLife.
The Company and its affiliates sold its group life business as well as
related non-medical group insurance businesses to MetLife for $350
million. The assets transferred included customer lists, books and
records, and furniture and equipment. In connection with the sale, the
Company and its affiliates agreed to cede 100% of its risks in the
group life and related businesses to MetLife on an indemnity reinsurance
basis, effective January 1, 1995. In connection with the reinsurance
transaction, the Company and its affiliates transferred assets with a
fair market value of approximately $1.5 billion to MetLife, equal to the
statutory reserves and other liabilities transferred.
On January 3, 1995, the Company and MetLife and certain of their
affiliates formed the MetraHealth joint venture by contributing their
group medical businesses to MetraHealth, in exchange for shares of
common stock of MetraHealth. The assets transferred included cash,
fixed assets, customer lists, books and records, certain trademarks and
other assets used exclusively or primarily in the medical businesses.
The Company also contributed all of the capital stock of its wholly
owned subsidiary, The Travelers Employee Benefits Company, to
MetraHealth. The total contribution by the Company amounted to $336
million at carrying value on the date of contribution. No gain was
recognized upon the formation of the joint venture. Upon formation of
the joint venture the Company owned 42.6% of the outstanding capital
stock of MetraHealth, TIG owned 7.4% and the other 50% was owned by
MetLife and its affiliates.
29
<PAGE> 15
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. ACQUISITIONS AND DISPOSITIONS, Continued
In connection with the formation of the joint venture, the transfer of
the fee based medical business (Administrative Services Only) and other
noninsurance business to MetraHealth was completed on January 3, 1995.
As the medical insurance business of the Company comes due for renewal
and after obtaining regulatory approvals, the risks will be transferred
to MetraHealth. In the interim the related operating results for this
medical insurance business will be reported by the Company.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefits Operations
(MCEBO). Revenues and net income from MCEBO for the year ended 1994
amounted to $3.5 billion and $157 million, respectively. Beginning in
1995 the Company's results will reflect the runoff medical insurance
business, plus its equity interest in the earnings of MetraHealth.
On December 31, 1993, in conjunction with the Merger, The Travelers Inc.
contributed TIHI to TIG, which TIG then contributed to the Company at a
carrying value of $2.1 billion. Through its subsidiaries TIHI primarily
offers individual life insurance and specialty accident and health
insurance.
In December 1992, in conjunction with the Acquisition, The Travelers
Corporation acquired Transport Life Insurance Company's preferred
provider and third party administrator organizations from Primerica
Corporation (see note 1), and on December 30, 1992 contributed these
businesses to the Company.
4. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors and had $74
million outstanding at December 31, 1994. The Company maintains unused
credit availability under bank lines of credit at least equal to the
amount of the outstanding commercial paper.
In 1994, The Travelers Inc., Commercial Credit Company (an indirect
wholly owned subsidiary of The Travelers Inc.) and the Company entered
into an agreement with a syndicate of banks to provide $1.5 billion of
revolving credit, to be allocated to any of the above-indicated
companies. The revolving credit facility consists of a 364-day
revolving credit in the amount of $300 million and a 5-year revolving
credit in the amount of $1.2 billion. The participation of the Company
in this facility is limited to $300 million, and at December 31, 1994,
the Company's allocation was $200 million, all of which was unused.
30
<PAGE> 16
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. 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
coinsurance, modified coinsurance and yearly renewable term. The
Company remains primarily liable as the direct insurer on all risks
reinsured. It is the policy of the Company to obtain reinsurance for
amounts above certain retention limits on individual life policies which
vary with age and underwriting classification. Generally, the maximum
retention on an ordinary life risk is $1.5 million. The Company writes
workers' compensation business through its Accident Department. This
business is ceded 100% to the Travelers Indemnity Company.
A summary of reinsurance financial data reflected within the
consolidated statement of operations and retained earnings is presented
below (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------|------------------------------
1994 | 1993 1992
- -----------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Written Premiums: |
Direct $ 4,529 | $ 3,308 $ 3,163
|
Assumed from: |
Affiliated companies 59 | 31 15
Non-affiliated companies 33 | 60 115
|
Ceded to: |
Affiliated companies (358) | (496) (522)
Non-affiliated companies (341) | (98) (62)
- -----------------------------------------------------------------|------------------------------
|
Total Net Written Premiums $ 3,922 | $ 2,805 $ 2,709
=================================================================|==============================
|
Earned Premiums: |
Direct $ 4,475 | $ 3,256 $ 3,124
|
Assumed from: |
Affiliated companies 65 | 32 15
Non-affiliated companies 30 | 32 110
|
Ceded to: |
Affiliated companies (384) | (512) (491)
Non-affiliated companies (333) | (87) (64)
- -----------------------------------------------------------------|------------------------------
|
Total Net Earned Premiums $ 3,853 | $ 2,721 $ 2,694
=================================================================|==============================
</TABLE>
31
<PAGE> 17
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. REINSURANCE, Continued
Reinsurance recoverables at December 31 include amounts recoverable on
unpaid and paid losses and were as follows (in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance Recoverables:
Life and accident and health business:
Affiliated companies $ 3 $ 3
Non-affiliated companies 661 689
Property-casualty business:
Affiliated companies 2,251 2,191
------------------------------------------------------------------------------
Total Reinsurance Recoverables $ 2,915 $ 2,883
==============================================================================
</TABLE>
6. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $273 million in additional paid-in capital during 1994
is due primarily to the finalization of the evaluations and appraisals
used to assign fair values to assets and liabilities under purchase
accounting.
The increase of $1.7 billion in additional paid-in capital during 1993
arose from a contribution of $400 million from The Travelers Corporation
and the contribution of TIHI (see notes 1 and 3). This was partially
offset by the impact of the initial evaluations and appraisals used to
assign fair values to assets and liabilities under purchase accounting.
The increase in additional paid-in capital during December 31, 1992
arose from a contribution of $500 million in 1992 from The Travelers
Corporation and the contribution of Transport Life Insurance Company's
preferred provider and third party administrator organizations in 1992
(see note 3).
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in note 15.
32
<PAGE> 18
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. SHAREHOLDER'S EQUITY, Continued
Shareholder's Equity and Dividend Availability
The statutory net income, including TIHI, was $100 million for the year
ended December 31, 1994. The statutory net loss, excluding TIHI, was
$648 million and $346 million for the years ended December 31, 1993 and
1992, respectively.
Statutory capital and surplus was $2.1 billion and $1.8 billion at
December 31, 1994 and 1993, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to TIG without prior
approval of insurance regulatory authorities. Under statutory
accounting practices, there is no statutory surplus available in 1995
for dividends to TIG without prior approval of the Connecticut Insurance
Department.
Dividend payments to the Company from its insurance subsidiaries are
subject to similar restrictions and statutory surplus of the
subsidiaries is not available in 1995 for dividends to the Company
without prior approval of insurance regulatory authorities.
7. ADDITIONAL OPERATING INFORMATION
The Company has segmented its business by major product lines. TIHI was
contributed to the Company on December 31, 1993, and its assets at that
date and subsequent and its operations for the year ended December 31,
1994 are included in the following table in the Life and Annuities
segment. Transport Life Insurance Company's preferred provider and
third party administrator organizations were contributed to the Company
in December 1992 and are included in the Managed Care and Employee
Benefits segment.
33
<PAGE> 19
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. ADDITIONAL OPERATING INFORMATION, continued
Results included in the table below reflect 1993 fourth quarter
after-tax charges of $103 million for an addition to reserves for
foreclosed properties held for sale and 1992 fourth quarter after-tax
charges of $272 million for implementation of SOP 92-3 and $193 million
for an addition to mortgage loan valuation reserves.
<TABLE>
<CAPTION>
Managed Care Corporate
Travelers Life and Employee and Other
(in millions) and Annuities Benefits Operations Consolidated
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
- ----
Revenues
Premiums $ 1,492 $ 2,369 $ - $ 3,861
Net investment income 1,603 246 - 1,849
Realized investment gains 13 - 1 14
Other 173 850 - 1,023
- ------------------------------------------------------------------------------------------------------------------------
Total $ 3,281 $ 3,465 $ 1 $ 6,747
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes $ 604 $ 257 $ (4) $ 857
Net income (loss) 392 157 (4) 545
Assets 33,078 5,131 2,326 40,535
- ------------------------------------------------------------------------------------------------------------------------
1993
- ----
Revenues
Premiums $ 330 $ 2,395 $ - $ 2,725
Net investment income 1,616 265 3 1,884
Realized investment gains (losses) (45) 24 - (21)
Other 120 737 2 859
- ------------------------------------------------------------------------------------------------------------------------
Total $ 2,021 $ 3,421 $ 5 $ 5,447
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes $ (87) $ 173 $ (3) $ 83
Net income (loss) 19 123 (1) 141
Assets (purchase accounting value) 34,155 4,744 2,442 41,341
- ------------------------------------------------------------------------------------------------------------------------
1992
- ----
Revenues
Premiums $ 278 $ 2,408 $ - $ 2,686
Net investment income 1,799 290 12 2,101
Realized investment gains (losses) (725) (22) - (747)
Other 140 645 - 785
- ------------------------------------------------------------------------------------------------------------------------
Total $ 1,492 $ 3,321 $ 12 $ 4,825
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal
income taxes and cumulative effects of
changes in accounting principles $ (844) $ (100) $ 1 $ (943)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax (25) (101) - (126)
Cumulative effect of change in
accounting for income taxes 223 124 3 350
Net income (loss) (343) (42) 4 (381)
Assets 31,378 4,498 2,191 38,067
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 20
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures, interest rate swaps and forward contracts, as a means of
prudently hedging exposure to price, foreign currency and/or interest
rate risk on anticipated investment purchases or existing assets and
liabilities. Also, in the normal course of business, the Company has
fixed and variable rate loan commitments and unfunded commitments to
partnerships. The Company does not hold or issue derivative instruments
for trading purposes.
These derivative financial instruments have off-balance-sheet risk.
Financial instruments with off-balance-sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the consolidated 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 credit loss or cash flow associated with these instruments can be
less than these amounts. For forward contracts and interest rate swaps,
credit risk is limited to the amounts calculated to be due the Company on
such contracts. For unfunded commitments to partnerships, credit
exposure is the amount of the unfunded commitments. For fixed and
variable rate loan commitments, credit exposure is represented by the
contractual amount of these instruments.
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. Many
transactions include the use of collateral to minimize credit risk and
lower the effective cost to the borrower.
The Company may occasionally enter into interest rate swaps in
connection with other financial instruments to provide greater risk
diversification and better match an asset with a corresponding
liability. Under interest rate swaps, the Company agrees with other
parties to exchange, at specified intervals, the difference between
fixed-rate and floating rate interest amounts calculated by reference to
an agreed notional principal amount. Generally, no cash is exchanged at
the outset of the contract and no principal payments are made by either
party. A single net payment is usually made by one counterparty at each
due date. Swap agreements are not exchange traded so they are subject
to the risk of default by the counterparty. In all cases,
counterparties under these agreements are major financial institutions
with the risk of non-performance considered remote. At December 31,
1994 and 1993, the Company had entered into interest rate swaps with
contract values of $145 million and $153 million, respectively. At both
December 31, 1994 and 1993, the fair value of interest rate swaps was $1
million (loss position) which is determined using a discounted cash flow
method.
The off-balance-sheet risks of financial futures contracts, forward
contracts, fixed and variable rate loan commitments and unfunded
commitments to partnerships were not considered significant at December
31, 1994 and 1993.
35
<PAGE> 21
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not
included in the amounts discussed.
At December 31, 1994 and 1993, investments in fixed maturities have a
fair value of $17.3 billion and $18.3 billion, respectively. See note
15.
At December 31, 1994, mortgage loans have a carrying value of $4.9
billion, which approximates fair value, compared with a carrying value
and a fair value of $6.8 billion at December 31, 1993. In estimating
fair value, the Company used interest rates reflecting the higher
returns required in the current real estate financing market.
The carrying value of $417 million and $320 million of financial
instruments classified as other assets approximates fair values at
December 31, 1994 and 1993, respectively. The carrying value of $1.2
billion and $878 million of financial instruments classified as other
liabilities also approximates their fair values at December 31, 1994 and
1993, respectively. Fair value is determined using various methods
including discounted cash flows and carrying value, as appropriate for
the various financial instruments.
At December 31, 1994, contractholder funds with defined maturities have
a carrying value of $4.2 billion and a fair value of $4.0 billion,
compared with a carrying value and a fair value of $5.0 billion at
December 31, 1993. 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 have a carrying value of
$9.1 billion and a fair value of $8.8 billion at December 31, 1994,
compared with a carrying value of $13.0 billion and a fair value of
$12.7 billion at December 31, 1993. These contracts generally are
valued at surrender value.
The assets of separate accounts providing a guaranteed return have a
carrying value and a fair value of $1.5 billion and $1.4 billion,
respectively, at December 31, 1994, compared with a carrying value and a
fair value of $1.5 billion and $1.6 billion, respectively, at December
31, 1993. The liabilities of separate accounts providing a guaranteed
return have a carrying value and a fair value of $1.5 billion and $1.3
billion, respectively, at December 31, 1994, compared with a carrying
value and a fair value of $1.5 billion and $1.7 billion, respectively,
at December 31, 1993.
36
<PAGE> 22
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
The carrying values of cash, short-term securities and investment income
accrued approximate their fair values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
See Note 8 for a discussion of financial instruments with
off-balance-sheet risk.
Litigation
In April 1989, a lawsuit was filed against the Company by the federal
government alleging the Company improperly handled health benefit claims
for individuals who are actively employed and eligible for Medicare
coverage. In November 1992, the court ruled on cross motions for
summary judgment. The court found that the Company had no liability
when acting in the capacity of an administrator of claims. However, the
court also recognized that, while the government's right of recovery
with respect to insured claims is governed by the substantive terms of
our customers' health benefit plan, the right of recovery is independent
of procedural limitations in the Company's contracts.
The Company is a defendant or codefendant in various litigation matters.
Although there can be no assurances, as of December 31, 1994, 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.
10. BENEFIT PLANS
Pension Plans
The Company participates in qualified and nonqualified, noncontributory
defined benefit pension plans covering the majority of the Company's
U.S. employees. Benefits for the qualified plan are based on an account
balance formula. Under this formula, each employee's accrued benefit
can be expressed as an account that is credited with amounts based upon
the employee's pay, length of service and a specified interest rate, all
subject to a minimum benefit level. This plan is funded in accordance
with the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code. For the nonqualified plan, contributions are
based on benefits paid.
Certain subsidiaries of TIHI participate in a noncontributory defined
benefit plan sponsored by their ultimate parent, The Travelers Inc.
37
<PAGE> 23
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. BENEFIT PLANS, Continued
The Company's share of net pension expense was $6 million, $8 million
and $22 million for 1994, 1993 and 1992, respectively.
Through plans sponsored by TIG, 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
$2 million in 1994, 1993 and 1992. Certain non-U.S. employees of TIHI
are covered by noncontributory defined benefit plans. These plans are
funded based upon local laws.
Other Benefit Plans
In addition to pension benefits, the Company provides certain health
care and life insurance benefits for retired employees through a plan
sponsored by TIG. This plan does not include employees of TIHI.
Covered employees may become eligible for these benefits if they reach
retirement age while working for the Company. These retirees may elect
certain prepaid health care benefit plans. Life insurance benefits
generally are set at a fixed amount. The cost recognized by the Company
for these benefits represents its allocated share of the total costs of
the plan, net of employee contributions.
In the third quarter of 1992, TIG adopted FAS 106 and elected to
recognize the accumulated postretirement benefit obligation (i.e., the
transition obligation) as a change in accounting principle retroactive
to January 1, 1992. The Company's pretax share of the total cost of the
plan for 1994, 1993 and 1992 was $14 million, $29 million and $26
million, respectively.
The Merger resulted in a change in control of The Travelers Corporation
as defined in the applicable plans, and provisions of some employee
benefit plans secured existing compensation and benefit entitlements
earned prior to the change in control, and provided a salary and benefit
continuation floor for employees whose employment was affected. The
costs related to these changes have been assumed by TIG.
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIG (except TIHI), the Company matches a
portion of employee contributions. Effective April 1, 1993, the match
decreased from 100% to 50% of an employee's first 5% contribution and a
variable match based on TIG's profitability was added. The Company's
matching obligations were $7 million, $10 million and $16 million in
1994, 1993 and 1992, respectively.
38
<PAGE> 24
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS
The principal banking functions for certain subsidiaries and affiliates
of TIG, and salaries and expenses for TIG and its insurance subsidiaries
(excluding TIHI), are handled by the Company. Settlements for these
functions between the Company and its affiliates are made regularly.
The Company provides various insurance coverages, principally life and
health, to employees of certain subsidiaries of TIG. The premiums for
these coverages were charged in accordance with normal cost allocation
procedures. In addition, investment advisory and management services,
data processing services and claims processing services are provided by
affiliated companies.
TIG and its subsidiaries maintain short-term investment pools in which
the Company participates. The positions of each company participating
in the pools are calculated and adjusted daily. At December 31, 1994
and 1993, the pools totaled approximately $1.5 billion and $1.3 billion,
respectively. The Company's share of the pools amounted to $1.1 billion
and $439 million at December 31, 1994 and 1993, respectively, and is
included in short-term securities in the consolidated balance sheet.
The Company markets a variable annuity product through its affiliate,
Smith Barney. Sales of this product were $158 million in 1994.
The Company leases new furniture and equipment from a noninsurance
subsidiary of TIG. The rental expense charged to the Company for this
furniture and equipment was $9 million, $10 million and $9 million in
1994, 1993 and 1992, respectively.
At December 31, 1994 and 1993, TIC has an investment of $23 million and
$27 million, respectively, in bonds of its affiliate, Commercial Credit
Company. This is included in fixed maturities in the consolidated
balance sheet.
TIHI has an investment of $231 million and $110 million in common stock
of The Travelers Inc. at December 31, 1994 and 1993, respectively.
This is carried at fair value at December 31, 1994 and at cost at
December 31, 1993. At December 31, 1994, TIHI has an investment of $35
million in redeemable preferred stock of The Travelers Inc. which is
carried at fair value. TIHI has notes receivable from The Travelers
Inc. of $30 million at December 31, 1994 and 1993, which are carried at
cost. These assets are included in other investments in the
consolidated balance sheet.
39
<PAGE> 25
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. LEASES
The Company has entered into various operating and capital lease
agreements for office space and data processing and certain other
equipment. Rental expense under operating leases was $99 million, $113
million and $122 million in 1994, 1993 and 1992, respectively. Future
net minimum rental and lease payments are estimated as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Minimum operating Minimum capital
------------------------------------------------------------------------------------------
(in millions) rental payments lease payments
------------------------------------------------------------------------------------------
<S> <C> <C>
Year ending December 31,
1995 $ 112 $ 7
1996 85 7
1997 69 4
1998 54 4
1999 47 4
Thereafter 36 64
------------------------------------------------------------------------------------------
$ 403 $ 90
------------------------------------------------------------------------------------------
</TABLE>
The Company is reimbursed by affiliates of TIG for utilization of space
and equipment.
The following is a summary of assets under capital leases:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(in millions) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Buildings $ 25 $ 25
Equipment 14 14
-------------------------------------------------------------------------
39 39
Less accumulated depreciation 17 14
-------------------------------------------------------------------------
Net $ 22 $ 25
-------------------------------------------------------------------------
</TABLE>
The net carrying value of the assets is recorded at amortized cost and
at the value assigned at the acquisition dates at December 31, 1994 and
1993, respectively.
40
<PAGE> 26
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(in millions) 1994 | 1993 1992
------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Effective tax rate |
|
Income (loss) before federal |
income taxes $ 857 | $ 83 $ (943)
------------------------------------------------------------|------------------------------
Statutory tax rate 35% | 35% 34%
------------------------------------------------------------|------------------------------
|
Expected federal income taxes $ 300 | $ 29 $ (321)
Tax effect of: |
Nontaxable investment income (4) | (1) (1)
Adjustments to benefit and other reserves - | (46) (18)
Adjustment to deferred tax asset for |
enacted change in tax rates from |
34% to 35% - | (25) -
Goodwill 12 | - -
Other 4 | (15) 2
------------------------------------------------------------|------------------------------
Federal income taxes $ 312 | $ (58) $ (338)
------------------------------------------------------------|------------------------------
|
Effective tax rate 36% | (70%) 36%
------------------------------------------------------------|------------------------------
|
Composition of federal income taxes |
Current: |
United States $ 22 | $ 17 $ (3)
Foreign 14 | 3 5
------------------------------------------------------------|------------------------------
Total 36 | 20 2
------------------------------------------------------------|------------------------------
|
Deferred: |
United States 271 | (78) (340)
Foreign 5 | - -
------------------------------------------------------------|------------------------------
Total 276 | (78) (340)
------------------------------------------------------------|------------------------------
Federal income taxes $ 312 | $ (58) $ (338)
-------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 27
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1994 and 1993 were comprised
of the tax effects of the temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(in millions) 1994 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 453 $ 575
Contractholder funds 158 184
Investments 690 492
Other employee benefits 87 65
Other 257 146
----------------------------------------------------------------------------------------------
Total 1,645 1,462
----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs and value of insurance in force 529 504
Prepaid pension expense 5 3
Other 61 -
----------------------------------------------------------------------------------------------
Total 595 507
----------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 1,050 955
Valuation allowance for deferred tax assets (100) (100)
----------------------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $ 950 $ 855
----------------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, the Company and
its life insurance subsidiaries will file a consolidated federal income
tax return. Federal income taxes are allocated to each member of the
consolidated return 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 Company has no receivable for unreimbursed credits from its
previous allocation agreement with The Travelers Corporation.
42
<PAGE> 28
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
A net deferred tax asset valuation allowance of $100 million has been
established to reduce the net deferred tax asset on investment losses to
the amount that, based upon available evidence, is more likely than not
to be realized. Reversal of the valuation allowance is contingent upon
the recognition of future capital gains in the Company's consolidated
life insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999 or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no net change in the
valuation allowance during 1994. The initial recognition of any benefit
produced by the reversal of the valuation allowance will be recognized
by reducing goodwill.
The Company has a net deferred tax asset, after the valuation allowance
of $100 million, which relates to temporary differences that are
expected to reverse as net ordinary deductions except for a deferred tax
asset of $319 million which relates to the unrealized loss on fixed
maturity investments. Management does not intend to realize the
unrealized loss on the fixed maturity investments except to the extent
of offsetting capital gains. The Company will have to generate
approximately $1.8 billion of taxable income, before reversal of these
temporary differences, primarily over the next 10 to 15 years, to
realize the remainder of the deferred tax asset, exclusive of the
unrealized loss on fixed maturity investments. Management expects to
realize the remainder of the deferred tax asset based upon its
expectation of future positive taxable income, after the reversal of
these deductible temporary differences, in the consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999. The taxable income of The Travelers Inc. consolidated return,
after reversal of the deductible temporary differences, is expected to
be at least $1 billion annually. At December 31, 1994, the Company has
no ordinary or capital loss carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $932 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for
which no provision has been made in the financial statements) is
approximately $326 million.
See note 2 for a discussion of the implementation of new principles for
accounting for income taxes.
43
<PAGE> 29
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------|------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
------------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Gross investment income |
Fixed maturities $ 1,253 | $ 1,221 $ 1,242
Mortgage loans 534 | 692 868
Real estate 177 | 383 384
Policy loans 112 | 106 109
Other 7 | (23) -
------------------------------------------------------------------|------------------------------
2,083 | 2,379 2,603
------------------------------------------------------------------|------------------------------
|
Investment expenses 234 | 495 502
------------------------------------------------------------------|------------------------------
Net investment income $ 1,849 | $ 1,884 $ 2,101
------------------------------------------------------------------|------------------------------
</TABLE>
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------|-----------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
-------------------------------------------------------------------|-----------------------------
<S> <C> | <C> <C>
Realized |
|
Fixed maturities $ (3) | $ 182 $ (11)
Equity securities 19 | 14 9
Mortgage loans - | (32) (386)
Real estate - | (222) (400)
Other (2) | 37 41
-------------------------------------------------------------------|-----------------------------
Realized investment gains (losses) $ 14 | $ (21) $ (747)
-------------------------------------------------------------------|-----------------------------
</TABLE>
44
<PAGE> 30
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Changes in net unrealized investment gains (losses) that are included as
a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
-------------------------------------------------------------------|-----------------------------
<S> <C> | <C> <C>
Unrealized |
|
Fixed maturities $ (1,319) | $ (235) $ 146
Equity securities (25) | (17) 6
Other 165 | 28 4
-------------------------------------------------------------------|-----------------------------
(1,179) | (224) 156
Related taxes (412) | (83) 53
-------------------------------------------------------------------|-----------------------------
|
Net unrealized investment gains (losses) (767) | (141) 103
Contribution of TIHI - 5 | -
Balance beginning of year 7 143 | 40
--------------------------------------------------------------------------------------|----------
Balance end of year $ (760) $ 7 | $ 143
-------------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$232 million (net of taxes) to net unrealized gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $1.4 billion in 1994, resulting in gross realized gains of $15
million and gross realized losses of $27 million. There were no sales
of fixed maturities classified as available for sale in 1993 or 1992 as,
in conjunction with the Merger, fixed maturities were first classified
as "available for sale" effective December 31, 1993.
Prior to December 31, 1993, fixed maturities that were intended to be
held to maturity were recorded at amortized cost and classified as held
for investment. Sales from the amortized cost portfolios have been made
periodically. Such sales were $97 million and $195 million in 1993 and
1992, respectively. Gross gains of $7 million and $10 million in 1993
and 1992, respectively, and gross losses of $1 million and $6 million in
1993 and 1992, respectively, were realized on those sales.
Prior to December 31, 1993, the carrying values of the trading portfolio
fixed maturities were adjusted to market value as it was likely they
would be sold prior to maturity. At December 31, 1992, these fixed
maturities had market values of $4.8 billion. Sales of trading
portfolio fixed maturities were $4.0 billion and $642 million in 1993
and 1992, respectively. Gross gains of $165 million and $24 million in
1993 and 1992, respectively, and gross losses of $2 million and $4
million in 1993 and 1992, respectively, were realized on those sales.
45
<PAGE> 31
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and market value of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
(in millions) cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 3,779 $ 3 $ 304 $ 3,478
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 3,080 3 306 2,777
Obligations of states,
municipalities and
political subdivisions 87 - 7 80
Debt securities issued by
foreign governments 398 - 26 372
All other corporate bonds 11,225 14 696 10,543
Redeemable preferred stock 10 - - 10
------------------------------------------------------------------------------------------------
Total $ 18,579 $ 20 $ 1,339 $ 17,260
------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 32
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Market
(in millions) value gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 4,219 $ 18 $ 18 $ 4,219
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 2,807 67 6 2,868
Obligations of states,
municipalities and
political subdivisions 259 9 - 268
Debt securities issued by
foreign governments 333 6 - 339
All other corporate bonds 10,474* 125 29 10,570
Redeemable preferred stock 20 - - 20
Held for investment 18 - - 18
------------------------------------------------------------------------------------------------
Total $ 18,130 $ 225 $ 53 $ 18,302
------------------------------------------------------------------------------------------------
</TABLE>
* Before valuation reserves of $67 million.
The amortized cost and market value of fixed maturities at December 31,
1994, 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>
------------------------------------------------------------------------------------------------
Maturity Amortized Market
(in millions) cost value
------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,217 $ 1,197
Due after 1 year through 5 years 4,691 4,434
Due after 5 years through 10 years 5,731 5,310
Due after 10 years 3,161 2,841
------------------------------------------------------------------------------------------------
14,800 13,782
Mortgage-backed securities 3,779 3,478
------------------------------------------------------------------------------------------------
Total $ 18,579 $ 17,260
------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 33
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy
is to purchase CMO tranches which are protected against prepayment risk,
primarily planned amortization class (PAC) tranches. Prepayment
protected tranches are preferred because they provide stable cash flows
in a variety of 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, 1994 and 1993, the Company held CMOs with a market value
of $2.2 billion and $2.5 billion, respectively. Approximately 88% of
the Company's CMO holdings are fully collateralized by GNMA, FNMA or
FHLMC securities at December 31, 1994 and 1993. The majority of these
are GNMA-backed securities. In addition, the Company held $1.3 billion
and $1.9 billion of GNMA, FNMA or FHLMC mortgage-backed securities at
December 31, 1994 and 1993, respectively. Virtually all of these
securities are rated AAA. The Company also held $927 million and $899
million of securities that are backed primarily by credit card or car
loan receivables at December 31, 1994 and 1993, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Market
(in thousands) Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 133 $ 19 $ 21 $ 131
Nonredeemable preferred stocks 40 - 2 38
------------------------------------------------------------------------------------------------
Total $ 173 $ 19 $ 23 $ 169
------------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------------
Common stocks $ 129 $ 22 $ 3 $ 148
Nonredeemable preferred stocks 70 3 1 72
------------------------------------------------------------------------------------------------
Total $ 199 $ 25 $ 4 $ 220
------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $359 million in 1994,
resulting in gross realized gains of $24 million and gross realized
losses of $6 million.
48
<PAGE> 34
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Mortgage loans and real estate
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market. The Company continues its strategy, adopted in
conjunction with the Merger, to dispose of these real estate assets and
some of the mortgage loans and to reinvest the proceeds to obtain
current market yields.
At December 31, 1994 and 1993, the Company's mortgage loan and real
estate held for sale portfolios consisted of the following (in
millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 4,467 $ 5,680
Underperforming mortgage loans 471 1,165
------------------------------------------------------------------------------
Total mortgage loans 4,938 6,845
------------------------------------------------------------------------------
Real estate held for sale 383 954
------------------------------------------------------------------------------
Total mortgage loans and real estate $ 5,321 $ 7,799
------------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
(in millions)
-----------------------------------------------------
<S> <C>
Past maturity $ 196
1995 708
1996 517
1997 550
1998 614
1999 611
Thereafter 1,742
-----------------------------------------------------
Total $ 4,938
-----------------------------------------------------
</TABLE>
Concentrations
At December 31, 1994 and 1993, the Company had no concentration of
credit risk in a single investee exceeding 10% of consolidated
shareholder's equity.
The Company participates in two short-term investment pools maintained by
TIG and its subsidiaries. These pools are discussed in note 11.
49
<PAGE> 35
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Included in fixed maturities are below investment grade assets totaling
$922 million and $814 million at December 31, 1994 and 1993,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or
the equivalent by the internal analysts when a public rating does not
exist. Such assets include publicly traded below investment grade
bonds, highly leveraged transactions and certain other privately issued
bonds that are classified as below investment grade loans.
The Company also has significant concentrations of investments in the
following industries:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 1,241 $ 1,442
Electric utilities 1,222 1,348
Banking 953 743
Oil and gas 859 651
------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals above, are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 75 $ 45
Electric utilities 32 47
Banking 21 21
Oil and gas 33 38
------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, significant concentrations of mortgage
loans were for properties located in highly populated areas in the
states listed below. The amounts are shown below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
California $ 929 $ 1,174
New York 558 780
Florida 432 588
Texas 380 584
Illinois 347 485
------------------------------------------------------------------------------------------------
</TABLE>
Other mortgage loan investments are fairly evenly dispersed throughout
the United States, with no holdings in any state exceeding $273 million
and $324 million at December 31, 1994 and 1993, respectively.
50
<PAGE> 36
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Concentrations of mortgage loans by property type at December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in millions) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Office $ 2,065 $ 2,769
Apartment 1,029 1,635
Retail 606 891
Agricultural 540 643
Hotel 402 547
-----------------------------------------------------------------------------------------------
</TABLE>
Real estate investments are dispersed throughout the United States, with
no holdings in any state exceeding $111 million or $191 million at
December 31, 1994 or 1993, respectively.
Real estate assets at December 31, 1994 and 1993 included office
properties with carrying values of $205 million and $568 million,
respectively.
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.
Investment Valuation Reserves
At December 31, 1994, 1993 and 1992, total investment valuation
reserves, which are deducted from the applicable investment carrying
values in the consolidated balance sheet, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(in millions) 1994 | 1993 1992
------------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Beginning of year $ 67 | $ 1,417 $ 864
Increase - | 195 821
Impairments, net of gains/recoveries - | (602) (268)
FAS 115/Purchase accounting adjustment (67) | (943) -
-------------------------------------------------------------------------------------------------
End of year $ - $ 67 | $ 1,417
-------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, investment valuation reserves were comprised of
$67 million for securities. Increases in the investment valuation
reserves are reflected as realized investment losses.
51
<PAGE> 37
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Nonincome Producing
Investments included in the consolidated balance sheets that were
nonincome producing for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in millions) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 127 $ 249
Real estate 73 147
Fixed maturities 6 24
-----------------------------------------------------------------------------------------------
Total $ 206 $ 420
-----------------------------------------------------------------------------------------------
</TABLE>
Restructured
The Company has mortgage loans and debt securities which were
restructured at below market terms totaling approximately $259 million
and $796 million at December 31, 1994 and 1993, respectively. At
December 31, 1993, the Company's restructured assets are recorded at
purchase accounting value. 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 amounted to $52 million in 1994 and $121
million in 1993. Interest on these assets, included in net investment
income, aggregated $17 million and $52 million in 1994 and 1993,
respectively.
16. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1994, the Company has $23.2 billion of life and annuity
deposit funds and reserves. Of that total, $11.6 billion are not
subject to discretionary withdrawal based on contract terms and related
market conditions. The remaining $11.6 billion are for life and annuity
products that are subject to discretionary withdrawal by the
contractholder. Included in the amount that is subject to discretionary
withdrawal are $1.9 billion of liabilities that are surrenderable with
market value adjustments. An additional $5.7 billion of the life
insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 5.5%.
Another $1.4 billion of liabilities are surrenderable at book value over
5 to 10 years. In the payout phase, these funds are credited at
significantly reduced interest rates. The remaining $2.6 billion of
liabilities are surrenderable without charge. Approximately 30% of
these liabilities relate to individual life products. These risks would
have to be underwritten again if transferred to another carrier, which
is considered a significant deterrent for long-term policyholders.
Insurance liabilities that are surrendered or withdrawn from the Company
are reduced by outstanding policy loans and related accrued interest
prior to payout.
52
<PAGE> 38
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
17. RESTRUCTURING COSTS
During 1992, the Company announced a series of organizational
restructuring initiatives associated with its plan to streamline its
business and corporate operations. These initiatives have been
substantially completed. These initiatives resulted in a pretax charge
in 1992 of $151 million, consisting of $96 million for severance,
benefits, accrued vacation and outplacement costs, $5 million for
relocation costs due to consolidation efforts, $19 million for lease
costs, $15 million for writeoff of goodwill related to identified
divestitures and $16 million of miscellaneous other costs.
18. RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
In the first quarter of 1992, the Company changed its presentation of
cash flows from operating activities from the indirect method to the
direct method. The following table reconciles net income (loss) to net
cash provided by operating activities:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
----------------------------------------------------------------|-------------------------------
<S> <C> | <C> <C>
Net income (loss) $ 545 | $ 141 $ (381)
Reconciling adjustments |
Realized gains (losses) (14) | 21 747
Deferred federal income taxes 276 | (78) (340)
Amortization of deferred policy acquisition |
costs and value of insurance in force 284 | 55 61
Additions to deferred policy acquisition costs (429) | 5 (2)
Trading account investments, |
(purchases) sales, net - | (1,576) (364)
Investment income accrued 17 | 1 29
Premium balances receivable 9 | 41 3
Insurance reserves and accrued expenses 165 | 542 (81)
Restructuring reserves - | (79) 121
Cumulative effects of changes in |
accounting principles - | - (224)
Other, including investment valuation reserves |
in 1993 and 1992 (136) | (445) 487
----------------------------------------------------------------|-------------------------------
|
Net cash provided by (used in) |
operating activities $ 717 | $ (1,372) $ 56
------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 39
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
19. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1994 exchange of $23 million of TIHI's investment in The Travelers Inc.
common stock for $35 million of The Travelers Inc. nonredeemable
preferred stock; b) the acquisition of real estate through foreclosures
of mortgage loans amounting to $229 million, $563 million and $753
million in 1994, 1993 and 1992, respectively; c) the acceptance of
purchase money mortgages for sales of real estate aggregating $96
million, $190 million and $72 million in 1994, 1993 and 1992,
respectively; d) the 1993 contribution of TIHI by The Travelers Inc. (see
note 3); e) the 1993 contribution of $400 million of bond investments by
The Travelers Corporation (see note 6); f) increases in investment
valuation reserves in 1993 and 1992 for securities, mortgage loans and/or
investment real estate (see note 15); g) the 1993 transfer of $352
million of mortgage loans and bonds from the Company's general account to
two separate accounts; and h) the contribution in 1992 of Transport Life
Insurance Company's preferred provider and third party administrator
organizations by The Travelers Corporation (see note 3).
54
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited)
Such pro forma financial statements give effect to the
transactions described below and other matters as more fully
described in the accompanying notes. All of these transactions
have previously been reported by the Company.
In December 1994 the Company sold its group dental insurance
business, and on January 3, 1995 the Company completed the sale
of its group life business and the remaining related non-medical
group insurance business (Life) to MetLife for $350 million. The
assets transferred included customer lists, books and records,
and furniture and equipment. In connection with the sale, the
Company agreed to cede 100% of its risks in the Life business to
MetLife on an indemnity reinsurance basis, effective January 1,
1995. In connection with the reinsurance transaction, the
Company transferred assets with a fair market value of
approximately $1.5 billion to MetLife, estimated to equal the
statutory reserves and other liabilities transferred.
On January 3, 1995, the Company and MetLife, and certain of their
affiliates, contributed their health care benefits businesses to
MetraHealth or its subsidiaries, in exchange for shares of common
stock of MetraHealth. The assets transferred included cash,
fixed assets, customer lists, books and records, certain
trademarks and other assets used exclusively or primarily in the
health care benefits businesses. The Company also contributed
all of the capital stock of the Company's wholly owned
subsidiary, The Travelers Employee Benefits Company, to
MetraHealth. The Company's total contribution amounted to
approximately $340 million. In March 1995, MetraHealth acquired
HealthSpring, Inc. for common stock of MetraHealth.
HealthSpring, Inc. builds and manages primary care physician
practices and serves approximately 32,000 patients through seven
sites in Pennsylvania, Ohio and Illinois. This acquisition
resulted in a reduction in the ownership percentage of the
Company in the MetraHealth venture to 41.1%. The Company and its
affiliates, which together own 48.25% of MetraHealth, are equal
partners in the joint venture with MetLife and its affiliates.
<TABLE>
<CAPTION>
As Previously Less: Pro Forma
(in millions) Reported Life & Medical Adjustments Pro Forma
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 3,861 $ (2,369) $ 1,492
Net investment income 1,849 (147) 1,702
Realized investment gains (losses) 14 14
Other revenues 1,023 (825) $ 35 (c,d) 233
6,747 (3,341) 35 3,441
BENEFITS AND EXPENSES
Current and future insurance benefits 3,421 (2,206) 1,215
Interest credited to contractholders 967 (54) 913
Claim settlement expenses 193 (191) 2
Amortization of deferred acquisition costs
and value of insurance in force 284 (5) 279
General and administrative expenses 1,025 (625) 1 (e) 401
5,890 (3,081) 1 2,810
Income before federal income taxes 857 (260) 34 631
Federal income taxes 312 (101) 0 (f,g) 211
Net income $ 545 $ (159) $ 34 $ 420
See notes to pro forma consolidated financial statements.
</TABLE>
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
As Previously Less: Pro Forma
(in millions) Reported Life & Medical Adjustments Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Bonds, available for sale $17,260 $(1,459) $15,801
Mortgage loans 4,938 4,938
Other investments 5,297 $ 191 (a, b) 5,488
Total investments 27,495 (1,459) 191 26,227
Separate and variable accounts 5,160 5,160
Other assets 7,880 1,379 (187) (a, b) 9,072
Total assets $40,535 $ (80) $ 4 $40,459
LIABILITIES
Contractholder funds $16,354 $16,354
Benefit and other insurance reserves 12,702 $ (62) (a, b) 12,640
Separate and variable accounts 5,128 5,128
Other liabilities 1,997 (34) (a, b) 1,963
Total liabilities 36,181 (96) 36,085
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,452 3,452
Unrealized investment gains (losses), net of taxes (760) $ (80) 80 (a) (760)
Retained earnings 1,562 20 (a) 1,582
Total shareholder's equity 4,354 (80) 100 4,374
Total liabilities and shareholder's equity $40,535 $ (80) $ 4 $40,459
See notes to pro forma consolidated financial statements.
</TABLE>
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assumptions:
In December 1994 the Company sold its group dental insurance
business, and on January 3, 1995 the Company completed the sale
of its group life business and the remaining related non-medical
group insurance businesses (Life) to MetLife for $350 million
and, effective January 1, 1995, entered into an agreement with
MetLife to cede 100% of the Company's risks in the Life business
to MetLife through indemnity reinsurance in connection with the
sale. The pretax gain on the sale of the group dental business
was $28 million in 1994, and the pretax gain on the other group
life and related businesses was $31 million. On January 3, 1995,
the Company and MetLife also completed the formation of
MetraHealth, a joint venture of the health care businesses of the
Company and MetLife.
The pro forma consolidated financial information presented in the
accompanying financial statements gives effect to the
consummation of the above described transactions (the
"Transactions"), which are assumed to have occurred on December
31, 1994 in the case of the pro forma condensed consolidated
balance sheet and on the first day of the year for the pro forma
consolidated statement of operations. The pro forma consolidated
financial statements are presented for informational purposes
only and should not be construed to be indicative of the actual
financial position and results of operations of the Company after
giving effect to the Transactions described above. The pro forma
consolidated financial statements should be read in conjunction
with the historical consolidated financial statements of the
Company, including the notes thereto.
Pro Forma Condensed Consolidated Balance Sheet:
Life Column - reflects transfer of assets and liabilities
pursuant to the agreement to cede 100% of the Company's risks in
the Life business to MetLife through indemnity reinsurance. This
column also reflects establishment of a reinsurance recoverable
in accordance with FAS 113.
Adjustments (a) and (b) are to reflect the pro forma effects of
the following:
(a) To record the sale of the Life businesses.
(b) To record the Company's investment in MetraHealth.
Pro Forma Consolidated Statement of Operations:
Life & Medical Column - reflects the elimination of the earnings
of the Life businesses sold to MetLife and the group health care
business (Medical) contributed to MetraHealth.
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Adjustments (c) through (g) are to reflect the pro forma effects
of the following:
(c) To eliminate the pretax gain on the sale of the dental
business of $28 million which was recorded in the year ended
December 31, 1994.
(d) To record the Company's earnings on its investment in
MetraHealth of $63 million for the year ended December 31,
1994, representing the Company's share of the combined
results of the Company's and MetLife's health care
businesses contributed to MetraHealth. (See pro forma
income statement for MetraHealth for the year ended December
31, 1994 included herein).
(e) To record the amortization of goodwill arising from the
difference between the Company's contribution to MetraHealth
and the Company's equity interest in the net assets of
MetraHealth.
(f) To eliminate the tax effect recorded in 1994 on adjustment
(c) above.
(g) To record the estimated tax effect on adjustment (d) at the
estimated effective tax rate of 29.54%.
MetraHealth
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(in millions)
<TABLE>
<CAPTION>
Company's
MetLife Travelers Total share
<S> <C> <C> <C> <C>
REVENUES
Premiums $1,998 $1,962 $3,960 $1,628
Fees/other income 524 596 1,120 460
Net investment income 40 48 88 36
Total revenues 2,562 2,606 5,168 2,124
BENEFITS AND EXPENSES
Current and future insurance benefits 1,644 1,614 3,258 1,339
Claim settlement expenses 224 154 378 155
Commission expenses 16 105 121 50
General and administrative expenses 584 592 1,176 483
TOTAL BENEFITS AND EXPENSES 2,468 2,465 4,933 2,027
Income before federal income taxes 94 141 235 97
Federal income taxes 33 49 82 34
Net income $ 61 $ 92 $ 153 $ 63
</TABLE>
<PAGE>
<PAGE>
IN-VEST sm
Individual Variable Universal Life Insurance Contracts
issued by
The Travelers Insurance Company
Life Service Center, 5SHS
One Tower Square
Hartford, Connecticut 06183
Telephone (800) 334-4298
PROSPECTUS
May 1, 1995
<PAGE>
PROSPECTUS
This Prospectus describes The Travelers IN-VESTsm Universal (flexible
premium) Variable Life Insurance Contract (the "Contract") offered by The
Travelers Insurance Company (the "Company") and funded by The Travelers Fund UL
for Variable Life Insurance ("Fund UL"). A Contract Owner may choose the amount
of life insurance coverage desired with a minimum Stated Amount of $75,000. The
premium payment may be allocated by the Contract Owner to one or more of the
mutual funds underlying Fund UL (the "Underlying Funds"). (For a description of
the investment objectives and risks of the Underlying Funds, please refer to
"Underlying Funds," page 1 of this prospectus, and also to the prospectuses for
each Fund.)
The Contract has a Right to Cancel Period during which the Applicant may
return the Contract to the Company for a refund. The Right to Cancel Period
expires on the latest of ten days after you receive the Contract, 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.
There is no guaranteed minimum Cash Value for a Contract. The Cash Value of a
Contract will vary up or down to reflect the investment experience of the
Underlying Funds to which the premium payment has been allocated, and the
Contract Owner bears the investment risk for all amounts so allocated. In
addition, the Cash Value of the Contract is reduced by the various fees and
charges assessed under the Contract, as set forth in this Prospectus. The
Contract will remain in effect so long as the Cash Surrender Value is
sufficient to pay the monthly charges imposed with the Contract.
A Contract Owner will have two options with respect to the death benefit
under the Contract - the "Level Option" and the "Variable Option". Under either
option, the death benefit is never less than the Stated Amount (less any
outstanding contract loan or monthly deduction amounts due and unpaid). A
Contract Owner will have the right to change the death benefit option subject
to certain conditions. (See "Contract Benefits and Rights," page 11.)
It may not be advantageous to replace your existing life insurance policy or
supplement an existing flexible premium variable life insurance policy with the
contract described in this prospectus.
This contract may be or become a modified endowment contract under federal tax
law. If it is classified as a modified endowment contract, any partial
withdrawal, contract surrender or loan may result in adverse tax consequences
or penalties.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
EACH OF THE UNDERLYING FUNDS. EACH OF THE UNDERLYING FUND PROSPECTUSES ARE
INCLUDED WITH THE PACKAGE CONTAINING THIS PROSPECTUS. ALL PROSPECTUSES SHOULD
BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
VARIABLE LIFE INSURANCE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY ENSURED 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, 1995.
<PAGE>
Table of Contents
GLOSSARY OF SPECIAL TERMS...........................GLOSSARY - 1
PROSPECTUS SUMMARY...................................SUMMARY - 1
THE INSURANCE COMPANY........................................ 1
THE SEPARATE ACCOUNT AND THE UNDERLYING FUNDS................ 1
The Travelers Fund UL for Variable Life Insurance (Fund UL).. 1
The Underlying Funds......................................... 1
Underlying Fund Investment Advisers.......................... 4
General...................................................... 4
Conflicts of Interest........................................ 5
Substitution................................................. 5
THE CONTRACT................................................. 5
The Contract Application..................................... 5
Allocation of Premium Payments............................... 6
Accumulation Unit Values..................................... 6
Right to Cancel.............................................. 7
CHARGES AND DEDUCTIONS....................................... 7
CHARGES AGAINST PREMIUM...................................... 7
Front-End Sales Charge....................................... 7
State Premium Tax Charge..................................... 7
MONTHLY DEDUCTION AMOUNT..................................... 7
Cost of Insurance Charge..................................... 8
Contract Administrative Charge............................... 8
Charges for Supplemental Benefit Provisions.................. 9
CHARGES AGAINST THE SEPARATE ACCOUNT......................... 9
Mortality and Expense Risk Charge............................ 9
Administrative Expense Charge................................ 9
CHARGES AGAINST THE UNDERLYING FUNDS......................... 9
SURRENDER CHARGES............................................ 9
Percent of Premium Charge.................................... 9
Per Thousand of Stated Amount Charge......................... 10
MAXIMUM SALES CHARGES........................................ 10
TRANSACTION CHARGE........................................... 11
REDUCTION OR ELIMINATION OF CHARGES.......................... 11
CONTRACT BENEFITS AND RIGHTS................................. 11
DEATH BENEFIT................................................ 11
Changes in Death Benefit Option.............................. 14
Changes in Stated Amount..................................... 14
Benefits at Maturity......................................... 15
Cash Value and Cash Surrender Value.......................... 15
Transfer of Cash Value....................................... 15
Dollar-Cost Averaging (Automated Transfers).................. 16
Contract Loans............................................... 16
Lapse and Reinstatement...................................... 17
Exchange Rights.............................................. 17
PAYMENT OPTIONS.............................................. 17
PERFORMANCE INFORMATION...................................... 18
EXAMPLE OF CONTRACT CHARGES.................................. 19
<PAGE>
OTHER MATTERS.............................................. 20
Voting Rights.............................................. 20
Disregard of Voting Instructions........................... 20
Statements to Contract Owners.............................. 20
Limit on Right to Contest.................................. 21
Misstatement as to Sex and Age............................. 21
Suspension of Valuation.................................... 21
Beneficiary................................................ 21
Assignment................................................. 21
Dividends.................................................. 21
FEDERAL TAX CONSIDERATIONS................................. 22
General.................................................... 22
Investor Control........................................... 22
Taxation of the Company.................................... 22
Tax Consequences of Life Insurance Contracts............... 23
Tax Consequences of Modified Endowment Contracts........... 23
DISTRIBUTION OF THE CONTRACTS.............................. 25
MANAGEMENT................................................. 25
LEGAL PROCEEDINGS AND OPINION.............................. 26
INDEPENDENT ACCOUNTANTS.................................... 27
REGISTRATION STATEMENT..................................... 27
ILLUSTRATIONS.............................................. 27
APPENDIX A-Annual Minimum Premiums......................... 41
APPENDIX B-Per Thousand of Stated Amount Surrender Charge.. 42
APPENDIX C-Current Monthly Administrative Charge........... 39
APPENDIX C(1)-Guaranteed Monthly Administrative Charge..... 41
FINANCIAL STATEMENTS-Fund UL............................... UL-1
FINANCIAL STATEMENTS-The Travelers Insurance Company....... F-1
<PAGE>
GLOSSARY OF SPECIAL TERMS
The following terms are used throughout this Prospectus, and have the indicated
meanings:
Accumulation Unit - the basic measure used to determine the Cash Value of a
flexible premium variable life insurance contract.
Annual Minimum Premium - the Contract Owner must pay a first premium greater
than or equal to one-quarter of this amount for the Contract to be
issued. (Please refer to Appendix A.)
Cash Surrender Value - the Cash Value less any outstanding contract loan and
surrender charges.
Cash Value - the current value of Accumulation Units credited to the Contract
plus 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.
Contract Date - the date on which the Contract, benefits and provisions of the
Contract become effective.
Contract Month - monthly periods computed from the Contract Date.
Contract Owner - the person having rights to benefits under the Contract during
the lifetime of the Insured; the Contract Owner may or may not be the
Insured.
Contract Years - annual periods computed from the Contract Date.
Deduction Date - the day in each Contract Month on which the Monthly Deduction
Amount is deducted from the Contract's Cash Value.
Insured - the person on whose life the Contract is issued.
Issue Date - the date on which the Contract is issued by the Company for
delivery to the Contract Owner.
Loan Account - an account established for assets transferred from the
Sub-Accounts as a result of requested loans. These accounts are credited
with fixed rates of interest and do not depend on the investment
experience of Fund UL and the Underlying Funds.
Minimum Amount Insured - the amount of Death Benefit required to qualify this
Contract as life insurance under federal tax law.
Monthly Deduction Amount - the amount of charges deducted from the Contract's
Cash Value which includes Cost of Insurance charges, administrative
charges, and any charges for supplemental benefits.
Net Amount At Risk - an amount equal to the Death benefit minus the Cash Value.
Net Premium - the amount of each premium payment applied to purchase
Accumulation Units under the Contract, less the deduction of front-end
sales charges and premium tax charges.
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 Company; for example, The Travelers Fund UL for Variable
Life Insurance.
Stated Amount - the amount originally selected by the Contract Owner which is
used to determine the Death Benefit. The Stated Amount may be increased
or decreased as described in this Prospectus.
Sub-Account - assets of a particular Underlying Fund which are attributable to
the class of variable life insurance contracts described in this
Prospectus.
Underlying Fund - an open-end diversified management investment company which
serves as an investment option under the Separate Account.
Valuation Date - generally, a day on which the Sub-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.
GLOSSARY - 1
<PAGE>
PROSPECTUS SUMMARY
The Contract
The Contract described in this Prospectus is an individual variable universal
life insurance contract which provides for flexible premium payments to be
allocated to one or more of the Underlying Funds. The Contract is then credited
with Accumulation Units in the applicable Sub-Accounts, the assets of which are
invested in the corresponding Underlying Fund. The Contract is first and
foremost a life insurance contract with death benefits, cash values and other
features traditionally associated with life insurance. The Contract is
"variable" because unlike the fixed benefits of an ordinary whole life
insurance contract, the Cash Value and, under certain circumstances, the Death
Benefit of the Contract may increase or decrease depending on the investment
experience of the Underlying Funds to which the premium payment has been
allocated. The Contract will remain in effect until the Cash Surrender Value is
insufficient to cover the Monthly Deduction Amount.
The Separate Account and the Underlying Funds
The Contract is funded by The Travelers Fund UL for Variable Life Insurance
("Fund UL"), a registered unit investment trust separate account established by
The Travelers Insurance Company (the "Company"). There are currently fourteen
(14) Sub-Accounts available under the Contract, each of which invests
exclusively in one of the following Underlying Funds:
Capital Appreciation Fund
Cash Income Trust
High Yield Bond Trust
Managed Assets Trust
U.S. Government Securities Portfolio
Utilities Portfolio
Templeton Bond Fund
Templeton Stock Fund
Templeton Asset Allocation Fund
Fidelity's High Income Portfolio
Fidelity's Equity-Income Portfolio
Fidelity's Growth Portfolio
Fidelity's Asset Manager Portfolio
Dreyfus Stock Index Fund
Smith Barney Income and Growth Portfolio
Alliance Growth Portfolio
Smith Barney High Income Portfolio
MFS Total Return Portfolio
Smith Barney Total Return Portfolio
For a more complete description of the investment objectives for each of the
funds listed above, as well as the investment advisers which provide investment
management and advisory services for the funds, please refer to "The Underlying
Funds" on page 1, and the prospectuses for each of the Underlying Funds.
Premium Payments
The Contract Owner must pay a first premium greater than or equal to
one-quarter of the Annual Minimum Premium for the Contract to be issued.
(Tables of Annual Minimum Premiums are included in Appendix A.) After the first
premium, Contract Owners may elect to be billed annually or semi-annually for
all future premium payments ("Planned Premiums").
Payment of Planned Premiums will not guarantee that the Contract will remain
in effect. (See "Lapse and Reinstatement," page 17.) No premiums can be
accepted if they would disqualify the Contract as life insurance under federal
tax law.
During the Applicant's Right to Cancel Period, Net Premium will be invested
in Cash Income Trust (a money market fund). After the expiration of the Right
to Cancel Period, the values in Cash Income Trust will be allocated to the
Underlying Fund(s) selected on the Contract Application. Once the premium
SUMMARY - 1
<PAGE>
payment has been allocated to the designated Underlying Fund(s), the Contract
will be credited with Accumulation Units in the applicable Sub-Account. (See
"Allocation of Premium Payments," page 6.)
Right to Cancel
An Applicant has a limited right to return the Contract for cancellation and
receive a full refund of the premium payment made. The Applicant must return
the Contract, by mail or hand delivery, to the Company or to the agent who sold
the Contract, to be cancelled within 10 days after delivery of the Contract to
the Applicant, or within 45 days after completion of the application, or within
10 days after the Notice of Right to Cancel has been mailed or delivered to the
Applicant, whichever is latest. The Company will return to the Applicant within
seven days thereafter an amount equal to the greater of the premiums paid for
the Contract or the sum of (1) the difference between the premium paid,
including any fees or other charges, and the amounts allocated to the
Underlying Fund(s), (2) the value of the amounts allocated to the Underlying
Fund(s) on the date we receive the returned Contract, and (3) any fees and
other charges imposed on amounts allocated to the Underlying Fund(s).
Charges and Deductions
In order to cover expenses associated with the distribution of the Contract,
the Company will deduct a front-end sales charge and surrender charges. The
front-end sales charge is equal to 2.5% of each Premium Payment made under the
Contract, and may be reduced for Stated Amounts of $500,000 or more. The sales
charge for a Contract with no full or partial surrenders will never exceed 2.5%
of actual premiums paid. However, the sales charges for a Contract with full or
partial surrenders may be as much as 26.7% of premiums paid based on surrender
penalties which are assessed under the Contract. (See "Maximum Sales Charges,"
page 10.)
There are two types of surrender charges that can apply to the Contract: a
Percent of Premium Charge and a Per Thousand of Stated Amount Charge. Both
charges apply to a full surrender of the Contract. Only the Percent of Premium
Charge applies to a partial surrender. The Percent of Premium Charge and a
portion of the Per Thousand of Stated Amount Charge are intended to cover sales
expenses. (See "Surrender Charges," page 9.)
The Company will deduct a 2.5% State Premium Tax Charge from each premium
payment before allocation of the payment to purchase Accumulation Units in the
Sub-Accounts (except in the Commonwealth of Puerto Rico where no premium tax
charge is deducted). (See "State Premium Tax Charge," page 7.)
In addition, the Company will make monthly deductions beginning on the
Contract Date on a pro rata basis from the Cash Value in each of the
Sub-Accounts. The Deduction Amount will vary from month to month and includes
the cost of insurance charges, administrative charges and charges for
supplemental benefits. The administrative charges apply during the first three
Contract Years and during the three years following any increase in Stated
Amount. (See "Monthly Deduction Amount," page 7.)
The Company currently assesses a daily charge against the assets of Fund UL
at an annual rate of 0.60% of such assets. The charge is intended to cover the
Company's assumption of mortality and expense risks under the Contract, and
will be made pro rata among the Sub-Accounts. The Contract provides that the
charge for mortality and expense risk will not exceed 0.80%. The Contract also
provides that the Company may make a daily charge from Fund UL for
administrative expenses incurred by the Company at a maximum annual rate of
0.10% of assets in the Separate Account; the Company is not currently assessing
this charge. The Company may also set up a provision for income taxes against
the assets of the Separate Account. (See "Charges Against the Separate
Account," page 9.)
SUMMARY - 2
<PAGE>
The administrative charges made by the Company do not exceed the average
expected cost of administrative services provided by the Company. Sales charges
and administrative charges under the Contract may be reduced or eliminated when
sales are made under certain arrangements. (See "Reduction or Elimination of
Charges," page 11.)
The Separate Account purchases shares of the Underlying Funds at net asset
value. The net asset value of the Underlying Fund shares reflects investment
advisory and other expenses already deducted from the assets of the Funds.
Applicants should review the prospectuses of the Underlying Funds for a
description of the charges assessed against the assets of each Underlying Fund.
Death Benefit
A Contract Owner may elect one of two options for the calculation of the
amount of Death Benefit payable under the Contract. Under Option 1 (the "Level
Option"), the Death Benefit will be equal to the greater of the Stated Amount
of the Contract or the Minimum Amount Insured. Under Option 2 (the "Variable
Option"), the Death Benefit will be equal to the greater of the Stated Amount
of the Contract plus the Cash Value (determined as of the date of the Insured's
death) or the Minimum Amount Insured. A Contract Owner may change the Death
Benefit option subject to certain conditions. (See "Death Benefit," page 11 and
"Changes in Death Benefit Option," page 14.)
Cash Value
As with many other types of insurance contracts, each Contract will have a
Cash Value. The Cash Value of the Contract will increase or decrease to reflect
the investment experience of the Underlying Funds applicable to the Contract.
The Cash Value will also vary to reflect partial cash surrenders and Monthly
Deduction Amounts. There is no minimum guaranteed Cash Value and the Contract
Owner bears the investment risk associated with an investment in the Underlying
Funds. (See "Cash Value and Cash Surrender Value," page 15.)
Contract Loans
A Contract Owner may obtain a cash loan from the Company secured by the
Contract not to exceed 90% of the Contract's Cash Value (determined at the time
the Company receives the written loan request), less any surrender penalties.
(This amount is 80% for loans taken prior to June 12, 1995.) The Company will
charge interest on the outstanding amounts of the loan at an annual rate of
7.4% payable in advance (6% in the Virgin Islands). The amount of the loan will
be transferred on a pro rata basis from each of the Sub-Accounts attributable
to the Contract (unless the Contract Owner states otherwise in writing) to a
loan account (the "Loan Account"). The Company will credit amounts in the Loan
Account with a fixed annual rate of interest of 4% (6% in New York and
Massachusetts). (See "Contract Loans," page 16.)
Lapse
If on any Deduction Date the Cash Surrender Value of a Contract is
insufficient to cover the Monthly Deduction Amount due, the Company will send
written notice to the Contract Owner indicating that if an amount sufficient to
cover the Deduction Amount due is not paid within 61 days, the Contract may
lapse. An outstanding loan amount decreases the Cash Surrender Value and could,
therefore, cause the Contract to lapse. (See "Contract Loans," page 16, and
"Lapse and Reinstatement," page 17.)
SUMMARY - 3
<PAGE>
Exchange Rights
Once the Contract is in effect it may be exchanged at any time during the
first two Contract Years for a general account fixed life insurance contract on
the life of the Insured without submitting proof of insurability. (See
"Exchange Rights," page 17.)
Tax Consequences
The current federal tax law generally excludes all Death Benefit payments
from the gross income of the Contract beneficiary. (See "Tax Consequences of
Life Insurance Contracts," page 23.)
At any point in time, the Contract may become a modified endowment contract
if it fails to satisfy a 7-pay test. (See "Tax Consequences of Modified
Endowment Contracts," page 23.) The Company has established safeguards for
monitoring whether a Contract issued after September 13, 1993 may become a
modified endowment contract, but does not yet have complete procedures in place
for monitoring Contracts issued before that date. A modified endowment contract
has income-first taxation of all loans, pledges, collateral assignments or
partial surrenders to the extent of income in the Contract. A 10% penalty tax
may be imposed on such income distributed before the Contract Owner attains age
591/2.
The Company may charge each of the Sub-Accounts in Fund UL for its portion of
any income tax charged to the Company on the Separate Account or its assets.
(See "Federal Tax Considerations," page 22.)
SUMMARY - 4
<PAGE>
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company"), an indirect wholly owned
subsidiary of Travelers Group Inc., is a stock insurance company chartered in
1864 in Connecticut and has been continuously engaged in the insurance business
since that time. The Company is licensed to conduct life insurance business in
all states of the United States, the District of Columbia, Puerto Rico, Guam,
the Virgin Islands, Canada and the Bahamas. The Company's principal executive
offices are located at One Tower Square, Hartford, Connecticut 06183, telephone
number (203) 277-0111.
The Company writes individual life insurance and annuity contracts on a
non-participating basis. The Company acts as depositor for Fund UL. Effective
February 1, 1995, Travelers Equities Sales, Inc., ("TESI") an affiliate of the
Company, became the principal underwriter for the Contracts. The Company's
obligations as depositor for Fund UL may not be transferred without notice to
and consent of Contract Owners.
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 that 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 or his agents at all times, 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 contracts, as well as to various federal and state
securities laws and regulations.
THE SEPARATE ACCOUNT AND THE UNDERLYING FUNDS
The Travelers Fund UL for Variable Life Insurance (Fund UL)
Fund UL was established on November 10, 1983 pursuant to the insurance laws
of the state of Connecticut, and is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940, as amended (the "1940 Act"). The assets of Fund UL will be invested
exclusively in shares of the Underlying Funds. Fund UL meets the definition of
a separate account under the federal securities laws, and will comply with the
provisions of the 1940 Act. Registration of Fund UL with the SEC does not
involve supervision by the SEC of the management or investment policies of Fund
UL. Additionally, the operations of Fund UL are subject to the provisions of
Section 38a-433 of the Connecticut General Statutes which authorizes the
Connecticut Insurance Commissioner to adopt regulations under it. The Section
contains no restrictions on the investments of Fund UL, and the Commissioner
has adopted no regulations under the Section that affect Fund UL.
Under Connecticut law, the assets of Fund UL will be held for the exclusive
benefit of Contract Owners and the persons entitled to payments under the
Contract offered by this Prospectus. The assets held in Fund UL are not
chargeable with liabilities arising out of any other business which the Company
may conduct. Any obligations arising under the Contract are general corporate
obligations of the Company.
The Underlying Funds
Premium Payments applied to Fund UL will be invested in one or more of the
available Underlying Funds at net asset value in accordance with the selection
made by the Contract Owner. The Underlying
1
<PAGE>
Funds currently available under the Contract may be added or withdrawn as
permitted by applicable law. Please read carefully the complete risk disclosure
in the Funds' prospectuses before investing. The Underlying Funds currently
available under the Contract are as follows:
Capital Appreciation Fund. The objective of Capital Appreciation Fund is growth
of capital through the use of common stocks. Income is not an objective. The
Fund invests principally in common stocks of small and large companies which
are expected to experience wide fluctuations in price in both rising and
declining markets. (Prior to May 1, 1994, the Fund was known as Aggressive
Stock Trust.)
Cash Income Trust. Cash Income Trust seeks to provide high current income while
emphasizing preservation of capital and maintaining a high degree liquidity by
investing in short-term money market securities deemed to present minimal
credit risks.
High Yield Bond Trust. The objective of the High Yield Bond Trust is generous
income. The assets of 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.
Managed Assets Trust. The objective of Managed Assets Trust is high total
investment return with reduced risk through a fully managed investment policy.
Assets of the Managed Assets Trust will be invested in a portfolio of U.S.
stocks, bonds and money market securities.
U.S. Government Securities Portfolio. The U.S. Government Securities Portfolio
selects investments from the point of view of an investor concerned primarily
with highest credit quality, current income and total return. The assets of the
U.S. Government Securities Portfolio will be invested in direct obligations of
the United States, its agencies and instrumentalities.
Utilities Portfolio. The Utilities Portfolio seeks to provide current income
through investment in equity and debt securities of companies in the utility
industries.
Templeton Bond Fund. The objective of the Templeton Bond Fund is high current
income through a flexible policy of investing primarily in debt securities of
companies, governments and government agencies of various nations throughout
the world.
Templeton Stock Fund. The objective of the Templeton Stock Fund is capital
growth through a policy of investing primarily in common stocks issued by
companies, large and small, in various nations throughout the world.
Templeton Asset Allocation Fund. The objective of the Templeton Asset
Allocation Fund is a high level of total return with reduced risk over the long
term through a flexible policy of investing in stocks of companies in any
nation and debt obligations of companies and governments of any nation. Changes
in the asset mix will be adjusted in an attempt to capitalize on total return
potential produced by changing economic conditions throughout the world.
Fidelity's High Income Portfolio. The High Income Portfolio seeks to obtain a
high level of current income by investing primarily in high yielding,
lower-rated, fixed-income (high risk) securities, while also considering growth
of capital.
Fidelity's Equity-Income Portfolio. The Equity-Income Portfolio seeks
reasonable income by investing primarily in income-producing equity securities;
in choosing these securities, the portfolio manager will also consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the Standard &
Poor's 500 Composite Stock Price Index.
2
<PAGE>
Fidelity's Growth Portfolio. The Growth Portfolio seeks capital appreciation by
investing primarily in common stocks of well-known, established companies and
smaller, emerging growth companies, although its investments are not restricted
to any one type of security. Capital appreciation may also be found in other
types of securities, including bonds and preferred stocks.
Fidelity's Asset Manager Portfolio. The Asset Manager Portfolio seeks high
total return with reduced risk over the long-term by allocating its assets
among stocks, bonds and short-term fixed-income instruments.
Dreyfus Stock Index Fund. The objective of the Dreyfus Stock Index Fund is to
provide investment results that correspond to the price and yield performance
of publicly traded common stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index.
Smith Barney Income and Growth Portfolio. The objective of the Income and
Growth Portfolio is current income and long-term growth of income and capital
by investing primarily, but not exclusively, in common stocks.
Alliance Growth Portfolio. The objective of the Growth Portfolio is long-term
growth of capital by investing predominantly in equity securities of companies
with a 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.
Smith Barney High Income Portfolio. The investment objective of the High Income
Portfolio is high current income. Capital appreciation is a secondary
objective. The Portfolio will invest at least 65% of its assets in
high-yielding corporate debt obligations and preferred stock.
MFS Total Return Portfolio. The Total Return Portfolio's objective is to obtain
above-average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital. Generally, at
least 40% of the Portfolio's assets will be invested in equity securities.
Smith Barney Total Return Portfolio. The investment objective of the Smith
Barney Total Return Portfolio is to provide total return, consisting of
long-term capital appreciation and income. The Portfolio will seek to achieve
its goal by investing primarily in a diversified portfolio of dividend-paying
common stock. (Please read carefully the complete risk disclosure in the
Portfolio's prospectus before investing.)
Each Underlying Fund is subject to certain investment restrictions which may
not be changed without the approval of a "majority vote of the outstanding
voting securities" of that Fund (as defined in the Investment Company Act of
1940). There is no assurance that the Underlying Funds will achieve their
stated objectives.
More detailed information regarding the Underlying Funds may be found in the
current prospectuses for the Underlying Funds; these prospectuses are included
with and must accompany this Prospectus. Contract Owners are urged to read
these documents carefully before investing.
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Underlying Fund Investment Advisers
The Underlying Funds receive investment management and advisory services from
the following investment professionals:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FUND INVESTMENT ADVISER SUB-ADVISER
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
The Travelers Investment Management
Capital Appreciation Fund Company (TIMCO) Janus Capital Corporation
- ---------------------------------------------------------------------------------------------------------------------
Travelers Asset Management International
Cash Income Trust Corporation (TAMIC)
- ---------------------------------------------------------------------------------------------------------------------
High Yield Bond Trust TAMIC
- ---------------------------------------------------------------------------------------------------------------------
Managed Assets Trust TAMIC TIMCO
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Securities
Portfolio TAMIC
- ---------------------------------------------------------------------------------------------------------------------
Utilities Portfolio Smith Barney Mutual Funds Management Inc.
- ---------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund Templeton Investment Counsel, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund Templeton Investment Counsel, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Templeton Bond Fund Templeton Global Bond Managers
- ---------------------------------------------------------------------------------------------------------------------
Fidelity's High Income Portfolio Fidelity Management & Research Company
- ---------------------------------------------------------------------------------------------------------------------
Fidelity's Equity-Income Portfolio Fidelity Management & Research Company
- ---------------------------------------------------------------------------------------------------------------------
Fidelity's Growth Portfolio Fidelity Management & Research Company
- ---------------------------------------------------------------------------------------------------------------------
Fidelity's Asset Manager Portfolio Fidelity Management & Research Company
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund Wells Fargo Nikko Investment Advisors
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Income and
Growth Portfolio Smith Barney Mutual Funds Management Inc.
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio Smith Barney Mutual Funds Management Inc. Alliance Capital Management L.P.
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney High Income
Portfolio Smith Barney Mutual Funds Management Inc.
- ---------------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio Smith Barney Mutual Funds Management Inc. Massachusetts Financial Services Company
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Total Return
Portfolio Smith Barney Mutual Funds Management Inc.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
For more detailed information on these investment advisers and their services
and fees, please refer to the prospectuses for the Underlying Funds.
General
All investment income of and other distributions to each Sub-Account of Fund
UL arising from the applicable Underlying Fund are reinvested in shares of that
Underlying Fund at net asset value. The income and realized gains or losses on
the assets of each Sub-Account of Fund UL are therefore separate and are
credited to or charged against the Sub-Account without regard to income, gains
or losses from any other Sub-Account or from any other business of the Company.
The Company will purchase shares in the Underlying Funds in connection with
premium payments allocated to the applicable Funds in accordance with Contract
Owners' directions and will redeem shares in the Underlying Funds to meet
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<PAGE>
Contract obligations or make adjustments in reserves, if any. The Underlying
Funds are required to redeem Fund shares at net asset value and to make payment
within seven days.
Conflicts of Interest
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
Underlying Funds simultaneously. Although neither the Company nor the
Underlying Funds currently foresees any such disadvantages either to variable
life insurance or to variable annuity Contract Owners, the Underlying Funds'
Boards of Directors intend to monitor events to identify any material conflicts
between such Contract Owners and to determine what action, if any, should be
taken in response thereto. If any of the Underlying Funds' Boards of Trustees
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 Contract
Owners would no longer have the economies of scale resulting from a larger
combined fund. Please consult the prospectuses of the Underlying Funds for
additional information.
Substitution
The Company reserves the right, subject to compliance with appropriate state
and federal laws, to make additions to, deletions from, or substitutions for
Fund UL and the Sub-Accounts which fund the Contract. If shares of any of the
Underlying Funds should no longer be available for purchase by the appropriate
Sub-Account, or if, in the judgment of the Company further investment in such
shares becomes inappropriate for purposes of the Contract, shares of another
Underlying Fund may be substituted for shares of the Underlying Funds held in
the Sub-Accounts. Substitution may be made with respect to both existing
investments and the investment of any future Premium Payments. However, no
substitution of securities will be made without prior notice to Contract
Owners, and without prior approval of the Securities and Exchange Commission,
all to the extent required by the 1940 Act or other applicable law. Subject to
Contract Owner approval, the Company reserves the right to end Fund UL's
registration under the 1940 Act.
THE CONTRACT
The Contract described in this Prospectus is both an insurance product and a
security. However, the Contract is first and foremost a life insurance contract
with death benefits, cash values and other features traditionally associated
with life insurance. The Contract is deemed to be "variable" because unlike the
fixed benefits of an ordinary whole life insurance contract, the Cash Value
and, under certain circumstances, the Death Benefit of the Contract may
increase or decrease depending on the investment experience of the Underlying
Funds to which the Premium Payment has been allocated. As an insurance product,
the Contract is subject to the insurance laws and regulations of each state or
jurisdiction in which it is available for distribution.
The Contract Application
Individuals wishing to purchase a Contract must submit an application to the
Company. As with traditional insurance contracts, a Contract Owner may state
the amount of insurance desired (the "Stated Amount"), which amount may not be
less than $75,000. A Contract Owner may request an increase or decrease in the
Stated Amount of the Contract in writing from time to time. (See "Changes in
Stated
5
<PAGE>
Amount," page 14.) No change in the terms or conditions of the Contract will be
made without the consent of the Contract Owner.
A Contract will be issued only on the life of an Insured who supplies
evidence of insurability satisfactory to the Company. Acceptance is subject to
the Company's underwriting rules.
Insurance coverage under a Contract will begin only after the Applicant has
satisfied all outstanding underwriting delivery requirements, and after the
Company has received the first premium. The Contract Date is the date used to
determine all future cyclical transactions on the Contract, e.g., Deduction
Dates, Contract Months and Contract Years. The Contract Date may be prior to,
or the same date as, the date on which the Contract is issued (the "Issue
Date").
Allocation of Premium Payments
The first premium will be applied to the Contract on the later of the
Contract Date or the date it is received at the Company's Home Office. During
the Applicant's Right to Cancel Period, the Company will allocate Net Premiums
to the Cash Income Trust. At the end of the Applicant's Right to Cancel Period,
the account value in Cash Income Trust will be allocated among the Underlying
Funds (in whole percentages) to purchase Accumulation Units in the applicable
Sub-Accounts as the Contract Owner directs on the application. Net Premium
payments received on or after the expiration of the Applicant's Right to Cancel
Period will be allocated among the Sub-Accounts to purchase Accumulation Units
in such Sub-Accounts as directed by the Contract Owner or, in the absence of
directions, as stated in the original application. The number of Accumulation
Units of each Sub-Account to be credited to the Contract (including the initial
allocation to Cash Income Trust) will be determined by dividing the Premium
Payment applied to the Sub-Account by the Accumulation Unit Value of the
Sub-Account next computed following receipt of the payment.
Accumulation Unit Values
The Accumulation Unit Value for each Sub-Account of Fund UL was initially
established at $1.00. Thereafter, the Accumulation Unit Value for each
Sub-Account will vary to reflect the investment experience of the applicable
Underlying Fund and will be determined on each Valuation Date by multiplying
the Accumulation Unit Value of the particular Sub-Account on the preceding
Valuation Date by the Net Investment Factor for that Sub-Account for the
Valuation Period then ended. The Net Investment Factor for each of the
Sub-Accounts is equal to the net asset value per share of the corresponding
Underlying Fund at the end of the Valuation Period (plus the per share amount
of any dividends or capital gain distributions by that Fund, if the dividend
date occurs in the Valuation Period then ended, and plus or minus any per share
credit or charge by the Company for any tax reserves) divided by the net asset
value per share of the corresponding Underlying Fund at the beginning of the
Valuation Period (plus or minus any per share credit or charge by the Company
for any tax reserves), and subtracting from that amount any administrative
expense charge, if assessed, and mortality and expense risk charge.
Applicants should refer to the prospectuses for each of the Underlying Funds
for a description of how the assets of each Underlying Fund are valued. These
valuation procedures directly affect the Accumulation Unit Value of the
Sub-Account, and therefore the Cash Value of the Contract.
All valuations made under the Contract (e.g., the determination of Cash Value
or Cash Surrender Value, contract loans, partial cash surrenders, payment of
Death Benefits, and the determination of the number of Accumulation Units to be
credited to a Contract with each Net Premium payment), will be made on the
Valuation Date next following the Company's receipt of the request.
6
<PAGE>
Right to Cancel
An Applicant has a limited right to return the Contract for cancellation by
returning the Contract, by mail or personal delivery, to the Company or to the
agent who sold the Contract. The Contract must be returned either (1) within 10
days after delivery of the Contract to the Contract Owner, (2) within 45 days
of completion of the contract application, or (3) within 10 days after the
Notice of Right to Cancel has been mailed or delivered to the Applicant
(whichever is latest). The Company will return to the Applicant a refund of the
greater of all premium payments paid for the Contract, or the sum of (1) the
difference between the premium paid, including any fees or charges, and the
amounts allocated to the Underlying Fund(s), (2) the value of the amounts
allocated to the Underlying Fund(s) on the date on which the Company receives
the returned Contract, and (3) any fees and other charges imposed on amounts
allocated to the Underlying Fund(s).
CHARGES AND DEDUCTIONS
CHARGES AGAINST PREMIUM
Front-End Sales Charge
Upon receipt of a Premium Payment, and before allocation of the payment among
the Underlying Funds, the Company will deduct a front-end sales charge of 2.5%.
This charge will be reduced to 2% for Contracts with an initial Stated Amount
of $500,000 or more, and 0% for Contracts with an initial Stated Amount of
$1,000,000 or more.
There will be additional sales charges assessed upon any full or partial
surrender. (See "Surrender Charges" below.)
Sales charges are intended to cover the Company's actual sales expenses,
including agent sales commissions, advertising and the printing of the
prospectuses. The Company expects to recover the sales expenses of a contract.
To the extent sales expenses are not covered by the sales charges, the Company
will recover such expenses from its surplus. This surplus may include profit
from the mortality and expense risk charge.
State Premium Tax Charge
A charge of 2.5% of each premium payment will be deducted for state premium
taxes (except for Contracts issued in the Commonwealth of Puerto Rico where no
premium tax is deducted). These taxes vary from state to state and currently
range from 0.75% to 3.5%; 2.5% is an average. Because there is a range of
premium taxes, a contract owner may pay a premium tax charge that is higher or
lower than the premium tax actually assessed in his or her jurisdiction.
The Company also reserves the right to charge the assets of each Sub-Account
for a reserve for any income taxes payable by the Company on the assets
attributable to that Sub-Account. (See "Federal Tax Considerations," page 22.)
MONTHLY DEDUCTION AMOUNT
In addition to deductions from premium payments, the Company will deduct from
the Cash Value of the Contract a Monthly Deduction Amount to cover certain
charges and expenses incurred in connection with the Contract. The Monthly
Deduction Amount will be deducted pro rata from each of the Sub-Accounts
attributable to the Contract on the first day of each Contract Month (the
"Deduction Date"),
7
<PAGE>
commencing on the Contract Date. The dollar amount of the Deduction Amount will
vary from month to month.
The following is a summary of monthly charges and expenses which make up the
Monthly Deduction Amount.
Cost of Insurance Charge
The cost of insurance charge, which is deducted monthly, may vary from month
to month since it depends on a number of variables that are determined on each
Deduction Date. This charge is equal to the difference between the Death
Benefit payable under the Contract and the Cash Value of the Contract, each
determined on the Deduction Date, multiplied by a monthly "cost of insurance
rate," i.e., a monthly rate charged for each dollar of insurance coverage. The
cost of insurance rate varies annually and is based on the attained age, sex
and risk class of the insured (except in the State of Montana where no
distinction is made on the basis of sex). The cost of insurance rate for
standard risks will not exceed those based on the 1980 Commissioners Standard
Ordinary Mortality Tables ("1980 Tables"). Substandard risks will have monthly
deductions based on cost of insurance rates which may be higher than those set
forth in the 1980 Tables. A table of guaranteed cost of insurance rates per
$1,000 will be included in each Contract; however, the Company reserves the
right to use rates (current rates) less than those shown in the 1980 Tables.
Although guaranteed rates do not distinguish between smokers and non-smokers,
there will be separate current cost of insurance tables for these two groups.
Any changes in the cost of insurance rates will be made uniformly for all
Insureds in the same risk class. The cost of insurance charge is to cover the
Company's expected mortality cost for basic insurance coverage, not including
supplemental benefit provisions.
Because the Cash Value and, under certain conditions, the Death Benefit of a
Contract may vary from month to month, the cost of insurance charge may also
vary on each Deduction Date. In addition, Applicants should note that the cost
of insurance charge is based on the difference between the Death Benefit
payable under the Contract and the Cash Value of the Contract. For Option 1, an
increase in the Cash Value or a decrease in the Death Benefit would result in a
smaller cost of insurance charge assuming that everything else remains the
same; while a decrease in the Cash Value or an increase in the Death Benefit
would result in a larger cost of insurance charge. (See "Changes in Death
Benefit Option," page 14 and "Changes in Stated Amount," page 14 for a
discussion of the effect of changes in the Stated Amount on the cost of
insurance.)
Contract Administrative Charge
The Company deducts a monthly administrative charge from the Cash Value of
the Contract during the first three Contract Years, and upon any increase in
the Stated Amount for three years from the date of the increase. The amount of
this charge varies by issue age and initial Stated Amount, and will be shown in
the Contract (see Appendix C). The administrative charge does not apply to Cost
of Living Adjustment increases or to an increase in the Stated Amount resulting
from a change in a Death Benefit option. The proceeds from this charge are
expected to pay for the expenses associated with the issuance of the Contract,
and is set at a level which does not exceed the average expected cost of these
administrative services. The monthly administrative charge may be reduced or
eliminated when sales are made under certain arrangements. (See "Reduction or
Elimination of Charges," page 11.)
8
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Charges for Supplemental Benefit Provisions
The Company will include a supplemental benefits charge in the Monthly
Deduction Amount if the Contract Owner has elected any of the following
supplemental benefit provisions: Accidental Death Benefit, Waiver of Monthly
Deduction Rider, and Spouse or Children Term Riders. The amount of this charge
will vary depending upon the actual supplemental benefits selected.
CHARGES AGAINST THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge
A daily charge is deducted from Fund UL for mortality and expense risks
assumed by the Company. The current charge is at an annual rate of 0.60% of the
assets in the Separate Account; however, the Contract provides that the maximum
charge for mortality and expense risks will not exceed 0.80%. The mortality
risk assumed is that the actual cost of insurance charge specified in the
Contract may be insufficient to meet actual claims. The expense risk assumed is
that expenses incurred in issuing and administering the Contracts will exceed
the administrative charges set forth in the Contract. If all money collected by
the Company from this charge is not needed to cover the mortality and expenses
costs, the excess will be contributed to the Company's general account.
Administrative Expense Charge
The Company reserves the right to deduct a daily charge from Fund UL for
administrative expenses incurred by the Company. The maximum charge is
equivalent on an annual basis to 0.10% of the assets in the Separate Account;
however, the Company does not currently assess this charge. The administrative
expense charge, if assessed, is expected to cover administrative costs
associated with the maintenance of the Contract, and the maximum fee is set at
a level which does not exceed the average expected cost of the administrative
services to be provided while the Contract is in force.
CHARGES AGAINST THE UNDERLYING FUNDS
Fund UL purchases shares of the Underlying Funds at net asset value. The net
asset value of the Underlying Fund shares reflects investment advisory fees and
other expenses already deducted from the assets of the Underlying Funds. The
investment advisory fees and other expenses applicable to each of the
Underlying Funds is described in the individual prospectuses for the Underlying
Funds.
SURRENDER CHARGES
There are two types of contingent surrender charges that can apply under the
Contract: a Percent of Premium Charge and a Per Thousand of Stated Amount
Charge. These surrender charges are contingent because they only apply during
the first ten Contract Years (or the first ten years following an increase in
Stated Amount). Both charges apply upon a full surrender of the Contract. Only
the Percent of Premium Charge applies upon a partial surrender.
Percent of Premium Charge
A Percent of Premium surrender charge will be assessed upon a full or partial
surrender of the Contract during the first ten Contract Years (or during the
first ten years following an increase in Stated Amount). The charge will be the
smallest of:
(a) 6% of the amount of Cash Value being surrendered; or
(b) 6% of the amount of premiums actually paid within the five years preceding
the surrender; or
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(c) 9% of the total Annual Minimum Premiums for each full or partial Contract
Year during the five years preceding the surrender, whether paid or not.
(See Appendix A, "Annual Minimum Premiums.")
For example (as illustrated on page 31), a Contract with a Stated Amount of
$150,000 for a 45-year old male who pays a premium of $1,895 per year for five
years (a total of $9,475), and then fully surrenders the Contract for its Cash
Value of $5,837 (assuming a 6% rate of return), the Percent of Premium
surrender charge would be $350, because (a) is $350 (6% of $5,837); (b) is $569
(6% of the $9,475 in premiums paid); and (c) is approximately $682 (9% of the
annual minimum premium for five years). The smallest, $350, is the applicable
charge.
Per Thousand of Stated Amount Charge
A Per Thousand of Stated Amount surrender charge is imposed on full
surrenders, but not on partial surrenders, and applies only during the first
ten Contract Years or the ten years following an increase in Stated Amount
(other than an increase due to a Cost of Living Adjustment or a change in Death
Benefit Option). The charge is equal to a specified dollar amount for each
$1,000 of Stated Amount to which it applies, and will apply only to that
portion of the Stated Amount (except for increases excluded above) which has
been in effect for less than ten years.
The Per Thousand of Stated Amount Charge varies by Stated Amount and original
issue age, and increases with the issue age of the Insured. For example, for
Stated Amounts of $499,999 or less, this charge varies in the first year from
$2.04 per $1,000 of Stated Amount for issue ages of 4 years or less, to $25.40
per $1,000 of Stated Amount for issue ages of 65 years or higher. The charge is
lower for Stated Amounts over $499,999, and even lower for Stated Amounts over
$999,999.
Additionally, the charge decreases by 10% each year over the ten-year period.
For example, for a 45 year old with a Stated Amount of $150,000, the charge in
the first year is $7.18 for each $1,000 of Stated Amount, or $1,077. The charge
decreases 10%, or approximately $0.72, each year, so in the fifth year, it is
$4.31 for each $1,000 of Stated Amount, or $646.50; in the tenth year, it is
$0.72 for each $1,000, or $108.
No more than 20% of the Per Thousand of Stated Amount Charge is a sales
charge. The remainder is designed to compensate the Company for administrative
expenses not covered by other administrative charges. The administrative
expense charge component of the Per Thousand of Stated Amount charge is set at
a level which does not exceed the average expected cost of the administrative
services to be provided while the Contract is in force. This administrative
charge component of the Surrender Charge may be reduced or eliminated when
sales are made under certain arrangements. (See "Reduction or Elimination of
Charges," below.) The Per Thousand of Stated Amount surrender charges are set
forth in Appendix B, and have been further split into the sales charge
component and the administrative charge component in Appendices B(1) and B(2),
respectively.
MAXIMUM SALES CHARGES
Although the total sales charges assessed under the Contract will vary based
on issue age, sex, year of surrender, amount of premium paid and amount
surrendered, the maximum total sales charge for any Contract will never exceed
26.7% of the total premiums paid.
10
<PAGE>
As stated above, the front-end sales charge for a Contract with no full or
partial surrenders will never exceed 2.5% of actual premiums paid. The sales
charges for a Contract with full or partial surrenders will vary, but in no
event will they exceed the percentage of premiums paid as shown below.
Maximum Sales Charges
Contract Year of Surrender (as a % of Premium Payments)
1 26.7%
2 24.9
3 23.1
4 21.2
5 19.4
6 16.1
7 14.4
8 12.5
9 10.6
10 8.8
11+ 2.5
As the table demonstrates, the maximum sales charge for any Contract is less
than 26.7% in every Contract Year other than the first (or in every year after
the first year following an increase).
For example (as depicted in the illustration on page 31), a Contract with a
Stated Amount of $150,000 for a 45-year old male who paid an initial premium of
$1,895 (approximately 125% of the annual minimum premium), and who surrendered
during the first year, would have a maximum sales load of $376 (20% of actual
premium paid). If, instead, he paid $1,895 per year for five years (or $9,475)
and surrendered in the sixth year, the maximum sales load would be $913 (9.6%
of actual premiums paid).
TRANSACTION CHARGE
The Company reserves the right to limit free transfers of Cash Value from one
Sub-Account to another by the Contract Owner to four times in any Contract
Year, and to charge $10.00 for any additional transfers. There is currently no
charge for transfers.
REDUCTION OR ELIMINATION OF CHARGES
The Company may offer the Contract in arrangements where an employer or
trustee will own a group of policies on the lives of certain employees, or in
other situations where groups of policies will be purchased at one time. The
Company may reduce or eliminate sales charges and administrative charges in
such arrangements to reflect the reduced sales expenses and administrative
costs expected as a result of sales to a particular group.
CONTRACT BENEFITS AND RIGHTS
DEATH BENEFIT
As with traditional life insurance contracts, the Death Benefit under the
Contract is the amount paid to the named beneficiary upon the Insured's death.
The Death Benefit will be reduced by any outstanding charges, fees and contract
loans. All or part of the Death Benefit may be paid in cash or applied under
one or more of the payment options described on page 12.
Each Contract Owner may elect one of two Death Benefit options set forth in
the Contract for calculating the amount of the Death Benefit. Under Option 1
(the "Level Option"), the Death Benefit will be equal to the Stated Amount of
the Contract or, if greater, a specified multiple of Cash Value (the "Minimum
Amount Insured"). Under Option 2 (the "Variable Option"), the Death Benefit
will be equal to
11
<PAGE>
the Stated Amount of the Contract plus the Cash Value (determined as of the
date of the Insured's death) or, if greater, the Minimum Amount Insured. The
Minimum Amount Insured is the amount required to qualify the Contract as a life
insurance contract under the current federal tax law. Under that law, the
Minimum Amount Insured is equal to a stated percentage of the Cash Value of the
Contract determined as of the first day of each Contract Month. The percentages
differ according to the attained age of the Insured. The Minimum Amount Insured
will be set forth in the Contract and may change as federal income tax laws or
regulations change. The percentages used to calculate the Minimum Amount
Insured decrease after the age of 40. The following is a schedule of the
applicable percentages:
% Shall Decrease
by a Ratable Portion
Attained Age for Each Full Year:
More But Not
Than More Than From To
- ---- --------- ---------- ---------
0 40 250 250
40 45 250 215
45 50 215 185
50 55 185 150
55 60 150 130
60 65 130 120
65 70 120 115
70 75 115 105
75 90 105 105
90 95 105 100
The federal tax law imposes another cash funding limitation on cash value
life insurance contracts that, when applicable, may increase the Minimum Amount
Insured in excess of the figures shown in the schedule above. This limitation
is known as the "guideline premium limitation," and it is generally applicable
during the early years of variable universal life insurance contracts.
The following examples demonstrate the relationship between the Death
Benefit, the Cash Surrender Value and the Minimum Amount Insured under Options
1 and 2 of the Contract. Both sets of examples assume an Insured of age 40, a
Minimum Amount Insured of 250% of Cash Value (assuming the preceding table is
controlling as to Minimum Amount Insured), and no outstanding contract loan.
OPTION 1 - Stated Amount: $75,000
In the following examples of an Option 1 "Level" Death Benefit, the Death
Benefit under the Contract is generally equal to the Stated Amount of $75,000.
Since the Contract is designed to qualify as a life insurance contract, the
Death Benefit cannot be less than the Minimum Amount Insured (or, in this
example, 250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Contract equals $10,000, the Minimum
Amount Insured would be $25,000 ($10,000 ~ 250%). If the Death Benefit in the
Contract is the greater of the Stated Amount ($75,000) or the Minimum Amount
Insured ($25,000), then the Death Benefit would be $75,000.
EXAMPLE TWO. If the Cash Value of the Contract equals $40,000, the Minimum
Amount Insured would be $100,000 ($40,000 ~ 250%). The resulting Death Benefit
would be $100,000 since the Death Benefit is the greater of the Stated Amount
($75,000) or the Minimum Amount Insured ($100,000).
EXAMPLE THREE. If the Insured is age 41, and the Cash Value of the Contract
equals $44,000, the Minimum Amount Insured would be $106,920 ($44,000 ~ 243%)
(243% is the applicable
12
<PAGE>
percentage for a 41-year old insured). The Death Benefit would be equal to
$106,920 which is the greater of the Stated Amount ($75,000) and the Minimum
Amount Insured ($106,920).
EXAMPLE FOUR. The Death Benefit may also increase or decrease with the
investment experience of the applicable Underlying Funds to the extent the
Minimum Amount Insured exceeds the Stated Amount. Consequently, if the 41-year
old Insured has a Cash Value equal to $35,000 instead of $44,000, the Death
Benefit would be $85,050 ($35,000 ~ 243%).
OPTION 2 - Stated Amount: $75,000
In the following examples of an Option 2 "Variable" Death Benefit, the Death
Benefit will vary with the investment experience of the applicable Underlying
Funds and will generally be equal to the Stated Amount plus the Cash Value of
the Contract (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 Cash Value).
EXAMPLE ONE. If the Cash Value of the Contract equals $10,000, the Minimum
Amount Insured would be $25,000 ($10,000 ~ 250%). The Death Benefit ($85,000)
would be equal to the Stated Amount ($75,000) plus the Cash Value ($10,000),
unless the Minimum Amount Insured ($25,000) was greater.
EXAMPLE TWO. If the Cash Value of the Contract equals $60,000, then the
Minimum Amount Insured would be $150,000 ($60,000 ~ 250%). The resulting Death
Benefit would be $150,000 because the Minimum Amount Insured ($150,000) is
greater than the Stated Amount plus the Cash Value ($75,000 + $60,000 =
$135,000).
EXAMPLE THREE. If the Insured is age 41, and the Cash Value of the Contract
equals $65,000, the Minimum Amount Insured would be $157,950 ($65,000 ~ 243%)
(243% is the applicable percentage for a 41-year old Insured). The resulting
Death Benefit under the Contract would be equal to $157,950 because the Minimum
Amount Insured ($157,950) is greater than the Stated Amount plus the Cash Value
($75,000 + $65,000 = $140,000).
EXAMPLE FOUR. The Death Benefit may also increase or decrease with the
investment experience of the applicable Underlying Funds. Consequently, if a
41-year old Insured has a Cash Value of $50,000 instead of $65,000, the Death
Benefit would be $125,000 because the Stated Amount plus the Cash Value
($75,000 + $50,000 = $125,000) is greater than the Minimum Amount Insured
($50,000 ~ 243% = $121,500).
As long as the Contract remains in effect, the Company guarantees that the
Death Benefit under either option will not be less than the current Stated
Amount of the Contract less any outstanding contract loan or Deduction Amount
due but unpaid. The Death Benefit under either option may vary with the Cash
Value of the Contract. Under Option 1, the Death Benefit equals the Stated
Amount and will vary only when the Minimum Amount Insured exceeds the Stated
Amount of the Contract. Under Option 2, the Death Benefit equals the Stated
Amount plus the Cash Value, unless the Minimum Amount Insured is greater, in
which case the Death Benefit is the greater amount.
Death Benefits are payable within seven days of the Company's receipt of
satisfactory proof of the Insured's death. The amount of Death Benefit actually
paid to the Contract beneficiary may be adjusted to reflect any contract loan,
suicide by the Insured within two years after the Issue Date of the Contract,
any material misstatements in the contract application as to age or sex of the
Insured, and any amounts payable to an assignee under a collateral assignment
of the Contract. (See "Assignment", page 21.) In
13
<PAGE>
addition, if the Insured dies during the 61-day period after the Company gives
notice to the Contract Owner that the Cash Surrender Value of the Contract is
insufficient to meet the Monthly Deduction Amount due against the Cash Value of
the Contract, the Death Benefit actually paid to the Contract Owner's
beneficiary will be reduced by the amount of the Deduction Amount that is due
and unpaid. (See "Cash Value and Cash Surrender Value," page 15, for effects of
partial cash surrenders on Death Benefits.)
Changes in Death Benefit Option
A Contract Owner may change the Death Benefit option at any time prior to the
Insured's death by sending a written request to the Company. There is no direct
consequence of changing a Death Benefit option, except as described under "Tax
Consequences of Modified Endowment Contracts" on page 23. However, the change
could affect future values of Net Amount at Risk, and with some Option 2 to
Option 1 changes involving substantially funded Contracts, there may be a cash
distribution which is included in the gross income of the Contract Owner.
Consequently, the cost of insurance charge which is based on the Net Amount at
Risk may be different in the future. If the change is from Option 2 to Option
1, the Stated Amount of the Contract will be increased by the Cash Value
(determined on the day the Company receives the written change request or on
the date the change is requested to become effective, if later). If the change
is from Option 1 to Option 2, the Stated Amount of the Contract will be
decreased by the Cash Value (determined on the date the Company receives the
written change request) so that the Death Benefit payable under Option 2 at the
time of the change will equal that which would have been payable under Option
1. A person who wishes a level Net Amount at Risk and an increasing Death
Benefit may choose to change from Option 1 to Option 2. Likewise, a person who
wishes a level Death Benefit and a decreasing Net Amount at Risk would choose
Option 1, not Option 2. No change from Option 1 to Option 2 will be permitted
if the change results in a Stated Amount of less than the minimum amount of
$75,000.
Changes in Stated Amount
A Contract Owner may request in writing that the Stated Amount of the
Contract be increased or decreased, 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 Contract may cause a
cash distribution that is includable in the gross income of the Contract Owner.
For increases in the Stated Amount, the Company may require a new application
and evidence of insurability as well as an additional premium payment. The
effective date of any increase will be as shown on the new Contract Summary
which the Company will send to the Contract Owner. The effective date of any
increase in the Stated Amount will generally be the Deduction Date next
following either the date of a new application or, if different, the date
requested by the Applicant. There is an additional Contract Administrative
Charge and a Per Thousand of Stated Amount Surrender Charge associated with a
requested increase in Stated Amount. There is no additional charge for a
decrease in Stated Amount.
14
<PAGE>
Benefits at Maturity
If the Insured is living on the Maturity Date (the anniversary of the
Contract Date on which the Insured is age 95), the Company will pay the
Contract Owner the Cash Value of the Contract, less any outstanding contract
loan or Deduction Amount due and unpaid. The Contract Owner must surrender the
Contract to the Company before such payment can be made, at which point the
Contract will terminate and the Company will have no further obligations under
the Contract.
Cash Value and Cash Surrender Value
As with traditional life insurance, each Contract will have a Cash Value. The
Cash Value of a Contract changes on a daily basis and will be computed on each
Valuation Date. The Cash Value will vary to reflect the investment experience
of the Underlying Funds, as well as any partial Cash Surrenders, Monthly
Deduction Amount, daily Separate Account charges, and any additional premium
payments. There is no minimum guaranteed Cash Value.
The Cash Value of a particular Contract is related to the net asset value of
the Underlying Funds to which premium payments on the Contract have been
allocated. The Cash Value on any Valuation Date is calculated by multiplying
the number of Accumulation Units credited to the Contract in each Sub-Account
as of the Valuation Date by the current Accumulation Unit Value of that
Sub-Account, then adding the collective result for each of the Sub-Accounts
credited to the Contract, and finally adding the value (if any) of the Loan
Account.
As long as the Contract is in effect, a Contract Owner may elect, without the
consent of the beneficiary (provided the designation of beneficiary is not
irrevocable), to surrender the Contract and receive its "Cash Surrender Value";
i.e., the Cash Value of the Contract determined as of the day the Company
receives the Contract Owner's written request, less any outstanding contract
loan, and less any applicable Surrender Charges. For full surrenders, the
Company will pay the Cash Surrender Value of the Contract within seven days
following its receipt of the written request or on the date requested by the
Contract Owner, whichever is later. The Contract will terminate on the
Deduction Date next following the Company's receipt of the written request, or
on the Deduction Date next following the date on which the Contract Owner
requests the surrender to become effective, whichever is later.
In the case of partial surrenders, the Cash Surrender Value will be equal to
the net amount requested to be surrendered minus any applicable Surrender
Charges. The deduction from Cash Value for a partial surrender will be made on
a pro rata basis against the Cash Value of each of the Sub-Accounts
attributable to the Contract (unless the Contract Owner states otherwise in
writing).
In addition to reducing the Cash Value of the Contract, partial cash
surrenders will reduce the Death Benefit payable under the Contract. Under
Option 1, the Stated Amount of the Contract will be reduced by the amount of
the partial cash surrender. Under Option 2, the Cash Value, which is part of
the Death Benefit, will be reduced by the amount of the partial cash surrender.
The Company may require return of the Contract to record such reduction.
Because the Stated Amount of a Contract may not be less than the minimum
$75,000, no partial cash surrenders will be permitted which will reduce the
Stated Amount below this minimum.
Transfer of Cash Value
As long as the Contract remains in effect, the Contract Owner may request
that all or a portion of the Cash Value of a particular Sub-Account be
transferred to other Sub-Accounts. The Contract Owner may make the request in
writing by mailing such request to the Company at its Home Office, or by
telephone
15
<PAGE>
by calling 1-800-334-4298 (proper authorization and identification will be
required for telephone transfers). The Company reserves the right to restrict
the number of such transfers to four times in any Contract Year and to charge
$10 for each additional transfer; however, there is currently no charge for
transfers.
As a result of a transfer, the number of Accumulation Units credited to the
Sub-Account from which the transfer is made will be reduced by the number
obtained by dividing the amount transferred from the Sub-Account by the
Accumulation Unit Value of that Sub-Account on the Valuation Date on which the
Company receives the transfer request. The number of Accumulation Units
credited to the Sub-Account to which the transfer is made will be increased by
the number obtained by dividing the amount transferred to the Sub-Account by
the Accumulation Unit Value of that Sub-Account on the Valuation Date on which
the Company receives the transfer request.
Dollar-Cost Averaging (Automated Transfers)
You may establish automated transfers of Contract Values on a monthly or
quarterly basis from certain of the Sub-Accounts to other Sub-Accounts through
written request or other method acceptable to the Company. You must have a
minimum total Contract 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 Contract,
including provisions relating to the transfer of money between Sub-Accounts.
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, Contract Owners should
consider the risks involved in switching between investments available under
this Contract. 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.
Contract Loans
A Contract Owner may obtain a cash loan from the Company secured by the
Contract not to exceed 90% of the Contract's Cash Value (determined on the day
on which the Company receives the written loan request), less any surrender
penalties. (This amount is 80% for loans taken prior to July 12, 1995.) No loan
requests may be made for amounts of less than $100.00. If there is a loan
outstanding at the time a subsequent loan request is made, the amount of the
outstanding loan will be added to the new loan request. Interest on a contract
loan will be 7.4% per year (6% in the Virgin Islands) and is payable in advance
each year the loan is outstanding. Interest not paid when due will be added to
the outstanding amount of the loan for the next Contract Year and will bear
interest at the same rate.
The amount of the loan will be transferred as of the date the loan is made on
a pro rata basis from each of the Sub-Accounts attributable to the Contract
(unless the Contract Owner states otherwise) to another account (the "Loan
Account"). Amounts in the Loan Account will be credited by the Company with a
fixed annual rate of return of 4% (6% in New York and Massachusetts) and will
not be affected by the investment performance of the Underlying Funds. When
loan repayments are made, the amount of the repayment will be deducted from the
Loan Account and will be reallocated based upon premium allocation percentages
among the Sub-Accounts applicable to the Contract (unless the Contract Owner
16
<PAGE>
states otherwise). The Company will make the loan to the Contract Owner within
seven days after receipt of the written loan request.
An outstanding loan amount decreases Cash Surrender Value. If a loan is not
repaid, it permanently decreases the Cash Surrender Value, which could cause
the Contract to lapse (see "Lapse and Reinstatement" below). For example, if a
Contract has a Cash Surrender Value of $10,000, the Contract Owner may take a
loan of 90% or $9,000, leaving a new Cash Surrender Value of $1,000. In
addition, the Death Benefit actually payable would be decreased because of the
outstanding loan. Furthermore, even if the loan is repaid, the Death Benefit
and Cash Surrender Value may be permanently affected since the Contract Owner
was not credited with the investment experience of an Underlying Fund on the
amount in the Loan Account while the loan was outstanding. All or any part of a
loan secured by a Contract may be repaid while the Contract is still in effect.
Lapse and Reinstatement
The Contract will remain in effect until the Cash Surrender Value of the
Contract is insufficient to cover the Monthly Deduction Amount. If such event
occurs, the Company will give written notice to the Contract Owner indicating
that if the amount shown in the notice (which will be sufficient to cover the
Deduction Amount due) is not paid within 61 days (the "Late Period"), the
Contract may lapse. The Contract will continue through the Late Period, but if
no payment is forthcoming, it will terminate at the end of the Late Period. If
the person insured under the Contract dies during the Late Period, the Death
Benefit payable under the Contract will be reduced by the Monthly Deduction
Amount due plus the amount of any outstanding contract loan. (See "Death
Benefit," page 11.)
If the Contract lapses, the Contract Owner may reinstate the Contract upon
payment of the reinstatement premium (and any applicable charges) shown in the
Contract. A request for reinstatement may be made at any time within three
years of lapse. The Net Premium due upon reinstatement is at least one-quarter
of the Annual Minimum Premium, as shown in Appendices A and B, less any charges
or fees, calculated as of the Deduction Date next following receipt of premium
by the Company. The Cash Value of the Contract upon reinstatement will be equal
to the Net Premium. In addition, the Company reserves the right to require
satisfactory evidence of insurability.
Exchange Rights
Once the Contract is in effect, it may be exchanged at any time during the
first 24 months after its issuance for a general account life insurance
contract issued by the Company (or an affiliated company) on the life of the
Insured. Benefits under the new life insurance contract will be as described in
that contract. No evidence of insurability will be required. The Contract Owner
has the right to select the same Death Benefit or Net Amount at Risk as the
former Contract. Cost of insurance rates will be based on the same risk
classification as those of the former Contract. Any outstanding contract loan
must be repaid before the Company will make an exchange. In addition, there may
be an adjustment for the difference in Cash Value between the two contracts.
PAYMENT OPTIONS
Proceeds payable under the Contract will be paid in a lump sum, unless the
Contract Owner selects one of the Company's payment options. Payment of
proceeds which exceed the Death Benefit may be deferred 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 the
17
<PAGE>
Company consents to a lesser amount. Proceeds applied under an option will no
longer be affected by the investment experience of the Underlying Funds.
The following payment options are available under the Contract:
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
The Company will make any other arrangements for periodic payments as may be
agreed upon. If any periodic payment due any payee is less than $50.00, the
Company may make payments less often. If the Company has declared a higher rate
under an option at the date the first payment under an option is due, the
Company will base the payments on the higher rate.
PERFORMANCE INFORMATION
From time to time, Fund UL's Sub-Accounts may show the percentage change in
the value of an Accumulation Unit based on the performance of the Sub-Account
over a period of time, usually for the past one-, two-, three-, five-, and
ten-year periods determined by dividing the increase (decrease) in value for
that unit by the Accumulation Unit Value at the beginning of the period.
Performance returns reflect that prior to December 13, 1993, the charges
assessed against the Sub-Accounts were the Contract's guaranteed maximum
mortality and expense risk charge at an annual rate of 0.80% and the maximum
administrative expense charge at an annual rate of 0.10% and that on December
13, 1993, the charges were reduced on a current basis to 0.60% and 0.0%,
respectively.
All Sub-Accounts of Fund UL except the Cash Income Trust Sub-Account invest
in Underlying Funds that were in existence prior to the date on which the
Underlying Fund became available under the Contract. Average annual rates of
return include periods prior to the inception of the Sub-Account and for those
Sub-Accounts are calculated by adjusting the actual returns of the Underlying
Funds to reflect the charges that would have been assessed under the
Sub-Accounts had the Underlying Fund been available under Fund UL during the
period shown.
The following performance information represents the percentage change in the
value of an Accumulation Unit of the Sub-Accounts for the periods indicated,
and reflects all expenses of the Underlying Funds, as well as Sub-Account
charges of 0.90% prior to December 13, 1993 and 0.60% thereafter. The rates of
return do not reflect the 2.5% front-end sales charge or the 2.5% state premium
tax charge (both of which are deducted from premium payments) nor do they
reflect surrender charges or monthly deduction amounts. The surrender charges
and monthly deduction amounts for a hypothetical Insured are depicted in the
Example following the Rates of Returns. For information about the Charges and
Deductions assessed under the Contract, see page 7. For illustrations of how
these charges affect Cash Values and Death Benefits, see the Illustrations
beginning on page 27.
18
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RATES OF RETURN1
FOR PERIODS ENDED DECEMBER 31, 1994
- ----------------------------------------------------------------------------
SUB-ACCOUNTS 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
Capital Appreciation Fund (5.61)% 7.82% 9.34% 9.58%
Cash Income Trust 2.15 % 1.93% 3.68% -
High Yield Bond Trust (0.2)% 7.53% 7.21% 3.75%
Managed Assets Trust (2.85)% 3.16% 5.87% 10.69%
U.S. Government Securities Portfolio (6.47)% - - -
Templeton Stock Fund (3.08)% 11.00% 8.79% -
Utilities Portfolio2
Templeton Asset Allocation Fund (3.84)% 8.82% 8.27% -
Templeton Bond Fund (5.74)% 2.90% 5.69% -
Fidelity's High Income Portfolio (2.43)% 12.47% 13.05% -
Fidelity's Equity-Income Portfolio 6.12 % 12.99% 9.54% -
Fidelity's Growth Portfolio (0.91)% 8.32% 9.91% -
Fidelity's Asset Manager Portfolio (6.95)% 7.40% 7.75% -
Dreyfus Stock Index Fund (0.03)% 4.78% - -
Smith Barney Income and Growth Portfolio2
Alliance Growth Portfolio2
Smith Barney High Income Portfolio2
MFS Total Return Portfolio2
Smith Barney Total Return Portfolio2
1 These returns assume that the Contract's guaranteed maximum Sub-Account
charges of 0.60% were deducted for 1994.
2 One year's performance not available.
EXAMPLE OF CONTRACT CHARGES
The following chart illustrates the surrender charges and Monthly Deduction
Amounts that would apply under a Contract based on the assumptions listed
below. Surrender charges and Monthly Deduction Amounts generally will be higher
for an Insured who is older than the assumed Insured, and lower for an Insured
who is younger (assuming the Insureds have the same risk classification). Cost
of insurance rates go up each year as the Insured becomes a year older.
Male, Age 35
Standard Non-Smoker
Annual Premium: $ 748.00
Hypothetical Gross Annual Investment Rate of Return: 8%2
Face Amount: $100,000
Level Death Benefit Option
Current Charges
<TABLE>
Total Monthly Deduction
- -----------------------------------------------------------------------------------------
Surrender Charges for the Policy Year
--------------------------- ------------------------
<CAPTION>
Sales Charge
Administrative Component of Cost of
Policy Cumulative Sales Charge Charge Surrender Charge Insurance Administrative
Year Premiums Component Component as % of Cum. Prem. Charges Charges
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $748.00 $88.20 $352.80 11.79% $154.00 $228
2 $1,496.00 $84.20 $336.80 5.63% $167.00 $228
3 $2,244.00 $80.40 $321.60 3.58% $178.00 $228
5 $3,740.00 $79.00 $316.00 2.11% $200.00 $0
10 $7,480.00 $53.20 $212.80 0.71% $275.00 $0
</TABLE>
2 Hypothetical investment results shown above are illustrative only and should
not be deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown.
Hypothetical investment results may be different from those shown if the actual
rates of return averaged 8%, but fluctuated above or below that average for
individual policy years.
No representations can be made that the hypothetical rates assumed can be
achieved for any one year or sustained over any period of time.
19
<PAGE>
OTHER MATTERS
Voting Rights
In accordance with its view of present applicable law, the Company will vote
the shares of the Underlying Funds at regular and special meetings of the
shareholders of the Underlying Funds in accordance with instructions from
Contract Owners (or the contract beneficiaries, as the case may be) having a
voting interest in Fund UL. The Company will vote shares for which no
instructions have been given or shares which are not otherwise attributable to
Contract Owners in the same proportion as it votes shares for which it has
received instructions. If the Investment Company Act of 1940 or any rule
promulgated thereunder should be amended, however, or if the Company's present
interpretation should change and, as a result, the Company determines it is
permitted to vote the shares of the Underlying Funds in its own right, it may
elect to do so.
The voting interests of the Contract Owner (or the beneficiary) in the
Underlying Funds will be determined as follows: Contract Owners may cast one
vote for each $100 of Cash Value of the Contract allocated to the Sub-Account,
the assets of which are invested in the particular Underlying Fund on the
record date for the shareholder meeting for that Fund. Fractional votes are
counted. If, however, a Contract Owner has taken a loan secured by the
Contract, amounts transferred from the Sub-Account(s) to the Loan Account in
connection with the loan will not be considered in determining the voting
interests of the Contract Owner.
Contract Owners should review the prospectuses for the Underlying Funds to
determine matters on which shareholders may vote and the definition of a
majority vote required on some matters.
Disregard of Voting Instructions
When permitted by state insurance regulatory authorities, the Company may
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the investment objective or policies of Fund
UL or one of the Underlying Funds, or to approve or disapprove an investment
advisory contract of one of the Underlying Funds. In addition, the Company may
disregard voting instructions in favor of changes in the investment policies or
the investment adviser of any of the Underlying Funds which are initiated by a
Contract Owner if the Company reasonably disapproves 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 the Company determines that
the change would have an adverse effect on its general account in that the
proposed investment policy for an Underlying Fund may result in overly
speculative or unsound investments. In the event that the Company does
disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next annual report to Contract Owners.
Statements to Contract Owners
The Company will maintain all records relating to Fund UL and the
Sub-Accounts. At least once in each Contract Year, the Company will send to
Contract Owners a statement containing the following information: (1) the
Stated Amount and the Cash Value of the Contract (indicating the number of
Accumulation Units credited to the Contract in each Sub-Account and the
corresponding Accumulation Unit Value); (2) the date and amount of each premium
payment; (3) the date and amount of each Monthly Deduction; (4) the amount of
any outstanding contract loan as of the date of the statement, and the amount
of any loan interest charged on the Loan Account; (5) the date and amount of
any partial cash surrenders and the amount of any surrender charges; (6) the
annualized cost of any supplemental benefits
20
<PAGE>
purchased under the Contract; and (7) a reconciliation since the last report of
any change in Cash Value and Cash Surrender Value. The Company will also send
any other reports required by any applicable state or federal laws or
regulations.
Limit on Right to Contest
The Company may not contest the validity of the Contract after it has been in
effect during the Insured's lifetime for two years from the Issue Date. If the
Contract 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. 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 contract 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 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 Contract would have provided with the correct
information. A misstatement with regard to sex or age in a substantially funded
Contract may cause a cash distribution that is includable in whole or in part
in the gross income of the Contract Owner.
Suspension of Valuation
The Company reserves the right to suspend or postpone the date of any payment
of any benefit or values for any Valuation Period (1) when the New York Stock
Exchange is closed; (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 Sub-Accounts is not reasonably
practicable or it is not reasonably practicable to determine the value of the
Sub-Account's net assets; or (4) during any other period when the Securities
and Exchange Commission, by order, so permits for the protection of security
holders.
Beneficiary
The Applicant names the beneficiary in the application for the Contract. The
Contract Owner may change the beneficiary (unless irrevocably named) during the
Insured's lifetime by sending a written request to the Company. If no
beneficiary is living when the Insured dies, the Death Benefit will be paid to
the Contract Owner, if living; otherwise, the Death Benefit will be paid to the
Contract Owner's estate.
Assignment
The Contract 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.
Dividends
No dividends will be paid under the Contract.
21
<PAGE>
FEDERAL TAX CONSIDERATIONS
General
The following general description of tax consequences represents the law in
effect on the date of this Prospectus. This discussion is not intended as tax
advice, and applicants should consult with their own tax advisers before
purchasing a Contract.
Potential purchasers should understand that tax laws can change, even at
times with respect to policies of insurance that have already been issued.
Legislative proposals have been introduced in Congress in recent years that
would have altered some of the tax consequences described below to generally
less favorable results. It is to be expected that such legislative proposals
will again come before Congress from time to time. Previous proposals have
generally had prospective effects as to contracts first issued after a current
date, but some would have had retroactive effect on previously issued policies
or on new voluntary transactions in previously issued policies.
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. 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 Sub-Accounts 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 owners were not owners of separate account assets. For
example, a Policy Owner of this Policy has additional flexibility in allocating
payments and cash values. These differences could result in the Policy Owner
being treated as the owner of the assets of Fund UL. 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 Fund UL.
The remaining tax discussion assumes that the Policy qualifies as a life
insurance contract for federal income tax purposes.
Taxation of the Company
The Company is taxed as a life insurance company under federal income tax
law. Presently, the Company does not expect to incur any income tax on the
earnings or the realized capital gains attributable to Fund UL. However, the
Company may assess a charge against the Sub-Accounts for federal
22
<PAGE>
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
under future tax law.
Tax Consequences of Life Insurance Contracts
Death Benefit payments made under life insurance contracts are generally
excludable from the gross income of the beneficiary under federal and state tax
law unless the contract was sold or transferred for a valuable consideration. A
gift of the ownership of the Contract will not make the death proceeds
includable in the gross income of the beneficiary. The Death Benefit of a
corporate-owned life insurance policy may be includable in part in the gross
income of the corporation under certain applications of the alternative minimum
tax law.
No part of the investment growth in any cash value life insurance contract is
generally includable in the gross income of the Contract Owner unless the
policy matures, or is surrendered, or otherwise terminates with income in the
Contract before death, or unless the Contract is partially surrendered for an
amount in excess of the adjusted cost basis of the policy. During the first
fifteen years of contract duration, the "cost-recovery-first" rule for the
taxation of partial surrenders and certain other transactions that reduce
future benefits may be reversed to an income-first rule under the federal tax
law. This will occur only in the case of substantially funded contracts where
the reduced contract Death Benefit amount compared to the original premiums as
actuarially adjusted would not meet the federal tax definition of life
insurance. The Company anticipates that most partial surrenders will not be
taxed in this manner, but rather that the traditional cost-recovery-first tax
rule will apply.
Any loan received under the Contract will be treated as indebtedness of the
Contract Owner and no part of the loan under current law will constitute income
to the Contract Owner. A loan outstanding at the time of maturity, surrender or
other termination of the Contract will be considered a distribution at that
point and will be includable in income to the extent of income in the Contract.
The proceeds of life insurance owned by a decedent are generally includable
in the gross estate of a decedent unless all incidents of ownership in the
Contract were given away more than three years prior to death. This is true
regardless of who receives the proceeds of the Contract. The federal estate tax
law does not require a tax to be paid unless the taxable estate including
insurance proceeds exceeds $600,000 for deaths occurring in 1987 or later.
Proceeds of insurance and other property received by the surviving spouse of a
decedent are fully deductible under federal estate tax law. State and local
estate or inheritance taxes vary greatly in their application to insurance
proceeds. The proceeds of insurance contracts are exempt from state death taxes
in a number of states which otherwise impose such taxes. A number of other
states impose no broad-based death taxes. Other states follow the federal rule.
If ownership of a contract is given away, the value of the gift for federal,
state or local gift tax purposes approximates the Cash Value of the Contract at
the point of gift. The federal threshold for gift taxes is the same as for
estate taxes. There will be no tax due before accumulated taxable gifts made
since 1976 exceed $600,000.
Tax Consequences of Modified Endowment Contracts
A Contract Owner can purchase a contract which is a modified endowment
contract, or which becomes a modified endowment contract at a later point in
its duration. The tax consequences of such contracts differ in several respects
from those described above under "Tax Consequences of Life Insurance
Contracts."
23
<PAGE>
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. 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 issued
after September 13, 1993 may become a modified endowment contract, but does not
yet have complete procedures in place for monitoring Contracts issued before
that date.
A modified endowment contract has income-first taxation of all loans,
pledges, collateral assignments or partial surrenders to the extent of income
in the contract. An additional income tax of 10% may apply to taxable
distributions or deemed taxable distributions prior to the Contract Owner
attaining age 591/2, with certain exceptions.
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 Cash Value of a modified endowment contract is
includable in the gross income of the Contract Owner unless the contract
matures, is distributed or partially surrendered, is pledged, collaterally
assigned, or borrowed against, or otherwise terminates with income in the
contract prior to death. A full surrender of the contract after age 591/2 will
have the same tax consequences as noted above in "Tax Consequences of Life
Insurance Contracts."
24
<PAGE>
DISTRIBUTION OF THE CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. The Contracts will
be sold by life insurance sales representatives who are registered
representatives of the Company or certain other registered broker-dealers. 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. Any sales representative or employee
will have been qualified to sell variable life insurance contracts under
applicable federal and state laws. The maximum commission payable by the
Company for distribution is 50% of annual minimum premium.
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 Travelers Group Inc. include, prior to
December 31, 1993, Primerica Corporation or its predecessors.
<TABLE>
<CAPTION>
Name and Principal
- -----------------------
Business Address Business Experience During the Past Five Years
- ----------------------- -----------------------------------------------------------------------------
<S> <C>
Robert I. Lipp Director of The Travelers Insurance Company since December 1992. Chairman
and President of The Travelers Insurance Company since September 1994;
Director and Chief Executive Officer of The Travelers Insurance Group Inc.
since December 1993; Vice Chairman and Director of Travelers Group Inc.
since 1991; Chairman and Chief Executive Officer of Commercial Credit
Company (1991-1993); Executive Vice President (1986-1991), Primerica
Corporation.
Jay S. Fishman Director of The Travelers Insurance Company since February 1994 and Chief
Financial Officer since December 1993; Director since February 1994 and
Chief Financial Office since December 1993 of The Travelers Insurance Group
Inc.; Senior Vice President since 1991 and Treasurer (1991-1994) of Travelers
Group Inc.; Executive Vice President and Chief Financial Officer (1989-1991),
Consumer Services Group, Commercial Credit.
Charles O. Prince, III* Director of The Travelers Insurance Company since February 1994; Senior
Vice President and General Counsel and Corporate Secretary of Travelers
Group Inc. since 1985.
Marc P. Weill Director since February 1994 and Chief Investment Officer since January
1995 and Senior Vice President-Investments since December 1993 of The
Travelers Insurance Company; Senior Vice President of Travelers Group Inc.,
since 1992; Vice President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
25
<PAGE>
- -------------------- ==========================================================================
Name and Principal
- --------------------
Business Address Business Experience During the Past Five Years
- -------------------- --------------------------------------------------------------------------
Donald T. DeCarlo Director since April 1995 of The Travelers Insurance Company; General
Counsel and Secretary since October, 1994 of The Travelers Insurance
Company; Deputy General Counsel since June 1989 of Travelers Group Inc.;
Executive Vice President since August 1987 of Gulf Insurance Group.
Irwin R. Ettinger* Director since September 1994 of The Travelers Insurance Company. Senior
Vice President (1987-present) and Chief Accounting Officer (1990-present),
Travelers Group Inc.
Michael A. Carpenter Director since January 1995 of The Travelers Insurance Company, Executive
Vice President since 1995 of Travelers Group Inc.; Chairman, President and
Chief Executive Officer (1989-1994), Kidder Peabody Group Inc.
</TABLE>
* Principal business address: Travelers Group Inc., 65 East 55th Street, New
York, New York.
SENIOR OFFICERS OF THE TRAVELERS INSURANCE COMPANY
The following are the Senior Officers of The Travelers Insurance Company
(other than 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.
NAME POSITION WITH INSURANCE COMPANY
- ------------------- --------------------------------------------------
Jay S. Benet Senior Vice President
Robert E. Evans Senior Vice President
Thomas E. Helfrich Senior Vice President
Barry L. Mannes* Senior Vice President
James L. Morgan Senior Vice President and Chief Accounting Officer
Richard F. Morrison Senior Vice President
Thompson Shea Senior Vice President-Audit
David A. Tyson Senior Vice President
Denney Voss Senior Vice President
William H. White Vice President and Treasurer
Donald T. DeCarlo General Counsel and Secretary
* Principal business address: Smith Barney Inc., 388 Greenwich Street, New
York, New York.
Information relating to the management of the Underlying Funds is contained
in the Underlying Fund prospectuses.
LEGAL PROCEEDINGS AND OPINION
There are no pending material legal proceedings affecting the Contract, Fund
UL or any of the Underlying Funds.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the variable universal life insurance contract described in
this Prospectus and the organization of the Company, its authority to issue the
Contract under Connecticut law and the validity of the forms of the Contract
under Connecticut law have been passed on by the General Counsel of the Life
and Annuities Division of the Company.
26
<PAGE>
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., Independent Accountants, 100 Pearl Street,
Hartford, Connecticut, are the independent auditors for Fund UL. The services
provided to Fund UL include primarily the examination of Fund UL's financial
statements. The financial statements have been audited by Coopers & Lybrand
L.L.P., as indicated in their reports thereon, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus does
not contain all information set forth in the Registration Statement, its
amendments and exhibits, to which reference is made for further information
concerning Fund UL, the Underlying Funds, the Company and the Contract.
ILLUSTRATIONS
The following pages are intended to illustrate how the Account Value, Cash
Surrender Value and Death Benefit can change over time for Contracts issued to
a 25 year old male and a 45 year old male. The difference between the Account
Value and the Cash Surrender Value in these illustrations represents the
Surrender Charge that would be incurred upon a full surrender of the Contract.
For each issue age (25 and 45), there are two pages of values. One page
illustrates the assumption that the maximum Guaranteed Cost of Insurance Rates,
mortality and expense risk charge, and administrative expense charge allowable
under the Contract 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 the monthly administrative charge varies
by age and amount of insurance. The illustrations reflect a deduction of 5%
from each annual premium for premium tax (2.5%) and front end sales charge
(2.5%).
The values shown in these illustrations vary according to the assumptions
used for expense charges, credited interest and mortality charges. Interest is
assumed to be credited to the Account Value at the net investment rate of
return, which is equal to the hypothetical gross investment rate of return (0%,
6% or 12%) minus either 1.74% for guaranteed charges, or 1.44% for current
charges. The 1.74% guaranteed charge consists of 0.80% for mortality and
expense risks, 0.10% for administrative expenses, and 0.84% for Underlying Fund
expenses. The 1.44% current charge consists of 0.60% for mortality and expense
risks, and 0.84% for Underlying Fund expenses.
The charge for Underlying Fund expenses for all illustrations is an average
of the investment advisory fees and other expenses charged by all of the
Underlying Funds. The Underlying Fund expenses for some of the Underlying Funds
reflect an expense reimbursement agreement currently in effect. For the year
ended December 31, 1994, these reimbursement agreements affected the total
operating expenses of the Underlying Funds as follows:
1. The Company has agreed to reimburse Capital Appreciation Fund (CAF), Cash
Income Trust (CIT), High Yield Bond Trust (HYBT), Managed Assets Trust
(MAT), the U.S. Government Securities Portfolio (USGSP) and the Utilities
Portfolio (UP), for the amount by which each fund's aggregate annual
expenses, including investment advisory fees, but excluding brokerage
commissions, interest charges and taxes, exceed 1.25%. In the absence of the
reimbursement agreement with the Company, the operating expenses charged to
CIT, HYBT and UP in 1994 would have been 6.40%, 1.33% and 3.49%,
respectively. The expense reimbursement agreement did not affect the
operating expenses of CAF, MAT or USGSP during 1994.
27
<PAGE>
2. The administrator and investment adviser for the Dreyfus Stock Index Fund
have agreed to reimburse the Fund for expenses in excess of 0.40%. In the
absence of the reimbursement agreement, such expenses would have been .57%
in 1994.
3. No reimbursement arrangements were in effect for the Templeton Stock, Bond
and Asset Allocation Funds during 1994.
4. No reimbursement arrangement affected Fidelity's High Income Portfolio
during 1994. However, without an expense reimbursement arrangement Other
Expenses would have been: Equity-Income Portfolio 0.60%, Growth Portfolio
0.70% and Asset Manager Portfolio, 0.81%.
If such fees were not waived and expenses were not reimbursed, Total
Underlying Expenses for the Smith Barney/Travelers Series Fund Portfolios would
have been: Smith Barney Income and Growth Portfolio, 2.08%; Alliance Growth
Portfolio, 1.76%; Smith Barney High Income Portfolio, 2.60%; MFS Total Return
Portfolio, 2.51%. If such fees were not waived and expenses were not
reimbursed, Total Underlying Expenses for the Smith Barney Series Fund Total
Return Portfolio would have been 4.14%.
Although these reimbursement arrangements are expected to continue in
subsequent years, the effect of discontinuance could be higher expenses charged
to Contract Owners.
As stated above, the examples illustrate values that would result based upon
hypothetical uniform gross investment rates of return of 0%, 6% and 12%. The
values would be different from those shown if the gross rates averaged 0%, 6%,
and 12% over a period of years, but fluctuated above and below those averages.
The illustrations also assume that premiums are paid as indicated, no
contract 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.
The illustrations do not reflect any charges for federal income taxes against
Fund UL, since the Company is not currently deducting such charges from Fund
UL. However, such charges may be made in the future, and in that event, the
gross annual investment rates of return would have to exceed 0%, 6% and 12% by
an amount sufficient to cover the tax charges in order to produce the Death
Benefits, Account Values and Cash Surrender Values illustrated.
Upon request, the Company will provide a comparable illustration based upon
the proposed Insured's age, sex, underwriting classification, the specified
insurance benefits, and the premium requested. The hypothetical gross annual
investment return assumed in such an illustration will not exceed 12%.
28
<PAGE>
INVEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
Male, Issue Age 25
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $774.38
<TABLE>
<CAPTION>
Death Benefit Cash Value Cash Surrender Value
----------------------- -------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 813 150,000 150,000 150,000 244 272 301 0 0 0
2 1,667 150,000 150,000 150,000 484 556 632 39 107 179
3 2,563 150,000 150,000 150,000 720 852 997 308 432 568
4 3,505 150,000 150,000 150,000 1,239 1,457 1,705 841 1,046 1,279
5 4,493 150,000 150,000 150,000 1,749 2,088 2,486 1,367 1,685 2,059
6 5,531 150,000 150,000 150,000 2,253 2,748 3,349 1,887 2,352 2,917
7 6,620 150,000 150,000 150,000 2,748 3,437 4,302 2,399 3,046 3,865
8 7,764 150,000 150,000 150,000 3,235 4,156 5,352 2,903 3,786 4,982
9 8,966 150,000 150,000 150,000 3,710 4,902 6,508 3,394 4,577 6,183
10 10,227 150,000 150,000 150,000 4,169 5,673 7,777 3,890 5,394 7,498
15 17,546 150,000 150,000 150,000 6,154 9,859 16,180 6,154 9,859 16,180
20 26,886 150,000 150,000 150,000 7,502 14,551 29,494 7,502 14,551 29,494
25 38,807 150,000 150,000 150,000 8,042 19,688 50,882 8,042 19,688 50,882
30 54,021 150,000 150,000 150,000 7,537 25,160 85,858 7,537 25,160 85,858
35 73,439 150,000 150,000 192,568 5,524 30,668 143,707 5,524 30,668 143,707
40 98,222 150,000 150,000 289,891 614 35,094 237,616 614 35,094 237,616
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Current cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
29
<PAGE>
INVEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
Male, Issue Age 25
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $774.38
<TABLE>
<CAPTION>
Death Benefit Cash Value Cash Surrender Value
------------------------ --------------------- ---------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 813 150,000 150,000 150,000 179 205 231 0 0 0
2 1,667 150,000 150,000 150,000 360 424 492 0 0 47
3 2,563 150,000 150,000 150,000 541 655 781 140 247 365
4 3,505 150,000 150,000 150,000 1,004 1,191 1,404 620 796 996
5 4,493 150,000 150,000 150,000 1,458 1,747 2,088 1,093 1,365 1,685
6 5,531 150,000 150,000 150,000 1,900 2,323 2,838 1,555 1,953 2,437
7 6,620 150,000 150,000 150,000 2,328 2,917 3,656 2,004 2,557 3,252
8 7,764 150,000 150,000 150,000 2,740 3,527 4,550 2,438 3,177 4,180
9 8,966 150,000 150,000 150,000 3,134 4,151 5,522 2,853 3,826 5,197
10 10,227 150,000 150,000 150,000 3,507 4,788 6,580 3,250 4,509 6,301
15 17,546 150,000 150,000 150,000 4,966 8,067 13,369 4,966 8,067 13,369
20 26,886 150,000 150,000 150,000 5,469 11,196 23,469 5,469 11,196 23,469
25 38,807 150,000 150,000 150,000 4,663 13,716 38,719 4,663 13,716 38,719
30 54,021 150,000 150,000 150,000 1,857 14,734 62,255 1,857 14,734 62,255
35 73,439 0* 150,000 150,000 0* 12,418 99,814 0* 12,418 99,814
40 98,222 0* 150,000 197,409 0* 3,499 161,811 0* 3,499 161,811
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
* Insufficient cash value would be developed to continue the contract without
additional premium payments.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
30
<PAGE>
INVEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
Male, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,895.63
<TABLE>
<CAPTION>
Death Benefit Cash Value Cash Surrender Value
----------------------- -------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,990 150,000 150,000 150,000 885 963 1,042 0 0 0
2 4,080 150,000 150,000 150,000 1,728 1,940 2,161 655 855 1,062
3 6,275 150,000 150,000 150,000 2,525 2,926 3,363 1,513 1,889 2,300
4 8,579 150,000 150,000 150,000 3,710 4,369 5,116 2,733 3,352 4,055
5 10,998 150,000 150,000 150,000 4,838 5,837 7,012 3,901 4,840 5,945
6 13,539 150,000 150,000 150,000 5,916 7,338 9,075 5,023 6,359 7,992
7 16,206 150,000 150,000 150,000 6,943 8,872 11,320 6,096 7,909 10,321
8 19,007 150,000 150,000 150,000 7,913 10,435 13,764 7,116 9,544 12,873
9 21,947 150,000 150,000 150,000 8,825 12,027 16,425 8,080 11,242 15,640
10 25,035 150,000 150,000 150,000 9,662 13,633 19,313 8,985 12,956 18,636
15 42,950 150,000 150,000 150,000 12,803 21,996 38,333 12,803 21,996 38,333
20 65,815 150,000 150,000 150,000 13,091 29,969 68,165 13,091 29,969 68,165
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
** Current cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
31
<PAGE>
INVEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
Male, Issue Age 45
Preferred, Non-Smoker
Face Amount: $150,000
Annual Premium: $1,895.63
<TABLE>
<CAPTION>
Death Benefit Cash Value Cash Surrender Value
------------------------ -------------------- --------------------
Total
Premiums
with 5%
Year Interest 0% 6% 12% 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,990 150,000 150,000 150,000 645 716 787 0 0 0
2 4,080 150,000 150,000 150,000 1,226 1,407 1,597 183 354 532
3 6,275 150,000 150,000 150,000 1,740 2,068 2,429 775 1,083 1,422
4 8,579 150,000 150,000 150,000 2,612 3,138 3,739 1,701 2,195 2,760
5 10,998 150,000 150,000 150,000 3,404 4,186 5,115 2,553 3,288 4,162
6 13,539 150,000 150,000 150,000 4,109 5,205 6,558 3,324 4,354 5,626
7 16,206 150,000 150,000 150,000 4,716 6,182 8,064 4,003 5,381 7,150
8 19,007 150,000 150,000 150,000 5,216 7,105 9,629 4,581 6,356 8,738
9 21,947 150,000 150,000 150,000 5,598 7,957 11,249 5,046 7,264 10,464
10 25,035 150,000 150,000 150,000 5,849 8,725 12,921 5,390 8,094 12,244
15 42,950 150,000 150,000 150,000 4,869 10,834 22,047 4,869 10,834 22,047
20 65,815 0* 150,000 150,000 0* 7,801 31,982 0* 7,801 31,982
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained period of time.
* Insufficient cash value would be developed to continue the contract without
additional premium payments.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
32
<PAGE>
APPENDIX A
ANNUAL MINIMUM PREMIUMS
(Per Thousand of Stated Amount)
Age Male Female
- ----------------
0 2.80 2.42
1 2.69 2.47
2 2.59 2.48
3 2.58 2.47
4 2.58 2.47
5 2.58 2.47
6 2.58 2.47
7 2.60 2.49
8 2.62 2.52
9 2.66 2.56
10 2.72 2.62
11 2.80 2.68
12 2.89 2.76
13 3.01 2.84
14 3.13 2.94
15 3.25 3.04
16 3.38 3.16
17 3.51 3.28
18 3.62 3.40
19 3.72 3.47
20 3.81 3.53
21 3.90 3.60
22 3.98 3.67
23 4.05 3.73
24 4.08 3.71
25 4.13 3.76
26 4.30 3.93
27 4.45 4.09
28 4.61 4.26
29 4.76 4.41
30 4.92 4.60
31 5.12 4.80
32 5.32 5.02
33 5.52 5.22
34 5.74 5.46
35 5.98 5.71
36 6.33 6.01
37 6.66 6.31
38 7.01 6.64
39 7.34 6.97
40 7.69 7.34
41 8.17 7.75
42 8.66 8.18
43 9.14 8.62
44 9.63 9.11
45 10.11 9.59
46 10.79 10.13
47 11.47 10.70
Age Male Female
48 12.15 11.29
49 12.83 11.89
50 13.51 12.51
51 14.42 13.18
52 15.34 13.86
53 16.24 14.53
54 17.16 15.29
55 18.07 16.10
56 19.43 17.11
57 20.79 18.20
58 22.16 19.35
59 23.52 20.51
60 24.88 21.68
61 27.11 22.98
62 29.34 24.27
63 31.57 25.59
64 33.80 27.01
65 36.03 28.57
66 38.86 30.12
67 41.70 31.63
68 44.52 33.29
69 47.36 35.39
70 49.76 37.75
71 54.39 40.67
72 59.04 44.16
73 63.71 48.15
74 68.41 52.54
75 72.60 57.27
76 80.21 62.20
77 87.34 67.37
78 94.52 73.00
79 101.76 79.30
80 109.06 86.49
81 120.34 94.56
82 131.76 103.39
83 143.32 112.96
84 155.03 123.28
85 166.88 138.49
86 170.39 149.27
87 177.17 159.84
88 191.28 171.55
89 208.18 185.73
90 241.15 203.75
91 254.21 225.63
92 282.60 250.53
93 314.35 278.47
94 349.51 309.50
Appendix A - Annual Minimum Premiums
33
<PAGE>
APPENDIX B
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
(First Year)
Stated Amount
----------------------------
$75,000 $500,000 $1,000,000
to to and
Issue $499,999 $999,999 above
- ----------------------------------
0 2.04 1.84 1.63
1 2.04 1.84 1.63
2 2.04 1.84 1.63
3 2.04 1.84 1.63
4 2.04 1.84 1.63
5 2.19 1.97 1.75
6 2.19 1.97 1.75
7 2.21 1.99 1.77
8 2.23 2.01 1.78
9 2.26 2.03 1.81
10 2.39 2.15 1.91
11 2.46 2.21 1.97
12 2.54 2.29 2.03
13 2.65 2.39 2.12
14 2.75 2.48 2.20
15 2.76 2.48 2.21
16 2.77 2.49 2.22
17 2.79 2.51 2.23
18 2.82 2.54 2.26
19 2.90 2.61 2.32
20 2.86 2.57 2.29
21 2.93 2.64 2.34
22 2.99 2.69 2.39
23 3.04 2.74 2.43
24 3.06 2.75 2.45
25 3.08 2.77 2.46
26 3.14 2.83 2.51
27 3.25 2.93 2.60
28 3.37 3.03 2.70
29 3.47 3.12 2.78
30 3.49 3.14 2.79
31 3.64 3.28 2.91
32 3.78 3.40 3.02
33 3.92 3.53 3.14
34 4.08 3.67 3.26
35 4.19 3.77 3.35
36 4.43 3.99 3.54
37 4.66 4.19 3.73
38 4.91 4.42 3.93
39 5.14 4.63 4.11
40 5.69 5.12 4.55
Stated Amount
----------------------------
$75,000 $500,000 $1,000,000
Issue to to and
Age $499,999 $999,999 above
41 6.05 5.45 4.84
42 6.41 5.77 5.13
43 6.76 6.08 5.41
44 7.13 6.42 5.70
45 7.18 6.46 5.74
46 7.66 6.89 6.13
47 8.14 7.33 6.51
48 8.63 7.77 6.90
49 9.11 8.20 7.29
50 10.00 9.00 8.00
51 10.67 9.60 8.54
52 11.35 10.22 9.08
53 12.02 10.82 9.62
54 12.70 11.43 10.16
55 13.01 11.71 10.41
56 13.99 12.59 11.19
57 14.97 13.47 11.98
58 15.96 14.36 12.77
59 16.93 15.24 13.54
60 17.91 16.12 14.33
61 19.52 17.57 15.62
62 21.12 19.01 16.90
63 22.73 20.46 18.18
64 24.34 21.91 19.47
65+ 25.40 22.86 20.32
Appendix B - Per Thousand of Stated Amount Surrender Charge
34
<PAGE>
APPENDIX B (1)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
Sales Charge Component*
(First Year)
Stated Amount
----------------------------
$75,000 $500,000 $1,000,000
Issue to to and
Age $499,999 $999,999 above
- ----------------------------------
0 0.41 0.37 0.33
1 0.41 0.37 0.33
2 0.41 0.37 0.33
3 0.41 0.37 0.33
4 0.41 0.37 0.33
5 0.44 0.39 0.35
6 0.44 0.39 0.35
7 0.44 0.40 0.35
8 0.45 0.40 0.36
9 0.45 0.41 0.36
10 0.48 0.43 0.38
11 0.49 0.44 0.39
12 0.51 0.46 0.41
13 0.53 0.48 0.42
14 0.55 0.50 0.44
15 0.55 0.50 0.44
16 0.55 0.50 0.44
17 0.56 0.50 0.45
18 0.56 0.51 0.45
19 0.58 0.52 0.46
20 0.57 0.51 0.46
21 0.59 0.53 0.47
22 0.60 0.54 0.48
23 0.61 0.55 0.49
24 0.61 0.55 0.49
25 0.62 0.54 0.48
26 0.63 0.57 0.50
27 0.65 0.59 0.52
28 0.67 0.61 0.54
29 0.69 0.62 0.56
30 0.70 0.63 0.56
31 0.73 0.66 0.58
32 0.76 0.68 0.60
33 0.78 0.71 0.63
34 0.82 0.73 0.65
35 0.84 0.75 0.67
36 0.89 0.80 0.71
37 0.93 0.84 0.75
38 0.98 0.88 0.79
39 1.03 0.93 0.82
40 1.14 1.02 0.91
Stated Amount
----------------------------
$75,000 $500,000 $1,000,000
Issue to to and
Age $499,999 $999,999 above
41 1.21 1.09 0.97
42 1.28 1.15 1.03
43 1.35 1.22 1.08
44 1.43 1.28 1.14
45 1.44 1.29 1.15
46 1.53 1.38 1.23
47 1.63 1.47 1.30
48 1.73 1.55 1.38
49 1.82 1.64 1.46
50 2.00 1.80 1.60
51 2.13 1.92 1.71
52 2.27 2.04 1.82
53 2.40 2.16 1.92
54 2.54 2.29 2.03
55 2.60 2.34 2.08
56 2.80 2.52 2.24
57 2.99 2.69 2.40
58 3.19 2.87 2.55
59 3.39 3.05 2.71
60 3.58 3.22 2.87
61 3.90 3.51 3.12
62 4.22 3.80 3.38
63 4.55 4.09 3.64
64 4.87 4.38 3.89
65+ 5.08 4.57 4.06
* This is the sales charge portion of the Per Thousand of Stated Amount
Surrender Charge. It equals 20% of the charge shown in Appendix B. It
decreases 10% each year over the 10 year period.
Appendix B (1) - Per Thousand of Stated Amount Surrender Charge - Sales Charge
Component
35
<PAGE>
APPENDIX B(2)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
Administrative Charge Component*
(First Year)
Stated Amount
Issue ----------------------------
Age $75,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
- ----------------------------------
0 1.63 1.47 1.30
1 1.63 1.47 1.30
2 1.63 1.47 1.30
3 1.63 1.47 1.30
4 1.63 1.47 1.30
5 1.75 1.58 1.40
6 1.75 1.58 1.40
7 1.77 1.59 1.42
8 1.78 1.61 1.42
9 1.81 1.62 1.45
10 1.91 1.72 1.53
11 1.97 1.77 1.58
12 2.03 1.83 1.62
13 2.12 1.91 1.70
14 2.20 1.98 1.76
15 2.21 1.98 1.77
16 2.22 1.99 1.78
17 2.23 2.01 1.78
18 2.26 2.03 1.81
19 2.32 2.09 1.86
20 2.29 2.06 1.83
21 2.34 2.11 1.87
22 2.39 2.15 1.91
23 2.43 2.19 1.94
24 2.45 2.20 1.96
25 2.46 2.17 1.93
26 2.51 2.26 2.01
27 2.60 2.34 2.08
28 2.70 2.42 2.16
29 2.78 2.50 2.22
30 2.79 2.51 2.23
31 2.91 2.62 2.33
32 3.02 2.72 2.42
33 3.14 2.82 2.51
34 3.26 2.94 2.61
35 3.35 3.02 2.68
36 3.54 3.19 2.83
37 3.73 3.35 2.98
38 3.93 3.54 3.14
39 4.11 3.70 3.29
40 4.55 4.10 3.64
Stated Amount
Issue ----------------------------
Age $75,000 $500,000 $1,000,000
to to and
$499,999 $999,999 above
41 4.84 4.36 3.87
42 5.13 4.62 4.10
43 5.41 4.86 4.33
44 5.70 5.14 4.56
45 5.74 5.17 4.59
46 6.13 5.51 4.90
47 6.51 5.86 5.21
48 6.90 6.22 5.52
49 7.29 6.56 5.83
50 8.00 7.20 6.40
51 8.54 7.68 6.83
52 9.08 8.18 7.26
53 9.62 8.66 7.70
54 10.16 9.14 8.13
55 10.41 9.37 8.33
56 11.19 10.07 8.95
57 11.98 10.78 9.58
58 12.77 11.49 10.22
59 13.54 12.19 10.83
60 14.33 12.90 11.46
61 15.62 14.06 12.50
62 16.90 15.21 13.52
63 18.18 16.37 14.54
64 19.47 17.53 15.58
65+ 20.32 18.29 16.26
* This is the administrative portion of the Per Thousand of Stated Amount
Surrender Charge. It equals 80% of the charge shown in Appendix B.
Appendix B (2) - Per Thousand of Stated Amount Surrender Charge -
Administrative Charge Component
36
<PAGE>
APPENDIX C
MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
Stated Amount
Issue ----------------------------
Age $75,000 $500,000
to to $1,000,000
$499,999 $999,999 and above
- ----------------------------------
0 0.16 0.08 0.00
1 0.16 0.08 0.00
2 0.16 0.08 0.00
3 0.16 0.08 0.00
4 0.16 0.08 0.00
5 0.16 0.08 0.00
6 0.16 0.08 0.00
7 0.16 0.08 0.00
8 0.16 0.08 0.00
9 0.16 0.08 0.00
10 0.16 0.08 0.00
11 0.16 0.08 0.00
12 0.16 0.08 0.00
13 0.16 0.08 0.00
14 0.16 0.08 0.00
15 0.16 0.08 0.00
16 0.16 0.08 0.00
17 0.16 0.08 0.00
18 0.16 0.08 0.00
19 0.16 0.08 0.00
20 0.16 0.08 0.00
21 0.16 0.08 0.00
22 0.16 0.08 0.00
23 0.16 0.08 0.00
24 0.16 0.08 0.00
25 0.16 0.08 0.00
26 0.16 0.09 0.00
27 0.17 0.09 0.00
28 0.17 0.09 0.00
29 0.18 0.09 0.00
30 0.18 0.09 0.00
31 0.18 0.09 0.00
32 0.18 0.09 0.00
33 0.19 0.09 0.00
34 0.19 0.09 0.00
Stated Amount
Issue ----------------------------
Age $75,000 $500,000
to to $1,000,000
$499,999 $999,999 and above
35 0.19 0.09 0.00
36 0.20 0.09 0.00
37 0.21 0.10 0.00
38 0.22 0.10 0.00
39 0.23 0.10 0.00
40 0.23 0.10 0.00
41 0.24 0.10 0.00
42 0.24 0.10 0.00
43 0.24 0.10 0.00
44 0.24 0.10 0.00
45 0.24 0.10 0.00
46 0.25 0.11 0.00
47 0.26 0.11 0.00
48 0.27 0.11 0.00
49 0.28 0.11 0.00
50 0.29 0.15 0.00
51 0.30 0.15 0.00
52 0.32 0.15 0.00
53 0.33 0.15 0.00
54 0.34 0.15 0.00
55 0.35 0.15 0.00
56 0.35 0.15 0.00
57 0.35 0.15 0.00
58 0.36 0.15 0.00
59 0.36 0.15 0.00
60 0.36 0.15 0.00
61 0.38 0.15 0.00
62 0.38 0.15 0.00
63 0.38 0.15 0.00
64 0.39 0.15 0.00
65+ 0.39 0.15 0.00
Appendix C - Monthly Administrative Charge
37
<PAGE>
IN-VESTsm
PROSPECTUS
Variable Universal Life Insurance Contracts
issued by
The Travelers Insurance Company
Hartford, Connecticut
L-11166TIC Ed. 5/95
<PAGE>
This page intentionally left blank.
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
ANNUAL REPORT
DECEMBER 31, 1994
TRAVELERS INSURANCE
A Member of TRAVELERSGROUP (logo with umbrella)
<PAGE>
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments in eligible mutual funds at market value:
Managed Assets Trust, 64,033 shares (cost $861,965) $822,825
High Yield Bond Trust, 27,060 shares (cost $234,277) 229,737
Capital Appreciation Fund, 15,903 shares (cost $392,748) 389,632
Cash Income Trust, 1,202,693 shares (cost $1,202,693) 1,202,693
The Travelers Series Trust:
U.S. Government Securities Portfolio, 10,207 shares (cost $108,668) 107,988
Utilities Portfolio, 233 shares (cost $2,374) 2,373
Templeton Variable Products Series Fund:
Templeton Bond Fund, 6,763 shares (cost $73,110) 73,442
Templeton Stock Fund, 47,819 shares (cost $829,064) 810,058
Templeton Asset Allocation Fund, 57,915 shares (cost $918,688) 908,683
Fidelity's Variable Insurance Products Fund:
High Income Portfolio, 23,523 shares (cost $254,028) 253,104
Growth Portfolio, 34,010 shares (cost $707,153) 737,686
Equity-Income Portfolio, 32,138 shares (cost $494,111) 493,316
Fidelity's Variable Insurance Products Fund II:
Asset Manager Portfolio, 101,861 shares (cost $1,436,538) 1,404,667
Dreyfus Stock Index Fund, 3,630 shares (cost $47,169) 46,968
American Odyssey Funds, Inc.:
American Odyssey Core Equity Fund, 17 shares (cost $176) 174
American Odyssey Emerging Opportunities Fund, 2,138 shares (cost $24,691) 25,316
American Odyssey International Equity Fund, 1,312 shares (cost $15,150) 14,116
American Odyssey Long-Term Bond Fund, 596 shares (cost $5,694) 5,588
American Odyssey Short-Term Bond Fund, 2 shares (cost $18) 17
Dividends receivable 7,643
Receivable for premium payments and transfers from other Travelers accounts 41,602
Other assets 74
----------
Total Assets 7,577,702
----------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts 2,921
Accrued liabilities 586
----------
Total Liabilities 3,507
----------
NET ASSETS: $7,574,195
----------
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $121,624
EXPENSES:
Insurance charges 27,551
-------
Net investment income 94,073
-------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss from investment transactions:
Proceeds from investments sold $2,997,217
Cost of investments sold 3,003,766
---------
Net realized loss (6,549)
Change in unrealized gain (loss) on investments:
Unrealized gain at December 31, 1993 61,022
Unrealized loss at December 31, 1994 (79,932)
--------
Net change in unrealized gain (loss) for the year (140,954)
---------
Net realized and change in unrealized gain (loss) (147,503)
---------
Net decrease in net assets resulting from operations $(53,430)
---------
---------
</TABLE>
See Notes to Financial Statements
<PAGE>
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
1994 1993
<CAPTION> ------- -----
<S> <C> <C>
OPERATIONS:
Net investment income $ 94,073 $ 57,183
Net realized gain (loss) from investment transactions (6,549) 29,322
Net change in unrealized gain (loss) on investments (140,954) 8,491
--------- -------
Net increase (decrease) in net assets resulting from operations (53,430) 94,996
--------- -------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 4,481,114 and 396,000 units, respectively) 5,311,444 583,533
Participant transfers from other Travelers accounts
(applicable to 4,833,697 and 249,026 units, respectively) 5,175,800 365,710
Contract surrenders
(applicable to 723,287 and 196,242 units, respectively) (835,173) (287,721)
Participant transfers to other Travelers accounts
(applicable to 2,824,076 and 278,333 units, respectively) (3,873,682) (396,105)
----------- --------
Net increase in net assets resulting from unit transactions 5,778,389 265,417
---------- --------
Net increase in net assets 5,724,959 360,413
NET ASSETS:
Beginning of year 1,849,236 1,488,823
--------- ---------
End of year $ 7,574,195 $ 1,849,236
--------- ---------
--------- ----------
</TABLE>
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund UL for Variable Life Insurance ("Fund UL") is a
separate account of The Travelers Insurance Company ("Travelers
Insurance"), an indirect wholly owned subsidiary of The Travelers
Inc., and is available for funding certain variable life insurance
contracts issued by Travelers Insurance. Fund UL is registered
under the Investment Company Act of 1940, as amended, as a unit
investment trust. Travelers Insurance interest in the net assets
of Fund UL was $564,068 at December 31, 1994.
Premium payments applied to Fund UL are invested in one or more
eligible mutual funds in accordance with the selection made by the
owner. The eligible mutual funds currently available under Fund UL
are: Managed Assets Trust; High Yield Bond Trust; Capital
Appreciation Fund (formerly Aggressive Stock Trust); Cash Income
Trust; U.S. Government Securities Portfolio and Utilities 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
Short-Term Bond Fund of American Odyssey Funds, Inc. (all of which
are managed by affiliates of Travelers Insurance); Templeton Bond
Fund, Templeton Stock Fund and Templeton Asset Allocation Fund of
Templeton Variable Products Series Fund; High Income Portfolio,
Growth Portfolio and Equity-Income Portfolio of Fidelity's Variable
Insurance Products Fund; Asset Manager Portfolio of Fidelity's
Variable Insurance Products Fund II; and Dreyfus Stock Index Fund
(formerly Dreyfus Life and Annuity Index Fund, Inc.). All of the
mutual funds are Massachusetts business trusts, except for American
Odyssey Funds, Inc. and Dreyfus Stock Index Fund which are
incorporated under Maryland law.
The following is a summary of significant accounting policies
consistently followed by Fund UL in the preparation of its
financial statements.
SECURITY VALUATION.
Investments are valued daily at the net asset values per share of
the underlying mutual funds.
FEDERAL INCOME TAXES.
The operations of Fund UL form a part of the total operations of
Travelers Insurance and are not taxed separately. Travelers
Insurance is taxed as a life insurance company under the Internal
Revenue Code of 1986, as amended ("Code"). Under existing federal
income tax law, no taxes are payable on the investment income of
Fund UL. Fund UL is not taxed as a "regulated investment company"
under Subchapter M of the Code.
OTHER.
Security transactions are accounted for on the trade date.
Dividend income is recorded on the ex-dividend date.
2. INVESTMENTS
Purchases and sales of investments aggregated $8,823,720 and
$2,997,217, respectively, for the year ended December 31, 1994.
Realized gains and losses from investment transactions are reported
on an identified cost basis. The cost of investments in eligible
mutual funds was $7,608,315 at December 31, 1994. Gross unrealized
appreciation for all investments at December 31, 1994 was $31,490.
Gross unrealized depreciation for all investments at December 31,
1994 was $111,422.
3. CONTRACT CHARGES
Insurance charges and administrative charges up to a maximum of
0.80% and 0.10%, respectively, of the value of Fund UL on an annual
basis, are allowed for mortality and expense risks and
administrative expenses assumed by Travelers Insurance. For the
year ended December 31, 1994, the insurance charges were 0.60%, and
the administrative charges were waived by Travelers Insurance.
Travelers Insurance, as principal underwriter, received contingent
surrender charges on full or partial contract surrenders. Such
charges are computed by applying various percentages to premiums
and/or stated contract amounts. Travelers Insurance received
$8,349 and $6,192 in satisfaction of such surrender charges for the
years ended December 31, 1994 and 1993, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
4. NET CONTRACT OWNERS' EQUITY
<CAPTION>
DECEMBER 31, 1994
--------------------------------------
<S> <C> <C> <C>
UNIT NET
UNITS VALUE ASSETS
------ ------ ------
Managed Assets Trust 528,467 $1.561 $825,175
High Yield Bond Trust 140,750 1.638 230,626
Capital Appreciation Fund 314,029 1.252 393,449
Cash Income Trust 884,251 1.384 1,224,045
The Travelers Series Trust:
U.S. Government Securities Portfolio 116,232 0.930 108,174
Utilities Portfolio 2,389 0.993 2,373
Templeton Variable Products Series Fund:
Templeton Bond Fund 78,212 0.941 73,631
Templeton Stock Fund 847,795 0.960 814,072
Templeton Asset Allocation Fund 965,750 0.946 914,426
Fidelity's Variable Insurance Products Fund:
High Income Portfolio 265,914 0.953 253,535
Growth Portfolio 757,016 0.976 739,380
Equity-Income Portfolio 485,631 1.020 495,429
Fidelity's Variable Insurance Products Fund II:
Asset Manager Portfolio 1,529,545 0.919 1,405,900
Dreyfus Stock Index Fund 47,428 1.007 47,780
American Odyssey Funds, Inc.:
American Odyssey Core Equity Fund 178 1.005 179
American Odyssey Emerging Opportunities Fund 23,653 1.084 25,653
American Odyssey International Equity Fund 15,535 0.941 14,619
American Odyssey Long-Term Bond Fund 5,737 1.000 5,738
American Odyssey Short-Term Bond Fund 11 1.000 11
----------
Net Contract Owners' Equity $7,574,195
----------
----------
</TABLE>
<PAGE>
<TABLE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET
ASSETS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
MANAGED ASSETS TRUST
--------------------
1994 1993
------ -----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 70,237 $51,598
------- -------
EXPENSES:
Insurance charges................................ 5,908 6,266
Administrative charges........................... -- 775
-------- --------
Net investment income (loss)................... 64,329 44,557
-------- --------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 238,758 167,809
Cost of investments sold....................... 242,915 151,853
--------- --------
Net realized gain (loss)...................... (4,157) 15,956
--------- --------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. 46,522 43,240
Unrealized gain (loss) end of year............ (39,140) 46,522
-------- -------
Net change in unrealized gain (loss)
for the year................................ (85,662) 3,282
-------- --------
Net increase (decrease) in net assets
resulting from operations...................... (25,490) 63,795
-------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 183,898 312,132
Participant transfers from other Travelers accounts 69,184 121,805
Contract surrenders.............................. (123,712) (160,137)
Participant transfers to other Travelers accounts (185,767) (81,352)
-------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ (56,397) 192,448
-------- ---------
Net increase (decrease) in net assets.................... (81,887) 256,243
NET ASSETS
Beginning of year.............................. 907,062 650,819
-------- ---------
End of year.................................... $825,175 $907,062
------- ---------
------- ---------
<CAPTION>
HIGH YIELD BOND TRUST
----------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 11,348 $ 5,415
------- ---------
EXPENSES:
Insurance charges................................ 772 614
Administrative charges........................... -- 76
-------- ---------
Net investment income (loss)................... 10,576 4,725
-------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 101,106 75,437
Cost of investments sold....................... 106,114 70,374
------- ---------
Net realized gain (loss)...................... (5,008) 5,063
-------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. 2,981 4,035
Unrealized gain (loss) end of year............ (4,540) 2,981
-------- ---------
Net change in unrealized gain (loss)
for the year................................ (7,521) (1,054)
-------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (1,953) 8,734
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 45,381 61,876
Participant transfers from other Travelers accounts 149,268 104,894
Contract surrenders.............................. (40,505) (34,710)
Participant transfers to other Travelers accounts (74,029) (50,151)
--------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 80,115 81,909
--------- ---------
Net increase (decrease) in net assets.................... . 78,162 90,643
NET ASSETS
Beginning of year.............................. 152,464 61,821
--------- ---------
End of year.................................... $ 230,626 $ 152,464
-------- ---------
-------- ---------
<CAPTION>
CAPITAL
APPRECIATION FUND
-----------------
<S> <C> <C>
1994 1993
INVESTMENT INCOME: ---- ----
Dividends........................................ $ 841 $ 552
-------- ---------
EXPENSES:
Insurance charges................................ 1,554 738
Administrative charges........................... -- 91
--------- ---------
Net investment income (loss)................... (713) (277)
--------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 39,915 25,170
Cost of investments sold....................... 33,059 16,867
-------- ---------
Net realized gain (loss)...................... 6,856 8,303
-------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. 11,519 5,256
Unrealized gain (loss) end of year............ (3,117) 11,519
--------- ---------
Net change in unrealized gain (loss)
for the year................................ (14,636) 6,263
--------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (8,493) 14,289
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 152,844 33,126
Participant transfers from other Travelers accounts 187,041 53,238
Contract surrenders.............................. (55,126 (27,287)
Participant transfers to other Travelers accounts (24,764) (4,951)
--------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 259,995 54,126
--------- ---------
Net increase (decrease) in net assets.................... 251,502 68,415
NET ASSETS
Beginning of year.............................. 141,947 73,532
-------- ---------
End of year.................................... $ 393,449 $141,947
-------- ---------
-------- ---------
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
<CAPTION>
CASH
INCOME TRUST
-------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 29,710 $ 14,000
-------- ---------
EXPENSES:
Insurance charges................................ 6,114 5,182
Administrative charges........................... -- 640
--------- ---------
Net investment income (loss)................... 23,596 8,178
--------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 2,478,281 297,507
Cost of investments sold....................... 2,478,281 297,507
-------- ---------
Net realized gain (loss)...................... -- --
-------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ -- --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ -- --
--------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 23,596 8,178
-------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 2,960,609 176,399
Participant transfers from other Travelers accounts 1,334,856 85,773
Contract surrenders.............................. (207,394) (65,587)
Participant transfers to other Travelers accounts (3,535,385) (259,651)
----------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 552,686 (63,066)
----------- ---------
Net increase (decrease) in net assets.................... 576,282 (54,888)
NET ASSETS
Beginning of year.............................. 647,763 702,651
---------- ---------
End of year.................................... $ 1,224,045 $647,763
----------- ---------
----------- ---------
<CAPTION>
U.S. GOVERNMENT
SECURITIES PORTFOLIO
----------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ -- $ --
-------- ---------
EXPENSES:
Insurance charges................................ 324 --
Administrative charges........................... -- --
--------- ---------
Net investment income (loss)................... (324) --
--------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 8,194 --
Cost of investments sold....................... 8,507 --
--------- ---------
Net realized gain (loss)...................... (313) --
--------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (680) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (680) --
----------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (1,317) --
----------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 32,322 --
Participant transfers from other Travelers accounts 86,590 --
Contract surrenders.............................. (7,983) --
Participant transfers to other Travelers accounts (1,438) --
-------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 109,491 --
--------- ---------
Net increase (decrease) in net assets.................... 108,174 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 108,174 $ --
------------- ---------
------------- ---------
<CAPTION>
UTILITIES PORTFOLIO
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ -- $ --
----------- ---------
EXPENSES:
Insurance charges................................ 3 --
Administrative charges........................... -- --
----------- ---------
Net investment income (loss)................... (3) --
----------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 46 --
Cost of investments sold....................... 47 --
---------- ---------
Net realized gain (loss)...................... (1) --
---------- ---------
Change in unrealized gain (loss) on investments: -- --
Unrealized gain (loss) end of year............ (1) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (1) --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (5) --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 2,180 --
Participant transfers from other Travelers accounts 305 --
Contract surrenders.............................. (89) --
Participant transfers to other Travelers accounts (18) --
---------- ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 2,378 --
--------- ---------
Net increase (decrease) in net assets.................... 2,373 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 2,373 $ --
---------- ---------
---------- ---------
<CAPTION>
TEMPLETON BOND FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 11 $ --
-------- ---------
EXPENSES:
Insurance charges................................ 160 --
Administrative charges........................... -- --
-------- ---------
Net investment income (loss)................... (149) . --
-------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 24,059 --
Cost of investments sold....................... 24,114 --
--------- ---------
Net realized gain (loss)...................... (55) --
--------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ 332 --
--------- ---------
Net change in unrealized gain (loss)
for the year................................ 332 --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 128 --
----------- --------
UNIT TRANSACTIONS:
Participant premium payments..................... 44,718 --
Participant transfers from other Travelers accounts 43,641 --
Contract surrenders.............................. (5,011) --
Participant transfers to other Travelers accounts (9,845) --
------------ ---------
Net increase (decrease) in net assets resulting
from unit transactions........................ 73,503 --
----------- ---------
Net increase (decrease) in net assets.................... 73,631 --
NET ASSETS
Beginning of year.............................. -- --
----------- ---------
End of year.................................... $73,631 $ --
----------- ---------
----------- ---------
</TABLE>
<PAGE>
<TABLE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 (CONTINUED)
<CAPTION>
TEMPLETON STOCK FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 120 $ --
--------- ---------
EXPENSES:
Insurance charges................................ 2,207 --
Administrative charges........................... -- --
---------- ---------
Net investment income (loss)................... (2,087) --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 17,171 --
Cost of investments sold....................... 17,388 --
---------- ---------
Net realized gain (loss)...................... (217) --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (19,006) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (19,006) --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (21,310) --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 390,647 --
Participant transfers from other Travelers accounts 534,732 --
Contract surrenders.............................. (77,915) --
Participant transfers to other Travelers accounts (12,082) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 835,382 --
---------- ---------
Net increase in net assets.................... 814,072
NET ASSETS
Beginning of year.............................. -- --
----------- ---------
End of year.................................... $ 814,072 $ --
----------- ---------
----------- ---------
<CAPTION>
TEMPLETON ASSET
ALLOCATION FUND
----------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 97 $ --
---------- ---------
EXPENSES:
Insurance charges................................ 2,572 --
Administrative charges........................... -- --
---------- ---------
Net investment income (loss)................... (2,475) --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 13,283 --
Cost of investments sold....................... 13,585 --
----------- ---------
Net realized gain (loss)...................... (302) --
------------ ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (10,005) --
------------- ---------
Net change in unrealized gain (loss)
for the year................................ (10,005) --
------------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (12,782) --
------------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 277,719 --
Participant transfers from other Travelers accounts 714,112 --
Contract surrenders.............................. (59,628) --
Participant transfers to other Travelers accounts (4,995) --
------------- ---------
Net increase in net assets resulting
from unit transactions........................ 927,208 --
------------- ---------
Net increase in net assets.................... 914,426 --
NET ASSETS
Beginning of year.............................. -- --
------------- ---------
End of year.................................... $ 914,426 $ --
------------- ---------
------------- ---------
<CAPTION>
FIDELITY'S HIGH
INCOME PORTFOLIO
-----------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 408 $ --
------------ ---------
EXPENSES:
Insurance charges................................ 644 --
Administrative charges........................... -- --
------------- ---------
Net investment income (loss)................... (236) --
------------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 11,230 --
Cost of investments sold....................... 12,052 --
------------ ---------
Net realized gain (loss)...................... (822) --
------------ ---------
Change in unrealized gain (loss) on investments: -- --
Unrealized gain (loss) end of year............ (924) --
------------- ---------
Net change in unrealized gain (loss)
for the year................................ (924) --
------------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (1,982) --
------------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 107,547 --
Participant transfers from other Travelers accounts 180,024 --
Contract surrenders.............................. (26,639) --
Participant transfers to other Travelers accounts (5,415) --
------------- ---------
Net increase in net assets resulting
from unit transactions........................ 255,517 --
------------- ---------
Net increase in net assets.................... 253,535 --
NET ASSETS
Beginning of year.............................. -- --
------------- ---------
End of year.................................... $ 253,535 $ --
------------- ---------
------------- ---------
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
<CAPTION>
FIDELITY'S
GROWTH PORTFOLIO
-------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 651 $ --
---------- ---------
EXPENSES:
Insurance charges................................ 1,988 --
Administrative charges........................... -- --
---------- ---------
Net investment income (loss)................... (1,337) --
----------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 18,549 --
Cost of investments sold....................... 20,245 , --
---------- ---------
Net realized gain (loss)...................... (1,696) --
----------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ 30,533 --
----------- ---------
Net change in unrealized gain (loss)
for the year................................ 30,533 --
----------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 27,500 --
----------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 312,051 --
Participant transfers from other Travelers accounts 487,427 --
Contract surrenders.............................. (79,931) --
Participant transfers to other Travelers accounts (7,667) --
----------- ---------
Net increase in net assets resulting
from unit transactions........................ 711,880 --
----------- ---------
Net increase in net assets.................... 739,380 --
NET ASSETS
Beginning of year.............................. -- --
----------- ---------
End of year.................................... $ 739,380 $ --
--------- ---------
--------- ---------
<CAPTION>
FIDELITY'S EQUITY-
INCOME PORTFOLIO
--------------------
1994 1993
INVESTMENT INCOME: ----- -----
<S> <C> <C>
Dividends........................................ $ 5,526 $ --
--------- ---------
EXPENSES:
Insurance charges................................ 1,064 --
Administrative charges........................... -- --
---------- ---------
Net investment income (loss)................... 4,462 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 14,686 --
Cost of investments sold....................... 14,486 --
---------- ---------
Net realized gain (loss)...................... 200 --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (795) --
----------- ---------
Net change in unrealized gain (loss)
for the year................................ (795) --
------------ ---------
Net increase (decrease) in net assets
resulting from operations...................... 3,867 --
----------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 184,990 --
Participant transfers from other Travelers accounts 343,599 --
Contract surrenders.............................. (34,496) --
Participant transfers to other Travelers accounts (2,531) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 491,562 --
----------- ---------
Net increase in net assets.................... 495,429 --
NET ASSETS
Beginning of year.............................. --- --
----------- ---------
End of year.................................... $ 495,429 $ ----
----------- ---------
----------- ---------
<CAPTION>
FIDELITY'S ASSET
MANAGER PORTFOLIO
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 871 $ --
------------ ---------
EXPENSES:
Insurance charges................................ 4,081 --
Administrative charges........................... -- --
------------ ---------
Net investment income (loss)................... (3,210) --
------------ ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 26,613 --
Cost of investments sold....................... 27,788 --
------------ ---------
Net realized gain (loss)...................... (1,175) --
------------ ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (31,871) --
------------- ---------
Net change in unrealized gain (loss)
for the year................................ (31,871) --
------------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (36,256) --
------------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 591,289 --
Participant transfers from other Travelers accounts 972,105 --
Contract surrenders.............................. (111,946) --
Participant transfers to other Travelers accounts (9,292) --
------------- ---------
Net increase in net assets resulting
from unit transactions........................ 1,442,156 --
------------- ---------
Net increase in net assets.................... 1,405,900 --
NET ASSETS
Beginning of year.............................. -- --
----------- ---------
End of year.................................... $ 1,405,900 $ --
-------------- ---------
-------------- ---------
<CAPTION>
DREYFUS STOCK
INDEX FUND
-----------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 807 $ --
------------- ---------
EXPENSES:
Insurance charges................................ 112 --
Administrative charges........................... -- --
------------ ---------
Net investment income (loss)................... 695 --
------------ ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 4,995 --
Cost of investments sold....................... 4,858 --
------------- ---------
Net realized gain (loss)...................... 137 --
------------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (201) --
------------- ---------
Net change in unrealized gain (loss)
for the year................................ (201) --
------------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 631 --
------------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 17,235 --
Participant transfers from other Travelers accounts 34,387 --
Contract surrenders.............................. (4,088) --
Participant transfers to other Travelers accounts (385) --
------------- ---------
Net increase in net assets resulting
from unit transactions........................ 47,149 --
------------- ---------
Net increase in net assets.................... 47,780 --
NET ASSETS
Beginning of year.............................. -- --
------------ ---------
End of year.................................... $ 47,780 $ --
------------ ---------
------------ ---------
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 (CONTINUED)
<CAPTION>
AMERICAN ODYSSEY
CORE EQUITY FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 3 $ --
----------- ---------
EXPENSES:
Insurance charges................................ -- --
Administrative charges........................... -- --
---------- ---------
Net investment income ................... 3 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. -- --
Cost of investments sold....................... -- --
---------- ---------
Net realized gain (loss)...................... -- --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (2) --
-------- ---------
Net change in unrealized gain (loss)
for the year................................ (2) --
--------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 1 --
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 10 --
Participant transfers from other Travelers accounts 176 --
Contract surrenders.............................. (8) --
Participant transfers to other Travelers accounts -- --
--------- ---------
Net increase in net assets resulting
from unit transactions........................ 178 --
---------- ---------
Net increase in net assets.................... 179 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 179 $ --
---------- ---------
---------- ---------
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN
NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1993
<CAPTION>
AMERICAN ODYSSEY
EMERGING OPPORTUNITIES
FUND
---------------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 339 $ --
---------- ---------
EXPENSES:
Insurance charges................................ 25 --
Administrative charges........................... -- --
---------- ---------
Net investment income ......................... 314 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. 148 --
Cost of investments sold....................... 142 --
---------- ---------
Net realized gain (loss)...................... 6 --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ 625 --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ 625 --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 945 --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 3,320 --
Participant transfers from other Travelers accounts 21,735 --
Contract surrenders.............................. (327) --
Participant transfers to other Travelers accounts (20) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 24,708 --
---------- ---------
Net increase in net assets.................... 25,653 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 25,653 $ --
---------- ---------
---------- ---------
NOTES TO FINANCIAL STATEMENTS-CONTINUED
5. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN
NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1993
<CAPTION>
AMERICAN ODYSSEY
INTERNATIONAL EQUITY FUND
--------------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 504 $ --
-------- ---------
EXPENSES:
Insurance charges................................ 20 --
Administrative charges........................... -- --
-------- ---------
Net investment income ......................... 484 --
-------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 85 --
Cost of investments sold....................... 87 --
--------- ---------
Net realized gain (loss)...................... (2) --
--------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (1,033) --
--------- ---------
Net change in unrealized gain (loss)
for the year................................ (1,033) --
--------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (551) --
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 3,257 --
Participant transfers from other Travelers accounts 12,193 --
Contract surrenders.............................. (232) --
Participant transfers to other Travelers accounts (48) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 15,170 --
---------- ---------
Net increase in net assets.................... 14,619 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 14,619 $ --
---------- ---------
---------- ---------
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
<CAPTION>
AMERICAN ODYSSEY
LONG-TERM BOND FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 150 $ --
---------- ---------
EXPENSES:
Insurance charges................................ 3 --
Administrative charges........................... -- --
---------- ---------
Net investment income................... 147 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 98 --
Cost of investments sold....................... 98 --
---------- ---------
Net realized gain (loss)...................... -- --
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (106) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (106) --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... 41 --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 1,410 --
Participant transfers from other Travelers accounts 4,424 --
Contract surrenders.............................. (136) --
Participant transfers to other Travelers accounts (1) --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 5,697 --
---------- ---------
Net increase in net assets.................... 5,738 --
NET ASSETS
Beginning of year.............................. -- --
---------- --------
End of year.................................... $ 5,738 $ --
---------- --------
---------- --------
<CAPTION>
AMERICAN ODYSSEY
SHORT-TERM BOND FUND
--------------------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 1 $ --
---------- ---------
EXPENSES:
Insurance charges................................ -- --
Administrative charges........................... -- --
---------- ---------
Net investment income ................... 1 --
---------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment
transactions:
Proceeds from investments sold.................. -- --
Cost of investments sold....................... -- --
---------- ---------
Net realized gain (loss)...................... -- --
---------- --------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. -- --
Unrealized gain (loss) end of year............ (1) --
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (1) --
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... -- --
---------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 17 --
Participant transfers from other Travelers accounts 1 --
Contract surrenders.............................. (7) --
Participant transfers to other Travelers accounts -- --
---------- ---------
Net increase in net assets resulting
from unit transactions........................ 11 --
---------- ---------
Net increase in net assets.................... 11 --
NET ASSETS
Beginning of year.............................. -- --
---------- ---------
End of year.................................... $ 11 $ --
---------- ---------
---------- ---------
<CAPTION>
COMBINED
-----------
1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 121,624 $ 71,565
----------- ---------
EXPENSES:
Insurance charges................................ 27,551 12,800
Administrative charges........................... -- 1,582
----------- ---------
Net investment income ......................... 94,073 57,183
----------- ---------
REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................. 2,997,217 565,923
Cost of investments sold....................... 3,003,766 536,601
----------- ---------
Net realized gain (loss)...................... (6,549) 29,322
---------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain beginning of year............. 61,022 52,531
Unrealized gain (loss) end of year............ (79,932) 61,022
---------- ---------
Net change in unrealized gain (loss)
for the year................................ (140,954) 8,491
---------- ---------
Net increase (decrease) in net assets
resulting from operations...................... (53,430) 94,996
----------- ---------
UNIT TRANSACTIONS:
Participant premium payments..................... 5,311,444 583,533
Participant transfers from other Travelers accounts 5,175,800 365,710
Contract surrenders.............................. (835,173) (287,721)
Participant transfers to other Travelers accounts (3,873,682) (396,105)
------------ ----------
Net increase in net assets resulting
from unit transactions........................ 5,778,389 265,417
----------- ---------
Net increase in net assets.................... 5,724,959 360,413
NET ASSETS
Beginning of year.............................. 1,849,236 1,488,823
----------- ---------
End of year.................................... $ 7,574,195 $1,849,236
----------- ---------
----------- ---------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of Variable Life Insurance Contracts of
The Travelers Fund UL for Variable Life Insurance:
We have audited the accompanying statement of assets and
liabilities of
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
as of December 31, 1994, and the related statement of operations
for the year then ended, and the statement of changes in net assets
for each of the two years in the period then ended. These financial
statements are the responsibility of management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of shares owned as of December 31, 1994, by
correspondence with the underlying mutual funds. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The
Travelers Fund UL for Variable Life Insurance as of December 31,
1994, the results of its operations for the year then ended, and
the changes in its net assets for each of the two years in the
period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 8, 1995
<PAGE>
Independent Accountants
-------------------------
COOPERS & LYBRAND, L.L.P.
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 for Variable Life Insurance or Fund UL's underlying mutual
funds. It should not be used in connection with any offer except
in conjunction with the Variable Universal Life Insurance
Prospectus and the Prospectuses of the underlying mutual funds,
which collectively contain all pertinent information, including the
applicable selling commissions.
VG-156 (Annual) (12-94) Printed in U.S.A.
<PAGE>
<PAGE> 1
Independent Auditors' Report
The Board of Directors and Shareholder of
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, 1994 and 1993, and the
related consolidated statements of operations and retained earnings and cash
flows for the year ended December 31, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for the year ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", in 1994.
/s/KPMG PEAT MARWICK LLP
Hartford, Connecticut
January 17, 1995
16
<PAGE> 2
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the consolidated statements of operations and retained earnings
and cash flows of The Travelers Insurance Company and Subsidiaries for the year
ended December 31, 1993. These consolidated financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of The Travelers Insurance Company and Subsidiaries for the year
ended December 31, 1993 in conformity with generally accepted accounting
principles.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
January 24, 1994
17
<PAGE> 3
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the consolidated statements of operations and retained earnings
and cash flows for The Travelers Insurance Company and Subsidiaries for the
year ended December 31, 1992. These consolidated financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of The Travelers Insurance Company and Subsidiaries
for the year ended December 31, 1992 in conformity with generally accepted
accounting principles.
As discussed in Notes 2, 5, 10 and 13 to the consolidated financial statements,
the Company changed its method of accounting for postretirement benefits other
than pensions, accounting for income taxes and accounting for foreclosed assets
in 1992.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
February 9, 1993, except for Notes 2 and 5,
as to which the date is January 24, 1994
18
<PAGE> 4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------|------------------------------
(for the year ended December 31, in millions) 1994 | 1993 1992
- --------------------------------------------------------------------------|------------------------------
|
<S> <C> | <C> <C>
REVENUES |
Premiums $ 3,861 | $ 2,725 $ 2,686
Net investment income 1,849 | 1,884 2,101
Realized investment gains (losses) 14 | (21) (747)
Other 1,023 | 859 785
- --------------------------------------------------------------------------|------------------------------
6,747 | 5,447 4,825
- --------------------------------------------------------------------------|------------------------------
BENEFITS AND EXPENSES |
Current and future insurance benefits 3,421 | 3,121 3,000
Interest credited to contractholders 967 | 1,206 1,456
Claim settlement expenses 193 | 231 264
Amortization of deferred acquisition costs and value of |
insurance in force 284 | 55 61
General and administrative expenses 1,025 | 751 987
- --------------------------------------------------------------------------|------------------------------
5,890 | 5,364 5,768
- --------------------------------------------------------------------------|------------------------------
|
Income (loss) before federal income taxes |
and cumulative effects |
of changes in accounting principles 857 | 83 (943)
- --------------------------------------------------------------------------|------------------------------
|
Federal income taxes: |
Current 36 | 20 2
Deferred 276 | (78) (340)
- --------------------------------------------------------------------------|------------------------------
312 | (58) (338)
- --------------------------------------------------------------------------|------------------------------
|
Income (loss) before cumulative effects of changes |
in accounting principles 545 | 141 (605)
Cumulative effect of change in accounting |
for postretirement benefits other than |
pensions, net of tax - | - (126)
Cumulative effect of change in accounting |
for income taxes - | - 350
- --------------------------------------------------------------------------|------------------------------
|
Net income (loss) 545 | 141 (381)
Retained earnings beginning of year 1,017 | 888 1,281
Dividends to parent company - | (14) (14)
Preference stock tax benefit allocated by parent - | 2 2
- --------------------------------------------------------------------------|------------------------------
Retained earnings end of year $ 1,562 | $ 1,017 $ 888
- --------------------------------------------------------------------------|------------------------------
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(at December 31, in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at market in 1994 (cost, $18,579);
at lower of aggregate cost or market in 1993 (market, $18,284) $17,260 $18,045
Bonds, held for investment (market, $18) - 18
Equity securities, at market (cost, $173; $199) 169 220
Mortgage loans 4,938 6,845
Real estate held for sale, net of accumulated depreciation of $9; $0 383 954
Policy loans 1,581 1,366
Short-term securities 2,279 1,376
Other investments 885 687
- ---------------------------------------------------------------------------------------------------------
Total investments 27,495 29,511
- ---------------------------------------------------------------------------------------------------------
Cash 102 50
Investment income accrued 362 379
Premium balances receivable 215 224
Reinsurance recoverable 2,915 2,883
Deferred acquisition costs and value of insurance in force 1,939 1,794
Deferred federal income taxes 950 855
Separate and variable accounts 5,160 4,666
Other assets 1,397 979
- ---------------------------------------------------------------------------------------------------------
Total assets $40,535 $41,341
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,354 $17,850
Future policy benefits 11,480 11,263
Policy and contract claims 1,222 1,274
Separate and variable accounts 5,128 4,644
Short-term debt 74 -
Other liabilities 1,923 2,007
- ---------------------------------------------------------------------------------------------------------
Total liabilities 36,181 37,038
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,452 3,179
Unrealized investment gains (losses), net of taxes (760) 7
Retained earnings 1,562 1,017
- ---------------------------------------------------------------------------------------------------------
Total shareholder's equity 4,354 4,303
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $40,535 $41,341
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1994 | 1993 1992
- ----------------------------------------------------------------------------|--------------------------------
<S> <C> | <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Premiums collected $ 3,722 | $ 2,530 $ 2,594
Net investment income received 1,895 | 1,794 2,134
Other revenues received 734 | 568 568
Benefits and claims paid (3,572) | (2,902) (3,123)
Interest credited to contractholders (922) | (1,154) (1,404)
Operating expenses paid (972) | (859) (869)
Income taxes (paid) refunded (27) | 25 (2)
Trading account investments, (purchases) sales, net - | (1,576) (364)
Other (141) | 202 522
- ----------------------------------------------------------------------------|--------------------------------
Net cash provided by (used in) operating activities 717 | (1,372) 56
- ----------------------------------------------------------------------------|--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES |
Investment repayments |
Fixed maturities 2,783 | 2,624 2,084
Mortgage loans 1,337 | 1,210 1,063
Proceeds from investments sold |
Fixed maturities 1,370 | 102 175
Equity securities 359 | 75 173
Mortgage loans 557 | 310 254
Real estate 728 | 949 235
Investments in |
Fixed maturities (4,767) | (3,269) (2,471)
Equity securities (340) | (51) (119)
Mortgage loans (94) | (246) (63)
Policy loans, net (215) | (2) (184)
Short-term securities, (purchases) sales, net (903) | 860 (615)
Other investments, (purchases) sales, net (50) | 53 191
Securities sold under repurchase agreement (209) | - -
Cash from disposition of operations 53 | - 5
- ----------------------------------------------------------------------------|--------------------------------
Net cash provided by investing activities 609 | 2,615 728
- ----------------------------------------------------------------------------|--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES |
Issuance (redemption) of short-term debt, net 74 | - -
Contractholder fund deposits 2,197 | 3,159 3,047
Contractholder fund withdrawals (3,529) | (4,418) (5,003)
Dividends to parent company - | (14) (14)
Return of capital to parent company (23) | - -
Contributions from parent company - | - 500
Other 7 | 6 2
- ----------------------------------------------------------------------------|--------------------------------
Net cash used in financing activities (1,274) | (1,267) (1,468)
- ----------------------------------------------------------------------------|--------------------------------
Net increase (decrease) in cash $ 52 | $ (24) $ (684)
- ----------------------------------------------------------------------------|--------------------------------
|
Cash at December 31 $ 102 | $ 50 $ 74
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Travelers Insurance Company and its subsidiaries (the Company) is a
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIG).
TIG is an indirect wholly owned subsidiary of The Travelers Inc.
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
In December 1992, Primerica Corporation (Primerica) acquired
approximately 27% of the common stock of the Company's then parent, The
Travelers Corporation (the Acquisition). The Acquisition was accounted
for as a purchase. In connection with the Acquisition, Primerica
transferred 100% of the preferred provider organization and third party
administrator networks of Transport Life Insurance Company (a wholly
owned subsidiary of Primerica) to The Travelers Corporation, which
contributed them to the Company. The Company realized an increase to
shareholder's equity of $23 million related to this contribution.
Effective December 31, 1993, Primerica acquired the approximately 73% of
The Travelers Corporation common stock which it did not already own, and
The Travelers Corporation was merged into Primerica, which was renamed
The Travelers Inc. This was effected through the exchange of .80423
shares of The Travelers Inc. common stock for each share of The
Travelers Corporation common stock (the Merger). All subsidiaries of
The Travelers Corporation were contributed to TIG. In conjunction with
the Merger, The Travelers Inc. contributed Travelers Insurance Holdings
Inc. (formerly Primerica Insurance Holdings, Inc.) and its subsidiaries
(TIHI) to TIG, which in turn contributed TIHI to the Company.
TIHI is an intermediate holding company whose primary subsidiaries are
Primerica Life Insurance Company (Primerica Life) and its subsidiary
National Benefit Life Insurance Company (NBL), and Transport Life
Insurance Company (Transport). Through its subsidiaries, TIHI primarily
offers individual insurance and specialty accident and health insurance.
The Company realized an increase to shareholder's equity of $2.1 billion
at December 31, 1993 related to the contribution of TIHI. At December
31, 1993 and subsequent, TIHI is included in the Life and Annuities
segment.
The consolidated financial statements and the accompanying notes reflect
the historical operations of the Company for the years ended December 31,
1993 and 1992. The results of operations of TIHI and its subsidiaries
are not included in the 1993 and 1992 financial statements. The
Company's consolidated balance sheet and related data at December 31,
1994 and 1993 include TIHI on a fully consolidated basis. The
Acquisition and the Merger are being accounted for as a "step
acquisition." The consolidated balance sheet and related data at
December 31, 1993 reflect adjustments of assets and liabilities of the
Company (except TIHI) to their fair values determined at each acquisition
date (i.e., 27% of values at December 31, 1992 as carried forward and 73%
of the values at December 31, 1993). These assets and liabilities are
reflected in the consolidated balance sheet at December 31, 1993 based
upon management's then best estimate of their fair values. Evaluation and
appraisal of assets and liabilities, including investments, the value of
insurance in force, reinsurance recoverable, other insurance assets and
liabilities and related deferred income taxes were completed during 1994.
22
<PAGE> 8
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The excess of the 27% share of assigned value of identifiable net assets
over cost at December 31, 1992, which was allocated to the Company
through the "pushdown" basis of accounting, was approximately $56
million and is being amortized over ten years on a straight-line basis.
The excess of the purchase price of the common stock over the fair value
of the 73% of net assets acquired at December 31, 1993, which was
allocated to the Company through the "pushdown" basis of accounting, was
approximately $340 million and is being amortized over 40 years on a
straight-line basis.
The consolidated statement of operations and retained earnings, the
consolidated statement of cash flows and the related accompanying notes
for the year ended December 31, 1994, which are presented on a purchase
accounting basis, are separated from the corresponding 1993 and 1992
information, which is presented on a historical accounting basis, to
indicate the difference in valuation bases.
Principles of Consolidation
The financial statements have been prepared in conformity with generally
accepted accounting principles and include the Company and its
significant insurance and noninsurance subsidiaries. Certain prior
year amounts have been reclassified to conform with the 1994
presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if
quoted market prices are not available, discounted expected cash flows
using market rates commensurate with the credit quality and maturity of
the investment. Securities 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. As of December 31, 1993, in conjunction with the Merger, the
majority of fixed maturities were classified as "available for sale" and
recorded at the lower of aggregate cost or market value. Fixed
maturities classified as "held for investment" were carried at amortized
cost.
Equity securities, which include common and nonredeemable preferred
stocks, are 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. Real estate held for sale
is carried at the lower of cost or fair value less estimated costs to
sell. Fair value was established at time of foreclosure by appraisers,
both internal and external, using discounted cash flow analyses and
other acceptable techniques.
23
<PAGE> 9
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Accrual of income is suspended on fixed maturities or mortgage loans
that are in default, or on which it is likely that future interest
payments will not be made as scheduled. Interest income on investments
in default is recognized only as payment is received.
Gains or losses arising from futures contracts used to hedge investments
are treated as basis adjustments and are recognized in income over the
life of the hedged investments.
Gains and losses arising from forward contracts used to hedge foreign
investments in the Company's U.S. portfolios are a component of realized
investment gains and losses. Gains and losses arising from forward
contracts used to hedge investments in foreign operations (primarily
Canadian) are reflected directly in shareholder's equity, net of income
taxes.
Interest rate swaps are used to manage interest rate risk in the
investment portfolio and are marked to market with unrealized gains and
losses recorded as a component of shareholder's equity, net of income
taxes. Rate differentials on interest rate swap agreements are accrued
between settlement dates and are recognized as an adjustment to interest
income from the related investment.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax revenues based upon specific identification of the investments
sold on the trade date and, prior to the Merger, included adjustments to
investment valuation reserves. These adjustments reflected changes
considered to be other than temporary in the net realizable value of
investments. Also included are gains and losses arising from the
translation of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Deferred Acquisition Costs
Costs of acquiring individual life insurance, annuities, and health
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 and guaranteed
renewable health contracts are amortized over the period of anticipated
premiums; universal life in relation to estimated gross profits; and
annuity contracts employing a level yield method. For life insurance, a
10- to 25-year amortization period is used; for guaranteed renewable
health, a 10-year period, and a 10- to 15-year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.
24
<PAGE> 10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Value of Insurance In Force
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from life insurance,
annuities and health contracts at the date of the Merger 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% for the business acquired. The
value of the business in force is amortized over the contract period
using current interest crediting rates to accrete interest and using
amortization methods based on the specified products. Traditional life
insurance and guaranteed renewable health policies are amortized over
the period of anticipated premiums; universal life is amortized in
relation to estimated gross profits; and annuity contracts are amortized
employing a level yield method. The value of insurance in force is
reviewed periodically for recoverability to determine if any adjustment
is required.
Separate and Variable Accounts
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to,
and investment risk is borne by, the contractholders. Each account has
specific investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets of these accounts are carried at
market value. Certain other separate accounts provide guaranteed levels
of return or benefits and the assets of these accounts are carried at
amortized cost, except at December 31, 1993 the assets and liabilities
of these accounts were recorded at the value assigned at the acquisition
dates. 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
The excess of the 27% share of assigned value of identifiable assets
over cost at December 31, 1992 allocated to the Company as a result of
the Acquisition amounted to approximately $56 million and is being
amortized over 10 years on a straight-line basis. Goodwill resulting
from the excess of the purchase price over the fair value of the 73% of
net assets acquired related to the Merger amounted to approximately $340
million at December 31, 1993 and is being amortized over 40 years on a
straight-line basis. TIHI has goodwill of $246 million.
25
<PAGE> 11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life, pension investment and certain individual annuity contracts. Such
receipts are considered deposits on investment contracts that do not
have substantial mortality or morbidity risk. Account balances are also
increased by interest credited and reduced by withdrawals, mortality
charges and administrative expenses charged to the contractholders.
Calculations of contractholder account balances for investment contracts
reflect lapse, withdrawal and interest rate assumptions based on
contract provisions, the Company's experience and industry standards.
Interest rates credited to contractholder funds range from 3.4% to 8.0%.
Contractholder funds also include other funds that policyholders leave
on deposit with the Company.
Benefit Reserves
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for traditional life insurance, annuities,
and accident and health policies have been computed based upon
mortality, morbidity, persistency and interest assumptions applicable to
these coverages, which range from 2.5% to 12.0%, including adverse
deviation. These assumptions consider Company experience and industry
standards and may be revised if it is determined that the future
experience will differ substantially from that previously assumed. The
assumptions vary by plan, age at issue, year of issue and duration.
Appropriate recognition has been given to experience rating and
reinsurance.
Operating Leases
At December 31, 1993, operating leases were recorded at the value
assigned at the acquisition dates and included in the consolidated
balance sheet as a component of other liabilities. This liability is
being amortized over the average lease period.
Permitted Statutory Accounting Practices
The Company, domiciled principally in Connecticut and Massachusetts,
prepares statutory financial statements in accordance with the
accounting practices prescribed or permitted by the insurance
departments of those states. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners 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.
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. At December 31, 1993, the
deferred profits on limited-payment policies were recorded at the values
assigned at the acquisition dates.
26
<PAGE> 12
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment, universal life and other insurance
contracts. Other revenues also include gains and losses on dispositions
of assets and operations other than realized investment gains and
losses, revenues of noninsurance subsidiaries, and the pretax operating
results of real estate joint ventures.
Interest Credited to Contractholders
Interest credited to contractholders represents amounts earned by
universal life, pension investment and certain individual 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 in the Company's deferred federal income tax
asset during the year. The deferred federal income tax asset is
recognized to the extent that future realization of the tax benefit is
more likely than not, with a valuation allowance for the portion that is
not likely to be recognized.
Accounting Standards not yet Adopted
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(FAS 118), and Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS 114), describe
how impaired loans should be measured when determining the amount of a
loan loss accrual. These statements also amend existing guidance on the
measurement of restructured loans in a troubled debt restructuring
involving a modification of terms. The adoption of these statements,
effective January 1, 1995, will not have a material effect on results of
operations or financial position.
2. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for Certain Debt and Equity Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115), which addresses accounting and
reporting for investments in equity securities that have a readily
determinable fair value and for all debt securities. Investment
securities have been classified as "available for sale" and are
reported at fair value, with unrealized gains and losses, net of income
taxes, charged or credited directly to shareholder's equity. Previously,
securities classified as available for sale were carried at the lower
of aggregate cost or market value. Initial adoption of this standard
resulted in an increase of approximately $232 million (net of taxes) to
net unrealized gains which is included in shareholder's equity. This
increase included an unrealized gain of $133 million (net of income
taxes) on TIHI's investment in the common stock of The Travelers Inc.
See note 15 for additional disclosures.
27
<PAGE> 13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Offsetting of Amounts Related to Certain Contracts
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts" (Interpretation 39). The general principle of
Interpretation 39 states that amounts due from and due to another party
may not be offset in the consolidated balance sheet unless a right of
setoff exists and the parties intend to exercise the right of setoff.
Implementation of Interpretation 39 did not have a material impact on the
Company's financial position; however, assets and liabilities were both
increased by $68 million as of December 31, 1994.
Accounting and Reporting for Reinsurance Contracts
In the first quarter of 1993, the Company implemented Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113).
FAS 113 requires the reporting of reinsurance receivables and prepaid
reinsurance premiums as assets and precludes the immediate recognition
of gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113 did not
have an impact on the Company's earnings, however, assets and
liabilities increased by like amounts. See note 5 for additional
reinsurance disclosures.
Postretirement Benefits Other Than Pensions
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). As required, the Company changed its method of
accounting for retiree benefit plans effective January 1, 1992, to
accrue for the Company's share of the costs of postretirement benefits
over the service period rendered by employees. Previously these
benefits were charged to expense when paid. The Company elected
to recognize immediately the liability for postretirement benefits as
the cumulative effect of a change in accounting principle. This
resulted in a noncash after-tax charge to net income of $126 million.
See note 10 for additional information relating to FAS 106.
Accounting for Income Taxes
In the third quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109)
with retroactive application to January 1, 1992. FAS 109 establishes new
principles for calculating and reporting the effects of federal income
taxes in financial statements. FAS 109 replaces the income statement
orientation inherent in the prior income tax accounting standard with a
balance sheet approach. Under the new approach, deferred tax assets and
liabilities are generally determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. FAS 109 allows recognition of deferred tax assets
if 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.
28
<PAGE> 14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
The implementation of FAS 109 resulted in a one time increase to
earnings of $350 million in the first quarter of 1992. This increase in
earnings was principally due to tax rate differences and the recognition
of a portion of previously unrecognized deferred tax assets. See note
13 for further discussion of FAS 109.
Accounting for Foreclosed Assets
In February 1993, The Travelers Corporation announced its intent to
accelerate the sale of foreclosed real estate and, effective December
31, 1992, changed its method of accounting for foreclosed assets in
compliance with the American Institute of Certified Public Accountants'
Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP
92-3). This guidance requires that in-substance foreclosures and
foreclosed assets held for sale be carried at the lower of cost or
fair value less estimated costs to sell. Previously, all foreclosed
assets were carried at cost less accumulated depreciation. This
accounting change resulted in a pretax charge of $412 million to
realized investment losses in 1992.
3. ACQUISITIONS AND DISPOSITIONS
In December 1994, the Company and its affiliates sold its group dental
insurance business to Metropolitan Life Insurance Company (MetLife) and
realized a gain on the sale of $9 million (aftertax).
On January 3, 1995, the Company and its affiliates completed the sale of
its group life and related businesses to MetLife, and completed the
formation of The MetraHealth Companies, Inc. (MetraHealth), a joint
venture of the medical businesses of the Company and its affiliates and
MetLife.
The Company and its affiliates sold its group life business as well as
related non-medical group insurance businesses to MetLife for $350
million. The assets transferred included customer lists, books and
records, and furniture and equipment. In connection with the sale, the
Company and its affiliates agreed to cede 100% of its risks in the
group life and related businesses to MetLife on an indemnity reinsurance
basis, effective January 1, 1995. In connection with the reinsurance
transaction, the Company and its affiliates transferred assets with a
fair market value of approximately $1.5 billion to MetLife, equal to the
statutory reserves and other liabilities transferred.
On January 3, 1995, the Company and MetLife and certain of their
affiliates formed the MetraHealth joint venture by contributing their
group medical businesses to MetraHealth, in exchange for shares of
common stock of MetraHealth. The assets transferred included cash,
fixed assets, customer lists, books and records, certain trademarks and
other assets used exclusively or primarily in the medical businesses.
The Company also contributed all of the capital stock of its wholly
owned subsidiary, The Travelers Employee Benefits Company, to
MetraHealth. The total contribution by the Company amounted to $336
million at carrying value on the date of contribution. No gain was
recognized upon the formation of the joint venture. Upon formation of
the joint venture the Company owned 42.6% of the outstanding capital
stock of MetraHealth, TIG owned 7.4% and the other 50% was owned by
MetLife and its affiliates.
29
<PAGE> 15
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. ACQUISITIONS AND DISPOSITIONS, Continued
In connection with the formation of the joint venture, the transfer of
the fee based medical business (Administrative Services Only) and other
noninsurance business to MetraHealth was completed on January 3, 1995.
As the medical insurance business of the Company comes due for renewal
and after obtaining regulatory approvals, the risks will be transferred
to MetraHealth. In the interim the related operating results for this
medical insurance business will be reported by the Company.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefits Operations
(MCEBO). Revenues and net income from MCEBO for the year ended 1994
amounted to $3.5 billion and $157 million, respectively. Beginning in
1995 the Company's results will reflect the runoff medical insurance
business, plus its equity interest in the earnings of MetraHealth.
On December 31, 1993, in conjunction with the Merger, The Travelers Inc.
contributed TIHI to TIG, which TIG then contributed to the Company at a
carrying value of $2.1 billion. Through its subsidiaries TIHI primarily
offers individual life insurance and specialty accident and health
insurance.
In December 1992, in conjunction with the Acquisition, The Travelers
Corporation acquired Transport Life Insurance Company's preferred
provider and third party administrator organizations from Primerica
Corporation (see note 1), and on December 30, 1992 contributed these
businesses to the Company.
4. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors and had $74
million outstanding at December 31, 1994. The Company maintains unused
credit availability under bank lines of credit at least equal to the
amount of the outstanding commercial paper.
In 1994, The Travelers Inc., Commercial Credit Company (an indirect
wholly owned subsidiary of The Travelers Inc.) and the Company entered
into an agreement with a syndicate of banks to provide $1.5 billion of
revolving credit, to be allocated to any of the above-indicated
companies. The revolving credit facility consists of a 364-day
revolving credit in the amount of $300 million and a 5-year revolving
credit in the amount of $1.2 billion. The participation of the Company
in this facility is limited to $300 million, and at December 31, 1994,
the Company's allocation was $200 million, all of which was unused.
30
<PAGE> 16
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. 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
coinsurance, modified coinsurance and yearly renewable term. The
Company remains primarily liable as the direct insurer on all risks
reinsured. It is the policy of the Company to obtain reinsurance for
amounts above certain retention limits on individual life policies which
vary with age and underwriting classification. Generally, the maximum
retention on an ordinary life risk is $1.5 million. The Company writes
workers' compensation business through its Accident Department. This
business is ceded 100% to the Travelers Indemnity Company.
A summary of reinsurance financial data reflected within the
consolidated statement of operations and retained earnings is presented
below (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------|------------------------------
1994 | 1993 1992
- -----------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Written Premiums: |
Direct $ 4,529 | $ 3,308 $ 3,163
|
Assumed from: |
Affiliated companies 59 | 31 15
Non-affiliated companies 33 | 60 115
|
Ceded to: |
Affiliated companies (358) | (496) (522)
Non-affiliated companies (341) | (98) (62)
- -----------------------------------------------------------------|------------------------------
|
Total Net Written Premiums $ 3,922 | $ 2,805 $ 2,709
=================================================================|==============================
|
Earned Premiums: |
Direct $ 4,475 | $ 3,256 $ 3,124
|
Assumed from: |
Affiliated companies 65 | 32 15
Non-affiliated companies 30 | 32 110
|
Ceded to: |
Affiliated companies (384) | (512) (491)
Non-affiliated companies (333) | (87) (64)
- -----------------------------------------------------------------|------------------------------
|
Total Net Earned Premiums $ 3,853 | $ 2,721 $ 2,694
=================================================================|==============================
</TABLE>
31
<PAGE> 17
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. REINSURANCE, Continued
Reinsurance recoverables at December 31 include amounts recoverable on
unpaid and paid losses and were as follows (in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance Recoverables:
Life and accident and health business:
Affiliated companies $ 3 $ 3
Non-affiliated companies 661 689
Property-casualty business:
Affiliated companies 2,251 2,191
------------------------------------------------------------------------------
Total Reinsurance Recoverables $ 2,915 $ 2,883
==============================================================================
</TABLE>
6. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $273 million in additional paid-in capital during 1994
is due primarily to the finalization of the evaluations and appraisals
used to assign fair values to assets and liabilities under purchase
accounting.
The increase of $1.7 billion in additional paid-in capital during 1993
arose from a contribution of $400 million from The Travelers Corporation
and the contribution of TIHI (see notes 1 and 3). This was partially
offset by the impact of the initial evaluations and appraisals used to
assign fair values to assets and liabilities under purchase accounting.
The increase in additional paid-in capital during December 31, 1992
arose from a contribution of $500 million in 1992 from The Travelers
Corporation and the contribution of Transport Life Insurance Company's
preferred provider and third party administrator organizations in 1992
(see note 3).
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in note 15.
32
<PAGE> 18
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. SHAREHOLDER'S EQUITY, Continued
Shareholder's Equity and Dividend Availability
The statutory net income, including TIHI, was $100 million for the year
ended December 31, 1994. The statutory net loss, excluding TIHI, was
$648 million and $346 million for the years ended December 31, 1993 and
1992, respectively.
Statutory capital and surplus was $2.1 billion and $1.8 billion at
December 31, 1994 and 1993, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to TIG without prior
approval of insurance regulatory authorities. Under statutory
accounting practices, there is no statutory surplus available in 1995
for dividends to TIG without prior approval of the Connecticut Insurance
Department.
Dividend payments to the Company from its insurance subsidiaries are
subject to similar restrictions and statutory surplus of the
subsidiaries is not available in 1995 for dividends to the Company
without prior approval of insurance regulatory authorities.
7. ADDITIONAL OPERATING INFORMATION
The Company has segmented its business by major product lines. TIHI was
contributed to the Company on December 31, 1993, and its assets at that
date and subsequent and its operations for the year ended December 31,
1994 are included in the following table in the Life and Annuities
segment. Transport Life Insurance Company's preferred provider and
third party administrator organizations were contributed to the Company
in December 1992 and are included in the Managed Care and Employee
Benefits segment.
33
<PAGE> 19
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. ADDITIONAL OPERATING INFORMATION, continued
Results included in the table below reflect 1993 fourth quarter
after-tax charges of $103 million for an addition to reserves for
foreclosed properties held for sale and 1992 fourth quarter after-tax
charges of $272 million for implementation of SOP 92-3 and $193 million
for an addition to mortgage loan valuation reserves.
<TABLE>
<CAPTION>
Managed Care Corporate
Travelers Life and Employee and Other
(in millions) and Annuities Benefits Operations Consolidated
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
- ----
Revenues
Premiums $ 1,492 $ 2,369 $ - $ 3,861
Net investment income 1,603 246 - 1,849
Realized investment gains 13 - 1 14
Other 173 850 - 1,023
- ------------------------------------------------------------------------------------------------------------------------
Total $ 3,281 $ 3,465 $ 1 $ 6,747
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes $ 604 $ 257 $ (4) $ 857
Net income (loss) 392 157 (4) 545
Assets 33,078 5,131 2,326 40,535
- ------------------------------------------------------------------------------------------------------------------------
1993
- ----
Revenues
Premiums $ 330 $ 2,395 $ - $ 2,725
Net investment income 1,616 265 3 1,884
Realized investment gains (losses) (45) 24 - (21)
Other 120 737 2 859
- ------------------------------------------------------------------------------------------------------------------------
Total $ 2,021 $ 3,421 $ 5 $ 5,447
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes $ (87) $ 173 $ (3) $ 83
Net income (loss) 19 123 (1) 141
Assets (purchase accounting value) 34,155 4,744 2,442 41,341
- ------------------------------------------------------------------------------------------------------------------------
1992
- ----
Revenues
Premiums $ 278 $ 2,408 $ - $ 2,686
Net investment income 1,799 290 12 2,101
Realized investment gains (losses) (725) (22) - (747)
Other 140 645 - 785
- ------------------------------------------------------------------------------------------------------------------------
Total $ 1,492 $ 3,321 $ 12 $ 4,825
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal
income taxes and cumulative effects of
changes in accounting principles $ (844) $ (100) $ 1 $ (943)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax (25) (101) - (126)
Cumulative effect of change in
accounting for income taxes 223 124 3 350
Net income (loss) (343) (42) 4 (381)
Assets 31,378 4,498 2,191 38,067
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 20
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures, interest rate swaps and forward contracts, as a means of
prudently hedging exposure to price, foreign currency and/or interest
rate risk on anticipated investment purchases or existing assets and
liabilities. Also, in the normal course of business, the Company has
fixed and variable rate loan commitments and unfunded commitments to
partnerships. The Company does not hold or issue derivative instruments
for trading purposes.
These derivative financial instruments have off-balance-sheet risk.
Financial instruments with off-balance-sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the consolidated 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 credit loss or cash flow associated with these instruments can be
less than these amounts. For forward contracts and interest rate swaps,
credit risk is limited to the amounts calculated to be due the Company on
such contracts. For unfunded commitments to partnerships, credit
exposure is the amount of the unfunded commitments. For fixed and
variable rate loan commitments, credit exposure is represented by the
contractual amount of these instruments.
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. Many
transactions include the use of collateral to minimize credit risk and
lower the effective cost to the borrower.
The Company may occasionally enter into interest rate swaps in
connection with other financial instruments to provide greater risk
diversification and better match an asset with a corresponding
liability. Under interest rate swaps, the Company agrees with other
parties to exchange, at specified intervals, the difference between
fixed-rate and floating rate interest amounts calculated by reference to
an agreed notional principal amount. Generally, no cash is exchanged at
the outset of the contract and no principal payments are made by either
party. A single net payment is usually made by one counterparty at each
due date. Swap agreements are not exchange traded so they are subject
to the risk of default by the counterparty. In all cases,
counterparties under these agreements are major financial institutions
with the risk of non-performance considered remote. At December 31,
1994 and 1993, the Company had entered into interest rate swaps with
contract values of $145 million and $153 million, respectively. At both
December 31, 1994 and 1993, the fair value of interest rate swaps was $1
million (loss position) which is determined using a discounted cash flow
method.
The off-balance-sheet risks of financial futures contracts, forward
contracts, fixed and variable rate loan commitments and unfunded
commitments to partnerships were not considered significant at December
31, 1994 and 1993.
35
<PAGE> 21
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not
included in the amounts discussed.
At December 31, 1994 and 1993, investments in fixed maturities have a
fair value of $17.3 billion and $18.3 billion, respectively. See note
15.
At December 31, 1994, mortgage loans have a carrying value of $4.9
billion, which approximates fair value, compared with a carrying value
and a fair value of $6.8 billion at December 31, 1993. In estimating
fair value, the Company used interest rates reflecting the higher
returns required in the current real estate financing market.
The carrying value of $417 million and $320 million of financial
instruments classified as other assets approximates fair values at
December 31, 1994 and 1993, respectively. The carrying value of $1.2
billion and $878 million of financial instruments classified as other
liabilities also approximates their fair values at December 31, 1994 and
1993, respectively. Fair value is determined using various methods
including discounted cash flows and carrying value, as appropriate for
the various financial instruments.
At December 31, 1994, contractholder funds with defined maturities have
a carrying value of $4.2 billion and a fair value of $4.0 billion,
compared with a carrying value and a fair value of $5.0 billion at
December 31, 1993. 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 have a carrying value of
$9.1 billion and a fair value of $8.8 billion at December 31, 1994,
compared with a carrying value of $13.0 billion and a fair value of
$12.7 billion at December 31, 1993. These contracts generally are
valued at surrender value.
The assets of separate accounts providing a guaranteed return have a
carrying value and a fair value of $1.5 billion and $1.4 billion,
respectively, at December 31, 1994, compared with a carrying value and a
fair value of $1.5 billion and $1.6 billion, respectively, at December
31, 1993. The liabilities of separate accounts providing a guaranteed
return have a carrying value and a fair value of $1.5 billion and $1.3
billion, respectively, at December 31, 1994, compared with a carrying
value and a fair value of $1.5 billion and $1.7 billion, respectively,
at December 31, 1993.
36
<PAGE> 22
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
The carrying values of cash, short-term securities and investment income
accrued approximate their fair values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
See Note 8 for a discussion of financial instruments with
off-balance-sheet risk.
Litigation
In April 1989, a lawsuit was filed against the Company by the federal
government alleging the Company improperly handled health benefit claims
for individuals who are actively employed and eligible for Medicare
coverage. In November 1992, the court ruled on cross motions for
summary judgment. The court found that the Company had no liability
when acting in the capacity of an administrator of claims. However, the
court also recognized that, while the government's right of recovery
with respect to insured claims is governed by the substantive terms of
our customers' health benefit plan, the right of recovery is independent
of procedural limitations in the Company's contracts.
The Company is a defendant or codefendant in various litigation matters.
Although there can be no assurances, as of December 31, 1994, 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.
10. BENEFIT PLANS
Pension Plans
The Company participates in qualified and nonqualified, noncontributory
defined benefit pension plans covering the majority of the Company's
U.S. employees. Benefits for the qualified plan are based on an account
balance formula. Under this formula, each employee's accrued benefit
can be expressed as an account that is credited with amounts based upon
the employee's pay, length of service and a specified interest rate, all
subject to a minimum benefit level. This plan is funded in accordance
with the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code. For the nonqualified plan, contributions are
based on benefits paid.
Certain subsidiaries of TIHI participate in a noncontributory defined
benefit plan sponsored by their ultimate parent, The Travelers Inc.
37
<PAGE> 23
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. BENEFIT PLANS, Continued
The Company's share of net pension expense was $6 million, $8 million
and $22 million for 1994, 1993 and 1992, respectively.
Through plans sponsored by TIG, 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
$2 million in 1994, 1993 and 1992. Certain non-U.S. employees of TIHI
are covered by noncontributory defined benefit plans. These plans are
funded based upon local laws.
Other Benefit Plans
In addition to pension benefits, the Company provides certain health
care and life insurance benefits for retired employees through a plan
sponsored by TIG. This plan does not include employees of TIHI.
Covered employees may become eligible for these benefits if they reach
retirement age while working for the Company. These retirees may elect
certain prepaid health care benefit plans. Life insurance benefits
generally are set at a fixed amount. The cost recognized by the Company
for these benefits represents its allocated share of the total costs of
the plan, net of employee contributions.
In the third quarter of 1992, TIG adopted FAS 106 and elected to
recognize the accumulated postretirement benefit obligation (i.e., the
transition obligation) as a change in accounting principle retroactive
to January 1, 1992. The Company's pretax share of the total cost of the
plan for 1994, 1993 and 1992 was $14 million, $29 million and $26
million, respectively.
The Merger resulted in a change in control of The Travelers Corporation
as defined in the applicable plans, and provisions of some employee
benefit plans secured existing compensation and benefit entitlements
earned prior to the change in control, and provided a salary and benefit
continuation floor for employees whose employment was affected. The
costs related to these changes have been assumed by TIG.
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIG (except TIHI), the Company matches a
portion of employee contributions. Effective April 1, 1993, the match
decreased from 100% to 50% of an employee's first 5% contribution and a
variable match based on TIG's profitability was added. The Company's
matching obligations were $7 million, $10 million and $16 million in
1994, 1993 and 1992, respectively.
38
<PAGE> 24
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS
The principal banking functions for certain subsidiaries and affiliates
of TIG, and salaries and expenses for TIG and its insurance subsidiaries
(excluding TIHI), are handled by the Company. Settlements for these
functions between the Company and its affiliates are made regularly.
The Company provides various insurance coverages, principally life and
health, to employees of certain subsidiaries of TIG. The premiums for
these coverages were charged in accordance with normal cost allocation
procedures. In addition, investment advisory and management services,
data processing services and claims processing services are provided by
affiliated companies.
TIG and its subsidiaries maintain short-term investment pools in which
the Company participates. The positions of each company participating
in the pools are calculated and adjusted daily. At December 31, 1994
and 1993, the pools totaled approximately $1.5 billion and $1.3 billion,
respectively. The Company's share of the pools amounted to $1.1 billion
and $439 million at December 31, 1994 and 1993, respectively, and is
included in short-term securities in the consolidated balance sheet.
The Company markets a variable annuity product through its affiliate,
Smith Barney. Sales of this product were $158 million in 1994.
The Company leases new furniture and equipment from a noninsurance
subsidiary of TIG. The rental expense charged to the Company for this
furniture and equipment was $9 million, $10 million and $9 million in
1994, 1993 and 1992, respectively.
At December 31, 1994 and 1993, TIC has an investment of $23 million and
$27 million, respectively, in bonds of its affiliate, Commercial Credit
Company. This is included in fixed maturities in the consolidated
balance sheet.
TIHI has an investment of $231 million and $110 million in common stock
of The Travelers Inc. at December 31, 1994 and 1993, respectively.
This is carried at fair value at December 31, 1994 and at cost at
December 31, 1993. At December 31, 1994, TIHI has an investment of $35
million in redeemable preferred stock of The Travelers Inc. which is
carried at fair value. TIHI has notes receivable from The Travelers
Inc. of $30 million at December 31, 1994 and 1993, which are carried at
cost. These assets are included in other investments in the
consolidated balance sheet.
39
<PAGE> 25
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. LEASES
The Company has entered into various operating and capital lease
agreements for office space and data processing and certain other
equipment. Rental expense under operating leases was $99 million, $113
million and $122 million in 1994, 1993 and 1992, respectively. Future
net minimum rental and lease payments are estimated as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Minimum operating Minimum capital
------------------------------------------------------------------------------------------
(in millions) rental payments lease payments
------------------------------------------------------------------------------------------
<S> <C> <C>
Year ending December 31,
1995 $ 112 $ 7
1996 85 7
1997 69 4
1998 54 4
1999 47 4
Thereafter 36 64
------------------------------------------------------------------------------------------
$ 403 $ 90
------------------------------------------------------------------------------------------
</TABLE>
The Company is reimbursed by affiliates of TIG for utilization of space
and equipment.
The following is a summary of assets under capital leases:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(in millions) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Buildings $ 25 $ 25
Equipment 14 14
-------------------------------------------------------------------------
39 39
Less accumulated depreciation 17 14
-------------------------------------------------------------------------
Net $ 22 $ 25
-------------------------------------------------------------------------
</TABLE>
The net carrying value of the assets is recorded at amortized cost and
at the value assigned at the acquisition dates at December 31, 1994 and
1993, respectively.
40
<PAGE> 26
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(in millions) 1994 | 1993 1992
------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Effective tax rate |
|
Income (loss) before federal |
income taxes $ 857 | $ 83 $ (943)
------------------------------------------------------------|------------------------------
Statutory tax rate 35% | 35% 34%
------------------------------------------------------------|------------------------------
|
Expected federal income taxes $ 300 | $ 29 $ (321)
Tax effect of: |
Nontaxable investment income (4) | (1) (1)
Adjustments to benefit and other reserves - | (46) (18)
Adjustment to deferred tax asset for |
enacted change in tax rates from |
34% to 35% - | (25) -
Goodwill 12 | - -
Other 4 | (15) 2
------------------------------------------------------------|------------------------------
Federal income taxes $ 312 | $ (58) $ (338)
------------------------------------------------------------|------------------------------
|
Effective tax rate 36% | (70%) 36%
------------------------------------------------------------|------------------------------
|
Composition of federal income taxes |
Current: |
United States $ 22 | $ 17 $ (3)
Foreign 14 | 3 5
------------------------------------------------------------|------------------------------
Total 36 | 20 2
------------------------------------------------------------|------------------------------
|
Deferred: |
United States 271 | (78) (340)
Foreign 5 | - -
------------------------------------------------------------|------------------------------
Total 276 | (78) (340)
------------------------------------------------------------|------------------------------
Federal income taxes $ 312 | $ (58) $ (338)
-------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 27
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1994 and 1993 were comprised
of the tax effects of the temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(in millions) 1994 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 453 $ 575
Contractholder funds 158 184
Investments 690 492
Other employee benefits 87 65
Other 257 146
----------------------------------------------------------------------------------------------
Total 1,645 1,462
----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs and value of insurance in force 529 504
Prepaid pension expense 5 3
Other 61 -
----------------------------------------------------------------------------------------------
Total 595 507
----------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 1,050 955
Valuation allowance for deferred tax assets (100) (100)
----------------------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $ 950 $ 855
----------------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, the Company and
its life insurance subsidiaries will file a consolidated federal income
tax return. Federal income taxes are allocated to each member of the
consolidated return 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 Company has no receivable for unreimbursed credits from its
previous allocation agreement with The Travelers Corporation.
42
<PAGE> 28
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
A net deferred tax asset valuation allowance of $100 million has been
established to reduce the net deferred tax asset on investment losses to
the amount that, based upon available evidence, is more likely than not
to be realized. Reversal of the valuation allowance is contingent upon
the recognition of future capital gains in the Company's consolidated
life insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999 or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no net change in the
valuation allowance during 1994. The initial recognition of any benefit
produced by the reversal of the valuation allowance will be recognized
by reducing goodwill.
The Company has a net deferred tax asset, after the valuation allowance
of $100 million, which relates to temporary differences that are
expected to reverse as net ordinary deductions except for a deferred tax
asset of $319 million which relates to the unrealized loss on fixed
maturity investments. Management does not intend to realize the
unrealized loss on the fixed maturity investments except to the extent
of offsetting capital gains. The Company will have to generate
approximately $1.8 billion of taxable income, before reversal of these
temporary differences, primarily over the next 10 to 15 years, to
realize the remainder of the deferred tax asset, exclusive of the
unrealized loss on fixed maturity investments. Management expects to
realize the remainder of the deferred tax asset based upon its
expectation of future positive taxable income, after the reversal of
these deductible temporary differences, in the consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999. The taxable income of The Travelers Inc. consolidated return,
after reversal of the deductible temporary differences, is expected to
be at least $1 billion annually. At December 31, 1994, the Company has
no ordinary or capital loss carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $932 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for
which no provision has been made in the financial statements) is
approximately $326 million.
See note 2 for a discussion of the implementation of new principles for
accounting for income taxes.
43
<PAGE> 29
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------|------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
------------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Gross investment income |
Fixed maturities $ 1,253 | $ 1,221 $ 1,242
Mortgage loans 534 | 692 868
Real estate 177 | 383 384
Policy loans 112 | 106 109
Other 7 | (23) -
------------------------------------------------------------------|------------------------------
2,083 | 2,379 2,603
------------------------------------------------------------------|------------------------------
|
Investment expenses 234 | 495 502
------------------------------------------------------------------|------------------------------
Net investment income $ 1,849 | $ 1,884 $ 2,101
------------------------------------------------------------------|------------------------------
</TABLE>
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------|-----------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
-------------------------------------------------------------------|-----------------------------
<S> <C> | <C> <C>
Realized |
|
Fixed maturities $ (3) | $ 182 $ (11)
Equity securities 19 | 14 9
Mortgage loans - | (32) (386)
Real estate - | (222) (400)
Other (2) | 37 41
-------------------------------------------------------------------|-----------------------------
Realized investment gains (losses) $ 14 | $ (21) $ (747)
-------------------------------------------------------------------|-----------------------------
</TABLE>
44
<PAGE> 30
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Changes in net unrealized investment gains (losses) that are included as
a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
-------------------------------------------------------------------|-----------------------------
<S> <C> | <C> <C>
Unrealized |
|
Fixed maturities $ (1,319) | $ (235) $ 146
Equity securities (25) | (17) 6
Other 165 | 28 4
-------------------------------------------------------------------|-----------------------------
(1,179) | (224) 156
Related taxes (412) | (83) 53
-------------------------------------------------------------------|-----------------------------
|
Net unrealized investment gains (losses) (767) | (141) 103
Contribution of TIHI - 5 | -
Balance beginning of year 7 143 | 40
--------------------------------------------------------------------------------------|----------
Balance end of year $ (760) $ 7 | $ 143
-------------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$232 million (net of taxes) to net unrealized gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $1.4 billion in 1994, resulting in gross realized gains of $15
million and gross realized losses of $27 million. There were no sales
of fixed maturities classified as available for sale in 1993 or 1992 as,
in conjunction with the Merger, fixed maturities were first classified
as "available for sale" effective December 31, 1993.
Prior to December 31, 1993, fixed maturities that were intended to be
held to maturity were recorded at amortized cost and classified as held
for investment. Sales from the amortized cost portfolios have been made
periodically. Such sales were $97 million and $195 million in 1993 and
1992, respectively. Gross gains of $7 million and $10 million in 1993
and 1992, respectively, and gross losses of $1 million and $6 million in
1993 and 1992, respectively, were realized on those sales.
Prior to December 31, 1993, the carrying values of the trading portfolio
fixed maturities were adjusted to market value as it was likely they
would be sold prior to maturity. At December 31, 1992, these fixed
maturities had market values of $4.8 billion. Sales of trading
portfolio fixed maturities were $4.0 billion and $642 million in 1993
and 1992, respectively. Gross gains of $165 million and $24 million in
1993 and 1992, respectively, and gross losses of $2 million and $4
million in 1993 and 1992, respectively, were realized on those sales.
45
<PAGE> 31
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and market value of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
(in millions) cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 3,779 $ 3 $ 304 $ 3,478
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 3,080 3 306 2,777
Obligations of states,
municipalities and
political subdivisions 87 - 7 80
Debt securities issued by
foreign governments 398 - 26 372
All other corporate bonds 11,225 14 696 10,543
Redeemable preferred stock 10 - - 10
------------------------------------------------------------------------------------------------
Total $ 18,579 $ 20 $ 1,339 $ 17,260
------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 32
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Market
(in millions) value gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 4,219 $ 18 $ 18 $ 4,219
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 2,807 67 6 2,868
Obligations of states,
municipalities and
political subdivisions 259 9 - 268
Debt securities issued by
foreign governments 333 6 - 339
All other corporate bonds 10,474* 125 29 10,570
Redeemable preferred stock 20 - - 20
Held for investment 18 - - 18
------------------------------------------------------------------------------------------------
Total $ 18,130 $ 225 $ 53 $ 18,302
------------------------------------------------------------------------------------------------
</TABLE>
* Before valuation reserves of $67 million.
The amortized cost and market value of fixed maturities at December 31,
1994, 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>
------------------------------------------------------------------------------------------------
Maturity Amortized Market
(in millions) cost value
------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,217 $ 1,197
Due after 1 year through 5 years 4,691 4,434
Due after 5 years through 10 years 5,731 5,310
Due after 10 years 3,161 2,841
------------------------------------------------------------------------------------------------
14,800 13,782
Mortgage-backed securities 3,779 3,478
------------------------------------------------------------------------------------------------
Total $ 18,579 $ 17,260
------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 33
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy
is to purchase CMO tranches which are protected against prepayment risk,
primarily planned amortization class (PAC) tranches. Prepayment
protected tranches are preferred because they provide stable cash flows
in a variety of 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, 1994 and 1993, the Company held CMOs with a market value
of $2.2 billion and $2.5 billion, respectively. Approximately 88% of
the Company's CMO holdings are fully collateralized by GNMA, FNMA or
FHLMC securities at December 31, 1994 and 1993. The majority of these
are GNMA-backed securities. In addition, the Company held $1.3 billion
and $1.9 billion of GNMA, FNMA or FHLMC mortgage-backed securities at
December 31, 1994 and 1993, respectively. Virtually all of these
securities are rated AAA. The Company also held $927 million and $899
million of securities that are backed primarily by credit card or car
loan receivables at December 31, 1994 and 1993, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Market
(in thousands) Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 133 $ 19 $ 21 $ 131
Nonredeemable preferred stocks 40 - 2 38
------------------------------------------------------------------------------------------------
Total $ 173 $ 19 $ 23 $ 169
------------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------------
Common stocks $ 129 $ 22 $ 3 $ 148
Nonredeemable preferred stocks 70 3 1 72
------------------------------------------------------------------------------------------------
Total $ 199 $ 25 $ 4 $ 220
------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $359 million in 1994,
resulting in gross realized gains of $24 million and gross realized
losses of $6 million.
48
<PAGE> 34
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Mortgage loans and real estate
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market. The Company continues its strategy, adopted in
conjunction with the Merger, to dispose of these real estate assets and
some of the mortgage loans and to reinvest the proceeds to obtain
current market yields.
At December 31, 1994 and 1993, the Company's mortgage loan and real
estate held for sale portfolios consisted of the following (in
millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 4,467 $ 5,680
Underperforming mortgage loans 471 1,165
------------------------------------------------------------------------------
Total mortgage loans 4,938 6,845
------------------------------------------------------------------------------
Real estate held for sale 383 954
------------------------------------------------------------------------------
Total mortgage loans and real estate $ 5,321 $ 7,799
------------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
(in millions)
-----------------------------------------------------
<S> <C>
Past maturity $ 196
1995 708
1996 517
1997 550
1998 614
1999 611
Thereafter 1,742
-----------------------------------------------------
Total $ 4,938
-----------------------------------------------------
</TABLE>
Concentrations
At December 31, 1994 and 1993, the Company had no concentration of
credit risk in a single investee exceeding 10% of consolidated
shareholder's equity.
The Company participates in two short-term investment pools maintained by
TIG and its subsidiaries. These pools are discussed in note 11.
49
<PAGE> 35
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Included in fixed maturities are below investment grade assets totaling
$922 million and $814 million at December 31, 1994 and 1993,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or
the equivalent by the internal analysts when a public rating does not
exist. Such assets include publicly traded below investment grade
bonds, highly leveraged transactions and certain other privately issued
bonds that are classified as below investment grade loans.
The Company also has significant concentrations of investments in the
following industries:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 1,241 $ 1,442
Electric utilities 1,222 1,348
Banking 953 743
Oil and gas 859 651
------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals above, are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 75 $ 45
Electric utilities 32 47
Banking 21 21
Oil and gas 33 38
------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, significant concentrations of mortgage
loans were for properties located in highly populated areas in the
states listed below. The amounts are shown below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
California $ 929 $ 1,174
New York 558 780
Florida 432 588
Texas 380 584
Illinois 347 485
------------------------------------------------------------------------------------------------
</TABLE>
Other mortgage loan investments are fairly evenly dispersed throughout
the United States, with no holdings in any state exceeding $273 million
and $324 million at December 31, 1994 and 1993, respectively.
50
<PAGE> 36
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Concentrations of mortgage loans by property type at December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in millions) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Office $ 2,065 $ 2,769
Apartment 1,029 1,635
Retail 606 891
Agricultural 540 643
Hotel 402 547
-----------------------------------------------------------------------------------------------
</TABLE>
Real estate investments are dispersed throughout the United States, with
no holdings in any state exceeding $111 million or $191 million at
December 31, 1994 or 1993, respectively.
Real estate assets at December 31, 1994 and 1993 included office
properties with carrying values of $205 million and $568 million,
respectively.
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.
Investment Valuation Reserves
At December 31, 1994, 1993 and 1992, total investment valuation
reserves, which are deducted from the applicable investment carrying
values in the consolidated balance sheet, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(in millions) 1994 | 1993 1992
------------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Beginning of year $ 67 | $ 1,417 $ 864
Increase - | 195 821
Impairments, net of gains/recoveries - | (602) (268)
FAS 115/Purchase accounting adjustment (67) | (943) -
-------------------------------------------------------------------------------------------------
End of year $ - $ 67 | $ 1,417
-------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, investment valuation reserves were comprised of
$67 million for securities. Increases in the investment valuation
reserves are reflected as realized investment losses.
51
<PAGE> 37
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Nonincome Producing
Investments included in the consolidated balance sheets that were
nonincome producing for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in millions) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 127 $ 249
Real estate 73 147
Fixed maturities 6 24
-----------------------------------------------------------------------------------------------
Total $ 206 $ 420
-----------------------------------------------------------------------------------------------
</TABLE>
Restructured
The Company has mortgage loans and debt securities which were
restructured at below market terms totaling approximately $259 million
and $796 million at December 31, 1994 and 1993, respectively. At
December 31, 1993, the Company's restructured assets are recorded at
purchase accounting value. 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 amounted to $52 million in 1994 and $121
million in 1993. Interest on these assets, included in net investment
income, aggregated $17 million and $52 million in 1994 and 1993,
respectively.
16. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1994, the Company has $23.2 billion of life and annuity
deposit funds and reserves. Of that total, $11.6 billion are not
subject to discretionary withdrawal based on contract terms and related
market conditions. The remaining $11.6 billion are for life and annuity
products that are subject to discretionary withdrawal by the
contractholder. Included in the amount that is subject to discretionary
withdrawal are $1.9 billion of liabilities that are surrenderable with
market value adjustments. An additional $5.7 billion of the life
insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 5.5%.
Another $1.4 billion of liabilities are surrenderable at book value over
5 to 10 years. In the payout phase, these funds are credited at
significantly reduced interest rates. The remaining $2.6 billion of
liabilities are surrenderable without charge. Approximately 30% of
these liabilities relate to individual life products. These risks would
have to be underwritten again if transferred to another carrier, which
is considered a significant deterrent for long-term policyholders.
Insurance liabilities that are surrendered or withdrawn from the Company
are reduced by outstanding policy loans and related accrued interest
prior to payout.
52
<PAGE> 38
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
17. RESTRUCTURING COSTS
During 1992, the Company announced a series of organizational
restructuring initiatives associated with its plan to streamline its
business and corporate operations. These initiatives have been
substantially completed. These initiatives resulted in a pretax charge
in 1992 of $151 million, consisting of $96 million for severance,
benefits, accrued vacation and outplacement costs, $5 million for
relocation costs due to consolidation efforts, $19 million for lease
costs, $15 million for writeoff of goodwill related to identified
divestitures and $16 million of miscellaneous other costs.
18. RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
In the first quarter of 1992, the Company changed its presentation of
cash flows from operating activities from the indirect method to the
direct method. The following table reconciles net income (loss) to net
cash provided by operating activities:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
----------------------------------------------------------------|-------------------------------
<S> <C> | <C> <C>
Net income (loss) $ 545 | $ 141 $ (381)
Reconciling adjustments |
Realized gains (losses) (14) | 21 747
Deferred federal income taxes 276 | (78) (340)
Amortization of deferred policy acquisition |
costs and value of insurance in force 284 | 55 61
Additions to deferred policy acquisition costs (429) | 5 (2)
Trading account investments, |
(purchases) sales, net - | (1,576) (364)
Investment income accrued 17 | 1 29
Premium balances receivable 9 | 41 3
Insurance reserves and accrued expenses 165 | 542 (81)
Restructuring reserves - | (79) 121
Cumulative effects of changes in |
accounting principles - | - (224)
Other, including investment valuation reserves |
in 1993 and 1992 (136) | (445) 487
----------------------------------------------------------------|-------------------------------
|
Net cash provided by (used in) |
operating activities $ 717 | $ (1,372) $ 56
------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 39
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
19. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1994 exchange of $23 million of TIHI's investment in The Travelers Inc.
common stock for $35 million of The Travelers Inc. nonredeemable
preferred stock; b) the acquisition of real estate through foreclosures
of mortgage loans amounting to $229 million, $563 million and $753
million in 1994, 1993 and 1992, respectively; c) the acceptance of
purchase money mortgages for sales of real estate aggregating $96
million, $190 million and $72 million in 1994, 1993 and 1992,
respectively; d) the 1993 contribution of TIHI by The Travelers Inc. (see
note 3); e) the 1993 contribution of $400 million of bond investments by
The Travelers Corporation (see note 6); f) increases in investment
valuation reserves in 1993 and 1992 for securities, mortgage loans and/or
investment real estate (see note 15); g) the 1993 transfer of $352
million of mortgage loans and bonds from the Company's general account to
two separate accounts; and h) the contribution in 1992 of Transport Life
Insurance Company's preferred provider and third party administrator
organizations by The Travelers Corporation (see note 3).
54
<PAGE>
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited)
Such pro forma financial statements give effect to the
transactions described below and other matters as more fully
described in the accompanying notes. All of these transactions
have previously been reported by the Company.
In December 1994 the Company sold its group dental insurance
business, and on January 3, 1995 the Company completed the sale
of its group life business and the remaining related non-medical
group insurance business (Life) to MetLife for $350 million. The
assets transferred included customer lists, books and records,
and furniture and equipment. In connection with the sale, the
Company agreed to cede 100% of its risks in the Life business to
MetLife on an indemnity reinsurance basis, effective January 1,
1995. In connection with the reinsurance transaction, the
Company transferred assets with a fair market value of
approximately $1.5 billion to MetLife, estimated to equal the
statutory reserves and other liabilities transferred.
On January 3, 1995, the Company and MetLife, and certain of their
affiliates, contributed their health care benefits businesses to
MetraHealth or its subsidiaries, in exchange for shares of common
stock of MetraHealth. The assets transferred included cash,
fixed assets, customer lists, books and records, certain
trademarks and other assets used exclusively or primarily in the
health care benefits businesses. The Company also contributed
all of the capital stock of the Company's wholly owned
subsidiary, The Travelers Employee Benefits Company, to
MetraHealth. The Company's total contribution amounted to
approximately $340 million. In March 1995, MetraHealth acquired
HealthSpring, Inc. for common stock of MetraHealth.
HealthSpring, Inc. builds and manages primary care physician
practices and serves approximately 32,000 patients through seven
sites in Pennsylvania, Ohio and Illinois. This acquisition
resulted in a reduction in the ownership percentage of the
Company in the MetraHealth venture to 41.1%. The Company and its
affiliates, which together own 48.25% of MetraHealth, are equal
partners in the joint venture with MetLife and its affiliates.
<TABLE>
<CAPTION>
As Previously Less: Pro Forma
(in millions) Reported Life & Medical Adjustments Pro Forma
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 3,861 $ (2,369) $ 1,492
Net investment income 1,849 (147) 1,702
Realized investment gains (losses) 14 14
Other revenues 1,023 (825) $ 35 (c,d) 233
6,747 (3,341) 35 3,441
BENEFITS AND EXPENSES
Current and future insurance benefits 3,421 (2,206) 1,215
Interest credited to contractholders 967 (54) 913
Claim settlement expenses 193 (191) 2
Amortization of deferred acquisition costs
and value of insurance in force 284 (5) 279
General and administrative expenses 1,025 (625) 1 (e) 401
5,890 (3,081) 1 2,810
Income before federal income taxes 857 (260) 34 631
Federal income taxes 312 (101) 0 (f,g) 211
Net income $ 545 $ (159) $ 34 $ 420
See notes to pro forma consolidated financial statements.
</TABLE>
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
As Previously Less: Pro Forma
(in millions) Reported Life & Medical Adjustments Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Bonds, available for sale $17,260 $(1,459) $15,801
Mortgage loans 4,938 4,938
Other investments 5,297 $ 191 (a, b) 5,488
Total investments 27,495 (1,459) 191 26,227
Separate and variable accounts 5,160 5,160
Other assets 7,880 1,379 (187) (a, b) 9,072
Total assets $40,535 $ (80) $ 4 $40,459
LIABILITIES
Contractholder funds $16,354 $16,354
Benefit and other insurance reserves 12,702 $ (62) (a, b) 12,640
Separate and variable accounts 5,128 5,128
Other liabilities 1,997 (34) (a, b) 1,963
Total liabilities 36,181 (96) 36,085
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,452 3,452
Unrealized investment gains (losses), net of taxes (760) $ (80) 80 (a) (760)
Retained earnings 1,562 20 (a) 1,582
Total shareholder's equity 4,354 (80) 100 4,374
Total liabilities and shareholder's equity $40,535 $ (80) $ 4 $40,459
See notes to pro forma consolidated financial statements.
</TABLE>
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assumptions:
In December 1994 the Company sold its group dental insurance
business, and on January 3, 1995 the Company completed the sale
of its group life business and the remaining related non-medical
group insurance businesses (Life) to MetLife for $350 million
and, effective January 1, 1995, entered into an agreement with
MetLife to cede 100% of the Company's risks in the Life business
to MetLife through indemnity reinsurance in connection with the
sale. The pretax gain on the sale of the group dental business
was $28 million in 1994, and the pretax gain on the other group
life and related businesses was $31 million. On January 3, 1995,
the Company and MetLife also completed the formation of
MetraHealth, a joint venture of the health care businesses of the
Company and MetLife.
The pro forma consolidated financial information presented in the
accompanying financial statements gives effect to the
consummation of the above described transactions (the
"Transactions"), which are assumed to have occurred on December
31, 1994 in the case of the pro forma condensed consolidated
balance sheet and on the first day of the year for the pro forma
consolidated statement of operations. The pro forma consolidated
financial statements are presented for informational purposes
only and should not be construed to be indicative of the actual
financial position and results of operations of the Company after
giving effect to the Transactions described above. The pro forma
consolidated financial statements should be read in conjunction
with the historical consolidated financial statements of the
Company, including the notes thereto.
Pro Forma Condensed Consolidated Balance Sheet:
Life Column - reflects transfer of assets and liabilities
pursuant to the agreement to cede 100% of the Company's risks in
the Life business to MetLife through indemnity reinsurance. This
column also reflects establishment of a reinsurance recoverable
in accordance with FAS 113.
Adjustments (a) and (b) are to reflect the pro forma effects of
the following:
(a) To record the sale of the Life businesses.
(b) To record the Company's investment in MetraHealth.
Pro Forma Consolidated Statement of Operations:
Life & Medical Column - reflects the elimination of the earnings
of the Life businesses sold to MetLife and the group health care
business (Medical) contributed to MetraHealth.
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Adjustments (c) through (g) are to reflect the pro forma effects
of the following:
(c) To eliminate the pretax gain on the sale of the dental
business of $28 million which was recorded in the year ended
December 31, 1994.
(d) To record the Company's earnings on its investment in
MetraHealth of $63 million for the year ended December 31,
1994, representing the Company's share of the combined
results of the Company's and MetLife's health care
businesses contributed to MetraHealth. (See pro forma
income statement for MetraHealth for the year ended December
31, 1994 included herein).
(e) To record the amortization of goodwill arising from the
difference between the Company's contribution to MetraHealth
and the Company's equity interest in the net assets of
MetraHealth.
(f) To eliminate the tax effect recorded in 1994 on adjustment
(c) above.
(g) To record the estimated tax effect on adjustment (d) at the
estimated effective tax rate of 29.54%.
MetraHealth
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(in millions)
<TABLE>
<CAPTION>
Company's
MetLife Travelers Total share
<S> <C> <C> <C> <C>
REVENUES
Premiums $1,998 $1,962 $3,960 $1,628
Fees/other income 524 596 1,120 460
Net investment income 40 48 88 36
Total revenues 2,562 2,606 5,168 2,124
BENEFITS AND EXPENSES
Current and future insurance benefits 1,644 1,614 3,258 1,339
Claim settlement expenses 224 154 378 155
Commission expenses 16 105 121 50
General and administrative expenses 584 592 1,176 483
TOTAL BENEFITS AND EXPENSES 2,468 2,465 4,933 2,027
Income before federal income taxes 94 141 235 97
Federal income taxes 33 49 82 34
Net income $ 61 $ 92 $ 153 $ 63
</TABLE>
<PAGE>
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
Section 33-320a 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 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; 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.
C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less
than that authorized by the statute, e.g., pursuant to its certificate of
incorporation, by-laws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Travelers Group Inc. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Depositor. 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
<PAGE>
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.
RULE 6e-3 (T) REPRESENTATIONS
A. With regard to the maximum sales load deductions permitted under the
Rule, The Travelers Insurance Company ("The Travelers") hereby elects to
be governed by subparagraph (b)(13)(i)(A) of the Rule.
B. With regard to the deduction from the Separate Account of a charge to
cover the mortality risk and expense risk, The Travelers is relying on
subparagraph (b)(13)(iii)(F) to permit such deduction. Furthermore, The
Travelers does hereby represent that the level of the risk charge is
within the range of industry practice for comparable flexible contracts.
C. With regard to explicit sales loads not covering the expected costs of
distributing the flexible contracts, The Travelers hereby represents that
the distribution financing arrangement of the Separate Account will
benefit the Separate Account and Contract Owners. Furthermore, The
Travelers hereby represents that the Separate Account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
1. The facing sheet.
2.a The MarketLife Prospectus consisting of 117 pages.
2.b The In-Vest Prospectus consisting of 107 pages.
3. The undertaking to file reports.
4. The signatures.
Written Consents and Opinions:
5. Consent and Actuarial Opinion pertaining to the illustrations contained
in the prospectus.
6(a). Consent of Independent Accountants.
<PAGE>
6(b). Consent of Independent Auditors.
7. Exhibits
1. Copies of all exhibits which are required by Section IX, Paragraph
A, of Form N-8B-2:
1. Resolution of the Board of Directors of The Travelers Insur-
ance Company authorizing the establishment of the Registrant.
(Incorporated herein by reference to Exhibit 1(A)(1) to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form S-6, File No. 2-88637 filed on October 16, 1986.)
3(a). Form of Distribution and Management Agreement among the
Registrant, The Travelers Insurance Company and Travelers
Equities Sales, Inc. (Incorporated herein by reference to Exhibit
3(A) to Post-Effective Amendment No. 14 to the Registration Statement
on Form S-6, File No. 2-88637 filed on March 1, 1995.)
3(b). Selling Agreement. (Incorporated herein by reference to
Exhibit 1(A)(3)(b) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6, File No. 2-88637 filed on
October 16, 1986.)
3(c). Agents Agreements, including schedule of sales commissions.
(Incorporated herein by reference to Exhibit 1(A)(3)(c) to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form S-6, File No. 2-88637 filed on October 16, 1986.)
4. None
5. Form of Variable Universal Life Insurance Contracts. (Incor-
porated herein by reference to Exhibit 5 to Post-Effective
Amendment No. 9 to the Registration Statement on Form S-6,
File No. 2-88637 filed on October 7, 1993.)
6(a). Charter of The Travelers Insurance Company, as amended on
October 19, 1994. (Incorporated herein by reference to
Exhibit 3(a)(i) to the Registration Statement filed on Form S-
2, File No. 33-58677, filed via Edgar on April 18, 1995.)
6(b). By-Laws of The Travelers Insurance Company, as amended on
October 20, 1994. (Incorporated herein by reference to
Exhibit 3(b)(i) to the Registration Statement filed on Form S-
2, File No. 33-58677, filed via Edgar on April 18, 1995.)
7. None
8. None
9. None
10. Form of Application for Variable Universal Life Insurance
Contracts. (Incorporated herein by reference to Exhibit
1(A)(10) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-6 filed on October 16, 1986.) Supplement
to the Variable Universal Life Insurance Contract Application.
(Incorporated herein by reference to Exhibit 10 to
Post-Effective Amendment No. 9 to the Registration Statement
on Form S-6, File No. 2-88637 filed on October 7, 1993.)
2. Specimen of each security being registered. (See Exhibit 1.5.
above.)
3. Opinion of counsel as to the legality of the securities being
registered.
4. None
5. Not applicable.
6. Actuarial Memorandum Concerning Transfer and Redemption Procedures,
as required by Rule 6e-3(T)(b)(12)(ii). (Incorporated by reference
to Amendment No. 1 to Registration Statement on Form S-6, File No.
2-88637 filed on April 26, 1988.)
7(a). Power of Attorney authorizing Ernest J. Wright as signatory for Jay
S. Fishman.
7(b). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright
as signatory for Robert I. Lipp, Charles O. Prince, III, Marc P.
Weill, Irwin R. Ettinger, Michael A. Carpenter and Donald T.
DeCarlo.
8. Participation Agreements among Variable Insurance Products Fund,
Fidelity Distributors Corporation and The Travelers Insurance Com-
pany; Variable Insurance Products Fund II, Fidelity Distributors
Corporation and The Travelers Insurance Company; Templeton Variable
Products Series Fund, Templeton Funds Distributor, Inc. and The
Travelers Insurance Company; and between The Travelers Insurance
Company and Dreyfus Stock Index Fund. (Incorporated herein by
reference to Exhibit 8 to Amendment No. 10 to the Registration
Statement on Form S-6, File No. 2-88637 filed on December 1, 1993,)
and Participation Agreement among American Odyssey Funds, Inc.,
Copeland Equities, Inc. and The Travelers Insurance Company.
(Incorporated herein by reference to Exhibit 8A to Amendment No. 11
to the Registration Statement on Form S-6, File No. 2-88637 filed
on March 1, 1994.)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
The Travelers Fund UL for Variable Life Insurance, certifies that it meets all
the requirements for effectiveness of this post-effective amendment to this
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this amendment to this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, in the City
of Hartford, State of Connecticut, on April 28 1995.
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
(Registrant)
By: Jay S. Fishman
Jay S. Fishman
Chief Financial Officer
The Travelers Insurance Company
By: /s/Ernest J. Wright
Ernest J. Wright, Attorney-in-Fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Depositor, The
Travelers Insurance Company, certifies that it meets the requirements for
effectiveness of this post-effective amendment to this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 has duly caused this
amendment to this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Hartford, State of
Connecticut, on April 28 1995.
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By: *Jay S. Fishman
Jay S. Fishman
Chief Financial Officer
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 April 28 1995.
*ROBERT I. LIPP Director, Chairman of the Board and President
(Robert I. Lipp) (principal executive officer)
*JAY S. FISHMAN Director and Chief Financial Officer
(Jay S. Fishman)
*CHARLES O. PRINCE, III Director
(Charles O. Prince, III)
*MARC P. WEILL Director
(Marc P. Weill)
*IRWIN R. ETTINGER Director
(Irwin R. Ettinger)
*MICHAEL A. CARPENTER Director
(Michael A. Carpenter)
*DONALD T. DeCARLO Director
(Donald T. DeCarlo)
/s/JAMES L. MORGAN Senior Vice President - Finance
(James L. Morgan) and Chief Accounting Officer
*By: /s/Ernest J. Wright
Ernest J. Wright, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
ATTACHMENT or EXHIBIT Method of Filing
ATTACHMENTS
5.Consent and Actuarial Opinion pertaining to the Electronically
illustrations contained in the prospectus.
6(a). Consent of Independent Accountants. Electronically
6(b). Consent of Independent Auditors. Electronically
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(A)(1) to Pre-Effective Amendment No. 1 to
the Registration Statement on Form S-6 ,
File No. 2-88637 filed on October 16, 1986.)
3(a). Form of Distribution and Management Agreement
among the Registrant, The Travelers Insurance
Company and Travelers Equities Sales, Inc.
(Incorporated herein by reference to Exhibit 3(A)
to Post-Effective Amendment No. 14 to
the Registration Statement on Form S-6 ,
File No. 2-88637 filed on March 1, 1995.)
3(b). Selling Agreement. (Incorporated herein by reference
to Exhibit 1(A)(3)(b) to Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-6,
File No. 2-88637 filed on October 16, 1986.)
3(c). Agents Agreements, including schedule of sales
commissions. (Incorporated herein by reference to
Exhibit 1(A)(3)(c) to Pre-Effective Amendment No. 1
to the Registration Statement on Form S-6,
File No. 2-88637 filed on October 16, 1986.)
5. Form of Variable Universal Life Insurance Contracts.
(Incorporated herein by reference to Exhibit 5 to Post-
Effective Amendment No. 9 to the Registration Statement
on Form S-6, File No. 2-88637 filed on October 7, 1993.)
6(a). Charter of The Travelers Insurance Company, as amended
on October 19, 1994. (Incorporated herein by reference to
Exhibit 3(a)(i) to the Registration Statement filed on Form S-2,
File No. 33-58677, filed via Edgar on April 18, 1995.)
<PAGE>
6(b). By-Laws of The Travelers Insurance Company, as
amended on October 20, 1994. (Incorporated herein by
reference to Exhibit 3(b)(i) to the Registration Statement
filed on Form S-2, File No. 33-58677, filed via Edgar
on April 18, 1995.)
10. Form of Application for Variable Universal Life
Insurance Contracts. (Incorporated herein by reference
to Exhibit 1(A)(10) to Pre-Effective Amendment No. 1
to the Registration Statement on Form S-6, File No. 2-88637
filed on October 16, 1986.) Supplement to the Variable
Universal Life Insurance Contract Application.
(Incorporated herein by reference to Exhibit 10 to
Post-Effective Amendment No. 9 to the Registration
Statement on Form S-6, File No. 2-88637 filed on
October 7, 1993.)
2. Specimen of each security being registered.
(See Exhibit 1.5. above.)
3. Opinion of counsel as to the legality of the securities
Electronically being registered.
6. Actuarial Memorandum Concerning Transfer and Redemption
Procedures, as required by Rule 6e-3(T)(b)(12)(ii).
(Incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-6, File No. 2-88637
filed on April 26, 1988.)
7(a). Power of Attorney authroizing Ernest J. Wright as Electronically
signatory for Jay S. Fishman.
7(b). Powers of Attorney authorizing Jay S. Fishman or Electronically
Ernest J.Wright as signatory for Robert I. Lipp,
Charles O. Prince, III, Marc P. Weill, Irwin R.
Ettinger, Michael A. Carpenter and Donald T.
DeCarlo.
8. Participation Agreements among Variable Insurance Products
Fund, Fidelity Distributors Corporation and The Travelers
Insurance Company; Variable Insurance Products Fund II,
Fidelity Distributors Corporation and The Travelers Insurance
Company; Templeton Variable Products Series Fund, Templeton
Funds Distributor, Inc. and The Travelers Insurance Company;
and between The Travelers Insurance Company and Dreyfus Stock
<PAGE>
Index Fund. (Incorporated herein by reference to Exhibit 8 to
Amendment No. 10 to the Registration Statement on Form S-6,
File No. 2-88637 filed on December 1, 1993, and Participation
Agreement among American Odyssey Funds, Inc., Copeland
Equities, Inc. and The Travelers Insurance Company.
(Incorporated herein by reference to Exhibit 8A to
Amendment No. 11 to the Registration Statement on Form S-6,
File No. 2-88637 filed on March 1, 1994.)
<PAGE>
ATTACHMENT 5(A)
ACTUARIAL OPINION
The illustrations included in the prospectus have been used based on
assumptions and charges which are consistent with the provisions of
MarketLife contract. The rate structure of the contract has not been
designed to make the relationship between premiums and benefits, as shown
in the illustrations, appear more favorable for contract owners at the
ages illustrated than for contract ownners at other ages.
/s/Bennett D. Kleinberg, ASA
Bennett D. Kleinberg, A.S.A.
Actuarial Assistant
<PAGE>
ATTACHMENT 5(B)
ACTUARIAL OPINION
The illustrations included in the prospectus have been based on
assumptions and charges which are consistent with the provisions
of the InVest contract. The rate structure of the contract has not
been designed to make the relationship between premiums and benefits,
as shown in the illustrations, appear more favorable for contract
owners at the ages illustrated than for contract owners at other ages.
/s/Bennett D. Kleinberg, ASA
Bennett D. Kleinberg, A.S.A.
Actuarial Assistant
<PAGE>
ATTACHMENT 6(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of Post-Effective Amendment No. 15 of this
Registration Statement on Form S-6 our report dated February 8, 1995,
on our audits of the financial statements of The Travelers Fund UL for
Variable Life Insurance and our reports on the financial statements of
The Travelers Insurance company and Subsidiaries (the "Company") dated
January 24, 1994 and February 9, 1993 (except for Notes 2 and 5, as to
which the date is January 24, 1994), which includes an explanatory
paragraph regarding the change in the methods of accounting for post-
retirement benefits other than pensions, income taxes and foreclosed
assets in 1992, on our audits of the consolidated financial statements
of the company. We also consent to the reference to our Firm as experts
under the caption "Independent Accountants".
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
<PAGE>
ATTACHMENT 6(B)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Travelers Insurance company:
We consent to the inclusion in this Post-Effective Amendment No. 15 to the
registration statement (No.2-88637) on Form N-8B-2, filed for The Travelers
Fund UL for Variable Life Insurance, of our reports, dated January 17, 1995.
Our reports refer to a change in accounting for investments in accordance
with the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
/S/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Hartford, Connecticut
April 21, 1995
<PAGE>
Exhibit 3
April 27, 1995
The Travelers Insurance Company
The Travelers Fund UL for Variable Life Insurance
One Tower Square
Hartford, Connecticut 06183
Gentlemen:
With reference to the Post-Effective Amendment No. 15 to the
Registration Statement on Form S-6 filed by The Travelers Insurance
Company and The Travelers Fund UL for Variable Life Insurance with the
Securities and Exchange Commission covering individual flexible premium
variable life insurance contracts, 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
contracts by the Insurance Commissioner of the State of
Connecticut.
2. The Travelers Fund UL 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 contracts covered by the above
Registration Statement, and all Post-Effective Amendments
related thereto, have been 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 of The Travelers Fund UL for
Variable Life Insurance.
4. Assets of The Travelers Fund UL for Variable Annuities 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
above-referenced Post-Effective Amendment and to the reference to this
opinion under the caption "Legal Proceedings and Opinion" in the
Prospectus constituting a part of such Post-Effective Amendment.
Very truly yours,
/s/Ernest J. Wright
Ernest J. Wright
General Counsel
Life and Annuities Division
The Travelers Insurance Company
<PAGE>
Exhibit 7(A)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, JAY S. FISHMAN of Haworth, New Jersey, director and
Chief Financial Officer of The Travelers Insurance Company
(hereinafter the "Company"), do hereby make, constitute and appoint
ERNEST J. WRIGHT, Assistant 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 N-3, Form N-4, S-2 and Form S-6 or
other appropriate form under the Securities Act of 1933 which
registrants are dedicated specifically to the funding of variable
annuity contracts, modified guaranteed annuity contracts and
variable life insurance contracts to be offered by the 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 24th day
of April, 1995.
/s/ Jay S. Fishman
____________________________________
Director and Chief Financial Officer
The Travelers Insurance Company
<PAGE>
Exhibit 7(b)
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Robert I. Lipp of Scarsdale, New York, director of
The Travelers Insurance Company (hereinafter the "Company"), do
hereby make, constitute and appoint JAY S. FISHMAN, Director and
Chief Financial Officer of said Company, and ERNEST J. WRIGHT,
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 for Variable
Life Insurance Contracts, a separate account of the Company ded-
icated specifically to the funding of variable life insurance
contracts to be offered by the 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 26th day of
April, 1995.
/s/Robert I. Lipp
Director
The Travelers Insurance Company
<PAGE>
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Charles P. Prince, III, of Weston, Connecticut,
director of The Travelers Insurance Company (hereinafter the
"Company"), do hereby make, constitute and appoint JAY S.
FISHMAN, Director and Chief Financial Officer of said Company,
and ERNEST J. WRIGHT, 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 for Variable Life Insurance Contracts,
a separate account of the Company dedicated specifically to the
funding of variable life insurance contracts to be offered by the
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 26th day of
April, 1995.
/s/Charles O. Prince, III
Director
The Travelers Insurance Company
<PAGE>
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Marc P. Weill of New York, New York, director of The
Travelers Insurance Company (hereinafter the "Company"), do
hereby make, constitute and appoint JAY S. FISHMAN, Director and
Chief Financial Officer of said Company, and ERNEST J. WRIGHT,
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 for Variable
Life Insurance Contracts, a separate account of the Company ded-
icated specifically to the funding of variable life insurance
contracts to be offered by the 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 28th day of
November, 1994.
/s/Marc P. Weill
Director
The Travelers Insurance Company
<PAGE>
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Irwin R. Ettinger of Stamford, Connecticut, director of
The Travelers Insurance Company (hereinafter the "Company"), do
hereby make, constitute and appoint JAY S. FISHMAN, Director and
Chief Financial Officer of said Company, and ERNEST J. WRIGHT,
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 for Variable
Life Insurance Contracts, a separate account of the Company
dedicated specifically to the funding of variable life insurance
contracts to be offered by the 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 26th day of
April, 1995.
/s/Irwin R. Ettinger
Director
The Travelers Insurance Company
<PAGE>
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, MICHAEL A. CARPENTER of Greenwich, Connecticut, a
director of The Travelers Insurance Company (hereinafter the
"Company"), do hereby make, constitute and appoint JAY S.
FISHMAN, Director and Chief Financial Officer of said Company,
and ERNEST J. WRIGHT, 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 regis-
tration statements on behalf of said Company on Form S-6 or other
appropriate form under the Securities Act of 1933 for The Trav-
elers Fund UL for Variable Life Insurance Contracts, a separate
account of the Company dedicated specifically to the funding of
variable life insurance contracts to be offered by the 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 3rd day of
February, 1995.
/s/Michael A. Carpenter
Director
The Travelers Insurance Company
<PAGE>
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Donald T. DeCarlo of Douglaston, New York, director of
The Travelers Insurance Company (hereinafter the "Company"), do
hereby make, constitute and appoint JAY S. FISHMAN, Director and
Chief Financial Officer of said Company, and ERNEST J. WRIGHT,
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 for Variable
Life Insurance Contracts, a separate account of the Company
dedicated specifically to the funding of variable life insurance
contracts to be offered by the 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, 1995.
/s/Donald T. DeCarlo
Director
The Travelers Insurance Company
