<PAGE> 1
Registration Statement No. 2-88637
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 18
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
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)
X on May 1, 1997 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on __________ pursuant to paragraph (a)(1) of Rule 485.
Check the box if it is proposed that this filing will become effective
on _______ at _______ pursuant to Rule 487. ______
AN INDEFINITE AMOUNT OF VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS WAS
REGISTERED PURSUANT TO RULE 24f-2 OF THE INVESTMENT COMPANY ACT OF 1940. A RULE
24f-2 NOTICE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 WAS FILED ON FEBRUARY
28, 1997.
<PAGE> 2
RECONCILIATION AND TIE BETWEEN
FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover page
2 Cover page
3 Not applicable
4 The Insurance Company; Distribution
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 Insurance Company; The Travelers Fund
UL for Variable Life Insurance, The Investment Options; The
Policy; Transfers of Cash Value; Cash Value and Cash Surrender
Value; Voting Rights; Disregard of Voting Rights; Dividends;
Lapse and Reinstatement
11 Prospectus Summary; The Investment Options
12 Prospectus Summary; The Investment Options
13 Charges and Deductions; Distribution of the Policies
14 The Policy
15 Prospectus Summary; Allocation of Premium Payments
16 The Investment Options; Allocation of Premium Payments
17 Prospectus Summary; Right to Cancel Period; Cash Value and
Cash Surrender Value; Policy Loans; Exchange Rights
18 The Investment Options; Charges and Deductions; Federal Tax
Considerations; Dividends
19 Statements to Policy Owners
20 Not applicable
21 Policy Loans
22 Not applicable
23 Not applicable
24 Not applicable
25 The 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 The Insurance Company; Distribution of the Policies
36 Not applicable
37 Not applicable
38 Distribution of the Policys
39 The Insurance Company; Distribution of the Policies
40 Not applicable
41 The Insurance Company; Distribution of the Policies
42 Not applicable
43 Not applicable
44 Allocation of Premium Payments; Accumulation Unit Values
45 Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
46 Cash Value and Cash Surrender Value
47 The Investment Options
48 Not applicable
49 Not applicable
50 Not applicable
51 Prospectus Summary; The Insurance Company; The Policy; Death
Benefits and Lapse and Reinstatement
52 The Investment Options; Substitution
53 Federal Tax Considerations
54 Not applicable
55 Not applicable
56 Not applicable
57 Not applicable
58 Not applicable
59 Financial Statements
</TABLE>
<PAGE> 4
THE TRAVELERS MARKETLIFE(SM)
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
PROSPECTUS
MAY 1, 1997
The Travelers Insurance Company, One Tower Square, Hartford, Connecticut 06183 X
Telephone: (800) 334-4298
<PAGE> 5
PROSPECTUS
This Prospectus describes The Travelers MarketLife(sm), an individual variable
universal (flexible premium) life insurance Policy (the "Policy") offered by The
Travelers Insurance Company (the "Company") and funded by The Travelers Fund UL
for Variable Life Insurance ("Fund UL"). A Policy 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 Policy Owner to one or more of the
mutual funds underlying Fund UL (the "Investment Options").
The Policy has a Right to Cancel Period during which the Applicant may return
the Policy to the Company for a refund. The Right to Cancel Period expires on
the latest of ten days after you receive the Policy, ten days after we mail or
deliver to you a written Notice of Right to Cancel, or 45 days after the
Applicant signs the application for insurance.
There is no guaranteed minimum Cash Value for a Policy. The Cash Value of the
Policy will vary to reflect the investment performance of the Investment Options
to which premium payments have been allocated, and the Policy 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 Policy, as set forth
in this Prospectus. The Policy will remain in effect for as long as the Cash
Surrender Value is sufficient to pay the monthly charges imposed under the
Policy subject to the Continuation of Insurance provision of the Policy, or for
such longer period as may be provided under the Lapse Protection Guarantee.
A Policy Owner will have two options with respect to the death benefit under the
Policy -- the "Level Option" and the "Variable Option." Under either option, the
death benefit will never be less than the Stated Amount (less any outstanding
Policy loans or Monthly Deduction Amounts due and unpaid). A Policy 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
Policy described in this Prospectus.
This Policy may be or become a modified endowment Policy under federal tax law.
If it is classified as a modified endowment Policy, any partial withdrawal,
Policy 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 INVESTMENT OPTIONS. EACH OF THE INVESTMENT OPTION 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 POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED
OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary of Special Terms........................................................... 4-5
Prospectus Summary.................................................................. 6-8
The Insurance Company............................................................... 9
The Policy.......................................................................... 9
Policy Application................................................................ 9
Beneficiary....................................................................... 10
Assignment........................................................................ 10
Allocation of Premium Payments.................................................... 10
Right to Cancel................................................................... 10
Statements to Policy Owners....................................................... 10
Charges and Deductions.............................................................. 11
Charges Against Premium........................................................... 11
Front-End Sales Charge......................................................... 11
State Premium Tax Charge....................................................... 11
Monthly Deduction Amount.......................................................... 11
Cost of Insurance Charge....................................................... 11
Policy Administrative Charge................................................... 11
Charges for Supplemental Benefit Provisions.................................... 12
Charges Against the Separate Account.............................................. 12
Mortality and Expense Risk Charge.............................................. 12
Administrative Expense Charge.................................................. 12
Charges Against the Investment Options............................................ 12
Surrender Charges................................................................. 12
Percent of Premium Charge...................................................... 12
Per Thousand of Stated Amount Charge........................................... 13
Maximum Sales Charges............................................................. 13
Reduction or Elimination of Charges............................................... 14
Transaction Charge................................................................ 14
Policy Benefits and Rights.......................................................... 14
Cash Value and Cash Surrender Value............................................... 14
Policy Loans...................................................................... 15
Lapse and Reinstatement........................................................... 16
Lapse Protection Guarantee........................................................ 16
Exchange Rights................................................................... 16
Death Benefit....................................................................... 16
Changes in Death Benefit Option................................................ 18
Payment Options................................................................ 18
Limit on Right to Contest and Suicide Exclusion................................ 19
Misstatement as to Sex and Age................................................. 19
Changes in Stated Amount....................................................... 19
Maturity and Maturity Extension Benefits....................................... 20
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
The Separate Account and the Investment Options..................................... 20
The Travelers Fund UL for Variable Life Insurance................................. 20
The Investment Options............................................................ 21
Investment Objective........................................................... 21
Investment Adviser/Sub-Adviser................................................. 21
General........................................................................... 24
Accumulation Unit Values.......................................................... 25
Mixed and Shared Funding.......................................................... 25
Substitution...................................................................... 25
Transfer of Cash Value............................................................ 26
Dollar-Cost Averaging............................................................. 26
Performance Information............................................................. 26
Example of Policy Charges........................................................... 30
Miscellaneous....................................................................... 30
Voting Rights..................................................................... 30
Disregard of Voting Instructions.................................................. 31
Policies Sold Prior to July 12, 1995.............................................. 31
Suspension of Valuation........................................................... 31
Dividends......................................................................... 31
Distribution...................................................................... 31
Legal Proceedings and Opinion..................................................... 32
Independent Accountants........................................................... 32
Registration Statement............................................................ 32
Federal Tax Considerations.......................................................... 32
General........................................................................... 32
Tax Status of the Policy.......................................................... 33
Tax Treatment of Policy Benefits.................................................. 34
Management.......................................................................... 36
Senior Officers of the Travelers Insurance Company.................................. 37
Illustrations....................................................................... 37
Appendix
A -- Annual Minimum Premiums........................................................ 47
B, B(1), B(2) -- Surrender Charges.................................................. 48-50
C -- Current Monthly Administrative Charge.......................................... 51-52
C(1) -- Guaranteed Monthly Administrative Charge.................................... 53
Financial Statements -- Fund UL
Financial Statements -- The Travelers Insurance Company
</TABLE>
3
<PAGE> 8
GLOSSARY OF SPECIAL TERMS
- --------------------------------------------------------------------------------
The following terms are used throughout the Prospectus, and have the indicated
meanings:
ACCUMULATION UNIT -- a standard of measurement used to calculate the values
allocated to the Investment Options.
ANNUAL MINIMUM PREMIUM -- the Policy Owner must pay a first premium greater than
or equal to one-quarter of this amount for the Policy to be issued. (Please
refer to Appendix A.)
BENEFICIARY(IES) -- the person(s) named to receive the benefits of this Policy
at the Insured's death.
CASH SURRENDER VALUE -- the Cash Value less any outstanding Policy loan and
surrender charges.
CASH VALUE -- the current value of Accumulation Units credited to each of the
Investment Options available under the Policy, plus the value of the Loan
Account.
COMPANY'S HOME OFFICE -- the principal executive offices of The Travelers
Insurance Company located at One Tower Square, Hartford, Connecticut 06183.
DEDUCTION DATE -- the day in each Policy Month on which the Monthly Deduction
Amount is deducted from the Policy's Cash Value.
INSURED -- the person on whose life the Policy is issued.
INVESTMENT OPTIONS -- the segments of the Separate Account or Portfolio to which
you may allocate premiums or Cash Value under Fund UL.
ISSUE DATE -- the date on which the Policy is issued by the Company for delivery
to the Policy Owner.
LAPSE PROTECTION GUARANTEE -- a benefit which provides that the Policy will not
lapse during the first three Policy Years if a required amount of premium is
paid.
LOAN ACCOUNT -- an account in the Company's general account to which we transfer
the amount of any Policy loan, and to which we credit a fixed rate of interest.
MATURITY DATE -- The anniversary of the Policy Date on which the Insured is age
95.
MINIMUM AMOUNT INSURED -- the amount of Death Benefit required to qualify this
Policy as life insurance under federal tax law.
MONTHLY DEDUCTION AMOUNT -- the amount of charges deducted from the Policy's
Cash Value which includes Cost of Insurance charges, administrative charges, and
any charges for supplemental benefits.
MONTHLY PREMIUM THRESHOLD -- an amount shown on the Policy Summary page, the
cumulative amount of which must be paid during the first three Policy Years in
order for the Lapse Protection Guarantee to be in effect.
NET AMOUNT AT RISK -- an amount equal to the Death Benefit minus the Cash Value.
NET PREMIUM -- the amount of each premium payment applied to purchase
Accumulation Units under the Policy, less the deduction of front-end sales
charges and premium tax charges.
PLANNED PREMIUM -- the amount of premium which the Policy Owner chooses to pay
to the Company on a scheduled basis, and for which the Company will bill the
Policy Owner, either annually, semiannually or through automatic monthly
checking account deductions.
POLICY DATE -- the date on which the Policy, benefits and provisions of the
Policy become effective.
POLICY MONTH -- monthly periods computed from the Policy Date.
4
<PAGE> 9
POLICY OWNER (YOU, YOUR OR OWNER) -- the person having rights to benefits under
the Policy during the lifetime of the Insured; the Policy Owner may or may not
be the Insured.
POLICY YEARS -- annual periods computed from the Policy Date.
SEPARATE ACCOUNT -- assets set aside by The Travelers Insurance Company, the
investment experience of which is kept separate from that of other assets of The
Travelers Insurance Company; for example, The Travelers Fund UL for Variable
Life Insurance.
STATED AMOUNT -- the amount originally selected by the Policy Owner used to
determine the Death Benefit, or as may be increased or decreased as described in
this Prospectus.
VALUATION DATE -- a day on which the Separate Account is valued. A Valuation
Date is any day on which the New York Stock Exchange is open for trading. 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.
5
<PAGE> 10
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
WHAT IS VARIABLE UNIVERSAL LIFE INSURANCE?
The Flexible Premium Variable Universal Life Insurance Policy is designed to
provide insurance protection on the life of the Insured and to build Cash Value.
Like other life insurance it provides an income-tax free death benefit that is
payable to the Beneficiary upon the Insured's death. Unlike traditional,
fixed-premium life insurance, the Policy allows you, as the owner, to allocate
your premium, or transfer Cash Value to various Investment Options. These
Investment Options include equity, bond, money market and other types of
portfolios. Your Cash Value may increase or decrease daily, depending on
investment return. There is no minimum amount guaranteed as it would be in a
traditional life insurance policy.
SUMMARY OF MARKETLIFE FEATURES
INVESTMENT OPTIONS: You have the ability to choose from a wide variety of
well-known Investment Options. These professionally managed stock, bond and
money market funding options cover a broad spectrum of investment objectives and
risk tolerance. Currently, the following Investment Options (subject to state
availability) are available under Fund UL:
<TABLE>
<S> <C> <C> <C>
AIM CAPITAL APPRECIATION PORTFOLIO TEMPLETON ASSET ALLOCATION FUND
ALLIANCE GROWTH PORTFOLIO TEMPLETON BOND FUND
DREYFUS STOCK INDEX FUND TEMPLETON STOCK FUND
FIDELITY VIP EQUITY-INCOME PORTFOLIO TRAVELERS CAPITAL APPRECIATION FUND
FIDELITY VIP GROWTH PORTFOLIO TRAVELERS CASH INCOME TRUST
FIDELITY VIP HIGH INCOME PORTFOLIO TRAVELERS MANAGED ASSETS TRUST
TRAVELERS U.S. GOVERNMENT SECURITIES
FIDELITY VIP II ASSET MANAGER PORTFOLIO PORTFOLIO
MFS TOTAL RETURN PORTFOLIO TRAVELERS ZERO COUPON BOND PORTFOLIO 1998
SMITH BARNEY HIGH INCOME PORTFOLIO TRAVELERS ZERO COUPON BOND PORTFOLIO 2000
SMITH BARNEY INCOME AND GROWTH PORTFOLIO TRAVELERS ZERO COUPON BOND PORTFOLIO 2005
SMITH BARNEY TOTAL RETURN PORTFOLIO UTILITIES PORTFOLIO
</TABLE>
For more information, including the investment objectives and investment
advisers, refer to page 20, and the prospectuses for each Investment Option.
PREMIUMS: When applying for your Policy, you state how much you intend to pay,
and whether you will pay annually, semiannually or monthly via checking account
deductions. You may also make unscheduled premium payments in any amount. No
premium payments will be accepted if receipt of such premiums would disqualify
the Policy as life insurance under applicable federal tax laws.
You indicate on your application what percentage of each Net Premium you would
like allocated to the Investment Options. You may change your allocations by
writing to the Company or by calling 1-800-334-4298.
During the underwriting period, any premium paid will be held in a non-interest
bearing account. After the Policy Date and until the applicants' right to cancel
has expired, your Net Premium will be invested in Cash Income Trust. After that,
the value will be distributed to each Investment Option in the percentages
indicated on your application.
RIGHT TO EXAMINE POLICY: You may return your Policy for any reason and receive
a full refund of your premium by mailing us the Policy and a written request for
cancellation within a specified period (p. 10).
6
<PAGE> 11
CHARGES AND DEDUCTIONS: Your Policy is subject to the following charges, which
compensate the Company for administering and distributing the Policy as well as
paying Policy benefits and assuming related risks:
POLICY CHARGES:
- PREMIUM EXPENSE CHARGE -- A sales charge and a premium tax charge are
applied to each premium based on the size of your Policy.
<TABLE>
<CAPTION>
TOTAL
STATED SALES PREMIUM PREMIUM
AMOUNT CHARGE TAX EXPENSE
- --------------------- ------ ------- -------
<S> <C> <C> <C>
less than $500,000 2.5% 2.5% 5.0%
$500,000 to $999,999 2.0% 2.5% 4.5%
$1,000,000 and over 0% 2.5% 2.5%
</TABLE>
This charge pays some distribution expenses and state and local premium taxes
(p. 11).
- MONTHLY DEDUCTION -- deductions taken from the value of your Policy each
month to cover cost of insurance charges, Policy administrative charges
and charges for optional benefits (p. 11).
- SURRENDER CHARGE -- applies if you surrender your Policy for its full
Cash Value or the Policy lapses, during the first 10 years and for 10
years after requesting an increase in coverage. The surrender charge
consists of a percent of premium charge and a per thousand of face amount
charge (p. 12).
- PARTIAL SURRENDER CHARGE -- applies if you surrender part of the value of
your Policy (p. 12).
ASSET-BASED CHARGES:
- MORTALITY AND EXPENSE RISK CHARGE -- applied to the assets of the
Investment Options on a daily basis which equals an annual rate of .80%
for the first fifteen years and .45% thereafter (p. 12). (For Policies
issued prior to July 1, 1995, the charge is 0.60% for all Policy Years.)
- ADMINISTRATIVE CHARGE -- applies to the assets of the Investment Options
on a daily basis which equals an annual rate of .10% for the first
fifteen years and 0% thereafter (p. 12). (For Policies issued prior to
July 1, 1995, the charge is no administrative charge.)
- FUND INVESTMENT MANAGEMENT FEES -- the purchase of shares of the
Investment Options happens on a net asset value basis. The shares
purchased already reflect the deduction of investment advisory fees and
other expenses.
DEATH BENEFITS: At time of application, you select a death benefit option.
Under certain conditions you may be able to change the death benefit option at a
later date. The options available are:
- LEVEL OPTION (OPTION 1): the death benefit will be equal to the Stated
Amount or the Minimum Amount Insured.
- VARIABLE OPTION (OPTION 2): the death benefit will be equal to the
greater of the Stated Amount of the Policy plus the Cash Value or the
Minimum Amount Insured.
POLICY VALUES: As with other types of insurance policies, MarketLife will
accumulate a Cash Value. The Cash Value of the Policy will increase or decrease
to reflect the investment experience of the Investment Options. Monthly charges
and any partial surrenders taken will also decrease the Cash Value. There is no
minimum guaranteed Cash Value.
- ACCESS TO POLICY VALUES: You may borrow against your Policy's Cash
Surrender Value. The maximum loan amount allowable is 90% of the Cash
Surrender Value. After year 13, the
7
<PAGE> 12
Company offers zero net cost loans (p. 15). (For Policies issued prior to
July 1, 1995, the maximum loan allowed is 80% of the Cash Surrender
Value.)
You may cancel a portion of your Policy while the Insured is living and receive
a portion of the Cash Surrender Value. You may also cancel the entire Policy to
receive the full Cash Surrender Value. Depending on the amount of time the
Policy has been in force, there may be a charge for the partial or full
surrender (p. 12).
TRANSFERS OF POLICY VALUES: You may transfer all or a portion of your Cash
Value among the Investment Options. You may do this by writing to the Company or
calling 1-800-334-4298 (p. 26).
You can use automated transfers to take advantage of dollar cost
averaging -- investing a fixed amount at regular intervals. For example, you
might have a set amount transferred from a relatively conservative Investment
Option to a more aggressive one, or several others (p. 26).
LAPSE PROTECTION GUARANTEE: This guarantees that, regardless of the performance
of the Investment Options that you select, your Policy will remain in effect for
the first three Policy Years. You are required to pay at least the cumulative
applicable Monthly Premium Threshold displayed on your Policy's Contract Summary
page. Any loans or partial surrenders are deducted from premium paid to
determine if the Lapse Protection Guarantee is in effect.
GRACE PERIOD: If the Cash Surrender Value of your Policy becomes less than the
amount needed to pay the Monthly Deduction Amount, and the lapse protection
rider is not in effect, you will have 61 days to pay a premium that is
sufficient to cover the Monthly Deduction Amount. If the premium is not paid,
your Policy will lapse.
EXCHANGE RIGHTS: During the first two Policy Years, you can exchange this
Policy for one that provides benefits that do not vary with the investment
return of the Investment Options (p. 16).
TAX CONSEQUENCES: Currently, the federal tax law excludes all Death Benefit
payments from the gross income of the Beneficiary (p. 32). At any point in time,
the Policy may become a modified endowment contract ("MEC"). A MEC has an
income-first taxation of all loans, pledges, collateral assignments or partial
surrenders. A 10% penalty tax may be imposed on such income distributed before
the Policy Owner attains age 59 1/2. The Company has established safeguards for
monitoring whether a Policy may become a MEC (p. 34).
8
<PAGE> 13
THE INSURANCE COMPANY
- --------------------------------------------------------------------------------
The Travelers Insurance Company (the "Company") is a stock insurance company
chartered in 1864 in Connecticut and has been engaged in the insurance business
since that time. The Company writes individual life insurance and individual and
group annuity contracts on a non-participating basis, and acts as depositor for
Fund UL. The Company is licensed to conduct life insurance business in all
states of the United States, the District of Columbia, Puerto Rico, Guam, the
U.S. and British Virgin Islands, and the Bahamas. The Company's obligations as
depositor for Fund UL may not be transferred without notice to and consent of
Policy Owners.
The Company is an indirect wholly owned subsidiary of Travelers Group Inc., a
financial services holding company. The Company's principal executive offices
are located at One Tower Square, Hartford, Connecticut 06183, telephone number
(860) 277-0111.
The Company is subject to Connecticut law governing insurance companies and is
regulated and supervised by the Connecticut Commissioner of Insurance. An annual
statement in a prescribed form must be filed with the Commissioner on or before
March 1 in each year covering the operations of the Company for the preceding
year and its financial condition on December 31 of such year. The Company's
books and assets are subject to review or examination by the Commissioner, and a
full examination of its operations is conducted at least once every four years.
In addition, the Company is subject to the insurance laws and regulations of any
jurisdiction in which it sells its insurance Policies, as well as to various
federal and state securities laws and regulations.
THE POLICY
- --------------------------------------------------------------------------------
The Policy described in this Prospectus is both an insurance product and a
security. The Policy is first and foremost a life insurance Policy with death
benefits, Cash Values and other features traditionally associated with life
insurance. The Policy is deemed to be "variable" because unlike the fixed
benefits of an ordinary whole life insurance Policy, the Cash Value and, under
certain circumstances, the Death Benefit of the Policy may increase or decrease
depending on the investment experience of the Investment Options to which the
Premium Payment has been allocated. As an insurance product, the Policy is
subject to the insurance laws and regulations of each state or jurisdiction in
which it is available for distribution.
THE POLICY APPLICATION
Individuals wishing to purchase a Policy must submit an application to the
Company. As with traditional insurance Policies, a Policy Owner may state the
amount of insurance desired (the "Stated Amount"), which amount may not be less
than $50,000. A Policy Owner may request an increase or decrease in the Stated
Amount of the Policy in writing from time to time. (See "Changes in Stated
Amount," page 19.) No change in the terms or conditions of the Policy will be
made without the consent of the Policy Owner.
A Policy 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.
No premium payments will be accepted if receipt of such premiums would
disqualify the Policy as life insurance.
Insurance coverage under a Policy will begin only after the Applicant has
satisfied all outstanding underwriting delivery requirements, and after the
Company has received the first premium. The Policy Date is the date used to
determine all future cyclical transactions on the Policy, e.g., Deduction Dates,
Policy Months and Policy Years. The Policy Date may be prior to, or the same
date as, the date on which the Policy is issued (the "Issue Date"). During the
underwriting period, any premium paid under the Policy will be held in a
non-interest bearing suspense account.
9
<PAGE> 14
BENEFICIARY
The Applicant names the Beneficiary in the application for the Policy. The
Policy 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 Policy Owner, if living; otherwise, the Death Benefit will be paid to the
Policy Owner's estate.
ASSIGNMENT
The Policy may be assigned as collateral for a loan or other obligation. The
Company is not responsible for any payment made or action taken before receipt
of written notice of such assignment. Proof of interest must be filed with any
claim under a collateral assignment.
ALLOCATION OF PREMIUM PAYMENTS
The first premium will be applied to the Policy on the later of the Policy 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
Investment Option(s) selected on the Application to purchase Accumulation Units.
Net Premium payments received on or after the expiration of the Applicant's
Right to Cancel Period will be allocated among the Investment Options to
purchase Accumulation Units in such Investment Options as directed by the Policy
Owner or, in the absence of directions, as stated in the original application.
The number of Accumulation Units of each Investment Option to be credited to the
Policy once a Premium Payment has been received by the Company will be
determined by dividing the Premium Payment applied to the Investment Option by
the Accumulation Unit Value of the Investment Option next computed following
receipt of the payment.
RIGHT TO CANCEL
An Applicant has a limited right to return the Policy for cancellation by
returning the Policy, by mail or personal delivery, to the Company or to the
agent who sold the Policy. The Policy must be returned either (1) within 10 days
after delivery of the Policy to the Policy Owner, (2) within 45 days of
completion of the Policy 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 Policy, or the sum of (1) the difference between
the premium paid, including any fees or charges, and the amounts allocated to
the Investment Option(s), (2) the value of the amounts allocated to the
Investment Option(s) on the date on which the Company receives the returned
Policy, and (3) any fees and other charges imposed on amounts allocated to the
Investment Option(s).
STATEMENTS TO POLICY OWNERS
The Company will maintain all records relating to Fund UL and the Investment
Options. At least once in each Policy Year, the Company will send to Policy
Owners a statement containing the following information: (1) the Stated Amount
and the Cash Value of the Policy (indicating the number of Accumulation Units
credited to the Policy in each Investment Option and the corresponding
Accumulation Unit Value); (2) the date and amount of each premium payment; (3)
the date and amount of each Monthly Deduction; (4) the amount of any outstanding
Policy loan as of the date of the statement, and the amount of any loan interest
charged on the Loan Account; (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 Policy; 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.
10
<PAGE> 15
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
CHARGES AGAINST PREMIUM
FRONT-END SALES CHARGE
Upon receipt of a Premium Payment, and before allocation of the payment among
the Investment Options, the Company deducts a front-end sales charge of 2.5%.
This charge is reduced to 2% for Policies with an initial Stated Amount of
$500,000 or more, and to 0% for Policies with an initial Stated Amount of
$1,000,000 or more. Additional sales charges may be assessed upon any full or
partial surrender. (See "Surrender Charges" page 12.)
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 Policy. 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 Policies 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 Policy 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 Investment
Option for a reserve for any income taxes payable by the Company on the assets
attributable to that Investment Option. (See "Federal Tax Considerations," page
32.)
MONTHLY DEDUCTION AMOUNT
The Company will deduct from the Cash Value of the Policy a Monthly Deduction
Amount to cover certain charges and expenses incurred in connection with the
Policy. The Monthly Deduction Amount will be deducted pro rata from each of the
Investment Options values attributable to the Policy on the first day of each
Policy Month (the "Deduction Date"), commencing on the Policy 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
Cost of Insurance is deducted from the Policy Cash Value on a monthly basis. The
amount of deduction is a function of the amount of insurance coverage on the
date of the deduction and the current cost per dollar for insurance coverage.
The cost per dollar of insurance coverage varies annually and is based on age,
sex and risk class of the Insured.
POLICY ADMINISTRATIVE CHARGE
For the first three Policy Years, a monthly administrative charge is deducted
from the Cash Value of the Policy. This charge also applies to any increase in
the Stated Amount excluding Cost of Living Adjustments and increases in Stated
Amounts due to Death Benefit Option changes. This charge is used to cover
expenses associated with issuing the Policy.
The amount charged varies by Policy and will be stated in the Policy. The charge
currently varies by issue age, Stated Amount and smoker/non-smoker
classification (see Appendix C for chart of current charges). The current Policy
administrative charge are lower than the guaranteed maximum charge. (See
Appendix C(1) for the guaranteed maximum charges.)
11
<PAGE> 16
CHARGES FOR SUPPLEMENTAL BENEFIT PROVISIONS
The Company will include a supplemental benefits charge in the Monthly Deduction
Amount if the Policy 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. For
Policies issued after July 12, 1995, this charge is at an annual rate of 0.80%
for the first fifteen (15) Policy Years, and 0.45% thereafter. The mortality
risk assumed is that the cost of insurance charge specified in the Policy may be
insufficient to meet actual claims. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will exceed the
administrative charges set forth in the Policy. 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. Refer to
"Policies Sold Prior to July 12, 1995," if applicable.
ADMINISTRATIVE EXPENSE CHARGE
The Company reserves the right to deduct a daily charge from Fund UL for
administrative expenses incurred by the Company. For Policies issued after July
12, 1995, the charge is equivalent on an annual basis to 0.10% of the assets in
the Investment Options for the first fifteen (15) Policy Years and 0%
thereafter. The administrative expense charge, is designed to cover
administrative costs associated with the maintenance of the Policies 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 Policy is in force. Refer
to "Policies Sold Prior to July 12, 1995," if applicable.
CHARGES AGAINST THE INVESTMENT OPTIONS
Fund UL purchases shares of the Investment Options at net asset value. The net
asset value of the Investment Option shares reflects investment advisory fees
and other expenses already deducted from the assets of the Investment Options.
The investment advisory fees and other expenses applicable to each of the
Investment Options are described in the individual prospectuses for the
Investment Options.
SURRENDER CHARGES
There are two types of contingent surrender charges that can apply under the
Policy: 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 Policy Years (or the first ten years following an increase in Stated
Amount). Both charges apply upon a full surrender of the Policy. 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 Policy during the first ten Policy 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
12
<PAGE> 17
(c) 9% of the total Annual Minimum Premiums for each full or partial Policy
Year during the five years preceding the surrender, whether paid or
not. (See Appendix A, "Annual Minimum Premiums.")
For example (as illustrated on page 41), a Policy 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 Policy for its Cash
Value of $7,476 (assuming a 6% rate of return), the Percent of Premium surrender
charge would be $449, because (a) is $449 (6% of $7,476); (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, $449, 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 Policy
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 $64.65; 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 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 Policy 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 Policy will vary based on
issue age, sex, year of surrender, amount of premium paid and amount
surrendered, the maximum total sales charge for any Policy will never exceed
26.7% of the total premiums paid.
13
<PAGE> 18
As stated above, the front-end sales charge for a Policy with no full or partial
surrenders will never exceed 2.5% of actual premiums paid. The sales charges for
a Policy with full or partial surrenders will vary, but in no event will they
exceed the percentage of premiums paid as shown below.
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGES
POLICY YEAR OF SURRENDER (AS A % OF PREMIUM PAYMENTS)
<S> <C>
----------------------------------------------------
<CAPTION>
<S> <C>
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
</TABLE>
As the table demonstrates, the maximum sales charge for any Policy is less than
26.7% in every Policy Year other than the first (or in every year after the
first year following an increase). (See the illustrations for an example.)
REDUCTION OR ELIMINATION OF CHARGES
The Company may offer the Policy in arrangements where an employer or trustee
will own a group of policies on the lives of certain employees, or in other
situations where groups of policies will be purchased at one time. 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.
TRANSACTION CHARGE
The Company reserves the right to limit free transfers of Cash Value from one
Investment Option to another by the Policy Owner to four times in any Policy
Year, and to charge $10 for any additional transfers. There is currently no
charge for transfers.
POLICY BENEFITS AND RIGHTS
- --------------------------------------------------------------------------------
CASH VALUE AND CASH SURRENDER VALUE
The Cash Value of a Policy 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 Investment Options, 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 Policy is related to the net asset value of the
Investment Options to which premium payments on the Policy have been allocated.
The Cash Value on any Valuation Date is calculated by multiplying the number of
Accumulation Units credited to the Policy in each Investment Options as of the
Valuation Date by the current Accumulation Unit Value of that Investment Option,
then adding the collective result for each of the Investment Options credited to
the Policy, and finally adding the value (if any) of the Loan Account. A Policy
Owner may withdraw Cash Value from the Policy, or transfer Cash Value among the
Investment Options on any day that the Company is open for business.
As long as the Policy is in effect, a Policy Owner may elect, without the
consent of the Beneficiary (provided the designation of Beneficiary is not
irrevocable), to surrender the Policy and receive its "Cash Surrender Value";
i.e., the Cash Value of the Policy determined as of the day the Company
14
<PAGE> 19
receives the Policy Owner's written request, less any outstanding Policy loan,
and less any applicable Surrender Charges. For full surrenders, the Company will
pay the Cash Surrender Value of the Policy within seven days following its
receipt of the written request, or on the date requested by the Policy Owner,
whichever is later. The Policy 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 Policy 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 Investment Options attributable to
the Policy (unless the Policy Owner states otherwise in writing).
In addition to reducing the Cash Value of the Policy, partial cash surrenders
will reduce the Death Benefit payable under the Policy. Under Option 1, the
Stated Amount of the Policy 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 Policy to record such reduction.
POLICY LOANS
A Policy Owner may obtain a cash loan from the Company secured by the Policy not
to exceed 90% of the Policy'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 page 12 in more detail. (For Policy loans taken prior to July 12,
1995, the loan amount will be 80% of the Policy'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
Policy Owner. For Policies issued prior to July 1, 1995 (or where state approval
has not been received for the new Policy), For Policies issued after July 12,
1995, during the first thirteen Policy Years, the full Loan Account Value will
be charged an annual interest rate of 7.4%; thereafter 3.85% will be charged.
Refer to "Policies Sold Prior to July 12, 1995," if applicable.
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 Investment Options attributable to the Policy
(unless the Policy 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 Investment Options. 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 Investment Options applicable to the Policy (unless the Policy Owner
states otherwise). The Company will make the loan to the Policy 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
Policy to lapse (see "Lapse and Reinstatement" below). For example, if a Policy
has a Cash Surrender Value of $10,000, the Policy 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
15
<PAGE> 20
Value may be permanently affected since the Policy Owner was not credited with
the investment experience of an Investment Option on the amount in the Loan
Account while the loan was outstanding. All or any part of a loan secured by a
Policy may be repaid while the Policy is still in effect.
LAPSE AND REINSTATEMENT
Except as provided below under "Lapse Protection Guarantee," the Policy will
remain in effect until the Cash Surrender Value of the Policy is insufficient to
cover the Monthly Deduction Amount. If such event occurs, the Company will give
written notice to the Policy 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 Policy may lapse. The Policy 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 Policy
dies during the Late Period, the Death Benefit payable under the Policy will be
reduced by the Monthly Deduction Amount due plus the amount of any outstanding
loan. (See "Death Benefit," below.)
If the Policy lapses, the Policy Owner may reinstate the Policy upon payment of
the reinstatement premium (and any applicable charges) shown in the Policy. A
request for reinstatement may be made at any time within three years of lapse
(unless a different period is required under applicable state law). 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 Policy 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
Policy Owners may elect to have a Lapse Protection Guarantee benefit as part of
their Policy (as long as the Insured is not a substandard risk). The Lapse
Protection Guarantee benefit provides that if during the first three Policy
Years (the "Guarantee Period") the total premiums paid under the Policy, less
any Loan Account Value or partial surrenders, equal or exceed the cumulative
applicable Monthly Premium Threshold shown on the Policy Summary Page of the
Policy, a Lapse Protection Guarantee will be in effect. (This guarantee may not
be available in all jurisdictions.) This benefit provides that the Policy will
not lapse during the next Policy Month even if the Cash Surrender Value is
insufficient to pay the Monthly Deduction Amount due, provided the next Policy
Month is within the Guarantee Period. The Premium Threshold will change if the
Policy Owner makes a change in the Stated Amount or adds or eliminates
supplemental benefit riders under the Policy. In such event, the Company will
send the Policy 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 Policy is in effect, it may be exchanged at any time during the first
24 months after its issuance for a general account life insurance policy issued
by the Company (or an affiliated company) on the life of the Insured. Benefits
under the new life insurance policy will be as described in that policy. No
evidence of insurability will be required. The Policy Owner has the right to
select the same Death Benefit or Net Amount At Risk as the former Policy. Cost
of insurance rates will be based on the same risk classification as those of the
former Policy. Any outstanding Policy loan must be repaid before the Company
will make an exchange. In addition, there may be an adjustment for the
difference in Cash Value between the two Policies.
DEATH BENEFIT
- --------------------------------------------------------------------------------
As with traditional life insurance Policies, the Death Benefit under the Policy
is the amount paid to the Beneficiary upon the Insured's death. The Death
Benefit will be reduced by any outstanding
16
<PAGE> 21
charges, fees and Policy loans. All or part of the Death Benefit may be paid in
cash or applied to one or more of the payment options described on page 19.
You may elect one of two Death Benefit options. As long as the Policy remains in
effect, the Company guarantees that the Death Benefit under either option will
not be less than the current Stated Amount of the Policy less any outstanding
Policy loan or Deduction Amount due but unpaid. The Death Benefit under either
option may vary with the Cash Value of the Policy. The Death Benefit uder either
option may vary with the Cash Value of the Policy. Under Option 1 (the "Level
Option"), the Death Benefit will be equal to the Stated Amount of the Policy or,
if greater, a specified multiple of Cash Value (the "Minimum Amount Insured").
Under Option 2 (the "Variable Option"), the Death Benefit will be equal to the
Stated Amount of the Policy plus the Cash Value (determined as of the date of
the Insured's death) or, if greater, the Minimum Amount Insured.
The Minimum Amount Insured is the amount required to qualify the Policy as a
life insurance Policy under the current federal tax law. Under that law, the
Minimum Amount Insured is equal to a stated percentage of the Cash Value of the
Policy determined as of the first day of each Policy Month. The percentages
differ according to the attained age of the Insured. The Minimum Amount Insured
will be set forth in the Policy 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:
<TABLE>
<CAPTION>
% SHALL DECREASE
BY A RATABLE
PORTION
ATTAINED AGE FOR EACH FULL
- ------------------------ YEAR:
MORE BUT NOT ------------------
THAN MORE THAN FROM TO
- ---- --------- ---- ---
<S> <C> <C> <C>
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
</TABLE>
Federal tax law imposes another cash funding limitation on cash value life
insurance Policies 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 Policies.
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 Policy. 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 Policy loan.
OPTION 1 -- "LEVEL" DEATH BENEFIT
STATED AMOUNT: $50,000
In the following examples of an Option 1 "Level" Death Benefit, the Death
Benefit under the Policy is generally equal to the Stated Amount of $50,000.
Since the Policy is designed to qualify as a life insurance Policy, the Death
Benefit cannot be less than the Minimum Amount Insured (or, in this example,
250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 x 250%). Since the Death Benefit in the Policy
is the greater of the
17
<PAGE> 22
Stated Amount ($50,000) or the Minimum Amount Insured ($25,000), the Death
Benefit would be $50,000.
EXAMPLE TWO. If the Cash Value of the Policy equals $40,000, the Minimum Amount
Insured would be $100,000 ($40,000 x 250%). The resulting Death Benefit would be
$100,000 since the Death Benefit is the greater of the Stated Amount ($50,000)
or the Minimum Amount Insured ($100,000).
OPTION 2 -- "VARIABLE" DEATH BENEFIT
STATED AMOUNT: $50,000
In the following examples of an Option 2 "Variable" Death Benefit, the Death
Benefit varies with the investment experience of the applicable Investment
Options and will generally be equal to the Stated Amount plus the Cash Value of
the Policy (determined on the date of the Insured's death). The Death Benefit
cannot, however, be less than the Minimum Amount Insured (or, in this example,
250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 x 250%). The Death Benefit ($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 Policy equals $60,000, then the Minimum
Amount Insured would be $150,000 ($60,000 x 250%). The resulting Death Benefit
would be $150,000 because the Minimum Amount Insured ($150,000) is greater than
the Stated Amount plus the Cash Value ($50,000 + $60,000 = $110,000).
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 paid to
the Policy Beneficiary may be adjusted to reflect any Policy loan, any material
misstatements in the Policy application as to age or sex of the Insured, and any
amounts payable to an assignee under a collateral assignment of the Policy. (See
"Assignment," page 10.) If the Insured commits suicide within two years
following the issue date limits on the amount of Death Benefit paid will apply.
(See "Limit on Right to Contest and Suicide Exclusion," page 19) In addition, if
the Insured dies during the 61-day period after the Company gives notice to the
Policy Owner that the Cash Surrender Value of the Policy is insufficient to meet
the Monthly Deduction Amount due against the Cash Value of the Policy, the Death
Benefit actually paid to the Policy Owner's Beneficiary will be reduced by the
amount of the Deduction Amount that is due and unpaid. (See "Cash Value and Cash
Surrender Value," page 14, for effects of partial cash surrenders on Death
Benefits.)
CHANGES IN DEATH BENEFIT OPTION
You 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 Treatment of
Policy Benefits" on page 34. However, the change could affect future values of
Net Amount At Risk, and with some Option 2 to Option 1 changes involving
substantially funded Policies, there may be a cash distribution which is
included in the gross income of the Policy Owner. The cost of insurance charge
which is based on the Net Amount At Risk may be different in the future. A
change from Option 1 to Option 2 will not be permitted if the change results in
a Stated Amount of less than the minimum amount of $50,000. Contact your
registered representative for more information.
PAYMENT OPTIONS
Proceeds payable under the Policy will be paid in a lump sum, unless the Policy
Owner or Beneficiary 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
18
<PAGE> 23
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 Investment Options.
The following payment options are available under the Policy:
OPTION 1 -- Payments of a Fixed Amount
OPTION 2 -- Payments for a Fixed Period
OPTION 3 -- Amounts Held at Interest
OPTION 4 -- Monthly Life Income
OPTION 5 -- Joint and Survivor Level Amount Monthly Life Income
OPTION 6 -- Joint and Survivor Monthly Life Income-Two-thirds to Survivor
OPTION 7 -- Joint and Last Survivor Monthly Life Income-Monthly Payment
Reduces on Death of First Person Named
OPTION 8 -- Other Options
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.
LIMIT ON RIGHT TO CONTEST AND SUICIDE EXCLUSION
The Company may not contest the validity of the Policy after it has been in
effect during the Insured's lifetime for two years from the Issue Date. If the
Policy is reinstated, the two-year period will be measured from the date of
reinstatement. Each requested increase in Stated Amount is contestable for two
years from its effective date. In addition, if the Insured commits suicide
during the two-year period following issue, subject to state law, the Death
Benefit will be limited to the premiums paid less (i) the amount of any partial
surrender, (ii) the amount of any outstanding Policy loan, and (iii) the amount
of any unpaid Deduction Amount due. During the two-year period following an
increase, the Death Benefit in the case of suicide will be limited to an amount
equal to the Deduction Amount for such increase.
MISSTATEMENT AS TO SEX AND AGE
If there has been a misstatement with regard to sex or age, benefits payable
will be adjusted to what the Policy would have provided with the correct
information. A misstatement with regard to sex or age in a substantially funded
Policy may cause a cash distribution that is includable in whole or in part in
the gross income of the Policy Owner.
CHANGES IN STATED AMOUNT
A Policy Owner may request in writing that the Stated Amount of the Policy 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 Policy may cause a cash
distribution that is includable in the gross income of the Policy Owner.
19
<PAGE> 24
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 Policy Summary which
the Company will send to the Policy 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 Policy Administrative Charge and a Per Thousand of Stated
Amount Surrender Charge associated with a requested increase in Stated Amount.
There is no additional charge for a decrease in Stated Amount.
MATURITY AND MATURITY EXTENSION BENEFITS
If the Insured is living on the Maturity Date (the anniversary of the Policy
Date on which the Insured is age 95), the Company will pay the Policy Owner the
Cash Value of the Policy, less any outstanding Policy loan or Deduction Amount
due and unpaid. The Policy Owner must surrender the Policy to the Company before
such payment can be made, at which point the Policy will terminate and the
Company will have no further obligations under the Policy.
Upon the Insured's attaining age 94, and at any time during the twelve months
thereafter, the Policy 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 Policy will continue
in force until the earlier of the death of the Insured or the date on which the
Policy Owner requests that the Policy 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 Investment Options 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 Policy 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 Policy 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.
THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
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 Investment Options. 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 Policy Owners and the persons entitled to payments under the Policy
offered by this Prospectus. The
20
<PAGE> 25
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
Policy are general corporate obligations of the Company.
THE INVESTMENT OPTIONS
You may allocate Premium Payments to one or more of the available Investment
Options. The Investment Options currently available under the Policy may be
added or withdrawn as permitted by applicable law. Please read carefully the
complete risk disclosure in each Portfolio's prospectus before investing. For
more detailed information on the investment advisers and their services and
fees, please refer to the prospectuses for the Investment Options.
The Investment Options currently available under Fund UL are as follows:
<TABLE>
<CAPTION>
INVESTMENT
INVESTMENT OPTION INVESTMENT OBJECTIVE ADVISER/SUBADVISER
- ------------------------- -------------------------------------- -------------------------
<S> <C> <C>
AIM Capital Appreciation Seeks capital appreciation by Smith Barney Mutual Funds
Portfolio investing primarily in common stock, Management, Inc.
with emphasis on medium sized and Subadviser: AIM Capital
smaller emerging growth companies. Management, Inc.
Alliance Growth Portfolio Seeks long-term growth of capital by Smith Barney Mutual Funds
investing predominantly in equity Management, Inc.
securities of companies with a Subadviser: Alliance
favorable outlook for earnings and Capital Management
whose rate of growth is expected to
exceed that of the U.S. economy over
time. Current income is only an
incidental consideration.
Dreyfus Stock Index Fund Seeks to provide investment results Mellon Equity Associates
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.
Fidelity VIP Seeks reasonable income by investing Fidelity Management &
Equity-Income Portfolio primarily in income-producing equity Research Company
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.
Fidelity VIP Growth Seeks capital appreciation by Fidelity Management &
Portfolio investing primarily in common stocks Research Company
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.
</TABLE>
21
<PAGE> 26
<TABLE>
<CAPTION>
INVESTMENT
INVESTMENT OPTION INVESTMENT OBJECTIVE ADVISER/SUBADVISER
- ------------------------- -------------------------------------- -------------------------
<S> <C> <C>
Fidelity VIP High Income Seeks to obtain a high level of Fidelity Management &
Portfolio current income by investing primarily Research Company
in high yielding, lower rated,
fixed-income (high risk) securities,
while also considering growth of
capital.
Fidelity VIP II Asset Seeks high total return with reduced Fidelity Management &
Manager Portfolio risk over the long-term by allocating Research Company
its assets among stocks, bonds and
short-term fixed-income instruments.
MFS Total Return Seeks to obtain above-average income Smith Barney Mutual Funds
Portfolio (compared to a portfolio entirely Management, Inc.
invested in equity securities) Subadviser: Massachusetts
consistent with the prudent employment Financial Services
of capital. Generally, at least 40% of Company.
the Portfolio's assets will be
invested in equity securities.
Smith Barney High Income Seeks high current income. Capital Smith Barney Mutual Funds
Portfolio appreciation is a secondary objective. Management, Inc.
The Portfolio will invest at least 65%
of its assets in high-yielding
corporate debt obligations and
preferred stock.
Smith Barney Income and Seeks current income and long-term Smith Barney Mutual Funds
Growth Portfolio growth of income and capital by Management, Inc.
investing primarily, but not
exclusively, in common stocks.
Smith Barney Total Return Seeks to provide total return, Smith Barney Mutual Funds
Portfolio consisting of long-term capital Management, Inc.
appreciation and income. The Portfolio
will seek to achieve its goal by
investing primarily in a diversified
portfolio of dividend-paying common
stock.
Templeton Asset Seeks high level of total return with Templeton Investment
Allocation Fund reduced risk over the long term Counsel, Inc.
(Class I) 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.
</TABLE>
22
<PAGE> 27
<TABLE>
<CAPTION>
INVESTMENT
INVESTMENT OPTION INVESTMENT OBJECTIVE ADVISER/SUBADVISER
- ------------------------- -------------------------------------- -------------------------
<S> <C> <C>
Templeton Bond Fund Seeks high current income through a Templeton Investment
(Class I) flexible Policy of investing primarily Counsel, Inc.
in debt securities of companies,
governments and government agencies of
various nations throughout the world.
Templeton Stock Fund Seeks capital growth through a policy Templeton Investment
(Class I) of investing primarily in common Counsel, Inc.
stocks issued by companies, large and
small, in various nations throughout
the world.
Travelers Cash Income Seeks to provide high current income The Travelers Asset Man-
Trust while emphasizing preservation of agement International
capital and maintaining a high degree Corporation (TAMIC)
of liquidity by investing in
short-term money market securities
deemed to present minimal credit
risks. Allocations to this portfolio
are neither insured no guaranteed.
Travelers Capital Seeks growth of capital through the TAMIC
Appreciation Fund use of common stocks. Income is not an Subadviser: Janus Capital
objective. The Fund invests Corporation
principally in common stocks of small
to large companies which are expected
to experience wide fluctuations in
price in both rising and declining
markets.
Travelers Managed Assets Seeks high total investment return TAMIC
Trust with reduced risk through a fully Subadviser: The Travelers
managed investment Policy. Assets of Investment Management
the Managed Assets Trust will be Company (TIMCO)
invested in a portfolio of U.S.
stocks, bonds and money market
securities.
Travelers U.S. Government Selects investments from the point of TAMIC
Securities Portfolio 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.
Travelers Utilities Seeks to provide current income Smith Barney Mutual Funds
Portfolio through investment in equity and debt Management, Inc.
securities of companies in the utility
industries.
</TABLE>
23
<PAGE> 28
<TABLE>
<CAPTION>
INVESTMENT
INVESTMENT OPTION INVESTMENT OBJECTIVE ADVISER/SUBADVISER
- ------------------------- -------------------------------------- -------------------------
<S> <C> <C>
Travelers Zero Coupon Seeks to provide as high an investment TAMIC
Bond Fund Portfolio 1998 return as consistent with the Subadviser: TIMCO
preservation of capital investing in
primarily zero coupon securities that
pay cash income but are acquired by
the Portfolio at substantial discounts
from their values at maturity. The
Zero Coupon Bond Fund Portfolios may
not be appropriate for Policy Owners
who do not plan to have their premiums
invested in shares of the Portfolios
for the long term or until maturity.
Travelers Zero Coupon Seeks to provide as high an investment TAMIC
Bond Fund Portfolio 2000 return as consistent with the Subadviser: TIMCO
preservation of capital investing in
primarily zero coupon securities that
pay cash income but are acquired by
the Portfolio at substantial discounts
from their values at maturity. The
Zero Coupon Bond Fund Portfolios may
not be appropriate for Policy Owners
who do not plan to have their premiums
invested in shares of the Portfolios
for the long term or until maturity.
Travelers Zero Coupon Seeks to provide as high an investment TAMIC
Bond Fund Portfolio 2005 return as consistent with the Subadviser: TIMCO
preservation of capital investing in
primarily zero coupon securities that
pay cash income but are acquired by
the Portfolio at substantial discounts
from their values at maturity. The
Zero Coupon Bond Fund Portfolios may
not be appropriate for Policy Owners
who do not plan to have their premiums
invested in shares of the Portfolios
for the long term or until maturity.
</TABLE>
Each Investment Option 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 Investment Options will achieve their
stated objectives.
More detailed information regarding the Investment Options may be found in the
current prospectuses for the Investment Options; these prospectuses are included
with and must accompany this Prospectus. Policy Owners are urged to read these
documents carefully before investing.
GENERAL
All investment income of and other distributions to each Investment Option of
Fund UL arising from the applicable Investment Option are reinvested in shares
of that Investment Option at net asset value. The income and realized gains or
losses on the assets of each Investment Option of Fund UL are therefore separate
and are credited to or charged against the Investment Option without regard to
income, gains or losses from any other Investment Option or from any other
24
<PAGE> 29
business of the Company. The Company will purchase shares in the Investment
Options in connection with premium payments allocated to the applicable Funds in
accordance with Policy Owners' directions and will redeem shares in the
Investment Options to meet Policy obligations or make adjustments in reserves,
if any. The Investment Options are required to redeem Fund shares at net asset
value and to make payment within seven days.
ACCUMULATION UNIT VALUES
The Accumulation Unit Value for each segment of the Separate Account was
initially established at $1. Thereafter, the Accumulation Unit Values will vary
to reflect the investment experience of the applicable Investment Option and
will be determined on each Valuation Date by multiplying the Accumulation Unit
Value on the preceding Valuation Date by the Net Investment Factor for that
Investment Option for the Valuation Period then ended. The Net Investment Factor
for each of the Investment Options is equal to the net asset value per share of
the corresponding Investment Option 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 Investment Option 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 Investment Options
for a description of how the assets of each Investment Option are valued. These
valuation procedures directly affect the Accumulation Unit Value of the
Investment Option, and therefore the Cash Value of the Policy. All valuations
made under the Policy (e.g., the determination of Cash Value or Cash Surrender
Value, Policy loans, partial cash surrenders, payment of Death Benefits, and the
determination of the number of Accumulation Units to be credited to a Policy
with each Net Premium payment), will be made on the Valuation Date next
following the Company's receipt of the request.
MIXED AND SHARED FUNDING
It is conceivable that in the future it may not be advantageous for variable
life insurance and variable annuity Separate Accounts to invest in the
Investment Options simultaneously. Although neither the Company nor the
Investment Options currently foresees any such disadvantages either to variable
life insurance or to variable annuity Policy Owners, the Investment Options'
Boards of Directors intend to monitor events to identify any material conflicts
between such Policy Owners and to determine what action, if any, should be taken
in response thereto. If any of the Investment Options' Boards of Directors
conclude that separate mutual funds should be established for variable life
insurance and variable annuity Separate Accounts, the Company will bear the
attendant expenses, but variable life insurance and variable annuity Policy
Owners would no longer have the economies of scale resulting from a larger
combined fund. Please consult the prospectuses of the Investment Options for
additional information.
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 Investment Options which fund the Policy. If shares of any of the
Investment Options should no longer be available for purchase by the Fund UL, or
if, in the judgment of the Company further investment in such shares becomes
inappropriate for purposes of the Policy, shares of another open-end management
investment company, or a portfolio thereof, may be substituted for shares of the
Investment Options held in the Investment Options. 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 Policy Owners, and without prior approval of the Securities and
Exchange Commission, all to the extent required by the 1940 Act or other
25
<PAGE> 30
applicable law. Subject to Policy Owner approval, the Company reserves the right
to end Fund UL's registration under the 1940 Act.
TRANSFER OF CASH VALUE
As long as the Policy remains in effect, the Policy Owner may request that all
or a portion of the Cash Value of a particular Investment Option be transferred
to other Investment Options.
The Company reserves the right to restrict the number of such transfers to four
times in any Policy Year and to charge $10 for each additional transfer;
however, there is currently no charge for transfers. The Policy Owner may make
the request in writing by mailing such request to the Company at its Home
Office, or by telephone (if an authorization form is on file) by calling
1-800-334-4298. The Company will take reasonable steps to ensure that telephone
transfer requests are genuine. These steps may include seeking proper
authorization and identification prior to processing telephone requests.
Additionally, the Company will confirm telephone transfers. Any failure to take
such measures may result in the Company's liability for any losses due to
fraudulent telephone transfer requests.
As a result of a transfer, the number of Accumulation Units credited to the
Investment Option from which the transfer is made will be reduced by the number
obtained by dividing the amount transferred from the Investment Option by the
Accumulation Unit Value of that Investment Option on the Valuation Date on which
the Company receives the transfer request. The number of Accumulation Units
credited to the Investment Option to which the transfer is made will be
increased by the number obtained by dividing the amount transferred to the
Investment Option by the Accumulation Unit Value of that Investment Option on
the Valuation Date on which the Company receives the transfer request.
DOLLAR-COST AVERAGING (AUTOMATED TRANSFERS)
You may establish automated transfers of Policy Values on a monthly or quarterly
basis from certain of the Investment Option to other Investment Option through
written request or other method acceptable to the Company. You must have a
minimum total Policy Value of $1,000 to enroll in the Dollar-Cost Averaging
program. The minimum total automated transfer amount is $100.
You may start or stop participation in the Dollar-Cost Averaging program at any
time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. Automated transfers
are subject to all of the other provisions and terms of the Policy, including
provisions relating to the transfer of money between Investment Options. The
Company reserves the right to suspend or modify transfer privileges at any time
and to assess a processing fee for this service.
Before transferring any part of the Policy Value, Policy Owners should consider
the risks involved in switching between investments available under this Policy.
Dollar cost averaging requires regular investments regardless of fluctuating
price levels, and does not guarantee profits or prevent losses in a declining
market. Potential investors should consider their financial ability to continue
purchases through periods of low price levels.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, Fund UL's Investment Options may show the percentage change
in the value of an Accumulation Unit based on the performance of the Investment
Option 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 Investment Options of Fund UL that invest in underlying funds that were in
existence prior to the date on which the Investment Option became available
under the Policy, average annual rates
26
<PAGE> 31
of return may include periods prior to the inception of the Investment Option.
Performance calculations for Investment Options with pre-existing Investment
Options will be calculated by adjusting the actual returns of the Investment
Options to reflect the charges that would have been assessed under the
Investment Options had the Investment Option been available under Fund UL during
the period shown.
The following performance information represents the percentage change in the
value of an Accumulation Unit of the Investment Options for the periods
indicated, and reflects all expenses of the Investment Options. The chart
reflects the guaranteed maximum .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 Policy, see
page 11. For illustrations of how these charges affect Cash Values and Death
Benefits, see the Illustrations beginning on page 37. The performance
information described in this prospectus, may be used from time to time in
advertisement for the Policy, subject to National Association of Securities
Dealers, Inc. ("NASD") and applicable state approval and guidelines.
27
<PAGE> 32
The table below shows the net annual rates of return for accumulation units of
investment options available through MarketLife.
AVERAGE ANNUAL RETURNS THROUGH 12/31/96
<TABLE>
<CAPTION>
UNDERLYING INVESTMENT OPTIONS ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- ---------------------------------------------------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio 13.84% -- -- --
Alliance Growth Portfolio 28.12% -- -- --
Capital Appreciation Fund (Janus Sub-Adviser) 26.95% 17.39% 16.53% 11.79%
Dreyfus Stock Index Fund 21.35% 18.00% 13.56% --
Fidelity VIP Equity-Income Portfolio 13.20% 17.11% 16.86% --
Fidelity VIP Growth Portfolio 13.62% 14.70% 14.09% --
Smith Barney Income & Growth Portfolio 18.66% -- -- --
Smith Barney Total Return Portfolio 24.23% -- -- --
Utilities Portfolio (Smith Barney Sub-Adviser) 6.47% -- -- --
Templeton's Stock Fund 21.24% 13.39% 15.46% --
BOND FUNDS
Fidelity VIP High Income Portfolio 12.96% 9.61% 13.88% 10.09%
Smith Barney High Income Portfolio 12.10% -- -- --
Templeton's Bond Fund 8.43% 5.19% 6.08% --
Travelers U.S. Gov't Securities Portfolio 0.53% 5.05% -- --
Travelers Zero Coupon Bond Portfolio 1998 3.12% -- -- --
Travelers Zero Coupon Bond Portfolio 2000 1.84% -- -- --
Travelers Zero Coupon Bond Portfolio 2005 0.52% -- -- --
BALANCED FUNDS
Fidelity VIP II Asset Manager Portfolio 13.52% 6.98% 10.22% --
MFS Total Return Portfolio 13.37% -- -- --
Templeton's Asset Allocation Fund 17.73% 11.18% 12.94% --
Travelers Managed Assets Trust 12.71% 11.18% 9.18% 10.11%
MONEY MARKET FUNDS
Travelers Cash Income Trust1 3.42% 3.02% 2.53% --
</TABLE>
The information presented in the above chart represents the percentage change in
the value of an accumulation unit of the underlying investment options for the
periods indicated, and reflects all expenses of the underlying funds, as well as
the guaranteed maximum 0.80% mortality and expense risk charge and 0.10%
administrative expense charge against amounts allocated to the underlying funds.
The rates of return do not reflect the 2.5% front-end sales charge or the 2.5%
state premium tax charge (both of which are deducted from premium payments) nor
do they reflect surrender charges or monthly deduction amounts. These charges
would reduce the average annual return reflected.
1 An investment in Cash Income Trust is neither insured nor guaranteed by the
United States Government. There is no assurance that a stable $1.00 value will
be maintained.
28
<PAGE> 33
MARKETLIFE HYPOTHETICAL EXAMPLE2
MALE NONSMOKER AGE 40 WITH A LEVEL DEATH BENEFIT
OF $300,000 AND ANNUAL PREMIUM PAYMENTS OF $5,000
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS
------------------------------------ ------------------------------------
TOTAL ACCUMULATED SURRENDER TOTAL ACCUMULATED SURRENDER
UNDERLYING INVESTMENT OPTION INVESTMENT VALUE VALUE INVESTMENT VALUE VALUE
- ---------------------------------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio $5,000 $ 4,267 $ 1,451 N/A N/A N/A
Alliance Growth Portfolio 5,000 4,894 2,041 N/A N/A N/A
Capital Appreciation Fund (Janus
Sub-Adviser) 5,000 4,845 1,994 $ 25,000 $32,628 $30,746
Dreyfus Stock Index Fund 5,000 4,608 1,772 25,000 30,817 28,935
Fidelity VIP Equity-Income
Portfolio 5,000 4,264 1,449 25,000 30,539 28,657
Fidelity VIP Growth Portfolio 5,000 4,282 1,465 25,000 29,112 27,230
Smith Barney Income & Growth
Portfolio 5,000 4,495 1,665 N/A N/A N/A
Smith Barney Total Return
Portfolio 5,000 4,730 1,886 N/A N/A N/A
Smith Barney Utilities Portfolio 5,000 3,981 1,182 N/A N/A N/A
Templeton's Stock Fund 5,000 4,603 1,767 25,000 30,268 28,386
BOND FUNDS
Fidelity VIP High Income Portfolio 5,000 4,254 1,439 25,000 26,511 24,629
Smith Barney High Income Portfolio 5,000 4,218 1,405 N/A N/A N/A
Templeton's Bond Fund 5,000 4,064 1,260 25,000 22,244 20,362
Travelers U.S. Gov't Securities
Portfolio 5,000 3,732 948 25,000 20,515 18,633
Travelers Zero Coupon Bond
Portfolio 1998 5,000 3,841 1,050 N/A N/A N/A
Travelers Zero Coupon Bond
Portfolio 2000 5,000 3,787 1,000 N/A N/A N/A
Travelers Zero Coupon Bond
Portfolio 2005 5,000 3,732 948 N/A N/A N/A
BALANCED FUNDS
Fidelity VIP II Asset Manager
Portfolio 5,000 4,278 1,461 25,000 24,743 22,860
MFS Total Return Portfolio 5,000 4,272 1,455 N/A N/A N/A
Templeton's Asset Allocation Fund 5,000 4,455 1,628 25,000 27,804 25,922
Travelers Managed Assets Trust 5,000 4,244 1,429 25,000 25,668 23,786
MONEY MARKET FUNDS
Travelers Cash Income Trust 5,000 3,853 1,062 25,000 19,644 17,762
</TABLE>
The charges used in the above example consist of a front-end sales charge of
2.5%, a state premium tax charge of 2.5%, the guaranteed maximum 0.80% mortality
and expense risk charge and 0.10% administrative expense charge, all expenses of
the underlying funds, and monthly deduction charges including cost of insurance
and a contract administrative charge (in this example, the administrative charge
is 0%).
The benefits illustrated above may differ for other policies as a result of
differences in investment allocation, premium timing and amount, death benefit
type, as well as the age and underwriting of the classification of the insured
(which could result in higher costs of insurance). Because MarketLife is a
variable universal life insurance policy, actual performance should always be
considered in conjunction with the level of death benefit and cash values.
2 These hypothetical examples show the effect of the performance quoted on cash
values. Performance, loans and withdrawals will affect the cash value and
death benefit of your policy. Since the values of the portfolios will
fluctuate, the cash value at any time may be more or less than the total
principal investment made, including at the time of surrender of the policy,
when surrender charges may apply.
29
<PAGE> 34
EXAMPLE OF POLICY CHARGES
- --------------------------------------------------------------------------------
The following chart illustrates the surrender charges and Monthly Deduction
Amounts that would apply under a Policy based on the assumptions listed below.
Surrender charges and Monthly Deduction Amounts generally will be higher for an
Insured who is older than the assumed Insured, and lower for an Insured who is
younger (assuming the Insureds have the same risk classification). Cost of
insurance rates go up each year as the Insured becomes a year older.
Male, Age 35
Preferred Non-Smoker
Annual Premium: $ 850.00
Hypothetical Gross Annual Investment
Rate of Return: 8%
Face Amount: $100,000
Level Death Benefit Option
Current Charges
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
SURRENDER CHARGES SALES CHARGE FOR THE POLICY YEAR
------------------------------- COMPONENT OF ----------------------------
ADMINISTRATIVE SURRENDER CHARGE COST OF
POLICY CUMULATIVE SALES CHARGE CHARGE AS % OF INSURANCE ADMINISTRATIVE
YEAR PREMIUMS COMPONENT COMPONENT CUM. PREM. CHARGES 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>
3 Hypothetical results shown above are illustrative only and are based on the
Hypothetical Gross Annual Investment Rate of Return shown above. This
Hypothetical Gross Annual Investment Rate of Return should not be deemed to be
a representation of past or future investment results. Actual investment
results may be more or less than those shown. No representations can be made
that the hypothetical rates assumed can be achieved for any one year or
sustained over any period of time.
MISCELLANEOUS
- --------------------------------------------------------------------------------
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote the
shares of the Investment Options at regular and special meetings of the
shareholders of the Investment Options in accordance with instructions from
Policy Owners (or the Policy 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 Policy 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 Investment Options
in its own right, it may elect to do so.
The voting interests of the Policy Owner (or the Beneficiary) in the Investment
Options will be determined as follows: Policy Owners may cast one vote for each
$100 of Cash Value of the Policy allocated to the Investment Option, the assets
of which are invested in the particular Investment Option on the record date for
the shareholder meeting for that Fund. Fractional votes are counted. If,
however, a Policy Owner has taken a loan secured by the Policy, amounts
transferred from the Investment Option(s) to the Loan Account in connection with
the loan will not be considered in determining the voting interests of the
Policy Owner.
Policy Owners should review the prospectuses for the Investment Options to
determine matters on which shareholders may vote and the definition of a
majority vote required on some matters.
30
<PAGE> 35
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 Investment Options, or to approve or disapprove an investment
advisory Policy of one of the Investment Options. In addition, the Company may
disregard voting instructions in favor of changes in the investment policies or
the investment adviser of any of the Investment Options which are initiated by a
Policy 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 Investment Option 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 Policy Owners.
POLICIES SOLD PRIOR TO JULY 12, 1995
The following pertains to Policies sold prior to July 12, 1995 (or sold
subsequent to July 12, 1995 in states where the new Policy had not yet been
approved).
MORTALITY AND EXPENSE RISK CHARGE. The current charge is at an annual rate of
0.60% of the assets in the Separate Account, however the policy provides that
the maximum charge for mortality and expense risks will not exceed .80%
ADMINISTRATION EXPENSE CHARGE. 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.
CONTRACT LOANS. During the first 10 policy 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.
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 ("Exchange") is closed; (2) when trading on the Exchange is restricted;
(3) when an emergency exists as determined by the SEC so that disposal of the
securities held in the Investment Options is not reasonably practicable or it is
not reasonably practicable to determine the value of the Investment Option's net
assets; or (4) during any other period when the SEC, by order, so permits for
the protection of security holders.
DIVIDENDS
No dividends will be paid under the Policy.
DISTRIBUTION
The Company intends to sell the Policies in all jurisdictions where it is
licensed to do business and where the Policy is approved. The Policies will be
sold by life insurance sales representatives who are registered representatives
of the Company or certain other registered broker-dealers. The maximum
commission payable by the Company for distribution would be no greater than 50%
of the actual premium paid in the first twelve months. Any sales representative
or employee will have been qualified to sell variable life insurance Policies
under applicable federal and state laws. Each broker/dealer is registered with
the Securities and Exchange Commission under the Securities Exchange Act of 1934
and all are members of the National Association of Securities Dealers, Inc.
31
<PAGE> 36
Tower Square Securities, Inc. ("Tower Square"), an indirect wholly owned
subsidiary of Travelers Group, Inc., serves as principal underwriter of the
Policies described herein.
LEGAL PROCEEDINGS AND OPINION
There are no pending material legal proceedings affecting the Policy, Fund UL or
any of the Investment Options.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the variable universal life insurance Policy described in this
Prospectus and the organization of the Company, its authority to issue the
Policy under Connecticut law and the validity of the forms of the Policy under
Connecticut law have been passed on by the General Counsel 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 audit of Fund UL's financial statements. The
financial statements for the year ended December 31, 1996 have been audited by
Cooper's & Lybrand L.L.P., as indicated in their report thereon and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of The Travelers Insurance Company and
Subsidiaries as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996, have been included herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, and 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 Investment Options, the Company and the Policy.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
GENERAL
The following is a general discussion of the federal income tax considerations
relating to the Policies. This discussion is based upon the Company's
understanding of the federal income tax laws as they are currently interpreted
by the Internal Revenue Service ("IRS"). These laws are complex, and tax results
may vary among individuals. A person contemplating the purchase of or the
exercise of elections under a Policy should seek competent tax advice.
IT SHOULD BE UNDERSTOOD THAT THIS IS NOT AN EXHAUSTIVE DISCUSSION OF ALL TAX
QUESTIONS THAT MIGHT ARISE UNDER THE POLICIES. NO ATTEMPT HAS BEEN MADE TO
ADDRESS ANY FEDERAL ESTATE TAX OR STATE AND LOCAL TAX CONSIDERATIONS WHICH MAY
ARISE IN CONNECTION WITH A POLICY. FOR COMPLETE INFORMATION, A QUALIFIED TAX
ADVISOR SHOULD BE CONSULTED.
THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF ANY POLICY AND THE FOLLOWING
TAX DISCUSSION IS BASED ON THE COMPANY'S UNDERSTANDING OF FEDERAL INCOME TAX
LAWS AS THEY ARE CURRENTLY INTERPRETED. THE COMPANY CANNOT GUARANTEE THAT THOSE
LAWS OR INTERPRETATIONS WILL REMAIN UNCHANGED.
32
<PAGE> 37
TAX STATUS OF THE POLICY
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. Guidance as to how Section 7702 is to be applied,
however, is limited. Although the Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702, and while
proposed regulations and other limited, interim guidance has been issued, final
regulations have not been adopted. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy would not provide
the tax advantages normally provided by a life insurance policy.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702) that such a Policy should meet the Section 7702
definition of a life insurance contract. There is less guidance on the
application of the rules with respect to a Policy that is issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk). Thus, it is not clear whether such a Policy would satisfy
Section 7702, particularly if the Policy Owner pays the full amount of premiums
permitted under the Policy.
The Company reserves the right to make changes in the Policy if such changes are
deemed necessary to attempt to assure its qualification as a life insurance
contract for tax purposes.
DIVERSIFICATION
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies) underlying the Policy must be "adequately diversified"
in accordance with Treasury regulations in order for the Policy to qualify as
life insurance. The Treasury Department has issued regulations prescribing the
diversification requirements in connection with variable contracts. The Separate
Account through the Investment Options, intends to comply with these
requirements. Although the Company does not control the Investment Options, it
intends to monitor the investments of the Investment Options to ensure
compliance with the diversification requirements prescribed by the Treasury
Department.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contract. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contract owner's gross income each year. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policy Owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular Investment Options without being treated as owners of
the underlying assets." As of the date of this prospectus, no such guidance has
been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the policy owners received the desired tax benefits because they were not owners
of separate account assets. For example, a Policy Owner of this Policy has
additional flexibility in allocating payments and cash values. These differences
could result in the Policy Owner being treated as the owner of the assets of the
33
<PAGE> 38
Separate Account. In addition, the Company does not know what standard will be
set forth in the regulations or rulings which the Treasury is expected to issue,
nor does the Company know if such guidance will be issued. The Company therefore
reserves the right to modify the Policy as necessary to attempt to prevent the
Policy Owner from being considered the owner of a pro rata share of the assets
of the Separate Account.
The remaining tax discussion assumes that the Policy qualifies as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the Death Benefit under the Policy
should be excludable from the gross income of the Beneficiary.
In addition, the Policy Owner will generally not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, until there is a
distribution. The tax consequences of distribution from, and loans taken from or
secured by, a Policy depend on whether the Policy is classified as a "Modified
Endowment Contract." However, whether a Policy is or is not a Modified Endowment
Contract, upon a complete surrender or lapse of a Policy or when benefits are
paid at a Policy's maturity date, if the amount received plus the amount of
indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, or an assignment of the Policy may have federal income
tax consequences. In addition, federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. Therefore, it is important to check
with a tax adviser prior to the purchase of a policy.
MODIFIED ENDOWMENT CONTRACTS
In light of Policy premium requirements, a Policy will, in almost all cases, be
a modified endowment contract. (See, however, the discussion below on a Policy
issued in exchange for another life insurance contract.)
Loans and partial withdrawals from, as well as collateral assignments of,
Policies that are modified endowment contracts will be treated as distributions
to the Policy Owner for tax purposes. All pre-death distributions (including
loans, partial withdrawals and collateral assignments) from these Policies will
be included in gross income on an income-first basis to the extent of any income
in the Policy (the cash value less the Policy Owner's investment in the Policy)
immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders) from
modified endowment contracts to the extent they are included in income, unless a
specific exception to the penalty applies. The penalty does not apply to amounts
which are distributed on or after the date on which the taxpayer attains age
59 1/2, because the taxpayer is disabled, or as substantially equal periodic
payments over the taxpayer's life (or life expectancy) or over the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary.
Furthermore, if the loan interest is capitalized by adding the amount due to the
balance of the loan, the amount of the capitalized interest will be treated as
an additional distribution subject to income tax as well as the 10% penalty tax,
if applicable, to the extent of income in the Policy.
34
<PAGE> 39
EXCHANGES
Any Policy issued in exchange for a modified endowment contract will be subject
to the tax treatment accorded to modified endowment contracts. However, the
Company believes that any Policy received in exchange for a life insurance
contract that is not a modified endowment contract will generally not be treated
as a modified endowment contract if the face amount of the Policy is greater
than or equal to the death benefit of the policy being exchanged. The payment of
any premiums at the time of or after the exchange may, however, cause the Policy
to become a modified endowment contract. A prospective purchaser should consult
a qualified tax advisor before authorizing the exchange of his or her current
life insurance contract for a Policy.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS
In the case of a pre-death distribution (including a loan, partial withdrawal,
collateral assignment or complete surrender) from a Policy that is treated as a
modified endowment contract, a special aggregation requirement may apply for
purposes of determining the amount of the income on the Policy. Specifically, if
the Company or any of its affiliates issues to the same Policy Owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the Policy with respect to a distribution from any of
those Policies, the income on the Policy for all those Policies will be
aggregated and attributed to that distribution.
POLICIES WHICH ARE NOT MODIFIED ENDOWMENT CONTRACTS
Unlike loans from modified endowment contracts, a loan from a Policy that is not
a modified endowment contract will be considered indebtedness of the owner and
no part of a loan will constitute income to the owner. However, the treatment of
loans taken on earnings after the tenth Policy Year, or of loans taken to
acquire a Travelers long-term care policy is unclear; such loans might be
considered a withdrawal instead of indebtedness for federal tax purposes.
Pre-death distributions from a Policy that is not a modified endowment contract
will generally not be included in gross income to the extent that the amount
received does not exceed the Policy Owner's investment in the Policy. (An
exception to this general rule may occur in the case of a decrease or change
that reduces the benefits provided under a Policy in the first 15 years after
the Policy is issued and that results in a cash distribution to the Policy
Owner. Such a cash distribution may be taxed in whole or in part as ordinary
income to the extent of any gain in the Policy.) Further, the 10% penalty tax on
pre-death distributions does not apply to Policies that are not modified
endowment contracts.
Certain changes to Policies that are not modified endowment contracts may cause
such Policies to be treated as modified endowment contracts. A Policy Owner
should therefore consult a tax advisor before effecting any change to a Policy
that is not a modified endowment contract.
TREATMENT OF LOAN INTEREST
If there is any borrowing against the Policy, the interest paid on loans may not
be tax deductible.
THE COMPANY'S INCOME TAXES
The Company is taxed as a life insurance company under federal income tax law.
Presently, the Company does not expect to incur any income tax or the earnings
or the realized capital gains attributable to Fund UL. However, the Company may
assess a charge against the Investment Options for federal income taxes
attributable to those accounts in the event that the Company incurs income or
capital gains or other tax liability attributable to Fund UL under future tax
law.
35
<PAGE> 40
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>
DIRECTOR
NAME AND POSITION SINCE PRINCIPAL BUSINESS
- ------------------------- -------- -------------------------------------------------------
<S> <C> <C>
Jay S. Benet............. 1996 Senior Vice President since February 1994 and Vice
Director President (1990-1994) of The Travelers Insurance
Company; Partner (1986-1990) of Coopers & Lybrand.
Ian R. Stuart............ 1996 Senior Vice President since November, 1996 Chief
Director Financial Officer; Chief Accounting Officer and
Controller since March 1996, Vice President (1991-1996)
of The Travelers Insurance Company.
Katherine M. Sullivan.... 1996 Senior Vice President and General Counsel since May
Director 1996 of The Travelers Insurance Company; Senior Vice
President and General Counsel (1994-1996) Connecticut
Mutual; Special Counsel & Chief of Staff (1988-1994)
Aetna Life & Casualty.
George C. Kokulis........ 1996 Senior Vice President since September 1995, Vice
Director President (1993-1995) of The Travelers Insurance
Company.
Michael A. Carpenter..... 1995 Chairman since June 1996 and President and Chief
Director Executive Officer since June 1995 of The Travelers
Insurance Company; Executive Vice President of
Travelers Group Inc. since January 1995; Chairman,
President and Chief Executive Officer (1989-1994),
Kidder Peabody Group Inc.
Robert I. Lipp........... 1992 Chairman, President and Chief Executive Officer since
Director April 1996 of Travelers/Aetna Property Casualty Corp.;
Chief Executive Officer and Director since December
1993 of The Travelers Insurance Group Inc.; 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.
Marc P. Weill............ 1994 Senior Vice President-Investments since 1993 and Chief
Director Investment Officer since 1995 of The Travelers
Insurance Group Inc.; Senior Vice President and Chief
Investment Officer of Travelers Group Inc. since 1992;
Vice President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
</TABLE>
- ---------------
* Principal business address: Travelers Group Inc., 388 Greenwich Street, New
York, New York
36
<PAGE> 41
SENIOR OFFICERS OF THE TRAVELERS INSURANCE COMPANY
- --------------------------------------------------------------------------------
The following are the Senior Officers of The Travelers Insurance Company, other
than the Directors listed above, as of the date of this Prospectus. Unless
otherwise indicated, the principal business address for all individuals listed
is One Tower Square, Hartford, Connecticut 06183.
<TABLE>
<CAPTION>
NAME POSITION WITH INSURANCE COMPANY
- ------------------------------ ---------------------------------
<S> <C>
Stuart Baritz................. Senior Vice President
Barry Jacobson................ Senior Vice President
Russell H. Johnson............ Senior Vice President
Warren H. May................. Senior Vice President
Jay S. Fishman................ Senior Vice President
David A. Tyson................ Senior Vice President
F. Denney Voss................ Senior Vice President
Elizabeth C. Georgakopoulos... Senior Vice President
Christine M. Modie............ Senior Vice President
</TABLE>
-------------------------------------
* 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 applicable prospectuses.
ILLUSTRATIONS
- --------------------------------------------------------------------------------
The following pages are intended to illustrate how the Account Value, Cash
Surrender Value and Death Benefit can change over time for Policies issued to a
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 Policy.
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 Policy are charged in all
years. The other page illustrates the assumption that the current scale of Cost
of Insurance Rates and other charges are charged in all years. The Cost of
Insurance Rates charged vary by age, sex and underwriting classification, and
the monthly administrative charge varies by age, amount of insurance and
smoker/non-smoker classification for current charges. The illustrations reflect
a deduction of 5% from each annual premium for premium tax (2.5%) and front end
sales charge (2.5%).
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of investment returns. For the first fifteen Policy
Years, the current and guaranteed charges consist of 0.80% for mortality and
expense risks, 0.10% for administrative expenses, and .67% for Investment Option
expenses and thereafter 0.45% for mortality and expense risks, 0.00% for
administrative expenses, and .67% for Investment Option expenses.
The charge for Investment Option expenses reflected in the illustrations assumes
that Cash Value is allocated equally among all Investment Options and that no
Policy Loans are outstanding, and is an average of the investment advisory fees
and other expenses charged by each of the Investment Options during 1996.
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.
37
<PAGE> 42
The actual charges under a Policy for expenses of the Investment Options will
depend on the actual allocation of Cash Value and may be higher or lower than
those illustrated.
For illustrations shown for policies issued prior to July 1, 1995, see "Policies
Paid Prior to July 1, 1995" for the applicable charges and fees.
The charge for Investment Option expenses for all illustrations is an average of
the investment advisory fees and other expenses charged by all of the Investment
Options. The Investment Option expenses for some of the Investment Options
reflect an expense reimbursement agreement currently in effect. For the year
ended December 31, 1996, these reimbursement agreements affected the total
operating expenses of the Investment Options 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
by which each fund's aggregate annual expenses, including investment
advisory fees, but excluding brokerage commissions, interest charges and
taxes, exceed 1.25%. The expense reimbursement agreement did not affect
the operating expenses of CIT, CAF, MAT, USGSP or Utilities Portfolio
during 1996.
2. The Company has agreed to reimburse Travelers Zero Coupon Bond Portfolio
1998, 2000 and 2005 for the amount by which each Fund's aggregate annual
expenses, including investment advisory fees but excluding brokerage
commissions, interest charges and taxes, exceed .15%. In the absence of
the reimbursement agreement with the Company, the operating expenses in
1996 would have been 2.82%, 2.49% and 2.17%, respectively.
3. The administrator and investment adviser for the Dreyfus Stock Index
Fund have agreed to reimburse the Fund for expenses in excess of 0.40%.
4. No reimbursement arrangements were in effect for the Templeton Stock,
Bond and Asset Allocation Funds during 1996.
5. FMR or the Fidelity funds have entered into varying arrangements with
third parties who either paid or reduced a portion of the fund's
expenses. Without this reduction, Total Underlying Fund Expenses would
have been: Equity Income Portfolio, 0.58%, Growth Portfolio, 0.69%; and
Asset Manager Portfolio, 0.74%. No reimbursement arrangement affected
the High Income Portfolio.
6. During the fiscal year ended October 31, 1996, there were no fees waived
or expenses reimbursed for the Smith Barney Income and Growth Portfolio,
Alliance Growth Portfolio, Smith Barney High Income Portfolio, or the
MFS Total Return Portfolio.
Although these reimbursement arrangements are expected to continue in subsequent
years, the effect of discontinuance could be higher expenses charged to Policy
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 Policy
loans are made, no increases or decreases to the Stated Amount are requested, no
partial surrenders are made, and no charges for transfers between funds are
incurred.
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%.
38
<PAGE> 43
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,004 1,079 1,155 0 0
2 3,435 150,000 150,000 150,000 1,978 2,192 2,415 890 1,091
3 5,282 150,000 150,000 150,000 2,915 3,332 3,785 1,879 2,271
4 7,221 150,000 150,000 150,000 3,956 4,645 5,425 2,964 3,612
5 9,258 150,000 150,000 150,000 4,956 5,992 7,212 4,012 4,986
6 11,396 150,000 150,000 150,000 5,914 7,374 9,163 5,021 6,393
7 13,641 150,000 150,000 150,000 6,834 8,795 11,296 5,993 7,886
8 15,999 150,000 150,000 150,000 7,716 10,256 13,632 6,931 9,455
9 18,474 150,000 150,000 150,000 8,559 11,760 16,192 7,864 11,065
10 21,073 150,000 150,000 150,000 9,360 13,303 18,998 8,773 12,716
15 36,153 150,000 150,000 150,000 12,557 21,511 37,606 12,557 21,511
20 55,399 150,000 150,000 150,000 14,572 31,211 69,011 14,572 31,211
<CAPTION>
YEAR 12%
<S> <C>
- ------------------------
<S> <C>
1 9
2 1,301
3 2,697
4 4,345
5 6,133
6 8,146
7 10,387
8 12,831
9 15,497
10 18,411
15 37,606
20 69,011
</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.
39
<PAGE> 44
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 521 581 641 0 0
2 3,435 150,000 150,000 150,000 1,000 1,52 1,312 0 114
3 5,282 150,000 150,000 150,000 1,434 1,711 2,016 487 747
4 7,221 150,000 150,000 150,000 2,251 2,697 3,208 1,361 1,781
5 9,258 150,000 150,000 150,000 3,012 3,683 4,482 2,185 2,816
6 11,396 150,000 150,000 150,000 3,715 4,668 5,843 2,954 3,849
7 13,641 150,000 150,000 150,000 4,357 5,647 7,299 3,665 4,878
8 15,999 150,000 150,000 150,000 4,933 6,613 8,852 4,315 5,894
9 18,474 150,000 150,000 150,000 5,437 7,562 10,510 4,895 6,892
10 21,073 150,000 150,000 150,000 5,869 8,490 12,284 5,409 7,903
15 36,153 150,000 150,000 150,000 6,984 12,828 23,479 6,984 12,828
20 55,399 150,000 150,000 150,000 5,810 16,222 40,903 5,810 16,222
<CAPTION>
YEAR 12%
<S> <C>
- ---------------------------------
<S> <C>
1 0
2 264
3 1,034
4 2,261
5 3,567
6 4,954
7 6,431
8 8,051
9 9,815
10 11,697
15 23,479
20 40,903
</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.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
40
<PAGE> 45
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,270 1,364 1,458 117 205
2 4,238 150,000 150,000 150,000 2,495 2,762 3,041 1,376 1,627
3 6,517 150,000 150,000 150,000 3,676 4,198 4,766 2,594 3,085
4 8,910 150,000 150,000 150,000 4,955 5,819 6,797 3,903 4,715
5 11,423 150,000 150,000 150,000 6,177 7,476 9,005 5,160 6,381
6 14,061 150,000 150,000 150,000 7,351 9,177 11,416 6,371 8,088
7 16,831 150,000 150,000 150,000 8,473 10,924 14,052 7,534 9,903
8 19,740 150,000 150,000 150,000 9,550 12,722 16,942 8,655 11,809
9 22,794 150,000 150,000 150,000 10,578 14,571 20,111 9,771 13,764
10 26,001 150,000 150,000 150,000 11,542 16,460 23,576 10,843 15,761
15 44,607 150,000 150,000 150,000 15,460 26,633 46,779 15,460 26,633
20 68,354 150,000 150,000 150,000 17,125 38,001 85,775 17,125 38,001
<CAPTION>
YEAR 12%
- ------------------------------------------
<S> <C>
1 294
2 1,890
3 3,619
4 5,635
5 7,818
6 10,287
7 13,031
8 16,029
9 19,304
10 22,877
15 46,779
20 85,775
</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.
41
<PAGE> 46
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 791 868 0 0
2 4,238 150,000 150,000 150,000 1,367 1,563 1,770 316 500
3 6,517 150,000 150,000 150,000 1,951 2,311 2,708 973 1,311
4 8,910 150,000 150,000 150,000 2,893 3,474 4,139 1,965 2,511
5 11,423 150,000 150,000 150,000 3,756 4,623 5,653 2,884 3,699
6 14,061 150,000 150,000 150,000 4,533 5,750 7,255 3,723 4,867
7 16,831 150,000 150,000 150,000 5,212 6,843 8,942 4,469 6,002
8 19,740 150,000 150,000 150,000 5,785 7,890 10,715 5,115 7,094
9 22,794 150,000 150,000 150,000 6,240 8,877 12,572 5,650 8,128
10 26,001 150,000 150,000 150,000 6,565 9,790 14,515 6,063 9,095
15 44,607 150,000 150,000 150,000 5,962 12,797 25,695 5,962 12,797
20 68,354 150,000 150,000 150,000 169 11,409 40,606 169 11,409
<CAPTION>
YEAR 12%
<S> <C>
- ---------------------------------------------------
<S> <C>
1 0
2 695
3 1,685
4 3,136
5 4,667
6 6,281
7 7,975
8 9,802
9 11,765
10 13,816
15 25,695
20 40,606
</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.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
42
<PAGE> 47
MARKETLIFE PRIOR TO JULY 12TH, 1995
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,008 1,082 1,156 0 0
2 3,435 150,000 150,000 150,000 1,988 2,200 2,420 900 1,099
3 5,282 150,000 150,000 150,000 2,935 3,348 3,796 1,898 2,286
4 7,221 150,000 150,000 150,000 3,988 4,672 5,445 2,994 3,637
5 9,258 150,000 150,000 150,000 5,003 6,034 7,245 4,056 5,025
6 11,396 150,000 150,000 150,000 5,980 7,434 9,211 5,083 6,449
7 13,641 150,000 150,000 150,000 6,921 8,877 11,364 6,075 7,968
8 15,999 150,000 150,000 150,000 7,826 10,365 13,726 7,034 9,564
9 18,474 150,000 150,000 150,000 8,695 11,899 16,319 8,000 11,204
10 21,073 150,000 150,000 150,000 9,523 13,478 19,164 8,936 12,891
15 36,153 150,000 150,000 150,000 12,890 21,953 38,126 12,890 21,953
20 55,399 150,000 150,000 150,000 14,786 31,452 68,966 14,786 31,452
<CAPTION>
YEAR 12%
<S> <C>
- ------------------------------------------------------------
<S> <C>
1 0
2 1,306
3 2,707
4 4,364
5 6,164
6 8,194
7 10,455
8 12,925
9 15,624
10 18,577
15 38,126
20 68,966
</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.
43
<PAGE> 48
MARKETLIFE PRIOR TO JULY 12TH, 1995
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 521 580 639 0 0
2 3,435 150,000 150,000 150,000 1,000 1,150 1,307 0 112
3 5,282 150,000 150,000 150,000 1,435 1,707 2,006 488 744
4 7,221 150,000 150,000 150,000 2,251 2,689 3,191 1,361 1,773
5 9,258 150,000 150,000 150,000 3,012 3,672 4,455 2,185 2,805
6 11,396 150,000 150,000 150,000 3,715 4,652 5,803 2,954 3,834
7 13,641 150,000 150,000 150,000 4,358 5,625 7,241 3,666 4,857
8 15,999 150,000 150,000 150,000 4,933 6,584 8,773 4,315 5,866
9 18,474 150,000 150,000 150,000 5,438 7,524 10,403 4,896 6,857
10 21,073 150,000 150,000 150,000 5,870 8,442 12,144 5,410 7,855
15 36,153 150,000 150,000 150,000 6,986 12,709 23,044 6,986 12,709
20 55,399 150,000 150,000 150,000 5,646 15,610 38,944 5,646 15,610
<CAPTION>
YEAR 12%
<S> <C>
- ---------------------------------------------------------------------
<S> <C>
1 0
2 260
3 1,025
4 2,245
5 3,541
6 4,916
7 6,376
8 7,972
9 9,708
10 11,557
15 23,044
20 38,944
</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.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
44
<PAGE> 49
MARKETLIFE PRIOR TO JULY 12TH, 1995
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,275 1,368 1,460 122 209
2 4,238 150,000 150,000 150,000 2,508 2,772 3,048 1,389 1,637
3 6,517 150,000 150,000 150,000 3,701 4,218 4,780 2,618 3,104
4 8,910 150,000 150,000 150,000 4,996 5,853 6,823 3,942 4,747
5 11,423 150,000 150,000 150,000 6,237 7,528 9,045 5,216 6,430
6 14,061 150,000 150,000 150,000 7,433 9,252 11,477 6,449 8,158
7 16,831 150,000 150,000 150,000 8,581 11,026 14,138 7,636 10,005
8 19,740 150,000 150,000 150,000 9,687 12,858 17,060 8,783 11,945
9 22,794 150,000 150,000 150,000 10,747 14,746 20,269 9,940 13,939
10 26,001 150,000 150,000 150,000 11,745 16,679 23,783 11,046 15,980
15 44,607 150,000 150,000 150,000 15,875 27,186 47,430 15,875 27,186
20 68,354 150,000 150,000 150,000 17,400 38,317 85,734 17,400 38,317
<CAPTION>
YEAR 12%
<S> <C>
- ------------------------------------------------------------------------------
<S> <C>
1 295
2 1,896
3 3,632
4 5,659
5 7,856
6 10,348
7 13,117
8 16,147
9 19,462
10 23,084
15 47,430
20 85,734
</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.
45
<PAGE> 50
MARKETLIFE PRIOR TO JULY 12, 1995
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ---------------------------------- ---------------------------------- ---------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 790 865 0 0
2 4,238 150,000 150,000 150,000 1,367 1,560 1,764 316 497
3 6,517 150,000 150,000 150,000 1,951 2,306 2,695 973 1,307
4 8,910 150,000 150,000 150,000 2,894 3,464 4,117 1,966 2,502
5 11,423 150,000 150,000 150,000 3,757 4,608 5,619 2,885 3,685
6 14,061 150,000 150,000 150,000 4,533 5,729 7,203 3,723 4,847
7 16,831 150,000 150,000 150,000 5,213 6,815 8,869 4,470 5,976
8 19,740 150,000 150,000 150,000 5,786 7,853 10,614 5,116 7,059
9 22,794 150,000 150,000 150,000 6,240 8,830 12,438 5,650 8,084
10 26,001 150,000 150,000 150,000 6,566 9,731 14,340 6,064 9,039
15 44,607 150,000 150,000 150,000 5,964 12,656 25,163 5,964 12,656
20 68,354 150,000 150,000 150,000 68 10,803 38,350 68 10,803
<CAPTION>
YEAR 12%
- ---------------------------------------------------------------------------------------
<S> <C>
1 0
2 689
3 1,672
4 3,115
5 4,635
6 6,232
7 7,906
8 9,701
9 11,631
10 13,641
15 25,163
20 38,350
</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.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
46
<PAGE> 51
APPENDIX A
ANNUAL MINIMUM PREMIUMS
(Per Thousand of Stated Amount)
<TABLE>
<CAPTION>
AGE MALE FEMALE
- --- ------ ------
<S> <C> <C>
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
<CAPTION>
AGE MALE FEMALE
- --- ------ ------
<S> <C> <C>
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
</TABLE>
APPENDIX A -- ANNUAL MINIMUM PREMIUMS
47
<PAGE> 52
APPENDIX B
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
(First Year)
<TABLE>
<CAPTION>
STATED AMOUNT
-------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ------------ ----------- ----------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
-------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ------------ ----------- ----------
<S> <C> <C> <C>
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
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 9.06
53 12.02 10.82 9.62
54 12.70 11.43 10.16
55 13.01 11.71 10.41
56 13.99 12.69 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 15.82
62 21.12 19.01 16.90
63 22.73 20.46 18.18
64 24.34 21.91 19.47
65+ 25.40 22.85 20.32
</TABLE>
APPENDIX B -- PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
48
<PAGE> 53
APPENDIX B(1)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
Sales Charge Component*
(First Year)
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
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
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
</TABLE>
*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
49
<PAGE> 54
APPENDIX B(2)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
Administrative Charge Component*
(First Year)
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ------------ ----------- ---------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ------------ ----------- ---------
<S> <C> <C> <C>
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
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
</TABLE>
*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
50
<PAGE> 55
APPENDIX C
CURRENT MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
NON-SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $250,000 $1,000,000
AGE TO $249,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $250,000 $1,000,000
AGE TO $249,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.08 0.00 0.00
34 0.08 0.00 0.00
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
</TABLE>
APPENDIX C -- CURRENT MONTHLY ADMINISTRATIVE CHARGE
51
<PAGE> 56
APPENDIX C (CONT'D)
CURRENT MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.19 0.09 0.00
34 0.19 0.09 0.00
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
</TABLE>
52
<PAGE> 57
APPENDIX C(1)
GUARANTEED MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
SMOKERS AND NON-SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
------------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.19 0.09 0.00
34 0.19 0.09 0.00
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
</TABLE>
APPENDIX C(1) -- GUARANTEED MONTHLY ADMINISTRATIVE CHARGE
53
<PAGE> 58
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Travelers Variable Products Funds, 3,387,399 shares (cost $11,411,884).................... $ 11,689,865
Templeton Variable Products Series Fund, 377,415 shares (cost $6,924,784)................. 8,108,807
Fidelity's Variable Insurance Products Fund, 631,630 shares (cost $12,378,462)............ 13,685,999
Fidelity's Variable Insurance Products Fund II, 196,802 shares (cost $2,877,764).......... 3,331,861
Dreyfus Stock Index Fund, 76,029 shares (cost $1,438,393)................................. 1,541,862
American Odyssey Funds, Inc., 33,784 shares (cost $465,098)............................... 453,672
Travelers Series Fund Inc., 181,817 shares (cost $2,408,698).............................. 2,549,196
Smith Barney Series Fund, 24,578 shares (cost $353,913)................................... 386,615
--------------
Total Investments (cost $38,258,996).................................................... $ 41,747,877
RECEIVABLES:
Dividends.................................................................................. 654,921
Premium payments and transfers from other Travelers accounts............................... 8,762
Other assets................................................................................ 144
-------------
Total Assets............................................................................ 42,411,704
-------------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts.................. 9,293
Accrued liabilities........................................................................ 78,362
-------------
Total Liabilities...................................................................... 87,655
-------------
NET ASSETS: $ 42,324,049
=============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 59
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 2,057,986
EXPENSES:
Insurance charges............................................ $ 192,440
Administrative charges....................................... 6,926
-------------
Total expenses.............................................. 199,366
-------------
Net investment income...................................... 1,858,620
-------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold............................... 10,760,279
Cost of investments sold..................................... 10,228,004
-------------
Net realized gain........................................... 532,275
Change in unrealized gain on investments:
Unrealized gain at December 31, 1995........................ 1,954,404
Unrealized gain at December 31, 1996........................ 3,488,881
-------------
Net change in unrealized gain for the year................. 1,534,477
-------------
Net realized gain and change in unrealized gain........... 2,066,752
-------------
Net increase in net assets resulting from operations......... $ 3,925,372
=============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 60
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income......................................................... $ 1,858,620 $ 232,605
Net realized gain from investment transactions................................ 532,275 150,979
Net change in unrealized gain (loss) on investments........................... 1,534,477 2,034,336
---------------- ------------------
Net increase in net assets resulting from operations......................... 3,925,372 2,417,920
---------------- ------------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 15,169,725 and 10,466,712 units, respectively)................ 21,543,041 12,301,017
Participant transfers from other Travelers accounts
(applicable to 10,670,706 and 4,576,712 units, respectively)................. 14,576,672 5,501,026
Contract surrenders
(applicable to 3,002,978 and 1,594,372 units, respectively).................. (4,214,910) (1,932,840)
Participant transfers to other Travelers accounts
(applicable to 9,824,019 and 3,881,875 units, respectively).................. (14,195,827) (5,170,119)
Other payments to participants
(applicable to 1,265 units).................................................. - (1,498)
---------------- ------------------
Net increase in net assets resulting from unit transactions................ 17,708,976 10,697,586
---------------- ------------------
Net increase in net assets................................................ 21,634,348 13,115,506
NET ASSETS:
Beginning of year............................................................. 20,689,701 7,574,195
---------------- ------------------
End of year................................................................... $ 42,324,049 $ 20,689,701
================ ==================
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 61
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 ("The Travelers"), an indirect
wholly owned subsidiary of Travelers Group Inc., and is available for
funding certain variable life insurance contracts issued by The Travelers.
Fund UL is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. The Travelers interest in the net assets of
Fund UL was $3,159,262 at December 31, 1996.
Participant premium payments applied to Fund UL are invested in one or more
eligible funds in accordance with the selection made by the owner. As of
December 31, 1996, the eligible funds available under Fund UL are: Managed
Assets Trust; High Yield Bond Trust; Capital Appreciation Fund; Cash Income
Trust; U.S. Government Securities Portfolio, Utilities Portfolio, Zero
Coupon Bond Fund Portfolio Series 1998, Zero Coupon Bond Fund Portfolio
Series 2000 and Zero Coupon Bond Fund Portfolio Series 2005 of The
Travelers Series Trust; Alliance Growth Portfolio, Smith Barney Income and
Growth Portfolio, Smith Barney High Income Portfolio, MFS Total Return
Portfolio and AIM Capital Appreciation Portfolio of the Travelers Series
Fund Inc. (formerly Smith Barney/Travelers Series Fund Inc.); the Total
Return Portfolio of the Smith Barney Series Fund (all of which are managed
by affiliates of The Travelers); 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. All of the funds are Massachusetts business trusts, except for
Travelers Series Fund Inc. and Dreyfus Stock Index Fund which are
incorporated under Maryland law. Not all funds are available in all
states.
Effective July 12, 1995, the following funds were no longer available to
new contract owners under Fund UL. These funds are: 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.
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 funds.
FEDERAL INCOME TAXES. The operations of Fund UL form a part of the total
operations of The Travelers and are not taxed separately. The Travelers is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended (the "Code"). Under existing federal income tax law, no taxes
are payable on the investment income of Fund UL. Fund UL is not taxed as a
"regulated investment company" under Subchapter M of the Code.
OTHER. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
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 $30,119,571 and $10,760,279,
respectively, for the year ended December 31, 1996. Realized gains and
losses from investment transactions are reported on an identified cost
basis. The cost of investments in eligible funds was $38,258,996 at
December 31, 1996. Gross unrealized appreciation for all investments at
December 31, 1996 was $3,570,789. Gross unrealized depreciation for all
investments at December 31, 1996 was $81,908.
-4-
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges and administrative charges up to a maximum of 0.80% and
0.10%, respectively, of the average net assets of Fund UL on an annual
basis, are allowed for mortality and expense risks and administrative
expenses assumed by The Travelers. For Price I contracts (all InVest
Contracts and MarketLife Contracts issued prior to July 12, 1995, and
MarketLife Contracts issued on or after July 12, 1995 where state approval
for Enhanced MarketLife was not approved), the insurance charges were 0.60%
and the administrative charges were waived by The Travelers for the year
ended December 31, 1996. For Price II contracts (all MarketLife Contracts
issued on or after July 12, 1995, where state approval has been received),
the insurance charges are 0.80% for the first fifteen policy years, and
0.45% thereafter. The administrative charges for these contracts are 0.10%
for the first fifteen policy years and 0% thereafter.
The Travelers receives contingent surrender charges on full or partial
contract surrenders. Such charges are computed by applying various
percentages to premiums and/or stated contract amounts (as described in the
prospectus). The Travelers received $106,276 and $23,577 in satisfaction
of such contingent surrender charges for the years ended December 31, 1996
and 1995, respectively.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Travelers Variable Products Series Fund
Managed Assets Trust
Price I.................................. 608,767 $ 2.231 $ 1,358,063
Price II................................. 130,601 2.221 290,111
High Yield Bond Trust
Price I.................................. 148,199 2.170 321,636
Capital Appreciation Fund
Price I.................................. 902,679 2.162 1,951,566
Price II................................. 657,729 2.153 1,415,937
Cash Income Trust
Price I.................................. 354,388 1.485 526,438
Price II................................. 1,517,957 1.479 2,245,306
U.S. Government Securities Portfolio
Price I.................................. 136,245 1.161 158,203
Price II................................. 491,615 1.156 568,412
Utilities Portfolio
Price I.................................. 70,217 1.363 95,692
Price II................................. 27,805 1.357 37,732
Zero Coupon Bond Fund Portfolio Series 1998
Price I.................................. 1,000,000 1.058 1,057,712
Price II................................. 14,502 1.054 15,283
Zero Coupon Bond Fund Portfolio Series 2000
Price I.................................. 1,000,000 1.052 1,051,780
Price II................................. 3,545 1.048 3,714
Zero Coupon Bond Fund Portfolio Series 2005
Price I.................................. 1,082,794 1.050 1,136,685
Price II................................. 50,556 1.046 52,877
</TABLE>
-5-
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Templeton Variable Products Series Fund
Price I.................................. 126,772 $ 1.170 $ 148,317
Price II................................. 122,984 1.165 143,274
Templeton Stock Fund
Price I.................................. 2,447,759 1.454 3,559,687
Price II................................. 930,912 1.448 1,348,031
Templeton Asset Allocation Fund
Price I.................................. 1,674,567 1.363 2,281,602
Price II................................. 427,705 1.357 580,268
Fidelity's Variable Insurance Products Fund
High Income Portfolio
Price I.................................. 843,627 1.296 1,092,962
Price II................................. 965,612 1.290 1,245,679
Growth Portfolio
Price I.................................. 2,549,547 1.498 3,819,863
Price II................................. 1,586,792 1.492 2,367,256
Equity-Income Portfolio
Price I.................................. 2,044,165 1.556 3,180,219
Price II................................. 1,265,744 1.549 1,960,792
Fidelity's Variable Insurance Products Fund
Asset Manager Portfolio
Price I.................................. 2,452,548 1.217 2,985,524
Price II................................. 281,887 1.212 341,686
Dreyfus Stock Index Fund
Price I.................................. 344,866 1.667 574,846
Price II................................. 595,425 1.660 988,279
American Odyssey Funds, Inc.
American Odyssey Core Equity Fund
Price I.................................. 34,187 1.693 57,892
American Odyssey Emerging Opportunities Fund
Price I.................................. 191,470 1.373 262,801
American Odyssey International Equity Fund
Price I.................................. 76,225 1.348 102,744
American Odyssey Long-Term Bond Fund
Price I.................................. 44,927 1.226 55,085
American Odyssey Intermediate-Term Bond Fund
Price I.................................. 833 1.091 909
American Odyssey Short-Term Bond Fund
Price I.................................. 2,640 1.145 3,022
</TABLE>
-6-
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Travelers Series Fund Inc.
Alliance Growth Portfolio
Price I............................... 130,486 $ 1.342 $ 175,052
Price II.............................. 757,945 1.336 1,012,628
Smith Barney Income and Growth Portfolio
Price I............................... 9,830 1.271 12,496
Price II.............................. 174,833 1.267 221,449
Smith Barney High Income Portfolio
Price I............................... 15,538 1.117 17,352
Price II.............................. 123,317 1.113 137,306
MFS Total Return Portfolio
Price I............................... 101,119 1.237 125,113
Price II.............................. 216,413 1.232 266,690
AIM Capital Appreciation Portfolio
Price I............................... 67,039 1.061 71,142
Price II.............................. 481,897 1.059 510,097
Smith Barney Series Fund
Total Return Portfolio
Price I............................... 24,849 1.291 32,071
Price II.............................. 275,810 1.286 354,768
----------------
Net Contract Owners' Equity........................................................ $ 42,324,049
================
</TABLE>
-7-
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
------------- ------------
<S> <C> <C>
TRAVELERS VARIABLE PRODUCTS FUNDS (28.0%)
Managed Assets Trust (Cost $1,477,114) 101,887 $ 1,526,268
High Yield Bond Trust (Cost $293,704) 34,310 291,293
Capital Appreciation Fund (Cost $2,855,389) 85,280 3,131,484
Cash Income Trust (Cost $2,776,262) 2,776,262 2,776,262
U.S. Government Securities Portfolio (Cost $717,654) 63,026 684,459
Utilities Portfolio (Cost $125,795) 10,014 122,374
Zero Coupon Bond Fund Portfolio Series 1998 (Cost $1,019,678) 101,906 1,018,037
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $1,008,505) 100,818 1,004,146
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $1,137,783) 113,896 1,135,542
------------- ------------
Total (Cost $11,411,884) 3,387,399 11,689,865
------------- ------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (19.4%)
Templeton Bond Fund (Cost $273,039) 25,074 291,615
Templeton Stock Fund (Cost $4,259,103) 216,580 4,955,356
Templeton Asset Allocation Fund (Cost $2,392,642) 135,761 2,861,836
------------- ------------
Total (Cost $6,924,784) 377,415 8,108,807
------------- ------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (32.8%)
High Income Portfolio (Cost $2,252,911) 188,689 2,362,383
Growth Portfolio (Cost $5,544,492) 198,672 6,186,639
Equity-Income Portfolio (Cost $4,581,059) 244,269 5,136,977
------------- ------------
Total (Cost $12,378,462) 631,630 13,685,999
------------- ------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (8.0%)
Asset Manager Portfolio (Cost $2,877,764)
Total (Cost $2,877,764) 196,802 3,331,861
------------- ------------
DREYFUS STOCK INDEX FUND (3.7%)
Total (Cost $1,438,393) 76,029 1,541,862
------------- ------------
AMERICAN ODYSSEY FUNDS, INC. (1.1%)
American Odyssey Core Equity Fund (Cost $45,780) 3,530 54,675
American Odyssey Emerging Opportunities Fund (Cost $274,840) 18,070 242,503
American Odyssey International Equity Fund (Cost $85,978) 6,651 100,297
American Odyssey Long-Term Bond Fund (Cost $54,634) 5,164 52,417
American Odyssey Intermediate-Term Bond Fund (Cost $885) 84 862
American Odyssey Short-Term Bond Fund (Cost $2,981) 285 2,918
------------- ------------
Total (Cost $465,098) 33,784 453,672
------------- ------------
TRAVELERS SERIES FUND INC. (6.1%)
Alliance Growth Portfolio (Cost $1,090,207) 70,764 1,187,419
Smith Barney Income and Growth Portfolio (Cost $229,998) 15,536 233,966
Smith Barney High Income Portfolio (Cost $150,861) 13,064 154,680
MFS Total Return Portfolio (Cost $373,597) 29,752 391,838
AIM Capital Appreciation Portfolio (Cost $564,035) 52,701 581,293
------------- ------------
Total (Cost $2,408,698) 181,817 2,549,196
------------- ------------
SMITH BARNEY SERIES FUND (0.9%)
Total Return Portfolio (Cost $353,913)
Total (Cost $353,913) 24,578 386,615
------------- ------------
TOTAL INVESTMENT OPTIONS (100%)
(Cost $38,258,996) $ 41,747,877
============
</TABLE>
-8-
<PAGE> 66
THIS PAGE INTENTIONALLY LEFT BLANK.
-9-
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST HIGH YIELD BOND TRUST
-------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................. $ 212,189 $ 40,936 $ 58,484 $ 18,822
----------- ------------- ------------- ---------------
EXPENSES:
Insurance charges..................................... 9,244 5,330 1,710 1,571
Administrative charges................................ 266 3 - -
----------- ------------- ------------- ---------------
Net investment income (loss).................... 202,679 35,603 56,774 17,251
----------- ------------- ------------- ---------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................... 398,836 376,022 266,166 77,846
Cost of investments sold.......................... 355,102 359,634 261,596 81,477
----------- ------------- ------------- ---------------
Net realized gain (loss)........................ 43,734 16,388 4,570 (3,631)
----------- ------------- ------------- ---------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.......... 113,258 (39,140) 16,476 (4,540)
Unrealized gain (loss) end of year................ 49,154 113,258 (2,411) 16,476
----------- ------------- ------------- ---------------
Net change in unrealized gain (loss) for the year (64,104) 152,398 (18,887) 21,016
----------- ------------- ------------- ---------------
Net increase (decrease) in net assets
resulting from operations....................... 182,309 204,389 42,457 34,636
----------- ------------- ------------- ---------------
UNIT TRANSACTIONS:
Participant premium payments.......................... 385,858 252,223 59,862 97,670
Participant transfers from other Travelers accounts... 446,005 206,853 210,756 8,164
Contract surrenders................................... (197,168) (213,318) (49,202) (63,621)
Participant transfers to other Travelers accounts..... (363,218) (80,934) (225,122) (24,590)
Other payments to participants........................ - - - -
----------- ------------- ------------- ---------------
Net increase (decrease) in net assets resulting
from unit transactions.......................... 271,477 164,824 (3,706) 17,623
----------- ------------- ------------- ---------------
Net increase in net assets...................... 453,786 369,213 38,751 52,259
NET ASSETS:
Beginning of year................................. 1,194,388 825,175 282,885 230,626
----------- ------------- ------------- ---------------
End of year....................................... $ 1,648,174 $ 1,194,388 $ 321,636 $ 282,885
=========== ============= ============= ===============
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
------------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................. $ 326,576 $ 2,760
------------ ----------------
EXPENSES:
Insurance charges..................................... 12,964 4,395
Administrative charges................................ 456 8
------------ ----------------
Net investment income (loss).................... 313,156 (1,643)
------------ ----------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................... 141,019 96,468
Cost of investments sold.......................... 97,726 81,467
------------ ----------------
Net realized gain (loss)........................ 43,293 15,001
------------ ----------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.......... 177,890 (3,117)
Unrealized gain (loss) end of year................ 276,095 177,890
------------ ----------------
Net change in unrealized gain (loss) for the year 98,205 181,007
------------ ----------------
Net increase (decrease) in net assets
resulting from operations....................... 454,654 194,365
------------ ----------------
UNIT TRANSACTIONS:
Participant premium payments.......................... 845,776 329,154
Participant transfers from other Travelers accounts... 1,273,217 407,754
Contract surrenders................................... (250,675) (126,174)
Participant transfers to other Travelers accounts..... (124,142) (29,551)
Other payments to participants........................ - (324)
------------ ----------------
Net increase (decrease) in net assets resulting
from unit transactions.......................... 1,744,176 580,859
------------ ----------------
Net increase in net assets...................... 2,198,830 775,224
NET ASSETS:
Beginning of year................................. 1,168,673 393,449
------------ ----------------
End of year....................................... $ 3,367,503 $ 1,168,673
============ ================
</TABLE>
-10-
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
ZERO COUPON BOND
U.S. GOVERNMENT FUND PORTFOLIO
CASH INCOME TRUST SECURITIES PORTFOLIO UTILITIES PORTFOLIO SERIES 1998
- --------------------------------- --------------------------- ---------------------------- ---------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 90,366 $ 51,414 $ 58,279 $ 6,396 $ 13,790 $ 57 $ 67,102 $ -
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
15,944 7,336 1,660 776 688 200 6,251 1,346
1,351 70 100 2 23 1 6 -
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
73,071 44,008 56,519 5,618 13,079 (144) 60,845 (1,346)
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
6,855,752 3,122,783 45,082 43,281 42,674 22,221 6,286 1,261
6,855,752 3,122,783 43,606 42,077 37,280 20,300 6,135 1,246
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
- - 1,476 1,204 5,394 1,921 151 15
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
- - 19,739 (680) 7,329 (1) 24,969 -
- - (33,195) 19,739 (3,421) 7,329 (1,641) 24,969
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
- - (52,934) 20,419 (10,750) 7,330 (26,610) 24,969
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
73,071 44,008 5,061 27,241 7,723 9,107 34,386 23,638
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
11,879,168 3,808,981 92,662 52,081 79,509 30,285 - 1,000,000
1,603,195 809,577 513,975 29,366 25,144 43,375 15,174 -
(1,023,100) (209,087) (32,101) (17,273) (16,313) (5,130) (203) -
(11,441,681) (3,996,433) (20,458) (32,113) (33,120) (9,529) - -
- - - - - - - -
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
1,017,582 413,038 554,078 32,061 55,220 59,001 14,971 1,000,000
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
1,090,653 457,046 559,139 59,302 62,943 68,108 49,357 1,023,638
1,681,091 1,224,045 167,476 108,174 70,481 2,373 1,023,638 -
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
$ 2,771,744 $ 1,681,091 $ 726,615 $ 167,476 $ 133,424 $ 70,481 $ 1,072,995 $ 1,023,638
================ ============== ============ ============ ============= =========== ============= ===============
</TABLE>
-11-
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
ZERO COUPON BOND ZERO COUPON BOND
FUND PORTFOLIO FUND PORTFOLIO
SERIES 2000 SERIES 2005
--------------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 63,651 $ - $ 66,990 $ -
----------------- --------------- --------------- ------------
EXPENSES:
Insurance charges........................................ 6,171 1,341 6,538 1,346
Administrative charges................................... 2 - 26 -
----------------- --------------- --------------- ------------
Net investment income (loss)....................... 57,478 (1,341) 60,426 (1,346)
----------------- --------------- --------------- ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold....................... 6,328 1,257 22,857 1,190
Cost of investments sold............................. 6,227 1,241 23,410 1,171
----------------- --------------- --------------- ------------
Net realized gain (loss)........................... 101 16 (553) 19
----------------- --------------- --------------- ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............. 30,962 - 47,983 -
Unrealized gain (loss) end of year................... (4,359) 30,962 (2,241) 47,983
----------------- --------------- --------------- ------------
Net change in unrealized gain (loss) for the year.. (35,321) 30,962 (50,224) 47,983
----------------- --------------- --------------- ------------
Net increase (decrease) in net assets
resulting from operations.......................... 22,258 29,637 9,649 46,656
----------------- --------------- --------------- ------------
UNIT TRANSACTIONS:
Participant premium payments............................. 1,303 1,000,000 3,937 1,003,016
Participant transfers from other Travelers accounts...... 2,571 - 143,245 -
Contract surrenders...................................... (275) - (1,804) (39)
Participant transfers to other Travelers accounts........ - - (15,098) -
Other payments to participants........................... - - - -
----------------- --------------- --------------- ------------
Net increase (decrease) in net assets resulting
from unit transactions............................. 3,599 1,000,000 130,280 1,002,977
----------------- --------------- --------------- ------------
Net increase in net assets......................... 25,857 1,029,637 139,929 1,049,633
NET ASSETS:
Beginning of year.................................... 1,029,637 - 1,049,633 -
----------------- --------------- --------------- ------------
End of year.......................................... $ 1,055,494 $ 1,029,637 $ 1,189,562 $ 1,049,633
================= =============== =============== ============
<CAPTION>
TEMPLETON BOND FUND
-------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 18,730 $ 5,066
------------ ------------
EXPENSES:
Insurance charges........................................ 1,415 813
Administrative charges................................... 68 -
------------ ------------
Net investment income (loss)....................... 17,247 4,253
------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold....................... 155,886 62,279
Cost of investments sold............................. 160,115 59,015
------------ ------------
Net realized gain (loss)........................... (4,229) 3,264
------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............. 10,933 332
Unrealized gain (loss) end of year................... 18,576 10,933
------------ ------------
Net change in unrealized gain (loss) for the year.. 7,643 10,601
------------ ------------
Net increase (decrease) in net assets
resulting from operations.......................... 20,661 18,118
------------ ------------
UNIT TRANSACTIONS:
Participant premium payments............................. 129,705 105,490
Participant transfers from other Travelers accounts...... 140,133 23,219
Contract surrenders...................................... (37,867) (20,727)
Participant transfers to other Travelers accounts........ (110,954) (49,818)
Other payments to participants........................... - -
------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions............................. 121,017 58,164
------------ ------------
Net increase in net assets......................... 141,678 76,282
NET ASSETS:
Beginning of year.................................... 149,913 73,631
------------ ------------
End of year.......................................... $ 291,591 $ 149,913
============ ============
</TABLE>
-12-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON ASSET FIDELITY'S HIGH
TEMPLETON STOCK FUND ALLOCATION FUND INCOME PORTFOLIO FIDELITY'S GROWTH PORTFOLIO
- ------------------------------ ------------------------------- ---------------------------- ----------------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 275,458 $ 19,051 $ 100,257 $ 26,362 $ 79,896 $ 19,756 $ 212,219 $ 4,488
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
22,487 9,643 13,519 7,988 8,457 2,933 28,119 9,674
636 11 228 9 346 9 1,081 20
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
252,335 9,397 86,510 18,365 71,093 16,814 183,019 (5,206)
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
427,910 207,815 251,298 107,532 394,532 48,286 290,824 181,771
355,680 187,264 208,598 97,472 359,601 45,475 199,573 149,497
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
72,230 20,551 42,700 10,060 34,931 2,811 91,251 32,274
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
293,901 (19,006) 221,298 (10,005) 57,063 (924) 382,429 30,533
696,253 293,901 469,194 221,298 109,472 57,063 642,147 382,429
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
402,352 312,907 247,896 231,303 52,409 57,987 259,718 351,896
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
726,917 342,855 377,106 259,728 158,433 77,612 533,988 378,964
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
1,321,382 895,929 644,082 619,275 527,622 317,211 2,089,604 902,843
1,213,990 812,982 446,075 222,974 1,226,656 271,515 1,889,484 1,043,981
(483,098) (268,346) (235,094) (157,512) (201,035) (83,202) (640,080) (277,564)
(282,267) (186,328) (144,347) (84,478) (172,976) (36,291) (317,899) (155,582)
- (370) - (365) - (439) - -
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
1,770,007 1,253,867 710,716 599,894 1,380,267 468,794 3,021,109 1,513,678
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
2,496,924 1,596,722 1,087,822 859,622 1,538,700 546,406 3,555,097 1,892,642
2,410,794 814,072 1,774,048 914,426 799,941 253,535 2,632,022 739,380
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
$ 4,907,718 $ 2,410,794 $ 2,861,870 $ 1,774,048 $ 2,338,641 $ 799,941 $ 6,187,119 $ 2,632,022
=============== ============== =============== =============== ============= ============== ============= =============
</TABLE>
-13-
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY'S EQUITY- FIDELITY'S ASSET
INCOME PORTFOLIO MANAGER PORTFOLIO
-------------------------------- -----------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 109,635 $ 57,205 $ 159,369 $ 32,170
---------------- --------------- ------------------ ----------------
EXPENSES:
Insurance charges........................................ 22,379 7,158 17,144 11,730
Administrative charges................................... 811 - 161 4
---------------- --------------- ------------------ ----------------
Net investment income (loss)....................... 86,445 50,047 142,064 20,436
---------------- --------------- ------------------ ----------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold....................... 400,773 129,546 246,699 357,375
Cost of investments sold............................. 317,023 106,630 224,032 348,343
---------------- --------------- ------------------ ----------------
Net realized gain (loss)........................... 83,750 22,916 22,667 9,032
---------------- --------------- ------------------ ----------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............. 260,001 (795) 244,927 (31,871)
Unrealized gain (loss) end of year................... 555,918 260,001 454,097 244,927
---------------- --------------- ------------------ ----------------
Net change in unrealized gain (loss) for the year.. 295,917 260,796 209,170 276,798
---------------- --------------- ------------------ ----------------
Net increase (decrease) in net assets
resulting from operations.......................... 466,112 333,759 373,901 306,266
---------------- --------------- ------------------ ----------------
UNIT TRANSACTIONS:
Participant premium payments............................. 1,546,355 745,361 819,279 807,194
Participant transfers from other Travelers accounts...... 1,927,954 762,957 265,125 466,673
Contract surrenders...................................... (479,487) (172,156) (311,604) (263,503)
Participant transfers to other Travelers accounts........ (385,897) (99,376) (200,709) (341,312)
Other payments to participants........................... - - - -
---------------- --------------- ------------------ ----------------
Net increase (decrease) in net assets resulting
from unit transactions............................. 2,608,925 1,236,786 572,091 669,052
---------------- --------------- ------------------ ----------------
Net increase in net assets......................... 3,075,037 1,570,545 945,992 975,318
NET ASSETS:
Beginning of year.................................... 2,065,974 495,429 2,381,218 1,405,900
---------------- --------------- ------------------ ----------------
End of year.......................................... $ 5,141,011 $ 2,065,974 $ 3,327,210 $ 2,381,218
================ =============== ================== ================
<CAPTION>
DREYFUS STOCK INDEX FUND
-----------------------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 38,450 $ 6,430
--------------------- -------------------
EXPENSES:
Insurance charges........................................ 4,900 949
Administrative charges................................... 288 9
--------------------- -------------------
Net investment income (loss)....................... 33,262 5,472
--------------------- -------------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold....................... 198,684 29,459
Cost of investments sold............................. 154,606 23,404
--------------------- -------------------
Net realized gain (loss)........................... 44,078 6,055
--------------------- -------------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............. 32,788 (201)
Unrealized gain (loss) end of year................... 103,469 32,788
--------------------- -------------------
Net change in unrealized gain (loss) for the year.. 70,681 32,989
--------------------- -------------------
Net increase (decrease) in net assets
resulting from operations.......................... 148,021 44,516
--------------------- -------------------
UNIT TRANSACTIONS:
Participant premium payments............................. 331,313 162,950
Participant transfers from other Travelers accounts...... 923,999 104,338
Contract surrenders...................................... (103,195) (23,466)
Participant transfers to other Travelers accounts........ (70,708) (2,423)
Other payments to participants........................... - -
--------------------- -------------------
Net increase (decrease) in net assets resulting
from unit transactions............................. 1,081,409 241,399
--------------------- -------------------
Net increase in net assets......................... 1,229,430 285,915
NET ASSETS:
Beginning of year.................................... 333,695 47,780
--------------------- -------------------
End of year.......................................... $ 1,563,125 $ 333,695
===================== ===================
</TABLE>
-14-
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
AMERICAN ODYSSEY AMERICAN ODYSSEY
AMERICAN ODYSSEY EMERGING OPPORTUNITIES INTERNATIONAL EQUITY AMERICAN ODYSSEY
CORE EQUITY FUND FUND FUND LONG-TERM BOND FUND
- ----------------------------- ----------------------------- ------------------------------ ---------------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,238 $ 1,960 $ 20,349 $ 9,047 $ 2,488 $ 626 $ 2,672 $ 3,134
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
312 126 1,563 670 520 270 273 102
- - - - - - - -
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
2,926 1,834 18,786 8,377 1,968 356 2,399 3,032
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
9,229 8,482 41,345 37,648 20,513 29,695 9,682 13,624
7,518 7,288 33,380 29,526 16,197 27,426 9,981 12,319
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
1,711 1,194 7,965 8,122 4,316 2,269 (299) 1,305
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
3,143 (2) 4,288 625 3,676 (1,033) (1,341) (106)
8,895 3,143 (32,337) 4,288 14,319 3,676 (2,217) (1,341)
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
5,752 3,145 (36,625) 3,663 10,643 4,709 (876) (1,235)
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
10,389 6,173 (9,874) 20,162 16,927 7,334 1,224 3,102
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
10,768 3,391 93,912 93,588 30,054 26,719 26,241 19,931
3,481 37,760 9,776 118,650 16,031 30,284 - 24,193
(4,419) (1,806) (29,021) (16,696) (12,104) (7,735) (5,072) (3,415)
(6,488) (1,536) (25,343) (18,006) (13,400) (5,985) (5,423) (11,434)
- - - - - - - -
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
3,342 37,809 49,324 177,536 20,581 43,283 15,746 29,275
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
13,731 43,982 39,450 197,698 37,508 50,617 16,970 32,377
44,161 179 223,351 25,653 65,236 14,619 38,115 5,738
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
$ 57,892 $ 44,161 $ 262,801 $ 223,351 $ 102,744 $ 65,236 $ 55,085 $ 38,115
=============== ============= ============== ============== =============== ============== =============== ===========
</TABLE>
-15-
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
INTERMEDIATE-TERM AMERICAN ODYSSEY
BOND FUND SHORT-TERM BOND FUND
------------------------------------ --------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ 48 $ 20 $ 104 $ 111
---------------- ------------------- -------------- -----------------
EXPENSES:
Insurance charges...................................... 4 1 16 12
Administrative charges................................. - - - -
---------------- ------------------- -------------- -----------------
Net investment income (loss)..................... 44 19 88 99
---------------- ------------------- -------------- -----------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold..................... - - 213 4,486
Cost of investments sold........................... - - 214 4,330
---------------- ------------------- -------------- -----------------
Net realized gain (loss)......................... - - (1) 156
---------------- ------------------- -------------- -----------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year........... (6) - (68) (1)
Unrealized gain (loss) end of year................. (23) (6) (63) (68)
---------------- ------------------- -------------- -----------------
Net change in unrealized gain (loss) for the year (17) (6) 5 (67)
---------------- ------------------- -------------- -----------------
Net increase (decrease) in net assets
resulting from operations........................ 27 13 92 188
---------------- ------------------- -------------- -----------------
UNIT TRANSACTIONS:
Participant premium payments........................... 631 408 841 3,744
Participant transfers from other Travelers accounts.... - 44 - 2,961
Contract surrenders.................................... (124) (81) (244) (516)
Participant transfers to other Travelers accounts...... - (9) - (4,055)
Other payments to participants......................... - - - -
---------------- ------------------- -------------- -----------------
Net increase (decrease) in net assets resulting
from unit transactions........................... 507 362 597 2,134
---------------- ------------------- -------------- -----------------
Net increase in net assets....................... 534 375 689 2,322
NET ASSETS:
Beginning of year.................................. 375 - 2,333 11
---------------- ------------------- -------------- -----------------
End of year........................................ $ 909 $ 375 $ 3,022 $ 2,333
================ =================== ============== =================
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
----------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ 43,645 $ 620
-------------- -------------
EXPENSES:
Insurance charges...................................... 4,173 14
Administrative charges................................. 461 1
-------------- -------------
Net investment income (loss)..................... 39,011 605
-------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold..................... 138,394 284
Cost of investments sold........................... 126,677 275
-------------- -------------
Net realized gain (loss)......................... 11,717 9
-------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year........... (310) -
Unrealized gain (loss) end of year................. 97,212 (310)
-------------- -------------
Net change in unrealized gain (loss) for the year 97,522 (310)
-------------- -------------
Net increase (decrease) in net assets
resulting from operations........................ 148,250 304
-------------- -------------
UNIT TRANSACTIONS:
Participant premium payments........................... 264,719 6,840
Participant transfers from other Travelers accounts.... 805,494 14,239
Contract surrenders.................................... (44,856) (568)
Participant transfers to other Travelers accounts...... (6,667) (75)
Other payments to participants......................... - -
-------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions........................... 1,018,690 20,436
-------------- -------------
Net increase in net assets....................... 1,166,940 20,740
NET ASSETS:
Beginning of year.................................. 20,740 -
-------------- -------------
End of year........................................ $ 1,187,680 $ 20,740
============== =============
</TABLE>
-16-
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SMITH BARNEY INCOME SMITH BARNEY HIGH AIM CAPITAL
AND GROWTH PORTFOLIO INCOME PORTFOLIO MFS TOTAL RETURN PORTFOLIO APPRECIATION PORTFOLIO
- ------------------------------ ----------------------------- ----------------------------- ---------------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5,295 $ 20 $ 8,808 $ - $ 13,265 $ 2,147 $ 580 $ -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
664 1 1,201 - 1,350 124 1,435 -
78 - 142 - 102 1 142 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
4,553 19 7,465 - 11,813 2,022 (997) -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
56,203 35 142,661 - 27,195 593 104,593 -
52,019 33 138,333 - 24,139 569 101,291 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
4,184 2 4,328 - 3,056 24 3,302 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
(1) - - - 3,089 - - -
3,968 (1) 3,819 - 18,241 3,089 17,258 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
3,969 (1) 3,819 - 15,152 3,089 17,258 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
12,706 20 15,612 - 30,021 5,135 19,563 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
11,790 301 16,643 - 103,152 14,644 181,988 -
220,262 1,052 265,754 - 205,454 57,736 474,076 -
(8,726) (138) (5,991) - (12,783) (705) (16,100) -
(3,243) (79) (137,360) - (10,669) (182) (78,288) -
- - - - - - - -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
220,083 1,136 139,046 - 285,154 71,493 561,676 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
232,789 1,156 154,658 - 315,175 76,628 581,239 -
1,156 - - - 76,628 - - -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
$ 233,945 $ 1,156 $ 154,658 $ - $ 391,803 $ 76,628 $ 581,239 $ -
=============== ============== ============== ============== ================ ============ ============== ============
</TABLE>
-17-
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO COMBINED
---------------------------- --------------------------------------
1996 1995 1996 1995
---- ----- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 6,053 $ 5 $ 2,057,986 $ 308,603
------------- -------------- ------------------- ------------------
EXPENSES:
Insurance charges......................................... 1,339 1 192,440 75,850
Administrative charges.................................... 152 - 6,926 148
------------- -------------- ------------------- ------------------
Net investment income (loss)........................ 4,562 4 1,858,620 232,605
------------- -------------- ------------------- ------------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold........................ 58,645 53 10,760,279 4,961,292
Cost of investments sold.............................. 52,193 51 10,228,004 4,810,313
------------- -------------- ------------------- ------------------
Net realized gain (loss)............................ 6,452 2 532,275 150,979
------------- -------------- ------------------- ------------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.............. (12) - 1,954,404 (79,932)
Unrealized gain (loss) end of year.................... 32,702 (12) 3,488,881 1,954,404
------------- -------------- ------------------- ------------------
Net change in unrealized gain (loss) for the year... 32,714 (12) 1,534,477 2,034,336
------------- -------------- ------------------- ------------------
Net increase (decrease) in net assets
resulting from operations........................... 43,728 (6) 3,925,372 2,417,920
------------- -------------- ------------------- ------------------
UNIT TRANSACTIONS:
Participant premium payments.............................. 44,885 1,788 21,543,041 12,301,017
Participant transfers from other Travelers accounts....... 309,646 379 14,576,672 5,501,026
Contract surrenders....................................... (13,169) (62) (4,214,910) (1,932,840)
Participant transfers to other Travelers accounts......... (350) - (14,195,827) (5,170,119)
Other payments to participants............................ - - - (1,498)
------------- -------------- ------------------- ------------------
Net increase (decrease) in net assets resulting
from unit transactions.............................. 341,012 2,105 17,708,976 10,697,586
------------- -------------- ------------------- ------------------
Net increase in net assets.......................... 384,740 2,099 21,634,348 13,115,506
NET ASSETS:
Beginning of year..................................... 2,099 - 20,689,701 7,574,195
------------- -------------- ------------------- ------------------
End of year........................................... $ 386,839 $ 2,099 $ 42,324,049 $ 20,689,701
============= ============== =================== ==================
</TABLE>
-18-
<PAGE> 76
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, 1996, 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, 1996, by
correspondence with the underlying funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund UL for
Variable Life Insurance as of December 31, 1996, 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 7, 1997
-19-
<PAGE> 77
Independent Auditors' Report
The Board of Directors and Shareholder
The Travelers Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income and retained earnings and cash flows
for each of the years in the three-year period ended December 31, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1997
12
<PAGE> 78
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $1,379 $1,496 $ 1,492
Net investment income 1,887 1,824 1,702
Realized investment gains 65 106 13
Other 298 221 199
- ---------------------------------------------------------------------------------------------------
Total revenues 3,629 3,647 3,406
- ---------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,163 1,185 1,216
Interest credited to contractholders 830 967 961
Amortization of deferred acquisition costs and
value of insurance in force 281 290 281
Other operating expenses 380 368 351
- ---------------------------------------------------------------------------------------------------
Total benefits and expenses 2,654 2,810 2,809
- ---------------------------------------------------------------------------------------------------
Income from continuing operations before
federal income taxes 975 837 597
- ---------------------------------------------------------------------------------------------------
Federal income taxes:
Current expense (benefit) 284 233 (96)
Deferred 58 57 307
- ---------------------------------------------------------------------------------------------------
Total federal income taxes 342 290 211
- ---------------------------------------------------------------------------------------------------
Income from continuing operations 633 547 386
Discontinued operations, net of income taxes
Income from operations (net of taxes of $0, $18 and $83) -- 72 150
Gain on disposition (net of taxes of $14, $68 and $18) 26 131 9
- ---------------------------------------------------------------------------------------------------
Income from discontinued operations 26 203 159
- ---------------------------------------------------------------------------------------------------
Net income 659 750 545
Retained earnings beginning of year 2,312 1,562 1,017
Dividends to parent 500 -- --
- ---------------------------------------------------------------------------------------------------
Retained earnings end of year $2,471 $2,312 $ 1,562
- ---------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 79
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(at December 31, in millions) 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $18,515; $18,187) $18,846 $18,842
Equity securities, at fair value (cost, $325; $182) 332 224
Mortgage loans 2,883 3,626
Real estate held for sale, net of accumulated depreciation of $0; $9 297 293
Policy loans 1,910 1,888
Short-term securities 891 1,554
Other investments 1,235 874
- -------------------------------------------------------------------------------------------------------
Total investments 26,394 27,301
- -------------------------------------------------------------------------------------------------------
Cash 74 73
Investment income accrued 343 338
Premium balances receivable 105 107
Reinsurance recoverables 3,858 4,107
Deferred acquisition costs and value of insurance in force 2,133 1,962
Separate and variable accounts 9,023 6,949
Other assets 1,043 1,464
- -------------------------------------------------------------------------------------------------------
Total assets $42,973 $42,301
- -------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $13,693 $14,525
Future policy benefits 11,450 11,783
Policy and contract claims 536 571
Separate and variable accounts 8,948 6,916
Commercial paper 50 73
Deferred federal income taxes 57 32
Other liabilities 1,911 2,173
- -------------------------------------------------------------------------------------------------------
Total liabilities 36,645 36,073
- -------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,170 3,134
Retained earnings 2,471 2,312
Unrealized investment gains, net of taxes 587 682
- -------------------------------------------------------------------------------------------------------
Total shareholder's equity 6,328 6,228
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $42,973 $42,301
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 80
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,387 $ 1,346 $ 1,394
Net investment income received 1,910 1,855 1,719
Other revenues received (expense paid) 131 90 (2)
Benefits and claims paid (1,060) (846) (1,115)
Interest credited to contractholders (820) (960) (868)
Operating expenses paid (343) (615) (536)
Income taxes paid (328) (63) (27)
Other (70) (137) (81)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 807 670 484
Net cash provided by (used in) discontinued operations (350) (596) 233
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operations 457 74 717
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 1,928 1,974 2,528
Mortgage loans 917 680 1,266
Proceeds from sales of investments
Fixed maturities 9,101 6,773 1,316
Equity securities 479 379 357
Mortgage loans 178 704 546
Real estate held for sale 210 253 728
Purchases of investments
Fixed maturities (11,556) (10,748) (4,594)
Equity securities (594) (305) (340)
Mortgage loans (470) (144) (102)
Policy loans, net (23) (325) (193)
Short-term securities, (purchases) sales, net 498 291 (367)
Other investments, (purchases) sales, net (137) (267) (299)
Securities transactions in course of settlement (52) 258 24
Net cash provided by (used in) investing activities of
discontinued operations 348 1,425 (261)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 827 948 609
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (redemption) of short-term debt, net (23) (1) 73
Contractholder fund deposits 2,493 2,705 1,951
Contractholder fund withdrawals (3,262) (3,755) (3,357)
Dividends to parent company (500) -- --
Return of capital to parent company -- -- (23)
Net cash provided by financing activities
of discontinued operations -- -- 84
Other 9 -- (2)
- ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,283) (1,051) (1,274)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ 1 $ (29) $ 52
- ----------------------------------------------------------------------------------------------------------
Cash at December 31 $ 74 $ 73 $ 102
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 81
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Travelers Insurance Company and Subsidiaries (the Company) is a
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIGI).
TIGI is an indirect wholly owned subsidiary of Travelers Group Inc.
(Travelers Group), a financial services holding company engaged, through
its subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Property & Casualty
Insurance Services; and (iv) Life Insurance Services (through the
Company). The periodic reports of Travelers Group provide additional
business and financial information concerning that company and its
consolidated subsidiaries.
The Company principally operates through two major business units within
its Life Insurance Services segment:
- TRAVELERS LIFE AND ANNUITY offers fixed and variable deferred
annuities, payout annuities and term, universal and variable life and
long-term care insurance to individuals and small businesses. It also
provides group pension products, including guaranteed investment
contracts and group annuities for employer-sponsored retirement and
savings plans. These products are primarily marketed through The
Copeland Companies (Copeland), an indirect, wholly owned subsidiary
of the Company, the Financial Consultants of Smith Barney Inc., an
affiliate of the Company, and a core group of approximately 500
independent agencies. The Company's Corporate and Other Segment was
absorbed into Travelers Life and Annuity during the second quarter
of 1996.
- PRIMERICA LIFE INSURANCE offers individual life products, primarily
term insurance, to consumers through a nationwide sales force of more
than 86,000 full and part-time independent representatives.
The Company sold group life and health insurance through its Managed Care
and Employee Benefits Operations segment (MCEBO) through 1994. See Note
4.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
The consolidated financial statements include the accounts of the Company
and its insurance and non-insurance subsidiaries on a fully
consolidated basis. The primary insurance subsidiaries of the Company
are: The Travelers Life and Annuity Company (TLAC), and Primerica Life
Insurance Company (Primerica Life) and its subsidiary National Benefit
Life Insurance Company (NBL).
As discussed in Note 4 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the
Company were sold to Metropolitan Life Insurance Company (MetLife) and
also in January 1995, the group medical component was exchanged for a 42%
interest in The MetraHealth Companies, Inc. (MetraHealth). The Company's
interest in MetraHealth was sold on October 2, 1995 and through that date
had been accounted for on the equity method. The Company's discontinued
operations reflect the results of the medical insurance business not
transferred, the equity interest in the earnings of MetraHealth through
October 2, 1995 (date of sale) and the gains from the sales of these
businesses. All of the businesses sold to MetLife or contributed to
MetraHealth were included in the Company's MCEBO segment in 1994. MCEBO
marketed group life and health insurance, managed health care programs
and administrative services associated with employee benefit plans.
16
<PAGE> 82
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings
Inc., which at the time was a wholly owned subsidiary of Travelers Group
and was the indirect owner of the business of Transport Life Insurance
Company (Transport Life). Immediately prior to this distribution, the
Company distributed Transport Life, an indirect wholly owned subsidiary
of the Company, to TIGI, as a return of capital.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and benefits
and expenses during the reporting period. Actual results could differ
from those estimates.
As more fully described in Note 4, all of the operations comprising MCEBO
are presented as a discontinued operation and, accordingly, prior year
amounts have been restated.
Certain prior year amounts have been reclassified to conform with the
1996 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. Fixed maturities are classified as "available for sale" and
are reported at fair value, with unrealized investment gains and losses,
net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and nonredeemable preferred
stocks, are classified as "available for sale" and carried at fair value
based primarily on quoted market prices. Changes in fair values of equity
securities are charged or credited directly to shareholder's equity, net
of income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is
considered impaired when it is probable that the Company will be unable
to collect principal and interest amounts due. For mortgage loans that
are determined to be impaired, a reserve is established for the
difference between the amortized cost and fair market value of the
underlying collateral. In estimating fair value, the Company uses
interest rates reflecting the higher returns required in the current real
estate financing market. Impaired loans were insignificant at December
31, 1996 and 1995.
Real estate held for sale is carried at the lower of cost or fair value
less estimated costs to sell. Fair value of foreclosed properties is
established at time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other acceptable
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996 and 1995.
Short-term securities, consisting primarily of money market instruments
and other debt issues purchased with a maturity of less than one year,
are carried at amortized cost which approximates market.
17
<PAGE> 83
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Accrual of income, included in other assets, is suspended on fixed
maturities or mortgage loans that are in default, or on which it is
likely that future payments will not be made as scheduled. Interest
income on investments in default is recognized only as payment is
received.
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures contracts, equity options, forward contracts and interest rate
swaps and caps, as a means of hedging exposure to interest rate, equity
price and foreign currency risk. Hedge accounting is used to account for
derivatives. To qualify for hedge accounting the changes in value of the
derivative must be expected to substantially offset the changes in value
of the hedged item. Hedges are monitored to ensure that there is a high
correlation between the derivative instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to
adjust the basis of hedged investments and are recognized in net
investment income over the life of the investment.
Forward contracts, equity options, and interest rate swaps and caps were
not significant at December 31, 1996 and 1995. Information concerning
derivative financial instruments is included in Note 8.
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. Also included are gains and losses arising from
the remeasurement of the local currency value of foreign investments to
U.S. dollars, the functional currency of the Company. The foreign
exchange effects of Canadian operations are included in unrealized gains
and losses.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Deferred Acquisition Costs and Value of Insurance in Force
Costs of acquiring individual life insurance, annuities and 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, including term
insurance and guaranteed renewable health contracts, including long-term
care, are amortized in relation to anticipated premiums; universal
life in relation to estimated gross profits; and annuity contracts
employing a level yield method. For life insurance, a 10- to 25-year
amortization period is used; for guaranteed renewable health, a 10- to
20-year period, and a 10- to 20-year period is employed for annuities.
Deferred acquisition costs are reviewed periodically for recoverability
to determine if any adjustment is required.
18
<PAGE> 84
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from life
insurance, annuities and health contracts at the date of acquisition
using the same assumptions that were used for computing related
liabilities where appropriate. The value of insurance in force was the
actuarially determined present value of the projected future profits
discounted at interest rates ranging from 14% to 18%. Traditional life
insurance and guaranteed renewable health policies are amortized in
relation to anticipated premiums; universal life is amortized in relation
to estimated gross profits; and annuity contracts are amortized employing
a level yield method. The value of insurance in force is reviewed
periodically for recoverability to determine if any adjustment is
required.
Separate and Variable Accounts
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholders. Each account has
specific investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets of these accounts are carried at
market value. Certain other separate accounts provide guaranteed levels
of return or benefits and the assets of these accounts are primarily
carried at market value. Amounts assessed to the contractholders for
management services are included in revenues. Deposits, net investment
income and realized investment gains and losses for these accounts are
excluded from revenues, and related liability increases are excluded from
benefits and expenses.
Goodwill
Goodwill represents the cost of acquired businesses in excess of net
assets and is being amortized on a straight-line basis principally over a
40-year period. The carrying amount is regularly reviewed for indication
of impairment in value, which in the view of management, would be other
than temporary. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life, pension investment and certain deferred annuity contracts.
Contractholder Fund balances are increased by such receipts and credited
interest and reduced by withdrawals, mortality charges and administrative
expenses charged to the contractholders. Interest rates credited to
contractholder funds range from 3.5% to 8.6%.
19
<PAGE> 85
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Future Policy Benefits
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuities have been
computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 2.5% to
10.0%, including adverse deviation. These assumptions consider Company
experience and industry standards. The assumptions vary by plan, age at
issue, year of issue and duration. Appropriate recognition has been given
to experience rating and reinsurance.
Permitted Statutory Accounting Practices
The Company, whose insurance subsidiaries are domiciled principally in
Connecticut and Massachusetts, prepares statutory financial statements in
accordance with the accounting practices prescribed or permitted by the
insurance departments of those states. Prescribed statutory accounting
practices include certain 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.
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
and revenues of non-insurance subsidiaries.
Interest Credited to Contractholders
Interest credited to contractholders represents amounts earned by
universal life, pension investment and certain deferred annuity contracts
in accordance with contract provisions.
20
<PAGE> 86
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and
liabilities. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely than
not, with a valuation allowance for the portion that is not likely to be
recognized.
Future Application of Accounting Standards
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 (FAS 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on consistent
application of a financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. FAS
125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The requirements of FAS 125 are effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and are to be applied prospectively.
However, in December 1996 the FASB issued FAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," which
delays until January 1, 1998 the effective date for certain provisions.
The adoption of the provisions of this statement effective January 1,
1997 will not have a material impact on results of operations, financial
condition or liquidity and the Company is currently evaluating the impact
of the provisions whose effective date has been delayed until January 1,
1998.
3. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes accounting standards for the impairment of
long-lived assets and certain identifiable intangibles to be disposed.
This statement requires a write down to fair value when long-lived assets
to be held and used are impaired. The statement also requires that
long-lived assets to be disposed (e.g., real estate held for sale) be
carried at the lower of cost or fair value less cost to sell and does not
allow such assets to be depreciated. The adoption of this standard did
not have a material impact on the Company's results of operations,
financial condition, or liquidity.
Accounting for Stock-Based Compensation
The Company participates in a stock option plan sponsored by Travelers
Group that provides for the granting of stock options in Travelers Group
common stock to officers and key employees. The Company applies
Accounting Principles Board Opinion No. 25 (APB 25) and related
interpretations in accounting for stock options. Since stock options are
issued at fair market value on the date of award, no compensation cost
has been recognized for these awards. In October 1995, the Financial
Accounting Standards Board issued
21
<PAGE> 87
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). This statement provides an
alternative to APB 25 whereby fair values may be ascribed to options
using a valuation model and amortized to compensation cost over the
vesting period of the options. Had the Company applied FAS 123 in
accounting for stock options, net income would have been reduced by $2.8
million and $1.3 million in 1996 and 1995, respectively.
Accounting by Creditors for Impairment of a Loan
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan," and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," which describe how impaired loans should be measured
when determining the amount of a loan loss accrual. These statements
amended existing guidance on the measurement of restructured loans in a
troubled debt restructuring involving a modification of terms. Their
adoption did not have a material impact on the Company's results of
operations, financial condition, or liquidity.
4. DISPOSITIONS AND DISCONTINUED OPERATIONS
In December 1994, the Company and its affiliates sold their group dental
insurance business to MetLife for $52 million and recognized a gain of $9
million net of taxes. On January 3, 1995, the Company and its affiliates
completed the sale of their group life and related non-medical group
insurance businesses to MetLife for $350 million and recognized in the
first quarter of 1995 a gain of $20 million net of taxes. In connection
with the sale, the Company ceded 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 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. No gain was recognized as a result of this
transaction. Upon formation of the joint venture, the Company owned 42%
of the outstanding capital stock of MetraHealth, TIGI owned 8% and the
other 50% was owned by MetLife and its affiliates. In March 1995,
MetraHealth acquired HealthSpring, Inc. for common stock of MetraHealth
resulting in a reduction in the participation of the Company and TIGI,
and MetLife in the MetraHealth venture to 48.25% each. As the medical
insurance business of the Company came due for renewal, the risks were
transferred to MetraHealth and the related operating results for this
medical insurance business were reported by the Company in 1995 as part
of discontinued operations.
On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation and
through that date had accounted for its interest in MetraHealth on the
equity method. Gross proceeds to the Company in 1995 were $708 million in
cash recognizing a gain of $111 million after-tax. During 1996 the
Company received a contingency payment based on MetraHealth's 1995
results. In conjunction with this payment, certain reserves associated
with the group medical business and exit costs related to the
discontinued operations were reevaluated resulting in a final after-tax
gain of $26 million.
22
<PAGE> 88
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. DISPOSITIONS AND DISCONTINUED OPERATIONS, Continued
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's MCEBO segment in 1994. The Company's
discontinued operations in 1996 and 1995 reflect the results of the
medical insurance business not transferred, the equity interest in the
earnings of MetraHealth through October 2, 1995 (date of sale) and the
gains from sales of these businesses. Revenues from discontinued
operations for the years ended December 31, 1996, 1995 and 1994 amounted
to $85.6 million, $1.2 billion and $3.3 billion, respectively. The assets
and liabilities of the discontinued operations have not been segregated
in the consolidated balance sheet as of December 31, 1996 and 1995. The
assets and liabilities of the discontinued operations consist primarily
of investments and insurance-related assets and liabilities. At December
31, 1996, these assets and liabilities each amounted to $180 million. At
December 31, 1995, these assets and liabilities each amounted to $1.8
billion.
In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings
Inc., which at the time was a wholly owned subsidiary of Travelers Group
and was the indirect owner of the business of Transport Life. Immediately
prior to this distribution, the Company distributed Transport, an
indirect, wholly owned subsidiary of the Company, to TIGI, as a return of
capital, resulting in a reduction in additional paid-in capital of $334
million. The results of Transport through September 1995 are included in
income from continuing operations.
5. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors and had $50
million outstanding at December 31, 1996. The Company maintains unused
credit availability under bank lines of credit at least equal to the
amount of the outstanding commercial paper. Interest expense related to
the commercial paper was not significant in 1996.
Travelers Group, Commercial Credit Company (CCC) (an indirect wholly
owned subsidiary of Travelers Group) and the Company have an agreement
with a syndicate of banks to provide $1.0 billion of revolving credit, to
be allocated to any of Travelers Group, CCC or the Company. The Company's
participation in this agreement is limited to $250 million. The revolving
credit facility consists of a five-year revolving credit facility which
expires in 2001. At December 31, 1996, $100 million was allocated to the
Company. Under this facility the Company is required to maintain certain
minimum equity and risk-based capital levels. At December 31, 1996, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at December 31, 1996 and 1995.
23
<PAGE> 89
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. REINSURANCE
The Company participates in reinsurance in order to limit losses,
minimize exposure to large risks, provide additional capacity for future
growth and to effect business-sharing arrangements. Reinsurance is
accomplished through various plans of reinsurance, primarily yearly
renewable term coinsurance and modified coinsurance. The Company remains
primarily liable as the direct insurer on all risks reinsured. Since June
1994, the Company is reinsuring its life insurance risks via first dollar
quota share treaties on an 80%/20% basis. Maximum retention of $1.5
million is generally reached on policies in excess of $7.5 million. For
other plans of insurance it is the policy of the Company to obtain
reinsurance for amounts above certain retention limits on individual life
policies which vary with age and underwriting classification. Generally,
the maximum retention on an ordinary life risk is $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, Travelers
Property Casualty Corp. (TAP).
A summary of reinsurance financial data reflected within the consolidated
statement of operations and retained earnings is presented below (in
millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Written Premiums:
Direct $ 1,982 $ 2,166 $ 2,153
Assumed from:
Non-affiliated companies 5 -- --
Ceded to:
Affiliated companies (284) (374) (358)
Non-affiliated companies (309) (302) (306)
- -------------------------------------------------------------------------------
Total net written premiums $ 1,394 $ 1,490 $ 1,489
- -------------------------------------------------------------------------------
Earned Premiums:
Direct $ 1,897 $ 2,067 $ 2,301
Assumed from:
Non-affiliated companies 5 -- --
Ceded to:
Affiliated companies (219) (283) (384)
Non-affiliated companies (315) (298) (305)
- -------------------------------------------------------------------------------
Total net earned premiums $ 1,368 $ 1,486 $ 1,612
- -------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 90
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. REINSURANCE, Continued
Reinsurance recoverables at December 31, include amounts recoverable on
unpaid and paid losses and were as follows (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance Recoverables:
Life and accident and health business:
Non-affiliated companies $1,497 $1,744
Property-casualty business:
Affiliated companies 2,361 2,363
- --------------------------------------------------------------------------------
Total Reinsurance Recoverables $3,858 $4,107
================================================================================
</TABLE>
Total reinsurance recoverables at December 31, 1996 and 1995 include $720
million and $929 million, respectively, from MetLife in connection with
the sale of the Company's group life and related businesses. See Note 4.
7. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $36 million in additional paid-in capital during 1996 is
due primarily to contributions of non-insurance subsidiaries from TIGI.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in Note 15.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $656 million, $235 million and $100 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company's statutory capital and surplus was $3,442 million and
$3,197 million at December 31, 1996 and 1995, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $507 million is available in 1997 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
In addition, under a revolving credit facility, the Company is required
to maintain certain minimum equity and risk based capital levels. The
Company is in compliance with these covenants at December 31, 1996.
25
<PAGE> 91
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, equity options, forward contracts and interest rate swaps as a
means of hedging exposure to foreign currency, equity price changes
and/or interest rate risk on anticipated transactions or existing assets
and liabilities. The Company does not hold or issue derivative
instruments for trading purposes.
These derivative financial instruments have off-balance sheet risk.
Financial instruments with off-balance sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of
these instruments reflect the extent of involvement the Company has in a
particular class of financial instrument. However, the maximum loss of
cash flow associated with these instruments can be less than these
amounts. For forward contracts and interest rate swaps, credit risk is
limited to the amounts calculated to be due the Company on such
contracts. Financial futures contracts and purchased listed option
contracts have little credit risk since organized exchanges are the
counterparties.
The Company monitors creditworthiness of counterparties to these
financial instruments by using criteria of acceptable risk that are
consistent with on-balance sheet financial instruments. The controls
include credit approvals, limits and other monitoring procedures.
The Company uses exchange traded financial futures contracts to manage
its exposure to changes in interest rates which arise from the sale of
certain insurance and investment products, or the need to reinvest
proceeds from the sale or maturity of investments. To hedge against
adverse changes in interest rates, the Company enters long or short
positions in financial futures contracts which offset asset price changes
resulting from changes in market interest rates until an investment is
purchased or a product is sold.
Margin payments are required to enter a futures contract and contract
gains or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out
prior to the delivery date of the contract.
At December 31, 1996 and 1995, the Company held financial futures
contracts with notional amounts of $169 million and $68 million,
respectively, and a deferred gain of $1 million and a deferred loss of
$.2 million, respectively. Total gains from financial futures of $2
million were deferred at December 31, 1996. These deferred gains, which
relate to anticipated investment purchases and investment product sales
expected to occur by the end of the second quarter of 1997, are reported
as other liabilities. At December 31, 1996 and 1995, the Company's
futures contracts had no fair value because these contracts are marked to
market and settled in cash daily.
The off-balance sheet risks of equity options, forward contracts, and
interest rate swaps were not significant at December 31, 1996 and 1995.
26
<PAGE> 92
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, Continued
The Company purchased a 5-year interest rate cap, with a notional amount
of $200 million, from Travelers Group in 1995 to hedge against losses
that could result from increasing interest rates. This instrument, which
does not have off-balance sheet risk, gives the Company the right to
receive payments if interest rates exceed specific levels at specific
dates. The premium of $2 million paid for this instrument is being
amortized over its life. The interest rate cap asset is reported at fair
value which is $1 million at December 31, 1996.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 1996 and 1995.
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, 1996 and 1995, investments in fixed maturities had a
carrying value and a fair value of $18.8 billion. See Note 15.
At December 31, 1996, mortgage loans had a carrying value of $2.9
billion, which approximated fair value, compared with a carrying value of
$3.6 billion, which approximated fair value at December 31, 1995. In
estimating fair value, the Company used interest rates reflecting the
higher returns required in the current real estate financing market.
The carrying values of $154 million and $647 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1996 and 1995, respectively. The carrying values of $825
million and $1.3 billion of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1996 and
1995, respectively. Fair value is determined using various methods
including discounted cash flows, as appropriate for the various financial
instruments.
At December 31, 1996, contractholder funds with defined maturities had a
carrying value of $1.7 billion and a fair value of $1.7 billion, compared
with a carrying value of $2.4 billion and a fair value of $2.5 billion at
December 31, 1995. The fair value of these contracts is determined by
discounting expected cash flows at an interest rate commensurate with the
Company's credit risk and the expected timing of cash flows.
Contractholder funds without defined maturities had a carrying value of
$9.1 billion and a fair value of $8.8 billion at December 31, 1996,
compared with a carrying value of $9.3 billion and a fair value of $9.0
billion at December 31, 1995. These contracts generally are valued at
surrender value.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $1.1 billion and $1.1 billion,
respectively, at December 31, 1996, compared with a carrying value and a
fair value of $1.5 billion and $1.6 billion, respectively, at December
31, 1995. The liabilities of separate accounts providing a guaranteed
return had a carrying value and a fair value of $1.0 billion and $.9
billion, respectively, at December 31, 1996, compared with a carrying
value and a fair value of $1.5 billion and $1.4 billion, respectively, at
December 31, 1995.
27
<PAGE> 93
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, Continued
The carrying values of cash, short-term securities, investment income
accrued and commercial paper approximated 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
The Company is a defendant or codefendant in various litigation matters
in the normal course of business. Although there can be no assurances, as
of December 31, 1996, 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 a qualified, noncontributory defined benefit
pension plan sponsored by Travelers Group covering the majority of
Travelers Group'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.
The Company also participates in a nonqualified, noncontributory defined
benefit pension plan sponsored by an affiliate covering the majority of
the Company's U.S. employees. Contributions are based on benefits paid.
The Company's share of net pension expense was not significant for 1996,
1995 and 1994.
Through plans sponsored by TIGI, the Company also provides defined
contribution pension plans for certain agents. Company contributions are
primarily a function of production. The expense for these plans was not
significant in 1996, 1995 and 1994.
28
<PAGE> 94
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. BENEFIT PLANS, Continued
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 TIGI. Retirees may elect certain prepaid health care benefit
plans. Life insurance benefits are generally set at a fixed amount.
Beginning January 1, 1996, these plans were amended to restrict benefit
eligibility to retirees and certain retiree-eligible employees. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of retiree contributions. The
Company's share of the total cost of the plan for 1996, 1995 and 1994 was
not significant.
401(K) Savings Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIGI, 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 the profitability of TIGI and its subsidiaries was added through
December 31, 1995. Effective January 1, 1996, the match remained at 50%
of an employee's first 5% contribution with a maximum of $1,000.
Effective January 1, 1997, employee contributions will be matched with
Travelers Group stock options. The Company's matching obligation was not
significant in 1996, 1995 and 1994.
11. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI are handled by
the Company. Settlements for these payments between the Company and its
affiliates are made regularly. The Company provides various employee
benefits coverages to employees of certain subsidiaries of TIGI. The
premiums for these coverages were charged in accordance with cost
allocation procedures based upon salaries or census. In addition,
investment advisory and management services, data processing services and
claims processing services are shared with affiliated companies. Charges
for these services are shared by the companies on cost allocation methods
based generally on estimated usage by department.
An affiliate maintains a short-term investment pool in which the Company
participates. The position of each company participating in the pool is
calculated and adjusted daily. At December 31, 1996 and 1995, the pool
totaled approximately $2.9 billion and $2.2 billion, respectively. The
Company's share of the pool amounted to $196 million and $1.4 billion at
December 31, 1996 and 1995, respectively, and is included in short-term
securities in the consolidated balance sheet.
The Company sells structured settlement annuities to TAP in connection
with the settlement of certain policyholder obligations. Such deposits
were $40 million, $38 million and $39 million for 1996, 1995 and 1994,
respectively.
29
<PAGE> 95
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS, Continued
The Company markets deferred annuity products and life and health
insurance through its affiliate, Smith Barney Inc. Premiums and deposits
related to these products were $820 million, $583 million and $161
million in 1996, 1995 and 1994, respectively.
At December 31, 1996 and 1995, the Company had an investment of $22
million and $24 million, respectively, in bonds of its affiliate, CCC.
This is included in fixed maturities in the consolidated balance sheet.
The Company had an investment of $648 million and $445 million in common
stock of Travelers Group at December 31, 1996 and 1995, respectively.
This investment is carried at fair value.
12. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by
TAP. In 1996, TAP assumed the obligations for several leases. Rent
expense related to all leases are shared by the companies on a cost
allocation method based generally on estimated usage by department. Rent
expense was $24 million, $22 million and $23 million in 1996, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
-----------------------------------------------------------
Minimum operating
(in millions) rental payments
-----------------------------------------------------------
<S> <C>
Year ending December 31,
1997 $ 57
1998 49
1999 41
2000 39
2001 42
Thereafter 362
-----------------------------------------------------------
$590
-----------------------------------------------------------
</TABLE>
The Company is reimbursed by affiliates of TIGI for utilization of space
and equipment. Future sublease rental income of approximately $92 million
will partially offset these commitments. Minimum future capital lease
payments are not significant.
30
<PAGE> 96
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
-------------------------------------------------------------------------------------
Effective tax rate
<S> <C> <C> <C>
Income before federal income taxes $975 $837 $597
Statutory tax rate 35% 35% 35%
-------------------------------------------------------------------------------------
Expected federal income taxes $341 $293 $209
Tax effect of:
Nontaxable investment income (3) (4) (4)
Other, net 4 1 6
-------------------------------------------------------------------------------------
Federal income taxes (benefit) $342 $290 $211
-------------------------------------------------------------------------------------
Effective tax rate 35% 35% 35%
-------------------------------------------------------------------------------------
Composition of federal income taxes
Current:
United States $263 $220 $(108)
Foreign 21 13 12
-------------------------------------------------------------------------------------
Total 284 233 (96)
-------------------------------------------------------------------------------------
Deferred:
United States 57 52 302
Foreign 1 5 5
-------------------------------------------------------------------------------------
Total 58 57 307
-------------------------------------------------------------------------------------
Federal income taxes $342 $290 $211
-------------------------------------------------------------------------------------
</TABLE>
Tax benefits allocated directly to shareholder's equity for the years
ended December 31, 1996 and 1995 were $8 million and $7 million,
respectively.
31
<PAGE> 97
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
The net deferred tax liabilities at December 31, 1996 and 1995 were
comprised of the tax effects of temporary differences related to the
following assets and liabilities:
<TABLE>
<CAPTION>
(in millions) 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 510 $ 447
Contractholder funds 32 54
Operating lease reserves 71 56
Other employee benefits 104 74
Other 121 208
---------------------------------------------------------------------------------------
Total 838 839
---------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs and value of insurance in force 571 538
Investments, Net 131 152
Other 93 81
---------------------------------------------------------------------------------------
Total 795 771
---------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 43 68
Valuation allowance for deferred tax assets (100) (100)
---------------------------------------------------------------------------------------
Net deferred tax (liability) asset after valuation allowance $ (57) $ (32)
---------------------------------------------------------------------------------------
</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.
32
<PAGE> 98
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 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 Travelers Group commencing in
1999, or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no change in the
valuation allowance during 1996. The initial recognition of any benefit
produced by the reversal of the valuation allowance will be recognized by
reducing goodwill.
At December 31, 1996, 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) would be
approximately $326 million.
14. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross investment income
Fixed maturities $1,328 $1,191 $1,082
Mortgage loans 331 419 511
Policy loans 156 163 110
Real estate held for sale 94 111 174
Other 77 97 52
-------------------------------------------------------------------------------------------
1,986 1,981 1,929
-------------------------------------------------------------------------------------------
Investment expenses 99 157 227
-------------------------------------------------------------------------------------------
Net investment income $1,887 $1,824 $1,702
-------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 99
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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) 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized
Fixed maturities $(63) $(43) $(3)
Equity securities 47 36 18
Mortgage loans 49 47 -
Real estate held for sale 33 18 -
Other (1) 48 (2)
-----------------------------------------------------------------------------------------
Realized investment gains $ 65 $106 $13
----------------------------------------------------------------------------------------
</TABLE>
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) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized
Fixed maturities $(323) $1,974 $(1,319)
Equity securities (35) 46 (25)
Other 220 200 165
-------------------------------------------------------------------------------------------
(138) 2,220 (1,179)
Related taxes (43) 778 (412)
-------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (95) 1,442 (767)
Balance beginning of year 682 (760) 7
-------------------------------------------------------------------------------------------
Balance end of year $ 587 $ 682 $ (760)
--------------------------------------------------------------------------------------------
</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 $9.1 billion and $6.8 billion in 1996 and 1995, respectively. Gross
gains of $107 million and $80 million and gross losses of $175 million
and $124 million in 1996 and 1995, respectively, were realized on those
sales.
34
<PAGE> 100
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and fair value of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
December 31, 1996
---------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in millions) cost gains losses value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 3,755 $ 69 $23 $ 3,801
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 1,188 50 4 1,234
Obligations of states,
municipalities and
political subdivisions 76 1 1 76
Debt securities issued by
foreign governments 565 24 3 586
All other corporate bonds 12,925 259 41 13,143
Redeemable preferred stock 6 - - 6
---------------------------------------------------------------------------------------------
Total $18,515 $403 $72 $18,846
---------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 101
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
December 31, 1995
-----------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in millions) cost gains losses value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 4,174 $103 $15 $ 4,262
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 1,327 116 - 1,443
Obligations of states,
municipalities and
political subdivisions 91 2 - 93
Debt securities issued by
foreign governments 311 17 - 328
All other corporate bonds 12,283 442 10 12,715
Redeemable preferred stock 1 - - 1
-----------------------------------------------------------------------------------------------
Total $18,187 $680 $25 $18,842
-----------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturities at December 31,
1996, 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 Fair
(in millions) cost value
-------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 971 $ 975
Due after 1 year through 5 years 4,970 5,043
Due after 5 years through 10 years 4,871 4,946
Due after 10 years 3,949 4,083
-------------------------------------------------------------------------------------------
14,761 15,047
Mortgage-backed securities 3,754 3,799
-------------------------------------------------------------------------------------------
Total $18,515 $18,846
-------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 102
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company makes investments in collateralized mortgage obligations
(CMOs). CMOs typically have high credit quality, offer good liquidity,
and provide a significant advantage in yield and total return compared to
U.S. Treasury securities. The Company's investment strategy is to
purchase CMO tranches which are protected against prepayment risk,
including planned amortization class (PAC) tranches. Prepayment protected
tranches are preferred because they provide stable cash flows in a
variety of interest rate scenarios. The Company does invest in other
types of CMO tranches if a careful assessment indicates a favorable
risk/return tradeoff. The Company does not purchase residual interests in
CMOs.
At December 31, 1996 and 1995, the Company held CMOs, classified as
available for sale with a fair value of $1.9 billion and $2.3 billion,
respectively. Approximately 88% and 89% of the Company's CMO holdings are
fully collateralized by GNMA, FNMA or FHLMC securities at December 31,
1996 and 1995. In addition, the Company held $843.5 million and $917
million of GNMA, FNMA or FHLMC mortgage-backed pass-through securities at
December 31, 1996 and 1995, respectively. Virtually all of these
securities are rated AAA. The Company also held $1.4 billion and $1.3
billion of securities that are backed primarily by credit card or car
loan receivables at December 31, 1996 and 1995, respectively.
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
December 31, 1996
---------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in millions) Cost gains losses value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $211 $38 $30 $219
Nonredeemable preferred stocks 114 2 3 113
---------------------------------------------------------------------------------------
Total $325 $40 $33 $332
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
December 31, 1995
---------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in millions) Cost gains losses value
---------------------------------------------------------------------------------------
Common stocks $138 $48 $5 $181
Nonredeemable preferred stocks 44 2 3 43
--------------------------------------------------------------------------------------
Total $182 $50 $8 $224
--------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 103
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Proceeds from sales of equity securities were $479 million and $379
million in 1996 and 1995, respectively. Gross gains of $64 million and
$27 million and gross losses of $11 million and $2 million in 1996 and
1995, respectively, were realized on those sales.
Real estate held for sale and mortgage loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
At December 31, 1996 and 1995, the Company's real estate held for sale
and mortgage loan portfolios consisted of the following (in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $2,832 $3,385
Underperforming mortgage loans 51 241
----------------------------------------------------------------------------
Total 2,883 3,626
----------------------------------------------------------------------------
Real estate held for sale 297 293
----------------------------------------------------------------------------
Total $3,180 $3,919
----------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------
(in millions)
----------------------------------------------------
<S> <C>
Past maturity $ 78
1997 299
1998 349
1999 293
2000 364
2001 224
Thereafter 1,276
----------------------------------------------------
Total $2,883
----------------------------------------------------
</TABLE>
38
<PAGE> 104
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Concentrations
At December 31, 1996 and 1995, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's
equity.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 11.
Included in fixed maturities are below investment grade assets totaling
$1.1 billion and $1.0 billion at December 31, 1996 and 1995,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment
grade loans.
The Company also had concentrations of investments, primarily
fixed maturities, in the following industries:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking $1,959 $1,226
Finance 1,823 1,491
Electric utilities 1,093 1,023
Oil and gas 652 861
---------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals above, were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking $ 1 $ 8
Finance 65 56
Electric utilities 49 26
Oil and gas 58 66
---------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, concentrations of mortgage loans were for
properties located in highly populated areas in the states listed below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
California $ 643 $ 736
New York 297 400
---------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 105
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Other mortgage loan investments are relatively evenly dispersed
throughout the United States, with no holdings in any state exceeding
$258 million and $332 million at December 31, 1996 and 1995,
respectively.
Concentrations of mortgage loans by property type at December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(in millions) 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C>
Office $1,195 $1,513
Agricultural 677 556
Retail 307 426
Apartment 284 580
----------------------------------------------------------------------------------------------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with respect
to new mortgage loans generally require loan to value ratios of 75% or
less at the time of mortgage origination.
Non-Income Producing Investments
Investments included in the consolidated balance sheets that were
non-income producing for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(in millions) 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 7 $18
Real estate 37 65
Fixed maturities - 4
----------------------------------------------------------------------------------------
Total $44 $87
----------------------------------------------------------------------------------------
</TABLE>
Restructured Investments
The Company had mortgage loans and debt securities which were
restructured at below market terms totaling approximately $18 million and
$67 million at December 31, 1996 and 1995, respectively. 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 $5 million
in 1996 and $16 million in 1995. Interest on these assets, included in
net investment income, aggregated $2 million and $8 million in 1996 and
1995, respectively.
40
<PAGE> 106
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
16. DEPOSIT FUNDS AND RESERVES
At December 31, 1996, the Company had $21.9 billion of life and annuity
deposit funds and reserves. Of that total, $11.6 billion is not subject
to discretionary withdrawal based on contract terms. The remaining $10.3
billion is for life and annuity products that are subject to
discretionary withdrawal by the contractholder. Included in the amount
that is subject to discretionary withdrawal is $1.7 billion of
liabilities that are surrenderable with market value adjustments. Also
included are an additional $5.4 billion of the life insurance and
individual annuity liabilities which are subject to discretionary
withdrawals, and have an average surrender charge of 5.0%. In the payout
phase, these funds are credited at significantly reduced interest rates.
The remaining $3.2 billion of liabilities are surrenderable without
charge. More than 11% of these relate to individual life products. These
risks would have to be underwritten again if transferred to another
carrier, which is considered a significant deterrent against withdrawal
by long-term policyholders. Insurance liabilities that are surrendered or
withdrawn are reduced by outstanding policy loans and related accrued
interest prior to payout.
17. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by
operating activities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income from continuing operations $ 633 $ 547 $ 386
Adjustments to reconcile net income to
net cash provided by operating activities
Realized gains (65) (106) (13)
Deferred federal income taxes 58 57 307
Amortization of deferred policy acquisition
costs and value of insurance in force 281 290 281
Additions to deferred policy acquisition costs (350) (454) (435)
Investment income accrued 2 (9) (47)
Premium balances receivable (6) (8) 5
Insurance reserves and accrued expenses (1) 291 212
Other 255 62 (212)
----------------------------------------------------------------------------------------
Net cash provided by
operating activities 807 670 484
Net cash provided by (used in)
discontinued operations (350) (596) 233
----------------------------------------------------------------------------------------
Net cash provided by
operations $ 457 $ 74 $ 717
----------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 107
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
18. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1995 transfer of assets with a fair market value of approximately $1.5
billion and statutory reserves and other liabilities of approximately
$1.5 billion to MetLife (see Note 4); b) the 1995 return of capital of
Transport to TIGI (see Note 4); c) the acquisition of real estate through
foreclosures of mortgage loans amounting to $117 million, $97 million and
$229 million in 1996, 1995 and 1994, respectively; d) the acceptance of
purchase money mortgages for sales of real estate aggregating $23
million, $27 million and $96 million in 1996, 1995 and 1994,
respectively; and e) the 1994 exchange of $23 million of the Company's
investment in Travelers Group common stock for $35 million of Travelers
Group nonredeemable preferred stock.
42
<PAGE> 108
MARKETLIFE
PROSPECTUS
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
HARTFORD, CONNECTICUT
L-11843 May, 1997
<PAGE> 109
IN-VEST(SM)
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
PROSPECTUS
MAY 1, 1997
LIFE SERVICE CENTER
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183 * TELEPHONE: (800) 334-4298
<PAGE> 110
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 111
PROSPECTUS
- --------------------------------------------------------------------------------
This Prospectus describes The Travelers IN-VEST(sm) 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 10.)
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, 1997.
<PAGE> 112
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS............................................................. IV
PROSPECTUS SUMMARY.................................................................... VI
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.............................................. 3
General.......................................................................... 4
Conflicts of Interest............................................................ 4
Substitution..................................................................... 5
THE CONTRACT.......................................................................... 5
The Contract Application......................................................... 5
Allocation of Premium Payments................................................... 5
Accumulation Unit Values......................................................... 6
Right to Cancel.................................................................. 6
CHARGES AND DEDUCTIONS................................................................ 6
CHARGES AGAINST PREMIUM............................................................. 6
Front-End Sales Charge........................................................... 6
State Premium Tax Charge......................................................... 7
MONTHLY DEDUCTION AMOUNT............................................................ 7
Cost of Insurance Charge......................................................... 7
Contract Administrative Charge................................................... 7
Charges for Supplemental Benefit Provisions...................................... 8
CHARGES AGAINST THE SEPARATE ACCOUNT................................................ 8
Mortality and Expense Risk Charge................................................ 8
Administrative Expense Charge.................................................... 8
CHARGES AGAINST THE UNDERLYING FUNDS................................................ 8
SURRENDER CHARGES................................................................... 8
Percent of Premium Charge........................................................ 9
Per Thousand of Stated Amount Charge............................................. 9
MAXIMUM SALES CHARGES............................................................... 9
TRANSACTION CHARGE.................................................................. 10
REDUCTION OR ELIMINATION OF CHARGES................................................. 10
CONTRACT BENEFITS AND RIGHTS.......................................................... 10
DEATH BENEFIT....................................................................... 10
Changes in Death Benefit Option.................................................. 13
Changes in Stated Amount......................................................... 13
Benefits at Maturity............................................................. 13
Cash Value and Cash Surrender Value.............................................. 13
Transfer of Cash Value........................................................... 14
Dollar-Cost Averaging (Automated Transfers)...................................... 14
</TABLE>
<PAGE> 113
<TABLE>
<S> <C>
Contract Loans................................................................... 15
Lapse and Reinstatement.......................................................... 15
Exchange Rights.................................................................. 16
PAYMENT OPTIONS....................................................................... 16
EXAMPLE OF CONTRACT CHARGES........................................................... 17
OTHER MATTERS......................................................................... 17
Voting Rights.................................................................... 17
Disregard of Voting Instructions................................................. 18
Statements to Contract Owners.................................................... 18
Limit on Right to Contest........................................................ 18
Misstatement as to Sex and Age................................................... 18
Suspension of Valuation.......................................................... 18
Beneficiary...................................................................... 19
Assignment....................................................................... 19
Dividends........................................................................ 19
FEDERAL TAX CONSIDERATIONS............................................................ 19
General.......................................................................... 19
TAX STATUS OF THE POLICY.............................................................. 20
Definition of Life Insurance Diversification..................................... 20
Investor Control................................................................. 20
TAX TREATMENT OF POLICY BENEFITS...................................................... 21
In General....................................................................... 21
Modified Endowment Contracts..................................................... 21
Exchanges........................................................................ 22
Aggregation of Modified Endowment Contracts...................................... 22
Policies Which Are Not Modified Endowment Contracts.............................. 22
Treatment of Loan Interest....................................................... 22
THE COMPANY'S INCOME TAXES............................................................ 22
DISTRIBUTION OF THE CONTRACTS......................................................... 23
MANAGEMENT............................................................................ 23
LEGAL PROCEEDINGS AND OPINION......................................................... 24
INDEPENDENT ACCOUNTANTS............................................................... 24
REGISTRATION STATEMENT................................................................ 24
ILLUSTRATIONS......................................................................... 25
APPENDIX A -- Annual Minimum Premiums................................................. 31
APPENDIX B -- Per Thousand of Stated Amount Surrender Charge.......................... 32
APPENDIX B(1) -- Per Thousand of Stated Amount Surrender Charge -- Sales Charge
Component........................................................................... 33
APPENDIX B(2) -- Per Thousand of Stated Amount Surrender Charge -- Administrative
Charge Component.................................................................... 34
APPENDIX C -- Monthly Administrative Charge........................................... 35
FINANCIAL STATEMENTS -- Fund UL....................................................... F-1
FINANCIAL STATEMENTS -- The Travelers Insurance Company............................... FS-1
</TABLE>
<PAGE> 114
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.
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<PAGE> 115
UNDERLYING FUND -- an open-end diversified management investment company which
serves as an investment option under the Separate Account.
VALUATION DATE -- 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. 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.
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<PAGE> 116
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 VIP High Income Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP II 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 15.) 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
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 5.)
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<PAGE> 117
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 9.)
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 8.)
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 8.)
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 10.)
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<PAGE> 118
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 and
"Changes in Death Benefit Option," page 13.)
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 13.)
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 15.)
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 15, and "Lapse and
Reinstatement," page 15.)
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 16.)
TAX CONSEQUENCES
The current federal tax law generally excludes all Death Benefit payments from
the gross income of the Contract beneficiary. (See "Tax Treatment of Policy
Benefits", page 21.)
At any point in time, the Contract may become a modified endowment contract if
it fails to satisfy a 7-pay test. (See "Tax Treatment of Policy Benefits," page
21.) The
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<PAGE> 119
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 59 1/2.
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 19.)
ix
<PAGE> 120
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 (860) 277-0111.
The Company writes individual life insurance and annuity contracts on a
non-participating basis. The Company acts as depositor for Fund UL. Tower Square
Securities, Inc., ("Tower Square") 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 Funds currently available under the
Contract may be added or withdrawn as permitted
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<PAGE> 121
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 VIP 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 VIP 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.
FIDELITY VIP 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.
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<PAGE> 122
FIDELITY VIP II 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.
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>
Capital Appreciation The Travelers Asset Management Janus Capital Corporation
Fund................... International Corporation (TAMIC)
Cash Income Trust TAMIC
High Yield Bond Trust TAMIC
Managed Assets Trust TAMIC The Travelers Investment
Management Company
(TIMCO)
U.S. Government TAMIC
Securities Portfolio
Utilities Portfolio Smith Barney Mutual Funds Management
Inc.
</TABLE>
3
<PAGE> 123
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER SUB-ADVISER
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Templeton Stock Fund Templeton Investment Counsel, Inc.
Templeton Asset Templeton Investment Counsel, Inc.
Allocation Fund
Templeton Bond Fund Templeton Global Bond Managers
Fidelity VIP High Income Fidelity Management & Research Company
Portfolio
Fidelity VIP Equity- Fidelity Management & Research Company
Income Portfolio
Fidelity VIP Growth Fidelity Management & Research Company
Portfolio
Fidelity VIP II Asset Fidelity Management & Research Company
Manager Portfolio
Dreyfus Stock Index Fund Mellon Equity Associates
Smith Barney Income and Smith Barney Mutual Funds Management
Growth Portfolio Inc.
Alliance Growth Portfolio Smith Barney Mutual Funds Management Alliance Capital
Inc. Management L.P.
Smith Barney High Income Smith Barney Mutual Funds Management
Portfolio Inc.
MFS Total Return Smith Barney Mutual Funds Management Massachusetts Financial
Portfolio Inc. Services Company
Smith Barney Total Return Smith Barney Mutual Funds Management
Portfolio 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.
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.
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<PAGE> 124
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
Amount," page 13.) 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
SubAccounts 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.
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<PAGE> 125
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 SubAccount 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
SubAccount, 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.
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.
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<PAGE> 126
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 20.)
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"), 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 13
and "Changes in Stated Amount," page 13 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
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<PAGE> 127
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
10.)
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.
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<PAGE> 128
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 29), 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 $5,856 (assuming a 6% rate of return), the Percent of Premium surrender
charge would be $351, because (a) is $351 (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, $351, 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," page 10.) 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.
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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.
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGES
CONTRACT YEAR OF SURRENDER (AS A % OF PREMIUM PAYMENTS)
- ------------------------------------------------------------------
<S> <C>
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
</TABLE>
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, 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 16.
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
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(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:
<TABLE>
<CAPTION>
% SHALL DECREASE
BY A RATABLE
ATTAINED AGE PORTION
- ------------------------ FOR EACH FULL YEAR
MORE BUT NOT ------------------
THAN MORE THAN FROM TO
- -----------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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 X 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 X 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 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 ($75,000) and the Minimum Amount Insured ($106,920).
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<PAGE> 131
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: $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 X 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 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 ($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 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 ($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 X 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 19.) 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 13, for effects of partial cash surrenders on Death
Benefits.)
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<PAGE> 132
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
Treatment of Policy Benefits" on page 21. 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.
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
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<PAGE> 133
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 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.
14
<PAGE> 134
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 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 10.)
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<PAGE> 135
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
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.
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<PAGE> 136
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.
<TABLE>
<S> <C>
Male, Age 35 Face Amount: $100,000
Preferred Non-Smoker Level Death Benefit Option
Annual Premium: $850.00 Current Charges
Hypothetical Gross Annual Investment Rate of Return: 8%
</TABLE>
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
SURRENDER CHARGES SALES CHARGE FOR THE POLICY YEAR
------------------------------- COMPONENT OF ----------------------------
ADMINISTRATIVE SURRENDER CHARGE COST OF
POLICY CUMULATIVE SALES CHARGE CHARGE AS % OF INSURANCE ADMINISTRATIVE
YEAR PREMIUMS COMPONENT COMPONENT CUM. PREM. CHARGES 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>
Hypothetical results shown above are illustrative only and are based on the
Hypothetical Gross Annual Investment Rate of Return shown above. This
Hypothetical Gross Annual Investment Rate of Return should not be deemed to be a
representation of past or future investment results. Actual investment results
may be more or less than those shown. No representations can be made that the
hypothetical rates assumed can be achieved for any one year or sustained over
any period of time.
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.
17
<PAGE> 137
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 SubAccount 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 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-
18
<PAGE> 138
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 is a general discussion of the federal income tax considerations
relating to the Policies. This discussion is based upon the Company's
understanding of the federal income tax laws as they are currently interpreted
by the Internal Revenue Service ("IRS"). These laws are complex, and tax results
may vary among individuals. A person contemplating the purchase of or the
exercise of elections under a Policy should seek competent tax advice.
IT SHOULD BE UNDERSTOOD THAT THIS IS NOT AN EXHAUSTIVE DISCUSSION OF ALL TAX
QUESTIONS THAT MIGHT ARISE UNDER THE POLICIES. NO ATTEMPT HAS BEEN MADE TO
ADDRESS ANY FEDERAL ESTATE TAX OR STATE AND LOCAL TAX CONSIDERATIONS WHICH MAY
ARISE IN CONNECTION WITH A POLICY. FOR COMPLETE INFORMATION, A QUALIFIED TAX
ADVISOR SHOULD BE CONSULTED.
THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF ANY POLICY AND THE FOLLOWING
TAX DISCUSSION IS BASED ON THE COMPANY'S UNDERSTANDING OF FEDERAL INCOME TAX
LAWS AS THEY ARE CURRENTLY INTERPRETED. THE COMPANY CANNOT GUARANTEE THAT THOSE
LAWS OR INTERPRETATIONS WILL REMAIN UNCHANGED.
19
<PAGE> 139
TAX STATUS OF THE POLICY
- --------------------------------------------------------------------------------
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. Guidance as to how Section 7702 is to be applied,
however, is limited. Although the Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702, and while
proposed regulations and other limited, interim guidance has been issued, final
regulations have not been adopted. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy would not provide
the tax advantages normally provided by a life insurance policy.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702) that such a Policy should meet the Section 7702
definition of a life insurance contract. There is less guidance on the
application of the rules with respect to a Policy that is issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk). Thus, it is not clear whether such a Policy would satisfy
Section 7702, particularly if the Policy Owner pays the full amount of premiums
permitted under the Policy.
The Company reserves the right to make changes in the Policy if such changes are
deemed necessary to attempt to assure its qualification as a life insurance
contract for tax purposes.
DIVERSIFICATION
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies) underlying the Policy must be "adequately diversified"
in accordance with Treasury regulations in order for the Policy to qualify as
life insurance. The Treasury Department has issued regulations prescribing the
diversification requirements in connection with variable contracts. Separate
Account Four, through the Investment Options, intends to comply with these
requirements. Although the Company does not control the Investment Options, it
intends to monitor the investments of the Investment Options to ensure
compliance with the diversification requirements prescribed by the Treasury
Department.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contract. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contract owner's gross income each year. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policy Owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular Investment Options without being treated as owners of
the underlying assets." As of the date of this prospectus, no such guidance has
been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the policy owners received the desired tax benefits because they were not owners
of separate account assets. For example, a Policy
20
<PAGE> 140
Owner of this Policy has additional flexibility in allocating payments and cash
values. These differences could result in the Policy Owner being treated as the
owner of the assets of the Separate Account. In addition, the Company does not
know what standard will be set forth in the regulations or rulings which the
Treasury is expected to issue, nor does the Company know if such guidance will
be issued. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent the Policy Owner from being considered the owner
of a pro rata share of the assets of the Separate Account.
The remaining tax discussion assumes that the Policy qualifies as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
- --------------------------------------------------------------------------------
IN GENERAL
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the Death Benefit under the Policy
should be excludable from the gross income of the Beneficiary.
In addition, the Policy Owner will generally not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, until there is a
distribution. The tax consequences of distribution from, and loans taken from or
secured by, a Policy depend on whether the Policy is classified as a "Modified
Endowment Contract." However, whether a Policy is or is not a Modified Endowment
Contract, upon a complete surrender or lapse of a Policy or when benefits are
paid at a Policy's maturity date, if the amount received plus the amount of
indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, or an assignment of the Policy may have federal income
tax consequences. In addition, federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. Therefore it is important to check
with a tax advisor prior to the purchase of a policy.
MODIFIED ENDOWMENT CONTRACTS
In light of Policy premium requirements, a Policy will, in almost all cases, be
a modified endowment contract. (See, however, the discussion below on a Policy
issued in exchange for another life insurance contract.)
Loans and partial withdrawals from, as well as collateral assignments of,
Policies that are modified endowment contracts will be treated as distributions
to the Policy Owner for tax purposes. All pre-death distributions (including
loans, partial withdrawals and collateral assignments) from these Policies will
be included in gross income on an income-first basis to the extent of any income
in the Policy (the cash value less the Policy Owner's investment in the Policy)
immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders) from
modified endowment contracts to the extent they are included in income, unless a
specific exception to the penalty applies. The penalty does not apply to amounts
which are distributed on or after the date on which the taxpayer attains age 59
1/2, because the taxpayer is disabled, or as substantially equal periodic
payments over the taxpayer's life (or life expectancy) or over the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary.
Furthermore, if the loan interest is capitalized by adding the amount due to the
balance of the loan, the amount of the capitalized
21
<PAGE> 141
interest will be treated as an additional distribution subject to income tax as
well as the 10% penalty tax, if applicable, to the extent of income in the
Policy.
EXCHANGES
Any Policy issued in exchange for a modified endowment contract will be subject
to the tax treatment accorded to modified endowment contracts. However, the
Company believes that any Policy received in exchange for a life insurance
contract that is not a modified endowment contract will generally not be treated
as a modified endowment contract if the face amount of the Policy is greater
than or equal to the death benefit of the policy being exchanged. The payment of
any premiums at the time of or after the exchange may, however, cause the Policy
to become a modified endowment contract. A prospective purchaser should consult
a qualified tax advisor before authorizing the exchange of his or her current
life insurance contract for a Policy.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS
In the case of a pre-death distribution (including a loan, partial withdrawal,
collateral assignment or complete surrender) from a Policy that is treated as a
modified endowment contract, a special aggregation requirement may apply for
purposes of determining the amount of the income on the Policy. Specifically, if
the Company or any of its affiliates issues to the same Policy Owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the Policy with respect to a distribution from any of
those Policies, the income on the Policy for all those Policies will be
aggregated and attributed to that distribution.
POLICIES WHICH ARE NOT MODIFIED ENDOWMENT CONTRACTS
Unlike loans from modified endowment contracts, a loan from a Policy that is not
a modified endowment contract will be considered indebtedness of the owner and
no part of a loan will constitute income to the owner. However, the treatment of
loans taken on earnings after the tenth Policy Year, or of loans taken to
acquire a Travelers long-term care policy is unclear; such loans might be
considered a withdrawal instead of indebtedness for federal tax purposes.
Pre-death distributions from a Policy that is not a modified endowment contract
will generally not be included in gross income to the extent that the amount
received does not exceed the Policy Owner's investment in the Policy. (An
exception to this general rule may occur in the case of a decrease or change
that reduces the benefits provided under a Policy in the first 15 years after
the Policy is issued and that results in a cash distribution to the Policy
Owner. Such a cash distribution may be taxed in whole or in part as ordinary
income to the extent of any gain in the Policy.) Further, the 10% penalty tax on
pre-death distributions does not apply to Policies that are not modified
endowment contracts.
Certain changes to Policies that are not modified endowment contracts may cause
such Policies to be treated as modified endowment contracts. A Policy Owner
should therefore consult a tax advisor before effecting any change to a Policy
that is not a modified endowment contract.
TREATMENT OF LOAN INTEREST
If there is any borrowing against the Policy, the interest paid on loans may not
be tax deductible.
THE COMPANY'S INCOME TAXES
- --------------------------------------------------------------------------------
The Company currently makes no charge to the Separate Account for any federal,
state or local taxes that it incurs that may be attributable to the Separate
Account or to the Policies. The Company reserves the right, however, to make a
charge for any tax or other economic burden responsibility from the application
of tax laws that it determines to be properly attributable to the Separate
Account or to the Policies.
22
<PAGE> 142
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>
DIRECTOR
NAME AND POSITION SINCE PRINCIPAL BUSINESS
- ------------------------ -------- ------------------------------------------------------------------------------
<S> <C> <C>
Michael A. Carpenter 1995 Chairman (since January 1995), President and Chief Executive Officer of The
Director Travelers Insurance Company since June 1995; President and Chief Executive
Officer of The Travelers Insurance Company; Executive Vice President of
Travelers Group Inc. since January 1995; Chairman, President and Chief
Executive Officer (1989-1994), Kidder Peabody Group Inc.
Robert I. Lipp 1994 Chairman, President and Chief Executive Officer since April 1996 of
Director Travelers/Aetna Property Casualty Corp.; Chief Executive Officer and Director
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.
Marc P. Weill 1994 Senior Vice President-Investments since December 1993 and Chief Investment
Director Officer since 1995 of The Travelers Insurance Group Inc.; Senior Vice
President and Chief Investment Officer of Travelers Group Inc.; Vice President
(1990-1992), Primerica Corporation; Vice President (1989-1990), Smith Barney
Inc.
George C. Kokulis 1996 Senior Vice President since September 1995, Vice President (1993-1995) of The
Director Travelers Insurance Company.
Jay S. Benet 1996 Senior Vice President since February 1994 and Vice President (1990-1994) of
Director The Travelers Insurance Company; Partner (1986-1990) of Coopers & Lybrand.
Ian R. Stuart 1996 Senior Vice President since November, 1996; Chief Financial Officer; Chief
Director Accounting Officer and Controller since March 1996. Vice President (1991-1996)
of The Travelers Insurance Company.
Katherine M. Sullivan 1996 Senior Vice President and General Counsel since May 1996 of The Travelers
Director Insurance Company; Senior Vice President and General Counsel (1994-1996)
Connecticut Mutual; Special Counsel and Chief of Staff (1998-199) Aetna Life
& Casualty.
</TABLE>
- ---------------
* Principal business address: Travelers Group Inc., 388 Greenwich Street, New
York, New York.
23
<PAGE> 143
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.
<TABLE>
<CAPTION>
NAME POSITION WITH INSURANCE COMPANY
- ---------------------------- ------------------------------------
<S> <C>
Stuart Baritz Senior Vice President
Warren H. May Senior Vice President
David A. Tyson Senior Vice President
F. Denney Voss Senior Vice President
W. Douglas Willet Senior Vice President
Jay S. Fishman Senior Vice President
Barry Jacobson Senior Vice President
Russell H. Johnson Senior Vice President
Elizabeth C. Georgakopolous Senior Vice President
</TABLE>
-------------------------------------
* 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 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 audit 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 report thereon and included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements and schedules of The Travelers Insurance
Company and Subsidiaries (the "Company") as of December 31, 1996 and 1995 and
for each of the years in the three-year period ended December 31, 1996, have
been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, and 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.
24
<PAGE> 144
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 1.58 for guaranteed charges, or 1.28 for current
charges. The guaranteed charge consists of 0.80% for mortality and expense
risks, 0.10% for administrative expenses, and .68% for Underlying Fund expenses.
The current charge consists of 0.60% for mortality and expense risks, and .68%
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, 1996, 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%. The expense reimbursement agreement did not affect the
operating expenses of any of these funds during 1996.
2. The Company has agreed to reimburse Travelers Zero Coupon Bond Portfolio
1998, 2000 and 2005 for the amount by which each Fund's aggregate annual
expenses, including investment advisory fees but excluding brokerage commissions
interest charges and taxes exceed .15%. In the absence of the reimbursement
agreement with the Company, the operating expenses in 1996 would have been
2.82%, 2.49% and 2.17%, respectively.
3. The administrator and investment adviser for the Dreyfus Stock Index Fund
have agreed to reimburse the Fund for expenses in excess of 0.40%.
4. No reimbursement arrangements were in effect for the Templeton Stock, Bond
and Asset Allocation Funds during 1996.
5. FMR or the Fidelity funds have entered into varying arrangements with third
parties who either paid or reduced a portion of the fund's expenses. Without
this reduction, Total Underlying Fund Expenses would have been: Equity Income
Portfolio; 0.58%, Growth Portfolio, 0.69%; and Asset Manager Portfolio, 0.74%.
No reimbursement arrangement affected the High Income Portfolio.
6. During the fiscal year ended October 31, 1996, there were no fees waived or
expenses reimbursed for the Smith Barney Income and Growth Portfolio, Alliance
Growth Portfolio, Smith Barney High Income Portfolio, or the MFS Total Return
Portfolio.
25
<PAGE> 145
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%.
26
<PAGE> 146
INVEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 25 Face Amount: $150,000
Preferred, Non-Smoker Annual Premium: $774.38
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% -------------------------------- ----------------------------- -----------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 813 150,000 150,000 150,000 245 273 301 0 0 0
2 1,667 150,000 150,000 150,000 486 558 634 41 109 180
3 2,563 150,000 150,000 150,000 723 856 1,001 311 436 572
4 3,505 150,000 150,000 150,000 1,243 1,462 1,711 844 1,050 1,284
5 4,493 150,000 150,000 150,000 1,756 2,096 2,496 1,373 1,693 2,069
6 5,531 150,000 150,000 150,000 2,262 2,760 3,365 1,895 2,363 2,932
7 6,620 150,000 150,000 150,000 2,762 3,455 4,325 2,412 3,063 3,908
8 7,764 150,000 150,000 150,000 3,252 4,180 5,356 2,919 3,810 5,016
9 8,966 150,000 150,000 150,000 3,732 4,934 6,554 3,415 4,609 6,229
10 10,227 150,000 150,000 150,000 4,196 5,714 7,837 3,917 5,435 7,558
15 17,546 150,000 150,000 150,000 6,216 9,969 16,380 6,216 9,969 16,380
20 26,886 150,000 150,000 150,000 7,606 14,782 30,017 7,606 14,782 30,017
25 38,807 150,000 150,000 150,000 8,194 20,112 52,093 8,194 20,112 52,093
30 54,021 150,000 150,000 150,000 7,735 25,874 88,476 7,735 25,874 88,476
35 73,439 150,000 150,000 197,962 5,762 31,806 148,962 5,762 31,806 148,962
40 98,222 150,000 150,000 299,325 874 36,858 247,717 874 36,858 247,717
</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.
27
<PAGE> 147
INVEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 25 Face Amount: $150,000
Preferred, Non-Smoker Annual Premium: $774.38
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------- ---------------------------- ----------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 813 150,000 150,000 150,000 180 206 232 0 0 0
2 1,667 150,000 150,000 150,000 362 426 493 0 0 48
3 2,563 150,000 150,000 150,000 543 658 784 141 250 368
4 3,505 150,000 150,000 150,000 1,008 1,195 1,409 624 799 1,000
5 4,493 150,000 150,000 150,000 1,464 1,755 2,097 1,099 1,372 1,694
6 5,531 150,000 150,000 150,000 1,909 2,334 2,851 1,563 1,963 2,449
7 6,620 150,000 150,000 150,000 2,340 2,932 3,677 2,015 2,572 3,272
8 7,764 150,000 150,000 150,000 2,755 3,548 4,578 2,452 3,197 4,208
9 8,966 150,000 150,000 150,000 3,153 4,178 5,561 2,871 3,853 5,236
10 10,227 150,000 150,000 150,000 3,530 4,823 6,632 3,272 4,544 6,353
15 17,546 150,000 150,000 150,000 5,017 8,159 13,537 5,017 8,159 13,537
20 26,886 150,000 150,000 150,000 5,553 11,386 23,900 5,553 11,386 23,900
25 38,807 150,000 150,000 150,000 4,777 14,051 39,698 4,777 14,051 39,698
30 54,021 150,000 150,000 150,000 1,992 15,275 64,339 1,992 15,275 64,339
35 73,439 0* 150,000 150,000 0* 13,240 104,118 0* 13,240 104,118
40 98,222 0* 150,000 204,981 0* 4,697 169,913 0* 4,697 169,913
</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.
28
<PAGE> 148
INVEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Male, Issue Age 45 Face Amount: $150,000
Preferred, Non-Smoker Annual Premium: $1,895.63
<CAPTION>
TOTAL
PREMIUMS
WITH 5% DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,990 150,000 150,000 150,000 887 965 1,044 0 0 0
2 4,080 150,000 150,000 150,000 1,733 1,945 2,167 660 859 1,068
3 6,275 150,000 150,000 150,000 2,534 2,935 3,374 1,521 1,898 2,311
4 8,579 150,000 150,000 150,000 3,724 4,385 5,136 2,746 3,367 4,073
5 10,998 150,000 150,000 150,000 4,858 5,862 7,043 3,920 4,864 5,974
6 13,539 150,000 150,000 150,000 5,944 7,374 9,122 5,049 6,395 8,036
7 16,206 150,000 150,000 150,000 6,980 8,922 11,387 6,131 7,956 10,388
8 19,007 150,000 150,000 150,000 7,961 10,502 13,857 7,161 9,611 12,966
9 21,947 150,000 150,000 150,000 8,884 12,114 16,550 8,135 11,829 15,765
10 25,035 150,000 150,000 150,000 9,734 13,742 19,478 9,057 13,065 18,801
15 42,950 150,000 150,000 150,000 12,951 22,276 38,858 12,951 22,276 38,858
20 65,815 150,000 150,000 150,000 13,330 30,542 69,535 13,330 30,542 69,535
</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> 149
INVEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Male, Issue Age 45 Face Amount: $150,000
Preferred, Non Smoker Annual Premium: $1,895.63
<CAPTION>
TOTAL
PREMIUMS
WITH 5% DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,990 150,000 150,000 150,000 647 717 788 0 0 0
2 4,080 150,000 150,000 150,000 1,230 1,411 1,601 187 357 536
3 6,275 150,000 150,000 150,000 1,747 2,076 2,439 781 1,090 1,432
4 8,579 150,000 150,000 150,000 2,623 3,151 3,755 1,711 2,207 2,775
5 10,998 150,000 150,000 150,000 3,420 4,206 5,140 2,568 3,307 4,185
6 13,539 150,000 150,000 150,000 4,130 5,233 6,595 3,344 4,381 5,661
7 16,206 150,000 150,000 150,000 4,744 6,220 8,115 4,029 5,416 7,198
8 19,007 150,000 150,000 150,000 5,252 7,155 9,700 4,614 6,403 8,809
9 21,947 150,000 150,000 150,000 5,641 8,021 11,343 5,087 7,324 10,558
10 25,035 150,000 150,000 150,000 5,901 8,805 13,043 5,439 8,169 12,366
15 42,950 150,000 150,000 150,000 4,962 11,021 24,416 4,962 11,021 22,416
20 65,815 0* 150,000 150,000 0* 8,139 32,890 0* 8,139 32,890
</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> 150
APPENDIX A
ANNUAL MINIMUM PREMIUMS
(PER THOUSAND OF STATED AMOUNT)
<TABLE>
<CAPTION>
AGE MALE FEMALE
- --- ----- ------
<S> <C> <C>
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
<CAPTION>
AGE MALE FEMALE
- --- ----- ------
<S> <C> <C>
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
</TABLE>
31
<PAGE> 151
APPENDIX B
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
(FIRST YEAR)
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
------------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
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
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
</TABLE>
32
<PAGE> 152
APPENDIX B(1)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
SALES CHARGE COMPONENT*
(FIRST YEAR)
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
0 0.41 0.37 0.33
1 0.41 0.37 0.33
2 0.41 0.37 0.33
30. 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
<CAPTION>
STATED AMOUNT
------------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
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
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
</TABLE>
* 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.
33
<PAGE> 153
APPENDIX B(2)
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
ADMINISTRATIVE CHARGE COMPONENT*
(FIRST YEAR)
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
------------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
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
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
</TABLE>
* This is the administrative portion of the Per Thousand of Stated Amount
Surrender Charge. It equals 80% of the charge shown in Appendix B.
34
<PAGE> 154
APPENDIX C
MONTHLY ADMINISTRATIVE CHARGE
(PER THOUSAND OF STATED AMOUNT)
APPLICABLE FOR THREE YEARS FOLLOWING ISSUE OR INCREASE
<TABLE>
<CAPTION>
STATED AMOUNT
------------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
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
<CAPTION>
STATED AMOUNT
------------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
33 0.19 0.09 0.00
34 0.19 0.09 0.00
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
</TABLE>
35
<PAGE> 155
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Travelers Variable Products Funds, 3,387,399 shares (cost $11,411,884).................... $ 11,689,865
Templeton Variable Products Series Fund, 377,415 shares (cost $6,924,784)................. 8,108,807
Fidelity's Variable Insurance Products Fund, 631,630 shares (cost $12,378,462)............ 13,685,999
Fidelity's Variable Insurance Products Fund II, 196,802 shares (cost $2,877,764).......... 3,331,861
Dreyfus Stock Index Fund, 76,029 shares (cost $1,438,393)................................. 1,541,862
American Odyssey Funds, Inc., 33,784 shares (cost $465,098)............................... 453,672
Travelers Series Fund Inc., 181,817 shares (cost $2,408,698).............................. 2,549,196
Smith Barney Series Fund, 24,578 shares (cost $353,913)................................... 386,615
--------------
Total Investments (cost $38,258,996).................................................... $ 41,747,877
RECEIVABLES:
Dividends.................................................................................. 654,921
Premium payments and transfers from other Travelers accounts............................... 8,762
Other assets................................................................................ 144
-------------
Total Assets............................................................................ 42,411,704
-------------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts.................. 9,293
Accrued liabilities........................................................................ 78,362
-------------
Total Liabilities...................................................................... 87,655
-------------
NET ASSETS: $ 42,324,049
=============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 156
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 2,057,986
EXPENSES:
Insurance charges............................................ $ 192,440
Administrative charges....................................... 6,926
-------------
Total expenses.............................................. 199,366
-------------
Net investment income...................................... 1,858,620
-------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold............................... 10,760,279
Cost of investments sold..................................... 10,228,004
-------------
Net realized gain........................................... 532,275
Change in unrealized gain on investments:
Unrealized gain at December 31, 1995........................ 1,954,404
Unrealized gain at December 31, 1996........................ 3,488,881
-------------
Net change in unrealized gain for the year................. 1,534,477
-------------
Net realized gain and change in unrealized gain........... 2,066,752
-------------
Net increase in net assets resulting from operations......... $ 3,925,372
=============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 157
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income......................................................... $ 1,858,620 $ 232,605
Net realized gain from investment transactions................................ 532,275 150,979
Net change in unrealized gain (loss) on investments........................... 1,534,477 2,034,336
---------------- ------------------
Net increase in net assets resulting from operations......................... 3,925,372 2,417,920
---------------- ------------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 15,169,725 and 10,466,712 units, respectively)................ 21,543,041 12,301,017
Participant transfers from other Travelers accounts
(applicable to 10,670,706 and 4,576,712 units, respectively)................. 14,576,672 5,501,026
Contract surrenders
(applicable to 3,002,978 and 1,594,372 units, respectively).................. (4,214,910) (1,932,840)
Participant transfers to other Travelers accounts
(applicable to 9,824,019 and 3,881,875 units, respectively).................. (14,195,827) (5,170,119)
Other payments to participants
(applicable to 1,265 units).................................................. - (1,498)
---------------- ------------------
Net increase in net assets resulting from unit transactions................ 17,708,976 10,697,586
---------------- ------------------
Net increase in net assets................................................ 21,634,348 13,115,506
NET ASSETS:
Beginning of year............................................................. 20,689,701 7,574,195
---------------- ------------------
End of year................................................................... $ 42,324,049 $ 20,689,701
================ ==================
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 158
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 ("The Travelers"), an indirect
wholly owned subsidiary of Travelers Group Inc., and is available for
funding certain variable life insurance contracts issued by The Travelers.
Fund UL is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. The Travelers interest in the net assets of
Fund UL was $3,159,262 at December 31, 1996.
Participant premium payments applied to Fund UL are invested in one or more
eligible funds in accordance with the selection made by the owner. As of
December 31, 1996, the eligible funds available under Fund UL are: Managed
Assets Trust; High Yield Bond Trust; Capital Appreciation Fund; Cash Income
Trust; U.S. Government Securities Portfolio, Utilities Portfolio, Zero
Coupon Bond Fund Portfolio Series 1998, Zero Coupon Bond Fund Portfolio
Series 2000 and Zero Coupon Bond Fund Portfolio Series 2005 of The
Travelers Series Trust; Alliance Growth Portfolio, Smith Barney Income and
Growth Portfolio, Smith Barney High Income Portfolio, MFS Total Return
Portfolio and AIM Capital Appreciation Portfolio of the Travelers Series
Fund Inc. (formerly Smith Barney/Travelers Series Fund Inc.); the Total
Return Portfolio of the Smith Barney Series Fund (all of which are managed
by affiliates of The Travelers); 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. All of the funds are Massachusetts business trusts, except for
Travelers Series Fund Inc. and Dreyfus Stock Index Fund which are
incorporated under Maryland law. Not all funds are available in all
states.
Effective July 12, 1995, the following funds were no longer available to
new contract owners under Fund UL. These funds are: 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.
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 funds.
FEDERAL INCOME TAXES. The operations of Fund UL form a part of the total
operations of The Travelers and are not taxed separately. The Travelers is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended (the "Code"). Under existing federal income tax law, no taxes
are payable on the investment income of Fund UL. Fund UL is not taxed as a
"regulated investment company" under Subchapter M of the Code.
OTHER. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
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 $30,119,571 and $10,760,279,
respectively, for the year ended December 31, 1996. Realized gains and
losses from investment transactions are reported on an identified cost
basis. The cost of investments in eligible funds was $38,258,996 at
December 31, 1996. Gross unrealized appreciation for all investments at
December 31, 1996 was $3,570,789. Gross unrealized depreciation for all
investments at December 31, 1996 was $81,908.
-4-
<PAGE> 159
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges and administrative charges up to a maximum of 0.80% and
0.10%, respectively, of the average net assets of Fund UL on an annual
basis, are allowed for mortality and expense risks and administrative
expenses assumed by The Travelers. For Price I contracts (all InVest
Contracts and MarketLife Contracts issued prior to July 12, 1995, and
MarketLife Contracts issued on or after July 12, 1995 where state approval
for Enhanced MarketLife was not approved), the insurance charges were 0.60%
and the administrative charges were waived by The Travelers for the year
ended December 31, 1996. For Price II contracts (all MarketLife Contracts
issued on or after July 12, 1995, where state approval has been received),
the insurance charges are 0.80% for the first fifteen policy years, and
0.45% thereafter. The administrative charges for these contracts are 0.10%
for the first fifteen policy years and 0% thereafter.
The Travelers receives contingent surrender charges on full or partial
contract surrenders. Such charges are computed by applying various
percentages to premiums and/or stated contract amounts (as described in the
prospectus). The Travelers received $106,276 and $23,577 in satisfaction
of such contingent surrender charges for the years ended December 31, 1996
and 1995, respectively.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Travelers Variable Products Series Fund
Managed Assets Trust
Price I.................................. 608,767 $ 2.231 $ 1,358,063
Price II................................. 130,601 2.221 290,111
High Yield Bond Trust
Price I.................................. 148,199 2.170 321,636
Capital Appreciation Fund
Price I.................................. 902,679 2.162 1,951,566
Price II................................. 657,729 2.153 1,415,937
Cash Income Trust
Price I.................................. 354,388 1.485 526,438
Price II................................. 1,517,957 1.479 2,245,306
U.S. Government Securities Portfolio
Price I.................................. 136,245 1.161 158,203
Price II................................. 491,615 1.156 568,412
Utilities Portfolio
Price I.................................. 70,217 1.363 95,692
Price II................................. 27,805 1.357 37,732
Zero Coupon Bond Fund Portfolio Series 1998
Price I.................................. 1,000,000 1.058 1,057,712
Price II................................. 14,502 1.054 15,283
Zero Coupon Bond Fund Portfolio Series 2000
Price I.................................. 1,000,000 1.052 1,051,780
Price II................................. 3,545 1.048 3,714
Zero Coupon Bond Fund Portfolio Series 2005
Price I.................................. 1,082,794 1.050 1,136,685
Price II................................. 50,556 1.046 52,877
</TABLE>
-5-
<PAGE> 160
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Templeton Variable Products Series Fund
Price I.................................. 126,772 $ 1.170 $ 148,317
Price II................................. 122,984 1.165 143,274
Templeton Stock Fund
Price I.................................. 2,447,759 1.454 3,559,687
Price II................................. 930,912 1.448 1,348,031
Templeton Asset Allocation Fund
Price I.................................. 1,674,567 1.363 2,281,602
Price II................................. 427,705 1.357 580,268
Fidelity's Variable Insurance Products Fund
High Income Portfolio
Price I.................................. 843,627 1.296 1,092,962
Price II................................. 965,612 1.290 1,245,679
Growth Portfolio
Price I.................................. 2,549,547 1.498 3,819,863
Price II................................. 1,586,792 1.492 2,367,256
Equity-Income Portfolio
Price I.................................. 2,044,165 1.556 3,180,219
Price II................................. 1,265,744 1.549 1,960,792
Fidelity's Variable Insurance Products Fund
Asset Manager Portfolio
Price I.................................. 2,452,548 1.217 2,985,524
Price II................................. 281,887 1.212 341,686
Dreyfus Stock Index Fund
Price I.................................. 344,866 1.667 574,846
Price II................................. 595,425 1.660 988,279
American Odyssey Funds, Inc.
American Odyssey Core Equity Fund
Price I.................................. 34,187 1.693 57,892
American Odyssey Emerging Opportunities Fund
Price I.................................. 191,470 1.373 262,801
American Odyssey International Equity Fund
Price I.................................. 76,225 1.348 102,744
American Odyssey Long-Term Bond Fund
Price I.................................. 44,927 1.226 55,085
American Odyssey Intermediate-Term Bond Fund
Price I.................................. 833 1.091 909
American Odyssey Short-Term Bond Fund
Price I.................................. 2,640 1.145 3,022
</TABLE>
-6-
<PAGE> 161
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Travelers Series Fund Inc.
Alliance Growth Portfolio
Price I............................... 130,486 $ 1.342 $ 175,052
Price II.............................. 757,945 1.336 1,012,628
Smith Barney Income and Growth Portfolio
Price I............................... 9,830 1.271 12,496
Price II.............................. 174,833 1.267 221,449
Smith Barney High Income Portfolio
Price I............................... 15,538 1.117 17,352
Price II.............................. 123,317 1.113 137,306
MFS Total Return Portfolio
Price I............................... 101,119 1.237 125,113
Price II.............................. 216,413 1.232 266,690
AIM Capital Appreciation Portfolio
Price I............................... 67,039 1.061 71,142
Price II.............................. 481,897 1.059 510,097
Smith Barney Series Fund
Total Return Portfolio
Price I............................... 24,849 1.291 32,071
Price II.............................. 275,810 1.286 354,768
----------------
Net Contract Owners' Equity........................................................ $ 42,324,049
================
</TABLE>
-7-
<PAGE> 162
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
------------- ------------
<S> <C> <C>
TRAVELERS VARIABLE PRODUCTS FUNDS (28.0%)
Managed Assets Trust (Cost $1,477,114) 101,887 $ 1,526,268
High Yield Bond Trust (Cost $293,704) 34,310 291,293
Capital Appreciation Fund (Cost $2,855,389) 85,280 3,131,484
Cash Income Trust (Cost $2,776,262) 2,776,262 2,776,262
U.S. Government Securities Portfolio (Cost $717,654) 63,026 684,459
Utilities Portfolio (Cost $125,795) 10,014 122,374
Zero Coupon Bond Fund Portfolio Series 1998 (Cost $1,019,678) 101,906 1,018,037
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $1,008,505) 100,818 1,004,146
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $1,137,783) 113,896 1,135,542
------------- ------------
Total (Cost $11,411,884) 3,387,399 11,689,865
------------- ------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (19.4%)
Templeton Bond Fund (Cost $273,039) 25,074 291,615
Templeton Stock Fund (Cost $4,259,103) 216,580 4,955,356
Templeton Asset Allocation Fund (Cost $2,392,642) 135,761 2,861,836
------------- ------------
Total (Cost $6,924,784) 377,415 8,108,807
------------- ------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (32.8%)
High Income Portfolio (Cost $2,252,911) 188,689 2,362,383
Growth Portfolio (Cost $5,544,492) 198,672 6,186,639
Equity-Income Portfolio (Cost $4,581,059) 244,269 5,136,977
------------- ------------
Total (Cost $12,378,462) 631,630 13,685,999
------------- ------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (8.0%)
Asset Manager Portfolio (Cost $2,877,764)
Total (Cost $2,877,764) 196,802 3,331,861
------------- ------------
DREYFUS STOCK INDEX FUND (3.7%)
Total (Cost $1,438,393) 76,029 1,541,862
------------- ------------
AMERICAN ODYSSEY FUNDS, INC. (1.1%)
American Odyssey Core Equity Fund (Cost $45,780) 3,530 54,675
American Odyssey Emerging Opportunities Fund (Cost $274,840) 18,070 242,503
American Odyssey International Equity Fund (Cost $85,978) 6,651 100,297
American Odyssey Long-Term Bond Fund (Cost $54,634) 5,164 52,417
American Odyssey Intermediate-Term Bond Fund (Cost $885) 84 862
American Odyssey Short-Term Bond Fund (Cost $2,981) 285 2,918
------------- ------------
Total (Cost $465,098) 33,784 453,672
------------- ------------
TRAVELERS SERIES FUND INC. (6.1%)
Alliance Growth Portfolio (Cost $1,090,207) 70,764 1,187,419
Smith Barney Income and Growth Portfolio (Cost $229,998) 15,536 233,966
Smith Barney High Income Portfolio (Cost $150,861) 13,064 154,680
MFS Total Return Portfolio (Cost $373,597) 29,752 391,838
AIM Capital Appreciation Portfolio (Cost $564,035) 52,701 581,293
------------- ------------
Total (Cost $2,408,698) 181,817 2,549,196
------------- ------------
SMITH BARNEY SERIES FUND (0.9%)
Total Return Portfolio (Cost $353,913)
Total (Cost $353,913) 24,578 386,615
------------- ------------
TOTAL INVESTMENT OPTIONS (100%)
(Cost $38,258,996) $ 41,747,877
============
</TABLE>
-8-
<PAGE> 163
THIS PAGE INTENTIONALLY LEFT BLANK.
-9-
<PAGE> 164
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS
ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST HIGH YIELD BOND TRUST
-------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................. $ 212,189 $ 40,936 $ 58,484 $ 18,822
----------- ------------- ------------- ---------------
EXPENSES:
Insurance charges..................................... 9,244 5,330 1,710 1,571
Administrative charges................................ 266 3 - -
----------- ------------- ------------- ---------------
Net investment income (loss).................... 202,679 35,603 56,774 17,251
----------- ------------- ------------- ---------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................... 398,836 376,022 266,166 77,846
Cost of investments sold.......................... 355,102 359,634 261,596 81,477
----------- ------------- ------------- ---------------
Net realized gain (loss)........................ 43,734 16,388 4,570 (3,631)
----------- ------------- ------------- ---------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.......... 113,258 (39,140) 16,476 (4,540)
Unrealized gain (loss) end of year................ 49,154 113,258 (2,411) 16,476
----------- ------------- ------------- ---------------
Net change in unrealized gain (loss) for the year (64,104) 152,398 (18,887) 21,016
----------- ------------- ------------- ---------------
Net increase (decrease) in net assets
resulting from operations....................... 182,309 204,389 42,457 34,636
----------- ------------- ------------- ---------------
UNIT TRANSACTIONS:
Participant premium payments.......................... 385,858 252,223 59,862 97,670
Participant transfers from other Travelers accounts... 446,005 206,853 210,756 8,164
Contract surrenders................................... (197,168) (213,318) (49,202) (63,621)
Participant transfers to other Travelers accounts..... (363,218) (80,934) (225,122) (24,590)
Other payments to participants........................ - - - -
----------- ------------- ------------- ---------------
Net increase (decrease) in net assets resulting
from unit transactions.......................... 271,477 164,824 (3,706) 17,623
----------- ------------- ------------- ---------------
Net increase in net assets...................... 453,786 369,213 38,751 52,259
NET ASSETS:
Beginning of year................................. 1,194,388 825,175 282,885 230,626
----------- ------------- ------------- ---------------
End of year....................................... $ 1,648,174 $ 1,194,388 $ 321,636 $ 282,885
=========== ============= ============= ===============
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
------------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................. $ 326,576 $ 2,760
------------ ----------------
EXPENSES:
Insurance charges..................................... 12,964 4,395
Administrative charges................................ 456 8
------------ ----------------
Net investment income (loss).................... 313,156 (1,643)
------------ ----------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.................... 141,019 96,468
Cost of investments sold.......................... 97,726 81,467
------------ ----------------
Net realized gain (loss)........................ 43,293 15,001
------------ ----------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.......... 177,890 (3,117)
Unrealized gain (loss) end of year................ 276,095 177,890
------------ ----------------
Net change in unrealized gain (loss) for the year 98,205 181,007
------------ ----------------
Net increase (decrease) in net assets
resulting from operations....................... 454,654 194,365
------------ ----------------
UNIT TRANSACTIONS:
Participant premium payments.......................... 845,776 329,154
Participant transfers from other Travelers accounts... 1,273,217 407,754
Contract surrenders................................... (250,675) (126,174)
Participant transfers to other Travelers accounts..... (124,142) (29,551)
Other payments to participants........................ - (324)
------------ ----------------
Net increase (decrease) in net assets resulting
from unit transactions.......................... 1,744,176 580,859
------------ ----------------
Net increase in net assets...................... 2,198,830 775,224
NET ASSETS:
Beginning of year................................. 1,168,673 393,449
------------ ----------------
End of year....................................... $ 3,367,503 $ 1,168,673
============ ================
</TABLE>
-10-
<PAGE> 165
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
ZERO COUPON BOND
U.S. GOVERNMENT FUND PORTFOLIO
CASH INCOME TRUST SECURITIES PORTFOLIO UTILITIES PORTFOLIO SERIES 1998
- --------------------------------- --------------------------- ---------------------------- ---------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 90,366 $ 51,414 $ 58,279 $ 6,396 $ 13,790 $ 57 $ 67,102 $ -
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
15,944 7,336 1,660 776 688 200 6,251 1,346
1,351 70 100 2 23 1 6 -
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
73,071 44,008 56,519 5,618 13,079 (144) 60,845 (1,346)
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
6,855,752 3,122,783 45,082 43,281 42,674 22,221 6,286 1,261
6,855,752 3,122,783 43,606 42,077 37,280 20,300 6,135 1,246
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
- - 1,476 1,204 5,394 1,921 151 15
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
- - 19,739 (680) 7,329 (1) 24,969 -
- - (33,195) 19,739 (3,421) 7,329 (1,641) 24,969
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
- - (52,934) 20,419 (10,750) 7,330 (26,610) 24,969
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
73,071 44,008 5,061 27,241 7,723 9,107 34,386 23,638
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
11,879,168 3,808,981 92,662 52,081 79,509 30,285 - 1,000,000
1,603,195 809,577 513,975 29,366 25,144 43,375 15,174 -
(1,023,100) (209,087) (32,101) (17,273) (16,313) (5,130) (203) -
(11,441,681) (3,996,433) (20,458) (32,113) (33,120) (9,529) - -
- - - - - - - -
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
1,017,582 413,038 554,078 32,061 55,220 59,001 14,971 1,000,000
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
1,090,653 457,046 559,139 59,302 62,943 68,108 49,357 1,023,638
1,681,091 1,224,045 167,476 108,174 70,481 2,373 1,023,638 -
- --------------- -------------- ------------ ------------ ------------- ----------- ------------- ---------------
$ 2,771,744 $ 1,681,091 $ 726,615 $ 167,476 $ 133,424 $ 70,481 $ 1,072,995 $ 1,023,638
================ ============== ============ ============ ============= =========== ============= ===============
</TABLE>
-11-
<PAGE> 166
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
ZERO COUPON BOND ZERO COUPON BOND
FUND PORTFOLIO FUND PORTFOLIO
SERIES 2000 SERIES 2005
--------------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 63,651 $ - $ 66,990 $ -
----------------- --------------- --------------- ------------
EXPENSES:
Insurance charges........................................ 6,171 1,341 6,538 1,346
Administrative charges................................... 2 - 26 -
----------------- --------------- --------------- ------------
Net investment income (loss)....................... 57,478 (1,341) 60,426 (1,346)
----------------- --------------- --------------- ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold....................... 6,328 1,257 22,857 1,190
Cost of investments sold............................. 6,227 1,241 23,410 1,171
----------------- --------------- --------------- ------------
Net realized gain (loss)........................... 101 16 (553) 19
----------------- --------------- --------------- ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............. 30,962 - 47,983 -
Unrealized gain (loss) end of year................... (4,359) 30,962 (2,241) 47,983
----------------- --------------- --------------- ------------
Net change in unrealized gain (loss) for the year.. (35,321) 30,962 (50,224) 47,983
----------------- --------------- --------------- ------------
Net increase (decrease) in net assets
resulting from operations.......................... 22,258 29,637 9,649 46,656
----------------- --------------- --------------- ------------
UNIT TRANSACTIONS:
Participant premium payments............................. 1,303 1,000,000 3,937 1,003,016
Participant transfers from other Travelers accounts...... 2,571 - 143,245 -
Contract surrenders...................................... (275) - (1,804) (39)
Participant transfers to other Travelers accounts........ - - (15,098) -
Other payments to participants........................... - - - -
----------------- --------------- --------------- ------------
Net increase (decrease) in net assets resulting
from unit transactions............................. 3,599 1,000,000 130,280 1,002,977
----------------- --------------- --------------- ------------
Net increase in net assets......................... 25,857 1,029,637 139,929 1,049,633
NET ASSETS:
Beginning of year.................................... 1,029,637 - 1,049,633 -
----------------- --------------- --------------- ------------
End of year.......................................... $ 1,055,494 $ 1,029,637 $ 1,189,562 $ 1,049,633
================= =============== =============== ============
<CAPTION>
TEMPLETON BOND FUND
-------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 18,730 $ 5,066
------------ ------------
EXPENSES:
Insurance charges........................................ 1,415 813
Administrative charges................................... 68 -
------------ ------------
Net investment income (loss)....................... 17,247 4,253
------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold....................... 155,886 62,279
Cost of investments sold............................. 160,115 59,015
------------ ------------
Net realized gain (loss)........................... (4,229) 3,264
------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............. 10,933 332
Unrealized gain (loss) end of year................... 18,576 10,933
------------ ------------
Net change in unrealized gain (loss) for the year.. 7,643 10,601
------------ ------------
Net increase (decrease) in net assets
resulting from operations.......................... 20,661 18,118
------------ ------------
UNIT TRANSACTIONS:
Participant premium payments............................. 129,705 105,490
Participant transfers from other Travelers accounts...... 140,133 23,219
Contract surrenders...................................... (37,867) (20,727)
Participant transfers to other Travelers accounts........ (110,954) (49,818)
Other payments to participants........................... - -
------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions............................. 121,017 58,164
------------ ------------
Net increase in net assets......................... 141,678 76,282
NET ASSETS:
Beginning of year.................................... 149,913 73,631
------------ ------------
End of year.......................................... $ 291,591 $ 149,913
============ ============
</TABLE>
-12-
<PAGE> 167
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON ASSET FIDELITY'S HIGH
TEMPLETON STOCK FUND ALLOCATION FUND INCOME PORTFOLIO FIDELITY'S GROWTH PORTFOLIO
- ------------------------------ ------------------------------- ---------------------------- ----------------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 275,458 $ 19,051 $ 100,257 $ 26,362 $ 79,896 $ 19,756 $ 212,219 $ 4,488
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
22,487 9,643 13,519 7,988 8,457 2,933 28,119 9,674
636 11 228 9 346 9 1,081 20
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
252,335 9,397 86,510 18,365 71,093 16,814 183,019 (5,206)
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
427,910 207,815 251,298 107,532 394,532 48,286 290,824 181,771
355,680 187,264 208,598 97,472 359,601 45,475 199,573 149,497
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
72,230 20,551 42,700 10,060 34,931 2,811 91,251 32,274
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
293,901 (19,006) 221,298 (10,005) 57,063 (924) 382,429 30,533
696,253 293,901 469,194 221,298 109,472 57,063 642,147 382,429
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
402,352 312,907 247,896 231,303 52,409 57,987 259,718 351,896
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
726,917 342,855 377,106 259,728 158,433 77,612 533,988 378,964
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
1,321,382 895,929 644,082 619,275 527,622 317,211 2,089,604 902,843
1,213,990 812,982 446,075 222,974 1,226,656 271,515 1,889,484 1,043,981
(483,098) (268,346) (235,094) (157,512) (201,035) (83,202) (640,080) (277,564)
(282,267) (186,328) (144,347) (84,478) (172,976) (36,291) (317,899) (155,582)
- (370) - (365) - (439) - -
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
1,770,007 1,253,867 710,716 599,894 1,380,267 468,794 3,021,109 1,513,678
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
2,496,924 1,596,722 1,087,822 859,622 1,538,700 546,406 3,555,097 1,892,642
2,410,794 814,072 1,774,048 914,426 799,941 253,535 2,632,022 739,380
- --------------- -------------- --------------- --------------- ------------- -------------- ------------- -------------
$ 4,907,718 $ 2,410,794 $ 2,861,870 $ 1,774,048 $ 2,338,641 $ 799,941 $ 6,187,119 $ 2,632,022
=============== ============== =============== =============== ============= ============== ============= =============
</TABLE>
-13-
<PAGE> 168
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY'S EQUITY- FIDELITY'S ASSET
INCOME PORTFOLIO MANAGER PORTFOLIO
-------------------------------- -----------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 109,635 $ 57,205 $ 159,369 $ 32,170
---------------- --------------- ------------------ ----------------
EXPENSES:
Insurance charges........................................ 22,379 7,158 17,144 11,730
Administrative charges................................... 811 - 161 4
---------------- --------------- ------------------ ----------------
Net investment income (loss)....................... 86,445 50,047 142,064 20,436
---------------- --------------- ------------------ ----------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold....................... 400,773 129,546 246,699 357,375
Cost of investments sold............................. 317,023 106,630 224,032 348,343
---------------- --------------- ------------------ ----------------
Net realized gain (loss)........................... 83,750 22,916 22,667 9,032
---------------- --------------- ------------------ ----------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............. 260,001 (795) 244,927 (31,871)
Unrealized gain (loss) end of year................... 555,918 260,001 454,097 244,927
---------------- --------------- ------------------ ----------------
Net change in unrealized gain (loss) for the year.. 295,917 260,796 209,170 276,798
---------------- --------------- ------------------ ----------------
Net increase (decrease) in net assets
resulting from operations.......................... 466,112 333,759 373,901 306,266
---------------- --------------- ------------------ ----------------
UNIT TRANSACTIONS:
Participant premium payments............................. 1,546,355 745,361 819,279 807,194
Participant transfers from other Travelers accounts...... 1,927,954 762,957 265,125 466,673
Contract surrenders...................................... (479,487) (172,156) (311,604) (263,503)
Participant transfers to other Travelers accounts........ (385,897) (99,376) (200,709) (341,312)
Other payments to participants........................... - - - -
---------------- --------------- ------------------ ----------------
Net increase (decrease) in net assets resulting
from unit transactions............................. 2,608,925 1,236,786 572,091 669,052
---------------- --------------- ------------------ ----------------
Net increase in net assets......................... 3,075,037 1,570,545 945,992 975,318
NET ASSETS:
Beginning of year.................................... 2,065,974 495,429 2,381,218 1,405,900
---------------- --------------- ------------------ ----------------
End of year.......................................... $ 5,141,011 $ 2,065,974 $ 3,327,210 $ 2,381,218
================ =============== ================== ================
<CAPTION>
DREYFUS STOCK INDEX FUND
-----------------------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 38,450 $ 6,430
--------------------- -------------------
EXPENSES:
Insurance charges........................................ 4,900 949
Administrative charges................................... 288 9
--------------------- -------------------
Net investment income (loss)....................... 33,262 5,472
--------------------- -------------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold....................... 198,684 29,459
Cost of investments sold............................. 154,606 23,404
--------------------- -------------------
Net realized gain (loss)........................... 44,078 6,055
--------------------- -------------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............. 32,788 (201)
Unrealized gain (loss) end of year................... 103,469 32,788
--------------------- -------------------
Net change in unrealized gain (loss) for the year.. 70,681 32,989
--------------------- -------------------
Net increase (decrease) in net assets
resulting from operations.......................... 148,021 44,516
--------------------- -------------------
UNIT TRANSACTIONS:
Participant premium payments............................. 331,313 162,950
Participant transfers from other Travelers accounts...... 923,999 104,338
Contract surrenders...................................... (103,195) (23,466)
Participant transfers to other Travelers accounts........ (70,708) (2,423)
Other payments to participants........................... - -
--------------------- -------------------
Net increase (decrease) in net assets resulting
from unit transactions............................. 1,081,409 241,399
--------------------- -------------------
Net increase in net assets......................... 1,229,430 285,915
NET ASSETS:
Beginning of year.................................... 333,695 47,780
--------------------- -------------------
End of year.......................................... $ 1,563,125 $ 333,695
===================== ===================
</TABLE>
-14-
<PAGE> 169
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
AMERICAN ODYSSEY AMERICAN ODYSSEY
AMERICAN ODYSSEY EMERGING OPPORTUNITIES INTERNATIONAL EQUITY AMERICAN ODYSSEY
CORE EQUITY FUND FUND FUND LONG-TERM BOND FUND
- ----------------------------- ----------------------------- ------------------------------ ---------------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,238 $ 1,960 $ 20,349 $ 9,047 $ 2,488 $ 626 $ 2,672 $ 3,134
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
312 126 1,563 670 520 270 273 102
- - - - - - - -
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
2,926 1,834 18,786 8,377 1,968 356 2,399 3,032
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
9,229 8,482 41,345 37,648 20,513 29,695 9,682 13,624
7,518 7,288 33,380 29,526 16,197 27,426 9,981 12,319
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
1,711 1,194 7,965 8,122 4,316 2,269 (299) 1,305
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
3,143 (2) 4,288 625 3,676 (1,033) (1,341) (106)
8,895 3,143 (32,337) 4,288 14,319 3,676 (2,217) (1,341)
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
5,752 3,145 (36,625) 3,663 10,643 4,709 (876) (1,235)
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
10,389 6,173 (9,874) 20,162 16,927 7,334 1,224 3,102
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
10,768 3,391 93,912 93,588 30,054 26,719 26,241 19,931
3,481 37,760 9,776 118,650 16,031 30,284 - 24,193
(4,419) (1,806) (29,021) (16,696) (12,104) (7,735) (5,072) (3,415)
(6,488) (1,536) (25,343) (18,006) (13,400) (5,985) (5,423) (11,434)
- - - - - - - -
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
3,342 37,809 49,324 177,536 20,581 43,283 15,746 29,275
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
13,731 43,982 39,450 197,698 37,508 50,617 16,970 32,377
44,161 179 223,351 25,653 65,236 14,619 38,115 5,738
- --------------- ------------- -------------- -------------- --------------- -------------- --------------- -----------
$ 57,892 $ 44,161 $ 262,801 $ 223,351 $ 102,744 $ 65,236 $ 55,085 $ 38,115
=============== ============= ============== ============== =============== ============== =============== ===========
</TABLE>
-15-
<PAGE> 170
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
INTERMEDIATE-TERM AMERICAN ODYSSEY
BOND FUND SHORT-TERM BOND FUND
------------------------------------ --------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ 48 $ 20 $ 104 $ 111
---------------- ------------------- -------------- -----------------
EXPENSES:
Insurance charges...................................... 4 1 16 12
Administrative charges................................. - - - -
---------------- ------------------- -------------- -----------------
Net investment income (loss)..................... 44 19 88 99
---------------- ------------------- -------------- -----------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold..................... - - 213 4,486
Cost of investments sold........................... - - 214 4,330
---------------- ------------------- -------------- -----------------
Net realized gain (loss)......................... - - (1) 156
---------------- ------------------- -------------- -----------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year........... (6) - (68) (1)
Unrealized gain (loss) end of year................. (23) (6) (63) (68)
---------------- ------------------- -------------- -----------------
Net change in unrealized gain (loss) for the year (17) (6) 5 (67)
---------------- ------------------- -------------- -----------------
Net increase (decrease) in net assets
resulting from operations........................ 27 13 92 188
---------------- ------------------- -------------- -----------------
UNIT TRANSACTIONS:
Participant premium payments........................... 631 408 841 3,744
Participant transfers from other Travelers accounts.... - 44 - 2,961
Contract surrenders.................................... (124) (81) (244) (516)
Participant transfers to other Travelers accounts...... - (9) - (4,055)
Other payments to participants......................... - - - -
---------------- ------------------- -------------- -----------------
Net increase (decrease) in net assets resulting
from unit transactions........................... 507 362 597 2,134
---------------- ------------------- -------------- -----------------
Net increase in net assets....................... 534 375 689 2,322
NET ASSETS:
Beginning of year.................................. 375 - 2,333 11
---------------- ------------------- -------------- -----------------
End of year........................................ $ 909 $ 375 $ 3,022 $ 2,333
================ =================== ============== =================
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
----------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ 43,645 $ 620
-------------- -------------
EXPENSES:
Insurance charges...................................... 4,173 14
Administrative charges................................. 461 1
-------------- -------------
Net investment income (loss)..................... 39,011 605
-------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold..................... 138,394 284
Cost of investments sold........................... 126,677 275
-------------- -------------
Net realized gain (loss)......................... 11,717 9
-------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year........... (310) -
Unrealized gain (loss) end of year................. 97,212 (310)
-------------- -------------
Net change in unrealized gain (loss) for the year 97,522 (310)
-------------- -------------
Net increase (decrease) in net assets
resulting from operations........................ 148,250 304
-------------- -------------
UNIT TRANSACTIONS:
Participant premium payments........................... 264,719 6,840
Participant transfers from other Travelers accounts.... 805,494 14,239
Contract surrenders.................................... (44,856) (568)
Participant transfers to other Travelers accounts...... (6,667) (75)
Other payments to participants......................... - -
-------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions........................... 1,018,690 20,436
-------------- -------------
Net increase in net assets....................... 1,166,940 20,740
NET ASSETS:
Beginning of year.................................. 20,740 -
-------------- -------------
End of year........................................ $ 1,187,680 $ 20,740
============== =============
</TABLE>
-16-
<PAGE> 171
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SMITH BARNEY INCOME SMITH BARNEY HIGH AIM CAPITAL
AND GROWTH PORTFOLIO INCOME PORTFOLIO MFS TOTAL RETURN PORTFOLIO APPRECIATION PORTFOLIO
- ------------------------------ ----------------------------- ----------------------------- ---------------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5,295 $ 20 $ 8,808 $ - $ 13,265 $ 2,147 $ 580 $ -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
664 1 1,201 - 1,350 124 1,435 -
78 - 142 - 102 1 142 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
4,553 19 7,465 - 11,813 2,022 (997) -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
56,203 35 142,661 - 27,195 593 104,593 -
52,019 33 138,333 - 24,139 569 101,291 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
4,184 2 4,328 - 3,056 24 3,302 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
(1) - - - 3,089 - - -
3,968 (1) 3,819 - 18,241 3,089 17,258 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
3,969 (1) 3,819 - 15,152 3,089 17,258 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
12,706 20 15,612 - 30,021 5,135 19,563 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
11,790 301 16,643 - 103,152 14,644 181,988 -
220,262 1,052 265,754 - 205,454 57,736 474,076 -
(8,726) (138) (5,991) - (12,783) (705) (16,100) -
(3,243) (79) (137,360) - (10,669) (182) (78,288) -
- - - - - - - -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
220,083 1,136 139,046 - 285,154 71,493 561,676 -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
232,789 1,156 154,658 - 315,175 76,628 581,239 -
1,156 - - - 76,628 - - -
- --------------- -------------- -------------- -------------- ---------------- ------------ -------------- ------------
$ 233,945 $ 1,156 $ 154,658 $ - $ 391,803 $ 76,628 $ 581,239 $ -
=============== ============== ============== ============== ================ ============ ============== ============
</TABLE>
-17-
<PAGE> 172
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO COMBINED
---------------------------- --------------------------------------
1996 1995 1996 1995
---- ----- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 6,053 $ 5 $ 2,057,986 $ 308,603
------------- -------------- ------------------- ------------------
EXPENSES:
Insurance charges......................................... 1,339 1 192,440 75,850
Administrative charges.................................... 152 - 6,926 148
------------- -------------- ------------------- ------------------
Net investment income (loss)........................ 4,562 4 1,858,620 232,605
------------- -------------- ------------------- ------------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold........................ 58,645 53 10,760,279 4,961,292
Cost of investments sold.............................. 52,193 51 10,228,004 4,810,313
------------- -------------- ------------------- ------------------
Net realized gain (loss)............................ 6,452 2 532,275 150,979
------------- -------------- ------------------- ------------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.............. (12) - 1,954,404 (79,932)
Unrealized gain (loss) end of year.................... 32,702 (12) 3,488,881 1,954,404
------------- -------------- ------------------- ------------------
Net change in unrealized gain (loss) for the year... 32,714 (12) 1,534,477 2,034,336
------------- -------------- ------------------- ------------------
Net increase (decrease) in net assets
resulting from operations........................... 43,728 (6) 3,925,372 2,417,920
------------- -------------- ------------------- ------------------
UNIT TRANSACTIONS:
Participant premium payments.............................. 44,885 1,788 21,543,041 12,301,017
Participant transfers from other Travelers accounts....... 309,646 379 14,576,672 5,501,026
Contract surrenders....................................... (13,169) (62) (4,214,910) (1,932,840)
Participant transfers to other Travelers accounts......... (350) - (14,195,827) (5,170,119)
Other payments to participants............................ - - - (1,498)
------------- -------------- ------------------- ------------------
Net increase (decrease) in net assets resulting
from unit transactions.............................. 341,012 2,105 17,708,976 10,697,586
------------- -------------- ------------------- ------------------
Net increase in net assets.......................... 384,740 2,099 21,634,348 13,115,506
NET ASSETS:
Beginning of year..................................... 2,099 - 20,689,701 7,574,195
------------- -------------- ------------------- ------------------
End of year........................................... $ 386,839 $ 2,099 $ 42,324,049 $ 20,689,701
============= ============== =================== ==================
</TABLE>
-18-
<PAGE> 173
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, 1996, 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, 1996, by
correspondence with the underlying funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund UL for
Variable Life Insurance as of December 31, 1996, 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 7, 1997
-19-
<PAGE> 174
Independent Auditors' Report
The Board of Directors and Shareholder
The Travelers Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income and retained earnings and cash flows
for each of the years in the three-year period ended December 31, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1997
12
<PAGE> 175
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $1,379 $1,496 $ 1,492
Net investment income 1,887 1,824 1,702
Realized investment gains 65 106 13
Other 298 221 199
- ---------------------------------------------------------------------------------------------------
Total revenues 3,629 3,647 3,406
- ---------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,163 1,185 1,216
Interest credited to contractholders 830 967 961
Amortization of deferred acquisition costs and
value of insurance in force 281 290 281
Other operating expenses 380 368 351
- ---------------------------------------------------------------------------------------------------
Total benefits and expenses 2,654 2,810 2,809
- ---------------------------------------------------------------------------------------------------
Income from continuing operations before
federal income taxes 975 837 597
- ---------------------------------------------------------------------------------------------------
Federal income taxes:
Current expense (benefit) 284 233 (96)
Deferred 58 57 307
- ---------------------------------------------------------------------------------------------------
Total federal income taxes 342 290 211
- ---------------------------------------------------------------------------------------------------
Income from continuing operations 633 547 386
Discontinued operations, net of income taxes
Income from operations (net of taxes of $0, $18 and $83) -- 72 150
Gain on disposition (net of taxes of $14, $68 and $18) 26 131 9
- ---------------------------------------------------------------------------------------------------
Income from discontinued operations 26 203 159
- ---------------------------------------------------------------------------------------------------
Net income 659 750 545
Retained earnings beginning of year 2,312 1,562 1,017
Dividends to parent 500 -- --
- ---------------------------------------------------------------------------------------------------
Retained earnings end of year $2,471 $2,312 $ 1,562
- ---------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 176
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(at December 31, in millions) 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $18,515; $18,187) $18,846 $18,842
Equity securities, at fair value (cost, $325; $182) 332 224
Mortgage loans 2,883 3,626
Real estate held for sale, net of accumulated depreciation of $0; $9 297 293
Policy loans 1,910 1,888
Short-term securities 891 1,554
Other investments 1,235 874
- -------------------------------------------------------------------------------------------------------
Total investments 26,394 27,301
- -------------------------------------------------------------------------------------------------------
Cash 74 73
Investment income accrued 343 338
Premium balances receivable 105 107
Reinsurance recoverables 3,858 4,107
Deferred acquisition costs and value of insurance in force 2,133 1,962
Separate and variable accounts 9,023 6,949
Other assets 1,043 1,464
- -------------------------------------------------------------------------------------------------------
Total assets $42,973 $42,301
- -------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $13,693 $14,525
Future policy benefits 11,450 11,783
Policy and contract claims 536 571
Separate and variable accounts 8,948 6,916
Commercial paper 50 73
Deferred federal income taxes 57 32
Other liabilities 1,911 2,173
- -------------------------------------------------------------------------------------------------------
Total liabilities 36,645 36,073
- -------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,170 3,134
Retained earnings 2,471 2,312
Unrealized investment gains, net of taxes 587 682
- -------------------------------------------------------------------------------------------------------
Total shareholder's equity 6,328 6,228
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $42,973 $42,301
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 177
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,387 $ 1,346 $ 1,394
Net investment income received 1,910 1,855 1,719
Other revenues received (expense paid) 131 90 (2)
Benefits and claims paid (1,060) (846) (1,115)
Interest credited to contractholders (820) (960) (868)
Operating expenses paid (343) (615) (536)
Income taxes paid (328) (63) (27)
Other (70) (137) (81)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 807 670 484
Net cash provided by (used in) discontinued operations (350) (596) 233
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operations 457 74 717
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 1,928 1,974 2,528
Mortgage loans 917 680 1,266
Proceeds from sales of investments
Fixed maturities 9,101 6,773 1,316
Equity securities 479 379 357
Mortgage loans 178 704 546
Real estate held for sale 210 253 728
Purchases of investments
Fixed maturities (11,556) (10,748) (4,594)
Equity securities (594) (305) (340)
Mortgage loans (470) (144) (102)
Policy loans, net (23) (325) (193)
Short-term securities, (purchases) sales, net 498 291 (367)
Other investments, (purchases) sales, net (137) (267) (299)
Securities transactions in course of settlement (52) 258 24
Net cash provided by (used in) investing activities of
discontinued operations 348 1,425 (261)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 827 948 609
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (redemption) of short-term debt, net (23) (1) 73
Contractholder fund deposits 2,493 2,705 1,951
Contractholder fund withdrawals (3,262) (3,755) (3,357)
Dividends to parent company (500) -- --
Return of capital to parent company -- -- (23)
Net cash provided by financing activities
of discontinued operations -- -- 84
Other 9 -- (2)
- ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,283) (1,051) (1,274)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ 1 $ (29) $ 52
- ----------------------------------------------------------------------------------------------------------
Cash at December 31 $ 74 $ 73 $ 102
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 178
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Travelers Insurance Company and Subsidiaries (the Company) is a
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIGI).
TIGI is an indirect wholly owned subsidiary of Travelers Group Inc.
(Travelers Group), a financial services holding company engaged, through
its subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Property & Casualty
Insurance Services; and (iv) Life Insurance Services (through the
Company). The periodic reports of Travelers Group provide additional
business and financial information concerning that company and its
consolidated subsidiaries.
The Company principally operates through two major business units within
its Life Insurance Services segment:
- TRAVELERS LIFE AND ANNUITY offers fixed and variable deferred
annuities, payout annuities and term, universal and variable life and
long-term care insurance to individuals and small businesses. It also
provides group pension products, including guaranteed investment
contracts and group annuities for employer-sponsored retirement and
savings plans. These products are primarily marketed through The
Copeland Companies (Copeland), an indirect, wholly owned subsidiary
of the Company, the Financial Consultants of Smith Barney Inc., an
affiliate of the Company, and a core group of approximately 500
independent agencies. The Company's Corporate and Other Segment was
absorbed into Travelers Life and Annuity during the second quarter
of 1996.
- PRIMERICA LIFE INSURANCE offers individual life products, primarily
term insurance, to consumers through a nationwide sales force of more
than 86,000 full and part-time independent representatives.
The Company sold group life and health insurance through its Managed Care
and Employee Benefits Operations segment (MCEBO) through 1994. See Note
4.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
The consolidated financial statements include the accounts of the Company
and its insurance and non-insurance subsidiaries on a fully
consolidated basis. The primary insurance subsidiaries of the Company
are: The Travelers Life and Annuity Company (TLAC), and Primerica Life
Insurance Company (Primerica Life) and its subsidiary National Benefit
Life Insurance Company (NBL).
As discussed in Note 4 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the
Company were sold to Metropolitan Life Insurance Company (MetLife) and
also in January 1995, the group medical component was exchanged for a 42%
interest in The MetraHealth Companies, Inc. (MetraHealth). The Company's
interest in MetraHealth was sold on October 2, 1995 and through that date
had been accounted for on the equity method. The Company's discontinued
operations reflect the results of the medical insurance business not
transferred, the equity interest in the earnings of MetraHealth through
October 2, 1995 (date of sale) and the gains from the sales of these
businesses. All of the businesses sold to MetLife or contributed to
MetraHealth were included in the Company's MCEBO segment in 1994. MCEBO
marketed group life and health insurance, managed health care programs
and administrative services associated with employee benefit plans.
16
<PAGE> 179
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings
Inc., which at the time was a wholly owned subsidiary of Travelers Group
and was the indirect owner of the business of Transport Life Insurance
Company (Transport Life). Immediately prior to this distribution, the
Company distributed Transport Life, an indirect wholly owned subsidiary
of the Company, to TIGI, as a return of capital.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and benefits
and expenses during the reporting period. Actual results could differ
from those estimates.
As more fully described in Note 4, all of the operations comprising MCEBO
are presented as a discontinued operation and, accordingly, prior year
amounts have been restated.
Certain prior year amounts have been reclassified to conform with the
1996 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. Fixed maturities are classified as "available for sale" and
are reported at fair value, with unrealized investment gains and losses,
net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and nonredeemable preferred
stocks, are classified as "available for sale" and carried at fair value
based primarily on quoted market prices. Changes in fair values of equity
securities are charged or credited directly to shareholder's equity, net
of income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is
considered impaired when it is probable that the Company will be unable
to collect principal and interest amounts due. For mortgage loans that
are determined to be impaired, a reserve is established for the
difference between the amortized cost and fair market value of the
underlying collateral. In estimating fair value, the Company uses
interest rates reflecting the higher returns required in the current real
estate financing market. Impaired loans were insignificant at December
31, 1996 and 1995.
Real estate held for sale is carried at the lower of cost or fair value
less estimated costs to sell. Fair value of foreclosed properties is
established at time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other acceptable
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996 and 1995.
Short-term securities, consisting primarily of money market instruments
and other debt issues purchased with a maturity of less than one year,
are carried at amortized cost which approximates market.
17
<PAGE> 180
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Accrual of income, included in other assets, is suspended on fixed
maturities or mortgage loans that are in default, or on which it is
likely that future payments will not be made as scheduled. Interest
income on investments in default is recognized only as payment is
received.
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures contracts, equity options, forward contracts and interest rate
swaps and caps, as a means of hedging exposure to interest rate, equity
price and foreign currency risk. Hedge accounting is used to account for
derivatives. To qualify for hedge accounting the changes in value of the
derivative must be expected to substantially offset the changes in value
of the hedged item. Hedges are monitored to ensure that there is a high
correlation between the derivative instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to
adjust the basis of hedged investments and are recognized in net
investment income over the life of the investment.
Forward contracts, equity options, and interest rate swaps and caps were
not significant at December 31, 1996 and 1995. Information concerning
derivative financial instruments is included in Note 8.
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. Also included are gains and losses arising from
the remeasurement of the local currency value of foreign investments to
U.S. dollars, the functional currency of the Company. The foreign
exchange effects of Canadian operations are included in unrealized gains
and losses.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Deferred Acquisition Costs and Value of Insurance in Force
Costs of acquiring individual life insurance, annuities and 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, including term
insurance and guaranteed renewable health contracts, including long-term
care, are amortized in relation to anticipated premiums; universal
life in relation to estimated gross profits; and annuity contracts
employing a level yield method. For life insurance, a 10- to 25-year
amortization period is used; for guaranteed renewable health, a 10- to
20-year period, and a 10- to 20-year period is employed for annuities.
Deferred acquisition costs are reviewed periodically for recoverability
to determine if any adjustment is required.
18
<PAGE> 181
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from life
insurance, annuities and health contracts at the date of acquisition
using the same assumptions that were used for computing related
liabilities where appropriate. The value of insurance in force was the
actuarially determined present value of the projected future profits
discounted at interest rates ranging from 14% to 18%. Traditional life
insurance and guaranteed renewable health policies are amortized in
relation to anticipated premiums; universal life is amortized in relation
to estimated gross profits; and annuity contracts are amortized employing
a level yield method. The value of insurance in force is reviewed
periodically for recoverability to determine if any adjustment is
required.
Separate and Variable Accounts
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholders. Each account has
specific investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets of these accounts are carried at
market value. Certain other separate accounts provide guaranteed levels
of return or benefits and the assets of these accounts are primarily
carried at market value. Amounts assessed to the contractholders for
management services are included in revenues. Deposits, net investment
income and realized investment gains and losses for these accounts are
excluded from revenues, and related liability increases are excluded from
benefits and expenses.
Goodwill
Goodwill represents the cost of acquired businesses in excess of net
assets and is being amortized on a straight-line basis principally over a
40-year period. The carrying amount is regularly reviewed for indication
of impairment in value, which in the view of management, would be other
than temporary. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life, pension investment and certain deferred annuity contracts.
Contractholder Fund balances are increased by such receipts and credited
interest and reduced by withdrawals, mortality charges and administrative
expenses charged to the contractholders. Interest rates credited to
contractholder funds range from 3.5% to 8.6%.
19
<PAGE> 182
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Future Policy Benefits
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuities have been
computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 2.5% to
10.0%, including adverse deviation. These assumptions consider Company
experience and industry standards. The assumptions vary by plan, age at
issue, year of issue and duration. Appropriate recognition has been given
to experience rating and reinsurance.
Permitted Statutory Accounting Practices
The Company, whose insurance subsidiaries are domiciled principally in
Connecticut and Massachusetts, prepares statutory financial statements in
accordance with the accounting practices prescribed or permitted by the
insurance departments of those states. Prescribed statutory accounting
practices include certain 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.
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
and revenues of non-insurance subsidiaries.
Interest Credited to Contractholders
Interest credited to contractholders represents amounts earned by
universal life, pension investment and certain deferred annuity contracts
in accordance with contract provisions.
20
<PAGE> 183
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and
liabilities. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely than
not, with a valuation allowance for the portion that is not likely to be
recognized.
Future Application of Accounting Standards
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 (FAS 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on consistent
application of a financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. FAS
125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The requirements of FAS 125 are effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and are to be applied prospectively.
However, in December 1996 the FASB issued FAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," which
delays until January 1, 1998 the effective date for certain provisions.
The adoption of the provisions of this statement effective January 1,
1997 will not have a material impact on results of operations, financial
condition or liquidity and the Company is currently evaluating the impact
of the provisions whose effective date has been delayed until January 1,
1998.
3. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes accounting standards for the impairment of
long-lived assets and certain identifiable intangibles to be disposed.
This statement requires a write down to fair value when long-lived assets
to be held and used are impaired. The statement also requires that
long-lived assets to be disposed (e.g., real estate held for sale) be
carried at the lower of cost or fair value less cost to sell and does not
allow such assets to be depreciated. The adoption of this standard did
not have a material impact on the Company's results of operations,
financial condition, or liquidity.
Accounting for Stock-Based Compensation
The Company participates in a stock option plan sponsored by Travelers
Group that provides for the granting of stock options in Travelers Group
common stock to officers and key employees. The Company applies
Accounting Principles Board Opinion No. 25 (APB 25) and related
interpretations in accounting for stock options. Since stock options are
issued at fair market value on the date of award, no compensation cost
has been recognized for these awards. In October 1995, the Financial
Accounting Standards Board issued
21
<PAGE> 184
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). This statement provides an
alternative to APB 25 whereby fair values may be ascribed to options
using a valuation model and amortized to compensation cost over the
vesting period of the options. Had the Company applied FAS 123 in
accounting for stock options, net income would have been reduced by $2.8
million and $1.3 million in 1996 and 1995, respectively.
Accounting by Creditors for Impairment of a Loan
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan," and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," which describe how impaired loans should be measured
when determining the amount of a loan loss accrual. These statements
amended existing guidance on the measurement of restructured loans in a
troubled debt restructuring involving a modification of terms. Their
adoption did not have a material impact on the Company's results of
operations, financial condition, or liquidity.
4. DISPOSITIONS AND DISCONTINUED OPERATIONS
In December 1994, the Company and its affiliates sold their group dental
insurance business to MetLife for $52 million and recognized a gain of $9
million net of taxes. On January 3, 1995, the Company and its affiliates
completed the sale of their group life and related non-medical group
insurance businesses to MetLife for $350 million and recognized in the
first quarter of 1995 a gain of $20 million net of taxes. In connection
with the sale, the Company ceded 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 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. No gain was recognized as a result of this
transaction. Upon formation of the joint venture, the Company owned 42%
of the outstanding capital stock of MetraHealth, TIGI owned 8% and the
other 50% was owned by MetLife and its affiliates. In March 1995,
MetraHealth acquired HealthSpring, Inc. for common stock of MetraHealth
resulting in a reduction in the participation of the Company and TIGI,
and MetLife in the MetraHealth venture to 48.25% each. As the medical
insurance business of the Company came due for renewal, the risks were
transferred to MetraHealth and the related operating results for this
medical insurance business were reported by the Company in 1995 as part
of discontinued operations.
On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation and
through that date had accounted for its interest in MetraHealth on the
equity method. Gross proceeds to the Company in 1995 were $708 million in
cash recognizing a gain of $111 million after-tax. During 1996 the
Company received a contingency payment based on MetraHealth's 1995
results. In conjunction with this payment, certain reserves associated
with the group medical business and exit costs related to the
discontinued operations were reevaluated resulting in a final after-tax
gain of $26 million.
22
<PAGE> 185
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. DISPOSITIONS AND DISCONTINUED OPERATIONS, Continued
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's MCEBO segment in 1994. The Company's
discontinued operations in 1996 and 1995 reflect the results of the
medical insurance business not transferred, the equity interest in the
earnings of MetraHealth through October 2, 1995 (date of sale) and the
gains from sales of these businesses. Revenues from discontinued
operations for the years ended December 31, 1996, 1995 and 1994 amounted
to $85.6 million, $1.2 billion and $3.3 billion, respectively. The assets
and liabilities of the discontinued operations have not been segregated
in the consolidated balance sheet as of December 31, 1996 and 1995. The
assets and liabilities of the discontinued operations consist primarily
of investments and insurance-related assets and liabilities. At December
31, 1996, these assets and liabilities each amounted to $180 million. At
December 31, 1995, these assets and liabilities each amounted to $1.8
billion.
In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings
Inc., which at the time was a wholly owned subsidiary of Travelers Group
and was the indirect owner of the business of Transport Life. Immediately
prior to this distribution, the Company distributed Transport, an
indirect, wholly owned subsidiary of the Company, to TIGI, as a return of
capital, resulting in a reduction in additional paid-in capital of $334
million. The results of Transport through September 1995 are included in
income from continuing operations.
5. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors and had $50
million outstanding at December 31, 1996. The Company maintains unused
credit availability under bank lines of credit at least equal to the
amount of the outstanding commercial paper. Interest expense related to
the commercial paper was not significant in 1996.
Travelers Group, Commercial Credit Company (CCC) (an indirect wholly
owned subsidiary of Travelers Group) and the Company have an agreement
with a syndicate of banks to provide $1.0 billion of revolving credit, to
be allocated to any of Travelers Group, CCC or the Company. The Company's
participation in this agreement is limited to $250 million. The revolving
credit facility consists of a five-year revolving credit facility which
expires in 2001. At December 31, 1996, $100 million was allocated to the
Company. Under this facility the Company is required to maintain certain
minimum equity and risk-based capital levels. At December 31, 1996, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at December 31, 1996 and 1995.
23
<PAGE> 186
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. REINSURANCE
The Company participates in reinsurance in order to limit losses,
minimize exposure to large risks, provide additional capacity for future
growth and to effect business-sharing arrangements. Reinsurance is
accomplished through various plans of reinsurance, primarily yearly
renewable term coinsurance and modified coinsurance. The Company remains
primarily liable as the direct insurer on all risks reinsured. Since June
1994, the Company is reinsuring its life insurance risks via first dollar
quota share treaties on an 80%/20% basis. Maximum retention of $1.5
million is generally reached on policies in excess of $7.5 million. For
other plans of insurance it is the policy of the Company to obtain
reinsurance for amounts above certain retention limits on individual life
policies which vary with age and underwriting classification. Generally,
the maximum retention on an ordinary life risk is $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, Travelers
Property Casualty Corp. (TAP).
A summary of reinsurance financial data reflected within the consolidated
statement of operations and retained earnings is presented below (in
millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Written Premiums:
Direct $ 1,982 $ 2,166 $ 2,153
Assumed from:
Non-affiliated companies 5 -- --
Ceded to:
Affiliated companies (284) (374) (358)
Non-affiliated companies (309) (302) (306)
- -------------------------------------------------------------------------------
Total net written premiums $ 1,394 $ 1,490 $ 1,489
- -------------------------------------------------------------------------------
Earned Premiums:
Direct $ 1,897 $ 2,067 $ 2,301
Assumed from:
Non-affiliated companies 5 -- --
Ceded to:
Affiliated companies (219) (283) (384)
Non-affiliated companies (315) (298) (305)
- -------------------------------------------------------------------------------
Total net earned premiums $ 1,368 $ 1,486 $ 1,612
- -------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 187
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. REINSURANCE, Continued
Reinsurance recoverables at December 31, include amounts recoverable on
unpaid and paid losses and were as follows (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance Recoverables:
Life and accident and health business:
Non-affiliated companies $1,497 $1,744
Property-casualty business:
Affiliated companies 2,361 2,363
- --------------------------------------------------------------------------------
Total Reinsurance Recoverables $3,858 $4,107
================================================================================
</TABLE>
Total reinsurance recoverables at December 31, 1996 and 1995 include $720
million and $929 million, respectively, from MetLife in connection with
the sale of the Company's group life and related businesses. See Note 4.
7. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $36 million in additional paid-in capital during 1996 is
due primarily to contributions of non-insurance subsidiaries from TIGI.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in Note 15.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $656 million, $235 million and $100 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company's statutory capital and surplus was $3,442 million and
$3,197 million at December 31, 1996 and 1995, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $507 million is available in 1997 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
In addition, under a revolving credit facility, the Company is required
to maintain certain minimum equity and risk based capital levels. The
Company is in compliance with these covenants at December 31, 1996.
25
<PAGE> 188
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, equity options, forward contracts and interest rate swaps as a
means of hedging exposure to foreign currency, equity price changes
and/or interest rate risk on anticipated transactions or existing assets
and liabilities. The Company does not hold or issue derivative
instruments for trading purposes.
These derivative financial instruments have off-balance sheet risk.
Financial instruments with off-balance sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of
these instruments reflect the extent of involvement the Company has in a
particular class of financial instrument. However, the maximum loss of
cash flow associated with these instruments can be less than these
amounts. For forward contracts and interest rate swaps, credit risk is
limited to the amounts calculated to be due the Company on such
contracts. Financial futures contracts and purchased listed option
contracts have little credit risk since organized exchanges are the
counterparties.
The Company monitors creditworthiness of counterparties to these
financial instruments by using criteria of acceptable risk that are
consistent with on-balance sheet financial instruments. The controls
include credit approvals, limits and other monitoring procedures.
The Company uses exchange traded financial futures contracts to manage
its exposure to changes in interest rates which arise from the sale of
certain insurance and investment products, or the need to reinvest
proceeds from the sale or maturity of investments. To hedge against
adverse changes in interest rates, the Company enters long or short
positions in financial futures contracts which offset asset price changes
resulting from changes in market interest rates until an investment is
purchased or a product is sold.
Margin payments are required to enter a futures contract and contract
gains or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out
prior to the delivery date of the contract.
At December 31, 1996 and 1995, the Company held financial futures
contracts with notional amounts of $169 million and $68 million,
respectively, and a deferred gain of $1 million and a deferred loss of
$.2 million, respectively. Total gains from financial futures of $2
million were deferred at December 31, 1996. These deferred gains, which
relate to anticipated investment purchases and investment product sales
expected to occur by the end of the second quarter of 1997, are reported
as other liabilities. At December 31, 1996 and 1995, the Company's
futures contracts had no fair value because these contracts are marked to
market and settled in cash daily.
The off-balance sheet risks of equity options, forward contracts, and
interest rate swaps were not significant at December 31, 1996 and 1995.
26
<PAGE> 189
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, Continued
The Company purchased a 5-year interest rate cap, with a notional amount
of $200 million, from Travelers Group in 1995 to hedge against losses
that could result from increasing interest rates. This instrument, which
does not have off-balance sheet risk, gives the Company the right to
receive payments if interest rates exceed specific levels at specific
dates. The premium of $2 million paid for this instrument is being
amortized over its life. The interest rate cap asset is reported at fair
value which is $1 million at December 31, 1996.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 1996 and 1995.
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, 1996 and 1995, investments in fixed maturities had a
carrying value and a fair value of $18.8 billion. See Note 15.
At December 31, 1996, mortgage loans had a carrying value of $2.9
billion, which approximated fair value, compared with a carrying value of
$3.6 billion, which approximated fair value at December 31, 1995. In
estimating fair value, the Company used interest rates reflecting the
higher returns required in the current real estate financing market.
The carrying values of $154 million and $647 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1996 and 1995, respectively. The carrying values of $825
million and $1.3 billion of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1996 and
1995, respectively. Fair value is determined using various methods
including discounted cash flows, as appropriate for the various financial
instruments.
At December 31, 1996, contractholder funds with defined maturities had a
carrying value of $1.7 billion and a fair value of $1.7 billion, compared
with a carrying value of $2.4 billion and a fair value of $2.5 billion at
December 31, 1995. The fair value of these contracts is determined by
discounting expected cash flows at an interest rate commensurate with the
Company's credit risk and the expected timing of cash flows.
Contractholder funds without defined maturities had a carrying value of
$9.1 billion and a fair value of $8.8 billion at December 31, 1996,
compared with a carrying value of $9.3 billion and a fair value of $9.0
billion at December 31, 1995. These contracts generally are valued at
surrender value.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $1.1 billion and $1.1 billion,
respectively, at December 31, 1996, compared with a carrying value and a
fair value of $1.5 billion and $1.6 billion, respectively, at December
31, 1995. The liabilities of separate accounts providing a guaranteed
return had a carrying value and a fair value of $1.0 billion and $.9
billion, respectively, at December 31, 1996, compared with a carrying
value and a fair value of $1.5 billion and $1.4 billion, respectively, at
December 31, 1995.
27
<PAGE> 190
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, Continued
The carrying values of cash, short-term securities, investment income
accrued and commercial paper approximated 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
The Company is a defendant or codefendant in various litigation matters
in the normal course of business. Although there can be no assurances, as
of December 31, 1996, 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 a qualified, noncontributory defined benefit
pension plan sponsored by Travelers Group covering the majority of
Travelers Group'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.
The Company also participates in a nonqualified, noncontributory defined
benefit pension plan sponsored by an affiliate covering the majority of
the Company's U.S. employees. Contributions are based on benefits paid.
The Company's share of net pension expense was not significant for 1996,
1995 and 1994.
Through plans sponsored by TIGI, the Company also provides defined
contribution pension plans for certain agents. Company contributions are
primarily a function of production. The expense for these plans was not
significant in 1996, 1995 and 1994.
28
<PAGE> 191
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. BENEFIT PLANS, Continued
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 TIGI. Retirees may elect certain prepaid health care benefit
plans. Life insurance benefits are generally set at a fixed amount.
Beginning January 1, 1996, these plans were amended to restrict benefit
eligibility to retirees and certain retiree-eligible employees. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of retiree contributions. The
Company's share of the total cost of the plan for 1996, 1995 and 1994 was
not significant.
401(K) Savings Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIGI, 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 the profitability of TIGI and its subsidiaries was added through
December 31, 1995. Effective January 1, 1996, the match remained at 50%
of an employee's first 5% contribution with a maximum of $1,000.
Effective January 1, 1997, employee contributions will be matched with
Travelers Group stock options. The Company's matching obligation was not
significant in 1996, 1995 and 1994.
11. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI are handled by
the Company. Settlements for these payments between the Company and its
affiliates are made regularly. The Company provides various employee
benefits coverages to employees of certain subsidiaries of TIGI. The
premiums for these coverages were charged in accordance with cost
allocation procedures based upon salaries or census. In addition,
investment advisory and management services, data processing services and
claims processing services are shared with affiliated companies. Charges
for these services are shared by the companies on cost allocation methods
based generally on estimated usage by department.
An affiliate maintains a short-term investment pool in which the Company
participates. The position of each company participating in the pool is
calculated and adjusted daily. At December 31, 1996 and 1995, the pool
totaled approximately $2.9 billion and $2.2 billion, respectively. The
Company's share of the pool amounted to $196 million and $1.4 billion at
December 31, 1996 and 1995, respectively, and is included in short-term
securities in the consolidated balance sheet.
The Company sells structured settlement annuities to TAP in connection
with the settlement of certain policyholder obligations. Such deposits
were $40 million, $38 million and $39 million for 1996, 1995 and 1994,
respectively.
29
<PAGE> 192
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS, Continued
The Company markets deferred annuity products and life and health
insurance through its affiliate, Smith Barney Inc. Premiums and deposits
related to these products were $820 million, $583 million and $161
million in 1996, 1995 and 1994, respectively.
At December 31, 1996 and 1995, the Company had an investment of $22
million and $24 million, respectively, in bonds of its affiliate, CCC.
This is included in fixed maturities in the consolidated balance sheet.
The Company had an investment of $648 million and $445 million in common
stock of Travelers Group at December 31, 1996 and 1995, respectively.
This investment is carried at fair value.
12. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by
TAP. In 1996, TAP assumed the obligations for several leases. Rent
expense related to all leases are shared by the companies on a cost
allocation method based generally on estimated usage by department. Rent
expense was $24 million, $22 million and $23 million in 1996, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
-----------------------------------------------------------
Minimum operating
(in millions) rental payments
-----------------------------------------------------------
<S> <C>
Year ending December 31,
1997 $ 57
1998 49
1999 41
2000 39
2001 42
Thereafter 362
-----------------------------------------------------------
$590
-----------------------------------------------------------
</TABLE>
The Company is reimbursed by affiliates of TIGI for utilization of space
and equipment. Future sublease rental income of approximately $92 million
will partially offset these commitments. Minimum future capital lease
payments are not significant.
30
<PAGE> 193
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
-------------------------------------------------------------------------------------
Effective tax rate
<S> <C> <C> <C>
Income before federal income taxes $975 $837 $597
Statutory tax rate 35% 35% 35%
-------------------------------------------------------------------------------------
Expected federal income taxes $341 $293 $209
Tax effect of:
Nontaxable investment income (3) (4) (4)
Other, net 4 1 6
-------------------------------------------------------------------------------------
Federal income taxes (benefit) $342 $290 $211
-------------------------------------------------------------------------------------
Effective tax rate 35% 35% 35%
-------------------------------------------------------------------------------------
Composition of federal income taxes
Current:
United States $263 $220 $(108)
Foreign 21 13 12
-------------------------------------------------------------------------------------
Total 284 233 (96)
-------------------------------------------------------------------------------------
Deferred:
United States 57 52 302
Foreign 1 5 5
-------------------------------------------------------------------------------------
Total 58 57 307
-------------------------------------------------------------------------------------
Federal income taxes $342 $290 $211
-------------------------------------------------------------------------------------
</TABLE>
Tax benefits allocated directly to shareholder's equity for the years
ended December 31, 1996 and 1995 were $8 million and $7 million,
respectively.
31
<PAGE> 194
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
The net deferred tax liabilities at December 31, 1996 and 1995 were
comprised of the tax effects of temporary differences related to the
following assets and liabilities:
<TABLE>
<CAPTION>
(in millions) 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 510 $ 447
Contractholder funds 32 54
Operating lease reserves 71 56
Other employee benefits 104 74
Other 121 208
---------------------------------------------------------------------------------------
Total 838 839
---------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs and value of insurance in force 571 538
Investments, Net 131 152
Other 93 81
---------------------------------------------------------------------------------------
Total 795 771
---------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 43 68
Valuation allowance for deferred tax assets (100) (100)
---------------------------------------------------------------------------------------
Net deferred tax (liability) asset after valuation allowance $ (57) $ (32)
---------------------------------------------------------------------------------------
</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.
32
<PAGE> 195
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 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 Travelers Group commencing in
1999, or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no change in the
valuation allowance during 1996. The initial recognition of any benefit
produced by the reversal of the valuation allowance will be recognized by
reducing goodwill.
At December 31, 1996, 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) would be
approximately $326 million.
14. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross investment income
Fixed maturities $1,328 $1,191 $1,082
Mortgage loans 331 419 511
Policy loans 156 163 110
Real estate held for sale 94 111 174
Other 77 97 52
-------------------------------------------------------------------------------------------
1,986 1,981 1,929
-------------------------------------------------------------------------------------------
Investment expenses 99 157 227
-------------------------------------------------------------------------------------------
Net investment income $1,887 $1,824 $1,702
-------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 196
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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) 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized
Fixed maturities $(63) $(43) $(3)
Equity securities 47 36 18
Mortgage loans 49 47 -
Real estate held for sale 33 18 -
Other (1) 48 (2)
-----------------------------------------------------------------------------------------
Realized investment gains $ 65 $106 $13
----------------------------------------------------------------------------------------
</TABLE>
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) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized
Fixed maturities $(323) $1,974 $(1,319)
Equity securities (35) 46 (25)
Other 220 200 165
-------------------------------------------------------------------------------------------
(138) 2,220 (1,179)
Related taxes (43) 778 (412)
-------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (95) 1,442 (767)
Balance beginning of year 682 (760) 7
-------------------------------------------------------------------------------------------
Balance end of year $ 587 $ 682 $ (760)
--------------------------------------------------------------------------------------------
</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 $9.1 billion and $6.8 billion in 1996 and 1995, respectively. Gross
gains of $107 million and $80 million and gross losses of $175 million
and $124 million in 1996 and 1995, respectively, were realized on those
sales.
34
<PAGE> 197
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and fair value of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
December 31, 1996
---------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in millions) cost gains losses value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 3,755 $ 69 $23 $ 3,801
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 1,188 50 4 1,234
Obligations of states,
municipalities and
political subdivisions 76 1 1 76
Debt securities issued by
foreign governments 565 24 3 586
All other corporate bonds 12,925 259 41 13,143
Redeemable preferred stock 6 - - 6
---------------------------------------------------------------------------------------------
Total $18,515 $403 $72 $18,846
---------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 198
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
December 31, 1995
-----------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in millions) cost gains losses value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 4,174 $103 $15 $ 4,262
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 1,327 116 - 1,443
Obligations of states,
municipalities and
political subdivisions 91 2 - 93
Debt securities issued by
foreign governments 311 17 - 328
All other corporate bonds 12,283 442 10 12,715
Redeemable preferred stock 1 - - 1
-----------------------------------------------------------------------------------------------
Total $18,187 $680 $25 $18,842
-----------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturities at December 31,
1996, 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 Fair
(in millions) cost value
-------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 971 $ 975
Due after 1 year through 5 years 4,970 5,043
Due after 5 years through 10 years 4,871 4,946
Due after 10 years 3,949 4,083
-------------------------------------------------------------------------------------------
14,761 15,047
Mortgage-backed securities 3,754 3,799
-------------------------------------------------------------------------------------------
Total $18,515 $18,846
-------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 199
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company makes investments in collateralized mortgage obligations
(CMOs). CMOs typically have high credit quality, offer good liquidity,
and provide a significant advantage in yield and total return compared to
U.S. Treasury securities. The Company's investment strategy is to
purchase CMO tranches which are protected against prepayment risk,
including planned amortization class (PAC) tranches. Prepayment protected
tranches are preferred because they provide stable cash flows in a
variety of interest rate scenarios. The Company does invest in other
types of CMO tranches if a careful assessment indicates a favorable
risk/return tradeoff. The Company does not purchase residual interests in
CMOs.
At December 31, 1996 and 1995, the Company held CMOs, classified as
available for sale with a fair value of $1.9 billion and $2.3 billion,
respectively. Approximately 88% and 89% of the Company's CMO holdings are
fully collateralized by GNMA, FNMA or FHLMC securities at December 31,
1996 and 1995. In addition, the Company held $843.5 million and $917
million of GNMA, FNMA or FHLMC mortgage-backed pass-through securities at
December 31, 1996 and 1995, respectively. Virtually all of these
securities are rated AAA. The Company also held $1.4 billion and $1.3
billion of securities that are backed primarily by credit card or car
loan receivables at December 31, 1996 and 1995, respectively.
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
December 31, 1996
---------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in millions) Cost gains losses value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $211 $38 $30 $219
Nonredeemable preferred stocks 114 2 3 113
---------------------------------------------------------------------------------------
Total $325 $40 $33 $332
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
December 31, 1995
---------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in millions) Cost gains losses value
---------------------------------------------------------------------------------------
Common stocks $138 $48 $5 $181
Nonredeemable preferred stocks 44 2 3 43
--------------------------------------------------------------------------------------
Total $182 $50 $8 $224
--------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 200
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Proceeds from sales of equity securities were $479 million and $379
million in 1996 and 1995, respectively. Gross gains of $64 million and
$27 million and gross losses of $11 million and $2 million in 1996 and
1995, respectively, were realized on those sales.
Real estate held for sale and mortgage loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
At December 31, 1996 and 1995, the Company's real estate held for sale
and mortgage loan portfolios consisted of the following (in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $2,832 $3,385
Underperforming mortgage loans 51 241
----------------------------------------------------------------------------
Total 2,883 3,626
----------------------------------------------------------------------------
Real estate held for sale 297 293
----------------------------------------------------------------------------
Total $3,180 $3,919
----------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------
(in millions)
----------------------------------------------------
<S> <C>
Past maturity $ 78
1997 299
1998 349
1999 293
2000 364
2001 224
Thereafter 1,276
----------------------------------------------------
Total $2,883
----------------------------------------------------
</TABLE>
38
<PAGE> 201
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Concentrations
At December 31, 1996 and 1995, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's
equity.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 11.
Included in fixed maturities are below investment grade assets totaling
$1.1 billion and $1.0 billion at December 31, 1996 and 1995,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment
grade loans.
The Company also had concentrations of investments, primarily
fixed maturities, in the following industries:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking $1,959 $1,226
Finance 1,823 1,491
Electric utilities 1,093 1,023
Oil and gas 652 861
---------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals above, were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking $ 1 $ 8
Finance 65 56
Electric utilities 49 26
Oil and gas 58 66
---------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, concentrations of mortgage loans were for
properties located in highly populated areas in the states listed below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
California $ 643 $ 736
New York 297 400
---------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 202
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Other mortgage loan investments are relatively evenly dispersed
throughout the United States, with no holdings in any state exceeding
$258 million and $332 million at December 31, 1996 and 1995,
respectively.
Concentrations of mortgage loans by property type at December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(in millions) 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C>
Office $1,195 $1,513
Agricultural 677 556
Retail 307 426
Apartment 284 580
----------------------------------------------------------------------------------------------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with respect
to new mortgage loans generally require loan to value ratios of 75% or
less at the time of mortgage origination.
Non-Income Producing Investments
Investments included in the consolidated balance sheets that were
non-income producing for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(in millions) 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 7 $18
Real estate 37 65
Fixed maturities - 4
----------------------------------------------------------------------------------------
Total $44 $87
----------------------------------------------------------------------------------------
</TABLE>
Restructured Investments
The Company had mortgage loans and debt securities which were
restructured at below market terms totaling approximately $18 million and
$67 million at December 31, 1996 and 1995, respectively. 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 $5 million
in 1996 and $16 million in 1995. Interest on these assets, included in
net investment income, aggregated $2 million and $8 million in 1996 and
1995, respectively.
40
<PAGE> 203
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
16. DEPOSIT FUNDS AND RESERVES
At December 31, 1996, the Company had $21.9 billion of life and annuity
deposit funds and reserves. Of that total, $11.6 billion is not subject
to discretionary withdrawal based on contract terms. The remaining $10.3
billion is for life and annuity products that are subject to
discretionary withdrawal by the contractholder. Included in the amount
that is subject to discretionary withdrawal is $1.7 billion of
liabilities that are surrenderable with market value adjustments. Also
included are an additional $5.4 billion of the life insurance and
individual annuity liabilities which are subject to discretionary
withdrawals, and have an average surrender charge of 5.0%. In the payout
phase, these funds are credited at significantly reduced interest rates.
The remaining $3.2 billion of liabilities are surrenderable without
charge. More than 11% of these relate to individual life products. These
risks would have to be underwritten again if transferred to another
carrier, which is considered a significant deterrent against withdrawal
by long-term policyholders. Insurance liabilities that are surrendered or
withdrawn are reduced by outstanding policy loans and related accrued
interest prior to payout.
17. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by
operating activities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income from continuing operations $ 633 $ 547 $ 386
Adjustments to reconcile net income to
net cash provided by operating activities
Realized gains (65) (106) (13)
Deferred federal income taxes 58 57 307
Amortization of deferred policy acquisition
costs and value of insurance in force 281 290 281
Additions to deferred policy acquisition costs (350) (454) (435)
Investment income accrued 2 (9) (47)
Premium balances receivable (6) (8) 5
Insurance reserves and accrued expenses (1) 291 212
Other 255 62 (212)
----------------------------------------------------------------------------------------
Net cash provided by
operating activities 807 670 484
Net cash provided by (used in)
discontinued operations (350) (596) 233
----------------------------------------------------------------------------------------
Net cash provided by
operations $ 457 $ 74 $ 717
----------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 204
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
18. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1995 transfer of assets with a fair market value of approximately $1.5
billion and statutory reserves and other liabilities of approximately
$1.5 billion to MetLife (see Note 4); b) the 1995 return of capital of
Transport to TIGI (see Note 4); c) the acquisition of real estate through
foreclosures of mortgage loans amounting to $117 million, $97 million and
$229 million in 1996, 1995 and 1994, respectively; d) the acceptance of
purchase money mortgages for sales of real estate aggregating $23
million, $27 million and $96 million in 1996, 1995 and 1994,
respectively; and e) the 1994 exchange of $23 million of the Company's
investment in Travelers Group common stock for $35 million of Travelers
Group nonredeemable preferred stock.
42
<PAGE> 205
IN-VEST(SM)
PROSPECTUS
VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
L-11166 TIC Ed 5-97
Printed in U.S.A.
<PAGE> 206
' 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 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.
UNDERTAKING TO REPRESENT REASONABLENESS OF CHARGES
The Company hereby represents that the aggregate charges under the Policy of the
Registrant described herein are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Company.
<PAGE> 207
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
1. The facing sheet.
2.a The MarketLife Prospectus.
2.b The In-Vest Prospectus.
3. The undertaking to file reports.
4. The signatures.
WRITTEN CONSENTS AND OPINIONS:
A Consent of Katherine M. Sullivan, General Counsel, to filing of her
opinion as an exhibit to this Registration Statement and to the
reference to her opinion under the caption "Legal Proceedings and
Opinion" in the Prospectus. (See Exhibit 12 below.)
B. Consent and Actuarial Opinion pertaining to the illustrations contained
in the prospectus.
C. Consent of Coopers & Lybrand L.L.P., Independent Accountants.
D. Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.
EXHIBITS
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 Insurance Company
authorizing the establishment of the Registrant. (Incorporated herein by
reference to Exhibit No. 1 to Post-Effective Amendment No. 17 to the
Registration Statement on Form S-6 filed April 29, 1996.)
3(a). Distribution and Management Agreement among the Registrant, The
Travelers Insurance Company and Travelers Equities Sales, Inc. (now
known as Tower Square Securities, Inc.) (Incorporated herein by
reference to Exhibit No. 2 to Post-Effective Amendment No. 17 to the
Registration Statement on Form S-6 filed April 29, 1996.)
3(b). Selling Agreement. (Incorporated herein by reference to Exhibit 3(b) to
Post-Effective Amendment No. 1 to the Registration Statement on Form
S-6, File No. 33-63927, filed April 25, 1996.)
3(c). Agents Agreements, including schedule of sales commissions.
4. None
5. Form of Variable Universal Life Insurance Contracts. (Incorporated
herein by reference to Exhibit No. 5 to Post-Effective Amendment No. 17
to the Registration Statement on Form S-6 filed April 29, 1996.)
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.)
<PAGE> 208
7. None
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
Index Fund. (Incorporated herein by reference to Exhibits 8(a), 8(b),
8(c) and 8(d), respectively to Post-Effective Amendment No. 29 to the
Registration Statement on Form N-4, File No. 2-79529 filed on April 19,
1996.)
9. None
10. Form of Application for Variable Universal Life Insurance Contracts.
11. Specimen of each security being registered. (See Exhibit 5. above.)
12. Opinion of counsel as to the legality of the securities being
registered.
13. Actuarial Memorandum Concerning Transfer and Redemption Procedures, as
required by Rule 6e-3(T)(b)(12)(ii). (Incorporated herein by reference
to Exhibit 13 to Post-Effective Amendment No. 17 to the Registration
Statement on Form S-6 filed April 29, 1996.)
15(a). 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.
(Incorporated herein by reference to Exhibit 7(b) to Post-Effective
Amendment No. 15 to the Registration Statement, filed April 28, 1995.)
15(b) Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Michael A. Carpenter, Jay S. Benet, George C. Kokulis, Ian
R. Stuart and Katherine M. Sullivan.
27. Financial Data Schedules.
<PAGE> 209
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 of
the requirements for effectiveness of this post-effective amendment to this
registration statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this 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 25, 1997.
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
(Registrant)
By: *IAN R. STUART
---------------------------------------
Ian R. Stuart
Senior Vice President, Chief
Financial Officer, Chief Accounting
Office and Controller
The Travelers Insurance Company
*By:
Ernest J. Wright
Attorney-in-Fact
<PAGE> 210
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Depositor, The
Travelers Insurance Company, certifies that it meets all of the requirements for
effectiveness of this post-effective amendment to this registration statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this 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 25, 1997.
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By: *IAN R. STUART
-----------------------------------------
Ian R. Stuart
Senior Vice President, Chief Financial
Officer, Chief Accounting Officer and
Controller
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to this registration statement has been signed by the following
persons in the capacities indicated on April 25, 1997.
<TABLE>
<S> <C>
*MICHAEL A. CARPENTER Director, Chairman of the Board, President
- ---------------------------------- and Chief Executive Officer
(Michael A. Carpenter)
*JAY S. BENET Director
- ----------------------------------
(Jay S. Benet)
*GEORGE C. KOKULIS Director
- ----------------------------------
(George C. Kokulis)
*ROBERT I. LIPP Director
- ----------------------------------
(Robert I. Lipp)
*IAN R. STUART Director, Senior Vice President, Chief
- ---------------------------------- Financial Officer, Chief
(Ian R. Stuart) Accounting Officer and Controller
*KATHERINE M. SULLIVAN Director, Senior Vice President
- ---------------------------------- and General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ----------------------------------
(Marc P. Weill)
*By: Ernest J. Wright, Attorney-in-Fact
</TABLE>
<PAGE> 211
EXHIBIT INDEX
<TABLE>
<CAPTION>
ATTACHMENT or EXHIBIT Method of Filing
- --------------------- ----------------
<S> <C>
ATTACHMENTS
A. Consent of Katherine M. Sullivan, General Counsel, to Electronically
filing of her opinion as an exhibit to this See Exhibit 12
Registration Statement and to the reference
to her opinion under the caption "Legal Proceedings and
Opinion" in the Prospectus. (See Exhibit 12 below.)
B. Consent and Actuarial Opinion pertaining to the Electronically
illustrations contained in the prospectus.
C. Consent of Coopers & Lybrand L.L.P., Independent Electronically
Accountants.
D Consent of KPMG Peat Marwick LLP, Independent Electronically
Certified Public Accountants.
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 No. 1 to Post-Effective Amendment No. 17 to the
Registration Statement on Form S-6 filed April 29, 1996.)
3(a). Distribution and Management Agreement among
the Registrant, The Travelers Insurance Company
and Travelers Equities Sales, Inc. (now known as
Tower Square Securities, Inc.) (Incorporated herein by
reference to Exhibit No. 3(a) to Post-Effective Amendment
No. 17 to the Registration Statement on Form S-6 filed
April 29, 1996.)
3(b). Selling Agreement. (Incorporated herein by reference
to Exhibit No. 3(b) to Post-Effective Amendment No. 1 to the
Registration Statement on Form S-6, File No. 33-63927,
filed April 25, 1996.)
3(c). Agents Agreements, including schedule of sales Electronically
commissions.
5. Form of Variable Universal Life Insurance Contracts.
(Incorporated herein by reference to Exhibit No. 5 to
Post-Effective Amendment No. 17 to the Registration
Statement on Form S-6 filed April 29, 1996.)
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.)
</TABLE>
<PAGE> 212
<TABLE>
<CAPTION>
EXHIBIT Method of Filing
- ------- ----------------
<S> <C>
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.)
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
Index Fund. (Incorporated herein by reference to Exhibits
8(a), 8(b), 8(c), 8(d) to Post-Effective Amendment No. 29
to the Registration Statement on Form N-4, File No. 2-79529
filed on April 19, 1996.)
10. Form of Application for Variable Universal Life Electronically
Insurance Contracts.
11. Specimen of each security being registered.
(See Exhibit 5. above.)
12. Opinion of counsel as to the legality of the securities Electronically
being registered.
13. Actuarial Memorandum Concerning Transfer and Redemption
Procedures, as required by Rule 6e-3(T)(b)(12)(ii).
(Incorporated herein by reference to Exhibit 13 to Post-
Effective Amendment No. 17 to the Registration Statement
on Form S-6 filed April 29, 1996.)
15(a).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. (Incorporated by reference to Amendment
No. 15 to Post-Effective Amendment No. 15 to
Registration Statement on Form S-6, filed via Edgar
on April 28, 1995.)
15(b) Powers of Attorney authorizing Ernest J. Wright or Electronically
Kathleen A. McGah as signatory for Michael A. Carpenter
Jay S. Benet, George C. Kokulis, Ian R. Stuart and
Katherine M. Sullivan.
27. Financial Data Schedules. Electronically
</TABLE>
<PAGE> 1
ATTACHMENT B
April 16, 1997
ACTUARIAL OPINION
The illustrations included in the prospectus have been based on assumptions and
charges which are consistent with the provisions of the 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 owners
at other ages.
Mahir Dugentas, ASA, MAAA
Director of Pricing
<PAGE> 2
ATTACHMENT C
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 18 to the
Registration Statement of The Travelers Fund UL for Variable Life Insurance
(the "Trust") on Form S-6 (File No. 2-88637) of our report dated February 7,
1997, on our audit of the financial statements of the Trust, which report is
included in the Trust's Annual Report for the year ended December 31, 1996
which is included in this Post-Effective Amendment to the Registration
Statement. We also consent to the reference to our Firm as experts in
accounting and auditing under the caption "Independent Accountants".
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 23, 1997
<PAGE> 3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Travelers Insurance Company:
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".
KPMG Peat Marwick LLP
Hartford, Connecticut
April 22, 1997
<PAGE> 4
ATTACHMENT B
April 16, 1997
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.
Mahir Dugentas, ASA, MAAA
Director of Pricing
<PAGE> 1
ATTACHMENT C
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 18 to the
Registration Statement of The Travelers Fund UL for Variable Life Insurance
(the "Trust") on Form S-6 (File No. 2-88637) of our report dated February 7,
1997, on our audit of the financial statements of the Trust, which report is
included in the Trust's Annual Report for the year ended December 31, 1996
which is included in this Post-Effective Amendment to the Registration
Statement. We also consent to the reference to our Firm as experts in
accounting and auditing under the caption "Independent Accountants".
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 23, 1997
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Travelers Insurance Company:
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".
KPMG Peat Marwick LLP
Hartford, Connecticut
April 22, 1997
<PAGE> 1
EXHIBIT 3(c)
LIFE MARKETING GENERAL AGENT CONTRACT
BETWEEN
THE TRAVELERS INSURANCE COMPANY, Hartford, Connecticut (we, us, our), and
of (you, your)
For the considerations hereinafter expressed, it is mutually agreed that your
authority to act as our General Agent is granted by us and accepted by you upon
the following limitations, terms, provisions and conditions:
1. This contract shall become effective on ________________, covering
those non-variable life insurance and annuity policies issued by our
Financial Services Department and shown on the attached schedules.
2. You are authorized to solicit applications covering such classes of
risks as we may from time to time authorize to be solicited. You are
authorized, subject to our instructions, to collect first or single
premiums with an application and any other premiums we may ask you to
collect. You shall submit completed application and remit premiums
promptly as instructed by our procedures.
3. In our sole discretion, we will select and price each policy form that
you may sell and we may reject any application.
4. In our sole discretion, we will appoint agents and brokers nominated by
you. Contracts may be made directly between such agents and brokers and
us on forms we supply. All commissions provided for in such contracts
shall be your obligation and deductible from the commissions we pay to
you under this contract.
5. You have no authority for or on behalf of us: to accept risks of any
kind; to make, alter, vary or discharge any policy; to extend the time
for payment of premiums; to waive or extend any policy obligation or
condition; to take payment of premiums other than in current funds; to
incur any liability or expense in our behalf; to deliver any policy
unless the applicant therefor is at the time of delivery in good health
and insurable condition; or to receive any money due or to become due
to us except as set forth in paragraph 2.
6. We will pay you as full compensation on premiums paid to us on policies
issued on applications obtained by or through you while this contract
is in effect, the commissions and allowances described in Parts 1, 2, 3
and 4. Your right to
<PAGE> 2
compensation shall be subject to the limitations of this contract, its
written amendments and the Schedules issued by us from time to time for
attachment to it.
If there is more than one contract between you and us that quotes
commissions on the same policy form we will pay commission under only
one such contract. We, as a condition precedent to any obligation for
payment hereunder, have a right to reduce or set-off any compensation
payable under this contract because of any indebtedness to us.
PART 1
COMMISSIONS ON PREMIUMS FOR THE FIRST YEAR OF INSURANCE:
See Schedule A.
PART 2
COMMISSIONS ON RENEWAL PREMIUMS:
See Schedule B.
PART 3
RENEWAL COMPENSATION (OVERRIDE) IN EVENT OF TERMINATION OF CONTRACT:
At termination, the renewal override, as shown in Schedule B, shall be payable
to you, your executors, administrators or assigns. But in no event will such
override be paid beyond the tenth year of insurance.
PART 4
ALLOWANCES DURING CONTINUANCE OF THIS CONTRACT:
See Schedule C.
7. At any time, by written notice to you, we may change the allowances
under this contract, and may change the compensation allowed as to
policies effective on and after the effective date of such change.
8. We will pay commissions and allowances on premiums paid for additional
benefits or increases in benefits of any kind at the same rate as is
being allowed at the time of addition, or increase for the premiums of
the policies to which they are added. We will not pay compensation: on
premiums for a policy which is a conversion of Employee Special
Protection Plan, Employee Life Insurance-Plan 1 or group life
2
<PAGE> 3
insurance; on extra premiums for a policy which are charged due to
temporary flat substandard rating because of physical impairments; or
on premiums of a policy which are waived under any provision of such
policy.
On policies issued with Table 7 or above rates we will pay a modified
commission for the first year of insurance in accordance with our
rules.
9. If you convert one of our term policies to a different form, we will
pay compensation in accordance with our rules applying to such policies
at the time of conversion.
10. Where, in our judgment, a policy replaces a policy previously issued by
us on the same policyholder (other than as a term conversion), the
commission payable for the first year of insurance on the new policy
will be adjusted in accordance with our procedures in effect at the
time of such replacement.
11. Compensation on all universal life policies which would otherwise be
payable, will not be paid on remittances received for policies
following a partial withdrawal until the sum of such remittances equals
the amount of the withdrawal at which time we will pay compensation on
subsequent remittances.
12. While recognizing the opportunity for flexibility in policyholder
service options inherent to universal life forms of insurance, evidence
of manipulation by you of universal life policies, contributions,
loans, surrenders or replacements, not deemed by us to be in the best
interest of the policyholder or us shall cause divestiture of your
right to continuing compensation and termination of this contract.
13. If we return the premiums on a policy or any portion of such premiums
for any cause, you will refund to us on demand, the amount of
compensation you received on such returned premiums.
14. No assignment of compensation payable under this contract shall be
binding upon us without our written consent.
15. You shall not pay or allow, or offer to pay or allow, as an inducement
to any person to insure, any rebate of premium or any inducement
whatever not specified in the policy, nor will you make any
misrepresentation or incomplete comparison for the purpose of inducing
a policyholder in any other company to lapse, forfeit, or surrender
insurance therein, nor will you cause any advertisement respecting us
to be published or broadcast in any form whatever without first
obtaining our written consent.
16. Nothing in this contract will be construed to imply that an employment
relationship exists between you and us. Acceptance of compensation
under this contract will constitute ratification by you of your status
as an independent contractor. You will
3
<PAGE> 4
not be treated as an employee for federal tax purposes and you are
responsible for paying your own estimated income and self-employment
tax.
17. This contract cancels all previous contracts or agreements whether oral
or written between you and us covering the lines of insurance referred
to in this contract and may be terminated by either party at any time
by giving to the other party seven days notice in writing to that
effect.
IN WITNESS WHEREOF, the parties hereto have signed this contract in duplicate.
THE TRAVELERS INSURANCE COMPANY
Senior Vice President
Financial Services Department
________________________________
General Agent (Firm Name)
By______________________________
Title_____________________________
Date_____________________________
4
<PAGE> 5
THE TRAVELERS INSURANCE COMPANY
LIFE MARKETING GENERAL AGENT CONTRACT (LGA)
SCHEDULE A
Commissions on Premiums Payable for the First Year of Insurance:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
COMMISSIONS AS A OVERRIDE AS A
FORM OF POLICY PERCENT OF PREMIUM PERCENT OF PREMIUM TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNIVERSAL LIFE-NEW PREMIUM
VIP Classic (CLASUL/CLASU2) 50 5 55
* Travelers Universal Life (TUL91) 50 5 55
Travelers Pension Universal Life '88 (ULQP88) 50 5 55
* Travelers Survivorship Life II (TSL II) 50 5 55
* Travelers First Life Contract (TFTD) 50 5 55
</TABLE>
For VIP Classic New premium is equal to the lesser of the Selected Annual
Premium minus riders and benefits or the maximum amount quoted in the table of
commissionable premiums.
* Annual Renewable Term Riders/Insured Term Insurance Riders will pay new
commissions equal to 40% of first year premium for the rider.
- --------------------------------------------------------------------------------
UNIVERSAL LIFE-INCREASES IN STATED AMOUNT
Commissions on increases in stated amount are based on the additional premium
amount for the increase in coverage at the original issue age of the insured as
of the date of the increase.
For Travelers Pension Universal Life '88 increases in stated amount generate
commissions based on the table of commissionable premiums. The Company will pay
new commissions on increases in stated amount when new money is paid into the
policy. If the Company determines that the increase is prefunded, new
commissions will be paid even if no further premium is paid.
Commissions on Excess Premiums Payable for the First Year of Insurance:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
COMMISSIONS AS A OVERRIDE AS A
FORM OF POLICY PERCENT OF PREMIUM PERCENT OF PREMIUM TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNIVERSAL LIFE-EXCESS PREMIUMS
VIP Classic (CLASUL/CLASU2) 5 4.0 9.0
All Other Forms 4 2.5 6.5
</TABLE>
Excess premium for Travelers Universal Life is the premium credited during the
first policy year which is in excess of the New premium and includes premium
required in the low band ($25,000-599,999) for the flat load.
5
<PAGE> 6
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
COMMISSIONS AS A OVERRIDE AS A
FORM OF POLICY PERCENT OF PREMIUM PERCENT OF PREMIUM TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PERMANENT INSURANCE
Presidential Whole Life (PWL88) 50 5 55
Travelers Interest Sensitive Whole Life (CAWL) 50 5 55
Life Pay 50 5 55
40 Pay 50 5 55
30 Pay 50 5 55
20 Pay 45 5 50
15 Pay 40 5 45
10 Pay 35 5 40
TERM INSURANCE
* Annual Renewable Term to 75 (YRT75) 40 5 45
Yearly Renewable Term for 10 Years 40 5 45
* 10 Year level Term (10LT) 40 5 45
* Special T Term (APT) 40 5 45
* APT, YRT75 and 10LT policy fees are not commissionable
</TABLE>
On all other forms as quoted by the Company.
Under the provisions of this Contract, the first-year premiums on policies
written by Agents and Brokers of the General Agent, who are beneficial owners of
the General Agency, are eligible for the first-year overriding commission
provided the total combined production of the beneficial owners of the General
Agency does not exceed 50% of the total General Agency production according to
the Company's records for such calendar year. In the event the production of
such beneficial owners exceeds 50% of the total General Agency production,
first-year overriding commissions will be reduced by one percentum for each
one-tenth or a fraction thereof of such total business by which such business
obtained personally by such principals exceeds one-half of such total business.
This schedule of first-year commissions and overrides applies to policies
effective on or after and should be filed with the Life Marketing General Agent
Contract, of which it forms a part. This schedule may be amended by the Company
at any time.
THE TRAVELERS INSURANCE COMPANY
Senior Vice President
Financial Services Department
6
<PAGE> 7
THE TRAVELERS INSURANCE COMPANY
LIFE MARKETING GENERAL AGENT CONTRACT (LGA)
SCHEDULE B
Commissions on Premiums Payable After the First Year of Insurance:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
COMMISSIONS AS A OVERRIDE AS A
FORM OF POLICY INSURANCE YEAR PERCENT OF PREMIUM PERCENT OF PREMIUM
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Universal Life
VIP Classic (CLASUL/CLASU2) 2-10 5 4.0
11-15 - 2.0
All Other Forms 2-10 4 2.5
11-15 - 2.0
- ---------------------------------------------------------------------------------------------------------
Whole Life
Presidential Whole Life (PWL88) 2-10 4 2.5
11-15 - 2.0
Travelers Interest Sensitive Whole 2-10 4 2.5
Life (CAWL) 11-15 - 2.0
- ---------------------------------------------------------------------------------------------------------
Term Life
Annual Renewable Term to 75 (YRT75) 2-10 4 2.5
11-15 - 2.0
10 Year Level Term (10 LT) 2-10 4 2.5
11-15 - 2.0
Special T (APT) 2-10 2 2.0
11-15 - 2.0
Yearly Renewable Term for 10 Years 2-10 4 2.5
(YRT10)
On all other forms as quoted by the Company
- ---------------------------------------------------------------------------------------------------------
</TABLE>
This schedule applies to policies effective on or after and should be
filed with the Life Marketing General Agent Contract, of which it forms a part.
This schedule may be amended by the Company at any time.
THE TRAVELERS INSURANCE COMPANY
Vice President
Financial Services Department
7
<PAGE> 8
THE TRAVELERS INSURANCE COMPANY
LIFE MARKETING GENERAL AGENT CONTRACT (LGA)
ALLOWANCES
SCHEDULE C
LIFE ALLOWANCES
UL PRODUCT: Universal Life policy forms as noted in Schedule A of this Life
Marketing General Agent Contract.
TERM PRODUCTS: Term policy forms as noted in Schedule A of this Life Marketing
General Agent Contract.
TIC NEW PREMIUM: New premium as defined by Addendum I of this Contract produced
by the Life Marketing General Agent in The Travelers Insurance Company (TIC).
LIFE NEW PREMIUM: The sum of all New premium credited for the Life Marketing
General Agent within a calendar year. New premium is defined by Addendum I of
this Contract produced by the Life Marketing General Agent for all products
noted in Schedule A of contracts for both The Travelers Insurance Company and
The Travelers Life and Annuity Company.
GENERAL AGENT ALLOWANCE: A percentage of Life New Premium earned by the Life
Marketing General Agent. This percentage may vary by form of policy and is
applied to TIC New premium. The amount paid will be in accordance with the
thresholds established in the schedule below.
<TABLE>
<CAPTION>
Percent of TIC New Premium
Total Compensation on New TIC
Life New Premium General Agent Allowance Premium (Schedules A + C)
Threshold UL Products Term Products UL Term
- --------- ----------- ------------- -- ----
<S> <C> <C> <C> <C>
$0-124,999 31 25 86 70
$125,000-249,999 41 30 96 75
$250,000-699,999 41 35 96 80
$700,000-999,999 41 40 96 85
$1,000,000 + 41 45 96 90
</TABLE>
ANNUITY ALLOWANCES
In addition to the commissions paid under the Life Producer Contract, an
allowance equal to 1% of single premiums on the T-Flex, Group Choice and Single
Premium Immediate Annuities will be paid to the Life Marketing General Agent.
The Company in its sole discretion and only during the continuance of your
contract as Life Marketing General Agent, will subject to the maximums imposed
by law or regulation, pay the allowances indicated in this schedule.
This schedule is effective on or after and should be filed with the Life
Marketing General Agent Contract, of which it forms a part. This schedule may be
amended by the Company at any time.
THE TRAVELERS INSURANCE COMPANY
Senior Vice President
Financial Services Department
8
<PAGE> 9
Travelers Life Contract
Addendum I
As used in all Travelers Agent Life Contracts:
1. "FLEXIBLE PREMIUM" policy means a policy under which the
policyholder can unilaterally vary the amount or timing of
premium.
2. "NEW" premium is the premium paid in the first year of the
Flexible Premium policy that is commissioned at the first year
rate. Increases in coverage after policy issue may also
generate New premium. For Term contracts, New premium is the
premium required to be paid in the first year. Certain Term
contracts may have non-commissionable policy fees in the first
year.
3. "EXCESS" premium is the premium credited to a Flexible Premium
policy in the first year that is greater than New premium.
4. "RENEWAL" premium is the premium credited to a Flexible
Premium policy in all years following the first year with the
exception of that portion of Renewal premium designated by the
Company, in its sole discretion, as an increase.
If, in the opinion of the Company, any payment, or credit or the
acceptance of premium would cause or contribute to the Company's
violation or the exceeding of limits of state or federal law applicable
to insurance companies or life insurance contracts including, but not
limited to the Internal Revenue Code of 1986 as amended, the Company
reserves the right, in its sole discretion, to reduce, postpone, cancel
or otherwise fail to pay or credit any commission, benefit,
consideration or right created hereunder, all without further liability
to the agent or the agent's heirs, assigns, successors or
administrators.
Senior Vice President
Financial Services Department
9
<PAGE> 1
EXHIBIT 10
The Travelers
Life Insurance Application
PART ONE
GENERAL INSTRUCTIONS
o Please PRINT legibly with black ink. DO NOT TYPE.
o Answer all appropriate questions fully.
o Please note instructions for each section provided in
italicized print.
o Please complete any necessary supplemental forms.
o The Medical Information Bureau/Fair Credit Reporting Act notice
must be #detached and given to the Proposed Insured.
-------------------------------------------------------------
Proposed Insured's Name (print full name)
$ ADVANCED PAYMENT AMOUNT ENCLOSED UNDERWRITING
----------------------
==============================================================================
REQUIREMENTS ORDERED:
<TABLE>
<S> <C> <C> <C>
[ ] Blood Profile [ ] Urine Specimen [ ] ECG [ ] Paramed Exam
[ ] Treadmill ECG [ ] Inspection Report [ ] M.D. Exam
ABOVE REQUIREMENTS ORDERED FROM:
[ ] ASB Meditest [ ] EMSI [ ] PMI (Equifax) [ ] Portamedic (Hooper Holmes)
[ ] M.D. Examiner Not Name:________________________________________________ (Facility or MD)
Affiliated with Address: ___________________________________________________
the above: Phone: (___) __________________ Fax: (____)
</TABLE>
[ ] WE HAVE NOT ORDERED UNDERWRITING REQUIREMENTS. PLEASE ARRANGE FOR US AND
ADVISE OUR OFFICE.
ATTACHED FORMS ARE REQUIRED TO PROCESS THIS CASE:
[ ] AIDS Consent Form [ ] Juvenile Supplement
[ ] State Required Replacement Form [ ] State Required Supplement
[ ] Life Financial Supplement [ ] Other (specify):
AGENCY CONTACT: Name: ________________________________________________________
__________ Phone: (____) _________ Fax: (____)________
AGENT'S NAME & PRODUCER CODE (Sticker or Plate)
SPECIAL PROCESSING UNDERWRITING INSTRUCTIONS:
____________________________________________________________
____________________________________________________________
[ ] Comments continued on back page of application.
L-11855 The Travelers
<PAGE> 2
Life Insurance Application - General Information
PROPOSED INSURED
Questions must be answered by the Proposed Insured. If the Proposed Insured is
under age 16, complete JUVENILE SUPPLEMENT.
<TABLE>
<S> <C>
1. Print Name in Full ______________________________________ Social Security No.__________
first middle last
2. Date of Birth _________ Birthplace ______________________________ Sex ____ Marital Status ________
city state country if other than U.S.
3. Residence Address _______________________________________________________Apt. No. _________
street and number
City _____________________________________________ State _________________ Zip _____________
Phone Number ____________ Best Time to Call ________Check Billing Preference: [ ] Home [ ] Business
4. If Proposed Insured has resided at address less than one year, show prior
address: Street and Number________________________________________________________ Apt. No. ________
City _______________________________________ State ____________________ Zip________________
5 . Employer (Name of Firm)__________________________________________________________________
6. Business Address _________________________________________________________ Suite No._______
street and number
City __________________________________ State ________________________ Zip ________________
Phone Number ___________ Best Time to Call _________ Check Calling Preference:[ ] Home [ ] Business
7. Occupation (Position or Title) _______________ Annual Salary $ ___________ Other Income $____________
POLICY INFORMATION
For face amounts of $1,000,000 and over, use Financial Supplement. For spousal
or child coverage, use FAMILY INSURANCE SUPPLEMENT. For Variable Universal Life policies,
complete VARIABLE UNIVERSAL LIFE SUPPLEMENT instead of questions 8 through 12 below.
8. Life Insurance Plan _____________ Amount $__________ Death Benefit (UL Only): [ ] Level [ ] Increasing
If increase on existing policy: Current Amount. $____________________ New Amount $_______________
9. Supplemental Benefits/Term Riders, where applicable and if available:
[ ] Waiver of Premium or Monthly Deduction Amount [ ] Insured Term Rider $_______
[ ] Cost of Living Adjustment (COLA) [ ] Accidental Death $ ___________
[ ] Accelerated Benefits Rider (TUL 91 only) [ ] Child Term Rider (Units) ______
[ ] Annual Renewable Term: Insured $__; Spouse $___ [ ] Survivor Insurability Rider (First Life
Other: ________________________________________________________________________________
10. Premium Payment Plan (Check one block in either the Regular or Statement
Bill section) Regular Bill: [ ] Single [ ] Annual [ ] Semi-Annual [ ] Automatic Premium Check/Payor Soc. Sec. No.
Statement Bill: [ ] Annual [ ] Semi-Annual [ ] Quarterly [ ] Monthly
If increase on existing policy, are you changing the Premium Payment Plan? [ ] Yes [ ] No
11. Planned Premium Amount $_____________________ (Modal)
If increase on existing policy Current Amount _________________ $ New Amount $________
12. Duration (Interest Sensitive Whole Life Only): [ ] Life Pay [ ] 40 Year [ ] 30 Year [ ] 20 Year [ ]
[ ] 15 Year [ ] 10 Year
[ ] Other, list product and duration(s)
</TABLE>
POLICY OWNER
Applicant is the owner of any contract issued on this application unless
otherwise noted below. For Multiple Ownership: Upon owner's death,
indicate whether owner ship interests pass to:
[ ] Surviving owner(s) (Joint Tenants) or [ ] Deceased Owner's Estate
(Tenants in Common)
13. Full Name and Social Security or Tax ID Number _____________________________
________________________________________________________________________________
If succeeding ownership is desired, indicate name, address and relationship to
Insured in Agent's Comments section on front cover. Succeeding owner will
become owner upon original owner's death.
BENEFICIARY
Payment due two or more beneficiaries or to the survivor(s) of them will
be in equal shares, unless otherwise requested. The right to
change a beneficiary is reserved.
14. Beneficiary Name (specify full name(s) and relationships) ________________
______________________________________________________________________________
______________________________________________________________________________
THE TRAVELERS INSURANCE COMPANY, ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
L-11855
<PAGE> 3
Policy Risk Information
TOBACCO USE DECLARATION
Have you smoked cigarettes, cigars or a pipe, chewed or used tobacco in any
other form within the last 12 months? [ ] YES [ ] NO
GENERAL RISK INFORMATION
Please give details to all YES answers in the space provided on the right. If
space insufficient, continue on Additional Information section.
HAS THE PROPOSED INSURED:
<TABLE>
<CAPTION>
YES NO
<S> <C> <C> <C>
1. Been postponed, rated or declined for Life, Health, Accident or Sickness
Insurance in the past 5 years? (If YES, state reason(s) and date(s) of such action.) [ ] [ ]
2. Flown within 5 years as a pilot, student pilot or crew member of any aircraft or
as a passenger on other than a scheduled airline, or expect to make such a
flight? (If YES, complete the AVIATION SUPPLEMENT.) [ ] [ ]
3. Engaged in automobile or motorcycle racing, sports parachuting, skin or scuba
diving or hang gliding? (If YES, complete the AVOCATION SUPPLEMENT. [ ] [ ]
4. Been convicted of 2 or more moving violations of any motor vehicle law or had
driver's license suspended in the past 3 years? (If YES, list driver's
license number and details.) [ ] [ ]
5. Does insurance applied for replace existing annuity or life insurance?
(If YES, list company name, amount, replacement date and policy number.) [ ] [ ]
6. Do you intend to change your occupation or reside or travel out of the United
States or Canada? (If YES, give details of occupation change and/or complete
the FOREIGN TRAVEL OR RESIDENCE SUPPLEMENT, as appropriate.) [ ] [ ]
</TABLE>
MEDICAL HISTORY
Answer all questions unless Part Two (Medical Examination) is required. For all
YES responses, give the question number, names and addresses of doctors, when
and why consulted. Include diagnosis dates, duration of illness or injury and if
recovery was full and complete. Complete MEDICAL SUPPLEMENT if Proposed Insured
has or has had a history of high blood pressure, chest pain, diabetes,
headaches, epilepsy, asthma, digestive problems, drug or alcohol abuse. If space
insufficient, continue on Additional Information section.
HAS THE PROPOSED INSURED EVER HAD, BEEN TREATED OR RECEIVED MEDICAL
CONSULTATION FOR:
<TABLE>
<CAPTION>
YES NO
<S> <C> <C>
7. Heart trouble, chest pain, angina, stroke or heart murmur? [ ] [ ]
8. High blood pressure, disorder of blood, anemia or varicose veins? [ ] [ ]
9. Nervous or mental problems, paralysis, epilepsy, fainting, or disorder of the
brain, nerves or nervous system? [ ] [ ]
10. Cancer, tumors, cysts or growths, disorder of skin or glands? [ ] [ ]
11. Diabetes, albumin, sugar/blood in urine? Disease of bladder or reproductive
organs or sexually transmitted disease? [ ] [ ]
12. Arthritis, rheumatism, gout, disorder of muscles or bones, spine or joints? [ ] [ ]
13. Ulcer or disorder of stomach, intestines, liver, kidneys, gallbladder, or hernia? [ ] [ ]
14. Asthma, allergy, pleurisy, tuberculosis, lung disorder, emphysema or chronic
cough? [ ] [ ]
15. Alcoholism or use of any habit-forming drugs? [ ] [ ]
16. Disorder of the immune system, Acquired Immune Deficiency Syndrome
(AIDS), AIDS-Related Complex (ARC) or a positive test for infection by the
AIDS (HIV) virus? [ ] [ ]
HAS THE PROPOSED INSURED:
17. Had in the past 5 years any other sickness or injury not referred to above? [ ] [ ]
18. Had health examinations or medical checkups or been a patient in a hospital,
clinic or sanitarium for treatment in the past 5 years? [ ] [ ]
19. Had any surgery or been advised to have surgery which has not been
performed? [ ] [ ]
20. Had or been advised to have electrocardiogram, X-ray or other medical tests
in the past 5 years? [ ] [ ]
21. Height ____ ft. ____ in. Weight _____ lbs. Weight loss past 12 mos. _______ lbs.
</TABLE>
<PAGE> 4
Policy Risk Information, continued
<TABLE>
<CAPTION>
<S> <C> <C> <C>
22. Has a parent, brother or sister ever had heart disease, stroke, cancer, diabetes,
high blood pressure or hereditary disease? YES [ ] NO [ ]
23. Please complete the following family history information:
</TABLE>
<TABLE>
<CAPTION>
Age(s) Age(s)
(if Living) Condition of Health* (at death) Cause of Death
----------- ------------------- -------- --------------
<S> <C> <C> <C> <C>
Father
- -------------------------------------------------------------------------------------------------------------------
Mother
- -------------------------------------------------------------------------------------------------------------------
Brothers and Sisters
- -------------------------------------------------------------------------------------------------------------------
No. Living
- -------------------------------------------------------------------------------------------------------------------
No. Dead
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*If not "good", please provide details in Additional Information Section.
ADDITIONAL INFORMATION
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Authorization Section
DECLARATION: APPLICANT declares to the best of his/her knowledge and belief
that all of the statements and answers in Part One and Part Two, if required,
are complete and true. APPLICANT UNDERSTANDS AND AGREES THAT: (a) Part One and
Part Two, if required, and any supplements to it will form the basis for any
insurance issued; (b) Except as stated in the attached Advance Payment Receipt,
no insurance will take effect until: (1) the contract is delivered to the
Applicant; and (2) the first premium is paid in full while the health and other
conditions relating to insurability remain as described in this application;
(c) No agent is authorized: (1) to make, alter, or discharge any contract; (2)
to waive or change any condition or provision of any contract, application, or
receipt; and (3) to accept any risk or to pass on insurability. The Proposed
Insured will be the Applicant of any contract issued on this application unless
otherwise indicated below. The right to privacy is protected as required by
law.
AUTHORIZATION FOR THE RELEASE OF INFORMATION: THE PROPOSED INSURED(S) authorize
The Travelers Insurance Company (referred to as The Travelers), its Reinsurers,
insurance support organizations, and medical and other information in order to
evaluate this application for insurance. The Proposed Insured authorizes any
physician, medical facility, insurance company, the Medical Information Bureau,
Inc., employer, consumer reporting agency, or other organization, institution,
or person having information available as to employment, other insurance
coverage, medical care, treatment, supplies or advice with respect to the
Proposed Insured or his/her children to furnish such information to The
Travelers, its Reinsurers or their authorized representatives.
This authorization will be valid from the date signed for a period of 2-1/2
years. A photographic copy of this authorization is as valid as the original.
Information given in this application, including health care information, may
be made available without prior authorization to other insurance companies to
which an application for life or health insurance coverage is made, or to which
a claim is submitted.
ACKNOWLEDGMENT: The PROPOSED INSURED(S) acknowledge receipt of the following
notices: "Medical Information Bureau Disclosure Notice," and "Your Privacy and
The Fair Credit Reporting Act." The PROPOSED INSURED(S) and APPLICANT, if
different, have read this authorization and understand that they have a right
to receive a copy.
I have paid to ________________the sum of $_______ and hold a receipt bearing
the number imprinted hereon.
Witnessed by ___________________ Name of Proposed Insured (please print)_______
Licensed Resident Agent
Proposed Insured's signature_______________________________________________
parent/guardian if a minor
Applicant's signature, if different_________________________________________
If Qualified Pension Plan, name of plan and signature of Trustee.
Name and telephone number of Agent (please print)___________________________
Dated ________________ At (City or Town, State)_____________________________
<PAGE> 5
Advance Payment Form
ADVANCE PAYMENT QUESTIONNAIRE
The attached receipt provides for a LIMITED AMOUNT of Life Insurance
protection, for a LIMITED PERIOD of time, subject to the terms of the receipt.
This section MUST be completed for the proposed insured to be eligible for Life
Insurance protection under the terms of the receipt.
Has any person proposed for insurance:
<TABLE>
<Caption.
YES NO
<S> <C> <C>
(1) within the past 90 days, been admitted to a hospital
or other medical facility, been advised to be admitted,
or had surgery performed or recommended? [ ] [ ]
(2) within the past 2 years, been treated for heart trouble,
stroke, or cancer or had such treatment
recommended by a physician or other medical
practitioner? [ ] [ ]
</TABLE>
If any of the above questions are answered YES or LEFT BLANK, no representative
of The Travelers Insurance Company is authorized to accept money, and NO
COVERAGE will take effect under the agreement. The Proposed Insured also
understands and agrees that in no event will insurance take effect at an age or
amount requiring a medical examination as outlined in Item 4 of the attached
receipt until completion of the medical examination.
I declare that the answers to the above questions are true to the best of my
knowledge and belief. I understand and agree to the terms of the attached
receipt.
---------------------------------------------------------
Proposed Insured's signature (parent/guardian if a minor)
---------------------------------------------------------
Applicant's signature (if different)
---------------------------------------------------------
Date
L-11855-R-1
- -----------------------------------------------------------------------------
ADVANCE PAYMENT RECEIPT
The following receipt is to be given for advance payment at least equal to
one month's premium, but not less than $10. All premium checks must
be made payable to the company. Do not make checks payable to the
agent or leave the payee blank. For Variable Universal Life use
receipt attached to Variable Universal Life Supplement.
Type of Policy ______________________________________
Received from ______________________________________
the sum of $ _______________________________________
in connection with an application for life insurance to The Travelers Insurance
Company, One Tower Square, Hartford, CT 06183, bearing the number imprinted on
this receipt, upon the following terms and conditions:
1. Insurance under the terms of the policy applied for and subject to the
limits in Item 4 will be effective on the latest of the dates of the Part
One application, Part Two Medical examination or other medical tests if
required by the Company's underwriting rules for the Proposed Insured's
age, plan or amount of insurance applied for, provided that the above sum
is sufficient to pay in full the first premium for the policy. Coverage
under the terms of this receipt will end on the earlier of (a) 60 days
after the date of this application, or (b) the date we notify the Applicant
that there is no coverage. There is no insurance provided if there is
material misrepresentation in the Part One application, supplement (if
required) or Part Two medical examination or if the Proposed insured
commits suicide.
2. If the above sum is less than the full first premium but is at least
equivalent to a monthly premium for the amount and plan of insurance
applied for, then unless the remainder of the first premium is paid within
30 days from the date the insurance becomes effective, the insurance will
be effective as provided in Item 1 only for the fraction of one year as the
amount paid bears to the annual premium for the contract applied for. If
the sum paid is less than the equivalent of a monthly premium, no insurance
will be effected by this receipt.
<PAGE> 6
3. The above sum will be returned to the Applicant if the application is
rejected; or, if a contract is issued upon this application at other than
standard rates or for other than the amount and plan of insurance applied
for, unless acceptable to the Applicant as issued; or, on request of the
Applicant and surrender of this receipt, if within 60 days from the date of
this receipt a contract has not been issued on this application.
4. The maximum limits of insurance which may be effected under the terms of
this receipt are as follows:
<TABLE>
<CAPTION>
AGE OF NON-MEDICAL MEDICAL/PARAMEDICAL
PROPOSED INSURED AMOUNT AMOUNT
<S> <C> <C>
15 days-35 yrs. $250,000 $500,000
36-45 100,000 500,000
46-50 75,000 500,000
51-60 -0- 500,000
61-75 -0- 250,000
</TABLE>
Any insurance applied for in excess of these limits, including accidental death
benefit, and on which any premium is paid in advance, will not take effect
until the policy is delivered to the Applicant and the balance of the first
premium, if any, is paid in full, all while the Proposed Insured's health and
other conditions relating to insurability remain as described in the
application. In the event of the death of the Proposed Insured before the
excess insurance is effected, that portion of the sum received relating to the
excess insurance will be returned.
Licensed Resident Agent ____________________________
Dated ___________________
L-11855-R
<PAGE> 7
AUTHORIZATION OF AUTOMATIC PREMIUM CHECK PAYMENT
Please attach a voided check. Make sure your address and the bank address
appear correctly on the check.
Name: _______________________________ Phone Number:____________________________
Policy Number(s):______________________________________________________________
I hereby authorize you, the bank, to charge my account, to cover monthly
premium payments for my policy(ies) with The Travelers Insurance Company. I
understand and agree that the bank will not be liable for any payment that may
not be honored, intentionally or inadvertently, even if such dishonor results
in forfeiture of insurance. This authority is to remain in effect until my
further written notice.
Please select date of monthly withdrawal
[_] 8th [_] 22nd
[_] 15th [_] 29th
My signature below is exactly as I sign my personal checks.
Bank Name:_______________________________________
Bank Address: _____________________________________
Checking Account Number: __________________________
SIGNATURE OF DEPOSITOR __________________________________
DATE _____________________
L-11855-A
- -------------------------------------------------------------------------------
YOUR PRIVACY AND THE FAIR CREDIT REPORTING ACT
This notice must be detached and given to the Proposed Insured before the
application is completed.
Part of our underwriting may include an investigative report prepared with
information obtained in interviews with you, your neighbors, friends or other
acquaintances as to your character, reputation, personal characteristics and
mode of living. If an investigation is made we will handle it in the strictest
confidence.
Your application, with the medical history and other information you furnish,
and the investigative consumer report if made, are the initial basis of our
under writing evaluation. Your agent supplies information about you that serves
underwriting as well as marketing research purposes. The Fair Credit Reporting
Act requires that no investigative report be made on any consumer unless:
1. the person to be reported on has been given written notice that such a
report may be or has been requested,
and
2. that person is informed that he/she has the right to ask for disclosure of
the type of information being sought.
If you wish information on the nature and scope of the Consumer Report which
may be requested, or any other investigative report which may be made, write to
The Travelers Insurance Company, FSD Underwriting and Issue Division, One Tower
Square, Hartford, Connecticut 06183.
L-11855-P
<PAGE> 8
MEDICAL INFORMATION BUREAU DISCLOSURE NOTICE
Any health care information developed is necessary to classify insurance risks,
conduct normal administrative procedures and process claims, and will be used
for those purposes only. No other use of this information will be made without
first obtaining your written consent.
This information will be treated as confidential except that The Travelers
Insurance Company or its Reinsurer(s) may make a brief report to the Medical
Information Bureau, Inc., a non-profit membership corporation of life insurance
companies which operates an information exchange in behalf of its members. Upon
request by another member insurance company to which you have applied for life
or health insurance coverage or to which a claim is submitted, the Bureau will
supply such company with the information it may have in its files.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. (Medical information will be disclosed
only to your attending physician, or you if requested.) If you question the
accuracy of information in the Bureau's file, you may contact the bureau and
seek a correction in accordance with the procedures set forth in the federal
Fair Credit Reporting Act. The address of the Bureau's information office is
Post Office Box 105, Essex Station, Boston, Massachusetts 02112, Telephone
(617) 426-3660.
The Travelers Insurance Company or its Reinsurer(s) may release information
given in your application file, including health care information, to other
life insurance companies to which you apply for life or health insurance or to
which a claim is submitted.
L-11855-M
TO: The Bank named on the reverse side
In consideration of your compliance with the request and authorization of the
depositor named on the reverse side The Travelers Insurance Company agrees
that:
1. It will indemnify and hold you harmless from any liability or loss you may
suffer arising out of payment by you pursuant to said authorization of any
debit entry whether or not genuine, purporting to be initiated by The
Travelers Insurance Company on the account of any of your depositors, or
arising out of the dishonor by you whether with or without cause,
intentionally or inadvertently, of any such debit entry purporting to be
initiated by The Travelers Insurance Company.
2. It will refund to you any amount erroneously paid by you on any such debit
entry if claim for the amount of such erroneous payment is made by you
within 12 months from the date of the debit entry on which such erroneous
payment was made.
3. It will defend at its own cost and expense any action which might be brought
by any depositor or any other persons because of your actions taken pursuant
to the foregoing request or in any manner arising by reason of your
participation in the foregoing plan.
THE TRAVELERS INSURANCE COMPANY
Director
Authorized in resolutions adopted by the Investment Committee of The Travelers
Insurance Company on June 10, 1982.
<PAGE> 9
Agent Information
AGENT'S CERTIFICATE
To help avoid processing delays, answers to the following questions MUST be
furnished with the application.
1. If salary allotment or other special plan, give:
Mass Marketing Case/Company Name: ________________________________________
__________________________________________________________________________
Case/Plan Number: ________________________________________________________
Accounting Location Number:
2. Is the Proposed Insured employed and working regularly?
[ ] Yes [ ] No
3. Did you personally ask the questions and have the application signed in your
presence? [ ] Yes [ ] No
4. Has Proposed Insured applied for insurance elsewhere in past 90 days? (Give
details in #17) [ ] Yes [ ] No
5. Life Premium quoted: $_____________/Yr. Age__________
6. How long have you known the Proposed Insured? _________
7. Will this insurance replace any existing Annuity Life Insurance? (If YES,
complete #8) [ ] Yes [ ] No
8. Is a 1035 exchange involved? [ ] Yes [ ] No
(If YES, attach policies and forms)
Name of Insurer to be replaced and replaced contract #: ___________________
If contract # not available, indicate Application or Receipt #: ___________
9. Is the Proposed Insured applying for any Disability or Long Term Care with
The Travelers or any other company? (If YES, specify form and name of
company) [ ] Yes [ ] No
_____________________________________________________________________________
10. Will the Proposed Insured pay the premium? [ ] Yes [ ] No
If NO, who will pay the premium?__________________________________________
11. Who initiate the inquiry that resulted in this application? ______________
12. State all Life and Health insurance now in effect on the Proposed Insured.
Include The Travelers and other companies. Indicate "G" for Group and "B"
for Business Insurance. If NONE so state.
______________________________________________________________________________
<TABLE>
<CAPTION>
Total in Force
Type Year Indemnity or
Company L-Life H-Health of Issue Daily Benefit PW Amt. of ADB
- ------- --------------- -------- ------------- ----- -----------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
13. Purpose of Insurance:
<TABLE>
<S> <C> <C>
[ ] Personal (check primary reason):
[ ] Income Replacement [ ] Savings/Investment
[ ] Estate Liquidity [ ] Other ____________________
[ ] Business:
[ ] Buy-Sell [ ] Key Person
[ ] Deferred Compensation [ ] Executive Bonus
[ ] Mortgage/Loan Coverage [ ] Other ____________________
</TABLE>
14. Is the applicant a small business owner? [ ] Yes [ ] No
If YES, how many employees in the insured's business?
[ ] 1-25 [ ] 26-50 [ ] 51-100 [ ] 100+
15. If available, is preferred rate being applied for? [ ] Yes [ ] No
16. If preferred rate is not available, is standard rate acceptable?
[ ] Yes [ ] No
17. Additional Remarks: __________________________________________________
____________________________________________________________________________
____________________________________________________________________________
18. Except as indicated below, I hereby declare that no person other than
myself has any interest whatsoever either directly or indirectly in this
application and that I will not pay or allow any commission or compensation
directly or indirectly in connection with this application to any person.
Signed _________________________________________ Date _______________________
(TO BE SIGNED PERSONALLY BY AGENT OR BROKER WHO COMPLETED THE APPLICATION)
<PAGE> 10
AGENT LICENSING INFORMATION
1. Are you properly licensed to write business for The Travelers in the state
where the application was secured?
[ ] Agent's License [ ] Solicitor's License [ ] Broker's License
2. Did anyone except you assist in securing the application? [ ] Yes [ ] No
If YES, who __________________________________________________________________
(For Variable Universal Life policies only)
3. Are you licensed to write Variable Universal Life for The Travelers in the
state where the application was secured?
List license type and number_______________________________________________
AGENT'S COMMENTS
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
THE TRAVELERS
The Travelers Insurance Company
Hartford, CT 06183
L-11855
<PAGE> 11
Variable Universal Life Supplement TheTravelers
This supplement accompanies an application for a Variable Life Insurance
Policy to be issued by:
[ ] The Travelers Insurance Company [ ] The Travelers Insurance Company
PLEASE ANSWER ALL QUESTIONS COMPLETELY AND SIGN THE FORM.
Proposed Insured _____________________________________ Occupation ___________
first middle last
Date of Birth ________Society Security Number_________Financial Net Worth______
Tax Bracket (federal plus state) _____________Investment Objective_____________
POLICY INFORMATION
1. Select one or more funds and indicate percent of allocation. The total must
equal 100% (Must be whole percentages.)
<TABLE>
<S> <C>
[ ] AIM Capital Appreciation Portfolio ____% [ ] Templeton Allocation Fund ____%
[ ] Alliance Growth Portfolio ____% [ ] Templeton Bond Fund ____%
[ ] Dreyfus Stock Index Fund ____% [ ] Templeton Stock Fund ____%
[ ] Fidelity's Asset Manager Portfolio ____% [ ] Travelers Capital Appreciation Fund ____%
[ ] Fidelity's Equity-Income Portfolio ____% [ ] Travelers Cash Income Trust ____%
[ ] Fidelity's Growth Portfolio ____% [ ] Travelers Managed Assets Trust ____%
[ ] Fidelity's High Income Portfol io ____% [ ] Travelers U.S. Govt. Sec. Portfolio ____%
[ ] MFS Total Return Portfolio ____% [ ] Travelers Utilities Portfolio ____%
[ ] Smith Barney High Income Portfolio ____% [ ] Travelers Zero Coupon Bond Fund 1998 ____%
[ ] Smith Barney Income & Growth
Portfolio ____% [ ] Travelers Zero Coupon Bond Fund 2000 ____%
[ ] Smith Barney Total Return Portfolio____% [ ] Travelers Zero Coupon Bond Fund 2005 ____%
2. Check which supplemental benefits apply (for spousal or child coverage,
complete Family Supplement):
[ ] Waiver of Monthly Deduction Amount [ ] Child Term
Rider (Units) ___________________
[ ] Lapse Protection Guarantee Rider [ ] Cost of Living Increase Rider
[ ] Primary or Other Insured Term Rider [ ] Other _______________________
</TABLE>
3. Check which death benefit applies: [ ] Option 1 (Level)
[ ] Option 2 (Variable)
4. Check one block in either the Regular or Statement Bill
section to indicate Premium Payment Plan.
Regular Bill: [ ] Automatic Premium Check [ ] Single
[ ] Annual [ ] Semi-Annual Statement Bill: [ ] Annual
[ ] Semi-Annual [ ] Quarterly [ ] Monthly
5. Stated Amount: $ ___________________
Planned Premium Amount: $___________
L-11561-V THE TRAVELERS INSURANCE COMPANY, ONE TOWER SQUARE, HARTFORD,
CONNECTICUT 06183 THE TRAVELERS INSURANCE COMPANY, ONE TOWER
SQUARE, HARTFORD, CONNECTICUT 06183
- ------------------------------------------------------------------------------
ADVANCE PAYMENT RECEIPT FOR VARIABLE UNIVERSAL LIFE INSURANCE
The following receipt is to be given only for advance payment at least equal to
one-tenth (1/10) of the annual premium. All premium checks must be made payable
to the company. Do not make checks payable to the agent or leave the payee
blank. The Advance Payment Questionnaire of the application must be completed
before this receipt can be used.
Type of Policy _______________________________________________________________
Received from _____________________________________ the sum of $ ____________
In connection with an application for life insurance to The Travelers, One
Tower Square, Hartford, CT 06183, bearing the number _______________, upon the
following terms and conditions:
1. Insurance under the terms of the policy applied for and subject to the
limits in Item 4 will be effective on the latest of the dates of the Part 1
application, Part 2 medical examination or other medical tests if required
by the Company's underwriting rules for the Proposed Insured's age, plan or
amount of insurance applied for, provided that the above sum is sufficient
to pay in full the first premium for the policy.
Coverage under the terms of this receipt will end on the earlier of (a) 60
days after the date of this application, or (b) the date we notify the
Applicant that there is no coverage.
<PAGE> 12
There is no insurance provided if there is material misrepresentation in the
Part 1 application, supplement (if required) or Part 2 medical examination
or if the Proposed insured commits suicide.
2. If the above sum is less than the full first premium but is at least
one-tenth (1/10) of the annual premium for the amount and plan of insurance
applied for, then unless the remainder of the first premium is paid within
30 days from the date the insurance becomes effective, the insurance will be
effective as provided in item 1 only for the fraction of one year as the
amount paid bears to the annual premium for the contract applied for. If
the sum paid is less than the equivalent of a monthly premium, no insurance
will be effected by this receipt.
3. The above sum will be returned to the Applicant if the application is
rejected; or, if a contract is issued upon this application at other than
standard rates or for other than the amount and plan of insurance applied
for, unless acceptable to the Applicant as issued; or, on request of the
Applicant and surrender of this receipt, if within 60 days from the date of
this receipt acontract has not been issued on this application.
4. The maximum limits of insurance which may be effected under the terms of
this receipt are as follows:
<TABLE>
<CAPTION>
AGE OF NON-MEDICAL MEDICAL/PARAMEDICAL
PROPOSED INSURED AMOUNT AMOUNT
---------------- ----------- -------------------
<S> <C> <C>
15 days-35 yrs. $250,000 $500,000
36-45 100,000 500,000
46-50 75,000 500,000
51-60 -0- 500,000
61-75 -0- 250,000
</TABLE>
Any insurance applied for in excess of these limits, including accidental
death benefit, and on which any premium is paid in advance, will not take
effect until the policy is delivered to the Applicant and the balance of the
first premium, if any, is paid in full, all while the Proposed Insured's
health and other conditions relating to insurability remain as described in
the application. In the event of the death of the Proposed Insured before
the excess insurance is effected, that portion of the sum received relating
to the excess insurance will be returned.
5. If a contract is issued on this application, the first premium will be
applied to the credit of that basic contract on the later of: a. the
contract date or b. the date we receive the first premium.
_______________________________________
Licensed Resident Agent
- ----------------------------------------
Dated
L-11561-V-R
- ------------------------------------------------------------------------------
SUITABILITY
Please answer all questions completely and sign the form.
<TABLE>
<CAPTION>
YES NO
<S> <C> <C>
a. Have you, the Proposed Insured and the Applicant, if other than
the Proposed Insured, received a prospectus for the contract applied for? [ ] [ ]
Date of prospectus: ______________ Date of any supplement: _______________
b. Do you understand that the contract applied for (exclusive of any option benefits),
the entire amount of cash value and the amount of death benefit may increase or
decrease depending on investment experience? [ ] [ ]
c. With this in mind, is the contract in accord with your insurance objectives and
anticipated financial needs? [ ] [ ]
</TABLE>
APPLICANT declares to the best of her/her knowledge and belief that all of the
statements and answers in Part 1 and Part 2, if required, are complete and
true. APPLICANT UNDERSTANDS AND AGREES THAT: Part 1 and Part 2, if required,
and any supplements to it will form the basis for any insurance issued.
<PAGE> 13
ALL VALUES AND BENEFITS PROVIDED BY THE BASIC CONTRACT APPLIED FOR ARE VARIABLE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. EXCEPT AS STATED IN THE
ATTACHED ADVANCE PAYMENT RECEIPT, THE COMPANY WILL APPLY THE FIRST NET PREMIUM
PAYMENT TO THE CREDIT OF THE BASIC CONTRACT APPLIED FOR AS OF THE VALUATION
DATE ON OR NEXT FOLLOWING THE EFFECTIVE DATE.
Except as stated in the attached Advance Payment Receipt, no insurance will
take effect until: (1) the contract is delivered to the Applicant; and (2) the
first premium is paid in full while the health and other conditions relating to
insurability remain as described in this application. No agent is authorized:
(1) to make, alter, or discharge any contract; (2) to waive or change any
condition or provision of any contract, application, or receipt; and (3) to
accept any risk or to pass on insurability. The Proposed Insured will be the
Applicant of any contract issued on this application unless otherwise indicated
below. The right to privacy is protected as required by law.
I have paid to ____________________________________
the sum of ($ _____________________________________)
and hold a receipt bearing the number __________________________________
Dated_____________________________________________
at (city or town/state)
___________________________ ___________________________________________
___________________________________________________
Proposed Insured (Signature in full)
___________________________________________________
Witnessed by (Licensed Resident Agent)
___________________________________________________
Signature of Applicant (if other than Proposed Insured)
___________________________________________________
Signature of Principal
___________________________________________________
Signature of Broker/Dealer
L-11561-V
<PAGE> 1
EXHIBIT 12
April 25, 1997
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. 18 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 Post-Effective Amendment No. 18.
Very truly yours,
Katherine M. Sullivan
General Counsel
The Travelers Insurance Company
<PAGE> 1
EXHIBIT 15(b)
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,
Chairman of the Board, President and Chief Executive Officer of The Travelers
Insurance Company (hereinafter the "Company"), do hereby make, constitute and
appoint ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH,
Assistant Secretary of said Company, or either one of them acting alone, my true
and lawful attorney-in-fact, for me, and in my name, place and stead, to sign
registration statements on behalf of said Company on Form S-6 or other
appropriate form under the Securities Act of 1933 for The Travelers Fund UL 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 June, 1996.
Michael A. Carpenter
Chairman of the Board, President
and Chief Executive Officer
The Travelers Insurance Company
<PAGE> 2
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, JAY S. BENET of West Hartford, Connecticut, a director
of The Travelers Insurance Company (hereinafter the "Company"), do hereby make,
constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN
A. McGAH, Assistant Secretary of said Company, or either one of them acting
alone, my true and lawful attorney-in-fact, for me, and in my name, place and
stead, to sign registration statements on behalf of said Company on Form S-6 or
other appropriate form under the Securities Act of 1933 for The Travelers Fund
UL 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 1st day
of July, 1996.
Jay S. Benet
Director
The Travelers Insurance Company
<PAGE> 3
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, GEORGE C. KOKULIS of Simsbury, Connecticut, a director
of The Travelers Insurance Company (hereinafter the "Company"), do hereby make,
constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN
A. McGAH, Assistant Secretary of said Company, or either one of them acting
alone, my true and lawful attorney-in-fact, for me, and in my name, place and
stead, to sign registration statements on behalf of said Company on Form S-6 or
other appropriate form under the Securities Act of 1933 for The Travelers Fund
UL 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 1st day
of July, 1996.
George C. Kokulis
Director
The Travelers Insurance Company
<PAGE> 4
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, IAN R. STUART of East Hampton, Connecticut, Director,
Senior Vice President, Chief Financial Officer, Chief Accounting Officer and
Controller of The Travelers Insurance Company (hereinafter the "Company"), do
hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company,
and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of
them acting alone, my true and lawful attorney-in-fact, for me, and in my name,
place and stead, to sign registration statements on behalf of said Company on
Form S-6 or other appropriate form under the Securities Act of 1933 for The
Travelers Fund UL 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 February, 1997.
Ian R. Stuart
Director, Senior Vice President,
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Insurance Company
<PAGE> 5
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, KATHERINE M. SULLIVAN of Longmeadow, Massachusetts,
Director, Senior Vice President and General Counsel of The Travelers Insurance
Company (hereinafter the "Company"), do hereby make, constitute and appoint
ERNEST J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant
Secretary of said Company, or either one of them acting alone, my true and
lawful attorney-in-fact, for me, and in my name, place and stead, to sign
registration statements on behalf of said Company on Form S-6 or other
appropriate form under the Securities Act of 1933 for The Travelers Fund UL 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 June, 1996.
Katherine M. Sullivan
Director, Senior Vice President
and General Counsel
The Travelers Insurance Company
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000737026
<NAME> FUND UL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 38,258,996
<INVESTMENTS-AT-VALUE> 41,747,877
<RECEIVABLES> 663,683
<ASSETS-OTHER> 144
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,411,704
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,655
<TOTAL-LIABILITIES> 87,655
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 29,587,869
<SHARES-COMMON-PRIOR> 16,574,435
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,488,881
<NET-ASSETS> 42,324,049
<DIVIDEND-INCOME> 2,057,986
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 199,366
<NET-INVESTMENT-INCOME> 1,858,620
<REALIZED-GAINS-CURRENT> 532,275
<APPREC-INCREASE-CURRENT> 1,534,477
<NET-CHANGE-FROM-OPS> 3,925,372
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,840,431
<NUMBER-OF-SHARES-REDEEMED> 12,826,997
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,634,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 199,366
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
