<PAGE> 1
Registration Statement No. 2-88637
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 19
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, 1998 pursuant to paragraph (b)
- ------
60 days after filing pursuant to paragraph (a)(1)
- ------
on __________ pursuant to paragraph (a)(1) of Rule 485.
- ------
this post-effective amendment designates a new effective date for a
- ------
previously filed post-effective amendment.
Check the box if it is proposed that this filing will become
- ------
effective on _______ at _____ pursuant to Rule 487. ______
<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 Policy
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
<TABLE>
<S> <C>
FUND UL
CAPITAL APPRECIATION FUND
MANAGED ASSETS TRUST PROSPECTUSES
MONEY MARKET PORTFOLIO
TRAVELERS SERIES TRUST MAY 1, 1998
</TABLE>
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 (or later if state laws requires).
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
Rider.
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, 1998.
<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.............................. 13
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 Rider.......................... 16
Exchange Rights........................................... 16
Death Benefit............................................... 17
Changes in Death Benefit Option........................ 18
Payment Options........................................ 19
Limit on Right to Contest and Suicide Exclusion........ 19
Misstatement as to Sex and Age......................... 19
Changes in Stated Amount............................... 19
Maturity Benefits and Maturity Extension Rider......... 20
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
The Separate Account and the Investment Options.......................................................... 20
The Travelers Fund UL for Variable Life Insurance (Fund UL)............................................ 20
The Investment Options................................................................................. 21
General................................................................................................ 24
Accumulation Unit Values............................................................................... 24
Mixed and Shared Funding............................................................................... 25
Substitution........................................................................................... 25
Transfer of Cash Value................................................................................. 25
Automated Transfers.................................................................................... 26
Performance Information.................................................................................. 26
Example of Policy Charges................................................................................ 29
Miscellaneous............................................................................................ 29
Voting Rights.......................................................................................... 29
Disregard of Voting Instructions....................................................................... 30
Policies Sold Prior to May 1, 1998..................................................................... 30
Policies Sold Prior to July 12, 1995................................................................... 30
Suspension of Valuation................................................................................ 31
Dividends.............................................................................................. 31
Distribution........................................................................................... 31
Legal Proceedings and Opinion.......................................................................... 31
Independent Accountants................................................................................ 32
Registration Statement................................................................................. 32
Federal Tax Considerations............................................................................... 32
General................................................................................................ 32
Tax Status of the Policy............................................................................... 33
Tax Treatment of Policy Benefits....................................................................... 34
Year 2000 Compliance..................................................................................... 36
Management............................................................................................... 37
Senior Officers of the Travelers Insurance Company....................................................... 38
Illustrations............................................................................................ 38
Appendix
A -- Annual Minimum Premiums............................................................................. 52
B, B(1), B(2) -- Surrender Charges....................................................................... 53-55
C -- Current Monthly Administrative Charge............................................................... 56-57
C(1) -- Guaranteed Monthly Administrative Charge......................................................... 58
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 RIDER -- a rider which provides that the Policy will
not lapse during the first three Policy Years if a required amount of premium is
paid. (Not available in all states.)
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.
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<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>
Capital Appreciation Fund TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Dreyfus Stock Index Fund Templeton Asset Allocation Fund (Class 1)
Managed Assets Trust Templeton Bond Fund (Class 1)
Money Market Portfolio Templeton Stock Fund (Class 1)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: TRAVELERS SERIES FUND, INC.:
VIP Equity Income Portfolio AIM Capital Appreciation Portfolio
VIP Growth Portfolio Alliance Growth Portfolio
VIP High Income Portfolio MFS Total Return Portfolio
Smith Barney High Income Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND Smith Barney Large Cap Value Portfolio
II:
VIP II Asset Manager Portfolio TRAVELERS SERIES TRUST:
U.S. Government Securities Portfolio
GREENWICH STREET SERIES FUND: Utilities Portfolio
Total Return Portfoio Zero Coupon Bond Portfolio 1998
Zero Coupon Bond Portfolio 2000
Zero Coupon Bond Portfolio 2005
</TABLE>
Additional Portfolios may be added from time to time. Further information
regarding the investment objectives for each Investment Option (including the
investment manager) is contained under "The Investment Options." Refer to each
Investment Option's prospectus for a complete description of the investment
objectives, restrictions and other material information.
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
6
<PAGE> 11
be invested in the Money Market Portfolio (formerly "Cash Income Trust"). After
that, the cash 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).
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).
- FULL 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 subject to state availability, for
policies issued after May 1, 1998 .25% thereafter (p. 12). (For Policies
issued prior to July 12, 1995, the charge is 0.60% for all Policy Years.)
(For Policies issued after July 12, 1995, and prior to May 1, 1998, the
charge for the first fifteen years is .80% and .45% thereafter).
- 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 12, 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.
7
<PAGE> 12
- 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 100% of the Cash
Surrender Value, subject to state approval. After year 13, the Company
offers zero net cost loans (p. 15). (For Policies issued after July 12,
1995 and before May 1, 1998, the maximum loan allowed is 90% of the Cash
Surrender Value. For Policies issued prior to July 12, 1995, the maximum
loan allowed is 80% of the Cash Surrender Value.) (See "Policy Loans" (p.
15) for loan impact on coverage and policy values.)
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. 25).
You can use automated transfers to take advantage of dollar cost
averaging -- investing a fixed amount at regular intervals. For example, you
might have a set amount transferred from a relatively conservative Investment
Option to a more aggressive one, or to several others (p. 26).
LAPSE PROTECTION GUARANTEE RIDER: 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
Guarantee 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 Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
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.
9
<PAGE> 14
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.
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 Money
Market Portfolio. 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 (or later if required by state law). 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;
10
<PAGE> 15
(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.
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 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
11
<PAGE> 16
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 charges are lower than the guaranteed maximum charges. (See
Appendix C(1) for the guaranteed maximum charges.)
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. Subject
to state approval for Policies issued after May 1, 1998, this charge is at an
annual rate of 0.80% for the first fifteen (15) Policy Years, and 0.25%
thereafter. For policies issued after July 12, 1995 and prior to May 1, 1998,
this charge is at an annual rate of .80% for the first fifteen (15) Policy
Years, and .45% thereafter. For policies issued prior to July 12, 1995, the
charge is at an annual rate of .60% all years. 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
May 1, 1998" 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 May 1, 1998," 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.
12
<PAGE> 17
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 (and 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 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 42), for 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 $7,485 (assuming a 6% rate of return), the Percent of Premium surrender
charge would be $449, because (a) is $449 (6% of $7,485); (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 $646.50; in the tenth year, it is
$0.72 for each $1,000, or $108.
No more than 20% of the Per Thousand of Stated Amount Charge is a sales charge.
The remainder is designed to compensate the Company for administrative expenses
not covered by other administrative charges. The administrative expense
component of the Per Thousand of 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 the mortality and expense risk charge, sales charges and
administrative charges in such arrangements to reflect the reduced sales
expenses, administrative costs and/or mortality and expense risks expected as a
result of sales to a particular group.
In no event will reduction or elimination of the withdrawal charge, mortality
and expense risk charge or the administrative charge be permitted where such
reduction or elimination will be unfairly discriminatory to any person.
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
14
<PAGE> 19
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 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 after January 1,
2001, subject to state availability, it is anticipated the maximum loan amount
will be increased to 100% from 90%. Subject to state law, 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 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. For Policies issued prior to
July 12, 1995 (or where state approval has not been received), refer to
"Policies Sold Prior to July 12, 1998," 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 maximum loan
is taken or 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
15
<PAGE> 20
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 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 RIDER
Policy Owners may elect to have a Lapse Protection Guarantee Rider as part of
their Policy (as long as the Insured is not a substandard risk). The Lapse
Protection Guarantee Rider 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 rider is
not be available in all jurisdictions.) This rider 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.
16
<PAGE> 21
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 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. 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
ATTAINED AGE BY A RATABLE 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>
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
17
<PAGE> 22
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 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.) Subject to state law, if the Insured commits suicide
within two years following the Issue Date limits on the amount of Death Benefit
paid will apply. (See "Limit on Right to Contest and Suicide Exclusion," 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, then the Death Benefit actually paid to the Policy Owner's
Beneficiary will be reduced by the amount of the Deduction Amount that is due
and unpaid. (See "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.
18
<PAGE> 23
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 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. Subject
to state law, if the Policy is reinstated, the two-year period will be measured
from the date of reinstatement. Each requested increase in Stated Amount is
contestable for two years from its effective date (subject to state law). In
addition, if the Insured commits suicide during the two-year period following
issue, subject to state law, the Death Benefit will be limited to the premiums
paid less (i) the amount of any partial surrender, (ii) the amount of any
outstanding Policy loan, and (iii) the amount of any unpaid Deduction Amount
due. During the two-year period following an increase, the Death Benefit in the
case of suicide will be limited to an amount equal to the Deduction Amount paid
for such increase.
MISSTATEMENT AS TO SEX AND AGE
If there has been a misstatement with regard to sex or age, benefits payable
will be adjusted to what the Policy would have provided with the correct
information. A misstatement with regard to sex or age in a substantially funded
Policy may cause a cash distribution that is includable in whole or in part in
the gross income of the Policy Owner.
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
19
<PAGE> 24
amount of $50,000. For purposes of determining the cost of insurance charge, a
decrease in the Stated Amount will reduce the Stated Amount in the following
order:
1) against the most recent increase in the Stated Amount;
2) to other increases in the reverse order in which they occurred;
3) to the initial Stated Amount.
A decrease in Stated Amount in a substantially funded Policy may cause a cash
distribution that is includable in the gross income of the Policy Owner.
For increases in the Stated Amount, 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 BENEFITS AND MATURITY EXTENSION RIDER
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 is not be available in all jurisdictions.) If the Company has received
such request, prior to the Maturity Date, then 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. 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 Rider 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 Rider 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
20
<PAGE> 25
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 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 OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Capital Appreciation Fund Seeks growth of capital through the Travelers Asset Management
use of common stocks. Income is not an International Corporation
objective. The Fund invests ("TAMIC")
principally in common stocks of small Subadviser: Janus Capital
to large companies which are expected Corp.
to experience wide fluctuations in
price in both rising and declining
markets.
Dreyfus Stock Index Fund Seeks to provide investment results Mellon Equity
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.
Managed Assets Trust Seeks high total investment return TAMIC
through a fully managed investment Subadviser: Travelers
policy in a portfolio of equity, debt Investment Management Company
and convertible securities. ("TIMCO")
Money Market Portfolio Seeks high current income from short- TAMIC
(formerly "Cash Income term money market instruments while
Trust") preserving capital and maintaining a
high degree of liquidity.
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND
VIP Equity-Income Seeks reasonable income by investing Fidelity Management &
Portfolio primarily in income-producing equity Research Company
securities; in choosing these
securities, the portfolio manager will
also consider the potential for
capital appreciation.
</TABLE>
21
<PAGE> 26
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
VIP Growth Portfolio Seeks capital appreciation by purchas- Fidelity Management &
ing common stocks of well-known, Research Company
established companies, and small
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.
VIP High Income Portfolio Seeks to obtain a high level of Fidelity Management &
current income by investing primarily Research Company
in high yielding, lower-rated,
fixed-income securities, while also
considering growth of capital.
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
VIP II Asset Manager Seeks high total return with reduced Fidelity Management &
Portfolio risk over the long-term by allocating Research Company
its assets among stocks, bonds and
short-term fixed-income instruments.
GREENWICH STREET
SERIES FUND
Total Return Portfolio An equity portfolio that seeks to pro- Mutual Management Corp.
vide total return, consisting of ("MMC")
long-term capital appreciation and
income. The Portfolio will invest
primarily in a diversified portfolio
of dividend-paying common stocks.
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Templeton Asset Seeks a high level of total return Templeton Investment Counsel,
Allocation Fund (Class 1) with reduced risk over the long term Inc.
through a flexible policy of investing
in stocks of companies in any nation
and debt obligations of companies and
governments of any nation.
Templeton Bond Fund Seeks high current income by investing Templeton Global Bond
(Class 1) primarily in debt securities of compa- Managers
nies, governments and government
agencies of various nations throughout
the world.
Templeton Stock Fund Seeks capital growth by investing Templeton Investment Counsel,
(Class 1) primarily in common stocks issued by Inc.
companies, large and small, in various
nations throughout the world.
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Seeks capital appreciation by Travelers Investment Adviser
Portfolio investing principally in common stock, ("TIA")
with emphasis on medium-sized and Subadviser: AIM Capital
smaller emerging growth companies. Management Inc.
</TABLE>
22
<PAGE> 27
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Alliance Growth Portfolio Seeks long-term growth of capital by TIA
investing predominantly in equity Subadviser: Alliance Capital
securities of companies with a Management L.P.
favorable outlook for earnings and
whose rate of growth is expected to
exceed that of the U.S. economy over
time. Current income is only an
incidental consideration.
MFS Total Return Seeks to obtain above-average income TIA
Portfolio (compared to a portfolio entirely Subadviser: MFS
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 High Income Seeks high current income. Capital MMC
Portfolio appreciation is a secondary objective.
The Portfolio will invest at least 65%
of its assets in high-yielding
corporate debt obligations and
preferred stock.
Smith Barney Large Cap Seeks current income and long-term MMC
Value Portfolio (formerly growth of income and capital by
"Smith Barney Income and investing primarily, but not
Growth Portfolio") exclusively, in common stocks.
TRAVELERS SERIES TRUST
U.S. Government Seeks to select investments from the TAMIC
Securities Portfolio point of view of an investor concerned
primarily with highest credit quality,
current income and total return. The
assets of the U.S. Government Securi-
ties Portfolio will be invested in
direct obligations of the United
States, its agencies and
instrumentalities.
Utilities Portfolio Seeks to provide current income by MMC
investing in equity and debt
securities of companies in the utility
industries.
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 1998) return as consistent with the
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>
23
<PAGE> 28
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 2000) return as consistent with the
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.
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 2005) return as consistent with the
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
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
24
<PAGE> 29
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
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
25
<PAGE> 30
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.
AUTOMATED TRANSFERS
DOLLAR-COST AVERAGING
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.
PORTFOLIO REBALANCING
You may elect to have the Company periodically reallocate values in your policy
to match your original (or your latest) funding option allocation request.
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 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
26
<PAGE> 31
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 38. The
performance information described in this prospectus, may be used from time to
time in advertisement for the Policy, subject to National Association of
Securities Dealers, Inc. ("NASD") and applicable state approval and guidelines.
The table below shows the net annual rates of return for accumulation units of
investment options available through MarketLife.
AVERAGE ANNUAL RETURNS THROUGH 12/31/97
<TABLE>
<CAPTION>
UNDERLYING INVESTMENT OPTIONS ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
----------------------------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio 11.15% N/A N/A N/A
Alliance Growth Portfolio 27.82% N/A N/A N/A
Capital Appreciation Fund (Janus Sub-Adviser) 24.93% 28.90% 18.16% 15.36%
Dreyfus Stock Index Fund 31.67% 29.35% 18.57% N/A
Fidelity VIP Equity-Income Portfolio 26.87% 24.31% 19.01% N/A
Fidelity VIP Growth Portfolio 22.30% 23.04% 16.89% N/A
Smith Barney Large Cap Value Portfolio 25.42% N/A N/A N/A
Total Return Portfolio 15.75% N/A N/A N/A
Utilities Portfolio 24.09% N/A N/A N/A
Templeton Stock Fund (Class 1) 10.84% 18.57% 16.48% N/A
BOND FUNDS
Fidelity VIP High Income Portfolio 16.56% 16.30% 12.87% 11.76%
Smith Barney High Income Portfolio 12.79% N/A N/A N/A
Templeton Bond Fund (Class 1) 1.58% 7.84% 5.48% N/A
U.S. Gov't Securities Portfolio 11.59% 11.41% 7.01% N/A
Zero Coupon Bond Portfolio 1998 5.26% N/A N/A N/A
Zero Coupon Bond Portfolio 2000 6.24% N/A N/A N/A
Zero Coupon Bond Portfolio 2005 10.63% N/A N/A N/A
BALANCED FUNDS
Fidelity VIP II Asset Manager Portfolio 19.50% 16.27% 11.90% N/A
MFS Total Return Portfolio 20.04% N/A N/A N/A
Templeton Asset Allocation Fund (Class 1) 14.44% 17.82% 14.46% N/A
Managed Assets Trust 20.16% 19.46% 12.34% 12.02%
MONEY MARKET FUNDS
Money Market Portfolio(1) 4.11% 3.67% 2.89% N/A
</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, 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 Money Market Portfolio is neither insured nor guaranteed by
the United States Government. There is no assurance that a stable $1.00
value will be maintained.
27
<PAGE> 32
MARKETLIFE HYPOTHETICAL EXAMPLE(2)
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 $4,621 $2,706 N/A N/A N/A
Alliance Growth Portfolio 5,000 5,360 3,445 N/A N/A N/A
Capital Appreciation Fund (Janus
Sub-Adviser) 5,000 5,231 3,317 $25,000 $39,038 $37,806
Dreyfus Stock Index Fund 5,000 5,531 3,616 25,000 40,656 39,424
Fidelity VIP Equity-Income
Portfolio 5,000 5,318 3,403 25,000 37,549 36,317
Fidelity VIP Growth Portfolio 5,000 5,115 3,200 25,000 35,471 34,240
Smith Barney Large Cap Value
Portfolio 5,000 5,253 3,338 N/A N/A N/A
Total Return Portfolio 5,000 4,825 2,910 N/A N/A N/A
Utilities Portfolio 5,000 5,194 3,279 25,000 N/A N/A
Templeton Stock Fund (Class 1) 5,000 4,607 2,692 N/A 31,929 30,697
BOND FUNDS
Fidelity VIP High Income Portfolio 5,000 4,860 2,946 25,000 30,478 29,247
Smith Barney High Income Portfolio 5,000 4,693 2,778 N/A N/A N/A
Templeton Bond Fund (Class 1) 5,000 4,197 2,283 25,000 23,754 22,522
Travelers U.S. Gov't Securities
Portfolio 5,000 4,640 2,725 25,000 25,768 24,536
Zero Coupon Bond Portfolio 1998 5,000 4,360 2,445 N/A N/A N/A
Zero Coupon Bond Portfolio 2000 5,000 4,403 2,489 N/A N/A N/A
Zero Coupon Bond Portfolio 2005 5,000 4,598 2,683 N/A N/A N/A
BALANCED FUNDS
Fidelity VIP II Asset Manager
Portfolio 5,000 4,991 3,076 25,000 30,344 29,112
MFS Total Return Portfolio 5,000 5,014 3,100 N/A N/A N/A
Templeton Asset Allocation Fund
(Class 1) 5,000 4,766 2,852 25,000 31,359 30,127
Managed Assets Trust 5,000 5,020 3,105 25,000 31,892 30,661
MONEY MARKET FUNDS
Money Market Portfolio 5,000 4,309 2,394 25,000 22,446 21,214
</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 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.
28
<PAGE> 33
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 FOR THE POLICY YEAR
----------------- SALES CHARGE -----------------------
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.
29
<PAGE> 34
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.
FOR POLICIES SOLD PRIOR TO MAY 1, 1998
The following pertains to policies sold between July 12, 1995 and May 1, 1998
(or sold after May 1, 1998 in the states where the new policy has not yet been
approved).
MORTALITY AND EXPENSE RISK CHARGE. The current charge is at an annual rate of
0.80% for years one through fifteen and 0.45% thereafter.
ADMINISTRATIVE EXPENSE CHARGE. The charge is 0.10% for years one through
fifteen and 0.00% thereafter.
ILLUSTRATIONS
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of 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 .63% Investment Option expenses and
thereafter 0.45% for mortality and expense risks, 0.00% for administrative
expenses and 0.63% Investment Option expenses.
The charge for Investment Option expenses reflected in the illustration assumes
that Cash Value is allocated equally among all investment Options and that no
Policy Loans are outstanding, and is the average of the investment advisory fees
and other expenses charged by each of the Investment Options during 1997.
After deduction of these amounts, the illustrated gross annual rates of 0%, 6%
and 12% correspond to approximate net annual rates of -1.53%, 4.47% and 10.47%,
respectively on a current and guaranteed basis for the first fifteen Policy
Years and to approximate net annual rates of -1.08%, 4.92% and 10.92%,
respectively on a current and guaranteed basis thereafter.
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%,
30
<PAGE> 35
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.
ILLUSTRATIONS
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of returns. The current charges use 0.60% for mortality
and expense risks and .63% Investment Option expenses. The guaranteed charges
use 0.80% for mortality and expense risks, 0.10% for administrative expenses and
0.63% Investment Option expenses.
The charge for Investment Option expenses reflected in the illustration assumes
that Cash Value is allocated equally among all investment Options and that no
Policy Loans are outstanding, and is the average of the investment advisory fees
and other expenses charged by each of the Investment Options during 1997.
After deduction of these amounts, the illustrated gross annual rates of 0%, 6%
and 12% correspond to approximate net annual rates of -1.23%, 4.77% and 10.77%,
respectively on a current basis and to approximate net annual rates of -1.53%,
4.47% and 10.47%, respectively on a guaranteed basis.
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.
Tower Square Securities, Inc. ("Tower Square"), an indirect wholly owned
subsidiary of Travelers Group, Inc., serves as principal underwriter of the
Policies described herein. However, it is currently anticipated that Travelers
Distribution Company, an affiliated brokerdealer, may become the principal
underwriter during 1998.
LEGAL PROCEEDINGS AND OPINION
There are no pending material legal proceedings affecting the Separate Account.
There is one material pending legal proceeding, other than ordinary routine
litigation incidental to the business, to which the Company is a party. In March
1997, a purported class action entitled Patterman v. The Travelers, Inc. was
commenced in the Superior Court of Richmond County, Georgia, alleging, among
other things, violations of the Georgia RICO statute and other state laws by an
affiliate of the Company, Primerica Financial Services, Inc. and certain of its
affiliates. Plaintiffs seek unspecified compensatory and punitive damages and
other relief. In April 1997, the lawsuit was removed to the U.S. District Court
for the Southern District of Georgia, and in October, 1997, the
31
<PAGE> 36
lawsuit was remanded to the Superior Court of Richmond County. Later in October
1997, the defendants, including the Company, answered the complaint, denied
liability and asserted numerous affirmative defenses. In February 1998, the
Superior Court of Richmond County transferred the lawsuit to the Superior Court
of Gwinnett County, Georgia, and certified the transfer order for immediate
appellate review. Also in February 1998, plaintiffs served an application for
appellate review of the transfer order; defendants subsequently opposed that
application; and later in February 1998, the Court of Appeals of the State of
Georgia granted plaintiffs' application for appellate review. Pending appeal
proceedings in the trial court have been stayed. The Company intends to
vigorously contest the litigation.
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
Financial statements as of and for the year ended December 31, 1997 of Fund UL,
included in the registration statement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance Company and
Subsidiaries as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, 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. You may
access the SEC's website (http://www.sec.gov) to view the entire Registration
Statement.
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
A modified endowment contract is defined under tax law as any policy that
satisfies the present legal definition of a life insurance contract but which
fails to satisfy a 7-pay test. This failure could occur with contracts entered
into after June 21, 1988, or with certain older contracts materially changed
after that date. A Section 1035 exchange of an older contract into a contract
after that date will not by itself cause the new contract to be a modified
endowment contract if the older contract had not become one prior to the
exchange. However, the new contract must be re-tested under the 7-pay test
rules.
A contract fails to satisfy the 7-pay test if the cumulative amount of premiums
paid under the contract at any time during the first seven contract years
exceeds the sum of the net level premiums that would have been paid on or before
such time had the contract provided for paid-up future benefits after the
payment of seven level annual premiums. If a material change in the contract
occurs either during the first seven contract years, or later, a new seven-year
testing period is begun. A decrease to Stated Amount made in the first seven
years will cause a retest of the cumulative amount of premiums. Decreases made
after the first seven contract years are not considered a material change,
provided no other material changes have occurred prior. Tax regulations or other
guidance will be needed to fully define those transactions which are material
changes. The Company has established safeguards for monitoring whether a
contract may become a modified endowment contract.
Loans and partial withdrawals from, as well as collateral assignments of,
Policies that are modified endowment contracts will be treated as distributions
to the Policy Owner for tax purposes. All pre-death distributions (including
loans, partial withdrawals and collateral assignments) from these
34
<PAGE> 39
Policies will be included in gross income on an income-first basis to the extent
of any income in the Policy (the cash value less the Policy Owner's investment
in the Policy) immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders) from
modified endowment contracts to the extent they are included in income, unless a
specific exception to the penalty applies. The penalty does not apply to amounts
which are distributed on or after the date on which the taxpayer attains age
59 1/2, because the taxpayer is disabled, or as substantially equal periodic
payments over the taxpayer's life (or life expectancy) or over the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary.
Furthermore, if the loan interest is capitalized by adding the amount due to the
balance of the loan, the amount of the capitalized interest will be treated as
an additional distribution subject to income tax as well as the 10% penalty tax,
if applicable, to the extent of income in the Policy.
The Death Benefit of a modified endowment contract remains excludable from the
gross income of the Beneficiary to the extent described above in "Tax
Consequences of Life Insurance Contracts." Furthermore, no part of the
investment growth of the Cash Value of a modified endowment contract is
includable in the gross income of the Contract Owner unless the contract
matures, is distributed or partially surrendered, is pledged, collaterally
assigned, or borrowed against, or otherwise terminates with income in the
contract prior to death. A full surrender of the contract after age 59 1/2 will
have the same tax consequences as noted above in "Tax Consequences of Life
Insurance Contracts."
EXCHANGES
Any Policy issued in exchange for a modified endowment contract will be subject
to the tax treatment accorded to modified endowment contracts. However, the
Company believes that any Policy received in exchange for a life insurance
contract that is not a modified endowment contract will generally not be treated
as a modified endowment contract if the face amount of the Policy is greater
than or equal to the death benefit of the policy being exchanged. The payment of
any premiums at the time of or after the exchange may, however, cause the Policy
to become a 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 after the 13th Policy Year, 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
35
<PAGE> 40
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.
YEAR 2000 COMPLIANCE
- --------------------------------------------------------------------------------
Generally, computer programs were designed without considering the impact of the
upcoming change in the century. As a result, software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business, financial condition, and
result of operations of a company could be materially and adversely affected by
the failure of its systems and applications (or those either provided or
operated by third-parties) to properly operate or manage dates beyond the year
1999.
The Company has investigated the nature and extent of the work required for our
computer systems to process beyond the turn of the century, and has made
progress toward achieving this goal, including upgrading and/or replacing
existing systems. We are confirming with our service providers that they are
also in the process of replacing or modifying their systems with the same goal.
We expect that our principal systems will be Year 2000 compliant by early 1999.
While these efforts involve substantial costs, we closely monitor associated
costs and continue to evaluate associated risks based on actual expenses. While
it is likely that these efforts will be successful, if necessary modifications
and conversions are not completed in a timely manner, the Year 2000 requirements
could have a material adverse effect on certain operations of the Company.
36
<PAGE> 41
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; Vice Chairman since February 1998;
Executive Vice President (1995-1998) of Travelers Group
Inc.; Chairman, President and Chief Executive Officer
(1989-1994), Kidder Peabody Group Inc.
Robert I. Lipp................. 1992 Chairman, President and Chief Executive Officer since
Director April 1996 of Travelers Property Casualty Corp.; Chief
Executive Officer and Director since December 1993 of
The Travelers Insurance Group Inc.; Vice Chairman and
Director of 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
37
<PAGE> 42
SENIOR OFFICERS OF THE TRAVELERS INSURANCE COMPANY
- --------------------------------------------------------------------------------
The following are the Senior Officers of The Travelers Insurance Company, other
than the Directors listed above, as of the date of this Prospectus. Unless
otherwise indicated, the principal business address for all individuals listed
is One Tower Square, Hartford, Connecticut 06183.
<TABLE>
<CAPTION>
NAME POSITION WITH INSURANCE COMPANY
---- -------------------------------
<S> <C>
Stuart Baritz................ Senior Vice President
Barry Jacobson............... Senior Vice President
Russell H. Johnson........... Senior Vice President
Warren H. May................ Senior Vice President
Jay S. Fishman............... Senior Vice President
David A. Tyson............... Senior Vice President
F. Denney Voss............... Senior Vice President
Elizabeth C. Senior Vice President
Georgakopoulos.............
Christine M. Modie........... Senior Vice President
</TABLE>
Information relating to the management of the underlying funds is contained in
the applicable prospectuses.
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 .63% for Investment Option
expenses and thereafter 0.25% for mortality and expense risks, 0.00% for
administrative expenses, and .63% 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 1997.
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
- -1.53%, 4.47%, and 10.47%, respectively on a current and guaranteed basis during
the first fifteen Policy Years, and to approximate net annual rates of -.88%,
5.12%, and 11.12%, respectively on a current and guaranteed basis thereafter.
38
<PAGE> 43
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 May 1, 1998, see "Policies
Paid Prior to May 1, 1998" 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, 1997, these reimbursement agreements affected the total
operating expenses of the Investment Options as follows:
1. For Money Market Portfolio, other expenses have been restated to reflect
the current expense reimbursement arrangement with The Travelers
Insurance Company. Travelers has agreed to reimburse the Fund for the
amount by which its aggregate expenses (including the management fee,
but excluding brokerage commissions, interest charges and taxes) exceeds
0.40%. Without such arrangement, Total Expenses would have been 1.39%
for the Money Market Portfolio.
2. The other expenses reflected in AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio and MFS Total Return are as of October 31,
1997 (the Fund's fiscal year end). Managed Assets Trust, U.S. Government
Securities Portfolio and Utilities Portfolio reflect other expenses as
of December 31, 1997. There were no fees waived or expenses reimbursed
for these funds in 1997.
3. A portion of the brokerage commissions that certain funds pay was used
to reduce Fidelity funds' expenses. In addition, certain funds have
entered into arrangements with their custodian whereby credits realized,
as a result of uninvested cash balances were used to reduce custodian
expenses. Without these reductions, the Total Underlying Fund Expenses
would have been .64% for Asset Manager Portfolio, .57% for Equity Income
Portfolio, .67% for Growth, and .71% for High Income.
4. Total Return Portfolio's Management Fees include 0.20% for fund
administration.
5. Other expenses are as of December 31, 1997 and take into account the
current expense reimbursement arrangement with Travelers. Travelers has
agreed to reimburse the Portfolio for the amount by which the aggregate
expenses (including management, but excluding brokerage commissions,
interest charges and taxes) exceeds .15%. Without such arrangement, the
Total Expenses for the Portfolio would have been as follows: 2.21% for
Zero Coupon Bond Fund Series 1998; 1.80% for Zero Coupon Bond Fund
Series 2000; 1.52% for Zero Coupon Bond Fund Series 2005.
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 illustration will show
average fund expenses or, if requested, actual fund expenses. The hypothetical
gross annual investment return assumed in such an illustration will not exceed
12%.
39
<PAGE> 44
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,005 1,080 1,155 0 0 9
2 3,435 150,000 150,000 150,000 1,979 2,193 2,416 891 1,092 1,302
3 5,282 150,000 150,000 150,000 2,918 3,334 3,788 1,882 2,273 2,700
4 7,221 150,000 150,000 150,000 3,960 4,650 5,430 2,968 3,617 4,350
5 9,258 150,000 150,000 150,000 4,962 6,000 7,221 4,018 4,994 6,141
6 11,396 150,000 150,000 150,000 5,923 7,385 9,176 5,029 6,403 8,159
7 13,641 150,000 150,000 150,000 6,846 8,809 11,314 6,005 7,900 10,405
8 15,999 150,000 150,000 150,000 7,731 10,276 13,658 6,945 9,475 12,857
9 18,474 150,000 150,000 150,000 8,577 11,785 16,227 7,882 11,090 15,532
10 21,073 150,000 150,000 150,000 9,381 13,334 19,043 8,794 12,747 18,456
15 36,153 150,000 150,000 150,000 12,601 21,590 37,748 12,601 21,590 37,748
20 55,399 150,000 150,000 150,000 14,790 31,670 70,005 14,790 31,670 70,005
</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.
40
<PAGE> 45
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 522 581 641 0 0 0
2 3,435 150,000 150,000 150,000 1,001 1,153 1,313 0 115 265
3 5,282 150,000 150,000 150,000 1,436 1,713 2,018 489 749 1,036
4 7,221 150,000 150,000 150,000 2,253 2,700 3,211 1,363 1,784 2,264
5 9,258 150,000 150,000 150,000 3,016 3,688 4,487 2,189 2,820 3,571
6 11,396 150,000 150,000 150,000 3,721 4,675 5,852 2,959 3,856 4,962
7 13,641 150,000 150,000 150,000 4,365 5,657 7,311 3,673 4,887 6,442
8 15,999 150,000 150,000 150,000 4,942 6,626 8,869 4,323 5,906 8,068
9 18,474 150,000 150,000 150,000 5,449 7,578 10,533 4,906 6,907 9,838
10 21,073 150,000 150,000 150,000 5,884 8,511 12,314 5,423 7,924 11,727
15 36,153 150,000 150,000 150,000 7,013 12,880 23,573 7,013 12,880 23,573
20 55,399 150,000 150,000 150,000 5,929 16,498 41,536 5,929 16,498 41,536
</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.
41
<PAGE> 46
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Stated 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% 12%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,271 1,365 1,459 118 206 294
2 4,238 150,000 150,000 150,000 2,496 2,764 3,043 1,377 1,629 1,891
3 6,517 150,000 150,000 150,000 3,679 4,202 4,770 2,597 3,089 3,623
4 8,910 150,000 150,000 150,000 4,961 5,825 6,804 3,909 4,721 5,641
5 11,423 150,000 150,000 150,000 6,185 7,485 9,016 5,167 6,389 7,829
6 14,061 150,000 150,000 150,000 7,361 9,191 11,433 6,381 8,101 10,304
7 16,831 150,000 150,000 150,000 8,488 10,942 14,076 7,548 9,921 13,055
8 19,740 150,000 150,000 150,000 9,568 12,746 16,974 8,671 11,833 16,061
9 22,794 150,000 150,000 150,000 10,600 14,603 20,154 9,793 13,796 19,347
10 26,001 150,000 150,000 150,000 11,569 16,499 23,633 10,870 15,800 22,934
15 44,607 150,000 150,000 150,000 15,515 26,732 46,957 15,515 26,732 46,957
20 68,354 150,000 150,000 150,000 17,393 38,574 87,026 17,393 38,574 87,026
</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.
42
<PAGE> 47
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 792 868 0 0 0
2 4,238 150,000 150,000 150,000 1,368 1,565 1,772 317 502 697
3 6,517 150,000 150,000 150,000 1,953 2,314 2,711 975 1,314 1,687
4 8,910 150,000 150,000 150,000 2,897 3,478 4,143 1,969 2,515 3,140
5 11,423 150,000 150,000 150,000 3,762 4,629 5,661 2,890 3,705 4,675
6 14,061 150,000 150,000 150,000 4,540 5,759 7,266 3,729 4,875 6,292
7 16,831 150,000 150,000 150,000 5,222 6,855 8,957 4,478 6,013 7,989
8 19,740 150,000 150,000 150,000 5,797 7,907 10,736 5,127 7,110 9,823
9 22,794 150,000 150,000 150,000 6,254 8,898 12,601 5,663 8,148 11,794
10 26,001 150,000 150,000 150,000 6,583 9,816 14,553 6,080 9,119 13,854
15 44,607 150,000 150,000 150,000 5,995 12,859 25,811 5,995 12,859 25,811
20 68,354 150,000 150,000 150,000 260 11,683 41,321 260 11,683 41,321
</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.
43
<PAGE> 48
MARKETLIFE POLICIES ISSUED BETWEEN JULY 12, 1995 AND MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,271 1,365 1,459 118 206 294
2 4,238 150,000 150,000 150,000 2,496 2,764 3,043 1,377 1,629 1,891
3 6,517 150,000 150,000 150,000 3,679 4,202 4,770 2,597 3,089 3,623
4 8,910 150,000 150,000 150,000 4,961 5,825 6,804 3,909 4,721 5,641
5 11,423 150,000 150,000 150,000 6,185 7,485 9,016 5,167 6,389 7,829
6 14,061 150,000 150,000 150,000 7,361 9,191 11,433 6,381 8,101 10,304
7 16,831 150,000 150,000 150,000 8,488 10,942 14,076 7,548 9,921 13,055
8 19,740 150,000 150,000 150,000 9,568 12,746 16,974 8,671 11,833 16,061
9 22,794 150,000 150,000 150,000 10,600 14,603 20,154 9,793 13,796 19,347
10 26,001 150,000 150,000 150,000 11,569 16,499 23,633 10,870 15,800 22,934
15 44,607 150,000 150,000 150,000 15,515 26,732 46,957 15,515 26,732 46,957
20 68,354 150,000 150,000 150,000 17,215 38,207 86,245 17,215 38,207 86,245
</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.
44
<PAGE> 49
MARKETLIFE POLICIES ISSUED BETWEEN JULY 12, 1995 AND MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 522 581 641 0 0 0
2 3,435 150,000 150,000 150,000 1,001 1,153 1,313 0 115 265
3 5,282 150,000 150,000 150,000 1,436 1,713 2,018 489 749 1,036
4 7,221 150,000 150,000 150,000 2,253 2,700 3,211 1,363 1,784 2,264
5 9,258 150,000 150,000 150,000 3,016 3,688 4,487 2,189 2,820 3,571
6 11,396 150,000 150,000 150,000 3,721 4,675 5,852 2,959 3,856 4,962
7 13,641 150,000 150,000 150,000 4,365 5,657 7,311 3,673 4,887 6,442
8 15,999 150,000 150,000 150,000 4,942 6,626 8,869 4,323 5,906 8,068
9 18,474 150,000 150,000 150,000 5,449 7,578 10,533 4,906 6,907 9,838
10 21,073 150,000 150,000 150,000 5,884 8,511 12,314 5,423 7,924 11,727
15 36,153 150,000 150,000 150,000 7,013 12,880 23,573 7,013 12,880 23,573
20 55,399 150,000 150,000 150,000 5,854 16,326 41,148 5,854 16,326 41,148
</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.
45
<PAGE> 50
MARKETLIFE POLICIES ISSUED BETWEEN JULY 12, 1995 AND MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,005 1,080 1,155 0 0 9
2 3,435 150,000 150,000 150,000 1,979 2,193 2,416 891 1,092 1,302
3 5,282 150,000 150,000 150,000 2,918 3,334 3,788 1,882 2,273 2,700
4 7,221 150,000 150,000 150,000 3,960 4,650 5,430 2,968 3,617 4,350
5 9,258 150,000 150,000 150,000 4,962 6,000 7,221 4,018 4,994 6,141
6 11,396 150,000 150,000 150,000 5,923 7,385 9,176 5,029 6,403 8,159
7 13,641 150,000 150,000 150,000 6,846 8,809 11,314 6,005 7,900 10,405
8 15,999 150,000 150,000 150,000 7,731 10,276 13,658 6,945 9,475 12,857
9 18,474 150,000 150,000 150,000 8,577 11,785 16,227 7,882 11,090 15,532
10 21,073 150,000 150,000 150,000 9,381 13,334 19,043 8,794 12,747 18,456
15 36,153 150,000 150,000 150,000 12,601 21,590 37,748 12,601 21,590 37,748
20 55,399 150,000 150,000 150,000 14,644 31,374 69,382 14,644 31,374 69,382
</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.
46
<PAGE> 51
MARKETLIFE POLICIES ISSUED BETWEEN JULY 12, 1995 AND MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 792 868 0 0 0
2 4,238 150,000 150,000 150,000 1,368 1,565 1,772 317 502 697
3 6,517 150,000 150,000 150,000 1,953 2,314 2,711 975 1,314 1,687
4 8,910 150,000 150,000 150,000 2,897 3,478 4,143 1,969 2,515 3,140
5 11,423 150,000 150,000 150,000 3,762 4,629 5,661 2,890 3,705 4,675
6 14,061 150,000 150,000 150,000 4,540 5,759 7,266 3,729 4,875 6,292
7 16,831 150,000 150,000 150,000 5,222 6,855 8,957 4,478 6,013 7,989
8 19,740 150,000 150,000 150,000 5,797 7,907 10,736 5,127 7,110 9,823
9 22,794 150,000 150,000 150,000 6,254 8,898 12,601 5,663 8,148 11,794
10 26,001 150,000 150,000 150,000 6,583 9,816 14,553 6,080 9,119 13,854
15 44,607 150,000 150,000 150,000 5,995 12,859 25,811 5,995 12,859 25,811
20 68,354 150,000 150,000 150,000 212 11,527 40,905 212 11,527 40,905
</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.
47
<PAGE> 52
MARKETLIFE POLICIES ISSUED 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 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,008 1,083 1,159 0 0 12
2 3,435 150,000 150,000 150,000 1,990 2,204 2,428 902 1,103 1,313
3 5,282 150,000 150,000 150,000 2,938 3,356 3,811 1,901 2,294 2,721
4 7,221 150,000 150,000 150,000 3,992 4,686 5,472 2,998 3,650 4,389
5 9,258 150,000 150,000 150,000 5,010 6,056 7,288 4,063 5,046 6,204
6 11,396 150,000 150,000 150,000 5,989 7,466 9,275 5,091 6,480 8,258
7 13,641 150,000 150,000 150,000 6,933 8,921 11,456 6,087 8,012 10,547
8 15,999 150,000 150,000 150,000 7,841 10,423 13,853 7,048 9,622 13,052
9 18,474 150,000 150,000 150,000 8,714 11,974 16,489 8,019 11,279 15,794
10 21,073 150,000 150,000 150,000 9,546 13,573 19,387 8,959 12,986 18,800
15 36,153 150,000 150,000 150,000 12,937 22,193 38,832 12,937 22,193 38,832
20 55,399 150,000 150,000 150,000 14,863 31,941 70,790 14,863 31,941 70,790
</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.
48
<PAGE> 53
MARKETLIFE POLICIES ISSUED 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 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 522 581 641 0 0 0
2 3,435 150,000 150,000 150,000 1,001 1,153 1,313 0 115 265
3 5,282 150,000 150,000 150,000 1,436 1,713 2,018 489 749 1,036
4 7,221 150,000 150,000 150,000 2,253 2,700 3,211 1,363 1,784 2,264
5 9,258 150,000 150,000 150,000 3,016 3,688 4,487 2,189 2,820 3,571
6 11,396 150,000 150,000 150,000 3,721 4,675 5,852 2,959 3,856 4,962
7 13,641 150,000 150,000 150,000 4,365 5,657 7,311 3,673 4,887 6,442
8 15,999 150,000 150,000 150,000 4,942 6,626 8,869 4,323 5,906 8,068
9 18,474 150,000 150,000 150,000 5,449 7,578 10,533 4,906 6,907 9,838
10 21,073 150,000 150,000 150,000 5,884 8,511 12,314 5,423 7,924 11,727
15 36,153 150,000 150,000 150,000 7,013 12,880 23,573 7,013 12,880 23,573
20 55,399 150,000 150,000 150,000 5,686 15,944 40,285 5,686 15,944 40,285
</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.
49
<PAGE> 54
MARKETLIFE POLICIES ISSUED 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 Stated 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% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,276 1,369 1,463 122 210 298
2 4,238 150,000 150,000 150,000 2,509 2,778 3,058 1,389 1,642 1,906
3 6,517 150,000 150,000 150,000 3,704 4,229 4,800 2,621 3,114 3,651
4 8,910 150,000 150,000 150,000 5,001 5,872 6,856 3,946 4,765 5,690
5 11,423 150,000 150,000 150,000 6,245 7,556 9,099 5,224 6,456 7,907
6 14,061 150,000 150,000 150,000 7,444 9,292 11,557 6,459 8,196 10,428
7 16,831 150,000 150,000 150,000 8,596 11,081 14,253 7,650 10,060 13,232
8 19,740 150,000 150,000 150,000 9,706 12,930 17,219 8,801 12,017 16,306
9 22,794 150,000 150,000 150,000 10,770 14,839 20,482 9,963 14,032 19,675
10 26,001 150,000 150,000 150,000 11,774 16,797 24,063 11,075 16,098 23,364
15 44,607 150,000 150,000 150,000 15,934 27,485 48,315 15,934 27,485 48,315
20 68,354 150,000 150,000 150,000 17,496 38,933 88,046 17,496 38,933 88,046
</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.
50
<PAGE> 55
MARKETLIFE POLICIES ISSUED 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 Stated 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% 12%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 792 868 0 0 0
2 4,238 150,000 150,000 150,000 1,368 1,565 1,772 317 502 697
3 6,517 150,000 150,000 150,000 1,953 2,314 2,711 975 1,314 1,687
4 8,910 150,000 150,000 150,000 2,897 3,478 4,143 1,969 2,515 3,140
5 11,423 150,000 150,000 150,000 3,762 4,629 5,661 2,890 3,705 4,675
6 14,061 150,000 150,000 150,000 4,540 5,759 7,266 3,729 4,875 6,292
7 16,831 150,000 150,000 150,000 5,222 6,855 8,957 4,478 6,013 7,989
8 19,740 150,000 150,000 150,000 5,797 7,907 10,736 5,127 7,110 9,823
9 22,794 150,000 150,000 150,000 6,254 8,898 12,601 5,663 8,148 11,794
10 26,001 150,000 150,000 150,000 6,583 9,816 14,553 6,080 9,119 13,854
15 44,607 150,000 150,000 150,000 5,995 12,859 25,811 5,995 12,859 25,811
20 68,354 150,000 150,000 150,000 108 11,180 39,978 108 11,180 39,978
</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.
51
<PAGE> 56
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
</TABLE>
<TABLE>
<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
52
<PAGE> 57
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
</TABLE>
<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>
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
53
<PAGE> 58
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
</TABLE>
<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>
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
54
<PAGE> 59
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
</TABLE>
<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>
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
55
<PAGE> 60
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
</TABLE>
<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>
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
56
<PAGE> 61
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
</TABLE>
<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>
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>
57
<PAGE> 62
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
</TABLE>
<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>
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
58
<PAGE> 63
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Managed Assets Trust, 114,804 shares (cost $1,761,500) ........................... $ 2,026,296
High Yield Bond Trust, 24,382 shares (cost $215,673) ............................. 241,137
Capital Appreciation Fund, 120,351 shares (cost $4,644,550) ...................... 5,574,661
Cash Income Trust, 3,347,375 shares (cost $3,347,375) ............................ 3,347,375
The Travelers Series Trust, 496,993 shares (cost $5,181,966) ..................... 5,328,832
Templeton Variable Products Series Fund, 529,432 shares (cost $10,458,089) ....... 11,591,894
Fidelity's Variable Insurance Products Fund, 840,173 shares (cost $17,653,628) ... 21,041,079
Fidelity's Variable Insurance Products Fund II, 243,515 shares (cost $3,671,170) . 4,385,702
Dreyfus Stock Index Fund, 127,138 shares (cost $2,750,538) ....................... 3,273,804
American Odyssey Funds, Inc., 38,833 shares (cost $533,298) ...................... 554,406
Travelers Series Fund Inc., 345,419 shares (cost $4,982,688) .................... 5,843,986
Greenwich Street Series Fund, 44,121 shares (cost $689,440) ...................... 777,407
-----------
Total Investments (cost $55,889,915) ........................................ $63,986,579
Receivables:
Dividends ........................................................................ 74,450
Premium payments and transfers from other Travelers accounts ..................... 18,755
Other assets ....................................................................... 4
-----------
Total Assets ................................................................. 64,079,788
-----------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts .......... 18,479
Accrued liabilities ................................................................ 3,136
-----------
Total Liabilities ............................................................ 21,615
-----------
NET ASSETS: ........................................................................... $64,058,173
===========
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 64
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends .......................................................................... $ 2,833,924
EXPENSES:
Insurance charges .................................................................. $ 363,873
Administrative charges ............................................................. 22,481
-----------
Total expenses ................................................................... 386,354
-----------
Net investment income .......................................................... 2,447,570
-----------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold ................................................... 14,840,064
Cost of investments sold ......................................................... 13,389,728
-----------
Net realized gain .............................................................. 1,450,336
Change in unrealized gain on investments:
Unrealized gain at December 31, 1996 ............................................. 3,488,881
Unrealized gain at December 31, 1997 ............................................. 8,096,664
-----------
Net change in unrealized gain for the year ..................................... 4,607,783
-----------
Net realized gain and change in unrealized gain .............................. 6,058,119
-----------
Net increase in net assets resulting from operations ............................... $ 8,505,689
===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 65
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................... $ 2,447,570 $ 1,858,620
Net realized gain from investment transactions .................. 1,450,336 532,275
Net change in unrealized gain on investments .................... 4,607,783 1,534,477
------------ ------------
Net increase in net assets resulting from operations .......... 8,505,689 3,925,372
------------ ------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 12,005,909 and 15,169,725 units, respectively).. 19,096,022 21,543,041
Participant transfers from other Travelers accounts
(applicable to 8,679,346 and 10,670,706 units, respectively) .. 13,453,685 14,576,672
Contract surrenders
(applicable to 3,304,273 and 3,002,978 units, respectively) ... (5,554,224) (4,214,910)
Participant transfers to other Travelers accounts
(applicable to 9,048,261 and 9,824,019 units, respectively) ... (13,733,134) (14,195,827)
Other payments to participants
(applicable to 23,301 units) .................................. (33,914) --
------------ ------------
Net increase in net assets resulting from unit transactions 13,228,435 17,708,976
------------ ------------
Net increase in net assets ................................ 21,734,124 21,634,348
NET ASSETS:
Beginning of year ............................................... 42,324,049 20,689,701
------------ ------------
End of year ..................................................... $ 64,058,173 $ 42,324,049
============ ============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 66
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 $3,401,482 at
December 31, 1997.
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, 1997, 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 Travelers Series Fund Inc.; Total Return Portfolio of
Greenwich Street Series Fund (formerly Smith Barney Series Fund) (all of which
are managed by affiliates of The Travelers); Templeton Bond Fund (Class 1
shares), Templeton Stock Fund (Class 1 shares) and Templeton Asset Allocation
Fund (Class 1 shares) of Templeton Variable Products Series Fund; High Income
Portfolio, Growth Portfolio and Equity-Income Portfolio of Fidelity's Variable
Insurance Products Fund; Asset Manager Portfolio of Fidelity's Variable
Insurance Products Fund II; 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 may be
available in all states or to all contract owners.
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.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES. The operations of Fund UL 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.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$31,020,647 and $14,840,064, respectively, for the year ended December 31, 1997.
Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was $55,889,915
at December 31, 1997. Gross unrealized appreciation for all investments at
December 31, 1997 was $8,108,762. Gross unrealized depreciation for all
investments at December 31, 1997 was $12,098.
-4-
<PAGE> 67
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, MarketLife Contracts
issued prior to July 12, 1995, and MarketLife Contracts issued on or after July
12, 1995 where state approval for Enhanced MarketLife had not yet been
received), the insurance charges were 0.60% and the administrative charges were
waived by The Travelers for the year ended December 31, 1997. For Price II
contracts (all MarketLife Contracts issued on or after July 12, 1995, where
state approval for Enhanced MarketLife 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 $131,429 and $106,276 in satisfaction of such contingent
surrender charges for the years ended December 31, 1997 and 1996, respectively.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
MANAGED ASSETS TRUST
Price I ................................. 631,186 $2.690 $ 1,697,949
Price II ................................ 122,866 2.671 328,128
HIGH YIELD BOND TRUST
Price I ................................. 96,477 2.515 242,606
CAPITAL APPRECIATION FUND
Price I ................................. 969,080 2.711 2,627,169
Price II ................................ 1,095,887 2.691 2,949,431
CASH INCOME TRUST
Price I ................................. 160,685 1.551 249,254
Price II ................................ 2,016,280 1.540 3,105,001
THE TRAVELERS SERIES TRUST
U.S. Government Securities Portfolio
Price I ................................. 138,133 1.300 179,581
Price II ................................ 1,042,966 1.291 1,346,102
Utilities Portfolio
Price I ................................. 70,674 1.697 119,954
Price II ................................ 34,592 1.685 58,288
Zero Coupon Bond Fund Portfolio Series 1998
Price I ................................. 1,000,000 1.116 1,115,894
Price II ................................ 8,353 1.108 9,259
Zero Coupon Bond Fund Portfolio Series 2000
Price I ................................. 1,001,379 1.121 1,122,297
Price II ................................ 36,677 1.113 40,831
Zero Coupon Bond Fund Portfolio Series 2005
Price I ................................. 1,041,763 1.165 1,213,483
Price II ................................ 105,916 1.157 122,553
</TABLE>
-5-
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Bond Fund
Price I ................................. 147,319 $1.192 $ 175,618
Price II ................................ 264,591 1.183 313,140
Templeton Stock Fund
Price I ................................. 2,837,594 1.617 4,589,102
Price II ................................ 1,578,248 1.606 2,533,963
Templeton Asset Allocation Fund
Price I ................................. 1,820,911 1.565 2,848,947
Price II ................................ 728,294 1.553 1,131,223
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
High Income Portfolio
Price I ................................. 975,103 1.515 1,477,604
Price II ................................ 1,292,867 1.504 1,944,960
Growth Portfolio
Price I ................................. 3,005,309 1.839 5,526,710
Price II ................................ 2,264,973 1.826 4,135,061
Equity-Income Portfolio
Price I ................................. 2,311,361 1.981 4,578,953
Price II ................................ 1,719,857 1.967 3,382,482
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Price I ................................. 2,569,808 1.460 3,751,635
Price II ................................ 437,656 1.449 634,303
DREYFUS STOCK INDEX FUND
Price I ................................. 501,723 2.203 1,105,221
Price II ................................ 1,019,666 2.187 2,229,952
AMERICAN ODYSSEY FUNDS, INC.
American Odyssey Core Equity Fund
Price I ................................. 29,927 2.218 66,390
American Odyssey Emerging Opportunities Fund
Price I ................................. 197,206 1.459 287,685
American Odyssey International Equity Fund
Price I ................................. 82,883 1.408 116,698
American Odyssey Long-Term Bond Fund
Price I ................................. 63,209 1.366 86,321
American Odyssey Intermediate-Term Bond Fund
Price I ................................. 1,145 1.166 1,335
American Odyssey Short-Term Bond Fund
Price I ................................. 2,753 1.208 3,325
</TABLE>
-6-
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio
Price I ................................. 235,405 $1.721 $ 405,056
Price II ................................ 1,234,462 1.708 2,109,030
Smith Barney Income and Growth Portfolio
Price I ................................. 36,024 1.600 57,637
Price II ................................ 424,342 1.589 674,488
Smith Barney High Income Portfolio
Price I ................................. 28,586 1.264 36,130
Price II ................................ 358,300 1.256 450,194
MFS Total Return Portfolio
Price I ................................. 142,872 1.490 212,943
Price II ................................ 437,292 1.480 647,206
AIM Capital Appreciation Portfolio
Price I ................................. 116,099 1.183 137,359
Price II ................................ 936,917 1.177 1,102,352
GREENWICH STREET SERIES FUND
Total Return Portfolio
Price I ................................. 37,563 1.499 56,308
Price II ................................ 484,110 1.489 721,062
-----------
Net Contract Owners' Equity .................. $64,058,173
===========
</TABLE>
-7-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
MANAGED ASSETS TRUST (3.2%)
Total (Cost $1,761,500) 114,804 $ 2,026,296
----------- -----------
HIGH YIELD BOND TRUST (0.4%)
Total (Cost $215,673) 24,382 241,137
----------- -----------
CAPITAL APPRECIATION FUND (8.7%)
Total (Cost $4,644,550) 120,351 5,574,661
----------- -----------
CASH INCOME TRUST (5.2%)
Total (Cost $3,347,375) 3,347,375 3,347,375
----------- -----------
THE TRAVELERS SERIES TRUST (8.3%)
U.S. Government Securities Portfolio (Cost $1,479,742) 130,966 1,525,755
Utilities Portfolio (Cost $148,527) 11,683 178,638
Zero Coupon Bond Fund Portfolio Series 1998 (Cost $1,122,796) 112,182 1,125,190
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $1,155,180) 115,279 1,163,167
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $1,275,721) 126,883 1,336,082
----------- -----------
Total (Cost $5,181,966) 496,993 5,328,832
----------- -----------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (18.1%)
Templeton Bond Fund (Cost $482,060) 44,193 488,780
Templeton Stock Fund (Cost $6,583,386) 307,149 7,122,795
Templeton Asset Allocation Fund (Cost $3,392,643) 178,090 3,980,319
----------- -----------
Total (Cost $10,458,089) 529,432 11,591,894
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (32.9%)
High Income Portfolio (Cost $3,052,156) 252,034 3,422,625
Growth Portfolio (Cost $7,968,559) 260,407 9,661,116
Equity-Income Portfolio (Cost $6,632,913) 327,732 7,957,338
----------- -----------
Total (Cost $17,653,628) 840,173 21,041,079
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (6.9%)
Asset Manager Portfolio
Total (Cost $3,671,170) 243,515 4,385,702
----------- -----------
DREYFUS STOCK INDEX FUND (5.1%)
Total (Cost $2,750,538) 127,138 3,273,804
----------- -----------
AMERICAN ODYSSEY FUNDS, INC. (0.9%)
American Odyssey Core Equity Fund (Cost $46,111) 3,292 65,611
American Odyssey Emerging Opportunities Fund (Cost $299,735) 20,076 287,690
American Odyssey International Equity Fund (Cost $102,480) 7,425 114,942
American Odyssey Long-Term Bond Fund (Cost $80,495) 7,611 81,739
American Odyssey Intermediate-Term Bond Fund (Cost $1,286) 123 1,264
American Odyssey Short-Term Bond Fund (Cost $3,191) 306 3,160
----------- -----------
Total (Cost $533,298) 38,833 554,406
----------- -----------
TRAVELERS SERIES FUND INC. (9.1%)
Alliance Growth Portfolio (Cost $1,966,130) 116,421 2,520,506
Smith Barney Income and Growth Portfolio (Cost $651,344) 38,393 732,153
Smith Barney High Income Portfolio (Cost $469,336) 36,079 486,347
MFS Total Return Portfolio (Cost $744,214) 53,896 860,188
AIM Capital Appreciation Portfolio (Cost $1,151,664) 100,630 1,244,792
----------- -----------
Total (Cost $4,982,688) 345,419 5,843,986
----------- -----------
GREENWICH STREET SERIES FUND (1.2%)
Total Return Portfolio
Total (Cost $689,440) 44,121 777,407
----------- -----------
TOTAL INVESTMENT OPTIONS (100%)
(COST $55,889,915) $63,986,579
===========
</TABLE>
-8-
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST HIGH YIELD BOND TRUST
------------------------------ --------------------------
1997 1996 1997 1996
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 56,368 $ 212,189 $ 151 $ 58,484
----------- ----------- --------- ---------
EXPENSES:
Insurance charges ..................................... 11,874 9,244 1,465 1,710
Administrative charges ................................ 339 266 -- --
----------- ----------- --------- ---------
Net investment income (loss) .................... 44,155 202,679 (1,314) 56,774
----------- ----------- --------- ---------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 374,254 398,836 234,846 266,166
Cost of investments sold .......................... 292,317 355,102 225,775 261,596
----------- ----------- --------- ---------
Net realized gain (loss) ........................ 81,937 43,734 9,071 4,570
----------- ----------- --------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 49,154 113,258 (2,411) 16,476
Unrealized gain (loss) end of year ................ 264,796 49,154 25,465 (2,411)
----------- ----------- --------- ---------
Net change in unrealized gain (loss) for the year 215,642 (64,104) 27,876 (18,887)
----------- ----------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 341,734 182,309 35,633 42,457
----------- ----------- --------- ---------
UNIT TRANSACTIONS:
Participant premium payments .......................... 427,367 385,858 34,411 59,862
Participant transfers from other Travelers accounts ... 132,340 446,005 93,271 210,756
Contract surrenders ................................... (269,781) (197,168) (143,838) (49,202)
Participant transfers to other Travelers accounts ..... (253,757) (363,218) (98,507) (225,122)
Other payments to participants ........................ -- -- -- --
----------- ----------- --------- ---------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 36,169 271,477 (114,663) (3,706)
----------- ----------- --------- ---------
Net increase (decrease) in net assets ........... 377,903 453,786 (79,030) 38,751
NET ASSETS:
Beginning of year ................................. 1,648,174 1,194,388 321,636 282,885
----------- ----------- --------- ---------
End of year ....................................... $ 2,026,077 $ 1,648,174 $ 242,606 $ 321,636
=========== =========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 36 $ 326,576
----------- -----------
EXPENSES:
Insurance charges ..................................... 30,965 12,964
Administrative charges ................................ 2,084 456
----------- -----------
Net investment income (loss) .................... (33,013) 313,156
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 839,367 141,019
Cost of investments sold .......................... 553,249 97,726
----------- -----------
Net realized gain (loss) ........................ 286,118 43,293
----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 276,095 177,890
Unrealized gain (loss) end of year ................ 930,111 276,095
----------- -----------
Net change in unrealized gain (loss) for the year 654,016 98,205
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 907,121 454,654
----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 1,371,774 845,776
Participant transfers from other Travelers accounts ... 1,068,760 1,273,217
Contract surrenders ................................... (577,590) (250,675)
Participant transfers to other Travelers accounts ..... (560,317) (124,142)
Other payments to participants ........................ (651) --
----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 1,301,976 1,744,176
----------- -----------
Net increase (decrease) in net assets ........... 2,209,097 2,198,830
NET ASSETS:
Beginning of year ................................. 3,367,503 1,168,673
----------- -----------
End of year ....................................... $ 5,576,600 $ 3,367,503
=========== ===========
</TABLE>
-9-
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
ZERO COUPON BOND
U.S. GOVERNMENT FUND PORTFOLIO
CASH INCOME TRUST SECURITIES PORTFOLIO UTILITIES PORTFOLIO SERIES 1998
- ----------------------------- -------------------------- ------------------------ ----------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 148,941 $ 90,366 $ 71,639 $ 58,279 $ 234 $ 13,790 $ 60,738 $ 67,102
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
23,201 15,944 7,196 1,660 947 688 6,579 6,251
2,570 1,351 781 100 44 23 10 6
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
123,170 73,071 63,662 56,519 (757) 13,079 54,149 60,845
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
7,080,626 6,855,752 579,692 45,082 33,131 42,674 22,224 6,286
7,080,626 6,855,752 605,967 43,606 31,964 37,280 21,753 6,135
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
-- -- (26,275) 1,476 1,167 5,394 471 151
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
-- -- (33,195) 19,739 (3,421) 7,329 (1,641) 24,969
-- -- 46,013 (33,195) 30,111 (3,421) 2,394 (1,641)
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
-- -- 79,208 (52,934) 33,532 (10,750) 4,035 (26,610)
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
123,170 73,071 116,595 5,061 33,942 7,723 58,655 34,386
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
6,413,938 11,879,168 555,591 92,662 47,754 79,509 634 --
3,079,011 1,603,195 723,123 513,975 1,654 25,144 8,679 15,174
(365,525) (1,023,100) (92,796) (32,101) (28,432) (16,313) (454) (203)
(8,668,083) (11,441,681) (503,445) (20,458) (10,100) (33,120) (15,356) --
-- -- -- -- -- -- -- --
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
459,341 1,017,582 682,473 554,078 10,876 55,220 (6,497) 14,971
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
582,511 1,090,653 799,068 559,139 44,818 62,943 52,158 49,357
2,771,744 1,681,091 726,615 167,476 133,424 70,481 1,072,995 1,023,638
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
$ 3,354,255 $ 2,771,744 $ 1,525,683 $ 726,615 $ 178,242 $ 133,424 $ 1,125,153 $ 1,072,995
=========== ============ =========== ========= ========= ========= =========== ===========
</TABLE>
-10-
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ZERO COUPON BOND ZERO COUPON BOND
FUND PORTFOLIO FUND PORTFOLIO
SERIES 2000 SERIES 2005
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 63,813 $ 63,651 $ 71,682 $ 66,990
----------- ----------- ----------- -----------
EXPENSES:
Insurance charges ..................................... 6,564 6,171 7,294 6,538
Administrative charges ................................ 13 2 63 26
----------- ----------- ----------- -----------
Net investment income (loss) .................... 57,236 57,478 64,325 60,426
----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 13,930 6,328 67,978 22,857
Cost of investments sold .......................... 13,566 6,227 67,394 23,410
----------- ----------- ----------- -----------
Net realized gain (loss) ........................ 364 101 584 (553)
----------- ----------- ----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... (4,359) 30,962 (2,241) 47,983
Unrealized gain (loss) end of year ................ 7,987 (4,359) 60,360 (2,241)
----------- ----------- ----------- -----------
Net change in unrealized gain (loss) for the year 12,346 (35,321) 62,601 (50,224)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 69,946 22,258 127,510 9,649
----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 1,592 1,303 43,451 3,937
Participant transfers from other Travelers accounts ... 36,989 2,571 37,071 143,245
Contract surrenders ................................... (877) (275) (3,931) (1,804)
Participant transfers to other Travelers accounts ..... (16) -- (57,627) (15,098)
Other payments to participants ........................ -- -- -- --
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 37,688 3,599 18,964 130,280
----------- ----------- ----------- -----------
Net increase (decrease) in net assets ........... 107,634 25,857 146,474 139,929
NET ASSETS:
Beginning of year ................................. 1,055,494 1,029,637 1,189,562 1,049,633
----------- ----------- ----------- -----------
End of year ....................................... $ 1,163,128 $ 1,055,494 $ 1,336,036 $ 1,189,562
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON BOND FUND
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 22,190 $ 18,730
--------- ---------
EXPENSES:
Insurance charges ..................................... 2,586 1,415
Administrative charges ................................ 201 68
--------- ---------
Net investment income (loss) .................... 19,403 17,247
--------- ---------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 43,392 155,886
Cost of investments sold .......................... 43,183 160,115
--------- ---------
Net realized gain (loss) ........................ 209 (4,229)
--------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 18,576 10,933
Unrealized gain (loss) end of year ................ 6,720 18,576
--------- ---------
Net change in unrealized gain (loss) for the year (11,856) 7,643
--------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 7,756 20,661
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments .......................... 121,519 129,705
Participant transfers from other Travelers accounts ... 123,156 140,133
Contract surrenders ................................... (41,897) (37,867)
Participant transfers to other Travelers accounts ..... (8,468) (110,954)
Other payments to participants ........................ (4,899) --
--------- ---------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 189,411 121,017
--------- ---------
Net increase (decrease) in net assets ........... 197,167 141,678
NET ASSETS:
Beginning of year ................................. 291,591 149,913
--------- ---------
End of year ....................................... $ 488,758 $ 291,591
========= =========
</TABLE>
-11-
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON ASSET FIDELITY'S HIGH
TEMPLETON STOCK FUND ALLOCATION FUND INCOME PORTFOLIO FIDELITY'S GROWTH PORTFOLIO
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 513,518 $ 275,458 $ 257,405 $ 100,257 $ 195,704 $ 79,896 $ 234,290 $ 212,219
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
42,347 22,487 23,292 13,519 20,332 8,457 53,174 28,119
2,080 636 868 228 1,556 346 3,145 1,081
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
469,091 252,335 233,245 86,510 173,816 71,093 177,971 183,019
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
795,451 427,910 299,373 251,298 906,455 394,532 775,032 290,824
588,414 355,680 211,031 208,598 892,824 359,601 510,153 199,573
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
207,037 72,230 88,342 42,700 13,631 34,931 264,879 91,251
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
696,253 293,901 469,194 221,298 109,472 57,063 642,147 382,429
539,409 696,253 587,676 469,194 370,469 109,472 1,692,557 642,147
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(156,844) 402,352 118,482 247,896 260,997 52,409 1,050,410 259,718
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
519,284 726,917 440,069 377,106 448,444 158,433 1,493,260 533,988
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,839,867 1,321,382 735,199 644,082 686,634 527,622 2,092,960 2,089,604
1,088,920 1,213,990 400,002 446,075 933,013 1,226,656 1,286,782 1,889,484
(668,841) (483,098) (356,661) (235,094) (260,544) (201,035) (898,220) (640,080)
(563,883) (282,267) (100,309) (144,347) (718,621) (172,976) (494,401) (317,899)
-- -- -- -- (5,003) -- (5,729) --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,696,063 1,770,007 678,231 710,716 635,479 1,380,267 1,981,392 3,021,109
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
2,215,347 2,496,924 1,118,300 1,087,822 1,083,923 1,538,700 3,474,652 3,555,097
4,907,718 2,410,794 2,861,870 1,774,048 2,338,641 799,941 6,187,119 2,632,022
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 7,123,065 $ 4,907,718 $ 3,980,170 $ 2,861,870 $ 3,422,564 $ 2,338,641 $ 9,661,771 $ 6,187,119
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
-12-
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY'S EQUITY- FIDELITY'S ASSET
INCOME PORTFOLIO MANAGER PORTFOLIO
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 551,315 $ 109,635 $ 414,291 $ 159,369
----------- ----------- ----------- -----------
EXPENSES:
Insurance charges ..................................... 45,297 22,379 24,513 17,144
Administrative charges ................................ 2,746 811 501 161
----------- ----------- ----------- -----------
Net investment income (loss) .................... 503,272 86,445 389,277 142,064
----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 1,066,364 400,773 332,402 246,699
Cost of investments sold .......................... 796,012 317,023 276,655 224,032
----------- ----------- ----------- -----------
Net realized gain (loss) ........................ 270,352 83,750 55,747 22,667
----------- ----------- ----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 555,918 260,001 454,097 244,927
Unrealized gain (loss) end of year ................ 1,324,425 555,918 714,532 454,097
----------- ----------- ----------- -----------
Net change in unrealized gain (loss) for the year 768,507 295,917 260,435 209,170
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 1,542,131 466,112 705,459 373,901
----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 1,553,084 1,546,355 792,294 819,279
Participant transfers from other Travelers accounts ... 1,216,927 1,927,954 128,939 265,125
Contract surrenders ................................... (715,570) (479,487) (414,673) (311,604)
Participant transfers to other Travelers accounts ..... (767,826) (385,897) (153,222) (200,709)
Other payments to participants ........................ (8,322) -- (69) --
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 1,278,293 2,608,925 353,269 572,091
----------- ----------- ----------- -----------
Net increase (decrease) in net assets ........... 2,820,424 3,075,037 1,058,728 945,992
NET ASSETS:
Beginning of year ................................. 5,141,011 2,065,974 3,327,210 2,381,218
----------- ----------- ----------- -----------
End of year ....................................... $ 7,961,435 $ 5,141,011 $ 4,385,938 $ 3,327,210
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 131,569 $ 38,450
----------- -----------
EXPENSES:
Insurance charges ..................................... 17,644 4,900
Administrative charges ................................ 1,557 288
----------- -----------
Net investment income (loss) .................... 112,368 33,262
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 480,285 198,684
Cost of investments sold .......................... 385,669 154,606
----------- -----------
Net realized gain (loss) ........................ 94,616 44,078
----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 103,469 32,788
Unrealized gain (loss) end of year ................ 523,266 103,469
----------- -----------
Net change in unrealized gain (loss) for the year 419,797 70,681
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 626,781 148,021
----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 815,909 331,313
Participant transfers from other Travelers accounts ... 947,641 923,999
Contract surrenders ................................... (282,791) (103,195)
Participant transfers to other Travelers accounts ..... (335,492) (70,708)
Other payments to participants ........................ -- --
----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 1,145,267 1,081,409
----------- -----------
Net increase (decrease) in net assets ........... 1,772,048 1,229,430
NET ASSETS:
Beginning of year ................................. 1,563,125 333,695
----------- -----------
End of year ....................................... $ 3,335,173 $ 1,563,125
=========== ===========
</TABLE>
-13-
<PAGE> 76
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
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,487 $ 3,238 $ -- $ 20,349 $ 2,623 $ 2,488 $ 4,752 $ 2,672
- -------- -------- --------- --------- --------- --------- -------- --------
387 312 1,630 1,563 661 520 400 273
-- -- -- -- -- -- -- --
- -------- -------- --------- --------- --------- --------- -------- --------
1,100 2,926 (1,630) 18,786 1,962 1,968 4,352 2,399
- -------- -------- --------- --------- --------- --------- -------- --------
17,936 9,229 46,981 41,345 20,677 20,513 4,416 9,682
12,382 7,518 46,233 33,380 16,342 16,197 4,534 9,981
- -------- -------- --------- --------- --------- --------- -------- --------
5,554 1,711 748 7,965 4,335 4,316 (118) (299)
- -------- -------- --------- --------- --------- --------- -------- --------
8,895 3,143 (32,337) 4,288 14,319 3,676 (2,217) (1,341)
19,500 8,895 (12,045) (32,337) 12,462 14,319 1,244 (2,217)
- -------- -------- --------- --------- --------- --------- -------- --------
10,605 5,752 20,292 (36,625) (1,857) 10,643 3,461 (876)
- -------- -------- --------- --------- --------- --------- -------- --------
17,259 10,389 19,410 (9,874) 4,440 16,927 7,695 1,224
- -------- -------- --------- --------- --------- --------- -------- --------
10,015 10,768 59,971 93,912 27,193 30,054 28,271 26,241
1,899 3,481 8,296 9,776 7,563 16,031 -- --
(4,755) (4,419) (25,273) (29,021) (12,213) (12,104) (4,730) (5,072)
(15,920) (6,488) (37,520) (25,343) (13,029) (13,400) -- (5,423)
-- -- -- -- -- -- -- --
- -------- -------- --------- --------- --------- --------- -------- --------
(8,761) 3,342 5,474 49,324 9,514 20,581 23,541 15,746
- -------- -------- --------- --------- --------- --------- -------- --------
8,498 13,731 24,884 39,450 13,954 37,508 31,236 16,970
57,892 44,161 262,801 223,351 102,744 65,236 55,085 38,115
- -------- -------- --------- --------- --------- --------- -------- --------
$ 66,390 $ 57,892 $ 287,685 $ 262,801 $ 116,698 $ 102,744 $ 86,321 $ 55,085
======== ======== ========= ========= ========= ========= ======== ========
</TABLE>
-14-
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
INTERMEDIATE-TERM AMERICAN ODYSSEY
BOND FUND SHORT-TERM BOND FUND
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 80 $ 48 $ 170 $ 104
------- ----- ------- -------
EXPENSES:
Insurance charges ..................................... 7 4 19 16
Administrative charges ................................ -- -- -- --
------- ----- ------- -------
Net investment income (loss) .................... 73 44 151 88
------- ----- ------- -------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 157 -- 470 213
Cost of investments sold .......................... 153 -- 475 214
------- ----- ------- -------
Net realized gain (loss) ........................ 4 -- (5) (1)
------- ----- ------- -------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... (23) (6) (63) (68)
Unrealized gain (loss) end of year ................ (22) (23) (31) (63)
------- ----- ------- -------
Net change in unrealized gain (loss) for the year 1 (17) 32 5
------- ----- ------- -------
Net increase (decrease) in net assets
resulting from operations ....................... 78 27 178 92
------- ----- ------- -------
UNIT TRANSACTIONS:
Participant premium payments .......................... 570 631 658 841
Participant transfers from other Travelers accounts ... 32 -- -- --
Contract surrenders ................................... (97) (124) (533) (244)
Participant transfers to other Travelers accounts ..... (157) -- -- --
Other payments to participants ........................ -- -- -- --
------- ----- ------- -------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 348 507 125 597
------- ----- ------- -------
Net increase (decrease) in net assets ........... 426 534 303 689
NET ASSETS:
Beginning of year ................................. 909 375 3,022 2,333
------- ----- ------- -------
End of year ....................................... $ 1,335 $ 909 $ 3,325 $ 3,022
======= ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $ 43,645
----------- -----------
EXPENSES:
Insurance charges ..................................... 13,955 4,173
Administrative charges ................................ 1,519 461
----------- -----------
Net investment income (loss) .................... (15,474) 39,011
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 137,767 138,394
Cost of investments sold .......................... 106,425 126,677
----------- -----------
Net realized gain (loss) ........................ 31,342 11,717
----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 97,212 (310)
Unrealized gain (loss) end of year ................ 554,376 97,212
----------- -----------
Net change in unrealized gain (loss) for the year 457,164 97,522
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 473,032 148,250
----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 431,226 264,719
Participant transfers from other Travelers accounts ... 619,763 805,494
Contract surrenders ................................... (152,219) (44,856)
Participant transfers to other Travelers accounts ..... (43,871) (6,667)
Other payments to participants ........................ (1,525) --
----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 853,374 1,018,690
----------- -----------
Net increase (decrease) in net assets ........... 1,326,406 1,166,940
NET ASSETS:
Beginning of year ................................. 1,187,680 20,740
----------- -----------
End of year ....................................... $ 2,514,086 $ 1,187,680
=========== ===========
</TABLE>
-15-
<PAGE> 78
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
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 5,295 $ -- $ 8,808 $ -- $ 13,265 $ -- $ 580
- --------- --------- --------- --------- --------- --------- ----------- ---------
3,376 664 1,982 1,201 4,442 1,350 7,136 1,435
399 78 222 142 432 102 807 142
- --------- --------- --------- --------- --------- --------- ----------- ---------
(3,775) 4,553 (2,204) 7,465 (4,874) 11,813 (7,943) (997)
- --------- --------- --------- --------- --------- --------- ----------- ---------
58,318 56,203 460,379 142,661 54,024 27,195 53,629 104,593
45,948 52,019 436,696 138,333 42,230 24,139 48,176 101,291
- --------- --------- --------- --------- --------- --------- ----------- ---------
12,370 4,184 23,683 4,328 11,794 3,056 5,453 3,302
- --------- --------- --------- --------- --------- --------- ----------- ---------
3,968 (1) 3,819 -- 18,241 3,089 17,258 --
80,809 3,968 17,011 3,819 115,974 18,241 93,128 17,258
- --------- --------- --------- --------- --------- --------- ----------- ---------
76,841 3,969 13,192 3,819 97,733 15,152 75,870 17,258
- --------- --------- --------- --------- --------- --------- ----------- ---------
85,436 12,706 34,671 15,612 104,653 30,021 73,380 19,563
- --------- --------- --------- --------- --------- --------- ----------- ---------
148,015 11,790 260,419 16,643 143,523 103,152 311,127 181,988
323,411 220,262 335,032 265,754 269,013 205,454 370,189 474,076
(55,944) (8,726) (17,233) (5,991) (35,983) (12,783) (82,325) (16,100)
(1,422) (3,243) (281,223) (137,360) (6,460) (10,669) (13,899) (78,288)
(1,316) -- -- -- (6,400) -- -- --
- --------- --------- --------- --------- --------- --------- ----------- ---------
412,744 220,083 296,995 139,046 363,693 285,154 585,092 561,676
- --------- --------- --------- --------- --------- --------- ----------- ---------
498,180 232,789 331,666 154,658 468,346 315,175 658,472 581,239
233,945 1,156 154,658 -- 391,803 76,628 581,239 --
- --------- --------- --------- --------- --------- --------- ----------- ---------
$ 732,125 $ 233,945 $ 486,324 $ 154,658 $ 860,149 $ 391,803 $ 1,239,711 $ 581,239
========= ========= ========= ========= ========= ========= =========== =========
</TABLE>
-16-
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO COMBINED
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 30,928 $ 6,053 $ 2,833,924 $ 2,057,986
--------- --------- ------------ ------------
EXPENSES:
Insurance charges ..................................... 4,608 1,339 363,873 192,440
Administrative charges ................................ 544 152 22,481 6,926
--------- --------- ------------ ------------
Net investment income (loss) .................... 25,776 4,562 2,447,570 1,858,620
--------- --------- ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 40,508 58,645 14,840,064 10,760,279
Cost of investments sold .......................... 33,582 52,193 13,389,728 10,228,004
--------- --------- ------------ ------------
Net realized gain (loss) ........................ 6,926 6,452 1,450,336 532,275
--------- --------- ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 32,702 (12) 3,488,881 1,954,404
Unrealized gain (loss) end of year ................ 87,967 32,702 8,096,664 3,488,881
--------- --------- ------------ ------------
Net change in unrealized gain (loss) for the year 55,265 32,714 4,607,783 1,534,477
--------- --------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ....................... 87,967 43,728 8,505,689 3,925,372
--------- --------- ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments .......................... 141,056 44,885 19,096,022 21,543,041
Participant transfers from other Travelers accounts ... 212,209 309,646 13,453,685 14,576,672
Contract surrenders ................................... (40,498) (13,169) (5,554,224) (4,214,910)
Participant transfers to other Travelers accounts ..... (10,203) (350) (13,733,134) (14,195,827)
Other payments to participants ........................ -- -- (33,914) --
--------- --------- ------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 302,564 341,012 13,228,435 17,708,976
--------- --------- ------------ ------------
Net increase (decrease) in net assets ........... 390,531 384,740 21,734,124 21,634,348
NET ASSETS:
Beginning of year ................................. 386,839 2,099 42,324,049 20,689,701
--------- --------- ------------ ------------
End of year ....................................... $ 777,370 $ 386,839 $ 64,058,173 $ 42,324,049
========= ========= ============ ============
</TABLE>
-17-
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S.
CAPITAL GOVERNMENT
MANAGED HIGH YIELD APPRECIATION CASH SECURITIES
ASSETS TRUST BOND TRUST FUND INCOME TRUST PORTFOLIO
------------ ---------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 739,368 148,199 1,560,408 1,872,345 627,860
Units purchased and transferred from
other Travelers accounts ........ 227,450 55,716 984,555 6,298,315 1,069,761
Units redeemed and transferred to
other Travelers accounts ........ (212,766) (107,438) (479,996) (5,993,695) (516,522)
-------- -------- ---------- ---------- ----------
Units end of year .................. 754,052 96,477 2,064,967 2,176,965 1,181,099
======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON ZERO COUPON
BOND FUND BOND FUND BOND FUND
UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO TEMPLETON
PORTFOLIO SERIES 1998 SERIES 2000 SERIES 2005 BOND FUND
--------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 98,022 1,014,502 1,003,545 1,133,350 249,756
Units purchased and transferred from
other Travelers accounts ........ 34,377 8,600 35,337 72,486 209,477
Units redeemed and transferred to
other Travelers accounts ........ (27,133) (14,749) (826) (58,157) (47,323)
-------- ---------- ---------- ---------- --------
Units end of year .................. 105,266 1,008,353 1,038,056 1,147,679 411,910
======== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
ASSET FIDELITY'S FIDELITY'S FIDELITY'S
TEMPLETON ALLOCATION HIGH INCOME GROWTH EQUITY-INCOME
STOCK FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 3,378,671 2,102,272 1,809,239 4,136,339 3,309,909
Units purchased and transferred from
other Travelers accounts ........ 1,804,001 744,438 1,201,242 1,992,945 1,560,873
Units redeemed and transferred to
other Travelers accounts ........ (766,830) (297,505) (742,511) (859,002) (839,564)
---------- ---------- ---------- ---------- ----------
Units end of year .................. 4,415,842 2,549,205 2,267,970 5,270,282 4,031,218
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AMERICAN
AMERICAN ODYSSEY AMERICAN
FIDELITY'S ODYSSEY EMERGING ODYSSEY
ASSET MANAGER DREYFUS STOCK CORE EQUITY OPPORTUNITIES INTERNATIONAL
PORTFOLIO INDEX FUND FUND FUND EQUITY FUND
--------- ---------- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 2,734,435 940,291 34,187 191,470 76,225
Units purchased and transferred from
other Travelers accounts ........ 695,350 918,949 6,394 48,792 24,766
Units redeemed and transferred to
other Travelers accounts ........ (422,321) (337,851) (10,654) (43,056) (18,108)
---------- ---------- ------- -------- -------
Units end of year .................. 3,007,464 1,521,389 29,927 197,206 82,883
========== ========== ======= ======== =======
</TABLE>
-18-
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMERICAN
AMERICAN ODYSSEY AMERICAN SMITH BARNEY
ODYSSEY INTERMEDIATE- ODYSSEY ALLIANCE INCOME AND
LONG-TERM TERM SHORT-TERM GROWTH GROWTH
BOND FUND BOND FUND BOND FUND PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 44,927 833 2,640 888,431 184,663
Units purchased and transferred from
other Travelers accounts ........ 21,997 536 574 712,024 314,373
Units redeemed and transferred to
other Travelers accounts ........ (3,715) (224) (461) (130,588) (38,670)
------- ------ ------ ---------- --------
Units end of year .................. 63,209 1,145 2,753 1,469,867 460,366
======= ====== ====== ========== ========
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY MFS AIM CAPITAL
HIGH INCOME TOTAL RETURN APPRECIATION TOTAL RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO COMBINED
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 138,855 317,532 548,936 300,659 29,587,869
Units purchased and transferred from
other Travelers accounts ........ 498,526 298,199 587,725 257,477 20,685,255
Units redeemed and transferred to
other Travelers accounts ........ (250,495) (35,567) (83,645) (36,463) (12,375,835)
-------- -------- ---------- -------- -----------
Units end of year .................. 386,886 580,164 1,053,016 521,673 37,897,289
======== ======== ========== ======== ===========
</TABLE>
-19-
<PAGE> 82
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, 1997, and the
related statement of operations for the year then ended and the statement of
changes in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1997, 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, 1997, 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 19, 1998
-20-
<PAGE> 83
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 26, 1998
F-1
<PAGE> 84
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
REVENUES
Premiums $1,583 $1,387 $1,504
Net investment income 2,037 1,950 1,884
Realized investment gains 199 65 106
Other revenues 354 284 204
- -------------------------------------------------------------------------------------------
Total Revenues $4,173 $3,686 $3,698
- -------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,341 1,187 1,206
Interest credited to contractholders 829 863 997
Amortization of deferred acquisition costs and value of
insurance in force 293 281 290
General and administrative expenses 427 380 368
- -------------------------------------------------------------------------------------------
Total Benefits and Expenses 2,890 2,711 2,861
- -------------------------------------------------------------------------------------------
Income from continuing operations before federal income taxes 1,283 975 837
- -------------------------------------------------------------------------------------------
Federal income taxes:
Current expense 434 284 233
Deferred 10 58 57
- -------------------------------------------------------------------------------------------
Total Federal Income Taxes 444 342 290
- -------------------------------------------------------------------------------------------
Income from continuing operations 839 633 547
- -------------------------------------------------------------------------------------------
Discontinued operations, net of income taxes
Income from operations (net of taxes of $0, $0 and $18) -- -- 72
Gain on disposition (net of taxes of $0, $14 and $68) -- 26 131
- -------------------------------------------------------------------------------------------
Income from Discontinued Operations -- 26 203
- -------------------------------------------------------------------------------------------
Net income 839 659 750
Retained earnings beginning of year 2,471 2,312 1,562
Dividends to parent 500 500 --
- -------------------------------------------------------------------------------------------
Retained Earnings End of Year $2,810 $2,471 $2,312
===========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 85
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
<TABLE>
<CAPTION>
December 31, 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost,
$20,682; $19,284) $21,511 $19,637
Equity securities, at fair value (cost, $480; $330) 512 338
Mortgage loans 2,869 2,920
Real estate held for sale 134 297
Trading securities, at market value 800 --
Policy loans 1,872 1,910
Short-term securities 1,102 902
Other invested assets 1,702 1,253
- ----------------------------------------------------------------------------------
Total Investments $30,502 $27,257
- ----------------------------------------------------------------------------------
Cash 58 74
Investment income accrued 338 355
Premium balances receivable 106 105
Reinsurance recoverables 4,339 3,858
Deferred acquisition costs and value of insurance in force 2,312 2,133
Separate and variable accounts 11,319 8,127
Other assets 1,052 1,064
- ----------------------------------------------------------------------------------
Total Assets $50,026 $42,973
- ----------------------------------------------------------------------------------
LIABILITIES
Contractholder funds 14,913 14,189
Future policy benefits 12,569 11,762
Policy and contract claims 378 536
Trading securities sold not yet purchased, at market value 462 --
Separate and variable accounts 11,309 8,115
Commercial paper -- 50
Deferred federal income taxes 409 57
Other liabilities 2,661 1,936
- ----------------------------------------------------------------------------------
Total Liabilities $42,701 $36,645
- ----------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,187 3,170
Retained earnings 2,810 2,471
Unrealized investment gains, net of taxes 1,228 587
- ----------------------------------------------------------------------------------
Total Shareholder's Equity $ 7,325 $ 6,328
- ----------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $50,026 $42,973
==================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 86
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,519 $ 1,387 $ 1,346
Net investment income received 2,059 1,910 1,855
Other revenues received 180 131 90
Benefits and claims paid (1,230) (1,060) (846)
Interest credited to contractholders (853) (820) (960)
Operating expenses paid (445) (343) (615)
Income taxes paid (368) (328) (63)
Trading account investments, (purchases) sales, net (54) -- --
Other 18 (70) (137)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 826 807 670
Net cash used in discontinued operations -- (350) (596)
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operations $ 826 $ 457 $ 74
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 2,259 1,928 1,974
Mortgage loans 663 917 680
Proceeds from sales of investments
Fixed maturities 7,592 9,101 6,773
Equity securities 341 479 379
Mortgage loans 207 178 704
Real estate held for sale 169 210 253
Purchases of investments
Fixed maturities (11,143) (11,556) (10,748)
Equity securities (483) (594) (305)
Mortgage loans (771) (470) (144)
Policy loans, net 38 (23) (325)
Short-term securities, (purchases) sales, net (2) 498 291
Other investments, (purchases) sales, net (260) (137) (267)
Securities transactions in course of settlement 311 (52) 258
Net cash provided by investing activities of discontinued operations -- 348 1,425
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (used in) Investing Activities $ (1,079) $ 827 $ 948
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net (50) (23) (1)
Contractholder fund deposits 3,544 2,493 2,705
Contractholder fund withdrawals (2,757) (3,262) (3,755)
Dividends to parent company (500) (500) --
Other -- 9 --
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (used in) Financing Activities $ 237 $ (1,283) $ (1,051)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ (16) $ 1 $ (29)
- ----------------------------------------------------------------------------------------------------------------------
Cash at December 31, $ 58 $ 74 $ 73
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 87
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Insurance Company and Subsidiaries (the Company) is a wholly
owned subsidiary of The Travelers Insurance Group Inc. (TIGI), an indirect
wholly owned subsidiary of Travelers Group Inc. (Travelers Group). 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).
- 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 Salomon Smith Barney, an affiliate of the Company, and a
nationwide network of independent agents. 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 approximately
80,000 full and part-time independent agents.
As discussed in Note 2 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the Company
were sold to Metropolitan Life Insurance Company (MetLife). Also in January
1995, the group medical component was exchanged for a 42% interest in The
MetraHealth Companies, Inc. (MetraHealth). The Company's interest in
MetraHealth was sold on October 2, 1995 and through that date was 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.
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.
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
F-5
<PAGE> 88
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Accounting Changes
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (FAS 132). FAS 132
supersedes the disclosure requirements in FASB Statements No. 87, "Employers'
Accounting for Pensions," No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefits Pension Plans and Termination of Benefits,"
and No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." FAS 132 addresses disclosure only and does not address measurement
or recognition. In addition to other disclosure changes, FAS 132 allows
employers to disclose total contributions to multi-employer plans without
disaggregating the amounts attributable to pensions and other postretirement
benefits. This statement is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged. Effective December 31,
1997, the Company adopted FAS 132. The adoption of this standard did not have
any impact on results of operations, financial condition or liquidity.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125
establishes accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are
based on an approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. 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 Statement of
Financial Accounting Standards No. 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. Application of FAS 125 prior
to the effective date or retroactively is not permitted. The adoption of the
provisions of FAS 125 effective January 1, 1997 did not have a material
impact on results of operations, financial condition or liquidity. The
adoption of the provisions of FAS 127 effective January, 1998 are
not expected to have a material impact on the results of operations,
financial condition or liquidity.
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 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 financial
condition, results of operations or liquidity.
F-6
<PAGE> 89
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123). This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. This
statement defines a fair value-based method of accounting for employee stock
options or similar equity instruments, and encourages all entities to adopt
this method of accounting for all employee stock compensation plans. However,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Entities electing to remain with the accounting method
prescribed in APB 25 must make pro-forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined
by FAS 123 had been applied. FAS 123 is applicable to fiscal years beginning
after December 15, 1995. The Company has elected to continue to account for
its stock-based employee compensation plans using the accounting method
prescribed by APB 25 and has included in the notes to consolidated financial
statements the pro-forma disclosures required by FAS 123. See Note 9. The
Company has adopted FAS 123 for its stock-based non-employee compensation
plans.
Accounting Policies
INVESTMENTS
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity of
the investment. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
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, 1997 and 1996.
Real estate held for sale is carried at the lower of cost or fair value less
estimated cost to sell. Fair value of foreclosed properties is established at
the time of foreclosure by internal analysis or external appraisers, using
discounted cash flow analyses and other accepted techniques. Thereafter, an
allowance for losses on real estate held for sale is established if the
carrying value of the property exceeds its current fair value less estimated
costs to sell. There was no such allowance at December 31, 1997 and 1996.
F-7
<PAGE> 90
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Trading securities are carried at market value. Realized and unrealized gains
and losses on trading securities are included in investment income.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.
Accrual of income, 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, 1997 and 1996. Information concerning derivative
financial instruments is included in Note 6.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of 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 long-term care
business, principally commissions and certain expenses related to policy
issuance, underwriting and marketing, all of which vary with and are
primarily related to the production of new business, are deferred.
Acquisition costs relating to traditional life insurance, including term
insurance and long-term care insurance, are amortized in relation to
anticipated premiums; universal life in relation to estimated gross profits;
and annuity contracts employing a level yield method. For life insurance, a
10- to 25-year amortization period is used; for long-term care business, a
10- to 20-year period is used, 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.
F-8
<PAGE> 91
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 that in the view of management would be other than
temporary. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.
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 9.45%.
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.
F-9
<PAGE> 92
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
FEDERAL INCOME TAXES
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income taxes
arise from changes during the year in cumulative temporary differences
between the tax basis and book basis of assets and liabilities. The deferred
federal income tax asset is recognized to the extent that future realization
of the tax benefit is more likely than not, with a valuation allowance for
the portion that is not likely to be recognized.
Future Application of Accounting Standards
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, how to measure that liability, and when
an asset may be recognized for the recovery of such assessments through
premium tax offsets or policy surcharges. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998, and the effect
of initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company has not yet determined when it will implement this SOP and does not
anticipate any material impact on the Company's financial condition, results
of operations or liquidity.
F-10
<PAGE> 93
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. All items
that are required to be recognized under accounting standards as components
of comprehensive income are to be reported in a financial statement that is
displayed with the same prominence as other financial statements. FAS 130
stipulates that comprehensive income reflect the change in equity of an
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income will thus
represent the sum of net income and other comprehensive income, although FAS
130 does not require the use of the terms comprehensive income or other
comprehensive income. The accumulated balance of other comprehensive income
shall be displayed separately from retained earnings and additional paid-in
capital in the statement of financial position. FAS 130 is effective for
fiscal years beginning after December 15, 1997. The Company anticipates that
the adoption of FAS 130 will result primarily in reporting unrealized gains
and losses on investments in debt and equity securities in comprehensive
income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (FAS 131). FAS 131 establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires that selected information about those operating
segments be reported in interim financial statements. FAS 131 supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise" (FAS 14). FAS 131 requires that all
public enterprises report financial and descriptive information about its
reportable operating segments. Operating segments are defined as components
of an enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. FAS 131 is effective for
fiscal years beginning after December 15, 1997. The Company is currently
determining the impact of the adoption of FAS 131.
2. DISPOSITIONS AND DISCONTINUED OPERATIONS
On January 3, 1995, the Company and its affiliates completed the sale of
their group life and related non-medical group insurance businesses to
MetLife for $350 million and 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.
F-11
<PAGE> 94
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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, an after-tax
gain of $111 million was recognized. 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.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefit Operations
(MCEBO) segment prior to 1995. 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 were insignificant for the year ended
December 31, 1996 and $1.2 billion for the year ended December 31, 1995.
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.
3. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors. No commercial
paper was outstanding at December 31, 1997 and $50 million was 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 1997 or 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 that
expires in 2001. At December 31, 1997, $50 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, 1997, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at December 31, 1997 and 1996. If the
Company had borrowings on this facility, the interest rate would be based
upon LIBOR plus a negotiated margin.
F-12
<PAGE> 95
\ THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide additional capacity for future growth and to
effect business-sharing arrangements. Reinsurance is accomplished through
various plans of reinsurance, primarily yearly renewable term coinsurance and
modified coinsurance. The Company remains primarily liable as the direct
insurer on all risks reinsured. During 1997, new universal life business was
reinsured under an 80%/20% quota share reinsurance program and new term life
business was reinsured under a 90%/10% quota share reinsurance program.
Maximum retention of $1.5 million is generally reached on policies in excess
of $7.5 million. For other plans of insurance, it is the policy of the
Company to obtain reinsurance for amounts above certain retention limits on
individual life policies, which limits vary with age and underwriting
classification. Generally, the maximum retention on an ordinary life risk is
$1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
A summary of reinsurance financial data reflected within the consolidated
statement of operations and retained earnings is presented below ($ in
millions):
<TABLE>
<CAPTION>
---------------------------------------------------------------------
WRITTEN PREMIUMS 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,148 $1,982 $2,166
Assumed from:
Non-affiliated companies 1 5 --
Ceded to:
Affiliated companies (280) (284) (374)
Non-affiliated companies (273) (309) (302)
---------------------------------------------------------------------
Total Net Written Premiums $1,596 $1,394 $1,490
=====================================================================
<CAPTION>
---------------------------------------------------------------------
EARNED PREMIUMS 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,170 $1,897 $2,067
Assumed from:
Non-affiliated companies 1 5 --
Ceded to:
Affiliated companies (321) (219) (283)
Non-affiliated companies (291) (315) (298)
---------------------------------------------------------------------
Total Net Earned Premiums $1,559 $1,368 $1,486
=====================================================================
</TABLE>
F-13
<PAGE> 96
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Reinsurance recoverables at December 31, 1997 and 1996 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------
REINSURANCE RECOVERABLES 1997 1996
----------------------------------------------------------
<S> <C> <C>
Life and Accident and Health
Business:
Non-affiliated companies $1,362 $1,497
Property-Casualty Business:
Affiliated companies 2,977 2,361
----------------------------------------------------------
Total Reinsurance Recoverables $4,339 $3,858
==========================================================
</TABLE>
Total reinsurance recoverables at December 31, 1997 and 1996 include $697
million and $720 million, respectively, from MetLife in connection with the
sale of the Company's group life and related businesses. See Note 2.
5. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $17 million in additional paid-in capital during 1997 is due
to tax benefits related to exercising Travelers Group stock options by the
Company's employees.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments is
shown in Note 13.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $754 million, $656 million, and $235 million for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company's statutory capital and surplus was $4.12 billion and $3.44
billion at December 31, 1997 and 1996, 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 $551 million is available in 1998 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, 1997 and 1996.
F-14
<PAGE> 97
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, 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 to 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, 1997 and 1996, the Company held financial futures contracts
with notional amounts of $625 million and $169 million, respectively, and a
deferred gain of $.7 million and a deferred loss of $4.1 million and a
deferred gain of $1.2 million, and a deferred loss of $.1 million,
respectively. Total losses of $5.8 million and gains of $2.0 million from
financial futures were deferred at December 31, 1997 and 1996, respectively,
relating to anticipated investment purchases and investment product sales,
and are reported as other liabilities. At December 31, 1997 and 1996, the
Company's futures contracts had no fair value because these contracts were
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, 1997 and 1996.
F-15
<PAGE> 98
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 $0 and $1 million
at December 31, 1997 and 1996, respectively.
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, 1997 and 1996.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered insurance
contracts are not required to be disclosed and are not included in the
amounts discussed.
At December 31, 1997 and 1996, investments in fixed maturities had a carrying
value and a fair value of $21.5 billion and $19.6 billion, respectively. See
Notes 1 and 13.
At December 31, 1997 and 1996, mortgage loans had a carrying value of $2.9
billion, which approximated fair value. 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 $143 million and $174 million of financial instruments
classified as other assets approximated their fair values at December 31,
1997 and 1996, respectively. The carrying values of $2.0 billion and $850
million of financial instruments classified as other liabilities also
approximated their fair values at December 31, 1997 and 1996, respectively.
Fair value is determined using various methods, including discounted cash
flows, as appropriate for the various financial instruments.
At December 31, 1997, contractholder funds with defined maturities had a
carrying value of $2.3 billion and a fair value of $2.3 billion, compared
with a carrying value of $1.4 billion and a fair value of $1.5 billion at
December 31, 1996. 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 $9.7 billion and a
fair value of $9.5 billion at December 31, 1997, compared with a carrying
value of $9.1 billion and a fair value of $8.8 billion at December 31, 1996.
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 $260 million and $260 million, respectively, at
December 31, 1997, compared with a carrying value and a fair value of $217
million and $217 million, respectively, at December 31, 1996. The liabilities
of separate accounts providing a guaranteed return had a carrying value and a
fair value of $209 million and $206 million, respectively, at December 31,
1997, compared with a carrying value and a fair value of $208 million and
$204 million, respectively, at December 31, 1996.
F-16
<PAGE> 99
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The carrying values of cash, short-term securities, trading securities,
investment income accrued, trading securities sold not purchased, and
commercial paper approximated their fair values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
7. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 6 for a discussion of financial instruments with off-balance sheet
risk.
Litigation
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc. was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and
other state laws by an affiliate of the Company, Primerica Financial
Services, Inc. and certain of its affiliates. Plaintiffs seek unspecified
compensatory and punitive damages and other relief. In April 1997, the
lawsuit was removed to the U.S. District Court for the Southern District of
Georgia, and in October 1997, the lawsuit was remanded to the Superior Court
of Richmond County. Later in October 1997, the defendants answered the
complaint, denied liability and asserted numerous affirmative defenses. In
February 1998, the Superior Court of Richmond County transferred the lawsuit
to the Superior Court of Gwinnett County, Georgia, and certified the transfer
order for immediate appellate review. Also in February 1998, plaintiffs
served an application for appellate review of the transfer order; defendants
subsequently opposed that application; and later in February 1998, the Court
of Appeals of the State of Georgia granted plaintiffs' application for
appellate review. Pending appeal proceedings in the trial court have been
stayed. The Company intends to vigorously contest the litigation.
The Company is also a defendant or co-defendant in various other litigation
matters in the normal course of business. Although there can be no
assurances, as of December 31, 1997, the Company believes, based on
information currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.
8. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by an affiliate. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by an affiliate. The Company's share of net expense for the
qualified pension and other postretirement benefit plans was not significant
for 1997, 1996 and 1995. Beginning January 1, 1996, the Company's other
postretirement benefit plans were amended to restrict benefit eligibility to
retirees and certain retiree-eligible employees. Previously, covered
employees could become eligible for postretirement benefits if they reached
retirement age while working for the Company.
F-17
<PAGE> 100
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 1997, 1996 and 1995.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in a
401(k) savings plan sponsored by Travelers Group. Prior to January 1, 1996,
the Company made matching contributions to the 401(k) savings plan on behalf
of participants in the amount of 50% of the first 5% of pre-tax contributions
made by the employee, plus an additional variable matching contribution based
on the profitability of TIGI and its subsidiaries. During 1996, the Company
made matching contributions in an amount equal to the lesser of 100% of the
pre-tax contributions made by the employee or $1,000. Effective January 1,
1997, the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings plan
were not significant in 1997, 1996 and 1995.
9. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and expenses,
for certain subsidiaries and affiliates of TIGI are handled by two companies.
The Travelers Insurance Company (Life Department) handles banking functions
for the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements between
companies are made at least monthly. The Company provides various employee
benefits coverages to employees of certain subsidiaries of TIGI. The premiums
for these coverages were charged in accordance with cost allocation
procedures based upon salaries or census. In addition, investment advisory
and management services, data processing services and claims processing
services are shared with affiliated companies. Charges for these services are
shared by the companies on cost allocation methods based generally on
estimated usage by department.
The Company maintains a short-term investment pool in which its insurance
affiliates participate. The position of each company participating in the
pool is calculated and adjusted daily. At December 31, 1997 and 1996, the
pool totaled approximately $2.6 billion and $2.9 billion, respectively. The
Company's share of the pool amounted to $725 million and $196 million at
December 31, 1997 and 1996, respectively, and is included in short-term
securities in the consolidated balance sheet.
The Company sells structured settlement annuities to The Travelers Indemnity
Company in connection with the settlement of certain policyholder
obligations. Such deposits were $88 million, $40 million, and $38 million for
1997, 1996 and 1995, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney. Premiums and deposits related to
these products were $1.0 billion, $820 million, and $583 million in 1997,
1996 and 1995, respectively.
At December 31, 1996, the Company had an investment of $22 million in bonds
of its affiliate, CCC. This was included in fixed maturities in the
consolidated balance sheet.
F-18
<PAGE> 101
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company had an investment of $1.15 billion and $648 million in common
stock of Travelers Group at December 31, 1997 and 1996, respectively. This
investment is carried at fair value.
The Company participates in a stock option plan sponsored by Travelers Group
that provides for the granting of stock options in Travelers Group common
stock to officers and key employees. To further encourage employee stock
ownership, during 1997 Travelers Group introduced the WealthBuilder stock
option program. Under this program all employees meeting certain requirements
have been granted Travelers Group stock options.
The Company applies APB 25 and related interpretations in accounting for
stock options. Since stock options under the Travelers Group plans are issued
at fair market value on the date of award, no compensation cost has been
recognized for these awards. FAS 123 provides an alternative to APB 25
whereby fair values may be ascribed to options using a valuation model and
amortized to compensation cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Travelers Group stock
options, net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1996 1995
($ IN MILLIONS)
-----------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $839 $659 $750
-----------------------------------------------------------------------
FAS 123 pro forma adjustments, (9) (3) (1)
after tax
-----------------------------------------------------------------------
Net income, pro forma $830 $656 $749
</TABLE>
The Company has an interest rate cap agreement with Travelers Group. See Note
6.
10. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by TAP.
In 1996, TAP assumed the obligations for several leases. Rent expense related
to all leases are shared by the companies on a cost allocation method based
generally on estimated usage by department. Rent expense was $15 million, $24
million, and $22 million in 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
--------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING
($ in millions) RENTAL PAYMENTS
--------------------------------------------------
<S> <C>
1998 $ 49
1999 44
2000 43
2001 45
2002 43
Thereafter 337
--------------------------------------------------
Total Rental Payments $561
==================================================
</TABLE>
F-19
<PAGE> 102
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Future sublease rental income of approximately $73 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of the
rental expense for a particular lease totaling $218 million, by an affiliate.
Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
11. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
EFFECTIVE TAX RATE
---------------------------------------------------------------------
For The Year Ended December 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,283 $ 975 $ 837
Statutory Tax Rate 35% 35% 35%
---------------------------------------------------------------------
Expected Federal Income Taxes 449 341 293
Tax Effect of:
Non-taxable investment income (4) (3) (4)
Other, net (1) 4 1
=====================================================================
Federal Income Taxes $ 444 $ 342 $ 290
=====================================================================
Effective Tax Rate 35% 35% 35%
---------------------------------------------------------------------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $ 410 $ 263 $ 220
Foreign 24 21 13
---------------------------------------------------------------------
Total 434 284 233
---------------------------------------------------------------------
Deferred:
United States 10 57 52
Foreign -- 1 5
---------------------------------------------------------------------
Total 10 58 57
---------------------------------------------------------------------
Federal Income Taxes $ 444 $ 342 $ 290
=====================================================================
</TABLE>
Tax benefits allocated directly to shareholder's equity for the years ended
December 31, 1997, 1996 and 1995 were $17 million, $8 million and $7 million,
respectively.
F-20
<PAGE> 103
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1997 and 1996 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in millions) 1997 1996
------- -------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 550 $ 510
Contractholder funds 11 32
Operating lease reserves 68 71
Other employee benefits 102 104
Other 139 121
- -----------------------------------------------------------------------------------
Total 870 838
- -----------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of 608 571
insurance in force
Investments, net 484 131
Other 87 93
- -----------------------------------------------------------------------------------
Total 1,179 795
- -----------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset Before Valuation Allowance (309) 43
Valuation Allowance for Deferred Tax Assets (100) (100)
- -----------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (409) $ (57)
- -----------------------------------------------------------------------------------
</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
group on a separate return basis adjusted for credits and other amounts
required by the consolidation process. Any resulting liability will be paid
currently to the Company. Any credits for losses will be paid by the Company
to the extent that such credits are for tax benefits that have been utilized
in the consolidated federal income tax return.
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 if
life/non-life consolidation is elected in 1999, 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 1997.
The initial recognition of any benefit produced by the reversal of the
valuation allowance will be recognized by reducing goodwill.
At December 31, 1997, the Company had 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
$326 million.
F-21
<PAGE> 104
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
---------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,460 $1,387 $1,248
Mortgage loans 291 334 419
Policy loans 137 156 166
Real estate held for sale 88 94 111
Other, including trading 150 77 97
securities
---------------------------------------------------------------------
2,126 2,048 2,041
---------------------------------------------------------------------
Investment expenses 89 98 157
---------------------------------------------------------------------
Net investment income $2,037 $1,950 $1,884
---------------------------------------------------------------------
</TABLE>
13. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $71 $(63) $(43)
Equity securities (9) 47 36
Mortgage loans 59 49 47
Real estate held for sale 67 33 18
Other 11 (1) 48
---------------------------------------------------------------------
Total Realized Investment Gains $199 $65 $106
---------------------------------------------------------------------
</TABLE>
F-22
<PAGE> 105
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are included as a
separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
-------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS
Fixed maturities $ 446 $ (323) $1,974
Equity securities 25 (35) 46
Other 520 220 200
-------------------------------------------------------------------------
Total Realized Investment Gains 991 (138) 2,220
-------------------------------------------------------------------------
Related taxes 350 (43) 778
-------------------------------------------------------------------------
Change in unrealized investment gains
(losses) 641 (95) 1,442
Balance beginning of year 587 682 (760)
-------------------------------------------------------------------------
Balance End of Year $1,228 $ 587 $ 682
-------------------------------------------------------------------------
</TABLE>
Included in Other are gains of $506 million, $203 million and $214 million
for 1997, 1996 and 1995, respectively, related to appreciation of Travelers
Group stock.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale were
$7.6 billion, $10.2 billion and $6.8 billion in 1997, 1996 and 1995,
respectively. Gross gains of $170 million, $107 million and $80 million and
gross losses of $99 million, $175 million and $124 million in 1997, 1996 and
1995, respectively, were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a quoted
market price or dealer quote are not available amounted to $5.1 billion and
$4.6 billion at December 31, 1997 and 1996, respectively.
F-23
<PAGE> 106
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
DECEMBER 31, 1997 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,842 $ 124 $ 2 $ 3,964
U.S. Treasury securities and obligations
of U.S. Government and government
agencies and authorities 1,580 149 1 1,728
Obligations of states, municipalities
and political subdivisions 78 8 -- 86
Debt securities issued by
foreign governments 622 31 4 649
All other corporate bonds 14,548 547 24 15,071
Redeemable preferred stock 12 1 -- 13
- ---------------------------------------------------------------------------------------
Total Available For Sale $20,682 860 31 $21,511
- ---------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------
DECEMBER 31, 1996 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,821 $ 71 $ 23 $ 3,869
U.S. Treasury securities and obligations
of U.S. Government and government
agencies and authorities 1,329 56 4 1,381
Obligations of states, municipalities and
political subdivisions 89 1 1 89
Debt securities issued by foreign
governments 618 26 3 641
All other corporate bonds 13,421 273 43 13,651
Redeemable preferred stock 6 -- -- 6
- ----------------------------------------------------------------------------------------
Total Available For Sale $19,284 $ 427 $ 74 $19,637
- ----------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE> 107
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1997,
by contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
----------------------------------------------------------
($ in millions) AMORTIZED FAIR
COST VALUE
----------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 1,184 $ 1,191
Due after 1 year through 5 years 5,200 5,335
Due after 5 years through 10 years 5,332 5,515
Due after 10 years 5,124 5,506
---------------------------------------------------------
16,840 17,547
---------------------------------------------------------
Mortgage-backed securities 3,842 3,964
---------------------------------------------------------
Total Maturity $20,682 $21,511
---------------------------------------------------------
</TABLE>
The Company makes investments in collateralized mortgage obligations (CMOs).
CMOs typically have high credit quality, offer good liquidity, and provide a
significant advantage in yield and total return compared to U.S. Treasury
securities. The Company's investment strategy is to purchase CMO tranches
which are protected against prepayment risk, including planned amortization
class (PAC) tranches. Prepayment protected tranches are preferred because
they provide stable cash flows in a variety of interest rate scenarios. The
Company does invest in other types of CMO tranches if a careful assessment
indicates a favorable risk/return tradeoff. The Company does not purchase
residual interests in CMOs.
At December 31, 1997 and 1996, the Company held CMOs classified as available
for sale with a fair value of $2.1 billion and $2.0 billion, respectively.
Approximately 72% and 88%, respectively, of the Company's CMO holdings are
fully collateralized by GNMA, FNMA or FHLMC securities at December 31, 1997
and 1996. In addition, the Company held $1.9 billion and $1.9 billion of
GNMA, FNMA or FHLMC mortgage-backed pass-through securities at December 31,
1997 and 1996, respectively. Virtually all of these securities are rated AAA.
F-25
<PAGE> 108
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
EQUITY SECURITIES:
GROSS GROSS
($ in millions) UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Common stocks $179 $ 34 $ 11 $202
Non-redeemable preferred stocks 301 13 4 310
-----------------------------------------------------------------------------
Total Equity Securities $480 $ 47 $ 15 $512
-----------------------------------------------------------------------------
DECEMBER 31, 1996
Common stocks $212 $ 39 $ 30 $221
Non-redeemable preferred stocks 118 2 3 117
-----------------------------------------------------------------------------
Total Equity Securities $330 $ 41 $ 33 $338
-----------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $341 million, $487 million and
$379 million in 1997, 1996 and 1995, respectively. Gross gains of $53
million, $64 million and $27 million and gross losses of $62 million, $11
million and $2 million in 1997, 1996 and 1995, respectively, were realized on
those sales.
Mortgage Loans and Real Estate Held For Sale
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.
At December 31, 1997 and 1996, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following ($ in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------
1997 1996
----------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,866 $2,869
Underperforming Mortgage Loans 3 51
----------------------------------------------------------
Total 2,869 2,920
----------------------------------------------------------
Real Estate Held For Sale 134 297
----------------------------------------------------------
Total $3,003 $3,217
----------------------------------------------------------
</TABLE>
F-26
<PAGE> 109
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
------------------------------------------------
<S> <C>
Past Maturity $ 54
1998 243
1999 252
2000 321
2001 393
2002 121
Thereafter 1,485
------------------------------------------------
Total $2,869
================================================
</TABLE>
Joint Venture
In October 1997, the Company and Tishman Speyer Properties (Tishman), a
worldwide real estate owner, developer and manager, formed a joint real
estate venture with an initial equity commitment of $792 million. The Company
and certain of its affiliates committed $420 million in real estate equity
and $100 million in cash while Tishman committed $272 million in properties
and cash. Both companies are serving as asset managers for the venture and
Tishman is primarily responsible for the venture's real estate acquisition
and development efforts.
Trading Securities
Trading securities are held in a special purpose subsidiary, Tribeca
Investments LLC.
<TABLE>
<CAPTION>
-----------------------------------------------------
TRADING SECURITIES OWNED 1997
<S> <C>
Merger arbitrage $352
Convertible bond arbitrage 370
Other 78
-----------------------------------------------------
Total $800
-----------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Merger arbitrage $213
Convertible bond arbitrage 249
-----------------------------------------------------
Total $462
-----------------------------------------------------
</TABLE>
The Company's trading portfolio investments and related liabilities are
normally held for periods less than six months. Therefore, expected future
cash flows for these assets and liabilities are expected to be realized in
less than one year.
F-27
<PAGE> 110
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1997 and 1996, 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 9.
Included in fixed maturities are below investment grade assets totaling $1.4
billion and $1.1 billion at December 31, 1997 and 1996, respectively. The
Company defines its below investment grade assets as those securities rated
"Ba1" or below by external rating agencies, or the equivalent by internal
analysts when a public rating does not exist. Such assets include publicly
traded below investment grade bonds and certain other privately issued bonds
that are classified as below investment grade loans.
The Company had concentrations of investments, primarily fixed maturities, in
the following industries:
<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
Banking $2,215 $1,959
Finance 1,556 1,823
Electric Utilities 1,377 1,093
Asset-Backed Credit Cards 778 688
-------------------------------------------------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
At December 31, 1997 and 1996, concentrations of mortgage loans were for
properties located in highly populated areas in the states listed below:
<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
California $794 $643
New York 310 297
-------------------------------------------------
</TABLE>
Other mortgage loan investments are relatively evenly dispersed throughout
the United States, with no holdings in any state exceeding $284 million and
$258 million at December 31, 1997 and 1996, respectively.
Concentrations of mortgage loans by property type at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
Office $1,382 $1,208
Agricultural 771 693
Apartment 204 291
Hotel 201 217
-------------------------------------------------
</TABLE>
F-28
<PAGE> 111
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and other
monitoring procedures. Collateral for fixed maturities often includes pledges
of assets, including stock and other assets, guarantees and letters of
credit. The Company's underwriting standards with respect to new mortgage
loans generally require loan to value ratios of 75% or less at the time of
mortgage origination.
Non-Income Producing Investments
Investments included in the consolidated balance sheets that were non-income
producing for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loans and debt securities that were restructured at
below market terms totaling approximately $7 million and $18 million at
December 31, 1997 and 1996, 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 $.9 million in 1997 and $5 million in 1996. Interest
on these assets, included in net investment income, aggregated $.2 million
and $2 million in 1997 and 1996, respectively.
14. DEPOSIT FUNDS AND RESERVES
At December 31, 1997, the Company had $24.0 billion of life and annuity
deposit funds and reserves. Of that total, $13.0 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $11.0 billion
is for life and annuity products that are subject to discretionary withdrawal
by the contractholder. Included in the amount that is subject to
discretionary withdrawal is $2.0 billion of liabilities that are
surrenderable with market value adjustments. Also included are an additional
$5.2 billion of the life insurance and individual annuity liabilities which
are subject to discretionary withdrawals, and have an average surrender
charge of 4.8%. In the payout phase, these funds are credited at
significantly reduced interest rates. The remaining $3.8 billion of
liabilities are surrenderable without charge. More than 16.8% of these relate
to individual life products. These risks would have to be underwritten again
if transferred to another carrier, which is considered a significant
deterrent against withdrawal by long-term policyholders. Insurance
liabilities that are surrendered or withdrawn are reduced by outstanding
policy loans and related accrued interest prior to payout.
F-29
<PAGE> 112
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $ 839 $ 633 $ 547
Adjustments to reconcile net income to
net cash provided by operating activities:
Realized gains (199) (65) (106)
Deferred federal income taxes 10 58 57
Amortization of deferred policy
acquisition costs and value of
insurance in force 293 281 290
Additions to deferred policy
acquisition costs (471) (350) (454)
Investment income accrued 14 2 (9)
Premium balances receivable 3 (6) (8)
Insurance reserves and accrued expenses 131 (1) 291
Other 206 255 62
- --------------------------------------------------------------------------------
Net cash provided by operating activities 826 807 670
Net cash used in discontinued operations -- (350) (596)
Net cash provided by operations $ 826 $ 457 $ 74
- --------------------------------------------------------------------------------
</TABLE>
16. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
conversion of $119 million of real estate held for sale to other invested
assets as a joint venture in 1997; b) 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 2); c) the
1995 return of capital of Transport to TIGI (see Note 2); d) the acquisition
of real estate through foreclosures of mortgage loans amounting to $10
million, $117 million and $97 million in 1997, 1996 and 1995, respectively;
e) the acceptance of purchase money mortgages for sales of real estate
aggregating $4 million, $23 million and $27 million in 1997, 1996 and 1995,
respectively.
F-30
<PAGE> 113
MARKETLIFE
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
HARTFORD, CONNECTICUT
L-11843 May, 1998
<PAGE> 114
IN-VEST(SM)
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
PROSPECTUS
MAY 1, 1998
THE TRAVELERS INSURANCE COMPANY
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183 * TELEPHONE: (800) 334-4298
<PAGE> 115
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 116
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 2 of this prospectus, and also to the prospectuses for
each Fund.)
The Contract has a Right to Cancel Period during which the Applicant may return
the Contract to the Company for a refund. The Right to Cancel Period expires on
the latest of ten days after you receive the Contract, ten days after we mail or
deliver to you a written Notice of Right to Cancel, or 45 days after the
Applicant signs the application for insurance.
There is no guaranteed minimum Cash Value for a Contract. The Cash Value of a
Contract will vary up or down to reflect the investment experience of the
Underlying Funds to which the premium payment has been allocated, and the
Contract Owner bears the investment risk for all amounts so allocated. In
addition, the Cash Value of the Contract is reduced by the various fees and
charges assessed under the Contract, as set forth in this Prospectus. The
Contract will remain in effect so long as the Cash Surrender Value is sufficient
to pay the monthly charges imposed with the Contract.
A Contract Owner will have two options with respect to the death benefit under
the Contract -- the "Level Option" and the "Variable Option". Under either
option, the death benefit is never less than the Stated Amount (less any
outstanding contract loan or monthly deduction amounts due and unpaid). A
Contract Owner will have the right to change the death benefit option subject to
certain conditions. (See "Contract Benefits and Rights," page 11.)
IT MAY NOT BE ADVANTAGEOUS TO REPLACE YOUR EXISTING LIFE INSURANCE POLICY OR
SUPPLEMENT AN EXISTING FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY WITH THE
CONTRACT DESCRIBED IN THIS PROSPECTUS.
THIS CONTRACT MAY BE OR BECOME A MODIFIED ENDOWMENT CONTRACT UNDER FEDERAL TAX
LAW. IF IT IS CLASSIFIED AS A MODIFIED ENDOWMENT CONTRACT, ANY PARTIAL
WITHDRAWAL, CONTRACT SURRENDER OR LOAN MAY RESULT IN ADVERSE TAX CONSEQUENCES OR
PENALTIES.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
EACH OF THE UNDERLYING FUNDS. EACH OF THE UNDERLYING FUND PROSPECTUSES ARE
INCLUDED WITH THE PACKAGE CONTAINING THIS PROSPECTUS. ALL PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE LIFE INSURANCE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY ENSURED OR OTHERWISE
PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
<PAGE> 117
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS................................... v-vi
PROSPECTUS SUMMARY.......................................... vii-x
THE INSURANCE COMPANY....................................... 1
THE SEPARATE ACCOUNT AND THE UNDERLYING FUNDS............... 1
The Travelers Fund UL for Variable Life Insurance (Fund
UL)................................................... 1
The Underlying Funds................................... 2
General................................................ 5
Conflicts of Interest.................................. 5
Substitution........................................... 5
THE CONTRACT................................................ 6
The Contract Application............................... 6
Allocation of Premium Payments......................... 6
Accumulation Unit Values............................... 7
Right to Cancel........................................ 7
CHARGES AND DEDUCTIONS...................................... 7
CHARGES AGAINST PREMIUM................................... 7
Front-End Sales Charge................................. 8
State Premium Tax Charge............................... 8
MONTHLY DEDUCTION AMOUNT.................................. 8
Cost of Insurance Charge............................... 8
Contract Administrative Charge......................... 8
Charges for Supplemental Benefit Provisions............ 9
CHARGES AGAINST THE SEPARATE ACCOUNT...................... 9
Mortality and Expense Risk Charge...................... 9
Administrative Expense Charge.......................... 9
CHARGES AGAINST THE UNDERLYING FUNDS...................... 9
SURRENDER CHARGES......................................... 9
Percent of Premium Charge.............................. 10
Per Thousand of Stated Amount Charge................... 10
MAXIMUM SALES CHARGES..................................... 10
TRANSACTION CHARGE........................................ 11
REDUCTION OR ELIMINATION OF CHARGES....................... 11
CONTRACT BENEFITS AND RIGHTS................................ 11
DEATH BENEFIT............................................. 11
Changes in Death Benefit Option........................ 14
Changes in Stated Amount............................... 14
Benefits at Maturity................................... 14
Cash Value and Cash Surrender Value.................... 14
Transfer of Cash Value................................. 15
Automated Transfers.................................... 15
Contract Loans......................................... 16
</TABLE>
<PAGE> 118
<TABLE>
<S> <C>
Lapse and Reinstatement................................ 16
Exchange Rights........................................ 17
PAYMENT OPTIONS............................................. 17
EXAMPLE OF CONTRACT CHARGES................................. 18
OTHER MATTERS............................................... 18
Voting Rights.......................................... 18
Disregard of Voting Instructions....................... 19
Statements to Contract Owners.......................... 19
Limit on Right to Contest.............................. 19
Misstatement as to Sex and Age......................... 19
Suspension of Valuation................................ 19
Beneficiary............................................ 20
Assignment............................................. 20
Dividends.............................................. 20
FEDERAL TAX CONSIDERATIONS.................................. 20
General................................................ 20
TAX STATUS OF THE POLICY.................................... 21
Definition of Life Insurance........................... 21
Diversification........................................ 21
Investor Control....................................... 21
TAX TREATMENT OF POLICY BENEFITS............................ 22
In General............................................. 22
Modified Endowment Contracts........................... 22
Exchanges.............................................. 23
Aggregation of Modified Endowment Contracts............ 23
Policies Which Are Not Modified Endowment Contracts.... 23
Treatment of Loan Interest............................. 24
THE COMPANY'S INCOME TAXES.................................. 24
YEAR 2000 COMPLIANCE........................................ 24
DISTRIBUTION OF THE CONTRACTS............................... 24
MANAGEMENT.................................................. 25
LEGAL PROCEEDINGS AND OPINION............................... 26
INDEPENDENT ACCOUNTANTS..................................... 26
REGISTRATION STATEMENT...................................... 26
</TABLE>
<PAGE> 119
<TABLE>
<S> <C>
ILLUSTRATIONS............................................... 26
APPENDIX A -- Annual Minimum Premiums....................... 32
APPENDIX B -- Per Thousand of Stated Amount Surrender
Charge.................................................... 33
APPENDIX B(1) -- Per Thousand of Stated Amount Surrender
Charge -- Sales Charge Component.......................... 34
APPENDIX B(2) -- Per Thousand of Stated Amount Surrender
Charge -- Administrative Charge Component................. 35
APPENDIX C -- Monthly Administrative Charge................. 36
FINANCIAL STATEMENTS -- Fund UL.............................
FINANCIAL STATEMENTS -- The Travelers Insurance Company.....
</TABLE>
<PAGE> 120
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.
v
<PAGE> 121
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.
vi
<PAGE> 122
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 twenty-two
(22) Sub-Accounts available under the Contract, each of which invests
exclusively in one of the following Underlying Funds:
UNDERLYING FUNDS
Capital Appreciation Fund
Dreyfus Stock Index Fund
Managed Assets Trust
Money Market Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND:
VIP Equity Income Portfolio
VIP Growth Portfolio
VIP High Income Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II:
VIP II Asset Manager Portfolio
GREENWICH STREET SERIES FUND:
Total Return Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Templeton Asset Allocation Fund
(Class 1)
Templeton Bond Fund (Class 1)
Templeton Stock Fund (Class 1)
TRAVELERS SERIES FUND, INC.:
AIM Capital Appreciation Portfolio
Alliance Growth Portfolio
MFS Total Return Portfolio
Smith Barney High Income Portfolio
Smith Barney Large Cap Value Portfolio
TRAVELERS SERIES TRUST:
U.S. Government Securities Portfolio
Utilities Portfolio
Zero Coupon Bond Portfolio 1998
Zero Coupon Bond Portfolio 2000
Zero Coupon Bond Portfolio 2005
Additional Underlying Funds may be added from time to time.
For a more complete description of the investment objectives for each of the
funds listed above, as well as the investment advisers which provide investment
management and advisory services for the funds, please refer to "The Underlying
Funds" on page 2, and the prospectuses for each of the Underlying Funds.
PREMIUM PAYMENTS
The Contract Owner must pay a first premium greater than or equal to one-quarter
of the Annual Minimum Premium for the Contract to be issued. (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") or pay via monthly checking account deductions.
vii
<PAGE> 123
Payment of Planned Premiums will not guarantee that the Contract will remain in
effect. (See "Lapse and Reinstatement," page 16.) 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
Money Market Portfolio (formerly "Cash Income Trust"). After the expiration of
the Right to Cancel Period, the values in Cash Income Trust will be allocated to
the Underlying Fund(s) selected on the Contract Application. Once the premium
payment has been allocated to the designated Underlying Fund(s), the Contract
will be credited with Accumulation Units in the applicable Sub-Account. (See
"Allocation of Premium Payments," page 6.)
RIGHT TO CANCEL
An Applicant has a limited right to return the Contract for cancellation and
receive a full refund of the premium payment made. The Applicant must return the
Contract, by mail or hand delivery, to the Company or to the agent who sold the
Contract, to be cancelled within 10 days after delivery of the Contract to the
Applicant, or within 45 days after completion of the application, or within 10
days after the Notice of Right to Cancel has been mailed or delivered to the
Applicant, whichever is latest. The Company will return to the Applicant within
seven days thereafter an amount equal to the greater of the premiums paid for
the Contract or the sum of (1) the difference between the premium paid,
including any fees or other charges, and the amounts allocated to the Underlying
Fund(s), (2) the value of the amounts allocated to the Underlying Fund(s) on the
date we receive the returned Contract, and (3) any fees and other charges
imposed on amounts allocated to the Underlying Fund(s).
CHARGES AND DEDUCTIONS
In order to cover expenses associated with the distribution of the Contract, the
Company will deduct a front-end sales charge and surrender charges. The
front-end sales charge is equal to 2.5% of each Premium Payment made under the
Contract, and may be reduced for Stated Amounts of $500,000 or more. The sales
charge for a Contract with no full or partial surrenders will never exceed 2.5%
of actual premiums paid. However, the sales charges for a Contract with full or
partial surrenders may be as much as 26.7% of premiums paid based on surrender
penalties which are assessed under the Contract. (See "Maximum Sales Charges,"
page 10.)
There are two types of surrender charges that can apply to the Contract: a
Percent of Premium Charge and a Per Thousand of Stated Amount Charge. Both
charges apply to a full surrender of the Contract. Only the Percent of Premium
Charge applies to a partial surrender. The Percent of Premium Charge and a
portion of the Per Thousand of Stated Amount Charge are intended to cover sales
expenses. (See "Surrender Charges," page 9.)
The Company will deduct a 2.5% State Premium Tax Charge from each premium
payment before allocation of the payment to purchase Accumulation Units in the
Sub-Accounts (except in the Commonwealth of Puerto Rico where no premium tax
charge is deducted). (See "State Premium Tax Charge," page 8.)
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 8.)
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
viii
<PAGE> 124
expenses incurred by the Company at a maximum annual rate of 0.10% of assets in
the Separate Account; the Company is not currently assessing this charge. The
Company may also set up a provision for income taxes against the assets of the
Separate Account. (See "Charges Against the Separate Account," page 9.)
The administrative charges made by the Company do not exceed the average
expected cost of administrative services provided by the Company. Sales charges
and administrative charges under the Contract may be reduced or eliminated when
sales are made under certain arrangements. (See "Reduction or Elimination of
Charges," page 11.)
The Separate Account purchases shares of the Underlying Funds at net asset
value. The net asset value of the Underlying Fund shares reflects investment
advisory and other expenses already deducted from the assets of the Funds.
Applicants should review the prospectuses of the Underlying Funds for a
description of the charges assessed against the assets of each Underlying Fund.
DEATH BENEFIT
A Contract Owner may elect one of two options for the calculation of the amount
of Death Benefit payable under the Contract. Under Option 1 (the "Level
Option"), the Death Benefit will be equal to the greater of the Stated Amount of
the Contract or the Minimum Amount Insured. Under Option 2 (the "Variable
Option"), the Death Benefit will be equal to the greater of the Stated Amount of
the Contract plus the Cash Value (determined as of the date of the Insured's
death) or the Minimum Amount Insured. A Contract Owner may change the Death
Benefit option subject to certain conditions. (See "Death Benefit," page 11 and
"Changes in Death Benefit Option," page 14.)
CASH VALUE
As with many other types of insurance contracts, each Contract will have a Cash
Value. The Cash Value of the Contract will increase or decrease to reflect the
investment experience of the Underlying Funds applicable to the Contract. The
Cash Value will also vary to reflect partial cash surrenders and Monthly
Deduction Amounts. There is no minimum guaranteed Cash Value and the Contract
Owner bears the investment risk associated with an investment in the Underlying
Funds. (See "Cash Value and Cash Surrender Value," page 14.)
CONTRACT LOANS
A Contract Owner may obtain a cash loan from the Company secured by the Contract
not to exceed 90% of the Contract's Cash Value (determined at the time the
Company receives the written loan request), less any surrender penalties. (This
amount is 80% for loans taken prior to June 12, 1995.) The Company will charge
interest on the outstanding amounts of the loan at an annual rate of 7.4%
payable in advance (6% in the Virgin Islands). The amount of the loan will be
transferred on a pro rata basis from each of the Sub-Accounts attributable to
the Contract (unless the Contract Owner states otherwise in writing) to a loan
account (the "Loan Account"). The Company will credit amounts in the Loan
Account with a fixed annual rate of interest of 4% (6% in New York and
Massachusetts). (See "Contract Loans," page 16.)
LAPSE
If on any Deduction Date the Cash Surrender Value of a Contract is insufficient
to cover the Monthly Deduction Amount due, the Company will send written notice
to the Contract Owner indicating that if an amount sufficient to cover the
Deduction Amount due is not paid within 61 days, the Contract may lapse. An
outstanding loan amount decreases the Cash Surrender Value and could, therefore,
cause the Contract to lapse. (See "Contract Loans," page 16, and "Lapse and
Reinstatement," page 16.)
ix
<PAGE> 125
EXCHANGE RIGHTS
Once the Contract is in effect it may be exchanged at any time during the first
two Contract Years for a general account fixed life insurance contract on the
life of the Insured without submitting proof of insurability. (See "Exchange
Rights," page 17.)
TAX CONSEQUENCES
The current federal tax law generally excludes all Death Benefit payments from
the gross income of the Contract beneficiary. (See "Tax Treatment of Policy
Benefits", page 22.)
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
22.) 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 20.)
x
<PAGE> 126
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, currently serves
as 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 Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
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.
1
<PAGE> 127
THE UNDERLYING FUNDS
Premium Payments applied to Fund UL will be invested in one or more of the
available Underlying Funds at net asset value in accordance with the selection
made by the Contract Owner. The Underlying Funds currently available under the
Contract may be added or withdrawn as permitted by applicable law. Please read
carefully the complete risk disclosure in the Funds' prospectuses before
investing. The Underlying Funds currently available under the Contract are as
follows:
<TABLE>
<CAPTION>
INVESTMENT ADVISER/
INVESTMENT OPTION OBJECTIVE SUB-ADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Appreciation Fund Seeks growth of capital through the use of Travelers Asset Management
common stocks. Income is not an objective. The International Corporation
Fund invests principally in common stocks of ("TAMIC") Subadviser: Janus
small to large companies which are expected to Capital Corp.
experience wide fluctuations in price in both
rising and declining markets.
Dreyfus Stock Index Fund Seeks to provide investment results that Wells Fargo Nikko Investment
correspond to the price and yield performance of Advisors
publicly traded common stocks in the aggregate,
as represented by the Standard & Poor's 500
Composite Stock Price Index.
High Yield Bond Trust* Seeks generous income. The assets of the High TAMIC
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 Seeks high total investment return through a TAMIC Subadviser: Travelers
fully managed investment policy in a portfolio Investment Management Company
of equity, debt and convertible securities. ("TIMCO")
Money Market Portfolio Seeks high current income from short- term money TAMIC
(formerly "Cash Income market instruments while preserving capital and
Trust") maintaining a high degree of liquidity.
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND
VIP Equity-Income Portfolio Seeks reasonable income by investing primarily Fidelity Management & Research
in income-producing equity securities; in Company
choosing these securities, the portfolio manager
will also consider the potential for capital
appreciation.
VIP Growth Portfolio Seeks capital appreciation by purchasing common Fidelity Management & Research
stocks of well-known, established companies, and Company
small 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.
VIP High Income Portfolio Seeks to obtain a high level of current income Fidelity Management & Research
by investing primarily in high yielding, Company
lower-rated, fixed-income securities, while also
considering growth of capital.
</TABLE>
2
<PAGE> 128
<TABLE>
<CAPTION>
INVESTMENT ADVISER/
INVESTMENT OPTION OBJECTIVE SUB-ADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
VIP II Asset Manager Portfolio Seeks high total return with reduced risk over Fidelity Management & Research
the long-term by allocating its assets among Company
stocks, bonds and short-term fixed-income
instruments.
GREENWICH STREET SERIES FUND
Total Return Portfolio An equity portfolio that seeks to provide total Mutual Management Corp ("MMC")
return, consisting of long-term capital
appreciation and income. The Portfolio will
invest primarily in a diversified portfolio of
dividend-paying common stocks.
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Templeton Asset Allocation Fund Seeks a high level of total return with reduced Templeton Investment Counsel,
(Class 1) risk over the long term through a flexible Inc.
policy of investing in stocks of companies in
any nation and debt obligations of companies and
governments of any nation.
Templeton Bond Fund (Class 1) Seeks high current income by investing primarily Templeton Global Bond Managers
in debt securities of companies, governments and
government agencies of various nations
throughout the world.
Templeton Stock Fund (Class 1) Seeks capital growth by investing primarily in Templeton Investment Counsel,
common stocks issued by companies, large and Inc.
small, in various nations throughout the world.
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Seeks capital appreciation by investing Travelers Investment Adviser
Portfolio principally in common stock, with emphasis on ("TIA") Subadviser: AIM Capital
medium-sized and smaller emerging growth Management Inc.
companies.
Alliance Growth Portfolio Seeks long-term growth of capital by investing TIA Subadviser: Alliance
predominantly in equity securities of companies Capital Management L.P.
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.
MFS Total Return Portfolio Seeks to obtain above-average income (compared TIA Subadviser: MFS
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.
</TABLE>
3
<PAGE> 129
<TABLE>
<CAPTION>
INVESTMENT ADVISER/
INVESTMENT OPTION OBJECTIVE SUB-ADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Smith Barney High Income Seeks high current income. Capital appreciation MMC
Portfolio is a secondary objective. The Portfolio will
invest at least 65% of its assets in
high-yielding corporate debt obligations and
preferred stock.
Smith Barney Large Cap Value Seeks current income and long-term growth of MMC
Portfolio (formerly "Smith income and capital by investing primarily, but
Barney Income and Growth not exclusively, in common stocks.
Portfolio")
TRAVELERS SERIES TRUST
U.S. Government Securities Seeks to select investments from the point of TAMIC
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.
Utilities Portfolio Seeks to provide current income by investing in MMC
equity and debt securities of companies in the
utility industries.
Zero Coupon Bond Fund Portfolio Seeks to provide as high an investment return as TAMIC
(Series 1998) consistent with the 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.
Zero Coupon Bond Fund Portfolio Seeks to provide as high an investment return as TAMIC
(Series 2000) consistent with the 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>
4
<PAGE> 130
<TABLE>
<CAPTION>
INVESTMENT ADVISER/
INVESTMENT OPTION OBJECTIVE SUB-ADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Zero Coupon Bond Fund Portfolio Seeks to provide as high an investment return as TAMIC
(Series 2005) consistent with the 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>
- ---------------
* Not available for new deposits.
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.
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.
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
5
<PAGE> 131
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 14.) No change in the terms or conditions of the Contract will be
made without the consent of the Contract Owner.
A Contract will be issued only on the life of an Insured who supplies evidence
of insurability satisfactory to the Company. Acceptance is subject to the
Company's underwriting rules.
Insurance coverage under a Contract will begin only after the Applicant has
satisfied all outstanding underwriting delivery requirements, and after the
Company has received the first premium. The Contract Date is the date used to
determine all future cyclical transactions on the Contract, e.g., Deduction
Dates, Contract Months and Contract Years. The Contract Date may be prior to, or
the same date as, the date on which the Contract is issued (the "Issue Date").
ALLOCATION OF PREMIUM PAYMENTS
The first premium will be applied to the Contract on the later of the Contract
Date or the date it is received at the Company's Home Office. During the
Applicant's Right to Cancel Period, the Company will allocate Net Premiums to
the Money Market Portfolio. At the end of the Applicant's Right to Cancel
Period, the account value in Money Market Portfolio 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 Money Market Portfolio) 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.
6
<PAGE> 132
ACCUMULATION UNIT VALUES
The Accumulation Unit Value for each Sub-Account of Fund UL was initially
established at $1.00. Thereafter, the Accumulation Unit Value for each
Sub-Account will vary to reflect the investment experience of the applicable
Underlying Fund and will be determined on each Valuation Date by multiplying the
Accumulation Unit Value of the particular Sub-Account on the preceding Valuation
Date by the Net Investment Factor for that Sub-Account for the Valuation Period
then ended. The Net Investment Factor for each of the Sub-Accounts is equal to
the net asset value per share of the corresponding Underlying Fund at the end of
the Valuation Period (plus the per share amount of any dividends or capital gain
distributions by that Fund, if the dividend date occurs in the Valuation Period
then ended, and plus or minus any per share credit or charge by the Company for
any tax reserves) divided by the net asset value per share of the corresponding
Underlying Fund at the beginning of the Valuation Period (plus or minus any per
share credit or charge by the Company for any tax reserves), and subtracting
from that amount any administrative expense charge, if assessed, and mortality
and expense risk charge.
Applicants should refer to the prospectuses for each of the Underlying Funds for
a description of how the assets of each Underlying Fund are valued. These
valuation procedures directly affect the Accumulation Unit Value of the
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.
7
<PAGE> 133
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 14
and "Changes in Stated Amount," page 14 for a discussion of the effect of
changes in the Stated Amount on the cost of insurance.)
CONTRACT ADMINISTRATIVE CHARGE
The Company deducts a monthly administrative charge from the Cash Value of the
Contract during the first three Contract Years, and upon any increase in the
Stated Amount for three years from the
8
<PAGE> 134
date of the increase. The amount of this charge varies by issue age and initial
Stated Amount, and will be shown in the Contract (see Appendix C). The
administrative charge does not apply to Cost of Living Adjustment increases or
to an increase in the Stated Amount resulting from a change in a Death Benefit
option. The proceeds from this charge are expected to pay for the expenses
associated with the issuance of the Contract, and is set at a level which does
not exceed the average expected cost of these administrative services. The
monthly administrative charge may be reduced or eliminated when sales are made
under certain arrangements. (See "Reduction or Elimination of Charges," page
11.)
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 are 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> 135
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 $5,881 (assuming a 6% rate of return), the Percent of Premium surrender
charge would be $353, because (a) is $353 (6% of $5,881); (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, $353, 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 11.) 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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<PAGE> 136
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 17.
Each Contract Owner may elect one of two Death Benefit options set forth in the
Contract for calculating the amount of the Death Benefit. Under Option 1 (the
"Level Option"), the Death Benefit will be equal to the Stated Amount of the
Contract or, if greater, a specified multiple of Cash Value (the "Minimum Amount
Insured"). Under Option 2 (the "Variable Option"), the Death Benefit will be
equal to the Stated Amount of the Contract plus the Cash Value (determined as of
the date of the Insured's death) or, if greater, the Minimum Amount Insured.
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<PAGE> 137
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
ATTAINED AGE BY A RATABLE 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> 138
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 20.) 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 14, for effects of partial cash surrenders on Death
Benefits.)
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<PAGE> 139
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 22. 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> 140
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.
AUTOMATED TRANSFERS
Dollar-Cost Averaging. 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
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<PAGE> 141
$1,000 to enroll in the Dollar-Cost Averaging program. The minimum total
automated transfer amount is $100.
You may start or stop participation in the Dollar-Cost Averaging program at any
time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. Automated transfers
are subject to all of the other provisions and terms of the Contract, including
provisions relating to the transfer of money between Sub-Accounts. The Company
reserves the right to suspend or modify transfer privileges at any time and to
assess a processing fee for this service.
Before transferring any part of the Contract Value, Contract Owners should
consider the risks involved in switching between investments available under
this Contract. Dollar cost averaging requires regular investments regardless of
fluctuating price levels, and does not guarantee profits or prevent losses in a
declining market. Potential investors should consider their financial ability to
continue purchases through periods of low price levels.
Automatic Rebalancing. You may elect to have the Company periodically
reallocate values in your contract to match your original (or your latest)
investment option allocation request.
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. 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
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<PAGE> 142
will terminate at the end of the Late Period. If the person insured under the
Contract dies during the Late Period, the Death Benefit payable under the
Contract will be reduced by the Monthly Deduction Amount due plus the amount of
any outstanding contract loan. (See "Death Benefit," page 11.)
If the Contract lapses, the Contract Owner may reinstate the Contract upon
payment of the reinstatement premium (and any applicable charges) shown in the
Contract. A request for reinstatement may be made at any time within three years
of lapse. The Net Premium due upon reinstatement is at least one-quarter of the
Annual Minimum Premium, as shown in Appendices A and B, less any charges or
fees, calculated as of the Deduction Date next following receipt of premium by
the Company. The Cash Value of the Contract upon reinstatement will be equal to
the Net Premium. In addition, the Company reserves the right to require
satisfactory evidence of insurability.
EXCHANGE RIGHTS
Once the Contract is in effect, it may be exchanged at any time during the first
24 months after its issuance for a general account life insurance contract
issued by the Company (or an affiliated company) on the life of the Insured.
Benefits under the new life insurance contract will be as described in that
contract. No evidence of insurability will be required. The Contract Owner has
the right to select the same Death Benefit or Net Amount at Risk as the former
Contract. Cost of insurance rates will be based on the same risk classification
as those of the former Contract. Any outstanding contract loan must be repaid
before the Company will make an exchange. In addition, there may be an
adjustment for the difference in Cash Value between the two contracts.
PAYMENT OPTIONS
- --------------------------------------------------------------------------------
Proceeds payable under the Contract will be paid in a lump sum, unless the
Contract Owner selects one of the Company's payment options. Payment of proceeds
which exceed the Death Benefit may be deferred for up to six months from the
date of the request for the payment. A combination of options may be used. The
minimum amount that may be placed under a payment option is $5,000 unless the
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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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 FOR THE POLICY YEAR
----------------- SALES CHARGE -----------------------
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.
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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-
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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.
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<PAGE> 146
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
21
<PAGE> 147
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
A modified endowment contract is defined under tax law as any policy that
satisfies the present legal definition of a life insurance contract but which
fails to satisfy a 7-pay test. This failure could occur with contracts entered
into after June 21, 1988, or with certain older contracts materially changed
after that date. A Section 1035 exchange of an older contract into a contract
after that date will not by itself cause the new contract to be a modified
endowment contract if the older contract had not become one prior to the
exchange. However, the new contract must be re-tested under the 7-pay test
rules.
A contract fails to satisfy the 7-pay test if the cumulative amount of premiums
paid under the contract at any time during the first seven contract years
exceeds the sum of the net level premiums that would have been paid on or before
such time had the contract provided for paid-up future benefits after the
payment of seven level annual premiums. If a material change in the contract
occurs either during the first seven contract years, or later, a new seven-year
testing period is begun. Tax regulations or other guidance will be needed to
fully define those transactions which are material changes. The Company has
established safeguards for monitoring whether a contract may become a modified
endowment contract.
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
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<PAGE> 148
Policies will be included in gross income on an income-first basis to the extent
of any income in the Policy (the cash value less the Policy Owner's investment
in the Policy) immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders) from
modified endowment contracts to the extent they are included in income, unless a
specific exception to the penalty applies. The penalty does not apply to amounts
which are distributed on or after the date on which the taxpayer attains age
59 1/2, because the taxpayer is disabled, or as substantially equal periodic
payments over the taxpayer's life (or life expectancy) or over the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary.
Furthermore, if the loan interest is capitalized by adding the amount due to the
balance of the loan, the amount of the capitalized interest will be treated as
an additional distribution subject to income tax as well as the 10% penalty tax,
if applicable, to the extent of income in the Policy.
The Death Benefit of a modified endowment contract remains excludable from the
gross income of the Beneficiary to the extent described above in "Tax
Consequences of Life Insurance Contracts." Furthermore, no part of the
investment growth of the Cash Value of a modified endowment contract is
includable in the gross income of the Contract Owner unless the contract
matures, is distributed or partially surrendered, is pledged, collaterally
assigned, or borrowed against, or otherwise terminates with income in the
contract prior to death. A full surrender of the contract after age 59 1/2 will
have the same tax consequences as noted above in "Tax Consequences of Life
Insurance Contracts."
EXCHANGES
Any Policy issued in exchange for a modified endowment contract will be subject
to the tax treatment accorded to modified endowment contracts. However, the
Company believes that any Policy received in exchange for a life insurance
contract that is not a modified endowment contract will generally not be treated
as a modified endowment contract if the face amount of the Policy is greater
than or equal to the death benefit of the policy being exchanged. The payment of
any premiums at the time of or after the exchange may, however, cause the Policy
to become a modified endowment contract. A prospective purchaser should consult
a qualified tax advisor before authorizing the exchange of his or her current
life insurance contract for a Policy.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS
In the case of a pre-death distribution (including a loan, partial withdrawal,
collateral assignment or complete surrender) from a Policy that is treated as a
modified endowment contract, a special aggregation requirement may apply for
purposes of determining the amount of the income on the Policy. Specifically, if
the Company or any of its affiliates issues to the same Policy Owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the Policy with respect to a distribution from any of
those Policies, the income on the Policy for all those Policies will be
aggregated and attributed to that distribution.
POLICIES WHICH ARE NOT MODIFIED ENDOWMENT CONTRACTS
Unlike loans from modified endowment contracts, a loan from a Policy that is not
a modified endowment contract will be considered indebtedness of the owner and
no part of a loan will constitute income to the owner.
Pre-death distributions from a Policy that is not a modified endowment contract
will generally not be included in gross income to the extent that the amount
received does not exceed the Policy Owner's investment in the Policy. (An
exception to this general rule may occur in the case of a decrease or change
that reduces the benefits provided under a Policy in the first 15 years after
the Policy is issued and that results in a cash distribution to the Policy
Owner. Such a cash distribution may be taxed in whole or in part as ordinary
income to the extent of any gain in the Policy.)
23
<PAGE> 149
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.
YEAR 2000 COMPLIANCE
- --------------------------------------------------------------------------------
Generally, computer programs were designed without considering the impact of the
upcoming change in the century. As a result, software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business, financial condition, and
result of operations of a company could be materially and adversely affected by
the failure of its systems and applications (or those either provided or
operated by third-parties) to properly operate or manage dates beyond the year
1999.
The Company has investigated the nature and extent of the work required for our
computer systems to process beyond the turn of the century, and has made
progress toward achieving this goal, including upgrading and/or replacing
existing systems. We are confirming with our service providers that they are
also in the process of replacing or modifying their systems with the same goal.
We expect that our principal systems will be Year 2000 compliant by early 1999.
While these efforts involve substantial costs, we closely monitor associated
costs and continue to evaluate associated risks based on actual expenses. While
it is likely that these efforts will be successful, if necessary modifications
and conversions are not completed in a timely manner, the Year 2000 requirements
could have a material adverse effect on certain operations of the Company.
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. Tower Square Securities, Inc. ("Tower
Square"), an indirect wholly owned subsidiary of Travelers Group, Inc. serves as
principal underwriter of the policies described herein. However, it is currently
anticipated that Travelers Distribution Company, an affiliated broker dealer,
may become the principal underwriter during 1998. 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.
24
<PAGE> 150
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
Director Officer of The Travelers Insurance Company since June 1995;
President and Chief Executive Officer of The Travelers
Insurance Company; Vice Chairman since February 1998;
Executive Vice President (1995-1998) of Travelers Group
Inc.; Chairman, President and Chief Executive Officer
(1989-1994), Kidder Peabody Group Inc.
Robert I. Lipp 1994 Chairman, President and Chief Executive Officer since April
Director 1996 of 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
Director Chief Investment 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
Director (1993-1995) of The Travelers Insurance Company.
Jay S. Benet 1996 Senior Vice President since February 1994 and Vice President
Director (1990-1994) of The Travelers Insurance Company; Partner
(1986-1990) of Coopers & Lybrand.
Ian R. Stuart 1996 Senior Vice President since November, 1996; Chief Financial
Director 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 1996 of
Director The Travelers Insurance Company; Senior Vice President and
General Counsel (1994-1996) Connecticut Mutual; Special
Counsel and Chief of Staff (1988-1994) Aetna Life &
Casualty.
</TABLE>
- ---------------
* Principal business address: Travelers Group Inc., 388 Greenwich Street, New
York, New York.
SENIOR OFFICERS OF THE TRAVELERS INSURANCE COMPANY
The following are the Senior Officers of The Travelers Insurance Company (other
than Directors listed above) as of the date of this Prospectus. Unless otherwise
indicated, the principal business address for all individuals listed is One
Tower Square, Hartford, Connecticut 06183.
<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
Christine M. Modie 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>
Information relating to the management of the Underlying Funds is contained in
the Underlying Fund prospectuses.
25
<PAGE> 151
LEGAL PROCEEDINGS AND OPINION
- --------------------------------------------------------------------------------
There are no pending material legal proceedings affecting the Separate Account.
There is one material pending legal proceeding, other than ordinary routine
litigation incidental to the business, to which the Company is a party. In March
1997, a purported class action entitled Patterman v. The Travelers, Inc. was
commenced in the Superior Court of Richmond County, Georgia, alleging, among
other things, violations of the Georgia RICO statute and other state laws by an
affiliate of the Company, Primerica Financial Services, Inc. and certain of its
affiliates. Plaintiffs seek unspecified compensatory and punitive damages and
other relief. In April 1997, the lawsuit was removed to the U.S. District Court
for the Southern District of Georgia, and in October, 1997, the lawsuit was
remanded to the Superior Court of Richmond County. Later in October 1997, the
defendants, including the Company, answered the complaint, denied liability and
asserted numerous affirmative defenses. In February 1998, the Superior Court of
Richmond County transferred the lawsuit to the Superior Court of Gwinnett
County, Georgia, and certified the transfer order for immediate appellate
review. Also in February 1998, plaintiffs served an application for appellate
review of the transfer order; defendants subsequently opposed that application;
and later in February 1998, the Court of Appeals of the State of Georgia granted
plaintiffs' application for appellate review. Pending appeal proceedings in the
trial court have been stayed. The Company intends to vigorously contest the
litigation.
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
- --------------------------------------------------------------------------------
Financial statements as of and for the year ended December 31, 1997 of Fund UL,
included in the registration statement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance Company and
Subsidiaries (the "Company") as of December 31, 1997 and 1996 and for each of
the years in the three-year period ended December 31, 1997, have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, 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. You may
access the SEC's website (http://www.sec.gov) to view the entire Registration
Statement.
ILLUSTRATIONS
- --------------------------------------------------------------------------------
The following pages are intended to illustrate how the Account Value, Cash
Surrender Value and Death Benefit can change over time for Contracts issued to a
45 year old male and a 45 year old female. The difference between the Account
Value and the Cash Surrender Value in these illustrations represents the
Surrender Charge that would be incurred upon a full surrender of the Contract.
26
<PAGE> 152
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 1.54% for guaranteed charges, or 1.24% for current
charges. The guaranteed charge consists of 0.80% for mortality and expense
risks, 0.10% for administrative expenses, and .64% for Underlying Fund expenses.
The current charge consists of 0.60% for mortality and expense risks, and .64%
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, 1997, these reimbursement agreements affected the total operating expenses
of the Underlying Funds as follows:
1. For Travelers Money Market Portfolio, other expenses have been restated to
reflect the current expense reimbursement arrangement with The Travelers
Insurance Company. Travelers has agreed to reimburse the Fund for the amount by
which its aggregate expenses (including the management fee, but excluding
brokerage commissions, interest charges and taxes) exceeds 0.40%. Without such
arrangement, Total Expenses would have been 1.39% for the Travelers Money Market
Portfolio.
2. The other expenses reflected in AIM Capital Appreciation Portfolio, Alliance
Growth Portfolio and MFS Total Return are as of October 31, 1997 (the Fund's
fiscal year end). Travelers Capital Appreciation, Travelers Managed Assets
Trust, Travelers U.S. Government Securities Portfolio and Travelers Utilities
Portfolio reflect other expenses as of December 31, 1997. There were no fees
waived or expenses reimbursed for these funds in 1997.
3. A portion of the brokerage commissions that certain funds pay was used to
reduce Fidelity funds' expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Without these
reductions, the Total underlying Fund Expenses would have been .64% for Asset
Manager Portfolio, .57% for Equity Income Portfolio, .67% for Growth, and .71%
for High Income.
4. Smith Barney Total Return's Management Fees include 0.20% for fund
administration.
5. Other expenses are as of December 31, 1997 and take into account the current
expense reimbursement arrangement with Travelers. Travelers has agreed to
reimburse the Portfolio for the amount by which the aggregate expenses
(including management, but excluding brokerage commissions, interest charges and
taxes) exceeds .75%. Without such arrangement, the Total Expenses for the
Quality Bond Portfolio would have been 1.76%.
6. Other expenses are as of December 31, 1997 and take into account the current
expense reimbursement arrangement with Travelers. Travelers has agreed to
reimburse the Portfolio for the amount by which the aggregate expenses
(including management, but excluding brokerage commissions, interest charges and
taxes) exceeds .15%. Without such arrangement, the Total Expenses for the
Portfolio would have been as follows: 2.21% for Zero Coupon Bond Fund Series
1998; 1.80% for Zero Coupon Bond Fund Series 2000; 1.52% for Zero Coupon Bond
Fund Series 2005.
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
27
<PAGE> 153
shown if the gross rates averaged 0%, 6%, and 12% over a period of years, but
fluctuated above and below those averages.
The illustrations also assume that premiums are paid as indicated, no contract
loans are made, no increases or decreases to the Stated Amount are requested, no
partial surrenders are made, and no charges for transfers between funds are
incurred.
The illustrations do not reflect any charges for federal income taxes against
Fund UL, since the Company is not currently deducting such charges from Fund UL.
However, such charges may be made in the future, and in that event, the gross
annual investment rates of return would have to exceed 0%, 6% and 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefits, Account Values and Cash Surrender Values illustrated.
Upon request, the Company will provide a comparable illustration based upon the
proposed Insured's age, sex, underwriting classification, the specified
insurance benefits, and the premium requested. The hypothetical gross annual
investment return assumed in such an illustration will not exceed 12%.
28
<PAGE> 154
INVEST
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: $1,895.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------- ----------------------- -----------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,990 150,000 150,000 150,000 887 967 1,046 0 0 0
2 4,080 150,000 150,000 150,000 1,734 1,949 2,174 661 863 1,075
3 6,275 150,000 150,000 150,000 2,536 2,943 3,388 1,523 1,905 2,324
4 8,579 150,000 150,000 150,000 3,727 4,398 5,160 2,749 3,380 4,096
5 10,998 150,000 150,000 150,000 4,863 5,881 7,083 3,925 4,882 6,012
6 13,539 150,000 150,000 150,000 5,951 7,403 9,182 5,055 6,420 8,093
7 16,206 150,000 150,000 150,000 6,989 8,961 11,474 6,139 7,993 10,475
8 19,007 150,000 150,000 150,000 7,973 10,555 13,977 7,172 9,664 13,086
9 21,947 150,000 150,000 150,000 8,899 12,183 16,712 8,149 11,398 15,927
10 25,035 150,000 150,000 150,000 9,752 13,829 19,692 9,075 13,152 19,015
15 42,950 150,000 150,000 150,000 12,989 22,501 39,544 12,989 22,501 39,544
20 65,815 150,000 150,000 150,000 13,390 31,006 71,334 13,390 31,006 71,334
</TABLE>
29
<PAGE> 155
INVEST
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: $1,895.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% --------------------------- ------------------------ ------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,990 150,000 150,000 150,000 647 719 791 0 0 0
2 4,080 150,000 150,000 150,000 1,231 1,415 1,609 188 361 543
3 6,275 150,000 150,000 150,000 1,748 2,083 2,452 782 1,097 1,444
4 8,579 150,000 150,000 150,000 2,625 3,162 3,778 1,713 2,218 2,797
5 10,998 150,000 150,000 150,000 3,423 4,224 5,177 2,571 3,324 4,220
6 13,539 150,000 150,000 150,000 4,135 5,258 6,650 3,348 4,404 5,713
7 16,206 150,000 150,000 150,000 4,750 6,255 8,194 4,035 5,449 7,272
8 19,007 150,000 150,000 150,000 5,259 7,200 9,807 4,621 6,446 8,916
9 21,947 150,000 150,000 150,000 5,650 8,079 11,486 5,095 7,378 10,701
10 25,035 150,000 150,000 150,000 5,912 8,877 13,230 5,449 8,236 12,553
15 42,950 150,000 150,000 150,000 4,982 11,191 22,981 4,982 11,191 22,981
20 65,815 0 150,000 150,000 0 8,450 34,295 0 8,450 34,295
</TABLE>
30
<PAGE> 156
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>
Female, Issue Age 45 Face Amount: $150,000
Preferred, Non-Smoker Annual Premium: $1,798.13
</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 1,888 150,000 150,000 150,000 835 910 986 0 0 0
2 3,870 150,000 150,000 150,000 1,651 1,855 2,068 583 775 975
3 5,952 150,000 150,000 150,000 2,436 2,822 3,246 1,429 1,792 2,190
4 8,138 150,000 150,000 150,000 3,615 4,255 4,982 2,644 3,245 3,929
5 10,433 150,000 150,000 150,000 4,746 5,722 6,872 3,815 4,732 5,813
6 12,842 150,000 150,000 150,000 5,833 7,230 8,939 4,945 6,258 7,864
7 15,372 150,000 150,000 150,000 6,891 8,795 11,215 6,047 7,837 10,245
8 18,029 150,000 150,000 150,000 7,915 10,416 13,720 7,118 9,554 12,858
9 20,819 150,000 150,000 150,000 8,898 12,089 16,475 8,148 11,334 15,720
10 23,748 150,000 150,000 150,000 9,823 13,798 19,487 9,176 13,151 18,840
15 40,741 150,000 150,000 150,000 13,649 23,062 39,757 13,649 23,062 39,757
20 62,430 150,000 150,000 150,000 15,702 33,370 72,960 15,702 33,370 72,960
</TABLE>
31
<PAGE> 157
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>
Female, Issue Age 45 Face Amount: $150,000
Preferred, Non-Smoker Annual Premium: $1,798.13
</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 1,888 150,000 150,000 150,000 712 783 854 0 0 0
2 3,870 150,000 150,000 150,000 1,379 1,566 1,763 327 503 688
3 5,952 150,000 150,000 150,000 2,000 2,348 2,730 1,019 1,346 1,705
4 8,138 150,000 150,000 150,000 3,001 3,568 4,214 2,066 2,599 3,207
5 10,433 150,000 150,000 150,000 3,945 4,801 5,814 3,062 3,866 4,819
6 12,842 150,000 150,000 150,000 4,830 6,045 7,537 4,002 5,144 6,546
7 15,372 150,000 150,000 150,000 5,654 7,297 9,396 4,884 6,429 8,426
8 18,029 150,000 150,000 150,000 6,409 8,551 11,399 5,702 7,715 10,537
9 20,819 150,000 150,000 150,000 7,092 9,803 13,558 6,450 9,048 12,803
10 23,748 150,000 150,000 150,000 7,703 11,053 15,892 7,133 10,406 15,245
15 40,741 150,000 150,000 150,000 9,706 17,297 31,041 9,706 17,297 31,041
20 62,430 150,000 150,000 150,000 9,278 22,903 54,651 9,278 22,903 54,651
</TABLE>
32
<PAGE> 158
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
</TABLE>
<TABLE>
<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>
33
<PAGE> 159
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
</TABLE>
<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>
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>
34
<PAGE> 160
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
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
</TABLE>
<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>
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.
35
<PAGE> 161
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
</TABLE>
<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>
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.
36
<PAGE> 162
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
</TABLE>
<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>
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>
37
<PAGE> 163
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Managed Assets Trust, 114,804 shares (cost $1,761,500) ........................... $ 2,026,296
High Yield Bond Trust, 24,382 shares (cost $215,673) ............................. 241,137
Capital Appreciation Fund, 120,351 shares (cost $4,644,550) ...................... 5,574,661
Cash Income Trust, 3,347,375 shares (cost $3,347,375) ............................ 3,347,375
The Travelers Series Trust, 496,993 shares (cost $5,181,966) ..................... 5,328,832
Templeton Variable Products Series Fund, 529,432 shares (cost $10,458,089) ....... 11,591,894
Fidelity's Variable Insurance Products Fund, 840,173 shares (cost $17,653,628) ... 21,041,079
Fidelity's Variable Insurance Products Fund II, 243,515 shares (cost $3,671,170) . 4,385,702
Dreyfus Stock Index Fund, 127,138 shares (cost $2,750,538) ....................... 3,273,804
American Odyssey Funds, Inc., 38,833 shares (cost $533,298) ...................... 554,406
Travelers Series Fund Inc., 345,419 shares (cost $4,982,688) .................... 5,843,986
Greenwich Street Series Fund, 44,121 shares (cost $689,440) ...................... 777,407
-----------
Total Investments (cost $55,889,915) ........................................ $63,986,579
Receivables:
Dividends ........................................................................ 74,450
Premium payments and transfers from other Travelers accounts ..................... 18,755
Other assets ....................................................................... 4
-----------
Total Assets ................................................................. 64,079,788
-----------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts .......... 18,479
Accrued liabilities ................................................................ 3,136
-----------
Total Liabilities ............................................................ 21,615
-----------
NET ASSETS: ........................................................................... $64,058,173
===========
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 164
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends .......................................................................... $ 2,833,924
EXPENSES:
Insurance charges .................................................................. $ 363,873
Administrative charges ............................................................. 22,481
-----------
Total expenses ................................................................... 386,354
-----------
Net investment income .......................................................... 2,447,570
-----------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold ................................................... 14,840,064
Cost of investments sold ......................................................... 13,389,728
-----------
Net realized gain .............................................................. 1,450,336
Change in unrealized gain on investments:
Unrealized gain at December 31, 1996 ............................................. 3,488,881
Unrealized gain at December 31, 1997 ............................................. 8,096,664
-----------
Net change in unrealized gain for the year ..................................... 4,607,783
-----------
Net realized gain and change in unrealized gain .............................. 6,058,119
-----------
Net increase in net assets resulting from operations ............................... $ 8,505,689
===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 165
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................... $ 2,447,570 $ 1,858,620
Net realized gain from investment transactions .................. 1,450,336 532,275
Net change in unrealized gain on investments .................... 4,607,783 1,534,477
------------ ------------
Net increase in net assets resulting from operations .......... 8,505,689 3,925,372
------------ ------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 12,005,909 and 15,169,725 units, respectively).. 19,096,022 21,543,041
Participant transfers from other Travelers accounts
(applicable to 8,679,346 and 10,670,706 units, respectively) .. 13,453,685 14,576,672
Contract surrenders
(applicable to 3,304,273 and 3,002,978 units, respectively) ... (5,554,224) (4,214,910)
Participant transfers to other Travelers accounts
(applicable to 9,048,261 and 9,824,019 units, respectively) ... (13,733,134) (14,195,827)
Other payments to participants
(applicable to 23,301 units) .................................. (33,914) --
------------ ------------
Net increase in net assets resulting from unit transactions 13,228,435 17,708,976
------------ ------------
Net increase in net assets ................................ 21,734,124 21,634,348
NET ASSETS:
Beginning of year ............................................... 42,324,049 20,689,701
------------ ------------
End of year ..................................................... $ 64,058,173 $ 42,324,049
============ ============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 166
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 $3,401,482 at
December 31, 1997.
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, 1997, 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 Travelers Series Fund Inc.; Total Return Portfolio of
Greenwich Street Series Fund (formerly Smith Barney Series Fund) (all of which
are managed by affiliates of The Travelers); Templeton Bond Fund (Class 1
shares), Templeton Stock Fund (Class 1 shares) and Templeton Asset Allocation
Fund (Class 1 shares) of Templeton Variable Products Series Fund; High Income
Portfolio, Growth Portfolio and Equity-Income Portfolio of Fidelity's Variable
Insurance Products Fund; Asset Manager Portfolio of Fidelity's Variable
Insurance Products Fund II; 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 may be
available in all states or to all contract owners.
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.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES. The operations of Fund UL 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.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$31,020,647 and $14,840,064, respectively, for the year ended December 31, 1997.
Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was $55,889,915
at December 31, 1997. Gross unrealized appreciation for all investments at
December 31, 1997 was $8,108,762. Gross unrealized depreciation for all
investments at December 31, 1997 was $12,098.
-4-
<PAGE> 167
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, MarketLife Contracts
issued prior to July 12, 1995, and MarketLife Contracts issued on or after July
12, 1995 where state approval for Enhanced MarketLife had not yet been
received), the insurance charges were 0.60% and the administrative charges were
waived by The Travelers for the year ended December 31, 1997. For Price II
contracts (all MarketLife Contracts issued on or after July 12, 1995, where
state approval for Enhanced MarketLife 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 $131,429 and $106,276 in satisfaction of such contingent
surrender charges for the years ended December 31, 1997 and 1996, respectively.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
MANAGED ASSETS TRUST
Price I ................................. 631,186 $2.690 $ 1,697,949
Price II ................................ 122,866 2.671 328,128
HIGH YIELD BOND TRUST
Price I ................................. 96,477 2.515 242,606
CAPITAL APPRECIATION FUND
Price I ................................. 969,080 2.711 2,627,169
Price II ................................ 1,095,887 2.691 2,949,431
CASH INCOME TRUST
Price I ................................. 160,685 1.551 249,254
Price II ................................ 2,016,280 1.540 3,105,001
THE TRAVELERS SERIES TRUST
U.S. Government Securities Portfolio
Price I ................................. 138,133 1.300 179,581
Price II ................................ 1,042,966 1.291 1,346,102
Utilities Portfolio
Price I ................................. 70,674 1.697 119,954
Price II ................................ 34,592 1.685 58,288
Zero Coupon Bond Fund Portfolio Series 1998
Price I ................................. 1,000,000 1.116 1,115,894
Price II ................................ 8,353 1.108 9,259
Zero Coupon Bond Fund Portfolio Series 2000
Price I ................................. 1,001,379 1.121 1,122,297
Price II ................................ 36,677 1.113 40,831
Zero Coupon Bond Fund Portfolio Series 2005
Price I ................................. 1,041,763 1.165 1,213,483
Price II ................................ 105,916 1.157 122,553
</TABLE>
-5-
<PAGE> 168
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Bond Fund
Price I ................................. 147,319 $1.192 $ 175,618
Price II ................................ 264,591 1.183 313,140
Templeton Stock Fund
Price I ................................. 2,837,594 1.617 4,589,102
Price II ................................ 1,578,248 1.606 2,533,963
Templeton Asset Allocation Fund
Price I ................................. 1,820,911 1.565 2,848,947
Price II ................................ 728,294 1.553 1,131,223
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
High Income Portfolio
Price I ................................. 975,103 1.515 1,477,604
Price II ................................ 1,292,867 1.504 1,944,960
Growth Portfolio
Price I ................................. 3,005,309 1.839 5,526,710
Price II ................................ 2,264,973 1.826 4,135,061
Equity-Income Portfolio
Price I ................................. 2,311,361 1.981 4,578,953
Price II ................................ 1,719,857 1.967 3,382,482
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Price I ................................. 2,569,808 1.460 3,751,635
Price II ................................ 437,656 1.449 634,303
DREYFUS STOCK INDEX FUND
Price I ................................. 501,723 2.203 1,105,221
Price II ................................ 1,019,666 2.187 2,229,952
AMERICAN ODYSSEY FUNDS, INC.
American Odyssey Core Equity Fund
Price I ................................. 29,927 2.218 66,390
American Odyssey Emerging Opportunities Fund
Price I ................................. 197,206 1.459 287,685
American Odyssey International Equity Fund
Price I ................................. 82,883 1.408 116,698
American Odyssey Long-Term Bond Fund
Price I ................................. 63,209 1.366 86,321
American Odyssey Intermediate-Term Bond Fund
Price I ................................. 1,145 1.166 1,335
American Odyssey Short-Term Bond Fund
Price I ................................. 2,753 1.208 3,325
</TABLE>
-6-
<PAGE> 169
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio
Price I ................................. 235,405 $1.721 $ 405,056
Price II ................................ 1,234,462 1.708 2,109,030
Smith Barney Income and Growth Portfolio
Price I ................................. 36,024 1.600 57,637
Price II ................................ 424,342 1.589 674,488
Smith Barney High Income Portfolio
Price I ................................. 28,586 1.264 36,130
Price II ................................ 358,300 1.256 450,194
MFS Total Return Portfolio
Price I ................................. 142,872 1.490 212,943
Price II ................................ 437,292 1.480 647,206
AIM Capital Appreciation Portfolio
Price I ................................. 116,099 1.183 137,359
Price II ................................ 936,917 1.177 1,102,352
GREENWICH STREET SERIES FUND
Total Return Portfolio
Price I ................................. 37,563 1.499 56,308
Price II ................................ 484,110 1.489 721,062
-----------
Net Contract Owners' Equity .................. $64,058,173
===========
</TABLE>
-7-
<PAGE> 170
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
MANAGED ASSETS TRUST (3.2%)
Total (Cost $1,761,500) 114,804 $ 2,026,296
----------- -----------
HIGH YIELD BOND TRUST (0.4%)
Total (Cost $215,673) 24,382 241,137
----------- -----------
CAPITAL APPRECIATION FUND (8.7%)
Total (Cost $4,644,550) 120,351 5,574,661
----------- -----------
CASH INCOME TRUST (5.2%)
Total (Cost $3,347,375) 3,347,375 3,347,375
----------- -----------
THE TRAVELERS SERIES TRUST (8.3%)
U.S. Government Securities Portfolio (Cost $1,479,742) 130,966 1,525,755
Utilities Portfolio (Cost $148,527) 11,683 178,638
Zero Coupon Bond Fund Portfolio Series 1998 (Cost $1,122,796) 112,182 1,125,190
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $1,155,180) 115,279 1,163,167
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $1,275,721) 126,883 1,336,082
----------- -----------
Total (Cost $5,181,966) 496,993 5,328,832
----------- -----------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (18.1%)
Templeton Bond Fund (Cost $482,060) 44,193 488,780
Templeton Stock Fund (Cost $6,583,386) 307,149 7,122,795
Templeton Asset Allocation Fund (Cost $3,392,643) 178,090 3,980,319
----------- -----------
Total (Cost $10,458,089) 529,432 11,591,894
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (32.9%)
High Income Portfolio (Cost $3,052,156) 252,034 3,422,625
Growth Portfolio (Cost $7,968,559) 260,407 9,661,116
Equity-Income Portfolio (Cost $6,632,913) 327,732 7,957,338
----------- -----------
Total (Cost $17,653,628) 840,173 21,041,079
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (6.9%)
Asset Manager Portfolio
Total (Cost $3,671,170) 243,515 4,385,702
----------- -----------
DREYFUS STOCK INDEX FUND (5.1%)
Total (Cost $2,750,538) 127,138 3,273,804
----------- -----------
AMERICAN ODYSSEY FUNDS, INC. (0.9%)
American Odyssey Core Equity Fund (Cost $46,111) 3,292 65,611
American Odyssey Emerging Opportunities Fund (Cost $299,735) 20,076 287,690
American Odyssey International Equity Fund (Cost $102,480) 7,425 114,942
American Odyssey Long-Term Bond Fund (Cost $80,495) 7,611 81,739
American Odyssey Intermediate-Term Bond Fund (Cost $1,286) 123 1,264
American Odyssey Short-Term Bond Fund (Cost $3,191) 306 3,160
----------- -----------
Total (Cost $533,298) 38,833 554,406
----------- -----------
TRAVELERS SERIES FUND INC. (9.1%)
Alliance Growth Portfolio (Cost $1,966,130) 116,421 2,520,506
Smith Barney Income and Growth Portfolio (Cost $651,344) 38,393 732,153
Smith Barney High Income Portfolio (Cost $469,336) 36,079 486,347
MFS Total Return Portfolio (Cost $744,214) 53,896 860,188
AIM Capital Appreciation Portfolio (Cost $1,151,664) 100,630 1,244,792
----------- -----------
Total (Cost $4,982,688) 345,419 5,843,986
----------- -----------
GREENWICH STREET SERIES FUND (1.2%)
Total Return Portfolio
Total (Cost $689,440) 44,121 777,407
----------- -----------
TOTAL INVESTMENT OPTIONS (100%)
(COST $55,889,915) $63,986,579
===========
</TABLE>
-8-
<PAGE> 171
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST HIGH YIELD BOND TRUST
------------------------------ --------------------------
1997 1996 1997 1996
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 56,368 $ 212,189 $ 151 $ 58,484
----------- ----------- --------- ---------
EXPENSES:
Insurance charges ..................................... 11,874 9,244 1,465 1,710
Administrative charges ................................ 339 266 -- --
----------- ----------- --------- ---------
Net investment income (loss) .................... 44,155 202,679 (1,314) 56,774
----------- ----------- --------- ---------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 374,254 398,836 234,846 266,166
Cost of investments sold .......................... 292,317 355,102 225,775 261,596
----------- ----------- --------- ---------
Net realized gain (loss) ........................ 81,937 43,734 9,071 4,570
----------- ----------- --------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 49,154 113,258 (2,411) 16,476
Unrealized gain (loss) end of year ................ 264,796 49,154 25,465 (2,411)
----------- ----------- --------- ---------
Net change in unrealized gain (loss) for the year 215,642 (64,104) 27,876 (18,887)
----------- ----------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 341,734 182,309 35,633 42,457
----------- ----------- --------- ---------
UNIT TRANSACTIONS:
Participant premium payments .......................... 427,367 385,858 34,411 59,862
Participant transfers from other Travelers accounts ... 132,340 446,005 93,271 210,756
Contract surrenders ................................... (269,781) (197,168) (143,838) (49,202)
Participant transfers to other Travelers accounts ..... (253,757) (363,218) (98,507) (225,122)
Other payments to participants ........................ -- -- -- --
----------- ----------- --------- ---------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 36,169 271,477 (114,663) (3,706)
----------- ----------- --------- ---------
Net increase (decrease) in net assets ........... 377,903 453,786 (79,030) 38,751
NET ASSETS:
Beginning of year ................................. 1,648,174 1,194,388 321,636 282,885
----------- ----------- --------- ---------
End of year ....................................... $ 2,026,077 $ 1,648,174 $ 242,606 $ 321,636
=========== =========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 36 $ 326,576
----------- -----------
EXPENSES:
Insurance charges ..................................... 30,965 12,964
Administrative charges ................................ 2,084 456
----------- -----------
Net investment income (loss) .................... (33,013) 313,156
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 839,367 141,019
Cost of investments sold .......................... 553,249 97,726
----------- -----------
Net realized gain (loss) ........................ 286,118 43,293
----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 276,095 177,890
Unrealized gain (loss) end of year ................ 930,111 276,095
----------- -----------
Net change in unrealized gain (loss) for the year 654,016 98,205
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 907,121 454,654
----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 1,371,774 845,776
Participant transfers from other Travelers accounts ... 1,068,760 1,273,217
Contract surrenders ................................... (577,590) (250,675)
Participant transfers to other Travelers accounts ..... (560,317) (124,142)
Other payments to participants ........................ (651) --
----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 1,301,976 1,744,176
----------- -----------
Net increase (decrease) in net assets ........... 2,209,097 2,198,830
NET ASSETS:
Beginning of year ................................. 3,367,503 1,168,673
----------- -----------
End of year ....................................... $ 5,576,600 $ 3,367,503
=========== ===========
</TABLE>
-9-
<PAGE> 172
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
ZERO COUPON BOND
U.S. GOVERNMENT FUND PORTFOLIO
CASH INCOME TRUST SECURITIES PORTFOLIO UTILITIES PORTFOLIO SERIES 1998
- ----------------------------- -------------------------- ------------------------ ----------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 148,941 $ 90,366 $ 71,639 $ 58,279 $ 234 $ 13,790 $ 60,738 $ 67,102
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
23,201 15,944 7,196 1,660 947 688 6,579 6,251
2,570 1,351 781 100 44 23 10 6
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
123,170 73,071 63,662 56,519 (757) 13,079 54,149 60,845
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
7,080,626 6,855,752 579,692 45,082 33,131 42,674 22,224 6,286
7,080,626 6,855,752 605,967 43,606 31,964 37,280 21,753 6,135
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
-- -- (26,275) 1,476 1,167 5,394 471 151
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
-- -- (33,195) 19,739 (3,421) 7,329 (1,641) 24,969
-- -- 46,013 (33,195) 30,111 (3,421) 2,394 (1,641)
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
-- -- 79,208 (52,934) 33,532 (10,750) 4,035 (26,610)
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
123,170 73,071 116,595 5,061 33,942 7,723 58,655 34,386
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
6,413,938 11,879,168 555,591 92,662 47,754 79,509 634 --
3,079,011 1,603,195 723,123 513,975 1,654 25,144 8,679 15,174
(365,525) (1,023,100) (92,796) (32,101) (28,432) (16,313) (454) (203)
(8,668,083) (11,441,681) (503,445) (20,458) (10,100) (33,120) (15,356) --
-- -- -- -- -- -- -- --
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
459,341 1,017,582 682,473 554,078 10,876 55,220 (6,497) 14,971
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
582,511 1,090,653 799,068 559,139 44,818 62,943 52,158 49,357
2,771,744 1,681,091 726,615 167,476 133,424 70,481 1,072,995 1,023,638
- ----------- ------------ ----------- --------- --------- --------- ----------- -----------
$ 3,354,255 $ 2,771,744 $ 1,525,683 $ 726,615 $ 178,242 $ 133,424 $ 1,125,153 $ 1,072,995
=========== ============ =========== ========= ========= ========= =========== ===========
</TABLE>
-10-
<PAGE> 173
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ZERO COUPON BOND ZERO COUPON BOND
FUND PORTFOLIO FUND PORTFOLIO
SERIES 2000 SERIES 2005
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 63,813 $ 63,651 $ 71,682 $ 66,990
----------- ----------- ----------- -----------
EXPENSES:
Insurance charges ..................................... 6,564 6,171 7,294 6,538
Administrative charges ................................ 13 2 63 26
----------- ----------- ----------- -----------
Net investment income (loss) .................... 57,236 57,478 64,325 60,426
----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 13,930 6,328 67,978 22,857
Cost of investments sold .......................... 13,566 6,227 67,394 23,410
----------- ----------- ----------- -----------
Net realized gain (loss) ........................ 364 101 584 (553)
----------- ----------- ----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... (4,359) 30,962 (2,241) 47,983
Unrealized gain (loss) end of year ................ 7,987 (4,359) 60,360 (2,241)
----------- ----------- ----------- -----------
Net change in unrealized gain (loss) for the year 12,346 (35,321) 62,601 (50,224)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 69,946 22,258 127,510 9,649
----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 1,592 1,303 43,451 3,937
Participant transfers from other Travelers accounts ... 36,989 2,571 37,071 143,245
Contract surrenders ................................... (877) (275) (3,931) (1,804)
Participant transfers to other Travelers accounts ..... (16) -- (57,627) (15,098)
Other payments to participants ........................ -- -- -- --
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 37,688 3,599 18,964 130,280
----------- ----------- ----------- -----------
Net increase (decrease) in net assets ........... 107,634 25,857 146,474 139,929
NET ASSETS:
Beginning of year ................................. 1,055,494 1,029,637 1,189,562 1,049,633
----------- ----------- ----------- -----------
End of year ....................................... $ 1,163,128 $ 1,055,494 $ 1,336,036 $ 1,189,562
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON BOND FUND
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 22,190 $ 18,730
--------- ---------
EXPENSES:
Insurance charges ..................................... 2,586 1,415
Administrative charges ................................ 201 68
--------- ---------
Net investment income (loss) .................... 19,403 17,247
--------- ---------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 43,392 155,886
Cost of investments sold .......................... 43,183 160,115
--------- ---------
Net realized gain (loss) ........................ 209 (4,229)
--------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 18,576 10,933
Unrealized gain (loss) end of year ................ 6,720 18,576
--------- ---------
Net change in unrealized gain (loss) for the year (11,856) 7,643
--------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 7,756 20,661
--------- ---------
UNIT TRANSACTIONS:
Participant premium payments .......................... 121,519 129,705
Participant transfers from other Travelers accounts ... 123,156 140,133
Contract surrenders ................................... (41,897) (37,867)
Participant transfers to other Travelers accounts ..... (8,468) (110,954)
Other payments to participants ........................ (4,899) --
--------- ---------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 189,411 121,017
--------- ---------
Net increase (decrease) in net assets ........... 197,167 141,678
NET ASSETS:
Beginning of year ................................. 291,591 149,913
--------- ---------
End of year ....................................... $ 488,758 $ 291,591
========= =========
</TABLE>
-11-
<PAGE> 174
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON ASSET FIDELITY'S HIGH
TEMPLETON STOCK FUND ALLOCATION FUND INCOME PORTFOLIO FIDELITY'S GROWTH PORTFOLIO
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 513,518 $ 275,458 $ 257,405 $ 100,257 $ 195,704 $ 79,896 $ 234,290 $ 212,219
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
42,347 22,487 23,292 13,519 20,332 8,457 53,174 28,119
2,080 636 868 228 1,556 346 3,145 1,081
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
469,091 252,335 233,245 86,510 173,816 71,093 177,971 183,019
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
795,451 427,910 299,373 251,298 906,455 394,532 775,032 290,824
588,414 355,680 211,031 208,598 892,824 359,601 510,153 199,573
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
207,037 72,230 88,342 42,700 13,631 34,931 264,879 91,251
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
696,253 293,901 469,194 221,298 109,472 57,063 642,147 382,429
539,409 696,253 587,676 469,194 370,469 109,472 1,692,557 642,147
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(156,844) 402,352 118,482 247,896 260,997 52,409 1,050,410 259,718
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
519,284 726,917 440,069 377,106 448,444 158,433 1,493,260 533,988
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,839,867 1,321,382 735,199 644,082 686,634 527,622 2,092,960 2,089,604
1,088,920 1,213,990 400,002 446,075 933,013 1,226,656 1,286,782 1,889,484
(668,841) (483,098) (356,661) (235,094) (260,544) (201,035) (898,220) (640,080)
(563,883) (282,267) (100,309) (144,347) (718,621) (172,976) (494,401) (317,899)
-- -- -- -- (5,003) -- (5,729) --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,696,063 1,770,007 678,231 710,716 635,479 1,380,267 1,981,392 3,021,109
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
2,215,347 2,496,924 1,118,300 1,087,822 1,083,923 1,538,700 3,474,652 3,555,097
4,907,718 2,410,794 2,861,870 1,774,048 2,338,641 799,941 6,187,119 2,632,022
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 7,123,065 $ 4,907,718 $ 3,980,170 $ 2,861,870 $ 3,422,564 $ 2,338,641 $ 9,661,771 $ 6,187,119
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
-12-
<PAGE> 175
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY'S EQUITY- FIDELITY'S ASSET
INCOME PORTFOLIO MANAGER PORTFOLIO
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 551,315 $ 109,635 $ 414,291 $ 159,369
----------- ----------- ----------- -----------
EXPENSES:
Insurance charges ..................................... 45,297 22,379 24,513 17,144
Administrative charges ................................ 2,746 811 501 161
----------- ----------- ----------- -----------
Net investment income (loss) .................... 503,272 86,445 389,277 142,064
----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 1,066,364 400,773 332,402 246,699
Cost of investments sold .......................... 796,012 317,023 276,655 224,032
----------- ----------- ----------- -----------
Net realized gain (loss) ........................ 270,352 83,750 55,747 22,667
----------- ----------- ----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 555,918 260,001 454,097 244,927
Unrealized gain (loss) end of year ................ 1,324,425 555,918 714,532 454,097
----------- ----------- ----------- -----------
Net change in unrealized gain (loss) for the year 768,507 295,917 260,435 209,170
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 1,542,131 466,112 705,459 373,901
----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 1,553,084 1,546,355 792,294 819,279
Participant transfers from other Travelers accounts ... 1,216,927 1,927,954 128,939 265,125
Contract surrenders ................................... (715,570) (479,487) (414,673) (311,604)
Participant transfers to other Travelers accounts ..... (767,826) (385,897) (153,222) (200,709)
Other payments to participants ........................ (8,322) -- (69) --
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 1,278,293 2,608,925 353,269 572,091
----------- ----------- ----------- -----------
Net increase (decrease) in net assets ........... 2,820,424 3,075,037 1,058,728 945,992
NET ASSETS:
Beginning of year ................................. 5,141,011 2,065,974 3,327,210 2,381,218
----------- ----------- ----------- -----------
End of year ....................................... $ 7,961,435 $ 5,141,011 $ 4,385,938 $ 3,327,210
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 131,569 $ 38,450
----------- -----------
EXPENSES:
Insurance charges ..................................... 17,644 4,900
Administrative charges ................................ 1,557 288
----------- -----------
Net investment income (loss) .................... 112,368 33,262
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 480,285 198,684
Cost of investments sold .......................... 385,669 154,606
----------- -----------
Net realized gain (loss) ........................ 94,616 44,078
----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 103,469 32,788
Unrealized gain (loss) end of year ................ 523,266 103,469
----------- -----------
Net change in unrealized gain (loss) for the year 419,797 70,681
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 626,781 148,021
----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 815,909 331,313
Participant transfers from other Travelers accounts ... 947,641 923,999
Contract surrenders ................................... (282,791) (103,195)
Participant transfers to other Travelers accounts ..... (335,492) (70,708)
Other payments to participants ........................ -- --
----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 1,145,267 1,081,409
----------- -----------
Net increase (decrease) in net assets ........... 1,772,048 1,229,430
NET ASSETS:
Beginning of year ................................. 1,563,125 333,695
----------- -----------
End of year ....................................... $ 3,335,173 $ 1,563,125
=========== ===========
</TABLE>
-13-
<PAGE> 176
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
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,487 $ 3,238 $ -- $ 20,349 $ 2,623 $ 2,488 $ 4,752 $ 2,672
- -------- -------- --------- --------- --------- --------- -------- --------
387 312 1,630 1,563 661 520 400 273
-- -- -- -- -- -- -- --
- -------- -------- --------- --------- --------- --------- -------- --------
1,100 2,926 (1,630) 18,786 1,962 1,968 4,352 2,399
- -------- -------- --------- --------- --------- --------- -------- --------
17,936 9,229 46,981 41,345 20,677 20,513 4,416 9,682
12,382 7,518 46,233 33,380 16,342 16,197 4,534 9,981
- -------- -------- --------- --------- --------- --------- -------- --------
5,554 1,711 748 7,965 4,335 4,316 (118) (299)
- -------- -------- --------- --------- --------- --------- -------- --------
8,895 3,143 (32,337) 4,288 14,319 3,676 (2,217) (1,341)
19,500 8,895 (12,045) (32,337) 12,462 14,319 1,244 (2,217)
- -------- -------- --------- --------- --------- --------- -------- --------
10,605 5,752 20,292 (36,625) (1,857) 10,643 3,461 (876)
- -------- -------- --------- --------- --------- --------- -------- --------
17,259 10,389 19,410 (9,874) 4,440 16,927 7,695 1,224
- -------- -------- --------- --------- --------- --------- -------- --------
10,015 10,768 59,971 93,912 27,193 30,054 28,271 26,241
1,899 3,481 8,296 9,776 7,563 16,031 -- --
(4,755) (4,419) (25,273) (29,021) (12,213) (12,104) (4,730) (5,072)
(15,920) (6,488) (37,520) (25,343) (13,029) (13,400) -- (5,423)
-- -- -- -- -- -- -- --
- -------- -------- --------- --------- --------- --------- -------- --------
(8,761) 3,342 5,474 49,324 9,514 20,581 23,541 15,746
- -------- -------- --------- --------- --------- --------- -------- --------
8,498 13,731 24,884 39,450 13,954 37,508 31,236 16,970
57,892 44,161 262,801 223,351 102,744 65,236 55,085 38,115
- -------- -------- --------- --------- --------- --------- -------- --------
$ 66,390 $ 57,892 $ 287,685 $ 262,801 $ 116,698 $ 102,744 $ 86,321 $ 55,085
======== ======== ========= ========= ========= ========= ======== ========
</TABLE>
-14-
<PAGE> 177
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
INTERMEDIATE-TERM AMERICAN ODYSSEY
BOND FUND SHORT-TERM BOND FUND
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 80 $ 48 $ 170 $ 104
------- ----- ------- -------
EXPENSES:
Insurance charges ..................................... 7 4 19 16
Administrative charges ................................ -- -- -- --
------- ----- ------- -------
Net investment income (loss) .................... 73 44 151 88
------- ----- ------- -------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 157 -- 470 213
Cost of investments sold .......................... 153 -- 475 214
------- ----- ------- -------
Net realized gain (loss) ........................ 4 -- (5) (1)
------- ----- ------- -------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... (23) (6) (63) (68)
Unrealized gain (loss) end of year ................ (22) (23) (31) (63)
------- ----- ------- -------
Net change in unrealized gain (loss) for the year 1 (17) 32 5
------- ----- ------- -------
Net increase (decrease) in net assets
resulting from operations ....................... 78 27 178 92
------- ----- ------- -------
UNIT TRANSACTIONS:
Participant premium payments .......................... 570 631 658 841
Participant transfers from other Travelers accounts ... 32 -- -- --
Contract surrenders ................................... (97) (124) (533) (244)
Participant transfers to other Travelers accounts ..... (157) -- -- --
Other payments to participants ........................ -- -- -- --
------- ----- ------- -------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 348 507 125 597
------- ----- ------- -------
Net increase (decrease) in net assets ........... 426 534 303 689
NET ASSETS:
Beginning of year ................................. 909 375 3,022 2,333
------- ----- ------- -------
End of year ....................................... $ 1,335 $ 909 $ 3,325 $ 3,022
======= ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $ 43,645
----------- -----------
EXPENSES:
Insurance charges ..................................... 13,955 4,173
Administrative charges ................................ 1,519 461
----------- -----------
Net investment income (loss) .................... (15,474) 39,011
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 137,767 138,394
Cost of investments sold .......................... 106,425 126,677
----------- -----------
Net realized gain (loss) ........................ 31,342 11,717
----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 97,212 (310)
Unrealized gain (loss) end of year ................ 554,376 97,212
----------- -----------
Net change in unrealized gain (loss) for the year 457,164 97,522
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 473,032 148,250
----------- -----------
UNIT TRANSACTIONS:
Participant premium payments .......................... 431,226 264,719
Participant transfers from other Travelers accounts ... 619,763 805,494
Contract surrenders ................................... (152,219) (44,856)
Participant transfers to other Travelers accounts ..... (43,871) (6,667)
Other payments to participants ........................ (1,525) --
----------- -----------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 853,374 1,018,690
----------- -----------
Net increase (decrease) in net assets ........... 1,326,406 1,166,940
NET ASSETS:
Beginning of year ................................. 1,187,680 20,740
----------- -----------
End of year ....................................... $ 2,514,086 $ 1,187,680
=========== ===========
</TABLE>
-15-
<PAGE> 178
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
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 5,295 $ -- $ 8,808 $ -- $ 13,265 $ -- $ 580
- --------- --------- --------- --------- --------- --------- ----------- ---------
3,376 664 1,982 1,201 4,442 1,350 7,136 1,435
399 78 222 142 432 102 807 142
- --------- --------- --------- --------- --------- --------- ----------- ---------
(3,775) 4,553 (2,204) 7,465 (4,874) 11,813 (7,943) (997)
- --------- --------- --------- --------- --------- --------- ----------- ---------
58,318 56,203 460,379 142,661 54,024 27,195 53,629 104,593
45,948 52,019 436,696 138,333 42,230 24,139 48,176 101,291
- --------- --------- --------- --------- --------- --------- ----------- ---------
12,370 4,184 23,683 4,328 11,794 3,056 5,453 3,302
- --------- --------- --------- --------- --------- --------- ----------- ---------
3,968 (1) 3,819 -- 18,241 3,089 17,258 --
80,809 3,968 17,011 3,819 115,974 18,241 93,128 17,258
- --------- --------- --------- --------- --------- --------- ----------- ---------
76,841 3,969 13,192 3,819 97,733 15,152 75,870 17,258
- --------- --------- --------- --------- --------- --------- ----------- ---------
85,436 12,706 34,671 15,612 104,653 30,021 73,380 19,563
- --------- --------- --------- --------- --------- --------- ----------- ---------
148,015 11,790 260,419 16,643 143,523 103,152 311,127 181,988
323,411 220,262 335,032 265,754 269,013 205,454 370,189 474,076
(55,944) (8,726) (17,233) (5,991) (35,983) (12,783) (82,325) (16,100)
(1,422) (3,243) (281,223) (137,360) (6,460) (10,669) (13,899) (78,288)
(1,316) -- -- -- (6,400) -- -- --
- --------- --------- --------- --------- --------- --------- ----------- ---------
412,744 220,083 296,995 139,046 363,693 285,154 585,092 561,676
- --------- --------- --------- --------- --------- --------- ----------- ---------
498,180 232,789 331,666 154,658 468,346 315,175 658,472 581,239
233,945 1,156 154,658 -- 391,803 76,628 581,239 --
- --------- --------- --------- --------- --------- --------- ----------- ---------
$ 732,125 $ 233,945 $ 486,324 $ 154,658 $ 860,149 $ 391,803 $ 1,239,711 $ 581,239
========= ========= ========= ========= ========= ========= =========== =========
</TABLE>
-16-
<PAGE> 179
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO COMBINED
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 30,928 $ 6,053 $ 2,833,924 $ 2,057,986
--------- --------- ------------ ------------
EXPENSES:
Insurance charges ..................................... 4,608 1,339 363,873 192,440
Administrative charges ................................ 544 152 22,481 6,926
--------- --------- ------------ ------------
Net investment income (loss) .................... 25,776 4,562 2,447,570 1,858,620
--------- --------- ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 40,508 58,645 14,840,064 10,760,279
Cost of investments sold .......................... 33,582 52,193 13,389,728 10,228,004
--------- --------- ------------ ------------
Net realized gain (loss) ........................ 6,926 6,452 1,450,336 532,275
--------- --------- ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 32,702 (12) 3,488,881 1,954,404
Unrealized gain (loss) end of year ................ 87,967 32,702 8,096,664 3,488,881
--------- --------- ------------ ------------
Net change in unrealized gain (loss) for the year 55,265 32,714 4,607,783 1,534,477
--------- --------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ....................... 87,967 43,728 8,505,689 3,925,372
--------- --------- ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments .......................... 141,056 44,885 19,096,022 21,543,041
Participant transfers from other Travelers accounts ... 212,209 309,646 13,453,685 14,576,672
Contract surrenders ................................... (40,498) (13,169) (5,554,224) (4,214,910)
Participant transfers to other Travelers accounts ..... (10,203) (350) (13,733,134) (14,195,827)
Other payments to participants ........................ -- -- (33,914) --
--------- --------- ------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 302,564 341,012 13,228,435 17,708,976
--------- --------- ------------ ------------
Net increase (decrease) in net assets ........... 390,531 384,740 21,734,124 21,634,348
NET ASSETS:
Beginning of year ................................. 386,839 2,099 42,324,049 20,689,701
--------- --------- ------------ ------------
End of year ....................................... $ 777,370 $ 386,839 $ 64,058,173 $ 42,324,049
========= ========= ============ ============
</TABLE>
-17-
<PAGE> 180
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S.
CAPITAL GOVERNMENT
MANAGED HIGH YIELD APPRECIATION CASH SECURITIES
ASSETS TRUST BOND TRUST FUND INCOME TRUST PORTFOLIO
------------ ---------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 739,368 148,199 1,560,408 1,872,345 627,860
Units purchased and transferred from
other Travelers accounts ........ 227,450 55,716 984,555 6,298,315 1,069,761
Units redeemed and transferred to
other Travelers accounts ........ (212,766) (107,438) (479,996) (5,993,695) (516,522)
-------- -------- ---------- ---------- ----------
Units end of year .................. 754,052 96,477 2,064,967 2,176,965 1,181,099
======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON ZERO COUPON
BOND FUND BOND FUND BOND FUND
UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO TEMPLETON
PORTFOLIO SERIES 1998 SERIES 2000 SERIES 2005 BOND FUND
--------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 98,022 1,014,502 1,003,545 1,133,350 249,756
Units purchased and transferred from
other Travelers accounts ........ 34,377 8,600 35,337 72,486 209,477
Units redeemed and transferred to
other Travelers accounts ........ (27,133) (14,749) (826) (58,157) (47,323)
-------- ---------- ---------- ---------- --------
Units end of year .................. 105,266 1,008,353 1,038,056 1,147,679 411,910
======== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
ASSET FIDELITY'S FIDELITY'S FIDELITY'S
TEMPLETON ALLOCATION HIGH INCOME GROWTH EQUITY-INCOME
STOCK FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 3,378,671 2,102,272 1,809,239 4,136,339 3,309,909
Units purchased and transferred from
other Travelers accounts ........ 1,804,001 744,438 1,201,242 1,992,945 1,560,873
Units redeemed and transferred to
other Travelers accounts ........ (766,830) (297,505) (742,511) (859,002) (839,564)
---------- ---------- ---------- ---------- ----------
Units end of year .................. 4,415,842 2,549,205 2,267,970 5,270,282 4,031,218
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AMERICAN
AMERICAN ODYSSEY AMERICAN
FIDELITY'S ODYSSEY EMERGING ODYSSEY
ASSET MANAGER DREYFUS STOCK CORE EQUITY OPPORTUNITIES INTERNATIONAL
PORTFOLIO INDEX FUND FUND FUND EQUITY FUND
--------- ---------- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 2,734,435 940,291 34,187 191,470 76,225
Units purchased and transferred from
other Travelers accounts ........ 695,350 918,949 6,394 48,792 24,766
Units redeemed and transferred to
other Travelers accounts ........ (422,321) (337,851) (10,654) (43,056) (18,108)
---------- ---------- ------- -------- -------
Units end of year .................. 3,007,464 1,521,389 29,927 197,206 82,883
========== ========== ======= ======== =======
</TABLE>
-18-
<PAGE> 181
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMERICAN
AMERICAN ODYSSEY AMERICAN SMITH BARNEY
ODYSSEY INTERMEDIATE- ODYSSEY ALLIANCE INCOME AND
LONG-TERM TERM SHORT-TERM GROWTH GROWTH
BOND FUND BOND FUND BOND FUND PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 44,927 833 2,640 888,431 184,663
Units purchased and transferred from
other Travelers accounts ........ 21,997 536 574 712,024 314,373
Units redeemed and transferred to
other Travelers accounts ........ (3,715) (224) (461) (130,588) (38,670)
------- ------ ------ ---------- --------
Units end of year .................. 63,209 1,145 2,753 1,469,867 460,366
======= ====== ====== ========== ========
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY MFS AIM CAPITAL
HIGH INCOME TOTAL RETURN APPRECIATION TOTAL RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO COMBINED
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 138,855 317,532 548,936 300,659 29,587,869
Units purchased and transferred from
other Travelers accounts ........ 498,526 298,199 587,725 257,477 20,685,255
Units redeemed and transferred to
other Travelers accounts ........ (250,495) (35,567) (83,645) (36,463) (12,375,835)
-------- -------- ---------- -------- -----------
Units end of year .................. 386,886 580,164 1,053,016 521,673 37,897,289
======== ======== ========== ======== ===========
</TABLE>
-19-
<PAGE> 182
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, 1997, and the
related statement of operations for the year then ended and the statement of
changes in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1997, 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, 1997, 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 19, 1998
-20-
<PAGE> 183
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 26, 1998
F-1
<PAGE> 184
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
REVENUES
Premiums $1,583 $1,387 $1,504
Net investment income 2,037 1,950 1,884
Realized investment gains 199 65 106
Other revenues 354 284 204
- -------------------------------------------------------------------------------------------
Total Revenues $4,173 $3,686 $3,698
- -------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,341 1,187 1,206
Interest credited to contractholders 829 863 997
Amortization of deferred acquisition costs and value of
insurance in force 293 281 290
General and administrative expenses 427 380 368
- -------------------------------------------------------------------------------------------
Total Benefits and Expenses 2,890 2,711 2,861
- -------------------------------------------------------------------------------------------
Income from continuing operations before federal income taxes 1,283 975 837
- -------------------------------------------------------------------------------------------
Federal income taxes:
Current expense 434 284 233
Deferred 10 58 57
- -------------------------------------------------------------------------------------------
Total Federal Income Taxes 444 342 290
- -------------------------------------------------------------------------------------------
Income from continuing operations 839 633 547
- -------------------------------------------------------------------------------------------
Discontinued operations, net of income taxes
Income from operations (net of taxes of $0, $0 and $18) -- -- 72
Gain on disposition (net of taxes of $0, $14 and $68) -- 26 131
- -------------------------------------------------------------------------------------------
Income from Discontinued Operations -- 26 203
- -------------------------------------------------------------------------------------------
Net income 839 659 750
Retained earnings beginning of year 2,471 2,312 1,562
Dividends to parent 500 500 --
- -------------------------------------------------------------------------------------------
Retained Earnings End of Year $2,810 $2,471 $2,312
===========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 185
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
<TABLE>
<CAPTION>
December 31, 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost,
$20,682; $19,284) $21,511 $19,637
Equity securities, at fair value (cost, $480; $330) 512 338
Mortgage loans 2,869 2,920
Real estate held for sale 134 297
Trading securities, at market value 800 --
Policy loans 1,872 1,910
Short-term securities 1,102 902
Other invested assets 1,702 1,253
- ----------------------------------------------------------------------------------
Total Investments $30,502 $27,257
- ----------------------------------------------------------------------------------
Cash 58 74
Investment income accrued 338 355
Premium balances receivable 106 105
Reinsurance recoverables 4,339 3,858
Deferred acquisition costs and value of insurance in force 2,312 2,133
Separate and variable accounts 11,319 8,127
Other assets 1,052 1,064
- ----------------------------------------------------------------------------------
Total Assets $50,026 $42,973
- ----------------------------------------------------------------------------------
LIABILITIES
Contractholder funds 14,913 14,189
Future policy benefits 12,569 11,762
Policy and contract claims 378 536
Trading securities sold not yet purchased, at market value 462 --
Separate and variable accounts 11,309 8,115
Commercial paper -- 50
Deferred federal income taxes 409 57
Other liabilities 2,661 1,936
- ----------------------------------------------------------------------------------
Total Liabilities $42,701 $36,645
- ----------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,187 3,170
Retained earnings 2,810 2,471
Unrealized investment gains, net of taxes 1,228 587
- ----------------------------------------------------------------------------------
Total Shareholder's Equity $ 7,325 $ 6,328
- ----------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $50,026 $42,973
==================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 186
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,519 $ 1,387 $ 1,346
Net investment income received 2,059 1,910 1,855
Other revenues received 180 131 90
Benefits and claims paid (1,230) (1,060) (846)
Interest credited to contractholders (853) (820) (960)
Operating expenses paid (445) (343) (615)
Income taxes paid (368) (328) (63)
Trading account investments, (purchases) sales, net (54) -- --
Other 18 (70) (137)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 826 807 670
Net cash used in discontinued operations -- (350) (596)
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operations $ 826 $ 457 $ 74
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 2,259 1,928 1,974
Mortgage loans 663 917 680
Proceeds from sales of investments
Fixed maturities 7,592 9,101 6,773
Equity securities 341 479 379
Mortgage loans 207 178 704
Real estate held for sale 169 210 253
Purchases of investments
Fixed maturities (11,143) (11,556) (10,748)
Equity securities (483) (594) (305)
Mortgage loans (771) (470) (144)
Policy loans, net 38 (23) (325)
Short-term securities, (purchases) sales, net (2) 498 291
Other investments, (purchases) sales, net (260) (137) (267)
Securities transactions in course of settlement 311 (52) 258
Net cash provided by investing activities of discontinued operations -- 348 1,425
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (used in) Investing Activities $ (1,079) $ 827 $ 948
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net (50) (23) (1)
Contractholder fund deposits 3,544 2,493 2,705
Contractholder fund withdrawals (2,757) (3,262) (3,755)
Dividends to parent company (500) (500) --
Other -- 9 --
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (used in) Financing Activities $ 237 $ (1,283) $ (1,051)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ (16) $ 1 $ (29)
- ----------------------------------------------------------------------------------------------------------------------
Cash at December 31, $ 58 $ 74 $ 73
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 187
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Insurance Company and Subsidiaries (the Company) is a wholly
owned subsidiary of The Travelers Insurance Group Inc. (TIGI), an indirect
wholly owned subsidiary of Travelers Group Inc. (Travelers Group). 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).
- 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 Salomon Smith Barney, an affiliate of the Company, and a
nationwide network of independent agents. 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 approximately
80,000 full and part-time independent agents.
As discussed in Note 2 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the Company
were sold to Metropolitan Life Insurance Company (MetLife). Also in January
1995, the group medical component was exchanged for a 42% interest in The
MetraHealth Companies, Inc. (MetraHealth). The Company's interest in
MetraHealth was sold on October 2, 1995 and through that date was 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.
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.
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
F-5
<PAGE> 188
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Accounting Changes
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (FAS 132). FAS 132
supersedes the disclosure requirements in FASB Statements No. 87, "Employers'
Accounting for Pensions," No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefits Pension Plans and Termination of Benefits,"
and No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." FAS 132 addresses disclosure only and does not address measurement
or recognition. In addition to other disclosure changes, FAS 132 allows
employers to disclose total contributions to multi-employer plans without
disaggregating the amounts attributable to pensions and other postretirement
benefits. This statement is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged. Effective December 31,
1997, the Company adopted FAS 132. The adoption of this standard did not have
any impact on results of operations, financial condition or liquidity.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125
establishes accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are
based on an approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. 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 Statement of
Financial Accounting Standards No. 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. Application of FAS 125 prior
to the effective date or retroactively is not permitted. The adoption of the
provisions of FAS 125 effective January 1, 1997 did not have a material
impact on results of operations, financial condition or liquidity. The
adoption of the provisions of FAS 127 effective January, 1998 are
not expected to have a material impact on the results of operations,
financial condition or liquidity.
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 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 financial
condition, results of operations or liquidity.
F-6
<PAGE> 189
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123). This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. This
statement defines a fair value-based method of accounting for employee stock
options or similar equity instruments, and encourages all entities to adopt
this method of accounting for all employee stock compensation plans. However,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Entities electing to remain with the accounting method
prescribed in APB 25 must make pro-forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined
by FAS 123 had been applied. FAS 123 is applicable to fiscal years beginning
after December 15, 1995. The Company has elected to continue to account for
its stock-based employee compensation plans using the accounting method
prescribed by APB 25 and has included in the notes to consolidated financial
statements the pro-forma disclosures required by FAS 123. See Note 9. The
Company has adopted FAS 123 for its stock-based non-employee compensation
plans.
Accounting Policies
INVESTMENTS
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity of
the investment. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
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, 1997 and 1996.
Real estate held for sale is carried at the lower of cost or fair value less
estimated cost to sell. Fair value of foreclosed properties is established at
the time of foreclosure by internal analysis or external appraisers, using
discounted cash flow analyses and other accepted techniques. Thereafter, an
allowance for losses on real estate held for sale is established if the
carrying value of the property exceeds its current fair value less estimated
costs to sell. There was no such allowance at December 31, 1997 and 1996.
F-7
<PAGE> 190
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Trading securities are carried at market value. Realized and unrealized gains
and losses on trading securities are included in investment income.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.
Accrual of income, 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, 1997 and 1996. Information concerning derivative
financial instruments is included in Note 6.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of 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 long-term care
business, principally commissions and certain expenses related to policy
issuance, underwriting and marketing, all of which vary with and are
primarily related to the production of new business, are deferred.
Acquisition costs relating to traditional life insurance, including term
insurance and long-term care insurance, are amortized in relation to
anticipated premiums; universal life in relation to estimated gross profits;
and annuity contracts employing a level yield method. For life insurance, a
10- to 25-year amortization period is used; for long-term care business, a
10- to 20-year period is used, 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.
F-8
<PAGE> 191
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 that in the view of management would be other than
temporary. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.
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 9.45%.
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.
F-9
<PAGE> 192
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
FEDERAL INCOME TAXES
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income taxes
arise from changes during the year in cumulative temporary differences
between the tax basis and book basis of assets and liabilities. The deferred
federal income tax asset is recognized to the extent that future realization
of the tax benefit is more likely than not, with a valuation allowance for
the portion that is not likely to be recognized.
Future Application of Accounting Standards
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, how to measure that liability, and when
an asset may be recognized for the recovery of such assessments through
premium tax offsets or policy surcharges. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998, and the effect
of initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company has not yet determined when it will implement this SOP and does not
anticipate any material impact on the Company's financial condition, results
of operations or liquidity.
F-10
<PAGE> 193
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. All items
that are required to be recognized under accounting standards as components
of comprehensive income are to be reported in a financial statement that is
displayed with the same prominence as other financial statements. FAS 130
stipulates that comprehensive income reflect the change in equity of an
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income will thus
represent the sum of net income and other comprehensive income, although FAS
130 does not require the use of the terms comprehensive income or other
comprehensive income. The accumulated balance of other comprehensive income
shall be displayed separately from retained earnings and additional paid-in
capital in the statement of financial position. FAS 130 is effective for
fiscal years beginning after December 15, 1997. The Company anticipates that
the adoption of FAS 130 will result primarily in reporting unrealized gains
and losses on investments in debt and equity securities in comprehensive
income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (FAS 131). FAS 131 establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires that selected information about those operating
segments be reported in interim financial statements. FAS 131 supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise" (FAS 14). FAS 131 requires that all
public enterprises report financial and descriptive information about its
reportable operating segments. Operating segments are defined as components
of an enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. FAS 131 is effective for
fiscal years beginning after December 15, 1997. The Company is currently
determining the impact of the adoption of FAS 131.
2. DISPOSITIONS AND DISCONTINUED OPERATIONS
On January 3, 1995, the Company and its affiliates completed the sale of
their group life and related non-medical group insurance businesses to
MetLife for $350 million and 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.
F-11
<PAGE> 194
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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, an after-tax
gain of $111 million was recognized. 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.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefit Operations
(MCEBO) segment prior to 1995. 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 were insignificant for the year ended
December 31, 1996 and $1.2 billion for the year ended December 31, 1995.
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.
3. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors. No commercial
paper was outstanding at December 31, 1997 and $50 million was 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 1997 or 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 that
expires in 2001. At December 31, 1997, $50 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, 1997, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at December 31, 1997 and 1996. If the
Company had borrowings on this facility, the interest rate would be based
upon LIBOR plus a negotiated margin.
F-12
<PAGE> 195
\ THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide additional capacity for future growth and to
effect business-sharing arrangements. Reinsurance is accomplished through
various plans of reinsurance, primarily yearly renewable term coinsurance and
modified coinsurance. The Company remains primarily liable as the direct
insurer on all risks reinsured. During 1997, new universal life business was
reinsured under an 80%/20% quota share reinsurance program and new term life
business was reinsured under a 90%/10% quota share reinsurance program.
Maximum retention of $1.5 million is generally reached on policies in excess
of $7.5 million. For other plans of insurance, it is the policy of the
Company to obtain reinsurance for amounts above certain retention limits on
individual life policies, which limits vary with age and underwriting
classification. Generally, the maximum retention on an ordinary life risk is
$1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
A summary of reinsurance financial data reflected within the consolidated
statement of operations and retained earnings is presented below ($ in
millions):
<TABLE>
<CAPTION>
---------------------------------------------------------------------
WRITTEN PREMIUMS 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,148 $1,982 $2,166
Assumed from:
Non-affiliated companies 1 5 --
Ceded to:
Affiliated companies (280) (284) (374)
Non-affiliated companies (273) (309) (302)
---------------------------------------------------------------------
Total Net Written Premiums $1,596 $1,394 $1,490
=====================================================================
<CAPTION>
---------------------------------------------------------------------
EARNED PREMIUMS 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,170 $1,897 $2,067
Assumed from:
Non-affiliated companies 1 5 --
Ceded to:
Affiliated companies (321) (219) (283)
Non-affiliated companies (291) (315) (298)
---------------------------------------------------------------------
Total Net Earned Premiums $1,559 $1,368 $1,486
=====================================================================
</TABLE>
F-13
<PAGE> 196
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Reinsurance recoverables at December 31, 1997 and 1996 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------
REINSURANCE RECOVERABLES 1997 1996
----------------------------------------------------------
<S> <C> <C>
Life and Accident and Health
Business:
Non-affiliated companies $1,362 $1,497
Property-Casualty Business:
Affiliated companies 2,977 2,361
----------------------------------------------------------
Total Reinsurance Recoverables $4,339 $3,858
==========================================================
</TABLE>
Total reinsurance recoverables at December 31, 1997 and 1996 include $697
million and $720 million, respectively, from MetLife in connection with the
sale of the Company's group life and related businesses. See Note 2.
5. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $17 million in additional paid-in capital during 1997 is due
to tax benefits related to exercising Travelers Group stock options by the
Company's employees.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments is
shown in Note 13.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $754 million, $656 million, and $235 million for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company's statutory capital and surplus was $4.12 billion and $3.44
billion at December 31, 1997 and 1996, 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 $551 million is available in 1998 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, 1997 and 1996.
F-14
<PAGE> 197
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, 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 to 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, 1997 and 1996, the Company held financial futures contracts
with notional amounts of $625 million and $169 million, respectively, and a
deferred gain of $.7 million and a deferred loss of $4.1 million and a
deferred gain of $1.2 million, and a deferred loss of $.1 million,
respectively. Total losses of $5.8 million and gains of $2.0 million from
financial futures were deferred at December 31, 1997 and 1996, respectively,
relating to anticipated investment purchases and investment product sales,
and are reported as other liabilities. At December 31, 1997 and 1996, the
Company's futures contracts had no fair value because these contracts were
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, 1997 and 1996.
F-15
<PAGE> 198
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 $0 and $1 million
at December 31, 1997 and 1996, respectively.
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, 1997 and 1996.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered insurance
contracts are not required to be disclosed and are not included in the
amounts discussed.
At December 31, 1997 and 1996, investments in fixed maturities had a carrying
value and a fair value of $21.5 billion and $19.6 billion, respectively. See
Notes 1 and 13.
At December 31, 1997 and 1996, mortgage loans had a carrying value of $2.9
billion, which approximated fair value. 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 $143 million and $174 million of financial instruments
classified as other assets approximated their fair values at December 31,
1997 and 1996, respectively. The carrying values of $2.0 billion and $850
million of financial instruments classified as other liabilities also
approximated their fair values at December 31, 1997 and 1996, respectively.
Fair value is determined using various methods, including discounted cash
flows, as appropriate for the various financial instruments.
At December 31, 1997, contractholder funds with defined maturities had a
carrying value of $2.3 billion and a fair value of $2.3 billion, compared
with a carrying value of $1.4 billion and a fair value of $1.5 billion at
December 31, 1996. 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 $9.7 billion and a
fair value of $9.5 billion at December 31, 1997, compared with a carrying
value of $9.1 billion and a fair value of $8.8 billion at December 31, 1996.
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 $260 million and $260 million, respectively, at
December 31, 1997, compared with a carrying value and a fair value of $217
million and $217 million, respectively, at December 31, 1996. The liabilities
of separate accounts providing a guaranteed return had a carrying value and a
fair value of $209 million and $206 million, respectively, at December 31,
1997, compared with a carrying value and a fair value of $208 million and
$204 million, respectively, at December 31, 1996.
F-16
<PAGE> 199
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The carrying values of cash, short-term securities, trading securities,
investment income accrued, trading securities sold not purchased, and
commercial paper approximated their fair values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
7. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 6 for a discussion of financial instruments with off-balance sheet
risk.
Litigation
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc. was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and
other state laws by an affiliate of the Company, Primerica Financial
Services, Inc. and certain of its affiliates. Plaintiffs seek unspecified
compensatory and punitive damages and other relief. In April 1997, the
lawsuit was removed to the U.S. District Court for the Southern District of
Georgia, and in October 1997, the lawsuit was remanded to the Superior Court
of Richmond County. Later in October 1997, the defendants answered the
complaint, denied liability and asserted numerous affirmative defenses. In
February 1998, the Superior Court of Richmond County transferred the lawsuit
to the Superior Court of Gwinnett County, Georgia, and certified the transfer
order for immediate appellate review. Also in February 1998, plaintiffs
served an application for appellate review of the transfer order; defendants
subsequently opposed that application; and later in February 1998, the Court
of Appeals of the State of Georgia granted plaintiffs' application for
appellate review. Pending appeal proceedings in the trial court have been
stayed. The Company intends to vigorously contest the litigation.
The Company is also a defendant or co-defendant in various other litigation
matters in the normal course of business. Although there can be no
assurances, as of December 31, 1997, the Company believes, based on
information currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.
8. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by an affiliate. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by an affiliate. The Company's share of net expense for the
qualified pension and other postretirement benefit plans was not significant
for 1997, 1996 and 1995. Beginning January 1, 1996, the Company's other
postretirement benefit plans were amended to restrict benefit eligibility to
retirees and certain retiree-eligible employees. Previously, covered
employees could become eligible for postretirement benefits if they reached
retirement age while working for the Company.
F-17
<PAGE> 200
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 1997, 1996 and 1995.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in a
401(k) savings plan sponsored by Travelers Group. Prior to January 1, 1996,
the Company made matching contributions to the 401(k) savings plan on behalf
of participants in the amount of 50% of the first 5% of pre-tax contributions
made by the employee, plus an additional variable matching contribution based
on the profitability of TIGI and its subsidiaries. During 1996, the Company
made matching contributions in an amount equal to the lesser of 100% of the
pre-tax contributions made by the employee or $1,000. Effective January 1,
1997, the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings plan
were not significant in 1997, 1996 and 1995.
9. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and expenses,
for certain subsidiaries and affiliates of TIGI are handled by two companies.
The Travelers Insurance Company (Life Department) handles banking functions
for the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements between
companies are made at least monthly. The Company provides various employee
benefits coverages to employees of certain subsidiaries of TIGI. The premiums
for these coverages were charged in accordance with cost allocation
procedures based upon salaries or census. In addition, investment advisory
and management services, data processing services and claims processing
services are shared with affiliated companies. Charges for these services are
shared by the companies on cost allocation methods based generally on
estimated usage by department.
The Company maintains a short-term investment pool in which its insurance
affiliates participate. The position of each company participating in the
pool is calculated and adjusted daily. At December 31, 1997 and 1996, the
pool totaled approximately $2.6 billion and $2.9 billion, respectively. The
Company's share of the pool amounted to $725 million and $196 million at
December 31, 1997 and 1996, respectively, and is included in short-term
securities in the consolidated balance sheet.
The Company sells structured settlement annuities to The Travelers Indemnity
Company in connection with the settlement of certain policyholder
obligations. Such deposits were $88 million, $40 million, and $38 million for
1997, 1996 and 1995, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney. Premiums and deposits related to
these products were $1.0 billion, $820 million, and $583 million in 1997,
1996 and 1995, respectively.
At December 31, 1996, the Company had an investment of $22 million in bonds
of its affiliate, CCC. This was included in fixed maturities in the
consolidated balance sheet.
F-18
<PAGE> 201
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company had an investment of $1.15 billion and $648 million in common
stock of Travelers Group at December 31, 1997 and 1996, respectively. This
investment is carried at fair value.
The Company participates in a stock option plan sponsored by Travelers Group
that provides for the granting of stock options in Travelers Group common
stock to officers and key employees. To further encourage employee stock
ownership, during 1997 Travelers Group introduced the WealthBuilder stock
option program. Under this program all employees meeting certain requirements
have been granted Travelers Group stock options.
The Company applies APB 25 and related interpretations in accounting for
stock options. Since stock options under the Travelers Group plans are issued
at fair market value on the date of award, no compensation cost has been
recognized for these awards. FAS 123 provides an alternative to APB 25
whereby fair values may be ascribed to options using a valuation model and
amortized to compensation cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Travelers Group stock
options, net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1996 1995
($ IN MILLIONS)
-----------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $839 $659 $750
-----------------------------------------------------------------------
FAS 123 pro forma adjustments, (9) (3) (1)
after tax
-----------------------------------------------------------------------
Net income, pro forma $830 $656 $749
</TABLE>
The Company has an interest rate cap agreement with Travelers Group. See Note
6.
10. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by TAP.
In 1996, TAP assumed the obligations for several leases. Rent expense related
to all leases are shared by the companies on a cost allocation method based
generally on estimated usage by department. Rent expense was $15 million, $24
million, and $22 million in 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
--------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING
($ in millions) RENTAL PAYMENTS
--------------------------------------------------
<S> <C>
1998 $ 49
1999 44
2000 43
2001 45
2002 43
Thereafter 337
--------------------------------------------------
Total Rental Payments $561
==================================================
</TABLE>
F-19
<PAGE> 202
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Future sublease rental income of approximately $73 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of the
rental expense for a particular lease totaling $218 million, by an affiliate.
Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
11. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
EFFECTIVE TAX RATE
---------------------------------------------------------------------
For The Year Ended December 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,283 $ 975 $ 837
Statutory Tax Rate 35% 35% 35%
---------------------------------------------------------------------
Expected Federal Income Taxes 449 341 293
Tax Effect of:
Non-taxable investment income (4) (3) (4)
Other, net (1) 4 1
=====================================================================
Federal Income Taxes $ 444 $ 342 $ 290
=====================================================================
Effective Tax Rate 35% 35% 35%
---------------------------------------------------------------------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $ 410 $ 263 $ 220
Foreign 24 21 13
---------------------------------------------------------------------
Total 434 284 233
---------------------------------------------------------------------
Deferred:
United States 10 57 52
Foreign -- 1 5
---------------------------------------------------------------------
Total 10 58 57
---------------------------------------------------------------------
Federal Income Taxes $ 444 $ 342 $ 290
=====================================================================
</TABLE>
Tax benefits allocated directly to shareholder's equity for the years ended
December 31, 1997, 1996 and 1995 were $17 million, $8 million and $7 million,
respectively.
F-20
<PAGE> 203
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1997 and 1996 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in millions) 1997 1996
------- -------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 550 $ 510
Contractholder funds 11 32
Operating lease reserves 68 71
Other employee benefits 102 104
Other 139 121
- -----------------------------------------------------------------------------------
Total 870 838
- -----------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of 608 571
insurance in force
Investments, net 484 131
Other 87 93
- -----------------------------------------------------------------------------------
Total 1,179 795
- -----------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset Before Valuation Allowance (309) 43
Valuation Allowance for Deferred Tax Assets (100) (100)
- -----------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (409) $ (57)
- -----------------------------------------------------------------------------------
</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
group on a separate return basis adjusted for credits and other amounts
required by the consolidation process. Any resulting liability will be paid
currently to the Company. Any credits for losses will be paid by the Company
to the extent that such credits are for tax benefits that have been utilized
in the consolidated federal income tax return.
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 if
life/non-life consolidation is elected in 1999, 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 1997.
The initial recognition of any benefit produced by the reversal of the
valuation allowance will be recognized by reducing goodwill.
At December 31, 1997, the Company had 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
$326 million.
F-21
<PAGE> 204
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
---------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,460 $1,387 $1,248
Mortgage loans 291 334 419
Policy loans 137 156 166
Real estate held for sale 88 94 111
Other, including trading 150 77 97
securities
---------------------------------------------------------------------
2,126 2,048 2,041
---------------------------------------------------------------------
Investment expenses 89 98 157
---------------------------------------------------------------------
Net investment income $2,037 $1,950 $1,884
---------------------------------------------------------------------
</TABLE>
13. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $71 $(63) $(43)
Equity securities (9) 47 36
Mortgage loans 59 49 47
Real estate held for sale 67 33 18
Other 11 (1) 48
---------------------------------------------------------------------
Total Realized Investment Gains $199 $65 $106
---------------------------------------------------------------------
</TABLE>
F-22
<PAGE> 205
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are included as a
separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
-------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS
Fixed maturities $ 446 $ (323) $1,974
Equity securities 25 (35) 46
Other 520 220 200
-------------------------------------------------------------------------
Total Realized Investment Gains 991 (138) 2,220
-------------------------------------------------------------------------
Related taxes 350 (43) 778
-------------------------------------------------------------------------
Change in unrealized investment gains
(losses) 641 (95) 1,442
Balance beginning of year 587 682 (760)
-------------------------------------------------------------------------
Balance End of Year $1,228 $ 587 $ 682
-------------------------------------------------------------------------
</TABLE>
Included in Other are gains of $506 million, $203 million and $214 million
for 1997, 1996 and 1995, respectively, related to appreciation of Travelers
Group stock.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale were
$7.6 billion, $10.2 billion and $6.8 billion in 1997, 1996 and 1995,
respectively. Gross gains of $170 million, $107 million and $80 million and
gross losses of $99 million, $175 million and $124 million in 1997, 1996 and
1995, respectively, were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a quoted
market price or dealer quote are not available amounted to $5.1 billion and
$4.6 billion at December 31, 1997 and 1996, respectively.
F-23
<PAGE> 206
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
DECEMBER 31, 1997 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,842 $ 124 $ 2 $ 3,964
U.S. Treasury securities and obligations
of U.S. Government and government
agencies and authorities 1,580 149 1 1,728
Obligations of states, municipalities
and political subdivisions 78 8 -- 86
Debt securities issued by
foreign governments 622 31 4 649
All other corporate bonds 14,548 547 24 15,071
Redeemable preferred stock 12 1 -- 13
- ---------------------------------------------------------------------------------------
Total Available For Sale $20,682 860 31 $21,511
- ---------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------
DECEMBER 31, 1996 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,821 $ 71 $ 23 $ 3,869
U.S. Treasury securities and obligations
of U.S. Government and government
agencies and authorities 1,329 56 4 1,381
Obligations of states, municipalities and
political subdivisions 89 1 1 89
Debt securities issued by foreign
governments 618 26 3 641
All other corporate bonds 13,421 273 43 13,651
Redeemable preferred stock 6 -- -- 6
- ----------------------------------------------------------------------------------------
Total Available For Sale $19,284 $ 427 $ 74 $19,637
- ----------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE> 207
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1997,
by contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
----------------------------------------------------------
($ in millions) AMORTIZED FAIR
COST VALUE
----------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 1,184 $ 1,191
Due after 1 year through 5 years 5,200 5,335
Due after 5 years through 10 years 5,332 5,515
Due after 10 years 5,124 5,506
---------------------------------------------------------
16,840 17,547
---------------------------------------------------------
Mortgage-backed securities 3,842 3,964
---------------------------------------------------------
Total Maturity $20,682 $21,511
---------------------------------------------------------
</TABLE>
The Company makes investments in collateralized mortgage obligations (CMOs).
CMOs typically have high credit quality, offer good liquidity, and provide a
significant advantage in yield and total return compared to U.S. Treasury
securities. The Company's investment strategy is to purchase CMO tranches
which are protected against prepayment risk, including planned amortization
class (PAC) tranches. Prepayment protected tranches are preferred because
they provide stable cash flows in a variety of interest rate scenarios. The
Company does invest in other types of CMO tranches if a careful assessment
indicates a favorable risk/return tradeoff. The Company does not purchase
residual interests in CMOs.
At December 31, 1997 and 1996, the Company held CMOs classified as available
for sale with a fair value of $2.1 billion and $2.0 billion, respectively.
Approximately 72% and 88%, respectively, of the Company's CMO holdings are
fully collateralized by GNMA, FNMA or FHLMC securities at December 31, 1997
and 1996. In addition, the Company held $1.9 billion and $1.9 billion of
GNMA, FNMA or FHLMC mortgage-backed pass-through securities at December 31,
1997 and 1996, respectively. Virtually all of these securities are rated AAA.
F-25
<PAGE> 208
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
EQUITY SECURITIES:
GROSS GROSS
($ in millions) UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Common stocks $179 $ 34 $ 11 $202
Non-redeemable preferred stocks 301 13 4 310
-----------------------------------------------------------------------------
Total Equity Securities $480 $ 47 $ 15 $512
-----------------------------------------------------------------------------
DECEMBER 31, 1996
Common stocks $212 $ 39 $ 30 $221
Non-redeemable preferred stocks 118 2 3 117
-----------------------------------------------------------------------------
Total Equity Securities $330 $ 41 $ 33 $338
-----------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $341 million, $487 million and
$379 million in 1997, 1996 and 1995, respectively. Gross gains of $53
million, $64 million and $27 million and gross losses of $62 million, $11
million and $2 million in 1997, 1996 and 1995, respectively, were realized on
those sales.
Mortgage Loans and Real Estate Held For Sale
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.
At December 31, 1997 and 1996, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following ($ in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------
1997 1996
----------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,866 $2,869
Underperforming Mortgage Loans 3 51
----------------------------------------------------------
Total 2,869 2,920
----------------------------------------------------------
Real Estate Held For Sale 134 297
----------------------------------------------------------
Total $3,003 $3,217
----------------------------------------------------------
</TABLE>
F-26
<PAGE> 209
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
------------------------------------------------
<S> <C>
Past Maturity $ 54
1998 243
1999 252
2000 321
2001 393
2002 121
Thereafter 1,485
------------------------------------------------
Total $2,869
================================================
</TABLE>
Joint Venture
In October 1997, the Company and Tishman Speyer Properties (Tishman), a
worldwide real estate owner, developer and manager, formed a joint real
estate venture with an initial equity commitment of $792 million. The Company
and certain of its affiliates committed $420 million in real estate equity
and $100 million in cash while Tishman committed $272 million in properties
and cash. Both companies are serving as asset managers for the venture and
Tishman is primarily responsible for the venture's real estate acquisition
and development efforts.
Trading Securities
Trading securities are held in a special purpose subsidiary, Tribeca
Investments LLC.
<TABLE>
<CAPTION>
-----------------------------------------------------
TRADING SECURITIES OWNED 1997
<S> <C>
Merger arbitrage $352
Convertible bond arbitrage 370
Other 78
-----------------------------------------------------
Total $800
-----------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Merger arbitrage $213
Convertible bond arbitrage 249
-----------------------------------------------------
Total $462
-----------------------------------------------------
</TABLE>
The Company's trading portfolio investments and related liabilities are
normally held for periods less than six months. Therefore, expected future
cash flows for these assets and liabilities are expected to be realized in
less than one year.
F-27
<PAGE> 210
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1997 and 1996, 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 9.
Included in fixed maturities are below investment grade assets totaling $1.4
billion and $1.1 billion at December 31, 1997 and 1996, respectively. The
Company defines its below investment grade assets as those securities rated
"Ba1" or below by external rating agencies, or the equivalent by internal
analysts when a public rating does not exist. Such assets include publicly
traded below investment grade bonds and certain other privately issued bonds
that are classified as below investment grade loans.
The Company had concentrations of investments, primarily fixed maturities, in
the following industries:
<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
Banking $2,215 $1,959
Finance 1,556 1,823
Electric Utilities 1,377 1,093
Asset-Backed Credit Cards 778 688
-------------------------------------------------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
At December 31, 1997 and 1996, concentrations of mortgage loans were for
properties located in highly populated areas in the states listed below:
<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
California $794 $643
New York 310 297
-------------------------------------------------
</TABLE>
Other mortgage loan investments are relatively evenly dispersed throughout
the United States, with no holdings in any state exceeding $284 million and
$258 million at December 31, 1997 and 1996, respectively.
Concentrations of mortgage loans by property type at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
Office $1,382 $1,208
Agricultural 771 693
Apartment 204 291
Hotel 201 217
-------------------------------------------------
</TABLE>
F-28
<PAGE> 211
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and other
monitoring procedures. Collateral for fixed maturities often includes pledges
of assets, including stock and other assets, guarantees and letters of
credit. The Company's underwriting standards with respect to new mortgage
loans generally require loan to value ratios of 75% or less at the time of
mortgage origination.
Non-Income Producing Investments
Investments included in the consolidated balance sheets that were non-income
producing for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loans and debt securities that were restructured at
below market terms totaling approximately $7 million and $18 million at
December 31, 1997 and 1996, 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 $.9 million in 1997 and $5 million in 1996. Interest
on these assets, included in net investment income, aggregated $.2 million
and $2 million in 1997 and 1996, respectively.
14. DEPOSIT FUNDS AND RESERVES
At December 31, 1997, the Company had $24.0 billion of life and annuity
deposit funds and reserves. Of that total, $13.0 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $11.0 billion
is for life and annuity products that are subject to discretionary withdrawal
by the contractholder. Included in the amount that is subject to
discretionary withdrawal is $2.0 billion of liabilities that are
surrenderable with market value adjustments. Also included are an additional
$5.2 billion of the life insurance and individual annuity liabilities which
are subject to discretionary withdrawals, and have an average surrender
charge of 4.8%. In the payout phase, these funds are credited at
significantly reduced interest rates. The remaining $3.8 billion of
liabilities are surrenderable without charge. More than 16.8% of these relate
to individual life products. These risks would have to be underwritten again
if transferred to another carrier, which is considered a significant
deterrent against withdrawal by long-term policyholders. Insurance
liabilities that are surrendered or withdrawn are reduced by outstanding
policy loans and related accrued interest prior to payout.
F-29
<PAGE> 212
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $ 839 $ 633 $ 547
Adjustments to reconcile net income to
net cash provided by operating activities:
Realized gains (199) (65) (106)
Deferred federal income taxes 10 58 57
Amortization of deferred policy
acquisition costs and value of
insurance in force 293 281 290
Additions to deferred policy
acquisition costs (471) (350) (454)
Investment income accrued 14 2 (9)
Premium balances receivable 3 (6) (8)
Insurance reserves and accrued expenses 131 (1) 291
Other 206 255 62
- --------------------------------------------------------------------------------
Net cash provided by operating activities 826 807 670
Net cash used in discontinued operations -- (350) (596)
Net cash provided by operations $ 826 $ 457 $ 74
- --------------------------------------------------------------------------------
</TABLE>
16. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
conversion of $119 million of real estate held for sale to other invested
assets as a joint venture in 1997; b) 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 2); c) the
1995 return of capital of Transport to TIGI (see Note 2); d) the acquisition
of real estate through foreclosures of mortgage loans amounting to $10
million, $117 million and $97 million in 1997, 1996 and 1995, respectively;
e) the acceptance of purchase money mortgages for sales of real estate
aggregating $4 million, $23 million and $27 million in 1997, 1996 and 1995,
respectively.
F-30
<PAGE> 213
IN-VEST(SM)
PROSPECTUS
VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
L-11166 TIC Ed 5-98
Printed in U.S.A.
<PAGE> 214
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 33-770 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 33-770 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> 215
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.
ATTACHMENTS:
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.
(Incorporated herein by reference to Exhibit 3(c) to Post-Effective
Amendment No. 18 to the Registration Statement on Form S-6 filed April
25, 1997.)
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.)
<PAGE> 216
6(b). By-Laws of The Travelers Insurance Company, as amended on October 20,
1994. (Incorporated herein by reference to Exhibit 3(b)(i) to the
Registration Statement filed on Form S-2, File No. 33-58677, filed via
Edgar on April 18, 1995.)
7. None
8. 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. (Incorporated herein by
reference to Exhibit 15(b) to the Registration Statement on Form S-6
filed October 29, 1996.)
<PAGE> 217
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 24, 1998.
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
(Registrant)
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 24, 1998.
<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 Accounting Officer and Controller
(Ian R. Stuart)
*KATHERINE M. SULLIVAN Director, Senior Vice President
- ------------------------ and General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ------------------------
(Marc P. Weill)
</TABLE>
*By: Ernest J. Wright, Attorney-in-Fact
<PAGE> 218
EXHIBIT INDEX
<TABLE>
<CAPTION>
ATTACHMENT or EXHIBIT Method of Filing
- --------------------- ----------------
ATTACHMENTS
<S> <C> <C>
A. Consent of Katherine M. Sullivan, General Counsel, to Electronically
filing of her opinion as an exhibit to this Registration See Exhibit 12
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.
</TABLE>
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 commissions.
(Incorporated herein by reference to Exhibit No. 3(c) to Post-
Effective Amendment No. 18 to the Registration Statement
on Form S-6, File No. 2-88637, filed April 25, 1997.)
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.)
<PAGE> 219
<TABLE>
<CAPTION>
EXHIBIT Method of Filing
- ------- ----------------
<S> <C> <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 Insurance Electronically
Contracts.
11. Specimen of each security being registered. (See Exhibit 5. above.)
12. Opinion of counsel as to the legality of the securities being Electronically
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 Exhibit 15(a) 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 Kathleen A.
McGah as signatory for Michael A. Carpenter Jay S. Benet,
George C. Kokulis, Ian R. Stuart and Katherine M. Sullivan.
(Incorporated by reference to Exhibit 15(b) to Post-Effective
Amendment No. 18 to Registration Statement on Form S-6,
filed on April 25, 1997.)
</TABLE>
<PAGE> 1
ATTACHMENT B
April 20, 1998
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, A.S.A., M.A.A.A.
Director of Life Pricing
<PAGE> 2
ATTACHMENT B
April 20, 1998
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, A.S.A., M.A.A.A.
Director of Life Pricing
<PAGE> 1
ATTACHMENT C
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this post-effective amendment No. 19 to the
registration statement of The Travelers Fund UL for Variable Life Insurance
(the "Fund") on Form S-6 (File No. 2-88637) of our report dated February 19,
1998, on our audit of the financial statements of the Fund for the year ended
December 31, 1997 which is included in this post-effective amendment to the
registration statement. We also consent to the reference to our Firm as
experts in the registration statement.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 23, 1998
<PAGE> 1
ATTACHMENT D
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 24, 1998
<PAGE> 1
PART ONE
LIFE INSURANCE APPLICATION [TRAVELERS LOGO]
GENERAL INSTRUCTIONS
- - Please PRINT legibly with black ink.
- - Answer all appropriate questions fully.
- - Please note instructions for each section provided in italicized print.
- - Please complete any necessary supplemental forms.
- - For spouse rider, submit a separate fully completed Part 1 application.
- - The Fair Credit Reporting Act/Medical Information Bureau notice and the
Description of Information Practices must be detached and given to the
Proposed Insured.
- - If additional space is needed for special instructions, please attach a
separate page.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
UNDERWRITING REQUIREMENTS ORDERED:
<S> <C> <C> <C>
[ ] Blood Profile [ ] Paramed Exam* [ ] ECG [ ] Inspection Report
[ ] Urine Specimen [ ] M.D. Exam [ ] Treadmill ECG [ ] APS
</TABLE>
*Be sure to inform the Paramed vendor of the application state for this sale so
they will use the correct Part Two form.
<TABLE>
<CAPTION>
ATTACHED FORMS ARE REQUIRED TO PROCESS THIS CASE:
(Use correct variation of forms for the state in which the application was signed.)
<S> <C> <C>
[ ] HIV Consent Form [ ] Juvenile Supplement [ ] Family Insurance Supplement
[ ] State-Required Replacement Form [ ] State-Required Supplement [ ] VUL Supplement
[ ] Life Financial Supplement [ ] Signed Illustration [ ] Other
--------------------------------------
CONTACT PERSON: Name
---------------------------------------------------------------------------------------------------
Phone ( ) Fax ( )
------------------------------------------------ ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AGENT(S) INFORMATION:
- -------------------------------------------------------------------------------------------------------------------------------
NAME AREA CODE & SOCIAL SECURITY # OR PRODUCER CODE COMMISSION
TELEPHONE NO. (IF APPLICABLE) SPLIT*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -
- -------------------------- ----------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- %
- -
- -------------------------- ----------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- %
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*only if multiple agents
GENERAL AGENCY'S BRANCH/PRODUCER CODE (IF APPLICABLE): /
- - - - - - - - - - - -
OR BANK OR BROKER/DEALER NAME:
-------------------------------------------
SPECIAL INSTRUCTIONS:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[ ] Comments continued on attached separate page
THE TRAVELERS INSURANCE COMPANY
THE TRAVELERS LIFE AND ANNUITY COMPANY
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
<PAGE> 2
<TABLE>
<S> <C> <C>
AGENT - INDICATE COMPANY: [ ] THE TRAVELERS INSURANCE COMPANY [ ] THE TRAVELERS LIFE AND ANNUITY COMPANY
</TABLE>
PART ONE
LIFE INSURANCE APPLICATION [TRAVELERS LOGO]
GENERAL INFORMATION - PROPOSED INSURED
Complete for all policies (please print). Use black ink. Questions must be
answered by the Proposed Insured.
If the Proposed Insured is under age 16, complete Juvenile Supplement.
<TABLE>
<S> <C> <C> <C>
1. Full Name (print as to appear in policy)
--------------------------------------------------------------------------------------
First Middle Last
2. Social Security No. Date of Birth Birthplace
------------- -------------- ------------------------------------------------------
State Country (if other than U.S.)
Sex: [ ] M [ ] F Marital Status: [ ] S [ ] M [ ] D [ ] W Current Citizen of
-------------------------
Country
3. Residence Address Apt. No.
----------------------------------------------------------------------------------- ----------------
Street and number
City State Zip Phone Number ( )
---------------------------------------- ---------- ------------- -----------------------------------
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 ( )
---------------------------------------- ---------- ------------- -----------------------------------
Check Calling Preference: [ ] Home [ ] Business Best Time To Call
----------------------------------------
7. Occupation (Position or Title) Annual Salary $ Other Income $
--------------------- ------------------ -------------------------
</TABLE>
<TABLE>
<CAPTION>
8. State all life insurance now in effect on Proposed Insured. If "None", so state.
- -------------------------------------------------------------------------------------------------
Company/Year of Issue Face Amount Amount of ADB Personal (P) or
Business (B) Coverage?
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
Will any life insurance, including annuities, in this or any other company be
replaced, discontinued, reduced or changed if insurance now applied for is
issued? (If "YES" provide details below, continue in "ADDITIONAL INFORMATION"
Section) .....[ ] YES [ ] N0
Insured
-----------------------------------------------
Company
-----------------------------------------------
Policy Number
-----------------------------------------
Amount $
----------------------------------------------
THE TRAVELERS INSURANCE COMPANY
THE TRAVELERS LIFE AND ANNUITY COMPANY
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
<PAGE> 3
POLICY INFORMATION
Also complete the LIFE FINANCIAL SUPPLEMENT for face amounts of $1,000,000
and over, the FAMILY INSURANCE SUPPLEMENT for child coverage, and the
VARIABLE LIFE SUPPLEMENT for variable life policies.
<TABLE>
<CAPTION>
COVERAGE INFORMATION:
<S> <C> <C>
9. Life Insurance Product Stated Amount $
----------------------------- --------------------------------------------------------
Duration/Term Period Death Benefit (UL Only): [ ] Level [ ] Increasing
--------------------------------
</TABLE>
<TABLE>
<CAPTION>
10. Supplemental Benefits/Riders (WHERE APPLICABLE AND IF AVAILABLE):
<S> <C>
TERM-ONLY RIDERS: UL- AND VUL-ONLY RIDERS:
[ ] Annual Benefit Increase [ ] Annual Renewable Term $
----------------
[ ] Extension of Premium/Rate Guarantee [ ] COLA
[ ] Premium Waiver [ ] Estate Protector
[ ] Insured Term $ ; Reallocate on Anniversary
----------------- -------
TERM, UL AND VUL RIDERS: [ ] Monthly Deduction Waiver
[ ] Accelerated Benefits [ ] Policy Split Option [ ] Plus Option
[ ] Accidental Death [ ] Scheduled Increase Option %
[ ] Child Term units --------
------- [ ] Specified Amount Payment/Waiver $
-----------------
[ ] [ ] Spousal Term (complete a separate Part 1 on spouse) $
---------------------------------------- --------------
</TABLE>
<TABLE>
<S> <C> <C>
11. A) Premium Payment Plan (check one box): [ ] Annual [ ] Semi-Annual
[ ] Monthly Pre-Authorized Collection/Payor Soc. Sec. No. [ ] Single [ ] Other
---------------------------------
B) Check Billing Preference: [ ] Home [ ] Business [ ] Other
If "Other", list Premium Payor and Billing Address:
----------------------------------------------------------------------
12. A) Quoted Modal Premium $ B) Classic UL only: Selected Premium $
------------------------ ----------------------------------
13. Will this application increase an existing policy? [ ] YES [ ] NO If "YES", Policy #
-----------------------------
Current Stated Face Amount $ New Stated Face Amount $
------------------------------------ ----------------------------------
Current Modal Premium $ New Modal Premium $
----------------------------------------- ---------------------------------------
</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 ownership
interests pass to:
<TABLE>
<S> <C>
[ ] Surviving Owner(s) (Joint Tenants) or [ ] Deceased Owner's Estate (Tenants in Common)
</TABLE>
14. Policy Owner's Full Name and Social Security or Tax ID Number
--------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If succeeding ownership is desired, indicate name, address and relationship to
Insured in "ADDITIONAL INFORMATION" section on following page. Succeeding owner
will become owner upon original owner's death.
BENEFICIARY
Payment due to 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.
15. Beneficiary Name (specify full name(s) and relationships)
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
<PAGE> 4
CONSUMER NOTICE
We may provide information about you or your policy or account, including
information from this application, for marketing and administrative purposes
and share such information with our corporate affiliates. You agree that any
such information may be used by us or an affiliate to determine whether you
qualify for or to offer other Travelers Group financial services.
[ ] If checked, you have indicated that you do not wish to have any
such information shared with our affiliate(s).
TOBACCO USE DECLARATION
16. My use of tobacco products, including (but not limited to) cigarettes,
cigars, pipes or any smoking materials, snuff, or chewing tobacco is as
indicated below:
<TABLE>
<S> <C> <C>
[ ] I have NEVER used tobacco products of any form.
[ ] I have not used tobacco products of any form in the past months/ years.
------- -------
[ ] I currently use tobacco.
</TABLE>
GENERAL RISK INFORMATION
Please give details to all "YES"answers in
the Additional Information section below.
<TABLE>
<CAPTION>
HAS THE PROPOSED INSURED:
<S> <C> <C> <C>
YES NO
17. 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.)
18. 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.).......................................................... [ ] [ ]
19. Engaged in automobile or motorcycle racing, sports parachuting, skydiving, hang gliding, skin or
scuba diving or any other hazardous sport? (If "YES", complete the AVOCATION SUPPLEMENT.).............. [ ] [ ]
20. A) In the past 5 years, been arrested for or convicted of driving while intoxicated or driving
under the influence? (If "YES", list driver's license number and details.)............................. [ ] [ ]
B) In the past 5 years, been arrested for or convicted of any other motor vehicle violation?........... [ ] [ ]
(If "YES", list driver's license number and details.)
21. Do you intend to reside or travel out of the United States or Canada?.................................. [ ] [ ]
(If "YES", complete the FOREIGN TRAVEL OR RESIDENCE SUPPLEMENT.)
</TABLE>
ADDITIONAL INFORMATION
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<PAGE> 5
MEDICAL HISTORY
1. Print Proposed Insured's name in full:
-------------------------------------
2. Name and address of personal physician:
-------------------------------------
3. Date and reason last consulted:
--------------------------------------------
4. What was the diagnosis and treatment:
-------------------------------------
ANSWER ALL QUESTIONS UNLESS PART TWO (MEDICAL EXAM) IS REQUIRED. For all "YES"
responses, provide in the "DETAILS" section the question number, names and
addresses of doctors, and when and why consulted. Include diagnoses, 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, seizure, asthma or drug or alcohol abuse.
<TABLE>
<S> <C>
5. Has the Proposed Insured ever had any indication of,
been treated or received medical consultation for: (circle all that apply)........................[ ] YES [ ] NO
Chest Pain Elevated Cholesterol Positive Test for Infection by the AIDS (HIV) virus
Heart Murmur Diabetes AIDS/ARC
Heart Attack Emphysema Arthritis
High Blood Pressure Pneumonia Sexually Transmitted Disease
Stroke Tuberculosis Depression
Paralysis Asthma Anxiety
Seizure Tumor Emotional Disorder
Deformity/Lameness Cancer Alcohol/Drug Abuse
6. Has the Proposed Insured ever had any disorder of: (circle all that apply)........................[ ] YES [ ] NO
Skin Ears Kidney
Neck Thyroid Genitourinary System
Back Heart Immune System
Spine Lungs Nervous System
Bones Breasts Blood
Joints Gastrointestinal System Lymph Nodes
Eyes Liver Blood Vessels
7. Other than above, within the past 5 years, has Proposed Insured had any illness, injury, surgery,
physical exam, consultation, EKG, X-Ray, or other medical test, or been a patient in a hospital
or other medical facility?........................................................................[ ] YES [ ] NO
8. Has the Proposed Insured ever used cocaine, marijuana, heroin or any other illicit drug or been
advised to restrict the use of alcohol or any other drug?.........................................[ ] YES [ ] NO
9. Does the Proposed Insured consume alcoholic beverages? (If "YES", list type,
amount and frequency of use.).....................................................................[ ] YES [ ] NO
10. Height: ft. in. Weight : lbs; weight loss in past 12 mos. lbs.
------- ------- ------- -------
11. Has a parent, brother or sister ever had heart disease, stroke, cancer, diabetes, high blood
pressure or kidney disease?........................................................................[ ] YES [ ] NO
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
12. FAMILY HISTORY Age Condition of Health Age Cause of Death
(if living) (at death)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Father
- ----------------------------------------------------------------------------------------------------
Mother
- ----------------------------------------------------------------------------------------------------
Brothers and Sisters
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
DETAILS OF "YES" ANSWERS AND ADDITIONAL INFORMATION
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AUTHORIZATION SECTION
AUTHORIZATION FOR THE RELEASE OF INFORMATION: THE PROPOSED INSURED(S)
authorizes The Travelers, its affiliates, its Reinsurers, insurance support
organizations, and their representatives to obtain 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 spouse and children to
furnish such information to The Travelers, its affiliates, 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.
The Proposed Insured(s) and Applicant, if different, have read this
authorization and understand they have a right to receive a copy.
The Proposed Insured(s) acknowledge receipt of the following notices: "Your
Privacy and the Fair Credit Reporting Act," "Medical Information Bureau
Disclosure Notice", and "Description of Information Practices".
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 WILL FORM THE BASIS FOR ANY
INSURANCE ISSUED; (B) EXCEPT AS STATED IN THE ATTACHED TEMPORARY INSURANCE
AGREEMENT, 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; AND (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.
NOTICE OF INSURANCE FRAUD: Any person who knowingly and with intent to defraud
any insurance company or other person files an application for insurance or
statement of claim containing any materially false information or conceals for
the purpose of misleading, information concerning any fact material thereto
commits a fraudulent insurance act, which is a crime and subjects such person
to criminal and civil penalties. By signing below, I acknowledge that I have
read the above information.
<TABLE>
<S> <C> <C> <C> <C> <C>
Proposed Insured's Name
----------------------------------------------------------------------------------------------------------
Proposed Insured's Signature X
-----------------------------------------------------------------------------------------------------
Applicant's Signature (if other than Proposed Insured)
--------------------------------------------------------------------------
Date / / Application taken at
- --------------------------------- --------------------------------------------------------------------------
City State
Witness' Signature Date / /
--------------------------------------------------------------- -----------------------------------------
Agent's Name
-------------------------------------------------------
</TABLE>
Note: If not personally witnessed by the agent, each
signature must be witnessed by someone present at the
time the application was signed.
<PAGE> 7
AGENT'S CERTIFICATE
To help avoid processing delays, answers to the following
questions MUST be furnished with the application.
<TABLE>
<S> <C> <C>
1. Are you properly "authorized" to write business for The Travelers Insurance Company or The Travelers Life
and Annuity Company in the state where the application was taken? ("Authorized" means that you possess
a current insurance license, with authority to solicit insurance products appropriate to this application;
and that The Travelers has authorized you to represent The Travelers.)..................................... [ ] YES [ ] NO
2. Did anyone assist you in taking or securing the application?............................................... [ ] YES [ ] NO
If "YES", who?
-----------------------------------------------------------------------------------------
3. Who initiated this application?
------------------------------------------------------------------------
4. Did you personally ask the questions and have the application signed in your presence? .................... [ ] YES [ ] NO
5. How long have you known the Proposed Insured?
----------------------------------------------------------
6. Has the Proposed Insured applied for insurance elsewhere in the past 6 months?
(Give details in #14) ................................................................................... [ ] YES [ ] NO
7. a. Will this replace any existing annuity or life insurance?............................................... [ ] YES [ ] NO
b. If "YES", have you given the applicant the appropriate forms regarding replacement?..................... [ ] YES [ ] NO
c. If "YES", have you completed and attached to the application all
applicable state replacement forms?..................................................................... [ ] YES [ ] NO
d. Is this an INTERNAL or EXTERNAL replacement? (Circle one)
8. Is this a 1035 exchange? (If "YES", provide original policy and appropriate forms.)........................ [ ] YES [ ] NO
9. Is the Proposed Insured applying for Long Term Care with The Travelers? ................................... [ ] YES [ ] NO
10. a. Purpose of Insurance:
[ ] Personal (check primary reason):
[ ] Income Protection [ ] Supplemental Savings
[ ] Estate Liquidity [ ] Other
[ ] Business: -----------------------------------------
[ ] Buy/Sell [ ] Key Person [ ] Deferred Compensation
[ ] Executive Bonus [ ] Mortgage/Loan Coverage [ ] Other
---------------------------------
b. If "Buy/Sell", is there like coverage in force or applied for on partner(s)?............................ [ ] YES [ ] NO
c. If there is a Buy/Sell Agreement in place, does the owner and beneficiary of this application
line up with that of the Buy/Sell Agreement?............................................ [ ] N/A [ ] YES [ ] NO
11. If available, is preferred rate being applied for?......................................................... [ ] YES [ ] NO
12. If preferred rate is not available, is standard rate acceptable?........................................... [ ] YES [ ] NO
13. If salary allotment or special plan, give: Mass Marketing Case/Company Name:
----------------------------------------------
Case/Plan Number: Accounting Location Number:
--------------------------------------------- --------------------------------
14. Additional Remarks:
--------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
AGENT REPRESENTATION
By signing below, I confirm that the agent representations set forth in the
Travelers Life Insurance Application to which this AGENT REPRESENTATION is
attached are true and accurate. Without limiting the foregoing, I expressly
verify the accuracy of all the information contained in the "AGENT'S
CERTIFICATE" section of this Travelers Life Insurance Application.
I further represent that the Proposed Insured(s) (and the Applicant, if
different), has signed the portions of the application where required, and, to
the best of my knowledge, has read and understands this application.
<TABLE>
<S> <C>
[ ] I did
personally witness the signatures Date
[ ] I did not ------------------------------------
Note: If not personally witnessed by --------------------------------------------------------------------------------
the agent, each signature must be Licensed Agent
witnessed by someone present at the
time the application was signed. --------------------------------------------------------------------------------
Licensed Agent #2 (if applicable)
</TABLE>
NOTES
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<PAGE> 9
PRE-AUTHORIZED COLLECTION
PLEASE ATTACH A VOIDED CHECK AND FIRST TWO MONTH'S PREMIUM. (We will NOT
accept a deposit ticket in place of a voided check.) Make sure your address
and the bank address appear correctly on the check.
<TABLE>
<S> <C> <C> <C>
Name: Phone Number: ( )
------------------------------------------------------ ---------------------------------------------------
Policy Number(s):
-----------------------------------------------------------------------------------------------------------
</TABLE>
I hereby authorize you, the bank, to charge my account in order to cover
monthly premium payments for my policy(ies) with The Travelers Insurance
Company or The Travelers Life and Annuity 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. My
signature below is exactly as I sign my personal checks.
<TABLE>
<S> <C>
--------------------------------------------
Bank Name: Please select date of monthly withdrawal
------------------------------------------------------------ (any date from 1 to 28):
-----------------
--------------------------------------------
Bank Address:
----------------------------------------------------------
Checking Account Number:
-----------------------------------------------
SIGNATURE OF DEPOSITOR: DATE SIGNED:
------------------------------------------------ ---------------------------------------
</TABLE>
TEMPORARY INSURANCE AGREEMENT - ACKNOWLEDGEMENT
IMPORTANT: THE TEMPORARY INSURANCE AGREEMENT ATTACHED BELOW PROVIDES A LIMITED
AMOUNT OF INSURANCE PROTECTION FOR A LIMITED PERIOD OF TIME, SUBJECT TO THE
TERMS OF THE AGREEMENT.
The Health Questions must be completed for the Proposed Insured(s) to be
eligible for Life Insurance protection under the terms of the Agreement.
TEMPORARY INSURANCE AGREEMENT - HEALTH QUESTIONS
IF EITHER OF THE QUESTIONS BELOW IS ANSWERED "YES" OR LEFT BLANK, no agent is
authorized to accept money and no insurance coverage will take effect under
this Agreement. No agent is authorized to accept money on a Proposed Insured
over age 65 (age last birthday) as of the date of this Agreement, nor will any
coverage take effect.
Has any person to be insured:
<TABLE>
<S> <C> <C>
1. Within the past 90 days, been admitted or advised to be admitted to a hospital or other
medical facility, or had surgery performed or recommended?................................................. [ ] YES [ ] NO
2. Within the past 2 years, been treated for heart trouble, chest pain, stroke, cancer or AIDS, or had such
treatment recommended by a physician or other medical practitioner?........................................ [ ] YES [ ] NO
</TABLE>
I (We) hereby acknowledge possession of the Temporary Insurance Agreement
bearing the same date and serial number as my (our) application. I (We) certify
that I (We) have read the Temporary Insurance Agreement, and understand and
acknowledge the terms of such Agreement. I (We) declare that the answers to the
Health Questions are true to the best of my (our) knowledge and belief.
<TABLE>
<S> <C> <C> <C>
An Advance Payment in the amount of $ has been made in connection with the application.
-------------------------------------
Signed at this day of , .
---------------------------------------- -------------------- -------------------------- --------------
City State Month Year
X
- ----------------------------------------------------- ---------------------------------------------------------------
Applicant (if other than Proposed Insured) Signature of Proposed Insured (parent/guardian if a minor)
---------------------------------------------------------------
Signature of Additional Proposed Insured
</TABLE>
<PAGE> 10
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 or The
Travelers Life and Annuity Company agrees that:
1. It will indemnify and hold you harmless from all 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 or The Travelers Life and Annuity 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, or any such
debit entry purporting to be initiated by The Travelers Insurance Company or
The Travelers Life and Annuity 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 3 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 person(s) 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
THE TRAVELERS LIFE AND ANNUITY COMPANY /s/ A. MICHAEL MATAUA
Authorized in resolutions adopted by the Investment Committee of The Travelers
Insurance Company and The Travelers Life and Annuity Company.
<PAGE> 11
TEMPORARY INSURANCE AGREEMENT
IMPORTANT: THIS AGREEMENT PROVIDES A LIMITED AMOUNT OF INSURANCE PROTECTION FOR
A LIMITED PERIOD OF TIME, SUBJECT TO THE TERMS OF THIS AGREEMENT. No agent is
authorized to change or waive any of the terms of this Agreement. All premium
checks must be made payable to The Travelers. Do not make checks payable to the
agent or leave the payee blank. The payment received must be at least equal to
one modal premium or 10% of the annual premium.
<TABLE>
<S> <C>
Received from a premium of $ in connection with this application for
-------------------------- ----------------------------
life insurance, which bears the same date and serial number as this receipt, in which
--------------------------------------
is named as the Proposed Insured(s).
</TABLE>
TERMS AND CONDITIONS
AMOUNT OF COVERAGE: Subject to the limitations contained in this Agreement, if
money has been accepted by The Travelers as advance payment for the above
referenced Application for Life Insurance, and a Proposed Insured dies while
this temporary insurance is in effect, The Travelers will pay to the
beneficiary named in such application the lesser of: (a) the amount of all
death benefits, if applicable, or (b) $500,000. In no event shall the total
benefit payable under this Agreement and under any other Temporary Insurance
Agreement with The Travelers or its subsidiaries exceed $500,000 with respect
to ALL Proposed Insured(s).
DATE COVERAGE BEGINS: Temporary life insurance under this Agreement will begin
on the date that all of the following requirements have been met:
1. The date this Agreement has been completed; and
2. Part One and Part Two, if required, of the application for insurance has
been fully completed; and
3. All medical examinations or tests are completed if required by the Company's
underwriting rules for the Proposed Insured(s) age, plan or amount of
insurance; and
4. The initial premium has been paid and received by The Travelers' New
Business processing center.
DATE COVERAGE ENDS: Temporary life insurance under this Agreement will end on
the earliest of the following dates:
1. 60 days from the date of this Agreement; or
2. The date insurance begins under the policy applied for; or
3. The date a policy, other than applied for, is offered to the applicant; or
4. The date the Company mails notice to the applicant that the application is
declined, or the applicant is otherwise informed by a representative of the
Company that the application is declined; or
5. The date the applicant requests withdrawal of the application.
CREDIT OR REFUND OF PREMIUM: Any payment submitted to and accepted by The
Travelers will be:
1. Credited toward the first premium as of the policy date if a policy is
issued as applied for;
2. Credited toward the first premium as of the policy date if a policy is
issued other than as applied for and is accepted by the applicant;
3. Refunded if The Travelers declines to issue a policy or the applicant
declines to accept a policy as issued or issued other than as applied for;
or
4. Refunded by The Travelers at the request of the applicant.
DETACH THIS PAGE AND LEAVE WITH APPLICANT ONLY IF
PAYMENT IS MADE WHEN THE APPLICATION IS
DATED AND SIGNED AND PROPOSED INSURED(S) HAS
SIGNED THE ACKNOWLEDGEMENT ON THE FOLLOWING PAGE.
<PAGE> 12
SPECIAL LIMITATIONS
1. In the case of the death of a Proposed Insured by suicide, while this
agreement is in effect, The Travelers' liability shall be limited to the
return of the total premium paid under the application.
2. In no event will a death benefit be paid under both the Agreement and the
policy applied for in the application.
3. Fraud or misrepresentations in the application or in the Health Questions of
this Agreement invalidate this Agreement, and The Travelers' liability is to
refund any premium.
4. There is no coverage under this Agreement if the check or draft submitted
with the application is not honored by the bank.
5. No one is authorized to accept money on a Proposed Insured over age 65 (age
last birthday) on the date of this Agreement, nor will any coverage take
effect.
Acknowledgement:
I understand and agree to all of the terms of this Temporary Insurance
Agreement.
<TABLE>
<S> <C> <C> <C> <C> <C>
Signed at this day of , .
---------------------------------------- -------------------- -------------------------- --------------
City State Month Year
X
- ----------------------------------------------------- ---------------------------------------------------------------
Applicant (if other than Proposed Insured) Signature of Proposed Insured (parent/guardian if a minor)
- ----------------------------------------------------- ---------------------------------------------------------------
Signature of Agent Signature of Additional Proposed Insured
</TABLE>
Notice: The Proposed Insured(s) should retain a copy of this Agreement to
ensure coverage thereunder.
<PAGE> 13
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 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
underwriting 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 other investigative report which may be made, write to:
The Travelers, Life and Health Services, One Tower Square, Hartford,
Connecticut 06183.
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 by The Travelers and its affiliates. 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 or
its Reinsurer(s) may make a brief report to the Medical Information Bureau,
Inc., a non-profit membership corporation of life insurance companies which
operates an information exchange on behalf of its members. Upon request by
another member insurance company to which you have applied for life or health
insurance coverage or to which a claim is submitted, the Bureau will supply
such company with the information it may have in its files.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. 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 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.
DETACH THIS PAGE AND LEAVE WITH APPLICANT
<PAGE> 14
DESCRIPTION OF INFORMATION PRACTICES
This description of Information Practices is being provided in accordance with
the requirements of the Insurance Information and Privacy Protection Law.
NOTICE OF INSURANCE INFORMATION PRACTICES
We must collect a certain amount of necessary and helpful personal
information in order to properly underwrite and administer your
insurance coverage. The amount and type of information collected may
vary depending on the amount and type of insurance for which you have
applied. Our Information Practices provide:
1. Personal information may be collected from sources other than
yourself;
2. Such personal information as well as other personal or
privileged information subsequently collected by us or our
agent, may, in certain circumstances, be disclosed to third
parties without your authorization;
3. You may access and correct all personal information collected;
and
4. Upon request, we will provide you with additional information,
including:
a. The types of personal information collected;
b. The methods employed to collect personal information;
c. The instances when we may disclose personal
information without your authorization; and
d. Your rights to access, correct, amend and delete
recorded personal information.
If you need additional information, please write to us at this
address:
The Travelers Insurance Company
The Travelers Life and Annuity Company
Life and Health Services
One Tower Square
Hartford, CT 06183
<PAGE> 1
EXHIBIT 12
April 20, 1998
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. 19 to the
Registration Statement on Form S-6 filed by The Travelers Insurance Company and
The Travelers Fund UL for Variable Life Insurance with the Securities and
Exchange Commission covering individual flexible premium variable life
insurance contracts, I have examined such documents and such law as I have
considered necessary and appropriate, and on the basis of such examination, it
is my opinion that:
1. The Travelers Insurance Company is duly organized and existing
under the laws of the State of Connecticut and has been duly
authorized to do business and to issue variable life insurance
contracts by the Insurance Commissioner of the State of
Connecticut.
2. The Travelers Fund UL for Variable Life Insurance is a duly
authorized and validly existing separate account established
pursuant to Section 38a-433 of the Connecticut General
Statutes.
3. The variable life insurance contracts covered by the above
Registration Statement, and all Post-Effective Amendments
related thereto, have been approved and authorized by the
Insurance Commissioner of the State of Connecticut and when
issued will be valid, legal and binding obligations of The
Travelers Insurance Company and of The Travelers Fund UL for
Variable Life Insurance.
4. Assets of The Travelers Fund UL for Variable Annuities are not
chargeable with liabilities arising out of any other business
The Travelers Insurance Company may conduct.
I hereby consent to the filing of this opinion as an exhibit to the
above-referenced Post-Effective Amendment and to the reference to this opinion
under the caption "Legal Proceedings and Opinion" in the Prospectus
constituting a part of such Post-Effective Amendment.
Very truly yours,
/s/Katherine M. Sullivan
General Counsel
The Travelers Insurance Company
