<PAGE> 1
Registration Statement No. 333-69771
811-03927
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact Name of Trust: THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
B. Name of Depositor: THE TRAVELERS INSURANCE COMPANY
C. Complete Address of Depositor's Principal Executive Offices:
One Tower Square,
Hartford, Connecticut 06183
D. Name and Complete Address of Agent for Service:
Ernest J. Wright, Secretary
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
It is proposed that this filing will become effective (check appropriate box):
__________ immediately upon filing pursuant to paragraph (b)
__________ on ___________ pursuant to paragraph (b)
__________ 60 days after filing pursuant to paragraph (a)(1)
__________ on __________ pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
__________ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
E. Title of securities being registered:
Variable Survivorship Life Insurance Policies.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940
the Registrant hereby declares that an indefinite amount of its
Variable Survivorship Life Insurance Policies is being registered
under the Securities Act of 1933.
F. Approximate date of proposed public offering:
As soon as practicable following the effectiveness of the
Registration Statement
<PAGE> 2
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
__________ Check the box if it is proposed that this filing will become
effective on ____ at ___ pursuant to Rule 487. ______
<PAGE> 3
Pre-Effective Amendment No. 1 to the Registration Statement filed on Form
S-6 is hereby incorporated by reference in its entirety.
<PAGE> 4
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
American Odyssey Funds, Inc, 32,132 shares (cost $465,733) $ 474,479
Capital Appreciation Fund, 175,485 shares (cost $8,146,283) 12,764,814
Dreyfus Stock Index Fund, 189,204 shares (cost $4,970,776) 6,152,928
Fidelity's Variable Insurance Products Fund, 1,006,012 shares (cost $21,774,158) 26,352,825
Fidelity's Variable Insurance Products Fund II, 303,586 shares (cost $4,775,665) 5,513,114
Greenwich Street Series Fund, 59,798 shares (cost $979,615) 1,049,447
High Yield Bond Trust, 21,748 shares (cost $202,284) 214,220
Managed Assets Trust, 131,393 shares (cost $2,168,075) 2,626,536
Money Market Portfolio, 2,934,461 shares (cost $2,934,461) 2,934,461
Templeton Variable Products Series Fund, 651,109 shares (cost $13,358,259) 13,393,279
The Travelers Series Trust, 509,501 shares (cost $5,701,816) 5,867,480
Travelers Series Fund Inc, 526,822 shares (cost $8,529,771) 10,158,229
-----------
Total Investments (cost $74,006,896) $ 87,501,812
Receivables:
Dividends 395,856
Premium payments and transfers from other Travelers accounts 94,601
Other assets 842
------------
Total Assets 87,993,111
------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts 12,953
Insurance charges 13,506
Administrative charges 1,036
------------
Total Liabilities 27,495
------------
NET ASSETS: $ 87,965,616
============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 5
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 5,453,417
EXPENSES:
Insurance charges $ 530,563
Administrative charges 38,285
-----------
Total expenses 568,848
-----------
Net investment income 4,884,569
-----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold 20,652,837
Cost of investments sold 18,056,633
-----------
Net realized gain (loss) 2,596,204
Change in unrealized gain (loss) on investments:
Unrealized gain at December 31, 1997 8,096,664
Unrealized gain at December 31, 1998 13,494,916
-----------
Net change in unrealized gain (loss) for the year 5,398,252
-----------
Net realized gain (loss) and change in unrealized gain (loss) 7,994,456
-----------
Net increase in net assets resulting from operations $ 12,879,025
============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 6
THE TRAVELERS FUND UL
FOR VARIABLE LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,884,569 $ 2,447,570
Net realized gain (loss) from investment transactions 2,596,204 1,450,336
Net change in unrealized gain (loss) on investments 5,398,252 4,607,783
------------ ------------
Net increase in net assets resulting from operations 12,879,025 8,505,689
------------ ------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 12,749,964 and 12,005,909 units, respectively) 22,622,231 19,096,022
Participant transfers from other Travelers accounts
(applicable to 8,850,476 and 8,679,346 units, respectively) 16,644,515 13,453,685
Contract surrenders
(applicable to 5,653,725 and 3,304,273 units, respectively) (10,097,307) (5,554,224)
Participant transfers to other Travelers accounts
(applicable to 10,422,931 and 9,048,261 units, respectively) (17,682,682) (13,733,134)
Other payments to participants
(applicable to 220,614 and 23,301 units, respectively) (458,339) (33,914)
------------ ------------
Net increase in net assets resulting from unit transactions 11,028,418 13,228,435
------------ ------------
Net increase in net assets 23,907,443 21,734,124
NET ASSETS:
Beginning of year 64,058,173 42,324,049
------------ ------------
End of year $ 87,965,616 $ 64,058,173
============ ============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 7
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 Citigroup Inc. (formerly 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 $2,498,370 at December 31, 1998.
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, 1998, the eligible funds available under Fund UL were: Managed
Assets Trust; High Yield Bond Trust; Capital Appreciation Fund; Money Market
Portfolio (formerly Cash Income Trust); U.S. Government Securities Portfolio,
Utilities Portfolio, 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 Large Cap Value Portfolio (formerly 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 (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 are 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 Global High-Yield Bond
Fund (formerly American Odyssey Short-Term Bond Fund) of American Odyssey Funds,
Inc.
Effective December 18, 1998, Zero Coupon Bond Fund Portfolio Series 1998 of The
Travelers Series Trust was fully liquidated.
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
$36,173,612 and $20,652,837, respectively, for the year ended December 31, 1998.
Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was $74,006,896
at December 31, 1998. Gross unrealized appreciation for all investments at
December 31, 1998 was $14,289,993. Gross unrealized depreciation for all
investments at December 31, 1998 was $795,077.
-4-
<PAGE> 8
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, 1998. 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 $307,722 and $131,429 in satisfaction of such contingent
surrender charges for the years ended December 31, 1998 and 1997, respectively.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------
UNIT NET
UNITS VALUE ASSETS
<S> <C> <C> <C>
American Odyssey Funds, Inc
American Odyssey Core Equity Fund
Price I .................................... 30,336 $ 2.548 $ 77,290
American Odyssey Emerging Opportunities Fund
Price I .................................... 191,574 1.324 253,707
American Odyssey Intermediate-Term Bond Fund
Price I .................................... 1,415 1.257 1,779
American Odyssey International Equity Fund
Price I .................................... 79,390 1.608 127,670
American Odyssey Long-Term Bond Fund
Price I .................................... 7,329 1.480 10,850
American Odyssey Global High-Yield Bond Fund
Price I .................................... 2,703 1.155 3,122
Capital Appreciation Fund
Price I .................................... 1,211,338 4.356 5,275,992
Price II ................................... 1,735,755 4.311 7,482,917
Dreyfus Stock Index Fund
Price I .................................... 632,898 2.807 1,776,837
Price II ................................... 1,574,572 2.779 4,375,461
Fidelity's Variable Insurance Products Fund
Equity-Income Portfolio
Price I .................................... 2,281,753 2.198 5,015,439
Price II ................................... 2,185,272 2.176 4,754,349
Growth Portfolio
Price I .................................... 2,716,535 2.550 6,926,107
Price II ................................... 2,275,742 2.524 5,742,957
</TABLE>
-5-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------
UNIT NET
UNITS VALUE ASSETS
<S> <C> <C> <C>
Fidelity's Variable Insurance Products Fund (continued)
High Income Portfolio
Price I ............................................... 1,023,855 $ 1.441 $1,475,430
Price II .............................................. 1,707,651 1.426 2,435,697
Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio
Price I ............................................... 2,562,465 1.669 4,278,033
Price II .............................................. 747,088 1.652 1,234,519
Greenwich Street Series Fund
Total Return Portfolio
Price I ............................................... 37,785 1.563 59,075
Price II .............................................. 639,347 1.549 990,224
High Yield Bond Trust
Price I ............................................... 80,415 2.664 214,192
Managed Assets Trust
Price I ............................................... 562,180 3.248 1,825,786
Price II .............................................. 249,491 3.215 801,993
Money Market Portfolio
Price I ............................................... 217,444 1.620 352,204
Price II .............................................. 1,651,980 1.603 2,648,472
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund (Class 1 shares)
Price I ............................................... 1,869,744 1.655 3,094,291
Price II .............................................. 817,109 1.638 1,338,449
Templeton Bond Fund (Class 1 shares)
Price I ............................................... 131,822 1.270 167,405
Price II .............................................. 395,071 1.257 496,603
Templeton Stock Fund (Class 1 shares)
Price I ............................................... 2,910,661 1.628 4,737,612
Price II .............................................. 2,208,000 1.611 3,557,220
The Travelers Series Trust
US Government Securities Portfolio
Price I ............................................... 178,511 1.424 254,233
Price II .............................................. 2,019,497 1.410 2,846,761
Utilities Portfolio
Price I ............................................... 104,282 1.995 208,012
Price II .............................................. 63,564 1.974 125,500
</TABLE>
-6-
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
The Travelers Series Trust (continued)
Zero Coupon Bond Fund Portfolio Series 2000
Price I ................................... 1,002,043 $ 1.198 $ 1,200,936
Price II .................................. 38,914 1.187 46,188
Zero Coupon Bond Fund Portfolio Series 2005
Price I ................................... 1,045,823 1.300 1,359,448
Price II .................................. 167,840 1.287 216,072
Travelers Series Fund Inc
AIM Capital Appreciation Portfolio
Price I ................................... 159,618 1.381 220,467
Price II .................................. 1,212,084 1.369 1,659,892
Alliance Growth Portfolio
Price I ................................... 255,880 2.207 564,660
Price II .................................. 1,856,738 2.185 4,056,066
MFS Total Return Portfolio
Price I ................................... 192,769 1.654 318,924
Price II .................................. 934,652 1.638 1,530,928
Smith Barney High Income Portfolio
Price I ................................... 24,613 1.262 31,059
Price II .................................. 606,346 1.251 758,380
Smith Barney Large Cap Value Portfolio
Price I ................................... 49,624 1.747 86,680
Price II .................................. 548,941 1.730 949,728
-----------
Net Contract Owners' Equity ............... $87,965,616
===========
</TABLE>
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
AMERICAN ODYSSEY FUNDS, INC. (0.5%)
American Odyssey Core Equity Fund (Cost $59,251) ................. 3,751 $ 77,300
American Odyssey Emerging Opportunities Fund (Cost $279,592) ..... 19,384 253,739
American Odyssey Intermediate-Term Bond Fund (Cost $1,683) ....... 160 1,780
American Odyssey International Equity Fund (Cost $111,664) ....... 7,578 127,687
American Odyssey Long-Term Bond Fund (Cost $10,270) .............. 944 10,851
American Odyssey Global High-Yield Bond Fund (Cost $3,273) ....... 315 3,122
----------- -----------
Total (Cost $465,733) ............................................ 32,132 474,479
----------- -----------
CAPITAL APPRECIATION FUND (14.6%)
Total (Cost $8,146,283) .......................................... 175,485 12,764,814
----------- -----------
DREYFUS STOCK INDEX FUND (7.0%)
Total (Cost $4,970,776) .......................................... 189,204 6,152,928
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (30.1%)
Equity-Income Portfolio (Cost $8,246,416) ........................ 384,371 9,770,712
Growth Portfolio (Cost $9,391,962) ............................... 282,381 12,670,447
High Income Portfolio (Cost $4,135,780) .......................... 339,260 3,911,666
----------- -----------
Total (Cost $21,774,158) ......................................... 1,006,012 26,352,825
----------- -----------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (6.3%)
Asset Manager Portfolio
Total (Cost $4,775,665) .......................................... 303,586 5,513,114
----------- -----------
GREENWICH STREET SERIES FUND (1.2%)
Total Return Portfolio
Total (Cost $979,615) ............................................ 59,798 1,049,447
----------- -----------
HIGH YIELD BOND TRUST (0.3%)
Total (Cost $202,284) ............................................ 21,748 214,220
----------- -----------
MANAGED ASSETS TRUST (3.0%)
Total (Cost $2,168,075) .......................................... 131,393 2,626,536
----------- -----------
MONEY MARKET PORTFOLIO (3.4%)
Total (Cost $2,934,461) .......................................... 2,934,461 2,934,461
----------- -----------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (15.3%)
Templeton Asset Allocation Fund (Class 1 shares) (Cost $3,957,991) 197,370 4,432,920
Templeton Bond Fund (Class 1 shares) (Cost $651,336) ............. 59,993 664,127
Templeton Stock Fund (Class 1 shares) (Cost $8,748,932) .......... 393,746 8,296,232
----------- -----------
Total (Cost $13,358,259) ......................................... 651,109 13,393,279
----------- -----------
</TABLE>
-8-
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
THE TRAVELERS SERIES TRUST (6.7%)
U.S. Government Securities Portfolio (Cost $2,907,479) 241,714 $ 2,852,226
Utilities Portfolio (Cost $278,167) 19,416 333,563
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $1,152,876) 114,967 1,179,564
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $1,363,294) 133,404 1,502,127
----------- -----------
Total (Cost $5,701,816) 509,501 5,867,480
----------- -----------
TRAVELERS SERIES FUND INC. (11.6%)
AIM Capital Appreciation Portfolio (Cost $1,587,697) 129,868 1,880,488
Alliance Growth Portfolio (Cost $3,496,011) 175,649 4,621,322
MFS Total Return Portfolio (Cost $1,699,380) 108,634 1,850,044
Smith Barney High Income Portfolio (Cost $826,312) 62,346 789,305
Smith Barney Large Cap Value Portfolio (Cost $920,371) 50,325 1,017,070
----------- -----------
Total (Cost $8,529,771) 526,822 10,158,229
----------- -----------
TOTAL INVESTMENT OPTIONS (100%)
(Cost $74,006,896) $87,501,812
===========
</TABLE>
-9-
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
AMERICAN ODYSSEY CORE AMERICAN ODYSSEY EMERGING AMERICAN ODYSSEY INTERMEDIATE
EQUITY FUND OPPORTUNITIES FUND -TERM BOND FUND
--------------------- --------------------- ---------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 8,470 $ 1,487 $ -- $ -- $ 8 $ 80
--------- --------- --------- --------- --------- ---------
EXPENSES:
Insurance charges ................................. 448 387 1,554 1,630 9 7
Administrative charges ............................ -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net investment income (loss) ...................... 8,022 1,100 (1,554) (1,630) (1) 73
--------- --------- --------- --------- --------- ---------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 9,623 17,936 57,345 46,981 65 157
Cost of investments sold .......................... 5,694 12,382 64,399 46,233 63 153
--------- --------- --------- --------- --------- ---------
Net realized gain (loss) .......................... 3,929 5,554 (7,054) 748 2 4
--------- --------- --------- --------- --------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 19,500 8,895 (12,045) (32,337) (22) (23)
Unrealized gain (loss) end of year ................ 18,049 19,500 (25,853) (12,045) 97 (22)
--------- --------- --------- --------- --------- ---------
Net change in unrealized gain (loss) for the year . (1,451) 10,605 (13,808) 20,292 119 1
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ......................... 10,500 17,259 (22,416) 19,410 120 78
--------- --------- --------- --------- --------- ---------
Unit Transactions:
Participant premium payments ...................... 10,400 10,015 49,542 59,971 404 570
Participant transfers from other Travelers accounts 61 1,899 4,306 8,296 16 32
Contract surrenders ............................... (4,443) (4,755) (22,358) (25,273) (86) (97)
Participant transfers to other Travelers accounts . (5,618) (15,920) (43,052) (37,520) (10) (157)
Other payments to participants .................... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from unit transactions .................. 400 (8,761) (11,562) 5,474 324 348
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets ............. 10,900 8,498 (33,978) 24,884 444 426
NET ASSETS:
Beginning of year ................................. 66,390 57,892 287,685 262,801 1,335 909
--------- --------- --------- --------- --------- ---------
End of year ....................................... $ 77,290 $ 66,390 $ 253,707 $ 287,685 $ 1,779 $ 1,335
========= ========= ========= ========= ========= =========
</TABLE>
-10-
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
AMERICAN ODYSSEY INTERNATIONAL AMERICAN ODYSSEY LONG-TERM AMERICAN ODYSSEY GLOBAL HIGH-
EQUITY FUND BOND FUND YIELD BOND FUND CAPITAL APPRECIATION FUND
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 7,253 $ 2,623 $ 188 $ 4,752 $ 1 $ 170 $ 225,348 $ 36
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
738 661 96 400 20 19 56,699 30,965
-- -- -- -- -- -- 4,562 2,084
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
6,515 1,962 92 4,352 (19) 151 164,087 (33,013)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
28,558 20,677 77,573 4,416 96 470 672,903 839,367
21,351 16,342 75,868 4,534 102 475 405,494 553,249
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
7,207 4,335 1,705 (118) (6) (5) 267,409 286,118
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
12,462 14,319 1,244 (2,217) (31) (63) 930,111 276,095
16,023 12,462 581 1,244 (151) (31) 4,618,531 930,111
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
3,561 (1,857) (663) 3,461 (120) 32 3,688,420 654,016
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
17,283 4,440 1,134 7,695 (145) 178 4,119,916 907,121
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
21,538 27,193 1,382 28,271 94 658 1,722,876 1,371,774
4,669 7,563 -- -- -- -- 2,709,937 1,068,760
(23,931) (12,213) (811) (4,730) (152) (533) (792,310) (577,590)
(8,587) (13,029) (77,176) -- -- -- (417,132) (560,317)
-- -- -- -- -- -- (160,978) (651)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(6,311) 9,514 (76,605) 23,541 (58) 125 3,062,393 1,301,976
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,972 13,954 (75,471) 31,236 (203) 303 7,182,309 2,209,097
116,698 102,744 86,321 55,085 3,325 3,022 5,576,600 3,367,503
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 127,670 $ 116,698 $ 10,850 $ 86,321 $ 3,122 $ 3,325 $ 12,758,909 $ 5,576,600
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
-11-
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
------------------------ ------------------------- -------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 80,837 $ 131,569 $ 519,007 $ 551,315 $ 1,383,745 $ 234,290
----------- ----------- ----------- ------------ ------------ -----------
EXPENSES:
Insurance charges ................................. 37,009 17,644 61,249 45,297 74,825 53,174
Administrative charges ............................ 3,583 1,557 4,053 2,746 4,553 3,145
----------- ----------- ----------- ------------ ------------ -----------
Net investment income (loss) ...................... 40,245 112,368 453,705 503,272 1,304,367 177,971
----------- ----------- ----------- ------------ ------------ -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 1,348,144 480,285 1,027,285 1,066,364 2,882,351 775,032
Cost of investments sold .......................... 890,692 385,669 773,339 796,012 2,088,775 510,153
----------- ----------- ----------- ------------ ------------ -----------
Net realized gain (loss) .......................... 457,452 94,616 253,946 270,352 793,576 264,879
----------- ----------- ----------- ------------ ------------ -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 523,266 103,469 1,324,425 555,918 1,692,557 642,147
Unrealized gain (loss) end of year ................ 1,182,152 523,266 1,524,296 1,324,425 3,278,485 1,692,557
----------- ----------- ----------- ------------ ------------ -----------
Net change in unrealized gain (loss) for the year . 658,886 419,797 199,871 768,507 1,585,928 1,050,410
----------- ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations ......................... 1,156,583 626,781 907,522 1,542,131 3,683,871 1,493,260
----------- ----------- ----------- ------------ ------------ -----------
Unit Transactions:
Participant premium payments ...................... 1,357,520 815,909 1,821,387 1,553,084 2,688,152 2,092,960
Participant transfers from other Travelers accounts 2,205,447 947,641 782,438 1,216,927 577,474 1,286,782
Contract surrenders ............................... (758,259) (282,791) (1,111,405) (715,570) (1,397,298) (898,220)
Participant transfers to other Travelers accounts . (1,144,166) (335,492) (466,177) (767,826) (2,484,960) (494,401)
Other payments to participants .................... -- -- (125,412) (8,322) (59,946) (5,729)
----------- ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from unit transactions .................. 1,660,542 1,145,267 900,831 1,278,293 (676,578) 1,981,392
----------- ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets ............. 2,817,125 1,772,048 1,808,353 2,820,424 3,007,293 3,474,652
NET ASSETS:
Beginning of year ................................. 3,335,173 1,563,125 7,961,435 5,141,011 9,661,771 6,187,119
----------- ----------- ----------- ------------ ------------ -----------
End of year ....................................... $ 6,152,298 $ 3,335,173 $ 9,769,788 $ 7,961,435 $ 12,669,064 $ 9,661,771
=========== =========== =========== ============ ============ ===========
</TABLE>
-12-
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
HIGH INCOME PORTFOLIO ASSET MANAGER PORTFOLIO TOTAL RETURN PORTFOLIO HIGH YIELD BOND TRUST
- ---------------------------- ---------------------------- ---------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 403,352 $ 195,704 $ 555,132 $ 414,291 $ 46,880 $ 30,928 $ 15,178 $ 151
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
27,571 20,332 31,590 24,513 7,284 4,608 1,309 1,465
2,305 1,556 953 501 863 544 -- --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
373,476 173,816 522,589 389,277 38,733 25,776 13,869 (1,314)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
2,208,102 906,455 673,448 332,402 84,997 40,508 118,763 234,846
2,203,983 892,824 558,510 276,655 67,822 33,582 106,699 225,775
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
4,119 13,631 114,938 55,747 17,175 6,926 12,064 9,071
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
370,469 109,472 714,532 454,097 87,967 32,702 25,465 (2,411)
(224,114) 370,469 737,449 714,532 69,832 87,967 11,936 25,465
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(594,583) 260,997 22,917 260,435 (18,135) 55,265 (13,529) 27,876
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(216,988) 448,444 660,444 705,459 37,773 87,967 12,404 35,633
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
856,339 686,634 867,895 792,294 181,561 141,056 26,399 34,411
2,321,318 933,013 394,346 128,939 176,508 212,209 57,870 93,271
(391,089) (260,544) (372,107) (414,673) (106,689) (40,498) (47,347) (143,838)
(2,081,017) (718,621) (423,123) (153,222) (17,224) (10,203) (77,740) (98,507)
-- (5,003) (841) (69) -- -- -- --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
705,551 635,479 466,170 353,269 234,156 302,564 (40,818) (114,663)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
488,563 1,083,923 1,126,614 1,058,728 271,929 390,531 (28,414) (79,030)
3,422,564 2,338,641 4,385,938 3,327,210 777,370 386,839 242,606 321,636
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 3,911,127 $ 3,422,564 $ 5,512,552 $ 4,385,938 $ 1,049,299 $ 777,370 $ 214,192 $ 242,606
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
-13-
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION
MANAGED ASSETS TRUST MONEY MARKET PORTFOLIO FUND (CLASS 1 SHARES)
------------------------- ------------------------ ------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 149,710 $ 56,368 $ 154,385 $ 148,941 $ 240,092 $ 257,405
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Insurance charges ................................. 14,505 11,874 24,039 23,201 28,173 23,292
Administrative charges ............................ 527 339 2,618 2,570 1,263 868
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) ...................... 134,678 44,155 127,728 123,170 210,656 233,245
----------- ----------- ----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
Gain (Loss) on Investments:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 532,152 374,254 6,111,697 7,080,626 460,332 299,373
Cost of investments sold .......................... 429,702 292,317 6,111,697 7,080,626 337,833 211,031
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain (loss) .......................... 102,450 81,937 -- -- 122,499 88,342
----------- ----------- ----------- ----------- ----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 264,796 49,154 -- -- 587,676 469,194
Unrealized gain (loss) end of year ................ 458,461 264,796 -- -- 474,929 587,676
----------- ----------- ----------- ----------- ----------- -----------
Net change in unrealized gain (loss) for the year . 193,665 215,642 -- -- (112,747) 118,482
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ......................... 430,793 341,734 127,728 123,170 220,408 440,069
----------- ----------- ----------- ----------- ----------- -----------
Unit Transactions:
Participant premium payments ...................... 491,683 427,367 6,741,925 6,413,938 727,391 735,199
Participant transfers from other Travelers accounts 330,398 132,340 1,519,284 3,079,011 244,926 400,002
Contract surrenders ............................... (510,867) (269,781) (1,028,727) (365,525 (430,422) (356,661)
Participant transfers to other Travelers accounts . (140,305) (253,757) (7,713,789) (8,668,083 (308,864) (100,309)
Other payments to participants .................... -- -- -- -- (869) --
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from unit transactions .................. 170,909 36,169 (481,307) 459,341 232,162 678,231
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets ............. 601,702 377,903 (353,579) 582,511 452,570 1,118,300
NET ASSETS:
Beginning of year ................................. 2,026,077 1,648,174 3,354,255 2,771,744 3,980,170 2,861,870
----------- ----------- ----------- ----------- ----------- -----------
End of year ....................................... $ 2,627,779 $ 2,026,077 $ 3,000,676 $ 3,354,255 $ 4,432,740 $ 3,980,170
=========== =========== =========== =========== =========== ===========
</TABLE>
-14-
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
TEMPLETON BOND FUND TEMPLETON STOCK FUND U.S. GOVERNMENT SECURITIES
(CLASS 1 SHARES) (CLASS 1 SHARES) PORTFOLIO UTILITIES PORTFOLIO
- --------------------------- --------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 32,614 $ 22,190 $ 813,730 $ 513,518 $ 250,408 $ 71,639 $ 12,250 $ 234
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
4,333 2,586 59,343 42,347 14,906 7,196 1,659 947
421 201 3,758 2,080 1,708 781 87 44
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
27,860 19,403 750,629 469,091 233,794 63,662 10,504 (757)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
83,313 43,392 1,561,814 795,451 311,524 579,692 34,296 33,131
81,836 43,183 1,456,190 588,414 281,520 605,967 27,593 31,964
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,477 209 105,624 207,037 30,004 (26,275) 6,703 1,167
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
6,720 18,576 539,409 696,253 46,013 (33,195) 30,111 (3,421)
12,791 6,720 (452,700) 539,409 (55,253) 46,013 55,396 30,111
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
6,071 (11,856) (992,109) (156,844) (101,266) 79,208 25,285 33,532
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
35,408 7,756 (135,856) 519,284 162,532 116,595 42,492 33,942
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
165,218 121,519 2,075,969 1,839,867 488,039 555,591 59,758 47,754
79,798 123,156 1,558,785 1,088,920 1,294,349 723,123 98,449 1,654
(66,688) (41,897) (722,676) (668,841) (145,232) (92,796) (31,913) (28,432)
(38,486) (8,468) (1,548,621) (563,883) (224,377) (503,445) (13,516) (10,100)
-- (4,899) (55,834) -- -- -- -- --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
139,842 189,411 1,307,623 1,696,063 1,412,779 682,473 112,778 10,876
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
175,250 197,167 1,171,767 2,215,347 1,575,311 799,068 155,270 44,818
488,758 291,591 7,123,065 4,907,718 1,525,683 726,615 178,242 133,424
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 664,008 $ 488,758 $ 8,294,832 $ 7,123,065 $ 3,100,994 $ 1,525,683 $ 333,512 $ 178,242
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
-15-
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND ZERO COUPON BOND FUND ZERO COUPON BOND FUND
PORTFOLIO SERIES 1998 PORTFOLIO SERIES 2000 PORTFOLIO SERIES 2005
------------------------ ------------------------ ------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 63,083 $ 60,738 $ 68,351 $ 63,813 $ 74,703 $ 71,682
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Insurance charges ................................. 6,692 6,579 7,338 6,564 8,639 7,294
Administrative charges ............................ 10 10 44 13 142 63
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) ...................... 56,381 54,149 60,969 57,236 65,922 64,325
----------- ----------- ----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 1,186,548 22,224 34,245 13,930 95,551 67,978
Cost of investments sold .......................... 1,186,192 21,753 33,205 13,566 88,033 67,394
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain (loss) .......................... 356 471 1,040 364 7,518 584
----------- ----------- ----------- ----------- ----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 2,394 (1,641) 7,987 (4,359) 60,360 (2,241)
Unrealized gain (loss) end of year ................ -- 2,394 26,688 7,987 138,833 60,360
----------- ----------- ----------- ----------- ----------- -----------
Net change in unrealized gain (loss) for the year . (2,394) 4,035 18,701 12,346 78,473 62,601
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ......................... 54,343 58,655 80,710 69,946 151,913 127,510
----------- ----------- ----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant premium payments ...................... 342 634 4,538 1,592 63,688 43,451
Participant transfers from other Travelers accounts -- 8,679 26,367 36,989 114,346 37,071
Contract surrenders ............................... (1,170,656) (454) (5,944) (877) (10,152) (3,931)
Participant transfers to other Travelers accounts . (9,182) (15,356) (21,675) (16) (80,311) (57,627)
Other payments to participants .................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from unit transactions .................. (1,179,496) (6,497) 3,286 37,688 87,571 18,964
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets ............. (1,125,153) 52,158 83,996 107,634 239,484 146,474
NET ASSETS:
Beginning of year ................................. 1,125,153 1,072,995 1,163,128 1,055,494 1,336,036 1,189,562
----------- ----------- ----------- ----------- ----------- -----------
End of year ....................................... $ -- $ 1,125,153 $ 1,247,124 $ 1,163,128 $ 1,575,520 $ 1,336,036
=========== =========== =========== =========== =========== ===========
</TABLE>
-16-
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
AIM CAPITAL APPRECIATION SMITH BARNEY HIGH INCOME
PORTFOLIO ALLIANCE GROWTH PORTFOLIO MFS TOTAL RETURN PORTFOLIO PORTFOLIO
- ------------------------------ ------------------------------- ------------------------------ ------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,994 $ -- $ 208,151 $ -- $ 59,754 $ -- $ 47,805 $ --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
11,508 7,136 26,480 13,955 10,341 4,442 5,337 1,982
1,313 807 2,973 1,519 1,097 432 646 222
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(10,827) (7,943) 178,698 (15,474) 48,316 (4,874) 41,822 (2,204)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
262,115 53,629 420,518 137,767 199,816 54,024 52,415 460,379
203,919 48,176 269,565 106,425 151,321 42,230 49,894 436,696
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
58,196 5,453 150,953 31,342 48,495 11,794 2,521 23,683
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
93,128 17,258 554,376 97,212 115,974 18,241 17,011 3,819
292,791 93,128 1,125,311 554,376 150,664 115,974 (37,007) 17,011
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
199,663 75,870 570,935 457,164 34,690 97,733 (54,018) 13,192
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
247,032 73,380 900,586 473,032 131,501 104,653 (9,675) 34,671
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
510,445 311,127 795,707 431,226 422,994 143,523 271,273 260,419
216,820 370,189 1,026,827 619,763 597,781 269,013 93,719 335,032
(179,247) (82,325) (471,438) (152,219) (134,335) (35,983) (37,279) (17,233)
(99,943) (13,899) (145,042) (43,871) (28,238) (6,460) (14,923) (281,223)
(54,459) -- -- (1,525) -- (6,400) -- --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
393,616 585,092 1,206,054 853,374 858,202 363,693 312,790 296,995
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
640,648 658,472 2,106,640 1,326,406 989,703 468,346 303,115 331,666
1,239,711 581,239 2,514,086 1,187,680 860,149 391,803 486,324 154,658
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 1,880,359 $ 1,239,711 $ 4,620,726 $ 2,514,086 $ 1,849,852 $ 860,149 $ 789,439 $ 486,324
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
-17-
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY LARGE CAP VALUE
PORTFOLIO COMBINED
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ......................................... $ 30,988 $ -- $ 5,453,417 $ 2,833,924
------------ ------------ ------------ ------------
EXPENSES:
Insurance charges ................................. 6,869 3,376 530,563 363,873
Administrative charges ............................ 806 399 38,285 22,481
------------ ------------ ------------ ------------
Net investment income (loss) ...................... 23,313 (3,775) 4,884,569 2,447,570
------------ ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 117,248 58,318 20,652,837 14,840,064
Cost of investments sold .......................... 85,342 45,948 18,056,633 13,389,728
------------ ------------ ------------ ------------
Net realized gain (loss) .......................... 31,906 12,370 2,596,204 1,450,336
------------ ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 80,809 3,968 8,096,664 3,488,881
Unrealized gain (loss) end of year ................ 96,699 80,809 13,494,916 8,096,664
------------ ------------ ------------ ------------
Net change in unrealized gain (loss) for the year . 15,890 76,841 5,398,252 4,607,783
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ......................... 71,109 85,436 12,879,025 8,505,689
------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments ...................... 197,772 148,015 22,622,231 19,096,022
Participant transfers from other Travelers accounts 208,276 323,411 16,644,515 13,453,685
Contract surrenders ............................... (123,446) (55,944) (10,097,307) (5,554,224)
Participant transfers to other Travelers accounts . (49,428) (1,422) (17,682,682) (13,733,134)
Other payments to participants .................... -- (1,316) (458,339) (33,914)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from unit transactions .................. 233,174 412,744 11,028,418 13,228,435
------------ ------------ ------------ ------------
Net increase (decrease) in net assets ............. 304,283 498,180 23,907,443 21,734,124
NET ASSETS:
Beginning of year ................................. 732,125 233,945 64,058,173 42,324,049
------------ ------------ ------------ ------------
End of year ....................................... $ 1,036,408 $ 732,125 $ 87,965,616 $ 64,058,173
============ ============ ============ ============
</TABLE>
-18-
<PAGE> 22
\ NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
AMERICAN ODYSSEY CORE AMERICAN ODYSSEY EMERGING AMERICAN ODYSSEY INTERMEDIATE
EQUITY FUND OPPORTUNITIES FUND -TERM BOND FUND
----------------------- ----------------------- ----------------------
1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 29,927 34,187 197,206 191,470 1,145 833
Units purchased and transferred from
other Travelers accounts ........... 4,410 6,394 40,292 48,792 349 536
Units redeemed and transferred to
other Travelers accounts ........... (4,001) (10,654) (45,924) (43,056) (79) (224)
------- ------- ------- ------- ------ ------
Units end of year .................. 30,336 29,927 191,574 197,206 1,415 1,145
======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AMERICAN ODYSSEY AMERICAN ODYSSEY LONG-TERM AMERICAN ODYSSEY GLOBAL HIGH-
INTERNATIONAL EQUITY FUND BOND FUND YIELD BOND FUND
---------------------- ---------------------- ---------------------
1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 82,883 76,225 63,209 44,927 2,753 2,640
Units purchased and transferred from
other Travelers accounts ........... 17,163 24,766 976 21,997 78 574
Units redeemed and transferred to
other Travelers accounts ........... (20,656) (18,108) (56,856) (3,715) (128) (461)
------- ------- ------- ------- ------ ------
Units end of year .................. 79,390 82,883 7,329 63,209 2,703 2,753
======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND DREYFUS STOCK INDEX FUND EQUITY-INCOME PORTFOLIO
------------------------- ------------------------- -------------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 2,064,967 1,560,408 1,521,389 940,291 4,031,218 3,309,909
Units purchased and transferred from
other Travelers accounts ........... 1,302,276 984,555 1,449,234 918,949 1,251,314 1,560,873
Units redeemed and transferred to
other Travelers accounts ........... (420,150) (479,996) (763,153) (337,851) (815,507) (839,564)
--------- --------- --------- --------- --------- ---------
Units end of year .................. 2,947,093 2,064,967 2,207,470 1,521,389 4,467,025 4,031,218
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO ASSET MANAGER PORTFOLIO
------------------------- ------------------------- -------------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 5,270,282 4,136,339 2,267,970 1,809,239 3,007,464 2,734,435
Units purchased and transferred from
other Travelers accounts ........... 1,562,195 1,992,945 2,120,094 1,201,242 820,299 695,350
Units redeemed and transferred to
other Travelers accounts ........... (1,840,200) (859,002) (1,656,558) (742,511) (518,210) (422,321)
--------- --------- --------- --------- --------- ---------
Units end of year .................. 4,992,277 5,270,282 2,731,506 2,267,970 3,309,553 3,007,464
========= ========= ========= ========= ========= =========
</TABLE>
-19-
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO HIGH YIELD BOND TRUST MANAGED ASSETS TRUST
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 521,673 300,659 96,477 148,199 754,052 739,368
Units purchased and transferred from
other Travelers accounts ........... 236,730 257,477 32,454 55,716 280,545 227,450
Units redeemed and transferred to
other Travelers accounts ........... (81,271) (36,463) (48,516) (107,438) (222,926) (212,766)
-------- -------- -------- -------- -------- --------
Units end of year .................. 677,132 521,673 80,415 96,477 811,671 754,052
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND TEMPLETON BOND FUND
MONEY MARKET PORTFOLIO (CLASS 1 SHARES) (CLASS 1 SHARES)
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 2,176,965 1,872,345 2,549,205 2,102,272 411,910 249,756
Units purchased and transferred from
other Travelers accounts ........... 5,259,108 6,298,315 599,350 744,438 201,540 209,477
Units redeemed and transferred to
other Travelers accounts ........... (5,566,649) (5,993,695) (461,702) (297,505) (86,557) (47,323)
---------- ---------- ---------- ---------- ---------- ----------
Units end of year .................. 1,869,424 2,176,965 2,686,853 2,549,205 526,893 411,910
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON STOCK FUND U.S. GOVERNMENT SECURITIES
(CLASS 1 SHARES) PORTFOLIO (UTILITIES PORTFOLIO)
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 4,415,842 3,378,671 1,181,099 627,860 105,266 98,022
Units purchased and transferred from
other Travelers accounts ........... 2,139,769 1,804,001 1,290,041 1,069,761 88,338 34,377
Units redeemed and transferred to
other Travelers accounts ........... (1,436,950) (766,830) (273,132) (516,522) (25,758) (27,133)
---------- ---------- ---------- ---------- ---------- ----------
Units end of year .................. 5,118,661 4,415,842 2,198,008 1,181,099 167,846 105,266
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND ZERO COUPON BOND FUND PORTFOLIO ZERO COUPON BOND FUND
PORTFOLIO SERIES 1998 SERIES 2000 PORTFOLIO SERIES 2005
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 1,008,353 1,014,502 1,038,056 1,003,545 1,147,679 1,133,350
Units purchased and transferred from
other Travelers accounts ........... 306 8,600 27,282 35,337 141,687 72,486
Units redeemed and transferred to
other Travelers accounts ........... (1,008,659) (14,749) (24,381) (826) (75,703) (58,157)
---------- ---------- ---------- ---------- ---------- ----------
Units end of year .................. -- 1,008,353 1,040,957 1,038,056 1,213,663 1,147,679
========== ========== ========== ========== ========== ==========
</TABLE>
-20-
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR FUND UL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
AIM CAPITAL APPRECIATION
PORTFOLIO ALLIANCE GROWTH PORTFOLIO MFS TOTAL RETURN PORTFOLIO
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 1,053,016 548,936 1,469,867 888,431 580,164 317,532
Units purchased and transferred from
other Travelers accounts ........... 587,375 587,725 969,293 712,024 651,137 298,199
Units redeemed and transferred to
other Travelers accounts ........... (268,689) (83,645) (326,542) (130,588) (103,880) (35,567)
---------- ---------- ---------- ---------- ---------- ----------
Units end of year .................. 1,371,702 1,053,016 2,112,618 1,469,867 1,127,421 580,164
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME SMITH BARNEY LARGE CAP VALUE
PORTFOLIO PORTFOLIO COMBINED
--------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ............ 386,886 138,855 460,366 184,663 37,897,289 29,587,869
Units purchased and transferred from
other Travelers accounts ........... 285,317 498,526 241,488 314,373 21,600,440 20,685,255
Units redeemed and transferred to
other Travelers accounts ........... (41,244) (250,495) (103,289) (38,670) (16,297,270) (12,375,835)
----------- ----------- ----------- ----------- ----------- -----------
Units end of year .................. 630,959 386,886 598,565 460,366 43,200,459 37,897,289
=========== =========== =========== =========== =========== ===========
</TABLE>
-21-
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
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, 1998, and the
related statement of operations for the year then ended and the statement of
changes in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1998, by correspondence with the
underlying funds. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund UL for
Variable Life Insurance as of December 31, 1998, the results of its operations
for the year then ended and the changes in its net assets for each of the two
years in the period then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Hartford, Connecticut
February 17, 1999
-22-
<PAGE> 26
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, 1998 and 1997, and the
related consolidated statements of income, changes in retained earnings and
accumulated other changes in equity from non-owner sources and cash flows for
each of the years in the three-year period ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 25, 1999
F-1
<PAGE> 27
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $1,740 $1,583 $1,387
Net investment income 2,185 2,037 1,950
Realized investment gains 149 199 65
Other revenues 440 354 284
- ------------------------------------------------------------------------------------------------
Total Revenues 4,514 4,173 3,686
- ------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,475 1,341 1,187
Interest credited to contractholders 876 829 863
Amortization of deferred acquisition costs and value of 311 293 281
insurance in force
General and administrative expenses 469 427 380
- ------------------------------------------------------------------------------------------------
Total Benefits and Expenses 3,131 2,890 2,711
- ------------------------------------------------------------------------------------------------
Income from continuing operations before federal income 1,383 1,283 975
taxes
- ------------------------------------------------------------------------------------------------
Federal income taxes:
Current expense 442 434 284
Deferred 39 10 58
- ------------------------------------------------------------------------------------------------
Total Federal Income Taxes 481 444 342
- ------------------------------------------------------------------------------------------------
Income from continuing operations 902 839 633
Discontinued operations, net of income taxes
Gain on disposition (net of taxes of $0, $0 and $14) - - 26
- ------------------------------------------------------------------------------------------------
Income from Discontinued Operations - - 26
================================================================================================
Net income $ 902 $ 839 $ 659
================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 28
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $23,893 $21,511
$22,973, $20,682)
Equity securities, at fair value (cost, $474, $480) 518 512
Mortgage loans 2,606 2,869
Real estate held for sale 143 134
Policy loans 1,857 1,872
Short-term securities 1,098 1,102
Trading securities, at market value 1,186 800
Other invested assets 2,251 1,702
- ---------------------------------------------------------------------------------------------
Total Investments 33,552 30,502
- ---------------------------------------------------------------------------------------------
Cash 65 58
Investment income accrued 393 338
Premium balances receivable 99 106
Reinsurance recoverables 3,387 3,753
Deferred acquisition costs and value of insurance in force 2,567 2,312
Separate and variable accounts 15,313 11,319
Other assets 1,172 1,052
- ---------------------------------------------------------------------------------------------
Total Assets $56,548 $49,440
- ---------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,739 $14,913
Future policy benefits and claims 12,326 12,361
Separate and variable accounts 15,305 11,309
Deferred federal income taxes 422 409
Trading securities sold not yet purchased, at market value 873 462
Other liabilities 2,783 2,661
- ---------------------------------------------------------------------------------------------
Total Liabilities 48,448 42,115
- ---------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized, 100 100
issued and outstanding
Additional paid-in capital 3,800 3,187
Retained earnings 3,602 2,810
Accumulated other changes in equity from non-owner sources 598 535
Unrealized gain on Citigroup Inc. stock, net of tax - 693
- ---------------------------------------------------------------------------------------------
Total Shareholder's Equity 8,100 7,325
- ---------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $56,548 $49,440
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 29
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ IN MILLIONS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED 1998 1997 1996
EARNINGS
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $2,810 $2,471 $2,312
Net income 902 839 659
Dividends to parent 110 500 500
- --------------------------------------------------------------------------
Balance, end of year $3,602 $2,810 $2,471
==========================================================================
- --------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------
Balance, beginning of year $ 535 $ 223 $ 449
Unrealized gains (losses), net of tax 62 313 (226)
Foreign currency translation, net of 1 (1) -
tax
- --------------------------------------------------------------------------
Balance, end of year $ 598 $ 535 $ 223
==========================================================================
- --------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------
Net Income $ 902 $ 839 $ 659
Other changes in equity from
non-owner sources 63 312 (226)
- --------------------------------------------------------------------------
Total changes in equity from
non-owner sources $ 965 $1,151 $ 433
==========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 30
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, 1998 1997 1996
---- ---- ----
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $1,763 $1,519 $1,387
Net investment income received 2,021 2,059 1,910
Other revenues received 255 180 131
Benefits and claims paid (1,127) (1,230) (1,060)
Interest credited to contractholders (918) (853) (820)
Operating expenses paid (587) (445) (343)
Income taxes paid (506) (368) (328)
Trading account investments, (purchases) sales, net (38) (54) -
Other 12 18 (70)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 875 826 807
Net cash used in discontinued operations - - (350)
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Operations 875 826 457
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 2,608 2,259 1,928
Mortgage loans 722 663 917
Proceeds from sales of investments
Fixed maturities 13,390 7,592 9,101
Equity securities 212 341 479
Mortgage loans - 207 178
Real estate held for sale 53 169 210
Purchases of investments
Fixed maturities (18,072) (11,143) (11,556)
Equity securities (194) (483) (594)
Mortgage loans (457) (771) (470)
Policy loans, net 15 38 (23)
Short-term securities, (purchases) sales, net (495) (2) 498
Other investments, purchases, net (550) (260) (137)
Securities transactions in course of settlement 192 311 (52)
Net cash provided by investing activities of - - 348
discontinued operations
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Investing Activities (2,576) (1,079) 827
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net - (50) (23)
Contractholder fund deposits 4,383 3,544 2,493
Contractholder fund withdrawals (2,565) (2,757) (3,262)
Dividends to parent company (110) (500) (500)
Other - - 9
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Financing Activities 1,708 237 (1,283)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 7 (16) 1
- ---------------------------------------------------------------------------------------------------
Cash at December 31, $ 65 $ 58 $ 74
===================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 31
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Insurance Company (TIC) and, collectively with its subsidiaries
(the Company) is a wholly owned subsidiary of The Travelers Insurance Group
Inc. (TIGI), an indirect wholly owned subsidiary of Citigroup Inc.
(Citigroup), formerly Travelers Group Inc. The consolidated financial
statements include the accounts of TIC and its insurance and non-insurance
subsidiaries on a fully consolidated basis. The primary insurance
subsidiaries of the Company are The Travelers Life and Annuity Company (TLAC)
and Primerica Life Insurance Company (Primerica Life) and its subsidiary
National Benefit Life Insurance Company (NBL).
As discussed in Note 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 a final contingent payment was
made during 1996. The Company's discontinued operations reflect the results
of the gain from the contingent payment in 1996.
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 1998
presentation.
F-6
<PAGE> 32
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING CHANGES
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). This
statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. Effective January 1, 1998, the Company adopted
the collateral provisions of FAS 125 which were not effective until 1998 in
accordance with Statement of Financial Accounting Standards No. 127,
"Deferral of the Effective Date of Certain Provisions of SFAS 125". The
adoption of the collateral provisions of FAS 125 created additional assets
and liabilities on the Company's consolidated statement of financial position
related to the recognition of securities provided and received as collateral.
There was no impact on the Company's results of operations from the adoption
of the collateral provisions of FAS 125.
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted 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 required to be reported
in an annual financial statement that is displayed with the same prominence
as other financial statements. This statement 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 thus represents the sum of net income and other
changes in equity from non-owner sources. The accumulated balance of other
changes in equity from non-owner sources is required to be displayed
separately from retained earnings and additional paid-in capital in the
consolidated balance sheet. The adoption of FAS 130 resulted primarily in the
Company reporting unrealized gains and losses on investments in debt and
equity securities in changes in equity from non-owner sources. See Note 5.
F-7
<PAGE> 33
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Disclosures About Segments of an Enterprise and Related Information
During 1998, the Company adopted 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. This statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise". 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 decisionmaker in deciding how to allocate resources and in assessing
performance. As a result of the adoption of FAS 131, the Company has two
reportable operating segments, Travelers Life and Annuity and Primerica Life
Insurance. See Note 17.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
During the third quarter of 1998, the Company adopted (effective January 1,
1998) the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants' Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 provides guidance on accounting for the costs of computer
software developed or obtained for internal use and for determining when
specific costs should be capitalized or expensed. The adoption of SOP 98-1
did not have a material impact on the Company's financial condition,
statement of operations or liquidity.
ACCOUNTING POLICIES
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity of
the investment. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
The effective yield used to determine amortization is calculated based upon
actual historical and projected future cash flows, which are obtained from a
widely-accepted securities data provider. Fixed maturities are classified as
"available for sale" and are reported at fair value, with unrealized
investment gains and losses, net of income taxes, charged or credited
directly to shareholder's equity.
Equity securities, which include common and nonredeemable preferred stocks,
are classified as "available for sale" and carried at fair value based
primarily on quoted market prices. Changes in fair values of equity
securities are charged or credited directly to shareholder's equity, net of
income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined to
be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the higher
returns required in the current real estate financing market. Impaired loans
were insignificant at December 31, 1998 and 1997.
F-8
<PAGE> 34
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Real estate held for sale is carried at the lower of cost or fair value less
estimated cost to sell. Fair value of foreclosed properties is established at
the time of foreclosure by internal analysis or external appraisers, using
discounted cash flow analyses and other accepted techniques. Thereafter, an
allowance for losses on real estate held for sale is established if the
carrying value of the property exceeds its current fair value less estimated
costs to sell. There was no such allowance at December 31, 1998 and 1997.
Trading securities and related liabilities are normally held for periods less
than six months. These investments are marked to market with the change
recognized in net investment income during the current period.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.
Accrual of income is suspended on fixed maturities or mortgage loans that are
in default, or on which it is likely that future payments will not be made as
scheduled. Interest income on investments in default is recognized only as
payment is received.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures contracts, options, forward contracts and interest rate swaps and
caps, as a means of hedging exposure to interest rate and foreign currency
risk. Hedge accounting is used to account for derivatives. To qualify for
hedge accounting the changes in value of the derivative must be expected to
substantially offset the changes in value of the hedged item. Hedges are
monitored to ensure that there is a high correlation between the derivative
instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to adjust
the basis of hedged investments and are recognized in net investment income
over the life of the investment.
Payments to be received or made under interest rate swaps are accrued and
recognized in net investment income. Swaps are carried at fair value with
unrealized gains and losses, net of taxes, charged or credited directly to
shareholder's equity.
Forward contracts, and options, and interest rate caps were not significant
at December 31, 1998 and 1997. 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 pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the remeasurement
of the local currency value of foreign investments to U.S. dollars, the
functional currency of the Company. The foreign exchange effects of Canadian
operations are included in unrealized gains and losses.
F-9
<PAGE> 35
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
POLICY LOANS
Policy loans are carried at the amount of the unpaid balances that are not in
excess of the net cash surrender values of the related insurance policies.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
DEFERRED ACQUISITION COSTS 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
15 to 20 year amortization period is used; for long-term care business, a 10
to 20 year period is used, and a 7 to 20 year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.
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.
F-10
<PAGE> 36
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal life,
corporate owned life insurance, pension investment and certain deferred
annuity contracts. Contractholder fund balances are increased by such
receipts and credited interest and reduced by withdrawals, mortality charges
and administrative expenses charged to the contractholders. Interest rates
credited to contractholder funds range from 3.5% to 9.1%.
FUTURE POLICY BENEFITS
Benefit reserves represent liabilities for future insurance policy benefits.
Benefit reserves for life insurance and annuities have been computed based
upon mortality, morbidity, persistency and interest assumptions applicable to
these coverages, which range from 2.5% to 10.0%, including adverse deviation.
These assumptions consider Company experience and industry standards. The
assumptions vary by plan, age at issue, year of issue and duration.
Appropriate recognition has been given to experience rating and reinsurance.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, whose insurance subsidiaries are domiciled principally in
Connecticut and Massachusetts, prepares statutory financial statements in
accordance with the accounting practices prescribed or permitted by the
insurance departments of the states of domicile. Prescribed statutory
accounting practices include certain publications of the National Association
of Insurance Commissioners (NAIC) as well as state laws, regulations, and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The impact of any
permitted accounting practices on statutory surplus of the Company is not
material.
The NAIC recently completed a process intended to codify statutory accounting
practices for certain insurance enterprises. As a result of this process, the
NAIC will issue a revised statutory Accounting Practices and Procedures
Manual version effective January 1, 2001 (the revised Manual) that will be
effective January 1, 2001 for the calendar year 2001 statutory financial
statements. It is expected that the State of Connecticut will require that,
effective January 1, 2001, insurance companies domiciled in Connecticut
prepare their statutory basis financial statements in accordance with the
revised Manual subject to any deviations prescribed or permitted by the
Connecticut insurance commissioner. The Company has not yet determined the
impact that this change will have on the statutory capital and surplus of its
insurance subsidiaries.
PREMIUMS
Premiums are recognized as revenues when due. Reserves are established for
the portion of premiums that will be earned in future periods and for
deferred profits on limited-payment policies that are being recognized in
income over the policy term.
OTHER REVENUES
Other revenues include surrender, mortality and administrative charges and
fees earned on investment, universal life and other insurance contracts.
Other revenues also include gains and losses on dispositions of assets other
than realized investment gains and losses and revenues of non-insurance
subsidiaries.
F-11
<PAGE> 37
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INTEREST CREDITED TO CONTRACTHOLDERS
Interest credited to contractholders represents amounts earned by universal
life, corporate owned life insurance, pension investment and certain deferred
annuity contracts in accordance with contract provisions.
FEDERAL INCOME TAXES
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income taxes
arise from changes during the year in cumulative temporary differences
between the tax basis and book basis of assets and liabilities. 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 plans to implement SOP 97-3 in the first quarter of 1999 and expects
there to be no material impact on the Company's financial condition, results
of operations or liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the
foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for
changes in the fair value of a derivative (that is, gains and losses) depends
on the intended use of the derivative and the resulting designation. FAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Upon initial application of FAS 133, hedging relationships must be
designated anew and documented pursuant to the provisions of this statement.
The Company has not yet determined the impact that FAS 133 will have on its
consolidated financial statements.
F-12
<PAGE> 38
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 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.
On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation. 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.
3. COMMERCIAL PAPER AND LINES OF CREDIT
TIC issues commercial paper directly to investors. No commercial paper was
outstanding at December 31, 1998 or 1997. TIC maintains unused credit
availability under bank lines of credit at least equal to the amount of the
outstanding commercial paper. No interest was paid in 1998 and interest
expense was not significant in 1997.
Citigroup, Commercial Credit Company (CCC) (an indirect wholly owned
subsidiary of Citigroup) and TIC have an agreement with a syndicate of banks
to provide $1.0 billion of revolving credit, to be allocated to any of
Citigroup, CCC or TIC. TIC's participation in this agreement is limited to
$250 million. The agreement consists of a five-year revolving credit facility
that expires in 2001. At December 31, 1998, $700 million was allocated to
Citigroup, $300 million was allocated to CCC and $0 was allocated to TIC.
Under this facility TIC is required to maintain certain minimum equity and
risk-based capital levels. At December 31, 1998, TIC was in compliance with
these provisions. There were no amounts outstanding under this agreement at
December 31, 1998 and 1997. If TIC had borrowings outstanding on this
facility, the interest rate would be based upon LIBOR plus a negotiated
margin.
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.
Beginning in 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 $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-13
<PAGE> 39
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
<TABLE>
<CAPTION>
WRITTEN PREMIUMS 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,310 $2,148 $1,982
Assumed from:
Non-affiliated companies - 1 5
Ceded to:
Affiliated companies (242) (280) (284)
Non-affiliated companies (317) (273) (309)
----------------------------------------------------------------------
Total Net Written Premiums $1,751 $1,596 $1,394
======================================================================
</TABLE>
<TABLE>
<CAPTION>
EARNED PREMIUMS 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Direct $1,949 $2,170 $1,897
Assumed from:
Non-affiliated companies - 1 5
Ceded to:
Affiliated companies (251) (321) (219)
Non-affiliated companies (308) (291) (315)
----------------------------------------------------------------------
Total Net Earned Premiums $1,390 $1,559 $1,368
======================================================================
</TABLE>
Reinsurance recoverables at December 31, 1998 and 1997 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
REINSURANCE RECOVERABLES 1998 1997
-----------------------------------------------------------
<S> <C> <C>
Life and Accident and Health Business:
Non-affiliated companies $1,297 $1,362
Property-Casualty Business:
Affiliated companies 2,090 2,391
-----------------------------------------------------------
Total Reinsurance Recoverables $3,387 $3,753
===========================================================
</TABLE>
Total reinsurance recoverables at December 31, 1998 and 1997 include $640
million and $697 million, respectively, from MetLife in connection with the
sale of the Company's group life and related businesses.
F-14
<PAGE> 40
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
Additional paid-in capital increased during 1998 primarily due to the
conversion of Citigroup common stock to Citigroup preferred stock. This
increase in stockholder's equity was offset by a decrease in unrealized
investment gains due to the same transaction. See Note 13.
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 $702 million, $754 million and $656 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company's statutory capital and surplus was $4.95 billion and $4.12
billion at December 31, 1998 and 1997, 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 $504 million is available in 1999 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, 1998 and 1997.
F-15
<PAGE> 41
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES, NET OF TAX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED FOREIGN CURRENCY ACCUMULATED OTHER
GAIN ON TRANSLATION CHANGES IN EQUITY FROM
INVESTMENT ADJUSTMENTS NON-OWNER SOURCES
(for the year ended December 31, $ in millions) SECURITIES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Balance, beginning of year $545 $(10) $535
Current-year change 62 1 63
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $607 $(9) $598
==========================================================================================================================
1997
Balance, beginning of year $232 $(9) $223
Current-year change 313 (1) 312
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $545 $(10) $535
==========================================================================================================================
1996
Balance, beginning of year $458 $(9) $449
Current-year change (226) - (226)
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $232 $(9) $223
==========================================================================================================================
</TABLE>
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF OTHER CHANGES IN EQUITY FROM
NON-OWNER SOURCES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Pre-tax Tax expense After-tax
(for the year ended December 31, $ in millions) amount (benefit) amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 244 $ 85 $ 159
Less: reclassification adjustment for gains
realized in net income 149 52 97
- ---------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities 95 33 62
Foreign currency translation adjustments 3 2 1
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $ 98 $ 35 $ 63
=========================================================================================================
1997
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 681 $ 239 $ 442
Less: reclassification adjustment for gains
realized in net income 199 70 129
- ---------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities 482 169 313
Foreign currency translation adjustments (1) - (1)
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $ 481 $ 169 $ 312
=========================================================================================================
1996
Unrealized gain on investment securities:
Unrealized holding losses arising during year $(283) $ (99) $(184)
Less: reclassification adjustment for gains
realized in net income 65 23 42
- ---------------------------------------------------------------------------------------------------------
Net unrealized loss on investment securities (348) (122) (226)
Foreign currency translation adjustments - - -
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $(348) $(122) $(226)
=========================================================================================================
</TABLE>
F-16
<PAGE> 42
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, interest rate swaps, options and forward contracts as a means of
hedging exposure to interest rate and foreign currency 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 interest rate swaps, options and forward
contracts, credit risk is limited to the amount that it would cost the
Company to replace the contracts. Financial futures contracts have little
credit risk since organized exchanges are the counterparties. The Company is
a writer of option contracts and as such has no credit risk since the
counterparty has no performance obligation after it has paid a cash premium.
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange traded financial futures contracts to manage its
exposure to changes in interest rates which arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from the
sale or maturity of investments. To hedge against adverse changes in interest
rates, the Company enters long or short positions in financial futures
contracts which offset asset price changes resulting from changes in market
interest rates until an investment is purchased or a product is sold.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures contracts
represents the extent of the Company's involvement, but not future cash
requirements, as open positions are typically closed out prior to the
delivery date of the contract.
At December 31, 1998 and 1997, the Company held financial futures contracts
with notional amounts of $459 million and $625 million, respectively. These
financial futures had a deferred gain of $3.3 million and a deferred loss of
$.1 million in 1998 and a deferred gain of $.7 million, and a deferred loss
of $4.1 million in 1997. Total gains of $1.5 million and losses of $5.8
million from financial futures were deferred at December 31, 1998 and 1997,
respectively, relating to anticipated investment purchases and investment
product sales, and are reported as other liabilities. At December 31, 1998
and 1997, the Company's futures contracts had no fair value because these
contracts were marked to market and settled in cash daily.
F-17
<PAGE> 43
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match an asset with a corresponding liability. Under interest rate swaps, the
Company agrees with other parties to exchange, at specific intervals, the
difference between fixed-rate and floating-rate interest amounts calculated
by reference to an agreed notional principal amount. The Company also enters
into basis swaps in which both legs of the swap are floating with each based
on a different index. Generally, no cash is exchanged at the outset of the
contract and no principal payments are made by either party. A single net
payment is usually made by one counterparty at each due date. Swap agreements
are not exchange traded and are subject to the risk of default by the
counterparty.
At December 31, 1998 and 1997, the Company held interest rate swap contracts
with notional amounts of $1,077.9 million and $234.7 million, respectively.
The fair value of these financial instruments was $5.6 million (gain
position) and $19.6 million (loss position) at December 31, 1998 and was $.3
million (gain position) and $2.5 million (loss position) at December 31,
1997. The fair values were determined using the discounted cash flow method.
The off-balance sheet risks of options and forward contracts were not
significant at December 31, 1998 and 1997.
The Company purchased a 5-year interest rate cap, with a notional amount of
$200 million, from Travelers Group Inc. in 1995 to hedge against losses that
could result from increasing interest rates. This instrument, which does not
have off-balance sheet risk, gave the Company the right to receive payments
if interest rates exceeded specific levels at specific dates. The premium of
$2 million paid for this instrument was being amortized over its life. The
interest rate cap asset was terminated in 1998. The fair value at December
31, 1997 was $0.
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, 1998 and 1997.
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, 1998 and 1997, investments in fixed maturities had a carrying
value and a fair value of $23.9 billion and $21.5 billion, respectively. See
Notes 1 and 13.
At December 31, 1998 mortgage loans had a carrying value of $2.6 billion and
a fair value of $2.8 billion and in 1997 had a carrying value of $2.9 billion
and a fair value of $3.0 billion. In estimating fair value, the Company used
interest rates reflecting the current real estate financing market.
F-18
<PAGE> 44
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The carrying values of $144 million and $143 million of financial instruments
classified as other assets approximated their fair values at December 31,
1998 and 1997, respectively. The carrying values of $2.3 billion and $2.0
billion of financial instruments classified as other liabilities also
approximated their fair values at December 31, 1998 and 1997, respectively.
Fair value is determined using various methods, including discounted cash
flows, as appropriate for the various financial instruments.
At December 31, 1998, contractholder funds with defined maturities had a
carrying value and a fair value of $3.3 billion, compared with a carrying
value and a fair value of $2.3 billion at December 31, 1997. The fair value
of these contracts is determined by discounting expected cash flows at an
interest rate commensurate with the Company's credit risk and the expected
timing of cash flows. Contractholder funds without defined maturities had a
carrying value of $10.4 billion and a fair value of $10.2 billion at December
31, 1998, compared with a carrying value of $9.7 billion and a fair value of
$9.5 billion at December 31, 1997. 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 $235 million at December 31, 1998, compared with a
carrying value and a fair value of $260 million at December 31, 1997. 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, 1998, compared with a carrying value and a fair value of $209
million and $206 million, respectively, at December 31, 1997.
The carrying values of cash, trading securities and trading securities sold
not yet purchased are carried at fair value. The carrying values of
short-term securities and investment income accrued approximated their fair
values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
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.
F-19
<PAGE> 45
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Litigation
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc. et al. was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and
other state laws by an affiliate of the Company, Primerica Financial
Services, Inc. and certain of its affiliates. Plaintiffs seek unspecified
compensatory and punitive damages and other relief. In October 1997,
defendants answered the complaint, denied liability and asserted numerous
affirmative defenses. In February 1998, the Superior Court of Richmond County
transferred the lawsuit to the Superior Court of Gwinnett County, Georgia.
The plaintiffs appealed the transfer order, and in December 1998 the Court of
Appeals of the State of Georgia reversed the lower court's decision. Later in
December 1998, defendants petitioned the Georgia Supreme Court to hear the
appeal from the decision of the Court of Appeals. Pending appeal, proceedings
in the trial court have been stayed. Defendants intend to vigorously contest
the litigation.
The Company is also a defendant or co-defendant in various other litigation
matters in the normal course of business. Although there can be no
assurances, as of December 31, 1998, 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 Citigroup. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by TIGI. The Company's share of net expense for the qualified
pension and other postretirement benefit plans was not significant for 1998,
1997 and 1996. 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 1998, 1997 and 1996.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in a
401(k) savings plan sponsored by Citigroup. 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 1998, 1997 and 1996.
F-20
<PAGE> 46
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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, 1998 and 1997, the
pool totaled approximately $2.3 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $793 million and $725 million at
December 31, 1998 and 1997, respectively, and is included in short-term
securities in the consolidated balance sheet.
Included in short-term investments is a 90 day variable rate note receivable
from Citigroup issued on August 28, 1998 and renewed on November 25, 1998.
The rate is based upon the AA financial commercial paper rate plus 14 basis
points. The rate at December 31, 1998 is 5.47%. The balance at December 31,
1998 is $500 million. Interest accrued at December 31, 1998 was $2.2 million.
Interest earned during 1998 was $9.4 million. Citigroup repaid this note on
February 25, 1999.
The Company sells structured settlement annuities to the insurance
subsidiaries of TAP in connection with the settlement of certain policyholder
obligations. Such premiums and deposits were $104 million, $88 million, and
$40 million for 1998, 1997 and 1996, respectively. Reserves and
contractholder funds related to these annuities amounted to $787 million and
$795 million in 1998 and 1997, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney Inc. (SSB). Premiums and
deposits related to these products were $1.3 billion, $1.0 billion, and
$820 million in 1998, 1997 and 1996, respectively.
During the year the Company lent out $78.5 million par of debentures to SSB
for $84.8 million in cash collateral. Loaned debentures totaling $37.6
million with cash collateral of $39.7 million remained outstanding at
December 31, 1998.
The Company sold $27.4 million par of 6.125% U.S. Treasury bonds to SSB for
$31.1 million.
F-21
<PAGE> 47
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company purchased $36 million par of 6.56% Chase Commercial Mortgage
Securities Corp. bonds from SSB for $35.9 million.
Primerica Life has entered into a General Agency Agreement with Primerica
Financial Service, Inc. (Primerica), that provides that Primerica will be
Primerica Life's general agent for marketing all insurance of Primerica Life.
In consideration of such services, Primerica Life agreed to pay Primerica
marketing fees of no less than $10 million based upon U.S. gross direct
premiums received by Primerica Life. In 1998 the fees paid by Primerica Life
were $12.5 million.
In 1998 Primerica became a distributor of products for Travelers Life and
Annuity. During the year Primerica sold $256 million of deferred annuities.
Included in other invested assets is a $987 million investment in Citigroup
preferred stock at December 31, 1998, carried at cost. Also, included in
other invested assets is a $1.15 billion investment in common stock of
Citigroup at December 31, 1997, carried at fair value.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements have been
granted Citigroup stock options.
The Company applies APB 25 and related interpretations in accounting for
stock options. Since stock options under the Citigroup plans are issued at
fair market value on the date of award, no compensation cost has been
recognized for these awards. FAS 123 provides an alternative to APB 25
whereby fair values may be ascribed to options using a valuation model and
amortized to compensation cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Citigroup stock options,
net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1998 1997 1996
($ IN MILLIONS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $902 $839 $659
FAS 123 pro forma adjustments, after tax (13) (9) (3)
-----------------------------------------------------------------------------------------------------
Net income, pro forma $889 $830 $656
</TABLE>
The Company had an interest rate cap agreement with Citigroup. See Note 6.
F-22
<PAGE> 48
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 $18 million, $15
million, and $24 million in 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
---------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING
($ in millions) RENTAL PAYMENTS
---------------------------------------------------
<S> <C>
1999 $ 47
2000 50
2001 54
2002 44
2003 42
Thereafter 296
---------------------------------------------------
Total Rental Payments $533
===================================================
</TABLE>
Future sublease rental income of approximately $86 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of the
rental expense for a particular lease totaling $207 million, by an affiliate.
Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-23
<PAGE> 49
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. FEDERAL INCOME TAXES
($ in millions)
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,383 $1,283 $ 975
Statutory Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
Expected Federal Income Taxes 484 449 341
Tax Effect of:
Non-taxable investment income (5) (4) (3)
Other, net 2 (1) 4
----------------------------------------------------------------------------------
Federal Income Taxes $ 481 $ 444 $ 342
==================================================================================
Effective Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $ 418 $ 410 $ 263
Foreign 24 24 21
---------------------------------------------------------------------------------
Total 442 434 284
---------------------------------------------------------------------------------
Deferred:
United States 40 10 57
Foreign (1) - 1
---------------------------------------------------------------------------------
Total 39 10 58
----------------------------------------------------------------------------------
Federal Income Taxes $ 481 $ 444 $ 342
=================================================================================
</TABLE>
Additional tax benefits attributable to employee stock plans allocated
directly to shareholder's equity for the years ended December 31, 1998, 1997
and 1996 were $17 million, $17 million and $8 million, respectively.
F-24
<PAGE> 50
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1998 and 1997 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in millions) 1998 1997
---- ----
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 616 $ 561
Operating lease reserves 76 80
Other employee benefits 103 102
Other 135 127
----------------------------------------------------------------------------------
Total 930 870
----------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of 673 608
insurance in force
Investments, net 489 484
Other 90 87
----------------------------------------------------------------------------------
Total 1,252 1,179
----------------------------------------------------------------------------------
Net Deferred Tax Liability Before Valuation (322) (309)
Allowance
Valuation Allowance for Deferred Tax Assets (100) (100)
----------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (422) $ (409)
----------------------------------------------------------------------------------
</TABLE>
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.
The $100 million valuation allowance is sufficient to cover any capital
losses on investments that may exceed the capital gains able to be generated
in the life insurance group's consolidated federal income tax return based
upon management's best estimate of the character of the reversing temporary
differences. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains or a change in circumstances that causes
the recognition of the benefits to become more likely than not. There was no
change in the valuation allowance during 1998. The initial recognition of any
benefit produced by the reversal of the valuation allowance will be
recognized by reducing goodwill.
At December 31, 1998, the Company had no ordinary or capital loss
carryforwards.
F-25
<PAGE> 51
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The policyholders surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account is
approximately $932 million. Income taxes are not provided for on this amount
because under current U.S. tax rules such taxes will become payable only to
the extent such amounts are distributed as a dividend to exceed limits
prescribed by federal law. Distributions are not contemplated from this
account. At current rates the maximum amount of such tax would be
approximately $326 million.
12. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,598 $1,460 $1,387
Mortgage loans 295 291 334
Policy loans 131 137 156
Other, including trading 226 238 171
----------------------------------------------------------------------
2,250 2,126 2,048
----------------------------------------------------------------------
Investment expenses 65 89 98
----------------------------------------------------------------------
Net investment income $2,185 $2,037 $1,950
----------------------------------------------------------------------
</TABLE>
13. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $111 $71 $(63)
Equity securities 6 (9) 47
Mortgage loans 21 59 49
Real estate held for sale 16 67 33
Other (5) 11 (1)
----------------------------------------------------------------------
Total Realized Investment Gains $149 $199 $65
----------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 52
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
($ in millions)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $ 91 $ 446 $ (323)
Equity securities 13 25 (35)
Other (169) 520 220
-------------------------------------------------------------------------------------------------
Total Unrealized Investment Gains (Losses) (65) 991 (138)
-------------------------------------------------------------------------------------------------
Related taxes (20) 350 (43)
-------------------------------------------------------------------------------------------------
Change in unrealized investment gains (45) 641 (95)
(losses)
Transferred to paid in capital, net of tax (585) -- --
Balance beginning of year 1,228 587 682
-------------------------------------------------------------------------------------------------
Balance End of Year $ 598 $ 1,228 $ 587
-------------------------------------------------------------------------------------------------
</TABLE>
Included in Other in 1998 is the unrealized loss on Citigroup common stock of
$167 million prior to the conversion to preferred stock. Also included in
Other were unrealized gains of $506 million and $203 million, which were
reported in 1997 and 1996, respectively, related to appreciation of Citigroup
common stock.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale were
$13.4 billion, $7.6 billion and $9.1 billion in 1998, 1997 and 1996,
respectively. Gross gains of $314 million, $170 million and $107 million and
gross losses of $203 million, $99 million and $175 million in 1998, 1997 and
1996, respectively, were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a quoted
market price or dealer quote are not available amounted to $4.8 billion and
$5.1 billion at December 31, 1998 and 1997, respectively.
F-27
<PAGE> 53
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 GROSS GROSS
($ 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 $ 4,717 $ 147 $ 11 $ 4,853
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,563 186 3 1,746
Obligations of states, municipalities and
political subdivisions 239 18 -- 257
Debt securities issued by foreign governments 634 41 3 672
All other corporate bonds 13,025 532 57 13,500
Other debt securities 2,709 106 38 2,777
Redeemable preferred stock 86 3 1 88
- ---------------------------------------------------------------------------------------------------------
Total Available For Sale $22,973 $ 1,033 $ 113 $23,893
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 GROSS GROSS
($ 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 11,787 459 17 12,229
Other debt securities 2,761 88 7 2,842
Redeemable preferred stock 12 1 -- 13
- --------------------------------------------------------------------------------------------------------------
Total Available For Sale $20,682 $ 860 $ 31 $21,511
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE> 54
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1998, by
contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
($ in millions) AMORTIZED FAIR
COST VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 1,296 $ 1,305
Due after 1 year through 5 years 6,253 6,412
Due after 5 years through 10 years 5,096 5,310
Due after 10 years 5,611 6,013
- -----------------------------------------------------------------
18,256 19,040
- -----------------------------------------------------------------
Mortgage-backed securities 4,717 4,853
- -----------------------------------------------------------------
Total Maturity $22,973 $23,893
- -----------------------------------------------------------------
</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, 1998 and 1997, the Company held CMOs classified as available for
sale with a fair value of $3.4 billion and $2.1 billion, respectively.
Approximately 54% and 72%, respectively, of the Company's CMO holdings are fully
collateralized by GNMA, FNMA or FHLMC securities at December 31, 1998 and 1997.
In addition, the Company held $1.4 billion and $1.9 billion of GNMA, FNMA or
FHLMC mortgage-backed pass-through securities at December 31, 1998 and 1997,
respectively. Virtually all of these securities are rated AAA.
F-29
<PAGE> 55
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Common stocks $129 $ 44 $ 3 $170
Non-redeemable preferred stocks 345 10 7 348
- ------------------------------------------------------------------------------------------------
Total Equity Securities $474 $ 54 $ 10 $518
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
Common stocks $179 $ 34 $ 11 $202
Non-redeemable preferred stocks 301 13 4 310
- ------------------------------------------------------------------------------------------------
Total Equity Securities $480 $ 47 $ 15 $512
- ------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $212 million, $341 million
and $479 million in 1998, 1997 and 1996, respectively. Gross gains of $30
million, $53 million and $64 million and gross losses of $24 million, $62
million and $11 million in 1998, 1997 and 1996, respectively, were realized
on those sales.
Mortgage Loans and Real Estate Held For Sale
At December 31, 1998 and 1997, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following ($ in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,370 $2,866
Underperforming Mortgage Loans 236 3
- ------------------------------------------------------------------------------------
Total Mortgage Loans 2,606 2,869
- ------------------------------------------------------------------------------------
Real Estate Held For Sale - Foreclosed 112 117
Real Estate Held For Sale - Investment 31 17
- ------------------------------------------------------------------------------------
Total Real Estate 143 134
- ------------------------------------------------------------------------------------
Total Mortgage Loans and Real Estate Held for Sale $2,749 $3,003
====================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.
F-30
<PAGE> 56
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
- -----------------------------------------------------------------------
<S> <C>
Past Maturity $ 186
1999 188
2000 196
2001 260
2002 118
2003 206
Thereafter 1,452
- -----------------------------------------------------------------------
Total $2,606
=======================================================================
</TABLE>
Joint Venture
In October 1997, the Company and Tishman Speyer Properties (Tishman), a
worldwide real estate owner, developer and manager, formed a real estate
joint venture with an initial equity commitment of $792 million. The
Company and certain of its affiliates originally committed $420 million in
real estate equity and $100 million in cash while Tishman originally
committed $272 million in properties and cash. Both companies are serving
as general partners for the venture and Tishman is primarily responsible
for the venture's real estate acquisition and development efforts. The
Company's carrying value of this investment was $252.4 million and $204.8
million at December 31, 1998 and 1997, respectively.
Trading Securities
Trading securities of the Company are held in a subsidiary that is a
broker/dealer, Tribeca Investments L.L.C.
<TABLE>
<CAPTION>
($ in millions)
- -------------------------------------------------------------------------------------
TRADING SECURITIES OWNED 1998 1997
------ ------
<S> <C> <C>
Convertible bond arbitrage $ 754 $ 370
Merger arbitrage 427 352
Other 5 78
- -------------------------------------------------------------------------------------
Total $1,186 $ 800
- -------------------------------------------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Convertible bond arbitrage $ 521 $ 249
Merger arbitrage 352 213
- -------------------------------------------------------------------------------------
Total $ 873 $ 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-31
<PAGE> 57
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1998 and 1997, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's
equity.
The Company maintains a short-term investment pool for its insurance
affiliates in which the Company also participates. See Note 9.
Included in fixed maturities are below investment grade assets totaling
$2.1 billion and $1.4 billion at December 31, 1998 and 1997, respectively.
The Company defines its below investment grade assets as those securities
rated "Ba1" or below by external rating agencies, or the equivalent by
internal analysts when a public rating does not exist. Such assets include
publicly traded below investment grade bonds and certain other privately
issued bonds that are classified as below investment grade.
The Company had concentrations of investments, primarily fixed maturities,
in the following industries:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
($ in millions) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
Banking $2,131 $2,215
Electric Utilities 1,513 1,377
Finance 1,346 1,556
Asset-Backed Credit Cards 1,013 778
-----------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
At December 31, 1998 and 1997, concentrations of mortgage loans of $751
million and $794 million, respectively, were for properties located in
highly populated areas in the state of California.
Other mortgage loan investments are relatively evenly dispersed throughout
the United States, with no significant holdings in any one state.
Significant concentrations of mortgage loans by property type at December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
($ in millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Office $1,185 $1,382
Agricultural 887 771
------------------------------------------------------------------------
</TABLE>
F-32
<PAGE> 58
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often includes
pledges of assets, including stock and other assets, guarantees and letters
of credit. The Company's underwriting standards with respect to new
mortgage loans generally require loan to value ratios of 75% or less at the
time of mortgage origination.
Non-Income Producing Investments
Investments included in the consolidated balance sheets that were
non-income producing for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loans and debt securities that were restructured
at below market terms at December 31, 1998 and 1997. The balances of the
restructured investments were insignificant. The new terms typically defer
a portion of contract interest payments to varying future periods. The
accrual of interest is suspended on all restructured assets, and interest
income is reported only as payment is received. Gross interest income on
restructured assets that would have been recorded in accordance with the
original terms of such loans was insignificant in 1998 and in 1997.
Interest on these assets, included in net investment income was
insignificant in 1998 and 1997.
14. DEPOSIT FUNDS AND RESERVES
At December 31, 1998, the Company had $25.7 billion of life and annuity
deposit funds and reserves. Of that total, $13.8 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $11.9
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 $2.4 billion of liabilities that are
surrenderable with market value adjustments. Also included are an
additional $5.1 billion of life insurance and individual annuity
liabilities which are subject to discretionary withdrawals, and have an
average surrender charge of 4.7%. In the payout phase, these funds are
credited at significantly reduced interest rates. The remaining $4.4
billion of liabilities are surrenderable without charge. More than 14.2% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-33
<PAGE> 59
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $902 $839 $633
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized gains (149) (199) (65)
Deferred federal income taxes 39 10 58
Amortization of deferred policy acquisition costs and
value of insurance in force 311 293 281
Additions to deferred policy acquisition costs (566) (471) (350)
Investment income accrued (55) 14 2
Premium balances receivable 7 3 (6)
Insurance reserves and accrued expenses 335 131 (1)
Other 51 206 255
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 875 826 807
Net cash used in discontinued operations - - (350)
Net cash provided by operations $875 $826 $457
--------------------------------------------------------------------------------------------------------------
</TABLE>
16. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include the
transfer of Citigroup common stock to Citigroup preferred stock valued at
$987 million in 1998 and the conversion of $119 million of real estate held
for sale to other invested assets as a joint venture in 1997.
F-34
<PAGE> 60
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
17. OPERATING SEGMENTS
The Company has two reportable business segments that are separately managed due
to differences in products, services, marketing strategy and resource
management. The business of each segment is maintained and reported through
separate legal entities within the Company. The management groups of each
segment report separately to the common ultimate parent, Citigroup Inc.
The TRAVELERS LIFE AND ANNUITY business segment consolidates primarily the
business of Travelers Insurance Company and The Travelers Life and Annuity
Company. The Travelers Life and Annuity business segment 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.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company and National Benefit Life Insurance Company.
The Primerica Life business segment offers individual life products, primarily
term insurance, to customers through a nationwide sales force of approximately
80,000 full and part-time licensed Personal Financial Analysts.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1), except that management
also includes receipts on long-duration contracts (universal life-type and
investment contracts) as deposits along with premiums in measuring business
volume.
BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1998 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 683 $ 1,057 $ 1,740
Deposits 7,693 -- 7,693
------- ------- -------
Total business volume $ 8,376 $ 1,057 $ 9,433
Net investment income 1,965 220 2,185
Interest credited to contractholders 876 -- 876
Amortization of deferred acquisition costs and value of
insurance in force 115 196 311
Federal income taxes on Operating Income 260 170 430
Operating Income (excludes realized gains or losses and
the related FIT) $ 493 $ 312 $ 805
Segment Assets $49,646 $ 6,902 $56,548
</TABLE>
F-35
<PAGE> 61
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1997 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume
Premiums $ 548 $ 1,035 $ 1,583
Deposits 5,276 -- 5,276
------- ------- -------
Total business volume $ 5,824 $ 1,035 $ 6,859
Net investment income 1,836 201 2,037
Interest credited to contractholders 829 -- 829
Amortization of deferred acquisition costs and value of
insurance in force 96 197 293
Federal income taxes on Operating Income 221 153 374
Operating Income (excludes realized gains or losses and
the related FIT) $ 427 $ 283 $ 710
Segment Assets $42,330 $ 7,110 $49,440
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1996 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 357 $ 1,030 $ 1,387
Deposits 3,502 -- 3,502
------- ------- -------
Total business volume $ 3,859 $ 1,030 $ 4,889
Net investment income 1,775 175 1,950
Interest credited to contractholders 863 -- 863
Amortization of deferred acquisition costs and value of
insurance in force 83 198 281
Federal income taxes on Operating Income 189 130 319
Operating Income (excludes realized gains or losses and
the related FIT) $ 356 $ 235 $ 591
Segment Assets $37,564 $ 5,409 $42,973
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures for
additions to long-lived assets other than financial instruments, long-term
customer relationships of a financial institution, mortgage and other servicing
rights, deferred policy acquisition costs, and deferred tax assets, were not
material.
F-36
<PAGE> 62
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
($ in millions)
<TABLE>
<CAPTION>
REVENUES 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Total business volume $ 9,433 $ 6,859 $ 4,889
Net investment income 2,185 2,037 1,950
Realized investment gains 149 199 65
Other revenues 440 354 284
Elimination of deposits (7,693) (5,276) (3,502)
- -------------------------------------------------------------------------------
Total revenues $ 4,514 $ 4,173 $ 3,686
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total operating income of business segments $805 $710 $591
Realized investment gains net of tax 97 129 42
- --------------------------------------------------------------------------------
Income from continuing operations $902 $839 $633
================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets of business segments $56,548 $49,440 $42,973
================================================================================
</TABLE>
<TABLE>
<CAPTION>
REVENUE BY PRODUCTS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Annuities $ 4,198 $ 3,303 $ 2,635
Group and Payout Annuities 5,326 3,737 2,194
Individual Life & Health Insurance 2,270 2,102 1,956
Other (a) 413 307 403
Elimination of deposits (7,693) (5,276) (3,502)
- --------------------------------------------------------------------------------
Total Revenue $ 4,514 $ 4,173 $ 3,686
================================================================================
</TABLE>
(a) Other represents revenue attributable to unallocated capital and run-off
business.
The Company's revenue was derived almost entirely from U.S. domestic business.
Revenue attributable to foreign countries was insignificant.
The Company had no transactions with a single customer representing 10% or more
of its revenue.
F-37
<PAGE> 63
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
Sections 33-770 et seq, inclusive of the Connecticut General Statutes ("C.G.S.")
regarding indemnification of directors and officers of Connecticut corporations
provides in general that Connecticut corporations shall indemnify their
officers, directors and certain other defined individuals against judgments,
fines, penalties, amounts paid in settlement and reasonable expenses actually
incurred in connection with proceedings against the corporation. The
corporation's obligation to provide such indemnification generally does not
apply unless (1) the individual is wholly successful on the merits in the
defense of any such proceeding; or (2) a determination is made (by persons
specified in the statute) that the individual acted in good faith and in the
best interests of the corporation and in all other cases, his conduct was at
least not opposed to the best interests of the corporation, and in a criminal
case he had no reasonable cause to believe his conduct was unlawful; or (3) the
court, upon application by the individual, determines in view of all of the
circumstances that such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine. With respect
to proceedings brought by or in the right of the corporation, the statute
provides that the corporation shall indemnify its officers, directors and
certain other defined individuals, against reasonable expenses actually incurred
by them in connection with such proceedings, subject to certain limitations.
Citigroup Inc. also provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrant.
This insurance provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to certain
exceptions, liabilities under the federal securities laws.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE> 64
UNDERTAKING TO REPRESENT REASONABLENESS OF CHARGES
The Company hereby represents that the aggregate charges under the Policy of the
Registrant described herein are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
1. The facing sheet.
2. The Prospectus, as incorporated herein by reference.
3. The undertaking to file reports.
4. The signatures.
Written consents of the following persons:
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 11 below.)
B. Consent and Actuarial Opinion pertaining to the illustrations contained
in the prospectus.
C. Consent of KPMG LLP, Independent Certified Public Accountants.
D. Powers of Attorney. (See Exhibit 12 below.)
EXHIBITS
1. Resolution of the Board of Directors of The Travelers Insurance Company
authorizing the establishment of the Registrant. (Incorporated herein
by reference to Exhibit No. 1 to Post-Effective Amendment No. 17 to the
Registration Statement on Form S-6 filed April 29, 1996.)
2. Not Applicable.
3(a). Distribution and Principal Underwriting Agreement among the Registrant,
The Travelers Insurance Company and CFBDS, Inc. (Incorporated herein by
reference to Exhibit 3(a) to the Registration Statement on Form N-4,
File No. 333-60227, filed November 9, 1998.)
3(b). Selling Agreement. (Incorporated herein by reference to Exhibit 3(b) to
the Registration Statement on Form N-4, File No. 333-60227, filed
November 9, 1998.)
3(c). Agents Agreements, including schedule of sales commissions.
4. None
5. Form of Variable Universal Life Insurance Contracts. (Incorporated
herein by reference to Exhibit 5 to Post-Effective Amendment No. 20 to
the Registration Statement on Form S-6, File No. 333-69771, filed
December 28, 1998.)
<PAGE> 65
6(a). Charter of The Travelers Insurance Company, as amended on October 19,
1994. (Incorporated herein by reference to Exhibit 6(a) to the
Registration Statement filed on Form N-4, File No. 333-40193, filed
November 13, 1997.)
6(b). By-Laws of The Travelers Insurance Company, as amended on October 20,
1994. (Incorporated herein by reference to Exhibit 6(b) to the
Registration Statement filed on Form N-4, File No. 333-40193, filed
November 13, 1997.)
7. None
8. 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. Opinion of counsel as to the legality of the securities being
registered. (Incorporated herein by reference to Exhibit 11 to
Post-Effective Amendment No. 20 to the Registration Statement on Form
S-6, File No. 333-69771, filed December 28, 1998.)
12(a). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Michael A. Carpenter, Jay S. Benet, George C. Kokulis,
Robert I. Lipp, Ian R. Stuart, Katherine M. Sullivan and Marc P. Weill.
(Incorporated herein by reference to Exhibits 15(a) and 15(b) to the
Registration Statement on Form S-6 filed April 28, 1995 and April 25,
1997.)
12(b). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for J. Eric Daniels. (Incorporated herein by reference to
Exhibit 12(b) to Post-Effective Amendment No. 20 to the Registration
Statement on Form S-6, File No. 333-69771, filed December 28, 1998.)
12(c). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Jay S. Benet.)
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, The
Travelers Fund UL for Variable Life Insurance, has duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the city of Hartford and state of Connecticut, on the 12th day of
April 1999.
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
(Registrant)
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By: *JAY S. BENET
-----------------------------------------------
Jay S. Benet
Senior Vice President, Chief Financial Officer,
Chief Accounting Officer and Controller
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the 12th day of April 1999.
*MICHAEL A. CARPENTER Director, Chairman of the Board
- ---------------------------------------
(Michael A. Carpenter)
*J. ERIC DANIELS Director, President and Chief
- --------------------------------------- Executive Officer
(J. Eric Daniels)
*JAY S. BENET Director, Senior Vice President,
- --------------------------------------- Chief Financial Officer, Chief
(Jay S. Benet) Accounting Officer and Controller
*GEORGE C. KOKULIS Director
- ---------------------------------------
(George C. Kokulis)
*ROBERT I. LIPP Director
- ---------------------------------------
(Robert I. Lipp)
*KATHERINE M. SULLIVAN Director, Senior Vice President
- --------------------------------------- and General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ---------------------------------------
(Marc P. Weill)
*By: /s/ Ernest J. Wright, Attorney-in-Fact
