<PAGE> 1
Registration Statement No. 2-88637
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 20
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)
__X___ on May 1, 1999 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.
______ Check the box if it is proposed that this filing will become effective
on ____ at ___ pursuant to Rule 487. ______
<PAGE> 2
RECONCILIATION AND TIE BETWEEN
FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover page
2 Cover page
3 Not applicable
4 The Insurance Company; Distribution
5 The Travelers Fund UL for Variable Life Insurance
6 The Travelers Fund UL for Variable Life Insurance
7 Not applicable
8 Not applicable
9 Legal Proceedings and Opinion
10 Prospectus Summary; The Insurance Company; The Travelers
Fund UL for Variable Life Insurance, The Investment
Options; The Policy; Transfers of Cash Value; Cash Value
and Cash Surrender Value; Voting Rights; Disregard of
Voting Rights; Dividends; Lapse and Reinstatement
11 Prospectus Summary; The Investment Options
12 Prospectus Summary; The Investment Options
13 Charges and Deductions; Distribution of the Policies
14 The Policy
15 Prospectus Summary; Allocation of Premium Payments
16 The Investment Options; Allocation of Premium Payments
17 Prospectus Summary; Right to Cancel Period; Cash Value
and Cash Surrender Value; Policy Loans; Exchange Rights
18 The Investment Options; Charges and Deductions; Federal
Tax Considerations; Dividends
19 Statements to Policy Owners
20 Not applicable
21 Policy Loans
22 Not applicable
23 Not applicable
24 Not applicable
25 The Insurance Company
26 Not applicable
27 The Insurance Company
28 The Insurance Company; Management
29 The Insurance Company
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 The Insurance Company; Distribution of the Policies
36 Not applicable
37 Not applicable
38 Distribution of the Policy
39 The Insurance Company; Distribution of the Policies
40 Not applicable
41 The Insurance Company; Distribution of the Policies
42 Not applicable
43 Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
44 Allocation of Premium Payments; Accumulation Unit Values
45 Not applicable
46 Cash Value and Cash Surrender Value
47 The Investment Options
48 Not applicable
49 Not applicable
50 Not applicable
51 Prospectus Summary; The Insurance Company; The Policy;
Death Benefits and Lapse and Reinstatement
52 The Investment Options; Substitution
53 Federal Tax Considerations
54 Not applicable
55 Not applicable
56 Not applicable
57 Not applicable
58 Not applicable
59 Financial Statements
</TABLE>
<PAGE> 4
THE TRAVELERS MARKETLIFE(SM)
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
<TABLE>
<S> <C>
FUND UL
CAPITAL APPRECIATION FUND
MANAGED ASSETS TRUST PROSPECTUSES
MONEY MARKET PORTFOLIO
TRAVELERS SERIES TRUST MAY 1, 1999
</TABLE>
The Travelers Insurance Company, One Tower Square, Hartford, Connecticut 06183 X
Telephone: (800) 334-4298
<PAGE> 5
PROSPECTUS
This Prospectus describes The Travelers MarketLife(sm), an individual variable
universal (flexible premium) life insurance Policy (the "Policy") offered by The
Travelers Insurance Company (the "Company"). A Policy Owner may choose the
amount of life insurance coverage desired with a minimum Stated Amount of
$50,000. The premium payment may be allocated by the Policy Owner to one or more
of the variable funding options (the "Investment Options").
During the Policy's Right to Cancel Period, the Applicant may return the Policy
to the Company for a refund. The Right to Cancel Period expires on the latest of
ten days after you receive the Policy, ten days after we mail or deliver to you
a written Notice of Right to Cancel, or 45 days after the Applicant signs the
application for insurance (or later if state laws requires).
There is no guaranteed minimum Cash Value for a Policy. The Cash Value of the
Policy will vary to reflect the investment performance of the Investment Options
to which you have directed your premium payments you bear the investment risk
under this policy. The Cash Value is reduced by the various fees and charges
assessed under the Policy, as described in this Prospectus. The Policy will
remain in effect for as long as the Cash Surrender Value can pay the monthly
Policy charges (subject to the Late Period provision) or for a longer period as
may be provided under the Lapse Protection Guarantee Rider.
We offer two death benefits under the Policy -- the "Level Option" and the
"Variable Option." Under either option, the death benefit will never be less
than the Amount Insured (less any outstanding Policy loans or Monthly Deduction
Amounts due and unpaid). You choose one at the time you apply for the Policy,
however you may change the death benefit option, subject to certain conditions.
This Policy may be or become a modified endowment Policy under federal tax law.
If so, any partial withdrawal, Policy surrender or loan may result in adverse
tax consequences or penalties.
REPLACING EXISTING INSURANCE WITH THIS POLICY MAY NOT BE TO YOUR ADVANTAGE.
EACH OF THE INVESTMENT OPTION PROSPECTUSES ARE INCLUDED WITH THE PACKAGE
CONTAINING THIS PROSPECTUS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS COMPLETE OR TRUTHFUL. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE LIFE INSURANCE POLICIES ARE NOT DEPOSITS OF ANY BANK AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER
GOVERNMENT AGENCY.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary of Special Terms.............. 3
Prospectus Summary..................... 5
General Description.................... 9
How the Policy Works................... 9
Beneficiary.......................... 9
Applying Premium Payments............ 9
The Investment Options................. 10
Policy Benefits and Rights............. 13
Transfers of Cash Value.............. 13
Telephone Transfers.................. 13
Automated Transfers.................. 13
Dollar-Cost Averaging............. 13
Portfolio Rebalancing............. 14
Lapse and Reinstatement.............. 14
Lapse Protection Guarantee Rider..... 14
Exchange Rights...................... 14
Right to Cancel...................... 15
Access to Cash Values.................. 15
Policy Loans......................... 15
Cash Value and Cash Surrender
Value............................. 16
Death Benefit.......................... 16
Payment of Proceeds............... 18
Payment Options................... 18
Maturity Benefits...................... 19
Maturity Extension Rider.......... 19
Charges and Deductions................. 19
Charges Against Premium.............. 19
Front-End Sales Charge............ 19
State Premium Tax Charge.......... 20
Monthly Deduction Amount............. 20
Cost of Insurance Charge.......... 20
Policy Administrative Expense
Charge.......................... 20
Charges for Supplemental Benefit
Provisions...................... 20
Charges Against the Separate
Account........................... 20
Mortality and Expense Risk
Charge.......................... 20
Administrative Expense Charge..... 21
Underlying Fund Fees................. 21
Surrender Charges.................... 21
Percent of Premium Charge......... 21
Per Thousand of Stated Amount
Charge.......................... 21
Transfer Charge...................... 22
Reduction or Elimination of
Charges........................... 22
The Separate Account and Valuation..... 22
The Travelers Fund UL for Variable
Life Insurance (Fund UL )......... 22
How the Cash Value Varies............ 23
Accumulation Unit Value.............. 23
Net Investment Factor................ 23
Changes to the Policy.................. 23
General.............................. 23
Changes in Stated Amount............. 24
Changes in Death Benefit Option...... 24
Additional Policy Provisions........... 24
Assignment........................... 24
Limit on Right to Contest and Suicide
Exclusion......................... 25
Misstatement as to Sex and Age....... 25
Voting Rights........................ 25
Disregard of Voting Instructions..... 25
For Policies Sold Prior to May 1,
1998.............................. 25
Policies Sold Prior to July 12,
1995.............................. 26
Other Matters.......................... 26
Statements to Policy Owners.......... 26
Suspension of Valuation.............. 27
Dividends............................ 27
Mixed and Shared Funding............. 27
Distribution......................... 27
Legal Proceedings and Opinion........ 27
Independent Accountants.............. 28
Federal Tax Considerations............. 28
General.............................. 28
Tax Status of the Policy............. 28
Definition of Life Insurance...... 28
Diversification................... 28
Investor Control.................. 29
Tax Treatment of Policy Benefits..... 29
In General........................ 29
Modified Endowment Contracts...... 30
Exchanges......................... 30
Aggregation of Modified Endowment
Contracts....................... 31
Policies which are not Modified
Endowment Contracts............. 31
Treatment of Loan Interest........ 31
The Company's Income Taxes........ 31
The Company............................ 31
IMSA................................. 32
Year 2000 Compliance................. 32
Management............................. 33
Directors of The Travelers Insurance
Company........................... 33
Senior Officers of The Travelers
Insurance Company................. 34
Example of Policy Charges.............. 34
Performance Information................ 34
Illustrations.......................... 38
Appendix
A -- Annual Minimum Premiums........... 51
B -- Surrender Charges................. 52
C -- Current Monthly Administrative
Charge............................... 53
C(1) -- Guaranteed Monthly
Administrative Charge................ 55
Financial Statements -- Fund UL
Financial Statements -- The Travelers
Insurance Company
</TABLE>
2
<PAGE> 7
GLOSSARY OF SPECIAL TERMS
- --------------------------------------------------------------------------------
The following terms are used throughout the Prospectus, and have the indicated
meanings:
ACCUMULATION UNIT -- a standard of measurement used to calculate the values
allocated to the Investment Options.
ANNUAL MINIMUM PREMIUM -- the Policy Owner must pay a first premium greater than
or equal to one-quarter of this amount for the Policy to be issued. (Please
refer to Appendix A.)
BENEFICIARY(IES) -- the person(s) named to receive the benefits of this Policy
at the Insured's death.
CASH SURRENDER VALUE -- the Cash Value less any outstanding Policy loan and
surrender charges.
CASH VALUE -- the current value of Accumulation Units credited to each of the
Investment Options available under the Policy, plus the value of the Loan
Account.
COMPANY'S HOME OFFICE -- the principal executive offices of The Travelers
Insurance Company located at One Tower Square, Hartford, Connecticut 06183.
DEDUCTION DATE -- the day in each Policy Month on which the Monthly Deduction
Amount is deducted from the Policy's Cash Value.
INSURED -- the person on whose life the Policy is issued.
INVESTMENT OPTIONS -- the segments of the Separate Account or Portfolio to which
you may allocate premiums or Cash Value under Fund UL.
ISSUE DATE -- the date on which the Policy is issued by the Company for delivery
to the Policy Owner.
LAPSE PROTECTION GUARANTEE RIDER -- a rider which provides that the Policy will
not lapse during the first three Policy Years if a required amount of premium is
paid. (Not available in all states.)
LOAN ACCOUNT -- an account in the Company's general account to which we transfer
the amount of any Policy loan, and to which we credit and charge a fixed rate of
interest.
MATURITY DATE -- The anniversary of the Policy Date on which the Insured is age
95.
MINIMUM AMOUNT INSURED -- the amount of Death Benefit required to qualify this
Policy as life insurance under federal tax law.
MONTHLY DEDUCTION AMOUNT -- the amount of charges deducted from the Policy's
Cash Value which includes cost of insurance charges, administrative charges, and
any charges for supplemental benefits.
MONTHLY PREMIUM THRESHOLD -- an amount shown on the Policy Summary page, the
cumulative amount of which must be paid during the first three Policy Years in
order for the Lapse Protection Guarantee to be in effect.
NET AMOUNT AT RISK -- an amount equal to the Death Benefit minus the Cash Value.
NET PREMIUM -- the amount of each premium payment applied to purchase
Accumulation Units under the Policy, less the deduction of front-end sales
charges and premium tax charges.
PLANNED PREMIUM -- the amount of premium which the Policy Owner chooses to pay
to the Company on a scheduled basis, and for which the Company will bill the
Policy Owner, either annually, semiannually or through automatic monthly
checking account deductions.
POLICY DATE -- the date on which the Policy, benefits and provisions of the
Policy become effective.
POLICY MONTH -- monthly periods computed from the Policy Date.
3
<PAGE> 8
POLICY OWNER (YOU, YOUR OR OWNER) -- the person having rights to benefits under
the Policy during the lifetime of the Insured; the Policy Owner may or may not
be the Insured.
POLICY YEARS -- annual periods computed from the Policy Date.
SEPARATE ACCOUNT -- assets set aside by The Travelers Insurance Company, the
investment experience of which is kept separate from that of other assets of The
Travelers Insurance Company; for example, The Travelers Fund UL for Variable
Life Insurance.
STATED AMOUNT -- the amount originally selected by the Policy Owner used to
determine the Death Benefit, or as may be increased or decreased as described in
this Prospectus.
VALUATION DATE -- a day on which the Separate Account is valued. A Valuation
Date is any day on which the New York Stock Exchange is open for trading. The
value of Accumulation Units will be determined as of the close of trading on the
New York Stock Exchange.
VALUATION PERIOD -- the period between the close of business on successive
Valuation Dates.
4
<PAGE> 9
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
WHAT IS VARIABLE UNIVERSAL LIFE INSURANCE?
The Flexible Premium Variable Universal Life Insurance Policy is designed to
provide insurance protection on the life of the Insured and to build Cash Value.
Like other life insurance, it provides an income-tax free death benefit that is
payable to the Beneficiary upon the Insured's death. Unlike traditional,
fixed-premium life insurance, the Policy allows you, as the owner, to allocate
your premium, or transfer Cash Value to various Investment Options. These
Investment Options include equity, bond, money market and other types of
portfolios. Your Cash Value may increase or decrease daily, depending on
investment return. There is no minimum amount guaranteed as it would be in a
traditional life insurance policy.
INVESTMENT OPTIONS: You have the ability to choose from a wide variety of
well-known Investment Options. These professionally managed stock, bond and
money market funding options cover a broad spectrum of investment objectives and
risk tolerance. Currently, the following Investment Options (subject to state
availability) are available under Fund UL:
<TABLE>
<S> <C>
Capital Appreciation Fund TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Dreyfus Stock Index Fund Templeton Asset Allocation Fund (Class 1)
Managed Assets Trust Templeton Bond Fund (Class 1)
Money Market Portfolio Templeton Stock Fund (Class 1)
BT INSURANCE FUNDS TRUST: TRAVELERS SERIES FUND, INC.:
EAFE Equity Index Fund AIM Capital Appreciation Portfolio
Small Cap Index Fund Alliance Growth Portfolio
MFS Total Return Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: Putnam Diversified Income Portfolio
VIP Equity Income Portfolio Smith Barney High Income Portfolio
VIP Growth Portfolio Smith Barney Large Cap Value Portfolio
VIP High Income Portfolio
TRAVELERS SERIES TRUST:
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND U.S. Government Securities Portfolio
II: Utilities Portfolio
VIP II Asset Manager Portfolio Zero Coupon Bond Portfolio 2000
Zero Coupon Bond Portfolio 2005
GREENWICH STREET SERIES FUND:
Equity Index Portfolio
Total Return Portfolio
</TABLE>
Additional Portfolios may be added from time to time. For more information see
"The Investment Options." Refer to each Fund's prospectus for a complete
description of the investment objectives, restrictions and other material
information.
PREMIUMS: When applying for your Policy, you state how much you intend to pay,
and whether you will pay annually, semiannually or monthly via checking account
deductions. You may also make unscheduled premium payments in any amount. No
premium payments will be accepted if receipt of such premiums would disqualify
the Policy as life insurance under applicable federal tax laws.
You indicate on your application what percentage of each Net Premium you would
like allocated to the Investment Options. You may change your allocations by
writing to the Company or by calling 1-800-334-4298.
During the underwriting period, any premium paid will be held in a non-interest
bearing account. After the Policy Date and until the applicants' right to cancel
has expired, your Net Premium will be invested in the Money Market Portfolio.
After that, the cash value will be distributed to each Investment Option in the
percentages indicated on your application.
5
<PAGE> 10
RIGHT TO EXAMINE POLICY: You may return your Policy for any reason and receive
a full refund of your premium by mailing us the Policy and a written request for
cancellation within a specified period.
DEATH BENEFITS: At time of application, you select a death benefit option.
Under certain conditions you may be able to change the death benefit option at a
later date. The options available are:
- LEVEL OPTION (OPTION 1): the death benefit will be equal to the greater
of the Stated Amount or the Minimum Amount Insured.
- VARIABLE OPTION (OPTION 2): the death benefit will be equal to the
greater of the Stated Amount plus the Cash Value or the Minimum Amount
Insured.
POLICY VALUES: As with other types of insurance policies, MarketLife will
accumulate a Cash Value. The Cash Value of the Policy will increase or decrease
to reflect the investment experience of the Investment Options. Monthly charges
and any partial surrenders taken will also decrease the Cash Value. There is no
minimum guaranteed Cash Value.
- ACCESS TO POLICY VALUES: You may borrow against your Policy's Cash
Surrender Value. The maximum loan amount allowable is 100% of the Cash
Surrender Value, subject to state approval. After year 13, the Company
offers zero net cost loans. (For Policies issued after July 12, 1995 and
before May 1, 1998, the maximum loan allowed is 90% of the Cash Surrender
Value. For Policies issued prior to July 12, 1995, the maximum loan
allowed is 80% of the Cash Surrender Value.) (See "Policy Loans" for loan
impact on coverage and policy values.)
You may cancel all or a portion of your Policy while the Insured is living and
receive all or a portion of the Cash Surrender Value. Depending on the amount of
time the Policy has been in force, there may be a charge for the partial or full
surrender.
TRANSFERS OF POLICY VALUES: You may transfer all or a portion of your Cash
Value among the Investment Options. You may do this by writing to the Company or
calling 1-800-334-4298.
You can use automated transfers to take advantage of dollar cost
averaging -- investing a fixed amount at regular intervals. For example, you
might have a set amount transferred from a relatively conservative Investment
Option to a more aggressive one, or to several others.
LAPSE PROTECTION GUARANTEE RIDER: This Rider allows for your Policy to remain
in effect for the first three Policy Years. You are required to pay at least the
cumulative applicable Monthly Premium Threshold displayed on your Policy's
Contract Summary page. Any loans or partial surrenders are deducted from premium
paid to determine if the Lapse Protection Guarantee is in effect.
LATE PERIOD: If the Cash Surrender Value of your Policy becomes less than the
amount needed to pay the Monthly Deduction Amount, and the Lapse Protection
Guarantee Rider is not in effect, you will have 61 days to pay a premium that is
sufficient to cover the Monthly Deduction Amount. If the premium is not paid,
your Policy will lapse.
EXCHANGE RIGHTS: During the first two Policy Years, you can exchange this
Policy for one that provides benefits that do not vary with the investment
return of the Investment Options.
TAX CONSEQUENCES: Currently, the federal tax law excludes all Death Benefit
payments from the gross income of the Beneficiary. At any point in time, the
Policy may become a modified endowment contract ("MEC"). A MEC has an
income-first taxation of all loans, pledges, collateral assignments or partial
surrenders. A 10% penalty tax may be imposed on such income distributed before
the Policy Owner attains age 59 1/2. The Company has established safeguards for
monitoring whether a Policy may become a MEC.
CHARGES AND DEDUCTIONS: Your Policy is subject to the following charges, which
compensate the Company for administering and distributing the Policy, as well as
paying Policy benefits and
6
<PAGE> 11
assuming related risks. These charges are summarized below, and explained in
detail under "Charges and Deductions."
POLICY CHARGES:
- SALES AND PREMIUM EXPENSE CHARGES -- A sales charge and a premium tax
charge are applied to each premium based on the size of your Policy.
<TABLE>
<CAPTION>
TOTAL
STATED SALES PREMIUM PREMIUM
AMOUNT CHARGE TAX EXPENSE
------ ------ ------- -------
<S> <C> <C> <C>
less than $500,000 2.5% 2.5% 5.0%
$500,000 to $999,999 2.0% 2.5% 4.5%
$1,000,000 and over 0% 2.5% 2.5%
</TABLE>
This charge pays some distribution expenses and state and local premium
taxes.
- MONTHLY DEDUCTION -- deductions taken from the value of your Policy each
month to cover cost of insurance charges, the monthly administrative
expense charges and charges for optional benefits.
- FULL SURRENDER CHARGE -- applies if you surrender your Policy for its
full Cash Value or the Policy lapses, during the first 10 years and for
10 years after requesting an increase in coverage. The surrender charge
consists of a percent of premium charge and a per thousand of face amount
charge.
- PARTIAL SURRENDER CHARGE -- applies if you surrender part of the value of
your Policy.
ASSET-BASED CHARGES:
- MORTALITY AND EXPENSE RISK CHARGE -- applies to the assets of the
Investment Options on a daily basis which equals an annual rate of .80%
for the first fifteen years and subject to state availability, for
policies issued after May 1, 1998 .25% thereafter. (For Policies issued
prior to July 12, 1995, the charge is 0.60% for all Policy Years.) (For
Policies issued after July 12, 1995, and prior to May 1, 1998, the charge
for the first fifteen years is .80% and .45% thereafter).
- ADMINISTRATIVE EXPENSE CHARGE -- applies to the assets of the Investment
Options on a daily basis which equals an annual rate of .10% for the
first fifteen years and 0% thereafter. (For Policies issued prior to July
12, 1995, there is no administrative charge.)
- UNDERLYING FUND FEES -- the separate account purchases shares of the
Underlying Funds on a net asset value basis. The shares purchased already
reflect the deduction of investment advisory fees and other expenses. The
fees are shown in the table below.
7
<PAGE> 12
UNDERLYING FUND FEES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT OTHER TOTAL
FEE EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
FUND NAME REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
Capital Appreciation Fund 0.75% 0.10% 0.85%
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
Managed Assets Trust 0.50% 0.10% 0.60%
Money Market Portfolio(1) 0.32% 0.08% 0.40%
BT INSURANCE FUNDS TRUST:
Bankers Trust EAFE Equity Index Fund(2) 0.11% 0.54% 0.65%
Bankers Trust Small Cap Index Fund(2) 0.05% 0.40% 0.45%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND:
VIP Equity-Income Portfolio(3) 0.49% 0.08% 0.57%
VIP Growth Portfolio(3) 0.59% 0.07% 0.66%
VIP High Income Portfolio 0.58% 0.12% 0.70%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II:
VIP II Asset Manager Portfolio(3) 0.54% 0.09% 0.63%
GREENWICH STREET SERIES FUND:
Equity Index Portfolio(4) 0.21% 0.09% 0.30%
Total Return Portfolio 0.75% 0.04% 0.79%
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Templeton Asset Allocation Fund 0.60% 0.18% 0.78%
Templeton Bond Fund 0.50% 0.23% 0.73%
Templeton Stock Fund 0.70% 0.19% 0.89%
TRAVELERS SERIES FUND, INC.:
AIM Capital Appreciation Portfolio(5) 0.80% 0.05% 0.85%
Alliance Growth Portfolio(5) 0.80% 0.02% 0.82%
MFS Total Return Portfolio(5) 0.80% 0.04% 0.84%
Putnam Diversified Income Portfolio(5) 0.75% 0.12% 0.87%
Smith Barney High Income Portfolio(5) 0.60% 0.07% 0.67%
Smith Barney Large Cap Value Portfolio(5) 0.65% 0.03% 0.68%
TRAVELERS SERIES TRUST:
Travelers U.S. Government Securities Portfolio 0.32% 0.13% 0.45%
Utilities Portfolio 0.65% 0.15% 0.80%
Zero Coupon Bond Fund Portfolio (Series 2000)(6) 0.10% 0.05% 0.15%
Zero Coupon Bond Fund Portfolio (Series 2005)(6) 0.10% 0.05% 0.15%
</TABLE>
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage commissions,
interest charges and taxes) exceeds 0.40%. Without such arrangement, Total
Expenses would have been 0.65% for the Travelers Money Market Portfolio.
(2) These fees reflect an expense reimbursement arrangement whereby the adviser
has agreed to reimburse the funds an amount based on the weighted average
between the management fee and other expenses. Without such arrangement, the
Management Fee and Other Expenses for the Bankers Trust EAFE Index Portfolio
and Small Cap Index Portfolio would have been 0.45% and 1.21%, and 0.35% and
1.23%, respectively.
(3) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized, as a result of uninvested cash balances were used to
reduce custodian expenses. Without these reductions, the Total Annual
Operating Expenses presented in this table would have been 0.64% for VIP II
Asset Manager Portfolio, 0.58% for VIP Equity Income Portfolio, and 0.68%
for VIP Growth Portfolio.
(4) Other expenses for the Equity Index Portfolio have been restated to reflect
the current expense reimbursement arrangement whereby the adviser has agreed
to reimburse the Portfolio for the amount by which expenses exceed 0.30%.
Without such arrangement, Total Annual Operating Expenses would have been
0.42%. In addition, the Portfolio Management Fee includes 0.06% for fund
administration. Class 2 of this fund has a distribution plan or "Rule 12b-1
plan".
(5) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There were
no fees waived or expenses reimbursed for these funds in 1998.
(6) For the year ended December 31, 1998, Travelers reimbursed the Series 2000
Fund and the Series 2005 Fund for $35,705, and $38,063, in expenses,
respectively. Because such expenses were reimbursed, the actual expense
ratios were 0.15% for each period shown.
8
<PAGE> 13
GENERAL DESCRIPTION
- --------------------------------------------------------------------------------
This prospectus describes an individual flexible premium variable universal life
insurance Policy offered by The Travelers Insurance Company ("Company"). The
policy offers:
- Flexible premium payments (you select the timing and amount of the
premium)
- A selection of investment options
- A choice of two death benefit options
- Loans and partial withdrawal privileges
- The ability to increase or decrease the Policy's face amount of insurance
- Additional benefits through the use of optional riders
This Policy is both an insurance product and a security. The Policy is first and
foremost a life insurance Policy with death benefits, Cash Values and other
features traditionally associated with life insurance. The Policy is a security
because the Cash Value and, under certain circumstances, the Amount Insured, and
Death Benefit may increase or decrease depending on the investment experience of
the Investment Options chosen.
THE APPLICATION. In order to become a policy owner, you must submit an
application to the Company. You must provide evidence of insurability. On the
application, you will also indicate:
- the amount of insurance desired (the "stated amount"); minimum of $50,000
- your choice of the two death benefit options
- the beneficiary(ies), and whether or not the beneficiary is irrevocable
- your choice of investment options.
Our underwriting staff will review the application, and, if approved, we will
issue the Policy.
HOW THE POLICY WORKS
- --------------------------------------------------------------------------------
You make premium payments and direct them to one or more of the available
investment options. The policy's cash value will increase or decrease depending
on the performance of the investment options you select. In the case of death
benefit option 2, the death benefit will also vary based on the investment
options' performance.
BENEFICIARY
The Applicant names the Beneficiary in the application for the Policy. The
Policy Owner may change the Beneficiary (unless irrevocably named) during the
Insured's lifetime by sending a written request to the Company. If no
Beneficiary is living when the Insured dies, the Death Benefit will be paid to
the Policy Owner, if living; otherwise, the Death Benefit will be paid to the
Policy Owner's estate.
Your Policy becomes effective once our underwriting staff has approved the
application and once the first premium payment has been made. The Policy Date is
the date we use to determine all future transactions on the policy, for example,
the deduction dates, policy months, policy years. The Policy Date may be before
or the same date as the Issue Date (the date the policy was issued). During the
underwriting period, any premium paid will be held in a non-interest bearing
account. Your policy will stay in effect as long as the policy's cash surrender
value can pay the policy's monthly charges.
APPLYING PREMIUM PAYMENTS
We apply the first premium on the later of the Policy Date or the date we
receive it at our Home Office. During the Right to Cancel Period, we allocate
net premiums to the Money Market
9
<PAGE> 14
Portfolio. At the end of the Right to Cancel Period, we direct the net premiums
to the investment option(s) selected on the application, unless you give us
other directions.
The investment options are segments of the separate account. They correspond to
underlying funds with the same names. The available investment options are
listed below.
We credit your policy with accumulation units of the investment option(s) you
have selected. We calculate the number of accumulation units by dividing your
net premium payment by each investment option's accumulation unit value computed
after we receive your payment.
THE INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may allocate Premium Payments to one or more of the available Investment
Options. The Investment Options currently available under the Policy may be
added, withdrawn or substituted as permitted by applicable state or federal law.
We would notify you before making such a change. Please read carefully the
complete risk disclosure in each Portfolio's prospectus before investing. For
more detailed information on the investment advisers and their services and
fees, please refer to the prospectuses for the Investment Options.
The Investment Options currently available under Fund UL are as follows:
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Capital Appreciation Fund Seeks growth of capital through the Travelers Asset Management
use of common stocks. Income is not an International Corporation
objective. The Fund invests ("TAMIC")
principally in common stocks of small Subadviser: Janus Capital
to large companies which are expected Corp.
to experience wide fluctuations in
price in both rising and declining
markets.
Dreyfus Stock Index Fund Seeks to provide investment results Mellon Equity
that correspond to the price and yield
performance of publicly traded common
stocks in the aggregate, as
represented by the Standard & Poor's
500 Composite Stock Price Index.
Managed Assets Trust Seeks high total investment return TAMIC
through a fully managed investment Subadviser: Travelers
policy in a portfolio of equity, debt Investment Management Company
and convertible securities. ("TIMCO")
Money Market Portfolio Seeks high current income from short- TAMIC
term money market instruments while
preserving capital and maintaining a
high degree of liquidity.
BT INSURANCE FUNDS TRUST
EAFE Equity Index Fund Seeks to replicate, before deduction Bankers Trust Global
of expenses, the total return Investment Management
performance of the EAFE index.
Small Cap Index Fund Seeks to replicate, before deduction Bankers Trust Global
of expenses, the total return Investment Management
performance of the Russell 2000 index.
</TABLE>
10
<PAGE> 15
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND
VIP Equity-Income Seeks reasonable income by investing Fidelity Management &
Portfolio primarily in income-producing equity Research Company ("FMR")
securities; in choosing these
securities, the portfolio manager will
also consider the potential for
capital appreciation.
VIP Growth Portfolio Seeks capital appreciation by purchas- FMR
ing common stocks of well-known,
established companies, and small
emerging growth companies, although
its investments are not restricted to
any one type of security. Capital
appreciation may also be found in
other types of securities, including
bonds and preferred stocks.
VIP High Income Portfolio Seeks to obtain a high level of FMR
current income by investing primarily
in high yielding, lower-rated,
fixed-income securities, while also
considering growth of capital.
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
VIP II Asset Manager Seeks high total return with reduced FMR
Portfolio risk over the long-term by allocating
its assets among stocks, bonds and
short-term fixed-income instruments.
GREENWICH STREET
SERIES FUND
Equity Index Portfolio Seeks to replicate, before deduction Travelers Investment
of expenses, the total return Management Company
performance of the S&P 500 index.
Total Return Portfolio An equity portfolio that seeks to pro- SSBC Fund Management Inc.
vide total return, consisting of ("SSBC")
long-term capital appreciation and
income. The Portfolio will invest
primarily in a diversified portfolio
of dividend-paying common stocks.
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Templeton Asset Seeks a high level of total return Templeton Investment Counsel,
Allocation Fund (Class 1) with reduced risk over the long term Inc.
through a flexible policy of investing
in stocks of companies in any nation
and debt obligations of companies and
governments of any nation.
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Templeton Bond Fund Seeks high current income by investing Templeton Global Bond
(Class 1) primarily in debt securities of compa- Managers
nies, governments and government
agencies of various nations throughout
the world.
Templeton Stock Fund Seeks capital growth by investing Templeton Investment Counsel,
(Class 1) primarily in common stocks issued by Inc.
companies, large and small, in various
nations throughout the world.
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Seeks capital appreciation by Travelers Investment Adviser
Portfolio investing principally in common stock, ("TIA")
with emphasis on medium-sized and Subadviser: AIM Capital
smaller emerging growth companies. Management Inc.
Alliance Growth Portfolio Seeks long-term growth of capital by TIA
investing predominantly in equity Subadviser: Alliance Capital
securities of companies with a Management L.P.
favorable outlook for earnings and
whose rate of growth is expected to
exceed that of the U.S. economy over
time. Current income is only an
incidental consideration.
MFS Total Return Seeks to obtain above-average income TIA
Portfolio (compared to a portfolio entirely Subadviser: MFS
invested in equity securities)
consistent with the prudent employment
of capital. Generally, at least 40% of
the Portfolio's assets will be
invested in equity securities.
Putnam Diversified Income Seeks high current income consistent TIA
Portfolio with preservation of capital. The Subadviser: Putnam Investment
Portfolio will allocate its Management, Inc.
investments among the U.S. Government
Sector, the High Yield Sector, and the
International Sector of the
fixed-income securities markets.
Smith Barney High Income Seeks high current income. Capital SSBC
Portfolio appreciation is a secondary objective.
The Portfolio will invest at least 65%
of its assets in high-yielding
corporate debt obligations and
preferred stock.
Smith Barney Large Cap Seeks current income and long-term SSBC
Value Portfolio growth of income and capital by
investing primarily, but not
exclusively, in common stocks.
</TABLE>
12
<PAGE> 17
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
TRAVELERS SERIES TRUST
U.S. Government Seeks to select investments from the TAMIC
Securities Portfolio point of view of an investor concerned
primarily with highest credit quality,
current income and total return. The
assets of the U.S. Government Securi-
ties Portfolio will be invested in
direct obligations of the United
States, its agencies and
instrumentalities.
Utilities Portfolio Seeks to provide current income by SSBC
investing in equity and debt
securities of companies in the utility
industries.
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 2000 return as consistent with the
and Series 2005) preservation of capital investing in
primarily zero coupon securities that
pay cash income but are acquired by
the Portfolio at substantial discounts
from their values at maturity. The
Zero Coupon Bond Fund Portfolios may
not be appropriate for Policy Owners
who do not plan to have their premiums
invested in shares of the Portfolios
for the long term or until maturity.
</TABLE>
POLICY BENEFITS AND RIGHTS
- --------------------------------------------------------------------------------
TRANSFERS OF CASH VALUE
As long as the Policy remains in effect, you may transfer the Cash Value between
Investment Options. We reserve the right to restrict the number of free
transfers to four times in any Policy Year and to charge $10 for each additional
transfer; however, there is currently no charge for transfers.
We calculate the number of Accumulation Units involved using the Accumulation
Unit Values we determine at the end of the business day on which we receive the
request.
TELEPHONE TRANSFERS
The Policy Owner may make the request in writing by mailing such request to the
Company at its Home Office, or by telephone (if an authorization form is on
file) by calling 1-800-334-4298. The Company will take reasonable steps to
ensure that telephone transfer requests are genuine. These steps may include
seeking proper authorization and identification prior to processing telephone
requests. Additionally, the Company will confirm telephone transfers. Any
failure to take such measures may result in the Company's liability for any
losses due to fraudulent telephone transfer requests.
AUTOMATED TRANSFERS
DOLLAR-COST AVERAGING
You may establish automated transfers of Policy Values on a monthly or quarterly
basis from any Investment Option(s) to any other Investment Option(s) through
written request or other method acceptable to the Company. You must have a
minimum total Policy Value of $1,000 to enroll in the Dollar-Cost Averaging
program. The minimum total automated transfer amount is $100.
13
<PAGE> 18
You may start or stop participation in the Dollar-Cost Averaging program at any
time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. Automated transfers
are subject to all of the other provisions and terms of the Policy. The Company
reserves the right to suspend or modify transfer privileges at any time and to
assess a processing fee for this service.
Before transferring any part of the Policy Value, Policy Owners should consider
the risks involved in switching between investments available under this Policy.
Dollar cost averaging requires regular investments regardless of fluctuating
price levels, and does not guarantee profits or prevent losses in a declining
market. Potential investors should consider their financial ability to continue
purchases through periods of low price levels.
PORTFOLIO REBALANCING
You may elect to have the Company periodically reallocate values in your policy
to match your original (or your latest) funding option allocation request.
LAPSE AND REINSTATEMENT
Except as provided below under "Lapse Protection Guarantee," the Policy will
remain in effect until the Cash Surrender Value of the Policy can no longer
cover the Monthly Deduction Amount or loan interest due but not paid. If this
happens, we will notify you in writing that if the amount shown in the notice is
not paid within 61 days (the "Late Period"), the Policy may lapse. The amount
shown will be enough to pay the deduction amount due. The Policy will continue
through the Late Period, but if no payment is received by us, it will terminate
at the end of the Late Period. If the person Insured under the Policy dies
during the Late Period, the Death Benefit payable will be reduced by the Monthly
Deduction Amount due plus the amount of any outstanding loan. (See "Death
Benefit," below.)
If the Policy lapses, you may reinstate the Policy by paying the reinstatement
premium (and any applicable charges) shown in the Policy. You may request
reinstatement within three years of lapse (unless a different period is required
under applicable state law). Upon reinstatement, the Policy's Cash Value will
equal the Net Premium. In addition, the Company reserves the right to require
satisfactory evidence of insurability.
LAPSE PROTECTION GUARANTEE RIDER
You may add a Lapse Protection Guarantee Rider to the Policy (as long as the
Insured is not a substandard risk). The Lapse Protection Guarantee Rider benefit
provides that if during the first three Policy Years (the "Guarantee Period")
the total premiums paid under the Policy, less any Loan Account Value or partial
surrenders, equal or exceed the cumulative applicable Monthly Premium Threshold
shown on the Policy Summary Page of the Policy, a Lapse Protection Guarantee
will be in effect. (This rider is not available in all jurisdictions.) This
rider provides that the Policy will not lapse during the next Policy Month even
if the Cash Surrender Value is insufficient to pay the Monthly Deduction Amount
due, provided the next Policy Month is within the Guarantee Period. The Premium
Threshold will change if the Policy Owner makes a change in the Stated Amount or
adds or eliminates supplemental benefit riders under the Policy. In such event,
the Company will send the Policy Owner notice of the new applicable Premium
Threshold which must be met until the expiration of the Guarantee Period in
order for the guarantee to remain in effect.
EXCHANGE RIGHTS
Once the Policy is in effect, it may be exchanged during the first 24 months for
a general account life insurance policy issued by the Company (or an affiliated
company) on the life of the Insured. Benefits under the new life insurance
policy will be as described in that policy. No evidence of insurability will be
required. You have the right to select the same Death Benefit or Net Amount At
Risk as the former Policy at the time of exchange. Cost of insurance rates will
be based on the same risk classification as those of the former Policy. Any
outstanding Policy loan must be repaid
14
<PAGE> 19
before we will make an exchange. In addition, there may be an adjustment for the
difference in Cash Value between the two Policies.
RIGHT TO CANCEL
An Applicant may cancel the Policy by returning it via mail or personal delivery
to the Company or to the agent who sold the Policy. The Policy must be returned
by the latest of:
(1) 10 days after delivery of the Policy to you
(2) 45 days of completion of the Policy application
(3)10 days after the Notice of Right to Cancel has been mailed or delivered
to the Applicant whichever is latest, or
(4) later if required by state law.
We will refund the greater of all premium payments or the sum of:
(1) the difference between the premium paid, including any fees or charges,
and the amounts allocated to the Investment Option(s),
(2) the value of the amounts allocated to the Investment Option(s) on the
date on which the Company receives the returned Policy, and
(3) any fees and other charges imposed on amounts allocated to the
Investment Option(s).
We will make the refund within seven days after we receive your returned policy.
ACCESS TO CASH VALUES
- --------------------------------------------------------------------------------
POLICY LOANS
A Policy Owner may obtain a cash loan from the Company secured by the Policy not
to exceed 90% of the Policy's Cash Value (determined on the day on which the
Company receives the written loan request), less any surrender penalties (which
include a percent of premium charge and per thousand of Stated Amount charge).
For Policy loans taken after January 1, 2001, subject to state availability, it
is anticipated the maximum loan amount will be increased to 100% from 90%.
Subject to state law, no loan requests may be made for amounts of less than
$100.
If there is a loan outstanding at the time a subsequent loan request is made,
the amount of the outstanding loan will be added to the new loan request. The
Company will charge interest on the outstanding amounts of the loan, which
interest must be paid in advance by the Policy Owner. For Policies issued after
July 12, 1995, during the first thirteen Policy Years, the full Loan Account
Value will be charged an annual interest rate of 7.4%; thereafter 3.85% will be
charged. For Policies issued prior to July 12, 1995 (or where state approval has
not been received), refer to "Policies Sold Prior to July 12, 1995," if
applicable.
The amount of the loan will be transferred as of the date the loan is made on a
pro rata basis from each of the Investment Options attributable to the Policy
(unless the Policy Owner states otherwise) to another account (the "Loan
Account"). Amounts in the Loan Account will be credited by the Company with a
fixed annual rate of return of 4% (6% in New York and Massachusetts) and will
not be affected by the investment performance of the Investment Options. When
loan repayments are made, the amount of the repayment will be deducted from the
Loan Account and will be reallocated based upon premium allocation percentages
among the Investment Options applicable to the Policy (unless the Policy Owner
states otherwise). The Company will make the loan to the Policy Owner within
seven days after receipt of the written loan request.
An outstanding loan amount decreases the Cash Surrender Value. If a maximum loan
is taken or a loan is not repaid, it permanently decreases the Cash Surrender
Value, which could cause the Policy to lapse (see "Lapse and Reinstatement").
For example, if a Policy has a Cash Surrender
15
<PAGE> 20
Value of $10,000, the Policy Owner may take a loan of 90% or $9,000, leaving a
new Cash Surrender Value of $1,000. In addition, the Death Benefit actually
payable would be decreased because of the outstanding loan. Furthermore, even if
the loan is repaid, the Death Benefit and Cash Surrender Value may be
permanently affected since the Policy Owner was not credited with the investment
experience of an Investment Option on the amount in the Loan Account while the
loan was outstanding. All or any part of a loan secured by a Policy may be
repaid while the Policy is still in effect.
CASH VALUE AND CASH SURRENDER VALUE
The Cash Value of a Policy changes on a daily basis and will be computed on each
Valuation Date. The Cash Value will vary to reflect the investment experience of
the Investment Options, as well as any partial Cash Surrenders, Monthly
Deduction Amount, daily Separate Account charges, and any additional premium
payments. There is no minimum guaranteed Cash Value.
The Cash Value of a particular Policy is related to the net asset value of the
Investment Options to which premium payments on the Policy have been allocated.
The Cash Value on any Valuation Date is calculated by multiplying the number of
Accumulation Units credited to the Policy in each Investment Options as of the
Valuation Date by the current Accumulation Unit Value of that Investment Option,
then adding the collective result for each of the Investment Options credited to
the Policy, and finally adding the value (if any) of the Loan Account. A Policy
Owner may withdraw Cash Value from the Policy, or transfer Cash Value among the
Investment Options, on any day that the Company is open for business.
As long as the Policy is in effect, a Policy Owner may elect, without the
consent of the Beneficiary (provided the designation of Beneficiary is not
irrevocable), to surrender the Policy and receive its "Cash Surrender Value";
i.e., the Cash Value of the Policy determined as of the day the Company receives
the Policy Owner's written request, less any outstanding Policy loan, and less
any applicable Surrender Charges. For full surrenders, the Company will pay the
Cash Surrender Value of the Policy within seven days following its receipt of
the written request, or on the date requested by the Policy Owner, whichever is
later. The Policy will terminate on the Deduction Date next following the
Company's receipt of the written request, or on the Deduction Date next
following the date on which the Policy Owner requests the surrender to become
effective, whichever is later.
In the case of partial surrenders, the Cash Surrender Value will be equal to the
net amount requested to be surrendered minus any applicable Surrender Charges.
The deduction from Cash Value for a partial surrender will be made on a pro rata
basis against the Cash Value of each of the Investment Options attributable to
the Policy (unless the Policy Owner states otherwise in writing).
In addition to reducing the Cash Value of the Policy, partial cash surrenders
will reduce the Death Benefit payable under the Policy. Under Option 1, the
Stated Amount of the Policy will be reduced by the amount of the partial cash
surrender. Under Option 2, the Cash Value, which is part of the Death Benefit,
will be reduced by the amount of the partial cash surrender. The Company may
require return of the Policy to record such reduction.
DEATH BENEFIT
- --------------------------------------------------------------------------------
The Death Benefit under the Policy is the amount paid to the Beneficiary upon
the Insured's death. The Death Benefit will be reduced by any outstanding
charges, fees and Policy loans. All or part of the Death Benefit may be paid in
cash or applied to one or more of the payment options described in the following
pages.
You may elect one of two Death Benefit options. As long as the Policy remains in
effect, the Company guarantees that the Death Benefit under either option will
be at least the current Stated
16
<PAGE> 21
Amount of the Policy less any outstanding Policy loan and unpaid Deduction
Amount due. The Death Benefit under either option may vary with the Cash Value
of the Policy. Under Option 1 (the "Level Option"), the Death Benefit will be
equal to the Stated Amount of the Policy or, if greater, a specified multiple of
Cash Value (the "Minimum Amount Insured"). Under Option 2 (the "Variable
Option"), the Death Benefit will be equal to the Stated Amount of the Policy
plus the Cash Value (determined as of the date of the Insured's death) or, if
greater, the Minimum Amount Insured.
The Minimum Amount Insured is the amount required to qualify the Policy as a
life insurance Policy under the current federal tax law. Under that law, the
Minimum Amount Insured equals a stated percentage of the Policy's Cash Value
determined as of the first day of each Policy Month. The percentages differ
according to the attained age of the Insured. The Minimum Amount Insured is set
forth in the Policy and may change as federal income tax laws or regulations
change. The following is a schedule of the applicable percentages. For attained
ages not shown, the applicable percentages will decrease evenly:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE
- ------------ ----------
<S> <C>
0-40 250
45 215
50 185
55 150
60 130
65 120
70 115
75 105
95+ 100
</TABLE>
Federal tax law imposes another cash funding limitation on cash value life
insurance Policies that may increase the Minimum Amount Insured shown above.
This limitation known as the "guideline premium limitation," generally applies
during the early years of variable universal life insurance Policies.
The following examples demonstrate the relationship between the Death Benefit,
the Cash Surrender Value and the Minimum Amount Insured under Options 1 and 2 of
the Policy. The examples assume an Insured of age 40, a Minimum Amount Insured
of 250% of Cash Value (assuming the preceding table is controlling as to Minimum
Amount Insured), and no outstanding Policy loan.
OPTION 1 -- "LEVEL" DEATH BENEFIT
STATED AMOUNT: $50,000
In the following examples of an Option 1 "Level" Death Benefit, the Death
Benefit under the Policy is generally equal to the Stated Amount of $50,000.
Since the Policy is designed to qualify as a life insurance Policy, the Death
Benefit cannot be less than the Minimum Amount Insured (or, in this example,
250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 x 250%). Since the Death Benefit in the Policy
is the greater of the Stated Amount ($50,000) or the Minimum Amount Insured
($25,000), the Death Benefit would be $50,000.
EXAMPLE TWO. If the Cash Value of the Policy equals $40,000, the Minimum Amount
Insured would be $100,000 ($40,000 x 250%). The resulting Death Benefit would be
$100,000 since the Death Benefit is the greater of the Stated Amount ($50,000)
or the Minimum Amount Insured ($100,000).
17
<PAGE> 22
OPTION 2 -- "VARIABLE" DEATH BENEFIT
STATED AMOUNT: $50,000
In the following examples of an Option 2 "Variable" Death Benefit, the Death
Benefit varies with the investment experience of the applicable Investment
Options and will generally be equal to the Stated Amount plus the Cash Value of
the Policy (determined on the date of the Insured's death). The Death Benefit
cannot, however, be less than the Minimum Amount Insured (or, in this example,
250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 x 250%). The Death Benefit ($60,000) would be
equal to the Stated Amount ($50,000) plus the Cash Value ($10,000), unless the
Minimum Amount Insured ($25,000) was greater.
EXAMPLE TWO. If the Cash Value of the Policy equals $60,000, then the Minimum
Amount Insured would be $150,000 ($60,000 x 250%). The resulting Death Benefit
would be $150,000 because the Minimum Amount Insured ($150,000) is greater than
the Stated Amount plus the Cash Value ($50,000 + $60,000 = $110,000).
PAYMENT OF PROCEEDS
Death Benefits are payable within seven days after we receive satisfactory proof
of the Insured's death. The amount of Death Benefit paid may be adjusted to
reflect any Policy loan, any material misstatements in the Policy application as
to age or sex of the Insured, and any amounts payable to an assignee under a
collateral assignment of the Policy. (See "Assignment.")
Subject to state law, if the Insured commits suicide within two years following
the Issue Date limits on the amount of Death Benefit paid will apply. (See
"Limit on Right to Contest and Suicide Exclusion.") In addition, if the Insured
dies during the 61-day period after the Company gives notice to the Policy Owner
that the Cash Surrender Value of the Policy is insufficient to meet the Monthly
Deduction Amount due against the Cash Value of the Policy, then the Death
Benefit actually paid to the Policy Owner's Beneficiary will be reduced by the
amount of the Deduction Amount that is due and unpaid. (See "Cash Value and Cash
Surrender Value," for effects of partial surrenders on Death Benefits.)
PAYMENT OPTIONS
We will pay policy proceeds in a lump sum, unless you or the Beneficiary select
one of the Company's payment options. We may defer payment of proceeds which
exceed the Death Benefit for up to six months from the date of the request for
the payment. A combination of options may be used. The minimum amount that may
be placed under a payment option is $5,000 unless we consent to a lesser amount.
Proceeds applied under an option will no longer be affected by the investment
experience of the Investment Options.
The following payment options are available under the Policy:
OPTION 1 -- Payments of a Fixed Amount
OPTION 2 -- Payments for a Fixed Period
OPTION 3 -- Amounts Held at Interest
OPTION 4 -- Monthly Life Income
OPTION 5 -- Joint and Survivor Level Amount Monthly Life Income
OPTION 6 -- Joint and Survivor Monthly Life Income-Two-thirds to Survivor
18
<PAGE> 23
OPTION 7 -- Joint and Last Survivor Monthly Life Income-Monthly Payment
Reduces on Death of First Person Named
OPTION 8 -- Other Options
We will make any other arrangements for periodic payments as may be agreed upon.
If any periodic payment due any payee is less than $100, we may make payments
less often. If we have declared a higher rate under an option on the date the
first payment under an option is due, we will base the payments on the higher
rate.
MATURITY BENEFITS
- --------------------------------------------------------------------------------
The Maturity Date is the anniversary of the Policy Date on which the Insured is
age 95. If the Insured is living on the Maturity Date, the Company will pay you
the Policy's Cash Value less any outstanding Policy loan or unpaid Deduction
Amount. You must surrender the Policy to us before we make a payment, at which
point the Policy will terminate and we will have no further obligations under
the Policy.
MATURITY EXTENSION RIDER
When the Insured reaches age 94, and at any time during the twelve months
thereafter, you may request that coverage be extended beyond the Maturity Date
(the "Maturity Extension Benefit"). This Maturity Extension Benefit may not be
available in all jurisdictions. If we receive such request before the Maturity
Date, the Policy will continue until the earlier of the death of the Insured or
the date on which the Policy Owner requests that the Policy terminate. When the
Maturity Extension Benefit ends, a Death Benefit consisting of the Cash Value
less any Loan Account Value will be paid. The Death Benefit is based on the
experience of the Investment Options selected and is not guaranteed. After the
Maturity Date, periodic Deduction Amounts will no longer be charged against the
Cash Value and additional premiums will not be accepted.
We intend that the Policy and the Maturity Extension Rider will be considered
life insurance for tax purposes. The Death Benefit is designed to comply with
Section 7702 of the Internal Revenue Code of 1986, as amended, or other
equivalent section of the Code. However, we do not give tax advice, and cannot
guarantee that the Death Benefit and Cash Value will be exempt from any future
tax liability. The tax results of any benefits under the Maturity Extension
provision depend upon interpretation of the Internal Revenue Code. You should
consult your own personal tax adviser prior to the exercise of the Maturity
Extension Rider to assess any potential tax liability.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
CHARGES AGAINST PREMIUM
FRONT-END SALES CHARGE
When we receive a Premium Payment, and before allocation of the payment among
the Investment Options, we deduct a front-end sales charge. For Stated Amounts
less than $500,000, the charge is 2.5%. The charge is 2% for Stated Amounts from
$500,000 to $999,999, and for Stated Amounts of $1,000,000 or greater, there is
no front-end sales charge. Additional charges may be assessed upon any full or
partial surrender. (See "Surrender Charges".)
Sales charges are intended to cover our actual sales expenses, including agent
sales commissions, advertising and the printing of the prospectuses. We expect
to recover the sales expenses of a Policy. To the extent sales expenses are not
covered by the sales charges, we will recover such expenses from its surplus.
This surplus may include profit from the mortality and expense risk charge.
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STATE PREMIUM TAX CHARGE
A charge of 2.5% of each premium payment will be deducted for state premium
taxes (except for Policies issued in the Commonwealth of Puerto Rico where no
premium tax is deducted). These taxes vary from state to state and currently
range from 0.75% to 3.5%; 2.5% is an average. Because there is a range of
premium taxes, a Policy Owner may pay a premium tax charge that is higher or
lower than the premium tax actually assessed in his or her jurisdiction.
The Company also reserves the right to charge the assets of each Investment
Option for a reserve for any income taxes payable by the Company on the assets
attributable to that Investment Option. (See "Federal Tax Considerations.")
MONTHLY DEDUCTION AMOUNT
We will deduct a Monthly Deduction Amount to cover certain charges and expenses
incurred in connection with the Policy. The Monthly Deduction Amount is deducted
pro rata from each of the Investment Options' values attributable to the Policy.
The amount is deducted on the first day of each Policy Month (the "Deduction
Date"), beginning on the Policy Date. The dollar amount of the Deduction Amount
will vary from month to month. The Monthly Deduction Amount consists of the Cost
of Insurance Charge, Policy Administrative Expense Charge and Charges for any
Supplemental Benefit Provision. These are described below:
COST OF INSURANCE CHARGE
The amount of the Cost of Insurance deduction depends on the amount of insurance
coverage on the date of the deduction and the current cost per dollar for
insurance coverage. The cost per dollar of insurance coverage varies annually
and is based on age, sex and risk class of the Insured.
POLICY ADMINISTRATIVE EXPENSE CHARGE
For the first three Policy Years, an administrative charge is deducted monthly
from the Policy's Cash Value. This charge also applies to increases in the
Stated Amount (excluding Cost of Living Adjustments and increases in Stated
Amounts due to Death Benefit Option changes.) This charge is used to cover
expenses associated with issuing the Policy.
The charge currently varies by issue age, Stated Amount and smoker/non-smoker
classification (see Appendix C for chart of current charges). The current Policy
administrative charges are lower than the guaranteed maximum charges. (See
Appendix C(1) for the guaranteed maximum charges.)
CHARGES FOR SUPPLEMENTAL BENEFIT PROVISIONS
The Company will include a supplemental benefits charge in the Monthly Deduction
Amount if you have elected any supplemental benefit provision for which there is
a charge. The amount of this charge will vary depending upon the actual
supplemental benefits selected.
CHARGES AGAINST THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge for mortality and expense risks. This charge is at an
annual rate of 0.80% for the first fifteen (15) Policy Years, and 0.25%
thereafter. For policies issued after July 12, 1995 and prior to May 1, 1998,
this charge is at an annual rate of .80% for the first fifteen (15) Policy
Years, and .45% thereafter. For policies issued prior to July 12, 1995, the
charge is at an annual rate of .60% all years. The mortality risk assumed is
that the cost of insurance charge specified in the Policy may not be enough to
meet actual claims. The expense risk assumed is that expenses incurred in
issuing and administering the Policies will exceed the administrative charges
set forth in the Policy. Refer to "Policies Sold Prior to May 1, 1998" if
applicable.
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ADMINISTRATIVE EXPENSE CHARGE
We deduct a daily charge for administrative expenses incurred by us. For
Policies issued after July 12, 1995, the charge equals an annual rate of 0.10%
of the assets in the Investment Options for the first fifteen (15) Policy Years
and 0% thereafter. Refer to "Policies Sold Prior to May 1, 1998," if applicable.
UNDERLYING FUND FEES
When you allocate money to the Investment Options, the Separate Account
purchases shares of the corresponding Underlying Funds at net asset value. The
net asset value reflects investment advisory fees and other expenses already
deducted. The investment advisory fees and other expenses paid to each of the
Underlying Funds are described in the individual Fund prospectuses for the
Investment Options and in the Policy prospectus summary. These are not direct
charges under the Policy; they are indirect because they affect each Investment
Option's accumulation unit value.
SURRENDER CHARGES
There are two types of surrender charges that can apply under the Policy: a
Percent of Premium Charge and a Per Thousand of Stated Amount Charge equal to a
specified amount for each $1,000 of Stated Amount. These surrender charges apply
during the first ten Policy Years (or the first ten years following an increase
in Stated Amount other than an increase for a Cost of Living Adjustment or a
change in Death Benefit option). Both charges apply upon a full surrender of the
Policy. Only the Percent of Premium Charge applies upon a partial surrender.
PERCENT OF PREMIUM CHARGE
A Percent of Premium surrender charge will be assessed upon a full or partial
surrender of the Policy during the first ten Policy Years (and during the first
ten years following an increase in Stated Amount). The charge will be the
smallest of:
(a) 6% of the amount of Cash Value being surrendered; or
(b) 6% of the amount of premiums actually paid within the five years
preceding the surrender; or
(c) 9% of the total Annual Minimum Premiums for each full or partial Policy
Year during the five years preceding the surrender, whether paid or
not. (See Appendix A, "Annual Minimum Premiums.")
For example, for a 45-year old male with a Stated Amount of $150,000 who pays a
premium of $1,969 per year for five years (a total of $9,845), and then fully
surrenders the Policy for its Cash Value of $7,485 (assuming a 6% rate of
return), the Percent of Premium surrender charge would be $449, because (a) is
$449 (6% of $7,485); (b) is $591 (6% of the $9,845 in premiums paid); and (c) is
approximately $682 (9% of the annual minimum premium for five years). The
smallest, $449, is the applicable charge.
PER THOUSAND OF STATED AMOUNT CHARGE
A Per Thousand of Stated Amount surrender charge is imposed on full surrenders,
but not on partial surrenders, and applies only during the first ten Policy
Years or the ten years following an increase in Stated Amount (other than an
increase for a Cost of Living Adjustment or a change in Death Benefit Option).
The charge is equal to a specified dollar amount for each $1,000 of Stated
Amount to which it applies, and will apply only to that portion of the Stated
Amount (except for increases excluded above) which has been in effect for less
than ten years.
The Per Thousand of Stated Amount Charge varies by original issue age, and
increases with the issue age of the Insured. For Stated Amounts of $499,999 or
less, this charge varies in the first year from $2.04 per $1,000 of Stated
Amount for issue ages of 4 years or less, to $25.40 per $1,000 of
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Stated Amount for issue ages of 65 years or higher. The charge is lower for
Stated Amounts over $499,999, and even lower for Stated Amounts over $999,999.
Additionally, the charge decreases by 10% each year over the ten-year period.
For example, for a 45-year old with a Stated Amount of $150,000, the charge in
the first year is $7.18 for each $1,000 of Stated Amount, or $1,077. The charge
decreases 10%, or approximately $0.72, each year, so in the fifth year, it is
$4.31 for each $1,000 of Stated Amount, or $646.50; in the tenth year, it is
$0.72 for each $1,000, or $108.
This charge is designed to compensate the Company for administrative expenses
not covered by other administrative charges. This charge may be reduced or
eliminated when sales are made under certain arrangements. (See "Reduction or
Elimination of Sales Charges and Administrative Charges" below.) The Per
Thousand of Stated Amount surrender charges are set forth in Appendix B.
TRANSFER CHARGE
There is currently no charge for transfers. The Company reserves the right to
limit free transfers of Cash Value from one Investment Option to another by the
Policy Owner to four times in any Policy Year, and to charge $10 for any
additional transfers.
REDUCTION OR ELIMINATION OF CHARGES
We may offer the Policy in arrangements where an employer or trustee will own a
group of policies on the lives of certain employees, or in other situations
where groups of policies will be purchased at one time. We may reduce or
eliminate the mortality and expense risk charge, sales or surrender charges and
administrative charges in such arrangements to reflect the reduced sales
expenses, administrative costs and/or mortality and expense risks expected as a
result of sales to a particular group.
We will not reduce or eliminate the withdrawal charge, mortality and expense
risk charge or the administrative charge if the reduction or elimination will be
unfairly discriminatory to any person.
THE SEPARATE ACCOUNT AND VALUATION
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THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE (FUND UL)
The Travelers Fund UL for Variable Life Insurance was established on November
10, 1983 under the insurance laws of the state of Connecticut. It is registered
with the Securities and Exchange Commission ("SEC") as a unit investment trust
under the Investment Company Act of 1940. A Registration Statement has been
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended. This Prospectus does not contain all information set forth in
the Registration Statement, its amendments and exhibits. You may access the
SEC's website (http://www.sec.gov) to view the entire Registration Statement.
This registration does not mean that the SEC supervises the management or the
investment practices or policies of the Separate Account.
The assets of Fund UL are invested exclusively in shares of the Investment
Options. The operations of Fund UL are also subject to the provisions of Section
38a-433 of the Connecticut General Statutes which authorizes the Connecticut
Insurance Commissioner to adopt regulations under it. Under Connecticut law, the
assets of Fund UL will be held for the exclusive benefit of Policy Owners and
the persons entitled to payments under the Policy. The assets held in Fund UL
are not chargeable with liabilities arising out of any other business which the
Company may conduct. Any obligations arising under the Policy are general
corporate obligations of the Company.
All investment income of and other distributions to each Investment Option are
reinvested in shares of corresponding underlying fund at net asset value. The
income and realized gains or losses
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<PAGE> 27
on the assets of each Investment Option are separate and are credited to or
charged against the Investment Option without regard to income, gains or losses
from any other Investment Option or from any other business of the Company. The
Company purchases shares of the Fund in connection with premium payments
allocated according to the Policy Owners' directions, and redeems Fund shares to
meet Policy obligations. We will also make adjustments in reserves, if required.
The Investment Options are required to redeem Fund shares at net asset value and
to make payment within seven days.
HOW THE CASH VALUE VARIES. We calculate the Policy's Cash Value each day the
New York Stock Exchange is open for trading (a "valuation date"). A Policy's
Cash Value reflects a number of factors, including Premium Payments, partial
withdrawals, loans, Policy charges, and the investment experience of the
Investment Option(s) chosen. The Policy's Cash Value on a valuation date equals
the sum of all accumulation units for each Investment Option chosen, plus the
Loan Account Value.
The Separate Account purchases shares of the underlying funds at net asset value
(i.e., without a sales charge). The Separate Account receives all dividends and
capital gains distributions from each underlying fund, and reinvests in
additional shares of that fund. The Accumulation Unit Value reflects the
reinvestment of any dividends or capital gains distributions declared by the
underlying fund. The Separate Account will redeem underlying fund shares at
their net asset value, to the extent necessary to make payments under the
Policy.
In order to determine Cash Value, Cash Surrender Value, policy loans and the
number of Accumulation Units to be credited, we use the values calculated as of
the close of business on each valuation date we receive the written request, or
payment in good order, at our Home Office.
ACCUMULATION UNIT VALUE. Accumulation Units measure the value of the Investment
Options. The value for each Investment Option's Accumulation Unit is calculated
on each valuation date. The value equals the Accumulation Unit value for the
preceding valuation period multiplied by the underlying fund's Net Investment
Factor during the next Valuation Period. (For example, to calculate Monday's
valuation date price, we would multiply Friday's Accumulation Unit Value by
Monday's net investment factor.)
The Accumulation Unit Value may increase or decrease. The number of Accumulation
Units credited to your Policy will not change as a result of the Investment
Option's investment experience.
NET INVESTMENT FACTOR. For each Investment Option, the value of its
Accumulation Unit depends of the net rate of return for the corresponding
underlying fund. We determine the net rate of return at the end of each
Valuation Period (that is, the period of time beginning at the close of the New
York Stock Exchange, and ending at its close of business on the next Valuation
Date). The net rate of return reflects the investment performance of the
investment option, includes any dividends or capital gains distributed, and is
net of the Separate Account charges.
CHANGES TO THE POLICY
- --------------------------------------------------------------------------------
GENERAL
Once the policy is issued, you may make certain changes. Some of these changes
will not require additional underwriting approval; some changes will. Certain
requests must be made in writing, as indicated below:
WRITTEN CHANGES REQUIRING UNDERWRITING APPROVAL:
- increases in the stated amount of insurance;
- changing the death benefit from Option 1 to Option 2
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WRITTEN CHANGES NOT REQUIRING UNDERWRITING APPROVAL:
- decreases in the stated amount of insurance
- changing the death benefit from Option 2 to Option 1
- changes to the way your premiums are allocated (Note: you can also make
these changes by telephone)
- changing the beneficiary (unless irrevocably named)
Written requests for changes should be sent to the Company's Home Office at One
Tower Square, Hartford, Connecticut, 06183. The Company's telephone number is
(860) 277-0111.
CHANGES IN STATED AMOUNT
You may request in writing an increase or decrease in the Policy's Stated
Amount, provided that the Stated Amount after any decrease may not be less than
the minimum amount of $50,000. For purposes of determining the cost of insurance
charge, a decrease in the Stated Amount will reduce the Stated Amount in the
following order:
1) against the most recent increase in the Stated Amount;
2) to other increases in the reverse order in which they occurred;
3) to the initial Stated Amount.
A decrease in Stated Amount in a substantially funded Policy may cause a cash
distribution that is includable in the gross income of the Policy Owner.
For increases in the Stated Amount, we may require a new application and
evidence of insurability as well as an additional premium payment. The effective
date of any increase will be shown on the new Policy Summary which we will send.
The effective date of any increase in the Stated Amount will generally be the
Deduction Date next following either the date of a new application or, if
different, the date requested by the Applicant. There is an additional Policy
Administrative Charge and a Per Thousand of Stated Amount Surrender Charge
associated with a requested increase in Stated Amount. There is no additional
charge for a decrease in Stated Amount.
CHANGES IN DEATH BENEFIT OPTION
You may change the Death Benefit option by sending a written request to the
Company. There is no direct tax consequence of changing a Death Benefit option,
except as described under "Tax Treatment of Policy Benefits." However, the
change could affect future values of Net Amount At Risk, and with some Option 2
to Option 1 changes involving substantially funded Policies, there may be a cash
distribution which is included in your gross income. The cost of insurance
charge which is based on the Net Amount At Risk may be different in the future.
A change from Option 1 to Option 2 will not be permitted if the change results
in a Stated Amount of less than $50,000. A change from Option 1 to Option 2 also
subject to underwriting. Contact your registered representative for more
information.
ADDITIONAL POLICY PROVISIONS
- --------------------------------------------------------------------------------
ASSIGNMENT
The Policy may be assigned as collateral for a loan or other obligation. The
Company is not responsible for any payment made or action taken before receipt
of written notice of such assignment. Proof of interest must be filed with any
claim under a collateral assignment.
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LIMIT ON RIGHT TO CONTEST AND SUICIDE EXCLUSION
We may not contest the validity of the Policy after it has been in effect during
the Insured's lifetime for two years from the Issue Date. Subject to state law,
if the Policy is reinstated, the two-year period will be measured from the date
of reinstatement. Each requested increase in Stated Amount is contestable for
two years from its effective date (subject to state law). In addition, if the
Insured commits suicide during the two-year period following issue, subject to
state law, the Death Benefit will be limited to the premiums paid less (i) the
amount of any partial surrender, (ii) the amount of any outstanding Policy loan,
and (iii) the amount of any unpaid Deduction Amount due. During the two-year
period following an increase, the Death Benefit in the case of suicide will be
limited to an amount equal to the Deduction Amount paid for such increase.
MISSTATEMENT AS TO SEX AND AGE
If there has been a misstatement with regard to sex or age, benefits payable
will be adjusted to what the Policy would have provided with the correct
information. A misstatement with regard to sex or age in a substantially funded
Policy may cause a cash distribution that is includable in whole or in part in
the gross income of the Policy Owner.
VOTING RIGHTS
The Company is the legal owner of the underlying fund shares. However, we
believe that when an underlying fund solicits proxies, we are required to obtain
from policy owners who have chosen those investment options instructions on how
to vote those shares. When we receive those instructions, we will vote all of
the shares we own in proportion to those instructions. This will also include
any shares we own on our own behalf. If we determine that we no longer need to
comply with this voting method, we will vote on the shares in our own right.
DISREGARD OF VOTING INSTRUCTIONS
When permitted by state insurance regulatory authorities, we may disregard
voting instructions if the instructions would cause a change in the investment
objective or policies of the Separate Account or an Investment Option, or if it
would cause the approval or disapproval of an investment advisory Policy of an
Investment Option. In addition, we may disregard voting instructions in favor of
changes in the investment policies or the investment adviser of any Investment
Options which are initiated by a Policy Owner if we reasonably disapprove of
such changes. A change would be disapproved only if the proposed change is
contrary to state law or prohibited by state regulatory authorities, or if we
determine that the change would have an adverse effect on our general account
(i.e., if the proposed investment policy for an Investment Option may result in
overly speculative or unsound investments.) If we do disregard voting
instructions, a summary of that action and the reasons for such action would be
included in the next annual report to Policy Owners.
FOR POLICIES SOLD PRIOR TO MAY 1, 1998
The following pertains to policies sold between July 12, 1995 and May 1, 1998
(or sold after May 1, 1998 in the states where the new policy has not yet been
approved).
MORTALITY AND EXPENSE RISK CHARGE. The current charge is at an annual rate of
0.80% for years one through fifteen and 0.45% thereafter.
ADMINISTRATIVE EXPENSE CHARGE. The charge is 0.10% for years one through
fifteen and 0.00% thereafter.
ILLUSTRATIONS
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of returns. For the first fifteen Policy Years, the
current and guaranteed charges consist of 0.80% for mortality and expense risks,
0.10% for administrative expenses and an average of the
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<PAGE> 30
Investment Option expenses and thereafter, 0.45% for mortality and expense
risks, 0.00% for administrative expenses and an average of the Investment Option
expenses.
The charge for Investment Option expenses reflected in the illustration assumes
that Cash Value is allocated equally among all investment Options and that no
Policy Loans are outstanding, and is the average of the investment advisory fees
and other expenses charged by each of the Investment Options during the last
audited calendar year.
After deduction of these amounts, the illustrated gross annual rates of 0%, 6%
and 12% correspond to approximate net annual rates of -1.52%, 4.48% and 10.48%,
respectively on a current and guaranteed basis for the first fifteen Policy
Years and to approximate net annual rates of -1.07%, 4.93% and 10.93%,
respectively on a current and guaranteed basis thereafter.
POLICIES SOLD PRIOR TO JULY 12, 1995
The following pertains to Policies sold prior to July 12, 1995 (or sold
subsequent to July 12, 1995 in states where the new Policy had not yet been
approved).
MORTALITY AND EXPENSE RISK CHARGE. The current charge is at an annual rate of
0.60% of the assets in the Separate Account, however the policy provides that
the maximum charge for mortality and expense risks will not exceed .80%
ADMINISTRATION EXPENSE CHARGE. The maximum charge is equivalent, on an annual
basis, to 0.10% of the assets in the Separate Account, however, the Company does
not currently assess this charge.
CONTRACT LOANS. During the first 10 policy years, the full Loan Account Value
will be charged an annual interest rate of 7.4% (6% in the Virgin Islands).
During Contract Years 11, 12 and 13, 25%, 50% and 75% of the Loan Account Value,
respectively, will be charged a reduced rate of 3.85% (5.66% in New York and
Massachusetts). Thereafter, 100% of the Loan Account Value will be charged the
reduced rate.
ILLUSTRATIONS
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of returns. The current charges use 0.60% for mortality
and expense risks and an average of the Investment Option expenses. The
guaranteed charges use 0.80% for mortality and expense risks, 0.10% for
administrative expenses and an average of the Investment Option expenses.
The charge for Investment Option expenses reflected in the illustration assumes
that Cash Value is allocated equally among all investment Options and that no
Policy Loans are outstanding, and is the average of the investment advisory fees
and other expenses charged by each of the Investment Options during the last
audited calendar year.
After deduction of these amounts, the illustrated gross annual rates of 0%, 6%
and 12% correspond to approximate net annual rates of -1.22%, 4.78% and 10.78%,
respectively on a current basis and to approximate net annual rates of -1.52%,
4.48% and 10.48%, respectively on a guaranteed basis.
OTHER MATTERS
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STATEMENTS TO POLICY OWNERS
We will maintain all records relating to the Separate Account and the Investment
Options. At least once each Policy Year, we will send you a statement containing
the following information:
- the Stated Amount and the Cash Value of the Policy (indicating the number
of Accumulation Units credited to the Policy in each Investment Option
and the corresponding Accumulation Unit Value);
- the date and amount of each premium payment;
- the date and amount of each Monthly Deduction;
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<PAGE> 31
- the amount of any outstanding Policy loan as of the date of the
statement, and the amount of any loan interest charged on the Loan
Account;
- the date and amount of any partial cash surrenders and the amount of any
partial surrender charges;
- the annualized cost of any supplemental benefits purchased under the
Policy; and
- a reconciliation since the last report of any change in Cash Value and
Cash Surrender Value.
We will also send any other reports required by any applicable state or federal
laws or regulations.
SUSPENSION OF VALUATION
We reserve the right to suspend or postpone the date of any payment of any
benefit or values for any Valuation Period (1) when the New York Stock Exchange
("Exchange") is closed; (2) when trading on the Exchange is restricted; (3) when
the SEC determines so that disposal of the securities held in the Underlying
Funds is not reasonably practicable or the value of the Investment Option's net
assets cannot be determined; or (4) during any other period when the SEC, by
order, so permits for the protection of security holders.
DIVIDENDS
No dividends will be paid under the Policy.
MIXED AND SHARED FUNDING
It is conceivable that in the future it may not be advantageous for variable
life insurance and variable annuity Separate Accounts to invest in the
Investment Options simultaneously. This is called mixed funding. Certain funds
may be available to variable products of other companies not affiliated with
Travelers. This is called "shared funding." Although we -- and the funds -- do
not anticipate any disadvantages either to variable life insurance or to
variable annuity Policy Owners, the Investment Options' Boards of Directors
intend to monitor events to identify any material conflicts that may arise and
to determine what action, if any, should be taken. If any of the Investment
Options' Boards of Directors conclude that separate mutual funds should be
established for variable life insurance and variable annuity Separate Accounts,
the Company will bear the attendant expenses, but variable life insurance and
variable annuity Policy Owners would no longer have the economies of scale
resulting from a larger combined fund. Please consult the prospectuses of the
Investment Options for additional information.
DISTRIBUTION
The Company intends to sell the Policies in all jurisdictions where it is
licensed to do business and where the Policy is approved. The Policies will be
sold by life insurance sales representatives who are registered representatives
of the Company or certain other registered broker-dealers. The maximum
commission payable by the Company for distribution would be no greater than 50%
of the actual premium paid in the first twelve months. Any sales representative
or employee will have been qualified to sell variable life insurance Policies
under applicable federal and state laws. Each broker/dealer is registered with
the Securities and Exchange Commission under the Securities Exchange Act of 1934
and all are members of the National Association of Securities Dealers, Inc.
CFBDS, Inc. serves as principal underwriter of the Policies.
LEGAL PROCEEDINGS AND OPINION
There are no pending material legal proceedings affecting the Separate Account.
Legal matters in connection with the federal laws and regulations affecting the
issue and sale of the Contract described in this prospectus, as well as the
organization of the Company, its authority to issue variable life contracts
under Connecticut law and the validity of the forms of the variable life
contracts under Connecticut law, have been reviewed by the General Counsel of
the Company.
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INDEPENDENT ACCOUNTANTS
The financial statements as of and for the year ended December 31, 1998 of Fund
UL, included
in the registration statement have been included herein in reliance on the
report of
KPMG LLP, independent certified public accountants upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance Company and
Subsidiaries as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
GENERAL
The following is a general discussion of the federal income tax considerations
relating to the Policies. This discussion is based upon the Company's
understanding of the federal income tax laws as they are currently interpreted
by the Internal Revenue Service ("IRS"). These laws are complex, and tax results
may vary among individuals. A person contemplating the purchase of or the
exercise of elections under a Policy should seek competent tax advice.
IT SHOULD BE UNDERSTOOD THAT THIS IS NOT AN EXHAUSTIVE DISCUSSION OF ALL TAX
QUESTIONS THAT MIGHT ARISE UNDER THE POLICIES. NO ATTEMPT HAS BEEN MADE TO
ADDRESS ANY FEDERAL ESTATE TAX OR STATE AND LOCAL TAX CONSIDERATIONS WHICH MAY
ARISE IN CONNECTION WITH A POLICY. FOR COMPLETE INFORMATION, A QUALIFIED TAX
ADVISOR SHOULD BE CONSULTED.
THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF ANY POLICY AND THE FOLLOWING
TAX DISCUSSION IS BASED ON THE COMPANY'S UNDERSTANDING OF FEDERAL INCOME TAX
LAWS AS THEY ARE CURRENTLY INTERPRETED. THE COMPANY CANNOT GUARANTEE THAT THOSE
LAWS OR INTERPRETATIONS WILL REMAIN UNCHANGED.
TAX STATUS OF THE POLICY
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. Guidance as to how Section 7702 is to be applied,
however, is limited. Although the Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702, and while
proposed regulations and other limited, interim guidance has been issued, final
regulations have not been adopted. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy would not provide
the tax advantages normally provided by a life insurance policy.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702) that such a Policy should meet the Section 7702
definition of a life insurance contract. There is less guidance on the
application of the rules with respect to a Policy that is issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk). Thus, it is not clear whether such a Policy would satisfy
Section 7702, particularly if the Policy Owner pays the full amount of premiums
permitted under the Policy.
The Company reserves the right to make changes in the Policy if such changes are
deemed necessary to attempt to assure its qualification as a life insurance
contract for tax purposes.
DIVERSIFICATION
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies)
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<PAGE> 33
underlying the Policy must be "adequately diversified" in accordance with
Treasury regulations in order for the Policy to qualify as life insurance. The
Treasury Department has issued regulations prescribing the diversification
requirements in connection with variable contracts. The Separate Account,
through the Investment Options, intends to comply with these requirements.
Although the Company does not control the Investment Options, it intends to
monitor the investments of the Investment Options to ensure compliance with the
diversification requirements prescribed by the Treasury Department.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contract. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contract owner's gross income each year. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policy Owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular Investment Options without being treated as owners of
the underlying assets." As of the date of this prospectus, no such guidance has
been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the policy owners received the desired tax benefits because they were not owners
of separate account assets. For example, a Policy Owner of this Policy has
additional flexibility in allocating payments and cash values. These differences
could result in the Policy Owner being treated as the owner of the assets of the
Separate Account. In addition, the Company does not know what standard will be
set forth in the regulations or rulings which the Treasury is expected to issue,
nor does the Company know if such guidance will be issued. The Company therefore
reserves the right to modify the Policy as necessary to attempt to prevent the
Policy Owner from being considered the owner of a pro rata share of the assets
of the Separate Account.
The remaining tax discussion assumes that the Policy qualifies as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the Death Benefit under the Policy
should be excludable from the gross income of the Beneficiary.
In addition, the Policy Owner will generally not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, until there is a
distribution. The tax consequences of distribution from, and loans taken from or
secured by, a Policy depend on whether the Policy is classified as a "Modified
Endowment Contract." However, whether a Policy is or is not a Modified Endowment
Contract, upon a complete surrender or lapse of a Policy or when benefits are
paid at a Policy's maturity date, if the amount received plus the amount of
indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, or an assignment of
29
<PAGE> 34
the Policy may have federal income tax consequences. In addition, federal, state
and local transfer, and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Owner or beneficiary. Therefore, it
is important to check with a tax adviser prior to the purchase of a policy.
MODIFIED ENDOWMENT CONTRACTS
A modified endowment contract is defined under tax law as any policy that
satisfies the present legal definition of a life insurance contract but which
fails to satisfy a 7-pay test. This failure could occur with contracts entered
into after June 21, 1988, or with certain older contracts materially changed
after that date. A Section 1035 exchange of an older contract into a contract
after that date will not by itself cause the new contract to be a modified
endowment contract if the older contract had not become one prior to the
exchange. However, the new contract must be re-tested under the 7-pay test
rules.
A contract fails to satisfy the 7-pay test if the cumulative amount of premiums
paid under the contract at any time during the first seven contract years
exceeds the sum of the net level premiums that would have been paid on or before
such time had the contract provided for paid-up future benefits after the
payment of seven level annual premiums. If a material change in the contract
occurs either during the first seven contract years, or later, a new seven-year
testing period is begun. A decrease to Stated Amount made in the first seven
years will cause a retest of the cumulative amount of premiums. Decreases made
after the first seven contract years are not considered a material change,
provided no other material changes have occurred prior. Tax regulations or other
guidance will be needed to fully define those transactions which are material
changes. The Company has established safeguards for monitoring whether a
contract may become a modified endowment contract.
Loans and partial withdrawals from, as well as collateral assignments of,
Policies that are modified endowment contracts will be treated as distributions
to the Policy Owner for tax purposes. All pre-death distributions (including
loans, partial withdrawals and collateral assignments) from these Policies will
be included in gross income on an income-first basis to the extent of any income
in the Policy (the cash value less the Policy Owner's investment in the Policy)
immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders) from
modified endowment contracts to the extent they are included in income, unless a
specific exception to the penalty applies. The penalty does not apply to amounts
which are distributed on or after the date on which the taxpayer attains age
59 1/2, because the taxpayer is disabled, or as substantially equal periodic
payments over the taxpayer's life (or life expectancy) or over the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary.
Furthermore, if the loan interest is capitalized by adding the amount due to the
balance of the loan, the amount of the capitalized interest will be treated as
an additional distribution subject to income tax as well as the 10% penalty tax,
if applicable, to the extent of income in the Policy.
The Death Benefit of a modified endowment contract remains excludable from the
gross income of the Beneficiary to the extent described above in "Tax Treatment
of Policy Benefits." Furthermore, no part of the investment growth of the Cash
Value of a modified endowment contract is includable in the gross income of the
Contract Owner unless the contract matures, is distributed or partially
surrendered, is pledged, collaterally assigned, or borrowed against, or
otherwise terminates with income in the contract prior to death. A full
surrender of the contract after age 59 1/2 will have the same tax consequences
as noted above in "Tax Treatment of Policy Benefits."
EXCHANGES
Any Policy issued in exchange for a modified endowment contract will be subject
to the tax treatment accorded to modified endowment contracts. However, the
Company believes that any Policy received in exchange for a life insurance
contract that is not a modified endowment contract
30
<PAGE> 35
will generally not be treated as a modified endowment contract if the face
amount of the Policy is greater than or equal to the death benefit of the policy
being exchanged. The payment of any premiums at the time of or after the
exchange may, however, cause the Policy to become a modified endowment contract.
A prospective purchaser should consult a qualified tax advisor before
authorizing the exchange of his or her current life insurance contract for a
Policy.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS
In the case of a pre-death distribution (including a loan, partial withdrawal,
collateral assignment or complete surrender) from a Policy that is treated as a
modified endowment contract, a special aggregation requirement may apply for
purposes of determining the amount of the income on the Policy. Specifically, if
the Company or any of its affiliates issues to the same Policy Owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the Policy with respect to a distribution from any of
those Policies, the income on the Policy for all those Policies will be
aggregated and attributed to that distribution.
POLICIES WHICH ARE NOT MODIFIED ENDOWMENT CONTRACTS
Unlike loans from modified endowment contracts, a loan from a Policy that is not
a modified endowment contract will be considered indebtedness of the Owner and
no part of a loan will constitute income to the Owner. However, the treatment of
loans taken after the 13th Policy Year, is unclear; such loans might be
considered a withdrawal instead of indebtedness for federal tax purposes.
Pre-death distributions from a Policy that is not a modified endowment contract
will generally not be included in gross income to the extent that the amount
received does not exceed the Policy Owner's investment in the Policy. (An
exception to this general rule may occur in the case of a decrease or change
that reduces the benefits provided under a Policy in the first 15 years after
the Policy is issued and that results in a cash distribution to the Policy
Owner. Such a cash distribution may be taxed in whole or in part as ordinary
income to the extent of any gain in the Policy.) Further, the 10% penalty tax on
pre-death distributions does not apply to Policies that are not modified
endowment contracts.
Certain changes to Policies that are not modified endowment contracts may cause
such Policies to be treated as modified endowment contracts. A Policy Owner
should therefore consult a tax advisor before effecting any change to a Policy
that is not a modified endowment contract.
TREATMENT OF LOAN INTEREST
If there is any borrowing against the Policy, the interest paid on loans may not
be tax deductible.
THE COMPANY'S INCOME TAXES
The Company is taxed as a life insurance company under federal income tax law.
Presently, the Company does not expect to incur any income tax on the earnings
or the realized capital gains attributable to Fund UL. However, the Company may
assess a charge against the Investment Options for federal income taxes
attributable to those accounts in the event that the Company incurs income or
capital gains or other tax liability attributable to Fund UL under future tax
law.
THE COMPANY
- --------------------------------------------------------------------------------
The Travelers Insurance Company (the "Company") is a stock insurance company
chartered in 1864 in Connecticut and has been engaged in the insurance business
since that time. The Company writes individual life insurance and individual and
group annuity contracts on a non-participating basis, and acts as depositor for
the Separate Account assets. The Company is licensed to conduct life insurance
business in all states of the United States, the District of Columbia, Puerto
Rico, Guam, the U.S. and British Virgin Islands, and the Bahamas. The Company's
obligations as depositor for Fund UL may not be transferred without notice to
and consent of Policy Owners.
31
<PAGE> 36
The Company is an indirect wholly owned subsidiary of Citigroup Inc., a
financial services holding company. The Company's principal executive offices
are located at One Tower Square, Hartford, Connecticut 06183, telephone number
(860) 277-0111.
The Company is subject to Connecticut law governing insurance companies and is
regulated and supervised by the Connecticut Commissioner of Insurance. An annual
statement in a prescribed form must be filed with the Commissioner on or before
March 1 in each year covering the operations of the Company for the preceding
year and its financial condition on December 31 of such year. The Company's
books and assets are subject to review or examination by the Commissioner, and a
full examination of its operations is conducted at least once every four years.
In addition, the Company is subject to the insurance laws and regulations of any
jurisdiction in which it sells its insurance Policies, as well as to various
federal and state securities laws and regulations.
IMSA
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
necessary to address the Year 2000 issue and developed a comprehensive plan to
address the issue. This issue involves the ability of computer systems that have
time sensitive programs to recognize properly the Year 2000. The inability to do
so could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed as incurred in the period 1996 through 1999. The Company has incurred
approximately $22 million to date on these efforts. The Company also has third
party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
32
<PAGE> 37
MANAGEMENT
- --------------------------------------------------------------------------------
DIRECTORS OF THE TRAVELERS INSURANCE COMPANY
The following are the Directors and Executive Officers of The Travelers
Insurance Company. Unless otherwise indicated, the principal business address
for all individuals is the Company's Home Office at One Tower Square, Hartford,
Connecticut 06183. References to Citigroup include, prior to December 31, 1993,
Primerica Corporation or its predecessors, and prior to October 8, 1998,
Travelers Group, Inc.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITION SINCE PRINCIPAL BUSINESS
----------------- -------- ------------------
<S> <C> <C>
Jay S. Benet................... 1996 Senior Vice President since February 1994; Chief
Director Financial Officer, Chief Accounting Officer, and
Controller since January, 1999 and Vice President
(1990-1994) of The Travelers Insurance Company; Partner
(1986-1990) of PricewaterhouseCoopers.
Katherine M. Sullivan.......... 1996 Senior Vice President and General Counsel since May
Director 1996 of The Travelers Insurance Company; Senior Vice
President and General Counsel (1994-1996) Connecticut
Mutual; Special Counsel & Chief of Staff (1988-1994)
Aetna Life & Casualty.
George C. Kokulis.............. 1996 Senior Vice President since September 1995, Vice
Director President (1993-1995) of The Travelers Insurance
Company.
Michael A. Carpenter........... 1995 Co-chairman, Salomon Smith Barney since October 1998;
Director Chairman since June 1996 and President and Chief
Executive Officer June 1995-1998 of The Travelers
Insurance Company; Vice Chairman since February 1998;
Executive Vice President (1995-1998) of Citigroup Inc.;
Chairman, President and Chief Executive Officer
(1989-1994), Kidder Peabody Group Inc.
Robert I. Lipp................. 1992 Chairman, President and Chief Executive Officer since
Director April 1996 of Travelers Property Casualty Corp.; Chief
Executive Officer and Director since December 1993 of
The Travelers Insurance Group Inc.; Vice Chairman and
Director of Citigroup Inc. since 1991; Chairman and
Chief Executive Officer of Commercial Credit Company
(1991-1993); Executive Vice President (1986-1991),
Primerica Corporation.
Marc P. Weill*................. 1994 Senior Vice President-Investments since 1993 and Chief
Director Investment Officer since 1995 of The Travelers
Insurance Group Inc.; Senior Vice President and Chief
Investment Officer of Citigroup Inc. since 1992; Vice
President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
J. Eric Daniels................ 1998 President and Chief Executive Officer since December
Director 1998 of The Travelers Insurance Company; Chief
Operating Officer of Global Consumer Bank of Citibank,
since 1993, Vice President, Citibank.
</TABLE>
- ---------------
* Principal business address: Citigroup Inc., 153 East 53rd St., New York, New
York 10043
33
<PAGE> 38
SENIOR OFFICERS OF THE TRAVELERS INSURANCE COMPANY
The following are the Senior Officers of The Travelers Insurance Company, other
than the Directors listed above, as of the date of this Prospectus. Unless
otherwise indicated, the principal business address for all individuals listed
is One Tower Square, Hartford, Connecticut 06183.
<TABLE>
<CAPTION>
NAME POSITION WITH INSURANCE COMPANY
---- -------------------------------
<S> <C>
Stuart Baritz................ Senior Vice President
Barry Jacobson............... Senior Vice President
Russell H. Johnson........... Senior Vice President
Warren H. May................ Senior Vice President
Jay S. Fishman............... Senior Vice President
David A. Tyson............... Senior Vice President
F. Denney Voss............... Senior Vice President
Elizabeth C. Senior Vice President
Georgakopoulos.............
Christine M. Modie........... Senior Vice President
Kathleen Preston............. Senior Vice President
</TABLE>
Information relating to the management of the underlying funds is contained in
the applicable prospectuses.
EXAMPLE OF POLICY CHARGES
- --------------------------------------------------------------------------------
The following chart illustrates the surrender charges and Monthly Deduction
Amounts that would apply under a Policy based on the assumptions listed below.
Surrender charges and Monthly Deduction Amounts generally will be higher for an
Insured who is older than the assumed Insured, and lower for an Insured who is
younger (assuming the Insureds have the same risk classification). Cost of
insurance rates go up each year as the Insured becomes a year older.
Male, Age 35
Preferred Non-Smoker
Annual Net Premium: $ 850.00
Hypothetical Gross Annual Investment
Rate of Return: 8%
Face Amount: $100,000
Level Death Benefit Option
Current Charges
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
FOR THE POLICY YEAR
-----------------------
COST OF
POLICY CUMULATIVE INSURANCE ADMINISTRATIVE
YEAR PREMIUMS SURRENDER CHARGES CHARGES CHARGES
- ------ ---------- ----------------- --------- --------------
<S> <C> <C> <C> <C>
1 $ 850.00 $456.00 $145.00 $96.00
2 $1,700.00 $452.00 $157.00 $96.00
3 $2,550.00 $450.00 $168.00 $96.00
5 $4,250.00 $464.00 $190.00 $ 0
10 $8,500.00 $297.00 $250.00 $ 0
</TABLE>
Hypothetical results shown above are illustrative only and are based on the
Hypothetical Gross Annual Investment Rate of Return shown above. This
Hypothetical Gross Annual Investment Rate of Return should not be deemed to be a
representation of past or future investment results. Actual investment results
may be more or less than those shown. No representations can be made that the
hypothetical rates assumed can be achieved for any one year or sustained over
any period of time.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, Fund UL's Investment Options may show the percentage change
in the value of an Accumulation Unit based on the performance of the Investment
Option over a period of time, usually for the past one-, two-, three-, five-,
and ten-year periods determined by dividing the increase (decrease) in value for
that unit by the Accumulation Unit Value at the beginning of the period.
34
<PAGE> 39
For Investment Options of Fund UL that invest in underlying funds that were in
existence prior to the date on which the Investment Option became available
under the Policy, average annual rates of return may include periods prior to
the inception of the Investment Option. Performance calculations for Investment
Options with pre-existing Investment Options will be calculated by adjusting the
actual returns of the Investment Options to reflect the charges that would have
been assessed under the Investment Options had the Investment Option been
available under Fund UL during the period shown.
The following performance information represents the percentage change in the
value of an Accumulation Unit of the Investment Options for the periods
indicated, and reflects all expenses of the Investment Options. The chart
reflects the guaranteed maximum .80% mortality and expense risk charge and .10%
administrative expense risk charge. The rates of return do not reflect the 2.5%
front-end sales charge or the 2.5% state premium tax charge (both of which are
deducted from premium payments) nor do they reflect surrender charges or Monthly
Deduction Amounts. The surrender charges and Monthly Deduction Amounts for a
hypothetical Insured are depicted in the Example following the Rates of Returns.
For information about the Charges and Deductions assessed under the Policy, see
page 19. For illustrations of how these charges affect Cash Values and Death
Benefits, see the Illustrations beginning on page 38. The performance
information described in this prospectus, may be used from time to time in
advertisement for the Policy, subject to National Association of Securities
Dealers, Inc. ("NASD") and applicable state approval and guidelines.
35
<PAGE> 40
The table below shows the net annual rates of return for accumulation units of
investment options available through MarketLife.
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
<TABLE>
<CAPTION>
FUND
INCEPTION
UNDERLYING INVESTMENT OPTIONS ONE YEAR THREE YEARS FIVE YEARS TEN YEARS DATE
----------------------------- -------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio 16.40% 13.58% -- -- 10/10/95
Alliance Growth Portfolio 27.78% 27.88% -- -- 6/16/94
Capital Appreciation Fund (Janus Sub-
Adviser) 60.18% 36.40% 26.42% 19.85% 3/18/82
Dreyfus Stock Index Fund 26.97% 26.57% 22.38% -- 9/29/89
Fidelity VIP Equity-Income Portfolio 10.59% 16.66% 17.64% 14.53% 10/9/86
Fidelity VIP Growth Portfolio 38.11% 24.25% 20.57% 18.27% 10/9/86
Smith Barney Large Cap Value Portfolio 8.81% 17.41% -- -- 6/16/94
Total Return Portfolio 4.01% 14.35% -- -- 10/16/91
Utilities Portfolio 17.12% 15.65% -- -- 2/4/94
Templeton Stock Fund (Class 1) 0.35% 10.47% 10.14% 11.17% 8/31/88
Bankers Trust EAFE Index Fund 20.43% -- -- -- 8/22/97
Bankers Trust Small Cap Index Fund -3.04% -- -- -- 8/25/97
Equity Index Portfolio 27.31% 27.14% 23.25% -- 10/16/91
BOND FUNDS
Fidelity VIP High Income Portfolio -5.17% 7.67% 7.79% 10.07% 9/19/85
Putnam Diversified Income Portfolio -0.23% 4.51% -- -- 6/16/94
Smith Barney High Income Portfolio -0.45% 7.96% -- -- 6/16/94
Templeton Bond Fund (Class 1) 6.19% 5.36% 4.65% 6.45% 8/31/88
U.S. Gov't Securities Portfolio 9.19% 6.99% 7.14% -- 1/24/92
Zero Coupon Bond Portfolio 2000 6.62% 4.88% -- -- 10/11/95
Zero Coupon Bond Portfolio 2005 11.24% 7.35% -- -- 10/11/95
BALANCED FUNDS
Fidelity VIP II Asset Manager Portfolio 13.97% 15.62% 10.76% -- 9/6/89
MFS Total Return Portfolio 10.63% 14.60% -- -- 6/16/94
Templeton Asset Allocation Fund (Class 1) 5.44% 12.40% 10.64% 11.11% 8/31/88
Managed Assets Trust 20.29% 17.65% 14.71% 13.20% 8/6/82
MONEY MARKET FUND
Money Market Portfolio(1) 4.11% 3.88% 3.45% 4.01% 10/1/81
</TABLE>
The information presented in the above chart represents the percentage change in
the value of an accumulation unit of the underlying investment options for the
periods indicated, and reflects all expenses of the underlying funds, 0.80%
mortality and expense risk charge and 0.10% administrative expense charge
against amounts allocated to the underlying funds. The rates of return do not
reflect the 2.5% front-end sales charge or the 2.5% state premium tax charge
(both of which are deducted from premium payments) nor do they reflect surrender
charges or monthly deduction amounts. These charges would reduce the average
annual return reflected.
(1) An investment in Money Market Portfolio is neither insured nor guaranteed by
the United States Government. There is no assurance that a stable $1.00
value will be maintained.
36
<PAGE> 41
MARKETLIFE HYPOTHETICAL EXAMPLE*
Male nonsmoker age 40 with a level death benefit
of $300,000 and annual premium payments of $5,000
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS
------------------------------------ ------------------------------------
TOTAL ACCUMULATED SURRENDER TOTAL ACCUMULATED SURRENDER
UNDERLYING INVESTMENT OPTION INVESTMENT VALUE VALUE INVESTMENT VALUE VALUE
---------------------------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio 5,000 4,857 2,942 25,000 N/A N/A
Alliance Growth Portfolio 5,000 5,362 3,447 25,000 N/A N/A
Capital Appreciation Fund (Janus Sub-
Adviser) 5,000 6,805 4,890 25,000 44,335 42,274
Dreyfus Stock Index Fund 5,000 5,326 3,411 25,000 39,547 37,486
Fidelity's VIP Equity-Income
Portfolio 5,000 4,599 2,684 25,000 34,503 32,442
Fidelity's VIP Growth Portfolio 5,000 5,821 3,906 25,000 37,550 35,489
Smith Barney Large Cap Value
Portfolio 5,000 4,521 2,606 25,000 N/A N/A
Total Return Portfolio 5,000 4,308 2,393 25,000 N/A N/A
Utilities Portfolio 5,000 4,889 2,974 25,000 N/A N/A
Templeton Stock Fund (Class 1) 5,000 4,146 2,231 25,000 27,659 25,598
Bankers Trust EAFE Index Fund 5,000 5,036 3,121 25,000 N/A N/A
Bankers Trust Small Cap Index Fund 5,000 3,997 2,082 25,000 N/A N/A
Equity Index Portfolio 5,000 5,341 3,426 25,000 40,538 38,477
BOND FUNDS
Fidelity VIP High Income Portfolio 5,000 3,903 1,988 25,000 25,773 23,712
Putnam Diversified Income Portfolio 5,000 4,121 2,206 25,000 N/A N/A
Smith Barney High Income Portfolio 5,000 4,111 2,196 25,000 N/A N/A
Templeton Bond Fund (Class 1) 5,000 4,405 2,490 25,000 23,430 21,369
Travelers U.S. Gov't. Securities
Portfolio 5,000 4,537 2,622 25,000 25,272 23,211
Travelers Zero Coupon Bond Portfolio
2000 5,000 4,424 2,509 25,000 N/A N/A
Travelers Zero Coupon Bond Portfolio
2005 5,000 4,628 2,713 25,000 N/A N/A
BALANCED FUNDS
Fidelity's VIP II Asset Manager
Portfolio 5,000 4,749 2,834 25,000 28,176 26,115
MFS Total Return Portfolio 5,000 4,601 2,686 25,000 N/A N/A
Templeton Asset Allocation Fund
(Class 1) 5,000 4,371 2,456 25,000 28,075 26,014
Managed Assets Trust 5,000 5,029 3,114 25,000 31,672 29,611
MONEY MARKET FUND
Money Market Portfolio 5,000 4,313 2,398 25,000 22,584 20,523
</TABLE>
The charges used in the above example consist of a front-end sales charge of
2.5%, a state premium tax charge of 2.5%, the 0.80% mortality and expense risk
charge and 0.10% administrative expense charge, all expenses of the underlying
funds, and monthly deduction charges including cost of insurance.
The benefits illustrated above may differ for other policies as a result of
differences in investment allocation, premium timing and amount, death benefit
type, as well as the age and underwriting classification of the insured (which
could result in higher costs of insurance). Because MarketLife is a variable
universal life insurance policy, actual performance should always be considered
in conjunction with the level of death benefit and cash values.
* These hypothetical examples show the effect of the performance quoted on cash
values. Performance, loans and withdrawals will affect the cash value and
death benefit of your policy. Since the values of the portfolios will
fluctuate, the cash value at any time may be more or less than the total
principal investment made, including at the time of surrender of the policy,
when surrender charges may apply.
37
<PAGE> 42
ILLUSTRATIONS
- --------------------------------------------------------------------------------
The following pages are intended to illustrate how the Account Value, Cash
Surrender Value and Death Benefit can change over time for Policies issued to a
45 year old male and a 45 year old female. The difference between the Account
Value and the Cash Surrender Value in these illustrations represents the
Surrender Charge that would be incurred upon a full surrender of the Policy.
The illustrations assume that premiums are paid as indicated, no Policy loans
are made, no increases or decreases to the Stated Amount are requested, no
partial surrenders are made, and no charges for transfers between funds are
incurred.
For both male and female age 45, there are two pages of values. One page
illustrates the assumption that the maximum Guaranteed Cost of Insurance Rates,
the monthly administrative charge, mortality and expense risk charge, and
administrative expense charge allowable under the Policy are charged in all
years. The other page illustrates the assumption that the current scale of Cost
of Insurance Rates and other charges are charged in all years. The Cost of
Insurance Rates charged vary by age, sex and underwriting classification, and
the monthly administrative charge varies by age, amount of insurance and
smoker/non-smoker classification for current charges. The illustrations reflect
a deduction of 5% from each annual premium for premium tax (2.5%) and front end
sales charge (2.5%).
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of investment returns. For the first fifteen Policy
Years, the current and guaranteed charges consist of 0.80% for mortality and
expense risks, 0.10% for administrative expenses, and .62% for Investment Option
expenses and thereafter 0.25% for mortality and expense risks, 0.00% for
administrative expenses, and .62% for Investment Option expenses.
The charge for Investment Option expenses reflected in the illustrations assumes
that Cash Value is allocated equally among all Investment Options and that no
Policy Loans are outstanding, and is an average of the investment advisory fees
and other expenses charged by each of the Investment Options during the most
recent audited calendar year.
The Investment Option expenses for some of the Investment Options reflect an
expense reimbursement agreement currently in effect, as shown in the Policy
prospectus summary. Although these reimbursement arrangements are expected to
continue in subsequent years, the effect of discontinuance could be higher
expenses charged to Policy Owners.
After deduction of these amounts, the illustrated gross annual investment rates
of return of 0%, 6%, and 12% correspond to approximate net annual rates of
- -1.52%, 4.48%, and 10.48%, respectively on a current and guaranteed basis during
the first fifteen Policy Years, and to approximate net annual rates of -.87%,
5.13%, and 11.13%, respectively on a current and guaranteed basis thereafter.
For illustrations shown for policies issued prior to May 1, 1998, see "Policies
Issued Prior to May 1, 1998" for the applicable charges and fees.
The illustrations do not reflect any charges for federal income taxes against
the Separate Account, since the Company is not currently deducting such charges
from the Separate Account. However, such charges may be made in the future, and
in that event, the gross annual investment rates of return would have to exceed
0%, 6% and 12% by an amount sufficient to cover the tax charges in order to
produce the Death Benefits, Account Values and Cash Surrender Values
illustrated.
Upon request, the Company will provide a comparable illustration based upon the
proposed Insured's age, sex, underwriting classification, the specified
insurance benefits, and the premium requested. The illustration will show
average fund expenses or, if requested, actual fund expenses. The hypothetical
gross annual investment return assumed in such an illustration will not exceed
12%.
38
<PAGE> 43
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,005 1,080 1,155 0 0 9
2 3,435 150,000 150,000 150,000 1,980 2,193 2,417 892 1,092 1,303
3 5,282 150,000 150,000 150,000 2,918 3,335 3,789 1,882 2,274 2,701
4 7,221 150,000 150,000 150,000 3,961 4,651 5,432 2,969 3,617 4,352
5 9,258 150,000 150,000 150,000 4,964 6,001 7,224 4,020 4,994 6,144
6 11,396 150,000 150,000 150,000 5,925 7,388 9,179 5,031 6,406 8,162
7 13,641 150,000 150,000 150,000 6,849 8,813 11,319 6,008 7,904 10,410
8 15,999 150,000 150,000 150,000 7,734 10,281 13,664 6,947 9,480 12,863
9 18,474 150,000 150,000 150,000 8,582 11,791 16,235 7,887 11,096 15,540
10 21,073 150,000 150,000 150,000 9,387 13,342 19,055 8,800 12,755 18,468
15 36,153 150,000 150,000 150,000 12,612 21,610 37,784 12,612 21,610 37,784
20 55,399 150,000 150,000 150,000 14,808 31,711 70,099 14,808 31,711 70,099
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
39
<PAGE> 44
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% --------------------------- ----------------------- -----------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 522 581 641 0 0 0
2 3,435 150,000 150,000 150,000 1,001 1,153 1,314 0 115 266
3 5,282 150,000 150,000 150,000 1,437 1,713 2,018 490 749 1,036
4 7,221 150,000 150,000 150,000 2,254 2,701 3,212 1,364 1,784 2,265
5 9,258 150,000 150,000 150,000 3,017 3,690 4,489 2,189 2,822 3,573
6 11,396 150,000 150,000 150,000 3,722 4,677 5,854 2,960 3,858 4,964
7 13,641 150,000 150,000 150,000 4,367 5,659 7,314 3,674 4,889 6,445
8 15,999 150,000 150,000 150,000 4,945 6,629 8,873 4,326 5,909 8,072
9 18,474 150,000 150,000 150,000 5,452 7,582 10,539 4,909 6,911 9,844
10 21,073 150,000 150,000 150,000 5,887 8,516 12,322 5,426 7,929 11,735
15 36,153 150,000 150,000 150,000 7,020 12,893 23,597 7,020 12,893 23,597
20 55,399 150,000 150,000 150,000 5,941 16,525 41,598 5,941 16,525 41,598
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
40
<PAGE> 45
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,271 1,365 1,459 118 206 294
2 4,238 150,000 150,000 150,000 2,497 2,764 3,044 1,378 1,629 1,892
3 6,517 150,000 150,000 150,000 3,680 4,202 4,771 2,598 3,089 3,624
4 8,910 150,000 150,000 150,000 4,962 5,827 6,806 3,910 4,723 5,643
5 11,423 150,000 150,000 150,000 6,187 7,488 9,019 5,169 6,392 7,831
6 14,061 150,000 150,000 150,000 7,364 9,194 11,437 6,384 8,104 10,308
7 16,831 150,000 150,000 150,000 8,491 10,947 14,082 7,551 9,926 13,061
8 19,740 150,000 150,000 150,000 9,573 12,752 16,983 8,676 11,839 16,070
9 22,794 150,000 150,000 150,000 10,606 14,610 20,165 9,799 13,803 19,358
10 26,001 150,000 150,000 150,000 11,576 16,509 23,647 10,877 15,810 22,948
15 44,607 150,000 150,000 150,000 15,529 26,757 47,002 15,529 26,757 47,002
20 68,354 150,000 150,000 150,000 17,415 38,626 87,145 17,415 38,626 87,145
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
41
<PAGE> 46
MARKETLIFE
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 792 868 0 0 0
2 4,238 150,000 150,000 150,000 1,368 1,565 1,772 317 502 697
3 6,517 150,000 150,000 150,000 1,954 2,315 2,712 976 1,315 1,688
4 8,910 150,000 150,000 150,000 2,898 3,479 4,145 1,970 2,516 3,142
5 11,423 150,000 150,000 150,000 3,763 4,631 5,663 2,891 3,707 4,677
6 14,061 150,000 150,000 150,000 4,542 5,761 7,268 3,731 4,877 6,293
7 16,831 150,000 150,000 150,000 5,224 6,858 8,961 4,480 6,016 7,993
8 19,740 150,000 150,000 150,000 5,800 7,911 10,742 5,130 7,114 9,829
9 22,794 150,000 150,000 150,000 6,258 8,903 12,608 5,667 8,153 11,801
10 26,001 150,000 150,000 150,000 6,587 9,822 14,562 6,084 9,125 13,863
15 44,607 150,000 150,000 150,000 6,003 12,874 25,840 6,003 12,874 25,840
20 68,354 150,000 150,000 150,000 271 11,712 41,397 271 11,712 41,397
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
42
<PAGE> 47
MARKETLIFE POLICIES ISSUED BETWEEN JULY 12, 1995 AND MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount: $150,000
Preferred Non-Smoker Annual Premium: $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,005 1,080 1,155 0 0 9
2 3,435 150,000 150,000 150,000 1,980 2,193 2,417 892 1,092 1,303
3 5,282 150,000 150,000 150,000 2,918 3,335 3,789 1,882 2,274 2,701
4 7,221 150,000 150,000 150,000 3,961 4,651 5,432 2,969 3,617 4,352
5 9,258 150,000 150,000 150,000 4,964 6,001 7,224 4,020 4,994 6,144
6 11,396 150,000 150,000 150,000 5,925 7,388 9,179 5,031 6,406 8,162
7 13,641 150,000 150,000 150,000 6,849 8,813 11,319 6,008 7,904 10,410
8 15,999 150,000 150,000 150,000 7,734 10,281 13,664 6,947 9,480 12,863
9 18,474 150,000 150,000 150,000 8,582 11,791 16,235 7,887 11,096 15,540
10 21,073 150,000 150,000 150,000 9,387 13,342 19,055 8,800 12,755 18,468
15 36,153 150,000 150,000 150,000 12,612 21,610 37,784 12,612 21,610 37,784
20 55,399 150,000 150,000 150,000 14,663 31,415 69,475 14,663 31,415 69,475
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
43
<PAGE> 48
MARKETLIFE POLICIES ISSUED BETWEEN JULY 12, 1995 AND MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount: $150,000
Preferred Non-Smoker Annual Premium: $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 522 581 641 0 0 0
2 3,435 150,000 150,000 150,000 1,001 1,153 1,314 0 115 266
3 5,282 150,000 150,000 150,000 1,437 1,713 2,018 490 749 1,036
4 7,221 150,000 150,000 150,000 2,254 2,701 3,212 1,364 1,784 2,265
5 9,258 150,000 150,000 150,000 3,017 3,690 4,489 2,189 2,822 3,573
6 11,396 150,000 150,000 150,000 3,722 4,677 5,854 2,960 3,858 4,964
7 13,641 150,000 150,000 150,000 4,367 5,659 7,314 3,674 4,889 6,445
8 15,999 150,000 150,000 150,000 4,945 6,629 8,873 4,326 5,909 8,072
9 18,474 150,000 150,000 150,000 5,452 7,582 10,539 4,909 6,911 9,844
10 21,073 150,000 150,000 150,000 5,887 8,516 12,322 5,426 7,929 11,735
15 36,153 150,000 150,000 150,000 7,020 12,893 23,597 7,020 12,893 23,597
20 55,399 150,000 150,000 150,000 5,865 16,352 41,209 5,865 16,352 41,209
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
44
<PAGE> 49
MARKETLIFE POLICIES ISSUED BETWEEN JULY 12, 1995 AND MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount: $150,000
Preferred Non-Smoker Annual Premium: $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,271 1,365 1,459 118 206 294
2 4,238 150,000 150,000 150,000 2,497 2,764 3,044 1,378 1,629 1,892
3 6,517 150,000 150,000 150,000 3,680 4,202 4,771 2,598 3,089 3,624
4 8,910 150,000 150,000 150,000 4,962 5,827 6,806 3,910 4,723 5,643
5 11,423 150,000 150,000 150,000 6,187 7,488 9,019 5,169 6,392 7,831
6 14,061 150,000 150,000 150,000 7,364 9,194 11,437 6,384 8,104 10,308
7 16,831 150,000 150,000 150,000 8,491 10,947 14,082 7,551 9,926 13,061
8 19,740 150,000 150,000 150,000 9,573 12,752 16,983 8,676 11,839 16,070
9 22,794 150,000 150,000 150,000 10,606 14,610 20,165 9,799 13,803 19,358
10 26,001 150,000 150,000 150,000 11,576 16,509 23,647 10,877 15,810 22,948
15 44,607 150,000 150,000 150,000 15,529 26,757 47,002 15,529 26,757 47,002
20 68,354 150,000 150,000 150,000 17,237 38,258 86,362 17,237 38,258 86,362
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
45
<PAGE> 50
MARKETLIFE POLICIES ISSUED BETWEEN JULY 12, 1995 AND MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount: $150,000
Preferred Non-Smoker Annual Premium: $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 792 868 0 0 0
2 4,238 150,000 150,000 150,000 1,368 1,565 1,772 317 502 697
3 6,517 150,000 150,000 150,000 1,954 2,315 2,712 976 1,315 1,688
4 8,910 150,000 150,000 150,000 2,898 3,479 4,145 1,970 2,516 3,142
5 11,423 150,000 150,000 150,000 3,763 4,631 5,663 2,891 3,707 4,677
6 14,061 150,000 150,000 150,000 4,542 5,761 7,268 3,731 4,877 6,293
7 16,831 150,000 150,000 150,000 5,224 6,858 8,961 4,480 6,016 7,993
8 19,740 150,000 150,000 150,000 5,800 7,911 10,742 5,130 7,114 9,829
9 22,794 150,000 150,000 150,000 6,258 8,903 12,608 5,667 8,153 11,801
10 26,001 150,000 150,000 150,000 6,587 9,822 14,562 6,084 9,125 13,863
15 44,607 150,000 150,000 150,000 6,003 12,874 25,840 6,003 12,874 25,840
20 68,354 150,000 150,000 150,000 223 11,556 40,979 223 11,556 40,979
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
46
<PAGE> 51
MARKETLIFE POLICIES ISSUED PRIOR TO JULY 12TH, 1995
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 1,008 1,084 1,159 0 0 12
2 3,435 150,000 150,000 150,000 1,990 2,204 2,428 902 1,103 1,313
3 5,282 150,000 150,000 150,000 2,938 3,357 3,812 1,901 2,295 2,722
4 7,221 150,000 150,000 150,000 3,994 4,688 5,473 3,000 3,652 4,390
5 9,258 150,000 150,000 150,000 5,011 6,058 7,290 4,064 5,048 6,206
6 11,396 150,000 150,000 150,000 5,992 7,469 9,279 5,094 6,482 8,262
7 13,641 150,000 150,000 150,000 6,936 8,925 11,461 6,089 8,016 10,552
8 15,999 150,000 150,000 150,000 7,845 10,428 13,859 7,052 9,627 13,058
9 18,474 150,000 150,000 150,000 8,718 11,980 16,498 8,023 11,285 15,803
10 21,073 150,000 150,000 150,000 9,552 13,581 19,399 8,965 12,994 18,812
15 36,153 150,000 150,000 150,000 12,948 22,213 38,869 12,948 22,213 38,869
20 55,399 150,000 150,000 150,000 14,882 31,983 70,885 14,882 31,983 70,885
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
47
<PAGE> 52
MARKETLIFE POLICIES ISSUED PRIOR TO JULY 12, 1995
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,595.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,675 150,000 150,000 150,000 522 581 641 0 0 0
2 3,435 150,000 150,000 150,000 1,001 1,153 1,314 0 115 266
3 5,282 150,000 150,000 150,000 1,437 1,713 2,018 490 749 1,036
4 7,221 150,000 150,000 150,000 2,254 2,701 3,212 1,364 1,784 2,265
5 9,258 150,000 150,000 150,000 3,017 3,690 4,489 2,189 2,822 3,573
6 11,396 150,000 150,000 150,000 3,722 4,677 5,854 2,960 3,858 4,964
7 13,641 150,000 150,000 150,000 4,367 5,659 7,314 3,674 4,889 6,445
8 15,999 150,000 150,000 150,000 4,945 6,629 8,873 4,326 5,909 8,072
9 18,474 150,000 150,000 150,000 5,452 7,582 10,539 4,909 6,911 9,844
10 21,073 150,000 150,000 150,000 5,887 8,516 12,322 5,426 7,929 11,735
15 36,153 150,000 150,000 150,000 7,020 12,893 23,597 7,020 12,893 23,597
20 55,399 150,000 150,000 150,000 5,697 15,969 40,345 5,697 15,969 40,345
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
48
<PAGE> 53
MARKETLIFE POLICIES ISSUED PRIOR TO JULY 12TH, 1995
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non-Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 1,276 1,370 1,464 122 211 299
2 4,238 150,000 150,000 150,000 2,510 2,778 3,058 1,390 1,642 1,906
3 6,517 150,000 150,000 150,000 3,705 4,230 4,801 2,622 3,115 3,652
4 8,910 150,000 150,000 150,000 5,003 5,873 6,858 3,948 4,766 5,692
5 11,423 150,000 150,000 150,000 6,247 7,558 9,102 5,226 6,458 7,909
6 14,061 150,000 150,000 150,000 7,447 9,296 11,561 6,462 8,200 10,432
7 16,831 150,000 150,000 150,000 8,600 11,086 14,259 7,654 10,065 13,238
8 19,740 150,000 150,000 150,000 9,711 12,937 17,227 8,806 12,024 16,314
9 22,794 150,000 150,000 150,000 10,776 14,847 20,493 9,969 14,040 19,686
10 26,001 150,000 150,000 150,000 11,781 16,807 24,077 11,082 16,108 23,378
15 44,607 150,000 150,000 150,000 15,948 27,511 48,361 15,948 27,511 48,361
20 68,354 150,000 150,000 150,000 17,519 38,985 88,166 17,519 38,985 88,166
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
49
<PAGE> 54
MARKETLIFE POLICIES ISSUED PRIOR TO JULY 12TH, 1995
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Preferred, Non Smoker Annual Premium $1,968.75
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,067 150,000 150,000 150,000 716 792 868 0 0 0
2 4,238 150,000 150,000 150,000 1,368 1,565 1,772 317 502 697
3 6,517 150,000 150,000 150,000 1,954 2,315 2,712 976 1,315 1,688
4 8,910 150,000 150,000 150,000 2,898 3,479 4,145 1,970 2,516 3,142
5 11,423 150,000 150,000 150,000 3,763 4,631 5,663 2,891 3,707 4,677
6 14,061 150,000 150,000 150,000 4,542 5,761 7,268 3,731 4,877 6,293
7 16,831 150,000 150,000 150,000 5,224 6,858 8,961 4,480 6,016 7,993
8 19,740 150,000 150,000 150,000 5,800 7,911 10,742 5,130 7,114 9,829
9 22,794 150,000 150,000 150,000 6,258 8,903 12,608 5,667 8,153 11,801
10 26,001 150,000 150,000 150,000 6,587 9,822 14,562 6,084 9,125 13,863
15 44,607 150,000 150,000 150,000 6,003 12,874 25,840 6,003 12,874 25,840
20 68,354 150,000 150,000 150,000 119 11,209 40,052 119 11,209 40,052
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
50
<PAGE> 55
APPENDIX A
ANNUAL MINIMUM PREMIUMS
(Per Thousand of Stated Amount)
<TABLE>
<CAPTION>
AGE MALE FEMALE
- --- ---- ------
<S> <C> <C>
0 2.80 2.42
1 2.69 2.47
2 2.59 2.48
3 2.58 2.47
4 2.58 2.47
5 2.58 2.47
6 2.58 2.47
7 2.60 2.49
8 2.62 2.52
9 2.66 2.56
10 2.72 2.62
11 2.80 2.68
12 2.89 2.76
13 3.01 2.84
14 3.13 2.94
15 3.25 3.04
16 3.38 3.16
17 3.51 3.28
18 3.62 3.40
19 3.72 3.47
20 3.81 3.53
21 3.90 3.60
22 3.98 3.67
23 4.05 3.73
24 4.08 3.71
25 4.13 3.76
26 4.30 3.93
27 4.45 4.09
28 4.61 4.26
29 4.76 4.41
30 4.92 4.60
31 5.12 4.80
32 5.32 5.02
33 5.52 5.22
34 5.74 5.46
35 5.98 5.71
36 6.33 6.01
37 6.66 6.31
38 7.01 6.64
39 7.34 6.97
40 7.69 7.34
41 8.17 7.75
42 8.66 8.18
43 9.14 8.62
44 9.63 9.11
45 10.11 9.59
46 10.79 10.13
47 11.47 10.70
</TABLE>
<TABLE>
<CAPTION>
AGE MALE FEMALE
- --- ---- ------
<S> <C> <C>
48 12.15 11.29
49 12.83 11.89
50 13.51 12.51
51 14.42 13.18
52 15.34 13.86
53 16.24 14.53
54 17.16 15.29
55 18.07 16.10
56 19.43 17.11
57 20.79 18.20
58 22.16 19.35
59 23.52 20.51
60 24.88 21.68
61 27.11 22.98
62 29.34 24.27
63 31.57 25.59
64 33.80 27.01
65 36.03 28.57
66 38.86 30.12
67 41.70 31.63
68 44.52 33.29
69 47.36 35.39
70 49.76 37.75
71 54.39 40.67
72 59.04 44.16
73 63.71 48.15
74 68.41 52.54
75 72.60 57.27
76 80.21 62.20
77 87.34 67.37
78 94.52 73.00
79 101.76 79.30
80 109.06 86.49
81 120.34 94.56
82 131.76 103.39
83 143.32 112.96
84 155.03 123.28
85 166.88 138.49
86 170.39 149.27
87 177.17 159.84
88 191.28 171.55
89 208.18 185.73
90 241.15 203.75
91 254.21 225.63
92 282.60 250.53
93 314.35 278.47
94 349.51 309.50
</TABLE>
APPENDIX A -- ANNUAL MINIMUM PREMIUMS
51
<PAGE> 56
APPENDIX B
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
(First Year)
<TABLE>
<CAPTION>
STATED AMOUNT
---------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 2.04 1.84 1.63
1 2.04 1.84 1.63
2 2.04 1.84 1.63
3 2.04 1.84 1.63
4 2.04 1.84 1.63
5 2.19 1.97 1.75
6 2.19 1.97 1.75
7 2.21 1.99 1.77
8 2.23 2.01 1.78
9 2.26 2.03 1.81
10 2.39 2.15 1.91
11 2.46 2.21 1.97
12 2.54 2.29 2.03
13 2.65 2.39 2.12
14 2.75 2.48 2.20
15 2.76 2.48 2.21
16 2.77 2.49 2.22
17 2.79 2.51 2.23
18 2.82 2.54 2.26
19 2.90 2.61 2.32
20 2.86 2.57 2.29
21 2.93 2.64 2.34
22 2.99 2.69 2.39
23 3.04 2.74 2.43
24 3.06 2.75 2.45
25 3.08 2.77 2.46
26 3.14 2.83 2.51
27 3.25 2.93 2.60
28 3.37 3.03 2.70
29 3.47 3.12 2.78
30 3.49 3.14 2.79
31 3.64 3.28 2.91
32 3.78 3.40 3.02
</TABLE>
<TABLE>
<CAPTION>
STATED AMOUNT
---------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 3.92 3.53 3.14
34 4.08 3.67 3.26
35 4.19 3.77 3.35
36 4.43 3.99 3.54
37 4.66 4.19 3.73
38 4.91 4.42 3.93
39 5.14 4.63 4.11
40 5.69 5.12 4.55
41 6.05 5.45 4.84
42 6.41 5.77 5.13
43 6.76 6.08 5.41
44 7.13 6.42 5.70
45 7.18 6.46 5.74
46 7.66 6.89 6.13
47 8.14 7.33 6.51
48 8.63 7.77 6.90
49 9.11 8.20 7.29
50 10.00 9.00 8.00
51 10.67 9.60 8.54
52 11.35 10.22 9.06
53 12.02 10.82 9.62
54 12.70 11.43 10.16
55 13.01 11.71 10.41
56 13.99 12.69 11.19
57 14.97 13.47 11.98
58 15.96 14.36 12.77
59 16.93 15.24 13.54
60 17.91 16.12 14.33
61 19.52 17.57 15.82
62 21.12 19.01 16.90
63 22.73 20.46 18.18
64 24.34 21.91 19.47
65+ 25.40 22.85 20.32
</TABLE>
APPENDIX B -- PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
52
<PAGE> 57
APPENDIX C
CURRENT MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
NON-SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------------
ISSUE $50,000 $250,000 $1,000,000
AGE TO $249,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20 0.08 0.00 0.00
21 0.08 0.00 0.00
22 0.08 0.00 0.00
23 0.08 0.00 0.00
24 0.08 0.00 0.00
25 0.08 0.00 0.00
26 0.08 0.00 0.00
27 0.08 0.00 0.00
28 0.08 0.00 0.00
29 0.08 0.00 0.00
30 0.08 0.00 0.00
31 0.08 0.00 0.00
32 0.08 0.00 0.00
</TABLE>
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------------
ISSUE $50,000 $250,000 $1,000,000
AGE TO $249,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.08 0.00 0.00
34 0.08 0.00 0.00
35 0.08 0.00 0.00
36 0.08 0.00 0.00
37 0.08 0.00 0.00
38 0.08 0.00 0.00
39 0.08 0.00 0.00
40 0.08 0.00 0.00
41 0.08 0.00 0.00
42 0.08 0.00 0.00
43 0.08 0.00 0.00
44 0.08 0.00 0.00
45 0.08 0.00 0.00
46 0.08 0.00 0.00
47 0.09 0.00 0.00
48 0.09 0.00 0.00
49 0.10 0.00 0.00
50 0.10 0.00 0.00
51 0.11 0.00 0.00
52 0.11 0.00 0.00
53 0.12 0.00 0.00
54 0.12 0.00 0.00
55 0.12 0.00 0.00
56 0.13 0.00 0.00
57 0.13 0.00 0.00
58 0.14 0.00 0.00
59 0.14 0.00 0.00
60 0.15 0.00 0.00
61 0.15 0.00 0.00
62 0.15 0.00 0.00
63 0.15 0.00 0.00
64 0.15 0.00 0.00
65+ 0.15 0.00 0.00
</TABLE>
APPENDIX C -- CURRENT MONTHLY ADMINISTRATIVE CHARGE
53
<PAGE> 58
APPENDIX C (CONT'D)
CURRENT MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 0.12 0.08 0.00
1 0.12 0.08 0.00
2 0.12 0.08 0.00
3 0.12 0.08 0.00
4 0.12 0.08 0.00
5 0.12 0.08 0.00
6 0.13 0.08 0.00
7 0.14 0.08 0.00
8 0.15 0.08 0.00
9 0.16 0.08 0.00
10 0.16 0.08 0.00
11 0.16 0.08 0.00
12 0.16 0.08 0.00
13 0.16 0.08 0.00
14 0.16 0.08 0.00
15 0.16 0.08 0.00
16 0.16 0.08 0.00
17 0.16 0.08 0.00
18 0.16 0.08 0.00
19 0.16 0.08 0.00
20 0.16 0.08 0.00
21 0.16 0.08 0.00
22 0.16 0.08 0.00
23 0.16 0.08 0.00
24 0.16 0.08 0.00
25 0.16 0.08 0.00
26 0.16 0.09 0.00
27 0.17 0.09 0.00
28 0.17 0.09 0.00
29 0.18 0.09 0.00
30 0.18 0.09 0.00
31 0.18 0.09 0.00
32 0.18 0.09 0.00
</TABLE>
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.19 0.09 0.00
34 0.19 0.09 0.00
35 0.19 0.09 0.00
36 0.20 0.09 0.00
37 0.21 0.10 0.00
38 0.22 0.10 0.00
39 0.23 0.10 0.00
40 0.23 0.10 0.00
41 0.24 0.10 0.00
42 0.24 0.10 0.00
43 0.24 0.10 0.00
44 0.24 0.10 0.00
45 0.24 0.10 0.00
46 0.25 0.11 0.00
47 0.26 0.11 0.00
48 0.27 0.11 0.00
49 0.28 0.11 0.00
50 0.29 0.15 0.00
51 0.30 0.15 0.00
52 0.32 0.15 0.00
53 0.33 0.15 0.00
54 0.34 0.15 0.00
55 0.35 0.15 0.00
56 0.35 0.15 0.00
57 0.35 0.15 0.00
58 0.36 0.15 0.00
59 0.36 0.15 0.00
60 0.36 0.15 0.00
61 0.38 0.15 0.00
62 0.38 0.15 0.00
63 0.38 0.15 0.00
64 0.39 0.15 0.00
65+ 0.39 0.15 0.00
</TABLE>
54
<PAGE> 59
APPENDIX C(1)
GUARANTEED MONTHLY ADMINISTRATIVE CHARGE
(Per Thousand of Stated Amount)
Applicable for Three Years Following Issue or Increase
SMOKERS AND NON-SMOKERS
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 0.16 0.08 0.00
1 0.16 0.08 0.00
2 0.16 0.08 0.00
3 0.16 0.08 0.00
4 0.16 0.08 0.00
5 0.16 0.08 0.00
6 0.16 0.08 0.00
7 0.16 0.08 0.00
8 0.16 0.08 0.00
9 0.16 0.08 0.00
10 0.16 0.08 0.00
11 0.16 0.08 0.00
12 0.16 0.08 0.00
13 0.16 0.08 0.00
14 0.16 0.08 0.00
15 0.16 0.08 0.00
16 0.16 0.08 0.00
17 0.16 0.08 0.00
18 0.16 0.08 0.00
19 0.16 0.08 0.00
20 0.16 0.08 0.00
21 0.16 0.08 0.00
22 0.16 0.08 0.00
23 0.16 0.08 0.00
24 0.16 0.08 0.00
25 0.16 0.08 0.00
26 0.16 0.09 0.00
27 0.17 0.09 0.00
28 0.17 0.09 0.00
29 0.18 0.09 0.00
30 0.18 0.09 0.00
31 0.18 0.09 0.00
32 0.18 0.09 0.00
</TABLE>
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------------
ISSUE $50,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 0.19 0.09 0.00
34 0.19 0.09 0.00
35 0.19 0.09 0.00
36 0.20 0.09 0.00
37 0.21 0.10 0.00
38 0.22 0.10 0.00
39 0.23 0.10 0.00
40 0.23 0.10 0.00
41 0.24 0.10 0.00
42 0.24 0.10 0.00
43 0.24 0.10 0.00
44 0.24 0.10 0.00
45 0.24 0.10 0.00
46 0.25 0.11 0.00
47 0.26 0.11 0.00
48 0.27 0.11 0.00
49 0.28 0.11 0.00
50 0.29 0.15 0.00
51 0.30 0.15 0.00
52 0.32 0.15 0.00
53 0.33 0.15 0.00
54 0.34 0.15 0.00
55 0.35 0.15 0.00
56 0.35 0.15 0.00
57 0.35 0.15 0.00
58 0.36 0.15 0.00
59 0.36 0.15 0.00
60 0.36 0.15 0.00
61 0.38 0.15 0.00
62 0.38 0.15 0.00
63 0.38 0.15 0.00
64 0.39 0.15 0.00
65+ 0.39 0.15 0.00
</TABLE>
APPENDIX C(1) -- GUARANTEED MONTHLY ADMINISTRATIVE CHARGE
55
<PAGE> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
\ 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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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 $49,440
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 85
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ 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> 86
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 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> 87
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Insurance Company (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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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 $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-13
<PAGE> 95
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ 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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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 $207 million, by an affiliate.
Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-23
<PAGE> 105
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. FEDERAL INCOME TAXES
($ 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 $8 million, respectively.
F-24
<PAGE> 106
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1998 and 1997 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ 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> 107
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 $65
----------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 108
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
($ 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
$5.1 billion at December 31, 1998 and 1997, respectively.
F-27
<PAGE> 109
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 GROSS GROSS
($ 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 $21,511
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE> 110
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1998, by
contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
($ 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 $1.9 billion of GNMA, FNMA or
FHLMC mortgage-backed pass-through securities at December 31, 1998 and 1997,
respectively. Virtually all of these securities are rated AAA.
F-29
<PAGE> 111
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR
($ 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 $3,003
====================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.
F-30
<PAGE> 112
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ 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> 113
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> 114
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 $4.4
billion of liabilities are surrenderable without charge. More than 14.2% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-33
<PAGE> 115
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ 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> 116
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 $56,548
</TABLE>
F-35
<PAGE> 117
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1997 ($ 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 $42,973
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures for
additions to long-lived assets other than financial instruments, long-term
customer relationships of a financial institution, mortgage and other servicing
rights, deferred policy acquisition costs, and deferred tax assets, were not
material.
F-36
<PAGE> 118
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
($ 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> 119
MARKETLIFE
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
HARTFORD, CONNECTICUT
L-11843 May, 1999
<PAGE> 120
IN-VEST
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
<TABLE>
<S> <C>
PROSPECTUSES
MAY 1, 1999
</TABLE>
The Travelers Insurance Company, One Tower Square, Hartford, Connecticut 06183 X
Telephone: (800) 334-4298
<PAGE> 121
PROSPECTUS
This Prospectus describes The Travelers IN-VEST, an individual variable
universal (flexible premium) life insurance Policy (the "Policy") offered by The
Travelers Insurance Company (the "Company"). A Policy Owner may choose the
amount of life insurance coverage desired with a minimum Stated Amount of
$75,000. The premium payment may be allocated by the Policy Owner to one or more
of the variable funding options (the "Investment Options").
During the Policy's Right to Cancel Period, the Applicant may return the Policy
to the Company for a refund. The Right to Cancel Period expires on the latest of
ten days after you receive the Policy, ten days after we mail or deliver to you
a written Notice of Right to Cancel, or 45 days after the Applicant signs the
application for insurance (or later if state laws requires).
There is no guaranteed minimum Cash Value for a Policy. The Cash Value of the
Policy will vary to reflect the investment performance of the Investment Options
to which you have directed your premium payments. You bear the investment risk
under this policy. The Cash Value is reduced by the various fees and charges
assessed under the Policy, as described in this Prospectus. The Policy will
remain in effect for as long as the Cash Surrender Value can pay the monthly
Policy charges (subject to the Late Period provision).
We offer two death benefits under the Policy -- the "Level Option" and the
"Variable Option." Under either option, the death benefit will never be less
than the Amount Insured (less any outstanding Policy loans or Monthly Deduction
Amounts due and unpaid). You choose one at the time you apply for the Policy,
however you may change the death benefit option, subject to certain conditions.
This Policy may be or become a modified endowment Policy under federal tax law.
If so, any partial withdrawal, Policy surrender or loan may result in adverse
tax consequences or penalties.
REPLACING EXISTING INSURANCE WITH THIS POLICY MAY NOT BE TO YOUR ADVANTAGE.
EACH OF THE INVESTMENT OPTION PROSPECTUSES ARE INCLUDED WITH THE PACKAGE
CONTAINING THIS PROSPECTUS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS COMPLETE OR TRUTHFUL. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE LIFE INSURANCE POLICIES ARE NOT DEPOSITS OF ANY BANK AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER
GOVERNMENT AGENCY.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary of Special Terms.............. 3
Prospectus Summary..................... 5
General Description.................... 9
How the Policy Works................... 9
Beneficiary.......................... 9
Applying Premium Payments............ 9
The Investment Options................. 10
Policy Benefits and Rights............. 13
Transfers of Cash Value.............. 13
Telephone Transfers.................. 13
Automated Transfers.................. 13
Dollar-Cost Averaging............. 13
Portfolio Rebalancing............. 14
Lapse and Reinstatement.............. 14
Exchange Rights...................... 14
Right to Cancel...................... 14
Access to Cash Values.................. 15
Policy Loans......................... 15
Cash Value and Cash Surrender
Value............................. 15
Death Benefit.......................... 16
Payment of Proceeds............... 17
Payment Options................... 18
Maturity Benefits...................... 18
Charges and Deductions................. 18
Charges Against Premium.............. 18
Front-End Sales Charge............ 18
State Premium Tax Charge.......... 19
Monthly Deduction Amount............. 19
Cost of Insurance Charge.......... 19
Policy Administrative Expense
Charge.......................... 19
Charges for Supplemental Benefit
Provisions...................... 19
Charges Against the Separate
Account........................... 19
Mortality and Expense Risk
Charge.......................... 19
Administrative Expense Charge..... 20
Underlying Fund Fees................. 20
Surrender Charges.................... 20
Percent of Premium Charge......... 20
Per Thousand of Stated Amount
Charge.......................... 20
Transfer Charge...................... 21
Reduction or Elimination of
Charges........................... 21
The Separate Account and Valuation..... 21
The Travelers Fund UL for Variable
Life Insurance (Fund UL )......... 21
How the Cash Value Varies............ 22
Accumulation Unit Value.............. 22
Net Investment Factor................ 22
Changes to the Policy.................. 22
General.............................. 22
Changes in Stated Amount............. 23
Changes in Death Benefit Option...... 23
Additional Policy Provisions........... 23
Assignment........................... 23
Limit on Right to Contest & Suicide
Exclusion......................... 24
Misstatement as to Sex and Age....... 24
Voting Rights........................ 24
Disregard of Voting Instructions..... 24
Other Matters.......................... 24
Statements to Policy Owners.......... 24
Suspension of Valuation.............. 25
Dividends............................ 25
Mixed and Shared Funding............. 25
Distribution......................... 25
Legal Proceedings and Opinion........ 25
Independent Accountants.............. 26
Federal Tax Considerations............. 26
General.............................. 26
Tax Status of the Policy............. 26
Definition of Life Insurance...... 26
Diversification................... 27
Investor Control.................. 27
Tax Treatment of Policy Benefits..... 28
In General........................ 28
Modified Endowment Contracts...... 28
Exchanges......................... 29
Aggregation of Modified Endowment
Contracts....................... 29
Policies which are not Modified
Endowment Contracts............. 29
Treatment of Loan Interest........ 29
The Company's Income Taxes........ 30
The Company............................ 30
IMSA................................. 30
Year 2000 Compliance................. 30
Management............................. 31
Directors of The Travelers Insurance
Company........................... 31
Senior Officers of The Travelers
Insurance Company................. 32
Example of Policy Charges.............. 33
Performance Information................ 33
Illustrations.......................... 35
Appendix
A -- Annual Minimum Premiums........... 40
B -- Surrender Charges................. 41
C -- Monthly Administrative Charge..... 42
Financial Statements -- Fund UL
Financial Statements -- The Travelers
Insurance Company
</TABLE>
2
<PAGE> 123
GLOSSARY OF SPECIAL TERMS
- --------------------------------------------------------------------------------
The following terms are used throughout the Prospectus, and have the indicated
meanings:
ACCUMULATION UNIT -- a standard of measurement used to calculate the values
allocated to the Investment Options.
ANNUAL MINIMUM PREMIUM -- the Policy Owner must pay a first premium greater than
or equal to one-quarter of this amount for the Policy to be issued. (Please
refer to Appendix A.)
BENEFICIARY(IES) -- the person(s) named to receive the benefits of this Policy
at the Insured's death.
CASH SURRENDER VALUE -- the Cash Value less any outstanding Policy loan and
surrender charges.
CASH VALUE -- the current value of Accumulation Units credited to each of the
Investment Options available under the Policy, plus the value of the Loan
Account.
COMPANY'S HOME OFFICE -- the principal executive offices of The Travelers
Insurance Company located at One Tower Square, Hartford, Connecticut 06183.
DEDUCTION DATE -- the day in each Policy Month on which the Monthly Deduction
Amount is deducted from the Policy's Cash Value.
INSURED -- the person on whose life the Policy is issued.
INVESTMENT OPTIONS -- the segments of the Separate Account or Portfolio to which
you may allocate premiums or Cash Value under Fund UL.
ISSUE DATE -- the date on which the Policy is issued by the Company for delivery
to the Policy Owner.
LOAN ACCOUNT -- an account in the Company's general account to which we transfer
the amount of any Policy loan, and to which we credit and charge a fixed rate of
interest.
MATURITY DATE -- The anniversary of the Policy Date on which the Insured is age
95.
MINIMUM AMOUNT INSURED -- the amount of Death Benefit required to qualify this
Policy as life insurance under federal tax law.
MONTHLY DEDUCTION AMOUNT -- the amount of charges deducted from the Policy's
Cash Value which includes cost of insurance charges, administrative charges, and
any charges for supplemental benefits.
NET AMOUNT AT RISK -- an amount equal to the Death Benefit minus the Cash Value.
NET PREMIUM -- the amount of each premium payment applied to purchase
Accumulation Units under the Policy, less the deduction of front-end sales
charges and premium tax charges.
PLANNED PREMIUM -- the amount of premium which the Policy Owner chooses to pay
to the Company on a scheduled basis, and for which the Company will bill the
Policy Owner, either annually, semiannually or through automatic monthly
checking account deductions.
POLICY DATE -- the date on which the Policy, benefits and provisions of the
Policy become effective.
POLICY MONTH -- monthly periods computed from the Policy Date.
3
<PAGE> 124
POLICY OWNER (YOU, YOUR OR OWNER) -- the person having rights to benefits under
the Policy during the lifetime of the Insured; the Policy Owner may or may not
be the Insured.
POLICY YEARS -- annual periods computed from the Policy Date.
SEPARATE ACCOUNT -- assets set aside by The Travelers Insurance Company, the
investment experience of which is kept separate from that of other assets of The
Travelers Insurance Company; for example, The Travelers Fund UL for Variable
Life Insurance.
STATED AMOUNT -- the amount originally selected by the Policy Owner used to
determine the Death Benefit, or as may be increased or decreased as described in
this Prospectus.
VALUATION DATE -- a day on which the Separate Account is valued. A Valuation
Date is any day on which the New York Stock Exchange is open for trading. The
value of Accumulation Units will be determined as of the close of trading on the
New York Stock Exchange.
VALUATION PERIOD -- the period between the close of business on successive
Valuation Dates.
4
<PAGE> 125
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
WHAT IS VARIABLE UNIVERSAL LIFE INSURANCE?
The Flexible Premium Variable Universal Life Insurance Policy is designed to
provide insurance protection on the life of the Insured and to build Cash Value.
Like other life insurance, it provides an income-tax free death benefit that is
payable to the Beneficiary upon the Insured's death. Unlike traditional,
fixed-premium life insurance, the Policy allows you, as the owner, to allocate
your premium, or transfer Cash Value to various Investment Options. These
Investment Options include equity, bond, money market and other types of
portfolios. Your Cash Value may increase or decrease daily, depending on
investment return. There is no minimum amount guaranteed as it would be in a
traditional life insurance policy.
INVESTMENT OPTIONS: You have the ability to choose from a wide variety of
well-known Investment Options. These professionally managed stock, bond and
money market funding options cover a broad spectrum of investment objectives and
risk tolerance. Currently, the following Investment Options (subject to state
availability) are available under Fund UL:
<TABLE>
<S> <C>
Capital Appreciation Fund TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Dreyfus Stock Index Fund Templeton Asset Allocation Fund (Class 1)
Managed Assets Trust Templeton Bond Fund (Class 1)
Money Market Portfolio Templeton Stock Fund (Class 1)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: TRAVELERS SERIES FUND, INC.:
VIP Equity Income Portfolio AIM Capital Appreciation Portfolio
VIP Growth Portfolio Alliance Growth Portfolio
VIP High Income Portfolio MFS Total Return Portfolio
Smith Barney High Income Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND Smith Barney Large Cap Value Portfolio
II:
VIP II Asset Manager Portfolio TRAVELERS SERIES TRUST:
U.S. Government Securities Portfolio
GREENWICH STREET SERIES FUND: Utilities Portfolio
Total Return Portfolio Zero Coupon Bond Portfolio 2000
Zero Coupon Bond Portfolio 2005
</TABLE>
Additional Portfolios may be added from time to time. For more information see
"The Investment Options." Refer to each Fund's prospectus for a complete
description of the investment objectives, restrictions and other material
information.
PREMIUMS: When applying for your Policy, you state how much you intend to pay,
and whether you will pay annually, semiannually or monthly via checking account
deductions. You may also make unscheduled premium payments in any amount. No
premium payments will be accepted if receipt of such premiums would disqualify
the Policy as life insurance under applicable federal tax laws.
You indicate on your application what percentage of each Net Premium you would
like allocated to the Investment Options. You may change your allocations by
writing to the Company or by calling 1-800-334-4298 (if you have an
authorization form on file).
During the underwriting period, any premium paid will be held in a non-interest
bearing account. After the Policy Date and until the applicants' right to cancel
has expired, your Net Premium will be invested in the Money Market Portfolio.
After that, the cash value will be distributed to each Investment Option in the
percentages indicated on your application.
RIGHT TO EXAMINE POLICY: You may return your Policy for any reason and receive
a full refund of your premium by mailing us the Policy and a written request for
cancellation within a specified period.
5
<PAGE> 126
DEATH BENEFITS: At time of application, you select a death benefit option.
Under certain conditions you may be able to change the death benefit option at a
later date. The options available are:
- LEVEL OPTION (OPTION 1): the death benefit will be equal to the greater
of the Stated Amount or the Minimum Amount Insured.
- VARIABLE OPTION (OPTION 2): the death benefit will be equal to the
greater of the Stated Amount plus the Cash Value or the Minimum Amount
Insured.
POLICY VALUES: As with other types of insurance policies, the Policy will
accumulate a Cash Value. The Cash Value of the Policy will increase or decrease
to reflect the investment experience of the Investment Options. Monthly charges
and any partial surrenders taken will also decrease the Cash Value. There is no
minimum guaranteed Cash Value.
- ACCESS TO POLICY VALUES: You may borrow against your Policy's Cash
Surrender Value. The maximum loan amount allowable is 90% of the Cash
Surrender Value.
You may cancel all or a portion of your Policy while the Insured is living and
receive all or a portion of the Cash Surrender Value. Depending on the amount of
time the Policy has been in force, there may be a charge for the partial or full
surrender.
TRANSFERS OF POLICY VALUES: You may transfer all or a portion of your Cash
Value among the Investment Options. You may do this by writing to the Company or
calling 1-800-334-4298.
You can use automated transfers to take advantage of dollar cost
averaging -- investing a fixed amount at regular intervals. For example, you
might have a set amount transferred from a relatively conservative Investment
Option to a more aggressive one, or to several others.
LATE PERIOD: If the Cash Surrender Value of your Policy becomes less than the
amount needed to pay the Monthly Deduction Amount, and the Lapse Protection
Guarantee Rider is not in effect, you will have 61 days to pay a premium that is
sufficient to cover the Monthly Deduction Amount. If the premium is not paid,
your Policy will lapse.
EXCHANGE RIGHTS: During the first two Policy Years, you can exchange this
Policy for one that provides benefits that do not vary with the investment
return of the Investment Options.
TAX CONSEQUENCES: Currently, the federal tax law excludes all Death Benefit
payments from the gross income of the Beneficiary. At any point in time, the
Policy may become a modified endowment contract ("MEC"). A MEC has an
income-first taxation of all loans, pledges, collateral assignments or partial
surrenders. A 10% penalty tax may be imposed on such income distributed before
the Policy Owner attains age 59 1/2. The Company has established safeguards for
monitoring whether a Policy may become a MEC.
CHARGES AND DEDUCTIONS: Your Policy is subject to the following charges, which
compensate the Company for administering and distributing the Policy, as well as
paying Policy benefits and assuming related risks. These charges are summarized
below, and explained in detail under "Charges and Deductions."
POLICY CHARGES:
- SALES AND PREMIUM EXPENSE CHARGES -- A sales charge and a premium tax
charge are applied to each premium based on the size of your Policy.
<TABLE>
<CAPTION>
TOTAL
STATED SALES PREMIUM PREMIUM
AMOUNT CHARGE TAX EXPENSE
------ ------ ------- -------
<S> <C> <C> <C>
less than $500,000 2.5% 2.5% 5.0%
$500,000 to $999,999 2.0% 2.5% 4.5%
$1,000,000 and over 0% 2.5% 2.5%
</TABLE>
This charge pays some distribution expenses and state and local premium
taxes.
6
<PAGE> 127
- MONTHLY DEDUCTION -- deductions taken from the value of your Policy each
month to cover cost of insurance charges, the monthly administrative
expense charges and charges for optional benefits.
- FULL SURRENDER CHARGE -- applies if you surrender your Policy for its
full Cash Value or the Policy lapses, during the first 10 years and for
10 years after requesting an increase in coverage. The surrender charge
consists of a percent of premium charge and a per thousand of face amount
charge.
- PARTIAL SURRENDER CHARGE -- applies if you surrender part of the value of
your Policy.
ASSET-BASED CHARGES:
- MORTALITY AND EXPENSE RISK CHARGE -- applies to the assets of the
Investment Options on a daily basis which currently equals an annual rate
of .60% (guaranteed not to exceed .80%).
- ADMINISTRATIVE EXPENSE CHARGE -- applies to the assets of the Investment
Options on a daily basis at a maximum annual rate of .10%. The Company is
not currently assessing this charge.
- UNDERLYING FUND FEES -- the separate account purchases shares of the
Underlying Funds on a net asset value basis. The shares purchased already
reflect the deduction of investment advisory fees and other expenses. The
fees are shown in the table below.
7
<PAGE> 128
UNDERLYING FUND FEES
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEE EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
FUND NAME REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
<S> <C> <C> <C>
Capital Appreciation Fund 0.75% 0.10% 0.85%
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
Managed Assets Trust 0.50% 0.10% 0.60%
Money Market Portfolio(1) 0.32% 0.08% 0.40%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND:
VIP Equity-Income Portfolio(2) 0.49% 0.08% 0.57%
VIP Growth Portfolio(2) 0.59% 0.07% 0.66%
VIP High Income Portfolio 0.58% 0.12% 0.70%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II:
VIP II Asset Manager Portfolio(2) 0.54% 0.09% 0.63%
GREENWICH STREET SERIES FUND:
Total Return Portfolio 0.75% 0.04% 0.79%
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Templeton Asset Allocation Fund 0.60% 0.18% 0.78%
Templeton Bond Fund 0.50% 0.23% 0.73%
Templeton Stock Fund 0.70% 0.19% 0.89%
TRAVELERS SERIES FUND, INC.:
AIM Capital Appreciation Portfolio(3) 0.80% 0.05% 0.85%
Alliance Growth Portfolio(3) 0.80% 0.02% 0.82%
MFS Total Return Portfolio(3) 0.80% 0.04% 0.84%
Smith Barney High Income Portfolio(3) 0.60% 0.07% 0.67%
Smith Barney Large Cap Value Portfolio(3) 0.65% 0.03% 0.68%
TRAVELERS SERIES TRUST:
Travelers U.S. Government Securities Portfolio 0.32% 0.13% 0.45%
Utilities Portfolio 0.65% 0.15% 0.80%
Zero Coupon Bond Fund Portfolio (Series 2000)(4) 0.10% 0.05% 0.15%
Zero Coupon Bond Fund Portfolio (Series 2005)(4) 0.10% 0.05% 0.15%
</TABLE>
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage commissions,
interest charges and taxes) exceeds 0.40%. Without such arrangement, Total
Expenses would have been 0.65% for the Travelers Money Market Portfolio.
(2) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized, as a result of uninvested cash balances were used to
reduce custodian expenses. Without these reductions, the Total Annual
Operating Expenses presented in this table would have been 0.64% for VIP II
Asset Manager Portfolio, 0.58% for VIP Equity Income Portfolio, and 0.68%
for VIP Growth Portfolio.
(3) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There were
no fees waived or expenses reimbursed for these funds in 1998.
(4) For the year ended December 31, 1998, Travelers reimbursed the Series 2000
Fund and the Series 2005 Fund for $35,705, and $38,063, in expenses,
respectively. Because such expenses were reimbursed, the actual expense
ratios were 0.15% for each period shown.
8
<PAGE> 129
GENERAL DESCRIPTION
- --------------------------------------------------------------------------------
This prospectus describes an individual flexible premium variable universal life
insurance Policy offered by The Travelers Insurance Company ("Company"). The
policy offers:
- Flexible premium payments (you select the timing and amount of the
premium)
- A selection of investment options
- A choice of two death benefit options
- Loans and partial withdrawal privileges
- The ability to increase or decrease the Policy's face amount of insurance
- Additional benefits through the use of optional riders
This Policy is both an insurance product and a security. The Policy is first and
foremost a life insurance Policy with death benefits, Cash Values and other
features traditionally associated with life insurance. The Policy is a security
because the Cash Value and, under certain circumstances, the Amount Insured, and
Death Benefit may increase or decrease depending on the investment experience of
the Investment Options chosen.
THE APPLICATION. In order to become a policy owner, you must submit an
application to the Company. You must provide evidence of insurability. On the
application, you will also indicate:
- the amount of insurance desired (the "stated amount"); minimum of $75,000
- your choice of the two death benefit options
- the beneficiary(ies), and whether or not the beneficiary is irrevocable
- your choice of investment options.
Our underwriting staff will review the application, and, if approved, we will
issue the Policy.
HOW THE POLICY WORKS
- --------------------------------------------------------------------------------
You make premium payments and direct them to one or more of the available
investment options. The policy's cash value will increase or decrease depending
on the performance of the investment options you select. In the case of death
benefit option 2, the death benefit will also vary based on the investment
options' performance.
BENEFICIARY
The Applicant names the Beneficiary in the application for the Policy. The
Policy Owner may change the Beneficiary (unless irrevocably named) during the
Insured's lifetime by sending a written request to the Company. If no
Beneficiary is living when the Insured dies, the Death Benefit will be paid to
the Policy Owner, if living; otherwise, the Death Benefit will be paid to the
Policy Owner's estate.
Your Policy becomes effective once our underwriting staff has approved the
application and once the first premium payment has been made. The Policy Date is
the date we use to determine all future transactions on the policy, for example,
the deduction dates, policy months, policy years. During the underwriting
period, any premium paid will be held in a non-interest bearing account. Your
policy will stay in effect as long as the policy's cash surrender value can pay
the policy's monthly charges.
APPLYING PREMIUM PAYMENTS
We apply the first premium on the later of the Policy Date or the date we
receive it at our Home Office. During the Right to Cancel Period, we allocate
net premiums to the Money Market
9
<PAGE> 130
Portfolio. At the end of the Right to Cancel Period, we direct the net premiums
to the investment option(s) selected on the application, unless you give us
other directions.
The investment options are segments of the separate account. They correspond to
underlying funds with the same names. The available investment options are
listed below.
We credit your policy with accumulation units of the investment option(s) you
have selected. We calculate the number of accumulation units by dividing your
net premium payment by each investment option's accumulation unit value computed
after we receive your payment.
THE INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may allocate Premium Payments to one or more of the available Investment
Options. The Investment Options currently available under the Policy may be
added, withdrawn or substituted as permitted by applicable state or federal law.
We would notify you before making such a change. Please read carefully the
complete risk disclosure in each Portfolio's prospectus before investing. For
more detailed information on the investment advisers and their services and
fees, please refer to the prospectuses for the Investment Options.
The Investment Options currently available under Fund UL are as follows:
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Capital Appreciation Fund Seeks growth of capital through the Travelers Asset Management
use of common stocks. Income is not an International Corporation
objective. The Fund invests ("TAMIC")
principally in common stocks of small Subadviser: Janus Capital
to large companies which are expected Corp.
to experience wide fluctuations in
price in both rising and declining
markets.
Dreyfus Stock Index Fund Seeks to provide investment results Mellon Equity
that correspond to the price and yield
performance of publicly traded common
stocks in the aggregate, as
represented by the Standard & Poor's
500 Composite Stock Price Index.
High Yield Bond Trust* Seeks generous income. The assets of TAMIC
the High Yield Bond Trust will be
invested in bonds which, as a class,
sell at discounts from par value and
are typically high risk securities.
Managed Assets Trust Seeks high total investment return TAMIC
through a fully managed investment Subadviser: Travelers
policy in a portfolio of equity, debt Investment Management Company
and convertible securities. ("TIMCO")
Money Market Portfolio Seeks high current income from short- TAMIC
term money market instruments while
preserving capital and maintaining a
high degree of liquidity.
</TABLE>
10
<PAGE> 131
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND
VIP Equity-Income Seeks reasonable income by investing Fidelity Management &
Portfolio primarily in income-producing equity Research Company ("FMR")
securities; in choosing these
securities, the portfolio manager will
also consider the potential for
capital appreciation.
VIP Growth Portfolio Seeks capital appreciation by purchas- FMR
ing common stocks of well-known,
established companies, and small
emerging growth companies, although
its investments are not restricted to
any one type of security. Capital
appreciation may also be found in
other types of securities, including
bonds and preferred stocks.
VIP High Income Portfolio Seeks to obtain a high level of FMR
current income by investing primarily
in high yielding, lower-rated,
fixed-income securities, while also
considering growth of capital.
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
VIP II Asset Manager Seeks high total return with reduced FMR
Portfolio risk over the long-term by allocating
its assets among stocks, bonds and
short-term fixed-income instruments.
GREENWICH STREET
SERIES FUND
Total Return Portfolio An equity portfolio that seeks to pro- SSBC Fund Management Inc.
vide total return, consisting of ("SSBC")
long-term capital appreciation and
income. The Portfolio will invest
primarily in a diversified portfolio
of dividend-paying common stocks.
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Templeton Asset Seeks a high level of total return Templeton Investment Counsel,
Allocation Fund (Class 1) with reduced risk over the long term Inc.
through a flexible policy of investing
in stocks of companies in any nation
and debt obligations of companies and
governments of any nation.
Templeton Bond Fund Seeks high current income by investing Templeton Global Bond
(Class 1) primarily in debt securities of compa- Managers
nies, governments and government
agencies of various nations throughout
the world.
</TABLE>
11
<PAGE> 132
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Templeton Stock Fund Seeks capital growth by investing Templeton Investment Counsel,
(Class 1) primarily in common stocks issued by Inc.
companies, large and small, in various
nations throughout the world.
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Seeks capital appreciation by Travelers Investment Adviser
Portfolio investing principally in common stock, ("TIA")
with emphasis on medium-sized and Subadviser: AIM Capital
smaller emerging growth companies. Management Inc.
Alliance Growth Portfolio Seeks long-term growth of capital by TIA
investing predominantly in equity Subadviser: Alliance Capital
securities of companies with a Management L.P.
favorable outlook for earnings and
whose rate of growth is expected to
exceed that of the U.S. economy over
time. Current income is only an
incidental consideration.
MFS Total Return Seeks to obtain above-average income TIA
Portfolio (compared to a portfolio entirely Subadviser: MFS
invested in equity securities)
consistent with the prudent employment
of capital. Generally, at least 40% of
the Portfolio's assets will be
invested in equity securities.
Smith Barney High Income Seeks high current income. Capital SSBC
Portfolio appreciation is a secondary objective.
The Portfolio will invest at least 65%
of its assets in high-yielding
corporate debt obligations and
preferred stock.
Smith Barney Large Cap Seeks current income and long-term SSBC
Value Portfolio growth of income and capital by
investing primarily, but not
exclusively, in common stocks.
TRAVELERS SERIES TRUST
U.S. Government Seeks to select investments from the TAMIC
Securities Portfolio point of view of an investor concerned
primarily with highest credit quality,
current income and total return. The
assets of the U.S. Government Securi-
ties Portfolio will be invested in
direct obligations of the United
States, its agencies and
instrumentalities.
Utilities Portfolio Seeks to provide current income by SSBC
investing in equity and debt
securities of companies in the utility
industries.
</TABLE>
12
<PAGE> 133
<TABLE>
<CAPTION>
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
----------------- -------------------- -----------------------------
<S> <C> <C>
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 2000 return as consistent with the
and Series 2005) preservation of capital investing in
primarily zero coupon securities that
pay cash income but are acquired by
the Portfolio at substantial discounts
from their values at maturity. The
Zero Coupon Bond Fund Portfolios may
not be appropriate for Policy Owners
who do not plan to have their premiums
invested in shares of the Portfolios
for the long term or until maturity.
</TABLE>
- ---------------
* Not available for new deposits.
POLICY BENEFITS AND RIGHTS
- --------------------------------------------------------------------------------
TRANSFERS OF CASH VALUE
As long as the Policy remains in effect, you may transfer the Cash Value between
Investment Options. We reserve the right to restrict the number of free
transfers to four times in any Policy Year and to charge $10 for each additional
transfer; however, there is currently no charge for transfers.
We calculate the number of Accumulation Units involved using the Accumulation
Unit Values we determine at the end of the business day on which we receive the
request.
TELEPHONE TRANSFERS
The Policy Owner may make the request in writing by mailing such request to the
Company at its Home Office, or by telephone (if an authorization form is on
file) by calling 1-800-334-4298. The Company will take reasonable steps to
ensure that telephone transfer requests are genuine. These steps may include
seeking proper authorization and identification prior to processing telephone
requests. Additionally, the Company will confirm telephone transfers. Any
failure to take such measures may result in the Company's liability for any
losses due to fraudulent telephone transfer requests.
AUTOMATED TRANSFERS
DOLLAR-COST AVERAGING
You may establish automated transfers of Policy Values on a monthly or quarterly
basis from any Investment Option(s) to any other Investment Option(s) through
written request or other method acceptable to the Company. You must have a
minimum total Policy Value of $1,000 to enroll in the Dollar-Cost Averaging
program. The minimum total automated transfer amount is $100.
You may start or stop participation in the Dollar-Cost Averaging program at any
time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. Automated transfers
are subject to all of the other provisions and terms of the Policy. The Company
reserves the right to suspend or modify transfer privileges at any time and to
assess a processing fee for this service.
Before transferring any part of the Policy Value, Policy Owners should consider
the risks involved in switching between investments available under this Policy.
Dollar cost averaging requires regular investments regardless of fluctuating
price levels, and does not guarantee profits or prevent losses
13
<PAGE> 134
in a declining market. Potential investors should consider their financial
ability to continue purchases through periods of low price levels.
PORTFOLIO REBALANCING
You may elect to have the Company periodically reallocate values in your policy
to match your original (or your latest) funding option allocation request.
LAPSE AND REINSTATEMENT
The Policy will remain in effect until the Cash Surrender Value of the Policy
can no longer cover the Monthly Deduction Amount or loan interest due and not
paid in cash. If this happens, we will notify you in writing that if the amount
shown in the notice is not paid within 61 days (the "Late Period"), the Policy
may lapse. The amount shown will be enough to pay the deduction amount due. The
Policy will continue through the Late Period, but if no payment is received by
us, it will terminate at the end of the Late Period. If the person Insured under
the Policy dies during the Late Period, the Death Benefit payable will be
reduced by the Monthly Deduction Amount due, the loan interest due and unpaid
plus the amount of any outstanding loan. (See "Death Benefit," below.)
If the Policy lapses, you may reinstate the Policy by paying the reinstatement
premium (and any applicable charges) shown in the Policy. You may request
reinstatement within three years of lapse (unless a different period is required
under applicable state law). Upon reinstatement, the Policy's Cash Value will
equal the Net Premium. In addition, the Company reserves the right to require
satisfactory evidence of insurability.
EXCHANGE RIGHTS
Once the Policy is in effect, it may be exchanged during the first 24 months for
a general account life insurance policy issued by the Company (or an affiliated
company) on the life of the Insured. Benefits under the new life insurance
policy will be as described in that policy. No evidence of insurability will be
required. You have the right to select the same Death Benefit or Net Amount At
Risk as the former Policy at the time of exchange. Cost of insurance rates will
be based on the same risk classification as those of the former Policy. Any
outstanding Policy loan must be repaid before we will make an exchange. In
addition, there may be an adjustment for the difference in Cash Value between
the two Policies.
RIGHT TO CANCEL
An Applicant may cancel the Policy by returning it via mail or personal delivery
to the Company or to the agent who sold the Policy. The Policy must be returned
by the latest of:
(1) 10 days after delivery of the Policy to you
(2) 45 days of completion of the Policy application
(3) 10 days after the Notice of Right to Cancel has been mailed or
delivered to the Applicant whichever is latest, or
(4) later if required by state law.
We will refund the greater of all premium payments or the sum of:
(1) the difference between the premium paid, including any fees or charges,
and the amounts allocated to the Investment Option(s),
(2) the value of the amounts allocated to the Investment Option(s) on the
date on which the Company receives the returned Policy, and
(3) any fees and other charges imposed on amounts allocated to the
Investment Option(s).
We will make the refund within seven days after we receive your returned policy.
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ACCESS TO CASH VALUES
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POLICY LOANS
A Policy Owner may obtain a cash loan from the Company secured by the Policy not
to exceed 90% of the Policy's Cash Value (determined on the day on which the
Company receives the written loan request), less any surrender penalties.
Subject to state law, no loan requests may be made for amounts of less than
$100.
If there is a loan outstanding at the time a subsequent loan request is made,
the amount of the outstanding loan will be added to the new loan request. The
Company will charge interest on the outstanding amounts of the loan, which
interest must be paid in advance by the Policy Owner. The full Loan Account
Value will be charged an annual interest rate of 7.4% (6% in the Virgin
Islands).
The amount of the loan will be transferred as of the date the loan is made on a
pro rata basis from each of the Investment Options attributable to the Policy
(unless the Policy Owner states otherwise) to another account (the "Loan
Account"). Amounts in the Loan Account will be credited by the Company with a
fixed annual rate of return of 4% (6% in New York and Massachusetts) and will
not be affected by the investment performance of the Investment Options. When
loan repayments are made, the amount of the repayment will be deducted from the
Loan Account and will be reallocated based upon premium allocation percentages
among the Investment Options applicable to the Policy (unless the Policy Owner
states otherwise). The Company will make the loan to the Policy Owner within
seven days after receipt of the written loan request.
An outstanding loan amount decreases the Cash Surrender Value. If a maximum loan
is taken or a loan is not repaid, it may permanently decrease the Cash Surrender
Value, which could cause the Policy to lapse (see "Lapse and Reinstatement").
For example, if a Policy has a Cash Surrender Value of $10,000, the Policy Owner
may take a loan of 90% or $9,000, leaving a new Cash Surrender Value of $1,000.
In addition, the Death Benefit actually payable would be decreased because of
the outstanding loan. Furthermore, even if the loan is repaid, the Death Benefit
and Cash Surrender Value may be permanently affected since the Policy Owner was
not credited with the investment experience of an Investment Option on the
amount in the Loan Account while the loan was outstanding. All or any part of a
loan secured by a Policy may be repaid while the Policy is still in effect.
CASH VALUE AND CASH SURRENDER VALUE
The Cash Value of a Policy changes on a daily basis and will be computed on each
Valuation Date. The Cash Value will vary to reflect the investment experience of
the Investment Options, as well as any partial Cash Surrenders, Monthly
Deduction Amount, daily Separate Account charges, and any additional premium
payments. There is no minimum guaranteed Cash Value.
The Cash Value of a particular Policy is related to the net asset value of the
Investment Options to which premium payments on the Policy have been allocated.
The Cash Value on any Valuation Date is calculated by multiplying the number of
Accumulation Units credited to the Policy in each Investment Options as of the
Valuation Date by the current Accumulation Unit Value of that Investment Option,
then adding the collective result for each of the Investment Options credited to
the Policy, and finally adding the value (if any) of the Loan Account. A Policy
Owner may withdraw Cash Value from the Policy, or transfer Cash Value among the
Investment Options, on any day that the Company is open for business.
As long as the Policy is in effect, a Policy Owner may elect, without the
consent of the Beneficiary (provided the designation of Beneficiary is not
irrevocable), to surrender the Policy and receive its "Cash Surrender Value";
i.e., the Cash Value of the Policy determined as of the day the Company receives
the Policy Owner's written request, less any outstanding Policy loan, and less
any applicable Surrender Charges. For full surrenders, the Company will pay the
Cash Surrender Value of the Policy within seven days following its receipt of
the written request, or on the date
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<PAGE> 136
requested by the Policy Owner, whichever is later. The Policy will terminate on
the Deduction Date next following the Company's receipt of the written request,
or on the Deduction Date next following the date on which the Policy Owner
requests the surrender to become effective, whichever is later.
In the case of partial surrenders, the Cash Surrender Value will be equal to the
net amount requested to be surrendered minus any applicable Surrender Charges.
The deduction from Cash Value for a partial surrender will be made on a pro rata
basis against the Cash Value of each of the Investment Options attributable to
the Policy (unless the Policy Owner states otherwise in writing).
In addition to reducing the Cash Value of the Policy, partial cash surrenders
will reduce the Death Benefit payable under the Policy. Under Option 1, the
Stated Amount of the Policy will be reduced by the amount of the partial cash
surrender. Under Option 2, the Cash Value, which is part of the Death Benefit,
will be reduced by the amount of the partial cash surrender. The Company may
require return of the Policy to record such reduction.
DEATH BENEFIT
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The Death Benefit under the Policy is the amount paid to the Beneficiary upon
the Insured's death. The Death Benefit will be reduced by any outstanding
charges, fees and Policy loans. All or part of the Death Benefit may be paid in
cash or applied to one or more of the payment options described in the following
pages.
You may elect one of two Death Benefit options. As long as the Policy remains in
effect, the Company guarantees that the Death Benefit under either option will
be at least the current Stated Amount of the Policy less any outstanding Policy
loan and unpaid Deduction Amount due. The Death Benefit under either option may
vary with the Cash Value of the Policy. Under Option 1 (the "Level Option"), the
Death Benefit will be equal to the Stated Amount of the Policy or, if greater, a
specified multiple of Cash Value (the "Minimum Amount Insured"). Under Option 2
(the "Variable Option"), the Death Benefit will be equal to the Stated Amount of
the Policy plus the Cash Value (determined as of the date of the Insured's
death) or, if greater, the Minimum Amount Insured.
The Minimum Amount Insured is the amount required to qualify the Policy as a
life insurance Policy under the current federal tax law. Under that law, the
Minimum Amount Insured equals a stated percentage of the Policy's Cash Value
determined as of the first day of each Policy Month. The percentages differ
according to the attained age of the Insured. The Minimum Amount Insured is set
forth in the Policy and may change as federal income tax laws or regulations
change. The following is a schedule of the applicable percentages. For attained
ages not shown, the applicable percentages will decrease evenly:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE:
------------ -----------
<S> <C>
0 - 40 250
45 215
50 185
55 150
60 130
65 120
70 115
75 105
95+ 100
</TABLE>
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Federal tax law imposes another cash funding limitation on cash value life
insurance Policies that may increase the Minimum Amount Insured shown above.
This limitation known as the "guideline premium limitation," generally applies
during the early years of variable universal life insurance Policies.
The following examples demonstrate the relationship between the Death Benefit,
the Cash Surrender Value and the Minimum Amount Insured under Options 1 and 2 of
the Policy. The examples assume an Insured of age 40, a Minimum Amount Insured
of 250% of Cash Value (assuming the preceding table is controlling as to Minimum
Amount Insured), and no outstanding Policy loan.
OPTION 1 -- "LEVEL" DEATH BENEFIT
STATED AMOUNT: $75,000
In the following examples of an Option 1 "Level" Death Benefit, the Death
Benefit under the Policy is generally equal to the Stated Amount of $75,000.
Since the Policy is designed to qualify as a life insurance Policy, the Death
Benefit cannot be less than the Minimum Amount Insured (or, in this example,
250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 x 250%). Since the Death Benefit in the Policy
is the greater of the Stated Amount ($75,000) or the Minimum Amount Insured
($25,000), the Death Benefit would be $75,000.
EXAMPLE TWO. If the Cash Value of the Policy equals $40,000, the Minimum Amount
Insured would be $100,000 ($40,000 x 250%). The resulting Death Benefit would be
$100,000 since the Death Benefit is the greater of the Stated Amount ($75,000)
or the Minimum Amount Insured ($100,000).
OPTION 2 -- "VARIABLE" DEATH BENEFIT
STATED AMOUNT: $75,000
In the following examples of an Option 2 "Variable" Death Benefit, the Death
Benefit varies with the investment experience of the applicable Investment
Options and will generally be equal to the Stated Amount plus the Cash Value of
the Policy (determined on the date of the Insured's death). The Death Benefit
cannot, however, be less than the Minimum Amount Insured (or, in this example,
250% of the Cash Value).
EXAMPLE ONE. If the Cash Value of the Policy equals $10,000, the Minimum Amount
Insured would be $25,000 ($10,000 x 250%). The Death Benefit ($85,000) would be
equal to the Stated Amount ($75,000) plus the Cash Value ($10,000), unless the
Minimum Amount Insured ($25,000) was greater.
EXAMPLE TWO. If the Cash Value of the Policy equals $60,000, then the Minimum
Amount Insured would be $150,000 ($60,000 x 250%). The resulting Death Benefit
would be $150,000 because the Minimum Amount Insured ($150,000) is greater than
the Stated Amount plus the Cash Value ($75,000 + $60,000 = $135,000).
PAYMENT OF PROCEEDS
Death Benefits are payable within seven days after we receive satisfactory proof
of the Insured's death. The amount of Death Benefit paid may be adjusted to
reflect any Policy loan, any material misstatements in the Policy application as
to age or sex of the Insured, and any amounts payable to an assignee under a
collateral assignment of the Policy. (See "Assignment.")
Subject to state law, if the Insured commits suicide within two years following
the Issue Date limits on the amount of Death Benefit paid will apply. (See
"Limit on Right to Contest and Suicide
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<PAGE> 138
Exclusion.") In addition, if the Insured dies during the 61-day period after the
Company gives notice to the Policy Owner that the Cash Surrender Value of the
Policy is insufficient to meet the Monthly Deduction Amount due against the Cash
Value of the Policy, then the Death Benefit actually paid to the Policy Owner's
Beneficiary will be reduced by the amount of the Deduction Amount that is due
and unpaid. (See "Cash Value and Cash Surrender Value," for effects of partial
surrenders on Death Benefits.)
PAYMENT OPTIONS
We will pay policy proceeds in a lump sum, unless you or the Beneficiary select
one of the Company's payment options. We may defer payment of proceeds which
exceed the Death Benefit for up to six months from the date of the request for
the payment. A combination of options may be used. The minimum amount that may
be placed under a payment option is $5,000 unless we consent to a lesser amount.
Proceeds applied under an option will no longer be affected by the investment
experience of the Investment Options.
The following payment options are available under the Policy:
OPTION 1 -- Payments of a Fixed Amount
OPTION 2 -- Payments for a Fixed Period
OPTION 3 -- Amounts Held at Interest
OPTION 4 -- Monthly Life Income
OPTION 5 -- Joint and Survivor Level Amount Monthly Life Income
OPTION 6 -- Joint and Survivor Monthly Life Income-Two-thirds to Survivor
OPTION 7 -- Joint and Last Survivor Monthly Life Income-Monthly Payment
Reduces on Death of First Person Named
OPTION 8 -- Other Options
We will make any other arrangements for periodic payments as may be agreed upon.
If any periodic payment due any payee is less than $100, we may make payments
less often. If we have declared a higher rate under an option on the date the
first payment under an option is due, we will base the payments on the higher
rate.
MATURITY BENEFITS
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The Maturity Date is the anniversary of the Policy Date on which the Insured is
age 95. If the Insured is living on the Maturity Date, the Company will pay you
the Policy's Cash Value less any outstanding Policy loan or unpaid Deduction
Amount. You must surrender the Policy to us before we make a payment, at which
point the Policy will terminate and we will have no further obligations under
the Policy.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
CHARGES AGAINST PREMIUM
FRONT-END SALES CHARGE
When we receive a Premium Payment, and before allocation of the payment among
the Investment Options, we deduct a front-end sales charge. For Stated Amounts
less than $500,000 the charge is 2.5%. The charge is 2% for Stated Amounts from
$500,000 to $999,999, and for
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Stated Amounts of $1,000,000 or greater, there is no front-end sales charge.
Additional charges may be assessed upon any full or partial surrender. (See
"Surrender Charges".)
Sales charges are intended to cover our actual sales expenses, including agent
sales commissions, advertising and the printing of the prospectuses. We expect
to recover the sales expenses of a Policy. To the extent sales expenses are not
covered by the sales charges, we will recover such expenses from its surplus.
This surplus may include profit from the mortality and expense risk charge.
STATE PREMIUM TAX CHARGE
A charge of 2.5% of each premium payment will be deducted for state premium
taxes (except for Policies issued in the Commonwealth of Puerto Rico where no
premium tax is deducted). These taxes vary from state to state and currently
range from 0.75% to 3.5%; 2.5% is an average. Because there is a range of
premium taxes, a Policy Owner may pay a premium tax charge that is higher or
lower than the premium tax actually assessed in his or her jurisdiction.
The Company also reserves the right to charge the assets of each Investment
Option for a reserve for any income taxes payable by the Company on the assets
attributable to that Investment Option. (See "Federal Tax Considerations.")
MONTHLY DEDUCTION AMOUNT
We will deduct a Monthly Deduction Amount to cover certain charges and expenses
incurred in connection with the Policy. The Monthly Deduction Amount is deducted
pro rata from each of the Investment Options' values attributable to the Policy.
The amount is deducted on the first day of each Policy Month (the "Deduction
Date"), beginning on the Policy Date. The dollar amount of the Deduction Amount
will vary from month to month. The Monthly Deduction Amount consists of the Cost
of Insurance Charge, Policy Administrative Expense Charge and Charges for any
Supplemental Benefit Provision. These are described below:
COST OF INSURANCE CHARGE
The amount of the Cost of Insurance deduction depends on the amount of insurance
coverage on the date of the deduction and the current cost per dollar for
insurance coverage. The cost per dollar of insurance coverage varies annually
and is based on age, sex, risk class of the Insured and state of issue.
POLICY ADMINISTRATIVE EXPENSE CHARGE
For the first three Policy Years, an administrative charge is deducted monthly
from the Policy's Cash Value. This charge also applies to the first three years
following increases in the Stated Amount (excluding Cost of Living Adjustments
and increases in Stated Amounts due to Death Benefit Option changes.) This
charge is used to cover expenses associated with issuing the Policy. The charge
currently varies by issue age and Stated Amount (see Appendix C).
CHARGES FOR SUPPLEMENTAL BENEFIT PROVISIONS
The Company will include a supplemental benefits charge in the Monthly Deduction
Amount if you have elected any supplemental benefit provision for which there is
a charge. The amount of this charge will vary depending upon the actual
supplemental benefits selected.
CHARGES AGAINST THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge for mortality and expense risks. The current charge is
at an annual rate of 0.60%; however, the Policy provides that the maximum charge
for mortality and expense risks will not exceed 0.80%. The mortality risk
assumed is that the cost of insurance charge specified in the Policy may not be
enough to meet actual claims. The expense risk assumed is that expenses
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<PAGE> 140
incurred in issuing and administering the Policies will exceed the
administrative charges set forth in the Policy.
ADMINISTRATIVE EXPENSE CHARGE
We reserve the right to deduct a daily charge for administrative expenses we
incur. The maximum charge equals an annual rate of 0.10%; however, we do not
currently assess this charge.
UNDERLYING FUND FEES
When you allocate money to the Investment Options, the Separate Account
purchases shares of the corresponding Underlying Funds at net asset value. The
net asset value reflects investment advisory fees and other expenses already
deducted. The investment advisory fees and other expenses paid to each of the
Underlying Funds are described in the individual Fund prospectuses for the
Investment Options and in the Policy prospectus summary. These are not direct
charges under the Policy; they are indirect because they affect each Investment
Option's accumulation unit value.
SURRENDER CHARGES
There are two types of surrender charges that can apply under the Policy: a
Percent of Premium Charge and a Per Thousand of Stated Amount Charge equal to a
specified amount for each $1,000 of Stated Amount. These surrender charges apply
during the first ten Policy Years (or the first ten years following an increase
in Stated Amount other than an increase for a Cost of Living Adjustment or a
change in Death Benefit option). Both charges apply upon a full surrender of the
Policy. Only the Percent of Premium Charge applies upon a partial surrender.
PERCENT OF PREMIUM CHARGE
A Percent of Premium surrender charge will be assessed upon a full or partial
surrender of the Policy during the first ten Policy Years (and during the first
ten years following an increase in Stated Amount). The charge will be the
smallest of:
(a) 6% of the amount of Cash Value being surrendered; or
(b) 6% of the amount of premiums actually paid within the five years
preceding the surrender; or
(c) 9% of the total Annual Minimum Premiums for each full or partial Policy
Year during the five years preceding the surrender, whether paid or
not. (See Appendix A, "Annual Minimum Premiums.")
For example, for a 45-year old male with a Stated Amount of $150,000 who pays a
premium of $1,969 per year for five years (a total of $9,845), and then fully
surrenders the Policy for its Cash Value of $7,485 (assuming a 6% rate of
return), the Percent of Premium surrender charge would be $449, because (a) is
$449 (6% of $7,485); (b) is $591 (6% of the $9,845 in premiums paid); and (c) is
approximately $682 (9% of the annual minimum premium for five years). The
smallest, $449, is the applicable charge.
PER THOUSAND OF STATED AMOUNT CHARGE
A Per Thousand of Stated Amount surrender charge is imposed on full surrenders,
but not on partial surrenders, and applies only during the first ten Policy
Years or the ten years following an increase in Stated Amount (other than an
increase for a Cost of Living Adjustment or a change in Death Benefit Option).
The charge is equal to a specified dollar amount for each $1,000 of Stated
Amount to which it applies, and will apply only to that portion of the Stated
Amount (except for increases excluded above) which has been in effect for less
than ten years.
The Per Thousand of Stated Amount Charge varies by original issue age, and
increases with the issue age of the Insured. For Stated Amounts of $499,999 or
less, this charge varies in the first year from $2.04 per $1,000 of Stated
Amount for issue ages of 4 years or less, to $25.40 per $1,000 of
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<PAGE> 141
Stated Amount for issue ages of 65 years or higher. The charge is lower for
Stated Amounts over $499,999, and even lower for Stated Amounts over $999,999.
Additionally, the charge decreases by 10% each year over the ten-year period.
For example, for a 45-year old with a Stated Amount of $150,000, the charge in
the first year is $7.18 for each $1,000 of Stated Amount, or $1,077. The charge
decreases 10%, or approximately $0.72, each year, so in the fifth year, it is
$4.31 for each $1,000 of Stated Amount, or $646.50; in the tenth year, it is
$0.72 for each $1,000, or $108.
This charge is designed to compensate the Company for administrative expenses
not covered by other administrative charges. This charge may be reduced or
eliminated when sales are made under certain arrangements. (See "Reduction or
Elimination of Sales Charges and Administrative Charges" below.) The Per
Thousand of Stated Amount surrender charges are set forth in Appendix B.
TRANSFER CHARGE
There is currently no charge for transfers. The Company reserves the right to
limit free transfers of Cash Value from one Investment Option to another by the
Policy Owner to four times in any Policy Year, and to charge $10 for any
additional transfers.
REDUCTION OR ELIMINATION OF CHARGES
We may offer the Policy in arrangements where an employer or trustee will own a
group of policies on the lives of certain employees, or in other situations
where groups of policies will be purchased at one time. We may reduce or
eliminate the mortality and expense risk charge, sales or surrender charges and
administrative charges in such arrangements to reflect the reduced sales
expenses, administrative costs and/or mortality and expense risks expected as a
result of sales to a particular group.
We will not reduce or eliminate the withdrawal charge, mortality and expense
risk charge or the administrative charge if the reduction or elimination will be
unfairly discriminatory to any person.
THE SEPARATE ACCOUNT AND VALUATION
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THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE (FUND UL)
The Travelers Fund UL for Variable Life Insurance was established on November
10, 1983 under the insurance laws of the state of Connecticut. It is registered
with the Securities and Exchange Commission ("SEC") as a unit investment trust
under the Investment Company Act of 1940. A Registration Statement has been
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended. This Prospectus does not contain all information set forth in
the Registration Statement, its amendments and exhibits. You may access the
SEC's website (http://www.sec.gov) to view the entire Registration Statement.
This registration does not mean that the SEC supervises the management or the
investment practices or policies of the Separate Account.
The assets of Fund UL are invested exclusively in shares of the Investment
Options. The operations of Fund UL are also subject to the provisions of Section
38a-433 of the Connecticut General Statutes which authorizes the Connecticut
Insurance Commissioner to adopt regulations under it. Under Connecticut law, the
assets of Fund UL will be held for the exclusive benefit of Policy Owners and
the persons entitled to payments under the Policy. The assets held in Fund UL
are not chargeable with liabilities arising out of any other business which the
Company may conduct. Any obligations arising under the Policy are general
corporate obligations of the Company.
All investment income of and other distributions to each Investment Option are
reinvested in shares of corresponding underlying fund at net asset value. The
income and realized gains or losses
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<PAGE> 142
on the assets of each Investment Option are separate and are credited to or
charged against the Investment Option without regard to income, gains or losses
from any other Investment Option or from any other business of the Company. The
Company purchases shares of the Fund in connection with premium payments
allocated according to the Policy Owners' directions, and redeems Fund shares to
meet Policy obligations. We will also make adjustments in reserves, if required.
The Investment Options are required to redeem Fund shares at net asset value and
to make payment within seven days.
HOW THE CASH VALUE VARIES. We calculate the Policy's Cash Value each day the
New York Stock Exchange is open for trading (a "valuation date"). A Policy's
Cash Value reflects a number of factors, including Premium Payments, partial
withdrawals, loans, Policy charges, and the investment experience of the
Investment Option(s) chosen. The Policy's Cash Value on a valuation date equals
the sum of all accumulation units for each Investment Option chosen, plus the
Loan Account Value.
The Separate Account purchases shares of the underlying funds at net asset value
(i.e., without a sales charge). The Separate Account receives all dividends and
capital gains distributions from each underlying fund, and reinvests in
additional shares of that fund. The Accumulation Unit Value reflects the
reinvestment of any dividends or capital gains distributions declared by the
underlying fund. The Separate Account will redeem underlying fund shares at
their net asset value, to the extent necessary to make payments under the
Policy.
In order to determine Cash Value, Cash Surrender Value, policy loans and the
number of Accumulation Units to be credited, we use the values calculated as of
the close of business on each valuation date we receive the written request, or
payment in good order, at our Home Office.
ACCUMULATION UNIT VALUE. Accumulation Units measure the value of the Investment
Options. The value for each Investment Option's Accumulation Unit is calculated
on each valuation date. The value equals the Accumulation Unit value for the
preceding valuation period multiplied by the underlying fund's Net Investment
Factor during the next Valuation Period. (For example, to calculate Monday's
valuation date price, we would multiply Friday's Accumulation Unit Value by
Monday's net investment factor.)
The Accumulation Unit Value may increase or decrease. The number of Accumulation
Units credited to your Policy will not change as a result of the Investment
Option's investment experience.
NET INVESTMENT FACTOR. For each Investment Option, the value of its
Accumulation Unit depends of the net rate of return for the corresponding
underlying fund. We determine the net rate of return at the end of each
Valuation Period (that is, the period of time beginning at the close of the New
York Stock Exchange, and ending at its close of business on the next Valuation
Date). The net rate of return reflects the investment performance of the
investment option, includes any dividends or capital gains distributed, and is
net of the Separate Account charges.
CHANGES TO THE POLICY
- --------------------------------------------------------------------------------
GENERAL
Once the policy is issued, you may make certain changes. Some of these changes
will not require additional underwriting approval; some changes will. Certain
requests must be made in writing, as indicated below:
WRITTEN CHANGES REQUIRING UNDERWRITING APPROVAL:
- increases in the stated amount of insurance;
- changing the death benefit from Option 1 to Option 2
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WRITTEN CHANGES NOT REQUIRING UNDERWRITING APPROVAL:
- decreases in the stated amount of insurance
- changing the death benefit from Option 2 to Option 1
- changes to the way your premiums are allocated (Note: you can also make
these changes by telephone)
- changing the beneficiary (unless irrevocably named)
Written requests for changes should be sent to the Company's Home Office at One
Tower Square, Hartford, Connecticut, 06183. The Company's telephone number is
(860) 277-0111.
CHANGES IN STATED AMOUNT
You may request in writing an increase or decrease in the Policy's Stated
Amount, provided that the Stated Amount after any decrease may not be less than
the minimum amount of $75,000. For purposes of determining the cost of insurance
charge, a decrease in the Stated Amount will reduce the Stated Amount in the
following order:
1) against the most recent increase in the Stated Amount;
2) to other increases in the reverse order in which they occurred;
3) to the initial Stated Amount.
A decrease in Stated Amount in a substantially funded Policy may cause a cash
distribution that is includable in the gross income of the Policy Owner.
For increases in the Stated Amount, we may require a new application and
evidence of insurability as well as an additional premium payment. The effective
date of any increase will be shown on the new Policy Summary which we will send.
The effective date of any increase in the Stated Amount will generally be the
Deduction Date next following either the date of a new application or, if
different, the date requested by the Applicant. There is an additional Policy
Administrative Charge and a Per Thousand of Stated Amount Surrender Charge
associated with a requested increase in Stated Amount. There is no additional
charge for a decrease in Stated Amount.
CHANGES IN DEATH BENEFIT OPTION
You may change the Death Benefit option by sending a written request to the
Company. There is no direct tax consequence of changing a Death Benefit option,
except as described under "Tax Treatment of Policy Benefits." However, the
change could affect future values of Net Amount At Risk, and with some Option 2
to Option 1 changes involving substantially funded Policies, there may be a cash
distribution which is included in your gross income. The cost of insurance
charge which is based on the Net Amount At Risk may be different in the future.
A change from Option 1 to Option 2 will not be permitted if the change results
in a Stated Amount of less than $75,000. A change from Option 1 to Option 2 also
subject to underwriting. Contact your registered representative for more
information.
ADDITIONAL POLICY PROVISIONS
- --------------------------------------------------------------------------------
ASSIGNMENT
The Policy may be assigned as collateral for a loan or other obligation. The
Company is not responsible for any payment made or action taken before receipt
of written notice of such assignment. Proof of interest must be filed with any
claim under a collateral assignment.
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<PAGE> 144
LIMIT ON RIGHT TO CONTEST AND SUICIDE EXCLUSION
We may not contest the validity of the Policy after it has been in effect during
the Insured's lifetime for two years from the Issue Date. Subject to state law,
if the Policy is reinstated, the two-year period will be measured from the date
of reinstatement. Each requested increase in Stated Amount is contestable for
two years from its effective date (subject to state law). In addition, if the
Insured commits suicide during the two-year period following issue, subject to
state law, the Death Benefit will be limited to the premiums paid less (i) the
amount of any partial surrender, (ii) the amount of any outstanding Policy loan,
and (iii) the amount of any unpaid Deduction Amount due. During the two-year
period following an increase, the Death Benefit in the case of suicide will be
limited to an amount equal to the Deduction Amount paid for such increase.
MISSTATEMENT AS TO SEX AND AGE
If there has been a misstatement with regard to sex or age, benefits payable
will be adjusted to what the Policy would have provided with the correct
information. A misstatement with regard to sex or age in a substantially funded
Policy may cause a cash distribution that is includable in whole or in part in
the gross income of the Policy Owner.
VOTING RIGHTS
The Company is the legal owner of the underlying fund shares. However, we
believe that when an underlying fund solicits proxies, we are required to obtain
from policy owners who have chosen those investment options instructions on how
to vote those shares. When we receive those instructions, we will vote all of
the shares we own in proportion to those instructions. This will also include
any shares we own on our own behalf. If we determine that we no longer need to
comply with this voting method, we will vote on the shares in our own right.
DISREGARD OF VOTING INSTRUCTIONS
When permitted by state insurance regulatory authorities, we may disregard
voting instructions if the instructions would cause a change in the investment
objective or policies of the Separate Account or an Investment Option, or if it
would cause the approval or disapproval of an investment advisory Policy of an
Investment Option. In addition, we may disregard voting instructions in favor of
changes in the investment policies or the investment adviser of any Investment
Options which are initiated by a Policy Owner if we reasonably disapprove of
such changes. A change would be disapproved only if the proposed change is
contrary to state law or prohibited by state regulatory authorities, or if we
determine that the change would have an adverse effect on our general account
(i.e., if the proposed investment policy for an Investment Option may result in
overly speculative or unsound investments.) If we do disregard voting
instructions, a summary of that action and the reasons for such action would be
included in the next annual report to Policy Owners.
OTHER MATTERS
- --------------------------------------------------------------------------------
STATEMENTS TO POLICY OWNERS
We will maintain all records relating to the Separate Account and the Investment
Options. At least once each Policy Year, we will send you a statement containing
the following information:
- the Stated Amount and the Cash Value of the Policy (indicating the number
of Accumulation Units credited to the Policy in each Investment Option
and the corresponding Accumulation Unit Value);
- the date and amount of each premium payment;
- the date and amount of each Monthly Deduction;
24
<PAGE> 145
- the amount of any outstanding Policy loan as of the date of the
statement, and the amount of any loan interest charged on the Loan
Account;
- the date and amount of any partial cash surrenders and the amount of any
partial surrender charges;
- the annualized cost of any supplemental benefits purchased under the
Policy; and
- a reconciliation since the last report of any change in Cash Value and
Cash Surrender Value.
We will also send any other reports required by any applicable state or federal
laws or regulations.
SUSPENSION OF VALUATION
We reserve the right to suspend or postpone the date of any payment of any
benefit or values for any Valuation Period (1) when the New York Stock Exchange
("Exchange") is closed; (2) when trading on the Exchange is restricted; (3) when
the SEC determines so that disposal of the securities held in the Underlying
Funds is not reasonably practicable or the value of the Investment Option's net
assets cannot be determined; or (4) during any other period when the SEC, by
order, so permits for the protection of security holders.
DIVIDENDS
No dividends will be paid under the Policy.
MIXED AND SHARED FUNDING
It is conceivable that in the future it may not be advantageous for variable
life insurance and variable annuity Separate Accounts to invest in the
Investment Options simultaneously. This is called mixed funding. Certain funds
may be available to variable products of other companies not affiliated with
Travelers. This is called "shared funding." Although we -- and the funds -- do
not anticipate any disadvantages either to variable life insurance or to
variable annuity Policy Owners, the Investment Options' Boards of Directors
intend to monitor events to identify any material conflicts that may arise and
to determine what action, if any, should be taken. If any of the Investment
Options' Boards of Directors conclude that separate mutual funds should be
established for variable life insurance and variable annuity Separate Accounts,
the Company will bear the attendant expenses, but variable life insurance and
variable annuity Policy Owners would no longer have the economies of scale
resulting from a larger combined fund. Please consult the prospectuses of the
Investment Options for additional information.
DISTRIBUTION
The Company intends to sell the Policies in all jurisdictions where it is
licensed to do business and where the Policy is approved. The Policies will be
sold by life insurance sales representatives who are registered representatives
of the Company or certain other registered broker-dealers. The maximum
commission payable by the Company for distribution would be no greater than 50%
of the actual premium paid in the first twelve months. Any sales representative
or employee will have been qualified to sell variable life insurance Policies
under applicable federal and state laws. Each broker/dealer is registered with
the Securities and Exchange Commission under the Securities Exchange Act of 1934
and all are members of the National Association of Securities Dealers, Inc.
CFBDS, Inc. serves as principal underwriter of the Policies.
LEGAL PROCEEDINGS AND OPINION
There are no pending material legal proceedings affecting the Separate Account.
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 compensa-
25
<PAGE> 146
tory 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.
Legal matters in connection with the federal laws and regulations affecting the
issue and sale of the Contract described in this prospectus, as well as the
organization of the Company, its authority to issue variable life contracts
under Connecticut law and the validity of the forms of the variable life
contracts under Connecticut law, have been reviewed by the General Counsel of
the Company.
INDEPENDENT ACCOUNTANTS
The financial statements as of and for the year ended December 31, 1998 of Fund
UL, included
in the registration statement have been included herein in reliance on the
report of
KPMG LLP, independent certified public accountants upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance Company and
Subsidiaries as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
GENERAL
The following is a general discussion of the federal income tax considerations
relating to the Policies. This discussion is based upon the Company's
understanding of the federal income tax laws as they are currently interpreted
by the Internal Revenue Service ("IRS"). These laws are complex, and tax results
may vary among individuals. A person contemplating the purchase of or the
exercise of elections under a Policy should seek competent tax advice.
IT SHOULD BE UNDERSTOOD THAT THIS IS NOT AN EXHAUSTIVE DISCUSSION OF ALL TAX
QUESTIONS THAT MIGHT ARISE UNDER THE POLICIES. NO ATTEMPT HAS BEEN MADE TO
ADDRESS ANY FEDERAL ESTATE TAX OR STATE AND LOCAL TAX CONSIDERATIONS WHICH MAY
ARISE IN CONNECTION WITH A POLICY. FOR COMPLETE INFORMATION, A QUALIFIED TAX
ADVISOR SHOULD BE CONSULTED.
THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF ANY POLICY AND THE FOLLOWING
TAX DISCUSSION IS BASED ON THE COMPANY'S UNDERSTANDING OF FEDERAL INCOME TAX
LAWS AS THEY ARE CURRENTLY INTERPRETED. THE COMPANY CANNOT GUARANTEE THAT THOSE
LAWS OR INTERPRETATIONS WILL REMAIN UNCHANGED.
TAX STATUS OF THE POLICY
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. Guidance as to how Section 7702 is to be applied,
however, is limited. Although the Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702, and while
proposed regulations and other limited, interim guidance has been issued, final
regulations have not been adopted. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy would not provide
the tax advantages normally provided by a life insurance policy.
26
<PAGE> 147
With respect to a Policy issued on the basis of a standard rate class, the
Company believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702) that such a Policy should meet the Section 7702
definition of a life insurance contract. There is less guidance on the
application of the rules with respect to a Policy that is issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk). Thus, it is not clear whether such a Policy would satisfy
Section 7702, particularly if the Policy Owner pays the full amount of premiums
permitted under the Policy.
The Company reserves the right to make changes in the Policy if such changes are
deemed necessary to attempt to assure its qualification as a life insurance
contract for tax purposes.
DIVERSIFICATION
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies) underlying the Policy must be "adequately diversified"
in accordance with Treasury regulations in order for the Policy to qualify as
life insurance. The Treasury Department has issued regulations prescribing the
diversification requirements in connection with variable contracts. The Separate
Account, through the Investment Options, intends to comply with these
requirements. Although the Company does not control the Investment Options, it
intends to monitor the investments of the Investment Options to ensure
compliance with the diversification requirements prescribed by the Treasury
Department.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contract. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contract owner's gross income each year. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policy Owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular Investment Options without being treated as owners of
the underlying assets." As of the date of this prospectus, no such guidance has
been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the policy owners received the desired tax benefits because they were not owners
of separate account assets. For example, a Policy Owner of this Policy has
additional flexibility in allocating payments and cash values. These differences
could result in the Policy Owner being treated as the owner of the assets of the
Separate Account. In addition, the Company does not know what standard will be
set forth in the regulations or rulings which the Treasury is expected to issue,
nor does the Company know if such guidance will be issued. The Company therefore
reserves the right to modify the Policy as necessary to attempt to prevent the
Policy Owner from being considered the owner of a pro rata share of the assets
of the Separate Account.
The remaining tax discussion assumes that the Policy qualifies as a life
insurance contract for federal income tax purposes.
27
<PAGE> 148
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the Death Benefit under the Policy
should be excludable from the gross income of the Beneficiary.
In addition, the Policy Owner will generally not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, until there is a
distribution. The tax consequences of distribution from, and loans taken from or
secured by, a Policy depend on whether the Policy is classified as a "Modified
Endowment Contract." However, whether a Policy is or is not a Modified Endowment
Contract, upon a complete surrender or lapse of a Policy or when benefits are
paid at a Policy's maturity date, if the amount received plus the amount of
indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, or an assignment of the Policy may have federal income
tax consequences. In addition, federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. Therefore, it is important to check
with a tax adviser prior to the purchase of a policy.
MODIFIED ENDOWMENT CONTRACTS
A modified endowment contract is defined under tax law as any policy that
satisfies the present legal definition of a life insurance contract but which
fails to satisfy a 7-pay test. This failure could occur with contracts entered
into after June 21, 1988, or with certain older contracts materially changed
after that date. A Section 1035 exchange of an older contract into a contract
after that date will not by itself cause the new contract to be a modified
endowment contract if the older contract had not become one prior to the
exchange. However, the new contract must be re-tested under the 7-pay test
rules.
A contract fails to satisfy the 7-pay test if the cumulative amount of premiums
paid under the contract at any time during the first seven contract years
exceeds the sum of the net level premiums that would have been paid on or before
such time had the contract provided for paid-up future benefits after the
payment of seven level annual premiums. If a material change in the contract
occurs either during the first seven contract years, or later, a new seven-year
testing period is begun. A decrease to Stated Amount made in the first seven
years will cause a retest of the cumulative amount of premiums. Decreases made
after the first seven contract years are not considered a material change,
provided no other material changes have occurred prior. Tax regulations or other
guidance will be needed to fully define those transactions which are material
changes. The Company has established safeguards for monitoring whether a
contract may become a modified endowment contract.
Loans and partial withdrawals from, as well as collateral assignments of,
Policies that are modified endowment contracts will be treated as distributions
to the Policy Owner for tax purposes. All pre-death distributions (including
loans, partial withdrawals and collateral assignments) from these Policies will
be included in gross income on an income-first basis to the extent of any income
in the Policy (the cash value less the Policy Owner's investment in the Policy)
immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders) from
modified endowment contracts to the extent they are included in income, unless a
specific exception to the penalty applies. The penalty does not apply to amounts
which are distributed on or after the date on which the taxpayer attains age
59 1/2, because the taxpayer is disabled, or as substantially equal periodic
payments over the taxpayer's life (or life expectancy) or over the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary.
Furthermore, if the loan interest is
28
<PAGE> 149
capitalized by adding the amount due to the balance of the loan, the amount of
the capitalized interest will be treated as an additional distribution subject
to income tax as well as the 10% penalty tax, if applicable, to the extent of
income in the Policy.
The Death Benefit of a modified endowment contract remains excludable from the
gross income of the Beneficiary to the extent described above in "Tax Treatment
of Policy Benefits." Furthermore, no part of the investment growth of the Cash
Value of a modified endowment contract is includable in the gross income of the
Contract Owner unless the contract matures, is distributed or partially
surrendered, is pledged, collaterally assigned, or borrowed against, or
otherwise terminates with income in the contract prior to death. A full
surrender of the contract after age 59 1/2 will have the same tax consequences
as noted above in "Tax Treatment of Policy Benefits."
EXCHANGES
Any Policy issued in exchange for a modified endowment contract will be subject
to the tax treatment accorded to modified endowment contracts. However, the
Company believes that any Policy received in exchange for a life insurance
contract that is not a modified endowment contract will generally not be treated
as a modified endowment contract if the face amount of the Policy is greater
than or equal to the death benefit of the policy being exchanged. The payment of
any premiums at the time of or after the exchange may, however, cause the Policy
to become a modified endowment contract. A prospective purchaser should consult
a qualified tax advisor before authorizing the exchange of his or her current
life insurance contract for a Policy.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS
In the case of a pre-death distribution (including a loan, partial withdrawal,
collateral assignment or complete surrender) from a Policy that is treated as a
modified endowment contract, a special aggregation requirement may apply for
purposes of determining the amount of the income on the Policy. Specifically, if
the Company or any of its affiliates issues to the same Policy Owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the Policy with respect to a distribution from any of
those Policies, the income on the Policy for all those Policies will be
aggregated and attributed to that distribution.
POLICIES WHICH ARE NOT MODIFIED ENDOWMENT CONTRACTS
Unlike loans from modified endowment contracts, a loan from a Policy that is not
a modified endowment contract will be considered indebtedness of the Owner and
no part of a loan will constitute income to the Owner. However, the treatment of
loans taken after the 13th Policy Year, is unclear; such loans might be
considered a withdrawal instead of indebtedness for federal tax purposes.
Pre-death distributions from a Policy that is not a modified endowment contract
will generally not be included in gross income to the extent that the amount
received does not exceed the Policy Owner's investment in the Policy. (An
exception to this general rule may occur in the case of a decrease or change
that reduces the benefits provided under a Policy in the first 15 years after
the Policy is issued and that results in a cash distribution to the Policy
Owner. Such a cash distribution may be taxed in whole or in part as ordinary
income to the extent of any gain in the Policy.) Further, the 10% penalty tax on
pre-death distributions does not apply to Policies that are not modified
endowment contracts.
Certain changes to Policies that are not modified endowment contracts may cause
such Policies to be treated as modified endowment contracts. A Policy Owner
should therefore consult a tax advisor before effecting any change to a Policy
that is not a modified endowment contract.
TREATMENT OF LOAN INTEREST
If there is any borrowing against the Policy, the interest paid on loans may not
be tax deductible.
29
<PAGE> 150
THE COMPANY'S INCOME TAXES
The Company is taxed as a life insurance company under federal income tax law.
Presently, the Company does not expect to incur any income tax on the earnings
or the realized capital gains attributable to Fund UL. However, the Company may
assess a charge against the Investment Options for federal income taxes
attributable to those accounts in the event that the Company incurs income or
capital gains or other tax liability attributable to Fund UL under future tax
law.
THE COMPANY
- --------------------------------------------------------------------------------
The Travelers Insurance Company (the "Company") is a stock insurance company
chartered in 1864 in Connecticut and has been engaged in the insurance business
since that time. The Company writes individual life insurance and individual and
group annuity contracts on a non-participating basis, and acts as depositor for
the Separate Account assets. The Company is licensed to conduct life insurance
business in all states of the United States, the District of Columbia, Puerto
Rico, Guam, the U.S. and British Virgin Islands, and the Bahamas. The Company's
obligations as depositor for Fund UL may not be transferred without notice to
and consent of Policy Owners.
The Company is an indirect wholly owned subsidiary of Citigroup Inc., a
financial services holding company. The Company's principal executive offices
are located at One Tower Square, Hartford, Connecticut 06183, telephone number
(860) 277-0111.
The Company is subject to Connecticut law governing insurance companies and is
regulated and supervised by the Connecticut Commissioner of Insurance. An annual
statement in a prescribed form must be filed with the Commissioner on or before
March 1 in each year covering the operations of the Company for the preceding
year and its financial condition on December 31 of such year. The Company's
books and assets are subject to review or examination by the Commissioner, and a
full examination of its operations is conducted at least once every four years.
In addition, the Company is subject to the insurance laws and regulations of any
jurisdiction in which it sells its insurance Policies, as well as to various
federal and state securities laws and regulations.
IMSA
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
necessary to address the Year 2000 issue and developed a comprehensive plan to
address the issue. This issue involves the ability of computer systems that have
time sensitive programs to recognize properly the Year 2000. The inability to do
so could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
30
<PAGE> 151
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed as incurred in the period 1996 through 1999. The Company has incurred
approximately $22 million to date on these efforts. The Company also has third
party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
MANAGEMENT
- --------------------------------------------------------------------------------
DIRECTORS OF THE TRAVELERS INSURANCE COMPANY
The following are the Directors and Executive Officers of The Travelers
Insurance Company. Unless otherwise indicated, the principal business address
for all individuals is the Company's Home Office at One Tower Square, Hartford,
Connecticut 06183. References to Citigroup include, prior to December 31, 1993,
Primerica Corporation or its predecessors, and prior to October 8, 1998,
Travelers Group, Inc.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITION SINCE PRINCIPAL BUSINESS
----------------- -------- ------------------
<S> <C> <C>
Jay S. Benet................... 1996 Senior Vice President since February 1994; Chief
Director Financial Officer, Chief Accounting Officer, and
Controller since January, 1999 and Vice President
(1990-1994) of The Travelers Insurance Company; Partner
(1986-1990) of PricewaterhouseCoopers.
Katherine M. Sullivan.......... 1996 Senior Vice President and General Counsel since May
Director 1996 of The Travelers Insurance Company; Senior Vice
President and General Counsel (1994-1996) Connecticut
Mutual; Special Counsel & Chief of Staff (1988-1994)
Aetna Life & Casualty.
George C. Kokulis.............. 1996 Senior Vice President since September 1995, Vice
Director President (1993-1995) of The Travelers Insurance
Company.
Michael A. Carpenter........... 1995 Co-chairman, Salomon Smith Barney since October 1998;
Director Chairman since June 1996 and President and Chief
Executive Officer June 1995-1998 of The Travelers
Insurance Company; Vice Chairman since February 1998;
Executive Vice President (1995-1998) of Citigroup Inc.;
Chairman, President and Chief Executive Officer
(1989-1994), Kidder Peabody Group Inc.
</TABLE>
31
<PAGE> 152
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITION SINCE PRINCIPAL BUSINESS
----------------- -------- ------------------
<S> <C> <C>
Robert I. Lipp................. 1992 Chairman, President and Chief Executive Officer since
Director April 1996 of Travelers Property Casualty Corp.; Chief
Executive Officer and Director since December 1993 of
The Travelers Insurance Group Inc.; Vice Chairman and
Director of Citigroup Inc. since 1991; Chairman and
Chief Executive Officer of Commercial Credit Company
(1991-1993); Executive Vice President (1986-1991),
Primerica Corporation.
Marc P. Weill*................. 1994 Senior Vice President-Investments since 1993 and Chief
Director Investment Officer since 1995 of The Travelers
Insurance Group Inc.; Senior Vice President and Chief
Investment Officer of Citigroup Inc. since 1992; Vice
President (1990-1992), Primerica Corporation; Vice
President (1989-1990), Smith Barney Inc.
J. Eric Daniels................ 1998 President and Chief Executive Officer since December
Director 1998 of The Travelers Insurance Company; Chief
Operating Officer of Global Consumer Bank of Citibank,
since 1993, Vice President, Citibank.
</TABLE>
- ---------------
* Principal business address: Citigroup Inc., 153 East 53rd St., New York, New
York 10043
SENIOR OFFICERS OF THE TRAVELERS INSURANCE COMPANY
The following are the Senior Officers of The Travelers Insurance Company, other
than the Directors listed above, as of the date of this Prospectus. Unless
otherwise indicated, the principal business address for all individuals listed
is One Tower Square, Hartford, Connecticut 06183.
<TABLE>
<CAPTION>
NAME POSITION WITH INSURANCE COMPANY
---- -------------------------------
<S> <C>
Stuart Baritz................ Senior Vice President
Barry Jacobson............... Senior Vice President
Russell H. Johnson........... Senior Vice President
Warren H. May................ Senior Vice President
Jay S. Fishman............... Senior Vice President
David A. Tyson............... Senior Vice President
F. Denney Voss............... Senior Vice President
Elizabeth C. Senior Vice President
Georgakopoulos.............
Christine M. Modie........... Senior Vice President
</TABLE>
Information relating to the management of the underlying funds is contained in
the applicable prospectuses.
32
<PAGE> 153
EXAMPLE OF POLICY CHARGES
- --------------------------------------------------------------------------------
The following chart illustrates the surrender charges and Monthly Deduction
Amounts that would apply under a Policy based on the assumptions listed below.
Surrender charges and Monthly Deduction Amounts generally will be higher for an
Insured who is older than the assumed Insured, and lower for an Insured who is
younger (assuming the Insureds have the same risk classification). Cost of
insurance rates go up each year as the Insured becomes a year older.
Male, Age 35
Preferred Non-Smoker
Annual Net Premium: $ 850.00
Hypothetical Gross Annual Investment
Rate of Return: 8%
Face Amount: $100,000
Level Death Benefit Option
Current Charges
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
FOR THE POLICY YEAR
-----------------------
COST OF
POLICY CUMULATIVE INSURANCE ADMINISTRATIVE
YEAR PREMIUMS SURRENDER CHARGES CHARGES CHARGES
- ------ ---------- ----------------- --------- --------------
<S> <C> <C> <C> <C>
1 $ 850.00 $456.00 $145.00 $228.00
2 $1,700.00 $452.00 $157.00 $228.00
3 $2,550.00 $450.00 $168.00 $228.00
5 $4,250.00 $464.00 $190.00 $ 0
10 $8,500.00 $297.00 $250.00 $ 0
</TABLE>
Hypothetical results shown above are illustrative only and are based on the
Hypothetical Gross Annual Investment Rate of Return shown above. This
Hypothetical Gross Annual Investment Rate of Return should not be deemed to be a
representation of past or future investment results. Actual investment results
may be more or less than those shown. No representations can be made that the
hypothetical rates assumed can be achieved for any one year or sustained over
any period of time.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, Fund UL's Investment Options may show the percentage change
in the value of an Accumulation Unit based on the performance of the Investment
Option over a period of time, usually for the past one-, two-, three-, five-,
and ten-year periods determined by dividing the increase (decrease) in value for
that unit by the Accumulation Unit Value at the beginning of the period.
For Investment Options of Fund UL that invest in underlying funds that were in
existence prior to the date on which the Investment Option became available
under the Policy, average annual rates of return may include periods prior to
the inception of the Investment Option. Performance calculations for Investment
Options with pre-existing Investment Options will be calculated by adjusting the
actual returns of the Investment Options to reflect the charges that would have
been assessed under the Investment Options had the Investment Option been
available under Fund UL during the period shown.
The following performance information represents the percentage change in the
value of an Accumulation Unit of the Investment Options for the periods
indicated, and reflects all expenses of the Investment Options. The chart
reflects the guaranteed maximum .80% mortality and expense risk charge and .10%
administrative expense risk charge. The rates of return do not reflect the 2.5%
front-end sales charge or the 2.5% state premium tax charge (both of which are
deducted from premium payments) nor do they reflect surrender charges or Monthly
Deduction Amounts. The surrender charges and Monthly Deduction Amounts for a
hypothetical Insured are depicted in the Example following the Rates of Returns.
For information about the Charges and Deductions assessed under the Policy, see
page 18. For illustrations of how these charges affect Cash Values and Death
Benefits, see the Illustrations beginning on page 35. The performance
33
<PAGE> 154
information described in this prospectus, may be used from time to time in
advertisement for the Policy, subject to National Association of Securities
Dealers, Inc. ("NASD") and applicable state approval and guidelines.
The table below shows the net annual rates of return for accumulation units of
investment options available through MarketLife.
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
FUND
INCEPTION
UNDERLYING INVESTMENT OPTIONS ONE YEAR THREE YEARS FIVE YEARS TEN YEARS DATE
- ----------------------------- -------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
STOCK FUNDS
AIM Capital Appreciation Portfolio 16.70% 13.88% -- -- 10/10/95
Alliance Growth Portfolio 28.08% 28.18% -- -- 6/16/94
Capital Appreciation Fund (Janus Sub-
Adviser) 60.48% 36.70% 26.72% 20.15% 3/18/82
Dreyfus Stock Index Fund 27.27% 26.87% 22.68% -- 9/29/89
Fidelity VIP Equity-Income Portfolio 10.89% 16.96% 17.94% 14.83% 10/9/86
Fidelity VIP Growth Portfolio 38.41% 24.55% 20.87% 18.57% 10/9/86
Smith Barney Large Cap Value Portfolio 9.11% 17.71% -- -- 6/16/94
Total Return Portfolio 4.31% 14.65% -- -- 10/16/91
Utilities Portfolio 17.42% 15.95% -- -- 2/4/94
Templeton Stock Fund (Class 1) 0.65% 10.77% 10.44% 11.47% 8/31/88
BOND FUNDS
Fidelity VIP High Income Portfolio -4.87% 7.97% 8.09% 10.37% 9/19/85
Smith Barney High Income Portfolio -0.15% 8.26% -- -- 6/16/94
Templeton Bond Fund (Class 1) 6.49% 5.66% 4.95% 6.75% 8/31/88
U.S. Government Securities Portfolio 9.49% 7.29% 7.44% -- 1/24/92
Zero Coupon Bond Fund Portfolio 2000 6.92% 5.18% -- -- 10/11/95
Zero Coupon Bond Fund Portfolio 2005 11.54% 7.65% -- -- 10/11/95
BALANCED FUNDS
Fidelity VIP II Asset Manager Portfolio 14.27% 15.92% 11.06% -- 9/6/89
MFS Total Return Portfolio 10.93% 14.90% -- -- 6/16/94
Templeton Asset Allocation Fund (Class 1) 5.74% 12.70% 10.94% 11.41% 8/31/88
Managed Assets Trust 20.59% 17.95% 15.01% 13.50% 8/6/82
MONEY MARKET FUND
Money Market Portfolio* 4.41% 4.18% 3.75% 4.31% 10/1/81
</TABLE>
The information presented in the above chart represents the percentage change in
the value of an accumulation unit of the underlying investment options for the
periods indicated, and reflects all expenses of the underlying funds and 0.60%
mortality and expense risk charge against amount allocated to the underlying
funds. The rates of return do not reflect the 2.5% front-end sales charge or the
2.5% state premium tax charge (both of which are deducted from premium payments)
nor do they reflect surrender charges or monthly deduction amounts. These
charges would reduce the average annual return reflected.
* An investment in Money Market Portfolio is neither insured nor guaranteed by
the United States Government. There is no assurance that a stable $1.00 value
will be maintained.
34
<PAGE> 155
ILLUSTRATIONS
- --------------------------------------------------------------------------------
The following pages are intended to illustrate how the Account Value, Cash
Surrender Value and Death Benefit can change over time for Policies issued to a
45 year old male and a 45 year old female. The difference between the Account
Value and the Cash Surrender Value in these illustrations represents the
Surrender Charge that would be incurred upon a full surrender of the Policy.
The illustrations assume that premiums are paid as indicated, no Policy loans
are made, no increases or decreases to the Stated Amount are requested, no
partial surrenders are made, and no charges for transfers between funds are
incurred.
For both male and female age 45, there are two pages of values. One page
illustrates the assumption that the maximum Guaranteed Cost of Insurance Rates,
the monthly administrative charge, mortality and expense risk charge, and
administrative expense charge allowable under the Policy are charged in all
years. The other page illustrates the assumption that the current scale of Cost
of Insurance Rates and other charges are charged in all years. The Cost of
Insurance Rates charged vary by age, sex and underwriting classification, and
the monthly administrative charge varies by age and amount of insurance. The
illustrations reflect a deduction of 5% from each annual premium for premium tax
(2.5%) and front end sales charge (2.5%).
The values shown in these illustrations vary according to the assumptions used
for expense charges, credited interest and mortality charges. Interest is
assumed to be credited to the Account Value at the net investment rate of
return, which is equal to the hypothetical gross investment rate of return (0%,
6% or 12%) minus either 1.53% for guaranteed charges, or 1.23% for current
charges. The guaranteed charge consists of 0.80% for mortality and expense
risks, 0.10% for administrative expenses, and .63% for Investment Option
expenses. The current charge consists of 0.60% for mortality and expense risks,
and .63% for Investment Option expenses.
The charge for Investment Option expenses reflected in the illustrations assumes
that Cash Value is allocated equally among all Investment Options and that no
Policy Loans are outstanding, and is an average of the investment advisory fees
and other expenses charged by each of the Investment Options during the most
recent audited calendar year.
The Investment Option expenses for some of the Investment Options reflect an
expense reimbursement agreement currently in effect, as shown in the Policy
prospectus summary. Although these reimbursement arrangements are expected to
continue in subsequent years, the effect of discontinuance could be higher
expenses charged to Policy Owners.
After deduction of these amounts, the illustrated gross annual investment rates
of return of 0%, 6%, and 12% correspond to approximate net annual rates of
- -1.53%, 4.47%, and 10.47%, respectively on a guaranteed basis, and to
approximate net annual rates of -1.23%, 4.77% and 10.77%, respectively on a
current basis.
The illustrations do not reflect any charges for federal income taxes against
the Separate Account, since the Company is not currently deducting such charges
from the Separate Account. However, such charges may be made in the future, and
in that event, the gross annual investment rates of return would have to exceed
0%, 6% and 12% by an amount sufficient to cover the tax charges in order to
produce the Death Benefits, Account Values and Cash Surrender Values
illustrated.
Upon request, the Company will provide a comparable illustration based upon the
proposed Insured's age, sex, underwriting classification, the specified
insurance benefits, and the premium requested. The illustration will show
average fund expenses or, if requested, actual fund expenses. The hypothetical
gross annual investment return assumed in such an illustration will not exceed
12%.
35
<PAGE> 156
IN-VEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Non-Smoker Annual Premium $1,895.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,990 150,000 150,000 150,000 887 967 1,046 0 0 0
2 4,080 150,000 150,000 150,000 1,734 1,949 2,174 661 863 1,075
3 6,275 150,000 150,000 150,000 2,536 2,943 3,388 1,523 1,905 2,324
4 8,579 150,000 150,000 150,000 3,727 4,398 5,160 2,749 3,380 4,096
5 10,998 150,000 150,000 150,000 4,863 5,881 7,083 3,925 4,882 6,012
6 13,539 150,000 150,000 150,000 5,951 7,403 9,182 5,055 6,420 8,093
7 16,206 150,000 150,000 150,000 6,989 8,961 11,474 6,139 7,993 10,475
8 19,007 150,000 150,000 150,000 7,973 10,555 13,977 7,172 9,664 13,086
9 21,947 150,000 150,000 150,000 8,899 12,183 16,712 8,149 11,398 15,927
10 25,035 150,000 150,000 150,000 9,752 13,829 19,692 9,075 13,152 19,015
15 42,950 150,000 150,000 150,000 12,989 22,501 39,544 12,989 22,501 39,544
20 65,815 150,000 150,000 150,000 13,390 31,006 71,334 13,390 31,006 71,334
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
36
<PAGE> 157
IN-VEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Male, Issue Age 45 Face Amount $150,000
Non Smoker Annual Premium $1,895.63
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,990 150,000 150,000 150,000 647 719 791 0 0 0
2 4,080 150,000 150,000 150,000 1,231 1,415 1,609 188 361 543
3 6,275 150,000 150,000 150,000 1,748 2,083 2,452 782 1,097 1,444
4 8,579 150,000 150,000 150,000 2,625 3,162 3,778 1,713 2,218 2,797
5 10,998 150,000 150,000 150,000 3,423 4,224 5,177 2,571 3,324 4,220
6 13,539 150,000 150,000 150,000 4,135 5,258 6,650 3,348 4,404 5,713
7 16,206 150,000 150,000 150,000 4,750 6,255 8,194 4,035 5,449 7,272
8 19,007 150,000 150,000 150,000 5,259 7,200 9,807 4,621 6,446 8,916
9 21,947 150,000 150,000 150,000 5,650 8,079 11,486 5,095 7,378 10,701
10 25,035 150,000 150,000 150,000 5,912 8,877 13,230 5,449 8,236 12,553
15 42,950 150,000 150,000 150,000 4,982 11,191 22,981 4,982 11,191 22,981
20 65,815 0 150,000 150,000 0 8,450 34,295 0 8,450 34,295
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
37
<PAGE> 158
IN-VEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Non-Smoker Annual Premium $1,798.13
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% ------------------------------ ------------------------------ ------------------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,888 150,000 150,000 150,000 835 910 986 0 0 0
2 3,870 150,000 150,000 150,000 1,651 1,855 2,068 583 775 975
3 5,952 150,000 150,000 150,000 2,436 2,822 3,246 1,429 1,792 2,190
4 8,138 150,000 150,000 150,000 3,615 4,255 4,982 2,644 3,245 3,929
5 10,433 150,000 150,000 150,000 4,746 5,722 6,872 3,815 4,732 5,813
6 12,842 150,000 150,000 150,000 5,833 7,230 8,939 4,945 6,258 7,864
7 15,372 150,000 150,000 150,000 6,891 8,795 11,215 6,047 7,837 10,245
8 18,029 150,000 150,000 150,000 7,915 10,416 13,720 7,118 9,554 12,858
9 20,819 150,000 150,000 150,000 8,898 12,089 16,475 8,148 11,334 15,720
10 23,748 150,000 150,000 150,000 9,823 13,798 19,487 9,176 13,151 18,840
15 40,741 150,000 150,000 150,000 13,649 23,062 39,757 13,649 23,062 39,757
20 62,430 150,000 150,000 150,000 15,702 33,370 72,960 15,702 33,370 72,960
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Current cost of insurance charges, mortality and expense risk charge, monthly
administrative charge and administrative expense charge.
38
<PAGE> 159
IN-VEST
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED CHARGES**
<TABLE>
<S> <C>
Female, Issue Age 45 Face Amount $150,000
Non-Smoker Annual Premium $1,798.13
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PREMIUMS DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
WITH 5% --------------------------- ----------------------- -----------------------
YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,888 150,000 150,000 150,000 712 783 854 0 0 0
2 3,870 150,000 150,000 150,000 1,379 1,566 1,763 327 503 688
3 5,952 150,000 150,000 150,000 2,000 2,348 2,730 1,019 1,346 1,705
4 8,138 150,000 150,000 150,000 3,001 3,568 4,214 2,066 2,599 3,207
5 10,433 150,000 150,000 150,000 3,945 4,801 5,814 3,062 3,866 4,819
6 12,842 150,000 150,000 150,000 4,830 6,045 7,537 4,002 5,144 6,546
7 15,372 150,000 150,000 150,000 5,654 7,297 9,396 4,884 6,429 8,426
8 18,029 150,000 150,000 150,000 6,409 8,551 11,399 5,702 7,715 10,537
9 20,819 150,000 150,000 150,000 7,092 9,803 13,558 6,450 9,048 12,803
10 23,748 150,000 150,000 150,000 7,703 11,053 15,892 7,133 10,406 15,245
15 40,741 150,000 150,000 150,000 9,706 17,297 31,041 9,706 17,297 31,041
20 62,430 150,000 150,000 150,000 9,278 22,903 54,651 9,278 22,903 54,651
</TABLE>
These hypothetical rates of return are illustrative only and should not be
considered a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors. The Account Values and Cash Surrender Values will be
different from those shown if the actual rates of return averaged 0%, 6% or 12%
over a period of years but fluctuated above or below the average for individual
contract years. No representation can be made that these rates of return can be
achieved for any one year or sustained over a period of time.
** Guaranteed cost of insurance charges, mortality and expense risk charge,
monthly administrative charge and administrative expense charge.
39
<PAGE> 160
APPENDIX A
ANNUAL MINIMUM PREMIUMS
(Per Thousand of Stated Amount)
<TABLE>
<CAPTION>
AGE MALE FEMALE
- --- ---- ------
<S> <C> <C>
0 2.80 2.42
1 2.69 2.47
2 2.59 2.48
3 2.58 2.47
4 2.58 2.47
5 2.58 2.47
6 2.58 2.47
7 2.60 2.49
8 2.62 2.52
9 2.66 2.56
10 2.72 2.62
11 2.80 2.68
12 2.89 2.76
13 3.01 2.84
14 3.13 2.94
15 3.25 3.04
16 3.38 3.16
17 3.51 3.28
18 3.62 3.40
19 3.72 3.47
20 3.81 3.53
21 3.90 3.60
22 3.98 3.67
23 4.05 3.73
24 4.08 3.71
25 4.13 3.76
26 4.30 3.93
27 4.45 4.09
28 4.61 4.26
29 4.76 4.41
30 4.92 4.60
31 5.12 4.80
32 5.32 5.02
33 5.52 5.22
34 5.74 5.46
35 5.98 5.71
36 6.33 6.01
37 6.66 6.31
38 7.01 6.64
39 7.34 6.97
40 7.69 7.34
41 8.17 7.75
42 8.66 8.18
43 9.14 8.62
44 9.63 9.11
45 10.11 9.59
46 10.79 10.13
47 11.47 10.70
</TABLE>
<TABLE>
<CAPTION>
AGE MALE FEMALE
- --- ---- ------
<S> <C> <C>
48 12.15 11.29
49 12.83 11.89
50 13.51 12.51
51 14.42 13.18
52 15.34 13.86
53 16.24 14.53
54 17.16 15.29
55 18.07 16.10
56 19.43 17.11
57 20.79 18.20
58 22.16 19.35
59 23.52 20.51
60 24.88 21.68
61 27.11 22.98
62 29.34 24.27
63 31.57 25.59
64 33.80 27.01
65 36.03 28.57
66 38.86 30.12
67 41.70 31.63
68 44.52 33.29
69 47.36 35.39
70 49.76 37.75
71 54.39 40.67
72 59.04 44.16
73 63.71 48.15
74 68.41 52.54
75 72.60 57.27
76 80.21 62.20
77 87.34 67.37
78 94.52 73.00
79 101.76 79.30
80 109.06 86.49
81 120.34 94.56
82 131.76 103.39
83 143.32 112.96
84 155.03 123.28
85 166.88 138.49
86 170.39 149.27
87 177.17 159.84
88 191.28 171.55
89 208.18 185.73
90 241.15 203.75
91 254.21 225.63
92 282.60 250.53
93 314.35 278.47
94 349.51 309.50
</TABLE>
APPENDIX A -- ANNUAL MINIMUM PREMIUMS
40
<PAGE> 161
APPENDIX B
PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
(First Year)
<TABLE>
<CAPTION>
STATED AMOUNT
---------------------------------------
ISSUE $75,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
0 2.04 1.84 1.63
1 2.04 1.84 1.63
2 2.04 1.84 1.63
3 2.04 1.84 1.63
4 2.04 1.84 1.63
5 2.19 1.97 1.75
6 2.19 1.97 1.75
7 2.21 1.99 1.77
8 2.23 2.01 1.78
9 2.26 2.03 1.81
10 2.39 2.15 1.91
11 2.46 2.21 1.97
12 2.54 2.29 2.03
13 2.65 2.39 2.12
14 2.75 2.48 2.20
15 2.76 2.48 2.21
16 2.77 2.49 2.22
17 2.79 2.51 2.23
18 2.82 2.54 2.26
19 2.90 2.61 2.32
20 2.86 2.57 2.29
21 2.93 2.64 2.34
22 2.99 2.69 2.39
23 3.04 2.74 2.43
24 3.06 2.75 2.45
25 3.08 2.77 2.46
26 3.14 2.83 2.51
27 3.25 2.93 2.60
28 3.37 3.03 2.70
29 3.47 3.12 2.78
30 3.49 3.14 2.79
31 3.64 3.28 2.91
32 3.78 3.40 3.02
</TABLE>
<TABLE>
<CAPTION>
STATED AMOUNT
---------------------------------------
ISSUE $75,000 $500,000 $1,000,000
AGE TO $499,999 TO $999,999 AND ABOVE
- ----- ----------- ----------- ----------
<S> <C> <C> <C>
33 3.92 3.53 3.14
34 4.08 3.67 3.26
35 4.19 3.77 3.35
36 4.43 3.99 3.54
37 4.66 4.19 3.73
38 4.91 4.42 3.93
39 5.14 4.63 4.11
40 5.69 5.12 4.55
41 6.05 5.45 4.84
42 6.41 5.77 5.13
43 6.76 6.08 5.41
44 7.13 6.42 5.70
45 7.18 6.46 5.74
46 7.66 6.89 6.13
47 8.14 7.33 6.51
48 8.63 7.77 6.90
49 9.11 8.20 7.29
50 10.00 9.00 8.00
51 10.67 9.60 8.54
52 11.35 10.22 9.06
53 12.02 10.82 9.62
54 12.70 11.43 10.16
55 13.01 11.71 10.41
56 13.99 12.69 11.19
57 14.97 13.47 11.98
58 15.96 14.36 12.77
59 16.93 15.24 13.54
60 17.91 16.12 14.33
61 19.52 17.57 15.82
62 21.12 19.01 16.90
63 22.73 20.46 18.18
64 24.34 21.91 19.47
65+ 25.40 22.85 20.32
</TABLE>
APPENDIX B -- PER THOUSAND OF STATED AMOUNT SURRENDER CHARGE
41
<PAGE> 162
APPENDIX C
MONTHLY ADMINISTRATIVE CHARGE
(PER THOUSAND OF STATED AMOUNT)
APPLICABLE FOR THREE YEARS FOLLOWING ISSUE OR INCREASE
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
0 0.16 0.08 0.00
1 0.16 0.08 0.00
2 0.16 0.08 0.00
3 0.16 0.08 0.00
4 0.16 0.08 0.00
5 0.16 0.08 0.00
6 0.16 0.08 0.00
7 0.16 0.08 0.00
8 0.16 0.08 0.00
9 0.16 0.08 0.00
10 0.16 0.08 0.00
11 0.16 0.08 0.00
12 0.16 0.08 0.00
13 0.16 0.08 0.00
14 0.16 0.08 0.00
15 0.16 0.08 0.00
16 0.16 0.08 0.00
17 0.16 0.08 0.00
18 0.16 0.08 0.00
19 0.16 0.08 0.00
20 0.16 0.08 0.00
21 0.16 0.08 0.00
22 0.16 0.08 0.00
23 0.16 0.08 0.00
24 0.16 0.08 0.00
25 0.16 0.08 0.00
26 0.16 0.09 0.00
27 0.17 0.09 0.00
28 0.17 0.09 0.00
29 0.18 0.09 0.00
30 0.18 0.09 0.00
31 0.18 0.09 0.00
32 0.18 0.09 0.00
</TABLE>
<TABLE>
<CAPTION>
STATED AMOUNT
--------------------------------
$75,000 $500,000 $1,000,000
ISSUE TO TO AND
AGE $499,999 $999,999 ABOVE
- ----- -------- -------- ----------
<S> <C> <C> <C>
33 0.19 0.09 0.00
34 0.19 0.09 0.00
35 0.19 0.09 0.00
36 0.20 0.09 0.00
37 0.21 0.10 0.00
38 0.22 0.10 0.00
39 0.23 0.10 0.00
40 0.23 0.10 0.00
41 0.24 0.10 0.00
42 0.24 0.10 0.00
43 0.24 0.10 0.00
44 0.24 0.10 0.00
45 0.24 0.10 0.00
46 0.25 0.11 0.00
47 0.26 0.11 0.00
48 0.27 0.11 0.00
49 0.28 0.11 0.00
50 0.29 0.15 0.00
51 0.30 0.15 0.00
52 0.32 0.15 0.00
53 0.33 0.15 0.00
54 0.34 0.15 0.00
55 0.35 0.15 0.00
56 0.35 0.15 0.00
57 0.35 0.15 0.00
58 0.36 0.15 0.00
59 0.36 0.15 0.00
60 0.36 0.15 0.00
61 0.38 0.15 0.00
62 0.38 0.15 0.00
63 0.38 0.15 0.00
64 0.39 0.15 0.00
65+ 0.39 0.15 0.00
</TABLE>
42
<PAGE> 163
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> 164
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> 165
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> 166
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund UL for Variable Life Insurance ("Fund UL") is a separate
account of The Travelers Insurance Company ("The Travelers"), an indirect wholly
owned subsidiary of 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> 167
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges and administrative charges up to a maximum of 0.80% and 0.10%,
respectively, of the average net assets of Fund UL on an annual basis, are
allowed for mortality and expense risks and administrative expenses assumed by
The Travelers. For Price I contracts (all InVest Contracts, MarketLife Contracts
issued prior to July 12, 1995, and MarketLife Contracts issued on or after July
12, 1995 where state approval for Enhanced MarketLife had not yet been
received), the insurance charges were 0.60% and the administrative charges were
waived by The Travelers for the year ended December 31, 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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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> 177
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> 178
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> 179
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> 180
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> 181
\ 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> 182
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> 183
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> 184
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> 185
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> 186
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> 187
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 $49,440
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 188
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ 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> 189
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> 190
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> 191
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> 192
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> 193
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> 194
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> 195
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> 196
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> 197
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 $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-13
<PAGE> 198
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ 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> 199
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> 200
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> 201
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> 202
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> 203
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> 204
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> 205
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> 206
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> 207
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 $207 million, by an affiliate.
Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-23
<PAGE> 208
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. FEDERAL INCOME TAXES
($ 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 $8 million, respectively.
F-24
<PAGE> 209
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1998 and 1997 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ 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> 210
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 $65
----------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 211
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
($ 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
$5.1 billion at December 31, 1998 and 1997, respectively.
F-27
<PAGE> 212
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 GROSS GROSS
($ 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 $21,511
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE> 213
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1998, by
contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
($ 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 $1.9 billion of GNMA, FNMA or
FHLMC mortgage-backed pass-through securities at December 31, 1998 and 1997,
respectively. Virtually all of these securities are rated AAA.
F-29
<PAGE> 214
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR
($ 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 $3,003
====================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.
F-30
<PAGE> 215
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ 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> 216
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> 217
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 $4.4
billion of liabilities are surrenderable without charge. More than 14.2% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-33
<PAGE> 218
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ 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> 219
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 $56,548
</TABLE>
F-35
<PAGE> 220
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1997 ($ 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 $42,973
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures for
additions to long-lived assets other than financial instruments, long-term
customer relationships of a financial institution, mortgage and other servicing
rights, deferred policy acquisition costs, and deferred tax assets, were not
material.
F-36
<PAGE> 221
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
($ 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> 222
IN-VEST
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
HARTFORD, CONNECTICUT
L-11166 May, 1999
<PAGE> 223
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.
UNDERTAKING TO REPRESENT REASONABLENESS OF CHARGES
The Company hereby represents that the aggregate charges under the Policy of the
Registrant described herein are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Company.
<PAGE> 224
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
1. The facing sheet.
2.a The MarketLife Prospectus.
2.b The In-Vest Prospectus.
3. The undertaking to file reports.
4. The signatures.
ATTACHMENTS:
A Consent of Katherine M. Sullivan, General Counsel, to filing of her
opinion as an exhibit to this Registration Statement and to the
reference to her opinion under the caption "Legal Proceedings and
Opinion" in the Prospectus. (See Exhibit 12 below.)
B. Consent and Actuarial Opinion pertaining to the illustrations
contained in the prospectus.
C. Consent of KPMG LLP, Independent Certified Public Accountants.
D. Powers of Attorney. (See Exhibit 15 below.)
EXHIBITS
Copies of all exhibits which are required by Section IX, Paragraph A, of Form
N-8B-2:
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1. Resolution of the Board of Directors of The Travelers Insurance
Company authorizing the establishment of the Registrant.
(Incorporated herein by reference to Exhibit No. 1 to Post-Effective
Amendment No. 17 to the Registration Statement on Form S-6 filed
April 29, 1996.)
3(a). Distribution and Principal Underwriting Agreement among the
Registrant, The Travelers Insurance Company and CFBDS, Inc.
(Incorporated herein by reference to Exhibit 3(a) to Pre-Effective
Amendment No. 1 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 Pre-Effective Amendment No. 1 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.
(Incorporated herein by reference to Exhibit 3(c) to Post-Effective
Amendment No. 18 to the Registration Statement on Form S-6 filed
April 25, 1997.)
4. None
5. Form of Variable Universal Life Insurance Contracts. (Incorporated
herein by reference to Exhibit No. 5 to Post-Effective Amendment No.
17 to the Registration Statement on Form S-6 filed April 29, 1996.)
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<PAGE> 225
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<S> <C>
6(a). Charter of The Travelers Insurance Company, as amended on October 19,
1994. (Incorporated herein by reference to Exhibit 3(a)(i) to the
Registration Statement filed on Form S-2, File No. 33-58677, filed
via Edgar on April 18, 1995.)
6(b). By-Laws of The Travelers Insurance Company, as amended on October 20,
1994. (Incorporated herein by reference to Exhibit 3(b)(i) to the
Registration Statement filed on Form S-2, File No. 33-58677, filed
via Edgar on April 18, 1995.)
7. None
8. 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.
(Incorporated herein by reference to Exhibit 10 to Post-Effective
Amendment No. 19 to the Registration Statement on Form S-6 filed
April 24, 1998.)
11. Specimen of each security being registered. (See Exhibit 5. above.)
12. Opinion of counsel as to the legality of the securities being
registered. (Incorporated herein by reference to Exhibit 12 to
Post-Effective Amendment No. 19 to the Registration Statement on Form
S-6 filed April 24, 1998.)
13. Actuarial Memorandum Concerning Transfer and Redemption Procedures,
as required by Rule 6e-3(T)(b)(12)(ii). (Incorporated herein by
reference to Exhibit 13 to Post-Effective Amendment No. 17 to the
Registration Statement on Form S-6 filed April 29, 1996.)
15(a). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as
signatory for Robert I. Lipp, Charles O. Prince, III, Marc P. Weill,
Irwin R. Ettinger, Michael A. Carpenter and Donald T. DeCarlo.
(Incorporated herein by reference to Exhibit 15(a) to Post-Effective
Amendment No. 15 to the Registration Statement on Form S-6, filed
April 28, 1995.)
15(b). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for Michael A. Carpenter, Jay S. Benet, George C.
Kokulis, Ian R. Stuart and Katherine M. Sullivan. (Incorporated
herein by reference to Exhibit 15(b) to Post-Effective No. 18 to the
Registration Statement on Form S-6 filed April 25, 1997.)
15(c). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for J. Eric Daniels and Jay S. Benet.
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<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, The
Travelers Fund UL for Variable Life Insurance, certifies that it meets all of
the requirements for effectiveness of this post-effective amendment to this
registration statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to this registration statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Hartford, State of Connecticut, on April 26, 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 26th day of April 1999.
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*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 Accounting Officer and Controller
(Jay S. Benet)
*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
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<PAGE> 227
EXHIBIT INDEX
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ATTACHMENT or EXHIBIT Method of Filing
- --------------------- ----------------
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ATTACHMENTS
B. Consent and Actuarial Opinion pertaining to the Electronically
illustrations contained in the prospectus.
C Consent of KPMG LLP, Independent Certified Public Accountants Electronically
Exhibits
15(c). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. Electronically
McGah as signatory for J. Eric Daniels and Jay S. Benet.
</TABLE>
<PAGE> 1
ATTACHMENT B
Re: Travelers' MarketLife and Invest (File No. 2-88637)
Dear Sir or Madam:
In my capacity as Actuary of The Travelers Insurance Company, I have provided
actuarial advice concerning Travelers' MarketLife and InVest Life products. I
also provided actuarial advice concerning the preparation of the Registration
Statement on Form S-6, File No. 2-88637 (the "Registration Statement") for
filing with the Securities and Exchange Commission under the Securities Act of
1933 in connection with the Policy.
In my opinion the illustrations of benefits under the Policies included in the
prospectus under the caption "Illustrations of Death Benefit, Cash Values and
Cash Surrender Values" are, based on the assumptions stated in the
illustrations, consistent with the provisions of the Policies. Also, in my
opinion the age selected in the illustrations is representative of the manner in
which the Policies operate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/Mahir Dugentas, ASA, MAAA
Pricing Actuary
Product Development
April 20, 1999
<PAGE> 1
ATTACHMENT C
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Insurance Company
We consent to the use of our reports included herein and to the reference to our
firm as experts under the heading "Independent Accountants" in the prospectus.
KPMG LLP
Hartford, Connecticut
April 26, 1999
<PAGE> 1
EXHIBIT 15(c)
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, J. ERIC DANIELS of Farmington, Connecticut, Director, President
and Chief Executive Officer of The Travelers Insurance Company (hereafter the
"Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary
of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said Company, or
either one of them acting alone, my true and lawful attorney-in-fact, for me,
and in my name, place and stead, to sign registration statements on behalf of
said Company on Form S-6 or other appropriate form under the Securities Act of
1933 for The Travelers Fund UL for Variable Life Insurance, a separate account
of the Company dedicated specifically to the funding of variable life insurance
contracts to be offered by said Company, and further, to sign any and all
amendments thereto, including post-effective amendments, that may be filed by
the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January 1999.
/s/ J. Eric Daniels
Director, President and Chief Executive Officer
The Travelers Insurance Company
<PAGE> 2
THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, JAY S. BENET of West Hartford, Connecticut, Director, Senior
Vice President and Chief Financial Officer, Chief Accounting Officer and
Controller of The Travelers Insurance Company (hereafter the "Company"), do
hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company,
and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of
them acting alone, my true and lawful attorney-in-fact, for me, and in my name,
place and stead, to sign registration statements on behalf of said Company on
Form S-6 or other appropriate form under the Securities Act of 1933 for The
Travelers Fund UL for Variable Life Insurance, a separate account of the Company
dedicated specifically to the funding of variable life insurance contracts to be
offered by said Company, and further, to sign any and all amendments thereto,
including post-effective amendments, that may be filed by the Company on behalf
of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January 1999.
/s/ Jay S. Benet
Director, Senior Vice President
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Insurance Company
