<PAGE> 1
Registration No. 33-88576
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 5
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 VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
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, 2000 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 PROSPECTUS
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover page
2 Cover page
3 Safekeeping of the Separate Account's Assets
4 Distribution of the Policy
5 The Separate Account
6 The Separate Account
7 Not applicable
8 Not applicable
9 Legal Proceedings and Opinion
10 Prospectus Summary; The Insurance Company; The Separate Account;
The Investment Options; The Policy; Transfers of Cash Value; Policy
Surrenders and Cash Surrender Value; Voting Rights; Dividends
11 The Separate Account; The Investment Options
12 The Investment Options
13 Charges and Deductions; Distribution of the Policies
14 The Policy
15 The Policy
16 The Separate Account; The Investment Options; Allocation of Premium Payments
17 Prospectus Summary; Right to Cancel Period; Policy Surrenders and Cash
Surrender Value; Policy Loans; Exchange Rights
18 The Investment Options; Charges and Deductions; Federal Tax Considerations
19 Reports to Policy Owners
20 The Insurance Company
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 Distribution of the Policy
36 Not applicable
37 Not applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
41 Distribution of the Policy
42 Not applicable
43 Not applicable
44 Valuation of the Separate Account
45 Not applicable
46 The Policy; Valuation of the Separate Account; Transfers of Cash Value;
Policy Surrenders and Cash Surrender Value
47 The Separate Account; The Investment Options
48 The Insurance Company
49 Safekeeping of the Separate Account's Assets
50 Not applicable
51 Prospectus Summary; The Insurance Company; The Policy; Death Benefits;
Policy Lapse and Reinstatement
52 The Separate Account; The Investment Options; Investment Managers
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
VINTAGELIFE
INDIVIDUAL VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C>
THE TRAVELERS INSURANCE COMPANY PROSPECTUSES
CONTRACT PROSPECTUS
TRAVELERS SERIES TRUST MAY 1, 2000
</TABLE>
<PAGE> 5
PROSPECTUS
This Prospectus describes VintageLife, a modified single premium individual
variable life insurance policy (the "Policy") offered by The Travelers Insurance
Company (the "Company") and funded by The Travelers Variable Life Insurance
Separate Account Three ("Separate Account Three"). Separate Account Three
invests in certain mutual funds that are referred to in this Prospectus as
"Investment Options." Although the Policy can operate as a single premium
policy, additional premium payments may be made under certain circumstances
provided there are no outstanding policy loans. The minimum Initial Premium
required to issue a Policy is $25,000.
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 law 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 the 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, and loan interest due but not paid in cash subject to the Grace
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.
Because the Policy is designed to operate generally as a single premium policy,
in all but very limited circumstances the Policy will be treated as a modified
endowment contract for federal income tax purposes. 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 PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE LIFE INSURANCE POLICIES ARE NOT DEPOSITS 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, 2000.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary Of Special Terms.................. 3
Prospectus Summary......................... 5
General Description........................ 10
How The Policy Works....................... 10
Payments Made Under the Policy......... 10
Applying Premium Payments.............. 11
The Investment Options..................... 12
Policy Benefits and Rights................. 14
Transfers of Cash Value.................. 14
Telephone Transfers...................... 14
Automated Transfers...................... 14
Lapse and Reinstatement.................. 14
Exchange Rights.......................... 15
Right to Cancel.......................... 15
Access to Cash Values...................... 15
Policy Loans........................... 15
Cash Value and Cash Surrender Value.... 16
Death Benefit.............................. 17
Payment of Proceeds.................... 18
Payment Options........................ 19
Maturity Benefits.......................... 19
Maturity Extension Rider................. 19
Charges and Deductions..................... 20
Monthly Deduction Amount................... 20
Cost of Insurance Charge............... 20
State Premium Tax Charges.............. 20
Charges for Supplemental Benefit
Provisions........................... 21
Charges Against the Separate Account..... 21
Mortality and Expense Risk Charge...... 21
Administrative Expense Charge.......... 21
Underlying Fund Fees..................... 21
Surrender Charges........................ 21
Partial Surrenders..................... 21
Free Withdrawal Allowance.............. 22
Transfer Charge.......................... 22
Reduction or Elimination of Charges...... 22
The Separate Account and Valuation......... 22
The Travelers Variable Life Insurance
Separate Account Three................. 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.............................. 24
Misstatement as to Sex and Age........... 25
Voting Rights............................ 25
Disregard of Voting Instructions......... 25
Other Matters.............................. 25
Statements to Policy Owners.............. 25
Suspension of Valuation.................. 26
Dividends................................ 26
Mixed and Shared Funding................. 26
Distribution............................. 26
Legal Proceedings and Opinion............ 26
Experts.................................. 27
Federal Tax Considerations................. 27
General.................................. 27
Tax Status of the Policy................. 27
Definition of Life Insurance........... 27
Diversification........................ 28
Investor Control....................... 28
Tax Treatment of Policy Benefits......... 28
In General............................. 28
Modified Endowment Contracts........... 29
Exchanges.............................. 30
Aggregation of Modified Endowment
Contracts............................ 30
Policies which are not Modified
Endowment Contracts.................. 30
Treatment of Loan Interest............. 30
The Company's Income Taxes............. 30
The Company................................ 31
IMSA..................................... 31
Management................................. 31
Directors of The Travelers Insurance
Company................................ 31
Senior Officers of The Travelers
Insurance Company...................... 32
Illustrations.............................. 33
Appendix A-Performance Information......... 39
Appendix B-Representative Stated Amounts... 41
Financial Statements of the Separate
Account..................................
Financial Statements of the 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.
AVERAGE NET GROWTH RATE -- an annual measurement of growth, used to determine
the next year's mortality and expense risk charge. For each Policy Owner, the
rate is determined each Policy Year as follows: total daily earnings of the
Investment Option(s) you select, divided by the average amount you allocated
during the Policy Year. The daily earnings are measured using the net asset
value per share of the Investment Options.
BENEFICIARY(IES) -- the person(s) named to receive the Death Benefit following
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.
COVERAGE AMOUNT -- an amount equal to the Death Benefit minus the Cash Value.
DEATH BENEFIT -- the amount payable to the Beneficiary if the Insured dies while
the Policy is in force.
DEDUCTION DATE -- the day in each Policy Month on which the Monthly Deduction
Amount is deducted from the Policy's Cash Value.
GRACE PERIOD -- the period during which the Policy remains in force after the
Company has given notice to the Policy Owner that the Cash Surrender Value of
the Policy is insufficient to pay the Monthly Deduction Amount due or loan
interest due but not paid in cash.
INITIAL PREMIUM -- the Premium Payment made in connection with the issuance of a
Policy.
INSURED -- the person on whose life the Policy is issued.
INVESTMENT OPTIONS -- the open-end management investment companies or portfolios
thereof to which you may allocate premiums and Cash Value under Separate Account
Three.
ISSUE DATE -- the date on which a new Policy is issued by the Company for
delivery to the Policy Owner. Policies which replace existing company contracts
will maintain the issue date of the original policy.
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.
LOAN ACCOUNT VALUE -- the amount of any policy loan, plus capitalized loan
interest, plus the net rate of return credited to the Loan Account.
MATURITY DATE -- the anniversary of the Policy Date on which the Insured is age
100.
MINIMUM AMOUNT INSURED -- a percentage of Cash Value required to qualify this
Policy as life insurance under federal tax law.
MONTHLY DEDUCTION AMOUNT -- a monthly charge, deducted from the Policy's Cash
Value, which is comprised of the Cost of Insurance charge, the deduction for
premium tax, any administrative charge, and any charge for supplemental
benefits.
POLICY DATE -- the date on which the Policy becomes effective, which date is
used to determine all future cyclical transactions under the Policy (i.e.,
Deduction Dates, Policy Months, Policy Years).
POLICY MONTH -- monthly periods computed from the Policy Date.
POLICY OWNER (YOU, YOUR OR OWNER) -- the person(s) having rights to benefits
under the Policy during the lifetime of the Insured; the Policy Owner may or may
not be the Insured.
3
<PAGE> 8
POLICY YEARS -- annual periods computed from the Policy Date.
SEPARATE ACCOUNT THREE -- The Travelers Variable Life Insurance Separate Account
Three, a separate account established by The Travelers Insurance Company for the
purpose of funding this Policy.
STATED AMOUNT -- the amount used to determine the Death Benefit under the
Policy.
UNDERLYING FUND -- the underlying mutual fund(s) that correspond to each
Investment Option. Each Investment Option invests directly in an Underlying
Fund.
VALUATION DATE -- a day on which Accumulation Units are 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 4:00 p.m. Eastern time.
VALUATION PERIOD -- the period between the close of business on successive
Valuation Dates.
4
<PAGE> 9
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
WHAT IS VARIABLE LIFE INSURANCE?
The modified single premium individual variable 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.
The Policy has a Death Benefit, Cash Surrender Value and other features
traditionally associated with a fixed benefit whole life insurance policy. The
Policy is "variable" because unlike the fixed benefits of an ordinary whole life
insurance contract, the Cash Value and, under certain circumstances, the Death
Benefit of the Policy may increase or decrease depending on the investment
experience of the Investment Options to which the premium payment(s) and cash
value have been allocated. The Cash Value will also vary to reflect partial cash
surrenders and Monthly Deduction Amounts. In accordance with the Continuation of
Insurance provision of the Policy, the Policy will remain in effect until the
Cash Surrender Value is insufficient to cover the Monthly Deduction Amount and
loan interest due but not paid. There is no minimum guaranteed Cash Value or
Cash Surrender Value and the Policy Owner bears the investment risk associated
with an investment in the Investment Options. (See "Valuation of the Separate
Account.")
SUMMARY OF VINTAGELIFE FEATURES
INVESTMENT OPTIONS: The Policy is funded by The Travelers Variable Life
Insurance Separate Account Three ("Separate Account Three"), a registered unit
investment trust separate account established by The Travelers Insurance Company
(the "Company"). A Policy Owner allocates premium payments to one or more of the
Investment Options available to Separate Account Three. 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. The following
Investment Options are currently available under the Policy:
GREENWICH STREET SERIES FUND
Total Return Portfolio
SMITH BARNEY CONCERT ALLOCATION SERIES, INC.
Concert Select Balanced Portfolio
Concert Select Conservative Portfolio
Concert Select Growth Portfolio
Concert Select High Growth Portfolio
Concert Select Income Portfolio
TRAVELERS SERIES FUND INC.
AIM Capital Appreciation Portfolio
Alliance Growth Portfolio
MFS Total Return Portfolio
Putnam Diversified Income Portfolio
Smith Barney High Income Portfolio
Smith Barney International Equity Portfolio
Smith Barney Large Cap Value Portfolio
Smith Barney Money Market Portfolio
The Travelers Managed Income Portfolio
Van Kampen Enterprise Portfolio
TRAVELERS SERIES TRUST
MFS Emerging Growth Portfolio
Zero Coupon Bond Portfolio 2000
Zero Coupon Bond Portfolio 2005
Additional Portfolios may be added from time to time. For more information see
"The Investment Options." Refer to each Investment Option's prospectus for a
complete description of the investment objectives, restrictions and other
material information.
PREMIUMS: The minimum Initial Premium is $25,000. Although the Policy can
operate as a single premium policy, you can make additional payments under
certain circumstances, provided there
5
<PAGE> 10
are no outstanding policy loans. If there are any outstanding loans, any payment
received will be treated first as a repayment of the loan rather than an
additional premium payment. (See "Additional Premium Payments.") No premiums can
be accepted if they would disqualify the Policy as life insurance under federal
tax law.
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.
After the Policy Date and until the applicant's right to cancel has expired, the
Initial Premium will be allocated to the Smith Barney Money Market Portfolio.
After the expiration of the Right to Cancel Period, the cash value will be
distributed to each Investment Options 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.
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, VintageLife 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, subject to state approval. The Company will charge
interest on the outstanding amounts of the loan, which interest must be
paid by you in advance.
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.
GRACE PERIOD: If the Cash Surrender Value of your Policy becomes less than the
amount needed to pay the Monthly Deduction Amount due or loan interest due but
not paid in cash, 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. In most cases, the Policy
will be 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. Policies which are not MECs receive preferential tax
treatment with respect to certain distributions.
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:
- MONTHLY DEDUCTION -- deductions taken from the value of your Policy each
month to cover cost of insurance charges, the deduction for premium tax
and any 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 9 years and for 9
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 0.90%.
This rate is reduced to 0.75% for the current policy year if the Average
Net Growth Rate is 6.5% or greater during the previous policy year.
- ADMINISTRATIVE EXPENSE CHARGE -- applies to the assets of the Investment
Options on a daily basis which equals an annual rate of 0.40%.
- 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.
These fees are shown below as a percentage of average daily net assets of
each Investment Option as of December 31,1999 unless noted otherwise.
7
<PAGE> 12
VINTAGELIFE
2000 FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT OTHER TOTAL
FUND NAME FEE EXPENSES EXPENSES
- ------------------------------------------------------------ ---- ---- -----
GREENWICH STREET SERIES FUND:
- ----------------------------------------------------------------------------------------------
Total Return Portfolio 0.75% 0.04% 0.79%
- ----------------------------------------------------------------------------------------------
SMITH BARNEY CONCERT ALLOCATION SERIES, INC.:
- ----------------------------------------------------------------------------------------------
Select Balanced Portfolio(1) 0.35% 0.76% 1.11%
- ----------------------------------------------------------------------------------------------
Select Conservative Portfolio(1) 0.35% 0.72% 1.07%
- ----------------------------------------------------------------------------------------------
Select Growth Portfolio(1) 0.35% 0.88% 1.23%
- ----------------------------------------------------------------------------------------------
Select High Growth Portfolio(1) 0.35% 0.89% 1.24%
- ----------------------------------------------------------------------------------------------
Select Income Portfolio(1) 0.35% 0.67% 1.02%
- ----------------------------------------------------------------------------------------------
TRAVELERS SERIES FUND INC.:
- ----------------------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio(2) 0.80% 0.04% 0.84%
- ----------------------------------------------------------------------------------------------
Alliance Growth Portfolio(2) 0.80% 0.02% 0.82%
- ----------------------------------------------------------------------------------------------
MFS Total Return Portfolio(2) 0.80% 0.04% 0.84%
- ----------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio(2) 0.75% 0.08% 0.83%
- ----------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio(2) 0.60% 0.06% 0.66%
- ----------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio(2) 0.90% 0.10% 1.00%
- ----------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio(2) 0.65% 0.02% 0.67%
- ----------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio(2) 0.50% 0.04% 0.54%
- ----------------------------------------------------------------------------------------------
Travelers Managed Income Portfolio(2) 0.65% 0.11% 0.76%
- ----------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio(2) 0.70% 0.03% 0.73%
- ----------------------------------------------------------------------------------------------
TRAVELERS SERIES TRUST:
- ----------------------------------------------------------------------------------------------
MFS Emerging Growth Portfolio 0.75% 0.12% 0.87%
- ----------------------------------------------------------------------------------------------
Zero Coupon Bond Fund Portfolio (Series 2000) 0.10% 0.05% 0.15%
- ----------------------------------------------------------------------------------------------
Zero Coupon Bond Fund Portfolio (Series 2005) 0.10% 0.05% 0.15%
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Each Portfolio of the Smith Barney Concert Select Series (a "fund of funds")
invests in the shares of other mutual funds. The Management Fee for each
portfolio is 0.35%, and they have no direct expenses. The "Other Expenses"
figure reflects an indirect charge of the expenses of the underlying funds;
it is a weighted average of the expense ratios for the underlying funds in
which each portfolio is expected to be invested during the current fiscal
year. See the Fund prospectus (regarding Y shares) for information on the
equity/fixed income (including money market) investment target and range for
each portfolio, and for the expense ratios for the underlying funds. Such
ratios range from 0.45% to 3.22%.
(2) Expenses are as of October 31, 1999 (the Fund's fiscal year end). There were
no fees waived or expenses reimbursed for these funds in 1999.
(3) The Portfolio Management Fee for the Appreciation Portfolio, the Total
Return, and the Diversified Strategic Income Portfolio includes 0.20% for
fund administration.
8
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[THIS PAGE INTENTIONALLY LEFT BLANK.]
9
<PAGE> 14
GENERAL DESCRIPTION
- --------------------------------------------------------------------------------
This prospectus describes a modified single premium individual variable life
insurance Policy offered by The Travelers Insurance Company ("Company"). The
policy offers:
- 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
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 initial premium you plan to pay; minimum of $25,000
- 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 one premium payment and direct it to one or more of the available
investment options. (Under certain circumstances, you may be allowed to make
additional purchase payments). 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.
If your Policy is in effect when the Insured dies, we will pay your beneficiary
the death benefit (less any outstanding loan account balance and any monthly
deduction amount due but not paid). Your Policy will stay in effect as long as
the Policy's cash surrender value can pay the Policy's monthly charges and any
loan interest due but not paid in cash.
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). The Issue
Date may be less than the Policy Date if the Issue Date was adjusted for
contestability purposed on an internal coverage replacement. During the
underwriting period, any premium paid will be held in a non-interest bearing
account.
PAYMENTS MADE UNDER THE POLICY
INITIAL PREMIUM. The Initial Premium is due on or before the Policy Date and is
payable in full at the Company's Home Office. The Initial Premium is the
guideline single premium for the life insurance coverage provided under the
Policy, as determined in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"). The minimum Initial Premium is $25,000. Additional Premium
Payments may be made under the Policy, as described below. However, if there are
any outstanding policy loans, any payment received will be treated first as
repayment of loans rather than as an additional Premium Payment.
10
<PAGE> 15
The Initial Premium purchases a Death Benefit equal to the Policy's Stated
Amount (if Option 1 is selected), or to the Policy's Stated Amount plus the Cash
Value (if Option 2 is selected). The relationship between the Initial Premium
and the Stated Amount depends on the age, sex (where permitted by state law) and
risk class of the Insured. Generally, the same Initial Premium will purchase a
higher Stated Amount for a younger insured than for an older insured. Likewise,
the same Initial Premium will purchase a slightly higher Stated Amount for a
female insured than for a male insured of the same age. Also, the same Initial
Premium will purchase a higher Stated Amount for a standard Insured than for a
substandard Insured. Representative Stated Amounts per dollar of Initial Premium
are set forth in Appendix B.
ADDITIONAL PREMIUM PAYMENTS. The circumstances under which additional Premium
Payments can be made under the Policy are as follows:
1. INCREASES IN STATED AMOUNT -- You may request an increase in Stated
Amount at any time. If your request is approved, the Company will
require you to make an additional Premium Payment in order for an
increase in Stated Amount to become effective. The minimum additional
Premium Payment permitted by the Company in connection with an increase
in Stated Amount is $1,000. (See "Changes in Stated Amount.")
2. TO PREVENT LAPSE -- If the Cash Surrender Value on any Deduction Day is
insufficient to cover the Monthly Deduction Amount or loan interest due
but not paid, then you must make an additional Premium Payment during
the Grace Period sufficient to cover the Monthly Deduction Amount and
loan interest due in order to prevent lapse. The minimum amount of any
payment that may be required to be made in this circumstance will be
stated in the notice mailed to you in accordance with the Policy;
payments in excess of the amount required to prevent lapse will be
considered a payment "at your discretion" and consequently subject to
the rules described below. If you do not make a sufficient payment, the
Policy will lapse and terminate without value. (See "Lapse and
Reinstatement.")
3. AT YOUR DISCRETION -- Additional Premium Payments may be made at your
discretion so long as the payment plus the total of all premiums
previously paid does not exceed the maximum premium limitation derived
from the guideline premium test for life insurance prescribed by the
Code. Because of the test, the maximum premium limitation will
ordinarily equal the Initial Premium for a number of years after the
Policy has been issued. Therefore, discretionary additional Premium
Payments normally will not be permitted during the early years of the
Policy. Discretionary additional Premium Payments must be at least $250,
and may not be paid on or after the Maturity Date.
Any Additional Premium Payments made under the Policy may be subject to new
evidence of insurability. Payments received in excess of any Loan Account Value
will be treated as an additional Premium Payment.
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 Smith Barney Money Market 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.
11
<PAGE> 16
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. In addition,
Travelers has entered into agreements with either the investment adviser or
distributor of certain of the underlying funds in which the adviser or
distributor pays us a fee for providing administrative services, which fee may
vary. The fee is ordinarily based upon an annual percentage of the average
aggregate net amount invested in the underlying funds on behalf of the Separate
Account.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GREENWICH STREET SERIES FUND
Total Return Portfolio An equity portfolio that seeks to provide SSB Citi LLC ("SSB Citi")
total return, consisting of long-term Fund Management
capital appreciation and income. The
Portfolio will invest primarily in a
diversified portfolio of dividend-paying
common stocks.
SMITH BARNEY CONCERT ALLOCATION
SERIES, INC.
Concert Select Balanced Seeks a balance of growth of capital and Travelers Investment Adviser
Portfolio income by investing in a select group of ("TIA")
mutual funds.
Concert Select Conservative Seeks income and, secondarily, long-term TIA
Portfolio growth of capital by investing in a select
group of mutual funds.
Concert Select Growth Seeks long-term growth of capital by TIA
Portfolio investing in a select group of mutual funds.
Concert Select High Growth Seeks capital appreciation by investing in a TIA
Portfolio select group of mutual funds.
Concert Select Income Seeks high current income by investing in a TIA
Portfolio select group of mutual funds.
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Seeks capital appreciation by investing TIA
Portfolio principally in common stock, with emphasis Subadviser: AIM Capital
on medium-sized and smaller emerging growth Management Inc.
companies.
Alliance Growth Portfolio Seeks long-term growth of capital by TIA
investing predominantly in equity securities Subadviser: Alliance Capital
of companies with a favorable outlook for Management L.P.
earnings and whose rate of growth is
expected to exceed that of the U.S. economy
over time. Current income is only an
incidental consideration.
MFS Total Return Portfolio Seeks to obtain above-average income TIA
(compared to a portfolio entirely invested Subadviser: MFS
in equity securities) consistent with the
prudent employment of capital. Generally, at
least 40% of the Portfolio's assets will be
invested in equity securities.
</TABLE>
12
<PAGE> 17
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
INVESTMENT OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS SERIES FUND, INC.
(CONT'D)
Putnam Diversified Income Seeks high current income consistent with TIA
Portfolio preservation of capital. The Portfolio will Subadviser:
allocate its investments among the U.S. Putnam Investment Management,
Government Sector, the High Yield Sector, Inc.
and the International Sector of the fixed
income securities markets.
Smith Barney High Income Seeks high current income. Capital SSB Citi
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 International Seeks total return on assets from growth of SSB Citi
Equity Portfolio capital and income by investing at least 65%
of its assets in a diversified portfolio of
equity securities of established non-U.S.
issuers.
Smith Barney Large Cap Value Seeks current income and long-term growth of SSB Citi
Portfolio income and capital by investing primarily,
but not exclusively, in common stocks.
Smith Barney Money Market Seeks maximum current income and SSB Citi
Portfolio preservation of capital by investing in high
quality, short-term money market
instruments. An investment in this fund is
neither insured nor guaranteed by the U.S.
Government, and there is no assurance that a
stable $1 value per share will be
maintained.
The Travelers Managed Income Seeks high current income consistent with TIA
Portfolio prudent risk of capital through investments
in corporate debt obligations, preferred
stocks, and obligations issued or guaranteed
by the U.S. Government or its agencies or
instrumentalities.
Enterprise Portfolio Seeks capital appreciation through SSB Citi
investment in securities believed to have Subadviser: Van Kampen Asset
above-average potential for capital Management, Inc
appreciation. Any income received on such
securities is incidental to the objective of
capital appreciation.
THE TRAVELERS SERIES TRUST
MFS Emerging Growth Portfolio Seeks long-term growth of capital. Dividend Travelers Asset Management
and interest income from portfolio International Company LLC
securities, if any, is incidental. ("TAMIC")
Subadviser: Massachusetts
Financial Services Company
("MFS")
MFS
Zero Coupon Bond Fund Seeks to provide as high an investment TAMIC
Portfolio (Series 2000 and return as consistent with the preservation
2005) 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>
13
<PAGE> 18
POLICY BENEFITS AND RIGHTS
- --------------------------------------------------------------------------------
TRANSFERS OF CASH VALUE
As long as the Policy remains in effect, you may make transfers of 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 also reserve
the right to restrict transfers by any market timing firm or any other third
party authorized to initiate transfers on behalf of multiple contract owners. We
may, among other things, not accept: (1) the transfer instructions of any agent
acting under a power of attorney on behalf of more than one owner, or (2) the
transfer or exchange instructions of individual owners who have executed
pre-authorized transfer forms which are submitted by market timing firms or
other third parties on behalf of more than one owner. We further reserve the
right to limit transfers that we determine will disadvantage other contract
owners.
The number of Accumulation Units credited to the investment option as a result
of the transfer will be determined by dividing the transferred amount by the
Accumulation Unit Value of that investment option. The Accumulation Unit Value
will be determined on the Valuation Date on which the Company receives the
written request for a transfer.
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 $5,000 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 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 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 "Grace
14
<PAGE> 19
Period"), the Policy may lapse. The amount shown will be enough to pay the
deduction amount due. The Policy will continue through the Grace Period, but if
no payment is received by us, it will terminate at the end of the Grace Period.
If the person Insured under the Policy dies during the Grace Period, the Death
Benefit payable will be reduced by the Monthly Deduction Amount due plus the
amount of any outstanding loan and unpaid loan interest. (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.
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 (See
"Surrender Charges"). Subject to state law, no loan requests may be made for
amounts of less than $500.
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. Loans made during the
first ten Policy Years will be made at a 2% net cost on principal, and a 1% net
cost on earnings. Loans made after the tenth Policy Year will be made at 2% net
cost on
15
<PAGE> 20
principal and 0% net cost on earnings. Additionally, loans may be taken at any
time at 0% net cost for the purchase of a Travelers long-term care policy, where
permitted by state law.
Loans will be taken from earnings first, and then from premium.
For these purposes, "earnings" represents any unloaned Cash Value, minus the
total premiums paid under the Policy. Loans taken against earnings will be
charged an interest rate of 4.75% during the first ten Policy Years, and 3.85%
for Policy Year 11 and thereafter. Loans taken against premium will be charged
an interest rate of 5.65% in all Policy Years. Amounts in the Loan Account will
be credited by the Company with a fixed annual rate of return of 4%, and will
not be affected by the investment performance of the Investment Options. The
rate of return credited to amounts held in the Loan Account will be transferred
back to the Investment Options on a pro rata basis after each Policy Year. The
Policy's "Loan Account Value" is equal to amounts transferred from the
Investment Options to the Loan Account when a loan is taken, plus capitalized
loan interest, plus the net rate of return credited to the Loan Account that has
not yet been transferred back to the Investment Options. Loan repayments reduce
the Loan Account Value, and increase the Cash Value in the Investment Options.
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 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
16
<PAGE> 21
"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
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 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>
17
<PAGE> 22
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).
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 Monthly Deductions Amount due but unpaid, 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
18
<PAGE> 23
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
- --------------------------------------------------------------------------------
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 99, 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 outstanding 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 Benefit 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 Benefit to assess any potential tax liability.
19
<PAGE> 24
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for services and benefits
we provide, costs and expenses we incur, and risks we assume under the Policies.
Services and benefits we provide include:
- the ability for you to make withdrawals and surrenders under the
Policies;
- the ability for you to obtain a loan under the Policies;
- the death benefit paid on the death of the Insured;
- the available funding options and related programs (including dollar-cost
averaging and portfolio rebalancing);
- administration of the various elective options available under the
Policies; and
- the distribution of various reports to policy owners.
Costs and expenses we incur include:
- expenses associated with underwriting applications, increases in the
stated amount, and riders;
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Policies;
- sales and marketing expenses including commission payments to your sales
agent; and
- other costs of doing business.
Risks we assume include:
- that insureds may live for a shorter period of time than estimated
resulting in the payment of greater death benefits than expected; and
- that the costs of providing the services and benefits under the Policies
will exceed the charges deducted.
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, deduction for premium tax and any Charges for Supplemental
Benefit Provisions. 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.
STATE PREMIUM TAX CHARGES
Premium tax charges are not deducted at the time that a premium is made,
although the Company does pay state premium taxes attributable to a particular
Policy when those taxes are incurred. To reimburse the Company for payment of
such taxes, during the first ten years following a premium payment made before
the 10th Policy Anniversary, a premium tax charge of 0.20% per year will apply.
Premium taxes vary from state to state and currently range from 0.75% to 3.5%.
Because
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there is a range of premium tax rates, you may pay premium tax charges in total
that are higher or lower than the premium tax actually assessed or not assessed
in your jurisdiction.
CHARGES FOR SUPPLEMENTAL BENEFIT PROVISIONS
If you elect any supplemental benefits for which there is a charge, the Company
will include a supplemental benefits charge in the Monthly Deduction Amount. 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 0.90%. The annual rate will be reduced to 0.75% for the current
Policy Year if the Average net Growth Rate is 6.5% or greater during the
previous Policy Year. This determination is made on an annual basis. This charge
compensates us for various risks assumed, benefits provided and expenses
incurred.
ADMINISTRATIVE EXPENSE CHARGE
We deduct a daily charge for administrative expenses incurred by us. The charge
is set at an annual rate of to 0.40% of the assets in the Investment Options.
UNDERLYING FUND FEES
Separate Account Three purchases shares of the 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 by each
of the Underlying Funds are described in the individual Fund prospectuses for
the Investment Options.
SURRENDER CHARGES
A percent of premium surrender charge will be imposed upon full surrenders of
the Policy that occur within nine (9) years after the Company has received any
Premium Payments under the Policy. For partial surrenders a percentage of amount
surrendered will be charged. This charge is intended to cover certain expenses
relating to the sale of the Policy, including commissions to registered
representatives and other promotional expenses. To the extent that the surrender
charges assessed under the Policy are less than the sales commissions paid with
respect to the Policy, the Company will pay the shortfall from its general
account assets, which will include any profits it may derive from charges
imposed under the Policy. (See also "Cash Value and Cash Surrender Value.")
Surrenders charges are determined as follows:
<TABLE>
<CAPTION>
YEARS SINCE FULL SURRENDERS PARTIAL SURRENDERS
PREMIUM PAYMENT MADE (% OF PREMIUM) (% OF AMOUNT SURRENDERED)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
up to 2 years 7.5% 7.5%
3 or 4 7% 7%
5 6.5% 6.5%
6 6% 6%
7 5% 5%
8 4% 4%
9 3% 3%
Year 10 and Thereafter 0% 0%
</TABLE>
PARTIAL SURRENDERS. The Company will impose a surrender charge equal to a
percentage of the amount surrendered for partial surrenders in excess of the
free withdrawal amount described below. The surrender charge will be limited so
that the total charge for partial surrenders will not exceed the charge that
would apply to a full surrender of the Policy.
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For purposes of determining the surrender charge percentage that will apply to a
partial surrender, surrender charges are calculated on a "last-in, first-out
basis." This means that any partial withdrawal in excess of the free withdrawal
amount will be taken against premiums in the reverse order in which they were
made, if more than one premium was paid under the Policy. Surrender charges will
be assessed only against that portion of the partial withdrawal taken from
premium payment(s).
FREE WITHDRAWAL ALLOWANCE. The Company will permit partial surrenders of the
Policy's earnings in an amount of up to 10% of the Policy's Cash Value each year
(beginning with the Second Policy Year) without the imposition of a surrender
charge. The amount of Cash Value available for free withdrawal will be
determined on the Policy Anniversary on or immediately prior to the date that
the partial surrender request is received. The amount of earnings available for
withdrawal will be determined on the date the request for such withdrawal is
received by the Company.
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, (twelve times for policies issued
in the state of New York), 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, 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
- --------------------------------------------------------------------------------
THE TRAVELERS VARIABLE LIFE INSURANCE SEPARATE ACCOUNT THREE (SEPARATE ACCOUNT
THREE)
The Travelers Variable Life Insurance Separate Account Three was established on
September 23, 1994 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 Separate Account Three are invested exclusively in shares of the
Investment Options. The operations of Separate Account Three 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 Separate Account Three will be held for the
exclusive benefit of Policy Owners and the persons entitled to payments under
the Policy. The assets held in Separate Account Three 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 and other distributions of the Investment Options are
payable to Separate Account Three. All such income and/or distributions are
reinvested in shares of the respective
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underlying fund at net asset value shares of the underlying funds are currently
sold only to life insurance company separate accounts to fund variable annuity
and variable life insurance contracts.
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
4:00 p.m. Eastern time 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 4:00 p.m. Eastern
time, and ending at 4:00 p.m. Eastern time 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
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: with proper
authorization on file, you can also make these changes by telephone)
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- 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 $25,000. 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 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 $25,000. A charge 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.
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 portion of the Death Benefit
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<PAGE> 29
attributable to the increase in the case of suicide will be limited to an amount
equal to the premium paid for such increase (subject to state law).
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;
- 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.
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<PAGE> 30
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 will be 6.50% of premiums.
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. However, it is anticipated that Travelers
Distribution LLC, an affiliated company, will become principal underwriter some
time in 2000.
LEGAL PROCEEDINGS AND OPINION
There are no pending legal proceedings affecting the Separate Account. There is
one material pending legal proceeding, other than ordinary routine litigation
incidental to business, to which the Company is a party.
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, on defendants' motion, the Superior Court of Richmond County
transferred the lawsuit to the Superior Court of Gwinnett County, Georgia.
Plaintiffs appealed the transfer order, and in December 1998 the Court of
Appeals of the State of Georgia reversed the lower court's decision. Defendants
petitioned the Georgia Supreme Court to hear an appeal from the decision of the
Court of Appeals, and the
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<PAGE> 31
petition was granted in May 1998. In September 1999, oral argument on
defendants' petition was heard and, on February 28, 2000, the Georgia Supreme
Court affirmed the Georgia County Appeals and remanded the matter to the
Superior Court of Richmond County. In March 2000, defendants moved the Georgia
Supreme Court to reconsider its February 28, 2000 decision, and that motion
remains pending. Proceedings in the trial court have been stayed pending appeal.
Defendants intend to vigorously contest the litigation.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the Policy described in this Prospectus and the organization
of the Company, its authority to issue the Policy under Connecticut law and the
validity of the forms of the Policy under Connecticut law have been passed on by
the General Counsel of the Company.
EXPERTS
The financial statements of Separate Account Three as of December 31, 1999 and
for the year ended December 31, 1999 have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, and 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, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999, 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
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<PAGE> 32
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.
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.
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<PAGE> 33
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 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.
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<PAGE> 34
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 on earnings after the 10th 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 Separate Account Three. However,
the Company may assess a charge against the Investment Options for federal
income taxes attributable to those accounts in the event that the
30
<PAGE> 35
Company incurs income or capital gains or other tax liability attributable to
Separate Account Three under future tax law.
THE COMPANY
- --------------------------------------------------------------------------------
The Travelers Insurance Company (the "Company") is a stock insurance company
which has been continuously engaged in the insurance business since its
incorporation in the state of Connecticut in 1864. The Company writes individual
life insurance and individual and group annuity contracts on a non-participating
basis, and acts as depositor for Separate Account Three. 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 Separate Account Three
may not be transferred without notice to and consent of Policy Owners.
The Company is an indirect wholly owned subsidiary of Citigroup Inc. 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 regulation 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.
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,
31
<PAGE> 36
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>
George C. Kokulis.......... 1996 President and Chief Executive Officer since April
2000,
Director Executive Vice President (7/1999 to 3/2000), Senior
Vice President (1995-1999), Vice President (1993-1995)
of The Travelers Insurance Company.
Katherine M. Sullivan...... 1996 Senior Vice President since May 1996 and General
Director Counsel from May 1996 to August 1999 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.
Marc P. Weill*............. 1994 Senior Vice President-Investments since 1993 and Chief
Director Investment Officer since 1995 of The Travelers
Insurance Company; 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.
</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
Jay S. Fishman....................... Senior Vice President
Barry Jacobson....................... Senior Vice President
Russell H. Johnson................... Senior Vice President
Glenn D. Lammey...................... Executive Vice President, Chief
Financial Officer, Chief Accounting
Officer and Controller
Marla Berman Lewitus................. Senior Vice President and General
Counsel
Brendan Lynch........................ Senior Vice President
Warren H. May........................ Senior Vice President
Kathleen A. Preston.................. Senior Vice President
Mary Jean Thornton................... Executive Vice President and
Chief Information Officer
David A. Tyson....................... Senior Vice President
F. Denney Voss....................... Senior Vice President
</TABLE>
Information relating to the management of the underlying funds is contained in
the applicable prospectuses.
32
<PAGE> 37
ILLUSTRATIONS
- --------------------------------------------------------------------------------
The following pages are intended to illustrate hypothetically how the Cash
Value, Cash Surrender Value and Death Benefit can change over time for Policies
issued to a 45-year old male. The difference between the Cash Value and the Cash
Surrender Value in these illustrations reflects the Surrender Charge that would
be incurred upon a full surrender of the Policy.
Two pages of values are shown for each Death Benefit Option (Level and
Variable). One page illustrates the assumption that the maximum Guaranteed Cost
of Insurance Rates allowable under the Policy are charged in all years. The
other page illustrates the assumption that the current scale of Cost of
Insurance Rates are charged in all years. The Cost of Insurance Rates charged
vary by age, sex (where permitted by state law) and underwriting classification.
The illustrations also reflect a monthly deduction of 0.016667% for the first
ten years following the Initial Premium for premium taxes.
The values shown in these illustrations vary according to assumptions used for
charges, and gross rates of investment returns. The charges consist of 0.90% for
mortality and expense risks, 0.40% for administrative expenses, and 0.81% for
Investment Option expenses. The 12% illustration will assume that the mortality
and expense risk charge has been reduced to 0.75% in the second policy year and
thereafter. 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 calandar year. After deduction of these
amounts, the illustrated gross annual investment rates of return of 0% and 6%
correspond to approximate net annual rates of -2.11% and 3.89%, respectively.
The illustrated gross annual investment rate of return of 12% corresponds to an
approximate net annual rate of return of 9.89% in the first Policy Year, and
10.04% thereafter. The actual charges under a Policy for expenses of the
Investment Options will depend on the actual allocation of Cash Value and may be
higher or lower than those illustrated.
As stated above, the examples illustrate values that would result based upon
hypothetical uniform gross investment rates of return of 0%, 6% and 12%. The
values would be different from those shown if the gross rates averaged 0%, 6%,
and 12% over a period of years, but fluctuated above and below those averages.
The illustrations also assume that premiums are paid as indicated, no policy
loans are made, no increases or decreases to the Stated Amount are requested, no
partial surrenders are made, and no charges for transfers between funds are
incurred.
The illustrations do not reflect any charges for federal income taxes against
Separate Account Three, since the Company is not currently deducting such
charges from Separate Account Three. 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, Cash Values and Cash Surrender Values
illustrated.
The second column of each Illustration shows the amount that would accumulate if
an amount equal to the Premium Payment was invested to earn interest (after
taxes) at 5%, compounded annually.
Upon request, the Company will provide a comparable personalized 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%.
33
<PAGE> 38
THIS PAGE INTENTIONALLY LEFT BLANK.
34
<PAGE> 39
VINTAGE LIFE
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
VARIABLE DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED COST OF INSURANCE CHARGES
Male, Issue Age 45 Face Amount: $106,918
Non-Smoker Single Premium: $25,000
<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 26,250 130,842 132,323 133,804 23,924 25,405 26,886 22,049 23,530 25,011
2 27,563 129,750 132,700 135,868 22,832 25,782 28,950 20,957 23,907 27,075
3 28,941 128,641 133,047 138,089 21,723 26,129 31,171 19,973 24,379 29,421
4 30,388 127,509 133,358 140,478 20,591 26,440 33,560 18,841 24,690 31,810
5 31,907 126,352 133,628 143,047 19,434 26,710 36,129 17,809 25,085 34,504
6 33,502 125,165 133,847 145,807 18,247 26,929 38,889 16,747 25,429 37,389
7 35,178 123,938 134,007 148,767 17,020 27,089 41,849 15,770 25,839 40,599
8 36,936 122,665 134,095 151,938 15,747 27,177 45,020 14,747 26,177 44,020
9 38,783 121,337 134,099 155,331 14,419 27,181 48,413 13,669 26,431 47,663
10 40,722 119,946 134,006 158,956 13,028 27,088 52,038 13,028 27,088 52,038
15 51,973 111,941 131,993 181,974 5,023 25,075 75,056 5,023 25,075 75,056
20 66,332 0 125,283 214,186 0 18,365 107,268 0 18,365 107,268
</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.
35
<PAGE> 40
VINTAGE LIFE
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT COST OF INSURANCE CHARGES
Male, Issue Age 45 Face Amount: $106,918
Non-Smoker Single Premium: $25,000
<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 26,250 106,918 106,918 106,918 24,189 25,681 27,172 22,314 23,806 25,297
2 27,563 106,918 106,918 106,918 23,376 26,369 29,582 21,501 24,494 27,707
3 28,941 106,918 106,918 106,918 22,557 27,064 32,217 20,807 25,314 30,467
4 30,388 106,918 106,918 106,918 21,733 27,765 35,100 19,983 26,015 33,350
5 31,907 106,918 106,918 106,918 20,899 28,471 38,255 19,274 26,846 36,630
6 33,502 106,918 106,918 106,918 20,052 29,179 41,710 18,552 27,679 40,210
7 35,178 106,918 106,918 106,918 19,189 29,887 45,495 17,939 28,637 44,245
8 36,936 106,918 106,918 106,918 18,304 30,589 49,644 17,304 29,589 48,644
9 38,783 106,918 106,918 106,918 17,399 31,291 54,201 16,649 30,541 53,451
10 40,722 106,918 106,918 106,918 16,464 31,981 59,205 16,464 31,981 59,205
15 51,973 106,918 106,918 125,742 11,510 35,729 93,837 11,510 35,729 93,837
20 66,332 106,918 106,918 182,084 5,040 38,944 149,250 5,040 38,944 149,250
</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.
36
<PAGE> 41
VINTAGE LIFE
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
LEVEL DEATH BENEFIT OPTION
ILLUSTRATED WITH GUARANTEED COST OF INSURANCE CHARGES
Male, Issue Age 45 Face Amount: $106,918
Non-Smoker Single Premium: $25,000
<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 26,250 106,918 106,918 106,918 24,039 25,527 27,015 22,164 23,652 25,140
2 27,563 106,918 106,918 106,918 23,064 26,044 29,243 21,189 24,169 27,368
3 28,941 106,918 106,918 106,918 22,072 26,548 31,670 20,322 24,798 29,920
4 30,388 106,918 106,918 106,918 21,060 27,038 34,314 19,310 25,288 32,564
5 31,907 106,918 106,918 106,918 20,024 27,509 37,200 18,399 25,884 35,575
6 33,502 106,918 106,918 106,918 18,958 27,957 40,350 17,458 26,457 38,850
7 35,178 106,918 106,918 106,918 17,854 28,373 43,790 16,604 27,123 42,540
8 36,936 106,918 106,918 106,918 16,705 28,752 47,552 15,705 27,752 46,552
9 38,783 106,918 106,918 106,918 15,500 29,083 51,669 14,750 28,333 50,919
10 40,722 106,918 106,918 106,918 14,231 29,360 56,182 14,231 29,360 56,182
15 51,973 106,918 106,918 117,267 6,752 29,976 87,513 6,752 29,976 87,513
20 66,332 0 106,918 167,851 0 27,552 137,583 0 27,552 137,583
</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.
37
<PAGE> 42
VINTAGE LIFE
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
VARIABLE DEATH BENEFIT OPTION
ILLUSTRATED WITH CURRENT COST OF INSURANCE CHARGES
Male, Issue Age 45 Face Amount: $106,918
Non-Smoker Single Premium: $25,000
<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 26,250 131,037 132,524 134,011 24,119 25,606 27,093 22,244 23,731 25,218
2 27,563 130,151 133,126 136,320 23,233 26,208 29,402 21,358 24,333 27,527
3 28,941 129,260 133,724 138,828 22,342 26,806 31,910 20,592 25,056 30,160
4 30,388 128,360 134,314 141,552 21,442 27,396 34,634 19,692 25,646 32,884
5 31,907 127,449 134,893 144,510 20,531 27,975 37,592 18,906 26,350 35,967
6 33,502 126,525 135,457 147,720 19,607 28,539 40,802 18,107 27,039 39,302
7 35,178 125,581 136,000 151,203 18,663 29,082 44,285 17,413 27,832 43,035
8 36,936 124,614 136,516 154,980 17,696 29,598 48,062 16,696 28,598 47,062
9 38,783 123,626 137,008 159,082 16,708 30,090 52,164 15,958 29,340 51,414
10 40,722 122,606 137,460 163,527 15,688 30,542 56,609 15,688 30,542 56,609
15 51,973 117,239 139,519 193,210 10,321 32,601 86,292 10,321 32,601 86,292
20 66,332 110,452 139,757 238,504 3,534 32,839 131,586 3,534 32,839 131,586
</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.
38
<PAGE> 43
APPENDIX A
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, Separate Account Three'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, determined by dividing the
increase (decrease) in value for that unit by the Accumulation Unit Value at the
beginning of the period. Separate Account Three commenced operations on
September 5, 1995. All Investment Options of Separate Account Three invest in
Investment Options that were in existence prior to the date on which the
Investment Options became available under the Policy. Average annual rates of
return include periods prior to the inception of the Investment Option, and are
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 Separate Account Three 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, as well as the
0.90% mortality and expense risk charge and the 0.40% administrative expense
charge assessed against the Investment Options. The rates of return do not
reflect surrender charges or Monthly Deduction Amounts (which are depicted in
the Example following the Rates of Return), nor do they reflect a reduction in
mortality and expense risk charges which may apply under certain circumstances.
For information about the Charges assessed under the Policy, see "Charges and
Deductions." For illustrations of how these charges affect Cash Values and Death
Benefits, see "Illustrations."
AVERAGE RATES OF RETURN (SINCE INCEPTION)
FOR PERIODS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FUND
INCEPTION
INVESTMENT OPTIONS 1 YEAR 3 YEARS DATE
------------------ ------ ------- ---------
<S> <C> <C> <C>
STOCK FUNDS:
AIM Capital Appreciation Portfolio.................. 41.18% 21.84% 10/10/95
Alliance Growth Portfolio........................... 30.59% 28.46% 06/20/94
Smith Barney Select Growth.......................... 14.64% -- 02/05/97
Smith Barney Select High Growth..................... 25.22% -- 02/05/97
MFS Emerging Growth Portfolio....................... 74.60% 40.46% 08/30/96
Smith Barney International Equity................... 65.67% 20.86% 06/20/94
Smith Barney Large Cap Value........................ -1.23% 10.22% 06/20/94
Smith Barney Total Return Portfolio................. 20.49% 12.93% 11/21/94
Van Kampen Enterprise Portfolio..................... 24.34% 24.94% 06/21/94
BOND FUNDS:
Smith Barney Select Conservative.................... 2.79% -- 02/05/97
Smith Barney Select Income.......................... -0.65% -- 02/05/97
Putnam Diversified Inc Portfolio.................... -0.20% 1.78% 06/20/94
Smith Barney High Income Portfolio.................. 1.27% 4.11% 06/22/94
Travelers Managed Income Portfolio.................. -0.42% 3.81% 06/28/94
Zero Coupon Bond Portfolio 2000..................... 1.98% 4.64% 10/11/95
Zero Coupon Bond Portfolio 2005..................... -6.64% 4.48% 10/11/95
BALANCED FUNDS:
Smith Barney Select Balanced........................ 6.18% -- 02/05/97
MFS Total Return Portfolio.......................... 1.31% 10.15% 06/20/94
MONEY MARKET FUND:
Smith Barney Money Market........................... 3.42% 3.62% 06/20/94
</TABLE>
39
<PAGE> 44
EXAMPLE OF POLICY CHARGES
- --------------------------------------------------------------------------------
The following chart illustrates the surrender charges and Monthly Deduction
Amounts (including the Cost of Insurance charges and the deduction for premium
tax) that would apply under a Policy based on the assumptions listed below.
Surrender charges and Monthly Deductions Amounts generally will be higher for an
Insured who is older than the assumed Insured, and lower for an Insured who is
younger (assuming the Insureds have the same risk classification). Cost of
insurance rates go up each year as the Insured becomes a year older.
<TABLE>
<S> <C>
Male, Issue Age 45, Non-Smoker Face Amount: $106,918
Annual Premium: $25,000.00 Variable Death Benefit Option
Hypothetical Gross Annual Investment Rate of Return: 10%* Current Charges
</TABLE>
<TABLE>
<CAPTION>
TOTAL MONTHLY DEDUCTION
FOR THE POLICY YEAR
SURRENDER CHARGE ---------------------------
POLICY CUMULATIVE AS % OF CUM. COST OF INSURANCE PREMIUM
YEAR PREMIUMS PREM. CHARGES TAX
- ------ ---------- ---------------- ----------------- -------
<S> <C> <C> <C> <C>
1 $25,000.00 7.5% $387.23 $51.10
2 $25,000.00 7.5% $413.35 $53.18
3 $25,000.00 7.0% $440.62 $55.32
5 $25,000.00 6.5% $500.53 $59.79
10 $25,000.00 0.0% $716.31 $65.87
</TABLE>
* Hypothetical investment results shown above are illustrative only and should
not be deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown. Hypothetical
investment results may be different from those shown if the actual rates of
return averaged 10%, but fluctuated above or below that average for individual
policy years. No representations can be made that the hypothetical rates
assumed can be achieved for any one year or sustained over any period of time.
40
<PAGE> 45
APPENDIX B
REPRESENTATIVE STATED AMOUNTS
- --------------------------------------------------------------------------------
The following table represents the Single Premium Factors for the determination
of the Stated Amount per dollar of Gross Premium, varying by Male and Female
(applicable to standard lives).
<TABLE>
<CAPTION>
MALE FEMALE
- ---------------------------- ----------------------------
AGE SP FAC AGE SP FAC AGE SP FAC AGE SP FAC
- --- -------- --- ------- --- -------- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
20 12.65742 51 3.32670 20 16.15463 51 4.13678
21 12.20773 52 3.19482 21 15.48558 52 3.97060
22 11.76323 53 3.06987 22 14.83810 53 3.81237
23 11.32222 54 2.95167 23 14.21155 54 3.66170
24 10.88482 55 2.83985 24 13.60662 55 3.51803
25 10.45123 56 2.73405 25 13.02272 56 3.38078
26 10.02300 57 2.63380 26 12.45932 57 3.24928
27 9.60257 58 2.53865 27 11.91653 58 3.12290
28 9.19198 59 2.44827 28 11.39430 59 3.00125
29 8.79287 60 2.36238 29 10.89240 60 2.88420
30 8.40647 61 2.28087 30 10.41067 61 2.77188
31 8.03383 62 2.20360 31 9.94865 62 2.66457
32 7.67547 63 2.13053 32 9.50535 63 2.56258
33 7.33157 64 2.06153 33 9.08002 64 2.46607
34 7.00238 65 1.99645 34 8.67288 65 2.37482
35 6.68772 66 1.93500 35 8.28367 66 2.28843
36 6.38750 67 1.87688 36 7.91217 67 2.20637
37 6.10155 68 1.82180 37 7.55883 68 2.12805
38 5.82963 69 1.76950 38 7.22327 69 2.05307
39 5.57132 70 1.71990 39 6.90517 70 1.98132
40 5.32610 71 1.67297 40 6.60400 71 1.91287
41 5.09358 72 1.62875 41 6.31898 72 1.84795
42 4.87303 73 1.58733 42 6.04912 73 1.78683
43 4.66378 74 1.54873 43 5.79305 74 1.72965
44 4.46520 75 1.51285 44 5.54958 75 1.67632
45 4.27672 76 1.47945 45 5.31792 76 1.62663
46 4.09775 77 1.44823 46 5.09715 77 1.58023
47 3.92765 78 1.41890 47 4.88652 78 1.53675
48 3.76588 79 1.39115 48 4.68553 79 1.49587
49 3.61205 80 1.36485 49 4.49387 80 1.45742
50 2.46573 50 4.31108
</TABLE>
41
<PAGE> 46
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<PAGE> 47
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<PAGE> 48
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 49
VINTAGELIFE
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
INDIVIDUAL VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
THE TRAVELERS INSURANCE COMPANY HARTFORD, CONNECTICUT
L-12430 May, 2000
<PAGE> 50
ANNUAL REPORT
DECEMBER 31, 1999
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 51
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C>
Investments in eligible funds at market value:
Greenwich Street Series Fund, 138,798 shares (cost $2,395,017).................. $ 2,795,390
Smith Barney Concert Allocation Series Inc., 16,455 shares (cost $199,672)...... 214,939
The Travelers Series Trust, 74,372 shares (cost $904,290)....................... 1,218,203
Travelers Series Fund Inc., 4,202,522 shares (cost $23,637,539)................. 30,821,429
---------------------
Total Investments (cost $27,136,518)......................................... $ 35,049,961
Receivables:
Dividends....................................................................... 6,167
---------------------
Total Assets................................................................. 35,056,128
---------------------
LIABILITIES:
Payables:
Insurance charges............................................................... 6,848
Administrative fees............................................................. 3,381
---------------------
Total Liabilities............................................................ 10,229
---------------------
NET ASSETS: $ 35,045,899
=====================
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 52
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividends............................................................... $ 1,220,408
EXPENSES:
Insurance charges....................................................... $ 244,973
Administrative fees..................................................... 118,176
--------------
Total expenses....................................................... 363,149
--------------
Net investment income.............................................. 857,259
--------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold........................................ 5,770,656
Cost of investments sold.............................................. 5,519,614
--------------
Net realized gain (loss)........................................... 251,042
Change in unrealized gain (loss) on investments:
Unrealized gain at December 31, 1998.................................... 2,927,381
Unrealized gain at December 31, 1999.................................... 7,913,443
--------------
Net change in unrealized gain (loss) for the year.................. 4,986,062
--------------
Net realized gain (loss) and change in unrealized gain (loss)..... 5,237,104
--------------
Net increase in net assets resulting from operations...................... $ 6,094,363
==============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 53
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income........................................... $ 857,259 $ 705,780
Net realized gain (loss) from investment transactions........... 251,042 353,472
Net change in unrealized gain (loss) on investments............. 4,986,062 1,304,023
----------------- -----------------
Net increase in net assets resulting from operations........ 6,094,363 2,363,275
----------------- -----------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 2,922,097 and 8,130,176 units, respectively)... 3,329,232 8,920,352
Participant transfers from other Travelers accounts
(applicable to 2,954,762 and 6,758,795 units, respectively)... 4,740,011 9,841,235
Growth rate intra-fund transfers in
(applicable to 7,928,771 and 5,722,722 units, respectively)... 12,953,812 8,383,600
Contract surrenders
(applicable to 454,871 and 454,917 units, respectively)....... (682,136) (627,508)
Participant transfers to other Travelers accounts
(applicable to 4,151,211 and 9,228,749 units, respectively)... (5,177,961) (10,278,808)
Growth rate intra-fund transfers out
(applicable to 7,947,260 and 5,729,503 units, respectively)... (12,953,812) (8,383,600)
----------------- -----------------
Net increase in net assets resulting from unit transactions... 2,209,146 7,855,271
----------------- -----------------
Net increase in net assets.................................. 8,303,509 10,218,546
NET ASSETS:
Beginning of year.............................................. 26,742,390 16,523,844
----------------- -----------------
End of year.................................................... $ 35,045,899 $ 26,742,390
================= =================
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Variable Life Insurance Separate Account Three ("Separate
Account Three") is a separate account of The Travelers Insurance Company
("The Travelers"), an indirect wholly owned subsidiary of Citigroup Inc. and
is available for funding certain variable life insurance contracts issued by
The Travelers. Separate Account Three is registered under the Investment
Company Act of 1940, as amended, as a unit investment trust. Separate
Account Three is comprised of the VintageLife product.
Participant premium payments applied to Separate Account Three are invested
in one or more eligible funds in accordance with the selection made by the
contract owner. As of December 31, 1999, the eligible funds available under
Separate Account Three were: Zero Coupon Bond Fund Portfolio Series 2000,
Zero Coupon Bond Fund Portfolio Series 2005 and MFS Emerging Growth
Portfolio of The Travelers Series Trust; Alliance Growth Portfolio, Van
Kampen Enterprise Portfolio, Travelers Managed Income Portfolio (formerly
TBC Managed Income Portfolio), Smith Barney High Income Portfolio, Smith
Barney International Equity Portfolio, Smith Barney Large Cap Value
Portfolio, Smith Barney Money Market Portfolio, Putnam Diversified Income
Portfolio, MFS Total Return Portfolio and AIM Capital Appreciation Portfolio
of Travelers Series Fund Inc.; Total Return Portfolio of Greenwich Street
Series Fund; and Select High Growth Portfolio, Select Growth Portfolio,
Select Balanced Portfolio, Select Conservative Portfolio and Select Income
Portfolio of Smith Barney Concert Allocation Series Inc. The Travelers
Series Trust and Greenwich Street Series Fund are registered as
Massachusetts business trusts. Travelers Series Fund Inc. and Smith Barney
Concert Allocation Series Inc. are incorporated under Maryland law. All
eligible funds are managed by affiliates of The Travelers. Not all funds may
be available in all states or to all contract owners.
The following is a summary of significant accounting policies consistently
followed by Separate Account Three 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 Separate Account Three 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 Separate Account
Three. Separate Account Three 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
$8,867,997 and $5,770,656, respectively, for the year ended December 31,
1999. Realized gains and losses from investment transactions are reported on
an average cost basis. The cost of investments in eligible funds was
$27,136,518 at December 31, 1999. Gross unrealized appreciation for all
investments at December 31, 1999 was $8,032,102. Gross unrealized
depreciation for all investments at December 31, 1999 was $118,659.
-4-
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by
The Travelers. Each business day, The Travelers deducts a mortality and
expense risk charge, which is reflected in the calculation of unit values.
This charge equals, on an annual basis, 0.90% of the amount held in each
funding option. (Contracts in this category are identified as Price 1 in
Note 5.) For any contract year that follows a contract year in which the
participant's average net fund growth rate (as described in the prospectus)
is 6.5% or greater, these charges will be reduced to 0.75%. (Contracts in
this category are identified as Price 2 in Note 5.)
Administrative fees are paid for administrative expenses. This fee is also
deducted each business day and reflected in the calculation of unit values.
This charge equals, on an annual basis, 0.40% of the amounts held in each
funding option.
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 $10,803 and $15,869 in satisfaction of
such contingent surrender charges for the years ended December 31, 1999 and
1998, respectively.
4. CHANGE IN ACCOUNTING
On January 1, 1999, in conjunction with the implementation of a new system,
Separate Account Three changed its basis of reporting realized gains and
losses for investment transactions from an identified basis to an average
cost basis. The accounting change had no effect on net assets.
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Greenwich Street Series Fund
Total Return Portfolio
Price 1.......................................... 697,281 $ 1.861 $ 1,297,650
Price 2.......................................... 799,346 1.873 1,496,916
Smith Barney Concert Allocation Series Inc.
Select Balanced Portfolio
Price 1.......................................... - 1.123 -
Price 2.......................................... 103,281 1.126 116,287
Select Conservative Portfolio
Price 1.......................................... - 1.070 -
Price 2.......................................... 5,661 1.073 6,074
Select Growth Portfolio
Price 1.......................................... 3,845 1.302 5,006
Price 2.......................................... 66,972 1.307 87,507
</TABLE>
-5-
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
The Travelers Series Trust
MFS Emerging Growth Portfolio
Price 1.......................................... 90,820 $ 2.644 $ 240,156
Price 2.......................................... 159,441 2.655 423,237
Zero Coupon Bond Fund Portfolio Series 2000
Price 1.......................................... 52,520 1.161 60,994
Price 2.......................................... 28,462 1.168 33,253
Zero Coupon Bond Fund Portfolio Series 2005
Price 1.......................................... 168,298 1.134 190,840
Price 2.......................................... 236,135 1.141 269,370
Travelers Series Fund Inc.
AIM Capital Appreciation Portfolio
Price 1.......................................... 404,246 2.092 845,802
Price 2.......................................... 1,579,421 2.105 3,324,747
Alliance Growth Portfolio
Price 1.......................................... 693,089 2.792 1,934,985
Price 2.......................................... 2,123,871 2.809 5,966,763
MFS Total Return Portfolio
Price 1.......................................... 1,261,101 1.521 1,918,422
Price 2.......................................... 1,550,912 1.531 2,373,734
Putnam Diversified Income Portfolio
Price 1.......................................... 375,069 1.124 421,646
Price 2.......................................... 399,608 1.131 451,917
Smith Barney International Equity Portfolio
Price 1.......................................... 687,267 2.109 1,449,610
Price 2.......................................... 1,132,123 2.122 2,402,370
Smith Barney Money Market Portfolio
Price 1.......................................... 2,119,056 1.162 2,462,669
Price 2.......................................... 400,219 1.170 468,066
Smith Barney High Income Portfolio
Price 1.......................................... 424,012 1.295 549,041
Price 2.......................................... 364,477 1.303 474,907
Smith Barney Large Cap Value Portfolio
Price 1.......................................... 752,696 1.577 1,187,217
Price 2.......................................... 520,522 1.587 826,040
Travelers Managed Income Portfolio
Price 1.......................................... 90,134 1.130 101,834
Price 2.......................................... 114,725 1.136 130,373
Van Kampen Enterprise Portfolio
Price 1.......................................... 439,422 2.395 1,052,582
Price 2.......................................... 1,027,360 2.410 2,475,884
-------------------
Net Contract Owners' Equity.......................................................... $ 35,045,899
===================
</TABLE>
-6-
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
--------------- ------------------
<S> <C> <C>
GREENWICH STREET SERIES FUND (8.0%)
Total Return Portfolio
Total (Cost $2,395,017) 138,798 $ 2,795,390
--------------- ------------------
SMITH BARNEY CONCERT ALLOCATION SERIES INC. (0.6%)
Select Balanced Portfolio (Cost $112,348) 9,419 116,321
Select Conservative Portfolio (Cost $5,897) 519 6,079
Select Growth Portfolio (Cost $81,427) 6,517 92,539
--------------- ------------------
Total (Cost $199,672) 16,455 214,939
--------------- ------------------
THE TRAVELERS SERIES TRUST (3.5%)
MFS Emerging Growth Portfolio (Cost $345,845) 22,253 663,579
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $92,628) 8,894 94,276
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $465,817) 43,225 460,348
--------------- ------------------
Total (Cost $904,290) 74,372 1,218,203
--------------- ------------------
TRAVELERS SERIES FUND INC. (87.9%)
AIM Capital Appreciation Portfolio (Cost $2,525,828) 201,533 4,171,734
Alliance Growth Portfolio (Cost $5,157,496) 240,390 7,904,013
MFS Total Return Portfolio (Cost $4,159,066) 264,537 4,293,433
Putnam Diversified Income Portfolio (Cost $924,278) 76,317 873,826
Smith Barney International Equity Portfolio (Cost $2,278,420) 167,744 3,853,084
Smith Barney Money Market Portfolio (Cost $2,925,449) 2,925,449 2,925,449
Smith Barney High Income Portfolio (Cost $1,086,997) 84,790 1,024,259
Smith Barney Large Cap Value Portfolio (Cost $1,931,396) 103,222 2,013,864
Travelers Managed Income Portfolio (Cost $230,246) 20,180 232,277
Van Kampen Enterprise Portfolio (Cost $2,418,363) 118,360 3,529,490
--------------- ------------------
Total (Cost $23,637,539) 4,202,522 30,821,429
--------------- ------------------
TOTAL INVESTMENT OPTIONS (100%)
(COST $27,136,518) $ 35,049,961
==================
</TABLE>
-7-
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF SEPARATE ACCOUNT THREE OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TOTAL RETURN SELECT BALANCED SELECT CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- --------------------- --------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .......................................... $ 157,436 $ 109,725 $ 4,257 $ 2,762 $ 199 $ 136
---------- ---------- -------- -------- -------- --------
EXPENSES:
Insurance charges .................................. 21,365 16,528 1,082 601 44 41
Administrative fees ................................ 10,227 8,096 502 267 25 21
---------- ---------- -------- -------- -------- --------
Net investment income (loss) ..................... 125,844 85,101 2,673 1,894 130 74
---------- ---------- -------- -------- -------- --------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................... 277,378 106,311 40,117 2,065 153 373
Cost of investments sold ......................... 249,837 82,668 39,189 2,141 149 363
---------- ---------- -------- -------- -------- --------
Net realized gain (loss) ....................... 27,541 23,643 928 (76) 4 10
---------- ---------- -------- -------- -------- --------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ......... 65,761 129,670 (289) - 141 -
Unrealized gain (loss) end of year ............... 400,373 65,761 3,973 (289) 182 141
---------- ---------- -------- -------- -------- --------
Net change in unrealized gain (loss) for the year 334,612 (63,909) 4,262 (289) 41 141
---------- ---------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations ...................... 487,997 44,835 7,863 1,529 175 225
---------- ---------- -------- -------- -------- --------
UNIT TRANSACTIONS:
Participant premium payments ....................... - 2,106 - (1) - 1
Participant transfers from other Travelers accounts. 320,727 36,070 111,141 - 5,854
Growth rate intra-fund transfers in ................ 1,176,226 1,159,660 115,106 - - 17,044
Contract surrenders ................................ (40,151) (48,984) (39,088) (1,227) (87) (94)
Participant transfers to other Travelers accounts .. (329,259) (34,171) - - - -
Growth rate intra-fund transfers out ............... (1,176,226) (1,159,660) (115,106) - - (17,044)
---------- ---------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from unit transactions ............... 41,317 675,172 (3,018) 109,913 (87) 5,761
---------- ---------- -------- -------- -------- --------
Net increase (decrease) in net assets .......... 529,314 720,007 4,845 111,442 88 5,986
NET ASSETS:
Beginning of year ................................ 2,265,252 1,545,245 111,442 - 5,986 -
---------- ---------- -------- -------- -------- --------
End of year ...................................... $2,794,566 $2,265,252 $116,287 $111,442 $ 6,074 $ 5,986
========== ========== ======== ======== ======== ========
</TABLE>
-8-
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS- CONTINUED
<TABLE>
<CAPTION>
SELECT GROWTH MFS EMERGING GROWTH ZERO COUPON BOND FUND ZERO COUPON BOND FUND
PORTFOLIO PORTFOLIO PORTFOLIO SERIES 1998 PORTFOLIO SERIES 2000
------------------- ----------------------- --------------------- ---------------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,814 $ 1,447 $ - $ - $ - $ 691 $ - $ 4,713
------- ------- -------- -------- -------- ------- -------- -------
747 478 2,926 1,171 - 100 720 557
374 212 1,449 547 - 53 351 284
------- ------- -------- -------- -------- ------- -------- -------
693 757 (4,375) (1,718) - 538 (1,071) 3,872
------- ------- -------- -------- -------- ------- -------- -------
41,482 2,397 16,219 17,339 - 20,792 2,443 28,673
40,097 2,513 12,397 15,614 - 20,917 2,446 26,763
------- ------- -------- -------- -------- ------- -------- -------
1,385 (116) 3,822 1,725 - (125) (3) 1,910
------- ------- -------- -------- -------- ------- -------- -------
255 - 43,018 (1,417) - (154) (1,241) 175
11,112 255 317,734 43,018 - - 1,648 (1,241)
------- ------- -------- -------- -------- ------- -------- -------
10,857 255 274,716 44,435 - 154 2,889 (1,416)
------- ------- -------- -------- -------- ------- -------- -------
12,935 896 274,163 44,442 - 567 1,815 4,366
------- ------- -------- -------- -------- ------- -------- -------
- - - (6) - (1) - -
42,424 80,558 168,981 131,117 - 7,632 7,922 51,629
80,426 - 110,602 35,580 - - 80,336 -
(39,824) (2,131) (4,727) (1,939) - (208) (1,427) (1,105)
(2,345) - (8,074) (3,568) - (20,560) (108) (26,889)
(80,426) - (110,602) (35,580) - - (80,336) -
------- ------- -------- -------- -------- ------- -------- -------
255 78,427 156,180 125,604 - (13,137) 6,387 23,635
------- ------- -------- -------- -------- ------- -------- -------
13,190 79,323 430,343 170,046 - (12,570) 8,202 28,001
79,323 - 233,050 63,004 - 12,570 86,045 58,044
------- ------- -------- -------- -------- ------- -------- -------
$92,513 $79,323 $663,393 $233,050 $ - $ - $ 94,247 $86,045
======= ======= ======== ======== ======== ======= ======== =======
</TABLE>
-9-
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF SEPARATE ACCOUNT THREE OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND AIM CAPITAL ALLIANCE GROWTH
PORTFOLIO SERIES 2005 APPRECIATION PORTFOLIO PORTFOLIO
--------------------- ------------------------ -----------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................... $ - $ 25,289 $ - $ 3,292 $ 357,424 $ 249,920
--------- --------- ---------- ----------- ----------- ----------
EXPENSES:
Insurance charges ................................... 3,869 2,772 24,872 18,687 51,247 31,952
Administrative fees ................................. 1,930 1,358 12,257 9,139 25,330 15,842
--------- --------- ---------- ----------- ----------- ----------
Net investment income (loss) .................... (5,799) 21,159 (37,129) (24,534) 280,847 202,126
--------- --------- ---------- ----------- ----------- ----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 52,361 95,085 227,483 214,797 386,815 292,809
Cost of investments sold .......................... 51,395 85,483 172,509 179,624 287,458 194,004
--------- --------- ---------- ----------- ----------- ----------
Net realized gain (loss) ........................ 966 9,602 54,974 35,173 99,357 98,805
--------- --------- ---------- ----------- ----------- ----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 23,173 16,260 445,648 135,886 1,315,933 600,476
Unrealized gain (loss) end of year ................ (5,469) 23,173 1,645,906 445,648 2,746,517 1,315,933
--------- --------- ---------- ----------- ----------- ----------
Net change in unrealized gain (loss) for the year (28,642) 6,913 1,200,258 309,762 1,430,584 715,457
--------- --------- ---------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations ....................... (33,475) 37,674 1,218,103 320,401 1,810,788 1,016,388
--------- --------- ---------- ----------- ----------- ----------
UNIT TRANSACTIONS:
Participant premium payments ........................ - 124 - 771 25 543
Participant transfers from other Travelers accounts . 3,797 280,507 460,026 836,358 1,101,448 1,794,668
Growth rate intra-fund transfers in ................. 275,249 100,613 1,475,486 948,245 2,658,168 1,689,982
Contract surrenders ................................. (12,679) (11,827) (45,352) (50,394) (128,431) (60,954)
Participant transfers to other Travelers accounts ... (34,605) (80,001) (173,421) (139,143) (269,444) (84,269)
Growth rate intra-fund transfers out ................ (275,249) (100,613) (1,475,486) (948,245) (2,658,168) (1,689,982)
--------- --------- ---------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from unit transactions ................ (43,487) 188,803 241,253 647,592 703,598 1,689,988
--------- --------- ---------- ----------- ----------- ----------
Net increase (decrease) in net assets ........... (76,962) 226,477 1,459,356 967,993 2,514,386 2,666,376
NET ASSETS:
Beginning of year ................................. 537,172 310,695 2,711,193 1,743,200 5,387,362 2,720,986
--------- --------- ---------- ----------- ----------- ----------
End of year ....................................... $ 460,210 $ 537,172 $4,170,549 $ 2,711,193 $ 7,901,748 $5,387,362
========= ========= ========== =========== =========== ==========
</TABLE>
-10-
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME
MFS TOTAL RETURN PORTFOLIO PORTFOLIO
--------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
$ 313,875 $ 165,472 $ 50,089 $ 41,663
---------------- ---------------- --------------- ---------------
35,751 28,375 7,693 7,292
17,200 13,706 3,690 3,500
---------------- ---------------- --------------- ---------------
260,924 123,391 38,706 30,871
---------------- ---------------- --------------- ---------------
373,396 333,398 316,750 90,468
354,966 251,109 325,719 84,683
---------------- ---------------- --------------- ---------------
18,430 82,289 (8,969) 5,785
---------------- ---------------- --------------- ---------------
352,731 263,423 (19,824) 30,551
134,367 352,731 (50,452) (19,824)
---------------- ---------------- --------------- ---------------
(218,364) 89,308 (30,628) (50,375)
---------------- ---------------- --------------- ---------------
60,990 294,988 (891) (13,719)
---------------- ---------------- --------------- ---------------
25 2,973 - 2,087
574,085 1,783,561 166,894 580,962
1,746,014 1,127,953 439,504 198,574
(111,187) (169,372) (21,306) (22,723)
(248,221) (128,473) (294,358) (54,333)
(1,746,014) (1,127,953) (439,504) (198,574)
---------------- ---------------- --------------- ---------------
214,702 1,488,689 (148,770) 505,993
---------------- ---------------- --------------- ---------------
275,692 1,783,677 (149,661) 492,274
4,016,464 2,232,787 1,023,224 530,950
---------------- ---------------- --------------- ---------------
$ 4,292,156 $ 4,016,464 $ 873,563 $ 1,023,224
================ ================ =============== ===============
<CAPTION>
SMITH BARNEY INTERNATIONAL SMITH BARNEY MONEY MARKET
EQUITY PORTFOLIO PORTFOLIO
--------------------------------- ----------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<C> <C> <C> <C>
$ 8,207 $ - $ 115,665 $ 148,941
---------------- ---------------- --------------- ------------------
21,114 15,310 21,999 26,457
10,158 7,480 9,932 12,046
---------------- ---------------- --------------- ------------------
(23,065) (22,790) 83,734 110,438
---------------- ---------------- --------------- ------------------
200,531 153,789 3,245,796 7,856,592
184,565 135,230 3,245,796 7,856,592
---------------- ---------------- --------------- ------------------
15,966 18,559 - -
---------------- ---------------- --------------- ------------------
50,445 23,396 - -
1,574,664 50,445 - -
---------------- ---------------- --------------- ------------------
1,524,219 27,049 - -
---------------- ---------------- --------------- ------------------
1,517,120 22,818 83,734 110,438
---------------- ---------------- --------------- ------------------
25 (215) 3,329,132 8,913,404
376,482 1,019,843 398,814 118,916
1,425,879 742,861 296,399 404,229
(55,852) (46,704) (63,295) (112,053)
(150,147) (92,664) (3,319,929) (9,504,606)
(1,425,879) (742,861) (296,399) (404,229)
---------------- ---------------- --------------- ------------------
170,508 880,260 344,722 (584,339)
---------------- ---------------- --------------- ------------------
1,687,628 903,078 428,456 (473,901)
2,164,352 1,261,274 2,502,279 2,976,180
---------------- ---------------- --------------- ------------------
$ 3,851,980 $ 2,164,352 $ 2,930,735 $ 2,502,279
================ ================ =============== ==================
</TABLE>
-11-
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF SEPARATE ACCOUNT THREE OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY HIGH SMITH BARNEY LARGE
INCOME PORTFOLIO CAP VALUE PORTFOLIO
------------------------------ ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .............................................. $ 72,945 $ 54,547 $ 75,971 $ 50,219
-------------- ------------- ------------ ------------
EXPENSES:
Insurance charges ...................................... 8,924 6,803 16,682 11,521
Administrative fees .................................... 4,194 3,317 7,909 5,613
-------------- ------------- ------------ ------------
Net investment income (loss) ....................... 59,827 44,427 51,380 33,085
-------------- ------------- ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ....................... 175,715 74,472 160,494 52,020
Cost of investments sold ............................. 183,863 67,931 148,982 36,116
-------------- ------------- ------------ ------------
Net realized gain (loss) ........................... (8,148) 6,541 11,512 15,904
-------------- ------------- ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ............. (24,910) 46,096 185,704 144,375
Unrealized gain (loss) end of year ................... (62,738) (24,910) 82,468 185,704
-------------- ------------- ------------ ------------
Net change in unrealized gain (loss) for the year .. (37,828) (71,006) (103,236) 41,329
-------------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations .......................... 13,851 (20,038) (40,344) 90,318
-------------- ------------- ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments ........................... - (2) 25 116
Participant transfers from other Travelers accounts .... 143,269 576,743 518,859 610,611
Growth rate intra-fund transfers in .................... 489,681 450,457 935,853 471,489
Contract surrenders .................................... (19,836) (15,430) (51,325) (27,556)
Participant transfers to other Travelers accounts ...... (153,420) (24,203) (102,386) (19,755)
Growth rate intra-fund transfers out ................... (489,681) (450,457) (935,853) (471,489)
-------------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from unit transactions ................... (29,987) 537,108 365,173 563,416
-------------- ------------- ------------ ------------
Net increase (decrease) in net assets .............. (16,136) 517,070 324,829 653,734
NET ASSETS:
Beginning of year .................................... 1,040,084 523,014 1,688,428 1,034,694
-------------- ------------- ------------- -------------
End of year .......................................... $ 1,023,948 $ 1,040,084 $ 2,013,257 $ 1,688,428
============== ============= ============= ==============
<CAPTION>
TRAVELERS MANAGED
INCOME PORTFOLIO
----------------------------
1999 1998
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends .............................................. $ 9,240 $ 9,960
------------ ------------
EXPENSES:
Insurance charges ...................................... 2,303 1,928
Administrative fees .................................... 1,100 933
------------ ------------
Net investment income (loss) ....................... 5,837 7,099
------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ....................... 90,738 11,249
Cost of investments sold ............................. 90,648 9,986
------------ ------------
Net realized gain (loss) ........................... 90 1,263
------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ............. 9,524 10,636
Unrealized gain (loss) end of year ................... 2,031 9,524
------------ ------------
Net change in unrealized gain (loss) for the year .. (7,493) (1,112)
------------ ------------
Net increase (decrease) in net assets
resulting from operations .......................... (1,566) 7,250
------------ ------------
UNIT TRANSACTIONS:
Participant premium payments ........................... - (10)
Participant transfers from other Travelers accounts .... 27,792 135,653
Growth rate intra-fund transfers in .................... 240,882 156,618
Contract surrenders .................................... (5,959) (5,797)
Participant transfers to other Travelers accounts ...... (83,750) (5,219)
Growth rate intra-fund transfers out ................... (240,882) (156,618)
------------ ------------
Net increase (decrease) in net assets
resulting from unit transactions ................... (61,917) 124,627
------------ ------------
Net increase (decrease) in net assets .............. (63,483) 131,877
NET ASSETS:
Beginning of year .................................... 295,690 163,813
------------- -----------
End of year .......................................... $ 232,207 $ 295,690
============= ===========
</TABLE>
-12-
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
VAN KAMPEN ENTERPRISE PORTFOLIO COMBINED
- ----------------------------------------- ----------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
$ 53,286 $ 114,834 $ 1,220,408 $ 983,611
- -------------------- ------------------- ------------------- --------------------
23,635 16,695 244,973 187,268
11,548 8,149 118,176 90,563
- -------------------- ------------------- ------------------- --------------------
18,103 89,990 857,259 705,780
- -------------------- ------------------- ------------------- --------------------
162,785 160,719 5,770,656 9,513,348
129,598 108,139 5,519,614 9,159,876
- -------------------- ------------------- ------------------- --------------------
33,187 52,580 251,042 353,472
- -------------------- ------------------- ------------------- --------------------
481,312 223,985 2,927,381 1,623,358
1,111,127 481,312 7,913,443 2,927,381
- -------------------- ------------------- ------------------- --------------------
629,815 257,327 4,986,062 1,304,023
- -------------------- ------------------- ------------------- --------------------
681,105 399,897 6,094,363 2,363,275
- -------------------- ------------------- ------------------- --------------------
- (1,538) 3,329,232 8,920,352
392,421 959,261 4,740,011 9,841,235
1,408,001 880,295 12,953,812 8,383,600
(41,610) (49,010) (682,136) (627,508)
(98,494) (60,954) (5,177,961) (10,278,808)
(1,408,001) (880,295) (12,953,812) (8,383,600)
- -------------------- ------------------- ------------------- --------------------
252,317 847,759 2,209,146 7,855,271
- -------------------- ------------------- ------------------- --------------------
933,422 1,247,656 8,303,509 10,218,546
2,595,044 1,347,388 26,742,390 16,523,844
- -------------------- ------------------- ------------------- --------------------
$ 3,528,466 $ 2,595,044 $ 35,045,899 $ 26,742,390
==================== =================== =================== ====================
</TABLE>
- 13 -
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF UNITS FOR SEPARATE ACCOUNT THREE
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
SELECT BALANCED SELECT CONSERVATIVE
TOTAL RETURN PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------- ---------------------- ------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ................ 1,462,942 1,034,630 105,397 - 5,744 -
Units purchased and transferred
from other Travelers accounts ..... 900,827 1,245,502 138,339 106,603 - 22,606
Units redeemed and transferred
to other Travelers accounts ....... (867,142) (817,190) (140,455) (1,206) (83) (16,862)
------------- ------------- --------- ------------ ------------ -----------
Units end of year ...................... 1,496,627 1,462,942 103,281 105,397 5,661 5,744
============= ============= ========= ============ ============ ===========
<CAPTION>
MFS EMERGING GROWTH ZERO COUPON BOND FUND
SELECT GROWTH PORTFOLIO PORTFOLIO PORTFOLIO SERIES 1998
---------------------------- ---------------------- ------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ................ 69,854 - 153,626 55,109 - 11,669
Units purchased and transferred
from other Travelers accounts ..... 106,692 71,853 171,027 128,504 - 7,058
Units redeemed and transferred
to other Travelers accounts ....... (105,729) (1,999) (74,392) (29,987) - (18,727)
------------- ------------- --------- ------------ ------------ -----------
Units end of year ...................... 70,817 69,854 250,261 153,626 - -
============= ============= ========= ============ ============ ===========
<CAPTION>
ZERO COUPON BOND FUND ZERO COUPON BOND FUND AIM CAPITAL
PORTFOLIO SERIES 2000 PORTFOLIO SERIES 2005 APPRECIATION PORTFOLIO
-------------------------- ----------------------- -------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ................ 75,339 53,978 441,171 283,022 1,824,489 1,357,987
Units purchased and transferred
from other Travelers accounts ..... 76,836 45,981 237,072 325,899 1,209,226 1,314,827
Units redeemed and transferred
to other Travelers accounts ....... (71,193) (24,620) (273,810) (167,750) (1,050,048) (848,325)
------------- ----------- ----------- ------------ ------------ -----------
Units end of year ...................... 80,982 75,339 404,433 441,171 1,983,667 1,824,489
============= =========== =========== ============ ============ ===========
<CAPTION>
ALLIANCE GROWTH MFS TOTAL RETURN PUTNAM DIVERSIFIED
PORTFOLIO PORTFOLIO INCOME PORTFOLIO
-------------------------- ------------------------ ------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Units beginning of year ................ 2,512,931 1,617,464 2,669,362 1,637,053 906,849 467,539
Units purchased and transferred
from other Travelers accounts ..... 1,624,234 1,905,431 1,528,677 2,024,601 538,756 681,582
Units redeemed and transferred
to other Travelers accounts ....... (1,320,205) (1,009,964) (1,386,026) (992,292) (670,928) (242,272)
------------- ----------- ----------- ------------ ------------ -----------
Units end of year ...................... 2,816,960 2,512,931 2,812,013 2,669,362 774,677 906,849
============= =========== =========== ============ ============ ===========
</TABLE>
- 14 -
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF UNITS FOR SEPARATE ACCOUNT THREE
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (CONTUNUED)
<TABLE>
<CAPTION>
SMITH BARNEY INTERNATIONAL EQUITY
PORTFOLIO SMITH BARNEY MONEY MARKET PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Units beginning of year............... 1,695,416 1,039,227 2,225,196 2,744,995
Units purchased and transferred.......
from other Travelers accounts....... 1,234,939 1,338,927 3,524,693 8,597,506
Units redeemed and transferred........
to other Travelers accounts......... (1,110,965) (682,738) (3,230,614) (9,117,305)
-------------------- -------------------- -------------------- --------------------
Units end of year..................... 1,819,390 1,695,416 2,519,275 2,225,196
==================== ==================== ==================== ====================
<CAPTION>
SMITH BARNEY HIGH INCOME PORTFOLIO SMITH BARNEY LARGE CAP VALUE PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Units beginning of year............... 811,943 404,740 1,055,081 701,302
Units purchased and transferred.......
from other Travelers accounts....... 492,444 783,618 892,568 685,385
Units redeemed and transferred........
to other Travelers accounts......... (515,898) (376,415) (674,431) (331,606)
-------------------- -------------------- -------------------- --------------------
Units end of year..................... 788,489 811,943 1,273,218 1,055,081
==================== ==================== ==================== ====================
<CAPTION>
TRAVELERS MANAGED INCOME PORTFOLIO VAN KAMPEN ENTERPRISE PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Units beginning of year............... 260,057 149,666 1,343,707 862,199
Units purchased and transferred.......
from other Travelers accounts....... 237,156 259,943 892,144 1,065,867
Units redeemed and transferred........
to other Travelers accounts......... (292,354) (149,552) (769,069) (584,359)
-------------------- -------------------- -------------------- --------------------
Units end of year..................... 204,859 260,057 1,466,782 1,343,707
==================== ==================== ==================== ====================
<CAPTION>
COMBINED
-----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Units beginning of year............... 17,619,104 12,420,580
Units purchased and transferred.......
from other Travelers accounts....... 13,805,630 20,611,693
Units redeemed and transferred........
to other Travelers accounts......... (12,553,342) (15,413,169)
-------------------- --------------------
Units end of year..................... 18,871,392 17,619,104
==================== ====================
</TABLE>
- 15 -
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
To the Owners of Variable Life Insurance Contracts of
The Travelers Variable Life Insurance Separate Account Three:
We have audited the accompanying statement of assets and liabilities of The
Travelers Variable Life Insurance Separate Account Three as of December 31,
1999, and the related statement of operations for the year then ended and the
statement of changes in net assets for each of the two years in the period then
ended. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1999, 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 Variable Life
Insurance Separate Account Three as of December 31, 1999, 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.
/s/ KPMG LLP
Hartford, Connecticut
February 18, 2000
-16-
<PAGE> 67
Independent Auditors
KPMG LLP
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Variable Life Insurance Separate Account
Three or Separate Account Three's underlying funds. It should not be used in
connection with any offer except in conjunction with the Prospectus for The
Travelers Variable Life Insurance Separate Account Three product(s) offered by
The Travelers Insurance Company and the Prospectuses for the underlying funds,
which collectively contain all pertinent information, including the applicable
sales commissions.
VG-SEP3 (Annual) (12-99) Printed in U.S.A.
<PAGE> 68
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 18, 2000
F-1
<PAGE> 69
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $1,738 $1,740 $1,583
Net investment income 2,506 2,185 2,037
Realized investment gains 113 149 199
Other revenues 521 440 354
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Revenues 4,878 4,514 4,173
- -------------------------------------------------------------------------------------------------- ------------- -------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,515 1,475 1,341
Interest credited to contractholders 937 876 829
Amortization of deferred acquisition costs 315 275 252
General and administrative expenses 519 505 468
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Benefits and Expenses 3,286 3,131 2,890
- -------------------------------------------------------------------------------------------------- ------------- -------------
Income from continuing operations before federal income taxes 1,592 1,383 1,283
- -------------------------------------------------------------------------------------------------- ------------- -------------
Federal income tax expense
Current 409 442 434
Deferred 136 39 10
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Federal Income Taxes 545 481 444
- -------------------------------------------------------------------------------------------------- ------------- -------------
Net income $1,047 $902 $839
================================================================================================== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 70
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in millions)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $24,500, $22,973) $23,866 $23,893
Equity securities, at fair value (cost, $691, $474) 784 518
Mortgage loans 2,285 2,606
Real estate held for sale 236 143
Policy loans 1,258 1,857
Short-term securities 1,283 1,098
Trading securities, at market value 1,678 1,186
Other invested assets 2,098 2,251
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments 33,488 33,552
- ----------------------------------------------------------------------------------------------------------------------------
Cash 85 65
Investment income accrued 395 393
Premium balances receivable 178 99
Reinsurance recoverables 3,234 3,387
Deferred acquisition costs 2,688 2,317
Separate and variable accounts 22,199 15,313
Other assets 1,264 1,422
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $63,531 $56,548
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $17,567 $16,739
Future policy benefits and claims 12,563 12,326
Separate and variable accounts 22,194 15,305
Deferred federal income taxes 23 422
Trading securities sold not yet purchased, at market value 1,098 873
Other liabilities 2,466 2,783
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 55,911 48,448
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,819 3,800
Retained earnings 4,099 3,602
Accumulated other changes in equity from non-owner sources (398) 598
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 7,620 8,100
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $63,531 $56,548
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 71
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $3,602 $2,810 $2,471
Net income 1,047 902 839
Dividends to parent 550 110 500
- -----------------------------------------------------------------------------------------------------------
Balance, end of year $4,099 $3,602 $2,810
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------
Balance, beginning of year $598 $535 $223
Unrealized gains (losses), net of tax (996) 62 313
Foreign currency translation, net of tax 0 1 (1)
- -----------------------------------------------------------------------------------------------------------
Balance, end of year $(398) $598 $535
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------
Net Income $1,047 $902 $839
Other changes in equity from non-owner sources (996) 63 312
- -----------------------------------------------------------------------------------------------------------
Total changes in equity from non-owner sources $51 $965 $1,151
===========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 72
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $1,715 $1,763 $1,519
Net investment income received 2,365 2,021 2,059
Other revenues received 537 419 373
Benefits and claims paid (1,094) (1,127) (1,230)
Interest credited to contractholders (958) (918) (853)
Operating expenses paid (1,013) 751) (638)
Income taxes paid (393) (506) (368)
Trading account investments purchases, net (80) (38) (54)
Other (104) 12 18
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 975 875 826
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 4,103 2,608 2,259
Mortgage loans 662 722 663
Proceeds from sales of investments
Fixed maturities 12,562 13,390 7,592
Equity securities 100 212 341
Mortgage loans - - 207
Real estate held for sale 219 53 169
Purchases of investments
Fixed maturities (18,129) (18,072) (11,143)
Equity securities (309) (194) (483)
Mortgage loans (470) 457) (771)
Policy loans, net 599 15 38
Short-term securities (purchases) sales, net 316 495) (2)
Other investments purchases, net (413) (550) (260)
Securities transactions in course of settlement, net (463) 192 311
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,223) (2,576) (1,079)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net - - (50)
Contractholder fund deposits 5,764 4,383 3,544
Contractholder fund withdrawals (4,946) (2,565) (2,757)
Dividends to parent company (550) (110) (500)
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 268 1,708 237
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 20 7 (16)
- ---------------------------------------------------------------------------------------------------------------------
Cash at December 31, $85 $65 $58
====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 73
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), together 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). The consolidated financial statements include the accounts of
the Company and its insurance and non-insurance subsidiaries on a fully
consolidated basis. The primary insurance entities of the Company are TIC
and its subsidiaries, The Travelers Life and Annuity Company (TLAC),
Primerica Life Insurance Company (Primerica Life), and its subsidiaries,
Primerica Life Insurance Company of Canada and National Benefit Life
Insurance Company (NBL).
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 to the 1999
presentation.
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 that 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.
F-6
<PAGE> 74
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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, results of operations or liquidity.
Accounting by Insurance and Other Enterprises for Insurance - Related
Assessments
In January 1999, the Company adopted (effective January 1, 1999) 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. The adoption of this SOP
had no impact on the Company's financial condition, results 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, 1999 and 1998.
F-7
<PAGE> 75
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, 1999 and 1998.
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.
Other invested assets include partnership investments and real estate joint
ventures accounted for on the equity method of accounting. Undistributed
income is reported in net investment income.
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, interest rate swaps,
currency swaps, and equity swaps, 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 hedging investments are carried
at fair value with unrealized gains and losses, net of taxes, charged or
credited directly to shareholder's equity. Interest rate and currency swaps
hedging liabilities are off-balance sheet.
Forward contracts, interest rate options and equity swaps were not
significant at December 31, 1999 and 1998. Information concerning
derivative financial instruments is included in Note 5.
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-8
<PAGE> 76
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
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 seven to 20-year period is
employed for annuities. Deferred acquisition costs are reviewed
periodically for recoverability to determine if any adjustment is required.
Adjustments, if any, are charged to income.
VALUE OF INSURANCE IN FORCE
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. Adjustments, if
any, are charged to income.
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. If it is determined that goodwill is unlikely to be recovered,
impairment is recognized on a discounted cash flow basis.
F-9
<PAGE> 77
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 10.0%.
FUTURE POLICY BENEFITS
Future policy benefits 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.
OTHER LIABILITIES
Included in Other Liabilities is the Company's estimate of its liability
for guaranty fund and other insurance-related assessments. State guaranty
fund assessments are based upon the Company's share of premium written or
received in one or more years prior to an insolvency occurring in the
industry. Once an insolvency has occurred, the Company recognizes a
liability for such assessments if it is probable that an assessment will be
imposed and the amount of the assessment can be reasonably estimated. At
December 31, 1999, the Company had a liability of $21.9 million for
guaranty fund assessments and a related premium tax offset recoverable of
$4.7 million. The assessments are expected to be paid over a period of
three to five years and the premium tax offsets are expected to be realized
over a period of 10 to 15 years.
SECURITIES LOANED
Securities loaned are recorded at the amount of cash received as
collateral. The Company receives cash collateral in an amount in excess of
the market value of securities loaned. The Company monitors the market
value of securities loaned on a daily basis with additional collateral
obtained as necessary.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries, domiciled principally in Connecticut
and Massachusetts, prepare 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 for years beginning January 1, 2001. 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
F-10
<PAGE> 78
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 management fees for variable annuity separate
accounts; surrender, mortality and administrative charges and fees earned
on investment, universal life and other insurance contracts; and revenues
of non-insurance subsidiaries.
CURRENT AND FUTURE INSURANCE BENEFITS
Current and future insurance benefits represent charges for mortality and
morbidity related to fixed annuities, universal life, term life and health
insurance benefits.
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.
A deferred federal income tax asset is recognized to the extent that future
realization of the tax benefit is more likely than not, with a valuation
allowance for the portion that is not likely to be recognized.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). In June 1999, the
FASB issued Statement of Financial Standards No. 137 "Deferral of the
Effective Date of FASB Statement No. 133" (FAS 137) which allows entities
which have not adopted FAS 133 to defer its effective date to all fiscal
quarters of all fiscal years beginning after June 15, 2000. FAS 133
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 consolidated 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
recognized asset or liability or of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
F-11
<PAGE> 79
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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. Upon initial application of FAS 133, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. The Company adopted the deferral provisions of FAS 137,
effective January 1, 2000 and has not yet determined the impact that FAS
133 will have on its consolidated financial statements.
2. COMMERCIAL PAPER AND LINES OF CREDIT
TIC has issued commercial paper directly to investors in prior years. No
commercial paper was outstanding at December 31, 1999 or December 31, 1998.
TIC must maintain bank lines of credit at least equal to the amount of the
outstanding commercial paper. Citigroup and TIC have an agreement with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to Citigroup or the Company. TIC's participation in this
agreement is limited to $250 million. The agreement consists of a five-year
revolving credit facility that expires in June 2001. At December 31, 1999
and 1998, no credit under this agreement was allocated to TIC. Under this
facility the Company is required to maintain certain minimum equity and
risk-based capital levels. At December 31, 1999, the Company was in
compliance with these provisions. If TIC had borrowings outstanding on this
facility, the interest rate would be based upon LIBOR plus a contractually
negotiated margin.
3. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide additional capacity for future growth and
to effect business-sharing arrangements. Reinsurance is accomplished
through various plans of reinsurance, primarily yearly renewable term
coinsurance and modified coinsurance. The Company remains primarily liable
as the direct insurer on all risks reinsured.
Since 1997 universal life business was reinsured under an 80%/20% quota
share reinsurance program and term life business was reinsured under a
90%/10% quota share reinsurance program. Prior to 1997, the Company
reinsured all of its life business via first dollar quota share treaties on
an 80%/20% basis. Maximum retention of $1.5 million is generally reached on
policies in excess of $7.5 million. For other plans of insurance, it is the
policy of the Company to obtain reinsurance for amounts above certain
retention limits on individual life policies, which limits vary with age
and underwriting classification. Generally, the maximum retention on an
ordinary life risk is $1.5 million. Total inforce business ceded under
reinsurance contracts is $222.5 billion and $201.3 billion at December 31,
1999 and 1998.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-12
<PAGE> 80
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
<TABLE>
<CAPTION>
WRITTEN PREMIUMS 1999 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,274 $2,310 $2,148
Assumed from:
Non-affiliated companies - - 1
Ceded to:
Affiliated companies (206) (242) (280)
Non-affiliated companies (322) (317) (273)
------------------------------------------------------------------------------------------------------
Total Net Written Premiums $1,746 $1,751 $1,596
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
EARNED PREMIUMS 1999 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,248 $1,949 $2,170
Assumed from:
Non-affiliated companies - - 1
Ceded to:
Affiliated companies (193) (251) (321)
Non-affiliated companies (327) (308) (291)
------------------------------------------------------------------------------------------------------
Total Net Earned Premiums $1,728 $1,390 $1,559
======================================================================================================
</TABLE>
Reinsurance recoverables at December 31, 1999 and 1998 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
REINSURANCE RECOVERABLES 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Life and Accident and Health Business:
Non-affiliated companies $1,221 $1,297
Property-Casualty Business:
Affiliated companies 2,013 2,090
------------------------------------------------------------------------------------------------------
Total Reinsurance Recoverables $3,234 $3,387
======================================================================================================
</TABLE>
Total reinsurance recoverables at December 31, 1999 and 1998 include $569
million and $640 million, respectively, from The Metropolitan Life
Insurance Company in connection with the sale of the Company's group life
insurance and related businesses in 1995.
F-13
<PAGE> 81
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. SHAREHOLDER'S EQUITY
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes the statutory net income
of all insurance subsidiaries, was $890 million, $702 million and $754
million for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company's statutory capital and surplus was $5.03 billion and $4.95
billion at December 31, 1999 and 1998, 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 $679 million is available in 2000 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
was in compliance with these covenants at December 31, 1999 and 1998. The
Company paid dividends of $550 million, $110 million and $500 million in
1999, 1998 and 1997, respectively.
F-14
<PAGE> 82
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. SHAREHOLDER'S EQUITY (continued)
Accumulated Other Changes in Equity from Non-Owner Sources, Net of Tax
Changes in each component of Accumulated Other Changes in Equity from Non-Owner
Sources were as follows:
<TABLE>
<CAPTION>
ACCUMULATED OTHER
NET UNREALIZED FOREIGN CHANGES IN EQUITY FROM
GAIN (LOSS) ON CURRENCY NON-OWNER SOURCES
INVESTMENT SECURITIES TRANSLATION
($ in millions) ADJUSTMENTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $232 $(9) $223
Unrealized gain on investment securities,
net of tax of $239 442 - 442
Less: reclassification adjustment for gains
included in net income, net of tax of $70 129 - 129
Foreign currency translation adjustment,
net of tax of $0 - (1) (1)
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 313 (1) 312
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 545 (10) 535
Unrealized gains on investment securities,
net of tax of $85 159 - 159
Less: reclassification adjustment for gains
included in net income, net of tax of $52 97 - 97
Foreign currency translation adjustment,
net of tax of $2 - 1 1
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 62 1 63
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 607 (9) 598
Unrealized losses on investment securities,
net of tax of $497 (923) - (923)
Less: reclassification adjustment for gains
included in net income, net of tax of $40 73 - 73
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE (996) - (996)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $(389) $(9) $(398)
===============================================================================================================================
</TABLE>
F-15
<PAGE> 83
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, interest rate swaps, currency swaps, options and forward contracts
as a means of hedging exposure to interest rate, equity price, and foreign
currency risk on anticipated transactions or existing assets and
liabilities. The Company, through a subsidiary that is a broker/dealer,
Tribeca Investments LLC (Tribeca) holds and issues derivative instruments
for trading purposes. All of 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, currency 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 and purchased
listed option contracts have little credit risk since organized exchanges
are the counterparties. The Company as a writer of option contracts 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, 1999 and 1998, the Company held financial futures contracts
with notional amounts of $255 million and $459 million, respectively. These
financial futures had a deferred gain of $1.8 million and a deferred loss
of $.5 million in 1999, and a deferred gain of $3.3 million and a deferred
loss of $.1 million in 1998. Total gains of $6.9 million and $1.5 million
from financial futures were deferred at December 31, 1999 and 1998,
respectively, relating to anticipated investment purchases and investment
product sales, and are reported as other liabilities. At December 31, 1999
and 1998, the Company's futures contracts had no fair value because these
contracts were marked to market and settled in cash daily.
F-16
<PAGE> 84
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 assets and liabilities. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated by
reference to an agreed notional principal amount. 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 so they are subject to the risk of
default by the counterparty.
At December 31, 1999 and 1998, the Company held interest rate swap
contracts with notional amounts of $1,498.2 million and $1,077.9 million,
respectively. The fair value of these financial instruments was $25.3
million (gain position) and $26.3 million (loss position) at December 31,
1999 and was $5.6 million (gain position) and $19.6 million (loss position)
at December 31, 1998. The fair values were determined using the discounted
cash flow method. At December 31, 1999, the Company held swap contracts
with affiliate counterparties with a notional amount of $207.5 million and
a fair value of $22.6 million (loss position).
The Company enters into currency swaps in connection with other financial
instruments to provide greater risk diversification and better match assets
purchased in U.S. Dollars with corresponding funding agreements issued in
foreign currencies. Under currency swaps, the Company agrees with other
parties to exchange, at specified intervals, foreign currency for U.S.
Dollars based upon interest amounts calculated by reference to an agreed
notional principal amount. Generally, there is an exchange of foreign
currency for U.S. Dollars at the outset of the contract based upon the
prevailing foreign exchange rate. Swap agreements are not exchange traded
so they are subject to the risk of default by the counterparty.
At December 31, 1999 and 1998, the Company held currency swap contracts
with notional amounts of $732.7 million and $10.0 million, respectively.
The fair value of these financial instruments was $59.2 million (loss
position) at December 31, 1999 and $.4 million (gain position) at December
31, 1998. The fair values were determined using the discounted cash flow
method.
The Company uses equity option contracts to manage its exposure to changes
in equity market prices that arise from the sale of certain insurance
products. To hedge against adverse changes in the equity market prices, the
Company enters long positions in equity option contracts with major
financial institutions. These contracts allow the Company, for a fee, the
right to receive a payment if the Standard and Poor's 500 Index falls below
agreed upon strike prices.
At December 31, 1999 and 1998, the Company held equity options with
notional amounts of $275.4 million and zero, respectively. The fair value
of these financial instruments was $32.6 million (gain position) at
December 31, 1999. The fair value of these contracts represent the
estimated replacement cost as quoted by independent third party brokers.
The off-balance sheet risks of interest rate options, equity swaps and
forward contracts were not significant at December 31, 1999 and 1998.
The off-balance sheet risk of derivative instruments held for trading
purposes was not significant at December 31, 1999 and 1998.
F-17
<PAGE> 85
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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, 1999 and 1998. The Company had unfunded commitments to
partnerships with a value of $459.7 million at December 31, 1999.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Certain insurance contracts are excluded by Statement of
Financial Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments", and therefore are not included in the amounts
discussed.
At December 31, 1999 and 1998, investments in fixed maturities had a
carrying value and a fair value of $23.9 billion and $23.9 billion,
respectively. See Notes 1 and 12.
At December 31, 1999 mortgage loans had a carrying value of $2.3 billion
and a fair value of $2.3 billion and in 1998 had a carrying value of $2.6
billion and a fair value of $2.8 billion. In estimating fair value, the
Company used interest rates reflecting the current real estate financing
market.
Citigroup Preferred Stock included in other invested assets had a carrying
value and fair value of $987 million at December 31, 1999 and 1998.
At December 31, 1999, contractholder funds with defined maturities had a
carrying value of $5.0 billion and a fair value of $4.7 billion, compared
with a carrying value and a fair value of $3.3 billion at December 31,
1998. 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 $10.1 billion and a fair
value of $9.9 billion at December 31, 1999, compared with a carrying value
of $10.4 billion and a fair value of $10.2 billion at December 31, 1998.
These contracts generally are valued at surrender value.
The carrying values of $228 million and $144 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1999 and 1998, respectively. The carrying values of $1.2
billion and $2.3 billion of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1999 and
1998, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $251 million at December 31, 1999,
compared with a carrying value and a fair value of $235 million at December
31, 1998. The liabilities of separate accounts providing a guaranteed
return had a carrying value and a fair value of $251 million at December
31, 1999, compared with a carrying value and a fair value of $209 million
and $206 million, respectively, at December 31, 1998.
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.
F-18
<PAGE> 86
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 5 for a discussion of financial instruments with off-balance sheet
risk.
Litigation
In March 1997, a purported class action entitled Patterman v. The
Travelers, Inc., 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, on defendants' motion, the
Superior Court of Richmond County transferred the lawsuit to the Superior
Court of Gwinnett County, Georgia. Plaintiffs appealed the transfer order,
and in December 1998 the Court of Appeals of the State of Georgia reversed
the lower court's decision. Defendants petitioned the Georgia Supreme Court
to hear an appeal from the decision of the Court of Appeals, and the
petition was granted in May 1998. In September 1999, oral argument on
defendants' petition was heard and, on February 28, 2000, the Georgia
Supreme Court affirmed the Georgia Court of Appeals and remanded the matter
to the Superior Court of Richmond County. In March 2000, defendants moved
the Georgia Supreme Court to reconsider its February 28, 2000 decision, and
that motion remains pending. Proceedings in the trial court have been
stayed pending appeal. 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, 1999, 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.
7. 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
1999, 1998 and 1997. 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 1999, 1998 and 1997.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. 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 1999, 1998 and 1997.
F-19
<PAGE> 87
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. 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 Company handles banking functions for the life and
annuity operations of Travelers Life & 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, 1999 and 1998, the
pool totaled approximately $2.6 billion and $2.3 billion, respectively. The
Company's share of the pool amounted to $1.0 billion and $793 million at
December 31, 1999 and 1998, respectively, and is included in short-term
securities in the consolidated balance sheet.
Included in short-term investments at December 31, 1998 was a 90-day
variable rate note receivable from Citigroup. The rate was based upon the
AA financial commercial paper rate plus 14 basis points. The rate at
December 31, 1998 was 5.47%. The balance, which was $500 million at
December 31, 1998, was paid in full on February 25, 1999. Interest accrued
at December 31, 1998 was $2.2 million. Interest earned was $3.9 million and
$9.4 million in 1999 and 1998, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney Financial Consultants (SSB).
Premiums and deposits related to these products were $1.4 billion, $1.3
billion, and $1.0 billion in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998 the Company had outstanding loaned securities
to SSB for $123.0 million and $39.7 million, respectively.
Included in other invested assets is a $987 million investment in Citigroup
preferred stock at December 31, 1999 and 1998, carried at cost.
The Company sells structured settlement annuities to the insurance
subsidiaries of Travelers Property Casualty Corp. (TAP) in connection with
the settlement of certain policyholder obligations. Such premiums and
deposits were $156 million, $104 million, and $88 million for 1999, 1998
and 1997, respectively. Reserves and contractholder funds related to these
annuities amounted to $798 million and $787 million in 1999 and 1998,
respectively.
In the ordinary course of business, the Company purchases and sells
securities through affiliated broker-dealers. These transactions are
conducted on an arm's length basis.
F-20
<PAGE> 88
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Primerica Life has entered into a General Agency Agreement with Primerica
Financial Services, 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 each of 1999 and 1998 the
fees paid by Primerica Life were $12.5 million.
In 1998 Primerica became a distributor of products for Travelers Life &
Annuity. Primerica sold $903 million and $256 million of deferred annuities
in 1999 and 1998, respectively.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements have been
granted Citigroup stock options.
The Company applies Accounting Principles Board Opinion No. 25 (APB 25) and
related interpretations in accounting for stock options. Since stock
options under the Citigroup plans are issued at fair market value on the
date of award, no compensation cost has been recognized for these awards.
FAS 123 provides an alternative to APB 25 whereby fair values may be
ascribed to options using a valuation model and amortized to compensation
cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Citigroup stock options,
net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $1,047 $902 $839
FAS 123 pro forma adjustments, after tax (16) (13) (9)
------------------------------------------------------------------------------------------------------
Net income, pro forma $1,031 $889 $830
------------------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE> 89
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by
TAP. Rent expense related to all leases is shared by the companies on a
cost allocation method based generally on estimated usage by department.
Net rent expense was $30 million, $24 million, and $15 million in 1999,
1998 and 1997, respectively.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING RENTAL
($ in millions) PAYMENTS
--------------------------------------------------------------------------
<S> <C>
2000 $38
2001 42
2002 41
2003 41
2004 41
Thereafter 273
--------------------------------------------------------------------------
Total Rental Payments $476
=========================================================================
</TABLE>
Future sublease rental income of approximately $79 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of
the rental expense for a particular lease totaling $195 million, by an
affiliate. Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-22
<PAGE> 90
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. FEDERAL INCOME TAXES
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
($ in millions)
--------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,592 $1,383 $1,283
Statutory Tax Rate 35% 35% 35%
--------------------------------------------------------------------------------------------------------
Expected Federal Income Taxes 557 484 449
Tax Effect of:
Non-taxable investment income (19) (5) (4)
Other, net 7 2 (1)
--------------------------------------------------------------------------------------------------------
Federal Income Taxes $ 545 $ 481 $ 444
========================================================================================================
Effective Tax Rate 34% 35% 35%
--------------------------------------------------------------------------------------------------------
</TABLE>
COMPOSITION OF FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
Current:
<S> <C> <C> <C>
United States $377 $418 $410
Foreign 32 24 24
--------------------------------------------------------------------------------------------------------
Total 409 442 434
--------------------------------------------------------------------------------------------------------
Deferred:
United States 143 40 10
Foreign (7) (1) --
--------------------------------------------------------------------------------------------------------
Total 136 39 10
--------------------------------------------------------------------------------------------------------
Federal Income Taxes $545 $481 $444
========================================================================================================
</TABLE>
Additional tax benefits attributable to employee stock plans allocated
directly to shareholder's equity were $17 million for each of the years
ended December 31, 1999, 1998 and 1997.
F-23
<PAGE> 91
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1999 and 1998 were
comprised of the tax effects of temporary differences related to the
following assets and liabilities:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
($ in millions) 1999 1998
---- ----
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 645 $ 616
Operating lease reserves 70 76
Investments, net 11 --
Other employee benefits 106 103
Other 142 135
-----------------------------------------------------------------------------------------------------------------
Total 974 930
-----------------------------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of insurance in force (773) (673)
Investments, net -- (489)
Other (124) (90)
-----------------------------------------------------------------------------------------------------------------
Total (897) (1,252)
-----------------------------------------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset Before Valuation Allowance 77 (322)
Valuation Allowance for Deferred Tax Assets (100) (100)
-----------------------------------------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (23) $ (422)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company and its life insurance subsidiaries 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
1999. The initial recognition of any benefit produced by the reversal of
the valuation allowance will be recognized by reducing goodwill.
At December 31, 1999, the Company had no ordinary or capital loss
carryforwards.
F-24
<PAGE> 92
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 or 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 $326 million.
11. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,806 $1,598 $1,460
Mortgage loans 235 295 291
Joint ventures and partnerships 141 74 55
Trading 141 43 57
Other, including policy loans 287 240 263
------------------------------------------------------------------------------------------------------
2,610 2,250 2,126
------------------------------------------------------------------------------------------------------
Investment expenses 104 65 89
------------------------------------------------------------------------------------------------------
Net investment income $2,506 $2,185 $2,037
------------------------------------------------------------------------------------------------------
</TABLE>
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $(23) $111 $ 71
Equity securities 7 6 (9)
Mortgage loans 29 21 59
Real estate held for sale 108 16 67
Other (8) (5) 11
------------------------------------------------------------------------------------------------------
Total Realized Investment Gains $113 $149 $199
------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE> 93
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $(1,554) $ 91 $ 446
Equity securities 49 13 25
Other (30) (169) 520
-------------------------------------------------------------------------------------------------------------
Total Unrealized Investment Gains (Losses) (1,535) (65) 991
-------------------------------------------------------------------------------------------------------------
Related taxes (539) (20) 350
-------------------------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (996) (45) 641
Transferred to paid in capital, net of tax -- (585) --
Balance beginning of year 598 1,228 587
-------------------------------------------------------------------------------------------------------------
Balance End of Year $ (398) $ 598 $1,228
-------------------------------------------------------------------------------------------------------------
</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 $506 million, which were reported in
1997, related to appreciation of Citigroup common stock.
F-26
<PAGE> 94
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Fixed Maturities
The amortized cost and fair value of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1999 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 5,081 $ 22 $ 224 $ 4,879
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,032 14 53 993
Obligations of states, municipalities and
political subdivisions 214 -- 31 183
Debt securities issued by foreign governments 811 35 10 836
All other corporate bonds 13,938 69 384 13,623
Other debt securities 3,319 30 99 3,250
Redeemable preferred stock 105 4 7 102
-------------------------------------------------------------------------------------------------------------------
Total Available For Sale $24,500 $ 174 $ 808 $23,866
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1998 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 4,717 $ 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>
F-27
<PAGE> 95
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Proceeds from sales of fixed maturities classified as available for sale
were $12.6 billion, $13.4 billion and $7.6 billion in 1999, 1998 and 1997,
respectively. Gross gains of $200 million, $314 million and $170 million
and gross losses of $223 million, $203 million and $99 million in 1999,
1998 and 1997, 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 $4.8 billion at December 31, 1999 and 1998, respectively.
The amortized cost and fair value of fixed maturities at December 31, 1999,
by contractual maturity, are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
AMORTIZED
($ in millions) COST FAIR VALUE
--------------------------------------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $1,624 $1,622
Due after 1 year through 5 years 6,633 6,599
Due after 5 years through 10 years 5,257 5,132
Due after 10 years 5,905 5,634
--------------------------------------------------------------------------------------
19,419 18,987
--------------------------------------------------------------------------------------
Mortgage-backed securities 5,081 4,879
--------------------------------------------------------------------------------------
Total Maturity $24,500 $23,866
--------------------------------------------------------------------------------------
</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, 1999 and 1998, the Company held CMOs classified as
available for sale with a fair value of $3.8 billion and $3.4 billion,
respectively. Approximately 52% and 54%, respectively, of the Company's CMO
holdings are fully collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1999 and 1998. In addition, the Company held $1.1 billion and
$1.4 billion of GNMA, FNMA or FHLMC mortgage-backed pass-through securities
at December 31, 1999 and 1998, respectively. Virtually all of these
securities are rated AAA.
F-28
<PAGE> 96
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
EQUITY SECURITIES: UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Common stocks $195 $123 $ 4 $314
Non-redeemable preferred stocks 496 15 41 470
-------------------------------------------------------------------------------------------------------------------
Total Equity Securities $691 $138 $45 $784
-------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998
Common stocks $129 $44 $ 3 $170
Non-redeemable preferred stocks 345 10 7 348
-------------------------------------------------------------------------------------------------------------------
Total Equity Securities $474 $54 $10 $518
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $100 million, $212 million
and $341 million in 1999, 1998 and 1997, respectively. Gross gains of $15
million, $30 million and $53 million and gross losses of $8 million, $24
million and $62 million in 1999, 1998 and 1997, respectively, were realized
on those sales.
Mortgage Loans and Real Estate Held For Sale
At December 31, 1999 and 1998, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
($ in millions) 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,228 $2,370
Underperforming Mortgage Loans 57 236
--------------------------------------------------------------------------------------------------
Total Mortgage Loans 2,285 2,606
--------------------------------------------------------------------------------------------------
Real Estate Held For Sale - Foreclosed 223 112
Real Estate Held For Sale - Investment 13 31
--------------------------------------------------------------------------------------------------
Total Real Estate 236 143
--------------------------------------------------------------------------------------------------
Total Mortgage Loans and Real Estate Held for Sale $2,521 $2,749
==================================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in
the process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
F-29
<PAGE> 97
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
-----------------------------------------------------------------------
<S> <C>
Past Maturity $ 39
2000 162
2001 172
2002 137
2003 131
2004 140
Thereafter 1,504
-----------------------------------------------------------------------
Total $2,285
=======================================================================
</TABLE>
Trading Securities
Trading securities of the Company are held in Tribeca.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
($ in millions) 1999 1998
-------------------------------------------------------------------------------------------
TRADING SECURITIES OWNED
<S> <C> <C>
Convertible bond arbitrage $1,045 $754
Merger arbitrage 421 427
Other 212 5
-------------------------------------------------------------------------------------------
Total $1,678 $1,186
-------------------------------------------------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Convertible bond arbitrage $799 $521
Merger arbitrage 299 352
-------------------------------------------------------------------------------------------
Total $1,098 $873
-------------------------------------------------------------------------------------------
</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-30
<PAGE> 98
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1999 and 1998, the Company had an investment in Citigroup
Preferred Stock of $987 million. See Note 8.
The Company maintains a short-term investment pool for its insurance
affiliates in which the Company also participates. See Note 8.
The Company had concentrations of investments, primarily fixed maturities,
in the following industries:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
($ in millions) 1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Banking $1,906 $2,131
Electric Utilities 1,653 1,513
Finance 1,571 1,346
--------------------------------------------------------------------------
</TABLE>
The Company held investments in Foreign Banks in the amount of $1,012
million and $997 million at December 31, 1999 and 1998, respectively, which
are included in the table above. Also, below investment grade assets
included in the preceding table were not significant.
Included in fixed maturities are below investment grade assets totaling
$2.2 billion and $2.1 billion at December 31, 1999 and 1998, 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 and notes that are classified as below investment grade.
Mortgage loan investments are relatively evenly dispersed throughout the
United States, with no significant holdings in any one state. Also, there
is no significant mortgage loan investment in a particular property type.
F-31
<PAGE> 99
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, 1999 and 1998. 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 1999 and in 1998.
Interest on these assets, included in net investment income was
insignificant in 1999 and 1998.
13. DEPOSIT FUNDS AND RESERVES
At December 31, 1999, the Company had $27.0 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 $13.2
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 $2.1 billion of liabilities that are
surrenderable with market value adjustments. Also included are an
additional $4.9 billion of life insurance and individual annuity
liabilities which are subject to discretionary withdrawals, and have an
average surrender charge of 4.6%. In the payout phase, these funds are
credited at significantly reduced interest rates. The remaining $6.2
billion of liabilities are surrenderable without charge. More than 12.7% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-32
<PAGE> 100
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $ 1,047 $ 902 $ 839
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized gains (113) (149) (199)
Deferred federal income taxes 136 39 10
Amortization of deferred policy acquisition costs 315 275 252
Additions to deferred policy acquisition costs (686) (566) (471)
Investment income (221) (202) (32)
Premium balances (23) 23 (64)
Insurance reserves and accrued expenses 421 348 111
Other 99 205 380
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operations $ 975 $ 875 $ 826
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
15. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include the
acquisition of real estate through foreclosures of mortgage loans amounting
to $205 million in 1999, 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-33
<PAGE> 101
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
16. 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 & ANNUITY business segment consolidates primarily the
business of The Travelers Insurance Company and The Travelers Life and
Annuity Company. Travelers Life & Annuity offers individual annuity, group
annuity, individual life and long-term care products distributed by the
Company and TLAC under the Travelers name. Among the range of individual
products offered are fixed and variable deferred annuities, payout
annuities and term, universal and variable life and long-term care
insurance. The group products include institutional pensions, including
guaranteed investment contracts, payout annuities, group annuities to
employer-sponsored retirement and savings plans and structured finance
transactions.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company, Primerica Life Insurance Company of
Canada 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 & PRIMERICA LIFE
1999 ($ in millions) ANNUITY INSURANCE TOTAL
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 666 $ 1,072 $ 1,738
Deposits 11,220 -- 11,220
------- ------- -------
Total business volume $11,886 $ 1,072 $12,958
Net investment income 2,249 257 2,506
Interest credited to contractholders 937 -- 937
Amortization of deferred acquisition costs 127 188 315
Federal income taxes on Operating Income 319 186 505
Operating Income (excludes realized gains or
losses and the related FIT) $ 619 $ 355 $ 974
Segment Assets $56,615 $ 6,916 $63,531
-----------------------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE> 102
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE & PRIMERICA LIFE
1998 ($ 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 88 187 275
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 $56,548
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE PRIMERICA LIFE
1997 ($ 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 68 184 252
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 $49,440
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures
for additions to long-lived assets other than financial instruments,
long-term customer relationships of a financial institution, mortgage and
other servicing rights, deferred policy acquisition costs, and deferred tax
assets, were not material.
F-35
<PAGE> 103
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
($ in millions)
----------------------------------------------------------------------------------------------------------
REVENUES 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total business volume $12,958 $9,433 $6,859
Net investment income 2,506 2,185 2,037
Realized investment gains 113 149 199
Other revenues 521 440 354
Elimination of deposits (11,220) (7,693) (5,276)
----------------------------------------------------------------------------------------------------------
Total revenues $4,878 $4,514 $4,173
==========================================================================================================
OPERATING INCOME 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total operating income of business segments $ 974 $805 $710
Realized investment gains net of tax 73 97 129
----------------------------------------------------------------------------------------------------------
Income from continuing operations $1,047 $902 $839
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets of business segments $63,531 $56,548 $49,440
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
REVENUE BY PRODUCTS 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Annuities $5,694 $4,198 $3,303
Group and Payout Annuities 7,275 5,326 3,737
Individual Life and Health Insurance 2,434 2,270 2,102
Other (a) 695 413 307
Elimination of deposits (11,220) (7,693) (5,276)
----------------------------------------------------------------------------------------------------------
Total Revenue $4,878 $4,514 $4,173
==========================================================================================================
</TABLE>
(a) Other represents revenue attributable to unallocated capital and run-off
businesses.
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-36
<PAGE> 104
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> 105
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
- - The facing sheet.
- - The Prospectus.
- - The undertaking to file reports.
- - The signatures.
- - Written consents of the following persons:
A. Consent of Katherine M. Sullivan, General Counsel, to the filing of her
opinion as an exhibit to this Registration Statement and to the reference
to her opinion under the caption "Legal Proceedings and Opinion" in the
Prospectus. (See Exhibit 11 below).
B. Consent and Actuarial Opinion pertaining to the illustrations contained
in the Prospectus.
C. Consent of KPMG LLP, Independent Certified Public Accountants.
D. Powers of Attorney (See Exhibit 12 below).
- - The following Exhibits:
1. Resolution of the Board of Directors of The Travelers Insurance Company
authorizing the establishment of the Registrant. (Incorporated herein by
reference to Exhibit 1 to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6, filed August 21, 1995.)
2. Not applicable.
3(a). Distribution and Principal Underwriting Agreement among the Registrant,
The Travelers Insurance Company and CFBDS, Inc. (Incorporated herein by
reference to Exhibit 3(a) to 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 Agreement, including schedule of sales commissions. (Incorporated
herein by reference to Exhibit 3(c) to Post-Effective Amendment No. 1 to
the Registration Statement on Form S-6, filed April 25, 1997.)
4. None
5. Variable Life Insurance Policy. (Incorporated herein by reference to
Exhibit 5 to Pre-Effective Amendment No. 1 to the Registration Statement
on Form S-6, filed August 21, 1995.)
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 on Form S-2, File No. 33-58677 filed via Edgar on
April 18, 1995.)
<PAGE> 106
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 on Form S-2, File No. 33-58677 filed via Edgar on
April 18, 1995.)
7. None
8. None
9. None
10. Application for Variable Life Insurance Policy. (Incorporated herein by
reference to Exhibit 10 to Post-Effective Amendment No. 3 to the
Registration Statement on Form S-6 filed April 24, 1998.)
11. Opinion of Counsel, regarding the legality of securities being
registered. (Incorporated herein by reference to Exhibit 11 to
Post-Effective Amendment No. 3 to the Registration Statement on Form S-6
filed April 24, 1998.)
12. Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Michael A. Carpenter, Jay S. Benet, George C. Kokulis, Ian
R. Stuart, Katherine M. Sullivan, Robert I. Lipp and Marc P. Weill.
(Incorporated herein by reference to Exhibit 12 to Post-Effective
Amendment No. 1 to the Registration Statement on Form S-6, filed April
25, 1998.)
12(b). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for George C. Kokulis, Katherine M. Sullivan and Glenn D.
Lammey.
13. Memorandum concerning transfer and redemption procedures, as required by
Rule 6e-3(T)(b)(12)(ii). (Incorporated herein by reference to Exhibit 13
to Pre-Effective Amendment No. 1 to the Registration Statement on Form
S-6, filed August 21, 1995.)
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, The
Travelers Variable Life Insurance Separate Account Three, 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 post-effective 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 the 25th day of
April, 2000.
THE TRAVELERS VARIABLE LIFE INSURANCE SEPARATE ACCOUNT THREE
(Registrant)
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By:*GLENN D. LAMMEY
-----------------------------------------
Glenn D. Lammey, 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 25th day of April 2000.
*GEORGE C. KOKULIS Director, President and Chief Executive Officer
- ---------------------------- (Principal Executive Officer)
(George C. Kokulis)
*KATHERINE M. SULLIVAN Director
- ----------------------------
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ----------------------------
(Marc P. Weill)
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
Attachment
or
Exhibit No. Description Method of Filing
- ---------- ----------- ----------------
<S> <C>
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:
12(b). Powers of Attorney authorizing Ernest J. Wright or Electronically
Kathleen A. McGah as signatory for George C. Kokulis,
Katherine M. Sullivan and Glenn D. Lammey.
</TABLE>
<PAGE> 1
ATTACHMENT B
Re: Travelers' Variable Vintage Life (File No. 33-88576)
Dear Sir or Madam:
In my capacity as Actuary of The Travelers Insurance Company, I have provided
actuarial advice concerning Travelers' Vintage Life product. I also provided
actuarial advice concerning the preparation of the Registration Statement on
Form S-6, File No. 33-88576 (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 25, 2000
<PAGE> 1
ATTACHMENT C
Consent of Independent Certified Public Accountants
Board of Directors
The Travelers Insurance Company
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Hartford, Connecticut
April 25, 2000
<PAGE> 1
EXHIBIT 12(b)
THE TRAVELERS VARIABLE LIFE INSURANCE SEPARATE ACCOUNT THREE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, GEORGE C. KOKULIS of Simsbury, 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 Variable Life Insurance Separate Account Three, 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 10th day of April
2000.
/s/George C. Kokulis
Director, President and Chief Executive Officer
The Travelers Insurance Company
<PAGE> 2
THE TRAVELERS VARIABLE LIFE INSURANCE SEPARATE ACCOUNT THREE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, KATHERINE M. SULLIVAN of Longmeadow, Massachusetts, a Director 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
Variable Life Insurance Separate Account Three, 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 31st day of March
2000.
/s/Katherine M. Sullivan
Director
The Travelers Insurance Company
<PAGE> 3
THE TRAVELERS VARIABLE LIFE INSURANCE SEPARATE ACCOUNT THREE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, GLENN D. LAMMEY of Simsbury, Connecticut, 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 Variable Life Insurance Separate
Account Three, 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 31st day of March
2000.
/s/Glenn D. Lammey
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Insurance Company
