-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CeOvAtf3O97OtzsQOX5uAVMXcMOonsArWqfLxaq9AfVwVPDYoLHB1Ib5573zh7oD BrEJScEDy/KJIhqNjqj4yQ== 0000950123-99-003225.txt : 19990413 0000950123-99-003225.hdr.sgml : 19990413 ACCESSION NUMBER: 0000950123-99-003225 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE CENTRAL INDEX KEY: 0000737026 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: SEC FILE NUMBER: 333-69771 FILM NUMBER: 99592013 BUSINESS ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: C/O TRAVELERS INSURANCE CO CITY: HARTFORD STATE: CT ZIP: 06183 BUSINESS PHONE: 2032777379 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 S-6/A 1 THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE 1 Registration Statement No. 333-69771 811-03927 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 A. Exact Name of Trust: THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE B. Name of Depositor: THE TRAVELERS INSURANCE COMPANY C. Complete Address of Depositor's Principal Executive Offices: One Tower Square, Hartford, Connecticut 06183 D. Name and Complete Address of Agent for Service: Ernest J. Wright, Secretary The Travelers Insurance Company One Tower Square Hartford, Connecticut 06183 It is proposed that this filing will become effective (check appropriate box): __________ immediately upon filing pursuant to paragraph (b) __________ on ___________ pursuant to paragraph (b) __________ 60 days after filing pursuant to paragraph (a)(1) __________ on __________ pursuant to paragraph (a)(1) of Rule 485. If appropriate, check the following box: __________ this post-effective amendment designates a new effective date for a previously filed post-effective amendment. E. Title of securities being registered: Variable Survivorship Life Insurance Policies. Pursuant to Rule 24f-2 under the Investment Company Act of 1940 the Registrant hereby declares that an indefinite amount of its Variable Survivorship Life Insurance Policies is being registered under the Securities Act of 1933. F. Approximate date of proposed public offering: As soon as practicable following the effectiveness of the Registration Statement 2 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. __________ Check the box if it is proposed that this filing will become effective on ____ at ___ pursuant to Rule 487. ______ 3 Pre-Effective Amendment No. 1 to the Registration Statement filed on Form S-6 is hereby incorporated by reference in its entirety. 4 THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 ASSETS: Investments in eligible funds at market value: American Odyssey Funds, Inc, 32,132 shares (cost $465,733) $ 474,479 Capital Appreciation Fund, 175,485 shares (cost $8,146,283) 12,764,814 Dreyfus Stock Index Fund, 189,204 shares (cost $4,970,776) 6,152,928 Fidelity's Variable Insurance Products Fund, 1,006,012 shares (cost $21,774,158) 26,352,825 Fidelity's Variable Insurance Products Fund II, 303,586 shares (cost $4,775,665) 5,513,114 Greenwich Street Series Fund, 59,798 shares (cost $979,615) 1,049,447 High Yield Bond Trust, 21,748 shares (cost $202,284) 214,220 Managed Assets Trust, 131,393 shares (cost $2,168,075) 2,626,536 Money Market Portfolio, 2,934,461 shares (cost $2,934,461) 2,934,461 Templeton Variable Products Series Fund, 651,109 shares (cost $13,358,259) 13,393,279 The Travelers Series Trust, 509,501 shares (cost $5,701,816) 5,867,480 Travelers Series Fund Inc, 526,822 shares (cost $8,529,771) 10,158,229 ----------- Total Investments (cost $74,006,896) $ 87,501,812 Receivables: Dividends 395,856 Premium payments and transfers from other Travelers accounts 94,601 Other assets 842 ------------ Total Assets 87,993,111 ------------ LIABILITIES: Payables: Contract surrenders and transfers to other Travelers accounts 12,953 Insurance charges 13,506 Administrative charges 1,036 ------------ Total Liabilities 27,495 ------------ NET ASSETS: $ 87,965,616 ============
See Notes to Financial Statements -1- 5 THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 INVESTMENT INCOME: Dividends $ 5,453,417 EXPENSES: Insurance charges $ 530,563 Administrative charges 38,285 ----------- Total expenses 568,848 ----------- Net investment income 4,884,569 ----------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold 20,652,837 Cost of investments sold 18,056,633 ----------- Net realized gain (loss) 2,596,204 Change in unrealized gain (loss) on investments: Unrealized gain at December 31, 1997 8,096,664 Unrealized gain at December 31, 1998 13,494,916 ----------- Net change in unrealized gain (loss) for the year 5,398,252 ----------- Net realized gain (loss) and change in unrealized gain (loss) 7,994,456 ----------- Net increase in net assets resulting from operations $ 12,879,025 ============
See Notes to Financial Statements -2- 6 THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ------------ ------------ OPERATIONS: Net investment income $ 4,884,569 $ 2,447,570 Net realized gain (loss) from investment transactions 2,596,204 1,450,336 Net change in unrealized gain (loss) on investments 5,398,252 4,607,783 ------------ ------------ Net increase in net assets resulting from operations 12,879,025 8,505,689 ------------ ------------ UNIT TRANSACTIONS: Participant premium payments (applicable to 12,749,964 and 12,005,909 units, respectively) 22,622,231 19,096,022 Participant transfers from other Travelers accounts (applicable to 8,850,476 and 8,679,346 units, respectively) 16,644,515 13,453,685 Contract surrenders (applicable to 5,653,725 and 3,304,273 units, respectively) (10,097,307) (5,554,224) Participant transfers to other Travelers accounts (applicable to 10,422,931 and 9,048,261 units, respectively) (17,682,682) (13,733,134) Other payments to participants (applicable to 220,614 and 23,301 units, respectively) (458,339) (33,914) ------------ ------------ Net increase in net assets resulting from unit transactions 11,028,418 13,228,435 ------------ ------------ Net increase in net assets 23,907,443 21,734,124 NET ASSETS: Beginning of year 64,058,173 42,324,049 ------------ ------------ End of year $ 87,965,616 $ 64,058,173 ============ ============
See Notes to Financial Statements -3- 7 NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Fund UL for Variable Life Insurance ("Fund UL") is a separate account of The Travelers Insurance Company ("The Travelers"), an indirect wholly owned subsidiary of Citigroup Inc. (formerly Travelers Group Inc.), and is available for funding certain variable life insurance contracts issued by The Travelers. Fund UL is registered under the Investment Company Act of 1940, as amended, as a unit investment trust. The Travelers interest in the net assets of Fund UL was $2,498,370 at December 31, 1998. Participant premium payments applied to Fund UL are invested in one or more eligible funds in accordance with the selection made by the owner. As of December 31, 1998, the eligible funds available under Fund UL were: Managed Assets Trust; High Yield Bond Trust; Capital Appreciation Fund; Money Market Portfolio (formerly Cash Income Trust); U.S. Government Securities Portfolio, Utilities Portfolio, Zero Coupon Bond Fund Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio Series 2005 of The Travelers Series Trust; Alliance Growth Portfolio, Smith Barney Large Cap Value Portfolio (formerly Smith Barney Income and Growth Portfolio), Smith Barney High Income Portfolio, MFS Total Return Portfolio and AIM Capital Appreciation Portfolio of Travelers Series Fund Inc.; Total Return Portfolio of Greenwich Street Series Fund (all of which are managed by affiliates of The Travelers); Templeton Bond Fund (Class 1 shares), Templeton Stock Fund (Class 1 shares) and Templeton Asset Allocation Fund (Class 1 shares) of Templeton Variable Products Series Fund; High Income Portfolio, Growth Portfolio and Equity-Income Portfolio of Fidelity's Variable Insurance Products Fund; Asset Manager Portfolio of Fidelity's Variable Insurance Products Fund II; and Dreyfus Stock Index Fund. All of the funds are Massachusetts business trusts, except for Travelers Series Fund Inc. and Dreyfus Stock Index Fund which are incorporated under Maryland law. Not all funds may be available in all states or to all contract owners. Effective July 12, 1995, the following funds are no longer available to new contract owners under Fund UL. These funds are: American Odyssey Core Equity Fund, American Odyssey Emerging Opportunities Fund, American Odyssey International Equity Fund, American Odyssey Long-Term Bond Fund, American Odyssey Intermediate-Term Bond Fund and American Odyssey Global High-Yield Bond Fund (formerly American Odyssey Short-Term Bond Fund) of American Odyssey Funds, Inc. Effective December 18, 1998, Zero Coupon Bond Fund Portfolio Series 1998 of The Travelers Series Trust was fully liquidated. The following is a summary of significant accounting policies consistently followed by Fund UL in the preparation of its financial statements. SECURITY VALUATION. Investments are valued daily at the net asset values per share of the underlying funds. SECURITY TRANSACTIONS. Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. FEDERAL INCOME TAXES. The operations of Fund UL form a part of the total operations of The Travelers and are not taxed separately. The Travelers is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended (the "Code"). Under existing federal income tax law, no taxes are payable on the investment income of Fund UL. Fund UL is not taxed as a "regulated investment company" under Subchapter M of the Code. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments were $36,173,612 and $20,652,837, respectively, for the year ended December 31, 1998. Realized gains and losses from investment transactions are reported on an identified cost basis. The cost of investments in eligible funds was $74,006,896 at December 31, 1998. Gross unrealized appreciation for all investments at December 31, 1998 was $14,289,993. Gross unrealized depreciation for all investments at December 31, 1998 was $795,077. -4- 8 NOTES TO FINANCIAL STATEMENTS - CONTINUED 3. CONTRACT CHARGES Insurance charges and administrative charges up to a maximum of 0.80% and 0.10%, respectively, of the average net assets of Fund UL on an annual basis, are allowed for mortality and expense risks and administrative expenses assumed by The Travelers. For Price I contracts (all InVest Contracts, MarketLife Contracts issued prior to July 12, 1995, and MarketLife Contracts issued on or after July 12, 1995 where state approval for Enhanced MarketLife had not yet been received), the insurance charges were 0.60% and the administrative charges were waived by The Travelers for the year ended December 31, 1998. For Price II contracts (all MarketLife Contracts issued on or after July 12, 1995, where state approval for Enhanced MarketLife has been received), the insurance charges are 0.80% for the first fifteen policy years, and 0.45% thereafter. The administrative charges for these contracts are 0.10% for the first fifteen policy years and 0% thereafter. The Travelers receives contingent surrender charges on full or partial contract surrenders. Such charges are computed by applying various percentages to premiums and/or stated contract amounts (as described in the prospectus). The Travelers received $307,722 and $131,429 in satisfaction of such contingent surrender charges for the years ended December 31, 1998 and 1997, respectively. 4. NET CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998 ----------------------------------------- UNIT NET UNITS VALUE ASSETS American Odyssey Funds, Inc American Odyssey Core Equity Fund Price I .................................... 30,336 $ 2.548 $ 77,290 American Odyssey Emerging Opportunities Fund Price I .................................... 191,574 1.324 253,707 American Odyssey Intermediate-Term Bond Fund Price I .................................... 1,415 1.257 1,779 American Odyssey International Equity Fund Price I .................................... 79,390 1.608 127,670 American Odyssey Long-Term Bond Fund Price I .................................... 7,329 1.480 10,850 American Odyssey Global High-Yield Bond Fund Price I .................................... 2,703 1.155 3,122 Capital Appreciation Fund Price I .................................... 1,211,338 4.356 5,275,992 Price II ................................... 1,735,755 4.311 7,482,917 Dreyfus Stock Index Fund Price I .................................... 632,898 2.807 1,776,837 Price II ................................... 1,574,572 2.779 4,375,461 Fidelity's Variable Insurance Products Fund Equity-Income Portfolio Price I .................................... 2,281,753 2.198 5,015,439 Price II ................................... 2,185,272 2.176 4,754,349 Growth Portfolio Price I .................................... 2,716,535 2.550 6,926,107 Price II ................................... 2,275,742 2.524 5,742,957
-5- 9 NOTES TO FINANCIAL STATEMENTS - CONTINUED 4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
DECEMBER 31, 1998 ------------------------------------------ UNIT NET UNITS VALUE ASSETS Fidelity's Variable Insurance Products Fund (continued) High Income Portfolio Price I ............................................... 1,023,855 $ 1.441 $1,475,430 Price II .............................................. 1,707,651 1.426 2,435,697 Fidelity's Variable Insurance Products Fund II Asset Manager Portfolio Price I ............................................... 2,562,465 1.669 4,278,033 Price II .............................................. 747,088 1.652 1,234,519 Greenwich Street Series Fund Total Return Portfolio Price I ............................................... 37,785 1.563 59,075 Price II .............................................. 639,347 1.549 990,224 High Yield Bond Trust Price I ............................................... 80,415 2.664 214,192 Managed Assets Trust Price I ............................................... 562,180 3.248 1,825,786 Price II .............................................. 249,491 3.215 801,993 Money Market Portfolio Price I ............................................... 217,444 1.620 352,204 Price II .............................................. 1,651,980 1.603 2,648,472 Templeton Variable Products Series Fund Templeton Asset Allocation Fund (Class 1 shares) Price I ............................................... 1,869,744 1.655 3,094,291 Price II .............................................. 817,109 1.638 1,338,449 Templeton Bond Fund (Class 1 shares) Price I ............................................... 131,822 1.270 167,405 Price II .............................................. 395,071 1.257 496,603 Templeton Stock Fund (Class 1 shares) Price I ............................................... 2,910,661 1.628 4,737,612 Price II .............................................. 2,208,000 1.611 3,557,220 The Travelers Series Trust US Government Securities Portfolio Price I ............................................... 178,511 1.424 254,233 Price II .............................................. 2,019,497 1.410 2,846,761 Utilities Portfolio Price I ............................................... 104,282 1.995 208,012 Price II .............................................. 63,564 1.974 125,500
-6- 10 NOTES TO FINANCIAL STATEMENTS - CONTINUED 4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
DECEMBER 31, 1998 ------------------------------------------ UNIT NET UNITS VALUE ASSETS ----- ----- ------ The Travelers Series Trust (continued) Zero Coupon Bond Fund Portfolio Series 2000 Price I ................................... 1,002,043 $ 1.198 $ 1,200,936 Price II .................................. 38,914 1.187 46,188 Zero Coupon Bond Fund Portfolio Series 2005 Price I ................................... 1,045,823 1.300 1,359,448 Price II .................................. 167,840 1.287 216,072 Travelers Series Fund Inc AIM Capital Appreciation Portfolio Price I ................................... 159,618 1.381 220,467 Price II .................................. 1,212,084 1.369 1,659,892 Alliance Growth Portfolio Price I ................................... 255,880 2.207 564,660 Price II .................................. 1,856,738 2.185 4,056,066 MFS Total Return Portfolio Price I ................................... 192,769 1.654 318,924 Price II .................................. 934,652 1.638 1,530,928 Smith Barney High Income Portfolio Price I ................................... 24,613 1.262 31,059 Price II .................................. 606,346 1.251 758,380 Smith Barney Large Cap Value Portfolio Price I ................................... 49,624 1.747 86,680 Price II .................................. 548,941 1.730 949,728 ----------- Net Contract Owners' Equity ............... $87,965,616 ===========
11 NOTES TO FINANCIAL STATEMENTS - CONTINUED 5. STATEMENT OF INVESTMENTS
INVESTMENT OPTIONS NO. OF MARKET SHARES VALUE ----------- ----------- AMERICAN ODYSSEY FUNDS, INC. (0.5%) American Odyssey Core Equity Fund (Cost $59,251) ................. 3,751 $ 77,300 American Odyssey Emerging Opportunities Fund (Cost $279,592) ..... 19,384 253,739 American Odyssey Intermediate-Term Bond Fund (Cost $1,683) ....... 160 1,780 American Odyssey International Equity Fund (Cost $111,664) ....... 7,578 127,687 American Odyssey Long-Term Bond Fund (Cost $10,270) .............. 944 10,851 American Odyssey Global High-Yield Bond Fund (Cost $3,273) ....... 315 3,122 ----------- ----------- Total (Cost $465,733) ............................................ 32,132 474,479 ----------- ----------- CAPITAL APPRECIATION FUND (14.6%) Total (Cost $8,146,283) .......................................... 175,485 12,764,814 ----------- ----------- DREYFUS STOCK INDEX FUND (7.0%) Total (Cost $4,970,776) .......................................... 189,204 6,152,928 ----------- ----------- FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (30.1%) Equity-Income Portfolio (Cost $8,246,416) ........................ 384,371 9,770,712 Growth Portfolio (Cost $9,391,962) ............................... 282,381 12,670,447 High Income Portfolio (Cost $4,135,780) .......................... 339,260 3,911,666 ----------- ----------- Total (Cost $21,774,158) ......................................... 1,006,012 26,352,825 ----------- ----------- FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (6.3%) Asset Manager Portfolio Total (Cost $4,775,665) .......................................... 303,586 5,513,114 ----------- ----------- GREENWICH STREET SERIES FUND (1.2%) Total Return Portfolio Total (Cost $979,615) ............................................ 59,798 1,049,447 ----------- ----------- HIGH YIELD BOND TRUST (0.3%) Total (Cost $202,284) ............................................ 21,748 214,220 ----------- ----------- MANAGED ASSETS TRUST (3.0%) Total (Cost $2,168,075) .......................................... 131,393 2,626,536 ----------- ----------- MONEY MARKET PORTFOLIO (3.4%) Total (Cost $2,934,461) .......................................... 2,934,461 2,934,461 ----------- ----------- TEMPLETON VARIABLE PRODUCTS SERIES FUND (15.3%) Templeton Asset Allocation Fund (Class 1 shares) (Cost $3,957,991) 197,370 4,432,920 Templeton Bond Fund (Class 1 shares) (Cost $651,336) ............. 59,993 664,127 Templeton Stock Fund (Class 1 shares) (Cost $8,748,932) .......... 393,746 8,296,232 ----------- ----------- Total (Cost $13,358,259) ......................................... 651,109 13,393,279 ----------- -----------
-8- 12 NOTES TO FINANCIAL STATEMENTS - CONTINUED 5. STATEMENT OF INVESTMENTS (CONTINUED)
NO. OF MARKET SHARES VALUE ----------- ----------- THE TRAVELERS SERIES TRUST (6.7%) U.S. Government Securities Portfolio (Cost $2,907,479) 241,714 $ 2,852,226 Utilities Portfolio (Cost $278,167) 19,416 333,563 Zero Coupon Bond Fund Portfolio Series 2000 (Cost $1,152,876) 114,967 1,179,564 Zero Coupon Bond Fund Portfolio Series 2005 (Cost $1,363,294) 133,404 1,502,127 ----------- ----------- Total (Cost $5,701,816) 509,501 5,867,480 ----------- ----------- TRAVELERS SERIES FUND INC. (11.6%) AIM Capital Appreciation Portfolio (Cost $1,587,697) 129,868 1,880,488 Alliance Growth Portfolio (Cost $3,496,011) 175,649 4,621,322 MFS Total Return Portfolio (Cost $1,699,380) 108,634 1,850,044 Smith Barney High Income Portfolio (Cost $826,312) 62,346 789,305 Smith Barney Large Cap Value Portfolio (Cost $920,371) 50,325 1,017,070 ----------- ----------- Total (Cost $8,529,771) 526,822 10,158,229 ----------- ----------- TOTAL INVESTMENT OPTIONS (100%) (Cost $74,006,896) $87,501,812 ===========
-9- 13 NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AMERICAN ODYSSEY CORE AMERICAN ODYSSEY EMERGING AMERICAN ODYSSEY INTERMEDIATE EQUITY FUND OPPORTUNITIES FUND -TERM BOND FUND --------------------- --------------------- --------------------- 1998 1997 1998 1997 1998 1997 --------- --------- --------- --------- --------- --------- INVESTMENT INCOME: Dividends ......................................... $ 8,470 $ 1,487 $ -- $ -- $ 8 $ 80 --------- --------- --------- --------- --------- --------- EXPENSES: Insurance charges ................................. 448 387 1,554 1,630 9 7 Administrative charges ............................ -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- Net investment income (loss) ...................... 8,022 1,100 (1,554) (1,630) (1) 73 --------- --------- --------- --------- --------- --------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold .................... 9,623 17,936 57,345 46,981 65 157 Cost of investments sold .......................... 5,694 12,382 64,399 46,233 63 153 --------- --------- --------- --------- --------- --------- Net realized gain (loss) .......................... 3,929 5,554 (7,054) 748 2 4 --------- --------- --------- --------- --------- --------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of year .......... 19,500 8,895 (12,045) (32,337) (22) (23) Unrealized gain (loss) end of year ................ 18,049 19,500 (25,853) (12,045) 97 (22) --------- --------- --------- --------- --------- --------- Net change in unrealized gain (loss) for the year . (1,451) 10,605 (13,808) 20,292 119 1 --------- --------- --------- --------- --------- --------- Net increase (decrease) in net assets resulting from operations ......................... 10,500 17,259 (22,416) 19,410 120 78 --------- --------- --------- --------- --------- --------- Unit Transactions: Participant premium payments ...................... 10,400 10,015 49,542 59,971 404 570 Participant transfers from other Travelers accounts 61 1,899 4,306 8,296 16 32 Contract surrenders ............................... (4,443) (4,755) (22,358) (25,273) (86) (97) Participant transfers to other Travelers accounts . (5,618) (15,920) (43,052) (37,520) (10) (157) Other payments to participants .................... -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- Net increase (decrease) in net assets resulting from unit transactions .................. 400 (8,761) (11,562) 5,474 324 348 --------- --------- --------- --------- --------- --------- Net increase (decrease) in net assets ............. 10,900 8,498 (33,978) 24,884 444 426 NET ASSETS: Beginning of year ................................. 66,390 57,892 287,685 262,801 1,335 909 --------- --------- --------- --------- --------- --------- End of year ....................................... $ 77,290 $ 66,390 $ 253,707 $ 287,685 $ 1,779 $ 1,335 ========= ========= ========= ========= ========= =========
-10- 14 NOTES TO FINANCIAL STATEMENTS - CONTINUED
AMERICAN ODYSSEY INTERNATIONAL AMERICAN ODYSSEY LONG-TERM AMERICAN ODYSSEY GLOBAL HIGH- EQUITY FUND BOND FUND YIELD BOND FUND CAPITAL APPRECIATION FUND - ----------------------------- ----------------------------- ----------------------------- ----------------------------- 1998 1997 1998 1997 1998 1997 1998 1997 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 7,253 $ 2,623 $ 188 $ 4,752 $ 1 $ 170 $ 225,348 $ 36 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 738 661 96 400 20 19 56,699 30,965 -- -- -- -- -- -- 4,562 2,084 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 6,515 1,962 92 4,352 (19) 151 164,087 (33,013) - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 28,558 20,677 77,573 4,416 96 470 672,903 839,367 21,351 16,342 75,868 4,534 102 475 405,494 553,249 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 7,207 4,335 1,705 (118) (6) (5) 267,409 286,118 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 12,462 14,319 1,244 (2,217) (31) (63) 930,111 276,095 16,023 12,462 581 1,244 (151) (31) 4,618,531 930,111 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 3,561 (1,857) (663) 3,461 (120) 32 3,688,420 654,016 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 17,283 4,440 1,134 7,695 (145) 178 4,119,916 907,121 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 21,538 27,193 1,382 28,271 94 658 1,722,876 1,371,774 4,669 7,563 -- -- -- -- 2,709,937 1,068,760 (23,931) (12,213) (811) (4,730) (152) (533) (792,310) (577,590) (8,587) (13,029) (77,176) -- -- -- (417,132) (560,317) -- -- -- -- -- -- (160,978) (651) - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (6,311) 9,514 (76,605) 23,541 (58) 125 3,062,393 1,301,976 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 10,972 13,954 (75,471) 31,236 (203) 303 7,182,309 2,209,097 116,698 102,744 86,321 55,085 3,325 3,022 5,576,600 3,367,503 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 127,670 $ 116,698 $ 10,850 $ 86,321 $ 3,122 $ 3,325 $ 12,758,909 $ 5,576,600 ============ ============ ============ ============ ============ ============ ============ ============
-11- 15 NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
DREYFUS STOCK INDEX FUND EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO ------------------------ ------------------------- ------------------------- 1998 1997 1998 1997 1998 1997 ----------- ----------- ----------- ------------ ------------ ----------- INVESTMENT INCOME: Dividends ......................................... $ 80,837 $ 131,569 $ 519,007 $ 551,315 $ 1,383,745 $ 234,290 ----------- ----------- ----------- ------------ ------------ ----------- EXPENSES: Insurance charges ................................. 37,009 17,644 61,249 45,297 74,825 53,174 Administrative charges ............................ 3,583 1,557 4,053 2,746 4,553 3,145 ----------- ----------- ----------- ------------ ------------ ----------- Net investment income (loss) ...................... 40,245 112,368 453,705 503,272 1,304,367 177,971 ----------- ----------- ----------- ------------ ------------ ----------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold .................... 1,348,144 480,285 1,027,285 1,066,364 2,882,351 775,032 Cost of investments sold .......................... 890,692 385,669 773,339 796,012 2,088,775 510,153 ----------- ----------- ----------- ------------ ------------ ----------- Net realized gain (loss) .......................... 457,452 94,616 253,946 270,352 793,576 264,879 ----------- ----------- ----------- ------------ ------------ ----------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of year .......... 523,266 103,469 1,324,425 555,918 1,692,557 642,147 Unrealized gain (loss) end of year ................ 1,182,152 523,266 1,524,296 1,324,425 3,278,485 1,692,557 ----------- ----------- ----------- ------------ ------------ ----------- Net change in unrealized gain (loss) for the year . 658,886 419,797 199,871 768,507 1,585,928 1,050,410 ----------- ----------- ----------- ------------ ------------ ----------- Net increase (decrease) in net assets resulting from operations ......................... 1,156,583 626,781 907,522 1,542,131 3,683,871 1,493,260 ----------- ----------- ----------- ------------ ------------ ----------- Unit Transactions: Participant premium payments ...................... 1,357,520 815,909 1,821,387 1,553,084 2,688,152 2,092,960 Participant transfers from other Travelers accounts 2,205,447 947,641 782,438 1,216,927 577,474 1,286,782 Contract surrenders ............................... (758,259) (282,791) (1,111,405) (715,570) (1,397,298) (898,220) Participant transfers to other Travelers accounts . (1,144,166) (335,492) (466,177) (767,826) (2,484,960) (494,401) Other payments to participants .................... -- -- (125,412) (8,322) (59,946) (5,729) ----------- ----------- ----------- ------------ ------------ ----------- Net increase (decrease) in net assets resulting from unit transactions .................. 1,660,542 1,145,267 900,831 1,278,293 (676,578) 1,981,392 ----------- ----------- ----------- ------------ ------------ ----------- Net increase (decrease) in net assets ............. 2,817,125 1,772,048 1,808,353 2,820,424 3,007,293 3,474,652 NET ASSETS: Beginning of year ................................. 3,335,173 1,563,125 7,961,435 5,141,011 9,661,771 6,187,119 ----------- ----------- ----------- ------------ ------------ ----------- End of year ....................................... $ 6,152,298 $ 3,335,173 $ 9,769,788 $ 7,961,435 $ 12,669,064 $ 9,661,771 =========== =========== =========== ============ ============ ===========
-12- 16 NOTES TO FINANCIAL STATEMENTS - CONTINUED
HIGH INCOME PORTFOLIO ASSET MANAGER PORTFOLIO TOTAL RETURN PORTFOLIO HIGH YIELD BOND TRUST - ---------------------------- ---------------------------- ---------------------------- ---------------------------- 1998 1997 1998 1997 1998 1997 1998 1997 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 403,352 $ 195,704 $ 555,132 $ 414,291 $ 46,880 $ 30,928 $ 15,178 $ 151 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 27,571 20,332 31,590 24,513 7,284 4,608 1,309 1,465 2,305 1,556 953 501 863 544 -- -- - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 373,476 173,816 522,589 389,277 38,733 25,776 13,869 (1,314) - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 2,208,102 906,455 673,448 332,402 84,997 40,508 118,763 234,846 2,203,983 892,824 558,510 276,655 67,822 33,582 106,699 225,775 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 4,119 13,631 114,938 55,747 17,175 6,926 12,064 9,071 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 370,469 109,472 714,532 454,097 87,967 32,702 25,465 (2,411) (224,114) 370,469 737,449 714,532 69,832 87,967 11,936 25,465 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (594,583) 260,997 22,917 260,435 (18,135) 55,265 (13,529) 27,876 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (216,988) 448,444 660,444 705,459 37,773 87,967 12,404 35,633 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 856,339 686,634 867,895 792,294 181,561 141,056 26,399 34,411 2,321,318 933,013 394,346 128,939 176,508 212,209 57,870 93,271 (391,089) (260,544) (372,107) (414,673) (106,689) (40,498) (47,347) (143,838) (2,081,017) (718,621) (423,123) (153,222) (17,224) (10,203) (77,740) (98,507) -- (5,003) (841) (69) -- -- -- -- - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 705,551 635,479 466,170 353,269 234,156 302,564 (40,818) (114,663) - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 488,563 1,083,923 1,126,614 1,058,728 271,929 390,531 (28,414) (79,030) 3,422,564 2,338,641 4,385,938 3,327,210 777,370 386,839 242,606 321,636 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 3,911,127 $ 3,422,564 $ 5,512,552 $ 4,385,938 $ 1,049,299 $ 777,370 $ 214,192 $ 242,606 =========== =========== =========== =========== =========== =========== =========== ===========
-13- 17 NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
TEMPLETON ASSET ALLOCATION MANAGED ASSETS TRUST MONEY MARKET PORTFOLIO FUND (CLASS 1 SHARES) ------------------------- ------------------------ ------------------------ 1998 1997 1998 1997 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends ......................................... $ 149,710 $ 56,368 $ 154,385 $ 148,941 $ 240,092 $ 257,405 ----------- ----------- ----------- ----------- ----------- ----------- Expenses: Insurance charges ................................. 14,505 11,874 24,039 23,201 28,173 23,292 Administrative charges ............................ 527 339 2,618 2,570 1,263 868 ----------- ----------- ----------- ----------- ----------- ----------- Net investment income (loss) ...................... 134,678 44,155 127,728 123,170 210,656 233,245 ----------- ----------- ----------- ----------- ----------- ----------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED Gain (Loss) on Investments: Realized gain (loss) from investment transactions: Proceeds from investments sold .................... 532,152 374,254 6,111,697 7,080,626 460,332 299,373 Cost of investments sold .......................... 429,702 292,317 6,111,697 7,080,626 337,833 211,031 ----------- ----------- ----------- ----------- ----------- ----------- Net realized gain (loss) .......................... 102,450 81,937 -- -- 122,499 88,342 ----------- ----------- ----------- ----------- ----------- ----------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of year .......... 264,796 49,154 -- -- 587,676 469,194 Unrealized gain (loss) end of year ................ 458,461 264,796 -- -- 474,929 587,676 ----------- ----------- ----------- ----------- ----------- ----------- Net change in unrealized gain (loss) for the year . 193,665 215,642 -- -- (112,747) 118,482 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations ......................... 430,793 341,734 127,728 123,170 220,408 440,069 ----------- ----------- ----------- ----------- ----------- ----------- Unit Transactions: Participant premium payments ...................... 491,683 427,367 6,741,925 6,413,938 727,391 735,199 Participant transfers from other Travelers accounts 330,398 132,340 1,519,284 3,079,011 244,926 400,002 Contract surrenders ............................... (510,867) (269,781) (1,028,727) (365,525 (430,422) (356,661) Participant transfers to other Travelers accounts . (140,305) (253,757) (7,713,789) (8,668,083 (308,864) (100,309) Other payments to participants .................... -- -- -- -- (869) -- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from unit transactions .................. 170,909 36,169 (481,307) 459,341 232,162 678,231 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets ............. 601,702 377,903 (353,579) 582,511 452,570 1,118,300 NET ASSETS: Beginning of year ................................. 2,026,077 1,648,174 3,354,255 2,771,744 3,980,170 2,861,870 ----------- ----------- ----------- ----------- ----------- ----------- End of year ....................................... $ 2,627,779 $ 2,026,077 $ 3,000,676 $ 3,354,255 $ 4,432,740 $ 3,980,170 =========== =========== =========== =========== =========== ===========
-14- 18 NOTES TO FINANCIAL STATEMENTS - CONTINUED
TEMPLETON BOND FUND TEMPLETON STOCK FUND U.S. GOVERNMENT SECURITIES (CLASS 1 SHARES) (CLASS 1 SHARES) PORTFOLIO UTILITIES PORTFOLIO - --------------------------- --------------------------- --------------------------- --------------------------- 1998 1997 1998 1997 1998 1997 1998 1997 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 32,614 $ 22,190 $ 813,730 $ 513,518 $ 250,408 $ 71,639 $ 12,250 $ 234 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 4,333 2,586 59,343 42,347 14,906 7,196 1,659 947 421 201 3,758 2,080 1,708 781 87 44 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 27,860 19,403 750,629 469,091 233,794 63,662 10,504 (757) - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 83,313 43,392 1,561,814 795,451 311,524 579,692 34,296 33,131 81,836 43,183 1,456,190 588,414 281,520 605,967 27,593 31,964 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1,477 209 105,624 207,037 30,004 (26,275) 6,703 1,167 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 6,720 18,576 539,409 696,253 46,013 (33,195) 30,111 (3,421) 12,791 6,720 (452,700) 539,409 (55,253) 46,013 55,396 30,111 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 6,071 (11,856) (992,109) (156,844) (101,266) 79,208 25,285 33,532 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 35,408 7,756 (135,856) 519,284 162,532 116,595 42,492 33,942 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 165,218 121,519 2,075,969 1,839,867 488,039 555,591 59,758 47,754 79,798 123,156 1,558,785 1,088,920 1,294,349 723,123 98,449 1,654 (66,688) (41,897) (722,676) (668,841) (145,232) (92,796) (31,913) (28,432) (38,486) (8,468) (1,548,621) (563,883) (224,377) (503,445) (13,516) (10,100) -- (4,899) (55,834) -- -- -- -- -- - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 139,842 189,411 1,307,623 1,696,063 1,412,779 682,473 112,778 10,876 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 175,250 197,167 1,171,767 2,215,347 1,575,311 799,068 155,270 44,818 488,758 291,591 7,123,065 4,907,718 1,525,683 726,615 178,242 133,424 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 664,008 $ 488,758 $ 8,294,832 $ 7,123,065 $ 3,100,994 $ 1,525,683 $ 333,512 $ 178,242 =========== =========== =========== =========== =========== =========== =========== ===========
-15- 19 NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
ZERO COUPON BOND FUND ZERO COUPON BOND FUND ZERO COUPON BOND FUND PORTFOLIO SERIES 1998 PORTFOLIO SERIES 2000 PORTFOLIO SERIES 2005 ------------------------ ------------------------ ------------------------ 1998 1997 1998 1997 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends ......................................... $ 63,083 $ 60,738 $ 68,351 $ 63,813 $ 74,703 $ 71,682 ----------- ----------- ----------- ----------- ----------- ----------- Expenses: Insurance charges ................................. 6,692 6,579 7,338 6,564 8,639 7,294 Administrative charges ............................ 10 10 44 13 142 63 ----------- ----------- ----------- ----------- ----------- ----------- Net investment income (loss) ...................... 56,381 54,149 60,969 57,236 65,922 64,325 ----------- ----------- ----------- ----------- ----------- ----------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold .................... 1,186,548 22,224 34,245 13,930 95,551 67,978 Cost of investments sold .......................... 1,186,192 21,753 33,205 13,566 88,033 67,394 ----------- ----------- ----------- ----------- ----------- ----------- Net realized gain (loss) .......................... 356 471 1,040 364 7,518 584 ----------- ----------- ----------- ----------- ----------- ----------- Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of year .......... 2,394 (1,641) 7,987 (4,359) 60,360 (2,241) Unrealized gain (loss) end of year ................ -- 2,394 26,688 7,987 138,833 60,360 ----------- ----------- ----------- ----------- ----------- ----------- Net change in unrealized gain (loss) for the year . (2,394) 4,035 18,701 12,346 78,473 62,601 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations ......................... 54,343 58,655 80,710 69,946 151,913 127,510 ----------- ----------- ----------- ----------- ----------- ----------- UNIT TRANSACTIONS: Participant premium payments ...................... 342 634 4,538 1,592 63,688 43,451 Participant transfers from other Travelers accounts -- 8,679 26,367 36,989 114,346 37,071 Contract surrenders ............................... (1,170,656) (454) (5,944) (877) (10,152) (3,931) Participant transfers to other Travelers accounts . (9,182) (15,356) (21,675) (16) (80,311) (57,627) Other payments to participants .................... -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from unit transactions .................. (1,179,496) (6,497) 3,286 37,688 87,571 18,964 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets ............. (1,125,153) 52,158 83,996 107,634 239,484 146,474 NET ASSETS: Beginning of year ................................. 1,125,153 1,072,995 1,163,128 1,055,494 1,336,036 1,189,562 ----------- ----------- ----------- ----------- ----------- ----------- End of year ....................................... $ -- $ 1,125,153 $ 1,247,124 $ 1,163,128 $ 1,575,520 $ 1,336,036 =========== =========== =========== =========== =========== ===========
-16- 20 NOTES TO FINANCIAL STATEMENTS - CONTINUED
AIM CAPITAL APPRECIATION SMITH BARNEY HIGH INCOME PORTFOLIO ALLIANCE GROWTH PORTFOLIO MFS TOTAL RETURN PORTFOLIO PORTFOLIO - ------------------------------ ------------------------------- ------------------------------ ------------------------------ 1998 1997 1998 1997 1998 1997 1998 1997 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 1,994 $ -- $ 208,151 $ -- $ 59,754 $ -- $ 47,805 $ -- - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 11,508 7,136 26,480 13,955 10,341 4,442 5,337 1,982 1,313 807 2,973 1,519 1,097 432 646 222 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (10,827) (7,943) 178,698 (15,474) 48,316 (4,874) 41,822 (2,204) - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 262,115 53,629 420,518 137,767 199,816 54,024 52,415 460,379 203,919 48,176 269,565 106,425 151,321 42,230 49,894 436,696 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 58,196 5,453 150,953 31,342 48,495 11,794 2,521 23,683 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 93,128 17,258 554,376 97,212 115,974 18,241 17,011 3,819 292,791 93,128 1,125,311 554,376 150,664 115,974 (37,007) 17,011 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 199,663 75,870 570,935 457,164 34,690 97,733 (54,018) 13,192 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 247,032 73,380 900,586 473,032 131,501 104,653 (9,675) 34,671 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 510,445 311,127 795,707 431,226 422,994 143,523 271,273 260,419 216,820 370,189 1,026,827 619,763 597,781 269,013 93,719 335,032 (179,247) (82,325) (471,438) (152,219) (134,335) (35,983) (37,279) (17,233) (99,943) (13,899) (145,042) (43,871) (28,238) (6,460) (14,923) (281,223) (54,459) -- -- (1,525) -- (6,400) -- -- - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 393,616 585,092 1,206,054 853,374 858,202 363,693 312,790 296,995 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 640,648 658,472 2,106,640 1,326,406 989,703 468,346 303,115 331,666 1,239,711 581,239 2,514,086 1,187,680 860,149 391,803 486,324 154,658 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 1,880,359 $ 1,239,711 $ 4,620,726 $ 2,514,086 $ 1,849,852 $ 860,149 $ 789,439 $ 486,324 =========== =========== =========== =========== =========== =========== =========== ===========
-17- 21 NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SCHEDULE OF FUND UL OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
SMITH BARNEY LARGE CAP VALUE PORTFOLIO COMBINED ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ INVESTMENT INCOME: Dividends ......................................... $ 30,988 $ -- $ 5,453,417 $ 2,833,924 ------------ ------------ ------------ ------------ EXPENSES: Insurance charges ................................. 6,869 3,376 530,563 363,873 Administrative charges ............................ 806 399 38,285 22,481 ------------ ------------ ------------ ------------ Net investment income (loss) ...................... 23,313 (3,775) 4,884,569 2,447,570 ------------ ------------ ------------ ------------ REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) from investment transactions: Proceeds from investments sold .................... 117,248 58,318 20,652,837 14,840,064 Cost of investments sold .......................... 85,342 45,948 18,056,633 13,389,728 ------------ ------------ ------------ ------------ Net realized gain (loss) .......................... 31,906 12,370 2,596,204 1,450,336 ------------ ------------ ------------ ------------ Change in unrealized gain (loss) on investments: Unrealized gain (loss) beginning of year .......... 80,809 3,968 8,096,664 3,488,881 Unrealized gain (loss) end of year ................ 96,699 80,809 13,494,916 8,096,664 ------------ ------------ ------------ ------------ Net change in unrealized gain (loss) for the year . 15,890 76,841 5,398,252 4,607,783 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ......................... 71,109 85,436 12,879,025 8,505,689 ------------ ------------ ------------ ------------ UNIT TRANSACTIONS: Participant premium payments ...................... 197,772 148,015 22,622,231 19,096,022 Participant transfers from other Travelers accounts 208,276 323,411 16,644,515 13,453,685 Contract surrenders ............................... (123,446) (55,944) (10,097,307) (5,554,224) Participant transfers to other Travelers accounts . (49,428) (1,422) (17,682,682) (13,733,134) Other payments to participants .................... -- (1,316) (458,339) (33,914) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from unit transactions .................. 233,174 412,744 11,028,418 13,228,435 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets ............. 304,283 498,180 23,907,443 21,734,124 NET ASSETS: Beginning of year ................................. 732,125 233,945 64,058,173 42,324,049 ------------ ------------ ------------ ------------ End of year ....................................... $ 1,036,408 $ 732,125 $ 87,965,616 $ 64,058,173 ============ ============ ============ ============
-18- 22 \ NOTES TO FINANCIAL STATEMENTS - CONTINUED 7. SCHEDULE OF UNITS FOR FUND UL FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AMERICAN ODYSSEY CORE AMERICAN ODYSSEY EMERGING AMERICAN ODYSSEY INTERMEDIATE EQUITY FUND OPPORTUNITIES FUND -TERM BOND FUND ----------------------- ----------------------- ---------------------- 1998 1997 1998 1997 1998 1997 ------- ------- ------- ------- ------ ------ Units beginning of year ............ 29,927 34,187 197,206 191,470 1,145 833 Units purchased and transferred from other Travelers accounts ........... 4,410 6,394 40,292 48,792 349 536 Units redeemed and transferred to other Travelers accounts ........... (4,001) (10,654) (45,924) (43,056) (79) (224) ------- ------- ------- ------- ------ ------ Units end of year .................. 30,336 29,927 191,574 197,206 1,415 1,145 ======= ======= ======= ======= ====== ======
AMERICAN ODYSSEY AMERICAN ODYSSEY LONG-TERM AMERICAN ODYSSEY GLOBAL HIGH- INTERNATIONAL EQUITY FUND BOND FUND YIELD BOND FUND ---------------------- ---------------------- --------------------- 1998 1997 1998 1997 1998 1997 ------- ------- ------- ------- ------ ------ Units beginning of year ............ 82,883 76,225 63,209 44,927 2,753 2,640 Units purchased and transferred from other Travelers accounts ........... 17,163 24,766 976 21,997 78 574 Units redeemed and transferred to other Travelers accounts ........... (20,656) (18,108) (56,856) (3,715) (128) (461) ------- ------- ------- ------- ------ ------ Units end of year .................. 79,390 82,883 7,329 63,209 2,703 2,753 ======= ======= ======= ======= ====== ======
CAPITAL APPRECIATION FUND DREYFUS STOCK INDEX FUND EQUITY-INCOME PORTFOLIO ------------------------- ------------------------- ------------------------- 1998 1997 1998 1997 1998 1997 --------- --------- --------- --------- --------- --------- Units beginning of year ............ 2,064,967 1,560,408 1,521,389 940,291 4,031,218 3,309,909 Units purchased and transferred from other Travelers accounts ........... 1,302,276 984,555 1,449,234 918,949 1,251,314 1,560,873 Units redeemed and transferred to other Travelers accounts ........... (420,150) (479,996) (763,153) (337,851) (815,507) (839,564) --------- --------- --------- --------- --------- --------- Units end of year .................. 2,947,093 2,064,967 2,207,470 1,521,389 4,467,025 4,031,218 ========= ========= ========= ========= ========= =========
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO ASSET MANAGER PORTFOLIO ------------------------- ------------------------- ------------------------- 1998 1997 1998 1997 1998 1997 --------- --------- --------- --------- --------- --------- Units beginning of year ............ 5,270,282 4,136,339 2,267,970 1,809,239 3,007,464 2,734,435 Units purchased and transferred from other Travelers accounts ........... 1,562,195 1,992,945 2,120,094 1,201,242 820,299 695,350 Units redeemed and transferred to other Travelers accounts ........... (1,840,200) (859,002) (1,656,558) (742,511) (518,210) (422,321) --------- --------- --------- --------- --------- --------- Units end of year .................. 4,992,277 5,270,282 2,731,506 2,267,970 3,309,553 3,007,464 ========= ========= ========= ========= ========= =========
-19- 23 NOTES TO FINANCIAL STATEMENTS - CONTINUED 7. SCHEDULE OF UNITS FOR FUND UL FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
TOTAL RETURN PORTFOLIO HIGH YIELD BOND TRUST MANAGED ASSETS TRUST ---------------------- ---------------------- ---------------------- 1998 1997 1998 1997 1998 1997 -------- -------- -------- -------- -------- -------- Units beginning of year ............ 521,673 300,659 96,477 148,199 754,052 739,368 Units purchased and transferred from other Travelers accounts ........... 236,730 257,477 32,454 55,716 280,545 227,450 Units redeemed and transferred to other Travelers accounts ........... (81,271) (36,463) (48,516) (107,438) (222,926) (212,766) -------- -------- -------- -------- -------- -------- Units end of year .................. 677,132 521,673 80,415 96,477 811,671 754,052 ======== ======== ======== ======== ======== ========
TEMPLETON ASSET ALLOCATION FUND TEMPLETON BOND FUND MONEY MARKET PORTFOLIO (CLASS 1 SHARES) (CLASS 1 SHARES) -------------------------- -------------------------- -------------------------- 1998 1997 1998 1997 1998 1997 ---------- ---------- ---------- ---------- ---------- ---------- Units beginning of year ............ 2,176,965 1,872,345 2,549,205 2,102,272 411,910 249,756 Units purchased and transferred from other Travelers accounts ........... 5,259,108 6,298,315 599,350 744,438 201,540 209,477 Units redeemed and transferred to other Travelers accounts ........... (5,566,649) (5,993,695) (461,702) (297,505) (86,557) (47,323) ---------- ---------- ---------- ---------- ---------- ---------- Units end of year .................. 1,869,424 2,176,965 2,686,853 2,549,205 526,893 411,910 ========== ========== ========== ========== ========== ==========
TEMPLETON STOCK FUND U.S. GOVERNMENT SECURITIES (CLASS 1 SHARES) PORTFOLIO (UTILITIES PORTFOLIO) -------------------------- -------------------------- -------------------------- 1998 1997 1998 1997 1998 1997 ---------- ---------- ---------- ---------- ---------- ---------- Units beginning of year ............ 4,415,842 3,378,671 1,181,099 627,860 105,266 98,022 Units purchased and transferred from other Travelers accounts ........... 2,139,769 1,804,001 1,290,041 1,069,761 88,338 34,377 Units redeemed and transferred to other Travelers accounts ........... (1,436,950) (766,830) (273,132) (516,522) (25,758) (27,133) ---------- ---------- ---------- ---------- ---------- ---------- Units end of year .................. 5,118,661 4,415,842 2,198,008 1,181,099 167,846 105,266 ========== ========== ========== ========== ========== ==========
ZERO COUPON BOND FUND ZERO COUPON BOND FUND PORTFOLIO ZERO COUPON BOND FUND PORTFOLIO SERIES 1998 SERIES 2000 PORTFOLIO SERIES 2005 -------------------------- -------------------------- -------------------------- 1998 1997 1998 1997 1998 1997 ---------- ---------- ---------- ---------- ---------- ---------- Units beginning of year ............ 1,008,353 1,014,502 1,038,056 1,003,545 1,147,679 1,133,350 Units purchased and transferred from other Travelers accounts ........... 306 8,600 27,282 35,337 141,687 72,486 Units redeemed and transferred to other Travelers accounts ........... (1,008,659) (14,749) (24,381) (826) (75,703) (58,157) ---------- ---------- ---------- ---------- ---------- ---------- Units end of year .................. -- 1,008,353 1,040,957 1,038,056 1,213,663 1,147,679 ========== ========== ========== ========== ========== ==========
-20- 24 NOTES TO FINANCIAL STATEMENTS - CONTINUED 7. SCHEDULE OF UNITS FOR FUND UL FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (CONTINUED)
AIM CAPITAL APPRECIATION PORTFOLIO ALLIANCE GROWTH PORTFOLIO MFS TOTAL RETURN PORTFOLIO -------------------------- -------------------------- -------------------------- 1998 1997 1998 1997 1998 1997 ---------- ---------- ---------- ---------- ---------- ---------- Units beginning of year ............ 1,053,016 548,936 1,469,867 888,431 580,164 317,532 Units purchased and transferred from other Travelers accounts ........... 587,375 587,725 969,293 712,024 651,137 298,199 Units redeemed and transferred to other Travelers accounts ........... (268,689) (83,645) (326,542) (130,588) (103,880) (35,567) ---------- ---------- ---------- ---------- ---------- ---------- Units end of year .................. 1,371,702 1,053,016 2,112,618 1,469,867 1,127,421 580,164 ========== ========== ========== ========== ========== ==========
SMITH BARNEY HIGH INCOME SMITH BARNEY LARGE CAP VALUE PORTFOLIO PORTFOLIO COMBINED --------------------------- --------------------------- --------------------------- 1998 1997 1998 1997 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- Units beginning of year ............ 386,886 138,855 460,366 184,663 37,897,289 29,587,869 Units purchased and transferred from other Travelers accounts ........... 285,317 498,526 241,488 314,373 21,600,440 20,685,255 Units redeemed and transferred to other Travelers accounts ........... (41,244) (250,495) (103,289) (38,670) (16,297,270) (12,375,835) ----------- ----------- ----------- ----------- ----------- ----------- Units end of year .................. 630,959 386,886 598,565 460,366 43,200,459 37,897,289 =========== =========== =========== =========== =========== ===========
-21- 25 INDEPENDENT AUDITORS' REPORT To the Owners of Variable Life Insurance Contracts of The Travelers Fund UL for Variable Life Insurance: We have audited the accompanying statement of assets and liabilities of The Travelers Fund UL for Variable Life Insurance as of December 31, 1998, and the related statement of operations for the year then ended and the statement of changes in net assets for each of the two years in the period then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of shares owned as of December 31, 1998, by correspondence with the underlying funds. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Travelers Fund UL for Variable Life Insurance as of December 31, 1998, the results of its operations for the year then ended and the changes in its net assets for each of the two years in the period then ended, in conformity with generally accepted accounting principles. KPMG LLP Hartford, Connecticut February 17, 1999 -22- 26 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholder The Travelers Insurance Company and Subsidiaries: We have audited the accompanying consolidated balance sheets of The Travelers Insurance Company and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in retained earnings and accumulated other changes in equity from non-owner sources and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Travelers Insurance Company and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP Hartford, Connecticut January 25, 1999 F-1 27 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ($ IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- REVENUES Premiums $1,740 $1,583 $1,387 Net investment income 2,185 2,037 1,950 Realized investment gains 149 199 65 Other revenues 440 354 284 - ------------------------------------------------------------------------------------------------ Total Revenues 4,514 4,173 3,686 - ------------------------------------------------------------------------------------------------ BENEFITS AND EXPENSES Current and future insurance benefits 1,475 1,341 1,187 Interest credited to contractholders 876 829 863 Amortization of deferred acquisition costs and value of 311 293 281 insurance in force General and administrative expenses 469 427 380 - ------------------------------------------------------------------------------------------------ Total Benefits and Expenses 3,131 2,890 2,711 - ------------------------------------------------------------------------------------------------ Income from continuing operations before federal income 1,383 1,283 975 taxes - ------------------------------------------------------------------------------------------------ Federal income taxes: Current expense 442 434 284 Deferred 39 10 58 - ------------------------------------------------------------------------------------------------ Total Federal Income Taxes 481 444 342 - ------------------------------------------------------------------------------------------------ Income from continuing operations 902 839 633 Discontinued operations, net of income taxes Gain on disposition (net of taxes of $0, $0 and $14) - - 26 - ------------------------------------------------------------------------------------------------ Income from Discontinued Operations - - 26 ================================================================================================ Net income $ 902 $ 839 $ 659 ================================================================================================
See Notes to Consolidated Financial Statements. F-2 28 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($ IN MILLIONS)
DECEMBER 31, 1998 1997 - --------------------------------------------------------------------------------------------- ASSETS Fixed maturities, available for sale at fair value (cost, $23,893 $21,511 $22,973, $20,682) Equity securities, at fair value (cost, $474, $480) 518 512 Mortgage loans 2,606 2,869 Real estate held for sale 143 134 Policy loans 1,857 1,872 Short-term securities 1,098 1,102 Trading securities, at market value 1,186 800 Other invested assets 2,251 1,702 - --------------------------------------------------------------------------------------------- Total Investments 33,552 30,502 - --------------------------------------------------------------------------------------------- Cash 65 58 Investment income accrued 393 338 Premium balances receivable 99 106 Reinsurance recoverables 3,387 3,753 Deferred acquisition costs and value of insurance in force 2,567 2,312 Separate and variable accounts 15,313 11,319 Other assets 1,172 1,052 - --------------------------------------------------------------------------------------------- Total Assets $56,548 $49,440 - --------------------------------------------------------------------------------------------- LIABILITIES Contractholder funds $16,739 $14,913 Future policy benefits and claims 12,326 12,361 Separate and variable accounts 15,305 11,309 Deferred federal income taxes 422 409 Trading securities sold not yet purchased, at market value 873 462 Other liabilities 2,783 2,661 - --------------------------------------------------------------------------------------------- Total Liabilities 48,448 42,115 - --------------------------------------------------------------------------------------------- SHAREHOLDER'S EQUITY Common stock, par value $2.50; 40 million shares authorized, 100 100 issued and outstanding Additional paid-in capital 3,800 3,187 Retained earnings 3,602 2,810 Accumulated other changes in equity from non-owner sources 598 535 Unrealized gain on Citigroup Inc. stock, net of tax - 693 - --------------------------------------------------------------------------------------------- Total Shareholder's Equity 8,100 7,325 - --------------------------------------------------------------------------------------------- Total Liabilities and Shareholder's Equity $56,548 $49,440 =============================================================================================
See Notes to Consolidated Financial Statements. F-3 29 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES ($ IN MILLIONS)
- -------------------------------------------------------------------------- STATEMENTS OF CHANGES IN RETAINED 1998 1997 1996 EARNINGS - -------------------------------------------------------------------------- Balance, beginning of year $2,810 $2,471 $2,312 Net income 902 839 659 Dividends to parent 110 500 500 - -------------------------------------------------------------------------- Balance, end of year $3,602 $2,810 $2,471 ========================================================================== - -------------------------------------------------------------------------- STATEMENTS OF ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES - -------------------------------------------------------------------------- Balance, beginning of year $ 535 $ 223 $ 449 Unrealized gains (losses), net of tax 62 313 (226) Foreign currency translation, net of 1 (1) - tax - -------------------------------------------------------------------------- Balance, end of year $ 598 $ 535 $ 223 ========================================================================== - -------------------------------------------------------------------------- SUMMARY OF CHANGES IN EQUITY FROM NON-OWNER SOURCES - -------------------------------------------------------------------------- Net Income $ 902 $ 839 $ 659 Other changes in equity from non-owner sources 63 312 (226) - -------------------------------------------------------------------------- Total changes in equity from non-owner sources $ 965 $1,151 $ 433 ==========================================================================
See Notes to Consolidated Financial Statements. F-4 30 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH ($ IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Premiums collected $1,763 $1,519 $1,387 Net investment income received 2,021 2,059 1,910 Other revenues received 255 180 131 Benefits and claims paid (1,127) (1,230) (1,060) Interest credited to contractholders (918) (853) (820) Operating expenses paid (587) (445) (343) Income taxes paid (506) (368) (328) Trading account investments, (purchases) sales, net (38) (54) - Other 12 18 (70) - --------------------------------------------------------------------------------------------------- Net cash provided by operating activities 875 826 807 Net cash used in discontinued operations - - (350) - --------------------------------------------------------------------------------------------------- Net Cash Provided by Operations 875 826 457 - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investments Fixed maturities 2,608 2,259 1,928 Mortgage loans 722 663 917 Proceeds from sales of investments Fixed maturities 13,390 7,592 9,101 Equity securities 212 341 479 Mortgage loans - 207 178 Real estate held for sale 53 169 210 Purchases of investments Fixed maturities (18,072) (11,143) (11,556) Equity securities (194) (483) (594) Mortgage loans (457) (771) (470) Policy loans, net 15 38 (23) Short-term securities, (purchases) sales, net (495) (2) 498 Other investments, purchases, net (550) (260) (137) Securities transactions in course of settlement 192 311 (52) Net cash provided by investing activities of - - 348 discontinued operations - --------------------------------------------------------------------------------------------------- Net Cash Provided by (Used In) Investing Activities (2,576) (1,079) 827 - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Redemption of commercial paper, net - (50) (23) Contractholder fund deposits 4,383 3,544 2,493 Contractholder fund withdrawals (2,565) (2,757) (3,262) Dividends to parent company (110) (500) (500) Other - - 9 - --------------------------------------------------------------------------------------------------- Net Cash Provided by (Used In) Financing Activities 1,708 237 (1,283) - --------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 7 (16) 1 - --------------------------------------------------------------------------------------------------- Cash at December 31, $ 65 $ 58 $ 74 ===================================================================================================
See Notes to Consolidated Financial Statements. F-5 31 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies used in the preparation of the accompanying financial statements follow. Basis of Presentation The Travelers Insurance Company (TIC) and, collectively with its subsidiaries (the Company) is a wholly owned subsidiary of The Travelers Insurance Group Inc. (TIGI), an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup), formerly Travelers Group Inc. The consolidated financial statements include the accounts of TIC and its insurance and non-insurance subsidiaries on a fully consolidated basis. The primary insurance subsidiaries of the Company are The Travelers Life and Annuity Company (TLAC) and Primerica Life Insurance Company (Primerica Life) and its subsidiary National Benefit Life Insurance Company (NBL). As discussed in Note 2 of Notes to Consolidated Financial Statements, in January 1995 the group life insurance and related businesses of the Company were sold to Metropolitan Life Insurance Company (MetLife). Also in January 1995, the group medical component was exchanged for a 42% interest in The MetraHealth Companies, Inc. (MetraHealth). The Company's interest in MetraHealth was sold on October 2, 1995 and a final contingent payment was made during 1996. The Company's discontinued operations reflect the results of the gain from the contingent payment in 1996. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and benefits and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform with the 1998 presentation. F-6 32 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACCOUNTING CHANGES Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 125). This statement establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. These standards are based on an approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. FAS 125 provides standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Effective January 1, 1998, the Company adopted the collateral provisions of FAS 125 which were not effective until 1998 in accordance with Statement of Financial Accounting Standards No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS 125". The adoption of the collateral provisions of FAS 125 created additional assets and liabilities on the Company's consolidated statement of financial position related to the recognition of securities provided and received as collateral. There was no impact on the Company's results of operations from the adoption of the collateral provisions of FAS 125. Reporting Comprehensive Income Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. All items that are required to be recognized under accounting standards as components of comprehensive income are required to be reported in an annual financial statement that is displayed with the same prominence as other financial statements. This statement stipulates that comprehensive income reflect the change in equity of an enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income thus represents the sum of net income and other changes in equity from non-owner sources. The accumulated balance of other changes in equity from non-owner sources is required to be displayed separately from retained earnings and additional paid-in capital in the consolidated balance sheet. The adoption of FAS 130 resulted primarily in the Company reporting unrealized gains and losses on investments in debt and equity securities in changes in equity from non-owner sources. See Note 5. F-7 33 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Disclosures About Segments of an Enterprise and Related Information During 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (FAS 131). FAS 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that selected information about those operating segments be reported in interim financial statements. This statement supersedes Statement of Financial Accounting Standards No. 14, "Financial Reporting for Segments of a Business Enterprise". FAS 131 requires that all public enterprises report financial and descriptive information about its reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decisionmaker in deciding how to allocate resources and in assessing performance. As a result of the adoption of FAS 131, the Company has two reportable operating segments, Travelers Life and Annuity and Primerica Life Insurance. See Note 17. Accounting for the Costs of Computer Software Developed or Obtained for Internal Use During the third quarter of 1998, the Company adopted (effective January 1, 1998) the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants' Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use and for determining when specific costs should be capitalized or expensed. The adoption of SOP 98-1 did not have a material impact on the Company's financial condition, statement of operations or liquidity. ACCOUNTING POLICIES Investments Fixed maturities include bonds, notes and redeemable preferred stocks. Fair values of investments in fixed maturities are based on quoted market prices or dealer quotes or, if these are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. Also included in fixed maturities are loan-backed and structured securities, which are amortized using the retrospective method. The effective yield used to determine amortization is calculated based upon actual historical and projected future cash flows, which are obtained from a widely-accepted securities data provider. Fixed maturities are classified as "available for sale" and are reported at fair value, with unrealized investment gains and losses, net of income taxes, charged or credited directly to shareholder's equity. Equity securities, which include common and nonredeemable preferred stocks, are classified as "available for sale" and carried at fair value based primarily on quoted market prices. Changes in fair values of equity securities are charged or credited directly to shareholder's equity, net of income taxes. Mortgage loans are carried at amortized cost. A mortgage loan is considered impaired when it is probable that the Company will be unable to collect principal and interest amounts due. For mortgage loans that are determined to be impaired, a reserve is established for the difference between the amortized cost and fair market value of the underlying collateral. In estimating fair value, the Company uses interest rates reflecting the higher returns required in the current real estate financing market. Impaired loans were insignificant at December 31, 1998 and 1997. F-8 34 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Real estate held for sale is carried at the lower of cost or fair value less estimated cost to sell. Fair value of foreclosed properties is established at the time of foreclosure by internal analysis or external appraisers, using discounted cash flow analyses and other accepted techniques. Thereafter, an allowance for losses on real estate held for sale is established if the carrying value of the property exceeds its current fair value less estimated costs to sell. There was no such allowance at December 31, 1998 and 1997. Trading securities and related liabilities are normally held for periods less than six months. These investments are marked to market with the change recognized in net investment income during the current period. Short-term securities, consisting primarily of money market instruments and other debt issues purchased with a maturity of less than one year, are carried at amortized cost which approximates market. Accrual of income is suspended on fixed maturities or mortgage loans that are in default, or on which it is likely that future payments will not be made as scheduled. Interest income on investments in default is recognized only as payment is received. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, including financial futures contracts, options, forward contracts and interest rate swaps and caps, as a means of hedging exposure to interest rate and foreign currency risk. Hedge accounting is used to account for derivatives. To qualify for hedge accounting the changes in value of the derivative must be expected to substantially offset the changes in value of the hedged item. Hedges are monitored to ensure that there is a high correlation between the derivative instruments and the hedged investment. Gains and losses arising from financial futures contracts are used to adjust the basis of hedged investments and are recognized in net investment income over the life of the investment. Payments to be received or made under interest rate swaps are accrued and recognized in net investment income. Swaps are carried at fair value with unrealized gains and losses, net of taxes, charged or credited directly to shareholder's equity. Forward contracts, and options, and interest rate caps were not significant at December 31, 1998 and 1997. Information concerning derivative financial instruments is included in Note 6. INVESTMENT GAINS AND LOSSES Realized investment gains and losses are included as a component of pre-tax revenues based upon specific identification of the investments sold on the trade date. Also included are gains and losses arising from the remeasurement of the local currency value of foreign investments to U.S. dollars, the functional currency of the Company. The foreign exchange effects of Canadian operations are included in unrealized gains and losses. F-9 35 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) POLICY LOANS Policy loans are carried at the amount of the unpaid balances that are not in excess of the net cash surrender values of the related insurance policies. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. DEFERRED ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE Costs of acquiring individual life insurance, annuities and long-term care business, principally commissions and certain expenses related to policy issuance, underwriting and marketing, all of which vary with and are primarily related to the production of new business, are deferred. Acquisition costs relating to traditional life insurance, including term insurance and long-term care insurance, are amortized in relation to anticipated premiums; universal life in relation to estimated gross profits; and annuity contracts employing a level yield method. For life insurance, a 15 to 20 year amortization period is used; for long-term care business, a 10 to 20 year period is used, and a 7 to 20 year period is employed for annuities. Deferred acquisition costs are reviewed periodically for recoverability to determine if any adjustment is required. The value of insurance in force is an asset recorded at the time of acquisition of an insurance company. It represents the actuarially determined present value of anticipated profits to be realized from life insurance, annuities and health contracts at the date of acquisition using the same assumptions that were used for computing related liabilities where appropriate. The value of insurance in force was the actuarially determined present value of the projected future profits discounted at interest rates ranging from 14% to 18%. Traditional life insurance and guaranteed renewable health policies are amortized in relation to anticipated premiums; universal life is amortized in relation to estimated gross profits; and annuity contracts are amortized employing a level yield method. The value of insurance in force is reviewed periodically for recoverability to determine if any adjustment is required. SEPARATE AND VARIABLE ACCOUNTS Separate and variable accounts primarily represent funds for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholders. Each account has specific investment objectives. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. The assets of these accounts are carried at market value. Certain other separate accounts provide guaranteed levels of return or benefits and the assets of these accounts are primarily carried at market value. Amounts assessed to the contractholders for management services are included in revenues. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses. GOODWILL Goodwill represents the cost of acquired businesses in excess of net assets and is being amortized on a straight-line basis principally over a 40-year period. The carrying amount is regularly reviewed for indication of impairment in value that in the view of management would be other than temporary. Impairments would be recognized in operating results if a permanent diminution in value is deemed to have occurred. F-10 36 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONTRACTHOLDER FUNDS Contractholder funds represent receipts from the issuance of universal life, corporate owned life insurance, pension investment and certain deferred annuity contracts. Contractholder fund balances are increased by such receipts and credited interest and reduced by withdrawals, mortality charges and administrative expenses charged to the contractholders. Interest rates credited to contractholder funds range from 3.5% to 9.1%. FUTURE POLICY BENEFITS Benefit reserves represent liabilities for future insurance policy benefits. Benefit reserves for life insurance and annuities have been computed based upon mortality, morbidity, persistency and interest assumptions applicable to these coverages, which range from 2.5% to 10.0%, including adverse deviation. These assumptions consider Company experience and industry standards. The assumptions vary by plan, age at issue, year of issue and duration. Appropriate recognition has been given to experience rating and reinsurance. PERMITTED STATUTORY ACCOUNTING PRACTICES The Company, whose insurance subsidiaries are domiciled principally in Connecticut and Massachusetts, prepares statutory financial statements in accordance with the accounting practices prescribed or permitted by the insurance departments of the states of domicile. Prescribed statutory accounting practices include certain publications of the National Association of Insurance Commissioners (NAIC) as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The impact of any permitted accounting practices on statutory surplus of the Company is not material. The NAIC recently completed a process intended to codify statutory accounting practices for certain insurance enterprises. As a result of this process, the NAIC will issue a revised statutory Accounting Practices and Procedures Manual version effective January 1, 2001 (the revised Manual) that will be effective January 1, 2001 for the calendar year 2001 statutory financial statements. It is expected that the State of Connecticut will require that, effective January 1, 2001, insurance companies domiciled in Connecticut prepare their statutory basis financial statements in accordance with the revised Manual subject to any deviations prescribed or permitted by the Connecticut insurance commissioner. The Company has not yet determined the impact that this change will have on the statutory capital and surplus of its insurance subsidiaries. PREMIUMS Premiums are recognized as revenues when due. Reserves are established for the portion of premiums that will be earned in future periods and for deferred profits on limited-payment policies that are being recognized in income over the policy term. OTHER REVENUES Other revenues include surrender, mortality and administrative charges and fees earned on investment, universal life and other insurance contracts. Other revenues also include gains and losses on dispositions of assets other than realized investment gains and losses and revenues of non-insurance subsidiaries. F-11 37 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INTEREST CREDITED TO CONTRACTHOLDERS Interest credited to contractholders represents amounts earned by universal life, corporate owned life insurance, pension investment and certain deferred annuity contracts in accordance with contract provisions. FEDERAL INCOME TAXES The provision for federal income taxes is comprised of two components, current income taxes and deferred income taxes. Deferred federal income taxes arise from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. The deferred federal income tax asset is recognized to the extent that future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. FUTURE APPLICATION OF ACCOUNTING STANDARDS In December 1997, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for determining when an entity should recognize a liability for guaranty-fund and other insurance-related assessments, how to measure that liability, and when an asset may be recognized for the recovery of such assessments through premium tax offsets or policy surcharges. This SOP is effective for financial statements for fiscal years beginning after December 15, 1998, and the effect of initial adoption is to be reported as a cumulative catch-up adjustment. Restatement of previously issued financial statements is not allowed. The Company plans to implement SOP 97-3 in the first quarter of 1999 and expects there to be no material impact on the Company's financial condition, results of operations or liquidity. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Upon initial application of FAS 133, hedging relationships must be designated anew and documented pursuant to the provisions of this statement. The Company has not yet determined the impact that FAS 133 will have on its consolidated financial statements. F-12 38 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. DISPOSITIONS AND DISCONTINUED OPERATIONS On January 3, 1995, the Company and its affiliates completed the sale of their group life and related non-medical group insurance businesses to MetLife for $350 million and formed the MetraHealth joint venture by contributing their group medical businesses to MetraHealth, in exchange for shares of common stock of MetraHealth. No gain was recognized as a result of this transaction. On October 2, 1995, the Company and its affiliates completed the sale of their ownership in MetraHealth to United HealthCare Corporation. During 1996 the Company received a contingency payment based on MetraHealth's 1995 results. In conjunction with this payment, certain reserves associated with the group medical business and exit costs related to the discontinued operations were reevaluated resulting in a final after-tax gain of $26 million. 3. COMMERCIAL PAPER AND LINES OF CREDIT TIC issues commercial paper directly to investors. No commercial paper was outstanding at December 31, 1998 or 1997. TIC maintains unused credit availability under bank lines of credit at least equal to the amount of the outstanding commercial paper. No interest was paid in 1998 and interest expense was not significant in 1997. Citigroup, Commercial Credit Company (CCC) (an indirect wholly owned subsidiary of Citigroup) and TIC have an agreement with a syndicate of banks to provide $1.0 billion of revolving credit, to be allocated to any of Citigroup, CCC or TIC. TIC's participation in this agreement is limited to $250 million. The agreement consists of a five-year revolving credit facility that expires in 2001. At December 31, 1998, $700 million was allocated to Citigroup, $300 million was allocated to CCC and $0 was allocated to TIC. Under this facility TIC is required to maintain certain minimum equity and risk-based capital levels. At December 31, 1998, TIC was in compliance with these provisions. There were no amounts outstanding under this agreement at December 31, 1998 and 1997. If TIC had borrowings outstanding on this facility, the interest rate would be based upon LIBOR plus a negotiated margin. 4. REINSURANCE The Company participates in reinsurance in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and to effect business-sharing arrangements. Reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term coinsurance and modified coinsurance. The Company remains primarily liable as the direct insurer on all risks reinsured. Beginning in 1997, new universal life business was reinsured under an 80%/20% quota share reinsurance program and new term life business was reinsured under a 90%/10% quota share reinsurance program. Maximum retention of $1.5 million is generally reached on policies in excess of $7.5 million. For other plans of insurance, it is the policy of the Company to obtain reinsurance for amounts above certain retention limits on individual life policies, which limits vary with age and underwriting classification. Generally, the maximum retention on an ordinary life risk is $1.5 million. The Company writes workers' compensation business through its Accident Department. This business is ceded 100% to an affiliate, The Travelers Indemnity Company. F-13 39 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of reinsurance financial data reflected within the consolidated statements of income and balance sheets is presented below ($ in millions):
WRITTEN PREMIUMS 1998 1997 1996 ---------------------------------------------------------------------- Direct $2,310 $2,148 $1,982 Assumed from: Non-affiliated companies - 1 5 Ceded to: Affiliated companies (242) (280) (284) Non-affiliated companies (317) (273) (309) ---------------------------------------------------------------------- Total Net Written Premiums $1,751 $1,596 $1,394 ======================================================================
EARNED PREMIUMS 1998 1997 1996 ---------------------------------------------------------------------- Direct $1,949 $2,170 $1,897 Assumed from: Non-affiliated companies - 1 5 Ceded to: Affiliated companies (251) (321) (219) Non-affiliated companies (308) (291) (315) ---------------------------------------------------------------------- Total Net Earned Premiums $1,390 $1,559 $1,368 ======================================================================
Reinsurance recoverables at December 31, 1998 and 1997 include amounts recoverable on unpaid and paid losses and were as follows ($ in millions):
REINSURANCE RECOVERABLES 1998 1997 ----------------------------------------------------------- Life and Accident and Health Business: Non-affiliated companies $1,297 $1,362 Property-Casualty Business: Affiliated companies 2,090 2,391 ----------------------------------------------------------- Total Reinsurance Recoverables $3,387 $3,753 ===========================================================
Total reinsurance recoverables at December 31, 1998 and 1997 include $640 million and $697 million, respectively, from MetLife in connection with the sale of the Company's group life and related businesses. F-14 40 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. SHAREHOLDER'S EQUITY Additional Paid-In Capital Additional paid-in capital increased during 1998 primarily due to the conversion of Citigroup common stock to Citigroup preferred stock. This increase in stockholder's equity was offset by a decrease in unrealized investment gains due to the same transaction. See Note 13. Unrealized Investment Gains (Losses) An analysis of the change in unrealized gains and losses on investments is shown in Note 13. Shareholder's Equity and Dividend Availability The Company's statutory net income, which includes all insurance subsidiaries, was $702 million, $754 million and $656 million for the years ended December 31, 1998, 1997 and 1996, respectively. The Company's statutory capital and surplus was $4.95 billion and $4.12 billion at December 31, 1998 and 1997, respectively. The Company is currently subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to its parent without prior approval of insurance regulatory authorities. Statutory surplus of $504 million is available in 1999 for dividend payments by the Company without prior approval of the Connecticut Insurance Department. In addition, under a revolving credit facility, the Company is required to maintain certain minimum equity and risk based capital levels. The Company is in compliance with these covenants at December 31, 1998 and 1997. F-15 41 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES, NET OF TAX
- -------------------------------------------------------------------------------------------------------------------------- NET UNREALIZED FOREIGN CURRENCY ACCUMULATED OTHER GAIN ON TRANSLATION CHANGES IN EQUITY FROM INVESTMENT ADJUSTMENTS NON-OWNER SOURCES (for the year ended December 31, $ in millions) SECURITIES - -------------------------------------------------------------------------------------------------------------------------- 1998 Balance, beginning of year $545 $(10) $535 Current-year change 62 1 63 - -------------------------------------------------------------------------------------------------------------------------- Balance, end of year $607 $(9) $598 ========================================================================================================================== 1997 Balance, beginning of year $232 $(9) $223 Current-year change 313 (1) 312 - -------------------------------------------------------------------------------------------------------------------------- Balance, end of year $545 $(10) $535 ========================================================================================================================== 1996 Balance, beginning of year $458 $(9) $449 Current-year change (226) - (226) - -------------------------------------------------------------------------------------------------------------------------- Balance, end of year $232 $(9) $223 ==========================================================================================================================
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------------------------------------- Pre-tax Tax expense After-tax (for the year ended December 31, $ in millions) amount (benefit) amount - --------------------------------------------------------------------------------------------------------- 1998 Unrealized gain on investment securities: Unrealized holding gains arising during year $ 244 $ 85 $ 159 Less: reclassification adjustment for gains realized in net income 149 52 97 - --------------------------------------------------------------------------------------------------------- Net unrealized gain on investment securities 95 33 62 Foreign currency translation adjustments 3 2 1 - --------------------------------------------------------------------------------------------------------- Other changes in equity from non-owner sources $ 98 $ 35 $ 63 ========================================================================================================= 1997 Unrealized gain on investment securities: Unrealized holding gains arising during year $ 681 $ 239 $ 442 Less: reclassification adjustment for gains realized in net income 199 70 129 - --------------------------------------------------------------------------------------------------------- Net unrealized gain on investment securities 482 169 313 Foreign currency translation adjustments (1) - (1) - --------------------------------------------------------------------------------------------------------- Other changes in equity from non-owner sources $ 481 $ 169 $ 312 ========================================================================================================= 1996 Unrealized gain on investment securities: Unrealized holding losses arising during year $(283) $ (99) $(184) Less: reclassification adjustment for gains realized in net income 65 23 42 - --------------------------------------------------------------------------------------------------------- Net unrealized loss on investment securities (348) (122) (226) Foreign currency translation adjustments - - - - --------------------------------------------------------------------------------------------------------- Other changes in equity from non-owner sources $(348) $(122) $(226) =========================================================================================================
F-16 42 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS Derivative Financial Instruments The Company uses derivative financial instruments, including financial futures, interest rate swaps, options and forward contracts as a means of hedging exposure to interest rate and foreign currency risk on anticipated transactions or existing assets and liabilities. The Company does not hold or issue derivative instruments for trading purposes. These derivative financial instruments have off-balance sheet risk. Financial instruments with off-balance sheet risk involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instrument. However, the maximum loss of cash flow associated with these instruments can be less than these amounts. For interest rate swaps, options and forward contracts, credit risk is limited to the amount that it would cost the Company to replace the contracts. Financial futures contracts have little credit risk since organized exchanges are the counterparties. The Company is a writer of option contracts and as such has no credit risk since the counterparty has no performance obligation after it has paid a cash premium. The Company monitors creditworthiness of counterparties to these financial instruments by using criteria of acceptable risk that are consistent with on-balance sheet financial instruments. The controls include credit approvals, limits and other monitoring procedures. The Company uses exchange traded financial futures contracts to manage its exposure to changes in interest rates which arise from the sale of certain insurance and investment products, or the need to reinvest proceeds from the sale or maturity of investments. To hedge against adverse changes in interest rates, the Company enters long or short positions in financial futures contracts which offset asset price changes resulting from changes in market interest rates until an investment is purchased or a product is sold. Margin payments are required to enter a futures contract and contract gains or losses are settled daily in cash. The contract amount of futures contracts represents the extent of the Company's involvement, but not future cash requirements, as open positions are typically closed out prior to the delivery date of the contract. At December 31, 1998 and 1997, the Company held financial futures contracts with notional amounts of $459 million and $625 million, respectively. These financial futures had a deferred gain of $3.3 million and a deferred loss of $.1 million in 1998 and a deferred gain of $.7 million, and a deferred loss of $4.1 million in 1997. Total gains of $1.5 million and losses of $5.8 million from financial futures were deferred at December 31, 1998 and 1997, respectively, relating to anticipated investment purchases and investment product sales, and are reported as other liabilities. At December 31, 1998 and 1997, the Company's futures contracts had no fair value because these contracts were marked to market and settled in cash daily. F-17 43 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company enters into interest rate swaps in connection with other financial instruments to provide greater risk diversification and better match an asset with a corresponding liability. Under interest rate swaps, the Company agrees with other parties to exchange, at specific intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. The Company also enters into basis swaps in which both legs of the swap are floating with each based on a different index. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each due date. Swap agreements are not exchange traded and are subject to the risk of default by the counterparty. At December 31, 1998 and 1997, the Company held interest rate swap contracts with notional amounts of $1,077.9 million and $234.7 million, respectively. The fair value of these financial instruments was $5.6 million (gain position) and $19.6 million (loss position) at December 31, 1998 and was $.3 million (gain position) and $2.5 million (loss position) at December 31, 1997. The fair values were determined using the discounted cash flow method. The off-balance sheet risks of options and forward contracts were not significant at December 31, 1998 and 1997. The Company purchased a 5-year interest rate cap, with a notional amount of $200 million, from Travelers Group Inc. in 1995 to hedge against losses that could result from increasing interest rates. This instrument, which does not have off-balance sheet risk, gave the Company the right to receive payments if interest rates exceeded specific levels at specific dates. The premium of $2 million paid for this instrument was being amortized over its life. The interest rate cap asset was terminated in 1998. The fair value at December 31, 1997 was $0. Financial Instruments with Off-Balance Sheet Risk In the normal course of business, the Company issues fixed and variable rate loan commitments and has unfunded commitments to partnerships. The off-balance sheet risk of these financial instruments was not significant at December 31, 1998 and 1997. Fair Value of Certain Financial Instruments The Company uses various financial instruments in the normal course of its business. Fair values of financial instruments that are considered insurance contracts are not required to be disclosed and are not included in the amounts discussed. At December 31, 1998 and 1997, investments in fixed maturities had a carrying value and a fair value of $23.9 billion and $21.5 billion, respectively. See Notes 1 and 13. At December 31, 1998 mortgage loans had a carrying value of $2.6 billion and a fair value of $2.8 billion and in 1997 had a carrying value of $2.9 billion and a fair value of $3.0 billion. In estimating fair value, the Company used interest rates reflecting the current real estate financing market. F-18 44 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The carrying values of $144 million and $143 million of financial instruments classified as other assets approximated their fair values at December 31, 1998 and 1997, respectively. The carrying values of $2.3 billion and $2.0 billion of financial instruments classified as other liabilities also approximated their fair values at December 31, 1998 and 1997, respectively. Fair value is determined using various methods, including discounted cash flows, as appropriate for the various financial instruments. At December 31, 1998, contractholder funds with defined maturities had a carrying value and a fair value of $3.3 billion, compared with a carrying value and a fair value of $2.3 billion at December 31, 1997. The fair value of these contracts is determined by discounting expected cash flows at an interest rate commensurate with the Company's credit risk and the expected timing of cash flows. Contractholder funds without defined maturities had a carrying value of $10.4 billion and a fair value of $10.2 billion at December 31, 1998, compared with a carrying value of $9.7 billion and a fair value of $9.5 billion at December 31, 1997. These contracts generally are valued at surrender value. The assets of separate accounts providing a guaranteed return had a carrying value and a fair value of $235 million at December 31, 1998, compared with a carrying value and a fair value of $260 million at December 31, 1997. The liabilities of separate accounts providing a guaranteed return had a carrying value and a fair value of $209 million and $206 million, respectively, at December 31, 1998, compared with a carrying value and a fair value of $209 million and $206 million, respectively, at December 31, 1997. The carrying values of cash, trading securities and trading securities sold not yet purchased are carried at fair value. The carrying values of short-term securities and investment income accrued approximated their fair values. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. 7. COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance Sheet Risk See Note 6 for a discussion of financial instruments with off-balance sheet risk. F-19 45 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Litigation In March 1997, a purported class action entitled Patterman v. The Travelers, Inc. et al. was commenced in the Superior Court of Richmond County, Georgia, alleging, among other things, violations of the Georgia RICO statute and other state laws by an affiliate of the Company, Primerica Financial Services, Inc. and certain of its affiliates. Plaintiffs seek unspecified compensatory and punitive damages and other relief. In October 1997, defendants answered the complaint, denied liability and asserted numerous affirmative defenses. In February 1998, the Superior Court of Richmond County transferred the lawsuit to the Superior Court of Gwinnett County, Georgia. The plaintiffs appealed the transfer order, and in December 1998 the Court of Appeals of the State of Georgia reversed the lower court's decision. Later in December 1998, defendants petitioned the Georgia Supreme Court to hear the appeal from the decision of the Court of Appeals. Pending appeal, proceedings in the trial court have been stayed. Defendants intend to vigorously contest the litigation. The Company is also a defendant or co-defendant in various other litigation matters in the normal course of business. Although there can be no assurances, as of December 31, 1998, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition or liquidity. 8. BENEFIT PLANS Pension and Other Postretirement Benefits The Company participates in a qualified, noncontributory defined benefit pension plan sponsored by Citigroup. In addition, the Company provides certain other postretirement benefits to retired employees through a plan sponsored by TIGI. The Company's share of net expense for the qualified pension and other postretirement benefit plans was not significant for 1998, 1997 and 1996. Through plans sponsored by TIGI, the Company also provides defined contribution pension plans for certain agents. Company contributions are primarily a function of production. The expense for these plans was not significant in 1998, 1997 and 1996. 401(k) Savings Plan Substantially all of the Company's employees are eligible to participate in a 401(k) savings plan sponsored by Citigroup. During 1996, the Company made matching contributions in an amount equal to the lesser of 100% of the pre-tax contributions made by the employee or $1,000. Effective January 1, 1997, the Company discontinued matching contributions for the majority of its employees. The Company's expenses in connection with the 401(k) savings plan were not significant in 1998, 1997 and 1996. F-20 46 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. RELATED PARTY TRANSACTIONS The principal banking functions, including payment of salaries and expenses, for certain subsidiaries and affiliates of TIGI are handled by two companies. The Travelers Insurance Company (Life Department) handles banking functions for the life and annuity operations of Travelers Life and Annuity and some of its non-insurance affiliates. The Travelers Indemnity Company handles banking functions for the property-casualty operations, including most of its property-casualty insurance and non-insurance affiliates. Settlements between companies are made at least monthly. The Company provides various employee benefits coverages to employees of certain subsidiaries of TIGI. The premiums for these coverages were charged in accordance with cost allocation procedures based upon salaries or census. In addition, investment advisory and management services, data processing services and claims processing services are shared with affiliated companies. Charges for these services are shared by the companies on cost allocation methods based generally on estimated usage by department. The Company maintains a short-term investment pool in which its insurance affiliates participate. The position of each company participating in the pool is calculated and adjusted daily. At December 31, 1998 and 1997, the pool totaled approximately $2.3 billion and $2.6 billion, respectively. The Company's share of the pool amounted to $793 million and $725 million at December 31, 1998 and 1997, respectively, and is included in short-term securities in the consolidated balance sheet. Included in short-term investments is a 90 day variable rate note receivable from Citigroup issued on August 28, 1998 and renewed on November 25, 1998. The rate is based upon the AA financial commercial paper rate plus 14 basis points. The rate at December 31, 1998 is 5.47%. The balance at December 31, 1998 is $500 million. Interest accrued at December 31, 1998 was $2.2 million. Interest earned during 1998 was $9.4 million. Citigroup repaid this note on February 25, 1999. The Company sells structured settlement annuities to the insurance subsidiaries of TAP in connection with the settlement of certain policyholder obligations. Such premiums and deposits were $104 million, $88 million, and $40 million for 1998, 1997 and 1996, respectively. Reserves and contractholder funds related to these annuities amounted to $787 million and $795 million in 1998 and 1997, respectively. The Company markets deferred annuity products and life and health insurance through its affiliate, Salomon Smith Barney Inc. (SSB). Premiums and deposits related to these products were $1.3 billion, $1.0 billion, and $820 million in 1998, 1997 and 1996, respectively. During the year the Company lent out $78.5 million par of debentures to SSB for $84.8 million in cash collateral. Loaned debentures totaling $37.6 million with cash collateral of $39.7 million remained outstanding at December 31, 1998. The Company sold $27.4 million par of 6.125% U.S. Treasury bonds to SSB for $31.1 million. F-21 47 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company purchased $36 million par of 6.56% Chase Commercial Mortgage Securities Corp. bonds from SSB for $35.9 million. Primerica Life has entered into a General Agency Agreement with Primerica Financial Service, Inc. (Primerica), that provides that Primerica will be Primerica Life's general agent for marketing all insurance of Primerica Life. In consideration of such services, Primerica Life agreed to pay Primerica marketing fees of no less than $10 million based upon U.S. gross direct premiums received by Primerica Life. In 1998 the fees paid by Primerica Life were $12.5 million. In 1998 Primerica became a distributor of products for Travelers Life and Annuity. During the year Primerica sold $256 million of deferred annuities. Included in other invested assets is a $987 million investment in Citigroup preferred stock at December 31, 1998, carried at cost. Also, included in other invested assets is a $1.15 billion investment in common stock of Citigroup at December 31, 1997, carried at fair value. The Company participates in a stock option plan sponsored by Citigroup that provides for the granting of stock options in Citigroup common stock to officers and key employees. To further encourage employee stock ownership, during 1997 Citigroup introduced the WealthBuilder stock option program. Under this program, all employees meeting certain requirements have been granted Citigroup stock options. The Company applies APB 25 and related interpretations in accounting for stock options. Since stock options under the Citigroup plans are issued at fair market value on the date of award, no compensation cost has been recognized for these awards. FAS 123 provides an alternative to APB 25 whereby fair values may be ascribed to options using a valuation model and amortized to compensation cost over the vesting period of the options. Had the Company applied FAS 123 in accounting for Citigroup stock options, net income would have been the pro forma amounts indicated below:
----------------------------------------------------------------------------------------------------- YEAR ENDING DECEMBER 31, 1998 1997 1996 ($ IN MILLIONS) ----------------------------------------------------------------------------------------------------- Net income, as reported $902 $839 $659 FAS 123 pro forma adjustments, after tax (13) (9) (3) ----------------------------------------------------------------------------------------------------- Net income, pro forma $889 $830 $656
The Company had an interest rate cap agreement with Citigroup. See Note 6. F-22 48 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. LEASES Most leasing functions for TIGI and its subsidiaries are administered by TAP. In 1996, TAP assumed the obligations for several leases. Rent expense related to all leases are shared by the companies on a cost allocation method based generally on estimated usage by department. Rent expense was $18 million, $15 million, and $24 million in 1998, 1997 and 1996, respectively.
--------------------------------------------------- YEAR ENDING DECEMBER 31, MINIMUM OPERATING ($ in millions) RENTAL PAYMENTS --------------------------------------------------- 1999 $ 47 2000 50 2001 54 2002 44 2003 42 Thereafter 296 --------------------------------------------------- Total Rental Payments $533 ===================================================
Future sublease rental income of approximately $86 million will partially offset these commitments. Also, the Company will be reimbursed for 50% of the rental expense for a particular lease totaling $207 million, by an affiliate. Minimum future capital lease payments are not significant. The Company is reimbursed for use of furniture and equipment through cost sharing agreements by its affiliates. F-23 49 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. FEDERAL INCOME TAXES ($ in millions) EFFECTIVE TAX RATE
---------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---------------------------------------------------------------------------------- Income Before Federal Income Taxes $1,383 $1,283 $ 975 Statutory Tax Rate 35% 35% 35% ---------------------------------------------------------------------------------- Expected Federal Income Taxes 484 449 341 Tax Effect of: Non-taxable investment income (5) (4) (3) Other, net 2 (1) 4 ---------------------------------------------------------------------------------- Federal Income Taxes $ 481 $ 444 $ 342 ================================================================================== Effective Tax Rate 35% 35% 35% ---------------------------------------------------------------------------------- COMPOSITION OF FEDERAL INCOME TAXES Current: United States $ 418 $ 410 $ 263 Foreign 24 24 21 --------------------------------------------------------------------------------- Total 442 434 284 --------------------------------------------------------------------------------- Deferred: United States 40 10 57 Foreign (1) - 1 --------------------------------------------------------------------------------- Total 39 10 58 ---------------------------------------------------------------------------------- Federal Income Taxes $ 481 $ 444 $ 342 =================================================================================
Additional tax benefits attributable to employee stock plans allocated directly to shareholder's equity for the years ended December 31, 1998, 1997 and 1996 were $17 million, $17 million and $8 million, respectively. F-24 50 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The net deferred tax liabilities at December 31, 1998 and 1997 were comprised of the tax effects of temporary differences related to the following assets and liabilities:
($ in millions) 1998 1997 ---- ---- Deferred Tax Assets: Benefit, reinsurance and other reserves $ 616 $ 561 Operating lease reserves 76 80 Other employee benefits 103 102 Other 135 127 ---------------------------------------------------------------------------------- Total 930 870 ---------------------------------------------------------------------------------- Deferred Tax Liabilities: Deferred acquisition costs and value of 673 608 insurance in force Investments, net 489 484 Other 90 87 ---------------------------------------------------------------------------------- Total 1,252 1,179 ---------------------------------------------------------------------------------- Net Deferred Tax Liability Before Valuation (322) (309) Allowance Valuation Allowance for Deferred Tax Assets (100) (100) ---------------------------------------------------------------------------------- Net Deferred Tax Liability After Valuation Allowance $ (422) $ (409) ----------------------------------------------------------------------------------
The Company and its life insurance subsidiaries will file a consolidated federal income tax return. Federal income taxes are allocated to each member of the consolidated group on a separate return basis adjusted for credits and other amounts required by the consolidation process. Any resulting liability will be paid currently to the Company. Any credits for losses will be paid by the Company to the extent that such credits are for tax benefits that have been utilized in the consolidated federal income tax return. The $100 million valuation allowance is sufficient to cover any capital losses on investments that may exceed the capital gains able to be generated in the life insurance group's consolidated federal income tax return based upon management's best estimate of the character of the reversing temporary differences. Reversal of the valuation allowance is contingent upon the recognition of future capital gains or a change in circumstances that causes the recognition of the benefits to become more likely than not. There was no change in the valuation allowance during 1998. The initial recognition of any benefit produced by the reversal of the valuation allowance will be recognized by reducing goodwill. At December 31, 1998, the Company had no ordinary or capital loss carryforwards. F-25 51 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The policyholders surplus account, which arose under prior tax law, is generally that portion of the gain from operations that has not been subjected to tax, plus certain deductions. The balance of this account is approximately $932 million. Income taxes are not provided for on this amount because under current U.S. tax rules such taxes will become payable only to the extent such amounts are distributed as a dividend to exceed limits prescribed by federal law. Distributions are not contemplated from this account. At current rates the maximum amount of such tax would be approximately $326 million. 12. NET INVESTMENT INCOME
---------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- ($ in millions) ---------------------------------------------------------------------- GROSS INVESTMENT INCOME Fixed maturities $1,598 $1,460 $1,387 Mortgage loans 295 291 334 Policy loans 131 137 156 Other, including trading 226 238 171 ---------------------------------------------------------------------- 2,250 2,126 2,048 ---------------------------------------------------------------------- Investment expenses 65 89 98 ---------------------------------------------------------------------- Net investment income $2,185 $2,037 $1,950 ----------------------------------------------------------------------
13. INVESTMENTS AND INVESTMENT GAINS (LOSSES) Realized investment gains (losses) for the periods were as follows:
---------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- ($ in millions) ---------------------------------------------------------------------- REALIZED INVESTMENT GAINS Fixed maturities $111 $71 $(63) Equity securities 6 (9) 47 Mortgage loans 21 59 49 Real estate held for sale 16 67 33 Other (5) 11 (1) ---------------------------------------------------------------------- Total Realized Investment Gains $149 $199 $65 ----------------------------------------------------------------------
F-26 52 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Changes in net unrealized investment gains (losses) that are reported as accumulated other changes in equity from non-owner sources or unrealized gains on Citigroup stock in shareholder's equity were as follows:
------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ------- ------- ------- ($ in millions) ------------------------------------------------------------------------------------------------- UNREALIZED INVESTMENT GAINS (LOSSES) Fixed maturities $ 91 $ 446 $ (323) Equity securities 13 25 (35) Other (169) 520 220 ------------------------------------------------------------------------------------------------- Total Unrealized Investment Gains (Losses) (65) 991 (138) ------------------------------------------------------------------------------------------------- Related taxes (20) 350 (43) ------------------------------------------------------------------------------------------------- Change in unrealized investment gains (45) 641 (95) (losses) Transferred to paid in capital, net of tax (585) -- -- Balance beginning of year 1,228 587 682 ------------------------------------------------------------------------------------------------- Balance End of Year $ 598 $ 1,228 $ 587 -------------------------------------------------------------------------------------------------
Included in Other in 1998 is the unrealized loss on Citigroup common stock of $167 million prior to the conversion to preferred stock. Also included in Other were unrealized gains of $506 million and $203 million, which were reported in 1997 and 1996, respectively, related to appreciation of Citigroup common stock. Fixed Maturities Proceeds from sales of fixed maturities classified as available for sale were $13.4 billion, $7.6 billion and $9.1 billion in 1998, 1997 and 1996, respectively. Gross gains of $314 million, $170 million and $107 million and gross losses of $203 million, $99 million and $175 million in 1998, 1997 and 1996, respectively, were realized on those sales. Fair values of investments in fixed maturities are based on quoted market prices or dealer quotes or, if these are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. The fair value of investments for which a quoted market price or dealer quote are not available amounted to $4.8 billion and $5.1 billion at December 31, 1998 and 1997, respectively. F-27 53 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The amortized cost and fair value of investments in fixed maturities were as follows:
- --------------------------------------------------------------------------------------------------------- DECEMBER 31, 1998 GROSS GROSS ($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------------------------- 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 $23,893 - ---------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1997 GROSS GROSS ($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------------------------------------- AVAILABLE FOR SALE: Mortgage-backed securities - CMOs and pass-through securities $ 3,842 $ 124 $ 2 $ 3,964 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 1,580 149 1 1,728 Obligations of states, municipalities and political subdivisions 78 8 -- 86 Debt securities issued by foreign governments 622 31 4 649 All other corporate bonds 11,787 459 17 12,229 Other debt securities 2,761 88 7 2,842 Redeemable preferred stock 12 1 -- 13 - -------------------------------------------------------------------------------------------------------------- Total Available For Sale $20,682 $ 860 $ 31 $21,511 - --------------------------------------------------------------------------------------------------------------
F-28 54 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The amortized cost and fair value of fixed maturities at December 31, 1998, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
- ----------------------------------------------------------------- ($ in millions) AMORTIZED FAIR COST VALUE - ----------------------------------------------------------------- MATURITY: Due in one year or less $ 1,296 $ 1,305 Due after 1 year through 5 years 6,253 6,412 Due after 5 years through 10 years 5,096 5,310 Due after 10 years 5,611 6,013 - ----------------------------------------------------------------- 18,256 19,040 - ----------------------------------------------------------------- Mortgage-backed securities 4,717 4,853 - ----------------------------------------------------------------- Total Maturity $22,973 $23,893 - -----------------------------------------------------------------
The Company makes investments in collateralized mortgage obligations (CMOs). CMOs typically have high credit quality, offer good liquidity, and provide a significant advantage in yield and total return compared to U.S. Treasury securities. The Company's investment strategy is to purchase CMO tranches which are protected against prepayment risk, including planned amortization class (PAC) tranches. Prepayment protected tranches are preferred because they provide stable cash flows in a variety of interest rate scenarios. The Company does invest in other types of CMO tranches if a careful assessment indicates a favorable risk/return tradeoff. The Company does not purchase residual interests in CMOs. At December 31, 1998 and 1997, the Company held CMOs classified as available for sale with a fair value of $3.4 billion and $2.1 billion, respectively. Approximately 54% and 72%, respectively, of the Company's CMO holdings are fully collateralized by GNMA, FNMA or FHLMC securities at December 31, 1998 and 1997. In addition, the Company held $1.4 billion and $1.9 billion of GNMA, FNMA or FHLMC mortgage-backed pass-through securities at December 31, 1998 and 1997, respectively. Virtually all of these securities are rated AAA. F-29 55 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Equity Securities The cost and fair values of investments in equity securities were as follows:
- ------------------------------------------------------------------------------------------------ EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR ($ in millions) COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------------ DECEMBER 31, 1998 Common stocks $129 $ 44 $ 3 $170 Non-redeemable preferred stocks 345 10 7 348 - ------------------------------------------------------------------------------------------------ Total Equity Securities $474 $ 54 $ 10 $518 - ------------------------------------------------------------------------------------------------ DECEMBER 31, 1997 Common stocks $179 $ 34 $ 11 $202 Non-redeemable preferred stocks 301 13 4 310 - ------------------------------------------------------------------------------------------------ Total Equity Securities $480 $ 47 $ 15 $512 - ------------------------------------------------------------------------------------------------
Proceeds from sales of equity securities were $212 million, $341 million and $479 million in 1998, 1997 and 1996, respectively. Gross gains of $30 million, $53 million and $64 million and gross losses of $24 million, $62 million and $11 million in 1998, 1997 and 1996, respectively, were realized on those sales. Mortgage Loans and Real Estate Held For Sale At December 31, 1998 and 1997, the Company's mortgage loan and real estate held for sale portfolios consisted of the following ($ in millions):
- ------------------------------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------------------------------ Current Mortgage Loans $2,370 $2,866 Underperforming Mortgage Loans 236 3 - ------------------------------------------------------------------------------------ Total Mortgage Loans 2,606 2,869 - ------------------------------------------------------------------------------------ Real Estate Held For Sale - Foreclosed 112 117 Real Estate Held For Sale - Investment 31 17 - ------------------------------------------------------------------------------------ Total Real Estate 143 134 - ------------------------------------------------------------------------------------ Total Mortgage Loans and Real Estate Held for Sale $2,749 $3,003 ====================================================================================
Underperforming mortgage loans include delinquent mortgage loans, loans in the process of foreclosure, foreclosed loans and loans modified at interest rates below market. F-30 56 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Aggregate annual maturities on mortgage loans at December 31, 1998 are as follows:
- ----------------------------------------------------------------------- YEAR ENDING DECEMBER 31, ($ in millions) - ----------------------------------------------------------------------- Past Maturity $ 186 1999 188 2000 196 2001 260 2002 118 2003 206 Thereafter 1,452 - ----------------------------------------------------------------------- Total $2,606 =======================================================================
Joint Venture In October 1997, the Company and Tishman Speyer Properties (Tishman), a worldwide real estate owner, developer and manager, formed a real estate joint venture with an initial equity commitment of $792 million. The Company and certain of its affiliates originally committed $420 million in real estate equity and $100 million in cash while Tishman originally committed $272 million in properties and cash. Both companies are serving as general partners for the venture and Tishman is primarily responsible for the venture's real estate acquisition and development efforts. The Company's carrying value of this investment was $252.4 million and $204.8 million at December 31, 1998 and 1997, respectively. Trading Securities Trading securities of the Company are held in a subsidiary that is a broker/dealer, Tribeca Investments L.L.C.
($ in millions) - ------------------------------------------------------------------------------------- TRADING SECURITIES OWNED 1998 1997 ------ ------ Convertible bond arbitrage $ 754 $ 370 Merger arbitrage 427 352 Other 5 78 - ------------------------------------------------------------------------------------- Total $1,186 $ 800 - ------------------------------------------------------------------------------------- TRADING SECURITIES SOLD NOT YET PURCHASED Convertible bond arbitrage $ 521 $ 249 Merger arbitrage 352 213 - ------------------------------------------------------------------------------------- Total $ 873 $ 462 - -------------------------------------------------------------------------------------
The Company's trading portfolio investments and related liabilities are normally held for periods less than six months. Therefore, expected future cash flows for these assets and liabilities are expected to be realized in less than one year. F-31 57 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Concentrations At December 31, 1998 and 1997, the Company had no concentration of credit risk in a single investee exceeding 10% of consolidated shareholder's equity. The Company maintains a short-term investment pool for its insurance affiliates in which the Company also participates. See Note 9. Included in fixed maturities are below investment grade assets totaling $2.1 billion and $1.4 billion at December 31, 1998 and 1997, respectively. The Company defines its below investment grade assets as those securities rated "Ba1" or below by external rating agencies, or the equivalent by internal analysts when a public rating does not exist. Such assets include publicly traded below investment grade bonds and certain other privately issued bonds that are classified as below investment grade. The Company had concentrations of investments, primarily fixed maturities, in the following industries:
----------------------------------------------------------------------- ($ in millions) 1998 1997 ----------------------------------------------------------------------- Banking $2,131 $2,215 Electric Utilities 1,513 1,377 Finance 1,346 1,556 Asset-Backed Credit Cards 1,013 778 -----------------------------------------------------------------------
Below investment grade assets included in the preceding table were not significant. At December 31, 1998 and 1997, concentrations of mortgage loans of $751 million and $794 million, respectively, were for properties located in highly populated areas in the state of California. Other mortgage loan investments are relatively evenly dispersed throughout the United States, with no significant holdings in any one state. Significant concentrations of mortgage loans by property type at December 31, 1998 and 1997 were as follows:
------------------------------------------------------------------------ ($ in millions) 1998 1997 ------------------------------------------------------------------------ Office $1,185 $1,382 Agricultural 887 771 ------------------------------------------------------------------------
F-32 58 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company monitors creditworthiness of counterparties to all financial instruments by using controls that include credit approvals, limits and other monitoring procedures. Collateral for fixed maturities often includes pledges of assets, including stock and other assets, guarantees and letters of credit. The Company's underwriting standards with respect to new mortgage loans generally require loan to value ratios of 75% or less at the time of mortgage origination. Non-Income Producing Investments Investments included in the consolidated balance sheets that were non-income producing for the preceding 12 months were insignificant. Restructured Investments The Company had mortgage loans and debt securities that were restructured at below market terms at December 31, 1998 and 1997. The balances of the restructured investments were insignificant. The new terms typically defer a portion of contract interest payments to varying future periods. The accrual of interest is suspended on all restructured assets, and interest income is reported only as payment is received. Gross interest income on restructured assets that would have been recorded in accordance with the original terms of such loans was insignificant in 1998 and in 1997. Interest on these assets, included in net investment income was insignificant in 1998 and 1997. 14. DEPOSIT FUNDS AND RESERVES At December 31, 1998, the Company had $25.7 billion of life and annuity deposit funds and reserves. Of that total, $13.8 billion is not subject to discretionary withdrawal based on contract terms. The remaining $11.9 billion is for life and annuity products that are subject to discretionary withdrawal by the contractholder. Included in the amount that is subject to discretionary withdrawal is $2.4 billion of liabilities that are surrenderable with market value adjustments. Also included are an additional $5.1 billion of life insurance and individual annuity liabilities which are subject to discretionary withdrawals, and have an average surrender charge of 4.7%. In the payout phase, these funds are credited at significantly reduced interest rates. The remaining $4.4 billion of liabilities are surrenderable without charge. More than 14.2% of these relate to individual life products. These risks would have to be underwritten again if transferred to another carrier, which is considered a significant deterrent against withdrawal by long-term policyholders. Insurance liabilities that are surrendered or withdrawn are reduced by outstanding policy loans and related accrued interest prior to payout. F-33 59 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES The following table reconciles net income to net cash provided by operating activities:
-------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- ($ in millions) -------------------------------------------------------------------------------------------------------------- Net Income From Continuing Operations $902 $839 $633 Adjustments to reconcile net income to net cash provided by operating activities: Realized gains (149) (199) (65) Deferred federal income taxes 39 10 58 Amortization of deferred policy acquisition costs and value of insurance in force 311 293 281 Additions to deferred policy acquisition costs (566) (471) (350) Investment income accrued (55) 14 2 Premium balances receivable 7 3 (6) Insurance reserves and accrued expenses 335 131 (1) Other 51 206 255 -------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 875 826 807 Net cash used in discontinued operations - - (350) Net cash provided by operations $875 $826 $457 --------------------------------------------------------------------------------------------------------------
16. NON-CASH INVESTING AND FINANCING ACTIVITIES Significant non-cash investing and financing activities include the transfer of Citigroup common stock to Citigroup preferred stock valued at $987 million in 1998 and the conversion of $119 million of real estate held for sale to other invested assets as a joint venture in 1997. F-34 60 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. OPERATING SEGMENTS The Company has two reportable business segments that are separately managed due to differences in products, services, marketing strategy and resource management. The business of each segment is maintained and reported through separate legal entities within the Company. The management groups of each segment report separately to the common ultimate parent, Citigroup Inc. The TRAVELERS LIFE AND ANNUITY business segment consolidates primarily the business of Travelers Insurance Company and The Travelers Life and Annuity Company. The Travelers Life and Annuity business segment offers fixed and variable deferred annuities, payout annuities and term, universal and variable life and long-term care insurance to individuals and small businesses. It also provides group pension products, including guaranteed investment contracts and group annuities for employer-sponsored retirement and savings plans. The PRIMERICA LIFE business segment consolidates primarily the business of Primerica Life Insurance Company and National Benefit Life Insurance Company. The Primerica Life business segment offers individual life products, primarily term insurance, to customers through a nationwide sales force of approximately 80,000 full and part-time licensed Personal Financial Analysts. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1), except that management also includes receipts on long-duration contracts (universal life-type and investment contracts) as deposits along with premiums in measuring business volume. BUSINESS SEGMENT INFORMATION:
- ----------------------------------------------------------------------------------------------------------------- TRAVELERS LIFE AND PRIMERICA LIFE 1998 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL - ----------------------------------------------------------------------------------------------------------------- Business Volume: Premiums $ 683 $ 1,057 $ 1,740 Deposits 7,693 -- 7,693 ------- ------- ------- Total business volume $ 8,376 $ 1,057 $ 9,433 Net investment income 1,965 220 2,185 Interest credited to contractholders 876 -- 876 Amortization of deferred acquisition costs and value of insurance in force 115 196 311 Federal income taxes on Operating Income 260 170 430 Operating Income (excludes realized gains or losses and the related FIT) $ 493 $ 312 $ 805 Segment Assets $49,646 $ 6,902 $56,548
F-35 61 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------- TRAVELERS LIFE AND PRIMERICA LIFE 1997 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL - ----------------------------------------------------------------------------------------------------------------- Business Volume Premiums $ 548 $ 1,035 $ 1,583 Deposits 5,276 -- 5,276 ------- ------- ------- Total business volume $ 5,824 $ 1,035 $ 6,859 Net investment income 1,836 201 2,037 Interest credited to contractholders 829 -- 829 Amortization of deferred acquisition costs and value of insurance in force 96 197 293 Federal income taxes on Operating Income 221 153 374 Operating Income (excludes realized gains or losses and the related FIT) $ 427 $ 283 $ 710 Segment Assets $42,330 $ 7,110 $49,440 - -----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------- TRAVELERS LIFE AND PRIMERICA LIFE 1996 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL - ----------------------------------------------------------------------------------------------------------------- Business Volume: Premiums $ 357 $ 1,030 $ 1,387 Deposits 3,502 -- 3,502 ------- ------- ------- Total business volume $ 3,859 $ 1,030 $ 4,889 Net investment income 1,775 175 1,950 Interest credited to contractholders 863 -- 863 Amortization of deferred acquisition costs and value of insurance in force 83 198 281 Federal income taxes on Operating Income 189 130 319 Operating Income (excludes realized gains or losses and the related FIT) $ 356 $ 235 $ 591 Segment Assets $37,564 $ 5,409 $42,973 - -----------------------------------------------------------------------------------------------------------------
The amount of investments in equity method investees and total expenditures for additions to long-lived assets other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets, were not material. F-36 62 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) BUSINESS SEGMENT RECONCILIATION: ($ in millions)
REVENUES 1998 1997 1996 - ------------------------------------------------------------------------------- Total business volume $ 9,433 $ 6,859 $ 4,889 Net investment income 2,185 2,037 1,950 Realized investment gains 149 199 65 Other revenues 440 354 284 Elimination of deposits (7,693) (5,276) (3,502) - ------------------------------------------------------------------------------- Total revenues $ 4,514 $ 4,173 $ 3,686 ===============================================================================
OPERATING INCOME 1998 1997 1996 - -------------------------------------------------------------------------------- Total operating income of business segments $805 $710 $591 Realized investment gains net of tax 97 129 42 - -------------------------------------------------------------------------------- Income from continuing operations $902 $839 $633 ================================================================================
ASSETS 1998 1997 1996 - -------------------------------------------------------------------------------- Total assets of business segments $56,548 $49,440 $42,973 ================================================================================
REVENUE BY PRODUCTS 1998 1997 1996 - -------------------------------------------------------------------------------- Deferred Annuities $ 4,198 $ 3,303 $ 2,635 Group and Payout Annuities 5,326 3,737 2,194 Individual Life & Health Insurance 2,270 2,102 1,956 Other (a) 413 307 403 Elimination of deposits (7,693) (5,276) (3,502) - -------------------------------------------------------------------------------- Total Revenue $ 4,514 $ 4,173 $ 3,686 ================================================================================
(a) Other represents revenue attributable to unallocated capital and run-off business. The Company's revenue was derived almost entirely from U.S. domestic business. Revenue attributable to foreign countries was insignificant. The Company had no transactions with a single customer representing 10% or more of its revenue. F-37 63 UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. RULE 484 UNDERTAKING Sections 33-770 et seq, inclusive of the Connecticut General Statutes ("C.G.S.") regarding indemnification of directors and officers of Connecticut corporations provides in general that Connecticut corporations shall indemnify their officers, directors and certain other defined individuals against judgments, fines, penalties, amounts paid in settlement and reasonable expenses actually incurred in connection with proceedings against the corporation. The corporation's obligation to provide such indemnification generally does not apply unless (1) the individual is wholly successful on the merits in the defense of any such proceeding; or (2) a determination is made (by persons specified in the statute) that the individual acted in good faith and in the best interests of the corporation and in all other cases, his conduct was at least not opposed to the best interests of the corporation, and in a criminal case he had no reasonable cause to believe his conduct was unlawful; or (3) the court, upon application by the individual, determines in view of all of the circumstances that such person is fairly and reasonably entitled to be indemnified, and then for such amount as the court shall determine. With respect to proceedings brought by or in the right of the corporation, the statute provides that the corporation shall indemnify its officers, directors and certain other defined individuals, against reasonable expenses actually incurred by them in connection with such proceedings, subject to certain limitations. Citigroup Inc. also provides liability insurance for its directors and officers and the directors and officers of its subsidiaries, including the Registrant. This insurance provides for coverage against loss from claims made against directors and officers in their capacity as such, including, subject to certain exceptions, liabilities under the federal securities laws. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 64 UNDERTAKING TO REPRESENT REASONABLENESS OF CHARGES The Company hereby represents that the aggregate charges under the Policy of the Registrant described herein are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: 1. The facing sheet. 2. The Prospectus, as incorporated herein by reference. 3. The undertaking to file reports. 4. The signatures. Written consents of the following persons: A Consent of Katherine M. Sullivan, General Counsel, to filing of her opinion as an exhibit to this Registration Statement and to the reference to her opinion under the caption "Legal Proceedings and Opinion" in the Prospectus. (See Exhibit 11 below.) B. Consent and Actuarial Opinion pertaining to the illustrations contained in the prospectus. C. Consent of KPMG LLP, Independent Certified Public Accountants. D. Powers of Attorney. (See Exhibit 12 below.) EXHIBITS 1. Resolution of the Board of Directors of The Travelers Insurance Company authorizing the establishment of the Registrant. (Incorporated herein by reference to Exhibit No. 1 to Post-Effective Amendment No. 17 to the Registration Statement on Form S-6 filed April 29, 1996.) 2. Not Applicable. 3(a). Distribution and Principal Underwriting Agreement among the Registrant, The Travelers Insurance Company and CFBDS, Inc. (Incorporated herein by reference to Exhibit 3(a) to the Registration Statement on Form N-4, File No. 333-60227, filed November 9, 1998.) 3(b). Selling Agreement. (Incorporated herein by reference to Exhibit 3(b) to the Registration Statement on Form N-4, File No. 333-60227, filed November 9, 1998.) 3(c). Agents Agreements, including schedule of sales commissions. 4. None 5. Form of Variable Universal Life Insurance Contracts. (Incorporated herein by reference to Exhibit 5 to Post-Effective Amendment No. 20 to the Registration Statement on Form S-6, File No. 333-69771, filed December 28, 1998.) 65 6(a). Charter of The Travelers Insurance Company, as amended on October 19, 1994. (Incorporated herein by reference to Exhibit 6(a) to the Registration Statement filed on Form N-4, File No. 333-40193, filed November 13, 1997.) 6(b). By-Laws of The Travelers Insurance Company, as amended on October 20, 1994. (Incorporated herein by reference to Exhibit 6(b) to the Registration Statement filed on Form N-4, File No. 333-40193, filed November 13, 1997.) 7. None 8. Participation Agreements among Variable Insurance Products Fund, Fidelity Distributors Corporation and The Travelers Insurance Company; Variable Insurance Products Fund II, Fidelity Distributors Corporation and The Travelers Insurance Company; Templeton Variable Products Series Fund, Templeton Funds Distributor, Inc. and The Travelers Insurance Company; and between The Travelers Insurance Company and Dreyfus Stock Index Fund. (Incorporated herein by reference to Exhibits 8(a), 8(b), 8(c) and 8(d), respectively to Post-Effective Amendment No. 29 to the Registration Statement on Form N-4, File No. 2-79529 filed on April 19, 1996.) 9. None 10. Form of Application for Variable Universal Life Insurance Contracts. 11. Opinion of counsel as to the legality of the securities being registered. (Incorporated herein by reference to Exhibit 11 to Post-Effective Amendment No. 20 to the Registration Statement on Form S-6, File No. 333-69771, filed December 28, 1998.) 12(a). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Michael A. Carpenter, Jay S. Benet, George C. Kokulis, Robert I. Lipp, Ian R. Stuart, Katherine M. Sullivan and Marc P. Weill. (Incorporated herein by reference to Exhibits 15(a) and 15(b) to the Registration Statement on Form S-6 filed April 28, 1995 and April 25, 1997.) 12(b). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for J. Eric Daniels. (Incorporated herein by reference to Exhibit 12(b) to Post-Effective Amendment No. 20 to the Registration Statement on Form S-6, File No. 333-69771, filed December 28, 1998.) 12(c). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Jay S. Benet.) 66 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant, The Travelers Fund UL for Variable Life Insurance, has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Hartford and state of Connecticut, on the 12th day of April 1999. THE TRAVELERS FUND UL FOR VARIABLE LIFE INSURANCE (Registrant) THE TRAVELERS INSURANCE COMPANY (Depositor) By: *JAY S. BENET ----------------------------------------------- Jay S. Benet Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Controller Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 12th day of April 1999. *MICHAEL A. CARPENTER Director, Chairman of the Board - --------------------------------------- (Michael A. Carpenter) *J. ERIC DANIELS Director, President and Chief - --------------------------------------- Executive Officer (J. Eric Daniels) *JAY S. BENET Director, Senior Vice President, - --------------------------------------- Chief Financial Officer, Chief (Jay S. Benet) Accounting Officer and Controller *GEORGE C. KOKULIS Director - --------------------------------------- (George C. Kokulis) *ROBERT I. LIPP Director - --------------------------------------- (Robert I. Lipp) *KATHERINE M. SULLIVAN Director, Senior Vice President - --------------------------------------- and General Counsel (Katherine M. Sullivan) *MARC P. WEILL Director - --------------------------------------- (Marc P. Weill) *By: /s/ Ernest J. Wright, Attorney-in-Fact -----END PRIVACY-ENHANCED MESSAGE-----