TRAVELERS FUND BD III FOR VARIABLE ANNUITIES, 485BPOS, 1998-04-16

TRAVELERS FUND BD III FOR VARIABLE ANNUITIES
485BPOS, 1998-04-16

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<PAGE> 1
Registration Statement No. 333-27689
811-08225

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 1

THE TRAVELERS FUND BD III FOR VARIABLE ANNUITIES
------------------------------------------------
(Exact name of Registrant)

THE TRAVELERS INSURANCE COMPANY
-------------------------------
(Name of Depositor)

ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
----------------------------------------------
(Address of Depositor's Principal Executive Offices)

Depositor's Telephone Number, including area code: (860) 277-0111

ERNEST J. WRIGHT
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
----------------------------
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering:

It is proposed that this filing will become effective (check appropriate box):

immediately upon filing pursuant to paragraph (b) of Rule 485.
- -------
X on May 1, 1998 pursuant to paragraph (b) of Rule 485.
- -------
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
- -------
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.
<PAGE> 2
THE TRAVELERS FUND BD III FOR VARIABLE ANNUITIES

Cross-Reference Sheet

Form N-4

<TABLE>
<CAPTION>
Item
No. Caption in Prospectus
- --- ---------------------

<S> <C> <C>
1. Cover Page Prospectus
2. Definitions Index of Special Terms
3. Synopsis Prospectus Summary
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant, The Insurance Company; The Separate
Depositor, and Portfolio Companies Account and the Underlying Funds
6. Deductions and Expenses Charges and Deductions; Distribution of
Variable Annuity Contracts
7. General Description of Variable The Annuity Contract
Annuity Contracts
8. Annuity Period The Annuity Period
9. Death Benefit Death Benefit
10. Purchases and Contract Value The Contract; Distribution of Variable
Annuity Contract
11. Redemptions Surrenders and Redemptions
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Proceedings and Opinions
14. Table of Contents of Statement Appendix B - Contents of the Statement
of Additional Information of Additional Information

Caption in Statement of Additional
Information
----------------------------------
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History The Insurance Company
18. Services Principal Underwriter; Distribution and
Management Agreement
19. Purchase of Securities Being Offered Valuation of Assets
20. Underwriters Principal Underwriter
21. Calculation of Performance Data Performance Information
22. Annuity Payments Not Applicable
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3

PART A

Information Required in a Prospectus
<PAGE> 4

TRAVELERS INDEX ANNUITY
(FUND BD III) PROFILE

MAY 1, 1998

This profile is a summary of some of the more important points that you should
know and consider before purchasing the Contract. The Contract is more fully
described in the full Prospectus which is attached to this Profile. Please read
the prospectus carefully. The terms "we," "us," "our" and the "Company" refer to
Travelers Insurance Company. "You" and "your" refer to the Contract Owner.

1. THE ANNUITY CONTRACT. The Contract offered by Travelers Insurance Company is
a single payment variable annuity that is intended for retirement savings or
other long-term investment purposes. The Contract provides a death benefit as
well as guaranteed income options. Under a qualified Contract, you can make a
single payment on a tax-deferred basis. Under a nonqualified Contract, you can
make a payment with after-tax dollars. You direct your payment to one or more of
the variable funding options listed in Section 4 and/or to the Fixed Option. We
guarantee money directed to the Fixed Option as to principal and interest. The
variable funding options are designed to produce a higher rate of return than
the Fixed Option, however, this is not guaranteed. You can also lose money in
the variable funding options.

The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, under a
qualified contract, your tax-deferred contribution accumulates on a tax-deferred
basis and is taxed as income when you make a withdrawal, presumably when you are
in a lower tax bracket. During the accumulation phase, under a nonqualified
contract, earnings on your after-tax contribution accumulate on a tax-deferred
basis and are taxed as income when you make a withdrawal. The income phase
occurs when you begin receiving regular payments from your Contract. The amount
of money you accumulate in your Contract determines the amount of income
(annuity payments) you receive during the income phase.

PRINCIPAL PROTECTION GUARANTEE. You can choose to protect your investment by
purchasing a separate guarantee from Travelers. With the Principal Protection
Guarantee you receive, at the end of eight years, 90%, 100% or 115% of your
purchase payment (as selected at purchase), less any partial withdrawals and
related withdrawal charges, or the Contract value -- whichever is greater.

After the end of the eighth contract year, you may (a) remain in the contract
and transfer to any funding options, (b) purchase another Index Annuity contract
with the Principal Protection Guarantee, (c) transfer to another annuity
contract or (d) withdraw your contract value. Unless you inform us in writing of
a different investment choice, on the maturity date, we will transfer your
contract value to the Money Market Portfolio, offered within this contract.

2. ANNUITY PAYMENTS (THE INCOME PHASE). You may choose to receive annuity
payments from the Fixed Option or the variable funding options. If you want to
receive payments from your annuity, you can choose one of the following annuity
options: Option 1 -- payments for your life (life annuity) -- assuming that you
are the annuitant; Option 2 -- payments for your life with an added guarantee
that payments will continue to your beneficiary for a certain number of months
(120, 180 or 240, as you select), if you should die during that period; Option
3 -- Joint and Last Survivor Annuity, in which payments are made for your life
and the life of another person (usually your spouse). This option can also be
elected with payments continuing at a reduced rate after the death of one payee.
The Fifth Option is for a Fixed Period -- the cash surrender value will be used
to make payments for a fixed time period. If you should die before the end of
the Fixed Period, the remaining amount would go to your beneficiary.

Once you make an election of an annuity option, it cannot be changed. During the
income phase, you have the same investment choices you had during the
accumulation phase. If amounts are

<PAGE> 5

directed to the variable funding options, the dollar amount of your payments may
increase or decrease. The Principal Protection Feature is not offered during the
income phase.

3. PURCHASE. You may purchase the Contract with a single payment of at least
$10,000. At this time, the Company does not permit additional payments.

WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with (1) individual nonqualified purchases; (2) Individual
Retirement Annuities (IRAs); and (3) Section 403(b) Rollover (TSA Rollover).

4. FUNDING OPTIONS. You can direct your money into the Fixed Option or any or
all of the following funding options. The funding options are described in the
prospectuses for the funds. Depending on market conditions, you may make or lose
money in any of these options:

EAFE Equity Index Fund

Small Cap Index Fund

Equity Index Portfolio

Money Market Portfolio

5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each. For Contracts with a value of less than
$50,000, the Company deducts an annual administrative charge of $30. For the
standard death benefit, the annual insurance charge is 1.25% of the amounts you
direct to the variable funding options. For the enhanced death benefit, the
annual insurance charge is 1.45% of the amounts you direct to the variable
funding options. Regardless of the death benefit chosen, there is an
administrative charge of .15% annually of the amounts directed to the variable
funding options.

An optional Contract feature, the Principal Protection Guarantee, provides that
you will receive 90%, 100%, or 115% of your single payment, less partial
withdrawals and related withdrawal charges, on the maturity date. There is an
annual insurance charge of up to 2.00% if you select this contract feature. If
you withdraw your money before the maturity date and if you have selected the
Principal Protection Guarantee, the Company may deduct an additional Principal
Protection Cancellation Charge (0%-4%).

Each variable funding option charges for management and other expenses. The
charges vary by funding option and range from .30% to .65% annually, of the
funding option's average daily net asset balance.

If you withdraw amounts under the Contract, the Company may deduct a withdrawal
charge (0% to 6%) of the amount of the purchase payment withdrawn from the
Contract. If you withdraw all amounts under the contract, or if you begin
receiving annuity payments, the Company may be required by your state to deduct
a premium tax of 0%-5%.

The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charges" column includes the mortality and expense risk
charge, the administrative charge, and reflects the $30 annual contract charge
as 0.056%. Where appropriate, the maximum Principal Protection Charge, and the
Cancellation Charge have been deducted. The "Total Annual Funding Option
Expenses" column reflects the investment charges for each portfolio, including
any expense waiver or reimbursement. The column "Total Annual Charges" reflects
the sum of the previous two columns. The columns under the heading "Examples"
show you how much you would pay under the Contract for a one-year period and for
a 10-year period. In the "Death Benefit" column, "a" represents the standard
death benefit, and "b" represents the enhanced death benefit.

As required by the SEC, the examples assume that you invested $1,000 in a
Contract that earns 5% annually and that you withdraw your money at the end of
year 1 and at the end of year 10. For year 1, the examples show the total annual
charges assessed during that time as well as the withdrawal charge. For the
10-year example, the total annual charges are included, but no withdrawal charge
is reflected. For these examples, the premium tax is assumed to be 0%.

ii
<PAGE> 6

<TABLE>
<CAPTION>
TOTAL
WITH PRINCIPAL PROTECTION
EXAMPLES: TOTAL
TOTAL ANNUAL ANNUAL
ANNUAL FUNDING TOTAL EXPENSES AT END OF
INSURANCE OPTION ANNUAL ------------------
PORTFOLIO NAME CHARGES EXPENSES CHARGES 1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
GREENWICH STREET SERIES FUND
Equity Index Portfolio................ (a) 3.46%* 0.30% 3.76% 138 400
(b) 3.66%* 0.30% 3.96% 140 417
</TABLE>

- ---------------

* Figures WITH protection assume the maximum Principal Protection Fee of 2.00%.

<TABLE>
<CAPTION>
TOTAL
WITHOUT PRINCIPAL PROTECTION
EXAMPLES: TOTAL
TOTAL ANNUAL ANNUAL
ANNUAL FUNDING TOTAL EXPENSES AT END OF
INSURANCE OPTION ANNUAL ------------------
PORTFOLIO NAME CHARGES EXPENSES CHARGES 1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Money Market Portfolio.................. (a) 1.46% 0.40% 1.86% 79 218
(b) 1.66% 0.40% 2.06% 81 239
BT INSURANCE FUNDS TRUST
Small Cap Index Fund.................. (a) 1.46% 0.45% 1.91% 79 223
(b) 1.66% 0.45% 2.11% 81 244
EAFE Index Fund....................... (a) 1.46% 0.65% 2.11% 81 244
(b) 1.66% 0.65% 2.31% 83 264
GREENWICH STREET SERIES FUND
Equity Index Portfolio................ (a) 1.46% 0.30% 1.76% 78 207
(b) 1.66% 0.30% 1.96% 80 228
</TABLE>

- ---------------

(A) STANDARD DEATH BENEFIT.

(B) ENHANCED DEATH BENEFIT.

6. TAXES. The payments you make to a qualified Contract during the accumulation
phase are made with before-tax dollars. You will be taxed on your purchase
payments and on any earnings when you make a withdrawal or begin receiving
annuity or income payments. Under a nonqualified Contract, payments to the
contract are made with after-tax dollars, and any earnings will accumulate
tax-deferred. You will be taxed on these earnings when they are withdrawn from
the Contract.

For owners of qualified Contracts, if you reach a certain age, you may be
required by federal tax laws to begin receiving payments from your annuity or
risk paying a penalty tax. In those cases, we can calculate and pay you the
minimum required distribution amounts. If you are younger than 59 1/2 when you
take money out, you may be charged a 10% federal penalty tax on the amount
withdrawn.

7. ACCESS TO YOUR MONEY. You can take withdrawals any time during the
accumulation phase. A withdrawal charge may apply. The amount of the charge
depends on a number of factors, including the length of time since the purchase
payment was made (6% if withdrawn within one year, gradually decreasing to 0%
for payments held by the Company for 9 years or more). After the first contract
year, you may withdraw up to 10% of the contract value (as of the previous
Contract year end) without a withdrawal charge. The Principal Protection
Cancellation Charge may also apply if you have elected the Principal Protection
Guarantee, and withdraw prior to the end of the eighth contract year.
Additionally, you may also have to pay income taxes and a tax penalty on any
money you take out.

8. DEATH BENEFIT. The death benefit applies upon the first death of an owner or
the annuitant. Assuming you are the Annuitant, if you die before you move to the
income phase, the person you have chosen as your beneficiary will receive a
death benefit. The death benefit paid depends on your age at the time of your
death. The value of the death benefit is determined at the close of

iii
<PAGE> 7

the business day on which the Company's Home Office receives due proof of death,
and written payment instructions. In most states, you may choose between the
standard death benefit and the enhanced death benefit. Certain states may have
varying age requirements.

Under the standard death benefit, if the owner or the annuitant dies before age
85, the death benefit equals the greatest of: (1) the contract value; (2) the
purchase payment made under the Contract less all partial withdrawals and
related charges, or (3) the death benefit value, which is reset once every eight
years to the contract value immediately preceding the death report date. After
age 85, the standard death benefit is the contract value as of the death report
date, less any applicable premium tax.

Under the enhanced death benefit, if the owner or the annuitant dies before age
90, the Company will pay an amount equal to the greater of (a) or (b) below,
each reduced by any applicable premium tax or withdrawals not previously
deducted:

(a) the contract value; or

(b) the contract value, increased by 7% each full contract year until you
reach age 80, to a maximum of 200% of your purchase payment adjusted
for any partial withdrawals (the "Roll-Up Death Benefit Value"). The
Roll-Up Death Benefit Value remains locked through age 90 (adjusted for
any partial withdrawals).

After age 90, the enhanced death benefit will equal the contract value.

9. OTHER INFORMATION

RIGHT TO RETURN. If you cancel the Contract within ten days after you receive
it, you will receive a full refund of the Contract Value (including charges).
Where state law requires a longer right to return period, or the return of
purchase payments, the Company will comply. You bear the investment risk during
the right to return period; therefore, the Contract Value returned may be
greater or less than your purchase payment. If the Contract is purchased as an
Individual Retirement Annuity, and is returned within the first seven days after
delivery, your full purchase payment will be refunded; during the remainder of
the right to return period, the Contract Value (including charges) will be
refunded. The Contract Value will be determined at the close of business on the
day we receive a written request for a refund.

TRANSFERS. If you choose the Principal Protection Guarantee, no transfers
between the funding options are allowed before the maturity date. If you do not
choose the Principal Protection Feature you can transfer between the Funding
Options as frequently as you wish without any tax implications. Currently there
is no charge for transfers, nor a limit to the number of transfers allowed.
Travelers may, in the future, charge a fee for any transfer request, or limit
the number of transfers allowed. Travelers, at the minimum, would always allow
one transfer every six months. You may transfer between the Fixed Option and the
Funding Options twice a year (during the 30 days after the six-month Contract
Date anniversary), provided the amount is not greater than 15% of the Fixed
Account Value on that date.

ADDITIONAL FEATURES. This Contract has other features you may be interested in
including:

DOLLAR COST AVERAGING. This is a program that allows you to invest a
fixed amount of money in funding options either monthly or quarterly,
theoretically giving you a lower average cost per unit over time than a
single one-time purchase. This program is not available if you have
selected the Principal Protection Feature.

SYSTEMATIC WITHDRAWAL OPTION. Before the maturity date, you can
arrange to have money sent to you at set intervals throughout the year. Of
course, any applicable income and penalty taxes will apply on amounts
withdrawn.

11. INQUIRIES. If you need more information, please contact us at (800)
842-8573 or:

Travelers Insurance Company
Annuity Services
One Tower Square
Hartford, CT 06183

iv
<PAGE> 8

PROSPECTUS

TRAVELERS INDEX ANNUITY

This prospectus describes TRAVELERS INDEX ANNUITY, a single premium variable
annuity contract (the "Contract") issued by The Travelers Insurance Company (the
"Company," "us" or "we"). The Contract is available in connection with certain
retirement plans that qualify for special federal income tax treatment (such as
IRAs) as well as those that do not qualify for such treatment ("nonqualified
Contracts"). Travelers Index Annuity is issued as an individual Contract.

You can choose to have your premium (purchase payment) accumulate on a fixed
basis (i.e. a Fixed Option funded through the Company's general account) and/or
a variable basis (i.e., one or more of the sub-accounts ("funding options")) of
the Travelers Fund BD III for Variable Annuities ("Fund BD III"). Your contract
value will vary daily to reflect the investment experience of the funding
options you select and any interest credited to the Fixed Option. The variable
funding options currently available are: the EAFE(R) Equity Index Fund and the
Small Cap Index Fund of the BT Insurance Funds Trust, the Equity Index Portfolio
of the Greenwich Street Series Fund and the Money Market Portfolio.

The Fixed Option is described in Appendix B. Unless specified otherwise, this
prospectus refers to the variable funding options. The Contracts and/or some of
the funding options may not be available in all states. THIS PROSPECTUS IS VALID
ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE VARIABLE FUNDING
OPTIONS. THESE PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.

In addition, you can choose to protect your investment by purchasing a guarantee
from the Company called the Principal Protection Feature. If purchased, we will
guarantee that on the Principal Protection Expiration Date (the last day of the
eighth Contract Year), your Contract will be worth at least 115%, 100%, or 90%
(depending on your selection), of your Purchase Payment adjusted for withdrawal
reductions, even if the value of your Contract on that date is less than the
chosen percentage of your original payment. To qualify for the Principal
Protection Feature, you must allocate your original payment to the Protected
Funding Option -- Equity Index Portfolio -- and keep your payment in that
funding option until the Principal Protection Expiration Date. There is a
separate charge for this feature.

This prospectus provides the information that you should know before investing
in the Contract. You can receive additional information about Fund BD III by
requesting a copy of the Statement of Additional Information ("SAI") dated May
1, 1998. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. To request a
copy, write to The Travelers Insurance Company, Annuity Services, One Tower
Square, Hartford, Connecticut 06183, call (800) 842-8573 or access the SEC's
website (http://www.sec.gov). The contents of the SAI appears in Appendix C of
this prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.

PROSPECTUS DATED MAY 1, 1998

<PAGE> 9

TABLE OF CONTENTS

<TABLE>
<S> <C>
INDEX OF SPECIAL TERMS................. 2
FEE TABLES............................. 3
CONDENSED FINANCIAL INFORMATION........ 6
THE ANNUITY CONTRACT................... 6
Purchase Payments...................... 6
Accumulation Units..................... 6
The Funding Options.................... 6
Optional Principal Protection
Feature.............................. 7
Principal Protection Expiration Date... 7
Substitutions and Additions............ 8
CHARGES AND DEDUCTIONS................. 8
Withdrawal Charge...................... 8
Free Withdrawal Allowance.............. 8
Optional Principal Protection Fee...... 9
Principal Protection Cancellation Charge .. 9
Administrative Charges................. 9
Mortality and Expense Risk Charge...... 10
Reduction or Elimination of Contract
Charges.............................. 10
Funding Option Expenses................ 10
Premium Tax............................ 10
Changes in Taxes Based Upon Premium or
Value................................ 10
OWNERSHIP PROVISIONS................... 11
Types of Ownership..................... 11
Beneficiary............................ 11
Annuitant.............................. 11
TRANSFERS.............................. 11
Dollar Cost Averaging.................. 12
ACCESS TO YOUR MONEY................... 12
Systematic Withdrawals................. 12
DEATH BENEFIT.......................... 13
Death Proceeds Before the Maturity
Date.................................
Standard Death Benefit................. 13
Enhanced Death Benefit................. 13
Payment of Proceeds.................... 14
Death Proceeds After the Maturity
Date................................. 14
THE ANNUITY PERIOD..................... 15
Maturity Date.......................... 15
Allocation of Annuity.................. 15
Variable Annuity....................... 15
Fixed Annuity.......................... 16
PAYMENT OPTIONS........................ 16
Election of Options.................... 16
Annuity Options........................ 17
MISCELLANEOUS CONTRACT PROVISIONS...... 17
Right to Return........................ 17
Termination............................ 18
Required Reports....................... 18
Suspension of Payments................. 18
Transfers of Contract Values to Other
Annuities............................ 18
THE SEPARATE ACCOUNT................... 18
Mixed and Shared Funding............... 19
Performance Information................ 19
FEDERAL TAX CONSIDERATIONS............. 20
General Taxation of Annuities.......... 20
Types of Contracts: Qualified or
Nonqualified......................... 20
Nonqualified Annuity Contracts......... 20
Qualified Annuity Contracts............ 21
Penalty Tax for Premature
Distributions........................ 21
Ownership of the Investments........... 21
Diversification Requirements........... 21
OTHER INFORMATION...................... 21
The Insurance Company.................. 21
IMSA................................... 21
Year 2000 Compliance................... 22
Distribution of Variable Annuity
Contracts............................ 22
Conformity with State and Federal
Laws................................. 22
Voting Rights.......................... 22
Legal Proceedings And Opinions......... 23
APPENDIX A: Condensed Financial
Information.......................... 24
APPENDIX B: The Fixed Account.......... 25
APPENDIX C: Contents of the Statement
of Additional Information............ 27
</TABLE>

INDEX OF SPECIAL TERMS

The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.

<TABLE>
<S> <C>
Accumulation Unit...................... 6
Annuitant.............................. 11
Annuity Payments....................... 15
Annuity Unit........................... 6
Cash Surrender Value................... 12
Company (We, Our)...................... 6
Contract Date.......................... 6
Contract Owner (You, Your)............. 11
Contract Value......................... 6
Contract Year.......................... 6
Fixed Account Option................... 25
Funding Option(s)...................... 6
Maturity Date.......................... 6
Principal Protection Expiration Date... 7
Principal Protection Feature........... 7
Purchase Payment....................... 6
Written Request........................ 6
</TABLE>

2
<PAGE> 10

FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES

<TABLE>
<S> <C>
WITHDRAWAL CHARGE (as a percentage of original purchase
payment withdrawn):
LENGTH OF TIME FROM PURCHASE PAYMENT
</TABLE>

<TABLE>
<CAPTION>
(NUMBER OF YEARS) CHARGE
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 4%
7 3%
8 2%
9 and over 0%
ANNUAL CONTRACT ADMINISTRATIVE CHARGE
(Waived if contract value is $50,000 or more) $30
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of the
Separate Account)
</TABLE>

<TABLE>
<CAPTION>
STANDARD ENHANCED
DEATH DEATH
BENEFIT BENEFIT
-------------------
<S> <C> <C>
Mortality and Expense Risk Charge........................... 1.25% 1.45%
Administrative Charge....................................... 0.15% 0.15%
------- -------
Total Separate Account Charges............................ 1.40% 1.60%
</TABLE>

FUNDING OPTION EXPENSES:

(as a percentage of average daily net assets of the Funding Option as of
December 31, 1997 unless otherwise noted)

<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES FUNDING
(AFTER EXPENSES (AFTER EXPENSES OPTION
PORTFOLIO NAME ARE REIMBURSED) ARE REIMBURSED) EXPENSES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Portfolio 0.32% 0.08%(1) 0.40%
BT INSURANCE FUNDS TRUST
Small Cap Index Fund 0.05% 0.40%(2) 0.45%
EAFE Index Fund 0.11% 0.54%(2) 0.65%
GREENWICH STREET SERIES FUND
Equity Index Portfolio 0.21%(3) 0.09%(4) 0.30%
</TABLE>

NOTES:

The purpose of the Fee Table is to assist contract owners in understanding the
various costs and expenses that a contract owner will bear, directly or
indirectly. See "Charges and Deductions" in this prospectus for additional
information. Expenses shown do not include premium taxes, which may be
applicable. "Other Expenses" include operating costs of the fund. These expenses
are reflected in each funding option's net asset value and are not deducted from
the account value under the Contract.

(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage commissions,
interest charges and taxes) exceeds 0.40%. Without such arrangement, Total
Expenses would have been 1.39% for the Money Market Portfolio (formerly
called "Cash Income Trust").

(2) These fees reflect an expense reimbursement arrangement whereby the adviser
has agreed to reimburse the funds an amount based on the weighted average
between the advisory fee and other expenses. Without such arrangement, the
management fees and other expenses for the EAFE Index Portfolio and the
Small Cap Index Portfolio would have been 0.45% and 2.30%, and 0.35% and
2.92%, respectively.

(3) The Portfolio's Management Fee includes 0.06% for fund administration.

(4) Other Expenses have been restated to reflect the current expense
reimbursement arrangement whereby the adviser has agreed to reimburse the
Portfolio for the amount by which its expenses exceed 0.30%. Without such
arrangement, other expenses would have been 0.70%

3
<PAGE> 11

EXAMPLE* -- WITHOUT PRINCIPAL PROTECTION*

STANDARD DEATH BENEFIT

Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:

<TABLE>
<CAPTION>
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN: ANNUITIZED AT END OF PERIOD SHOWN:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------

<CAPTION>
3 5 10
PORTFOLIO NAME 1 YEAR YEARS YEARS YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio $79 $108 $140 $218 $19 $58 $100 $218
BT INSURANCE FUNDS TRUST
Small Cap Index Fund 79 110 143 223 19 60 103 223
EAFE Index Fund 81 116 153 244 21 66 113 244
GREENWICH STREET SERIES FUND
Equity Index Portfolio 78 105 135 207 18 55 95 207
</TABLE>

ENHANCED DEATH BENEFIT

Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:

<CAPTION>
3 5 10
PORTFOLIO NAME 1 YEAR YEARS YEARS YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio $81 $114 $151 $239 $21 $64 $111 $239
BT INSURANCE FUNDS TRUST
Small Cap Index Fund 81 116 153 244 21 66 113 244
EAFE Index Fund 83 122 163 264 23 72 123 264
GREENWICH STREET SERIES FUND
Equity Index Portfolio 80 111 146 228 20 61 106 228
</TABLE>

* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE REFLECTS THE $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF 0.056% OF ASSETS.

4
<PAGE> 12

FEE TABLE WITH PRINCIPAL PROTECTION FEATURE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C> <C>
PRINCIPAL PROTECTION CANCELLATION CHARGE
WITHDRAWAL CHARGE (as a percentage of
(as a percentage of original purchase payment withdrawn
purchase payment withdrawn): from Protected Funding Option):

LENGTH OF TIME FROM PURCHASE PAYMENT
(NUMBER OF YEARS) CHARGE CONTRACT YEAR CHARGE
1 6% 1 4%
2 6% 2 4%
3 5% 3 4%
4 5% 4 3%
5 4% 5 3%
6 4% 6 3%
7 3% 7 2%
8 2% 8 1%
9 and over 0% 9 and over N/A
ANNUAL CONTRACT ADMINISTRATIVE CHARGE
(Waived if contract value is $50,000 or more) $30
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of the
Separate Account)
</TABLE>

<TABLE>
<CAPTION>
STANDARD ENHANCED
DEATH BENEFIT DEATH BENEFIT
---------------------------
<S> <C> <C>
Mortality and Expense Risk Charge........................... 1.25% 1.45%
Principal Protection Fee (maximum)(1)....................... 2.00% 2.00%
Administrative Charge....................................... 0.15% 0.15%
---- ----
Total Separate Account Charges............................ 3.40% 3.60%
</TABLE>

FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding Option as of
December 31, 1997, unless otherwise noted)

<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER EXPENSES TOTAL ANNUAL
(AFTER EXPENSES (AFTER EXPENSES FUNDING OPTION
PORTFOLIO NAME ARE REIMBURSED) ARE REIMBURSED) EXPENSES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Index Portfolio 0.21%(2) 0.09%(3) 0.30%
</TABLE>

NOTES:

(1) The Principal Protection Fee is an annual insurance change that varies with
the level of guarantee chosen under the Principal Protection Feature. The
maximum Principal Protection Fee is 2.00% annually.

(2) The Portfolio's Management Fee includes 0.06% for Fund Administration.

(3) Other Expenses have been restated to reflect the current expense
reimbursement arrangement whereby the adviser has agreed to reimburse the
Portfolio for the amount by which its expenses exceed 0.30%. Without such
arrangement, other expenses would have been 0.70%.

EXAMPLE* - WITH PRINCIPAL PROTECTION

Assuming a 5% annual return, a $1,000 investment would be subject to the
following expenses:

<TABLE>
<CAPTION>
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN: ANNUITIZED AT END OF PERIOD SHOWN:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------

<CAPTION>
3 5 10
PORTFOLIO NAME 1 YEAR YEARS YEARS YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GREENWICH STREET SERIES FUND
Equity Index Portfolio (a) $138 $205 $264 $400 $ 38 $115 $194 $400
(b) 140 211 273 417 40 121 203 417
</TABLE>

- ---------------

(a) Standard Death Benefit

(b) Enhanced Death Benefit

5
<PAGE> 13

CONDENSED FINANCIAL INFORMATION

- --------------------------------------------------------------------------------

See Appendix A

THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------

Travelers Index Annuity is a contract between you, the contract owner, and
Travelers Insurance Company (called "us" or the "Company"). Under this contract,
you make a purchase payment to us and we credit it to your account. The Company
promises to pay you an income, in the form of annuity payments, beginning on a
future date that you choose, the maturity date. The purchase payment accumulates
tax deferred in the funding options of your choice. We offer multiple variable
funding options, and one fixed account option. You assume the risk of gain or
loss according to the performance of the variable funding options. The contract
value is the amount of the purchase payment, plus or minus any investment
experience or interest. The contract value also reflects all surrenders made and
charges deducted. There is generally no guarantee that at the maturity date the
contract value will equal or exceed the total purchase payments made under the
Contract, except as noted under the Principal Protection Feature provisions. The
date the Contract and its benefits became effective is referred to as the
contract date. Each 12-month period following this contract date is called a
contract year.

Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to us.

PURCHASE PAYMENT

The single purchase payment must be at least $10,000. Under certain
circumstances, we may waive the minimum purchase payment requirement. For a
single purchase payment over $1 million, you must receive the Company's Home
Office approval before we will accept the purchase payment.

We will apply the single purchase payment within two business days after we
receive it in good order at our Home Office. Our business day ends when the New
York Stock Exchange closes, usually 4:00 p.m. Eastern time.

ACCUMULATION UNITS

An accumulation unit is used to calculate the value of a Contract. An
accumulation unit works like a share of a mutual fund. Each funding option has a
corresponding accumulation unit value. The accumulation units are valued each
business day and their values may increase or decrease from day to day. The
number of accumulation units we will credit to your Contract once we receive a
purchase payment is determined by dividing the amount directed to each funding
option by the value of the accumulation unit. We calculate the value of an
accumulation unit for each funding option each day after the New York Stock
Exchange closes. After the value is calculated, your account is credited. During
the annuity period (i.e., after the maturity date), you are credited with
annuity units.

FUNDING OPTIONS

You choose which of the following variable funding options to have your purchase
payment allocated to. You will find detailed information about the options and
their inherent risks in the current prospectuses for the funding options which
must accompany this prospectus. Since each option has varying degrees of risk,
please read the prospectuses carefully before investing. Additional copies of
the prospectuses may be obtained by contacting your registered representative or
by calling 1-800-842-8573.

6
<PAGE> 14

The current funding options are listed below, along with their investment
advisers:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER

<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Small Cap Index Fund of the Seeks to replicate, before deduction of Bankers Trust Global
BT Insurance Funds Trust expenses, the total return performance of Investment Management
the Russell 2000 Index.
- ---------------------------------------------------------------------------------------------------
EAFE Equity Index Fund of Seeks to replicate, before deduction of Bankers Trust Global
the BT Insurance Funds expenses, the total return performance of Investment Management
Trust the EAFE Index.
- ---------------------------------------------------------------------------------------------------
Equity Index Portfolio* of Seeks to replicate, before deduction of Travelers Investment
Greenwich Street expenses, the total return performance of Management Company
Series Fund the S&P 500 Index.
- ---------------------------------------------------------------------------------------------------
Money Market Portfolio Seeks to provide high current income from Travelers Asset Management
(formerly called "Cash short-term money market instruments while International Corporation
Income Trust") emphasizing preservation of capital and
maintaining a high degree of liquidity.
An investment in this fund is neither
insured nor guaranteed by the U.S.
Government, and there is no assurance that
a stable $1 value per share will be
maintained.
- ---------------------------------------------------------------------------------------------------
</TABLE>

* IF ELECTED WITH THE PRINCIPAL PROTECTION FEATURE, THIS IS REFERRED TO AS THE
"PROTECTED FUNDING OPTION."

OPTIONAL PRINCIPAL PROTECTION FEATURE

You can choose to protect your investment by purchasing a guarantee called the
Principal Protection Feature. If you purchase this feature, the Company will
guarantee that on the Principal Protection Expiration Date, your Contract will
be worth at least either 115%, 100%, or 90% (depending on the guarantee you
purchased) of your original purchase payment adjusted only for withdrawal
reductions (including the Principal Protection Cancellation Charge), even if the
value of your Contract on that date is less than your original payment. The
purchase payment is not adjusted for administrative charges and mortality and
expense risk charges. To qualify for the Principal Protection Feature, you must
select this feature when you purchase the Contract, and allocate your entire
purchase payment to the Protected Funding Option, the Equity Index Portfolio,
until the Principal Protection Expiration Date. A Principal Protection Fee and a
Cancellation Charge are associated with this feature. (See "Charges and
Deductions.")

At this time, the only Protected Funding Option is Equity Index Portfolio. At
some time in the future, we may add additional Protected Funding Options.

If you buy the Principal Protection Feature, you may not transfer out of the
Protected Funding Option before the end of the eighth contract year. You may
withdraw or annuitize all or part of your contract value before the Principal
Protection Expiration Date, subject to a Principal Protection Cancellation
Charge and withdrawal charges. The amounts you withdraw (including the
withdrawal charge and Principal Protection Cancellation Charge) will reduce the
amount of the principal guarantee proportionately.

PRINCIPAL PROTECTION EXPIRATION DATE

If you purchase the Principal Protection Feature, the Company will fulfill its
obligations under that feature on the Principal Protection Expiration Date
(which is the last day of the eighth contract year). On that date, we will
contribute to your contract value any amount needed to bring your contract value
up to 115%, 100% or 90%, depending on your selection, of your original payment
adjusted for withdrawal reductions. In addition, on the Principal Protection
Expiration Date, we will transfer your contract value to the Money Market
Portfolio, a money market fund, unless you select, in writing, a different
funding option. On and after the Principal Protection Expiration Date, you may
remain in the Contract and transfer to any funding options, purchase a new
Travelers

7
<PAGE> 15

Index Annuity Contract with the Principal Protection Feature, annuitize your
Contract, exchange this Contract for another annuity contract, or withdraw your
contract value. Your registered representative will help you with your decision.

SUBSTITUTIONS AND ADDITIONS

If any of the funding options become unavailable under the Contract, or if we
believe that further investment in a funding option is inappropriate for the
purposes of the Contract, we may substitute another funding option. However, we
will not make any substitutions without notifying you, obtaining state approval
if applicable, and without prior approval of the SEC, to the extent required by
the 1940 Act or other applicable law. From time to time we may make new funding
options available.

CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------

WITHDRAWAL CHARGE

No sales charges are deducted from the purchase payment when it is applied under
the Contract. However, a withdrawal charge will be deducted if any or all of the
purchase payment is withdrawn during the first eight years following the
purchase payment. The length of time from when we receive the purchase payment
to the time of withdrawal determines the amount of the charge.

The withdrawal charge is equal to a percentage of the purchase payment withdrawn
from the Contract and is calculated as follows:

<TABLE>
<CAPTION>
LENGTH OF TIME FROM
PURCHASE PAYMENT WITHDRAWAL
(NUMBER OF YEARS) CHARGE
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 4%
7 3%
8 2%
9 and over 0%
</TABLE>

For purposes of the withdrawal charge and Principal Protection Cancellation
Charge (described below) calculations, any withdrawals will be deemed to be
taken first from any free withdrawal allowance (as described below); next from
the remainder of the purchase payment; and then from Contract earnings (in
excess of the free withdrawal allowance). Unless you instruct us otherwise, we
will deduct the withdrawal charge from the amount requested.

We will not deduct a withdrawal charge or Principal Protection Cancellation
Charge from payments we make due to (1) the death of the contract owner or the
death of the annuitant with no contingent annuitant surviving; or (2) minimum
distribution requirements.

FREE WITHDRAWAL ALLOWANCE

There is a 10% free withdrawal allowance available each year after the first
contract year. The available amount will be calculated as of the end of the
previous contract year. The free withdrawal allowance applies to any partial
withdrawals and to full withdrawals, except those transferred directly to
annuity contracts issued by other financial institutions. If you have selected
the Principal Protection Feature, the Principal Protection Cancellation Charge
will not be assessed on the 10% free withdrawal allowance. However, any free
withdrawal allowance taken will reduce the principal guarantee proportionately.

8
<PAGE> 16

OPTIONAL PRINCIPAL PROTECTION FEE

The Company offers you the option of purchasing a guarantee on your investment.
You can obtain protection for 115%, 100% or 90% of your principal if you buy the
Principal Protection Feature at the time you purchase your Contract. Under this
feature, we will guarantee that, on the Principal Protection Expiration Date
(which is the last day of the eighth contract year), your Contract will be worth
at least either 115%, 100%, or 90% (depending on your choice of guarantees) of
your purchase payment, less a reduction for withdrawals, withdrawal charges, and
the Principal Protection Cancellation Charge, even if the value of your Contract
on that date is less than the chosen percentage of your original purchase
payment. Of course, if your contract value is more than the chosen percentage of
original purchase payment, you will receive the greater value.

There is an annual charge, the Principal Protection Fee, for this feature. The
Principal Protection Fee compensates the Company for the risks that it will bear
in providing this guarantee of principal. The Principal Protection Fee is
deducted daily from your contract value at a maximum annual rate of 2.00%. The
charge varies based on the level of guarantee chosen and the current market
conditions that determine our actual costs associated with the Principal
Protection Feature. The charge will be set periodically and will lock in at the
time of contract purchase. The Principal Protection Fee is set forth in your
Contract. Generally, the Principal Protection Fee will conform with the chart
below. Please note that these ranges are estimates. The actual charge will vary
due to market conditions, and will be determined by the Company.

<TABLE>
<CAPTION>
LEVEL OF GUARANTEE CHARGE RANGE
% OF PURCHASE PAYMENT % OF CONTRACT VALUE
<S> <C>
115% 1.25%-2.00%
100% 0.75%-1.50%
90% 0.50%-1.25%
</TABLE>

The Principal Protection Feature must be selected at the time you purchase your
Contract and will extend for the eight years from the contract date until the
Principal Protection Expiration Date. This guarantee is valid only if your
Contract is held to the Principal Protection Expiration Date, and you do not
annuitize or surrender before that date.

PRINCIPAL PROTECTION CANCELLATION CHARGE

We will assess a Principal Protection Cancellation Charge if you select the
Principal Protection Feature and make a full or partial withdrawal from the
Contract, before the Principal Protection Expiration Date. This charge
compensates Travelers for costs incurred should you withdraw from the Principal
Protection Feature before the Principal Protection Expiration Date.

The Principal Protection Cancellation Charge equals up to 4% percent of the
original purchase payment withdrawn. The percent charged depends on the length
of time you have had your contract. The Principal Protection Cancellation Charge
is set forth in your Contract.

If you have selected the Principal Protection Feature, any amounts you withdraw
(including the withdrawal charge and Principal Protection Cancellation Charge)
will reduce the amount of the principal guarantee proportionately.

Note: The Company has applied to the SEC for exemptive relief, allowing the
Company to assess this fee. It will not be assessed until such relief is
granted.

ADMINISTRATIVE CHARGES

A Contract Administrative Fee of $30 is deducted annually from Contracts with a
value of less than $50,000. This fee compensates us for expenses incurred in
establishing and maintaining the Contract. The fee is deducted from the contract
value on the fourth Friday of each August by canceling accumulation units
applicable to each funding option on a pro rata basis. This fee will be prorated
from the date of purchase to the next date of assessment of the fee. A prorated
fee will also be deducted if the Contract is completely withdrawn or terminated.
We will not deduct a Contract Administrative Fee: (1) if the distribution
results from the death of the contract owner or

9
<PAGE> 17

the annuitant with no contingent annuitant surviving, (2) after an annuity
payout has begun, or (3) if the contract value on the date of assessment is
equal to or greater than $50,000.

An Administrative Charge is deducted on each business day from amounts allocated
to the variable funding options in order to compensate the Company for certain
related administrative and operating expenses. The charge equals, on an annual
basis, 0.15% of the amounts allocated to each of the variable funding options.

MORTALITY AND EXPENSE RISK CHARGE

Each business day, the Company deducts a mortality and expense risk charge. The
deduction is reflected in our calculation of accumulation and annuity unit
values. We reserve the right to lower this charge at any time. The mortality
risk portion compensates us for guaranteeing to provide annuity payments
according to the terms of the Contract regardless of how long the annuitant
lives and for guaranteeing to provide the death benefit if an annuitant dies
prior to the maturity date. The expense risk portion compensates us for the risk
that the charges under the Contract, which cannot be increased during the
duration of the Contract, will be insufficient to cover actual costs.

For those contract owners who have elected a standard death benefit provision,
the mortality and expense risk charge is equivalent, on an annual basis, to
1.25% of the daily net asset value of amounts held in the Separate Account.

For those contract owners who have elected an enhanced death benefit provision,
the mortality and expense risk charge is equivalent, on an annual basis, to
1.45% of the daily net asset value of amounts held in the Separate Account.

REDUCTION OR ELIMINATION OF CONTRACT CHARGES

The withdrawal charge, the Principal Protection Cancellation Charge, the
administrative charges, the mortality and expense risk charge and the Principal
Protection Fee under the Contract may be reduced or eliminated when certain
sales or administration of the Contract result in savings or reduction of
administrative or sales expenses, mortality and expense risks and/or the
Principal Protection Fee. Any such reduction will be based on the following: (1)
the size and type of group to which sales are to be made; (2) the total amount
of purchase payments to be received; and (3) any prior or existing relationship
with the Company. There may be other circumstances, of which we are not
presently aware, which could result in fewer sales expenses, administrative
charges, or mortality and expense risk charges. Any reduction or elimination of
the charges will be permitted only where it will not be unfairly discriminatory
to any person.

FUNDING OPTION EXPENSES

The deductions from and expenses paid out of the assets of the various funding
options are summarized in the fee table and are described in the accompanying
prospectuses.

PREMIUM TAX

Certain state and local governments charge premium taxes ranging from 0% to 5%,
depending upon jurisdiction. The Company is responsible for paying these taxes
and will determine the method used to recover premium tax expenses incurred.
Where required, the Company will deduct any applicable premium taxes from the
contract value either upon death, surrender, annuitization, or at the time
purchase payments are made to the Contract, but no earlier than when the Company
has a tax liability under state law.

CHANGES IN TAXES BASED UPON PREMIUM OR VALUE

If there is any change in a law assessing taxes against the Company based upon
premiums, contract gains or value of the Contract, we reserve the right to
charge you proportionately for this tax.

10
<PAGE> 18

OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------

TYPES OF OWNERSHIP

Contract owner (you). The Contract belongs to the contract owner named in the
Contract (on the Specifications page), or to any other person to whom the
contract is subsequently assigned. An assignment of ownership or a collateral
assignment may be made only for nonqualified contracts. You have sole power
during the annuitant's lifetime to exercise any rights and to receive all
benefits given in the Contract provided that you have not named an irrevocable
beneficiary and provided the Contract is not assigned.

You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.

Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint owner end at
death if the other joint owner survives. The entire interest of the deceased
joint owner in the Contract will pass to the surviving joint owner.

BENEFICIARY

The beneficiary is named by you in a written request. The beneficiary has the
right to receive any remaining contractual benefits upon the death of the
annuitant or the contract owner. If more than one beneficiary survives the
annuitant, they will share equally in benefits unless different shares are
recorded with the Company by written request before the death of the annuitant
or contract owner.

With nonqualified contracts the beneficiary named in the contract may differ
from the designated beneficiary (for example, the joint owner or a contingent
annuitant). In such cases, the designated beneficiary receives the contract
benefits (rather than the beneficiary) upon your death.

Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.

ANNUITANT

The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.

For nonqualified contracts only, the contract owner may also name one individual
as a contingent annuitant by written request before the Contract becomes
effective. A contingent annuitant may not be changed, deleted or added after the
Contract becomes effective. If the annuitant dies before the maturity date and a
contingent annuitant has been named, the contingent annuitant becomes the
annuitant and the Contract continues in effect.

TRANSFERS
- --------------------------------------------------------------------------------

Up to 30 days before the maturity date, you may transfer all or part of the
contract value between funding options if you have not elected the Principal
Protection Feature. If you have elected the Principal Protection Feature,
transfers are permitted only after the Principal Protection Expiration Date.
There are no charges or restrictions on the amount or frequency of transfers
currently except for the Fixed Option; however, we reserve the right to charge a
fee for any transfer request, and to limit the number of transfers to one in any
six-month period. Since different funding options have different expenses, a
transfer of contract values from one funding option to another could result in

11
<PAGE> 19

your investment becoming subject to higher or lower expenses. After the maturity
date, you may make transfers between funding options only with our consent.

DOLLAR COST AVERAGING

This feature is not available during the Guarantee Period if you selected the
Principal Protection Guarantee.

Dollar cost averaging (or "automated transfers") allows you to transfer a set
dollar amount to other funding options on a monthly or quarterly basis so that
more accumulation units are purchased in a funding option if the cost per unit
is low and less accumulation units are purchased if the cost per unit is high.
Therefore, a lower-than-average cost per unit may be achieved over the long run.

You may elect automated transfers through written request or other method
acceptable to the Company. You must have a minimum total contract value of
$10,000 to enroll in the Dollar Cost Averaging program. The minimum amount that
may be transferred through this program is $400.

You may establish automated transfers of contract values from the Fixed Account,
subject to certain restrictions. Automated transfers from the Fixed Account may
not deplete your Fixed Account Value in less than twelve months from your
enrollment in the Dollar Cost Averaging program.

You may start or stop participation in the Dollar Cost Averaging program at any
time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. All provisions and
terms of the Contract apply to automated transfers, including provisions
relating to the transfer of money between investment options. We reserve the
right to suspend or modify transfer privileges at any time and to assess a
processing fee for this service.

ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------

Any time before the maturity date, you may redeem all or any portion of the cash
surrender value, that is, the contract value, less any withdrawal charge, any
applicable Principal Protection Cancellation Charge, and any premium tax not
previously deducted. You must submit a written request specifying the fixed or
variable funding option(s) from which amounts are to be withdrawn. The cash
surrender value will be determined as of the close of business after we receive
your surrender request at the Home Office. The cash surrender value may be more
or less than the purchase payment made depending on the contract value at the
time of surrender.

If you select the Principal Protection Feature and withdraw any amounts prior to
the Principal Protection Expiration Date, the amounts withdrawn, including the
withdrawal charge and Principal Protection Cancellation Charge, will no longer
be protected by the principal guarantee and will reduce the amount of the
principal guarantee proportionately.

The Company may defer payment of any cash surrender value for a period of up to
seven days after the written request is received, but it is our intent to pay as
soon as possible. We cannot process requests for surrender that are not in good
order. We will contact you if there is a deficiency causing a delay and will
advise what is needed to act upon the withdrawal request.

SYSTEMATIC WITHDRAWALS

Before the maturity date, you may choose to withdraw a specified dollar amount
(at least $100) on a monthly, quarterly, semiannual or annual basis. Any
applicable withdrawal charges and Principal Protection Cancellation Charge (in
excess of the free withdrawal allowance) and any applicable premium taxes will
be deducted. To elect systematic withdrawals, you must have a contract value of
at least $15,000 and you must make the election on the form provided by the

12
<PAGE> 20

Company. We will surrender accumulation units pro rata from all funding options
in which you have an interest, unless you instruct us otherwise. You may begin
or discontinue systematic withdrawals at any time by notifying us in writing,
but at least 30 days' notice must be given to change any systematic withdrawal
instructions that are currently in place.

If you select the Principal Protection Feature and withdraw any amounts prior to
the Principal Protection Expiration Date, the amounts withdrawn (including the
withdrawal charge and Principal Protection Cancellation Charge) will no longer
be protected by the principal guarantee and will reduce the amount of the
principal guarantee proportionately.

We reserve the right to discontinue offering systematic withdrawals or to assess
a processing fee for this service upon 30 days' written notice to contract
owners (where allowed by state law).

Each systematic withdrawal is subject to federal income taxes on the taxable
portion. In addition, a 10% federal penalty tax may be assessed on systematic
withdrawals if the contract owner is under age 59 1/2. You should consult with
your tax adviser regarding the tax consequences of systematic withdrawals.

DEATH BENEFIT

- --------------------------------------------------------------------------------

Before the maturity date, a death benefit is payable to the beneficiary when
either the annuitant, the contract owner or the first of joint owners dies and
there is no contingent annuitant. The death benefit is calculated at the close
of the business day on which the Company's Home Office receives due proof of
death and written payment instructions (the "death report date").

DEATH PROCEEDS BEFORE THE MATURITY DATE

STANDARD DEATH BENEFIT

IF ANY CONTRACT OWNER OR THE ANNUITANT DIES BEFORE AGE 85. The Company will pay
an amount equal to the greatest of (a), (b) or (c) below, each reduced by any
applicable premium tax:

(a) the contract value; or

(b) the purchase payment made under the Contract less any partial
withdrawals (and associated charges); or

(c) the death benefit value, which will be reset once every eight years
to the contract value immediately preceding the death report date.

DEATH OF ANY CONTRACT OWNER OR THE ANNUITANT ON OR AFTER AGE 85. The Company
will pay a death benefit in an amount equal to the contract value as of the
death report date, less any applicable premium tax.

ENHANCED DEATH BENEFIT

IF ANY CONTRACT OWNER OR THE ANNUITANT DIES BEFORE AGE 80. The Company will pay
an amount equal to the greater of (a) or (b) below, each reduced by any
applicable premium tax:

(a) the contract value; or

(b) the Roll-Up Death Benefit Value (as described below) available as of
the death report date.

IF ANY CONTRACT OWNER OR THE ANNUITANT DIES ON OR AFTER AGE 80, BUT BEFORE AGE
90. Travelers will pay an amount equal to the greater of (a) or (b) below, each
reduced by any applicable premium tax:

13
<PAGE> 21

(a) the contract value; or

(b) the Roll-Up Death Benefit Value (as described below) available as of
the Annuitant's 80th birthday, less any Partial Surrender Reductions
(as described below) which occur after the Annuitant's 80th
birthday.

DEATH OF ANY CONTRACT OWNER OR THE ANNUITANT ON OR AFTER AGE 90. The Company
will pay a death benefit in an amount equal to the contract value as of the
death report date, less any applicable premium tax.

ROLL-UP DEATH BENEFIT VALUE: On the contract date, the Roll-Up Death Benefit
Value is equal to the purchase payment. On each anniversary of the contract
date, the Roll-Up Death Benefit Value will be recalculated as follows:

(a) the Roll-Up Death Benefit Value on the previous contract date
anniversary; minus

(b) any Partial Surrender Reductions (as described below) since the
previous contract date anniversary.

The result increased by 7%, is the new Roll-Up Death Benefit Value. The maximum
Roll-Up Death Benefit payable equals 7% per year, to a maximum of 200% of the
difference between the purchase payment and all Partial Surrender Reductions (as
described below).

The Partial Surrender Reduction equals:

(1) the amount of the Roll-Up Death Benefit Value just before the
reduction for the partial surrender, multiplied by

(2) the amount of the partial surrender divided by the contract value
just before the partial surrender.

PAYMENT OF PROCEEDS

The process of paying death benefit proceeds under various situations is
described below. Generally, the person(s) receiving the benefit may request that
the proceeds be paid in a lump sum, or be applied to one of the settlement
options available under the Contract.

DEATH OF ANNUITANT WHO IS THE CONTRACT OWNER. The Company will pay the proceeds
to any surviving joint owner, or if none, to the beneficiary(ies), or if none,
to the contract owner's estate.

Under a nonqualified contract, the death benefit proceeds must be distributed to
the beneficiary within five years of the contract owner's death. Or, the
beneficiary may elect to receive payments from an annuity which begins within
one year of the contract owner's death and is payable over the life of the
beneficiary or over a period not exceeding the beneficiary's life expectancy.

If the beneficiary is the contract owner's spouse, he or she may elect to
continue the contract as the new contract owner rather than receiving the
distribution. In such case, the distribution rules applicable when a contract
owner dies generally will apply when that spouse, as contract owner, dies.

DEATH OF ANNUITANT WHO IS NOT THE CONTRACT OWNER. If there is no contingent
annuitant, the Company will pay the death proceeds to the beneficiary. However,
if there is a contingent annuitant, he or she becomes the annuitant and the
Contract continues in effect (generally using the original maturity date). The
proceeds described above will be paid upon the death of the last surviving
contingent annuitant.

ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or another entity), any annuitant will be treated as the
contract owner. Any change in the annuitant will be treated as the death of the
contract owner.

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DEATH PROCEEDS AFTER THE MATURITY DATE

If the death of any contract owner or annuitant occurs on or after the maturity
date, the Company will pay the beneficiary a death benefit consisting of any
benefit remaining under the annuity option then in effect.

THE ANNUITY PERIOD
- --------------------------------------------------------------------------------

MATURITY DATE

Under the Contract, you can receive regular income payments (annuity payments).
You can choose the month and the year in which those payments begin (maturity
date). While the annuitant is alive, you can change your selection any time up
to the maturity date. Annuity payments will begin on the maturity date stated in
the Contract unless the Contract has been fully surrendered or the proceeds have
been paid to the beneficiary before that date. Annuity payments are a series of
periodic payments (a) for life; (b) for life with either a minimum number of
payments or a specific amount assured; or (c) for the joint lifetime of the
annuitant and another person, and thereafter during the lifetime of the
survivor. We may require proof that the annuitant is alive before annuity
payments are made.

Unless you elect otherwise, the maturity date will be the later of the
annuitant's 75th birthday, or ten years after the effective date of the
Contract. (For Contracts issued in Florida and New York, the maturity date
elected may not be later than the annuitant's 90th birthday.)

If you select the Principal Protection Feature, you may not select a maturity
date that is prior to the Principal Protection Expiration Date (that is, prior
to the last day of the eighth contract year).

For nonqualified Contracts, at least 30 days before the original maturity date,
a contract owner may elect to extend the maturity date to any time prior to the
annuitant's 85th birthday or, for qualified Contracts, to a later date with the
Company's consent. Certain annuity options taken at the maturity date may be
used to meet the minimum required distribution requirements of federal tax law,
or a program of partial surrenders may be used instead. These mandatory
distribution requirements take effect generally upon the death of the contract
owner, or with qualified contracts upon either the later of April 1 following
the contract owner's attainment of age 70 1/2 or the year of retirement or upon
the death of the contract owner. Independent tax advice should be sought
regarding the election of minimum required distributions.

ALLOCATION OF ANNUITY

When an annuity option is elected, it may be elected as a variable annuity, a
fixed annuity, or a combination of both. (Variable payouts under this Contract
may not be permitted in certain states.) If, at the time annuity payments begin,
no election has been made to the contrary, the cash surrender value (or contract
value, if a state so requires) will be applied to provide an annuity funded by
the same investment options as selected during the accumulation period. At least
30 days before the maturity date, you may transfer the contract value among the
funding options in order to change the basis on which annuity payments will be
determined. If the Principal Protection Feature is selected and you annuitize
prior to the Principal Protection Expiration Date, a Principal Protection
Cancellation Charge may apply.

VARIABLE ANNUITY

You may choose an annuity payout that fluctuates depending on the investment
experience of the variable funding options. The number of annuity units credited
to the Contract is determined by dividing the first monthly annuity payment
attributable to each funding option by the corresponding annuity unit value as
of 14 days before the date annuity payments begin. An annuity unit is used to

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<PAGE> 23

measure the dollar value of an annuity payment. The number of annuity units (but
not their value) remains fixed during the annuity period.

DETERMINATION OF FIRST ANNUITY PAYMENT. The Contract contains Life Annuity
Tables used to determine the first monthly annuity payment. The amount applied
to effect a variable annuity will be the value of the funding options as of 14
days before the date annuity payments begin less any applicable premium taxes
not previously deducted.

The amount of the first monthly payment depends on the annuity option elected. A
formula for determining the adjusted age is contained in the Contract. The total
first monthly annuity payment is determined by multiplying the benefit per
$1,000 of value shown in the tables of the Contract by the number of thousands
of dollars of value of the Contract applied to that annuity option. The Company
reserves the right to require satisfactory proof of age of any person on whose
life annuity payments are based before making the first payment under any of the
settlement options.

DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS. The dollar amount of
the second and subsequent annuity payments is not predetermined and may change
from month to month based on the investment experience of the applicable funding
option. The total amount of each annuity payment will be equal to the sum of the
basic payments in each funding option. The actual amounts of these payments are
determined by multiplying the number of annuity units credited to each funding
option by the corresponding annuity unit value as of the date 14 days before the
date the payment is due.

FIXED ANNUITY

You may choose a fixed annuity that provides payments which do not vary during
the annuity period. We will calculate the dollar amount of the first fixed
annuity payment as described under "Variable Annuity." If it would produce a
larger payment, the first fixed annuity payment will be determined using the
Life Annuity Tables in effect on the maturity date.

PAYMENT OPTIONS
- --------------------------------------------------------------------------------

ELECTION OF OPTIONS

While the annuitant is alive, you can change your annuity option selection any
time up to the maturity date. Once annuity payments have begun, no further
elections are allowed.

During the annuitant's lifetime, if you do not elect otherwise before the
maturity date, we will pay you (or another designated payee) the first of a
series of monthly annuity payments based on the life of the annuitant, in
accordance with Annuity Option 2 (Life Annuity with 120 monthly payments
assured). For certain qualified contracts, Annuity Option 4 (Joint and Last
Survivor Joint Life Annuity -- Annuity Reduced on Death of Primary Payee) will
be the automatic option as described in the contract.

The minimum amount that can be placed under an annuity option will be $2,000
unless we agree to a lesser amount. If any monthly periodic payment due is less
than $100, the Company reserves the right to make payments at less frequent
intervals, or to pay the cash surrender value in a lump-sum. The amount applied
to effect an annuity or income option will be the cash surrender value as of the
date the payments begin, less any applicable premium taxes not previously
deducted. (Certain states may have differend requirements that we will honor.)
The cash surrender value during the accumulation period, including the deduction
for mortality and expense risks and the contract administrative expense charge.

On the maturity date, we will pay the amount due under the Contract in one lump
sum (except in Florida, where this is not permitted), or in accordance with the
payment option that you select.

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<PAGE> 24

You must elect an option in writing, in a form satisfactory to the Company. Any
election made during the lifetime of the annuitant must be made by the contract
owner.

ANNUITY OPTIONS

Subject to the conditions described in "Election of Options" above, all or any
part of the cash surrender value (contract value, if specified by state law) may
be paid under one or more of the following annuity options. Payments under the
annuity options may be elected on a monthly, quarterly, semiannual or annual
basis. We may also offer additional options.

Option 1 -- Life Annuity -- No Refund. The Company will make annuity payments
during the lifetime of the annuitant ending with the last payment before death.
This option offers the maximum periodic payment, since there is no assurance of
a minimum number of payments or provision for a death benefit for beneficiaries.

Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Assured. The
Company will make monthly annuity payments during the lifetime of the annuitant,
with the agreement that if, at the death of that person, payments have been made
for less than 120, 180 or 240 months as elected, we will continue making
payments to the beneficiary during the remainder of the period.

Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will
make regular annuity payments during the lifetime of the annuitant and a second
person. When either person dies, we will continue making payments to the
survivor. No further payments will be made following the death of the survivor.

Option 4 -- Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of
Primary Payee. The Company will make annuity payments during the lifetimes of
the annuitant and a second person. One will be designated the primary payee, the
other will be designated the secondary payee. On the death of the secondary
payee, the Company will continue to make monthly annuity payments to the primary
payee in the same amount that would have been payable during the joint lifetime
of the two persons. On the death of the primary payee, the Company will continue
to make annuity payments to the secondary payee in an amount equal to 50% of the
payments which would have been made during the lifetime of the primary payee. No
further payments will be made once both payees have died.

Option 5 -- Payments of a Fixed Amount. The Company will make equal payments of
the amount elected until the cash surrender value applied under this option has
been exhausted. The first payment and all later payments will be paid from
amounts attributable to each investment option in proportion to the cash
surrender value attributable to each. The final payment will include any amount
insufficient to make another full payment.

MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------

RIGHT TO RETURN

You may return the Contract for a full refund of the contract value (including
charges) within ten days after you receive it (the "right to return period").
You bear the investment risk during the right to return period; therefore, the
contract value returned may be greater or less than your purchase payment. If
the Contract is purchased as an Individual Retirement Annuity, and is returned
within the first seven days after delivery, your purchase payment will be
refunded in full; during the remainder of the right to return period, the
contract value (including charges) will be refunded. The contract value will be
determined following the close of the business day on which we receive a written
request for a refund. Where state law requires a longer right to return period,
or the return of purchase payments or other variations of this provision, the
Company will comply. Refer to your Contract for any state-specific information.

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<PAGE> 25

TERMINATION

We reserve the right to terminate the Contract on any business day if the
contract value as of that date is less than $2,000, unless otherwise specified
by state law. Termination will not occur until 31 days after the Company has
mailed notice of termination to the contract owner's last known address and to
any assignee of record. If the Contract is terminated, we will pay you the cash
surrender value (contract value less any applicable premium tax, in the states
that so require), less any applicable contract administrative fee.

REQUIRED REPORTS

As often as required by law, but at least once in each contract year before the
due date of the first annuity payment, we will furnish a report showing the
number of accumulation units credited to the Contract and the corresponding
accumulation unit value(s) as of the date of the report for each funding option
to which the contract owner has allocated amounts during the applicable period.
The Company will keep all records required under federal or state laws.

SUSPENSION OF PAYMENTS

The Company reserves the right to suspend or postpone the date of any payment or
determination of values on any business day (1) when the New York Stock Exchange
("the Exchange") is closed; (2) when trading on the Exchange is restricted; (3)
when an emergency exists as determined by the SEC so that the sale of securities
held in the Separate Account may not reasonably occur or so that the Company may
not reasonably determine the value the Separate Account's net assets; or (4)
during any other period when the SEC, by order, so permits for the protection of
security holders.

TRANSFERS OF CONTRACT VALUES TO OTHER ANNUITIES

We may permit contract owners to transfer their contract values into other
annuities offered by us or our affiliated insurance companies under rules then
in effect.

THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------

The Travelers Fund BD III For Variable Annuities ("Fund BD III") was established
on March 27, 1997 and is registered with the SEC as a unit investment trust
(separate account) under the Investment Company Act of 1940, as amended (the
"1940 Act"). The assets of Fund BD III will be invested exclusively in the
shares of the variable funding options, as well as other variable funding
options available in similar variable annuity contracts offered by the Company.

The assets of Fund BD III are held for the exclusive benefit of the owners of
this separate account, according to the laws of Connecticut. Income, gains and
losses, whether or not realized, from assets allocated to Fund BD III are, in
accordance with the Contracts, credited to or charged against Fund BD III
without regard to other income, gains and losses of the Company. The assets held
by Fund BD III are not chargeable with liabilities arising out of any other
business which the Company may conduct. Obligations under the Contract are
obligations of the Company.

All investment income and other distributions of the funding options are payable
to Fund BD III. All such income and/or distributions are reinvested in shares of
the respective funding option at net asset value. Shares of the funding options
are currently sold only to life insurance company separate accounts to fund
variable annuity and variable life insurance contracts.

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<PAGE> 26

MIXED AND SHARED FUNDING

It is conceivable that in the future it may be disadvantageous for both variable
annuity and variable life insurance separate accounts, or for variable separate
accounts of different insurance companies, to invest simultaneously in the same
portfolios (called "mixed" and "shared" funding). Currently neither the
insurance companies nor the portfolios foresee any such disadvantages to the
companies or to variable contract owners. Each portfolio's board of trustees,
directors or managers intends to monitor events in order to identify any
material conflicts between such policy owners and to determine what action, if
any, should be taken in response thereto.

PERFORMANCE INFORMATION

From time to time, we may advertise several types of historical performance for
the Contract's funding options. We may advertise the "standardized average
annual total returns" of the funding option, calculated in a manner prescribed
by the SEC, as well as the "nonstandardized total return," as described below.
Examples of the performance figures are illustrated in the SAI.

STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the annual contract
administrative fee ($30) is converted to a percentage of assets based on the
actual fee collected (or anticipated to be collected, if a new product), divided
by the average net assets for Contracts sold (or anticipated to be sold). Each
quotation assumes a total redemption at the end of each period with the
applicable withdrawal charge deducted at that time.

NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be calculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. Nonstandardized total returns will not reflect the
deduction of any withdrawal charge or the $30 annual contract administrative
fee, which, if reflected, would decrease the level of performance shown. The
withdrawal charge is not reflected because the Contract is designed for
long-term investment.

For funding options that were in existence prior to the date they became
available under the Separate Account, the standardized average annual total
return quotations may be accompanied by returns showing the investment
performance that such funding options would have achieved (reduced by the
applicable charges) had they been held under the Contract for the period quoted.
The total return quotations are based upon historical earnings and are not
necessarily representative of future performance.

GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the separate account and the variable funding
options.

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FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------

The following general discussion of the federal income tax consequences under
this Contract is not intended to cover all situations, and is not meant to
provide tax advice. Because of the complexity of the law and the fact that the
tax results will vary depending on many factors, you should consult your tax
adviser regarding your personal situation. For your information, a more detailed
tax discussion is contained in the SAI.

GENERAL TAXATION OF ANNUITIES

Congress has recognized the value of saving for retirement by providing certain
tax benefits, in the form of tax deferral, for money put into an annuity. The
Internal Revenue Code (Code) governs how this money is ultimately taxed,
depending upon the type of contract, qualified or non-qualified, and the manner
in which the money is distributed, as briefly described below.

TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED

If you purchase an annuity contract under any pension plan, specially sponsored
program, or individual retirement annuity (IRA) with pre-tax dollars, your
contract is referred to as a qualified contract. Some examples of qualified
contracts are: IRAs, pension and profit-sharing plans (including 401(k) plans),
and Keogh Plans. If you purchase the contract with after-tax dollars and not
under one of the programs described above, your contract is referred to as
nonqualified.

NONQUALIFIED ANNUITY CONTRACTS

As the owner of a nonqualified annuity, you will not be taxed on increases in
the value of your contract until a distribution occurs -- either as a withdrawal
(distribution made prior to the maturity date), or as annuity payments. When a
withdrawal is made, you are taxed on the amount of the withdrawal that is
considered earnings. Similarly, when you receive an annuity payment, part of
each payment is considered a return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment (i.e., any earnings) will be
considered ordinary income for tax purposes.

If a nonqualified annuity is owned by other than an individual, however (e.g.,
by a corporation), increases in the value of the contract attributable to
purchase payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includable in your income if you should transfer the
contract for an amount substantially less than the value of the contract.

If you make a partial withdrawal, this money will generally be taxed as first
coming from earnings, (income in the contract), and then from your purchase
payments. These withdrawn earnings are includable in your income. (See "Penalty
Tax for Premature Distributions" below.) There is income in the contract to the
extent the cash value exceeds your investment in the contract. The investment in
the contract equals the total purchase payments you paid less any amount
received previously which was excludable from gross income. Any direct or
indirect borrowing against the value of the contract or pledging of the contract
as security for a loan will be treated as a cash distribution under the tax law.

Federal tax law requires that nonqualified annuity contracts meet minimum
mandatory distribution requirements upon the death of the contract owner,
including the first of joint owners. If these requirements are not met, the
surviving joint owner, or the beneficiary, will have to pay taxes prior to
distribution. The distribution required depends, among other things, upon
whether an annuity option is elected or whether the new contract owner is the
surviving spouse. We will administer Contracts in accordance with these rules
and we will notify you when you should begin receiving payments.

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QUALIFIED ANNUITY CONTRACTS

Under a qualified annuity, since amounts paid into the contract have not yet
been taxed, the full amount of all withdrawals and annuity payments are taxed at
the ordinary income tax rate. The Contract is available as a vehicle for IRA
rollovers. There are special rules which govern the taxation of qualified
contracts, including requirements for mandatory distributions and contribution
limits. We have provided a more complete discussion in the SAI.

PENALTY TAX FOR PREMATURE DISTRIBUTIONS

Taxable distributions taken before the contract owner has reached the age of
59 1/2 will be subject to a 10% additional tax penalty unless the money
distributed was (1) paid on or after the owner dies; (2) paid if the taxpayer
becomes totally disabled, (as that term is defined in the Code); (3) paid in a
series of substantially equal payments made annually (or more frequently) under
a lifetime annuity; (4) paid as an immediate annuity; or (5) paid from purchase
payments made prior to August 14, 1982.

OWNERSHIP OF THE INVESTMENTS

Assets in the funding options must be owned by the Company and not by the
contract owner for federal income tax purposes. Otherwise, the deferral of taxes
is lost by the owner.

The Internal Revenue Service (IRS) has stated that a variable contract owner
will be considered the owner of the assets of a funding option if the owner has
some degree of control over those investments. The IRS has not, however,
described in detail the circumstances in which investor control of the
investments of a separate account may cause the investor, rather than the
insurance company, to be treated as the owner of the assets of the account.

We do not know if such guidance will be issued, or if it is, what standards may
be set. Furthermore, we do not know if such guidance may be issued with
retroactive effect. New regulations generally apply to future sales or to future
voluntary transactions in existing contracts. We therefore reserve the right to
modify the contract as necessary to attempt to maintain favorable tax treatment.

DIVERSIFICATION REQUIREMENTS

The Code states that in order to qualify for the tax benefits described above,
investments made in the separate account of any nonqualified variable annuity
contract must satisfy certain diversification requirements. Tax regulations
define how separate accounts must be diversified. We monitor the investments
constantly and believe that our accounts are adequately diversified. We intend
to administer all contracts subject to this provision of law in a manner that
will maintain adequate diversification.

OTHER INFORMATION
- --------------------------------------------------------------------------------

THE INSURANCE COMPANY

The Travelers Insurance Company is a stock insurance company chartered in 1864
in Connecticut and continuously engaged in the insurance business since that
time. It is licensed to conduct life insurance business in all of the states of
the United States, the District of Columbia, Puerto Rico, Guam, the British and
U.S. Virgin Islands and the Bahamas. The Company is an indirect wholly owned
subsidiary of Travelers Group Inc. The Company's Home Office is located at One
Tower Square, Hartford, Connecticut 06183.

IMSA

The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong

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to IMSA subscribe to a set of ethical standards covering the various aspects of
sales and service for individually sold life insurance and annuities. IMSA
members have adopted policies and procedures that demonstrate a commitment to
honesty, fairness and integrity in all customer contacts involving the sale and
service of individual life insurance and annuity products.

YEAR 2000 COMPLIANCE

Generally, computer programs were designed without considering the impact of the
upcoming change in the century. As a result, software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business, financial condition, and
result of operations of a company could be materially and adversely affected by
the failure of its systems and applications (or those either provided or
operated by third-parties) to properly operate or manage dates beyond the year
1999.

The Company has investigated the nature and extent of the work required for our
computer systems to process beyond the turn of the century, and has made
progress toward achieving this goal, including upgrading and/or replacing
existing systems. We are confirming with our service providers that they are
also in the process of replacing or modifying their systems with the same goal.
We expect that our principal systems will be Year 2000 compliant by early 1999.
While these efforts involve substantial costs, we closely monitor associated
costs and continue to evaluate associated risks based on actual expenses. While
it is likely that these efforts will be successful, if necessary modifications
and conversions are not completed in a timely manner, the Year 2000 requirements
could have a material adverse effect on certain operations of the Company.

DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS

The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. The Contracts will
be sold by life insurance sales agents who represent the Company, and who are
licensed registered representatives of the Company or certain other registered
broker-dealers. The compensation paid to sales representatives will not exceed
7% of the payments made under the Contracts.

From time to time, the Company may pay or permit other promotional incentives,
in cash, credit or other compensation.

Any sales representative or employee will have been qualified to sell variable
annuities under applicable federal and state laws. Each broker-dealer is
registered with the SEC under the Securities Exchange Act of 1934, and all are
members of the NASD. The principal underwriter for the Contracts is Tower Square
Securities, Inc., an affiliate of the Company; however, it is currently
anticipated that Travelers Distribution Company, an affiliated broker-dealer,
may become the principal underwriter for the Contracts during 1998.

CONFORMITY WITH STATE AND FEDERAL LAWS

The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, cash surrender value or death benefits that are available under
the Contract are not less than the minimum benefits required by the statutes of
the state in which the Contract is delivered. We reserve the right to make any
changes, including retroactive changes, in the Contract to the extent that the
change is required to meet the requirements of any law or regulation issued by
any governmental agency to which the Company, the Contract or the contract owner
is subject.

VOTING RIGHTS

The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we

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<PAGE> 30

receive those instructions, we will vote all of the shares we own in proportion
to those instructions. This will also include any shares we own on our own
behalf. Should we determine that we are no longer required to comply with the
above, we will vote on the shares in our own right.

LEGAL PROCEEDINGS AND OPINIONS

There are no pending material legal proceedings affecting the Separate Account.
There is one material pending legal proceeding, other than ordinary routine
litigation incidental to the business, to which the Company is a party. In March
1997, a purported class action entitled Patterman v. The Travelers, Inc. was
commenced in the Superior Court of Richmond County, Georgia, alleging, among
other things, violations of the Georgia RICO statute and other state laws by an
affiliate of the Company, Primerica Financial Services, Inc. and certain of its
affiliates. Plaintiffs seek unspecified compensatory and punitive damages and
other relief. In April 1997, the lawsuit was removed to the U.S. District Court
for the Southern District of Georgia, and in October, 1997, the lawsuit was
remanded to the Superior Court of Richmond County. Later in October 1997, the
defendants, including the Company, answered the complaint, denied liability and
asserted numerous affirmative defenses. In February 1998, the Superior Court of
Richmond County transferred the lawsuit to the Superior Court of Gwinnett
County, Georgia, and certified the transfer order for immediate appellate
review. Also in February 1998, plaintiffs served an application for appellate
review of the transfer order; defendants subsequently opposed that application;
and later in February 1998, the Court of Appeals of the State of Georgia granted
plaintiffs' application for appellate review. Pending appeal proceedings in the
trial court have been stayed. The Company intends to vigorously contest the
litigation.

Legal matters in connection with the federal laws and regulations affecting the
issue and sale of the Contract described in this prospectus, as well as the
organization of the Company, its authority to issue variable annuity contracts
under Connecticut law and the validity of the forms of the variable annuity
contracts under Connecticut law, have been passed on by the General Counsel of
the Company.

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APPENDIX A: CONDENSED FINANCIAL INFORMATION

- --------------------------------------------------------------------------------

THE TRAVELERS FUND BD III FOR VARIABLE ANNUITIES

ACCUMULATION UNIT VALUES

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1997
---------------------------------------------------
UNIT VALUE UNIT VALUE ACCUMULATION
BEGINNING OF PERIOD* END OF PERIOD UNITS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GREENWICH STREET SERIES FUND
EQUITY INDEX PORTFOLIO
Standard Death Benefit
1.10% Principal Protection Fee........................ $1.000 $1.043 143,274
Enhanced Death Benefit
1.10% Principal Protection Fee........................ 1.000 1.043 33,723
1.50% Principal Protection Fee........................ 1.000 1.041 9,612
</TABLE>

- ---------------

* Effective date of Registration Statement, August 14, 1997.

The financial statements for Fund BD III are contained in the Annual Report
to contract owners which is incorporated by reference in the SAI. The
consolidated financial statements of The Travelers Insurance Company are
contained in the SAI.

24
<PAGE> 32

APPENDIX B

- --------------------------------------------------------------------------------

THE FIXED OPTION

(AVAILABLE ONLY IF YOU HAVE NOT SELECTED THE PRINCIPAL PROTECTION FEATURE
OR AFTER THE PRINCIPAL PROTECTION EXPIRATION DATE)

The Fixed Option is secured by part of the general assets of the Company. The
general assets of the Company include all assets of the Company other than those
held in the Separate Account or any other separate account sponsored by the
Company or its affiliates.

The staff of the SEC does not generally review the disclosure in the prospectus
relating to the Fixed Option. Disclosure regarding the Fixed Option and the
general account may, however, be subject to certain provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
the prospectus.

Under the Fixed Option, the Company assumes the risk of investment gain or loss,
guarantees a specified interest rate, and guarantees a specified periodic
annuity payment. The investment gain or loss of the Separate Account or any of
the variable funding options does not affect the Fixed Option portion of the
contract owner's contract value, or the dollar amount of fixed annuity payments
made under any payout option.

We guarantee that, at any time, the Fixed Option contract value will not be less
than the amount of the purchase payments allocated to the Fixed Option, plus
interest credited, less any applicable premium taxes or prior surrenders. If the
contract owner effects a surrender, the amount available from the Fixed Option
will be reduced by any applicable withdrawal charge as described under "Charges
and Deductions" in this prospectus.

Purchase payments allocated to the Fixed Option and any transfers made to the
Fixed Option become part of the Company's general account which supports
insurance and annuity obligations. Neither the general account nor any interest
therein is registered under, or subject to the provisions of, the Securities Act
of 1933 or Investment Company Act of 1940. We will invest the assets of the
Fixed Option at our discretion. Investment income from such Fixed Option assets
will be allocated to us and to the Contracts participating in the Fixed Option.

Investment income from the Fixed Option allocated to us includes compensation
for mortality and expense risks borne by us in connection with Fixed Option
Contracts. The amount of such investment income allocated to the Contracts will
vary from year to year in our sole discretion at such rate or rates as we
prospectively declare from time to time.

The initial rate for any allocations into the Fixed Option is guaranteed for one
year from the date of such allocation. Subsequent renewal rates will be
guaranteed for the calendar quarter. We also guarantee that for the life of the
Contract we will credit interest at not less than 3% per year. Any interest
credited to amounts allocated to the Fixed Option in excess of 3% per year will
be determined in our sole discretion. You assume the risk that interest credited
to the Fixed Option may not exceed the minimum guarantee of 3% for any given
year.

TRANSFERS

You may make transfers from the Fixed Option to any other available funding
option(s) twice a year during the 30 days following the semiannual anniversary
of the contract effective date. The transfers are limited to an amount of up to
15% of the Fixed Option Value on the semiannual contract effective date
anniversary. (This restriction does not apply to transfers under the Dollar Cost
Averaging Program.) Amounts previously transferred from the Fixed Option to
other funding options may not be transferred back to the Fixed Option for a
period of at least six months from the date of transfer. We reserve the right to
waive either of these restrictions.

Automated transfers from the Fixed Option to any of the funding options may
begin at any time. Automated transfers from the Fixed Option may not deplete
your Fixed Option value in a period of less than twelve months from your
enrollment in the Dollar Cost Averaging Program.

25
<PAGE> 33

THIS PAGE INTENTIONALLY LEFT BLANK.

26
<PAGE> 34

APPENDIX C

- --------------------------------------------------------------------------------

CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

The Statement of Additional Information contains more specific information and
financial statements relating to The Travelers Insurance Company. A list of the
contents of the Statement of Additional Information is set forth below:

The Insurance Company
Principal Underwriter
Distribution and Management Agreement

Performance Information

Valuation of Assets

Federal Tax Considerations

Independent Accountants

Financial Statements

- --------------------------------------------------------------------------------

Copies of the Statement of Additional Information dated May 1, 1998 (Form No.
L-12682S) are available without charge. To request a copy, please clip this
coupon on the dotted line above, enter your name and address in the spaces
provided below, and mail to: The Travelers Insurance Company, Annuity Services,
One Tower Square, Hartford, Connecticut 06183.

Name:

Address:

27
<PAGE> 35

PART B

Information Required in a Statement of Additional Information
<PAGE> 36

Travelers Index Annuity

STATEMENT OF ADDITIONAL INFORMATION

dated

May 1, 1998

for

THE TRAVELERS FUND BD III FOR VARIABLE ANNUITIES

ISSUED BY

THE TRAVELERS INSURANCE COMPANY

This Statement of Additional Information ("SAI") is not a prospectus but
relates to, and should be read in conjunction with, the Individual Variable
Annuity Contract Prospectus dated May 1, 1998. A copy of the Prospectus may be
obtained by writing to The Travelers Insurance Company, Annuity Services, One
Tower Square, Hartford, Connecticut 06183, or by calling 1-800-842-8573. This
SAI should be read in conjunction with the accompanying 1997 Annual Report for
the Fund.

TABLE OF CONTENTS

<TABLE>
<S> <C>
THE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

PRINCIPAL UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

DISTRIBUTION AND MANAGEMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 3

PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

VALUATION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

<PAGE> 37

THE INSURANCE COMPANY

The Travelers Insurance Company (the "Company"), is a stock insurance
company chartered in 1864 in Connecticut and continuously engaged in the
insurance business since that time. It is licensed to conduct life insurance
business in all states of the United States, the District of Columbia, Puerto
Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The Company's
Home Office is located at One Tower Square, Hartford, Connecticut 06183.

The Company is a wholly owned subsidiary of The Travelers Insurance
Group Inc., which is indirectly owned through a wholly owned subsidiary, by
Travelers Group Inc., a financial services holding company engaged, through its
subsidiaries, principally in four business segments: (i) Investment Services;
(ii) Consumer Finance Services; (iii) Life Insurance Services; and (iv)
Property and Casualty Insurance Services.

STATE REGULATION. The Company is subject to the laws of the state of
Connecticut governing insurance companies and to regulation by the Insurance
Commissioner of the state of Connecticut. An annual statement covering the
operations of the Company for the preceding year, as well as its financial
conditions as of December 31 of such year, must be filed with the Commissioner
in a prescribed format on or before March 1 of each year. The Company's books
and assets are subject to review or examination by the Commissioner or his
agents at all times, and a full examination of its operations is conducted at
least once every four years.

The Company is also subject to the insurance laws and regulations of
all other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the home state
(jurisdiction of domicile) in determining the field of permissible investments.

THE SEPARATE ACCOUNT. Fund BD III meets the definition of a separate account
under the federal securities laws, and will comply with the provisions of the
1940 Act. Additionally, the operations of Fund BD III are subject to the
provisions of Section 38a-433 of the Connecticut General Statutes which
authorizes the Connecticut Insurance Commissioner to adopt regulations under
it. Section 38a-433 contains no restrictions on the investments of the Separate
Account, and the Commissioner has adopted no regulations under the Section that
affect the Separate Account.

PRINCIPAL UNDERWRITER

Tower Square Securities, Inc. ("Tower Square"), an indirect
wholly-owned subsidiary of the Company, serves as principal underwriter for the
Separate Account and the Contracts. The offering is continuous. Tower
Square's principal executive offices are located at One Tower Square, Hartford,
Connecticut. It is anticipated that Travelers Distribution Company, an
affiliated broker-dealer, will become the principal underwriter during 1998.

2
<PAGE> 38

DISTRIBUTION AND MANAGEMENT AGREEMENT

Under the terms of the Distribution and Management Agreement among
Fund BD III, the Company and Tower Square, the Company provides all
administrative services and mortality and expense risk guarantees related to
variable annuity contracts sold by the Company in connection with Fund BD III.
Tower Square performs the sales functions related to the Contracts. The
Company reimburses Tower Square for commissions paid, other sales expenses and
certain overhead expenses connected with sales functions. The Company also
pays all costs (including costs associated with the preparation of sales
literature); all costs of qualifying Fund BD III and the variable annuity
contract with regulatory authorities; the costs of proxy solicitation; and all
custodian, accountant's and legal fees. The Company also provides without cost
to Fund BD III all necessary office space, facilities, and personnel to manage
its affairs.

PERFORMANCE INFORMATION

From time to time, the Company may advertise several types of
historical performance for funding options of Fund BD III. The Company may
advertise the "standardized average annual total returns" of the funding
options available through the Separate Account, calculated in a manner
prescribed by the Securities and Exchange Commission, as well as the
"nonstandardized total returns," as described below:

STANDARDIZED METHOD. Quotations of average annual total returns are
computed according to a formula in which a hypothetical initial investment of
$1,000 is allocated to an funding option, and then related to ending redeemable
values over one-, five- and ten-year periods, or inception, if a funding option
has not been in existence for one of the prescribed periods. These quotations
reflect the deduction of all recurring charges during each period (on a pro
rata basis in the case of fractional periods). The deduction for the annual
contract administrative charge ($30) is converted to a percentage of assets
based on the actual fee collected, divided by the average net assets per
contract sold under the Prospectus to which this SAI relates. Each quotation
assumes a total redemption at the end of each period with the assessment of all
associated withdrawal charges.

NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be
calculated in a manner similar to "standardized" as describe above. However,
nonstandardized total return will not reflect the deduction of any applicable
withdrawal charge or the $30 annual contract administrative charge, which, if
reflected, would decrease the level of performance shown. The withdrawal
charge is not reflected because the Contract is designed for long-term
investment.

For funding options that were in existence before they became
available under Fund BD III, the standardized average annual total return
quotations may be accompanied by returns showing the investment performance
that such funding options would have achieved (reduced by the applicable
charges) had they been held available under the Contract for the period
quoted. The total return quotations are based upon historical earnings and are
not necessarily representative of future performance.

GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may
be quoted numerically or may be

3
<PAGE> 39

presented in a table, graph or other illustration. Advertisements may include
data comparing performance to similar products, well-known indices of market
performance (including, but not limited to, the Dow Jones Industrial Average,
the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of Fund BD III and the funding options.

Average annual total returns have been calculated using each funding
option's investment performance since inception. The returns were computed
according to the standardized and nonstandardized methods for the period ending
December 31, 1997 as if they had been available under Fund BD III during that
time. They are set forth in the following tables.

STANDARDIZED TOTAL RETURNS (TAKING INTO ACCOUNT ALL CHARGES AND FEES)

<TABLE>
<CAPTION>
---------------------------------------------------------------
Portfolio Name Since Inception
Inception Date

---------------------------------------------------------------
STANDARD DEATH BENEFIT
<S> <C> <C>
Money Market Portfolio (4.68%) 9/14/97
Equity Index* 7.31% 9/14/97
Equity Index** 4.46% 9/14/97
EAFE Portfolio 1.93% 9/14/97
Small Cap Portfolio (6.68%) 9/14/97

ENHANCED DEATH BENEFIT
Money Market Portfolio (4.75%) 9/14/97
Equity Index* 7.20% 9/14/97
Equity Index** 4.35% 9/14/97
EAFE Portfolio 1.86% 9/14/97
Small Cap Portfolio (6.75%) 9/14/97
</TABLE>

* WITHOUT PRINCIPAL PROTECTION FEATURE ELECTED.
** WITH PRINCIPAL PROTECTION FEATURE ELECTED.

<PAGE> 40

NONSTANDARDIZED TOTAL RETURNS
(TAKING INTO ACCOUNT ALL CHARGES AND FEES EXCEPT DEFERRED SALES AND
ADMINISTRATIVE CHARGES)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Inception
Portfolio Name 1 Year 5 Year 10 Year or Date (if less
Since Inception than 10 yrs)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STANDARD DEATH BENEFIT

Money Market Portfolio 3.45% 2.49% 3.69%
Equity Index* 30.16% 17.38% 15.66% 10/16/91
Equity Index** 29.25% 16.29% 14.58% 10/16/91
EAFE Portfolio 7.93% 9/14/97
Small Cap Portfolio (0.72%) 9/14/97

ENHANCED DEATH BENEFIT
Money Market Portfolio 3.24% 2.28% 3.48%
Equity Index* 29.86% 17.14% 15.43% 10/16/91
Equity Index** 28.60% 15.99% 14.29% 10/16/91
EAFE Portfolio 7.86% 9/14/97
Small Cap Portfolio (0.80%) 9/14/97
</TABLE>

* WITHOUT PRINCIPAL PROTECTION FEATURE ELECTED.
** WITH PRINCIPAL PROTECTION FEATURE ELECTED.

VALUATION OF ASSETS

The value of the assets of each funding option is determined on each
business as of the close of the New York Stock Exchange. Each security traded
on a national securities exchange is valued at the last reported sale price on
the business day. If there has been no sale on that day, then the value of the
security is taken to be the mean between the reported bid and asked prices on
the business day or on the basis of quotations received from a reputable broker
or any other recognized source.

Any security not traded on a securities exchange but traded in the
over-the-counter-market and for which market quotations are readily available
is valued at the mean between the quoted bid and asked prices on the business
day or on the basis of quotations received from a reputable broker or any other
recognized source.

Securities traded on the over-the-counter-market and listed securities
with no reported sales are valued at the mean between the last reported bid and
asked prices or on the basis of quotations received from a reputable broker or
other recognized source.

Short-term investments for which a quoted market price is available
are valued at market. Short-term investments maturing in more than sixty days
for which there is no reliable quoted market price are valued by "marking to
market" (computing a market value based upon quotations from dealers or issuers
for securities of a similar type, quality and maturity.) "Marking to market"
takes into account unrealized appreciation or depreciation due to changes in
interest rates or other factors which would influence the current fair values
of such securities. Short-term investments maturing in sixty days or less

5
<PAGE> 41

for which there is no reliable quoted market price are valued at amortized cost
which approximates market.

THE CONTRACT VALUE: The value of an Accumulation Unit on any business day is
determined by multiplying the value on the immediately preceding business day
by the net investment factor for the valuation period just ended. The net
investment factor is used to measure the investment performance of a funding
option from one valuation period to the next. The net investment factor for a
funding option for any valuation period is equal to the sum of 1.000000 plus
the net investment rate (the gross investment rate less any applicable funding
option deductions during the valuation period relating to the mortality and
expense risk charge and the administrative expense charge). The gross
investment rate of a funding option is equal to (a) minus (b), divided by (c)
where:

(a) = investment income plus capital gains and losses (whether realized or
unrealized);
(b) = any deduction for applicable taxes (presently zero); and
(c) = the value of the assets of the funding option at the beginning of the
valuation period.

The gross investment rate may be either positive or negative. A
Sub-Account's assets are based on the net asset value of the funding option,
and investment income includes any distribution whose ex-dividend date occurs
during the valuation period.

ACCUMULATION UNIT VALUE. The value of the accumulation unit for each funding
option was initially established at $1.00. The value of an accumulation unit
on any business day is determined by multiplying the value on the preceding
business day by the net investment factor for the valuation period just ended.
The net investment factor is calculated for each funding option and takes into
account the investment performance, expenses and the deduction of certain
expenses.

ANNUITY UNIT VALUE. The initial Annuity Unit Value applicable to each funding
option was established at $1.00. An Annuity Unit Value as of any business day
is equal to (a) the value of the Annuity Unit on the preceding business day,
multiplied by (b) the corresponding net investment factor for the business day
just ended, divided by (c) the assumed net investment factor for the valuation
period. (For example, the assumed net investment factor based on an annual
assumed net investment rate of 3.0% for a valuation period of one day is
1.000081 and, for a period of two days, is 1.000081 x 1.000081.)

FEDERAL TAX CONSIDERATIONS

The following description of the federal income tax consequences under
this Contract is not exhaustive and is not intended to cover all situations.
Because of the complexity of the law and the fact that the tax results will
vary according to the factual status of the individual involved, tax advice may
be needed by a person contemplating purchase of an annuity contract and by a
contract owner or beneficiary who may make elections under a contract. For
further information, please consult a qualified tax adviser.

MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by
April 1st of the calendar year following the calendar year in which a
participant under a qualified plan, a Section 403(b) annuity,

<PAGE> 42

or an IRA attains age 701/2. Distributions must also begin or be continued
according to required patterns following the death of the contract owner or the
annuitant.

NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law
funding limits. The purchase payments receive no tax benefit, deduction or
deferral, but increases in the value of the contract are generally deferred
from tax until distribution. If a nonqualified annuity is owned by other than
an individual, however, (e.g., by a corporation), the increases in value
attributable to purchase payments made after February 28, 1986 are includable
in income annually. Furthermore, for contracts issued after April 22, 1987,
all deferred increases in value will be includable in the income of a contract
owner when the contract owner transfers the contract without adequate
consideration.

If two or more annuity contracts are purchased from the same insurer
within the same calendar year, distributions from any of them will be taxed
based upon the amount of income in all of the same calendar year series of
annuities. This will generally have the effect of causing taxes to be paid
sooner on the deferred gain in the contracts.

Those receiving partial distributions made before the maturity date
will generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035
of the Code may be withdrawn first without income tax liability. This
information on deposits must be provided to the Company by the other insurance
company at the time of the exchange. There is income in the contract generally
to the extent the cash value exceeds the investment in the contract. The
investment in the contract is equal to the amount of premiums paid less any
amount received previously which was excludable from gross income. Any direct
or indirect borrowing against the value of the contract or pledging of the
contract as security for a loan will be treated as a cash distribution under
the tax law.

The federal tax law requires that nonqualified annuity contracts meet
minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the Company in
accordance with these rules and the Company will make a notification when
payments should be commenced.

INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000
per individual, an individual may make deductible contributions to an
individual retirement annuity (IRA). There are certain limits on the
deductible amount based on the adjusted gross income of the individual and
spouse and based on their participation in a retirement plan. If an individual
is married and the spouse does not have earned income, the individual may
establish IRAs for the individual and spouse. Purchase payments may then be
made annually into IRAs for both spouses in the maximum amount of 100% of
earned income up to a combined limit of $4,000.

7
<PAGE> 43

The Code provides for the purchase of a Simplified Employee Pension
(SEP) plan. A SEP is funded through an IRA with an annual employer
contribution limit of 15% of compensation up to $30,000 for each participant.

SIMPLE Plan IRA Form

Effective January 1, 1997, employers may establish a savings incentive
match plan for employees ("SIMPLE plan") under which employees can make
elective salary reduction contributions to an IRA based on a percentage of
compensation of up to $6,000. (Alternatively, the employer can establish a
SIMPLE cash or deferred arrangement under IRS Section 401(k)). Under a SIMPLE
plan IRA, the employer must either make a matching contribution of 100% on the
first 3% or 7% contribution for all eligible employees. Early withdrawals are
subject to the 10% early withdrawal penalty generally applicable to IRAs,
except that an early withdrawal by an employee under a SIMPLE plan IRA, within
the first two years of participation, shall be subject to a 25% early
withdrawal tax.

ROTH IRAS
Effective January 1, 1998, Section 408A of the Code permits certain
individuals to contribute to a Roth IRA. Eligibility to make contributions is
based upon income, and the applicable limits vary based on marital status
and/or whether the contribution is a rollover contribution from another IRA or
an annual contribution. Contributions to a Roth IRA, which are subject to
certain limitations ($2,000 per year for annual contributions), are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A conversion of a "traditional" IRA to a Roth IRA may
be subject to tax and other special rules apply. You should consult a tax
adviser before combining any converted amounts with other Roth IRA
contributions, including any other conversion amounts from other tax years.

Qualified distributions from a Roth IRA are tax-free. A qualified
distribution requires that the Roth IRA has been held for at least 5 years, and
the distribution is made after age 59 1/2, on death or disability of the owner,
or for a limited amount ($10,000) for a qualified first time home purchase for
the owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or
(2) during five taxable years starting with the year in which the first
contribution is made to the Roth IRA.

QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, purchase payments
made by an employer are not currently taxable to the participant and increases
in the value of a contract are not subject to taxation until received by a
participant or beneficiary.

Distributions are taxable to the participant or beneficiary as
ordinary income in the year of receipt. Any distribution that is considered
the participant's "investment in the contract" is treated as a return of
capital and is not taxable. Certain lump-sum distributions may be eligible for
special forward averaging tax treatment for certain classes of individuals.

FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient
will be subject to federal income tax withholding as follows:

8
<PAGE> 44

1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR ARRANGEMENTS
OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS

There is a mandatory 20% tax withholding for plan distributions that
are eligible for rollover to an IRA or to another retirement plan but that are
not directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:

(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or

(b) a term-for-years settlement distribution is elected for a period of
ten years or more, payable at least annually, or

(c) a minimum required distribution as defined under the tax law is
taken after the attainment of the age of 70 1/2 or as otherwise
required by law.

A distribution including a rollover that is not a direct rollover will
be subject to the 20% withholding, and a 10% additional tax penalty may apply
to any amount not added back in the rollover. The 20% withholding may be
recovered when the participant or beneficiary files a personal income tax
return for the year if a rollover was completed within 60 days of receipt of
the funds, except to the extent that the participant or spousal beneficiary is
otherwise underwithheld or short on estimated taxes for that year.

2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)

To the extent not described as requiring 20% withholding in 1 above,
the portion of a non-periodic distribution which constitutes taxable income
will be subject to federal income tax withholding, if the aggregate
distributions exceed $200 for the year, unless the recipient elects not to have
taxes withheld. If no such election is made, 10% of the taxable distribution
will be withheld as federal income tax. Election forms will be provided at the
time distributions are requested. This form of withholding applies to all
annuity programs.

3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN
ONE YEAR)

The portion of a periodic distribution which constitutes taxable
income will be subject to federal income tax withholding under the wage
withholding tables as if the recipient were married claiming three exemptions.
A recipient may elect not to have income taxes withheld or have income taxes
withheld at a different rate by providing a completed election form. Election
forms will be provided at the time distributions are requested. This form of
withholding applies to all annuity programs. As of January 1, 1998, a
recipient receiving periodic payments (e.g., monthly or annual payments under
an annuity option) which total $15,200 or less per year, will generally be
exempt from periodic withholding.

Recipients who elect not to have withholding made are liable for
payment of federal income tax on the taxable portion of the distribution. All
recipients may also be subject to penalties under the estimated tax payment
rules if withholding and estimated tax payments are not sufficient to cover tax
liabilities.

9
<PAGE> 45

Recipients who do not provide a social security number or other
taxpayer identification number will not be permitted to elect out of
withholding. Additionally, U.S citizens residing outside of the country, or
U.S. legal residents temporarily residing outside the country, are not
permitted to elect out of withholding.

INDEPENDENT ACCOUNTANTS

Financial statements as of December 31, 1997 and for the period
December 10, 1997 (date operations commenced) to December 31, 1997 of Fund BD
III, included in the Annual Report incorporated by reference in this SAI, have
been incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

The consolidated financial statements of The Travelers Insurance
Company and Subsidiaries as of December 31, 1997 and 1996, and for each of the
years in the three-year period ended December 31, 1997, have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

10
<PAGE> 46
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholder
The Travelers Insurance Company and Subsidiaries:

We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income and retained earnings and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers
Insurance Company and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.

/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 26, 1998

F-1
<PAGE> 47
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
($ IN MILLIONS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
REVENUES
Premiums $1,583 $1,387 $1,504
Net investment income 2,037 1,950 1,884
Realized investment gains 199 65 106
Other revenues 354 284 204
- -------------------------------------------------------------------------------------------
Total Revenues $4,173 $3,686 $3,698
- -------------------------------------------------------------------------------------------

BENEFITS AND EXPENSES
Current and future insurance benefits 1,341 1,187 1,206
Interest credited to contractholders 829 863 997
Amortization of deferred acquisition costs and value of
insurance in force 293 281 290
General and administrative expenses 427 380 368
- -------------------------------------------------------------------------------------------
Total Benefits and Expenses 2,890 2,711 2,861
- -------------------------------------------------------------------------------------------

Income from continuing operations before federal income taxes 1,283 975 837
- -------------------------------------------------------------------------------------------

Federal income taxes:
Current expense 434 284 233
Deferred 10 58 57
- -------------------------------------------------------------------------------------------
Total Federal Income Taxes 444 342 290
- -------------------------------------------------------------------------------------------

Income from continuing operations 839 633 547
- -------------------------------------------------------------------------------------------
Discontinued operations, net of income taxes
Income from operations (net of taxes of $0, $0 and $18) -- -- 72
Gain on disposition (net of taxes of $0, $14 and $68) -- 26 131
- -------------------------------------------------------------------------------------------
Income from Discontinued Operations -- 26 203
- -------------------------------------------------------------------------------------------

Net income 839 659 750
Retained earnings beginning of year 2,471 2,312 1,562
Dividends to parent 500 500 --
- -------------------------------------------------------------------------------------------
Retained Earnings End of Year $2,810 $2,471 $2,312
===========================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

F-2
<PAGE> 48
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)

<TABLE>
<CAPTION>
December 31, 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost,
$20,682; $19,284) $21,511 $19,637
Equity securities, at fair value (cost, $480; $330) 512 338
Mortgage loans 2,869 2,920
Real estate held for sale 134 297
Trading securities, at market value 800 --
Policy loans 1,872 1,910
Short-term securities 1,102 902
Other invested assets 1,702 1,253
- ----------------------------------------------------------------------------------
Total Investments $30,502 $27,257
- ----------------------------------------------------------------------------------

Cash 58 74
Investment income accrued 338 355
Premium balances receivable 106 105
Reinsurance recoverables 4,339 3,858
Deferred acquisition costs and value of insurance in force 2,312 2,133
Separate and variable accounts 11,319 8,127
Other assets 1,052 1,064
- ----------------------------------------------------------------------------------
Total Assets $50,026 $42,973
- ----------------------------------------------------------------------------------

LIABILITIES
Contractholder funds 14,913 14,189
Future policy benefits 12,569 11,762
Policy and contract claims 378 536
Trading securities sold not yet purchased, at market value 462 --
Separate and variable accounts 11,309 8,115
Commercial paper -- 50
Deferred federal income taxes 409 57
Other liabilities 2,661 1,936
- ----------------------------------------------------------------------------------
Total Liabilities $42,701 $36,645
- ----------------------------------------------------------------------------------

SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,187 3,170
Retained earnings 2,810 2,471
Unrealized investment gains, net of taxes 1,228 587
- ----------------------------------------------------------------------------------
Total Shareholder's Equity $ 7,325 $ 6,328
- ----------------------------------------------------------------------------------

Total Liabilities and Shareholder's Equity $50,026 $42,973
==================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE> 49
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,519 $ 1,387 $ 1,346
Net investment income received 2,059 1,910 1,855
Other revenues received 180 131 90
Benefits and claims paid (1,230) (1,060) (846)
Interest credited to contractholders (853) (820) (960)
Operating expenses paid (445) (343) (615)
Income taxes paid (368) (328) (63)
Trading account investments, (purchases) sales, net (54) -- --
Other 18 (70) (137)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 826 807 670
Net cash used in discontinued operations -- (350) (596)
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operations $ 826 $ 457 $ 74
- ----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 2,259 1,928 1,974
Mortgage loans 663 917 680
Proceeds from sales of investments
Fixed maturities 7,592 9,101 6,773
Equity securities 341 479 379
Mortgage loans 207 178 704
Real estate held for sale 169 210 253
Purchases of investments
Fixed maturities (11,143) (11,556) (10,748)
Equity securities (483) (594) (305)
Mortgage loans (771) (470) (144)
Policy loans, net 38 (23) (325)
Short-term securities, (purchases) sales, net (2) 498 291
Other investments, (purchases) sales, net (260) (137) (267)
Securities transactions in course of settlement 311 (52) 258
Net cash provided by investing activities of discontinued operations -- 348 1,425
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (used in) Investing Activities $ (1,079) $ 827 $ 948
- ----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net (50) (23) (1)
Contractholder fund deposits 3,544 2,493 2,705
Contractholder fund withdrawals (2,757) (3,262) (3,755)
Dividends to parent company (500) (500) --
Other -- 9 --
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (used in) Financing Activities $ 237 $ (1,283) $ (1,051)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ (16) $ 1 $ (29)
- ----------------------------------------------------------------------------------------------------------------------
Cash at December 31, $ 58 $ 74 $ 73
======================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE> 50
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies used in the preparation of the accompanying
financial statements follow.

Basis of Presentation

The Travelers Insurance Company and Subsidiaries (the Company) is a wholly
owned subsidiary of The Travelers Insurance Group Inc. (TIGI), an indirect
wholly owned subsidiary of Travelers Group Inc. (Travelers Group). The
consolidated financial statements include the accounts of the Company and its
insurance and non-insurance subsidiaries on a fully consolidated basis. The
primary insurance subsidiaries of the Company are The Travelers Life and
Annuity Company (TLAC) and Primerica Life Insurance Company (Primerica Life)
and its subsidiary National Benefit Life Insurance Company (NBL).

- TRAVELERS LIFE AND ANNUITY offers fixed and variable deferred annuities,
payout annuities and term, universal and variable life and long-term care
insurance to individuals and small businesses. It also provides group
pension products, including guaranteed investment contracts and group
annuities for employer-sponsored retirement and savings plans. These
products are primarily marketed through The Copeland Companies (Copeland),
an indirect, wholly owned subsidiary of the Company, the Financial
Consultants of Salomon Smith Barney, an affiliate of the Company, and a
nationwide network of independent agents. The Company's Corporate and
Other Segment was absorbed into Travelers Life and Annuity during the
second quarter of 1996.

- PRIMERICA LIFE INSURANCE offers individual life products, primarily term
insurance, to consumers through a nationwide sales force of approximately
80,000 full and part-time independent agents.

As discussed in Note 2 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the Company
were sold to Metropolitan Life Insurance Company (MetLife). Also in January
1995, the group medical component was exchanged for a 42% interest in The
MetraHealth Companies, Inc. (MetraHealth). The Company's interest in
MetraHealth was sold on October 2, 1995 and through that date was accounted
for on the equity method. The Company's discontinued operations reflect the
results of the medical insurance business not transferred, the equity
interest in the earnings of MetraHealth through October 2, 1995 (date of
sale) and the gains from the sales of these businesses.

In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings Inc.,
which at the time was a wholly owned subsidiary of Travelers Group and was
the indirect owner of the business of Transport Life Insurance Company
(Transport Life). Immediately prior to this distribution, the Company
distributed Transport Life, an indirect wholly owned subsidiary of the
Company, to TIGI, as a return of capital.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and benefits and expenses during the
reporting period. Actual results could differ from those estimates.

Certain prior year amounts have been reclassified to conform with the 1997
presentation.
F-5
<PAGE> 51
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Accounting Changes

EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS

In February, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (FAS 132). FAS 132
supersedes the disclosure requirements in FASB Statements No. 87, "Employers'
Accounting for Pensions," No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefits Pension Plans and Termination of Benefits,"
and No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." FAS 132 addresses disclosure only and does not address measurement
or recognition. In addition to other disclosure changes, FAS 132 allows
employers to disclose total contributions to multi-employer plans without
disaggregating the amounts attributable to pensions and other postretirement
benefits. This statement is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged. Effective December 31,
1997, the Company adopted FAS 132. The adoption of this standard did not have
any impact on results of operations, financial condition or liquidity.

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES

Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125
establishes accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are
based on an approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The requirements of FAS 125 are effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and are to be applied
prospectively. However, in December 1996 the FASB issued Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125," which delays until January 1,
1998 the effective date for certain provisions. Application of FAS 125 prior
to the effective date or retroactively is not permitted. The adoption of the
provisions of FAS 125 effective January 1, 1997 did not have a material
impact on results of operations, financial condition or liquidity. The
adoption of the provisions of FAS 127 effective January, 1998 are
not expected to have a material impact on the results of operations,
financial condition or liquidity.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement
establishes accounting standards for the impairment of long-lived assets and
certain identifiable intangibles to be disposed. This statement requires a
write down to fair value when long-lived assets to be held and used are
impaired. The statement also requires long-lived assets to be disposed (e.g.,
real estate held for sale) be carried at the lower of cost or fair value less
cost to sell, and does not allow such assets to be depreciated. The adoption
of this standard did not have a material impact on the Company's financial
condition, results of operations or liquidity.

F-6
<PAGE> 52
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

ACCOUNTING FOR STOCK-BASED COMPENSATION

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123). This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. This
statement defines a fair value-based method of accounting for employee stock
options or similar equity instruments, and encourages all entities to adopt
this method of accounting for all employee stock compensation plans. However,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Entities electing to remain with the accounting method
prescribed in APB 25 must make pro-forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined
by FAS 123 had been applied. FAS 123 is applicable to fiscal years beginning
after December 15, 1995. The Company has elected to continue to account for
its stock-based employee compensation plans using the accounting method
prescribed by APB 25 and has included in the notes to consolidated financial
statements the pro-forma disclosures required by FAS 123. See Note 9. The
Company has adopted FAS 123 for its stock-based non-employee compensation
plans.

Accounting Policies

INVESTMENTS

Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity of
the investment. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
Fixed maturities are classified as "available for sale" and are reported at
fair value, with unrealized investment gains and losses, net of income taxes,
charged or credited directly to shareholder's equity.

Equity securities, which include common and nonredeemable preferred stocks,
are classified as "available for sale" and carried at fair value based
primarily on quoted market prices. Changes in fair values of equity
securities are charged or credited directly to shareholder's equity, net of
income taxes.

Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined to
be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the higher
returns required in the current real estate financing market. Impaired loans
were insignificant at December 31, 1997 and 1996.

Real estate held for sale is carried at the lower of cost or fair value less
estimated cost to sell. Fair value of foreclosed properties is established at
the time of foreclosure by internal analysis or external appraisers, using
discounted cash flow analyses and other accepted techniques. Thereafter, an
allowance for losses on real estate held for sale is established if the
carrying value of the property exceeds its current fair value less estimated
costs to sell. There was no such allowance at December 31, 1997 and 1996.

F-7
<PAGE> 53
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Trading securities are carried at market value. Realized and unrealized gains
and losses on trading securities are included in investment income.

Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.

Accrual of income, included in other assets, is suspended on fixed maturities
or mortgage loans that are in default, or on which it is likely that future
payments will not be made as scheduled. Interest income on investments in
default is recognized only as payment is received.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments, including financial
futures contracts, equity options, forward contracts and interest rate swaps
and caps, as a means of hedging exposure to interest rate, equity price and
foreign currency risk. Hedge accounting is used to account for derivatives.
To qualify for hedge accounting the changes in value of the derivative must
be expected to substantially offset the changes in value of the hedged item.
Hedges are monitored to ensure that there is a high correlation between the
derivative instruments and the hedged investment.

Gains and losses arising from financial futures contracts are used to adjust
the basis of hedged investments and are recognized in net investment income
over the life of the investment.

Forward contracts, equity options, and interest rate swaps and caps were not
significant at December 31, 1997 and 1996. Information concerning derivative
financial instruments is included in Note 6.

INVESTMENT GAINS AND LOSSES

Realized investment gains and losses are included as a component of pretax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the remeasurement
of the local currency value of foreign investments to U.S. dollars, the
functional currency of the Company. The foreign exchange effects of Canadian
operations are included in unrealized gains and losses.

POLICY LOANS

Policy loans are carried at the amount of the unpaid balances that are not in
excess of the net cash surrender values of the related insurance policies.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.

DEFERRED ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE

Costs of acquiring individual life insurance, annuities and long-term care
business, principally commissions and certain expenses related to policy
issuance, underwriting and marketing, all of which vary with and are
primarily related to the production of new business, are deferred.
Acquisition costs relating to traditional life insurance, including term
insurance and long-term care insurance, are amortized in relation to
anticipated premiums; universal life in relation to estimated gross profits;
and annuity contracts employing a level yield method. For life insurance, a
10- to 25-year amortization period is used; for long-term care business, a
10- to 20-year period is used, and a 10- to 20-year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.

F-8
<PAGE> 54
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially determined
present value of anticipated profits to be realized from life insurance,
annuities and health contracts at the date of acquisition using the same
assumptions that were used for computing related liabilities where
appropriate. The value of insurance in force was the actuarially determined
present value of the projected future profits discounted at interest rates
ranging from 14% to 18%. Traditional life insurance and guaranteed renewable
health policies are amortized in relation to anticipated premiums; universal
life is amortized in relation to estimated gross profits; and annuity
contracts are amortized employing a level yield method. The value of
insurance in force is reviewed periodically for recoverability to determine
if any adjustment is required.

SEPARATE AND VARIABLE ACCOUNTS

Separate and variable accounts primarily represent funds for which investment
income and investment gains and losses accrue directly to, and investment
risk is borne by, the contractholders. Each account has specific investment
objectives. The assets of each account are legally segregated and are not
subject to claims that arise out of any other business of the Company. The
assets of these accounts are carried at market value. Certain other separate
accounts provide guaranteed levels of return or benefits and the assets of
these accounts are primarily carried at market value. Amounts assessed to the
contractholders for management services are included in revenues. Deposits,
net investment income and realized investment gains and losses for these
accounts are excluded from revenues, and related liability increases are
excluded from benefits and expenses.

GOODWILL

Goodwill represents the cost of acquired businesses in excess of net assets
and is being amortized on a straight-line basis principally over a 40-year
period. The carrying amount is regularly reviewed for indication of
impairment in value that in the view of management would be other than
temporary. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.

CONTRACTHOLDER FUNDS

Contractholder funds represent receipts from the issuance of universal life,
pension investment and certain deferred annuity contracts. Contractholder
fund balances are increased by such receipts and credited interest and
reduced by withdrawals, mortality charges and administrative expenses charged
to the contractholders. Interest rates credited to contractholder funds range
from 3.5% to 9.45%.

FUTURE POLICY BENEFITS

Benefit reserves represent liabilities for future insurance policy benefits.
Benefit reserves for life insurance and annuities have been computed based
upon mortality, morbidity, persistency and interest assumptions applicable to
these coverages, which range from 2.5% to 10.0%, including adverse deviation.
These assumptions consider Company experience and industry standards. The
assumptions vary by plan, age at issue, year of issue and duration.
Appropriate recognition has been given to experience rating and reinsurance.

F-9
<PAGE> 55
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

PERMITTED STATUTORY ACCOUNTING PRACTICES

The Company, whose insurance subsidiaries are domiciled principally in
Connecticut and Massachusetts, prepares statutory financial statements in
accordance with the accounting practices prescribed or permitted by the
insurance departments of those states. Prescribed statutory accounting
practices include certain publications of the National Association of
Insurance Commissioners as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed. The impact of any permitted
accounting practices on statutory surplus of the Company is not material.

PREMIUMS

Premiums are recognized as revenues when due. Reserves are established for
the portion of premiums that will be earned in future periods and for
deferred profits on limited-payment policies that are being recognized in
income over the policy term.

OTHER REVENUES

Other revenues include surrender, mortality and administrative charges and
fees as earned on investment, universal life and other insurance contracts.
Other revenues also include gains and losses on dispositions of assets and
operations other than realized investment gains and losses and revenues of
non-insurance subsidiaries.

INTEREST CREDITED TO CONTRACTHOLDERS

Interest credited to contractholders represents amounts earned by universal
life, pension investment and certain deferred annuity contracts in accordance
with contract provisions.

FEDERAL INCOME TAXES

The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income taxes
arise from changes during the year in cumulative temporary differences
between the tax basis and book basis of assets and liabilities. The deferred
federal income tax asset is recognized to the extent that future realization
of the tax benefit is more likely than not, with a valuation allowance for
the portion that is not likely to be recognized.

Future Application of Accounting Standards

In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, how to measure that liability, and when
an asset may be recognized for the recovery of such assessments through
premium tax offsets or policy surcharges. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998, and the effect
of initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company has not yet determined when it will implement this SOP and does not
anticipate any material impact on the Company's financial condition, results
of operations or liquidity.

F-10
<PAGE> 56
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. All items
that are required to be recognized under accounting standards as components
of comprehensive income are to be reported in a financial statement that is
displayed with the same prominence as other financial statements. FAS 130
stipulates that comprehensive income reflect the change in equity of an
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income will thus
represent the sum of net income and other comprehensive income, although FAS
130 does not require the use of the terms comprehensive income or other
comprehensive income. The accumulated balance of other comprehensive income
shall be displayed separately from retained earnings and additional paid-in
capital in the statement of financial position. FAS 130 is effective for
fiscal years beginning after December 15, 1997. The Company anticipates that
the adoption of FAS 130 will result primarily in reporting unrealized gains
and losses on investments in debt and equity securities in comprehensive
income.

In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (FAS 131). FAS 131 establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires that selected information about those operating
segments be reported in interim financial statements. FAS 131 supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise" (FAS 14). FAS 131 requires that all
public enterprises report financial and descriptive information about its
reportable operating segments. Operating segments are defined as components
of an enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. FAS 131 is effective for
fiscal years beginning after December 15, 1997. The Company is currently
determining the impact of the adoption of FAS 131.

2. DISPOSITIONS AND DISCONTINUED OPERATIONS

On January 3, 1995, the Company and its affiliates completed the sale of
their group life and related non-medical group insurance businesses to
MetLife for $350 million and recognized in the first quarter of 1995 a gain
of $20 million net of taxes. In connection with the sale, the Company ceded
100% of its risks in the group life and related businesses to MetLife on an
indemnity reinsurance basis, effective January 1, 1995. In connection with
the reinsurance transaction, the Company transferred assets with a fair
market value of approximately $1.5 billion to MetLife, equal to the statutory
reserves and other liabilities transferred.

On January 3, 1995, the Company and MetLife and certain of their affiliates,
formed the MetraHealth joint venture by contributing their group medical
businesses to MetraHealth, in exchange for shares of common stock of
MetraHealth. No gain was recognized as a result of this transaction . Upon
formation of the joint venture, the Company owned 42% of the outstanding
capital stock of MetraHealth, TIGI owned 8% and the other 50% was owned by
MetLife and its affiliates. In March 1995, MetraHealth acquired HealthSpring,
Inc. for common stock of MetraHealth resulting in a reduction in the
participation of the Company and TIGI, and MetLife in the MetraHealth venture
to 48.25% each. As the medical insurance business of the Company came due for
renewal, the risks were transferred to MetraHealth and the related operating
results for this medical insurance business were reported by the Company in
1995 as part of discontinued operations.

F-11
<PAGE> 57
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation and through
that date had accounted for its interest in MetraHealth on the equity method.
Gross proceeds to the Company in 1995 were $708 million in cash, an after-tax
gain of $111 million was recognized. During 1996 the Company received a
contingency payment based on MetraHealth's 1995 results. In conjunction with
this payment, certain reserves associated with the group medical business and
exit costs related to the discontinued operations were reevaluated resulting
in a final after-tax gain of $26 million.

All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefit Operations
(MCEBO) segment prior to 1995. The Company's discontinued operations in 1996
and 1995 reflect the results of the medical insurance business not
transferred, the equity interest in the earnings of MetraHealth through
October 2, 1995 (date of sale) and the gains from sales of these businesses.
Revenues from discontinued operations were insignificant for the year ended
December 31, 1996 and $1.2 billion for the year ended December 31, 1995.

In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings Inc.,
which at the time was a wholly owned subsidiary of Travelers Group and was
the indirect owner of the business of Transport Life. Immediately prior to
this distribution, the Company distributed Transport, an indirect wholly
owned subsidiary of the Company, to TIGI as a return of capital, resulting in
a reduction in additional paid-in capital of $334 million. The results of
Transport through September 1995 are included in income from continuing
operations.

3. COMMERCIAL PAPER AND LINES OF CREDIT

The Company issues commercial paper directly to investors. No commercial
paper was outstanding at December 31, 1997 and $50 million was outstanding at
December 31, 1996. The Company maintains unused credit availability under
bank lines of credit at least equal to the amount of the outstanding
commercial paper. Interest expense related to the commercial paper was not
significant in 1997 or 1996.

Travelers Group, Commercial Credit Company (CCC) (an indirect wholly owned
subsidiary of Travelers Group) and the Company have an agreement with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to any of Travelers Group, CCC or the Company. The Company's
participation in this agreement is limited to $250 million. The revolving
credit facility consists of a five-year revolving credit facility that
expires in 2001. At December 31, 1997, $50 million was allocated to the
Company. Under this facility the Company is required to maintain certain
minimum equity and risk-based capital levels. At December 31, 1997, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at December 31, 1997 and 1996. If the
Company had borrowings on this facility, the interest rate would be based
upon LIBOR plus a negotiated margin.

F-12
<PAGE> 58
\ THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

4. REINSURANCE

The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide additional capacity for future growth and to
effect business-sharing arrangements. Reinsurance is accomplished through
various plans of reinsurance, primarily yearly renewable term coinsurance and
modified coinsurance. The Company remains primarily liable as the direct
insurer on all risks reinsured. During 1997, new universal life business was
reinsured under an 80%/20% quota share reinsurance program and new term life
business was reinsured under a 90%/10% quota share reinsurance program.
Maximum retention of $1.5 million is generally reached on policies in excess
of $7.5 million. For other plans of insurance, it is the policy of the
Company to obtain reinsurance for amounts above certain retention limits on
individual life policies, which limits vary with age and underwriting
classification. Generally, the maximum retention on an ordinary life risk is
$1.5 million.

The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.

A summary of reinsurance financial data reflected within the consolidated
statement of operations and retained earnings is presented below ($ in
millions):

<TABLE>
<CAPTION>
---------------------------------------------------------------------
WRITTEN PREMIUMS 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,148 $1,982 $2,166
Assumed from:
Non-affiliated companies 1 5 --
Ceded to:
Affiliated companies (280) (284) (374)
Non-affiliated companies (273) (309) (302)
---------------------------------------------------------------------
Total Net Written Premiums $1,596 $1,394 $1,490
=====================================================================

<CAPTION>
---------------------------------------------------------------------
EARNED PREMIUMS 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,170 $1,897 $2,067
Assumed from:
Non-affiliated companies 1 5 --
Ceded to:
Affiliated companies (321) (219) (283)
Non-affiliated companies (291) (315) (298)
---------------------------------------------------------------------
Total Net Earned Premiums $1,559 $1,368 $1,486
=====================================================================
</TABLE>

F-13
<PAGE> 59
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Reinsurance recoverables at December 31, 1997 and 1996 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):

<TABLE>
<CAPTION>
----------------------------------------------------------
REINSURANCE RECOVERABLES 1997 1996
----------------------------------------------------------
<S> <C> <C>
Life and Accident and Health
Business:
Non-affiliated companies $1,362 $1,497
Property-Casualty Business:
Affiliated companies 2,977 2,361
----------------------------------------------------------
Total Reinsurance Recoverables $4,339 $3,858
==========================================================
</TABLE>

Total reinsurance recoverables at December 31, 1997 and 1996 include $697
million and $720 million, respectively, from MetLife in connection with the
sale of the Company's group life and related businesses. See Note 2.

5. SHAREHOLDER'S EQUITY

Additional Paid-In Capital

The increase of $17 million in additional paid-in capital during 1997 is due
to tax benefits related to exercising Travelers Group stock options by the
Company's employees.

Unrealized Investment Gains (Losses)

An analysis of the change in unrealized gains and losses on investments is
shown in Note 13.

Shareholder's Equity and Dividend Availability

The Company's statutory net income, which includes all insurance
subsidiaries, was $754 million, $656 million, and $235 million for the years
ended December 31, 1997, 1996 and 1995, respectively.

The Company's statutory capital and surplus was $4.12 billion and $3.44
billion at December 31, 1997 and 1996, respectively.

The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory surplus
of $551 million is available in 1998 for dividend payments by the Company
without prior approval of the Connecticut Insurance Department. In addition,
under a revolving credit facility, the Company is required to maintain
certain minimum equity and risk based capital levels. The Company is in
compliance with these covenants at December 31, 1997 and 1996.

F-14
<PAGE> 60
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

Derivative Financial Instruments

The Company uses derivative financial instruments, including financial
futures, equity options, forward contracts and interest rate swaps as a means
of hedging exposure to foreign currency, equity price changes and/or interest
rate risk on anticipated transactions or existing assets and liabilities. The
Company does not hold or issue derivative instruments for trading purposes.

These derivative financial instruments have off-balance sheet risk. Financial
instruments with off-balance sheet risk involve, to varying degrees, elements
of credit and market risk in excess of the amount recognized in the balance
sheet. The contract or notional amounts of these instruments reflect the
extent of involvement the Company has in a particular class of financial
instrument. However, the maximum loss of cash flow associated with these
instruments can be less than these amounts. For forward contracts and
interest rate swaps, credit risk is limited to the amounts calculated to be
due the Company on such contracts. Financial futures contracts and purchased
listed option contracts have little credit risk since organized exchanges are
the counterparties.

The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.

The Company uses exchange traded financial futures contracts to manage its
exposure to changes in interest rates which arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from the
sale or maturity of investments. To hedge against adverse changes in interest
rates, the Company enters long or short positions in financial futures
contracts to offset asset price changes resulting from changes in market
interest rates until an investment is purchased or a product is sold.

Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures contracts
represents the extent of the Company's involvement, but not future cash
requirements, as open positions are typically closed out prior to the
delivery date of the contract.

At December 31, 1997 and 1996, the Company held financial futures contracts
with notional amounts of $625 million and $169 million, respectively, and a
deferred gain of $.7 million and a deferred loss of $4.1 million and a
deferred gain of $1.2 million, and a deferred loss of $.1 million,
respectively. Total losses of $5.8 million and gains of $2.0 million from
financial futures were deferred at December 31, 1997 and 1996, respectively,
relating to anticipated investment purchases and investment product sales,
and are reported as other liabilities. At December 31, 1997 and 1996, the
Company's futures contracts had no fair value because these contracts were
marked to market and settled in cash daily.

The off-balance sheet risks of equity options, forward contracts, and
interest rate swaps were not significant at December 31, 1997 and 1996.

F-15
<PAGE> 61
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The Company purchased a 5-year interest rate cap, with a notional amount of
$200 million, from Travelers Group in 1995 to hedge against losses that could
result from increasing interest rates. This instrument, which does not have
off-balance sheet risk, gives the Company the right to receive payments if
interest rates exceed specific levels at specific dates. The premium of $2
million paid for this instrument is being amortized over its life. The
interest rate cap asset is reported at fair value which is $0 and $1 million
at December 31, 1997 and 1996, respectively.

Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Company issues fixed and variable rate
loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant at
December 31, 1997 and 1996.

Fair Value of Certain Financial Instruments

The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered insurance
contracts are not required to be disclosed and are not included in the
amounts discussed.

At December 31, 1997 and 1996, investments in fixed maturities had a carrying
value and a fair value of $21.5 billion and $19.6 billion, respectively. See
Notes 1 and 13.

At December 31, 1997 and 1996, mortgage loans had a carrying value of $2.9
billion, which approximated fair value. In estimating fair value, the Company
used interest rates reflecting the higher returns required in the current
real estate financing market.

The carrying values of $143 million and $174 million of financial instruments
classified as other assets approximated their fair values at December 31,
1997 and 1996, respectively. The carrying values of $2.0 billion and $850
million of financial instruments classified as other liabilities also
approximated their fair values at December 31, 1997 and 1996, respectively.
Fair value is determined using various methods, including discounted cash
flows, as appropriate for the various financial instruments.

At December 31, 1997, contractholder funds with defined maturities had a
carrying value of $2.3 billion and a fair value of $2.3 billion, compared
with a carrying value of $1.4 billion and a fair value of $1.5 billion at
December 31, 1996. The fair value of these contracts is determined by
discounting expected cash flows at an interest rate commensurate with the
Company's credit risk and the expected timing of cash flows. Contractholder
funds without defined maturities had a carrying value of $9.7 billion and a
fair value of $9.5 billion at December 31, 1997, compared with a carrying
value of $9.1 billion and a fair value of $8.8 billion at December 31, 1996.
These contracts generally are valued at surrender value.

The assets of separate accounts providing a guaranteed return had a carrying
value and a fair value of $260 million and $260 million, respectively, at
December 31, 1997, compared with a carrying value and a fair value of $217
million and $217 million, respectively, at December 31, 1996. The liabilities
of separate accounts providing a guaranteed return had a carrying value and a
fair value of $209 million and $206 million, respectively, at December 31,
1997, compared with a carrying value and a fair value of $208 million and
$204 million, respectively, at December 31, 1996.

F-16
<PAGE> 62
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The carrying values of cash, short-term securities, trading securities,
investment income accrued, trading securities sold not purchased, and
commercial paper approximated their fair values.

The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.

7. COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

See Note 6 for a discussion of financial instruments with off-balance sheet
risk.

Litigation

In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc. was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and
other state laws by an affiliate of the Company, Primerica Financial
Services, Inc. and certain of its affiliates. Plaintiffs seek unspecified
compensatory and punitive damages and other relief. In April 1997, the
lawsuit was removed to the U.S. District Court for the Southern District of
Georgia, and in October 1997, the lawsuit was remanded to the Superior Court
of Richmond County. Later in October 1997, the defendants answered the
complaint, denied liability and asserted numerous affirmative defenses. In
February 1998, the Superior Court of Richmond County transferred the lawsuit
to the Superior Court of Gwinnett County, Georgia, and certified the transfer
order for immediate appellate review. Also in February 1998, plaintiffs
served an application for appellate review of the transfer order; defendants
subsequently opposed that application; and later in February 1998, the Court
of Appeals of the State of Georgia granted plaintiffs' application for
appellate review. Pending appeal proceedings in the trial court have been
stayed. The Company intends to vigorously contest the litigation.

The Company is also a defendant or co-defendant in various other litigation
matters in the normal course of business. Although there can be no
assurances, as of December 31, 1997, the Company believes, based on
information currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.

8. BENEFIT PLANS

Pension and Other Postretirement Benefits

The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by an affiliate. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by an affiliate. The Company's share of net expense for the
qualified pension and other postretirement benefit plans was not significant
for 1997, 1996 and 1995. Beginning January 1, 1996, the Company's other
postretirement benefit plans were amended to restrict benefit eligibility to
retirees and certain retiree-eligible employees. Previously, covered
employees could become eligible for postretirement benefits if they reached
retirement age while working for the Company.

F-17
<PAGE> 63
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Through plans sponsored by TIGI, the Company also provides defined
contribution pension plans for certain agents. Company contributions are
primarily a function of production. The expense for these plans was not
significant in 1997, 1996 and 1995.

401(k) Savings Plan

Substantially all of the Company's employees are eligible to participate in a
401(k) savings plan sponsored by Travelers Group. Prior to January 1, 1996,
the Company made matching contributions to the 401(k) savings plan on behalf
of participants in the amount of 50% of the first 5% of pre-tax contributions
made by the employee, plus an additional variable matching contribution based
on the profitability of TIGI and its subsidiaries. During 1996, the Company
made matching contributions in an amount equal to the lesser of 100% of the
pre-tax contributions made by the employee or $1,000. Effective January 1,
1997, the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings plan
were not significant in 1997, 1996 and 1995.

9. RELATED PARTY TRANSACTIONS

The principal banking functions, including payment of salaries and expenses,
for certain subsidiaries and affiliates of TIGI are handled by two companies.
The Travelers Insurance Company (Life Department) handles banking functions
for the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements between
companies are made at least monthly. The Company provides various employee
benefits coverages to employees of certain subsidiaries of TIGI. The premiums
for these coverages were charged in accordance with cost allocation
procedures based upon salaries or census. In addition, investment advisory
and management services, data processing services and claims processing
services are shared with affiliated companies. Charges for these services are
shared by the companies on cost allocation methods based generally on
estimated usage by department.

The Company maintains a short-term investment pool in which its insurance
affiliates participate. The position of each company participating in the
pool is calculated and adjusted daily. At December 31, 1997 and 1996, the
pool totaled approximately $2.6 billion and $2.9 billion, respectively. The
Company's share of the pool amounted to $725 million and $196 million at
December 31, 1997 and 1996, respectively, and is included in short-term
securities in the consolidated balance sheet.

The Company sells structured settlement annuities to The Travelers Indemnity
Company in connection with the settlement of certain policyholder
obligations. Such deposits were $88 million, $40 million, and $38 million for
1997, 1996 and 1995, respectively.

The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney. Premiums and deposits related to
these products were $1.0 billion, $820 million, and $583 million in 1997,
1996 and 1995, respectively.

At December 31, 1996, the Company had an investment of $22 million in bonds
of its affiliate, CCC. This was included in fixed maturities in the
consolidated balance sheet.

F-18
<PAGE> 64
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The Company had an investment of $1.15 billion and $648 million in common
stock of Travelers Group at December 31, 1997 and 1996, respectively. This
investment is carried at fair value.

The Company participates in a stock option plan sponsored by Travelers Group
that provides for the granting of stock options in Travelers Group common
stock to officers and key employees. To further encourage employee stock
ownership, during 1997 Travelers Group introduced the WealthBuilder stock
option program. Under this program all employees meeting certain requirements
have been granted Travelers Group stock options.

The Company applies APB 25 and related interpretations in accounting for
stock options. Since stock options under the Travelers Group plans are issued
at fair market value on the date of award, no compensation cost has been
recognized for these awards. FAS 123 provides an alternative to APB 25
whereby fair values may be ascribed to options using a valuation model and
amortized to compensation cost over the vesting period of the options.

Had the Company applied FAS 123 in accounting for Travelers Group stock
options, net income would have been the pro forma amounts indicated below:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1996 1995
($ IN MILLIONS)
-----------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $839 $659 $750
-----------------------------------------------------------------------
FAS 123 pro forma adjustments, (9) (3) (1)
after tax
-----------------------------------------------------------------------
Net income, pro forma $830 $656 $749
</TABLE>

The Company has an interest rate cap agreement with Travelers Group. See Note
6.

10. LEASES

Most leasing functions for TIGI and its subsidiaries are administered by TAP.
In 1996, TAP assumed the obligations for several leases. Rent expense related
to all leases are shared by the companies on a cost allocation method based
generally on estimated usage by department. Rent expense was $15 million, $24
million, and $22 million in 1997, 1996 and 1995, respectively.

<TABLE>
<CAPTION>
--------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING
($ in millions) RENTAL PAYMENTS
--------------------------------------------------
<S> <C>
1998 $ 49
1999 44
2000 43
2001 45
2002 43
Thereafter 337
--------------------------------------------------
Total Rental Payments $561
==================================================
</TABLE>

F-19
<PAGE> 65
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Future sublease rental income of approximately $73 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of the
rental expense for a particular lease totaling $218 million, by an affiliate.
Minimum future capital lease payments are not significant.

The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.

11. FEDERAL INCOME TAXES

<TABLE>
<CAPTION>
EFFECTIVE TAX RATE
---------------------------------------------------------------------
For The Year Ended December 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,283 $ 975 $ 837
Statutory Tax Rate 35% 35% 35%
---------------------------------------------------------------------
Expected Federal Income Taxes 449 341 293
Tax Effect of:
Non-taxable investment income (4) (3) (4)
Other, net (1) 4 1
=====================================================================
Federal Income Taxes $ 444 $ 342 $ 290
=====================================================================
Effective Tax Rate 35% 35% 35%
---------------------------------------------------------------------

COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $ 410 $ 263 $ 220
Foreign 24 21 13
---------------------------------------------------------------------
Total 434 284 233
---------------------------------------------------------------------
Deferred:
United States 10 57 52
Foreign -- 1 5
---------------------------------------------------------------------
Total 10 58 57
---------------------------------------------------------------------
Federal Income Taxes $ 444 $ 342 $ 290
=====================================================================
</TABLE>

Tax benefits allocated directly to shareholder's equity for the years ended
December 31, 1997, 1996 and 1995 were $17 million, $8 million and $7 million,
respectively.

F-20
<PAGE> 66
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The net deferred tax liabilities at December 31, 1997 and 1996 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:

<TABLE>
<CAPTION>
($ in millions) 1997 1996
------- -------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 550 $ 510
Contractholder funds 11 32
Operating lease reserves 68 71
Other employee benefits 102 104
Other 139 121
- -----------------------------------------------------------------------------------
Total 870 838
- -----------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of 608 571
insurance in force
Investments, net 484 131
Other 87 93
- -----------------------------------------------------------------------------------
Total 1,179 795
- -----------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset Before Valuation Allowance (309) 43
Valuation Allowance for Deferred Tax Assets (100) (100)
- -----------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (409) $ (57)
- -----------------------------------------------------------------------------------
</TABLE>

Starting in 1994 and continuing for at least five years, the Company and its
life insurance subsidiaries will file a consolidated federal income tax
return. Federal income taxes are allocated to each member of the consolidated
group on a separate return basis adjusted for credits and other amounts
required by the consolidation process. Any resulting liability will be paid
currently to the Company. Any credits for losses will be paid by the Company
to the extent that such credits are for tax benefits that have been utilized
in the consolidated federal income tax return.

A net deferred tax asset valuation allowance of $100 million has been
established to reduce the deferred tax asset on investment losses to the
amount that, based upon available evidence, is more likely than not to be
realized. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains in the Company's consolidated life
insurance company federal income tax return through 1998, and if
life/non-life consolidation is elected in 1999, the consolidated federal
income tax return of Travelers Group commencing in 1999, or a change in
circumstances which causes the recognition of the benefits to become more
likely than not. There was no change in the valuation allowance during 1997.
The initial recognition of any benefit produced by the reversal of the
valuation allowance will be recognized by reducing goodwill.

At December 31, 1997, the Company had no ordinary or capital loss
carryforwards.

The policyholders surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $932 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for which no
provision has been made in the financial statements) would be approximately
$326 million.

F-21
<PAGE> 67
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

12. NET INVESTMENT INCOME

<TABLE>
<CAPTION>
---------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,460 $1,387 $1,248
Mortgage loans 291 334 419
Policy loans 137 156 166
Real estate held for sale 88 94 111
Other, including trading 150 77 97
securities
---------------------------------------------------------------------
2,126 2,048 2,041
---------------------------------------------------------------------
Investment expenses 89 98 157
---------------------------------------------------------------------
Net investment income $2,037 $1,950 $1,884
---------------------------------------------------------------------
</TABLE>

13. INVESTMENTS AND INVESTMENT GAINS (LOSSES)

Realized investment gains (losses) for the periods were as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
---------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $71 $(63) $(43)
Equity securities (9) 47 36
Mortgage loans 59 49 47
Real estate held for sale 67 33 18
Other 11 (1) 48
---------------------------------------------------------------------
Total Realized Investment Gains $199 $65 $106
---------------------------------------------------------------------
</TABLE>

F-22
<PAGE> 68
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Changes in net unrealized investment gains (losses) that are included as a
separate component of shareholder's equity were as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
-------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS
Fixed maturities $ 446 $ (323) $1,974
Equity securities 25 (35) 46
Other 520 220 200
-------------------------------------------------------------------------
Total Realized Investment Gains 991 (138) 2,220
-------------------------------------------------------------------------

Related taxes 350 (43) 778
-------------------------------------------------------------------------
Change in unrealized investment gains
(losses) 641 (95) 1,442
Balance beginning of year 587 682 (760)
-------------------------------------------------------------------------
Balance End of Year $1,228 $ 587 $ 682
-------------------------------------------------------------------------
</TABLE>

Included in Other are gains of $506 million, $203 million and $214 million
for 1997, 1996 and 1995, respectively, related to appreciation of Travelers
Group stock.

Fixed Maturities

Proceeds from sales of fixed maturities classified as available for sale were
$7.6 billion, $10.2 billion and $6.8 billion in 1997, 1996 and 1995,
respectively. Gross gains of $170 million, $107 million and $80 million and
gross losses of $99 million, $175 million and $124 million in 1997, 1996 and
1995, respectively, were realized on those sales.

Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a quoted
market price or dealer quote are not available amounted to $5.1 billion and
$4.6 billion at December 31, 1997 and 1996, respectively.

F-23
<PAGE> 69
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The amortized cost and fair value of investments in fixed maturities were as
follows:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
DECEMBER 31, 1997 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,842 $ 124 $ 2 $ 3,964
U.S. Treasury securities and obligations
of U.S. Government and government
agencies and authorities 1,580 149 1 1,728
Obligations of states, municipalities
and political subdivisions 78 8 -- 86
Debt securities issued by
foreign governments 622 31 4 649
All other corporate bonds 14,548 547 24 15,071
Redeemable preferred stock 12 1 -- 13
- ---------------------------------------------------------------------------------------
Total Available For Sale $20,682 860 31 $21,511
- ---------------------------------------------------------------------------------------

<CAPTION>
- ----------------------------------------------------------------------------------------
DECEMBER 31, 1996 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,821 $ 71 $ 23 $ 3,869
U.S. Treasury securities and obligations
of U.S. Government and government
agencies and authorities 1,329 56 4 1,381
Obligations of states, municipalities and
political subdivisions 89 1 1 89
Debt securities issued by foreign
governments 618 26 3 641
All other corporate bonds 13,421 273 43 13,651
Redeemable preferred stock 6 -- -- 6
- ----------------------------------------------------------------------------------------
Total Available For Sale $19,284 $ 427 $ 74 $19,637
- ----------------------------------------------------------------------------------------
</TABLE>

F-24
<PAGE> 70

THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The amortized cost and fair value of fixed maturities at December 31, 1997,
by contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
----------------------------------------------------------
($ in millions) AMORTIZED FAIR
COST VALUE
----------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 1,184 $ 1,191
Due after 1 year through 5 years 5,200 5,335
Due after 5 years through 10 years 5,332 5,515
Due after 10 years 5,124 5,506
---------------------------------------------------------
16,840 17,547
---------------------------------------------------------
Mortgage-backed securities 3,842 3,964
---------------------------------------------------------
Total Maturity $20,682 $21,511
---------------------------------------------------------
</TABLE>

The Company makes investments in collateralized mortgage obligations (CMOs).
CMOs typically have high credit quality, offer good liquidity, and provide a
significant advantage in yield and total return compared to U.S. Treasury
securities. The Company's investment strategy is to purchase CMO tranches
which are protected against prepayment risk, including planned amortization
class (PAC) tranches. Prepayment protected tranches are preferred because
they provide stable cash flows in a variety of interest rate scenarios. The
Company does invest in other types of CMO tranches if a careful assessment
indicates a favorable risk/return tradeoff. The Company does not purchase
residual interests in CMOs.

At December 31, 1997 and 1996, the Company held CMOs classified as available
for sale with a fair value of $2.1 billion and $2.0 billion, respectively.
Approximately 72% and 88%, respectively, of the Company's CMO holdings are
fully collateralized by GNMA, FNMA or FHLMC securities at December 31, 1997
and 1996. In addition, the Company held $1.9 billion and $1.9 billion of
GNMA, FNMA or FHLMC mortgage-backed pass-through securities at December 31,
1997 and 1996, respectively. Virtually all of these securities are rated AAA.

F-25
<PAGE> 71
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Equity Securities
The cost and fair values of investments in equity securities were as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
EQUITY SECURITIES:
GROSS GROSS
($ in millions) UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Common stocks $179 $ 34 $ 11 $202
Non-redeemable preferred stocks 301 13 4 310
-----------------------------------------------------------------------------
Total Equity Securities $480 $ 47 $ 15 $512
-----------------------------------------------------------------------------

DECEMBER 31, 1996
Common stocks $212 $ 39 $ 30 $221
Non-redeemable preferred stocks 118 2 3 117
-----------------------------------------------------------------------------
Total Equity Securities $330 $ 41 $ 33 $338
-----------------------------------------------------------------------------
</TABLE>

Proceeds from sales of equity securities were $341 million, $487 million and
$379 million in 1997, 1996 and 1995, respectively. Gross gains of $53
million, $64 million and $27 million and gross losses of $62 million, $11
million and $2 million in 1997, 1996 and 1995, respectively, were realized on
those sales.

Mortgage Loans and Real Estate Held For Sale

Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.

At December 31, 1997 and 1996, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following ($ in millions):

<TABLE>
<CAPTION>
----------------------------------------------------------
1997 1996
----------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,866 $2,869
Underperforming Mortgage Loans 3 51
----------------------------------------------------------
Total 2,869 2,920
----------------------------------------------------------

Real Estate Held For Sale 134 297
----------------------------------------------------------
Total $3,003 $3,217
----------------------------------------------------------
</TABLE>

F-26
<PAGE> 72
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Aggregate annual maturities on mortgage loans at December 31, 1997 are as
follows:

<TABLE>
<CAPTION>
------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
------------------------------------------------
<S> <C>
Past Maturity $ 54
1998 243
1999 252
2000 321
2001 393
2002 121
Thereafter 1,485
------------------------------------------------
Total $2,869
================================================
</TABLE>

Joint Venture

In October 1997, the Company and Tishman Speyer Properties (Tishman), a
worldwide real estate owner, developer and manager, formed a joint real
estate venture with an initial equity commitment of $792 million. The Company
and certain of its affiliates committed $420 million in real estate equity
and $100 million in cash while Tishman committed $272 million in properties
and cash. Both companies are serving as asset managers for the venture and
Tishman is primarily responsible for the venture's real estate acquisition
and development efforts.

Trading Securities

Trading securities are held in a special purpose subsidiary, Tribeca
Investments LLC.

<TABLE>
<CAPTION>
-----------------------------------------------------
TRADING SECURITIES OWNED 1997
<S> <C>
Merger arbitrage $352
Convertible bond arbitrage 370
Other 78
-----------------------------------------------------
Total $800
-----------------------------------------------------

TRADING SECURITIES SOLD NOT YET PURCHASED

Merger arbitrage $213
Convertible bond arbitrage 249
-----------------------------------------------------
Total $462
-----------------------------------------------------
</TABLE>

The Company's trading portfolio investments and related liabilities are
normally held for periods less than six months. Therefore, expected future
cash flows for these assets and liabilities are expected to be realized in
less than one year.

F-27
<PAGE> 73
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Concentrations

At December 31, 1997 and 1996, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's equity.

The Company participates in a short-term investment pool maintained by an
affiliate. See Note 9.

Included in fixed maturities are below investment grade assets totaling $1.4
billion and $1.1 billion at December 31, 1997 and 1996, respectively. The
Company defines its below investment grade assets as those securities rated
"Ba1" or below by external rating agencies, or the equivalent by internal
analysts when a public rating does not exist. Such assets include publicly
traded below investment grade bonds and certain other privately issued bonds
that are classified as below investment grade loans.

The Company had concentrations of investments, primarily fixed maturities, in
the following industries:

<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
Banking $2,215 $1,959
Finance 1,556 1,823
Electric Utilities 1,377 1,093
Asset-Backed Credit Cards 778 688
-------------------------------------------------
</TABLE>

Below investment grade assets included in the preceding table were not
significant.

At December 31, 1997 and 1996, concentrations of mortgage loans were for
properties located in highly populated areas in the states listed below:

<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
California $794 $643
New York 310 297
-------------------------------------------------
</TABLE>

Other mortgage loan investments are relatively evenly dispersed throughout
the United States, with no holdings in any state exceeding $284 million and
$258 million at December 31, 1997 and 1996, respectively.

Concentrations of mortgage loans by property type at December 31, 1997 and
1996 were as follows:

<TABLE>
<CAPTION>
-------------------------------------------------
($ in millions) 1997 1996
-------------------------------------------------
<S> <C> <C>
Office $1,382 $1,208
Agricultural 771 693
Apartment 204 291
Hotel 201 217
-------------------------------------------------
</TABLE>

F-28
<PAGE> 74
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and other
monitoring procedures. Collateral for fixed maturities often includes pledges
of assets, including stock and other assets, guarantees and letters of
credit. The Company's underwriting standards with respect to new mortgage
loans generally require loan to value ratios of 75% or less at the time of
mortgage origination.

Non-Income Producing Investments

Investments included in the consolidated balance sheets that were non-income
producing for the preceding 12 months were insignificant.

Restructured Investments

The Company had mortgage loans and debt securities that were restructured at
below market terms totaling approximately $7 million and $18 million at
December 31, 1997 and 1996, respectively. The new terms typically defer a
portion of contract interest payments to varying future periods. The accrual
of interest is suspended on all restructured assets, and interest income is
reported only as payment is received. Gross interest income on restructured
assets that would have been recorded in accordance with the original terms of
such loans amounted to $.9 million in 1997 and $5 million in 1996. Interest
on these assets, included in net investment income, aggregated $.2 million
and $2 million in 1997 and 1996, respectively.

14. DEPOSIT FUNDS AND RESERVES

At December 31, 1997, the Company had $24.0 billion of life and annuity
deposit funds and reserves. Of that total, $13.0 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $11.0 billion
is for life and annuity products that are subject to discretionary withdrawal
by the contractholder. Included in the amount that is subject to
discretionary withdrawal is $2.0 billion of liabilities that are
surrenderable with market value adjustments. Also included are an additional
$5.2 billion of the life insurance and individual annuity liabilities which
are subject to discretionary withdrawals, and have an average surrender
charge of 4.8%. In the payout phase, these funds are credited at
significantly reduced interest rates. The remaining $3.8 billion of
liabilities are surrenderable without charge. More than 16.8% of these relate
to individual life products. These risks would have to be underwritten again
if transferred to another carrier, which is considered a significant
deterrent against withdrawal by long-term policyholders. Insurance
liabilities that are surrendered or withdrawn are reduced by outstanding
policy loans and related accrued interest prior to payout.

F-29
<PAGE> 75
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES

The following table reconciles net income to net cash provided by operating
activities:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
($ in millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $ 839 $ 633 $ 547
Adjustments to reconcile net income to
net cash provided by operating activities:
Realized gains (199) (65) (106)
Deferred federal income taxes 10 58 57
Amortization of deferred policy
acquisition costs and value of
insurance in force 293 281 290
Additions to deferred policy
acquisition costs (471) (350) (454)
Investment income accrued 14 2 (9)
Premium balances receivable 3 (6) (8)
Insurance reserves and accrued expenses 131 (1) 291
Other 206 255 62
- --------------------------------------------------------------------------------
Net cash provided by operating activities 826 807 670
Net cash used in discontinued operations -- (350) (596)
Net cash provided by operations $ 826 $ 457 $ 74
- --------------------------------------------------------------------------------
</TABLE>

16. NON-CASH INVESTING AND FINANCING ACTIVITIES

Significant noncash investing and financing activities include: a) the
conversion of $119 million of real estate held for sale to other invested
assets as a joint venture in 1997; b) the 1995 transfer of assets with a fair
market value of approximately $1.5 billion and statutory reserves and other
liabilities of approximately $1.5 billion to MetLife (see Note 2); c) the
1995 return of capital of Transport to TIGI (see Note 2); d) the acquisition
of real estate through foreclosures of mortgage loans amounting to $10
million, $117 million and $97 million in 1997, 1996 and 1995, respectively;
e) the acceptance of purchase money mortgages for sales of real estate
aggregating $4 million, $23 million and $27 million in 1997, 1996 and 1995,
respectively.

F-30
<PAGE> 76

Travelers Index Annuity

STATEMENT OF ADDITIONAL INFORMATION

Individual Variable Annuity Contract
issued by

The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183

L-12682S May 1998

<PAGE> 77
PART C

Other Information

Item 24. Financial Statements and Exhibits

(a) The financial statements of the Registrant and the Report of
Independent Accountants thereto are contained in the Registrant's
Annual Report and are incorporated into the Statement of Additional
Information by reference. The financial statements of the Registrant
include:

Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the period December 10, 1997 (date
operations commenced) to December 31, 1997
Statement of Changes in Net Assets for the period December 10,
1997 (date operations commenced) to December 31, 1997
Statement of Investments as of December 31, 1997
Notes to Financial Statements

The consolidated financial statements of The Travelers Insurance
Company and Subsidiaries and the report of Independent Accountants,
are contained in the Statement of Additional Information. The
consolidated financial statements of The Travelers Insurance Company
and Subsidiaries include:

Consolidated Statements of Income and Retained Earnings for the
years ended December 31, 1997, 1996 and 1995
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements

(b) Exhibits

1. Resolution of The Travelers Insurance Company Board of Directors
authorizing the establishment of the Registrant. (Incorporated herein
by reference to Exhibit 1 to the Registration Statement on Form N-4,
filed May 23, 1997.)

2. Not Applicable.

3(a). Form of Distribution and Management Agreement among the Registrant,
The Travelers Insurance Company and Tower Square Securities, Inc.
(Incorporated herein by reference to Exhibit 3(a) to the Registration
Statement on Form N-4, filed May 23, 1997.)

3(b). Form of Selling Agreement. (Incorporated herein by reference to
Exhibit 3(b) to the Registration Statement on Form N-4, filed May 23,
1997.)

4. Variable Annuity Contract. (Incorporated herein by reference to
Exhibit 4 to the Registration Statement on Form N-4, filed May 23,
1997.)

5. Application. (Incorporated herein by reference to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-4, filed
August 12, 1997.)

6(a). Charter of The Travelers Insurance Company, as amended on October 19,
1994. (Incorporated herein by reference to Exhibit 3(a)(i) to
Registration Statement on Form S-2, File No. 33-58677, filed via Edgar
on April 18, 1995.)
<PAGE> 78
6(b). By-Laws of The Travelers Insurance Company, as amended on October 20,
1994. (Incorporated herein by reference to Exhibit 3(b)(i) to the
Registration Statement on Form S-2, File No. 33-58677, filed via Edgar
on April 18, 1995.)

9. Opinion of Counsel as to the legality of securities being registered.
(Incorporated herein by reference to Exhibit 9 to the Registration
Statement on Form N-4 filed May 23, 1997.)

10(a). Consent of Coopers & Lybrand L.L.P., Independent Accountants.

10(b). Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.

13. Computation of Total Return Calculations - Standardized and
Non-Standardized. (Incorporated herein by reference to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-4, filed
August 12, 1997.)

15(a). Powers 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 Exhibit 15(a) to the
Registration Statement on Form N-4, filed May 23, 1997.)
<PAGE> 79
Item 25. Directors and Officers of the Depositor

<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Insurance Company
- -------------------------- ----------------------

<S> <C>
Michael A. Carpenter* Director, Chairman of the Board
President and Chief Executive Officer
Jay S. Benet* Director and Senior Vice President
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
Ian R. Stuart* Director, Senior Vice President,
Chief Financial Officer, Chief
Accounting Officer and Controller
Katherine M. Sullivan* Director and Senior Vice President
and General Counsel
Marc P. Weill** Director and Senior Vice President
Stuart Baritz** Senior Vice President
Jay S. Fishman* Senior Vice President
Elizabeth C. Georgakopoulos* Senior Vice President
Barry Jacobson* Senior Vice President
Russell H. Johnson* Senior Vice President
Warren H. May* Senior Vice President
Christine M. Modie* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Paula Burton* Vice President
Virginia M. Meany* Vice President
Selig Ehrlich* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel

Principal Business Address:
* The Travelers Insurance Company ** Travelers Group Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
</TABLE>

Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant

Incorporated herein by reference to Item 26 to Post-Effective Amendment No. 5
to the Registration Statement on form N-4, File No. 33-73466, filed April
10, 1998.

Item 27. Number of Contract Owners

As of March 1, 1998, 15 contract owners held qualified and non-qualified
contracts offered by the Registrant.

<PAGE> 80
Item 28. Indemnification

Section 33-770 of the Connecticut General Statutes ("C.G.S.") regarding
indemnification of directors and officers of Connecticut corporations provides
in general that Connecticut corporations shall indemnify their officers,
directors and certain other defined individuals against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses actually incurred
in connection with proceedings against the corporation. The corporation's
obligation to provide such indemnification generally does not apply unless (1)
the individual is successful on the merits in the defense of any such
proceeding; or (2) a determination is made (by persons specified in the
statute) that the individual acted in good faith and in the best interests of
the corporation; or (3) the court, upon application by the individual,
determines in view of all of the circumstances that such person is fairly and
reasonably entitled to be indemnified, and then for such amount as the court
shall determine. With respect to proceedings brought by or in the right of the
corporation, the statute provides that the corporation shall indemnify its
officers, directors and certain other defined individuals, against reasonable
expenses actually incurred by them in connection with such proceedings, subject
to certain limitations.

C.G.S. Section 33-770 provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less than
that authorized by the statute, e.g., pursuant to its certificate of
incorporation, by-laws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.

Travelers Group Inc. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Depositor. This insurance provides for coverage against loss from claims made
against directors and officers in their capacity as such, including, subject to
certain exceptions, liabilities under the Federal securities laws.

Rule 484 Undertaking

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 liability (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 81
Item 29. Principal Underwriter

(a) Tower Square Securities, Inc.
One Tower Square
Hartford, Connecticut 06183

Tower Square Securities, Inc. also serves as principal underwriter for the
following:

The Travelers Growth and Income Stock Account for Variable Annuities
The Travelers Quality Bond Account for Variable Annuities
The Travelers Money Market Account for Variable Annuities
The Travelers Timed Growth and Income Stock Account for Variable Annuities
The Travelers Timed Short-Term Bond Account for Variable Annuities
The Travelers Timed Aggressive Stock Account for Variable Annuities
The Travelers Timed Bond Account for Variable Annuities
The Travelers Fund U for Variable Annuities
The Travelers Fund VA for Variable Annuities
The Travelers Fund BD for Variable Annuities
The Travelers Fund BD II for Variable Annuities
The Travelers Fund BD IV for Variable Annuities
The Travelers Fund ABD for Variable Annuities
The Travelers Fund ABD II for Variable Life Insurance
The Travelers Separate Account QP for Variable Annuities
The Travelers Separate Account PF for Variable Annuities
The Travelers Separate Account PF II for Variable Annuities
The Travelers Fund UL for Variable Life Insurance
The Travelers Fund UL II for Variable Life Insurance
The Travelers Variable Life Insurance Separate Account One
The Travelers Variable Life Insurance Separate Account Two
The Travelers Variable Life Insurance Separate Account Three
The Travelers Variable Life Insurance Separate Account Four

<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ----------------

<S> <C>
Russell H. Johnson Chairman of the Board Chief Executive Officer,
President and Chief Operating Officer
William F. Scully, III Member, Board of Directors,
Senior Vice President, Treasurer
and Chief Financial Officer
Cynthia P. Macdonald Vice President, Chief Compliance
Officer, and Assistant Secretary
Joanne K. Russo Member, Board of Directors
Senior Vice President
William D. Wilcox General Counsel and Secretary
Kathleen A. McGah Assistant Secretary
Jay S. Benet Member, Board of Directors
George C. Kokulis Member, Board of Directors
Warren H. May Member, Board of Directors
Donald R. Munson, Jr. Senior Vice President
Stuart L. Baritz Vice President
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ----------------

<S> <C>
Michael P. Kiley Vice President
Tracey Kiff-Judson Vice President
Robin A. Jones Second Vice President
Whitney F. Burr Second Vice President
Marlene M. Ibsen Second Vice President
John F. Taylor Second Vice President
John J. Williams, Jr. Director and Assistant Compliance Officer
Susan M. Curcio Director and Operations Manager
Dennis D. D'Angelo Director
Thomas P. Tooley Director
Nancy S. Waldrop Assistant Treasurer
</TABLE>

* Principal business address: One Tower Square, Hartford,
Connecticut 06183

Item 30. Location of Accounts and Records

(1) The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183

Item 31. Management Services

Not Applicable.

Item 32. Undertakings

The undersigned Registrant hereby undertakes:

(a) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than sixteen
months old for so long as payments under the variable annuity
contracts may be accepted;

(b) To include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a post
card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of
Additional Information; and

(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.

The Company hereby represents:

(a). That the aggregate charges under the Contracts of the Registrant
described herein are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the
Company.
<PAGE> 83
SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this post-effective amendment to this
registration statement and has duly caused this post-effective amendment to
this registration statement to be signed on its behalf in the City of Hartford,
State of Connecticut, on April 16, 1998.

THE TRAVELERS FUND BD III FOR VARIABLE
ANNUITIES (Registrant)

THE TRAVELERS INSURANCE COMPANY
(Depositor)

By: *IAN R. STUART
-----------------------------------------------
Ian R. Stuart
Senior Vice President, Chief Financial Officer,
Chief Accounting Office and Controller

As required by the Securities Act of 1933, this post-effective amendment to the
registration statement has been signed below by the following persons in the
capacities indicated on April 16, 1998.

<TABLE>
<S> <C> <C>
*MICHAEL A. CARPENTER Director, Chairman of the Board, President
- ----------------------------- and Chief Executive Officer
(Michael A. Carpenter)

*JAY S. BENET Director
- -----------------------------
(Jay S. Benet)

*GEORGE C. KOKULIS Director
- -----------------------------
(George C. Kokulis

*ROBERT I. LIPP Director
- -----------------------------
(Robert I. Lipp)

*IAN R. STUART Director, Senior Vice President, Chief
- ----------------------------- Financial Officer, Chief Accounting Officer
(Ian R. Stuart) and Controller

*KATHERINE M. SULLIVAN Director, Senior Vice President and
- ----------------------------- General Counsel
(Katherine M. Sullivan)

*MARC P. WEILL Director
- -----------------------------
(Marc P. Weill)
</TABLE>

*By: Ernest J. Wright, Attorney-in-Fact
<PAGE> 84
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ---------- -----------

<S> <C> <C>
1 Resolution of The Travelers Insurance Company Board of
Directors authorizing the establishment of the Registrant.
(Incorporated herein by reference to Exhibit 1 to the Registration
Statement on Form N-4, filed May 23, 1997.)

3(a) Form of Distribution and Management Agreement among the
Registrant, The Travelers Insurance Company and Tower Square
Securities, Inc. (Incorporated herein by reference to Exhibit 3(a)
to the Registration Statement on Form N-4, filed May 23, 1997.)

3(b) Form of Selling Agreement. (Incorporated herein by reference to
Exhibit 3(b) to the Registration Statement on Form N-4,
filed May 23, 1997.)

4 Form of Variable Annuity Contract. (Incorporated herein by
reference to Exhibit 4 to the Registration Statement on Form N-4,
filed May 23, 1997.)

5 Application. (Incorporated herein by reference to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-4,
filed August 12, 1997.)

6(a) Charter of The Travelers Insurance Company, as amended on
October 19, 1994. (Incorporated herein by reference to Exhibit 3(a)(i)
to the Registration Statement on Form S-2, File No. 33-58677,
filed on April 18, 1995.)

6(b) By-Laws of The Travelers Insurance Company, as amended on
October 20, 1994. (Incorporated herein by reference to Exhibit 3(b)(i)
to the Registration Statement on Form S-2, File No. 33-58677,
filed on April 18, 1995.)

9 Opinion of Counsel as to the legality of securities being registered
by Registrant. (Incorporated herein by reference to Exhibit 9 to the
Registration Statement on Form N-4 filed May 23, 1997.)

10(a) Consent of Coopers & Lybrand L.L.P., Independent Accountants Electronically

10(b) Consent of KPMG Peat Marwick LLP, Independent Certified Electronically
Public Accountants.

13 Schedule for Computation of Total Return Calculations -
Standardized and Non-Standardized. (Incorporated herein by
reference to Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-4, filed August 12, 1997.)

15(a) Powers 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 Exhibit 15(a) to the Registration Statement on Form N-4,
filed May 23, 1997.)
</TABLE>

<PAGE> 1
EXHIBIT 10(A)

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in this post-effective
amendment No. 1 to the registration statement of The Travelers Fund BD III for
Variable Annuities (the "Fund") on Form N-4 (File Nos. 333-27689; 811-08225) of
our report dated February 19, 1998, on our audit of the financial statements of
the Fund which report is included in the Fund's Annual Report for the period
December 10, 1997 (date operations commenced) to December 31, 1997 which is
incorporated by reference in this post-effective amendment to the registration
statement. We also consent to the reference to our Firm as experts in the
registration statement.

COOPERS & LYBRAND L.L.P.

Hartford, Connecticut
April 15, 1998

<PAGE> 1

EXHIBIT 10(B)

Consent of Independent Certified Public Accountants

The Board of Directors
The Travelers Insurance Company

We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".

KPMG Peat Marwick LLP

Hartford, Connecticut
April 15, 1998