<PAGE> 1
ANNUAL REPORT
DECEMBER 31, 1998
THE TRAVELERS FUND BD III
FOR VARIABLE ANNUITIES
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
THE TRAVELERS FUND BD III
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Greenwich Street Series Fund:
Equity Index Portfolio, 423,584 shares (cost $11,340,591).......... $ 12,694,811
Money Market Portfolio, 9,256 shares (cost $9,256) .................. 9,256
-------------------
Total Investments (cost $11,349,847)............................... $ 12,704,067
Receivables:
Dividends ........................................................... 16
Purchase payments and transfers from other Travelers accounts........ 82,500
------------------
Total Assets....................................................... 12,786,583
------------------
LIABILITIES:
Payables:
Insurance charges ................................................. 3,608
Administrative fees ............................................... 419
Equity protection fee.............................................. 3,961
------------------
Total Liabilities................................................ 7,988
------------------
NET ASSETS: $ 12,778,595
=================
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 3
THE TRAVELERS FUND BD III
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................................... $ 26,254
EXPENSES:
Insurance charges ....................................................... $ 53,989
Administrative fees ..................................................... 6,352
Equity protection fees .................................................. 57,838
------------
Total expenses ........................................................ 118,179
--------------
Net investment loss.................................................. (91,925)
--------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold......................................... 1,414,184
Cost of investments sold .............................................. 1,312,567
------------
Net realized gain (loss)............................................. 101,617
Change in unrealized gain (loss) on investments:
Unrealized loss at December 31, 1997 .................................. (2,806)
Unrealized gain at December 31, 1998 .................................. 1,354,220
------------
Net change in unrealized gain (loss) for the year ................... 1,357,026
--------------
Net realized gain (loss) and change in unrealized gain (loss)...... 1,458,643
--------------
Net increase in net assets resulting from operations .................... $ 1,366,718
==============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
THE TRAVELERS FUND BD III
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD DECEMBER
10, 1997 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................................... $ (91,925) $ 4,292
Net realized gain (loss) from investment transactions....................... 101,617 (5)
Net change in unrealized gain (loss) on investments ........................ 1,357,026 (2,806)
----------------- --------------
Net increase in net assets resulting from operations .................... 1,366,718 1,481
----------------- --------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 10,241,829 and 186,609 units, respectively)................ 11,277,444 193,155
Participant transfers from other Travelers accounts
(applicable to 66,568 units).............................................. 67,637 -
Administrative charges
(applicable to 440 units)................................................. (463) -
Contract surrenders
(applicable to 95,529 units).............................................. (110,460) -
Other payments to participants
(applicable to 13,865 units).............................................. (16,917) -
----------------- --------------
Net increase in net assets resulting from unit transactions................. 11,217,241 193,155
----------------- --------------
Net increase in net assets................................................ 12,583,959 194,636
NET ASSETS:
Beginning of period ........................................................ 194,636 -
----------------- --------------
End of period .............................................................. $ 12,778,595 $ 194,636
================= ==============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund BD III for Variable Annuities ("Fund BD III") is a separate
account of The Travelers Insurance Company ("The Travelers"), an indirect wholly
owned subsidiary of Citigroup Inc. (formerly Travelers Group Inc.), and is
available for funding certain variable annuity contracts issued by The
Travelers. Fund BD III is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust.
Participant purchase payments applied to Fund BD III are invested in one or more
eligible funds in accordance with the selection made by the contract owner. As
of December 31, 1998, the eligible funds available under Fund BD III were: Money
Market Portfolio (formerly Cash Income Trust); Equity Index Portfolio of
Greenwich Street Series Fund (both of which are managed by affiliates of The
Travelers); Small Cap Index Fund and EAFE(R) Equity Index Fund of BT Insurance
Funds Trust. All of the funds are Massachusetts business trusts. Not all funds
may be available in all states or to all contract owners.
The following is a summary of significant accounting policies consistently
followed by Fund BD III in the preparation of its financial statements.
SECURITY VALUATION. Investments are valued daily at the net asset values per
share of the underlying funds.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Dividend income is recorded on the ex- dividend date.
FEDERAL INCOME TAXES. The operations of Fund BD III form a part of the total
operations of The Travelers and are not taxed separately. The Travelers is taxed
as a life insurance company under the Internal Revenue Code of 1986, as amended
(the "Code"). Under existing federal income tax law, no taxes are payable on the
investment income of Fund BD III. Fund BD III is not taxed as a "regulated
investment company" under Subchapter M of the Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$12,733,904 and $1,414,184 respectively, for the year ended December 31, 1998.
Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was $11,349,847
at December 31, 1998. Gross unrealized appreciation for all investments at
December 31, 1998 was $1,354,220.
-4-
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by The
Travelers. For contracts with a standard death benefit provision, these charges
are equivalent to 1.25% of the average net assets of Fund BD III on an annual
basis. For contracts with an enhanced death benefit provision, these charges are
equivalent to 1.45% of the average net assets of Fund BD III on an annual basis.
Administrative fees are paid for administrative expenses incurred by The
Travelers. This charge is equivalent to 0.15% of the average net assets of Fund
BD III on an annual basis.
For contracts in the accumulation phase with a contract value less than $50,000,
an annual charge of $30 (prorated for partial periods) is deducted from
participant account balances and paid to The Travelers to cover contract
administrative charges.
Participants in the Equity Index Portfolio may elect, at the time of purchase,
to obtain a Principal Protection Feature. Under this feature, The Travelers will
guarantee that the value of the contract after eight years will be at least
equal to 115%, 100% or 90% of the purchase payment. The annual fee, which
depends on the level of protection that is chosen, as well as market conditions,
is equivalent to an amount of up to 2.00% of the participant's contract value.
Additionally, participants who withdraw from this feature before the end of the
eighth contact year will be subject to a withdrawal fee of up to 4% of the
original purchase payment withdrawn.
No sales charge is deducted from participant purchase payments when they are
received. However, The Travelers generally assesses a contingent deferred sales
charge of up to 6% if a participant's purchase payment is surrendered within
eight years of its payment date. Contract surrender payments include $2,889 of
withdrawal fees and contingent deferred sales charges for the year ended
December 31, 1998. No withdrawal fees or contingent deferred sales charges were
assessed for the period December 10, 1997 (date operations commenced) to
December 31, 1997.
-5-
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------
ACCUMULATION UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Greenwich Street Series Fund
Equity Index Portfolio
Standard Death Benefit
0.00% Principal Protection Fee.......................... 195,925 $ 1.327 $ 260,055
0.95% Principal Protection Fee.......................... 16,752 1.314 22,009
1.00% Principal Protection Fee.......................... 22,680 1.194 27,079
1.10% Principal Protection Fee.......................... 220,067 1.308 287,950
1.35% Principal Protection Fee.......................... 1,556,018 1.309 2,036,362
1.45% Principal Protection Fee.......................... 3,460,179 1.095 3,789,483
1.50% Principal Protection Fee.......................... 2,611,390 1.302 3,399,232
2.00% Principal Protection Fee.......................... 22,226 1.208 26,847
Enhanced Death Benefit
0.00% Principal Protection Fee.......................... 16,764 1.324 22,193
1.00% Principal Protection Fee.......................... 24,092 1.193 28,745
1.10% Principal Protection Fee.......................... 9,713 1.305 12,676
1.35% Principal Protection Fee.......................... 11,011 1.306 14,382
1.45% Principal Protection Fee.......................... 61,777 1.094 67,579
1.50% Principal Protection Fee.......................... 2,000,628 1.298 2,597,414
2.00% Principal Protection Fee.......................... 147,068 1.206 177,320
Money Market Portfolio
Standard Death Benefit.................................. 8,882 1.044 9,269
-------------
Net Contract Owners' Equity.......................................................................... $ 12,778,595
=============
</TABLE>
-6-
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. SCHEDULE OF FUND BD III OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR
ENDED DECEMBER 31, 1998 AND THE PERIOD DECEMBER 10, 1997 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY INDEX PORTFOLIO
----------------------------------------
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends .................................................. $ 25,856 $ 4,500
------------------- -------------------
EXPENSES:
Insurance charges .......................................... 53,888 106
Administrative fees ........................................ 6,339 12
Equity protection fees ..................................... 57,838 90
------------------- -------------------
Net investment income (loss)............................ (92,209) 4,292
------------------- -------------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold............................ 1,414,059 111
Cost of investments sold ................................. 1,312,442 116
------------------- -------------------
Net realized gain (loss)................................ 101,617 (5)
------------------- -------------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of period ............... (2,806) -
Unrealized gain (loss) end of period ..................... 1,354,220 (2,806)
------------------- -------------------
Net change in unrealized gain (loss) for the period..... 1,357,026 (2,806)
------------------- -------------------
Net increase (decrease) in net assets
resulting from operations................................. 1,366,434 1,481
------------------- -------------------
UNIT TRANSACTIONS:
Participant purchase payments .............................. 11,268,444 193,155
Participant transfers from other Travelers accounts ........ 67,637 -
Administrative charges ..................................... (448) -
Contract surrenders ........................................ (110,460) -
Other payments to participants ............................. (16,917) -
------------------- -------------------
Net increase (decrease) in net assets
resulting from unit transactions ....................... 11,208,256 193,155
------------------- -------------------
Net increase (decrease) in net assets................... 12,574,690 194,636
NET ASSETS:
Beginning of period....................................... 194,636 -
------------------- -------------------
End of period ............................................ $ 12,769,326 $ 194,636
=================== ===================
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends .................................................. $ 398 $ -
------------------- -------------------
EXPENSES:
Insurance charges .......................................... 101 -
Administrative fees ........................................ 13 -
Equity protection fees ..................................... - -
------------------- -------------------
Net investment income (loss).............................. 284 -
------------------- -------------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................... 125 -
Cost of investments sold ................................. 125 -
------------------- -------------------
Net realized gain (loss)................................ - -
------------------- -------------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of period ............... - -
Unrealized gain (loss) end of period ..................... - -
------------------- -------------------
Net change in unrealized gain (loss) for the period..... - -
------------------- -------------------
Net increase (decrease) in net assets
resulting from operations............................... 284 -
------------------- -------------------
UNIT TRANSACTIONS:
Participant purchase payments .............................. 9,000 -
Participant transfers from other Travelers accounts ........ - -
Administrative charges ..................................... (15) -
Contract surrenders ........................................ - -
Other payments to participants ............................. - -
------------------- -------------------
Net increase (decrease) in net assets
resulting from unit transactions........................ 8,985 -
------------------- -------------------
Net increase (decrease) in net assets................... 9,269 -
NET ASSETS:
Beginning of period....................................... - -
------------------- -------------------
End of period ............................................ $ 9,269 $ -
=================== ===================
<CAPTION>
COMBINED
----------------------------------------
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends .................................................. $ 26,254 $ 4,500
-------------------- -------------------
EXPENSES:
Insurance charges .......................................... 53,989 106
Administrative fees ........................................ 6,352 12
Equity protection fees ..................................... 57,838 90
-------------------- -------------------
Net investment income (loss).............................. (91,925) 4,292
-------------------- -------------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................... 1,414,184 111
Cost of investments sold ................................. 1,312,567 116
-------------------- -------------------
Net realized gain (loss)................................ 101,617 (5)
-------------------- -------------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of period ............... (2,806) -
Unrealized gain (loss) end of period ..................... 1,354,220 (2,806)
-------------------- -------------------
Net change in unrealized gain (loss) for the period..... 1,357,026 (2,806)
-------------------- -------------------
Net increase (decrease) in net assets
resulting from operations............................... 1,366,718 1,481
-------------------- -------------------
UNIT TRANSACTIONS:
Participant purchase payments .............................. 11,277,444 193,155
Participant transfers from other Travelers accounts ........ 67,637 -
Administrative charges ..................................... (463) -
Contract surrenders ........................................ (110,460) -
Other payments to participants ............................. (16,917) -
-------------------- -------------------
Net increase (decrease) in net assets
resulting from unit transactions........................ 11,217,241 193,155
-------------------- -------------------
Net increase (decrease) in net assets................... 12,583,959 194,636
NET ASSETS:
Beginning of period....................................... 194,636 -
-------------------- -------------------
End of period ............................................ $ 12,778,595 $ 194,636
=================== ===================
</TABLE>
-7-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF ACCUMULATION UNITS FOR FUND BD III FOR THE YEAR ENDED DECEMBER
31, 1998 AND THE PERIOD DECEMBER 10, 1997 (DATE OPERATIONS COMMENCED) TO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY INDEX PORTFOLIO
-----------------------------------------
1998 1997
---- ----
<S> <C> <C>
Accumulation units beginning of period .................... 186,609 -
Accumulation units purchased and
transferred from other Travelers accounts................ 10,299,501 186,609
Accumulation units redeemed and
transferred to other Travelers accounts.................. (109,820) -
-------------------- --------------------
Accumulation units end of period .......................... 10,376,290 186,609
==================== ====================
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------
1998 1997
---- ----
<S> <C> <C>
Accumulation units beginning of period .................... - -
Accumulation units purchased and
transferred from other Travelers accounts................ 8,896 -
Accumulation units redeemed and
transferred to other Travelers accounts.................. (14) -
-------------------- --------------------
Accumulation units end of period .......................... 8,882 -
==================== ====================
</TABLE>
<TABLE>
<CAPTION>
COMBINED
-----------------------------------------
1998 1997
---- ----
<S> <C> <C>
Accumulation units beginning of period .................... 186,609 -
Accumulation units purchased and
transferred from other Travelers accounts................ 10,308,397 186,609
Accumulation units redeemed and
transferred to other Travelers accounts.................. (109,834) -
-------------------- -------------------
Accumulation units end of period .......................... 10,385,172 186,609
==================== ====================
</TABLE>
-8-
<PAGE> 10
INDEPENDENT AUDITORS' REPORT
To the Owners of Variable Annuity Contracts of The Travelers Fund BD III for
Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Fund BD III for Variable Annuities as of December 31, 1998, and the
related statement of operations for the year then ended and the statements of
changes in net assets for the year ended December 31, 1998 and the period
December 10, 1997 (date operations commenced) to December 31, 1997. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1998, by correspondence with the
underlying funds. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund BD III for
Variable Annuities as of December 31, 1998, the results of its operations for
the year then ended and the changes in its net assets for the year ended
December 31, 1998 and the period December 10, 1997 (date operations commenced)
to December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG LLP
Hartford, Connecticut
February 17, 1999
-9-
<PAGE> 11
Independent Auditors
KPMG LLP
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Fund BD III for Variable Annuities or
Fund BD III's underlying funds. It should not be used in connection with any
offer except in conjunction with the Prospectus for The Travelers Fund BD III
for Variable Annuities product(s) offered by The Travelers Insurance Company and
the Prospectuses of the underlying funds, which collectively contain all
pertinent information, including the applicable sales commissions.
FNDBDIII (Annual) (12-98) Printed in U.S.A.
