<PAGE> 1
VINTAGE UNIVERSAL LIFE
ANNUAL REPORT
THE TRAVELERS VARIABLE LIFE INSURANCE SEPARATE ACCOUNT THREE
DECEMBER 31, 1995
[LOGO]
THE TRAVELERS INSURANCE COMPANY
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
<PAGE> 2
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in eligible funds at market value:
Smith Barney/Travelers Series Fund Inc.:
Alliance Growth Portfolio, 1,412 shares (cost $19,433)............. $19,009
American Capital Enterprise Portfolio, 1,478 shares (cost $19,433). 19,064
Smith Barney High Income Portfolio, 2,249 shares (cost $25,910).... 24,943
Smith Barney Money Market Portfolio, 103,160 shares (cost $103,160) 103,160
MFS Total Return Portfolio, 5,345 shares (cost $64,778)............ 63,602
--------
Total Investments (cost $232,714)................................. 229,778
--------
Dividends receivable................................................. 4,308
--------
Total Assets....................................................... 234,086
--------
LIABILITIES:
Accrued liabilities.................................................. 37
--------
Total Liabilities.................................................. 37
--------
NET ASSETS............................................................ $234,049
========
</TABLE>
See Notes to Financial Statements
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<PAGE> 3
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 4, 1995 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................... $4,673
EXPENSES:
Insurance charges................................... $113
Administrative fees................................. 50
-------
Total expenses..................................... 163
-------
Net investment income............................. 4,510
-------
REALIZED LOSS AND CHANGE IN UNREALIZED LOSS ON
INVESTMENTS:
Realized loss from investment transactions:
Proceeds from investments sold..................... 130,368
Cost of investments sold........................... 130,375
-------
Net realized loss................................. (7)
Unrealized loss on investments:
December 31, 1995.................................. (2,936)
-------
Net realized loss and change in unrealized loss.. (2,943)
-------
Net increase in net assets resulting from operations $1,567
=======
</TABLE>
See Notes to Financial Statements
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<PAGE> 4
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD DECEMBER 4, 1995 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995
---------
<S> <C>
OPERATIONS:
Net investment income....................................... $4,510
Net realized loss from investment transactions.............. (7)
Net change in unrealized loss on investments................ (2,936)
---------
Net increase in net assets resulting from operations....... 1,567
---------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 232,440 units).............................. 233,982
Participant transfers from other Travelers accounts
(applicable to 129,995 units).............................. 130,824
Contract surrenders
(applicable to 1,487 units)................................ (1,501)
Participant transfers to other Travelers accounts
(applicable to 129,809 units).............................. (130,823)
---------
Net increase in net assets resulting from unit transactions 232,482
---------
Net increase in net assets................................ 234,049
NET ASSETS:
Beginning of period......................................... -
---------
End of period............................................... $234,049
=========
</TABLE>
See Notes to Financial Statements
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<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Variable Life Insurance Separate Account Three ("Separate Account
Three") is a separate account of The Travelers Insurance Company ("The
Travelers"), an indirect wholly owned subsidiary of Travelers Group Inc., and
is available for funding certain variable life insurance contracts issued by
The Travelers. Separate Account Three is registered under the Investment
Company Act of 1940, as amended, as a unit investment trust.
Participant premium payments applied to Separate Account Three are invested in
one or more eligible funds in accordance with the selection made by the
contract owner. As of December 31, 1995, the eligible funds available under
Separate Account Three are: Zero Coupon Bond Fund Portfolio Series 1998, Zero
Coupon Bond Fund Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio
Series 2005 of The Travelers Series Trust; Alliance Growth Portfolio, American
Capital Enterprise Portfolio, TBC Managed Income Portfolio, Smith Barney High
Income Portfolio, Smith Barney International Equity Portfolio, Smith Barney
Income and Growth Portfolio, Smith Barney Money Market Portfolio, Putnam
Diversified Income Portfolio, MFS Total Return Portfolio and AIM Capital
Appreciation Portfolio of Smith Barney/Travelers Series Fund Inc.; and Total
Return Portfolio of Smith Barney Series Fund. All the funds are Massachusetts
business trusts except for Smith Barney/Travelers Series Fund Inc. which is
incorporated under Maryland law. Smith Barney/Travelers Series Fund Inc. and
Smith Barney Series Fund are managed by Smith Barney Mutual Funds Management
Inc., an indirect wholly owned subsidiary of Travelers Group Inc. Not all
funds are available in all states.
The following is a summary of significant accounting policies consistently
followed by Separate Account Three in the preparation of its financial
statements.
SECURITY VALUATION. Investments are valued daily at the net asset values per
share of the underlying funds.
FEDERAL INCOME TAXES. The operations of Separate Account Three form a part of
the total operations of The Travelers and are not taxed separately. The
Travelers is taxed as a life insurance company under the Internal Revenue Code
of 1986, as amended (the "Code"). Under existing federal income tax law, no
taxes are payable on the investment income of Separate Account Three. Separate
Account Three is not taxed as a "regulated investment company" under Subchapter
M of the Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Security transactions are accounted for on the trade date. Dividend income is
recorded on the ex-dividend date.
2. INVESTMENTS
Purchases and sales of investments aggregated $363,089 and $130,368,
respectively, for the period ended December 31, 1995. Realized gains and
losses from investment transactions are reported on an identified-cost basis.
The cost of investments in eligible funds was $232,714 at December 31, 1995.
Gross unrealized depreciation for all investments at December 31, 1995 was
$2,936.
3. CONTRACT CHARGES
Insurance charges are paid to The Travelers for the mortality and expense risks
assumed by The Travelers. These charges are equivalent to 0.90% of the average
net assets of Separate Account Three on an annual basis. This charge will be
reduced to 0.75% for any calendar year that follows a calendar year in which
the participant's average net fund growth rate (as described in the prospectus)
is 6.5% or greater.
Administrative fees are paid to The Travelers for administrative expenses
incurred by The Travelers. This charge is equivalent to 0.40% of the average
net assets of Separate Account Three on an annual basis.
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<PAGE> 6
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------
UNIT NET
UNITS VALUE ASSETS
--------- --------- --------
<S> <C> <C> <C>
Smith Barney/Travelers Series Fund Inc.:
Alliance Growth Portfolio.............. 18,972 $1.033 $19,598
American Capital Enterprise Portfolio.. 19,452 1.014 19,719
Smith Barney High Income Portfolio..... 25,379 1.027 26,057
Smith Barney Money Market Portfolio.... 102,376 1.009 103,246
MFS Total Return Portfolio............. 64,960 1.007 65,429
--------
Net Contract Owners' Equity................................... $234,049
========
</TABLE>
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<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. SCHEDULE OF SEPARATE ACCOUNT THREE OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD DECEMBER 4, 1995 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1995
<TABLE>
<CAPTION>
SMITH SMITH
AMERICAN BARNEY BARNEY
ALLIANCE CAPITAL HIGH MONEY
GROWTH ENTERPRISE INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................. $ 592 $ 658 $ 1,118 $ 467
------- ------- ------- --------
EXPENSES:
Insurance charges..................................... 4 4 6 84
Administrative fees................................... 2 2 2 38
------- ------- ------- --------
Net investment income................................ 586 652 1,110 345
------- ------- ------- --------
REALIZED LOSS AND CHANGE IN UNREALIZED LOSS
ON INVESTMENTS:
Realized loss from investment transactions:
Proceeds from investments sold....................... 45 46 61 130,064
Cost of investments sold............................. 46 47 63 130,064
------- ------- ------- --------
Net realized loss................................... (1) (1) (2) -
------- ------- ------- --------
Change in unrealized loss on investments:
Unrealized loss beginning of period.................. - - - -
Unrealized loss end of period........................ (424) (369) (967) -
------- ------- ------- --------
Net change in unrealized loss for the period........ (424) (369) (967) -
------- ------- ------- --------
Net increase in net assets resulting from operations 161 282 141 345
------- ------- ------- --------
UNIT TRANSACTIONS:
Participant premium payments.......................... - - - 233,982
Participant transfers from other Travelers accounts... 19,480 19,480 25,973 958
Contract surrenders................................... (43) (43) (57) (1,216)
Participant transfers to other Travelers accounts..... - - - (130,823)
------- ------- ------- --------
Net increase in net assets resulting from
unit transactions.................................... 19,437 19,437 25,916 102,901
------- ------- ------- --------
Net increase in net assets........................... 19,598 19,719 26,057 103,246
NET ASSETS:
Beginning of period.................................. - - - -
------- ------- ------- --------
End of period........................................ $19,598 $19,719 $26,057 $103,246
======= ======= ======= ========
</TABLE>
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<PAGE> 8
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
MFS
TOTAL RETURN
PORTFOLIO COMBINED
- ------------ ---------
<S> <C>
$ 1,838 $ 4,673
------- --------
15 113
6 50
------- --------
1,817 4,510
------- --------
152 130,368
155 130,375
------- --------
(3) (7)
------- --------
- -
(1,176) (2,936)
------- --------
(1,176) (2,936)
------- --------
638 1,567
------- --------
- 233,982
64,933 130,824
(142) (1,501)
- (130,823)
------- --------
64,791 232,482
------- --------
65,429 234,049
- -
------- --------
$65,429 $234,049
======= ========
</TABLE>
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<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF UNITS FOR SEPARATE ACCOUNT THREE
FOR THE PERIOD DECEMBER 4, 1995 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1995
<TABLE>
<CAPTION>
AMERICAN SMITH
ALLIANCE CAPITAL BARNEY
GROWTH ENTERPRISE HIGH INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ -----------
<S> <C> <C> <C>
Units beginning of period................. - - -
Units purchased and
transferred from other Travelers accounts 19,014 19,494 25,434
Units redeemed and
transferred to other Travelers accounts.. (42) (42) (55)
--------- ------------ -----------
Units end of period....................... 18,972 19,452 25,379
========= ============ ===========
<CAPTION>
SMITH
BARNEY
MONEY MFS
MARKET TOTAL RETURN
PORTFOLIO PORTFOLIO
--------- ------------
<S> <C> <C>
Units beginning of period................. - -
Units purchased and
transferred from other Travelers accounts 233,392 65,101
Units redeemed and
transferred to other Travelers accounts.. (131,016) (141)
--------- ------------
Units end of period....................... 102,376 64,960
========= ============
</TABLE>
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<PAGE> 10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of Variable Life Insurance Contracts of
The Travelers Variable Life Insurance Separate Account Three:
We have audited the accompanying statement of assets and liabilities of The
Travelers Variable Life Insurance Separate Account Three as of December 31,
1995, and the related statements of operations and changes in net assets for
the period December 4, 1995 (date operations commenced) to December 31, 1995.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of shares owned as of December 31, 1995, by
correspondence with 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Variable Life
Insurance Separate Account Three as of December 31, 1995, the results of its
operations and the changes in its net assets for the period December 4, 1995
(date operations commenced) to December 31, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 21, 1996
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<PAGE> 11
Independent Accountants
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Variable Life Insurance Separate
Account Three or Separate Account Three's underlying funds. It should not be
used in connection with any offer except in conjunction with the Prospectuses
for the Variable Universal Life Insurance products offered by The Travelers
Insurance Company and the Prospectuses for the underlying funds, which
collectively contain all pertinent information, including the applicable sales
commissions.
