<PAGE> 1
ANNUAL REPORT
DECEMBER 31, 1997
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
The Travelers Series Trust, 41,532 shares (cost $429,492) ....... $ 444,356
Travelers Series Fund Inc., 3,690,701 shares (cost $13,050,981) . 14,529,805
Greenwich Street Series Fund, 87,704 shares (cost $1,415,678) ... 1,545,348
-----------
Total Investments (cost $14,896,151) ............ $16,519,509
Receivables:
Dividends ....................................................... 5,555
Premium payments and transfers from other Travelers accounts .... 394
Other assets ............................................................ 23
------------
Total Assets ............................................ 16,525,481
------------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts 380
Accrued liabilities ..................................................... 1,257
------------
Total Liabilities ....................................... 1,637
------------
NET ASSETS: $16,523,844
============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 3
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................................. $ 214,149
EXPENSES:
Insurance charges ..................................................... $ 106,546
Administrative fees ................................................... 49,748
----------
Total expenses ................................................ 156,294
----------
Net investment income ................................. 57,855
----------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold ................................ 8,085,682
Cost of investments sold ...................................... 7,887,191
----------
Net realized gain ..................................... 198,491
Change in unrealized gain on investments:
Unrealized gain at December 31, 1996 .......................... 284,211
Unrealized gain at December 31, 1997 .......................... 1,623,358
----------
Net change in unrealized gain for the year ............ 1,339,147
----------
Net realized gain and change in unrealized gain 1,537,638
----------
Net increase in net assets resulting from operations .................. $1,595,493
==========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
THE TRAVELERS VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT THREE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 57,855 $ 134,423
Net realized gain from investment transactions ............................ 198,491 28,959
Net change in unrealized gain on investments .............................. 1,339,147 287,147
------------ ------------
Net increase in net assets resulting from operations .............. 1,595,493 450,529
------------ ------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 9,499,785 and 7,306,792 units, respectively) ....... 10,072,788 7,516,947
Participant transfers from other Travelers accounts
(applicable to 5,814,161 and 5,161,526 units, respectively) ....... 7,483,363 5,671,103
Growth rate intra-fund transfer in
(applicable to 5,507,303 units) ................................... 7,198,001 -
Contract surrenders
(applicable to 318,674 and 64,125 units, respectively) ............ (403,189) (69,391)
Participant transfers to other Travelers accounts
(applicable to 8,564,026 and 6,632,386 units, respectively) ....... (9,195,127) (6,832,721)
Growth rate intra-fund transfer out
(applicable to 5,520,915 units) ................................... (7,198,001) -
------------ ------------
Net increase in net assets resulting from unit transactions 7,957,835 6,285,938
------------ ------------
Net increase in net assets ........................ 9,553,328 6,736,467
NET ASSETS:
Beginning of year ......................................................... 6,970,516 234,049
------------ ------------
End of year ............................................................... $ 16,523,844 $ 6,970,516
============ ============
</TABLE>
See Notes to Financial Statements
-3-
<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, 1997, the
eligible funds available under Separate Account Three are: Zero Coupon
Bond Fund Portfolio Series 1998, Zero Coupon Bond Fund Portfolio
Series 2000, Zero Coupon Bond Fund Portfolio Series 2005 and MFS
Emerging Growth Portfolio of The Travelers Series Trust; Alliance
Growth Portfolio, Van Kampen 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 Travelers Series Fund Inc.; Total
Return Portfolio of Greenwich Street Series Fund (formerly Smith
Barney Series Fund); and Select High Growth Portfolio, Select Growth
Portfolio, Select Balanced Portfolio, Select Conservative Portfolio
and Select Income Portfolio of Smith Barney Concert Allocation Series
Inc. The Travelers Series Trust and Greenwich Street Series Fund are
registered as Massachusetts business trusts. Travelers Series Fund
Inc. and Smith Barney Concert Allocation Series Inc. are incorporated
under Maryland law. All eligible funds are managed by affiliates of
The Travelers. Not all funds may be available in all states or to all
contract owners.
The following is a summary of significant accounting policies
consistently followed by Separate Account Three in the preparation of
its financial statements.
SECURITY VALUATION. Investments are valued daily at the net asset
values per share of the underlying funds.
SECURITY TRANSACTIONS. Security transactions are accounted for on the
trade date. Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES. The operations of Separate Account Three form a
part of the total operations of The Travelers and are not taxed
separately. The Travelers is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended (the "Code"). Under
existing federal income tax law, no taxes are payable on the
investment income of Separate Account Three. Separate Account Three
is not taxed as a "regulated investment company" under Subchapter M of
the Code.
OTHER. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments were $16,109,637 and $8,085,682, respectively, for the
year ended December 31, 1997. Realized gains and losses from
investment transactions are reported on an identified cost basis. The
cost of investments in eligible funds was $14,896,151 at December 31,
1997. Gross unrealized appreciation for all investments at December
31, 1997 was $1,624,929. Gross unrealized depreciation for all
investments at December 31, 1997 was $1,571.
3. CONTRACT CHARGES
Insurance charges are paid 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.
(Contracts in this category are identified as Price 1 in Note 4.) For
any contract year that follows a contract year in which the
participant's average net fund growth rate (as described in the
prospectus) is 6.5% or greater, these charges will be reduced to
0.75%. (Contracts in this category are identified as Price 2 in Note
4.)
Administrative fees are paid 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.
-4-
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES (CONTINUED)
The Travelers receives contingent surrender charges on full or partial
contract surrenders. Such charges are computed by applying various
percentages to premiums and/or stated contract amounts (as described
in the prospectus). The Travelers received no contingent surrender
charges for the years ended December 31, 1997 and 1996.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- --------
<S> <C> <C> <C>
THE TRAVELERS SERIES TRUST
Zero Coupon Bond Fund Portfolio Series 1998
Price 2 ................................ 11,669 $ 1.077 $ 12,570
Zero Coupon Bond Fund Portfolio Series 2000
Price 1 ................................ 4,935 1.072 5,292
Price 2 ................................ 49,043 1.076 52,752
Zero Coupon Bond Fund Portfolio Series 2005
Price 1 ................................ 83,850 1.095 91,856
Price 2 ................................ 199,172 1.099 218,839
MFS Emerging Growth Portfolio
Price 1 ................................ 39,051 1.143 44,634
Price 2 ................................ 16,058 1.144 18,370
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio
Price 1 ................................ 612,723 1.679 1,028,668
Price 2 ................................ 1,004,741 1.684 1,692,318
Van Kampen American Capital Enterprise Portfolio
Price 1 ................................ 413,369 1.560 644,951
Price 2 ................................ 448,830 1.565 702,437
TBC Managed Income Portfolio
Price 1 ................................ 121,572 1.094 132,993
Price 2 ................................ 28,094 1.097 30,820
Smith Barney High Income Portfolio
Price 1 ................................ 155,925 1.290 201,088
Price 2 ................................ 248,815 1.294 321,926
Smith Barney International Equity Portfolio
Price 1 ................................ 460,603 1.212 558,072
Price 2 ................................ 578,624 1.215 703,202
Smith Barney Income and Growth Portfolio
Price 1 ................................ 335,976 1.473 494,895
Price 2 ................................ 365,326 1.478 539,799
Smith Barney Money Market Portfolio
Price 1 ................................ 2,403,778 1.084 2,605,143
Price 2 ................................ 341,217 1.087 371,037
Putnam Diversified Income Portfolio
Price 1 ................................ 178,160 1.134 201,950
Price 2 ................................ 289,379 1.137 329,000
MFS Total Return Portfolio
Price 1 ................................ 836,258 1.362 1,138,845
Price 2 ................................ 800,795 1.366 1,093,942
AIM Capital Appreciation Portfolio
Price 1 ................................ 638,281 1.282 818,007
Price 2 ................................ 719,706 1.286 925,193
GREENWICH STREET SERIES FUND
Total Return Portfolio
Price 1 ................................ 538,629 1.491 803,201
Price 2 ................................ 496,001 1.496 742,044
-----------
Net Contract Owners' Equity ................................................................ $16,523,844
===========
</TABLE>
-5-
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
---------- ------------
<S> <C> <C>
THE TRAVELERS SERIES TRUST (2.7%)
Zero Coupon Bond Fund Portfolio Series 1998 (Cost $12,720) 1,253 $ 12,566
Zero Coupon Bond Fund Portfolio Series 2000 (Cost $57,882) 5,754 58,057
Zero Coupon Bond Fund Portfolio Series 2005 (Cost $294,455) 29,508 310,715
MFS Emerging Growth Portfolio (Cost $64,435) 5,017 63,018
---------- ------------
Total (Cost $429,492) 41,532 444,356
---------- ------------
TRAVELERS SERIES FUND INC. (88.0%)
Alliance Growth Portfolio (Cost $2,120,863) 125,697 2,721,339
Van Kampen American Capital Enterprise Portfolio (Cost $1,123,659) 66,288 1,347,644
TBC Managed Income Portfolio (Cost $153,188) 13,954 163,824
Smith Barney High Income Portfolio (Cost $476,952) 38,802 523,048
Smith Barney International Equity Portfolio (Cost $1,237,961) 97,780 1,261,357
Smith Barney Income and Growth Portfolio (Cost $890,388) 54,261 1,034,763
Smith Barney Money Market Portfolio (Cost $2,970,454) 2,970,454 2,970,454
Putnam Diversified Income Portfolio (Cost $500,435) 42,615 530,986
MFS Total Return Portfolio (Cost $1,969,513) 139,908 2,232,936
AIM Capital Appreciation Portfolio (Cost $1,607,568) 140,942 1,743,454
---------- ------------
Total (Cost $13,050,981) 3,690,701 14,529,805
---------- ------------
GREENWICH STREET SERIES FUND (9.3%)
Total Return Portfolio
Total (Cost $1,415,678) 87,704 1,545,348
---------- ------------
TOTAL INVESTMENT OPTIONS (100%)
(COST $14,896,151) $16,519,509
============
</TABLE>
-6-
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF SEPARATE ACCOUNT THREE OPERATIONS AND CHANGES IN NET
ASSETS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ZERO COUPON BOND ZERO COUPON BOND ZERO COUPON BOND
FUND PORTFOLIO FUND PORTFOLIO FUND PORTFOLIO
SERIES 1998 SERIES 2000 SERIES 2005
---------------------- ---------------------- ----------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................... $ 678 $ 625 $ 3,185 $ 2,715 $ 16,030 $ 17,813
--------- --------- --------- --------- --------- ---------
EXPENSES:
Insurance charges ................................... 102 50 475 168 2,445 1,871
Administrative fees ................................. 49 22 226 74 1,201 832
--------- --------- --------- --------- --------- ---------
Net investment income (loss) .................. 527 553 2,484 2,473 12,384 15,110
--------- --------- --------- --------- --------- ---------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................. 377 99 1,627 467 171,777 143,755
Cost of investments sold ........................ 374 97 1,597 453 166,155 137,717
--------- --------- --------- --------- --------- ---------
Net realized gain (loss) ...................... 3 2 30 14 5,622 6,038
--------- --------- --------- --------- --------- ---------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ........ (208) - (550) - 7,598 -
Unrealized gain (loss) end of year .............. (154) (208) 175 (550) 16,260 7,598
--------- --------- --------- --------- --------- ---------
Net change in unrealized gain (loss)
for the year............................... 54 (208) 725 (550) 8,662 7,598
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ..................... 584 347 3,239 1,937 26,668 28,746
--------- --------- --------- --------- --------- ---------
UNIT TRANSACTIONS:
Participant premium payments ........................ - - - - - -
Participant transfers from other Travelers accounts . 114 11,928 113 54,107 61,005 504,315
Growth rate intra-fund transfer in .................. 12,340 - 51,482 - 275,670 -
Contract surrenders ................................. (205) (96) (927) (322) (9,282) (5,076)
Participant transfers to other Travelers accounts ... (102) - (103) - (159,336) (136,345)
Growth rate intra-fund transfer out ................. (12,340) - (51,482) - (275,670) -
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets resulting
from unit transactions ........................ (193) 11,832 (917) 53,785 (107,613) 362,894
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets ......... 391 12,179 2,322 55,722 (80,945) 391,640
NET ASSETS:
Beginning of year ............................... 12,179 - 55,722 - 391,640 -
--------- --------- --------- --------- --------- ---------
End of year ..................................... $ 12,570 $ 12,179 $ 58,044 $ 55,722 $ 310,695 $ 391,640
========== ========= ========= ========= ========= =========
</TABLE>
-7-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
VAN KAMPEN
MFS EMERGING AMERICAN CAPITAL TBC MANAGED
GROWTH PORTFOLIO ALLIANCE GROWTH PORTFOLIO ENTERPRISE PORTFOLIO INCOME PORTFOLIO
- -------------------------- ---------------------------- --------------------------- ---------------------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 996 $ - $ - $ 42,246 $ - $ 1,328 $ - $ 741
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
138 - 16,480 4,402 7,676 1,790 850 108
65 - 7,761 1,891 3,734 790 385 31
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
793 - (24,241) 35,953 (11,410) (1,252) (1,235) 602
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
335 - 167,105 48,032 52,140 69,063 2,924 14,296
326 - 123,729 44,860 37,595 62,757 2,705 14,376
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
9 - 43,376 3,172 14,545 6,306 219 (80)
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
- - 97,659 (424) 29,111 (369) 102 -
(1,417) - 600,476 97,659 223,985 29,111 10,636 102
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
(1,417) - 502,817 98,083 194,874 29,480 10,534 102
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
(615) - 521,952 137,208 198,009 34,534 9,518 624
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
- - - - - - - -
63,844 - 1,184,783 1,015,173 725,595 455,052 139,944 30,519
- - 1,453,046 - 585,637 - 29,923 -
(225) - (56,159) (7,881) (14,390) (3,537) (2,468) (160)
- - (77,184) (16,504) (31,476) (36,118) (88) (14,076)
- - (1,453,046) - (585,637) - (29,923) -
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
63,619 - 1,051,440 990,788 679,729 415,397 137,388 16,283
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
63,004 - 1,573,392 1,127,996 877,738 449,931 146,906 16,907
- - 1,147,594 19,598 469,650 19,719 16,907 -
- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
$ 63,004 $ - $ 2,720,986 $ 1,147,594 $ 1,347,388 $ 469,650 $ 163,813 $ 16,907
=========== ========= =========== =========== =========== =========== =========== ===========
</TABLE>
-8-
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF SEPARATE ACCOUNT THREE OPERATIONS AND CHANGES IN NET
ASSETS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY
SMITH BARNEY INTERNATIONAL SMITH BARNEY INCOME
HIGH INCOME PORTFOLIO EQUITY PORTFOLIO AND GROWTH PORTFOLIO
--------------------- --------------------- ----------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................... $ - $ 17,135 $ - $ 656 $ - $ 8,374
---------- -------- --------- -------- ---------- --------
EXPENSES:
Insurance charges ................................... 3,496 1,160 8,704 2,851 5,358 1,047
Administrative fees ................................. 1,661 517 4,126 1,285 2,498 481
---------- -------- --------- -------- ---------- --------
Net investment income (loss) .................. (5,157) 15,458 (12,830) (3,480) (7,856) 6,846
---------- -------- --------- -------- ---------- --------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................. 104,254 6,114 61,621 55,450 40,643 8,241
Cost of investments sold ........................ 92,849 6,031 52,457 51,992 30,277 7,586
---------- -------- --------- -------- ---------- --------
Net realized gain (loss) ...................... 11,405 83 9,164 3,458 10,366 655
---------- -------- --------- -------- ---------- --------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year ........ 2,719 (967) 31,701 - 15,061 -
Unrealized gain (loss) end of year .............. 46,096 2,719 23,396 31,701 144,375 15,061
---------- -------- --------- -------- ---------- --------
Net change in unrealized gain (loss)
for the year............................... 43,377 3,686 (8,305) 31,701 129,314 15,061
---------- -------- --------- -------- ---------- --------
Net increase (decrease) in net assets
resulting from operations ..................... 49,625 19,227 (11,971) 31,679 131,824 22,562
---------- -------- --------- -------- ---------- --------
UNIT TRANSACTIONS:
Participant premium payments ........................ - - - - - -
Participant transfers from other Travelers accounts . 228,242 257,425 649,033 675,175 571,914 349,020
Growth rate intra-fund transfer in .................. 265,878 - 749,616 - 456,117 -
Contract surrenders ................................. (49,839) (2,028) (16,824) (5,762) (11,287) (2,173)
Participant transfers to other Travelers accounts ... (5,695) - (49,881) (10,175) (26,937) (229)
Growth rate intra-fund transfer out ................. (265,878) - (749,616) - (456,117) -
---------- -------- --------- -------- ---------- --------
Net increase (decrease) in net assets resulting
from unit transactions ........................ 172,708 255,397 582,328 659,238 533,690 346,618
---------- -------- --------- -------- ---------- --------
Net increase (decrease) in net assets ......... 222,333 274,624 570,357 690,917 665,514 369,180
NET ASSETS:
Beginning of year ............................... 300,681 26,057 690,917 - 369,180 -
---------- -------- --------- -------- ---------- --------
End of year ..................................... $ 523,014 $300,681 $1,261,274 $690,917 $1,034,694 $369,180
========== ======== ========== ======== ========== ========
</TABLE>
-9-
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SMITH BARNEY PUTNAM AIM CAPITAL
MONEY MARKET PORTFOLIO DIVERSIFIED INCOME PORTFOLIO MFS TOTAL RETURN PORTFOLIO APPRECIATION PORTFOLIO
- ---------------------------- ------------------------------ --------------------------- ----------------------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 131,787 $ 35,383 $ - $ 14,072 $ - $ 25,738 $ - $ 699
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
23,575 6,616 3,698 1,179 13,067 2,709 11,337 3,188
10,566 2,951 1,770 526 6,121 1,209 5,298 1,368
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
97,646 25,816 (5,468) 12,367 (19,188) 21,820 (16,635) (3,857)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
6,865,826 5,258,439 92,623 58,679 231,197 31,996 152,823 65,648
6,865,826 5,258,439 87,094 57,370 187,699 30,021 126,355 62,993
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- - 5,529 1,309 43,498 1,975 26,468 2,655
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- - 1,048 - 20,902 (1,176) 32,420 -
- - 30,551 1,048 263,423 20,902 135,886 32,420
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- - 29,503 1,048 242,521 22,078 103,466 32,420
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
97,646 25,816 29,564 14,724 266,831 45,873 113,299 31,218
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,072,788 7,516,947 - - - - - -
311,243 3,943 328,642 278,960 1,268,160 809,251 1,033,135 717,667
372,612 - 279,734 - 1,019,454 - 946,825 -
(76,120) (22,964) (11,482) (3,912) (61,816) (6,179) (30,224) (5,448)
(8,507,335) (6,549,030) (80,188) (25,358) (124,119) (30,643) (102,441) (14,006)
(372,612) - (279,734) - (1,019,454) - (946,825) -
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,800,576 948,896 236,972 249,690 1,082,225 772,429 900,470 698,213
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,898,222 974,712 266,536 264,414 1,349,056 818,302 1,013,769 729,431
1,077,958 103,246 264,414 - 883,731 65,429 729,431 -
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 2,976,180 $ 1,077,958 $ 530,950 $ 264,414 $ 2,232,787 $ 883,731 $ 1,743,200 $ 729,431
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
-10-
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF SEPARATE ACCOUNT THREE OPERATIONS AND CHANGES IN NET
ASSETS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO COMBINED
---------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 61,473 $ 8,773 $ 214,149 $ 176,298
------------ ------------ ------------ ------------
EXPENSES:
Insurance charges ..................................... 9,145 1,909 106,546 29,048
Administrative fees ................................... 4,287 850 49,748 12,827
------------ ------------ ------------ ------------
Net investment income (loss) .................... 48,041 6,014 57,855 134,423
------------ ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 140,410 50,968 8,085,682 5,811,247
Cost of investments sold .......................... 112,153 47,596 7,887,191 5,782,288
------------ ------------ ------------ ------------
Net realized gain (loss) ........................ 28,257 3,372 198,491 28,959
------------ ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 46,648 - 284,211 (2,936)
Unrealized gain (loss) end of year ................ 129,670 46,648 1,623,358 284,211
------------ ------------ ------------ ------------
Net change in unrealized gain (loss) for the year 83,022 46,648 1,339,147 287,147
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ....................... 159,320 56,034 1,595,493 450,529
------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant premium payments .......................... - - 10,072,788 7,516,947
Participant transfers from other Travelers accounts ... 917,596 508,568 7,483,363 5,671,103
Growth rate intra-fund transfer in .................... 699,667 - 7,198,001 -
Contract surrenders ................................... (61,941) (3,853) (403,189) (69,391)
Participant transfers to other Travelers accounts ..... (30,242) (237) (9,195,127) (6,832,721)
Growth rate intra-fund transfer out ................... (699,667) - (7,198,001) -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions .......................... 825,413 504,478 7,957,835 6,285,938
------------ ------------ ------------ ------------
Net increase (decrease) in net assets ........... 984,733 560,512 9,553,328 6,736,467
NET ASSETS:
Beginning of year ................................. 560,512 - 6,970,516 234,049
------------ ------------ ------------ ------------
End of year ....................................... $ 1,545,245 $ 560,512 $ 16,523,844 $ 6,970,516
============ ============ ============ ============
</TABLE>
-11-
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF UNITS FOR SEPARATE ACCOUNT THREE FOR THE YEAR ENDED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON ZERO COUPON
BOND FUND BOND FUND BOND FUND MFS EMERGING ALLIANCE
PORTFOLIO PORTFOLIO PORTFOLIO GROWTH GROWTH
SERIES 1998 SERIES 2000 SERIES 2005 PORTFOLIO PORTFOLIO
------------ --------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 11,880 54,981 393,923 - 870,543
Units purchased and transferred from
other Travelers accounts ........ 11,905 49,538 329,678 55,304 1,810,650
Units redeemed and transferred to
other Travelers accounts ........ (12,116) (50,541) (440,579) (195) (1,063,729)
------------ --------------- ------------- ------------ ---------------
Units end of year .................. 11,669 53,978 283,022 55,109 1,617,464
============ =============== ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN TBC SMITH BARNEY SMITH BARNEY
CAPITAL MANAGED SMITH BARNEY INTERNATIONAL INCOME AND
ENTERPRISE INCOME HIGH INCOME EQUITY GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 382,114 16,739 261,976 578,127 313,239
Units purchased and transferred from
other Travelers accounts ........ 909,322 163,714 406,299 1,116,707 750,039
Units redeemed and transferred to
other Travelers accounts ........ (429,237) (30,787) (263,535) (655,607) (361,976)
------------ --------------- ------------- ------------ ---------------
Units end of year .................. 862,199 149,666 404,740 1,039,227 701,302
============ =============== ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
PUTNAM
SMITH BARNEY DIVERSIFIED MFS AIM CAPITAL
MONEY MARKET INCOME TOTAL RETURN APPRECIATION TOTAL RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Units beginning of year ............ 1,031,783 247,942 776,168 630,046 433,485
Units purchased and transferred from
other Travelers accounts ........ 10,137,452 560,998 1,788,362 1,570,818 1,160,463
Units redeemed and transferred to
other Travelers accounts ........ (8,424,240) (341,401) (927,477) (842,877) (559,318)
------------ --------------- ------------- ------------ ----------------
Units end of year .................. 2,744,995 467,539 1,637,053 1,357,987 1,034,630
============ =============== ============= ============ ================
</TABLE>
<TABLE>
<CAPTION>
COMBINED
------------
<S> <C>
Units beginning of year ............ 6,002,946
Units purchased and transferred from
other Travelers accounts ........ 20,821,249
Units redeemed and transferred to
other Travelers accounts ........ (14,403,615)
------------
Units end of year .................. 12,420,580
============
</TABLE>
-12-
<PAGE> 14
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,
1997, and the related statement of operations for the year then ended and the
statement of changes in net assets for each of the two years in the period then
ended. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of shares owned as of December 31, 1997, 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Variable Life
Insurance Separate Account Three as of December 31, 1997, the results of its
operations for the year then ended and the changes in its net assets for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 19, 1998
-13-
<PAGE> 15
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.
VG-SEP3 (Annual) (12-97) Printed in U.S.A.
