<PAGE> 1
UNIVERSAL ANNUITY
SEMI-ANNUAL REPORTS
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
JUNE 30, 1996
[TRAVELERS LOGO]
THE TRAVELERS INSURANCE COMPANY
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
<PAGE> 2
[TRAVELERS LOGO]
THE TRAVELERS VARIABLE PRODUCT SEPARATE ACCOUNTS
INVESTMENT ADVISORY COMMENTARY AS OF JUNE 30, 1996
ECONOMIC REVIEW AND OUTLOOK
The economy finished the first half of the year on a strong note. The broadest
measure of the rate of growth for the U.S. economy, the Gross Domestic Product
("GDP"), is expected to be a robust 4% to 4.5% for the second quarter. This
follows a stronger than expected first quarter GDP of 2.2%. Numerous economic
reports released in the second quarter pointed to an accelerating trend. Most
notably, consumer spending increased 5.2% during the first half of the year,
despite high levels of personal debt. This appears to have been the key factor
in the economy's good first half performance. Sales in both the housing and auto
sectors were surprisingly strong. Employment growth continued, and unemployment
declined to 5.3%. Business investment also remained strong, with first quarter
capital spending increasing by approximately 14%. Furthermore, companies
maintained low inventories, leaving room for future growth as inventories are
rebuilt to normal levels. Finally, renewed growth was observed in major overseas
economies, creating an improved outlook for the export sector of the U.S.
economy.
This picture of solid economic momentum increases the probability that the
Federal Reserve Board ("Fed") will shift to a tighter monetary policy and raise
short-term interest rates before the end of the year. In order to maintain wage
and price stability, Fed policy is focused on constraining economic growth. For
investors, the key issue is whether fears of future Fed tightening will drive
long-term yields toward levels reached during 1994. It appears to be a foregone
conclusion among private analysts that current levels of unemployment will cause
wage pressures to increase. The question remains whether corporations will be
able to pass these increases into consumer prices and if so, what impact it will
have on inflationary expectations. On the plus side, other sources of inflation
have been under control. Commodity prices have been weak lately and the dollar
has been strong. Short-term interest rates are more than 2% over the Consumer
Price Index ("CPI"), keeping downward pressure on inventories. Inflation
expectations in the consumer sentiment surveys are still below 3%, compared to
4% in 1994.
With the steep rise in long bond yields during the first half of the year, we
expect housing and auto sales to slow in the second half. If demand in these
sectors does not slow in the second half, we doubt that the Fed will have any
choice but to raise short-term interest rates aggressively. Interest rates for
both long and short maturities are unlikely to have a sustained decline until
the Fed is judged to have placed an effective damper on the cyclical build-up in
wage and inflation pressures.
FIXED INCOME COMMENTARY
Surprisingly strong consumer spending and employment growth in the first half of
the year banished the slow growth expectations that dominated the bond market at
year end. Interest rates rose sharply during the first half of the year,
resulting in generally poor performance for bonds. The Lehman
Government/Corporate Bond Index, a broad based bond index, declined 1.9% for the
first six months. The bond market finally stabilized late in the second quarter,
with most bond indices posting a positive price return in June.
Corporate bonds returned a negative 2.1% and lagged the Treasury sector for the
first six months. The best performing issuer sectors were tobacco, airlines,
Canadians and sovereigns. A favorable decision in the Castano case enabled the
tobacco issues to rally as yields declined relative to Treasuries. Airlines
continue to post strong earnings and are buying back their debt with excess
cashflow. Against the backdrop of favorable international developments,
including an upgrade in Italy's credit rating, sovereign bonds also increased in
price. Issuer sectors that lagged were cable, gaming, autos and banks. Credit
downgrades in the media sector and new issuance in the auto sector put pressure
on yield spreads in those sectors. As the market began to anticipate the need
for the Fed to increase short-term interest rates, finance and bank issues
declined in price. Despite recent underperformance, yields on investment grade
corporate bonds remain below the normal range relative to Treasuries.
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<PAGE> 3
In the mortgage backed sector, fears of consumer refinancing vanished as
interest rates rose. With yield volatility reduced, mortgage backed securities
outperformed similar Treasury securities. Moreover, narrow corporate yield
spreads relative to Treasuries prompted a shift of investor interest to this
sector. During the first half, the Lehman Mortgage Index returned 0.4%. Over the
same period, the high yield market also performed relatively well. The First
Boston High-Yield Index reported a return of 3.8%. The last two years have seen
heavy issuance of high-yield debt, in the midst of a hot initial public offering
market for equities, and active competition by banks for loan syndication. It is
uncertain how well high yield securities will weather the next downturn in the
credit cycle if these other sources of financing are shut down. If the stock
market were to unravel, more speculative financings may find themselves in
trouble. In the second quarter, municipal bonds performed relatively well as tax
exempt yields continued to decline relative to Treasuries. Municipal bonds with
maturities shorter than 10 years, still relatively cheap at year end, rallied in
price and now trade at more normal yield spreads.
EQUITY COMMENTARY
Better than expected corporate earnings gains and unprecedented inflows into
equity mutual funds helped stock prices to move broadly higher during the first
six months of 1996. For the six-month period ending June 30, the Standard and
Poor's 500 Stock Index ("S&P 500"), a broad based stock market index, recorded a
total return (including dividends) of 10.1%. The Russell 2000 Stock Index, a
measure of performance for the small cap sector, provided a total return of
10.4% over the same period. Against the inclement backdrop of rising interest
rates and diminishing earnings momentum, liquidity factors - record mutual fund
inflows and corporate stock buybacks - appeared to provide the critical catalyst
for the market advance.
As signs of the economy's strength emerged early in the year, investor focus
shifted away from stable growth stocks and towards consumer cyclical stocks,
particularly those in the department store, airline and auto groups. In the
energy sector, the drilling equipment and oil field service stocks rose on
strong earnings gains and expectations for increased capital spending by major
global energy companies. Technology stocks rebounded somewhat after their late
1995 decline, but weaker earnings momentum continued to dampen valuations in
most technology related groups. While more than half of all companies announced
positive earnings surprises for the first quarter, the 6% average gain in
operating earnings was the most sluggish year-over-year rate of profit growth
observed during the current business expansion.
Early in the second quarter, however, equity investors reversed course and began
to rotate back into more defensive, growth-oriented sectors on the expectation
that higher interest rates would translate into slower economic growth by year
end. In the staples sector, beverage stocks performed well in response to solid
revenue gains. In the consumer sector, improving sales fueled a rally in the
retail and apparel groups. Energy exploration, pipeline and distribution stocks
benefited from strong natural gas pricing. However, basic material stocks
continued to weaken on declining prices for many industrial commodities and
concern over the possibility of an economic slowdown. Within the technology
sector, performance was mixed. While most of the stocks in the semiconductor
group continued to trade lower, the networking and software groups were strong,
reflecting continued order growth from corporate customers.
We are currently somewhat cautious towards the equity market. The bear case is
built upon a valuation argument that points to price-to-book and
price-to-dividend ratios in excess of historical norms. There is also a growing
concern that the Fed may tighten monetary policy in the near term if employment
and economic reports show continued strength. Clearly, Fed action in the
direction of higher interest rates will curtail the supply of liquidity that has
been so important for recent stock market performance. On the other hand,
optimists hold that slower economic growth, while perhaps placing earnings
temporarily at risk, would forestall aggressive tightening by the Fed and
eventually set the stage for lower interest rates. They also point to the fact
that stocks do not appear expensive if consensus earnings forecasts are
evaluated relative to interest rates and observed inflation. The second quarter
earnings reports probably hold the key to short-term equity performance. If the
majority of earnings announcements meet or exceed analyst estimates, the
downside risk of holding stocks should be limited.
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<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ---------------------------------------------------------------------------
<S> <C>
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES................................................ 4
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES............. 15
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES............. 25
</TABLE>
-3-
<PAGE> 5
THE TRAVELERS
GROWTH AND INCOME
STOCK ACCOUNT
FOR VARIABLE ANNUITIES
The Travelers Growth and Income Stock Account for Variable Annuities ("Account
GIS") is managed by the The Travelers Investment Management Company ("TIMCO").
TIMCO's approach to equity management is designed to provide diversified
exposure to the large capitalization segment of the U.S. equity market. TIMCO
selects stocks with a primarily quantitative screening process that seeks
attractive relative value and earnings growth. In order to achieve consistent
relative performance, TIMCO manages Account GIS to mirror the overall risk,
sector weightings and growth/value style characteristics of the Standard &
Poor's 500 Stock Index ("S&P 500").
For the first six months of 1996, Account GIS achieved a total return of
approximately 11.0%, before fees and expenses, outperforming the S&P 500 total
return of 10.1%. Net of fees and expenses, Account GIS's year-to-date return of
10.1% compared favorably to the 8.9% average total return for variable annuity
accounts in the Lipper Growth & Income category.
During the first half of 1996, stock selection in the consumer discretionary,
staples and finance sectors made the strongest positive contribution to our
performance. In the consumer discretionary sector, the portfolio benefited from
exposure to a number of retailing and apparel stocks, including The GAP,
Price/Costco, Sears and Nike, that moved sharply higher in response to improving
sales trends. Stock selection also proved to be successful in the staples
sector, with the help of positions in Coca-Cola Co. and PepsiCo, which benefited
from the general market rotation into stable growth issues. In the finance
sector, stock selection in the consumer finance and bank groups contributed
positively, most notably from positions in Green Tree Financial, Household
International and Citicorp. In the technology sector, we largely stepped around
a minefield of earnings disappointments in the semiconductor group and achieved
a positive contribution to portfolio performance through holdings in Andrew
Corp., Western Digital and Sun Microsystems.
The equity market has been under selling pressure thus far in the third quarter.
We expect the equity market to be volatile until investors work through a number
of factors felt to be bearish for stocks, including the fear of an imminent
Federal Reserve Board's tightening, a handful of highly visible second quarter
earnings disappointments, a sharp selloff in the technology group and
diminishing mutual fund inflows. However, we do not see the levels of
overvaluation that in the past have preceded major bear markets, and therefore
believe that the current pullback in the equity market is likely to be limited.
Consistent with our disciplined approach to stock selection, we continue to
focus on stocks that exhibit improving fundamentals (primarily gauged through
analyst's earnings estimate revisions and earnings surprise trends), but which
also trade at a reasonable price to earnings ratio relative to expected earnings
growth rates.
PORTFOLIO MANAGERS: SANDIP A. BHAGAT, CFA - JACOB E. HURWITZ,
CFA - KENT A. KELLEY, CFA
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<PAGE> 6
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $361,777,820)...... $ 463,515,754
Cash....................................................................... 1,106
Receivables:
Dividends............................................................... 759,332
Interest................................................................ 93,993
Purchase payments and transfers from other Travelers accounts........... 365,802
Variation on futures margin............................................. 80,625
Other assets............................................................... 26,159
--------------
Total Assets......................................................... 464,842,771
--------------
LIABILITIES:
Payables:
Investment securities purchased......................................... 514,368
Contract surrenders and transfers to other Travelers accounts........... 176,800
Investment management and advisory fees................................. 34,103
Accrued liabilities........................................................ 88,449
--------------
Total Liabilities.................................................... 813,720
--------------
NET ASSETS.................................................................... $ 464,029,051
==============
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 7
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 4,442,108
Interest................................................... 323,294
--------------
Total income............................................ $ 4,765,402
EXPENSES:
Investment management and advisory fees.................... 997,847
Insurance charges.......................................... 2,548,640
--------------
Total expenses.......................................... 3,546,487
--------------
Net investment income................................ 1,218,915
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 171,560,357
Cost of investment securities sold...................... 147,314,435
--------------
Net realized gain.................................... 24,245,922
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.................... 84,623,392
Unrealized gain at June 30, 1996........................ 101,737,934
--------------
Net change in unrealized gain for the period......... 17,114,542
--------------
Net realized gain and change in unrealized gain .. 41,360,464
--------------
Net increase in net assets resulting from operations....... $ 42,579,379
==============
</TABLE>
See Notes to Financial Statements
-6-
<PAGE> 8
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 1,218,915 $ 3,305,259
Net realized gain from investment security transactions....... 24,245,922 37,951,859
Net change in unrealized gain on investment securities........ 17,114,542 71,724,212
-------------- --------------
Net increase in net assets resulting from operations....... 42,579,379 112,981,330
-------------- --------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 1,393,219 and 2,505,561 units, respectively) 13,791,849 20,576,327
Participant transfers from other Travelers accounts
(applicable to 1,830,248 and 2,758,216 units, respectively) 18,019,024 23,120,885
Administrative charges
(applicable to 17,016 and 39,010 units, respectively)...... (174,016) (345,103)
Contract surrenders
(applicable to 1,385,505 and 3,134,685 units, respectively) (13,786,948) (26,235,475)
Participant transfers to other Travelers accounts
(applicable to 1,878,137 and 3,616,329 units, respectively) (18,564,131) (29,697,410)
Other payments to participants
(applicable to 94,813 and 138,390 units, respectively)..... (946,359) (1,142,807)
-------------- --------------
Net decrease in net assets resulting from unit transactions (1,660,581) (13,723,583)
-------------- --------------
Net increase in net assets.............................. 40,918,798 99,257,747
NET ASSETS:
Beginning of period........................................... 423,110,253 323,852,506
-------------- --------------
End of period................................................. $ 464,029,051 $ 423,110,253
============== ==============
</TABLE>
See Notes to Financial Statements
-7-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Growth and Income Stock Account for Variable Annuities
("Account GIS") 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 annuity contracts issued
by The Travelers. Account GIS is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment
company.
The following is a summary of significant accounting policies
consistently followed by Account GIS in the preparation of its financial
statements.
SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last-reported sale price as of the
close of business of the New York Stock Exchange on the last business day of
the period; 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.
When market quotations are not considered to be readily available for
long-term corporate bonds and notes, such investments are generally stated
at fair value on the basis of valuations furnished by a pricing service.
These valuations are determined for normal institutional-size trading units
of such securities using methods based on market transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Securities, including restricted
securities, for which pricing services are not readily available are valued
by management at prices which it deems in good faith to be fair.
Short-term investments for which a quoted market price is available are
valued at market. Short-term investments for which there is no reliable
quoted market price are valued by computing a market value based upon
quotations from dealers or issuers for securities of a similar type, quality
and maturity.
FUTURES CONTRACTS. Account GIS may use stock index futures contracts as
a substitute for the purchase or sale of individual securities. When Account
GIS enters into a futures contract, it agrees to buy or sell a specified
index of stocks at a future time for a fixed price, unless the contract is
closed prior to expiration. Account GIS is obligated to deposit with a
broker an "initial margin" equivalent to a percentage of the face, or
notional value of the contract.
It is Account GIS's practice to hold cash and cash equivalents in an amount
at least equal to the notional value of outstanding purchased futures
contracts, less the initial margin. Cash and cash equivalents include cash
on hand, securities segregated under federal and brokerage regulations, and
short-term highly liquid investments with maturities generally three months
or less when purchased. Generally, futures contracts are closed prior to
expiration.
Futures contracts purchased by Account GIS are priced and settled daily;
accordingly, changes in daily prices are recorded as realized gains or
losses and no asset is recorded in the Statement of Investments. However,
when Account GIS holds open futures contracts, it assumes a market risk
generally equivalent to the underlying market risk of change in the value of
the specified indexes associated with the futures contract.
OPTIONS. Account GIS may purchase index or individual equity put or call
options, thereby obtaining the right to sell or buy a fixed number of shares
of the underlying asset at the stated price on or before the stated
expiration date. Account GIS may sell the options before expiration. Options
held by Account GIS are listed on either national securities exchanges or on
over-the-counter markets, and are short-term contracts with a duration of
less than nine months. The market value of the options will be the latest
sale price as of the close of business of the New York Stock Exchange, or in
the absence of such sale, the latest bid quotation.
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<PAGE> 10
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
REPURCHASE AGREEMENTS. When Account GIS enters into a repurchase
agreement (a purchase of securities whereby the seller agrees to repurchase
the securities at a mutually agreed upon date and price), the repurchase
price of the securities will generally equal the amount paid by Account GIS
plus a negotiated interest amount. The seller under the repurchase agreement
will be required to provide to Account GIS securities (collateral) whose
market value, including accrued interest, will be at least equal to 102% of
the repurchase price. Account GIS monitors the value of collateral on a
daily basis. Repurchase agreements will be limited to transactions with
national banks and reporting broker dealers believed to present minimal
credit risks. Account GIS's custodian will take actual or constructive
receipt of all securities underlying repurchase agreements until such
agreements expire.
FEDERAL INCOME TAXES. The operations of Account GIS 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 and capital gains of Account GIS.
Account GIS 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. Interest income is recorded on
the accrual basis.
2. INVESTMENTS
Purchases and sales of securities other than short-term investments
aggregated $157,105,342 and $167,327,042 respectively, for the six months
ended June 30, 1996. Realized gains and losses from security transactions
are reported on an identified cost basis.
Account GIS placed a portion of its security transactions with brokerage
firms which are affiliates of The Travelers. The commissions paid to these
affiliated firms were $44,121 and $70,759 for the six months ended June 30,
1996 and the year ended December 31, 1995, respectively.
At June 30, 1996, Account GIS held 43 open S&P 500 Stock Index futures
contracts with a maturity date of September 20, 1996. The underlying face
value, or notional value, of these contracts at June 30, 1996, amounted to
$14,551,200. In connection with these contracts, short-term investments with
a par value of $605,000 had been pledged as margin deposits.
Net realized gains resulting from futures contracts were $345,688 and
$2,884,399 for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively. These gains are included in the net
realized gain from investment security transactions on both the Statement of
Operations and the Statement of Changes in Net Assets. The cash settlement
for June 30, 1996 is shown on the Statement of Assets and Liabilities as a
receivable for variation on futures margin.
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<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
3. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at an
annual rate of 0.45% of Account GIS's average net assets. These fees are
paid to The Travelers Investment Management Company, an indirect wholly
owned subsidiary of Travelers Group Inc.
Insurance charges are paid to The Travelers for the mortality and
expense risks assumed by The Travelers. On contracts issued prior to May 16,
1983, these charges are equivalent to 1.0017% of the average net assets of
Account GIS on an annual basis. On contracts issued on or after May 16,
1983, the charges for mortality and expense risks are equivalent to 1.25% of
the average net assets of Account GIS on an annual basis. Additionally, for
certain contracts in the accumulation phase, a semi-annual charge of $15
(prorated for partial periods) is deducted from participant account balances
and paid to The Travelers to cover administrative charges.
On contracts issued prior to May 16, 1983, The Travelers retained from
Account GIS sales charges of $27,677 and $40,106 for the six months ended
June 30, 1996 and the year ended December 31, 1995, respectively. The
Travelers generally assesses a 5% contingent deferred sales charge if a
participant's purchase payment is surrendered within five years of its
payment date. Contract surrender payments are stated prior to the deduction
of $78,185 and $189,214 of contingent deferred sales charges for the six
months ended June 30, 1996 and the year ended December 31, 1995,
respectively.
4. NET ASSETS HELD BY AFFILIATE
Approximately $11,595,000 and $10,733,000 of the net assets of Account
GIS were held on behalf of an affiliate of The Travelers as of June 30, 1996
and December 31, 1995, respectively. Transactions with this affiliate during
the six months ended June 30, 1996 and the year ended December 31, 1995,
were comprised of participant purchase payments of approximately $75,000 and
$427,000 and contract surrenders of approximately $286,000 and $560,000,
respectively.
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May
16, 1983............................................ 16,838,093 $ 10.653 $ 179,373,774
Annuity phase of contracts issued prior to May 16,
1983................................................ 407,976 10.653 4,346,111
Accumulation phase of contracts issued on or after May
16, 1983............................................ 27,124,646 10.311 279,670,623
Annuity phase of contracts issued on or after May 16,
1983................................................ 61,931 10.311 638,543
--------------
Net Contract Owners' Equity................................................ $ 464,029,051
==============
</TABLE>
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<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
6. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each period.)
<TABLE>
<CAPTION>
Contracts issued prior to May 16, 1983 SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- ----------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .108 $ .208 $ .192 $ .189 $ .192 $ .201
Operating expenses.......................... .073 .123 .100 .092 .085 .077
-------- -------- -------- --------- -------- --------
Net investment income....................... .035 .085 .092 .097 .107 .124
Unit value at beginning of period........... 9.668 7.120 7.194 6.664 6.587 5.145
Net realized and change in unrealized
gains (losses)............................ .950 2.463 (.166) .433 (.030) 1.318
-------- -------- -------- --------- -------- --------
Unit value at end of period................. $10.653 $ 9.668 $ 7.120 $ 7.194 $ 6.664 $ 6.587
======== ======== ======== ========= ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value....... $ .99 $ 2.55 $ (.07) $ .53 $ .08 $ 1.44
Ratio of operating expenses to average net
assets.................................... 1.45 %* 1.45 % 1.41 % 1.33 % 1.33 % 1.33 %
Ratio of net investment income to average
net assets................................ .68 %* 1.02 % 1.30 % 1.40 % 1.67 % 2.11 %
Number of units outstanding at end of
period (thousands)........................ 17,246 17,896 19,557 21,841 22,516 24,868
Portfolio turnover rate..................... 36 % 96 % 103 % 81 % 189 % 319 %
Average commission rate paid+............... $ .0470 - - - - -
<CAPTION>
Contracts issued on or after May 16, 1983 SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- ----------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .106 $ .205 $ .189 $ .184 $ .188 $ .198
Operating expenses.......................... .084 .140 .115 .106 .098 .091
-------- -------- -------- -------- -------- --------
Net investment income....................... .022 .065 .074 .078 .090 .107
Unit value at beginning of period........... 9.369 6.917 7.007 6.507 6.447 5.048
Net realized and change in unrealized
gains (losses)............................ .920 2.387 (.164) .422 (.030) 1.292
-------- -------- -------- -------- -------- --------
Unit value at end of period................. $10.311 $ 9.369 $ 6.917 $ 7.007 $ 6.507 $ 6.447
======== ======== ======== ======== ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value....... $ .94 $ 2.45 $ (.09) $ .50 $ .06 $ 1.40
Ratio of operating expenses to average net
assets.................................... 1.70 %* 1.70 % 1.65 % 1.57 % 1.58 % 1.58 %
Ratio of net investment income to average
net assets................................ .44 %* .79 % 1.05 % 1.15 % 1.43 % 1.86 %
Number of units outstanding at end of
period (thousands)........................ 27,187 26,688 26,692 28,497 29,661 26,235
Portfolio turnover rate..................... 36 % 96 % 103 % 81 % 189 % 319 %
Average commission rate paid+............... $ .0470 - - - - -
</TABLE>
* Annualized.
+ Calculated by dividing the total dollar amount of commissions paid for equity
securities by the total number of shares purchased and sold during the period.
-11-
<PAGE> 13
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------- -------------
<S> <C> <C>
COMMON STOCKS (96.6%)
AMUSEMENTS (1.6%)
Mirage Resorts, Inc. (A) 39,800 $ 2,149,200
Walt Disney Co. 85,555 5,379,270
--------------
7,528,470
--------------
BANKING (6.3%)
Banc One Corp. 34,740 1,181,160
Bank of Boston Corp. 10,300 509,850
Bank of New York Co., Inc. 16,600 850,750
BankAmerica Corp. 33,400 2,530,050
Barnett Banks, Inc. 8,500 518,500
Chase Manhattan Corp. 60,752 4,290,610
Citicorp 65,300 5,395,412
Golden West Financial Corp. 22,700 1,271,200
Mellon Bank Corp. 11,600 661,200
NationsBank Corp. 40,000 3,305,000
Norwest Corp. 91,500 3,191,063
Star Banc Corp. 22,200 1,495,725
SunTrust Banks, Inc. 56,600 2,094,200
Wells Fargo & Co. 8,833 2,109,983
--------------
29,404,703
--------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (13.2%)
Abbott Laboratories 69,900 3,040,650
American Home Products Corp. 41,100 2,471,137
Amgen Inc. (A) 24,200 1,303,775
Bristol-Myers Squibb Co. 59,400 5,346,000
Cabot Corp. 15,900 389,550
Dow Chemical Co. 24,000 1,824,000
E.I. Dupont de Nemours & Co. 48,600 3,845,475
Eastman Chemical Co. 24,700 1,503,613
Eli Lilly & Co. 49,700 3,230,500
Hercules, Inc. 32,400 1,790,100
Johnson & Johnson 153,600 7,603,200
Merck & Co., Inc. 108,800 7,031,200
Monsanto Co. 53,000 1,722,500
Morton International, Inc. 46,400 1,728,400
Pfizer, Inc. 55,800 3,982,725
Pharmacia & Upjohn, Inc. 45,400 2,014,625
Procter & Gamble Co. 77,700 7,041,562
Schering-Plough Corp. 61,400 3,852,850
Warner-Lambert Co. 22,800 1,254,000
--------------
60,975,862
--------------
COMMUNICATION (7.9%)
Ameritech Corp. 49,800 2,956,875
AT&T Corp. 168,900 10,471,800
Bell Atlantic Corp. 40,100 2,556,375
BellSouth Corp. 90,100 3,817,987
GTE Corp. 74,800 3,347,300
MCI Communications Corp. 54,500 1,393,156
NYNEX Corp. 57,000 2,707,500
Pacific Telesis Group 31,200 1,053,000
Sprint Corp. 30,500 1,281,000
SBC Communications, Inc. 73,800 3,634,650
Tele-Communications Int'l (A) 28,800 520,200
360 Communications Company (A) 10,166 243,984
U S West Communications Group 16,400 522,750
U S West Media Group (A) 42,800 781,100
Viacom International, Inc. (A) 33,900 1,317,863
--------------
36,605,540
--------------
CONSTRUCTION (0.3%)
Toll Brothers, Inc. (A) 76,800 1,257,600
--------------
CONTRACTORS (0.8%)
Fluor Corp. 29,500 1,928,562
Halliburton Co. 32,500 1,803,750
--------------
3,732,312
--------------
ELECTRICAL AND
ELECTRONIC MACHINERY (6.7%)
Amphenol Corp. (A) 67,500 1,552,500
Andrew Corp. (A) 29,400 1,591,275
General Electric Co. 148,500 12,845,250
Intel Corp. 72,100 5,294,844
KEMET Corp. (A) 49,000 986,125
LSI Logic Corp. (A) 59,600 1,549,600
Micron Technology, Inc. 19,400 501,975
Motorola, Inc. 39,200 2,464,700
Raychem Corp. 27,550 1,980,156
Tellabs, Inc. (A) 7,700 514,938
Texas Instruments, Inc. 15,700 783,037
Time Warner, Inc. 26,700 1,047,975
--------------
31,112,375
--------------
FINANCE (3.9%)
Advanta Corp. 27,500 1,397,344
American Express Co. 43,800 1,954,575
Dean Witter Discover & Co. 26,100 1,494,225
Federal Home Loan Mortgage Corp. 16,800 1,436,400
Federal National Mortgage
Association 98,000 3,283,000
Green Tree Financial Co. 102,100 3,190,625
Household International 27,900 2,120,400
Merrill Lynch & Co., Inc. 14,800 963,850
Morgan Stanley Group, Inc. 14,200 697,575
Student Loan Marketing Association 23,000 1,702,000
--------------
18,239,994
--------------
FOOD (7.9%)
Campbell Soup Co. 19,000 1,339,500
Coca-Cola Co. 214,000 10,459,250
ConAgra, Inc. 52,300 2,373,112
CPC International, Inc. 30,700 2,210,400
General Mills, Inc. 14,500 790,250
Kellogg Co. 16,050 1,175,662
PepsiCo, Inc. 219,000 7,747,125
Philip Morris, Inc. 79,000 8,216,000
Seagram Co. Ltd. 28,300 951,588
Unilever N.V. 12,100 1,756,013
--------------
37,018,900
--------------
HOTELS & LODGING (0.9%)
Hilton Hotels Corp. 17,000 1,912,500
ITT Corp. (A) 30,800 2,040,500
--------------
3,953,000
--------------
</TABLE>
-12-
<PAGE> 14
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
---------- --------------
<S> <C> <C>
INSURANCE (3.3%)
Aetna Life & Casualty Co. 9,500 $ 679,250
Allstate Corp. 29,175 1,331,109
American International Group 42,050 4,147,181
Chubb Corp. 32,600 1,625,925
General Reinsurance Corp. 23,200 3,532,200
ITT Hartford Group, Inc. 54,400 2,896,800
U.S. Healthcare, Inc. 1,800 98,888
United HealthCare Corp. 15,300 772,650
--------------
15,084,003
--------------
LUMBER AND WOOD PRODUCTS (0.5%)
Georgia-Pacific Corp. 23,200 1,647,200
Weyerhaeuser Co. 17,700 752,250
--------------
2,399,450
--------------
MACHINERY (5.2%)
Apple Computer, Inc. 10,000 209,375
Black & Decker Corp. 32,300 1,247,588
Caterpillar, Inc. 18,000 1,219,500
Cisco Systems, Inc. (A) 70,900 4,019,143
Deere & Co. 54,500 2,180,000
Digital Equipment Corp. (A) 17,600 792,000
Harnischfeger Industries 43,400 1,443,050
Hewlett Packard Co. 44,400 4,423,350
International Business Machines Corp. 40,800 4,039,200
Silicon Graphics, Inc. (A) 60,500 1,452,000
Sun Microsystems (A) 37,900 2,231,363
Tenneco, Inc. 14,900 761,762
--------------
24,018,331
--------------
METAL PRODUCTS (1.1%)
Bethlehem Steel Corp. (A) 96,000 1,140,000
Nucor Corp. 7,800 394,875
Phelps Dodge Corp. 19,400 1,210,075
Reynolds Metals Co. 27,900 1,454,288
USX-U.S. Steel Group 24,400 692,350
--------------
4,891,588
--------------
MINING (0.5%)
Freeport-McMoRan Copper & Gold 24,900 793,687
Homestake Mining Co. 86,200 1,476,175
--------------
2,269,862
--------------
MISCELLANEOUS MANUFACTURING (3.4%)
Boston Scientific Corp. (A) 57,155 2,571,975
Eastman Kodak Co. 28,900 2,246,975
Emerson Electric Co. 36,200 3,271,575
Honeywell, Inc. 37,500 2,043,750
Mattel, Inc. 72,000 2,061,000
Medtronics, Inc. 36,800 2,060,800
Xerox Corp. 27,000 1,444,500
--------------
15,700,575
--------------
OIL & GAS (0.8%)
Anadarko Petroleum 32,100 1,861,800
Schlumberger Ltd. 22,000 1,853,500
--------------
3,715,300
--------------
PAPER AND ALLIED PRODUCTS (1.5%)
Champion International Corp. 39,700 1,657,475
Kimberly Clark Corp. 44,030 3,401,317
Mead Corp. 5,400 280,125
Willamette Industries, Inc. 28,000 1,662,500
--------------
7,001,417
--------------
PETROLEUM REFINING AND
RELATED INDUSTRIES (7.4%)
Amoco Corp. 59,200 4,284,600
Atlantic Richfield Co. 14,000 1,659,000
Chevron Corp. 35,700 2,106,300
Exxon Corp. 107,600 9,347,750
Kerr McGee Corp. 38,200 2,325,425
Mobil Corp. 56,800 6,368,700
Phillips Petroleum Co. 22,200 929,625
Royal Dutch Petroleum Co. 33,500 5,150,625
Texaco, Inc. 23,300 1,954,288
--------------
34,126,313
--------------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES ( .9%)
Gannet Co. 31,400 2,221,550
New York Times Co. 60,700 1,980,338
--------------
4,201,888
--------------
RETAIL (6.3%)
Federated Department Stores, Inc. (A) 75,600 2,579,850
General Nutrition Cos., Inc. (A) 103,500 1,804,781
Home Depot, Inc. 44,566 2,406,564
May Department Stores 50,500 2,209,375
McDonalds Corp. 55,800 2,608,650
OfficeMax, Inc. (A) 92,500 2,208,438
Payless ShoeSource, Inc. (A) 8,080 256,540
Price/Costco, Inc. (A) 120,100 2,582,150
Safeway, Inc. (A) 26,310 868,230
Sears Roebuck & Co. 83,000 4,035,875
The GAP, Inc. 74,200 2,383,675
Vons Cos. (A) 35,190 1,315,226
Wal-Mart Stores, Inc. 155,000 3,933,125
--------------
29,192,479
--------------
RUBBER AND PLASTIC PRODUCTS (0.6%)
Nike, Inc. 27,900 2,866,725
--------------
SERVICES (3.9%)
American Online, Inc. (A) 37,900 1,653,388
Automatic Data Process 27,500 1,062,188
Columbia/HCA Healthcare Corp. 39,400 2,102,975
Computer Associates International 33,850 2,411,812
First Data Corp. 19,600 1,560,650
Microsoft Corp.(A) 52,900 6,351,306
Omnicom Group, Inc. 22,700 1,055,550
Oracle Corp. (A) 57,150 2,253,853
--------------
18,451,722
--------------
STONE, CLAY, GLASS, AND
CONCRETE PRODUCTS (0.6%)
Minnesota Mining & Manufacturing Co. 37,400 2,580,600
--------------
</TABLE>
-13-
<PAGE> 15
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------- --------------
<S> <C> <C>
TRANSPORTATION (1.3%)
AMR Corp. 20,900 $ 1,901,900
Burlington Northern Santa Fe 21,800 1,763,075
Norfolk Southern Corp. 11,400 966,150
Union Pacific Corp. 18,900 1,320,638
--------------
5,951,763
--------------
TRANSPORTATION MANUFACTURING (4.8%)
Boeing Co. 47,000 4,094,875
Chrysler Corp. 42,200 2,616,400
Eaton Corp. 24,600 1,442,175
Ford Motor Co. 101,000 3,269,875
General Motors Corp. 61,400 3,215,825
ITT Industries, Inc. 24,000 603,000
Lockheed Martin Corp. 17,639 1,481,676
McDonnell Douglas Corp. 46,200 2,240,700
United Technologies Corp. 27,700 3,185,500
--------------
22,150,026
--------------
UTILITIES (4.3%)
Baltimore Gas & Electric Co. 83,100 2,357,963
Browning-Ferris Industries 19,700 571,300
Consolidated Natural Gas Co. 60,200 3,145,450
Duke Power Co. 18,000 922,500
Duquesne Light Co. 65,500 1,801,250
Florida Power & Light Co. 61,400 2,824,400
Houston Industries 23,400 576,225
Pacific Enterprises 20,200 598,425
Southern Co. 128,300 3,159,387
Texas Utilities Co. 63,000 2,693,250
WMX Technologies, Inc. 43,500 1,424,625
--------------
20,074,775
--------------
WHOLESALE TRADE (0.7%)
Crane Co. 36,900 1,512,900
Enron Corp. 43,600 1,782,150
--------------
3,295,050
--------------
TOTAL COMMON STOCKS
(COST $346,062,320) 447,800,623
--------------
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.4%)
COMMERCIAL PAPER (2.3%)
Dillard Investment Co., Inc.,
5.38% due July 25, 1996 $ 5,000,000 4,973,927
Generale Bank,
5.24% due July 17, 1996 3,000,000 2,924,281
Pearson, Inc.,
5.40% due July 24, 1996 2,500,000 2,489,181
--------------
10,387,389
--------------
U.S. GOVERNMENT SECURITIES (0.1%)
United States of America Treasury,
5.06% due September 19, 1996 (B) 100,000 97,385
United States of America Treasury,
5.11% due September 19, 1996 (B) 50,000 48,761
United States of America Treasury,
5.13% due September 19, 1996 (B) 150,000 146,317
United States of America Treasury,
5.15% due September 19, 1996 (B) 150,000 147,746
United States of America Treasury,
5.49% due September 19, 1996 (B) 50,000 47,388
United States of America Treasury,
5.51% due September 19, 1996 (B) 150,000 142,145
--------------
629,742
--------------
REPURCHASE AGREEMENTS (1.0%)
Merrill Lynch Government
Securities, Inc., 5.25% Repurchase
Agreement dated June 28,
1996 due July 1, 1996,
collateralized by: United States of
America Treasury, $4,550,000,
7.50% due November 15, 2001 4,698,000 4,698,000
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $15,715,500) 15,715,131
--------------
<CAPTION>
NOTIONAL
VALUE
------------
<S> <C> <C>
FUTURES CONTRACTS(0.0%)
S&P 500 Stock Index,
Exp. September, 1996 (C) $14,551,200 -
--------------
TOTAL INVESTMENTS (100%)
(COST $361,777,820) (D) $463,515,754
==============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) Par value of $605,000 is pledged to cover margin deposits on futures
contracts.
-14-
<PAGE> 16
(C) As more fully discussed in Note 1 to the financial statements, it is
Account GIS's practice to hold cash and cash equivalents (including
short-term investments) at least equal to the underlying face value, or
notional value, of outstanding purchased futures contracts, less the
initial margin. Account GIS uses futures contracts as a substitute for
holding individual securities.
(D) At June 30, 1996, net unrealized appreciation for all securities was
$101,737,934. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$106,185,306 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $4,447,372.
See Notes to Financial Statements
-15-
<PAGE> 17
THE TRAVELERS
QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
Surprisingly strong consumer spending and employment growth through the first
half of the year erased the recessionary fears that dominated the bond market at
the turn of the year. The poor performance for many bond indices during the
first half of the year was the result of a strengthening economy and a rise in
interest rates. The Lehman Intermediate Government/Corporate Bond Index,
returned a negative 0.2% for the first six months of 1996. Bonds finally had a
positive monthly price performance in June.
The Quality Bond Account continued to perform well versus its peers. For the
three year period ending June 30, 1996, the account ranked number one out of
twenty-nine funds in the Lipper Variable Annuity Short/Intermediate Term
Investment Grade Debt Category. For the one year period the account ranked
number four out of fifty-six funds. Lipper Analytical Services is a leading
independent variable insurance product performance analysis service.
General corporate spread tightening and rolling down the yield curve provided
overall performance in the first half of the year. Our Illinois Power position
was particularly helped with a credit upgrade that added to the value of the
holding. AT&T Capital Corporation, however was downgraded by Moody's to Baa3
from A3 on news of its spin-off to a management led group. Neither the downgrade
nor the spin-off surprised us, but the magnitude of the ratings cut did.
Tele-Communications, Inc. also was downgraded by Moody's from Baa3 to Ba1 last
quarter. The yields on AT&T Capital Corporation increased from 0.4% over
Treasuries to 0.6%. Yields on Tele-Communications, Inc. increased .15% relative
to Treasuries. Our view of the downgrades is that Moody's was a bit conservative
and that the current pricing of these issues present good value.
We increased our percentage holdings of corporate bonds from 53% to 77%. We
continue to believe that the strong earnings and improving credit trends will
keep spreads stable over the near term. The overall credit quality of the
holdings will remain around the A level or higher.
PORTFOLIO MANAGER: F. DENNEY VOSS
-16-
<PAGE> 18
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $175,050,568)...... $ 175,121,488
Cash....................................................................... 125,277
Receivables:
Interest................................................................ 2,310,548
Purchase payments and transfers from other Travelers accounts........... 150,464
Other assets............................................................... 1,080
--------------
Total Assets......................................................... 177,708,857
--------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts........... 108,208
Investment management and advisory fees................................. 9,426
Accrued liabilities........................................................ 34,786
--------------
Total Liabilities.................................................... 152,420
--------------
NET ASSETS.................................................................... $ 177,556,437
==============
</TABLE>
See Notes to Financial Statements
-17-
<PAGE> 19
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 5,288,711
EXPENSES:
Investment management and advisory fees.................... $ 292,858
Insurance charges.......................................... 1,069,266
--------------
Total expenses.......................................... 1,362,124
--------------
Net investment income................................ 3,926,587
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 164,918,762
Cost of investment securities sold...................... 163,670,571
--------------
Net realized gain.................................... 1,248,191
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.................... 6,087,673
Unrealized gain at June 30, 1996........................ 70,920
--------------
Net change in unrealized gain for the period......... (6,016,753)
--------------
Net realized gain and change in unrealized gain... (4,768,562)
--------------
Net decrease in net assets resulting from operations....... $ (841,975)
==============
</TABLE>
See Notes to Financial Statements
-18-
<PAGE> 20
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 3,926,587 $ 9,023,430
Net realized gain from investment security transactions....... 1,248,191 1,019,178
Net change in unrealized gain (loss) on investment securities. (6,016,753) 12,716,988
-------------- --------------
Net increase (decrease) in net assets resulting from
operations (841,975) 22,759,596
-------------- --------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 2,151,204 and 3,283,550 units, respectively) 10,493,437 15,219,291
Participant transfers from other Travelers accounts
(applicable to 2,446,706 and 4,374,714 units, respectively) 11,992,815 20,342,504
Administrative charges
(applicable to 14,519 and 30,577 units, respectively)...... (70,383) (146,591)
Contract surrenders
(applicable to 1,343,251 and 3,514,833 units, respectively) (6,602,656) (16,280,761)
Participant transfers to other Travelers accounts
(applicable to 3,451,828 and 5,302,454 units, respectively) (16,805,702) (24,324,600)
Other payments to participants
(applicable to 42,572 and 146,460 units, respectively)..... (210,649) (686,680)
-------------- --------------
Net decrease in net assets resulting from unit transactions (1,203,138) (5,876,837)
-------------- --------------
Net increase (decrease) in net assets................... (2,045,113) 16,882,759
NET ASSETS:
Beginning of period........................................... 179,601,550 162,718,791
-------------- --------------
End of period................................................. $ 177,556,437 $ 179,601,550
============== ==============
</TABLE>
See Notes to Financial Statements
-19-
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Quality Bond Account for Variable Annuities ("Account QB")
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 annuity contracts issued by The
Travelers. Account QB is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The following is a summary of significant accounting policies consistently
followed by Account QB in the preparation of its financial statements.
SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last-reported sale price as of the
close of business of the New York Stock Exchange on the last business day of
the period; 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.
When market quotations are not considered to be readily available for
long-term corporate bonds and notes, such investments are generally stated
at fair value on the basis of valuations furnished by a pricing service.
These valuations are determined for normal institutional-size trading units
of such securities using methods based on market transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Securities, including restricted
securities, for which pricing services are not readily available, are valued
by management at prices which it deems in good faith to be fair.
Short-term investments for which a quoted market price is available are
valued at market. Short-term investments for which there is no reliable
quoted market price are valued by computing a market value based upon
quotations from dealers or issuers for securities of a similar type, quality
and maturity.
FUTURES CONTRACTS. Account QB may use interest rate futures contracts as a
substitute for the purchase or sale of individual securities. When Account
QB enters into a futures contract, it agrees to buy or sell specified debt
securities at a future time for a fixed price, unless the contract is closed
prior to expiration. Account QB is obligated to deposit with a broker an
"initial margin" equivalent to a percentage of the face, or notional value
of the contract.
It is Account QB's practice to hold cash and cash equivalents in an amount
at least equal to the notional value of outstanding purchased futures
contracts, less the initial margin. Cash and cash equivalents include cash
on hand, securities segregated under federal and brokerage regulations, and
short-term highly liquid investments with maturities generally three months
or less when purchased. Generally, futures contracts are closed prior to
expiration.
Futures contracts purchased by Account QB are priced and settled daily;
accordingly, changes in daily prices are recorded as realized gains or
losses and no asset is recorded in the Statement of Investments. However,
when Account QB holds open futures contracts, it assumes a market risk
generally equivalent to the underlying market risk of change in the value of
the debt securities associated with the futures contract.
REPURCHASE AGREEMENTS. When Account QB enters into a repurchase agreement (a
purchase of securities whereby the seller agrees to repurchase the
securities at a mutually agreed upon date and price), the repurchase price
of the securities will generally equal the amount paid by Account QB plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Account QB securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Account QB monitors the value of collateral on a daily
basis. Repurchase agreements will be limited to transactions with national
banks and reporting broker dealers believed to present minimal credit risks.
Account QB's custodian will take actual or constructive receipt of all
securities underlying repurchase agreements until such agreements expire.
-20-
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
FEDERAL INCOME TAXES. The operations of Account QB 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 and capital gains of Account QB. Account QB
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. Interest income
is recorded on the accrual basis.
2. INVESTMENTS
Purchases and sales of securities other than short-term investments
aggregated $84,563,660 and $92,546,641, respectively, for bonds; purchases
and sales of direct and indirect U.S. government obligations were
$67,191,768 and $56,419,758, respectively, for the six months ended June 30,
1996. Realized gains and losses from security transactions are reported on
an identified cost basis.
Account QB placed a portion of its security transactions with brokerage
firms which are affiliates of The Travelers. The commission paid to these
affiliated firms was $14,250 for the year ended December 31, 1995.
3. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at an annual
rate of 0.3233% of Account QB's average net assets. These fees are paid to
Travelers Asset Management International Corporation, an indirect wholly
owned subsidiary of Travelers Group Inc.
Insurance charges are paid to The Travelers for the mortality and expense
risks assumed by The Travelers. On contracts issued prior to May 16, 1983,
these charges are equivalent to 1.0017% of the average net assets of Account
QB on an annual basis. On contracts issued on or after May 16, 1983, the
charges for mortality and expense risks are equivalent to 1.25% of the
average net assets of Account QB on an annual basis. Additionally, for
certain contracts in the accumulation phase, a semi-annual charge of $15
(prorated for partial periods) is deducted from participant account balances
and paid to The Travelers to cover administrative charges.
On contracts issued prior to May 16, 1983, The Travelers retained from
Account QB sales charges of $7,475 and $20,292 for the six months ended June
30, 1996 and the year ended December 31, 1995, respectively. The Travelers
generally assesses a 5% contingent deferred sales charge if a participant's
purchase payment is surrendered within five years of its payment date.
Contract surrender payments are stated prior to the deduction of $33,728 and
$108,615 of contingent deferred sales charges for the six months ended June
30, 1996 and the year ended December 31, 1995, respectively.
-21-
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
4. NET ASSETS HELD BY AFFILIATE
Approximately $932,000 and $755,000 of the net assets of Account QB were
held on behalf of an affiliate of The Travelers as of June 30, 1996 and
December 31, 1995, respectively. Transactions with this affiliate during the
six months ended June 30, 1996 and the year ended December 31, 1995, were
comprised of participant purchase payments of approximately $200,000 and
$17,000, and contract surrenders of approximately $20,000 and $86,000,
respectively.
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May
16, 1983............................................ 8,925,085 $ 5.034 $ 44,937,649
Annuity phase of contracts issued prior to May 16,
1983................................................ 55,032 5.034 277,083
Accumulation phase of contracts issued on or after
May 16, 1983........................................ 27,147,016 4.872 132,293,220
Annuity phase of contracts issued on or after May 16,
1983................................................ 9,949 4.872 48,485
-------------
Net Contract Owners' Equity................................................ $177,556,437
=============
</TABLE>
-22-
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
6. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each period.)
<TABLE>
<CAPTION>
Contracts issued prior to May 16, 1983 SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- -----------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .147 $ .328 $ .318 $ .306 $ .317 $ .304
Operating expenses.......................... .033 .063 .059 .058 .050 .048
-------- ------- -------- -------- ------- -------
Net investment income....................... .114 .265 .259 .248 .267 .256
Unit value at beginning of
period.................................... 5.050 4.400 4.498 4.150 3.880 3.421
Net realized and change in unrealized
gains (losses)............................ (.130) .385 (.357) .100 .003 .203
-------- ------- -------- -------- ------- --------
Unit value at end of period................. $ 5.034 $5.050 $ 4.400 $ 4.498 $4.150 $ 3.880
======== ======= ======== ======== ======= ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value....... $ (.02) $ .65 $ (.10) $ .35 $ .27 $ .46
Ratio of operating expenses to average net
assets.................................... 1.33 %* 1.33 % 1.33 % 1.33 % 1.33 % 1.33 %
Ratio of net investment income to average
net assets................................ 4.55 %* 5.54 % 5.87 % 5.66 % 6.61 % 7.09 %
Number of units outstanding at end of
period (thousands)........................ 8,980 9,325 10,694 12,489 13,416 14,629
Portfolio turnover rate..................... 85 % 138 % 27 % 24 % 23 % 21 %
<CAPTION>
Contracts issued on or after May 16, 1983 SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- -----------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .142 $ .319 $ .310 $ .299 $ .311 $ .299
Operating expenses.......................... .038 .073 .069 .067 .061 .056
-------- ------- -------- -------- -------- --------
Net investment income....................... .104 .246 .241 .232 .250 .243
Unit value at beginning of
period.................................... 4.894 4.274 4.381 4.052 3.799 3.357
Net realized and change in unrealized
gains (losses)............................ (.126) .374 (.348) .097 .003 .199
-------- ------- -------- -------- -------- --------
Unit value at end of period................. $ 4.872 $ 4.894 $ 4.274 $ 4.381 $ 4.052 $ 3.799
======== ======= ======== ======== ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value....... $ (.02) $ .62 $ (.11) $ .33 $ .25 $ .44
Ratio of operating expenses to average net
assets.................................... 1.57 %* 1.57 % 1.57 % 1.57 % 1.58 % 1.57 %
Ratio of net investment income to average
net assets................................ 4.30 %* 5.29 % 5.62 % 5.41 % 6.38 % 6.84 %
Number of units outstanding at end of
period (thousands)........................ 27,157 27,066 27,033 28,472 20,250 17,211
Portfolio turnover rate..................... 85 % 138 % 27 % 24 % 23 % 21 %
</TABLE>
* Annualized.
-23-
<PAGE> 25
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
<TABLE>
PRINCIPAL MARKET
AMOUNT VALUE
------------ --------------
<S> <C> <C>
BONDS (77.1%)
AMUSEMENTS (3.9%)
Six Flags Entertainment,
0.00% Notes, 1999 $ 8,850,000 $ 6,903,000
--------------
BANKING (5.6%)
BankAmerica Corp.,
6.625% Notes, 2001 8,000,000 7,920,712
J.P. Morgan & Co., Inc.,
0.00% Notes, 1998 2,000,000 1,789,736
--------------
9,710,448
--------------
COMMUNICATION (0.9%)
Tele-Communications, Inc.,
9.65% Debentures, 2003 1,500,000 1,613,922
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS (7.8%)
American Southwest Financial Corp.,
9.00% Pass Through, 2018 579,851 596,788
CFAT,1995-A Certificates,
6.45% Pass Through, 1998 2,742,730 2,731,539
GNMA Backed Trust II,
8.50% Pass Through, 2018 575,597 592,691
Grand Met Investment Corp.,
0.00% Notes, 2004 10,080,000 5,799,220
GS Trust 3D,
8.00% Pass Through, 2014 219,344 222,638
Kidder Peabody
Mortgage Assets Trust 23,
9.88% Pass Through, 2019 580,357 594,250
Oxford Acceptance Corp.,
9.70% Pass Through, 2017 164,424 168,475
PB CMO Trust II,
9.20% Pass Through, 2018 454,510 463,236
Prudential Home Mortgage 1992-17,
8.00% Pass Through, 2007 2,000,000 2,033,358
Ryland Acceptance Corp.,
9.00% Pass Through, 2015 428,114 441,625
--------------
13,643,820
--------------
CREDIT CARD RECEIVABLES (5.3%)
Chase Manhattan Credit
Card Master Trust,
8.75% Pass Through, 1996 1,050,000 1,055,354
First Chicago Master Trust II,
6.25% Pass Through, 1999 1,650,000 1,654,156
Household Private Label CC MT,
1994-2 B Certificate,
8.00% Pass Through, 2003 3,500,000 3,612,032
MBNA Master Credit Card Trust 1992-1,
7.25% Pass Through, 1997 1,000,000 1,011,829
Signet Credit Card
Master Trust, 1993-4 B,
5.80% Pass Through, 1999 2,000,000 1,953,378
--------------
9,286,749
--------------
FINANCE (10.1%)
AT&T Capital Corp.,
6.10% Notes, 1998 7,200,000 7,146,302
Equitable Companies, Inc.,
7.30% Notes, 2003 5,000,000 5,002,345
Exxon Capital,
7.875% Debentures, 1997 2,000,000 2,037,960
General Motors Acceptance Corp.,
6.625% Notes, 2002 3,500,000 3,417,260
--------------
17,603,867
--------------
FOOD (2.0%)
Bacardi Martini,
5.75% Notes, 1998 3,620,000 3,558,913
--------------
FOREIGN NATIONAL GOVERNMENT (5.6%)
Kingdom of Sweden,
0.00% Notes, 2000 10,000,000 7,600,000
Republic of Austria,
0.00% Debentures, 2000 3,000,000 2,243,700
--------------
9,843,700
--------------
LUMBER AND WOOD PRODUCTS (2.6%)
Boise Cascade Corp.,
9.45% Notes, 1997 4,500,000 4,600,224
--------------
TOBACCO MANUFACTURERS (8.7%)
Nabisco, Inc.,
8.30% Notes, 1999 6,200,000 6,450,554
Philip Morris, Inc.,
6.95% Notes, 2006 8,800,000 8,813,684
--------------
15,264,238
--------------
TRANSPORTATION (2.2%)
American Airlines, Inc., 1993-A4,
6.50% Notes, 1997 1,896,000 1,896,859
Delta Airlines, Inc.,
9.25% Sinking Fund, 2007 1,858,510 1,912,705
--------------
3,809,564
--------------
UTILITIES (22.4%)
Boston Edison Co.,
5.95% Debentures, 1998 1,000,000 983,838
Carolina Power & Light Co.,
5.375% Notes, 1998 5,000,000 4,899,565
DQU II Funding,
7.23% Bonds, 1999 7,928,000 7,981,768
Florida Gas Transmission,
7.75% Notes, 1997 2,500,000 2,542,345
Hydro Quebec,
7.375% Debentures, 2003 4,000,000 4,075,000
Illinios Power Co.,
6.50% Notes, 1999 7,000,000 6,910,281
NIPSCO Capital Market, Inc.,
0.00% Bonds, 1997 4,500,000 4,111,042
Transco Energy Co.,
9.12% Notes, 1998 4,000,000 4,177,204
United Illuminating Co.,
7.375% Debentures, 1998 3,500,000 3,542,252
--------------
39,223,295
--------------
TOTAL BONDS
(COST $133,856,837) 135,061,740
--------------
</TABLE>
-24-
<PAGE> 26
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
------------ --------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
SECURITIES (12.0%)
Federal Home Loan Mortgage Corp.,
5.15% Pass Through, 2012 $ 4,567,890 $ 4,428,290
Federal Home Loan Mortgage Corp.,
6.50% Pass Through, 2025 1,985,823 1,865,063
Federal Home Loan Mortgage Corp.,
6.50% Pass Through, 2025 11,076,800 10,391,334
Federal National Mortgage
Association,
6.35% Pass Through, 2023 2,000,000 1,881,938
Federal National Mortgage
Association,
6.50% Pass Through, 2000 2,482,408 2,433,453
--------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(COST $21,583,653) 21,000,078
--------------
U.S. GOVERNMENT
SECURITIES (10.9%)
United States of America Treasury,
7.75% Notes, 1999 4,000,000 4,170,000
United States of America Treasury,
6.25% Notes, 2001 5,000,000 4,951,555
United States of America Treasury,
6.25% Notes, 2003 6,000,000 5,893,115
United States of America Treasury,
6.875% Notes, 2006 4,000,000 4,045,000
--------------
TOTAL U.S. GOVERNMENT
SECURITIES (COST $19,610,078) 19,059,670
--------------
TOTAL INVESTMENTS (100%)
(COST $175,050,568) (A) $ 175,121,488
==============
</TABLE>
NOTES
(A) At June 30, 1996, net unrealized appreciation for all securities was
$70,920. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over cost of
$2,608,875 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $2,537,955.
See Notes to Financial Statements
-25-
<PAGE> 27
THE TRAVELERS
MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
The unexpected payroll numbers in the first quarter, primarily February and
March, turned out to be a revelation and not an aberration. The U.S. economy
which many economists believed was headed into a severe slowdown, has gained
momentum and has accelerated at a growth rate of 4% to 5%. Approximately 239,000
non-farm payroll jobs were created in the month of June, and upward revisions to
April and May data brought the average monthly gain for the year to a staggering
232,000 jobs. The trend growth had been between 150,000 to 155,000 jobs in 1994.
Average hourly earnings spiked up to 0.8% in June after a downward revision in
May from 0.3% to 0.1%. The unemployment rate fell to 5.3% breaking through a
range bound of 5.4% to 5.8%. Inflation has not accelerated and continues to be
extremely favorable, despite recent gains in food and energy prices. However,
recent wage increases should start to filter through the pipeline translating
into a higher Producer Price Index and Consumer Price Index.
The Federal Reserve Board will probably look to stifle any potential increase in
inflation. Recent data has shown that a hike in the federal funds rate is
eminent. The Federal Reserve Board will act cautiously and probably increase the
federal funds rate to 5.5% at the August meeting.
The strategy in management of the account's short-term assets has changed given
the expectation that short-term rates will rise. We are shortening the
maturities into the 35 to 50 day area from the 60 to 90 day maturities. The
portfolio should benefit from higher rates, and maximize any potential increase
in the federal funds rate. The asset size of the portfolio remained stable and
the average life was shortened to 66 days from the prior quarter of 69 days.
PORTFOLIO MANAGER: EMIL J. MOLINARO JR.
-26-
<PAGE> 28
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $73,059,520)....... $ 72,977,617
Cash....................................................................... 1,024,278
Receivables:
Interest................................................................ 682,504
Purchase payments and transfers from other Travelers accounts........... 43,951
Other assets............................................................... 211
--------------
Total Assets......................................................... 74,728,561
--------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts........... 155,018
Investment management and advisory fees................................. 3,963
Accrued liabilities........................................................ 15,497
--------------
Total Liabilities.................................................... 174,478
--------------
NET ASSETS.................................................................... $ 74,554,083
==============
</TABLE>
See Notes to Financial Statements
-27-
<PAGE> 29
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 1,991,341
EXPENSES:
Investment management and advisory fees.................... $ 119,960
Insurance charges.......................................... 461,464
--------------
Total expenses.......................................... 581,424
--------------
Net investment income................................ 1,409,917
--------------
Net increase in net assets resulting from operations....... $ 1,409,917
==============
</TABLE>
See Notes to Financial Statements
-28-
<PAGE> 30
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 1,409,917 $ 3,427,447
-------------- --------------
Net increase in net assets resulting from operations....... 1,409,917 3,427,447
-------------- --------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 4,057,805 and 6,970,794 units, respectively) 8,929,077 14,864,399
Participant transfers from other Travelers accounts
(applicable to 22,508,995 and 39,907,908 units,
respectively).............................................. 49,524,242 85,226,642
Administrative charges
(applicable to 19,736 and 44,021 units, respectively)...... (43,720) (94,696)
Contract surrenders
(applicable to 2,146,196 and 5,220,626 units, respectively) (4,717,237) (11,137,360)
Participant transfers to other Travelers accounts
(applicable to 26,706,938 and 45,205,495 units, (58,725,712) (96,405,902)
respectively)..............................................
Other payments to participants
(applicable to 33,194 and 363,303 units, respectively)..... (73,895) (782,623)
-------------- --------------
Net decrease in net assets resulting from unit transactions (5,107,245) (8,329,540)
-------------- --------------
Net decrease in net assets.............................. (3,697,328) (4,902,093)
NET ASSETS:
Beginning of period........................................... 78,251,411 83,153,504
-------------- --------------
End of period................................................. $ 74,554,083 $ 78,251,411
============== ==============
</TABLE>
See Notes to Financial Statements
-29-
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Money Market Account for Variable Annuities ("Account MM")
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 annuity contracts issued by The
Travelers. Account MM is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The following is a summary of significant accounting policies consistently
followed by Account MM in the preparation of its financial statements.
SECURITY VALUATION. Short-term investments for which a quoted market price
is available are valued at market. Short-term investments for which there is
no reliable quoted market price are valued by computing a market value based
upon quotations from dealers or issuers for securities of a similar type,
quality and maturity.
REPURCHASE AGREEMENTS. When Account MM enters into a repurchase agreement (a
purchase of securities whereby the seller agrees to repurchase the
securities at a mutually agreed-upon date and price), the repurchase price
of the securities will generally equal the amount paid by Account MM plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Account MM securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Account MM monitors the value of collateral on a daily
basis. Repurchase agreements will be limited to transactions with national
banks and reporting broker dealers believed to present minimal credit risks.
Account MM's custodian will take actual or constructive receipt of all
securities underlying repurchase agreements until such agreements expire.
FEDERAL INCOME TAXES. The operations of Account MM 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 and capital gains of Account MM. Account MM
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. Interest income
is recorded on the accrual basis.
2. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at an annual
rate of 0.3233% of Account MM's net assets. These fees are paid to Travelers
Asset Management International Corporation, an indirect wholly owned
subsidiary of Travelers Group Inc.
Insurance charges are paid to The Travelers for the mortality and expense
risks assumed by The Travelers. On contracts issued prior to May 16, 1983,
these charges are equivalent to 1.0017% of the average net assets of Account
MM on an annual basis. On contracts issued on or after May 16, 1983, the
charges for mortality and expense risks are equivalent to 1.25% of the
average net assets of Account MM on an annual basis. Additionally, for
certain contracts in the accumulation phase, a semi-annual charge of $15
(prorated for partial periods) is deducted from participant account balances
and paid to The Travelers to cover administrative charges.
The Travelers assesses a 5% contingent deferred sales charge if a
participant's purchase payment is surrendered within five years of its
payment date. Contract surrender payments are stated prior to the deduction
of $51,837 and $142,783 of contingent deferred sales charges for the six
months ended June 30, 1996 and the year ended December 31, 1995,
respectively.
-30-
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
3. NET ASSETS HELD BY AFFILIATE
Approximately $2,584,000 and $1,816,000 of the net assets of Account MM were
held on behalf of an affiliate of The Travelers as of June 30, 1996 and
December 31, 1995, respectively. Transactions with this affiliate during the
six months ended June 30, 1996 and the year ended December 31, 1995, were
comprised of participant purchase payments of approximately $940,000 and
$965,000 and contract surrenders of approximately $205,000 and $72,000,
respectively.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May
16, 1983............................................ 113,321 $ 2.292 $ 259,849
Accumulation phase of contracts issued on or after May
16, 1983............................................ 33,398,327 2.218 74,126,474
Annuity phase of contracts issued on or after May 16,
1983................................................ 75,603 2.218 167,760
-------------
Net Contract Owners' Equity................................................ $ 74,554,083
=============
</TABLE>
-31-
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
5. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each period.)
<TABLE>
<CAPTION>
Contracts issued prior to May 16, 1983 SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- ------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .061 $ .130 $ .091 $ .067 $ .079 $ .120
Operating expenses.......................... .015 .030 .028 .027 .027 .026
-------- ------- -------- ------- ------- --------
Net investment income....................... .046 .100 .063 .040 .052 .094
Unit value at beginning of period........... 2.246 2.146 2.083 2.043 1.991 1.897
-------- ------- -------- ------- ------- --------
Unit value at end of period................. $ 2.292 $2.246 $ 2.146 $2.083 $2.043 $ 1.991
======== ======= ======== ======= ======= ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value.................. $ .05 $ .10 $ .06 $ .04 $ .05 $ .09
Ratio of operating expenses to average net
assets.................................... 1.33 %* 1.33 %# 1.33 % 1.33 % 1.33 % 1.33 %
Ratio of net investment income to average
net assets................................ 4.07 %* 4.61 % 2.98 % 1.93 % 2.58 % 4.90 %
Number of units outstanding at end of
period (thousands)........................ 113 206 206 218 227 262
<CAPTION>
Contracts issued on or after May 16, 1983 SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- --------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .058 $ .127 $ .087 $ .065 $ .077 $ .118
Operating expenses.......................... .017 .034 .032 .031 .031 .030
-------- -------- -------- -------- -------- --------
Net investment income....................... .041 .093 .055 .034 .046 .088
Unit value at beginning of period........... 2.177 2.084 2.029 1.995 1.949 1.861
-------- -------- -------- -------- -------- --------
Unit value at end of period................. $ 2.218 $ 2.177 $ 2.084 $ 2.029 $ 1.995 $ 1.949
======== ======== ======== ======== ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value.................. $ .04 $ .09 $ .06 $ .03 $ .05 $ .09
Ratio of operating expenses to average net
assets.................................... 1.57 %* 1.57 % 1.57 % 1.57 % 1.57 % 1.57 %
Ratio of net investment income to average
net assets................................ 3.82 %* 4.36 % 2.72 % 1.68 % 2.33 % 4.66 %
Number of units outstanding at end of
period (thousands)........................ 33,474 35,721 39,675 34,227 42,115 55,013
</TABLE>
* Annualized
-32-
<PAGE> 34
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
<TABLE>
PRINCIPAL MARKET
AMOUNT VALUE
------------ -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100%)
COMMERCIAL PAPER (96.2%)
Bankers Trust NY Corp.,
5.48% due November 12, 1996 $ 2,000,000 $ 1,944,396
Canadian Imperial Bank of Commerce,
5.33% due July 9, 1996 3,500,000 3,481,903
Cargill, Inc.,
5.33% due July 1, 1996 3,500,000 3,468,173
Citicorp,
5.10% due November 1, 1996 3,500,000 3,533,382
Dakota Ctfs. Program,
5.41% due July 23, 1996 3,000,000 2,985,223
Eastman Kodak Co.,
6.08% due April 15, 1997 3,000,000 3,043,681
First Bank FSB ND,
5.63% due October 10, 1996 3,500,000 3,500,000
General Electric Capital Corp.,
5.31% due January 16, 1997 3,500,000 3,490,384
Generale Bank,
5.24% due July 17, 1996 2,000,000 1,949,521
Knight-Ridder, Inc.,
5.35% due July 19, 1996 3,500,000 3,484,902
Morgan Stanley Group, Inc.,
5.39% due July 22, 1996 3,500,000 3,482,783
Nationsbank Corp.,
5.31% due July 16, 1996 3,500,000 3,408,731
Northern Indiana Public Service Co.,
5.51% due July 25, 1996 3,500,000 3,502,100
Pacificorp,
5.26% due September 16, 1996 3,500,000 3,491,463
PACCAR Financial Corp.,
5.90% due September 20, 1996 3,500,000 3,497,987
PHH Corp.,
5.33% due July 11, 1996 3,500,000 3,481,897
PPG Inds., Inc.,
5.35% due July 17, 1996 3,500,000 3,484,392
Progress Capital Holdings, Inc.,
5.37% due July 10, 1996 2,500,000 2,492,557
Sara Lee Corp.,
5.79% due January 13, 1997 3,000,000 2,985,020
Societe Generale,
5.21% due February 21, 1997 3,500,000 3,486,844
Toyota Motor Credit Corp.,
5.33% due July 29, 1996 3,500,000 3,500,819
Xerox Corp.,
5.33% due July 18, 1996 2,500,000 2,484,459
-------------
70,180,617
-------------
REPURCHASE AGREEMENTS (3.8%)
Merrill Lynch Government Securities, Inc.,
5.25% Repurchase Agreement
dated June 28, 1996 due July 1,
1996, collateralized by: United
States of America Treasury,
$2,710,000,
7.50% due November 15, 2001 $ 2,797,000 $ 2,797,000
-------------
TOTAL INVESTMENTS (100%)
(COST $73,059,520) $ 72,977,617
=============
</TABLE>
See Notes to Financial Statements
-33-
<PAGE> 35
Investment Advisers
-------------------
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
Hartford, Connecticut
THE TRAVELERS QUALITY BOND AND MONEY MARKET ACCOUNTS
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
Independent Accountants
-----------------------
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
Custodian
---------
THE CHASE MANHATTAN BANK, N.A.
New York, New York
The financial information included herein has been taken from the records of The
Travelers Growth and Income Stock, Quality Bond, and Money Market Accounts. This
financial information has not been audited by the Accounts' independent
accountants, who therefore express no opinion concerning its accuracy. However,
it is management's opinion that all proper adjustments have been made.
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Growth and Income Stock, Quality Bond
and Money Market Accounts. It should not be used in connection with any offer
except in conjunction with the Universal Annuity Prospectus which contains all
pertinent information, including the applicable sales commissions.
VG-137 (S/A) (6-96) Printed in U.S.A.
