<PAGE> 1
UNIVERSAL ANNUITY
SEMI-ANNUAL REPORTS
JUNE 30, 1997
[PHOTO]
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
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
[TIMCO LOGO]
The Travelers Investment Management Company ("TIMCO") provides equity
management and advisory services for The Travelers Growth and Income Stock
Account for Variable Annuities.
[TAMIC LOGO]
Travelers Asset Management International Corporation ("TAMIC") provides fixed
income management and advisory services for the following Travelers Variable
Products Separate Accounts contained in this report: The Travelers Quality Bond
Account for Variable Annuities and The Travelers Money Market Account for
Variable Annuities.
<PAGE> 3
[TRAVELERS LIFE & ANNUITY LOGO]
THE TRAVELERS VARIABLE PRODUCT SEPARATE ACCOUNTS
INVESTMENT ADVISORY COMMENTARY AS OF JUNE 30, 1997
ECONOMIC REVIEW AND OUTLOOK
Economic activity in the first quarter of 1997 showed surprising strength as
real Gross Domestic Product growth rose by 4.9%. Despite the unexpected
strength in the economy and a decline in unemployment to about 5%, reported
inflation remained low. However, the tenor of a stronger economy, reflected in
both a tight labor market and a high capacity utilization rate, sparked
concerns about future inflation and prompted an increasingly vigilant Federal
Reserve Board ("Fed") to raise short-term rates by 0.25% in March. Concerns of
higher interest rates triggered a correction in both the stock and bond markets
at the end of the first quarter.
The key economic news in the second quarter was a distinct slowdown in economic
growth and surprisingly low inflation. Both the stock and bond markets drew
relief from these developments as the prospects of further Fed tightening
receded. Interest rates fell from above 7% to 6.8% by the end of the second
quarter and the stock market embarked on a furious rally that saw prices rise
by almost 20%.
The second quarter of 1997 began with a singular focus on the future direction
of Fed action. After the increase in the federal funds rate in late March, it
was considered quite likely that rates would rise during the second quarter.
The prospects of higher rates created turmoil within the U.S. capital markets
and stocks, in particular, were hit hard in early April.
Economic data released in early May provided mounting evidence of a slower
economy and low inflation. Retail sales for April were soft and producer prices
showed a dramatic decline of 0.4%.
The inflation trend in recent months has been nothing short of remarkable,
especially in light of the low unemployment rate and high capacity utilization
rates prevalent in the U.S. economy. The Consumer Price Deflator, which is
considered to be a better inflation measure than the Consumer Price Index
("CPI"), fell to a 30-year low in May at an annual rate of 1.6%. Gains in
average hourly wages, a closely monitored signal for wage inflation, have
slowed from 4.1% to 3.5%. Commodity price indexes are declining, oil prices are
falling and the price of gold is now below $320, its lowest level in 5 years.
Most indicators suggest that inflation does not appear to be an issue at this
point.
The biggest contributing factor in the demise of inflation appears to be the
significant gains in productivity achieved over the last few years. It is
widely acknowledged that conventional measures of productivity gains are being
understated and, under that scenario, lower-than-expected inflation may be
explained by higher-than-expected productivity gains. Several other factors
also suggest that the current disinflationary trend is likely to be both longer
lasting and global in nature. These include a high level of disinflation in the
growing technology sector, significant government downsizing and severe global
competition.
The second quarter rally in the stock and bond markets suggests that investors
have reduced their inflation expectations and, consequently, the likelihood of
further Fed tightening.
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The biggest risk to the presently benign investment climate looms on the
economic landscape. A resurgence of economic growth in the second half of the
year may prompt the Fed to act yet again on a preemptive basis to choke off
inflationary pressures. Stronger retail sales may well hold the key to a
reacceleration in third quarter economic growth. The boost in consumer spending
could come from any one of several sources: increased refinancing activity, the
wealth effect of a stronger stock market, record levels of consumer confidence
and the recent strong growth in real disposable personal income.
While the relatively high real yield levels in the bond market suggest that
bond investors still remain wary of an inflation and interest rate increase,
the stock market will clearly be vulnerable to such a development.
FIXED INCOME COMMENTARY
Bond prices also rose higher in the second quarter. The Lehman Long
Government/Corporate Index performed the best with a gain of 5.5% as interest
rates fell below 7%. The yield curve became flatter as the spread between long-
and short-term bonds narrowed by 0.20% in the quarter.
Stronger growth with low inflation has been good for bonds as it has reduced
government financing needs. The low inflation environment coupled with a
declining budget deficit provides positive support for the bond market. Going
forward, the bullish case for bonds can be attributed to a reduced budget
deficit and absence of inflation in final goods pricing. While wages may be
drifting higher, so are productivity gains due to technological improvements.
At the same time, global competition and an 8.5% year-to-date increase in the
trade weighted dollar should prevent higher product inflation. Year-over-year
Producer Price Index ("PPI") statistics show no signs of price pressures, and
CPI has been at a 2.0%-2.5% rate for the past few years. Additionally, the CPI
is generally agreed to be overstated and the government may be in the process
of gradually reducing this upward bias.
The key question for the markets will be the pace of growth in the second half
of the year and how the bond market and Fed react to it. We do not believe that
growth necessarily leads to further inflation on the finished goods side. As
long as wage growth is offset by productivity increases, higher growth with low
unemployment does not have to lead to a rise in inflation. However there is
still much debate on what the market and the Fed think about the relationship
between economic growth and inflation. If growth is above 3%, the market may
still expect higher inflation or the Fed may raise rates on a preemptive basis.
Within the fixed income markets, spreads remain tight and there is a high level
of complacency. Within the corporate market, spreads remain compressed between
different quality levels and "riskier" borrowers have access to an abundance of
capital. This condition is unlikely to change in the near term as good economic
growth has reduced the stress on weaker credits. High issues of Collatalized
Bond Obligations ("CBO") has created a new class of buyer for lower quality
issues, one that is more concerned with default likelihood than relative
pricing. Mortgage backed spreads have tightened as market volatility has been
low and prepayments have been within their predicted range. Mortgage spreads
are unlikely to widen much as long as government agencies such as Fannie Mae
and Freddie Mac are quick to arbitrage any spread widening. Corporate spreads
are likely to take their cues from the high yield and equity markets. As long
as these remain well bid for, high quality spreads should remain firm.
Historically, October has been a month when spreads have become wider and we
would therefore, not be surprised to see some modest pressure on spreads as the
fourth quarter begins.
EQUITY COMMENTARY
The U.S. stock market remains in one of the strongest bull market runs ever.
Stock prices have now doubled over the last two and a half years and almost
tripled in the last five years in an ideal investment climate of solid economic
growth, low inflation and strong corporate profits growth.
The year 1997 began on a positive note for the stock market. Fueled by strong
fourth quarter earnings and robust money flows into mutual funds, the Standard
& Poor's 500 Stock Index ("S&P 500") gained over 7% in January and February,
and continued to move to new highs in early March. However, as evidence of
unexpectedly robust economic growth came to hand, investors became increasingly
concerned about the risk of higher inflation and interest rates. The Fed raised
short-term rates in March, and long-term Treasury bond yields moved back over
the psychologically important 7% level.
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The upward spike in interest rates triggered a sharp sell-off in the stock
market during the last week of March, erasing most of the market's year-to-date
gains. For the entire first quarter, the S&P 500 edged out a 2.7% gain with
dividends. Small capitalization issues generally fared worse. During the first
three months of 1997, the Russell 2000 Stock Index declined 5.5% in value.
In sharp contrast, the second quarter of 1997 was the best quarter for the U.S.
stock market in over ten years. The stock market rally was broad in nature
lifting most stocks and indexes to record highs. The S&P 500 soared by 17.5% in
the second quarter, the Russell 2000 Stock Index rose 16.2% and the NASDAQ
index performed even better with a gain of 18.0%.
The stock market got off to a rocky start in April as the effects of the Fed
rate hike from late March rippled through the capital markets. The S&P 500 sold
off to a low of 733 and the Dow retreated to almost 6300 on April 14, 1997 as
investors focused on the likelihood of higher rates. The mood swing to optimism
was triggered by the release of solid first quarter earnings in April and the
market rally began in real earnest when inflation reports in early May showed a
significant decline in producer and consumer prices.
First quarter earnings were again ahead of expectations. The final tally on the
earnings scorecard showed that 54% of all companies reported earnings in excess
of expectations while 31% of companies disappointed relative to the consensus.
The preponderance of positive earnings surprises continues a trend which now
extends to 17 consecutive quarters and is unprecedented in terms of duration or
magnitude.
As a result of the positive surprises, first quarter earnings were 3% above
consensus and 14% above year-ago levels. According to I/B/E/S Inc., which
maintains institutional earnings forecasts, the consensus for top-down 1997 S&P
500 earnings growth is now 9% with steady upward revisions over the last few
months. However, a 20% increase in stock prices seems to more than adequately
reflect the 9% growth in earnings for 1997. Earnings growth is expected to slow
down in 1998 to about 6% as a result of difficult comparisons from 1997.
The agreement on a balanced budget in Washington and the prospects of a lower
capital gains tax added further fuel to the stock market rally in the middle of
the quarter. The flood of liquidity into the market continued unabated in the
second quarter and put more buying pressure on stocks.
TECHNOLOGY stocks set the pace for the market in the first half of 1997.
Semiconductor equipment, software, networking, and telecommunications equipment
stocks rose sharply on an improving outlook for sales and earnings.
Semiconductor stocks, on the other hand, have lagged due to concerns over
product transitions and declining estimates for second quarter earnings.
A strong rally in the HEALTH CARE sector was led by the Drug group, whose
overseas exposure and strong relative earnings growth proved extremely
attractive to investors seeking blue-chip growth stocks. These attributes also
helped CONSUMER STAPLES stocks in the household products, retail drug and
beverage groups.
ENERGY stocks have underperformed in the first half of 1997 as a result of the
effects of soft commodity prices and weakening relative earnings growth. The
integrated international oil, integrated domestic and exploration and
production groups all suffered from negative investor psychology and mixed
earnings prospects. In contrast, strong relative earnings gains continued to
buoy stocks in the oil services group.
INTEREST RATE SENSITIVE stocks turned in a mixed performance in the second
quarter. Money center banks underperformed due to interest rate jitters and
credit risk concerns, while security brokers moved up sharply amid a high level
of merger activity.
Valuations in the stock market continue to be stretched. The price-to-earnings
ratio of the S&P 500 on 12-month forward earnings now stands at 18.4 times
which is a record high over the last 25 years. By most valuation measures, the
market is between 10% and 15% overvalued. While it is difficult to point to one
specific event which will derail the roaring stock market engine, the high
valuation level of the market is likely to trigger a correction on even a small
negative surprise.
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There are no indications right now to suggest that earnings are at any great
risk in the near term. The earnings pre-announcement season at the end of the
quarter, when companies typically confess to upcoming earnings shortfalls, was
uneventful and early second quarter earnings seem to be quite strong.
There are no visible signs on the horizon that inflation is likely to flare up
in the near future. The employment cost index and hourly wage gains are likely
to be the most closely monitored gauges of expected inflation. We believe the
biggest risk on the interest rate front lies in a stronger-than-expected
economy in the second half. In fact, the Fed may be inclined to respond to
strong economic data even before it begins to affect inflation measures.
We remain cautious on the U.S. stock market. With all the good news already
reflected in stock prices, the stock market has virtually no margin for error.
We suspect that any unpleasant surprise will be enough provocation to trigger a
correction. The market will focus on earnings or interest rates for any
negative developments but any wild card surprise such as an oil price shock
could mean trouble. The positive long-term trend towards low inflation and
lower interest rates should, however, contain the downside in the stock market
and limit any correction to the traditional 10% to 15% range from prior highs.
SANDIP A. BHAGAT, CFA, PRESIDENT & CHIEF INVESTMENT OFFICER, THE TRAVELERS
INVESTMENT MANAGEMENT COMPANY
KENT A. KELLEY, CFA, THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
DAVID A. TYSON, CFA, TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
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TABLE OF CONTENTS
PAGE
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THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES . . . . . . . . . . . . . . . . . . . . . . . . . 6
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES . . . . . . . . 18
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES . . . . . . . . 28
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<PAGE> 8
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 Travelers Investment Management Company ("TIMCO") to
provide diversified exposure to the large company segment of the U.S. equity
market. Stock selection is based on a quantitative screening process favoring
companies that achieve earnings growth above consensus expectations and whose
stocks offer attractive relative value. In order to achieve consistent relative
performance, we manage 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"). The S&P 500 is a value-weighted equity index comprised
primarily of large company stocks.
For the six months ending June 30, 1997, Account GIS achieved a total return of
20.6%, before fees and expenses, in line with the S&P 500. Net of fees and
expenses, Account GIS's total return of 19.6% for the first half of 1997
compared favorably to the 15.3% average return for variable annuity stock
accounts in the Lipper Growth & Income Category. On a trailing twelve month
basis as of June 30, 1997, the Account GIS had a total return of 31.9%, net of
fees and expenses, compared to the Lipper Growth & Income Category average of
27.8%.
During the first half of 1997, stock selection in the health care, producer
durables and financial services sectors made the strongest positive
contribution to Account GIS's overall relative performance. In the health care
and pharmaceutical sectors, Account GIS benefited from positions in companies
with strong diversified sources of earnings such as Bristol-Myers Squibb,
Guidant and PhyCor. In financial services and banking, our largest relative
gain came from positions in Household International, BankAmerica Corp. and
Mellon Bank. In the capital goods sector, we were helped by overweighted
positions in Deere, Crane Company and Illinois Tool Works, all of which
performed strongly in response to upside earnings surprises. We lost ground
relative to the benchmark primarily in the technology and energy sectors. In
the technology sector, our relative performance was penalized by Account GIS
being underweighted in a number of the better performing stocks, including
Cisco and Applied Materials. We were also hurt by an overweighted position in
Read-Rite, the leading producer of magnetic recording heads used in computer
disk drive assemblies, which traded down sharply on concerns about slowing
orders from computer manufacturers.
The effort by U.S. corporations to capture leading global market positions
through productivity-enhancing measures has been critical to the U.S. equity
market's spectacular rise, and we expect more and more U.S. firms to seek
growth through a global strategy. We believe that the current economic
expansion has further to go, that inflation will remain low and that corporate
earnings will continue to grow, although perhaps more slowly than we have seen
in the past year. Thus, the bull market should remain intact. Despite all these
positives, we expect market volatility to increase through the remainder of
this market cycle. With valuations at current levels, investors are nervous and
likely to demonstrate little tolerance for any cyclical rise in inflation and
interest rates, or even hints of bad news at the individual company level. In
this environment, we believe that it is particularly important to identify
companies with sustainable earnings growth at attractive valuations across a
wide variety of industries.
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In TIMCO's disciplined approach to stock selection, we emphasize stocks that
exhibit improving fundamentals (primarily gauged by changes in analysts'
earnings estimates and the trend of recent earnings surprises), and which also
trade at a reasonable price-to-earnings ratio relative to expected earnings
growth rates. In the technology sector, we are maintaining our overweight in
LSI Logic, a leading designer and manufacturer of semiconductors used in
computer networking, telecommunications and emerging digital video systems. In
the health care and pharmaceutical sectors, we continue to emphasize
Bristol-Myers Squibb on the basis of its superior product positioning and
earnings momentum, and we remain overweighted in Guidant, a world leader in the
sale of pacemakers and other surgical devices used in the treatment of heart
disease. In the consumer sector, our focus is on diversified media companies
like The New York Times and Gannett, as well as retailers that demonstrate
above-average sales and earnings momentum, including Borders Group and TJX. In
bamking, we are currently emphasizing Mellon Bank and Northern Trust for their
diversity of earnings and leading positions in global custody services.
PORTFOLIO MANAGERS: SANDIP A. BHAGAT, CFA - JACOB E. HURWITZ, CFA -
KENT A. KELLEY, CFA
[TIMCO LOGO]
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THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $417,610,388) ............... $ 614,659,746
Cash ..................................................................... 98,052
Receivables:
Dividends ............................................................. 723,661
Investment securities sold ............................................. 13,660,936
Purchase payments and transfers from other Travelers accounts ......... 465,241
Other assets ............................................................. 31,208
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Total Assets ....................................................... 629,638,844
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LIABILITIES:
Payables:
Investment securities purchased ....................................... 16,953,588
Contract surrenders and transfers to other Travelers accounts ......... 395,182
Investment management and advisory fees ............................... 75,853
Accrued liabilities ....................................................... 196,273
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Total Liabilities ................................................. 17,620,896
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NET ASSETS ................................................................... $ 612,017,948
==================
</TABLE>
See Notes to Financial Statements
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THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends .......................................................... $ 4,841,775
Interest .......................................................... 130,350
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Total income ................................................... $ 4,972,125
EXPENSES:
Investment management and advisory fees ........................... 1,237,290
Insurance charges ................................................. 3,181,206
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Total expenses ................................................. 4,418,496
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Net investment income ..................................... 553,629
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REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold ....................... 144,438,113
Cost of investment securities sold ............................. 114,452,863
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Net realized gain ......................................... 29,985,250
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1996 ........................... 127,579,653
Unrealized gain at June 30, 1997 ............................... 197,049,358
------------------
Net change in unrealized gain for the period ............... 69,469,705
-------------------
Net realized gain and change in unrealized gain ....... 99,454,955
-------------------
Net increase in net assets resulting from operations ............. $ 100,008,584
===================
</TABLE>
See Notes to Financial Statements
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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,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income ............................................... $ 553,629 $ 2,069,674
Net realized gain from investment security transactions ............. 29,985,250 44,994,539
Net change in unrealized gain on investment securities ............. 69,469,705 42,956,261
------------------ ------------------
Net increase in net assets resulting from operations ............. 100,008,584 90,020,474
------------------ ------------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 1,496,446 and 2,813,343 units, respectively) ..... 18,508,163 28,931,829
Participant transfers from other Travelers accounts
(applicable to 2,567,610 and 3,490,521 units, respectively) ..... 32,039,924 35,759,376
Administrative charges
(applicable to 14,821 and 32,900 units, respectively) ........... (202,323) (358,274)
Contract surrenders
(applicable to 1,349,475 and 3,057,943 units, respectively) ..... (16,845,591) (31,680,018)
Participant transfers to other Travelers accounts
(applicable to 2,302,924 and 3,458,474 units, respectively) ..... (28,498,597) (35,315,088)
Other payments to participants
(applicable to 99,441 and 207,886 units, respectively) ........... (1,248,545) (2,212,219)
------------------ ------------------
Net increase (decrease) in net assets resulting from unit
transactions .................................................. 3,753,031 (4,874,394)
------------------ ------------------
Net increase in net assets ................................... 103,761,615 85,146,080
NET ASSETS:
Beginning of period ................................................. 508,256,333 423,110,253
------------------ ------------------
End of period ....................................................... $ 612,017,948 $ 508,256,333
================== ==================
</TABLE>
See Notes to Financial Statements
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<PAGE> 13
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 at amortized cost which approximates
market.
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> 14
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. Effective July 1, 1996, premiums and discounts are amortized
to interest income utilizing the constant yield method.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
(other than short-term securities) for the six months ended June 30, 1997,
were $145,810,730 and $143,441,926, respectively. 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 $27,650 and $125,284 for the six months ended June 30,
1997 and the year ended December 31, 1996, respectively.
Net realized gains resulting from futures contracts were $504,688 for the
year ended December 31, 1996. These gains are included in the net realized
gain from investment security transactions on the Statement of Changes in
Net Assets. For the six months ended June 30, 1997, Account GIS did not hold
any futures contracts.
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<PAGE> 15
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 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 $17,378 and $43,814 for the six months ended
June 30, 1997 and the year ended December 31, 1996, 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 include $71,417 and $163,657 of
contingent deferred sales charges for the six months ended June 30, 1997 and
the year ended December 31, 1996, respectively.
4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE
Approximately $16,040,000 and $11,931,000 of the net assets of Account GIS
were held on behalf of an affiliate of The Travelers as of June 30, 1997 and
December 31, 1996, respectively. Transactions with this affiliate during the
six months ended June 30, 1997 and the year ended December 31, 1996, were
comprised of participant purchase payments of approximately $303,000 and
$1,077,000 and contract surrenders of approximately $269,000 and $694,000,
respectively.
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May 16, 1983........... 15,389,542 $ 14.089 $ 216,829,709
Annuity phase of contracts issued prior to May 16, 1983................ 375,510 14.089 5,290,714
Accumulation phase of contracts issued on or after May 16, 1983........ 28,595,162 13.602 388,965,860
Annuity phase of contracts issued on or after May 16, 1983............. 68,492 13.602 931,665
----------------
Net Contract Owners' Equity ..................................................................... $ 612,017,948
================
</TABLE>
-13-
<PAGE> 16
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)
------------ ----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income................... $ .114 $ .216 $ .208 $ .192 $ .189 $ .192
Operating expenses........................ .092 .154 .123 .100 .092 .085
---------- --------- ---------- ---------- ---------- ---------
Net investment income..................... .022 .062 .085 .092 .097 .107
Unit value at beginning of period......... 11.763 9.668 7.120 7.194 6.664 6.587
Net realized and change in
unrealized gains (losses)............... 2.304 2.033 2.463 (.166) .433 (.030)
---------- --------- ---------- ---------- ---------- ---------
Unit value at end of period............... $ 14.089 $ 11.763 $ 9.668 $ 7.120 $ 7.194 $ 6.664
========== ========= ========== ========== ========== =========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value...... $ 2.33 $ 2.10 $ 2.55 $ (.07) $ .53 $ .08
Ratio of operating expenses to average
net assets............................... 1.45 %* 1.45 % 1.45 % 1.41 % 1.33 % 1.33 %
Ratio of net investment income to average
net assets............................... .35 %* .60 % 1.02 % 1.30 % 1.40 % 1.67 %
Number of units outstanding at end of
period (thousands)....................... 15,765 16,554 17,896 19,557 21,841 22,516
Portfolio turnover rate.................... 26 % 85 % 96 % 103 % 81 % 189 %
Average commission rate paid+.............. $ .042 $ .047 - - - -
</TABLE>
<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)
------------ ----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income...................... $ .112 $ .212 $ .205 $ .189 $ .184 $ .188
Operating expenses........................... .104 .175 .140 .115 .106 .098
--------- --------- -------- ------- -------- --------
Net investment income........................ .008 .037 .065 .074 .078 .090
Unit value at beginning of period............ 11.371 9.369 6.917 7.007 6.507 6.447
Net realized and change in unrealized gains
(losses)................................... 2.223 1.965 2.387 (.164) .422 (.030)
--------- --------- -------- ------- -------- --------
Unit value at end of period.................. $ 13.602 $ 11.371 $ 9.369 $ 6.917 $ 7.007 $ 6.507
========= ========= ======== ======= ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value........ $ 2.23 $ 2.00 $ 2.45 $ (.09) $ .50 $ .06
Ratio of operating expenses to average net
assets..................................... 1.70 %* 1.70 % 1.70 % 1.65 % 1.57 % 1.58 %
Ratio of net investment income to average
net assets................................. .11 %* .36 % .79 % 1.05 % 1.15 % 1.43 %
Number of units outstanding at end of
period (thousands)......................... 28,664 27,578 26,688 26,692 28,497 29,661
Portfolio turnover rate...................... 26 % 85 % 96 % 103 % 81 % 189 %
Average commission rate paid+................ $ .042 $ .047 - - - -
</TABLE>
* Annualized.
+ The average commission rate paid is a required disclosure for fiscal years
beginning after September 1, 1995. It is 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.
-14-
<PAGE> 17
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (98.6%)
AEROSPACE (2.0%)
Allied Signal, Inc. 25,200 $ 2,116,800
Boeing Co. 31,600 1,676,775
Lockheed Martin Corporation 17,939 1,857,808
McDonnell Douglas Corp. 48,100 3,294,850
United Technologies Corp. 41,700 3,461,100
--------------
12,407,333
--------------
AIRLINES (0.3%)
Continental Airlines, Inc. (A) 54,400 1,900,600
--------------
AUTOMOTIVE (2.2%)
Chrysler Corp. 62,300 2,044,219
Cummins Engine 33,900 2,392,069
Ford Motor Co. 103,200 3,895,800
General Motors Corp. 62,700 3,491,606
Lear Corp. (A) 38,000 1,686,250
--------------
13,509,944
--------------
BANKING (7.6%)
Banc One Corp. 50,740 2,457,719
Bank of New York Co., Inc. 34,400 1,496,400
BankAmerica Corp. 92,800 5,991,400
Bank of Boston Corp. 50,500 3,639,156
Barnett Banks Inc. 17,300 908,250
Chase Manhattan Corp. 39,352 3,819,603
Citicorp 41,000 4,943,063
First Bank Systems, Inc. 12,400 1,058,650
First Chicago NBD 28,900 1,748,450
First Union Corp. (N.C.) 13,400 1,239,500
Golden West Financial Corp. 27,700 1,939,000
Mellon Bank Corp. 81,700 3,686,712
J.P. Morgan & Company 16,600 1,732,625
NationsBank Corp. 59,300 3,824,850
Northern Trust Corp. 41,000 1,984,654
Norwest Corp. 32,600 1,833,750
PNC Bank Corp. 28,600 1,190,475
SunTrust Banks, Inc. 19,700 1,084,731
Wells Fargo & Co. 9,033 2,434,393
--------------
47,013,381
--------------
BEVERAGE (2.7%)
Anheuser-Busch Cos. 44,800 1,878,800
Coca-Cola Co. 218,300 14,735,250
--------------
16,614,050
--------------
BROKERAGE (1.1%)
Marsh & McLennan Cos. 41,600 2,969,200
Merrill Lynch & Co. 30,200 1,800,675
Morgan Stanley Group, Inc. 53,025 2,283,389
--------------
7,053,264
--------------
BUILDING MATERIALS (0.4%)
Masco Corp. 58,800 2,454,900
--------------
CAPITAL GOODS (2.3%)
Boston Scientific Corp. (A) 16,300 1,001,431
Crane Co. 48,500 2,027,906
Deere & Co. 55,600 3,051,050
Emerson Electric Co. 39,800 2,191,488
Honeywell, Inc. 32,600 2,473,525
Illinois Tool Works 62,000 3,096,125
--------------
13,841,525
--------------
CHEMICALS (2.5%)
BetzDearborn, Inc. 27,100 1,788,600
Cytec Industries, Inc. (A) 42,700 1,595,913
Dow Chemical 22,000 1,916,750
E.I. Dupont de Nemours & Co. 99,000 6,224,625
Monsanto Co. 96,000 4,134,000
--------------
15,659,888
--------------
CONSTRUCTION MACHINERY (0.3%)
Caterpillar, Inc. 18,300 1,964,963
--------------
CONSUMER (7.1%)
Colgate-Palmolive 27,200 1,774,800
Eastman Kodak Co. 29,400 2,256,450
General Electric Corp. 303,000 19,808,625
Gillette Co. 68,642 6,503,830
Procter & Gamble Co. 74,100 10,466,625
Unilever N.V. 12,300 2,681,400
--------------
43,491,730
--------------
CONSUMER SERVICES (0.7%)
Kimberly Clark Corp. 82,260 4,092,435
--------------
DEFENSE (0.2%)
Raytheon Co. 21,600 1,101,600
--------------
ENTERTAINMENT (1.2%)
Walt Disney Co. 60,955 4,891,639
U.S. Industries, Inc. (A) 71,800 2,557,875
--------------
7,449,514
--------------
ENVIRONMENTAL (0.2%)
Waste Management, Inc. 43,000 1,381,375
--------------
FINANCE (1.6%)
American Express Company 44,700 3,330,150
HFS Inc. (A) 49,300 2,859,400
Household International 32,600 3,828,463
--------------
10,018,013
--------------
FOOD (3.5%)
CPC International, Inc. 33,800 3,120,163
Campbell Soup Co. 19,000 950,000
ConAgra, Inc. 52,800 3,385,800
Dean Foods Co. 57,000 2,301,375
Kellogg Co. 6,100 522,313
McDonalds Corp. 26,300 1,270,619
PepsiCo, Inc. 141,400 5,311,338
Pioneer Hi-Bred International 33,200 2,656,000
Sara Lee Corp. 43,900 1,827,338
--------------
21,344,946
--------------
HEALTHCARE (1.9%)
Beverly Enterprises (A) 123,900 2,013,375
Columbia/HCA Healthcare Corp. 60,300 2,370,544
Guidant Corp. 33,200 2,822,000
PhyCor, Inc. (A) 60,400 2,078,134
U.S. Surgical Corp. 58,200 2,167,950
--------------
11,452,003
--------------
</TABLE>
-15-
<PAGE> 18
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------------ ------------
<S> <C> <C>
INDEPENDENT ENERGY (0.6%)
AES Corp. (A) 24,800 $ 1,754,600
Louisiana Land & Exploration 31,000 1,770,875
--------------
3,525,475
--------------
INDUSTRIAL (1.5%)
AccuStaff, Inc. (A) 79,300 1,878,419
Automatic Data Process 28,100 1,320,700
Corning, Inc. 19,900 1,106,937
Minnesota Mining &
Manufacturing Co. 38,200 3,896,400
Whitman Corp. 44,700 1,072,800
--------------
9,275,256
--------------
INSURANCE (4.0%)
Aetna, Inc. 13,200 1,351,350
Allstate Corp. 40,175 2,932,775
AMBAC, Inc. 23,700 1,810,087
American International Group 42,550 6,355,906
CIGNA Corp. 6,700 1,189,250
Chubb Corp. 15,000 1,003,125
Conseco, Inc. 73,300 2,712,100
Hartford Financial Services Group 35,100 2,904,525
Lincoln National Corp. 8,900 572,937
SunAmerica, Inc. 36,900 1,798,875
Transatlantic Holdings, Inc. 19,700 1,955,225
--------------
24,586,155
--------------
INTEGRATED ENERGY (7.2%)
Amoco Corp. 43,800 3,807,862
Atlantic Richfield Co. 20,800 1,466,400
Chevron Corp. 58,400 4,317,950
Exxon Corp. 189,600 11,660,400
Mobil Corp. 95,800 6,694,025
Royal Dutch Petroleum Co. 152,800 8,308,500
Texaco, Inc. 49,500 5,383,125
Unocal Corp. 69,100 2,681,944
--------------
44,320,206
--------------
LODGING (0.1%)
Hilton Hotels Corp. 23,900 634,844
--------------
MEDIA (2.1%)
Andrew Corp. 22,640 635,335
Gannett Co. 37,200 3,673,500
New York Times Co. 51,300 2,539,350
TCI Satellite Entertainment-A 20 158
Tele-Communications-TCI (A) 60,600 899,528
Tele-Communications-
Liberty Media (A) 74,000 1,759,809
Time Warner, Inc. 48,800 2,354,600
Viacom, Inc. (A) 30,600 918,000
--------------
12,780,280
--------------
METALS (1.2%)
Aluminum Co. of America 24,600 1,854,225
Freeport-McMoRan Copper & Gold 67,900 2,113,387
Homestake Mining Co. 87,900 1,148,194
USX-U.S. Steel Group, Inc. 57,100 2,002,069
--------------
7,117,875
--------------
NATURAL GAS PIPELINE (1.3%)
Columbia Gas Systems, Inc. 37,000 2,414,250
Enron Corp. 62,200 2,538,537
Pacific Enterprises 20,600 692,675
Sonat, Inc. 42,500 2,178,125
--------------
7,823,587
--------------
OIL FIELD (0.8%)
Baker Hughes, Inc. 58,600 2,267,088
Schlumberger Ltd. 21,800 2,725,000
Union Pacific Resources Group 1 25
--------------
4,992,113
--------------
PAPER (1.0%)
Avery Dennison Corp. 33,700 1,352,213
Georgia-Pacific Corp. 23,700 2,023,388
Mead Corp. 33,300 2,072,925
Weyerhaeuser Co. 18,000 936,000
--------------
6,384,526
--------------
PHARMACEUTICALS (9.5%)
Abbott Laboratories 44,300 2,957,025
American Home Products Corp. 34,100 2,608,650
Amgen 23,600 1,371,011
Bristol-Myers Squibb Co. 113,700 9,209,700
CVS Corp. 50,800 2,603,500
Johnson & Johnson 144,100 9,276,438
Lilly (Eli) & Co. 30,900 3,377,756
Merck & Co. 132,300 13,693,050
Pfizer, Inc. 57,000 6,811,500
Schering-Plough Corp. 67,000 3,207,625
Warner-Lambert Co. 24,400 3,031,700
--------------
58,147,955
--------------
RAILROADS (0.7%)
Burlington Northern Santa Fe 30,800 2,768,150
Union Pacific Corp. 19,300 1,360,650
--------------
4,128,800
--------------
REFINING (0.6%)
Amerada Hess 34,600 1,922,463
Ashland, Inc. 39,200 1,817,900
--------------
3,740,363
--------------
RETAILERS (4.3%)
Borders Group, Inc. (A) 80,200 1,934,825
Costco Companies, Inc. (A) 84,200 2,770,702
Federated Department Stores, Inc. (A) 64,900 2,255,275
The Gap, Inc. 25,300 983,537
Home Depot, Inc. 45,566 3,141,206
Lowe's Cos. 64,400 2,390,850
Sears Roebuck & Co. 36,100 1,940,375
Stride Rite Corp. 134,100 1,726,537
TJX Companies, Inc. 87,000 2,294,625
Wal-Mart Stores, Inc. 208,600 7,053,288
--------------
26,491,220
--------------
</TABLE>
-16-
<PAGE> 19
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------------- --------------
<S> <C> <C>
SERVICES (3.9%)
Ecolab Inc. 46,900 $ 2,239,475
HBO & Co. 31,700 2,183,337
Medtronics, Inc. 21,700 1,757,700
Microsoft Corp. (A) 108,000 13,658,620
Oracle Corp. (A) 58,350 2,937,555
United Healthcare Corp. 17,000 884,000
--------------
23,660,687
--------------
SUPERMARKETS (0.4%)
American Stores 49,600 2,449,000
--------------
TECHNOLOGY (9.4%)
Advanced Micro Devices (A) 48,400 1,742,400
Applied Materials, Inc. (A) 15,900 1,125,421
Cisco Systems, Inc. (A) 58,100 3,901,775
Compaq Computer Corp. (A) 26,400 2,620,200
Computer Associates International 32,075 1,786,177
Dell Computer Corp. (A) 16,200 1,901,980
Gateway 2000, Inc. (A) 54,600 1,771,087
Hewlett-Packard Co. 90,600 5,073,600
Intel Corp. 61,400 8,693,853
International Business
Machines Corp. 92,800 8,369,400
LSI Logic Corp. (A) 74,000 2,368,000
McAfee Associates, Inc. (A) 29,800 1,879,262
Motorola, Inc. 67,000 5,092,000
Raychem Corp. 22,950 1,706,906
Read-Rite Corp. (A) 79,800 1,663,327
Seagate Technology, Inc. (A) 21,400 753,012
Sun Microsystems (A) 31,900 1,187,277
Texas Instruments, Inc. 16,100 1,353,406
3Com Corp. (A) 28,900 1,299,595
Westinghouse Electric Corp. 57,900 1,338,937
Xerox Corp. 30,300 2,389,913
--------------
58,017,528
--------------
TELECOMMUNICATIONS (7.0%)
AT&T Corp. 126,100 4,421,381
Ameritech Corp. 50,800 3,451,225
Bell Atlantic Corp. 40,900 3,103,287
BellSouth Corp. 92,000 4,266,500
GTE Corp. 76,300 3,347,662
Lucent Technologies 55,837 4,023,754
MCI Communications Corp. 62,000 2,373,434
Northern Telecommunications Ltd 23,000 2,093,000
NYNEX Corp. 40,400 2,328,050
SBC Communications, Inc. 111,260 6,884,212
Sprint Corp. 31,100 1,636,638
US West Communications Group 16,700 629,381
WorldCom, Inc. (A) 141,900 4,536,359
--------------
43,094,883
--------------
TEXTILE (0.2%)
Nike, Inc. 22,500 1,313,438
--------------
TOBACCO (1.7%)
Fortune Brands, Inc. 15,100 563,419
Gallaher Group PLC (A) 15,100 278,406
Philip Morris Cos. 223,100 9,900,063
--------------
10,741,888
--------------
U.S. AGENCY (1.1%)
Federal Home Loan Mortgage Corp. 68,600 2,358,125
Federal National Mortgage
Association 100,000 4,362,500
--------------
6,720,625
--------------
UTILITIES (2.2%)
Baltimore Gas & Electric Co. 48,900 1,305,019
CalEnergy Co. (A) 47,400 1,801,200
Duke Power Co. 18,300 877,256
Edison International 111,700 2,778,538
FPL Group, Inc. 52,200 2,404,463
Houston Industries 23,900 512,356
PacifiCorp 25,300 556,600
Southern Co. 61,800 1,351,875
Texas Utilities Co. 48,400 1,666,775
--------------
13,254,082
--------------
TOTAL COMMON STOCKS
(COST $408,902,178) 605,952,250
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.4%)
COMMERCIAL PAPER (1.4%)
Barclays U.S. Funding Corp.,
5.68% due July 3, 1997 $ 2,000,000 1,999,008
Household Finance Corp.,
6.21% due July 1, 1997 4,712,000 4,712,000
Progress Capital Holdings, Inc.
5.79% due July 11, 1997 2,000,000 1,996,488
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $8,708,210) 8,707,496
--------------
TOTAL INVESTMENTS (100%)
(COST $417,610,388) (B) $ 614,659,746
==============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At June 30, 1997, net unrealized appreciation for all securities was
$197,049,358. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over cost
of $199,691,514 and aggregate gross unrealized depreciation for all
securities in which there was an excess of cost over market value of
$2,642,156.
See Notes to Financial Statements
-17-
<PAGE> 20
THE TRAVELERS
QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
Financial markets bottomed in April following the Federal Reserve Board ("Fed")
rate increase in March and rebounded in May and June as investor fears of
further Fed tightening subsided with a much lower than expected employment cost
index increase, three consecutive months of negative retail sales growth, and
five consecutive months of negative producer price inflation reports. Investors
seem to have a growing conviction that we are in a new era where inflation can
stay low despite low levels of unemployment last seen in 1973. In addition to
inflation, the drop in the size of the federal government's budget deficit has
been a major surprise. This has led to a sharp drop in federal financing needs
which has initially manifested itself in a sharp drop in Treasury bill rates.
The surprise was generated by higher than expected tax receipts due to stock
market capital gains, option exercises, and strong corporate profits.
Second quarter Gross Domestic Product growth has slowed to 2.2% from a 4.9%
pace in the first quarter. Factors such as warm weather and the timing of
refunds vs. tax payments were responsible for the fast pace of first quarter
growth, stealing from growth in the second quarter. Going forward, the bullish
case for bonds is that because of technological improvements and global
competition, low levels of unemployment won't lead to higher product inflation.
The bear case is that economic growth above 3% is likely to lead to
expectations of further Fed tightening. The second opinion expresses my bias.
For the six months ended June 30, 1997, the Lehman Intermediate
Government/Corporate Index returned 2.83%. The Travelers Quality Bond Account
for Variable Annuities has gained 3.23%, before fees and expenses, 0.40% ahead
of the index. The outperformance vs. the index is attributable to a slight
tightening in corporate spreads, and a modestly short duration position.
Continental Cablevision was also upgraded to Baa3/BBB as our research staff
expected, which caused an additional 0.25% spread tightening.
PORTFOLIO MANAGER: F. DENNEY VOSS
[TAMIC LOGO]
-18-
<PAGE> 21
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $160,289,674) ............... $ 160,745,785
Receivables:
Interest ............................................................. 1,915,641
Investment securities sold ........................................... 4,169,862
Purchase payments and transfers from other Travelers accounts ........ 78,274
Other assets ............................................................. 3,069
----------------
Total Assets ...................................................... 166,912,631
----------------
LIABILITIES:
Cash overdraft ........................................................... 56,097
Payables:
Investment securities purchased ...................................... 4,129,297
Contract surrenders and transfers to other Travelers accounts ........ 166,966
Investment management and advisory fees .............................. 14,494
Accrued liabilities ...................................................... 64,461
----------------
Total Liabilities ................................................. 4,431,315
----------------
NET ASSETS .................................................................. $ 162,481,316
================
</TABLE>
See Notes to Financial Statements
-19-
<PAGE> 22
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest ........................................................... $ 5,488,938
EXPENSES:
Investment management and advisory fees ............................ $ 266,696
Insurance charges .................................................. 971,472
------------
Total expenses ................................................. 1,238,168
---------------
Net investment income ....................................... 4,250,770
---------------
REALIZED LOSS AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized loss from investment security transactions:
Proceeds from investment securities sold ....................... 87,418,232
Cost of investment securities sold ............................. 87,831,458
-------------
Net realized loss ........................................... (413,226)
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1996 ........................... 199,075
Unrealized gain at June 30, 1997 ............................... 456,111
------------
Net change in unrealized gain for the period ................ 257,036
---------------
Net realized loss and change in unrealized gain .......... (156,190)
---------------
Net increase in net assets resulting from operations ............... $ 4,094,580
===============
</TABLE>
See Notes to Financial Statements
-20-
<PAGE> 23
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,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income ................................................ $ 4,250,770 $ 10,480,786
Net realized gain (loss) from investment security transactions ....... (413,226) 1,065,626
Net change in unrealized gain on investment securities ............... 257,036 (5,888,598)
--------------- ---------------
Net increase in net assets resulting from operations ............. 4,094,580 5,657,814
--------------- ---------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 1,396,361 and 3,643,171 units, respectively) ...... 7,122,796 17,905,073
Participant transfers from other Travelers accounts
(applicable to 915,420 and 3,024,146 units, respectively) ........ 4,682,419 14,870,447
Administrative charges
(applicable to 11,436 and 27,353 units, respectively) ............ (59,656) (135,785)
Contract surrenders
(applicable to 1,385,006 and 2,968,208 units, respectively) ...... (7,103,782) (14,715,900)
Participant transfers to other Travelers accounts
(applicable to 3,093,463 and 6,532,400 units, respectively) ...... (15,794,931) (32,090,166)
Other payments to participants
(applicable to 127,808 and 177,391 units, respectively) .......... (668,462) (884,681)
--------------- ---------------
Net decrease in net assets resulting from unit transactions ...... (11,821,616) (15,051,012)
--------------- ---------------
Net decrease in net assets .................................... (7,727,036) (9,393,198)
NET ASSETS:
Beginning of period .................................................. 170,208,352 179,601,550
--------------- ---------------
End of period ........................................................ $ 162,481,316 $ 170,208,352
=============== ===============
</TABLE>
See Notes to Financial Statements
-21-
<PAGE> 24
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 at amortized cost which approximates market.
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.
-22-
<PAGE> 25
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. Effective July 1, 1996, premiums and
discounts are amortized to interest income utilizing the constant yield
method.
2. INVESTMENTS
The costs of purchases and proceeds from sales of bonds (other than
short-term securities) were $48,355,847 and $41,530,753, respectively; the
costs of purchases and proceeds from sales of direct and indirect U.S.
government obligations were $24,053,649 and $45,887,479, respectively, for
the six months ended June 30, 1997. Realized gains and losses from security
transactions are reported on an identified cost basis.
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 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 $7,052 and $13,748 for the six months ended June
30, 1997 and the year ended December 31, 1996, 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 include $47,660 and $70,089 of contingent
deferred sales charges for the six months ended June 30, 1997 and the year
ended December 31, 1996, respectively.
-23-
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE
Approximately $877,000 and $760,000 of the net assets of Account QB were
held on behalf of an affiliate of The Travelers as of June 30, 1997 and
December 31, 1996, respectively. Transactions with this affiliate during the
six months ended June 30, 1997 and the year ended December 31, 1996, were
comprised of participant purchase payments of approximately $53,000 and
$276,000 and contract surrenders of approximately $119,000 and $141,000,
respectively.
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May 16, 1983 ............. 8,137,846 $ 5.369 $ 43,699,982
Annuity phase of contracts issued prior to May 16, 1983 .................. 49,845 5.369 267,668
Accumulation phase of contracts issued on or after May 16, 1983 .......... 22,855,851 5.183 118,493,793
Annuity phase of contracts issued on or after May 16, 1983 ............... 3,833 5.183 19,873
----------------
Net Contract Owners' Equity ................................................................... $ 162,481,316
================
</TABLE>
-24-
<PAGE> 27
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)
------------ -------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income........................... $ .173 $ .379 $ .328 $ .318 $ .306 $ .317
Operating expenses................................ .034 .067 .063 .059 .058 .050
-------- -------- -------- --------- -------- --------
Net investment income............................. .139 .312 .265 .259 .248 .267
Unit value at beginning of period................. 5.234 5.050 4.400 4.498 4.150 3.880
Net realized and change in unrealized
gains (losses).................................. (.004) (.128) .385 (.357) .100 .003
-------- -------- -------- --------- -------- --------
Unit value at end of period....................... $ 5.369 $ 5.234 $ 5.050 $ 4.400 $ 4.498 $ 4.150
======== ======== ======== ========= ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value............. $ .14 $ .18 $ .65 $ (.10) $ .35 $ .27
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.......................................... 5.30 %* 6.12 % 5.54 % 5.87 % 5.66 % 6.61 %
Number of units outstanding at end of period
(thousands)..................................... 8,188 8,549 9,325 10,694 12,489 13,416
Portfolio turnover rate........................... 45 % 176 % 138 % 27 % 24 % 23 %
</TABLE>
<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)
------------ ------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income........................... $ .167 $ .368 $ .319 $ .310 $ .299 $ .311
Operating expenses................................ .040 .078 .073 .069 .067 .061
------- -------- -------- -------- -------- -------
Net investment income............................. .127 .290 .246 .241 .232 .250
Unit value at beginning of period................. 5.060 4.894 4.274 4.381 4.052 3.799
Net realized and change in unrealized
gains (losses).................................. (.004) (.124) .374 (.348) .097 .003
------- -------- -------- -------- -------- -------
Unit value at end of period....................... $ 5.183 $ 5.060 $ 4.894 $ 4.274 $ 4.381 $ 4.052
======= ======== ======== ======== ======== =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value............. $ .12 $ .17 $ .62 $ (.11) $ .33 $ .25
Ratio of operating expenses to average net
assets.......................................... 1.57 %* 1.57 % 1.57 % 1.57 % 1.57 % 1.58 %
Ratio of net investment income to average
net assets...................................... 5.05 %* 5.87 % 5.29 % 5.62 % 5.41 % 6.38 %
Number of units outstanding at end of period
(thousands)..................................... 22,859 24,804 27,066 27,033 28,472 20,250
Portfolio turnover rate........................... 45 % 176 % 138 % 27 % 24 % 23 %
</TABLE>
* Annualized.
-25-
<PAGE> 28
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- ----------------
<S> <C> <C>
BONDS (92.7%)
AIRLINES (1.1%)
Delta Air Lines,
9.25% Sinking Fund, 2007 $ 1,760,399 $ 1,815,165
----------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (6.5%)
Kidder Peabody Mortgage,
Asset Trust 23,
9.88% Pass Through, 2019 2,000,000 2,021,080
Prudential Home Mortgage 1992-17,
8.00% Pass Through, 2007 8,425,000 8,458,675
----------------
10,479,755
----------------
CREDIT CARD RECEIVABLES (3.5%)
Household Private Label,
CC MT 1994-2 B Certificate,
8.00% Pass Through, 2003 3,500,000 3,610,782
Signet Credit Card,
Master Trust, 1993-4 B,
5.80% Pass Through, 2002 2,000,000 1,986,120
----------------
5,596,902
----------------
ENTERTAINMENT (4.7%)
Six Flags Entertainment,
0.00% Notes, 1999 8,850,000 7,539,404
----------------
INTEGRATED ENERGY (4.1%)
Texaco Capital,
8.50% Debentures, 2003 6,144,000 6,646,886
----------------
MACHINERY (0.1%)
Hewlett-Packard Co.,
6.50% Notes, 1999 182,856 184,138
----------------
MEDIA (8.4%)
Continental Cablevision, Inc.,
11.00% Debentures, 2007 5,000,000 5,628,565
Tele-Communications Inc.,
9.65% Debentures, 2003 7,500,000 7,907,415
----------------
13,535,980
----------------
FINANCE (16.4%)
Alco Capital Resources,
7.33% Notes, 1998 6,000,000 6,053,940
Grand Met Investment, Corp.,
0.00% Notes, 2004 10,000,000 6,402,430
New Plan Realty Trust,
5.95% Notes, 2026 7,000,000 6,997,207
Sears Roebuck Acceptance Corp.,
6.40% Notes, 2000 7,030,000 6,975,785
----------------
26,429,362
----------------
PAPER (5.0%)
James River Corp.,
6.75% Notes, 1999 8,000,000 8,030,456
----------------
PHARMACEUTICALS (3.6%)
McKesson Corp.,
6.88% Notes, 2002 (B) 5,750,000 5,773,811
----------------
RAILROADS (4.3%)
CSX Corp.,
6.95% Debentures, 2027 (B) 6,750,000 6,817,756
----------------
TELECOMMUNICATIONS (8.3%)
BellSouth Capital Funding,
6.04% Debentures, 2026 4,500,000 4,443,741
MCI Communications Corp.,
7.13% Debentures, 2027 8,500,000 8,809,052
----------------
13,252,793
----------------
TOBACCO (9.5%)
RJR Nabisco, Inc.,
8.30% Notes, 1999 6,200,000 6,390,166
Philip Morris Cos.,
6.95% Notes, 2006 8,800,000 8,888,880
----------------
15,279,046
----------------
UTILITIES (17.2%)
DQU II Funding,
7.23% Bonds, 1999 5,692,000 5,749,819
Illinois Power Co.,
6.50% Notes, 1999 7,000,000 6,989,311
NIPSCO Capital Market, Inc.,
0.00% Bonds, 1997 4,500,000 4,390,609
Tenaga Nasional Berhad,
7.20% Notes, 2007 (B) 6,750,000 6,911,122
United Illuminating Company,
7.38% Debentures, 1998 3,500,000 3,524,773
----------------
27,565,634
----------------
TOTAL BONDS
(COST $148,483,753) 148,947,088
----------------
</TABLE>
-26-
<PAGE> 29
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- ----------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
SECURITIES (2.9%)
Federal Farm Credit,
7.34% Notes, 2001 $ 700,000 $ 700,910
Federal Home Loan Bank,
7.30% Notes, 2001 1,200,000 1,201,500
FNMA,
8.55% Notes, 2001 2,750,000 2,770,169
--------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(COST $4,679,159) 4,672,579
--------------
SHORT-TERM INVESTMENTS (4.4%)
COMMERCIAL PAPER (4.4%)
Dillard Investment Co., Inc.,
5.63% due July 8, 1997 3,000,000 2,996,118
Household Finance Corp.,
6.21% due July 1, 1997 4,130,000 4,130,000
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $7,126,762) 7,126,118
--------------
TOTAL INVESTMENTS (100%)
(COST $160,289,674) (A) $ 160,745,785
==============
</TABLE>
NOTES
(A) At June 30, 1997, net unrealized appreciation for all securities was
$456,111. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$935,321 and aggregate gross unrealized depreciation for all securities in
which there was an excess of cost over market value of $479,210.
(B) Restricted Security.
See Notes to Financial Statements
-27-
<PAGE> 30
THE TRAVELERS
MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
The U.S. economy, fueled by strong job creation and retail sales, gained
momentum and Gross Domestic Product ("GDP") accelerated at a growth rate of
4.9% in the first quarter. As a preemptive move the Federal Reserve Board
("Fed") increased the federal funds rate by 0.25% to 5.50% at its March
meeting.
In the second quarter the financial markets rallied helped by a slowdown in the
economy's frenetic first quarter pace. GDP growth for the second quarter was
2.2%, significantly below first quarter growth. However, this may be just a
brief pause and the economy could return to a 3% growth track for the second
half of the year. Solid gains in jobs and income, advancing financial markets
and high levels of confidence form an ideal environment for heightened consumer
spending. This could possibly generate a squeeze in the labor markets and
trigger a shift in monetary policy. The timing and direction of the next Fed
move is uncertain and will occur only when there is a clear indication as to
the strength of the economy.
In light of this, the strategy in the management of The Travelers Money Market
Account for Variable Annuities' short-term assets will be to maintain
maturities of less than 60 days. At June 30, 1997 the asset size of the
portfolio was $82.5 million with an average yield of 5.59% and an average life
of 17 days.
PORTFOLIO MANAGER: EMIL J. MOLINARO JR.
[TAMIC LOGO]
-28-
<PAGE> 31
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $82,499,979) ................ . $ 82,486,002
Receivables:
Interest ............................................................. . 51,069
Investments securities sold .......................................... . 1,933,000
Purchase payments and transfers from other Travelers accounts ........ . 506,220
Other assets ............................................................ 188
--------------
Total Assets ....................................................... 84,976,479
--------------
LIABILITIES:
Cash overdraft ........................................................... . 327,879
Payables:
Investments securities purchased ..................................... . 1,604,727
Contract surrenders and transfers to other Travelers accounts ........ . 319,266
Investment management and advisory fees .............................. . 7,382
Accrued liabilities ...................................................... . 28,395
--------------
Total Liabilities ................................................. . 2,287,649
--------------
NET ASSETS .................................................................. . $ 82,688,830
==============
</TABLE>
See Notes to Financial Statements
-29-
<PAGE> 32
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest ........................................................... $ 2,453,603
EXPENSES:
Investment management and advisory fees ............................ $ 144,222
Insurance charges .................................................. 554,709
----------
Total expenses ................................................. 698,931
--------------
Net investment income ....................................... 1,754,672
--------------
Net increase in net assets resulting from operations ............... $ 1,754,672
==============
</TABLE>
See Notes to Financial Statements
-30-
<PAGE> 33
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER
JUNE 30, 31,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income ................................................ $ 1,754,672 $ 2,990,711
------------- -------------
Net increase in net assets resulting from operations ............. 1,754,672 2,990,711
------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 10,198,528 and 9,424,587 units, respectively) ..... 23,213,510 20,964,777
Participant transfers from other Travelers accounts
(applicable to 44,469,320 and 55,407,340 units, respectively) .... 101,524,915 123,185,617
Administrative charges
(applicable to 19,663 and 39,967 units, respectively) ............ (45,353) (89,466)
Contract surrenders
(applicable to 3,165,647 and 4,688,797 units, respectively) ...... (7,232,556) (10,410,253)
Participant transfers to other Travelers accounts
(applicable to 53,735,375 and 57,859,014 units, respectively) .... (122,706,611) (128,506,136)
Other payments to participants
(applicable to 76,415 and 14,133 units, respectively) ............ (175,162) (31,246)
------------- -------------
Net increase (decrease) in net assets resulting from unit
transactions (5,421,257) 5,113,293
------------- -------------
Net increase (decrease) in net assets ......................... (3,666,585) 8,104,004
NET ASSETS:
Beginning of period .................................................. 86,355,415 78,251,411
------------- -------------
End of period ........................................................ $ 82,688,830 $ 86,355,415
============= =============
</TABLE>
See Notes to Financial Statements
-31-
<PAGE> 34
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 at amortized cost which
approximates market.
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. Effective July 1, 1996, premiums and
discounts are amortized to interest income utilizing the constant yield
method.
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 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 include $42,547 and $77,935 of
contingent deferred sales charges for the six months ended June 30, 1997 and
the year ended December 31, 1996, respectively.
-32-
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
3. NET ASSETS HELD ON BEHALF OF AN AFFILIATE
Approximately $3,234,000 and $4,150,000 of the net assets of Account MM were
held on behalf of an affiliate of The Travelers as of June 30, 1997 and
December 31, 1996, respectively. Transactions with this affiliate during the
six months ended June 30, 1997 and the year ended December 31, 1996, were
comprised of participant purchase payments of approximately $158,000 and
$3,085,000 and contract surrenders of approximately $791,000 and $826,000,
respectively.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May 16, 1983 ............. 104,491 $ 2.389 $ 249,758
Accumulation phase of contracts issued on or after May 16, 1983 .......... 35,631,970 2.307 82,229,485
Annuity phase of contracts issued on or after May 16, 1983 ............... 90,819 2.307 209,587
---------------
Net Contract Owners' Equity ..................................................................... $ 82,688,830
===============
</TABLE>
-33-
<PAGE> 36
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)
-------- --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income .......................... $ .064 $ .125 $ .130 $ .091 $ .067 $ .079
Operating expenses ............................... .016 .030 .030 .028 .027 .027
------- ------- ------- ------ ------- --------
Net investment income ............................ .048 .095 .100 .063 .040 .052
Unit value at beginning of period ................ 2.341 2.246 2.146 2.083 2.043 1.991
------- ------- ------- ------ ------- --------
Unit value at end of period ...................... $ 2.389 $ 2.341 $ 2.246 $ 2.146 $ 2.083 $ 2.043
======= ======= ======= ======= ======= ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value ....................... $ .05 $ .10 $ .10 $ .06 $ .04 $ .05
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 ......................................... 4.16%* 4.10% 4.61% 2.98% 1.93% 2.58%
Number of units outstanding at end of period
(thousands) .................................... 104 112 206 206 218 227
</TABLE>
<TABLE>
<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)
------------ ---------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income .......................... $ .062 $ .121 $ .127 $ .087 $ .065 $ .077
Operating expenses ............................... .018 .035 .034 .032 .031 .031
------- ------- ------- ------ -------- --------
Net investment income ............................ .044 .086 .093 .055 .034 .046
Unit value at beginning of period ................ 2.263 2.177 2.084 2.029 1.995 1.949
------- ------- ------- ------- -------- --------
Unit value at end of period ...................... $ 2.307 $ 2.263 $ 2.177 $ 2.084 $ 2.029 $ 1.995
======= ======= ======= ======= ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value ....................... $ .04 $ .09 $ .09 $ .06 $ .03 $ .05
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 ......................................... 3.91%* 3.84% 4.36% 2.72% 1.68% 2.33%
Number of units outstanding at end of period
(thousands ..................................... 35,723 38,044 35,721 39,675 34,227 42,115
</TABLE>
* Annualized
-34-
<PAGE> 37
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100%)
COMMERCIAL PAPER (100%)
Allied Signal, Inc.,
5.67% due July 7, 1997 $ 1,645,000 $ 1,643,130
Becton, Dickinson & Co.,
5.64% due July 8, 1997 4,000,000 3,994,824
CIT Group Holdings, Inc.
5.64% due July 24, 1997 3,500,000 3,487,092
CIT Group Holdings, Inc.,
6.14% due September 9, 1997 500,000 501,674
Dillard Investment Co., Inc.,
5.64% due July 8, 1997 4,000,000 3,994,824
Ford Motor Credit Co.,
5.63% due July 11, 1997 3,500,000 3,493,854
General Electric Capital Corp.,
5.63% due July 9, 1997 3,464,000 3,458,981
General Mills, Inc.,
5.63% due July 8, 1997 1,660,000 1,657,852
Goldman Sachs Group LP,
5.68% due July 2, 1997 4,000,000 3,998,672
Heinz (H.J.) Co.,
5.63% due July 3, 1997 4,000,000 3,998,016
Household Finance Corp.,
6.21% due July 1, 1997 1,605,000 1,605,000
May Department Stores,
5.70% due July 29, 1997 3,825,000 3,808,151
Merrill Lynch & Co.,
5.69% due July 14, 1997 4,000,000 3,991,180
Morgan Stanley Group, Inc.,
5.68% due August 8, 1997 4,000,000 3,976,364
National Rural Utilities Co-Op
Financial Corp.,
5.64% due July 17, 1997 4,000,000 3,989,384
NIPSCO Industries,
5.65% due July 21, 1997 4,000,000 3,987,004
PACCAR Financial Corp.,
5.60% due July 7, 1997 3,420,000 3,416,111
PacifiCorp,
5.67% due July 17, 1997 4,000,000 3,989,384
Pearson, Inc.,
5.67% due July 18, 1997 4,000,000 3,988,784
Penney JC Funding Corp.,
5.74% due October 15, 1997 2,000,000 2,023,040
PHH Corp.,
5.69% due July 10, 1997 4,000,000 3,993,588
Progress Capital Holdings, Inc.,
5.65% due July 11, 1997 3,025,000 3,019,688
Southern California Edison Co.,
5.65% due July 23, 1997 4,000,000 3,985,832
Southern New England,
Telecommunications Co.,
5.64% due July 22, 1997 4,000,000 3,986,416
TECO Financial, Inc.,
5.59% due July 7, 1997 2,500,000 2,497,157
-------------
TOTAL INVESTMENTS (100%)
(COST $82,499,979) $ 82,486,002
=============
</TABLE>
See Notes to Financial Statements
-35-
<PAGE> 38
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<PAGE> 39
Investment Advisers
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
Hartford, Connecticut
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES
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 Account for Variable Annuities, The
Travelers Quality Bond Account for Variable Annuities, and The Travelers Money
Market Account for Variable Annuities. 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 Account for
Variable Annuities, The Travelers Quality Bond Account for Variable Annuities
and The Travelers Money Market Account for Variable Annuities. 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) (6-97) Printed in U.S.A.
