<PAGE> 1
Registration Statement No. 2-53757
811-2571
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 44
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 44
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
---------------------------------------------------------
(Exact name of Registrant)
THE TRAVELERS INSURANCE COMPANY
-------------------------------
(Name of Insurance Company)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
-----------------------------------------------
(Address of Insurance Company's Principal Executive Offices)
Insurance Company's Telephone Number, including Area Code (860) 277-0111
ERNEST J. WRIGHT
Secretary to the Board of Managers
The Travelers Quality Bond Account for Variable Annuities
One Tower Square
Hartford, Connecticut 06183
-----------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: ____________________
It is proposed that this filing will become effective (check appropriate box):
____ immediately upon filing pursuant to paragraph (b) of Rule 485.
X on May 1, 1997 pursuant to paragraph (b) of Rule 485.
- ---- 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
____ on _____, 1997 pursuant to paragraph (a)(1) of Rule 485.
____ 75 days after filing pursuant to paragraph (a)(2).
____ on _____, 1997 pursuant to paragraph (a)(2) of Rule 485.
If appropriate check the following box:
____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
hereby declares that an indefinite amount of Variable Annuity Contract units
was registered under the Securities Act of 1933. A Rule 24f-2 Notice for the
fiscal year ended December 31 1996 was filed on February 28, 1997.
<PAGE> 2
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
Form N-3 Cross-Reference Sheet
<TABLE>
<CAPTION>
ITEM
NO. CAPTION IN PROSPECTUS
- --- ---------------------
<S> <C> <C>
1. Cover Page The Travelers Quality Bond Account
for Variable Annuities
2. Definitions Glossary of Special Terms
3. Synopsis Prospectus Summary
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant The Insurance Company and the Separate
and Insurance Company Accounts; The Travelers Quality Bond
Account for Variable Annuities
6. Management Managed Separate Accounts: Management
and Advisory Services
7. Deductions and Expenses Charges and Deductions; Fee Table
8. General Description of Variable The Variable Annuity Contract; Miscellaneous
Annuity Contracts
9. Annuity Period The Annuity Period
10. Death Benefit Death Benefit; Payout Options
11. Purchases and Contract Value The Variable Annuity Contract
12. Redemptions Surrenders and Redemptions; Right to Return
13. Taxes Premium Tax; Federal Tax Considerations
14. Legal Proceedings Legal Proceedings and Opinions
15. Table of Contents of Statement Appendix A
of Additional Information
</TABLE>
<TABLE>
<CAPTION>
CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION
---------------------------------------
<S> <C>
16. Cover Page The Travelers Quality Bond Account
for Variable Annuities
17. Table of Contents Table of Contents
18. General Information and History Description of The Travelers and the
Separate Accounts
19. Investment Objectives and Investment Restrictions
Policies
20. Management The Board of Managers
21. Investment Advisory and Other Services Investment Management and Advisory Services;
Securities Custodian; Independent Accountants
22. Brokerage Allocation Investment Management and Advisory Services
23. Purchase and Pricing of Securities Valuation of Separate Account Assets
Being Offered
24. Underwriters Distribution and Management Services
25. Calculation of Performance Data Performance Data
26. Annuity Payments Inapplicable
27. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 4
TRAVELERS UNIVERSAL ANNUITY VARIABLE CONTRACT PROFILE
MAY 1, 1997
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE FULL PROSPECTUS WHICH IS ATTACHED TO THIS PROFILE. PLEASE READ
THE PROSPECTUS CAREFULLY. THE TERMS "WE," "US" AND "OUR" REFER TO TRAVELERS
INSURANCE COMPANY. "YOU" AND "YOUR" REFER TO THE CONTRACT OWNER.
1. THE VARIABLE ANNUITY CONTRACT. The Contract offered by Travelers Insurance
Company is a variable annuity that is intended for retirement savings or other
long-term investment purposes. The Contract provides a death benefit as well as
guaranteed income options. Under the Contract, you can make one or more
payments, as you choose, on a tax-deferred basis. You direct your payment(s) to
one or more of the funding options listed in Section 4. You may gain or lose
money in the funding options.
You can transfer between the funding options as frequently as you wish without
any current tax implications. Currently there is no charge for transfers, nor a
limit to the number of transfers allowed. We may, in the future, charge a fee
for any transfer request, or limit the number of transfers allowed. At the
minimum, we would always allow at least one transfer every six months.
The Contract, like all deferred variable annuity contracts has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
on the amounts you contribute (tax-deferred) accumulate on a tax-deferred basis
and are taxed as income when you make a withdrawal, presumably when you are in a
lower tax bracket. The income phase occurs when you begin receiving regular
payments (annuity payments) from your Contract. The amount of money you
accumulate in your Contract determines the amount of income (annuity payments)
you receive during the income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE). You may choose to receive income
payments that are fixed (i.e., the dollar amount will not vary) or payments that
fluctuate based on the performance of the variable funding options. If you want
to receive regular payments from your annuity, you can choose one of the
following annuity options: Option 1 -- payments for your life (a life annuity
assumes you are both the owner and the annuitant) with no refund which means
that no further payments are made upon your death; Option 2 -- payments for your
life (a life annuity) for a certain number of months as you select (such as 120,
180 or 240) with an added guarantee that payments will continue should you die
during that period; Option 3 -- payments for your life (life annuity) with a
cash refund with the guarantee that, upon your death, your beneficiary will
receive the balance as a lump sum payment; Option 4 -- payments under a Joint
and Last Survivor Life Annuity in which payments are made for your life and the
life of another person (usually your spouse). This option can also be elected
with payments continuing at a reduced rate after the death of one payee. There
are also Income Options available: Income Option 1 -- Fixed Amount -- the Cash
Surrender Value of your Contract will be paid to you in equal payments for a
fixed period; or Option 2 -- Fixed Period -- the Cash Surrender Value will be
used to make payments for a fixed time period. If you should die prior to the
end of the Fixed Period, the remaining amount will go to your beneficiary.
Once you make an election of an annuity option or an income option and income
payments begin, it cannot be changed. During the income phase, you have the same
investment choices you had during the accumulation phase. If amounts are
directed to the variable Funding Options, the dollar amount of your payments may
increase or decrease. Once the annuity or income payments begin, the selection
of funding options may not be changed.
3. PURCHASE. You may purchase a tax-qualified Contract with an initial payment
of at least $20, except in the case of an individual retirement annuity (IRA)
where the minimum initial payment is
<PAGE> 5
$1,000. Additional payments to tax-qualified contract of at least $20 may be
made. For nonqualified contracts, the minimum initial purchase payment is
$1,000, and $100 thereafter.
4. FUNDING OPTIONS. You can direct your money into any or all of the following
investment (funding) options. They are described in the prospectuses for the
funds. Depending on market conditions, you may make or lose money in any of
these options.
<TABLE>
<S> <C>
Travelers Growth and Income Stock Account Fund U (continued):
Travelers Quality Bond Account
Travelers Money Market Account American Odyssey Core Equity Fund
Fund U:
American Odyssey Short-Term Bond Fund
American Odyssey Intermediate-Term Bond Fund Templeton Stock Fund (Class 1)
U.S. Government Securities Portfolio
Alliance Growth Portfolio
Templeton Bond Fund (Class 1) Fidelity VIP Growth Portfolio
Capital Appreciation Fund
American Odyssey Long-Term Bond Fund (Sub-adviser: Janus)
Putnam Diversified Income Portfolio American Odyssey Emerging Opportunities
High Yield Bond Trust Fund
Smith Barney High Income Portfolio Smith Barney International Equity Portfolio
Fidelity VIP High Income Portfolio American Odyssey International Equity Fund
Managed Assets Trust
Utilities Portfolio MFS Total Return Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP Equity-Income Portfolio
Smith Barney Income and Growth Templeton Asset Allocation Fund (Class 1)
Portfolio
Dreyfus Stock Index Fund Travelers Timed Growth and Income Stock
Account
Social Awareness Stock Portfolio Travelers Timed Short-Term Bond Account
Travelers Timed Aggressive Stock Account
Travelers Timed Bond Account
</TABLE>
5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each.
For each contract we deduct a semi-annual administrative charge of $15. There is
also an annual insurance charge of 1.25% of the amounts you direct to the
Funding Options.
Each Funding Option has an investment charge (total fund charge), which includes
the management fee and other expenses (and which reflects any expense
reimbursements or fee waivers). The charge ranges from .32% to 2.11% annually,
of the average daily net asset balance of the Funding Option, depending on the
Funding Option selected.
If you withdraw money, we may deduct a withdrawal charge (of 5% for five years)
of the purchase payments you made to the Contract. If you withdraw all amounts
under the Contract, or if you begin receiving annuity/income payments, the
Company may be required by your state to deduct a premium tax of 0%-5%.
The following table is designed to help you understand the Contract charges. The
column "Total Annual Insurance Charge" shows the total of the $15 semi-annual
contract charge (which is represented as 0.167% below) and the insurance charge
of 1.25%. The investment charges for each portfolio are also shown. For the
American Odyssey Portfolios, the 1.25% CHART asset allocation fee is reflected.
The columns under the heading "Examples" show you how much you would pay under
the Contract for a one-year period and for a 10-year period. The examples assume
that you invested $1,000 in a Contract that earns 5% annually and that you
withdraw your money (a) at the end of year one and (b) at the end of year 10.
For year 1, the Total Annual Charges are assessed as well as the withdrawal
charges. For year 10, the examples shows the aggregate of all the annual charges
assessed during that time, but no withdrawal charge is shown. For these
examples, the premium tax is assumed to be 0%.
2
<PAGE> 6
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL TOTAL ANNUAL EXPENSES
TOTAL ANNUAL FUNDING OPTION TOTAL ANNUAL AT END OF:
PORTFOLIO NAME INSURANCE CHARGE EXPENSES CHARGES 1 YEAR 10 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Growth Portfolio.... 1.42% 0.87% 2.29% $73 $262
American Odyssey Core Equity
Fund....................... 1.42% 1.93% 3.35% 84 364
American Odyssey Emerging
Opportunities Fund......... 1.42% 1.97% 3.39% 84 367
American Odyssey
International Equity
Fund....................... 1.42% 2.11% 3.53% 85 380
American Odyssey Short-Term
Bond Fund.................. 1.42% 2.00% 3.42% 84 370
American Odyssey
Intermediate-Term Bond
Fund....................... 1.42% 1.91% 3.33% 84 362
American Odyssey Long-Term
Bond Fund.................. 1.42% 1.88% 3.30% 83 359
Capital Appreciation Fund
(Sub-adviser: Janus)....... 1.42% 0.83% 2.25% 73 258
Dreyfus Stock Index Fund..... 1.42% 0.30% 1.72% 67 203
Fidelity VIP High Income
Portfolio.................. 1.42% 0.71% 2.13% 72 246
Fidelity VIP II Asset Manager
Portfolio.................. 1.42% 0.73% 2.15% 72 248
Fidelity VIP Equity-Income
Portfolio.................. 1.42% 0.56% 1.98% 70 230
Fidelity VIP Growth
Portfolio.................. 1.42% 0.67% 2.09% 71 242
MFS Total Return Portfolio... 1.42% 0.91% 2.33% 74 266
Putnam Diversified Income
Portfolio.................. 1.42% 0.96% 2.38% 74 271
Smith Barney High Income
Portfolio.................. 1.42% 0.84% 2.26% 73 259
Smith Barney Income and
Growth Portfolio........... 1.42% 0.73% 2.15% 72 248
Smith Barney International
Equity Portfolio........... 1.42% 1.10% 2.52% 75 285
Social Awareness Stock
Portfolio (Adviser: Smith
Barney).................... 1.42% 1.25% 2.67% 77 300
Templeton Asset Allocation
Fund (Class 1)............. 1.42% 0.78% 2.20% 72 253
Templeton Bond Fund (Class
1)......................... 1.42% 0.68% 2.10% 71 243
Templeton Stock Fund (Class
1)......................... 1.42% 0.88% 2.30% 73 263
High Yield Bond Trust........ 1.42% 0.97% 2.39% 74 272
Managed Assets Trust......... 1.42% 0.58% 2.00% 70 232
U.S. Government Securities
Portfolio.................. 1.42% 0.62% 2.04% 71 237
Travelers Timed Growth and
Income Stock Account....... 1.42% 1.57% 2.99% 80 331
Travelers Timed Short-Term
Bond Account............... 1.42% 1.57% 2.99% 80 331
Travelers Timed Aggressive
Stock Account.............. 1.42% 1.60% 3.02% 80 333
Travelers Timed Bond
Account.................... 1.42% 1.75% 3.17% 82 347
Travelers Growth and Income
Stock Account.............. 1.42% 0.45% 1.87% 69 219
Travelers Quality Bond
Account.................... 1.42% 0.32% 1.74% $ 68 $ 205
Travelers Money Market
Account.................... 1.42% 0.32% 1.74% 68 205
Utilities Portfolio (adviser:
Smith Barney).............. 1.42% 1.07% 2.49% 75 282
</TABLE>
3
<PAGE> 7
6. TAXES. The payments you make to the Contract during the accumulation phase
are made with before-tax dollars or after-tax dollars. You may be taxed on your
purchase payments and will be taxed on any earnings when you make a withdrawal
or begin receiving payments. If you are younger than 59 1/2 when you take money
out, you may be charged a 10% federal penalty tax on the amount withdrawn.
If you reach a certain age, you may be required by federal tax laws to begin
receiving payments from your annuity or risk paying a penalty tax. In those
cases, the Company can calculate and pay you the minimum distribution amount
required by federal law.
7. ACCESS TO YOUR MONEY. You can take out money at any time during the
accumulation phase. A withdrawal charge (a deferred sales charge) may apply. The
amount of the charge depends on a number of factors, including the length of
time since the purchase payment was made. After the first contract year, you may
withdraw up to 10% of the cash value (as of the prior contract year-end date)
without a deferred sales charge. You may also have to pay income taxes, a
federal tax penalty or premium taxes on any money you take out.
You may choose to receive monthly, quarterly, semi-annual or annual
("systematic") withdrawals of at least $50 if your Contract's Cash Value is
$5,000 or more. All applicable sales charges and premium taxes will be deducted.
8. PERFORMANCE. The value of the Contract will vary depending upon the
investment performance of the Funding Options you choose. The following chart
shows total returns for each Funding Option for the time periods shown. The rate
of return reflects the insurance charges, administrative charge, investment
charges and all other expenses of the Funding Option. The rate of return does
not reflect any withdrawal charge, which, if applied, would reduce such
performance. Past performance is not a guarantee of future results.
LAST TEN CALENDAR YEARS (OR SINCE INCEPTION):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO
NAME 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance
Growth
Portfolio... 27.60% 32.96%
American
Odyssey
Core Equity
Fund....... 21.44% 36.66% -2.53%
20.19%* 35.41%* -3.78%*
American
Odyssey
Emerging
Opportunities
Fund....... -4.52% 30.42% 8.02%
-5.77%* 29.17%* 6.77%*
American
Odyssey
International
Equity
Fund....... 20.19% 17.34% -8.42%
18.94%* 16.09%* -9.67%*
American
Odyssey
Short- Term
Bond
Fund....... 2.33% 9.30% -1.67%
1.08%* 8.05%* -2.92%*
American
Odyssey
Intermediate-Term
Bond
Fund....... 2.47% 13.41% -4.34%
1.22%* 12.16%* -5.59%*
American
Odyssey
Long-Term
Bond
Fund....... -0.13% 20.75% -7.22%
-1.38%* 19.50%* -8.47%*
Capital
Appreciation
Fund
(Sub-adviser:
Janus)..... 26.44% 34.49% -6.25% 13.30% 15.81% 33.09% -7.42% 13.77% 8.37% -9.45%
Dreyfus
Stock Index
Fund....... 20.83% 34.90% -0.66% 7.63% 5.42% 27.94% -4.97%
Fidelity VIP
High Income
Portfolio... 12.44% 18.93% -3.06% 18.67% 21.42% 33.11% -3.73% -5.63% 9.95% -0.44%
Fidelity VIP
II Asset
Manager
Portfolio... 13.01% 15.33% -7.55% 19.19% 10.12% 20.74% 5.11%
Fidelity VIP
Equity-Income
Portfolio... 12.68% 33.23% 5.45% 16.46% 15.09% 29.51% -16.63% 15.62% 20.88% -2.76%
Fidelity VIP
Growth
Portfolio.. 13.10% 33.51% -1.55% 17.54% 7.67% 43.41% -13.12% 29.62% 13.84% 1.97%
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO
NAME 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MFS Total
Return
Portfolio... 12.86% 23.96%
Putnam
Diversified
Income
Portfolio... 6.72% 15.74%
Smith Barney
High Income
Portfolio... 11.58% 16.30%
Smith Barney
Income and
Growth
Portfolio... 18.14% 31.22%
Smith Barney
International
Equity
Portfolio... 16.02% 9.68%
Social
Awareness
Stock
Portfolio
(Adv: Smith
Barney).... 18.31% 31.56% -4.12% 5.84%
Templeton
Asset
Allocation
Fund (Class
1)......... 17.21% 20.84% -4.46% 24.21% 6.32% 25.81% -9.41% 11.58%
Templeton
Bond Fund
(Class
1)......... 7.91% 13.31% -6.35% 9.74% 3.80% 14.13% 4.72% 6.05%
Templeton
Stock Fund
(Class
1)......... 20.73% 23.51% -3.71% 31.99% 5.39% 25.59% -12.40% 12.94%
Travelers
High Yield
Bond
Trust...... 14.43% 13.90% -2.78% 12.24% 11.38% 24.31% -10.17% -0.14% 12.88% -2.11%
Travelers
Managed
Assets
Trust...... 12.19% 25.35% -3.76% 7.67% 3.47% 19.95% 0.94% 25.29% 7.56% 0.47%
Travelers
U.S.
Government
Securities
Portfolio... 0.01% 22.75% -7.11% 7.80%
Travelers
Timed
Growth and
Income
Stock
Account.... 19.87% 33.37% -4.90% 4.65% 2.58% 17.78% -4.09% 30.34%
Travelers
Timed
Short-Term
Bond
Account.... 1.91% 2.98% 1.04% 0.04% 0.68% 2.96% 5.74% 7.68% 5.83%
Travelers
Timed
Aggressive
Stock
Account.... 16.26% 31.89% -7.45% 12.83% 8.27% 31.31% -4.72% 11.99% 4.23%
Travelers
Timed Bond
Account.... -11.09% 13.62% -1.78% 8.62% 3.75% 9.09% -4.31% -7.25% 10.38%
Travelers
Growth and
Income
Stock
Account.... 21.20% 35.26% -1.56% 7.34% 0.57% 27.41% -4.99% 26.13% 16.10% -4.07%
Travelers
Quality
Bond
Account.... 3.22% 14.31% -2.71% 7.77% 6.32% 12.86% 7.01% 9.43% 5.42% 2.21%
Travelers
Money
Market
Account.... 3.60% 4.09% 2.29% 1.19% 1.81% 4.26% 6.47% 7.54% 5.79% 4.82%
Utilities
Portfolio
(adviser:
Smith
Barney).... 5.95% 27.51%
</TABLE>
* Includes CHART fee of 1.25% annually.
9. DEATH BENEFIT. Assuming you are the Annuitant, if you die before you move to
the Income Phase, the person you have chosen as your beneficiary will receive a
death benefit. The death
benefit paid depends on your age at the time of your death. If you die before
you reach age 75, the death benefit equals the greatest of (1), (2) or (3)
below:
(1) the Cash Value; or
(2) the total Purchase Payments made under the Contract; or
(3) the Cash Value on the most recent fifth multiple of the contract year
anniversary immediately preceding the date on which the Company
receives due proof of death.
5
<PAGE> 9
If you die on or after age 75, the death benefit is equal to the Cash Value
determined as of the date the Company receives due proof of death.
In all cases described above, any amount paid will be reduced by any applicable
premium tax or surrenders not previously deducted. Certain states may have
varying age requirements. Please refer to the Contract Prospectus.
10. OTHER INFORMATION
RIGHT TO RETURN
If you cancel the Contract within twenty days after you receive it, you receive
a full refund of the Cash Value (including charges). Where state law requires a
longer right to return (free look), or the return of the purchase payments, we
will comply. You bear the investment risk during the free look period;
therefore, the Cash Value returned to you may be greater or less than your
purchase payment. If the Contract is purchased as an Individual Retirement
Annuity (IRA), and is returned within the first seven days after Contract
delivery, your full purchase payment will be refunded. During the remainder of
the IRA free look period, the Cash Value (including charges) will be refunded.
The Cash Value will be determined as of the close of business on the day we
receive a written request for a refund.
WHO MAY PURCHASE THIS CONTRACT?
The Contract is currently available for use in connection with (1) individual
nonqualified purchases; (2) Individual Retirement Annuities (IRA) or IRA
Rollover pursuant to Section 408 of the Internal Revenue Code of 1986, as
amended; and (3) qualified retirement plans (which include contracts qualifying
under Section 401(a), 403(b), 408(b) or 457 of the Internal Revenue Code.
ADDITIONAL FEATURES
This Contract has other features you may be interested in. These include:
DOLLAR COST AVERAGING. This is a program that allows you to invest a fixed
amount of money in Funding Options each month, theoretically giving you a lower
average cost per unit over time as compared to a single one-time purchase.
Dollar cost averaging does not guarantee a profit nor prevent loss in a
declining market.
TELEPHONE TRANSFERS. You may place a transfer request via telephone. This
feature is available to you automatically; no special election is required.
MARKET TIMING PROGRAM. If allowed, you may elect to enter into a separate
market timing services agreement with registered investment advisers who provide
market timing services. These agreements permit the registered investment
advisers to act on your behalf by transferring all or a portion of the Cash
Value from one Market Timed Account to another. The registered investment
advisers can transfer funds only from one Market Timed Account to another Market
Timed Account. Purchase Payments are allocated to the following Funding Options
when you participate in the Market Timing Program: Travelers Timed Growth and
Income Stock Account; Travelers Timed Short-Term Bond Account; Travelers Timed
Aggressive Stock Account; and Travelers Timed Bond Account. The Market Timing
Program and applicable fees are fully disclosed in a separate Disclosure
Statement.
ASSET ALLOCATION ADVICE. If allowed, you may elect to enter into a separate
advisory agreement with Copeland Financial Services, Inc. ("Copeland"), an
affiliate of the Company, for the purpose of receiving asset allocation advice
under Copeland's CHART Program. The CHART Program allocates all Purchase
Payments among the American Odyssey Funds. The CHART Program and applicable fees
are fully disclosed in a separate Disclosure Statement.
11. INQUIRIES. If you need more information, please contact us at:
Travelers Insurance Company
Annuity Services
One Tower Square
Hartford, CT 06183
(800) 842-8573
6
<PAGE> 10
UNIVERSAL ANNUITY
PROSPECTUS
- --------------------------------------------------------------------------------
This prospectus describes the individual and group variable annuity Contracts
(the "Contracts") to which purchase payments may be made as either a single
payment or on a flexible basis. The Contracts are issued by The Travelers
Insurance Company. Purchase payments may be allocated to one or more of the
following funding options: The Travelers Growth and Income Stock Account for
Variable Annuities (Account GIS) -- common stock; The Travelers Quality Bond
Account for Variable Annuities (Account QB) -- intermediate-term bonds; The
Travelers Money Market Account for Variable Annuities (Account MM) -- money
market instruments (an investment in Account MM is neither insured nor
guaranteed by the U.S. Government); The Travelers Timed Growth and Income Stock
Account for Variable Annuities (Account TGIS) -- timed/common stock; The
Travelers Timed Short-Term Bond Account for Variable Annuities (Account TSB) --
timed/short-term bonds; The Travelers Timed Aggressive Stock Account for
Variable Annuities (Account TAS) -- timed/aggressive common stock; The Travelers
Timed Bond Account for Variable Annuities (Account TB) -- timed/U.S. Government
securities; or The Travelers Fund U for Variable Annuities (Fund U) and its
underlying funds as follows:
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Capital Appreciation Fund Dreyfus Stock Index Fund
High Yield Bond Trust American Odyssey International Equity
Managed Assets Trust Fund
U.S. Government Securities Portfolio American Odyssey Emerging Opportunities
Social Awareness Stock Portfolio Fund
Utilities Portfolio American Odyssey Core Equity Fund
American Odyssey Long-Term Bond Fund
Templeton Bond Fund (Class 1) American Odyssey Intermediate-Term Bond
Fund
American Odyssey Short-Term Bond Fund
Templeton Stock Fund (Class 1) Smith Barney Income and Growth Portfolio
Alliance Growth Portfolio
Smith Barney International Equity
Templeton Asset Allocation Fund (Class 1) Portfolio
Putnam Diversified Income Portfolio
Fidelity VIP High Income Portfolio Smith Barney High Income Portfolio
Fidelity VIP Equity-Income Portfolio MFS Total Return Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP II Asset Manager Portfolio
</TABLE>
This prospectus sets forth the information that you should know before
investing. Please read it and retain it for future reference. Additional
information is contained in a Statement of Additional Information ("SAI") dated
May 1, 1997, which has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. A copy may be
obtained, without charge, by writing to The Travelers Insurance Company, Annuity
Services, One Tower Square, Hartford, Connecticut 06183, or by calling
1-800-842-8573. The Table of Contents of the SAI appears in Appendix B of this
prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
FUND U'S UNDERLYING FUNDS. BOTH THIS PROSPECTUS AND EACH OF THE UNDERLYING FUND
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<S> <C>
FEE TABLE....................................... 3
THE VARIABLE ANNUITY CONTRACT................... 7
PURCHASE PAYMENTS............................. 7
Application of Purchase Payments............ 7
Accumulation Units.......................... 8
THE FUNDING OPTIONS........................... 8
Fund U:..................................... 8
Managed Separate Accounts................... 8
TRANSFERS..................................... 8
Dollar-Cost Averaging (Automated
Transfers)................................ 8
Asset Allocation Advice..................... 9
MARKET TIMING SERVICES........................ 9
Market Timing Risks......................... 10
WITHDRAWALS AND REDEMPTIONS................... 10
Systematic Withdrawals...................... 11
DEATH BENEFIT................................. 11
CHARGES AND DEDUCTIONS........................ 11
Withdrawal Charge........................... 11
Premium Tax................................. 12
Administrative Charge....................... 13
Mortality and Expense Risk Charge........... 13
Reduction or Elimination of Contract
Charges................................... 13
Investment Advisory Fees.................... 14
Market Timing Services Fees................. 14
THE ANNUITY PERIOD.............................. 14
Maturity Date............................... 14
Allocation of Annuity....................... 15
Determination of First Annuity Payment...... 15
Determination of Second and Subsequent
Annuity Payments.......................... 15
PAYOUT OPTIONS................................ 15
Election of Options......................... 15
Annuity Options............................. 16
Income Options.............................. 17
MISCELLANEOUS CONTRACT PROVISIONS............... 17
Termination of Contract or Account.......... 17
Distribution from One Account to Another
Account................................... 19
Required Reports............................ 19
Right to Return............................. 19
Change of Contract.......................... 19
Assignment.................................. 20
Suspension of Payments...................... 20
Voting Rights............................... 20
Fund U.................................... 20
Accounts GIS, QB, MM, TGIS, TSB, TAS and
TB...................................... 20
OTHER INFORMATION............................... 21
Distribution of Variable Annuity
Contracts................................. 21
Conformity with State and Federal Laws...... 21
Legal Proceedings and Opinions.............. 21
THE INSURANCE COMPANY AND SEPARATE ACCOUNTS..... 22
THE INSURANCE COMPANY......................... 22
THE SEPARATE ACCOUNTS......................... 22
Substitution of Investments................. 22
Investment Options Chart.................... 23
Managed Separate Accounts: Management and
Investment Advisory Services.............. 25
Performance Information..................... 25
FEDERAL TAX CONSIDERATIONS...................... 26
GENERAL TAXATION OF ANNUITIES................. 26
TYPES OF CONTRACTS: QUALIFIED OR
NONQUALIFIED................................ 26
Investor Control............................ 26
Mandatory Distributions for Qualified
Plans..................................... 27
Nonqualified Annuity Contracts.............. 27
Qualified Annuity Contracts................. 28
Penalty Tax for Premature Distributions..... 28
Diversification Requirements................ 28
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE
ANNUITIES (ACCOUNT GIS)....................... 28
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE
ANNUITIES
(ACCOUNT QB).................................. 30
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE
ANNUITIES
(ACCOUNT MM).................................. 32
THE TRAVELERS TIMED GROWTH AND INCOME STOCK
ACCOUNT FOR
VARIABLE ANNUITIES (ACCOUNT TGIS)............. 34
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR
VARIABLE
ANNUITIES (ACCOUNT TSB)....................... 36
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR
VARIABLE
ANNUITIES (ACCOUNT TAS)....................... 38
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE
ANNUITIES
(ACCOUNT TB).................................. 40
APPENDIX A (CONDENSED FINANCIAL INFORMATION).... A-1
APPENDIX B...................................... B-1
</TABLE>
INDEX OF SPECIAL TERMS
The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.
<TABLE>
<S> <C>
Accumulation Units.............................. 8
Annuitant....................................... 14
Annuity Payments................................ 14
Annuity Unit.................................... 8
Cash Surrender Value............................ 10
Cash Value...................................... 7
Contract Date................................... 7
Contract Owner (You, Your or Owner)............. 7
Contract Year................................... 7
Funding Option(s)............................... 8
Income Payments................................. 17
Individual Account.............................. 7
Managed Separate Account........................ 8
Maturity Date................................... 14
Owner's Account................................. 7
Participant..................................... 7
Participant's Interest.......................... 7
Plan............................................ 7
Purchase Payment................................ 7
Underlying Funds................................ 8
Written Request................................. 7
</TABLE>
2
<PAGE> 12
FEE TABLE
- --------------------------------------------------------------------------------
ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS AND TB
FUND U AND ITS UNDERLYING FUNDS
The purpose of this Fee Table is to help individuals understand the various
costs and expenses that a contract owner or a participant will bear, directly or
indirectly, under the Contract. The information, except as noted, reflects
expenses of the managed separate accounts as well as Fund U and its underlying
funds for the fiscal year ending December 31, 1996. For additional information,
including possible waivers or reductions of these expenses, see "Charges and
Deductions." Expenses shown do not include premium taxes, which may be
applicable.
CONTRACT CHARGES AND EXPENSES
<TABLE>
<S> <C>
CONTINGENT DEFERRED SALES CHARGE (as a percentage of purchase payments)
If withdrawn within 5 years after the purchase payment is made.............. 5.00%
If withdrawn 5 or more years after the purchase payment is made............. 0%
SEMIANNUAL CONTRACT ADMINISTRATIVE CHARGE...................................... $15
ANNUAL SEPARATE ACCOUNT EXPENSES
MORTALITY AND EXPENSE RISK CHARGE (as a percentage of average net assets of
Managed Separate Accounts and Fund U)....................................... 1.25%
FUNDING OPTION EXPENSES:
(as a percentage of average net assets of amounts allocated to the funding option)
</TABLE>
<TABLE>
<CAPTION>
MARKET
MANAGEMENT TIMING ANNUAL
MANAGED SEPARATE ACCOUNTS FEE FEE(1) EXPENSES(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Travelers Growth and Income Stock Account (Account
GIS)............................................ 0.45% -- 0.45%
Travelers Quality Bond Account (Account QB)....... 0.32% -- 0.32%
Travelers Money Market Account (Account MM)....... 0.32% -- 0.32%
Travelers Timed Growth and Income Stock Account
(Account TGIS).................................. 0.32% 1.25% 1.57%
Travelers Timed Short-Term Bond Account (Account
TSB)............................................ 0.32% 1.25% 1.57%
Travelers Timed Aggressive Stock Account (Account
TAS)............................................ 0.35% 1.25% 1.60%
Travelers Timed Bond Account (Account TB)......... 0.50% 1.25% 1.75%
</TABLE>
<TABLE>
<CAPTION>
OTHER TOTAL
MANAGEMENT EXPENSES UNDERLYING
FEE (AFTER (AFTER FUND
UNDERLYING FUNDS REIMBURSEMENT) REIMBURSEMENT) EXPENSES
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation Fund......................... 0.75% 0.08% 0.83%
High Yield Bond Trust............................. 0.50% 0.47% 0.97%
Managed Assets Trust.............................. 0.50% 0.08% 0.58%
U.S. Government Securities Portfolio.............. 0.32% 0.30% 0.62%
Social Awareness Stock Portfolio.................. 0.65% 0.60%(3) 1.25%
Utilities Portfolio............................... 0.65% 0.42% 1.07%
Templeton Bond Fund (Class 1)..................... 0.50% 0.18% 0.68%
Templeton Stock Fund (Class 1).................... 0.70% 0.18%(4) 0.88%
Templeton Asset Allocation Fund (Class 1)......... 0.61% 0.17%(4) 0.78%
Fidelity VIP High Income Portfolio................ 0.59% 0.12%(5) 0.71%
Fidelity VIP Equity-Income Portfolio.............. 0.51% 0.05%(5) 0.56%
Fidelity VIP Growth Portfolio..................... 0.61% 0.06%(5) 0.67%
Fidelity VIP II Asset Manager Portfolio........... 0.64% 0.09%(5) 0.73%
Dreyfus Stock Index Fund.......................... 0.25% 0.05% 0.30%
American Odyssey International Equity Fund........ 0.65 % 0.21 % 0.86 %
0.65 % 1.46 %* 2.11 %*
American Odyssey Emerging Opportunities Fund...... 0.60% 0.12% 0.72%
0.60% 1.37%* 1.97%*
</TABLE>
3
<PAGE> 13
<TABLE>
<CAPTION>
OTHER TOTAL
MANAGEMENT EXPENSES UNDERLYING
FEE (AFTER (AFTER FUND
UNDERLYING FUNDS REIMBURSEMENT) REIMBURSEMENT) EXPENSES
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Odyssey Core Equity Fund................. 0.57 % 0.11 % 0.68 %
0.57 % 1.36 %* 1.93 %*
American Odyssey Long-Term Bond Fund.............. 0.50 % 0.13 % 0.63 %
0.50 % 1.38 %* 1.84 %*
American Odyssey Intermediate-Term Bond Fund...... 0.50 % 0.16 % 0.66 %
0.50 % 1.41 %* 1.91 %*
American Odyssey Short-Term Bond Fund............. 0.50 % 0.25 %(6) 0.75 %
0.50 % 1.50 %*(6) 2.00 %*
Smith Barney Income and Growth Portfolio.......... 0.65 % 0.08 %(7) 0.73 %
Alliance Growth Portfolio......................... 0.80 % 0.07 %(7) 0.87 %
Smith Barney International Equity Portfolio....... 0.75 % 0.21 %(7) 0.96 %
Putnam Diversified Income Portfolio............... 0.60 % 0.24 %(7) 0.84 %
Smith Barney High Income Portfolio................ 0.80 % 0.11 %(7) 0.91 %
MFS Total Return Portfolio........................ 0.90 % 0.20 %(8) 1.10 %
G.T. Global Strategic Income Portfolio............ 0.80 % 0.43 %(8) 1.23 %
</TABLE>
* Includes 1.25% CHART asset allocation fee.
(1) Contract Owners may discontinue market timing services at any time and
thereby avoid any subsequent fees for those services by transferring to a
non-timed account.
(2) This figure does not include the mortality and expense risk fee.
(3) Other Expenses take into account the current expense reimbursement
arrangement with the Company. The Company has agreed to reimburse each Fund
for the amount by which its aggregate expenses (including the management
fee, but excluding brokerage commissions, interest charges and taxes)
exceeds 1.25%. Without such arrangement, Other Expenses would have been
1.69% for the Social Awareness Stock Portfolio.
(4) Management Fees and Total Underlying Fund Expenses have been restated to
reflect the management fee schedule which was approved by shareholders and
which takes effect on May 1, 1997. Actual Managment Fees and Total
Underlying Fund Expenses before May 1, 1997 were lower.
(5) A portion of the brokerage commissions that certain funds pay was used to
reduce the fund's expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Without these reductions, the Total Underlying Fund Expenses
presented in this table would have been 0.58% for Equity-Income Portfolio,
0.69% for Growth Portfolio, and 0.74% for Asset Manager Portfolio.
(6) The Short-Term Bond Fund is required to repay the Manager for any fees the
Manager previously waived or expenses the Manager previously reimbursed,
provided that this repayment by the Fund does not cause the total expense
ratio to exceed 0.75%. Without these repayments, Total Underlying Fund
Expenses for the Short-Term Bond Fund for 1996 would
have been 0.68%.
(7) Other expenses are as of October 31, 1996 (the Fund's fiscal year end).
There were no fees waived or expenses reimbursed for these funds in 1996.
(8) During the fiscal year ended October 31, 1996, the Smith Barney
International Equity Portfolio and G.T. Global Strategic Income Portfolio
earned credits from the Custodian which reduced the service fees incurred.
When these credits are taken into consideration, Total Underlying Fund
Expenses for these Portfolios are 1.05% and 1.11% respectively. In addition,
the Manager waived all or part of its fees for this period for the G.T.
Global Strategic Income Portfolio. Actual Total Underlying Expenses for the
Portfolio would have been 1.38% without this reimbursement.
EXAMPLE*
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
(a) If the Contract is surrendered at the end of the period shown
(b) If the Contract is not surrendered at the end of the period shown or if
it is annuitized
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Managed Separate Accounts:
Account GIS.................................................... $69(a) $109(a) $151(a) $219 a)
19(b) 59(b) 101(b) 219 b)
Account QB..................................................... 68(a) 105(a) 144(a) 205 a)
18(b) 55(b) 94(b) 205 b)
</TABLE>
4
<PAGE> 14
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
THREE FIVE TEN
ONE YEARS YEARS YEARS
YEAR
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Account MM..................................................... $68(a) $105(a) $144(a) $205 a)
18(b) 55(b) 94(b) 205 b)
Account TGIS................................................... 80(a) 142(a) 207(a) 331 a)
30(b) 92(b) 157(b) 331 b)
Account TSB.................................................... 80(a) 142(a) 207(a) 331 a)
30(b) 92(b) 157(b) 331 b)
Account TAS.................................................... 80(a) 143(a) 209(a) 333 a)
30(b) 93(b) 159(b) 333 b)
Account TB..................................................... 82(a) 148(a) 216(a) 347 a)
32(b) 98(b) 166(b) 347 b)
Underlying Funding Options:
Capital Appreciation Fund...................................... 73(a) 120(a) 170(a) 258 a)
23(b) 70(b) 120(b) 258 b)
High Yield Bond Trust.......................................... 74(a) 124(a) 177(a) 272 a)
24(b) 74(b) 127(b) 272 b)
Managed Assets Trust........................................... 70(a) 113(a) 158(a) 232 a)
20(b) 63(b) 108(b) 232 b)
U.S. Government Securities Portfolio........................... 71(a) 114(a) 160(a) 237 a)
21(b) 64(b) 110(b) 237 b)
Social Awareness Stock Portfolio............................... 77(a) 133(a) 191(a) 300 a)
27(b) 83(b) 141(b) 300 b)
Utilities Portfolio............................................ 75(a) 127(a) 182(a) 282 a)
25(b) 77(b) 132(b) 282 b)
Templeton Bond Fund (Class 1).................................. 71(a) 116(a) 163(a) 243 a)
21(b) 66(b) 113(b) 243 b)
Templeton Stock Fund (Class 1)................................. 73(a) 122(a) 173(a) 263 a)
23(b) 72(b) 123(b) 263 b)
Templeton Asset Allocation Fund (Class 1)...................... 72(a) 119(a) 168(a) 253 a)
22(b) 69(b) 118(b) 253 b)
Fidelity VIP High Income Portfolio............................. 72(a) 117(a) 164(a) 246 a)
22(b) 67(b) 114(b) 246 b)
Fidelity VIP Equity-Income Portfolio........................... 70(a) 112(a) 157(a) 230 a)
20(b) 62(b) 107(b) 230 b)
Fidelity VIP Growth Portfolio.................................. 71(a) 115(a) 162(a) 242 a)
21(b) 65(b) 112(b) 242 b)
Fidelity VIP II Asset Manager Portfolio........................ 72(a) 117(a) 165(a) 248 a)
22(b) 67(b) 115(b) 248 b)
Dreyfus Stock Index Fund....................................... 67(a) 104(a) 143(a) 203 a)
17(b) 54(b) 93(b) 203 b)
American Odyssey Funds(1):
International Equity Fund.................................... 73(a) 121(a) 172(a) 261 a)
23(b) 71(b) 122(b) 261 b)
Emerging Opportunities Fund.................................. 72(a) 117(a) 165(a) 247 a)
22(b) 67(b) 115(b) 247 b)
Core Equity Fund............................................. 71(a) 116(a) 163(a) 243 a)
21(b) 66(b) 113(b) 243 b)
</TABLE>
5
<PAGE> 15
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
THREE FIVE TEN
ONE YEARS YEARS YEARS
YEAR
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-Term Bond Fund.......................................... $71(a) $114(a) $160(a) $238 a)
21(b) 64(b) 110(b) 238 b)
Intermediate-Term Bond Fund.................................. 71(a) 115(a) 162(a) 241 a)
21(b) 65(b) 112(b) 241 b)
Short-Term Bond Fund......................................... 72(a) 118(a) 166(a) 250 a)
22(b) 68(b) 116(b) 250 b)
American Odyssey Funds(2):
International Equity Fund.................................... 86(a) 158(a) 233(a) 380 a)
36(b) 108(b) 183(b) 380 b)
Emerging Opportunities Fund.................................. 84(a) 154(a) 226(a) 367 a)
34(b) 104(b) 176(b) 367 b)
Core Equity Fund............................................. 84(a) 153(a) 224(a) 364 a)
34(b) 103(b) 174(b) 364 b)
Long-Term Bond Fund.......................................... 83(a) 151(a) 222(a) 359 a)
33(b) 101(b) 172(b) 359 b)
Intermediate-Term Bond Fund.................................. 84(a) 152(a) 223(a) 362 a)
34(b) 102(b) 173(b) 362 b)
Short-Term Bond Fund......................................... 84(a) 155(a) 228(a) 370 a)
34(b) 105(b) 178(b) 370 b)
Smith Barney Income and Growth Portfolio....................... 72(a) 117(a) 165(a) 248 a)
22(b) 67(b) 115(b) 248 b)
Alliance Growth Portfolio...................................... 73(a) 121(a) 172(a) 262 a)
23(b) 71(b) 122(b) 262 b)
Smith Barney International Equity Portfolio.................... 75(a) 128(a) 184(a) 285 a)
25(b) 78(b) 134(b) 285 b)
Putnam Diversified Income Portfolio............................ 74(a) 124(a) 177(a) 271 a)
24(b) 74(b) 127(b) 271 b)
Smith Barney High Income Portfolio............................. 73(a) 121(a) 171(a) 259 a)
23(b) 71(b) 121(b) 259 b)
MFS Total Return Portfolio..................................... 74(a) 123(a) 174(a) 266 a)
24(b) 73(b) 124(b) 266 b)
G.T. Global Strategic Income Portfolio......................... 77(a) 132(a) 190(a) 298 a)
27(b) 82(b) 140(b) 298 b)
</TABLE>
* The Example reflects the $15 Semiannual Contract Fee as an annual charge of
.167% of assets.
(1) Reflects expenses that would be incurred for those Contract Owners who DO
NOT participate in the CHART Asset Allocation program.
(2) Reflects expenses that would be incurred for those Contract Owners who DO
participate in the CHART Asset Allocation program.
CONDENSED FINANCIAL INFORMATION
-------------------------------------------------------------------------------
See Appendix A, page A-1.
6
<PAGE> 16
THE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Universal Annuity is a variable annuity designed to help contract
owners and participants accumulate money for retirement. Certificates are issued
to individual participants under a group contract. Under the Contract, you (the
contract owner or participant, as applicable) make purchase payments to us and
we credit them to your account. The Company promises to pay the owner or the
participant, as provided in an employer's plan, an income, in the form of
annuity or income payments, beginning on the maturity date (a future date chosen
on which annuity payments begin). The purchase payments accumulate tax deferred
in the funding options of your choice, or as provided in the plan under which
the Contract is issued. You assume the risk of gain or loss according to the
performance of the funding options. The cash value is the amount of purchase
payments, plus or minus any investment experience. The cash value also reflects
all withdrawals made and charges deducted. There is generally no guarantee that
at the maturity date the cash value will equal or exceed the total purchase
payments made under the Contract, except as specified or elected under the death
benefit provisions described in this prospectus. The date the Contract and its
benefits became effective is referred to as the contract date. Each anniversary
of this contract date is called a contract year. The record of accumulation
units credited to an owner is called the owner's account. The record of
accumulation units credited to a participant is called the individual account.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to us. The
following brief description of the key features of the Contract is subject to
the specific terms of the Contract itself.
PURCHASE PAYMENTS
Purchase payments under tax-qualified retirement plans (except IRAs), that is,
tax-sheltered annuities (i.e., 403(b)), corporate pension and profit-sharing,
governmental and deferred compensation plans for governmental and tax-exempt
organization employees, may be made under the Contract in amounts of $20 or more
per participant, subject to the terms of the plan under which the contract is
issued. The initial minimum purchase payment for IRAs is $1,000; for
nonqualified Contracts, the initial minimum purchase payment is $1,000 and $100
thereafter. The initial purchase payment is due and payable before the Contract
becomes effective.
Under a group Contract, if the participant dies before a payout begins, the
Company will pay to the owner or beneficiary, as provided in the plan, the
participant's interest. The participant's interest will be considered the cash
value of that participant's individual account unless the Company is otherwise
instructed by the owner. Under an individual Contract, if the owner dies before
a payout begins, the amount due will be paid to the beneficiary.
APPLICATION OF PURCHASE PAYMENTS
Each purchase payment will be applied to the Contract to provide accumulation
units of the funding options, as selected by the contract owner. A funding
option is a managed separate account or available underlying fund to which
assets under a variable annuity contract may be allocated. Such accumulation
units will be credited to an owner's account or individual account, as directed
or as provided in the plan. If the Contract application is in good order, the
Company will apply the initial purchase payment within two business days of
receipt of the purchase payment at the Company's Home Office. If the application
is not in good order, the Company will attempt to secure the missing information
within five business days. If the application is not complete at the end of this
period, the Company will inform the applicant of the reason for the delay. The
purchase payment will be returned immediately unless the applicant specifically
consents to the Company keeping the purchase payment until the application is
complete. Once it is complete, the purchase payment will be applied within two
business days. Our business day ends when the New York Stock Exchange closes,
usually 4:00 p.m. Eastern time.
7
<PAGE> 17
ACCUMULATION UNITS
An accumulation unit is used to calculate the value of a Contract. An
accumulation unit works like a share of a mutual fund. Each funding option has a
corresponding accumulation unit value. The accumulation units are valued each
business day and may increase or decrease from day to day. The number of
accumulation units we will credit to the Contract once we receive a purchase
payment is determined by dividing the amount directed to each funding option by
the value of the accumulation unit. We calculate the value of an accumulation
unit for each funding option each day after the New York Stock Exchange closes.
After the value is calculated, your account is credited. During the annuity
period (i.e., after the maturity date), you are credited with annuity units.
THE FUNDING OPTIONS
FUND U
Fund U invests in a number of underlying funds as described in the chart on page
23. Each underlying fund has risks associated with it. Please read the
accompanying prospectus for each carefully. Underlying funds may be added or
withdrawn as permitted by applicable law. Additionally, some of the underlying
funds may not be available in every state due to various insurance regulations
or in every plan, due to plan restrictions.
MANAGED SEPARATE ACCOUNTS
For each managed separate account (described in the chart on page 23), neither
the investment objective nor the fundamental investment restrictions, as
described in the SAI, can be changed without a vote of the majority of the
outstanding voting securities of the Accounts, as defined by the 1940 Act. See
page 28 for more information regarding the investment objectives and policies
and risk factors of these options.
Certain investment options are available through a market timing program, for
which there is a fee. Certain risks may apply to those who allocate funds to
these options outside of the market timing program. See "Market Timing Services
Fees" for more information.
TRANSFERS
Before annuity or income payments begin, the owner or participant, if permitted,
may transfer all or part of the contract value among available funding options
without fee, penalty or charge. There are currently no restrictions on frequency
of transfers, but the Company reserves the right to limit transfers to one in
any six-month period. Such restrictions do not apply to transfers by third party
market timing services among timed funding options.
Since the available funding options have different investment advisory fees, a
transfer from one funding option to another could result in higher or lower
investment advisory fees. (See "Investment Advisory Fees.")
DOLLAR COST AVERAGING (AUTOMATED TRANSFERS)
By written request, the owner or participant, if permitted, may elect automated
transfers of contract values on a monthly or quarterly basis from specific
funding options to other funding options. Certain minimums may apply to enroll
in the program. He or she may stop or change participation in the Dollar Cost
Averaging program at any time, provided the Company receives at least 30 days'
written notice.
Automated transfers are subject to all Contract provisions, including those
relating to the transfer of money between funding options. Certain minimums may
apply to amounts transferred.
8
<PAGE> 18
ASSET ALLOCATION ADVICE
Some contract owners or participants, if permitted, may elect to enter into a
separate advisory agreement with Copeland Financial Services, Inc. ("Copeland"),
an affiliate of the Company. Copeland provides asset allocation advice under its
CHART Program(R), which is fully described in a separate Disclosure Statement.
Under the CHART Program, purchase payments and cash values are allocated among
the six American Odyssey Funds. Copeland's charge for this advisory service is
equal to a maximum of 1.50% of the assets subject to the CHART Program. This fee
is currently reduced by 0.25%, the amount of the fee paid to the investment
manager of American Odyssey Funds, and it is further reduced for assets over
$25,000. Another reduction is made for participants in plans subject to ERISA
with respect to amounts allocated to the American Odyssey Intermediate-Term Bond
Fund because that Fund has as its subadviser an affiliate of Copeland. A $30
initial fee is also charged. The CHART Program fee will be paid by quarterly
withdrawals from the cash values allocated to the American Odyssey Funds. The
Company will not treat these withdrawals as taxable distributions. The CHART
Program may not be available in all marketing programs through which the
Universal Annuity Contract is sold.
MARKET TIMING SERVICES
Accounts TGIS, TSB, TAS and TB ("Market Timed Accounts") are funding options
available to individuals who have entered into market timing services agreements
("market timing agreements") with registered investment advisers who provide
market timing services ("registered investment advisers"). Such agreements
permit the registered investment advisers to act on behalf of the contract owner
or participant by transferring all or a portion of the contract owner's units
from one Market Timed Account to another. The registered investment advisers can
transfer funds only from one Market Timed Account to another Market Timed
Account.
A contract owner or participant, if permitted, may transfer account values from
any of the Market Timed Accounts to any of the other funding options available
under the Contract. However, if an individual in a Market Timed Account
transfers all current account values and directs all future allocations to a
non-timed investment alternative, the market timing agreements with the
registered investment advisers automatically terminate. If this occurs, the
registered investment advisers no longer have the right to transfer funds on
behalf of that individual. Partial withdrawals from the Market Timed Accounts do
not affect the market timing agreements.
Copeland, a registered investment adviser and an affiliate of the Company,
provides market timing services for a fee equivalent to 1.25% of the current
value of the assets subject to timing. Copeland also charges a $30 market timing
application fee. If a person who has terminated his or her market timing
agreement wishes to reenter a market timing agreement, the market timing fees
will be reassessed, and a new $30 application fee will be charged by Copeland.
The market timing fee is deducted from the assets of the Market Timed Accounts
pursuant to a payment method for which the Company, Accounts TGIS, TSB, TAS and
TB, Tower Square Securities, Inc., the principal underwriter of the Contracts,
and Copeland obtained an exemptive order from the SEC on February 7, 1990
("asset charge payment method"). Pursuant to the asset charge payment method,
the market timing agreements are between the contract owner or participant, as
applicable and Copeland; however, the Company is a signatory to the agreements
and is solely responsible for payment of the fee to Copeland. On each Valuation
Date, the Company deducts the amount necessary to pay the fee from each of the
Market Timed Accounts and, in turn, pays that amount to Copeland. This is the
sole payment method available to those who enter into market timing agreements.
Individuals in the Market Timed Accounts may use the services of unaffiliated
market timing investment advisers if such advisers are acceptable to the
Company, and if such advisers agree to an arrangement substantially identical to
the asset charge payment method.
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<PAGE> 19
Distribution and Management Agreements between each of the Market Timed Accounts
and the Company authorize the Company to deduct the market timing fees in
accordance with the asset charge payment method. Contract owners are asked to
approve annually the terms of the Distribution and Management Agreement in order
to continue the asset charge payment method. Because the market timing services
are provided pursuant to individual agreements between contract owners or
participants and the registered investment advisers, the Boards of Managers of
the Market Timed Accounts do not exercise any supervisory or oversight role with
respect to these services or the fees charged therefor.
Under the asset charge payment method, the daily deductions for market timing
fees are not treated by the Company as taxable distributions. (See "Federal Tax
Considerations".)
MARKET TIMING RISKS
Those who allocate amounts to the Market Timed Accounts without a market timing
agreement do so at their own risk and may bear a disproportionate amount of the
expenses associated with Separate Account portfolio turnover. In addition, since
the market timing fee is deducted by the Company as an asset charge from the
Market Timed Accounts, those who allocate amounts to these Accounts without a
market timing agreement will nevertheless have the fees deducted on a daily
basis. Although the Company intends to identify such non-timed contract owners
or participants and to restore to the non-timed contract owner's account, no
less frequently than monthly, an amount equal to the deductions for the market
timing fees, this restored amount will not reflect any investment experience
that would have been attributable to such deductions.
Those who elect to participate in a market timing agreement may be subject to
the following additional risks: (1) higher transaction costs; (2) higher
portfolio turnover rate; (3) investment return goals not being achieved by the
registered investment advisers which provide market timing services; and (4)
higher account expenses for depleting and, then, starting up the account.
Actions by the registered investment advisers which provide market timing
services may also increase risks generally found in any investment, i.e., the
failure to achieve an investment objective, and possible lower yield. In
addition, if there is more than one market timing strategy utilizing a Market
Timed Account, those who invest in the Market Timed Account when others are
transferred into or out of that Account by the registered investment advisers
may bear part of the direct costs incurred by those individuals who were
transferred. For example, if 90% of a Market Timed Account is under one market
timing strategy, and those funds are transferred either into or out of that
Account, those constituting the other 10% of the Market Timed Account may bear a
disproportionate amount of the expense for the transfer.
WITHDRAWALS AND REDEMPTIONS
Under a group Contract, before a participant's maturity date, the Company will
pay all or any portion of that participant's interest to the owner or
participant, as provided in the plan. Under an Individual Contract, the contract
owner may redeem all or any portion of the cash surrender value (that is, the
cash value minus any withdrawal change) any time before the maturity date. The
owner or participant must submit a written request for withdrawal. Withdrawals
will be made pro rata from all the funding options unless he or she specifies
the funding option(s) from which surrender is to be made. The cash surrender
value will be determined as of the business day next following receipt of the
owner's surrender request at the Company's Home Office. A Group contract owners'
Account may be surrendered for cash as provided in the plan without the consent
of any participant.
The Company may defer payment of any cash surrender value for a period of not
more than seven days after the request is received in good order. The cash
surrender value of an owner's account or individual account on any date will be
equal to the cash value of the applicable Contract or account less any
applicable withdrawal charge, outstanding cash loans, and any premium tax not
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<PAGE> 20
previously deducted. The cash surrender value may be more or less than the
purchase payments made depending on the value of the Contract or account at the
time of surrender.
For those participating in the Texas Optional Retirement Program, a withdrawal
is available only upon termination of employment, retirement or death as
provided in the Texas Optional Retirement Program.
Participants in Section 403(b) tax deferred annuity plans may not make,
withdrawals from certain salary reduction amounts prior to reaching age 59 1/2,
unless due to separation from service, death, disability or hardship. (See
"Federal Tax Considerations.")
SYSTEMATIC WITHDRAWALS
Each contract year, contract owners or participants, as applicable, may elect to
take monthly, quarterly, semiannual or annual systematic withdrawals of a
specified dollar amount. Any applicable premium taxes will be deducted. To elect
this option, an election form provided by the Company must be completed.
Systematic withdrawals may be stopped at any time, provided the Company receives
at least 30 days' written notice.
DEATH BENEFIT
The following death benefit applies to all Contracts, except for unallocated
Group Contracts for which there is no death benefit:
If the participant or, for an individual Contract, the annuitant dies on or
after age 75 and before annuity or income payments begin, the Company will pay
to the beneficiary the participant's interest or cash value, for individual
Contracts, as of the date it receives at its Home Office proof of death, less
any premium tax incurred. If the participant or annuitant dies before age 75 and
before annuity or income payments begin, after receipt of due proof of death,
the Company will pay the greatest of (1), (2) or (3) below:
1. the participant's interest or, for an individual Contract, the cash
value, less any premium tax incurred or outstanding cash loans;
2. the total purchase payments allocated for that participant or contract
owner, less any prior withdrawal or cash loans; or
3. the participant's interest or, for an individual Contract, the cash
value, on the fifth Certificate or contract year immediately preceding
the date the Company receives due proof of death, less any applicable
premium tax, outstanding cash loans or withdrawals made since such fifth
year anniversary.
In some jurisdictions, until state approval is received, the applicable age at
which the death benefit formula will reduce will be age 65 rather than age 75.
CHARGES AND DEDUCTIONS
WITHDRAWAL CHARGE
No sales charges are deducted at the time a purchase payment is applied under
the Contract. A withdrawal charge of 5% will be assessed if an amount is
withdrawn within five years of its payment date. (For this calculation, the five
years is measured from the first day of the calendar month of the payment date.)
In the case of a partial withdrawal, payments made first will be considered to
be withdrawn first ("first in, first out"). In no event may the withdrawal
charge exceed 5% of premiums paid in the five years immediately preceding the
withdrawal date, nor may the charge exceed 5% of the amount withdrawn. Unless
the Company receives instructions to the contrary, the withdrawal charge will be
deducted from the amount requested.
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<PAGE> 21
The withdrawal charge will be waived if:
- - an annuity payout is begun;
- - an income option of at least three years' duration (without right of
withdrawal) is begun after the first contract year;
- - the participant under a group Contract or annuitant under an individual
Contract dies;
- - the participant under a group Contract or annuitant under an individual
Contract becomes disabled (as defined by the Internal Revenue Service)
subsequent to purchase of the Contract;
- - the participant under a group Contract, or annuitant under an individual
Contract, under a tax-deferred annuity plan (403(b) plan) retires after age
55, provided the Contract has been in effect five years or more and provided
the payment is made to the contract owner or participant, as provided in the
plan;
- - the participant under a group Contract, or annuitant under an individual
Contract, under an IRA plan reaches age 70 1/2, provided the certificate, has
been in effect five years or more;
- - the participant under a group Contract, or annuitant under an individual
Contract, under a qualified pension or profit-sharing plan (including a 401(k)
plan) retires at or after age 59 1/2, provided the certificate or Contract, as
applicable has been in effect five years or more; or if refunds are made to
satisfy the anti-discrimination test. (For those under Certificates issued
before May 1, 1992, the withdrawal charge will also be waived if the
participant or annuitant retires at normal retirement age (as defined by the
Plan), provided the Certificate or Contract, as applicable has been in effect
one year or more);
- - the participant under a Section 457 deferred compensation plan retires and the
Certificate has been in effect five years or more, or if a financial hardship
or disability withdrawal has been allowed by the Plan administrator under
applicable Internal Revenue Service ("IRS") rules;
- - for group Contracts, the participant under a Section 457 deferred compensation
plan established by the Deferred Compensation Board of the state of New York
or a "public employer" in that state (as defined in Section 5 of the New York
State Finance Laws) terminates employment. The withdrawal charge will also be
waived for such a plan at the termination date specified in the Contract; or
- - for group Contracts, the participant under a pension or profit-sharing plan,
including a 401(k) plan, Section 457 deferred compensation plan, or a tax
deferred annuity plan (403(b) plan) that is subject to the Employee Retirement
Income Security Act of 1974 ("ERISA") retires at normal retirement age (as
defined by the plan) or terminates employment, provided that the contract
owner purchases this Contract in conjunction with a group unallocated flexible
annuity contract issued by the Company.
There is a 10% free withdrawal allowance available for partial withdrawals taken
during any Certificate year or Contract year, as applicable after the first.
Such withdrawals will be free of charge until the free withdrawal amount is
exceeded. Participants under IRA plans with Certificates or Contracts, as
applicable, issued prior to May 1, 1994, are entitled to a 20% free withdrawal
allowance after the first Certificate or Contract year. Free withdrawals from
IRA plans are only available after the Participant has attained age 59 1/2. The
free withdrawal amount that is available will be calculated as of the Contract
anniversary date immediately preceding the surrender date. The free withdrawal
allowance does not apply to full surrenders. For 403(b) plan participants,
partial and full withdrawals (surrenders) may be subject to restrictions. (See
"Federal Tax Considerations.")
PREMIUM TAX
Certain state and local governments impose premium taxes. These taxes currently
range from 0% to 5% depending upon jurisdiction. The Company, in its sole
discretion and in compliance with
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<PAGE> 22
any applicable state law, will determine the method used to recover premium tax
expenses incurred. The Company will deduct any applicable premium taxes from the
contract value either upon death, surrender, annuitization, or at the time
purchase payments are made to the Contract, but no earlier than when the Company
has a tax liability under state law.
ADMINISTRATIVE CHARGE
On all Contracts there will be a semiannual administrative charge of $15 for
each participant or owner for which an account is maintained. The administrative
charge will be deducted from the account in June and December of each year. This
charge will be prorated from the date of purchase to the next date of assessment
of charge. A prorated charge will also be assessed upon withdrawal or
termination of the Contract. This charge will not be assessed after an annuity
payout has begun. The administrative charge will be deducted from the Contract
value by canceling accumulation units in each funding option on a pro rata
basis. The administrative charge will offset the actual expenses of the Company
in administering the Contract. The charge is set at a level which does not
exceed the average expected cost of the administrative services to be provided
while the Contract is in force.
MORTALITY AND EXPENSE RISK CHARGE
There is an insurance charge against the assets of each separate account to
cover the mortality and expense risks associated with guarantees which the
Company provides under these variable annuity Contracts. This charge, on an
annual basis, is 1.25% of the Separate Account value and is deducted on each
business day at the rate of 0.003425% for each day in the period.
The mortality risk charge compensates the Company for guaranteeing to provide
annuity payments according to the terms of the Contract regardless of how long
the annuitant lives and for guaranteeing to provide the death benefit if the
annuitant dies prior to the maturity date. The expense risk charge compensates
the Company for the risk that the charges under the Contract, which cannot be
increased during the duration of the Contract, will be insufficient to cover
actual costs.
REDUCTION OR ELIMINATION OF CONTRACT CHARGES
The amount of the withdrawal charge, mortality and expense risk charge, and the
administrative charge assessed under the Contract may be reduced or eliminated
when sales or administration of the Contract result in savings or reduction of
administrative or sales expenses and/or mortality and expense risks. Any such
reduction will be based on the following: (1) the size and type of group to
which sales are to be made (the sales expenses for a larger group are generally
less than for a smaller group because of the ability to implement large numbers
of contracts with fewer sales contacts); (2) the total amount of purchase
payments to be received (per Contract sales expenses are likely to be less on
larger purchase payments than on smaller ones); and (3) any prior or existing
relationship with the Company (per contract sales expenses are likely to be less
when there is a prior or existing relationship because of the likelihood of
implementing the Contract with fewer sales contacts). For certain trusts, the
Company may change the order in which purchase payments and earnings are
withdrawn in order to determine the withdrawal charge.
There may be other circumstances, of which the Company is not presently aware,
which could result in fewer sales or administrative expenses. In no event will
reduction or elimination of the withdrawal charge, mortality and expense risk
charge or the administrative charge be permitted where such reduction or
elimination will be unfairly discriminatory to any person.
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<PAGE> 23
INVESTMENT ADVISORY FEES
The Travelers Investment Management Company ("TIMCO") furnishes investment
management and advisory services to Accounts GIS, TGIS, TSB and TAS according to
the terms of written agreements between TIMCO and each managed separate account.
The fees are as follows:
<TABLE>
<CAPTION>
ACCOUNT ANNUAL MANAGEMENT FEE
------------------------------------- ------------------------------------
<S> <C>
Account TAS.......................... 0.35% of average daily net assets
Account GIS.......................... 0.45% of average daily net assets
Account TGIS......................... 0.3233% of average daily net assets
Account TSB.......................... 0.3233% of average daily net assets
</TABLE>
Travelers Asset Management International Corporation ("TAMIC") furnishes
investment management and advisory services to Accounts QB, MM and TB according
to the terms of written agreements between TAMIC and each Account. The fees are
as follows:
<TABLE>
<CAPTION>
ACCOUNT ANNUAL MANAGEMENT FEE
------------------------------------- ------------------------------------
<S> <C>
Account TB........................... 0.50% of the first $50,000,000, plus
0.40% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $250,000,000
(of Account TB's aggregate net
asset value)
Account QB........................... 0.3233% of average daily net assets
Account MM........................... 0.3233% of average daily net assets
</TABLE>
For information on the investment advisory fees of Fund U's underlying funds
refer to the Fee Table and to the prospectuses for those funds.
MARKET TIMING SERVICES FEES
In connection with the market timing services provided to participants in
Accounts TGIS, TSB, TAS and TB, Copeland receives a fee equivalent on an annual
basis to 1.25% of the current value of the assets subject to timing. The Company
deducts this fee daily from the assets of the Market Timed Accounts. Copeland
also charges a $30 market timing application fee. Participants may discontinue
market timing services at any time and thereby avoid any subsequent fees for
those services by transferring to a non-timed account. (See "Market Timing
Services.")
THE ANNUITY PERIOD
MATURITY DATE
The annuitant is designated in an individual Contract, and is the individual on
whose life the maturity date and the amount of the monthly payments depend.
Under a group Contract, annuity payments, that is, a series of payments, for a
particular participant will ordinarily begin on that participant's maturity date
as stated in that participant's certificate. For individual Contracts, it is the
date stated in the Contract. However, a later maturity date may be elected. The
maturity date must be before the individual's 70th birthday, unless the Company
consents to a later date. Federal income tax law requires that certain minimum
distribution payments be taken from pension, profit-sharing, Section 403(b),
Section 457 and IRA plans after the individual reaches the age of 70 1/2. A
number of payout options are available (see "Payout Options"). No withdrawal
charge will be assessed if an annuity option is elected, or an income option of
at least three years' duration (without right of withdrawal) is elected after
the first certificate or contract year. Federal income tax law also requires
that certain minimum distribution payments be taken upon the death of the
contract owner of a nonqualified annuity contract and upon the death of the
annuitant of a pension, profit-sharing, Section 403(b), Section 457, or IRA
plan.
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<PAGE> 24
ALLOCATION OF ANNUITY
When annuity payments begin, the accumulated value in each funding option will
be applied to provide an Annuity with the amount of annuity payments varying
with the investment experience of that same funding option. If the owner or
participant, as provided in the plan, wishes to have annuity payments which vary
with the investment experience of a different funding option, transfers among
accounts must be made at least 30 days before the date annuity payments begin.
If the owner or participant wishes to have a fixed dollar annuity whose payments
do not vary, the Company will exchange that participant's interest for a
different contract or provide such other settlement agreements as are
appropriate to effect the payment of such an Annuity.
Variable payout is not available for Contracts issued in the states of New
Jersey and Florida. Once annuity payments begin, these contract owners or
participants, as provided in the plan will automatically receive a fixed dollar
annuity whose payments do not vary with the investment experience of variable
funding option.
DETERMINATION OF FIRST ANNUITY PAYMENT
The Contract contains tables used to determine the first monthly annuity
payment. The amount applied to effect an Annuity will be the cash value of the
Contract as of 14 days before the date annuity payments begin less any
applicable premium taxes not previously deducted.
The amount of the first monthly payment depends on the annuity option elected
(see "Annuity Options -- Automatic Option,") and the adjusted age of the
participant. A formula for determining the adjusted age is contained in the
Contract. The tables are determined from the Progressive Annuity Table assuming
births in the year 1900 and an assumed annual net investment rate of 3.5%. The
total first monthly annuity payment is determined by multiplying the benefit per
$1,000 of value shown in the tables of the Contract by the number of thousands
of dollars of value of the Contract applied to that annuity option. The Company
reserves the right to require proof of age before annuity payments begin.
DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS
The dollar amount of the second and subsequent annuity payments is not
predetermined and may change from month to month based on the investment
experience of the applicable funding option(s). The actual amounts of these
payments are determined by multiplying the number of annuity units credited to
the Contract in each funding option by the corresponding annuity unit value as
of the date on which payment is due. The interest rate assumed in the annuity
tables would produce a level annuity unit value and, therefore, level annuity
payments if the net investment rate remained constant at the assumed rate. In
fact, payments will vary up or down as the net investment rate varies up or down
from the assumed rate, and there can be no assurance that a net investment rate
will be as high as the assumed rate.
PAYOUT OPTIONS
ELECTION OF OPTIONS
On the maturity date, or other agreed-upon date, the Company will pay an amount
payable under the Contract in one lump sum, or in accordance with the payment
option selected by the contract owner. Election of an annuity option or an
income option must be made in writing in a form satisfactory to the Company. Any
election made during the lifetime of the group Contract participant, or the
annuitant under an individual Contract, must be made by the participant, as
provided in the plan or the contract owner, as applicable. The terms of options
elected may be restricted to meet the contract qualification requirements of
Section 401(a)(9) of the Internal Revenue Code. If, at the death of a
participant, or annuitant under an individual Contract, there is no election in
effect for that participant or annuitant, the beneficiary may elect an annuity
option or income option in place of the Death Benefit. Income options differ
from annuity options in that
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<PAGE> 25
the amount of the payments made under income options are unrelated to the length
of life of any person. Although the Company continues to deduct the charge for
mortality and expense risks, it assumes no mortality risks for amounts applied
under any income option. Moreover, except with respect to lifetime payments of
investment income under Income Option 3, payments are unrelated to the actual
life span of any person. Thus, the participant may outlive the payment period.
The minimum amount that can be placed under an annuity option or income option,
as described below, is $2,000 unless the Company consents to a lesser amount. If
any monthly periodic payment due any payee is less than $20, the Company
reserves the right to make payments at less frequent intervals. Annuity options
and income options may be elected on a monthly, quarterly, semiannual or annual
basis.
ANNUITY OPTIONS
AUTOMATIC OPTION -- Unless the Company is directed otherwise by the owner, if
the participant is living and has a spouse and no election has been made, the
Company will, on that participant's maturity date, pay to the participant the
first of a series of annuity payments based on the life of the participant as
the primary payee and the participant's spouse in accordance with Option 5
below.
Unless the plan provides otherwise, if the participant is living and no election
has been made and the participant has no spouse, the Company will, on the
maturity date, pay to the participant the first of a series of annuity payments
based on the life of the participant, in accordance with Option 2 with 120
monthly payments assured.
OPTION 1 -- LIFE ANNUITY -- NO REFUND: The Company will make annuity payments
during the lifetime of the person on whose life the payments are based,
terminating with the last payment preceding death. While this option offers the
maximum periodic payment, THERE IS NO ASSURANCE OF A MINIMUM NUMBER OF PAYMENTS,
NOR IS THERE A PROVISION FOR A DEATH BENEFIT FOR BENEFICIARIES.
OPTION 2 -- LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED: The
Company will make monthly annuity payments during the lifetime of the person on
whose life payments are based, with the agreement that if, at the death of that
person, payments have been made for less than 120, 180 or 240 months, as
elected, payments will be continued during the remainder of the period to the
beneficiary designated. The beneficiary may instead receive a single sum
settlement equal to the discounted value of the future payments with the
interest rate equivalent to the assumption originally used when the annuity
began.
OPTION 3 -- UNIT REFUND LIFE ANNUITY: The Company will make annuity payments
during the lifetime of the person on whose life payments are based, terminating
with the last payment due before the death of that person, provided that, at
death, the beneficiary will receive in one sum the current dollar value of the
number of annuity units equal to (a) minus (b) (if that difference is positive)
where: (a) is the total amount applied under the option divided by the annuity
unit value on the due date of the first annuity payment, and (b) is the product
of the number of the annuity units represented by each payment and the number of
payments made.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- NO REFUND: The Company will
make annuity payments during the joint lifetime of the two persons on whose
lives payments are based, and during the lifetime of the survivor. No further
payments will be made following the death of the survivor. THERE IS NO ASSURANCE
OF A MINIMUM NUMBER OF PAYMENTS, NOR IS THERE A PROVISION FOR A DEATH BENEFIT
UPON THE SURVIVOR'S DEATH.
OPTION 5 -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- ANNUITY REDUCES ON DEATH OF
PRIMARY PAYEE: The Company will make annuity payments during the lifetime of the
two persons on whose lives payments are based. One of the two persons will be
designated as the primary payee. The other will be designated as the secondary
payee. On the death of the secondary payee, if survived by the primary payee,
the Company will continue to make monthly annuity payments to the primary payee
in the same amount that would have been payable during the joint lifetime of the
two
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<PAGE> 26
persons. On the death of the primary payee, if survived by the secondary payee,
the Company will continue to make annuity payments to the secondary payee in an
amount equal to 50% of the payments which would have been made during the
lifetime of the primary payee. No further payments will be made following the
death of the survivor.
OPTION 6 -- OTHER ANNUITY OPTIONS: The Company will make any other arrangements
for annuity payments as may be mutually agreed upon.
INCOME OPTIONS
Income payments are optional forms of periodic payments made by the Company
which are not based on the life of the participant.
OPTION 1 -- PAYMENTS OF A FIXED AMOUNT: The Company will make equal payments of
the amount elected until the cash value applied under this option has been
exhausted. The final payment will include any amount insufficient to make
another full payment.
OPTION 2 -- PAYMENTS FOR A FIXED PERIOD: The Company will make payments for the
number of years selected. The amount of each payment will be equal to the
remaining cash value applied under this option divided by the number of
remaining payments.
OPTION 3 -- INVESTMENT INCOME: The Company will make payments for the period
agreed on. The amount payable will be equal to the excess, if any, of the cash
value under this option over the amount applied under this option. No payment
will be made if the cash value is less than the amount applied, and it is
possible that no payments would be made for a period of time. Payments under
this option are not considered to be annuity payments and are taxable in full as
ordinary income. (See "Federal Tax Considerations.") This option will generally
be inappropriate under federal tax law for periods that exceed the Participant's
attainment of age 70 1/2.
The cash value used to determine the amount of any income payment will be
calculated as of 14 days before the date an income payment is due and will be
determined on the same basis as the cash value of the Contract, including the
deduction for mortality and expense risks.
While income options do not directly involve mortality risks for the Company, an
individual may elect to apply the remaining cash value to provide an annuity at
the guaranteed rates even though income payments have been received under an
income option. Before an owner or participant makes any income option election,
he or she should consult a tax adviser as to any adverse tax consequences the
election might have.
MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
TERMINATION OF CONTRACT OR ACCOUNT
TERMINATION BY OWNER -- If an owner or a participant terminates an account, in
whole or in part, while the contract remains in effect; and the value of the
terminated account is to be either paid in cash to you or to a participant; or
transferred to any other funding vehicle, the Company will pay or transfer the
cash surrender value of the terminated account.
If this Contract is terminated, whether or not the plan is terminated; and the
owner or the participant, as provided in the plan, elect that values are not to
be paid out in cash or transferred, the Company reserves the right to agree to
apply a participant's interest either as instructed by the owner or the
participant, or under one of the options described under "Options in the Event
of Termination of a Participant."
TERMINATION BY PARTICIPANT -- If a participant terminates an individual account,
in whole or in part, while the contract remains in effect; and the value of the
terminated individual account is to be
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<PAGE> 27
either paid in cash to the participant, or transferred to any other funding
vehicle, the Company will pay or transfer the cash surrender value of the
terminated account.
TERMINATION BY THE COMPANY AND TERMINATION AMOUNT -- If the cash value in a
participant's individual account is less than the termination amount stated in
the Contract, and no premium has been applied to the account for at least three
years, the Company reserves the right to terminate that account, and to move the
cash value of that participant's individual account to the owner's account.
If the plan does not allow for this movement to the owner's account, the cash
value, less any applicable premium tax not previously deducted, will be paid to
that participant or to the owner, as provided in the plan.
We reserve the right to terminate this Contract on any valuation date if:
1. there is no cash value in any participant's individual account, and
2. the cash value of the owner's account, if any, is less than $500, and
3. premium has not been paid for at least three years.
If this Contract is terminated, the cash value of the owner's account, if any,
less any applicable premium tax not previously deducted will be paid to you.
Termination will not occur until 31 days after the Company has mailed notice of
termination to the group contract owner or the participant, as provided in the
plan, at the last known address; and to any assignee of record.
OPTIONS IN THE EVENT OF TERMINATION OF A PARTICIPANT -- In the event that,
before a participant's maturity date, that participant terminates participation
in the plan, the owner or that participant, as provided in the plan, with
respect to that participant's interest may elect:
1. If that participant is at least 50 years of age, to have that
participant's interest applied to provide an annuity option or an income
option.
2. If the Contract is continued, to have that participant's interest
applied to continue as a paid-up deferred annuity for that participant,
(i.e., the cash value remains in the Contract and the annuity becomes
payable under the same terms and conditions as the annuity that would
have otherwise been payable at the maturity date).
3. To have the owner or that participant, as provided in the plan, receive
that participant's interest in cash.
4. If that participant becomes a participant under another group contract
of this same type which is in effect with us, to transfer that
participant's interest to that group contract.
5. To make any other arrangements as may be mutually agreed on.
If this Contract is continued, any cash value to which a terminating participant
is not entitled under the plan, will be moved to the owner's account.
AUTOMATIC BENEFIT -- In the event of termination, unless otherwise provided in
the Plan, a participant's interest will continue as a paid-up deferred annuity
in accordance with option 2. above, if this Contract is continued. Or, if this
Contract is terminated, will be paid in cash to the Owner or to that
participant, as provided in the plan.
ANNUITY PAYMENTS -- Termination of this contract or the plan will not affect
payments being made under any annuity option which began before the date of
termination.
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<PAGE> 28
DISTRIBUTION FROM ONE ACCOUNT TO ANOTHER ACCOUNT
Under a group Contract, the owner may, as provided for in the plan, distribute
the cash value from the owner's account to one or more individual accounts. No
distribution will be allowed between individual accounts.
The owner may, as required by and provided for in the plan, move the cash value
from any or all individual accounts to the owner's account without a charge.
REQUIRED REPORTS
As often as required by law, but at least once in each contract year before the
due date of the first annuity payment, the Company will furnish a report showing
the number of accumulation units credited to the Contract in each funding option
and the corresponding accumulation unit values as of the date of the report. The
Company will keep all records required under federal or state laws.
RIGHT TO RETURN
For group Contracts issued in the state of New York, during the 20 days
following the participant's receipt of a certificate, the participant may return
the certificate to the Company, by mail or in person, if for any reason the
participant has changed his or her mind. Upon return of the certificate, the
Company will refund to the owner the sum of all purchase payments made under the
Contract, and will make the separate accounts whole if the accumulation value
has declined.
For all individual Contracts, the Contract may be returned for a full refund of
the Contract's cash value (including charges) within ten days after the delivery
of the Contract to the contract owner, unless state law requires a longer
period. The contract owner bears the investment risk during the right to return
period; therefore, the cash value returned may be greater or less than the
purchase payment made under the Contract. However, if applicable state law so
requires, or if the Contract was purchased in an Individual Retirement Annuity,
the purchase payment will be returned in full. All cash values will be
determined as of the valuation date next following the Company's receipt of the
contract owner's written request for refund.
The right to return is not available to participants of the Texas Optional
Retirement Program.
CHANGE OF CONTRACT
For group Contracts, the Company may, at any time, make any changes, including
retroactive changes, in the Contract to the extent that the change is required
to meet the requirements of any federal law or regulation to which the Company
is subject.
Except as provided in the paragraph immediately above, no change may be made in
the Contract before the fifth anniversary of the contract date, and in no event
will changes be made with respect to payments being made by the Company under
any annuity option which has commenced prior to the date of change. On and after
the fifth anniversary of the contract date, the Company reserves the right to
change the termination amount (see "Termination of Contract or Account"), the
calculation of the net investment rate and the unit values, and the annuity
tables. Any change in the annuity tables will be applicable only to premiums
received under the Contract after the change. The ability to make such change
lessens the value of mortality and expense guarantees. Other changes (including
changes to the administrative charge) may be applicable to all owners' accounts
and individual accounts under the Contract, to only the owners' accounts and
individual accounts established after the change, or to only premiums received
under the Contract after the date of change as the Company declares at the time
of change. The Company will give notice to the owner at least 90 days before the
date the change is to take effect.
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<PAGE> 29
ASSIGNMENT
The participant may not assign his or her rights under a group Contract. The
owner may assign his or her rights under an individual or a group Contract if
allowed by the plan.
SUSPENSION OF PAYMENTS
If a national stock exchange is closed (except for holidays or weekends), or
trading is restricted due to an existing emergency as defined by the SEC so that
disposal of the separate account's investments or determination of its net asset
value is not reasonably practicable, or the Commission has ordered that the
right of redemption (surrender) be suspended for the protection of contract
owners, the Company may postpone all procedures (including making annuity
payments) which require valuation of separate accounts until the stock exchange
is reopened and trading is no longer restricted.
VOTING RIGHTS
The contract owner or participant, as applicable, has certain voting rights in
the funding options. The number of votes which an owner or participant, as
provided in the plan, may cast in the accumulation period is equal to the number
of accumulation units credited to the account under the Contract. During the
annuity period, the group participant or the individual contract owner may cast
the number of votes equal to (i) the reserve related to the Contract divided by
(ii) the value of an accumulation unit. During the annuity period, the voting
rights of a participant or, under an individual Contract, an annuitant, will
decline as the reserve for the Contract declines.
Upon the death of the person authorized to vote under the Contract, all voting
rights will vest in the beneficiary of the Contract, except in the case of
nonqualified individual Contracts, where the surviving spouse may succeed to the
ownership.
FUND U. In accordance with its view of present applicable law, the Company will
vote shares of the underlying funds at regular and special meetings of the
shareholders of the funds in accordance with instructions received from persons
having a voting interest in Fund U. The Company will vote shares for which it
has not received instructions in the same proportion as it votes shares for
which it has received instructions. However, if the 1940 Act or any regulation
thereunder should be amended, or if the present interpretation thereof should
change, and as a result the Company determines that it is permitted to vote
shares of the mutual funds in its own right, it may elect to do so.
The number of shares which a person has a right to vote will be determined as of
the date concurrent with the date established by the respective mutual fund for
determining shareholders eligible to vote at the meeting of the fund, and voting
instructions will be solicited by written communication before the meeting in
accordance with the procedures established by the mutual fund.
Each person having a voting interest in Fund U will receive periodic reports
relating to the fund(s) in which he or she has an interest, proxy material and a
form with which to give such instructions with respect to the proportion of the
fund shares held in Fund U corresponding to his or her interest in Fund U.
ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS AND TB. Contract owners participating in
Accounts GIS, QB, MM, TGIS, TSB, TAS or TB will be entitled to vote at their
meetings on (i) any change in the fundamental investment policies of or other
policies related to the accounts requiring the owners' approval; (ii) amendment
of the investment advisory agreements; (iii) election of the members of the
Board of Managers of the accounts; (iv) ratification of the selection of an
independent public accountant for the accounts; (v) any other matters which, in
the future, under the 1940 Act require the owners' approval; and (vi) any other
business which may properly come before the meeting.
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<PAGE> 30
The number of votes which each contract owner or a participant may cast,
including fractional
votes, shall be determined as of the date to be chosen by the Board of Managers
within 75 days of the date of the meeting, and at least 20 days' written notice
of the meeting will be given.
Votes for which participants under a group Contract are entitled to instruct the
owner, but for which the owner has received no instructions, will be cast by the
owner for or against each proposal to be voted on only in the same proportion as
votes for which instructions have been received.
OTHER INFORMATION
- --------------------------------------------------------------------------------
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contract in all jurisdictions where the Company
is licensed to do business, except the Bahamas. The Contract may be purchased
from agents who are licensed by state insurance authorities to sell variable
annuity contracts issued by the Company, and who are also registered
representatives of Tower Square Securities, Inc. ("Tower Square") and broker-
dealers which have Selling Agreements with Tower Square. Tower Square, whose
principal business address is One Tower Square, Hartford, Connecticut, serves as
the principal underwriter for the variable annuity contracts described herein.
It is anticipated, however, that an affiliated broker-dealer may become the
principal underwriter for the Contracts during 1997. The offering is continuous.
Tower Square is a registered broker-dealer with the SEC under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. ("NASD"). Tower Square is an affiliate of the Company and an
indirect wholly owned subsidiary of Travelers Group Inc., and serves as
principal underwriter pursuant to a Distribution and Management Agreement to
which the Separate Accounts, the Company and Tower Square are parties. No
amounts have been or will be retained by Tower Square for acting as principal
underwriter for the Contracts.
Agents will be compensated for sales of the Contracts on a commission and
service fee basis. The compensation paid to sales agents will not exceed 7.0% of
the payments made under the Contract. In addition, certain production,
persistency and managerial bonuses may be paid.
From time to time the Company may pay or permit other promotional incentives, in
cash, credit or other compensation.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, cash surrender value or death benefits that are available under
the Contract are not less than the minimum benefits required by the statutes of
the state in which the Contract is delivered. We reserve the right to make any
changes, including retroactive changes, in the Contract to the extent that the
change is required to meet the requirements of any law or regulation issued by
any governmental agency to which the Company, the Contract or the contract owner
is subject.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting the separate accounts.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the variable annuity Contract described in this Prospectus and
the organization of the Company, its authority to issue variable annuity
contracts under Connecticut law and the validity of the forms of the variable
annuity contracts under Connecticut law have been passed on by the General
Counsel of the Company.
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<PAGE> 31
THE INSURANCE COMPANY AND SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company") is a stock insurance company
chartered in 1864 in Connecticut and continuously engaged in the insurance
business since that time. It is licensed to conduct a life insurance business in
all states of the United States, the District of Columbia, Puerto Rico, Guam,
the U.S. and British Virgin Islands and the Bahamas. The Company is an indirect
wholly owned subsidiary of Travelers Group Inc., a financial services holding
company. The Company's Home Office is located at One Tower Square, Hartford,
Connecticut 06183.
THE SEPARATE ACCOUNTS
Two different types of separate accounts serve as the funding vehicles for the
Contracts described in this prospectus. The first type, Fund U, is a unit
investment trust registered with the SEC under the 1940 Act, which means that
Fund U's assets are invested exclusively in the shares of the underlying funds.
The second type of separate account available under the Contract (the "managed
separate accounts" -- Accounts GIS, QB, MM, TGIS, TSB, TAS and TB) are
diversified, open-end management investment companies registered with the SEC
under the 1940 Act. The assets of the managed separate accounts are invested
directly in securities such as stocks, bonds or money market instruments which
are compatible with the stated investment policies of each separate account.
Each of the separate accounts available in connection with the Contract has
different investment objectives and fundamental investment policies, as
described beginning on page 28.
The separate accounts were established on the following dates: Fund U -- May 16,
1983; Account GIS -- September 22, 1967; Account QB -- July 29, 1974; Account
MM -- December 29, 1981; Accounts TGIS and TSB -- October 30, 1986; and Accounts
TAS and TB -- January 2, 1987.
Under Connecticut law, the assets of the separate accounts will be held for the
exclusive benefit of its owners. Income, gains and losses, whether or not
realized, for assets allocated to the separate accounts, are in accordance with
the applicable annuity contracts, credited to or charged against the separate
accounts without regard to other income, gains or losses of the Company. The
assets in the separate accounts are not chargeable with liabilities arising out
of any other business which the Company may conduct. The obligations arising
under the variable annuity contracts are obligations of the Company.
SUBSTITUTION OF INVESTMENTS
If any of the separate accounts or underlying funds become unavailable, or in
the judgment of the Company become inappropriate for the purposes of the
Contract, the Company may substitute another investment alternative without
consent of contract owners. Substitution may be made with respect to both
existing investments and the investment of future purchase payments. However, no
such substitution will be made without notice to contract owners and without
prior approval of the SEC, to the extent required by the 1940 Act, or other
applicable law.
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<PAGE> 32
INVESTMENT OPTIONS CHART
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER SUBADVISER
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation Fund growth of capital through the Travelers Asset Janus Capital
use of common stocks Management Corporation
International
Corporation
("TAMIC")
High Yield Bond Trust typically through investments in TAMIC
generous income, high risk
securities
Managed Assets Trust high total return through a TAMIC The Travelers
fully managed investment Investment
policy Management Company
("TIMCO")
U.S. Government Securities Portfolio highest credit quality, current TAMIC
income and total return
Social Awareness Stock Portfolio growth and income through use of Smith Barney Mutual
common stocks which meet Funds Management
certain social criteria Inc. ("SBMFM")
Utilities Portfolio current income by investing in SBMFM
equity and debt securities of
companies in the utility
industries
Templeton Stock Fund capital growth through investing Templeton Investment
primarily in common stocks Counsel, Inc.
issued by companies, large and
small, of any nation
Templeton Asset Allocation Fund high level of total return Templeton Investment
through investing in stocks of Counsel, Inc.
companies of any nation, debt
securities of companies and
governments of any nation and
money market instruments
Templeton Bond Fund high current income Templeton Investment
Counsel, Inc.
Fidelity VIP High Income Portfolio high level of current income by Fidelity Management &
investing primarily in high Research Company
yielding (i.e. high risk),
lower-rated, fixed-income
securities, while also
considering growth of capital
Fidelity VIP Equity-Income Portfolio reasonable income by investing Fidelity Management &
primarily in income-producing Research Company
equity securities
Fidelity VIP Growth Portfolio capital appreciation Fidelity Management &
Research Company
Fidelity VIP II Asset Manager high total return with reduced Fidelity Management &
Portfolio risk over the long-term Research Company
Dreyfus Stock Index Fund investment results that Mellon Equity
correspond to the price and Associates
yield performance of publicly
traded common stocks in the
aggregate
American Odyssey International maximum long-term total return American Odyssey Bank of Ireland Asset
Equity Fund by investing primarily in Funds Management, Management (U.S.)
common stocks of established Inc. Limited
non-U.S. companies
</TABLE>
23
<PAGE> 33
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER SUBADVISER
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Odyssey Emerging maximum long-term total return American Odyssey Wilke/Thompson Capital
Opportunities Fund by investing primarily in Funds Management, Management, Inc. and
common stocks of small, Inc. Cowen Asset
rapidly growing companies Management
American Odyssey Core Equity Fund maximum long-term total return American Odyssey Equinox Capital
by investing primarily in Funds Management, Management, Inc.
common stocks of well- Inc.
established companies
American Odyssey Long-Term Bond Fund maximum long-term total return American Odyssey Western Asset
by investing primarily in Funds Management, Management Company
long-term debt securities Inc.
American Odyssey Intermediate-Term maximum long-term total return American Odyssey TAMIC
Bond Fund by investing primarily in Funds Management,
intermediate-term corporate Inc.
debt securities
American Odyssey Short-Term Bond maximum long-term total return American Odyssey Smith Graham & Co.
Fund by investing primarily in Funds Management, Asset Managers, L.P.
investment-grade, short-term Inc.
debt securities
Smith Barney Income and Growth current income and long-term SBMFM
Portfolio growth of income and capital
Alliance Growth Portfolio long-term growth of capital Travelers Investment Alliance Capital
Advisers, Inc. Management L.P.
("TIA")
Smith Barney International Equity total return on assets from SBMFM
Portfolio growth of capital and income
Putnam Diversified Income Portfolio high current income consistent TIA Putnam Investment
with preservation of capital Management, Inc.
Smith Barney High Income Portfolio high current income; capital SBMFM
appreciation is a secondary
objective
MFS Total Return Portfolio above-average income (compared TIA Massachusetts
to a portfolio entirely Financial Services
invested in equity securities) Company
consistent with the prudent
employment of capital
Growth and Income Stock Account long-term accumulation of TIMCO
principal through capital
appreciation and retention of
net investment income
Quality Bond Account current income, moderate capital TAMIC
volatility and total return
Money Market Account preservation of capital, a high TAMIC
degree of liquidity and the
highest possible current
income available from certain
short-term money market
securities
Timed Growth and Income Stock long-term accumulation of TIMCO
Account principal through capital
appreciation and retention of
net investment income
Timed Short-Term Bond Account high current income with limited TIMCO
price volatility
Timed Aggressive Stock Account growth of capital by investing TIMCO
primarily in a broadly
diversified portfolio of
common stocks
Timed Bond Account current income and total return TAMIC
by investing debt securities
of the highest credit quality
</TABLE>
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<PAGE> 34
MANAGED SEPARATE ACCOUNTS: MANAGEMENT AND INVESTMENT ADVISORY SERVICES
The investments and administration of each managed separate account are under
the direction of a Board of Managers. Subject to the authority of each Board of
Managers, TIMCO and TAMIC furnish investment management and advisory services as
indicated in the Investment Option Chart. Additionally, the Board of Managers
for each managed separate account annually selects an independent public
accountant, reviews the terms of the management and investment advisory
agreements, recommends any changes in the fundamental investment policies (and
submits any such changes to contract owners at the annual meeting), and takes
any other actions necessary in connection with the operation and management of
the managed separate accounts.
The Travelers Investment Management Company ("TIMCO") is a registered investment
adviser that has provided investment advisory services since its incorporation
in 1967. Its principal offices are located at One Tower Square, Hartford,
Connecticut, and it is a wholly owned subsidiary of Smith Barney Holdings Inc.,
which is a wholly owned subsidiary of Travelers Group Inc., a financial services
holding company. TIMCO also acts as investment adviser or subadviser for other
investment companies used to fund variable products, as well as for individual
and pooled pension and profit-sharing accounts, and for affiliated companies of
The Travelers Insurance Company.
Travelers Asset Management International Corporation ("TAMIC") is a registered
investment adviser that has provided investment advisory services since its
incorporation in 1978. Its principal offices are located at One Tower Square,
Hartford, Connecticut, and it is an indirect wholly owned subsidiary of
Travelers Group Inc., a financial services holding company. TAMIC also acts as
investment adviser or subadviser for other investment companies used to fund
variable products, as well as for individual and pooled pension and
profit-sharing accounts, and for domestic insurance companies affiliated with
The Travelers Insurance Company and nonaffiliated insurance companies.
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of historical
performance for the managed separate accounts and the underlying funds of Fund
U. The yield and effective yield may be advertised for Account MM, a money
market fund. Yield is a measure of the net dividend and interest income earned
over a specific seven-day period, expressed as a percentage of the offering
price of Account MM's accumulation units. Yield is an annualized figure, which
means that it is assumed that Account MM generates the same level of net income
over a 52-week period. Effective yield is calculated similarly but includes the
effect of assumed compounding calculated under rules prescribed by the SEC. The
effective yield will be slightly higher than yield due to this compounding
effect. Neither yield quotation reflects a deduction for the contingent deferred
sales charge, which if included, would reduce yield and effective yield.
The Company may also advertise the standardized average annual total returns of
Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U, calculated in a manner
prescribed by the SEC, as well as the non-standardized total return, as
described below. Standardized average annual total return will show the
percentage rate of return of a hypothetical initial investment of $1,000 for the
most recent one-, five- and ten-year periods, or since an underlying fund's
inception date. This standardized calculation reflects the deduction of all
applicable charges made to the Contract, except for premium taxes which may be
imposed by certain states. The non-standardized total returns differ from the
standardized average annual total returns, in that they do not reflect the
deduction of any applicable contingent deferred sales charge or the $15
semiannual contract administrative charge, which would decrease the level of
performance shown.
For underlying funds that were in existence prior to the date they became
available under the Contract, the standardized average annual total return and
non-standardized total return quotations will show the investment performance
that such underlying funds would have achieved (reduced by the applicable
charges) had they been available under the Contract for the period quoted.
25
<PAGE> 35
Performance information may be quoted numerically or may be presented in a
table, graph or other illustration. Advertisements may include data comparing
performance to well-known indices of market performance as discussed in the
Statement of Additional Information. Advertisements may also include published
editorial comments and performance rankings compiled by independent
organizations (including, but not limited to, Lipper Analytical Services, Inc.
and Morningstar, Inc.) and publications that monitor the performance of separate
accounts and mutual funds.
The yield and total return quotations are based upon historical earnings and are
not necessarily representative of future performance. The Contract Value at
redemption may be more or less than original cost. The Statement of Additional
Information contains more detailed information about these performance
calculations, including actual examples of each type of performance advertised.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
The following description of the federal income tax consequences under this
Contract is not exhaustive and is not intended to cover all situations and is
not meant to provide tax advice. Because of the complexity of the law and the
fact that the tax results will vary depending on many factors, you should
consult your tax advisor regarding your personal situation. For your
information, a more detailed discussion is contained in the SAI.
GENERAL TAXATION OF ANNUITIES
Congress has recognized the value of saving for retirement by providing certain
tax benefits, in the form of tax deferral, for money put into an annuity. The
Internal Revenue Code (Code) governs how this money is ultimately taxed,
depending upon the type of contract, qualified or non-qualified, and the manner
in which the money is distributed, as briefly described below.
TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED
If you purchase an annuity contract with proceeds of an eligible rollover
distribution from any pension plan, specially sponsored program, or individual
retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a
qualified contract. Some examples of qualified contracts are: IRAs, 403(b)
annuities, pension and profit-sharing plans (including 401(k) plans), Keogh
Plans and certain other qualified deferred compensation plans. If you purchase
the contract on an individual basis and with after-tax dollars and not under one
of the programs described above, your contract is referred to as nonqualified.
INVESTOR CONTROL
In certain circumstances, owners of variable annuity contracts may be considered
the owners, for federal income tax purposes, of the assets of the separate
accounts used to support their contract. In those circumstances, income and
gains from the separate account assets would be includable in the variable
contract owner's gross income.
The IRS has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The U.S. Treasury Department has also
announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the contract owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this prospectus, no such guidance has been
issued.
26
<PAGE> 36
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the owners were not owners of separate account assets. For example, a contract
owner or participant of this Contract has additional flexibility in allocating
payments and cash values. These differences could result in the contract owner
being treated as the owner of the assets of Fund U. In addition, the Company
does not know what standard will be set forth in the regulations or rulings
which the Treasury is expected to issue, nor does the Company know if such
guidance will be issued. The Company therefore reserves the right to modify the
Contract as necessary to attempt to prevent the contract owner from being
considered the owner of a pro rata share of the assets of Fund U.
The remaining tax discussion assumes that the Contract qualifies as an annuity
contract for federal income tax purposes.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law generally requires that minimum annual distributions begin by
April 1st of the calendar year following the calendar year in which an IRA owner
attains age 70 1/2. Participants in qualified plans and 403(b) annuities may
defer minimum distributions until the later of April 1st of the calendar year
following the calendar year in which they attain age 70 1/2 or the year of
retirement. Distributions must begin or be continued according to required
patterns following the death of the contract owner or annuitant of both
qualified and nonqualified annuities.
NONQUALIFIED ANNUITY CONTRACTS
As the owner of a nonqualified annuity, you do not receive any tax benefit
(deduction or deferral of income) on purchase payments, but you will not be
taxed on increases in the value of your contract until a distribution
occurs -- either as a withdrawal (distribution made prior to the maturity date),
or as annuity payments. When a withdrawal is made, you are taxed on the amount
of the withdrawal that is considered earnings. Similarly, when you receive an
annuity payment, part of each payment is considered a return of your purchase
payments and will not be taxed. The remaining portion of the annuity payment
(i.e., any earnings) will be considered ordinary income for tax purposes.
If a nonqualified annuity is owned by other than an individual, however, (e.g.,
by a corporation), increases in the value of the contract attributable to
purchase payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, if you
transfer the contract without adequate consideration all deferred increases in
value will be includable in your income at the time of the transfer.
If you make a partial withdrawal, this money will generally be taxed as first
coming from earnings, (income in the contract), and then from your purchase
payments. These withdrawn earnings are includable in your income. (See "Penalty
Tax for Premature Distributions" below). There is income in the contract to the
extent the cash value exceeds your investment in the contract. The investment in
the contract equals the total purchase payments you paid less any amount
received previously which was excludable from gross income. Any direct or
indirect borrowing against the value of the contract or pledging of the contract
as security for a loan will be treated as a cash distribution under the tax law.
Federal tax law requires that nonqualified annuity contracts meet minimum
mandatory distribution requirements upon the death of the contract owner,
including the first of joint owners. If these requirements are not met, the
surviving joint owner, or the beneficiary, will have to pay taxes prior to
distribution. The distribution required depends, among other things, upon
whether an annuity option is elected or whether the new contract owner is the
surviving spouse. We will administer Contracts in accordance with these rules
and we will notify you when you should begin receiving payments.
27
<PAGE> 37
QUALIFIED ANNUITY CONTRACTS
Under a qualified annuity, since amounts paid into the contract have not yet
been taxed, the full amount of all distributions, including lump-sum withdrawals
and annuity payments are taxed at the ordinary income tax rate unless the
distribution is transferred to an eligible rollover account or contract. The
Contract is available as a vehicle for IRA rollovers and for other qualified
contracts. There are special rules which govern the taxation of qualified
contracts, including withdrawal restrictions, requirements for mandatory
distributions, and contribution limits. We have provided a more complete
discussion in the SAI.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Taxable distributions taken before the contract owner has reached the age of
59 1/2 will be subject to a 10% additional tax penalty unless the distribution
is taken in a series of periodic distributions, for life or life expectancy, or
unless the distribution follows the death or disability of the Contract Owner.
Other exceptions may be available in certain tax-qualified plans.
DIVERSIFICATION REQUIREMENTS
The Code states that in order to qualify for the tax benefits described above,
investments made in the separate account of any nonqualified variable annuity
contract must satisfy certain diversification requirements. Tax regulations
define how separate accounts must be diversified. We monitor the investments
constantly and believe that our accounts are adequately diversified. We intend
to administer all contracts subject to this provision of law in a manner that
will maintain adequate diversification.
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT GIS)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The basic investment objective of Account GIS is to seek long-term accumulation
of principal through capital appreciation and retention of net investment
income. In seeking its objective, short-term gains may also be realized. The
assets of Account GIS generally will be fully invested in a portfolio of equity
securities, mainly common stocks, spread over industries and companies. However,
investments may be made in bonds, notes or other evidence of indebtedness,
issued publicly or placed privately, of a type customarily purchased for
investment by institutional investors, including United States government
securities. These investments in other than equity securities generally would
not have a prospect of long-term appreciation, and are temporary for defensive
purposes and are chosen on the basis of combined considerations of risk, income
and appreciation. Such investments may or may not be convertible into stock or
be accompanied by stock purchase options or warrants for the purchase of stock.
Account GIS will use exchange-traded stock index futures contracts as a hedge to
protect against changes in stock prices. A stock index futures contract is a
contractual obligation to buy or sell a specified index of stocks at a future
date for a fixed price. Stock index futures may also be used to hedge cash
inflows to gain market exposure until the cash is invested in specific common
stocks. Account GIS will not purchase or sell futures contracts for which the
aggregate initial margin exceeds 5% of the fair market value of its assets,
after taking into account unrealized profits and losses on any such contracts
which it has entered into. When a futures contract is purchased, Account GIS
will set aside, an amount of cash and cash equivalents equal to the total market
value of the futures contract, less the amount of the initial margin.
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<PAGE> 38
All stock index futures will be traded on exchanges that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that
its futures transactions meet CFTC standards, Account GIS will enter into
futures contracts for hedging purposes only (i.e., for the purposes or with the
intent specified in CFTC regulations and interpretations, subject to the
requirements of the SEC). Account GIS expects that risk management transactions
involving futures contracts will not impact more than 30% of its assets at any
one time. For a more detailed discussion of financial futures contracts and
associated risks, please see the Statement of Additional Information.
Account GIS may write covered call options on portfolio securities for which
call options are available and which are listed on a national securities
exchange. It may also purchase index or individual equity call options as an
alternative to holding stocks or stock index futures, or purchase index or
individual equity put options as a defensive measure. For a detailed discussion
of options contracts and associated risks, please see the Statement of
Additional Information.
Changes in investments may be made from time to time to take into account
changes in the outlook for particular industries or companies. The investments
of Account GIS will not, however, be concentrated in any one industry; that is,
no more than 25% of the value of Account GIS's assets will be invested in any
one industry. While Account GIS may occasionally invest in foreign securities,
it is not anticipated that such foreign securities will, at any time, account
for more than 10% of the investment portfolio.
The assets of Account GIS will be kept fully invested, except that (a)
sufficient cash may be kept on hand reasonably to provide for variable annuity
contract obligations, and (b) reasonable amounts of cash, United States
government or other liquid securities, such as short-term bills and notes, may
be held for limited periods, pending investment in accordance with Account GIS's
investment policies.
RISK FACTORS
It must be recognized that there are risks inherent in the ownership of any
security. The investment experience on equity investments over time will tend to
reflect levels of stock market prices and dividend payouts. Both are affected by
diverse factors, including not only business conditions and investor confidence
in the economy, but current conditions in a particular industry or company. The
yield on a common stock is not contractually determined. Equity securities are
subject to financial risks relating to the earning stability and overall
financial soundness of an issue. They are also subject to market risks relating
to the effect of general changes in the securities market on the price of a
security.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account GIS permit it to:
1. invest up to 5% of its assets in the securities of any one issuer
(exclusive of securities issued or guaranteed by the United States
government, its agencies or instrumentalities);
2. borrow from banks in amounts of up to 5% of its assets, but only for
emergency purposes;
3. purchase interests in real estate represented by securities for which
there is an established market;
4. make loans through the acquisition of a portion of a privately placed
issue of bonds, debentures or other evidences of indebtedness of a type
customarily purchased by institutional investors;
5. acquire up to 10% of the voting securities of any one issuer (it is the
present practice of Account GIS not to exceed 5% of the voting
securities of any one issuer);
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<PAGE> 39
6. make purchases on margin in the form of short-term credits which are
necessary for the clearance of transactions; and place up to 5% of its
net asset value in total margin deposits for positions in futures
contracts; and
7. invest up to 5% of its assets in restricted securities (securities which
may not be publicly offered without registration under the Securities
Act of 1933).
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
(ACCOUNT QB)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The basic investment objective of Account QB is to seek current income, moderate
capital volatility and total return.
The assets of Account QB will be primarily invested in money market obligations,
including, but not limited to, Treasury bills, repurchase agreements, commercial
paper, bank certificates of deposit and bankers' acceptances, and in publicly
traded debt securities, including bonds, notes, debentures, equipment trust
certificates and short-term instruments. These securities may carry certain
equity features such as conversion or exchange rights or warrants for the
acquisition of stocks of the same or different issuer, or participation based on
revenues, sales or profits. It is currently anticipated that the market
value-weighted average maturity of the portfolio will not exceed five years. (In
the case of mortgage-backed securities, the estimated average life of cash flows
will be used instead of average maturity.) Investment in longer term obligations
may be made if the Board of Managers concludes that the investment yields
justify a longer term commitment. No more than 25% of the value of Account QB's
assets will be invested in any one industry.
The portfolio will be actively managed and investments may be sold prior to
maturity if deemed advantageous in light of factors such as market conditions or
brokerage costs. While the investments of Account QB are generally not listed
securities, there are firms which make markets in the type of debt instruments
that Account QB holds. No problems of liquidity are anticipated with regard to
the investments of Account QB.
From time to time, Account QB may commit to purchase new-issue government or
agency securities on a "when-issued" or "to be announced" ("TBA") basis
("when-issued securities"). The prices of such securities will be fixed at the
time the commitment to purchase is made, and may be expressed in either dollar
price or yield maintenance terms. Such commitment to purchase may be viewed as a
senior security, and will be marked to market and reflected in Account QB's
Accumulation Unit Value daily from the commitment date. Delivery and payment may
be at a future date beyond customary settlement time. It is the customary
practice of Account QB to make when-issued or TBA purchases for settlement no
more than 90 days beyond the commitment date.
While it is TAMIC's intention to take physical delivery of these securities,
offsetting transactions may be made prior to settlement, if it is advantageous
to do so. Account QB does not make payment or begin to accrue interest on these
securities until settlement date. In order to invest its assets pending
settlement, Account QB will normally invest in short-term money market
instruments and other securities maturing no later than the scheduled settlement
date.
Account QB does not intend to purchase when-issued securities for speculative or
"leverage" purposes. When Account QB commits to purchase a when-issued security,
it will set aside liquid securities equal in value to the purchase cost of the
when-issued securities.
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<PAGE> 40
TAMIC believes that purchasing securities in this manner will be advantageous to
Account QB. However, this practice does entail certain risks, namely the default
of the counterparty on its obligation to deliver the security as scheduled. In
this event, Account QB would endure a loss (or gain) equal to the price
appreciation (or depreciation) in value from the commitment date. TAMIC employs
a rigorous credit quality procedure in determining the counterparties with which
it will deal in when-issued securities and, in some circumstances, will require
the counterparty to post cash or some other form of security as margin to
protect the value of its delivery obligation pending settlement.
Account QB may also purchase and sell interest rate futures contracts to hedge
against changes in interest rates that might otherwise have an adverse effect
upon the value of Account QB's securities. Hedging by use of interest rate
futures seeks to establish, with more certainty than would otherwise be
possible, the effective rate of return on portfolio securities. When hedging is
successful, any depreciation in the value of portfolio securities will
substantially be offset by appreciation in the value of the futures position.
Conversely, any appreciation in the value of the portfolio securities will
substantially be offset by depreciation in the value of the futures position.
Account QB will not purchase or sell futures contracts for which the aggregate
initial margin exceeds 5% of the fair market value of its assets, after taking
into account unrealized profits and losses on any such contracts which it has
entered into. At no time will Account QB's transactions in futures contracts be
employed for speculative purposes. When a futures contract is purchased, Account
QB will set aside liquid securities equal to the total market value of the
futures contract, less the amount of the initial margin.
All interest rate futures contracts will be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To
ensure that its futures transactions meet FTC standards, Account QB will enter
into futures contracts for hedging purposes only (i.e., for the purposes or with
the intent specified in CFTC regulations and interpretations, subject to the
requirements of the SEC). For a more detailed discussion of financial futures
contracts and associated risks, please see the Statement of Additional
Information.
RISK FACTORS
The Board of Managers will weigh considerations of risks, yield and ratings in
implementing Account QB's fundamental investment policies. There are no specific
criteria with regard to quality or ratings of the investments of Account QB, but
it is anticipated that they will be of investment grade or its equivalent. There
may or may not be more risk in investing in debt instruments where there are no
specific criteria with regard to quality or ratings of the investments.
The yield on debt instruments over a period of time should reflect prevailing
interest rates, which depend on a number of factors, including government action
in the capital markets, government fiscal and monetary policy, needs of
businesses for capital goods for expansion, and investor expectations as to
future inflation. The yield on a particular debt instrument is also affected by
the risk that the issuer will be unable to pay principal and interest.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account QB permit it to:
1. invest up to 15% of the value of its assets in the securities of any one
issuer (exclusive of obligations of the United States government and its
instrumentalities, for which there is no limit);
2. borrow from banks in amounts of up to 5% of its assets, but only for
emergency purposes;
3. purchase interests in real estate represented by securities for which
there is an established market;
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<PAGE> 41
4. make loans through the acquisition of a portion of a privately placed
issue of bonds, debentures or other evidences of indebtedness of a type
customarily purchased by institutional investors;
5. acquire up to 10% of the voting securities of any one issuer (it is the
present practice of Account QB not to exceed 5% of the voting securities
of any one issuer); and
6. make purchases on margin in the form of short-term credits which are
necessary for the clearance of transactions; and place up to 5% of its
net asset value in total margin deposits for positions in futures
contracts.
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES
(ACCOUNT MM)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The basic investment objective of Account MM is preservation of capital, a high
degree of liquidity and the highest possible current income available from
certain short-term money market securities. Account MM restricts its investment
portfolio to only the securities listed below. As is true with all investment
companies, there can be no assurance that Account MM's objectives will be
achieved. An investment in Account MM is neither insured nor guaranteed by the
U.S. Government. Account MM's assets will be invested in the following types of
securities.
1. Marketable obligations issued or guaranteed by the United States government,
its agencies, authorities or instrumentalities. These include issues of the
United States Treasury, such as bills, certificates of indebtedness, notes and
bonds, and issues of agencies, authorities and instrumentalities established
under the authority of an act of Congress. The latter issues include, but are
not limited to, obligations of the Tennessee Valley Authority, the Bank for
Cooperatives, the Federal Intermediate Credit Banks, Federal Land Banks and the
Federal National Mortgage Association. Obligations issued or guaranteed by the
United States government, its agencies, authorities or instrumentalities may be
supported by the full faith and credit of the United States Treasury; by the
right of the issuer to borrow from the United States Treasury; by discretionary
authority of the United States government to purchase an agency's, authority's
or instrumentalities' obligations and in some instances, solely by the credit of
the United States government agency, authority or instrumentality. No assurance
can be given that the United States government will provide financial support to
such United States government sponsored agencies, authorities or
instrumentalities in the future, since it is not obligated to do so by law.
Account MM will invest in such securities only when satisfied that the credit
risk with respect to the issuer (or guarantor) is minimal. Interest or discount
rates on agency securities are closely related to rates on Treasury bills.
2. Certificates of Deposit and Banker's Acceptances of banks having total assets
of more than $1 billion which are members of the Federal Deposit Insurance
Corporation. Certificates of Deposit are receipts issued by a bank in exchange
for the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market before maturity.
The Federal Deposit Insurance Corporation does not insure Certificates of
Deposit to the extent they are in excess of $100,000 per customer. Banker's
Acceptances usually arise from short-term credit arrangements drawn on a bank by
an exporter or importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank which, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturity for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
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<PAGE> 42
Account MM may invest in securities of foreign branches of United States banks,
payable in United States dollars, which meet the foregoing requirements.
Obligations of foreign branches of United States banks are subject to additional
risks beyond those of domestic branches of United States banks. These additional
risks include foreign economic and political developments, foreign governmental
restrictions which may adversely affect payment of principal and interest on
obligations, foreign withholding and other taxes on interest income, and
difficulties in obtaining and enforcing a judgment against a foreign branch of a
domestic bank. In addition, different risks may result from the fact that
foreign branches of United States banks are not necessarily subject to the types
of requirements that apply to domestic branches of United States banks with
respect to mandatory reserves, loan limitations, examinations, accounting,
auditing, recordkeeping and the public availability of information.
3. Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by
Moody's Investor Services, Inc. For a more detailed discussion of the
characteristics of commercial paper ratings, please see the Statement of
Additional Information.
4. Repurchase agreements with national banks or reporting broker dealers
involving marketable obligations of or guaranteed by the United States
government, its agencies, authorities or instrumentalities. A repurchase
agreement is an agreement in which the seller of a security agrees to repurchase
the security sold at a mutually agreed upon time and price. It may also be
viewed as the loan of money by Account MM to the seller. The resale price is in
excess of the purchase price, reflecting an agreed upon interest rate. The rate
is effective for the period of time Account MM is invested in the agreement and
is not related to the coupon rate on the underlying security. The period of
these repurchase agreements will usually be short, from overnight to one week,
and at no time will Account MM invest in repurchase agreements for more than one
year. The securities which are subject to repurchase agreements may, however,
have maturity dates in excess of one year from the effective date of the
repurchase agreement. Account MM will always receive, as collateral, securities
whose market value, including accrued interest, will be at least equal to 102%
of the dollar amount invested by Account MM in each agreement and will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of the Custodian. If the seller defaults, Account
MM might incur a loss if the value of the collateral securing the repurchase
agreement declines, and Account MM might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
collateral by Account MM may be delayed or limited. Account MM's Board of
Managers will evaluate the creditworthiness of any banks or broker dealers with
which Account MM engages in repurchase agreements by setting guidelines and
standards of review for Account MM's investment adviser and monitoring the
adviser's actions with regard to repurchase agreements for Account MM.
RISK FACTORS
The market value of Account MM's investments tends to decrease during periods of
rising interest rates and to increase during intervals of falling interest
rates, with corresponding fluctuations in Account MM's net income. In order to
minimize the fluctuations in market values to which interest-paying obligations
are subject, Account MM concentrates its investments in relatively short-term
securities, and in no event does the maturity date of an obligation exceed one
year from the date of Account MM's purchase.
Return is aided both by Account MM's ability to make investments in large
denominations and by its efficiencies of scale. Also, Account MM may seek to
improve portfolio income by selling certain portfolio securities before maturity
date in order to take advantage of yield disparities that occur in money
markets. Account MM may purchase and sell marketable obligations of or
guaranteed by the United States government, its agencies, authorities or
instrumentalities on a when-issued or delayed delivery basis, with such
purchases possibly occurring as much as a month before actual delivery and
payment.
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<PAGE> 43
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account MM permit it to:
1. invest up to 25% of its assets in the securities of issuers in any
single industry (exclusive of securities issued by domestic banks and
savings and loan associations, or securities issued or guaranteed by the
United States government, its agencies, authorities or
instrumentalities); neither all finance companies, as a group, nor all
utility companies, as a group, are considered a single industry for the
purpose of this restriction;
2. invest up to 10% of its assets in the securities of any one issuer,
including repurchase agreements with any one bank or dealer (exclusive
of securities issued or guaranteed by the United States government, its
agencies or instrumentalities); however, in accordance with Rule 2a-7 of
the 1940 Act, to which Account MM is subject, Account MM will not invest
more than 5% of its assets in the securities of any one issuer (other
than securities issued or guaranteed by the United States government or
its instrumentalities);
3. acquire up to 10% of the outstanding securities of any one issuer
(exclusive of securities issued or guaranteed by the United States
government, its agencies or instrumentalities);
4. borrow money from banks on a temporary basis in an aggregate amount not
to exceed one third of Account MM's assets (including the amount
borrowed); and
5. pledge, hypothecate or transfer, as security for indebtedness, any
securities owned or held by Account MM as may be necessary in connection
with any borrowing mentioned above and in an aggregate amount of up to
5% of Account MM's assets.
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT TGIS)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The basic investment objective of Account TGIS is to seek long-term accumulation
of principal through capital appreciation and retention of net investment
income. In selecting its objective, short-term gains may also be realized. The
assets of Account TGIS generally will be fully invested in a portfolio of equity
securities, mainly common stocks, spread over industries and companies. However,
when it is determined that investments of other types may be advantageous on the
basis of combined considerations of risk, income and appreciation, investments
may be made in bonds, notes or other evidence of indebtedness, issued publicly
or placed privately, of a type customarily purchased for investment by
institutional investors, including United States government securities. These
investments in other than equity securities generally would not have a prospect
of long-term appreciation, and are temporary for defensive purposes. Such
investments may or may not be convertible into stock or be accompanied by stock
purchase options or warrants for the purchase of stock.
Account TGIS will use exchange-traded financial futures contracts consisting of
stock index futures contracts and futures contracts on debt securities
("interest rate futures") to facilitate market timed moves, and as a hedge to
protect against changes in stock prices or interest rates. A stock index futures
contract is a contractual obligation to buy or sell a specified index of stocks
at a future date for a fixed price. An interest rate futures contract is a
contract to buy or sell specified debt securities at a future time for a fixed
price. These contracts would obligate Account TGIS, at maturity of the
contracts, to purchase or sell certain securities at specified prices or to make
cash settlements. In general, moves in a market-timed investment strategy may
require the purchase or sale of large amounts of securities in a short period of
time. This purchase or sale could result in substantial transaction costs and
perhaps higher borrowing in Account TGIS to provide funds needed for transfer to
the other timed accounts prior to the five-day settlement period for stock
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<PAGE> 44
sales. Alternatively, common stock exposure can be increased or decreased in a
more timely, cost-effective fashion by buying or selling stock index futures. By
transacting in such futures when a market timing move is called, the investment
adviser can create the ability to buy or sell actual common stocks with less
haste and at lower transaction costs. As the actual stocks are bought or sold,
the futures positions would simply be eliminated.
Account TGIS may also purchase and sell interest rate futures to hedge against
changes in interest rates that might otherwise have an adverse effect upon the
value of Account TGIS's securities. Hedging by use of interest rate futures
seeks to establish, with more certainty than would otherwise be possible, the
effective rate of return on portfolio securities. When hedging is successful,
any depreciation in the value of portfolio securities will substantially be
offset by appreciation in the value of the futures position. Conversely, any
appreciation in the value of portfolio securities will substantially be offset
by depreciation in the value of the futures position.
Account TGIS will not purchase or sell futures contracts for which the aggregate
initial margin exceeds 5% of the fair market value of its assets, after taking
into account unrealized profits and losses on any such contracts it has entered
into. At no time will Account TGIS's transactions in such financial futures be
used for speculative purposes. When a futures contract is purchased, Account
TGIS will set aside liquid securities equal to the total market value of the
futures contract, less the amount of the initial margin.
All financial futures contracts will be traded on exchanges that are licensed
and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure
that its futures transactions meet CFTC standards, Account TGIS will enter into
futures contracts for hedging purposes only (i.e., for the purposes or with the
intent specified in CFTC regulations and interpretations, subject to the
requirements of the SEC). For a more detailed discussion of financial futures
contracts and associated risks, please see the Statement of Additional
Information.
Account TGIS may write covered call options on portfolio securities for which
call options are available and which are listed on a national securities
exchange. It may also purchase index or individual equity call options as an
alternative to holding stocks or stock index futures, or purchase index or
individual equity put options as a defensive measure. For a detailed discussion
of options contracts and associated risks, please see the Statement of
Additional Information.
RISK FACTORS
It must be recognized that there are risks inherent in the ownership of any
security. The investment experience on equity investments over time will tend to
reflect levels of stock market prices and dividend payouts. Both are affected by
diverse factors including not only business conditions and investor confidence
in the economy, but current conditions in a particular industry or company.
Equity securities are subject to financial risks relating to the earning
stability and overall financial soundness of an issue. They are also subject to
market risks relating to the effect of general changes in the securities market
on the price of a security. In addition, there are risks inherent in Account
TGIS as an investment alternative used by Market Timing Services. (See "Market
Timing Risks.")
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account TGIS are the same as Account GIS.
(See "Account GIS -- Fundamental Investment Policies.")
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<PAGE> 45
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT TSB)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of Account TSB is to generate high current income with
limited price volatility while maintaining a high degree of liquidity. As is
true with all investment companies, there can be no assurance that Account TSB's
objectives will be achieved. Account TSB's assets will be invested in the
following types of securities. The final maturity of any asset will not exceed
three years and the average maturity of the total portfolio is expected to be
nine months.
1. Marketable obligations issued or guaranteed by the United States government,
its agencies, authorities or instrumentalities. These include issues of the
United States Treasury, such as bills, certificates of indebtedness, notes and
bonds, and issues of agencies, authorities and instrumentalities established
under the authority of an act of Congress. The latter issues include, but are
not limited to, obligations of the Tennessee Valley Authority, the Bank for
Cooperatives, the Federal Intermediate Credit Banks, Federal Land Banks and the
Federal National Mortgage Association. Obligations issued or guaranteed by the
United States government, its agencies, authorities or instrumentalities may be
supported by the full faith and credit of the United States Treasury; by the
right of the issuer to borrow from the United States Treasury; by discretionary
authority of the United States government to purchase an agency's, authority's
or instrumentalities' obligations and in some instances, solely by the credit of
the United States government agency, authority or instrumentality. No assurance
can be given that the United States government will provide financial support to
such United States government sponsored agencies, authorities or
instrumentalities in the future, since it is not obligated to do so by law.
Account TSB will invest in such securities only when satisfied that the credit
risk with respect to the issuer (or guarantor) is minimal. Interest or discount
rates on agency securities are closely related to rates on Treasury bills.
2. Certificates of Deposit and Banker's Acceptances of banks having total assets
of more than $1 billion which are members of the Federal Deposit Insurance
Corporation. Certificates of Deposit are receipts issued by a bank in exchange
for the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market before maturity.
The Federal Deposit Insurance Corporation does not insure Certificates of
Deposit to the extent they are in excess of $100,000 per customer. Banker's
Acceptances usually arise from short-term credit arrangements drawn on a bank by
an exporter or importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank which, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturity for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Account TSB may invest in securities payable in United States dollars of foreign
branches of United States banks which meet the foregoing requirements and in
Euro Certificates of Deposit, which are certificates of deposit issued by banks
outside of the United States, with interest and principal paid in U.S. dollars.
Obligations of foreign banks and foreign branches of United States banks are
subject to additional risks than those of domestic branches of United States
banks. These additional risks include foreign economic and political
developments, foreign governmental restrictions which may adversely affect
payment of principal and interest on obligations, foreign withholding and other
taxes on interest income, and difficulties in obtaining and enforcing a judgment
against a foreign bank or a foreign branch of a domestic bank. In addition,
different risks may result from the fact that foreign banks or foreign branches
of United States banks are not necessarily subject to the types of requirements
that apply to domestic branches of United States
36
<PAGE> 46
banks with respect to mandatory reserves, loan limitations, examinations,
accounting, auditing, recordkeeping and the public availability of information.
3. Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by
Moody's Investor Services, Inc. For a more detailed discussion of the
characteristics of commercial paper ratings, please see the Statement of
Additional Information.
4. Repurchase agreements with national banks and reporting broker dealers
involving marketable obligations of or guaranteed by the United States
government, its agencies, authorities or instrumentalities. A repurchase
agreement is an agreement in which the seller of a security agrees to repurchase
the security sold at a mutually agreed upon time and price. It may also be
viewed as the loan of money by Account TSB to the seller. The resale price is in
excess of the purchase price, reflecting an agreed upon interest rate. The rate
is effective for the period of time Account TSB is invested in the agreement and
is not related to the coupon rate on the underlying security. The period of
these repurchase agreements will usually be short, from overnight to one week,
and at no time will Account TSB invest in repurchase agreements for more than
one year. The securities which are subject to repurchase agreements may,
however, have maturity dates in excess of one year from the effective date of
the repurchase agreement. Account TSB will always receive, as collateral,
securities whose market value, including accrued interest, will be at least
equal to 102% of the dollar amount invested by Account TSB in each agreement and
will make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the Custodian. If the seller defaults,
Account TSB might incur a loss if the value of the collateral securing the
repurchase agreement declines, and Account TSB might incur disposition costs in
connection with liquidating the collateral.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, realization upon the collateral by Account TSB may be delayed
or limited. Account TSB's Board of Managers will evaluate the creditworthiness
of any banks or broker dealers with which Account TSB engages in repurchase
agreements by setting guidelines and standards of review for Account TSB's
investment adviser and monitoring the adviser's actions with regard to
repurchase agreements for Account TSB.
5. Short-term notes, bonds, debentures and other debt instruments issued or
guaranteed by an entity with a bond rating of at least AA by S&P or Aa by
Moody's, and with final maturities of such short-term instruments normally
limited to eighteen months at the time of purchase.
RISK FACTORS
The market value of Account TSB's investments tends to decrease during periods
of rising interest rates and to increase during intervals of falling interest
rates, with corresponding fluctuations in Account TSB's net income. In order to
minimize the fluctuations in market values to which interest-paying obligations
are subject, Account TSB concentrates its investments in relatively short-term
securities, and in no event does the maturity date of an obligation exceed three
years from the date of Account TSB's purchase. There can be no assurance that,
upon redemption, Account TSB's net asset value will be equal to or greater than
the net asset value at the time of purchase.
Return is aided both by Account TSB's ability to make investments in large
denominations and by its efficiencies of scale. Also, Account TSB may seek to
improve portfolio income by selling certain portfolio securities before the
maturity date in order to take advantage of yield disparities that occur in
money markets. Account TSB may purchase and sell marketable obligations of or
guaranteed by the United States government, its agencies, authorities or
instrumentalities on a when-issued or delayed delivery basis, with such
purchases possibly occurring as much as a month before actual delivery and
payment. In addition, there are risks inherent in Account TSB as an investment
alternative used by market timing services. (See "Market Timing Risks.")
37
<PAGE> 47
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account TSB permit it to:
1. invest up to 25% of its assets in the securities of issuers in any
single industry (exclusive of securities issued by domestic banks and
savings and loan associations, or securities issued or guaranteed by the
United States government, its agencies, authorities or
instrumentalities); neither all finance companies, as a group, nor all
utility companies, as a group, are considered a single industry for the
purpose of this restriction;
2. invest up to 10% of its assets in the securities of any one issuer,
including repurchase agreements with any one bank or dealer (exclusive
of securities issued or guaranteed by the United States government, its
agencies or instrumentalities);
3. acquire up to 10% of the outstanding securities of any one issuer
(exclusive of securities issued or guaranteed by the United States
government, its agencies or instrumentalities);
4. borrow money from banks on a temporary basis in an aggregate amount not
to exceed one third of Account TSB's assets (including the amount
borrowed); and
5. pledge, hypothecate or transfer, as security for indebtedness, any
securities owned or held by Account TSB as may be necessary in
connection with any borrowing mentioned above and in an aggregate amount
of up to 5% of Account TSB's assets.
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT TAS)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of Account TAS is to seek growth of capital by
investing primarily in a broadly diversified portfolio of common stocks.
In selecting investments for the portfolio, TIMCO identifies stocks which appear
to be undervalued. A proprietary computer model reviews over one-thousand stocks
using fundamental and technical criteria such as price relative to book value,
earnings growth and momentum, and the change in price relative to a broad
composite stock index.
Computer-aided analysis may also be utilized to match certain characteristics of
the portfolio, such as industry sector representation, to the characteristics of
a market index, or to impose a tilt toward certain attributes. Although Account
TAS currently focuses on mid-sized domestic companies with market
capitalizations that fall between $500 million and $10 billion, Account TAS may
invest in smaller or larger companies without limitation. The prices of
mid-sized company stocks and smaller company stocks may fluctuate more than
those of larger company stocks.
It is the policy of Account TAS to invest its assets as fully as practicable in
common stocks, securities convertible into common stocks and securities having
common stock characteristics, including rights and warrants selected primarily
for prospective capital growth. Account TAS may invest in domestic, foreign and
restricted securities.
When market conditions warrant, Account TAS may adopt a defensive position to
preserve shareholders' capital by investing in money market instruments. Such
instruments, which must mature within one year of their purchase, consist of
U.S. government securities; instruments of banks which are members of the
Federal Deposit Insurance Corporation and have assets of at least $1 billion,
such as certificates of deposit, demand and time deposits and bankers'
acceptances; prime commercial paper, including master demand notes; and
repurchase agreements secured by U.S. government securities.
38
<PAGE> 48
Account TAS will use exchange-traded financial futures contracts consisting of
stock index futures contracts and futures contracts on debt securities
("interest rate futures") to facilitate market timed moves, and as a hedge to
protect against changes in stock prices or interest rates. A stock index futures
contract is a contractual obligation to buy or sell a specified index of stocks
at a future date for a fixed price. An interest rate futures contract is a
contract to buy or sell specified debt securities at a future time for a fixed
price.
In general, moves in a market-timed investment strategy may require the purchase
or sale of large amounts of securities in a short period of time. This purchase
or sale could result in substantial transaction costs and perhaps higher
borrowing in Account TAS to provide funds needed for transfer to other timed
accounts prior to the five-day settlement period for stock sales. Alternatively,
common stock exposure can be increased or decreased in a more timely, cost-
effective fashion by buying or selling stock index futures. By transacting in
such futures when a market timing move is called, TIMCO can create the ability
to buy or sell actual common stocks with less haste and at lower transaction
costs. As the actual stocks are bought or sold, the futures positions would
simply be eliminated.
Account TAS may also purchase and sell interest rate futures to hedge against
changes in interest rates that might otherwise have an adverse effect upon the
value of Account TAS's securities. Hedging by use of interest rate futures seeks
to establish, with more certainty than would otherwise be possible, the
effective rate of return on portfolio securities. When hedging is successful,
any depreciation in the value of portfolio securities will substantially be
offset by appreciation in the value of the futures position. Conversely, any
appreciation in the value of portfolio securities will substantially be offset
by depreciation in the value of the futures position.
Account TAS will not purchase or sell futures contracts for which the aggregate
initial margin exceeds 5% of the fair market value of its assets, after taking
into account unrealized profits and losses on any such contracts which it has
entered into. When a futures contract is purchased, Account TAS will set aside
liquid securities equal to the total market value of the futures contract, less
the amount of the initial margin. At no time will Account TAS's transactions in
such futures be used for speculative purposes.
All financial futures contracts will be traded on exchanges that are licensed
and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure
that its futures transactions meet CFTC standards, Account TAS will enter into
futures contracts for hedging purposes only (i.e., for the purposes or with the
intent specified in CFTC regulations and interpretations, subject to the
requirements of the SEC). For a more detailed discussion of financial futures
contracts and associated risks, please see the Statement of Additional
Information.
Account TAS may write covered call options on portfolio securities for which
call options are available and which are listed on a national securities
exchange. It may also purchase index or individual equity call options as an
alternative to holding stocks or stock index futures, or purchase index or
individual equity put options as a defensive measure. For a detailed discussion
of options contracts and associated risks, please see the Statement of
Additional Information.
RISK FACTORS
There can, of course, be no assurance that Account TAS will achieve its
investment objective since there is uncertainty in every investment. Equity
securities are subject to financial risks relating to the earning stability and
overall financial soundness of an issue. They are also subject to market risks
relating to the effect of general changes in the securities market on the price
of a security. In addition, there may be more risk associated with Account TAS
to the extent that it invests in small or mid-sized companies. More risk is
associated with investment in small or mid-sized companies than with larger
companies because such companies may be dependent on only one or two products
and may be more vulnerable to competition from larger companies with greater
resources and to economic conditions affecting their market sector. Small or
mid-sized companies may be new, without long business or management histories,
and perceived by the market as unproven.
39
<PAGE> 49
Their securities may be held primarily by insiders or institutional investors,
which may affect marketability. The prices of these stocks often fluctuate more
than the overall stock market. In addition, there are risks inherent in Account
TAS as an investment alternative used by Market Timing Services. (See "Market
Timing Risks.")
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account TAS permit it to:
1. invest up to 5% of its assets in the securities of any one issuer;
2. borrow money from banks in amounts of up to 10% of its assets, but only
as a temporary measure for emergency or extraordinary purposes;
3. pledge up to 10% of its assets to secure borrowings;
4. invest up to 25% of its assets in the securities of issuers in the same
industry; and
5. invest up to 10% of its assets in repurchase agreements maturing in more
than seven days and securities for which market quotations are not
readily available.
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES
(ACCOUNT TB)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of Account TB is to seek current income and total
return. To achieve this objective, Account TB invests primarily in direct
obligations of highest credit quality: obligations of the United States, and its
instrumentalities, and in obligations issued or guaranteed by Federal Agencies
which are independent corporations sponsored by the United States and which are
subject to its general supervision, but which do not carry the full faith and
credit obligations of the United States.
Direct obligations of the United States include Treasury bills which are issued
on a discount basis with a maturity of one year or less, Treasury Notes which
have maturities at issuance between one and ten years, and Treasury Bonds which
have maturities at issuance greater than ten years. Instrumentalities of the
United States whose debt obligations are backed by its full faith and credit,
include: Government National Mortgage Association, Federal Housing
Administration, Farmers Homes Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Maritime
Administration, District of Columbia Armory Board, Farm Credit System Financial
Assistance Corporation, Federal Financing Bank and Washington Metropolitan Area
Transit Authority Bonds. Federal Agencies include: Farm Credit System, Federal
Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association and Student Loan Marketing Association.
Account TB intends to be fully invested at all times; however, when market
conditions warrant, Account TB may invest temporarily in money market
instruments. Such instruments, which must mature within one year of their
purchase, consist of U.S. government securities; instruments of banks which are
members of the Federal Deposit Insurance Corporation and have assets of at least
$1 billion, such as certificates of deposit, demand and time deposits and
bankers' acceptances; prime commercial paper, including master demand notes; and
repurchase agreements secured by U.S. government securities.
Account TB may from time to time commit to purchase new-issue government or
agency securities on a "when-issued" or "to be announced" ("TBA") basis
("when-issued securities"). The prices of such securities will be fixed at the
time the commitment to purchase is made, and may be expressed in either dollar
price or yield maintenance terms. Such commitment may be viewed as a
40
<PAGE> 50
senior security, and will be marked to market and reflected in Account TB's
Accumulation Unit Value daily from the commitment date. Delivery and payment may
be at a future date beyond customary settlement time. It is the customary
practice of Account TB to make when-issued or TBA purchases for settlement no
more than 90 days beyond the commitment date.
While it is TAMIC's intention to take physical delivery of these securities,
offsetting transactions may be made prior to settlement, if it is advantageous
to do so. Account TB does not make payment or begin to accrue interest on these
securities until settlement date. In order to invest its assets pending
settlement, Account TB will normally invest in short-term money market
instruments and other securities maturing no later than the scheduled settlement
date.
Account TB does not intend to purchase when-issued securities for speculative or
"leverage" purposes. Consistent with Section 18 of the 1940 Act and the General
Policy Statement of the SEC thereunder, when Account TB commits to purchase a
when-issued security, it will identify and place in a segregated account
high-grade money market instruments and other liquid securities equal in value
to the purchase cost of the when-issued securities.
TAMIC believes that purchasing securities in this manner will be advantageous to
Account TB. However, this practice does entail certain risks, namely the default
of the counterparty on its obligation to deliver the security as scheduled. In
this event, Account TB would endure a loss (gain) equal to the price
appreciation (depreciation) in value from the commitment date. TAMIC employs a
rigorous credit quality procedure in determining the counterparties with which
it will deal in when-issued securities and, in some circumstances, will require
the counterparty to post cash or some other form of security as margin to
protect the value of its delivery obligation pending settlement.
Account TB may seek to preserve capital by writing covered call options on
securities which it owns. Such an option on an underlying security would
obligate Account TB to sell, and give the purchaser of the option the right to
buy, that security at a stated exercise price at any time until the stated
expiration date of the option.
Account TB will use exchange-traded financial futures contracts consisting of
futures contracts on debt securities ("interest rate futures") to facilitate
market timed moves, and as a hedge to protect against changes in interest rates.
An interest rate futures contract is a contract to buy or sell specified debt
securities at a future time for a fixed price. These contracts would obligate
Account TB, at maturity of the contracts, to purchase or sell certain securities
at specified prices or to make cash settlements.
In general, moves in a market timed investment strategy may require the purchase
or sale of large amounts of securities in a short period of time. This purchase
or sale could result in substantial transaction costs and perhaps higher
borrowing in Account TB to provide funds needed for transfer to Account TSB.
Alternatively, debt security exposure can be increased or decreased in a more
timely, cost-effective fashion by buying or selling interest rate futures. By
transacting in such futures when a market timing move is called, TAMIC can
create the ability to buy or sell actual debt securities with less haste and at
lower transaction costs. As the actual debt securities are bought or sold, the
futures positions would simply be eliminated.
Account TB may also purchase and sell interest rate futures to hedge against
changes in interest rates that might otherwise have an adverse effect upon the
value of Account TB's securities. Hedging by use of interest rate futures seeks
to establish, with more certainty than would otherwise be possible, the
effective rate of return on portfolio securities. When hedging is successful,
any depreciation in the value of portfolio securities will substantially be
offset by appreciation in the value of the futures position. Conversely, any
appreciation in the value of the portfolio securities will substantially be
offset by depreciation in the value of the futures position.
Account TB will not purchase or sell futures contracts for which the aggregate
initial margin exceeds 5% of the fair market value of its assets, after taking
into account unrealized profits and losses on any such contracts which it has
entered into. At no time will Account TB's transactions in
41
<PAGE> 51
futures contracts be employed for speculative purposes. When a futures contract
is purchased, Account TB will set aside liquid securities equal to the total
market value of the futures contract, less the amount of the initial margin.
All interest rate futures contracts will be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To
ensure that its futures transactions meet CFTC standards, Account TB will enter
into futures contracts for hedging purposes only (i.e., for the purposes or with
the intent specified in CFTC regulations and interpretations, subject to the
requirements of the SEC). For a more detailed discussion of financial futures
contracts and associated risks, please see the Statement of Additional
Information.
RISK FACTORS
There can, of course, be no assurance that Account TB will achieve its
investment objective since there is uncertainty in every investment. U.S.
Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from corporate debt securities. The value of the portfolio
securities of Account TB will fluctuate based on market conditions and interest
rates. Interest rates depend on a number of factors, including government action
in the capital markets, government fiscal and monetary policy, needs of
businesses for capital goods for expansion, and investor expectations as to
future inflation. An increase in interest rates will generally reduce the value
of debt securities, and conversely a decline in interest rates will generally
increase the value of debt securities. In addition, there are risks inherent in
Account TB as an investment alternative used by Market Timing Services. (See
"Market Timing Risks.")
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account TB permit it to:
1. invest up to 5% of its assets in the securities of any one issuer
(exclusive of securities of the United States government, its agencies
or instrumentalities, for which there is no limit);
2. borrow money from banks in amounts of up to 10% of its assets, but only
as a temporary measure for emergency or extraordinary purposes;
3. pledge up to 10% of its assets to secure borrowings;
4. invest up to 25% of its assets in the securities of issuers in the same
industry (exclusive of securities of the U.S. government, its agencies
or instrumentalities, for which there is no limit); and
5. invest up to 10% of its assets in repurchase agreements maturing in more
than seven days and securities for which market quotations are not
readily available including restricted securities.
42
<PAGE> 52
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------
Q NQ Q NQ Q
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year......................................... $ 2.396 $ 2.485 $ 1.779 $ 1.845 $ 1.892
Unit Value at end of year............................................... 3.034 3.146 2.396 2.485 1.779
Number of units outstanding at end of year (thousands).................. 64,294 7,828 45,979 4,415 40,160
HIGH YIELD BOND TRUST
Unit Value at beginning of year......................................... $ 2.472 $ 2.498 $ 2.167 $ 2.189 $ 2.222
Unit Value at end of year............................................... 2.833 2.863 2.472 2.498 2.167
Number of units outstanding at end of year (thousands).................. 5,312 657 4,592 498 4,708
MANAGED ASSETS TRUST
Unit Value at beginning of year......................................... $ 2.763 $ 2.975 $ 2.201 $ 2.369 $ 2.281
Unit Value at end of year............................................... 3.105 3.342 2.763 2.975 2.201
Number of units outstanding at end of year (thousands).................. 55,055 4,632 57,020 4,114 58,355
<CAPTION>
1993 1992
------------------- -------------------
NQ Q NQ Q NQ
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year......................................... $ 1.962 $ 1.665 $ 1.727 $ 1.433 $ 1.487
Unit Value at end of year............................................... 1.845 1.892 1.962 1.665 1.727
Number of units outstanding at end of year (thousands).................. 3,605 30,003 2,825 16,453 1,020
HIGH YIELD BOND TRUST
Unit Value at beginning of year......................................... $ 2.245 $ 1.974 $ 1.994 $ 1.767 $ 1.785
Unit Value at end of year............................................... 2.189 2.222 2.245 1.976 1.994
Number of units outstanding at end of year (thousands).................. 585 5,066 603 4,730 428
MANAGED ASSETS TRUST
Unit Value at beginning of year......................................... $ 2.455 $ 2.111 $ 2.273 $ 2.034 $ 2.189
Unit Value at end of year............................................... 2.369 2.281 2.455 2.111 2.273
Number of units outstanding at end of year (thousands).................. 4,813 63,538 4,490 65,926 4,120
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year.........................................
Unit Value at end of year...............................................
Number of units outstanding at end of year (thousands)..................
HIGH YIELD BOND TRUST
Unit Value at beginning of year.........................................
Unit Value at end of year...............................................
Number of units outstanding at end of year (thousands)..................
MANAGED ASSETS TRUST
Unit Value at beginning of year.........................................
Unit Value at end of year...............................................
Number of units outstanding at end of year (thousands)..................
</TABLE>
APPENDIX
A
A
<TABLE>
<CAPTION>
1991 1990 1989
------------------- ------------------- -------
Q NQ Q NQ Q
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year......................................... $ 1.075 $ 1.114 $ 1.157 $ 1.200 $ 1.015
Unit Value at end of year............................................... 1.433 1.487 1.075 1.114 1.157
Number of units outstanding at end of year (thousands).................. 12,703 887 11,356 553 12,038
HIGH YIELD BOND TRUST
Unit Value at beginning of year......................................... $ 1.418 $ 1.433 $ 1.573 $ 1.590 $ 1.571
Unit Value at end of year............................................... 1.767 1.785 1.418 1.433 1.573
Number of units outstanding at end of year (thousands).................. 4,018 344 4,045 341 6,074
MANAGED ASSETS TRUST
Unit Value at beginning of year......................................... $ 1.691 $ 1.821 $ 1.671 $ 1.799 $ 1.331
Unit Value at end of year............................................... 2.034 2.189 1.691 1.821 1.671
Number of units outstanding at end of year (thousands).................. 58,106 3,359 51,489 2.744 47,104
<CAPTION>
1988 1987
------------------- -------------------
NQ Q NQ Q NQ
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year......................................... $ 1.052 $ 0.934 $ 0.968 $ 1.027 $ 1.066
Unit Value at end of year............................................... 1.200 1.015 1.052 0.934 0.968
Number of units outstanding at end of year (thousands).................. 495 13,040 423 12,957 486
HIGH YIELD BOND TRUST
Unit Value at beginning of year......................................... $ 1.588 $ 1.388 $ 1.403 $ 1.412 $ 1.427
Unit Value at end of year............................................... 1.590 1.571 1.588 1.388 1.403
Number of units outstanding at end of year (thousands).................. 573 5,783 676 4,645 523
MANAGED ASSETS TRUST
Unit Value at beginning of year......................................... $ 1.433 $ 1.234 $ 1.328 $ 1.223 $ 1.317
Unit Value at end of year............................................... 1.799 1.331 1.433 1.234 1.328
Number of units outstanding at end of year (thousands).................. 2,836 46,809 3,316 46,733 3,875
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year.........................................
Unit Value at end of year...............................................
Number of units outstanding at end of year (thousands)..................
HIGH YIELD BOND TRUST
Unit Value at beginning of year.........................................
Unit Value at end of year...............................................
Number of units outstanding at end of year (thousands)..................
MANAGED ASSETS TRUST
Unit Value at beginning of year.........................................
Unit Value at end of year...............................................
Number of units outstanding at end of year (thousands)..................
</TABLE>
Q = Qualified
NQ = NonQualified
The financial statements of Fund U are contained in the Annual Report which
should be read along with this information and which is incorporated by
reference into the SAI. The consolidated financial statements of The Travelers
Insurance Company and Subsidiaries are contained in the SAI.
* Prior to May 1, 1994, the Capital Appreciation Fund was known as the
Aggressive Stock Trust.
-
A-1
<PAGE> 53
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO (1/92)*
Unit Value at beginning of period............................ $ 1.321 $ 1.074 $ 1.153 $ 1.066 $ 1.000
Unit Value at end of period.................................. 1.323 1.321 1.074 1.153 1.066
Number of units outstanding at end of period (thousands)..... 19,054 21,339 22,709 22,142 8,566
SOCIAL AWARENESS STOCK PORTFOLIO (5/92)*
Unit Value at beginning of period............................ $ 1.461 $ 1.109 $ 1.153 $ 1.086 $ 1.000
Unit Value at end of period.................................. 1.731 1.461 1.109 1.153 1.086
Number of units outstanding at end of year (thousands)....... 6,355 4,841 3,499 2,920 1,332
UTILITIES PORTFOLIO (2/94)*
Unit Value at beginning of period............................ $ 1.284 $ 1.005 $ 1.000 -- --
Unit Value at end of period.................................. 1.363 1.284 1.005 -- --
Number of units outstanding at end of period (thousands)..... 13,258 11,918 5,740 -- --
TEMPLETON BOND FUND (8/88)* (CLASS 1)
Unit Value at beginning of year.............................. $ 1.250 $ 1.101 $ 1.172 $ 1.065 $ 1.000
Unit Value at end of year.................................... 1.351 1.250 1.101 1.172 1.065
Number of units outstanding at end of year (thousands)....... 10,260 10,527 10,186 8,014 3,477
TEMPLETON STOCK FUND (8/88)* (CLASS 1)
Unit Value at beginning of year.............................. $ 1.655 $ 1.338 $ 1.385 $ 1.047 $ 1.000
Unit Value at end of year.................................... 2.001 1.655 1.338 1.385 1.047
Number of units outstanding at end of year (thousands)....... 154,614 122,937 101,462 43,847 10,433
TEMPLETON ASSET ALLOCATION FUND (8/88)* (CLASS 1)
Unit Value at beginning of year.............................. $ 1.546 $ 1.277 $ 1.333 $ 1.070 $ 1.000
Unit Value at end of year.................................... 1.815 1.546 1.277 1.333 1.070
Number of units outstanding at end of year (thousands)....... 113,809 107,460 103,407 51,893 13,888
FIDELITY VIP HIGH INCOME PORTFOLIO (9/85)*
Unit Value at beginning of year.............................. $ 1.568 $ 1.316 $ 1.354 $ 1.138 $ 1.000
Unit Value at end of year.................................... 1.766 1.568 1.316 1.354 1.138
Number of units outstanding at end of year (thousands)....... 40,309 32,601 25,813 17,381 4,875
FIDELITY VIP GROWTH PORTFOLIO (10/86)*
Unit Value at beginning of year.............................. $ 1.594 $ 1.192 $ 1.207 $ 1.024 $ 1.000
Unit Value at end of year.................................... 1.805 1.594 1.192 1.207 1.024
Number of units outstanding at end of year (thousands)....... 274,892 229,299 176,304 101,260 30,240
FIDELITY VIP EQUITY-INCOME PORTFOLIO (10/86)*
Unit Value at beginning of period............................ $ 1.484 $ 1.112 $ 1.052 $ 1.000 --
Unit Value at end of period.................................. 1.674 1.484 1.112 1.052 --
Number of units outstanding at end of period (thousands)..... 205,636 153,463 78,856 13,414 --
FIDELITY VIP II ASSET MANAGER PORTFOLIO (9/89)*
Unit Value at beginning of year.............................. $ 1.394 $ 1.207 $ 1.301 $ 1.088 $ 1.000
Unit Value at end of year.................................... 1.577 1.394 1.207 1.301 1.088
Number of units outstanding at end of year (thousands)....... 249,050 270,795 282,474 162,413 30,207
DREYFUS STOCK INDEX FUND (9/89)*
Unit Value at beginning of year.............................. $ 1.546 $ 1.144 $ 1.148 $ 1.064 $ 1.000
Unit Value at end of year.................................... 1.870 1.546 1.144 1.148 1.064
Number of units outstanding at end of year (thousands)....... 66,098 43,247 31,600 26,789 12,089
AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND (5/93)*
Unit Value at beginning of period............................ $ 1.274 $ 1.084 $ 1.180 $ 1.000 --
Unit Value at end of period.................................. 1.534 1.274 1.084 1.180 --
Number of units outstanding at end of period (thousands)..... 121,896 70,364 47,096 16,944 --
AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND (5/93)*
Unit Value at beginning of period............................ $ 1.526 $ 1.168 $ 1.079 $ 1.000 --
Unit Value at end of period.................................. 1.460 1.526 1.168 1.079 --
Number of units outstanding at end of period (thousands)..... 122,877 103,815 73,838 27,011 --
</TABLE>
A-2
<PAGE> 54
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMERICAN ODYSSEY CORE EQUITY FUND (5/93)*
Unit Value at beginning of period............................ $ 1.354 $ .990 $ 1.012 $ 1.000 --
Unit Value at end of period.................................. 1.647 1.354 .990 1.012 --
Number of units outstanding at end of period (thousands)..... 170,552 137,330 100,082 37,136 --
AMERICAN ODYSSEY LONG-TERM BOND FUND (5/93)*
Unit Value at beginning of period............................ $ 1.221 $ .990 $ 1.085 $ 1.000 --
Unit Value at end of period.................................. 1.221 1.221 .990 1.085 --
Number of units outstanding at end of period (thousands)..... 137,075 101,376 70,928 25,467 --
AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND (5/93)*
Unit Value at beginning of period............................ $ 1.128 $ .993 $ 1.035 $ 1.000 --
Unit Value at end of period.................................. 1.157 1.128 .993 1.035 --
Number of units outstanding at end of period (thousands)..... 78,211 68,878 50,403 19,564 --
AMERICAN ODYSSEY SHORT-TERM BOND FUND (5/93)*
Unit Value at beginning of period............................ $ 1.102 $ 1.006 $ 1.020 $ 1.000 --
Unit Value at end of period.................................. 1.129 1.102 1.006 1.020 --
Number of units outstanding at end of period (thousands)..... 44,077 24,416 17,611 8,201 --
SMITH BARNEY INCOME AND GROWTH PORTFOLIO (6/94)*
Unit Value at beginning of period............................ $ 1.246 $ 1.000 -- -- --
Unit Value at end of period.................................. 1.474 1.246 -- -- --
Number of units outstanding at end of period (thousands)..... 6,133 1,747 -- -- --
ALLIANCE GROWTH PORTFOLIO (6/94)*
Unit Value at beginning of period............................ $ 1.284 $ 1.000 -- -- --
Unit Value at end of period.................................. 1.640 1.284 -- -- --
Number of units outstanding at end of period (thousands)..... 10,809 2,498 -- -- --
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO (6/94)*
Unit Value at beginning of period............................ $ 1.137 $ 1.000 -- -- --
Unit Value at end of period.................................. 1.321 1.137 -- -- --
Number of units outstanding at end of period (thousands)..... 5,777 593 -- -- --
PUTNAM DIVERSIFIED INCOME PORTFOLIO (6/94)*
Unit Value at beginning of period............................ $ 1.128 $ 1.000 -- -- --
Unit Value at end of period.................................. 1.206 1.128 -- -- --
Number of units outstanding at end of period (thousands)..... 2,375 774 -- -- --
SMITH BARNEY HIGH INCOME PORTFOLIO (6/94)*
Unit Value at beginning of period............................ $ 1.124 $ 1.000 -- -- --
Unit Value at end of period.................................. 1.256 1.124 -- -- --
Number of units outstanding at end of period (thousands)..... 553 138 -- -- --
MFS TOTAL RETURN PORTFOLIO (6/94)*
Unit Value at beginning of period............................ $ 1.205 $ 1.000 -- -- --
Unit Value at end of period.................................. 1.362 1.205 -- -- --
Number of units outstanding at end of period (thousands)..... 7,302 2,734 -- -- --
G.T. GLOBAL STRATEGIC INCOME PORTFOLIO (6/94)*
Unit Value at beginning of period............................ $ 1.195 $ 1.000 -- -- --
Unit Value at end of period.................................. 1.402 1.195 -- -- --
Number of units outstanding at end of period (thousands)..... 242 162 -- -- --
</TABLE>
* Inception date.
The financial statements of Fund U are contained in the Annual Report which
should be read along with this information and which is incorporated by
reference into the SAI. The consolidated financial statements of The Travelers
Insurance Company and Subsidiaries are contained in the SAI.
A-3
<PAGE> 55
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION AND ANNUITY UNIT OUTSTANDING THROUGHOUT EACH
YEAR
The following information on per unit data has been audited by Coopers & Lybrand
L.L.P., independent accountants. Their report on the per unit data for each of
the five years in the period ended December 31, 1996 is contained in the Account
GIS Annual Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER TO MAY 16, 1983 1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .212 $ .205 $ .189 $ .184
Operating expenses............................................................. .175 .140 .115 .106
-------- ------- ------- -------
Net investment income.......................................................... .037 .065 .074 .078
Unit Value at beginning of year................................................ 9.369 6.917 7.007 6.507
Net realized and change in unrealized gains (losses)........................... 1.965 2.387 (.164) .422
-------- ------- ------- -------
Unit Value at end of year...................................................... $ 11.371 $ 9.369 $ 6.917 $ 7.007
========= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ 2.00 $ 2.45 $ (.09) $ .50
Ratio of operating expenses to average net assets.............................. 1.70% 1.70% 1.65% 1.57%
Ratio of net investment income to average net assets........................... 36% .79% 1.05% 1.15%
Number of units outstanding at end of year (thousands)......................... 27,578 26,688 26,692 28,497
Portfolio turnover rate........................................................ 85% 96% 103% 81%
Average Commission Rate Paid*.................................................. $ .047 -- -- --
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .216 $ .208 $ .192 $ .189
Operating expenses............................................................. .154 .123 .100 .092
-------- ------- ------- -------
Net investment income.......................................................... .062 .085 .092 .097
Unit Value at beginning of year................................................ 9.668 7.120 7.194 6.664
Net realized and change in unrealized gains (losses)........................... 2.033 2.463 (.166) .433
-------- ------- ------- -------
Unit Value at end of year...................................................... $ 11.763 $ 9.668 $ 7.120 $ 7.194
========= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ 2.10 $ 2.55 $ (.07) $ .53
Ratio of operating expenses to average net assets.............................. 1.45% 1.45% 1.41% 1.33%
Ratio of net investment income to average net assets........................... .60% 1.02% 1.30% 1.40%
Number of units outstanding at end of year (thousands)......................... 16.554 17,896 19,557 21,841
Portfolio turnover rate........................................................ 85% 96% 103% 81%
Average Commission Rate Paid*.................................................. .047 -- -- --
<CAPTION>
CONTRACTS ISSUED ON OR AFTER TO MAY 16, 1983 1992 1991 1990 1989
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .188 $ .198 $ .192 $ .191
Operating expenses............................................................. .098 .091 .079 .095
------- ------- ------- -------
Net investment income.......................................................... .090 .107 .113 .096
Unit Value at beginning of year................................................ 6.447 5.048 5.295 4.191
Net realized and change in unrealized gains (losses)........................... (.030) 1.292 (.360) 1.008
------- ------- ------- -------
Unit Value at end of year...................................................... $ 6.507 $ 6.447 $ 5.048 $ 5.295
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ .06 $ 1.40 $ (.25) $ 1.10
Ratio of operating expenses to average net assets.............................. 1.58% 1.58% 1.57% 1.58 %
Ratio of net investment income to average net assets........................... 1.43% 1.86% 2.25% 2.33 %
Number of units outstanding at end of year (thousands)......................... 29,661 26,235 19,634 15,707
Portfolio turnover rate........................................................ 189% 319% 54% 27%
Average Commission Rate Paid*.................................................. -- -- -- --
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .192 $ .201 $ .199 $ .191
Operating expenses............................................................. .085 .077 .069 .066
------- ------- ------- -------
Net investment income.......................................................... .107 .124 .130 .125
Unit Value at beginning of year................................................ 6.587 5.145 5.383 4.250
Net realized and change in unrealized gains (losses)........................... (.030) 1.318 (.368) 1.008
------- ------- ------- -------
Unit Value at end of year...................................................... $ 6.664 $ 6.587 $ 5.145 $ 5.383
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ .08 $ 1.44 $ (.24) $ 1.13
Ratio of operating expenses to average net assets.............................. 1.33% 1.33% 1.33% 1.33 %
Ratio of net investment income to average net assets........................... 1.67% 2.11% 2.50% 2.56 %
Number of units outstanding at end of year (thousands)......................... 22,516 24,868 28,053 31,326
Portfolio turnover rate........................................................ 189% 319% 54% 27%
Average Commission Rate Paid*.................................................. -- -- -- --
<CAPTION>
CONTRACTS ISSUED ON OR AFTER TO MAY 16, 1983 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........................................................ $ .168 $ .132
Operating expenses............................................................. .071 .066
------- -------
Net investment income.......................................................... .097 .066
Unit Value at beginning of year................................................ 3.601 3.737
Net realized and change in unrealized gains (losses)........................... .493 (.202)
------- -------
Unit Value at end of year...................................................... $ 4.191 $ 3.601
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ .59 $ (.14)
Ratio of operating expenses to average net assets.............................. 1.58% 1.58%
Ratio of net investment income to average net assets........................... 2.60% 1.49%
Number of units outstanding at end of year (thousands)......................... 12,173 11,367
Portfolio turnover rate........................................................ 38% 51%
Average Commission Rate Paid*.................................................. -- --
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........................................................ $ .168 $ .132
Operating expenses............................................................. .053 .059
------- -------
Net investment income.......................................................... .115 .073
Unit Value at beginning of year................................................ 3.642 3.771
Net realized and change in unrealized gains (losses)........................... .493 (.202)
------- -------
Unit Value at end of year...................................................... $ 4.250 $ 3.642
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ .61 $ (.13)
Ratio of operating expenses to average net assets.............................. 1.33% 1.33%
Ratio of net investment income to average net assets........................... 2.85% 1.72%
Number of units outstanding at end of year (thousands)......................... 35,633 41,859
Portfolio turnover rate........................................................ 38% 51%
Average Commission Rate Paid*.................................................. -- --
</TABLE>
* The Average Commission Rate Paid is required for funds that have over 10% in
equities for which commissions are paid. This information is required for
funds with fiscal year ends on or after September 30, 1996.
A-4
<PAGE> 56
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION AND ANNUITY UNIT OUTSTANDING THROUGHOUT EACH
YEAR
The following information on per unit data has been audited by Coopers & Lybrand
L.L.P., independent accountants. Their report on the per unit data for each of
the five years in the period ended December 31, 1996 is contained in the Account
QB Annual Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983 1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income......................................................... $ .368 $ .319 $ .310 $ .299
Operating expenses.............................................................. .078 .073 .069 .067
------- ------- ------- -------
Net investment income........................................................... .290 .246 .241 .232
Unit Value at beginning of year................................................. 4.894 4.274 4.381 4.052
Net realized and change in unrealized gains (losses)............................ (.124) .374 (.348) .097
------- ------- ------- -------
Unit Value at end of year....................................................... $ 5.060 $ 4.894 $ 4.274 $ 4.381
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ .17 $ .62 $ (.11) $ .33
Ratio of operating expenses to average net assets............................... 1.57% 1.57% 1.57% 1.57%
Ratio of net investment income to average net assets............................ 5.87% 5.29% 5.62% 5.41%
Number of units outstanding at end of year (thousands).......................... 24,804 27,066 27,033 28,472
Portfolio turnover rate......................................................... 176% 138% 27% 24%
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income......................................................... $ .379 $ .328 $ .318 $ .306
Operating expenses.............................................................. .067 .063 .059 .058
------- ------- ------- -------
Net investment income........................................................... .312 .265 .259 .248
Unit Value at beginning of year................................................. 5.050 4.400 4.498 4.150
Net realized and change in unrealized gains (losses)............................ (.128) .385 (.357) .100
------- ------- ------- -------
Unit Value at end of year....................................................... $ 5.234 $ 5.050 $ 4.400 $ 4.498
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ .18 $ .65 $ (.10) $ .35
Ratio of operating expenses to average net assets............................... 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets............................ 6.12% 5.54% 5.87% 5.66%
Number of units outstanding at end of year (thousands).......................... 8,549 9,325 10,694 12,489
Portfolio turnover rate......................................................... 176% 138% 27% 24%
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983 1992 1991 1990* 1989
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income......................................................... $ .311 $ .299 $ .277 $ .270
Operating expenses.............................................................. .061 .056 .048 .047
------- ------- ------- -------
Net investment income........................................................... .250 .243 .229 .223
Unit Value at beginning of year................................................. 3.799 3.357 3.129 2.852
Net realized and change in unrealized gains (losses)............................ .003 .199 (.001) .054
------- ------- ------- -------
Unit Value at end of year....................................................... $ 4.052 $ 3.799 $ 3.357 $ 3.129
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ .25 $ .44 $ .23 $ .28
Ratio of operating expenses to average net assets............................... 1.58% 1.57% 1.57% 1.57 %
Ratio of net investment income to average net assets............................ 6.38% 6.84% 7.06% 7.44 %
Number of units outstanding at end of year (thousands).......................... 20,250 17,211 14,245 13,135
Portfolio turnover rate......................................................... 23% 21% 41% 33 %
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1992 1991 1990* 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income......................................................... $ .317 $ .304 $ .281 $ .270
Operating expenses.............................................................. .050 .048 .040 .035
------- ------- ------- -------
Net investment income........................................................... .267 .256 .241 .235
Unit Value at beginning of year................................................. 3.880 3.421 3.181 2.892
Net realized and change in unrealized gains (losses)............................ .003 .203 (.001) .054
------- ------- ------- -------
Unit Value at end of year....................................................... $ 4.150 $ 3.880 $ 3.421 $ 3.181
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ .27 $ .46 $ .24 $ .29
Ratio of operating expenses to average net assets............................... 1.33% 1.33% 1.33% 1.33 %
Ratio of net investment income to average net assets............................ 6.61% 7.09% 7.31% 7.60 %
Number of units outstanding at end of year (thousands).......................... 13,416 14,629 16,341 18,248
Portfolio turnover rate......................................................... 23% 21% 41% 33 %
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income......................................................... $ .259 $ .245
Operating expenses.............................................................. .046 .042
------- -------
Net investment income........................................................... .213 .203
Unit Value at beginning of year................................................. 2.697 2.629
Net realized and change in unrealized gains (losses)............................ (.058) (.135)
------- -------
Unit Value at end of year....................................................... $ 2.852 $ 2.697
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ .16 $ .07
Ratio of operating expenses to average net assets............................... 1.58% 1.57%
Ratio of net investment income to average net assets............................ 7.67% 7.72%
Number of units outstanding at end of year (thousands).......................... 9,457 7,560
Portfolio turnover rate......................................................... 17% 17%
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income......................................................... $ .259 $ .245
Operating expenses.............................................................. .037 .034
------- -------
Net investment income........................................................... .222 .211
Unit Value at beginning of year................................................. 2.728 2.652
Net realized and change in unrealized gains (losses)............................ (.058) (.135)
------- -------
Unit Value at end of year....................................................... $ 2.892 $ 2.728
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ .16 $ .08
Ratio of operating expenses to average net assets............................... 1.33% 1.32%
Ratio of net investment income to average net assets............................ 7.82% 7.87%
Number of units outstanding at end of year (thousands).......................... 21,124 24,703
Portfolio turnover rate......................................................... 17% 17%
</TABLE>
* On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account QB.
A-5
<PAGE> 57
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH YEAR
The following information on per unit data has been audited by Coopers & Lybrand
L.L.P., independent accountants. Their report on the per unit data for each of
the five years in the period ended December 31, 1996 is contained in the Account
MM Annual Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983 1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .121 $ .127 $ .087 $ .065
Operating expenses............................................................. .035 .034 .032 .031
-------- ------- ------- -------
Net investment income.......................................................... .086 .093 .055 .034
Unit Value at beginning of year................................................ 2.177 2.084 2.029 1.995
-------- ------- ------- -------
Unit Value at end of year...................................................... $ 2.263 $ 2.177 $ 2.084 $ 2.029
========= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value..................................................... $ .09 $ .09 $ .06 $ .03
Ratio of operating expenses to average net assets.............................. 157% 1.57% 1.57% 1.57%
Ratio of net investment income to average net assets........................... 3.84% 4.36% 2.72% 1.68%
Number of units outstanding at end of year (thousands)......................... 38,044 35,721 39,675 34,227
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .125 $ .130 $ .091 $ .067
Operating expenses............................................................. .30 .030 .028 .027
-------- ------- ------- -------
Net investment income.......................................................... .095 .100 .063 .040
Unit Value at beginning of year................................................ 2.246 2.146 2.083 2.043
-------- ------- ------- -------
Unit Value at end of year...................................................... $ 2.341 $ 2.246 $ 2.146 $ 2.083
========= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value..................................................... $ .10 $ .10 $ .06 $ .04
Ratio of operating expenses to average net assets.............................. 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets........................... 4.10% 4.61% 2.98% 1.93%
Number of units outstanding at end of year (thousands)......................... 112 206 206 218
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983 1992 1991 1990* 1989
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .077 $ .118 $ .149 $ .156
Operating expenses............................................................. .031 .030 .029 .027
------- ------- ------- -------
Net investment income.......................................................... .046 .088 .120 .129
Unit Value at beginning of year................................................ 1.949 1.861 1.741 1.612
------- ------- ------- -------
Unit Value at end of year...................................................... $ 1.995 $ 1.949 $ 1.861 $ 1.741
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value..................................................... $ .05 $ .09 $ .12 $ .13
Ratio of operating expenses to average net assets.............................. 1.57% 1.57% 1.57% 1.57 %
Ratio of net investment income to average net assets........................... 2.33% 4.66% 6.68% 7.65 %
Number of units outstanding at end of year (thousands)......................... 42,115 55,013 67,343 57,916
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1992 1991 1990* 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .079 $ .120 $ .151 $ .156
Operating expenses............................................................. .027 .026 .024 .021
------- ------- ------- -------
Net investment income.......................................................... .052 .094 .127 .135
Unit Value at beginning of year................................................ 1.991 1.897 1.770 1.635
------- ------- ------- -------
Unit Value at end of year...................................................... $ 2.043 $ 1.191 $ 1.897 $ 1.770
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value..................................................... $ .05 $ .09 $ .13 $ .14
Ratio of operating expenses to average net assets.............................. 1.33% 1.33% 1.33% 1.33 %
Ratio of net investment income to average net assets........................... 2.58% 4.90% 6.93% 7.81 %
Number of units outstanding at end of year (thousands)......................... 227 262 326 367
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........................................................ $ .118 $ .101
Operating expenses............................................................. .023 .023
------- -------
Net investment income.......................................................... .095 .078
Unit Value at beginning of year................................................ 1.517 1.439
------- -------
Unit Value at end of year...................................................... $ 1.612 $ 1.517
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value..................................................... $ .10 $ .08
Ratio of operating expenses to average net assets.............................. 1.56% 1.57%
Ratio of net investment income to average net assets........................... 6.02% 5.27%
Number of units outstanding at end of year (thousands)......................... 41,449 49,918
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........................................................ $ .118 $ .101
Operating expenses............................................................. .018 .018
------- -------
Net investment income.......................................................... .100 .083
Unit Value at beginning of year................................................ 1.535 1.452
------- -------
Unit Value at end of year...................................................... $ 1.635 $ 1.535
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value..................................................... $ .10 $ .08
Ratio of operating expenses to average net assets.............................. 1.31% 1.32%
Ratio of net investment income to average net assets........................... 6.19% 5.49%
Number of units outstanding at end of year (thousands)......................... 497 592
</TABLE>
* On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account MM.
A-6
<PAGE> 58
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
The following information on per unit data has been audited by Coopers & Lybrand
L.L.P., independent accountants. Their report on the per unit data for each of
the five years in the period ended December 31, 1996 is contained in the Account
TGIS Annual Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income................................................................... $ .061 $ .083 $ .064
Operating expenses........................................................................ .069** .057** .041**
------- ------- -------
Net investment income..................................................................... (.008) .026 .023
Unit Value at beginning of year........................................................... $ 2.263 $ 1.695 $ 1.776
Net realized and change in unrealized gains (losses)...................................... .462 .542 (.104)
------- ------- -------
Unit Value at end of year................................................................. $ 2.717 $ 2.263 $ 1.695
======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value..................................................... $ .45 $ .57 $ (.08)
Ratio of operating expenses to average net assets*........................................ 2.82%** 2.82%** 2.82%**
Ratio of net investment income to average net assets*..................................... (.34)% 1.37% 1.58%
Number of units outstanding at end of year (thousands).................................... 68,111 105,044 29,692
Portfolio turnover rate................................................................... 81% 79% 19%
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income................................................................... $ .043 $ .046 $ .045
Operating expenses........................................................................ .042** .045** .045 **
------- ------- -------
Net investment income..................................................................... .001 .001 --
Unit Value at beginning of year........................................................... $ 1.689 $ 1.643 $ 1.391
Net realized and change in unrealized gains (losses)...................................... 0.086 0.045 0.252
------- ------- -------
Unit Value at end of year................................................................. $ 1.776 $ 1.689 $ 1.643
======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value..................................................... $ .09 $ .05 $ .25
Ratio of operating expenses to average net assets*........................................ 2.82%** 2.82%** 2.82 %**
Ratio of net investment income to average net assets*..................................... 0.08% 0.78% 1.33 %
Number of units outstanding at end of year (thousands).................................... -- 217,428 --
Portfolio turnover rate................................................................... 70% 119% 489 %
<CAPTION>
1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income................................................................... $ .099 $ .161 $ .044
Operating expenses........................................................................ .034** .023 .017
------- ------- -------
Net investment income..................................................................... .065 .138 .027
Unit Value at beginning of year........................................................... $ 1.447 $ 1.108 $ 1.000
Net realized and change in unrealized gains (losses)...................................... (.121) .201 .081
------- ------- -------
Unit Value at end of year................................................................. $ 1.391 $ 1.447 $ 1.108
======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value..................................................... $ (.06) $ .34 $ .11
Ratio of operating expenses to average net assets*........................................ 2.41%** 1.57% 1.57%
Ratio of net investment income to average net assets*..................................... 1.86% 2.81% 2.55%
Number of units outstanding at end of year (thousands).................................... 5,708 -- 3,829
Portfolio turnover rate................................................................... 653% 149% 268%
</TABLE>
* Annualized
** Effective May 1, 1990, market timing fees are included in operating expenses.
Prior to May 1, 1990, market timing fee payments were made by separate check
from a contract owner, and were not recorded in the financial statements of
Account TGIS, or by contractual surrender to the extent allowed under federal
tax law.
A-7
<PAGE> 59
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES*
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
The following information on per unit data has been audited by Coopers & Lybrand
L.L.P., independent accountants. Their report on the per unit data for each of
the five years in the period ended December 31, 1996 is contained in the Account
TSB Annual Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income......................................................... $ .057 $ .074 $ .055 $ .041
Operating expenses.............................................................. .030** .035** .036** .037**
------- ------- ------- -------
Net investment income........................................................... .027 .039 .019 .004
Unit value at beginning of year................................................. 1.333 1.292 1.275 1.271
Net realized and change in unrealized gains (losses)***......................... .001 .002 (.002) --
------- ------- ------- -------
Unit value at end of year....................................................... $ 1.361 $ 1.333 $ 1.292 $ 1.275
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value...................................................... $ .03 $ .04 $ .02 $ --
Ratio of operating expenses to average net assets****........................... 2.82%** 2.82%** 2.82%** 2.82%**
Ratio of net investment income to average net assets****........................ 2.47% 3.17% 1.45% .39%
Number of units outstanding at end of year (thousands).......................... 54,565 -- 216,713 353,374
<CAPTION>
1992 1991 1990 1989
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income......................................................... $ .054 $ .076 $ .099 $ .102
Operating expenses.............................................................. .041** .036** .030** .017
------- ------- ------- -------
Net investment income........................................................... .013 .040 .069 .085
Unit value at beginning of year................................................. 1.258 1.218 1.149 1.064
Net realized and change in unrealized gains (losses)***......................... -- -- -- --
------- ------- ------- -------
Unit value at end of year....................................................... $ 1.271 $ 1.258 $ 1.218 $ 1.149
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value...................................................... $ .01 $ .04 $ .07 $ .09
Ratio of operating expenses to average net assets****........................... 2.82%** 2.82%** 2.41%** 1.57 %
Ratio of net investment income to average net assets****........................ 1.12% 3.07% 5.89% 7.63 %
Number of units outstanding at end of year (thousands).......................... 173,359 439,527 369,769 360,074
<CAPTION>
1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income......................................................... $ .078 $ .003
Operating expenses.............................................................. .016 .001
------- -------
Net investment income........................................................... .062 .002
Unit value at beginning of year................................................. 1.002 1.000
Net realized and change in unrealized gains (losses)***......................... -- --
------- -------
Unit value at end of year....................................................... $ 1.064 $ 1.002
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value...................................................... $ .06 $ --
Ratio of operating expenses to average net assets****........................... 1.57% 1.57%
Ratio of net investment income to average net assets****........................ 6.51% 2.69%
Number of units outstanding at end of year (thousands).......................... 356,969 288,757
</TABLE>
* Prior to May 1, 1994, the Account was known as The Travelers Timed Money
Market Account for Variable Annuities.
** Effective May 1, 1990, market timing fees are included in operating
expenses. Prior to May 1, 1990, market timing fee payments were made by
separate check from a contract owner, and were not recorded in the financial
statements of Account TSB, or by contractual surrender to the extent allowed
under federal tax law.
*** Effective May 2, 1994, Account TSB was authorized to invest in securities
with a maturity of greater than one year. As a result, net realized and
change in unrealized gains (losses) are no longer included in total
investment income.
**** Annualized.
A-8
<PAGE> 60
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
The following information on per unit data has been audited by Coopers & Lybrand
L.L.P., independent accountants. Their report on the per unit data for each of
the five years in the period ended December 31, 1996 is contained in the Account
TAS Annual Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .041 $ .042 $ .036 $ .037
Operating expenses............................................................. .069** .057** .049** .048**
-------- ------- ------- -------
Net investment income (loss)................................................... (.028) (.015) (.013) (.011)
Unit Value at beginning of year................................................ 2.253 1.706 1.838 1.624
Net realized and unrealized gains (losses)..................................... .398 .562 (.119) .225
-------- ------- ------- -------
Unit Value at end of year...................................................... $ 2.623 $ 2.253 $ 1.706 $ 1.838
========= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ .37 $ .55 $ (.13) $ .21
Ratio of operating expenses to average net assets*............................. .284%** 2.83%** 2.80%** 2.82%**
Ratio of net investment income to average net assets*.......................... (1.13)% (.74)% (.72)% (.80)%
Number of units outstanding at end of year (thousands)......................... 30,167 45,575 25,109 43,059
Portfolio turnover rate........................................................ 98% 113% 142% 71%
Average commission rate paid ++................................................ $ .047
<CAPTION>
1992 1991 1990+ 1989
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income........................................................ $ .041 $ .044 $ .045 $ .052
Operating expenses............................................................. .043** .039** .073** .051
------- ------- ------- -------
Net investment income (loss)................................................... (.002) .005 (.028) .001
Unit Value at beginning of year................................................ 1.495 1.136 1.189 1.059
Net realized and unrealized gains (losses)..................................... .131 .354 (.025) .129
------- ------- ------- -------
Unit Value at end of year...................................................... $ 1.624 $ 1.495 $ 1.136 $ 1.189
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ (.13) $ .36 $ (.05) $ .13
Ratio of operating expenses to average net assets*............................. 2.93%** 2.99%** 2.64%** 1.95 %
Ratio of net investment income to average net assets*.......................... (.12)% .37% (3.73)% .91 %
Number of units outstanding at end of year (thousands)......................... 20,225 19,565 5,585 0
Portfolio turnover rate........................................................ 269% 261% 0% 77%
Average commission rate paid ++................................................
<CAPTION>
1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........................................................ $ .008 $ .001
Operating expenses............................................................. .015 .000
------- -------
Net investment income (loss)................................................... (.007) .001
Unit Value at beginning of year................................................ 1.001 1.000
Net realized and unrealized gains (losses)..................................... .065 .000
------- -------
Unit Value at end of year...................................................... $ 1.059 $ 1.001
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value.......................................... $ .06 $ .00
Ratio of operating expenses to average net assets*............................. 1.95% 1.95%
Ratio of net investment income to average net assets*.......................... (.88)% 4.90%
Number of units outstanding at end of year (thousands)......................... 0 841
Portfolio turnover rate........................................................ 127% 0
Average commission rate paid ++................................................
</TABLE>
* Annualized
** Effective May 1, 1990, market timing fees are included in operating expenses.
Prior to May 1, 1990, market timing fee payments were made by separate check
from a contract owner and were not recorded in the financial statements of
Account TAS, or by contractual surrender to the extent allowed under federal
tax law.
+ On May 1, 1990, TIMCO replaced Keystone Custodian Funds, Inc. as the
investment adviser for Account TAS.
++ The average commission rate paid is required for funds that have over 10% in
equities for which commissions are paid. This information is required for
Funds with fiscal year ends on or after September 30, 1996.
A-9
<PAGE> 61
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
The following information on per unit data has been audited by Coopers & Lybrand
L.L.P., independent accountants. Their report on the per unit data for each of
the five years in the period ended December 31, 1996 is contained in the Account
TB Annual Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income......................................................... $ .033 $ .071 $ .007 $ .054
Operating expenses.............................................................. .015** .031** .006** .036**
------- ------- ------- -------
Net investment income........................................................... .018 .040 .001 .018
Unit Value at beginning of year................................................. 1.383 1.215 1.234 1.132
Net realized and change in unrealized gains (losses)............................ (.169) .128 (.020) .084
------- ------- ------- -------
Unit Value at end of year....................................................... $ 1.232 $ 1.383 $ 1.215 $ 1.234
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ (.15) $ .17 $ (.02) $ .10
Ratio of operating expenses to average net assets*.............................. 3.00%** 3.00%** 3.00%** 3.00%**
Ratio of net investment income to average net assets*........................... 3.48% 3.98% 1.02% 1.48%
Number of units outstanding at end of year (thousands).......................... -- 11,466 -- 20,207
Portfolio turnover rate......................................................... 153% 117% -- 190%
<CAPTION>
1992 1991 1990+ 1989
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER UNIT DATA
Total investment income......................................................... $ .051 $ .052 $ .072 $ .147
Operating expenses.............................................................. .032** .031** .018** .023
------- ------- ------- -------
Net investment income........................................................... .019 .021 .054 .124
Unit Value at beginning of year................................................. 1.087 .994 1.036 1.114
Net realized and change in unrealized gains (losses)............................ .026 .072 (.096) (.202)
------- ------- ------- -------
Unit Value at end of year....................................................... $ 1.132 $ 1.087 $ .994 $ 1.036
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ .05 $ .09 $ (.04) $ (.08)
Ratio of operating expenses to average net assets*.............................. 2.99%** 3.00%** 2.58%** 2.02 %
Ratio of net investment income to average net assets*........................... 1.71% 3.07% 3.88% 11.15 %
Number of units outstanding at end of year (thousands).......................... 21,868 19,521 14,115 660
Portfolio turnover rate......................................................... 505% 627% 370% 10 %
<CAPTION>
1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income......................................................... $ .141 $ .001
Operating expenses.............................................................. .022 .001
------- -------
Net investment income........................................................... .119 .000
Unit Value at beginning of year................................................. 1.000 1.000
Net realized and change in unrealized gains (losses)............................ (.005) --
------- -------
Unit Value at end of year....................................................... $ 1.114 $ 1.000
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value........................................... $ .11 $ .00
Ratio of operating expenses to average net assets*.............................. 2.04% 1.78%
Ratio of net investment income to average net assets*........................... 11.12% (.95)
Number of units outstanding at end of year (thousands).......................... 830 625
Portfolio turnover rate......................................................... 26% 0%
</TABLE>
* Annualized
** Effective May 1, 1990, market timing fees are included in operating expenses.
Prior to May 1, 1990, market timing fee payments were made by separate check
from a contract owner, and were not recorded in the financial statements of
Account TB, or by contractual surrender to the extent allowed under federal
tax law.
+ On May 1, 1990, TAMIC replaced Keystone Custodian Funds, Inc. as the
investment adviser for Account TB.
A-10
<PAGE> 62
APPENDIX B
- --------------------------------------------------------------------------------
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to The Travelers Insurance Company. A list of the
contents of the Statement of Additional Information is set forth below:
Description of The Travelers and The Separate Accounts
The Insurance Company
The Separate Accounts
Investment Restrictions
The Travelers Growth and Income Stock Account For Variable Annuities
The Travelers Timed Growth and Income Stock Account for Variable
Annuities
The Travelers Timed Aggressive Stock Account for Variable Annuities
The Travelers Quality Bond Account for Variable Annuities
The Travelers Timed Bond Account for Variable Annuities
The Travelers Money Market Account for Variable Annuities
The Travelers Timed Short-Term Bond Account for Variable Annuities
Description of Certain Types of Investments and Investment Techniques
Available to the Separate Accounts
Writing Covered Call Options
Buying Put and Call Options
Futures Contracts
Money Market Instruments
Investment Management and Advisory Services
Advisory Fees
TIMCO
TAMIC
Valuation of Account Assets
Net Investment Factor
Telephone Transfers
Federal Tax Information
Performance Data
Yield Quotations of Account MM
Average Annual Total Return Quotations of Accounts GIS, QB, MM, TGIS,
TSB, TAS, TB and Fund U
The Board of Managers
Distribution and Management Services
Securities Custodian
Independent Accountants
Financial Statements
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997 (FORM NO.
L-11165S) ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE CLIP THIS
COUPON ON THE DOTTED LINE, ENTER YOUR NAME AND ADDRESS IN THE SPACES PROVIDED
BELOW, AND MAIL TO: THE TRAVELERS INSURANCE COMPANY, ANNUITY SERVICES, ONE TOWER
SQUARE, HARTFORD, CONNECTICUT 06183-5030.
Name:
Address:
B-1
<PAGE> 63
THE TRAVELERS UNIVERSAL ANNUITY
INDIVIDUAL AND GROUP
VARIABLE ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
L-11165 Printed in U.S.A.
TIC Ed. 5-97
<PAGE> 64
- --------------------------------------------------------------------------------
TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
- --------------------------------------------------------------------------------
GROUP VARIABLE ANNUITY CONTRACTS
issued by
THE TRAVELERS INSURANCE COMPANY
One Tower Square, Hartford, Connecticut 06183
Telephone: 860-422-3985
The group Variable Annuities described in this Prospectus are
available only for use in connection with pension and profit-sharing plans
qualified under Section 401(a) or 403(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). The basic purpose of the Variable Annuity contract is
to provide lifetime Annuity Payments which will vary with the investment
performance of one or more Separate Accounts.
The Separate Accounts available for funding the Variable Annuities
described in this Prospectus have different investment objectives. The basic
investment objective of The Travelers Growth and Income Stock Account for
Variable Annuities ("Account GIS") is long-term accumulation of principal
through capital appreciation and retention of net investment income. Account
GIS proposes to achieve this objective by investing in a portfolio of equity
securities, mainly common stocks. The basic investment objective of The
Travelers Quality Bond Account for Variable Annuities ("Account QB") is the
selection of investments from the point of view of an investor concerned
primarily with current income, moderate capital volatility and total return.
Account QB proposes to achieve this objective by investing in money market
obligations and in publicly traded debt securities.
This Prospectus sets forth concisely the information about Account GIS
and Account QB (the "Separate Accounts") that you should know before investing.
Please read it and retain it for future reference. Additional information about
the Separate Accounts is contained in a Statement of Additional Information
("SAI") dated May 1, 1997 which has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference into this Prospectus. A
copy may be obtained, without charge, by writing to The Travelers Insurance
Company, Annuity Services, One Tower Square, Hartford, Connecticut 06183-5030,
Attention: Manager, or by calling 800-422-3985. The Table of Contents of the
SAI appears in Appendix A of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE> 65
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS . . . . . . . . . . . . . . 1
The Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Separate Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT ALTERNATIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT GIS). . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Fundamental Investment Policies. . . . . . . . . . . . . . . . . . . . . . . . 2
THE TRAVELERS QUALITY BOND ACCOUNT FOR
VARIABLE ANNUITIES (ACCOUNT QB) . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Fundamental Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . 4
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Deductions from Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . 6
Premium Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Annual Contract Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mortality and Expense Risks. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Change of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE VARIABLE ANNUITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General Benefit Description. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Termination by the Company and Termination Amount . . . . . . . . . . . . . . . 8
Benefit in the Event of Termination of a Participant, the Plan or the Contract 8
Suspension of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Required Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal and State Income Tax Withholding . . . . . . . . . . . . . . . . . . . 9
ACCUMULATION PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Application of Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . 9
Number of Accumulation Units. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Accumulation Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Net Investment Rate and Net Investment Factor . . . . . . . . . . . . . . . . . 10
Cash Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Cash Surrender (Redemption) or Withdrawal Value . . . . . . . . . . . . . . . . 10
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 66
<TABLE>
<S> <C>
Reinvestment Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Transfer Between Separate Accounts . . . . . . . . . . . . . . . . . . . . . . 11
Distribution from One Account to Another Account . . . . . . . . . . . . . . . 11
PAYOUT PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Separate Account Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination of First Payment . . . . . . . . . . . . . . . . . . . . . . . . 12
Annuity Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Number of Annuity Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Second and Subsequent Payments . . . . . . . . . . . . . . . . 13
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Income Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Election of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
FEDERAL TAX CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Qualified Pension and Profit-Sharing Plans . . . . . . . . . . . . . . . . . . 15
Federal Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Advice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS . . . . . . . . . . . . . . . . . . . . 16
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
LEGAL PROCEEDINGS AND OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 17
APPENDIX A - Contents of the Statement of Additional Information . . . . . . . . . 18
</TABLE>
ii
<PAGE> 67
GLOSSARY OF SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATION UNIT: the basic measure used to determine the value of a contract
before Annuity Payments begin.
ANNUITANT: the person on whose life the Variable Annuity contract is issued.
ANNUITY COMMENCEMENT DATE: the date on which a Participant's Annuity Payments
are to begin under the terms of the plan.
ANNUITY PAYMENTS: a series of periodic payments for life; for life with either
a minimum number of payments of a determinable sum assured; or for the joint
lifetime of the Annuitant and another person and thereafter during the lifetime
of the survivor.
ANNUITY UNIT: the basic measure used to determine the dollar amount of Annuity
Payments.
BOARD OF MANAGERS: the persons directing the investment and administration of a
managed Separate Account.
CASH SURRENDER VALUE: the amount payable to the Owner or other payee upon
termination of the contract during the lifetime of the Annuitant.
CASH VALUE: the current value of Accumulation Units credited to the contract
less any administrative charges.
COMPANY: The Travelers Insurance Company.
COMPANY'S HOME OFFICE: the principal executive offices of The Travelers
Insurance Company located at One Tower Square, Hartford, Connecticut.
CONTRACT DATE: the date on which the contract, benefits and provisions of the
contract become effective.
CONTRACT YEARS: annual periods computed from the Contract Date.
INCOME PAYMENTS: optional forms of periodic payments made by the Company which
are not based on the life of the Annuitant.
INDIVIDUAL ACCOUNT: Accumulation Units credited to a Participant or
beneficiary.
MAJORITY VOTE: a "majority vote of the outstanding voting securities" is
defined in the Investment Company Act of 1940 as the lesser of (i) 67% or more
of the votes present at a meeting, if Contract Owners holding more than 50% of
the total voting power of all Contract Owners in the Separate Account are
present or represented by proxy, or (ii) more than 50% of the total voting
power of all Contract Owners in the Separate Account.
NET PURCHASE PAYMENT (NET PREMIUM PAYMENT): the amount applied to the purchase
of Accumulation Units, which is equal to the Purchase Payment less deductions
for sales expenses, any applicable annual contract charge and any applicable
premium taxes.
OWNER: the entity to which the master group contract is issued, usually the
employer.
OWNER'S ACCOUNT: Accumulation Units credited to the Owner.
PARTICIPANT: an eligible person who participates in the plan.
iii
<PAGE> 68
PARTICIPANT'S INTEREST: the Cash Value to which the Participant is entitled
under the Plan.
PLAN: the plan under which the contract is issued.
PURCHASE PAYMENT (PREMIUM PAYMENT): a gross amount paid to the Company under
the contract during the accumulation period.
SEPARATE ACCOUNT: assets set aside by the Company, the investment experience of
which is kept separate from that of other assets of the Company; for example,
The Travelers Growth and Income Stock Account for Variable Annuities.
VALUATION DATE: generally, a day on which the Separate Account is valued. A
valuation date is any day on which the New York Stock Exchange is open for
trading. The value of the Accumulation Units and Annuity Units will be
determined as of the close of trading on the New York Stock Exchange.
VALUATION PERIOD: the period between the close of business on successive
Valuation Dates.
VARIABLE ANNUITY: an annuity contract which provides for accumulation and for
Annuity Payments which vary in amount in accordance with the investment
experience of a Separate Account.
THERE ARE ELIGIBILITY REQUIREMENTS FOR PURCHASERS DESCRIBED ELSEWHERE IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE A SOLICITATION OF AN OFFER TO
ACQUIRE ANY INTEREST OR PARTICIPATION IN THE VARIABLE ANNUITY DESCRIBED IN THIS
PROSPECTUS TO ANY PERSON WHO IS INELIGIBLE FOR PURCHASE.
SUMMARY
INTRODUCTION
There are two Separate Accounts currently available for funding the
Variable Annuity contracts described herein. The Travelers Growth and Income
Stock Account for Variable Annuities (Account GIS) and The Travelers Quality
Bond Account for Variable Annuities (Account QB) are registered with the SEC as
diversified, open-end management investment companies under the Investment
Company Act of 1940, as amended (the "1940 Act").
The basic investment objectives of the Separate Accounts are as
follows: Account GIS--long-term accumulation of principal through capital
appreciation and retention of net investment income; Account QB--current
income, moderate capital volatility and total return. As is true with all
investment companies, there can be no assurance that the objectives of the
Separate Accounts will be achieved.
RISK FACTORS
The investment experience on equity investments over a period of time
will tend to reflect levels of stock market prices and dividend payouts. Both
are affected by diverse factors, including not only business conditions and
investors' confidence in the economy, but current conditions in a particular
industry or company. The yield on a common stock is not contractually
determined. Equity securities are subject to financial risks relating to the
earning stability and overall financial soundness of an issue. They are also
subject to market risks relating to the effect of general changes in the
securities market on the price of a security.
The yield on debt instruments over a period of time should reflect
prevailing interest rates, which depend on a number of factors, including
government action in the capital markets, government fiscal and monetary
policy, needs of businesses for capital goods for expansion, and investor
expectations as to future inflation. The yield on a particular debt instrument
is also affected by the risk that the issuer will be unable to apply principal
and interest.
iv
<PAGE> 69
INVESTMENT ADVISORY SERVICES
The Travelers Investment Management Company ("TIMCO") furnishes
investment management and advisory services to Account GIS according to the
terms of a written agreement. TIMCO receives an amount equivalent on an annual
basis to 0.45% of the average daily net assets of Account GIS. Travelers Asset
Management International Corporation ("TAMIC") furnishes investment management
and advisory services to Account QB according to the terms of a written
agreement. TAMIC receives an amount equivalent on an annual basis to 0.3233%
of the average daily net assets of Account QB.
CHARGES AND DEDUCTIONS
A sales charge equal to 2% (2.04% of the amount invested) of the gross
Premium Payment is deducted from the Purchase Payments. The sales charge will
be reduced by 2% of any applicable annual contract charge. (See "Deductions
from Purchase Payments" and "Annual Contract Charge.")
There is a $50 annual contract charge assessed against each group
contract. (See "Annual Contract Charge.")
A deduction of 1.0017% on an annual basis will be made on each
Valuation Date for mortality and expense risks assumed by the Company. (See
"Charges and Deductions.")
A contract may be surrendered (redeemed) for cash, in whole or in
part, prior to the commencement of Annuity Payments. There is a surrender
charge of 2% of any Cash Value surrendered during the first five contract
years. (See "Cash Surrender (Redemption) or Withdrawal Value.")
Premium taxes may apply to annuities in a few states. These taxes
currently range from 0.5% to 5.0%, depending upon jurisdiction. The Company
will deduct any applicable premium tax from the Contract Value, either upon
death, surrender, or annuitization, or at the time Purchase Payments are made
to the Contract, but no earlier than when the Company has a tax liability under
state law. (See "Premium Tax.")
ANNUITY PAYMENTS
At a Participant's Annuity Commencement Date (usually at retirement),
the contract provides lifetime Annuity Payments, as well as other types of
payout plans. (See "Annuity Options" and "Income Options.") If a variable
payout is selected, the payments will continue to vary with the investment
performance of the selected Investment Alternatives.
TRANSFERS AND WITHDRAWALS
In the event that a Participant in the plan is terminated prior to
that Participant's Annuity Commencement Date, the Participant's interest may be
paid in cash or in other forms of payout. (See "Benefit in the Event of
Termination of a Participant, the Plan or the Contract.")
Before Annuity or Income Payments begin, transfers may be made among
available Investment Alternatives without fee, penalty or charge. (See
"Transfer Between Separate Accounts.")
VOTING RIGHTS
Owners have certain voting rights under the contracts. (See "Voting
Rights.")
OTHER PROVISIONS
The Company reserves the right to terminate inactive contracts under
certain circumstances. (See "Termination by the Company and Termination
Amount.")
The contracts will be sold by life insurance sales representatives
representing the Company or certain other registered broker-dealers. (See
"Distribution of Variable Annuity Contracts.")
v
<PAGE> 70
FEE TABLE
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (GIS)
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (QB)
<TABLE>
<CAPTION>
GIS QB
--- --
<S> <C> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases (as a percentage of purchase payments) . . 2.00% 2.00%
Surrender Charge (as a percentage of cash value surrendered) . . . . . 2.00% 2.00%
ANNUAL CONTRACT FEE (per group Contract). . . . . . . . . . . . . . . $ 50.00 $ 50.00
ANNUAL EXPENSES (as a percentage of average net assets)
Mortality and Expense Risk Fees . . . . . . . . . . . . . . . 1.00% 1.00%
Management Fees . . . . . . . . . . . . . . . . . . . . 0.45% 0.32%
TOTAL ANNUAL EXPENSES . . . . . . . . . . . . . . . . . . . . . 1.45% 1.32%
</TABLE>
EXAMPLE
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
If you surrender your contract at the end of the applicable period,
you would have paid the following expenses on a $1,000 investment, assuming a
5% annual return on assets, after:
<TABLE>
<CAPTION>
GIS QB
--- --
<S> <C> <C>
1 year $ 55 $ 54
3 years $ 88 $ 84
5 years $123 $117
10 years $195 $181
</TABLE>
If you do not surrender your contract at the end of the applicable
period, you would have paid the following expenses on a $1,000 investment,
assuming a 5% annual return on assets, after:
<TABLE>
<CAPTION>
GIS QB
--- --
<S> <C> <C>
1 year $ 35 $ 34
3 years $ 66 $ 62
5 years $100 $ 93
10 years $195 $181
</TABLE>
The purpose of the Fee Table is to assist Contract Owners in understanding
the various costs and expenses that a Contract Owner will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
including possible waivers or reductions of these expenses, see "Charges and
Deductions," and "Surrender Charge." Expenses shown do not include premium
taxes which may be applicable.
vi
<PAGE> 71
CONDENSED FINANCIAL INFORMATION
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
Per Unit Data for an Accumulation and Annuity Unit outstanding throughout each
year
The following information on per unit data has been audited by Coopers &
Lybrand L.L.P., independent accountants. Their report on the per unit data for
each of the five years in the period ended December 31, 1996 is contained in
the Separate Account's Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983.
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . $ .205 $ .189 $ .184 $ .188 $ .198
Operating expenses . . . . . . . . . . . . . . . . . . .140 .115 .106 .098 .091
------- ------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . .065 .074 .078 .090 .107
Unit Value at beginning of year . . . . . . . . . . . . 6.917 7.007 6.507 6.447 5.048
Net realized and change in unrealized gains (losses) . 2.387 (.164) .422 (.030) 1.292
------- ------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . $ 9.369 $ 6.917 $ 7.007 $ 6.507 $ 6.447
====== ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . 2.45 (.09) .50 .06 1.40
Ratio of operating expenses to average net assets . . . 1.70% 1.65% 1.57% 1.58% 1.58%
Ratio of net investment income to average net assets . .79% 1.05% 1.15% 1.43% 1.86%
Number of units outstanding at end of year (thousands) 26,688 26,692 28,497 29,661 26,235
Portfolio turnover rate . . . . . . . . . . . . . . . . 96% 103% 81% 189% 319%
Average Commission Rate Paid* . . . . . . . . . . . . . .0480 -- -- -- ---
SELECTED PER UNIT DATA 1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . $ .192 $ .191 $ .168 $ .132
Operating expenses. . . . . . . . . . . . . . . . . . . .079 .095 .071 .066
------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . .113 .096 .097 .066
Unit Value at beginning of year . . . . . . . . . . . . 5.295 4.191 3.601 3.737
Net realized and change in unrealized gains (losses) . (.360) 1.008 .493 (.202)
------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . $ 5.048 $ 5.295 $ 4.191 $ 3.601
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . (.25) 1.10 .59 (.14)
Ratio of operating expenses to average net assets . . . 1.57% 1.58% 1.58% 1.58%
Ratio of net investment income to average net assets . 2.25% 2.33% 2.60% 1.49%
Number of units outstanding at end of year (thousands) 19,634 15,707 12,173 11,367
Portfolio turnover rate . . . . . . . . . . . . . . . . 54% 27% 38% 51%
Average Commission Rate Paid* . . . . . . . . . . . . . -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983.
SELECTED PER UNIT DATA 1996 1995 1994 1993 1992 1991
---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . .208 $ .192 $ .189 $ .192 $ .201
Operating expenses . . . . . . . . . . . . . . . . . . .123 .100 .092 .085 .077
-------- ------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . .085 .092 .097 .107 .124
Unit Value at beginning of year . . . . . . . . . . . . 7.120 7.194 6.664 6.587 5.145
Net realized and change in unrealized gains (losses) . 2.463 (.166) .433 (.030) 1.318
------- ------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . $9.668 $ 7.120 $ 7.194 $ 6.664 $ 6.587
====== ======== ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . 2.55 (.07) .53 .08 1.44
Ratio of operating expenses to average net assets . . . 1.45% 1.41% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets. . 1.02% 1.30% 1.40% 1.67% 2.11%
Number of units outstanding at end of year (thousands) 17,896 19,557 21,841 22,516 24,868
Portfolio turnover rate . . . . . . . . . . . . . . . . 96% 103% 81% 189% 319%
Average Commission Rate Paid* . . . . . . . . . . . . . .0480 -- -- -- --
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983.
SELECTED PER UNIT DATA 1990 1989 1988 1987
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . $ .199 $ .191 $ .168 $ .132
Operating expenses . . . . . . . . . . . . . . . . . . .069 .066 .053 .059
------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . .130 .125 .115 .073
Unit Value at beginning of year . . . . . . . . . . . . 5.383 4.250 3.642 3.771
Net realized and change in unrealized gains (losses). . (.368) 1.008 .493 (.202)
------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . $ 5.145 $ 5.383 $ 4.250 $ 3.642
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . (.24) 1.13 .61 (.13)
Ratio of operating expenses to average net assets . . . 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets. . 2.50% 2.56% 2.85% 1.72%
Number of units outstanding at end of year (thousands) 28,053 31,326 35,633 41,859
Portfolio turnover rate . . . . . . . . . . . . . . . . 54% 27% 38% 51%
Average Commission Rate Paid* . . . . . . . . . . . . . -- -- -- --
</TABLE>
* The Average Commission Rate Paid is required for funds that have over 10%
in equities for which commissions are paid. This information is required for
funds with fiscal year ends on or after September 30, 1996.
1
<PAGE> 72
CONDENSED FINANCIAL INFORMATION
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
Per Unit Data for an Accumulation and Annuity Unit outstanding throughout each
year
The following information on per unit data has been audited by Coopers &
Lybrand L.L.P., independent accountants. Their report on the per unit data for
each of the five years in the period ended December 31, 1996 is contained in
the Separate Account's Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983.
SELECTED PER UNIT DATA 1996 1995 1994 1993 1992 * 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total investment income. . . . . . . . . . . . . . . . . $ .319 $ .310 $ .299 $ .311 $ .299
Operating expenses . . . . . . . . . . . . . . . . . . . .073 .069 .067 .061 .056
------- ------- ------- ------- -------
Net investment income. . . . . . . . . . . . . . . . . . .246 .241 .232 .250 .243
Unit Value at beginning of year. . . . . . . . . . . . . 4.274 4.381 4.052 3.799 3.357
Net realized and change in unrealized gains (losses) . . .374 (.348) .097 .003 .199
------- ------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . . $ 4.894 $ 4.274 $ 4.381 $ 4.052 $ 3.799
======== ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value. . . . . . . . . . .62 (.11) .33 .25 .44
Ratio of operating expenses to average net assets. . . . 1.57% 1.57% 1.57% 1.58% 1.57%
Ratio of net investment income to average net assets . . 5.29% 5.62% 5.41% 6.38% 6.84%
Number of units outstanding at end of year (thousands) . 27,066 27,033 28,472 20,250 17,211
Portfolio turnover rate. . . . . . . . . . . . . . . . . 138% 27% 24% 23% 21%
<CAPTION>
CONTRACTS ISSUED ON OR AFTER TO MAY 16, 1983.
SELECTED PER UNIT DATA 1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . $ .277 $ .270 $ .259 $ .245
Operating expenses. . . . . . . . . . . . . . . . . . . .048 .047 .046 .042
------- ------- ------- -------
Net investment income. . . . . . . . . . . . . . . . . . .229 .223 .213 .203
Unit Value at beginning of year. . . . . . . . . . . . . 3.129 2.852 2.697 2.629
Net realized and change in unrealized gains (losses) . . (.001) .054 (.058) (.135)
------- ------- -------- -------
Unit Value at end of year . . . . . . . . . . . . . . . . $ 3.357 $ 3.129 $ 2.852 $ 2.697
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value. . . . . . . . . . .23 .28 .16 .07
Ratio of operating expenses to average net assets. . . . 1.57% 1.57% 1.58% 1.57%
Ratio of net investment income to average net assets . . 7.06% 7.44% 7.67% 7.72%
Number of units outstanding at end of year (thousands) . 14,245 13,135 9,457 7,560
Portfolio turnover rate. . . . . . . . . . . . . . . . . 41% 33% 17% 17%
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983.
SELECTED PER UNIT DATA 1996 1995 1994 1993 1992 * 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total investment income. . . . . . . . . . . . . . . . $ .328 $ .318 $ .306 $ .317 $ .304
Operating expenses . . . . . . . . . . . . . . . . . . .063 .059 .058 .050 .048
------- ------- ------- ------- -------
Net investment income. . . . . . . . . . . . . . . . . .265 .259 .248 .267 .256
Unit Value at beginning of year. . . . . . . . . . . . 4.400 4.498 4.150 3.880 3.421
Net realized and change in unrealized gains (losses) . .385 (.357) .100 .003 .203
------- ------ ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . $ 5.050 $ 4.400 $ 4.498 $ 4.150 $ 3.880
====== ======= ======= ======= ======= ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . .65 (.10) .35 .27 .46
Ratio of operating expenses to average net assets. . . 1.33% 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets . 5.54% 5.87% 5.66% 6.61% 7.09%
Number of units outstanding at end of year (thousands) 9,325 10,694 12,489 13,416 14,629
Portfolio turnover rate. . . . . . . . . . . . . . . . 138% 27% 24% 23% 21%
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983.
SELECTED PER UNIT DATA 1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total investment income. . . . . . . . . . . . . . . . $ .281 $ .270 $ .259 $ .245
Operating expenses . . . . . . . . . . . . . . . . . . .040 .035 .037 .034
------- ------- ------- -------
Net investment income. . . . . . . . . . . . . . . . . .241 .235 .222 .211
Unit Value at beginning of year. . . . . . . . . . . . 3.181 2.892 2.728 2.652
Net realized and change in unrealized gains (losses) . (.001) .054 (.058) (.135)
------- ------- ------- -------
Unit Value at end of year. . . . . . . . . . . . . . . $ 3.421 $ 3.181 $ 2.892 $ 2.728
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . .24 29 .16 .08
Ratio of operating expenses to average net assets. . . . 1.33% 1.33% 1.33% 1.32%
Ratio of net investment income to average net assets . . 7.31% 7.60% 7.82% 7.87%
Number of units outstanding at end of year (thousands) . 16,341 18,248 21,124 24,703
Portfolio turnover rate. . . . . . . . . . . . . . . . . 41% 33% 17% 17%
</TABLE>
* On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account
QB.
2
<PAGE> 73
DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company" or "The Travelers") is
a stock insurance company chartered in 1864 in Connecticut and continuously
engaged in the insurance business since that time. It is licensed to conduct
life insurance business in all states of the United States, the District of
Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands, and the
Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group
Inc., a financial services holding company. The Company's Home Office is
located at One Tower Square, Hartford, Connecticut 06183.
THE SEPARATE ACCOUNTS
Each of the Separate Accounts available under the Variable Annuity
contracts described in this Prospectus meets the definition of a separate
account under the federal securities laws, and will comply with the provisions
of the 1940 Act. Additionally, the operations of each of the Separate Accounts
are subject to the provisions of Section 38a-433 of the Connecticut General
Statutes which authorizes the Connecticut Insurance Commissioner to adopt
regulations under it. Section 38a-433 contains no restrictions on investments
of the Separate Accounts, and the Commissioner has adopted no regulations under
the Section that affect the Separate Accounts.
Account GIS was established on September 22, 1967, and Account QB was
established on July 29, 1974. Each of these Separate Accounts, although an
integral part of the Company, is registered with the SEC as a diversified,
open-end management investment company under the 1940 Act. The assets of
Accounts GIS and QB are invested directly in securities (such as stocks, bonds
or money market instruments) which are compatible with the stated investment
policies of each account.
GENERAL
Under Connecticut law, the assets of the Separate Accounts will be
held for the exclusive benefit of the owners of, and the persons entitled to
payment under, the Variable Annuity contracts offered by this Prospectus and
under all other contracts which provide for accumulated values or dollar amount
payments to reflect investment results of the Separate Accounts. The assets in
the Separate Accounts are not chargeable with liabilities arising out of any
other business which the Company may conduct. The obligations arising under
the Variable Annuity contracts are obligations of the Company.
INVESTMENT ALTERNATIVES
The Investment Alternatives available in connection with the Variable
Annuity Contracts described herein each have different investment objectives
and fundamental investment policies, as are set forth below. Neither the
investment objectives nor the fundamental investment policies of the Separate
Account can be changed without a vote of a majority of the outstanding voting
securities of the Separate Account, as defined in the 1940 Act.
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT GIS)
INVESTMENT OBJECTIVE
The basic investment objective of Account GIS is the selection of
investments from the point of view of an investor concerned primarily with
long-term accumulation of principal through capital appreciation and retention
of net investment income. This principal objective does not preclude the
realization of short-term gains when conditions would suggest the long-term
goal is accomplished by such short-term transactions. The assets of Account
GIS generally will be fully invested in a portfolio of equity securities,
mainly common stocks, spread over industries and companies. However, when it
is determined that investments of other types may be advantageous on
1
<PAGE> 74
the basis of combined considerations of risk, income and appreciation,
investments may be made in bonds, notes or other evidence of indebtedness,
issued publicly or placed privately, of a type customarily purchased for
investment by institutional investors, including United States government
securities. These investments in other-than-equity securities generally would
not have a prospect of long-term appreciation, and are temporary for defensive
purposes. Such investments may or may not be convertible into stock or be
accompanied by stock purchase options or warrants for the purchase of stock.
Account GIS will use exchange-traded stock index futures contracts as
a hedge to protect against changes in stock prices. A stock index futures
contract is a contractual obligation to buy or sell a specified index of stocks
at a future date for a fixed price. Stock index futures may also be used to
hedge cash inflows to gain market exposure until the cash is invested in
specific common stocks. Account GIS will not purchase or sell futures
contracts for which the aggregate initial margin exceeds five percent (5%) of
the fair market value of its assets, after taking into account unrealized
profits and losses on any such contracts which it has entered into. When a
futures contract is purchased, Account GIS will set aside, in an identifiable
manner, an amount of cash and cash equivalents equal to the total market value
of the futures contract, less the amount of the initial margin.
All stock index futures will be traded on exchanges that are licensed
and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure
that its futures transactions meet CFTC standards, Account GIS will enter into
futures contracts for hedging purposes only (i.e., for the purposes or with the
intent specified in CFTC regulations and interpretations, subject to the
requirements of the SEC). Account GIS expects that risk management
transactions involving futures contracts will not impact more than thirty
percent (30%) of its assets at any one time. For a more detailed discussion of
financial futures contracts and associated risks, please see the SAI.
Account GIS may write covered call options on portfolio securities for
which call options are available and which are listed on a national securities
exchange. It may also purchase index or individual equity call options as an
alternative to holding stocks or stock index futures, or purchase index or
individual equity put options as a defensive measure. For a detailed
discussion of options contracts and associated risks, please see the SAI.
Changes in investments may be made from time to time to take into
account changes in the outlook for particular industries or companies. The
investments of Account GIS will not, however, be concentrated in any one
industry; that is, no more than twenty-five percent (25%) of the value of
Account GIS's assets will be invested in any one industry. While Account GIS
may occasionally invest in foreign securities, it is not anticipated that such
foreign securities will, at any time, account for more than ten percent (10%)
of the investment portfolio.
The assets of Account GIS will be kept fully invested, except that (a)
sufficient cash may be kept on hand reasonably to provide for variable annuity
contract obligations, and (b) reasonable amounts of cash, United States
government or other liquid securities, such as short-term bills and notes, may
be held for limited periods, pending investment in accordance with Account
GIS's investment policies.
It must be recognized that there are risks inherent in the ownership
of any security. The investment experience on equity investments over time
will tend to reflect levels of stock market prices and dividend payouts. Both
are affected by diverse factors, including not only business conditions and
investor confidence in the economy, but current conditions in a particular
industry or company. The yield on a common stock is not contractually
determined. Equity securities are subject to financial risks relating to the
earning stability and overall financial soundness of an issue. They are also
subject to market risks relating to the effect of general changes in the
securities market on the price of a security.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account GIS permit it to:
1. invest up to 5% of its assets in the securities of any one issuer
(exclusive of securities issued or guaranteed by the United States
government, its agencies or instrumentalities);
2. borrow from banks in amounts of up to 5% of its assets, but only
for emergency purposes;
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3. purchase interests in real estate represented by securities for
which there is an established market;
4. make loans through the acquisition of a portion of a privately
placed issue of bonds, debentures or other evidences of
indebtedness of a type customarily purchased by institutional
investors;
5. acquire up to 10% of the voting securities of any one issuer (it
is the present practice of Account GIS not to exceed 5% of the
voting securities of any one issuer);
6. make purchases on margin in the form of short-term credits which
are necessary for the clearance of transactions; and place up to
5% of its net asset value in total margin deposits for positions
in futures contracts; and
7. invest up to 5% of its assets in restricted securities (securities
which may not be publicly offered without registration under the
Securities Act of 1933).
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT QB)
INVESTMENT OBJECTIVE
The basic investment objective of Account QB is the selection of
investments from the point of view of an investor concerned primarily with
current income, moderate capital volatility and total return.
It is contemplated that the assets of Account QB will be invested in
money market obligations, including, but not limited to, Treasury bills,
repurchase agreements, commercial paper, bank certificates of deposit and
bankers' acceptances, and in publicly traded debt securities, including bonds,
notes, debentures, equipment trust certificates and short-term instruments.
These securities may carry certain equity features such as conversion or
exchange rights or warrants for the acquisition of stocks of the same or
different issuer, or participations based on revenues, sales or profits. It is
currently anticipated that the market value-weighted average maturity of the
portfolio will not exceed five years. (In the case of mortgage-backed
securities, the estimated average life of cash flows will be used instead of
average maturity.) Investment in longer term obligations may be made if the
Board of Managers concludes that the investment yields justify a longer term
commitment. The investments of Account QB will not be concentrated in any one
industry; that is, no more than twenty-five percent (25%) of the value of
Account QB's assets will be invested in any one industry.
The portfolio will be actively managed and investments may be sold
prior to maturity to the extent that this action is considered advantageous in
light of factors such as market conditions or brokerage costs. While the
investments of Account QB are generally not listed securities, there are firms
which make markets in the type of debt instruments that Account QB holds. No
problems of salability are anticipated with regard to the investments of
Account QB.
Account QB may from time to time purchase new-issue government or
agency securities on a "when-issued" or "to-be-announced" ("TBA") basis
("when-issued securities"). The prices of such securities will be fixed at the
time the commitment to purchase is made, and may be expressed in either dollar
price or yield maintenance terms. Delivery and payment may be at a future date
beyond customary settlement time. It is the customary practice of Account QB
to make when-issued or TBA purchases for settlement no more than 90 days beyond
the commitment date.
The commitment to purchase when-issued securities may be viewed as a
senior security, and will be marked to market and reflected in Account QB's
Accumulation Unit Value daily from the commitment date. While it is TAMIC's
intention to take physical delivery of these securities, offsetting
transactions may be made prior to settlement, if it is advantageous to do so.
Account QB does not make payment or begin to accrue interest on these
securities until settlement date. In order to invest its assets pending
settlement, Account QB will normally
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invest in short-term money market instruments and other securities maturing no
later than the scheduled settlement date.
Account QB does not intend to purchase when-issued securities for
speculative or "leverage" purposes. Consistent with Section 18 of the 1940 Act
and the General Policy Statement of the SEC thereunder, when Account QB commits
to purchase a when-issued security, it will identify and place in a segregated
account high grade money market instruments and other liquid securities equal
in value to the purchase cost of the when-issued securities.
TAMIC believes that purchasing securities in this manner will be
advantageous to Account QB. However, this practice does entail certain risks,
namely the default of the counterparty on its obligation to deliver the
security as scheduled. In this event, Account QB would endure a loss (gain)
equal to the price appreciation (depreciation) in value from the commitment
date. TAMIC employs a rigorous credit quality procedure in determining the
counterparties with which it will deal in when-issued securities and, in some
circumstances, will require the counterparty to post cash or some other form of
security as margin to protect the value of its delivery obligation pending
settlement.
Account QB may also purchase and sell interest rate futures contracts
to hedge against changes in interest rates that might otherwise have an adverse
effect upon the value of Account QB's securities. Hedging by use of interest
rate futures seeks to establish, with more certainty than would otherwise be
possible, the effective rate of return on portfolio securities. When hedging
is successful, any depreciation in the value of portfolio securities will
substantially be offset by appreciation in the value of the futures position.
Conversely, any appreciation in the value of the portfolio securities will
substantially be offset by depreciation in the value of the futures position.
Account QB will not purchase or sell futures contracts for which the
aggregate initial margin exceeds five percent (5%) of the fair market value of
its assets, after taking into account unrealized profits and losses on any such
contracts which it has entered into. At no time will Account QB's transactions
in futures contracts be employed for speculative purposes. When a futures
contract is purchased, Account QB will set aside, in an identifiable manner, an
amount of cash and cash equivalents equal to the total market value of the
futures contract, less the amount of the initial margin.
All interest rate futures contracts will be traded on exchanges that
are licensed and regulated by the Commodity Futures Trading Commission
("CFTC"). To ensure that its futures transactions meet CFTC standards, Account
QB will enter into futures contracts for hedging purposes only (i.e., for the
purposes or with the intent specified in CFTC regulations and interpretations,
subject to the requirements of the SEC). For a more detailed discussion of
financial futures contracts and associated risks, please see the SAI.
The Board of Managers will weigh considerations of risks, yield and
ratings in implementing Account QB's fundamental investment policies. There
are no specific criteria with regard to quality or ratings of the investments
of Account QB, but it is anticipated that they will be of investment grade or
its equivalent as determined in good faith by the Board of Managers. There may
or may not be more risk in investing in debt instruments where there are no
specific criteria with regard to quality or ratings of the investments.
The yield on debt instruments over a period of time should reflect
prevailing interest rates, which depend on a number of factors, including
government action in the capital markets, government fiscal and monetary
policy, needs of businesses for capital goods for expansion, and investor
expectations as to future inflation. The yield on a particular debt instrument
is also affected by the risk that the issuer will be unable to pay principal
and interest.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account QB permit it to:
1. invest up to 15% of the value of its assets in the securities of
any one issuer (exclusive of obligations of the United States
government and its instrumentalities, for which there is no
limit);
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2. borrow from banks in amounts of up to 5% of its assets, but only
for emergency purposes;
3. purchase interests in real estate represented by securities for
which there is an established market;
4. make loans through the acquisition of a portion of a privately
placed issue of bonds, debentures or other evidences of
indebtedness of a type customarily purchased by institutional
investors;
5. acquire up to 10% of the voting securities of any one issuer (it
is the present practice of Account QB not to exceed 5% of the
voting securities of any one issuer); and
6. make purchases on margin in the form of short-term credits which
are necessary for the clearance of transactions; and place up to
5% of its net asset value in total margin deposits for positions
in futures contracts.
VOTING RIGHTS
Owners of the Variable Annuity contracts participating in Accounts GIS
and QB will be entitled to vote at their meetings on (i) any change in the
fundamental investment policies of or other policies related to the accounts
requiring the Owners' approval; (ii) amendment of the investment advisory
agreements; (iii) election of the members of the Board of Managers of the
accounts; (iv) ratification of the selection of an independent public
accountant for the accounts; (v) any other matters which, in the future, under
the 1940 Act require the Owners' approval; and (vi) any other business which
may properly come before the meeting.
The number of votes which an Owner or a Participant may cast,
including fractional votes, shall be determined as of the date to be chosen by
the Board of Managers within 75 days of the date of the meeting, and at least
20 days' written notice of the meeting will be given.
The number of votes which an Owner may cast in the accumulation period
is equal to the number of Accumulation Units credited to the account under the
contract. During the annuity period, the Owner may cast the number of votes
equal to (i) the reserve related to the contract divided by (ii) the value of
an Accumulation Unit. During the annuity period, a Participant's voting rights
will decline as the reserve for the contract declines. Accounts GIS and QB are
also used to fund certain other Variable Annuity contracts; votes attributable
to such other annuities are computed in an analogous manner.
The Participant's voting rights are set forth in the plan and the
plans are qualified under Section 401(a) or 403(b) of the Code (Pension and
Profit-Sharing). The Company will provide proxy materials to the Owner or will
mail such materials directly to the Participants if requested by the Owner.
Upon the death of the Participant, all voting rights will vest in the
beneficiary of the Variable Annuity contract.
MANAGEMENT
The investments and administration of Accounts GIS and QB are under
the direction of the Board of Managers. Subject to the authority of the Board
of Managers, The Travelers Investment Management Company ("TIMCO") and
Travelers Asset Management International Corporation ("TAMIC") furnish
investment management and advisory services to Account GIS and Account QB,
respectively. Additionally, the Board of Managers for each managed Separate
Account annually selects an independent public accountant, reviews the terms of
the management and investment advisory agreements, recommends any changes in
the fundamental investment policies (and submits any such changes to Contract
Owners at the annual meeting), and takes any other actions necessary in
connection with the operation and management of the managed Separate Accounts.
TIMCO is a registered investment adviser which has provided investment
advisory services since its incorporation in 1967. TIMCO, a subsidiary of
Smith Barney Holdings Inc., which is a wholly owned subsidiary
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of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut
06183. In addition to providing investment advice to Account GIS, TIMCO acts
as investment adviser and subadviser for other investment companies used to
fund variable annuity and variable life insurance products, as well as for
individual and pooled pension and profit-sharing accounts, and affiliated
companies of the Company.
TAMIC, an indirect wholly owned subsidiary of Travelers Group Inc., is
a registered investment adviser which has provided investment advisory services
since its incorporation in 1978. TAMIC's principal offices are located at One
Tower Square, Hartford, Connecticut 06183. In addition to providing investment
advice to Account QB, TAMIC acts as investment adviser for other investment
companies used to fund variable annuity and variable life insurance products
offered by the Company and its affiliates, as well as for individual and pooled
pension and profit-sharing accounts, and domestic investment companies
affiliated with The Travelers, and nonaffiliated companies.
CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PURCHASE PAYMENTS
Prior to the sales charge deduction from the first Purchase Payments
in a Contract Year, an annual administrative charge is deducted. (See "Annual
Contract Charge,") A sales charge equal to 2% (2.04% of the amount invested)
of the gross Purchase Payment is deducted from the Purchase Payments. The
sales charge will be reduced by 2% (a maximum dollar amount of $1.00) of any
applicable annual contract charge. Maximum and minimum payments which may be
made on behalf of any Participant are set forth under the terms of each plan,
and in accordance with the administrative rules of the Company.
An Owner of a group Variable Annuity issued prior to the date of this
Prospectus, and any Owner of an individual Variable Annuity funded in either
Account GIS or Account QB, may exchange their old Variable Annuity for a
Variable Annuity described in this Prospectus, provided the Owner is otherwise
eligible for the purchase. The exchange will be executed at net asset value
(i.e., with no sales or transfer charges).
An Owner of a Flexible Premium Annuity Contract issued by the Company
may transfer the Cash Surrender Value accumulated and available to the Owner
under that contract to a Variable Annuity contract described in this
Prospectus, provided the Owner is otherwise eligible.
If a surrender charge under the Flexible Premium Annuity Contract is
applicable to the Cash Value transferred, neither the sales charge normally
applicable under the contract described in this Prospectus nor any transfer
charge will be applied. If no surrender charge is applicable under the
Flexible Premium Annuity Contract, there will be no transfer charge, but the
sales charge normally applicable under the contract described in this
Prospectus will be applied.
PREMIUM TAX
Certain state and local governments impose premium taxes. These taxes
currently range from 0.5% to 5.0% depending upon jurisdiction. The Company, in
its sole discretion and in compliance with any applicable state law, will
determine the method used to recover premium tax expenses incurred. The
Company will deduct any applicable premium taxes from the Contract Value either
upon death, surrender, annuitization, or at the time Purchase Payments are made
to the Contract, but no earlier than when the Company has a tax liability under
state law.
ANNUAL CONTRACT CHARGE
There is a $50 annual contract charge assessed against each group
contract. The annual contract charge will be deducted from the first gross
Purchase Payment made in each Contract Year. If no gross Purchase Payment is
made in a Contract Year, there is no annual contract charge for that year. The
annual contract charge is set at a level no higher than the actual cost of
administrative expenses.
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INVESTMENT ADVISORY FEES
TIMCO and TAMIC furnish investment management and advisory services to
Account GIS and Account QB, respectively, according to the terms of written
agreements. TIMCO receives an amount equivalent on an annual basis to 0.45% of
the average daily net assets of Account GIS. TAMIC receives an amount
equivalent on an annual basis to 0.3233% of the average daily net assets of
Account QB.
MORTALITY AND EXPENSE RISKS
While Annuity Payments will reflect the investment performance of the
Separate Accounts, they will not be affected by changes in actual mortality
experience nor will they be affected by any excess in the Company expenses over
expense deductions provided for in the contract.
The Company is assuming the risk that deductions provided for in the
Variable Annuity contract for sales and administrative expenses and the minimum
death benefit prior to retirement may be insufficient to cover the actual cost
of such items.
The mortality risk assumed by the Company under the Variable Annuity
contract arises from the Company's obligation to continue to make monthly
Annuity Payments, determined in accordance with the annuity tables and other
provisions contained in the contract, to each Annuitant regardless of how long
he or she lives and regardless of how long all Annuitants as a group live.
This assures an Annuitant that neither his own longevity nor an improvement in
life expectancy generally will have any adverse effect on the monthly Annuity
Payments he or she will receive under the contract, and relieves the Annuitant
from the risk that he or she will outlive the funds which have been accumulated
for retirement.
For assuming these risks, the Company makes a charge of 1.0017% on an
annual basis of the value of the Separate Account, which charge consists of
0.8500% for mortality risks and 0.1517% for expense risks. If this charge is
insufficient to cover the actual cost of these mortality and expense risks, the
loss will fall on the Company. Conversely, if the charge proves more than
sufficient, any excess will be profit to the Company. All deductions and
annuity rates are subject to modification with respect to Contributions made on
behalf of a Participant in any one year in excess of double the first year's
Contribution, and, in the case of deductions for investment advisory services,
subject to approval of a modification of the investment advisory agreement by
Owners casting a majority of the votes entitled to be cast.
CHANGE OF CONTRACT
The Company may, at any time, make any changes in the contract,
including retroactive changes, to the extent that the change is required to
meet the requirements of any federal law or regulation to which the Company is
subject.
Except as provided in the paragraph immediately above, no change may
be made in the contract before the fifth anniversary of the Contract Date, and
in no event will changes be made with respect to payments being made by the
Company under any Annuity Option which has commenced prior to the date of
change. On and after the fifth anniversary of the Contract Date, the Company
reserves the right to change the deductions from Premium Payments, the
Termination Amount (see "Termination by the Company and Termination Amount."),
the calculation of the net investment rate and the Unit Value, and the Annuity
Tables. Any change in the annuity tables will be applicable only to premiums
received under the contract after the change. The ability to make such change
lessens the value of mortality and expense guarantees. Other changes
(including changes to the annual contract charge) may be applicable either to
all Owner's Accounts and Individual Accounts under the contract, to only the
Owner's Accounts and Individual Accounts established after the change, or to
only premiums received under the contract after the date of change as the
Company declares at the time of change. The Company will give notice to the
Owner at least 90 days before the date the change is to take effect.
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THE VARIABLE ANNUITIES
The group Variable Annuities described in this Prospectus are both
insurance products and securities. As insurance products, they are subject to
the insurance laws and regulations of each state. The underlying product is an
annuity under which Purchase Payments are paid to the Company and credited to
the Owner's contract to accumulate until retirement.
The following brief description of the key features of the Variable
Annuity is subject to the specific terms of the contract itself. Reference
should also be made to the Special Terms.
GENERAL BENEFIT DESCRIPTION
Under the Automatic Option, the Company will automatically begin
paying Annuity Payments to the Owner or Participant, as provided in the plan,
on the Participant's Annuity Commencement Date, if the Participant is then
living. (See "Automatic Option.") The Owner or the Participant, as provided in
the plan, may choose instead a number of alternative arrangements for benefit
payments. If the Participant dies before a payout begins, the Company will pay
to the Owner or beneficiary, as provided in the plan, the Participant's
Interest. The Participant's Interest will be considered the Cash Value of the
Participant's Individual Account unless the Company is otherwise instructed by
the Owner.
TERMINATION BY THE COMPANY AND TERMINATION AMOUNT
No Purchase Payments after the first are required to keep the contract
in effect. However, if the Cash Value in a Participant's Individual Account is
less than $500 and no payment has been applied to the Participant's Individual
Account for at least three years, the Company reserves the right to terminate
the Participant's Individual Account and move the Cash Value of that
Participant's Individual Account to the Owner's Account. If the plan does not
allow for this movement to the Owner's Account, the Company will pay the Cash
Value, adjusted for any applicable premium tax, to the Owner, or to that
Participant at the direction of the Owner.
The Company reserves the right to terminate the contract on any Valuation Date
if there is no Cash Value in any Participant's Individual Account and if the
Cash Value of the Owner's Account, if any, is less than $500 and no payment has
been made for at least three years. If the contract is terminated, the Company
will pay to the Owner the Cash Value of the Owner's Account, if any, adjusted
for any applicable premium tax.
Termination will not occur until 31 days after the Company has mailed notice of
termination to the Owner or the Participant, as provided in the plan, at the
last known address and to any assignee of record.
BENEFIT IN THE EVENT OF TERMINATION OF A PARTICIPANT, THE PLAN OR THE CONTRACT
In the event that, prior to the Annuity Commencement Date, the
Participant terminates participation in the plan, the plan is terminated, or
the contract is terminated, the Owner or that Participant, as provided in the
plan with respect to that Participant's Interest, may elect:
(a) if that Participant is at least 50 years of age, to have that
Participant's Interest applied to provide an Annuity or Income
Payment;
(b) if the contract is continued, to have that Participant's Interest
applied to continue as a paid-up deferred annuity for that
Participant;
(c) to have the Owner or that Participant, as provided in the plan,
receive that Participant's Interest in cash;
(d) to apply that Participant's Interest under the group contract, on
the basis set forth by the Company at the time of the exchange
with the same Separate Accounts as are available under the group
contract; or
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(e) if that Participant becomes a Participant under another group
contract of the same type which is in force with the Company, to
transfer that Participant's Interest to that group contract.
If the contract is continued, any Cash Value to which a terminating
Participant is not entitled under the plan will be moved to the Owner's
Account. If the contract is terminated, the Owner will receive the Cash Value
of the Owner's Account.
AUTOMATIC BENEFIT--In the event of termination, unless otherwise
provided in the plan, a Participant's Interest will (1) if the contract is
continued, be applied to continue as a paid-up deferred annuity in accordance
with option (b), or (2) if the contract is terminated, be paid in cash to the
Owner or that Participant as provided in the plan, in accordance with option
(c).
ANNUITY PAYMENTS--Termination of this contract or the plan will not
affect payments being made under any Annuity Option which has commenced prior
to the date of termination.
SUSPENSION OF PAYMENTS
If a national stock exchange is closed (except for holidays or
weekends), or trading is restricted due to an existing emergency as defined by
the SEC so that disposal of the Separate Account's investments or determination
of its net asset value is not reasonably practicable, or the SEC has ordered
that the right of redemption (surrender) be suspended for the protection of
Contract Owners, the Company may postpone all procedures (including making
Annuity Payments) which require valuation of Separate Accounts until the stock
exchange is reopened and trading is no longer restricted.
REQUIRED REPORTS
As often as required by law, but at least once in each Contract Year
before the due date of the first Annuity Payment, the Company will furnish a
report which will show the number of Accumulation Units credited to the
contract in each Investment Alternative and the corresponding Accumulation Unit
Value as of the date of the report. The Company will keep all records required
under federal or state laws.
FEDERAL AND STATE INCOME TAX WITHHOLDING
The federal tax law requires income tax withholding on distributions
from pension plans and annuity contracts, unless the Owner, Participant or
beneficiary elects not to have withholding apply. Some states also require
withholding from pension and annuity payments unless the Owner, Participant or
beneficiary elects not to have withholding apply. (For further information on
federal withholding, see "Federal Income Tax Withholding.")
ACCUMULATION PROVISIONS
APPLICATION OF PURCHASE PAYMENTS
The initial Purchase Payment is due and payable before the contract becomes
effective. Each Purchase Payment is payable at the Company's Home Office.
Each Purchase Payment will be applied by the Company to provide Accumulation
Units to the credit of an Owner's Account or an Individual Account, as directed
by or provided for in the plan. If the application for the contract is in good
order, the Company will apply the initial Purchase Payment within two business
days of receipt of the Purchase Payment in the mail at the Company's Home
Office. If the application is not in good order, the Company will attempt to
get it in good order within five business days. If it is not complete at the
end of this period, the Company will inform the applicant of the reason for the
delay and that the Purchase Payment will be returned immediately unless the
applicant specifically consents to the Company keeping the Purchase Payment
until the application is complete. Once the application is complete, the
Purchase Payment will be applied within two business days. All Purchase
Payments will initially be applied to the Owner's Account. Distributions to
Individual Accounts will be allowed in accordance with the terms of
"Distribution from One Account to Another Account."
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NUMBER OF ACCUMULATION UNITS
The number of Accumulation Units to be credited to an Owner's Account
or an Individual Account in each Investment Alternative upon payment of a
Purchase Payment will be determined by dividing the Purchase Payment applied to
the Investment Alternative by the current Accumulation Unit Value of that
Investment Alternative.
ACCUMULATION UNIT VALUE
The dollar value of an Accumulation Unit for each Investment
Alternative was established at $1.00 at its inception. The value of an
Accumulation Unit on any Valuation Date is determined by multiplying the value
on the immediately preceding Valuation Date by the net investment factor for
the Valuation Period just ended. The value of an Accumulation Unit on any date
other than a Valuation Date will be equal to its value as of the next
succeeding Valuation Date. The value of an Accumulation Unit may increase or
decrease.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR
Each Separate Account's net investment rate for any Valuation Period
is equal to the gross investment rate for that Separate Account less a
deduction of 0.0000363 for Account QB, and 0.0000398 for Account GIS for each
day in the Valuation Period. The gross investment rate for the Valuation
Period is equal to (i) the investment income and capital gains and losses,
whether realized or unrealized, on the assets of the Separate Account less a
deduction for any applicable taxes, including income taxes arising from income
and realized and unrealized capital gains of the Separate Account, divided by
(ii) the amount of the assets at the beginning of the Valuation Period.
At the present time, no federal taxes are deducted from the Separate
Accounts. (See "Federal Tax Considerations.") The gross investment rate for a
Separate Account may be either positive or negative.
The net investment factor for a Separate Account for any Valuation
Period is the sum of 1.000000 plus the net investment rate.
CASH VALUE
The Cash Value of an Owner's Account or an Individual Account on any
date will be equal to the sum of the accumulated values in the Separate
Accounts credited to that Owner's Account or Individual Account. The
accumulated value in a Separate Account is equal to the number of Accumulation
Units credited to an Owner's Account or an Individual Account in that Separate
Account, multiplied by the Accumulation Unit Value for that Separate Account.
CASH SURRENDER (REDEMPTION) OR WITHDRAWAL VALUE
Before the due date of a Participant's first Annuity Payment, upon
receipt of a written request in proper form (including the appropriate
countersignature of a Travelers agent), the Company will pay all or any portion
of that Participant's Interest, adjusted for any applicable premium tax, to the
Owner or the Participant, as provided in the plan. The Owner's Account may be
surrendered for cash as provided in the plan without the consent of any
Participant. The Company may defer payment of any Cash Surrender Value for a
period of not more than seven days after the request in proper form is received
in the mail at the Company's Home Office, but it is its intent to pay as soon
as possible.
The Cash Value may be more or less than the Purchase Payments paid
depending on the value of the contract at the time of surrender. (For the
federal income tax consequences of surrenders, see "Federal Tax
Considerations.")
The Cash Surrender Value of an Account is equal to the Cash Value less
any applicable surrender charge or premium taxes incurred. (See "Surrender
Charge.")
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SURRENDER CHARGE
If the Owner terminates an account, in whole or in part, while the
contract remains in force, and the Cash Value of the terminated account is
either to be paid in cash to the Owner or a Participant or to be transferred to
any other funding vehicle, a surrender charge of 2% of any Cash Value
surrendered during the first five contract years will be deducted from the
terminating account. There is no surrender charge after the fifth contract
year. A surrender charge will not be assessed if the Cash Value is payable
under the terms of the Plan as a retirement benefit effected no earlier than
five years prior to the Participant's normal retirement date, or as a death or
disability benefit. The surrender charge will reimburse the Company only for
its actual administrative costs in establishing group contracts.
The use of a percentage surrender charge weighs disproportionately
upon Participants with large dollar amounts in their accounts, and who
surrender Cash Value during the first five contract years.
REINVESTMENT PRIVILEGE
If an Owner or a Participant has surrendered his or her account, in
whole or in part, in anticipation of investing in another tax-qualified
investment medium, and has not previously exercised a reinvestment privilege as
to any Separate Accounts described in this Prospectus, he or she may, if the
proceeds have not lost their tax-qualified status under the Code, reinvest the
proceeds in the Separate Accounts. Amounts will be reinvested at the
Accumulation Unit Value (without a sales charge) next calculated after the
payment is received in the mail by the Company. The reinvestment must be made
within 30 days after the date of the redemption. Before an Owner or a
Participant surrenders his or her account, in whole or in part, he or she
should consult his or her tax adviser to be sure that the proceeds will retain
their tax-qualified status.
TRANSFER BETWEEN SEPARATE ACCOUNTS
At any time up to 30 days before the due date of a Participant's first
Annuity Payment, upon written request to the Company by the Owner or the
Participant, as provided in the plan, all or any part of the Cash Value in an
Individual Account may be transferred from one Separate Account to any other
Separate Account described in this Prospectus. The Company reserves the right
to limit the number of transfers between Separate Accounts, but will not limit
transfers in an Owner's Account or an Individual Account to less than one in
any six-month period. The number of Accumulation Units credited to the
Separate Account from which the transfer is made will be reduced. The
reduction will be determined by dividing the amount transferred by the
Accumulation Unit Value for that Separate Account as of the next valuation
after the Company receives the request in the mail at its Home Office. The
number of Accumulation Units credited to the Separate Account from which the
transfer is made will be increased. The increase will be determined by
dividing the amount transferred, less the Separate Account transfer charge, if
any, by the Accumulation Unit Value for that Separate Account as of the next
valuation after the Company receives the written request from the Owner or the
Participant, as provided in the plan, at its Home Office. There is currently
no Separate Account transfer charge. Once a Participant's Annuity Payments
begin, no further transfers in the Participant's Individual Account may be made
between the Separate Accounts.
DISTRIBUTION FROM ONE ACCOUNT TO ANOTHER ACCOUNT
The Owner may, as provided in the plan, distribute Cash Value from the
Owner's Account to one or more Individual Accounts. There is currently no
account distribution charge.
No distribution will be allowed between Individual Accounts.
The Owner may, as required and provided in the plan, move Cash Value
from any or all Individual Accounts to the Owner's Account without a charge.
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PAYOUT PROVISIONS
GENERAL
Annuity Payments for a particular Participant will ordinarily begin on
that Participant's Annuity Commencement Date as stated in the Participant's
Certificate. However, a later Annuity Commencement Date may be elected. This
Annuity Commencement Date must be before the Participant's 70th birthday,
unless the Company consents to a later date. Federal income tax law requires
that the Annuitant commence certain minimum distribution payments from pension
and profit-sharing plans after the Participant reaches the age of 70 1/2, and
that certain patterns of payment be commenced or continued after the death of
the Annuitant. A number of payout options are available (see "Annuity Options"
and "Income Options.").
SEPARATE ACCOUNT ALLOCATION
When Annuity Payments commence, the accumulated value in each Separate
Account will be applied to provide an Annuitant with the amount of Annuity
Payments varying with the investment experience of that same Separate Account.
As described in "Transfer Between Separate Accounts," Cash Value may be
transferred from one Separate Account to another in order to reallocate the
basis on which Annuity Payments will be determined.
DETERMINATION OF FIRST PAYMENT
The contract contains tables used to determine the first monthly
Annuity Payment. The amount applied to effect an annuity will be the Cash
Value of the contract as of 14 days before the date Annuity Payments commence
less any applicable premium taxes not previously deducted.
The amount of the first monthly payment depends on the Annuity Option
elected (see "Automatic Option") and the adjusted age of the Participant. A
formula for determining the adjusted age is contained in the contract. The
tables are determined from the Progressive Annuity Table assuming births in the
year 1900 and an assumed annual net investment rate of 3.5%. The total first
monthly Annuity Payment is determined by multiplying the benefit per $1,000 of
value shown in the tables of the contract by the number of thousands of dollars
of value of the contract applied to that Annuity Option. The Company reserves
the right to require proof of age before Annuity Payments begin.
ANNUITY UNIT VALUE
The dollar value of an Annuity Unit for each Investment Alternative
was established at $1.00 at inception. The value of an Annuity Unit as of any
Valuation Date is determined 14 days in advance in order to allow adequate time
for the required calculations and mailing of annuity checks in advance of their
due dates. (If the date 14 days in advance is not a Valuation Date, the
calculation is made on the next following Valuation Date, which would generally
be 13 or 12 days in advance.)
Specifically, the Annuity Unit Value for an Investment Alternative as
of a Valuation Date is equal to (a) the value of the Annuity Unit on the
immediately preceding Valuation Date multiplied by (b) the net investment
factor for the Valuation Period ending on or next following 14 days prior to
the current Valuation Date, divided by (c) the assumed net investment factor
for the Valuation Period. (For example, the assumed net investment factor
based on an annual assumed net investment rate of 3.5% for a Valuation Period
of one day is 1.0000942 and, for a period of two days, is 1.0000942 x
1.0000942.)
The value of an Annuity Unit as of any date other than a Valuation
Date is equal to its value on the next succeeding Valuation Date.
NUMBER OF ANNUITY UNITS
The number of Annuity Units credited to the contract is determined by
dividing the first monthly Annuity Payment attributable to each Investment
Alternative by the Investment Alternative's Annuity Unit Value as of the due
date of the first Annuity Payment. The number of Annuity Units remains fixed
during the annuity period.
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DETERMINATION OF SECOND AND SUBSEQUENT PAYMENTS
The dollar amount of the second and subsequent Annuity Payments is not
predetermined and may change from month to month based on the investment
experience of the applicable Investment Alternative. The actual amounts of
these payments are determined by multiplying the number of Annuity Units
credited to the contract in each Investment Alternative by the corresponding
Annuity Unit Value as of the date on which payment is due. The interest rate
assumed in the annuity tables would produce a level Annuity Unit Value and,
therefore, level Annuity Payments if the net investment rate remained constant
at the assumed rate. In fact, payments will vary up or down as the net
investment rate varies up or down from the assumed rate, and there can be no
assurance that a net investment rate will be as high as the assumed rate.
ANNUITY OPTIONS
Subject to conditions described in "Election of Options" and the plan,
all or any part of a Participant's Interest otherwise payable in one sum to the
Owner or that Participant on that Participant's Annuity Commencement Date or
prior Cash Surrender of an Individual Account, or amounts payable in one sum to
the beneficiary upon the death of that Participant, may be paid under one or
more of the Annuity Options described below.
AUTOMATIC OPTION--Unless otherwise specified in the plan and if no
election has been made, and if the Participant is living and has a spouse, the
Company will, on that Participant's Annuity Commencement Date, pay to the
Participant the first of a series of Annuity Payments based on the life of the
Participant as the primary payee and the Participant's spouse in accordance
with Option 5. If the Participant is living and no election has been made and
the Participant has no spouse, the Company will, on the Annuity Commencement
Date, pay to the Participant the first of a series of Annuity Payments based on
the life of the Participant, in accordance with Option 2 with 120 monthly
payments assured.
OPTION 1--LIFE ANNUITY--NO REFUND: The Company will make monthly
Annuity Payments during the lifetime of the person on whose life the payments
are based, terminating with the last monthly payment preceding death. This
option offers the maximum monthly payment preceding death since there is no
assurance of a minimum number of payments or provision for a death benefit for
beneficiaries. It would be possible under this option to receive only one
Annuity Payment if the Annuitant died before the due date of the second Annuity
Payment, only two if the Annuitant died before the third Annuity Payment, etc.
OPTION 2--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED:
The Company will make monthly Annuity Payments during the lifetime of the
person on whose life payments are based, with the agreement that if, at the
death of that person, payments have been made for less than 120, 180 or 240
months, as elected, payments will be continued during the remainder of the
period to the beneficiary designated. The beneficiary may instead receive a
single sum settlement equal to the discounted value of the future payments with
the interest rate equivalent to the assumption originally used when the annuity
began.
OPTION 3--UNIT REFUND LIFE ANNUITY: The Company will make monthly
Annuity Payments during the lifetime of the person on whose life payments are
based, terminating with the last payment due before the death of that person,
provided that, at death, the beneficiary will receive in one sum the current
dollar value of the number of Annuity Units equal to (a) minus (b) (if that
difference is positive) where (a) is the total amount applied under the option
divided by the Annuity Unit Value on the due date of the first Annuity Payment,
and (b) is the product of the number of the Annuity Units represented by each
payment and the number of payments made.
OPTION 4--JOINT AND LAST SURVIVOR LIFE ANNUITY--NO REFUND: The
Company will make monthly Annuity Payments during the joint lifetime of the two
persons on whose lives payments are based, and during the lifetime of the
survivor. No further payments will be made following the death of the
survivor. It would be possible under this option to receive only one Annuity
Payment if both Annuitants died before the due date of the second Annuity
Payment, only two if they died before the third Annuity Payment, etc.
OPTION 5 -- JOINT AND LAST SURVIVOR LIFE ANNUITY--ANNUITY REDUCES ON
DEATH OF PRIMARY PAYEE: The Company will make monthly Annuity Payments during
the lifetime of the two persons
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on whose lives payments are based. One of the two persons will be designated
as the primary payee. The other will be designated as the secondary payee. On
the death of the secondary payee, if survived by the primary payee, the Company
will continue to make monthly Annuity Payments to the primary payee in the same
amount that would have been payable during the joint lifetime of the two
persons. On the death of the primary payee, if survived by the secondary
payee, the Company will continue to make Annuity Payments to the secondary
payee, in an amount equal to 50% of the payments which would have been made
during the lifetime of the primary payee. No further payments will be made
following the death of the survivor.
OPTION 6 -- OTHER ANNUITY OPTIONS: The Company will make any other
arrangements for Annuity Payments as may be mutually agreed upon.
INCOME OPTIONS
Instead of the Annuity Options described above, and subject to the
conditions described under "Election of Options," and the plan, all or any part
of a Participant's Interest otherwise payable in one sum to the Owner or that
Participant on the Participant's Annuity Commencement Date or prior Cash
Surrender of an Individual Account, or amounts payable in one sum to the
beneficiary upon the death of the Participant, may be paid under one or more of
the Income Options described below.
OPTION 1--PAYMENTS OF A FIXED AMOUNT: The Company will make equal
monthly payments of the amount elected until the Cash Value applied under this
option has been exhausted. The final payment will include any amount
insufficient to make another full payment.
OPTION 2--PAYMENTS FOR A FIXED PERIOD: The Company will make monthly
payments for the number of years selected. The amount of each payment will be
equal to the remaining Cash Value applied under this option divided by the
number of remaining payments.
OPTION 3--INVESTMENT INCOME: The Company will make monthly payments
during the lifetime of the primary payee, or for the period agreed on. The
amount payable will be equal to the excess, if any, of the Cash Value under
this option over the amount applied under this option. No payment will be made
if the Cash Value is less than the amount applied, and it is possible that no
payments would be made for a period of time. Payments under this option are
not considered to be Annuity Payments and are taxable in full as ordinary
income. This Option will generally be inappropriate under federal tax law for
periods that exceed the Participant's attainment of age 70 1/2.
The Cash Value used to determine the amount of any Income Payment will
be calculated as of 14 days before the date an Income Payment is due and will
be determined on the same basis as the Cash Value of the contract, including
the deduction for mortality risks. Income Options differ from Annuity Options
in that the amount of the payments made under Income Options are unrelated to
the length of life of any person. Although the Company continues to deduct the
charge for mortality and expense risks, it assumes no mortality risks for
amounts applied under any Income Option. Moreover, except with respect to
lifetime payments of investment income under Income Option 3, payments are
unrelated to the actual life span of any person. Thus, the Annuitant may
outlive the payment period.
While Income Options do not directly involve mortality risks for the
Company, a Contract Owner may elect to apply the remaining Cash Value to
provide an Annuity at the guaranteed rates even though Income Payments have
been received under an Income Option. Before an Owner or the Participant, as
provided in the plan, makes any Income Option election, he or she should
consult a tax adviser as to any adverse tax consequences the election might
have.
ELECTION OF OPTIONS
Election of an option must be made in writing in a form satisfactory
to the Company. Any election made during the lifetime of the Participant must
be made by the Owner or the Participant, as provided in the plan. The terms of
the options elected by some Participants or beneficiaries may be restricted to
meet the requirements of Section 401(a)(9) of the Internal Revenue Code. If,
at the death of a Participant, there is no election in effect
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for that Participant, election of an option must be made by the beneficiary
entitled to any death benefit payable in one sum under the contract. The
minimum amount that can be placed under an Annuity or Income Option will be
$2,000 unless the Company consents to a lesser amount. If any monthly periodic
payment due any payee is less than $20, the Company reserves the right to make
payments at less frequent intervals.
FEDERAL TAX CONSIDERATIONS
GENERAL
The Company is taxed as a life insurance company under Subchapter L of
the Code. The Separate Accounts that form the investment alternatives
described herein are treated as part of the total operations of the Company and
are not taxed separately. Investment income and gains of a Separate Account
that are credited to a purchaser's contract of insurance incur no current
federal income tax. Generally, amounts credited to a contract are not taxable
until received by the Owner, participant or beneficiary, either in the form of
Annuity Payments or other distributions. Tax consequences and limits are
described further below for each annuity program.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing trust described in Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code,
Purchase Payments made by an employer are not currently taxable to the
Participant and increases in the value of a contract are not subject to
taxation until received by a Participant or beneficiary.
Distributions in the form of Annuity or Income Payments are taxable to
the Participant or beneficiary as ordinary income in the year of receipt. Any
distribution that is considered the Participant's "investment in the contract"
is treated as a return of capital and is not taxable. Payments under Income
Option 3 are taxable in full. Certain lump-sum distributions described in
Section 402 of the Code may be eligible for special ten-year forward averaging
treatment for individuals born before January 1, 1936. All individuals may be
eligible for favorable five-year forward averaging of lump-sum distributions.
Certain eligible rollover distributions including most partial and full
surrenders or term-for-years distributions of less than 10 years are eligible
for direct rollover to an eligible retirement plan or to an IRA without federal
income tax withholding.
An additional tax of 10% will apply to any taxable distribution
received by the Participant before the age of 59 1/2, except by reason of
death, disability or as part of a series of payments for life or life
expectancy, or at early retirement at or after the age of 55. There are other
statutory exceptions.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient
will be subject to federal income tax withholding, generally pursuant to
Section 3405 of the Code. The application of this provision is summarized
below.
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR
ARRANGEMENTS OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions
that are eligible for rollover to an IRA or to another retirement
plan but that are not directly rolled over. A distribution made
directly to a Participant or beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a
life or life expectancy calculation, or
(b) a complete term-for-years settlement distribution is elected
for a period of ten years or more, payable at least annually,
or
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(c) a minimum required distribution as defined under the tax law
is taken after the attainment of the age of 70 1/2 or as
otherwise required by law.
A distribution including a rollover that is not a direct rollover
will require the 20% withholding, and a 10% additional tax penalty
may apply to any amount not added back in the rollover. The 20%
withholding may be recovered when the Participant or beneficiary
files a personal income tax return for the year if a rollover was
completed within 60 days of receipt of the funds, except to the
extent that the Participant or spousal beneficiary is otherwise
underwithheld or short on estimated taxes for that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1
above, the portion of a non-periodic distribution which
constitutes taxable income will be subject to federal income tax
withholding, to the extent such aggregate distributions exceed
$200 for the year, unless the recipient elects not to have taxes
withheld. If an election out is not provided, 10% of the taxable
distribution will be withheld as federal income tax. Election
forms will be provided at the time distributions are requested.
This form of withholding applies to all annuity programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD
GREATER THAN ONE YEAR)
The portion of a periodic distribution which constitutes taxable
income will be subject to federal income tax withholding under the
wage withholding tables as if the recipient were married claiming
three exemptions. A recipient may elect not to have income taxes
withheld or have income taxes withheld at a different rate by
providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of
withholding applies to all annuity programs. As of January 1,
1997, a recipient receiving periodic payments (e.g., monthly or
annual payments under an Annuity Option) which total $______ or
less per year, will generally be exempt from the withholding
requirements.
Recipients who elect not to have withholding made are liable for
payment of federal income tax on the taxable portion of the distribution. All
recipients may also be subject to penalties under the estimated tax payment
rules if withholding and estimated tax payments are not sufficient.
Recipients who do not provide a social security number or other
taxpayer identification number will not be permitted to elect out of
withholding. Additionally, United States citizens residing outside of the
country, or U.S. legal residents temporarily residing outside the country, are
not permitted to elect out of withholding.
TAX ADVICE
Because of the complexity of the law and the fact that the tax results
will vary according to the factual status of the individual involved, tax
advice may be needed by a person contemplating purchase of an annuity contract
and by an Owner, Participant or beneficiary who may make elections under a
contract. It should be understood that the foregoing description of the
federal income tax consequences under these contracts is not exhaustive and
that special rules are provided with respect to situations not discussed here.
It should be understood that if a tax-benefited plan loses its exempt status,
employees could lose some of the tax benefits described. For further
information, a qualified tax adviser should be consulted.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the contracts in all jurisdictions where
the Company is licensed to do business, except Puerto Rico and the Bahamas. The
contracts may be purchased from agents who are licensed by state insurance
authorities to sell variable annuity contracts issued by the Company, and who
are also registered representatives of broker-dealers which have selling
Agreements with Tower Square Securities, Inc. ("Tower Square"). Tower Square,
whose principal business address is One Tower Square, Hartford, Connecticut,
serves as
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the principal underwriter for the variable annuity contracts described herein.
Tower Square is a registered broker-dealer with the SEC under the Securities
Exchange Act of 1934, and is a member of the National Association of Securities
Dealers, Inc. ("NASD"). Tower Square is an affiliate of the Company and an
indirect wholly owned subsidiary of Travelers Group Inc., and serves as
principal underwriter pursuant to a Distribution and Underwriting Agreements to
which Accounts GIS and Account QB, the Company and Tower Square are parties.
No amounts have been or will be retained by Tower Square for acting as
principal underwriter for the Contracts.
Agents will be compensated for sales of the Contracts on a commission
and service fee basis. The compensation paid to said agents will not exceed 7%
of the payments made under the Contract. In addition, certain production,
persistency and managerial bonuses may be paid.
Commissions paid to broker-dealers obtaining applications for
contracts accepted by the Company bear a reasonable relationship to, and in the
aggregate are less than, the deduction for sales expense. Although commissions
on payments made during the first year of the contract may exceed the deduction
for sales expenses, the charge to the Owner is not increased.
STATE REGULATION
The Company is subject to the laws of the state of Connecticut
governing insurance companies and to regulation by the Insurance Commissioner
of the state of Connecticut. An annual statement in a prescribed form must be
filed with that Commissioner on or before March 1 in each year covering the
operations of the Company for the preceding year and its financial condition on
December 31 of such year. Its books and assets are subject to review or
examination by the Commissioner or his agents at all times, and a full
examination of its operations is conducted by the National Association of
Insurance Commissioners ("NAIC") at least once in every four years.
In addition, the Company is subject to the insurance laws and
regulations of the other states in which it is licensed to operate. Generally,
the insurance departments of the states apply the laws of the jurisdiction of
domicile in determining the field of permissible investments.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting the Separate
Accounts.
Legal matters in connection with federal laws and regulations
affecting the issue and sale of the Variable Annuity contracts described in
this Prospectus and the organization of the Company, its authority to issue
Variable Annuity contracts under Connecticut law and the validity of the forms
of the Variable Annuity contracts under Connecticut law have been passed on by
the General Counsel of the Life and Annuities Division of the Company.
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APPENDIX A
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The SAI contains more specific information and financial statements relating to
the Separate Accounts and The Travelers Insurance Company. A list of the
contents of the SAI is set forth below:
Description of The Travelers and the Separate Accounts
The Insurance Company
The Separate Accounts
Investment Objectives and Policies
The Travelers Growth and Income Stock Accounts for Variable
Annuities
The Travelers Quality Bond Account for Variable Annuities
Description of Certain Types of Investments and Investment Techniques
Available to the Separate Accounts
Writing Covered Call Options
Buying Put and Call Options
Futures Contracts
Money Market Instruments
Investment Management and Advisory Services
Advisory Fees
TIMCO
TAMIC
Valuation of Assets
Management
The Board of Managers
Distribution and Management Services
Securities Custodian
Independent Accountants
Financial Statements
- -----------------------------------------------------------------------------
Copies of the Statement of Additional Information dated May 1, 1997 (Form No.
L-11162S), are available without charge. To request a copy, please clip this
coupon on the dotted line above, enter your name and address in the spaces
provided below, and mail to: The Travelers Insurance Company, Annuity
Services, One Tower Square, Hartford, Connecticut 06183-5030.
Name:
-----------------------------------------------------
Address:
-----------------------------------------------------
-----------------------------------------------------
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THIS PAGE INTENTIONALLY LEFT BLANK.
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THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
AND
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
GROUP VARIABLE ANNUITY CONTRACTS
Issued By
THE TRAVELERS INSURANCE COMPANY
Pension and Profit-Sharing Programs
L-11162 TIC Ed. 5-97
Printed in U.S.A
<PAGE> 93
- --------------------------------------------------------------------------------
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
- --------------------------------------------------------------------------------
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
issued by
THE TRAVELERS INSURANCE COMPANY
One Tower Square, Hartford, Connecticut 06183
Telephone: 860-422-3985
The basic purpose of the variable annuity contract described in this Prospectus
is to provide lifetime annuity payments which will vary with the investment
performance of one or more Separate Accounts. The contracts described in this
Prospectus are available for use by purchasers who previously held individual
nonqualified contracts issued by The Travelers Insurance Company ("Company")
and funded by The Travelers Fund B for Variable Contracts and/or The Travelers
Fund B-1 for Variable Contracts (Contract Numbers VG-30 and LVA-10FB) and who
exchanged such contracts in 1993 for the contracts offered by this Prospectus.
The Contracts described herein are not available for new sales, although
additional purchase payments may be made by purchasers who own existing
contracts.
The Separate Accounts available for funding the variable annuities described in
this Prospectus have different investment objectives. The basic investment
objective of The Travelers Growth and Income Stock Account for Variable
Annuities ("Account GIS") is long-term accumulation of principal through
capital appreciation and retention of net investment income. Account GIS
proposes to achieve this objective by investing in a portfolio of equity
securities, mainly common stocks. The basic investment objective of The
Travelers Quality Bond Account for Variable Annuities ("Account QB") is current
income, moderate capital volatility and total return. Account QB proposes to
achieve this objective by investing in money market instruments and publicly
traded debt securities. The Contract Owner bears the investment risk.
This Prospectus sets forth concisely the information about the Separate
Accounts that you should know before investing. Please read it and retain it
for future reference. Additional information about the Separate Accounts is
contained in a Statement of Additional Information ("SAI") dated May 1, 1997
which has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this Prospectus. A copy may be obtained,
without charge, by writing to The Travelers Insurance Company, Annuity
Services, One Tower Square, Hartford, Connecticut 06183-5030, Attention:
Manager, or by calling 860-422-3985. The Table of Contents of the SAI appears
in Appendix A of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE> 94
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS . . . . . . . . . . . . . . . . . 1
The Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT ALTERNATIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT GIS) . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Fundamental Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT QB) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Fundamental Investment Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CHARGES AND DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Deductions from Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Premium Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Minimum Death Benefit and Minimum Accumulated Value Benefit Charge. . . . . . . . . . 6
Insurance Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investment Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE VARIABLE ANNUITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
General Benefit Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Termination by the Company and Termination Amount . . . . . . . . . . . . . . . . . . 8
Deferred Maturity Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Suspension of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Required Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Federal and State Income Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . 8
ACCUMULATION PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Application of Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Number of Accumulation Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Accumulation Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Net Investment Rate and Net Investment Factor . . . . . . . . . . . . . . . . . . . . 9
Cash Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Cash Surrender (Redemption) or Withdrawal Value . . . . . . . . . . . . . . . . . . . 10
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Minimum Accumulated Value Benefit Upon Election of an Annuity-Account QB. . . . . . . 10
Right to Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Transfer Between Separate Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 11
PAYOUT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Separate Account Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 95
<TABLE>
<S> <C>
Determination of First Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Annuity Unit Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Number of Annuity Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Second and Subsequent Payments . . . . . . . . . . . . . . . . . . . 12
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Income Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Election of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
FEDERAL TAX CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Nonqualified Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Federal Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . 16
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
LEGAL PROCEEDINGS AND OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
APPENDIX A - Contents of the Statement of Additional Information . . . . . . . . . . . . 17
</TABLE>
ii
<PAGE> 96
GLOSSARY OF SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATION UNIT: basic measure used to determine the value of a contract
before Annuity Payments begin.
ANNUITANT: the person on whose life the Variable Annuity contract is issued.
ANNUITY PAYMENTS: a series of periodic payments for life; for life with either
a minimum number of payments or a determinable sum assured; or for the joint
lifetime of the Annuitant and another person and thereafter during the lifetime
of the survivor.
ANNUITY UNIT: the basic measure used to determine the dollar amount of Annuity
Payments.
BOARD OF MANAGERS: the persons directing the investment and administration of a
managed Separate Account.
CASH SURRENDER VALUE (REDEMPTION VALUE): the amount payable to the Owner or
other payee upon termination of the contract during the lifetime of the
Annuitant.
CASH VALUE: the current value of Accumulation Units credited to the contract
less any administrative charges.
COMPANY: The Travelers Insurance Company.
COMPANY'S HOME OFFICE: the principal offices of The Travelers Insurance Company
located at One Tower Square, Hartford, Connecticut.
CONTRACT DATE: the date on which the contract, benefits, and the provisions of
the contract become effective.
CONTRACT YEARS: annual periods computed from the Contract Date.
INCOME PAYMENTS: optional forms of periodic payments made by the Company which
are not based on the life of the Annuitant.
MAJORITY VOTE: a "majority vote of the outstanding voting securities" is
defined in the Investment Company Act of 1940 as the lesser of (i) 67% or more
of the votes present at a meeting, if Contract Owners holding more than 50% of
the total voting power of all Contract Owners in the Separate Account are
present or represented by proxy, or (ii) more than 50% of the total voting
power of all Contract Owners in the Separate Account.
MATURITY DATE: the date on which the first Annuity Payment is to begin.
MINIMUM ACCUMULATED VALUE BENEFIT: the minimum amount applied to effect an
Annuity with respect to amounts allocated to Account QB.
MINIMUM DEATH BENEFIT: the minimum amount payable upon the death of an
Annuitant before Annuity or Income Payments begin.
NET PURCHASE PAYMENT: the amount applied to the purchase of Accumulation Units,
which is equal to the purchase payment less deductions for sales expenses and
any applicable premium taxes.
OWNER: a person having rights to benefits under the contract during the
lifetime of the Annuitant; the owner may or may not be the Annuitant.
iii
<PAGE> 97
PURCHASE PAYMENT: a gross amount paid to the Company under a variable annuity
contract during the accumulation period.
SEPARATE ACCOUNT: assets set aside by the Company, the investment experience of
which is kept separate from that of other assets of the Company; for example,
The Travelers Growth and Income Stock Account for Variable Annuities.
VALUATION DATE: generally, a day on which the Separate Account is valued. A
valuation date is any day on which the New York Stock Exchange is open for
trading. The value of Accumulation Units and Annuity Units will be determined
as of the close of trading on the New York Stock Exchange.
VALUATION PERIOD: the period between the close of business on successive
Valuation Dates.
VARIABLE ANNUITY: an annuity contract which provides for accumulation and for
Annuity Payments which vary in amount in accordance with the investment
experience of a Separate Account.
There are eligibility requirements for purchasers described elsewhere in this
Prospectus. This Prospectus does not constitute a solicitation of an offer to
acquire any interest or participation in the Variable Annuity described in this
Prospectus to any person who is ineligible for purchase.
SUMMARY
INTRODUCTION
This Prospectus describes an individual flexible premium variable annuity
Contract offered by The Travelers Insurance Company (the "Company"). The
Contract is available for use by individual non-qualified purchasers who
previously held individual contracts issued by the Company and funded by The
Travelers Fund B for Variable Contracts and/or The Travelers Fund B-1 for
Variable Contracts and who exchanged such contracts in 1993 for the Contracts
offered by this Prospectus. The Contracts described herein are not available
for new sales, although additional purchase payments may be made by purchasers
who own existing Contracts. A contract may be returned within ten days of
purchase. The applicant bears the investment risk during the period. (See
"Right to Return.")
INVESTMENT ALTERNATIVES
There are two Separate Accounts currently available for funding the Variable
Annuity contracts described herein: Account GIS and Account QB. Both Accounts
are registered with the SEC as diversified open-end management investment
companies under the Investment Company Act of 1940, as amended ("1940 Act").
The basic investment objectives of these separate accounts are as follows:
Account GIS--long-term accumulation of principal through capital appreciation
and retention of net investment income; and Account QB--current income,
moderate capital volatility and total return. As is true with all investment
companies, there can be no assurance that the objectives of the Investment
Alternatives will be achieved. (For a complete discussion of the investment
objectives and policies for these funds, please refer to the Investment
Alternatives section beginning on page 1.)
RISK FACTORS
The investment experience on equity investments over a period of time will tend
to reflect levels of stock market prices and dividend payouts. Both are
affected by diverse factors, including not only business conditions and
investor confidence in the economy, but current conditions in a particular
industry or company. The yield on a common stock is not contractually
determined. Equity securities are subject to financial risks relating to the
earning stability and overall financial soundness of an issuer. They are also
subject to market risks relating to the effect of general changes in the
securities market on the price of a security.
The yield on debt instruments over a period of time should reflect prevailing
interest rates, which depend on a number of factors, including government
action in the capital markets, government fiscal and monetary policy,
iv
<PAGE> 98
needs of businesses for capital goods for expansion, and investor expectations
as to future inflation. The yield on a particular debt instrument is also
affected by the risk that the issuer will be unable to pay principal and
interest.
INVESTMENT ADVISORY SERVICES
The Travelers Investment Management Company ("TIMCO") furnishes investment
management and advisory services to Account GIS, and Travelers Asset Management
International Corporation ("TAMIC") furnishes such services to Account QB,
according to the terms of written agreements. TIMCO receives an amount
equivalent on an annual basis to 0.45% of the average daily net asset value of
Account GIS. TAMIC receives an amount equivalent on an annual basis to 0.3233%
of the average daily net asset value of Account QB. (See "Management," and
"Investment Advisory Fees.")
SALES CHARGES
Prior to the Maturity Date, all or part of the contract value may be withdrawn.
(See "Cash Surrender (Redemption) or Withdrawal Value.") A federal tax penalty
may apply. This Contract is not available for new sales, although additional
purchase payments may be made by purchasers who own existing Contracts. The
sales charge for additional purchase payments is 4.00% of each additional
purchase payment (4.17% of the amount invested). There is no minimum purchase
payment under this contract.
OTHER CHARGES
Premium taxes may apply to annuities in a few states. These taxes currently
range from 0.5% to 5.0%, depending upon jurisdiction. The Company will deduct
any applicable premium tax from the Contract Value, either upon death,
surrender or annuitization, or at the time Purchase Payments are made to the
Contract, but no earlier than when the Company has a tax liability under state
law. (See "Premium Tax.")
A deduction of 1.0017% on an annual basis will be made on each Valuation Date
for mortality and expense risks assumed by the Company. The 1.0017% insurance
charge is comprised of 0.8500% for mortality risks and 0.1517% for expense
risks. (See "Insurance Charge.")
ANNUITY PAYMENTS
At the Maturity Date, the contract provides lifetime Annuity Payments, as well
as other types of payout plans. (See "Annuity Options"and "Income Options.")
If a variable payout is selected, the payments will continue to vary with the
investment performance of the selected Investment Alternatives. Before Annuity
or Income Payments begin, transfers may be made among available Investment
Alternatives without fee, penalty or charge. (See "Transfer Between Separate
Accounts.")
OTHER PROVISIONS
If the Annuitant dies before Annuity or Income Payments begin, the death
benefit is the larger of the Cash Value less any premium tax, or Premium
Payments less prior surrenders. There is no charge for the Minimum Death
Benefit. (See "Death Benefit", and "Charges and Deductions.")
After the tenth Contract Year, a minimum amount is payable upon the election of
an Annuity Option with respect to amounts that were allocated to Account QB
during the accumulation period. There is no charge for the Minimum Accumulated
Value Benefit. (See "Minimum Accumulated Value Benefit" and "Charges and
Deductions.")
Purchasers have certain voting rights under the contracts. (See "Voting
Rights.") The Company reserves the right to terminate inactive contracts under
certain circumstances. (See "Termination by the Company and Termination
Amount.")
v
<PAGE> 99
FEE TABLE
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (GIS)
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (QB)
<TABLE>
<CAPTION>
GIS QB
----- ----
<S> <C> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge for Additional Purchase Payments* 4.00% 4.00%
ANNUAL EXPENSES (as a percentage of average net assets)
Mortality and Expense Risk Fees 1.00% 1.00%
Management Fees 0.45% 0.32%
TOTAL ANNUAL EXPENSES 1.45% 1.32%
</TABLE>
EXAMPLE
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For additional purchase payments made into the Contract subsequent to the
Exchange Offer (4% Sales Charge applies), whether or not you surrender your
contract at the end of the applicable period, you would have paid the following
expenses on a $1,000 investment, assuming a 5% annual return on assets, after:
<TABLE>
<CAPTION>
GIS QB
----- ----
<S> <C> <C>
1 year $ 54 $ 53
3 years $ 84 $ 80
5 years $116 $110
10 years $207 $193
</TABLE>
The purpose of the Fee Table is to assist Contract Owners in understanding the
various costs and expenses that a Contract Owner will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
including possible waivers or reductions of these expenses, see "Charges and
Deductions." Expenses shown do not include premium taxes which may be
applicable.
* This Contract is not available for new sales; however, additional
purchase payments may be made by purchasers who own existing contracts.
vi
<PAGE> 100
CONDENSED FINANCIAL INFORMATION
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
Per Unit Data for an Accumulation and Annuity Unit outstanding throughout each
year
The following information on per unit data has been audited by Coopers &
Lybrand L.L.P., independent accountants. Their report on the per unit data
for each of the five years in the period ended December 31, 1996 is contained
in the Separate Account's Annual Report which should be read along witht his
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983.
SELECTED PER UNIT DATA 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . $ .205 $ .189 $ .184 $ .188 $ .198
Operating expenses. . . . . . . . . . . . . . . . . . . .140 .115 .106 .098 .091
------- ------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . .065 .074 .078 .090 .107
Unit Value at beginning of year . . . . . . . . . . . . 6.917 7.007 6.507 6.447 5.048
Net realized and change in unrealized gains (losses). . 2.387 (.164) .422 (.030) 1.292
------- ------- ------- -------- -------
Unit Value at end of year . . . . . . . . . . . . . . . $ 9.369 $ 6.917 $ 7.007 $ 6.507 $ 6.447
======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . 2.45 (.09) .50 .06 1.40
Ratio of operating expenses to average net assets . . . 1.70% 1.65% 1.57% 1.58% 1.58%
Ratio of net investment income to average net assets. . .79% 1.05% 1.15% 1.43% 1.86%
Number of units outstanding at end of year (thousands). 26,688 26,692 28,497 29,661 26,235
Portfolio turnover rate . . . . . . . . . . . . . . . . 96% 103% 81% 189% 319%
Average Commission Rate Paid* . . . . . . . . . . . . . .0480 -- -- -- --
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983.
SELECTED PER UNIT DATA 1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . $ .192 $ .191 $ .168 $ .132
Operating expenses. . . . . . . . . . . . . . . . . . . .079 .095 .071 .066
------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . .113 .096 .097 .066
Unit Value at beginning of year . . . . . . . . . . . . 5.295 4.191 3.601 3.737
Net realized and change in unrealized gains (losses). . (.360) 1.008 .493 (.202)
------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . $ 5.048 $ 5.295 $ 4.191 $ 3.601
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . (.25) 1.10 .59 (.14)
Ratio of operating expenses to average net assets . . . 1.57% 1.58% 1.58% 1.58%
Ratio of net investment income to average net assets. . 2.25% 2.33% 2.60% 1.49%
Number of units outstanding at end of year (thousands). 19,634 15,707 12,173 11,367
Portfolio turnover rate . . . . . . . . . . . . . . . . 54% 27% 38% 51%
Average Commission Rate Paid* . . . . . . . . . . . . . -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983.
SELECTED PER UNIT DATA 1996 1995 1994 1993 1992 1991
----- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . $ .208 $ .192 $ .189 $ .192 $ .201
Operating expenses. . . . . . . . . . . . . . . . . . . .123 .100 .092 .085 .077
------ ------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . .085 .092 .097 .107 .124
Unit Value at beginning of year . . . . . . . . . . . . 7.120 7.194 6.664 6.587 5.145
Net realized and change in unrealized gains (losses). . 2.463 (.166) .433 (.030) 1.318
------ ------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . $9.668 $ 7.120 $ 7.194 $ 6.664 $ 6.587
======== ====== ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . 2.55 (.07) .53 .08 1.44
Ratio of operating expenses to average net assets . . . 1.45% 1.41% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets. . 1.02% 1.30% 1.40% 1.67% 2.11%
Number of units outstanding at end of year (thousands). 17,896 19,557 21,841 22,516 24,868
Portfolio turnover rate . . . . . . . . . . . . . . . . 96% 103% 81% 189% 319%
Average Commission Rate Paid* . . . . . . . . . . . . . .0480 -- -- -- --
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16, 1983.
SELECTED PER UNIT DATA 1990 1989 1988 1987
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . $ .199 $ .191 $ .168 $ .132
Operating expenses. . . . . . . . . . . . . . . . . . . .069 .066 .053 .059
------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . .130 .125 .115 .073
Unit Value at beginning of year . . . . . . . . . . . . 5.383 4.250 3.642 3.771
Net realized and change in unrealized gains (losses). . (.368) 1.008 .493 (.202)
------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . $ 5.145 $ 5.383 $ 4.250 $ 3.642
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . (.24) 1.13 .61 (.13)
Ratio of operating expenses to average net assets . . . 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets. . 2.50% 2.56% 2.85% 1.72%
Number of units outstanding at end of year (thousands). 28,053 31,326 35,633 41,859
Portfolio turnover rate . . . . . . . . . . . . . . . . 54% 27% 38% 51%
Average Commission Rate Paid* . . . . . . . . . . . . . -- -- -- --
</TABLE>
* The Average Commission Rate Paid is required for funds that have over 10%
in equities for which commissions are paid. This information is required
for funds with fiscal year ends on or after September 30, 1996.
1
<PAGE> 101
CONDENSED FINANCIAL INFORMATION
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
Per Unit Data for an Accumulation and Annuity Unit outstanding throughout each
year
The following information on per unit data has been audited by Coopers &
Lybrand L.L.P., independent accountants. Their report on the per unit data for
each of the five years in the period ended December 31, 1996 is contained in
the Separate Account's Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983.
SELECTED PER UNIT DATA 1996 1995 1994 1993 1992 * 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . . $ .319 $ .310 $ .299 $ .311 $ .299
Operating expenses. . . . . . . . . . . . . . . . . . . . .073 .069 .067 .061 .056
------- ------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . . .246 .241 .232 .250 .243
Unit Value at beginning of year . . . . . . . . . . . . . 4.274 4.381 4.052 3.799 3.357
Net realized and change in unrealized gains (losses). . . .374 (.348) .097 .003 .199
------- ------- ------- ------- -------
Unit Value at end of year. . . . . . . . . . . . . . . . . $ 4.894 $ 4.274 $ 4.381 $ 4.052 $ 3.799
====== ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . . .62 (.11) .33 .25 .44
Ratio of operating expenses to average net assets . . . . 1.57% 1.57% 1.57% 1.58% 1.57%
Ratio of net investment income to average net assets. . . 5.29% 5.62% 5.41% 6.38% 6.84%
Number of units outstanding at end of year (thousands). . 27,066 27,033 28,472 20,250 17,211
Portfolio turnover rate . . . . . . . . . . . . . . . . . 138% 27% 24% 23% 21%
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983.
SELECTED PER UNIT DATA 1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . . $ .277 $ .270 $ .259 $ .245
Operating expenses. . . . . . . . . . . . . . . . . . . . .048 .047 .046 .042
------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . . .229 .223 .213 .203
Unit Value at beginning of year . . . . . . . . . . . . . 3.129 2.852 2.697 2.629
Net realized and change in unrealized gains (losses). . . (.001) .054 (.058) (.135)
------- ------- -------- -------
Unit Value at end of year. . . . . . . . . . . . . . . . . $ 3.357 $ 3.129 $ 2.852 $ 2.697
======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . . .23 .28 .16 .07
Ratio of operating expenses to average net assets . . . . 1.57% 1.57% 1.58% 1.57%
Ratio of net investment income to average net assets. . . 7.06% 7.44% 7.67% 7.72%
Number of units outstanding at end of year (thousands). . 14,245 13,135 9,457 7,560
Portfolio turnover rate . . . . . . . . . . . . . . . . . 41% 33% 17% 17%
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16,1983.
SELECTED PER UNIT DATA 1996 1995 1994 1993 1992 * 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . . $ .328 $ .318 $ .306 $ .317 $ .304
Operating expenses. . . . . . . . . . . . . . . . . . . . .063 .059 .058 .050 .048
------- ------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . . .265 .259 .248 .267 .256
Unit Value at beginning of year . . . . . . . . . . . . . 4.400 4.498 4.150 3.880 3.421
Net realized and change in unrealized gains (losses). . . .385 (.357) .100 .003 .203
------- ------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . . $ 5.050 $ 4.400 $ 4.498 $ 4.150 $ 3.880
====== ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . . .65 (.10) .35 .27 .46
Ratio of operating expenses to average net assets . . . . 1.33% 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets. . . 5.54% 5.87% 5.66% 6.61% 7.09%
Number of units outstanding at end of year (thousands). . 9,325 10,694 12,489 13,416 14,629
Portfolio turnover rate . . . . . . . . . . . . . . . . . 138% 27% 24% 23% 21%
<CAPTION>
CONTRACTS ISSUED PRIOR TO MAY 16,1983.
SELECTED PER UNIT DATA 1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total investment income . . . . . . . . . . . . . . . . . $ .281 $ .270 $ .259 $ .245
Operating expenses. . . . . . . . . . . . . . . . . . . . .040 .035 .037 .034
-------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . . . . . .241 .235 .222 .211
Unit Value at beginning of year . . . . . . . . . . . . . 3.181 2.892 2.728 2.652
Net realized and change in unrealized gains (losses). . . (.001) .054 (.058) (.135)
-------- ------- ------- -------
Unit Value at end of year . . . . . . . . . . . . . . . . $ 3.421 $ 3.181 $ 2.892 $ 2.728
======== ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value . . . . . . . . . .24 29 .16 .08
Ratio of operating expenses to average net assets. . . . 1.33% 1.33% 1.33% 1.32%
Ratio of net investment income to average net assets . . 7.31% 7.60% 7.82% 7.87%
Number of units outstanding at end of year (thousands) . 16,341 18,248 21,124 24,703
Portfolio turnover rate. . . . . . . . . . . . . . . . . 41% 33% 17% 17%
</TABLE>
* On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account
QB.
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DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company" or "The Travelers") is a stock
insurance company chartered in 1864 in Connecticut and continuously engaged in
the insurance business since that time. It is licensed to conduct life
insurance business in all states of the United States, the District of
Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands, and the
Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group
Inc., a financial services holding company. The Company's Home Office is
located at One Tower Square, Hartford, Connecticut 06183.
THE SEPARATE ACCOUNTS
Each of the Separate Accounts available under the Variable Annuity contracts
described in this Prospectus is registered with the SEC under the 1940 Act and
will comply with the provisions 1940 Act, and meets the definition of a
separate account under the federal securities laws. Additionally, the
operations of each of the Separate Accounts are subject to the provisions of
Section 38a-433 of the Connecticut General Statutes which authorizes the
Connecticut Insurance Commissioner to adopt regulations under it. The Section
contains no restrictions on investments of the Separate Accounts, and the
Commissioner has adopted no regulations under the Section that affect the
Separate Accounts.
Account GIS was established on September 22, 1967, and Account QB was
established on July 29, 1974. Each of these Separate Accounts, although an
integral part of the Company, is registered with the SEC as a diversified,
open-end management investment company under the 1940 Act. The assets of
Accounts GIS and QB are invested directly in securities (such as stocks, bonds
or money market instruments) which are compatible with the stated investment
policies of each account.
GENERAL
Under Connecticut law, the assets of the Separate Accounts will be held for the
exclusive benefit of the owners of, and the persons entitled to payment under,
the Variable Annuity contracts offered by this Prospectus and under all other
contracts which provide for accumulated values or dollar amount payments to
reflect investment results of the Separate Accounts. The assets in the
Separate Accounts are not chargeable with liabilities arising out of any other
business which the Company may conduct. The obligations arising under the
Variable Annuity contracts are obligations of the Company.
INVESTMENT ALTERNATIVES
The Investment Alternatives available in connection with the Variable Annuity
contracts described herein each have different investment objectives and
fundamental investment policies, as are set forth below. Neither the
investment objectives nor the fundamental investment policies of an Account can
be changed without a vote of a majority of the outstanding voting securities of
the Account, as defined in the 1940 Act.
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT GIS)
INVESTMENT OBJECTIVE
The basic investment objective of Account GIS is the selection of investments
from the point of view of an investor concerned primarily with long-term
accumulation of principal through capital appreciation and retention of net
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<PAGE> 103
investment income. This principal objective does not preclude the realization
of short-term gains when conditions would suggest the long-term goal is
accomplished by such short-term transactions. The assets of Account GIS
generally will be fully invested in a portfolio of equity securities, mainly
common stocks, spread over industries and companies. However, when it is
determined that investments of other types may be advantageous on the basis of
combined considerations of risk, income and appreciation, investments may be
made in bonds, notes or other evidence of indebtedness, issued publicly or
placed privately, of a type customarily purchased for investment by
institutional investors, including United States government securities. These
investments in other-than-equity securities generally would not have a prospect
of long-term appreciation, and are temporary for defensive purposes. Such
investments may or may not be convertible into stock or be accompanied by stock
purchase options or warrants for the purchase of stock.
Account GIS will use exchange-traded stock index futures contracts as a hedge
to protect against changes in stock prices. A stock index futures contract is
a contractual obligation to buy or sell a specified index of stocks at a future
date for a fixed price. Stock index futures may also be used to hedge cash
inflows to gain market exposure until the cash is invested in specific common
stocks. Account GIS will not purchase or sell futures contracts for which the
aggregate initial margin exceeds five percent (5%) of the fair market value of
its assets, after taking into account unrealized profits and losses on any such
contracts which it has entered into. When a futures contract is purchased,
Account GIS will set aside, in an identifiable manner, an amount of cash and
cash equivalents equal to the total market value of the futures contract, less
the amount of the initial margin.
All stock index futures will be traded on exchanges that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that
its futures transactions meet CFTC standards, Account GIS will enter into
futures contracts for hedging purposes only (i.e., for the purposes or with the
intent specified in CFTC regulations and interpretations, subject to the
requirements of the SEC). Account GIS expects that risk management
transactions involving futures contracts will not impact more than thirty
percent (30%) of its assets at any one time. For a more detailed discussion of
financial futures contracts and associated risks, please see the SAI.
Account GIS may write covered call options on portfolio securities for which
call options are available and which are listed on a national securities
exchange. It may also purchase index or individual equity call options as an
alternative to holding stocks or stock index futures, or purchase index or
individual equity put options as a defensive measure. For a detailed
discussion of options contracts and associated risks, please see the SAI.
Changes in investments may be made from time to time to take into account
changes in the outlook for particular industries or companies. The investments
of Account GIS will not, however, be concentrated in any one industry; that is,
no more than twenty-five percent (25%) of the value of Account GIS's assets
will be invested in any one industry. While Account GIS may occasionally
invest in foreign securities, it is not anticipated that such foreign
securities will, at any time, account for more than ten percent (10%) of the
investment portfolio.
The assets of Account GIS will be kept fully invested, except that (a)
sufficient cash may be kept on hand reasonably to provide for variable annuity
contract obligations, and (b) reasonable amounts of cash, United States
government or other liquid securities, such as short-term bills and notes, may
be held for limited periods, pending investment in accordance with Account
GIS's investment policies.
It must be recognized that there are risks inherent in the ownership of any
security. The investment experience on equity investments over time will tend
to reflect levels of stock market prices and dividend payouts. Both are
affected by diverse factors, including not only business conditions and
investor confidence in the economy, but current conditions in a particular
industry or company. The yield on a common stock is not contractually
determined. Equity securities are subject to financial risks relating to the
earning stability and overall financial soundness of an issue. They are also
subject to market risks relating to the effect of general changes in the
securities market on the price of a security.
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<PAGE> 104
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account GIS permit it to:
1. invest up to 5% of its assets in the securities of any one issuer
(exclusive of securities issued or guaranteed by the United States
government, its agencies or instrumentalities);
2. borrow from banks in amounts of up to 5% of its assets, but only for
emergency purposes;
3. purchase interests in real estate represented by securities for which
there is an established market;
4. make loans through the acquisition of a portion of a privately placed
issue of bonds, debentures or other evidences of indebtedness of a
type customarily purchased by institutional investors;
5. acquire up to 10% of the voting securities of any one issuer (it is
the present practice of Account GIS not to exceed 5% of the voting
securities of any one issuer);
6. make purchases on margin in the form of short-term credits which are
necessary for the clearance of transactions; and place up to 5% of its
net asset value in total margin deposits for positions in futures
contracts; and
7. invest up to 5% of its assets in restricted securities (securities
which may not be publicly offered without registration under the
Securities Act of 1933).
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT QB)
INVESTMENT OBJECTIVE
The basic investment objective of Account QB is the selection of investments
from the point of view of an investor concerned primarily with current income,
moderate capital volatility and total return.
It is contemplated that the assets of Account QB will be invested in money
market obligations, including, but not limited to, Treasury bills, repurchase
agreements, commercial paper, bank certificates of deposit and bankers'
acceptances, and in publicly traded debt securities, including bonds, notes,
debentures, equipment trust certificates and short-term instruments. These
securities may carry certain equity features such as conversion or exchange
rights or warrants for the acquisition of stocks of the same or different
issuer, or participations based on revenues, sales or profits. It is currently
anticipated that the market value-weighted average maturity of the portfolio
will not exceed five years. (In the case of mortgage-backed securities, the
estimated average life of cash flows will be used rather than the average
maturity.) Investment in longer term obligations may be made if the Board of
Managers concludes that the investment yields justify a longer term commitment.
The investments of Account QB will not be concentrated in any one industry;
that is, no more than twenty-five percent (25%) of the value of Account QB's
assets will be invested in any one industry.
The portfolio will be actively managed and investments may be sold prior to
maturity to the extent that this action is considered advantageous in light of
factors such as market conditions or brokerage costs. While the investments of
Account QB are generally not listed securities, there are firms which make
markets in the type of debt instruments that Account QB holds. No problems of
salability are anticipated with regard to the investments of Account QB.
Account QB may from time to time purchase new-issue government or agency
securities on a "when-issued" or "to-be-announced" ("TBA") basis ("when-issued
securities"). The prices of such securities will be fixed at the time the
3
<PAGE> 105
commitment to purchase is made, and may be expressed in either dollar price or
yield maintenance terms. Delivery and payment may be at a future date beyond
customary settlement time. It is the customary practice of Account QB to make
when-issued or TBA purchases for settlement no more than 90 days beyond the
commitment date.
The commitment to purchase when-issued securities may be viewed as a senior
security, and will be marked to market and reflected in Account QB's
Accumulation Unit Value daily from the commitment date. While it is TAMIC's
intention to take physical delivery of these securities, offsetting
transactions may be made prior to settlement, if it is advantageous to do so.
Account QB does not make payment or begin to accrue interest on these
securities until settlement date. In order to invest its assets pending
settlement, Account QB will normally invest in short-term money market
instruments and other securities maturing no later than the scheduled
settlement date.
Account QB does not intend to purchase when-issued securities for speculative
or "leverage" purposes. Consistent with Section 18 of the 1940 Act and the
General Policy Statement of the SEC thereunder, when Account QB commits to
purchase a when-issued security, it will identify and place in a segregated
account high grade money market instruments and other liquid securities equal
in value to the purchase cost of the when-issued securities.
TAMIC believes that purchasing securities in this manner will be advantageous
to Account QB. However, this practice does entail certain risks, namely the
default of the counterparty on its obligation to deliver the security as
scheduled. In this event, Account QB would endure a loss (gain) equal to the
price appreciation (depreciation) in value from the commitment date. TAMIC
employs a rigorous credit quality procedure in determining the counterparties
with which it will deal in when-issued securities and, in some circumstances,
will require the counterparty to post cash or some other form of security as
margin to protect the value of its delivery obligation pending settlement.
Account QB may also purchase and sell interest rate futures contracts to hedge
against changes in interest rates that might otherwise have an adverse effect
upon the value of Account QB's securities. Hedging by use of interest rate
futures seeks to establish, with more certainty than would otherwise be
possible, the effective rate of return on portfolio securities. When hedging
is successful, any depreciation in the value of portfolio securities will
substantially be offset by appreciation in the value of the futures position.
Conversely, any appreciation in the value of the portfolio securities will
substantially be offset by depreciation in the value of the futures position.
Account QB will not purchase or sell futures contracts for which the aggregate
initial margin exceeds five percent (5%) of the fair market value of its
assets, after taking into account unrealized profits and losses on any such
contracts which it has entered into. At no time will Account QB's transactions
in futures contracts be employed for speculative purposes. When a futures
contract is purchased, Account QB will set aside, in an identifiable manner, an
amount of cash and cash equivalents equal to the total market value of the
futures contract, less the amount of the initial margin.
All interest rate futures contracts will be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC").
To ensure that its futures transactions meet CFTC standards, Account QB will
enter into futures contracts for hedging purposes only (i.e., for the purposes
or with the intent specified in CFTC regulations and interpretations, subject
to the requirements of the SEC). For a more detailed discussion of financial
futures contracts and associated risks, please see the SAI.
The Board of Managers will weigh considerations of risks, yield and ratings in
implementing Account QB's fundamental investment policies. There are no
specific criteria with regard to quality or ratings of the investments of
Account QB, but it is anticipated that they will be of investment grade or its
equivalent as determined in good faith by the Board of Managers. There may or
may not be more risk in investing in debt instruments where there are no
specific criteria with regard to quality or ratings of the investments.
The yield on debt instruments over a period of time should reflect prevailing
interest rates, which depend on a number of factors, including government
action in the capital markets, government fiscal and monetary policy,
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<PAGE> 106
needs of businesses for capital goods for expansion, and investor expectations
as to future inflation. The yield on a particular debt instrument is also
affected by the risk that the issuer will be unable to pay principal and
interest.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account QB permit it to:
1. invest up to 15% of the value of its assets in the securities of any
one issuer (exclusive of obligations of the United States government
and its instrumentalities, for which there is no limit);
2. borrow from banks in amounts of up to 5% of its assets, but only for
emergency purposes;
3. purchase interests in real estate represented by securities for which
there is an established market;
4. make loans through the acquisition of a portion of a privately placed
issue of bonds, debentures or other evidences of indebtedness of a
type customarily purchased by institutional investors;
5. acquire up to 10% of the voting securities of any one issuer (it is
the present practice of Account QB not to exceed 5% of the voting
securities of any one issuer); and
6. make purchases on margin in the form of short-term credits which are
necessary for the clearance of transactions; and place up to 5% of its
net asset value in total margin deposits for positions in futures
contracts.
VOTING RIGHTS
Owners of the Variable Annuity contracts participating in Accounts GIS and QB
will be entitled to vote at their meetings on (i) any change in the fundamental
investment policies or other policies relative to the account requiring the
Owners' approval; (ii) amendment of the investment advisory agreement; (iii)
election of the members of the Board of Managers of the account; (iv)
ratification of the selection of an independent accountants for the account;
(v) any other matters which, in the future, under the 1940 Act require the
Owners' approval; and (vi) any other business which may properly come before
the meeting.
The number of votes which each Owner may cast, including fractional votes,
shall be determined as of the date to be chosen by the Board of Managers within
75 days of the date of the meeting, and at least 20 days' written notice of the
meeting will be given.
The number of votes which an Owner may cast in the accumulation period is equal
to the number of Accumulation Units credited to the account under the contract.
During the annuity period, the Owner may cast the number of votes equal to (i)
the reserve related to the contract, divided by (ii) the value of an
Accumulation Unit. During the annuity period, an Owner's voting rights will
decline as the reserve for the contract declines. Accounts GIS and QB are also
used to fund certain other Variable Annuity contracts than the Variable Annuity
contracts described in this Prospectus; votes attributable to such other
annuities are computed in an analogous manner.
Votes for which Annuitants were entitled to instruct the Owner, but for which
the Owner has received no instructions, will be cast by the Owner for or
against each proposal to be voted on only in the same proportion as votes for
which instructions have been received.
On the death of the Annuitant, all voting rights will vest in the beneficiary
of the Variable Annuity contract.
5
<PAGE> 107
MANAGEMENT
The investments and administration of Accounts GIS and QB are under the
direction of their Boards of Managers. Subject to the authority of the Board
of Managers, The Travelers Investment Management Company ("TIMCO") furnishes
investment management and advisory services to Account GIS, and Travelers Asset
Management International Corporation ("TAMIC") furnishes investment management
and advisory services to Account QB, respectively. Additionally, the Board of
Managers for each managed Separate Account annually selects an independent
public accountant, reviews the terms of the management and investment advisory
agreements, recommends any changes in the fundamental investment policies (and
submits any such changes to Contract Owners at the annual meeting), and takes
any other actions necessary in connection with the operation and management of
the managed Separate Accounts.
TIMCO is a registered investment adviser which has provided investment advisory
services since its incorporation in 1967. TIMCO, a subsidiary of Smith Barney
Holdings Inc., which is a wholly owned subsidiary of Travelers Group Inc., is
located at One Tower Square, Hartford, Connecticut 06183. In addition to
providing investment advice to Account GIS, TIMCO acts as investment adviser
and subadviser for other investment companies used to fund variable annuity and
variable life insurance products; as well as for individual and pooled pension
and profit-sharing accounts, and affiliated companies of the Company.
TAMIC is a registered investment adviser which has provided investment advisory
services since its incorporation in 1978. TAMIC, an indirect wholly owned
subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford,
Connecticut 06183. In addition to providing investment advice to Account QB,
TAMIC acts as investment adviser for other investment companies used to fund
variable annuity and variable universal life insurance products offered by the
Company and its affiliates, as well as for individual and pooled pension and
profit-sharing accounts, domestic investment companies affiliated with The
Travelers, and nonaffiliated companies.
CHARGES AND DEDUCTIONS
Charges under variable annuity contracts offered by this Prospectus are
assessed in two ways: as deductions from purchase payments for sales expenses
and applicable premium taxes, and as charges to the Separate Accounts for
investment advisory services and the assumption of mortality and expense risks.
DEDUCTIONS FROM PURCHASE PAYMENTS
This Contract is not available for new sales, although additional purchase
payments may be made by purchasers who own existing Contracts. The sales
charge for additional purchase payments is 4.00% of each additional purchase
payment (4.17% of the amount invested). There is no minimum Purchase Payment
under this contract.
PREMIUM TAX
Certain state and local governments impose premium taxes. These taxes
currently range from 0.5% to 5.0% depending upon jurisdiction. The Company, in
its sole discretion and in compliance with any applicable state law, will
determine the method used to recover premium tax expenses incurred. The
Company will deduct any applicable premium taxes from the Contract Value either
upon death, surrender, annuitization, or at the time Purchase Payments are made
to the Contract, but no earlier than when the Company has a tax liability under
state law.
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<PAGE> 108
MINIMUM DEATH BENEFIT AND MINIMUM ACCUMULATED VALUE BENEFIT CHARGE
There is no charge for the Minimum Death Benefit and the Minimum Accumulated
Value Benefit. (See "Death Benefit" and "Minimum Accumulated Value Benefit.")
INSURANCE CHARGE
There is an insurance charge against the assets of each Separate Account to
cover the mortality and expense risks associated with guarantees which the
Company provides under the Variable Annuity contracts. This charge, on an
annual basis, is 1.0017% of the Separate Account value and is deducted on each
Valuation Date at the rate of 0.00363% for each day in the Valuation Period.
The mortality risk assumed by the Company under the contract assures an
Annuitant that neither the Annuitant's own longevity nor an improvement in life
expectancy generally will have any adverse effect on the monthly Annuity
Payments which will be paid under the contract and relieves the Owner from the
risk that the Annuitant will outlive the funds which have been accumulated for
retirement.
With respect to amounts which are not applied to provide an annuity (i.e.,
amounts which are surrendered for cash or which have been paid as Income
Payments), the Company bears no mortality risk and amounts previously charged
to cover this risk are of no benefit to the Owner.
The Company also assumes the risk that the charges under the contracts, which
cannot be increased during the duration of the contract, will be insufficient
to cover actual costs. The Company does not, however, project any deficiency
in the amount of the sales load.
If the amount deducted for these mortality and expense risks is not sufficient
to cover actual mortality costs and expense shortfalls, the loss is borne by
the Company. If the deduction is more than sufficient, the excess will be a
profit to the Company. The Company expects to make a profit from the insurance
charge.
INVESTMENT ADVISORY FEES
TIMCO and TAMIC furnish investment management and advisory services to Account
GIS and Account QB, respectively, according to the terms of written agreements.
TIMCO receives an amount equivalent on an annual basis to 0.45% of the average
daily net assets of Account GIS. TAMIC receives an amount equivalent on an
annual basis to 0.3233% of the average daily net assets of Account QB.
THE VARIABLE ANNUITIES
The individual Variable Annuities described in this Prospectus are both
insurance products and securities. As insurance products, they are subject to
the insurance laws and regulations of each state. The underlying product is an
annuity under which Purchase Payments are paid to the Company and credited to
the Owner's contract to accumulate until retirement.
The following brief description of the key features of the Variable Annuity is
subject to the specific terms of the contract itself. Reference should also be
made to the Glossary of Special Terms.
GENERAL BENEFIT DESCRIPTION
Under the Automatic Option, the Company will automatically begin paying Annuity
Payments to the Owner on the Maturity Date, if the Annuitant is then living.
(See "Automatic Option.") The Owner may choose instead a
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<PAGE> 109
number of alternative arrangements for benefit payments. If the Annuitant dies
before a payout begins, the Company will pay a death benefit under the Contract
(see "Death Benefit."). After the tenth Contract Year, a minimum amount is
payable upon the election of an Annuity Option with respect to amounts that
were allocated to Account QB during the accumulation period (see "Minimum
Accumulated Value Benefit").
TERMINATION BY THE COMPANY AND TERMINATION AMOUNT
No Purchase Payments after the first are required to keep the contract in
effect. However, the Company reserves the right to terminate the contract on
any Valuation Date if the Cash Value as of that date is less than $500 and
purchase payments have not been paid for at least three years. Termination will
not occur until 31 days after the Company has mailed notice of termination to
the Owner at the last known address and to any assignee of record. If the
contract is terminated, the Company will pay to the Owner the Cash Value of the
contract, if any, less any applicable premium tax not previously deducted.
DEFERRED MATURITY OPTION
Up to 30 days before the Maturity Date, the Owner may request (in writing) a
Deferred Maturity Date. The same terms and conditions applicable to the
contract before the Maturity Date will continue to the Deferred Maturity Date.
If the Annuitant dies before the Deferred Maturity Date, the Company will pay
the Cash Value to the beneficiary. The Deferred Maturity Date may be any time
before the Annuitant's 70th birthday, or, with the consent of the Company, any
later date. (See "Federal Tax Considerations.") If the Annuitant is living on
the Deferred Maturity Date, the annuity will be payable, unless otherwise
elected, under the same terms and conditions as the annuity that would have
been payable at the Maturity Date had a Deferred Maturity Date not been
elected. The amount of the Annuity Payment will be determined as described in
"Annuity Options."
SUSPENSION OF PAYMENTS
If a national stock exchange is closed (except for holidays or weekends), or
trading is restricted due to an existing emergency as defined by the SEC so
that disposal of the Separate Account's investments or determination of its net
asset value is not reasonably practicable, or the SEC has ordered that the
right of redemption (surrender) be suspended for the protection of Owners, the
Company may postpone all procedures (including making Annuity Payments) which
require valuation of Separate Accounts until the stock exchange is reopened and
trading is no longer restricted.
REQUIRED REPORTS
As often as required by law, but at least once in each Contract Year before the
due date of the first Annuity Payment, the Company will furnish a report which
will show the number of Accumulation Units credited to the contract in each
Separate Account and the corresponding Accumulation Unit Value as of the date
of the report. The Company will keep all records required under federal or
state laws.
FEDERAL AND STATE INCOME TAX WITHHOLDING
The federal tax law requires income tax withholding on distributions from
pension plans and annuity contracts, unless the Owner, participant or
beneficiary elects not to have withholding apply. Some states also require
withholding from pension and annuity payments unless the Owner, participant or
beneficiary elects not to have withholding apply. (For further information on
federal withholding, see "Federal Income Tax Withholding.")
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<PAGE> 110
ACCUMULATION PROVISIONS
APPLICATION OF PURCHASE PAYMENTS
The initial Purchase Payment is due and payable before the contract becomes
effective. Each Purchase Payment is payable at the Company's Home Office.
If the application for the contract is in good order, the first net Purchase
Payment (the Purchase Payment after deduction of sales charges and any
applicable premium tax) will be applied by the Company to provide Accumulation
Units to the credit of the contract as of the valuation next following receipt
of the Purchase Payment in the mail at the Company's Home Office, or on the
date indicated by the applicant in the application for the contract, if later.
If the application for the contract is not in good order, the Company will
attempt to get it in good order within five business days. If it is not
complete at the end of this period, the Company will inform the applicant of
the reason for the delay and that the purchase payment will be returned
immediately unless the applicant specifically consents to the Company keeping
the Purchase Payments until the application is complete. Once the application
is complete, the net Purchase Payment will be applied within two business days.
Any net Purchase Payment after the first will be applied as of the valuation
next following its receipt in the mail at the Company's Home Office.
The net Purchase Payment will be allocated to the Separate Account in the
proportion specified in the application for the contract or as directed by the
Owner from time to time. The Owner may allocate all or part of each net
Purchase Payment to any Separate Account described in this Prospectus.
NUMBER OF ACCUMULATION UNITS
The number of Accumulation Units to be credited to a contract in each Separate
Account upon payment of a Purchase Payment will be determined by dividing the
Purchase Payment applied to the Separate Account by the current Accumulation
Unit Value of that Separate Account.
ACCUMULATION UNIT VALUE
The dollar value of an Accumulation Unit for each Separate Account was
established at $1.00 at its inception. The value of an Accumulation Unit on any
Valuation Date is determined by multiplying the value on the immediately
preceding Valuation Date by the net investment factor for the Valuation Period
just ended. The value of an Accumulation Unit on any date other than a
Valuation Date will be equal to its value as of the next succeeding Valuation
Date. The value of an Accumulation Unit may increase or decrease.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR
Each Separate Account's net investment rate for any Valuation Period is equal
to the gross investment rate for that Separate Account less a deduction of
0.0000363 for Account QB, and 0.0000398 for Account GIS, for each day in the
Valuation Period. The gross investment rate for the Valuation Period is equal
to (i) the investment income and capital gains and losses, whether realized or
unrealized, on the assets of the Separate Account less a deduction for any
applicable taxes, including income taxes arising from income and realized and
unrealized capital gains of the Separate Account, divided by (ii) the amount of
the assets at the beginning of the Valuation Period.
At the present time, no federal taxes are deducted from the Separate Accounts.
(See "Federal Tax Considerations.") The gross investment rate for a Separate
Account may be either positive or negative.
The net investment factor for a Separate Account for any Valuation Period is
the sum of 1.000000 plus the net investment rate.
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CASH VALUE
The Cash Value of the contract on any date will be equal to the sum of the
accumulated values in the Separate Accounts credited to that contract. The
accumulated value in a Separate Account is equal to the number of Accumulation
Units credited to the contract in that Separate Account, multiplied by the
Accumulation Unit Value for that Separate Account.
CASH SURRENDER (REDEMPTION) OR WITHDRAWAL VALUE
Before the due date of the first Annuity Payment, upon receipt of a written
request, the Company will pay all or any portion of the Cash Value, adjusted
for any applicable premium tax, to the Owner. The Company may defer payment of
any Cash Value for a period of not more than seven days after the request is
received in the mail at its Home Office, but it is its intent to pay as soon as
possible.
The amount of the Cash Value received may be more or less than the Purchase
Payments paid depending on the value of the contract at the time of surrender.
(For the federal income tax consequences of surrenders, see "Federal Tax
Considerations.")
DEATH BENEFIT
If the Annuitant dies before Annuity or Income Payments begin, the Company will
pay to the beneficiary the greater of (a) the Cash Value of the contract as of
the date it receives proof of death at its Home Office, less any premium tax
incurred, or (b) the total Purchase Payments made under the contract, less
prior surrenders or outstanding cash loans.
MINIMUM ACCUMULATED VALUE BENEFIT UPON ELECTION OF AN ANNUITY--ACCOUNT QB
If an Annuity Option is elected after the tenth Contract Year, the amount
applied under an Annuity Option while there is Cash Value which has not been
applied to effect any Annuity or Income Options will not be less than the
following:
1. the sum of all net premiums allocated to Account QB under the
contract, plus
2. the sum of all amounts transferred into Account QB, minus
3. the sum of all amounts transferred out of Account QB, minus
4. any partial surrenders (whether paid in one sum or applied as an
Annuity or Income Option), minus
5. the value of Accumulation Units credited to this contract in Account
QB which are not applied to effect the Annuity.
This benefit is not available on contracts issued in California.
RIGHT TO RETURN
During the ten days following the delivery of the contract to the applicant,
the applicant may return the contract to the Company by mail or in person, if
for any reason the applicant has changed his or her mind. On return of the
contract, the Company will pay to the applicant the Cash Value determined as of
the Valuation Date next following receipt of the written request at the
Company's Home Office (or any other office which the Company may designate)
plus an amount equal to the difference between the Purchase Payment paid for
the contract and the Net Purchase Payment. The applicant bears the investment
risk during this period.
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TRANSFER BETWEEN SEPARATE ACCOUNTS
At any time up to 30 days before the due date of the first Annuity Payment,
the Owner may, upon written request to the Company, transfer all or any part of
the Cash Value of the contract from one Separate Account to any other Separate
Account described in this Prospectus. The Company reserves the right to limit
the number of transfers between Separate Accounts, but will not limit transfers
to less than one in any six month period. The number of Accumulation Units
credited to the Separate Account from which the transfer is made will be
reduced. The reduction will be determined by dividing the amount transferred
by the Accumulation Unit Value for that Separate Account as of the next
valuation after the Company receives the request in the mail at its Home
Office. The number of Accumulation Units credited to the Separate Account to
which the transfer is made will be increased. The increase will be determined
by dividing the amount transferred, less the Separate Account transfer charge,
if any, by the Accumulation Unit Value for that Separate Account as of the next
valuation after the Company receives the written request from the Owner at its
Home Office. There is currently no Separate Account transfer charge. Once
Annuity Payments begin, no further transfers may be made between the Separate
Accounts.
PAYOUT PROVISIONS
SEPARATE ACCOUNT ALLOCATION
When Annuity Payments begin, the accumulated value in each Separate Account
will be applied to provide an Annuity with the amount of Annuity Payments
varying with the investment experience of that same Separate Account. As
described in "Transfer Between Separate Accounts," the Owner may elect to
transfer Cash Value from one Separate Account to another in order to reallocate
the basis on which Annuity Payments will be determined.
DETERMINATION OF FIRST PAYMENT
The contract contains tables used to determine the first monthly Annuity
Payment. The amount applied to effect an Annuity will be the Cash Value of the
contract as of 14 days before the date Annuity Payments commence less any
applicable premium taxes not previously deducted.
The amount of the first monthly payment depends on the Annuity Option elected
(see "Automatic Option") and the adjusted age of the Annuitant. A formula for
determining the adjusted age is contained in the contract. The tables are
determined from the Progressive Annuity Table assuming births in the year 1900
and an assumed annual net investment rate of 3.5%. (When permitted by state
law, the Company may allow the contract owner to elect an assumed net
investment rate other than the 3.5% specified in the contract. In that event,
the first monthly payment would differ from that shown in the contract. A
higher interest rate assumption would mean a higher initial payment but more
slowly rising subsequent payments or more rapidly falling subsequent payments.
A lower assumption would have the opposite effect.) The total first monthly
Annuity Payment is determined by multiplying the benefit per $1,000 of value
shown in the tables of the contract by the number of thousands of dollars of
value of the contract applied to that Annuity Option. The Company reserves the
right to require proof of age before Annuity Payments begin.
ANNUITY UNIT VALUE
The dollar value of an Annuity Unit for each Separate Account was established
at $1.00 at inception. The value of an Annuity Unit as of any Valuation Date
is determined 14 days in advance in order to allow adequate time for the
required calculations and mailing of annuity checks in advance of their due
dates. (If the date 14 days in advance is not a Valuation Date, the
calculation is made on the next following Valuation Date, which would generally
be 13 or 12 days in advance.)
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Specifically, the Annuity Unit Value for a Separate Account as of a Valuation
Date is equal to (a) the value of the Annuity Unit on the immediately preceding
Valuation Date multiplied by (b) the net investment factor for the Valuation
Period ending on or next following 14 days prior to the current Valuation Date,
divided by (c) the assumed net investment factor for the Valuation Period.
(For example, the assumed net investment factor based on an annual assumed net
investment rate of 3.5% for a Valuation Period of one day is 1.0000942 and, for
a period of two days, is 1.0000942 x 1.0000942.)
The value of an Annuity Unit as of any date other than a Valuation Date is
equal to its value on the next succeeding Valuation Date.
NUMBER OF ANNUITY UNITS
The number of Annuity Units credited to the contract is determined by dividing
the first monthly Annuity Payment attributable to each Separate Account by the
Separate Account's Annuity Unit Value as of the due date of the first Annuity
Payment. The number of Annuity Units remains fixed during the annuity period.
DETERMINATION OF SECOND AND SUBSEQUENT PAYMENTS
The dollar amount of the second and subsequent Annuity Payments is not
predetermined and may change from month to month based on the investment
experience of either or both of the Separate Accounts. The actual amounts of
these payments are determined by multiplying the number of Annuity Units
credited to the contract in each Separate Account by the corresponding Annuity
Unit Value as of the date on which payment is due. The interest rate assumed
in the annuity tables would produce a level Annuity Unit Value and, therefore,
level Annuity Payments if the net investment rate remained constant at the
assumed rate. In fact, payments will vary up or down as the net investment
rate varies up or down from the assumed rate, and there can be no assurance
that a net investment rate will be as high as the assumed rate.
ANNUITY OPTIONS
Subject to conditions in "Election of Options," all or any part of the Cash
Value of the contract otherwise payable in one sum to the Owner on the Maturity
Date or prior Cash Surrender of the contract, or amounts payable under the
contract in one sum to the beneficiary upon the death of the Annuitant, may be
paid under one or more of the Annuity Options below.
AUTOMATIC OPTION--Unless otherwise specified in the application or the plan and
if no election has been made, if the Annuitant is then living on the Maturity
Date, the Company will pay to the Owner the first of a series of Annuity
Payments based on the life of the Annuitant, in accordance with Option 2 with
120 monthly payments assured.
OPTION 1--LIFE ANNUITY--NO REFUND: The Company will make monthly Annuity
Payments during the lifetime of the person on whose life the payments are
based, terminating with the last monthly payment preceding death. This option
offers the maximum monthly payment, since there is no assurance of a minimum
number of payments or provision for a death benefit for beneficiaries. It
would be possible under this option to receive only one Annuity Payment if the
Annuitant died before the due date of the second Annuity Payment, only two if
the Annuitant died before the third Annuity Payment, etc.
OPTION 2--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED: The
Company will make monthly Annuity Payments during the lifetime of the person on
whose life payments are based, with the agreement that if, at the death of that
person, payments have been made for less than 120, 180 or 240 months, as
elected, payments will be continued during the remainder of the period to the
beneficiary designated. The beneficiary may instead receive a single sum
settlement equal to the discounted value of the future payments with the
interest rate equivalent to the assumption originally used when the Annuity
began.
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OPTION 3--UNIT REFUND LIFE ANNUITY: The Company will make monthly Annuity
Payments during the lifetime of the person on whose life payments are based,
terminating with the last payment due before the death of that person, provided
that, at death, the beneficiary will receive in one sum the current dollar
value of the number of Annuity Units equal to (a) minus (b) (if that difference
is positive) where (a) is the total amount applied under the option divided by
the Annuity Unit Value on the due date of the first Annuity Payment, and (b) is
the product of the number of the Annuity Units represented by each payment and
the number of payments made.
OPTION 4--JOINT AND LAST SURVIVOR LIFE ANNUITY--NO REFUND: The Company will
make monthly Annuity Payments during the joint lifetime of the two persons on
whose lives payments are based, and during the lifetime of the survivor. No
further payments will be made following the death of the survivor. It would be
possible under this option to receive only one Annuity Payment if both
Annuitants died before the due date of the second Annuity Payment, only two if
they died before the third Annuity Payment, etc.
OPTION 5--JOINT AND LAST SURVIVOR LIFE ANNUITY--ANNUITY REDUCES ON DEATH OF
PRIMARY PAYEE: The Company will make monthly Annuity Payments during the
lifetime of the two persons on whose lives payments are based. One of the two
persons will be designated as the primary payee. The other will be designated
as the secondary payee. On the death of the secondary payee, if survived by
the primary payee, the Company will continue to make monthly Annuity Payments
to the primary payee in the same amount that would have been payable during the
joint lifetime of the two persons. On the death of the primary payee, if
survived by the secondary payee, the Company will continue to make Annuity
Payments to the secondary payee, in an amount equal to 50% of the payments
which would have been made during the lifetime of the primary payee. No
further payments will be made following the death of the survivor.
OPTION 6--OTHER ANNUITY OPTIONS: The Company will make any other arrangements
for Annuity Payments as may be mutually agreed upon.
INCOME OPTIONS
Subject to the conditions described under "Election of Options" below, all or
any part of the Cash Value of the contract otherwise payable in one sum to the
Owner on the Maturity Date or prior Cash Surrender of the contract, or amounts
payable under the contract in one sum to the beneficiary on the death of the
Annuitant, may be paid under one or more of the income options described below.
OPTION 1--PAYMENTS OF A FIXED AMOUNT: The Company will make equal monthly
payments of the amount elected until the Cash Value applied under this option
has been exhausted. The first monthly payment will be paid from each Separate
Account in the same proportion that the respective Cash Values bear to the
total Cash Value applied as of fourteen days before the first payment is due.
The second and subsequent payments from each Separate Account will be the same
as the first payment under this option. The final payment will include any
amount insufficient to make another full payment.
OPTION 2--PAYMENTS FOR A FIXED PERIOD: The Company will make monthly payments
for the number of years selected. The amount of each payment will be equal to
the remaining Cash Value applied under this option divided by the number of
remaining payments.
OPTION 3--INVESTMENT INCOME: The Company will make monthly payments during the
lifetime of the primary payee, or for the period agreed on. The amount payable
will be equal to the excess, if any, of the Cash Value under this option over
the amount applied under this option. No payment will be made if the Cash
Value is less than the amount applied, and it is possible that no payments
would be made for a period of time. Payments under this option are not
considered to be Annuity Payments and are taxable in full as ordinary income.
(See "Federal Tax Considerations.")
The Cash Value used to determine the amount of any Income Payment will be
calculated as of 14 days before the date an Income Payment is due and will be
determined on the same basis as the Cash Value of the contract,
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including the deduction for mortality risks. Income Options differ from
Annuity Options in that the amount of the payments made under Income Options
are unrelated to the length of life of any person. Although the Company
continues to deduct the charge for mortality and expense risks, it assumes no
mortality risks for amounts applied under any Income Option. Moreover, except
with respect to lifetime payments of investment income under Income Option 3,
payments are unrelated to the actual life span of any person. Thus, the
Annuitant may outlive the payment period. While Income Options do not directly
involve mortality risks for the Company, an Owner may elect to apply the
remaining Cash Value to provide an Annuity at the guaranteed rates even though
Income Payments have been received under an Income Option. Before an Owner
makes any Income Option election, he or she should consult a tax adviser as to
any adverse tax consequences the election might have.
ELECTION OF OPTIONS
Election of an option must be made in writing in a form satisfactory to the
Company. Any election made during the lifetime of the Annuitant must be made
by the Owner of the contract. The terms of the options elected by some
beneficiaries may be restricted to meet the qualification requirements of
Section 72(s) of the Internal Revenue Code. If, at the death of the Annuitant,
there is no election in effect for that Annuitant, election of an option must
be made by the beneficiary entitled to any death benefit payable in one sum
under the contract. The minimum amount that can be placed under an Annuity or
Income Option will be $2,000 unless the Company consents to a lesser amount.
If any monthly periodic payment due any payee is less than $20, the Company
reserves the right to make payments at less frequent intervals.
FEDERAL TAX CONSIDERATIONS
GENERAL
The Company is taxed as a life insurance company under Subchapter L of the
Internal Revenue Code (the "Code"). The Separate Accounts that form the
investment alternatives described herein are treated as part of the total
operations of the Company and are not taxed separately. Investment income and
gains of a Separate Account that are credited to a purchaser's contract of
insurance incur no current federal income tax. Generally, amounts credited to a
contract are not taxable until received by the Owner, participant or
beneficiary, either in the form of Annuity Payments or other distributions.
NONQUALIFIED ANNUITIES
Individuals may purchase tax-deferred annuities without tax law funding limits.
The Purchase Payments receive no tax benefit, deduction or deferral, but
increases in the value of the contract are generally deferred from tax until
distribution. If a nonqualified annuity is owned by other than an individual,
however, (e.g., by a corporation), the increases in value attributable to
Purchase Payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includable in the income of an Owner when that Owner
transfers the contract without adequate consideration.
The federal tax law requires nonqualified annuity contracts issued on or after
January 19, 1985 to meet minimum mandatory distribution requirements upon the
death of the Contract Owner. Failure to meet these requirements will cause the
succeeding Contract Owner or beneficiary to lose the tax benefits associated
with annuity contracts, i.e., primarily the tax deferral prior to distribution.
The distribution required depends upon whether an Annuity Option is elected or
whether the succeeding Owner is the surviving spouse. Contracts will be
administered by the Company in accordance with these rules.
If two or more nonqualified annuity contracts are purchased from the same
insurer within the same calendar year, distributions from any of them will be
taxed based upon the amount of income in all of the same calendar year series
of annuities. This will generally have the effect of causing taxes to be paid
sooner on the deferred gain in the contracts.
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Those receiving partial distributions made before annuitization of a contract
will generally be taxed on an income-first basis to the extent of income in the
contract. Certain pre-August 14, 1982 deposits into a nonqualified annuity
contract that have been placed in the contract by means of a tax-deferred
exchange under Section 1035 of the Code may be withdrawn first without income
tax liability. This information on deposits must be provided to the Company by
the other insurance company at the time of the exchange. There is income in
the contract generally to the extent the Cash Value exceeds the investment in
the contract. The investment in the contract is equal to the amount of
premiums paid less any amount received previously which was excludable from
gross income. Any direct or indirect borrowing against the value of the
contract or pledging of the contract as security for a loan will be treated as
a cash withdrawal under the tax law.
With certain exceptions, the law will impose an additional tax if a Contract
Owner makes a withdrawal of any amount under the contract which is allocable to
an investment made after August 13, 1982. The amount of the additional tax
will be 10% of the amount includable in income by the Contract Owner because of
the withdrawal. The additional tax will not be imposed if the amount is
received on or after the Contract Owner reaches the age of 59 1/2, or if the
amount is one of a series of substantially equal periodic payments made for
life or life expectancy of the taxpayer. The additional tax will not be
imposed if the withdrawal or partial surrender follows the death or disability
of the Contract Owner.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will be
subject to federal income tax withholding, generally pursuant to Section 3405
of the Code. The application of this provision is summarized below.
1. NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
The portion of a non-periodic distribution which constitutes taxable
income will be subject to federal income tax withholding, to the
extent such aggregate distributions exceed $200 for the year, unless
the recipient elects not to have taxes withheld. If an election out
is not provided, 10% of the taxable distribution will be withheld as
federal income tax. Election forms will be provided at the time
distributions are requested. This form of withholding applies to all
annuity programs.
2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER
THAN ONE YEAR)
The portion of a periodic distribution which constitutes taxable
income will be subject to federal income tax withholding under the
wage withholding tables as if the recipient were married claiming
three exemptions. A recipient may elect not to have income taxes
withheld or have income taxes withheld at a different rate by
providing a completed election form. Election forms will be provided
at the time distributions are requested. This form of withholding
applies to all annuity programs. As of January 1, 1997, a recipient
receiving periodic payments (e.g., monthly or annual payments under an
Annuity Option) which total $_____ or less per year, will generally be
exempt from the withholding requirements.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, United States citizens residing outside of the country, or U.S.
legal residents temporarily residing outside the country, are not permitted to
elect out of withholding.
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TAX ADVICE
Because of the complexity of the law and the fact that the tax results will
vary according to the factual status of the individual involved, tax advice may
be needed by a person contemplating purchase of an annuity contract and by an
Owner, participant or beneficiary who may make elections under a contract. It
should be understood that the foregoing description of the federal income tax
consequences under these contracts is not exhaustive and that special rules are
provided with respect to situations not discussed here. It should be
understood that if a tax-benefited plan loses its exempt status, employees
could lose some of the tax benefits described. For further information, a
qualified tax adviser should be consulted.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the contracts in all jurisdictions where the
Company is licensed to do business, except Puerto Rico, and the Bahamas. The
contracts will be sold by agents who are licensed by state insurance
authorities to sell variable annuity contracts issued by the Company, and who
are also registered representatives of broker-dealers which have Selling
Agreements with Tower Square Securities, Inc. ("Tower Square"). Tower Square,
whose principal business address is One Tower Square, Hartford, Connecticut,
serves as the principal underwriter for the variable annuity insurance
contracts described herein. Tower Square is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934, and is a member of the
National Association of Securities Dealers, Inc. ("NASD"). Tower Square is an
affiliate of the Company and an indirect wholly owned subsidiary of Travelers
Group Inc., and serves as principal underwriter pursuant to a Distribution and
Underwriting Agreement to which Accounts GIS and QB, the Company and Tower
Square are parties. No amounts have been or will be retained by Tower Square
for acting as principal underwriter for the Contracts.
Agents will be compensated for sales of the Contracts on a commission and
service fee basis. The compensation paid to said agents will not exceed 7% of
the payments made under the Contract. In addition, certain production,
persistency and managerial bonuses may be paid.
From time to time the Company may pay or permit other promotional incentives,
in cash, credit or other compensation.
STATE REGULATION
The Company is subject to the laws of the state of Connecticut governing
insurance companies and to regulation by the Insurance Commissioner of the
state of Connecticut. An annual statement in a prescribed form must be filed
with that Commissioner on or before March 1 in each year covering the
operations of the Company for the preceding year and its financial condition on
December 31 of such year. Its books and assets are subject to review or
examination by the Commissioner or his agents at all times, and a full
examination of its operations is conducted by the National Association of
Insurance Commissioners ("NAIC") at least once in every four years.
In addition, the Company is subject to the insurance laws and regulations of
the other states in which it is licensed to operate. Generally, the insurance
departments of the states apply the laws of the jurisdiction of domicile in
determining the field of permissible investments.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting the Separate
Accounts.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the Variable Annuity contracts described in this Prospectus
and the organization of the Company, its authority to issue Variable Annuity
contracts under Connecticut law and the validity of the forms of the Variable
Annuity contracts under Connecticut law have been passed on by the General
Counsel of the Life and Annuities Division of the Company.
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APPENDIX A
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The SAI contains more specific information and financial statements relating to
the Separate Accounts and The Travelers Insurance Company. A list of the
contents of the SAI is set forth below:
Description of The Travelers and the Separate Accounts
The Insurance Company
The Separate Accounts
Investment Objectives and Policies
The Travelers Growth and Income Stock Account for Variable Annuities
The Travelers Quality Bond Account for Variable Annuities
Description of Certain Types of Investments and Investment Techniques
Available to the Separate Accounts
Writing Covered Call Options
Buying Put and Call Options
Futures Contracts
Money Market Instruments
Investment Management and Advisory Services
Advisory Fees
TIMCO
TAMIC
Valuation of Assets
Management
The Board of Managers
Distribution and Management Services
Securities Custodian
Independent Accountants
Financial Statements
- ------------------------------------------------------------------------------
COPIES OF THE SAI DATED MAY 1, 1997 (FORM NO. L11895S), ARE AVAILABLE WITHOUT
CHARGE. TO REQUEST A COPY, PLEASE CLIP THIS COUPON ON THE DOTTED LINE ABOVE,
ENTER YOUR NAME AND ADDRESS IN THE SPACES PROVIDED BELOW, AND MAIL TO: THE
TRAVELERS INSURANCE COMPANY, ANNUITY SERVICES, ONE TOWER SQUARE, HARTFORD,
CONNECTICUT 06183-5030.
Name:
-------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
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THIS PAGE INTENTIONALLY LEFT BLANK.
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THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
AND
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Issued By
THE TRAVELERS INSURANCE COMPANY
Individual Purchases
L-11895 TIC Ed. 5-97
Printed in U.S.A.
<PAGE> 121
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 122
UNIVERSAL ANNUITY
STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 1997
- -------------------------------------------------------------------------------
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
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
- -------------------------------------------------------------------------------
VARIABLE ANNUITY CONTRACTS ISSUED BY
THE TRAVELERS INSURANCE COMPANY
This Statement of Additional Information is not a prospectus but
relates to, and should be read in conjunction with, the Prospectus dated May 1,
1997. A copy of the Prospectus may be obtained by writing to The Travelers
Insurance Company (the "Company"), Annuity Services, One Tower Square,
Hartford, Connecticut 06183-5030, or by calling 1-800-842-8573. This Statement
of Additional Information should be read in conjuction with the accompanying
1996 Annual Report for the Separate Accounts.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
DESCRIPTION OF THE TRAVELERS INSURANCE COMPANY AND
THE SEPARATE ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Insurance Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Separate Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Travelers Growth and Income Stock Account for Variable Annuities . . . . . . . . . . . . . . 3
The Travelers Timed Growth and Income Stock Account for Variable Annuities . . . . . . . . . . . 3
The Travelers Timed Aggressive Stock Account for Variable Annuities. . . . . . . . . . . . . . . 4
The Travelers Quality Bond Account for Variable Annuities. . . . . . . . . . . . . . . . . . . . 5
The Travelers Timed Bond Account for Variable Annuities. . . . . . . . . . . . . . . . . . . . . 7
The Travelers Money Market Account for Variable Annuities. . . . . . . . . . . . . . . . . . . . 8
The Travelers Timed Short-Term Bond Account for Variable Annuities . . . . . . . . . . . . . . . 9
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
AVAILABLE TO THE SEPARATE ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
WRITING COVERED CALL OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
BUYING PUT AND CALL OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FUTURES CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
MONEY MARKET INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
INVESTMENT MANAGEMENT AND ADVISORY SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
TIMCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TAMIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
VALUATION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
NET INVESTMENT FACTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
TELEPHONE TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Yield Quotations of Account MM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Average Annual Total Return Quotations of Accounts GIS, QB, MM, TGIS, TSB, TAS, TB
and Fund U. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
THE BOARD OF MANAGERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
DISTRIBUTION AND MANAGEMENT SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECURITIES CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FINANCIAL STATEMENTS. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 123
DESCRIPTION OF THE TRAVELERS INSURANCE COMPANY
AND THE SEPARATE ACCOUNTS
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company") is a stock insurance
company chartered in 1864 in Connecticut and continuously engaged in the
insurance business since that time. The Company is a wholly owned subsidiary of
The Travelers Insurance Group, Inc., a holding company which is an indirect
wholly owned subsidiary of Travelers Group Inc., a financial services holding
company. The Company's Home Office is located at One Tower Square, Hartford,
Connecticut 06183.
STATE REGULATION. The Company is subject to the laws of the state of
Connecticut governing insurance companies and to regulation by the Insurance
Commissioner of the state of Connecticut. An annual statement covering the
operations of the Company for the preceding year, as well as its financial
conditions as of December 31 of such year, must be filed with the Commissioner
in a prescribed format on or before March 1 of each year. The Company's books
and assets are subject to review or examination by the Commissioner or his
agents at all times, and a full examination of its operations is conducted at
least once every four years.
The Company is also subject to the insurance laws and regulations of all
other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the home state
(jurisdiction of domicile) in determining the field of permissible investments.
THE SEPARATE ACCOUNTS
Each of the Separate Accounts available under the variable annuity
contracts described in this Statement of Additional Information meets the
definition of a separate account under federal securities laws, and will comply
with the provisions of the Investment Company Act of 1940, as amended (the
"1940 Act"). Additionally, the operations of each of the Separate Accounts are
subject to the provisions of Section 38a-433 of the Connecticut General
Statutes which authorize the Connecticut Insurance Commissioner to adopt
regulations under it. The Section contains no restrictions on investments of
the Separate Accounts, and the Commissioner has adopted no regulations under
the Section that affect the Separate Accounts.
INVESTMENT RESTRICTIONS
The Separate Accounts described below each have different investment
objectives and policies, as discussed in the Prospectus under "The Managed
Separate Accounts." Each Managed Separate Account has certain fundamental
investment restrictions which are set forth below. Neither the investment
objective nor the fundamental investment restrictions can be changed without a
vote of a majority of the outstanding voting securities of the Accounts, as
defined in the 1940 Act. Additionally, in accomplishing their respective
investment objectives, each Account uses certain types of investments and
investment techniques which are discussed under "Description of Certain Types
of Investments and Investment Techniques Available to the Separate Accounts."
The percentage restrictions (for either fundamental investment
policies or investment restrictions) are interpreted such that if they are
adhered to at the time of investment, a later increase in a percentage beyond
the specified limit resulting from a change in the values of portfolio
securities or in the amount of net assets shall not be considered a violation.
It must be recognized that there are risks inherent in the ownership of any
investment and that there can be no assurance that the investment objectives of
the Separate Accounts will be achieved.
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<PAGE> 124
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
The investment restrictions for Accounts GIS and TGIS, as set forth
below, are identical, except where indicated. The investment restrictions set
forth in items 1 through 9 are fundamental and may not be changed without a
vote of a majority of the outstanding voting securities of Account GIS or
Account TGIS, as defined in the 1940 Act. Items 10 through 13 may be changed by
a vote of the Board of Managers of Account GIS or Account TGIS.
1. Not more than 5% of the assets of the Account will be invested in
the securities of any one issuer, except obligations of the United
States Government and its instrumentalities.
2. Borrowings will not be made, except that the right is
reserved to borrow from banks for emergency purposes,
provided that such borrowings will not exceed 5% of the value
of the assets of Account GIS, or 10% of the value of the
assets of Account TGIS, and that immediately after the
borrowing, and at all times thereafter, and while any such
borrowing is unrepaid, there will be asset coverage of at
least 300% for all borrowings of the Account.
3. Securities of other issuers will not be underwritten, except that
the Account could be deemed an underwriter when engaged in the
sale of restricted securities. (See item 13.)
4. Interests in real estate will not be purchased, except as may be
represented by securities for which there is an established
market.
5. No purchase of commodities or commodity contracts will be made,
except transactions involving financial futures in order to limit
transaction and borrowing costs and for hedging purposes, as
discussed above.
6. Loans will be made only through the acquisition of a portion of
privately placed issue of bonds, debentures or other evidences of
indebtedness of a type customarily purchased by institutional
investors. (See item 13.)
7. Investments will not be made in the securities of a company for the
purpose of exercising management or control.
8. Not more than 10% of the voting securities of any one issuer will
be acquired. (It is the present practice of the Account not to
exceed 5% of the voting securities of any one issuer.)
9. Senior securities will not be issued.
10. Short sales of securities will not be made.
11. Purchases will not be made on margin, except for short-term
credits which are necessary for the clearance of transactions, and
for the placement of not more than 5% of its net asset value in
total margin deposits for positions in futures contracts.
12. The Account will not invest in the securities of other investment
companies, except as part of a plan of merger, consolidation or
acquisition of assets.
13. Not more than 5% of the value of the assets of the Account may be
invested in restricted securities (securities which may not be
publicly offered without registration under the Securities Act of
1933).
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<PAGE> 125
Changes in the investments of Accounts GIS and TGIS may be made from
time to time to take into account changes in the outlook for particular
industries or companies. The Accounts' investments will not, however, be
concentrated in any one industry; that is, no more than 25% of the value of
their assets will be invested in any one industry. While Accounts GIS and TGIS
may occasionally invest in foreign securities, it is not anticipated that such
investments will, at any time, account for more than 10% of their investment
portfolios.
The assets of Accounts GIS and TGIS will be kept fully invested,
except that (a) sufficient cash may be kept on hand to provide for variable
annuity contract obligations, and (b) reasonable amounts of cash, United States
Government or other liquid securities, such as short-term bills and notes, may
be held for limited periods, pending investment in accordance with their
respective investment policies.
PORTFOLIO TURNOVER
Although Accounts GIS and TGIS intend to purchase securities for
long-term appreciation of capital and income, and do not intend to place
emphasis on obtaining short-term trading profits, such short-term trading may
occur. A higher turnover rate should not be interpreted as indicating a
variation from the stated investment policy of seeking long-term accumulation
of capital, and will normally increase the brokerage costs of Accounts GIS and
TGIS. However, negotiated fees and the use of futures contracts will help to
reduce brokerage costs. While there is no restriction on portfolio turnover,
Account GIS expects to have a moderate to high level of portfolio turnover in
the range of 150% to 300%, and Account TGIS expects that its portfolio turnover
will be higher than normal since the Account is being timed by third party
investment advisory services. The portfolio turnover rate for Account GIS for
the years ended December 31, 1994, 1995 and 1996 was 103%, 96% and 85%,
respectively. The portfolio turnover rate for Account TGIS for the years ended
December 31, 1994, 1995 and 1996 was 19%, 79% and 81%, respectively.
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental and may
not be changed without a vote of a majority of the outstanding voting
securities of Account TAS, as defined in the 1940 Act. Account TAS may not:
1. invest more than 5% of its total assets, computed at market value,
in the securities of any one issuer;
2. invest in more than 10% of any class of securities of any one
issuer;
3. invest more than 5% of the value of its total assets in companies
which have been in operation for less than three years;
4. borrow money, except to facilitate redemptions or for emergency or
extraordinary purposes and then only from banks and in amounts of
up to 10% of its gross assets computed at cost; while outstanding,
a borrowing may not exceed one-third of the value of its net
assets, including the amount borrowed; Account TAS has no
intention of attempting to increase its net income by means of
borrowing and all borrowings will be repaid before additional
investments are made; assets pledged to secure borrowings shall be
no more than the lesser of the amount borrowed or 10% of the gross
assets of Account TAS computed at cost;
5. underwrite securities, except that Account TAS may purchase
securities from issuers thereof or others and dispose of such
securities in a manner consistent with its other investment
policies; in the disposition of restricted securities the Account
may be deemed to be an underwriter, as defined in the Securities
Act of 1933 (the "1933 Act");
6. purchase real estate or interests in real estate, except through
the purchase of securities of a type commonly purchased by
financial institutions which do not include direct interest in
real estate or
4
<PAGE> 126
mortgages, or commodities or commodity contracts, except
transactions involving financial futures in order to limit
transaction and borrowing costs and for hedging purposes as
described above;
7. invest for the primary purpose of control or management;
8. make margin purchases or short sales of securities, except for
short-term credits which are necessary for the clearance of
transactions, and to place not more than 5% of its net asset value
in total margin deposits for positions in futures contracts;
9. make loans, except that Account TAS may purchase money market
securities, enter into repurchase agreements, buy publicly and
privately distributed debt securities and lend limited amounts of
its portfolio securities to broker-dealers; all such investments
must be consistent with the Account's investment objective and
policies;
10. invest more than 25% of its total assets in the securities of
issuers in any single industry;
11. purchase the securities of any other investment company, except in
the open market and at customary brokerage rates and in no event
more than 3% of the voting securities of any investment company;
12. invest in interests in oil, gas or other mineral exploration or
development programs; or
13. invest more than 5% of its net assets in warrants, valued at the
lower of cost or market; warrants acquired by the Account in units
or attached to securities will be deemed to be without value with
regard to this restriction. Account TAS is subject to restrictions
in the sale of portfolio securities to, and in its purchase or
retention of securities of, companies in which the management
personnel of The Travelers Investment Management Company ("TIMCO")
have a substantial interest.
Account TAS may make investments in an amount of up to 10% of the
value of its net assets in restricted securities which may not be publicly sold
without registration under the 1933 Act. In most instances such securities are
traded at a discount from the market value of unrestricted securities of the
same issuer until the restriction is eliminated. If and when Account TAS sells
such portfolio securities, it may be deemed an underwriter, as such term is
defined in the 1933 Act, with respect thereto, and registration of such
securities under the 1933 Act may be required. Account TAS will not bear the
expense of such registration. Account TAS intends to reach agreements with all
such issuers whereby they will pay all expenses of registration. In determining
securities subject to the 10% limitation, Account TAS will include, in addition
to restricted securities, repurchase agreements maturing in more than seven
days and other securities not having readily available market quotations.
PORTFOLIO TURNOVER
Although Account TAS intends to invest in securities selected
primarily for prospective capital growth and does not intend to place emphasis
on obtaining short-term trading profits, such short-term trading may occur. A
high turnover rate should not be interpreted as indicating a variation from the
stated investment policy, and will normally increase Account TAS's brokerage
costs. While there is no restriction on portfolio turnover, Account TAS's
portfolio turnover rate may be high since the Account is being timed by third
party investment advisory services. The portfolio turnover rate for the years
ended December 31, 1994, 1995 and 1996 was 142%, 113% and 98%, respectively.
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
The investment restrictions set forth in items 1 through 9 below are
fundamental and may not be changed without a vote of a majority of the
outstanding voting securities of Account QB, as defined in the 1940 Act. Items
10 through 13 may be changed by a vote of the Board of Managers of Account QB.
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<PAGE> 127
1. Not more than 15% of the value of the assets of Account QB will be
invested in the securities of any one issuer, except obligations
of the United States Government and its instrumentalities, for
which there is no limit.
2. Borrowings will not be made, except that the right is reserved to
borrow from banks for emergency purposes, provided that these
borrowings will not exceed 5% of the value of the assets of
Account QB and that immediately after the borrowing, and at all
times thereafter, and while any borrowing is unrepaid, there will
be asset coverage of at least 300% for all borrowings of Account
QB.
3. Securities of other issuers will not be underwritten, except that
Account QB could be deemed to be an underwriter when engaged in
the sale of restricted securities.
4. Interests in real estate will not be purchased, except as may be
represented by securities for which there is an established
market.
5. No purchase of commodities or commodity contracts will be made,
except transactions involving financial futures used as a hedge
against unanticipated changes in prevailing levels of interest
rates.
6. Loans will be made only through the acquisition of a portion of
privately placed issue of bonds, debentures and other evidences of
indebtedness of a type customarily purchased by institutional
investors.
7. Investments will not be made in the securities of a company for
the purpose of exercising management or control.
8. Not more than 10% of the voting securities of any one issuer will
be acquired.
9. Senior securities will not be issued.
10. Short sales of securities will not be made.
11. Purchases will not be made on margin, except for any short-term
credits that are necessary for the clearance of transactions and
to place up to 5% of the value of its net assets in total margin
deposits for positions in futures contracts.
12. Account QB will not invest in the securities of other investment
companies, except as part of a plan of merger, consolidation or
acquisition of assets.
13. The average period of maturity (or in the case of mortgage-backed
securities, the estimated average life of cash flows) of all fixed
interest debt instruments held by Account QB will not exceed five
years.
The investments of Account QB will not be concentrated in any one
industry; that is, no more than 25% of the value of its assets will be invested
in any one industry. There is no investment policy as to Account QB's
investment in foreign securities.
PORTFOLIO TURNOVER
Brokerage costs associated with short-term debt instruments are
significantly lower than those incurred on equity investments, and thus, a high
portfolio turnover rate would not adversely affect the brokerage costs of
Account QB to the same extent as high turnover in a separate account which
invests primarily in common stock. The portfolio turnover rate for Account QB
for the years ended December 31, 1994, 1995 and 1996 was 27%, 138% and 176%,
respectively.
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<PAGE> 128
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental and may
not be changed without a vote of a majority of the outstanding voting
securities of Account TB, as defined in the 1940 Act. Account TB may not:
1. invest more than 5% of its total assets, computed at market value,
in the securities of any one issuer (exclusive of securities of
the United States Government, its agencies or instrumentalities,
for which there is no limit);
2. invest in more than 10% of any class of securities of any one
issuer;
3. invest more than 5% of the value of its total assets in companies
which have been in operation for less than three years;
4. borrow money, except to facilitate redemptions or for emergency or
extraordinary purposes and then only from banks and in amounts of
up to 10% of its gross assets computed at cost; while outstanding
according to the 1940 Act, a borrowing may not exceed one-third of
the value of the net assets, including the amount borrowed;
Account TB has no intention of attempting to increase its net
income by borrowing and all borrowings will be repaid before
additional investments are made; assets pledged to secure
borrowings shall be no more than the lesser of the amount borrowed
or 10% of the gross assets computed at cost;
5. underwrite securities, except that Account TB may purchase
securities from issuers thereof or others and dispose of such
securities in a manner consistent with its other investment
policies; in the disposition of restricted securities Account TB
may be deemed to be an underwriter, as defined in the 1933 Act;
6. purchase real estate or interests in real estate, except through
the purchase of securities of a type commonly purchased by
financial institutions which do not include direct interest in
real estate or mortgages, or commodities or commodity contracts,
except transactions involving financial futures in order to limit
transactions and borrowing costs and for hedging purposes as
discussed above;
7. invest for the primary purpose of control or management;
8. make margin purchases or short sales of securities, except for
short-term credits which are necessary for the clearance of
transactions, and to place not more than 5% of its net asset value
in total margin deposits for positions in futures contracts;
9. make loans, except that Account TB may purchase money market
securities, enter into repurchase agreements, buy publicly and
privately distributed debt securities and lend limited amounts of
its portfolio securities to brokers-dealers; all such investments
must be consistent with the investment objective and policies;
10. invest more than 25% of its total assets in the securities of
issuers in any single industry (exclusive of securities of the
United States government, its agencies or instrumentalities, for
which there is no limit); or
11. purchase the securities of any other investment company, except in
the open market and at customary brokerage rates and in no event
more than 3% of the voting securities of any investment company.
When consistent with its investment objectives, Account TB may
purchase securities of brokers, dealers, underwriters or
investment advisers. Account TB is subject to restrictions in the
sale of portfolio securities to, and in its purchase or retention
of securities of, companies in which the management personnel of
Travelers Asset Management International Corporation ("TAMIC")
have a substantial interest.
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<PAGE> 129
PORTFOLIO TURNOVER
Brokerage costs associated with debt instruments are significantly
lower than those incurred on equity investments, and thus, a high portfolio
turnover rate would not adversely affect the brokerage costs of Account TB to
the same extent as high turnover in a separate account which invests primarily
in common stock. While there is no restriction on portfolio turnover, Account
TB's turnover rate may be high since the Account is being timed by third party
investment advisory services. The portfolio turnover rate for Account TB for
the years ended December 31, 1994, 1995 and 1996 was 0%, 117% and 153%,
respectively.
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
In keeping with the objective of obtaining the highest possible
current income consistent with a high degree of liquidity and preservation of
capital, Account MM operates under the following restrictions, which
restrictions are fundamental and may not be changed without a vote of a
majority of the outstanding voting securities of Account MM, as defined in the
1940 Act. Account MM may not:
1. purchase any security which has a maturity date more than one year
from the date of the Account's purchase;
2. invest more than 25% of its assets in the securities of issuers in
any single industry (exclusive of securities issued by domestic
banks and savings and loan associations, or securities issued or
guaranteed by the United States Government, its agencies,
authorities or instrumentalities). Neither all finance companies,
as a group, nor all utility companies, as a group, are considered
a single industry for the purpose of restriction;
3. invest more than 10% of its assets in the securities of any one
issuer, including repurchase agreements with any one bank or
dealer (exclusive of securities issued or guaranteed by the United
States Government, its agencies or instrumentalities);
4. acquire more than 10% of the outstanding securities of any one
issuer (exclusive of securities issued or guaranteed by the United
States Government, its agencies or instrumentalities); however, in
accordance with Rule 2a-7 of the 1940 Act, to which the Account is
subject, the Account will not invest more than 5% of its assets in
the securities of any one issuer (other than securities issued or
guaranteed by the United States Government or its
instrumentalities);
5. borrow money, except from banks on a temporary basis in an
aggregate amount not to exceed one-third of the Account's assets
(including the amount borrowed); the borrowings may be used
exclusively to facilitate the orderly maturation and sale of
portfolio securities during any periods of abnormally heavy
redemption requests, if they should occur; such borrowings may not
be used to purchase investments and the Account will not purchase
any investment while any such borrowing exists; immediately after
the borrowing, and at all times thereafter while any borrowing is
unrepaid, there will be asset coverage of at least 300% for all
borrowings of the Account;
6. pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Account, except
as may be necessary in connection with any borrowing mentioned
above and in an aggregate amount not to exceed 5% of the Account's
assets;
7. make loans, provided that the Account may purchase money market
securities and enter into repurchase agreements;
8. (a) make investments for the purpose of exercising control; (b)
purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization; (c) invest in real estate (other than money market
securities secured by real estate or interests therein, or money
market securities issued by companies which invest in real estate
or interests therein), commodities or
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<PAGE> 130
commodity contracts, interests in oil, gas or other mineral
exploration or other development programs; (d) purchase any
securities on margin; (e) make short sales of securities or
maintain a short position or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof; (f) invest in
securities of issuers (other than agencies, authorities or
instrumentalities of the United States Government) having a
record, together with predecessors, of less than three years of
continuous operation if more than 5% of the Account's assets would
be invested in such securities; (g) purchase or retain securities
of any issuer if the officers and directors of the investment
adviser who individually own more than 0.5% of the outstanding
securities of such issuer together own more than 5% of the
securities of such issuer; or (h) act as an underwriter of
securities;
9. invest in securities which under the 1933 Act or other securities
laws cannot be readily disposed of with registration or which are
otherwise not readily marketable at the time of purchase,
including repurchase agreements that mature in more than seven
days, if as a result more than 10% of the value of the Account's
assets is invested in these securities. At present, the Account
has no investments in these securities and has no present
expectation of purchasing any, although it may in the future; and
10. issue senior securities.
PORTFOLIO TURNOVER
A portfolio turnover rate is not applicable to Account MM which
invests only in money market instruments.
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
In keeping with the objective of obtaining the highest possible
current income consistent with a high degree of liquidity and preservation of
capital, Account TSB operates under the following restrictions, which
restrictions are fundamental and may not be changed without a vote of a
majority of the outstanding voting securities of Account TSB, as defined in the
1940 Act. Account TSB may not:
1. purchase any security which has a maturity date more than three
years from the date such security was purchased;
2. invest more than 25% of its assets in the securities of issuers in
any single industry (exclusive of securities issued by domestic
banks and savings and loan associations, or securities issued or
guaranteed by the United States Government, its agencies,
authorities or instrumentalities); neither all finance companies,
as a group, nor all utility companies, as a group, are considered
a single industry for the purpose of restriction;
3. invest more than 10% of its assets in the securities of any one
issuer, including repurchase agreements with any one bank or
dealer (exclusive of securities issued or guaranteed by the United
States Government, its agencies or instrumentalities);
4. acquire more than 10% of the outstanding securities of any one
issuer (exclusive of securities issued or guaranteed by the United
States Government, its agencies or instrumentalities);
5. borrow money, except from banks on a temporary basis in an
aggregate amount not to exceed one-third of the Account's assets
(including the amount borrowed); the borrowings may be used
exclusively to facilitate the orderly maturation and sale of
portfolio securities during any periods of abnormally heavy
redemption requests, if they should occur; such borrowings may not
be used to purchase investments and the Account will not purchase
any investment while any such borrowing exists; immediately after
the
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<PAGE> 131
borrowing, and at all times thereafter while any borrowing is
unrepaid, there will be asset coverage of at least 300% for all
borrowings of the Account;
6. pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Account, except
as may be necessary in connection with any borrowing mentioned
above and in an aggregate amount not to exceed 5% of the Account's
assets;
7. make loans, provided that the Account may purchase money market
securities and enter into repurchase agreements;
8. (a) make investments for the purpose of exercising control; (b)
purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization; (c) invest in real estate (other than money market
securities secured by real estate or interests therein, or money
market securities issued by companies which invest in real estate
or interests therein), commodities or commodity contracts,
interests in oil, gas or other mineral exploration or other
development programs; (d) purchase any securities on margin; (e)
make short sales of securities or maintain a short position or
write, purchase or sell puts, calls, straddles, spreads or
combinations thereof; (f) invest in securities of issuers (other
than agencies, authorities or instrumentalities of the United
States Government) having a record, together with predecessors, of
less than three years of continuous operation if more than 5% of
the Account's assets would be invested in such securities; (g)
purchase or retain securities of any issuer if the officers and
directors of the investment adviser who individually own more than
0.5% of the outstanding securities of such issuer together own
more than 5% of the securities of such issuer; or (h) act as an
underwriter of securities;
9. invest in securities which under the 1933 Act or other securities
laws cannot be readily disposed of with registration or which are
otherwise not readily marketable at the time of purchase,
including repurchase agreements that mature in more than seven
days, if as a result more than 10% of the value of the Account's
assets is invested in these securities. At present, the Account
has no investments in these securities and has no present
expectation of purchasing any, although it may in the future; and
10. issue senior securities.
PORTFOLIO TURNOVER
Brokerage costs associated with short-term debt instruments are
significantly lower than those incurred on equity investments, and thus, a high
portfolio turnover rate would not adversely affect the brokerage costs of
Account TSB to the same extent as high turnover in a separate account which
invests primarily in common stock. While there is no restriction on portfolio
turnover, Account TSB's turnover rate may be high since the Account is being
timed by third party investment advisory services.
A portfolio turnover rate is not applicable to Account TSB which invests only
in short-term instruments.
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT
TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS
WRITING COVERED CALL OPTIONS
Accounts GIS, TGIS, TAS and TB may write covered call options on
portfolio securities for which call options are available and which are listed
on a national securities exchange. These call options generally will be
short-term contracts with a duration of nine months or less.
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The Accounts will write only "covered" call options, that is, they
will own the underlying securities which are acceptable for escrow when they
write the call option and until the obligation to sell the underlying security
is extinguished by exercise or expiration of the call option, or until a call
option covering the same underlying security and having the same exercise price
and expiration date is purchased. The Accounts will receive a premium for
writing a call option, but give up, until the expiration date, the opportunity
to profit from an increase in the underlying security's price above the
exercise price. The Accounts will retain the risk of loss from a decrease in
the price of the underlying security. Writing covered call options is a
conservative investment technique which is believed to involve relatively
little risk, but which is capable of enhancing an Account's total returns.
The premium received for writing a covered call option will be
recorded as a liability in each Account's Statement of Assets and Liabilities.
This liability will be adjusted daily to the option's current market value,
which will be the latest sale price at the close of the New York Stock
Exchange, or, in the absence of such sale, at the latest bid quotation. The
liability will be extinguished upon expiration of the option, the purchase of
an identical option in a closing transaction, or delivery of the underlying
security upon exercise of the option.
The Options Clearing Corporation is the issuer of, and the obligor on,
the covered call options written by the Accounts. In order to secure an
obligation to deliver to the Options Clearing Corporation the underlying
security of a covered call option, the Accounts will be required to make escrow
arrangements.
In instances where the Accounts believe it is appropriate to close a
covered call option, they can close out the previously written call option by
purchasing a call option on the same underlying security with the same exercise
price and expiration date. The Accounts may also, under certain circumstances,
be able to transfer a previously written call option.
A previously written call option can be closed out by purchasing an
identical call option only on a national securities exchange which provides a
secondary market in the call option. There is no assurance that a liquid
secondary market will exist for a particular call option at such time. If the
Accounts cannot effect a closing transaction, they will not be able to sell the
underlying security while the previously written option remains outstanding,
even though it might otherwise be advantageous to do so.
If a substantial number of the call options are exercised, the
Accounts' rates of portfolio turnover may exceed historical levels. This would
result in higher brokerage commissions in connection with the writing of
covered call options and the purchase of call options to close out previously
written options. Such brokerage commissions are normally higher than those
applicable to purchases and sales of portfolio securities.
BUYING PUT AND CALL OPTIONS
Accounts GIS, TGIS and TAS may purchase put options on securities
held, or on futures contracts whose price volatility is expected to closely
match that of securities held, as a defensive measure to preserve contract
owners' capital when market conditions warrant. The Accounts may purchase call
options on specific securities, or on futures contracts whose price volatility
is expected to closely match that of securities, eligible for purchase by the
Accounts, in anticipation of or as a substitute for the purchase of the
securities themselves. These options may be listed on a national exchange or
executed "over-the-counter" with a broker-dealer as the counterparty. While the
investment advisers anticipate that the majority of option purchases and sales
will be executed on a national exchange, put or call options on specific
securities or for non-standard terms are likely to be executed directly with a
broker-dealer when it is advantageous to do so. Option contracts will be
short-term in nature, generally less than nine months.
The Accounts will pay a premium in exchange for the right to purchase
(call) or sell (put) a specific number of shares of an equity security or
futures contract at a specified price (the strike price) on or before the
expiration date of the options contract. In either case, each Account's risk is
limited to the option premium paid.
The Accounts may sell the put and call options prior to their
expiration and realize a gain or loss thereby. A call option will expire
worthless if the price of the related security is below the contract strike
price at the time of expiration; a put option will expire worthless if the
price of the related security is above the contract strike price at the time of
expiration.
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Put and call options will be employed for bona fide hedging purposes
only. Liquid securities sufficient to fulfill the call option delivery
obligation will be identified and segregated in an account; deliverable
securities sufficient to fulfill the put option obligation will be similarly
identified and segregated. In the case of put options on futures contracts,
portfolio securities whose price volatility is expected to match that of the
underlying futures contract will be identified and segregated.
FUTURES CONTRACTS
STOCK INDEX FUTURES
Accounts GIS, TGIS and TAS will invest in stock index futures. A stock
index futures contract provides for one party to take and the other to make
delivery of an amount of cash over the hedging period equal to a specified
amount times the difference between a stock index value at the close of the
last trading day of the contract or the selling price and the price at which
the futures contract is originally struck. The stock index assigns relative
values to the common stocks included in the index and reflects overall price
trends in the designated market for equity securities. Therefore, price changes
in a stock index futures contract reflect changes in the specified index of
equity securities on which the futures contract is based. Stock index futures
may also be used, to a limited extent, to hedge specific common stocks with
respect to market (systematic) risk (involving the market's assessment of
overall economic prospects) as distinguished from stock-specific risk
(involving the market's evaluation of the merits of the issuer of a particular
security). By establishing an appropriate "short" position in stock index
futures, the Accounts may seek to protect the value of their equity securities
against an overall decline in the market for equity securities. Alternatively,
in anticipation of a generally rising market, the Accounts can seek to avoid
losing the benefit of apparently low current prices by establishing a "long"
position in stock index futures and later liquidating that position as
particular equity securities are in fact acquired. None of the Accounts will be
a hedging fund; however, to the extent that any hedging strategies actually
employed are successful, the Accounts will be affected to a lesser degree by
adverse overall market price movements unrelated to the merits of specific
portfolio equity securities than would otherwise be the case. Gains and losses
on futures contracts employed as hedges for specific securities will normally
be offset by losses or gains, respectively, on the hedged security.
INTEREST RATE FUTURES
Accounts TGIS, TAS, QB and TB may purchase and sell futures contracts
on debt securities ("interest rate futures") to hedge against anticipated
changes in interest rates that might otherwise have an adverse effect upon the
value of an Account's debt securities. An interest rate futures contract is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
debt securities having a standardized face value and rate of return.
By purchasing interest rate futures (assuming a "long" position) the
Accounts will be legally obligated to accept the future delivery of the
underlying security and pay the agreed price. This would be done, for example,
when the Account intends to purchase particular debt securities when it has the
necessary cash, but expects the rate of return available in the securities
markets at that time to be less favorable than rates currently available in the
futures markets. If the anticipated rise in the price of the debt securities
should occur (with its concurrent reduction in yield), the increased cost of
purchasing the securities will be offset, at least to some extent, by the rise
in the value of the futures position taken in anticipation of the securities
purchase.
By selling interest rate futures held by it, or interest rate futures
having characteristics similar to those held by it (assuming a "short"
position), the Account will be legally obligated to make the future delivery of
the security against payment of the agreed price. Such a position seeks to
hedge against an anticipated rise in interest rates that would adversely affect
the value of the Account's portfolio debt securities.
Open futures positions on debt securities will be valued at the most
recent settlement price, unless such price does not appear to the Board of
Managers to reflect the fair value of the contract, in which case the positions
will be valued at fair value determined in good faith by or under the direction
of the Board of Managers.
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Hedging by use of interest rate futures seeks to establish, with more
certainty than would otherwise be possible, the effective rate of return on
portfolio securities. When hedging is successful, any depreciation in the value
of portfolio securities will substantially be offset by appreciation in the
value of the futures position.
FUTURES MARKETS AND REGULATIONS
When a futures contract is purchased, the Accounts will set aside, in
an identifiable manner, an amount of cash and cash equivalents equal to the
total market value of the futures contract, less the amount of the initial
margin. The Accounts will incur brokerage fees in connection with their futures
transactions, and will be required to deposit and maintain funds with brokers
as margin to guarantee performance of future obligations.
Positions taken in the futures markets are not normally held to
maturity, but instead are liquidated through offsetting transactions which may
result in a profit or a loss. Closing out an open futures contract sale or
purchase is effected by entering into an offsetting futures contract purchase
or sale, respectively, for the same aggregate amount of the stock index or
interest rate futures contract and the same delivery date. If the offsetting
purchase price is less than the original sale price, the Accounts realize a
gain; if it is more, the Accounts realize a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Accounts realize a
gain; if less, a loss. While futures positions taken by the Accounts will
usually be liquidated in this manner, the Accounts may instead make or take
delivery of the underlying securities whenever it appears economically
advantageous for them to do so. In determining gain or loss, transaction costs
must also be taken into account. There can be no assurance that the Accounts
will be able to enter into an offsetting transaction with respect to a
particular contract at a particular time.
A clearing corporation associated with the exchange on which futures
are traded guarantees that the sale and purchase obligations will be performed
with regard to all positions that remain open at the termination of the
contract.
All stock index and interest rate futures will be traded on exchanges
that are licensed and regulated by the Commodity Futures Trading Commission
("CFTC"). Stock index futures are currently traded on the New York Futures
Exchange and the Chicago Mercantile Exchange. Interest rate futures are
actively traded on the Chicago Board of Trade and the International Monetary
Market at the Chicago Mercantile Exchange.
The investment advisers do not believe any of the Accounts to be a
"commodity pool" as defined under the Commodity Exchange Act. The Accounts will
only enter into futures contracts for bona fide hedging or other appropriate
risk management purposes as permitted by CFTC regulations and interpretations,
and subject to the requirements of the Securities and Exchange Commission. The
Accounts will not purchase or sell futures contracts for which the aggregate
initial margin exceeds five percent (5%) of the fair market value of their
individual assets, after taking into account unrealized profits and unrealized
losses on any such contracts which they have entered into. The Accounts will
further seek to assure that fluctuations in the price of any futures contracts
that they use for hedging purposes will be substantially related to
fluctuations in the price of the securities which they hold or which they
expect to purchase, although there can be no assurance that the expected result
will be achieved.
SPECIAL RISKS
While certain futures contracts may be purchased and sold to reduce
certain risks, these transactions may entail other risks. Thus, while the
Accounts may benefit from the use of such futures, unanticipated changes in
stock price movements or interest rates may result in a poorer overall
performance for the Account than if it had not entered into such futures
contracts. Moreover, in the event of an imperfect correlation between the
futures position and the portfolio position which is intended to be protected,
the desired protection may not be obtained and the Accounts may be exposed to
risk of loss. The investment advisers will attempt to reduce this risk by
engaging in futures transactions, to the extent possible, where, in their
judgment, there is a significant correlation between changes in the prices of
the futures contracts and the prices of any portfolio securities sought to be
hedged.
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In addition to the possibility that there may be a less than perfect
correlation between movements in the futures contracts and securities in the
portfolio being hedged, the prices of futures contracts may not correlate
perfectly with movements in the underlying security due to certain market
distortions. First, rather than meeting variation margin deposit requirements
should a futures contract value move adversely, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Second, since margin
requirements in the futures market are less onerous than in the securities
market, the futures market may attract more speculators than the securities
market. Increased participation by speculators may cause temporary price
distortions. Due to the possibility of such price distortion, and also because
of the imperfect correlation discussed above, even a correct forecast of
general market trends by the investment advisers may not result in a successful
hedging transaction in the futures market over a short time period. However, as
is noted above, the use of financial futures by the Accounts is intended
primarily to limit transaction and borrowing costs. At no time will the
Accounts use financial futures for speculative purposes.
Successful use of futures contracts for hedging purposes is also
subject to the investment advisers' ability to predict correctly movements in
the direction of the market. However, the investment advisers believe that over
time the value of the Accounts' portfolios will tend to move in the same
direction as the market indices which are intended to correlate to the price
movements of the portfolio securities sought to be hedged.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less, such as bank certificates of deposit, bankers' acceptances,
commercial paper (including master demand notes), and obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for
the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to
maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of United States banks which have at least $1 billion in deposits
as of the date of their most recently published financial statements (including
foreign branches of U.S. banks, U.S. branches of foreign banks which are
members of the Federal Reserve System or the Federal Deposit Insurance
Corporation).
The Accounts will not acquire time deposits or obligations issued by
the International Bank for Reconstruction and Development, the Asian
Development Bank or the Inter-American Development Bank. Additionally, the
Accounts do not currently intend to purchase such foreign securities (except to
the extent that certificates of deposit of foreign branches of U.S. banks may
be deemed foreign securities) or purchase certificates of deposit, bankers'
acceptances or other similar obligations issued by foreign banks. Additionally,
Account TSB invests in Euro Certificates of Deposit issued by banks outside of
the United States, with interest and principal paid in U.S. dollars.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or an importer to obtain a stated amount of funds to pay
for specific merchandise. The draft is then "accepted" by the bank which, in
effect, unconditionally guarantees to pay the face value of the instrument on
its maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by Accounts
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MM or TSB must have been accepted by U.S. commercial banks, including foreign
branches of U.S. commercial banks, having total deposits at the time of
purchase in excess of $1 billion, and must be payable in U.S. dollars.
COMMERCIAL PAPER RATINGS
Investments in commercial paper are limited to those rated A-1 by
Standard & Poor's Corporation and Prime-1 by Moody's Investors Service, Inc.
Commercial paper rated A-1 by S&P has the following characteristics: (1)
liquidity ratios are adequate to meet cash requirements; (2) the issuer's
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; (3) the issuer has access to at least two additional
channels of borrowing; (4) basic earnings and cash flow have an upward trend
with allowances made for unusual circumstances; and (5) the issuer's industry
is typically well established and the issuer has a strong position within the
industry.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluating the management of the issuer; (2) economic evaluation
of the issuer's industry or industries and an appraisal of speculative-type
risks which may be inherent in certain areas; (3) evaluation of the issuer's
products in relation to competition and customer acceptance; (4) liquidity; (5)
amount and quality of long-term debt; (6) trend of earnings over a period of
ten years; (7) financial strength of a parent company and the relationship
which exists with the issuer; and (8) recognition by the management of
obligations which may be present or may arise as a result of public
preparations to meet such obligations. The relative strength or weakness of the
above factors determines how the issuer's commercial paper is rated within
various categories.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements between the lender (issuer) and the borrower. Master demand
notes may permit daily fluctuations in the interest rate and daily changes in
the amounts borrowed. An Account has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full amount of the
note without penalty. Notes purchased by a separate account must permit it to
demand payment of principal and accrued interest at any time (on not more than
seven days notice) or to resell the note at any time to a third party. Master
demand notes may have maturities of more than one year, provided they specify
that (i) the account be entitled to payment of principal and accrued interest
upon not more than seven days notice, and (ii) the rate of interest on such
notes be adjusted automatically at periodic intervals which normally will not
exceed 31 days, but which may extend up to one year. Because these types of
notes are direct lending arrangements between the lender and the borrower, such
instruments are not normally traded, and there is no secondary market for these
notes, although they are redeemable and thus repayable by the borrower at face
value plus accrued interest at any time. Accordingly, the right to redeem is
dependent upon the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, the investment
adviser considers earning power, cash flow, and other liquidity ratios of the
borrower to pay principal and interest on demand. These notes, as such, are not
typically rated by credit rating agencies. Unless they are so rated, a separate
account may invest in them only if at the time of an investment the issuer
meets the criteria set forth above for commercial paper. The notes will be
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the demand notice period.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government
include a variety of Treasury securities that differ only in their interest
rates, maturities and dates of issuance. Treasury Bills have maturities of one
year or less, Treasury Notes have maturities of one to ten years, and Treasury
Bonds generally have maturities of greater than ten years at the date of
issuance.
Securities issued or guaranteed by the United States Government or its
agencies or instrumentalities include direct obligations of the United States
Treasury and securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage
Association, General Services Administration, Central Bank for
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Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration,
The Tennessee Valley Authority, District of Columbia Armory Board and Federal
National Mortgage Association.
Some obligations of United States Government agencies and
instrumentalities, such as Treasury Bills and Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the United States; others, such as securities of Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
still others, such as bonds issued by the Federal National Mortgage
Association, a private corporation, are supported only by the credit of the
instrumentality. Because the United States Government is not obligated by law
to provide support to an instrumentality it sponsors, the Accounts will invest
in the securities issued by such an instrumentality only when the investment
advisers determine that the credit risk with respect to the instrumentality
does not make the securities unsuitable investments. United States Government
securities will not include international agencies or instrumentalities in
which the United States Government, its agencies or instrumentalities
participate, such as the World Bank, the Asian Development Bank or the
Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation.
REPURCHASE AGREEMENTS
Interim cash balances may be invested from time to time in repurchase
agreements with approved counterparties. Approved counterparties are limited to
national banks or reporting broker-dealers meeting the Advisor's credit quality
standards as presenting minimal risk of default. All repurchase transactions
must be collateralized by U.S. Government securities with market value no less
than 102% of the amount of the transaction, including accrued interest.
Repurchase transactions generally mature the next business day but, in the
event of a transaction of longer maturity, collateral will be marked to market
daily and, when required, additional cash or qualifying collateral will be
required from the counterparty.
In executing a repurchase agreement, a portfolio purchases eligible
securities subject to the seller's simultaneous agreement to repurchase them on
a mutually agreed upon date and at a mutually agreed upon price. The purchase
and resale prices are negotiated with the counterparty on the basis of current
short-term interest rates, which may be more or less than the rate on the
securities collateralizing the transaction. Physical delivery or, in the case
of "book-entry" securities, segregation in the counterparty's account at the
Federal Reserve for the benefit of the Portfolio is required to establish a
perfected claim to the collateral for the term of the agreement in the event
the counterparty fails to fulfill its obligation.
As the securities collateralizing a repurchase transaction are
generally of longer maturity than the term of the transaction, in the event of
default by the counterparty on its obligation, the Portfolio would bear the
risks of delay, adverse market fluctuation and transaction costs in disposing
of the collateral.
FOREIGN BANK OBLIGATIONS
Accounts MM and TSB may invest in obligations of foreign branches of
U.S. banks or U.S. branches of foreign banks. The obligations of foreign
branches of United States banks may be general obligations of the parent bank
in addition to the issuing branch, or may be limited by the terms of a specific
obligation and by government regulation. Payment of interest and principal upon
these obligations may also be affected by governmental action in the country of
domicile of the branch (generally referred to as "sovereign risk"). In
addition, evidences of ownership of such securities may be held outside the
United States and Accounts MM and TSB may be subject to the risks associated
with the holding of such property overseas. Various provisions of federal law
governing domestic branches do not apply to foreign branches of domestic banks.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as by governmental action in the country in which the
foreign bank has its head office. In addition, there may be less publicly
available information about a United States branch of a foreign bank than about
a domestic bank.
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INVESTMENT MANAGEMENT AND ADVISORY SERVICES
The investments and administration of the separate accounts are under
the direction of the Board of Managers. The Travelers Investment Management
Company (TIMCO) furnishes investment management and advisory services to
Accounts GIS, TGIS, TSB and TAS according to the terms of written Investment
Advisory Agreements. The Investment Advisory Agreements between Account TGIS
and TIMCO and Account TSB and TIMCO, were each approved by a vote of the
variable annuity contract owners at their meeting held on April 23, 1993. The
Investment Advisory Agreement between Account GIS and TIMCO was approved by a
vote of the variable annuity contract owners at their meeting held on April 23,
1993, and amended effective May 1, 1994 by virtue of contract owner approval at
a meeting held on April 22, 1994. The Investment Advisory Agreement between
Account TAS and TIMCO was approved by a vote of the variable annuity contract
owners at their meeting held on April 23, 1993, and amended effective May 1,
1996 by virtue of contract owner approval at a meeting held on April 19, 1996.
Travelers Asset Management International Corporation (TAMIC) furnishes
investment management and advisory services to Accounts QB, MM and TB according
to the terms of written Investment Advisory Agreements. The Investment Advisory
Agreements between Account QB and TAMIC, Account MM and TAMIC, and Account TB
and TAMIC, were each approved by a vote of variable annuity contract owners at
their meeting held on April 23, 1993.
The agreements between Accounts GIS, TGIS, TSB and TAS and TIMCO, and
the agreements between Accounts QB, MM and TB and TAMIC, will all continue in
effect as described below in (3), as required by the 1940 Act. Each of the
agreements:
1. provides that for investment management and advisory services, the
Company will pay to TIMCO and TAMIC, on an annual basis, an
advisory fee based on the current value of the assets of the
accounts for which TIMCO and TAMIC act as investment advisers (see
"Advisory Fees" in the prospectus);
2. may not be terminated by TIMCO or TAMIC without the prior approval
of a new investment advisory agreement by those casting a majority
of the votes entitled to be cast and will be subject to
termination without the payment of any penalty, upon sixty days
written notice, by the Board of Managers or by a vote of those
casting a majority of the votes entitled to be cast;
3. will continue in effect for a period more than two years from the
date of its execution, only so long as its continuance is
specifically approved at least annually by a vote of a majority of
the Board of Managers, or by a vote of a majority of the
outstanding voting securities of the Accounts. In addition, and in
either event, the terms of the agreements must be approved
annually by a vote of a majority of the Board of Managers who are
not parties to, or interested persons of any party to, the
agreements, cast in person at a meeting called for the purpose of
voting on the approval and at which the Board of Managers has been
furnished the information that is reasonably necessary to evaluate
the terms of the agreements; and
4. will automatically terminate upon assignment.
ADVISORY FEES
The advisory fee for each Separate Account is described in the
prospectus.
The advisory fees paid to TIMCO by each of the Accounts during the
last three fiscal years were:
<TABLE>
<CAPTION>
ACCOUNT GIS ACCOUNT TSB ACCOUNT TGIS ACCOUNT TAS
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1994 $ 1,368,700 $ 821,532 $ 322,065 $ 279,503
1995 $ 1,700,124 $ 444,144 $ 479,029 $ 215,616
1996 $ 2,079,020 $ 267,590 $ 596,659 $ 259,403
</TABLE>
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The advisory fees paid to TAMIC by each of the Accounts during the
last three fiscal years were:
<TABLE>
<CAPTION>
ACCOUNT QB ACCOUNT MM ACCOUNT TB
<S> <C> <C> <C>
1994 $ 572,484 $ 262,326 $ 18,297
1995 $ 547,715 $ 254,985 $ 62,947
1996 $ 576,329 $ 253,092 $ 26,799
</TABLE>
TIMCO
Investment decisions for Accounts GIS, TGIS, TSB and TAS will be made
independently from each other and from any other accounts that may be or become
managed by TIMCO. If, however, accounts managed by TIMCO are simultaneously
engaged in the purchase of the same security, then available securities may be
allocated to each account and may be averaged as to price in whatever manner
TIMCO deems to be fair. In some cases, this system might adversely affect the
price or volume of securities being bought or sold by an account, while in
other cases it may produce better executions or lower brokerage rates.
BROKERAGE
Subject to approval of the Board of Managers, and in accordance with
the Investment Advisory Agreements, TIMCO will place purchase and sale orders
for portfolio securities of the Accounts through brokerage firms which it may
select from time to time with the objective of seeking the best execution by
responsible brokerage firms at reasonably competitive rates. To the extent
consistent with this policy, certain brokerage transactions may be placed with
firms which provide brokerage and research services to TIMCO, and such
transactions may be paid for at higher rates than other firms would charge. The
term "brokerage and research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities for purchasers or sellers of securities;
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). These brokerage and research
services may be utilized in providing investment advice to Accounts GIS, TGIS,
TSB and TAS, and may also be utilized in providing investment advice and
management to all accounts over which TIMCO exercises investment discretion,
but not all of such services will necessarily be utilized in providing
investment advice to all accounts. This practice may be expected to result in
greater cost to the Accounts than might otherwise be the case if brokers whose
charges were based on execution alone were used for such transactions. TIMCO
believes that brokers' research services are very important in providing
investment advice to the Accounts, but is unable to give the services a dollar
value. While research services are not expected to reduce the expenses of
TIMCO, TIMCO will, through the use of these services, avoid the additional
expenses which would be incurred if it should attempt to develop comparable
information through its own staff.
Transactions in the over-the-counter market are placed with the
principal market makers unless better price and execution may be obtained
otherwise. Brokerage fees will be incurred in connection with futures
transactions, and Accounts GIS, TGIS and TAS will be required to deposit and
maintain funds with brokers as margin to guarantee performance of future
obligations.
The overall reasonableness of brokerage commissions paid is evaluated
by personnel of TIMCO responsible for trading and managing the portfolios of
Accounts GIS, TGIS, TSB and TAS by comparing brokerage firms utilized by TIMCO
to other firms with respect to the following factors: the prices paid or
received in securities transactions, speed of execution and settlement, size
and difficulty of the brokerage transactions, the financial soundness of the
firms, and the quality, timeliness and quantity of research information and
reports.
The total brokerage commissions paid by Account GIS for the fiscal
years ended December 31, 1994, 1995 and 1996 were $991,682, $866,658 and
$890,690, respectively. For the fiscal year ended December 31, 1996, portfolio
transactions in the amount of $658,047,320 were directed to certain brokers
because of research services, of which $790,252 was paid in commissions with
respect to these transactions. Commissions in the amount of $60,239
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and $65,045 were paid to Smith Barney Inc. and The Robinson Humphrey Company,
Inc., respectively, both affiliates of TIMCO, which equals, for each, 6.76% and
7.30% of Account GIS's aggregate brokerage commissions paid to such brokers
during 1996. The percentage of the Account GIS's aggregate dollar amount of
transactions involving the payment of commissions effected through Smith Barney
and Robinson Humphrey was 6.94% and 6.77% respectively.
The total brokerage commissions paid by Account TGIS for the fiscal
years ended December 31, 1994, 1995 and 1996 were $40,276, $260,684 and
$307,174, respectively. For the fiscal year ended December 31, 1996, portfolio
transactions in the amount of $225,598,522 were directed to certain brokers
because of research services, of which $280,001 was paid in commissions with
respect to these transactions. Commissions in the amount of $18,947and $20,350
were paid to Smith Barney Inc. and The Robinson Humphrey Company, Inc.,
respectively, both affiliates of TIMCO, which equals, for each, 6.17% and 6.62%
of Account TGIS's aggregate brokerage commissions paid to such brokers during
1996. The percentage of the Account TGIS's aggregate dollar amount of
transactions involving the payment of commissions effected through Smith Barney
and Robinson Humphrey was 6.66% and 6.44% respectively.
The total brokerage commissions paid by Account TAS for the fiscal
years ended December 31, 1994, 1995 and 1996 were $458,081, $247,733 and
$263,570, respectively. For the fiscal year ended December 31, 1996, portfolio
transactions in the amount of $137,954,485 were directed to certain brokers
because of research services, of which $232,328 was paid in commissions with
respect to these transactions. Commissions in the amount of $7,635 and $12,755
were paid to Smith Barney Inc. and The Robinson Humphrey Company, Inc.,
respectively, both affiliates of TIMCO, which equals, for each, 2.90% and 4.84%
of Account TAS's aggregate brokerage commissions paid to such brokers during
1996. The percentage of the Account TAS's aggregate dollar amount of
transactions involving the payment of commissions effected through Smith Barney
and Robinson Humphrey was 3.21% and 4.20%, respectively.
No formulas were used in placing portfolio transactions with brokers
which provided research services, and no specific amount of transactions was
allocated for research services.
TAMIC
Investment advice and management for TAMIC's clients (Accounts QB, MM
and TB) are furnished in accordance with their respective investment objectives
and policies and investment decisions for the Accounts will be made
independently from those of any other accounts managed by TAMIC. However,
securities owned by Accounts QB, MM or TB may also be owned by other clients
and it may occasionally develop that the same investment advice and decision
for more than one client is made at the same time. Furthermore, it may develop
that a particular security is bought or sold for only some clients even though
it might be held or bought or sold for other clients, or that a particular
security is bought for some clients when other clients are selling the
security. When two or more accounts are engaged in the purchase or sale of the
same security, the transactions are allocated as to amount in accordance with a
formula which is equitable to each account. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as Accounts QB, MM or TB are concerned. In other cases,
however, it is believed that the ability of the accounts to participate in
volume transactions will produce better executions for the accounts.
BROKERAGE
Subject to approval of the Board of Managers, it is the policy of
TAMIC, in executing transactions in portfolio securities, to seek best
execution of orders at the most favorable prices. The determination of what may
constitute best execution and price in the execution of a securities
transaction by a broker involves a number of considerations, including, without
limitation, the overall direct net economic result to Accounts QB and TB,
involving both price paid or received and any commissions and other cost paid,
the efficiency with which the transaction is effected, the ability to effect
the transaction at all where a large block is involved, the availability of the
broker to stand ready to execute possible difficult transactions in the future,
and the financial strength and stability of the broker. Such considerations are
judgmental and are weighed by management in determining the overall
reasonableness of brokerage
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commissions paid. Subject to the foregoing, a factor in the selection of
brokers is the receipt of research services, analyses and reports concerning
issuers, industries, securities, economic factors and trends, and other
statistical and factual information. Any such research and other statistical
and factual information provided by brokers is considered to be in addition to
and not in lieu of services required to be performed by TAMIC under its
Investment Advisory Agreements. The cost, value and specific application of
such information are indeterminable and hence are not practicably allocable
among Accounts QB and TB and other clients of TAMIC who may indirectly benefit
from the availability of such information. Similarly, Accounts QB and TB may
indirectly benefit from information made available as a result of transactions
for such clients.
Purchases and sales of bonds and money market instruments will usually
be principal transactions and will normally be purchased directly from the
issuer or from the underwriter or market maker for the securities. There
usually will be no brokerage commissions paid for such purchases. Purchases
from the underwriters will include the underwriting commission or concession,
and purchases from dealers serving as market makers will include the spread
between the bid and asked prices. Where transactions are made in the
over-the-counter market, Accounts QB and TB will deal with primary market
makers unless more favorable prices are otherwise obtainable. Brokerage fees
will be incurred in connection with futures transactions, and Accounts QB and
TB will be required to deposit and maintain funds with brokers as margin to
guarantee performance of future obligations.
TAMIC may follow a policy of considering the sale of units of Account
QB and TB a factor in the selection of broker-dealers to execute portfolio
transactions, subject to the requirements of best execution described above.
The policy of TAMIC with respect to brokerage is and will be reviewed
by the Board of Managers periodically. Because of the possibility of further
regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be changed, modified or
eliminated.
The total brokerage commissions paid by Account QB for the fiscal
years ended December 31, 1994, 1995 and 1996 were $82,390, $549,540 and
$745,209, respectively. For the fiscal year ended December 31, 1996, no
portfolio transactions were directed to certain brokers because of research
services. No commissions were paid to broker dealers affiliated with TAMIC.
The total brokerage commissions paid by Account TB for the fiscal
years ended December 31, 1994, 1995 and 1996 were $46,680, $65,596 and $75,437,
respectively. For the fiscal year ended December 31, 1996, no portfolio
transactions were directed to certain brokers because of research services.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Managers, TAMIC is
responsible for the investment decisions and the placement of orders for
portfolio transactions of Account MM. Portfolio transactions occur primarily
with issuers, underwriters or major dealers in money market instruments acting
as principals. Such transactions are normally on a net basis and do not involve
payment of brokerage commissions. The cost of securities purchased from an
underwriter usually includes a commission paid by the issuer to the
underwriter, and transactions with dealers normally reflect the spread between
the bid and asked prices. TAMIC seeks to obtain the best net price and most
favorable execution of orders for the purchase and sale of portfolio
securities.
VALUATION OF ASSETS
The value of the assets of each funding option is determined on each
business as of the close of the New York Stock Exchange. Each security traded
on a national securities exchange is valued at the last reported sale price on
the business day. If there has been no sale on that day, then the value of the
security is taken to be the mean between the reported bid and asked prices on
the business day or on the basis of quotations received from a reputable broker
or any other recognized source.
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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 value 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.
NET INVESTMENT FACTOR
THE CONTRACT VALUE: The value of an Accumulation Unit on any business day is
determined by multiplying the value on the immediately preceding business day
by the net investment factor for the valuation period just ended. The net
investment factor is used to measure the investment performance of an
investment alternative from one Valuation Period to the next. The net
investment factor is determined by dividing (a) by (b) and adding (c) to the
result where:
(a) is the net result of the Valuation Period's investment income
(including, in the case of assets invested in an underlying mutual
fund, distributions whose ex-dividend date occurs during the
Valuation Period), PLUS capital gains and losses (whether realized
or unrealized), LESS any deduction for applicable taxes (presently
zero);
(b) is the value of the assets at the beginning of the Valuation
Period (or, in the case of assets invested in an underlying mutual
fund, value is based on the net asset value of the mutual fund);
(c) is the net result of 1.000, LESS the Valuation Period deduction
for the insurance charge, LESS the applicable deduction for the
investment advisory fee, and in the case of Accounts TGIS, TSB,
TAS and TB, LESS the applicable deduction for market timing fees
(the deduction for the investment advisory fee is not applicable
in the case of assets invested in an Underlying Fund, since the
fee is reflected in the net asset value of the fund).
The net investment factor may be more or less than one.
ACCUMULATION UNIT VALUE. The value of an accumulation unit on any business day
is determined by multiplying the value on the preceding business day by the net
investment factor for the business day just ended. The net investment factor is
calculated for each funding option and takes into account the investment
performance, expenses and the deduction of certain expenses.
ANNUITY UNIT VALUE. An Annuity Unit Value as of any business day is equal to
(a) the value of the Annuity Unit on the preceding business day, multiplied by
(b) the corresponding net investment factor for the business day just ended,
divided by (c) the assumed net investment factor for the valuation period. (For
example, the assumed net investment factor based on an annual assumed net
investment rate of 3.0% for a valuation period of one day is 1.000081 and, for
a period of two days, is 1.000081 x 1.000081.)
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TELEPHONE TRANSFERS
A contract owner may place a transfer request by telephone. The telephone
transfer privilege is available automatically; no special election is necessary
for a contract owner to have this privilege. All transfers must be in
accordance with the terms of the Contract. Transfer instructions are currently
accepted on each business day between 9:00 a.m. and 4:00 p.m., Eastern time, at
1-800-842-8573. Once instructions have been accepted, they may not be
rescinded; however, new telephone instructions may be given the following day.
If the transfer instructions are not in good order, the Company will not
execute the transfer and will promptly notify the caller.
The Company will make a reasonable effort to record each telephone transfer
conversation, but in the event that no recording is effective or available, the
contract owner will remain liable for each telephone transfer effected.
Additionally, the Company is not liable for acting upon instructions believed
to be genuine and in accordance with the procedures described above. As a
result of this policy, the contract owner may bear the risk of loss in the
event that the Company follows instructions that prove to be fraudulent.
FEDERAL TAX CONSIDERATIONS
The following description of the federal income tax consequences under this
Contract is not exhaustive and is not intended to cover all situations. Because
of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, tax advice may be
needed by a person contemplating purchase of an annuity contract and by a
contract owner or beneficiary who may make elections under a contract. For
further information, please consult a qualified tax adviser.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions
begin by April 1st of the calendar year following the calendar year in which a
participant under a qualified plan, a Section 403(b) annuity, or an IRA attains
age 70 1/2. Distributions must also begin or be continued according to required
patterns following the death of the contract owner or the annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law funding
limits. The purchase payments receive no tax benefit, deduction or deferral,
but increases in the value of the contract are generally deferred from tax
until distribution. If a nonqualified annuity is owned by other than an
individual, however, (e.g., by a corporation), the increases in value
attributable to purchase payments made after February 28, 1986 are includable
in income annually. Furthermore, for contracts issued after April 22, 1987, all
deferred increases in value will be includable in the income of a contract
owner when the contract owner transfers the contract without adequate
consideration.
If two or more annuity contracts are purchased from the same insurer within
the same calendar year, distributions from any of them will be taxed based upon
the amount of income in all of the same calendar year series of annuities. This
will generally have the effect of causing taxes to be paid sooner on the
deferred gain in the contracts.
Those receiving partial distributions made before the maturity date will
generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035
of the Code may be withdrawn first without income tax liability. This
information on deposits must be provided to the Company by the other insurance
company at the time of the exchange. There is income in the contract generally
to the extent the cash value exceeds the investment in the contract. The
investment in the contract is equal to the amount of premiums paid less any
amount received previously which was excludable from gross income. Any direct
or indirect borrowing against the value of the contract or pledging of the
contract as security for a loan will be treated as a cash distribution under
the tax law.
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The federal tax law requires that nonqualified annuity contracts meet
minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the Company in
accordance with these rules and the Company will make a notification when
payments should be commenced.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000 per
individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). There are certain limits on the deductible amount
based on the adjusted gross income of the individual and spouse and based on
their participation in a retirement plan. If an individual is married and the
spouse does not have earned income, the individual may establish IRAs for the
individual and spouse. Purchase payments may then be made annually into IRAs
for both spouses in the maximum amount of 100% of earned income up to a
combined limit of $4,000.
The Code provides for the purchase of a Simplified Employee Pension (SEP)
plan. A SEP is funded through an IRA with an annual employer contribution limit
of 15% of compensation up to $30,000 for each participant.
SIMPLE Plan IRA Form
Effective January 1, 1997, employers may establish a savings incentive match
plan for employees ("SIMPLE plan") under which employees can make elective
salary reduction contributions to an IRA based on a percentage of compensation
of up to $6,000. (Alternatively, the employer can establish a SIMPLE cash or
deferred arrangement under IRS Section 401(k)). Under a SIMPLE plan IRA, the
employer must either make a matching contributionof 100% on the first 3% or 7%
contribution for all eligible employes. Early withdrawals are subject to the
10% early withdrawal penalty generally applicable to IRAs, except that an early
withdrawal by an employee under a SIMPLE plan IRA, within the first two years
of participation, shall be subject to a 25% early withdrawal tax.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, purchase
payments made by an employer are not currently taxable to the participant and
increases in the value of a contract are not subject to taxation until received
by a participant or beneficiary.
Distributions are taxable to the participant or beneficiary as ordinary
income in the year of receipt. Any distribution that is considered the
participant's "investment in the contract" is treated as a return of capital
and is not taxable. Certain lump-sum distributions may be eligible for special
forward averaging tax treatment for certain classes of individuals.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will
be subject to federal income tax withholding as follows:
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR ARRANGEMENTS OR
FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that are not
directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or life
expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of ten
years or more, payable at least annually, or
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(c) a minimum required distribution as defined under the tax law is taken after
the attainment of the age of 701/2 or as otherwise required by law.
A distribution including a rollover that is not a direct rollover will be
subject to the 20% withholding, and a 10% additional tax penalty may apply to
any amount not added back in the rollover. The 20% withholding may be recovered
when the participant or beneficiary files a personal income tax return for the
year if a rollover was completed within 60 days of receipt of the funds, except
to the extent that the participant or spousal beneficiary is otherwise
underwithheld or short on estimated taxes for that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income will be
subject to federal income tax withholding, if the aggregate distributions
exceed $200 for the year, unless the recipient elects not to have taxes
withheld. If no such election is made, 10% of the taxable distribution will be
withheld as federal income tax. Election forms will be provided at the time
distributions are requested. This form of withholding applies to all annuity
programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution which constitutes taxable income will
be subject to federal income tax withholding under the wage withholding tables
as if the recipient were married claiming three exemptions. A recipient may
elect not to have income taxes withheld or have income taxes withheld at a
different rate by providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of withholding
applies to all annuity programs. As of January 1, 1997, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $14,850 or less per year, will generally be exempt from periodic
withholding.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, U.S citizens residing outside of the country, or U.S. legal
residents temporarily residing outside the country, are not permitted to elect
out of withholding.
PERFORMANCE DATA
YIELD QUOTATIONS OF ACCOUNT MM
Yield quotations of Account MM are calculated using the base period
return for a seven-day period. The base period return is calculated using a
hypothetical pre-existing account having a balance of one accumulation unit at
the beginning of the period; base period return per accumulation unit is equal
to accrued interest on portfolio securities plus or minus amortized purchase
discount or premium less all accrued expenses for investment advisory fees and
mortality and expense guarantees, and less a pro rata portion of the contract
administrative charge (calculated in the manner described under "Average Annual
Total Return" below), divided by the accumulation unit value at the beginning
of the period. Realized capital gains or losses and unrealized appreciation or
depreciation of the portfolio are not included in the base period return, but
are included in accumulation unit values.
Current yield is equal to the base period return multiplied by 365,
and the result divided by 7. The current yield for Account MM for the seven-day
period ended December 31, 1996 was 3.98%.
Effective yield, which includes the effects of compounding, is equal
to the sum of 1 plus the base period return, raised to a power equal to 365
divided by 7, minus 1. The effective yield for Account MM for the seven-day
period ended December 31, 1996 was 4.06%.
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These quotations do not reflect a deduction for any applicable
surrender charge. If the surrender charge was included, yield and effective
yield would be reduced.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS OF ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS,
TB AND FUND U
STANDARDIZED METHOD. Quotations of average annual total return are
computed according to a formula in which a hypothetical initial investment of
$1,000 is applied to an Investment Alternative, and then related to ending
redeemable values over one-, five-and ten-year periods (or fractional portions
thereof). The quotations reflect the deduction of all recurring charges during
each period (on a pro rata basis in the case of fractional periods). The
deduction for the semiannual administrative charge ($15) is converted to a
percentage of assets based on the actual fee collected, divided by the average
net assets per contract sold under the Prospectus to which this Statement of
Additional Information relates. Each quotation assumes a total redemption at
the end of each period with the assessment of any applicable surrender charge
at that time. For Underlying Funds that were in existence prior to the date
they became available under Fund U, average annual total return calculations
may include periods prior to their availability under Fund U. Such returns will
be calculated by adjusting the actual returns of the underlying funds to
reflect the charges that would have been assessed under Fund U had the
underlying fund been available under Fund U during that period. For Accounts
TGIS, TSB, TAS and TB, market timing fees are included in expenses in the
calculation of performance for periods on or after May 1, 1990, the date on
which the market timing fee became a charge against the daily assets of the
timed accounts. The performance for periods prior to May 1, 1990 does not
reflect the deduction of the market timing fee.
NONSTANDARDIZED METHOD. Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and
Fund U may also show the percentage change in the value of an Accumulation Unit
based on the performance of the Account over a period of time, usually for the
calendar year-to-date, and for the past one- , three- , five- and seven-year
periods, determined by dividing the increase (decrease) in value for that unit
by the Accumulation Unit Value at the beginning of the period. This percentage
figure will reflect the deduction of any asset based charges under the
contracts, but will not reflect the deduction of the semiannual administrative
charge or surrender charge. The deduction of the semi-annual administrative
charge or surrender charge would reduce any percentage increase or make greater
any percentage decrease. For Underlying Funds that were in existence prior to
the date they became available under Fund U, the percentage change in the value
of an accumulation unit based on the performance of Fund U over a period of
time may include periods prior to their availability under Fund U. Such returns
will be calculated by adjusting the actual returns of the underlying funds to
reflect the charges that would have been assessed under Fund U had the
underlying fund been available under Fund U during that period.
TOTAL RETURN QUOTATIONS FOR TIMED ACCOUNTS. Because Accounts TGIS,
TSB, TAS and TB are primarily available to Contract Owners who have entered
into third party market timing services agreements, the Accounts may experience
wide fluctuations in assets over a given time period. Consequently, performance
data computed according to both the standardized and nonstandardized methods
for Accounts TGIS, TSB, TAS and TB may not always be useful in evaluating the
performance of these Accounts. In addition, performance data for Accounts TGIS,
TSB, TAS and TB alone will not generally be useful to the purchase of
evaluating the performance of a market timing strategy that uses these
Accounts.
GENERAL. Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. Advertisements may include data
comparing performance to well-known indices of market performance (including,
but not limited to, the Dow Jones Industrial Average, the Standard & Poor's
(S&P) 500 Index, and the S&P 400 Index, the Lehman Brothers Long T-Bond Index,
the Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan
Stanley Capital International's EAFE Index). Advertisements may also include
published editorial comments and performance rankings compiled by independent
organizations (including, but not limited to, Lipper Analytical Services, Inc.
and Morningstar, Inc.) and publications that monitor the performance of
separate accounts and mutual funds.
Average annual total returns of each Separate Account computed
according to the standardized and non-standardized methods for the periods
ended December 31, 1996 are set forth in the following table.
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<TABLE>
<CAPTION>
STANDARDIZED NON-STANDARDIZED INCEPTION
1 YEAR 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS DATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Account GIS 16.18% 11.08% 11.45% 21.37% 17.52% 12.02% 11.77% 5/83
Account QB -1.79% 4.81% 6.46% 3.38% 4.92% 5.90% 6.77% 5/83
Account MM -1.24% 1.84% 4.32% 3.94% 3.71% 3.03% 4.62% 5/83
Account TGIS 14.84% 9.60% 11.43%* 20.03% 15.21% 10.57% 11.76%* 11.76%
Account TSB(1) -3.10% 0.35% 3.17%* 2.07% 2.19% 1.59% 3.43%* 11/87
Account TAS 11.24% 10.96% 10.84%* 16.43% 12.60% 11.90% 11.14%* 11/87
Account TB -15.52% 1.32% 1.99%* -10.92% -0.05% 2.52% 2.31%* 11/87
FUND U **--
Managed Assets Trust 7.17% 7.81% 9.45% 12.36% 10.36% 8.83% 9.76%
High Yield Bond Trust 9.42% 8.92% 6.90% 14.60% 8.43% 9.91% 7.21% 5/83
Capital Appreciation Fund(2) 21/40% 15.32% 11.13% 26.60% 17.04% 16.18% 11.44% 5/83
U.S. Government Securities -4.99% 4.73%* % 0.18% 4.70% 5.83% -- 1/92
Portfolio
Social Awareness Stock 13.28% 11.46%* % 18.47% 14.50% 12.46%* -- 5/92
Portfolio
Utilities Portfolio 0.95% 9.57%* % 6.12% 11.23%* -- -- 2/94
Templeton Bond Fund 2.90% 4.63% 6.38%* 8.08% 4.84% 5.73% 6.66%* 8/88
Templeton Stock Fund 15.70% 14.23% 11.78%* 20.89% 13.04% 15.11% 12.08%* 8/88
Templeton Asset Allocation Fund 12.19% 11.66% 10.62%* 17.38% 10.83% 12.59% 10.92%* 8/88
Fidelity VIP High Income Portfolio 7.43% 12.63% 9.43% 12.61% 9.26% 13.53% 9.74% 9/85
Fidelity VIP Equity-Income Portfolio 7.67% 15.65% 12.01% 12.85% 16.76% 16.51% 12.32% 10/86
Fidelity VIP Growth Portfolio 8.08% 12.84% 13.41% 13.27% 14.35% 13.74% 13.73% 10/86
Fidelity VIP II Asset Manager Portfolio 7.99% 8.88% 10.01%* 13.17% 6.63% 9.87% 10.30%* 9/89
Dreyfus Stock Index Fund 15.81% 12.29% 11.96%* 21.00% 17.65% 13.21% 12.26%* 9/89
American Odyssey Core Equity Fund 16.42% 13.33%* -- 21.61% 17.61% 14.56%* -- 5/93
American Odyssey Emerging -9.29% 9.54%* -- -4.36% 10.60% 10.85%* -- 5/93
Opportunities Fund
American Odyssey International Equity 15.16% 11.08%* -- 20.36% 9.12% 12.36%* -- 5/93
Fund
American Odyssey Long-Term Bond -5.12% 4.15%* -- 0.04% 4.04% 5.60%* -- 5/93
Fund
American Odyssey Intermediate-Bond -2.54% 2.57%* -- 2.63% 3.81% 4.06%* -- 5/93
Fund
American Odyssey Short-Term Bond -2.68% 1.84%* -- 2.49% 3.44% 3.36%* 5/93
Fund --
American Odyssey Core Equity 14.91% 11.94%* -- 20.10% 16.15% 13..20% --
Fund*** *
American Odyssey Emerging -10.42% 8.19%* -- -5.55% 9.23% 9.54%* --
Opportunities Fund***
American Odyssey 13.67% 9.72%* -- 18.86% 7.77% 11.02%* --
International Equity Fund***
American Odyssey Long-Term Bond -6.30% 2.86%* -- -1.21% 2.74% 4.35%* --
Fund***
American Odyssey Intermediate-Bond -3.81% 1.29%* -- 1.36% 2.52% 2.83%* --
Fund***
American Odyssey Short-Term Bond -3.95% 0.58% -- 1.22% 2.15% 2.13%* --
Fund***
Smith Barney Income and Growth 13.12% 6.35%* -- 18.31% 18.13%* -- -- 6/94
Portfolio
Alliance Growth Portfolio 22.57% 23.92%* -- 27.77% 25.57%* -- -- 6/94
Smith Barney International Equity 11.00% 6.12%* -- 16.18% 8.11%* -- -- 6/94
Portfolio
Putnam Diversified Income Portfolio 1.71% 7.21%* -- 6.89% 9.17%* -- -- 6/94
Smith Barney High Income Portfolio 6.57% 8.48%* -- 11.75% 10.42%* -- -- 6/94
MFS Total Return Portfolio 7.84% 1.45%* -- 13.02% 13.32%* -- -- 6/94
</TABLE>
* Since inception date.
** For those Fund U sub-accounts that invest in underlying funds that were in
existence prior to the date on which the underlying fund became available under
the Contract, performance figures represent actual returns of the underlying
funds, adjusted to reflect the charges that would have been assessed had those
underlying funds been offered under Fund U during the entire period shown.
***The CHART Fees are reflected in these performance figures.
(1) Formerly The Travelers Timed Money Market Account for Variable Annuities
(Account TMM).
(2) Formerly Aggressive Stock Trust.
26
<PAGE> 148
THE BOARD OF MANAGERS
The investments and administration of each of the Separate Accounts
are under the direction of the Board of Managers, listed below. Members of the
Board of Managers of Accounts GIS, QB, MM, TGIS, TSB, TAS and TB are elected
annually by those Contract Owners participating in the Separate Accounts. A
majority of the members of the Board of Managers are persons who are not
affiliated with The Travelers Insurance Company, TIMCO, TAMIC or their
affiliates.
<TABLE>
<CAPTION>
Name Present Position and Principal Occupation During Last Five Years
---- ----------------------------------------------------------------
<S> <C>
*Heath B. McLendon Managing Director (1993-present), Smith Barney Inc. ("Smith Barney");
Chairman and Member Chairman (1993-present), Smith Barney Strategy Advisors, Inc.;
388 Greenwich Street President (1994-present), Smith Barney Mutual Funds Management Inc.;
New York, New York Chairman and Director of forty-one investment companies associated with
Age 63 Smith Barney; Chairman, Board of Trustees, Drew University; Trustee,
The East New York Savings Bank; Advisory Director, First Empire State
Corporation; Chairman, Board of Managers, seven Variable Annuity
Separate Accounts of The Travelers Insurance Company+; Chairman, Board
of Trustees, five Mutual Funds sponsored by The Travelers Insurance
Company++; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc.
Knight Edwards Of Counsel (1988-present), Edwards & Angell, Attorneys; Member,
Member Advisory Board (1973-1994), thirty-one mutual funds sponsored by
2700 Hospital Trust Tower Keystone Group, Inc.; Member, Board of Managers, seven Variable Annuity
Providence, Rhode Island Separate Accounts of The Travelers Insurance Company+; Trustee, five
Age 73 Mutual Funds sponsored by The Travelers Insurance Company++.
Robert E. McGill, III Retired manufacturing executive. Director (1983-1995), Executive Vice
Member President (1989-1994) and Senior Vice President, Finance and
295 Hancock Street Administration (1983-1989), The Dexter Corporation (manufacturer of
Williamstown, Massachusetts specialty chemicals and materials); Vice Chairman (1990-1992), Director
Age 65 (1983-1995), Life Technologies, Inc. (life science/biotechnology
products); Director, (1994-present), The Connecticut Surety Corporation
(insurance); Director (1995-present), CN Bioscience Inc.
(life science/biotechnology products); Director (1995-present), Chemfab
Corporation (specialty materials manufacturer); Member, Board of
Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company++.
Lewis Mandell Dean, College of Business Administration (1995-present), Marquette
Member University; Professor of Finance (1980-1995) and Associate Dean
606 N. 13th Street (1993-1995), School of Business Administration, and Director, Center
Milwaukee, WI 53233 for Research and Development in Financial Services (1980-1995),
Age 54 University of Connecticut; Director (1992-present), GZA
Geoenvironmental Tech, Inc. (engineering services); Member, Board of
Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company++.
</TABLE>
27
<PAGE> 149
<TABLE>
<S> <C>
Frances M. Hawk Portfolio Manager (1992-present), HLM Management Company, Inc.
Member (investment management); Assistant Treasurer, Pensions and Benefits.
222 Berkeley Street Management (1989-1992), United Technologies Corporation (broad-based
Boston, Massachusetts designer and manufacturer of high technology products); Member, Board
Age 49 of Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company++.
Ernest J. Wright Vice President and Secretary (1996-present) Assistant Secretary (1994-1996),
Secretary to the Board Counsel (1987-present), The Travelers Insurance Company; Secretary,
One Tower Square Board of Managers, seven Variable Annuity Separate Accounts of The
Hartford, Connecticut Travelers Insurance Company+; Secretary, Board of Trustees, five
Age 56 Mutual Funds sponsored by The Travelers Insurance Company++.
Kathleen A. McGah Assistant Secretary and Counsel (1995-present), The Travelers Insurance
Assistant Secretary to the Board Company; Assistant Secretary, Board of Managers, seven Variable Annuity
One Tower Square Separate Accounts of The Travelers Insurance Company+; Assistant
Hartford, Connecticut Secretary, Board of Trustees, five Mutual Funds sponsored by The
Age 46 Travelers Insurance Company++. Prior to January 1995, Counsel, ITT
Hartford Life Insurance Company.
</TABLE>
+ These seven Variable Annuity Separate Accounts are: 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, The Travelers Timed Growth and
Income Stock Account for Variable Annuities, The Travelers Timed
Short-Term Bond Account for Variable Annuities, The Travelers Timed
Aggressive Stock Account for Variable Annuities and The Travelers
Timed Bond Account for Variable Annuities.
++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income
Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers
Series Trust. Variable Annuities.
* Mr. McLendon is an "interested person" within the meaning of the
1940 Act by virtue of his position as Managing Director of Smith Barney Inc.,
an indirect wholly owned subsidiary of Travelers Group Inc. and also owns
shares and options to purchase shares of Travelers Group Inc., the indirect
parent of The Travelers Insurance Company.
The Company is responsible for payment of the fees and expenses of the
Board of Managers, and the expenses of audit of the Separate Accounts, as well
as other expenses for services related to the operations of the accounts, for
which it deducts certain amounts from purchase payments and from the accounts.
Members of the Board of Managers who are also officers or employees of
Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members
of the Board of Managers who are not affiliated as employees of Travelers Group
Inc. or its subsidiaries receive an aggregate retainer of $19,000 for service
on the Boards of the seven Variable Annuity Separate Accounts established by
The Travelers Insurance Company and the five Mutual Funds sponsored by The
Travelers Insurance Company. They also receive an aggregate fee of $2,500 for
each meeting of such Boards attended.
28
<PAGE> 150
DISTRIBUTION AND MANAGEMENT SERVICES
Under the terms of a Distribution and Management Agreement between
each Separate Account, the Company and Tower Square Securities, Inc., the
Company provides all sales and administrative services and mortality and
expense risk guarantees related to variable annuity contracts issued by the
Company in connection with the Separate Accounts and assumes the risk of
minimum death benefits, as applicable. The Company also pays all sales costs
(including costs associated with the preparation of sales literature); all
costs of qualifying the Separate Accounts and the variable annuity contracts
with regulatory authorities; the costs of proxy solicitation; all custodian,
accountants' and legal fees; and all compensation paid to the unaffiliated
members of the Board of Managers. In addition, under the terms of the
Distribution and Management Agreements between the Company and Accounts TGIS,
TSB, TAS and TB, the Company deducts amounts necessary to pay fees to
third-party registered investment advisers which provide market timing
investment advisory services to Contract Owners in those accounts and, in turn,
pays such fees to the registered investment advisers. The Company also provides
without cost to the Separate Accounts all necessary office space, facilities,
and personnel to manage its affairs.
The Company received the following amounts from the Separate Accounts
in each of the last three fiscal years for services provided under the
Distribution and Management Agreements:
<TABLE>
<CAPTION>
SEPARATE ACCOUNT 1996 1995 1994
---------------- ---- ---- ----
<S> <C> <C> <C>
GIS $ 5,889,123 $ 4,557,639 $ 4,025,788
QB $ 2,322,938 $ 2,119,384 $ 2,156,643
MM $ 1,141,046 $ 1,122,833 $ 1,107,288
U $43,929,076 $27,747,007 $17,248,780
TGIS $ 2,727,368 $ 1,986,950 $ 1,409,471
TSB $ 1,217,057 $ 1,860,151 $ 3,525,570
TAS $ 1,196,757 $ 906,250 $ 1,238,375
TB $ 77,050 $ 179,197 $ 47,835
</TABLE>
SECURITIES CUSTODIAN
Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New
York, is the custodian of the portfolio securities and similar investments of
Accounts GIS, QB, MM, TGIS, TSB, TAS and TB.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, 100 Pearl Street,
Hartford, Connecticut, are the independent auditors for Accounts GIS, QB, MM,
TGIS, TSB, TAS, TB and Fund U. The services provided to these Separate Accounts
include primarily the audit of the Accounts' financial statements. The
financial statements for the year ended December 31, 1996 of Account GIS, QB,
MM, TGIS, TSB, TAS, TB and Fund U appear in the Annual Reports for each, which
are incorporated herein by reference. Such financial statements have been
audited by Coopers & Lybrand L.L.P., as indicated in their reports thereon in
reliance upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance
Company and Subsidiaries as of December 31, 1996 and 1995, and for each of the
years in the three-year period ended December 31, 1996, have been included
herein and in the registration statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
29
<PAGE> 151
Independent Auditors' Report
The Board of Directors and Shareholder
The Travelers Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income and retained earnings and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers
Insurance Company and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1997
12
<PAGE> 152
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $1,379 $1,496 $ 1,492
Net investment income 1,887 1,824 1,702
Realized investment gains 65 106 13
Other 298 221 199
- ---------------------------------------------------------------------------------------------------
Total revenues 3,629 3,647 3,406
- ---------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,163 1,185 1,216
Interest credited to contractholders 830 967 961
Amortization of deferred acquisition costs and
value of insurance in force 281 290 281
Other operating expenses 380 368 351
- ---------------------------------------------------------------------------------------------------
Total benefits and expenses 2,654 2,810 2,809
- ---------------------------------------------------------------------------------------------------
Income from continuing operations before
federal income taxes 975 837 597
- ---------------------------------------------------------------------------------------------------
Federal income taxes:
Current expense (benefit) 284 233 (96)
Deferred 58 57 307
- ---------------------------------------------------------------------------------------------------
Total federal income taxes 342 290 211
- ---------------------------------------------------------------------------------------------------
Income from continuing operations 633 547 386
Discontinued operations, net of income taxes
Income from operations (net of taxes of $0, $18 and $83) -- 72 150
Gain on disposition (net of taxes of $14, $68 and $18) 26 131 9
- ---------------------------------------------------------------------------------------------------
Income from discontinued operations 26 203 159
- ---------------------------------------------------------------------------------------------------
Net income 659 750 545
Retained earnings beginning of year 2,312 1,562 1,017
Dividends to parent 500 -- --
- ---------------------------------------------------------------------------------------------------
Retained earnings end of year $2,471 $2,312 $ 1,562
- ---------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 153
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(at December 31, in millions) 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $18,515; $18,187) $18,846 $18,842
Equity securities, at fair value (cost, $325; $182) 332 224
Mortgage loans 2,883 3,626
Real estate held for sale, net of accumulated depreciation of $0; $9 297 293
Policy loans 1,910 1,888
Short-term securities 891 1,554
Other investments 1,235 874
- -------------------------------------------------------------------------------------------------------
Total investments 26,394 27,301
- -------------------------------------------------------------------------------------------------------
Cash 74 73
Investment income accrued 343 338
Premium balances receivable 105 107
Reinsurance recoverables 3,858 4,107
Deferred acquisition costs and value of insurance in force 2,133 1,962
Separate and variable accounts 9,023 6,949
Other assets 1,043 1,464
- -------------------------------------------------------------------------------------------------------
Total assets $42,973 $42,301
- -------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $13,693 $14,525
Future policy benefits 11,450 11,783
Policy and contract claims 536 571
Separate and variable accounts 8,948 6,916
Commercial paper 50 73
Deferred federal income taxes 57 32
Other liabilities 1,911 2,173
- -------------------------------------------------------------------------------------------------------
Total liabilities 36,645 36,073
- -------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,170 3,134
Retained earnings 2,471 2,312
Unrealized investment gains, net of taxes 587 682
- -------------------------------------------------------------------------------------------------------
Total shareholder's equity 6,328 6,228
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $42,973 $42,301
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 154
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,387 $ 1,346 $ 1,394
Net investment income received 1,910 1,855 1,719
Other revenues received (expense paid) 131 90 (2)
Benefits and claims paid (1,060) (846) (1,115)
Interest credited to contractholders (820) (960) (868)
Operating expenses paid (343) (615) (536)
Income taxes paid (328) (63) (27)
Other (70) (137) (81)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 807 670 484
Net cash provided by (used in) discontinued operations (350) (596) 233
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operations 457 74 717
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 1,928 1,974 2,528
Mortgage loans 917 680 1,266
Proceeds from sales of investments
Fixed maturities 9,101 6,773 1,316
Equity securities 479 379 357
Mortgage loans 178 704 546
Real estate held for sale 210 253 728
Purchases of investments
Fixed maturities (11,556) (10,748) (4,594)
Equity securities (594) (305) (340)
Mortgage loans (470) (144) (102)
Policy loans, net (23) (325) (193)
Short-term securities, (purchases) sales, net 498 291 (367)
Other investments, (purchases) sales, net (137) (267) (299)
Securities transactions in course of settlement (52) 258 24
Net cash provided by (used in) investing activities of
discontinued operations 348 1,425 (261)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 827 948 609
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (redemption) of short-term debt, net (23) (1) 73
Contractholder fund deposits 2,493 2,705 1,951
Contractholder fund withdrawals (3,262) (3,755) (3,357)
Dividends to parent company (500) -- --
Return of capital to parent company -- -- (23)
Net cash provided by financing activities
of discontinued operations -- -- 84
Other 9 -- (2)
- ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,283) (1,051) (1,274)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ 1 $ (29) $ 52
- ----------------------------------------------------------------------------------------------------------
Cash at December 31 $ 74 $ 73 $ 102
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 155
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Travelers Insurance Company and Subsidiaries (the Company) is a
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIGI).
TIGI is an indirect wholly owned subsidiary of Travelers Group Inc.
(Travelers Group), a financial services holding company engaged, through
its subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Property & Casualty
Insurance Services; and (iv) Life Insurance Services (through the
Company). The periodic reports of Travelers Group provide additional
business and financial information concerning that company and its
consolidated subsidiaries.
The Company principally operates through two major business units within
its Life Insurance Services segment:
- TRAVELERS LIFE AND ANNUITY offers fixed and variable deferred
annuities, payout annuities and term, universal and variable life and
long-term care insurance to individuals and small businesses. It also
provides group pension products, including guaranteed investment
contracts and group annuities for employer-sponsored retirement and
savings plans. These products are primarily marketed through The
Copeland Companies (Copeland), an indirect, wholly owned subsidiary
of the Company, the Financial Consultants of Smith Barney Inc., an
affiliate of the Company, and a core group of approximately 500
independent agencies. The Company's Corporate and Other Segment was
absorbed into Travelers Life and Annuity during the second quarter
of 1996.
- PRIMERICA LIFE INSURANCE offers individual life products, primarily
term insurance, to consumers through a nationwide sales force of more
than 86,000 full and part-time independent representatives.
The Company sold group life and health insurance through its Managed Care
and Employee Benefits Operations segment (MCEBO) through 1994. See Note
4.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
The consolidated financial statements include the accounts of the Company
and its insurance and non-insurance subsidiaries on a fully
consolidated basis. The primary insurance subsidiaries of the Company
are: The Travelers Life and Annuity Company (TLAC), and Primerica Life
Insurance Company (Primerica Life) and its subsidiary National Benefit
Life Insurance Company (NBL).
As discussed in Note 4 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the
Company were sold to Metropolitan Life Insurance Company (MetLife) and
also in January 1995, the group medical component was exchanged for a 42%
interest in The MetraHealth Companies, Inc. (MetraHealth). The Company's
interest in MetraHealth was sold on October 2, 1995 and through that date
had been accounted for on the equity method. The Company's discontinued
operations reflect the results of the medical insurance business not
transferred, the equity interest in the earnings of MetraHealth through
October 2, 1995 (date of sale) and the gains from the sales of these
businesses. All of the businesses sold to MetLife or contributed to
MetraHealth were included in the Company's MCEBO segment in 1994. MCEBO
marketed group life and health insurance, managed health care programs
and administrative services associated with employee benefit plans.
16
<PAGE> 156
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings
Inc., which at the time was a wholly owned subsidiary of Travelers Group
and was the indirect owner of the business of Transport Life Insurance
Company (Transport Life). Immediately prior to this distribution, the
Company distributed Transport Life, an indirect wholly owned subsidiary
of the Company, to TIGI, as a return of capital.
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 benefits
and expenses during the reporting period. Actual results could differ
from those estimates.
As more fully described in Note 4, all of the operations comprising MCEBO
are presented as a discontinued operation and, accordingly, prior year
amounts have been restated.
Certain prior year amounts have been reclassified to conform with the
1996 presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if quoted
market prices are not available, discounted expected cash flows using
market rates commensurate with the credit quality and maturity of the
investment. Fixed maturities are classified as "available for sale" and
are reported at fair value, with unrealized investment gains and losses,
net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and nonredeemable preferred
stocks, are classified as "available for sale" and carried at fair value
based primarily on quoted market prices. Changes in fair values of equity
securities are charged or credited directly to shareholder's equity, net
of income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is
considered impaired when it is probable that the Company will be unable
to collect principal and interest amounts due. For mortgage loans that
are determined to be impaired, a reserve is established for the
difference between the amortized cost and fair market value of the
underlying collateral. In estimating fair value, the Company uses
interest rates reflecting the higher returns required in the current real
estate financing market. Impaired loans were insignificant at December
31, 1996 and 1995.
Real estate held for sale is carried at the lower of cost or fair value
less estimated costs to sell. Fair value of foreclosed properties is
established at time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other acceptable
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996 and 1995.
Short-term securities, consisting primarily of money market instruments
and other debt issues purchased with a maturity of less than one year,
are carried at amortized cost which approximates market.
17
<PAGE> 157
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Accrual of income, included in other assets, is suspended on fixed
maturities or mortgage loans that are in default, or on which it is
likely that future payments will not be made as scheduled. Interest
income on investments in default is recognized only as payment is
received.
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures contracts, equity options, forward contracts and interest rate
swaps and caps, as a means of hedging exposure to interest rate, equity
price and foreign currency risk. Hedge accounting is used to account for
derivatives. To qualify for hedge accounting the changes in value of the
derivative must be expected to substantially offset the changes in value
of the hedged item. Hedges are monitored to ensure that there is a high
correlation between the derivative instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to
adjust the basis of hedged investments and are recognized in net
investment income over the life of the investment.
Forward contracts, equity options, and interest rate swaps and caps were
not significant at December 31, 1996 and 1995. Information concerning
derivative financial instruments is included in Note 8.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax revenues based upon specific identification of the investments
sold on the trade date. Also included are gains and losses arising from
the remeasurement of the local currency value of foreign investments to
U.S. dollars, the functional currency of the Company. The foreign
exchange effects of Canadian operations are included in unrealized gains
and losses.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Deferred Acquisition Costs and Value of Insurance in Force
Costs of acquiring individual life insurance, annuities and health
business, principally commissions and certain expenses related to policy
issuance, underwriting and marketing, all of which vary with and are
primarily related to the production of new business, are deferred.
Acquisition costs relating to traditional life insurance, including term
insurance and guaranteed renewable health contracts, including long-term
care, are amortized in relation to anticipated premiums; universal
life in relation to estimated gross profits; and annuity contracts
employing a level yield method. For life insurance, a 10- to 25-year
amortization period is used; for guaranteed renewable health, a 10- to
20-year period, and a 10- to 20-year period is employed for annuities.
Deferred acquisition costs are reviewed periodically for recoverability
to determine if any adjustment is required.
18
<PAGE> 158
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from life
insurance, annuities and health contracts at the date of acquisition
using the same assumptions that were used for computing related
liabilities where appropriate. The value of insurance in force was the
actuarially determined present value of the projected future profits
discounted at interest rates ranging from 14% to 18%. Traditional life
insurance and guaranteed renewable health policies are amortized in
relation to anticipated premiums; universal life is amortized in relation
to estimated gross profits; and annuity contracts are amortized employing
a level yield method. The value of insurance in force is reviewed
periodically for recoverability to determine if any adjustment is
required.
Separate and Variable Accounts
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholders. Each account has
specific investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets of these accounts are carried at
market value. Certain other separate accounts provide guaranteed levels
of return or benefits and the assets of these accounts are primarily
carried at market value. Amounts assessed to the contractholders for
management services are included in revenues. Deposits, net investment
income and realized investment gains and losses for these accounts are
excluded from revenues, and related liability increases are excluded from
benefits and expenses.
Goodwill
Goodwill represents the cost of acquired businesses in excess of net
assets and is being amortized on a straight-line basis principally over a
40-year period. The carrying amount is regularly reviewed for indication
of impairment in value, which in the view of management, would be other
than temporary. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life, pension investment and certain deferred annuity contracts.
Contractholder Fund balances are increased by such receipts and credited
interest and reduced by withdrawals, mortality charges and administrative
expenses charged to the contractholders. Interest rates credited to
contractholder funds range from 3.5% to 8.6%.
19
<PAGE> 159
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Future Policy Benefits
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuities have been
computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 2.5% to
10.0%, including adverse deviation. These assumptions consider Company
experience and industry standards. The assumptions vary by plan, age at
issue, year of issue and duration. Appropriate recognition has been given
to experience rating and reinsurance.
Permitted Statutory Accounting Practices
The Company, whose insurance subsidiaries are domiciled principally in
Connecticut and Massachusetts, prepares statutory financial statements in
accordance with the accounting practices prescribed or permitted by the
insurance departments of those states. Prescribed statutory accounting
practices include certain publications of the National Association of
Insurance Commissioners as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed. The impact of any permitted
accounting practices on statutory surplus of the Company is not material.
Premiums
Premiums are recognized as revenues when due. Reserves are established
for the portion of premiums that will be earned in future periods and for
deferred profits on limited-payment policies that are being recognized in
income over the policy term.
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment, universal life and other insurance
contracts. Other revenues also include gains and losses on dispositions
of assets and operations other than realized investment gains and losses
and revenues of non-insurance subsidiaries.
Interest Credited to Contractholders
Interest credited to contractholders represents amounts earned by
universal life, pension investment and certain deferred annuity contracts
in accordance with contract provisions.
20
<PAGE> 160
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and
liabilities. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely than
not, with a valuation allowance for the portion that is not likely to be
recognized.
Future Application of Accounting Standards
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 (FAS 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on consistent
application of a financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. FAS
125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The requirements of FAS 125 are effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and are to be applied prospectively.
However, in December 1996 the FASB issued FAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," which
delays until January 1, 1998 the effective date for certain provisions.
The adoption of the provisions of this statement effective January 1,
1997 will not have a material impact on results of operations, financial
condition or liquidity and the Company is currently evaluating the impact
of the provisions whose effective date has been delayed until January 1,
1998.
3. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes accounting standards for the impairment of
long-lived assets and certain identifiable intangibles to be disposed.
This statement requires a write down to fair value when long-lived assets
to be held and used are impaired. The statement also requires that
long-lived assets to be disposed (e.g., real estate held for sale) be
carried at the lower of cost or fair value less cost to sell and does not
allow such assets to be depreciated. The adoption of this standard did
not have a material impact on the Company's results of operations,
financial condition, or liquidity.
Accounting for Stock-Based Compensation
The Company participates in a stock option plan sponsored by Travelers
Group that provides for the granting of stock options in Travelers Group
common stock to officers and key employees. The Company applies
Accounting Principles Board Opinion No. 25 (APB 25) and related
interpretations in accounting for stock options. Since stock options are
issued at fair market value on the date of award, no compensation cost
has been recognized for these awards. In October 1995, the Financial
Accounting Standards Board issued
21
<PAGE> 161
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). This statement provides an
alternative to APB 25 whereby fair values may be ascribed to options
using a valuation model and amortized to compensation cost over the
vesting period of the options. Had the Company applied FAS 123 in
accounting for stock options, net income would have been reduced by $2.8
million and $1.3 million in 1996 and 1995, respectively.
Accounting by Creditors for Impairment of a Loan
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan," and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," which describe how impaired loans should be measured
when determining the amount of a loan loss accrual. These statements
amended existing guidance on the measurement of restructured loans in a
troubled debt restructuring involving a modification of terms. Their
adoption did not have a material impact on the Company's results of
operations, financial condition, or liquidity.
4. DISPOSITIONS AND DISCONTINUED OPERATIONS
In December 1994, the Company and its affiliates sold their group dental
insurance business to MetLife for $52 million and recognized a gain of $9
million net of taxes. On January 3, 1995, the Company and its affiliates
completed the sale of their group life and related non-medical group
insurance businesses to MetLife for $350 million and recognized in the
first quarter of 1995 a gain of $20 million net of taxes. In connection
with the sale, the Company ceded 100% of its risks in the group life and
related businesses to MetLife on an indemnity reinsurance basis,
effective January 1, 1995. In connection with the reinsurance
transaction, the Company transferred assets with a fair market value of
approximately $1.5 billion to MetLife, equal to the statutory reserves
and other liabilities transferred.
On January 3, 1995, the Company and MetLife and certain of their
affiliates, formed the MetraHealth joint venture by contributing their
group medical businesses to MetraHealth, in exchange for shares of common
stock of MetraHealth. No gain was recognized as a result of this
transaction. Upon formation of the joint venture, the Company owned 42%
of the outstanding capital stock of MetraHealth, TIGI owned 8% and the
other 50% was owned by MetLife and its affiliates. In March 1995,
MetraHealth acquired HealthSpring, Inc. for common stock of MetraHealth
resulting in a reduction in the participation of the Company and TIGI,
and MetLife in the MetraHealth venture to 48.25% each. As the medical
insurance business of the Company came due for renewal, the risks were
transferred to MetraHealth and the related operating results for this
medical insurance business were reported by the Company in 1995 as part
of discontinued operations.
On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation and
through that date had accounted for its interest in MetraHealth on the
equity method. Gross proceeds to the Company in 1995 were $708 million in
cash recognizing a gain of $111 million after-tax. During 1996 the
Company received a contingency payment based on MetraHealth's 1995
results. In conjunction with this payment, certain reserves associated
with the group medical business and exit costs related to the
discontinued operations were reevaluated resulting in a final after-tax
gain of $26 million.
22
<PAGE> 162
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. DISPOSITIONS AND DISCONTINUED OPERATIONS, Continued
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's MCEBO segment in 1994. The Company's
discontinued operations in 1996 and 1995 reflect the results of the
medical insurance business not transferred, the equity interest in the
earnings of MetraHealth through October 2, 1995 (date of sale) and the
gains from sales of these businesses. Revenues from discontinued
operations for the years ended December 31, 1996, 1995 and 1994 amounted
to $85.6 million, $1.2 billion and $3.3 billion, respectively. The assets
and liabilities of the discontinued operations have not been segregated
in the consolidated balance sheet as of December 31, 1996 and 1995. The
assets and liabilities of the discontinued operations consist primarily
of investments and insurance-related assets and liabilities. At December
31, 1996, these assets and liabilities each amounted to $180 million. At
December 31, 1995, these assets and liabilities each amounted to $1.8
billion.
In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings
Inc., which at the time was a wholly owned subsidiary of Travelers Group
and was the indirect owner of the business of Transport Life. Immediately
prior to this distribution, the Company distributed Transport, an
indirect, wholly owned subsidiary of the Company, to TIGI, as a return of
capital, resulting in a reduction in additional paid-in capital of $334
million. The results of Transport through September 1995 are included in
income from continuing operations.
5. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors and had $50
million outstanding at December 31, 1996. The Company maintains unused
credit availability under bank lines of credit at least equal to the
amount of the outstanding commercial paper. Interest expense related to
the commercial paper was not significant in 1996.
Travelers Group, Commercial Credit Company (CCC) (an indirect wholly
owned subsidiary of Travelers Group) and the Company have an agreement
with a syndicate of banks to provide $1.0 billion of revolving credit, to
be allocated to any of Travelers Group, CCC or the Company. The Company's
participation in this agreement is limited to $250 million. The revolving
credit facility consists of a five-year revolving credit facility which
expires in 2001. At December 31, 1996, $100 million was allocated to the
Company. Under this facility the Company is required to maintain certain
minimum equity and risk-based capital levels. At December 31, 1996, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at December 31, 1996 and 1995.
23
<PAGE> 163
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. REINSURANCE
The Company participates in reinsurance in order to limit losses,
minimize exposure to large risks, provide additional capacity for future
growth and to effect business-sharing arrangements. Reinsurance is
accomplished through various plans of reinsurance, primarily yearly
renewable term coinsurance and modified coinsurance. The Company remains
primarily liable as the direct insurer on all risks reinsured. Since June
1994, the Company is reinsuring its life insurance risks via first dollar
quota share treaties on an 80%/20% basis. Maximum retention of $1.5
million is generally reached on policies in excess of $7.5 million. For
other plans of insurance it is the policy of the Company to obtain
reinsurance for amounts above certain retention limits on individual life
policies which vary with age and underwriting classification. Generally,
the maximum retention on an ordinary life risk is $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, Travelers
Property Casualty Corp. (TAP).
A summary of reinsurance financial data reflected within the consolidated
statement of operations and retained earnings is presented below (in
millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Written Premiums:
Direct $ 1,982 $ 2,166 $ 2,153
Assumed from:
Non-affiliated companies 5 -- --
Ceded to:
Affiliated companies (284) (374) (358)
Non-affiliated companies (309) (302) (306)
- -------------------------------------------------------------------------------
Total net written premiums $ 1,394 $ 1,490 $ 1,489
- -------------------------------------------------------------------------------
Earned Premiums:
Direct $ 1,897 $ 2,067 $ 2,301
Assumed from:
Non-affiliated companies 5 -- --
Ceded to:
Affiliated companies (219) (283) (384)
Non-affiliated companies (315) (298) (305)
- -------------------------------------------------------------------------------
Total net earned premiums $ 1,368 $ 1,486 $ 1,612
- -------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 164
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. REINSURANCE, Continued
Reinsurance recoverables at December 31, include amounts recoverable on
unpaid and paid losses and were as follows (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance Recoverables:
Life and accident and health business:
Non-affiliated companies $1,497 $1,744
Property-casualty business:
Affiliated companies 2,361 2,363
- --------------------------------------------------------------------------------
Total Reinsurance Recoverables $3,858 $4,107
================================================================================
</TABLE>
Total reinsurance recoverables at December 31, 1996 and 1995 include $720
million and $929 million, respectively, from MetLife in connection with
the sale of the Company's group life and related businesses. See Note 4.
7. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $36 million in additional paid-in capital during 1996 is
due primarily to contributions of non-insurance subsidiaries from TIGI.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in Note 15.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $656 million, $235 million and $100 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company's statutory capital and surplus was $3,442 million and
$3,197 million at December 31, 1996 and 1995, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $507 million is available in 1997 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
In addition, under a revolving credit facility, the Company is required
to maintain certain minimum equity and risk based capital levels. The
Company is in compliance with these covenants at December 31, 1996.
25
<PAGE> 165
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, equity options, forward contracts and interest rate swaps as a
means of hedging exposure to foreign currency, equity price changes
and/or interest rate risk on anticipated transactions or existing assets
and liabilities. The Company does not hold or issue derivative
instruments for trading purposes.
These derivative financial instruments have off-balance sheet risk.
Financial instruments with off-balance sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of
these instruments reflect the extent of involvement the Company has in a
particular class of financial instrument. However, the maximum loss of
cash flow associated with these instruments can be less than these
amounts. For forward contracts and interest rate swaps, credit risk is
limited to the amounts calculated to be due the Company on such
contracts. Financial futures contracts and purchased listed option
contracts have little credit risk since organized exchanges are the
counterparties.
The Company monitors creditworthiness of counterparties to these
financial instruments by using criteria of acceptable risk that are
consistent with on-balance sheet financial instruments. The controls
include credit approvals, limits and other monitoring procedures.
The Company uses exchange traded financial futures contracts to manage
its exposure to changes in interest rates which arise from the sale of
certain insurance and investment products, or the need to reinvest
proceeds from the sale or maturity of investments. To hedge against
adverse changes in interest rates, the Company enters long or short
positions in financial futures contracts which offset asset price changes
resulting from changes in market interest rates until an investment is
purchased or a product is sold.
Margin payments are required to enter a futures contract and contract
gains or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out
prior to the delivery date of the contract.
At December 31, 1996 and 1995, the Company held financial futures
contracts with notional amounts of $169 million and $68 million,
respectively, and a deferred gain of $1 million and a deferred loss of
$.2 million, respectively. Total gains from financial futures of $2
million were deferred at December 31, 1996. These deferred gains, which
relate to anticipated investment purchases and investment product sales
expected to occur by the end of the second quarter of 1997, are reported
as other liabilities. At December 31, 1996 and 1995, the Company's
futures contracts had no fair value because these contracts are marked to
market and settled in cash daily.
The off-balance sheet risks of equity options, forward contracts, and
interest rate swaps were not significant at December 31, 1996 and 1995.
26
<PAGE> 166
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, Continued
The Company purchased a 5-year interest rate cap, with a notional amount
of $200 million, from Travelers Group in 1995 to hedge against losses
that could result from increasing interest rates. This instrument, which
does not have off-balance sheet risk, gives the Company the right to
receive payments if interest rates exceed specific levels at specific
dates. The premium of $2 million paid for this instrument is being
amortized over its life. The interest rate cap asset is reported at fair
value which is $1 million at December 31, 1996.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 1996 and 1995.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1996 and 1995, investments in fixed maturities had a
carrying value and a fair value of $18.8 billion. See Note 15.
At December 31, 1996, mortgage loans had a carrying value of $2.9
billion, which approximated fair value, compared with a carrying value of
$3.6 billion, which approximated fair value at December 31, 1995. In
estimating fair value, the Company used interest rates reflecting the
higher returns required in the current real estate financing market.
The carrying values of $154 million and $647 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1996 and 1995, respectively. The carrying values of $825
million and $1.3 billion of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1996 and
1995, respectively. Fair value is determined using various methods
including discounted cash flows, as appropriate for the various financial
instruments.
At December 31, 1996, contractholder funds with defined maturities had a
carrying value of $1.7 billion and a fair value of $1.7 billion, compared
with a carrying value of $2.4 billion and a fair value of $2.5 billion at
December 31, 1995. The fair value of these contracts is determined by
discounting expected cash flows at an interest rate commensurate with the
Company's credit risk and the expected timing of cash flows.
Contractholder funds without defined maturities had a carrying value of
$9.1 billion and a fair value of $8.8 billion at December 31, 1996,
compared with a carrying value of $9.3 billion and a fair value of $9.0
billion at December 31, 1995. These contracts generally are valued at
surrender value.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $1.1 billion and $1.1 billion,
respectively, at December 31, 1996, compared with a carrying value and a
fair value of $1.5 billion and $1.6 billion, respectively, at December
31, 1995. The liabilities of separate accounts providing a guaranteed
return had a carrying value and a fair value of $1.0 billion and $.9
billion, respectively, at December 31, 1996, compared with a carrying
value and a fair value of $1.5 billion and $1.4 billion, respectively, at
December 31, 1995.
27
<PAGE> 167
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, Continued
The carrying values of cash, short-term securities, investment income
accrued and commercial paper approximated their fair values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 8 for a discussion of financial instruments with off-balance
sheet risk.
Litigation
The Company is a defendant or codefendant in various litigation matters
in the normal course of business. Although there can be no assurances, as
of December 31, 1996, the Company believes, based on information
currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.
10. BENEFIT PLANS
Pension Plans
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Travelers Group covering the majority of
Travelers Group's U.S. employees. Benefits for the qualified plan are
based on an account balance formula. Under this formula, each employee's
accrued benefit can be expressed as an account that is credited with
amounts based upon the employee's pay, length of service and a specified
interest rate, all subject to a minimum benefit level. This plan is
funded in accordance with the Employee Retirement Income Security Act of
1974 and the Internal Revenue Code.
The Company also participates in a nonqualified, noncontributory defined
benefit pension plan sponsored by an affiliate covering the majority of
the Company's U.S. employees. Contributions are based on benefits paid.
The Company's share of net pension expense was not significant for 1996,
1995 and 1994.
Through plans sponsored by TIGI, the Company also provides defined
contribution pension plans for certain agents. Company contributions are
primarily a function of production. The expense for these plans was not
significant in 1996, 1995 and 1994.
28
<PAGE> 168
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. BENEFIT PLANS, Continued
Other Benefit Plans
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for retired employees through a plan
sponsored by TIGI. Retirees may elect certain prepaid health care benefit
plans. Life insurance benefits are generally set at a fixed amount.
Beginning January 1, 1996, these plans were amended to restrict benefit
eligibility to retirees and certain retiree-eligible employees. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of retiree contributions. The
Company's share of the total cost of the plan for 1996, 1995 and 1994 was
not significant.
401(K) Savings Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIGI, the Company matches a portion of
employee contributions. Effective April 1, 1993, the match decreased from
100% to 50% of an employee's first 5% contribution and a variable match
based on the profitability of TIGI and its subsidiaries was added through
December 31, 1995. Effective January 1, 1996, the match remained at 50%
of an employee's first 5% contribution with a maximum of $1,000.
Effective January 1, 1997, employee contributions will be matched with
Travelers Group stock options. The Company's matching obligation was not
significant in 1996, 1995 and 1994.
11. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI are handled by
the Company. Settlements for these payments between the Company and its
affiliates are made regularly. The Company provides various employee
benefits coverages to employees of certain subsidiaries of TIGI. The
premiums for these coverages were charged in accordance with cost
allocation procedures based upon salaries or census. In addition,
investment advisory and management services, data processing services and
claims processing services are shared with affiliated companies. Charges
for these services are shared by the companies on cost allocation methods
based generally on estimated usage by department.
An affiliate maintains a short-term investment pool in which the Company
participates. The position of each company participating in the pool is
calculated and adjusted daily. At December 31, 1996 and 1995, the pool
totaled approximately $2.9 billion and $2.2 billion, respectively. The
Company's share of the pool amounted to $196 million and $1.4 billion at
December 31, 1996 and 1995, respectively, and is included in short-term
securities in the consolidated balance sheet.
The Company sells structured settlement annuities to TAP in connection
with the settlement of certain policyholder obligations. Such deposits
were $40 million, $38 million and $39 million for 1996, 1995 and 1994,
respectively.
29
<PAGE> 169
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS, Continued
The Company markets deferred annuity products and life and health
insurance through its affiliate, Smith Barney Inc. Premiums and deposits
related to these products were $820 million, $583 million and $161
million in 1996, 1995 and 1994, respectively.
At December 31, 1996 and 1995, the Company had an investment of $22
million and $24 million, respectively, in bonds of its affiliate, CCC.
This is included in fixed maturities in the consolidated balance sheet.
The Company had an investment of $648 million and $445 million in common
stock of Travelers Group at December 31, 1996 and 1995, respectively.
This investment is carried at fair value.
12. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by
TAP. In 1996, TAP assumed the obligations for several leases. Rent
expense related to all leases are shared by the companies on a cost
allocation method based generally on estimated usage by department. Rent
expense was $24 million, $22 million and $23 million in 1996, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
-----------------------------------------------------------
Minimum operating
(in millions) rental payments
-----------------------------------------------------------
<S> <C>
Year ending December 31,
1997 $ 57
1998 49
1999 41
2000 39
2001 42
Thereafter 362
-----------------------------------------------------------
$590
-----------------------------------------------------------
</TABLE>
The Company is reimbursed by affiliates of TIGI for utilization of space
and equipment. Future sublease rental income of approximately $92 million
will partially offset these commitments. Minimum future capital lease
payments are not significant.
30
<PAGE> 170
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
-------------------------------------------------------------------------------------
Effective tax rate
<S> <C> <C> <C>
Income before federal income taxes $975 $837 $597
Statutory tax rate 35% 35% 35%
-------------------------------------------------------------------------------------
Expected federal income taxes $341 $293 $209
Tax effect of:
Nontaxable investment income (3) (4) (4)
Other, net 4 1 6
-------------------------------------------------------------------------------------
Federal income taxes (benefit) $342 $290 $211
-------------------------------------------------------------------------------------
Effective tax rate 35% 35% 35%
-------------------------------------------------------------------------------------
Composition of federal income taxes
Current:
United States $263 $220 $(108)
Foreign 21 13 12
-------------------------------------------------------------------------------------
Total 284 233 (96)
-------------------------------------------------------------------------------------
Deferred:
United States 57 52 302
Foreign 1 5 5
-------------------------------------------------------------------------------------
Total 58 57 307
-------------------------------------------------------------------------------------
Federal income taxes $342 $290 $211
-------------------------------------------------------------------------------------
</TABLE>
Tax benefits allocated directly to shareholder's equity for the years
ended December 31, 1996 and 1995 were $8 million and $7 million,
respectively.
31
<PAGE> 171
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
The net deferred tax liabilities at December 31, 1996 and 1995 were
comprised of the tax effects of temporary differences related to the
following assets and liabilities:
<TABLE>
<CAPTION>
(in millions) 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 510 $ 447
Contractholder funds 32 54
Operating lease reserves 71 56
Other employee benefits 104 74
Other 121 208
---------------------------------------------------------------------------------------
Total 838 839
---------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs and value of insurance in force 571 538
Investments, Net 131 152
Other 93 81
---------------------------------------------------------------------------------------
Total 795 771
---------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 43 68
Valuation allowance for deferred tax assets (100) (100)
---------------------------------------------------------------------------------------
Net deferred tax (liability) asset after valuation allowance $ (57) $ (32)
---------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, the Company and
its life insurance subsidiaries will file a consolidated federal income
tax return. Federal income taxes are allocated to each member of the
consolidated return on a separate return basis adjusted for credits and
other amounts required by the consolidation process. Any resulting
liability will be paid currently to the Company. Any credits for losses
will be paid by the Company to the extent that such credits are for tax
benefits that have been utilized in the consolidated federal income tax
return.
32
<PAGE> 172
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
A net deferred tax asset valuation allowance of $100 million has been
established to reduce the deferred tax asset on investment losses to the
amount that, based upon available evidence, is more likely than not to be
realized. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains in the Company's consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of Travelers Group commencing in
1999, or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no change in the
valuation allowance during 1996. The initial recognition of any benefit
produced by the reversal of the valuation allowance will be recognized by
reducing goodwill.
At December 31, 1996, the Company has no ordinary or capital loss
carryforwards.
The policyholders surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $932 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for which
no provision has been made in the financial statements) would be
approximately $326 million.
14. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross investment income
Fixed maturities $1,328 $1,191 $1,082
Mortgage loans 331 419 511
Policy loans 156 163 110
Real estate held for sale 94 111 174
Other 77 97 52
-------------------------------------------------------------------------------------------
1,986 1,981 1,929
-------------------------------------------------------------------------------------------
Investment expenses 99 157 227
-------------------------------------------------------------------------------------------
Net investment income $1,887 $1,824 $1,702
-------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 173
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized
Fixed maturities $(63) $(43) $(3)
Equity securities 47 36 18
Mortgage loans 49 47 -
Real estate held for sale 33 18 -
Other (1) 48 (2)
-----------------------------------------------------------------------------------------
Realized investment gains $ 65 $106 $13
----------------------------------------------------------------------------------------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as
a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized
Fixed maturities $(323) $1,974 $(1,319)
Equity securities (35) 46 (25)
Other 220 200 165
-------------------------------------------------------------------------------------------
(138) 2,220 (1,179)
Related taxes (43) 778 (412)
-------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (95) 1,442 (767)
Balance beginning of year 682 (760) 7
-------------------------------------------------------------------------------------------
Balance end of year $ 587 $ 682 $ (760)
--------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$232 million (net of taxes) to net unrealized gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $9.1 billion and $6.8 billion in 1996 and 1995, respectively. Gross
gains of $107 million and $80 million and gross losses of $175 million
and $124 million in 1996 and 1995, respectively, were realized on those
sales.
34
<PAGE> 174
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and fair value of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
December 31, 1996
---------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in millions) cost gains losses value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 3,755 $ 69 $23 $ 3,801
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 1,188 50 4 1,234
Obligations of states,
municipalities and
political subdivisions 76 1 1 76
Debt securities issued by
foreign governments 565 24 3 586
All other corporate bonds 12,925 259 41 13,143
Redeemable preferred stock 6 - - 6
---------------------------------------------------------------------------------------------
Total $18,515 $403 $72 $18,846
---------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 175
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
December 31, 1995
-----------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in millions) cost gains losses value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 4,174 $103 $15 $ 4,262
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 1,327 116 - 1,443
Obligations of states,
municipalities and
political subdivisions 91 2 - 93
Debt securities issued by
foreign governments 311 17 - 328
All other corporate bonds 12,283 442 10 12,715
Redeemable preferred stock 1 - - 1
-----------------------------------------------------------------------------------------------
Total $18,187 $680 $25 $18,842
-----------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturities at December 31,
1996, by contractual maturity, are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Maturity Amortized Fair
(in millions) cost value
-------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 971 $ 975
Due after 1 year through 5 years 4,970 5,043
Due after 5 years through 10 years 4,871 4,946
Due after 10 years 3,949 4,083
-------------------------------------------------------------------------------------------
14,761 15,047
Mortgage-backed securities 3,754 3,799
-------------------------------------------------------------------------------------------
Total $18,515 $18,846
-------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 176
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company makes investments in collateralized mortgage obligations
(CMOs). CMOs typically have high credit quality, offer good liquidity,
and provide a significant advantage in yield and total return compared to
U.S. Treasury securities. The Company's investment strategy is to
purchase CMO tranches which are protected against prepayment risk,
including planned amortization class (PAC) tranches. Prepayment protected
tranches are preferred because they provide stable cash flows in a
variety of interest rate scenarios. The Company does invest in other
types of CMO tranches if a careful assessment indicates a favorable
risk/return tradeoff. The Company does not purchase residual interests in
CMOs.
At December 31, 1996 and 1995, the Company held CMOs, classified as
available for sale with a fair value of $1.9 billion and $2.3 billion,
respectively. Approximately 88% and 89% of the Company's CMO holdings are
fully collateralized by GNMA, FNMA or FHLMC securities at December 31,
1996 and 1995. In addition, the Company held $843.5 million and $917
million of GNMA, FNMA or FHLMC mortgage-backed pass-through securities at
December 31, 1996 and 1995, respectively. Virtually all of these
securities are rated AAA. The Company also held $1.4 billion and $1.3
billion of securities that are backed primarily by credit card or car
loan receivables at December 31, 1996 and 1995, respectively.
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
December 31, 1996
---------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in millions) Cost gains losses value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $211 $38 $30 $219
Nonredeemable preferred stocks 114 2 3 113
---------------------------------------------------------------------------------------
Total $325 $40 $33 $332
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
December 31, 1995
---------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in millions) Cost gains losses value
---------------------------------------------------------------------------------------
Common stocks $138 $48 $5 $181
Nonredeemable preferred stocks 44 2 3 43
--------------------------------------------------------------------------------------
Total $182 $50 $8 $224
--------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 177
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Proceeds from sales of equity securities were $479 million and $379
million in 1996 and 1995, respectively. Gross gains of $64 million and
$27 million and gross losses of $11 million and $2 million in 1996 and
1995, respectively, were realized on those sales.
Real estate held for sale and mortgage loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
At December 31, 1996 and 1995, the Company's real estate held for sale
and mortgage loan portfolios consisted of the following (in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $2,832 $3,385
Underperforming mortgage loans 51 241
----------------------------------------------------------------------------
Total 2,883 3,626
----------------------------------------------------------------------------
Real estate held for sale 297 293
----------------------------------------------------------------------------
Total $3,180 $3,919
----------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------
(in millions)
----------------------------------------------------
<S> <C>
Past maturity $ 78
1997 299
1998 349
1999 293
2000 364
2001 224
Thereafter 1,276
----------------------------------------------------
Total $2,883
----------------------------------------------------
</TABLE>
38
<PAGE> 178
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Concentrations
At December 31, 1996 and 1995, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's
equity.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 11.
Included in fixed maturities are below investment grade assets totaling
$1.1 billion and $1.0 billion at December 31, 1996 and 1995,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment
grade loans.
The Company also had concentrations of investments, primarily
fixed maturities, in the following industries:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking $1,959 $1,226
Finance 1,823 1,491
Electric utilities 1,093 1,023
Oil and gas 652 861
---------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals above, were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking $ 1 $ 8
Finance 65 56
Electric utilities 49 26
Oil and gas 58 66
---------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, concentrations of mortgage loans were for
properties located in highly populated areas in the states listed below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
California $ 643 $ 736
New York 297 400
---------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 179
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Other mortgage loan investments are relatively evenly dispersed
throughout the United States, with no holdings in any state exceeding
$258 million and $332 million at December 31, 1996 and 1995,
respectively.
Concentrations of mortgage loans by property type at December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(in millions) 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C>
Office $1,195 $1,513
Agricultural 677 556
Retail 307 426
Apartment 284 580
----------------------------------------------------------------------------------------------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with respect
to new mortgage loans generally require loan to value ratios of 75% or
less at the time of mortgage origination.
Non-Income Producing Investments
Investments included in the consolidated balance sheets that were
non-income producing for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(in millions) 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 7 $18
Real estate 37 65
Fixed maturities - 4
----------------------------------------------------------------------------------------
Total $44 $87
----------------------------------------------------------------------------------------
</TABLE>
Restructured Investments
The Company had mortgage loans and debt securities which were
restructured at below market terms totaling approximately $18 million and
$67 million at December 31, 1996 and 1995, respectively. The new terms
typically defer a portion of contract interest payments to varying future
periods. The accrual of interest is suspended on all restructured assets,
and interest income is reported only as payment is received. Gross
interest income on restructured assets that would have been recorded in
accordance with the original terms of such loans amounted to $5 million
in 1996 and $16 million in 1995. Interest on these assets, included in
net investment income, aggregated $2 million and $8 million in 1996 and
1995, respectively.
40
<PAGE> 180
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
16. DEPOSIT FUNDS AND RESERVES
At December 31, 1996, the Company had $21.9 billion of life and annuity
deposit funds and reserves. Of that total, $11.6 billion is not subject
to discretionary withdrawal based on contract terms. The remaining $10.3
billion is for life and annuity products that are subject to
discretionary withdrawal by the contractholder. Included in the amount
that is subject to discretionary withdrawal is $1.7 billion of
liabilities that are surrenderable with market value adjustments. Also
included are an additional $5.4 billion of the life insurance and
individual annuity liabilities which are subject to discretionary
withdrawals, and have an average surrender charge of 5.0%. In the payout
phase, these funds are credited at significantly reduced interest rates.
The remaining $3.2 billion of liabilities are surrenderable without
charge. More than 11% of these relate to individual life products. These
risks would have to be underwritten again if transferred to another
carrier, which is considered a significant deterrent against withdrawal
by long-term policyholders. Insurance liabilities that are surrendered or
withdrawn are reduced by outstanding policy loans and related accrued
interest prior to payout.
17. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by
operating activities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income from continuing operations $ 633 $ 547 $ 386
Adjustments to reconcile net income to
net cash provided by operating activities
Realized gains (65) (106) (13)
Deferred federal income taxes 58 57 307
Amortization of deferred policy acquisition
costs and value of insurance in force 281 290 281
Additions to deferred policy acquisition costs (350) (454) (435)
Investment income accrued 2 (9) (47)
Premium balances receivable (6) (8) 5
Insurance reserves and accrued expenses (1) 291 212
Other 255 62 (212)
----------------------------------------------------------------------------------------
Net cash provided by
operating activities 807 670 484
Net cash provided by (used in)
discontinued operations (350) (596) 233
----------------------------------------------------------------------------------------
Net cash provided by
operations $ 457 $ 74 $ 717
----------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 181
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
18. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1995 transfer of assets with a fair market value of approximately $1.5
billion and statutory reserves and other liabilities of approximately
$1.5 billion to MetLife (see Note 4); b) the 1995 return of capital of
Transport to TIGI (see Note 4); c) the acquisition of real estate through
foreclosures of mortgage loans amounting to $117 million, $97 million and
$229 million in 1996, 1995 and 1994, respectively; d) the acceptance of
purchase money mortgages for sales of real estate aggregating $23
million, $27 million and $96 million in 1996, 1995 and 1994,
respectively; and e) the 1994 exchange of $23 million of the Company's
investment in Travelers Group common stock for $35 million of Travelers
Group nonredeemable preferred stock.
42
<PAGE> 182
THETRAVELERS
THE TRAVELERS
VARIABLE ANNUITIES
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS
Issued By
THE TRAVELERS INSURANCE COMPANY
PENSION AND PROFIT-SHARING,
SECTION 403(b) AND SECTION 408, AND
DEFERRED COMPENSATION PROGRAMS
L-11165S TIC Ed. 5-97
Printed in U.S.A.
32
<PAGE> 183
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
- --------------------------------------------------------------------------------
GROUP VARIABLE ANNUITY CONTRACTS
ISSUED BY THE TRAVELERS INSURANCE COMPANY
FOR FUNDING QUALIFIED RETIREMENT PLANS
UNDER PENSION AND PROFIT-SHARING PROGRAMS
May 1, 1997
This Statement of Additional Information ("SAI") is not a prospectus but relates
to, and should be read in conjunction with, the Prospectus dated May 1, 1997. A
copy of the Prospectus may be obtained by writing to The Travelers Insurance
Company (the "Company"), Annuity Marketing, One Tower Square, Hartford,
Connecticut 06183-5030, or by calling 1-800-842-8573.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS ...................... 2
The Insurance Company.................................................. 2
The Separate Accounts ................................................. 2
INVESTMENT OBJECTIVES AND POLICIES .......................................... 2
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES .............................................. 3
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES ............. 4
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT
TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS ......................... 6
WRITING COVERED CALL OPTIONS .......................................... 6
BUYING PUT AND CALL OPTIONS .......................................... 7
FUTURES CONTRACTS ..................................................... 8
MONEY MARKET INSTRUMENTS .............................................. 10
INVESTMENT MANAGEMENT AND ADVISORY SERVICES ................................. 12
Advisory Fees ......................................................... 13
TIMCO.................................................................. 13
TAMIC.................................................................. 14
VALUATION OF ASSETS ......................................................... 16
THE BOARD OF MANAGERS ....................................................... 16
DISTRIBUTION AND MANAGEMENT SERVICES ........................................ 18
SECURITIES CUSTODIAN ........................................................ 18
INDEPENDENT ACCOUNTANTS ..................................................... 19
FINANCIAL STATEMENTS - THE TRAVELERS INSURANCE COMPANY ...................... FS-1
</TABLE>
1
<PAGE> 184
DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company") is a stock insurance company
chartered in 1864 in Connecticut and continuously engaged in the insurance
business since that time. It is licensed to conduct life insurance business in
all states of the United States, the District of Columbia, Puerto Rico, Guam,
the U.S. and British Virgin Islands and the Bahamas. The Company is an indirect
wholly owned subsidiary of Travelers Group Inc., a financial services holding
company. The Company's Home Office is located at One Tower Square, Hartford,
Connecticut 06183.
THE SEPARATE ACCOUNTS
Each of the Separate Accounts which serve as the funding vehicles for the
Variable Annuity contracts described in this Statement of Additional Information
meets the definition of a separate account under the federal securities laws,
and will comply with the provisions of the Investment Company Act of 1940, as
amended (the "1940 Act"). Additionally, the operations of each of the Separate
Accounts are subject to the provisions of Section 38a-433 of the Connecticut
General Statutes which authorizes the Connecticut Insurance Commissioner to
adopt regulations under it. The Section contains no restrictions on investments
of the Separate Accounts, and the Commissioner has adopted no regulations under
the Section that affect the Separate Accounts.
The Travelers Growth and Income Stock Account for Variable Annuities (Account
GIS) was established on September 22, 1967, and The Travelers Quality Bond
Account for Variable Annuities (Account QB) was established on July 29, 1974.
Each of the Separate Accounts, although an integral part of the Company, is
registered with the Securities and Exchange Commission ("SEC") as a diversified,
open-end management investment Company under the 1940 Act. The assets of
Accounts GIS and QB are invested directly in securities (such as stocks, bonds
or money market instruments) which are compatible with the stated investment
policies of each account.
Purchase Payments may be allocated to either of the Separate Accounts. The
Company may make additions to or deletions from the investment alternatives
available under the Contract, as permitted by law. The investment objectives of
each of the Separate Accounts are as follows:
ACCOUNT GIS: The primary objective of Account GIS is long-term
accumulation of principal through capital appreciation and
retention of net investment income. The assets of Account GIS
will normally be invested in a portfolio of common stocks
spread over industries and companies.
ACCOUNT QB: The primary objective of Account QB is current income,
moderate capital volatility and total return. Assets of
Account QB will be invested in short-term to intermediate-term
bonds or other debt securities with a market value-weighted
average maturity of five years or less.
INVESTMENT OBJECTIVES AND POLICIES
Each Separate Account has a different investment objective and different
investment policies, and each Separate Account has certain fundamental
investment restrictions, all of which are set forth below. Neither the
investment objective nor the fundamental investment restrictions can be changed
without a vote of a majority of the outstanding voting securities of the
Accounts, as defined in the 1940 Act. Additionally, in accomplishing their
respective investment objectives, each Account uses certain types of investments
and investment techniques which are discussed under "Investments and Investment
Techniques" on page 6.
2
<PAGE> 185
The percentage restrictions (for either fundamental investment policies or
investment restrictions) are interpreted such that if they are adhered to at the
time of investment, a later increase in a percentage beyond the specified limit
resulting from a change in the values of portfolio securities or in the amount
of net assets shall not be considered a violation. It must be recognized that
there are risks inherent in the ownership of any investment and that there can
be no assurance that the investment objectives of the Separate Accounts will be
achieved.
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT OBJECTIVE
The basic investment objective of Account GIS is the selection of investments
from the point of view of an investor concerned primarily with long-term
accumulation of principal through capital appreciation and retention of net
investment income. This principal objective does not preclude the realization of
short-term gains when conditions would suggest the long-term goal is
accomplished by such short-term transactions. The assets of Account GIS will
primarily be invested in a portfolio of equity securities, mainly common stocks,
spread over industries and companies. However, when it is determined that
investments of other types may be advantageous on the basis of combined
considerations of risk, income and appreciation, investments may also be made in
bonds, notes or other evidence of indebtedness, issued publicly or placed
privately, of a type customarily purchased for investment by institutional
investors, including United States Government securities. These investments
generally would not have a prospect of long-term appreciation. Investments in
other than equity securities are temporary for defensive purposes. Such
investments may or may not be convertible into stock or be accompanied by stock
purchase options or warrants for the purchase of stock.
Account GIS may use exchange-traded financial futures contracts as a hedge to
protect against changes in stock prices. The use of stock index futures by
Account GIS is intended primarily to limit transaction and borrowing costs.
Account GIS expects that risk management transactions involving futures
contracts will not impact more than thirty percent (30%) of Account GIS's assets
at any one time. Account GIS may also write covered call options on securities
which it owns, and may purchase index or individual equity call or put options.
INVESTMENT RESTRICTIONS
The investment restrictions for Account GIS set forth in items 1 through 9 are
fundamental and may not be changed without a vote of a majority of the
outstanding voting securities, as defined in the 1940 Act. Items 10 through 13
may be changed by a vote of the Board of Managers.
1. Not more than 5% of the assets of the Account will be invested in the
securities of any one issuer, except obligations of the United States
Government and its instrumentalities.
2. Borrowings will not be made, except that the right is reserved to
borrow from banks for emergency purposes, provided that such borrowings
will not exceed 5% of the value of the assets of the Account and that
immediately after the borrowing, and at all times thereafter, and while
any such borrowing is unrepaid, there will be asset coverage of at
least 300% for all borrowings of the Account.
3. Securities of other issuers will not be underwritten, except that the
Account could be deemed an underwriter when engaged in the sale of
restricted securities. (See item 13.)
4. Interests in real estate will not be purchased, except as may be
represented by securities for which there is an established market.
5. No purchase of commodities or commodity contracts will be made, except
transactions involving financial futures in order to limit transaction
and borrowing costs and for hedging purposes, as discussed above.
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6. Loans will be made only through the acquisition of a portion of
privately placed issue of bonds, debentures or other evidences of
indebtedness of a type customarily purchased by institutional
investors. (See item 13.)
7. Investments will not be made in the securities of a company for the
purpose of exercising management or control.
8. Not more than 10% of the voting securities of any one issuer will be
acquired. (It is the present practice of Account GIS not to exceed 5%
of the voting securities of any one issuer.)
9. Senior securities will not be issued.
10. Short sales of securities will not be made.
11. Purchases will not be made on margin, except for short-term credits
which are necessary for the clearance of transactions, and for the
placement of not more than 5% of its net asset value in total margin
deposits for positions in futures contracts.
12. The Account will not invest in the securities of other investment
companies, except as part of a plan of merger, consolidation or
acquisition of assets.
13. Not more than 5% of the value of the assets of the Account may be
invested in restricted securities (securities which may not be publicly
offered without registration under the Securities Act of 1933).
Changes in the investments of Account GIS may be made from time to time to take
into account changes in the outlook for particular industries or companies.
Account GIS's investments will not, however, be concentrated in any one
industry; that is, no more than twenty-five percent (25%) of the value of its
assets will be invested in any one industry. While Account GIS may occasionally
invest in foreign securities, it is not anticipated that such investments will,
at any time, account for more than ten percent (10%) of its investment
portfolio.
The assets of Account GIS will be kept fully invested, except that (a)
sufficient cash may be kept on hand to provide for variable annuity contract
obligations, and (b) reasonable amounts of cash, United States Government or
other liquid securities, such as short-term bills and notes, may be held for
limited periods, pending investment in accordance with their respective
investment policies.
PORTFOLIO TURNOVER
Although Account GIS intends to purchase securities for long-term appreciation
of capital and income, and does not intend to place emphasis on obtaining
short-term trading profits, such short-term trading may occur. A higher turnover
rate should not be interpreted as indicating a variation from the stated
investment policy of seeking long-term accumulation of capital, and will
normally increase the brokerage costs of Account GIS. However, negotiated fees
and the use of futures contracts will help to reduce brokerage costs. While
there is no restriction on portfolio turnover, Account GIS expects to have a
moderate to high level of portfolio turnover in the range of 150% to 300%. The
portfolio turnover rate for Account GIS for the years ended December 31, 1994,
1995 and 1996 was 103%, 9.6% and 85%, respectively.
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT OBJECTIVE
The basic investment objective of Account QB is the selection of investments
from the point of view of an investor concerned primarily with current income,
moderate capital volatility and total return.
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It is contemplated that the assets of Account QB will be invested in money
market obligations, including, but not limited to, Treasury bills, repurchase
agreements, commercial paper, bank certificates of deposit and bankers'
acceptances, and in publicly traded debt securities, including bonds, notes,
debentures, equipment trust certificates and short-term instruments. These
securities may carry certain equity features such as conversion or exchange
rights or warrants for the acquisition of stocks of the same or different
issuer, or participations based on revenues, sales or profits. It is currently
anticipated that the market value-weighted average maturity of the portfolio
will not exceed five years. (In the case of mortgage-backed securities, the
estimated average life of cash flows will be used instead of average maturity.)
Investments in longer term obligations may be made if the Board of Managers
concludes that the investment yields justify a longer term commitment.
Account QB may purchase and sell futures contracts on debt securities ("interest
rate futures") to hedge against changes in interest rates that might otherwise
have an adverse effect upon the value of Account QB's securities.
The portfolio will be actively managed and Account QB may sell investments prior
to maturity to the extent that his action is considered advantageous in light of
factors such as market conditions or brokerage costs. While the investments of
Account QB are generally not listed securities, there are firms which make
markets in the type of debt instruments which Account QB holds. No problems of
salability are anticipated with regard to the investments of Account QB.
The Board of Managers will weigh considerations of risks, yield and ratings in
implementing Account QB's fundamental investment policies. There are no specific
criteria with regard to quality or ratings of the investments of Account QB, but
it is anticipated that they will be of investment grade or its equivalent as
determined in good faith by the Board of Managers. There may or may not be more
risk in investing in debt instruments where there are no specific criteria with
regard to quality or ratings of the investments.
INVESTMENT RESTRICTIONS
The investment restrictions set forth in items 1 through 9 below are fundamental
and may not be changed without a vote of a majority of the outstanding voting
securities of Account QB, as defined in the 1940 Act. Items 10 through 13 may be
changed by a vote of the Board of Managers of Account QB.
1. Not more than 15% of the value of the assets of Account QB will be
invested in the securities of any one issuer, except obligations of the
United States Government and its instrumentalities, for which there is
no limit.
2. Borrowings will not be made, except that the right is reserved to
borrow from banks for emergency purposes, provided that these
borrowings will not exceed 5% of the value of the assets of Account QB
and that immediately after the borrowing, and at all times thereafter,
and while any borrowing is unrepaid, there will be asset coverage of at
least 300% for all borrowings of Account QB.
3. Securities of other issuers will not be underwritten, except that
Account QB could be deemed to be an underwriter when engaged in the
sale of restricted securities.
4. Interests in real estate will not be purchased, except as may be
represented by securities for which there is an established market.
5. No purchase of commodities or commodity contracts will be made, except
transactions involving financial futures used as a hedge against
unanticipated changes in prevailing levels of interest rates.
6. Loans will be made only through the acquisition of a portion of
privately placed issue of bonds, debentures and other evidences of
indebtedness of a type customarily purchased by institutional
investors.
7. Investments will not be made in the securities of a company for the
purpose of exercising management or control.
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8. Not more than 10% of the voting securities of any one issuer will be
acquired.
9. Senior securities will not be issued.
10. Short sales of securities will not be made.
11. Purchases will not be made on margin, except for any short-term
credits that are necessary for the clearance of transactions and to
place up to 5% of the value of its net assets in total margin deposits
for positions in futures contracts.
12. Account QB will not invest in the securities of other investment
companies, except as part of a plan of merger, consolidation or
acquisition of assets.
13. The average period of maturity (or in the case of mortgage-backed
securities, the estimated average life of cash flows) of all fixed
interest debt instruments held by Account QB will not exceed five
years.
The investments of Account QB will not be concentrated in any one industry; that
is, no more than twenty-five percent (25%) of the value of its assets will be
invested in any one industry. There is no investment policy as to Account QB's
investment in foreign securities.
PORTFOLIO TURNOVER
Brokerage costs associated with short-term debt instruments are significantly
lower than those incurred on equity investments, and thus, a high portfolio
turnover rate would not adversely affect the brokerage costs of Account QB to
the same extent as high turnover in a separate account which invests primarily
in common stock. The portfolio turnover rate for Account QB for the years ended
December 31, 1994, 1995 and 1996 was 27%, 138% and 176%, respectively. The
marked increase in the portfolio turnover rate for 1995 was due to a
restructuring of corporate bond positions in order to seek increased returns.
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
AVAILABLE TO THE SEPARATE ACCOUNTS
WRITING COVERED CALL OPTIONS
Account GIS may write covered call options on portfolio securities for which
call options are available and which are listed on a national securities
exchange. These call options generally will be short-term contracts with a
duration of nine months or less.
Account GIS will write only "covered" call options, that is, it will own the
underlying securities which are acceptable for escrow when it writes the call
option and until the obligation to sell the underlying security is extinguished
by exercise or expiration of the call option, or until a call option covering
the same underlying security and having the same exercise price and expiration
date is purchased. Account GIS will receive a premium for writing a call option,
but gives up, until the expiration date, the opportunity to profit from an
increase in the underlying security's price above the exercise price. Account
GIS will retain the risk of loss from a decrease in the price of the underlying
security. Writing covered call options is a conservative investment technique
which is believed to involve relatively little risk, but which is capable of
enhancing an account's total returns.
The premium received for writing a covered call option will be recorded as a
liability in the Account's Statement of Assets and Liabilities. This liability
will be adjusted daily to the option's current market value, which will be the
latest sale price at the close of the New York Stock Exchange, or, in the
absence of such sale, at the latest bid
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quotation. The liability will be extinguished upon expiration of the option, the
purchase of an identical option in a closing transaction, or delivery of the
underlying security upon exercise of the option.
The Options Clearing Corporation is the issuer of, and the obligor on, the
covered call options written by Account GIS. In order to secure an obligation to
deliver to the Options Clearing Corporation the underlying security of a covered
call option written by Account GIS, the Account will be required to make escrow
arrangements.
In instances where Account GIS believes it is appropriate to close a covered
call option, it can close out the previously written call option by purchasing a
call option on the same underlying security with the same exercise price and
expiration date. Account GIS may also, under certain circumstances, be able to
transfer a previously written call option.
A previously written call option can be closed out by purchasing an identical
call option only on a national securities exchange which provides a secondary
market in the call option. There is no assurance that a liquid secondary market
will exist for a particular call option at such time. If Account GIS cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even though it
might otherwise be advantageous to do so.
If a substantial number of the call options are exercised, the Account's rate of
portfolio turnover may exceed historical levels. This would result in higher
brokerage commissions in connection with the writing of covered call options and
the purchase of call options to close out previously written options. Such
brokerage commissions are normally higher than those applicable to purchases and
sales of portfolio securities.
BUYING PUT AND CALL OPTIONS
Account GIS may purchase put options on securities held, or on futures contracts
whose price volatility is expected to closely match that of securities held, as
a defensive measure to preserve contract owners' capital when market conditions
warrant. Account GIS may purchase call options on specific securities, or on
futures contracts whose price volatility is expected to closely match that of
securities, eligible for purchase by Account GIS, in anticipation of or as a
substitute for the purchase of the securities themselves. These options may be
listed on a national exchange or executed "over-the-counter" with a
broker-dealer as the counterparty. While the investment adviser anticipates that
the majority of option purchases and sales will be executed on a national
exchange, put or call options on specific securities or for non-standard terms
are likely to be executed directly with a broker-dealer when it is advantageous
to do so. Option contracts will be short-term in nature, generally less than
nine months. Account GIS will pay a premium in exchange for the right to
purchase (call) or sell (put) a specific number of shares of an equity security
or futures contract at a specified price (the strike price) on or before the
expiration date of the options contract. In either case, Account GIS's risk is
limited to the option premium paid.
Account GIS may sell the put and call options prior to their expiration and
realize a gain or loss thereby. A call option will expire worthless if the price
of the related security is below the contract strike price at the time of
expiration; a put option will expire worthless if the price of the related
security is above the contract strike price at the time of expiration.
Put and call options will be employed for bona fide hedging purposes only.
Liquid securities sufficient to fulfill the call option delivery obligation will
be identified and segregated in an account; deliverable securities sufficient to
fulfill the put option obligation will be similarly identified and segregated.
In the case of put options on futures contracts, portfolio securities whose
price volatility is expected to match that of the underlying futures contract
will be identified and segregated.
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FUTURES CONTRACTS
STOCK INDEX FUTURES
Account GIS will invest in stock index futures. A stock index futures contract
provides for one party to take and the other to make delivery of an amount of
cash over the hedging period equal to a specified amount times the difference
between a stock index value at the close of the last trading day of the contract
or the selling price and the price at which the futures contract is originally
struck. The stock index assigns relative values to the common stocks included in
the index and reflects overall price trends in the designated market for equity
securities. Therefore, price changes in a stock index futures contract reflect
changes in the specified index of equity securities on which the futures
contract is based. Stock index futures may also be used, to a limited extent, to
hedge specific common stocks with respect to market (systematic) risk (involving
the market's assessment of overall economic prospects) as distinguished from
stock-specific risk (involving the market's evaluation of the merits of the
issuer of a particular security). By establishing an appropriate "short"
position in stock index futures, Account GIS may seek to protect the value of
its equity securities against an overall decline in the market for equity
securities. Alternatively, in anticipation of a generally rising market, Account
GIS can seek to avoid losing the benefit of apparently low current prices by
establishing a "long" position in stock index futures and later liquidating that
position as particular equity securities are in fact acquired. Account GIS will
not be a hedging fund; however, to the extent that any hedging strategies
actually employed are successful, Account GIS will be affected to a lesser
degree by adverse overall market price movements unrelated to the merits of
specific portfolio equity securities than would otherwise be the case. Gains and
losses on futures contracts employed as hedges for specific securities will
normally be offset by losses or gains, respectively, on the hedged security.
INTEREST RATE FUTURES
Account QB may purchase and sell futures contracts on debt securities ("interest
rate futures") to hedge against anticipated changes in interest rates that might
otherwise have an adverse effect upon the value of an Account's debt securities.
An interest rate futures contract is a binding contractual commitment which, if
held to maturity, will result in an obligation to make or accept delivery,
during a particular future month, of debt securities having a standardized face
value and rate of return.
By purchasing interest rate futures (assuming a "long" position), Account QB
will be legally obligated to accept the future delivery of the underlying
security and pay the agreed price. This would be done, for example, when Account
QB intends to purchase particular debt securities when it has the necessary
cash, but expects the rate of return available in the securities markets at that
time to be less favorable than rates currently available in the futures markets.
If the anticipated rise in the price of the debt securities should occur (with
its concurrent reduction in yield), the increased cost of purchasing the
securities will be offset, at least to some extent, by the rise in the value of
the futures position taken in anticipation of the securities purchase.
By selling interest rate futures held by it, or interest rate futures having
characteristics similar to those held by it (assuming a "short" position),
Account QB will be legally obligated to make the future delivery of the security
against payment of the agreed price. Such a position seeks to hedge against an
anticipated rise in interest rates that would adversely affect the value of
Account QB's portfolio debt securities.
Open futures positions on debt securities will be valued at the most recent
settlement price, unless such price does not appear to the Board of Managers to
reflect the fair value of the contract, in which case the positions will be
valued at fair value determined in good faith by or under the direction of the
Board of Managers.
Hedging by use of interest rate futures seeks to establish, with more certainty
than would otherwise be possible, the effective rate of return on portfolio
securities. When hedging is successful, any depreciation in the value of
portfolio securities will substantially be offset by appreciation in the value
of the futures position.
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FUTURES MARKETS AND REGULATIONS
When a futures contract is purchased, Accounts GIS and QB will set aside, in an
identifiable manner, an amount of cash and cash equivalents equal to the total
market value of the futures contract, less the amount of the initial margin. The
Accounts will incur brokerage fees in connection with their futures
transactions, and will be required to deposit and maintain funds with brokers as
margin to guarantee performance of future obligations.
Positions taken in the futures markets are not normally held to maturity, but
instead are liquidated through offsetting transactions which may result in a
profit or a loss. Closing out an open futures contract sale or purchase is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the stock index or interest rate
futures contract and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Accounts realize a gain; if it is more,
the Accounts realize a loss. Conversely, if the offsetting sale price is more
than the original purchase price, the Accounts realize a gain; if less, a loss.
While futures positions taken by the Accounts will usually be liquidated in this
manner, the Accounts may instead make or take delivery of the underlying
securities whenever it appears economically advantageous for them to do so. In
determining gain or loss, transaction costs must also be taken into account.
There can be no assurance that the Accounts will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time.
A clearing corporation associated with the exchange on which futures are traded
guarantees that the sale and purchase obligations will be performed with regard
to all positions that remain open at the termination of the contract.
All stock index and interest rate futures will be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC").
Stock index futures are currently traded on the New York Futures Exchange and
the Chicago Mercantile Exchange. Interest rate futures are actively traded on
the Chicago Board of Trade and the International Monetary Market at the Chicago
Mercantile Exchange.
The investment advisers do not believe any of the Accounts to be a "commodity
pool" as defined under the Commodity Exchange Act. The Accounts will only enter
into futures contracts for bona fide hedging or other appropriate risk
management purposes as permitted by CFTC regulations and interpretations, and
subject to the requirements of the SEC. The Accounts will not purchase or sell
futures contracts for which the aggregate initial margin exceeds five percent
(5%) of the fair market value of their individual assets, after taking into
account unrealized profits and unrealized losses on any such contracts which
they have entered into. The Accounts will further seek to assure that
fluctuations in the price of any futures contracts that they use for hedging
purposes will be substantially related to fluctuations in the price of the
securities which they hold or which they expect to purchase, although there can
be no assurance that the expected result will be achieved.
As evidence of their hedging intent, the Accounts expect that on seventy-five
percent (75%) or more of the occasions on which they purchase a long futures
contract, they will effect the purchase of securities in the cash market or take
delivery at the close of a futures position. In particular cases, however, when
it is economically advantageous, a long futures position may be terminated
without the corresponding purchase of securities.
SPECIAL RISKS
While certain futures contracts may be purchased and sold to reduce certain
risks, these transactions may entail other risks. Thus, while the Accounts may
benefit from the use of such futures, unanticipated changes in stock price
movements or interest rates may result in a poorer overall performance for the
Account than if it had not entered into such futures contracts. Moreover, in the
event of an imperfect correlation between the futures position and the portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Accounts may be exposed to risk of loss. The investment
advisers will attempt to reduce this risk by engaging in futures transactions,
to the extent possible, where, in their judgment, there is a significant
correlation between changes in the prices of the futures contracts and the
prices of any portfolio securities sought to be hedged.
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In addition to the possibility that there may be a less than perfect correlation
between movements in the futures contracts and securities in the portfolio being
hedged, the prices of futures contracts may not correlate perfectly with
movements in the underlying security due to certain market distortions. First,
rather than meeting variation margin deposit requirements should a futures
contract value move adversely, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, since margin requirements in the futures
market are less onerous than in the securities market, the futures market may
attract more speculators than the securities market. Increased participation by
speculators may cause temporary price distortions. Due to the possibility of
such price distortion, and also because of the imperfect correlation discussed
above, even a correct forecast of general market trends by the investment
advisers may not result in a successful hedging transaction in the futures
market over a short time period. However, as is noted above, the use of
financial futures by the Accounts is intended primarily to limit transaction and
borrowing costs. At no time will the Accounts use financial futures for
speculative purposes.
Successful use of futures contracts for hedging purposes is also subject to the
investment advisers' ability to predict correctly movements in the direction of
the market. However, the investment advisers believe that over time the value of
the Accounts' portfolios will tend to move in the same direction as the market
indices which are intended to correlate to the price movements of the portfolio
securities sought to be hedged.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one year or
less, such as bank certificates of deposit, bankers' acceptances, commercial
paper (including master demand notes), and obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities, some of which
may be subject to repurchase agreements.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated certificates
of United States banks which have at least $1 billion in deposits as of the date
of their most recently published financial statements (including foreign
branches of U.S. banks, U.S. branches of foreign banks which are members of the
Federal Reserve System or the Federal Deposit Insurance Corporation).
The Accounts will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Accounts do not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank which, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Accounts must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion, and must be
payable in U.S. dollars.
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COMMERCIAL PAPER RATINGS
Investments in commercial paper are limited to those rated A-1 by Standard &
Poor's Corporation and Prime-1 by Moody's Investors Service, Inc. Commercial
paper rated A-1 by S&P has the following characteristics: (1) liquidity ratios
are adequate to meet cash requirements; (2) the issuer's long- term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; (3)
the issuer has access to at least two additional channels of borrowing; (4)
basic earnings and cash flow have an upward trend with allowances made for
unusual circumstances; and (5) the issuer's industry is typically well
established and the issuer has a strong position within the industry.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluating the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationship which exists with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public preparations to meet such
obligations. The relative strength or weakness of the above factors determines
how the issuer's commercial paper is rated within various categories.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between the lender (issuer) and the borrower. Master demand notes may permit
daily fluctuations in the interest rate and daily changes in the amounts
borrowed. An Account has the right to increase the amount under the note at any
time up to the full amount provided by the note agreement, or to decrease the
amount, and the borrower may repay up to the full amount of the note without
penalty. Notes purchased by a separate account must permit it to demand payment
of principal and accrued interest at any time (on not more than seven days
notice) or to resell the note at any time to a third party. Master demand notes
may have maturities of more than one year, provided they specify that (i) the
account be entitled to payment of principal and accrued interest upon not more
than seven days notice, and (ii) the rate of interest on such notes be adjusted
automatically at periodic intervals which normally will not exceed 31 days, but
which may extend up to one year. Because these types of notes are direct lending
arrangements between the lender and the borrower, such instruments are not
normally traded, and there is no secondary market for these notes, although they
are redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the right to redeem is dependent upon the
ability of the borrower to pay principal and interest on demand. In connection
with master demand note arrangements, the investment adviser considers earning
power, cash flow, and other liquidity ratios of the borrower to pay principal
and interest on demand. These notes, as such, are not typically rated by credit
rating agencies. Unless they are so rated, a separate account may invest in them
only if at the time of an investment the issuer meets the criteria set forth
above for commercial paper. The notes will be deemed to have a maturity equal to
the longer of the period remaining to the next interest rate adjustment or the
demand notice period.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury Bills have maturities of one year or
less, Treasury Notes have maturities of one to ten years, and Treasury Bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the United States Government or its agencies
or instrumentalities include direct obligations of the United States Treasury
and securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks,
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Federal Land Banks, Maritime Administration, The Tennessee Valley Authority,
District of Columbia Armory Board and Federal National Mortgage Association.
Some obligations of United States Government agencies and instrumentalities,
such as Treasury Bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; still others, such as bonds
issued by the Federal National Mortgage Association, a private corporation, are
supported only by the credit of the instrumentality. Because the United States
Government is not obligated by law to provide support to an instrumentality it
sponsors, the Accounts will invest in the securities issued by such an
instrumentality only when the investment advisers determine that the credit risk
with respect to the instrumentality does not make the securities unsuitable
investments. United States Government securities will not include international
agencies or instrumentalities in which the United States Government, its
agencies or instrumentalities participate, such as the World Bank, the Asian
Development Bank or the Inter-American Development Bank, or issues insured by
the Federal Deposit Insurance Corporation.
REPURCHASE AGREEMENTS
Interim cash balances may be invested from time to time in repurchase agreements
with approved counterparties. Approved counterparties are limited to national
banks or reporting broker-dealers meeting the Advisor's credit quality standards
as presenting minimal risk of default. All repurchase transactions must be
collateralized by U.S. Government securities with market value no less than 102%
of the amount of the transaction, including accrued interest. Repurchase
transactions generally mature the next business day but, in the event of a
transaction of longer maturity, collateral will be marked to market daily and,
when required, additional cash or qualifying collateral will be required from
the counterparty.
In executing a repurchase agreement, a portfolio purchases eligible securities
subject to the seller's simultaneous agreement to repurchase them on a mutually
agreed upon date and at a mutually agreed upon price. The purchase and resale
prices are negotiated with the counterparty on the basis of current short-term
interest rates, which may be more or less than the rate on the securities
collateralizing the transaction. Physical delivery or, in the case of
"book-entry" securities, segregation in the counterparty's account at the
Federal Reserve for the benefit of the Portfolio is required to establish a
perfected claim to the collateral for the term of the agreement in the event the
counterparty fails to fulfill its obligation.
As the securities collateralizing a repurchase transaction are generally of
longer maturity than the term of the transaction, in the event of default by the
counterparty on its obligation, the Portfolio would bear the risks of delay,
adverse market fluctuation and transaction costs in disposing of the collateral.
INVESTMENT MANAGEMENT AND ADVISORY SERVICES
The investments and administration of the separate accounts are under the
direction of the Board of Managers. The Travelers Investment Management Company
("TIMCO") furnishes investment management and advisory services to Account GIS,
and Travelers Asset Management International Corporation ("TAMIC") furnishes
investment management and advisory services to Account QB, according to the
terms of written Investment Advisory Agreements. The agreement between Account
GIS and TIMCO was approved by a vote of the Variable Annuity Contract Owners at
their meeting held on April 23, 1993, and amended effective May 1, 1994 by
virtue of Contract Owner approval at a meeting held on April 22, 1994. The
agreement between Account QB and TAMIC was approved by a vote of the Variable
Annuity Contract Owners at their meeting held on April 23, 1993.
Each of these agreements will continue in effect as described below in (3), as
required by the 1940 Act. Each of the agreements:
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<PAGE> 195
1. provides that for investment management and advisory services, the
Company will pay to TIMCO and TAMIC, an advisory fee based on the
current value of the assets of the accounts for which TIMCO and TAMIC
act as investment adviser (see "Advisory Fees" below:);
2. may not be terminated by TIMCO or TAMIC without prior approval of a new
investment advisory agreement by those casting a majority of the votes
entitled to be cast and will be subject to termination without the
payment of any penalty, upon sixty days written notice, by the Board of
Managers or by a vote of those casting a majority of the votes entitled
to be cast;
3. will continue in effect for a period more than two years from the date
of its execution, only so long as its continuance is specifically
approved at least annually by a vote of a majority of the Board of
Managers, or by a vote of a majority of the outstanding voting
securities of the Account. In addition, and in either event, the terms
of the agreement must be approved annually by a vote of a majority of
the Board of Managers who are not parties to, or interested persons of
any party to, the agreement, cast in person, at a meeting called for
the purpose of voting on the approval and at which the Board of
Managers has been furnished the information that is reasonably
necessary to evaluate the terms of the agreement;
4. will automatically terminate upon assignment.
ADVISORY FEES
For furnishing investment management and advisory services to Account GIS, TIMCO
is paid an amount equivalent on an annual basis to 0.45% of the average daily
net assets of Account GIS. The fee is computed daily and paid monthly. The total
advisory fees paid to TIMCO by Account GIS for the fiscal years ended December
31, 1994, 1995 and 1996 were $$1,368,700, $1,700,124 and $2,079,020,
respectively.
For furnishing investment management and advisory services to Account QB, TAMIC
is paid an amount equivalent on an annual basis to 0.3233% of the average daily
net assets of Account QB. For the years ended December 31, 1994, 1995 and 1996
the advisory fees were $572,484, $547,715 and $576,329, respectively.
TIMCO
TIMCO, an indirect wholly owned subsidiary of Travelers Group Inc., is located
at One Tower Square, Hartford, Connecticut 06183. In addition to providing
investment management and advisory services to Account GIS, TIMCO acts as
investment adviser (or subadviser) for other investment companies which serve as
the funding media for certain variable annuity and variable life insurance
contracts offered by The Travelers Insurance Company and its affiliates. TIMCO
also acts as investment adviser for individual and pooled pension and
profit-sharing accounts and for affiliated companies of The Travelers Insurance
Company.
Investment decisions for Account GIS will be made independently from those of
any other accounts managed by TIMCO. If, however, accounts managed by TIMCO are
simultaneously engaged in the purchase of the same security, then available
securities may be allocated to each account and may be averaged as to price in
whatever manner TIMCO deems to be fair. In some cases, this system might
adversely affect the price or volume of securities being bought or sold by an
account, while in other cases it may produce better executions or lower
brokerage rates.
BROKERAGE
Subject to approval of the Board of Managers, and in accordance with the
Investment Advisory Agreement, TIMCO will place purchase and sale orders for the
portfolio securities of Account GIS through brokerage firms which it may select
from time to time with the objective of seeking the best execution by
responsible brokerage firms at reasonably competitive rates. To the extent
consistent with this policy, certain brokerage transactions may be
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<PAGE> 196
placed with firms which provide brokerage and research services to TIMCO, and
such transactions may be paid for at higher rates than other firms would charge.
The term "brokerage and research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities for purchasers or sellers of securities;
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts; and
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement). These brokerage and research services may be
utilized in providing investment advice to Account GIS and may also be utilized
in providing investment advice and management to all accounts over which TIMCO
exercises investment discretion, but not all of such services will necessarily
be utilized in providing investment advice to all accounts. This practice may be
expected to result in greater cost to the Accounts than might otherwise be the
case if brokers whose charges were based on execution alone were used for such
transactions. TIMCO believes that brokers' research services are very important
in providing investment advice to the Accounts but is unable to give the
services a dollar value. While research services are not expected to reduce the
expenses of TIMCO, TIMCO will, through the use of these services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff.
Transactions in the over-the-counter market are placed with the principal market
makers unless better price and execution may be obtained otherwise. Brokerage
fees will be incurred in connection with futures transactions, and Account GIS
will be required to deposit and maintain funds with brokers as margin to
guarantee performance of future obligations.
The overall reasonableness of brokerage commissions paid is evaluated by
personnel of TIMCO responsible for trading and for managing Account GIS's
portfolio by comparing brokerage firms utilized by TIMCO and other firms with
respect to the following factors: the prices paid or received in securities
transactions, speed of execution and settlement, size and difficulty of the
brokerage transactions, the financial soundness of the firms, and the quality,
timeliness and quantity of research information and reports.
The total brokerage commissions paid by Account GIS for the fiscal years ending
December 31, 1994, 1995 and 1996 were $991,682, $866,658 and $890,690,
respectively. For the fiscal year ended December 31, 1996, portfolio
transactions in the amount of $658,047,320 were directed to certain brokers
because of research services, of which $790,252 was paid in commissions with
respect to such transactions. No formula was used in placing such transactions
and no specific amount of transactions was allocated for research services. For
the year ended December 31, 1996, commissions in the amounts of $60,239 and
$65,045 were paid to Smith Barney Inc. and The Robinson Humphrey Company, Inc.,
respectively, both affiliates of TIMCO, which equals, for each, 6.76% and 7.30%
of Account GIS's aggregate brokerage commissions paid to such brokers during
1996. The percentage of Account GIS's aggregate dollar amount of transactions
involving the payment of commissions effected through Smith Barney and Robinson
Humphrey were 6.94% and 6.77%, respectively.
TAMIC
TAMIC, an indirect wholly owned subsidiary of Travelers Group Inc., is located
at One Tower Square, Hartford, Connecticut 06183. In addition to providing
investment management and advisory services to Account QB, TAMIC acts as
investment adviser for other investment companies which serve as the funding
media for certain variable annuity and variable life insurance contracts offered
by The Travelers Insurance Company and its affiliates. TAMIC also acts as
investment adviser for individual and pooled pension and profit-sharing
accounts, for offshore insurance companies affiliated with The Travelers
Insurance Company, and for non-affiliated insurance companies, both domestic and
offshore.
Investment advice and management for TAMIC's clients are furnished in accordance
with their respective investment objectives and policies and investment
decisions for the Accounts will be made independently from those of any other
accounts managed by TAMIC. However, securities owned by Account QB may also be
owned by other clients and it may occasionally develop that the same investment
advice and decision for more than one
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<PAGE> 197
client is made at the same time. Furthermore, it may develop that a particular
security is bought or sold for only some clients even though it might be held or
bought or sold for other clients, or that a particular security is bought for
some clients when other clients are selling the security. When two or more
accounts are engaged in the purchase or sale of the same security, the
transactions are allocated as to amount in accordance with a formula which is
equitable to each account. It is recognized that in some cases this system could
have a detrimental effect on the price or volume of the security as far as
Account QB is concerned. In other cases, however, it is believed that the
ability of Account QB to participate in volume transactions will produce better
executions for the account.
BROKERAGE
Subject to approval of the Board of Managers, it is the policy of TAMIC, in
executing transactions in portfolio securities, to seek best execution of orders
at the most favorable prices. The determination of what may constitute best
execution and price in the execution of a securities transaction by a broker
involves a number of considerations, including, without limitation, the overall
direct net economic result to Account QB, involving both price paid or received
and any commissions and other cost paid, the efficiency with which the
transaction is effected, the ability to effect the transaction at all where a
large block is involved, the availability of the broker to stand ready to
execute potentially difficult transactions in the future and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by management in determining the overall reasonableness of brokerage
commissions paid. Subject to the foregoing, a factor in the selection of brokers
is the receipt of research services, analyses and reports concerning issuers,
industries, securities, economic factors and trends, and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers is considered to be in addition to and not in
lieu of services required to be performed by TAMIC under its Investment Advisory
Agreements. The cost, value and specific application of such information are
indeterminable and hence are not practicably allocable among Account QB and
other clients of
TAMIC who may indirectly benefit from the availability of such information.
Similarly, Account QB may indirectly benefit from information made available as
a result of transactions for such clients.
Purchases and sales of bonds and money market instruments will usually be
principal transactions and will normally be purchased directly from the issuer
or from the underwriter or market maker for the securities. There usually will
be no brokerage commissions paid for such purchases. Purchases from the
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include the spread between
the bid and asked prices. Where transactions are made in the over-the-counter
market, Account QB will deal with primary market makers unless more favorable
prices are otherwise obtainable. Brokerage fees will be incurred in connection
with futures transactions, and Account QB will be required to deposit and
maintain funds with brokers as margin to guarantee performance of future
obligations.
TAMIC may follow a policy of considering the sale of units of Account QB a
factor in the selection of broker-dealers to execute portfolio transactions,
subject to the requirements of best execution described above.
The policy of TAMIC with respect to brokerage is and will be reviewed by the
Board of Managers periodically. Because of the possibility of further regulatory
developments affecting the securities exchanges and brokerage practices
generally, the foregoing practices may be changed, modified or eliminated.
The total brokerage commissions paid by Account QB for the fiscal years ended
December 31, 1994, 1995 and 1996 were $82,390, $549,540 and $745,209,
respectively. For the fiscal year ended December 31, 1996, no portfolio
transactions were directed to certain brokers because of research services. No
commissions were paid to broker dealers affiliated with TAMIC.
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<PAGE> 198
VALUATION OF ASSETS
The value of the assets of each Separate Account is determined on each Valuation
Date as of the close of the New York Stock Exchange (the "Exchange"). If the
Exchange is not open for trading on any such day, then such computation shall be
made as of the normal close of the Exchange. Each security traded on a national
securities exchange is valued at the last reported sale price on the Valuation
Date. If there has been no sale on that day, then the value of the security is
taken to be the mean between the reported bid and asked prices on the Valuation
Date or on the basis of quotations received from a reputable broker or any other
recognized source.
Any security not traded on a securities exchange but traded in the
over-the-counter market and for which market quotations are readily available is
valued at the mean between the quoted bid and asked prices on the Valuation Date
or on the basis of quotations received from a reputable broker or any other
recognized source.
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.
Short-term investments for which a quoted market price is available are valued
at market. Short-term investments maturing in more than sixty days for which
there is no reliable quoted market price are valued by "marking to market"
(computing a market value based upon quotations from dealers or issuers for
securities of a similar type, quality and maturity). "Marking to market" takes
into account unrealized appreciation or depreciation due to changes in interest
rates or other factors which would influence the current fair values of such
securities. Short-term investments maturing in sixty days or less for which
there is no reliable quoted market are valued at amortized cost which
approximates market.
THE BOARD OF MANAGERS
The investment and administration of each of the Separate Accounts are
under the direction of the Board of Managers, listed below. Members of the Board
of Managers are elected annually by those Contract Owners participating in the
Separate Accounts. A majority of the members of the Board of Managers are
persons who are not affiliated with The Travelers Insurance Company, TIMCO,
TAMIC or their affiliates.
Present Position and Principal Occupation
Name During Last Five Years
* Heath B. McLendon Managing Director (1993-present), Smith
Chairman and Member Barney Inc. ("Smith Barney"); Chairman
388 Greenwich Street (1993-present), Smith Barney Strategy
New York, New York Advisors, Inc.; President (1994-present),
Age 63 Smith Barney Mutual Funds Management Inc.;
Chairman and Director of forty-one
investment companies associated with Smith
Barney; Chairman, Board of Trustees, Drew
University; Trustee, The East New York
Savings Bank; Advisory Director, First
Empire State Corporation; Chairman, Board of
Managers, seven Variable Annuity Separate
Accounts of The Travelers Insurance
Company+; Chairman, Board of Trustees, five
Mutual Funds sponsored by The Travelers
Insurance Company++; prior to July 1993,
Senior Executive Vice President of Shearson
Lehman Brothers Inc.
Knight Edwards Of Counsel (1988-present), Partner
Member (1956-1988), Edwards & Angell, Attorneys;
2700 Hospital Trust Tower Member, Advisory Board (1973-1994),
Providence, Rhode Island thirty-one mutual funds sponsored by
Age 73 Keystone Group, Inc.; Member, Board of
Managers, seven Variable Annuity Separate
Accounts of The Travelers Insurance
Company+; Trustee, five Mutual Funds
sponsored by The Travelers Insurance
Company.++
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<PAGE> 199
Robert E. McGill, III Retired manufacturing executive. Director
Member (1983-1995), Executive Vice President
295 Hancock Street (1989-1994) and Senior Vice President,
Williamstown, Massachusetts Finance and Administration (1983-1989), The
Age 65 Dexter Corporation (manufacturer of
specialty chemicals and materials); Vice
Chairman (1990-1992), Director (1983-1995),
Life Technologies, Inc. (life
science/biotechnology products); Director,
(1994-present), The Connecticut Surety
Corporation (insurance); Director
(1995-present), Calbiochem Novachem
International (life science/biotechnology
products); Director (1995-present), Chemfab
Corporation (specialty materials
manufacturer); Member, Board of Managers,
seven Variable Annuity Separate Accounts of
The Travelers Insurance Company+; Trustee,
five Mutual Funds sponsored by The Travelers
Insurance Company.++
Lewis Mandell Dean, College of Business Administration
Member (1995-present), Marquette University;
606 N. 13th Street Professor of Finance (1980-1995) and
Milwaukee, WI 53233 Associate Dean (1993-1995), School of
Age 54 Business Administration, and Director,
Center for Research and Development in
Financial Services (1980-1995), University
of Connecticut; Director (1992-present), GZA
Geoenvironmental Tech, Inc. (engineering
services); Member, Board of Managers, seven
Variable Annuity Separate Accounts of The
Travelers Insurance Company+; Trustee, five
Mutual Funds sponsored by The Travelers
Insurance Company.++
Frances M. Hawk Portfolio Manager (1992-present), HLM
Member Management Company, Inc. (investment
222 Berkeley Street management); Assistant Treasurer, Pensions
Boston, Massachusetts and Benefits. Management (1989-1992), United
Age 49 Technologies Corporation (broad- based
designer and manufacturer of high technology
products); Member, Board of Managers, seven
Variable Annuity Separate Accounts of The
Travelers Insurance Company+; Trustee, five
Mutual Funds sponsored by The Travelers
Insurance Company.++
Ernest J. Wright Assistant Secretary (1994-present), Counsel
Secretary to the Board (1987-present), The Travelers Insurance
One Tower Square Company; Secretary, Board of Managers, seven
Hartford, Connecticut Variable Annuity Separate Accounts of The
Age 56 Travelers Insurance Company+; Secretary,
Board of Trustees, five Mutual Funds
sponsored by The Travelers Insurance
Company.++
Kathleen A. McGah Assistant Secretary and Counsel
Assistant Secretary to the Board (1995-present), The Travelers Insurance
One Tower Square Company; Assistant Secretary, Board of
Hartford, Connecticut Managers, seven Variable Annuity Separate
Age 45 Accounts of The Travelers Insurance
Company+; Assistant Secretary, Board of
Trustees, five Mutual Funds sponsored by The
Travelers Insurance Company.++ Prior to
January 1995, Counsel, ITT Hartford Life
Insurance Company.
+ These seven Variable Annuity Separate Accounts are: 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, The Travelers Timed Growth and Income Stock
Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock
Account for Variable Annuities and The Travelers Timed Bond Account for
Variable Annuities.
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<PAGE> 200
++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income
Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers
Series Trust.
* Mr. McLendon is an "interested person" within the meaning of the 1940
Act by virtue of his position as Managing Director of Smith Barney Inc., an
indirect wholly owned subsidiary of Travelers Group Inc. and also owns shares
and options to purchase shares of Travelers Group Inc., the indirect parent of
The Travelers Insurance Company.
The Company is responsible for payment of the fees and expenses of the
Board of Managers, and the expenses of audit of the Separate Accounts, as well
as other expenses for services related to the operations of the accounts, for
which it deducts certain amounts from purchase payments and from the accounts.
Members of the Board of Managers who are also officers or employees of
Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members of
the Board of Managers who are not affiliated as employees of Travelers Group
Inc. or its subsidiaries receive an aggregate retainer of $19,000 for service on
the Boards of the seven Variable Annuity Separate Accounts established by The
Travelers Insurance Company and the five Mutual Funds sponsored by The Travelers
Insurance Company. They also receive an aggregate fee of $2,500 for each meeting
of such Boards attended.
DISTRIBUTION AND MANAGEMENT SERVICES
Under the terms of a Distribution and Management Agreement each Separate
Account, the Company and Tower Square Securities, Inc., the Company provides all
sales and administrative services and mortality and expense risk guarantees
related to variable annuity contracts issued by the Company in connection with
Account GIS and assumes the risk of minimum death benefits, as applicable. The
Company also pays all sales costs (including costs associated with the
preparation of sales literature); all costs of qualifying Account GIS and the
variable annuity contracts with regulatory authorities; the costs of proxy
solicitation; all custodian, accountants' and legal fees; and all compensation
paid to the unaffiliated members of the Board of Managers. The Company also
provides without cost to Account GIS all necessary office space, facilities, and
personnel to manage its affairs.
The Company received the following amounts from the Separate Accounts in each of
the last three fiscal years for services provided under the Distribution and
Management Agreements:
<TABLE>
<CAPTION>
SEPARATE ACCOUNT 1996 1995 1994
<S> <C> <C> <C>
GIS $5,889,123 $4,557,639 $4,025,788
QB $2,322,938 $2,119,384 $2,156,643
</TABLE>
SECURITIES CUSTODIAN
Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York, is the
custodian of the portfolio securities and similar investments of Accounts GIS
and QB.
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<PAGE> 201
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, 100 Pearl Street, Hartford,
Connecticut, are the independent auditors for Accounts GIS and QB. The services
provided to these Separate Accounts include primarily the examination of the
Accounts' financial statements. The financial statements for the year ended
December 31, 1996 of Accounts GIS and QB appear in the Annual Report which is
incorporated herein by reference. Such financial statements have been audited by
Coopers & Lybrand L.L.P., as indicated in their reports thereon in reliance upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance Company and
Subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
19
<PAGE> 202
TIC FINANCIALS HERE
<PAGE> 203
THETRAVELERS
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES AND
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
GROUP VARIABLE ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
Pension and Profit-Sharing Programs
L-11162S TIC ED. 5-97
Printed in U.S.A
<PAGE> 204
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
- --------------------------------------------------------------------------------
INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY
THE TRAVELERS INSURANCE COMPANY
MAY 1, 1997
This Statement of Additional Information ("SAI") is not a prospectus
but relates to, and should be read in conjunction with, the Prospectus dated May
1, 1997. A copy of the Prospectus may be obtained by writing to The Travelers
Insurance Company (the "Company"), Annuity Services, One Tower Square, Hartford,
Connecticut 06183-5030, or by calling 860-422-3985.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS ...................... 2
The Insurance Company .............................................. 2
The Separate Accounts .............................................. 2
INVESTMENT OBJECTIVES AND POLICIES .......................................... 2
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES ..................................................... 3
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES ................... 4
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT
TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS ............................... 6
WRITING COVERED CALL OPTIONS ....................................... 6
BUYING PUT AND CALL OPTIONS ........................................ 7
FUTURES CONTRACTS .................................................. 8
MONEY MARKET INSTRUMENTS ........................................... 10
INVESTMENT MANAGEMENT AND ADVISORY SERVICES ................................. 12
Advisory Fees ...................................................... 13
TIMCO .............................................................. 13
TAMIC .............................................................. 14
VALUATION OF ASSETS ......................................................... 16
THE BOARD OF MANAGERS ....................................................... 16
DISTRIBUTION AND MANAGEMENT SERVICES ........................................ 18
SECURITIES CUSTODIAN ........................................................ 18
INDEPENDENT ACCOUNTANTS ..................................................... 19
FINANCIAL STATEMENTS ........................................................ F-1
</TABLE>
1
<PAGE> 205
DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company") is a stock insurance company
chartered in 1864 in Connecticut and continuously engaged in the insurance
business since that time. It is licensed to conduct a life insurance business in
all states of the United States, the District of Columbia, Puerto Rico, Guam,
the Virgin Islands, Canada and the Bahamas. The Company is an indirect wholly
owned subsidiary of Travelers Group Inc., a financial services holding company.
The Company's Home Office is located at One Tower Square, Hartford, Connecticut
06183.
THE SEPARATE ACCOUNTS
Each of the Separate Accounts which serve as the funding vehicles for the
Variable Annuity contracts described in this SAI meets the definition of a
separate account under the federal securities laws, and will comply with the
provisions of the Investment Company Act of 1940, as amended (the "1940 Act").
Additionally, the operations of each of the Separate Accounts are subject to the
provisions of Section 38a-433 of the Connecticut General Statutes which
authorizes the Connecticut Insurance Commissioner to adopt regulations under it.
The Section contains no restrictions on investments of the Separate Accounts,
and the Commissioner has adopted no regulations under the Section that affect
the Separate Accounts.
The Travelers Growth and Income Stock Account for Variable Annuities (Account
GIS) was established on September 22, 1967, and The Travelers Quality Bond
Account for Variable Annuities (Account QB) was established on July 29, 1974.
Each of the Separate Accounts, although an integral part of the Company, is
registered with the Securities and Exchange Commission ("SEC") as a diversified,
open-end management investment company under the 1940 Act. The assets of
Accounts GIS and QB are invested directly in securities (such as stocks, bonds
or money market instruments) which are compatible with the stated investment
policies of each account.
Purchase Payments may be allocated to either of the Separate Accounts. The
Company may make additions to or deletions from the investment alternatives
available under the Contract, as permitted by law. The investment objectives of
each of the Separate Accounts are as follows:
ACCOUNT GIS: The primary objective of Account GIS is long-term
accumulation of principal through capital
appreciation and retention of net investment income.
The assets of Account GIS will normally be invested
in a portfolio of common stocks spread over
industries and companies.
ACCOUNT QB: The primary objective of Account QB is current
income, moderate capital volatility and total return.
Assets of Account QB will be invested in short-term
to intermediate-term bonds or other debt securities
with a market value-weighted average maturity of five
years or less.
INVESTMENT OBJECTIVES AND POLICIES
Each Separate Account has a different investment objective and different
investment policies, and each Separate Account has certain fundamental
investment restrictions, all of which are set forth below. Neither the
investment objective nor the fundamental investment restrictions can be changed
without a vote of a majority of the outstanding voting securities of the
Accounts, as defined in the 1940 Act. Additionally, in accomplishing their
respective investment objectives, each Account uses certain types of investments
and investment techniques which are discussed under "Investments and Investment
Techniques" on page 6.
2
<PAGE> 206
The percentage restrictions (for either fundamental investment policies or
investment restrictions) are interpreted such that if they are adhered to at the
time of investment, a later increase in a percentage beyond the specified limit
resulting from a change in the values of portfolio securities or in the amount
of net assets shall not be considered a violation. It must be recognized that
there are risks inherent in the ownership of any investment and that there can
be no assurance that the investment objectives of the Separate Accounts will be
achieved.
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT OBJECTIVE
The basic investment objective of Account GIS is the selection of investments
from the point of view of an investor concerned primarily with long-term
accumulation of principal through capital appreciation and retention of net
investment income. This principal objective does not preclude the realization of
short-term gains when conditions would suggest the long-term goal is
accomplished by such short-term transactions. The assets of Account GIS will
primarily be invested in a portfolio of equity securities, mainly common stocks,
spread over industries and companies. However, when it is determined that
investments of other types may be advantageous on the basis of combined
considerations of risk, income and appreciation, investments may also be made in
bonds, notes or other evidence of indebtedness, issued publicly or placed
privately, of a type customarily purchased for investment by institutional
investors, including United States Government securities. These investments
generally would not have a prospect of long-term appreciation. Investments in
other than equity securities are temporary for defensive purposes. Such
investments may or may not be convertible into stock or be accompanied by stock
purchase options or warrants for the purchase of stock.
Account GIS may use exchange-traded financial futures contracts as a hedge to
protect against changes in stock prices. The use of stock index futures by
Account GIS is intended primarily to limit transaction and borrowing costs.
Account GIS expects that risk management transactions involving futures
contracts will not impact more than thirty percent (30%) of Account GIS's assets
at any one time. Account GIS may also write covered call options on securities
which it owns, and may purchase index or individual equity call or put options.
INVESTMENT RESTRICTIONS
The investment restrictions for Account GIS set forth in items 1 through 9 are
fundamental and may not be changed without a vote of a majority of the
outstanding voting securities, as defined in the 1940 Act. Items 10 through 13
may be changed by a vote of the Board of Managers.
1. Not more than 5% of the assets of the Account will be invested
in the securities of any one issuer, except obligations of the
United States Government and its instrumentalities.
2. Borrowings will not be made, except that the right is reserved
to borrow from banks for emergency purposes, provided that such
borrowings will not exceed 5% of the value of the assets of the
Account and that immediately after the borrowing, and at all
times thereafter, and while any such borrowing is unrepaid,
there will be asset coverage of at least 300% for all borrowings
of the Account.
3. Securities of other issuers will not be underwritten, except
that the Account could be deemed an underwriter when engaged in
the sale of restricted securities. (See item 13.)
4. Interests in real estate will not be purchased, except as may be
represented by securities for which there is an established
market.
5. No purchase of commodities or commodity contracts will be made,
except transactions involving financial futures in order to
limit transaction and borrowing costs and for hedging purposes,
as discussed above.
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6. Loans will be made only through the acquisition of a portion of
privately placed issue of bonds, debentures or other evidences
of indebtedness of a type customarily purchased by institutional
investors. (See item 13.)
7. Investments will not be made in the securities of a company for
the purpose of exercising management or control.
8. Not more than 10% of the voting securities of any one issuer
will be acquired. (It is the present practice of Account GIS not
to exceed 5% of the voting securities of any one issuer.)
9. Senior securities will not be issued.
10. Short sales of securities will not be made.
11. Purchases will not be made on margin, except for short-term
credits which are necessary for the clearance of transactions,
and for the placement of not more than 5% of its net asset value
in total margin deposits for positions in futures contracts.
12. The Account will not invest in the securities of other
investment companies, except as part of a plan of merger,
consolidation or acquisition of assets.
13. Not more than 5% of the value of the assets of the Account may
be invested in restricted securities (securities which may not
be publicly offered without registration under the Securities
Act of 1933).
Changes in the investments of Account GIS may be made from time to time to take
into account changes in the outlook for particular industries or companies.
Account GIS's investments will not, however, be concentrated in any one
industry; that is, no more than twenty-five percent (25%) of the value of its
assets will be invested in any one industry. While Account GIS may occasionally
invest in foreign securities, it is not anticipated that such investments will,
at any time, account for more than ten percent (10%) of its investment
portfolio.
The assets of Account GIS will be kept fully invested, except that (a)
sufficient cash may be kept on hand to provide for variable annuity contract
obligations, and (b) reasonable amounts of cash, United States Government or
other liquid securities, such as short-term bills and notes, may be held for
limited periods, pending investment in accordance with their respective
investment policies.
PORTFOLIO TURNOVER
Although Account GIS intends to purchase securities for long-term appreciation
of capital and income, and does not intend to place emphasis on obtaining
short-term trading profits, such short-term trading may occur. A higher turnover
rate should not be interpreted as indicating a variation from the stated
investment policy of seeking long-term accumulation of capital, and will
normally increase the brokerage costs of Account GIS. However, negotiated fees
and the use of futures contracts will help to reduce brokerage costs. While
there is no restriction on portfolio turnover, Account GIS expects to have a
moderate to high level of portfolio turnover in the range of 150% to 300%. The
portfolio turnover rate for Account GIS for the years ended December 31, 1994,
1995 and 1996 was 103%, 96% and 85%, respectively.
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT OBJECTIVE
The basic investment objective of Account QB is the selection of investments
from the point of view of an investor concerned primarily with current income,
moderate capital volatility and total return.
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It is contemplated that the assets of Account QB will be invested in money
market obligations, including, but not limited to, Treasury bills, repurchase
agreements, commercial paper, bank certificates of deposit and bankers'
acceptances, and in publicly traded debt securities, including bonds, notes,
debentures, equipment trust certificates and short-term instruments. These
securities may carry certain equity features such as conversion or exchange
rights or warrants for the acquisition of stocks of the same or different
issuer, or participations based on revenues, sales or profits. It is currently
anticipated that the market value-weighted average maturity of the portfolio
will not exceed five years. (In the case of mortgage-backed securities, the
estimated average life of cash flows will be used instead of average maturity.)
Investments in longer term obligations may be made if the Board of Managers
concludes that the investment yields justify a longer term commitment.
Account QB may purchase and sell futures contracts on debt securities ("interest
rate futures") to hedge against changes in interest rates that might otherwise
have an adverse effect upon the value of Account QB's securities.
The portfolio will be actively managed and Account QB may sell investments prior
to maturity to the extent that this action is considered advantageous in light
of factors such as market conditions or brokerage costs. While the investments
of Account QB are generally not listed securities, there are firms which make
markets in the type of debt instruments which Account QB holds. No problems of
salability are anticipated with regard to the investments of Account QB.
The Board of Managers will weigh considerations of risks, yield and ratings in
implementing Account QB's fundamental investment policies. There are no specific
criteria with regard to quality or ratings of the investments of Account QB, but
it is anticipated that they will be of investment grade or its equivalent as
determined in good faith by the Board of Managers. There may or may not be more
risk in investing in debt instruments where there are no specific criteria with
regard to quality or ratings of the investments.
INVESTMENT RESTRICTIONS
The investment restrictions set forth in items 1 through 9 below are fundamental
and may not be changed without a vote of a majority of the outstanding voting
securities of Account QB, as defined in the 1940 Act. Items 10 through 13 may be
changed by a vote of the Board of Managers of Account QB.
1. Not more than 15% of the value of the assets of Account QB will
be invested in the securities of any one issuer, except
obligations of the United States Government and its
instrumentalities, for which there is no limit.
2. Borrowings will not be made, except that the right is reserved
to borrow from banks for emergency purposes, provided that these
borrowings will not exceed 5% of the value of the assets of
Account QB and that immediately after the borrowing, and at all
times thereafter, and while any borrowing is unrepaid, there
will be asset coverage of at least 300% for all borrowings of
Account QB.
3. Securities of other issuers will not be underwritten, except
that Account QB could be deemed to be an underwriter when
engaged in the sale of restricted securities.
4. Interests in real estate will not be purchased, except as may be
represented by securities for which there is an established
market.
5. No purchase of commodities or commodity contracts will be made,
except transactions involving financial futures used as a hedge
against unanticipated changes in prevailing levels of interest
rates.
6. Loans will be made only through the acquisition of a portion of
privately placed issue of bonds, debentures and other evidences
of indebtedness of a type customarily purchased by institutional
investors.
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7. Investments will not be made in the securities of a company for
the purpose of exercising management or control.
8. Not more than 10% of the voting securities of any one issuer
will be acquired.
9. Senior securities will not be issued.
10. Short sales of securities will not be made.
11. Purchases will not be made on margin, except for any short-term
credits that are necessary for the clearance of transactions and
to place up to 5% of the value of its net assets in total margin
deposits for positions in futures contracts.
12. Account QB will not invest in the securities of other investment
companies, except as part of a plan of merger, consolidation or
acquisition of assets.
13. The average period of maturity (or in the case of
mortgage-backed securities, the estimated average life of cash
flows) of all fixed interest debt instruments held by Account QB
will not exceed five years.
The investments of Account QB will not be concentrated in any one industry; that
is, no more than twenty-five percent (25%) of the value of its assets will be
invested in any one industry. There is no investment policy as to Account QB's
investment in foreign securities.
PORTFOLIO TURNOVER
Brokerage costs associated with short-term debt instruments are significantly
lower than those incurred on equity investments, and thus, a high portfolio
turnover rate would not adversely affect the brokerage costs of Account QB to
the same extent as high turnover in a separate account which invests primarily
in common stock. The portfolio turnover rate for Account QB for the years ended
December 31, 1994, 1995 and 1996 was 27%, 138% and 176%, respectively. The
marked increase in the portfolio turnover rate for 1995 and 1996 was due to a
restructuring of corporate bond positions in order to seek increased return.
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT
TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS
WRITING COVERED CALL OPTIONS
Account GIS may write covered call options on portfolio securities for which
call options are available and which are listed on a national securities
exchange. These call options generally will be short-term contracts with a
duration of nine months or less.
Account GIS will write only "covered" call options, that is, it will own the
underlying securities which are acceptable for escrow when it writes the call
option and until the obligation to sell the underlying security is extinguished
by exercise or expiration of the call option, or until a call option covering
the same underlying security and having the same exercise price and expiration
date is purchased. Account GIS will receive a premium for writing a call option,
but gives up, until the expiration date, the opportunity to profit from an
increase in the underlying security's price above the exercise price. Account
GIS will retain the risk of loss from a decrease in the price of the underlying
security. Writing covered call options is a conservative investment technique
which is believed to involve relatively little risk, but which is capable of
enhancing an account's total returns.
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The premium received for writing a covered call option will be recorded as a
liability in the Account's Statement of Assets and Liabilities. This liability
will be adjusted daily to the option's current market value, which will be the
latest sale price at the close of the New York Stock Exchange, or, in the
absence of such sale, at the latest bid quotation. The liability will be
extinguished upon expiration of the option, the purchase of an identical option
in a closing transaction, or delivery of the underlying security upon exercise
of the option.
The Options Clearing Corporation is the issuer of, and the obligor on, the
covered call options written by Account GIS. In order to secure an obligation to
deliver to the Options Clearing Corporation the underlying security of a covered
call option written by Account GIS, the Account will be required to make escrow
arrangements.
In instances where Account GIS believes it is appropriate to close a covered
call option, it can close out the previously written call option by purchasing a
call option on the same underlying security with the same exercise price and
expiration date. Account GIS may also, under certain circumstances, be able to
transfer a previously written call option.
A previously written call option can be closed out by purchasing an identical
call option only on a national securities exchange which provides a secondary
market in the call option. There is no assurance that a liquid secondary market
will exist for a particular call option at such time. If Account GIS cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even though it
might otherwise be advantageous to do so.
If a substantial number of the call options are exercised, the Account's rate of
portfolio turnover may exceed historical levels. This would result in higher
brokerage commissions in connection with the writing of covered call options and
the purchase of call options to close out previously written options. Such
brokerage commissions are normally higher than those applicable to purchases and
sales of portfolio securities.
BUYING PUT AND CALL OPTIONS
Account GIS may purchase put options on securities held, or on futures contracts
whose price volatility is expected to closely match that of securities held, as
a defensive measure to preserve contract owners' capital when market conditions
warrant. Account GIS may purchase call options on specific securities, or on
futures contracts whose price volatility is expected to closely match that of
securities, eligible for purchase by Account GIS, in anticipation of or as a
substitute for the purchase of the securities themselves. These options may be
listed on a national exchange or executed "over-the-counter" with a
broker-dealer as the counterparty. While the investment adviser anticipates that
the majority of option purchases and sales will be executed on a national
exchange, put or call options on specific securities or for non-standard terms
are likely to be executed directly with a broker-dealer when it is advantageous
to do so. Option contracts will be short-term in nature, generally less than
nine months. Account GIS will pay a premium in exchange for the right to
purchase (call) or sell (put) a specific number of shares of an equity security
or futures contract at a specified price (the strike price) on or before the
expiration date of the options contract. In either case, Account GIS's risk is
limited to the option premium paid.
Account GIS may sell the put and call options prior to their expiration and
realize a gain or loss thereby. A call option will expire worthless if the price
of the related security is below the contract strike price at the time of
expiration; a put option will expire worthless if the price of the related
security is above the contract strike price at the time of expiration.
Put and call options will be employed for bona fide hedging purposes only.
Liquid securities sufficient to fulfill the call option delivery obligation will
be identified and segregated in an account; deliverable securities sufficient to
fulfill the put option obligation will be similarly identified and segregated.
In the case of put options on futures contracts, portfolio securities whose
price volatility is expected to match that of the underlying futures contract
will be identified and segregated.
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FUTURES CONTRACTS
STOCK INDEX FUTURES
Account GIS will invest in stock index futures. A stock index futures contract
provides for one party to take and the other to make delivery of an amount of
cash over the hedging period equal to specified amount times the difference
between a stock index value at the close of the last trading day of the contract
or the selling price and the price at which the futures contract is originally
struck. The stock index assigns relative values to the common stocks included in
the index and reflects overall price trends in the designated market for equity
securities. Therefore, price changes in a stock index futures contract reflect
changes in the specified index of equity securities on which the futures
contract is based. Stock index futures may also be used, to a limited extent, to
hedge specific common stocks with respect to market (systematic) risk (involving
the market's assessment of overall economic prospects) as distinguished from
stock-specific risk (involving the market's evaluation of the merits of the
issuer of a particular security). By establishing an appropriate "short"
position in stock index futures, Account GIS may seek to protect the value of
its equity securities against an overall decline in the market for equity
securities. Alternatively, in anticipation of a generally rising market, Account
GIS can seek to avoid losing the benefit of apparently low current prices by
establishing a "long" position in stock index futures and later liquidating that
position as particular equity securities are in fact acquired. Account GIS will
not be a hedging fund; however, to the extent that any hedging strategies
actually employed are successful, Account GIS will be affected to a lesser
degree by adverse overall market price movements unrelated to the merits of
specific portfolio equity securities than would otherwise be the case. Gains and
losses on futures contracts employed as hedges for specific securities will
normally be offset by losses or gains, respectively, on the hedged security.
INTEREST RATE FUTURES
Account QB may purchase and sell futures contracts on debt securities ("interest
rate futures") to hedge against anticipated changes in interest rates that might
otherwise have an adverse effect upon the value of an Account's debt securities.
An interest rate futures contract is a binding contractual commitment which, if
held to maturity, will result in an obligation to make or accept delivery,
during a particular future month, of debt securities having a standardized face
value and rate of return.
By purchasing interest rate futures (assuming a "long" position), Account QB
will be legally obligated to accept the future delivery of the underlying
security and pay the agreed price. This would be done, for example, when Account
QB intends to purchase particular debt securities when it has the necessary
cash, but expects the rate of return available in the securities markets at that
time to be less favorable than rates currently available in the futures markets.
If the anticipated rise in the price of the debt securities should occur (with
its concurrent reduction in yield), the increased cost of purchasing the
securities will be offset, at least to some extent, by the rise in the value of
the futures position taken in anticipation of the securities purchase.
By selling interest rate futures held by it, or interest rate futures having
characteristics similar to those held by it (assuming a "short" position),
Account QB will be legally obligated to make the future delivery of the security
against payment of the agreed price. Such a position seeks to hedge against an
anticipated rise in interest rates that would adversely affect the value of
Account QB's portfolio debt securities.
Open futures positions on debt securities will be valued at the most recent
settlement price, unless such price does not appear to the Board of Managers to
reflect the fair value of the contract, in which case the positions will be
valued at fair value determined in good faith by or under the direction of the
Board of Managers.
Hedging by use of interest rate futures seeks to establish, with more certainty
than would otherwise be possible, the effective rate of return on portfolio
securities. When hedging is successful, any depreciation in the value of
portfolio securities will substantially be offset by appreciation in the value
of the futures position.
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FUTURES MARKETS AND REGULATIONS
When a futures contract is purchased, Accounts GIS and QB will set aside, in an
identifiable manner, an amount of cash and cash equivalents equal to the total
market value of the futures contract, less the amount of the initial margin. The
Accounts will incur brokerage fees in connection with their futures
transactions, and will be required to deposit and maintain funds with brokers as
margin to guarantee performance of future obligations.
Positions taken in the futures markets are not normally held to maturity, but
instead are liquidated through offsetting transactions which may result in a
profit or a loss. Closing out an open futures contract sale or purchase is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the stock index or interest rate
futures contract and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Accounts realize a gain; if it is more,
the Accounts realize a loss. Conversely, if the offsetting sale price is more
than the original purchase price, the Accounts realize a gain; if less, a loss.
While futures positions taken by the Accounts will usually be liquidated in this
manner, the Accounts may instead make or take delivery of the underlying
securities whenever it appears economically advantageous for them to do so. In
determining gain or loss, transaction costs must also be taken into account.
There can be no assurance that the Accounts will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time.
A clearing corporation associated with the exchange on which futures are traded
guarantees that the sale and purchase obligations will be performed with regard
to all positions that remain open at the termination of the contract.
All stock index and interest rate futures will be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC").
Stock index futures are currently traded on the New York Futures Exchange and
the Chicago Mercantile Exchange. Interest rate futures are actively traded on
the Chicago Board of Trade and the International Monetary Market at the Chicago
Mercantile Exchange.
The investment advisers do not believe any of the Accounts to be a "commodity
pool" as defined under the Commodity Exchange Act. The Accounts will only enter
into futures contracts for bona fide hedging or other appropriate risk
management purposes as permitted by CFTC regulations and interpretations, and
subject to the requirements of the SEC. The Accounts will not purchase or sell
futures contracts for which the aggregate initial margin exceeds five percent
(5%) of the fair market value of their individual assets, after taking into
account unrealized profits and unrealized losses on any such contracts which
they have entered into. The Accounts will further seek to assure that
fluctuations in the price of any futures contracts that they use for hedging
purposes will be substantially related to fluctuations in the price of the
securities which they hold or which they expect to purchase, although there can
be no assurance that the expected result will be achieved.
As evidence of their hedging intent, the Accounts expect that on seventy-five
percent (75%) or more of the occasions on which they purchase a long futures
contract, they will effect the purchase of securities in the cash market or take
delivery at the close of a futures position. In particular cases, however, when
it is economically advantageous, a long futures position may be terminated
without the corresponding purchase of securities.
SPECIAL RISKS
While certain futures contracts may be purchased and sold to reduce certain
risks, these transactions may entail other risks. Thus, while the Accounts may
benefit from the use of such futures, unanticipated changes in stock price
movements or interest rates may result in a poorer overall performance for the
Account than if it had not entered into such futures contracts. Moreover, in the
event of an imperfect correlation between the futures position and the portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Accounts may be exposed to risk of loss. The investment
advisers will attempt to reduce this risk by engaging in futures transactions,
to the extent possible, where, in their judgment, there is a significant
correlation between changes in the prices of the futures contracts and the
prices of any portfolio securities sought to be hedged.
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In addition to the possibility that there may be a less than perfect correlation
between movements in the futures contracts and securities in the portfolio being
hedged, the prices of futures contracts may not correlate perfectly with
movements in the underlying security due to certain market distortions. First,
rather than meeting variation margin deposit requirements should a futures
contract value move adversely, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, since margin requirements in the futures
market are less onerous than in the securities market, the futures market may
attract more speculators than the securities market. Increased participation by
speculators may cause temporary price distortions. Due to the possibility of
such price distortion, and also because of the imperfect correlation discussed
above, even a correct forecast of general market trends by the investment
advisers may not result in a successful hedging transaction in the futures
market over a short time period. However, as is noted above, the use of
financial futures by the Accounts is intended primarily to limit transaction and
borrowing costs. At no time will the Accounts use financial futures for
speculative purposes.
Successful use of futures contracts for hedging purposes is also subject to the
investment advisers' ability to predict correctly movements in the direction of
the market. However, the investment advisers believe that over time the value of
the Accounts' portfolios will tend to move in the same direction as the market
indices which are intended to correlate to the price movements of the portfolio
securities sought to be hedged.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one year or
less, such as bank certificates of deposit, bankers' acceptances, commercial
paper (including master demand notes), and obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities, some of which
may be subject to repurchase agreements.
CERTIFICATES OF DEPOSITS
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated certificates
of United States banks which have at least $1 billion in deposits as of the date
of their most recently published financial statements (including foreign
branches of U.S. banks, U.S. branches of foreign banks which are members of the
Federal Reserve System or the Federal Deposit Insurance Corporation).
The Accounts will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Accounts do not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank which, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Accounts must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion, and must be
payable in U.S. dollars.
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COMMERCIAL PAPER RATINGS
Investments in commercial paper are limited to those rated A-1 by Standard &
Poor's Corporation and Prime-1 by Moody's Investors Service, Inc. Commercial
paper rated A-1 by S&P has the following characteristics: (1) liquidity ratios
are adequate to meet cash requirements; (2) the issuer's long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; (3)
the issuer has access to at least two additional channels of borrowing; (4)
basic earnings and cash flow have an upward trend with allowances made for
unusual circumstances; and (5) the issuer's industry is typically well
established and the issuer has a strong position within the industry.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluating the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationship which exists with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public preparations to meet such
obligations. The relative strength or weakness of the above factors determines
how the issuer's commercial paper is rated within various categories.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between the lender (issuer) and the borrower. Master demand notes may permit
daily fluctuations in the interest rate and daily changes in the amounts
borrowed. An Account has the right to increase the amount under the note at any
time up to the full amount provided by the note agreement, or to decrease the
amount, and the borrower may repay up to the full amount of the note without
penalty. Notes purchased by a separate account must permit it to demand payment
of principal and accrued interest at any time (on not more than seven days
notice) or to resell the note at any time to a third party. Master demand notes
may have maturities of more than one year, provided they specify that (i) the
account be entitled to payment of principal and accrued interest upon not more
than seven days notice, and (ii) the rate of interest on such notes be adjusted
automatically at periodic intervals which normally will not exceed 31 days, but
which may extend up to one year. Because these types of notes are direct lending
arrangements between the lender and the borrower, such instruments are not
normally traded, and there is no secondary market for these notes, although they
are redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the right to redeem is dependent upon the
ability of the borrower to pay principal and interest on demand. In connection
with master demand note arrangements, the investment adviser considers earning
power, cash flow, and other liquidity ratios of the borrower to pay principal
and interest on demand. These notes, as such, are not typically rated by credit
rating agencies. Unless they are so rated, a separate account may invest in them
only if at the time of an investment the issuer meets the criteria set forth
above for commercial paper. The notes will be deemed to have a maturity equal to
the longer of the period remaining to the next interest rate adjustment or the
demand notice period.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury Bills have maturities of one year or
less, Treasury Notes have maturities of one to ten years, and Treasury Bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the United States Government or its agencies
or instrumentalities include direct obligations of the United States Treasury
and securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks,
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Federal Land Banks, Maritime Administration, The Tennessee Valley Authority,
District of Columbia Armory Board and Federal National Mortgage Association.
Some obligations of United States Government agencies and instrumentalities,
such as Treasury Bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; still others, such as bonds
issued by the Federal National Mortgage Association, a private corporation, are
supported only by the credit of the instrumentality. Because the United States
Government is not obligated by law to provide support to an instrumentality it
sponsors, the Accounts will invest in the securities issued by such an
instrumentality only when the investment advisers determine that the credit risk
with respect to the instrumentality does not make the securities unsuitable
investments. United States Government securities will not include international
agencies or instrumentalities in which the United States Government, its
agencies or instrumentalities participate, such as the World Bank, the Asian
Development Bank or the Inter-American Development Bank, or issues insured by
the Federal Deposit Insurance Corporation.
REPURCHASE AGREEMENTS
Interim cash balances may be invested from time to time in repurchase agreements
with approved counterparties. Approved counterparties are limited to national
banks or reporting broker-dealers meeting the Advisor's credit quality standards
as presenting minimal risk of default. All repurchase transactions must be
collateralized by U.S. Government securities with market value no less than 102%
of the amount of the transaction, including accrued interest. Repurchase
transactions generally mature the next business day but, in the event of a
transaction of longer maturity, collateral will be marked to market daily and,
when required, additional cash or qualifying collateral will be required from
the counterparty.
In executing a repurchase agreement, a portfolio purchases eligible securities
subject to the seller's simultaneous agreement to repurchase them on a mutually
agreed upon date and at a mutually agreed upon price. The purchase and resale
prices are negotiated with the counterparty on the basis of current short-term
interest rates, which may be more or less than the rate on the securities
collateralizing the transaction. Physical delivery or, in the case of
"book-entry" securities, segregation in the counterparty's account at the
Federal Reserve for the benefit of the Portfolio is required to establish a
perfected claim to the collateral for the term of the agreement in the event the
counterparty fails to fulfill its obligation.
As the securities collateralizing a repurchase transaction are generally of
longer maturity than the term of the transaction, in the event of default by the
counterparty on its obligation, the Portfolio would bear the risks of delay,
adverse market fluctuation and transaction costs in disposing of the collateral.
INVESTMENT MANAGEMENT AND ADVISORY SERVICES
The investments and administration of the separate accounts are under the
direction of the Board of Managers. The Travelers Investment Management Company
("TIMCO") furnishes investment management and advisory services to Account GIS,
and Travelers Asset Management International Corporation ("TAMIC") furnishes
investment management and advisory services to Account QB, according to the
terms of written Investment Advisory Agreements. The agreement between Account
GIS and TIMCO was approved by a vote of the Variable Annuity Contract Owners at
their meeting held on April 23, 1993, and amended effective May 1, 1994 by
virtue of Contract Owner approval at a meeting held on April 22, 1994. The
agreement between Account QB and TAMIC was approved by a vote of the Variable
Annuity Contract Owners at their meeting held on April 23, 1993.
Each of these agreements will continue in effect as described below in (3), as
required by the 1940 Act. Each of the agreements:
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<PAGE> 216
1. provides that for investment management and advisory services,
the Company will pay to TIMCO and TAMIC, an advisory fee based
on the current value of the assets of the accounts for which
TIMCO and TAMIC act as investment adviser (see "Advisory Fees"
below);
2. may not be terminated by TIMCO or TAMIC without prior approval
of a new investment advisory agreement by those casting a
majority of the votes entitled to be cast and will be subject to
termination without the payment of any penalty, upon sixty days'
written notice, by the Board of Managers or by a vote of those
casting a majority of the votes entitled to be cast;
3. will continue in effect for a period more than two years from
the date of its execution, only so long as its continuance is
specifically approved at least annually by a vote of a majority
of the Board of Managers, or by a vote of a majority of the
outstanding voting securities of the Account. In addition, and
in either event, the terms of the agreement must be approved
annually by a vote of a majority of the Board of Managers who
are not parties to, or interested persons of any party to, the
agreement, cast in person, at a meeting called for the purpose
of voting on the approval and at which the Board of Managers has
been furnished the information that is reasonably necessary to
evaluate the terms of the agreement;
4. will automatically terminate upon assignment.
ADVISORY FEES
For furnishing investment management and advisory services to Account GIS, TIMCO
is paid an amount equivalent on an annual basis to 0.45% of the average daily
net assets of Account GIS. The total advisory fees paid to TIMCO by Account GIS
for the fiscal years ended December 31, 1994, 1995 and 1996 were $1,368,700,
$1,700,124 and $2,079,020, respectively.
For furnishing investment management and advisory services to Account QB, TAMIC
is paid an amount equivalent on an annual basis to 0.3233% of the average daily
net assets of Account QB. For the years ended December 31, 1994, 1995 and 1996
the advisory fees were $572,484, $547,715 and $576,329, respectively.
TIMCO
TIMCO, an indirect wholly owned subsidiary of Travelers Group Inc., is located
at One Tower Square, Hartford, Connecticut 06183. In addition to providing
investment management and advisory services to Account GIS, TIMCO acts as
investment adviser (or subadviser) for other investment companies which serve as
the funding media for certain variable annuity and variable life insurance
contracts offered by The Travelers Insurance Company and its affiliates. TIMCO
also acts as investment adviser for individual and pooled pension and
profit-sharing accounts and for affiliated companies of The Travelers Insurance
Company.
Investment decisions for Account GIS will be made independently from those of
any other accounts managed by TIMCO. If, however, accounts managed by TIMCO are
simultaneously engaged in the purchase of the same security, then available
securities may be allocated to each account and may be averaged as to price in
whatever manner TIMCO deems to be fair. In some cases, this system might
adversely affect the price or volume of securities being bought or sold by an
account, while in other cases it may produce better executions or lower
brokerage rates.
BROKERAGE
Subject to approval of the Board of Managers, and in accordance with the
Investment Advisory Agreement, TIMCO will place purchase and sale orders for the
portfolio securities of Account GIS through brokerage firms which it may select
from time to time with the objective of seeking the best execution by
responsible brokerage firms at
13
<PAGE> 217
reasonably competitive rates. To the extent consistent with this policy, certain
brokerage transactions may be placed with firms which provide brokerage and
research services to TIMCO, and such transactions may be paid for at higher
rates than other firms would charge. The term "brokerage and research services"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities for purchasers
or sellers of securities; furnishing analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). These brokerage
and research services may be utilized in providing investment advice to Account
GIS and may also be utilized in providing investment advice and management to
all accounts over which TIMCO exercises investment discretion, but not all of
such services will necessarily be utilized in providing investment advice to all
accounts. This practice may be expected to result in greater cost to the
Accounts than might otherwise be the case if brokers whose charges were based on
execution alone were used for such transactions. TIMCO believes that brokers'
research services are very important in providing investment advice to the
Accounts but is unable to give the services a dollar value. While research
services are not expected to reduce the expenses of TIMCO, TIMCO will, through
the use of these services, avoid the additional expenses which would be incurred
if it should attempt to develop comparable information through its own staff.
Transactions in the over-the-counter market are placed with the principal market
makers unless better price and execution may be obtained otherwise. Brokerage
fees will be incurred in connection with futures transactions, and Account GIS
will be required to deposit and maintain funds with brokers as margin to
guarantee performance of future obligations.
The overall reasonableness of brokerage commissions paid is evaluated by
personnel of TIMCO responsible for trading and for managing Account GIS's
portfolio by comparing brokerage firms utilized by TIMCO and other firms with
respect to the following factors: the prices paid or received in securities
transactions, speed of execution and settlement, size and difficulty of the
brokerage transactions, the financial soundness of the firms, and the quality,
timeliness and quantity of research information and reports.
The total brokerage commissions paid by Account GIS for the fiscal years ending
December 31, 1994, 1995 and 1996 were $991,682, $866,658 and $890,690,
respectively. For the fiscal year ended December 31, 1996, portfolio
transactions in the amount of $658,047,320 were directed to certain brokers
because of research services, of which $790,252 was paid in commissions with
respect to such transactions. No formula was used in placing such transactions
and no specific amount of transactions was allocated for research services. For
the year ended December 31, 1996, commissions in the amounts of $60,239 and
$65,045 were paid to Smith Barney Inc. and The Robinson Humphrey Company, Inc.,
respectively, both affiliates of TIMCO, which equals, for each, 6.76% and 7.30%
of Account GIS's aggregate brokerage commissions paid to such brokers during
1996. The percentage of Account GIS's aggregate dollar amount of transactions
involving the payment of commissions effected through Smith Barney and Robinson
Humphrey were 6.94% and 6.77%, respectively.
TAMIC
TAMIC, an indirect wholly owned subsidiary of Travelers Group Inc., is located
at One Tower Square, Hartford, Connecticut 06183. In addition to providing
investment management and advisory services to Account QB, TAMIC acts as
investment adviser for investment companies which serve as the funding media for
certain variable annuity and variable life insurance contracts offered by The
Travelers Insurance Company and its affiliates. TAMIC also acts as investment
adviser for individual and pooled pension and profit-sharing accounts, for
offshore insurance companies affiliated with The Travelers Insurance Company,
and for non-affiliated insurance companies, both domestic and offshore.
Investment advice and management for TAMIC's clients are furnished in accordance
with their respective investment objectives and policies and investment
decisions for the Accounts will be made independently from those of any other
accounts managed by TAMIC. However, securities owned by Account QB may also be
owned
14
<PAGE> 218
by other clients and it may occasionally develop that the same investment
advice and decision for more than one client is made at the same time.
Furthermore, it may develop that a particular security is bought or sold for
only some clients even though it might be held or bought or sold for other
clients, or that a particular security is bought for some clients when other
clients are selling the security. When two or more accounts are engaged in the
purchase or sale of the same security, the transactions are allocated as to
amount in accordance with a formula which is equitable to each account. It is
recognized that in some cases this system could have a detrimental effect on the
price or volume of the security as far as Account QB is concerned. In other
cases, however, it is believed that the ability of Account QB to participate in
volume transactions will produce better executions for the account.
BROKERAGE
Subject to approval of the Board of Managers, it is the policy of TAMIC, in
executing transactions in portfolio securities, to seek best execution of orders
at the most favorable prices. The determination of what may constitute best
execution and price in the execution of a securities transaction by a broker
involves a number of considerations, including, without limitation, the overall
direct net economic result to Account QB, involving both price paid or received
and any commissions and other cost paid, the efficiency with which the
transaction is effected, the ability to effect the transaction at all where a
large block is involved, the availability of the broker to stand ready to
execute potentially difficult transactions in the future and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by management in determining the overall reasonableness of brokerage
commissions paid. Subject to the foregoing, a factor in the selection of brokers
is the receipt of research services, analyses and reports concerning issuers,
industries, securities, economic factors and trends, and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers is considered to be in addition to and not in
lieu of services required to be performed by TAMIC under its Investment Advisory
Agreements. The cost, value and specific application of such information are
indeterminable and hence are not practicably allocable among Account QB and
other clients of TAMIC who may indirectly benefit from the availability of such
information. Similarly, Account QB may indirectly benefit from information made
available as a result of transactions for such clients.
Purchases and sales of bonds and money market instruments will usually be
principal transactions and will normally be purchased directly from the issuer
or from the underwriter or market maker for the securities. There usually will
be no brokerage commissions paid for such purchases. Purchases from the
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include the spread between
the bid and asked prices. Where transactions are made in the over-the-counter
market, Account QB will deal with primary market makers unless more favorable
prices are otherwise obtainable. Brokerage fees will be incurred in connection
with futures transactions, and Account QB will be required to deposit and
maintain funds with brokers as margin to guarantee performance of future
obligations.
TAMIC may follow a policy of considering the sale of units of Account QB a
factor in the selection of broker-dealers to execute portfolio transactions,
subject to the requirements of best execution described above.
The policy of TAMIC with respect to brokerage is and will be reviewed by the
Board of Managers periodically. Because of the possibility of further regulatory
developments affecting the securities exchanges and brokerage practices
generally, the foregoing practices may be changed, modified or eliminated.
The total brokerage commissions paid by Account QB for the fiscal years ended
December 31, 1994, 1995 and 1996 were $82,390, $549,540 and $745,209,
respectively. For the fiscal year ended December 31, 1996, no portfolio
transactions were directed to certain brokers because of research services. No
commissions were paid to broker dealers affiliated with TAMIC.
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<PAGE> 219
VALUATION OF ASSETS
The value of the assets of each Separate Account is determined on each Valuation
Date as of the close of the New York Stock Exchange (the "Exchange"). If the
Exchange is not open for trading on any such day, then such computation shall be
made as of the normal close of the Exchange. Each security traded on a national
securities exchange is valued at the last reported sale price on the Valuation
Date. If there has been no sale on that day, then the value of the security is
taken to be the mean between the reported bid and asked prices on the Valuation
Date or on the basis of quotations received from a reputable broker or any other
recognized source.
Any security not traded on a securities exchange but traded in the
over-the-counter market and for which market quotations are readily available is
valued at the mean between the quoted bid and asked prices on the Valuation Date
or on the basis of quotations received from a reputable broker or any other
recognized source.
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.
Short-term investments for which a quoted market price is available are valued
at market. Short-term investments maturing in more than sixty days for which
there is no reliable quoted market price are valued by "marking to market"
(computing a market value based upon quotations from dealers or issuers for
securities of a similar type, quality and maturity). "Marking to market" takes
into account unrealized appreciation or depreciation due to changes in interest
rates or other factors which would influence the current fair values of such
securities. Short-term investments maturing in sixty days or less for which
there is no reliable quoted market are valued at amortized cost which
approximates market.
THE BOARD OF MANAGERS
The investment and administration of each of the Separate Accounts are under the
direction of the Board of Managers, listed below. Members of the Board of
Managers are elected annually by those Contract Owners participating in the
Separate Accounts. A majority of the members of the Board of Managers are
persons who are not affiliated with The Travelers Insurance Company, TIMCO,
TAMIC or their affiliates.
Present Position and Principal
Name Occupation During Last Five Years
- ---- ---------------------------------
*Heath B. McLendon Managing Director (1993-present),
Chairman and Member Smith Barney Inc. ("Smith Barney");
388 Greenwich Street Chairman (1993-present), Smith Barney
New York, New York Strategy Advisors, Inc.; President
Age 63 (1994-present), Smith Barney Mutual
Funds Management Inc.; Chairman and
Director of forty-one investment
companies associated with Smith
Barney; Chairman, Board of Trustees,
Drew University; Trustee, The East New
York Savings Bank; Advisory Director,
First Empire State Corporation;
Chairman, Board of Managers, seven
Variable Annuity Separate Accounts of
The Travelers Insurance Company+;
Chairman, Board of Trustees, five
Mutual Funds sponsored by The Travelers
Insurance Company++; prior to July
1993, Senior Executive Vice President
of Shearson Lehman Brothers Inc.
Knight Edwards Of Counsel (1988-present), Partner
Member (1956-1988), Edwards & Angell,
2700 Hospital Trust Tower Attorneys; Member, Advisory Board
Providence, Rhode Island (1973-1994), thirty-one mutual funds
Age 73 sponsored by Keystone Group, Inc.;
Member, Board of Managers, seven
Variable Annuity Separate Accounts of
The Travelers Insurance Company+;
Trustee, five Mutual Funds sponsored
by The Travelers
16
<PAGE> 220
<TABLE>
<C> <S>
Insurance Company.++
Robert E. McGill, III Retired manufacturing executive.
Member Director (1983-1995), Executive Vice
295 Hancock Street President (1989-1994) and Senior Vice
Williamstown, Massachusetts President, Finance and Administration
Age 65 (1983-1989), The Dexter Corporation
(manufacturer of specialty chemicals
and materials); Vice Chairman
(1990-1992), Director (1983-1995),
Life Technologies, Inc. (life
science/biotechnology products);
Director, (1994-present), The
Connecticut Surety Corporation
(insurance); Director (1995-present),
Calbiochem Novachem International
(life science/biotechnology products);
Director (1995-present), Chemfab
Corporation (specialty materials
manufacturer); Member, Board of
Managers, seven Variable Annuity
Separate Accounts of The Travelers
Insurance Company+; Trustee, five
Mutual Funds sponsored by The
Travelers Insurance Company.++
Lewis Mandell Dean, College of Business
Member Administration (1995-present),
606 N. 13th Street Marquette University; Professor of
Milwaukee, WI 53233 Finance (1980-1995) and Associate Dean
Age 54 (1993-1995), School of Business
Administration, and Director, Center
for Research and Development in
Financial Services (1980-1995),
University of Connecticut; Director
(1992-present), GZA Geoenvironmental
Tech, Inc. (engineering services);
Member, Board of Managers, seven
Variable Annuity Separate Accounts of
The Travelers Insurance Company+;
Trustee, five Mutual Funds sponsored
by The Travelers Insurance Company.++
Frances M. Hawk Portfolio Manager (1992-present), HLM
Member Management Company, Inc. (investment
222 Berkeley Street management); Assistant Treasurer,
Boston, Massachusetts Pensions and Benefits. Management
Age 49 (1989-1992), United Technologies
Corporation (broad- based designer and
manufacturer of high technology
products); Member, Board of Managers,
seven Variable Annuity Separate
Accounts of The Travelers Insurance
Company+; Trustee, five Mutual Funds
sponsored by The Travelers Insurance
Company.++
Ernest J. Wright Vice President and Secretary (1996-present)
Secretary to the Board Assistant Secretary (1994-1996),
One Tower Square Counsel (1987-present), The Travelers
Hartford, Connecticut Insurance Company; Secretary, Board of
Age 56 Managers, seven Variable Annuity
Separate Accounts of The Travelers
Insurance Company+; Secretary, Board
of Trustees, five Mutual Funds
sponsored by The Travelers Insurance
Company.++
Kathleen A. McGah Assistant Secretary and Counsel
Assistant Secretary to the Board (1995-present), The Travelers
One Tower Square Insurance Company; Assistant
Hartford, Connecticut Secretary, Board of Managers, seven
Age 45 Variable Annuity Separate Accounts of
The Travelers Insurance Company+;
Assistant Secretary, Board of
Trustees, five Mutual Funds sponsored
by The Travelers Insurance Company.++
Prior to January 1995, Counsel, ITT
Hartford Life Insurance Company.
</TABLE>
+ These seven Variable Annuity Separate Accounts are: 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, The Travelers Timed Growth and Income Stock
Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock
Account for Variable Annuities and The Travelers Timed Bond Account for
Variable Annuities.
17
<PAGE> 221
++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income
Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers
Series Trust.
* Mr. McLendon is an "interested person" within the meaning of the 1940
Act by virtue of his position as Managing Director of Smith Barney Inc., an
indirect wholly owned subsidiary of Travelers Group Inc. and also owns shares
and options to purchase shares of Travelers Group Inc., the indirect parent of
The Travelers Insurance Company.
The Company is responsible for payment of the fees and expenses of the Board of
Managers, and the expenses of audit of the Separate Accounts, as well as other
expenses for services related to the operations of the accounts, for which it
deducts certain amounts from purchase payments and from the accounts.
Members of the Board of Managers who are also officers or employees of
Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members of
the Board of Managers who are not affiliated as employees of Travelers Group
Inc. or its subsidiaries receive an aggregate retainer of $19,000 for service on
the Boards of the seven Variable Annuity Separate Accounts established by The
Travelers Insurance Company and the five Mutual Funds sponsored by The Travelers
Insurance Company. They also receive an aggregate fee of $2,500 for each meeting
of such Boards attended.
DISTRIBUTION AND MANAGEMENT SERVICES
Under the terms of a Distribution and Management Agreement between each Separate
Account, the Company and Tower Square Securities, Inc., the Company provides all
sales and administrative services and mortality and expense risk guarantees
related to variable annuity contracts issued by the Company in connection with
the Separate Accounts, and assumes the risk of minimum death benefits, as
applicable. The Company also pays all sales costs (including costs associated
with the preparation of sales literature); all costs of qualifying the Separate
Accounts and the variable annuity contracts with regulatory authorities; the
costs of proxy solicitation; all custodian, accountants and legal fees; and all
compensation paid to the unaffiliated members of the Board of Managers. The
Company also provides without cost to the Separate Accounts all necessary office
space, facilities, and personnel to manage its affairs.
The Company received the following amounts from the Separate Accounts in each of
the last three fiscal years for services provided under the Distribution and
Management Agreements:
<TABLE>
<CAPTION>
SEPARATE ACCOUNT 1996 1995 1994
- ---------------- ---- ---- ----
<S> <C> <C> <C>
GIS $5,889,123 $4,557,639 $4,025,788
QB $2,322,938 $2,119,384 $2,156,643
</TABLE>
SECURITIES CUSTODIAN
Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York, is the
custodian of the portfolio securities and similar investments of Accounts GIS
and QB.
18
<PAGE> 222
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P., independent accountants, 100 Pearl Street, Hartford,
Connecticut, are the independent auditors for Accounts GIS and QB. The services
provided to these Separate Accounts include primarily the audit of the
Accounts' financial statements. The financial statements of Accounts GIS and QB
appear in the Annual Report, which is incorporated herein by reference. Such
financial statements have been audited by Coopers & Lybrand, L.L.P., as
indicated in their reports thereon in reliance upon the authority of said firm
as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance Company and
Subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
19
- --------------------------------------------------------------------------------
TIC FINANCIALS HERE
<PAGE> 223
THE TRAVELERS (LOGO UMBRELLA)
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
AND
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
Individual Variable Annuity Contracts
Issued By
THE TRAVELERS INSURANCE COMPANY
Individual Purchasers
L-11895S TIC Ed. 5-97
Printed in U.S.A
<PAGE> 224
UNIVERSAL ANNUITY
ANNUAL REPORTS
DECEMBER 31, 1996
THE TRAVELERS TIMED GROWTH AND INCOME
STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED SHORT-TERM
BOND ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED AGGRESSIVE
STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED BOND ACCOUNT
FOR VARIABLE ANNUITIES
[TRAVELERSLIFE AND ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 225
[TIMCO LOGO]
The Travelers Investment Management Company ("TIMCO") provides equity
management and advisory services for the following Travelers Variable Products
Separate Accounts contained in this report: The Travelers Timed Growth and
Income Stock Account for Variable Annuities, The Travelers Timed Short-Term
Bond Account for Variable Annuities and The Travelers Timed Aggressive Stock
Account for Variable Annuities.
[TAMIC LOGO]
Travelers Asset Management International Corporation ("TAMIC") provides fixed
income management and advisory services for The Travelers Timed Bond Account
for Variable Annuities.
<PAGE> 226
[TRAVELERSLIFE AND ANNUITY LOGO]
THE TRAVELERS VARIABLE PRODUCT SEPARATE ACCOUNTS
INVESTMENT ADVISORY COMMENTARY AS OF DECEMBER 31, 1996
ECONOMIC REVIEW AND OUTLOOK
As 1996 began, the Federal Government found itself paralyzed by a prolonged
budget dispute. In the financial markets, investors were focused on signs of a
slowing economy. With two-year Treasury notes priced to yield less than the
federal funds rate, the bond market clearly expected the Federal Reserve Board
("Fed") to cut interest rates significantly. The Fed lowered the federal funds
rate by 0.25% in January, but strong employment growth over the next several
months sent the bond market into a tailspin reminiscent of 1994. Interest
rates hit their highest levels for the year in the June to September period as
investors prepared for the Fed to raise interest rates at their September
meeting.
The policymakers at the Fed decided to hold steady at their September meeting
and interest rates declined through the autumn as economic growth once again
slowed. The financial markets also responded positively to the Republicans'
success in retaining control of Congress in the November election. Going into
December, the bond and stock markets reflected a "best of all worlds" scenario
of moderate economic growth with low inflation, low unemployment and a benign
to positive political landscape. Interest rates started to move back up again
in December as some economic indicators strengthened, but ended the year well
below the levels seen in the second and third quarters.
We expect real economic growth to average around 2% in 1997. The consumer
sector, which makes up two thirds of Gross Domestic Product ("GDP"), should
show modest growth. The factors that would otherwise contribute to strong
consumer spending -- low unemployment, high consumer confidence, and the wealth
effects from the strong stock market -- should be muted by high consumer debt
levels (particularly at lower income levels) and lack of pent-up demand. The
export sector should continue to grow 5% to 10% in 1997, helped by the United
States' strong competitive position and continued robust growth in emerging
markets. Growth should improve slightly in Europe and Japan, helped by the
recent strengthening of the dollar against those currencies. The stronger
dollar is likely to be a mixed blessing, by making the prices of foreign
imports more attractive and thereby helping to dampen inflation. The capital
goods sector has slowed in recent quarters, but is still expected to grow
faster than overall U.S. economy. The government sector should continue to be
a drag on GDP growth.
Overall, we believe that the U.S. economy is likely to remain on a path of
moderate non-inflationary growth in 1997. However, because of the current low
level of unemployment, we also expect that the Fed will remain cautious and
biased towards a tighter monetary policy. Whether the Fed acts may depend in
part on market psychology. Upward shifts in long-term bond yields have served
to moderate economic growth in recent years and reduced the need for any major
changes in Fed policy.
-1-
<PAGE> 227
FIXED INCOME COMMENTARY
The U.S. bond market had its best quarter of the year in the fourth quarter.
The Lehman Intermediate Government/Corporate Index returned 2.5% for the
quarter and 4.1% for the full year. For the year, the Lehman Long
Government/Corporate Index provided a total return of only 0.1%. Treasury
bonds with maturities longer than 10 years had negative total returns.
Within the fixed income market, all private issuer sectors outperformed
Treasury bonds as quality spreads continued to narrow. While Treasuries
performed almost as poorly in 1996 as in 1994, the effect on other sectors was
relatively neutral, unlike 1994 when there were problems with mortgage-backed
derivatives, Mexico, and Orange County. The yield curve was also remarkably
stable in 1996, unlike 1994 when short-term interest rates rose considerably.
The mortgage-backed, high yield, and municipal sectors were the best performing
areas in 1996 on a duration-adjusted basis. Within the corporate sector, lower
quality and foreign issues were the best performers based on both higher
coupons and spread tightening.
We expect interest rates to stay in the trading range established in 1996 (the
yield of the 30-year Treasury bond ranged between 6.0% and 7.2%). On one hand,
investors are concerned that low unemployment will eventually give rise to
inflationary wage growth. We believe this sets a floor for long-term bond
yields at about 6.0%. At the upper end of the range, the 7.2% level has proved
to be sufficient to generate increased demand for bonds and depress high risk
asset classes and interest sensitive sectors of the economy. We feel that
central bank vigilance against inflation, globalization, and productivity
improvements will keep inflation under control, preventing interest rates from
rising much above their 1996 high.
Within the fixed income markets, demand for corporate, mortgage-backed and
asset-backed issue continues to be high. Yield spreads (relative to Treasury
issues) for lower and higher quality corporate bonds are quite narrow. The
mortgage-backed and asset-backed markets are similarly compressed, with
investors digging for yield. There is nothing in our economic outlook that is
likely to change the tight spread environment in the near future. We are being
careful, however, to weed out riskier credits and issues that do not offer
enough yield premium to offset their potential for negative surprises. The
foreign area continues to offer opportunities, particularly foreign corporate
bonds that sometimes have very strong balance sheets but are capped by the
rating of their home country. Foreign sovereign credits are also continuing to
improve based on solid global economic growth and increased acceptance of the
need for sound fiscal and monetary policy.
EQUITY COMMENTARY
During 1996, financial markets were repeatedly jolted by changes in sentiment
about the strength of the U.S. economy and the direction of Fed policy. When
investors gained confidence that the economy was continuing on a track of
moderate, non-inflationary growth, the stock market advanced strongly and
posted another year of outstanding performance. For the twelve-month period
ending December 31, 1996, the Standard & Poor's 500 Stock Index ("S&P 500")
provided a total return of 23.0%. Over the same period, the Russell 2000 Stock
Index, a measure of the performance of the small company segment of the equity
market, provided a total return of 16.5%.
After a weak start in January, the stock market moved broadly higher through
the first months of spring. Small company shares advanced strongly in April
and May, led by the technology sector. In late June and July, when long-term
bond yields moved back over 7%, the stock market traded back down to where it
began the year. Recent initial public offerings and more speculative issues
were particularly hard hit during the reversal. Large company stocks quickly
recovered their losses when the bond market stabilized at the end of July.
However, small company stocks continued to struggle. During the autumn,
against the backdrop of lower bond yields, low inflation and surprisingly
resilient corporate earnings, the stock market made its strongest advance of
the year, with large company issues leading the way.
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<PAGE> 228
As measured by the S&P 500, the U.S. stock market has provided a cumulative
total return of nearly 70% over the past two years, capping a six-year bull
market that began in October of 1990. Notwithstanding the strong overall
environment for equities, 1996 marked the third consecutive year of
underperformance by small and mid sized company stocks relative to "blue chip"
indices. The underperformance of small company stocks can be explained in part
by the sharper falloff in earnings growth experienced by smaller companies in
the 1995-96 period. The performance lag also reflected a backing away by
investors from higher risk growth stocks, in an environment of rising interest
rates and market volatility.
Given the frequent alarms raised in 1996 about slowing earnings growth,
investors showed an understandable preference for industry sectors with visible
earnings momentum. In the energy sector, analysts' earnings estimates and
share prices moved sharply higher in response to firmer prices for oil and
natural gas. Stocks in the finance sector also performed exceptionally well
despite emerging credit quality concerns. In the consumer sector, specialty
and broad-line retail stocks were up strongly in response to higher than
expected levels of consumer spending. The technology sector provided superior
returns for investors last year, led by Intel and Microsoft. Within the
technology sector, software, semiconductor and computer product stocks had the
strongest relative performance. Industrial cyclical stocks underperformed, as
soft domestic and export demand led to declining commodity prices for paper,
copper, aluminum, steel and fertilizer products. The health care sector was
mixed. Drug stocks kept pace with the market due to strong earnings gains,
while the HMO group declined sharply on repeated earnings disappointments.
Utilities were the weakest overall sector during the year, held back by the
relatively poor performance of local telephone carriers and electrical
companies.
We are taking a more cautious position toward the U.S. stock market at this
point. Over the past year, the price-to-earnings ratio of the S&P 500 on
12-month forward earnings has increased from 15 to 17 times earnings per share.
This level of valuation is consistent with earlier periods of moderate growth
and low inflation, but leaves no cushion for earnings or inflation
disappointments. After a prolonged period of underperformance, relative
valuations for small company stocks are becoming more attractive. However, we
believe that caution should still be exercised since the small capitalization
segment of the equity market has a relatively high exposure to cyclical
industries and would be vulnerable to any combination of higher interest rates
and slower profit growth.
KENT A. KELLEY, CFA, THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
DAVID A. TYSON, CFA, TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
-3-
<PAGE> 229
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------------------
<S> <C>
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES ............................................... 5
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES ... 16
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES .. 24
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES .............. 36
</TABLE>
-4-
<PAGE> 230
THE TRAVELERS
TIMED GROWTH AND INCOME
STOCK ACCOUNT
FOR VARIABLE ANNUITIES
The Travelers Timed Growth and Income Stock Account for Variable Annuities
("Account TGIS") is managed by the Travelers Investment Management Company
("TIMCO") to provide diversified exposure to the large company segment of the
U.S. equity market, while maintaining a highly marketable portfolio of common
stocks and related financial instruments in order to accommodate cash flows
associated with market timing moves. 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 TGIS 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 year ended December 31, 1996, Account TGIS achieved a total return of
23.4%, before fees and expenses, outperforming the S&P 500 total return of
23.1%. Net of fees and expenses, Account TGIS's total return of 19.9% for the
year equaled the average return of variable annuity stock accounts in the
Lipper Growth & Income category.
During the second half of 1996, stock selection in the energy and producer
durables sectors made the strongest positive contribution to Account TGIS's
overall relative performance. In the energy sector, Account TGIS benefited
from holdings in better performing stocks in the oilfield services group, such
as Ensco International and Cooper Cameron. In the exploration and production
group, an overweighted position in Anadarko Petroleum also helped performance.
In the producer durables sector, our largest relative gain came from holdings
in Harnischfeger, United Technologies and Honeywell. We lost ground relative
to the benchmark in the technology and consumer staples sectors. In the
technology sector, we were penalized by being underweight in a number of
computer and networking stocks that moved up sharply after reporting
surprisingly strong sales and earnings, including Compaq, Dell and 3COM. In
the consumer staples sector, performance was hurt by our position in PepsiCo.
which traded lower in reaction to weak international soft drink sales.
We continue to focus on stocks that exhibit improving earnings (primarily
measured by changes in analysts' earnings estimates and the trend of recent
earnings surprises), and which also trade at a reasonable price-to-earnings
ratios relative to expected earnings growth rates. In the technology sector,
we have emphasized market leaders that are currently benefiting from strong
pricing and product demand, such as Intel in the semiconductor group and Cisco
in the client/server networking group. In the health care sector, we have an
overweight in Bristol-Myers Squibb which has improved earnings momentum from
its new drug therapy to combat high blood cholesterol. In the consumer
sectors, we are focusing on a number of retailers that have good sales momentum
and whose shares still trade at a reasonable multiple of earnings, such as The
Gap and Borders Group. In financial services, we have overweighted positions
in a number of banks and specialty insurance companies that combine
above-average earnings growth and low relative valuations, including
BankAmerica, Ambac and Transatlantic Holdings.
PORTFOLIO MANAGERS: SANDIP A. BHAGAT, CFA - JACOB E. HURWITZ, CFA -
KENT A. KELLEY, CFA
[TIMCO LOGO]
-5-
<PAGE> 231
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $156,639,025)........ $ 187,539,883
Cash.............................................................. 26,054
Receivables:
Dividends...................................................... 161,960
Interest....................................................... 260
Investment securities sold..................................... 600,257
Purchase payments and transfers from other Travelers accounts.. 24,942
Other assets...................................................... 34
---------------
Total Assets.................................................. 188,353,390
---------------
LIABILITIES:
Payables:
Investment securities purchased................................ 604,174
Contract surrenders and transfers to other Travelers accounts.. 1,957,316
Investment management and advisory fees........................ 6,785
Market timing fees............................................. 32,646
Variation on futures margin.................................... 708,205
Accrued liabilities............................................... 26,113
---------------
Total Liabilities.............................................. 3,335,239
---------------
NET ASSETS:
(Applicable to 68,111,142 units outstanding at $2.717 per unit) $ 185,018,151
===============
</TABLE>
See Notes to Financial Statements
-6-
<PAGE> 232
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................... $ 2,874,405
Interest.................................................... 1,854,957
---------------
Total income............................................ $ 4,729,362
EXPENSES:
Market timing fees.......................................... 2,295,058
Investment management and advisory fees..................... 596,659
Insurance charges........................................... 2,295,058
---------------
Total expenses.......................................... 5,186,775
--------------
Net investment loss.................................. (457,413)
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 233,836,738
Cost of investment securities sold...................... 216,418,166
---------------
Net realized gain.................................... 17,418,572
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.................... 16,638,946
Unrealized gain at December 31, 1996.................... 30,900,858
---------------
Net change in unrealized gain for the year........... 14,261,912
--------------
Net realized gain and change in unrealized gain... 31,680,484
--------------
Net increase in net assets resulting from operations......... $ 31,223,071
==============
</TABLE>
See Notes to Financial Statements
-7-
<PAGE> 233
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income (loss)................................................ $ (457,413) $ 1,892,738
Net realized gain from investment security transactions..................... 17,418,572 18,882,897
Net change in unrealized gain on investment securities...................... 14,261,912 16,455,717
--------------- -------------
Net increase in net assets resulting from operations..................... 31,223,071 37,231,352
--------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 3,669,841 and 4,557,812 units, respectively).............. 8,913,140 9,246,578
Participant transfers from other Travelers accounts
(applicable to 997,173 and 263,610 units, respectively).................. 2,447,373 530,000
Market timing transfers from other Travelers timed accounts
(applicable to 15,373,491 and 91,018,707 units, respectively)............ 41,324,850 182,133,693
Administrative charges
(applicable to 104,468 and 150,735 units, respectively).................. (270,930) (325,636)
Contract surrenders
(applicable to 6,643,488 and 6,210,191 units, respectively).............. (16,458,034) (12,733,388)
Participant transfers to other Travelers accounts
(applicable to 10,551,980 and 13,985,712 units, respectively)............ (25,735,778) (28,338,250)
Market timing transfers to other Travelers timed accounts
(applicable to 39,522,364 units)......................................... (93,836,213) -
Other payments to participants
(applicable to 150,701 and 141,806 units, respectively).................. (357,201) (290,911)
--------------- -------------
Net increase (decrease) in net assets resulting from unit transactions... (83,972,793) 150,222,086
--------------- -------------
Net increase (decrease) in net assets................................. (52,749,722) 187,453,438
NET ASSETS:
Beginning of year........................................................... 237,767,873 50,314,435
--------------- -------------
End of year................................................................. $ 185,018,151 $ 237,767,873
=============== =============
</TABLE>
See Notes to Financial Statements
-8-
<PAGE> 234
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Timed Growth and Income Stock Account for Variable Annuities
("Account TGIS") 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 TGIS is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. Participants in Account TGIS have entered into market timing
service agreements with an affiliate of The Travelers, which provide for the
transfer of participants' funds to certain other timed accounts of The
Travelers, at the discretion of the market timer.
The following is a summary of significant accounting policies consistently
followed by Account TGIS 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 year; 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 TGIS may use stock index futures contracts, and
may also use interest rate futures contracts, as a substitute for the
purchase or sale of individual securities. When Account TGIS enters into a
futures contract, it agrees to buy or sell a specified index of stocks or
debt securities at a future time for a fixed price, unless the contract is
closed prior to expiration. Account TGIS 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 TGIS'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 TGIS 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 TGIS 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 or debt securities associated with the futures
contract.
OPTIONS. Account TGIS 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 TGIS may sell the options before expiration.
Options held by Account TGIS 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 at the close of the New York Stock Exchange, or in
the absence of such sale, the latest bid quotation.
-9-
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS - CONTINUED
REPURCHASE AGREEMENTS. When Account TGIS 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 TGIS plus
a negotiated interest amount. The seller under the repurchase agreement
will be required to provide to Account TGIS securities (collateral) whose
market value, including accrued interest, will be at least equal to 102% of
the repurchase price. Account TGIS 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 TGIS'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 TGIS 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 the existing federal income
tax law no taxes are payable on the investment income and capital gains of
Account TGIS. Account TGIS is not taxed as "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 year ended December 31, 1996,
were $117,593,762 and $136,079,799, respectively. Realized gains and losses
from investment transactions are reported on an identified cost basis.
Account TGIS placed a portion of its security transactions with brokerage
firms which are affiliates of The Travelers. The commissions paid to these
affiliated firms were $39,297 and $13,231 for the years ended December 31,
1996 and 1995, respectively.
At December 31, 1996, Account TGIS held 96 open S&P 500 Stock Index futures
contracts expiring in March, 1997. The underlying face value, or notional
value, of these contracts at December 31, 1996 amounted to $35,736,000. In
connection with these contracts, short-term investments with a par value of
$1,545,000 had been pledged as margin deposits.
Net realized gains resulting from futures contracts were $3,859,624 and
$16,007,920 for the years ended December 31, 1996 and 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 December 31, 1996, is shown
on the Statement of Assets and Liabilities as a payable for variation on
futures margin.
-10-
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at an annual
rate of 0.3233% of Account TGIS's average net assets. These fees are paid
to The Travelers Investment Management Company, an indirect wholly owned
subsidiary of Travelers Group Inc.
A market timing fee equivalent on an annual basis to 1.25% of the average
net assets of Account TGIS is deducted for market timing services. The
Travelers deducts the fee daily and, in turn, pays the fee to Copeland
Financial Services, Inc., a registered investment adviser and an affiliate
of The Travelers which provides market timing services to subscribing
participants in Account TGIS.
Insurance charges are paid for the mortality and expense risks assumed by
The Travelers. These charges are equivalent to 1.25% of the average net
assets of Account TGIS on an annual basis. Additionally, for 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.
No sales charge is deducted from participant purchase payments when they are
received. However, 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
$161,380 and $143,108 of contingent deferred sales charges for the years
ended December 31, 1996 and 1995, respectively.
4. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income........................... $ .061 $ .083 $ .064 $ .043 $ .046
Operating expenses................................ .069 .057 .041 .042 .045
---------- ----------- ---------- --------- -----------
Net investment income (loss)...................... (.008) .026 .023 .001 .001
Unit value at beginning of year................... 2.263 1.695 1.776 1.689 1.643
Net realized and change in unrealized
gains (losses).................................. .462 .542 (.104) .086 .045
---------- ----------- ---------- --------- -----------
Unit value at end of year......................... $ 2.717 $ 2.263 $ 1.695 $ 1.776 $ 1.689
========== =========== ========== ========= ===========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value............. $ .45 $ .57 $ (.08) $ .09 $ .05
Ratio of operating expenses to average
net assets*..................................... 2.82 % 2.82 % 2.82 % 2.82 % 2.82 %
Ratio of net investment income (loss) to average
net assets* .................................... (.34) % 1.37 % 1.58 % .08 % .78 %
Number of units outstanding at end of
year (thousands)................................ 68,111 105,044 29,692 - 217,428
Portfolio turnover rate........................... 81 % 79 % 19 % 70 % 119 %
Average commission rate paid+..................... $ .046 - - - -
</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 year.
-11-
<PAGE> 237
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------- -------------
<S> <C> <C>
COMMON STOCKS (78.9%)
AGRICULTURE (0.4%)
Pioneer Hi Bred International 9,900 $ 693,000
-------------
AMUSEMENTS (0.7%)
Walt Disney Co. 18,041 1,256,105
-------------
BANKING (6.3%)
Banc One Corp. 10,520 452,360
Bank of Boston Corp. 10,500 674,625
BankAmerica Corp. 15,000 1,496,250
Barnett Banks Inc. 5,100 209,737
Chase Manhattan Corp. 18,324 1,635,417
Citicorp 19,700 2,029,100
First Bank Systems, Inc. 3,700 252,525
First Chicago NBD 8,600 462,250
Golden West Financial Corp. 7,000 441,875
Mellon Bank Corp. 11,900 844,900
NationsBank Corp. 8,700 850,425
Northern Trust Corp. 12,600 457,538
Norwest Corp. 23,400 1,017,900
SunTrust Banks, Inc. 5,800 285,650
Wells Fargo & Co. 2,600 701,350
-------------
11,811,902
-------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (10.3%)
Abbott Laboratories 13,100 664,825
American Home Products Corp. 10,100 592,113
Amgen (A) 14,400 783,900
Bristol-Myers Squibb Co. 18,900 2,055,375
Colgate-Palmolive 4,000 369,000
Cytec Industries, Inc. (A) 12,700 515,937
E.I. Dupont de Nemours & Co. 14,800 1,396,750
Eli Lilly & Co. 9,200 671,600
Johnson & Johnson 42,600 2,119,350
Merck & Co. 37,300 2,956,025
Monsanto Co. 26,000 1,010,750
Morton International 14,100 574,575
Pfizer, Inc. 16,800 1,392,300
Procter & Gamble Co. 18,700 2,010,250
Schering-Plough Corp. 16,400 1,061,900
Union Carbide Corp. 14,900 609,037
Warner-Lambert Co. 7,200 540,000
-------------
19,323,687
-------------
COMMUNICATION (5.4%)
Ameritech Corp. 15,000 909,375
AT&T Corp. 31,700 1,378,950
Bell Atlantic Corp. 11,900 770,525
BellSouth Corp. 27,100 1,094,162
Clear Channel Communications (A) 15,200 549,100
GTE Corp. 22,600 1,028,300
MCI Communications Corp. 32,800 1,072,150
NYNEX Corp. 11,900 572,687
Pacific Telesis Group 9,400 345,450
Sprint Corp. 9,200 366,850
SBC Communications, Inc. 22,300 1,154,025
TCI Satellite Entertainment (A) 18,000 235,125
Tele-Communications Inc. (A) 1,800 17,888
U.S. West Communications Group 4,900 158,025
WorldCom, Inc. (A) 21,800 568,162
-------------
10,220,774
-------------
CONTRACTORS (0.6%)
Fluor Corp. 8,800 552,200
Halliburton Co. 9,800 590,450
-------------
1,142,650
-------------
ELECTRICAL AND
ELECTRONIC MACHINERY (6.4%)
Andrew Corp. (A) 8,850 469,603
Atmel Corp. (A) 16,000 532,000
Duracell International, Inc. 7,400 517,075
General Electric Corp. 44,700 4,419,713
Intel Corp. 25,200 3,299,625
Motorola, Inc. 15,300 939,037
Raychem Corp. 6,800 544,850
Texas Instruments, Inc. 4,700 299,625
Time Warner, Inc. 14,400 540,000
U.S. Robotics, Inc. (A) 7,100 511,644
-------------
12,073,172
-------------
FINANCE (2.6%)
American Express Co. 13,200 745,800
Federal Home Loan Mortgage Corp. 5,000 550,625
Federal National Mortgage Association 29,700 1,106,325
HFS Inc. (A) 12,800 764,800
Household International 7,100 654,975
Merrill Lynch & Co. 4,400 358,600
Morgan Stanley Group, Inc. 4,300 245,637
Student Loan Marketing Association 5,000 465,625
-------------
4,892,387
-------------
FOOD (6.4%)
Anheuser-Busch Cos. 13,300 532,000
Campbell Soup Co. 2,900 232,725
Coca-Cola Co. 64,700 3,404,837
ConAgra, Inc. 20,100 999,975
CPC International, Inc. 9,300 720,750
Dean Foods Co. 16,900 545,025
General Mills, Inc. 4,200 266,175
PepsiCo, Inc. 41,900 1,225,575
Philip Morris, Inc. 26,000 2,928,250
Sara Lee Corp. 13,000 484,250
Unilever N.V. 3,700 648,425
-------------
11,987,987
-------------
FURNITURE AND FIXTURES (0.2%)
Lear Corp. (A) 11,500 392,438
-------------
HOTELS & LODGING (0.3%)
Hilton Hotels Corp. 19,800 517,275
-------------
INSURANCE (3.5%)
Allstate Corp. 11,938 690,912
Ambac, Inc. 11,800 783,225
American International Group 12,650 1,369,363
Chubb Corp. 9,900 532,125
Cigna Corp. 5,200 710,450
General Reinsurance Corp. 2,100 331,275
ITT Hartford Group, Inc. 10,400 702,000
MedPartners, Inc. (A) 18,200 382,200
SunAmerica, Inc. 9,900 439,313
Transatlantic Holdings, Inc. 7,800 627,900
-------------
6,568,763
-------------
LUMBER AND WOOD PRODUCTS (0.4%)
Georgia-Pacific Corp. 7,000 504,000
Weyerhaeuser Co. 5,400 255,825
-------------
759,825
-------------
</TABLE>
-12-
<PAGE> 238
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
-------- -------------
<S> <C> <C>
MACHINERY (5.1%)
Black & Decker Corp. 18,600 $ 560,325
Caterpillar, Inc. 5,400 406,350
Cisco Systems, Inc. (A) 27,200 1,732,300
Compaq Computer Corp. (A) 7,800 579,150
Deere & Co. 16,500 670,313
Gateway 2000, Inc. (A) 8,100 433,856
Hewlett-Packard Co. 26,800 1,346,700
International Business Machines Corp. 13,800 2,083,800
Lucent Technologies 16,580 766,825
Sun Microsystems (A) 28,200 724,387
3Com Corp. (A) 4,500 329,906
-------------
9,633,912
-------------
METAL PRODUCTS (1.2%)
Aluminum Co. of America 7,200 459,000
Gillette Co. 18,300 1,422,825
Nucor Corp. 2,400 122,400
USX-U.S. Steel Group 7,300 229,038
-------------
2,233,263
-------------
MINING (0.5%)
Freeport-McMoRan Copper & Gold 20,100 600,487
Homestake Mining Co. 25,900 369,075
-------------
969,562
-------------
MISCELLANEOUS MANUFACTURING (1.9%)
American Brands 4,500 223,312
Eastman Kodak Co. 8,700 698,175
Emerson Electric Co. 5,900 570,825
Guidant Corp. 10,000 570,000
Honeywell, Inc. 9,700 637,775
Medtronics, Inc. 6,500 442,000
Xerox Corp. 8,200 431,525
-------------
3,573,612
-------------
OIL & GAS (0.7%)
Chesapeake Energy Corp. (A) 8,300 461,688
Louisiana Land & Exploration 9,200 493,350
Schlumberger Ltd. 4,000 399,500
-------------
1,354,538
-------------
PAPER AND ALLIED PRODUCTS (0.7%)
Kimberly Clark Corp. 7,510 715,327
Willamette Industries, Inc. 8,300 577,888
-------------
1,293,215
-------------
PETROLEUM REFINING AND
RELATED INDUSTRIES (6.5%)
Amerada Hess 10,300 596,113
Amoco Corp. 12,900 1,038,450
Ashland Oil, Inc. 11,600 508,950
Atlantic Richfield Co. 3,100 410,750
Chevron Corp. 17,300 1,124,500
Exxon Corp. 28,000 2,744,000
Mobil Corp. 14,200 1,735,950
Royal Dutch Petroleum Co. 11,300 1,929,475
Texaco, Inc. 14,700 1,442,437
Unocal Corp. 16,000 650,000
-------------
12,180,625
-------------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (0.7%)
Gannet Co. 9,400 703,825
New York Times Co. 14,200 539,600
-------------
1,243,425
-------------
RETAIL (3.6%)
American Stores 14,700 600,862
Borders Group, Inc. (A) 11,800 423,325
Dollar General Corp. 13,900 444,800
Federated Department Stores, Inc. (A) 17,400 593,775
Home Depot, Inc. 13,400 671,675
Lowe's Cos. 16,200 575,100
McDonalds Corp. 16,900 764,725
Sears Roebuck & Co. 10,100 465,863
The GAP, Inc. 22,300 671,787
Tiffany & Co. 12,500 457,813
Wal-Mart Stores, Inc. 46,600 1,065,975
-------------
6,735,700
-------------
RUBBER AND PLASTIC PRODUCTS (1.2%)
Armstrong World Industries 7,200 500,400
Illinois Tool Works 9,400 750,825
Nike, Inc. 15,400 920,150
-------------
2,171,375
-------------
SERVICES (4.2%)
AccuStaff, Inc. (A) 22,200 468,975
Automatic Data Process 8,300 355,863
Columbia/HCA Healthcare Corp. 17,750 723,312
Computer Associates International 16,600 825,850
Corrections Corp. of America (A) 14,400 441,000
Equifax, Inc. 3,100 94,938
First Data Corp. 11,800 430,700
HBO & Co. 11,400 676,875
Microsoft (A) 31,800 2,629,462
Oracle Corp. (A) 17,200 717,025
Vencor, Inc. (A) 13,800 436,425
-------------
7,800,425
-------------
STONE, CLAY, GLASS, AND
CONCRETE PRODUCTS (0.5%)
Minnesota Mining & Manufacturing Co. 11,300 936,487
-------------
TEXTILE MILL PRODUCTS (0.3%)
V.F. Corp 8,400 567,000
-------------
TRANSPORTATION (0.9%)
Burlington Northern Santa Fe 9,100 786,012
Conrail, Inc. 2,124 211,604
Continental Air, Inc. (A) 16,100 454,825
Union Pacific Corp. 5,700 342,713
-------------
1,795,154
-------------
TRANSPORTATION MANUFACTURING (3.4%)
Allied Signal, Inc. 7,400 495,800
Boeing Co. 14,200 1,510,525
Chrysler Corp. 25,700 848,100
Ford Motor Co. 31,700 1,010,438
General Motors Corp. 18,500 1,031,375
Lockheed Martin Corp. 5,400 494,100
United Technologies Corp. 15,600 1,029,600
-------------
6,419,938
-------------
</TABLE>
-13-
<PAGE> 239
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
-------- ------------
<S> <C> <C>
UTILITIES (3.2%)
AES Corp. (A) 12,000 $ 558,000
Allegheny Power Systems, Inc. 14,000 425,250
Baltimore Gas & Electric Co. 14,300 382,525
CalEnergy Co. (A) 14,600 490,925
Columbia Gas Systems, Inc. 8,600 547,175
Consolidated Natural Gas Co. 10,500 580,125
CMS Energy Corp. 9,300 312,713
Duke Power Co. 5,400 249,750
Florida Power & Light Co. 4,700 216,200
Houston Industries 7,100 160,637
Pacific Enterprises 6,000 182,250
Sonat, Inc. 11,500 592,250
Southern Co. 29,300 662,913
Texas Utilities Co. 16,400 668,300
------------
6,029,013
------------
WHOLESALE TRADE (0.8%)
Crane Co. 20,250 587,250
Enron Corp. 6,800 293,250
Grainger (W.W) 7,100 569,775
------------
1,450,275
------------
TOTAL COMMON STOCKS
(COST $117,115,324) 148,027,484
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (21.1%)
COMMERCIAL PAPER (19.4%)
Allied Signal, Inc.,
5.53% due January 22, 1997 $ 1,000,000 996,521
Allied Signal, Inc.,
6.06% due January 2, 1997 2,000,000 1,999,252
BHP Finance (USA), Inc.,
5.37% due January 15, 1997 3,500,000 3,491,474
Ciesco LP,
5.47% due February 4, 1997 3,000,000 2,984,016
Ford Motor Credit Co.,
5.36% due February 11, 1997 3,500,000 3,477,722
General Electric Capital Corp.,
5.37% due January 23, 1997 3,500,000 3,487,320
Heinz H.J. Co.,
5.43% due January 6, 1997 3,500,000 3,496,237
Household Finance Corp.,
5.35% due January 8, 1997 3,500,000 3,495,086
Prudential Funding Corp.,
5.36% due January 13, 1997 3,500,000 3,492,440
PACCAR Financial Corp.,
5.40% due January 8, 1997 2,500,000 2,496,490
Raytheon Co.,
5.37% due January 14, 1997 2,500,000 2,494,253
Raytheon Co.,
5.50% due January 13, 1997 1,000,000 997,840
Xerox Corp.,
5.39% due January 16, 1997 3,500,000 3,490,942
------------
36,399,593
------------
U.S. GOVERNMENT SECURITIES (0.8%)
United States of America Treasury,
5.25% due August 21, 1997 (B) 100,000 96,740
United States of America Treasury,
5.29% due August 21, 1997 (B) 1,400,000 1,354,363
United States of America Treasury,
5.29% due August 21, 1997 (B) 100,000 96,703
------------
1,547,806
------------
REPURCHASE AGREEMENTS (0.9%)
Merrill Lynch Government Securities, Inc.,
6.00% Repurchase Agreement
dated December 31, 1996 due January 2,
1997, collateralized by: United
States of America Treasury, $1,450,000,
7.875% due November 15, 2004 $ 1,565,000 $ 1,565,000
------------
TOTAL SHORT-TERM
INVESTMENTS (COST $39,523,701) 39,512,399
------------
<CAPTION>
NOTIONAL
VALUE
-----------
<S> <C> <C>
FUTURES CONTRACTS (0.0%)
S&P 500 Stock Index,
Exp. March, 1997 (C) $35,736,000 -
-------------
TOTAL INVESTMENTS (100%)
(COST $156,639,025) (D) $ 187,539,883
=============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) Par value of $1,545,000 pledged to cover margin deposits on futures
contracts.
(C) As more fully discussed in Note 1 to the financial statements, it is
Account TGIS'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 TGIS uses futures contracts as a substitute for
holding individual securities.
(D) At December 31, 1996, net unrealized appreciation for all securities was
$30,900,858. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$31,695,186 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $794,328.
See Notes to Financial Statements
-14-
<PAGE> 240
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and Owners of Variable Annuity Contracts of
The Travelers Timed Growth and Income Stock Account for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Timed Growth and Income Stock Account for Variable Annuities
including the statement of investments as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended, and the per unit
data for each of the five years in the period then ended. These financial
statements and per unit data are the responsibility of management. Our
responsibility is to express an opinion on these financial statements and per
unit data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per unit
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per unit data referred to above
present fairly, in all material respects, the financial position of The
Travelers Timed Growth and Income Stock Account for Variable Annuities as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the per unit data for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
-15-
<PAGE> 241
THE TRAVELERS
TIMED SHORT-TERM
BOND ACCOUNT
FOR VARIABLE ANNUITIES
The year 1996 started out with investor concerns about a possible recession,
and the market timing strategy was to hold no securities for The Travelers
Timed Short-Term Bond Account for Variable Annuities. The market expected the
Federal Reserve Board ("Fed") to cut interest rates significantly and in
January there was a 0.25% reduction to 5.25%. However, strong employment
growth in the first and second quarters shifted concerns from recession to
inflation. Due to mixed economic data for the balance of 1996, the Fed
maintained a steady course and inacted no other rate changes.
A "Do Not Disturb" sign hung over the financial markets for most of the fourth
quarter. The federal funds rate remained unchanged at 5.25% and for most of
the quarter economic data exhibited modest growth and subdued inflation.
Long-term bond yields started the quarter at 6.97% and ended the quarter at
6.64%. However the January, 1997 release of December, 1996 employment data
reflected the creation of 262,000 new jobs which was significantly above
estimates, an increase in the average work week and the average hours worked
index increased 0.9% created further inflation concerns.
Our expectation is for the Fed to continue to stifle any potential increase in
inflation and if economic data continues to reflect above average growth the
Fed will take action and increase the federal funds rate.
In light of this, the strategy in the management of The Travelers Timed
Short-Term Bond Account for Variable Annuities' short-term assets will be to
maintain maturities in the 30 to 60 day range. At year end the asset size of
the portfolio was $74.5 million, with an average yield of 5.51% and an average
life of 31.1 days.
PORTFOLIO MANAGER: EMIL J. MOLINARO JR.
[TIMCO LOGO]
-16-
<PAGE> 242
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $74,461,534)......... $ 74,451,200
Cash.............................................................. 276
Receivables:
Interest....................................................... 320,076
Purchase payments and transfers from other Travelers accounts.. 13,753
--------------
Total Assets................................................ 74,785,305
--------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts.. 484,930
Investment management and advisory fees........................ 2,660
Market timing fees............................................. 12,798
Accrued liabilities............................................... 10,239
--------------
Total Liabilities........................................... 510,627
--------------
NET ASSETS:
(Applicable to 54,565,187 units outstanding at $1.361 per unit) $ 74,274,678
==============
</TABLE>
See Notes to Financial Statements
-17-
<PAGE> 243
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................... $ 4,437,534
EXPENSES:
Market timing fees..................................... $ 1,028,875
Investment management and advisory fees................ 267,590
Insurance charges...................................... 1,028,875
------------
Total expenses...................................... 2,325,340
--------------
Net investment income............................ 2,112,194
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED LOSS ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold............ 71,795,133
Cost of investment securities sold.................. 71,775,170
------------
Net realized gain................................ 19,963
Change in unrealized loss on investment securities:
Unrealized loss at December 31, 1995................ -
Unrealized loss at December 31, 1996................ (10,334)
------------
Net change in unrealized loss for the year......... (10,334)
--------------
Net realized gain and change in unrealized loss... 9,629
--------------
Net increase in net assets resulting from operations $ 2,121,823
==============
</TABLE>
See Notes to Financial Statements
-18-
<PAGE> 244
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income.................................................... $ 2,112,194 $ 4,324,539
Net realized gain from investment security transactions.................. 19,963 66,052
Net change in unrealized loss on investment securities................... (10,334) 255,618
---------------- -----------------
Net increase in net assets resulting from operations.................. 2,121,823 4,646,209
---------------- -----------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 3,580,147 and 10,737,861 units, respectively).......... 4,822,829 14,027,260
Participant transfers from other Travelers accounts
(applicable to 805,634 and 837,920 units, respectively)............... 1,084,231 1,093,151
Market timing transfers from other Travelers timed accounts
(applicable to 127,845,161 and 12,166,043 units, respectively)........ 171,245,508 16,038,495
Administrative charges
(applicable to 85,517 and 101,958 units, respectively)................ (115,494) (133,957)
Contract surrenders
(applicable to 4,878,210 and 8,137,104 units, respectively)........... (6,581,955) (10,638,375)
Participant transfers to other Travelers accounts
(applicable to 10,743,375 and 25,776,691 units, respectively)......... (14,473,627) (33,660,474)
Market timing transfers to other Travelers timed accounts
(applicable to 61,747,981 and 206,198,047 units, respectively)........ (83,544,949) (271,166,611)
Other payments to participants
(applicable to 210,672 and 241,181 units, respectively)............... (283,688) (315,041)
---------------- -----------------
Net increase (decrease) in net assets resulting from unit transactions 72,152,855 (284,755,552)
---------------- -----------------
Net increase (decrease) in net assets.............................. 74,274,678 (280,109,343)
NET ASSETS:
Beginning of year........................................................ - 280,109,343
---------------- -----------------
End of year.............................................................. $ 74,274,678 $ -
================ =================
</TABLE>
See Notes to Financial Statements
-19-
<PAGE> 245
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Timed Short-Term Bond Account for Variable Annuities ("Account
TSB"), 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 TSB is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment
company. Participants in Account TSB have entered into market timing service
agreements with an affiliate of The Travelers, which provide for the
transfer of participants' funds to certain other timed accounts of The
Travelers, at the discretion of the market timers.
The following is a summary of significant accounting policies consistently
followed by Account TSB 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 year; 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.
REPURCHASE AGREEMENTS. When Account TSB 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 TSB plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Account TSB securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Account TSB 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 TSB'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 TSB 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 TSB. Account TSB 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
Realized gains and losses from security transactions are reported on an
identified cost basis.
-20-
<PAGE> 246
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at an annual
rate of 0.3233% of Account TSB's average net assets. These fees are paid to
The Travelers Investment Management Company, an indirect wholly owned
subsidiary of Travelers Group Inc.
A market timing fee equivalent on an annual basis to 1.25% of the average
net assets of Account TSB is deducted for market timing services. The
Travelers deducts the fee daily and, in turn, pays the fee to Copeland
Financial Services, Inc., a registered investment adviser and an affiliate
of The Travelers which provides market timing services to subscribing
participants in Account TSB.
Insurance charges are paid for the mortality and expense risks assumed by
The Travelers. These charges are equivalent to 1.25% of the average net
assets of Account TSB on an annual basis. Additionally, for 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.
No sales charge is deducted from participant purchase payments when they are
received. However, 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
$72,688 and $143,893 of contingent deferred sales charges for the years
ended December 31, 1996 and 1995, respectively.
4. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income.................. $ .057 $ .074 $ .055 $ .041 $ .054
Operating expenses....................... .030 .035 .036 .037 .041
---------- ------------ ----------- ------------ ------------
Net investment income.................... .027 .039 .019 .004 .013
Unit value at beginning of year.......... 1.333 1.292 1.275 1.271 1.258
Net realized and change in unrealized
gains (losses)*........................ .001 .002 (.002) - -
---------- ------------ ----------- ------------ ------------
Unit value at end of year.................. $ 1.361 $ 1.333 $ 1.292 $ 1.275 $ 1.271
========== ============ =========== ============ ============
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value............... $ .03 $ .04 $ .02 $ - $ .01
Ratio of operating expenses to average
net assets**........................... 2.82 % 2.82 % 2.82 % 2.82 % 2.82 %
Ratio of net investment income to average
net assets**........................... 2.47 % 3.17 % 1.45 % .39 % 1.12 %
Number of units outstanding at end of
year (thousands)....................... 54,565 - 216,713 353,374 173,359
</TABLE>
* Effective May 2, 1994, Account TSB was authorized to invest in securities
with a maturity of greater than one year. As a result, net realized and
change in unrealized gains (losses) are no longer included in total
investment income.
** Annualized.
-21-
<PAGE> 247
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
------------ -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100%)
COMMERCIAL PAPER (94.8%)
Allied Signal, Inc.,
6.06% due January 2, 1997 $ 2,000,000 $ 1,999,252
Bankers Trust NY Corp.,
5.55% due February 19, 1997 3,000,000 2,977,389
BHP Finance (USA), Inc.,
5.39% due February 5, 1997 5,000,000 4,972,615
Citicorp,
5.79% due March 10, 1997 540,000 543,303
Dillard Investment Co., Inc.,
5.54% due January 10, 1997 2,000,000 1,996,566
General Electric Capital Corp.,
5.34% due January 14, 1997 5,000,000 4,988,505
General Motors Acceptance Corp.,
5.73% due January 27, 1997 2,000,000 2,002,542
Heinz H.J. Co.,
5.42% due January 23, 1997 2,185,000 2,177,084
Heinz H.J. Co.,
5.54% due January 30, 1997 3,000,000 2,986,209
Household Finance Corp.,
5.35% due January 7, 1997 5,000,000 4,993,795
National Rural Utilities Coop. Fin. Corp.,
5.39% due January 16, 1997 5,000,000 4,987,060
PacifiCorp,
5.44% due January 28, 1997 3,500,000 3,484,862
PacifiCorp,
5.61% due January 27, 1997 3,000,000 3,003,813
Penney JC Funding Corp.,
5.74% due October 15, 1997 2,000,000 2,064,970
Prudential Funding Corp.,
5.35% due January 6, 1997 5,000,000 4,994,625
Schering Corp.,
5.52% due February 11, 1997 7,000,000 6,955,445
Southern California Edison Co.,
5.67% due January 15, 1997 4,500,000 4,501,085
Transamerica Financial Corp.,
5.53% due February 18, 1997 5,000,000 4,963,040
Wachovia Bank of NC NA,
5.49% due January 3, 1997 5,000,000 5,000,000
Wachovia Bank of NC NA,
5.69% due April 14, 1997 1,000,000 1,000,040
-------------
70,592,200
-------------
REPURCHASE AGREEMENTS (5.2%)
Merrill Lynch Government Securities, Inc.,
6.00% Repurchase Agreement
dated December 31, 1996 due January 2,
1997, collateralized by: United
States of America Treasury, $3,570,000,
7.875% due November 15, 2004 3,859,000 3,859,000
-------------
TOTAL INVESTMENTS (100%)
(COST $74,461,534) $ 74,451,200
=============
</TABLE>
See Notes to Financial Statements
-22-
<PAGE> 248
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and Owners of Variable Annuity Contracts of
The Travelers Timed Short-Term Bond Account for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Timed Short-Term Bond Account for Variable Annuities including the
statement of investments as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the per unit data for each
of the five years in the period then ended. These financial statements and per
unit data are the responsibility of management. Our responsibility is to
express an opinion on these financial statements and per unit data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per unit
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and per unit data referred to above
present fairly, in all material respects, the financial position of The
Travelers Timed Short-Term Bond Account for Variable Annuities as of December
31, 1996, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the per
unit data for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
-23-
<PAGE> 249
THE TRAVELERS
TIMED AGGRESSIVE
STOCK ACCOUNT
FOR VARIABLE ANNUITIES
The Travelers Timed Aggressive Stock Account for Variable Annuities ("Account
TAS") is managed by the Travelers Investment Management Company (TIMCO) to
provide diversified exposure to the mid- and small-capitalization sector of the
U.S. equity market, while maintaining a highly marketable portfolio of common
stocks and related financial instruments in order to accommodate cash flows
associated with market timing moves. Stock selection is based on a disciplined
quantitative screening process which favors 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
TAS to mirror the overall risk, sector weightings and growth/value style
characteristics of the Standard & Poor's 400 Stock Index ("S&P 400"). The S&P
400 is a value-weighted index comprised of mid- and small-company stocks.
For the year ended December 31, 1996, Account TAS achieved a total return of
19.7%, before fees and expenses, comparing favorably to the 19.2% total return
of the S&P 400. Net of fees and expenses, Account TAS's total return of 16.9%
for the year was well ahead of the 14.0% average return achieved by variable
annuity stock funds in the Lipper Capital Appreciation Category.
During the first half of the year, stock selection in the finance and health
care sectors made the strongest positive contribution to Account TAS's overall
relative performance. In the financial services sector, Account TAS benefited
from overweighted positions in a number of better performing banks, including
Star Banc, City National and Signet. We were also helped by our holdings in
SunAmerica and the ITT Hartford Group. In the health care sector, our biggest
relative performance gains came from positions in U.S. Surgical and Guidant in
the medical devices group. We lost ground to the benchmark in the technology
and producer durables sectors. In the technology sector, we were hurt by
weakness in the shares of Structural Dynamics, a developer of computer-aided
manufacturing software which announced disappointing earnings in the third
quarter, and by the selloff in the shares of Auspex Systems, a manufacturer of
high-end network servers, whose earnings fell short of analysts' expectation.
Performance was also penalized by our position in America Online which traded
lower over concerns about price competition among providers of online services.
We continue to focus on stocks that exhibit improving earnings (primarily
measured by changes in analysts' earnings estimates and the trend of recent
earnings surprises), and which also trade at a reasonable price-to-earnings
ratios relative to expected earnings growth rates. In the technology sector,
we have emphasized market leaders that are currently benefiting from strong
pricing and product demand, such as Parametric Technology, the largest
developer of computer-aided design software. In the consumer sectors, we are
focusing on a number of retailers that have good sales momentum and whose
shares still trade at a reasonable multiple of earnings, such as Lands' End and
Tiffany. In financial services, we have overweighted positions in a number of
specialty finance and insurance companies that combine above-average earnings
growth and low relative valuations, including Capital One Financial and
Transatlantic Holdings.
PORTFOLIO MANAGERS: SANDIP A. BHAGAT, CFA - JACOB E. HURWITZ, CFA -
KENT A. KELLEY, CFA
[TIMCO LOGO]
-24-
<PAGE> 250
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $68,942,305).................. $ 78,407,136
Cash....................................................................... 13,467
Receivables:
Dividends............................................................... 38,835
Interest................................................................ 92
Investment securities sold.............................................. 951,851
Purchase payments and transfers from other Travelers accounts........... 25,129
Other assets............................................................... 89
--------------
Total Assets........................................................ 79,436,599
--------------
LIABILITIES:
Payables:
Investment securities purchased......................................... 210,818
Contract surrenders and transfers to other Travelers accounts........... 297
Investment management and advisory fees................................. 3,032
Market timing fees...................................................... 13,528
Variation on futures margin............................................. 79,650
Accrued liabilities........................................................ 10,829
--------------
Total Liabilities.................................................... 318,154
--------------
NET ASSETS:
(Applicable to 30,167,498 units outstanding at $2.623 per unit)............ $ 79,118,445
==============
</TABLE>
See Notes to Financial Statements
-25-
<PAGE> 251
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................... $ 940,457
Interest................................................ 424,278
---------------
Total income........................................ $ 1,364,735
EXPENSES:
Market timing fees...................................... 981,119
Investment management and advisory fees................. 259,403
Insurance charges....................................... 981,119
---------------
Total expenses...................................... 2,221,641
--------------
Net investment loss............................. (856,906)
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold............ 113,672,291
Cost of investment securities sold.................. 101,142,690
---------------
Net realized gain................................ 12,529,601
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995................ 9,705,884
Unrealized gain at December 31, 1996................ 9,464,831
---------------
Net change in unrealized gain for the year....... (241,053)
--------------
Net realized gain and change in unrealized
gain........................................ 12,288,548
--------------
Net increase in net assets resulting from operations.... $ 11,431,642
==============
</TABLE>
See Notes to Financial Statements
-26-
<PAGE> 252
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment loss...................................................... $ (856,906) $ (493,951)
Net realized gain from investment security transactions.................. 12,529,601 8,400,359
Net change in unrealized gain on investment securities................... (241,053) 8,751,047
--------------- ---------------
Net increase in net assets resulting from operations.................. 11,431,642 16,657,455
--------------- ---------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 3,129,051 and 4,530,704 units, respectively)........... 7,526,237 9,157,753
Participant transfers from other Travelers accounts
(applicable to 278,752 and 352,561 units, respectively)............... 669,093 701,109
Market timing transfers from other Travelers timed accounts
(applicable to 6,967,148 and 27,252,603 units, respectively).......... 18,098,875 57,070,717
Administrative charges
(applicable to 54,428 and 80,867 units, respectively)................. (138,199) (173,519)
Contract surrenders
(applicable to 1,838,951 and 1,614,811 units, respectively)........... (4,446,573) (3,295,917)
Participant transfers to other Travelers accounts
(applicable to 6,716,867 and 9,931,060 units, respectively)........... (16,166,563) (20,145,243)
Market timing transfers to other Travelers timed accounts
(applicable to 17,104,352 units)...................................... (40,404,417) -
Other payments to participants
(applicable to 68,124 and 43,168 units, respectively)................. (171,099) (82,155)
--------------- ---------------
Net increase (decrease) in net assets resulting from unit transactions (35,032,646) 43,232,745
--------------- ---------------
Net increase (decrease) in net assets.............................. (23,601,004) 59,890,200
NET ASSETS:
Beginning of year........................................................ 102,719,449 42,829,249
--------------- ---------------
End of year.............................................................. $ 79,118,445 $ 102,719,449
=============== ===============
</TABLE>
See Notes to Financial Statements
-27-
<PAGE> 253
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Timed Aggressive Stock Account for Variable Annuities
("Account TAS") 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 TAS is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. Participants in Account TAS have entered into market timing service
agreements with an affiliate of The Travelers, which provide for the
transfer of participants' funds to certain other timed accounts of The
Travelers, at the discretion of the market timers.
The following is a summary of significant accounting policies consistently
followed by Account TAS 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 year; 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 TAS may use stock index futures contracts, and
may also use interest rate futures contracts, as a substitute for the
purchase or sale of individual securities. When Account TAS enters into a
futures contract, it agrees to buy or sell a specified index of stocks, or
debt securities, at a future time for a fixed price, unless the contract is
closed prior to expiration. Account TAS 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 TAS'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 TAS 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 TAS 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 or debt securities associated with the futures
contract.
OPTIONS. Account TAS 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 TAS may sell the options before expiration.
Options held by Account TAS 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 at the close of the New York Stock Exchange, or, in
the absence of such sale, the latest bid quotation.
-28-
<PAGE> 254
NOTES TO FINANCIAL STATEMENTS - CONTINUED
REPURCHASE AGREEMENTS. When Account TAS 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 TAS plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Account TAS securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Account TAS 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 TAS'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 TAS 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 TAS. Account TAS 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 year ended December 31, 1996,
were $70,037,071 and $98,021,716, respectively. Realized gains and losses
from investments transactions are reported on an identified cost basis.
Account TAS placed a portion of its security transactions with brokerage
firms which are affiliates of The Travelers. The commissions paid to these
affiliated firms were $20,390 and $8,758 for the years ended December 31,
1996 and 1995, respectively.
At December 31, 1996, Account TAS held 118 open S&P 400 MidCap Index futures
contracts expiring in March, 1997. The underlying face value, or notional
value, of these contracts at December 31, 1996, amounted to $15,139,400. In
connection with these contracts, short-term investments with a par value of
$450,000 had been pledged as margin deposits.
Net realized gains resulting from futures contracts were $1,080,235 and
$1,364,329 for the years ended December 31, 1996 and 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 December 31, 1996, is shown
on the Statement of Assets and Liabilities as a payable for variation on
futures margin.
-29-
<PAGE> 255
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Effective May 1, 1996, investment management and advisory fees are
calculated daily at an annual rate of 0.35% of Account TAS's average net
assets. Prior to May 1, 1996, investment management and advisory fees were
calculated daily at annual rates which started at 0.50% and decreased, as
net assets increased, to 0.15% of Account TAS's average net assets. These
fees are paid to The Travelers Investment Management Company, an indirect
wholly owned subsidiary of Travelers Group Inc.
A market timing fee equivalent on an annual basis to 1.25% of the average
net assets of Account TAS is deducted for market timing services. The
Travelers deducts the fee daily and, in turn, pays the fee to Copeland
Financial Services, Inc., a registered investment adviser and an affiliate
of The Travelers which provides market timing services to subscribing
participants in Account TAS.
Insurance charges are paid for the mortality and expense risks assumed by
The Travelers. These charges are equivalent to 1.25% of the average net
assets of Account TAS on an annual basis. Additionally, for 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.
No sales charge is deducted from participant purchase payments when they are
received. However, 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
$77,439 and $80,832 of contingent deferred sales charges for the the years
ended December 31, 1996 and 1995, respectively.
4. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income............................... $ .041 $ .042 $ .036 $ .037 $ .041
Operating expenses.................................... .069 .057 .049 .048 .043
--------- ---------- ---------- ---------- ----------
Net investment loss................................... (.028) (.015) (.013) (.011) (.002)
Unit value at beginning of year....................... 2.253 1.706 1.838 1.624 1.495
Net realized and change in unrealized gains (losses).. .398 .562 (.119) .225 .131
--------- ---------- ---------- ---------- ----------
Unit value at end of year............................. $ 2.623 $ 2.253 $ 1.706 $ 1.838 $ 1.624
========= ========== ========== ========== ==========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value................. $ .37 $ .55 $ (.13) $ .21 $ .13
Ratio of operating expenses to average net assets*.... 2.84 % 2.83 % 2.80 % 2.82 % 2.93 %
Ratio of net investment loss to average net assets*... (1.13) % (.74) % (.72) % (.80) % (.12) %
Number of units outstanding at end of year (thousands) 30,167 45,575 25,109 43,059 20,225
Portfolio turnover rate............................... 98 % 113 % 142 % 71 % 269 %
Average commission rate paid+......................... $ .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 year.
-30-
<PAGE> 256
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ ------------
<S> <C> <C>
COMMON STOCKS (80.6%)
AMUSEMENTS (1.0%)
Circus Circus Enterprises, Inc. (A) 8,900 $ 305,937
Mirage Resorts, Inc. (A) 22,500 486,562
------------
792,499
------------
BANKING (6.6%)
City National Corp. 17,400 376,275
Crestar Financial Corp. 4,000 297,500
First of America Bank Corp. 5,800 348,725
First Tennesse National Corp. 11,300 423,044
Firstar Corp. 3,600 189,000
Marshall & Ilsley Corp. 8,600 298,850
Mercantile Bancorp, Inc. 3,700 190,088
Mercantile Bankshares Corp. 10,100 321,937
Northern Trust Corp. 15,600 566,475
Regions Financial Corp. 5,800 299,787
Signet Banking Corp. 6,200 190,650
SouthTrust Corp. 14,200 495,225
State Street Boston Corp. 8,500 548,250
Summit Bancorp 9,200 402,500
Union Planters Corp. 4,900 191,100
------------
5,139,406
------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (5.4%)
Biogen, Inc. (A) 3,400 131,325
Cabot Corp. 12,700 319,088
Centocor, Inc. (A) 11,200 401,100
Chiron Corp. (A) 15,868 294,550
Cytec Industries, Inc. (A) 7,000 284,375
Genzyme Corp. (A) 6,500 141,781
Georgia Gulf Corp. 2,800 75,250
Interprov Steel & Pipeline Light 18,200 222,950
IMC Global, Inc. 13,000 508,625
Lubrizol Corp. 6,200 192,200
Morton International, Inc. 4,500 183,375
Mylan Labs, Inc. 12,700 212,725
Olin Corp. 9,600 361,200
Praxair, Inc. 5,800 267,525
Watson Pharmaceuticals, Inc. (A) 11,100 498,806
Witco Chemical Corp. 5,400 164,700
------------
4,259,575
------------
COMMUNICATION (1.9%)
Century Telephone Enterprises 11,200 345,800
Echelon International Corp. (A) 613 9,583
Emmis Broadcasting Corp. (A) 4,100 132,738
Frontier Corp. 16,600 375,575
Nextel Communications (A) 20,400 266,475
Southern New England Telephone 5,600 217,700
Telephone & Data Systems, Inc. 4,200 152,250
------------
1,500,121
------------
CONTRACTORS (0.8%)
Fluor Corp. 2,600 163,150
Halliburton Co. 3,300 198,825
Jacobs Engineering Group, Inc. (A) 10,600 250,425
------------
612,400
------------
ELECTRICAL AND
ELECTRONIC MACHINERY (6.2%)
ADC Telecommunications, Inc. (A) 17,500 $ 544,688
Altera Corp. (A) 3,000 218,062
American Power Conversion (A) 1,800 49,163
Analog Devices, Inc. (A) 11,775 398,878
Andrew Corp. (A) 3,250 172,453
Atmel Corp. (A) 16,600 551,950
Duracell International, Inc. 2,900 202,638
Emcor Group, Inc. (A)(B)(C) 154 -
Hubbell, Inc. 6,000 259,500
International Rectifier Corp. (A) 13,800 210,450
KEMET Corp. (A) 10,800 249,075
Linear Technology Corp. 6,500 285,188
Maxim Integrated Products (A) 5,900 255,544
Molex, Inc. 4,500 176,063
Raychem Corp. 2,500 200,312
Solectron Corp. (A) 1,700 90,737
U. S. Robotics, Inc. (A) 10,900 785,481
Xilinx, Inc. (A) 6,300 231,919
------------
4,882,101
------------
FINANCE (2.3%)
Bear Stearns Cos. 5,535 154,288
Charles Schwab Corp. 15,900 508,800
Franklin Resources, Inc. 3,900 266,662
HFS Inc. (A) 4,000 239,000
Lehman Brothers Holding, Inc. 6,900 216,488
Paine Webber Group 8,500 239,062
Student Loan Marketing Association 2,100 195,563
------------
1,819,863
------------
FOOD (3.1%)
Coca-Cola Enterprises, Inc. 15,600 756,600
Dean Foods Co. 10,900 351,525
Dole Food Co. 13,000 440,375
Interstate Bakeries Corp. 4,400 216,150
McCormick & Co. 7,400 174,362
Tyson Foods, Inc. 14,100 482,925
------------
2,421,937
------------
FURNITURE AND FIXTURES (1.1%)
Lear Corp. (A) 5,800 197,925
Leggett & Platt, Inc. 8,300 287,388
Miller (Herman), Inc. 6,500 366,844
------------
852,157
------------
HOTELS & LODGING (0.2%)
Hilton Hotels Corp. 6,200 161,975
------------
INSURANCE (5.1%)
AMBAC, Inc. 4,900 325,238
AFLAC, Inc. 7,150 305,662
Everest Reinsurance Holdings 6,900 198,375
Foundation Health Corp. (A) 5,000 158,750
HealthCare COMPARE (A) 9,700 412,250
ITT Hartford Group, Inc. 3,900 263,250
MedPartners, Inc. (A) 10,100 212,100
PacifiCare Health Systems (A) 2,800 238,350
Progressive Corp., Ohio 7,000 471,625
PMI Group, Inc. 3,500 193,812
SunAmerica, Inc. 14,800 656,750
Transatlantic Holdings, Inc. 5,400 434,700
Zurich Reinsurance Centre Holdings 5,000 156,250
------------
4,027,112
------------
</TABLE>
-31-
<PAGE> 257
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ ------------
<S> <C> <C>
LUMBER AND WOOD PRODUCTS (0.2%)
Clayton Homes, Inc. 10,750 $ 145,125
Deltic Timber (A) 1,200 25,950
------------
171,075
------------
MACHINERY (3.2%)
Ascend Communications, Inc. (A) 2,800 173,950
Auspex Systems, Inc. (A) 20,700 243,225
Cabletron System, Inc. (A) 4,600 152,950
Diebold, Inc. 4,100 257,788
Duriron, Inc. 9,000 243,000
Encad, Inc. (A) 4,000 164,000
Gateway 2000, Inc. (A) 4,500 241,031
JLG Industries, Inc. 9,300 148,800
Lam Research Corp. (A) 6,400 180,000
Storage Tech Corp. (A) 5,400 257,175
York International, Inc. 7,500 419,062
------------
2,480,981
------------
METAL PRODUCTS (1.2%)
Alumax, Inc. (A) 5,100 170,212
Bethlehem Steel Corp. (A) 10,900 98,100
Danaher Corp. 10,000 466,250
USX-U.S. Steel Group 5,700 178,838
------------
913,400
------------
MINING (0.2%)
Homestake Mining Co. 10,000 142,500
------------
MISCELLANEOUS MANUFACTURING (2.2%)
Callaway Golf Co. 15,900 457,125
International Game Technology 6,000 109,500
Litton Industries (A) 4,900 233,363
Stryker Corp. 9,500 284,406
Tencor Instruments (A) 9,600 253,800
United States Surgical Corp. 4,700 185,062
VISX, Inc. (A) 9,300 207,506
------------
1,730,762
------------
OIL & GAS (3.3%)
Anadarko Petroleum Corp. 8,500 550,375
Apache Corp. 7,900 279,463
Chesapeake Energy Corp. (A) 3,700 205,812
Ensco International, Inc. (A) 6,900 334,650
Global Marine, Inc. (A) 15,700 323,813
Noble Affiliates, Inc. 4,700 225,012
Noble Drilling Corp. (A) 10,500 208,688
Transocean Offshore, Inc. 4,700 294,337
Weatherford Enterra, Inc. (A) 5,000 150,000
------------
2,572,150
------------
PAPER AND ALLIED PRODUCTS (1.1%)
Boise Cascade Corp. 4,800 152,400
Bowater, Inc. 4,000 150,500
James River Corp. 4,700 155,687
Mead Corp. 3,400 197,625
Willamette Industries, Inc. 2,600 181,025
------------
837,237
------------
PETROLEUM REFINING AND
RELATED INDUSTRIES (1.2%)
Ashland Oil, Inc. 5,600 245,700
Kerr McGee Corp. 2,900 208,800
Lyondell Petrochemical 3,700 81,400
Murphy Oil Corp. 4,200 207,675
Tosco Corp. 2,500 197,813
------------
941,388
------------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (1.4%)
A.H. Belo Corp. 9,200 $ 320,850
Scholastic Corp. (A) 3,000 200,625
Tribune Co. 2,400 189,300
Washington Post Co. 1,200 402,150
------------
1,112,925
------------
RETAIL (6.8%)
Bed Bath & Beyond, Inc. (A) 16,200 393,862
Borders Group, Inc. (A) 4,500 161,438
Boston Chicken, Inc. (A) 5,700 204,487
Claire's Stores, Inc. 26,200 340,600
Dollar General Corp. 12,700 406,400
Federated Department Stores, Inc. (A) 5,100 174,037
General Nutrition Cos. (A) 11,800 200,600
Home Shopping Network, Inc. (A) 11,205 264,718
Kohls Corp. (A) 6,800 266,900
Lands' End, Inc. (A) 11,500 304,750
Mens Wearhouse, Inc. (A) 7,900 192,069
Office Depot, Inc. (A) 8,100 143,775
OfficeMax, Inc. (A) 22,800 242,250
Outback Steakhouse, Inc. (A) 11,100 295,538
Revco D.S., Inc. (A) 6,500 240,500
Safeway, Inc. (A) 4,800 205,200
Staples, Inc. (A) 32,075 579,355
Tiffany & Co. 10,400 380,900
Viking Office Products, Inc. (A) 4,000 106,750
Vons Cos. (A) 4,200 251,475
------------
5,355,604
------------
RUBBER AND PLASTIC PRODUCTS (1.2%)
Armstrong World Industries 2,800 194,600
Cooper Tire & Rubber 8,200 161,950
Sealed Air Corp. (A) 9,200 382,950
Tupperware Corp. 3,200 171,600
------------
911,100
------------
SERVICES (7.6%)
AccuStaff, Inc. (A) 12,300 259,838
Adobe Systems, Inc. 7,300 273,294
America Online, Inc. (A) 4,300 142,975
Apria Healthcare Group, Inc. (A) 4,800 90,000
BMC Software, Inc. (A) 10,000 415,625
Cadence Design System, Inc. (A) 12,525 497,869
Compuware Corporation (A) 3,700 185,462
Corrections Corp. of America (A) 8,100 248,063
Electronic Arts (A) 4,900 146,694
Equifax, Inc. 8,500 260,312
Gartner Group, Inc. (A) 3,600 140,175
HBO & Co. 4,600 273,125
HEALTHSOUTH Rehabilitation (A) 14,000 540,750
Manpower, Inc. 7,600 247,000
McAfee Associates, Inc. (A) 4,100 179,631
Olsten Corp. 6,400 96,800
Omnicom Group, Inc. 5,700 260,775
Parametric Technology Co. (A) 16,500 848,719
Paychex, Inc. 5,350 275,191
Structural Dynamic Resources (A) 10,000 198,125
Transitional Hospital Corp. (A) 450 4,331
Vencor, Inc. (A) 12,500 395,312
------------
5,980,066
------------
STONE, CLAY, GLASS, AND
CONCRETE PRODUCTS (0.2%)
Owens Corning Fiberglass 4,300 183,288
------------
</TABLE>
-32-
<PAGE> 258
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------- --------------
<S> <C> <C>
TEXTILE MILL PRODUCTS (0.7%)
Jones Apparel Group, Inc. (A) 5,700 $ 213,038
Shaw Industries, Inc. 10,800 126,900
Unifi, Inc. 6,000 192,750
-------------
532,688
-------------
TRANSPORTATION (1.9%)
Alexander & Baldwin 10,900 270,456
Continental Air, Inc. (A) 6,900 194,925
Kansas City Southern Industries, Inc. 4,200 189,000
Northwest Airlines Corp. (A) 4,300 168,237
Tidewater, Inc. 9,900 447,975
Wisconsin Central Transportation (A) 4,800 190,200
-------------
1,460,793
-------------
TRANSPORTATION MANUFACTURING (1.3%)
Harley Davidson, Inc. 6,800 319,600
Sundstrand Corp. 10,100 429,250
Trinity Industries 7,700 288,750
-------------
1,037,600
-------------
UTILITIES (11.0%)
AES Corp. (A) 12,600 585,900
Allegheny Power Systems, Inc. 15,200 461,700
Baltimore Gas & Electric Co. 8,000 214,000
Brooklyn Union Gas Co. 11,400 343,425
CalEnergy Co. (A) 14,200 477,475
Columbia Gas Systems, Inc. 2,900 184,512
Consolidated Natural Gas Co. 4,700 259,675
CMS Energy Corp. 16,700 561,538
Delmarva Power & Light 5,500 112,063
El Paso Natural Gas Co. 3,300 166,650
Florida Progress Corp. 9,200 296,700
Illinova Corp. 14,200 390,500
Louisville Gas & Electric Co. 11,500 281,750
National Fuel Gas Co. 8,800 363,000
Northeast Utilities, Inc. 12,300 162,975
NIPSCO Industries, Inc. 10,400 412,100
Pinnacle West Capital Corp. 15,100 479,425
Public Service Co. of Colorado 11,800 458,725
Rochester Gas & Electric Corp. 7,300 139,612
Seagull Energy Corp. (A) 5,600 123,200
Sonat, Inc. 4,000 206,000
SCANA Corp. 16,600 444,050
TECO Energy, Inc. 18,800 453,550
USA Waste Services, Inc. (A) 18,700 596,062
Wisconsin Energy 16,900 454,188
-------------
8,628,775
-------------
WHOLESALE TRADE (2.2%)
Arrow Electronics (A) 4,700 251,450
Avnet, Inc. 3,300 192,225
Cardinal Health, Inc. 12,000 699,000
Crane Co. 6,150 178,350
Grainger (W.W.) 2,600 208,650
Richfood Holdings, Inc. 7,400 179,450
-------------
1,709,125
-------------
TOTAL COMMON STOCKS
(COST $53,701,522) 63,170,603
-------------
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (19.4%)
COMMERCIAL PAPER (17.8%)
Abbott Laboratories,
5.34% due January 3, 1997 $ 1,500,000 $ 1,499,168
BHP Finance (USA), Inc.,
5.37% due January 15, 1997 1,500,000 1,496,346
Ciesco LP,
5.47% due February 4, 1997 1,000,000 994,672
Ford Motor Credit Co.,
5.36% due February 11, 1997 1,500,000 1,490,452
General Electric Capital Corp.,
5.37% due January 23, 1997 1,500,000 1,494,566
Heinz H. J. Co.,
5.42% due January 23, 1997 1,500,000 1,494,565
Household Finance Corp.,
5.35% due January 8, 1997 1,500,000 1,497,894
Prudential Funding Corp.,
5.36% due January 13, 1997 1,500,000 1,496,760
Raytheon Co.,
5.50% due January 13, 1997 500,000 498,920
Seagram Joseph E. & Sons Inc.,
5.44% due January 8, 1997 1,500,000 1,497,894
Toyota Motor Credit Corp.,
5.35% due February 12, 1997 500,000 496,744
-------------
13,957,981
-------------
U.S. GOVERNMENT SECURITIES (0.9%)
United States of America Treasury,
5.29% due August 21, 1997 (D) 750,000 725,552
-------------
REPURCHASE AGREEMENTS (0.7%)
Merrill Lynch Government Securities, Inc.,
6.00% Repurchase Agreement
dated December 31, 1996 due January 2,
1997, collateralized by: United
States of America Treasury, $515,000,
7.875% due November 15, 2004 553,000 553,000
-------------
TOTAL SHORT-TERM
INVESTMENTS (COST $15,240,783) 15,236,533
-------------
<CAPTION>
NOTIONAL
VALUE
-----------
<S> <C> <C>
FUTURES CONTRACTS (0.0%)
S&P 400 MidCap Index,
Exp. March, 1997 (E) $15,139,400 -
-------------
TOTAL INVESTMENTS (100%)
(COST $68,942,305) (F) $ 78,407,136
=============
</TABLE>
-33-
<PAGE> 259
STATEMENT OF INVESTMENTS - CONTINUED
NOTES
(A) Non-income Producing Security.
(B) Management Priced Security.
(C) Bankrupt Security.
(D) Par value of $450,000 pledged to cover margin deposits on futures
contracts.
(E) As more fully discussed in Note 1 to the financial statements, it is
Account TAS'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 TAS uses futures contracts as a substitute for
holding individual securities.
(F) At December 31, 1996, net unrealized appreciation for all securities was
$9,464,831. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$11,449,002 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $1,984,171.
See Notes to Financial Statements
-34-
<PAGE> 260
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and Owners of Variable Annuity Contracts of
The Travelers Timed Aggressive Stock Account for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Timed Aggressive Stock Account for Variable Annuities including the
statement of investments as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the per unit data for each
of the five years in the period then ended. These financial statements and per
unit data are the responsibility of management. Our responsibility is to
express an opinion on these financial statements and per unit data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per unit
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per unit data referred to above
present fairly, in all material respects, the financial position of The
Travelers Timed Aggressive Stock Account for Variable Annuities as of December
31, 1996, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the per
unit data for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
-35-
<PAGE> 261
THE TRAVELERS
TIMED BOND ACCOUNT
FOR VARIABLE ANNUITIES
The investment world began 1996 with an optimistic outlook for the bond market.
Talks of deficit reduction via a balanced budget amendment, coupled with anemic
consumer spending and a tame inflation outlook laid the groundwork for a
further rally. The longest Treasuries were yielding less than 6.00% at the
start of the year for the second time this decade, and expectation of an easier
Federal Reserve Board helped fuel yields on shorter Treasuries to levels less
than 5.00%. As the year progressed, these bullish sentiments were shattered as
balanced budget talks stalled, energy prices began to rise, and economic growth
resumed. Yields on 30-year Treasuries rose to 7.20% by mid-year, posting a
negative return of 9.10% by the end of June. The second half of the year
recouped some of the earlier losses, with yields falling to 6.63% by year end,
but still leaving the performance of the 30-year Treasury at a dismal 3.50%
loss, trailing cash by almost 9%. Mortgage backed securities fared somewhat
better, returning 5.35% as a group, almost in line with cash. The best
performing mortgages were those slight premium securities with coupons in the
7.50% to 8.00% range, which tightened as yields rose as their embedded
refinancing options moved out of the money.
In the government securities market, agency debentures fared well as their
yield spreads tightened versus Treasuries. Among long Treasuries, there were a
few opportunities for investors in 1996. The on-the-run bond became scarce in
the securities lending market in the first quarter, causing dealers who needed
to borrow the issue to bid its price up versus other long Treasuries. The 2015
to 2016 year sector traded in line with market direction, as these were the
cheapest-to-deliver into the bond futures contract. As the market traded off,
futures would lead the way down, causing these maturities to underperform, and
to outperform when the market rallied. The yield curve flattened from the
beginning of the year, but was relatively calm in the second half.
When a "Buy" is in place, this fund invests in liquid government securities and
agency mortgage backed securities. During the course of the year, three "Buy"
signals were in place and the fund was indexed to a 50/50 weighting of long
Treasuries and mortgages. The year began with a "Buy" signal that was
initiated in September of 1995 which ended on April 11. The two other buy
signals occurred in the third quarter: the first from July 3 ending July 10,
and the second beginning August 6 ending September 6. No further "buy" signals
were received during the remainder of 1996; and as a result, The Travelers
Timed Bond Account for Variable Annuities had no securities at December 31,
1996. Among the mortgages that were purchased during the year, GNMA, FNMA and
FHLMC 15- and 30-year passthroughs with net coupons of 6.50% to 8.00% were used
to afford maximum liquidity. Agency debentures from the Resolution Funding
Corporation and the Federal Home Loan Bank were used for additional yield in
conjunction with long Treasuries maturing in years 2019 to 2021 to provide
duration needed to match the index.
PORTFOLIO MANAGER: JOSEPH M. MULLALLY
[TAMIC LOGO]
-36-
<PAGE> 262
THE TRAVELERS TIMED BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................ $ 350,785
EXPENSES:
Market timing fees.................................. $ 67,112
Investment management and advisory fees............. 26,799
Insurance charges................................... 67,112
--------------
Total expenses................................... 161,023
--------------
Net investment income......................... 189,762
--------------
REALIZED LOSS AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized loss from investment security transactions:
Proceeds from investment securities sold.......... 34,098,269
Amortized cost of investment securities sold...... 35,148,792
--------------
Net realized loss............................. (1,050,523)
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.............. 698,966
Unrealized gain at December 31, 1996.............. -
--------------
Net change in unrealized gain for the year.... (698,966)
--------------
Net realized loss and change in unrealized
gain...................................... (1,749,489)
--------------
Net decrease in net assets resulting from
operations....................................... $ (1,559,727)
==============
</TABLE>
See Notes to Financial Statements
-37-
<PAGE> 263
THE TRAVELERS TIMED BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income................................................... $ 189,762 $ 501,286
Net realized gain (loss) from investment security transactions.......... (1,050,523) 901,740
Net change in unrealized gain on investment securities.................. (698,966) 698,966
---------------- ----------------
Net increase (decrease) in net assets resulting from operations...... (1,559,727) 2,101,992
---------------- ----------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 243,706 and 796,980 units, respectively)............... 324,504 1,033,094
Participant transfers from other Travelers accounts
(applicable to 13,851 and 55,290 units, respectively)................. 19,555 68,142
Market timing transfers from other Travelers timed accounts
(applicable to 18,855,866 and 25,376,865 units, respectively)......... 24,121,224 31,962,202
Administrative charges
(applicable to 72 and 16,869 units, respectively)..................... (94) (22,828)
Contract surrenders
(applicable to 318,514 and 614,080 units, respectively)............... (428,452) (802,989)
Participant transfers to other Travelers accounts
(applicable to 992,326 and 1,869,809 units, respectively)............. (1,324,406) (2,437,532)
Market timing transfers to other Travelers timed accounts
(applicable to 29,259,875 and 12,262,071 units, respectively)......... (37,004,878) (16,038,495)
Other payments to participants
(applicable to 8,942 units)........................................... (11,312) -
---------------- ----------------
Net increase (decrease) in net assets resulting from unit transactions (14,303,859) 13,761,594
---------------- ----------------
Net increase (decrease) in net assets.............................. (15,863,586) 15,863,586
NET ASSETS:
Beginning of year..................................................... 15,863,586 -
---------------- ----------------
End of year........................................................... $ - $ 15,863,586
===============- ================
</TABLE>
See Notes to Financial Statements
-38-
<PAGE> 264
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Timed Bond Account for Variable Annuities ("Account TB") 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 TB is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
Participants in Account TB have entered into market timing service
agreements with an affiliate of The Travelers, which provide for the
transfer of participants' funds to certain other timed accounts of The
Travelers, at the discretion of the market timer.
The following is a summary of significant accounting policies consistently
followed by Account TB 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 year; 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 TB may use interest rate futures contracts as a
substitute for the purchase or sale of individual securities. When Account
TB 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 TB 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 TB'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 TB 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 TB holds open futures contracts, it assumes a market risk
generally equivalent to the underlying market risk of change in the value of
the specified debt securities associated with the futures contract.
-39-
<PAGE> 265
NOTES TO FINANCIAL STATEMENTS - CONTINUED
REPURCHASE AGREEMENTS. When Account TB 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 TB plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Account TB securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Account TB 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 TB'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 TB 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 TB.
Account TB 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 proceeds from sales of bonds (other than short-term securities) was
$326,965; the costs of purchases and proceeds from sales of direct and
indirect U.S. government obligations were $20,876,153 and $33,771,304,
respectively, for the year ended December 31, 1996. Realized gains and
losses from investment transactions are reported on an identified cost
basis.
3. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at annual rates
which start at 0.50% and decrease, as net assets increase, to 0.25% of
Account TB's average net assets. These fees are paid to Travelers Asset
Management International Corporation, an indirect wholly owned subsidiary of
Travelers Group Inc.
A market timing fee equivalent on an annual basis to 1.25% of the average
net assets of Account TB is deducted for market timing services. The
Travelers deducts the fee daily and, in turn, pays the fee to Copeland
Financial Services, Inc., a registered investment adviser and an affiliate
of The Travelers which provides market timing services to subscribing
participants in Account TB.
Insurance charges are paid for the mortality and expense risks assumed by
The Travelers. These charges are equivalent to 1.25% of the average net
assets of Account TB on an annual basis. Additionally, for 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.
No sales charge is deducted from participant purchase payments when they are
received. However, 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
$9,844 and $21,911 of contingent deferred sales charges for the years ended
December 31, 1996 and 1995, respectively.
-40-
<PAGE> 266
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income............................... $ .033 $ .071 $ .007 $ .054 $ .051
Operating expenses.................................... .015 .031 .006 .036 .032
---------- ---------- ---------- ---------- ----------
Net investment income................................. .018 .040 .001 .018 .019
Unit value at beginning of year....................... 1.383 1.215 1.234 1.132 1.087
Net realized and change in unrealized gains (losses).. (.169) .128 (.020) .084 .026
---------- ---------- ---------- ---------- ----------
Unit value at end of year............................. $ 1.232 $ 1.383 $ 1.215 $ 1.234 $ 1.132
========== ========== ========== ========== ==========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value................. $ (.15) $ .17 $ (.02) $ .10 $ .05
Ratio of operating expenses to average net assets*.... 3.00 % 3.00 % 3.00 % 3.00 % 2.99 %
Ratio of net investment income to average net assets*. 3.48 % 3.98 % 1.02 % 1.48 % 1.71 %
Number of units outstanding at end of year (thousands) - 11,466 - 20,207 21,868
Portfolio turnover rate............................... 153 % 117 % - 190 % 505 %
</TABLE>
* Annualized.
-41-
<PAGE> 267
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and Owners of Variable Annuity Contracts of
The Travelers Timed Bond Account for Variable Annuities:
We have audited the accompanying statement of operations of The Travelers Timed
Bond Account for Variable Annuities for the year ended December 31, 1996, and
the related statement of changes in net assets for each of the two years in the
period then ended, and the per unit data for each of the five years in the
period then ended. These financial statements and per unit data are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and per unit data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per unit
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and per unit data referred to above
present fairly, in all material respects, the results of operations of The
Travelers Timed Bond Account for Variable Annuities for the year ended December
31, 1996, the changes in its net assets for each of the two years in the period
then ended, and the per unit data for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
-42-
<PAGE> 268
This page intentionally left blank.
<PAGE> 269
This page intentionally left blank.
<PAGE> 270
Investment Advisers
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
Hartford, Connecticut
THE TRAVELERS TIMED BOND 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
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Timed Growth and Income Stock Account
for Variable Annuities, The Travelers Timed Short-Term Bond Account for
Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable
Annuities and The Travelers Timed Bond 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-182 (Annual) (12-96) Printed in U.S.A.
<PAGE> 271
UNIVERSAL ANNUITY
ANNUAL REPORTS
DECEMBER 31, 1996
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
[TRAVELERSLIFE AND ANNUITY LOGO]
The Travelers Insurance
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 272
[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> 273
[TRAVELERSLIFE AND ANNUITY LOGO]
THE TRAVELERS VARIABLE PRODUCT SEPARATE ACCOUNTS
INVESTMENT ADVISORY COMMENTARY AS OF DECEMBER 31, 1996
ECONOMIC REVIEW AND OUTLOOK
As 1996 began, the Federal Government found itself paralyzed by a prolonged
budget dispute. In the financial markets, investors were focused on signs of a
slowing economy. With two-year Treasury notes priced to yield less than the
federal funds rate, the bond market clearly expected the Federal Reserve Board
("Fed") to cut interest rates significantly. The Fed lowered the federal funds
rate by 0.25% in January, but strong employment growth over the next several
months sent the bond market into a tailspin reminiscent of 1994. Interest
rates hit their highest levels for the year in the June to September period as
investors prepared for the Fed to raise interest rates at their September
meeting.
The policymakers at the Fed decided to hold steady at their September meeting
and interest rates declined through the autumn as economic growth once again
slowed. The financial markets also responded positively to the Republicans'
success in retaining control of Congress in the November election. Going into
December, the bond and stock markets reflected a "best of all worlds" scenario
of moderate economic growth with low inflation, low unemployment and a benign
to positive political landscape. Interest rates started to move back up again
in December as some economic indicators strengthened, but ended the year well
below the levels seen in the second and third quarters.
We expect real economic growth to average around 2% in 1997. The consumer
sector, which makes up two thirds of Gross Domestic Product ("GDP"), should
show modest growth. The factors that would otherwise contribute to strong
consumer spending -- low unemployment, high consumer confidence, and the wealth
effects from the strong stock market -- should be muted by high consumer debt
levels (particularly at lower income levels) and lack of pent-up demand. The
export sector should continue to grow 5% to 10% in 1997, helped by the United
States' strong competitive position and continued robust growth in emerging
markets. Growth should improve slightly in Europe and Japan, helped by the
recent strengthening of the dollar against those currencies. The stronger
dollar is likely to be a mixed blessing, by making the prices of foreign
imports more attractive and thereby helping to dampen inflation. The capital
goods sector has slowed in recent quarters, but is still expected to grow
faster than overall U.S. economy. The government sector should continue to be
a drag on GDP growth.
Overall, we believe that the U.S. economy is likely to remain on a path of
moderate non-inflationary growth in 1997. However, because of the current low
level of unemployment, we also expect that the Fed will remain cautious and
biased towards a tighter monetary policy. Whether the Fed acts may depend in
part on market psychology. Upward shifts in long-term bond yields have served
to moderate economic growth in recent years and reduced the need for any major
changes in Fed policy.
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<PAGE> 274
FIXED INCOME COMMENTARY
The U.S. bond market had its best quarter of the year in the fourth quarter.
The Lehman Intermediate Government/Corporate Index returned 2.5% for the
quarter and 4.1% for the full year. For the year, the Lehman Long
Government/Corporate Index provided a total return of only 0.1%. Treasury
bonds with maturities longer than 10 years had negative total returns.
Within the fixed income market, all private issuer sectors outperformed
Treasury bonds as quality spreads continued to narrow. While Treasuries
performed almost as poorly in 1996 as in 1994, the effect on other sectors was
relatively neutral, unlike 1994 when there were problems with mortgage-backed
derivatives, Mexico, and Orange County. The yield curve was also remarkably
stable in 1996, unlike 1994 when short-term interest rates rose considerably.
The mortgage-backed, high yield, and municipal sectors were the best performing
areas in 1996 on a duration-adjusted basis. Within the corporate sector, lower
quality and foreign issues were the best performers based on both higher
coupons and spread tightening.
We expect interest rates to stay in the trading range established in 1996 (the
yield of the 30-year Treasury bond ranged between 6.0% and 7.2%). On one hand,
investors are concerned that low unemployment will eventually give rise to
inflationary wage growth. We believe this sets a floor for long-term bond
yields at about 6.0%. At the upper end of the range, the 7.2% level has proved
to be sufficient to generate increased demand for bonds and depress high risk
asset classes and interest sensitive sectors of the economy. We feel that
central bank vigilance against inflation, globalization, and productivity
improvements will keep inflation under control, preventing interest rates from
rising much above their 1996 high.
Within the fixed income markets, demand for corporate, mortgage-backed and
asset-backed issue continues to be high. Yield spreads (relative to Treasury
issues) for lower and higher quality corporate bonds are quite narrow. The
mortgage-backed and asset-backed markets are similarly compressed, with
investors digging for yield. There is nothing in our economic outlook that is
likely to change the tight spread environment in the near future. We are being
careful, however, to weed out riskier credits and issues that do not offer
enough yield premium to offset their potential for negative surprises. The
foreign area continues to offer opportunities, particularly foreign corporate
bonds that sometimes have very strong balance sheets but are capped by the
rating of their home country. Foreign sovereign credits are also continuing to
improve based on solid global economic growth and increased acceptance of the
need for sound fiscal and monetary policy.
EQUITY COMMENTARY
During 1996, financial markets were repeatedly jolted by changes in sentiment
about the strength of the U.S. economy and the direction of Fed policy. When
investors gained confidence that the economy was continuing on a track of
moderate, non-inflationary growth, the stock market advanced strongly and
posted another year of outstanding performance. For the twelve-month period
ending December 31, 1996, the Standard & Poor's 500 Stock Index ("S&P 500")
provided a total return of 23.0%. Over the same period, the Russell 2000 Stock
Index, a measure of the performance of the small company segment of the equity
market, provided a total return of 16.5%.
After a weak start in January, the stock market moved broadly higher through
the first months of spring. Small company shares advanced strongly in April
and May, led by the technology sector. In late June and July, when long-term
bond yields moved back over 7%, the stock market traded back down to where it
began the year. Recent initial public offerings and more speculative issues
were particularly hard hit during the reversal. Large company stocks quickly
recovered their losses when the bond market stabilized at the end of July.
However, small company stocks continued to struggle. During the autumn,
against the backdrop of lower bond yields, low inflation and surprisingly
resilient corporate earnings, the stock market made its strongest advance of
the year, with large company issues leading the way.
-2-
<PAGE> 275
As measured by the S&P 500, the U.S. stock market has provided a cumulative
total return of nearly 70% over the past two years, capping a six-year bull
market that began in October of 1990. Notwithstanding the strong overall
environment for equities, 1996 marked the third consecutive year of
underperformance by small and mid sized company stocks relative to "blue chip"
indices. The underperformance of small company stocks can be explained in part
by the sharper falloff in earnings growth experienced by smaller companies in
the 1995-96 period. The performance lag also reflected a backing away by
investors from higher risk growth stocks, in an environment of rising interest
rates and market volatility.
Given the frequent alarms raised in 1996 about slowing earnings growth,
investors showed an understandable preference for industry sectors with visible
earnings momentum. In the energy sector, analysts' earnings estimates and
share prices moved sharply higher in response to firmer prices for oil and
natural gas. Stocks in the finance sector also performed exceptionally well
despite emerging credit quality concerns. In the consumer sector, specialty
and broad-line retail stocks were up strongly in response to higher than
expected levels of consumer spending. The technology sector provided superior
returns for investors last year, led by Intel and Microsoft. Within the
technology sector, software, semiconductor and computer product stocks had the
strongest relative performance. Industrial cyclical stocks underperformed, as
soft domestic and export demand led to declining commodity prices for paper,
copper, aluminum, steel and fertilizer products. The health care sector was
mixed. Drug stocks kept pace with the market due to strong earnings gains,
while the HMO group declined sharply on repeated earnings disappointments.
Utilities were the weakest overall sector during the year, held back by the
relatively poor performance of local telephone carriers and electrical
companies.
We are taking a more cautious position toward the U.S. stock market at this
point. Over the past year, the price-to-earnings ratio of the S&P 500 on
12-month forward earnings has increased from 15 to 17 times earnings per share.
This level of valuation is consistent with earlier periods of moderate growth
and low inflation, but leaves no cushion for earnings or inflation
disappointments. After a prolonged period of underperformance, relative
valuations for small company stocks are becoming more attractive. However, we
believe that caution should still be exercised since the small capitalization
segment of the equity market has a relatively high exposure to cyclical
industries and would be vulnerable to any combination of higher interest rates
and slower profit growth.
KENT A. KELLEY, CFA, THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
DAVID A. TYSON, CFA, TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
-3-
<PAGE> 276
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- -------------------------------------------------------------------
<S> <C>
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES ..................................... 5
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES .. 18
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES .. 30
</TABLE>
-4-
<PAGE> 277
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 year ended December 31, 1996, Account GIS achieved a total return of
23.4%, before fees and expenses, outperforming the S&P 500 total return of
23.1%. Net of fees and expenses, Account GIS had a total return of 21.4% for
the year, which compared favorably to the 19.9% average return for variable
annuity stock accounts in the Lipper Growth & Income category.
During the second half of 1996, stock selection in the energy and producer
durables sectors made the strongest positive contribution to the portfolio's
overall relative performance. In the energy sector, the portfolio benefited
from holdings in better performing stocks in the oilfield services group, such
as Ensco International and Cooper Cameron. In the exploration and production
group, an overweighted position in Anadarko Petroleum also helped performance.
In the producer durables sector, our largest relative gain came from holdings
in Harnischfeger, United Technologies and Honeywell. We lost ground relative
to the benchmark in the technology and consumer staples sectors. In the
technology sector, we were penalized by being underweight in a number of
computer and networking stocks that moved up sharply after reporting
surprisingly strong sales and earnings, including Compaq, Dell and 3COM. In
the consumer staples sector, performance was hurt by our position in PepsiCo.
which traded lower in reaction to weak international soft drink sales.
We continue to focus on stocks that exhibit improving earnings (primarily
measured by changes in analysts' earnings estimates and the trend of recent
earnings surprises), and which trade at a reasonable price-to-earnings ratios
relative to expected earnings growth rates. In the technology sector, we have
emphasized market leaders that are currently benefiting from strong pricing and
product demand, such as Intel in the semiconductor group and Cisco in the
client/server networking group. In the health care sector, we have an
overweight in Bristol-Myers Squibb which has improved earnings momentum from
its new drug therapy to combat high blood cholesterol. In the consumer
sectors, we are focusing on a number of retailers that have good sales momentum
and whose shares still trade at a reasonable multiple of earnings, such as The
Gap and Borders Group. In financial services, we have overweighted positions
in a number of banks and specialty insurance companies that combine
above-average earnings growth and low relative valuations, including
BankAmerica, Ambac and Transatlantic Holdings.
PORTFOLIO MANAGERS: SANDIP A. BHAGAT, CFA - JACOB E. HURWITZ, CFA - KENT A.
KELLEY, CFA
[TIMCO LOGO]
-5-
<PAGE> 278
THE TRAVELERS
GROWTH AND INCOME
STOCK ACCOUNT
FOR VARIABLE ANNUITIES
<TABLE>
<CAPTION>
NON-TIMED 12/96 1 YEAR 3 YEAR 5 YEAR
<S> <C> <C> <C>
The Travelers Growth and Income
Stock Account for Variable Annuities 21.37% 17.52% 12.02%
Lipper Growth and Income Category Average 19.92% 15.44% 12.82%
</TABLE>
This is a comparison of The Travelers Growth and Income Stock Account for
Variable Annuities versus Lipper Analytical Services' variable annuity
composite index, which provides the average performance of variable annuity
funds with similar objectives as of December 31, 1996. Lipper Analytical
Services is a leading independent Variable Insurance Product Performance
Analysis Service. The performance of the composite is net of all asset based
fees such as mortality and expense charges and portfolio management fees.
Performance reflects the charges associated with Universal Annuity, which
became available on May 16, 1983. Contracts issued prior to May 16, 1983, have
different contract charges that result in different performance than presented
above.
Universal Annuity fund performance information is net of: 1) the 1.25% annual
mortality and expense risk charge, and 2) portfolio management fees. The
deduction of the $15 semi-annual administrative charge and the contingent
deferred sales charge (5% maximum) is not reflected. The deduction of those
charges would reduce any percentage increase or make greater any percentage
decrease. Performance data quoted represents past performance. Investment
return and principal value of an investment will fluctuate so that an
investor's units, when redeemed, may be worth more or less than their original
cost.
The following is the performance data required by SEC rules governing uniform
performance reporting: one year 16.16%, five year 11.07% and ten year 11.45%.
This performance is based on a $1,000 hypothetical investment and reflects
deductions of all fees and charges including the semi-annual administrative
charge and the maximum deferred sales charge of 5%.
-6-
<PAGE> 279
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $380,011,106)...... $ 507,590,759
Cash............................................................ 2,623
Receivables:
Dividends.................................................... 546,452
Interest..................................................... 577
Investment securities sold................................... 2,034,612
Purchase payments and transfers from other Travelers
accounts................................................... 486,574
Other assets.................................................... 26,456
--------------
Total Assets............................................. 510,688,053
--------------
LIABILITIES:
Payables:
Investment securities purchased.............................. 2,059,125
Contract surrenders and transfers to other Travelers
accounts................................................... 275,701
Investment management and advisory fees...................... 25,507
Accrued liabilities............................................. 71,387
--------------
Total Liabilities......................................... 2,431,720
--------------
NET ASSETS......................................................... $ 508,256,333
==============
</TABLE>
See Notes to Financial Statements
-7-
<PAGE> 280
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends...................................................... $ 8,866,836
Interest ...................................................... 598,573
--------------
Total income............................................... $ 9,465,409
EXPENSES:
Investment management and advisory fees........................ 2,079,020
Insurance charges.............................................. 5,316,715
--------------
Total expenses............................................. 7,395,735
-------------
Net investment income................................... 2,069,674
-------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................... 408,860,943
Cost of investment securities sold......................... 363,866,404
--------------
Net realized gain....................................... 44,994,539
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995....................... 84,623,392
Unrealized gain at December 31, 1996....................... 127,579,653
--------------
Net change in unrealized gain for the year.............. 42,956,261
-------------
Net realized gain and change in unrealized gain..... 87,950,800
-------------
Net increase in net assets resulting from operations........... $ 90,020,474
=============
</TABLE>
See Notes to Financial Statements
-8-
<PAGE> 281
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income............................................. $ 2,069,674 $ 3,305,259
Net realized gain from investment security transactions........... 44,994,539 37,951,859
Net change in unrealized gain on investment securities............ 42,956,261 71,724,212
--------------- ---------------
Net increase in net assets resulting from operations.......... 90,020,474 112,981,330
--------------- ---------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 2,813,343 and 2,505,561 units, respectively).... 28,931,829 20,576,327
Participant transfers from other Travelers accounts
(applicable to 3,490,521 and 2,758,216 units, respectively).... 35,759,376 23,120,885
Administrative charges
(applicable to 32,900 and 39,010 units, respectively).......... (358,274) (345,103)
Contract surrenders
(applicable to 3,057,943 and 3,134,685 units, respectively).... (31,680,018) (26,235,475)
Participant transfers to other Travelers accounts
(applicable to 3,458,474 and 3,616,329 units, respectively).... (35,315,088) (29,697,410)
Other payments to participants
(applicable to 207,886 and 138,390 units, respectively)........ (2,212,219) (1,142,807)
--------------- ---------------
Net decrease in net assets resulting from unit transactions.... (4,874,394) (13,723,583)
--------------- ---------------
Net increase in net assets................................. 85,146,080 99,257,747
NET ASSETS:
Beginning of year................................................. 423,110,253 323,852,506
--------------- ---------------
End of year....................................................... $ 508,256,333 $ 423,110,253
=============== ===============
</TABLE>
See Notes to Financial Statements
-9-
<PAGE> 282
NOTES TO FINANCIAL STATEMENTS
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 year; 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.
-10-
<PAGE> 283
NOTES TO FINANCIAL STATEMENTS - 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 year ended December 31, 1996,
were $383,843,522 and $384,169,009, 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 $125,284 and $70,759 for the years ended December 31,
1996 and 1995, respectively.
Net realized gains resulting from futures contracts were $504,688 and
$2,884,399 for the years ended December 31, 1996 and 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. At December 31, 1996, Account GIS did not hold any
open futures contracts.
-11-
<PAGE> 284
NOTES TO FINANCIAL STATEMENTS - 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 $43,814 and $40,106 for the years ended
December 31, 1996 and 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 include $163,657 and $189,214 of contingent deferred sales charges
for the years ended December 31, 1996 and 1995, respectively.
4. NET ASSETS HELD BY AFFILIATE
Approximately $11,931,000 and $10,733,000 of the net assets of Account GIS
were held on behalf of an affiliate of The Travelers as of December 31,
1996 and 1995, respectively. Transactions with this affiliate during the
years ended December 31, 1996 and 1995, were comprised of participant
purchase payments of approximately $1,077,000 and $427,000 and contract
surrenders of approximately $694,000 and $560,000, respectively.
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May 16, 1983...... 16,167,393 $ 11.763 $ 190,162,991
Annuity phase of contracts issued prior to May 16, 1983........... 386,135 11.763 4,541,766
Accumulation phase of contracts issued on or after May 16, 1983... 27,510,470 11.371 312,786,250
Annuity phase of contracts issued on or after May 16, 1983........ 67,313 11.371 765,326
--------------
Net Contract Owners' Equity........................................ $ 508,256,333
==============
</TABLE>
-12-
<PAGE> 285
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each year.)
Contracts issued prior to May 16, 1983
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .216 $ .208 $ .192 $ .189 $ .192
Operating expenses.......................... .154 .123 .100 .092 .085
---------- ---------- --------- -------- ----------
Net investment income....................... .062 .085 .092 .097 .107
Unit value at beginning of year............. 9.668 7.120 7.194 6.664 6.587
Net realized and change in unrealized
gains (losses)............................ 2.033 2.463 (.166) .433 (.030)
---------- ---------- --------- -------- ----------
Unit value at end of year................... $ 11.763 $ 9.668 $ 7.120 $ 7.194 $ 6.664
========== ========== ========= ======== ==========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value....... $ 2.10 $ 2.55 $ (.07) $ .53 $ .08
Ratio of operating expenses to average
net assets................................ 1.45 % 1.45 % 1.41 % 1.33 % 1.33 %
Ratio of net investment income to average
net assets................................ .60 % 1.02 % 1.30 % 1.40 % 1.67 %
Number of units outstanding at end of
year (thousands).......................... 16,554 17,896 19,557 21,841 22,516
Portfolio turnover rate..................... 85 % 96 % 103 % 81 % 189 %
Average commission rate paid+............... $ .047 - - - -
</TABLE>
Contracts issued on or after May 16, 1983
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income...................... $ .212 $ .205 $ .189 $ .184 $ .188
Operating expenses........................... .175 .140 .115 .106 .098
--------- ----------- ---------- -------- ----------
Net investment income........................ .037 .065 .074 .078 .090
Unit value at beginning of year.............. 9.369 6.917 7.007 6.507 6.447
Net realized and change in unrealized
gains (losses)............................. 1.965 2.387 (.164) .422 (.030)
--------- ----------- ---------- -------- ----------
Unit value at end of year.................... $ 11.371 $ 9.369 $ 6.917 $ 7.007 $ 6.507
========= =========== ========== ======== ==========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value........ $ 2.00 $ 2.45 $ (.09) $ .50 $ .06
Ratio of operating expenses to average
net assets................................. 1.70 % 1.70 % 1.65 % 1.57 % 1.58 %
Ratio of net investment income to average
net assets................................. .36 % .79 % 1.05 % 1.15 % 1.43 %
Number of units outstanding at end of year
(thousands)................................ 27,578 26,688 26,692 28,497 29,661
Portfolio turnover rate...................... 85 % 96 % 103 % 81 % 189 %
Average commission rate paid+................ $ .047 - - - -
</TABLE>
+ 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 year.
-13-
<PAGE> 286
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
-------- -----------
<S> <C> <C>
COMMON STOCKS (99.3%)
AGRICULTURE (0.5%)
Pioneer Hi Bred International 33,500 $ 2,345,000
-------------
AMUSEMENTS (0.8%)
Walt Disney Co. 61,555 4,285,767
-------------
BANKING (7.9%)
Banc One Corp. 35,740 1,536,820
Bank of Boston Corp. 35,800 2,300,150
BankAmerica Corp. 51,100 5,097,225
Barnett Banks Inc. 17,500 719,687
Chase Manhattan Corp. 62,552 5,582,766
Citicorp 67,200 6,921,600
First Bank Systems, Inc. 12,500 853,125
First Chicago NBD 29,200 1,569,500
Golden West Financial Corp. 23,400 1,477,125
Mellon Bank Corp. 40,900 2,903,900
NationsBank Corp. 29,800 2,912,950
Northern Trust Corp. 41,400 1,503,338
Norwest Corp. 79,600 3,462,600
SunTrust Banks, Inc. 19,900 980,075
Wells Fargo & Co. 9,133 2,463,627
-------------
40,284,488
-------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (13.0%)
Abbott Laboratories 44,700 2,268,525
American Home Products Corp. 34,400 2,016,700
Amgen (A) 49,000 2,667,438
Bristol-Myers Squibb Co. 64,400 7,003,500
Colgate-Palmolive 13,700 1,263,825
Cytec Industries, Inc. (A) 43,100 1,750,937
E.I. Dupont de Nemours & Co. 50,000 4,718,750
Eli Lilly & Co. 31,200 2,277,600
Johnson & Johnson 145,400 7,233,650
Merck & Co. 127,100 10,072,675
Monsanto Co. 88,500 3,440,438
Morton International 47,700 1,943,775
Pfizer, Inc. 57,500 4,765,312
Procter & Gamble Co. 63,900 6,869,250
Schering-Plough Corp. 56,000 3,626,000
Union Carbide Corp. 50,900 2,080,538
Warner-Lambert Co. 24,600 1,845,000
-------------
65,843,913
-------------
COMMUNICATION (6.9%)
Ameritech Corp. 51,300 3,110,063
AT&T Corp. 108,100 4,702,350
Bell Atlantic Corp. 41,300 2,674,175
BellSouth Corp. 92,800 3,746,800
Clear Channel Communications (A) 51,600 1,864,050
GTE Corp. 77,000 3,503,500
MCI Communications Corp. 111,700 3,651,194
NYNEX Corp. 40,800 1,963,500
Pacific Telesis Group 32,100 1,179,675
Sprint Corp. 31,400 1,252,075
SBC Communications, Inc. 76,000 3,933,000
TCI Satellite Entertainment (A) 6,120 60,817
Tele-Communications Inc. (A) 61,200 799,425
U.S. West Communications Group 16,900 545,025
WorldCom, Inc. (A) 74,100 1,931,231
-------------
34,916,880
-------------
CONTRACTORS (0.8%)
Fluor Corp. 30,300 1,901,325
Halliburton Co. 33,400 2,012,350
-------------
3,913,675
-------------
ELECTRICAL AND
ELECTRONIC MACHINERY (8.1%)
Andrew Corp. (A) 30,200 1,602,486
Atmel Corp. (A) 54,600 1,815,450
Duracell International, Inc. 25,600 1,788,800
General Electric Corp. 152,900 15,117,988
Intel Corp. 85,600 11,208,250
Motorola, Inc. 52,100 3,197,638
Raychem Corp. 23,150 1,854,894
Texas Instruments, Inc. 16,200 1,032,750
Time Warner, Inc. 49,200 1,845,000
U.S. Robotics, Inc. (A) 24,000 1,729,500
-------------
41,192,756
-------------
FINANCE (3.3%)
American Express Co. 45,100 2,548,150
Federal Home Loan Mortgage Corp. 17,300 1,905,162
Federal National Mortgage Association 100,900 3,758,525
HFS Inc. (A) 43,200 2,581,200
Household International 24,100 2,223,225
Merrill Lynch & Co. 15,200 1,238,800
Morgan Stanley Group, Inc. 14,600 834,025
Student Loan Marketing Association 17,200 1,601,750
-------------
16,690,837
-------------
FOOD (8.0%)
Anheuser-Busch Cos. 45,200 1,808,000
Campbell Soup Co. 9,600 770,400
Coca-Cola Co. 220,300 11,593,287
ConAgra, Inc. 68,400 3,402,900
CPC International, Inc. 31,600 2,449,000
Dean Foods Co. 57,500 1,854,375
General Mills, Inc. 14,400 912,600
PepsiCo, Inc. 142,700 4,173,975
Philip Morris, Inc. 88,700 9,989,838
Sara Lee Corp. 44,300 1,650,175
Unilever N.V. 12,400 2,173,100
-------------
40,777,650
-------------
FURNITURE AND FIXTURES (0.3%)
Lear Corp. (A) 38,300 1,306,987
-------------
HOTELS & LODGING (0.4%)
Hilton Hotels Corp. 67,500 1,763,438
-------------
INSURANCE (4.4%)
Allstate Corp. 40,575 2,348,278
Ambac, Inc. 40,100 2,661,638
American International Group 43,350 4,692,638
Chubb Corp. 33,500 1,800,625
Cigna Corp. 17,600 2,404,600
General Reinsurance Corp. 7,300 1,151,575
ITT Hartford Group, Inc. 35,400 2,389,500
MedPartners, Inc. (A) 62,100 1,304,100
SunAmerica, Inc. 33,900 1,504,312
Transatlantic Holdings, Inc. 26,500 2,133,250
-------------
22,390,516
-------------
LUMBER AND WOOD PRODUCTS (0.5%)
Georgia-Pacific Corp. 23,900 1,720,800
Weyerhaeuser Co. 18,200 862,225
-------------
2,583,025
-------------
</TABLE>
-14-
<PAGE> 287
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<Captioin>
NO. OF MARKET
SHARES VALUE
-------- ----------
<S> <C> <C>
MACHINERY (6.5%)
Black & Decker Corp. 63,200 $ 1,903,900
Caterpillar, Inc. 18,500 1,392,125
Cisco Systems, Inc. (A) 92,500 5,891,094
Compaq Computer Corp. (A) 26,600 1,975,050
Deere & Co. 56,100 2,279,063
Gateway 2000, Inc. (A) 27,600 1,478,325
Hewlett-Packard Co. 91,400 4,592,850
International Business Machines Corp. 46,800 7,066,800
Lucent Technologies 56,323 2,604,939
Sun Microsystems (A) 95,800 2,460,862
3Com Corp. (A) 15,500 1,136,344
-------------
32,781,352
-------------
METAL PRODUCTS (1.5%)
Aluminum Co. of America 24,800 1,581,000
Gillette Co. 62,300 4,843,825
Nucor Corp. 8,100 413,100
USX-U.S. Steel Group 25,200 790,650
-------------
7,628,575
-------------
MINING (0.7%)
Freeport-McMoRan Copper & Gold 68,500 2,046,437
Homestake Mining Co. 88,700 1,263,975
-------------
3,310,412
-------------
MISCELLANEOUS MANUFACTURING (2.3 %)
American Brands 15,200 754,300
Eastman Kodak Co. 29,700 2,383,425
Emerson Electric Co. 20,100 1,944,675
Guidant Corp. 33,500 1,909,500
Honeywell, Inc. 32,900 2,163,175
Medtronics, Inc. 21,900 1,489,200
Xerox Corp. 27,900 1,468,238
-------------
12,112,513
-------------
OIL & GAS (0.9%)
Chesapeake Energy Corp. (A) 28,100 1,563,062
Louisiana Land & Exploration 31,300 1,678,463
Schlumberger Ltd. 13,600 1,358,300
Union Pacific Resources Group 1 29
-------------
4,599,854
-------------
PAPER AND ALLIED PRODUCTS (0.9%)
Kimberly Clark Corp. 25,730 2,450,782
Willamette Industries, Inc. 28,800 2,005,200
-------------
4,455,982
-------------
PETROLEUM REFINING AND
RELATED INDUSTRIES (8.2%)
Amerada Hess 34,900 2,019,838
Amoco Corp. 44,200 3,558,100
Ashland Oil, Inc. 39,600 1,737,450
Atlantic Richfield Co. 10,500 1,391,250
Chevron Corp. 58,900 3,828,500
Exxon Corp. 95,700 9,378,600
Mobil Corp. 48,300 5,904,675
Royal Dutch Petroleum Co. 38,600 6,590,950
Texaco, Inc. 50,000 4,906,250
Unocal Corp. 54,600 2,218,125
-------------
41,533,738
-------------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (0.8%)
Gannet Co. 32,300 2,418,462
New York Times Co. 48,300 1,835,400
-------------
4,253,862
-------------
RETAIL (4.5%)
American Stores 50,100 2,047,837
Borders Group, Inc. (A) 40,500 1,452,938
Dollar General Corp. 47,400 1,516,800
Federated Department Stores, Inc. (A) 59,500 2,030,437
Home Depot, Inc. 45,966 2,304,046
Lowe's Cos. 55,200 1,959,600
McDonalds Corp. 57,500 2,601,875
Sears Roebuck & Co. 34,300 1,582,088
The GAP, Inc. 76,200 2,295,525
Tiffany & Co. 42,600 1,560,225
Wal-Mart Stores, Inc. 159,700 3,653,137
-------------
23,004,508
-------------
RUBBER AND PLASTIC PRODUCTS (1.4%)
Armstrong World Industries 24,600 1,709,700
Illinois Tool Works 31,300 2,500,088
Nike, Inc. 52,500 3,136,875
-------------
7,346,663
-------------
SERVICES (5.2%)
AccuStaff, Inc. (A) 75,600 1,597,050
Automatic Data Process 28,400 1,217,650
Columbia/HCA Healthcare Corp. 60,900 2,481,675
Computer Associates International 56,675 2,819,581
Corrections Corp. of America (A) 49,000 1,500,625
First Data Corp. 40,400 1,474,600
HBO & Co. 38,900 2,309,688
Microsoft (A) 109,000 9,012,937
Oracle Corp. (A) 58,850 2,453,309
Vencor, Inc. (A) 47,000 1,486,375
-------------
26,353,490
-------------
STONE, CLAY, GLASS, AND
CONCRETE PRODUCTS (0.6%)
Minnesota Mining & Manufacturing Co. 38,500 3,190,687
-------------
TEXTILE MILL PRODUCTS (0.4%)
V.F. Corp. 28,100 1,896,750
-------------
TRANSPORTATION (1.2%)
Burlington Northern Santa Fe 31,100 2,686,262
Conrail, Inc. 7,241 721,384
Continental Air, Inc. (A) 54,900 1,550,925
Union Pacific Corp. 19,500 1,172,438
-------------
6,131,009
-------------
TRANSPORTATION MANUFACTURING (4.3%)
Allied Signal, Inc. 25,400 1,701,800
Boeing Co. 48,400 5,148,550
Chrysler Corp. 86,900 2,867,700
Ford Motor Co. 104,100 3,318,187
General Motors Corp. 63,300 3,528,975
Lockheed Martin Corp. 18,139 1,659,719
United Technologies Corp. 53,400 3,524,400
-------------
21,749,331
-------------
</TABLE>
-15-
<PAGE> 288
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
-------- -----------
<S> <C> <C>
UTILITIES (4.0%)
AES Corp. (A) 41,200 $ 1,915,800
Allegheny Power Systems 47,500 1,442,812
Baltimore Gas & Electric Co. 48,900 1,308,075
CalEnergy Co. (A) 49,600 1,667,800
Columbia Gas Systems, Inc. 29,200 1,857,850
Consolidated Natural Gas Co. 35,700 1,972,425
CMS Energy Corp. 31,700 1,065,913
Duke Power Co. 18,500 855,625
Florida Power & Light Co. 15,900 731,400
Houston Industries 24,100 545,263
Pacific Enterprises 20,800 631,800
Sonat, Inc. 38,900 2,003,350
Southern Co. 99,600 2,253,450
Texas Utilities Co. 55,900 2,277,925
--------------
20,529,488
--------------
WHOLESALE TRADE (1.0%)
Crane Co. 68,700 1,992,300
Enron Corp. 23,100 996,188
Grainger (W.W.) 24,500 1,966,125
--------------
4,954,613
--------------
TOTAL COMMON STOCKS
(COST $376,548,106) 504,127,759
--------------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.7%)
REPURCHASE AGREEMENTS (0.7%)
Merrill Lynch Government Securities, Inc.,
6.00% Repurchase Agreement
dated December 31, 1996 due January 2,
1997, collateralized by: United
States of America Treasury, $3,200,000,
7.875% due November 15, 2004 $ 3,463,000 3,463,000
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $3,463,000) 3,463,000
--------------
TOTAL INVESTMENTS (100%)
(COST $380,011,106) (B) $ 507,590,759
==============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At December 31, 1996, net unrealized appreciation for all securities was
$127,579,653. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$130,553,071 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $2,973,418.
See Notes to Financial Statements
-16-
<PAGE> 289
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and Owners of Variable Annuity Contracts of
The Travelers Growth and Income Stock Account for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Growth and Income Stock Account for Variable Annuities including the
statement of investments as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the per unit data for each
of the five years in the period then ended. These financial statements and per
unit data are the responsibility of management. Our responsibility is to
express an opinion on these financial statements and per unit data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per unit
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per unit data referred to above
present fairly, in all material respects, the financial position of The
Travelers Growth and Income Stock Account for Variable Annuities as of December
31, 1996, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the per
unit data for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
-17-
<PAGE> 290
THE TRAVELERS
QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
The year 1996 started out with the Federal Government shut down and investor
concerns about a possible recession. The bond market clearly expected the
Federal Reserve Board ("Fed") to cut interest rates significantly as the two
year Treasury yield was lower than the federal funds rate. The Fed did cut
their federal funds rate target 0.25% in January but then strong employment
growth over the next several months sent bonds into a tailspin reminiscent of
1994. Rates hit their highest levels for the year in the June to September
period as investors prepared for the Fed to raise interest rates at their
September meeting. The Fed decided to hold steady at the September meeting and
interest rates declined from then until December as economic growth slowed in
the fourth quarter. The market also responded positively to the election
results as the Republicans maintained control of Congress despite President
Clinton's re-election. Going into December, the markets were reflecting a best
case scenario of moderate economic growth with low inflation and low
unemployment coupled with a benign to positive political landscape. Rates
started rising again in December as some economic indicators strengthened but
ended the year well below the levels seen in the second and third quarters.
U.S. bonds had their best quarter of the year in the fourth quarter. The
Lehman Intermediate Government/Corporate Index returned 2.45% for the quarter
and 4.06% for the full year. The Travelers Quality Bond Account for Variable
Annuities ("Account QB") had a 2.34% return in the quarter which was 0.11 ahead
of the index. For the full year, Treasuries with maturities longer than 10
years had negative total returns. Returns were worse the longer the average
duration with the Salomon 1 month CD index returning 5.51%, the Lehman
Intermediate Government/Corporate Index returning 4.06%, and the Lehman Long
Government/Corporate Index returning 0.13%. For the full year Account QB
returned 4.95%, before fees and expenses, 89 basis points better than the
Lehman Intermediate Government/Corporate Index, which is its benchmark. Net of
fees and expenses, total return of Account QB was 3.38% for the year. Account
QB was helped by the strong performance of its position in corporate and asset
backed securities relative to Treasuries.
We expect interest rates to stay in the trading range established in 1996 (the
30 year ranged between 5.95% and 7.19%). Low unemployment creates the
potential for strong consumer spending growth and for cyclical upward inflation
pressure through wages, putting a lower limit on where rates can go. On the
higher rate side, the 7% level has proven to be a sufficient level to draw
increased interest in bonds and depress high risk asset classes and interest
sensitive sectors of the economy. We feel that central bank vigilance against
inflation, globalization, and productivity improvements will keep inflation
under control, preventing interest rates from rising much above their 1996
high. The yield curve was fairly steady at average slopes throughout 1996. We
do not see anything that would cause that to change significantly. We are
keeping Account QB's duration and maturity structure relatively close to that
of the index.
Within the fixed income markets, demand for spread product continued to be high
in 1996. Along with tight spreads against Treasuries, spreads for lower
quality corporates are compressed with the spreads on higher quality
corporates. The mortgage backed and asset backed markets are similarly
compressed, with previous opportunities in B-piece credit cards, commercial
mortgage backed securities, and seasoned mortgage product squeezed by investors
digging for yield. There is nothing in our economic outlook which is likely to
change the tight spread environment in the near future. We are being careful,
however, to weed out riskier credits and issues that don't offer enough yield
premium to offset their potential for negative surprises. The foreign area
continues to offer opportunities, particularly foreign corporates that
sometimes have very strong balance sheets but are capped by the rating of their
home country.
PORTFOLIO MANAGER: F. DENNEY VOSS
[TAMIC LOGO]
-18-
<PAGE> 291
THE TRAVELERS
QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
<TABLE>
<CAPTION>
NON-TIMED 12/96 1 YEAR 3 YEAR 5 YEAR
<S> <C> <C> <C>
The Travelers Quality Bond Account for Variable Annuities 3.38% 4.92% 5.9%
Lipper Short Intermediate Investment Grade Debt Category Average 2.84% 3.74% 4.58%
</TABLE>
This is a comparison of The Travelers Quality Bond Account for Variable
Annuities versus Lipper Analytical Services' variable annuity composite index,
which provides the average performance of variable annuity funds with similar
objectives as of December 31, 1996. Lipper Analytical Services is a leading
independent Variable Insurance Product Performance Analysis Service. The
performance of the composite is net of all asset based fees such as mortality
and expense charges and portfolio management fees. Performance reflects the
charges associated with Universal Annuity, which became available on May 16,
1983. Contracts issued prior to May 16, 1983, have different contract charges
that result in different performance than presented above.
Universal Annuity fund performance information is net of: 1) the 1.25% annual
mortality and expense risk charge, and 2) portfolio management fees. The
deduction of the $15 semi-annual administrative charge and the contingent
deferred sales charge (5% maximum) is not reflected. The deduction of those
charges would reduce any percentage increase or make greater any percentage
decrease. Performance data quoted represents past performance. Investment
return and principal value of an investment will fluctuate so that an
investor's units, when redeemed, may be worth more or less than their original
cost.
The following is the performance data required by SEC rules governing uniform
performance reporting: one year -1.80%, five year 4.80% and ten year 6.46%.
This performance is based on a $1,000 hypothetical investment and reflects
deductions of all fees and charges including the semi-annual administrative
charge and the maximum deferred sales charge of 5%.
-19-
<PAGE> 292
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $168,903,822).......... $ 169,102,897
Receivables:
Interest......................................................... 1,310,828
Purchase payments and transfers from other Travelers accounts.... 46,873
Other assets........................................................ 1,519
--------------
Total Assets................................................. 170,462,117
--------------
LIABILITIES:
Cash overdraft...................................................... 4,052
Payables:
Contract surrenders and transfers to other Travelers accounts.... 213,078
Investment management and advisory fees.......................... 6,078
Accrued liabilities................................................. 30,557
--------------
Total Liabilities............................................ 253,765
--------------
NET ASSETS............................................................. $ 170,208,352
==============
</TABLE>
See Notes to Financial Statements
-20-
<PAGE> 293
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 13,160,431
EXPENSES:
Investment management and advisory fees.................... $ 576,329
Insurance charges.......................................... 2,103,316
---------------
Total expenses.......................................... 2,679,645
---------------
Net investment income................................ 10,480,786
---------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 343,310,465
Cost of investment securities sold...................... 342,244,839
---------------
Net realized gain.................................... 1,065,626
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.................... 6,087,673
Unrealized gain at December 31, 1996.................... 199,075
---------------
Net change in unrealized gain for the year........... (5,888,598)
---------------
Net realized gain and change in unrealized gain... (4,822,972)
---------------
Net increase in net assets resulting from operations $ 5,657,814
===============
</TABLE>
See Notes to Financial Statements
-21-
<PAGE> 294
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income.............................................. $ 10,480,786 $ 9,023,430
Net realized gain from investment security transactions............ 1,065,626 1,019,178
Net change in unrealized gain (loss) on investment securities...... (5,888,598) 12,716,988
----------------- ----------------
Net increase in net assets resulting from operations............ 5,657,814 22,759,596
----------------- ----------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 3,643,171 and 3,283,550 units, respectively)..... 17,905,073 15,219,291
Participant transfers from other Travelers accounts
(applicable to 3,024,146 and 4,374,714 units, respectively)..... 14,870,447 20,342,504
Administrative charges
(applicable to 27,353 and 30,577 units, respectively)........... (135,785) (146,591)
Contract surrenders
(applicable to 2,968,208 and 3,514,833 units, respectively)..... (14,715,900) (16,280,761)
Participant transfers to other Travelers accounts
(applicable to 6,532,400 and 5,302,454 units, respectively)..... (32,090,166) (24,324,600)
Other payments to participants
(applicable to 177,391 and 146,460 units, respectively)......... (884,681) (686,680)
----------------- ----------------
Net decrease in net assets resulting from unit transactions..... (15,051,012) (5,876,837)
----------------- ----------------
Net increase (decrease) in net assets........................ (9,393,198) 16,882,759
NET ASSETS:
Beginning of year................................................. 179,601,550 162,718,791
----------------- ----------------
End of year....................................................... $ 170,208,352 $ 179,601,550
================= ================
</TABLE>
See Notes to Financial Statements
-22-
<PAGE> 295
NOTES TO FINANCIAL STATEMENTS
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 year; 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.
-23-
<PAGE> 296
NOTES TO FINANCIAL STATEMENTS - 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 $183,257,990 and $192,416,249, respectively; the
costs of purchases and proceeds from sales of direct and indirect U.S.
government obligations were $116,946,574 and $114,368,811, respectively, for
the year ended December 31, 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. There
were no commissions paid to affiliated firms for the year ended December 31,
1996.
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 $13,748 and $20,292 for the years ended December
31, 1996 and 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 include $70,089 and $108,615 of contingent deferred sales charges
for the years ended December 31, 1996 and 1995, respectively.
-24-
<PAGE> 297
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET ASSETS HELD BY AFFILIATE
Approximately $760,000 and $755,000 of the net assets of Account QB were
held on behalf of an affiliate of The Travelers as of December 31, 1996 and
1995, respectively. Transactions with this affiliate during the years ended
December 31, 1996 and 1995, were comprised of participant purchase payments
of approximately $276,000 and $17,000, and contract surrenders of
approximately $141,000 and $86,000, respectively.
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May 16, 1983......... 8,497,114 $ 5.234 $ 44,465,564
Annuity phase of contracts issued prior to May 16, 1983.............. 52,065 5.234 272,458
Accumulation phase of contracts issued on or after May 16, 1983...... 24,794,468 5.060 125,421,467
Annuity phase of contracts issued on or after May 16, 1983........... 9,660 5.060 48,863
--------------
Net Contract Owners' Equity.................................................................. $ 170,208,352
==============
</TABLE>
-25-
<PAGE> 298
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each year.)
Contracts issued prior to May 16, 1983
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .379 $ .328 $ .318 $ .306 $ .317
Operating expenses.......................... .067 .063 .059 .058 .050
----------- ---------- ----------- ----------- ------------
Net investment income....................... .312 .265 .259 .248 .267
Unit value at beginning of year............. 5.050 4.400 4.498 4.150 3.880
Net realized and change in unrealized
gains (losses)............................ (.128) .385 (.357) .100 .003
----------- ---------- ----------- ----------- ------------
Unit value at end of year................... $ 5.234 $ 5.050 $ 4.400 $ 4.498 $ 4.150
=========== ========== =========== =========== ============
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value....... $ .18 $ .65 $ (.10) $ .35 $ .27
Ratio of operating expenses to average
net assets................................ 1.33 % 1.33 % 1.33 % 1.33 % 1.33 %
Ratio of net investment income to average
net assets................................ 6.12 % 5.54 % 5.87 % 5.66 % 6.61 %
Number of units outstanding at end of year
(thousands)............................... 8,549 9,325 10,694 12,489 13,416
Portfolio turnover rate..................... 176 % 138 % 27 % 24 % 23 %
</TABLE>
Contracts issued on or after May 16, 1983
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income....................... $ .368 $ .319 $ .310 $ .299 $ .311
Operating expenses............................ .078 .073 .069 .067 .061
---------- ---------- ---------- ------------ -----------
Net investment income......................... .290 .246 .241 .232 .250
Unit value at beginning of year............... 4.894 4.274 4.381 4.052 3.799
Net realized and change in unrealized
gains (losses).............................. (.124) .374 (.348) .097 .003
---------- ---------- ---------- ------------ -----------
Unit value at end of year..................... $ 5.060 $ 4.894 $ 4.274 $ 4.381 $ 4.052
========== ========== ========== ============ ===========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value......... $ .17 $ .62 $ (.11) $ .33 $ .25
Ratio of operating expenses to average
net assets.................................. 1.57 % 1.57 % 1.57 % 1.57 % 1.58 %
Ratio of net investment income to average
net assets.................................. 5.87 % 5.29 % 5.62 % 5.41 % 6.38 %
Number of units outstanding at end of year
(thousands)................................. 24,804 27,066 27,033 28,472 20,250
Portfolio turnover rate....................... 176 % 138 % 27 % 24 % 23 %
</TABLE>
-26-
<PAGE> 299
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- ----------
<S> <C> <C>
BONDS (75.4%)
AMUSEMENTS (4.2%)
Six Flags Entertainment,
0.00% Notes, 1999 $ 8,850,000 $ 7,168,500
--------------
COMMUNICATION (16.0%)
BellSouth Capital Funding,
6.04% Debentures, 2026 4,500,000 4,479,062
Continental Cablevision, Inc.,
11.00% Debentures, 2007 5,000,000 5,715,165
MCI Communications Corp.,
7.125% Debentures, 2027 8,500,000 8,811,627
Tele-Communications, Inc.,
9.65% Debentures, 2003 7,500,000 7,993,980
--------------
26,999,834
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS (5.3%)
Grand Met Investment Corp.,
0.00% Notes, 2004 10,000,000 6,194,550
Kidder Peabody Mortgage
Asset Trust 23,
9.88% Pass Through, 2019 349,856 354,096
PB CMO Trust II,
9.20% Pass Through, 2018 390,595 393,279
Prudential Home Mortgage 1992-17,
8.00% Pass Through, 2007 2,000,000 2,028,504
--------------
8,970,429
--------------
CREDIT CARD RECEIVABLES (3.3%)
Household Private Label
CC MT 1994-2 B Certificate,
8.00% Pass Through, 1999 3,500,000 3,637,298
Signet Credit Card
Master Trust, 1993-4 B,
5.80% Pass Through, 1999 2,000,000 1,983,240
--------------
5,620,538
--------------
FINANCE (7.7%)
Alco Capital Resources,
7.33% Notes, 1998 6,000,000 6,091,020
New Plan Realty Trust,
5.95% Notes, 2026 7,000,000 6,988,282
--------------
13,079,302
--------------
FOREIGN NATIONAL GOVERNMENT (6.1%)
Kingdom of Sweden,
0.00% Notes, 2000 10,000,000 8,056,250
Republic of Austria,
0.00% Debentures, 2000 3,000,000 2,336,250
--------------
10,392,500
--------------
MACHINERY (5.0%)
Hewlett-Packard Co.,
6.50% Notes, 1999 8,425,000 8,503,984
--------------
TOBACCO MANUFACTURERS (9.1%)
Philip Morris, Inc.,
6.95% Notes, 2006 8,800,000 8,925,294
RJR Nabisco, Inc.,
8.30% Notes, 1999 6,200,000 6,440,157
--------------
15,365,451
--------------
TRANSPORTATION (2.3%)
American Airlines, Inc., 1993-A4,
6.50% Notes, 1997 1,896,000 1,898,840
Delta Airlines, Inc.,
9.25% Sinking Fund, 2007 1,858,510 1,920,752
--------------
3,819,592
--------------
UTILITIES (16.4%)
DQU II Funding,
7.23% Bonds, 1999 5,692,000 5,756,451
Gulf States Utilities Co.,
7.35% Notes, 1998 7,000,000 7,107,870
Illinois Power Co.,
6 .50% Notes, 1999 7,000,000 6,995,856
NIPSCO Capital Market, Inc.,
0.00% Bonds, 1997 4,500,000 4,260,150
United Illuminating Company
7.375% Debentures, 1998 3,500,000 3,544,713
--------------
27,665,040
--------------
TOTAL BONDS
(COST $127,502,319) 127,585,170
--------------
U.S. GOVERNMENT AGENCY
SECURITIES (9.4%)
FHLMC Gold 24yr ZC,
5.15% Pass Through, 2012 4,686,782 4,617,886
FNMA Principal Strip,
0.00% Debentures, 2002 5,000,000 4,950,440
GNMA 1996-22 Va,
7.00% Pass Through, 2005 4,284,069 4,338,978
GNMA 30yr Single Family Issue,
7.00% Pass Through, 2023 1,957,284 1,917,526
--------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(COST $15,621,363) 15,824,830
--------------
U.S. GOVERNMENT
SECURITIES (14.7%)
United States of America Treasury,
5.625% Notes, 2000 1,000,000 982,187
United States of America Treasury,
5.875% Notes, 2000 16,500,000 16,381,398
United States of America Treasury,
6.25% Notes, 2003 7,500,000 7,495,312
--------------
TOTAL U.S. GOVERNMENT
SECURITIES
(COST $24,946,140) 24,858,897
--------------
SHORT-TERM INVESTMENTS (0.5%)
REPURCHASE AGREEMENTS (0.5%)
Merrill Lynch Government Securities, Inc.,
6.00% Repurchase Agreement
dated December 31, 1996 due January 2,
1997, collateralized by: United
States of America Treasury, $775,000,
7.875% due November 15, 2004 834,000 834,000
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $834,000) 834,000
--------------
TOTAL INVESTMENTS (100%)
(COST $168,903,822) (A) $ 169,102,897
==============
</TABLE>
-27-
<PAGE> 300
STATEMENT OF INVESTMENTS - CONTINUED
NOTES
(A) At December 31, 1996, net unrealized appreciation for all
securities was $199,075. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an
excess of market value over cost of $983,140 and aggregate gross
unrealized depreciation for all securities in which there was an
excess of cost over market value of $784,065.
See Notes to Financial Statements
-28-
<PAGE> 301
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and Owners of Variable Annuity Contracts of
The Travelers Quality Bond Account for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Quality Bond Account for Variable Annuities including the statement
of investments as of December 31, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the per unit data for each of the five
years in the period then ended. These financial statements and per unit data
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements and per unit data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per unit
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and per unit data referred to above
present fairly, in all material respects, the financial position of The
Travelers Quality Bond Account for Variable Annuities as of December 31, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the per unit
data for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
-29-
<PAGE> 302
THE TRAVELERS
MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
The year 1996 started out with investor concerns about a possible recession.
The market expected the Federal Reserve Board ("Fed") to cut interest rates
significantly and in January there was a 0.25% reduction to 5.25%. However,
strong employment growth in the first and second quarters shifted concerns from
recession to inflation. Due to mixed economic data for the balance of 1996,
the Fed maintained a steady course and inacted no other rate changes.
A "Do Not Disturb" sign hung over the financial markets for most of the fourth
quarter. The federal funds rate remained unchanged at 5.25% and for most of
the quarter economic data exhibited modest growth and subdued inflation.
Long-term bond yields started the quarter at 6.97% and ended the quarter at
6.64%. However, the January, 1997 release of December, 1996 employment data
reflected the creation of 262,000 new jobs which was significantly above
estimates, an increase in the average work week and the average hours worked
index increased .9% created further inflation concerns.
Our expectation is for the Fed to continue to stifle any potential increase in
inflation and if economic data continues to reflect above average growth the
Fed will take action and increase the federal funds rate.
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 in the 30 to 60 day range. At year end the asset size of the
portfolio was $84.7 million with an average yield of 5.47% and an average life
of 50.4 days.
PORTFOLIO MANAGER: EMIL J. MOLINARO JR.
[TAMIC LOGO]
-30-
<PAGE> 303
THE TRAVELERS
MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
<TABLE>
<CAPTION>
NON-TIMED 12/96 1 YEAR 3 YEAR 5 YEAR
<S> <C> <C> <C>
The Travelers Money Market Account for Variable Annuities 3.94% 3.71% 3.03%
Lipper Money Market Category Average 3.82% 3.60% 2.94%
</TABLE>
This is a comparison of The Travelers Money Market Account for Variable
Annuities versus Lipper Analytical Services' variable annuity composite index,
which provides the average performance of variable annuity funds with similar
objectives as of December 31, 1996. Lipper Analytical Services is a leading
independent Variable Insurance Product Performance Analysis Service. The
performance of the composite is net of all asset based fees such as mortality
and expense charges and portfolio management fees. Performance reflects the
charges associated with Universal Annuity, which became available on May 16,
1983. Contracts issued prior to May 16, 1983, have different contract charges
that result in different performance than presented above.
Universal Annuity fund performance information is net of: 1) the 1.25% annual
mortality and expense risk charge, and 2) portfolio management fees. The
deduction of the $15 semi-annual administrative charge and the contingent
deferred sales charge (5% maximum) is not reflected. The deduction of those
charges would reduce any percentage increase or make greater any percentage
decrease. Performance data quoted represents past performance. Investment
return and principal value of an investment will fluctuate so that an
investor's units, when redeemed, may be worth more or less than their original
cost. An investment in The Travelers Money Market Account for Variable
Annuities is neither insured nor guaranteed by the U.S. Government.
The following is the performance data required by SEC rules governing uniform
performance reporting: one year -1.25%, five year 1.84% and ten year 4.32%.
This performance is based on a $1,000 hypothetical investment and reflects
deductions of all fees and charges including the semi-annual administrative
charge and the maximum deferred sales charge of 5%.
-31-
<PAGE> 304
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $84,682,870).......... $ 84,664,467
Cash............................................................... 1,455
Receivables:
Interest........................................................ 568,428
Purchase payments and transfers from other Travelers accounts... 1,495,715
Other assets....................................................... 380
-------------
Total Assets................................................. 86,730,445
-------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts... 360,210
Investment management and advisory fees......................... 3,027
Accrued liabilities................................................ 11,793
-------------
Total Liabilities............................................ 375,030
-------------
NET ASSETS............................................................ $ 86,355,415
=============
</TABLE>
See Notes to Financial Statements
-32-
<PAGE> 305
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $ 4,217,448
EXPENSES:
Investment management and advisory fees................... $ 253,092
Insurance charges......................................... 973,645
----------
Total expenses......................................... 1,226,737
------------
Net investment income............................... 2,990,711
------------
Net increase in net assets resulting from operations...... $ 2,990,711
============
</TABLE>
See Notes to Financial Statements
-33-
<PAGE> 306
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income....................................................... $ 2,990,711 $ 3,427,447
----------------- ----------------
Net increase in net assets resulting from operations..................... 2,990,711 3,427,447
----------------- ----------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 9,424,587 and 6,970,794 units, respectively).............. 20,964,777 14,864,399
Participant transfers from other Travelers accounts
(applicable to 55,407,340 and 39,907,908 units, respectively)............ 123,185,617 85,226,642
Administrative charges
(applicable to 39,967 and 44,021 units, respectively).................... (89,466) (94,696)
Contract surrenders
(applicable to 4,688,797 and 5,220,626 units, respectively).............. (10,410,253) (11,137,360)
Participant transfers to other Travelers accounts
(applicable to 57,859,014 and 45,205,495 units, respectively)............ (128,506,136) (96,405,902)
Other payments to participants
(applicable to 14,133 and 363,303 units, respectively)................... (31,246) (782,623)
----------------- ----------------
Net increase (decrease) in net assets resulting from unit transactions... 5,113,293 (8,329,540)
----------------- ----------------
Net increase (decrease) in net assets................................. 8,104,004 (4,902,093)
NET ASSETS:
Beginning of year........................................................... 78,251,411 83,153,504
----------------- ----------------
End of year................................................................. $ 86,355,415 $ 78,251,411
================= ================
</TABLE>
See Notes to Financial Statements
-34-
<PAGE> 307
NOTES TO FINANCIAL STATEMENTS
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 $77,935 and $142,783 of
contingent deferred sales charges for the years ended December 31, 1996 and
1995, respectively.
-35-
<PAGE> 308
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. NET ASSETS HELD BY AFFILIATE
Approximately $4,150,000 and $1,816,000 of the net assets of Account MM
were held on behalf of an affiliate of The Travelers as of December 31,
1996 and 1995, respectively. Transactions with this affiliate during the
years ended December 31, 1996 and 1995, were comprised of participant
purchase payments of approximately $3,085,000 and $965,000 and contract
surrenders of approximately $826,000 and $72,000, respectively.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
NET
UNITS UNIT VALUE ASSETS
----- ---------- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May 16, 1983........ 112,316 $ 2.341 $ 262,867
Accumulation phase of contracts issued on or after May 16, 1983..... 37,952,473 2.263 85,884,938
Annuity phase of contracts issued on or after May 16, 1983.......... 91,743 2.263 207,610
-------------
Net Contract Owners' Equity..................................................................... $ 86,355,415
=============
</TABLE>
-36-
<PAGE> 309
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each year.)
Contracts issued prior to May 16, 1983
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income..................... $ .125 $ .130 $ .091 $ .067 $ .079
Operating expenses.......................... .030 .030 .028 .027 .027
---------- ---------- ---------- ---------- ----------
Net investment income....................... .095 .100 .063 .040 .052
Unit value at beginning of year............. 2.246 2.146 2.083 2.043 1.991
---------- ---------- ---------- ---------- ----------
Unit value at end of year................... $ 2.341 $ 2.246 $ 2.146 $ 2.083 $ 2.043
========== ========== ========== ========== ==========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value.................. $ .10 $ .10 $ .06 $ .04 $ .05
Ratio of operating expenses to average
net assets................................ 1.33 % 1.33 % 1.33 % 1.33 % 1.33 %
Ratio of net investment income to average
net assets................................ 4.10 % 4.61 % 2.98 % 1.93 % 2.58 %
Number of units outstanding at end of year
(thousands)............................... 112 206 206 218 227
</TABLE>
Contracts issued on or after May 16, 1983
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income.................... $ .121 $ .127 $ .087 $ .065 $ .077
Operating expenses......................... .035 .034 .032 .031 .031
---------- ---------- ---------- ---------- ----------
Net investment income...................... .086 .093 .055 .034 .046
Unit value at beginning of year............ 2.177 2.084 2.029 1.995 1.949
---------- ---------- ---------- ---------- ----------
Unit value at end of year.................. $ 2.263 $ 2.177 $ 2.084 $ 2.029 $ 1.995
========== ========== ========== ========== ==========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value................. $ .09 $ .09 $ .06 $ .03 $ .05
Ratio of operating expenses to average
net assets............................... 1.57 % 1.57 % 1.57 % 1.57 % 1.57 %
Ratio of net investment income to average
net assets............................... 3.84 % 4.36 % 2.72 % 1.68 % 2.33 %
Number of units outstanding at end of year
(thousands).............................. 38,044 35,721 39,675 34,227 42,115
</TABLE>
-37-
<PAGE> 310
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100%)
COMMERCIAL PAPER (95.5%)
Abbott Laboratories,
5.34% due January 3, 1997 $ 3,500,000 $ 3,498,058
Allied Signal, Inc.,
5.53% due January 22, 1997 2,500,000 2,491,302
American Express Credit Corp.,
5.37% due February 6, 1997 2,000,000 1,988,748
Bankers Trust NY Corp.,
5.55% due February 19, 1997 1,400,000 1,389,448
BHP Finance (USA), Inc.,
5.39% due February 4, 1997 3,000,000 2,984,016
Chase Manhattan Bank,
5.37% due January 31, 1997 2,885,901 2,873,148
Ciesco LP,
5.40% due January 9, 1997 3,000,000 2,995,314
Cincinnati Gas & Electric,
6.21% due September 1, 1997 2,000,000 1,992,916
CIT Group Holdings, Inc.,
5.20% due September 30, 1997 500,000 502,187
Eastman Kodak Co.,
6.08% due April 15, 1997 3,000,000 3,020,535
Engelhard Corp.,
5.38% due February 14, 1997 3,500,000 3,476,179
Federal Home Loan Banks,
5.93% due October 2, 1997 400,000 400,458
General Electric Capital Corp.,
5.31% due January 16, 1997 3,500,000 3,499,776
Heinz H. J. Co.,
5.43% due January 6, 1997 1,600,000 1,598,280
Heinz H. J. Co.,
5.54% due January 30, 1997 2,000,000 1,990,806
Household Finance Corp.,
5.45% due January 7, 1997 2,500,000 2,496,898
PacifiCorp,
5.61% due January 27, 1997 2,000,000 2,002,542
Penney JC Funding Corp.,
5.74% due October 15, 1997 2,000,000 2,064,970
Phillip Morris, Inc.,
5.34% due January 15, 1997 2,700,000 2,693,423
Potomac Electric Power Co.,
5.61% due January 15, 1997 3,500,000 3,491,474
Potomac Electric Power Co.,
5.66% due January 15, 1997 500,000 498,782
Prudential Funding Corp.,
5.35% due January 6, 1997 3,000,000 2,996,775
PACCAR Financial Corp.,
5.40% due January 2, 1997 3,500,000 3,498,691
Raytheon Co.,
5.37% due January 14, 1997 3,500,000 3,491,954
Sara Lee Corp.,
5.79% due January 13, 1997 3,000,000 2,999,445
Seagram Joseph E. & Sons Inc.,
5.44% due January 8, 1997 3,500,000 3,495,086
Societe Generale,
5.21% due February 21, 1997 3,500,000 3,498,988
Southern California Edison Co.,
5.36% due January 28, 1997 3,000,000 2,987,025
Toyota Motor Credit Corp.,
5.35% due February 12, 1997 3,000,000 2,980,464
Weyerhaeuser Co.,
5.35% due February 13, 1997 3,500,000 3,476,693
Xerox Corp.,
5.34% due January 8, 1997 3,500,000 3,495,086
-------------
80,869,467
-------------
REPURCHASE AGREEMENTS (4.5%)
Merrill Lynch Government Securities, Inc.,
6.00% Repurchase Agreement
dated December 31, 1996 due
January 2, 1997, collateralized
by: United States of America
Treasury, $3,510,000, 7.875%
due November 15, 2004 3,795,000 3,795,000
-------------
TOTAL INVESTMENTS (100%)
(COST $84,682,870) $ 84,664,467
=============
</TABLE>
See Notes to Financial Statements
-38-
<PAGE> 311
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and Owners of Variable Annuity Contracts of
The Travelers Money Market Account for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Money Market Account for Variable Annuities including the statement
of investments as of December 31, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the per unit data for each of the five
years in the period then ended. These financial statements and per unit data
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements and per unit data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per unit
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and per unit data referred to above
present fairly, in all material respects, the financial position of The
Travelers Money Market Account for Variable Annuities as of December 31, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the per unit
data for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
-39-
<PAGE> 312
This page intentionally left blank.
<PAGE> 313
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
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 (Annual) (12-96) Printed in U.S.A.
<PAGE> 314
UNIVERSAL ANNUITY
ANNUAL REPORT
DECEMBER 31, 1996
THE TRAVELERS FUND U
FOR VARIABLE ANNUITIES
[TRAVELERSLIFE LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 315
THE TRAVELERS FUND U
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Travelers Variable Products Funds, 23,141,782 shares (cost $383,083,038)............... $ 443,580,690
Templeton Variable Products Series Fund, 24,508,804 shares (cost $418,900,507)......... 529,722,486
Fidelity's Variable Insurance Products Fund, 37,981,685 shares (cost $732,078,690)..... 911,426,163
Fidelity's Variable Insurance Products Fund II, 23,228,578 shares (cost $336,967,765).. 393,259,823
Dreyfus Stock Index Fund, 6,013,653 shares (cost $98,881,452).......................... 121,956,881
American Odyssey Funds, Inc., 70,273,539 shares (cost $817,264,309).................... 905,331,016
Travelers Series Fund Inc., 3,348,624 shares (cost $45,037,486)........................ 48,124,784
-----------------
Total Investments (cost $2,832,213,247).............................................. $3,353,401,843
RECEIVABLES:
Dividends.............................................................................. 84,579,629
Purchase payments and transfers from other Travelers accounts.......................... 4,854,734
Other assets............................................................................ 6,674
--------------
Total Assets......................................................................... 3,442,842,880
--------------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts............... 3,237,415
Accrued liabilities..................................................................... 482,676
--------------
Total Liabilities.................................................................... 3,720,091
--------------
NET ASSETS: $3,439,122,789
==============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 316
THE TRAVELERS FUND U
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 215,764,991
EXPENSES:
Insurance charges......................................... 36,953,737
--------------
Net investment income................................... 178,811,254
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold........................... $ 231,887,981
Cost of investments sold................................. 183,031,972
-----------
Net realized gain....................................... 48,856,009
Change in unrealized gain on investments:
Unrealized gain at December 31, 1995..................... 374,401,124
Unrealized gain at December 31, 1996..................... 521,188,596
-----------
Net change in unrealized gain for the year.............. 146,787,472
--------------
Net realized gain and change in unrealized gain........ 195,643,481
--------------
Net increase in net assets resulting from operations...... $ 374,454,735
==============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 317
THE TRAVELERS FUND U
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 178,811,254 $ 44,075,346
Net realized gain from investment transactions......................................... 48,856,009 20,808,441
Net change in unrealized gain (loss) on investments.................................... 146,787,472 383,077,143
------------------ ---------------
Net increase in net assets resulting from operations.................................. 374,454,735 447,960,930
------------------ ---------------
UNIT TRANSACTIONS:
Participant premium payments
(applicable to 414,155,184 and 337,352,334 units, respectively)....................... 651,103,231 452,028,311
Participant transfers from other Travelers accounts
(applicable to 405,484,901 and 304,664,477 units, respectively)....................... 642,203,572 412,659,453
Administrative and asset allocation charges
(applicable to 9,168,469 and 7,055,084 units, respectively)........................... (13,265,920) (9,143,467)
Contract surrenders
(applicable to 111,350,118 and 61,767,394 units, respectively)........................ (177,909,388) (88,487,237)
Participant transfers to other Travelers accounts
(applicable to 337,562,426 and 244,445,899 units, respectively)....................... (532,180,418) (339,344,437)
Other payments to participants
(applicable to 2,743,276 and 2,572,549 units, respectively)........................... (4,497,399) (3,565,280)
------------------ ---------------
Net increase in net assets resulting from unit transactions.......................... 565,453,678 424,147,343
------------------ ---------------
Net increase in net assets.......................................................... 939,908,413 872,108,273
NET ASSETS:
Beginning of year...................................................................... 2,499,214,376 1,627,106,103
------------------ ---------------
End of year............................................................................ $ 3,439,122,789 $ 2,499,214,376
================== ===============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 318
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund U for Variable Annuities ("Fund U") 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. Fund U
is registered under the Investment Company Act of 1940, as amended, as a
unit investment trust.
Participant purchase payments applied to Fund U are invested in one or
more eligible funds in accordance with the selection made by the contract
owner. As of December 31, 1996, the eligible funds available under Fund U
are: Managed Assets Trust; High Yield Bond Trust; Capital Appreciation
Fund; U.S. Government Securities Portfolio, Social Awareness Stock
Portfolio and Utilities Portfolio of The Travelers Series Trust; American
Odyssey Core Equity Fund, American Odyssey Emerging Opportunities Fund,
American Odyssey International Equity Fund, American Odyssey Long-Term Bond
Fund, American Odyssey Intermediate-Term Bond Fund and American Odyssey
Short-Term Bond Fund of American Odyssey Funds, Inc.; Alliance Growth
Portfolio, Smith Barney High Income Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Income and Growth Portfolio, Putnam
Diversified Income Portfolio and MFS Total Return Portfolio of Travelers
Series Fund Inc. (formerly Smith Barney/Travelers Series Fund Inc.) (all of
which are managed by affiliates of The Travelers); Templeton Bond Fund,
Templeton Stock Fund and Templeton Asset Allocation Fund of Templeton
Variable Products Series Fund; High Income Portfolio, Growth Portfolio and
Equity-Income Portfolio of Fidelity's Variable Insurance Products Fund;
Asset Manager Portfolio of Fidelity's Variable Insurance Products Fund II;
and Dreyfus Stock Index Fund. All of the funds are Massachusetts business
trusts, except for American Odyssey Funds, Inc., Dreyfus Stock Index Fund
and Travelers Series Fund Inc. which are incorporated under Maryland law.
Effective May 1, 1996, G.T. Global Strategic Income Portfolio of
Travelers Series Fund Inc. was no longer available to new contract owners
under Fund U.
The following is a summary of significant accounting policies
consistently followed by Fund U in the preparation of its financial
statements.
SECURITY VALUATION. Investments are valued daily at the net asset
values per share of the underlying funds.
FEDERAL INCOME TAXES. The operations of Fund U form a part of the
total operations of The Travelers and are not taxed separately. The
Travelers is taxed as a life insurance company under the Internal
Revenue Code of 1986, as amended (the "Code"). Under existing federal
income tax law, no taxes are payable on the investment income of Fund U.
Fund U is not taxed as a "regulated investment company" under Subchapter M
of the Code.
OTHER. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Security transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date.
2. INVESTMENTS
Purchases and sales of investments aggregated $927,876,434 and
$231,887,981 respectively, for the year ended December 31, 1996. Realized
gains and losses from investment transactions are reported on an identified
cost basis. The cost of investments in eligible funds was $2,832,213,247
at December 31, 1996. Gross unrealized appreciation for all investments at
December 31, 1996 was $526,818,075. Gross unrealized depreciation for all
investments at December 31, 1996 was $5,629,479.
-4-
<PAGE> 319
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed
by The Travelers. These charges are equivalent to 1.25% of the average net
assets of Fund U 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.
Participants in American Odyssey Funds, Inc. (the "Funds"), may elect
to enter into a separate asset allocation advisory agreement with Copeland
Financial Services, Inc. ("Copeland"), an affiliate of The Travelers.
Under this arrangement, Copeland provides asset allocation advice and
charges participants an annual fee, plus a one-time set-up fee of $30. The
annual fee, which decreases as a participant's assets in the Funds
increase, is equivalent to an amount of up to 1.50% of the participant's
assets in the Funds. These fees totaled $8,243,048 and $5,306,354, for the
years ended December 31, 1996 and 1995, respectively.
No sales charge is deducted from participant purchase payments when
they are received. However, 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
$1,952,467 and $1,392,135 of contingent deferred sales charges for the
years ended December 31, 1996 and 1995, respectively.
4. NET ASSETS HELD BY AFFILIATE
Approximately $16,836,000 and $5,373,000 of the net assets of Fund U
were held on behalf of an affiliate of The Travelers as of December 31,
1996 and 1995, respectively. Transactions with this affiliate during the
years ended December 31, 1996 and 1995, comprised participant purchase
payments of approximately $12,908,000 and $1,355,000 and contract
surrenders of approximately $2,570,000 and $1,883,000, respectively.
-5-
<PAGE> 320
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------
ACCUMULATION ANNUITY UNIT NET
UNITS UNITS VALUE ASSETS
----- ----- ----- ------
<S> <C> <C> <C> <C>
Travelers Variable Products Funds
Managed Assets Trust
Qualified.......................................... 55,054,987 97,484 $ 3.105 $ 171,244,299
Non-Qualified...................................... 4,631,923 52,519 3.342 15,655,504
High Yield Bond Trust
Qualified.......................................... 5,311,906 - 2.833 15,049,344
Non-Qualified...................................... 656,597 10,528 2.863 1,909,698
Capital Appreciation Fund
Qualified.......................................... 64,294,087 19,874 3.034 195,112,190
Non-Qualified...................................... 7,827,908 52,834 3.146 24,794,513
U.S. Government Securities Portfolio................. 19,047,713 6,716 1.323 25,214,195
Social Awareness Stock Portfolio..................... 6,355,111 - 1.731 10,999,128
Utilities Portfolio.................................. 13,258,249 - 1.363 18,065,325
Templeton Variable Products Series Fund
Templeton Bond Fund.................................. 10,251,711 8,541 1.351 13,858,008
Templeton Stock Fund................................. 154,535,095 79,059 2.001 309,361,607
Templeton Asset Allocation Fund...................... 113,724,645 84,342 1.815 206,543,128
Fidelity's Variable Insurance Products Fund
High Income Portfolio................................ 40,245,868 62,744 1.766 71,171,111
Growth Portfolio..................................... 274,815,076 76,990 1.805 496,228,890
Equity-Income Portfolio.............................. 205,346,961 289,049 1.674 344,274,610
Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio.............................. 248,852,187 197,419 1.577 392,828,875
Dreyfus Stock Index Fund.................................. 66,032,397 65,448 1.870 123,623,039
American Odyssey Funds, Inc.
American Odyssey Core Equity Fund.................... 170,552,375 - 1.647 280,907,471
American Odyssey Emerging Opportunities Fund......... 122,868,651 8,748 1.460 179,354,629
American Odyssey International Equity Fund........... 121,895,846 - 1.534 186,962,205
American Odyssey Long-Term Bond Fund................. 137,075,188 - 1.221 167,432,442
American Odyssey Intermediate-Term Bond Fund......... 78,210,833 - 1.157 90,528,712
American Odyssey Short-Term Bond Fund................ 44,076,761 - 1.129 49,761,929
Travelers Series Fund Inc.
Alliance Growth Portfolio............................ 10,805,587 2,974 1.640 17,726,518
G.T. Global Strategic Income Portfolio............... 242,281 - 1.402 339,703
Smith Barney High Income Portfolio................... 552,595 - 1.256 693,824
Smith Barney International Equity Portfolio.......... 5,777,413 - 1.321 7,633,086
Smith Barney Income and Growth Portfolio............. 6,112,646 20,722 1.474 9,038,911
Putnam Diversified Income Portfolio.................. 2,374,774 - 1.206 2,863,491
MFS Total Return Portfolio........................... 7,302,057 - 1.362 9,946,404
---------------
Net Contract Owners' Equity............................................................................. $ 3,439,122,789
===============
</TABLE>
-6-
<PAGE> 321
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
--------------- -----------------
<S> <C> <C>
TRAVELERS VARIABLE PRODUCTS FUNDS (13.2%)
Managed Assets Trust (Cost $151,988,009) 11,555,065 $ 173,094,873
High Yield Bond Trust (Cost $15,607,468) 1,803,603 15,312,586
Capital Appreciation Fund (Cost $166,029,880) 5,559,715 204,152,724
U.S. Government Securities Portfolio (Cost $24,195,562) 2,190,156 23,785,096
Social Awareness Stock Portfolio (Cost $9,098,086) 674,909 10,636,565
Utilities Portfolio (Cost $16,164,033) 1,358,334 16,598,846
--------------- -----------------
Total (Cost $383,083,038) 23,141,782 443,580,690
--------------- -----------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (15.8%)
Templeton Bond Fund (Cost $13,416,853) 1,190,975 13,851,038
Templeton Stock Fund (Cost $245,610,028) 13,517,560 309,281,783
Templeton Asset Allocation Fund (Cost $159,873,626) 9,800,269 206,589,665
--------------- -----------------
Total (Cost $418,900,507) 24,508,804 529,722,486
--------------- -----------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (27.2%)
High Income Portfolio (Cost $64,330,977) 5,685,453 71,181,875
Growth Portfolio (Cost $386,678,798) 15,930,220 496,067,065
Equity-Income Portfolio (Cost $281,068,915) 16,366,012 344,177,223
--------------- -----------------
Total (Cost $732,078,690) 37,981,685 911,426,163
--------------- -----------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (11.7%)
Asset Manager Portfolio (Cost $336,967,765)
Total (Cost $336,967,765) 23,228,578 393,259,823
--------------- -----------------
DREYFUS STOCK INDEX FUND (3.6%)
Total (Cost $98,881,452) 6,013,653 121,956,881
--------------- -----------------
AMERICAN ODYSSEY FUNDS, INC. (27.0%)
American Odyssey Core Equity Fund (Cost $203,298,730) 17,110,891 265,047,699
American Odyssey Emerging Opportunities Fund (Cost $168,076,521) 12,314,873 165,265,599
American Odyssey International Equity Fund (Cost $150,995,868) 12,083,414 182,217,884
American Odyssey Long-Term Bond Fund (Cost $160,450,800) 15,685,888 159,211,768
American Odyssey Intermediate-Term Bond Fund (Cost $86,081,399) 8,387,515 85,552,652
American Odyssey Short-Term Bond Fund (Cost $48,360,991) 4,690,958 48,035,414
--------------- -----------------
Total (Cost $817,264,309) 70,273,539 905,331,016
--------------- -----------------
TRAVELERS SERIES FUND INC. (1.5%)
Alliance Growth Portfolio (Cost $16,015,439) 1,047,211 17,572,197
G.T. Global Strategic Income Portfolio (Cost $356,566) 28,512 338,718
Smith Barney High Income Portfolio (Cost $793,542) 66,853 791,537
Smith Barney International Equity Portfolio (Cost $7,356,114) 604,172 7,588,400
Smith Barney Income and Growth Portfolio (Cost $8,454,988) 599,218 9,024,216
Putnam Diversified Income Portfolio (Cost $2,850,588) 247,049 2,858,351
MFS Total Return Portfolio (Cost $9,210,249) 755,609 9,951,365
--------------- -----------------
Total (Cost $45,037,486) 3,348,624 48,124,784
--------------- -----------------
TOTAL INVESTMENT OPTIONS (100%)
(COST $2,832,213,247) $ 3,353,401,843
=================
</TABLE>
-7-
<PAGE> 322
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST HIGH YIELD BOND TRUST
---------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends..................................................... $ 27,954,200 $ 7,184,513 $ 2,919,012 $ 941,371
------------- ------------ ------------ ------------
EXPENSES:
Insurance charges............................................. 2,202,996 1,930,851 181,420 153,284
------------- ------------ ------------ ------------
Net investment income (loss)............................ 25,751,204 5,253,662 2,737,592 788,087
------------- ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold............................ 12,832,936 11,838,891 2,894,773 2,341,036
Cost of investments sold.................................. 8,871,286 9,792,813 2,809,988 2,295,750
------------- ------------ ------------ ------------
Net realized gain (loss)................................ 3,961,650 2,046,078 84,785 45,286
------------- ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.................. 30,109,740 2,677,803 567,770 (190,385)
Unrealized gain (loss) end of year........................ 21,106,864 30,109,740 (294,882) 567,770
------------- ------------ ------------ ------------
Net change in unrealized gain (loss) for the year....... (9,002,876) 27,431,937 (862,652) 758,155
------------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations............................... 20,709,978 34,731,677 1,959,725 1,591,528
------------- ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments................................. 15,980,014 12,725,731 1,850,766 1,152,461
Participant transfers from other Travelers accounts........... 4,619,779 4,507,153 5,594,597 1,788,890
Administrative and asset allocation charges................... (206,854) (219,268) (18,805) (18,625)
Contract surrenders........................................... (10,950,759) (10,393,810) (1,114,404) (1,033,566)
Participant transfers to other Travelers accounts............. (12,961,561) (10,950,505) (3,785,886) (2,329,135)
Other payments to participants................................ (351,162) (200,724) (149,278) (11,747)
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions.................................. (3,870,543) (4,531,423) 2,376,990 (451,722)
------------- ------------ ------------ ------------
Net increase (decrease) in net assets................... 16,839,435 30,200,254 4,336,715 1,139,806
Net Assets:
Beginning of year......................................... 170,060,368 139,860,114 12,622,327 11,482,521
------------- ------------ ------------ ------------
End of year............................................... $ 186,899,803 $ 170,060,368 $ 16,959,042 $ 12,622,327
============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
-----------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends..................................................... $ 24,372,149 $ 538,024
------------- -------------
EXPENSES:
Insurance charges............................................. 2,070,864 1,245,525
------------- -------------
Net investment income (loss)............................ 22,301,285 (707,501)
------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold............................ 10,128,794 13,097,985
Cost of investments sold.................................. 6,771,613 9,274,345
------------- -------------
Net realized gain (loss)................................ 3,357,181 3,823,640
------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.................. 26,739,948 1,236,789
Unrealized gain (loss) end of year........................ 38,122,844 26,739,948
------------- -------------
Net change in unrealized gain (loss) for the year....... 11,382,896 25,503,159
------------- -------------
Net increase (decrease) in net assets
resulting from operations............................... 37,041,362 28,619,298
------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments................................. 37,351,082 17,519,986
Participant transfers from other Travelers accounts........... 75,856,393 29,112,536
Administrative and asset allocation charges................... (236,896) (160,042)
Contract surrenders........................................... (8,658,569) (3,638,067)
Participant transfers to other Travelers accounts............. (42,532,367) (28,049,805)
Other payments to participants................................ (202,959) (222,415)
------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions.................................. 61,576,684 14,562,193
------------- -------------
Net increase (decrease) in net assets................... 98,618,046 43,181,491
Net Assets:
Beginning of year......................................... 121,288,657 78,107,166
------------- -------------
End of year............................................... $ 219,906,703 $ 121,288,657
============= =============
</TABLE>
-8-
<PAGE> 323
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES PORTFOLIO STOCK PORTFOLIO
--------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends..................................................... $ 3,901,076 $ 1,398,521 $ 757,032 $ 119,821
------------ ------------ ------------ ------------
EXPENSES:
Insurance charges............................................. 329,950 325,837 111,545 74,063
------------ ------------ ------------ ------------
Net investment income (loss)............................ 3,571,126 1,072,684 645,487 45,758
------------ ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold............................ 9,246,199 7,588,890 2,433,322 1,013,467
Cost of investments sold.................................. 9,753,525 7,393,404 1,884,337 808,197
------------ ------------ ------------ ------------
Net realized gain (loss)................................ (507,326) 195,486 548,985 205,270
------------ ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.................. 2,746,779 (1,427,050) 1,248,264 (63,248)
Unrealized gain (loss) end of year........................ (410,466) 2,746,779 1,538,479 1,248,264
------------ ------------ ------------ ------------
Net change in unrealized gain (loss) for the year....... (3,157,245) 4,173,829 290,215 1,311,512
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations............................... (93,445) 5,441,999 1,484,687 1,562,540
------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments................................. 3,312,661 1,592,087 2,775,977 1,519,956
Participant transfers from other Travelers accounts........... 6,741,836 5,497,597 3,309,505 1,501,420
Administrative and asset allocation charges................... (28,786) (31,716) (20,122) (12,158)
Contract surrenders........................................... (2,212,259) (1,864,732) (1,885,418) (79,490)
Participant transfers to other Travelers accounts............. (10,663,436) (6,668,246) (1,737,042) (1,298,335)
Other payments to participants................................ (26,833) (180,911) - (2,013)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions.................................. (2,876,817) (1,655,921) 2,442,900 1,629,380
------------ ------------ ------------ ------------
Net increase (decrease) in net assets................... (2,970,262) 3,786,078 3,927,587 3,191,920
Net Assets:
Beginning of year......................................... 28,184,457 24,398,379 7,071,541 3,879,621
------------ ------------ ------------ ------------
End of year............................................... $ 25,214,195 $ 28,184,457 $ 10,999,128 $ 7,071,541
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO TEMPLETON BOND FUND
---------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends..................................................... $ 2,067,241 $ 150,434 $ 1,360,095 $ 554,133
------------ ------------ ------------ -------------
EXPENSES:
Insurance charges............................................. 216,033 130,215 163,191 153,608
------------ ------------ ------------ -------------
Net investment income (loss)............................ 1,851,208 20,219 1,196,904 400,525
------------ ------------ ------------ -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold............................ 5,883,901 2,361,428 2,178,436 1,764,933
Cost of investments sold.................................. 4,727,491 2,102,248 2,319,495 1,785,361
------------ ------------ ------------ -------------
Net realized gain (loss)................................ 1,156,410 259,180 (141,059) (20,428)
------------ ------------ ------------ -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year.................. 2,392,412 52,210 467,625 (698,498)
Unrealized gain (loss) end of year........................ 434,813 2,392,412 434,185 467,625
------------ ------------ ------------ -------------
Net change in unrealized gain (loss) for the year....... (1,957,599) 2,340,202 (33,440) 1,166,123
------------ ------------ ------------ -------------
Net increase (decrease) in net assets
resulting from operations............................... 1,050,019 2,619,601 1,022,405 1,546,220
------------ ------------ ------------ -------------
UNIT TRANSACTIONS:
Participant purchase payments................................. 4,102,407 2,973,322 1,710,597 1,739,161
Participant transfers from other Travelers accounts........... 8,402,214 9,184,581 1,954,471 1,789,574
Administrative and asset allocation charges................... (21,234) (14,379) (12,912) (14,121)
Contract surrenders........................................... (656,083) (183,673) (804,933) (450,326)
Participant transfers to other Travelers accounts............. (10,026,851) (5,017,497) (3,145,773) (2,647,625)
Other payments to participants................................ (86,212) (32,215) (32,397) (11,299)
------------ ------------ ------------ -------------
Net increase (decrease) in net assets resulting
from unit transactions.................................. 1,714,241 6,910,139 (330,947) 405,364
------------ ------------ ------------ -------------
Net increase (decrease) in net assets................... 2,764,260 9,529,740 691,458 1,951,584
Net Assets:
Beginning of year......................................... 15,301,065 5,771,325 13,166,550 11,214,966
------------ ------------ ------------ -------------
End of year............................................... $ 18,065,325 $ 15,301,065 $ 13,858,008 $ 13,166,550
============ ============ ============ =============
</TABLE>
-9-
<PAGE> 324
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON ASSET
TEMPLETON STOCK FUND ALLOCATION FUND
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................... $ 22,552,572 $ 2,523,957 $ 9,092,507 $ 3,447,327
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges........................................... 3,148,933 2,112,407 2,290,727 1,847,180
------------- ------------- ------------- -------------
Net investment income (loss).......................... 19,403,639 411,550 6,801,780 1,600,147
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.......................... 5,605,956 4,184,428 8,429,607 8,767,048
Cost of investments sold................................ 3,592,013 2,939,726 5,857,719 7,005,322
------------- ------------- ------------- -------------
Net realized gain (loss).............................. 2,013,943 1,244,702 2,571,888 1,761,726
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................ 36,051,204 2,277,411 26,284,798 1,519,117
Unrealized gain (loss) end of year...................... 63,671,755 36,051,204 46,716,039 26,284,798
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year.... 27,620,551 33,773,793 20,431,241 24,765,681
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations............................. 49,038,133 35,430,045 29,804,909 28,127,554
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments............................... 51,348,631 38,462,831 25,525,166 23,642,833
Participant transfers from other Travelers accounts......... 46,997,174 28,718,119 14,558,621 9,637,424
Administrative and asset allocation charges................. (350,295) (293,673) (200,176) (193,759)
Contract surrenders......................................... (12,621,786) (5,514,830) (11,393,990) (7,577,118)
Participant transfers to other Travelers accounts........... (28,144,892) (28,862,332) (17,509,384) (19,254,099)
Other payments to participants.............................. (396,825) (203,056) (386,932) (330,255)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions................................ 56,832,007 32,307,059 10,593,305 5,925,026
------------- ------------- ------------- -------------
Net increase (decrease) in net assets................. 105,870,140 67,737,104 40,398,214 34,052,580
NET ASSETS:
Beginning of year....................................... 203,491,467 135,754,363 166,144,914 132,092,334
------------- ------------- ------------- -------------
End of year............................................. $ 309,361,607 $ 203,491,467 $ 206,543,128 $ 166,144,914
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S HIGH
INCOME PORTFOLIO
----------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................... $ 4,685,541 $ 2,457,673
------------ ------------
EXPENSES:
Insurance charges........................................... 765,304 532,559
------------ ------------
Net investment income (loss).......................... 3,920,237 1,925,114
------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.......................... 11,271,440 4,968,874
Cost of investments sold................................ 11,299,150 4,751,441
------------ ------------
Net realized gain (loss).............................. (27,710) 217,433
------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................ 3,613,712 (1,388,217)
Unrealized gain (loss) end of year...................... 6,850,898 3,613,712
------------ ------------
Net change in unrealized gain (loss) for the year.... 3,237,186 5,001,929
------------ ------------
Net increase (decrease) in net assets
resulting from operations............................. 7,129,713 7,144,476
------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments............................... 14,323,674 10,516,308
Participant transfers from other Travelers accounts......... 23,502,774 14,386,232
Administrative and asset allocation charges................. (77,538) (60,830)
Contract surrenders......................................... (3,554,402) (1,665,013)
Participant transfers to other Travelers accounts........... (21,225,249) (12,931,444)
Other payments to participants.............................. (94,323) (201,683)
------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions................................ 12,874,936 10,043,570
------------ ------------
Net increase (decrease) in net assets................. 20,004,649 17,188,046
NET ASSETS:
Beginning of year....................................... 51,166,462 33,978,416
------------ ------------
End of year............................................. $ 71,171,111 $ 51,166,462
============ ============
</TABLE>
-10-
<PAGE> 325
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S EQUITY-
FIDELITY'S GROWTH PORTFOLIO INCOME PORTFOLIO
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................... $ 26,609,907 $ 1,191,787 $ 11,007,124 $ 8,589,857
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges........................................... 5,494,318 3,684,287 3,650,704 1,935,998
------------- ------------- ------------- -------------
Net investment income (loss).......................... 21,115,589 (2,492,500) 7,356,420 6,653,859
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.......................... 15,033,976 8,250,207 8,901,856 3,334,273
Cost of investments sold................................ 8,761,312 5,394,373 7,112,993 2,893,003
------------- ------------- ------------- -------------
Net realized gain (loss).............................. 6,272,664 2,855,834 1,788,863 441,270
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................ 84,221,007 7,539,489 36,609,662 313,667
Unrealized gain (loss) end of year...................... 109,388,267 84,221,007 63,108,308 36,609,662
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year.... 25,167,260 76,681,518 26,498,646 36,295,995
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations............................. 52,555,513 77,044,852 35,643,929 43,391,124
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments............................... 98,813,647 68,178,034 80,531,063 51,490,745
Participant transfers from other Travelers accounts......... 77,877,606 70,935,405 65,473,564 77,738,161
Administrative and asset allocation charges................. (756,932) (562,812) (507,452) (299,927)
Contract surrenders......................................... (28,271,491) (14,480,130) (17,465,306) (4,785,609)
Participant transfers to other Travelers accounts........... (68,957,439) (45,533,842) (46,894,521) (27,115,781)
Other payments to participants.............................. (450,758) (324,795) (283,199) (327,225)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions................................ 78,254,633 78,211,860 80,854,149 96,700,364
------------- ------------- ------------- -------------
Net increase (decrease) in net assets................. 130,810,146 155,256,712 116,498,078 140,091,488
NET ASSETS:
Beginning of year....................................... 365,418,744 210,162,032 227,776,532 87,685,044
------------- ------------- ------------- -------------
End of year............................................. $ 496,228,890 $ 365,418,744 $ 344,274,610 $ 227,776,532
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S ASSET
MANAGER PORTFOLIO DREYFUS STOCK INDEX FUND
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................... $ 24,249,566 $ 7,188,187 $ 3,928,238 $ 1,629,405
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges........................................... 4,731,985 4,490,031 1,141,925 627,250
------------- ------------- ------------- -------------
Net investment income (loss).......................... 19,517,581 2,698,156 2,786,313 1,002,155
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold.......................... 43,154,403 31,499,795 4,411,866 2,234,634
Cost of investments sold................................ 36,465,300 27,445,980 3,662,881 2,199,090
------------- ------------- ------------- -------------
Net realized gain (loss).............................. 6,689,103 4,053,815 748,985 35,544
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................ 35,524,654 (9,997,449) 8,941,622 (4,598,353)
Unrealized gain (loss) end of year...................... 56,292,058 35,524,654 23,075,429 8,941,622
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year.... 20,767,404 45,522,103 14,133,807 13,539,975
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations............................. 46,974,088 52,274,074 17,669,105 14,577,674
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments............................... 47,983,080 59,550,456 27,715,679 11,429,071
Participant transfers from other Travelers accounts......... 15,854,663 15,094,558 34,290,381 14,735,957
Administrative and asset allocation charges................. (518,763) (621,271) (166,923) (93,721)
Contract surrenders......................................... (30,635,034) (16,635,725) (5,352,753) (1,652,874)
Participant transfers to other Travelers accounts........... (63,750,905) (71,870,374) (17,263,458) (8,263,626)
Other payments to participants.............................. (761,969) (920,794) (110,049) (47,582)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions................................ (31,828,928) (15,403,150) 39,112,877 16,107,225
------------- ------------- ------------- -------------
Net increase (decrease) in net assets................. 15,145,160 36,870,924 56,781,982 30,684,899
NET ASSETS:
Beginning of year....................................... 377,683,715 340,812,791 66,841,057 36,156,158
------------- ------------- ------------- -------------
End of year............................................. $ 392,828,875 $ 377,683,715 $ 123,623,039 $ 66,841,057
============= ============= ============= =============
</TABLE>
-11-
<PAGE> 326
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
AMERICAN ODYSSEY EMERGING OPPORTUNITIES
CORE EQUITY FUND FUND
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 15,730,732 $ 8,238,273 $ 13,878,014 $ 6,411,590
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges............................................ 2,901,469 1,766,994 2,363,467 1,561,867
------------- ------------- ------------- -------------
Net investment income (loss)........................... 12,829,263 6,471,279 11,514,547 4,849,723
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold........................... 17,543,045 2,554,698 40,044,484 7,612,195
Cost of investments sold................................. 12,076,602 1,929,933 27,095,237 4,943,095
------------- ------------- ------------- -------------
Net realized gain (loss)............................... 5,466,443 624,765 12,949,247 2,669,100
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................. 33,550,801 (2,790,941) 31,168,692 7,749,282
Unrealized gain (loss) end of year....................... 61,748,969 33,550,801 (2,810,922) 31,168,692
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year..... 28,198,168 36,341,742 (33,979,614) 23,419,410
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations.............................. 46,493,874 43,437,786 (9,515,820) 30,938,233
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments................................ 60,901,768 38,103,304 57,671,673 36,860,517
Participant transfers from other Travelers accounts.......... 35,168,297 25,706,834 54,039,978 34,699,760
Administrative and asset allocation charges.................. (2,982,289) (1,853,178) (2,085,416) (1,498,327)
Contract surrenders.......................................... (11,983,268) (5,219,198) (9,168,189) (4,131,758)
Participant transfers to other Travelers accounts............ (32,355,405) (13,084,927) (69,756,650) (24,587,291)
Other payments to participants............................... (318,650) (153,977) (267,635) (119,071)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions................................. 48,430,453 43,498,858 30,433,761 41,223,830
------------- ------------- ------------- -------------
Net increase (decrease) in net assets.................. 94,924,327 86,936,644 20,917,941 72,162,063
NET ASSETS:
Beginning of year........................................ 185,983,144 99,046,500 158,436,688 86,274,625
------------- ------------- ------------- -------------
End of year.............................................. $ 280,907,471 $ 185,983,144 $ 179,354,629 $ 158,436,688
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
INTERNATIONAL EQUITY
FUND
-----------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 4,538,026 $ 864,640
------------- -------------
EXPENSES:
Insurance charges............................................ 1,550,119 855,328
------------- -------------
Net investment income (loss)........................... 2,987,907 9,312
------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold........................... 1,656,337 798,713
Cost of investments sold................................. 1,162,459 697,051
------------- -------------
Net realized gain (loss)............................... 493,878 101,662
------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................. 9,163,943 (1,757,196)
Unrealized gain (loss) end of year....................... 31,222,016 9,163,943
------------- -------------
Net change in unrealized gain (loss) for the year..... 22,058,073 10,921,139
------------- -------------
Net increase (decrease) in net assets
resulting from operations.............................. 25,539,858 11,032,113
------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments................................ 34,480,536 21,452,760
Participant transfers from other Travelers accounts.......... 59,574,232 18,271,289
Administrative and asset allocation charges.................. (1,577,472) (856,676)
Contract surrenders.......................................... (5,590,669) (2,246,977)
Participant transfers to other Travelers accounts............ (15,004,067) (9,015,509)
Other payments to participants............................... (124,915) (37,631)
------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions................................. 71,757,645 27,567,256
------------- -------------
Net increase (decrease) in net assets.................. 97,297,503 38,599,369
NET ASSETS:
Beginning of year........................................ 89,664,702 51,065,333
------------- -------------
End of year.............................................. $ 186,962,205 $ 89,664,702
============= =============
</TABLE>
-12-
<PAGE> 327
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
AMERICAN ODYSSEY INTERMEDIATE-TERM
LONG-TERM BOND FUND BOND FUND
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 8,108,556 $ 10,146,574 $ 4,934,855 $ 4,715,639
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges............................................ 1,790,795 1,208,202 1,102,439 786,831
------------- ------------- ------------- -------------
Net investment income (loss)........................... 6,317,761 8,938,372 3,832,416 3,928,808
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold........................... 1,884,305 472,042 11,330,595 398,026
Cost of investments sold................................. 1,891,896 444,741 10,936,197 385,152
------------- ------------- ------------- -------------
Net realized gain (loss)............................... (7,591) 27,301 394,398 12,874
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................. 3,345,434 (5,640,279) 1,159,603 (2,767,442)
Unrealized gain (loss) end of year....................... (1,239,032) 3,345,434 (528,747) 1,159,603
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year..... (4,584,466) 8,985,713 (1,688,350) 3,927,045
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations.............................. 1,725,704 17,951,386 2,538,464 7,868,727
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments................................ 41,094,788 27,882,120 21,980,548 16,057,224
Participant transfers from other Travelers accounts.......... 28,020,989 18,946,902 15,338,356 13,190,448
Administrative and asset allocation charges.................. (1,961,471) (1,299,849) (1,103,958) (789,474)
Contract surrenders.......................................... (6,849,650) (3,350,110) (5,124,477) (2,469,286)
Participant transfers to other Travelers accounts............ (18,236,052) (7,859,175) (20,649,675) (6,139,322)
Other payments to participants............................... (133,220) (107,392) (124,864) (83,945)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions................................. 41,935,384 34,212,496 10,315,930 19,765,645
------------- ------------- ------------- -------------
Net increase (decrease) in net assets.................. 43,661,088 52,163,882 12,854,394 27,634,372
NET ASSETS:
Beginning of year........................................ 123,771,354 71,607,472 77,674,318 50,039,946
------------- ------------- ------------- -------------
End of year.............................................. $ 167,432,442 $ 123,771,354 $ 90,528,712 $ 77,674,318
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
SHORT-TERM BOND FUND ALLIANCE GROWTH PORTFOLIO
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 1,722,808 $ 1,279,091 $ 643,699 $ 87,142
------------- ------------- ------------- -------------
EXPENSES:
Insurance charges............................................ 400,364 279,815 113,551 14,572
------------- ------------- ------------- -------------
Net investment income (loss)........................... 1,322,444 999,276 530,148 72,570
------------- ------------- ------------- -------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold........................... 2,327,448 1,331,127 2,718,788 735,184
Cost of investments sold................................. 2,274,702 1,307,471 2,442,119 624,113
------------- ------------- ------------- -------------
Net realized gain (loss)............................... 52,746 23,656 276,669 111,071
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................. 210,538 (722,729) 11,435 -
Unrealized gain (loss) end of year....................... (325,577) 210,538 1,556,758 11,435
------------- ------------- ------------- -------------
Net change in unrealized gain (loss) for the year..... (536,115) 933,267 1,545,323 11,435
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations.............................. 839,075 1,956,199 2,352,140 195,076
------------- ------------- ------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments................................ 6,059,827 4,746,886 4,657,066 1,616,779
Participant transfers from other Travelers accounts.......... 24,607,920 7,974,101 13,282,595 2,517,025
Administrative and asset allocation charges.................. (378,576) (241,333) (19,842) (3,040)
Contract surrenders.......................................... (2,766,214) (1,059,269) (244,573) (27,840)
Participant transfers to other Travelers accounts............ (5,406,419) (4,153,623) (5,494,797) (1,091,336)
Other payments to participants............................... (87,092) (46,550) (12,735) -
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from unit transactions................................. 22,029,446 7,220,212 12,167,714 3,011,588
------------- ------------- ------------- -------------
Net increase (decrease) in net assets.................. 22,868,521 9,176,411 14,519,854 3,206,664
NET ASSETS:
Beginning of year........................................ 26,893,408 17,716,997 3,206,664 -
------------- ------------- ------------- -------------
End of year.............................................. $ 49,761,929 $ 26,893,408 $ 17,726,518 $ 3,206,664
============= ============= ============= =============
</TABLE>
-13-
<PAGE> 328
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF FUND U OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
G.T. GLOBAL STRATEGIC SMITH BARNEY HIGH
INCOME PORTFOLIO INCOME PORTFOLIO
---------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.......................................................... $ 24,604 $ 6,685 $ 37,827 $ 6,627
------------ ------------ -------------- ------------
EXPENSES:
Insurance charges.................................................. 3,282 1,042 4,845 798
------------ ------------ -------------- ------------
Net investment income (loss)................................. 21,322 5,643 32,982 5,829
------------ ------------ -------------- ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold................................. 1,667,070 94,529 1,072,586 228,159
Cost of investments sold....................................... 1,621,700 88,691 1,053,325 227,132
------------ ------------ -------------- ------------
Net realized gain (loss)..................................... 45,370 5,838 19,261 1,027
------------ ------------ -------------- ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year....................... 3,386 - 1,184 -
Unrealized gain (loss) end of year............................. (17,848) 3,386 (2,005) 1,184
------------ ------------ -------------- ------------
Net change in unrealized gain (loss) for the year.......... (21,234) 3,386 (3,189) 1,184
------------ ------------ -------------- ------------
Net increase (decrease) in net assets
resulting from operations.................................... 45,458 14,867 49,054 8,040
------------ ------------ -------------- ------------
UNIT TRANSACTIONS:
Participant purchase payments...................................... 54,432 53,544 226,871 123,596
Participant transfers from other Travelers accounts................ 1,756,446 229,702 1,655,656 263,996
Administrative and asset allocation charges........................ (412) (234) (1,354) (156)
Contract surrenders................................................ (7,171) (5,779) (51,914) (729)
Participant transfers to other Travelers accounts.................. (1,702,483) (98,667) (1,339,254) (239,982)
Other payments to participants..................................... - - - -
------------ ------------ -------------- ------------
Net increase (decrease) in net assets resulting
from unit transactions....................................... 100,812 178,566 490,005 146,725
------------ ------------ -------------- ------------
Net increase (decrease) in net assets........................ 146,270 193,433 539,059 154,765
NET ASSETS:
Beginning of year.............................................. 193,433 - 154,765 -
------------ ------------ -------------- ------------
End of year.................................................... $ 339,703 $ 193,433 $ 693,824 $ 154,765
============ ============ ============== ============
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY
INTERNATIONAL EQUITY PORTFOLIO
------------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................................. $ 7,696 $ 758
------------ ------------
EXPENSES:
Insurance charges.......................................................... 53,797 3,528
------------ ------------
Net investment income (loss)......................................... (46,101) (2,770)
------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold......................................... 6,766,183 737,524
Cost of investments sold............................................... 6,469,035 716,941
------------ ------------
Net realized gain (loss)............................................. 297,148 20,583
------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year............................... 12,644 -
Unrealized gain (loss) end of year..................................... 232,286 12,644
------------ ------------
Net change in unrealized gain (loss) for the year................. 219,642 12,644
------------ ------------
Net increase (decrease) in net assets
resulting from operations............................................ 470,689 30,457
------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments.............................................. 2,033,617 248,413
Participant transfers from other Travelers accounts........................ 14,188,397 1,207,815
Administrative and asset allocation charges................................ (8,206) (921)
Contract surrenders........................................................ (164,473) (1,611)
Participant transfers to other Travelers accounts.......................... (9,560,859) (810,232)
Other payments to participants............................................. - -
------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions............................................... 6,488,476 643,464
------------ ------------
Net increase (decrease) in net assets................................ 6,959,165 673,921
NET ASSETS:
Beginning of year...................................................... 673,921 -
------------ ------------
End of year............................................................ $ 7,633,086 $ 673,921
============ ============
</TABLE>
-14-
<PAGE> 329
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SMITH BARNEY INCOME PUTNAM DIVERSIFIED
AND GROWTH PORTFOLIO INCOME PORTFOLIO
---------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 202,899 $ 36,534 $ 148,080 $ 38,421
------------ ------------ ------------ ------------
EXPENSES:
Insurance charges................................................. 61,744 8,818 20,990 3,893
------------ ------------ ------------ ------------
Net investment income (loss)................................ 141,155 27,716 127,090 34,528
------------ ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold................................ 1,807,050 808,019 156,529 437,525
Cost of investments sold...................................... 1,546,203 774,305 151,221 429,667
------------ ------------ ------------ ------------
Net realized gain (loss).................................... 260,847 33,714 5,308 7,858
------------ ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year...................... 112,139 - (1,010) -
Unrealized gain (loss) end of year............................ 569,228 112,139 7,763 (1,010)
------------ ------------ ------------ ------------
Net change in unrealized gain (loss) for the year.......... 457,089 112,139 8,773 (1,010)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations................................... 859,091 173,569 141,171 41,376
------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments..................................... 3,859,529 685,912 1,118,393 526,594
Participant transfers from other Travelers accounts............... 5,070,905 2,243,499 1,048,706 774,514
Administrative and asset allocation charges....................... (8,599) (1,255) (3,570) (762)
Contract surrenders............................................... (120,112) (15,712) (46,626) (1,244)
Participant transfers to other Travelers accounts................. (2,722,274) (909,600) (268,052) (467,009)
Other payments to participants.................................... (76,042) - - -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from unit transactions...................................... 6,003,407 2,002,844 1,848,851 832,093
------------ ------------ ------------ ------------
Net increase (decrease) in net assets....................... 6,862,498 2,176,413 1,990,022 873,469
NET ASSETS:
Beginning of year............................................. 2,176,413 - 873,469 -
------------ ------------ ------------ ------------
End of year................................................... $ 9,038,911 $ 2,176,413 $ 2,863,491 $ 873,469
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO COMBINED
---------------------------- ------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 330,935 $ 75,369 $ 215,764,991 $ 69,822,353
------------ ------------ ---------------- ----------------
EXPENSES:
Insurance charges............................................ 86,980 12,224 36,953,737 25,747,007
------------ ------------ ---------------- ----------------
Net investment income (loss)........................... 243,955 63,145 178,811,254 44,075,346
------------ ------------ ---------------- ----------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold........................... 506,096 41,955 231,887,981 119,495,585
Cost of investments sold................................. 422,173 37,799 183,031,972 98,687,144
------------ ------------ ---------------- ----------------
Net realized gain (loss)............................... 83,923 4,156 48,856,009 20,808,441
------------ ------------ ---------------- ----------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year................. 143,138 - 374,401,124 (8,676,019)
Unrealized gain (loss) end of year....................... 741,116 143,138 521,188,596 374,401,124
------------ ------------ ---------------- ----------------
Net change in unrealized gain (loss) for the year..... 597,978 143,138 146,787,472 383,077,143
------------ ------------ ---------------- ----------------
Net increase (decrease) in net assets
resulting from operations.............................. 925,856 210,439 374,454,735 447,960,930
------------ ------------ ---------------- ----------------
UNIT TRANSACTIONS:
Participant purchase payments................................ 3,639,739 1,177,680 651,103,231 452,028,311
Participant transfers from other Travelers accounts.......... 3,417,517 2,005,961 642,203,572 412,659,453
Administrative and asset allocation charges.................. (11,067) (1,960) (13,265,920) (9,143,467)
Contract surrenders.......................................... (214,865) (2,761) (177,909,388) (88,487,237)
Participant transfers to other Travelers accounts............ (1,085,667) (95,118) (532,180,418) (339,344,437)
Other payments to participants............................... (19,350) - (4,497,399) (3,565,280)
------------ ------------ ---------------- ----------------
Net increase (decrease) in net assets resulting
from unit transactions................................. 5,726,307 3,083,802 565,453,678 424,147,343
------------ ------------ ---------------- ----------------
Net increase (decrease) in net assets.................. 6,652,163 3,294,241 939,908,413 872,108,273
NET ASSETS:
Beginning of year........................................ 3,294,241 - 2,499,214,376 1,627,106,103
------------ ------------ ---------------- ----------------
End of year.............................................. $ 9,946,404 $ 3,294,241 $ 3,439,122,789 $ 2,499,214,376
============ ============ ================ ================
</TABLE>
-15-
<PAGE> 330
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF ACCUMULATION AND ANNUITY UNITS FOR FUND U
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST HIGH YIELD BOND TRUST CAPITAL APPRECIATION
---------------------- --------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 61,226,466 63,168,528 5,100,869 5,293,204 50,454,082 43,765,022
Accumulation units purchased and
transferred from other Travelers accounts.. 7,056,977 6,804,157 2,773,552 1,254,645 40,496,725 21,692,792
Accumulation units redeemed and
transferred to other Travelers accounts.... (8,435,960) (8,739,735) (1,894,695) (1,446,258) (18,749,972) (14,999,326)
Annuity units................................. (10,570) (6,484) (695) (722) (6,132) (4,406)
----------- ----------- ----------- ----------- ------------ ------------
Accumulation and annuity units
end of year................................ 59,836,913 61,226,466 5,979,031 5,100,869 72,194,703 50,454,082
=========== =========== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES PORTFOLIO STOCK PORTFOLIO UTILITIES PORTFOLIO
---------------------- --------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 21,338,806 22,709,043 4,840,885 3,498,916 11,917,700 5,739,775
Accumulation units purchased and
transferred from other Travelers accounts.. 7,912,084 5,969,324 3,822,555 2,357,639 9,642,313 10,825,283
Accumulation units redeemed and
transferred to other Travelers accounts.... (10,194,741) (7,339,561) (2,308,329) (1,015,670) (8,301,764) (4,647,358)
Annuity units................................. (1,720) - - - - -
----------- ----------- ----------- ----------- ------------ ------------
Accumulation and annuity units
end of year................................ 19,054,429 21,338,806 6,355,111 4,840,885 13,258,249 11,917,700
=========== =========== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET
TEMPLETON BOND FUND TEMPLETON STOCK FUND ALLOCATION FUND
---------------------- --------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 10,536,435 10,185,995 122,960,800 101,461,716 107,468,938 103,406,989
Accumulation units purchased and
transferred from other Travelers accounts.. 2,880,562 2,985,095 54,933,900 44,948,066 24,240,105 23,794,549
Accumulation units redeemed and
transferred to other Travelers accounts.... (3,156,084) (2,633,968) (23,264,671) (23,447,028) (17,896,444) (19,731,907)
Annuity units................................. (661) (687) (15,875) (1,954) (3,612) (693)
----------- ----------- ----------- ----------- ------------ ------------
Accumulation and annuity units
end of year................................ 10,260,252 10,536,435 154,614,154 122,960,800 113,808,987 107,468,938
=========== =========== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S HIGH FIDELITY'S GROWTH FIDELITY'S EQUITY-
INCOME PORTFOLIO PORTFOLIO INCOME PORTFOLIO
---------------------- --------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 32,634,690 25,813,287 229,298,932 176,304,261 153,542,685 78,856,048
Accumulation units purchased and
transferred from other Travelers accounts.. 22,738,765 16,940,763 103,421,584 94,357,102 93,862,876 99,568,686
Accumulation units redeemed and
transferred to other Travelers accounts.... (15,061,159) (10,116,608) (57,792,628) (41,359,028) (41,787,112) (24,872,561)
Annuity units................................. (3,684) (2,752) (35,822) (3,403) 17,561 (9,488)
----------- ----------- ----------- ----------- ------------ ------------
Accumulation and annuity units
end of year................................ 40,308,612 32,634,690 274,892,066 229,298,932 205,636,010 153,542,685
=========== =========== =========== =========== ============ ============
</TABLE>
-16-
<PAGE> 331
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF ACCUMULATION AND ANNUITY UNITS FOR FUND U
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY'S ASSET DREYFUS STOCK AMERICAN ODYSSEY
MANAGER PORTFOLIO INDEX FUND CORE EQUITY FUND
------------------------ ------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 271,006,817 282,474,420 43,246,729 31,599,969 137,330,147 100,081,556
Accumulation units purchased and
transferred from other Travelers accounts.. 43,678,827 58,634,743 36,409,694 19,084,473 65,146,447 54,332,583
Accumulation units redeemed and
transferred to other Travelers accounts.... (65,621,659) (70,087,353) (13,557,720) (7,437,713) (31,924,219) (17,083,992)
Annuity units................................. (14,379) (14,993) (858) - - -
------------ ------------ ------------ ----------- ----------- -------------
Accumulation and annuity units
end of year................................ 249,049,606 271,006,817 66,097,845 43,246,729 170,552,375 137,330,147
============ ============ ============ =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN ODYSSEY
EMERGING OPPORTUNITIES AMERICAN ODYSSEY AMERICAN ODYSSEY
FUND INTERNATIONAL EQUITY FUND LONG-TERM BOND FUND
------------------------ ------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 103,824,182 73,837,797 70,364,454 47,095,715 101,376,422 70,927,733
Accumulation units purchased and
transferred from other Travelers accounts.. 71,642,585 51,700,251 67,664,318 33,740,404 58,583,635 41,680,825
Accumulation units redeemed and
transferred to other Travelers accounts.... (52,589,368) (21,710,744) (16,132,926) (10,471,665) (22,884,869) (11,232,136)
Annuity units................................. - (3,122) - - - -
------------ ------------ ------------ ----------- ----------- -------------
Accumulation and annuity units
end of year................................ 122,877,399 103,824,182 121,895,846 70,364,454 137,075,188 101,376,422
============ ============ ============ =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN ODYSSEY AMERICAN ODYSSEY
INTERMEDIATE-TERM BOND FUND SHORT-TERM BOND FUND ALLIANCE GROWTH PORTFOLIO
--------------------------- ------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 68,877,506 50,402,986 24,416,215 17,610,778 2,498,303 -
Accumulation units purchased and
transferred from other Travelers accounts.. 33,097,050 27,369,748 27,440,823 11,996,257 12,300,233 3,402,780
Accumulation units redeemed and
transferred to other Travelers accounts.... (23,763,723) (8,895,228) (7,780,277) (5,190,820) (3,989,840) (904,477)
Annuity units................................. - - - - (135) -
------------ ------------ ------------ ----------- ----------- -------------
Accumulation and annuity units
end of year................................ 78,210,833 68,877,506 44,076,761 24,416,215 10,808,561 2,498,303
============ =========== =========== =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
G.T. GLOBAL STRATEGIC SMITH BARNEY SMITH BARNEY INTERNATIONAL
INCOME PORTFOLIO HIGH INCOME PORTFOLIO EQUITY PORTFOLIO
------------------------ ------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 161,842 - 137,755 - 592,682 -
Accumulation units purchased and
transferred from other Travelers accounts.. 1,420,493 254,272 1,608,495 367,626 12,822,567 1,334,884
Accumulation units redeemed and
transferred to other Travelers accounts.... (1,340,054) (92,430) (1,193,655) (229,871) (7,637,836) (742,202)
Annuity units................................. - - - - - -
------------ ----------- ---------- --------- ---------- -----------
Accumulation and annuity units
end of year................................ 242,281 161,842 552,595 137,755 5,777,413 592,682
============ ========== ========== ========= ========== ===========
</TABLE>
-17-
<PAGE> 332
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. SCHEDULE OF ACCUMULATION AND ANNUITY UNITS FOR FUND U
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY INCOME PUTNAM DIVERSIFIED
AND GROWTH PORTFOLIO INCOME PORTFOLIO MFS TOTAL RETURN PORTFOLIO
------------------------ ----------------------- ----------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation and annuity units
beginning of year.......................... 1,747,342 - 774,330 - 2,733,609 -
Accumulation units purchased and
transferred from other Travelers accounts.. 6,548,012 2,586,551 1,877,455 1,210,571 5,617,453 2,822,742
Accumulation units redeemed and
transferred to other Travelers accounts.... (2,161,665) (839,209) (277,011) (436,241) (1,049,005) (89,133)
Annuity units................................. (321) - - - - -
------------ ----------- ----------- ----------- ------------- -----------
Accumulation and annuity units
end of year................................ 6,133,368 1,747,342 2,374,774 774,330 7,302,057 2,733,609
============ =========== =========== =========== ============= ===========
</TABLE>
-18-
<PAGE> 333
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of Variable Annuity Contracts of
The Travelers Fund U for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Fund U for Variable Annuities as of December 31, 1996, and the
related statement of operations for the year then ended, and the statement of
changes in net assets for each of the two years in the period then ended.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of shares owned as of December 31, 1996, by
correspondence with the underlying funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund U for
Variable Annuities as of December 31, 1996, the results of its operations for
the year then ended and the changes in its net assets for each of the two years
in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
-19-
<PAGE> 334
This page intentionally left blank.
<PAGE> 335
Independent Accountants
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Fund U for Variable Annuities or Fund
U's underlying funds. It should not be used in connection with any offer except
in conjunction with the Prospectuses for the Variable Annuity products offered
by The Travelers Insurance Company and the Prospectuses for the underlying
funds, which collectively contain all pertinent information, including the
applicable sales commissions.
VG-FNDU (Annual) (12-96) Printed in U.S.A.
<PAGE> 336
PART C
OTHER INFORMATION
Item 28. Financial Statements and Exhibits
(a) The financial statements of the Registrant, as well as of The
Travelers Growth and Income Stock Account for Variable Annuities, The
Travelers Money Market Account for Variable Annuities, The Travelers
Timed Growth and Income Stock Account for Variable Annuities, The
Travelers Timed Short-Term Bond Account for Variable Annuities, The
Travelers Timed Aggressive Stock Account for Variable Annuities, The
Travelers Timed Bond Account for Variable Annuities and The Travelers
Fund U for Variable Annuities, and the Reports of Independent
Accountants thereto, are in the Annual Reports for the respective
Accounts and are incorporated into the Statement of Additional
Information by reference. For each of the Accounts, these financial
statements include as applicable:
Statement of Assets and Liabilities as of December 31, 1996
(except The Travelers Timed Bond Account for Variable
Annuities which was timed out as of December 31, 1996)
Statement of Operations for the year ended December 31, 1996
Statement of Changes in Net Assets for the years ended
December 31, 1996 and 1995
Statement of Investments as of December 31, 1996 (except The
Travelers Timed Bond Account for Variable Annuities which
was timed out as of December 31, 1996)
Notes to Financial Statements
The consolidated financial statements of The Travelers Insurance
Company and Subsidiaries and the report of Independent Auditors are
contained in the Statement of Additional Information. The
consolidated financial statements of The Travelers Insurance Company
and Subsidiaries include:
Consolidated Statements of Income and Retained Earnings for
the years ended December 31, 1996, 1995 and 1994
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1996,1995 and 1994
Notes to Consolidated Financial Statements
(b) Exhibits
1. Resolution of The Travelers Insurance Company's Board of
Directors authorizing the establishment of the Registrant.
(Incorporated herein by reference to Exhibit 1 to Post-Effective
Amendment No. 42 to the Registration Statement on Form N-3,
filed on April 22, 1996.)
2. Rules and Regulations of the Registrant. (Incorporated herein by
reference to Exhibit 2 to Post-Effective Amendment No. 42 to the
Registration Statement on Form N-3, filed on April 22, 1996.)
3. Custody Agreement between the Registrant and Chase Manhattan
Bank, N. A., Brooklyn, New York. (Incorporated herein by
reference to Exhibit 3 to Post-Effective Amendment No. 41 to the
Registration Statement on Form N-3, filed April 26, 1995.)
<PAGE> 337
4. Investment Advisory Agreement between the Registrant and
Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit 4 to Post-Effective
Amendment No. 42 to the Registration Statement on Form N-3,
filed on April 22, 1996.)
5(a). Distribution and Management Agreement between the Registrant,
The Travelers Insurance Company and Travelers Equities Sales,
Inc. (now known as Tower Square Securities, Inc.)
(Incorporated herein by reference to Exhibit 5 to Post-Effective
Amendment No. 41 to the Registration Statement on Form N-3,
filed April 26, 1995.)
5(b). Selling Agreement. (Incorporated herein by reference to Exhibit
3(b) to Post-Effective Amendment No. 29 to the Registration
Statement on Form N-4 , File No. 2-79529, filed on April 19,
1996.)
6. Example of Variable Annuity Contract (Incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 29 to the
Registration Statement on Form N-4 , File No. 2-79529, filed on
April 19, 1996.)
7. Example of Application. (Incorporated herein by reference to
Exhibit 7 to Post-Effective Amendment No. 29 to the Registration
Statement on Form N-4, File No. 2-79529, filed on April 19,
1996.)
8(a). Charter of The Travelers Insurance Company, as amended on
October 19, 1994. (Incorporated herein by reference to Exhibit
3(a)(i) to the Registration Statement on Form S-2, File No.
33-58677, filed via EDGAR on April 18, 1995.)
8(b). By-Laws of The Travelers Insurance Company, as amended on
October 20, 1994. (Incorporated herein by reference to Exhibit
3(b)(i) to the Registration Statement on Form S-2, File No.
33-58677, filed via EDGAR on April 18, 1995.)
12. Opinion of Counsel as to the legality of the securities being
registered. (Incorporated hereby reference to the Registrant's
most recent Rule 24f-2 Notice filed on February 28, 1997.)
13(a). Consent of Coopers & Lybrand L.L.P., Independent Accountants.
13(b). Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.
16. Schedule for Computation of Total Return Calculations -
Standardized and Non-Standardized.
18(a) Powers of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for Heath B. McLendon, Knight Edwards, Robert
E. McGill III, Lewis Mandell and Frances M. Hawk. (Incorporated
herein by reference to Exhibit 18(a) to Post-Effective Amendment
No. 42 to the Registration Statement on Form N-3, filed on April
22, 1996.)
18(b). Powers of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for Michael A. Carpenter, Jay S. Benet,
George C. Kokulis, Ian R. Stuart and Katherine M. Sullivan.
(Incorporated herein by reference to Exhibit 18(b) to
Post-Effective Amendment No. 43 to the Registration Statement on
Form N-3 filed on February 20, 1997.)
<PAGE> 338
18(c). Powers of Attorney authorizing Jay S. Fishman or Ernest J.
Wright as signatory for Robert I. Lipp, Charles O. Prince, III,
Marc P. Weill, Irwin R. Ettinger and Donald T. DeCarlo.
(Incorporated herein by reference to Exhibit 18(c) to
Post-Effective Amendment No. 41 to the Registration Statement on
Form N-3, filed April 26, 1995.)
27. Financial Data Schedules.
Item 29. Directors and Officers of The Travelers Insurance Company
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Insurance Company with Registrant
- -------------------------- ---------------------- ------------------------
<S> <C>
Michael A. Carpenter* Director, Chairman of the Board ----
President and Chief Executive Officer
Jay S. Benet* Director and Senior Vice President ----
George C. Kokulis* Director and Senior Vice President ----
Robert I. Lipp* Director ----
Ian R. Stuart* Director, Senior Vice President, Principal Accounting
Chief Financial Officer, Chief Officer
Accounting Officer and Controller
Katherine M. Sullivan* Director and Senior Vice President ----
and General Counsel
Marc P. Weill** Director and Senior Vice President ----
Stuart Baritz** Senior Vice President ----
Jay S. Fishman* Senior Vice President ----
Elizabeth C. Georgakopoulos* Senior Vice President ----
Barry Jacobson* Senior Vice President ----
Russell H. Johnson* Senior Vice President ----
Warren H. May* Senior Vice President ----
Christine M. Modie* Senior Vice President ----
David A. Tyson* Senior Vice President ----
F. Denney Voss* Senior Vice President ----
Paula Burton* Vice President ----
Charles N. Vest* Vice President and Actuary ----
Donald R. Munson, Jr.* Second Vice President ----
Ernest J. Wright* Vice President and Secretary Secretary to the
Board of Managers
Kathleen A. McGah* Assistant Secretary and Counsel Assistant Secretary to
the Board of Managers
</TABLE>
<TABLE>
<S> <C>
Principal Business Address:
* The Travelers Insurance Company ** Travelers Group Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
</TABLE>
<PAGE> 339
Item 30. Persons Controlled by or Under Common Control with the Depositor or
Registrant
OWNERSHIP OF THE TRAVELERS INSURANCE COMPANY
<TABLE>
<CAPTION>
Company State of Organization Ownership Principal Business
- ------- ---------------------- --------- ------------------
<S> <C> <C> <C>
Travelers Group Inc. Delaware Publicly Held ---------------
Associated Madison Companies Inc. Delaware 100.00 ----------------
PFS Services Inc. Georgia 100.00 ----------------
The Travelers Insurance Group, Inc. Connecticut 100.00 ----------------
The Travelers Insurance Company Connecticut 100.00 Insurance
</TABLE>
- --------------------------------------------------------------------------------
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE TRAVELERS INSURANCE COMPANY
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
AC Health Ventures, Inc. Delaware 100.00 Inactive
AMCO Biotech, Inc. Delaware 100.00 Inactive
Associated Madison Companies, Inc. Delaware 100.00 Holding company.
American National Life Insurance (T & C), Ltd. Turks and
Caicos Islands 100.00 Insurance
ERISA Corporation New York 100.00 Inactive
Mid-America Insurance Services, Inc. Georgia 100.00 Third party
administrator
National Marketing Corporation Pennsylvania 100.00 Inactive
PFS Services, Inc. Georgia 100.00 General partner and
holding company
The Travelers Insurance Group Inc. Connecticut 100.00 Holding company
Constitution Plaza, Inc. Connecticut 100.00 Real estate brokerage
</TABLE>
3/18/97
<PAGE> 340
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
KP Properties Corporation Massachusetts 100.00 Real estate
KPI 85, Inc. Massachusetts 100.00 Real estate
KRA Advisers Corporation Massachusetts 100.00 Real estate
KRP Corporation Massachusetts 100.00 Real estate
La Metropole S.A. Belgium 98.83 P-C insurance/
reinsurance
The Prospect Company Delaware 100.00 Investments
89th & York Avenue Corporation New York 100.00 Real estate
979 Third Avenue Corporation Delaware 100.00 Real estate
Meadow Lane, Inc. Georgia 100.00 Real estate
development
Panther Valley, Inc. New Jersey 100.00 Real estate
management
Prospect Management Services Company Delaware 100.00 Real estate
management
The Travelers Asset Funding Corporation Connecticut 100.00 Investment adviser
Travelers Capital Funding Corporation Connecticut 100.00 Furniture/equipment
The Travelers Insurance Company Connecticut 100.00 Insurance
The Plaza Corporation Connecticut 100.00 Holding company
The Copeland Companies New Jersey 100.00 Holding company
American Odyssey Funds Management, Inc. New Jersey 100.00 Investment advisor
American Odyssey Funds, Inc. Maryland 100.00 Investment management
Copeland Administrative Services, Inc. New Jersey 100.00 Administrative
services
Copeland Associates, Inc. Delaware 100.00 Fixed/variable
annuities
Copeland Associates Agency of
Ohio, Inc. Ohio 99.00 Fixed/variable
annuities
Copeland Associates of Alabama,
Inc. Alabama 100.00 Fixed/variable
annuities
Copeland Associates of Montana, Inc. Montana 100.00 Fixed/variable
annuities
Copeland Benefits Management Company New Jersey 51.00 Investment marketing
Copeland Equities, Inc. New Jersey 100.00 Fixed/variable
annuities
H.C. Copeland Associates, Inc.
of Massachusetts Massachusetts 100.00 Fixed annuities
Copeland Financial Services, Inc. New Jersey 100.00 Investment advisory
services.
Copeland Healthcare Services, Inc. New Jersey 100.00 Life insurance
marketing
H.C. Copeland and Associates, Inc. of
Texas Texas 100.00 Fixed/variable
annuities
Three Parkway Inc. - I Pennsylvania 100.00 Investment real
estate
</TABLE>
2
<PAGE> 341
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Three Parkway Inc. - II Pennsylvania 100.00 Investment real
estate
Three Parkway Inc. - III Pennsylvania 100.00 Investment real
estate
Tower Square Securities, Inc. Connecticut 100.00 Broker dealer
Travelers Asset Management International
Corporation New York 100.00 Investment adviser
Travelers Distribution Company Delaware 100.00
Travelers Investment Adviser, Inc. Delaware 100.00 Investment Advisor
Travelers/Net Plus Agency of Ohio, Inc. Ohio 100.00 Insurance agency
Travelers/Net Plus Insurance Agency, Inc. Massachusetts 100.00 Insurance agency
Travelers/Net Plus, Inc. Connecticut 100.00
The Travelers Life and Annuity Company Connecticut 100.00 Life insurance
Travelers Insurance Holdings Inc. Georgia 100.00 Holding company
AC RE, Ltd. Bermuda 100.00 Reinsurance
American Financial Life Insurance Company Texas 100.00 Insurance
Primerica Life Insurance Company Massachusetts 100.00 Life insurance
National Benefit Life Insurance Company New York 100.00 Insurance
Primerica Financial Services (Canada)
Ltd. Canada 100.00 Holding company
PFSL Investments Canada Ltd. Canada 100.00 Mutual fund dealer
Primerica Financial Services Ltd. Canada 82.82 General agent
Primerica Life Insurance Company
of Canada Canada 100.00 Life insurance
The Travelers Insurance Corporation Proprietary Limited Australia 100.00 Inactive
Travelers Canada Corporation Canada 100.00 Inactive
Travelers Mortgage Securities Corporation Delaware 100.00 Collateralized
obligations
Travelers of Ireland Limited Ireland 99.90 Data processing
Travelers Property Casualty Corp. Delaware 82.00 Holding company
The Aetna Casualty and Surety Company Connecticut 100.00 Insurance company
AE Development Group, Inc. Connecticut 100.00
Aetna Casualty & Surety Company of Canada Canada 100.00
Aetna Casualty and Surety Company of America Connecticut 100.00 Insurance company
Aetna Casualty and Surety Company of Illinois Illinois 100.00 Insurance company
Aetna Casualty Company of Connecticut Connecticut 100.00 Insurance company
</TABLE>
3
<PAGE> 342
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Aetna Commercial Insurance Company Connecticut 100.00 Insurance company
Aetna Excess and Surplus Lines Company Connecticut 100.00 Insurance Company
Aetna Lloyds of Texas Insurance Company Texas 100.00 Insurance company
Aetna National Accounts U.K. Limited United Kingdom 100.00 Insurance company
Axia Services, Inc. New York 100.00
Farmington Casualty Company Connecticut 100.00 Insurance company
Farmington Management, Inc. Connecticut 100.00
Urban Diversified Properties, Inc. Connecticut 100.00
The Standard Fire Insurance Company Connecticut 100.00
AE Properties, Inc. California 100.00
Aetna Insurance Company Connecticut 100.00 Insurance company
Aetna Insurance Company of Illinois Illinois 100.00 Insurance company
Aetna Personal Security Insurance
Company Connecticut 100.00 Insurance company
Community Rehabilitation Investment
Corporation Connecticut 100.00
The Automobile Insurance Company of
Hartford, Connecticut Connecticut 100.00 Insurance company
The Travelers Indemnity Company Connecticut 100.00 P-C insurance
Commercial Insurance Resources, Inc. Delaware 100.00 Holding company
Gulf Insurance Company Missouri 100.00 P-C insurance
Atlantic Insurance Company Texas 100.00 P-C insurance
Gulf Risk Services, Inc. Delaware 100.00 Claims/risk management
Gulf Underwriters Insurance
Company Missouri 100.00 P-C ins/surplus lines
Select Insurance Company Texas 100.00 P-C insurance
Countersignature Agency, Inc. Florida 100.00 Countersign ins policies
First Floridian Auto and Home Insurance
Company Florida 100.00 Insurance company
First Trenton Indemnity Company New Jersey 100.00 P-C insurance
Laramia Insurance Agency, Inc. North Carolina 100.00 Flood insurance
Secure Affinity Agency, Inc. Delaware 100.00 P-C insurance agency
The Charter Oak Fire Insurance Company Connecticut 100.00 P-C insurance
The Parker Realty and Insurance Agency,
Inc. Vermont 58.00 Real estate
The Phoenix Insurance Company Connecticut 100.00 P-C insurance
</TABLE>
4
<PAGE> 343
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Constitution State Service Company Montana 100.00 Service company
The Travelers Indemnity Company of
America Georgia 100.00 P-C insurance
The Travelers Indemnity Company of
Connecticut Connecticut 100.00 Insurance
The Travelers Indemnity Company of
Illinois Illinois 100.00 P-C insurance
The Premier Insurance Company of
Massachusetts Massachusetts 100.00 Insurance
The Travelers Home and Marine Insurance
Company Indiana 100.00 P-C insurance
The Travelers Indemnity Company of
Missouri Missouri 100.00 P-C insurance
The Travelers Lloyds Insurance Company Texas 100.00 Non-life insurance
The Travelers Marine Corporation California 100.00 General insurance
brokerage
TI Home Mortgage Brokerage, Inc. Delaware 100.00 Mortgage brokerage
services
TravCo Insurance Company Indiana 100.00 P-C insurance
Travelers Bond Investments, Inc. Connecticut 100.00 Bond investments
Travelers General Agency of
Hawaii, Inc. Hawaii 100.00 Insurance agency
Travelers Medical Management
Services Inc. Delaware 100.00 Managed care
Travelers Specialty Property Casualty
Company, Inc. Connecticut 100.00 Insurance management
Primerica Convention Services, Inc. Georgia 100.00
Primerica Finance Corporation Delaware 100.00 Holding company
PFS Distributors, Inc. Georgia 100.00 General partner
PFS Investments Inc. Georgia 100.00 Broker dealer
PFS T.A., Inc. Delaware 100.00 Joint venture partner
Primerica Financial Services Home Mortgages, Inc. Georgia 100.00 Mortgage loan broker
Primerica Financial Services, Inc. Nevada 100.00 General agency
Primerica Financial Services Agency of New York, Inc. New York 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Connecticut, Inc. Connecticut 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Idaho, Inc. Idaho 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Nevada, Inc. Nevada 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Pennsylvania, Inc. Pennsylvania 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of the
Virgin Islands, Inc. United States
Virgin Islands 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Wyoming, Inc. Wyoming 100.00 General agency licensing
Primerica Financial Services Insurance Marketing, Inc. Delaware 100.00 General agency licensing
</TABLE>
5
<PAGE> 344
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Primerica Financial Services of Alabama, Inc. Alabama 100.00 General agency licensing
Primerica Financial Services of Arizona, Inc. Arizona 100.00 General agency licensing
Primerica Financial Services of Kentucky Inc. Kentucky 100.00 General agency licensing
Primerica Financial Services of New Mexico, Inc. New Mexico 100.00 General agency licensing
Primerica Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 General agency licensing
Primerica Insurance Marketing Services of
Puerto Rico, Inc. Puerto Rico 100.00 Insurance agency
Primerica Insurance Services of Louisiana, Inc. Louisiana 100.00 General agency licensing
Primerica Insurance Services of Maryland, Inc. Maryland 100.00 General agency licensing
Primerica Services, Inc. Georgia 100.00 Print operations
RCM Acquisition Inc. Delaware 100.00 Investments
SCN Acquisitions Company Delaware 100.00 Investments
SL&H Reinsurance, Ltd. Nevis 100.00 Reinsurance
Southwest Service Agreements, Inc. North Carolina 100.00 Warranty/service
agreements
Southwest Warranty Corporation Florida 100.00 Extended automobile
warranty
Berg Associates New Jersey 100.00 Inactive
CCC Holdings, Inc. Delaware 100.00 Holding company
Commercial Credit Company Delaware 100.00 Holding company.
American Health and Life Insurance Company Maryland 100.00 LH&A Insurance
Brookstone Insurance Company Vermont 100.00 Insurance managers
CC Finance Company, Inc. New York 100.00 Consumer lending
CC Financial Services, Inc. Hawaii 100.00 Consumer lending
CCC Fairways, Inc. Delaware 100.00 Investment company
Chesapeake Appraisal and Settlement Services Inc. Maryland 100.00 Appraisal/title
Chesapeake Appraisal and Settlement Services
Agency of Ohio Inc. Ohio 100.00 Appraisal/Title
City Loan Financial Services, Inc. Ohio 100.00 Direct loan
Commercial Credit Banking Corporation Oregon 100.00 Consumer finance
Commercial Credit Consumer Services, Inc. Minnesota 100.00 Consumer finance
Commercial Credit Corporation [AL] Alabama 100.00 Consumer finance
Commercial Credit Corporation [CA] California 100.00 Consumer finance
Commercial Credit Corporation [HI] Hawaii 100.00 Financial services
</TABLE>
6
<PAGE> 345
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Commercial Credit Corporation [IA] Iowa 100.00 Consumer finance
Commercial Credit of Alabama, Inc. Delaware 100.00 Consumer lending
Commercial Credit of Mississippi, Inc. Delaware 100.00 Consumer finance
Commercial Credit Corporation [KY] Kentucky 100.00 Consumer finance
Certified Insurance Agency, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Investment, Inc. Kentucky 100.00 Investment company
National Life Insurance Agency of Kentucky, Inc. Kentucky 100.00 Insurance agency
Union Casualty Insurance Agency, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Corporation [MD] Maryland 100.00 Consumer finance
Action Data Services, Inc. Missouri 100.00 Data processing
Commercial Credit Plan, Incorporated [OK] Oklahoma 100.00 Consumer finance
Commercial Credit Corporation [NY] New York 100.00 Consumer finance
Commercial Credit Corporation [SC] South Carolina 100.00 Consumer finance
Commercial Credit Corporation [WV] West Virginia 100.00 Consumer finance
Commercial Credit Corporation NC North Carolina 100.00 Consumer finance
Commercial Credit Europe, Inc. Delaware 100.00 Inactive
Commercial Credit Far East Inc. Delaware 100.00 Inactive
Commercial Credit Insurance Services, Inc. Maryland 100.00 Insurance broker
Commercial Credit Insurance Agency (P&C) of
Mississippi, Inc. Mississippi 100.00 Insurance agency
Commercial Credit Insurance Agency of
Alabama, Inc. Alabama 100.00 Insurance agency
Commercial Credit Insurance Agency of
Hawaii, Inc. Hawaii 100.00 Insurance agency
Commercial Credit Insurance Agency of
Kentucky, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Insurance Agency of
Massachusetts, Inc. Massachusetts 100.00 Insurance agency
Commercial Credit Insurance Agency of
Nevada, Inc. Nevada 100.00 Credit LH&A, P-C insurance
Commercial Credit Insurance Agency of New
Mexico, Inc. New Mexico 100.00 Insurance agency/Broker
Commercial Credit Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance agency/broker
Commercial Credit International, Inc. Delaware 100.00 Holding company
Commercial Credit International Banking
Corporation Oregon 100.00 International lending
Commercial Credit Corporation CCC Limited Canada 100.00 Second mortgage loans
Commercial Credit Services do Brazil Ltda. Brazil 99.00 Inactive
</TABLE>
7
<PAGE> 346
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Commercial Credit Services Belgium S.A. Belgium 100.00 Inactive
Commercial Credit Limited Delaware 100.00 Inactive
Commercial Credit Loan, Inc. [NY] New York 100.00 Consumer finance
Commercial Credit Loans, Inc. [DE] Delaware 100.00 Consumer finance
Commercial Credit Loans, Inc. [OH] Ohio 100.00 Consumer finance
Commercial Credit Loans, Inc. [VA] Virginia 100.00 Consumer finance
Commercial Credit Management Corporation Maryland 100.00 Intercompany services
Commercial Credit Plan Incorporated [TN] Tennessee 100.00 Consumer finance
Commercial Credit Plan Incorporated [UT] Utah 100.00 Consumer finance
Commercial Credit Plan Incorporated of Georgetown Delaware 100.00 Consumer finance
Commercial Credit Plan Industrial Loan Company Virginia 100.00 Consumer finance
Commercial Credit Plan, Incorporated [CO] Colorado 100.00 Consumer finance
Commercial Credit Plan, Incorporated [DE] Delaware 100.00 Consumer finance
Commercial Credit Plan, Incorporated [GA] Georgia 100.00 Consumer finance
Commercial Credit Plan, Incorporated [MO] Missouri 100.00 Consumer finance
Commercial Credit Securities, Inc. Delaware 100.00 Broker dealer
DeAlessandro & Associates, Inc. Delaware 100.00 Inactive
Park Tower Holdings, Inc. Delaware 100.00 Holding company
CC Retail Services, Inc. Delaware 100.00 Leasing, financing
Troy Textiles, Inc. Delaware 100.00 Inactive
Commercial Credit Development Corporation Delaware 100.00 Direct loan
Myers Park Properties, Inc. Delaware 100.00 Inactive
Travelers Home Mortgage Services of Alabama, Inc. Delaware 100.00 Inactive
Penn Re, Inc. North Carolina 100.00 Management company
Plympton Concrete Products, Inc. Delaware 100.00 Inactive
Resource Deployment, Inc. Texas 100.00 Management company
The Travelers Bank Delaware 100.00 Banking services
The Travelers Bank USA Delaware 100.00 Credit card bank
Travelers Home Equity, Inc. North Carolina 100.00 Financial services
CC Consumer Services of Alabama, Inc. Alabama 100.00 Financial services
</TABLE>
8
<PAGE> 347
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
CC Home Lenders Financial, Inc. Georgia 100.00 Financial services
CC Home Lenders, Inc. Ohio 100.00 Financial services
Commercial Credit Corporation [TX] Texas 100.00 Consumer finance
Commercial Credit Financial of Kentucky, Inc. Kentucky 100.00 Consumer finance
Commercial Credit Financial of West
Virginia, Inc. West Virginia 100.00 Consumer finance
Commercial Credit Plan Consumer Discount
Company Pennsylvania 100.00 Financial services
Commercial Credit Services of Kentucky, Inc. Kentucky 100.00 Financial services.
Travelers Home Mortgage Services, Inc. North Carolina 100.00 Financial services
Triton Insurance Company Missouri 100.00 P-C insurance
Verochris Corporation Delaware 100.00 Joint venture company
AMC Aircraft Corp. Delaware 100.00 Aviation
World Service Life Insurance Company Colorado 100.00 Life insurance
Greenwich Street Capital Partners, Inc. Delaware 100.00 Investments
Greenwich Street Investments, Inc. Delaware 100.00 Investments
Greenwich Street Capital Partners Offshore
Holdings, Inc. Delaware 100.00 Investments
Mirasure Insurance Company, Ltd. Bermuda 100.00 Inactive
Pacific Basin Investments Ltd. Delaware 100.00 Inactive
Primerica Corporation [WY] Wyoming 100.00 Inactive
Primerica, Inc. Delaware 100.00 Name saver
Smith Barney Corporate Trust Company Delaware 100.00 Trust company
Smith Barney Holdings Inc. Delaware 100.00 Holding company
Nextco Inc. Delaware 100.00 Purchasing
R-H Capital, Inc. Delaware 100.00 Investments
R-H Sports Enterprises Inc Georgia 100.00 Sports representation
SB Cayman Holdings I Inc. Delaware 100.00 Holding company
Greenwich (Cayman) I Limited Cayman Islands 100.00 Corporate services
Greenwich (Cayman) II Limited Cayman Islands 100.00 Corporate services
Greenwich (Cayman) III Limited Cayman Islands 100.00 Corporate services
SB Cayman Holdings II Inc. Delaware 100.00 Holding company
SB Cayman Holdings III Inc. Delaware 100.00 Holding company
</TABLE>
9
<PAGE> 348
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
SB Cayman Holdings IV Inc. Delaware 100.00 Holding company
Smith Barney (Delaware) Inc. Delaware 100.00 Holding company
1345 Media Corp. Delaware 100.00 Holding company
Corporate Realty Advisors, Inc. Delaware 100.00 Realty trust adviser
IPO Holdings Inc. Delaware 100.00 Holding company
Institutional Property Owners, Inc. V Delaware 100.00 Investments
Institutional Property Owners, Inc. VI Delaware 100.00 General partner
MLA 50 Corporation Delaware 100.00 Limited partner
MLA GP Corporation Delaware 100.00 General partner
Smith Barney Acquisition Corporation Delaware 100.00 Offshore fund adviser
Smith Barney Global Capital Management, Inc. Delaware 100.00 Investment management
Smith Barney Realty, Inc. Delaware 100.00 Investments
Smith Barney Risk Investors, Inc. Delaware 100.00 Investments
Smith Barney Venture Corp. Delaware 100.00 Investments
Smith Barney (Ireland) Limited Ireland 100.00 Fund management
Smith Barney Asia Inc. Delaware 100.00 Investment banking
Smith Barney Asset Management Group (Asia) Pte. Ltd. Singapore 100.00 Asset management
Smith Barney Canada Inc. Canada 100.00 Investment dealer
Smith Barney Capital Services Inc. Delaware 100.00 Derivative product
transactions
Smith Barney Cayman Islands, Ltd. Cayman Islands 100.00 Securities trading
Smith Barney Commercial Corp. Delaware 100.00 Commercial credit
Smith Barney Commercial Corporation Asia Limited Hong Kong 99.00 Commodities trading
Smith Barney Europe Holdings, Ltd. United Kingdom 100.00 Holding corp.
Smith Barney Europe, Ltd. United Kingdom 100.00 Securities brokerage
Smith Barney Futures Management Inc. Delaware 100.00 Commodities pool operator
Smith Barney Offshore Fund Ltd. Delaware 100.00 Commodity pool
Smith Barney Overview Fund PLC Dublin 100.00 Commodity fund
Smith Barney Inc. Delaware 100.00 Broker dealer
SBHU Life Agency, Inc. Delaware 100.00 Insurance brokerage
Robinson-Humphrey Insurance Services Inc. Georgia 100.00 Insurance brokerage
</TABLE>
10
<PAGE> 349
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Robinson-Humphrey Insurance Services of
Alabama, Inc. Alabama 100.00 Insurance brokerage
SBHU Life Agency of Arizona, Inc. Arizona 100.00 Insurance brokerage
SBHU Life Agency of Indiana, Inc. Indiana 100.00 Insurance brokerage
SBHU Life Agency of Utah, Inc. Utah 100.00 Insurance brokerage
SBHU Life Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 Insurance brokerage
SBS Insurance Agency of Hawaii, Inc. Hawaii 100.00 Insurance brokerage
SBS Insurance Agency of Idaho, Inc. Idaho 100.00 Insurance brokerage
SBS Insurance Agency of Maine, Inc. Maine 100.00 Insurance brokerage
SBS Insurance Agency of Montana, Inc. Montana 100.00 Insurance brokerage
SBS Insurance Agency of Nevada, Inc. Nevada 100.00 Insurance brokerage
SBS Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance brokerage
SBS Insurance Agency of South Dakota, Inc. South Dakota 100.00 Insurance brokerage
SBS Insurance Agency of Wyoming, Inc. Wyoming 100.00 Insurance brokerage
SBS Insurance Brokerage Agency of Arkansas, Inc. Arkansas 100.00 Insurance brokerage
SBS Insurance Brokers of Kentucky, Inc. Kentucky 100.00 Insurance brokerage
SBS Insurance Brokers of New Hampshire, Inc. New Hampshire 100.00 Insurance brokerage
SBS Insurance Brokers of North Dakota, Inc. North Dakota 100.00 Insurance brokerage
SBS Life Insurance Agency of Puerto Rico, Inc. Puerto Rico 100.00 Insurance brokerage
SLB Insurance Agency of Maryland, Inc. Maryland 100.00 Insurance brokerage
Smith Barney Life Agency Inc. Louisiana 100.00 Insurance brokerage
Smith Barney (Hong Kong) Limited Hong Kong 100.00 Broker dealer
Smith Barney (Netherlands) Inc. Delaware 100.00 Broker dealer
Smith Barney International Incorporated Oregon 100.00 Broker dealer
Smith Barney (Singapore) Pte Ltd Singapore 100.00 Commodities
Smith Barney Pacific Holdings, Inc. British
Virgin Islands 100.00 Holding company
Smith Barney (Asia) Limited Hong Kong 100.00 Broker dealer
Smith Barney (Pacific) Limited Hong Kong 100.00 Commodities dealer
Smith Barney Securities Pte Ltd Singapore 100.00 Securities brokerage
Smith Barney Puerto Rico Inc. Puerto Rico 100.00 Broker dealer
The Robinson-Humphrey Company, Inc. Delaware 100.00 Broker dealer
</TABLE>
11
<PAGE> 350
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Smith Barney Mortgage Brokers Inc. Delaware 100.00 Mortgage brokerage
Smith Barney Mortgage Capital Corp. Delaware 100.00 Mortgage-backed securities
Smith Barney Mortgage Capital Group, Inc. Delaware 100.00 Mortgage trading
Smith Barney Mutual Funds Management Inc. Delaware 100.00 Investment management
Smith Barney Asset Management Co., Ltd. Japan 100.00 Investment advisor
Smith Barney Strategy Advisers Inc. Delaware 100.00 Investment management
E.C. Tactical Management S.A. Luxembourg 100.00 Investment management
Smith Barney Offshore, Inc. Delaware 100.00 Decathlon Fund advisor
Decathlon Offshore Limited Cayman Islands 100.00 Commodity fund
Smith Barney S.A. France 100.00 Commodities trading
Smith Barney Asset Management France S.A. France 100.00 Com. based asset
management
Smith Barney Securities Investment Consulting Co. Ltd. Taiwan 99.00 Investrment analysis
Smith Barney Shearson (Chile) Corredora de Seguro Limitada Chile 100.00 Insurance brokerage
Structured Mortgage Securities Corporation Delaware 100.00 Mortgage-backed securities
The Travelers Investment Management Company Connecticut 100.00 Investment advisor
Smith Barney Private Trust Company New York 100.00 Trust company.
Smith Barney Private Trust Company of Florida Florida 100.00 Trust company
Tinmet Corporation Delaware 100.00 Inactive
Travelers Group Diversified Distribution Services, Inc. Delaware 100.00 Alternative marketing
Travelers Group Exchange, Inc. Delaware 100.00 Insurance agency
Travelers Services Inc. Delaware 100.00 Holding company
Tribeca Management Inc. Delaware 100.00
TRV Employees Investments, Inc. Delaware 100.00 Investments
TRV/RCM Corp. Delaware 100.00 Inactive
TRV/RCM LP Corp. Delaware 100.00 Inactive
</TABLE>
12
<PAGE> 351
Item 31. Number of Contract Owners
As of March 1, 1997, 13,626 contract owners held qualified and non-qualified
contracts offered by the Registrant.
Item 32. Indemnification
Pursuant to the provisions of Article VI of the Rules and Regulations of the
Registrant, indemnification is provided to members of the Board of Managers,
officers and employees of the fund in accordance with the standards established
by Section 33-320a of the Connecticut General Statutes ("C.G.S.") to
indemnification under the Connecticut Stock Corporation Act.
Section 33-320a of the Connecticut General Statutes regarding indemnification
of directors and officers of Connecticut corporations provides in general that
Connecticut corporations shall indemnify their officers, directors and certain
other defined individuals against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses actually incurred in connection with
proceedings against the corporation. The corporation's obligation to provide
such indemnification generally does not apply unless (1) the individual is
successful on the merits in the defense of any such proceeding; or (2) a
determination is made (by persons specified in the statute) that the individual
acted in good faith and in the best interests of the corporation; or (3) the
court, upon application by the individual, determines in view of all of the
circumstances that such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine. With
respect to proceedings brought by or in the right of the corporation, the
statute provides that the corporation shall indemnify its officers, directors
and certain other defined individuals, against reasonable expenses actually
incurred by them in connection with such proceedings, subject to certain
limitations.
C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less than
that authorized by the statute, e.g., pursuant to its certificate of
incorporation, by-laws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Travelers Group Inc. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Registrant. This insurance provides for coverage against loss from claims made
against directors and officers in their capacity as such, including, subject to
certain exceptions, liabilities under the Federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liability (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 352
Item 33. Business and Other Connections of Investment Adviser
Officers and Directors of Travelers Asset Management International Corporation
(TAMIC), the Registrant's Investment Adviser, are set forth in the following
table:
<TABLE>
<CAPTION>
Name Position with TAMIC Other Business
- ---- ------------------- --------------
<S> <C> <C>
Marc P. Weill Director and Chairman Senior Vice President **
David A. Tyson Director, President and Senior Vice President *
Chief Investment Officer
F. Denney Voss Director and Senior Senior Vice President*
Vice President
Joseph M. Mullally Senior Vice President Vice President*
Joseph E. Rueli, Jr. Director, Vice President Vice President
and Chief Financial Officer
John R. Britt Director and Secretary Assistant Secretary *
David Amaral Vice President Assistant Director*
John R. Calcagni Vice President Second Vice President*
Gene Collins Vice President Vice President*
Kathryn D. Karlic Vice President Second Vice President*
David R. Miller Vice President Vice President*
Emil J. Molinaro Vice President Vice President*
Jordan M. Stitzer Vice President Vice President*
William H. White Treasurer Vice President and Treasurer *
Charles B. Chamberlain Assistant Treasurer Assistant Treasurer *
George C. Quaggin, Jr. Assistant Treasurer Assistant Treasurer *
Marla A. Berman Assistant Secretary Assistant Secretary**
Patricia A. Uzzel Compliance Officer Assistant Director*
Frank J. Fazzina Controller Director *
</TABLE>
* Positions are held with The Travelers Insurance Group Inc., One Tower
Square, Hartford, Connecticut 06183.
** Positions are held with Travelers Group Inc. , 388 Greenwich Street, New
York, N.Y. 10013.
<PAGE> 353
Item 34. Principal Underwriter
(a) Tower Square Securities, Inc.
One Tower Square
Hartford, Connecticut 06183
Tower Square Securities, Inc. also serves as principal underwriter for the
following :
The Travelers Growth and Income Stock Account for Variable Annuities
The Travelers Money Market Account for Variable Annuities
The Travelers Timed Growth and Income Stock Account for Variable
Annuities
The Travelers Timed Short-Term Bond Account for Variable Annuities
The Travelers Timed Aggressive Stock Account for Variable Annuities
The Travelers Timed Bond Account for Variable Annuities
The Travelers Fund U for Variable Annuities
The Travelers Fund VA for Variable Annuities
The Travelers Fund BD for Variable Annuities
The Travelers Fund BD II for Variable Annuities
The Travelers Fund ABD for Variable Annuities
The Travelers Fund ABD II for Variable Annuities
The Travelers Fund UL for Variable Life Insurance
The Travelers Fund UL II for Variable Life Insurance
The Travelers Variable Life Insurance Separate Account One
The Travelers Variable Life Insurance Separate Account Three
The Travelers Variable Life Insurance Separate Account Two
The Travelers Variable Life Insurance Separate Account Four
The Travelers Separate Account QP for Variable Annuities
The Travelers Separate Account QP II for Variable Annuities
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices Positions and Offices
Business Address * With Underwriter With Registrant
------------------ ---------------------------- ---------------------
<S> <C> <C>
Russell H. Johnson Chairman of the Board -----
Chief Executive Officer, President -----
and Chief Operating Officer
William F. Scully, III Member, Board of Directors, -----
Senior Vice President, Treasurer
and Chief Financial Officer
Cynthia P. Macdonald Vice President, Chief Compliance -----
Officer, and Assistant Secretary
Joanne K. Russo Member, Board of Directors -----
Senior Vice President
Kathleen A. McGah General Counsel and Secretary Assistant Secretary
Jay S. Benet Member, Board of Directors -----
George C. Kokulis Member, Board of Directors -----
Warren H. May Member, Board of Directors -----
Donald R. Munson, Jr. Senior Vice President -----
Stuart L. Baritz Vice President -----
Michael P. Kiley Vice President -----
Tracey Kiff-Judson Second Vice President -----
</TABLE>
<PAGE> 354
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices Positions and Offices
Business Address * With Underwriter With Registrant
------------------ ---------------------------- ---------------------
<S> <C> <C>
Robin A. Jones Second Vice President -----
Whitney F. Burr Second Vice President -----
Marlene M. Ibsen Second Vice President -----
John J. Williams, Jr. Director and Assistant Compliance -----
Officer
Susan M. Cursio Director and Operations Manager -----
Dennis D. D'Angelo Director -----
Thomas P. Tooley Director -----
Nancy S. Waldrop Assistant Treasurer -----
</TABLE>
* Principal business address: One Tower Square, Hartford,
Connecticut 06183
(c) Not applicable.
Item 35. Location of Accounts and Records
(1) The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
(2) Chase Manhattan Bank, N. A.
Chase MetroTech Center
Brooklyn, New York 11245
Item 36. Management Services
Inapplicable.
<PAGE> 355
Item 37. Undertakings
The undersigned Registrant hereby undertakes:
(a) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than sixteen
months old for so long as payments under the variable annuity
contracts may be accepted;
(b) To include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a post
card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of
Additional Information; and
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-3 promptly
upon written or oral request.
The Company hereby represents:
(a) That the aggregate charges under the Contracts of the Registrant
described herein are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the
Company.
<PAGE> 356
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(a) for effectiveness of this post-effective amendment to this
registration statement and has caused this amendment to this registration
statement to be signed on its behalf, in the City of Hartford, State of
Connecticut, on the 29th day of April, 1997.
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
(Registrant)
By: *HEATH B. McLENDON
-----------------------------
Heath B. McLendon
Chairman of the Board of
Managers
As required by the Securities Act of 1933, this post-effective amendment to
this registration statement has been signed by the following persons in the
capacities indicated on April 29, 1997.
<TABLE>
<S> <C>
*HEATH B. McLENDON Chairman, Board of Managers
- ------------------------------------
(Heath B. McLendon)
*KNIGHT EDWARDS Member, Board of Managers
- ------------------------------------
(Knight Edwards)
*ROBERT E. McGILL, III Member, Board of Managers
- ------------------------------------
(Robert E. McGill, III)
*LEWIS MANDELL Member, Board of Managers
- ------------------------------------
(Lewis Mandell)
*FRANCES M. HAWK Member, Board of Managers
- ------------------------------------
(Frances M. Hawk)
*By: Ernest J. Wright, Attorney-in-Fact
Secretary, Board of Managers
</TABLE>
<PAGE> 357
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(a) for effectiveness of this post-effective amendment to this
registration statement and has caused this amendment to this registration
statement to be signed on its behalf, in the City of Hartford, State of
Connecticut, on the 29th day of April, 1997.
THE TRAVELERS INSURANCE COMPANY
(Insurance Company)
By: *IAN R. STUART
-----------------------------
Ian R. Stuart
Senior Vice President, Chief
Financial Officer, Chief
Accounting Officer and
Controller
As required by the Securities Act of 1933, this post-effective amendment to
this Registration Statement has been signed by the following persons in the
capacities indicated on April 29, 1997.
<TABLE>
<S> <C>
*MICHAEL A. CARPENTER Director, Chairman of the Board, President
- ------------------------------------------- and Chief Executive Officer
(Michael A. Carpenter)
*JAY S. BENET Director
- -------------------------------------------
(Jay S. Benet)
*GEORGE C. KOKULIS Director
- -------------------------------------------
(George C. Kokulis
*ROBERT I. LIPP Director
- -------------------------------------------
(Robert I. Lipp)
*IAN R. STUART Director, Senior Vice President, Chief
- ------------------------------------------- Financial Officer, Chief Accounting Officer
(Ian R. Stuart) and Controller
*KATHERINE M. SULLIVAN Director, Senior Vice President and
- ------------------------------------------- General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- -------------------------------------------
(Marc P. Weill)
*By: Ernest J. Wright, Attorney-in-Fact
</TABLE>
<PAGE> 358
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
1. Resolution of The Travelers Insurance Company's
Board of Directors authorizing the establishment
of the Registrant. (Incorporated herein by reference
to Exhibit 1 to Post-Effective Amendment No. 42 to the
Registration Statement on Form N-3, filed on April 22,
1996.
2. Rules and Regulations of the Registrant. (Incorporated
herein by reference to Exhibit 2 to Post-Effective
Amendment No. 42 to the Registration Statement on Form
N-3, filed on April 22, 1996.)
3. Custody Agreement between the Registrant and
Chase Manhattan Bank, N.A., Brooklyn, New York .
(Incorporated herein by reference to Exhibit 3 to
Post-Effective Amendment No. 41 to the Registration
Statement on Form N-3, filed on April 26, 1995.)
4. Investment Advisory Agreement between the Registrant
and Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit 4 to Post-
Effective Amendment No. 42 to the Registration Statement
on Form N-3, filed on April 22, 1996.)
5(a). Distribution and Management Agreement between
the Registrant, The Travelers Insurance Company.
and Travelers Equities Sales, Inc. (now known as
Tower Square Securities, Inc.) (Incorporated herein
by reference to Exhibit 5 to Post-Effective Amendment
No. 41 to the Registration Statement on Form N-3,
filed on April 26, 1995.)
5(b). Selling Agreement. (Incorporated herein by reference to
Exhibit 3(b) to Post-Effective Amendment No. 29 to the
Registration Statement on Form N-4 , File No. 2-79529,
filed on April 19, 1996.)
6. Example of Variable Annuity Contract. (Incorporated
herein by reference to Exhibit 4 to Post-Effective
Amendment No. 29 to the Registration Statement on
Form N-4, File No. 2-79529 filed on April 19, 1996.)
7. Example of Application. (Incorporated herein by
reference to Exhibit 7 to Post-Effective Amendment
No. 29 to the Registration Statement on Form N-4,
File No. 2-79529, filed on April 19, 1996.)
</TABLE>
<PAGE> 359
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
8(a). Charter of The Travelers Insurance Company, as
amended on October 19, 1994. (Incorporated herein
by reference to Exhibit 3(a)(i) to the Registration
Statement filed on Form S-2, File No. 33-58677,
filed via Edgar on April 18, 1995.)
8(b). By-Laws of The Travelers Insurance Company, as
amended on October 20, 1994. (Incorporated herein
by reference to Exhibit 3(b)(ii) to the Registration
Statement filed on Form S-2., File No. 33-58677,
filed via Edgar on April 18, 1995.)
12. Opinion of Counsel as to the legality of the securities
being registered. (Incorporated herein by reference to
the Registrant's most recent Rule 24f-2 Notice filed
on February 28, 1997.)
13(a). Consent of Coopers & Lybrand L.L.P., Independent Electronically
Accountants.
13(b). Consent of KPMG Peat Marwick LLP, Independent Electronically
Certified Public Accountants.
16. Schedule for Computation of Total Return Calculations - Electronically
Standardized and Non-Standardized.
18(a). Powers of Attorney authorizing Ernest J. Wright or
Kathleen A. McGah as signatory for Heath B. McLendon,
Knight Edwards, Robert E. McGill III, Lewis Mandell
and Frances M. Hawk. (Incorporated herein by reference
to Exhibit 18(a) to Post-Effective Amendment No. 42 to the
Registration Statement on Form N-3, filed on April 22,
1996.)
18(b). Powers of Attorney authorizing Ernest J. Wright or
Kathleen A. McGah as signatory for Michael A. Carpenter,
Jay S. Benet, George C. Kokulis, Ian R. Stuart and
Katherine M. Sullivan. (Incorporated herein by reference to
Exhibit 18(b) to Post-Effective Amendment No. 43 to the
Registration Statement on Form N-3 filed on February 20, 1997.)
18(c). Powers of Attorney authorizing Jay S. Fishman or
Ernest J. Wright as signatory for Robert I. Lipp,
Charles O. Prince, Marc P. Weill, Irwin R. Ettinger
and Donald T. DeCarlo. (Incorporated herein by
reference to Exhibit 18(c) to Post-Effective Amendment
No. 41 to the Registration Statement, filed April 26, 1995.)
27. Financial Data Schedules. Electronically
</TABLE>
<PAGE> 1
Exhibit 13(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 44 to the Registration Statement of The Travelers Quality Bond Account for
Variable Annuities (the "Account") on Form N-3 (File No. 2-53757) of our
reports dated February 12, 1997, on our audits of the financial statements of
the Account, The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable Annuities, The
Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers
Timed Aggressive Stock Account for Variable Annuities, The Travelers Timed Bond
Account for Variable Annuities and The Travelers Fund U for Variable Annuities,
which reports are included in each applicable Annual Report for the year ended
December 31, 1996 which are incorporated by reference in this Post-Effective
Amendment to the Registration Statement. We also consent to the reference to
our Firm as experts in accounting and auditing under the caption "Independent
Accountants" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 23, 1997
<PAGE> 1
Exhibit 13(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Travelers Insurance Company:
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".
KPMG Peat Marwick LLP
Hartford, Connecticut
April 21, 1997
<PAGE> 1
EXHIBIT 16
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS
The standardized and nonstandardized average annual total returns are computed
according to the formula described below. A hypothetical initial investment of
$1,000 is applied to an account, and then related to ending redeemable values
as of the most recent fiscal year end for the calendar year-to-date
(nonstandardized only), and over a 1-year, 3-year (nonstandardized only),
5-year, and 10-year period, or since inception if an account has not been in
existence for one of the prescribed periods.
T = (ERV/P)(1/n) - 1 where:
T = average annual total return
P = a hypothetical initial payment of $1,000
n = the applicable year (1, 3, 5, 10) or portion thereof
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of each of the periods
Both the standardized and nonstandardized performance returns reflect the
deduction for the management fee for an account, and the mortality and expense
risk charge.
Standardized Method
The standardized returns take into consideration all fees and/or charges
applicable to an account or contract.
Under the standardized method, the $15 semiannual contract administrative
charge is reflected in the calculation and is assumed to be deducted at the end
of June and December of each year. It is expressed as a percentage of assets
based on the actual fees collected divided by the average net assets for
contracts sold under the prospectus for each year for which performance is
shown.
Since the 5% contingent deferred sales charge applies only for 5 years, the
ending redeemable value for the 10-year period does not reflect this charge.
Nonstandardized Method
Nonstandardized returns do not reflect the deduction of any applicable
contingent deferred sales charge or the $15 semiannual contract administrative
charge, which, if reflected, would decrease the level of performance shown.
The contingent deferred sales charge is not reflected because the contract is
designed for long-term investment.
For a Schedule of the Computation of the Total Return Quotations, both
Standardized and Nonstandardized, see attached.
<PAGE> 2
PAGE 2
<TABLE>
<CAPTION>
UNIVERSAL ANNUITY MSA & FUND U STANDARDIZED PERFORMANCE
QUALITY BOND FUND
PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 SEMFEE
---- ----- ------- ----- ------- ----- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 2.629004 1,000.00 380.372 .002800
03/31/87 2.671202 .003960
06/30/87 2.629709 -1.98 -.753 .003960
09/30/87 2.591627 .003960
12/31/87 2.697586 -2.00 -.742 .003960
03/31/88 2.795872 .003150
06/30/88 2.806798 -1.64 -.585 .003150
09/30/88 2.831701 .003150
12/30/88 2.852210 -1.69 -.591 .003150
03/31/89 2.856949 .002680
06/30/89 3.019819 -1.49 -.492 .002680
09/29/89 3.045791 .002680
12/29/89 3.128870 -1.55 -.497 .002680
03/30/90 3.126373 .002830
06/29/90 3.211662 -1.69 -.526 .002830
09/28/90 3.250241 .002830
12/31/90 3.356924 -1.75 -.521 .002830
03/28/91 3.442096 .002970
06/28/91 3.510775 -1.92 -.546 .002970
09/30/91 3.657534 .002970
12/31/91 3.798712 1,000.00 263.247 -2.04 -.536 .002970
03/31/92 3.784626 .003500
06/30/92 3.906250 -1.77 -.454 -2.53 -.646 .003500
09/30/92 4.068601 .003500
12/31/92 4.051961 -1.83 -.452 -2.60 -.643 .003500
03/31/93 4.209075 .003410
06/30/93 4.301122 -1.87 -.434 -2.66 -.618 .003410
09/30/93 4.387422 .003410
12/31/93 4.380675 -1.94 -.442 -2.76 -.630 .003410
03/31/94 4.286274 .002910
06/30/94 4.267932 -1.65 -.385 -2.34 -.548 .002910
09/30/94 4.288726 .002910
12/30/94 4.274446 -1.62 -.380 -2.31 -.540 .002910
03/31/95 4.463970 .001850
06/30/95 4.670550 -1.08 -.231 -1.53 -.329 .001850
09/29/95 4.729498 .001850
12/29/95 4.893919 1,000.00 204.335 -1.15 -.235 -1.64 -.335 .001850
03/29/96 4.856069 .001670
06/28/96 4.872110 -.83 -.171 -1.06 -.218 -1.51 -.310 .001670
09/30/96 4.944067 .001670
12/31/96 5.059574 -.85 -.167 -1.08 -.213 -1.53 -.303 .001670
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR TEN YEAR
<S> <C> <C> <C>
ENDING UNITS 203.997 259.802 369.681
ACCOUNT VALUE 1,032.14 1,314.49 1,870.43
SURRENDER VALUE 982.14 1,264.49
TOTAL RETURN -1.79 % 26.45 % 87.04 %
ANNUALIZED RETURN 4.81 % 6.46 %
</TABLE>
<PAGE> 3
EXHIBIT 13
SPOTLIGHT ON UNIVERSAL ANNUITY - PERFORMANCE UPDATE AS OF 12/31/96
FNAME
-----
1.) UTILITIES PORTFOLIO (SMITH BARNEY)
UNIT VALUE RETURN
---------- ------
INCEPTION (02/04/94 ): 1.000000 11.23
12/86:
12/91:
12/93:
12/95: 1.283982 6.12
CURRENT 12/96: 1.362572
2.) FIDELITY EQUITY INCOME-PORTFOLIO*
UNIT VALUE RETURN
---------- ------
INCEPTION (10/09/86 ): .524217 12.01
12/86: .523774 12.32
12/91: .779960 16.51
12/93: 1.051644 16.76
12/95: 1.483574 12.85
CURRENT 12/96: 1.674194
3.) TRAVELERS GROWTH & INCOME ACCOUNT
UNIT VALUE RETURN
---------- ------
INCEPTION (05/16/83 ): 2.756517 10.95
12/86: 3.738026 11.77
12/91: 6.447267 12.02
12/93: 7.006536 17.52
12/95: 9.368819 21.37
CURRENT 12/96: 11.371001
4.) DREYFUS STOCK INDEX FUND*
UNIT VALUE RETURN
---------- ------
INCEPTION (09/30/89 ): .807971 12.26
12/86:
12/91: 1.005682 13.21
12/93: 1.148463 17.65
12/95: 1.545680 21.00
CURRENT 12/96: 1.870303
5.) TRAVLERS SOC AWRES STOCK PORTFOLIO#
<PAGE> 4
FNAME
-----
UNIT VALUE RETURN
---------- ------
INCEPTION (05/01/92 ): 1.000000 12.46
12/86:
12/91:
12/93: 1.152985 14.50
12/95: 1.460895 18.47
CURRENT 12/96: 1.730753
6.) AM ODYSSEY CORE EQUITY FUND@
UNIT VALUE RETURN
---------- ------
INCEPTION (05/01/93 ): 1.000000 14.56
12/86:
12/91:
12/93: 1.012373 17.61
12/95: 1.354370 21.61
CURRENT 12/96: 1.647046
7.) TEMPLETON GLOBAL STOCK FUND*
UNIT VALUE RETURN
---------- ------
INCEPTION (08/31/88 ): .772928 12.08
12/86:
12/91: .990028 15.11
12/93: 1.385364 13.04
12/95: 1.655043 20.89
CURRENT 12/96: 2.000862
8.) AM ODYSSEY INTNL EQUITY FUND@
UNIT VALUE RETURN
---------- ------
INCEPTION (05/01/93 ): 1.000000 12.36
12/86:
12/91:
12/93: 1.180346 9.12
12/95: 1.274376 20.36
CURRENT 12/96: 1.533787
9.) FIDELITY GROWTH PORTFOLIO*
UNIT VALUE RETURN
---------- ------
INCEPTION (10/09/86 ): .498625 13.39
12/86: .498701 13.73
12/91: .948195 13.74
12/93: 1.207307 14.35
12/95: 1.593743 13.27
CURRENT 12/96: 1.805177
10.) CAPITAL APPRECIATION FUND (JANUS)+
<PAGE> 5
FNAME
-----
UNIT VALUE RETURN
---------- ------
INCEPTION (05/16/83 ): 1.000000 8.48
12/86: 1.026600 11.44
12/91: 1.433412 16.18
12/93: 1.892135 17.04
12/95: 2.396267 26.60
CURRENT 12/96: 3.033745
11.) AM ODYSSEY EMERGING OPPTS FUND@
UNIT VALUE RETURN
---------- ------
INCEPTION (05/01/93 ): 1.000000 10.85
12/86:
12/91:
12/93: 1.078790 10.60
12/95: 1.526112 -4.36
CURRENT 12/96: 1.459622
12.) AM ODYSSEY SHORT TERM BOND FUND@
UNIT VALUE RETURN
---------- ------
INCEPTION (05/01/93 ): 1.000000 3.36
12/86:
12/91:
12/93: 1.020116 3.44
12/95: 1.101532 2.49
CURRENT 12/96: 1.128984
13.) TRAVELERS QUALITY BOND ACCOUNT
UNIT VALUE RETURN
---------- ------
INCEPTION (05/16/83 ): 1.783024 7.95
12/86: 2.629004 6.77
12/91: 3.798712 5.90
12/93: 4.380675 4.92
12/95: 4.893919 3.38
CURRENT 12/96: 5.059574
14.) AM ODYSSEY INTMEDTE TERM BOND FUND@
UNIT VALUE RETURN
---------- ------
INCEPTION (05/01/93 ): 1.000000 4.06
12/86:
12/91:
12/93: 1.034768 3.81
12/95: 1.127795 2.63
CURRENT 12/96: 1.157496
15.) TRAVELERS U.S. GOVERN SECURITIES#
<PAGE> 6
FNAME
-----
UNIT VALUE RETURN
---------- ------
INCEPTION (01/24/92 ): 1.000000 5.83
12/86:
12/91:
12/93: 1.153070 4.70
12/95: 1.320899 .18
CURRENT 12/96: 1.323272
16.) TEMPLETON GLOBAL BOND FUND*
UNIT VALUE RETURN
---------- ------
INCEPTION (08/31/88 ): .788642 6.66
12/86:
12/91: 1.022356 5.73
12/93: 1.172093 4.84
12/95: 1.249706 8.08
CURRENT 12/96: 1.350649
17.) AM ODYSSEY LONG TERM BOND FUND@
UNIT VALUE RETURN
---------- ------
INCEPTION (05/01/93 ): 1.000000 5.60
12/86:
12/91:
12/93: 1.084753 4.04
12/95: 1.220991 .04
CURRENT 12/96: 1.221464
18.) TRAVELERS HIGH YIELD BOND TRUST
UNIT VALUE RETURN
---------- ------
INCEPTION (05/16/83 ): 1.000000 7.93
12/86: 1.412432 7.21
12/91: 1.766769 9.91
12/93: 2.222328 8.43
12/95: 2.472157 14.60
CURRENT 12/96: 2.833134
19.) FIDELITY HIGH INCOME PORTFOLIO*
UNIT VALUE RETURN
---------- ------
INCEPTION (09/19/85 ): .564419 10.63
12/86: .696774 9.74
12/91: .935999 13.53
12/93: 1.353807 9.26
12/95: 1.567961 12.61
CURRENT 12/96: 1.765656
20.) TRAVELERS MANAGED ASSET TRUST
<PAGE> 7
FNAME
-----
UNIT VALUE RETURN
---------- ------
INCEPTION (05/16/83 ): 1.000000 8.66
12/86: 1.223010 9.76
12/91: 2.033846 8.83
12/93: 2.280590 10.83
12/95: 2.763480 12.36
CURRENT 12/96: 3.104925
21.) FIDELITY ASSET MANAGER PORTFOLIO*
UNIT VALUE RETURN
---------- ------
INCEPTION (09/06/89 ): .769163 10.30
12/86:
12/91: .985224 9.87
12/93: 1.300962 6.63
12/95: 1.393727 13.17
CURRENT 12/96: 1.577312
22.) TEMPLETON GLOBAL ALLOCATION FUND*
UNIT VALUE RETURN
---------- ------
INCEPTION (08/31/88 ): .764604 10.92
12/86:
12/91: 1.003260 12.59
12/93: 1.333027 10.83
12/95: 1.546087 17.38
CURRENT 12/96: 1.814823
23.) TRAVELERS MONEY MARKET ACCOUNT
UNIT VALUE RETURN
---------- ------
INCEPTION (05/16/83 ): 1.118813 5.30
12/86: 1.439792 4.62
12/91: 1.949230 3.03
12/93: 2.028641 3.71
12/95: 2.176950 3.94
CURRENT 12/96: 2.262635
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000099440
<NAME> QUALITY BOND ACCOUNT
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 168,903,822
<INVESTMENTS-AT-VALUE> 169,102,897
<RECEIVABLES> 1,357,701
<ASSETS-OTHER> 1,519
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 170,462,117
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 253,765
<TOTAL-LIABILITIES> 253,765
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 33,353,307
<SHARES-COMMON-PRIOR> 36,391,342
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 170,208,352
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,160,431
<OTHER-INCOME> 0
<EXPENSES-NET> 2,679,645
<NET-INVESTMENT-INCOME> 10,480,786
<REALIZED-GAINS-CURRENT> 1,065,626
<APPREC-INCREASE-CURRENT> (5,888,598)
<NET-CHANGE-FROM-OPS> 5,657,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (9,393,198)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 576,329
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,679,645
<AVERAGE-NET-ASSETS> 176,731,314
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
