<PAGE> 1
UNIVERSAL ANNUITY
SEMI-ANNUAL REPORTS
JUNE 30, 1999
[UMBRELLA LOGO]
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
<TABLE>
<S> <C>
[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 Growth and Income
Stock Account for Variable Annuities, The Travelers Quality
Bond Account for Variable Annuities and The Travelers Money
Market Acount for Variable Annuities.
[TIMCO LOGO] The Travelers Investment Management Company ("TIMCO") provides
equity management and subadvisory services for The Travelers
Growth and Income Stock Account for Variable Annuities.
</TABLE>
<PAGE> 3
[TRAVELERS LIFE & ANNUITY LOGO]
THE TRAVELERS VARIABLE PRODUCT SEPARATE ACCOUNTS
INVESTMENT ADVISORY COMMENTARY AS OF JUNE 30, 1999
ECONOMIC REVIEW
The first half of 1999 was a period of economic growth at home and recovery
abroad. Following the events surrounding the Russian debt default in August of
1998--which included a dive in bond yields and a 0.75% decrease in interest
rates--yields have recovered quite well. Investor optimism, however, was
tempered by concerns about inflation, interest rates, and continued economic
growth.
EQUITY COMMENTARY
The year began on a volatile note for global financial markets as a new threat
emerged in Latin America. The devaluation of the Brazilian currency raised
concerns for U.S. companies with exposure to Latin America and took its toll on
the stock market in the middle of January. The Dow Jones Industrial Average
("DJIA") swung from intra-day levels of above 9,700 to below 9,000. Stock
prices did recover, however, to finish higher at the end of January.
Interest rate concerns dominated market psychology during February. Despite low
inflation, interest rates moved higher amid fears of the Federal Reserve Board
("Fed") tightening in response to the strong U.S. economy. In February, the
yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market
valuations became a concern as investors focused on the rise in interest rates,
the lack of a substantial earnings recovery and high price-to-earnings
multiples. Consumer prices rose 0.1% in February and 1.6% from a year ago.
During the month of March, market sentiment reversed and investors focused on
the reality of DJIA 10,000. After repeated assaults, the DJIA did breach 10,000
on March 16, retreated and then went on to close at 10,006 on March 29.
Economic activity remained brisk and it became obvious that first quarter Gross
Domestic Product ("GDP") growth would be above expectations
The Standard & Poor's 500 Stock Index ("S&P 500") gained 5.0% in the first
quarter of 1999. The S&P 400 Mid Cap Index fell by -6.4% while the Russell 2000
Index declined by -5.4%. The S&P 500 Growth Index produced a 6.9% total return,
outpacing the 2.9% total return of the S&P 500 Value Index. All sectors except
consumer staples (-11%) registered respectable gains in the first quarter of
1999. The market rally was led by the energy services (22%) and technology (9%)
sectors. The financial services (7%) and Consumer Discretionary (6%) sectors
also performed well.
Despite a rise in interest rates in the second quarter, the U.S. stock market
finished firmly in positive territory. Evidence of stronger-than-expected
economic growth prompted hopes of a meaningful earnings recovery during the
quarter and, at the same time, triggered concerns about rising interest rates.
Both implications led to a furious rally in small cap and value stocks.
Interest rates began to climb in the month of May as investors worried about
inflation concerns on the heels of recent economic strength. First quarter GDP
growth was revised down to 4.1% from 4.5%, but other indicators provided
evidence of continued strength in the economy. The stock market sagged during
May under the burden of lofty valuations and higher rates.
The Fed took center stage in the month of June as investors anxiously awaited
its next monetary policy move. Even though inflation data released in June was
lower than consensus expectations, the bond and stock markets had clearly
anticipated a 25 basis point rate hike as a result of unexpected economic
strength. The decision to raise the federal-funds rate by 25 basis points on
June 30, 1999 therefore, came as no surprise and markets rallied when the Fed
announced that it had now switched to a neutral bias in monetary policy.
-1-
<PAGE> 4
The rotation into value and small cap stocks began in the middle of April and
continued through May. This trend reversed in June, as investors became
comfortable that a proactive Fed policy would preempt inflation and keep
interest rates in check. The S&P 500 Index advanced by 7.1% in the second
quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index
rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return,
outpacing the 3.8% total return of the S&P 500 Growth Index.
All sectors within the S&P 500 except health care (-4%) registered respectable
gains in the second quarter. The economically sensitive, value-oriented
materials and processing (19%), energy services (14%) and producer durables
(14%) sectors led the market rally. The utilities (13%) and technology (10%)
sectors also performed well.
The focus in the U.S. stock market has now switched from the earnings front to
the future direction of interest rates. The early second quarter earnings
reports project a healthy growth in corporate profits from the prior year. With
the DJIA now trading well above 10,000 and at unprecedented valuation levels,
any further increase in interest rates could trigger a compression in the
price-to-earnings multiple for the stock market.
FIXED INCOME COMMENTARY
The long anticipated slowdown in U.S. economic activity again failed to happen
during the reporting period. Global stock markets continued to rise led by
better than expected profit growth and continued merger and acquisition
activity. The risks of higher U.S. economic growth were more fairly reflected
in the yield curve in the U.S. at the end of the first quarter of 1999 than
they were at the beginning.
The stronger than expected growth caused interest rates to rise in the first
quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of
the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The
Lehman Government/Corporate Index declined about 1.2% in the first quarter of
1999. U.S. Treasuries underperformed as spreads narrowed in all sectors.
During the first half of 1999, U.S. economic growth continued at a robust pace,
posting a 4.3% annualized GDP growth rate for the first quarter of 1999.
Furthermore, the labor market continued to be extremely tight, as the
unemployment rate fell to a 29-year low of 4.2% in March. Defying the
expectations of many economists, inflation--as measured by the Consumer Price
Index ("CPI")--was virtually absent. Productivity gains and sagging global
demand were credited with keeping inflation under control.
However, in the month of April, the CPI rose by 0.7%, its largest monthly
increase in nine years. This, coupled with signs that many world economies were
in the beginning stages of growth and recovery, deepened fears that
inflationary pressures were reaching a breaking point. These concerns brought
about an increase in the yield of the benchmark 30-year U.S. Treasury Bond,
which gained 71 basis points between April 8th and June 24th to close at 6.16%.
To counter these inflationary pressures, the Fed raised short-term interest
rates by 0.25% at the end of June, and subsequently adopted a neutral stance on
monetary policy. Meanwhile, during the months of May and June, the CPI remained
constant, generating considerable optimism that inflation had retreated.
Further reports of rising U.S. jobless claims added to the optimism.
The unwillingness of consumer spending to slow down keeps the Fed's monetary
policy on watch. With the world economic crisis abating, we cannot rule out the
possibility of the Fed raising rates before year-end. However, in our view, the
most likely case is that the Fed's monetary policy will remain neutral through
the third quarter of 1999. By next year we think that nominal growth should
slow below 5% and may allow room for additional short-term rates cuts. However,
if global economic growth accelerates unexpectedly and signs of inflation
emerge during the remainder of 1999, the Fed will not hesitate to raise rates
again.
DAVID A. TYSON, CFA, PRESIDENT & CHIEF INVESTMENT OFFICER, TRAVELERS ASSET
MANAGEMENT INTERNATIONAL CORPORATION
SANDIP A. BHAGAT, CFA, PRESIDENT & CHIEF INVESTMENT OFFICER, THE TRAVELERS
INVESTMENT MANAGEMENT COMPANY
-2-
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- -------------------------------------------------------------------------------------------------------
<S> <C>
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES............................................................................ 4
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES......................................... 17
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES......................................... 27
</TABLE>
-3-
<PAGE> 6
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 Travelers Asset Management International Corporation
("TAMIC") with The Travelers Investment Management Company ("TIMCO") serving as
subadvisor. Account GIS is managed 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 shares offer attractive relative value.
In order to achieve consistent relative performance, we manage Account GIS to
mirror the overall risk, sector weightings and growth/value style
characteristics of the Standard & Poor's 500 Stock Index ("S&P 500"). The S&P
500 is a value-weighted equity index comprised primarily of large-company
stocks.
For the six months ended June 30, 1999, Account GIS achieved a total return of
12.2%, before fees and expenses, in line with the S&P 500 index return of
12.4%. Net of fees and expenses, Account GIS's total return of 11.2% for the
first half of 1999 was comparable to the 11.3% average return for variable
annuity stock accounts in the Lipper Growth & Income category. On a trailing
twelve month basis as of June 30, 1999, Account GIS had a total return of
21.6%, net of fees and expenses, well ahead of the Lipper Growth & Income
average of 14.9%.
During the first quarter of 1999, stock selection was most favorable in the
Technology, Financial Services and Utilities sectors while relative performance
was disappointing in the Consumer Discretionary and Consumer Staples sectors.
Our holdings in the Technology sector added value relative to the benchmark as
several successful growth stocks rebounded sharply from their early 1999
sell-off. Higher price-to-earnings growth stocks such as America Online, Sun
Microsystems and EMC Corp, which fell in February as interest rates rose by
nearly 50 basis points, posted gains of over 20% in March and helped Account
GIS's performance.
In the Financial Services sector, our overweight positions in Merrill Lynch,
Morgan Stanley Dean Witter and Lehman Brothers performed better than the rest
of the investment banking and brokerage industry. In the Utilities sector, our
positions in long-distance and cellular telephone companies such as Airtouch
Communications, Sprint PCS, Nextel Communications and MCI Worldcom performed
better than the regional telephone companies and the electric utilities group.
Account GIS's performance was hurt in the Consumer Discretionary sector as a
result of our small overweight position in Rite Aid Corp, a discount drug
retailer, which warned of an earnings shortfall in mid-March and still
disappointed relative to lower expectations. We were also hurt by our
overweight position in Suiza Foods, a leading producer of dairy products in the
Consumer Staples sector, where the threat of rising milk prices cast doubts on
the near term earnings outlook.
The market environment changed in the second quarter as successful stocks with
high price-to-earnings ratios declined and out-of-favor, value-oriented stocks
came surging back. As a general rule, we tend to exclude those stocks which
lack earnings visibility and we, therefore, underperformed our benchmark. Stock
selection was least favorable in the Technology, Health Care and Consumer
Discretionary sectors and favorable in the Materials and Processing sector.
In the Technology sector, this philosophy led us to underweight positions in
Computer Associates and Hewlett Packard which rose in the second quarter value
stock rally. Our overweight position in high growth stocks such as America
Online lost ground as investors expressed concerns about high valuation levels.
-4-
<PAGE> 7
In the Health Care sector, McKesson HBOC, a medical services company, hurt
performance as investors punished the stock for a negative restatement of
earnings and concerns about prior accounting irregularities. Our positions in
high growth companies like Pfizer, Watson Pharmaceuticals and Guidant Corp lost
ground. In the Consumer Discretionary sector, a similar theme repeated itself
as our position in Costco lost ground and cheap stocks with previous earnings
woes such as Eastman Kodak rose sharply.
The Materials and Processing sector produced the best relative performance. A
number of our overweight positions such as Lyondell Chemicals, Alcoa and W.R.
Grace produced strong gains in anticipation of increased demand and higher
commodity prices from a strong economy.
The focus in the U.S. stock market has now switched from the earnings front to
the future direction of interest rates. The early second quarter earnings
reports project a healthy growth in corporate profits from the prior year. With
the stock market now trading well above the Dow Jones Industrial Average 10,000
and at unprecedented valuation levels, any further increase in interest rates
could trigger a compression in the price-to-earnings multiple for the market.
In our disciplined approach to stock selection, we screen our research universe
of over 1,000 large cap securities for companies that offer improving earnings
fundamentals at discounted stock valuations. A small sample of our current
holdings is presented here to illustrate our investment approach. In the
Technology sector, our recent emphasis in lower price-to-earnings growth stocks
such as Compuware and BMCS has paid off well. We are also positioned to benefit
from a continued rally in value stocks through our positions in materials
stocks such as Alcoa, Georgia Pacific and W.R. Grace.
PORTFOLIO MANAGER: SANDIP A. BHAGAT, CFA
[TAMIC LOGO]
[TIMCO LOGO]
<PAGE> 8
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $682,601,689) ............................ $ 1,003,820,011
Receivables:
Dividends ......................................................................... 922,846
Investment securities sold ........................................................ 10,977,157
Purchase payments and transfers from other Travelers accounts...................... 452,017
Variation on futures margin ....................................................... 50,000
Other assets .......................................................................... 46,374
---------------------
Total Assets ................................................................... 1,016,268,405
---------------------
LIABILITIES:
Cash overdraft ........................................................................ 95,293
Payables:
Investment securities purchased ................................................... 6,807,720
Contract surrenders and transfers to other Travelers accounts ..................... 386,864
Investment management and advisory fees ........................................... 96,200
Insurance charges ................................................................. 188,031
Accrued liabilities ................................................................... 1,308
---------------------
Total Liabilities ............................................................. 7,575,416
---------------------
NET ASSETS: $ 1,008,692,989
=====================
</TABLE>
See Notes to Financial Statements
-6-
<PAGE> 9
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................................... $ 5,742,443
Interest .................................................................... 253,043
-------------------
Total income ............................................................. $ 5,995,486
EXPENSES:
Investment management and advisory fees ..................................... 2,830,065
Insurance charges ............................................................ 5,510,634
-------------------
Total expenses ........................................................... 8,340,699
-------------------
Net investment loss ................................................... (2,345,213)
-------------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN
ON INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold .................................... 270,210,470
Cost of investment securities sold .......................................... 174,192,999
-------------------
Net realized gain ..................................................... 96,017,471
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1998 ........................................ 313,449,599
Unrealized gain at June 30, 1999 ............................................ 321,218,322
-------------------
Net change in unrealized gain for the period ......................... 7,768,723
-------------------
Net realized gain and change in unrealized gain .................... 103,786,194
-------------------
Net increase in net assets resulting from operations ......................... $ 101,440,981
===================
</TABLE>
See Notes to Financial Statements
-7-
<PAGE> 10
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment loss ........................................................ $ (2,345,213) $ (2,586,058)
Net realized gain from investment security transactions .................... 96,017,471 95,655,131
Net change in unrealized gain on investment securities ..................... 7,768,723 105,075,282
------------------ ----------------
Net increase in net assets resulting from operations....................... 101,440,981 198,144,355
------------------ ----------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 1,449,025 and 3,313,169 units, respectively) ............. 29,403,448 55,597,200
Participant transfers from other Travelers accounts
(applicable to 2,811,972 and 5,422,153 units, respectively) ............. 57,150,148 90,631,767
Administrative charges
(applicable to 14,976 and 29,915 units, respectively) ................... (307,683) (549,312)
Contract surrenders
(applicable to 1,548,374 and 3,114,020 units, respectively) ............. (31,630,107) (53,155,177)
Participant transfers to other Travelers accounts
(applicable to 2,034,394 and 4,220,307 units, respectively) ............. (41,304,235) (70,289,825)
Other payments to participants
(applicable to 56,203 and 164,728 units, respectively) .................. (1,135,585) (2,822,777)
------------------ ----------------
Net increase in net assets resulting from unit transactions .............. 12,175,986 19,411,876
------------------ ----------------
Net increase in net assets ............................................. 113,616,967 217,556,231
NET ASSETS:
Beginning of period ........................................................ 895,076,022 677,519,791
------------------ ----------------
End of period .............................................................. $ 1,008,692,989 $ 895,076,022
================== ================
</TABLE>
See Notes to Financial Statements
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<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Growth and Income Stock Account for Variable Annuities
("Account GIS") is a separate account of The Travelers Insurance Company
("The Travelers"), an indirect wholly owned subsidiary of Citigroup 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 4:00 p.m. Eastern Standard Time price
of the New York Stock Exchange on the last business day of the period;
securities traded on the over-the-counter market and listed securities with
no reported sales are valued at the mean between the last reported bid and
asked prices or on the basis of quotations received from a reputable broker
or other recognized source.
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.
SECURITY TRANSACTIONS. 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. Premiums and discounts are amortized to
interest income utilizing the constant yield method.
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 based on the
4:00 p.m. Eastern Standard Time price of the New York Stock Exchange, or in
the absence of such price, the latest bid quotation.
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.
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<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
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.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
(other than short-term securities), were $242,106,534 and $241,828,457,
respectively; the costs of purchases and proceeds from sales of direct and
indirect U.S. government securities were $3,950,082 and $2,168,205,
respectively, for the six months ended June 30, 1999. Realized gains and
losses from investment 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 $32,150 and $97,735 for the six months ended June 30,
1999 and the year ended December 31, 1998, respectively.
At June 30, 1999, Account GIS held 8 open S&P 500 Stock Index futures
contracts expiring in September, 1999. The underlying face value, or
notional value, of these contracts at June 30, 1999 amounted to $2,763,400.
In connection with these contracts, short-term investments with a par value
of $1,120,000 had been pledged as margin deposits.
Net realized gains resulting from futures contracts were $864,267 and
$2,690,651 for the six months ended June 30, 1999 and the year ended
December 31, 1998, respectively. These gains are included in the net
realized gain from investment security transactions on both the Statement of
Operations and the Statement of Changes in Net Assets. The cash settlement
for June 30, 1999 is shown on the statement of Assets and Liabilities as a
receivable for variation on futures margin.
3. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at annual rates
which start at 0.65% and decrease, as net assets increase, to 0.40% of
Account GIS's average net assets. These fees are paid to Travelers Asset
Management International Corporation ("TAMIC"), an indirect wholly owned
subsidiary of Citigroup Inc. Pursuant to a subadvisory agreement between
TAMIC and The Travelers Investment Management Company ("TIMCO"), an indirect
wholly owned subsidiary of Citigroup Inc., TAMIC pays TIMCO a subadvisory
fee calculated daily at annual rates which start at 0.45% and decrease, as
net assets increase, to 0.20% of Account GIS's average net assets.
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 $15,670 and $24,080 for the six months ended
June 30, 1999 and the year ended December 31, 1998, 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 $117,996 and $246,946 of
contingent deferred sales charges for the six months ended June 30, 1999 and
the year ended December 31, 1998, respectively.
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<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE
Approximately $22,990,000 and $21,175,000 of the net assets of Account GIS
were held on behalf of an affiliate of The Travelers as of June 30, 1999 and
December 31, 1998, respectively. Transactions with this affiliate during the
six months ended June 30, 1999 and the year ended December 31, 1998, were
comprised of participant purchase payments of approximately $168,000 and
$675,000 and contract surrenders of approximately $690,000 and $1,930,000,
respectively.
5. CHANGE IN ACCOUNTANTS
Account GIS did not renew its audit relationship with its former principal
accountant, PricewaterhouseCoopers LLP on January 29, 1999. On that same
day, KPMG LLP was engaged as principal accountant for Account GIS. KPMG LLP
serves as the principal accountant for other affiliated separate accounts
and mutual funds.
The report by PricewaterhouseCoopers LLP on the financial statements for
fiscal years ended December 31, 1998 and 1997, did not contain an adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.
The decision to change principal accountants was approved by the Board of
Managers at a meeting held on January 29, 1999, where it decided to engage
KPMG LLP as the principal accountant to audit the fund's financial
statements since it would promote consistency and possible economies of
scale among affiliated separate accounts and mutual funds.
During the past two years and subsequent interim period preceding such
termination there were no disagreements with PricewaterhouseCoopers LLP on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not
resolved to the satisfaction of the former accountant, would have caused it
to make reference to the subject matter of disagreement in connection with
its report.
6. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------------------
<S> <C> <C> <C>
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
Accumulation phase of contracts issued prior to May 16, 1983 ............... 13,171,581 $ 22.289 $ 293,611,447
Annuity phase of contracts issued prior to May 16, 1983 .................... 318,813 22.289 7,106,758
Accumulation phase of contracts issued on or after May 16, 1983 ............ 32,996,052 21.412 706,568,207
Annuity phase of contracts issued on or after May 16, 1983 ................. 65,686 21.412 1,406,577
-----------------
Net Contract Owners' Equity .............................................................................. $ 1,008,692,989
=================
</TABLE>
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<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)- CONTINUED
7. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each period.)
Contracts issued prior to May 16, 1983
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
---------- --------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income ................................... $ .132 $ .243 $ .233 $ .216 $ .208 $ .192
Operating expenses ........................................ .167 .272 .201 .154 .123 .100
---------- ---------- --------- --------- -------- --------
Net investment income (loss) .............................. (.035) (.029) .032 .062 .085 .092
Unit value at beginning of period ......................... 20.017 15.510 11.763 9.668 7.120 7.194
Net realized and change in unrealized gains (losses) ...... 2.307 4.536 3.715 2.033 2.463 (.166)
---------- ---------- --------- --------- -------- --------
Unit value at end of period ............................... $ 22.289 $ 20.017 $ 15.510 $ 11.763 $ 9.668 $ 7.120
========== ========== ========= ========= ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value ..................... $ 2.27 $ 4.51 $ 3.75 $ 2.10 $ 2.55 $ (.07)
Ratio of operating expenses to average net assets ......... 1.60% * 1.56% 1.45% 1.45% 1.45% 1.41%
Ratio of net investment income (loss) to average net assets (0.34)% * (0.16)% 0.24% 0.60% 1.02% 1.30%
Number of units outstanding at end of period (thousands) .. 13,490 13,894 15,194 16,554 17,896 19,557
Portfolio turnover rate ................................... 26% 50% 64% 85% 96% 103%
</TABLE>
Contracts issued on or after May 16, 1983
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
--------- -----------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income ................................. $ .127 $ .234 $ 228 $ .212 $ .205 $ .189
Operating expenses ...................................... .186 .303 228 .175 .140 .115
--------- --------- --------- --------- -------- --------
Net investment income (loss) ............................ (.059) (.069) .000 .037 .065 .074
Unit value at beginning of period ....................... 19.253 14.955 11.371 9.369 6.917 7.007
Net realized and change in unrealized gains (losses) .... 2.218 4.367 3.584 1.965 2.387 (.164)
--------- --------- --------- --------- -------- --------
Unit value at end of period ............................. $ 21.412 $ 19.253 $ 14.955 $ 11.371 $9.369 $6.917
========= ========= ========= ========= ======== ========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value .................... $ 2.16 $ 4.30 $ 3.58 $ 2.00 $ 2.45 $ (.09)
Ratio of operating expenses to average net assets ........ 1.85% * 1.81% 1.70% 1.70% 1.70% 1.65%
Ratio of net investment income (loss) to average
net assets............................................. (0.59)% * (0.41)% 0.00% 0.36% 0.79% 1.05%
Number of units outstanding at end of period (thousands).. 33,062 32,051 29,545 27,578 26,688 26,692
Portfolio turnover rate .................................. 26% 50% 64% 85% 96% 103%
</TABLE>
* Annualized
-12-
<PAGE> 15
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
----------- --------------
<S> <C> <C>
COMMON STOCKS (99.1%)
AEROSPACE (0.8%)
Boeing Co. 133,530 $ 5,900,357
General Dynamics Corp. 36,300 2,486,550
--------------
8,386,907
--------------
AIRLINES (0.3%)
AMR Corp. (A) 13,180 899,535
Delta Airlines, Inc. 39,600 2,281,950
--------------
3,181,485
--------------
AUTOMOTIVE (1.7%)
Ford Motor Co. 113,800 6,422,588
General Motors Corp. 87,200 5,755,200
Lear Corporation (A) 33,400 1,661,650
Navistar International Corp. (A) 56,100 2,805,000
--------------
16,644,438
--------------
BANKING (8.0%)
AmSouth Bancorporation 79,200 1,836,450
Bank of America Corp. 148,524 10,888,666
Bank of New York 111,000 4,072,312
Bank One Corp. 47,764 2,844,943
BankBoston Corp. 53,800 2,750,525
Capital One Financial Corp. 54,000 3,007,125
Chase Manhattan Corp. 103,804 8,992,021
Comerica, Inc. 29,950 1,780,153
Fifth Third Bancorp 29,400 1,957,858
Firstar Corp. 125,400 3,511,200
First Union Corp. 91,300 4,291,100
Fleet Financial Group 68,700 3,048,563
J.P. Morgan & Company 16,900 2,374,450
Marshall & Ilsley Corp. 28,300 1,820,930
MBNA Corp. 130,300 3,990,437
National City Corp. 43,900 2,875,450
SouthTrust Corp. 68,700 2,634,219
State Street Corp. 30,000 2,561,250
Summit Bancorp 50,800 2,124,075
SunTrust Banks, Inc. 43,100 2,992,756
Washington Mutual, Inc. 42,400 1,499,900
Wells Fargo & Co. 166,330 7,110,607
--------------
78,964,990
--------------
BEVERAGE (2.1%)
Anheuser-Busch Cos. 71,900 5,100,406
Coca-Cola Co. 175,200 10,950,000
PepsiCo, Inc. 138,300 5,350,481
--------------
21,400,887
--------------
BROKERAGE (2.4%)
Charles Schwab Corp. 42,800 4,702,650
Lehman Brothers Holding, Inc. 62,100 3,865,725
Merrill Lynch & Co. 85,900 6,866,631
Morgan Stanley Dean Witter & Co. 87,725 8,991,813
--------------
24,426,819
--------------
BUILDING MATERIALS (0.2%)
Masco Corp. 84,500 2,439,938
--------------
CAPITAL GOODS (0.3%)
Cordant Technologies 37,300 1,685,494
Deere & Co. 39,900 1,581,037
--------------
3,266,531
--------------
CHEMICALS (1.4%)
Dow Chemical Co. 25,100 3,184,562
E.I. Dupont de Nemours & Co. 70,500 4,816,031
Lyondell Petrochemical Co. 163,800 3,378,375
Monsanto Co. 60,700 2,393,856
--------------
13,772,824
--------------
CONGLOMERATES (5.4%)
Crane Co. 66,991 2,106,029
Emerson Electric Co. 28,700 1,804,513
General Electric Co. 299,500 33,843,500
Minnesota Mining &
Manufacturing Co. 25,800 2,242,987
TRW, Inc. 34,900 1,915,138
Tyco International Ltd. 73,500 6,964,125
United Technologies Corp. 73,400 5,261,862
--------------
54,138,154
--------------
CONSTRUCTION MACHINERY (0.5%)
Caterpillar, Inc. 26,700 1,602,000
Ingersoll-Rand Co. 46,900 3,030,913
--------------
4,632,913
--------------
CONSUMER (2.6%)
Clorox Co. 26,300 2,809,169
Colgate-Palmolive Co. 21,000 2,073,750
Gillette Co. 67,184 2,754,544
Kimberly Clark Corp. 70,060 3,993,420
Maytag Corp. 34,800 2,425,125
Procter & Gamble Co. 100,400 8,960,700
Unilever N.V. 43,821 3,056,515
--------------
26,073,223
--------------
CONSUMER SERVICES (0.2%)
Rohm & Haas 50,000 2,143,750
--------------
DEFENSE (0.2%)
Raytheon Co. 26,400 1,857,900
--------------
ENTERTAINMENT (1.1%)
Carnival Corp. 55,400 2,686,900
Seagram Co. Ltd. 62,100 3,128,287
Viacom, Inc. (A) 48,426 2,130,744
Walt Disney Co. 104,365 3,215,747
--------------
11,161,678
--------------
FINANCE (1.9%)
American Express Co. 60,000 7,807,500
Countrywide Credit Industries, Inc. 48,200 2,060,550
Household International 77,100 3,652,613
Providian Financial Corp. 41,600 3,889,600
Pulte Corp. 52,400 1,208,475
--------------
18,618,738
--------------
</TABLE>
-13-
<PAGE> 16
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
----------- --------------
<S> <C> <C>
FOOD (1.7%)
Campbell Soup Co. 33,000 $ 1,530,375
General Mills, Inc. 38,500 3,094,438
H. J. Heinz Co. 53,000 2,656,625
Kellogg Co. 26,900 887,700
Sara Lee Corp. 77,200 1,751,475
Suiza Foods Company (A) 64,100 2,684,187
Sysco Corp. 89,100 2,656,294
Tricon Global Restaurants (A) 37,000 2,002,625
--------------
17,263,719
--------------
HEALTHCARE (1.2%)
Abbott Laboratories 107,500 4,891,250
Guidant Corp. (A) 61,300 3,153,119
Healthsouth Rehabilitation Corp. (A) 114,700 1,713,331
McKesson Corp. 22,622 726,732
Wellpoint Health Networks Inc. (A) 17,300 1,468,337
--------------
11,952,769
--------------
HOME CONSTRUCTION (0.1%)
Kaufman & Broad Home Corp. 45,700 1,136,788
--------------
INDEPENDENT ENERGY (0.5%)
Apache Corp. 71,500 2,788,500
Entergy Corp. 82,700 2,584,375
--------------
5,372,875
--------------
INDUSTRIAL (0.8%)
CBS Corp. (A) 87,900 3,818,156
Sealed Air Corp. 36,500 2,367,938
Waste Management, Inc. 39,900 2,144,625
--------------
8,330,719
--------------
INSURANCE (2.7%)
Aetna, Inc. 31,900 2,853,056
Allstate Corp. 106,750 3,829,656
Ambac Financial Group, Inc. 23,600 1,348,150
American International Group, Inc. 119,994 14,046,798
Everest Reinsurance Holdings 37,000 1,207,125
Hartford Financial Services Group 38,700 2,256,694
Mercury General Corp. 21,000 714,000
20th Century Industries 42,100 794,637
--------------
27,050,116
--------------
INTERGRATED ENERGY (4.6%)
Atlantic Richfield Co. 42,200 3,526,337
Chevron Corp. 41,900 3,988,356
Exxon Corp. 213,700 16,481,613
Mobil Corp. 62,800 6,217,200
Royal Dutch Petroleum Co. 150,600 9,073,650
Texaco, Inc. 58,800 3,675,000
Union Pacific Resource Group Inc. 1 16
Unocal Corp. 71,100 2,817,338
--------------
45,779,510
--------------
MEDIA (2.7%)
Comcast Corp. 117,400 4,512,563
Clear Channel
Communications, Inc. (A) 58,530 4,034,912
Gannett Company, Inc. 47,000 3,354,625
Meredith Corp. 48,300 1,672,388
New York Times Co. 68,600 2,525,338
Time Warner, Inc. 121,500 8,930,250
Times Mirror Co. 39,000 2,310,750
--------------
27,340,826
--------------
METALS (0.9%)
Alcoa, Inc. 83,772 5,183,392
Bethlehem Steel Corp. (A) 104,100 800,269
Phelps Dodge Corp. 16,000 991,000
W. R. Grace & Co. (A) 129,400 2,377,725
--------------
9,352,386
--------------
NATURAL GAS PIPELINE (0.5%)
Enron Corp. 20,700 1,692,225
Sonat, Inc. 30,800 1,020,250
Williams Cos. 55,500 2,362,219
--------------
5,074,694
--------------
OIL FIELD (0.5%)
Halliburton Co. 17,900 809,975
Schlumberger Ltd. 72,000 4,585,500
--------------
5,395,475
--------------
PAPER (1.0%)
Georgia-Pacific Group 61,600 2,918,300
International Paper Co. 65,100 3,287,550
Mead Corp. 63,550 2,653,213
Weyerhaeuser Co. 13,000 893,750
--------------
9,752,813
--------------
PHARMACEUTICALS (9.1%)
Allergan, Inc. 36,500 4,051,500
American Home Products Corp. 128,000 7,360,000
Amgen, Inc. (A) 73,100 4,447,682
Baxter International, Inc. 42,000 2,546,250
Bristol-Myers Squibb Co. 137,000 9,649,937
CVS Corp. 73,000 3,732,125
Eli Lilly & Co. 88,300 6,324,488
Johnson & Johnson 135,200 13,249,600
Merck & Co. 199,500 14,763,000
Pfizer, Inc. 109,230 11,987,992
Pharmacia & Upjohn, Inc. 34,700 1,971,394
Schering-Plough Corp. 103,900 5,506,700
Warner-Lambert Co. 76,300 5,293,313
--------------
90,883,981
--------------
RAILROADS (0.2%)
CSX Corp. 33,900 1,536,094
Union Pacific Corp. 13,900 810,544
--------------
2,346,638
--------------
</TABLE>
-14-
<PAGE> 17
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
----------- --------------
<S> <C> <C>
RETAILERS (5.6%)
Costco Cos. (A) 35,300 $ 2,825,105
Dayton Hudson Corp. 73,200 4,758,000
Home Depot, Inc. 131,098 8,447,627
KMart Corp. (A) 150,300 2,470,556
May Deptartment Stores Co. 24,400 997,350
McDonalds Corp. 154,900 6,399,306
J.C. Penney Company, Inc. 17,500 849,844
Staples, Inc. (A) 92,100 2,846,470
The Gap, Inc. 63,650 3,206,369
TJX Companies Inc. 84,600 2,818,237
Wal-Mart Stores, Inc. 423,400 20,429,050
--------------
56,047,914
--------------
SERVICES (5.7%)
Cendant Corp. 177,500 3,638,750
Medtronic, Inc. 54,200 4,220,825
Microsoft Corp. (A) 468,800 42,250,600
Oracle Corp. (A) 200,187 7,431,942
--------------
57,542,117
--------------
SUPERMARKETS (0.5%)
Kroger Co. (A) 84,000 2,346,750
Safeway, Inc. (A) 60,430 2,991,285
--------------
5,338,035
--------------
TECHNOLOGY (15.4%)
America Online, Inc. (A) 126,300 13,956,150
Applied Materials, Inc. (A) 71,600 5,287,216
BMC Software, Inc. (A) 69,900 3,772,419
Ceridian Corp. (A) 54,100 1,768,394
Cisco Systems, Inc. (A) 303,250 19,531,210
Compaq Computer Corp. 79,368 1,880,030
Computer Associates International 44,900 2,469,500
Computer Sciences Corp. (A) 33,900 2,345,456
Compuware Corp. (A) 128,000 4,068,006
Dell Computer Corp. (A) 221,520 8,189,328
Eastman Kodak Co. 28,000 1,897,000
EG&G, Inc. 66,200 2,358,375
EMC Corp. (A) 84,300 4,636,500
Gateway 2000 Inc. (A) 11,900 702,100
General Instrument Corp. (A) 60,400 2,567,000
Hewlett-Packard Co. 89,300 8,974,650
Honeywell, Inc. 22,000 2,549,250
Intel Corp. 290,800 17,293,527
International Business
Machines Corp. 176,100 22,760,925
Micron Technology, Inc. (A) 33,200 1,338,375
Motorola, Inc. 40,900 3,875,275
Solectron Corp. (A) 53,700 3,581,118
Sun Microsystems Inc. (A) 104,800 7,221,380
Symbol Technologies, Inc. 37,550 1,384,656
Tellabs, Inc. (A) 28,000 1,892,626
Texas Instruments, Inc. 29,400 4,263,000
Xerox Corp. 59,300 3,502,406
--------------
154,065,872
--------------
TELECOMMUNICATIONS (11.4%)
Ameritech Corp. 73,000 5,365,500
AT&T Corp. 318,545 17,778,793
Bell Atlantic Corp. 116,158 7,593,829
BellSouth Corp. 100,000 4,687,500
Centurytel, Inc. 64,950 2,581,763
GTE Corp. 54,800 4,151,100
Lucent Technologies 282,698 19,064,446
MCI Worldcom, Inc. (A) 190,751 16,410,556
MediaOne Group, Inc. (A) 67,900 5,050,062
Nextel Communications Inc. (A) 73,500 3,691,082
Nortel Networks Corp. 38,200 3,316,238
SBC Communications, Inc. 159,820 9,269,560
Sprint Corp.- Fon Group 107,812 5,693,821
Sprint Corp.- PCS Group (A) 94,153 5,378,491
US West, Inc. 78,670 4,621,863
--------------
114,654,604
--------------
TEXTILE (0.4%)
Fruit of the Loom (A) 64,800 631,800
Nike, Inc. 52,800 3,342,900
--------------
3,974,700
--------------
TOBACCO (1.2%)
Loews Corp. 16,500 1,305,563
Philip Morris Cos. 259,800 10,440,712
--------------
11,746,275
--------------
TRANSPORTATION (0.5%)
FDX Corp. (A) 57,700 3,130,225
Ryder Systems, Inc. 68,800 1,788,800
--------------
4,919,025
--------------
U.S. AGENCY (1.2%)
Federal Home Loan Mortgage Corp. 86,000 4,988,000
Federal National
Mortgage Association 109,300 7,473,388
--------------
12,461,388
--------------
UTILITIES (1.6%)
Alltel Corp. 45,200 3,231,800
Central & South West Corp. 85,100 1,989,213
Edison International 99,900 2,672,325
FPL Group, Inc. 48,100 2,627,463
PP&L Resources, Inc. 61,800 1,900,350
Southern Co. 44,300 1,173,950
Texas Utilities Co. 61,900 2,553,375
--------------
16,148,476
--------------
TOTAL COMMON STOCKS
(COST $673,823,825) 995,042,890
--------------
</TABLE>
-15-
<PAGE> 18
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------------- -----------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.9%)
COMMERCIAL PAPER (0.7%)
G. E. Capital Corp.,
5.19% due July 7, 1999 $ 4,000,000 $ 3,995,852
Household Financial Corp.,
5.83% due July 1, 1999 3,363,000 3,363,000
-------------------
7,358,852
-------------------
U.S. TREASURY (0.2%)
United States of America Treasury,
4.85% due April 27, 2000 (B) 1,475,000 1,418,269
-------------------
TOTAL SHORT-TERM
INVESTMENTS (COST $8,777,864) 8,777,121
-------------------
NOTIONAL
VALUE
-----------------
FUTURES CONTRACTS (0.0%)
S&P 500 Stock Index,
Exp. September, 1999 (C) $ 2,763,400 -
-------------------
TOTAL INVESTMENTS (100%)
(COST $682,601,689) (D) $ 1,003,820,011
===================
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) Par value of $1,120,000 pledged to cover margin deposits on futures
contracts.
(C) As more fully discussed in Note 1 to the financial statements, it is
Account GIS's practice to hold cash and cash equivalents (including
short-term investments) at least equal to the underlying face value, or
notional value, of outstanding purchased futures contracts, less the
initial margin. Account GIS uses futures contracts as a substitute for
holding individual securities.
(D) At June 30, 1999, net unrealized appreciation for all securities was
$321,218,322. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$338,482,152 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $17,263,830.
See Notes to Financial Statements
-16-
<PAGE> 19
THE TRAVELERS
QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
The Travelers Quality Bond Account For Variable Annuities ("Account QB")
returned -.31% in the second quarter versus a -.40% for the Lehman Intermediate
Government/Corporate Index (The Lehman Government/Corporate Bond Index is a
combination of publicly issued intermediate and long-term U.S. government bonds
and corporate bonds). Account QB outperformed it's benchmark by 9 basis points
this quarter, and it is 123 basis points ahead for 1999.
Rates rose during the second quarter. The Salomon Corporate Bond Index widened
12 basis points and Treasury yields moved up 30 to 50 basis points, with the 5
Year Treasury ending at 5.65%, up from 5.14% at the beginning of the second
quarter.
The rise in interest rates reflected continued market concerns over strong U.S.
economic growth and the Federal Reserve Board's ("Fed") funds target increase of
25 basis points. The market continues to price in the possibility of additional
Fed tightening, which is possible later this year if continued robust growth
exceeds the Fed's estimates for Gross Domestic Product capacity. Current
domestic economic statistics generally favor continued growth.
In addition to monitoring market sentiment regarding the Fed's bias, we are
closely watching price indices for signs of inflation. April's 0.7% Consumer
Pricing Index jump appears to be an aberration driven mostly by temporary
factors.
Strong corporate issuance has resulted in wider yield spreads. We continue to
favor yield spread products and believe this is a good buying opportunity for
the long-term, but we will closely watch for signs of credit deterioration.
We believe that the best strategy is to be overweight in corporates. Some of our
favorite industries are energy and cyclical bonds. New issues provide more
attractive pricing than secondary offerings, and we try to add these to the
portfolio when possible. We are duration-neutral and do not see any compelling
curve or duration bets.
PORTFOLIO MANAGER: F. DENNEY VOSS
[TAMIC LOGO]
-17-
<PAGE> 20
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $162,608,363) .... $ 160,558,233
Receivables:
Interest .................................................... 2,393,167
Investment securities sold .................................. 5,153,800
Purchase payments and transfers from other Travelers accounts 43,858
Other assets .................................................. 9,379
--------------
Total Assets ............................................. 168,158,437
--------------
LIABILITIES:
Cash overdraft ................................................ 185,523
Payables:
Investment securities purchased ............................. 12,372,616
Contract surrenders and transfers to other Travelers accounts 96,420
Investment management and advisory fees ..................... 8,232
Insurance charges ........................................... 29,910
--------------
Total Liabilities ........................................ 12,692,701
--------------
NET ASSETS: $ 155,465,736
==============
</TABLE>
See Notes to Financial Statements
-18-
<PAGE> 21
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest ....................................................... $4,996,533
EXPENSES:
Investment management and advisory fees .................... $ 255,091
Insurance charges .......................................... 935,937
--------------
Total expenses .......................................... 1,191,028
------------
Net investment income ................................. 3,805,505
------------
REALIZED LOSS AND CHANGE IN UNREALIZED LOSS
ON INVESTMENT SECURITIES:
Realized loss from investment security transactions:
Proceeds from investment securities sold ................ 241,414,541
Cost of investment securities sold ...................... 243,305,960
--------------
Net realized loss ..................................... (1,891,419)
Change in unrealized loss on investment securities:
Unrealized loss at December 31, 1998 .................... (6,261)
Unrealized loss at June 30, 1999 ........................ (2,050,130)
--------------
Net change in unrealized loss for the period ............ (2,043,869)
------------
Net realized loss and change in unrealized loss ...... (3,935,288)
------------
Net decrease in net assets resulting from operations ........ $ (129,783)
============
</TABLE>
See Notes to Financial Statements
-19-
<PAGE> 22
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income ............................................................. $ 3,805,505 $ 7,612,761
Net realized gain (loss) from investment security transactions .................... (1,891,419) 4,823,305
Net change in unrealized gain (loss) on investment securities ..................... (2,043,869) (1,701,374)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations ................. (129,783) 10,734,692
--------------- ---------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 1,078,032 and 2,278,275 units, respectively) ..................... 6,222,604 12,701,859
Participant transfers from other Travelers accounts
(applicable to 1,662,657 and 3,679,128 units, respectively) ..................... 9,607,822 20,644,939
Administrative charges
(applicable to 8,322 and 17,717 units, respectively) ........................... (47,828) (100,331)
Contract surrenders
(applicable to 1,547,940 and 2,743,477 units, respectively) ..................... (8,982,747) (15,435,681)
Participant transfers to other Travelers accounts
(applicable to 2,504,541 and 4,063,248 units, respectively) ..................... (14,483,806) (22,650,450)
Other payments to participants
(applicable to 81,751 and 206,656 units, respectively) ......................... (473,238) (1,173,615)
---------------- ----------------
Net decrease in net assets resulting from unit transactions ..................... (8,157,193) (6,013,279)
---------------- ----------------
Net increase (decrease) in net assets ......................................... (8,286,976) 4,721,413
NET ASSETS:
Beginning of period ............................................................... 163,752,712 159,031,299
--------------- ---------------
End of period ..................................................................... $ 155,465,736 $ 163,752,712
=============== ===============
</TABLE>
See Notes to Financial Statements
-20-
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Quality Bond Account for Variable Annuities ("Account QB") is a
separate account of The Travelers Insurance Company ("The Travelers"), an
indirect wholly owned subsidiary of Citigroup 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 4:00 p.m. Eastern Standard Time price of the New
York Stock Exchange on the last business day of the period; securities traded
on the over-the-counter market and listed securities with no reported sales are
valued at the mean between the last-reported bid and asked prices or on the
basis of quotations received from a reputable broker or other recognized
source.
When market quotations are not considered to be readily available for long-term
corporate bonds and notes, such investments are generally stated at fair value
on the basis of valuations furnished by a pricing service. These valuations
are determined for normal institutional-size trading units of such securities
using methods based on market transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders. Securities, including restricted securities, for which
pricing services are not readily available, are valued by management at prices
which it deems in good faith to be fair.
Short-term investments for which a quoted market price is available are valued
at market. Short-term investments for which there is no reliable quoted market
price are valued at amortized cost which approximates market.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Interest income is recorded on the accrual basis. Premiums and
discounts are amortized to interest income utilizing the constant yield method.
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.
-21-
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
FEDERAL INCOME TAXES. The operations of Account QB form a part of the total
operations of The Travelers and are not taxed separately. The Travelers is
taxed as a life insurance company under the Internal Revenue Code of 1986, as
amended (the "Code"). Under existing federal income tax law, no taxes are
payable on the investment income and capital gains of Account QB. Account QB
is not taxed as a "regulated investment company" under Subchapter M of the
Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments (other
than short-term securities) were $294,314,080 and $285,082,441, respectively;
the costs of purchases and proceeds from sales of direct and indirect U.S.
government securities were $130,939,565 and $160,411,728, respectively, for the
six months ended June 30, 1999. Realized gains and losses from investment
security transactions are reported on an identified cost basis.
3. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at an annual rate
of 0.3233% of Account QB's average net assets. These fees are paid to
Travelers Asset Management International Corporation, an indirect wholly owned
subsidiary of Citigroup 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 $3,850 and $8,940 for the six months ended June 30, 1999
and the year ended December 31, 1998, 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 $32,592 and $70,717 of contingent deferred sales
charges for six months ended June 30, 1999 and the year ended December 31,
1998, respectively.
-22-
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE
Approximately $250,000 and $457,000 of the net assets of Account QB were held
on behalf of an affiliate of The Travelers as of June 30, 1999 and December 31,
1998, respectively. Transactions with this affiliate during the six months
ended June 30, 1999 and the year ended December 31, 1998, were comprised of
participant purchase payments of approximately $25,000 and $112,000 and
contract surrenders of approximately $232,000 and $74,000, respectively.
5. CHANGE IN ACCOUNTANTS
Account QB did not renew its audit relationship with its former principal
accountant, PricewaterhouseCoopers LLP on January 29, 1999. On that same day,
KPMG LLP was engaged as principal accountant for Account QB. KPMG LLP serves
as the principal accountant for other affiliated separate accounts and mutual
funds.
The report by PricewaterhouseCoopers LLP on the financial statements for fiscal
years ended December 31, 1998 and 1997, did not contain an adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
The decision to change principal accountants was approved by the Board of
Managers at a meeting held on January 29, 1999, where it decided to engage KPMG
LLP as the principal accountant to audit the fund's financial statements since
it would promote consistency and possible economies of scale among affiliated
separate accounts and mutual funds.
During the past two years and subsequent interim period preceding such
termination there were no disagreements with PricewaterhouseCoopers LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements if not resolved to the
satisfaction of the former accountant, would have caused it to make reference
to the subject matter of disagreement in connection with its report.
6. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------------
UNIT NET
UNIT VALUE ASSETS
---- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May 16, 1983 . . . 6,478,093 $ 5.993 $ 38,830,436
Annuity phase of contracts issued prior to May 16, 1983 . . . . . . 123,630 5.993 741,052
Accumulation phase of contracts issued on or after May 16, 1983 . . 20,118,814 5.757 115,846,319
Annuity phase of contracts issued on or after May 16, 1983 . . . . 8,324 5.757 47,929
-----------------
Net Contract Owners' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155,465,736
=================
</TABLE>
-23-
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
7. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each period.)
<TABLE>
<CAPTION>
Contracts issued prior to May 16, 1983 SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- ---------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income ................................... $ .188 $ .363 $ .353 $ .379 $ .328 $ .318
Operating expenses ........................................ .039 .076 .071 .067 .063 .059
------ ------ ------ ------ ------ ------
Net investment income ..................................... .149 .287 .282 .312 .265 .259
Unit value at beginning of period ......................... 5.994 5.593 5.234 5.050 4.400 4.498
Net realized and change in unrealized gains (losses) ...... (.150) .114 .077 (.128) .385 (.357)
------ ------ ------ ------ ------ ------
Unit value at end of period ............................... $5.993 $5.994 $5.593 $5.234 $5.050 $4.400
====== ====== ====== ====== ====== ======
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value ..................... $(.00) $ .40 $ .36 $ .18 $.65 $(.10)
Ratio of operating expenses to average net assets ......... 1.33% * 1.33% 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets ...... 4.99% * 4.96% 5.25% 6.12% 5.54% 5.87%
Number of units outstanding at end of period (thousands) .. 6,602 6,880 7,683 8,549 9,325 10,694
Portfolio turnover rate ................................... 200% 438% 196% 176% 138% 27%
</TABLE>
<TABLE>
<CAPTION>
Contracts issued on or after May 16, 1983
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
------- ------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income ................................... $.181 $.350 $.342 $.368 $.319 $.310
Operating expenses ........................................ .045 .088 .082 .078 .073 .069
------ ------ ------ ------ ------ ------
Net investment income ..................................... .136 .262 .260 .290 .246 .241
Unit value at beginning of period ......................... 5.765 5.393 5.060 4.894 4.274 4.381
Net realized and change in unrealized gains (losses) ...... (.144) .110 .073 (.124) .374 (.348)
------ ------ ------ ------ ------ ------
Unit value at end of period ............................... $5.757 $5.765 $5.393 $5.060 $4.894 $4.274
====== ====== ====== ====== ====== ======
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase (decrease) in unit value ..................... $(.01) $.37 $.33 $.17 $.62 $(.11)
Ratio of operating expenses to average net assets ......... 1.57% * 1.57% 1.57% 1.57% 1.57% 1.57%
Ratio of net investment income to average net assets ...... 4.74% * 4.71% 5.00% 5.87% 5.29% 5.62%
Number of units outstanding at end of period (thousands) .. 20,127 21,251 21,521 24,804 27,066 27,033
Portfolio turnover rate 200% 438% 196% 176% 138% 27%
</TABLE>
* Annualized
-24-
<PAGE> 27
THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- --------------
<S> <C> <C>
BONDS (82.0%)
Airlines (1.0%)
Delta Air lines, Inc.,
9.25% Sinking Fund 2007 (A) $ 1,575,087 $ 1,578,174
--------------
BANKING (12.3%)
Banponce Financial Corp.,
7.30% Debentures, 2002 4,100,000 4,141,111
Capital One Financial Corp.,
6.57% Debentures, 2003 8,100,000 7,999,933
HSBC Holding PLC,
7.50% Debentures, 2009 7,500,000 7,562,580
--------------
19,703,624
--------------
FINANCE (17.8%)
Comdisco, Inc.,
6.13% Debentures, 2001 4,000,000 3,967,536
FINOVA Capital Corp.,
6.25% Debentures, 2002 7,500,000 7,395,503
GM Acceptance Corp.,
6.85% Debentures, 2004 3,800,000 3,831,821
Marlin Water Trust,
7.09% Debentures, 2001 7,500,000 7,536,112
Orix Credit Alliance,
6.78% Debentures, 2001 5,900,000 5,816,078
--------------
28,547,050
--------------
HEALTHCARE (2.9%)
Columbia/ HCA Healthcare Corp.,
6.87% Debentures, 2003 5,000,000 4,696,015
--------------
INTERGRATED ENERGY (11.0%)
Atlantic Richfield Co.,
5.90% Debentures, 2009 5,700,000 5,355,378
Noram Energy Corp.,
7.50% Debentures, 2000 7,250,000 7,333,593
Occidental Petroleum Corp.,
7.65% Debentures, 2006 5,000,000 5,038,090
--------------
17,727,061
--------------
PAPER (2.5%)
Noranda Forest, Inc.,
8.88% Debentures, 1999 4,000,000 4,025,440
--------------
REAL ESTATE (7.3%)
CarrAmerica Realty Corp.,
6.63% Debentures, 2000 5,200,000 5,165,212
Nationwide Health Properties, Inc.,
6.90% Debentures, 2037 7,000,000 6,519,569
--------------
11,684,781
--------------
RETAIL (4.8%)
Dayton Hudson Corp.,
6.80% Debentures, 2001 1,800,000 1,812,915
Saks, Inc.,
7.25% Debentures, 2004 4,000,000 4,012,832
Saks, Inc.,
7.50% Debentures, 2010 2,000,000 1,981,686
--------------
7,807,433
--------------
TELECOMMUNICATIONS (10.8%)
AT&T Capital Corp.,
6.86% Debentures, 2001 8,200,000 8,179,090
MCI Worldcom, Inc.,
6.40% Debentures, 2005 1,700,000 1,670,282
Telecom New Zealand
Financial Corp.,
6.25% Debentures, 2003 7,500,000 7,439,880
--------------
17,289,252
--------------
TOBACCO (4.8%)
Nabisco, Inc.,
6.70% Debentures, 2002 7,800,000 7,715,744
--------------
UTILITIES (6.8%)
Appalachian Pwr Co.,
6.60% Debentures, 2009 7,600,000 7,311,017
CMS Energy Corp.,
7.63% Debentures, 2004 1,750,000 1,695,143
CMS Energy Corp.,
6.75% Debentures, 2004 2,000,000 1,892,684
--------------
10,898,844
--------------
TOTAL BONDS
(COST $133,791,233) 131,673,418
--------------
U.S. GOVERNMENT AGENCY
SECURITIES (6.1%)
Federal Home Loan Mortgage Corp.,
6.30% Debentures, 2004 3,700,000 3,670,574
Federal National Mortgage
Association,
5.63% Debentures, 2004 6,250,000 6,105,731
--------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(COST $9,742,375) 9,776,305
--------------
U.S. GOVERNMENT
SECURITIES (5.8%)
United States of America Treasury,
7.25% Notes, 2004 3,800,000 4,037,500
United States of America Treasury,
6.88% Notes, 2004 5,000,000 5,265,625
--------------
TOTAL U.S. GOVERNMENT
SECURITIES
(COST $9,269,479) 9,303,125
--------------
</TABLE>
-25-
<PAGE> 28
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------------- ----------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.1%)
COMMERCIAL PAPER (6.1%)
Ford Motor Credit Co.,
5.33% due July 6, 1999 $ 3,000,000 $ 2,997,327
Household Financial Corp.,
5.83% due July 1, 1999 4,907,000 4,907,000
Orix Credit Alliance,
6.40% due November 22, 1999 1,900,000 1,901,058
----------------
TOTAL SHORT-TERM
INVESTMENTS (COST $9,805,276) 9,805,385
----------------
TOTAL INVESTMENTS (100%)
(COST $162,608,363) (B) $ 160,558,233
================
</TABLE>
NOTES
(A) Restricted Security.
(B) At June 30, 1999, net unrealized depreciation for all securities was
$2,050,130. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
cost of $318,668 and aggregate gross unrealized depreciation for all
securities in which there was an excess of cost over market value of
$2,368,798.
See Notes to Financial Statements
-26-
<PAGE> 29
THE TRAVELERS
MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
The U.S. economic expansion continued in the first six months of 1999, with
leadership on the production side of the economy shifting from the construction
sector to the industrial sector. Unemployment remained low, edging up to 4.3% at
the end of June. It is estimated that real Gross Domestic Product growth for the
second quarter is to remain at 3.9%.
The six months ended with the 30-year Treasury Bond yield at 5.96% and the
federal funds rate at 5.00%. The 30-year Treasury Bond yield was up 34 basis
points from the first quarter and 87 basis points from year-end. During the
second quarter, the Federal Open Market Committee ("FOMC") raised its target
federal funds rate by 25 basis points, to 5.00%, as was widely expected.
Although the FOMC had moved back to an unbiased inter-meeting policy directive,
the economic environment that provoked the 25 basis points tightening is likely
to persist and may require additional tightening in order to unwind last fall's
monetary policy accommodation of 75 basis points.
The strategy in management of The Travelers Money Market Account for Variable
Annuities, will be to maintain the current average life for maturities at 50
days. At June 30, 1999 the asset size of the portfolio was $113.9 million with
an average yield of 4.95%.
PORTFOLIO MANAGER: EMIL J. MOLINARO JR.
[TAMIC LOGO]
-27-
<PAGE> 30
THE TRAVELERS MONEY MARKET ACCOUNT FOR
VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $115,563,249) ....................... $115,480,095
Receivables:
Interest ....................................................................... 153,572
Investment securities sold ..................................................... 5,737,906
Purchase payments and transfers from other Travelers accounts .................. 238,218
Other assets ..................................................................... 2,647
------------
Total Assets ................................................................. 121,612,438
------------
LIABILITIES:
Cash overdraft ................................................................. 1,010,135
Payables:
Investment securities purchased ................................................ 4,727,228
Contract surrenders and transfers to other Travelers accounts .................. 1,939,047
Investment management and advisory fees ........................................ 6,265
Insurance charges .............................................................. 24,213
------------
Total Liabilities ............................................................ 7,706,888
------------
NET ASSETS: ...................................................................... $113,905,550
============
</TABLE>
See Notes to Financial Statements
-28-
<PAGE> 31
THE TRAVELERS MONEY MARKET ACCOUNT FOR
VARIABLE ANNUITIES
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS JUNE 30, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest ..................................................... $2,643,505
EXPENSES:
Investment management and advisory fees ...................... $177,380
Insurance charges ............................................ 685,534
--------
Total expenses ................................................. 862,914
----------
Net investment income .......................................... 1,780,591
----------
Net increase in net assets resulting from operations ........... $1,780,591
==========
</TABLE>
See Notes to Financial Statements
-29-
<PAGE> 32
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income ........................................................ $ 1,780,591 $ 3,950,167
--------------- ---------------
Net increase in net assets resulting from operations ....................... 1,780,591 3,950,167
--------------- ---------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 3,489,719 and 6,095,251 units, respectively) ................ 8,633,354 14,649,623
Participant transfers from other Travelers accounts
(applicable to 59,814,538 and 118,152,715 units, respectively) ............. 147,772,915 284,523,651
Administrative charges
(applicable to 20,079 and 37,011 units, respectively) ...................... (49,990) (89,783)
Contract surrenders
(applicable to 5,578,587 and 8,681,249 units, respectively) ................ (13,801,526) (20,899,693)
Participant transfers to other Travelers accounts
(applicable to 53,528,013 and 109,964,438 units, respectively) ............. (132,266,519) (265,042,626)
Other payments to participants
(applicable to 120,152 and 143,957 units, respectively) .................... (298,811) (346,736)
--------------- ---------------
Net increase in net assets resulting from unit transactions ................ 9,989,423 12,794,436
--------------- ---------------
Net increase in net assets ............................................... 11,770,014 16,744,603
NET ASSETS:
Beginning of period .......................................................... 102,135,536 85,390,933
--------------- ---------------
End of period ................................................................ $ 113,905,550 $ 102,135,536
=============== ===============
</TABLE>
See Notes to Financial Statements
-30-
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Money Market Account for Variable Annuities ("Account MM") is a
separate account of The Travelers Insurance Company ("The Travelers"), an
indirect wholly owned subsidiary of Citigroup 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.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Interest income is recorded on the accrual basis. Premiums and discounts
are amortized to interest income utilizing the constant yield method.
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.
2. CONTRACT CHARGES
Investment management and advisory fees are calculated daily at an annual rate
of 0.3233% of Account MM's average net assets. These fees are paid to Travelers
Asset Management International Corporation, an indirect wholly owned subsidiary
of Citigroup 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 $91,786 and $153,043 of contingent deferred sales
charges for the six months ended June 30, 1999 and the year ended December 31,
1998, respectively.
-31-
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
3. NET ASSETS HELD ON BEHALF OF AN AFFILIATE
Approximately $3,230,000 and $3,434,000 of the net assets of Account MM were
held on behalf of an affiliate of The Travelers as of June 30, 1999 and December
31, 1998, respectively. Transactions with this affiliate during the six months
ended June 30, 1999 and the year ended December 31, 1998, were comprised of
participant purchase payments of approximately $1,935,000 and $2,874,000 and
contract surrenders of approximately $2,197,000 and $2,269,000, respectively.
4. CHANGE IN ACCOUNTANTS
Account MM did not renew its audit relationship with its former principal
accountant, PricewaterhouseCoopers LLP on January 29, 1999. On that same day,
KPMG LLP was engaged as principal accountant for Account MM. KPMG LLP serves as
the principal accountant for other affiliated separate accounts and mutual
funds.
The report by PricewaterhouseCoopers LLP on the financial statements for fiscal
years ended December 31, 1998 and 1997, did not contain an adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
The decision to change principal accountants was approved by the Board of
Managers at a meeting held on January 29, 1999, where it decided to engage KPMG
LLP as the principal accountant to audit the fund's financial statements since
it would promote consistency and possible economies of scale among affiliated
separate accounts and mutual funds.
During the past two years and subsequent interim period preceding such
termination there were no disagreements with PricewaterhouseCoopers LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of disagreement in connection with its report.
5. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------
UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Accumulation phase of contracts issued prior to May 16, 1983....... 24,252 $ 2.593 $ 62,893
Annuity phase of contracts issued prior to May 16, 1983............ 61,554 2.593 159,626
Accumulation phase of contracts issued on or after May 16, 1983.... 45,517,899 2.491 113,398,236
Annuity phase of contracts issued on or after May 16, 1983......... 114,316 2.491 284,795
---------------
Net Contract Owners'
Equity....................................................................................... $ 113,905,550
===============
</TABLE>
-32-
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
6. SUPPLEMENTARY INFORMATION
(Selected data for a unit outstanding throughout each period.)
Contracts issued prior to May 16, 1983
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
---------- ----------------------------------------------------
1999 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income .................................. $ .062 $ .138 $ .134 $ .125 $ .130 $ .091
Operating expenses ....................................... .017 .033 .032 .030 .030 .028
-------- ------- ------- ------- ------- -------
Net investment income..................................... .045 .105 .102 .095 .100 .063
Unit value at beginning of period ........................ 2.548 2.443 2.341 2.246 2.146 2.083
-------- ------- ------- ------- ------- -------
Unit value at end of period............................... $ 2.593 $ 2.548 $ 2.443 $ 2.341 $ 2.246 $ 2.146
======== ======= ======= ======= ======== =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value................................ $ . 04 $ .11 $ .10 $ .10 $ .10 $ .06
Ratio of operating expenses to average net assets ........ 1.33% * 1.33% 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to average net assets ..... 3.64% * 4.20% 4.27% 4.10% 4.61% 2.98%
Number of units outstanding at end of period (thousands).. 86 91 105 112 206 206
</TABLE>
Contracts issued prior to May 16, 1983
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
---------- ----------------------------------------------------
1999 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA:
Total investment income................................. $ .060 $ .133 $ .128 $ .121 $ .127 $ .087
Operating expenses...................................... .019 .038 .036 .035 .034 .032
--------- --------- --------- --------- --------- ---------
Net investment income................................... .041 .095 .092 .086 .093 .055
Unit value at beginning of period....................... 2.450 2.355 2.263 2.177 2.084 2.029
--------- --------- --------- --------- --------- ---------
Unit value at end of period............................. $ 2.491 $ 2.450 $ 2.355 $ 2.263 $ 2.177 $ 2.084
========= ========= ========= ========= ========= =========
SIGNIFICANT RATIOS AND ADDITIONAL DATA:
Net increase in unit value................................ $ .04 $ . 10 $ .09 $ .09 $ .09 $ .06
Ratio of operating expenses to average net assets.......... 1.57% * 1.57% 1.57% 1.57% 1.57% 1.57%
Ratio of net investment income to average net assets....... 3.39% * 3.95% 4.02% 3.84% 4.36% 2.72%
Number of units outstanding at end of period (thousands)... 45,632 41,570 36,134 38,044 35,721 39,675
</TABLE>
* Annualized
-33-
<PAGE> 36
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------------- -----------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100%)
COMMERCIAL PAPER (100%)
American Express Credit Corp.,
4.93% due August 26, 1999 $ 4,550,000 $ 4,512,267
American Home Products Corp.,
4.93% due August 9, 1999 5,000,000 4,971,205
Asset Securitization Corp.,
4.95% due July 21, 1999 5,625,000 5,607,900
Associates Corp. of North America,
4.99% due October 15, 1999 4,375,000 4,387,014
Boeing Capital Corp.,
5.08% due July 8, 1999 2,390,000 2,387,173
CIT Group Holdings, Inc.,
4.95% due August 2, 1999 4,000,000 3,981,080
Coca-Cola Co.,
4.95% due July 13, 1999 4,000,000 3,992,384
DE Funding Corp.,
5.13% due July 8, 1999 2,228,000 2,225,364
DE Funding Corp.,
5.12% due July 19, 1999 3,115,000 3,106,412
Eastman Kodak Co.,
4.92% due July 27, 1999 5,750,000 5,727,701
Ford Motor Credit Co.,
4.96% due July 19, 1999 4,500,000 4,487,593
GE Capital Corp.,
4.96% due August 17, 1999 1,500,000 1,489,582
GM Acceptance Corp.,
5.17% due April 17, 2000 3,500,000 3,518,252
Goldman Sachs Group LP,
5.05% due March 1, 2000 5,000,000 5,000,000
Harvard University,
4.93% due July 9, 1999 5,500,000 5,492,696
Household Financial Corp.,
5.96% due July 1, 1999 4,728,000 4,728,000
J. P. Morgan & Company, Inc.,
5.02% due December 10, 1999 5,000,000 4,877,295
Merrill Lynch & Company, Inc.,
5.12% due July 20, 1999 2,500,000 2,492,752
Merrill Lynch & Company, Inc.,
4.91% due July 28, 1999 3,250,000 3,236,948
Newell Co.,
4.99% due July 14, 1999 2,550,000 2,544,783
Northern States Power Co.,
5.33% due July 7, 1999 3,115,000 3,111,770
Paccar Financial Corp.,
4.96% due July 13, 1999 1,575,000 1,572,001
PepsiCo, Inc.,
4.99% due August 19, 1999 2,000,000 1,999,262
Pfizer, Inc.,
4.94% due July 8, 1999 4,500,000 4,494,677
Progress Capital Holdings, Inc.,
5.03% due July 6, 1999 5,750,000 5,744,877
Providian Master Trust,
4.96% due July 13, 1999 5,600,000 5,589,338
Prudential Funding Corp.,
4.94% due July 8, 1999 5,100,000 5,093,967
TECO Financial, Inc.,
4.94% due July 23, 1999 5,800,000 5,780,738
Walt Disney Co.,
4.98% due November 4, 1999 1,462,000 1,434,226
Walt Disney Co.,
4.98% due November 9, 1999 1,931,000 1,892,838
-------------------
TOTAL INVESTMENTS (100%)
(COST $115,563,249) $ 115,480,095
===================
</TABLE>
See Notes to Financial Statements
-34-
<PAGE> 37
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<PAGE> 38
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<PAGE> 39
Investment Adviser
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
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
Investment Sub-Adviser
THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
Hartford, Connecticut
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
Independent Accountants
KPMG LLP
Hartford, Connecticut
Custodian
THE CHASE MANHATTAN BANK, N.A.
New York, New York
The financial information included herein has been taken from the records of The
Travelers Growth and Income Stock Account for Variable Annuities, The Travelers
Quality Bond Account for Variable Annuities, and The Travelers Money Market
Account for Variable Annuities. This financial information has not been audited
by the Accounts' independent accountants, who therefore express no opinion
concerning its accuracy. However, it is management's opinion that all proper
adjustments have been made.
This report is prepared for the general information of contract owners and is
not an offer of units of The Travelers Growth and Income Stock Account for
Variable Annuities, The Travelers Quality Bond Account for Variable Annuities or
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 (Semi-Annual) (6-99) Printed in U.S.A
