-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EimuKzlokrSNe1LtV3Kh45TAOxU2yX1kQ3eNgIygVpZ+7g0spGzfvmhkUd21VVre fZChaK160EREAyXqGue+EA== 0000908812-95-000101.txt : 19950427 0000908812-95-000101.hdr.sgml : 19950427 ACCESSION NUMBER: 0000908812-95-000101 CONFORMED SUBMISSION TYPE: 486BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19950426 EFFECTIVENESS DATE: 19950426 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0000099440 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 060566090 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 486BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-53757 FILM NUMBER: 95531520 FILING VALUES: FORM TYPE: 486BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 002-53757 FILM NUMBER: 95531521 BUSINESS ADDRESS: STREET 1: ONE TOWER SQ CITY: HARTFORD STATE: CT ZIP: 06183 BUSINESS PHONE: 2032770111 FORMER COMPANY: FORMER CONFORMED NAME: TRAVELERS FUND A-1 FOR VARIABLE ANNUITIES DATE OF NAME CHANGE: 19851103 486BPOS 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 41 and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 41 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (Exact name of Registrant) THE TRAVELERS INSURANCE COMPANY (Name of Insurance Company) ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183 (Address of Insurance Company's Principal Executive Offices) Insurance Company's Telephone Number, including Area Code (203) 277-0111 ERNEST J. WRIGHT Secretary to the Board of Managers The Travelers Quality Bond Account for Variable Annuities One Tower Square Hartford, Connecticut 06183 (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: ____________________ It is proposed that this filing will become effective (check appropriate box): ____ immediately upon filing pursuant to paragraph (b) of Rule 485 __X_ on May 1, 1995 pursuant to paragraph (b) of Rule 485 ____ ____ 60 days after filing pursuant to paragraph (a)(i) of Rule 485 ____ on _____, 1995 pursuant to paragraph (a)(i) of Rule 485 ____ 75 days after filing pursuant to paragraph (a)(ii) ____ on _____, 1995 pursuant to paragraph (a)(ii) of Rule 485 If appropriate check the following box: ____ this post-effective amendment designates a new effective date for a previously filed post-effective amendment. An indefinite amount of Variable Annuity Contracts was registered pursuant to Rule 24f-2 of the Investment Company Act of 1940. A Rule 24f-2 Notice for the fiscal year ended December 31, 1994 was filed on February 27, 1995. THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES Form N-3 Cross-Reference Sheet ITEM NO. CAPTION IN PROSPECTUS - --- --------------------- 1. Cover Page The Travelers Quality Bond Account for Variable Annuities 2. Definitions Glossary of Special Terms 3. Synopsis Prospectus Summary 4. Condensed Financial Condensed Financial Information Information 5. General Description The Insurance Company and The of Registrant and Separate Accounts Insurance Company 6. Management Management 7. Deductions and Expenses Charges and Deductions 8. General Description of The Variable Annuity Contract Variable Annuity Contracts 9. Annuity Period The Annuity Period 10. Death Benefit Death Benefit 11. Purchases and Contract Value The Variable Annuity Contract 12. Redemptions Surrenders and Redemptions 13. Taxes Federal Tax Considerations 14. Legal Proceedings Legal Proceedings and Opinions 15. Table of Contents of Statement Appendix A of Additional Information CAPTION IN STATEMENT OF ADDITIONAL INFORMATION ---------------------------------- 16. Cover Page The Travelers Quality Bond Account for Variable Annuities 17. Table of Contents Table of Contents 18. General Information Description of The Travelers and the and History Separate Accounts 19. Investment Objectives and Investment Policies and Investment Policies Objectives 20. Management Board of Managers 21. Investment Advisory and Other Investment Management and Advisory Services Services 22. Brokerage Allocation Brokerage 23. Purchase and Pricing of Valuation of Assets Securities Being Offered 24. Underwriters Distribution and Management Services 25. Calculation of Performance Data Performance Data 26. Annuity Payments Inapplicable 27. Financial Statements Financial Statements PART A INFORMATION REQUIRED IN A PROSPECTUS UNIVERSAL ANNUITY PROSPECTUS The Individual Variable Annuity Contracts described in this Prospectus (issued by The Travelers Insurance Company)provide for Purchase Payments to be made, either as a single payment or on a flexible basis, before a selected Maturity Date (usually at retirement). Purchase Payments may currently be allocated to one or more of the following investment alternatives: The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) -- common stock; The Travelers Quality Bond Account for Variable Annuities (Account QB) -- intermediate-term bonds; The Travelers Money Market Account for Variable Annuities (Account MM) -- money market instruments; The Travelers Timed Growth and Income Stock Account for Variable Annuities (Account TGIS) -- timed/common stock; The Travelers Timed Short-Term Bond Account for Variable Annuities (Account TSB) -- timed/short-term bond; The Travelers Timed Aggressive Stock Account for Variable Annuities (Account TAS) -- timed/aggressive common stock; The Travelers Timed Bond Account for Variable Annuities (Account TB) -- timed/U.S. Government securities; or The Travelers Fund U for Variable Annuities (Fund U). Purchase Payments allocated to Fund U will be invested at net asset value directly in shares of the underlying funds available under Fund U (the "Underlying Funds") in accordance with the selection made by the Contract Owner. (See "The Underlying Funds" on page 17 for a complete list of the funds currently available under Fund U.) Some of the Underlying Funds may not be available in every state due to various insurance regulations. Accounts TGIS, TSB, TAS and TB are investment alternatives available for those participants who have entered into third party market timing services agreements. The market timing fee is deducted as an asset charge from Accounts TGIS, TSB, TAS and TB. PARTICIPANTS WHO INVEST IN THESE SEPARATE ACCOUNTS WITHOUT A MARKET TIMING AGREEMENT DO SO AT THEIR OWN RISK, AND MAY BEAR A DISPROPORTIONATE AMOUNT OF THE EXPENSES ASSOCIATED WITH PORTFOLIO TURNOVER AND MAY BEAR AN UNNECESSARY INVESTMENT RISK. (See "Market Timing Services," page 33.) Travelers Equities Sales, Inc. is the principal underwriter for these contracts, and may add or substitute investment alternatives, as described in this Prospectus. The Cash Value of the Contract will vary continuously to reflect the investment performance of the Investment Alternatives selected by the Contract Owner. The Contract Owner bears the investment risk. This Prospectus sets forth concisely the information about the Separate Accounts that you should know before investing. Please read it and retain it for future reference. Additional information about the Separate Accounts is contained in a Statement of Additional Information dated May 1, 1995 which has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus. A copy may be obtained, without charge, by writing to The Travelers Insurance Company, Annuity Services 5 SHS, One Tower Square, Hartford, Connecticut 06183-5030, or by calling 1-800-842-0125. The Table of Contents of the Statement of Additional Information appears in Appendix A of this Prospectus. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE MUTUAL FUNDS UNDERLYING FUND U. BOTH THIS PROSPECTUS AND EACH OF THE UNDERLYING FUND PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. AN INVESTMENT IN ACCOUNT MM IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT. THE DATE OF THIS PROSPECTUS IS MAY 1, 1995 This page intentionally left blank. TABLE OF CONTENTS GLOSSARY OF SPECIAL TERMS iv PROSPECTUS SUMMARY 1 FEE TABLE -- Accounts GIS, QB, MM, TGIS, TSB, TAS and TB 4 FEE TABLE -- Fund U and its Underlying Funds 5 CONDENSED FINANCIAL INFORMATION 7 THE INSURANCE COMPANY 16 THE SEPARATE ACCOUNTS 16 THE TRAVELERS FUND U FOR VARIABLE ANNUITIES 17 The Underlying Funds 17 Underlying Fund Investment Advisers 20 Asset Allocation Advice 21 General 21 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT GIS) 21 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT QB) 22 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT MM) 24 THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TGIS) 26 THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TSB) 27 THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TAS) 29 THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TB) 31 MARKET TIMING SERVICES 33 Market Timing Risks 34 THE VARIABLE ANNUITY CONTRACT 34 General Benefit Description 35 Purchase Payments 35 Application of Purchase Payments 35 Right to Return 35 Number of Accumulation Units 35 Net Investment Factor 35 Federal and State Income Tax Withholding 36 CHARGES AND DEDUCTIONS 36 Contingent Deferred Sales Charge 36 Premium Tax 37 Changes in Taxes Based Upon Premium or Value 37 Administrative Charge 37 Reduction or Elimination of Contract Charges 37 Insurance Charge 37 Investment Advisory Fees 38 Market Timing Services Fees 38 PERFORMANCE INFORMATION 38 MANAGEMENT AND INVESTMENT ADVISORY SERVICES 39 TRANSFERS 40 Dollar-Cost Averaging (Automated Transfers) 40 SURRENDERS AND REDEMPTIONS 40 Systematic Withdrawals 41 DEATH BENEFIT 41 THE ANNUITY PERIOD 42 Maturity Date 42 Allocation of Annuity Payments 42 Annuity Unit Value 42 Determination of First Annuity Payment 42 Determination of Second and Subsequent Annuity Payments 43 PAYOUT OPTIONS 43 Election of Options 43 Annuity Options 43 Income Options 44 MISCELLANEOUS CONTRACT PROVISIONS 45 Termination 45 Required Reports 45 Suspension of Payments 45 FEDERAL TAX CONSIDERATIONS 45 General 45 Tax Law Diversification Requirements for Variable Annuities 45 Ownership of the Investments 46 Section 403(b) Plans and Arrangements 46 Qualified Pension and Profit-Sharing Plans 46 Individual Retirement Annuities 47 Section 457 Plans 47 Nonqualified Annuities 47 Federal Income Tax Withholding 48 Tax Advice 49 VOTING RIGHTS 49 DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS 50 STATE REGULATION 51 LEGAL PROCEEDINGS AND OPINIONS 51 APPENDIX A 51 GLOSSARY OF SPECIAL TERMS - --------------------------------------------------------------------- As used in this Prospectus, the following terms have the indicated meanings: ACCUMULATION UNIT: an accounting unit of measure used to calculate the value of a contract before Annuity Payments begin. ANNUITANT: the person on whose life the Variable Annuity contract is issued. ANNUITY PAYMENTS: a series of periodic payments for life; for life with either a minimum number of payments or a determinable sum assured; or for the joint lifetime of the Annuitant and another person and thereafter during the lifetime of the survivor. ANNUITY UNIT: an accounting unit of measure used to calculate the dollar amount of Annuity Payments. BOARD of MANAGERS: the persons directing the investment and administration of a managed Separate Account. CASH SURRENDER VALUE: the amount payable to the Owner or other payee upon termination of the contract during the lifetime of the Annuitant. CASH VALUE: the current value of Accumulation Units credited to the contract less any administrative charges. COMPANY: The Travelers Insurance Company. COMPANY'S HOME OFFICE: the principal executive offices of The Travelers Insurance Company, located at One Tower Square, Hartford, Connecticut. CONTRACT DATE: the date on which the contract, benefits and the provisions of the contract become effective. CONTRACT YEARS: annual periods computed from the Contract Date. INCOME PAYMENTS: optional forms of periodic payments made by the Company which are not based on the life of the Annuitant. INVESTMENT ALTERNATIVE: a Separate Account or available mutual fund to which assets under a Variable Annuity contract may be allocated. MAJORITY VOTE: a "majority vote of the outstanding voting securities" is defined in the Investment Company Act of 1940 as the lesser of (i) 67% or more of the votes present at a meeting, if Contract Owners holding more than 50% of the total voting power of all Contract Owners in the Separate Account are present or represented by proxy, or (ii) more than 50% of the total voting power of all Contract Owners in the Separate Account. MARKET TIMING SERVICES: third party investment advisory services provided for an extra fee to participants in Account TGIS, Account TSB, Account TAS and Account TB. MATURITY DATE: the date on which the first Annuity Payment is to begin. PURCHASE PAYMENT (PREMIUM PAYMENT): a gross amount paid to the Company under the Contract during the accumulation period. SEPARATE ACCOUNT: assets set aside by the Company, the investment experience of which is kept separate from that of other assets of the Company; for example, The Travelers Fund U for Variable Annuities or The Travelers Growth and Income Stock Account for Variable Annuities. UNDERLYING FUND: an open-end management investment company which serves as an investment option under The Travelers Fund U for Variable Annuities. VALUATION DATE: generally, a day on which an Account is valued. A valuation date is any day on which the New York Stock Exchange is open for trading and the Company is open for business. The value of Accumulation Units and Annuity Units will be determined as of the close of trading on the New York Stock Exchange. VALUATION PERIOD: the period between the close of business on successive Valuation Dates. VARIABLE ANNUITY: an annuity contract which provides for accumulation and for Annuity Payments which vary in amount in accordance with the investment experience of a Separate Account. THERE ARE ELIGIBILITY REQUIREMENTS FOR PURCHASERS DESCRIBED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE A SOLICITATION OF AN OFFER TO ACQUIRE ANY INTEREST OR PARTICIPATION IN THE VARIABLE ANNUITY DESCRIBED IN THIS PROSPECTUS TO ANY PERSON WHO IS INELIGIBLE FOR PURCHASE. PROSPECTUS SUMMARY - ----------------------------------------------------------- INTRODUCTION The Contract described in this Prospectus is issued by The Travelers Insurance Company (the "Company" or "The Travelers"), an indirect wholly owned subsidiary of Travelers Group Inc. The Company has established the Separate Accounts listed below for the purpose of funding the Variable Annuity Contract described in this Prospectus. All of the Separate Accounts except Fund U are registered with the Securities and Exchange Commission as diversified, open-end management investment companies under the Investment Company Act of 1940 (the "1940 Act"). Fund U is registered with the Securities and Exchange Commission as a unit investment trust under the 1940 Act. RIGHT TO RETURN A contract may be returned for a full refund of the Contract Value (including charges) within ten days of purchase, unless state law requires a longer period. The Contract Value returned may be greater or less than the Purchase Payment. However, if applicable state law so requires, or if the Contract is purchased as an Individual Retirement Annuity (IRA), the Purchase Payment will be refunded in full. (See "The Variable Annuity Contract--Right to Return," page 35.) PURCHASE PAYMENTS The minimum Purchase Payment under tax-benefited contracts is $20, except in the case of IRAs where the initial minimum Purchase Payment is $1,000. For non tax-benefited contracts, the minimum Purchase Payment is $1,000 initially, and $100 thereafter. (See "The Variable Annuity Contract-- Purchase Payments," page 35.) THE SEPARATE ACCOUNTS The Separate Accounts currently available under the Contract are as follows: The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) The Travelers Quality Bond Account for Variable Annuities (Account QB) The Travelers Money Market Account for Variable Annuities (Account MM) The Travelers Timed Growth and Income Stock Account for Variable Annuities (Account TGIS) * The Travelers Timed Short-Term Bond Account for Variable Annuities (Account TSB) * The Travelers Timed Aggressive Stock Account for Variable Annuities (Account TAS) * The Travelers Timed Bond Account for Variable Annuities (Account TB) * The Travelers Fund U for Variable Annuities (Fund U) * ACCOUNTS TGIS, TSB, TAS AND TB ARE AVAILABLE ONLY IN CONNECTION WITH THE MARKET TIMING PROGRAM, AS DESCRIBED BELOW. FUND U AND THE UNDERLYING FUNDS Purchase Payments designated to be allocated to Fund U will be invested at net asset value in shares of the following Underlying Funds in accordance with the selection made by the Contract Owner: Capital Appreciation Fund High Yield Bond Trust Managed Assets Trust U.S. Government Securities Portfolio Social Awareness Stock Portfolio Utilities Portfolio Templeton Bond Fund Templeton Stock Fund Templeton Asset Allocation Fund Dreyfus Stock Index Fund Fidelity's High Income Portfolio Fidelity's Equity-Income Portfolio Fidelity's Growth Portfolio Fidelity's Asset Manager Portfolio American Odyssey International Equity Fund American Odyssey Emerging Opportunities Fund American Odyssey Core Equity Fund American Odyssey Long-Term Bond Fund American Odyssey Intermediate-Term Bond Fund American Odyssey Short-Term Bond Fund Smith Barney Income and Growth Portfolio Alliance Growth Portfolio Smith Barney International Equity Portfolio Putnam Diversified Income Portfolio G.T. Global Strategic Income Portfolio Smith Barney High Income Portfolio MFS Total Return Portfolio INVESTMENT OBJECTIVES AND RISKS A complete description of the investment objectives for each of the Separate Accounts listed above is contained in this Prospectus (beginning on page 21). Brief descriptions of the investment objectives for the Underlying Funds are contained on pages 17-19 of this Prospectus; and complete descriptions may be found in the prospectuses for the Underlying Funds. As is true with all investment companies, each investment alternative possesses certain investment risks and there can be no assurance that the objectives of any of the investment alternatives will be achieved. MARKET TIMING Accounts TGIS, TSB, TAS and TB (the "Market Timed Accounts") are investment alternatives available to Contract Owners who have entered into third party market timing services agreements ("market timing agreements") with select registered investment advisers which provide market timing services in exchange for a fee ("registered investment advisers"). The market timing agreements permit the registered investment advisers to act on behalf of the Contract Owner by transferring all or a portion of the Contract Owner's units from one Market Timed Account to another. Copeland Financial Services, Inc. ("Copeland"), a registered investment adviser and an affiliate of the Company, provides market timing services to Contract Owners in the Market Timed Accounts for a fee of 1.25% of the current value of the assets subject to timing, plus a one- time $30 market timing application fee deducted at the time a Contract Owner completes an application for market timing services. Pursuant to the market timing agreements, the Company deducts a daily percentage of the 1.25% annual market timing fee from the assets of the Market Timed Accounts on each Valuation Date. The Company then pays the market timing fee to Copeland. Assets timed by investment advisers not affiliated with the Company may be in the Market Timed Accounts if the unaffiliated advisers agree to an arrangement substantially identical to the payment method described above for the affiliated advisers, and if the unaffiliated advisers are acceptable to the Company. Contract Owners who invest in the Market Timed Accounts without a market timing agreement do so at their own risk, and may bear a disproportionate amount of the expenses associated with separate account portfolio turnover. Additionally, investment in the Market Timed Accounts without a market timing agreement may cause an unnecessary investment risk. For further information regarding market timing, please see "Market Timing Services," page 33. ASSET ALLOCATION Some Contract Owners may elect to enter into an asset allocation investment advisory agreement with Copeland Financial Services, Inc. Copeland provides asset allocation advice under its CHART Program (R), which is fully described in a separate Disclosure Statement. Under the CHART Program, purchase payments and Cash Values are allocated among the six American Odyssey Funds. The service may not be available in all marketing programs through which the Universal Annuity contract is sold. (See "Asset Allocation Advice," page 21.) INVESTMENT ADVISORY SERVICES The Travelers Investment Management Company furnishes investment management and advisory services to Accounts GIS, TGIS, TSB and TAS. Travelers Asset Management International Corporation furnishes investment management and advisory services to Accounts QB, MM and TB. (See "Management and Investment Advisory Services," page 39, as well as "Underlying Fund Investment Advisers," page 20, and the prospectuses for each of the underlying funds.) CHARGES AND EXPENSES No sales charge is deducted from Purchase Payments when they are received. However, a Contingent Deferred Sales Charge of 5% will be deducted if a Purchase Payment is surrendered within five years of the date it was received. Under certain circumstances, the Contingent Deferred Sales Charge may be waived. (See "Contingent Deferred Sales Charge," page 36.) The Company will deduct $15 semiannually from the Contract to cover administrative expenses associated with the Contract. (See "Administrative Charge," page 37.) The Company deducts an insurance charge from each Separate Account to compensate for mortality and expense risks assumed by the Company. The insurance charge is equivalent on an annual basis to 1.25% of the daily net assets of the Account. (See "Charges and Deductions--Insurance Charge," page 37.) A deduction is made from each Separate Account (except Fund U) for investment management and advisory services. Investment advisory fees are deducted daily and paid weekly to the investment advisers providing these services. (See "Charges and Deductions--Investment Advisory Fees," page 38.) For investment options under Fund U, the investment management and advisory services fee is deducted from the assets of the underlying funds. (Please see the prospectuses of the underlying mutual funds for a description of their respective investment management and advisory fees.) Premium taxes may apply to annuities in a few states. These taxes currently range from 0.5% to 5.0%, depending upon jurisdiction. The Company will deduct any applicable premium tax from the Contract Value, either upon death, surrender, or annuitization, or at the time Purchase Payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. (See "Charges and Deductions--Premium Tax," page 37.) ANNUITY PAYMENTS At Maturity Date, the contract provides lifetime Annuity Payments, as well as other types of payout plans. (See "Payout Options," page 43.) If a variable payout is selected, the payments will continue to vary with the investment performance of the selected Investment Alternatives. Variable payout is not available for contracts issued in the state of New Jersey. DEATH BENEFIT A death benefit is payable to the Beneficiary of the Contract if the Annuitant dies before Annuity or Income Payments begin. (See "Death Benefit," page 41.) TRANSFERS AND WITHDRAWALS Transfers may be made among available Investment Alternatives without fee, penalty or charge at any time before Annuity or Income Payments begin. (See "Transfers," page 40.) SURRENDERS Prior to Maturity Date, all or part of the contract value may be surrendered, subject to certain charges and limitations. (See "Surrenders and Redemptions," page 40, and "Federal Tax Considerations--Section 403(b) Plans and Arrangements," page 46.) TERMINATION The Travelers reserves the right to terminate inactive contracts under certain circumstances. (See "Miscellaneous Contract Provisions--Termination," page 45.) VOTING RIGHTS Purchasers have certain voting rights under the contracts. (See "Voting Rights," page 49.) FEE TABLE - --------------------------------------------------------------- ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS AND TB The purpose of this Fee Table is to assist Contract Owners in understanding the various costs and expenses that will be borne, directly or indirectly, under the Contract. For additional information regarding the charges and deductions assessed under the Contract, including possible waivers or reductions of these expenses, see "Charges and Deductions," page 36. Expenses shown do not include premium taxes which may be applicable. CONTRACT CHARGES AND EXPENSES Contingent Deferred Sales Charge (as a percentage of purchase payments): 5.00% Semiannual Contract Administrative Charge $15 ANNUAL SEPARATE ACCOUNT EXPENSES Mortality and Expense Risk Fees (as a percentage of average net assets) 1.25% TOTAL MANAGEMENT MARKET ANNUAL FEE TIMING FEE (1) EXPENSES (2) - ---------------------------------------------------------------------------------------------------------------------- Travelers Growth and Income Stock Account (Account GIS) 0.45% -- 1.70% Travelers Quality Bond Account (Account QB) 0.32% -- 1.57% Travelers Money Market Account (Account MM) 0.32% -- 1.57% Travelers Timed Growth and Income Stock Account (Account TGIS) 0.32% 1.25% 2.82% Travelers Timed Short-Term Bond Account (Account TSB) 0.32% 1.25% 2.82% Travelers Timed Aggressive Stock Account (Account TAS) 0.30% 1.25% 2.80% Travelers Timed Bond Account (Account TB) 0.50% 1.25% 3.00% EXAMPLE (3) THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. - -------------------------------------------------------- A $1,000 investment would be subject to the If the Contract is NOT surrendered at the following expenses, assuming a 5% annual end of the period shown, a $1,000 invest- return on assets, if the Contract is surren- ment would be subject to the following dered at the end of the period shown (4): expenses, assuming a 5% annual return:
- ------------------------------------------------------------------------------------------------ One Three Five Ten One Three Five Ten Year Years Years Years Year Years Years Years - ------------------------------------------------------------------------------------------------ Account GIS $ 69 $ 109 $ 152 $ 220 $ 19 $ 59 $ 102 $ 220 Account QB 68 105 145 206 18 55 95 206 Account MM 68 105 145 206 18 55 95 206 Account TGIS 80 143 208 332 30 93 158 332 Account TSB 80 143 208 332 30 93 158 332 Account TAS 80 142 207 330 30 92 157 330 Account TB 82 148 216 348 32 98 166 348
1 Contract Owners may discontinue market timing services at any time and thereby avoid any subsequent fees for those services by transferring to a non-timed account. 2 Includes mortality and expense risk fees. 3 The Example reflects the $15 Semiannual Contract Fee as an annual charge of 0.179% of assets. 4 The Contingent Deferred Sales Charge may be waived upon annuitization (see "Charges and Deductions -- Contingent Deferred Sales Charge," page 36.) FEE TABLE - ------------------------------------------------------------------ THE TRAVELERS FUND U FOR VARIABLE ANNUITIES AND ITS UNDERLYING FUNDS The purpose of this Fee Table is to assist Contract Owners in understanding the various costs and expenses that will be borne, directly or indirectly, under the Contract. The information listed reflects expenses of the Separate Account as well as of the Underlying Funds. For additional information regarding the charges and deductions assessed under the Contract, including possible waivers or reductions of these expenses, see "Charges and Deductions," page 36. Expenses shown do not include premium taxes, which may be applicable. CONTRACT CHARGES AND EXPENSES Contingent Deferred Sales Charge (as a percentage of purchase payments): 5.00% Semiannual Contract Administrative Charge $15 ANNUAL SUB-ACCOUNT OR SEPARATE ACCOUNT EXPENSES Mortality and Expense Risk Fees (as a percentage of average net assets of the Separate Account) 1.25% UNDERLYING FUND EXPENSES (as a percentage of average net assets of the Underlying Fund)
OTHER TOTAL MANAGEMENT EXPENSES UNDERLYING FEE (AFTER REIMBURSEMENT) FUND EXPENSES - -------------------------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund 0.75% 0.14% (1) 0.89% High Yield Bond Trust 0.50% 0.75% (1) 1.25% Managed Assets Trust 0.50% 0.11% (1) 0.61% U.S. Government Securities Portfolio 0.32% 0.39% (1) 0.71% Social Awareness Stock Portfolio 0.65% 0.60% (1) 1.25% Utilities Portfolio* 0.65% 0.60% (1) 1.25% Templeton Bond Fund 0.50% 0.40% (2) 0.90% Templeton Stock Fund 0.48% 0.25% (2) 0.73% Templeton Asset Allocation Fund 0.49% 0.26% (2) 0.75% Fidelity's High Income Portfolio 0.61% 0.10% (3) 0.71% Fidelity's Equity-Income Portfolio 0.52% 0.06% (3) 0.58% Fidelity's Growth Portfolio 0.62% 0.07% (3) 0.69% Fidelity's Asset Manager Portfolio 0.72% 0.08% (3) 0.80% Dreyfus Stock Index Fund 0.07% 0.33% (4) 0.40% American Odyssey International Equity Fund 0.70% 0.55% (5) 1.25% American Odyssey Emerging Opportunities Fund 0.65% 0.18% (5) 0.83% American Odyssey Core Equity Fund 0.60% 0.18% (5) 0.78% American Odyssey Long-Term Bond Fund 0.50% 0.25% (5) 0.75% American Odyssey Intermediate-Term Bond Fund 0.50% 0.25% (5) 0.75% American Odyssey Short-Term Bond Fund 0.50% 0.25% (5) 0.75% Smith Barney Income and Growth Portfolio 0.65% 0.10% (6) 0.75% Alliance Growth Portfolio 0.80% 0.10% (6) 0.90% Smith Barney International Equity Portfolio 0.90% 0.35% (6) 1.25% Putnam Diversified Income Portfolio 0.75% 0.20% (6) 0.95% G.T. Global Strategic Income Portfolio 0.80% 0.30% (6) 1.10% Smith Barney High Income Portfolio 0.60% 0.10% (6) 0.70% MFS Total Return Portfolio 0.80% 0.15% (6) 0.95%
1 Other Expenses are as of the fiscal year ended December 31, 1994, taking into account the current expense reimbursement arrangement with the Company. The Company has agreed to reimburse each Fund for the amount by which its aggregate expenses (including the management fee, but excluding brokerage commissions, interest charges and taxes) exceeds 1.25%. Without such arrangement, Other Expenses would have been 0.83%, 2.69% and 2.84% for High Yield Bond Trust, Social Awareness Stock Portfolio and Utilities Portfolio respectively. 2 Other Expenses are based on the actual operating expenses incurred by the Fund during the year ended December 31, 1994. 3 Management Fees and Other Expenses are as of the fiscal year ended December 31, 1994. No reimbursement arrangement affected the High Income Portfolio. A portion of the brokerage commissions the Fund paid was used to reduce its expenses. Without this reduction, total Other Expenses would have been: Equity-Income Portfolio, 0.60%; Growth Portfolio, 0.70%; and Asset Manager Portfolio, 0.81%. 4 The administrator and investment adviser have agreed to reimburse the Fund for expenses in excess of 0.40%. For the fiscal year ended December 31, 1994, the Management Fee and Other Expenses before reimbursement were 0.15% and 0.42%, respectively. 5 Other Expenses are as of the fiscal year ended December 31, 1994 taking into account the current expense limitations agreed to by the Manager. The Manager has agreed to continue, at least until May 1, 1996, to waive fees or reimburse expenses to the extent a Fund's total expense ratio exceeds the following expense limitation: International Equity Fund, 1.25%; Emerging Opportunities Fund and Core Equity Fund, 1.00%; and Long-Term Bond Fund, Intermediate-Term Bond Fund, Short-Term Bond Fund, 0.75%. Thereafter, each fund is required to reimburse the Manager for any fees waived or expenses it reimbursed provided that this reimbursement by the Fund does not cause the total expense ratio to exceed the expense limitations above. The Long-Term Bond Fund and the Intermediate-Bond Fund are currently reimbursing the Manager while the Short-Term Bond Fund and the Intermediate Equity Fund are still receiving reimbursements from the Manager. Without these expense limitations and/or Manager reimbursements, Other Expenses of the Funds would have been as follows: International Equity Fund, 0.66%; Emerging Opportunities Fund, 0.27%; Core Equity Fund, 0.25%, Long-Term Bond Fund, 0.23%; Intermediate-Term Bond Fund, 0.25%; and Short-Term Bond Fund, 0.52%. 6 Other expenses are as of October 31, 1994, taking into account the current expense limitations agreed to by the Manager. The Manager waived all of its fees for the period and reimbursed the Funds for their expenses. If such fees were not waived and expenses were not reimbursed, Total Underlying Expenses would have been as follows: Smith Barney Income and Growth, 2.08%; Alliance Growth Portfolio, 1.76%; Smith Barney International Equity Portfolio, 2.00%; Putnam Diversified Income Portfolio, 2.92%; G.T. Global Income Portfolio, 4.53%; Smith Barney High Income Portfolio, 2.60%; and MFS Return Portfolio, 2.51%. * Annualized (Fund commenced operations February 4, 1994). - ----------------------------------------------------------------------- EXAMPLE * THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. - ------------------------------------------------------------------------ A $1,000 investment would be If the Contract is NOT surrendered subject to the following at the end of the period shown, a expenses, assuming a 5% $1,000 investment would be subject annual return on assets, if to the following expenses, assuming the Contract is surrendered at a 5% annual return: the end of the period shown **:
- ----------------------------------------------------------------------------------------------------------------------------- One Three Five Ten One Three Five Ten Year Years Years Years Year Years Years Years - ----------------------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund $74 $122 $174 $265 $24 $72 $124 $265 High Yield Bond Trust 77 133 192 301 27 83 142 301 Managed Assets Trust 71 114 160 237 21 64 110 237 U.S. Government Securities Portfolio 72 117 165 247 22 67 115 247 Social Awareness Stock Portfolio 77 133 192 301 27 83 142 301 Utilities Portfolio 77 133 -- -- 27 83 -- -- Templeton Bond Fund 74 123 174 267 24 73 124 267 Templeton Stock Fund 72 118 166 249 22 68 116 249 Templeton Asset Allocation Fund 72 118 167 251 22 68 117 251 Fidelity's High Income Portfolio 72 117 165 247 22 67 115 247 Fidelity's Equity-Income Portfolio 70 113 158 234 20 63 108 234 Fidelity's Growth Portfolio 72 116 164 245 22 66 114 245 Fidelity's Asset Manager Portfolio 73 120 169 256 23 70 119 256 Dreyfus Stock Index Fund 69 108 149 215 19 58 99 215 American Odyssey Funds (1): International Equity Fund 77 133 192 301 27 83 142 301 Emerging Opportunities Fund 73 121 171 259 23 71 121 259 Core Equity Fund 72 119 168 254 22 69 117 254 Long-Term Bond Fund 72 118 167 251 22 68 117 251 Intermediate-Term Bond Fund 72 118 167 251 22 68 117 251 Short-Term Bond Fund 72 118 167 251 22 68 117 251 American Odyssey Funds (2): International Equity Fund 90 170 252 415 40 120 202 415 Emerging Opportunities Fund 85 158 232 378 35 108 182 378 Core Equity Fund 85 156 230 374 35 106 180 374 Long-Term Bond Fund 85 155 228 371 35 105 178 371 Intermediate-Term Bond Fund 85 155 228 371 35 105 178 371 Short-Term Bond Fund 85 155 228 371 35 105 178 371 Smith Barney Income and Growth Portfolio 72 118 -- -- 22 68 -- -- Alliance Growth Portfolio 74 123 -- -- 24 73 -- -- Smith Barney International Equity Portfolio 77 133 -- -- 27 83 -- -- Putnam Diversified Income Portfolio 74 124 -- -- 24 74 -- -- G.T. Global Strategic Income Portfolio 76 129 -- -- 26 79 -- -- Smith Barney High Income Portfolio 72 117 -- -- 22 67 -- -- MFS Total Return Portfolio 74 124 -- -- 24 74 -- --
* The Example reflects the $15 "Semiannual" Contract Fee as an annual charge of 0.179% of assets. ** The Contingent Deferred Sales Charge may be waived upon annuitization (see "Charges and Deductions --Contingent Deferred Sales Charge," page 36.) 1 Reflects expenses that would be incurred for those Contract Owners who DO NOT participate in the CHART Asset Allocation program. 2 Reflects expenses that would be incurred for those Contract Owners who DO participate in the CHART Asset Allocation program. CONDENSED FINANCIAL INFORMATION THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued on or after May 16,1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .189 $ .184 $ .188 $ .198 $ .192 $ .191 $ .168 $ .132 $ .126 $ .130 Operating expenses ................... .115 .106 .098 .091 .079 .095 .071 .066 .060 .048 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .074 .078 .090 .107 .113 .096 .097 .066 .066 .082 Unit Value at beginning of year ...... 7.007 6.507 6.447 5.048 5.295 4.191 3.601 3.737 3.275 2.732 Net realized and change in unrealized gains (losses) ........... (.164) .422 (.030) 1.292 (.360) 1.008 .493 (.202) .396 .461 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 6.917 $ 7.007 $ 6.507 $ 6.447 $ 5.048 $ 5.295 $ 4.191 $ 3.601 $ 3.737 $ 3.275 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ........................... (.09) .50 .06 1.40 (.25) 1.10 .59 (.14) .46 .54 Ratio of operating expenses to average net assets ................... 1.65% 1.57% 1.58% 1.58% 1.57% 1.58% 1.58% 1.58% 1.57% 1.57% Ratio of net investment income to average net assets ................... 1.05% 1.15% 1.43% 1.86% 2.25% 2.33% 2.60% 1.49% 1.84% 2.85% Number of units outstanding at end of year (thousands)...............26,692 28,497 29,661 26,235 19,634 15,707 12,173 11,367 54,065 32,994 Portfolio turnover rate ................ 103% 81% 189% 319% 54% 27% 38% 51% 95% 93% Contracts issued prior to May 16,1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .192 $ .189 $ .192 $ .201 $ .199 $ .191 $ .168 $ .132 $ .126 $ .130 Operating expenses ................... .100 .092 .085 .077 .069 .066 .053 .059 .047 .037 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .092 .097 .107 .124 .130 .125 .115 .073 .079 .093 Unit Value at beginning of year ...... 7.194 6.664 6.587 5.145 5.383 4.250 3.642 3.771 3.296 2.742 Net realized and change in unrealized gains (losses) ........... (.166) .433 (.030) 1.318 (.368) 1.008 .493 (.202) .396 .461 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 7.120 $ 7.194 $ 6.664 $ 6.587 $ 5.145 $ 5.383 $ 4.250 $ 3.642 $ 3.771 $ 3.296 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ........................... (.07) .53 .08 1.44 (.24) 1.13 .61 (.13) .48 .55 Ratio of operating expenses to average net assets ................... 1.41% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.32% 1.32% Ratio of net investment income to average net assets ................... 1.30% 1.40% 1.67% 2.11% 2.50% 2.56% 2.85% 1.72% 2.09% 3.16% Number of units outstanding at end of year (thousands) ..............19,557 21,841 22,516 24,868 28,053 31,326 35,633 41,859 48,008 55,699 Portfolio turnover rate ............... 103% 81% 189% 319% 54% 27% 38% 51% 95% 93%
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the l994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued subsequent to May 16, 1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 + 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ...............$ .310 $ .299 $ .311 $ .299 $ .277 $ .270 $ .259 $ .245 $ .240 $ .237 Operating expenses .................... .069 .067 .061 .056 .048 .047 .046 .042 .040 .035 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................. .241 .232 .250 .243 .229 .223 .213 .203 .200 .202 Unit Value at beginning of year ....... 4.381 4.052 3.799 3.357 3.129 2.852 2.697 2.629 2.369 2.056 Net realized and change in unrealized gains (losses) ............ (.348) .097 .003 .199 (.001) .054 (.058) (.135) .060 .111 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............$ 4.274 $ 4.381 $ 4.052 $ 3.799 $ 3.357 $ 3.129 $ 2.852 $ 2.697 $ 2.629 $ 2.369 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value .. (.11) .33 .25 .44 .23 .28 .16 .07 .26 .31 Ratio of operating expenses to average net assets .................... 1.57% 1.57% 1.58% 1.57% 1.57% 1.57% 1.58% 1.57% 1.57% 1.58% Ratio of net investment income to average net assets .................... 5.62% 5.41% 6.38% 6.84% 7.06% 7.44% 7.67% 7.72% 7.94% 9.15% Number of units outstanding at end of year (thousands)............... 27,033 28,472 20,250 17,211 14,245 13,135 9,457 7,560 8,321 3,719 Portfolio turnover rate ............... 27% 24% 23% 21% 41% 33% 17% 17% 28% 29% Contracts issued prior to May 16, 1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 +1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ............... $ .318 $ .306 $ .317 $ .304 $ .281 $ .270 $ .259 $ .245 $ .240 $ .237 Operating expenses .................... .059 .058 .050 .048 .040 .035 .037 .034 .032 .029 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................. .259 .248 .267 .256 .241 .235 .222 .211 .208 .208 Unit Value at beginning of year ....... 4.498 4.150 3.880 3.421 3.181 2.892 2.728 2.652 2.384 2.065 Net realized and change in unrealized gains (losses) ............ (.357) .100 .003 .203 (.001) .054 (.058) (.135) .060 .111 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............$ 4.400 $ 4.498 $ 4.150 $ 3.880 $ 3.421 $ 3.181 $ 2.892 $ 2.728 $ 2.652 $ 2.384 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value. (.10) .35 .27 .46 .24 .29 .16 .08 .27 .32 Ratio of operating expenses to average net assets .................. 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.32% 1.32% 1.33% Ratio of net investment income to average net assets .................. 5.87% 5.66% 6.61% 7.09% 7.31% 7.60% 7.82% 7.87% 8.19% 9.43% Number of units outstanding at end of year (thousands) ............. 10,694 12,489 13,416 14,629 16,341 18,248 21,124 24,703 27,776 31,189 Portfolio turnover rate .............. 27% 24% 23% 21% 41% 33% 17% 17% 28% 29% + On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account QB.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued on or after May 16, 1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 + 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ............ $ .087 $ .065 $ .077 $ .118 $ .149 $ .156 $ .118 $ .101 $ .091 $ .108 Operating expenses ................. .032 .031 .031 .030 .029 .027 .023 .023 .020 .020 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income .............. .055 .034 .046 .088 .120 .129 .095 .078 .071 .088 Unit Value at beginning of year .... 2.029 1.995 1.949 1.861 1.741 1.612 1.517 1.439 1.368 1.280 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .......... $ 2.084 $ 2.029 $ 1.995 $ 1.949 $ 1.861 $ 1.741 $ 1.612 $ 1.517 $ 1.439 $ 1.368 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase in unit value ........... .06 .03 .05 .09 .12 .13 .10 .08 .07 .09 Ratio of operating expenses to average net assets ................... 1.57% 1.57% 1.57% 1.57% 1.57% 1.57% 1.56% 1.57% 1.57% 1.57% Ratio of net investment income to average net assets ................... 2.72% 1.68% 2.33% 4.66% 6.68% 7.65% 6.02% 5.27% 4.87% 6.55% Number of units outstanding at end of year (thousands)...............39,675 34,227 42,115 55,013 67,343 57,916 41,449 49,918 31,831 24,645 Contracts issued prior to May 16, 1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 + 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .091 $ .067 $ .079 $ .120 $ .151 $ .156 $ .118 $ .101 $ .091 $ .108 Operating expenses ................... .028 .027 .027 .026 .024 .021 .018 .018 .015 .017 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .063 .040 .052 .094 .127 .135 .100 .083 .076 .091 Unit Value at beginning of year ...... 2.083 2.043 1.991 1.897 1.770 1.635 1.535 1.452 1.376 1.285 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 2.146 $ 2.083 $ 2.043 $ 1.991 $ 1.897 $ 1.770 $ 1.635 $ 1.535 $ 1.452 $ 1.376 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase in unit value ........... .06 .04 .05 .09 .13 .14 .10 .08 .08 .09 Ratio of operating expenses to average net assets .................. 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.31% 1.32% 1.32% 1.32% Ratio of net investment income to average net assets .................. 2.98% 1.93% 2.58% 4.90% 6.93% 7.81% 6.19% 5.49% 5.09% 6.83% Number of units outstanding at end of year (thousands) ............. 206 218 227 262 326 367 497 592 593 639 + On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account MM. The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information.
CONDENSED FINANCIAL INFORMATION -- ACCOUNT MM CONDENSED FINANCIAL INFORMATION THE TRAVELERS FUND U FOR VARIABLE ANNUITIES Accumulation Unit Values (Unaudited)
1994 1993 1992 1991 1990 ----------------- ------------------ ----------------- ----------------- --------------- Q NQ Q NQ Q NQ Q NQ Q NQ ------- ------- ------- ------- ------- ------ ------ ------- ------ ------- Capital Appreciation Fund* Unit Value at beginning of year. $ 1.892 $ 1.962 $ 1.665 $ 1.727 $ 1.433 $ 1.487 $ 1.075 $ 1.114 $ 1.157 $ 1.200 Unit Value at end of year ....... 1.779 1.845 1.892 1.962 1.665 1.727 1.433 1.487 1.075 1.114 Number of units outstanding at end of year (thousands)......... 40,160 3,605 30,003 2,825 16,453 1,020 12,703 887 11,356 553 High Yield Bond Trust Unit Value at beginning of year .$ 2.222 $ 2.245 $ 1.974 $ 1.994 $ 1.767 $ 1.785 $ 1.418 $ 1.433 $ 1.573 $ 1.590 Unit Value at end of year ....... 2.167 2.189 2.222 2.245 1.976 1.994 1.767 1.785 1.418 1.433 Number of units outstanding at end of year (thousands) ........ 4,708 585 5,066 603 4,730 428 4,018 344 4,045 341 Managed Assets Trust Unit Value at beginning of year .$ 2.281 $ 2.455 $ 2.111 $ 2.273 $ 2.034 $ 2.189 $ 1.691 $ 1.821 $ 1.671 $ 1.799 Unit Value at end of year ....... 2.201 2.369 2.281 2.455 2.111 2.273 2.034 2.189 1.691 1.821 Number of units outstanding at end of year (thousands)......... 58,355 4,813 63,538 4,490 65,926 4,120 58,106 3,359 51,489 2,744 1989 1988 1987 1986 1985 ----------------- ------------------ ----------------- ----------------- --------------- Q NQ Q NQ Q NQ Q NQ Q NQ ------- ------- ------- ------- ------- ------ ------ ------- ------ ------- Capital Appreciation Fund* Unit Value at beginning of year .$ 1.015 $ 1.052 $ 0.934 $ 0.968 $ 1.027 $ 1.066 $ 0.946 $ 0.976 $ 0.736 $ 0.755 Unit Value at end of year ....... 1.157 1.200 1.015 1.052 0.934 0.968 1.027 1.066 0.946 0.976 Number of units outstanding at end of year (thousands) ........ 12,038 495 13,040 423 12,957 486 12,658 263 13,504 93 High Yield Bond Trust Unit Value at beginning of year .$ 1.571 $ 1.588 $ 1.388 $ 1.403 $ 1.412 $ 1 .427 $ 1.324 $ 1.339 $ 1.134 $ 1.146 Unit Value at end of year ....... 1.573 1.590 1.571 1.588 1.388 1.403 1.412 1.427 1.324 1.339 Number of units outstanding at end of year (thousands) ........ 6,074 573 5,783 676 4,645 523 4,866 591 2,331 86 Managed Assets Trust Unit Value at beginning of year .$ 1.331 $ 1.433 $ 1.234 $ 1.328 $ 1.223 $ 1.317 $ 1.040 $ 1.119 $ 0.831 $ 0.892 Unit Value at end of year ....... 1.671 1.799 1.331 1.433 1.234 1.328 1.223 1.317 1.040 1.119 Number of units outstanding at end of year (thousands) ........ 47,104 2,836 46,809 3,316 46,733 3,875 33,600 1,876 28,956 939 Q = Qualified NQ = Non-Qualified The financial statements of Fund U are contained in the 1994 Annual Report to Contract Owners. The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. * Prior to May 1, 1994, the Capital Appreciation Fund was known as the Aggressive Stock Trust.
CONDENSED FINANCIAL INFORMATION -- FUND U CONDENSED FINANCIAL INFORMATION THE TRAVELERS FUND U FOR VARIABLE ANNUITIES ACCUMULATION UNIT VALUES (Unaudited)
1994 1993 1992* ---- ---- ----- U.S. GOVERNMENT SECURITIES PORTFOLIO Unit Value at beginning of period.............................................................. $ 1.153 $ 1.066 $ 1.000 Unit Value at end of period.................................................................... 1.074 1.153 1.066 Number of units outstanding at end of period (thousands) ...................................... 22,709 22,142 8,566 SOCIAL AWARENESS STOCK PORTFOLIO Unit Value at beginning of period.............................................................. $ 1.153 $ 1.086 $ 1.000 Unit Value at end of period.................................................................... 1.109 1.153 1.086 Number of units outstanding at end of period (thousands) ...................................... 3,499 2,920 1,332 UTILITIES PORTFOLIO Unit Value at beginning of period ............................................................. $ 1.000 -- -- Unit Value at end of period ................................................................... 1.005 -- -- Number of units outstanding at end of period (thousands) ...................................... 5,740 -- -- TEMPLETON BOND FUND Unit Value at beginning of year ............................................................... $ 1.172 $ 1.065 $ 1.000 Unit Value at end of year ..................................................................... 1.101 1.172 1.065 Number of units outstanding at end of year (thousands) ........................................ 10,186 8,014 3,477 TEMPLETON STOCK FUND Unit Value at beginning of year ............................................................... $ 1.385 $ 1.047 $ 1.000 Unit Value at end of year ..................................................................... 1.338 1.385 1.047 Number of units outstanding at end of year (thousands) ........................................ 101,462 43,847 10,433 TEMPLETON ASSET ALLOCATION FUND Unit Value at beginning of year ............................................................... $ 1.333 $ 1.070 $ 1.000 Unit Value at end of year ..................................................................... 1.277 1.333 1.070 Number of units outstanding at end of year (thousands) ........................................ 103,407 51,893 13,888 FIDELITY'S HIGH INCOME PORTFOLIO Unit Value at beginning of year ............................................................... $ 1.138 $ 1.138 $ 1.000 Unit Value at end of year ..................................................................... 1.316 1.354 1.138 Number of units outstanding at end of year (thousands) ........................................ 25,813 17,381 4,875 FIDELITY'S GROWTH PORTFOLIO Unit Value at beginning of year ............................................................... $ 1.024 $ 1.024 $ 1.000 Unit Value at end of year ..................................................................... 1.192 1.207 1.024 Number of units outstanding at end of year (thousands) ........................................ 176,304 101,260 30,240 FIDELITY'S EQUITY-INCOME PORTFOLIO Unit Value at beginning of period ............................................................. $ 1.052 $ 1.000 -- Unit Value at end of period ................................................................... 1.112 1.052 -- Number of units outstanding at end of period (thousands) ...................................... 78,856 13,414 -- FIDELITY'S ASSET MANAGER PORTFOLIO Unit Value at beginning of year ............................................................... $ 1.301 $ 1.088 $ 1.000 Unit Value at end of year ..................................................................... 1.207 1.301 1.088 Number of units outstanding at end of year (thousands) ........................................ 282,474 162,413 30,207 DREYFUS STOCK INDEX FUND, INC. Unit Value at beginning of year ............................................................... $ 1.148 $ 1.064 $ 1.000 Unit Value at end of year ..................................................................... 1.144 1.148 1.064 Number of units outstanding at end of year (thousands) ........................................ 31,600 26,789 12,089 AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND Unit Value at beginning of period ............................................................. $ 1.180 $ 1.000 -- Unit Value at end of period ................................................................... 1.084 1.180 -- Number of units outstanding at end of period (thousands) ...................................... 47,096 16,944 -- AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND Unit Value at beginning of period ............................................................. $ 1.079 $ 1.000 -- Unit Value at end of period ................................................................... 1.168 1.079 -- Number of units outstanding at end of period (thousands) ...................................... 73,838 27,011 -- AMERICAN ODYSSEY CORE EQUITY FUND Unit Value at beginning of period ............................................................. $ 1.012 $ 1.000 -- Unit Value at end of period ................................................................... .990 1.012 -- Number of units outstanding at end of period (thousands) ...................................... 100,082 37,136 -- AMERICAN ODYSSEY LONG-TERM BOND FUND Unit Value at beginning of period ............................................................. $ 1.085 $ 1.000 -- Unit Value at end of period ................................................................... 1.010 1.085 -- Number of units outstanding at end of period (thousands) ...................................... 70,928 25,467 -- AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND Unit Value at beginning of period ............................................................. $ 1.035 $ 1.000 -- Unit Value at end of period ................................................................... .993 1.035 -- Number of units outstanding at end of period (thousands) ...................................... 50,403 19,564 -- AMERICAN ODYSSEY SHORT-TERM BOND FUND Unit Value at beginning of period ............................................................. $ 1.020 $ 1.000 -- Unit Value at end of period ................................................................... 1.006 1.020 -- Number of units outstanding at end of period (thousands) ...................................... 17,611 8,201 -- * Period covers January 24, 1992 (date portfolio became available under Fund U) to December 31, 1992, except Social Awareness Stock Portfolio, which became available under Fund U on May 1, 1992.
The financial statements of Fund U are contained in the 1994 Annual Report to Contract Owners. The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each period The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report.
1994 1993 1992 1991 1990 1989 1988 ---- ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA Total investment income ................................ $ .064 $ .043 $ .046 $ .045 $ .099 $ .161 $ .044 Operating expenses ..................................... **(.041) **.042 **.045 **.045 **.034 .023 .017 ------- ------- ------- ------- ------- ------- ------- Net investment income .................................. .023 .001 .001 -- .065 .138 .027 Unit Value at beginning of year ........................ $ 1.776 $ 1.689 $ 1.643 $ 1.391 $ 1.447 $ 1.108 $ 1.000 Net realized and change in unrealized gains (losses).... (.104) 0.086 0.045 0.252 (.121) .201 .081 ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............................. $ 1.695 $ 1.776 $ 1.689 $ 1.643 $ 1.391 $ 1.447 $ 1.108 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value .................. (.08) .09 .05 .25 (.06) .34 .11 Ratio of operating expenses to average net assets * .... ** 2.82% ** 2.82% ** 2.82% ** 2.82% ** 2.41% 1.57% 1.57% Ratio of net investment income to average net assets * . 1.58% 0.08% 0.78% 1.33% 1.86% 2.81% 2.55% Number of units outstanding at end of year (thousands) . 29,692 -- 217,428 -- 5,708 -- 3,829 Portfolio turnover rate ............................... 19% 70% 119% 489% 653% 149% 268% * Annualized ** Effective May 1, 1990, market timing fees are included in operating expenses. Prior to May 1, 1990, market timing fee payments were made by separate check from a contract owner, and were not recorded in the financial statements of Account TGIS, or by contractual surrender to the extent allowed under federal tax law.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION--ACCOUNT TGS CONDENSED FINANCIAL INFORMATION THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES* Per Unit Data for an Accumulation Unit outstanding throughout each period The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report.
1994 1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA Total investment income .............................. $ .055 $ .041 $ .054 $ .076 $ .099 $ .102 $ .078 $ .003 Operating expenses ................................... ** .036 ** .037 ** .041 ** .036 ** .030 .017 .016 .001 ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................................ .019 .004 .013 .040 .069 .085 .062 .002 Unit value at beginning of year ...................... 1.275 1.271 1.258 1.218 1.149 1.064 1.002 1.000 Net realized and change in unrealized gains (losses) **** ....................................... (.002) -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Unit value at end of year ............................ $ 1.292 $ 1.275 $ 1.271 $ 1.258 $ 1.218 $ 1.149 $ 1.064 $ 1.002 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase in unit value ........................... .02 -- .01 .04 .07 .09 .06 -- Ratio of operating expenses to average net assets *** ** 2.82% ** 2.82% ** 2.82% ** 2.82% ** 2.41% 1.57% 1.57% 1.57% Ratio of net investment income to average net assets *** ............................. 1.45% .39% 1.12% 3.07% 5.89% 7.63% 6.51% 2.69% Number of units outstanding at end of year (thousands) 216,713 353,374 173,359 439,527 369,769 360,074 356,969 288,757 * Prior to May 1,1994, the Account was known as The Travelers Timed Money Market Account for Variable Annuities. ** Effective May 1, 1990, market timing fees are included in operating expenses. Prior to May 1, 1990, market timing fee payments were made by separate check from a contract owner, and were not recorded in the financial statements of Account TSB, or by contractual surrender to the extent allowed under federal tax law. *** Annualized **** Effective May 2, 1994, Account TSB was authorized to invest in securities with a maturity of greater than one year. As a result, net realized and change in unrealized gains (losses) are no longer included in total investment income.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each period The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report.
1994 1993 1992 1991 + 1990 1989 1988 1987 ------- ------- ------- ------- ------- ------- ------- ------- SELECTED PER UNIT DATA Total investment income .............................. $ .036 $ .037 $ .041 $ .044 $ .045 $ .052 $ .008 $ .001 Operating expenses ................................... ** .049 ** .048 ** .043 ** .039 ** .073 .051 .015 .000 ------- ------- ------- ------- ------- ------- ------- ------- Net investment income (loss) ......................... (.013) (.011) (.002) .005 (.028) .001 (.007) .001 Unit Value at beginning of year ...................... 1.838 1.624 1.495 1.136 1.189 1.059 1.001 1.000 Net realized and unrealized gains (losses) ........... (.119) .225 .131 .354 (.025) .129 .065 .000 ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............................ $ 1.706 $ 1.838 $ 1.624 $ 1.495 $ 1.136 $ 1.189 $ 1.059 $ 1.001 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ................ (.13) .21 (.13) .36 (.05) .13 .06 .00 Ratio of operating expenses to average net assets *... ** 2.80% ** 2.82% ** 2.93% ** 2.99% ** 2.64% 1.95% 1.95% 1.95% Ratio of net investment income to average net assets * (.72)% (.80)% (.12)% .37% (3.73)% .91% (.88)% 4.90% Number of units outstanding at end of year (thousands) 25,109 43,059 20,225 19,565 5,585 0 0 841 Portfolio turnover rate .............................. 142% 71% 269% 261% 0% 77% 127% 0 * Annualized ** Effective May 1, 1990, market timing fees are included in operating expenses. Prior to May 1,1990, market timing fee payments were made by separate check from a contract owner and were not recorded in the financial statements of Account TAS, or by contractual surrender to the extent allowed under federal tax law. + On May 1, 1990, TIMCO replaced Keystone Custodian Funds, Inc. as the investment adviser for Account TAS.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION--ACCOUNT TAS CONDENSED FINANCIAL INFORMATION THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each period The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report.
1994 1993 1992 1991 +1990 1989 1988 1987 ------- ------- ------- ------- ------- ------- ------- ------- SELECTED PER UNIT DATA Total investment income ........................ $ .007 $ .054 $ .051 $ .052 $ .072 $ .147 $ .141 $ .001 Operating expenses ............................. ** .006 ** .036 ** .032 ** .031 ** .018 .023 .022 .001 ------- ------- ------- ------- ------- ------- ------- ------- Net investment income .......................... .001 .018 .019 .021 .054 .124 .119 .000 Unit Value at beginning of year................. 1.234 1.132 1.087 .994 1.036 1.114 1.000 1.000 Net realized and change in unrealized gains (losses) ..................................... (.020) .084 .026 .072 (.096) (.202) (.005) -- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ...................... $ 1.215 $ 1.234 $ 1.132 $ 1.087 $ .994 $ 1.036 $ 1.114 $ 1.000 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value .......... (.02) .10 .05 .09 (.04) (.08) .11 .00 Ratio of operating expenses to average net assets * ..................................... ** 3.00% ** 3.00% ** 2.99% ** 3.00% ** 2.58% 2.02% 2.04% 1.78% Ratio of net investment income to average net assets * ................................. 1.02% 1.48% 1.71% 3.07% 3.88% 11.15% 11.12% (.95) Number of units outstanding at end of year (thousands) .................................. -- 20,207 21,868 19,521 14,115 660 830 625 Portfolio turnover rate ........................ -- 190% 505% 627% 370% 10% 26% 0% * Annualized ** Effective May 1, 1990, market timing fees are included in operating expenses. Prior to May 1, 1990, market timing fee payments were made by separate check from a contract owner, and were not recorded in the financial statements of Account TB, or by contractual surrender to the extent allowed under federal tax law. + On May 1, 1990, TAMIC replaced Keystone Custodian Funds, Inc. as the investment adviser for Account TB.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION --ACCOUNT TB THE INSURANCE COMPANY - ----------------------------------------------------------------- The Travelers Insurance Company (the "Company") is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct a life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The Company is an indirect wholly owned subsidiary of The Travelers Inc. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. THE SEPARATE ACCOUNTS - ----------------------------------------------------------------- Each of the Separate Accounts available under the Variable Annuity contract described in this Prospectus meets the definition of a separate account under the federal securities laws, and will comply with the provisions of the Investment Company Act of 1940 (the "1940 Act"), as amended. Additionally, the operations of each of the Separate Accounts are subject to the provisions of Section 38a-433 of the Connecticut General Statutes which authorizes the Connecticut Insurance Commissioner to adopt regulations under it. Section 38a-433 contains no restrictions on investments of the Separate Accounts, and the Commissioner has adopted no regulations under the Section that affect the Separate Accounts. There are two different types of Separate Accounts which serve as the funding vehicles for the Variable Annuity contracts described in this Prospectus. The first type, Fund U, is a unit investment trust registered with the Securities and Exchange Commission ("SEC") under the 1940 Act, which means that Fund U's assets are invested exclusively in the shares of the Underlying Funds. The second type of Separate Account available under the Contract (Accounts GIS, QB, MM, TGIS, TSB, TAS and TB) are diversified, open-end management investment companies registered with the SEC under the 1940 Act. The assets of these Separate Accounts are invested directly in securities such as stocks, bonds or money market instruments which are compatible with the stated investment policies of each Account. Each of the Separate Accounts available in connection with the Contract has different investment objectives and fundamental investment policies, as set forth below. Neither the investment objectives nor the fundamental investment policies of a Separate Account can be changed without a vote of a majority of the outstanding voting securities of the Account, as defined in the Investment Company Act of 1940, as amended. Each of the Separate Accounts was established as follows: Fund U -- May 16, 1983; Account GIS -- September 22, 1967; Account QB -- July 29, 1974; Account MM -- December 29, 1981; Accounts TGIS and TSB -- October 30, 1986; and Accounts TAS and TB -- January 2, 1987. GENERAL Under Connecticut law, the assets of the Separate Accounts will be held for the exclusive benefit of the owners of, and the persons entitled to payment under, the Variable Annuity contracts offered by this Prospectus and under all other contracts which provide for accumulated values or dollar amount payments to reflect investment results of the Separate Accounts. Income, gains and losses, whether or not realized, for assets allocated to the Separate Accounts, are in accordance with the applicable annuity contracts, credited to or charged against the Separate Accounts without regard to other income, gains or losses of the Company. The assets in the Separate Accounts are not chargeable with liabilities arising out of any other business which the Company may conduct. The obligations arising under the Variable Annuity contracts are obligations of the Company. SUBSTITUTION OF INVESTMENTS If any of the Separate Accounts or Underlying Funds are no longer possible, or in the judgment of the Company become inappropriate for the purposes of the Contract, the Company may substitute another investment alternative without consent of Contract Owners. Substitution may be made with respect to both existing investments and the investment of future Purchase Payments. However, no such substitution will be made without notice to Contract Owners and without prior approval of the Securities and Exchange Commission, to the extent required by the 1940 Act, or other applicable law. The Company may also add other available investment alternatives under the Contract. THE TRAVELERS FUND U FOR VARIABLE ANNUITIES - ----------------------------------------------------------------- Fund U currently invests in the following Underlying Funds. Purchase Payments applied to Fund U will be invested in the Underlying Funds at net asset value in accordance with the selection made by the Owner. Owners may change their selection without fee, penalty or charge, except those which may be assessed directly by the Underlying Funds. Underlying Funds may be added or withdrawn as permitted by applicable law. Additionally, some of the Underlying Funds may not be available in every state due to various insurance regulations. THE UNDERLYING FUNDS CAPITAL APPRECIATION FUND. The objective of the Capital Appreciation Fund is growth of capital through the use of common stocks. Income is not an objective. The Fund invests principally in common stocks of small to large companies which are expected to experience wide fluctuations in price in both rising and declining markets. HIGH YIELD BOND TRUST. The objective of the High Yield Bond Trust is generous income. The assets of the High Yield Bond Trust will be invested in bonds which, as a class, sell at discounts from par value and are typically high risk securities. Please read carefully the complete risk disclosure in the Trust's prospectus before investing. MANAGED ASSETS TRUST. The objective of the Managed Assets Trust is high total investment return through a fully managed investment policy. Assets of the Managed Assets Trust will be invested in a portfolio of equity, debt and convertible securities. U.S. GOVERNMENT SECURITIES PORTFOLIO. The objective of the U.S. Government Securities Portfolio is the selection of investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. The assets of the U.S. Government Securities Portfolio will be invested in direct obligations of the United States, its agencies and instrumentalities. SOCIAL AWARENESS STOCK PORTFOLIO. The investment objective of the Social Awareness Stock Portfolio is long-term capital appreciation and retention of net investment income. The Portfolio seeks to fulfill this objective by selecting investments, primarily common stocks, which meet the social criteria established for the Portfolio. Social criteria currently excludes companies that derive a significant portion of their revenues from the production of tobacco, tobacco products, alcohol, or military defense systems, or in the provision of military defense related services or gambling services. UTILITIES PORTFOLIO. The objective of the Utilities Portfolio is to provide current income by investing in equity and debt securities of companies in the utility industries. TEMPLETON BOND FUND. The objective of the Templeton Bond Fund is high current income through a flexible policy of investing primarily in debt securities of companies, governments and government agencies of various nations throughout the world. TEMPLETON STOCK FUND. The objective of the Templeton Stock Fund is capital growth through a policy of investing primarily in common stocks issued by companies, large and small, in various nations throughout the world. TEMPLETON ASSET ALLOCATION FUND. The objective of the Templeton Asset Allocation Fund is a high level of total return with reduced risk over the long term through a flexible policy of investing in stocks of companies in any nation and debt obligations of companies and governments of any nation. Changes in the asset mix will be adjusted in an attempt to capitalize on total return potential produced by changing economic conditions throughout the world. FIDELITY'S HIGH INCOME PORTFOLIO. The objective of the High Income Portfolio is to seek to obtain a high level of current income by investing primarily in high yielding, lower-rated, fixed-income securities, while also considering growth of capital. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. FIDELITY'S EQUITY-INCOME PORTFOLIO. The objective of Equity-Income Portfolio is to seek reasonable income by investing primarily in income-producing equity securities; in choosing these securities, the portfolio manager will also consider the potential for capital appreciation. FIDELITY'S GROWTH PORTFOLIO. The objective of the Growth Portfolio is to seek capital appreciation. The Portfolio normally purchases common stocks of well-known, established companies, and small emerging growth companies, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. FIDELITY'S ASSET MANAGER PORTFOLIO. The objective of the Asset Manager Portfolio is to seek high total return with reduced risk over the long-term by allocating its assets among stocks, bonds and short-term fixed-income instruments. DREYFUS STOCK INDEX FUND. The objective of the Dreyfus Stock Index Fund is to provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND. * The objective of the International Equity Fund is to seek maximum long-term total return by investing primarily in common stocks of established non-U.S. companies. AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND. * The objective of the Emerging Opportunities Fund is to seek maximum long-term total return by investing primarily in common stocks of small, rapidly growing companies. AMERICAN ODYSSEY CORE EQUITY FUND. * The objective of the Core Equity Fund is to seek maximum long-term total return by investing primarily in common stocks of well-established companies. AMERICAN ODYSSEY LONG-TERM BOND FUND. * The objective of the Long- Term Bond Fund is to seek maximum long-term total return by investing primarily in long-term corporate debt securities, U.S. government securities, mortgage-related securities, and asset- backed securities, as well as money market instruments. AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND. * The objective of the Intermediate-Term Bond Fund is to seek maximum long-term total return by investing primarily in intermediate-term corporate debt securities, U.S. government securities, mortgage-related securities and asset-backed securities, as well as money market instruments. AMERICAN ODYSSEY SHORT-TERM BOND FUND. * The objective of the Short-Term Bond Fund is to seek maximum long-term total return by investing primarily in investment-grade, short-term debt securities. SMITH BARNEY INCOME AND GROWTH PORTFOLIO. The objective of the Income and Growth Portfolio is current income and long-term growth of income and capital by investing primarily, but not exclusively, in common stocks. ALLIANCE GROWTH PORTFOLIO. The objective of the Growth Portfolio is long-term growth of capital by investing predominantly in equity securities of companies with a favorable outlook for earnings and whose rate of growth is expected to exceed that of the U.S. economy over time. Current income is only an incidental consideration. SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO. The objective of the International Equity Portfolio is total return on assets from growth of capital and income by investing at least 65% of its assets in a diversified portfolio of equity securities of established non-U.S. issuers. PUTNAM DIVERSIFIED INCOME PORTFOLIO. The objective of the Diversified Income Portfolio is to seek high current income consistent with preservation of capital. The Portfolio will allocate its investments among the U.S. Government Sector, the High Yield Sector, and the International Sector of the fixed income securities markets. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. G.T. GLOBAL STRATEGIC INCOME PORTFOLIO. The Strategic Income Portfolio's investment objective is primarily to seek high current income and secondarily to seek capital appreciation. The Portfolio allocates its assets among debt securities of issuers in the United States, developed foreign countries, and emerging markets. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. SMITH BARNEY HIGH INCOME PORTFOLIO. The investment objective of the High Income Portfolio is high current income. Capital appreciation is a secondary objective. The Portfolio will invest at least 65% of its assets in high-yielding corporate debt obligations and preferred stock. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. MFS TOTAL RETURN PORTFOLIO. The Total Return Portfolio's objective is to obtain above-average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. Generally, at least 40% of the Portfolio's assets will be invested in equity securities. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. * Funds available for use with an asset allocation program, as described below. UNDERLYING FUND INVESTMENT ADVISERS The Underlying Funds receive investment management and advisory services from the following investment professionals:
FUND INVESTMENT ADVISER SUB-ADVISER - ---------------------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund The Travelers Investment Management Company (TIMCO) Janus Capital Corporation High Yield Bond Trust Travelers Asset Management International Corporation (TAMIC) Managed Assets Trust TAMIC TIMCO U.S. Government Securities Portfolio TAMIC Social Awareness Stock Portfolio Smith Barney Mutual Funds Management Inc. Utilities Portfolio Smith Barney Mutual Funds Management Inc. Templeton Stock Fund Templeton Investment Counsel, Inc. Templeton Asset Allocation Fund Templeton Investment Counsel, Inc. Templeton Bond Fund Templeton Global Bond Managers Fidelity's High Income Portfolio Fidelity Management & Research Company Fidelity's Equity-Income Portfolio Fidelity Management & Research Company Fidelity's Growth Portfolio Fidelity Management & Research Company Fidelity's Asset Manager Portfolio Fidelity Management & Research Company Dreyfus Stock Index Fund Wells Fargo Nikko Investment Advisors American Odyssey International Equity Fund American Odyssey Funds Management, Inc. Bank of Ireland Asset (U.S.) Management Limited American Odyssey Emerging Opportunities Fund American Odyssey Funds Management, Inc. Wilke/Thompson Capital Management, Inc. American Odyssey Core Equity Fund American Odyssey Funds Management, Inc. Equinox Capital Management, Inc. American Odyssey Long-Term Bond Fund American Odyssey Funds Management, Inc. Western Asset Management Company and WLO Global Management American Odyssey Intermediate- Term Bond Fund American Odyssey Funds Management, Inc. TAMIC American Odyssey Short-Term Bond Fund American Odyssey Funds Management, Inc. Smith Graham & Co. Asset Managers, L.P. Smith Barney Income and Growth Portfolio Smith Barney Mutual Funds Management Inc. Alliance Growth Portfolio Smith Barney Mutual Funds Management Inc. Alliance Capital Management L.P. Smith Barney International Equity Portfolio Smith Barney Mutual Funds Management Inc. Putnam Diversified Income Portfolio Smith Barney Mutual Funds Management Inc. Putnam Investment Management, Inc. G.T. Global Strategic Income Portfolio Smith Barney Mutual Funds Management Inc. G.T. Capital Management, Inc. Smith Barney High Income Portfolio Smith Barney Mutual Funds Management Inc. MFS Total Return Portfolio Smith Barney Mutual Funds Management Inc. Massachusetts Financial Services Company
ASSET ALLOCATION ADVICE Some Contract Owners have elected to enter into a separate advisory agreement with Copeland Financial Services, Inc. ("Copeland"), an affiliate of the Company. Copeland provides asset allocation advice under its CHART Program (R), which is fully described in a separate Disclosure Statement. Under the CHART Program, purchase payments and Cash Values are allocated among the six American Odyssey Funds. Copeland's charge for this advisory service is equal to a maximum of 1.50% of the assets subject to the CHART Program. This fee is currently reduced by 0.25%, the amount of the fee paid to the investment manager of American Odyssey Funds, and it is further reduced for assets over $25,000. Another reduction is made for participants in plans subject to ERISA with respect to amounts allocated to the American Odyssey Intermediate-Term Bond Fund because that Fund has as its sub-adviser an affiliate of Copeland. A $30 initial fee is also charged. The CHART Program fee will be paid by quarterly withdrawals from the Cash Values allocated to the American Odyssey Funds. The Company will not treat these withdrawals as taxable distributions. The CHART Program may not be available in all marketing programs through which the Universal Annuity contract is sold. GENERAL All investment income and other distributions of Fund U are reinvested in fund shares at net asset value. The funds are required to redeem fund shares at net asset value and to make payment within seven days. Fund shares for the Underlying Funds listed above are currently sold to Fund U in connection with variable annuity contracts issued by the Company; additionally, some of the Underlying Fund shares may also be sold to other separate accounts in connection with variable annuity and variable life insurance contracts issued by the Company, its affiliates or other insurance companies. Shares of the Underlying Funds are not sold to the general public. More detailed information may be found in the current prospectuses for the Underlying Funds listed above; these prospectuses are included with and must accompany this Prospectus. Please read them carefully before investing. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT GIS) - ----------------------------------------------------------------- INVESTMENT OBJECTIVE The basic investment objective of Account GIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account GIS generally will be fully invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States government securities. These investments in other than equity securities generally would not have a prospect of long-term appreciation, and are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account GIS will use exchange-traded stock index futures contracts as a hedge to protect against changes in stock prices. A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. Stock index futures may also be used to hedge cash inflows to gain market exposure until the cash is invested in specific common stocks. Account GIS will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. When a futures contract is purchased, Account GIS will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All stock index futures will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account GIS will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). Account GIS expects that risk management transactions involving futures contracts will not impact more than thirty percent (30%) of its assets at any one time. For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. Account GIS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. It may also purchase index or individual equity call options as an alternative to holding stocks or stock index futures, or purchase index or individual equity put options as a defensive measure. For a detailed discussion of options contracts and associated risks, please see the Statement of Additional Information. Changes in investments may be made from time to time to take into account changes in the outlook for particular industries or companies. The investments of Account GIS will not, however, be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of Account GIS's assets will be invested in any one industry. While Account GIS may occasionally invest in foreign securities, it is not anticipated that such foreign securities will, at any time, account for more than ten percent (10%) of the investment portfolio. The assets of Account GIS will be kept fully invested, except that (a) sufficient cash may be kept on hand reasonably to provide for variable annuity contract obligations, and (b) reasonable amounts of cash, United States government or other liquid securities, such as short-term bills and notes, may be held for limited periods, pending investment in accordance with Account GIS's investment policies. RISK FACTORS It must be recognized that there are risks inherent in the ownership of any security. The investment experience on equity investments over time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors, including not only business conditions and investor confidence in the economy, but current conditions in a particular industry or company. The yield on a common stock is not contractually determined. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account GIS permit it to: 1. invest up to 5% of its assets in the securities of any one issuer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 2. borrow from banks in amounts of up to 5% of its assets, but only for emergency purposes; 3. purchase interests in real estate represented by securities for which there is an established market; 4. make loans through the acquisition of a portion of a privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors; 5. acquire up to 10% of the voting securities of any one issuer (it is the present practice of Account GIS not to exceed 5% of the voting securities of any one issuer); 6. make purchases on margin in the form of short-term credits which are necessary for the clearance of transactions; and place up to 5% of its net asset value in total margin deposits for positions in futures contracts; and 7. invest up to 5% of its assets in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT QB) - ----------------------------------------------------------------- INVESTMENT OBJECTIVE The basic investment objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. It is contemplated that the assets of Account QB will be invested in money market obligations, including, but not limited to, Treasury bills, repurchase agreements, commercial paper, bank certificates of deposit and bankers' acceptances, and in publicly traded debt securities, including bonds, notes, debentures, equipment trust certificates and short-term instruments. These securities may carry certain equity features such as conversion or exchange rights or warrants for the acquisition of stocks of the same or different issuer, or participations based on revenues, sales or profits. It is currently anticipated that the market value-weighted average maturity of the portfolio will not exceed five years. (In the case of mortgage-backed securities, the estimated average life of cash flows will be used instead of average maturity.) Investment in longer term obligations may be made if the Board of Managers concludes that the investment yields justify a longer term commitment. The investments of Account QB will not be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of Account QB's assets will be invested in any one industry. The portfolio will be actively managed and investments may be sold prior to maturity to the extent that this action is considered advantageous in light of factors such as market conditions or brokerage costs. While the investments of Account QB are generally not listed securities, there are firms which make markets in the type of debt instruments that Account QB holds. No problems of salability are anticipated with regard to the investments of Account QB. Account QB may from time to time purchase new-issue government or agency securities on a "when-issued" or "to be announced" ("TBA") basis ("when-issued securities"). The prices of such securities will be fixed at the time the commitment to purchase is made, and may be expressed in either dollar price or yield maintenance terms. Delivery and payment may be at a future date beyond customary settlement time. It is the customary practice of Account QB to make when-issued or TBA purchases for settlement no more than 90 days beyond the commitment date. The commitment to purchase when-issued securities may be viewed as a senior security, and will be marked to market and reflected in Account QB's Accumulation Unit Value daily from the commitment date. While it is TAMIC's intention to take physical delivery of these securities, offsetting transactions may be made prior to settlement, if it is advantageous to do so. Account QB does not make payment or begin to accrue interest on these securities until settlement date. In order to invest its assets pending settlement, Account QB will normally invest in short-term money market instruments and other securities maturing no later than the scheduled settlement date. Account QB does not intend to purchase when-issued securities for speculative or "leverage" purposes. Consistent with Section 18 of the Investment Company Act of 1940 and the General Policy Statement of the SEC thereunder, when Account QB commits to purchase a when- issued security, it will identify and place in a segregated account high-grade money market instruments and other liquid securities equal in value to the purchase cost of the when-issued securities. TAMIC believes that purchasing securities in this manner will be advantageous to Account QB. However, this practice does entail certain risks, namely the default of the counterparty on its obligation to deliver the security as scheduled. In this event, Account QB would endure a loss (gain) equal to the price appreciation (depreciation) in value from the commitment date. TAMIC employs a rigorous credit quality procedure in determining the counterparties with which it will deal in when-issued securities and, in some circumstances, will require the counterparty to post cash or some other form of security as margin to protect the value of its delivery obligation pending settlement. Account QB may also purchase and sell interest rate futures contracts to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account QB's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of the portfolio securities will substantially be offset by depreciation in the value of the futures position. Account QB will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. At no time will Account QB's transactions in futures contracts be employed for speculative purposes. When a futures contract is purchased, Account QB will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All interest rate futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account QB will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. RISK FACTORS The Board of Managers will weigh considerations of risks, yield and ratings in implementing Account QB's fundamental investment policies. There are no specific criteria with regard to quality or ratings of the investments of Account QB, but it is anticipated that they will be of investment grade or its equivalent as determined in good faith by the Board of Managers. There may or may not be more risk in investing in debt instruments where there are no specific criteria with regard to quality or ratings of the investments. The yield on debt instruments over a period of time should reflect prevailing interest rates, which depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. The yield on a particular debt instrument is also affected by the risk that the issuer will be unable to pay principal and interest. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account QB permit it to: 1. invest up to 15% of the value of its assets in the securities of any one issuer (exclusive of obligations of the United States government and its instrumentalities, for which there is no limit); 2. borrow from banks in amounts of up to 5% of its assets, but only for emergency purposes; 3. purchase interests in real estate represented by securities for which there is an established market; 4. make loans through the acquisition of a portion of a privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors; 5. acquire up to 10% of the voting securities of any one issuer (it is the present practice of Account QB not to exceed 5% of the voting securities of any one issuer); 6. make purchases on margin in the form of short-term credits which are necessary for the clearance of transactions; and place up to 5% of its net asset value in total margin deposits for positions in futures contracts; and 7. invest up to 5% of its assets in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT MM) - ----------------------------------------------------------------- INVESTMENT OBJECTIVE The basic investment objective of Account MM is preservation of capital, a high degree of liquidity and the highest possible current income available from certain short-term money market securities. While there are many kinds of short-term securities used by the various money market funds, Account MM restricts its investment portfolio to only the securities listed below. As is true with all investment companies, there can be no assurance that Account MM's objectives will be achieved. Account MM's assets will be invested in the following types of securities. 1. Marketable obligations issued or guaranteed by the United States government, its agencies, authorities or instrumentalities. These include issues of the United States Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies, authorities and instrumentalities established under the authority of an act of Congress. The latter issues include, but are not limited to, obligations of the Tennessee Valley Authority, the Bank for Cooperatives, the Federal Intermediate Credit Banks, Federal Land Banks and the Federal National Mortgage Association. Obligations issued or guaranteed by the United States government, its agencies, authorities or instrumentalities may be supported by the full faith and credit of the United States Treasury; by the right of the issuer to borrow from the United States Treasury; by discretionary authority of the United States government to purchase an agency's, authority's or instrumentalities' obligations and in some instances, solely by the credit of the United States government agency, authority or instrumentality. No assurance can be given that the United States government will provide financial support to such United States government sponsored agencies, authorities or instrumentalities in the future, since it is not obligated to do so by law. Account MM will invest in such securities only when satisfied that the credit risk with respect to the issuer (or guarantor) is minimal. Interest or discount rates on agency securities are closely related to rates on Treasury bills. 2. Certificates of Deposit and Banker's Acceptances of banks having total assets of more than $1 billion which are members of the Federal Deposit Insurance Corporation. Certificates of Deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market before maturity. The Federal Deposit Insurance Corporation does not insure Certificates of Deposit to the extent they are in excess of $100,000 per customer. Banker's Acceptances usually arise from short-term credit arrangements drawn on a bank by an exporter or importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturity for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Account MM may invest in securities, payable in United States dollars, of foreign branches of United States banks which meet the foregoing requirements. Obligations of foreign branches of United States banks are subject to additional risks than those of domestic branches of United States banks. These additional risks include foreign economic and political developments, foreign governmental restrictions which may adversely affect payment of principal and interest on obligations, foreign withholding and other taxes on interest income, and difficulties in obtaining and enforcing a judgment against a foreign branch of a domestic bank. In addition, different risks may result from the fact that foreign branches of United States banks are not necessarily subject to the types of requirements that apply to domestic branches of United States banks with respect to mandatory reserves, loan limitations, examinations, accounting, auditing, recordkeeping and the public availability of information. 3. Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's Investor Services, Inc. For a more detailed discussion of the characteristics of commercial paper ratings, please see the Statement of Additional Information. 4. Repurchase agreements with national banks or reporting broker dealers involving marketable obligations of or guaranteed by the United States government, its agencies, authorities or instrumentalities. A repurchase agreement is an agreement in which the seller of a security agrees to repurchase the security sold at a mutually agreed upon time and price. It may also be viewed as the loan of money by Account MM to the seller. The resale price is in excess of the purchase price, reflecting an agreed upon interest rate. The rate is effective for the period of time Account MM is invested in the agreement and is not related to the coupon rate on the underlying security. The period of these repurchase agreements will usually be short, from overnight to one week, and at no time will Account MM invest in repurchase agreements for more than one year. The securities which are subject to repurchase agreements may, however, have maturity dates in excess of one year from the effective date of the repurchase agreement. Account MM will always receive, as collateral, securities whose market value, including accrued interest, will be at least equal to 102% of the dollar amount invested by Account MM in each agreement and will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the Custodian. If the seller defaults, Account MM might incur a loss if the value of the collateral securing the repurchase agreement declines, and Account MM might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by Account MM may be delayed or limited. Account MM's Board of Managers will evaluate the creditworthiness of any banks or broker dealer with which Account MM engages in repurchase agreements by setting guidelines and standards of review for Account MM's investment adviser and monitoring the adviser's actions with regard to repurchase agreements for Account MM. The market value of Account MM's investments tends to decrease during periods of rising interest rates and to increase during intervals of falling interest rates, with corresponding fluctuations in Account MM's net income. In order to minimize the fluctuations in market values to which interest-paying obligations are subject, Account MM concentrates its investments in relatively short-term securities, and in no event does the maturity date of an obligation exceed one year from the date of Account MM's purchase. Return to Contract Owners is aided both by Account MM's ability to make investments in large denominations and by its efficiencies of scale. Also, Account MM may seek to improve portfolio income by selling certain portfolio securities before maturity date in order to take advantage of yield disparities that occur in money markets. Account MM may purchase and sell marketable obligations of or guaranteed by the United States government, its agencies, authorities or instrumentalities on a when-issued or delayed delivery basis, with such purchases possibly occurring as much as a month before actual delivery and payment. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account MM permit it to: 1. invest up to 25% of its assets in the securities of issuers in any single industry (exclusive of securities issued by domestic banks and savings and loan associations, or securities issued or guaranteed by the United States government, its agencies, authorities or instrumentalities); neither all finance companies, as a group, nor all utility companies, as a group, are considered a single industry for the purpose of this restriction; 2. invest up to 10% of its assets in the securities of any one issuer, including repurchase agreements with any one bank or dealer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); however, in accordance with Rule 2a-7 of the Investment Company Act of 1940, to which Account MM is subject, Account MM will not invest more than 5% of its assets in the securities of any one issuer (other than securities issued or guaranteed by the United States government or its instrumentalities); 3. acquire up to 10% of the outstanding securities of any one issuer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 4. borrow money from banks on a temporary basis in an aggregate amount not to exceed one third of Account MM's assets (including the amount borrowed); and 5. pledge, hypothecate or transfer, as security for indebtedness, any securities owned or held by Account MM as may be necessary in connection with any borrowing mentioned above and in an aggregate amount of up to 5% of Account MM's assets. THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TGIS) - ----------------------------------------------------------------- INVESTMENT OBJECTIVE The basic investment objective of Account TGIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account TGIS generally will be fully invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States government securities. These investments in other than equity securities generally would not have a prospect of long-term appreciation, and are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account TGIS will use exchange-traded financial futures contracts consisting of stock index futures contracts and futures contracts on debt securities ("interest rate futures") to facilitate market timed moves, and as a hedge to protect against changes in stock prices or interest rates. A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. An interest rate futures contract is a contract to buy or sell specified debt securities at a future time for a fixed price. These contracts would obligate Account TGIS, at maturity of the contracts, to purchase or sell certain securities at specified prices or to make cash settlements. In general, moves in a market-timed investment strategy may require the purchase or sale of large amounts of securities in a short period of time. This purchase or sale could result in substantial transaction costs and perhaps higher borrowing in Account TGIS to provide funds needed for transfer to the other timed accounts prior to the five-day settlement period for stock sales. Alternatively, common stock exposure can be increased or decreased in a more timely, cost-effective fashion by buying or selling stock index futures. By transacting in such futures when a market timing move is called, the investment adviser can create the ability to buy or sell actual common stocks with less haste and at lower transaction costs. As the actual stocks are bought or sold, the futures positions would simply be eliminated. Account TGIS may also purchase and sell interest rate futures to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account TGIS's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of portfolio securities will substantially be offset by depreciation in the value of the futures position. Account TGIS will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts it has entered into. At no time will Account TGIS's transactions in such financial futures be employed for speculative purposes. When a futures contract is purchased, Account TGIS will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All financial futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account TGIS will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. Account TGIS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. It may also purchase index or individual equity call options as an alternative to holding stocks or stock index futures, or purchase index or individual equity put options as a defensive measure. For a detailed discussion of options contracts and associated risks, please see the Statement of Additional Information. RISK FACTORS It must be recognized that there are risks inherent in the ownership of any security. The investment experience on equity investments over time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors including not only business conditions and investor confidence in the economy, but current conditions in a particular industry or company. The yield, if any, on a common stock is not contractually determined. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. In addition, there are risks inherent in Account TGIS as an investment alternative used by Market Timing Services. (See "Market Timing Risks," page 34.) FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account TGIS are the same as Account GIS. (See "Account GIS--Fundamental Investment Policies," page 22.) THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TSB) - ----------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of Account TSB is to generate high current income with limited price volatility while maintaining a high degree of liquidity. As is true with all investment companies, there can be no assurance that Account TSB's objectives will be achieved. Account TSB's assets will be invested in the following types of securities. The final maturity of any asset will not exceed three years and the average maturity of the total portfolio is expected to be nine months. 1. Marketable obligations issued or guaranteed by the United States government, its agencies, authorities or instrumentalities. These include issues of the United States Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies, authorities and instrumentalities established under the authority of an act of Congress. The latter issues include, but are not limited to, obligations of the Tennessee Valley Authority, the Bank for Cooperatives, the Federal Intermediate Credit Banks, Federal Land Banks and the Federal National Mortgage Association. Obligations issued or guaranteed by the United States government, its agencies, authorities or instrumentalities may be supported by the full faith and credit of the United States Treasury; by the right of the issuer to borrow from the United States Treasury; by discretionary authority of the United States government to purchase an agency's, authority's or instrumentalities' obligations and in some instances, solely by the credit of the United States government agency, authority or instrumentality. No assurance can be given that the United States government will provide financial support to such United States government sponsored agencies, authorities or instrumentalities in the future, since it is not obligated to do so by law. Account TSB will invest in such securities only when satisfied that the credit risk with respect to the issuer (or guarantor) is minimal. Interest or discount rates on agency securities are closely related to rates on Treasury bills. 2. Certificates of Deposit and Banker's Acceptances of banks having total assets of more than $1 billion which are members of the Federal Deposit Insurance Corporation. Certificates of Deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market before maturity. The Federal Deposit Insurance Corporation does not insure Certificates of Deposit to the extent they are in excess of $100,000 per customer. Banker's Acceptances usually arise from short-term credit arrangements drawn on a bank by an exporter or importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturity for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Account TSB may invest in securities payable in United States dollars of foreign branches of United States banks which meet the foregoing requirements and in Euro Certificates of Deposit, which are certificates of deposit issued by banks outside of the United States, with interest and principal paid in U.S. dollars. Obligations of foreign banks and foreign branches of United States banks are subject to additional risks than those of domestic branches of United States banks. These additional risks include foreign economic and political developments, foreign governmental restrictions which may adversely affect payment of principal and interest on obligations, foreign withholding and other taxes on interest income, and difficulties in obtaining and enforcing a judgment against a foreign bank or a foreign branch of a domestic bank. In addition, different risks may result from the fact that foreign banks or foreign branches of United States banks are not necessarily subject to the types of requirements that apply to domestic branches of United States banks with respect to mandatory reserves, loan limitations, examinations, accounting, auditing, recordkeeping and the public availability of information. 3. Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's Investor Services, Inc. For a more detailed discussion of the characteristics of commercial paper ratings, please see the Statement of Additional Information. 4. Repurchase agreements with national banks and reporting broker dealers involving marketable obligations of or guaranteed by the United States government, its agencies, authorities or instrumentalities. A repurchase agreement is an agreement in which the seller of a security agrees to repurchase the security sold at a mutually agreed upon time and price. It may also be viewed as the loan of money by Account TSB to the seller. The resale price is in excess of the purchase price, reflecting an agreed upon interest rate. The rate is effective for the period of time Account TSB is invested in the agreement and is not related to the coupon rate on the underlying security. The period of these repurchase agreements will usually be short, from overnight to one week, and at no time will Account TSB invest in repurchase agreements for more than one year. The securities which are subject to repurchase agreements may, however, have maturity dates in excess of one year from the effective date of the repurchase agreement. Account TSB will always receive, as collateral, securities whose market value, including accrued interest, will be at least equal to 102% of the dollar amount invested by Account TSB in each agreement and will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the Custodian. If the seller defaults, Account TSB might incur a loss if the value of the collateral securing the repurchase agreement declines, and Account TSB might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by Account TSB may be delayed or limited. Account TSB's Board of Managers will evaluate the creditworthiness of any banks or broker dealers with which Account TSB engages in repurchase agreements by setting guidelines and standards of review for Account TSB's investment adviser and monitoring the adviser's actions with regard to repurchase agreements for Account TSB. 5. Short-term notes, bonds, debentures and other debt instruments issued or guaranteed by an entity with a bond rating of at least AA by S&P or Aa by Moody's, and with final maturities of such short- term instruments normally limited to eighteen months at the time of purchase. The market value of Account TSB's investments tends to decrease during periods of rising interest rates and to increase during intervals of falling interest rates, with corresponding fluctuations in Account TSB's net income. In order to minimize the fluctuations in market values to which interest-paying obligations are subject, Account TSB concentrates its investments in relatively short-term securities, and in no event does the maturity date of an obligation exceed three years from the date of Account TSB's purchase. There can be no assurance that, upon redemption, Account TSB's net asset value will be equal to or greater than the net asset value at the time of purchase. Return to Contract Owners is aided both by Account TSB's ability to make investments in large denominations and by its efficiencies of scale. Also, Account TSB may seek to improve portfolio income by selling certain portfolio securities before maturity date in order to take advantage of yield disparities that occur in money markets. Account TSB may purchase and sell marketable obligations of or guaranteed by the United States government, its agencies, authorities or instrumentalities on a when-issued or delayed delivery basis, with such purchases possibly occurring as much as a month before actual delivery and payment. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account TSB permit it to: 1. invest up to 25% of its assets in the securities of issuers in any single industry (exclusive of securities issued by domestic banks and savings and loan associations, or securities issued or guaranteed by the United States government, its agencies, authorities or instrumentalities); neither all finance companies, as a group, nor all utility companies, as a group, are considered a single industry for the purpose of this restriction; 2. invest up to 10% of its assets in the securities of any one issuer, including repurchase agreements with any one bank or dealer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 3. acquire up to 10% of the outstanding securities of any one issuer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 4. borrow money from banks on a temporary basis in an aggregate amount not to exceed one third of Account TSB's assets (including the amount borrowed); and 5. pledge, hypothecate or transfer, as security for indebtedness, any securities owned or held by Account TSB as may be necessary in connection with any borrowing mentioned above and in an aggregate amount of up to 5% of Account TSB's assets. THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TAS) - ----------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of Account TAS is to provide shareholders with growth of capital by investing primarily in a broadly diversified portfolio of common stocks. In selecting investments for the portfolio, TIMCO employs quantitative analysis to identify stocks which appear to be undervalued. A proprietary computer model reviews over one thousand stocks using fundamental and technical criteria such as price relative to book value, earnings growth and momentum, and the change in price relative to a broad composite stock index. Computer-aided analysis may also be utilized to match certain characteristics of the portfolio, such as industry sector representation, to the characteristics of a market index, or to impose a tilt toward certain attributes. Although Account TAS currently focuses on mid-sized domestic companies with market capitalizations that fall between $500 million and $10 billion, Account TAS may invest in smaller or larger companies without limitation. The prices of mid-sized company stocks and smaller company stocks may fluctuate more than those of larger company stocks. It is the policy of Account TAS to invest its assets as fully as practicable in common stocks, securities convertible into common stocks and securities having common stock characteristics, including rights and warrants selected primarily for prospective capital growth. Account TAS may invest in domestic, foreign and restricted securities. When market conditions warrant, Account TAS may adopt a defensive position to preserve shareholders' capital by investing in money market instruments. Such instruments, which must mature within one year of their purchase, consist of U.S. government securities; instruments of banks which are members of the Federal Deposit Insurance Corporation and have assets of at least $1 billion, such as certificates of deposit, demand and time deposits and bankers' acceptances; prime commercial paper, including master demand notes; and repurchase agreements secured by U.S. government securities. Account TAS will use exchange-traded financial futures contracts consisting of stock index futures contracts and futures contracts on debt securities ("interest rate futures") to facilitate market timed moves, and as a hedge to protect against changes in stock prices or interest rates. A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. An interest rate futures contract is a contract to buy or sell specified debt securities at a future time for a fixed price. In general, moves in a market-timed investment strategy may require the purchase or sale of large amounts of securities in a short period of time. This purchase or sale could result in substantial transaction costs and perhaps higher borrowing in Account TAS to provide funds needed for transfer to other timed accounts prior to the five-day settlement period for stock sales. Alternatively, common stock exposure can be increased or decreased in a more timely, cost-effective fashion by buying or selling stock index futures. By transacting in such futures when a market timing move is called, TIMCO can create the ability to buy or sell actual common stocks with less haste and at lower transaction costs. As the actual stocks are bought or sold, the futures positions would simply be eliminated. Account TAS may also purchase and sell interest rate futures to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account TAS's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of portfolio securities will substantially be offset by depreciation in the value of the futures position. Account TAS will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. When a futures contract is purchased, Account TAS will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. At no time will Account TAS's transactions in such futures be employed for speculative purposes. All financial futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account TAS will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. Account TAS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. It may also purchase index or individual equity call options as an alternative to holding stocks or stock index futures, or purchase index or individual equity put options as a defensive measure. For a detailed discussion of options contracts and associated risks, please see the Statement of Additional Information. RISK FACTORS There can, of course, be no assurance that Account TAS will achieve its investment objective since there is uncertainty in every investment. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. In addition, there may be more risk associated with Account TAS to the extent that it invests in small or mid-sized companies. More risk is associated with investment in small or mid-sized companies than with larger companies because such companies may be dependent on only one or two products and may be more vulnerable to competition from larger companies with greater resources and to economic conditions affecting their market sector. Small or mid-sized companies may be new, without long business or management histories, and perceived by the market as unproven. Their securities may be held primarily by insiders or institutional investors, which may affect marketability. The prices of these stocks often fluctuate more than the overall stock market. In addition, there are risks inherent in Account TAS as an investment alternative used by Market Timing Services. (See "Market Timing Risks," page 34.) FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account TAS permit it to: 1. invest up to 5% of its assets in the securities of any one issuer; 2. borrow money from banks in amounts of up to 10% of its assets, but only as a temporary measure for emergency or extraordinary purposes; 3. pledge up to 10% of its assets to secure borrowings; 4. invest up to 25% of its assets in the securities of issuers in the same industry; and 5. invest up to 10% of its assets in repurchase agreements maturing in more than seven days and securities for which market quotations are not readily available. THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TB) - ----------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of Account TB is the selection of investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. To achieve this objective, Account TB invests primarily in direct obligations of the United States, in obligations of its instrumentalities supported by its full faith and credit, and in obligations issued or guaranteed by Federal Agencies which are independent corporations sponsored by the United States and which are subject to its general supervision, but which do not carry the full faith and credit obligations of the United States. Direct obligations of the United States include Treasury bills which are issued on a discount basis with a maturity of one year or less, Treasury Notes which have maturities at issuance between one and ten years, and Treasury Bonds which have maturities at issuance greater than ten years. Instrumentalities of the United States whose debt obligations are backed by its full faith and credit, include: Government National Mortgage Association, Federal Housing Administration, Farmers Homes Administration, Export-Import Bank of the United States, Small Business Administration, General Services Administration, Maritime Administration, District of Columbia Armory Board, Farm Credit System Financial Assistance Corporation, Federal Financing Bank and Washington Metropolitan Area Transit Authority Bonds. Federal Agencies include: Farm Credit System, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Student Loan Marketing Association. Account TB intends to be fully invested at all times; however, when market conditions warrant, Account TB may invest temporarily in money market instruments. Such instruments, which must mature within one year of their purchase, consist of U.S. government securities; instruments of banks which are members of the Federal Deposit Insurance Corporation and have assets of at least $1 billion, such as certificates of deposit, demand and time deposits and bankers' acceptances; prime commercial paper, including master demand notes; and repurchase agreements secured by U.S. government securities. Account TB may from time to time purchase new-issue government or agency securities on a "when-issued" or "to be announced" ("TBA") basis ("when-issued securities"). The prices of such securities will be fixed at the time the commitment to purchase is made, and may be expressed in either dollar price or yield maintenance terms. Delivery and payment may be at a future date beyond customary settlement time. It is the customary practice of Account TB to make when-issued or TBA purchases for settlement no more than 90 days beyond the commitment date. The commitment to purchase when-issued securities may be viewed as a senior security, and will be marked to market and reflected in Account TB's Accumulation Unit Value daily from the commitment date. While it is TAMIC's intention to take physical delivery of these securities, offsetting transactions may be made prior to settlement, if it is advantageous to do so. Account TB does not make payment or begin to accrue interest on these securities until settlement date. In order to invest its assets pending settlement, Account TB will normally invest in short-term money market instruments and other securities maturing no later than the scheduled settlement date. Account TB does not intend to purchase when-issued securities for speculative or "leverage" purposes. Consistent with Section 18 of the Investment Company Act of 1940 and the General Policy Statement of the SEC thereunder, when Account TB commits to purchase a when- issued security, it will identify and place in a segregated account high-grade money market instruments and other liquid securities equal in value to the purchase cost of the when-issued securities. TAMIC believes that purchasing securities in this manner will be advantageous to Account TB. However, this practice does entail certain risks, namely the default of the counterparty on its obligation to deliver the security as scheduled. In this event, Account TB would endure a loss (gain) equal to the price appreciation (depreciation) in value from the commitment date. TAMIC employs a rigorous credit quality procedure in determining the counterparties with which it will deal in when-issued securities and, in some circumstances, will require the counterparty to post cash or some other form of security as margin to protect the value of its delivery obligation pending settlement. Account TB may seek to preserve capital by writing covered call options on securities which it owns. Such an option on an underlying security would obligate Account TB to sell, and give the purchaser of the option the right to buy, that security at a stated exercise price at any time until the stated expiration date of the option. Account TB will use exchange-traded financial futures contracts consisting of futures contracts on debt securities ("interest rate futures") to facilitate market timed moves, and as a hedge to protect against changes in interest rates. An interest rate futures contract is a contract to buy or sell specified debt securities at a future time for a fixed price. These contracts would obligate Account TB, at maturity of the contracts, to purchase or sell certain securities at specified prices or to make cash settlements. In general, moves in a market timed investment strategy may require the purchase or sale of large amounts of securities in a short period of time. This purchase or sale could result in substantial transaction costs and perhaps higher borrowing in Account TB to provide funds needed for transfer to Account TSB. Alternatively, debt security exposure can be increased or decreased in a more timely, cost-effective fashion by buying or selling interest rate futures. By transacting in such futures when a market timing move is called, TAMIC can create the ability to buy or sell actual debt securities with less haste and at lower transaction costs. As the actual debt securities are bought or sold, the futures positions would simply be eliminated. Account TB may also purchase and sell interest rate futures to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account TB's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of the portfolio securities will substantially be offset by depreciation in the value of the futures position. Account TB will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. At no time will Account TB's transactions in futures contracts be employed for speculative purposes. When a futures contract is purchased, Account TB will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All interest rate futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account TB will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. RISK FACTORS There can, of course, be no assurance that Account TB will achieve its investment objective since there is uncertainty in every investment. U.S. Government securities are considered among the safest of fixed-income investments. As a result, however, their yields are generally lower than the yields available from corporate debt securities. The value of the portfolio securities of Account TB will fluctuate based on market conditions and interest rates. Interest rates depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. An increase in interest rates will generally reduce the value of debt securities, and, conversely, a decline in interest rates will generally increase the value of debt securities. In addition, there are risks inherent in Account TB as an investment alternative used by Market Timing Services. (See "Market Timing Risks," page 34.) FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account TB permit it to: 1. invest up to 5% of its assets in the securities of any one issuer (exclusive of securities of the United States government, its agencies or instrumentalities, for which there is no limit); 2. borrow money from banks in amounts of up to 10% of its assets, but only as a temporary measure for emergency or extraordinary purposes; 3. pledge up to 10% of its assets to secure borrowings; 4. invest up to 25% of its assets in the securities of issuers in the same industry (exclusive of securities of the U.S. government, its agencies or instrumentalities, for which there is no limit); and 5. invest up to 10% of its assets in repurchase agreements maturing in more than seven days and securities for which market quotations are not readily available including restricted securities. MARKET TIMING SERVICES - ----------------------------------------------------------------- Accounts TGIS, TSB, TAS and TB are investment alternatives ("Market Timed Accounts") available to Contract Owners who have entered into market timing services agreements ("market timing agreements") with select registered investment advisers which provide market timing services ("registered investment advisers"). These market timing agreements permit the registered investment advisers to act on behalf of the Contract Owner by transferring all or a portion of the Contract Owner's units from one Market Timed Account to another. The registered investment advisers can transfer funds only from one Market Timed Account to another Market Timed Account. A Contract Owner may transfer account values from any of the Market Timed Accounts to any of the other investment alternatives available under the Contract; however, if a Contract Owner in a Market Timed Account transfers all of his current and future account values from the Market Timed Account to a non-timed investment alternative, the market timing agreements with the registered investment advisers automatically terminate. If this occurs, the registered investment advisers no longer have the right to transfer funds on behalf of the Contract Owner. Partial withdrawals or surrenders from the Market Timed Accounts by Contract Owners who have entered into market timing agreements do not affect the agreement. Such partial withdrawals or surrenders leave the market timing agreements intact. Copeland Financial Services, Inc. ("Copeland"), a registered investment adviser and an affiliate of the Company, provides market timing services to Contract Owners in the Market Timed Accounts for a fee of 1.25% of the current value of the assets subject to timing. Copeland also charges a $30 market timing application fee. If a Contract Owner who has terminated his market timing agreement wishes to reenter a market timing agreement, the market timing fees will be reassessed, and a new $30 application fee will be charged by Copeland. The market timing fee is deducted from the assets of the Market Timed Accounts pursuant to a payment method for which the Company, Accounts TGIS, TSB, TAS and TB, TESI and Copeland obtained an exemptive order from the Securities and Exchange Commission on February 7, 1990 ("asset charge payment method"). Pursuant to the asset charge payment method, the market timing agreements are between Contract Owners and Copeland; however, the Company is a signatory to the agreements and is solely responsible for payment of the fee to Copeland. On each Valuation Date, the Company deducts the amount necessary to pay the fee from each of the Market Timed Accounts and, in turn, pays that amount to Copeland. This is the sole payment method available to Contract Owners who enter into market timing agreements. Contract Owners in the Market Timed Accounts may use the services of unaffiliated market timing investment advisers if such advisers are acceptable to the Company, and if such advisers agree to an arrangement substantially identical to the asset charge payment method. Distribution and Management Agreements between each of the Market Timed Accounts and the Company authorize the Company to deduct the market timing fees in accordance with the asset charge payment method. Contract Owners are asked to approve annually the terms of the Distribution and Management Agreement in order to continue the asset charge payment method. Because the market timing services are provided pursuant to individual agreements between Contract Owners and the registered investment advisers, the Boards of Managers of the Market Timed Accounts do not exercise any supervisory or oversight role with respect to these services or the fees charged therefor. Under the asset charge payment method, the daily deductions for market timing fees are not treated by the Company as taxable distributions. (See "Federal Tax Considerations," page 45.) MARKET TIMING RISKS Contract Owners who invest in the Market Timed Accounts without a market timing agreement do so at their own risk, and may bear a disproportionate amount of the expenses associated with Separate Account portfolio turnover. In addition, since the market timing fee is deducted by the Company as an asset charge from the Market Timed Accounts, Contract Owners who invest in these Accounts without a market timing agreement will nevertheless have the fees deducted on a daily basis. Although the Company intends to identify such non-timed Contract Owners and to restore to the non- timed Contract Owner's account, no less frequently than monthly, an amount equal to the deductions for the market timing fees, this restored amount will not reflect any investment experience that would have been attributable to such deductions. Contract Owners who elect to participate in a market timing agreement may be subject to the following additional risks: (1) higher transaction costs; (2) higher portfolio turnover rate; (3) investment return goals not being achieved by the registered investment advisers which provide market timing services; and (4) higher account expenses for depleting and, then, starting up the account. Actions by the registered investment advisers which provide market timing services may also increase risks generally found in any investment, i.e., the failure to achieve an investment objective, and possible lower yield. In addition, if there is more than one market timing strategy utilizing a Market Timed Account, Contract Owners who invest in the Market Timed Account when others are transferred into or out of that Account by the registered investment advisers may bear part of the direct costs incurred by those Contract Owners who were transferred. For example, if 90% of a Market Timed Account is under one market timing strategy, and those funds are transferred either into or out of that Account, Contract Owners constituting the other 10% of the Market Timed Account may bear a disproportionate amount of the expense for the transfer. THE VARIABLE ANNUITY CONTRACT - ----------------------------------------------------------------- The individual Variable Annuity contract described in this Prospectus is both an insurance product and a security. As an insurance product, the Contract is subject to the insurance laws and regulations of each state. The underlying product is an annuity where premiums are paid to the Company and credited to the Contract to accumulate until retirement. The following brief description of the key features of the Contract is subject to the specific terms of the Contract itself. Reference should also be made to the Glossary of Special Terms. GENERAL BENEFIT DESCRIPTION Under the Automatic Option, the Company will begin paying Annuity Payments to the Owner on the Maturity Date if the Annuitant is then living. (See "Automatic Option," page 43.) The Owner may choose instead a number of alternative arrangements for benefit payments. If the Annuitant dies before a payout begins, the Company will pay a death benefit under the Contract. PURCHASE PAYMENTS Purchase Payments under tax-benefited retirement plans (except IRAs), that is, 403(b), corporate pension and profit-sharing, governmental and deferred compensation plans for governmental and tax exempt organization employees, may be made under the Contract in amounts of $20 or more, subject to the terms of the plan. The initial minimum Purchase Payment for IRAs is $1,000; for non tax- benefited Contracts, the initial minimum Purchase Payment is $1,000 and $100 thereafter. The initial Purchase Payment is due and payable before the Contract becomes effective. Each Purchase Payment is payable at the Company's Home Office. APPLICATION OF PURCHASE PAYMENTS Each Purchase Payment will be applied by the Company to provide Accumulation Units to the credit of the Contract. If the Contract application is in good order, the Company will apply the initial Purchase Payment within two business days of receipt of the Purchase Payment in the mail at the Company's Home Office. If the application is not in good order, the Company will attempt to get it in good order within five business days. If the application is not complete at the end of this period, the Company will inform the applicant of the reason for the delay and that the Purchase Payment will be returned immediately unless the applicant specifically consents to the Company keeping the Purchase Payment until the application is complete. Once it is complete, the Purchase Payment will be applied within two business days. RIGHT TO RETURN The Contract may be returned for a full refund of the Contract's Cash Value (including charges) within ten days after delivery of the Contract to the Contract Owner, unless state law requires a longer period. The Contract Owner bears the investment risk during the free-look period; therefore, the Cash Value returned may be greater or less than the Purchase Payment made under the Contract. However, if applicable state law so requires, or if the Contract was purchased as an Individual Retirement Annuity, the Purchase Payment will be returned in full. All Cash Values will be determined as of the Valuation Date next following the Company's receipt of the Contract Owner's written request for refund. The right to return is not available to participants of the Texas Optional Retirement Program. NUMBER OF ACCUMULATION UNITS The number of Accumulation Units to be credited to the Contract once a Purchase Payment has been received by the Company will be determined by dividing the Purchase Payment applied to the designated investment alternative by the current Accumulation Unit Value of that investment alternative. The Accumulation Unit Value for each investment alternative was established at $1.00 at inception. The value of an Accumulation Unit on any Valuation Date is determined by multiplying the value on the immediately preceding Valuation Date by the net investment factor for the Valuation Period just ended. The value of an Accumulation Unit on any date other than a Valuation Date will be equal to its value as of the next succeeding Valuation Date. The value of an Accumulation Unit may increase or decrease. NET INVESTMENT FACTOR The net investment factor is used to measure the investment performance of an investment alternative from one Valuation Period to the next. The net investment factor is determined by dividing (a) by (b) and adding (c) to the result where: (A) is the net result of the Valuation Period's investment income (including, in the case of assets invested in an underlying mutual fund, distributions whose ex-dividend date occurs during the Valuation Period), PLUS capital gains and losses (whether realized or unrealized), LESS any deduction for applicable taxes (presently zero); (B) is the value of the assets at the beginning of the Valuation Period (or, in the case of assets invested in an underlying mutual fund, value is based on the net asset value of the mutual fund); (C) is the net result of 1.000, LESS the Valuation Period deduction for the insurance charge, LESS the applicable deduction for the investment advisory fee, and in the case of Accounts TGIS, TSB, TAS and TB, LESS the applicable deduction for market timing fees (the deduction for the investment advisory fee is not applicable in the case of assets invested in an Underlying Fund, since the fee is reflected in the net asset value of the fund). The net investment factor may be more or less than one. FEDERAL AND STATE INCOME TAX WITHHOLDING The federal tax law requires income tax withholding on distributions from pension plans and annuity contracts. The Owner, participant or beneficiary generally has a right to elect not to have withholding apply. Some states also require withholding from pension and annuity payments unless the Owner, participant or beneficiary elects not to have withholding apply. (For further information on federal withholding, see "Federal Income Tax Withholding," page 48.) CHARGES AND DEDUCTIONS - ----------------------------------------------------------------- CONTINGENT DEFERRED SALES CHARGE There are no sales charges collected at the time a Purchase Payment is applied under the Contract. A Contingent Deferred Sales Charge of 5% will be assessed if an amount is surrendered (withdrawn) within five years of its payment date. (For this calculation, the five years will be measured from the first day of the calendar month of the payment date.) In the case of a partial surrender, payments made first will be considered to be surrendered first ("first in, first out"). In no event may the Contingent Deferred Sales Charge exceed 5% of premiums paid in the five years immediately preceding the surrender date, nor may the charge exceed 5% of the amount withdrawn. Unless the Company receives instructions to the contrary, the Contingent Deferred Sales Charge will be deducted from the amount requested. The Contingent Deferred Sales Charge will be waived if: - -- an annuity payout is begun; - -- an income option of at least three years' duration (without right of withdrawal) is begun after the first Contract Year; - -- the Annuitant dies; - -- the Annuitant becomes disabled (as defined by the Internal Revenue Service) subsequent to purchase of the Contract; - -- the Annuitant under a tax-deferred annuity plan (403(b) plan) retires after age 55, provided the Contract has been in effect five years or more and provided the payment is made to the Contract Owner; - -- the Annuitant under an IRA plan reaches age 70 1/2, provided the Contract has been in effect five years or more; - -- the Annuitant under a qualified pension or profit-sharing plan (including a 401(k) plan) retires at or after age 59 1/2, provided the Contract has been in effect five years or more; or if refunds are made to satisfy the anti-discrimination test; (For Annuitants under Contracts issued before May 1, 1992, the Contingent Deferred Sales Charge will also be waived if the Annuitant retires at normal retirement age (as defined by the plan), provided the Contract has been in effect one year or more); or - -- the Annuitant under a Section 457 deferred compensation plan retires and the Contract has been in effect five years or more, or if a financial hardship or disability withdrawal has been allowed by the plan administrator under applicable IRS rules. There is a 10% free withdrawal allowance available for partial withdrawals taken during any Contract Year after the first. Such withdrawals will be free of charge until the free withdrawal amount is exceeded. Participants under IRA plans with Contracts issued prior to May 1, 1994 are entitled to a 20% free withdrawal allowance after the first Contract Year. Free withdrawals from IRA plans are only available after the Participant has attained age 59 1/2. The free withdrawal amount that is available will be calculated as of the Contract Anniversary Date immediately preceding the surrender date. The free withdrawal allowance does not apply to full surrenders. For 403(b) plan participants, partial and full withdrawals (surrenders) may be subject to restrictions. (See "Section 403(b) Plans and Arrangements," page 46.) The Company expects the Contingent Deferred Sales Charge will be insufficient to cover distribution expenses. The difference will be covered by the general assets of the Company which are attributable, in part, to the mortality and expense risk charges assessed under the Contract. PREMIUM TAX Certain state and local governments impose premium taxes. These taxes currently range from 0.5% to 5.0% depending upon jurisdiction. The Company, in its sole discretion and in compliance with any applicable state law, will determine the method used to recover premium tax expenses incurred. The Company will deduct any applicable premium taxes from the Contract Value either upon death, surrender, annuitization, or at the time Purchase Payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. CHANGES IN TAXES BASED UPON PREMIUM OR VALUE If there is any change in a law assessing taxes against the Company based upon the premiums of the contract, gains in the contract or value of the contract, the Company reserves the right to charge you proportionately for that tax. This would include a tax based upon our realized net capital gains in the Sub-Accounts, on which we are not currently taxed. ADMINISTRATIVE CHARGE On all contracts there will be a semiannual administrative charge of $15 to cover administrative expenses. The administrative charge will be deducted from the account on the second to last Friday of June and December of each year. This charge will be prorated from the date of purchase to the next date of assessment of charge. A prorated charge will also be assessed upon voluntary or involuntary surrender of the Contract. This charge will not be assessed after an annuity payout has begun. The administrative charge will be deducted from the Contract Value by cancelling Accumulation Units in each investment alternative on a pro rata basis. This charge cannot be increased. The administrative charge will offset the actual expenses of the Company in administering the Contract. The charge is set at a level which does not exceed the average expected cost of the administrative services to be provided while the Contract is in force. REDUCTION OR ELIMINATION OF CONTRACT CHARGES The amount of the Contingent Deferred Sales Charge and the administrative charge assessed under the Contract may be reduced or eliminated when sales of the Contract are made to individuals or a group of individuals in such a manner that results in savings or reduction of sales expenses. The entitlement to such a reduction in the Contingent Deferred Sales Charges or the administrative charge will be based on the following: (1) the size and type of group to which sales are to be made; (2) the total amount of Purchase Payments to be received; (3) any prior or existing relationship with the Company. There may be other circumstances, of which the Company is not presently aware, which could result in fewer sales expenses. In no event will reduction or elimination of the Contingent Deferred Sales Charge or the administrative charge be permitted where such reduction or elimination will be unfairly discriminatory to any person. INSURANCE CHARGE There is an insurance charge against the assets of each Separate Account to cover the mortality and expense risks associated with guarantees which the Company provides under the Contract. This charge, on an annual basis, is 1.25% of the Separate Account value and is deducted on each Valuation Date at the rate of 0.003425% for each day in the Valuation Period. The Company estimates that approximately 50% of the insurance charge is for the assumption of mortality risk, while the remainder is for the assumption of expense risk. The mortality risk charge compensates the Company for risks assumed in making mortality guarantees of several types. First, the annuity rates guaranteed in the Contract assure an Annuitant that his or her Annuity Payments will not be adversely affected by the actual mortality experience of other Travelers Annuitants. Also, no Contingent Deferred Sales Charge will be assessed if the Contract Value is paid as a death benefit on the death of the Annuitant. The expense risk charge compensates the Company for the risk that the charges under the Contract, which cannot be increased during the duration of the Contract, will be insufficient to cover actual costs. If the amount deducted for these mortality and expense risks is not sufficient to cover the mortality costs and expense shortfalls, the loss is borne by the Company. If the deduction is more than sufficient, the excess will be a profit to the Company. The Company expects to make a profit from the insurance charge. INVESTMENT ADVISORY FEES TIMCO furnishes investment management and advisory services to Accounts GIS, TGIS, TSB and TAS according to the terms of written agreements between TIMCO and each Account. TIMCO receives advisory fees in amounts equivalent to 0.45%, on an annual basis, of the average daily net assets of Account GIS, and to 0.3233%, on an annual basis, of the average daily net assets of TGIS and TSB. The annual advisory fees paid to TIMCO for advisory services provided to Account TAS are as follows:
Aggregate Net Asset Annual Management Fee Value of the Account --------------------- ----------------------- 0.50% of the first $ 20,000,000, plus 0.25% of the next $ 80,000,000, plus 0.20% of the next $200,000,000, plus 0.15% of amounts over $300,000,000.
Travelers Asset Management International Corporation (TAMIC) furnishes investment management and advisory services to Accounts QB, MM and TB according to the terms of written agreements between TAMIC and each Account. TAMIC receives advisory fees in amounts equivalent to 0.3233%, on an annual basis, of the average daily net assets of Accounts QB and MM. The annual advisory fees paid to TAMIC for advisory services provided to Account TB are as follows: Aggregate Net Asset Annual Management Fee Value of the Account --------------------- ---------------------- 0.50% of the first $ 50,000,000, plus 0.40% of the next $100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of amounts over $250,000,000.
MARKET TIMING SERVICES FEES In connection with the market timing services provided to Contract Owners in Accounts TGIS, TSB, TAS and TB, Copeland Financial Services, Inc. receives a fee equivalent on an annual basis to 1.25% of the current value of the assets subject to timing. The Company deducts this fee daily from the assets of the Market Timed Accounts. Copeland also charges a $30 market timing application fee. Contract Owners may discontinue market timing services at any time and thereby avoid any subsequent fees for those services by transferring to a non-timed account. (See "Market Timing Services," page 33.) PERFORMANCE INFORMATION - ----------------------------------------------------------------- From time to time, the Company may advertise several types of historical performance for the Separate Accounts and the Sub- Accounts of Fund U. The "yield" and "effective yield" may be advertised for Account MM, a money market fund. Yield is a measure of the net dividend and interest income earned over a specific seven-day period, expressed as a percentage of the offering price of Account MM's Accumulation Units. Yield is an annualized figure, which means that it is assumed that Account MM generates the same level of net income over a 52-week period. Effective yield is calculated similarly but includes the effect of assumed compounding calculated under rules prescribed by the Securities and Exchange Commission. The effective yield will be slightly higher than yield due to this compounding effect. Neither yield quotation reflects a deduction for the Contingent Deferred Sales Charge, which if included, would reduce yield and effective yield. The Company may also advertise the "standardized average annual total returns" of Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U, calculated in a manner prescribed by the Securities and Exchange Commission, as well as the "non-standardized total return," as described below. "Standardized average annual total return" will show the percentage rate of return of a hypothetical initial investment of $1,000 for the most recent one, five and ten year periods, or for a period covering the time during which an Underlying Fund held in the Sub-Account has been in existence if the Underlying Fund has not been in existence for one of the prescribed periods. This standardized calculation reflects the deduction of all applicable charges made to the contract, except for premium taxes which may be imposed by certain states. "Non- standardized total return" will be calculated in a similar manner and for the same time periods as the standardized average annual total returns, except non-standardized total returns will not reflect the deduction of any applicable Contingent Deferred Sales Charge or the $15 semiannual contract administrative charge, which would decrease the level of performance shown if reflected in these calculations. For Sub-Accounts that invest in Underlying Funds that were in existence prior to the date the Underlying Fund became available under the Contract, the standardized average annual total return and non-standardized total return quotations will show the investment performance that such Underlying Funds would have achieved (reduced by the applicable charges) had they been held as Sub-Accounts under the Contract for the period quoted. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. Advertisements may include data comparing performance to well-known indices of market performance (including, but not limited to, the Dow Jones Industrial Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan Stanley Capital International's EAFE Index). Advertisements may also include published editorial comments and performance rankings compiled by independent organizations (including, but not limited to, Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that monitor the performance of separate accounts and mutual funds. Performance data for Accounts TGIS, TSB, TAS and TB may not always be useful in evaluating the performance of these Accounts because Accounts TGIS, TSB, TAS and TB may experience wide fluctuations in assets over a given time period due their exclusive availability to Participants who have entered into third party market timing services agreements. In addition, performance data for Accounts TGIS, TSB, TAS and TB alone will not generally be useful for the purpose of evaluating the performance of a market timing strategy which utilizes these Accounts. The yield and total return quotations are based upon historical earnings and are not necessarily representative of future performance. A Contract Owner's Contract Value at redemption may be more or less than original cost. The Statement of Additional Information contains more detailed information about these performance calculations, including actual examples of each type of performance advertised. MANAGEMENT AND INVESTMENT ADVISORY SERVICES - ----------------------------------------------------------------- The investments and administration of the Separate Accounts are under the direction of the Board of Managers. Subject to the authority of the Board of Managers, The Travelers Investment Management Company (TIMCO) furnishes investment management and advisory services to Accounts GIS, TGIS, TSB and TAS, and Travelers Asset Management International Corporation (TAMIC) furnishes such services to Accounts QB, MM and TB. TIMCO has provided investment advisory services since its incorporation in 1967. Its principal offices are located at One Tower Square, Hartford, Connecticut, and it is a wholly owned subsidiary of Smith Barney Holdings Inc., which is a wholly owned subsidiary of The Travelers Inc. TIMCO also acts as investment adviser or sub-adviser for other investment companies used to fund variable products, including the Capital Appreciation Fund and Managed Assets Trust; as well as for individual and pooled pension and profit-sharing accounts, and for affiliated companies of The Travelers Insurance Company. TAMIC has provided investment advisory services since its incorporation in 1978. Its principal offices are located at One Tower Square, Hartford, Connecticut, and it is an indirect wholly owned subsidiary of The Travelers Inc. TAMIC also acts as investment adviser or sub-adviser for other investment companies used to fund variable products, including High Yield Bond Trust, Managed Assets Trust, Cash Income Trust and the U.S. Government Securities Portfolio of The Travelers Series Trust; as well as for individual and pooled pension and profit-sharing accounts, for offshore insurance companies affiliated with The Travelers Insurance Company, and for non-affiliated insurance companies, both domestic and offshore. TRANSFERS - ----------------------------------------------------------------- Before Annuity or Income Payments begin, the Owner may transfer all or part of the Contract Value from one available investment alternative to another without fee, penalty or charge. There are currently no restrictions on frequency of transfers, but the Company reserves the right to limit transfers to no more than one in any six month period. However, any such restrictions are inapplicable to transfers by third party market timing services among timed Investment Alternatives. Some of the investment alternatives available under the Contract have higher investment advisory fees than others; therefore, a transfer from one investment alternative to another could result in a Contract Owner's investment becoming subject to higher or lower investment advisory fees. (See "Investment Advisory Fees," page 38.) In addition, the market timing fee is deducted as an asset charge from Accounts TGIS, TSB, TAS and TB. Contract Owners who invest in those Separate Accounts without a market timing services agreement will bear an unnecessary investment risk. (See "Market Timing Services," page 33.) A transfer between Investment Alternatives has no other effect on the amount or timing of any of the other charges under the Contract. For purposes of computing the applicability of the Contingent Deferred Sales Charge, the date of the Purchase Payments made pursuant to the Contract will not be affected by transfers among Investment Alternatives. If a Contract Owner in a market timed Investment Alternative transfers all of his current and future account values from the market timed Investment Alternative to a non-timed Investment Alternative, he has terminated his market timing services agreement. If this occurs, the market timing service no longer has the right to transfer funds on behalf of the Contract Owner. Partial withdrawals or surrenders from an Investment Alternative for Contract Owners who have entered into market timing services agreements do not affect the agreements. DOLLAR-COST AVERAGING (AUTOMATED TRANSFERS) Dollar-cost averaging permits the Contract Owner to transfer the same dollar amount to other Sub-Accounts on a regular basis so that more Accumulation Units are purchased in a Sub-Account if the value per unit is low and less Accumulation Units are purchased if the value per unit is high. Therefore, a lower-than-average value per unit may be achieved over the long run. By written request, you may elect automated transfers of Contract Values on a monthly or quarterly basis from specific Sub-Accounts to other Sub-Accounts. You may stop or change your participation in the Dollar-Cost Averaging program at any time, provided the Company receives at least 30 days' written notice. Automated transfers are subject to all Contract provisions, including those relating to the transfer of money between Sub- Accounts. Certain minimums apply to amounts transferred and/or to enroll in the program. Dollar-cost averaging requires regular investment regardless of fluctuating prices and does not guarantee profits nor prevent losses in a declining market. Before electing this option, you should consider your financial ability to continue purchases through periods of low price levels. SURRENDERS AND REDEMPTIONS - ----------------------------------------------------------------- A Contract Owner may redeem all or any portion of the Cash Surrender Value of the Contract at any time prior to the Maturity Date. The Contract Owner must submit a written request (in the proper form, including the appropriate countersignature of a Travelers agent) specifying the investment alternative(s) from which the surrender is to be made. The Cash Surrender Value will be determined as of the Valuation Date next following receipt of the Owner's surrender request at the Company's Home Office. The Company may defer payment of any Cash Surrender Value for a period of not more than seven days after the request is received in the mail, but it is its intent to pay as soon as possible. Requests for surrender that are not in good order will not be processed until the deficiencies are corrected. The Company will contact the Contract Owner to advise of the reason for the delay and what is needed to act on the surrender request. Cash Value equal to the amount the Contract Owner wishes to redeem will be transferred to Account MM from the Investment Alternative(s) from which surrender is to be made. It will remain in Account MM until the Company receives the information required to act on the surrender request. The Cash Surrender Value on any date will be equal to the Cash Value of the Contract less any applicable Contingent Deferred Sales Charge, outstanding cash loans, and any premium tax not previously deducted. The Cash Surrender Value may be more or less than the Purchase Payments made depending on the value of the Contract at the time of surrender. For participants in the Texas Optional Retirement Program, surrenders are available only upon termination of employment, retirement or death as provided in the Texas Optional Retirement Program. For participants in Section 403(b) tax deferred annuity plans, surrenders may not be made from certain salary reduction amounts taken prior to reaching age 59 1/2, or due to separation from service, death, disability or hardship. (See "Section 403(b) Plans and Arrangements," page 46.) SYSTEMATIC WITHDRAWALS You may elect to take monthly, quarterly, semiannual or annual systematic withdrawals of a specified dollar amount during the prior twelve months. Any applicable premium taxes will be deducted. To elect this option, you must complete an election form provided by the Company. You may stop the systematic withdrawals at any time, provided the Company receives at least 30 days' written notice. DEATH BENEFIT - ----------------------------------------------------------------- A death benefit is payable to the beneficiary of the Contract upon the death of the Annuitant prior to the Maturity Date. If the Annuitant dies on or after age 75 and before Annuity or Income Payments begin, the Company will pay to the beneficiary the Cash Value of the Contract as of the date it receives proof of death at its Home Office, less any applicable premium tax or outstanding cash loans. If the Annuitant dies before age 75, and before Annuity or Income Payments begin, after receipt of due proof of the Annuitant's death, the Company will pay to the beneficiary the greatest of (1), (2) or (3) below, except for Contracts issued in the states of Minnesota and Washington, where the Company will pay the greater of (1) or (2) below: 1. The Cash Value of the Contract, less any applicable premium tax or outstanding cash loans; 2. The total Purchase Payments made under the Contract, less any prior surrenders or cash loans; or 3. The Cash Value of the Contract on the fifth Contract Date Anniversary immediately preceding the date of receipt of due proof of death by the Company, less any applicable premium tax, outstanding cash loans or surrenders made since the fifth year anniversary. In some jurisdictions, until state approval is received, the applicable age at which the death benefit formula will reduce will be age 65 rather than age 75. THE ANNUITY PERIOD - ----------------------------------------------------------------- MATURITY DATE Annuity Payments will ordinarily begin on the Maturity Date stated in the Contract; however, a later Maturity Date may be elected. The Maturity Date must be before the Annuitant's 70th birthday, unless the Company consents to a later date. Federal income tax law requires the Annuitant to commence certain minimum distribution payments from pension, profit-sharing, Section 403(b), Section 457 and IRA plans after the participant reaches the age of 70 1/2. A number of payout options are available. (See "Payout Options," page 43.) No Contingent Deferred Sales Charge will be assessed if an Annuity Option is elected, or an Income Option of at least three years' duration (without right of withdrawal) is elected after the first Contract Year. Federal income tax law also requires that certain minimum distribution payments be taken upon the death of the Owner of a non tax-benefited annuity contract, and upon the death of the Annuitant of a pension, profit-sharing, Section 403(b), Section 457 or IRA plan. ALLOCATION OF ANNUITY PAYMENTS When Annuity Payments begin, the accumulated value in each Investment Alternative will be applied to provide an Annuity with the amount of Annuity Payments varying with the investment experience of that same Investment Alternative. If the Owner wishes to have Annuity Payments which vary with the investment experience of a different Investment Alternative, transfers among accounts must be made at least 30 days before the date Annuity Payments begin. If the Owner wishes to have a fixed dollar annuity whose payments do not vary, the Company will exchange the Contract for a different contract or provide such other settlement agreements as are appropriate to effect the payment of such an annuity. Variable payout is not available for Contracts issued in the state of New Jersey. Once Annuity Payments begin, these Contract Owners will automatically receive a fixed dollar annuity whose payments do not vary with the investment experience of an Investment Alternative. ANNUITY UNIT VALUE The dollar value of an Annuity Unit for each Investment Alternative was established at $1 at inception. The value of an Annuity Unit as of any Valuation Date is determined 14 days in advance in order to allow adequate time for the required calculations and the mailing of annuity checks in advance of their due dates. (If the date 14 days in advance is not a Valuation Date, the calculation is made on the next following Valuation Date, which would generally be 13 or 12 days in advance.) Specifically, the Annuity Unit Value for an Investment Alternative as of a Valuation Date is equal to (a) the value of the Annuity Unit on the immediately preceding Valuation Date multiplied by (b) the net investment factor for the Valuation Period ending on or next following 14 days prior to the current Valuation Date, divided by (c) the assumed net investment factor for the Valuation Period. (For example, the assumed net investment factor based on an annual assumed net investment rate of 3.5% for a Valuation Period of one day is 1.0000942 and, for a period of two days, is 1.0000942 x 1.0000942.) The value of an Annuity Unit as of any date other than a Valuation Date is equal to its value on the next succeeding Valuation Date. The number of Annuity Units credited to the Contract is determined by dividing the first monthly Annuity Payment attributable to each Investment Alternative by the Investment Alternative's Annuity Unit Value as of the due date of the first Annuity Payment. The number of Annuity Units remains fixed during the annuity period. DETERMINATION OF FIRST ANNUITY PAYMENT The Contract contains tables used to determine the first monthly Annuity Payment. The amount applied to effect an Annuity will be the Cash Value of the Contract as of 14 days before the date Annuity Payments commence less any applicable premium taxes not previously deducted. The amount of the first monthly payment depends on the Annuity Option elected (see "Automatic Option," page 43) and the adjusted age of the Annuitant. A formula for determining the adjusted age is contained in the Contract. The tables are determined from the Progressive Annuity Table assuming births in the year 1900 and an assumed annual net investment rate of 3.5%. The total first monthly Annuity Payment is determined by multiplying the benefit per $1,000 of value shown in the tables of the Contract by the number of thousands of dollars of value of the contract applied to that Annuity Option. The Company reserves the right to require proof of age before Annuity Payments begin. DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS The dollar amount of the second and subsequent Annuity Payments is not predetermined and may change from month to month based on the investment experience of the applicable Investment Alternatives. The actual amounts of these payments are determined by multiplying the number of Annuity Units credited to the Contract in each Investment Alternative by the corresponding Annuity Unit Value as of the date on which payment is due. The interest rate assumed in the annuity tables would produce a level Annuity Unit Value and, therefore, level Annuity Payments if the net investment rate remained constant at the assumed rate. In fact, payments will vary up or down as the net investment rate varies up or down from the assumed rate, and there can be no assurance that a net investment rate will be as high as the assumed rate. PAYOUT OPTIONS - ----------------------------------------------------------------- ELECTION OF OPTIONS On the Maturity Date, or other agreed-upon date, the Company will pay an amount payable under the Contract in one lump sum, or in accordance with the payment option selected by the Contract Owner. Election of an option must be made in writing in a form satisfactory to the Company. Any election made during the lifetime of the Annuitant must be made by the Contract Owner. The terms of options elected by some Contract Owners and beneficiaries may be restricted to meet the contract qualification requirements of Section 401(a)(9) of the Internal Revenue Code. If, at the death of the Annuitant, there is no election in effect for that Annuitant, election of an option must be made by the beneficiary entitled to any death benefit payable in one sum under the Contract. The minimum amount that can be placed under an Annuity or Income Option will be $2,000 unless the Company consents to a lesser amount. If any monthly periodic payment due any payee is less than $20, the Company reserves the right to make payments at less frequent intervals. ANNUITY OPTIONS Subject to the conditions described in "Election of Options" above, all or any part of the Cash Surrender Value of the Contract may be paid under one or more of the following Annuity Options. Annuity options may be elected on a monthly, quarterly, semiannual or annual basis. AUTOMATIC OPTION--Unless otherwise specified in the application or the plan and if no election has been made, if the Annuitant is then living and has a spouse, the Company will pay to the Owner the first of a series of Annuity Payments based on the life of the Annuitant and the Annuitant's spouse in accordance with Option 5. If the Annuitant is living and no election has been made and the Annuitant has no spouse on the Maturity Date, the Company will pay to the Owner the first of a series of Annuity Payments based on the life of the Annuitant, in accordance with Option 2 with 120 monthly payments assured. OPTION 1--LIFE ANNUITY--NO REFUND: The Company will make Annuity Payments during the lifetime of the person on whose life the payments are based, terminating with the last payment preceding death. This option offers the maximum payment, since there is no assurance of a minimum number of payments or provision for a death benefit for beneficiaries. (It would be possible under this option to receive only one Annuity Payment if the Annuitant died before the due date of the second Annuity Payment, only two if the Annuitant died before the third Annuity Payment, etc.) OPTION 2--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED: The Company will make monthly Annuity Payments during the lifetime of the person on whose life payments are based, with the agreement that if, at the death of that person, payments have been made for less than 120, 180 or 240 months, as elected, payments will be continued during the remainder of the period to the beneficiary designated. The beneficiary may instead receive a single sum settlement equal to the discounted value of the future payments with the interest rate equivalent to the assumption originally used when the Annuity began. OPTION 3--UNIT REFUND LIFE ANNUITY: The Company will make Annuity Payments during the lifetime of the person on whose life payments are based, terminating with the last payment due before the death of that person, provided that, at death, the beneficiary will receive in one sum the current dollar value of the number of Annuity Units equal to (a) minus (b) (if that difference is positive) where: (a) is the total amount applied under the option divided by the Annuity Unit Value on the due date of the first Annuity Payment, and (b) is the product of the number of the Annuity Units represented by each payment and the number of payments made. OPTION 4--JOINT AND LAST SURVIVOR LIFE ANNUITY--NO REFUND: The Company will make Annuity Payments during the joint lifetime of the two persons on whose lives payments are based, and during the lifetime of the survivor. No further payments will be made following the death of the survivor. (It would be possible under this option to receive only one Annuity Payment if both Annuitants died before the due date of the second Annuity Payment, only two if they died before the third Annuity Payment, etc.) OPTION 5--JOINT AND LAST SURVIVOR LIFE ANNUITY--ANNUITY REDUCES ON DEATH OF PRIMARY PAYEE: The Company will make Annuity Payments during the lifetime of the two persons on whose lives payments are based. One of the two persons will be designated as the primary payee. The other will be designated as the secondary payee. On the death of the secondary payee, if survived by the primary payee, the Company will continue to make monthly Annuity Payments to the primary payee in the same amount that would have been payable during the joint lifetime of the two persons. On the death of the primary payee, if survived by the secondary payee, the Company will continue to make Annuity Payments to the secondary payee in an amount equal to 50% of the payments which would have been made during the lifetime of the primary payee. No further payments will be made following the death of the survivor. OPTION 6--OTHER ANNUITY OPTIONS: The Company will make any other arrangements for Annuity Payments as may be mutually agreed upon. INCOME OPTIONS Instead of the Annuity Options described above, and subject to the conditions described under "Election of Options," one of the following Income Options may be elected to the extent they are consistent with federal tax law qualification requirements. Income Options may be elected on a monthly, quarterly, semiannual or annual basis. OPTION 1--PAYMENTS OF A FIXED AMOUNT: The Company will make equal payments of the amount elected until the Cash Value applied under this option has been exhausted. The final payment will include any amount insufficient to make another full payment. OPTION 2--PAYMENTS FOR A FIXED PERIOD: The Company will make payments for the number of years selected. The amount of each payment will be equal to the remaining Cash Value applied under this option divided by the number of remaining payments. OPTION 3--INVESTMENT INCOME: The Company will make payments during the lifetime of the primary payee, or for the period agreed on. The amount payable will be equal to the excess, if any, of the Cash Value under this option over the amount applied under this option. No payment will be made if the Cash Value is less than the amount applied, and it is possible that no payments would be made for a period of time. Payments under this option are not considered to be Annuity Payments and are taxable in full as ordinary income. (See "Federal Tax Considerations," page 45.) The Cash Value used to determine the amount of any Income Payment will be calculated as of 14 days before the date an Income Payment is due and will be determined on the same basis as the Cash Value of the Contract, including the deduction for mortality risks. Income Options differ from Annuity Options in that the amount of the payments made under Income Options are unrelated to the length of life of any person. Although the Company continues to deduct the charge for mortality and expense risks, it assumes no mortality risks for amounts applied under any Income Option. Moreover, except with respect to lifetime payments of investment income under Income Option 3, payments are unrelated to the actual life span of any person. Thus, the Annuitant may outlive the payment period. While Income Options do not directly involve mortality risks for the Company, a Contract Owner may elect to apply the remaining Cash Value to provide an Annuity at the guaranteed rates even though Income Payments have been received under an Income Option. Before an Owner makes any Income Option election, he or she should consult a tax adviser as to any adverse tax consequences the election might have. MISCELLANEOUS CONTRACT PROVISIONS - ----------------------------------------------------------------- TERMINATION No Purchase Payments after the first are required to keep the Contract in effect. However, the Company reserves the right to terminate the Contract on any Valuation Date if the Cash Value as of that date is less than $500 and no Purchase Payments have been made for at least three years. Termination will not occur until 31 days after the Company has mailed notice of termination to the Owner at his last known address and to any assignee of record. If the Contract is terminated, the Company will pay to the Owner the Cash Surrender Value of the Contract, if any (except in those jurisdictions which mandate the Cash Value, if any), less any applicable administrative charge or premium tax. REQUIRED REPORTS As often as required by law, but at least once in each Contract Year before the due date of the first Annuity Payment, the Company will furnish a report which will show the number of Accumulation Units credited to the Contract in each Investment Alternative and the corresponding Accumulation Unit Value as of the date of the report. The Company will keep all records required under federal or state laws. SUSPENSION OF PAYMENTS If a national stock exchange is closed (except for holidays or weekends), or trading is restricted due to an existing emergency as defined by the Securities and Exchange Commission so that disposal of the Separate Account's investments or determination of its net asset value is not reasonably practicable, or the Commission has ordered that the right of redemption (surrender) be suspended for the protection of Contract Owners, the Company may postpone all procedures (including making Annuity Payments) which require valuation of Separate Accounts until the stock exchange is reopened and trading is no longer restricted. FEDERAL TAX CONSIDERATIONS - ----------------------------------------------------------------- GENERAL The Company is taxed as a life insurance company under Subchapter L of the Internal Revenue Code (the "Code"). The Separate Accounts that form the investment alternatives described herein are treated as part of the total operations of the Company and are not taxed separately. Investment income and gains of a Separate Account that are credited to a variable annuity contract incur no current federal income tax. Generally, amounts credited to a contract are not taxable until received by the Contract Owner, participant or beneficiary, either in the form of Annuity Payments or other distributions. Tax consequences and limits are described further below for each annuity program. TAX LAW DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES The Code requires that any nonqualified variable annuity contracts based on a segregated asset account shall not be treated as an annuity for any period if investments made in the account are not adequately diversified. Final tax regulations define how segregated asset accounts must be diversified. The Company monitors the diversification of investments constantly and believes that its accounts are adequately diversified. The consequence of any failure is essentially the loss to the contract owner of tax deferred treatment. The Company intends to administer all contracts subject to this provision of law in a manner that will maintain adequate diversification. OWNERSHIP OF THE INVESTMENTS Assets in the segregated asset accounts must be owned by the Company, and not by the Contract Owner, for federal income tax purposes. Otherwise, the deferral of taxes is lost and income and gains from the accounts would be includible annually in the Contract Owner's gross income. The Internal Revenue Service has stated in published rulings that a variable contract owner will be considered the owner of the assets of a segregated asset account if the owner possesses an incident of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department announced, in connection with the issuance of temporary regulations concerning investment diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor, rather than the insurance company, to be treated as the owner of the assets of the account." This announcement, dated September 15, 1986, also stated that the guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular subaccounts [of a segregated asset account] without being treated as owners of the underlying assets." As of the date of this prospectus, no such guidance has been issued. The Company does not know if such guidance will be issued, or if it is, what standards it may set. Furthermore, the Company does not know if such guidance may be issued with retroactive effect. New regulations are generally issued with a prospective-only effect as to future sales or as to future voluntary transactions in existing contracts. The Company therefore reserves the right to modify the contract as necessary to attempt to prevent contract owners from being considered the owner of the assets of the accounts. The remaining tax discussion assumes that the Contract qualifies as an annuity contract for federal income tax purposes. SECTION 403(B) PLANS AND ARRANGEMENTS Purchase Payments for tax-deferred annuity contracts may be made by an employer for employees under annuity plans adopted by public educational organizations and certain organizations which are tax exempt under Section 501(c)(3) of the Code. Within statutory limits, these payments are not currently includable in the gross income of the participants. Increases in the value of the Contract attributable to these Purchase Payments are similarly not subject to current taxation. The income in the Contract is taxable as ordinary income whenever distributed. An additional tax of 10% will apply to any taxable distribution received by the participant before the age of 59 1/2, except when due to death, disability, or as part of a series of payments for life or life expectancy, or made after the age of 55 with separation from service. There are other statutory exceptions. Amounts attributable to salary reductions and income thereon may not be withdrawn prior to attaining the age of 59 1/2, separation from service, death, total and permanent disability, or in the case of hardship as defined by federal tax law and regulations. Hardship withdrawals are available only to the extent of the salary reduction contributions and not from the income attributable to such contributions. These restrictions do not apply to assets held generally as of December 31, 1988. Distribution must begin by April 1st of the calendar year following the calendar year in which the participant attains the age of 70 1/2. Certain other mandatory distribution rules apply at the death of the participant. Eligible rollover distributions, including most partial or full redemptions or "term-for-years" distributions of less than 10 years, are eligible for direct rollover to another 403(b) contract or to an Individual Retirement Arrangement (IRA) without federal income tax withholding. QUALIFIED PENSION AND PROFIT-SHARING PLANS Under a qualified pension or profit-sharing trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code, Purchase Payments made by an employer are not currently taxable to the participant and increases in the value of a contract are not subject to taxation until received by a participant or beneficiary. Distributions in the form of Annuity or Income Payments are taxable to the participant or beneficiary as ordinary income in the year of receipt. Any distribution that is considered the participant's "investment in the contract" is treated as a return of capital and is not taxable. Payments under Income Option 3 are taxable in full. Certain lump-sum distributions described in Section 402 of the Code may be eligible for special ten-year forward averaging treatment for individuals born before January 1, 1936. All individuals may be eligible for favorable five-year forward averaging of lump-sum distributions. Certain eligible rollover distributions including most partial and full surrenders or term- for-years distributions of less than 10 years are eligible for direct rollover to an eligible retirement plan or to an IRA without federal income tax withholding. An additional tax of 10% will apply to any taxable distribution received by the participant before the age of 59 1/2, except by reason of death, disability or as part of a series of payments for life or life expectancy, or at early retirement at or after the age of 55. There are other statutory exceptions. INDIVIDUAL RETIREMENT ANNUITIES To the extent of earned income for the year and not exceeding $2,000 per individual, an individual may make deductible contributions to an individual retirement annuity (IRA). There are certain limits on the deductible amount based on the adjusted gross income of the individual and spouse and based on their participation in a retirement plan. If an individual is married and the spouse is not employed, the individual may establish IRAs for the individual and spouse. Purchase Payments may then be made annually into IRAs for both spouses in the maximum amount of 100% of earned income up to a combined limit of $2,250. Partial or full distributions made prior to the age of 59 1/2, except in the case of death, disability or distribution for life or life expectancy, will incur a penalty tax of 10% plus ordinary income tax treatment of the taxable amount received. Distributions after the age of 59 1/2 are treated as ordinary income. Amounts contributed after 1986 on a non-deductible basis are not includable in income when distributed. Distributions must commence by April 1st of the calendar year after the close of the calendar year in which the individual attains the age of 70 1/2. The individual must maintain personal and tax return records of any non-deductible contributions and distributions. Section 408(k) of the Code provides for the purchase of a Simplified Employee Pension (SEP) plan. A SEP is funded through an IRA with an annual employer contribution limit of 15% of compensation up to $30,000 for each participant. SECTION 457 PLANS Section 457 of the Code allows employees and independent contractors of state and local governments and tax-exempt organizations to defer a portion of their salaries or compensation to retirement years without paying current income tax on either the deferrals or the earnings on the deferrals. The Owner of contracts issued under Section 457 plans is the employer or a contractor of the participant and amounts may not be made available to participants (or beneficiaries) until separation from service, retirement or death or an unforeseeable emergency as determined by Treasury Regulations. The proceeds of annuity contracts purchased by Section 457 plans are subject to the claims of general creditors of the employer or contractor. Distributions must begin generally by April 1st of the calendar year following the calendar year in which the participant attains the age of 70 1/2. Certain other mandatory distribution rules apply upon the death of the participant. All distributions from plans that meet the requirements of Section 457 of the Code are taxable as ordinary income in the year paid or made available to the participant or beneficiary. NONQUALIFIED ANNUITIES Individuals may purchase tax-deferred annuities without tax law funding limits. The Purchase Payments receive no tax benefit, deduction or deferral, but increases in the value of the Contract are generally deferred from tax until distribution. If a non- qualified annuity is owned by other than an individual, however, (e.g., by a corporation), the increases in value attributable to Purchase Payments made after February 28, 1986 are includable in income annually. Furthermore, for Contracts issued after April 22, 1987, all deferred increases in value will be includable in the income of an Owner when that Owner transfers the Contract without adequate consideration. The federal tax law requires nonqualified annuity contracts issued on or after January 19, 1985 to meet minimum mandatory distribution requirements upon the death of the Contract Owner. Failure to meet these requirements will cause the succeeding Contract Owner or beneficiary to lose the tax benefits associated with annuity contracts, i.e., primarily the tax deferral prior to distribution. The distribution required depends upon whether an Annuity Option is elected or whether the succeeding Owner is the surviving spouse. Contracts will be administered by the Company in accordance with these rules. If two or more nonqualified annuity contracts are purchased from the same insurer within the same calendar year, distributions from any of them will be taxed based upon the amount of income in all of the same calendar year series of annuities. This will generally have the effect of causing taxes to be paid sooner on the deferred gain in the contracts. Those receiving partial distributions made before annuitization of a contract will generally be taxed on an income-first basis to the extent of income in the contract. Certain pre-August 14, 1982 deposits into a nonqualified annuity contract that have been placed in the contract by means of a tax-deferred exchange under Section 1035 of the Code may be withdrawn first without income tax liability. This information on deposits must be provided to the Company by the other insurance company at the time of the exchange. There is income in the contract generally to the extent the Cash Value exceeds the investment in the contract. The investment in the contract is equal to the amount of premiums paid less any amount received previously which was excludable from gross income. Any direct or indirect borrowing against the value of the contract or pledging of the contract as security for a loan will be treated as a cash withdrawal under the tax law. With certain exceptions, the law will impose an additional tax if a Contract Owner makes a withdrawal of any amount under the contract which is allocable to an investment made after August 13, 1982. The amount of the additional tax will be 10% of the amount includable in income by the Contract Owner because of the withdrawal. The additional tax will not be imposed if the amount is received on or after the Contract Owner reaches the age of 59 1/2, or if the amount is one of a series of substantially equal periodic payments made for life or life expectancy of the taxpayer. The additional tax will not be imposed if the withdrawal or partial surrender follows the death or disability of the Contract Owner. FEDERAL INCOME TAX WITHHOLDING The portion of a distribution which is taxable income to the recipient will be subject to federal income tax withholding, generally pursuant to Section 3405 of the Code. The application of this provision is summarized below. 1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR ARRANGEMENTS OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS There is an unwaivable 20% tax withholding for plan distributions that are eligible for rollover to an IRA or to another retirement plan but that are not directly rolled over. A distribution made directly to a participant or beneficiary may avoid this result if: (a) a periodic settlement distribution is elected based upon a life or life expectancy calculation, or (b) a complete term-for-years settlement distribution is elected for a period of ten years or more, payable at least annually, or (c) a minimum required distribution as defined under the tax law is taken after the attainment of the age of 70 1/2 or as otherwise required by law. A distribution including a rollover that is not a direct rollover will require the 20% withholding, and a 10% additional tax penalty may apply to any amount not added back in the rollover. The 20% withholding may be recovered when the participant or beneficiary files a personal income tax return for the year if a rollover was completed within 60 days of receipt of the funds, except to the extent that the participant or spousal beneficiary is otherwise underwithheld or short on estimated taxes for that year. 2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS) To the extent not described as requiring 20% withholding in 1 above, the portion of a non-periodic distribution which constitutes taxable income will be subject to federal income tax withholding, to the extent such aggregate distributions exceed $200 for the year, unless the recipient elects not to have taxes withheld. If an election out is not provided, 10% of the taxable distribution will be withheld as federal income tax. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. 3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE YEAR) The portion of a periodic distribution which constitutes taxable income will be subject to federal income tax withholding under the wage withholding tables as if the recipient were married claiming three exemptions. A recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by providing a completed election form. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. As of January 1, 1994, a recipient receiving periodic payments (e.g., monthly or annual payments under an Annuity Option) which total $13,700 or less per year, will generally be exempt from the withholding requirements. Recipients who elect not to have withholding made are liable for payment of federal income tax on the taxable portion of the distribution. All recipients may also be subject to penalties under the estimated tax payment rules if withholding and estimated tax payments are not sufficient. Recipients who do not provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding. Additionally, United States citizens residing outside of the country, or U.S. legal residents temporarily residing outside the country, are not permitted to elect out of withholding. TAX ADVICE Because of the complexity of the law and the fact that the tax results will vary according to the factual status of the individual involved, tax advice may be needed by a person contemplating purchase of an annuity contract and by an Owner, participant or beneficiary who may make elections under a contract. It should be understood that the foregoing description of the federal income tax consequences under these contracts is not exhaustive and that special rules are provided with respect to situations not discussed here. It should be understood that if a tax-benefited plan loses its exempt status, employees could lose some of the tax benefits described. For further information, a qualified tax adviser should be consulted. VOTING RIGHTS - ----------------------------------------------------------------- GENERAL The person having voting interest under the Contract is the Contract Owner. A participant covered by a Contract issued in connection with a Section 403(b) or a Section 408 plan is the Owner. The number of votes which an Owner may cast in the accumulation period is equal to the number of Accumulation Units credited to the account under the Contract. During the annuity period, the Owner may cast the number of votes equal to (i) the reserve related to the Contract divided by (ii) the value of an Accumulation Unit. During the annuity period, an Owner's voting rights will decline as the reserve for the Contract declines. Accounts GIS, QB, MM and Fund U are also used to fund certain other Variable Annuity Contracts; votes attributable to such other annuities are computed in an analogous manner. During the accumulation period, participants covered by a Contract issued in connection with an H.R.10 plan will have the right to instruct the Owner with respect to all votes attributable to the Contract, and participants covered by a contract issued in connection with a corporate pension plan will have the right to instruct the Owner with respect to votes attributable to payments made by the Annuitant, and with respect to any additional votes which are authorized by the terms of the plan, if any. All other votes entitled to be cast during the accumulation period may be cast by the Owner in its sole discretion. During the annuity period, every participant will have the right to instruct the Owner with respect to all votes attributable to the amount of assets established in the account to meet the annuity obligations related to such participant. Each participant having the right to instruct an Owner with respect to any votes will receive a statement of the number of votes, including fractional votes, attributable to his or her contract, and stating his or her right to instruct the Owner how such votes are to be cast. Each Owner will cast the votes with respect to which instructions from participants have been received in accordance with such instructions; and votes for which participants were entitled to instruct the Owner, but for which the Owner has received no instructions, will be cast by the Owner for or against each proposal to be voted on only in the same proportion as votes for which instructions have been received. Upon the death of the participant, all voting rights will vest in the beneficiary of the Contract, except in the case of non tax- benefited annuity contracts where the surviving spouse may succeed to the ownership. FUND U In accordance with its view of present applicable law, the Company will vote shares of mutual funds held in Fund U at regular and special meetings of the shareholders of the mutual funds in accordance with instructions received from persons having a voting interest in Fund U. The Company will vote shares for which it has not received instructions in the same proportion as it votes shares for which it has received instructions. However, if the Investment Company Act of 1940 or any regulation thereunder should be amended, or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote shares of the mutual funds in its own right, it may elect to do so. The number of shares which a person has a right to vote will be determined as of the date concurrent with the date established by the respective mutual fund for determining shareholders eligible to vote at the meeting of the fund, and voting instructions will be solicited by written communication before the meeting in accordance with the procedures established by the mutual fund. Each person having a voting interest in Fund U will receive periodic reports relating to the mutual fund(s) in which he has an interest, proxy material and a form with which to give such instructions with respect to the proportion of the mutual fund shares held in Fund U corresponding to his or her interest in Fund U. ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS AND TB Contract Owners participating in Accounts GIS, QB, MM, TGIS, TSB, TAS or TB will be entitled to vote at their meetings on (i) any change in the fundamental investment policies of or other policies related to the accounts requiring the Owners' approval; (ii) amendment of the investment advisory agreements; (iii) election of the members of the Board of Managers of the accounts; (iv) ratification of the selection of an independent public accountant for the accounts; (v) any other matters which, in the future, under the Investment Company Act of 1940 require the Owners' approval; and (vi) any other business which may properly come before the meeting. The number of votes which each Owner may cast, including fractional votes, shall be determined as of the date to be chosen by the Board of Managers within 75 days of the date of the meeting, and at least 20 days' written notice of the meeting will be given. Votes for which participants were entitled to instruct the Owner, but for which the Owner has received no instructions, will be cast by the Owner for or against each proposal to be voted on only in the same proportion as votes for which instructions have been received. DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS - ----------------------------------------------------------------- The Company intends to sell the Contract in all jurisdictions where the Company is licensed to do business, except the Bahamas. The Contract may be purchased from agents who are licensed by state insurance authorities to sell variable annuity contracts issued by the Company, and who are also registered representatives of broker-dealers which have Selling Agreements with Travelers Equities Sales, Inc. ("TESI"). TESI, whose principal business address is One Tower Square, Hartford, Connecticut, serves as the principal underwriter for the variable annuity contracts described herein. TESI is a registered broker- dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. ("NASD"). TESI is an affiliate of the Company and an indirect wholly owned subsidiary of Travelers Group Inc., and serves as principal underwriter pursuant to a Distribution and Management Agreement to which the Separate Accounts, the Company and TESI are parties. No amounts have been or will be retained by TESI for acting as principal underwriter for the Contracts. Agents will be compensated for sales of the Contracts on a commission and service fee basis. The compensation paid to sales agents will not exceed 7.0% of the payments made under the Contract. In addition, certain production, persistency and managerial bonuses may be paid. From time to time the Company may pay or permit other promotional incentives, in cash, credit or other compensation. STATE REGULATION - ----------------------------------------------------------------- The Company is subject to the laws of the State of Connecticut governing insurance companies and to regulation by the Insurance Commissioner of the State of Connecticut. An annual statement in a prescribed form must be filed with that Commissioner on or before March 1 in each year covering the operations of the Company for the preceding year and its financial condition on December 31 of such year. Its books and assets are subject to review or examination by the Commissioner or his agents at all times, and a full examination of its operations is conducted by the National Association of Insurance Commissioners ("NAIC") at least once in every four years. In addition, the Company is subject to the insurance laws and regulations of the other states in which it is licensed to operate. Generally, the insurance departments of the states apply the laws of the jurisdiction of domicile in determining the field of permissible investments. LEGAL PROCEEDINGS AND OPINIONS - ----------------------------------------------------------------- There are no pending material legal proceedings affecting the Separate Accounts. Legal matters in connection with federal laws and regulations affecting the issue and sale of the variable annuity contract described in this Prospectus and the organization of the Company, its authority to issue variable annuity contracts under Connecticut law and the validity of the forms of the variable annuity contracts under Connecticut law have been passed on by the General Counsel of the Life and Annuities Division of the Company. APPENDIX A - ----------------------------------------------------------------- CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION The Statement of Additional Information contains more specific information and financial statements relating to the Separate Accounts and The Travelers Insurance Company. A list of the contents of the Statement of Additional Information is set forth below: Description of The Travelers and The Separate Accounts The Insurance Company The Separate Accounts Investment Alternatives The Travelers Fund U for Variable Annuities Investments of Fund U Available Mutual Funds Investment Objectives and Policies The Travelers Growth and Income Stock Account For Variable Annuities The Travelers Timed Growth and Income Stock Account for Variable Annuities The Travelers Timed Aggressive Stock Account for Variable Annuities The Travelers Quality Bond Account for Variable Annuities The Travelers Timed Bond Account for Variable Annuities The Travelers Money Market Account for Variable Annuities The Travelers Timed Short-Term Bond Account for Variable Annuities Description of Certain Types of Investments and Investment Techniques Available to the Separate Accounts Writing Covered Call Options Buying Put and Call Options Futures Contracts Money Market Instruments Investment Management and Advisory Services Advisory Fees TIMCO TAMIC Valuation of Assets Performance Data Yield Quotations of Account MM Average Annual Total Return Quotations of Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U The Board of Managers Distribution and Management Services Securities Custodian Independent Accountants Financial Statements COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995 (FORM NO. L-11164S), AND THE ANNUAL REPORTS DATED DECEMBER 31, 1994 WHICH ARE INCORPORATED BY REFERENCE THEREIN (FORM NOS. VG-137, VG- 181, VG-182 AND VG-FNDU), ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE CLIP THIS COUPON ON THE DOTTED LINE ABOVE, ENTER YOUR NAME AND ADDRESS IN THE SPACES PROVIDED BELOW, AND MAIL TO: THE TRAVELERS INSURANCE COMPANY, ANNUITY SERVICES - 5 SHS ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183-5030. Name:____________________________________________________________ Address:_________________________________________________________ _________________________________________________________________ This page intentionally left blank. This page intentionally left blank. THE TRAVELERS UNIVERSAL ANNUITY INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY L-11164 TIC Ed. 5-95 Printed in U.S.A. UNIVERSAL ANNUITY PROSPECTUS The Group Variable Annuity Contracts described in this Prospectus (issued by The Travelers Insurance Company)provide for Purchase Payments to be made, either as a single payment or on a flexible basis, by or on behalf of a Participant. Purchase Payments may currently be allocated to one or more of the following investment alternatives: The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) -- common stock; The Travelers Quality Bond Account for Variable Annuities (Account QB) -- intermediate-term bonds; The Travelers Money Market Account for Variable Annuities (Account MM) -- money market instruments; The Travelers Timed Growth and Income Stock Account for Variable Annuities (Account TGIS) -- timed/common stock; The Travelers Timed Short-Term Bond Account for Variable Annuities (Account TSB) -- timed/short- term bonds; The Travelers Timed Aggressive Stock Account for Variable Annuities (Account TAS) -- timed/aggressive common stock; The Travelers Timed Bond Account for Variable Annuities (Account TB) -- timed/U.S. Government securities; or The Travelers Fund U for Variable Annuities (Fund U). Purchase Payments allocated to Fund U will be invested at net asset value directly in shares of underlying funds available under Fund U (the "Underlying Funds") in accordance with the selection made by the Contract Owner. (See "The Underlying Funds" on page 1 for a complete list of funds currently available under Fund U.) Some of the underlying mutual funds may not be available in every state due to various insurance regulations. Accounts TGIS, TSB, TAS and TB are investment alternatives available for those participants who have entered into third party market timing services agreements. The market timing fee is deducted as an asset charge from Accounts TGIS, TSB, TAS and TB. PARTICIPANTS WHO INVEST IN THESE SEPARATE ACCOUNTS WITHOUT A MARKET TIMING AGREEMENT DO SO AT THEIR OWN RISK, AND MAY BEAR A DISPROPORTIONATE AMOUNT OF THE EXPENSES ASSOCIATED WITH PORTFOLIO TURNOVER AND MAY BEAR AN UNNECESSARY INVESTMENT RISK. (See "Market Timing Services," page 33.) Travelers Equities Sales, Inc. ("TESI") is the principal underwriter for the Contract, and may add or substitute investment alternatives, as described in this Prospectus. The value of the Contract will vary continuously to reflect the investment performance of the investment alternatives selected by the Contract Owner. The Contract Owner bears the investment risk. This Prospectus sets forth concisely the information about the Separate Accounts that you should know before investing. Please read it and retain it for future reference. Additional information about the Separate Accounts is contained in a Statement of Additional Information dated May 1, 1995, which has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus. A copy may be obtained, without charge, by writing to The Travelers Insurance Company, Annuity Services 5 SHS, One Tower Square, Hartford, Connecticut 06183-5030, or by calling 1-800-842-0125. The Table of Contents of the Statement of Additional Information appears in Appendix A of this Prospectus. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE MUTUAL FUNDS UNDERLYING FUND U. BOTH THIS PROSPECTUS AND EACH OF THE UNDERLYING FUND PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. AN INVESTMENT IN ACCOUNT MM IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT. THE DATE OF THIS PROSPECTUS IS MAY 1, 1995 TABLE OF CONTENTS GLOSSARY OF SPECIAL TERMS iv PROSPECTUS SUMMARY 1 FEE TABLE -- Accounts GIS, QB, MM, TGIS, TSB, TAS and TB 4 FEE TABLE -- Fund U and its Underlying Funds 5 CONDENSED FINANCIAL INFORMATION 7 THE INSURANCE COMPANY 16 THE SEPARATE ACCOUNTS 16 THE TRAVELERS FUND U FOR VARIABLE ANNUITIES 17 The Underlying Funds 17 Underlying Fund Investment Advisers 20 Asset Allocation Advice 21 General 21 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT GIS) 21 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT QB) 22 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT MM) 24 THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TGIS) 26 THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TSB) 27 THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TAS) 29 THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TB) 31 MARKET TIMING SERVICES 33 Market Timing Risks 34 THE VARIABLE ANNUITY CONTRACT 34 General Benefit Description 34 Purchase Payments 35 Application of Purchase Payments 35 Right to Return 35 Number of Accumulation Units 35 Net Investment Factor 35 Federal and State Income Tax Withholding 36 CHARGES AND DEDUCTIONS 36 Contingent Deferred Sales Charge 36 Premium Tax 37 Administrative Charge 37 Reduction or Elimination of Contract Charges 37 Insurance Charge 37 Investment Advisory Fees 38 Market Timing Services Fees 38 PERFORMANCE INFORMATION 38 MANAGEMENT AND INVESTMENT ADVISORY SERVICES 39 TRANSFERS 40 Dollar-Cost Averaging (Automated Transfers) 40 SURRENDERS AND REDEMPTIONS 40 Systematic Withdrawals 41 DEATH BENEFIT 41 THE ANNUITY PERIOD 41 Maturity Date 41 Allocation of Annuity Payments 42 Annuity Unit Value 42 Determination of First Annuity Payment 42 Determination of Second and Subsequent Annuity Payments 42 PAYOUT OPTIONS 43 Election of Options 43 Annuity Options 43 Income Options 44 MISCELLANEOUS CONTRACT PROVISIONS 44 Termination 44 Benefit in the Event of Termination of a Participant, the Plan or the Contract 45 Distribution from One Account to Another Account 45 Required Reports 45 Change of Contract 45 Assignment 46 Suspension of Payments 46 FEDERAL TAX CONSIDERATIONS 46 General 46 Investor Control 46 Section 403(b) Plans and Arrangements 47 Qualified Pension and Profit-Sharing Plans 47 Individual Retirement Annuities 47 Section 457 Plans 48 The Employee Retirement Income Security Act of 1974 48 Federal Income Tax Withholding 49 Tax Advice 49 VOTING RIGHTS 50 DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS 51 STATE REGULATION 51 LEGAL PROCEEDINGS AND OPINIONS 51 APPENDIX A 52 GLOSSARY OF SPECIAL TERMS - ------------------------------------------------------------------ As used in this Prospectus, the following terms have the indicated meanings: ACCUMULATION UNIT: an accounting unit of measure used to calculate the value of a contract before Annuity Payments begin. ANNUITANT: the person on whose life the Variable Annuity contract is issued. ANNUITY COMMENCEMENT DATE: the date on which a Participant's Annuity Payments are to begin under the terms of the plan. ANNUITY PAYMENTS: a series of periodic payments for life; for life with either a minimum number of payments or a determinable sum assured; or for the joint lifetime of the Annuitant and another person and thereafter during the lifetime of the survivor. ANNUITY UNIT: an accounting unit of measure used to calculate the dollar amount of Annuity Payments. BOARD OF MANAGERS: the persons directing the investment and administration of a managed Separate Account. CASH SURRENDER VALUE: the amount payable to the Owner or other payee upon termination of the contract during the lifetime of the Annuitant. CASH VALUE: the current value of Accumulation Units credited to the contract less any administrative charges. CERTIFICATE DATE: the effective date of participation under the group annuity contract as designated in the Certificate. CERTIFICATE YEARS: annual periods computed from the Certificate Date. COMPANY: The Travelers Insurance Company. COMPANY'S HOME OFFICE: the principal executive offices of the Company, located at One Tower Square, Hartford, Connecticut. CONTRACT DATE: the date on which the master group contract and its benefits and provisions become effective. CONTRACT YEARS: annual periods computed from the Contract Date. INCOME PAYMENTS: optional forms of periodic payments made by the Company which are not based on the life of the Annuitant. INDIVIDUAL ACCOUNT: Accumulation Units credited to a Participant or beneficiary. INVESTMENT ALTERNATIVE: a Separate Account or available mutual fund to which assets under a Variable Annuity contract may be allocated. MAJORITY VOTE: a "majority vote of the outstanding voting securities" is defined in the Investment Company Act of 1940 as the lesser of (i) 67% or more of the votes present at a meeting, if Contract Owners holding more than 50% of the total voting power of all Contract Owners in the Separate Account are present or represented by proxy, or (ii) more than 50% of the total voting power of all Contract Owners in the Separate Account. MARKET TIMING SERVICES: third party investment advisory services provided for an extra fee to Participants in Account TGIS, Account TSB, Account TAS and Account TB. MATURITY DATE: the date on which the first Annuity Payment is to begin. OWNER: the entity to which the master group contract is issued, usually a trustee, plan administrator or employer. OWNER'S ACCOUNT: Accumulation Units credited to the Owner. PARTICIPANT: an eligible person who participates in the plan. PARTICIPANT'S INTEREST: the Cash Value which is credited for the benefit of a Participant under the plan. PLAN: the plan under which the contract is issued. PURCHASE PAYMENT: a gross amount paid to the Company under a Variable Annuity contract during the accumulation period. SEPARATE ACCOUNT: assets set aside by the Company, the investment experience of which is kept separate from that of other assets of the Company; for example, The Travelers Fund U for Variable Annuities or The Travelers Growth and Income Stock Account for Variable Annuities. UNDERLYING FUND: an open-end management investment company which serves as an investment option under The Travelers Fund U for Variable Annuities (also referred to as "Sub-Accounts"). VALUATION DATE: generally, a day on which an Account is valued. A valuation date is any day on which the New York Stock Exchange is open for trading and the Company is open for business. The value of Accumulation Units and Annuity Units will be determined as of the close of trading on the New York Stock Exchange. VALUATION PERIOD: the period between the close of business on successive Valuation Dates. VARIABLE ANNUITY: an annuity contract which provides for accumulation and for Annuity Payments which vary in amount in accordance with the investment experience of a Separate Account. There are eligibility requirements for purchasers described elsewhere in this Prospectus. This Prospectus does not constitute a solicitation of an offer to acquire any interest or participation in the Variable Annuity described in this Prospectus to any person who is ineligible for purchase. PROSPECTUS SUMMARY - ------------------------------------------------------------------ INTRODUCTION The Contract described in this Prospectus is issued by The Travelers Insurance Company (the "Company" or "The Travelers"), an indirect wholly owned subsidiary of Travelers Group Inc. The Company has established the Separate Accounts listed below for the purpose of funding the Variable Annuity Contract described in this Prospectus. All of the Separate Accounts except Fund U are registered with the Securities and Exchange Commission as diversified, open-end management investment companies under the Investment Company Act of 1940 (the "1940 Act"). Fund U is registered with the Securities and Exchange Commission as a unit investment trust under the 1940 Act. RIGHT TO RETURN For contracts issued in the state of New York, a Participant has the right to return his or her certificate within twenty days of purchase. (See "The Variable Annuity Contract -- Right to Return," page 35.) PURCHASE PAYMENTS The minimum Purchase Payment under tax-benefited contracts is $20, except in the case of IRAs where the initial minimum Purchase Payment is $1,000. For non tax-benefited contracts, the minimum Purchase Payment is $1,000 initially, and $100 thereafter. (See "The Variable Annuity Contract -- Purchase Payments," page 35.) THE SEPARATE ACCOUNTS The Separate Accounts currently available under the Contract are as follows: The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) The Travelers Quality Bond Account for Variable Annuities (Account QB) The Travelers Money Market Account for Variable Annuities (Account MM) The Travelers Timed Growth and Income Stock Account for Variable Annuities (Account TGIS) * The Travelers Timed Short-Term Bond Account for Variable Annuities (Account TSB) * The Travelers Timed Aggressive Stock Account for Variable Annuities (Account TAS) * The Travelers Timed Bond Account for Variable Annuities (Account TB) * The Travelers Fund U for Variable Annuities (Fund U) * ACCOUNTS TGIS, TSB, TAS AND TB ARE AVAILABLE ONLY IN CONNECTION WITH THE MARKET TIMING PROGRAM, AS DESCRIBED BELOW. FUND U AND THE UNDERLYING FUNDS Purchase Payments designated to be allocated to Fund U will be invested at net asset value in shares of the following Underlying Funds in accordance with the selection made by the Contract Owner: Capital Appreciation Fund High Yield Bond Trust Managed Assets Trust U.S. Government Securities Portfolio Social Awareness Stock Portfolio Utilities Portfolio Templeton Bond Fund Templeton Stock Fund Templeton Asset Allocation Fund Dreyfus Stock Index Fund Fidelity's High Income Portfolio Fidelty's Equity-Income Portfolio Fidelity's Growth Portfolio Fidelity's Asset Manager Portfolio American Odyssey International Equity Fund American Odyssey Emerging Opportunities Fund American Odyssey Core Equity Fund American Odyssey Long-Term Bond Fund American Odyssey Intermediate-Term Bond Fund American Odyssey Short-Term Bond Fund Smith Barney Income and Growth Portfolio Alliance Growth Portfolio Smith Barney International Equity Portfolio Putnam Diversified Income Portfolio G.T. Global Strategic Income Portfolio Smith Barney High Income Portfolio MFS Total Return Portfolio INVESTMENT OBJECTIVES AND RISKS A complete description of the investment objectives for each of the Separate Accounts listed above is contained in this Prospectus (beginning on page 16). Brief descriptions of the investment objectives for the Underlying Funds are contained on page 17 of this Prospectus; and complete descriptions may be found in the prospectuses for the Underlying Funds. As is true with all investment companies, each investment alternative possesses certain investment risks and there can be no assurance that the objectives of any of the investment alternatives will be achieved. MARKET TIMING Accounts TGIS, TSB, TAS and TB (the "Market Timed Accounts") are investment alternatives available to Contract Owners who have entered into third party market timing services agreements ("market timing agreements") with select registered investment advisers which provide market timing services in exchange for a fee ("registered investment advisers"). The market timing agreements permit the registered investment advisers to act on behalf of the Contract Owner by transferring all or a portion of the Contract Owner's units from one Market Timed Account to another. Copeland Financial Services, Inc. ("Copeland"), a registered investment adviser and an affiliate of the Company, provides market timing services to Contract Owners in the Market Timed Accounts for a fee of 1.25% of the current value of the assets subject to timing, plus a one- time $30 market timing application fee deducted at the time a Contract Owner completes an application for market timing services. Pursuant to the market timing agreements, the Company deducts a daily percentage of the 1.25% annual market timing fee from the assets of the Market Timed Accounts on each Valuation Date. The Company then pays the market timing fee to Copeland. Assets timed by investment advisers not affiliated with the Company may be in the Market Timed Accounts if the unaffiliated advisers agree to an arrangement substantially identical to the payment method described above for the affiliated advisers, and if the unaffiliated advisers are acceptable to the Company. Contract Owners who invest in the Market Timed Accounts without a market timing agreement do so at their own risk, and may bear a disproportionate amount of the expenses associated with separate account portfolio turnover. Additionally, investment in the Market Timed Accounts without a market timing agreement may cause an unnecessary investment risk. For further information regarding market timing, please see "Market Timing Services," page 33. ASSET ALLOCATION Some Contract Owners may elect to enter into an asset allocation investment advisory agreement with Copeland. Copeland provides asset allocation advice under its CHART (SM) Program, which is fully described in a separate Disclosure Statement. Under the CHART Program, purchase payments and Cash Values are allocated among the six American Odyssey Funds. The service may not be available in all marketing programs through which the Universal Annuity contract is sold. (See "The Travelers Fund U for Variable Annuities -- Asset Allocation Advice," page 21.) INVESTMENT ADVISORY SERVICES The Travelers Investment Management Company ("TIMCO") furnishes investment management and advisory services to Accounts GIS, TGIS, TSB and TAS. Travelers Asset Management International Corporation ("TAMIC") furnishes investment management and advisory services to Accounts QB, MM and TB. (See "Management and Investment Advisory Services," page 39, as well as "The Travelers Fund U for Variable Annuities -- Underlying Fund Investment Advisers," page 20, and the prospectuses for each of the underlying funds.) CHARGES AND EXPENSES No sales charge is deducted from Purchase Payments when they are received. However, a Contingent Deferred Sales Charge of 5% will be deducted if a Purchase Payment is surrendered within five years of the date it was received. Under certain circumstances, the Contingent Deferred Sales Charge may be waived. (See "Charges and Deductions -- Contingent Deferred Sales Charge," page 36.) The Company will deduct $15 semiannually from the Contract to cover administrative expenses associated with the Contract. (See "Charges and Deductions -- Administrative Charge," page 37.) The Company deducts an insurance charge from each Separate Account to compensate for mortality and expense risks assumed by the Company. The insurance charge is equivalent on an annual basis to 1.25% of the daily net assets of the Account. (See "Charges and Deductions -- Insurance Charge," page 37.) A deduction is made from each Separate Account (except Fund U) for investment management and advisory services. Investment advisory fees are deducted daily and paid weekly to the investment advisers providing these services. (See "Charges and Deductions-- Investment Advisory Fees," page 38.) For investment options under Fund U, the investment management and advisory services fee is deducted from the assets of the underlying funds. (Please see the prospectuses of the underlying mutual funds for a description of their respective investment management and advisory fees.) Premium taxes may apply to annuities in a few states. These taxes currently range from 0.5% to 5.0%, depending upon jurisdiction. The Company will deduct any applicable premium tax from the Contract Value, either upon death, surrender, or annuitization, or at the time Purchase Payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. (See "Charges and Deductions -- Premium Tax," page 37.) ANNUITY PAYMENTS At Maturity Date, the contract provides lifetime Annuity Payments, as well as other types of payout plans. (See "Payout Options," page 43.) If a variable payout is selected, the payments will continue to vary with the investment performance of the selected Investment Alternatives. Variable payout is not available for contracts issued in the state of New Jersey. DEATH BENEFIT If individual certificates have been issued under the Contract to Participants, and if a Participant's Interest in the Contract has been individually allocated, a death benefit is payable to the Beneficiary of the Contract if the Participant dies before Annuity or Income Payments begin. (See "Death Benefit," page 41.) TRANSFERS AND WITHDRAWALS Transfers may be made among available Investment Alternatives without fee, penalty or charge at any time before Annuity or Income Payments begin. (See "Transfers," page 40.) SURRENDERS Prior to Maturity Date, all or part of the contract value may be surrendered, subject to certain charges and limitations. (See "Surrenders and Redemptions," page 40, and "Federal Tax Considerations -- Section 403(b) Plans and Arrangements," page 47.) TERMINATION The Travelers reserves the right to terminate inactive contracts under certain circumstances. (See "Miscellaneous Contract Provisions -- Termination," page 44.) VOTING RIGHTS Purchasers have certain voting rights under the contracts. (See "Voting Rights," page 50.) FEE TABLE - ----------------------------------------------------------- ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS AND TB The purpose of this Fee Table is to assist Contract Owners in understanding the various costs and expenses that will be borne, directly or indirectly, under the Contract. For additional information regarding the charges and deductions assessed under the Contract, including possible waivers or reductions of these expenses, see "Charges and Deductions," page 36. Expenses shown do not include premium taxes which may be applicable. CONTRACT CHARGES AND EXPENSES Contingent Deferred Sales Charge (as a percentage of purchase payments): 5.00% Semiannual Contract Administrative Charge $ 15 ANNUAL EXPENSES Mortality and Expense Risk Fees (as a percentage of average net assets) 1.25%
TOTAL MANAGEMENT MARKET ANNUAL FEE TIMING FEE * EXPENSES - ----------------------------------------------------------------------------------------------------------------------------- Travelers Growth and Income Stock Account (Account GIS) 0.45% -- 1.70% Travelers Quality Bond Account (Account QB) 0.32% -- 1.57% Travelers Money Market Account (Account MM) 0.32% -- 1.57% Travelers Timed Growth and Income Stock Account (Account TGIS) 0.32% 1.25% 2.82% Travelers Timed Short-Term Bond Account (Account TSB) 0.32% 1.25% 2.82% Travelers Timed Aggressive Stock Account (Account TAS) 0.30% 1.25% 2.80% Travelers Timed Bond Account (Account TB) 0.50% 1.25% 3.00%
EXAMPLE ** THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. A $1,000 investment would be subject to the If the Contract is NOT surrendered at the following expenses, assuming a 5% annual end of the period shown, a $1,000 invest- return on assets, if the Contract is surren- ment would be subject to the following dered at the end of the period shown ***: expenses, assuming a 5% annual return:
- -------------------------------------------------------------------------------------------- One Three Five Ten One Three Five Ten Year Years Years Years Year Years Years Years - -------------------------------------------------------------------------------------------- Account GIS $ 70 $112 $157 $232 $20 $ 62 $107 $232 Account QB 69 109 151 218 19 59 101 218 Account MM 69 109 151 218 19 59 101 218 Account TGIS 81 146 213 342 31 96 163 342 Account TSB 81 146 213 342 31 96 163 342 Account TAS 81 145 212 340 31 95 162 340 Account TB 83 151 222 359 33 101 172 359
* Contract Owners may discontinue market timing services at any time and thereby avoid any subsequent fees for those services by transferring to a non-timed account. ** The Example reflects the $15 Semiannual Contract Fee as an annual charge of 0.291% of assets. *** The Contingent Deferred Sales Charge may be waived upon annuitization (see "Charges and Deductions - Contingent Deferred Sales Charge," page 36.) FEE TABLE THE TRAVELERS FUND U FOR VARIABLE ANNUITIES AND ITS UNDERLYING FUNDS - ------------------------------------------------------------------ The purpose of this Fee Table is to assist Contract Owners in understanding the various costs and expenses that will be borne, directly or indirectly, under the Contract. The information listed reflects expenses of the Separate Account as well as of the Underlying Funds. For additional information regarding the charges and deductions assessed under the Contract, including possible waivers or reductions of these expenses, see "Charges and Deductions," page 36. Expenses shown do not include premium taxes, which may be applicable. CONTRACT CHARGES AND EXPENSES Contingent Deferred Sales Charge (as a percentage of purchase payments): 5.00% Semiannual Contract Administrative Charge $15 ANNUAL EXPENSES Mortality and Expense Risk Fees (as a percentage of average net assets of the Separate Account) 1.25% UNDERLYING FUND EXPENSES (as a percentage of average net assets of the Underlying Fund)
OTHER TOTAL MANAGEMENT EXPENSES UNDERLYING FEE (AFTER REIMBURSEMENT) FUND EXPENSES - ---------------------------------------------------------------------------------------------------------- Capital Appreciation Fund 0.75% 0.14% (1) 0.89% High Yield Bond Trust 0.50% 0.75% (1) 1.25% Managed Assets Trust 0.50% 0.11% (1) 0.61% U.S. Government Securities Portfolio 0.32% 0.39% (1) 0.71% Social Awareness Stock Portfolio 0.65% 0.60% (1) 1.25% Utilities Portfolio 0.65% 0.60% (1) 1.25% Templeton Bond Fund 0.50% 0.40% (2) 0.90% Templeton Stock Fund 0.48% 0.25% (2) 0.73% Templeton Asset Allocation Fund 0.49% 0.26% (2) 0.75% Fidelity's High Income Portfolio 0.61% 0.10% (3) 0.71% Fidelity's Equity-Income Portfolio 0.52% 0.06% (3) 0.58% Fidelity's Growth Portfolio 0.62% 0.07% (3) 0.69% Fidelity's Asset Manager Portfolio 0.72% 0.08% (3) 0.80% Dreyfus Stock Index Fund 0.07% 0.33% (4) 0.40% American Odyssey International Equity Fund 0.70% 0.55% (5) 1.25% American Odyssey Emerging Opportunities Fund 0.65% 0.18% (5) 0.83% American Odyssey Core Equity Fund 0.60% 0.18% (5) 0.78% American Odyssey Long-Term Bond Fund 0.50% 0.25% (5) 0.75% American Odyssey Intermediate-Term Bond Fund 0.50% 0.25% (5) 0.75% American Odyssey Short-Term Bond Fund 0.50% 0.25% (5) 0.75% Smith Barney Income and Growth Portfolio 0.65% 0.10% (6) 0.75% Alliance Growth Portfolio 0.80% 0.10% (6) 0.90% Smith Barney International Equity Portfolio 0.90% 0.35% (6) 1.25% Putnam Diversified Income Portfolio 0.75% 0.20% (6) 0.95% G.T. Global Strategic Income Portfolio 0.80% 0.30% (6) 1.10% Smith Barney High Income Portfolio 0.60% 0.10% (6) 0.70% MFS Total Return Portfolio 0.80% 0.15% (6) 0.95%
(1) Other Expenses are as of the fiscal year ended December 31, 1994, taking into account the current expense reimbursement arrangement with the Company. The Company has agreed to reimburse each Fund for the amount by which its aggregate expenses (including the management fee, but excluding brokerage commissions, interest charges and taxes) exceeds 1.25%. Without such arrangement, Other Expenses would have been 0.83%, 2.61% and 2.84% for HYBT, Social Awareness Stock Portfolio, and Utilities Portfolio, respectively. (2) Other Expenses are based on the actual operating expenses incurred by the Fund during the year ended December 31, 1994. (3) Management Fees and Other Expenses are as of the fiscal year ended December 31, 1994. No reimbursement arrangement affected the High Income Portfolio. A portion of the brokerage commissions the Fund paid was used to reduce its expenses. Without this reduction, total Other Expenses would have been: Equity-Income Portfolio, 0.60%; Growth Portfolio, 0.70%; and Asset Manager Portfolio, 0.81%. (4) The administrator and investment adviser have agreed to reimburse the Fund for expenses in excess of 0.40%. For the fiscal year ended December 31, 1994, the Investment Management Fee and Other Expenses before reimbursement were 0.15% and 0.42%, respectively. (5) Other Expenses are as of the fiscal year ended December 31, 1994 taking into account the current expense limitations agreed to by the Manager. The Manager has agreed to continue, at least until May 1, 1996, to waive fees or reimburse expenses to the extent a Fund's total expense ratio exceeds the following expense limitation: International Equity Fund, 1.25%; Emerging Opportunities Fund and Core Equity Fund, 1.00%; and Long-Term Bond Fund, Intermediate-Term Bond Fund, Short-Term Bond Fund, 0.75%. Thereafter, each fund is required to reimburse the Manager for any fees waived or expenses it reimbursed provided that this reimbursement by the Fund does not cause the total expense ratio to exceed the expense limitations above. The Long-Term Bond Fund and the Intermediate-Bond Fund are currently reimbursing the Manager while the Short-Term Bond Fund and the International Equity Fund are still receiving reimbursements from the Manager. Without these expense limitations and/or Manager reimbursements, Other Expenses of the Funds would have been as follows: International Equity Fund, 0.66%; Emerging Opportunities Fund, 0.27%; Core Equity Fund, 0.25%; Long-Term Bond Fund, 0.23%; Intermediate-Bond Fund, 0.25%; and Short-Term Bond, 0.52%. 6 Other expenses are as of October 31, 1994, taking into account the current expense limitations agreed to by the Manager. The Manager waived all of its fees for the period and reimbursed the Funds for their expenses. If such fees were not waived and expenses were not reimbursed, Total Underlying Expenses would have been as follows: Smith Barney Income and Growth, 2.08%; Alliance Growth Portfolio, 1.76%; Smith Barney International Equity Portfolio, 2.00%; Putnam Diversified Income Portfolio, 2.92%; G.T. Global Income Portfolio, 4.53%; Smith Barney High Income Portfolio, 2.60%; and MFS Return Portfolio, 2.51%. EXAMPLE * THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. A $1,000 investment would be subject to the If the Contract is NOT surrendered at the following expenses, assuming a 5% annual end of the period shown, a $1,000 invest- return on assets, if the Contract is surren- ment would be subject to the following dered at the end of the period shown**: expenses, assuming a 5% annual return:
- -------------------------------------------------------------------------------------------------------------- One Three Five Ten One Three Five Ten Year Years Years Years Year Years Years Years - -------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund $75 $126 $180 $277 $25 $76 $130 $277 High Yield Bond Trust 78 137 197 312 28 87 147 312 Managed Assets Trust 72 117 165 247 22 67 115 248 U.S. Government Securities Portfolio 73 120 171 259 23 70 121 259 Social Awareness Stock Portfolio 78 137 197 312 28 87 147 312 Utilities Portfolio 78 137 197 312 28 87 147 312 Templeton Bond Fund 75 126 180 278 25 76 130 278 Templeton Stock Fund 73 121 172 261 23 71 122 261 Templeton Asset Allocation Fund 73 122 173 263 23 72 123 263 Fidelity's High Income Portfolio 73 120 171 259 23 70 121 259 Fidelity's Equity-Income Portfolio 72 116 164 245 22 66 114 245 Fidelity's Growth Portfolio 73 120 170 257 23 70 120 257 Fidelity's Asset Manager Portfolio 74 123 175 268 24 73 125 268 Dreyfus Stock Index Fund 70 111 155 227 20 61 105 227 American Odyssey Funds (1): International Equity Fund 78 137 197 312 28 87 147 312 Emerging Opportunities Fund 74 124 177 271 24 74 127 271 Core Equity Fund 74 122 174 266 24 72 124 266 Long-Term Bond Fund 73 122 173 263 23 72 123 263 Intermediate-Term Bond Fund 73 122 173 263 23 72 123 263 Short-Term Bond Fund 73 122 173 263 23 72 123 263 American Odyssey Funds (2): International Equity Fund 91 173 257 424 41 123 207 424 Emerging Opportunities Fund 86 161 237 388 36 111 187 388 Core Equity Fund 86 159 235 384 36 109 185 384 Long-Term Bond Fund 86 159 234 381 36 109 184 381 Intermediate-Term Bond Fund 86 159 234 381 36 109 184 381 Short-Term Bond Fund 86 159 234 381 36 109 184 381 Smith Barney Income and Growth Portfolio 73 122 -- -- 23 72 -- -- Alliance Growth Portfolio 75 126 -- -- 25 76 -- -- Smith Barney International Equity Portfolio 78 137 -- -- 28 87 -- -- Putnam Diversified Income Portfolio 75 128 -- -- 25 78 -- -- G.T. Global Strategic Income Portfolio 77 132 -- -- 27 82 -- -- Smith Barney High Income Portfolio 73 120 -- -- 23 70 -- -- MFS Total Return Portfolio 75 128 -- -- 25 78 -- --
* The Example reflects the $15 Semiannual Contract Fee as an annual charge of 0.291% of assets. ** The Contingent Deferred Sales Charge may be waived upon annuitization (see "Charges and Deductions - Contingent Deferred Sales Charge," page 36.) (1) Reflects expenses that would be incurred for those Contract Owners who DO NOT participate in the CHART Asset Allocation program. (2) Reflects expenses that would be incurred for those Contract Owners who DO participate in the CHART Asset Allocation program. CONDENSED FINANCIAL INFORMATION THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued on or after May 16, 1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .189 $ .184 $ .188 $ .198 $ .192 $ .191 $ .168 $ .132 $ .126 $ .130 Operating expenses ................... .115 .106 .098 .091 .079 .095 .071 .066 .060 .048 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .074 .078 .090 .107 .113 .096 .097 .066 .066 .082 Unit Value at beginning of year ...... 7.007 6.507 6.447 5.048 5.295 4.191 3.601 3.737 3.275 2.732 Net realized and change in unrealized gains (losses) ........... (.164) .422 (.030) 1.292 (.360) 1.008 .493 (.202) .396 .461 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 6.917 $ 7.007 $ 6.507 $ 6.447 $ 5.048 $ 5.295 $ 4.191 $ 3.601 $ 3.737 $ 3.275 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ........................... (.09) .50 .06 1.40 (.25) 1.10 .59 (.14) .46 .54 Ratio of operating expenses to average net assets ................... 1.65% 1.57% 1.58% 1.58% 1.57% 1.58% 1.58% 1.58% 1.57% 1.57% Ratio of net investment income to average net assets ................... 1.05% 1.15% 1.43% 1.86% 2.25% 2.33% 2.60% 1.49% 1.84% 2.85% Number of units outstanding at end of year (thousands)...............26,692 28,497 29,661 26,235 19,634 15,707 12,173 11,367 54,065 32,994 Portfolio turnover rate ................ 103% 81% 189% 319% 54% 27% 38% 51% 95% 93% Contracts issued prior to May 16, 1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .192 $ .189 $ .192 $ .201 $ .199 $ .191 $ .168 $ .132 $ .126 $ .130 Operating expenses ................... .100 .092 .085 .077 .069 .066 .053 .059 .047 .037 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .092 .097 .107 .124 .130 .125 .115 .073 .079 .093 Unit Value at beginning of year ...... 7.194 6.664 6.587 5.145 5.383 4.250 3.642 3.771 3.296 2.742 Net realized and change in unrealized gains (losses) ........... (.166) .433 (.030) 1.318 (.368) 1.008 .493 (.202) .396 .461 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 7.120 $ 7.194 $ 6.664 $ 6.587 $ 5.145 $ 5.383 $ 4.250 $ 3.642 $ 3.771 $ 3.296 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ........................... (.07) .53 .08 1.44 (.24) 1.13 .61 (.13) .48 .55 Ratio of operating expenses to average net assets ................... 1.41% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.32% 1.32% Ratio of net investment income to average net assets ................... 1.30% 1.40% 1.67% 2.11% 2.50% 2.56% 2.85% 1.72% 2.09% 3.16% Number of units outstanding at end of year (thousands) ..............19,557 21,841 22,516 24,868 28,053 31,326 35,633 41,859 48,008 55,699 Portfolio turnover rate ............... 103% 81% 189% 319% 54% 27% 38% 51% 95% 93%
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the l994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued subsequent to May 16, 1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 + 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ...............$ .310 $ .299 $ .311 $ .299 $ .277 $ .270 $ .259 $ .245 $ .240 $ .237 Operating expenses .................... .069 .067 .061 .056 .048 .047 .046 .042 .040 .035 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................. .241 .232 .250 .243 .229 .223 .213 .203 .200 .202 Unit Value at beginning of year ....... 4.381 4.052 3.799 3.357 3.129 2.852 2.697 2.629 2.369 2.056 Net realized and change in unrealized gains (losses) ............ (.348) .097 .003 .199 (.001) .054 (.058) (.135) .060 .111 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............$ 4.274 $ 4.381 $ 4.052 $ 3.799 $ 3.357 $ 3.129 $ 2.852 $ 2.697 $ 2.629 $ 2.369 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value .. (.11) .33 .25 .44 .23 .28 .16 .07 .26 .31 Ratio of operating expenses to average net assets .................... 1.57% 1.57% 1.58% 1.57% 1.57% 1.57% 1.58% 1.57% 1.57% 1.58% Ratio of net investment income to average net assets .................... 5.62% 5.41% 6.38% 6.84% 7.06% 7.44% 7.67% 7.72% 7.94% 9.15% Number of units outstanding at end of year (thousands)............... 27,033 28,472 20,250 17,211 14,245 13,135 9,457 7,560 8,321 3,719 Portfolio turnover rate ............... 27% 24% 23% 21% 41% 33% 17% 17% 28% 29% Contracts issued prior to May 16, 1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 + 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ...............$ .318 $ .306 $ .317 $ .304 $ .281 $ .270 $ .259 $ .245 $ .240 $ .237 Operating expenses .................... .059 .058 .050 .048 .040 .035 .037 .034 .032 .029 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................. .259 .248 .267 .256 .241 .235 .222 .211 .208 .208 Unit Value at beginning of year ....... 4.498 4.150 3.880 3.421 3.181 2.892 2.728 2.652 2.384 2.065 Net realized and change in unrealized gains (losses) ............ (.357) .100 .003 .203 (.001) .054 (.058) (.135) .060 .111 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............$ 4.400 $ 4.498 $ 4.150 $ 3.880 $ 3.421 $ 3.181 $ 2.892 $ 2.728 $ 2.652 $ 2.384 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value (.10) .35 .27 .46 .24 .29 .16 .08 .27 .32 Ratio of operating expenses to average net assets .................. 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.32% 1.32% 1.33% Ratio of net investment income to average net assets .................. 5.87% 5.66% 6.61% 7.09% 7.31% 7.60% 7.82% 7.87% 8.19% 9.43% Number of units outstanding at end of year (thousands) ............. 10,694 12,489 13,416 14,629 16,341 18,248 21,124 24,703 27,776 31,189 Portfolio turnover rate .............. 27% 24% 23% 21% 41% 33% 17% 17% 28% 29% + On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account QB.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued on or after May 16, 1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 1990* 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ............ $ .087 $ .065 $ .077 $ .118 $ .149 $ .156 $ .118 $ .101 $ .091 $ .108 Operating expenses ................. .032 .031 .031 .030 .029 .027 .023 .023 .020 .020 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income .............. .055 .034 .046 .088 .120 .129 .095 .078 .071 .088 Unit Value at beginning of year .... 2.029 1.995 1.949 1.861 1.741 1.612 1.517 1.439 1.368 1.280 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .......... $ 2.084 $ 2.029 $ 1.995 $ 1.949 $ 1.861 $ 1.741 $ 1.612 $ 1.517 $ 1.439 $ 1.368 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase in unit value ........... .06 .03 .05 .09 .12 .13 .10 .08 .07 .09 Ratio of operating expenses to average net assets ................... 1.57% 1.57% 1.57% 1.57% 1.57% 1.57% 1.56% 1.57% 1.57% 1.57% Ratio of net investment income to average net assets ................... 2.72% 1.68% 2.33% 4.66% 6.68% 7.65% 6.02% 5.27% 4.87% 6.55% Number of units outstanding at end of year (thousands)...............39,675 34,227 42,115 55,013 67,343 57,916 41,449 49,918 31,831 24,645 Contracts issued prior to May 16, 1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 1990* 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income .............. .091 $ .067 $ .079 $ .120 $ .151 $ .156 $ .118 $ .101 $ .091 $ .108 Operating expenses ................... .028 .027 .027 .026 .024 .021 .018 .018 .015 .017 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .063 .040 .052 .094 .127 .135 .100 .083 .076 .091 Unit Value at beginning of year ...... 2.083 2.043 1.991 1.897 1.770 1.635 1.535 1.452 1.376 1.285 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 2.146 $ 2.083 $ 2.043 $ 1.991 $ 1.897 $ 1.770 $ 1.635 $ 1.535 $ 1.452 $ 1.376 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase in unit value ........... .06 .04 .05 .09 .13 .14 .10 .08 .08 .09 Ratio of operating expenses to average net assets .................. 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.31% 1.32% 1.32% 1.32% Ratio of net investment income to average net assets .................. 2.98% 1.93% 2.58% 4.90% 6.93% 7.81% 6.19% 5.49% 5.09% 6.83% Number of units outstanding at end of year (thousands) ............. 206 218 227 262 326 367 497 592 593 639 * On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account MM. The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information.
CONDENSED FINANCIAL INFORMATION -- ACCOUNT MM CONDENSED FINANCIAL INFORMATION THE TRAVELERS FUND U FOR VARIABLE ANNUITIES Accumulation Unit Values (Unaudited)
1994 1993 1992 1991 1990 ----------------- ------------------ ----------------- ----------------- --------------- Q NQ Q NQ Q NQ Q NQ Q NQ ------- ------- ------- ------- ------- ------ ------ ------- ------ ------- CAPITAL APPRECIATION FUND* Unit Value at beginning of year. $ 1.892 $ 1.962 $ 1.665 $ 1.727 $ 1.433 $ 1.487 $ 1.075 $ 1.114 $ 1.157 $ 1.200 Unit Value at end of year ....... 1.779 1.845 1.892 1.962 1.665 1.727 1.433 1.487 1.075 1.114 Number of units outstanding at end of year (thousands)......... 40,160 3,605 30,003 2,825 16,453 1,020 12,703 887 11,356 553 HIGH YIELD BOND TRUST Unit Value at beginning of year .$ 2.222 $ 2.245 $ 1.974 $ 1.994 $ 1.767 $ 1.785 $ 1.418 $ 1.433 $ 1.573 $ 1.590 Unit Value at end of year ....... 2.167 2.189 2.222 2.245 1.976 1.994 1.767 1.785 1.418 1.433 Number of units outstanding at end of year (thousands) ........ 4,708 585 5,066 603 4,730 428 4,018 344 4,045 341 MANAGED ASSETS TRUST Unit Value at beginning of year .$ 2.281 $ 2.455 $ 2.111 $ 2.273 $ 2.034 $ 2.189 $ 1.691 $ 1.821 $ 1.671 $ 1.799 Unit Value at end of year ....... 2.201 2.369 2.281 2.455 2.111 2.273 2.034 2.189 1.691 1.821 Number of units outstanding at end of year (thousands)......... 58,355 4,813 63,538 4,490 65,926 4,120 58,106 3,359 51,489 2,744 1989 1988 1987 1986 1985 ----------------- ------------------ ----------------- ----------------- --------------- Q NQ Q NQ Q NQ Q NQ Q NQ ------- ------- ------- ------- ------- ------ ------ ------- ------ ------- CAPITAL APPRECIATION FUND* Unit Value at beginning of year .$ 1.015 $ 1.052 $ 0.934 $ 0.968 $ 1.027 $ 1.066 $ 0.946 $ 0.976 $ 0.736 $ 0.755 Unit Value at end of year ....... 1.157 1.200 1.015 1.052 0.934 0.968 1.027 1.066 0.946 0.976 Number of units outstanding at end of year (thousands) ........ 12,038 495 13,040 423 12,957 486 12,658 263 13,504 93 HIGH YIELD BOND TRUST Unit Value at beginning of year .$ 1.571 $ 1.588 $ 1.388 $ 1.403 $ 1.412 $ 1.427 $ 1.324 $ 1.339 $ 1.134 $ 1.146 Unit Value at end of year ....... 1.573 1.590 1.571 1.588 1.388 1.403 1.412 1.427 1.324 1.339 Number of units outstanding at end of year (thousands) ........ 6,074 573 5,783 676 4,645 523 4,866 591 2,331 86 MANAGED ASSETS TRUST Unit Value at beginning of year .$ 1.331 $ 1.433 $ 1.234 $ 1.328 $ 1.223 $ 1.317 $ 1.040 $ 1.119 $ 0.831 $ 0.892 Unit Value at end of year ....... 1.671 1.799 1.331 1.433 1.234 1.328 1.223 1.317 1.040 1.119 Number of units outstanding at end of year (thousands) ........ 47,104 2,836 46,809 3,316 46,733 3,875 33,600 1,876 28,956 939 Q = Qualified NQ = Non-Qualified The financial statements of Fund U are contained in the 1994 Annual Report to Contract Owners. The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. * Prior to May 1, 1994, the Capital Appreciation Fund was known as the Aggressive Stock Trust.
CONDENSED FINANCIAL INFORMATION -- FUND U CONDENSED FINANCIAL INFORMATION THE TRAVELERS FUND U FOR VARIABLE ANNUITIES ACCUMULATION UNIT VALUES (Unaudited)
1994 1993 1992* ---- ---- ----- U.S. GOVERNMENT SECURITIES PORTFOLIO Unit Value at beginning of period.............................................................. $ 1.153 $ 1.066 $ 1.000 Unit Value at end of period.................................................................... 1.074 1.153 1.066 Number of units outstanding at end of period (thousands) ...................................... 22,709 22,142 8,566 SOCIAL AWARENESS STOCK PORTFOLIO Unit Value at beginning of period.............................................................. $ 1.153 $ 1.086 $ 1.000 Unit Value at end of period.................................................................... 1.109 1.153 1.086 Number of units outstanding at end of year (thousands) ........................................ 3,499 2,920 1,332 UTILITIES PORTFOLIO Unit Value at beginning of period.............................................................. $ 1.000 -- -- Unit Value at end of period.................................................................... 1.005 -- -- Number of units outstanding at end of period (thousands) ...................................... 5,740 -- -- TEMPLETON BOND FUND Unit Value at beginning of year ............................................................... $ 1.172 $ 1.065 $ 1.000 Unit Value at end of year ..................................................................... 1.101 1.172 1.065 Number of units outstanding at end of year (thousands) ........................................ 10,186 8,014 3,477 TEMPLETON STOCK FUND Unit Value at beginning of year ............................................................... $ 1.385 $ 1.047 $ 1.000 Unit Value at end of year ..................................................................... 1.338 1.385 1.047 Number of units outstanding at end of year (thousands) ........................................ 101,462 43,847 10,433 TEMPLETON ASSET ALLOCATION FUND Unit Value at beginning of year ............................................................... $ 1.333 $ 1.070 $ 1.000 Unit Value at end of year ..................................................................... 1.277 1.333 1.070 Number of units outstanding at end of year (thousands) ........................................ 103,407 51,893 13,888 FIDELITY'S HIGH INCOME PORTFOLIO Unit Value at beginning of year ............................................................... $ 1.138 $ 1.138 $ 1.000 Unit Value at end of year ..................................................................... 1.316 1.354 1.138 Number of units outstanding at end of year (thousands) ........................................ 25,813 17,381 4,875 FIDELITY'S GROWTH PORTFOLIO Unit Value at beginning of year ............................................................... $ 1.024 $ 1.024 $ 1.000 Unit Value at end of year ..................................................................... 1.192 1.207 1.024 Number of units outstanding at end of year (thousands) ........................................ 176,304 101,260 30,240 FIDELITY'S EQUITY-INCOME PORTFOLIO Unit Value at beginning of period ............................................................. $ 1.052 $ 1.000 -- Unit Value at end of period ................................................................... 1.112 1.052 -- Number of units outstanding at end of period (thousands) ...................................... 78,856 13,414 -- FIDELITY'S ASSET MANAGER PORTFOLIO Unit Value at beginning of year ............................................................... $ 1.301 $ 1.088 $ 1.000 Unit Value at end of year ..................................................................... 1.207 1.301 1.088 Number of units outstanding at end of year (thousands) ........................................ 282,474 162,413 30,207 DREYFUS STOCK INDEX FUND, INC. Unit Value at beginning of year ............................................................... $ 1.148 $ 1.064 $ 1.000 Unit Value at end of year ..................................................................... 1.144 1.148 1.064 Number of units outstanding at end of year (thousands) ........................................ 31,600 26,789 12,089 AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND Unit Value at beginning of period ............................................................. $ 1.180 $ 1.000 -- Unit Value at end of period ................................................................... 1.084 1.180 -- Number of units outstanding at end of period (thousands) ...................................... 47,096 16,944 -- AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND Unit Value at beginning of period ............................................................. $ 1.079 $ 1.000 -- Unit Value at end of period ................................................................... 1.168 1.079 -- Number of units outstanding at end of period (thousands) ...................................... 73,838 27,011 -- AMERICAN ODYSSEY CORE EQUITY FUND Unit Value at beginning of period ............................................................. $ 1.012 $ 1.000 -- Unit Value at end of period ................................................................... .990 1.012 -- Number of units outstanding at end of period (thousands) ...................................... 100,082 37,136 -- AMERICAN ODYSSEY LONG-TERM BOND FUND Unit Value at beginning of period ............................................................. $ 1.085 $ 1.000 -- Unit Value at end of period ................................................................... 1.010 1.085 -- Number of units outstanding at end of period (thousands) ...................................... 70,928 25,467 -- AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND Unit Value at beginning of period ............................................................. $ 1.035 $ 1.000 -- Unit Value at end of period ................................................................... .993 1.035 -- Number of units outstanding at end of period (thousands) ...................................... 50,403 19,564 -- AMERICAN ODYSSEY SHORT-TERM BOND FUND Unit Value at beginning of period ............................................................. $ 1.020 $ 1.000 -- Unit Value at end of period ................................................................... 1.006 1.020 -- Number of units outstanding at end of period (thousands) ...................................... 17,611 8,201 -- * Period covers January 24, 1992 (date portfolio became available under Fund U) to December 31, 1992, except Social Awareness Stock Portfolio, which became available under Fund U on May 1, 1992.
The financial statements of Fund U are contained in the 1994 Annual Report to Contract Owners. The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each period The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report.
1994 1993 1992 1991 1990 1989 1988 ---- ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA Total investment income ................................ $ .064 $ .043 $ .046 $ .045 $ .099 $ .161 $ .044 Operating expenses ..................................... **(.041) **.042 **.045 **.045 **.034 .023 .017 ------- ------- ------- ------- ------- ------- ------- Net investment income .................................. .023 .001 .001 -- .065 .138 .027 Unit Value at beginning of year ........................ $ 1.776 $ 1.689 $ 1.643 $ 1.391 $ 1.447 $ 1.108 $ 1.000 Net realized and change in unrealized gains (losses).... (.104) 0.086 0.045 0.252 (.121) .201 .081 ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............................. $ 1.695 $ 1.776 $ 1.689 $ 1.643 $ 1.391 $ 1.447 $ 1.108 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value .................. (.08) .09 .05 .25 (.06) .34 .11 Ratio of operating expenses to average net assets * .... ** 2.82% ** 2.82% ** 2.82% ** 2.82% ** 2.41% 1.57% 1.57% Ratio of net investment income to average net assets * . 1.58% 0.08% 0.78% 1.33% 1.86% 2.81% 2.55% Number of units outstanding at end of year (thousands) . 29,692 -- 217,428 -- 5,708 -- 3,829 Portfolio turnover rate ............................... 19% 70% 119% 489% 653% 149% 268% * Annualized ** Effective May 1, 1990, market timing fees are included in operating expenses. Prior to May 1, 1990, market timing fee payments were made by separate check from a contract owner, and were not recorded in the financial statements of Account TGIS, or by contractual surrender to the extent allowed under federal tax law.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES* Per Unit Data for an Accumulation Unit outstanding throughout each period The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report.
1994 1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA Total investment income .............................. $ .055 $ .041 $ .054 $ .076 $ .099 $ .102 $ .078 $ .003 Operating expenses ................................... ** .036 ** .037 ** .041 ** .036 ** .030 .017 .016 .001 ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................................ .019 .004 .013 .040 .069 .085 .062 .002 Unit value at beginning of year ...................... 1.275 1.271 1.258 1.218 1.149 1.064 1.002 1.000 Net realized and change in unrealized gains (losses) **** ....................................... (.002) -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Unit value at end of year ............................ $ 1.292 $ 1.275 $ 1.271 $ 1.258 $ 1.218 $ 1.149 $ 1.064 $ 1.002 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase in unit value ........................... .02 -- .01 .04 .07 .09 .06 -- Ratio of operating expenses to average net assets *** ** 2.82% ** 2.82% ** 2.82% ** 2.82% ** 2.41% 1.57% 1.57% 1.57% Ratio of net investment income to average net assets *** ............................. 1.45% .39% 1.12% 3.07% 5.89% 7.63% 6.51% 2.69% Number of units outstanding at end of year (thousands) 216,713 353,374 173,359 439,527 369,769 360,074 356,969 288,757 * Prior to May 1,1994, the Account was known as The Travelers Timed Money Market Account for Variable Annuities. ** Effective May 1, 1990, market timing fees are included in operating expenses. Prior to May 1, 1990, market timing fee payments were made by separate check from a contract owner, and were not recorded in the financial statements of Account TSB, or by contractual surrender to the extent allowed under federal tax law. *** Annualized **** Effective May 2, 1994, Account TSB was authorized to invest in securities with a maturity of greater than one year. As a result, net realized and change in unrealized gains (losses) are no longer included in total investment income.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each period The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report.
1994 1993 1992 1991 + 1990 1989 1988 1987 ------- ------- ------- ------- ------- ------- ------- ------- SELECTED PER UNIT DATA Total investment income .............................. $ .036 $ .037 $ .041 $ .044 $ .045 $ .052 $ .008 $ .001 Operating expenses ................................... ** .049 ** .048 ** .043 ** .039 ** .073 .051 .015 .000 ------- ------- ------- ------- ------- ------- ------- ------- Net investment income (loss) ......................... (.013) (.011) (.002) .005 (.028) .001 (.007) .001 Unit Value at beginning of year ...................... 1.838 1.624 1.495 1.136 1.189 1.059 1.001 1.000 Net realized and unrealized gains (losses) ........... (.119) .225 .131 .354 (.025) .129 .065 .000 ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............................ $ 1.706 $ 1.838 $ 1.624 $ 1.495 $ 1.136 $ 1.189 $ 1.059 $ 1.001 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ................ (.13) .21 (.13) .36 (.05) .13 .06 .00 Ratio of operating expenses to average net assets *... ** 2.80% ** 2.82% ** 2.93% ** 2.99% ** 2.64% 1.95% 1.95% 1.95% Ratio of net investment income to average net assets * (.72)% (.80)% (.12)% .37% (3.73)% .91% (.88)% 4.90% Number of units outstanding at end of year (thousands) 25,109 43,059 20,225 19,565 5,585 0 0 841 Portfolio turnover rate .............................. 142% 71% 269% 261% 0% 77% 127% 0 * Annualized ** Effective May 1, 1990, market timing fees are included in operating expenses. Prior to May 1, 1990, market timing fee payments were made by separate check from a contract owner and were not recorded in the financial statements of Account TAS, or by contractual surrender to the extent allowed under federal tax law. + On May 1, 1990, TIMCO replaced Keystone Custodian Funds, Inc. as the investment adviser for Account TAS.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation Unit outstanding throughout each period The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report.
1994 1993 1992 1991 +1990 1989 1988 1987 ------- ------- ------- ------- ------- ------- ------- ------- SELECTED PER UNIT DATA Total investment income ........................ $ .007 $ .054 $ .051 $ .052 $ .072 $ .147 $ .141 $ .001 Operating expenses ............................. ** .006 ** .036 ** .032 ** .031 ** .018 .023 .022 .001 ------- ------- ------- ------- ------- ------- ------- ------- Net investment income .......................... .001 .018 .019 .021 .054 .124 .119 .000 Unit Value at beginning of year................. 1.234 1.132 1.087 .994 1.036 1.114 1.000 1.000 Net realized and change in unrealized gains (losses) ..................................... (.020) .084 .026 .072 (.096) (.202) (.005) -- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ...................... $ 1.215 $ 1.234 $ 1.132 $ 1.087 $ .994 $ 1.036 $ 1.114 $ 1.000 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value .......... (.02) .10 .05 .09 (.04) (.08) .11 .00 Ratio of operating expenses to average net assets * ..................................... ** 3.00% ** 3.00% ** 2.99% ** 3.00% ** 2.58% 2.02% 2.04% 1.78% Ratio of net investment income to average net assets * ................................. 1.02% 1.48% 1.71% 3.07% 3.88% 11.15% 11.12% (.95) Number of units outstanding at end of year (thousands) .................................. -- 20,207 21,868 19,521 14,115 660 830 625 Portfolio turnover rate ........................ -- 190% 505% 627% 370% 10% 26% 0% * Annualized ** Effective May 1, 1990, market timing fees are included in operating expenses. Prior to May 1, 1990, market timing fee payments were made by separate check from a contract owner, and were not recorded in the financial statements of Account TB, or by contractual surrender to the extent allowed under federal tax law. + On May 1, 1990, TAMIC replaced Keystone Custodian Funds, Inc. as the investment adviser for Account TB.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. THE INSURANCE COMPANY - ------------------------------------------------------------------ The Travelers Insurance Company (the "Company") is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct a life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group Inc. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. THE SEPARATE ACCOUNTS - ------------------------------------------------------------------ Each of the Separate Accounts available under the Variable Annuity contract described in this Prospectus meets the definition of a separate account under the federal securities laws, and will comply with the provisions of the Investment Company Act of 1940 (the "1940 Act"), as amended. Additionally, the operations of each of the Separate Accounts are subject to the provisions of Section 38a- 433 of the Connecticut General Statutes which authorizes the Connecticut Insurance Commissioner to adopt regulations under it. Section 38a-433 contains no restrictions on investments of the Separate Accounts, and the Commissioner has adopted no regulations under the Section that affect the Separate Accounts. There are two different types of Separate Accounts which serve as the funding vehicles for the Variable Annuity contracts described in this Prospectus. The first type, Fund U, is a unit investment trust registered with the Securities and Exchange Commission ("SEC") under the 1940 Act, which means that Fund U's assets are invested exclusively in the shares of the Underlying Funds. The second type of Separate Account available under the Contract (Accounts GIS, QB, MM, TGIS, TSB, TAS and TB) are diversified, open-end management investment companies registered with the SEC under the 1940 Act. The assets of these Separate Accounts are invested directly in securities such as stocks, bonds or money market instruments which are compatible with the stated investment policies of each Separate Account. Each of the Separate Accounts available in connection with the Contract has different investment objectives and fundamental investment policies, as set forth below. Neither the investment objectives nor the fundamental investment policies of a Separate Account can be changed without a vote of a majority of the outstanding voting securities of the Separate Account, as defined in the 1940 Act. Each of the Separate Accounts was established as follows: Fund U - - - May 16, 1983; Account GIS -- September 22, 1967; Account QB -- July 29, 1974; Account MM -- December 29, 1981; Accounts TGIS and TSB -- October 30, 1986; and Accounts TAS and TB -- January 2, 1987. GENERAL Under Connecticut law, the assets of the Separate Accounts will be held for the exclusive benefit of the owners of, and the persons entitled to payment under, the Variable Annuity contracts offered by this Prospectus and under all other contracts which provide for accumulated values or dollar amount payments to reflect investment results of the Separate Accounts. Income, gains and losses, whether or not realized, for assets allocated to the Separate Accounts, are in accordance with the applicable annuity contracts, credited to or charged against the Separate Accounts without regard to other income, gains or losses of the Company. The assets in the Separate Accounts are not chargeable with liabilities arising out of any other business which the Company may conduct. The obligations arising under the Variable Annuity contracts are obligations of the Company. SUBSTITUTION OF INVESTMENTS If any of the Separate Accounts or Underlying Funds are no longer possible, or in the judgment of the Company become inappropriate for the purposes of the Contract, the Company may substitute another investment alternative without consent of Contract Owners. Substitution may be made with respect to both existing investments and the investment of future Purchase Payments. However, no such substitution will be made without notice to Contract Owners and without prior approval of the Securities and Exchange Commission, to the extent required by the 1940 Act, or other applicable law. The Company may also add other available investment alternatives under the Contract. THE TRAVELERS FUND U FOR VARIABLE ANNUITIES - ------------------------------------------------------------------ Fund U currently invests in the following Underlying Funds. Purchase Payments applied to Fund U will be invested in the Underlying Funds at net asset value in accordance with the selection made by the Owner. Owners may change their selection without fee, penalty or charge, except those which may be assessed directly by the Underlying Funds. Underlying Funds may be added or withdrawn as permitted by applicable law. Additionally, some of the Underlying Funds may not be available in every state due to various insurance regulations. THE UNDERLYING FUNDS CAPITAL APPRECIATION FUND. The objective of the Capital Appreciation Fund is growth of capital through the use of common stocks. Income is not an objective. The Fund invests principally in common stocks of small to large companies which are expected to experience wide fluctuations in price in both rising and declining markets. HIGH YIELD BOND TRUST. The objective of the High Yield Bond Trust is generous income. The assets of the High Yield Bond Trust will be invested in bonds which, as a class, sell at discounts from par value and are typically high risk securities. Please read carefully the complete risk disclosure in the Trust's prospectus before investing. MANAGED ASSETS TRUST. The objective of the Managed Assets Trust is high total investment return through a fully managed investment policy. Assets of the Managed Assets Trust will be invested in a portfolio of equity, debt and convertible securities. U.S. GOVERNMENT SECURITIES PORTFOLIO. The objective of the U.S. Government Securities Portfolio is the selection of investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. The assets of the U.S. Government Securities Portfolio will be invested in direct obligations of the United States, its agencies and instrumentalities. SOCIAL AWARENESS STOCK PORTFOLIO. The investment objective of the Social Awareness Stock Portfolio is long-term capital appreciation and retention of net investment income. The Portfolio seeks to fulfill this objective by selecting investments, primarily common stocks, which meet the social criteria established for the Portfolio. Social criteria currently excludes companies that derive a significant portion of their revenues from the production of tobacco, tobacco products, alcohol, or military defense systems, or in the provision of military defense related services or gambling services. UTILITIES PORTFOLIO. The objective of the Utilities Portfolio is to provide current income by investing in equity and debt securities of companies in the utility industries. TEMPLETON BOND FUND. The objective of the Templeton Bond Fund is high current income through a flexible policy of investing primarily in debt securities of companies, governments and government agencies of various nations throughout the world. TEMPLETON STOCK FUND. The objective of the Templeton Stock Fund is capital growth through a policy of investing primarily in common stocks issued by companies, large and small, in various nations throughout the world. TEMPLETON ASSET ALLOCATION FUND. The objective of the Templeton Asset Allocation Fund is a high level of total return with reduced risk over the long term through a flexible policy of investing in stocks of companies in any nation and debt obligations of companies and governments of any nation. Changes in the asset mix will be adjusted in an attempt to capitalize on total return potential produced by changing economic conditions throughout the world. FIDELITY'S HIGH INCOME PORTFOLIO. The objective of the High Income Portfolio is to seek to obtain a high level of current income by investing primarily in high yielding, lower-rated, fixed-income securities, while also considering growth of capital. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. FIDELITY'S EQUITY-INCOME PORTFOLIO. The objective of the Equity-Income Portfolio is to seek reasonable income by investing primarily in income-producing equity securities; in choosing these securities, the portfolio manager will also consider the potential for capital appreciation. FIDELITY'S GROWTH PORTFOLIO. The objective of the Growth Portfolio is to seek capital appreciation. The Portfolio normally purchases common stocks of well-known, established companies, and small emerging growth companies, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. FIDELITY'S ASSET MANAGER PORTFOLIO. The objective of the Asset Manager Portfolio is to seek high total return with reduced risk over the long-term by allocating its assets among stocks, bonds and short-term fixed-income instruments. DREYFUS STOCK INDEX FUND. The objective of the Dreyfus Stock Index Fund is to provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND. * The objective of the International Equity Fund is to seek maximum long-term total return by investing primarily in common stocks of established non-U.S. companies. AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND. * The objective of the Emerging Opportunities Fund is to seek maximum long-term total return by investing primarily in common stocks of small, rapidly growing companies. AMERICAN ODYSSEY CORE EQUITY FUND. * The objective of the Core Equity Fund is to seek maximum long-term total return by investing primarily in common stocks of well-established companies. AMERICAN ODYSSEY LONG-TERM BOND FUND. * The objective of the Long- Term Bond Fund is to seek maximum long-term total return by investing primarily in long-term corporate debt securities, U.S. government securities, mortgage-related securities, and asset- backed securities, as well as money market instruments. AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND. * The objective of the Intermediate-Term Bond Fund is to seek maximum long-term total return by investing primarily in intermediate-term corporate debt securities, U.S. government securities, mortgage-related securities and asset-backed securities, as well as money market instruments. AMERICAN ODYSSEY SHORT-TERM BOND FUND. * The objective of the Short-Term Bond Fund is to seek maximum long-term total return by investing primarily in investment-grade, short-term debt securities. SMITH BARNEY INCOME AND GROWTH PORTFOLIO. The objective of the Income and Growth Portfolio is current income and long-term growth of income and capital by investing primarily, but not exclusively, in common stocks. ALLIANCE GROWTH PORTFOLIO. The objective of the Growth Portfolio is long-term growth of capital by investing predominantly in equity securities of companies with a favorable outlook for earnings and whose rate of growth is expected to exceed that of the U.S. economy over time. Current income is only an incidental consideration. SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO. The objective of the International Equity Portfolio is total return on assets from growth of capital and income by investing at least 65% of its assets in a diversified portfolio of equity securities of established non-U.S. issuers. PUTNAM DIVERSIFIED INCOME PORTFOLIO. The objective of the Diversified Income Portfolio is to seek high current income consistent with preservation of capital. The Portfolio will allocate its investments among the U.S. Government Sector, the High Yield Sector, and the International Sector of the fixed income securities markets. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. G.T. GLOBAL STRATEGIC INCOME PORTFOLIO. The Strategic Income Portfolio's investment objective is primarily to seek high current income and secondarily to seek capital appreciation. The Portfolio allocates its assets among debt securities of issuers in the United States, developed foreign countries, and emerging markets. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. SMITH BARNEY HIGH INCOME PORTFOLIO. The investment objective of the High Income Portfolio is high current income. Capital appreciation is a secondary objective. The Portfolio will invest at least 65% of its assets in high-yielding corporate debt obligations and preferred stock. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. MFS TOTAL RETURN PORTFOLIO. The Total Return Portfolio's objective is to obtain above-average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. Generally, at least 40% of the Portfolio's assets will be invested in equity securities. Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing. * Funds available for use with an asset allocation program, as described below. UNDERLYING FUND INVESTMENT ADVISERS The Underlying Funds receive investment management and advisory services from the following investment professionals:
FUND INVESTMENT ADVISER SUB-ADVISER Capital Appreciation Fund The Travelers Investment Management Company (TIMCO) Janus Capital Corporation High Yield Bond Trust Travelers Asset Management International Corporation (TAMIC) Managed Assets Trust TAMIC TIMCO U.S. Government Securities Portfolio TAMIC Social Awareness Stock Portfolio Smith Barney Mutual Funds Management Inc. Utilities Portfolio Smith Barney Mutual Funds Management Inc. Templeton Stock Fund Templeton Investment Counsel, Inc. Templeton Asset Allocation Fund Templeton Investment Counsel, Inc. Templeton Bond Fund Templeton Global Bond Managers Fidelity's High Income Portfolio Fidelity Management & Research Company Fidelity's Equity-Income Portfolio Fidelity Management & Research Company Fidelity's Growth Portfolio Fidelity Management & Research Company Fidelity's Asset Manager Portfolio Fidelity Management & Research Company Dreyfus Stock Index Fund Wells Fargo Nikko Investment Advisors American Odyssey International Equity Fund American Odyssey Funds Management, Inc. Bank of Ireland Asset Management (U.S.) Limited American Odyssey Emerging Opportunities Fund American Odyssey Funds Management, Inc. Wilke/Thompson Capital Management, Inc. American Odyssey Core Equity Fund American Odyssey Funds Management, Inc. Equinox Capital Management, Inc. American Odyssey Long-Term Bond Fund American Odyssey Funds Management, Inc. Western Asset Management Company and WLO Global Management American Odyssey Intermediate- Term Bond Fund American Odyssey Funds Management, Inc. TAMIC American Odyssey Short-Term Bond Fund American Odyssey Funds Management, Inc. Smith Graham & Co. Asset Managers, L.P. Smith Barney Income and Growth Portfolio Smith Barney Mutual Funds Management Inc. Alliance Growth Portfolio Smith Barney Mutual Funds Management Inc. Alliance Capital Management L.P. Smith Barney International Equity Portfolio Smith Barney Mutual Funds Management Inc. Putnam Diversified Income Portfolio Smith Barney Mutual Funds Management Inc. Putnam Investment Management, Inc. G.T. Global Strategic Income Portfolio Smith Barney Mutual Funds Management Inc. G.T. Capital Management, Inc. Smith Barney High Income Portfolio Smith Barney Mutual Funds Management Inc. MFS Total Return Portfolio Smith Barney Mutual Funds Management Inc. Massachusetts Financial Services Company
ASSET ALLOCATION ADVICE Some Contract Owners have elected to enter into a separate advisory agreement with Copeland Financial Services, Inc. ("Copeland"), an affiliate of the Company. Copeland provides asset allocation advice under its CHART (SM) Program, which is fully described in a separate Disclosure Statement. Under the CHART Program, Purchase Payments and Cash Values are allocated among the six American Odyssey Funds. Copeland's charge for this advisory service is equal to a maximum of 1.50% of the assets subject to the CHART Program. This fee is currently reduced by 0.25%, the amount of the fee paid to the investment manager of American Odyssey Funds, and it is further reduced for assets over $25,000. Another reduction is made for participants in plans subject to ERISA with respect to amounts allocated to the American Odyssey Intermediate-Term Bond Fund because that Fund has as its sub-adviser an affiliate of Copeland. A $30 initial fee is also charged. The CHART Program fee will be paid by quarterly withdrawals from the Cash Values allocated to the American Odyssey Funds. The Company will not treat these withdrawals as taxable distributions. The CHART Program may not be available in all marketing programs through which the Universal Annuity contract is sold. GENERAL All investment income and other distributions of Fund U are reinvested in fund shares at net asset value. The funds are required to redeem fund shares at net asset value and to make payment within seven days. Fund shares for the Underlying Funds listed above are currently sold to Fund U in connection with variable annuity contracts issued by the Company; additionally, some of the Underlying Fund shares may also be sold to other separate accounts in connection with variable annuity and variable life insurance contracts issued by the Company, its affiliates or other insurance companies. Shares of the Underlying Funds are not sold to the general public. More detailed information may be found in the current prospectuses for the Underlying Funds listed above; these prospectuses are included with and must accompany this Prospectus. Please read them carefully before investing. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT GIS) - ------------------------------------------------------------------ INVESTMENT OBJECTIVE The basic investment objective of Account GIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account GIS generally will be fully invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States government securities. These investments in other than equity securities generally would not have a prospect of long-term appreciation, and are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account GIS will use exchange-traded stock index futures contracts as a hedge to protect against changes in stock prices. A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. Stock index futures may also be used to hedge cash inflows to gain market exposure until the cash is invested in specific common stocks. Account GIS will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. When a futures contract is purchased, Account GIS will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All stock index futures will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account GIS will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). Account GIS expects that risk management transactions involving futures contracts will not impact more than thirty percent (30%) of its assets at any one time. For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. Account GIS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. It may also purchase index or individual equity call options as an alternative to holding stocks or stock index futures, or purchase index or individual equity put options as a defensive measure. For a detailed discussion of options contracts and associated risks, please see the Statement of Additional Information. Changes in investments may be made from time to time to take into account changes in the outlook for particular industries or companies. The investments of Account GIS will not, however, be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of Account GIS's assets will be invested in any one industry. While Account GIS may occasionally invest in foreign securities, it is not anticipated that such foreign securities will, at any time, account for more than ten percent (10%) of the investment portfolio. The assets of Account GIS will be kept fully invested, except that (a) sufficient cash may be kept on hand reasonably to provide for variable annuity contract obligations, and (b) reasonable amounts of cash, United States government or other liquid securities, such as short-term bills and notes, may be held for limited periods, pending investment in accordance with Account GIS's investment policies. RISK FACTORS It must be recognized that there are risks inherent in the ownership of any security. The investment experience on equity investments over time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors, including not only business conditions and investor confidence in the economy, but current conditions in a particular industry or company. The yield on a common stock is not contractually determined. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account GIS permit it to: 1. invest up to 5% of its assets in the securities of any one issuer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 2. borrow from banks in amounts of up to 5% of its assets, but only for emergency purposes; 3. purchase interests in real estate represented by securities for which there is an established market; 4. make loans through the acquisition of a portion of a privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors; 5. acquire up to 10% of the voting securities of any one issuer (it is the present practice of Account GIS not to exceed 5% of the voting securities of any one issuer); 6. make purchases on margin in the form of short-term credits which are necessary for the clearance of transactions; and place up to 5% of its net asset value in total margin deposits for positions in futures contracts; and 7. invest up to 5% of its assets in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT QB) - ------------------------------------------------------------------ INVESTMENT OBJECTIVE The basic investment objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. It is contemplated that the assets of Account QB will be invested in money market obligations, including, but not limited to, Treasury bills, repurchase agreements, commercial paper, bank certificates of deposit and bankers' acceptances, and in publicly traded debt securities, including bonds, notes, debentures, equipment trust certificates and short-term instruments. These securities may carry certain equity features such as conversion or exchange rights or warrants for the acquisition of stocks of the same or different issuer, or participations based on revenues, sales or profits. It is currently anticipated that the market value-weighted average maturity of the portfolio will not exceed five years. (In the case of mortgage-backed securities, the estimated average life of cash flows will be used instead of average maturity.) Investment in longer term obligations may be made if the Board of Managers concludes that the investment yields justify a longer term commitment. The investments of Account QB will not be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of Account QB's assets will be invested in any one industry. The portfolio will be actively managed and investments may be sold prior to maturity to the extent that this action is considered advantageous in light of factors such as market conditions or brokerage costs. While the investments of Account QB are generally not listed securities, there are firms which make markets in the type of debt instruments that Account QB holds. No problems of salability are anticipated with regard to the investments of Account QB. Account QB may from time to time purchase new-issue government or agency securities on a "when-issued" or "to be announced" ("TBA") basis ("when-issued securities"). The prices of such securities will be fixed at the time the commitment to purchase is made, and may be expressed in either dollar price or yield maintenance terms. Delivery and payment may be at a future date beyond customary settlement time. It is the customary practice of Account QB to make when-issued or TBA purchases for settlement no more than 90 days beyond the commitment date. The commitment to purchase when-issued securities may be viewed as a senior security, and will be marked to market and reflected in Account QB's Accumulation Unit Value daily from the commitment date. While it is TAMIC's intention to take physical delivery of these securities, offsetting transactions may be made prior to settlement, if it is advantageous to do so. Account QB does not make payment or begin to accrue interest on these securities until settlement date. In order to invest its assets pending settlement, Account QB will normally invest in short-term money market instruments and other securities maturing no later than the scheduled settlement date. Account QB does not intend to purchase when-issued securities for speculative or "leverage" purposes. Consistent with Section 18 of the Investment Company Act of 1940 and the General Policy Statement of the SEC thereunder, when Account QB commits to purchase a when- issued security, it will identify and place in a segregated account high-grade money market instruments and other liquid securities equal in value to the purchase cost of the when-issued securities. TAMIC believes that purchasing securities in this manner will be advantageous to Account QB. However, this practice does entail certain risks, namely the default of the counterparty on its obligation to deliver the security as scheduled. In this event, Account QB would endure a loss (gain) equal to the price appreciation (depreciation) in value from the commitment date. TAMIC employs a rigorous credit quality procedure in determining the counterparties with which it will deal in when-issued securities and, in some circumstances, will require the counterparty to post cash or some other form of security as margin to protect the value of its delivery obligation pending settlement. Account QB may also purchase and sell interest rate futures contracts to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account QB's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of the portfolio securities will substantially be offset by depreciation in the value of the futures position. Account QB will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. At no time will Account QB's transactions in futures contracts be employed for speculative purposes. When a futures contract is purchased, Account QB will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All interest rate futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account QB will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. RISK FACTORS The Board of Managers will weigh considerations of risks, yield and ratings in implementing Account QB's fundamental investment policies. There are no specific criteria with regard to quality or ratings of the investments of Account QB, but it is anticipated that they will be of investment grade or its equivalent as determined in good faith by the Board of Managers. There may or may not be more risk in investing in debt instruments where there are no specific criteria with regard to quality or ratings of the investments. The yield on debt instruments over a period of time should reflect prevailing interest rates, which depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. The yield on a particular debt instrument is also affected by the risk that the issuer will be unable to pay principal and interest. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account QB permit it to: 1. invest up to 15% of the value of its assets in the securities of any one issuer (exclusive of obligations of the United States government and its instrumentalities, for which there is no limit); 2. borrow from banks in amounts of up to 5% of its assets, but only for emergency purposes; 3. purchase interests in real estate represented by securities for which there is an established market; 4. make loans through the acquisition of a portion of a privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors; 5. acquire up to 10% of the voting securities of any one issuer (it is the present practice of Account QB not to exceed 5% of the voting securities of any one issuer); 6. make purchases on margin in the form of short-term credits which are necessary for the clearance of transactions; and place up to 5% of its net asset value in total margin deposits for positions in futures contracts; and 7. invest up to 5% of its assets in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT MM) - ------------------------------------------------------------------ INVESTMENT OBJECTIVE The basic investment objective of Account MM is preservation of capital, a high degree of liquidity and the highest possible current income available from certain short-term money market securities. While there are many kinds of short-term securities used by the various money market funds, Account MM restricts its investment portfolio to only the securities listed below. As is true with all investment companies, there can be no assurance that Account MM's objectives will be achieved. Account MM's assets will be invested in the following types of securities. 1. Marketable obligations issued or guaranteed by the United States government, its agencies, authorities or instrumentalities. These include issues of the United States Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies, authorities and instrumentalities established under the authority of an act of Congress. The latter issues include, but are not limited to, obligations of the Tennessee Valley Authority, the Bank for Cooperatives, the Federal Intermediate Credit Banks, Federal Land Banks and the Federal National Mortgage Association. Obligations issued or guaranteed by the United States government, its agencies, authorities or instrumentalities may be supported by the full faith and credit of the United States Treasury; by the right of the issuer to borrow from the United States Treasury; by discretionary authority of the United States government to purchase an agency's, authority's or instrumentalities' obligations and in some instances, solely by the credit of the United States government agency, authority or instrumentality. No assurance can be given that the United States government will provide financial support to such United States government sponsored agencies, authorities or instrumentalities in the future, since it is not obligated to do so by law. Account MM will invest in such securities only when satisfied that the credit risk with respect to the issuer (or guarantor) is minimal. Interest or discount rates on agency securities are closely related to rates on Treasury bills. 2. Certificates of Deposit and Banker's Acceptances of banks having total assets of more than $1 billion which are members of the Federal Deposit Insurance Corporation. Certificates of Deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market before maturity. The Federal Deposit Insurance Corporation does not insure Certificates of Deposit to the extent they are in excess of $100,000 per customer. Banker's Acceptances usually arise from short-term credit arrangements drawn on a bank by an exporter or importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturity for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Account MM may invest in securities of foreign branches of United States banks, payable in United States dollars, which meet the foregoing requirements. Obligations of foreign branches of United States banks are subject to additional risks beyond those of domestic branches of United States banks. These additional risks include foreign economic and political developments, foreign governmental restrictions which may adversely affect payment of principal and interest on obligations, foreign withholding and other taxes on interest income, and difficulties in obtaining and enforcing a judgment against a foreign branch of a domestic bank. In addition, different risks may result from the fact that foreign branches of United States banks are not necessarily subject to the types of requirements that apply to domestic branches of United States banks with respect to mandatory reserves, loan limitations, examinations, accounting, auditing, recordkeeping and the public availability of information. 3. Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's Investor Services, Inc. For a more detailed discussion of the characteristics of commercial paper ratings, please see the Statement of Additional Information. 4. Repurchase agreements with national banks or reporting broker dealers involving marketable obligations of or guaranteed by the United States government, its agencies, authorities or instrumentalities. A repurchase agreement is an agreement in which the seller of a security agrees to repurchase the security sold at a mutually agreed upon time and price. It may also be viewed as the loan of money by Account MM to the seller. The resale price is in excess of the purchase price, reflecting an agreed upon interest rate. The rate is effective for the period of time Account MM is invested in the agreement and is not related to the coupon rate on the underlying security. The period of these repurchase agreements will usually be short, from overnight to one week, and at no time will Account MM invest in repurchase agreements for more than one year. The securities which are subject to repurchase agreements may, however, have maturity dates in excess of one year from the effective date of the repurchase agreement. Account MM will always receive, as collateral, securities whose market value, including accrued interest, will be at least equal to 102% of the dollar amount invested by Account MM in each agreement and will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the Custodian. If the seller defaults, Account MM might incur a loss if the value of the collateral securing the repurchase agreement declines, and Account MM might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by Account MM may be delayed or limited. Account MM's Board of Managers will evaluate the creditworthiness of any banks or broker dealers with which Account MM engages in repurchase agreements by setting guidelines and standards of review for Account MM's investment adviser and monitoring the adviser's actions with regard to repurchase agreements for Account MM. The market value of Account MM's investments tends to decrease during periods of rising interest rates and to increase during intervals of falling interest rates, with corresponding fluctuations in Account MM's net income. In order to minimize the fluctuations in market values to which interest-paying obligations are subject, Account MM concentrates its investments in relatively short-term securities, and in no event does the maturity date of an obligation exceed one year from the date of Account MM's purchase. Return to Contract Owners is aided both by Account MM's ability to make investments in large denominations and by its efficiencies of scale. Also, Account MM may seek to improve portfolio income by selling certain portfolio securities before maturity date in order to take advantage of yield disparities that occur in money markets. Account MM may purchase and sell marketable obligations of or guaranteed by the United States government, its agencies, authorities or instrumentalities on a when-issued or delayed delivery basis, with such purchases possibly occurring as much as a month before actual delivery and payment. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account MM permit it to: 1. invest up to 25% of its assets in the securities of issuers in any single industry (exclusive of securities issued by domestic banks and savings and loan associations, or securities issued or guaranteed by the United States government, its agencies, authorities or instrumentalities); neither all finance companies, as a group, nor all utility companies, as a group, are considered a single industry for the purpose of this restriction; 2. invest up to 10% of its assets in the securities of any one issuer, including repurchase agreements with any one bank or dealer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); however, in accordance with Rule 2a-7 of the Investment Company Act of 1940, to which Account MM is subject, Account MM will not invest more than 5% of its assets in the securities of any one issuer (other than securities issued or guaranteed by the United States government or its instrumentalities); 3. acquire up to 10% of the outstanding securities of any one issuer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 4. borrow money from banks on a temporary basis in an aggregate amount not to exceed one third of Account MM's assets (including the amount borrowed); and 5. pledge, hypothecate or transfer, as security for indebtedness, any securities owned or held by Account MM as may be necessary in connection with any borrowing mentioned above and in an aggregate amount of up to 5% of Account MM's assets. THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TGIS) - ------------------------------------------------------------------ INVESTMENT OBJECTIVE The basic investment objective of Account TGIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account TGIS generally will be fully invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States government securities. These investments in other than equity securities generally would not have a prospect of long-term appreciation, and are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account TGIS will use exchange-traded financial futures contracts consisting of stock index futures contracts and futures contracts on debt securities ("interest rate futures") to facilitate market timed moves, and as a hedge to protect against changes in stock prices or interest rates. A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. An interest rate futures contract is a contract to buy or sell specified debt securities at a future time for a fixed price. These contracts would obligate Account TGIS, at maturity of the contracts, to purchase or sell certain securities at specified prices or to make cash settlements. In general, moves in a market-timed investment strategy may require the purchase or sale of large amounts of securities in a short period of time. This purchase or sale could result in substantial transaction costs and perhaps higher borrowing in Account TGIS to provide funds needed for transfer to the other timed accounts prior to the five-day settlement period for stock sales. Alternatively, common stock exposure can be increased or decreased in a more timely, cost-effective fashion by buying or selling stock index futures. By transacting in such futures when a market timing move is called, the investment adviser can create the ability to buy or sell actual common stocks with less haste and at lower transaction costs. As the actual stocks are bought or sold, the futures positions would simply be eliminated. Account TGIS may also purchase and sell interest rate futures to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account TGIS's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of portfolio securities will substantially be offset by depreciation in the value of the futures position. Account TGIS will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts it has entered into. At no time will Account TGIS's transactions in such financial futures be employed for speculative purposes. When a futures contract is purchased, Account TGIS will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All financial futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account TGIS will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. Account TGIS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. It may also purchase index or individual equity call options as an alternative to holding stocks or stock index futures, or purchase index or individual equity put options as a defensive measure. For a detailed discussion of options contracts and associated risks, please see the Statement of Additional Information. RISK FACTORS It must be recognized that there are risks inherent in the ownership of any security. The investment experience on equity investments over time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors including not only business conditions and investor confidence in the economy, but current conditions in a particular industry or company. The yield, if any, on a common stock is not contractually determined. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. In addition, there are risks inherent in Account TGIS as an investment alternative used by Market Timing Services. (See "Market Timing Risks," page 34.) FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account TGIS are the same as Account GIS. (See "Account GIS -- Fundamental Investment Policies," page 22.) THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TSB) - ------------------------------------------------------------------ INVESTMENT OBJECTIVE The investment objective of Account TSB is to generate high current income with limited price volatility while maintaining a high degree of liquidity. As is true with all investment companies, there can be no assurance that Account TSB's objectives will be achieved. Account TSB's assets will be invested in the following types of securities. The final maturity of any asset will not exceed three years and the average maturity of the total portfolio is expected to be nine months. 1. Marketable obligations issued or guaranteed by the United States government, its agencies, authorities or instrumentalities. These include issues of the United States Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies, authorities and instrumentalities established under the authority of an act of Congress. The latter issues include, but are not limited to, obligations of the Tennessee Valley Authority, the Bank for Cooperatives, the Federal Intermediate Credit Banks, Federal Land Banks and the Federal National Mortgage Association. Obligations issued or guaranteed by the United States government, its agencies, authorities or instrumentalities may be supported by the full faith and credit of the United States Treasury; by the right of the issuer to borrow from the United States Treasury; by discretionary authority of the United States government to purchase an agency's, authority's or instrumentalities' obligations and in some instances, solely by the credit of the United States government agency, authority or instrumentality. No assurance can be given that the United States government will provide financial support to such United States government sponsored agencies, authorities or instrumentalities in the future, since it is not obligated to do so by law. Account TSB will invest in such securities only when satisfied that the credit risk with respect to the issuer (or guarantor) is minimal. Interest or discount rates on agency securities are closely related to rates on Treasury bills. 2. Certificates of Deposit and Banker's Acceptances of banks having total assets of more than $1 billion which are members of the Federal Deposit Insurance Corporation. Certificates of Deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market before maturity. The Federal Deposit Insurance Corporation does not insure Certificates of Deposit to the extent they are in excess of $100,000 per customer. Banker's Acceptances usually arise from short-term credit arrangements drawn on a bank by an exporter or importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturity for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Account TSB may invest in securities payable in United States dollars of foreign branches of United States banks which meet the foregoing requirements and in Euro Certificates of Deposit, which are certificates of deposit issued by banks outside of the United States, with interest and principal paid in U.S. dollars. Obligations of foreign banks and foreign branches of United States banks are subject to additional risks than those of domestic branches of United States banks. These additional risks include foreign economic and political developments, foreign governmental restrictions which may adversely affect payment of principal and interest on obligations, foreign withholding and other taxes on interest income, and difficulties in obtaining and enforcing a judgment against a foreign bank or a foreign branch of a domestic bank. In addition, different risks may result from the fact that foreign banks or foreign branches of United States banks are not necessarily subject to the types of requirements that apply to domestic branches of United States banks with respect to mandatory reserves, loan limitations, examinations, accounting, auditing, recordkeeping and the public availability of information. 3. Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's Investor Services, Inc. For a more detailed discussion of the characteristics of commercial paper ratings, please see the Statement of Additional Information. 4. Repurchase agreements with national banks and reporting broker dealers involving marketable obligations of or guaranteed by the United States government, its agencies, authorities or instrumentalities. A repurchase agreement is an agreement in which the seller of a security agrees to repurchase the security sold at a mutually agreed upon time and price. It may also be viewed as the loan of money by Account TSB to the seller. The resale price is in excess of the purchase price, reflecting an agreed upon interest rate. The rate is effective for the period of time Account TSB is invested in the agreement and is not related to the coupon rate on the underlying security. The period of these repurchase agreements will usually be short, from overnight to one week, and at no time will Account TSB invest in repurchase agreements for more than one year. The securities which are subject to repurchase agreements may, however, have maturity dates in excess of one year from the effective date of the repurchase agreement. Account TSB will always receive, as collateral, securities whose market value, including accrued interest, will be at least equal to 102% of the dollar amount invested by Account TSB in each agreement and will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the Custodian. If the seller defaults, Account TSB might incur a loss if the value of the collateral securing the repurchase agreement declines, and Account TSB might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by Account TSB may be delayed or limited. Account TSB's Board of Managers will evaluate the creditworthiness of any banks or broker dealers with which Account TSB engages in repurchase agreements by setting guidelines and standards of review for Account TSB's investment adviser and monitoring the adviser's actions with regard to repurchase agreements for Account TSB. 5. Short-term notes, bonds, debentures and other debt instruments issued or guaranteed by an entity with a bond rating of at least AA by S&P or Aa by Moody's, and with final maturities of such short- term instruments normally limited to eighteen months at the time of purchase. The market value of Account TSB's investments tends to decrease during periods of rising interest rates and to increase during intervals of falling interest rates, with corresponding fluctuations in Account TSB's net income. In order to minimize the fluctuations in market values to which interest-paying obligations are subject, Account TSB concentrates its investments in relatively short-term securities, and in no event does the maturity date of an obligation exceed three years from the date of Account TSB's purchase. There can be no assurance that, upon redemption, Account TSB's net asset value will be equal to or greater than the net asset value at the time of purchase. Return to Contract Owners is aided both by Account TSB's ability to make investments in large denominations and by its efficiencies of scale. Also, Account TSB may seek to improve portfolio income by selling certain portfolio securities before maturity date in order to take advantage of yield disparities that occur in money markets. Account TSB may purchase and sell marketable obligations of or guaranteed by the United States government, its agencies, authorities or instrumentalities on a when-issued or delayed delivery basis, with such purchases possibly occurring as much as a month before actual delivery and payment. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account TSB permit it to: 1. invest up to 25% of its assets in the securities of issuers in any single industry (exclusive of securities issued by domestic banks and savings and loan associations, or securities issued or guaranteed by the United States government, its agencies, authorities or instrumentalities); neither all finance companies, as a group, nor all utility companies, as a group, are considered a single industry for the purpose of this restriction; 2. invest up to 10% of its assets in the securities of any one issuer, including repurchase agreements with any one bank or dealer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 3. acquire up to 10% of the outstanding securities of any one issuer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 4. borrow money from banks on a temporary basis in an aggregate amount not to exceed one third of Account TSB's assets (including the amount borrowed); and 5. pledge, hypothecate or transfer, as security for indebtedness, any securities owned or held by Account TSB as may be necessary in connection with any borrowing mentioned above and in an aggregate amount of up to 5% of Account TSB's assets. THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TAS) - ------------------------------------------------------------------ INVESTMENT OBJECTIVE The investment objective of Account TAS is to provide shareholders with growth of capital by investing primarily in a broadly diversified portfolio of common stocks. In selecting investments for the portfolio, TIMCO employs quantitative analysis to identify stocks which appear to be undervalued. A proprietary computer model reviews over one- thousand stocks using fundamental and technical criteria such as price relative to book value, earnings growth and momentum, and the change in price relative to a broad composite stock index. Computer-aided analysis may also be utilized to match certain characteristics of the portfolio, such as industry sector representation, to the characteristics of a market index, or to impose a tilt toward certain attributes. Although Account TAS currently focuses on mid-sized domestic companies with market capitalizations that fall between $500 million and $10 billion, Account TAS may invest in smaller or larger companies without limitation. The prices of mid-sized company stocks and smaller company stocks may fluctuate more than those of larger company stocks. It is the policy of Account TAS to invest its assets as fully as practicable in common stocks, securities convertible into common stocks and securities having common stock characteristics, including rights and warrants selected primarily for prospective capital growth. Account TAS may invest in domestic, foreign and restricted securities. When market conditions warrant, Account TAS may adopt a defensive position to preserve shareholders' capital by investing in money market instruments. Such instruments, which must mature within one year of their purchase, consist of U.S. government securities; instruments of banks which are members of the Federal Deposit Insurance Corporation and have assets of at least $1 billion, such as certificates of deposit, demand and time deposits and bankers' acceptances; prime commercial paper, including master demand notes; and repurchase agreements secured by U.S. government securities. Account TAS will use exchange-traded financial futures contracts consisting of stock index futures contracts and futures contracts on debt securities ("interest rate futures") to facilitate market timed moves, and as a hedge to protect against changes in stock prices or interest rates. A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. An interest rate futures contract is a contract to buy or sell specified debt securities at a future time for a fixed price. In general, moves in a market-timed investment strategy may require the purchase or sale of large amounts of securities in a short period of time. This purchase or sale could result in substantial transaction costs and perhaps higher borrowing in Account TAS to provide funds needed for transfer to other timed accounts prior to the five-day settlement period for stock sales. Alternatively, common stock exposure can be increased or decreased in a more timely, cost-effective fashion by buying or selling stock index futures. By transacting in such futures when a market timing move is called, TIMCO can create the ability to buy or sell actual common stocks with less haste and at lower transaction costs. As the actual stocks are bought or sold, the futures positions would simply be eliminated. Account TAS may also purchase and sell interest rate futures to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account TAS's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of portfolio securities will substantially be offset by depreciation in the value of the futures position. Account TAS will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. When a futures contract is purchased, Account TAS will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. At no time will Account TAS's transactions in such futures be employed for speculative purposes. All financial futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account TAS will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. Account TAS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. It may also purchase index or individual equity call options as an alternative to holding stocks or stock index futures, or purchase index or individual equity put options as a defensive measure. For a detailed discussion of options contracts and associated risks, please see the Statement of Additional Information. RISK FACTORS There can, of course, be no assurance that Account TAS will achieve its investment objective since there is uncertainty in every investment. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. In addition, there may be more risk associated with Account TAS to the extent that it invests in small or mid-sized companies. More risk is associated with investment in small or mid-sized companies than with larger companies because such companies may be dependent on only one or two products and may be more vulnerable to competition from larger companies with greater resources and to economic conditions affecting their market sector. Small or mid-sized companies may be new, without long business or management histories, and perceived by the market as unproven. Their securities may be held primarily by insiders or institutional investors, which may affect marketability. The prices of these stocks often fluctuate more than the overall stock market. In addition, there are risks inherent in Account TAS as an investment alternative used by Market Timing Services. (See "Market Timing Risks," page 34.) FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account TAS permit it to: 1. invest up to 5% of its assets in the securities of any one issuer; 2. borrow money from banks in amounts of up to 10% of its assets, but only as a temporary measure for emergency or extraordinary purposes; 3. pledge up to 10% of its assets to secure borrowings; 4. invest up to 25% of its assets in the securities of issuers in the same industry; and 5. invest up to 10% of its assets in repurchase agreements maturing in more than seven days and securities for which market quotations are not readily available. THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT TB) - ------------------------------------------------------------------ INVESTMENT OBJECTIVE The investment objective of Account TB is the selection of investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. To achieve this objective, Account TB invests primarily in direct obligations of the United States, in obligations of its instrumentalities supported by its full faith and credit, and in obligations issued or guaranteed by Federal Agencies which are independent corporations sponsored by the United States and which are subject to its general supervision, but which do not carry the full faith and credit obligations of the United States. Direct obligations of the United States include Treasury bills which are issued on a discount basis with a maturity of one year or less, Treasury Notes which have maturities at issuance between one and ten years, and Treasury Bonds which have maturities at issuance greater than ten years. Instrumentalities of the United States whose debt obligations are backed by its full faith and credit, include: Government National Mortgage Association, Federal Housing Administration, Farmers Homes Administration, Export-Import Bank of the United States, Small Business Administration, General Services Administration, Maritime Administration, District of Columbia Armory Board, Farm Credit System Financial Assistance Corporation, Federal Financing Bank and Washington Metropolitan Area Transit Authority Bonds. Federal Agencies include: Farm Credit System, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Student Loan Marketing Association. Account TB intends to be fully invested at all times; however, when market conditions warrant, Account TB may invest temporarily in money market instruments. Such instruments, which must mature within one year of their purchase, consist of U.S. government securities; instruments of banks which are members of the Federal Deposit Insurance Corporation and have assets of at least $1 billion, such as certificates of deposit, demand and time deposits and bankers' acceptances; prime commercial paper, including master demand notes; and repurchase agreements secured by U.S. government securities. Account TB may from time to time purchase new-issue government or agency securities on a "when-issued" or "to be announced" ("TBA") basis ("when-issued securities"). The prices of such securities will be fixed at the time the commitment to purchase is made, and may be expressed in either dollar price or yield maintenance terms. Delivery and payment may be at a future date beyond customary settlement time. It is the customary practice of Account TB to make when-issued or TBA purchases for settlement no more than 90 days beyond the commitment date. The commitment to purchase when-issued securities may be viewed as a senior security, and will be marked to market and reflected in Account TB's Accumulation Unit Value daily from the commitment date. While it is TAMIC's intention to take physical delivery of these securities, offsetting transactions may be made prior to settlement, if it is advantageous to do so. Account TB does not make payment or begin to accrue interest on these securities until settlement date. In order to invest its assets pending settlement, Account TB will normally invest in short-term money market instruments and other securities maturing no later than the scheduled settlement date. Account TB does not intend to purchase when-issued securities for speculative or "leverage" purposes. Consistent with Section 18 of the Investment Company Act of 1940 and the General Policy Statement of the SEC thereunder, when Account TB commits to purchase a when- issued security, it will identify and place in a segregated account high-grade money market instruments and other liquid securities equal in value to the purchase cost of the when-issued securities. TAMIC believes that purchasing securities in this manner will be advantageous to Account TB. However, this practice does entail certain risks, namely the default of the counterparty on its obligation to deliver the security as scheduled. In this event, Account TB would endure a loss (gain) equal to the price appreciation (depreciation) in value from the commitment date. TAMIC employs a rigorous credit quality procedure in determining the counterparties with which it will deal in when-issued securities and, in some circumstances, will require the counterparty to post cash or some other form of security as margin to protect the value of its delivery obligation pending settlement. Account TB may seek to preserve capital by writing covered call options on securities which it owns. Such an option on an underlying security would obligate Account TB to sell, and give the purchaser of the option the right to buy, that security at a stated exercise price at any time until the stated expiration date of the option. Account TB will use exchange-traded financial futures contracts consisting of futures contracts on debt securities ("interest rate futures") to facilitate market timed moves, and as a hedge to protect against changes in interest rates. An interest rate futures contract is a contract to buy or sell specified debt securities at a future time for a fixed price. These contracts would obligate Account TB, at maturity of the contracts, to purchase or sell certain securities at specified prices or to make cash settlements. In general, moves in a market timed investment strategy may require the purchase or sale of large amounts of securities in a short period of time. This purchase or sale could result in substantial transaction costs and perhaps higher borrowing in Account TB to provide funds needed for transfer to Account TSB. Alternatively, debt security exposure can be increased or decreased in a more timely, cost-effective fashion by buying or selling interest rate futures. By transacting in such futures when a market timing move is called, TAMIC can create the ability to buy or sell actual debt securities with less haste and at lower transaction costs. As the actual debt securities are bought or sold, the futures positions would simply be eliminated. Account TB may also purchase and sell interest rate futures to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account TB's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of the portfolio securities will substantially be offset by depreciation in the value of the futures position. Account TB will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. At no time will Account TB's transactions in futures contracts be employed for speculative purposes. When a futures contract is purchased, Account TB will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All interest rate futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account TB will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. RISK FACTORS There can, of course, be no assurance that Account TB will achieve its investment objective since there is uncertainty in every investment. U.S. Government securities are considered among the safest of fixed-income investments. As a result, however, their yields are generally lower than the yields available from corporate debt securities. The value of the portfolio securities of Account TB will fluctuate based on market conditions and interest rates. Interest rates depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. An increase in interest rates will generally reduce the value of debt securities, and conversely a decline in interest rates will generally increase the value of debt securities. In addition, there are risks inherent in Account TB as an investment alternative used by Market Timing Services. (See "Market Timing Risks" page 34.) FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account TB permit it to: 1. invest up to 5% of its assets in the securities of any one issuer (exclusive of securities of the United States government, its agencies or instrumentalities, for which there is no limit); 2. borrow money from banks in amounts of up to 10% of its assets, but only as a temporary measure for emergency or extraordinary purposes; 3. pledge up to 10% of its assets to secure borrowings; 4. invest up to 25% of its assets in the securities of issuers in the same industry (exclusive of securities of the U.S. government, its agencies or instrumentalities, for which there is no limit); and 5. invest up to 10% of its assets in repurchase agreements maturing in more than seven days and securities for which market quotations are not readily available including restricted securities. MARKET TIMING SERVICES - ------------------------------------------------------------------ Accounts TGIS, TSB, TAS and TB are investment alternatives ("Market Timed Accounts") available to Contract Owners who have entered into market timing services agreements ("market timing agreements") with select registered investment advisers which provide market timing services ("registered investment advisers"). These market timing agreements permit the registered investment advisers to act on behalf of the Contract Owner by transferring all or a portion of the Contract Owner's units from one Market Timed Account to another. The registered investment advisers can transfer funds only from one Market Timed Account to another Market Timed Account. A Contract Owner may transfer account values from any of the Market Timed Accounts to any of the other investment alternatives available under the Contract; however, if a Contract Owner in a Market Timed Account transfers all of his current and future account values from the Market Timed Account to a non-timed investment alternative, the market timing agreements with the registered investment advisers automatically terminate. If this occurs, the registered investment advisers no longer have the right to transfer funds on behalf of the Contract Owner. Partial withdrawals or surrenders from the Market Timed Accounts by Contract Owners who have entered into market timing agreements do not affect the agreement. Such partial withdrawals or surrenders leave the market timing agreements intact. Copeland Financial Services, Inc. ("Copeland"), a registered investment adviser and an affiliate of the Company, provides market timing services to Contract Owners in the Market Timed Accounts for a fee of 1.25% of the current value of the assets subject to timing. Copeland also charges a $30 market timing application fee. If a Contract Owner who has terminated his market timing agreement wishes to reenter a market timing agreement, the market timing fees will be reassessed, and a new $30 application fee will be charged by Copeland. The market timing fee is deducted from the assets of the Market Timed Accounts pursuant to a payment method for which the Company, Accounts TGIS, TSB, TAS and TB, TESI and Copeland obtained an exemptive order from the Securities and Exchange Commission on February 7, 1990 ("asset charge payment method"). Pursuant to the asset charge payment method, the market timing agreements are between Contract Owners and Copeland; however, the Company is a signatory to the agreements and is solely responsible for payment of the fee to Copeland. On each Valuation Date, the Company deducts the amount necessary to pay the fee from each of the Market Timed Accounts and, in turn, pays that amount to Copeland. This is the sole payment method available to Contract Owners who enter into market timing agreements. Contract Owners in the Market Timed Accounts may use the services of unaffiliated market timing investment advisers if such advisers are acceptable to the Company, and if such advisers agree to an arrangement substantially identical to the asset charge payment method. Distribution and Management Agreements between each of the Market Timed Accounts and the Company authorize the Company to deduct the market timing fees in accordance with the asset charge payment method. Contract Owners are asked to approve annually the terms of the Distribution and Management Agreement in order to continue the asset charge payment method. Because the market timing services are provided pursuant to individual agreements between Contract Owners and the registered investment advisers, the Boards of Managers of the Market Timed Accounts do not exercise any supervisory or oversight role with respect to these services or the fees charged therefor. Under the asset charge payment method, the daily deductions for market timing fees are not treated by the Company as taxable distributions. (See "Federal Tax Considerations," page 46.) MARKET TIMING RISKS Participants who invest in the Market Timed Accounts without a market timing agreement do so at their own risk, and may bear a disproportionate amount of the expenses associated with Separate Account portfolio turnover. In addition, since the market timing fee is deducted by the Company as an asset charge from the Market Timed Accounts, Contract Owners who invest in these Accounts without a market timing agreement will nevertheless have the fees deducted on a daily basis. Although the Company intends to identify such non-timed Contract Owners and to restore to the non- timed Contract Owner's account, no less frequently than monthly, an amount equal to the deductions for the market timing fees, this restored amount will not reflect any investment experience that would have been attributable to such deductions. Participants who elect to participate in a market timing agreement may be subject to the following additional risks: (1) higher transaction costs; (2) higher portfolio turnover rate; (3) investment return goals not being achieved by the registered investment advisers which provide market timing services; and (4) higher account expenses for depleting and, then, starting up the account. Actions by the registered investment advisers which provide market timing services may also increase risks generally found in any investment, i.e., the failure to achieve an investment objective, and possible lower yield. In addition, if there is more than one market timing strategy utilizing a Market Timed Account, Contract Owners who invest in the Market Timed Account when others are transferred into or out of that Account by the registered investment advisers may bear part of the direct costs incurred by those Contract Owners who were transferred. For example, if 90% of a Market Timed Account is under one market timing strategy, and those funds are transferred either into or out of that Account, Participants constituting the other 10% of the Market Timed Account may bear a disproportionate amount of the expense for the transfer. THE VARIABLE ANNUITY CONTRACT - ------------------------------------------------------------------ The group Variable Annuity contract described in this Prospectus is both an insurance product and a security. As an insurance product, the Contract is subject to the insurance laws and regulations of each state. The underlying product is an annuity where premiums are paid to the Company and credited to the Contract to accumulate until retirement. The following brief description of the key features of the Contract is subject to the specific terms of the Contract itself. Reference should also be made to the Glossary of Special Terms. GENERAL BENEFIT DESCRIPTION Under the Automatic Option, the Company will automatically begin paying Annuity Payments to the Owner or Participant, as provided in the plan, on the Participant's Annuity Commencement Date, if the Participant is then living. (See "Automatic Option," page 43.) The Owner or the Participant, as provided in the plan, may choose instead a number of alternative arrangements for benefit payments. If the Participant dies before a payout begins, the Company will pay to the Owner or beneficiary, as provided in the plan, the Participant's Interest. The Participant's Interest will be considered the Cash Value of that Participant's Individual Account unless the Company is otherwise instructed by the Owner. PURCHASE PAYMENTS Purchase Payments under tax-benefited retirement plans (except IRAs), that is, 403(b), corporate pension and profit-sharing, governmental and deferred compensation plans for governmental and tax exempt organization employees, may be made under the Contract in amounts of $20 or more per Participant, subject to the terms of the plan. The initial minimum Purchase Payment for IRAs is $1,000; for non tax-benefited Contracts, the initial minimum Purchase Payment is $1,000 and $100 thereafter. The initial Purchase Payment is due and payable before the Contract becomes effective. Each Purchase Payment is payable at the Company's Home Office. APPLICATION OF PURCHASE PAYMENTS Each Purchase Payment will be applied by the Company to provide Accumulation Units to the credit of an Owner's Account or Individual Account, as directed or as provided in the plan. If the Contract application is in good order, the Company will apply the initial Purchase Payment within two business days of receipt of the Purchase Payment in the mail at the Company's Home Office. If the application is not in good order, the Company will attempt to get it in good order within five business days. If the application is not complete at the end of this period, the Company will inform the applicant of the reason for the delay and that the Purchase Payment will be returned immediately unless the applicant specifically consents to the Company keeping the Purchase Payment until the application is complete. Once it is complete, the Purchase Payment will be applied within two business days. All Purchase Payments will initially be applied to the Owner's Account. Distributions to Individual Accounts will be allowed in accordance with the terms of "Distribution from One Account to Another Account," page 45. RIGHT TO RETURN For contracts issued in the state of New York, during the twenty days following delivery of a Group Variable Annuity certificate to the Participant, the Participant may return the certificate to the Company, by mail or in person, if for any reason the Participant has changed his or her mind. Upon return of the contract, the Company will refund to the Participant the sum of all Purchase Payments made under the contract, and will make the Separate Accounts whole if the accumulation value has declined. NUMBER OF ACCUMULATION UNITS The number of Accumulation Units to be credited to an Owner's Account or an Individual Account once a Purchase Payment has been received by the Participant will be determined by dividing the Purchase Payment applied to the designated investment alternative by the current Accumulation Unit Value of that investment alternative. The Accumulation Unit Value for each investment alternative was established at $1.00 at inception. The value of an Accumulation Unit on any Valuation Date is determined by multiplying the value on the immediately preceding Valuation Date by the net investment factor for the Valuation Period just ended. The value of an Accumulation Unit on any date other than a Valuation Date will be equal to its value as of the next succeeding Valuation Date. The value of an Accumulation Unit may increase or decrease. NET INVESTMENT FACTOR The net investment factor is used to measure the investment performance of an investment alternative from one Valuation Period to the next. The net investment factor is determined by dividing (a) by (b) and adding (c) to the result where: (a) is the net result of the Valuation Period's investment income (including, in the case of assets invested in an underlying mutual fund, distributions whose ex-dividend date occurs during the Valuation Period), PLUS capital gains and losses (whether realized or unrealized), LESS any deduction for applicable taxes (presently zero); (b) is the value of the assets at the beginning of the Valuation Period (or, in the case of assets invested in an underlying mutual fund, value is based on the net asset value of the mutual fund); (c) is the net result of 1.000, LESS the Valuation Period deduction for the insurance charge, LESS the applicable deduction for the investment advisory fee, and in the case of Accounts TGIS, TSB, TAS and TB, LESS the applicable deduction for market timing fees (the deduction for the investment advisory fee is not applicable in the case of assets invested in an Underlying Fund, since the fee is reflected in the net asset value of the fund). The net investment factor may be more or less than one. FEDERAL AND STATE INCOME TAX WITHHOLDING The federal tax law requires income tax withholding on distributions from pension plans and annuity contracts. The Owner, Participant or beneficiary generally has a right to elect not to have withholding apply. Some states also require withholding from pension and annuity payments unless the Owner, Participant or beneficiary elects not to have withholding apply. (For further information on federal withholding, see "Federal Income Tax Withholding," page 49.) CHARGES AND DEDUCTIONS - ------------------------------------------------------------------ CONTINGENT DEFERRED SALES CHARGE There are no sales charges collected at the time a Purchase Payment is applied under the Contract. A Contingent Deferred Sales Charge of 5% will be assessed if an amount is surrendered (withdrawn) within five years of its payment date. (For this calculation, the five years will be measured from the first day of the calendar month of the payment date.) In the case of a partial surrender, payments made first will be considered to be surrendered first ("first in, first out"). In no event may the Contingent Deferred Sales Charge exceed 5% of premiums paid in the five years immediately preceding the surrender date, nor may the charge exceed 5% of the amount withdrawn. Unless the Company receives instructions to the contrary, the Contingent Deferred Sales Charge will be deducted from the amount requested. The Contingent Deferred Sales Charge will be waived if: - -- an annuity payout is begun; - -- an income option of at least three years' duration (without right of withdrawal) is begun after the first Contract Year; - -- the Participant dies; - -- the Participant becomes disabled (as defined by the Internal Revenue Service) subsequent to purchase of the Contract; - -- the Participant under a tax-deferred annuity plan (403(b) plan) retires after age 55, provided the Contract has been in effect five years or more and provided the payment is made to the Contract Owner; - -- the Participant under an IRA plan reaches age 70 1/2, provided the Certificate has been in effect five years or more; - -- the Participant under a qualified pension or profit-sharing plan (including a 401(k) plan) retires at or after age 59 1/2, provided the Certificate has been in effect five years or more; or if refunds are made to satisfy the anti-discrimination test; (For Participants under Certificates issued before May 1, 1992, the Contingent Deferred Sales Charge will also be waived if the Participant retires at normal retirement age (as defined by the plan), provided the Certificate has been in effect one year or more); - -- the Participant under a Section 457 deferred compensation plan retires and the Certificate has been in effect five years or more, or if a financial hardship or disability withdrawal has been allowed by the plan administrator under applicable IRS rules; - -- the Participant under a Section 457 deferred compensation plan established by the Deferred Compensation Board of the state of New York or a "public employer" in that state (as defined in Section 5 of the New York State Finance Laws) terminates employment. The Contingent Deferred Sales Charge will also be waived for such a plan at the termination date specified in the contract; or - -- the Participant under a pension or profit-sharing plan, including a 401(k) plan, Section 457 deferred compensation plan, or a tax deferred annuity plan (403(b) plan) that is subject to the Employee Retirement Income Security Act of 1974 ("ERISA") retires at normal retirement age (as defined by the plan) or terminates employment, provided that the Contract Owner purchases this contract in conjunction with a group unallocated flexible annuity contract issued by the Company. There is a 10% free withdrawal allowance available for partial withdrawals taken during any Certificate Year after the first. Such withdrawals will be free of charge until the free withdrawal amount is exceeded. Participants under IRA plans with Certificates issued prior to May 1, 1994, are entitled to a 20% free withdrawal allowance after the first Certificate Year. Free withdrawals from IRA plans are only available after the Participant has attained age 59 1/2. The free withdrawal amount that is available will be calculated as of the Contract Anniversary Date immediately preceding the surrender date. The free withdrawal allowance does not apply to full surrenders. For 403(b) plan Participants, partial and full withdrawals (surrenders) may be subject to restrictions. (See "Section 403(b) Plans and Arrangements," page 47.) The Company expects the Contingent Deferred Sales Charge under the Contracts will be insufficient to cover distribution expenses. The difference will be covered by the general assets of the Company which are attributable, in part, to the mortality and expense risk charges assessed under the Contract. PREMIUM TAX Certain state and local governments impose premium taxes. These taxes currently range from 0.5% to 5.0% depending upon jurisdiction. The Company, in its sole discretion and in compliance with any applicable state law, will determine the method used to recover premium tax expenses incurred. The Company will deduct any applicable premium taxes from the Contract Value either upon death, surrender, annuitization, or at the time Purchase Payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. ADMINISTRATIVE CHARGE On all contracts there will be a semiannual administrative charge of $15 for each Participant or Owner for which an account is maintained. The administrative charge will be deducted from the account on the second to last Friday of June and December of each year. This charge will be prorated from the date of purchase to the next date of assessment of charge. A prorated charge will also be assessed upon voluntary or involuntary surrender of the Contract. This charge will not be assessed after an annuity payout has begun. The administrative charge will be deducted from the Contract Value by cancelling Accumulation Units in each investment alternative on a pro rata basis. The administrative charge will offset the actual expenses of the Company in administering the Contract. The charge is set at a level which does not exceed the average expected cost of the administrative services to be provided while the Contract is in force. REDUCTION OR ELIMINATION OF CONTRACT CHARGES The amount of the Contingent Deferred Sales Charge and the administrative charge assessed under the Contract may be reduced or eliminated when sales of the Contract are made to individuals or a group of individuals in such a manner that results in savings or reduction of sales expenses. The entitlement to such a reduction in the Contingent Deferred Sales Charges or the administrative charge will be based on the following: (1) the size and type of group to which sales are to be made (the sales expenses for a larger group are generally less than for a smaller group because of the ability to implement large numbers of contracts with fewer sales contacts); (2) the total amount of Purchase Payments to be received (per contract sales expenses are likely to be less on larger Purchase Payments than on smaller ones); and (3) any prior or existing relationship with the Company (per contract sales expenses are likely to be less when there is a prior or existing relationship because of the likelihood of implementing the contract with fewer sales contacts). There may be other circumstances, of which the Company is not presently aware, which could result in fewer sales expenses. In no event will reduction or elimination of the Contingent Deferred Sales Charge or the administrative charge be permitted where such reduction or elimination will be unfairly discriminatory to any person. INSURANCE CHARGE There is an insurance charge against the assets of each Separate Account to cover the mortality and expense risks associated with guarantees which the Company provides under these Variable Annuity Contracts. This charge, on an annual basis, is 1.25% of the Separate Account value and is deducted on each Valuation Date at the rate of 0.003425% for each day in the Valuation Period. The Company estimates that approximately 50% of the insurance charge is for the assumption of mortality risk, while the remainder is for the assumption of expense risk. The mortality risk charge compensates the Company for risks assumed in making mortality guarantees of several types. For example, the annuity rates guaranteed in the Contract assure an Annuitant that his or her Annuity Payments will not be adversely affected by the actual mortality experience of other Travelers Annuitants. Also, no Contingent Deferred Sales Charge will be assessed if the Contract Value is paid as a death benefit on the death of the Annuitant. The expense risk charge compensates the Company for the risk that the charges under the Contract, which cannot be increased during the duration of the Contract, will be insufficient to cover actual costs. If the amount deducted for these mortality and expense risks is not sufficient to cover the mortality costs and expense shortfalls, the loss is borne by the Company. If the deduction is more than sufficient, the excess will be a profit to the Company. The Company expects to make a profit from the insurance charge. INVESTMENT ADVISORY FEES TIMCO furnishes investment management and advisory services to Accounts GIS, TGIS, TSB and TAS according to the terms of written agreements between TIMCO and each Account. TIMCO receives advisory fees in amounts equivalent to 0.45%, on an annual basis, of the average daily net assets of Account GIS, and to 0.3233%, on an annual basis, of the average daily net assets of TGIS and TSB. The annual advisory fees paid to TIMCO for advisory services provided to Account TAS are as follows:
Aggregate Net Asset Annual Management Fee Value of the Account ---------------------- -------------------- 0.50% of the first $ 20,000,000, plus 0.25% of the next $ 80,000,000, plus 0.20% of the next $200,000,000, plus 0.15% of amounts over $300,000,000. Travelers Asset Management International Corporation (TAMIC) furnishes investment management and advisory services to Accounts QB, MM and TB according to the terms of written agreements between TAMIC and each Account. TAMIC receives advisory fees in amounts equivalent to 0.3233%, on an annual basis, of the average daily net assets of Accounts QB and MM. The annual advisory fees paid to TAMIC for advisory services provided to Account TB are as follows: Aggregate Net Asset Annual Management Fee Value of the Account --------------------- -------------------- 0.50% of the first $ 50,000,000, plus 0.40% of the next $100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of amounts over $250,000,000.
MARKET TIMING SERVICES FEES In connection with the market timing services provided to Participants in Accounts TGIS, TSB, TAS and TB, Copeland Financial Services, Inc. receives a fee equivalent on an annual basis to 1.25% of the current value of the assets subject to timing. The Company deducts this fee daily from the assets of the Market Timed Accounts. Copeland also charges a $30 market timing application fee. Participants may discontinue market timing services at any time and thereby avoid any subsequent fees for those services by transferring to a non-timed account. (See "Market Timing Services," page 33.) PERFORMANCE INFORMATION - ------------------------------------------------------------------ From time to time, the Company may advertise several types of historical performance for the Separate Accounts and the Sub- Accounts of Fund U. The "yield" and "effective yield" may be advertised for Account MM, a money market fund. Yield is a measure of the net dividend and interest income earned over a specific seven-day period, expressed as a percentage of the offering price of Account MM's Accumulation Units. Yield is an annualized figure, which means that it is assumed that Account MM generates the same level of net income over a 52-week period. Effective yield is calculated similarly but includes the effect of assumed compounding calculated under rules prescribed by the Securities and Exchange Commission. The effective yield will be slightly higher than yield due to this compounding effect. Neither yield quotation reflects a deduction for the Contingent Deferred Sales Charge, which if included, would reduce yield and effective yield. The Company may also advertise the "standardized average annual total returns" of Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U, calculated in a manner prescribed by the Securities and Exchange Commission, as well as the "non-standardized total return," as described below. "Standardized average annual total return" will show the percentage rate of return of a hypothetical initial investment of $1,000 for the most recent one, five and ten year periods, or for a period covering the time during which an Underlying Fund held in the Sub-Account has been in existence if the Underlying Fund has not been in existence for one of the prescribed periods. This standardized calculation reflects the deduction of all applicable charges made to the contract, except for premium taxes which may be imposed by certain states. "Non- standardized total return" will be calculated in a similar manner and for the same time periods as the standardized average annual total returns, except non-standardized total returns will not reflect the deduction of any applicable Contingent Deferred Sales Charge or the $15 semiannual contract administrative charge, which would decrease the level of performance shown if reflected in these calculations. For Sub-Accounts that invest in Underlying Funds that were in existence prior to the date the Underlying Fund became available under the Contract, the standardized average annual total return and non-standardized total return quotations will show the investment performance that such Underlying Funds would have achieved (reduced by the applicable charges) had they been held as Sub-Accounts under the Contract for the period quoted. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. Advertisements may include data comparing performance to well-known indices of market performance (including, but not limited to, the Dow Jones Industrial Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan Stanley Capital International's EAFE Index). Advertisements may also include published editorial comments and performance rankings compiled by independent organizations (including, but not limited to, Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that monitor the performance of separate accounts and mutual funds. Performance data for Accounts TGIS, TSB, TAS and TB may not always be useful in evaluating the performance of these Accounts because Accounts TGIS, TSB, TAS and TB may experience wide fluctuations in assets over a given time period due to their exclusive availability to Participants who have entered into third party market timing services agreements. In addition, performance data for Accounts TGIS, TSB, TAS and TB alone will not generally be useful for the purpose of evaluating the performance of a market timing strategy which utilizes these Accounts. The yield and total return quotations are based upon historical earnings and are not necessarily representative of future performance. A Contract Owner's Contract Value at redemption may be more or less than original cost. The Statement of Additional Information contains more detailed information about these performance calculations, including actual examples of each type of performance advertised. MANAGEMENT AND INVESTMENT ADVISORY SERVICES - ------------------------------------------------------------------ The investments and administration of the Separate Accounts are under the direction of the Board of Managers. Subject to the authority of the Board of Managers, TIMCO furnishes investment management and advisory services to Accounts GIS, TGIS, TSB and TAS, TAMIC and furnishes such services to Accounts QB, MM and TB. TIMCO is a registered investment adviser that has provided investment advisory services since its incorporation in 1967. Its principal offices are located at One Tower Square, Hartford, Connecticut, and it is a wholly owned subsidiary of Smith Barney Holdings Inc., which is a wholly owned subsidiary of Travelers Group Inc. TIMCO also acts as investment adviser or sub-adviser for other investment companies used to fund variable products, including the Capital Appreciation Fund and Managed Assets Trust; as well as for individual and pooled pension and profit-sharing accounts, and for affiliated companies of The Travelers Insurance Company. TAMIC is a registered investment adviser that has provided investment advisory services since its incorporation in 1978. Its principal offices are located at One Tower Square, Hartford, Connecticut, and it is an indirect wholly owned subsidiary of Travelers Group Inc. TAMIC also acts as investment adviser or sub-adviser for other investment companies used to fund variable products, including High Yield Bond Trust, Managed Assets Trust, Cash Income Trust and the U.S. Government Securities Portfolio of The Travelers Series Trust; as well as for individual and pooled pension and profit-sharing accounts, and for domestic and offshore insurance companies affiliated with The Travelers Insurance Company. TRANSFERS - ------------------------------------------------------------------ Before Annuity or Income Payments begin, the Owner may transfer all or part of the Contract Value from one available investment alternative to another without fee, penalty or charge. There are currently no restrictions on frequency of transfers, but the Company reserves the right to limit transfers to no more than one in any six month period. However, any such restrictions are inapplicable to transfers by third party market timing services among timed Investment Alternatives. Some of the investment alternatives available under the Contract have higher investment advisory fees than others; therefore, a transfer from one investment alternative to another could result in a Participant's investment becoming subject to higher or lower investment advisory fees. (See "Investment Advisory Fees," page 38.) In addition, the market timing fee is deducted as an asset charge from Accounts TGIS, TSB, TAS and TB. Participants who invest in those Separate Accounts without a market timing services agreement will bear an unnecessary investment risk. (See "Market Timing Services," page 33.) A transfer between Investment Alternatives has no other effect on the amount or timing of any of the other charges under the Contract. For purposes of computing the applicability of the Contingent Deferred Sales Charge, the date of the Purchase Payments made pursuant to the Contract will not be affected by transfers among Investment Alternatives. If a Participant in a market timed Investment Alternative transfers all of his current and future account values from the market timed Investment Alternative to a non-timed Investment Alternative, he has terminated his market timing services agreement. If this occurs, the market timing service no longer has the right to transfer funds on behalf of the Participant. Partial withdrawals or surrenders from an Investment Alternative for Participants who have entered into market timing services agreements do not affect the agreements. DOLLAR-COST AVERAGING (AUTOMATED TRANSFERS) By written request, the Participant may elect automated transfers of Contract Values on a monthly or quarterly basis from specific Sub-Accounts to other Sub-Accounts. The Participant may stop or change your participation in the Dollar-Cost Averaging program at any time, provided the Company receives at least 30 days' written notice. Automated transfers are subject to all Contract provisions, including those relating to the transfer of money between Sub- Accounts. Certain minimums apply to amounts transferred and/or to enroll in the program. Dollar-cost averaging requires regular investment regardless of fluctuating prices and does not guarantee profits nor prevent losses in a declining market. Before electing this option, Participants should consider their financial ability to continue purchases through periods of low price levels. SURRENDERS AND REDEMPTIONS - ------------------------------------------------------------------ Before the due date of a Participant's first Annuity Payment, the Company will pay all or any portion of that Participant's Interest to the Owner or Participant, as provided in the plan. The Owner or Participant must submit a written request specifying the investment alternative(s) from which surrender is to be made. The Cash Surrender Value will be determined as of the Valuation Date next following receipt of the Owner's surrender request at the Company's Home Office (One Tower Square, Hartford, Connecticut 06183). The Owner's Account may be surrendered for cash as provided in the Plan without the consent of any Participant. The Company may defer payment of any Cash Surrender Value for a period of not more than seven days after the request is received in the mail, but it is its intent to pay as soon as possible. Requests for surrender that are not in good order will not be processed until the deficiencies are corrected. The Company will contact the Contract Owner to advise of the reason for the delay and what is needed to act on the surrender request. Cash Value equal to the amount the Contract Owner wishes to redeem will be transferred to Account MM from the Investment Alternative(s) from which surrender is to be made. It will remain in Account MM until the Company receives the information required to act on the surrender request. The Cash Surrender Value of an Owner's Account or Individual Account on any date will be equal to the Cash Value of the Contract less any applicable Contingent Deferred Sales Charge, outstanding cash loans, and any premium tax not previously deducted. The Cash Surrender Value may be more or less than the Purchase Payments made depending on the value of the Contract at the time of surrender. For Participants in the Texas Optional Retirement Program, a withdrawal is available only upon termination of employment, retirement or death as provided in the Texas Optional Retirement Program. For Participants in Section 403(b) tax deferred annuity plans, a withdrawl may not be made from certain salary reduction amounts taken prior to reaching age 59 1/2, or due to separation from service, death, disability or hardship. (See "Section 403(b) Plans and Arrangements," page 47.) SYSTEMATIC WITHDRAWALS You may elect to take monthly, quarterly, semiannual or annual systematic withdrawals of a specified dollar amount during the prior twelve months. Any applicable premium taxes will be deducted. To elect this option, you must complete an election form provided by the Company. You may stop the systematic withdrawals at any time, provided the Company receives at least 30 days' written notice. DEATH BENEFIT - ------------------------------------------------------------------ If individual certificates have been issued under the Contract to Participants, and if a Participant's Interest in the Contract has been individually allocated by the Owner, a death benefit will be payable as follows. If the Participant dies on or after age 75 and before Annuity or Income Payments begin, the Company will pay to the beneficiary the Participant's Interest as of the date it receives proof of death at its Home Office, less any premium tax incurred. If the Participant dies before age 75 and before Annuity or Income Payments begin, after receipt of due proof of the Participant's death, the Company will pay the greatest of (1), (2) or (3) below, except for contracts issued in the state of Washington, where the Company will pay the greater of (1) or (2) below. 1. the Participant's Interest, less any premium tax incurred or outstanding cash loans; 2. the total Purchase Payments allocated to that Participant, less any prior surrenders or cash loans; or 3. the Participant's Interest on the fifth Certificate Date anniversary immediately preceding the date of receipt of due proof of death by the Company, less any applicable premium tax, outstanding cash loans or surrenders made since the fifth year anniversary. In some jurisdictions, until state approval is received, the applicable age at which the death benefit formula will reduce will be age 65 rather than age 75. THE ANNUITY PERIOD - ------------------------------------------------------------------ MATURITY DATE Annuity Payments for a particular Participant will ordinarily begin on that Participant's Annuity Commencement Date as stated in that Participant's Certificate. However, a later Annuity Commencement Date may be elected. The Annuity Commencement Date must be before the Participant's 70th birthday, unless the Company consents to a later date. Federal income tax law requires that certain minimum distribution payments be taken from pension, profit-sharing, Section 403(b), Section 457 and IRA plans after the Participant reaches the age of 70 1/2. A number of payout options are available (see "Payout Options," page 43). No Contingent Deferred Sales Charge will be assessed if an Annuity Option is elected, or an Income Option of at least three years' duration (without right of withdrawal) is elected after the first Certificate Year. ALLOCATION OF ANNUITY PAYMENTS When Annuity Payments begin, the accumulated value in each Investment Alternative will be applied to provide an Annuity with the amount of Annuity Payments varying with the investment experience of that same Investment Alternative. If the Owner or Participant, as provided in the plan, wishes to have Annuity Payments which vary with the investment experience of a different Investment Alternative, transfers among accounts must be made at least 30 days before the date Annuity Payments begin. If the Owner or Participant wishes to have a fixed dollar annuity whose payments do not vary, the Company will exchange that Participant's Interest for a different contract or provide such other settlement agreements as are appropriate to effect the payment of such an Annuity. Variable payout is not available for Contracts issued in the state of New Jersey. Once Annuity Payments begin, these Contract Owners or Participants, as provided in the plan will automatically receive a fixed dollar annuity whose payments do not vary with the investment experience of an Investment Alternative. ANNUITY UNIT VALUE The dollar value of an Annuity Unit for each Investment Alternative was established at $1.00 at inception. The value of an Annuity Unit as of any Valuation Date is determined 14 days in advance in order to allow adequate time for the required calculations and the mailing of annuity checks in advance of their due dates. (If the date 14 days in advance is not a Valuation Date, the calculation is made on the next following Valuation Date, which would generally be 13 or 12 days in advance.) Specifically, the Annuity Unit Value for an Investment Alternative as of a Valuation Date is equal to (a) the value of the Annuity Unit on the immediately preceding Valuation Date multiplied by (b) the net investment factor for the Valuation Period ending on or next following 14 days prior to the current Valuation Date, divided by (c) the assumed net investment factor for the Valuation Period. (For example, the assumed net investment factor based on an annual assumed net investment rate of 3.5% for a Valuation Period of one day is 1.0000942 and, for a period of two days, is 1.0000942 x 1.0000942.) The value of an Annuity Unit as of any date other than a Valuation Date is equal to its value on the next succeeding Valuation Date. The number of Annuity Units credited to the Contract is determined by dividing the first monthly Annuity Payment attributable to each Investment Alternative by the Investment Alternative's Annuity Unit Value as of the due date of the first Annuity Payment. The number of Annuity Units remains fixed during the annuity period. DETERMINATION OF FIRST ANNUITY PAYMENT The Contract contains tables used to determine the first monthly Annuity Payment. The amount applied to effect an Annuity will be the Cash Value of the Contract as of 14 days before the date Annuity Payments commence less any applicable premium taxes not previously deducted. The amount of the first monthly payment depends on the Annuity Option elected (see "Automatic Option," page 43) and the adjusted age of the Participant. A formula for determining the adjusted age is contained in the Contract. The tables are determined from the Progressive Annuity Table assuming births in the year 1900 and an assumed annual net investment rate of 3.5%. The total first monthly Annuity Payment is determined by multiplying the benefit per $1,000 of value shown in the tables of the Contract by the number of thousands of dollars of value of the contract applied to that Annuity Option. The Company reserves the right to require proof of age before Annuity Payments begin. DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS The dollar amount of the second and subsequent Annuity Payments is not predetermined and may change from month to month based on the investment experience of the applicable Investment Alternatives. The actual amounts of these payments are determined by multiplying the number of Annuity Units credited to the Contract in each Investment Alternative by the corresponding Annuity Unit Value as of the date on which payment is due. The interest rate assumed in the annuity tables would produce a level Annuity Unit Value and, therefore, level Annuity Payments if the net investment rate remained constant at the assumed rate. In fact, payments will vary up or down as the net investment rate varies up or down from the assumed rate, and there can be no assurance that a net investment rate will be as high as the assumed rate. PAYOUT OPTIONS - ------------------------------------------------------------------ ELECTION OF OPTIONS On the Annuity Commencement Date, or other agreed-upon date, the Company will pay an amount payable under the Contract in one lump sum, or in accordance with the payment option selected by the Contract Owner. Election of an option must be made in writing in a form satisfactory to the Company. Any election made during the lifetime of the Participant must be made by the Owner or the Participant, as provided in the plan. The terms of options elected by some Participants or beneficiaries may be restricted to meet the contract qualification requirements of Section 401(a)(9) of the Internal Revenue Code. If, at the death of a Participant, there is no election in effect for that Participant, election of an option must be made by the beneficiary entitled to any death benefit payable in one sum under the Contract. The minimum amount that can be placed under an Annuity or Income Option will be $2,000 unless the Company consents to a lesser amount. If any monthly periodic payment due any payee is less than $20, the Company reserves the right to make payments at less frequent intervals. ANNUITY OPTIONS Subject to the conditions described in "Election of Options" above, and subject to the plan, all or any part of a Participant's Interest otherwise payable in one sum to the Owner or that Participant on that Participant's Annuity Commencement Date or prior Cash Surrender of an Individual Account, or amounts payable in one sum to the beneficiary on death of that Participant, may be paid under one or more of the following Annuity Options. Annuity Options may be elected on a monthly, quarterly, semiannual or annual basis. AUTOMATIC OPTION--Unless the Company is directed otherwise by the Owner, if the Participant is living and has a spouse and no election has been made, the Company will, on that Participant's Annuity Commencement Date, pay to the Participant the first of a series of Annuity Payments based on the life of the Participant as the primary payee and the Participant's spouse in accordance with Option 5 below. Unless the plan provides otherwise, if the Participant is living and no election has been made and the Participant has no spouse, the Company will, on the Annuity Commencement Date, pay to the Participant the first of a series of Annuity Payments based on the life of the Participant, in accordance with Option 2 with 120 monthly payments assured. OPTION 1--LIFE ANNUITY--NO REFUND: The Company will make Annuity Payments during the lifetime of the person on whose life the payments are based, terminating with the last payment preceding death. This option offers the maximum periodic payment, since there is no assurance of a minimum number of payments or provision for a death benefit for beneficiaries. (It would be possible under this option to receive only one Annuity Payment if the Participant died before the due date of the second Annuity Payment, only two if the Participant died before the third Annuity Payment, etc.) OPTION 2--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED: The Company will make monthly Annuity Payments during the lifetime of the person on whose life payments are based, with the agreement that if, at the death of that person, payments have been made for less than 120, 180 or 240 months, as elected, payments will be continued during the remainder of the period to the beneficiary designated. The beneficiary may instead receive a single sum settlement equal to the discounted value of the future payments with the interest rate equivalent to the assumption originally used when the Annuity began. OPTION 3--UNIT REFUND LIFE ANNUITY: The Company will make Annuity Payments during the lifetime of the person on whose life payments are based, terminating with the last payment due before the death of that person, provided that, at death, the beneficiary will receive in one sum the current dollar value of the number of Annuity Units equal to (a) minus (b) (if that difference is positive) where: (a) is the total amount applied under the option divided by the Annuity Unit Value on the due date of the first Annuity Payment, and (b) is the product of the number of the Annuity Units represented by each payment and the number of payments made. OPTION 4--JOINT AND LAST SURVIVOR LIFE ANNUITY--NO REFUND: The Company will make Annuity Payments during the joint lifetime of the two persons on whose lives payments are based, and during the lifetime of the survivor. No further payments will be made following the death of the survivor. (It would be possible under this option to receive only one Annuity Payment if both Participants died before the due date of the second Annuity Payment, only two if they died before the third Annuity Payment, etc.) OPTION 5--JOINT AND LAST SURVIVOR LIFE ANNUITY--ANNUITY REDUCES ON DEATH OF PRIMARY PAYEE: The Company will make Annuity Payments during the lifetime of the two persons on whose lives payments are based. One of the two persons will be designated as the primary payee. The other will be designated as the secondary payee. On the death of the secondary payee, if survived by the primary payee, the Company will continue to make monthly Annuity Payments to the primary payee in the same amount that would have been payable during the joint lifetime of the two persons. On the death of the primary payee, if survived by the secondary payee, the Company will continue to make Annuity Payments to the secondary payee in an amount equal to 50% of the payments which would have been made during the lifetime of the primary payee. No further payments will be made following the death of the survivor. OPTION 6--OTHER ANNUITY OPTIONS: The Company will make any other arrangements for Annuity Payments as may be mutually agreed upon. INCOME OPTIONS Instead of the Annuity Options described above, and subject to the conditions described under "Election of Options" and the plan, all or any part of a Participant's Interest otherwise payable in one sum to the Owner or that Participant on the Participant's Annuity Commencement Date or prior Cash Surrender of an Individual Account, or amounts payable in one sum to the beneficiary on the death of Participant, may be paid under one or more of the Income Options described below. Income Options may be elected on a monthly, quarterly, semiannual or annual basis. OPTION 1--PAYMENTS OF A FIXED AMOUNT: The Company will make equal payments of the amount elected until the Cash Value applied under this option has been exhausted. The final payment will include any amount insufficient to make another full payment. OPTION 2--PAYMENTS FOR A FIXED PERIOD: The Company will make payments for the number of years selected. The amount of each payment will be equal to the remaining Cash Value applied under this option divided by the number of remaining payments. OPTION 3--INVESTMENT INCOME: The Company will make payments for the period agreed on. The amount payable will be equal to the excess, if any, of the Cash Value under this option over the amount applied under this option. No payment will be made if the Cash Value is less than the amount applied, and it is possible that no payments would be made for a period of time. Payments under this option are not considered to be Annuity Payments and are taxable in full as ordinary income. (See "Federal Tax Considerations," page 46.) This option will generally be inappropriate under federal tax law for periods that exceed the Participant's attainment of age 70 1/2. The Cash Value used to determine the amount of any Income Payment will be calculated as of 14 days before the date an Income Payment is due and will be determined on the same basis as the Cash Value of the Contract, including the deduction for mortality risks. Income Options differ from Annuity Options in that the amount of the payments made under Income Options are unrelated to the length of life of any person. Although the Company continues to deduct the charge for mortality and expense risks, it assumes no mortality risks for amounts applied under any Income Option. Moreover, except with respect to lifetime payments of investment income under Income Option 3, payments are unrelated to the actual life span of any person. Thus, the Participant may outlive the payment period. While Income Options do not directly involve mortality risks for the Company, a Contract Owner may elect to apply the remaining Cash Value to provide an Annuity at the guaranteed rates even though Income Payments have been received under an Income Option. Before an Owner or Participant makes any Income Option election, he or she should consult a tax adviser as to any adverse tax consequences the election might have. MISCELLANEOUS CONTRACT PROVISIONS - ------------------------------------------------------------------ TERMINATION No Purchase Payments after the first are required to keep the contract in effect. However, if the Cash Value in a Participant's Individual Account is less than $500 and no premium has been applied to the Participant's Individual Account for at least three years, the Company reserves the right to terminate the Participant's Individual Account and move the Cash Value of that Participant's Individual Account to the Owner's Account. If the plan does not allow for transfer to the Owner's Account, the Company will pay the Cash Value, adjusted for any applicable premium tax, to the Owner, or to that Participant at the direction of the Owner. Additionally, the Company reserves the right to terminate the contract on any Valuation Date if there is no Cash Value in any Participant's Individual Account and the Cash Value of the Owner's Account, if any, is less than $500 and no premium has been paid for at least three years. If the contract is terminated, the Company will pay to the Owner the Cash Value of the Owner's Account, if any (without deduction of any Contingent Deferred Sales Charge, but after deduction of any applicable administrative charge or premium tax). Termination will not occur until 31 days after the Company has mailed notice of termination to the Owner or the Participant, as provided in the plan, at the last known address and to any assignee of record. BENEFIT IN THE EVENT OF TERMINATION OF A PARTICIPANT, THE PLAN OR THE CONTRACT In the event that, prior to the Annuity Commencement Date, the Participant terminates participation in the plan, the plan is terminated, or the contract is terminated, the Owner or that Participant, as provided in the plan with respect to that Participant's Interest, may elect: (a) if that Participant is at least 50 years of age, to have that Participant's Interest applied to provide an Annuity or Income Payment; (b) if the contract is continued, to have that Participant's Interest applied to continue as a paid-up deferred annuity for that Participant; (c) to have the Owner or that Participant, as provided in the plan, receive that Participant's Interest in cash; or (d) if that Participant becomes a Participant under another group contract of the same type which is in force with the Company, to transfer that Participant's Interest to that group contract. If the contract is continued, any Cash Value to which a terminating Participant is not entitled under the plan will be moved to the Owner's Account. If the contract is terminated, the Owner will receive the Cash Value of the Owner's Account. AUTOMATIC BENEFIT -- In the event of termination, unless otherwise provided in the plan, a Participant's Interest will (1) if the contract is continued, be applied to continue as a paid-up deferred annuity in accordance with option (b), or (2) if the contract is terminated, be paid in cash to the Owner or that Participant as provided in the plan, in accordance with option (c). ANNUITY PAYMENTS -- Termination of this contract or the plan will not affect payments being made under any Annuity Option which has commenced prior to the date of termination. DISTRIBUTION FROM ONE ACCOUNT TO ANOTHER ACCOUNT The Owner may, as provided for in the plan, distribute the Cash Value from the Owner's Account to one or more Individual Accounts. No distribution will be allowed between Individual Accounts. The Owner may, as required by and provided for in the plan, move the Cash Value from any or all Individual Accounts to the Owner's Account without a charge. REQUIRED REPORTS As often as required by law, but at least once in each Contract Year before the due date of the first Annuity Payment, the Company will furnish a report which will show the number of Accumulation Units credited to the contract in each Investment Alternative and the corresponding Accumulation Unit Value as of the date of the report. The Company will keep all records required under federal or state laws. CHANGE OF CONTRACT The Company may, at any time, make any changes, including retroactive changes, in the contract to the extent that the change is required to meet the requirements of any federal law or regulation to which the Company is subject. Except as provided in the paragraph immediately above, no change may be made in the contract before the fifth anniversary of the Contract Date, and in no event will changes be made with respect to payments being made by the Company under any Annuity Option which has commenced prior to the date of change. On and after the fifth anniversary of the Contract Date, the Company reserves the right to change the Termination Amount (see "Termination," page 44), the calculation of the net investment rate and the Unit Values, and the Annuity Tables. Any change in the Annuity Tables will be applicable only to premiums received under the contract after the change. The ability to make such change lessens the value of mortality and expense guarantees. Other changes (including changes to the administrative charge) may be applicable to all Owners' Accounts and Individual Accounts under the contract, to only the Owners' Accounts and Individual Accounts established after the change, or to only premiums received under the contract after the date of change as the Company declares at the time of change. The Company will give notice to the Owner at least 90 days before the date the change is to take effect. ASSIGNMENT The Owner or Participant may not assign his rights under the contract. SUSPENSION OF PAYMENTS If a national stock exchange is closed (except for holidays or weekends), or trading is restricted due to an existing emergency as defined by the Securities and Exchange Commission so that disposal of the Separate Account's investments or determination of its net asset value is not reasonably practicable, or the Commission has ordered that the right of redemption (surrender) be suspended for the protection of Contract Owners, the Company may postpone all procedures (including making Annuity Payments) which require valuation of Separate Accounts until the stock exchange is reopened and trading is no longer restricted. FEDERAL TAX CONSIDERATIONS - ------------------------------------------------------------------ GENERAL The Company is taxed as a life insurance company under Subchapter L of the Internal Revenue Code (the "Code"). The Separate Accounts that form the investment alternatives described herein are treated as part of the total operations of the Company and are not taxed separately. Investment income and gains of a Separate Account that are credited to a variable annuity contract incur no current federal income tax. Generally, amounts credited to a contract are not taxable until received by the Contract Owner, participant or beneficiary, either in the form of Annuity Payments or other distributions. Tax consequences and limits are described further below for each annuity program. INVESTOR CONTROL In certain circumstances, owners of variable annuity contracts may be considered the owners, for federal income tax purposes, of the assets of the separate accounts used to support their contract. In those circumstances, income and gains from the separate account assets would be includable in the variable contract owner's gross income. The IRS has stated in published rulings that a variable contract owner will be considered the owner of separate account assets if the contract owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury has also announced, in connection with the issuance of regulations concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the Contract Owner), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular Sub-Accounts without being treated as owners of the underlying assets." As of the date of this prospectus, no such guidance has been issued. The ownership rights under the Contract are similar to, but different in certain respects from, those described by the IRS in rulings in which it determined that the owners were not owners of separate account assets. For example, a Contract Owner or Participant of this Contract has additional flexibility in allocating payments and cash values. These differences could result in the Contract Owner being treated as the owner of the assets of Fund U. In addition, the Company does not know what standard will be set forth in the regulations or rulings which the Treasury is expected to issue, nor does the Company know if such guidance will be issued. The Company therefore reserves the right to modify the Contract as necessary to attempt to prevent the Contract Owner from being considered the owner of a pro rata share of the assets of Fund U. The remaining tax discussion assumes that the Contract qualifies as an annuity contract for federal income tax purposes. SECTION 403(B) PLANS AND ARRANGEMENTS Purchase Payments for tax-deferred annuity contracts may be made by an employer for employees under annuity plans adopted by public educational organizations and certain organizations which are tax exempt under Section 501(c)(3) of the Code. Within statutory limits, these payments are not currently includable in the gross income of the participants. Increases in the value of the Contract attributable to these Purchase Payments are similarly not subject to current taxation. The income in the Contract is taxable as ordinary income whenever distributed. An additional tax of 10% will apply to any taxable distribution received by the participant before the age of 59 1/2, except when due to death, disability, or as part of a series of payments for life or life expectancy, or made after the age of 55 with separation from service. There are other statutory exceptions. Amounts attributable to salary reductions and income thereon may not be withdrawn prior to attaining the age of 59 1/2, separation from service, death, total and permanent disability, or in the case of hardship as defined by federal tax law and regulations. Hardship withdrawals are available only to the extent of the salary reduction contributions and not from the income attributable to such contributions. These restrictions do not apply to assets held generally as of December 31, 1988. Distribution must begin by April 1st of the calendar year following the calendar year in which the participant attains the age of 70 1/2. Certain other mandatory distribution rules apply at the death of the participant. Eligible rollover distributions, including most partial or full redemptions or "term-for-years" distributions of less than 10 years, are eligible for direct rollover to another 403(b) contract or to an Individual Retirement Arrangement (IRA) without federal income tax withholding. QUALIFIED PENSION AND PROFIT-SHARING PLANS Under a qualified pension or profit-sharing trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code, Purchase Payments made by an employer are not currently taxable to the participant and increases in the value of a contract are not subject to taxation until received by a participant or beneficiary. Distributions in the form of Annuity or Income Payments are taxable to the participant or beneficiary as ordinary income in the year of receipt. Any distribution that is considered the participant's "investment in the contract" is treated as a return of capital and is not taxable. Payments under Income Option 3 are taxable in full. Certain lump-sum distributions described in Section 402 of the Code may be eligible for special ten-year forward averaging treatment for individuals born before January 1, 1936. All individuals may be eligible for favorable five-year forward averaging of lump-sum distributions. Certain eligible rollover distributions including most partial and full surrenders or term- for-years distributions of less than 10 years are eligible for direct rollover to an eligible retirement plan or to an IRA without federal income tax withholding. An additional tax of 10% will apply to any taxable distribution received by the participant before the age of 59 1/2, except by reason of death, disability or as part of a series of payments for life or life expectancy, or at early retirement at or after the age of 55. There are other statutory exceptions. INDIVIDUAL RETIREMENT ANNUITIES To the extent of earned income for the year and not exceeding $2,000 per individual, an individual may make deductible contributions to an individual retirement annuity (IRA). There are certain limits on the deductible amount based on the adjusted gross income of the individual and spouse and based on their participation in a retirement plan. If an individual is married and the spouse is not employed, the individual may establish IRAs for the individual and spouse. Purchase Payments may then be made annually into IRAs for both spouses in the maximum amount of 100% of earned income up to a combined limit of $2,250. Partial or full distributions made prior to the age of 59 1/2, except in the case of death, disability or distribution for life or life expectancy, will incur a penalty tax of 10% plus ordinary income tax treatment of the taxable amount received. Distributions after the age of 59 1/2 are treated as ordinary income. Amounts contributed after 1986 on a non-deductible basis are not includable in income when distributed. Distributions must commence by April 1st of the calendar year after the close of the calendar year in which the individual attains the age of 70 1/2. The individual must maintain personal and tax return records of any non-deductible contributions and distributions. Section 408(k) of the Code provides for the purchase of a Simplified Employee Pension (SEP) plan. A SEP is funded through an IRA with an annual employer contribution limit of 15% of compensation up to $30,000 for each participant. SECTION 457 PLANS Section 457 of the Code allows employees and independent contractors of state and local governments and tax-exempt organizations to defer a portion of their salaries or compensation to retirement years without paying current income tax on either the deferrals or the earnings on the deferrals. The Owner of contracts issued under Section 457 plans is the employer or a contractor of the participant and amounts may not be made available to participants (or beneficiaries) until separation from service, retirement or death or an unforeseeable emergency as determined by Treasury Regulations. The proceeds of annuity contracts purchased by Section 457 plans are subject to the claims of general creditors of the employer or contractor. Distributions must begin generally by April 1st of the calendar year following the calendar year in which the participant attains the age of 70 1/2. Certain other mandatory distribution rules apply upon the death of the Participant. All distributions from plans that meet the requirements of Section 457 of the Code are taxable as ordinary income in the year paid or made available to the Participant or beneficiary. THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 Under the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, certain special provisions may apply to the contract if the Owner of a Section 403(b) plan contract or certain other tax-benefited contracts requests that the contract be issued to conform to ERISA or if the Company has notice that the contract was issued pursuant to a plan that is subject to ERISA. ERISA requires that certain Annuity Options, withdrawals or other payments and any application for a loan secured by the contract may not be made until the Participant has filed a Qualified Election with the plan administrator. Under certain plans, ERISA also requires that a designation of a beneficiary other than the Participant's spouse be invalid unless the Participant has filed a Qualified Election. A Qualified Election must include either the written consent of the Participant's spouse, notarized or witnessed by an authorized plan representative, or the Participant's certification that there is no spouse or that the spouse cannot be located. The Company intends to administer all contracts to which ERISA applies in a manner consistent with the direction of the plan administrator regarding the provisions of the plan, in accordance with applicable law. Because these requirements differ according to the plan, a person contemplating the purchase of an annuity contract should consider the provisions of the plan. FEDERAL INCOME TAX WITHHOLDING The portion of a distribution which is taxable income to the recipient will be subject to federal income tax withholding, generally pursuant to Section 3405 of the Code. The application of this provision is summarized below. 1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR ARRANGEMENTS OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS There is an unwaivable 20% tax withholding for plan distributions that are eligible for rollover to an IRA or to another retirement plan but that are not directly rolled over. A distribution made directly to a participant or beneficiary may avoid this result if: (a) a periodic settlement distribution is elected based upon a life or life expectancy calculation, or (b) a complete term-for-years settlement distribution is elected for a period of ten years or more, payable at least annually, or (c) a minimum required distribution as defined under the tax law is taken after the attainment of the age of 70 1/2 or as otherwise required by law. A distribution including a rollover that is not a direct rollover will require the 20% withholding, and a 10% additional tax penalty may apply to any amount not added back in the rollover. The 20% withholding may be recovered when the participant or beneficiary files a personal income tax return for the year if a rollover was completed within 60 days of receipt of the funds, except to the extent that the participant or spousal beneficiary is otherwise underwithheld or short on estimated taxes for that year. 2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS) To the extent not described as requiring 20% withholding in 1 above, the portion of a non-periodic distribution which constitutes taxable income will be subject to federal income tax withholding, to the extent such aggregate distributions exceed $200 for the year, unless the recipient elects not to have taxes withheld. If an election out is not provided, 10% of the taxable distribution will be withheld as federal income tax. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. 3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE YEAR) The portion of a periodic distribution which constitutes taxable income will be subject to federal income tax withholding under the wage withholding tables as if the recipient were married claiming three exemptions. A recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by providing a completed election form. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. As of January 1, 1994, a recipient receiving periodic payments (e.g., monthly or annual payments under an Annuity Option) which total $13,700 or less per year, will generally be exempt from the withholding requirements. Recipients who elect not to have withholding made are liable for payment of federal income tax on the taxable portion of the distribution. All recipients may also be subject to penalties under the estimated tax payment rules if withholding and estimated tax payments are not sufficient. Recipients who do not provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding. Additionally, United States citizens residing outside of the country, or U.S. legal residents temporarily residing outside the country, are not permitted to elect out of withholding. TAX ADVICE Because of the complexity of the law and the fact that the tax results will vary according to the factual status of the individual involved, tax advice may be needed by a person contemplating purchase of an annuity contract and by an Owner, participant or beneficiary who may make elections under a contract. It should be understood that the foregoing description of the federal income tax consequences under these contracts is not exhaustive and that special rules are provided with respect to situations not discussed here. It should be understood that if a tax-benefited plan loses its exempt status, employees could lose some of the tax benefits described. For further information, a qualified tax adviser should be consulted. VOTING RIGHTS - ------------------------------------------------------------------ GENERAL The number of votes which an Owner or Participant, as provided in the plan, may cast in the accumulation period is equal to the number of Accumulation Units credited to the account under the Contract. During the annuity period, the Participant may cast the number of votes equal to (i) the reserve related to the Contract divided by (ii) the value of an Accumulation Unit. During the annuity period, a Participant's voting rights will decline as the reserve for the Contract declines. Accounts GIS, QB, MM and Fund U are also used to fund certain other Variable Annuity Contracts; votes attributable to such other annuities are computed in an analogous manner. During the accumulation period, Participants covered by a Contract issued in connection with an H.R.10 plan will have the right to instruct the Owner with respect to all votes attributable to the Contract, and Participants covered by a contract issued in connection with a governmental, tax exempt or corporate pension plan will have the right to instruct the Owner with respect to votes attributable to payments made by the Participant, and with respect to any additional votes which are authorized by the terms of the plan, if any. All other votes entitled to be cast during the accumulation period may be cast by the Owner in its sole discretion. During the annuity period, every Participant will have the right to instruct the Owner with respect to all votes attributable to the amount of assets established in the account to meet the annuity obligations related to such Participant. Each Participant having the right to instruct an Owner with respect to any votes will receive a statement of the number of votes, including fractional votes, attributable to his or her contract, and stating his or her right to instruct the Owner how such votes are to be cast. Each Owner will cast the votes with respect to which instructions from Participants have been received in accordance with such instructions; and votes for which Participants were entitled to instruct the Owner, but for which the Owner has received no instructions, will be cast by the Owner for or against each proposal to be voted on only in the same proportion as votes for which instructions have been received. Upon the death of the Participant, all voting rights will vest in the beneficiary of the Contract. FUND U In accordance with its view of present applicable law, the Company will vote shares of mutual funds held in Fund U at regular and special meetings of the shareholders of the mutual funds in accordance with instructions received from persons having a voting interest in Fund U. The Company will vote shares for which it has not received instructions in the same proportion as it votes shares for which it has received instructions. However, if the Investment Company Act of 1940 or any regulation thereunder should be amended, or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote shares of the mutual funds in its own right, it may elect to do so. The number of shares which a person has a right to vote will be determined as of the date concurrent with the date established by the respective mutual fund for determining shareholders eligible to vote at the meeting of the fund, and voting instructions will be solicited by written communication before the meeting in accordance with the procedures established by the mutual fund. Each person having a voting interest in Fund U will receive periodic reports relating to the mutual fund(s) in which he has an interest, proxy material and a form with which to give such instructions with respect to the proportion of the mutual fund shares held in Fund U corresponding to his or her interest in Fund U. ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS AND TB Contract Owners participating in Accounts GIS, QB, MM, TGIS, TSB, TAS or TB will be entitled to vote at their meetings on (i) any change in the fundamental investment policies of or other policies related to the accounts requiring the Owners' approval; (ii) amendment of the investment advisory agreements; (iii) election of the members of the Board of Managers of the accounts; (iv) ratification of the selection of an independent public accountant for the accounts; (v) any other matters which, in the future, under the Investment Company Act of 1940 require the Owners' approval; and (vi) any other business which may properly come before the meeting. The number of votes which each Owner or a Participant may cast, including fractional votes, shall be determined as of the date to be chosen by the Board of Managers within 75 days of the date of the meeting, and at least 20 days' written notice of the meeting will be given. Votes for which Participants were entitled to instruct the Owner, but for which the Owner has received no instructions, will be cast by the Owner for or against each proposal to be voted on only in the same proportion as votes for which instructions have been received. DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS - ------------------------------------------------------------------ The Company intends to sell the Contract in all jurisdictions where the Company is licensed to do business, except the Bahamas. The Contract may be purchased from agents who are licensed by state insurance authorities to sell variable annuity contracts issued by the Company, and who are also registered representatives of broker-dealers which have Selling Agreements with Travelers Equities Sales, Inc. ("TESI"). TESI, whose principal business address is One Tower Square, Hartford, Connecticut, serves as the principal underwriter for the variable annuity contracts described herein. TESI is a registered broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. ("NASD"). TESI is an affiliate of the Company and an indirect wholly owned subsidiary of Travelers Group Inc., and serves as principal underwriter pursuant to a Distribution and Management Agreement to which the Separate Accounts, the Company and TESI are parties. No amounts have been or will be retained by TESI for acting as principal underwriter for the Contracts. Agents will be compensated for sales of the Contracts on a commission and service fee basis. The compensation paid to sales agents will not exceed 7.0% of the payments made under the Contract. In addition, certain production, persistency and managerial bonuses may be paid. From time to time the Company may pay or permit other promotional incentives, in cash, credit or other compensation. STATE REGULATION - ------------------------------------------------------------------ The Company is subject to the laws of the state of Connecticut governing insurance companies and to regulation by the Insurance Commissioner of the state of Connecticut. An annual statement in a prescribed form must be filed with that Commissioner on or before March 1 in each year covering the operations of the Company for the preceding year and its financial condition on December 31 of such year. Its books and assets are subject to review or examination by the Commissioner or his agents at all times, and a full examination of its operations is conducted by the National Association of Insurance Commissioners ("NAIC") at least once in every four years. In addition, the Company is subject to the insurance laws and regulations of the other states in which it is licensed to operate. Generally, the insurance departments of the states apply the laws of the jurisdiction of domicile in determining the field of permissible investments. LEGAL PROCEEDINGS AND OPINIONS - ------------------------------------------------------------------ There are no pending material legal proceedings affecting the Separate Accounts. Legal matters in connection with federal laws and regulations affecting the issue and sale of the variable annuity contract described in this Prospectus and the organization of the Company, its authority to issue variable annuity contracts under Connecticut law and the validity of the forms of the variable annuity contracts under Connecticut law have been passed on by the General Counsel of the Life and Annuities Division of the Company. APPENDIX A - ------------------------------------------------------------------ CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION The Statement of Additional Information contains more specific information and financial statements relating to the Separate Accounts and The Travelers Insurance Company. A list of the contents of the Statement of Additional Information is set forth below: Description of The Travelers and The Separate Accounts The Insurance Company The Separate Accounts Investment Alternatives The Travelers Fund U for Variable Annuities Investments of Fund U Available Mutual Funds Investment Objectives and Policies The Travelers Growth and Income Stock Account For Variable Annuities The Travelers Timed Growth and Income Stock Account for Variable Annuities The Travelers Timed Aggressive Stock Account for Variable Annuities The Travelers Quality Bond Account for Variable Annuities The Travelers Timed Bond Account for Variable Annuities The Travelers Money Market Account for Variable Annuities The Travelers Timed Short-Term Bond Account for Variable Annuities Description of Certain Types of Investments and Investment Techniques Available to the Separate Accounts Writing Covered Call Options Buying Put and Call Options Futures Contracts Money Market Instruments Investment Management and Advisory Services Advisory Fees TIMCO TAMIC Valuation of Assets Performance Data Yield Quotations of Account MM Average Annual Total Return Quotations of Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U The Board of Managers Distribution and Management Services Principal Underwriter Securities Custodian Independent Accountants Financial Statements -- The Travelers Insurance Company - ---------------------------------------------------------------- COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995 (FORM NO. L-11165S), AND THE ANNUAL REPORTS DATED DECEMBER 31, 1994 WHICH ARE INCORPORATED BY REFERENCE THEREIN (INCLUDED IN FORM NO. VG-137), ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE CLIP THIS COUPON ON THE DOTTED LINE ABOVE, ENTER YOUR NAME AND ADDRESS IN THE SPACES PROVIDED BELOW, AND MAIL TO: THE TRAVELERS INSURANCE COMPANY, ANNUITY SERVICES - 5 SHS ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183-5030. Name:____________________________________________________________ Address:_________________________________________________________ _________________________________________________________________ TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES GROUP VARIABLE ANNUITY CONTRACTS issued by THE TRAVELERS INSURANCE COMPANY One Tower Square, Hartford, Connecticut 06183 Telephone: (203) 277-0111 The group Variable Annuities described in this Prospectus are available only for use in connection with pension and profit-sharing plans qualified under Section 401(a) or 403(a) of the Internal Revenue Code (the "Code"). The basic purpose of the Variable Annuity contract is to provide lifetime Annuity Payments which will vary with the investment performance of one or more Separate Accounts. The Separate Accounts available for funding the Variable Annuities described in this Prospectus have different investment objectives. The basic investment objective of The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) is long-term accumulation of principal through capital appreciation and retention of net investment income. Account GIS proposes to achieve this objective by investing in a portfolio of equity securities, mainly common stocks. The basic investment objective of The Travelers Quality Bond Account for Variable Annuities (Account QB) is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. Account QB proposes to achieve this objective by investing in money market obligations and in publicly traded debt securities. This Prospectus sets forth concisely the information about Account GIS and Account QB (the "Separate Accounts") that you should know before investing. Please read it and retain it for future reference. Additional information about the Separate Accounts is contained in a Statement of Additional Information dated May 1, 1995 which has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus. A copy may be obtained, without charge, by writing to The Travelers Insurance Company, Annuity Services -- 5 SHS, One Tower Square, Hartford, Connecticut 06183-5030, Attention: Manager, or by calling 1-800-842-0125. The Table of Contents of the Statement of Additional Information appears in Appendix A of this Prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS MAY 1, 1995. THIS PAGE INTENTIONALLY LEFT BLANK.
TABLE OF CONTENTS GLOSSARY OF SPECIAL TERMS A-1 SUMMARY A-2 FEE TABLE A-4 CONDENSED FINANCIAL INFORMATION C-1 DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS 1 The Insurance Company 1 The Separate Accounts 1 General 1 INVESTMENT ALTERNATIVES 1 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT GIS) 1 Investment Objective 1 Fundamental Investiment Policies 2 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT QB) 3 Investment Objective 3 Fundamental Investment Policies 4 VOTING RIGHTS 4 MANAGEMENT 5 CHARGES AND DEDUCTIONS 5 Deductions from Purchase Payments 5 Premium Tax 6 Annual Contract Charge 6 Investment Advisory Fees 6 Mortality and Expense Risks 6 Change of Contract 6 THE VARIABLE ANNUITIES 7 General Benefit Description 7 Termination by the Company and Termination Amount 7 Benefit in the Event of Termination of a Participant, the Plan or the Contract 7 Suspension of Payments 8 Required Reports 8 Federal and State Income Tax Withholding 8 ACCUMULATION PROVISIONS 8 Application of Purchase Payments 8 Number of Accumulation Units 9 Accumulation Unit Value 9 Net Investment Rate and Net Investment Factor 9 Cash Value 9 Cash Surrender (Redemption) or Withdrawal Value 9 Surrender Charge 9 Reinvestment Privilege 10 Transfer Between Separate Accounts 10 Distribution from One Account to Another Account 10 PAYOUT PROVISIONS 10 General 10 Separate Account Allocation 11 Determination of First Payment 11 Annuity Unit Value 11 Number of Annuity Units 11 Determination of Second and Subsequent Payments 11 Annuity Options 12 Income Options 12 Election of Options 13 FEDERAL TAX CONSIDERATIONS 13 General 13 Qualified Pension and Profit-Sharing Plans 14 Federal Income Tax Withholding 14 Tax Advice 15 DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS 15 STATE REGULATION 15 LEGAL PROCEEDINGS AND OPINIONS 16 APPENDIX A - Contents of the Statement of Additional Information 17
GLOSSARY OF SPECIAL TERMS As used in this Prospectus, the following terms have the indicated meanings: ACCUMULATION UNIT: the basic measure used to determine the value of a contract before Annuity Payments begin. ANNUITANT: the person on whose life the Variable Annuity contract is issued. ANNUITY COMMENCEMENT DATE: the date on which a Participant's Annuity Payments are to begin under the terms of the plan. ANNUITY PAYMENTS: a series of periodic payments for life; for life with either a minimum number of payments of a determinable sum assured; or for the joint lifetime of the Annuitant and another person and thereafter during the lifetime of the survivor. ANNUITY UNIT: the basic measure used to determine the dollar amount of Annuity Payments. BOARD OF MANAGERS: the persons directing the investment and administration of a Separate Account. CASH SURRENDER VALUE: the amount payable to the Owner or other payee upon termination of the contract during the lifetime of the Annuitant. CASH VALUE: the current value of Accumulation Units credited to the contract less any administrative charges. COMPANY: The Travelers Insurance Company. COMPANY'S HOME OFFICE: the principal executive offices of The Travelers Insurance Company located at One Tower Square, Hartford, Connecticut. CONTRACT DATE: the date on which the contract, benefits and provisions of the contract become effective. CONTRACT YEARS: annual periods computed from the Contract Date. INCOME PAYMENTS: optional forms of periodic payments made by the Company which are not based on the life of the Annuitant. INDIVIDUAL ACCOUNT: Accumulation Units credited to a Participant or beneficiary. MAJORITY VOTE: a "majority vote of the outstanding voting securities" is defined in the Investment Company Act of 1940 as the lesser of (i) 67% or more of the votes present at a meeting, if Contract Owners holding more than 50% of the total voting power of all Contract Owners in the Separate Account are present or represented by proxy, or (ii) more than 50% of the total voting power of all Contract Owners in the Separate Account. NET PURCHASE PAYMENT (NET PREMIUM PAYMENT): the amount applied to the purchase of Accumulation Units, which is equal to the Purchase Payment less deductions for sales expenses, any applicable annual contract charge and any applicable premium taxes. OWNER: the entity to which the master group contract is issued, usually the employer. OWNER'S ACCOUNT: Accumulation Units credited to the Owner. PARTICIPANT: an eligible person who participates in the plan. PARTICIPANT'S INTEREST: the Cash Value to which the Participant is entitled under the Plan. PLAN: the plan under which the contract is issued. PURCHASE PAYMENT (PREMIUM PAYMENT): a gross amount paid to the Company under the contract during the accumulation period. SEPARATE ACCOUNT: assets set aside by the Company, the investment experience of which is kept separate from that of other assets of the Company; for example, The Travelers Growth and Income Stock Account for Variable Annuities. VALUATION DATE: generally, a day on which the Separate Account is valued. A valuation date is any day on which the New York Stock Exchange is open for trading and the Company is open for business. The value of the Accumulation Units and Annuity Units will be determined as of the close of trading on the New York Stock Exchange. VALUATION PERIOD: the period between the close of business on successive Valuation Dates. VARIABLE ANNUITY: an annuity contract which provides for accumulation and for Annuity Payments which vary in amount in accordance with the investment experience of a Separate Account. THERE ARE ELIGIBILITY REQUIREMENTS FOR PURCHASERS DESCRIBED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE A SOLICITATION OF AN OFFER TO ACQUIRE ANY INTEREST OR PARTICIPATION IN THE VARIABLE ANNUITY DESCRIBED IN THIS PROSPECTUS TO ANY PERSON WHO IS INELIGIBLE FOR PURCHASE. SUMMARY INTRODUCTION There are two Separate Accounts currently available for funding the Variable Annuity contracts described herein. The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) and The Travelers Quality Bond Account for Variable Annuities (Account QB) are registered with the Securities and Exchange Commission as diversified, open-end management investment companies under the Investment Company Act of 1940. The basic investment objectives of the Separate Accounts are as follows: Account GIS--long-term accumulation of principal through capital appreciation and retention of net investment income; Account QB--current income, moderate capital volatility and total return. As is true with all investment companies, there can be no assurance that the objectives of the Separate Accounts will be achieved. RISK FACTORS The investment experience on equity investments over a period of time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors, including not only business conditions and investors' confidence in the economy, but current conditions in a particular industry or company. The yield on a common stock is not contractually determined. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. The yield on debt instruments over a period of time should reflect prevailing interest rates, which depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. The yield on a particular debt instrument is also affected by the risk that the issuer will be unable to apply principal and interest. INVESTMENT ADVISORY SERVICES The Travelers Investment Management Company (TIMCO) furnishes investment management and advisory services to Account GIS according to the terms of a written agreement. TIMCO receives an amount equivalent on an annual basis to 0.45% of the average daily net assets of Account GIS. Travelers Asset Management International Corporation (TAMIC) furnishes investment management and advisory services to Account QB according to the terms of a written agreement. TAMIC receives an amount equivalent on an annual basis to 0.3233% of the average daily net assets of Account QB. CHARGES AND DEDUCTIONS A sales charge equal to 2% (2.04% of the amount invested) of the gross Premium Payment is deducted from the Purchase Payments. The sales charge will be reduced by 2% of any applicable annual contract charge. (See "Deductions from Purchase Payments," page 5, and "Annual Contract Charge," page 6.) There is a $50 annual contract charge assessed against each group contract. (See "Annual Contract Charge," page 6.) A deduction of 1.0017% on an annual basis will be made on each Valuation Date for mortality and expense risks assumed by the Company. (See "Charges and Deductions," page 5.) A contract may be surrendered (redeemed) for cash, in whole or in part, prior to the commencement of Annuity Payments. There is a surrender charge of 2% of any Cash Value surrendered during the first five contract years. (See "Cash Surrender (Redemption) or Withdrawal Value," page 9.) Premium taxes may apply to annuities in a few states. These taxes currently range from 0.5% to 5.0%, depending upon jurisdiction. The Company will deduct any applicable premium tax from the Contract Value, either upon death, surrender, or annuitization, or at the time Purchase Payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. (See "Premium Tax," page 6.) ANNUITY PAYMENTS At a Participant's Annuity Commencement Date (usually at retirement), the contract provides lifetime Annuity Payments, as well as other types of payout plans. (See "Annuity Options," page 12, and "Income Options," page 12.) If a variable payout is selected, the payments will continue to vary with the investment performance of the selected Investment Alternatives. TRANSFERS AND WITHDRAWALS In the event that a Participant in the plan is terminated prior to that Participant's Annuity Commencement Date, the Participant's interest may be paid in cash or in other forms of payout. (See "Benefit in the Event of Termination of a Participant, the Plan or the Contract," page 7.) Before Annuity or Income Payments begin, transfers may be made among available Investment Alternatives without fee, penalty or charge. (See "Transfer Between Separate Accounts," page 10.) VOTING RIGHTS Owners have certain voting rights under the contracts. (See "Voting Rights," page 4.) OTHER PROVISIONS The Company reserves the right to terminate inactive contracts under certain circumstances. (See "Termination by the Company and Termination Amount," page 7.) The contracts will be sold by life insurance sales representatives representing the Company or certain other registered broker-dealers. (See "Distribution of Variable Annuity Contracts," page 15.) FEE TABLE THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (GIS) THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (QB)
GIS QB CONTRACT OWNER TRANSACTION EXPENSES Sales Load Imposed on Purchases (as a percentage of purchase payments) 2.00% 2.00% Surrender Charge (as a percentage of cash value surrendered) 2.00% 2.00% ANNUAL CONTRACT FEE* $ 50.00 $ 50.00 ANNUAL EXPENSES (as a percentage of average net assets) Mortality and Expense Risk Fees 1.00% 1.00% Management Fees 0.45% 0.32% TOTAL ANNUAL EXPENSES 1.45% 1.32%
EXAMPLE THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. If you surrender your contract at the end of the applicable period, you would have paid the following expenses on a $1,000 investment, assuming a 5% annual return on assets, after: GIS QB 1 year $ 55 $ 54 3 years $ 88 $ 84 5 years $123 $117 10 years $195 $181 If you do not surrender your contract at the end of the applicable period, you would have paid the following expenses on a $1,000 investment, assuming a 5% annual return on assets, after: GIS QB 1 year $ 35 $ 34 3 years $ 66 $ 63 5 years $100 $ 93 10 years $195 $181 The purpose of the Fee Table is to assist Contract Owners in understanding the various costs and expenses that a Contract Owner will bear directly or indirectly. For more complete descriptions of the various costs and expenses, including possible waivers or reductions of these expenses, see "Charges and Deductions," page 5, and "Surrender Charge," page 9. Expenses shown do not include premium taxes which may be applicable. * Per Group Contract CONDENSED FINANCIAL INFORMATION THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation and Annuity Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued on or after to May 16,1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .189 $ .184 $ .188 $ .198 $ .192 $ .191 $ .168 $ .132 $ .126 $ .130 Operating expenses ................... .115 .106 .098 .091 .079 .095 .071 .066 .060 .048 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .074 .078 .090 .107 .113 .096 .097 .066 .066 .082 Unit Value at beginning of year ...... 7.007 6.507 6.447 5.048 5.295 4.191 3.601 3.737 3.275 2.732 Net realized and change in unrealized gains (losses) ........... (.164) .422 (.030) 1.292 (.360) 1.008 .493 (.202) .396 .461 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 6.917 $ 7.007 $ 6.507 $ 6.447 $ 5.048 $ 5.295 $ 4.191 $ 3.601 $ 3.737 $ 3.275 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ........................... (.09) .50 .06 1.40 (.25) 1.10 .59 (.14) .46 .54 Ratio of operating expenses to average net assets ................... 1.65% 1.57% 1.58% 1.58% 1.57% 1.58% 1.58% 1.58% 1.57% 1.57% Ratio of net investment income to average net assets ................... 1.05% 1.15% 1.43% 1.86% 2.25% 2.33% 2.60% 1.49% 1.84% 2.85% Number of units outstanding at end of year (thousands)...............26,692 28,497 29,661 26,235 19,634 15,707 12,173 11,367 54,065 32,994 Portfolio turnover rate ................ 103% 81% 189% 319% 54% 27% 38% 51% 95% 93% Contracts issued prior to May 16,1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .192 $ .189 $ .192 $ .201 $ .199 $ .191 $ .168 $ .132 $ .126 $ .130 Operating expenses ................... .100 .092 .085 .077 .069 .066 .053 .059 .047 .037 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .092 .097 .107 .124 .130 .125 .115 .073 .079 .093 Unit Value at beginning of year ...... 7.194 6.664 6.587 5.145 5.383 4.250 3.642 3.771 3.296 2.742 Net realized and change in unrealized gains (losses) ........... (.166) .433 (.030) 1.318 (.368) 1.008 .493 (.202) .396 .461 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 7.120 $ 7.194 $ 6.664 $ 6.587 $ 5.145 $ 5.383 $ 4.250 $ 3.642 $ 3.771 $ 3.296 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ........................... (.07) .53 .08 1.44 (.24) 1.13 .61 (.13) .48 .55 Ratio of operating expenses to average net assets ................... 1.41% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.32% 1.32% Ratio of net investment income to average net assets ................... 1.30% 1.40% 1.67% 2.11% 2.50% 2.56% 2.85% 1.72% 2.09% 3.16% Number of units outstanding at end of year (thousands) ..............19,557 21,841 22,516 24,868 28,053 31,326 35,633 41,859 48,008 55,699 Portfolio turnover rate ............... 103% 81% 189% 319% 54% 27% 38% 51% 95% 93%
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation and Annuity Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the l994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued on or after to May 16, 1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 + 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ...............$ .310 $ .299 $ .311 $ .299 $ .277 $ .270 $ .259 $ .24 $ .240 $ .237 Operating expenses .................... .069 .067 .061 .056 .048 .047 .046 .042 .040 .035 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................. .241 .232 .250 .243 .229 .223 .213 .203 .200 .202 Unit Value at beginning of year ....... 4.381 4.052 3.799 3.357 3.129 2.852 2.697 2.629 2.369 2.056 Net realized and change in unrealized gains (losses) ............ (.348) .097 .003 .199 (.001) .054 (.058) .135) .060 .111 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............$ 4.274 $ 4.381 $ 4.052 $ 3.799 $ 3.357 $ 3.129 $ 2.852 $ 2.697 $ 2.629 $ 2.369 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value .. (.11) .33 .25 .44 .23 .28 .16 .07 .26 .31 Ratio of operating expenses to average net assets .................... 1.57% 1.57% 1.58% 1.57% 1.57% 1.57% 1.58% 1.57% 1.57% 1.58% Ratio of net investment income to average net assets .................... 5.62% 5.41% 6.38% 6.84% 7.06% 7.44% 7.67% 7.72% 7.94% 9.15% Number of units outstanding at end of year (thousands)............... 27,033 28,472 20,250 17,211 14,245 13,135 9,457 7,560 8,321 3,719 Portfolio turnover rate ............... 27% 24% 23% 21% 41% 33% 17% 17% 28% 29% Contracts issued prior to May 16, 1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 +1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ............... $ .318 $ .306 $ .317 $ .304 $ .281 $ .270 $ .259 $ .245 $ .240 $ .237 Operating expenses .................... .059 .058 .050 .048 .040 .035 .037 .034 .032 .029 Net investment income ................. .259 .248 .267 .256 .241 .235 .222 .211 .208 .208 Unit Value at beginning of year ....... 4.498 4.150 3.880 3.421 3.181 2.892 2.728 2.652 2.384 2.065 Net realized and change in unrealized gains (losses) ............ (.357) .100 .003 .203 (.001) .054 (.058) (.135) .060 .111 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............$ 4.400 $ 4.498 $ 4.150 $ 3.880 $ 3.421 $ 3.181 $ 2.892 $ 2.728 $ 2.652 $ 2.384 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value. (.10) .35 .27 .46 .24 .29 .16 .08 .27 .32 Ratio of operating expenses to average net assets .................. 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.32% 1.32% 1.33% Ratio of net investment income to average net assets .................. 5.87% 5.66% 6.61% 7.09% 7.31% 7.60% 7.82% 7.87% 8.19% 9.43% Number of units outstanding at end of year (thousands) ............. 10,694 12,489 13,416 14,629 16,341 18,248 21,124 24,703 27,776 31,189 Portfolio turnover rate .............. 27% 24% 23% 21% 41% 33% 17% 17% 28% 29% + On May 1. 1990, TAMIC replaced TIMCO as the investment adviser for Account QB.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS THE INSURANCE COMPANY The Travelers Insurance Company (the "Company" or "The Travelers") is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands, and the Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group Inc. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. THE SEPARATE ACCOUNTS Each of the Separate Accounts available under the Variable Annuity contracts described in this Prospectus meets the definition of a separate account under the federal securities laws, and will comply with the provisions of the Investment Company Act of 1940, as amended. Additionally, the operations of each of the Separate Accounts are subject to the provisions of Section 38a-433 of the Connecticut General Statutes which authorizes the Connecticut Insurance Commissioner to adopt regulations under it. Section 38a-433 contains no restrictions on investments of the Separate Accounts, and the Commissioner has adopted no regulations under the Section that affect the Separate Accounts. Account GIS was established on September 22, 1967, and Account QB was established on July 29, 1974. Each of these Separate Accounts, although an integral part of the Company, is registered with the Securities and Exchange Commission as a diversified, open-end management investment company under the Investment Company Act of 1940. The assets of Accounts GIS and QB are invested directly in securities (such as stocks, bonds or money market instruments) which are compatible with the stated investment policies of each account. GENERAL Under Connecticut law, the assets of the Separate Accounts will be held for the exclusive benefit of the owners of, and the persons entitled to payment under, the Variable Annuity contracts offered by this Prospectus and under all other contracts which provide for accumulated values or dollar amount payments to reflect investment results of the Separate Accounts. The assets in the Separate Accounts are not chargeable with liabilities arising out of any other business which the Company may conduct. The obligations arising under the Variable Annuity contracts are obligations of the Company. INVESTMENT ALTERNATIVES The Investment Alternatives available in connection with the Variable Annuity Contracts described herein each have different investment objectives and fundamental investment policies, as are set forth below. Neither the investment objectives nor the fundamental investment policies of the Separate Account can be changed without a vote of a majority of the outstanding voting securities of the Separate Account, as defined in the Investment Company Act of 1940, as amended. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT GIS) INVESTMENT OBJECTIVE The basic investment objective of Account GIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account GIS generally will be fully invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States government securities. These investments in other-than-equity securities generally would not have a prospect of long-term appreciation, and are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account GIS will use exchange-traded stock index futures contracts as a hedge to protect against changes in stock prices. A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. Stock index futures may also be used to hedge cash inflows to gain market exposure until the cash is invested in specific common stocks. Account GIS will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. When a futures contract is purchased, Account GIS will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All stock index futures will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account GIS will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). Account GIS expects that risk management transactions involving futures contracts will not impact more than thirty percent (30%) of its assets at any one time. For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. Account GIS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. It may also purchase index or individual equity call options as an alternative to holding stocks or stock index futures, or purchase index or individual equity put options as a defensive measure. For a detailed discussion of options contracts and associated risks, please see the Statement of Additional Information. Changes in investments may be made from time to time to take into account changes in the outlook for particular industries or companies. The investments of Account GIS will not, however, be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of Account GIS's assets will be invested in any one industry. While Account GIS may occasionally invest in foreign securities, it is not anticipated that such foreign securities will, at any time, account for more than ten percent (10%) of the investment portfolio. The assets of Account GIS will be kept fully invested, except that (a) sufficient cash may be kept on hand reasonably to provide for variable annuity contract obligations, and (b) reasonable amounts of cash, United States government or other liquid securities, such as short- term bills and notes, may be held for limited periods, pending investment in accordance with Account GIS's investment policies. It must be recognized that there are risks inherent in the ownership of any security. The investment experience on equity investments over time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors, including not only business conditions and investor confidence in the economy, but current conditions in a particular industry or company. The yield on a common stock is not contractually determined. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account GIS permit it to: 1. invest up to 5% of its assets in the securities of any one issuer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 2. borrow from banks in amounts of up to 5% of its assets, but only for emergency purposes; 3. purchase interests in real estate represented by securities for which there is an established market; 4. make loans through the acquisition of a portion of a privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors; 5. acquire up to 10% of the voting securities of any one issuer (it is the present practice of Account GIS not to exceed 5% of the voting securities of any one issuer); 6. make purchases on margin in the form of short-term credits which are necessary for the clearance of transactions; and place up to 5% of its net asset value in total margin deposits for positions in futures contracts; and 7. invest up to 5% of its assets in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT QB) INVESTMENT OBJECTIVE The basic investment objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. It is contemplated that the assets of Account QB will be invested in money market obligations, including, but not limited to, Treasury bills, repurchase agreements, commercial paper, bank certificates of deposit and bankers' acceptances, and in publicly traded debt securities, including bonds, notes, debentures, equipment trust certificates and short-term instruments. These securities may carry certain equity features such as conversion or exchange rights or warrants for the acquisition of stocks of the same or different issuer, or participations based on revenues, sales or profits. It is currently anticipated that the market value-weighted average maturity of the portfolio will not exceed five years. (In the case of mortgage-backed securities, the estimated average life of cash flows will be used instead of average maturity.) Investment in longer term obligations may be made if the Board of Managers concludes that the investment yields justify a longer term commitment. The investments of Account QB will not be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of Account QB's assets will be invested in any one industry. The portfolio will be actively managed and investments may be sold prior to maturity to the extent that this action is considered advantageous in light of factors such as market conditions or brokerage costs. While the investments of Account QB are generally not listed securities, there are firms which make markets in the type of debt instruments that Account QB holds. No problems of salability are anticipated with regard to the investments of Account QB. Account QB may from time to time purchase new-issue government or agency securities on a "when-issued" or "to be announced" ("TBA") basis ("when-issued securities"). The prices of such securities will be fixed at the time the commitment to purchase is made, and may be expressed in either dollar price or yield maintenance terms. Delivery and payment may be at a future date beyond customary settlement time. It is the customary practice of Account QB to make when-issued or TBA purchases for settlement no more than 90 days beyond the commitment date. The commitment to purchase when-issued securities may be viewed as a senior security, and will be marked to market and reflected in Account QB's Accumulation Unit Value daily from the commitment date. While it is TAMIC's intention to take physical delivery of these securities, offsetting transactions may be made prior to settlement, if it is advantageous to do so. Account QB does not make payment or begin to accrue interest on these securities until settlement date. In order to invest its assets pending settlement, Account QB will normally invest in short-term money market instruments and other securities maturing no later than the scheduled settlement date. Account QB does not intend to purchase when-issued securities for speculative or "leverage" purposes. Consistent with Section 18 of the Investment Company Act of 1940 and the General Policy Statement of the SEC thereunder, when Account QB commits to purchase a when-issued security, it will identify and place in a segregated account high grade money market instruments and other liquid securities equal in value to the purchase cost of the when-issued securities. TAMIC believes that purchasing securities in this manner will be advantageous to Account QB. However, this practice does entail certain risks, namely the default of the counterparty on its obligation to deliver the security as scheduled. In this event, Account QB would endure a loss (gain) equal to the price appreciation (depreciation) in value from the commitment date. TAMIC employs a rigorous credit quality procedure in determining the counterparties with which it will deal in when-issued securities and, in some circumstances, will require the counterparty to post cash or some other form of security as margin to protect the value of its delivery obligation pending settlement. Account QB may also purchase and sell interest rate futures contracts to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account QB's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of the portfolio securities will substantially be offset by depreciation in the value of the futures position. Account QB will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. At no time will Account QB's transactions in futures contracts be employed for speculative purposes. When a futures contract is purchased, Account QB will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All interest rate futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account QB will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. The Board of Managers will weigh considerations of risks, yield and ratings in implementing Account QB's fundamental investment policies. There are no specific criteria with regard to quality or ratings of the investments of Account QB, but it is anticipated that they will be of investment grade or its equivalent as determined in good faith by the Board of Managers. There may or may not be more risk in investing in debt instruments where there are no specific criteria with regard to quality or ratings of the investments. The yield on debt instruments over a period of time should reflect prevailing interest rates, which depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. The yield on a particular debt instrument is also affected by the risk that the issuer will be unable to pay principal and interest. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account QB permit it to: 1. invest up to 15% of the value of its assets in the securities of any one issuer (exclusive of obligations of the United States government and its instrumentalities, for which there is no limit); 2. borrow from banks in amounts of up to 5% of its assets, but only for emergency purposes; 3. purchase interests in real estate represented by securities for which there is an established market; 4. make loans through the acquisition of a portion of a privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors; 5. acquire up to 10% of the voting securities of any one issuer (it is the present practice of Account QB not to exceed 5% of the voting securities of any one issuer); 6. make purchases on margin in the form of short-term credits which are necessary for the clearance of transactions; and place up to 5% of its net asset value in total margin deposits for positions in futures contracts; and 7. invest up to 5% of its assets in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). VOTING RIGHTS Owners of the Variable Annuity contracts participating in Accounts GIS and QB will be entitled to vote at their meetings on (i) any change in the fundamental investment policies of or other policies related to the accounts requiring the Owners' approval; (ii) amendment of the investment advisory agreements; (iii) election of the members of the Board of Managers of the accounts; (iv) ratification of the selection of an independent public accountant for the accounts; (v) any other matters which, in the future, under the Investment Company Act of 1940 require the Owners' approval; and (vi) any other business which may properly come before the meeting. The number of votes which an Owner or a Participant may cast, including fractional votes, shall be determined as of the date to be chosen by the Board of Managers within 75 days of the date of the meeting, and at least 20 days' written notice of the meeting will be given. The number of votes which an Owner may cast in the accumulation period is equal to the number of Accumulation Units credited to the account under the contract. During the annuity period, the Owner may cast the number of votes equal to (i) the reserve related to the contract divided by (ii) the value of an Accumulation Unit. During the annuity period, a Participant's voting rights will decline as the reserve for the contract declines. Accounts GIS and QB are also used to fund certain other Variable Annuity contracts; votes attributable to such other annuities are computed in an analogous manner. The Participant's voting rights are set forth in the plan and the plans are qualified under Section 401(a) or 403(b) of the Internal Revenue Code (Pension and Profit-Sharing). The Company will provide proxy materials to the Owner or will mail such materials directly to the Participants if requested by the Owner. Upon the death of the Participant, all voting rights will vest in the beneficiary of the Variable Annuity contract. MANAGEMENT The investments and administration of Accounts GIS and QB are under the direction of the Board of Managers. Subject to the authority of the Board of Managers, The Travelers Investment Management Company (TIMCO) and Travelers Asset Management International Corporation (TAMIC) furnish investment management and advisory services to Account GIS and Account QB, respectively. TIMCO is a registered investment adviser which has provided investment advisory services since its incorporation in 1967. TIMCO, a subsidiary of Smith Barney Holdings Inc., which is an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment advice to Account GIS, TIMCO also acts as investment adviser for other investment companies used to fund variable products, including The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and Capital Appreciation Fund; as well as for individual and pooled pension and profit-sharing accounts, and affiliated companies of the Company. TIMCO also acts as sub-adviser for Managed Assets Trust. TAMIC, an indirect wholly owned subsidiary of Travelers Group Inc., is a registered investment adviser which has provided investment advisory services since its incorporation in 1978. TAMIC's principal offices are located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment advice to Account QB, TAMIC also acts as investment adviser for other investment companies used to fund variable products, including The Travelers Money Market Account for Variable Annuities, The Travelers Timed Bond Account for Variable Annuities, High Yield Bond Trust, Managed Assets Trust, Cash Income Trust and the U.S. Government Securities Portfolio of The Travelers Series Trust; as well as for individual and pooled pension and profit-sharing accounts, and for offshore investment companies affiliated with the Company. CHARGES AND DEDUCTIONS DEDUCTIONS FROM PURCHASE PAYMENTS Prior to the sales charge deduction from the first Purchase Payments in a Contract Year, an annual administrative charge is deducted. (See "Annual Contract Charge," page 6.) A sales charge equal to 2% (2.04% of the amount invested) of the gross Purchase Payment is deducted from the Purchase Payments. The sales charge will be reduced by 2% (a maximum dollar amount of $1.00) of any applicable annual contract charge. Maximum and minimum payments which may be made on behalf of any Participant are set forth under the terms of each plan, and in accordance with the administrative rules of the Company. An Owner of a group Variable Annuity issued prior to the date of this Prospectus, and any Owner of an individual Variable Annuity funded in either Account GIS or Account QB, may exchange their old Variable Annuity for a Variable Annuity described in this Prospectus, provided the Owner is otherwise eligible for the purchase. The exchange will be executed at net asset value (i.e., with no sales or transfer charges). An Owner of a Flexible Premium Annuity Contract issued by the Company may transfer the Cash Surrender Value accumulated and available to the Owner under that contract to a Variable Annuity contract described in this Prospectus, provided the Owner is otherwise eligible. If a surrender charge under the Flexible Premium Annuity Contract is applicable to the Cash Value transferred, neither the sales charge normally applicable under the contract described in this Prospectus nor any transfer charge will be applied. If no surrender charge is applicable under the Flexible Premium Annuity Contract, there will be no transfer charge, but the sales charge normally applicable under the contract described in this Prospectus will be applied. PREMIUM TAX Certain state and local governments impose premium taxes. These taxes currently range from 0.5% to 5.0% depending upon jurisdiction. The Company, in its sole discretion and in compliance with any applicable state law, will determine the method used to recover premium tax expenses incurred. The Company will deduct any applicable premium taxes from the Contract Value either upon death, surrender, annuitization, or at the time Purchase Payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. ANNUAL CONTRACT CHARGE There is a $50 annual contract charge assessed against each group contract. The annual contract charge will be deducted from the first gross Purchase Payment made in each Contract Year. If no gross Purchase Payment is made in a Contract Year, there is no annual contract charge for that year. The annual contract charge is set at a level no higher than the actual cost of administrative expenses. INVESTMENT ADVISORY FEES The Travelers Investment Management Company (TIMCO) and Travelers Asset Management International Corporation (TAMIC) furnish investment management and advisory services to Account GIS and Account QB, respectively, according to the terms of written agreements. TIMCO receives an amount equivalent on an annual basis to 0.45% of the average daily net assets of Account GIS. TAMIC receives an amount equivalent on an annual basis to 0.3233% of the average daily net assets of Account QB. MORTALITY AND EXPENSE RISKS While Annuity Payments will reflect the investment performance of the Separate Accounts, they will not be affected by changes in actual mortality experience nor will they be affected by any excess in the Company expenses over expense deductions provided for in the contract. The Company is assuming the risk that deductions provided for in the Variable Annuity contract for sales and administrative expenses and the minimum death benefit prior to retirement may be insufficient to cover the actual cost of such items. The mortality risk assumed by the Company under the Variable Annuity contract arises from the Company's obligation to continue to make monthly Annuity Payments, determined in accordance with the annuity tables and other provisions contained in the contract, to each Annuitant regardless of how long he or she lives and regardless of how long all Annuitants as a group live. This assures an Annuitant that neither his own longevity nor an improvement in life expectancy generally will have any adverse effect on the monthly Annuity Payments he or she will receive under the contract, and relieves the Annuitant from the risk that he or she will outlive the funds which have been accumulated for retirement. For assuming these risks, the Company makes a charge of 1.0017% on an annual basis of the value of the Separate Account, which charge consists of 0.8500% for mortality risks and 0.1517% for expense risks. If this charge is insufficient to cover the actual cost of these mortality and expense risks, the loss will fall on the Company. Conversely, if the charge proves more than sufficient, any excess will be profit to the Company. All deductions and annuity rates are subject to modification with respect to Contributions made on behalf of a Participant in any one year in excess of double the first year's Contribution, and, in the case of deductions for investment advisory services, subject to approval of a modification of the investment advisory agreement by Owners casting a majority of the votes entitled to be cast. CHANGE OF CONTRACT The Company may, at any time, make any changes in the contract, including retroactive changes, to the extent that the change is required to meet the requirements of any federal law or regulation to which the Company is subject. Except as provided in the paragraph immediately above, no change may be made in the contract before the fifth anniversary of the Contract Date, and in no event will changes be made with respect to payments being made by the Company under any Annuity Option which has commenced prior to the date of change. On and after the fifth anniversary of the Contract Date, the Company reserves the right to change the deductions from Premium Payments, the Termination Amount (see "Termination by the Company and Termination Amount," page 7), the calculation of the net investment rate and the Unit Value, and the Annuity Tables. Any change in the annuity tables will be applicable only to premiums received under the contract after the change. The ability to make such change lessens the value of mortality and expense guarantees. Other changes (including changes to the annual contract charge) may be applicable either to all Owner's Accounts and Individual Accounts under the contract, to only the Owner's Accounts and Individual Accounts established after the change, or to only premiums received under the contract after the date of change as the Company declares at the time of change. The Company will give notice to the Owner at least 90 days before the date the change is to take effect. THE VARIABLE ANNUITIES The group Variable Annuities described in this Prospectus are both insurance products and securities. As insurance products, they are subject to the insurance laws and regulations of each state. The underlying product is an annuity under which Purchase Payments are paid to the Company and credited to the Owner's contract to accumulate until retirement. The following brief description of the key features of the Variable Annuity is subject to the specific terms of the contract itself. Reference should also be made to the Special Terms on page A-1. General Benefit Description Under the Automatic Option, the Company will automatically begin paying Annuity Payments to the Owner or Participant, as provided in the plan, on the Participant's Annuity Commencement Date, if the Participant is then living. (See "Automatic Option," page 12.) The Owner or the Participant, as provided in the plan, may choose instead a number of alternative arrangements for benefit payments. If the Participant dies before a payout begins, the Company will pay to the Owner or beneficiary, as provided in the plan, the Participant's Interest. The Participant's Interest will be considered the Cash Value of the Participant's Individual Account unless the Company is otherwise instructed by the Owner. TERMINATION BY THE COMPANY AND TERMINATION AMOUNT No Purchase Payments after the first are required to keep the contract in effect. However, if the Cash Value in a Participant's Individual Account is less than $500 and no payment has been applied to the Participant's Individual Account for at least three years, the Company reserves the right to terminate the Participant's Individual Account and move the Cash Value of that Participant's Individual Account to the Owner's Account. If the plan does not allow for this movement to the Owner's Account, the Company will pay the Cash Value, adjusted for any applicable premium tax, to the Owner, or to that Participant at the direction of the Owner. The Company reserves the right to terminate the contract on any Valuation Date if there is no Cash Value in any Participant's Individual Account and if the Cash Value of the Owner's Account, if any, is less than $500 and no payment has been made for at least three years. If the contract is terminated, the Company will pay to the Owner the Cash Value of the Owner's Account, if any, adjusted for any applicable premium tax. Termination will not occur until 31 days after the Company has mailed notice of termination to the Owner or the Participant, as provided in the plan, at the last known address and to any assignee of record. BENEFIT IN THE EVENT OF TERMINATION OF A PARTICIPANT, THE PLAN OR THE CONTRACT In the event that, prior to the Annuity Commencement Date, the Participant terminates participation in the plan, the plan is terminated, or the contract is terminated, the Owner or that Participant, as provided in the plan with respect to that Participant's Interest, may elect: (a) if that Participant is at least 50 years of age, to have that Participant's Interest applied to provide an Annuity or Income Payment; (b) if the contract is continued, to have that Participant's Interest applied to continue as a paid-up deferred annuity for that Participant; (c) to have the Owner or that Participant, as provided in the plan, receive that Participant's Interest in cash; (d) to apply that Participant's Interest under the group contract, on the basis set forth by the Company at the time of the exchange with the same Separate Accounts as are available under the group contract; or (e) if that Participant becomes a Participant under another group contract of the same type which is in force with the Company, to transfer that Participant's Interest to that group contract. If the contract is continued, any Cash Value to which a terminating Participant is not entitled under the plan will be moved to the Owner's Account. If the contract is terminated, the Owner will receive the Cash Value of the Owner's Account. AUTOMATIC BENEFIT--In the event of termination, unless otherwise provided in the plan, a Participant's Interest will (1) if the contract is continued, be applied to continue as a paid-up deferred annuity in accordance with option (b), or (2) if the contract is terminated, be paid in cash to the Owner or that Participant as provided in the plan, in accordance with option (c). ANNUITY PAYMENTS--Termination of this contract or the plan will not affect payments being made under any Annuity Option which has commenced prior to the date of termination. SUSPENSION OF PAYMENTS If a national stock exchange is closed (except for holidays or weekends), or trading is restricted due to an existing emergency as defined by the Securities and Exchange Commission so that disposal of the Separate Account's investments or determination of its net asset value is not reasonably practicable, or the Commission has ordered that the right of redemption (surrender) be suspended for the protection of Contract Owners, the Company may postpone all procedures (including making Annuity Payments) which require valuation of Separate Accounts until the stock exchange is reopened and trading is no longer restricted. REQUIRED REPORTS As often as required by law, but at least once in each Contract Year before the due date of the first Annuity Payment, the Company will furnish a report which will show the number of Accumulation Units credited to the contract in each Investment Alternative and the corresponding Accumulation Unit Value as of the date of the report. The Company will keep all records required under federal or state laws. FEDERAL AND STATE INCOME TAX WITHHOLDING The federal tax law requires income tax withholding on distributions from pension plans and annuity contracts, unless the Owner, Participant or beneficiary elects not to have withholding apply. Some states also require withholding from pension and annuity payments unless the Owner, Participant or beneficiary elects not to have withholding apply. (For further information on federal withholding, see "Federal Income Tax Withholding," page 14.) ACCUMULATION PROVISIONS APPLICATION OF PURCHASE PAYMENTS The initial Purchase Payment is due and payable before the contract becomes effective. Each Purchase Payment is payable at the Company's Home Office. Each Purchase Payment will be applied by the Company to provide Accumulation Units to the credit of an Owner's Account or an Individual Account, as directed by or provided for in the plan. If the application for the contract is in good order, the Company will apply the initial Purchase Payment within two business days of receipt of the Purchase Payment in the mail at the Company's Home Office. If the application is not in good order, the Company will attempt to get it in good order within five business days. If it is not complete at the end of this period, the Company will inform the applicant of the reason for the delay and that the Purchase Payment will be returned immediately unless the applicant specifically consents to the Company keeping the Purchase Payment until the application is complete. Once the application is complete, the Purchase Payment will be applied within two business days. All Purchase Payments will initially be applied to the Owner's Account. Distributions to Individual Accounts will be allowed in accordance with the terms of "Distribution from One Account to Another Account," page 10. NUMBER OF ACCUMULATION UNITS The number of Accumulation Units to be credited to an Owner's Account or an Individual Account in each Investment Alternative upon payment of a Purchase Payment will be determined by dividing the Purchase Payment applied to the Investment Alternative by the current Accumulation Unit Value of that Investment Alternative. ACCUMULATION UNIT VALUE The dollar value of an Accumulation Unit for each Investment Alternative was established at $1.00 at its inception. The value of an Accumulation Unit on any Valuation Date is determined by multiplying the value on the immediately preceding Valuation Date by the net investment factor for the Valuation Period just ended. The value of an Accumulation Unit on any date other than a Valuation Date will be equal to its value as of the next succeeding Valuation Date. The value of an Accumulation Unit may increase or decrease. NET INVESTMENT RATE AND NET INVESTMENT FACTOR Each Separate Account's net investment rate for any Valuation Period is equal to the gross investment rate for that Separate Account less a deduction of 0.0000363 for Account QB, and 0.0000398 for Account GIS for each day in the Valuation Period. The gross investment rate for the Valuation Period is equal to (i) the investment income and capital gains and losses, whether realized or unrealized, on the assets of the Separate Account less a deduction for any applicable taxes, including income taxes arising from income and realized and unrealized capital gains of the Separate Account, divided by (ii) the amount of the assets at the beginning of the Valuation Period. At the present time, no federal taxes are deducted from the Separate Accounts. (See "Federal Tax Considerations," page 13.) The gross investment rate for a Separate Account may be either positive or negative. The net investment factor for a Separate Account for any Valuation Period is the sum of 1.000000 plus the net investment rate. CASH VALUE The Cash Value of an Owner's Account or an Individual Account on any date will be equal to the sum of the accumulated values in the Separate Accounts credited to that Owner's Account or Individual Account. The accumulated value in a Separate Account is equal to the number of Accumulation Units credited to an Owner's Account or an Individual Account in that Separate Account, multiplied by the Accumulation Unit Value for that Separate Account. CASH SURRENDER (REDEMPTION) OR WITHDRAWAL VALUE Before the due date of a Participant's first Annuity Payment, upon receipt of a written request in proper form (including the appropriate countersignature of a Travelers agent), the Company will pay all or any portion of that Participant's Interest, adjusted for any applicable premium tax, to the Owner or the Participant, as provided in the plan. The Owner's Account may be surrendered for cash as provided in the plan without the consent of any Participant. The Company may defer payment of any Cash Surrender Value for a period of not more than seven days after the request in proper form is received in the mail at the Company's Home Office, but it is its intent to pay as soon as possible. The Cash Value may be more or less than the Purchase Payments paid depending on the value of the contract at the time of surrender. (For the federal income tax consequences of surrenders, see "Federal Tax Considerations," page 13.) The Cash Surrender Value of an Account is equal to the Cash Value less any applicable surrender charge or premium taxes incurred. (See "Surrender Charge," page 9.) SURRENDER CHARGE If the Owner terminates an account, in whole or in part, while the contract remains in force, and the Cash Value of the terminated account is either to be paid in cash to the Owner or a Participant or to be transferred to any other funding vehicle, a surrender charge of 2% of any Cash Value surrendered during the first five contract years will be deducted from the terminating account. There is no surrender charge after the fifth contract year. A surrender charge will not be assessed if the Cash Value is payable under the terms of the Plan as a retirement benefit effected no earlier than five years prior to the Participant's normal retirement date, or as a death or disability benefit. The surrender charge will reimburse the Company only for its actual administrative costs in establishing group contracts. The use of a percentage surrender charge weighs disproportionately upon Participants with large dollar amounts in their accounts, and who surrender Cash Value during the first five contract years. REINVESTMENT PRIVILEGE If an Owner or a Participant has surrendered his or her account, in whole or in part, in anticipation of investing in another tax-qualified investment medium, and has not previously exercised a reinvestment privilege as to any Separate Accounts described in this Prospectus, he or she may, if the proceeds have not lost their tax-qualified status under the Internal Revenue Code of 1986, reinvest the proceeds in the Separate Accounts at the Accumulation Unit Value (without a sales charge) next calculated after the payment is received in the mail by the Company. The reinvestment must be made WITHIN 30 DAYS after the date of the redemption. Before an Owner or a Participant surrenders his or her account, in whole or in part, he or she should consult his or her tax adviser to be sure that the proceeds will retain their tax-qualified status. TRANSFER BETWEEN SEPARATE ACCOUNTS At any time up to 30 days before the due date of a Participant's first Annuity Payment, upon written request to the Company by the Owner or the Participant, as provided in the plan, all or any part of the Cash Value in an Individual Account may be transferred from one Separate Account to any other Separate Account described in this Prospectus. The Company reserves the right to limit the number of transfers between Separate Accounts, but will not limit transfer in an Owner's Account or an Individual Account to less than one in any six-month period. The number of Accumulation Units credited to the Separate Account from which the transfer is made will be reduced. The reduction will be determined by dividing the amount transferred by the Accumulation Unit Value for that Separate Account as of the next valuation after the Company receives the request in the mail at its Home Office. The number of Accumulation Units credited to the Separate Account from which the transfer is made will be increased. The increase will be determined by dividing the amount transferred, less the Separate Account transfer charge, if any, by the Accumulation Unit Value for that Separate Account as of the next valuation after the Company receives the written request from the Owner or the Participant, as provided in the plan, at its Home Office. There is currently no Separate Account transfer charge. Once a Participant's Annuity Payments begin, no further transfers in the Participant's Individual Account may be made between the Separate Accounts. DISTRIBUTION FROM ONE ACCOUNT TO ANOTHER ACCOUNT The Owner may, as provided in the plan, distribute Cash Value from the Owner's Account to one or more Individual Accounts. There is currently no account distribution charge. No distribution will be allowed between Individual Accounts. The Owner may, as required and provided in the plan, move Cash Value from any or all Individual Accounts to the Owner's Account without a charge. PAYOUT PROVISIONS GENERAL Annuity Payments for a particular Participant will ordinarily begin on that Participant's Annuity Commencement Date as stated in the Participant's Certificate. However, a later Annuity Commencement Date may be elected. This Annuity Commencement Date must be before the Participant's 70th birthday, unless the Company consents to a later date. Federal income tax law requires that the Annuitant commence certain minimum distribution payments from pension and profit-sharing plans after the Participant reaches the age of 70 1/2, and that certain patterns of payment be commenced or continued after the death of the Annuitant. A number of payout options are available (see "Annuity Options," page 12 and "Income Options," page 12). SEPARATE ACCOUNT ALLOCATION When Annuity Payments commence, the accumulated value in each Separate Account will be applied to provide an Annuitant with the amount of Annuity Payments varying with the investment experience of that same Separate Account. As described in "Transfer Between Separate Accounts," page 10, Cash Value may be transferred from one Separate Account to another in order to reallocate the basis on which Annuity Payments will be determined. DETERMINATION OF FIRST PAYMENT The contract contains tables used to determine the first monthly Annuity Payment. The amount applied to effect an annuity will be the Cash Value of the contract as of 14 days before the date Annuity Payments commence less any applicable premium taxes not previously deducted. The amount of the first monthly payment depends on the Annuity Option elected (see "Automatic Option," page 12) and the adjusted age of the Participant. A formula for determining the adjusted age is contained in the contract. The tables are determined from the Progressive Annuity Table assuming births in the year 1900 and an assumed annual net investment rate of 3.5%. The total first monthly Annuity Payment is determined by multiplying the benefit per $1,000 of value shown in the tables of the contract by the number of thousands of dollars of value of the contract applied to that Annuity Option. The Company reserves the right to require proof of age before Annuity Payments begin. ANNUITY UNIT VALUE The dollar value of an Annuity Unit for each Investment Alternative was established at $1.00 at inception. The value of an Annuity Unit as of any Valuation Date is determined 14 days in advance in order to allow adequate time for the required calculations and mailing of annuity checks in advance of their due dates. (If the date 14 days in advance is not a Valuation Date, the calculation is made on the next following Valuation Date, which would generally be 13 or 12 days in advance.) Specifically, the Annuity Unit Value for an Investment Alternative as of a Valuation Date is equal to (a) the value of the Annuity Unit on the immediately preceding Valuation Date multiplied by (b) the net investment factor for the Valuation Period ending on or next following 14 days prior to the current Valuation Date, divided by (c) the assumed net investment factor for the Valuation Period. (For example, the assumed net investment factor based on an annual assumed net investment rate of 3.5% for a Valuation Period of one day is 1.0000942 and, for a period of two days, is 1.0000942 x 1.0000942.) The value of an Annuity Unit as of any date other than a Valuation Date is equal to its value on the next succeeding Valuation Date. NUMBER OF ANNUITY UNITS The number of Annuity Units credited to the contract is determined by dividing the first monthly Annuity Payment attributable to each Investment Alternative by the Investment Alternative's Annuity Unit Value as of the due date of the first Annuity Payment. The number of Annuity Units remains fixed during the annuity period. DETERMINATION OF SECOND AND SUBSEQUENT PAYMENTS The dollar amount of the second and subsequent Annuity Payments is not predetermined and may change from month to month based on the investment experience of the applicable Investment Alternative. The actual amounts of these payments are determined by multiplying the number of Annuity Units credited to the contract in each Investment Alternative by the corresponding Annuity Unit Value as of the date on which payment is due. The interest rate assumed in the annuity tables would produce a level Annuity Unit Value and, therefore, level Annuity Payments if the net investment rate remained constant at the assumed rate. In fact, payments will vary up or down as the net investment rate varies up or down from the assumed rate, and there can be no assurance that a net investment rate will be as high as the assumed rate. ANNUITY OPTIONS Subject to conditions described in "Election of Options" (see page 13) and the plan, all or any part of a Participant's Interest otherwise payable in one sum to the Owner or that Participant on that Participant's Annuity Commencement Date or prior Cash Surrender of an Individual Account, or amounts payable in one sum to the beneficiary upon the death of that Participant, may be paid under one or more of the Annuity Options described below. AUTOMATIC OPTION--Unless otherwise specified in the plan and if no election has been made, and if the Participant is living and has a spouse, the Company will, on that Participant's Annuity Commencement Date, pay to the Participant the first of a series of Annuity Payments based on the life of the Participant as the primary payee and the Participant's spouse in accordance with Option 5. If the Participant is living and no election has been made and the Participant has no spouse, the Company will, on the Annuity Commencement Date, pay to the Participant the first of a series of Annuity Payments based on the life of the Participant, in accordance with Option 2 with 120 monthly payments assured. OPTION 1--LIFE ANNUITY--NO REFUND: The Company will make monthly Annuity Payments during the lifetime of the person on whose life the payments are based, terminating with the last monthly payment preceding death. This option offers the maximum monthly payment preceding death since there is no assurance of a minimum number of payments or provision for a death benefit for beneficiaries. It would be possible under this option to receive only one Annuity Payment if the Annuitant died before the due date of the second Annuity Payment, only two if the Annuitant died before the third Annuity Payment, etc. OPTION 2--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED: The Company will make monthly Annuity Payments during the lifetime of the person on whose life payments are based, with the agreement that if, at the death of that person, payments have been made for less than 120, 180 or 240 months, as elected, payments will be continued during the remainder of the period to the beneficiary designated. The beneficiary may instead receive a single sum settlement equal to the discounted value of the future payments with the interest rate equivalent to the assumption originally used when the annuity began. OPTION 3--UNIT REFUND LIFE ANNUITY: The Company will make monthly Annuity Payments during the lifetime of the person on whose life payments are based, terminating with the last payment due before the death of that person, provided that, at death, the beneficiary will receive in one sum the current dollar value of the number of Annuity Units equal to (a) minus (b) (if that difference is positive) where (a) is the total amount applied under the option divided by the Annuity Unit Value on the due date of the first Annuity Payment, and (b) is the product of the number of the Annuity Units represented by each payment and the number of payments made. OPTION 4--JOINT AND LAST SURVIVOR LIFE ANNUITY--NO REFUND: The Company will make monthly Annuity Payments during the joint lifetime of the two persons on whose lives payments are based, and during the lifetime of the survivor. No further payments will be made following the death of the survivor. It would be possible under this option to receive only one Annuity Payment if both Annuitants died before the due date of the second Annuity Payment, only two if they died before the third Annuity Payment, etc. OPTION 5 -- JOINT AND LAST SURVIVOR LIFE ANNUITY--ANNUITY REDUCES ON DEATH OF PRIMARY PAYEE: The Company will make monthly Annuity Payments during the lifetime of the two persons on whose lives payments are based. One of the two persons will be designated as the primary payee. The other will be designated as the secondary payee. On the death of the secondary payee, if survived by the primary payee, the Company will continue to make monthly Annuity Payments to the primary payee in the same amount that would have been payable during the joint lifetime of the two persons. On the death of the primary payee, if survived by the secondary payee, the Company will continue to make Annuity Payments to the secondary payee, in an amount equal to 50% of the payments which would have been made during the lifetime of the primary payee. No further payments will be made following the death of the survivor. OPTION 6 -- OTHER ANNUITY OPTIONS: The Company will make any other arrangements for Annuity Payments as may be mutually agreed upon. INCOME OPTIONS Instead of the Annuity Options described above, and subject to the conditions described under "Election of Options", page 13, and the plan, all or any part of a Participant's Interest otherwise payable in one sum to the Owner or that Participant on the Participant's Annuity Commencement Date or prior Cash Surrender of an Individual Account, or amounts payable in one sum to the beneficiary upon the death of the Participant, may be paid under one or more of the Income Options described below. OPTION 1--PAYMENTS OF A FIXED AMOUNT: The Company will make equal monthly payments of the amount elected until the Cash Value applied under this option has been exhausted. The final payment will include any amount insufficient to make another full payment. OPTION 2--PAYMENTS FOR A FIXED PERIOD: The Company will make monthly payments for the number of years selected. The amount of each payment will be equal to the remaining Cash Value applied under this option divided by the number of remaining payments. OPTION 3--INVESTMENT INCOME: The Company will make monthly payments during the lifetime of the primary payee, or for the period agreed on. The amount payable will be equal to the excess, if any, of the Cash Value under this option over the amount applied under this option. No payment will be made if the Cash Value is less than the amount applied, and it is possible that no payments would be made for a period of time. Payments under this option are not considered to be Annuity Payments and are taxable in full as ordinary income. This Option will generally be inappropriate under federal tax law for periods that exceed the Participant's attainment of age 70 1/2. The Cash Value used to determine the amount of any Income Payment will be calculated as of 14 days before the date an Income Payment is due and will be determined on the same basis as the Cash Value of the contract, including the deduction for mortality risks. Income Options differ from Annuity Options in that the amount of the payments made under Income Options are unrelated to the length of life of any person. Although the Company continues to deduct the charge for mortality and expense risks, it assumes no mortality risks for amounts applied under any Income Option. Moreover, except with respect to lifetime payments of investment income under Income Option 3, payments are unrelated to the actual life span of any person. Thus, the Annuitant may outlive the payment period. While Income Options do not directly involve mortality risks for the Company, a Contract Owner may elect to apply the remaining Cash Value to provide an Annuity at the guaranteed rates even though Income Payments have been received under an Income Option. Before an Owner or the Participant, as provided in the plan, makes any Income Option election, he or she should consult a tax adviser as to any adverse tax consequences the election might have. ELECTION OF OPTIONS Election of an option must be made in writing in a form satisfactory to the Company. Any election made during the lifetime of the Participant must be made by the Owner or the Participant, as provided in the plan. The terms of the options elected by some Participants or beneficiaries may be restricted to meet the requirements of Section 401(a)(9) of the Internal Revenue Code. If, at the death of a Participant, there is no election in effect for that Participant, election of an option must be made by the beneficiary entitled to any death benefit payable in one sum under the contract. The minimum amount that can be placed under an Annuity or Income Option will be $2,000 unless the Company consents to a lesser amount. If any monthly periodic payment due any payee is less than $20, the Company reserves the right to make payments at less frequent intervals. FEDERAL TAX CONSIDERATIONS GENERAL The Company is taxed as a life insurance company under Subchapter L of the Internal Revenue Code (the "Code"). The Separate Accounts that form the investment alternatives described herein are treated as part of the total operations of the Company and are not taxed separately. Investment income and gains of a Separate Account that are credited to a purchaser's contract of insurance incur no current federal income tax. Generally, amounts credited to a contract are not taxable until received by the Owner, participant or beneficiary, either in the form of Annuity Payments or other distributions. Tax consequences and limits are described further below for each annuity program. QUALIFIED PENSION AND PROFIT-SHARING PLANS Under a qualified pension or profit-sharing trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code, Purchase Payments made by an employer are not currently taxable to the Participant and increases in the value of a contract are not subject to taxation until received by a Participant or beneficiary. Distributions in the form of Annuity or Income Payments are taxable to the Participant or beneficiary as ordinary income in the year of receipt. Any distribution that is considered the Participant's "investment in the contract" is treated as a return of capital and is not taxable. Payments under Income Option 3 are taxable in full. Certain lump-sum distributions described in Section 402 of the Code may be eligible for special ten-year forward averaging treatment for individuals born before January 1, 1936. All individuals may be eligible for favorable five-year forward averaging of lump-sum distributions. Certain eligible rollover distributions including most partial and full surrenders or term-for-years distributions of less than 10 years are eligible for direct rollover to an eligible retirement plan or to an IRA without federal income tax withholding. An additional tax of 10% will apply to any taxable distribution received by the Participant before the age of 59 1/2, except by reason of death, disability or as part of a series of payments for life or life expectancy, or at early retirement at or after the age of 55. There are other statutory exceptions. FEDERAL INCOME TAX WITHHOLDING The portion of a distribution which is taxable income to the recipient will be subject to federal income tax withholding, generally pursuant to Section 3405 of the Code. The application of this provision is summarized below. 1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR ARRANGEMENTS OR FROM QUALIFIED PENSION AND PROFIT- SHARING PLANS There is unwaivable 20% tax withholding for plan distributions that are eligible for rollover to an IRA or to another retirement plan but that are not directly rolled over. A distribution made directly to a Participant or beneficiary may avoid this result if: (a) a periodic settlement distribution is elected based upon a life or life expectancy calculation, or (b) a complete term-for-years settlement distribution is elected for a period of ten years or more, payable at least annually, or (c) a minimum required distribution as defined under the tax law is taken after the attainment of the age of 70 1/2 or as otherwise required by law. A distribution including a rollover that is not a direct rollover will require the 20% withholding, and a 10% additional tax penalty may apply to any amount not added back in the rollover. The 20% withholding may be recovered when the Participant or beneficiary files a personal income tax return for the year if a rollover was completed within 60 days of receipt of the funds, except to the extent that the Participant or spousal beneficiary is otherwise underwithheld or short on estimated taxes for that year. 2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS) To the extent not described as requiring 20% withholding in 1 above, the portion of a non-periodic distribution which constitutes taxable income will be subject to federal income tax withholding, to the extent such aggregate distributions exceed $200 for the year, unless the recipient elects not to have taxes withheld. If an election out is not provided, 10% of the taxable distribution will be withheld as federal income tax. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. 3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE YEAR) The portion of a periodic distribution which constitutes taxable income will be subject to federal income tax withholding under the wage withholding tables as if the recipient were married claiming three exemptions. A recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by providing a completed election form. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. As of January 1, 1994, a recipient receiving periodic payments (e.g., monthly or annual payments under an Annuity Option) which total $13,700 or less per year, will generally be exempt from the withholding requirements. Recipients who elect not to have withholding made are liable for payment of federal income tax on the taxable portion of the distribution. All recipients may also be subject to penalties under the estimated tax payment rules if withholding and estimated tax payments are not sufficient. Recipients who do not provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding. Additionally, United States citizens residing outside of the country, or U.S. legal residents temporarily residing outside the country, are not permitted to elect out of withholding. TAX ADVICE Because of the complexity of the law and the fact that the tax results will vary according to the factual status of the individual involved, tax advice may be needed by a person contemplating purchase of an annuity contract and by an Owner, Participant or beneficiary who may make elections under a contract. It should be understood that the foregoing description of the federal income tax consequences under these contracts is not exhaustive and that special rules are provided with respect to situations not discussed here. It should be understood that if a tax-benefited plan loses its exempt status, employees could lose some of the tax benefits described. For further information, a qualified tax adviser should be consulted. DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS The Company intends to sell the contracts in all jurisdictions where the Company is licensed to do business, except Puerto Rico and the Bahamas. The contracts may be purchased from agents who are licensed by state insurance authorities to sell variable annuity contracts issued by the Company, and who are also registered representatives of broker-dealers which have selling Agreements with Travelers Equities Sales, Inc. ("TESI"). TESI, whose principal business address is One Tower Square, Hartford, Connecticut, serves as the principal underwriter for the variable annuity contracts described herein. TESI is a registered broker- dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, and is a member of the National Association of Securities Dealers, Inc. ("NASD"). TESI is an affiliate of the Company and an indirect wholly owned subsidiary of Travelers Group Inc., and serves as principal underwriter pursuant to a Distribution and Underwriting Agreements to which Accounts GIS and Account QB, the Company and TESI are parties. No amounts have been or will be retained by TESI for acting as principal underwriter for the Contracts. Agents will be compensated for sales of the Contracts on a commission and service fee basis. The compensation paid to said agents will not exceed 7% of the payments made under the Contract. In addition, certain production, persistency and managerial bonuses may be paid. Commissions paid to broker-dealers obtaining applications for contracts accepted by the Company bear a reasonable relationship to, and in the aggregate are less than, the deduction for sales expense. Although commissions on payments made during the first year of the contract may exceed the deduction for sales expenses, the charge to the Owner is not increased. STATE REGULATION The Company is subject to the laws of the State of Connecticut governing insurance companies and to regulation by the Insurance Commissioner of the State of Connecticut. An annual statement in a prescribed form must be filed with that Commissioner on or before March 1 in each year covering the operations of the Company for the preceding year and its financial condition on December 31 of such year. Its books and assets are subject to review or examination by the Commissioner or his agents at all times, and a full examination of its operations is conducted by the National Association of Insurance Commissioners ("NAIC") at least once in every four years. In addition, the Company is subject to the insurance laws and regulations of the other states in which it is licensed to operate. Generally, the insurance departments of the states apply the laws of the jurisdiction of domicile in determining the field of permissible investments. LEGAL PROCEEDINGS AND OPINIONS There are no pending material legal proceedings affecting the Separate Accounts. Legal matters in connection with federal laws and regulations affecting the issue and sale of the Variable Annuity contracts described in this Prospectus and the organization of the Company, its authority to issue Variable Annuity contracts under Connecticut law and the validity of the forms of the Variable Annuity contracts under Connecticut law have been passed on by the General Counsel of the Life and Annuities Division of the Company. APPENDIX A CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The Statement of Additional Information contains more specific information and financial statements relating to the Separate Accounts and The Travelers Insurance Company. A list of the contents of the Statement of Additional Information is set forth below: Description of The Travelers and the Separate Accounts The Insurance Company The Separate Accounts Investment Objectives and Policies The Travelers Growth and Income Stock Accounts for Variable Annuities The Travelers Quality Bond Account for Variable Annuities Description of Certain Types of Investments and Investment Techniques Available To the Separate Accounts Writing Covered Call Options Buying Put and Call Options Futures Contracts Money Market Instruments Investment Management and Advisory Services Advisory Fees TIMCO TAMIC Valuation of Assets Management The Board of Managers Distribution and Management Services Securities Custodian Independent Accountants Financial Statements COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995 (FORM NO. L-11162S), AND THE ANNUAL REPORTS DATED DECEMBER 31, 1994 WHICH ARE INCORPORATED BY REFERENCE THEREIN (FORM NO. VG-137), ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE CLIP THIS COUPON ON THE DOTTED LINE ABOVE, ENTER YOUR NAME AND ADDRESS IN THE SPACES PROVIDED BELOW, AND MAIL TO: THE TRAVELERS INSURANCE COMPANY, ANNUITY SERVICES - 5 SHS, ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183-5030. Name: ____________________________________________________ Address: _________________________________________________ __________________________________________________________ THIS PAGE INTENTIONALLY LEFT BLANK. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES AND THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES GROUP VARIABLE ANNUITY CONTRACTS Issued By THE TRAVELERS INSURANCE COMPANY Pension and Profit-Sharing Programs L-11162 TIC Ed. 5-95 Printed in U.S.A. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES INDIVIDUAL VARIABLE ANNUITY CONTRACTS issued by THE TRAVELERS INSURANCE COMPANY One Tower Square, Hartford, Connecticut 06183 Telephone: (203) 277-0111 The basic purpose of the variable annuity contract described in this Prospectus is to provide lifetime annuity payments which will vary with the investment performance of one or more Separate Accounts. The contracts described in this Prospectus are available for use by individual non- qualified purchasers who previously held individual contracts issued by The Travelers Insurance Company (the "Company") and funded by The Travelers Fund B for Variable Contracts and/or The Travelers Fund B-1 for Variable Contracts (Contract Numbers VG-30 and LVA-10FB) and who exchanged such contracts in 1993 for the contracts offered by this Prospectus. The Contracts described herein are not available for new sales, although additional purchase payments may be made by purchasers who own existing contracts. The Separate Accounts available for funding the variable annuities described in this Prospectus have different investment objectives. The basic investment objective of The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) is long-term accumulation of principal through capital appreciation and retention of net investment income. Account GIS proposes to achieve this objective by investing in a portfolio of equity securities, mainly common stocks. The basic investment objective of The Travelers Quality Bond Account for Variable Annuities (Account QB) is current income, moderate capital volatility and total return. Account QB proposes to achieve this objective by investing in money market instruments and publicly traded debt securities. The Contract Owner bears the investment risk. This Prospectus sets forth concisely the information about the Separate Accounts that you should know before investing. Please read it and retain it for future reference. Additional information about the Separate Accounts is contained in a Statement of Additional Information dated May 1, 1995 which has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus. A copy may be obtained, without charge, by writing to The Travelers Insurance Company, Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183-5030, Attention: Manager, or by calling 1-800-842- 0125. The Table of Contents of the Statement of Additional Information appears in Appendix A of this Prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS MAY 1, 1995. THIS PAGE INTENTIONALLY LEFT BLANK. TABLE OF CONTENTS GLOSSARY OF SPECIAL TERMS A-1 SUMMARY A-2 FEE TABLE A-4 CONDENSED FINANCIAL INFORMATION C-1 DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS 1 The Insurance Company 1 The Separate Accounts 1 INVESTMENT ALTERNATIVES 1 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT GIS) 1 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT QB) 3 VOTING RIGHTS 4 MANAGEMENT 5 CHARGES AND DEDUCTIONS 5 Deductions from Purchase Payments 5 Premium Tax 5 Minimum Death Benefit and Minimum Accumulated Value Benefit Charge 5 Insurance Charge 6 Investment Advisory Fees 6 THE VARIABLE ANNUITIES 6 General Benefit Description 6 Termination by the Company and Termination Amount 6 Deferred Maturity Option 7 Suspension of Payments 7 Required Reports 7 Federal and State Income Tax Withholding 7 ACCUMULATION PROVISIONS 7 Application of Purchase Payments 7 Number of Accumulation Units 8 Accumulation Unit Value 8 Net Investment Rate and Net Investment Factor 8 Cash Value 8 Cash Surrender (Redemption) or Withdrawal Value 8 Death Benefit 8 Minimum Accumulated Value Benefit Upon Election of an Annuity-Account QB 8 Right to Return 9 Transfer Between Separate Accounts 9 PAYOUT PROVISIONS 9 Separate Account Allocation 9 Determination of First Payment 9 Annuity Unit Value 10 Number of Annuity Units 10 Determination of Second and Subsequent Payments 10 Annuity Options 10 Income Options 11 Election of Options 12 FEDERAL TAX CONSIDERATIONS 12 General 12 Non-Qualified Annuities 12 Federal Income Tax Withholding 13 Tax Advice 13 DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS 13 STATE REGULATION 14 LEGAL PROCEEDINGS AND OPINIONS 14 APPENDIX A - Contents of the Statement of Additional Information 15
GLOSSARY OF SPECIAL TERMS As used in this Prospectus, the following terms have the indicated meanings: ACCUMULATION UNIT: basic measure used to determine the value of a contract before Annuity Payments begin. ANNUITANT: the person on whose life the Variable Annuity contract is issued. ANNUITY PAYMENTS: a series of periodic payments for life; for life with either a minimum number of payments or a determinable sum assured; or for the joint lifetime of the Annuitant and another person and thereafter during the lifetime of the survivor. ANNUITY UNIT: the basic measure used to determine the dollar amount of Annuity Payments. BOARD OF MANAGERS: the persons directing the investment and administration of a managed Separate Account. CASH SURRENDER VALUE (REDEMPTION VALUE): the amount payable to the Owner or other payee upon termination of the contract during the lifetime of the Annuitant. CASH VALUE: the current value of Accumulation Units credited to the contract less any administrative charges. COMPANY: The Travelers Insurance Company. COMPANY'S HOME OFFICE: the principal offices of The Travelers Insurance Company located at One Tower Square, Hartford, Connecticut. CONTRACT DATE: the date on which the contract, benefits, and the provisions of the contract become effective. CONTRACT YEARS: annual periods computed from the Contract Date. INCOME PAYMENTS: optional forms of periodic payments made by the Company which are not based on the life of the Annuitant. MAJORITY VOTE: a "majority vote of the outstanding voting securities" is defined in the Investment Company Act of 1940 as the lesser of (i) 67% or more of the votes present at a meeting, if Contract Owners holding more than 50% of the total voting power of all Contract Owners in the Separate Account are present or represented by proxy, or (ii) more than 50% of the total voting power of all Contract Owners in the Separate Account. MATURITY DATE: the date on which the first Annuity Payment is to begin. MINIMUM ACCUMULATED VALUE BENEFIT: the minimum amount applied to effect an Annuity with respect to amounts allocated to Account QB. MINIMUM DEATH BENEFIT: the minimum amount payable upon the death of an Annuitant before Annuity or Income Payments begin. NET PURCHASE PAYMENT : the amount applied to the purchase of Accumulation Units, which is equal to the purchase payment less deductions for sales expenses and any applicable premium taxes. OWNER: a person having rights to benefits under the contract during the lifetime of the Annuitant; the owner may or may not be the Annuitant. PURCHASE PAYMENT : a gross amount paid to the Company under a variable annuity contract during the accumulation period. SEPARATE ACCOUNT: assets set aside by the Company, the investment experience of which is kept separate from that of other assets of the Company; for example, The Travelers Growth and Income Stock Account for Variable Annuities. VALUATION DATE: generally, a day on which the Separate Account is valued. A valuation date is any day on which the New York Stock Exchange is open for trading and the Company is open for business. The value of Accumulation Units and Annuity Units will be determined as of the close of trading on the New York Stock Exchange. VALUATION PERIOD: the period between the close of business on successive Valuation Dates. VARIABLE ANNUITY: an annuity contract which provides for accumulation and for Annuity Payments which vary in amount in accordance with the investment experience of a Separate Account. THERE ARE ELIGIBILITY REQUIREMENTS FOR PURCHASERS DESCRIBED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE A SOLICITATION OF AN OFFER TO ACQUIRE ANY INTEREST OR PARTICIPATION IN THE VARIABLE ANNUITY DESCRIBED IN THIS PROSPECTUS TO ANY PERSON WHO IS INELIGIBLE FOR PURCHASE. SUMMARY INTRODUCTION This Prospectus describes an individual flexible premium variable annuity Contract offered by The Travelers Insurance Company (the "Company"). The Contract is available for use by individual non-qualified purchasers who previously held individual contracts issued by the Company and funded by The Travelers Fund B for Variable Contracts and/or The Travelers Fund B-1 for Variable Contracts and who exchanged such contracts in 1993 for the Contracts offered by this Prospectus. The Contracts described herein are not available for new sales, although additional purchase payments may be made by purchasers who own existing Contracts. INVESTMENT ALTERNATIVES There are two Separate Accounts currently available for funding the Variable Annuity contracts described herein: Account GIS and Account QB. Both Accounts are registered with the Securities and Exchange Commission as diversified open-end management investment companies under the Investment Company Act of 1940. The basic investment objectives of these separate accounts are as follows: Account GIS--long-term accumulation of principal through capital appreciation and retention of net investment income; and Account QB--current income, moderate capital volatility and total return. As is true with all investment companies, there can be no assurance that the objectives of the Investment Alternatives will be achieved. (For a complete discussion of the investment objectives and policies for these funds, please refer to the Investment Alternatives section beginning on page 1.) RISK FACTORS The investment experience on equity investments over a period of time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors, including not only business conditions and investor confidence in the economy, but current conditions in a particular industry or company. The yield on a common stock is not contractually determined. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issuer. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. The yield on debt instruments over a period of time should reflect prevailing interest rates, which depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. The yield on a particular debt instrument is also affected by the risk that the issuer will be unable to pay principal and interest. INVESTMENT ADVISORY SERVICES The Travelers Investment Management Company (TIMCO) furnishes investment management and advisory services to Account GIS, and Travelers Asset Management International Corporation (TAMIC) furnishes such services to Account QB, according to the terms of written agreements. TIMCO receives an amount equivalent on an annual basis to 0.45% of the average daily net asset value of Account GIS. TAMIC receives an amount equivalent on an annual basis to 0.3233% of the average daily net asset value of Account QB. (See "Management," page 5 and "Investment Advisory Fees," page 6.) SALES CHARGES This Contract is not available for new sales, although additional purchase payments may be made by purchasers who own existing Contracts. The sales charge for additional purchase payments is 4.00% of each additional purchase payment (4.17% of the amount invested). There is no minimum purchase payment under this contract. OTHER CHARGES Premium taxes may apply to annuities in a few states. These taxes currently range from 0.5% to 5.0%, depending upon jurisdiction. The Company will deduct any applicable premium tax from the Contract Value, either upon death, surrender or annuitization, or at the time Purchase Payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. (See "Premium Tax," page 5.) A deduction of 1.0017% on an annual basis will be made on each Valuation Date for mortality and expense risks assumed by the Company. The 1.0017% insurance charge is comprised of 0.8500% for mortality risks and 0.1517% for expense risks. (See "Insurance Charge," page 6.) ANNUITY PAYMENTS At the Maturity Date, the contract provides lifetime Annuity Payments, as well as other types of payout plans. (See "Annuity Options," page 10 and "Income Options," page 11) If a variable payout is selected, the payments will continue to vary with the investment performance of the selected Investment Alternatives. OTHER PROVISIONS Prior to the Maturity Date, all or part of the contract value may be withdrawn. (See "Cash Surrender (Redemption) or Withdrawal Value," page 8.) A federal tax penalty may apply. If the Annuitant dies before Annuity or Income Payments begin, the death benefit is the larger of the Cash Value less any premium tax, or Premium Payments less prior surrenders. There is no charge for the Minimum Death Benefit. (See "Death Benefit," page 8, and "Charges and Deductions," page 5.) After the tenth Contract Year, a minimum amount is payable upon the election of an Annuity Option with respect to amounts that were allocated to Account QB during the accumulation period. There is no charge for the Minimum Accumulated Value Benefit. (See "Minimum Accumulated Value Benefit," page 8 and "Charges and Deductions," page 5.) A contract may be returned within ten days of purchase. The applicant bears the investment risk during the period. (See "Right to Return," page 9.) Purchasers have certain voting rights under the contracts. (See "Voting Rights," page 4.) Before Annuity or Income Payments begin, transfers may be made among available Investment Alternatives without fee, penalty or charge. (See "Transfer Between Separate Accounts," page 9.) The Company reserves the right to terminate inactive contracts under certain circumstances. (See "Termination by the Company and Termination Amount," page 6.) FEE TABLE THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (GIS) THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (QB)
GIS QB CONTRACT OWNER TRANSACTION EXPENSES Sales Charge for Additional Purchase Payments* 4.00% 4.00% ANNUAL EXPENSES (as a percentage of average net assets) Mortality and Expense Risk Fees 1.00% 1.00% Management Fees 0.45% 0.32% TOTAL ANNUAL EXPENSES 1.45% 1.32%
EXAMPLE THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For additional purchase payments made into the Contract subsequent to the Exchange Offer (4% Sales Charge applies), if you surrender your contract at the end of the applicable period, you would have paid the following expenses on a $1,000 investment, assuming a 5% annual return on assets, after: GIS QB 1 year $ 54 $ 53 3 years $ 84 $ 80 5 years $116 $110 10 years $207 $193 The purpose of the Fee Table is to assist Contract Owners in understanding the various costs and expenses that a Contract Owner will bear directly or indirectly. For more complete descriptions of the various costs and expenses, including possible waivers or reductions of these expenses, see "Charges and Deductions," page 5. Expenses shown do not include premium taxes which may be applicable. * This Contract is not available for new sales; however, additional purchase payments may be made by purchasers who own existing contracts. CONDENSED FINANCIAL INFORMATION THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation and Annuity Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the 1994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued on or after to May 16,1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .189 $ .184 $ .188 $ .198 $ .192 $ .191 $ .168 $ .132 $ .126 $ .130 Operating expenses ................... .115 .106 .098 .091 .079 .095 .071 .066 .060 .048 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .074 .078 .090 .107 .113 .096 .097 .066 .066 .082 Unit Value at beginning of year ...... 7.007 6.507 6.447 5.048 5.295 4.191 3.601 3.737 3.275 2.732 Net realized and change in unrealized gains (losses) ........... (.164) .422 (.030) 1.292 (.360) 1.008 .493 (.202) .396 .461 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 6.917 $ 7.007 $ 6.507 $ 6.447 $ 5.048 $ 5.295 $ 4.191 $ 3.601 $ 3.737 $ 3.275 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ........................... (.09) .50 .06 1.40 (.25) 1.10 .59 (.14) .46 .54 Ratio of operating expenses to average net assets ................... 1.65% 1.57% 1.58% 1.58% 1.57% 1.58% 1.58% 1.58% 1.57% 1.57% Ratio of net investment income to average net assets ................... 1.05% 1.15% 1.43% 1.86% 2.25% 2.33% 2.60% 1.49% 1.84% 2.85% Number of units outstanding at end of year (thousands)...............26,692 28,497 29,661 26,235 19,634 15,707 12,173 11,367 54,065 32,994 Portfolio turnover rate ................ 103% 81% 189% 319% 54% 27% 38% 51% 95% 93% Contracts issued prior to May 16,1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ..............$ .192 $ .189 $ .192 $ .201 $ .199 $ .191 $ .168 $ .132 $ .126 $ .130 Operating expenses ................... .100 .092 .085 .077 .069 .066 .053 .059 .047 .037 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................ .092 .097 .107 .124 .130 .125 .115 .073 .079 .093 Unit Value at beginning of year ...... 7.194 6.664 6.587 5.145 5.383 4.250 3.642 3.771 3.296 2.742 Net realized and change in unrealized gains (losses) ........... (.166) .433 (.030) 1.318 (.368) 1.008 .493 (.202) .396 .461 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year ............$ 7.120 $ 7.194 $ 6.664 $ 6.587 $ 5.145 $ 5.383 $ 4.250 $ 3.642 $ 3.771 $ 3.296 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value ........................... (.07) .53 .08 1.44 (.24) 1.13 .61 (.13) .48 .55 Ratio of operating expenses to average net assets ................... 1.41% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.32% 1.32% Ratio of net investment income to average net assets ................... 1.30% 1.40% 1.67% 2.11% 2.50% 2.56% 2.85% 1.72% 2.09% 3.16% Number of units outstanding at end of year (thousands) ..............19,557 21,841 22,516 24,868 28,053 31,326 35,633 41,859 48,008 55,699 Portfolio turnover rate ............... 103% 81% 189% 319% 54% 27% 38% 51% 95% 93%
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. CONDENSED FINANCIAL INFORMATION THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES Per Unit Data for an Accumulation and Annuity Unit outstanding throughout each year The following information on per unit data has been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their report on the per unit data for each of the five years in the period ended December 31, 1994 is contained in the l994 Annual Report to Contract Owners. The Annual Report is incorporated by reference into the Statement of Additional Information. The following information should be read in conjunction with the financial statements contained in the 1994 Annual Report. Contracts issued on or after to May 16, 1983.
SELECTED PER UNIT DATA 1994 1993 1992 1991 + 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ...............$ .310 $ .299 $ .311 $ .299 $ .277 $ .270 $ .259 $ .245 $ .240 $ .237 Operating expenses .................... .069 .067 .061 .056 .048 .047 .046 .042 .040 .035 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net investment income ................. .241 .232 .250 .243 .229 .223 .213 .203 .200 .202 Unit Value at beginning of year ....... 4.381 4.052 3.799 3.357 3.129 2.852 2.697 2.629 2.369 2.056 Net realized and change in unrealized gains (losses) ............ (.348) .097 .003 .199 (.001) .054 (.058) .135) .060 .111 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............$ 4.274 $ 4.381 $ 4.052 $ 3.799 $ 3.357 $ 3.129 $ 2.852 $ 2.697 $ 2.629 $ 2.369 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value... (.11) .33 .25 .44 .23 .28 .16 .07 .26 .31 Ratio of operating expenses to average net assets .................... 1.57% 1.57% 1.58% 1.57% 1.57% 1.57% 1.58% 1.57% 1.57% 1.58% Ratio of net investment income to average net assets .................... 5.62% 5.41% 6.38% 6.84% 7.06% 7.44% 7.67% 7.72% 7.94% 9.15% Number of units outstanding at end of year (thousands)............... 27,033 28,472 20,250 17,211 14,245 13,135 9,457 7,560 8,321 3,719 Portfolio turnover rate ............... 27% 24% 23% 21% 41% 33% 17% 17% 28% 29% Contracts issued prior to May 16, 1983. SELECTED PER UNIT DATA 1994 1993 1992 1991 +1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment income ............... $ .318 $ .306 $ .317 $ .304 $ .281 $ .270 $ .259 $ .245 $ .240 $ .237 Operating expenses .................... .059 .058 .050 .048 .040 .035 .037 .034 .032 .029 Net investment income ................. .259 .248 .267 .256 .241 .235 .222 .211 .208 .208 Unit Value at beginning of year ....... 4.498 4.150 3.880 3.421 3.181 2.892 2.728 2.652 2.384 2.065 Net realized and change in unrealized gains (losses) ............ (.357) .100 .003 .203 (.001) .054 (.058) (.135) .060 .111 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unit Value at end of year .............$ 4.400 $ 4.498 $ 4.150 $ 3.880 $ 3.421 $ 3.181 $ 2.892 $ 2.728 $ 2.652 $ 2.384 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SIGNIFICANT RATIOS AND ADDITIONAL DATA Net increase (decrease) in unit value. (.10) .35 .27 .46 .24 .29 .16 .08 .27 .32 Ratio of operating expenses to average net assets .................. 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.32% 1.32% 1.33% Ratio of net investment income to average net assets .................. 5.87% 5.66% 6.61% 7.09% 7.31% 7.60% 7.82% 7.87% 8.19% 9.43% Number of units outstanding at end of year (thousands) ............. 10,694 12,489 13,416 14,629 16,341 18,248 21,124 24,703 27,776 31,189 Portfolio turnover rate .............. 27% 24% 23% 21% 41% 33% 17% 17% 28% 29% + On May 1. 1990, TAMIC replaced TIMCO as the investment adviser for Account QB.
The consolidated financial statements of The Travelers Insurance Company and Subsidiaries are contained in the Statement of Additional Information. DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS THE INSURANCE COMPANY The Travelers Insurance Company (the "Company" or "The Travelers") is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands, and the Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group Inc. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. THE SEPARATE ACCOUNTS Each of the Separate Accounts available under the Variable Annuity contracts described in this Prospectus is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and will comply with the provisions of the Investment Company Act of 1940, as amended, and meets the definition of a separate account under the federal securities laws. Additionally, the operations of each of the Separate Accounts are subject to the provisions of Section 38a-433 of the Connecticut General Statutes which authorizes the Connecticut Insurance Commissioner to adopt regulations under it. The Section contains no restrictions on investments of the Separate Accounts, and the Commissioner has adopted no regulations under the Section that affect the Separate Accounts. Account GIS was established on September 22, 1967; and Account QB was established on July 29, 1974. Each of these Separate Accounts, although an integral part of the Company, is registered with the Securities and Exchange Commission as a diversified, open-end management investment company under the Investment Company Act of 1940. The assets of Accounts GIS and QB are invested directly in securities (such as stocks, bonds or money market instruments) which are compatible with the stated investment policies of each account. INVESTMENT ALTERNATIVES The Investment Alternatives available in connection with the Variable Annuity contracts described herein each have different investment objectives and fundamental investment policies, as are set forth below. Neither the investment objectives nor the fundamental investment policies of an Account can be changed without a vote of a majority of the outstanding voting securities of the Account, as defined in the Investment Company Act of 1940, as amended. GENERAL Under Connecticut law, the assets of the Separate Accounts will be held for the exclusive benefit of the owners of, and the persons entitled to payment under, the Variable Annuity contracts offered by this Prospectus and under all other contracts which provide for accumulated values or dollar amount payments to reflect investment results of the Separate Accounts. The assets in the Separate Accounts are not chargeable with liabilities arising out of any other business which the Company may conduct. The obligations arising under the Variable Annuity contracts are obligations of the Company. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT GIS) INVESTMENT OBJECTIVE The basic investment objective of Account GIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account GIS generally will be fully invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States government securities. These investments in other-than-equity securities generally would not have a prospect of long-term appreciation, and are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account GIS will use exchange-traded stock index futures contracts as a hedge to protect against changes in stock prices. A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. Stock index futures may also be used to hedge cash inflows to gain market exposure until the cash is invested in specific common stocks. Account GIS will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. When a futures contract is purchased, Account GIS will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All stock index futures will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account GIS will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). Account GIS expects that risk management transactions involving futures contracts will not impact more than thirty percent (30%) of its assets at any one time. For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. Account GIS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. It may also purchase index or individual equity call options as an alternative to holding stocks or stock index futures, or purchase index or individual equity put options as a defensive measure. For a detailed discussion of options contracts and associated risks, please see the Statement of Additional Information. Changes in investments may be made from time to time to take into account changes in the outlook for particular industries or companies. The investments of Account GIS will not, however, be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of Account GIS's assets will be invested in any one industry. While Account GIS may occasionally invest in foreign securities, it is not anticipated that such foreign securities will, at any time, account for more than ten percent (10%) of the investment portfolio. The assets of Account GIS will be kept fully invested, except that (a) sufficient cash may be kept on hand reasonably to provide for variable annuity contract obligations, and (b) reasonable amounts of cash, United States government or other liquid securities, such as short- term bills and notes, may be held for limited periods, pending investment in accordance with Account GIS's investment policies. It must be recognized that there are risks inherent in the ownership of any security. The investment experience on equity investments over time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors, including not only business conditions and investor confidence in the economy, but current conditions in a particular industry or company. The yield on a common stock is not contractually determined. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account GIS permit it to: 1. invest up to 5% of its assets in the securities of any one issuer (exclusive of securities issued or guaranteed by the United States government, its agencies or instrumentalities); 2. borrow from banks in amounts of up to 5% of its assets, but only for emergency purposes; 3. purchase interests in real estate represented by securities for which there is an established market; 4. make loans through the acquisition of a portion of a privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors; 5. acquire up to 10% of the voting securities of any one issuer (it is the present practice of Account GIS not to exceed 5% of the voting securities of any one issuer); 6. make purchases on margin in the form of short-term credits which are necessary for the clearance of transactions; and place up to 5% of its net asset value in total margin deposits for positions in futures contracts; and 7. invest up to 5% of its assets in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (ACCOUNT QB) INVESTMENT OBJECTIVE The basic investment objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. It is contemplated that the assets of Account QB will be invested in money market obligations, including, but not limited to, Treasury bills, repurchase agreements, commercial paper, bank certificates of deposit and bankers' acceptances, and in publicly traded debt securities, including bonds, notes, debentures, equipment trust certificates and short-term instruments. These securities may carry certain equity features such as conversion or exchange rights or warrants for the acquisition of stocks of the same or different issuer, or participations based on revenues, sales or profits. It is currently anticipated that the market value-weighted average maturity of the portfolio will not exceed five years. (In the case of mortgage-backed securities, the estimated average life of cash flows will be used rather than the average maturity.) Investment in longer term obligations may be made if the Board of Managers concludes that the investment yields justify a longer term commitment. The investments of Account QB will not be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of Account QB's assets will be invested in any one industry. The portfolio will be actively managed and investments may be sold prior to maturity to the extent that this action is considered advantageous in light of factors such as market conditions or brokerage costs. While the investments of Account QB are generally not listed securities, there are firms which make markets in the type of debt instruments that Account QB holds. No problems of salability are anticipated with regard to the investments of Account QB. Account QB may from time to time purchase new-issue government or agency securities on a "when-issued" or "to be announced" ("TBA") basis ("when-issued securities"). The prices of such securities will be fixed at the time the commitment to purchase is made, and may be expressed in either dollar price or yield maintenance terms. Delivery and payment may be at a future date beyond customary settlement time. It is the customary practice of Account QB to make when-issued or TBA purchases for settlement no more than 90 days beyond the commitment date. The commitment to purchase when-issued securities may be viewed as a senior security, and will be marked to market and reflected in Account QB's Accumulation Unit Value daily from the commitment date. While it is TAMIC's intention to take physical delivery of these securities, offsetting transactions may be made prior to settlement, if it is advantageous to do so. Account QB does not make payment or begin to accrue interest on these securities until settlement date. In order to invest its assets pending settlement, Account QB will normally invest in short-term money market instruments and other securities maturing no later than the scheduled settlement date. Account QB does not intend to purchase when-issued securities for speculative or "leverage" purposes. Consistent with Section 18 of the Investment Company Act of 1940 and the General Policy Statement of the SEC thereunder, when Account QB commits to purchase a when-issued security, it will identify and place in a segregated account high grade money market instruments and other liquid securities equal in value to the purchase cost of the when-issued securities. TAMIC believes that purchasing securities in this manner will be advantageous to Account QB. However, this practice does entail certain risks, namely the default of the counterparty on its obligation to deliver the security as scheduled. In this event, Account QB would endure a loss (gain) equal to the price appreciation (depreciation) in value from the commitment date. TAMIC employs a rigorous credit quality procedure in determining the counterparties with which it will deal in when-issued securities and, in some circumstances, will require the counterparty to post cash or some other form of security as margin to protect the value of its delivery obligation pending settlement. Account QB may also purchase and sell interest rate futures contracts to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account QB's securities. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of the portfolio securities will substantially be offset by depreciation in the value of the futures position. Account QB will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and losses on any such contracts which it has entered into. At no time will Account QB's transactions in futures contracts be employed for speculative purposes. When a futures contract is purchased, Account QB will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. All interest rate futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that its futures transactions meet CFTC standards, Account QB will enter into futures contracts for hedging purposes only (i.e., for the purposes or with the intent specified in CFTC regulations and interpretations, subject to the requirements of the SEC). For a more detailed discussion of financial futures contracts and associated risks, please see the Statement of Additional Information. The Board of Managers will weigh considerations of risks, yield and ratings in implementing Account QB's fundamental investment policies. There are no specific criteria with regard to quality or ratings of the investments of Account QB, but it is anticipated that they will be of investment grade or its equivalent as determined in good faith by the Board of Managers. There may or may not be more risk in investing in debt instruments where there are no specific criteria with regard to quality or ratings of the investments. The yield on debt instruments over a period of time should reflect prevailing interest rates, which depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. The yield on a particular debt instrument is also affected by the risk that the issuer will be unable to pay principal and interest. FUNDAMENTAL INVESTMENT POLICIES The fundamental investment policies of Account QB permit it to: 1. invest up to 15% of the value of its assets in the securities of any one issuer (exclusive of obligations of the United States government and its instrumentalities, for which there is no limit); 2. borrow from banks in amounts of up to 5% of its assets, but only for emergency purposes; 3. purchase interests in real estate represented by securities for which there is an established market; 4. make loans through the acquisition of a portion of a privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors; 5. acquire up to 10% of the voting securities of any one issuer (it is the present practice of Account QB not to exceed 5% of the voting securities of any one issuer); 6. make purchases on margin in the form of short-term credits which are necessary for the clearance of transactions; and place up to 5% of its net asset value in total margin deposits for positions in futures contracts; and 7. invest up to 5% of its assets in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). VOTING RIGHTS Owners of the Variable Annuity contracts participating in Accounts GIS and QB will be entitled to vote at their meetings on (i) any change in the fundamental investment policies or other policies relative to the account requiring the Owners' approval; (ii) amendment of the investment advisory agreement; (iii) election of the members of the Board of Managers of the account; (iv) ratification of the selection of an independent accountants for the account; (v) any other matters which, in the future, under the Investment Company Act of 1940 require the Owners' approval; and (vi) any other business which may properly come before the meeting. The number of votes which each Owner may cast, including fractional votes, shall be determined as of the date to be chosen by the Board of Managers within 75 days of the date of the meeting, and at least 20 days' written notice of the meeting will be given. The number of votes which an Owner may cast in the accumulation period is equal to the number of Accumulation Units credited to the account under the contract. During the annuity period, the Owner may cast the number of votes equal to (i) the reserve related to the contract, divided by (ii) the value of an Accumulation Unit. During the annuity period, an Owner's voting rights will decline as the reserve for the contract declines. Accounts GIS and QB are also used to fund certain other Variable Annuity contracts than the Variable Annuity contracts described in this Prospectus; votes attributable to such other annuities are computed in an analogous manner. Votes for which Annuitants were entitled to instruct the Owner, but for which the Owner has received no instructions, will be cast by the Owner for or against each proposal to be voted on only in the same proportion as votes for which instructions have been received. On the death of the Annuitant, all voting rights will vest in the beneficiary of the Variable Annuity contract. MANAGEMENT The investments and administration of Accounts GIS and QB are under the direction of their Boards of Managers. Subject to the authority of the Board of Managers, The Travelers Investment Management Company (TIMCO) furnishes investment management and advisory services to Account GIS, and Travelers Asset Management International Corporation (TAMIC) furnishes investment management and advisory services to Account QB. TIMCO, a subsidiary of Smith Barney Holdings Inc., which is an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. TIMCO also acts as investment adviser for The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and Capital Appreciation Fund, which serve as the funding media for certain variable annuity and variable universal life insurance contracts offered by the Company; as well as for individual and pooled pension and profit-sharing accounts, and affiliated companies of the Company. TIMCO also serves as sub-adviser for Managed Assets Trust. TAMIC, an indirect wholly owned subsidiary of Travelers Group, is located at One Tower Square, Hartford, Connecticut 06183. TAMIC also acts as investment adviser for The Travelers Money Market Account for Variable Annuities, The Travelers Timed Bond Account for Variable Annuities, Managed Assets Trust, High Yield Bond Trust, Cash Income Trust and the U.S. Government Securities Portfolio of The Travelers Series Trust, which serve as the funding media for certain variable annuity and variable universal life insurance contracts offered by the Company; as well as for individual and pooled pension and profit-sharing accounts, and offshore insurance companies affiliated with the Company. CHARGES AND DEDUCTIONS Charges under variable annuity contracts offered by this Prospectus are assessed in two ways: as deductions from purchase payments for sales expenses and applicable premium taxes, and as charges to the Separate Accounts for investment advisory services and the assumption of mortality and expense risks. DEDUCTIONS FROM PURCHASE PAYMENTS This Contract is not available for new sales, although additional purchase payments may be made by purchasers who own existing Contracts. The sales charge for additional purchase payments is 4.00% of each additional purchase payment (4.17% of the amount invested). There is no minimum Purchase Payment under this contract. PREMIUM TAX Certain state and local governments impose premium taxes. These taxes currently range from 0.5% to 5.0% depending upon jurisdiction. The Company, in its sole discretion and in compliance with any applicable state law, will determine the method used to recover premium tax expenses incurred. The Company will deduct any applicable premium taxes from the Contract Value either upon death, surrender, annuitization, or at the time Purchase Payments are made to the Contract, but no earlier than when the Company has a tax liability under state law. MINIMUM DEATH BENEFIT AND MINIMUM ACCUMULATED VALUE BENEFIT CHARGE There is no charge for the Minimum Death Benefit and the Minimum Accumulated Value Benefit. (See "Death Benefit" and "Minimum Accumulated Value Benefit," page 8.) INSURANCE CHARGE There is an insurance charge against the assets of each Separate Account to cover the mortality and expense risks associated with guarantees which the Company provides under the Variable Annuity contracts. This charge, on an annual basis, is 1.0017% of the Separate Account value and is deducted on each Valuation Date at the rate of 0.00363% for each day in the Valuation Period. The mortality risk assumed by the Company under the contract assures an Annuitant that neither the Annuitant's own longevity nor an improvement in life expectancy generally will have any adverse effect on the monthly Annuity Payments which will be paid under the contract and relieves the Owner from the risk that the Annuitant will outlive the funds which have been accumulated for retirement. With respect to amounts which are not applied to provide an annuity (i.e., amounts which are surrendered for cash or which have been paid as Income Payments), the Company bears no mortality risk and amounts previously charged to cover this risk are of no benefit to the Owner. The Company also assumes the risk that the charges under the contracts, which cannot be increased during the duration of the contract, will be insufficient to cover actual costs. The Company does not, however, project any deficiency in the amount of the sales load. If the amount deducted for these mortality and expense risks is not sufficient to cover actual mortality costs and expense shortfalls, the loss is borne by the Company. If the deduction is more than sufficient, the excess will be a profit to the Company. The Company expects to make a profit from the insurance charge. INVESTMENT ADVISORY FEES The Travelers Investment Management Company (TIMCO) and Travelers Asset Management International Corporation (TAMIC) furnish investment management and advisory services to Account GIS and Account QB, respectively, according to the terms of written agreements. TIMCO receives an amount equivalent on an annual basis to 0.45% of the average daily net assets of Account GIS. TAMIC receive an amount equivalent on an annual basis to 0.3233% of the average daily net assets of Account QB. THE VARIABLE ANNUITIES The individual Variable Annuities described in this Prospectus are both insurance products and securities. As insurance products, they are subject to the insurance laws and regulations of each state. The underlying product is an annuity under which Purchase Payments are paid to the Company and credited to the Owner's contract to accumulate until retirement. The following brief description of the key features of the Variable Annuity is subject to the specific terms of the contract itself. Reference should also be made to the Glossary of Special Terms. GENERAL BENEFIT DESCRIPTION Under the Automatic Option, the Company will automatically begin paying Annuity Payments to the Owner on the Maturity Date, if the Annuitant is then living. (See "Automatic Option," page 10.) The Owner may choose instead a number of alternative arrangements for benefit payments. If the Annuitant dies before a payout begins, the Company will pay a death benefit under the Contract (see "Death Benefit," page 8). After the tenth Contract Year, a minimum amount is payable upon the election of an Annuity Option with respect to amounts that were allocated to Account QB during the accumulation period (see "Minimum Accumulated Value Benefit," page 8). TERMINATION BY THE COMPANY AND TERMINATION AMOUNT No Purchase Payments after the first are required to keep the contract in effect. However, the Company reserves the right to terminate the contract on any Valuation Date if the Cash Value as of that date is less than $500 and purchase payments have not been paid for at least three years. Termination will not occur until 31 days after the Company has mailed notice of termination to the Owner at the last known address and to any assignee of record. If the contract is terminated, the Company will pay to the Owner the Cash Value of the contract, if any, less any applicable premium tax not previously deducted. DEFERRED MATURITY OPTION On election in writing up to thirty days before the Maturity Date, the Owner may request a Deferred Maturity Date. The same terms and conditions applicable to the contract before the Maturity Date will continue to the Deferred Maturity Date. If the Annuitant dies before the Deferred Maturity Date, the Company will pay the Cash Value to the beneficiary. The Deferred Maturity Date may be any time before the Annuitant's 70th birthday, or, with the consent of the Company, any later date. (See "Federal Tax Considerations," page 12.) If the Annuitant is living on the Deferred Maturity Date, the annuity will be payable, unless otherwise elected, under the same terms and conditions as the annuity that would have been payable at the Maturity Date had a Deferred Maturity Date not been elected. The amount of the Annuity Payment will be determined as described in "Annuity Options," on page 10. SUSPENSION OF PAYMENTS If a national stock exchange is closed (except for holidays or weekends), or trading is restricted due to an existing emergency as defined by the Securities and Exchange Commission so that disposal of the Separate Account's investments or determination of its net asset value is not reasonably practicable, or the Commission has ordered that the right of redemption (surrender) be suspended for the protection of Owners, the Company may postpone all procedures (including making Annuity Payments) which require valuation of Separate Accounts until the stock exchange is reopened and trading is no longer restricted. REQUIRED REPORTS As often as required by law, but at least once in each Contract Year before the due date of the first Annuity Payment, the Company will furnish a report which will show the number of Accumulation Units credited to the contract in each Separate Account and the corresponding Accumulation Unit Value as of the date of the report. The Company will keep all records required under federal or state laws. FEDERAL AND STATE INCOME TAX WITHHOLDING The federal tax law requires income tax withholding on distributions from pension plans and annuity contracts, unless the Owner, participant or beneficiary elects not to have withholding apply. Some states also require withholding from pension and annuity payments unless the Owner, participant or beneficiary elects not to have withholding apply. (For further information on federal withholding, see "Federal Income Tax Withholding," page 13.) ACCUMULATION PROVISIONS APPLICATION OF PURCHASE PAYMENTS The initial Purchase Payment is due and payable before the contract becomes effective. Each Purchase Payment is payable at the Company's Home Office. If the application for the contract is in good order, the first net Purchase Payment (the Purchase Payment after deduction of sales charges and any applicable premium tax) will be applied by the Company to provide Accumulation Units to the credit of the contract as of the valuation next following receipt of the Purchase Payment in the mail at the Company's Home Office, or on the date indicated by the applicant in the application for the contract, if later. If the application for the contract is not in good order, the Company will attempt to get it in good order within five business days. If it is not complete at the end of this period, the Company will inform the applicant of the reason for the delay and that the purchase payment will be returned immediately unless the applicant specifically consents to the Company keeping the Purchase Payments until the application is complete. Once the application is complete, the net Purchase Payment will be applied within two business days. Any net Purchase Payment after the first will be applied as of the valuation next following its receipt in the mail at the Company's Home Office. The net Purchase Payment will be allocated to the Separate Account in the proportion specified in the application for the contract or as directed by the Owner from time to time. The Owner may allocate all or part of each net Purchase Payment to any Separate Account described in this Prospectus. NUMBER OF ACCUMULATION UNITS The number of Accumulation Units to be credited to a contract in each Separate Account upon payment of a Purchase Payment will be determined by dividing the Purchase Payment applied to the Separate Account by the current Accumulation Unit Value of that Separate Account. ACCUMULATION UNIT VALUE The dollar value of an Accumulation Unit for each Separate Account was established at $1.00 at its inception. The value of an Accumulation Unit on any Valuation Date is determined by multiplying the value on the immediately preceding Valuation Date by the net investment factor for the Valuation Period just ended. The value of an Accumulation Unit on any date other than a Valuation Date will be equal to its value as of the next succeeding Valuation Date. The value of an Accumulation Unit may increase or decrease. NET INVESTMENT RATE AND NET INVESTMENT FACTOR Each Separate Account's net investment rate for any Valuation Period is equal to the gross investment rate for that Separate Account less a deduction of 0.0000363 for Account QB, and 0.0000398 for Account GIS, for each day in the Valuation Period. The gross investment rate for the Valuation Period is equal to (i) the investment income and capital gains and losses, whether realized or unrealized, on the assets of the Separate Account less a deduction for any applicable taxes, including income taxes arising from income and realized and unrealized capital gains of the Separate Account, divided by (ii) the amount of the assets at the beginning of the Valuation Period. At the present time, no federal taxes are deducted from the Separate Accounts. (See "Federal Tax Considerations," page 12.) The gross investment rate for a Separate Account may be either positive or negative. The net investment factor for a Separate Account for any Valuation Period is the sum of 1.000000 plus the net investment rate. CASH VALUE The Cash Value of the contract on any date will be equal to the sum of the accumulated values in the Separate Accounts credited to that contract. The accumulated value in a Separate Account is equal to the number of Accumulation Units credited to the contract in that Separate Account, multiplied by the Accumulation Unit Value for that Separate Account. CASH SURRENDER (REDEMPTION) OR WITHDRAWAL VALUE Before the due date of the first Annuity Payment, upon receipt of a written request, the Company will pay all or any portion of the Cash Value, adjusted for any applicable premium tax, to the Owner. The Company may defer payment of any Cash Value for a period of not more than seven days after the request is received in the mail at its Home Office, but it is its intent to pay as soon as possible. The amount of the Cash Value received may be more or less than the Purchase Payments paid depending on the value of the contract at the time of surrender. (For the federal income tax consequences of surrenders, see "Federal Tax Considerations," page 12.) DEATH BENEFIT If the Annuitant dies before Annuity or Income Payments begin, the Company will pay to the beneficiary the greater of (a) the Cash Value of the contract as of the date it receives proof of death at its Home Office, less any premium tax incurred, or (b) the total Purchase Payments made under the contract, less prior surrenders or outstanding cash loans. MINIMUM ACCUMULATED VALUE BENEFIT UPON ELECTION OF AN ANNUITY--ACCOUNT QB If an Annuity Option is elected after the tenth Contract Year, the amount applied under an Annuity Option while there is Cash Value which has not been applied to effect any Annuity or Income Options will not be less than the following: 1. the sum of all net premiums allocated to Account QB under the contract, plus 2. the sum of all amounts transferred into Account QB, minus 3. the sum of all amounts transferred out of Account QB, minus 4. any partial surrenders (whether paid in one sum or applied as an Annuity or Income Option), minus 5. the value of Accumulation Units credited to this contract in Account QB which are not applied to effect the Annuity. This benefit is not available on contracts issued in California. RIGHT TO RETURN During the ten days following the delivery of the contract to the applicant, the applicant may return the contract to the Company by mail or in person, if for any reason the applicant has changed his or her mind. On return of the contract, the Company will pay to the applicant the Cash Value determined as of the Valuation Date next following receipt of the written request at the Company's Home Office (or any other office which the Company may designate) plus an amount equal to the difference between the Purchase Payment paid for the contract and the Net Purchase Payment. The applicant bears the investment risk during this period. TRANSFER BETWEEN SEPARATE ACCOUNTS At any time up to 30 days before the due date of the first Annuity Payment, the Owner may, upon written request to the Company, transfer all or any part of the Cash Value of the contract from one Separate Account to any other Separate Account described in this Prospectus. The Company reserves the right to limit the number of transfers between Separate Accounts, but will not limit transfer to less than one in any six month period. The number of Accumulation Units credited to the Separate Account from which the transfer is made will be reduced. The reduction will be determined by dividing the amount transferred by the Accumulation Unit Value for that Separate Account as of the next valuation after the Company receives the request in the mail at its Home Office. The number of Accumulation Units credited to the Separate Account to which the transfer is made will be increased. The increase will be determined by dividing the amount transferred, less the Separate Account transfer charge, if any, by the Accumulation Unit Value for that Separate Account as of the next valuation after the Company receives the written request from the Owner at its Home Office. There is currently no Separate Account transfer charge. Once Annuity Payments begin, no further transfers may be made between the Separate Accounts. PAYOUT PROVISIONS SEPARATE ACCOUNT ALLOCATION When Annuity Payments begin, the accumulated value in each Separate Account will be applied to provide an Annuity with the amount of Annuity Payments varying with the investment experience of that same Separate Account. As described in "Transfer Between Separate Accounts," page 9, the Owner may elect to transfer Cash Value from one Separate Account to another in order to reallocate the basis on which Annuity Payments will be determined. DETERMINATION OF FIRST PAYMENT The contract contains tables used to determine the first monthly Annuity Payment. The amount applied to effect an Annuity will be the Cash Value of the contract as of 14 days before the date Annuity Payments commence less any applicable premium taxes not previously deducted. The amount of the first monthly payment depends on the Annuity Option elected (see "Automatic Option," page 10) and the adjusted age of the Annuitant. A formula for determining the adjusted age is contained in the contract. The tables are determined from the Progressive Annuity Table assuming births in the year 1900 and an assumed annual net investment rate of 3.5%. (When permitted by state law, the Company may allow the contract owner to elect an assumed net investment rate other than the 3.5% specified in the contract. In that event, the first monthly payment would differ from that shown in the contract. A higher interest rate assumption would mean a higher initial payment but more slowly rising subsequent payments or more rapidly falling subsequent payments. A lower assumption would have the opposite effect.) The total first monthly Annuity Payment is determined by multiplying the benefit per $1,000 of value shown in the tables of the contract by the number of thousands of dollars of value of the contract applied to that Annuity Option. The Company reserves the right to require proof of age before Annuity Payments begin. ANNUITY UNIT VALUE The dollar value of an Annuity Unit for each Separate Account was established at $1.00 at inception. The value of an Annuity Unit as of any Valuation Date is determined 14 days in advance in order to allow adequate time for the required calculations and mailing of annuity checks in advance of their due dates. (If the date 14 days in advance is not a Valuation Date, the calculation is made on the next following Valuation Date, which would generally be 13 or 12 days in advance.) Specifically, the Annuity Unit Value for a Separate Account as of a Valuation Date is equal to (a) the value of the Annuity Unit on the immediately preceding Valuation Date multiplied by (b) the net investment factor for the Valuation Period ending on or next following 14 days prior to the current Valuation Date, divided by (c) the assumed net investment factor for the Valuation Period. (For example, the assumed net investment factor based on an annual assumed net investment rate of 3.5% for a Valuation Period of one day is 1.0000942 and, for a period of two days, is 1.0000942 x 1.0000942.) The value of an Annuity Unit as of any date other than a Valuation Date is equal to its value on the next succeeding Valuation Date. NUMBER OF ANNUITY UNITS The number of Annuity Units credited to the contract is determined by dividing the first monthly Annuity Payment attributable to each Separate Account by the Separate Account's Annuity Unit Value as of the due date of the first Annuity Payment. The number of Annuity Units remains fixed during the annuity period. DETERMINATION OF SECOND AND SUBSEQUENT PAYMENTS The dollar amount of the second and subsequent Annuity Payments is not predetermined and may change from month to month based on the investment experience of either or both of the Separate Accounts. The actual amounts of these payments are determined by multiplying the number of Annuity Units credited to the contract in each Separate Account by the corresponding Annuity Unit Value as of the date on which payment is due. The interest rate assumed in the annuity tables would produce a level Annuity Unit Value and, therefore, level Annuity Payments if the net investment rate remained constant at the assumed rate. In fact, payments will vary up or down as the net investment rate varies up or down from the assumed rate, and there can be no assurance that a net investment rate will be as high as the assumed rate. ANNUITY OPTIONS Subject to conditions in "Election of Options," on page 12, all or any part of the Cash Value of the contract otherwise payable in one sum to the Owner on the Maturity Date or prior Cash Surrender of the contract, or amounts payable under the contract in one sum to the beneficiary upon the death of the Annuitant, may be paid under one or more of the Annuity Options below. AUTOMATIC OPTION--Unless otherwise specified in the application or the plan and if no election has been made, if the Annuitant is then living on the Maturity Date, the Company will pay to the Owner the first of a series of Annuity Payments based on the life of the Annuitant, in accordance with Option 2 with 120 monthly payments assured. OPTION 1--LIFE ANNUITY--NO REFUND: The Company will make monthly Annuity Payments during the lifetime of the person on whose life the payments are based, terminating with the last monthly payment preceding death. This option offers the maximum monthly payment, since there is no assurance of a minimum number of payments or provision for a death benefit for beneficiaries. It would be possible under this option to receive only one Annuity Payment if the Annuitant died before the due date of the second Annuity Payment, only two if the Annuitant died before the third Annuity Payment, etc. OPTION 2--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED: The Company will make monthly Annuity Payments during the lifetime of the person on whose life payments are based, with the agreement that if, at the death of that person, payments have been made for less than 120, 180 or 240 months, as elected, payments will be continued during the remainder of the period to the beneficiary designated. The beneficiary may instead receive a single sum settlement equal to the discounted value of the future payments with the interest rate equivalent to the assumption originally used when the Annuity began. OPTION 3--UNIT REFUND LIFE ANNUITY: The Company will make monthly Annuity Payments during the lifetime of the person on whose life payments are based, terminating with the last payment due before the death of that person, provided that, at death, the beneficiary will receive in one sum the current dollar value of the number of Annuity Units equal to (a) minus (b) (if that difference is positive) where (a) is the total amount applied under the option divided by the Annuity Unit Value on the due date of the first Annuity Payment, and (b) is the product of the number of the Annuity Units represented by each payment and the number of payments made. OPTION 4--JOINT AND LAST SURVIVOR LIFE ANNUITY--NO REFUND: The Company will make monthly Annuity Payments during the joint lifetime of the two persons on whose lives payments are based, and during the lifetime of the survivor. No further payments will be made following the death of the survivor. It would be possible under this option to receive only one Annuity Payment if both Annuitants died before the due date of the second Annuity Payment, only two if they died before the third Annuity Payment, etc. OPTION 5--JOINT AND LAST SURVIVOR LIFE ANNUITY--ANNUITY REDUCES ON DEATH OF PRIMARY PAYEE: The Company will make monthly Annuity Payments during the lifetime of the two persons on whose lives payments are based. One of the two persons will be designated as the primary payee. The other will be designated as the secondary payee. On the death of the secondary payee, if survived by the primary payee, the Company will continue to make monthly Annuity Payments to the primary payee in the same amount that would have been payable during the joint lifetime of the two persons. On the death of the primary payee, if survived by the secondary payee, the Company will continue to make Annuity Payments to the secondary payee, in an amount equal to 50% of the payments which would have been made during the lifetime of the primary payee. No further payments will be made following the death of the survivor. OPTION 6--OTHER ANNUITY OPTIONS: The Company will make any other arrangements for Annuity Payments as may be mutually agreed upon. INCOME OPTIONS Subject to the conditions described under "Election of Options" below, all or any part of the Cash Value of the contract otherwise payable in one sum to the Owner on the Maturity Date or prior Cash Surrender of the contract, or amounts payable under the contract in one sum to the beneficiary on the death of the Annuitant, may be paid under one or more of the income options described below. OPTION 1--PAYMENTS OF A FIXED AMOUNT: The Company will make equal monthly payments of the amount elected until the Cash Value applied under this option has been exhausted. The first monthly payment will be paid from each Separate Account in the same proportion that the respective Cash Values bear to the total Cash Value applied as of fourteen days before the first payment is due. The second and subsequent payments from each Separate Account will be the same as the first payment under this option. The final payment will include any amount insufficient to make another full payment. OPTION 2--PAYMENTS FOR A FIXED PERIOD: The Company will make monthly payments for the number of years selected. The amount of each payment will be equal to the remaining Cash Value applied under this option divided by the number of remaining payments. OPTION 3--INVESTMENT INCOME: The Company will make monthly payments during the lifetime of the primary payee, or for the period agreed on. The amount payable will be equal to the excess, if any, of the Cash Value under this option over the amount applied under this option. No payment will be made if the Cash Value is less than the amount applied, and it is possible that no payments would be made for a period of time. Payments under this option are not considered to be Annuity Payments and are taxable in full as ordinary income. (See "Federal Tax Considerations," page 12.) The Cash Value used to determine the amount of any Income Payment will be calculated as of 14 days before the date an Income Payment is due and will be determined on the same basis as the Cash Value of the contract, including the deduction for mortality risks. Income Options differ from Annuity Options in that the amount of the payments made under Income Options are unrelated to the length of life of any person. Although the Company continues to deduct the charge for mortality and expense risks, it assumes no mortality risks for amounts applied under any Income Option. Moreover, except with respect to lifetime payments of investment income under Income Option 3, payments are unrelated to the actual life span of any person. Thus, the Annuitant may outlive the payment period. While Income Options do not directly involve mortality risks for the Company, an Owner may elect to apply the remaining Cash Value to provide an Annuity at the guaranteed rates even though Income Payments have been received under an Income Option. Before an Owner makes any Income Option election, he or she should consult a tax adviser as to any adverse tax consequences the election might have. ELECTION OF OPTIONS Election of an option must be made in writing in a form satisfactory to the Company. Any election made during the lifetime of the Annuitant must be made by the Owner of the contract. The terms of the options elected by some beneficiaries may be restricted to meet the qualification requirements of Section 72(s) of the Internal Revenue Code. If, at the death of the Annuitant, there is no election in effect for that Annuitant, election of an option must be made by the beneficiary entitled to any death benefit payable in one sum under the contract. The minimum amount that can be placed under an Annuity or Income Option will be $2,000 unless the Company consents to a lesser amount. If any monthly periodic payment due any payee is less than $20, the Company reserves the right to make payments at less frequent intervals. FEDERAL TAX CONSIDERATIONS GENERAL The Company is taxed as a life insurance company under Subchapter L of the Internal Revenue Code (the "Code"). The Separate Accounts that form the investment alternatives described herein are treated as part of the total operations of the Company and are not taxed separately. Investment income and gains of a Separate Account that are credited to a purchaser's contract of insurance incur no current federal income tax. Generally, amounts credited to a contract are not taxable until received by the Owner, participant or beneficiary, either in the form of Annuity Payments or other distributions. NON-QUALIFIED ANNUITIES Individuals may purchase tax-deferred annuities without tax law funding limits. The Purchase Payments receive no tax benefit, deduction or deferral, but increases in the value of the contract are generally deferred from tax until distribution. If a non-qualified annuity is owned by other than an individual, however, (e.g., by a corporation), the increases in value attributable to Purchase Payments made after February 28, 1986 are includable in income annually. Furthermore, for contracts issued after April 22, 1987, all deferred increases in value will be includable in the income of an Owner when that Owner transfers the contract without adequate consideration. The federal tax law requires non-qualified annuity contracts issued on or after January 19, 1985 to meet minimum mandatory distribution requirements upon the death of the Contract Owner. Failure to meet these requirements will cause the succeeding Contract Owner or beneficiary to lose the tax benefits associated with annuity contracts, i.e., primarily the tax deferral prior to distribution. The distribution required depends upon whether an Annuity Option is elected or whether the succeeding Owner is the surviving spouse. Contracts will be administered by the Company in accordance with these rules. If two or more non-qualified annuity contracts are purchased from the same insurer within the same calendar year, distributions from any of them will be taxed based upon the amount of income in all of the same calendar year series of annuities. This will generally have the effect of causing taxes to be paid sooner on the deferred gain in the contracts. Those receiving partial distributions made before annuitization of a contract will generally be taxed on an income-first basis to the extent of income in the contract. Certain pre-August 14, 1982 deposits into a non-qualified annuity contract that have been placed in the contract by means of a tax-deferred exchange under Section 1035 of the Code may be withdrawn first without income tax liability. This information on deposits must be provided to the Company by the other insurance company at the time of the exchange. There is income in the contract generally to the extent the Cash Value exceeds the investment in the contract. The investment in the contract is equal to the amount of premiums paid less any amount received previously which was excludable from gross income. Any direct or indirect borrowing against the value of the contract or pledging of the contract as security for a loan will be treated as a cash withdrawal under the tax law. With certain exceptions, the law will impose an additional tax if a Contract Owner makes a withdrawal of any amount under the contract which is allocable to an investment made after August 13, 1982. The amount of the additional tax will be 10% of the amount includable in income by the Contract Owner because of the withdrawal. The additional tax will not be imposed if the amount is received on or after the Contract Owner reaches the age of 59 1/2, or if the amount is one of a series of substantially equal periodic payments made for life or life expectancy of the taxpayer. The additional tax will not be imposed if the withdrawal or partial surrender follows the death or disability of the Contract Owner. FEDERAL INCOME TAX WITHHOLDING The portion of a distribution which is taxable income to the recipient will be subject to federal income tax withholding, generally pursuant to Section 3405 of the Code. The application of this provision is summarized below. 1. NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS) The portion of a non-periodic distribution which constitutes taxable income will be subject to federal income tax withholding, to the extent such aggregate distributions exceed $200 for the year, unless the recipient elects not to have taxes withheld. If an election out is not provided, 10% of the taxable distribution will be withheld as federal income tax. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. 2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE YEAR) The portion of a periodic distribution which constitutes taxable income will be subject to federal income tax withholding under the wage withholding tables as if the recipient were married claiming three exemptions. A recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by providing a completed election form. Election forms will be provided at the time distributions are requested. This form of withholding applies to all annuity programs. As of January 1, 1994, a recipient receiving periodic payments (e.g., monthly or annual payments under an Annuity Option) which total $13,700 or less per year, will generally be exempt from the withholding requirements. Recipients who elect not to have withholding made are liable for payment of federal income tax on the taxable portion of the distribution. All recipients may also be subject to penalties under the estimated tax payment rules if withholding and estimated tax payments are not sufficient. Recipients who do not provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding. Additionally, United States citizens residing outside of the country, or U.S. legal residents temporarily residing outside the country, are not permitted to elect out of withholding. TAX ADVICE Because of the complexity of the law and the fact that the tax results will vary according to the factual status of the individual involved, tax advice may be needed by a person contemplating purchase of an annuity contract and by an Owner, participant or beneficiary who may make elections under a contract. It should be understood that the foregoing description of the federal income tax consequences under these contracts is not exhaustive and that special rules are provided with respect to situations not discussed here. It should be understood that if a tax-benefited plan loses its exempt status, employees could lose some of the tax benefits described. For further information, a qualified tax adviser should be consulted. DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS The Company intends to sell the contracts in all jurisdictions where the Company is licensed to do business, except Puerto Rico, and the Bahamas. The contracts will be sold by agents who are licensed by state insurance authorities to sell variable annuity contracts issued by the Company, and who are also registered representatives of broker-dealers which have Selling Agreements with Travelers Equities Sales, Inc. ("TESI"). TESI, whose principal business address is One Tower Square, Hartford, Connecticut, serves as the principal underwriter for the variable annuity insurance contracts described herein. TESI is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, and is a member of the National Association of Securities Dealers, Inc. ("NASD"). TESI is an affiliate of the Company and an indirect wholly owned subsidiary of Travelers Group Inc., and serves as principal underwriter pursuant to a Distribution and Underwriting Agreement to which Accounts GIS and QB, the Company and TESI are parties. No amounts have been or will be retained by TESI for acting as principal underwriter for the Contracts. Agents will be compensated for sales of the Contracts on a commission and service fee basis. The compensation paid to said agents will not exceed 7% of the payments made under the Contract. In addition, certain production, persistency and managerial bonuses may be paid. From time to time the Company may pay or permit other promotional incentives, in cash, credit or other compensation. STATE REGULATION The Company is subject to the laws of the State of Connecticut governing insurance companies and to regulation by the Insurance Commissioner of the State of Connecticut. An annual statement in a prescribed form must be filed with that Commissioner on or before March 1 in each year covering the operations of the Company for the preceding year and its financial condition on December 31 of such year. Its books and assets are subject to review or examination by the Commissioner or his agents at all times, and a full examination of its operations is conducted by the National Association of Insurance Commissioners ("NAIC") at least once in every four years. In addition, the Company is subject to the insurance laws and regulations of the other states in which it is licensed to operate. Generally, the insurance departments of the states apply the laws of the jurisdiction of domicile in determining the field of permissible investments. LEGAL PROCEEDINGS AND OPINIONS There are no pending material legal proceedings affecting the Separate Accounts. Legal matters in connection with federal laws and regulations affecting the issue and sale of the Variable Annuity contracts described in this Prospectus and the organization of the Company, its authority to issue Variable Annuity contracts under Connecticut law and the validity of the forms of the Variable Annuity contracts under Connecticut law have been passed on by the General Counsel of the Life and Annuities Division of the Company. APPENDIX A CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information contains more specific information and financial statements relating to the Separate Accounts and The Travelers Insurance Company. A list of the contents of the Statement of Additional Information is set forth below: Description of The Travelers and the Separate Accounts The Insurance Company The Separate Accounts Investment Objectives and Policies The Travelers Growth and Income Stock Account for Variable Annuities The Travelers Quality Bond Account for Variable Annuities Description of Certain Types of Investments and Investment Techniques Available to the Separate Accounts Writing Covered Call Options Buying Put and Call Options Futures Contracts Money Market Instruments Investment Management and Advisory Services Advisory Fees TIMCO TAMIC Valuation of Assets Management The Board of Managers Distribution and Management Services Securities Custodian Independent Accountants Financial Statements COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995 (FORM NO. L11895S), AND THE ANNUAL REPORT DATED DECEMBER 31, 1994 WHICH ARE INCORPORATED BY REFERENCE THEREIN (FORM NO. VG-137), ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE CLIP THIS COUPON ON THE DOTTED LINE ABOVE, ENTER YOUR NAME AND ADDRESS IN THE SPACES PROVIDED BELOW, AND MAIL TO: THE TRAVELERS INSURANCE COMPANY, ANNUITY SERVICES - 5 SHS, ONE TOWER SQUARE HARTFORD, CONNECTICUT 06183-5030. Name: ______________________________________________________ Address: ___________________________________________________ ____________________________________________________________ THIS PAGE INTENTIONALLY LEFT BLANK. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES AND THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES INDIVIDUAL VARIABLE ANNUITY CONTRACTS Issued By THE TRAVELERS INSURANCE COMPANY Individual Purchases L-11895 TIC Ed. 5-95 Printed in U.S.A. PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION UNIVERSAL ANNUITY STATEMENT OF ADDITIONAL INFORMATION THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS FUND U FOR VARIABLE ANNUITIES INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY May 1, 1995 This Statement of Additional Information is not a prospectus but relates to, and should be read in conjunction with, the Prospectus dated May 1, 1995. A copy of the Prospectus may be obtained by writing to The Travelers Insurance Company (the "Company"), Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183- 5030, or by calling 1-800-842-0125. TABLE OF CONTENTS PAGE DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS 1 The Insurance Company 1 The Separate Accounts 1 INVESTMENT ALTERNATIVES 1 THE TRAVELERS FUND U FOR VARIABLE ANNUITIES 4 Investments of Fund U 4 Available Mutual Funds 4 INVESTMENT OBJECTIVES AND POLICIES 4 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES 4 THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES 4 THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES 6 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES 7 THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES 9 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES 10 THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES 11 DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS 12 WRITING COVERED CALL OPTIONS 12 BUYING PUT AND CALL OPTIONS 13 FUTURES CONTRACTS 14 MONEY MARKET INSTRUMENTS 16 INVESTMENT MANAGEMENT AND ADVISORY SERVICES 18 Advisory Fees 18 TIMCO 19 TAMIC 20 VALUATION OF ASSETS 22 PERFORMANCE DATA 22 Yield Quotations of Account MM 22 Average Annual Total Return Quotations of Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U 22 THE BOARD OF MANAGERS 26 DISTRIBUTION AND MANAGEMENT SERVICES 27 PRINCIPAL UNDERWRITER 27 SECURITIES CUSTODIAN 28 INDEPENDENT ACCOUNTANTS 28 FINANCIAL STATEMENTS 28 FINANCIAL STATEMENTS - THE TRAVELERS INSURANCE COMPANY F-1 DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS THE INSURANCE COMPANY The Travelers Insurance Company (the "Company") is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group Inc. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. THE SEPARATE ACCOUNTS Each of the Separate Accounts available under the variable annuity contracts described in this Statement of Additional Information meets the definition of a separate account under federal securities laws, and will comply with the provisions of the Investment Company Act of 1940, as amended (the "1940 Act"). Additionally, the operations of each of the Separate Accounts are subject to the provisions of Section 38a-433 of the Connecticut General Statutes which authorizes the Connecticut Insurance Commissioner to adopt regulations under it. The Section contains no restrictions on investments of the Separate Accounts, and the Commissioner has adopted no regulations under the Section that affect the Separate Accounts. There are two different types of Separate Accounts which serve as the funding vehicles for these variable annuity contracts. The first type, Fund U, was established on September 2, 1982 and is registered with the Securities and Exchange Commission as a unit investment trust under the 1940 Act. Fund U's assets are invested in the shares of mutual funds. Accounts GIS, QB, MM, TGIS, TSB, TAS and TB, the second type of Separate Account available under the variable annuity contracts, are registered with the Securities and Exchange Commission as diversified, open-end management investment companies under the 1940 Act. Account GIS was established on September 22, 1967; Account QB was established on July 29, 1974; Account MM was established on December 29, 1981; Accounts TGIS and TSB were established on October 30, 1986; and Accounts TAS and TB were established on January 2, 1987. The assets of these accounts are invested directly in securities (such as stocks, bonds or money market instruments) which are compatible with the stated investment policies of each of the Separate Accounts. INVESTMENT ALTERNATIVES Purchase Payments may be allocated to one or more of the available Investment Alternatives. The Company may add or remove available Investment Alternatives as permitted by law. The investment objectives of each available Investment Alternative are as follows: ACCOUNT GIS: The primary objective of Account GIS is long-term accumulation of principal through capital appreciation and retention of net investment income. The assets of Account GIS will normally be invested in a portfolio of common stocks spread over industries and companies. ACCOUNT TGIS: The primary objective of Account TGIS is the same as Account GIS, except that Contract Owners in Account TGIS have entered into third party investment advisory contracts with providers of market timing services. ACCOUNT QB: The primary objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. Assets of Account QB will be invested in short-term to intermediate-term bonds or other debt securities with a market value-weighted average maturity of five years or less. ACCOUNT MM: The primary investment objective of Account MM is preservation of capital, a high degree of liquidity and the highest possible current income. Assets of Account MM will be invested primarily in short-term money market securities. ACCOUNT TSB: The primary objective of Account TSB is to generate high current income with limited price volatility while maintaining a high degree of liquidity. Additionally, Contract Owners in Account TSB have entered into third party investment advisory contracts with providers of market timing services. ACCOUNT TAS: The objective of Account TAS is growth of capital through the use of common stocks. Assets of Account TAS will be fully invested in a diversified portfolio consisting primarily of common stocks, securities convertible into common stocks, and securities having common stock characteristics. Additionally, Contract Owners in Account TAS have entered into third party investment advisory contracts with providers of market timing services. ACCOUNT TB: The objective of Account TB is the selection of investments from the point of view of an investor concerned primarily with credit quality, current income and total return. Assets of Account TB will be invested primarily in direct obligations of the United States, its agencies and instrumentalities. Contract Owners in Account TB have entered into third party investment advisory contracts with providers of market timing services. MANAGED ASSETS TRUST: The objective of the Managed Assets Trust is high total investment return through a fully managed investment policy. Assets of the Managed Assets Trust will be invested in a portfolio of U.S. stocks, bonds and money market securities. CAPITAL APPRECIATION FUND: The objective of the Capital Appreciation Fund is growth of capital through the use of common stocks. Income is not an objective. The Fund invests principally in common stocks of small to large companies that experience wide fluctuations in price in both rising and declining markets. HIGH YIELD BOND TRUST: The objective of the High Yield Bond Trust is generous income. The assets of the High Yield Bond Trust will be invested in bonds which, as a class, sell at discounts from par value and are typically high risk securities. Contract Owners are advised to read carefully the complete risk disclosure contained in the Trust's prospectus before investing. U.S. GOVERNMENT SECURITIES PORTFOLIO: The objective of the U.S. Government Securities Portfolio is the selection of investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. The assets of the U.S. Government Securities Portfolio will be invested in direct obligations of the United States, its instrumentalities and agencies. SOCIAL AWARENESS STOCK PORTFOLIO: The objective of the Social Awareness Stock Portfolio is long-term capital appreciation and retention of net investment income through the selection of investments, primarily common stocks, which meet the social criteria established for the Portfolio. Social criteria currently excludes companies that derive a significant portion of their revenues from the production of tobacco, tobacco products, alcohol or military defense systems, or the provision of military defense or gambling services. UTILITIES PORTFOLIO: The objective of the Utilities Portfolio is to provide current income. Long-term capital appreciation is a secondary objective. The Portfolio seeks to achieve its objective by investing in equity and debt securities of companies in the utility industries. TEMPLETON BOND FUND: The objective of the Templeton Bond Fund is high current income through a flexible policy of investing primarily in debt securities of companies, governments and government agencies of various nations throughout the world. TEMPLETON STOCK FUND: The objective of the Templeton Stock Fund is capital growth through a policy of investing primarily in common stocks issued by companies, large and small, in various nations throughout the world. TEMPLETON ASSET ALLOCATION FUND: The objective of the Templeton Asset Allocation Fund is a high level of total return with reduced risk over the long term through a flexible policy of investing in stocks of companies in any nation, debt obligations of companies and governments of any nation. Changes in the asset mix will be adjusted in an attempt to capitalize on total return potential produced by changing economic conditions throughout the world. FIDELITY'S HIGH INCOME PORTFOLIO: The objective of the High Income Portfolio is to seek to obtain a high level of current income by investing primarily in high yielding, lower-rated, fixed-income securities, while also considering growth of capital. Contract Owners are advised to read the complete risk disclosure contained in the Portfolio's prospectus before investing. FIDELITY'S EQUITY INCOME PORTFOLIO: The objective of the Equity-Income Portfolio is to seek reasonable income by investing primarily in income-producing equity securities. FIDELITY'S GROWTH PORTFOLIO: The objective of the Growth Portfolio is to seek capital appreciation. The Portfolio normally purchases common stocks of well-known, established companies and smaller, emerging growth companies, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. FIDELITY'S ASSET MANAGER PORTFOLIO: The objective of the Asset Manager Portfolio is to seek high total return with reduced risk over the long-term by allocating its assets among stocks, bonds, and short-term fixed-income instruments. DREYFUS STOCK INDEX FUND: The objective of the Dreyfus Stock Index Fund is to provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND: The objective of the American Odyssey International Equity Fund is to seek maximum long-term total return by investing primarily in common stocks of established non-U.S. companies. AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND: The objective of the American Odyssey Emerging Opportunities Fund is to seek maximum long-term total return by investing primarily in common stocks of small, rapidly growing companies. AMERICAN ODYSSEY CORE EQUITY FUND: The objective of the American Odyssey Core Equity Fund is to seek maximum long-term total return by investing primarily in common stocks of well-established companies. AMERICAN ODYSSEY LONG-TERM BOND FUND: The objective of the American Odyssey Long-Term Bond Fund is to seek maximum long-term total return by investing primarily in long- term corporate debt securities, U.S. government securities, mortgage-related securities, and asset-backed securities, as well as money market instruments. AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND: The objective of the American Odyssey Intermediate-Term Bond Fund is to seek maximum long-term total return by investing primarily in intermediate-term corporate debt securities, U.S. government securities, mortgage-related securities and asset-backed securities, as well as money market instruments. AMERICAN ODYSSEY SHORT-TERM BOND FUND: The objective of the American Odyssey Short-Term Bond Fund is to seek maximum long-term total return by investing primarily in investment-grade, short-term debt securities. SMITH BARNEY INCOME AND GROWTH PORTFOLIO: The objective of the Income and Growth Portfolio is current income and long-term growth of income and capital by investing primarily, but not exclusively, in common stocks. ALLIANCE GROWTH PORTFOLIO: The objective of the Growth Portfolio is long-term growth of capital by investing predominantly in equity securities of companies with a favorable outlook for earnings and whose rate of growth is expected to exceed that of the U.S. economy over time. Current income is only an incidental consideration. SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO: The objective of the International Equity Portfolio is total return on assets from growth of capital and income by investing at least 65% of its assets in a diversified portfolio of equity securities of established non-U.S. issuers. PUTNAM DIVERSIFIED INCOME PORTFOLIO: The objective of the Diversified Income Portfolio is to seek high current income consistent with preservation of capital. The Portfolio will allocate its investments among the U.S. Government Sector, the High Yield Sector, and the International Sector of the fixed income securities markets. (Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing.) G.T. GLOBAL STRATEGIC INCOME PORTFOLIO: The Strategic Income Portfolio's investment objective is primarily to seek high current income and secondarily to seek capital appreciation. The Portfolio allocates its assets among debt securities of issuers in the United States, developed foreign countries, and emerging markets. (Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing.) SMITH BARNEY HIGH INCOME PORTFOLIO: The investment objective of the High Income Portfolio is high current income. Capital appreciation is a secondary objective. The Portfolio will invest at least 65% of its assets in high- yielding corporate debt obligations and preferred stock. (Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing.) MFS TOTAL RETURN PORTFOLIO: The Total Return Portfolio's objective is to obtain above-average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. Generally, at least 40% of the Portfolio's assets will be invested in equity securities. (Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing.) THE TRAVELERS FUND U FOR VARIABLE ANNUITIES INVESTMENTS OF FUND U Purchase Payments applied to Fund U will be invested in one or more of the available mutual funds at net asset value in accordance with the selection made by the Contract Owner. Contract Owners may change their selection without fee, penalty or charge. Available mutual funds may be added or withdrawn as permitted by applicable law. AVAILABLE MUTUAL FUNDS A summary of the investment objectives of the mutual funds underlying Fund U (i.e., all those listed above, except the 7 Separate Accounts) is provided in "Investment Alternatives," beginning on page 1. All investment income and other distributions of Fund U are reinvested in fund shares at net asset value. The funds are required to redeem fund shares at net asset value and to make payment within seven days. Fund shares for the mutual funds listed above are currently sold to Fund U in connection with the Company's variable annuity products; additionally, some of the mutual fund shares may also be sold to other separate accounts of the Company or its affiliates, or to other insurance companies in connection with such companies' variable annuity and variable life insurance products. Fund shares are not sold to the general public. More detailed information may be found in the current prospectuses and Statements of Additional Information for the available mutual funds. INVESTMENT OBJECTIVES AND POLICIES The Separate Accounts described below each have different investment objectives and policies, and each Separate Account has certain fundamental investment restrictions which are set forth below. Neither the investment objective nor the fundamental investment restrictions can be changed without a vote of a majority of the outstanding voting securities of the Accounts, as defined in the 1940 Act. Additionally, in accomplishing their respective investment objectives, each Account uses certain types of investments and investment techniques which are discussed under "Investments and Investment Techniques" on page 12. The percentage restrictions (for either fundamental investment policies or investment restrictions) are interpreted such that if they are adhered to at the time of investment, a later increase in a percentage beyond the specified limit resulting from a change in the values of portfolio securities or in the amount of net assets shall not be considered a violation. It must be recognized that there are risks inherent in the ownership of any investment and that there can be no assurance that the investment objectives of the Separate Accounts will be achieved. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVES The basic investment objective of Accounts GIS and TGIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account GIS will primarily be invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may also be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States Government securities. These investments generally would not have a prospect of long-term appreciation. Investments in other than equity securities are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account GIS may use exchange-traded financial futures contracts as a hedge to protect against changes in stock prices. Account GIS intends to use stock index futures contracts primarily to limit transaction and borrowing costs, and expects that risk management transactions involving futures contracts will not impact more than thirty percent (30%) of Account GIS's assets at any one time. Account TGIS will use exchange-traded financial futures contracts consisting of stock index futures contracts and futures contracts on debt securities ("interest rate futures") to facilitate market timed moves (as described in the Prospectus), and as a hedge to protect against changes in stock prices or interest rates. Accounts GIS and TGIS may also write covered call options on securities which they own, and may also purchase index or individual equity call options. INVESTMENT RESTRICTIONS The investment restrictions for Accounts GIS and TGIS, as set forth below, are identical, except where indicated. The investment restrictions set forth in items 1 through 9 are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account GIS or Account TGIS, as defined in the 1940 Act. Items 10 through 13 may be changed by a vote of the Board of Managers of Account GIS or Account TGIS. 1. Not more than 5% of the assets of the Account will be invested in the securities of any one issuer, except obligations of the United States Government and its instrumentalities. 2. Borrowings will not be made, except that the right is reserved to borrow from banks for emergency purposes, provided that such borrowings will not exceed 5% of the value of the assets of Account GIS, or 10% of the value of the assets of Account TGIS, and that immediately after the borrowing, and at all times thereafter, and while any such borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of the Account. 3. Securities of other issuers will not be underwritten, except that the Account could be deemed an underwriter when engaged in the sale of restricted securities. (See item 13.) 4. Interests in real estate will not be purchased, except as may be represented by securities for which there is an established market. 5. No purchase of commodities or commodity contracts will be made, except transactions involving financial futures in order to limit transaction and borrowing costs and for hedging purposes, as discussed above. 6. Loans will be made only through the acquisition of a portion of privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors. (See item 13.) 7. Investments will not be made in the securities of a company for the purpose of exercising management or control. 8. Not more than 10% of the voting securities of any one issuer will be acquired. (It is the present practice of the Account not to exceed 5% of the voting securities of any one issuer.) 9. Senior securities will not be issued. 10. Short sales of securities will not be made. 11. Purchases will not be made on margin, except for short-term credits which are necessary for the clearance of transactions, and for the placement of not more than 5% of its net asset value in total margin deposits for positions in futures contracts. 12. The Account will not invest in the securities of other investment companies, except as part of a plan of merger, consolidation or acquisition of assets. 13. Not more than 5% of the value of the assets of the Account may be invested in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). Changes in the investments of Accounts GIS and TGIS may be made from time to time to take into account changes in the outlook for particular industries or companies. The Accounts' investments will not, however, be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of their assets will be invested in any one industry. While Accounts GIS and TGIS may occasionally invest in foreign securities, it is not anticipated that such investments will, at any time, account for more than ten percent (10%) of their investment portfolios. The assets of Accounts GIS and TGIS will be kept fully invested, except that (a) sufficient cash may be kept on hand to provide for variable annuity contract obligations, and (b) reasonable amounts of cash, United States Government or other liquid securities, such as short-term bills and notes, may be held for limited periods, pending investment in accordance with their respective investment policies. PORTFOLIO TURNOVER Although Accounts GIS and TGIS intend to purchase securities for long-term appreciation of capital and income, and do not intend to place emphasis on obtaining short-term trading profits, such short- term trading may occur. A higher turnover rate should not be interpreted as indicating a variation from the stated investment policy of seeking long-term accumulation of capital, and will normally increase the brokerage costs of Accounts GIS and TGIS. However, negotiated fees and the use of futures contracts will help to reduce brokerage costs. While there is no restriction on portfolio turnover, Account GIS expects to have a moderate to high level of portfolio turnover in the range of 150% to 300%, and Account TGIS expects that its portfolio turnover will be higher than normal since the Account is being timed by third party investment advisory services. The portfolio turnover rate for Account GIS for the years ended December 31, 1992, 1993 and 1994 was 189%, 81% and 103%, respectively. The portfolio turnover rate for Account TGIS for the years ended December 31, 1992, 1993 and 1994 was 119%, 70% and 19%, respectively. THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The investment objective of Account TAS is to provide shareholders with growth of capital by investing primarily in a broadly diversified portfolio of common stocks. In selecting investments for the portfolio, the investment adviser employs quantitative analysis to identify stocks which appear to be undervalued. A proprietary computer model reviews over one thousand stocks using fundamental and technical criteria such as price (relative to book value, earnings growth and momentum), and the change in price (relative to the change in price of a broad composite stock index). Computer-aided analysis may also be utilized to match certain characteristics of the portfolio, such as industry sector representation, to the characteristics of a market index, or to impose a tilt toward certain attributes. Although Account TAS currently focuses on mid-sized domestic companies with market capitalizations that fall between $500 million and $10 billion, Account TAS may invest in smaller or larger companies without limitation. The prices of mid-sized company stocks and smaller company stocks may fluctuate more than those of larger company stocks. Account TAS will use exchange-traded financial futures contracts consisting of stock index futures contracts and futures contracts on debt securities ("interest rate futures") to facilitate market timed moves (as described in the Prospectus), and as a hedge to protect against changes in stock prices or interest rates. Account TAS may also invest, for defensive purposes, in money market instruments. Such instruments, which must mature within one year of their purchase, consist of U.S. Government securities; instruments of banks which are members of the Federal Deposit Insurance Corporation and have assets of at least $1 billion, such as certificates of deposit, demand and time deposits and bankers' acceptances; prime commercial paper, including master demand notes; and repurchase agreements secured by U.S. Government securities. INVESTMENT RESTRICTIONS The investment restrictions set forth below are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account TAS, as defined in the 1940 Act. Account TAS may not: 1. invest more than 5% of its total assets, computed at market value, in the securities of any one issuer; 2. invest in more than 10% of any class of securities of any one issuer; 3. invest more than 5% of the value of its total assets in companies which have been in operation for less than three years; 4. borrow money, except to facilitate redemptions or for emergency or extraordinary purposes and then only from banks and in amounts of up to 10% of its gross assets computed at cost; while outstanding, a borrowing may not exceed one-third of the value of its net assets, including the amount borrowed; Account TAS has no intention of attempting to increase its net income by means of borrowing and all borrowings will be repaid before additional investments are made; assets pledged to secure borrowings shall be no more than the lesser of the amount borrowed or 10% of the gross assets of Account TAS computed at cost; 5. underwrite securities, except that Account TAS may purchase securities from issuers thereof or others and dispose of such securities in a manner consistent with its other investment policies; in the disposition of restricted securities the Account may be deemed to be an underwriter, as defined in the Securities Act of 1933 (the "1933 Act"); 6. purchase real estate or interests in real estate, except through the purchase of securities of a type commonly purchased by financial institutions which do not include direct interest in real estate or mortgages, or commodities or commodity contracts, except transactions involving financial futures in order to limit transaction and borrowing costs and for hedging purposes as described above; 7. invest for the primary purpose of control or management; 8. make margin purchases or short sales of securities, except for short-term credits which are necessary for the clearance of transactions, and to place not more than 5% of its net asset value in total margin deposits for positions in futures contracts; 9. make loans, except that Account TAS may purchase money market securities, enter into repurchase agreements, buy publicly and privately distributed debt securities and lend limited amounts of its portfolio securities to broker-dealers; all such investments must be consistent with the Account's investment objective and policies; 10. invest more than 25% of its total assets in the securities of issuers in any single industry; 11. purchase the securities of any other investment company, except in the open market and at customary brokerage rates and in no event more than 3% of the voting securities of any investment company; 12. invest in interests in oil, gas or other mineral exploration or development programs; or 13. invest more than 5% of its net assets in warrants, valued at the lower of cost or market; warrants acquired by the Account in units or attached to securities will be deemed to be without value with regard to this restriction. Account TAS is subject to restrictions in the sale of portfolio securities to, and in its purchase or retention of securities of, companies in which the management personnel of The Travelers Investment Management Company ("TIMCO") have a substantial interest. Account TAS may make investments in an amount of up to 10% of the value of its net assets in restricted securities which may not be publicly sold without registration under the 1933 Act. In most instances such securities are traded at a discount from the market value of unrestricted securities of the same issuer until the restriction is eliminated. If and when Account TAS sells such portfolio securities, it may be deemed an underwriter, as such term is defined in the 1933 Act, with respect thereto, and registration of such securities under the 1933 Act may be required. Account TAS will not bear the expense of such registration. Account TAS intends to reach agreements with all such issuers whereby they will pay all expenses of registration. In determining securities subject to the 10% limitation, Account TAS will include, in addition to restricted securities, repurchase agreements maturing in more than seven days and other securities not having readily available market quotations. PORTFOLIO TURNOVER Although Account TAS intends to invest in securities selected primarily for prospective capital growth and does not intend to place emphasis on obtaining short-term trading profits, such short- term trading may occur. A high turnover rate should not be interpreted as indicating a variation from the stated investment policy, and will normally increase Account TAS's brokerage costs. While there is no restriction on portfolio turnover, Account TAS's portfolio turnover rate may be high since the Account is being timed by third party investment advisory services. The portfolio turnover rate for the years ended December 31, 1992, 1993 and 1994 was 269%, 71% and 142%, respectively. THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. It is contemplated that the assets of Account QB will be invested in money market obligations, including, but not limited to, Treasury bills, repurchase agreements, commercial paper, bank certificates of deposit and bankers' acceptances, and in publicly traded debt securities, including bonds, notes, debentures, equipment trust certificates and short-term instruments. These securities may carry certain equity features such as conversion or exchange rights or warrants for the acquisition of stocks of the same or different issuer, or participations based on revenues, sales or profits. It is currently anticipated that the market value-weighted average maturity of the portfolio will not exceed five years. (In the case of mortgage-backed securities, the estimated average life of cash flow will be used instead of average maturity.) Investments in longer term obligations may be made if the Board of Managers concludes that the investment yields justify a longer term commitment. Account QB may purchase and sell futures contracts on debt securities ("interest rate futures") to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account QB's securities. The portfolio will be actively managed and Account QB may sell investments prior to maturity to the extent that this action is considered advantageous in light of factors such as market conditions or brokerage costs. While the investments of Account QB are generally not listed securities, there are firms which make markets in the type of debt instruments which Account QB holds. No problems of salability are anticipated with regard to the investments of Account QB. The Board of Managers will weigh considerations of risks, yield and ratings in implementing Account QB's fundamental investment policies. There are no specific criteria with regard to quality or ratings of the investments of Account QB, but it is anticipated that they will be of investment grade or its equivalent as determined in good faith by the Board of Managers. There may or may not be more risk in investing in debt instruments where there are no specific criteria with regard to quality or ratings of the investments. INVESTMENT RESTRICTIONS The investment restrictions set forth in items 1 through 9 below are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account QB, as defined in the 1940 Act. Items 10 through 14 may be changed by a vote of the Board of Managers of Account QB. 1. Not more than 15% of the value of the assets of Account QB will be invested in the securities of any one issuer, except obligations of the United States Government and its instrumentalities, for which there is no limit. 2. Borrowings will not be made, except that the right is reserved to borrow from banks for emergency purposes, provided that these borrowings will not exceed 5% of the value of the assets of Account QB and that immediately after the borrowing, and at all times thereafter, and while any borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of Account QB. 3. Securities of other issuers will not be underwritten, except that Account QB could be deemed to be an underwriter when engaged in the sale of restricted securities. (See item 13.) 4. Interests in real estate will not be purchased, except as may be represented by securities for which there is an established market. 5. No purchase of commodities or commodity contracts will be made, except transactions involving financial futures used as a hedge against unanticipated changes in prevailing levels of interest rates. 6. Loans will be made only through the acquisition of a portion of privately placed issue of bonds, debentures and other evidences of indebtedness of a type customarily purchased by institutional investors. (See item 13.) 7. Investments will not be made in the securities of a company for the purpose of exercising management or control. 8. Not more than 10% of the voting securities of any one issuer will be acquired. 9. Senior securities will not be issued. 10. Short sales of securities will not be made. 11. Purchases will not be made on margin, except for any short-term credits that are necessary for the clearance of transactions and to place up to 5% of the value of its net assets in total margin deposits for positions in futures contracts. 12. Account QB will not invest in the securities of other investment companies, except as part of a plan of merger, consolidation or acquisition of assets. 13. Not more than 5% of the value of the assets of Account QB may be invested in restricted securities (securities which may not be publicly offered without registration under the 1933 Act). 14. The average period of maturity (or in the case of mortgage-backed securities, the estimated average life of cash flows) of all fixed interest debt instruments held by Account QB will not exceed five years. The investments of Account QB will not be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of its assets will be invested in any one industry. There is no investment policy as to Account QB's investment in foreign securities. PORTFOLIO TURNOVER Brokerage costs associated with short-term debt instruments are significantly lower than those incurred on equity investments, and thus, a high portfolio turnover rate would not adversely affect the brokerage costs of Account QB to the same extent as high turnover in a separate account which invests primarily in common stock. The portfolio turnover rate for Account QB for the years ended December 31, 1992, 1993 and 1994 was 23%, 24% and 27%, respectively. THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The investment objective of Account TB is the selection of investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. To achieve this objective, Account TB invests primarily in direct obligations of the United States, in obligations of its instrumentalities supported by its full faith and credit, and in obligations issued or guaranteed by Federal Agencies which are independent corporations sponsored by the United States and which are subject to its general supervision, but which do not carry the full faith and credit obligations of the United States. Account TB will use exchange-traded financial futures contracts on debt securities ("interest rate futures") to facilitate market timed moves (as described in the Prospectus), and as a hedge to protect against changes in interest rates. INVESTMENT RESTRICTIONS The investment restrictions set forth below are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account TB, as defined in the 1940 Act. Account TB may not: 1. invest more than 5% of its total assets, computed at market value, in the securities of any one issuer (exclusive of securities of the United States Government, its agencies or instrumentalities, for which there is no limit); 2. invest in more than 10% of any class of securities of any one issuer; 3. invest more than 5% of the value of its total assets in companies which have been in operation for less than three years; 4. borrow money, except to facilitate redemptions or for emergency or extraordinary purposes and then only from banks and in amounts of up to 10% of its gross assets computed at cost; while outstanding according to the 1940 Act, a borrowing may not exceed one-third of the value of the net assets, including the amount borrowed; Account TB has no intention of attempting to increase its net income by borrowing and all borrowings will be repaid before additional investments are made; assets pledged to secure borrowings shall be no more than the lesser of the amount borrowed or 10% of the gross assets computed at cost; 5. underwrite securities, except that Account TB may purchase securities from issuers thereof or others and dispose of such securities in a manner consistent with its other investment policies; in the disposition of restricted securities Account TB may be deemed to be an underwriter, as defined in the 1933 Act; 6. purchase real estate or interests in real estate, except through the purchase of securities of a type commonly purchased by financial institutions which do not include direct interest in real estate or mortgages, or commodities or commodity contracts, except transactions involving financial futures in order to limit transactions and borrowing costs and for hedging purposes as discussed above; 7. invest for the primary purpose of control or management; 8. make margin purchases or short sales of securities, except for short-term credits which are necessary for the clearance of transactions, and to place not more than 5% of its net asset value in total margin deposits for positions in futures contracts; 9. make loans, except that Account TB may purchase money market securities, enter into repurchase agreements, buy publicly and privately distributed debt securities and lend limited amounts of its portfolio securities to brokers-dealers; all such investments must be consistent with the investment objective and policies; 10. invest more than 25% of its total assets in the securities of issuers in any single industry (exclusive of securities of the United States government, its agencies or instrumentalities, for which there is no limit); or 11. purchase the securities of any other investment company, except in the open market and at customary brokerage rates and in no event more than 3% of the voting securities of any investment company. When consistent with its investment objectives, Account TB may purchase securities of brokers, dealers, underwriters or investment advisers. Account TB is subject to restrictions in the sale of portfolio securities to, and in its purchase or retention of securities of, companies in which the management personnel of Travelers Asset Management International Corporation ("TAMIC") have a substantial interest. PORTFOLIO TURNOVER Brokerage costs associated with debt instruments are significantly lower than those incurred on equity investments, and thus, a high portfolio turnover rate would not adversely affect the brokerage costs of Account TB to the same extent as high turnover in a separate account which invests primarily in common stock. While there is no restriction on portfolio turnover, Account TB's turnover rate may be high since the Account is being timed by third party investment advisory services. The portfolio turnover rate for Account TB for the years ended December 31, 1992, 1993 and 1994 was 505%, 190% and 0%, respectively. THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account MM is preservation of capital, a high degree of liquidity and the highest possible current income available from certain short-term money market securities. While there are many kinds of short-term securities used by the various money market funds, Account MM will restrict its investment portfolio to only the securities listed below. The Account's assets will primarily be invested in (1) marketable obligations issued or guaranteed by the United States Government, its agencies, authorities or instrumentalities; (2) Certificates of Deposit and Banker's Acceptances of banks having total assets of more than $1 billion which are members of the Federal Deposit Insurance Corporation; (3) Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's Investor Services, Inc.; and (4) repurchase agreements with government securities dealers recognized by the Federal Reserve Board or with member banks of the Federal Reserve System involving marketable obligations of or guaranteed by the United States Government, its agencies, authorities or instrumentalities. Account MM may also invest in securities of foreign branches of United States banks, payable in United States dollars. The market value of Account MM's investments tend to decrease during periods of rising interest rates and to increase during intervals of falling interest rates, with corresponding fluctuations in their net income. In order to minimize the fluctuations in market values to which interest-paying obligations are subject, Account MM concentrates its investments in relatively short-term securities, and in no event does the maturity date of an obligation exceed one year from the date of purchase. Return to Contract Owners is aided both by Account MM's ability to make investments in large denominations and by their efficiencies of scale. Also, Account MM seeks to improve portfolio income by selling certain portfolio securities before maturity date in order to take advantage of yield disparities that occur in money markets. Account MM may purchase and sell marketable obligations of or guaranteed by the United States Government, its agencies, authorities or instrumentalities on a when-issued or delayed delivery basis, with such purchases possibly occurring as much as a month before actual delivery and payment. INVESTMENT RESTRICTIONS In keeping with the objective of obtaining the highest possible current income consistent with a high degree of liquidity and preservation of capital, Account MM operates under the following restrictions, which restrictions are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account MM, as defined in the 1940 Act. Account MM may not: 1. purchase any security which has a maturity date more than one year from the date of the Account's purchase; 2. invest more than 25% of its assets in the securities of issuers in any single industry (exclusive of securities issued by domestic banks and savings and loan associations, or securities issued or guaranteed by the United States Government, its agencies, authorities or instrumentalities); neither all finance companies, as a group, nor all utility companies, as a group, are considered a single industry for the purpose of restriction; 3. invest more than 10% of its assets in the securities of any one issuer, including repurchase agreements with any one bank or dealer (exclusive of securities issued or guaranteed by the United States Government, its agencies or instrumentalities); 4. acquire more than 10% of the outstanding securities of any one issuer (exclusive of securities issued or guaranteed by the United States Government, its agencies or instrumentalities); however, in accordance with Rule 2a-7 of the 1940 Act, to which the Account is subject, the Account will not invest more than 5% of its assets in the securities of any one issuer (other than securities issued or guaranteed by the United States Government or its instrumentalities); 5. borrow money, except from banks on a temporary basis in an aggregate amount not to exceed one-third of the Account's assets (including the amount borrowed); the borrowings may be used exclusively to facilitate the orderly maturation and sale of portfolio securities during any periods of abnormally heavy redemption requests, if they should occur; such borrowings may not be used to purchase investments and the Account will not purchase any investment while any such borrowing exists; immediately after the borrowing, and at all times thereafter while any borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of the Account; 6. pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Account, except as may be necessary in connection with any borrowing mentioned above and in an aggregate amount not to exceed 5% of the Account's assets; 7. make loans, provided that the Account may purchase money market securities and enter into repurchase agreements; 8. (a) make investments for the purpose of exercising control; (b) purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization; (c) invest in real estate (other than money market securities secured by real estate or interests therein, or money market securities issued by companies which invest in real estate or interests therein), commodities or commodity contracts, interests in oil, gas or other mineral exploration or other development programs; (d) purchase any securities on margin; (e) make short sales of securities or maintain a short position or write, purchase or sell puts, calls, straddles, spreads or combinations thereof; (f) invest in securities of issuers (other than agencies, authorities or instrumentalities of the United States Government) having a record, together with predecessors, of less than three years of continuous operation if more than 5% of the Account's assets would be invested in such securities; (g) purchase or retain securities of any issuer if the officers and directors of the investment adviser who individually own more than 0.5% of the outstanding securities of such issuer together own more than 5% of the securities of such issuer; or (h) act as an underwriter of securities; 9. invest in securities which under the 1933 Act or other securities laws cannot be readily disposed of with registration or which are otherwise not readily marketable at the time of purchase, including repurchase agreements that mature in more than seven days, if as a result more than 10% of the value of the Account's assets is invested in these securities. At present, the Account has no investments in these securities and has no present expectation of purchasing any, although it may in the future; and 10. issue senior securities. PORTFOLIO TURNOVER A portfolio turnover rate is not applicable to Account MM which invests only in money market instruments. THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account TSB is to generate high current income with limited price volatility while maintaining a high degree of liquidity. Account TSB's assets will be primarily invested in (1) marketable obligations issued or guaranteed by the United States Government, its agencies, authorities or instrumentalities; (2) Certificates of Deposit, Bankers' Acceptances and other debt securities issued by banks having total assets of more than $1 billion which are members of the Federal Deposit Insurance Corporation; (3) Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's Investor Services, Inc.; (4) short-term notes, bonds, debentures or other debt instruments issued or guaranteed by an entity with a bond rating of at least AA by S&P or Aa by Moody's; and (5) repurchase agreements with government securities dealers recognized by the Federal Reserve Board or with member banks of the Federal Reserve System involving marketable obligations of or guaranteed by the United States Government, its agencies, authorities or instrumentalities. Account TSB may also invest in securities of foreign branches of United States banks, payable in United States dollars, and in Euro Certificates of Deposit. The market value of Account TSB's investments tends to decrease during periods of rising interest rates and to increase during intervals of falling interest rates, with corresponding fluctuations in their net income. In order to minimize the fluctuations in market values to which interest-paying obligations are subject, Account TSB concentrates its investments in relatively short-term securities, and in no event does the maturity date of an obligation exceed three years from the date of purchase. Account TSB seeks to improve portfolio income by selling certain portfolio securities before maturity date in order to take advantage of yield disparities that occur in money markets. Account TSB may purchase and sell marketable obligations of or guaranteed by the United States Government, its agencies, authorities or instrumentalities on a when-issued or delayed delivery basis, with such purchases possibly occurring as much as a month before actual delivery and payment. INVESTMENT RESTRICTIONS In keeping with the objective of obtaining the highest possible current income consistent with a high degree of liquidity and preservation of capital, Account TSB operates under the following restrictions, which restrictions are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account TSB, as defined in the 1940 Act. Account TSB may not: 1. purchase any security which has a maturity date more than three years from the date such security was purchased; 2. invest more than 25% of its assets in the securities of issuers in any single industry (exclusive of securities issued by domestic banks and savings and loan associations, or securities issued or guaranteed by the United States Government, its agencies, authorities or instrumentalities); neither all finance companies, as a group, nor all utility companies, as a group, are considered a single industry for the purpose of restriction; 3. invest more than 10% of its assets in the securities of any one issuer, including repurchase agreements with any one bank or dealer (exclusive of securities issued or guaranteed by the United States Government, its agencies or instrumentalities); 4. acquire more than 10% of the outstanding securities of any one issuer (exclusive of securities issued or guaranteed by the United States Government, its agencies or instrumentalities); 5. borrow money, except from banks on a temporary basis in an aggregate amount not to exceed one-third of the Account's assets (including the amount borrowed); the borrowings may be used exclusively to facilitate the orderly maturation and sale of portfolio securities during any periods of abnormally heavy redemption requests, if they should occur; such borrowings may not be used to purchase investments and the Account will not purchase any investment while any such borrowing exists; immediately after the borrowing, and at all times thereafter while any borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of the Account; 6. pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Account, except as may be necessary in connection with any borrowing mentioned above and in an aggregate amount not to exceed 5% of the Account's assets; 7. make loans, provided that the Account may purchase money market securities and enter into repurchase agreements; 8. (a) make investments for the purpose of exercising control; (b) purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization; (c) invest in real estate (other than money market securities secured by real estate or interests therein, or money market securities issued by companies which invest in real estate or interests therein), commodities or commodity contracts, interests in oil, gas or other mineral exploration or other development programs; (d) purchase any securities on margin; (e) make short sales of securities or maintain a short position or write, purchase or sell puts, calls, straddles, spreads or combinations thereof; (f) invest in securities of issuers (other than agencies, authorities or instrumentalities of the United States Government) having a record, together with predecessors, of less than three years of continuous operation if more than 5% of the Account's assets would be invested in such securities; (g) purchase or retain securities of any issuer if the officers and directors of the investment adviser who individually own more than 0.5% of the outstanding securities of such issuer together own more than 5% of the securities of such issuer; or (h) act as an underwriter of securities; 9. invest in securities which under the 1933 Act or other securities laws cannot be readily disposed of with registration or which are otherwise not readily marketable at the time of purchase, including repurchase agreements that mature in more than seven days, if as a result more than 10% of the value of the Account's assets is invested in these securities. At present, the Account has no investments in these securities and has no present expectation of purchasing any, although it may in the future; and 10. issue senior securities. PORTFOLIO TURNOVER Brokerage costs associated with short-term debt instruments are significantly lower than those incurred on equity investments, and thus, a high portfolio turnover rate would not adversely affect the brokerage costs of Account TSB to the same extent as high turnover in a separate account which invests primarily in common stock. While there is no restriction on portfolio turnover, Account TSB's turnover rate may be high since the Account is being timed by third party investment advisory services. The portfolio turnover rate for the year ended December 31, 1994 was 0%. DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS WRITING COVERED CALL OPTIONS Accounts GIS, TGIS, TAS and TB may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. These call options generally will be short-term contracts with a duration of nine months or less. The Accounts will write only "covered" call options, that is, they will own the underlying securities which are acceptable for escrow when they write the call option and until the obligation to sell the underlying security is extinguished by exercise or expiration of the call option, or until a call option covering the same underlying security and having the same exercise price and expiration date is purchased. The Accounts will receive a premium for writing a call option, but give up, until the expiration date, the opportunity to profit from an increase in the underlying security's price above the exercise price. The Accounts will retain the risk of loss from a decrease in the price of the underlying security. Writing covered call options is a conservative investment technique which is believed to involve relatively little risk, but which is capable of enhancing an Account's total returns. The premium received for writing a covered call option will be recorded as a liability in each Account's Statement of Assets and Liabilities. This liability will be adjusted daily to the option's current market value, which will be the latest sale price at the close of the New York Stock Exchange, or, in the absence of such sale, at the latest bid quotation. The liability will be extinguished upon expiration of the option, the purchase of an identical option in a closing transaction, or delivery of the underlying security upon exercise of the option. The Options Clearing Corporation is the issuer of, and the obligor on, the covered call options written by the Accounts. In order to secure an obligation to deliver to the Options Clearing Corporation the underlying security of a covered call option, the Accounts will be required to make escrow arrangements. In instances where the Accounts believe it is appropriate to close a covered call option, they can close out the previously written call option by purchasing a call option on the same underlying security with the same exercise price and expiration date. The Accounts may also, under certain circumstances, be able to transfer a previously written call option. A previously written call option can be closed out by purchasing an identical call option only on a national securities exchange which provides a secondary market in the call option. There is no assurance that a liquid secondary market will exist for a particular call option at such time. If the Accounts cannot effect a closing transaction, they will not be able to sell the underlying security while the previously written option remains outstanding, even though it might otherwise be advantageous to do so. If a substantial number of the call options are exercised, the Accounts' rates of portfolio turnover may exceed historical levels. This would result in higher brokerage commissions in connection with the writing of covered call options and the purchase of call options to close out previously written options. Such brokerage commissions are normally higher than those applicable to purchases and sales of portfolio securities. BUYING PUT AND CALL OPTIONS Accounts GIS, TGIS and TAS may purchase put options on securities held, or on futures contracts whose price volatility is expected to closely match that of securities held, as a defensive measure to preserve contract owners' capital when market conditions warrant. The Accounts may purchase call options on specific securities, or on futures contracts whose price volatility is expected to closely match that of securities, eligible for purchase by the Accounts, in anticipation of or as a substitute for the purchase of the securities themselves. These options may be listed on a national exchange or executed "over-the-counter" with a broker-dealer as the counterparty. While the investment advisers anticipate that the majority of option purchases and sales will be executed on a national exchange, put or call options on specific securities or for non-standard terms are likely to be executed directly with a broker-dealer when it is advantageous to do so. Option contracts will be short-term in nature, generally less than nine months. The Accounts will pay a premium in exchange for the right to purchase (call) or sell (put) a specific number of shares of an equity security or futures contract at a specified price (the strike price) on or before the expiration date of the options contract. In either case, each Account's risk is limited to the option premium paid. The Accounts may sell the put and call options prior to their expiration and realize a gain or loss thereby. A call option will expire worthless if the price of the related security is below the contract strike price at the time of expiration; a put option will expire worthless if the price of the related security is above the contract strike price at the time of expiration. Put and call options will be employed for bona fide hedging purposes only. Liquid securities sufficient to fulfill the call option delivery obligation will be identified and segregated in an account; deliverable securities sufficient to fulfill the put option obligation will be similarly identified and segregated. In the case of put options on futures contracts, portfolio securities whose price volatility is expected to match that of the underlying futures contract will be identified and segregated. FUTURES CONTRACTS STOCK INDEX FUTURES Accounts GIS, TGIS and TAS will invest in stock index futures. A stock index futures contract provides for one party to take and the other to make delivery of an amount of cash over the hedging period equal to a specified amount times the difference between a stock index value at the close of the last trading day of the contract or the selling price and the price at which the futures contract is originally struck. The stock index assigns relative values to the common stocks included in the index and reflects overall price trends in the designated market for equity securities. Therefore, price changes in a stock index futures contract reflect changes in the specified index of equity securities on which the futures contract is based. Stock index futures may also be used, to a limited extent, to hedge specific common stocks with respect to market (systematic) risk (involving the market's assessment of overall economic prospects) as distinguished from stock-specific risk (involving the market's evaluation of the merits of the issuer of a particular security). By establishing an appropriate "short" position in stock index futures, the Accounts may seek to protect the value of their equity securities against an overall decline in the market for equity securities. Alternatively, in anticipation of a generally rising market, the Accounts can seek to avoid losing the benefit of apparently low current prices by establishing a "long" position in stock index futures and later liquidating that position as particular equity securities are in fact acquired. None of the Accounts will be a hedging fund; however, to the extent that any hedging strategies actually employed are successful, the Accounts will be affected to a lesser degree by adverse overall market price movements unrelated to the merits of specific portfolio equity securities than would otherwise be the case. Gains and losses on futures contracts employed as hedges for specific securities will normally be offset by losses or gains, respectively, on the hedged security. INTEREST RATE FUTURES Accounts TGIS, TAS, QB and TB may purchase and sell futures contracts on debt securities ("interest rate futures") to hedge against anticipated changes in interest rates that might otherwise have an adverse effect upon the value of an Account's debt securities. An interest rate futures contract is a binding contractual commitment which, if held to maturity, will result in an obligation to make or accept delivery, during a particular future month, of debt securities having a standardized face value and rate of return. By purchasing interest rate futures (assuming a "long" position) the Accounts will be legally obligated to accept the future delivery of the underlying security and pay the agreed price. This would be done, for example, when the Account intends to purchase particular debt securities when it has the necessary cash, but expects the rate of return available in the securities markets at that time to be less favorable than rates currently available in the futures markets. If the anticipated rise in the price of the debt securities should occur (with its concurrent reduction in yield), the increased cost of purchasing the securities will be offset, at least to some extent, by the rise in the value of the futures position taken in anticipation of the securities purchase. By selling interest rate futures held by it, or interest rate futures having characteristics similar to those held by it (assuming a "short" position), the Account will be legally obligated to make the future delivery of the security against payment of the agreed price. Such a position seeks to hedge against an anticipated rise in interest rates that would adversely affect the value of the Account's portfolio debt securities. Open futures positions on debt securities will be valued at the most recent settlement price, unless such price does not appear to the Board of Managers to reflect the fair value of the contract, in which case the positions will be valued at fair value determined in good faith by or under the direction of the Board of Managers. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. FUTURES MARKETS AND REGULATIONS When a futures contract is purchased, the Accounts will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. The Accounts will incur brokerage fees in connection with their futures transactions, and will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. Positions taken in the futures markets are not normally held to maturity, but instead are liquidated through offsetting transactions which may result in a profit or a loss. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the stock index or interest rate futures contract and the same delivery date. If the offsetting purchase price is less than the original sale price, the Accounts realize a gain; if it is more, the Accounts realize a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Accounts realize a gain; if less, a loss. While futures positions taken by the Accounts will usually be liquidated in this manner, the Accounts may instead make or take delivery of the underlying securities whenever it appears economically advantageous for them to do so. In determining gain or loss, transaction costs must also be taken into account. There can be no assurance that the Accounts will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. A clearing corporation associated with the exchange on which futures are traded guarantees that the sale and purchase obligations will be performed with regard to all positions that remain open at the termination of the contract. All stock index and interest rate futures will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). Stock index futures are currently traded on the New York Futures Exchange and the Chicago Mercantile Exchange. Interest rate futures are actively traded on the Chicago Board of Trade and the International Monetary Market at the Chicago Mercantile Exchange. The investment advisers do not believe any of the Accounts to be a "commodity pool" as defined under the Commodity Exchange Act. The Accounts will only enter into futures contracts for bona fide hedging or other appropriate risk management purposes as permitted by CFTC regulations and interpretations, and subject to the requirements of the Securities and Exchange Commission. The Accounts will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of their individual assets, after taking into account unrealized profits and unrealized losses on any such contracts which they have entered into. The Accounts will further seek to assure that fluctuations in the price of any futures contracts that they use for hedging purposes will be substantially related to fluctuations in the price of the securities which they hold or which they expect to purchase, although there can be no assurance that the expected result will be achieved. As evidence of their hedging intent, the Accounts expect that on seventy-five percent (75%) or more of the occasions on which they purchase a long futures contract, they will effect the purchase of securities in the cash market or take delivery at the close of a futures position. In particular cases, however, when it is economically advantageous, a long futures position may be terminated without the corresponding purchase of securities. SPECIAL RISKS While certain futures contracts may be purchased and sold to reduce certain risks, these transactions may entail other risks. Thus, while the Accounts may benefit from the use of such futures, unanticipated changes in stock price movements or interest rates may result in a poorer overall performance for the Account than if it had not entered into such futures contracts. Moreover, in the event of an imperfect correlation between the futures position and the portfolio position which is intended to be protected, the desired protection may not be obtained and the Accounts may be exposed to risk of loss. The investment advisers will attempt to reduce this risk by engaging in futures transactions, to the extent possible, where, in their judgment, there is a significant correlation between changes in the prices of the futures contracts and the prices of any portfolio securities sought to be hedged. In addition to the possibility that there may be a less than perfect correlation between movements in the futures contracts and securities in the portfolio being hedged, the prices of futures contracts may not correlate perfectly with movements in the underlying security due to certain market distortions. First, rather than meeting variation margin deposit requirements should a futures contract value move adversely, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, since margin requirements in the futures market are less onerous than in the securities market, the futures market may attract more speculators than the securities market. Increased participation by speculators may cause temporary price distortions. Due to the possibility of such price distortion, and also because of the imperfect correlation discussed above, even a correct forecast of general market trends by the investment advisers may not result in a successful hedging transaction in the futures market over a short time period. However, as is noted above, the use of financial futures by the Accounts is intended primarily to limit transaction and borrowing costs. At no time will the Accounts use financial futures for speculative purposes. Successful use of futures contracts for hedging purposes is also subject to the investment advisers' ability to predict correctly movements in the direction of the market. However, the investment advisers believe that over time the value of the Accounts' portfolios will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. MONEY MARKET INSTRUMENTS Money market securities are instruments with remaining maturities of one year or less, such as bank certificates of deposit, bankers' acceptances, commercial paper (including master demand notes), and obligations issued or guaranteed by the United States Government, its agencies or instrumentalities, some of which may be subject to repurchase agreements. CERTIFICATES OF DEPOSIT Certificates of deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market prior to maturity. Certificates of deposit will be limited to U.S. dollar-denominated certificates of United States banks which have at least $1 billion in deposits as of the date of their most recently published financial statements (including foreign branches of U.S. banks, U.S. branches of foreign banks which are members of the Federal Reserve System or the Federal Deposit Insurance Corporation). The Accounts will not acquire time deposits or obligations issued by the International Bank for Reconstruction and Development, the Asian Development Bank or the Inter-American Development Bank. Additionally, the Accounts do not currently intend to purchase such foreign securities (except to the extent that certificates of deposit of foreign branches of U.S. banks may be deemed foreign securities) or purchase certificates of deposit, bankers' acceptances or other similar obligations issued by foreign banks. Additionally, Account TSB invests in Euro Certificates of Deposit issued by banks outside of the United States, with interest and principal paid in U.S. dollars. BANKERS' ACCEPTANCES Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by the bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Bankers' acceptances acquired by Accounts MM or TSB must have been accepted by U.S. commercial banks, including foreign branches of U.S. commercial banks, having total deposits at the time of purchase in excess of $1 billion, and must be payable in U.S. dollars. COMMERCIAL PAPER RATINGS Investments in commercial paper are limited to those rated A-1 by Standard & Poor's Corporation and Prime-1 by Moody's Investors Service, Inc. Commercial paper rated A-1 by S&P has the following characteristics: (1) liquidity ratios are adequate to meet cash requirements; (2) the issuer's long-term senior debt is rated "A" or better, although in some cases "BBB" credits may be allowed; (3) the issuer has access to at least two additional channels of borrowing; (4) basic earnings and cash flow have an upward trend with allowances made for unusual circumstances; and (5) the issuer's industry is typically well established and the issuer has a strong position within the industry. The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluating the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationship which exists with the issuer; and (8) recognition by the management of obligations which may be present or may arise as a result of public preparations to meet such obligations. The relative strength or weakness of the above factors determines how the issuer's commercial paper is rated within various categories. MASTER DEMAND NOTES Master demand notes are unsecured obligations that permit the investment of fluctuating amounts at varying rates of interest pursuant to direct arrangements between the lender (issuer) and the borrower. Master demand notes may permit daily fluctuations in the interest rate and daily changes in the amounts borrowed. An Account has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount, and the borrower may repay up to the full amount of the note without penalty. Notes purchased by a separate account must permit it to demand payment of principal and accrued interest at any time (on not more than seven days notice) or to resell the note at any time to a third party. Master demand notes may have maturities of more than one year, provided they specify that (i) the account be entitled to payment of principal and accrued interest upon not more than seven days notice, and (ii) the rate of interest on such notes be adjusted automatically at periodic intervals which normally will not exceed 31 days, but which may extend up to one year. Because these types of notes are direct lending arrangements between the lender and the borrower, such instruments are not normally traded, and there is no secondary market for these notes, although they are redeemable and thus repayable by the borrower at face value plus accrued interest at any time. Accordingly, the right to redeem is dependent upon the ability of the borrower to pay principal and interest on demand. In connection with master demand note arrangements, the investment adviser considers earning power, cash flow, and other liquidity ratios of the borrower to pay principal and interest on demand. These notes, as such, are not typically rated by credit rating agencies. Unless they are so rated, a separate account may invest in them only if at the time of an investment the issuer meets the criteria set forth above for commercial paper. The notes will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period. UNITED STATES GOVERNMENT SECURITIES Securities issued or guaranteed by the United States Government include a variety of Treasury securities that differ only in their interest rates, maturities and dates of issuance. Treasury Bills have maturities of one year or less, Treasury Notes have maturities of one to ten years, and Treasury Bonds generally have maturities of greater than ten years at the date of issuance. Securities issued or guaranteed by the United States Government or its agencies or instrumentalities include direct obligations of the United States Treasury and securities issued or guaranteed by the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley Authority, District of Columbia Armory Board and Federal National Mortgage Association. Some obligations of United States Government agencies and instrumentalities, such as Treasury Bills and Government National Mortgage Association pass-through certificates, are supported by the full faith and credit of the United States; others, such as securities of Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; still others, such as bonds issued by the Federal National Mortgage Association, a private corporation, are supported only by the credit of the instrumentality. Because the United States Government is not obligated by law to provide support to an instrumentality it sponsors, the Accounts will invest in the securities issued by such an instrumentality only when the investment advisers determine that the credit risk with respect to the instrumentality does not make the securities unsuitable investments. United States Government securities will not include international agencies or instrumentalities in which the United States Government, its agencies or instrumentalities participate, such as the World Bank, the Asian Development Bank or the Inter-American Development Bank, or issues insured by the Federal Deposit Insurance Corporation. REPURCHASE AGREEMENTS Interim cash balances may be invested from time to time in repurchase agreements with approved counterparties. Approved counterparties are limited to national banks or reporting broker- dealers meeting the Advisor's credit quality standards as presenting minimal risk of default. All repurchase transactions must be collateralized by U.S. Government securities with market value no less than 102% of the amount of the transaction, including accrued interest. Repurchase transactions generally mature the next business day but, in the event of a transaction of longer maturity, collateral will be marked to market daily and, when required, additional cash or qualifying collateral will be required from the counterparty. In executing a repurchase agreement, a portfolio purchases eligible securities subject to the seller's simultaneous agreement to repurchase them on a mutually agreed upon date and at a mutually agreed upon price. The purchase and resale prices are negotiated with the counterparty on the basis of current short-term interest rates, which may be more or less than the rate on the securities collateralizing the transaction. Physical delivery or, in the case of "book-entry" securities, segregation in the counterparty's account at the Federal Reserve for the benefit of the Portfolio is required to establish a perfected claim to the collateral for the term of the agreement in the event the counterparty fails to fulfill its obligation. As the securities collateralizing a repurchase transaction are generally of longer maturity than the term of the transaction, in the event of default by the counterparty on its obligation, the Portfolio would bear the risks of delay, adverse market fluctuation and transaction costs in disposing of the collateral. FOREIGN BANK OBLIGATIONS Accounts MM and TSB may invest in obligations of foreign branches of U.S. banks or U.S. branches of foreign banks. The obligations of foreign branches of United States banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by government regulation. Payment of interest and principal upon these obligations may also be affected by governmental action in the country of domicile of the branch (generally referred to as "sovereign risk"). In addition, evidences of ownership of such securities may be held outside the United States and Accounts MM and TSB may be subject to the risks associated with the holding of such property overseas. Various provisions of federal law governing domestic branches do not apply to foreign branches of domestic banks. Obligations of United States branches of foreign banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation as well as by governmental action in the country in which the foreign bank has its head office. In addition, there may be less publicly available information about a United States branch of a foreign bank than about a domestic bank. INVESTMENT MANAGEMENT AND ADVISORY SERVICES The investments and administration of the separate accounts are under the direction of the Board of Managers. The Travelers Investment Management Company (TIMCO) furnishes investment management and advisory services to Accounts GIS, TGIS, TSB and TAS according to the terms of written Investment Advisory Agreements. The Investment Advisory Agreement between Account GIS and TIMCO was approved by a vote of the variable annuity contract owners at their meeting held on April 23, 1993, and amended effective May 1, 1994 by virtue of contract owner approval at a meeting held on April 22, 1994. The Investment Advisory Agreements between Account TGIS and TIMCO, Account TSB and TIMCO, and Account TAS and TIMCO, were each approved by a vote of the variable annuity contract owners at their meeting held on April 23, 1993. Travelers Asset Management International Corporation (TAMIC) furnishes investment management and advisory services to Accounts QB, MM and TB according to the terms of written Investment Advisory Agreements. The Investment Advisory Agreements between Account QB and TAMIC, Account MM and TAMIC, and Account TB and TAMIC, were each approved by a vote of variable annuity contract owners at their meeting held on April 23, 1993. The agreements between Accounts GIS, TGIS, TSB and TAS and TIMCO, and the agreements between Accounts QB, MM and TB and TAMIC, will all continue in effect as described below in (3), as required by the 1940 Act. Each of the agreements: 1. provides that for investment management and advisory services, the Company will pay to TIMCO and TAMIC, on an annual basis, an advisory fee based on the current value of the assets of the accounts for which TIMCO and TAMIC act as investment advisers (see "Advisory Fees" below); 2. may not be terminated by TIMCO or TAMIC without the prior approval of a new investment advisory agreement by those casting a majority of the votes entitled to be cast and will be subject to termination without the payment of any penalty, upon sixty days written notice, by the Board of Managers or by a vote of those casting a majority of the votes entitled to be cast; 3. will continue in effect for a period more than two years from the date of its execution, only so long as its continuance is specifically approved at least annually by a vote of a majority of the Board of Managers, or by a vote of a majority of the outstanding voting securities of the Accounts. In addition, and in either event, the terms of the agreements must be approved annually by a vote of a majority of the Board of Managers who are not parties to, or interested persons of any party to, the agreements, cast in person at a meeting called for the purpose of voting on the approval and at which the Board of Managers has been furnished the information that is reasonably necessary to evaluate the terms of the agreements; and 4. will automatically terminate upon assignment. ADVISORY FEES For furnishing investment management and advisory services to Account GIS, TIMCO is paid an amount equivalent on an annual basis to 0.45%. For furnishing investment management and advisory services to Accounts TGIS and TSB, TIMCO is paid an amount equivalent on an annual basis to 0.3233% of the average daily net assets of each Account. For furnishing investment management and advisory services to Account TAS, TIMCO is paid an amount equivalent on an annual basis to the following:
AGGREGATE NET ASSET ANNUAL MANAGEMENT FEE VALUE OF THE ACCOUNT ---------------------- -------------------- 0.50% of the first $ 20,000,000, plus 0.25% of the next $ 80,000,000, plus 0.20% of the next $ 200,000,000, plus 0.15% of amounts over $ 300,000,000. The advisory fees paid to TIMCO by each of the Accounts during the last three fiscal years were: ACCOUNT GIS ACCOUNT TSB ACCOUNT TGIS ACCOUNT TAS ----------- ----------- ------------ ----------- 1992 $ 1,062,527 $ 1,077,022 $ 783,035 $ 107,868 1993 $ 1,136,509 $ 1,021,879 $ 681,566 $ 213,623 1994 $ 1,368,700 $ 821,532 $ 322,065 $ 279,503 For furnishing investment management and advisory services to Accounts QB and MM, TAMIC is paid an amount equivalent on an annual basis to 0.3233% of the average daily net assets of each Account. For furnishing investment management and advisory services to Account TB, TAMIC is paid an amount equivalent on an annual basis to the following: AGGREGATE NET ASSET ANNUAL MANAGEMENT FEE VALUE OF THE ACCOUNT --------------------- -------------------- 0.50% of the first $ 50,000,000, plus 0.40% of the next $ 100,000,000, plus 0.30% of the next $ 100,000,000, plus 0.25% of amounts over $ 250,000,000. The advisory fees paid to TAMIC by each of the Accounts during the last three fiscal years were: ACCOUNT QB ACCOUNT MM ACCOUNT TB ---------- ---------- ---------- 1992 $ 418,671 $ 313,563 $ 115,397 1993 $ 508,762 $ 245,238 $ 126,188 1994 $ 572,484 $ 262,326 $ 18,297
TIMCO TIMCO, an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment management and advisory services to Accounts GIS, TGIS, TSB and TAS, TIMCO also acts as investment adviser to the following investment company: Capital Appreciation Fund. These investment companies are among the investment alternatives which serve as the funding media for certain variable annuity and variable life insurance contracts offered by The Travelers Insurance Company and its affiliates and which had aggregate net assets of $82,372,873 at December 31, 1994. TIMCO also acts as investment adviser for individual and pooled pension and profit-sharing accounts and for affiliated companies of The Travelers Insurance Company, and as sub-adviser for Managed Assets Trust. Investment decisions for Accounts GIS, TGIS, TSB and TAS will be made independently from each other and from any other accounts that may be or become managed by TIMCO. If, however, accounts managed by TIMCO are simultaneously engaged in the purchase of the same security, then available securities may be allocated to each account and may be averaged as to price in whatever manner TIMCO deems to be fair. In some cases, this system might adversely affect the price or volume of securities being bought or sold by an account, while in other cases it may produce better executions or lower brokerage rates. BROKERAGE Subject to approval of the Board of Managers, and in accordance with the Investment Advisory Agreements, TIMCO will place purchase and sale orders for portfolio securities of the Accounts through brokerage firms which it may select from time to time with the objective of seeking the best execution by responsible brokerage firms at reasonably competitive rates. To the extent consistent with this policy, certain brokerage transactions may be placed with firms which provide brokerage and research services to TIMCO, and such transactions may be paid for at higher rates than other firms would charge. The term "brokerage and research services" includes advice as to the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities for purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). These brokerage and research services may be utilized in providing investment advice to Accounts GIS, TGIS, TSB and TAS, and may also be utilized in providing investment advice and management to all accounts over which TIMCO exercises investment discretion, but not all of such services will necessarily be utilized in providing investment advice to all accounts. This practice may be expected to result in greater cost to the Accounts than might otherwise be the case if brokers whose charges were based on execution alone were used for such transactions. TIMCO believes that brokers' research services are very important in providing investment advice to the Accounts, but is unable to give the services a dollar value. While research services are not expected to reduce the expenses of TIMCO, TIMCO will, through the use of these services, avoid the additional expenses which would be incurred if it should attempt to develop comparable information through its own staff. Transactions in the over-the-counter market are placed with the principal market makers unless better price and execution may be obtained otherwise. Brokerage fees will be incurred in connection with futures transactions, and Accounts GIS, TGIS and TAS will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. The overall reasonableness of brokerage commissions paid is evaluated by personnel of TIMCO responsible for trading and managing the portfolios of Accounts GIS, TGIS, TSB and TAS by comparing brokerage firms utilized by TIMCO to other firms with respect to the following factors: the prices paid or received in securities transactions, speed of execution and settlement, size and difficulty of the brokerage transactions, the financial soundness of the firms, and the quality, timeliness and quantity of research information and reports. The total brokerage commissions paid by Account GIS for the fiscal years ended December 31, 1992, 1993 and 1994 were $1,682,034, $801,002 and $991,682, respectively. For the fiscal year ended December 31, 1994, portfolio transactions in the amount of $620,478,015 were directed to certain brokers because of research services, of which $889,970 was paid in commissions with respect to these transactions. The total brokerage commissions paid by Account TGIS for the fiscal years ended December 31, 1992, 1993 and 1994 were $314,055, $328,616 and $40,276, respectively. For the fiscal year ended December 31, 1994, portfolio transactions in the amount of $20,416,591 were directed to certain brokers because of research services, of which $10,390 was paid in commissions with respect to these transactions. The total brokerage commissions paid by Account TAS for the fiscal years ended December 31, 1992, 1993 and 1994 were $109,626, $181,952 and $458,081, respectively. For the fiscal year ended December 31, 1994, portfolio transactions in the amount of $193,183,450 were directed to certain brokers because of research services, of which $351,777 was paid in commissions with respect to these transactions. No formulas were used in placing portfolio transactions with brokers which provided research services, and no specific amount of transactions was allocated for research services. No brokerage business was placed with any brokers affiliated with TIMCO or its predecessors during the last three fiscal years. TAMIC TAMIC, an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment management and advisory services to Accounts QB, MM and TB, TAMIC also acts as investment adviser for the following investment companies: High Yield Bond Trust, Managed Assets Trust, Cash Income Trust and the U.S. Government Securities Portfolio of The Travelers Series Trust. These investment companies are among the investment alternatives which serve as the funding media for certain variable annuity and variable life insurance contracts offered by The Travelers Insurance Company and which had aggregate net assets of $178,328,172 at December 31, 1994. TAMIC also acts as investment adviser for individual and pooled pension and profit-sharing accounts, and for offshore and domestic insurance companies affiliated with The Travelers Insurance Company. Investment advice and management for TAMIC's clients are furnished in accordance with their respective investment objectives and policies and investment decisions for the Accounts will be made independently from those of any other accounts managed by TAMIC. However, securities owned by Accounts QB, MM or TB may also be owned by other clients and it may occasionally develop that the same investment advice and decision for more than one client is made at the same time. Furthermore, it may develop that a particular security is bought or sold for only some clients even though it might be held or bought or sold for other clients, or that a particular security is bought for some clients when other clients are selling the security. When two or more accounts are engaged in the purchase or sale of the same security, the transactions are allocated as to amount in accordance with a formula which is equitable to each account. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as Accounts QB, MM or TB are concerned. In other cases, however, it is believed that the ability of the accounts to participate in volume transactions will produce better executions for the accounts. BROKERAGE Subject to approval of the Board of Managers, it is the policy of TAMIC, in executing transactions in portfolio securities, to seek best execution of orders at the most favorable prices. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net economic result to Accounts QB and TB, involving both price paid or received and any commissions and other cost paid, the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, the availability of the broker to stand ready to execute possible difficult transactions in the future, and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by management in determining the overall reasonableness of brokerage commissions paid. Subject to the foregoing, a factor in the selection of brokers is the receipt of research services, analyses and reports concerning issuers, industries, securities, economic factors and trends, and other statistical and factual information. Any such research and other statistical and factual information provided by brokers is considered to be in addition to and not in lieu of services required to be performed by TAMIC under its Investment Advisory Agreements. The cost, value and specific application of such information are indeterminable and hence are not practicably allocable among Accounts QB and TB and other clients of TAMIC who may indirectly benefit from the availability of such information. Similarly, Accounts QB and TB may indirectly benefit from information made available as a result of transactions for such clients. Purchases and sales of bonds and money market instruments will usually be principal transactions and will normally be purchased directly from the issuer or from the underwriter or market maker for the securities. There usually will be no brokerage commissions paid for such purchases. Purchases from the underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include the spread between the bid and asked prices. Where transactions are made in the over-the-counter market, Accounts QB and TB will deal with primary market makers unless more favorable prices are otherwise obtainable. Brokerage fees will be incurred in connection with futures transactions, and Accounts QB and TB will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. TAMIC may follow a policy of considering the sale of units of Account QB and TB a factor in the selection of broker-dealers to execute portfolio transactions, subject to the requirements of best execution described above. The policy of TAMIC with respect to brokerage is and will be reviewed by the Board of Managers periodically. Because of the possibility of further regulatory developments affecting the securities exchanges and brokerage practices generally, the foregoing practices may be changed, modified or eliminated. The total brokerage commissions paid by Account QB for the fiscal years ended December 31, 1992, 1993 and 1994 were $80,374, $87,444 and $82,390, respectively. For the fiscal year ended December 31, 1994, no portfolio transactions were directed to certain brokers because of research services. The total brokerage commissions paid by Account TB for the fiscal years ended December 31, 1992, 1993 and 1994 were $275,151, $128,480 and $46,680, respectively. For the fiscal year ended December 31, 1994, no portfolio transactions were directed to certain brokers because of research services. No brokerage business was placed with any brokers affiliated with TAMIC or its predecessors during the last three fiscal years. PORTFOLIO TRANSACTIONS Subject to the general supervision of the Board of Managers, TAMIC is responsible for the investment decisions and the placement of orders for portfolio transactions of Account MM. Portfolio transactions occur primarily with issuers, underwriters or major dealers in money market instruments acting as principals. Such transactions are normally on a net basis and do not involve payment of brokerage commissions. The cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriter, and transactions with dealers normally reflect the spread between the bid and asked prices. TAMIC seeks to obtain the best net price and most favorable execution of orders for the purchase and sale of portfolio securities. VALUATION OF ASSETS The value of the assets of each Separate Account is determined on each Valuation Date as of the close of the New York Stock Exchange. If the New York Stock Exchange is not open for trading on any such day, then such computation shall be made as of the normal close of the New York Stock Exchange. Each security traded on a national securities exchange is valued at the last reported sale price on the Valuation Date. If there has been no sale on that day, then the value of the security is taken to be the mean between the reported bid and asked prices on the Valuation Date or on the basis of quotations received from a reputable broker or any other recognized source. Any security not traded on a securities exchange but traded in the over-the-counter market and for which market quotations are readily available is valued at the mean between the quoted bid and asked prices on the Valuation Date or on the basis of quotations received from a reputable broker or any other recognized source. Securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. Short-term investments for which a quoted market price is available are valued at market. Short-term investments maturing in more than sixty days for which there is no reliable quoted market price are valued by "marking to market" (computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity). "Marking to market" takes into account unrealized appreciation or depreciation due to changes in interest rates or other factors which would influence the current fair values of such securities. Short-term investments maturing in sixty days or less for which there is no reliable quoted market price are valued at amortized cost which approximates market. PERFORMANCE DATA YIELD QUOTATIONS OF ACCOUNT MM Yield quotations of Account MM are calculated using the base period return for a seven-day period. The base period return is calculated using a hypothetical pre-existing account having a balance of one accumulation unit at the beginning of the period; base period return per accumulation unit is equal to accrued interest on portfolio securities plus or minus amortized purchase discount or premium less all accrued expenses for investment advisory fees and mortality and expense guarantees, and less a pro rata portion of the contract administrative charge (calculated in the manner described under "Average Annual Total Return" below), divided by the accumulation unit value at the beginning of the period. Realized capital gains or losses and unrealized appreciation or depreciation of the portfolio are not included in the base period return, but are included in accumulation unit values. Current yield is equal to the base period return multiplied by 365, and the result divided by 7. The current yield for Account MM for the seven-day period ended December 31, 1994 was 4.76%. Effective yield, which includes the effects of compounding, is equal to the sum of 1 plus the base period return, raised to a power equal to 365 divided by 7, minus 1. The effective yield for Account MM for the seven-day period ended December 31, 1994 was 4.87%. These quotations do not reflect a deduction for any applicable surrender charge. If the surrender charge was included, yield and effective yield would be reduced. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS OF ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS, TB and FUND U STANDARDIZED METHOD. Quotations of average annual total return are computed according to a formula in which a hypothetical initial investment of $1,000 is applied to an Investment Alternative, and then related to ending redeemable values over one, five and ten year periods (or fractional portions thereof). The quotations reflect the deduction of all recurring charges during each period (on a pro rata basis in the case of fractional periods). The deduction for the semi-annual administrative charge ($15) is converted to a percentage of assets based on the actual fee collected, divided by the average net assets per contract sold under the Prospectus to which this Statement of Additional Information relates. Each quotation assumes a total redemption at the end of each period with the assessment of any applicable surrender charge at that time. For sub-accounts of Fund U that invest in underlying funds that were in existence prior to the date the underlying fund became available under Fund U, average annual total return calculations may include periods prior to the inception of the Fund U subaccount. Such returns will be calculated by adjusting the actual returns of the underlying funds to reflect the charges that would have been assessed under the Fund U sub-account had the underlying fund been available under Fund U during that period. For Accounts TGIS, TSB, TAS and TB, market timing fees are included in expenses in the calculation of performance for periods on or after May 1, 1990, the date on which the market timing fee became a charge against the daily assets of the timed accounts. The performance for periods prior to May 1, 1990 does not reflect the deduction of the market timing fee. NON-STANDARDIZED METHOD. Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U may also show the percentage change in the value of an Accumulation Unit based on the performance of the Account over a period of time, usually for the calendar year-to-date, and for the past one-year, three-year, five-year and seven-year periods, determined by dividing the increase (decrease) in value for that unit by the Accumulation Unit Value at the beginning of the period. This percentage figure will reflect the deduction of any asset based charges under the contracts, but will not reflect the deduction of the semi-annual administrative charge or surrender charge. The deduction of the semi-annual administrative charge or surrender charge would reduce any percentage increase or make greater any percentage decrease. For sub-accounts of Fund U that invest in underlying funds that were in existence prior to the date the underlying funds became available under Fund U, the percentage change in the value of an accumulation unit based on the performance of Fund U over a period of time may include periods prior to the inception of the Fund U sub-account. Such returns will be calculated by adjusting the actual returns of the underlying funds to reflect the charges that would have been assessed under the Fund U sub-account had the underlying fund been available under Fund U during that period. TOTAL RETURN QUOTATIONS FOR TIMED ACCOUNTS. Because Accounts TGIS, TSB, TAS and TB are primarily available to Contract Owners who have entered into third party market timing services agreements, the Accounts may experience wide fluctuations in assets over a given time period. Consequently, performance data computed according to both the standardized and non-standardized methods for Accounts TGIS, TSB, TAS and TB may not always be useful in evaluating the performance of these Accounts. In addition, performance data for Accounts TGIS, TSB, TAS and TB alone will not generally be useful to the purchase of evaluating the performance of a market timing strategy that uses these Accounts. GENERAL. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. Advertisements may include data comparing performance to well-known indices of market performance (including, but not limited to, the Dow Jones Industrial Average, the Standard & Poor's (S&P) 500 Index, and the S&P 400 Index, the Lehman Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan Stanley Capital International's EAFE Index). Advertisements may also include published editorial comments and performance rankings compiled by independent organizations (including, but not limited to, Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that monitor the performance of separate accounts and mutual funds. Average annual total returns of each Separate Account computed according to the standardized and non-standardized methods for the periods ended December 31, 1994 are set forth in the following table.
STANDARDIZED NON-STANDARDIZED INCEPTION DATE 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years Account GIS (6.38)% 4.45% 9.46% (1.27)% 2.37% 5.48% 9.74% 5/83 Account QB (7.47)% 5.44% 7.32% (2.42)% 4.01% 6.44% 7.59% 5/83 Account MM (2.43)% 2.59% 4.74% 2.75% 2.26% 3.67% 5.00% 5/83 Account TGIS (9.54)% 2.11% 7.60% (4.61)% 1.02% 3.21%* -- 1/88 Account TSB(1) (3.85)% 1.26% 3.47% 1.33% 0.91% 2.38%* -- 11/87 Account TAS (11.97)% 6.53% 7.50% (7.16)% 4.50% 7.50%* -- 11/87 Account TB (6.59)% 2.15% 2.52% (1.49)% 3.77% 3.24%* -- 11/87 Fund U **-- Managed Assets Trust (8.47)% 4.65% 9.96% (3.47)% 2.67% 5.67% 10.24% 5/83 High Yield Bond Trust (7.54)% 5.62% 6.42% (2.49)% 7.04% 6.61% 6.69% 5/83 Capital Appreciation Fund(2) (10.83)% 8.06% 8.95% (5.96)% 7.47% 8.99% 9.23% 5/83 U.S. Government Securities Portfolio (11.64)% 0.63%* -- (6.82)% 2.48%* -- -- 1/92 Social Awareness Stock Portfolio (8.80)% 1.97%* -- (3.83)% 3.95%* -- -- 5/92 Utilities Portfolio (4.61)%* -- -- 0.55%* -- -- -- 2/94 Templeton Bond Fund (10.92)% 4.26% 5.20%* (6.06)% 2.50% 5.29% 5.41%* 8/88 Templeton Stock Fund (8.41)% 7.43% 8.83%* (3.42)% 10.56% 8.38% 9.05%* 8/88 Templeton Asset Allocation Fund (9.13)% 6.89% 8.22%* (4.17)% 8.39% 7.85% 8.44%* 8/88 Fidelity's High Income Portfolio (7.79)% 11.82% 9.29%* (2.77)% 12.11% 12.66% 9.55%* 9/85 Fidelity's Equity-Income Portfolio 0.55% 8.21% 9.32%* 5.74% 12.55% 9.14% 9.57%* 10/86 Fidelity's Growth Portfolio (6.37)% 8.59% 10.92%* (1.26)% 7.93% 9.51% 11.17%* 10/86 Fidelity's Asset Manager Portfolio (12.05)% 8.41% 8.63%* (7.26)% 6.99% 9.33% 8.84%* 9/89 Dreyfus Stock Index Fund (5.52)% 5.83% 6.65%* (0.37)% 4.40% 6.82% 6.85%* 9/89 American Odyssey Core Equity Fund (7.30)% (3.85)%* -- (3.24)% (0.62)%* -- -- 5/93 American Odyssey Emerging Opportunities Fund 3.12% 6.75%* -- 8.31% 9.80%* -- -- 5/93 American Odyssey International Equity Fund (12.89)% 1.85%* -- (8.13)% 4.98%* -- -- 5/93 American Odyssey Long-Term Bond Fund (11.74)% (2.63)%* -- (6.93)% 0.58%* -- -- 5/93 American Odyssey Intermediate-Term Bond Fund (9.01)% (3.66)%* -- (4.05)% (0.43)%* -- -- 5/93 American Odyssey Short-Term Bond Fund (6.48)% (2.85)%* -- (1.38)% 0.36%* -- -- 5/93 Smith Barney Income and Growth Portfolio (6.89)%* -- -- (1.89)%* -- -- -- 6/94 STANDARDIZED NON-STANDARDIZED INCEPTION DATE 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years Alliance Growth Portfolio (0.42)%* -- -- 4.68%* -- -- -- 6/94 Smith Barney International Equity Portfolio (9.41)%* -- -- (4.55)%* -- -- -- 6/94 Putnam Diversified Income Portfolio (4.29)%* -- -- 0.81%* -- -- -- 6/94 G.T. Global Strategic Income Portfolio (10.35)%* -- -- (5.54)%* -- -- -- 6/94 Smith Barney High Income Portfolio (6.31)%* -- -- (1.28)%* -- -- -- 6/94 MFS Total Return Portfolio (7.14)%* -- -- (2.16)%* -- -- -- 6/94
*Since inception date. **For those Fund U sub-accounts that invest in underlying funds that were in existence prior to the date on which the underlying fund became available under the Contract, performance figures represent actual returns of the underlying funds, adjusted to reflect the charges that would have been assessed had those underlying funds been offered under Fund U during the entire period shown. (1) Formerly The Travelers Timed Money Market Account for Variable Annuities (Account TMM). (2) Formerly Aggressive Stock Trust. THE BOARD OF MANAGERS The investments and administration of each of the Separate Accounts are under the direction of the Board of Managers, listed below. Members of the Board of Managers of Accounts GIS, QB, MM, TGIS, TSB, TAS and TB are elected annually by those Contract Owners participating in the Separate Accounts. A majority of the members of the Board of Managers are persons who are not affiliated with The Travelers Insurance Company, TIMCO, TAMIC or their affiliates.
Name Present Position and Principal Occupation During Last Five Years - ---- ---------------------------------------------------------------- * Heath B. McLendon Managing Director (1993-present), Smith Barney Inc. ("Smith Barney"); Chairman (1993-present), Chairman and Member Smith Barney Strategy Advisors, Inc.; President (1994-present), Smith Barney Mutual Funds Management 388 Greenwich Street Inc.; Chairman and/or Director and President of thirty investment companies associated with Smith New York, New York Barney; Chairman, Board of Trustees, Drew University; Trustee, The East New York Savings Bank; Age 61 Advisory Director, First Empire State Corporation; Chairman, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company +; Chairman, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company ++; prior to July 1993, Senior Executive Vice President of Shearson Lehman Brothers Inc. Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Edwards & Angell, Attorneys; Member, Advisory Board Member (1973-1994), thirty-one mutual funds sponsored by Keystone Group, Inc.; Member, Board of Managers, 2700 Hospital Trust Tower seven Variable Annuity Separate Accounts of The Travelers Insurance Company +; Trustee, five Mutual Providence, Rhode Island Funds sponsored by The Travelers Insurance Company ++. Age 71 Robert E. McGill, III Director (1983-present), Executive Vice President (1989-1994) and Senior Vice President, Finance and Member Administration (1983-1989), The Dexter Corporation (manufacturer of specialty chemicals and One Elm Street materials); Vice Chairman (1990-1992), Director (1983-present), Life Technologies, Inc. (life Windsor Locks, Connecticut science/biotechnology products); Director (1993-present), Analytical Technology, Inc. (manufacturer Age 63 of measurement instruments); Director (1994-present), The Connecticut Surety Corporation (insurance); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company +; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company ++. Lewis Mandell Professor of Finance (1980-present) and Associate Dean (1993- present), School of Business Member Administration, and Director, Center for Research and Development in Financial Services 368 Fairfield Road, U41F (1980-present), University of Connecticut; Director (1992-present), GZA Geoenvironmental Tech, Storrs, Connecticut Inc. (engineering services); Member, Board of Managers, seven Variable Annuity Separate Age 52 Accounts of The Travelers Insurance Company +; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company ++. Frances M. Hawk Portfolio Manager (1992-present), HLM Management Company, Inc. (investment management); Assistant Member Treasurer,Pensions and Benefits Management (1989-1992), United Technologies Corporation (broad-based 222 Berkeley Street designer and manufacturer of high technology products); Member, Board of Managers, seven Variable Boston, Massachusetts Annuity Separate Accounts of The Travelers Insurance Company +; Trustee, five Mutual Funds sponsored Age 47 by the Travelers Insurance Company ++. Ernest J. Wright Assistant Secretary (1994-present), Counsel (1987-present), The Travelers Insurance Company; Secretary, Secretary to the Board Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company +; One Tower Square Secretary, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company ++. Hartford, Connecticut Age 54
+ These seven Variable Annuity Separate Accounts are: The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and The Travelers Timed Bond Account for Variable Annuities. ++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers Series Trust. * Mr. McLendon in an "interested person" within the meaning of the Investment Company Act of 1940 by virtue of his position as Managing Director of Smith Barney Inc., an indirect wholly owned subsidiary of Travelers Group Inc. and also owns shares and options to purchase shares of Travelers Group Inc., the indirect parent of The Travelers Insurance Company. The Dexter Corporation, of which Mr. McGill is a director, entered into contracts with The Travelers Insurance Company to provide short-term disability and life insurance benefits to employees of The Dexter Corporation, and to administer the health and dental benefits program for employees of The Dexter Corporation. The Company is responsible for payment of the fees and expenses of the Board of Managers, for the expenses of audit of the Separate Accounts, and for certain other expenses for services related to the operation of the accounts, for which it deducts certain amounts from purchase payments and from the accounts. Members of the Board of Managers who are also officers or employees of Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members of the Board of Managers who are not affiliated as employees of Travelers Group Inc. or its subsidiaries receive an aggregate annual retainer of $10,000 for service on the Boards of the nine Variable Annuity Separate Accounts established by The Travelers Insurance Company and the five Mutual Funds sponsored by The Travelers Insurance Company. They also receive an aggregate fee of $1,800 for each meeting of such Boards attended. DISTRIBUTION AND MANAGEMENT SERVICES Under the terms of a Distribution and Management Agreement between each Separate Account, the Company and Travelers Equities Sales, Inc., the Company provides all sales and administrative services and mortality and expense risk guarantees related to variable annuity contracts issued by the Company in connection with the Separate Accounts and assumes the risk of minimum death benefits, as applicable. The Company also pays all sales costs (including costs associated with the preparation of sales literature); all costs of qualifying the Separate Accounts and the variable annuity contracts with regulatory authorities; the costs of proxy solicitation; all custodian, accountants' and legal fees; and all compensation paid to the unaffiliated members of the Board of Managers. In addition, under the terms of the Distribution and Management Agreements between the Company and Accounts TGIS, TSB, TAS and TB, the Company deducts amounts necessary to pay fees to third-party registered investment advisers which provide market timing investment advisory services to Contract Owners in those accounts and, in turn, pays such fees to the registered investment advisers. The Company also provides without cost to the Separate Accounts all necessary office space, facilities, and personnel to manage its affairs. The Company received the following amounts from the Separate Accounts in each of the last three fiscal years for services provided under the Distribution and Management Agreements:
SEPARATE ACCOUNT 1994 1993 1992 ---------------- ---- ---- ---- GIS $ 4,025,788 $ 4,239,811 $ 3,953,639 QB $ 2,156,643 $ 1,903,669 $ 1,564,308 MM $ 1,107,288 $ 1,050,585 $ 1,337,875 U $ 17,248,780 $ 7,219,329 $ 2,785,034 TGIS $ 1,409,471 $ 2,872,771 $ 3,269,670 TSB $ 3,525,570 $ 4,308,973 $ 4,547,489 TAS $ 1,238,375 $ 874,790 $ 471,250 TB $ 47,835 $ 332,985 $ 314,018
PRINCIPAL UNDERWRITER Travelers Equities Sales, Inc. ("TESI") an affiliate of the Company serves as principal underwriter for the Separate Accounts. The offering is continuous. TESI is an indirect wholly owned subsidiary of Travelers Group Inc., and its principal executive offices are located at One Tower Square, Hartford, Connecticut. SECURITIES CUSTODIAN Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York, is the custodian of the portfolio securities and similar investments of Accounts GIS, QB, MM, TGIS, TSB, TAS and TB. INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P., Independent Accountants, 100 Pearl Street, Hartford, Connecticut, are the independent auditors for Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U. The services provided to these Separate Accounts include primarily the examination of the Accounts' financial statements. The financial statements of Account GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U included or incorporated by reference in the Prospectus, Statement of Additional Information and their respective Registration Statements have been audited by Coopers & Lybrand L.L.P., as indicated in their reports thereon, and are incorporated herein by reference in reliance upon the authority of said firm as experts in accounting and auditing. FINANCIAL STATEMENTS The financial statements for Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U contained in the December 31, 1994 Annual Reports to Contract Owners are incorporated herein by reference. A copy may be obtained by writing to The Travelers Insurance Company, Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183, or by calling 1-800-842-0125. The financial statements of the Company, as contained herein, should be considered only as bearing upon the Company's ability to meet its obligations under the Contract, and they should not be considered as bearing on the investment performance of the Separate Accounts. THIS PAGE INTENTIONALLY LEFT BLANK. THIS PAGE INTENTIONALLY LEFT BLANK. THETRAVELERS (logo with umbrella) THE TRAVELERS VARIABLE ANNUITIES INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY INDIVIDUAL PURCHASES, PENSION AND PROFIT-SHARING, SECTION 403(B) AND SECTION 408, AND DEFERRED COMPENSATION PROGRAMS L-11164S TIC Ed. 5-95 Printed in U.S.A. UNIVERSAL ANNUITY STATEMENT OF ADDITIONAL INFORMATION THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS FUND U FOR VARIABLE ANNUITIES GROUP VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY May 1, 1995 This Statement of Additional Information is not a prospectus but relates to, and should be read in conjunction with, the Prospectus dated May 1, 1995. A copy of the Prospectus may be obtained by writing to The Travelers Insurance Company (the "Company"), Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183-5030, or by calling 1-800-842-0125.
TABLE OF CONTENTS PAGE DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS 1 The Insurance Company 1 The Separate Accounts 1 INVESTMENT ALTERNATIVES 1 THE TRAVELERS FUND U FOR VARIABLE ANNUITIES 4 Investments of Fund U 4 Available Mutual Funds 4 INVESTMENT OBJECTIVES AND POLICIES 4 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES 4 THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES 4 THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES 6 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES 7 THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES 9 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES 10 THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES 11 DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS 12 WRITING COVERED CALL OPTIONS 12 BUYING PUT AND CALL OPTIONS 13 FUTURES CONTRACTS 14 MONEY MARKET INSTRUMENTS 16 INVESTMENT MANAGEMENT AND ADVISORY SERVICES 18 Advisory Fees 18 TIMCO 19 TAMIC 20 VALUATION OF ASSETS 22 PERFORMANCE DATA 22 Yield Quotations of Account MM 22 Average Annual Total Return Quotations of Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U 22 THE BOARD OF MANAGERS 26 DISTRIBUTION AND MANAGEMENT SERVICES 27 PRINCIPAL UNDERWRITER 27 SECURITIES CUSTODIAN 28 INDEPENDENT ACCOUNTANTS 28 FINANCIAL STATEMENTS 28 FINANCIAL STATEMENTS - THE TRAVELERS INSURANCE COMPANY F-1 DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS THE INSURANCE COMPANY The Travelers Insurance Company (the "Company") is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group Inc. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. THE SEPARATE ACCOUNTS Each of the Separate Accounts available under the variable annuity contracts described in this Statement of Additional Information meets the definition of a separate account under federal securities laws, and will comply with the provisions of the Investment Company Act of 1940, as amended (the "1940 Act"). Additionally, the operations of each of the Separate Accounts are subject to the provisions of Section 38a-433 of the Connecticut General Statutes which authorizes the Connecticut Insurance Commissioner to adopt regulations under it. The Section contains no restrictions on investments of the Separate Accounts, and the Commissioner has adopted no regulations under the Section that affect the Separate Accounts. There are two different types of Separate Accounts which serve as the funding vehicles for these variable annuity contracts. The first type, Fund U, was established on September 2, 1982 and is registered with the Securities and Exchange Commission as a unit investment trust under the 1940 Act. Fund U's assets are invested in the shares of mutual funds. Accounts GIS, QB, MM, TGIS, TSB, TAS and TB, the second type of Separate Account available under the variable annuity contracts, are registered with the Securities and Exchange Commission as diversified, open-end management investment companies under the 1940 Act. Account GIS was established on September 22, 1967; Account QB was established on July 29, 1974; Account MM was established on December 29, 1981; Accounts TGIS and TSB were established on October 30, 1986; and Accounts TAS and TB were established on January 2, 1987. The assets of these accounts are invested directly in securities (such as stocks, bonds or money market instruments) which are compatible with the stated investment policies of each of the Separate Accounts. INVESTMENT ALTERNATIVES Purchase Payments may be allocated to one or more of the available Investment Alternatives. The Company may add or remove available Investment Alternatives as permitted by law. The investment objectives of each available Investment Alternative are as follows: ACCOUNT GIS: The primary objective of Account GIS is long-term accumulation of principal through capital appreciation and retention of net investment income. The assets of Account GIS will normally be invested in a portfolio of common stocks spread over industries and companies. ACCOUNT TGIS: The primary objective of Account TGIS is the same as Account GIS, except that Contract Owners in Account TGIS have entered into third party investment advisory contracts with providers of market timing services. ACCOUNT QB: The primary objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. Assets of Account QB will be invested in short-term to intermediate-term bonds or other debt securities with a market value-weighted average maturity of five years or less. ACCOUNT MM: The primary investment objective of Account MM is preservation of capital, a high degree of liquidity and the highest possible current income. Assets of Account MM will be invested primarily in short-term money market securities. ACCOUNT TSB: The primary objective of Account TSB is to generate high current income with limited price volatility while maintaining a high degree of liquidity. Additionally, Contract Owners in Account TSB have entered into third party investment advisory contracts with providers of market timing services. ACCOUNT TAS: The objective of Account TAS is growth of capital through the use of common stocks. Assets of Account TAS will be fully invested in a diversified portfolio consisting primarily of common stocks, securities convertible into common stocks, and securities having common stock characteristics. Additionally, Contract Owners in Account TAS have entered into third party investment advisory contracts with providers of market timing services. ACCOUNT TB: The objective of Account TB is the selection of investments from the point of view of an investor concerned primarily with credit quality, current income and total return. Assets of Account TB will be invested primarily in direct obligations of the United States, its agencies and instrumentalities. Contract Owners in Account TB have entered into third party investment advisory contracts with providers of market timing services. MANAGED ASSETS TRUST: The objective of the Managed Assets Trust is high total investment return through a fully managed investment policy. Assets of the Managed Assets Trust will be invested in a portfolio of U.S. stocks, bonds and money market securities. CAPITAL APPRECIATION FUND: The objective of the Capital Appreciation Fund is growth of capital through the use of common stocks. Income is not an objective. The Fund invests principally in common stocks of small to large companies that experience wide fluctuations in price in both rising and declining markets. HIGH YIELD BOND TRUST: The objective of the High Yield Bond Trust is generous income. The assets of the High Yield Bond Trust will be invested in bonds which, as a class, sell at discounts from par value and are typically high risk securities. Contract Owners are advised to read carefully the complete risk disclosure contained in the Trust's prospectus before investing. U.S. GOVERNMENT SECURITIES PORTFOLIO: The objective of the U.S. Government Securities Portfolio is the selection of investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. The assets of the U.S. Government Securities Portfolio will be invested in direct obligations of the United States, its instrumentalities and agencies. SOCIAL AWARENESS STOCK PORTFOLIO: The objective of the Social Awareness Stock Portfolio is long-term capital appreciation and retention of net investment income through the selection of investments, primarily common stocks, which meet the social criteria established for the Portfolio. Social criteria currently excludes companies that derive a significant portion of their revenues from the production of tobacco, tobacco products, alcohol or military defense systems, or the provision of military defense or gambling services. UTILITIES PORTFOLIO: The objective of the Utilities Portfolio is to provide current income. Long-term capital appreciation is a secondary objective. The Portfolio seeks to achieve its objective by investing in equity and debt securities of companies in the utility industries. TEMPLETON BOND FUND: The objective of the Templeton Bond Fund is high current income through a flexible policy of investing primarily in debt securities of companies, governments and government agencies of various nations throughout the world. TEMPLETON STOCK FUND: The objective of the Templeton Stock Fund is capital growth through a policy of investing primarily in common stocks issued by companies, large and small, in various nations throughout the world. TEMPLETON ASSET ALLOCATION FUND: The objective of the Templeton Asset Allocation Fund is a high level of total return with reduced risk over the long term through a flexible policy of investing in stocks of companies in any nation, debt obligations of companies and governments of any nation. Changes in the asset mix will be adjusted in an attempt to capitalize on total return potential produced by changing economic conditions throughout the world. FIDELITY'S HIGH INCOME PORTFOLIO: The objective of the High Income Portfolio is to seek to obtain a high level of current income by investing primarily in high yielding, lower-rated, fixed-income securities, while also considering growth of capital. Contract Owners are advised to read the complete risk disclosure contained in the Portfolio's prospectus before investing. FIDELITY'S EQUITY INCOME PORTFOLIO: The objective of the Equity-Income Portfolio is to seek reasonable income by investing primarily in income-producing equity securities. FIDELITY'S GROWTH PORTFOLIO: The objective of the Growth Portfolio is to seek capital appreciation. The Portfolio normally purchases common stocks of well-known, established companies and smaller, emerging growth companies, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. FIDELITY'S ASSET MANAGER PORTFOLIO: The objective of the Asset Manager Portfolio is to seek high total return with reduced risk over the long-term by allocating its assets among stocks, bonds, and short-term fixed-income instruments. DREYFUS STOCK INDEX FUND: The objective of the Dreyfus Stock Index Fund is to provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND: The objective of the American Odyssey International Equity Fund is to seek maximum long-term total return by investing primarily in common stocks of established non-U.S. companies. AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND: The objective of the American Odyssey Emerging Opportunities Fund is to seek maximum long-term total return by investing primarily in common stocks of small, rapidly growing companies. AMERICAN ODYSSEY CORE EQUITY FUND: The objective of the American Odyssey Core Equity Fund is to seek maximum long-term total return by investing primarily in common stocks of well-established companies. AMERICAN ODYSSEY LONG-TERM BOND FUND: The objective of the American Odyssey Long-Term Bond Fund is to seek maximum long-term total return by investing primarily in long-term corporate debt securities, U.S. government securities, mortgage-related securities, and asset-backed securities, as well as money market instruments. AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND: The objective of the American Odyssey Intermediate-Term Bond Fund is to seek maximum long-term total return by investing primarily in intermediate-term corporate debt securities, U.S. government securities, mortgage-related securities and asset-backed securities, as well as money market instruments. AMERICAN ODYSSEY SHORT-TERM BOND FUND: The objective of the American Odyssey Short-Term Bond Fund is to seek maximum long-term total return by investing primarily in investment-grade, short-term debt securities. SMITH BARNEY INCOME AND GROWTH PORTFOLIO: The objective of the Income and Growth Portfolio is current income and long-term growth of income and capital by investing primarily, but not exclusively, in common stocks. ALLIANCE GROWTH PORTFOLIO: The objective of the Growth Portfolio is long-term growth of capital by investing predominantly in equity securities of companies with a favorable outlook for earnings and whose rate of growth is expected to exceed that of the U.S. economy over time. Current income is only an incidental consideration. SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO: The objective of the International Equity Portfolio is total return on assets from growth of capital and income by investing at least 65% of its assets in a diversified portfolio of equity securities of established non-U.S. issuers. PUTNAM DIVERSIFIED INCOME PORTFOLIO: The objective of the Diversified Income Portfolio is to seek high current income consistent with preservation of capital. The Portfolio will allocate its investments among the U.S. Government Sector, the High Yield Sector, and the International Sector of the fixed income securities markets. (Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing.) G.T. GLOBAL STRATEGIC INCOME PORTFOLIO: The Strategic Income Portfolio's investment objective is primarily to seek high current income and secondarily to seek capital appreciation. The Portfolio allocates its assets among debt securities of issuers in the United States, developed foreign countries, and emerging markets. (Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing.) SMITH BARNEY HIGH INCOME PORTFOLIO: The investment objective of the High Income Portfolio is high current income. Capital appreciation is a secondary objective. The Portfolio will invest at least 65% of its assets in high-yielding corporate debt obligations and preferred stock. (Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing.) MFS TOTAL RETURN PORTFOLIO: The Total Return Portfolio's objective is to obtain above- average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. Generally, at least 40% of the Portfolio's assets will be invested in equity securities. (Please read carefully the complete risk disclosure in the Portfolio's prospectus before investing.) THE TRAVELERS FUND U FOR VARIABLE ANNUITIES INVESTMENTS OF FUND U Purchase Payments applied to Fund U will be invested in one or more of the available mutual funds at net asset value in accordance with the selection made by the Contract Owner. Contract Owners may change their selection without fee, penalty or charge. Available mutual funds may be added or withdrawn as permitted by applicable law. AVAILABLE MUTUAL FUNDS A summary of the investment objectives of the mutual funds underlying Fund U (i.e., all those listed above, except the 7 Separate Accounts) is provided in "Investment Alternatives," beginning on page 1. All investment income and other distributions of Fund U are reinvested in fund shares at net asset value. The funds are required to redeem fund shares at net asset value and to make payment within seven days. Fund shares for the mutual funds listed above are currently sold to Fund U in connection with the Company's variable annuity products; additionally, some of the mutual fund shares may also be sold to other separate accounts of the Company or its affiliates, or to other insurance companies in connection with such companies' variable annuity and variable life insurance products. Fund shares are not sold to the general public. More detailed information may be found in the current prospectuses and Statements of Additional Information for the available mutual funds. INVESTMENT OBJECTIVES AND POLICIES The Separate Accounts described below each have different investment objectives and policies, and each Separate Account has certain fundamental investment restrictions which are set forth below. Neither the investment objective nor the fundamental investment restrictions can be changed without a vote of a majority of the outstanding voting securities of the Accounts, as defined in the 1940 Act. Additionally, in accomplishing their respective investment objectives, each Account uses certain types of investments and investment techniques which are discussed under "Investments and Investment Techniques" on page 12. The percentage restrictions (for either fundamental investment policies or investment restrictions) are interpreted such that if they are adhered to at the time of investment, a later increase in a percentage beyond the specified limit resulting from a change in the values of portfolio securities or in the amount of net assets shall not be considered a violation. It must be recognized that there are risks inherent in the ownership of any investment and that there can be no assurance that the investment objectives of the Separate Accounts will be achieved. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVES The basic investment objective of Accounts GIS and TGIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account GIS will primarily be invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may also be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States Government securities. These investments generally would not have a prospect of long-term appreciation. Investments in other than equity securities are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account GIS may use exchange-traded financial futures contracts as a hedge to protect against changes in stock prices. Account GIS intends to use stock index futures contracts primarily to limit transaction and borrowing costs, and expects that risk management transactions involving futures contracts will not impact more than thirty percent (30%) of Account GIS's assets at any one time. Account TGIS will use exchange-traded financial futures contracts consisting of stock index futures contracts and futures contracts on debt securities ("interest rate futures") to facilitate market timed moves (as described in the Prospectus), and as a hedge to protect against changes in stock prices or interest rates. Accounts GIS and TGIS may also write covered call options on securities which they own, and may also purchase index or individual equity call options. INVESTMENT RESTRICTIONS The investment restrictions for Accounts GIS and TGIS, as set forth below, are identical, except where indicated. The investment restrictions set forth in items 1 through 9 are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account GIS or Account TGIS, as defined in the 1940 Act. Items 10 through 13 may be changed by a vote of the Board of Managers of Account GIS or Account TGIS. 1.Not more than 5% of the assets of the Account will be invested in the securities of any one issuer, except obligations of the United States Government and its instrumentalities. 2.Borrowings will not be made, except that the right is reserved to borrow from banks for emergency purposes, provided that such borrowings will not exceed 5% of the value of the assets of Account GIS, or 10% of the value of the assets of Account TGIS, and that immediately after the borrowing, and at all times thereafter, and while any such borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of the Account. 3.Securities of other issuers will not be underwritten, except that the Account could be deemed an underwriter when engaged in the sale of restricted securities. (See item 13.) 4.Interests in real estate will not be purchased, except as may be represented by securities for which there is an established market. 5.No purchase of commodities or commodity contracts will be made, except transactions involving financial futures in order to limit transaction and borrowing costs and for hedging purposes, as discussed above. 6.Loans will be made only through the acquisition of a portion of privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors. (See item 13.) 7.Investments will not be made in the securities of a company for the purpose of exercising management or control. 8.Not more than 10% of the voting securities of any one issuer will be acquired. (It is the present practice of the Account not to exceed 5% of the voting securities of any one issuer.) 9.Senior securities will not be issued. 10.Short sales of securities will not be made. 11.Purchases will not be made on margin, except for short-term credits which are necessary for the clearance of transactions, and for the placement of not more than 5% of its net asset value in total margin deposits for positions in futures contracts. 12.The Account will not invest in the securities of other investment companies, except as part of a plan of merger, consolidation or acquisition of assets. 13.Not more than 5% of the value of the assets of the Account may be invested in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). Changes in the investments of Accounts GIS and TGIS may be made from time to time to take into account changes in the outlook for particular industries or companies. The Accounts' investments will not, however, be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of their assets will be invested in any one industry. While Accounts GIS and TGIS may occasionally invest in foreign securities, it is not anticipated that such investments will, at any time, account for more than ten percent (10%) of their investment portfolios. The assets of Accounts GIS and TGIS will be kept fully invested, except that (a) sufficient cash may be kept on hand to provide for variable annuity contract obligations, and (b) reasonable amounts of cash, United States Government or other liquid securities, such as short-term bills and notes, may be held for limited periods, pending investment in accordance with their respective investment policies. PORTFOLIO TURNOVER Although Accounts GIS and TGIS intend to purchase securities for long-term appreciation of capital and income, and do not intend to place emphasis on obtaining short-term trading profits, such short-term trading may occur. A higher turnover rate should not be interpreted as indicating a variation from the stated investment policy of seeking long- term accumulation of capital, and will normally increase the brokerage costs of Accounts GIS and TGIS. However, negotiated fees and the use of futures contracts will help to reduce brokerage costs. While there is no restriction on portfolio turnover, Account GIS expects to have a moderate to high level of portfolio turnover in the range of 150% to 300%, and Account TGIS expects that its portfolio turnover will be higher than normal since the Account is being timed by third party investment advisory services. The portfolio turnover rate for Account GIS for the years ended December 31, 1992, 1993 and 1994 was 189%, 81% and 103%, respectively. The portfolio turnover rate for Account TGIS for the years ended December 31, 1992, 1993 and 1994 was 119%, 70% and 19%, respectively. THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The investment objective of Account TAS is to provide shareholders with growth of capital by investing primarily in a broadly diversified portfolio of common stocks. In selecting investments for the portfolio, the investment adviser employs quantitative analysis to identify stocks which appear to be undervalued. A proprietary computer model reviews over one thousand stocks using fundamental and technical criteria such as price (relative to book value, earnings growth and momentum), and the change in price (relative to the change in price of a broad composite stock index). Computer-aided analysis may also be utilized to match certain characteristics of the portfolio, such as industry sector representation, to the characteristics of a market index, or to impose a tilt toward certain attributes. Although Account TAS currently focuses on mid-sized domestic companies with market capitalizations that fall between $500 million and $10 billion, Account TAS may invest in smaller or larger companies without limitation. The prices of mid- sized company stocks and smaller company stocks may fluctuate more than those of larger company stocks. Account TAS will use exchange-traded financial futures contracts consisting of stock index futures contracts and futures contracts on debt securities ("interest rate futures") to facilitate market timed moves (as described in the Prospectus), and as a hedge to protect against changes in stock prices or interest rates. Account TAS may also invest, for defensive purposes, in money market instruments. Such instruments, which must mature within one year of their purchase, consist of U.S. Government securities; instruments of banks which are members of the Federal Deposit Insurance Corporation and have assets of at least $1 billion, such as certificates of deposit, demand and time deposits and bankers' acceptances; prime commercial paper, including master demand notes; and repurchase agreements secured by U.S. Government securities. INVESTMENT RESTRICTIONS The investment restrictions set forth below are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account TAS, as defined in the 1940 Act. Account TAS may not: 1.invest more than 5% of its total assets, computed at market value, in the securities of any one issuer; 2.invest in more than 10% of any class of securities of any one issuer; 3.invest more than 5% of the value of its total assets in companies which have been in operation for less than three years; 4.borrow money, except to facilitate redemptions or for emergency or extraordinary purposes and then only from banks and in amounts of up to 10% of its gross assets computed at cost; while outstanding, a borrowing may not exceed one- third of the value of its net assets, including the amount borrowed; Account TAS has no intention of attempting to increase its net income by means of borrowing and all borrowings will be repaid before additional investments are made; assets pledged to secure borrowings shall be no more than the lesser of the amount borrowed or 10% of the gross assets of Account TAS computed at cost; 5.underwrite securities, except that Account TAS may purchase securities from issuers thereof or others and dispose of such securities in a manner consistent with its other investment policies; in the disposition of restricted securities the Account may be deemed to be an underwriter, as defined in the Securities Act of 1933 (the "1933 Act"); 6.purchase real estate or interests in real estate, except through the purchase of securities of a type commonly purchased by financial institutions which do not include direct interest in real estate or mortgages, or commodities or commodity contracts, except transactions involving financial futures in order to limit transaction and borrowing costs and for hedging purposes as described above; 7.invest for the primary purpose of control or management; 8.make margin purchases or short sales of securities, except for short-term credits which are necessary for the clearance of transactions, and to place not more than 5% of its net asset value in total margin deposits for positions in futures contracts; 9.make loans, except that Account TAS may purchase money market securities, enter into repurchase agreements, buy publicly and privately distributed debt securities and lend limited amounts of its portfolio securities to broker- dealers; all such investments must be consistent with the Account's investment objective and policies; 10.invest more than 25% of its total assets in the securities of issuers in any single industry; 11.purchase the securities of any other investment company, except in the open market and at customary brokerage rates and in no event more than 3% of the voting securities of any investment company; 12.invest in interests in oil, gas or other mineral exploration or development programs; or 13.invest more than 5% of its net assets in warrants, valued at the lower of cost or market; warrants acquired by the Account in units or attached to securities will be deemed to be without value with regard to this restriction. Account TAS is subject to restrictions in the sale of portfolio securities to, and in its purchase or retention of securities of, companies in which the management personnel of The Travelers Investment Management Company ("TIMCO") have a substantial interest. Account TAS may make investments in an amount of up to 10% of the value of its net assets in restricted securities which may not be publicly sold without registration under the 1933 Act. In most instances such securities are traded at a discount from the market value of unrestricted securities of the same issuer until the restriction is eliminated. If and when Account TAS sells such portfolio securities, it may be deemed an underwriter, as such term is defined in the 1933 Act, with respect thereto, and registration of such securities under the 1933 Act may be required. Account TAS will not bear the expense of such registration. Account TAS intends to reach agreements with all such issuers whereby they will pay all expenses of registration. In determining securities subject to the 10% limitation, Account TAS will include, in addition to restricted securities, repurchase agreements maturing in more than seven days and other securities not having readily available market quotations. PORTFOLIO TURNOVER Although Account TAS intends to invest in securities selected primarily for prospective capital growth and does not intend to place emphasis on obtaining short-term trading profits, such short-term trading may occur. A high turnover rate should not be interpreted as indicating a variation from the stated investment policy, and will normally increase Account TAS's brokerage costs. While there is no restriction on portfolio turnover, Account TAS's portfolio turnover rate may be high since the Account is being timed by third party investment advisory services. The portfolio turnover rate for the years ended December 31, 1992, 1993 and 1994 was 269%, 71% and 142%, respectively. THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. It is contemplated that the assets of Account QB will be invested in money market obligations, including, but not limited to, Treasury bills, repurchase agreements, commercial paper, bank certificates of deposit and bankers' acceptances, and in publicly traded debt securities, including bonds, notes, debentures, equipment trust certificates and short-term instruments. These securities may carry certain equity features such as conversion or exchange rights or warrants for the acquisition of stocks of the same or different issuer, or participations based on revenues, sales or profits. It is currently anticipated that the market value-weighted average maturity of the portfolio will not exceed five years. (In the case of mortgage-backed securities, the estimated average life of cash flow will be used instead of average maturity.) Investments in longer term obligations may be made if the Board of Managers concludes that the investment yields justify a longer term commitment. Account QB may purchase and sell futures contracts on debt securities ("interest rate futures") to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account QB's securities. The portfolio will be actively managed and Account QB may sell investments prior to maturity to the extent that this action is considered advantageous in light of factors such as market conditions or brokerage costs. While the investments of Account QB are generally not listed securities, there are firms which make markets in the type of debt instruments which Account QB holds. No problems of salability are anticipated with regard to the investments of Account QB. The Board of Managers will weigh considerations of risks, yield and ratings in implementing Account QB's fundamental investment policies. There are no specific criteria with regard to quality or ratings of the investments of Account QB, but it is anticipated that they will be of investment grade or its equivalent as determined in good faith by the Board of Managers. There may or may not be more risk in investing in debt instruments where there are no specific criteria with regard to quality or ratings of the investments. INVESTMENT RESTRICTIONS The investment restrictions set forth in items 1 through 9 below are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account QB, as defined in the 1940 Act. Items 10 through 14 may be changed by a vote of the Board of Managers of Account QB. 1.Not more than 15% of the value of the assets of Account QB will be invested in the securities of any one issuer, except obligations of the United States Government and its instrumentalities, for which there is no limit. 2.Borrowings will not be made, except that the right is reserved to borrow from banks for emergency purposes, provided that these borrowings will not exceed 5% of the value of the assets of Account QB and that immediately after the borrowing, and at all times thereafter, and while any borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of Account QB. 3.Securities of other issuers will not be underwritten, except that Account QB could be deemed to be an underwriter when engaged in the sale of restricted securities. (See item 13.) 4.Interests in real estate will not be purchased, except as may be represented by securities for which there is an established market. 5.No purchase of commodities or commodity contracts will be made, except transactions involving financial futures used as a hedge against unanticipated changes in prevailing levels of interest rates. 6.Loans will be made only through the acquisition of a portion of privately placed issue of bonds, debentures and other evidences of indebtedness of a type customarily purchased by institutional investors. (See item 13.) 7.Investments will not be made in the securities of a company for the purpose of exercising management or control. 8.Not more than 10% of the voting securities of any one issuer will be acquired. 9.Senior securities will not be issued. 10.Short sales of securities will not be made. 11.Purchases will not be made on margin, except for any short- term credits that are necessary for the clearance of transactions and to place up to 5% of the value of its net assets in total margin deposits for positions in futures contracts. 12.Account QB will not invest in the securities of other investment companies, except as part of a plan of merger, consolidation or acquisition of assets. 13.Not more than 5% of the value of the assets of Account QB may be invested in restricted securities (securities which may not be publicly offered without registration under the 1933 Act). 14.The average period of maturity (or in the case of mortgage- backed securities, the estimated average life of cash flows) of all fixed interest debt instruments held by Account QB will not exceed five years. The investments of Account QB will not be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of its assets will be invested in any one industry. There is no investment policy as to Account QB's investment in foreign securities. PORTFOLIO TURNOVER Brokerage costs associated with short-term debt instruments are significantly lower than those incurred on equity investments, and thus, a high portfolio turnover rate would not adversely affect the brokerage costs of Account QB to the same extent as high turnover in a separate account which invests primarily in common stock. The portfolio turnover rate for Account QB for the years ended December 31, 1992, 1993 and 1994 was 23%, 24% and 27%, respectively. THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The investment objective of Account TB is the selection of investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. To achieve this objective, Account TB invests primarily in direct obligations of the United States, in obligations of its instrumentalities supported by its full faith and credit, and in obligations issued or guaranteed by Federal Agencies which are independent corporations sponsored by the United States and which are subject to its general supervision, but which do not carry the full faith and credit obligations of the United States. Account TB will use exchange-traded financial futures contracts on debt securities ("interest rate futures") to facilitate market timed moves (as described in the Prospectus), and as a hedge to protect against changes in interest rates. INVESTMENT RESTRICTIONS The investment restrictions set forth below are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account TB, as defined in the 1940 Act. Account TB may not: 1.invest more than 5% of its total assets, computed at market value, in the securities of any one issuer (exclusive of securities of the United States Government, its agencies or instrumentalities, for which there is no limit); 2.invest in more than 10% of any class of securities of any one issuer; 3.invest more than 5% of the value of its total assets in companies which have been in operation for less than three years; 4.borrow money, except to facilitate redemptions or for emergency or extraordinary purposes and then only from banks and in amounts of up to 10% of its gross assets computed at cost; while outstanding according to the 1940 Act, a borrowing may not exceed one-third of the value of the net assets, including the amount borrowed; Account TB has no intention of attempting to increase its net income by borrowing and all borrowings will be repaid before additional investments are made; assets pledged to secure borrowings shall be no more than the lesser of the amount borrowed or 10% of the gross assets computed at cost; 5.underwrite securities, except that Account TB may purchase securities from issuers thereof or others and dispose of such securities in a manner consistent with its other investment policies; in the disposition of restricted securities Account TB may be deemed to be an underwriter, as defined in the 1933 Act; 6.purchase real estate or interests in real estate, except through the purchase of securities of a type commonly purchased by financial institutions which do not include direct interest in real estate or mortgages, or commodities or commodity contracts, except transactions involving financial futures in order to limit transactions and borrowing costs and for hedging purposes as discussed above; 7.invest for the primary purpose of control or management; 8.make margin purchases or short sales of securities, except for short-term credits which are necessary for the clearance of transactions, and to place not more than 5% of its net asset value in total margin deposits for positions in futures contracts; 9.make loans, except that Account TB may purchase money market securities, enter into repurchase agreements, buy publicly and privately distributed debt securities and lend limited amounts of its portfolio securities to brokers-dealers; all such investments must be consistent with the investment objective and policies; 10.invest more than 25% of its total assets in the securities of issuers in any single industry (exclusive of securities of the United States government, its agencies or instrumentalities, for which there is no limit); or 11.purchase the securities of any other investment company, except in the open market and at customary brokerage rates and in no event more than 3% of the voting securities of any investment company. When consistent with its investment objectives, Account TB may purchase securities of brokers, dealers, underwriters or investment advisers. Account TB is subject to restrictions in the sale of portfolio securities to, and in its purchase or retention of securities of, companies in which the management personnel of Travelers Asset Management International Corporation ("TAMIC") have a substantial interest. PORTFOLIO TURNOVER Brokerage costs associated with debt instruments are significantly lower than those incurred on equity investments, and thus, a high portfolio turnover rate would not adversely affect the brokerage costs of Account TB to the same extent as high turnover in a separate account which invests primarily in common stock. While there is no restriction on portfolio turnover, Account TB's turnover rate may be high since the Account is being timed by third party investment advisory services. The portfolio turnover rate for Account TB for the years ended December 31, 1992, 1993 and 1994 was 505%, 190% and 0%, respectively. THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account MM is preservation of capital, a high degree of liquidity and the highest possible current income available from certain short-term money market securities. While there are many kinds of short-term securities used by the various money market funds, Account MM will restrict its investment portfolio to only the securities listed below. The Account's assets will primarily be invested in (1) marketable obligations issued or guaranteed by the United States Government, its agencies, authorities or instrumentalities; (2) Certificates of Deposit and Banker's Acceptances of banks having total assets of more than $1 billion which are members of the Federal Deposit Insurance Corporation; (3) Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's Investor Services, Inc.; and (4) repurchase agreements with government securities dealers recognized by the Federal Reserve Board or with member banks of the Federal Reserve System involving marketable obligations of or guaranteed by the United States Government, its agencies, authorities or instrumentalities. Account MM may also invest in securities of foreign branches of United States banks, payable in United States dollars. The market value of Account MM's investments tend to decrease during periods of rising interest rates and to increase during intervals of falling interest rates, with corresponding fluctuations in their net income. In order to minimize the fluctuations in market values to which interest-paying obligations are subject, Account MM concentrates its investments in relatively short-term securities, and in no event does the maturity date of an obligation exceed one year from the date of purchase. Return to Contract Owners is aided both by Account MM's ability to make investments in large denominations and by their efficiencies of scale. Also, Account MM seeks to improve portfolio income by selling certain portfolio securities before maturity date in order to take advantage of yield disparities that occur in money markets. Account MM may purchase and sell marketable obligations of or guaranteed by the United States Government, its agencies, authorities or instrumentalities on a when-issued or delayed delivery basis, with such purchases possibly occurring as much as a month before actual delivery and payment. INVESTMENT RESTRICTIONS In keeping with the objective of obtaining the highest possible current income consistent with a high degree of liquidity and preservation of capital, Account MM operates under the following restrictions, which restrictions are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account MM, as defined in the 1940 Act. Account MM may not: 1.purchase any security which has a maturity date more than one year from the date of the Account's purchase; 2.invest more than 25% of its assets in the securities of issuers in any single industry (exclusive of securities issued by domestic banks and savings and loan associations, or securities issued or guaranteed by the United States Government, its agencies, authorities or instrumentalities); neither all finance companies, as a group, nor all utility companies, as a group, are considered a single industry for the purpose of restriction; 3.invest more than 10% of its assets in the securities of any one issuer, including repurchase agreements with any one bank or dealer (exclusive of securities issued or guaranteed by the United States Government, its agencies or instrumentalities); 4.acquire more than 10% of the outstanding securities of any one issuer (exclusive of securities issued or guaranteed by the United States Government, its agencies or instrumentalities); however, in accordance with Rule 2a-7 of the 1940 Act, to which the Account is subject, the Account will not invest more than 5% of its assets in the securities of any one issuer (other than securities issued or guaranteed by the United States Government or its instrumentalities); 5.borrow money, except from banks on a temporary basis in an aggregate amount not to exceed one-third of the Account's assets (including the amount borrowed); the borrowings may be used exclusively to facilitate the orderly maturation and sale of portfolio securities during any periods of abnormally heavy redemption requests, if they should occur; such borrowings may not be used to purchase investments and the Account will not purchase any investment while any such borrowing exists; immediately after the borrowing, and at all times thereafter while any borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of the Account; 6.pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Account, except as may be necessary in connection with any borrowing mentioned above and in an aggregate amount not to exceed 5% of the Account's assets; 7.make loans, provided that the Account may purchase money market securities and enter into repurchase agreements; 8.(a) make investments for the purpose of exercising control; (b) purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization; (c) invest in real estate (other than money market securities secured by real estate or interests therein, or money market securities issued by companies which invest in real estate or interests therein), commodities or commodity contracts, interests in oil, gas or other mineral exploration or other development programs; (d) purchase any securities on margin; (e) make short sales of securities or maintain a short position or write, purchase or sell puts, calls, straddles, spreads or combinations thereof; (f) invest in securities of issuers (other than agencies, authorities or instrumentalities of the United States Government) having a record, together with predecessors, of less than three years of continuous operation if more than 5% of the Account's assets would be invested in such securities; (g) purchase or retain securities of any issuer if the officers and directors of the investment adviser who individually own more than 0.5% of the outstanding securities of such issuer together own more than 5% of the securities of such issuer; or (h) act as an underwriter of securities; 9.invest in securities which under the 1933 Act or other securities laws cannot be readily disposed of with registration or which are otherwise not readily marketable at the time of purchase, including repurchase agreements that mature in more than seven days, if as a result more than 10% of the value of the Account's assets is invested in these securities. At present, the Account has no investments in these securities and has no present expectation of purchasing any, although it may in the future; and 10.issue senior securities. PORTFOLIO TURNOVER A portfolio turnover rate is not applicable to Account MM which invests only in money market instruments. THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account TSB is to generate high current income with limited price volatility while maintaining a high degree of liquidity. Account TSB's assets will be primarily invested in (1) marketable obligations issued or guaranteed by the United States Government, its agencies, authorities or instrumentalities; (2) Certificates of Deposit, Bankers' Acceptances and other debt securities issued by banks having total assets of more than $1 billion which are members of the Federal Deposit Insurance Corporation; (3) Commercial Paper rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's Investor Services, Inc.; (4) short-term notes, bonds, debentures or other debt instruments issued or guaranteed by an entity with a bond rating of at least AA by S&P or Aa by Moody's; and (5) repurchase agreements with government securities dealers recognized by the Federal Reserve Board or with member banks of the Federal Reserve System involving marketable obligations of or guaranteed by the United States Government, its agencies, authorities or instrumentalities. Account TSB may also invest in securities of foreign branches of United States banks, payable in United States dollars, and in Euro Certificates of Deposit. The market value of Account TSB's investments tends to decrease during periods of rising interest rates and to increase during intervals of falling interest rates, with corresponding fluctuations in their net income. In order to minimize the fluctuations in market values to which interest-paying obligations are subject, Account TSB concentrates its investments in relatively short-term securities, and in no event does the maturity date of an obligation exceed three years from the date of purchase. Account TSB seeks to improve portfolio income by selling certain portfolio securities before maturity date in order to take advantage of yield disparities that occur in money markets. Account TSB may purchase and sell marketable obligations of or guaranteed by the United States Government, its agencies, authorities or instrumentalities on a when-issued or delayed delivery basis, with such purchases possibly occurring as much as a month before actual delivery and payment. INVESTMENT RESTRICTIONS In keeping with the objective of obtaining the highest possible current income consistent with a high degree of liquidity and preservation of capital, Account TSB operates under the following restrictions, which restrictions are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account TSB, as defined in the 1940 Act. Account TSB may not: 1.purchase any security which has a maturity date more than three years from the date such security was purchased; 2.invest more than 25% of its assets in the securities of issuers in any single industry (exclusive of securities issued by domestic banks and savings and loan associations, or securities issued or guaranteed by the United States Government, its agencies, authorities or instrumentalities); neither all finance companies, as a group, nor all utility companies, as a group, are considered a single industry for the purpose of restriction; 3.invest more than 10% of its assets in the securities of any one issuer, including repurchase agreements with any one bank or dealer (exclusive of securities issued or guaranteed by the United States Government, its agencies or instrumentalities); 4.acquire more than 10% of the outstanding securities of any one issuer (exclusive of securities issued or guaranteed by the United States Government, its agencies or instrumentalities); 5.borrow money, except from banks on a temporary basis in an aggregate amount not to exceed one-third of the Account's assets (including the amount borrowed); the borrowings may be used exclusively to facilitate the orderly maturation and sale of portfolio securities during any periods of abnormally heavy redemption requests, if they should occur; such borrowings may not be used to purchase investments and the Account will not purchase any investment while any such borrowing exists; immediately after the borrowing, and at all times thereafter while any borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of the Account; 6.pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Account, except as may be necessary in connection with any borrowing mentioned above and in an aggregate amount not to exceed 5% of the Account's assets; 7.make loans, provided that the Account may purchase money market securities and enter into repurchase agreements; 8.(a) make investments for the purpose of exercising control; (b) purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization; (c) invest in real estate (other than money market securities secured by real estate or interests therein, or money market securities issued by companies which invest in real estate or interests therein), commodities or commodity contracts, interests in oil, gas or other mineral exploration or other development programs; (d) purchase any securities on margin; (e) make short sales of securities or maintain a short position or write, purchase or sell puts, calls, straddles, spreads or combinations thereof; (f) invest in securities of issuers (other than agencies, authorities or instrumentalities of the United States Government) having a record, together with predecessors, of less than three years of continuous operation if more than 5% of the Account's assets would be invested in such securities; (g) purchase or retain securities of any issuer if the officers and directors of the investment adviser who individually own more than 0.5% of the outstanding securities of such issuer together own more than 5% of the securities of such issuer; or (h) act as an underwriter of securities; 9.invest in securities which under the 1933 Act or other securities laws cannot be readily disposed of with registration or which are otherwise not readily marketable at the time of purchase, including repurchase agreements that mature in more than seven days, if as a result more than 10% of the value of the Account's assets is invested in these securities. At present, the Account has no investments in these securities and has no present expectation of purchasing any, although it may in the future; and 10.issue senior securities. PORTFOLIO TURNOVER Brokerage costs associated with short-term debt instruments are significantly lower than those incurred on equity investments, and thus, a high portfolio turnover rate would not adversely affect the brokerage costs of Account TSB to the same extent as high turnover in a separate account which invests primarily in common stock. While there is no restriction on portfolio turnover, Account TSB's turnover rate may be high since the Account is being timed by third party investment advisory services. The portfolio turnover rate for the year ended December 31, 1994 was 0%. DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS WRITING COVERED CALL OPTIONS Accounts GIS, TGIS, TAS and TB may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. These call options generally will be short-term contracts with a duration of nine months or less. The Accounts will write only "covered" call options, that is, they will own the underlying securities which are acceptable for escrow when they write the call option and until the obligation to sell the underlying security is extinguished by exercise or expiration of the call option, or until a call option covering the same underlying security and having the same exercise price and expiration date is purchased. The Accounts will receive a premium for writing a call option, but give up, until the expiration date, the opportunity to profit from an increase in the underlying security's price above the exercise price. The Accounts will retain the risk of loss from a decrease in the price of the underlying security. Writing covered call options is a conservative investment technique which is believed to involve relatively little risk, but which is capable of enhancing an Account's total returns. The premium received for writing a covered call option will be recorded as a liability in each Account's Statement of Assets and Liabilities. This liability will be adjusted daily to the option's current market value, which will be the latest sale price at the close of the New York Stock Exchange, or, in the absence of such sale, at the latest bid quotation. The liability will be extinguished upon expiration of the option, the purchase of an identical option in a closing transaction, or delivery of the underlying security upon exercise of the option. The Options Clearing Corporation is the issuer of, and the obligor on, the covered call options written by the Accounts. In order to secure an obligation to deliver to the Options Clearing Corporation the underlying security of a covered call option, the Accounts will be required to make escrow arrangements. In instances where the Accounts believe it is appropriate to close a covered call option, they can close out the previously written call option by purchasing a call option on the same underlying security with the same exercise price and expiration date. The Accounts may also, under certain circumstances, be able to transfer a previously written call option. A previously written call option can be closed out by purchasing an identical call option only on a national securities exchange which provides a secondary market in the call option. There is no assurance that a liquid secondary market will exist for a particular call option at such time. If the Accounts cannot effect a closing transaction, they will not be able to sell the underlying security while the previously written option remains outstanding, even though it might otherwise be advantageous to do so. If a substantial number of the call options are exercised, the Accounts' rates of portfolio turnover may exceed historical levels. This would result in higher brokerage commissions in connection with the writing of covered call options and the purchase of call options to close out previously written options. Such brokerage commissions are normally higher than those applicable to purchases and sales of portfolio securities. BUYING PUT AND CALL OPTIONS Accounts GIS, TGIS and TAS may purchase put options on securities held, or on futures contracts whose price volatility is expected to closely match that of securities held, as a defensive measure to preserve contract owners' capital when market conditions warrant. The Accounts may purchase call options on specific securities, or on futures contracts whose price volatility is expected to closely match that of securities, eligible for purchase by the Accounts, in anticipation of or as a substitute for the purchase of the securities themselves. These options may be listed on a national exchange or executed "over-the-counter" with a broker-dealer as the counterparty. While the investment advisers anticipate that the majority of option purchases and sales will be executed on a national exchange, put or call options on specific securities or for non- standard terms are likely to be executed directly with a broker-dealer when it is advantageous to do so. Option contracts will be short-term in nature, generally less than nine months. The Accounts will pay a premium in exchange for the right to purchase (call) or sell (put) a specific number of shares of an equity security or futures contract at a specified price (the strike price) on or before the expiration date of the options contract. In either case, each Account's risk is limited to the option premium paid. The Accounts may sell the put and call options prior to their expiration and realize a gain or loss thereby. A call option will expire worthless if the price of the related security is below the contract strike price at the time of expiration; a put option will expire worthless if the price of the related security is above the contract strike price at the time of expiration. Put and call options will be employed for bona fide hedging purposes only. Liquid securities sufficient to fulfill the call option delivery obligation will be identified and segregated in an account; deliverable securities sufficient to fulfill the put option obligation will be similarly identified and segregated. In the case of put options on futures contracts, portfolio securities whose price volatility is expected to match that of the underlying futures contract will be identified and segregated. FUTURES CONTRACTS STOCK INDEX FUTURES Accounts GIS, TGIS and TAS will invest in stock index futures. A stock index futures contract provides for one party to take and the other to make delivery of an amount of cash over the hedging period equal to a specified amount times the difference between a stock index value at the close of the last trading day of the contract or the selling price and the price at which the futures contract is originally struck. The stock index assigns relative values to the common stocks included in the index and reflects overall price trends in the designated market for equity securities. Therefore, price changes in a stock index futures contract reflect changes in the specified index of equity securities on which the futures contract is based. Stock index futures may also be used, to a limited extent, to hedge specific common stocks with respect to market (systematic) risk (involving the market's assessment of overall economic prospects) as distinguished from stock- specific risk (involving the market's evaluation of the merits of the issuer of a particular security). By establishing an appropriate "short" position in stock index futures, the Accounts may seek to protect the value of their equity securities against an overall decline in the market for equity securities. Alternatively, in anticipation of a generally rising market, the Accounts can seek to avoid losing the benefit of apparently low current prices by establishing a "long" position in stock index futures and later liquidating that position as particular equity securities are in fact acquired. None of the Accounts will be a hedging fund; however, to the extent that any hedging strategies actually employed are successful, the Accounts will be affected to a lesser degree by adverse overall market price movements unrelated to the merits of specific portfolio equity securities than would otherwise be the case. Gains and losses on futures contracts employed as hedges for specific securities will normally be offset by losses or gains, respectively, on the hedged security. INTEREST RATE FUTURES Accounts TGIS, TAS, QB and TB may purchase and sell futures contracts on debt securities ("interest rate futures") to hedge against anticipated changes in interest rates that might otherwise have an adverse effect upon the value of an Account's debt securities. An interest rate futures contract is a binding contractual commitment which, if held to maturity, will result in an obligation to make or accept delivery, during a particular future month, of debt securities having a standardized face value and rate of return. By purchasing interest rate futures (assuming a "long" position) the Accounts will be legally obligated to accept the future delivery of the underlying security and pay the agreed price. This would be done, for example, when the Account intends to purchase particular debt securities when it has the necessary cash, but expects the rate of return available in the securities markets at that time to be less favorable than rates currently available in the futures markets. If the anticipated rise in the price of the debt securities should occur (with its concurrent reduction in yield), the increased cost of purchasing the securities will be offset, at least to some extent, by the rise in the value of the futures position taken in anticipation of the securities purchase. By selling interest rate futures held by it, or interest rate futures having characteristics similar to those held by it (assuming a "short" position), the Account will be legally obligated to make the future delivery of the security against payment of the agreed price. Such a position seeks to hedge against an anticipated rise in interest rates that would adversely affect the value of the Account's portfolio debt securities. Open futures positions on debt securities will be valued at the most recent settlement price, unless such price does not appear to the Board of Managers to reflect the fair value of the contract, in which case the positions will be valued at fair value determined in good faith by or under the direction of the Board of Managers. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. FUTURES MARKETS AND REGULATIONS When a futures contract is purchased, the Accounts will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. The Accounts will incur brokerage fees in connection with their futures transactions, and will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. Positions taken in the futures markets are not normally held to maturity, but instead are liquidated through offsetting transactions which may result in a profit or a loss. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the stock index or interest rate futures contract and the same delivery date. If the offsetting purchase price is less than the original sale price, the Accounts realize a gain; if it is more, the Accounts realize a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Accounts realize a gain; if less, a loss. While futures positions taken by the Accounts will usually be liquidated in this manner, the Accounts may instead make or take delivery of the underlying securities whenever it appears economically advantageous for them to do so. In determining gain or loss, transaction costs must also be taken into account. There can be no assurance that the Accounts will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. A clearing corporation associated with the exchange on which futures are traded guarantees that the sale and purchase obligations will be performed with regard to all positions that remain open at the termination of the contract. All stock index and interest rate futures will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). Stock index futures are currently traded on the New York Futures Exchange and the Chicago Mercantile Exchange. Interest rate futures are actively traded on the Chicago Board of Trade and the International Monetary Market at the Chicago Mercantile Exchange. The investment advisers do not believe any of the Accounts to be a "commodity pool" as defined under the Commodity Exchange Act. The Accounts will only enter into futures contracts for bona fide hedging or other appropriate risk management purposes as permitted by CFTC regulations and interpretations, and subject to the requirements of the Securities and Exchange Commission. The Accounts will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of their individual assets, after taking into account unrealized profits and unrealized losses on any such contracts which they have entered into. The Accounts will further seek to assure that fluctuations in the price of any futures contracts that they use for hedging purposes will be substantially related to fluctuations in the price of the securities which they hold or which they expect to purchase, although there can be no assurance that the expected result will be achieved. As evidence of their hedging intent, the Accounts expect that on seventy-five percent (75%) or more of the occasions on which they purchase a long futures contract, they will effect the purchase of securities in the cash market or take delivery at the close of a futures position. In particular cases, however, when it is economically advantageous, a long futures position may be terminated without the corresponding purchase of securities. SPECIAL RISKS While certain futures contracts may be purchased and sold to reduce certain risks, these transactions may entail other risks. Thus, while the Accounts may benefit from the use of such futures, unanticipated changes in stock price movements or interest rates may result in a poorer overall performance for the Account than if it had not entered into such futures contracts. Moreover, in the event of an imperfect correlation between the futures position and the portfolio position which is intended to be protected, the desired protection may not be obtained and the Accounts may be exposed to risk of loss. The investment advisers will attempt to reduce this risk by engaging in futures transactions, to the extent possible, where, in their judgment, there is a significant correlation between changes in the prices of the futures contracts and the prices of any portfolio securities sought to be hedged. In addition to the possibility that there may be a less than perfect correlation between movements in the futures contracts and securities in the portfolio being hedged, the prices of futures contracts may not correlate perfectly with movements in the underlying security due to certain market distortions. First, rather than meeting variation margin deposit requirements should a futures contract value move adversely, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, since margin requirements in the futures market are less onerous than in the securities market, the futures market may attract more speculators than the securities market. Increased participation by speculators may cause temporary price distortions. Due to the possibility of such price distortion, and also because of the imperfect correlation discussed above, even a correct forecast of general market trends by the investment advisers may not result in a successful hedging transaction in the futures market over a short time period. However, as is noted above, the use of financial futures by the Accounts is intended primarily to limit transaction and borrowing costs. At no time will the Accounts use financial futures for speculative purposes. Successful use of futures contracts for hedging purposes is also subject to the investment advisers' ability to predict correctly movements in the direction of the market. However, the investment advisers believe that over time the value of the Accounts' portfolios will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. MONEY MARKET INSTRUMENTS Money market securities are instruments with remaining maturities of one year or less, such as bank certificates of deposit, bankers' acceptances, commercial paper (including master demand notes), and obligations issued or guaranteed by the United States Government, its agencies or instrumentalities, some of which may be subject to repurchase agreements. CERTIFICATES OF DEPOSIT Certificates of deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market prior to maturity. Certificates of deposit will be limited to U.S. dollar- denominated certificates of United States banks which have at least $1 billion in deposits as of the date of their most recently published financial statements (including foreign branches of U.S. banks, U.S. branches of foreign banks which are members of the Federal Reserve System or the Federal Deposit Insurance Corporation). The Accounts will not acquire time deposits or obligations issued by the International Bank for Reconstruction and Development, the Asian Development Bank or the Inter- American Development Bank. Additionally, the Accounts do not currently intend to purchase such foreign securities (except to the extent that certificates of deposit of foreign branches of U.S. banks may be deemed foreign securities) or purchase certificates of deposit, bankers' acceptances or other similar obligations issued by foreign banks. Additionally, Account TSB invests in Euro Certificates of Deposit issued by banks outside of the United States, with interest and principal paid in U.S. dollars. BANKERS' ACCEPTANCES Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by the bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Bankers' acceptances acquired by Accounts MM or TSB must have been accepted by U.S. commercial banks, including foreign branches of U.S. commercial banks, having total deposits at the time of purchase in excess of $1 billion, and must be payable in U.S. dollars. COMMERCIAL PAPER RATINGS Investments in commercial paper are limited to those rated A-1 by Standard & Poor's Corporation and Prime-1 by Moody's Investors Service, Inc. Commercial paper rated A-1 by S&P has the following characteristics: (1) liquidity ratios are adequate to meet cash requirements; (2) the issuer's long- term senior debt is rated "A" or better, although in some cases "BBB" credits may be allowed; (3) the issuer has access to at least two additional channels of borrowing; (4) basic earnings and cash flow have an upward trend with allowances made for unusual circumstances; and (5) the issuer's industry is typically well established and the issuer has a strong position within the industry. The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluating the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationship which exists with the issuer; and (8) recognition by the management of obligations which may be present or may arise as a result of public preparations to meet such obligations. The relative strength or weakness of the above factors determines how the issuer's commercial paper is rated within various categories. MASTER DEMAND NOTES Master demand notes are unsecured obligations that permit the investment of fluctuating amounts at varying rates of interest pursuant to direct arrangements between the lender (issuer) and the borrower. Master demand notes may permit daily fluctuations in the interest rate and daily changes in the amounts borrowed. An Account has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount, and the borrower may repay up to the full amount of the note without penalty. Notes purchased by a separate account must permit it to demand payment of principal and accrued interest at any time (on not more than seven days notice) or to resell the note at any time to a third party. Master demand notes may have maturities of more than one year, provided they specify that (i) the account be entitled to payment of principal and accrued interest upon not more than seven days notice, and (ii) the rate of interest on such notes be adjusted automatically at periodic intervals which normally will not exceed 31 days, but which may extend up to one year. Because these types of notes are direct lending arrangements between the lender and the borrower, such instruments are not normally traded, and there is no secondary market for these notes, although they are redeemable and thus repayable by the borrower at face value plus accrued interest at any time. Accordingly, the right to redeem is dependent upon the ability of the borrower to pay principal and interest on demand. In connection with master demand note arrangements, the investment adviser considers earning power, cash flow, and other liquidity ratios of the borrower to pay principal and interest on demand. These notes, as such, are not typically rated by credit rating agencies. Unless they are so rated, a separate account may invest in them only if at the time of an investment the issuer meets the criteria set forth above for commercial paper. The notes will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period. UNITED STATES GOVERNMENT SECURITIES Securities issued or guaranteed by the United States Government include a variety of Treasury securities that differ only in their interest rates, maturities and dates of issuance. Treasury Bills have maturities of one year or less, Treasury Notes have maturities of one to ten years, and Treasury Bonds generally have maturities of greater than ten years at the date of issuance. Securities issued or guaranteed by the United States Government or its agencies or instrumentalities include direct obligations of the United States Treasury and securities issued or guaranteed by the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley Authority, District of Columbia Armory Board and Federal National Mortgage Association. Some obligations of United States Government agencies and instrumentalities, such as Treasury Bills and Government National Mortgage Association pass-through certificates, are supported by the full faith and credit of the United States; others, such as securities of Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; still others, such as bonds issued by the Federal National Mortgage Association, a private corporation, are supported only by the credit of the instrumentality. Because the United States Government is not obligated by law to provide support to an instrumentality it sponsors, the Accounts will invest in the securities issued by such an instrumentality only when the investment advisers determine that the credit risk with respect to the instrumentality does not make the securities unsuitable investments. United States Government securities will not include international agencies or instrumentalities in which the United States Government, its agencies or instrumentalities participate, such as the World Bank, the Asian Development Bank or the Inter-American Development Bank, or issues insured by the Federal Deposit Insurance Corporation. REPURCHASE AGREEMENTS Interim cash balances may be invested from time to time in repurchase agreements with approved counterparties. Approved counterparties are limited to national banks or reporting broker-dealers meeting the Advisor's credit quality standards as presenting minimal risk of default. All repurchase transactions must be collateralized by U.S. Government securities with market value no less than 102% of the amount of the transaction, including accrued interest. Repurchase transactions generally mature the next business day but, in the event of a transaction of longer maturity, collateral will be marked to market daily and, when required, additional cash or qualifying collateral will be required from the counterparty. In executing a repurchase agreement, a portfolio purchases eligible securities subject to the seller's simultaneous agreement to repurchase them on a mutually agreed upon date and at a mutually agreed upon price. The purchase and resale prices are negotiated with the counterparty on the basis of current short-term interest rates, which may be more or less than the rate on the securities collateralizing the transaction. Physical delivery or, in the case of "book-entry" securities, segregation in the counterparty's account at the Federal Reserve for the benefit of the Portfolio is required to establish a perfected claim to the collateral for the term of the agreement in the event the counterparty fails to fulfill its obligation. As the securities collateralizing a repurchase transaction are generally of longer maturity than the term of the transaction, in the event of default by the counterparty on its obligation, the Portfolio would bear the risks of delay, adverse market fluctuation and transaction costs in disposing of the collateral. FOREIGN BANK OBLIGATIONS Accounts MM and TSB may invest in obligations of foreign branches of U.S. banks or U.S. branches of foreign banks. The obligations of foreign branches of United States banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by government regulation. Payment of interest and principal upon these obligations may also be affected by governmental action in the country of domicile of the branch (generally referred to as "sovereign risk"). In addition, evidences of ownership of such securities may be held outside the United States and Accounts MM and TSB may be subject to the risks associated with the holding of such property overseas. Various provisions of federal law governing domestic branches do not apply to foreign branches of domestic banks. Obligations of United States branches of foreign banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation as well as by governmental action in the country in which the foreign bank has its head office. In addition, there may be less publicly available information about a United States branch of a foreign bank than about a domestic bank. INVESTMENT MANAGEMENT AND ADVISORY SERVICES The investments and administration of the separate accounts are under the direction of the Board of Managers. The Travelers Investment Management Company (TIMCO) furnishes investment management and advisory services to Accounts GIS, TGIS, TSB and TAS according to the terms of written Investment Advisory Agreements. The Investment Advisory Agreement between Account GIS and TIMCO was approved by a vote of the variable annuity contract owners at their meeting held on April 23, 1993, and amended effective May 1, 1994 by virtue of contract owner approval at a meeting held on April 22, 1994. The Investment Advisory Agreements between Account TGIS and TIMCO, Account TSB and TIMCO, and Account TAS and TIMCO, were each approved by a vote of the variable annuity contract owners at their meeting held on April 23, 1993. Travelers Asset Management International Corporation (TAMIC) furnishes investment management and advisory services to Accounts QB, MM and TB according to the terms of written Investment Advisory Agreements. The Investment Advisory Agreements between Account QB and TAMIC, Account MM and TAMIC, and Account TB and TAMIC, were each approved by a vote of variable annuity contract owners at their meeting held on April 23, 1993. The agreements between Accounts GIS, TGIS, TSB and TAS and TIMCO, and the agreements between Accounts QB, MM and TB and TAMIC, will all continue in effect as described below in (3), as required by the 1940 Act. Each of the agreements: 1.provides that for investment management and advisory services, the Company will pay to TIMCO and TAMIC, on an annual basis, an advisory fee based on the current value of the assets of the accounts for which TIMCO and TAMIC act as investment advisers (see "Advisory Fees" below); 2.may not be terminated by TIMCO or TAMIC without the prior approval of a new investment advisory agreement by those casting a majority of the votes entitled to be cast and will be subject to termination without the payment of any penalty, upon sixty days written notice, by the Board of Managers or by a vote of those casting a majority of the votes entitled to be cast; 3.will continue in effect for a period more than two years from the date of its execution, only so long as its continuance is specifically approved at least annually by a vote of a majority of the Board of Managers, or by a vote of a majority of the outstanding voting securities of the Accounts. In addition, and in either event, the terms of the agreements must be approved annually by a vote of a majority of the Board of Managers who are not parties to, or interested persons of any party to, the agreements, cast in person at a meeting called for the purpose of voting on the approval and at which the Board of Managers has been furnished the information that is reasonably necessary to evaluate the terms of the agreements; and 4.will automatically terminate upon assignment. ADVISORY FEES For furnishing investment management and advisory services to Account GIS, TIMCO is paid an amount equivalent on an annual basis to 0.45%. For furnishing investment management and advisory services to Accounts TGIS and TSB, TIMCO is paid an amount equivalent on an annual basis to 0.3233% of the average daily net assets of each Account. For furnishing investment management and advisory services to Account TAS, TIMCO is paid an amount equivalent on an annual basis to the following: AGGREGATE NET ASSET ANNUAL MANAGEMENT FEE VALUE OF THE ACCOUNT 0.50% of the first $ 20,000,000, plus 0.25% of the next $ 80,000,000, plus 0.20% of the next $ 200,000,000, plus 0.15% of amounts over $ 300,000,000. The advisory fees paid to TIMCO by each of the Accounts during the last three fiscal years were: ACCOUNT GIS ACCOUNT TSB ACCOUNT TGIS ACCOUNT TAS 1992 $1,062,527 $1,077,022 $783,035 $107,868 1993 $1,136,509 $1,021,879 $681,566 $213,623 1994 $1,368,700 $ 821,532 $322,065 $279,503 For furnishing investment management and advisory services to Accounts QB and MM, TAMIC is paid an amount equivalent on an annual basis to 0.3233% of the average daily net assets of each Account. For furnishing investment management and advisory services to Account TB, TAMIC is paid an amount equivalent on an annual basis to the following: AGGREGATE NET ASSET ANNUAL MANAGEMENT FEE VALUE OF THE ACCOUNT 0.50% of the first $ 50,000,000, plus 0.40% of the next $ 100,000,000, plus 0.30% of the next $ 100,000,000, plus 0.25% of amounts over $ 250,000,000. The advisory fees paid to TAMIC by each of the Accounts during the last three fiscal years were: ACCOUNT QB ACCOUNT MM ACCOUNT TB 1992 $418,671 $313,563 $115,397 1993 $508,762 $245,238 $126,188 1994 $572,484 $262,326 $ 18,297 TIMCO TIMCO, an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment management and advisory services to Accounts GIS, TGIS, TSB and TAS, TIMCO also acts as investment adviser to the following investment company: Capital Appreciation Fund. These investment companies are among the investment alternatives which serve as the funding media for certain variable annuity and variable life insurance contracts offered by The Travelers Insurance Company and its affiliates and which had aggregate net assets of $82,372,873 at December 31, 1994. TIMCO also acts as investment adviser for individual and pooled pension and profit-sharing accounts and for affiliated companies of The Travelers Insurance Company, and as sub-adviser for Managed Assets Trust. Investment decisions for Accounts GIS, TGIS, TSB and TAS will be made independently from each other and from any other accounts that may be or become managed by TIMCO. If, however, accounts managed by TIMCO are simultaneously engaged in the purchase of the same security, then available securities may be allocated to each account and may be averaged as to price in whatever manner TIMCO deems to be fair. In some cases, this system might adversely affect the price or volume of securities being bought or sold by an account, while in other cases it may produce better executions or lower brokerage rates. BROKERAGE Subject to approval of the Board of Managers, and in accordance with the Investment Advisory Agreements, TIMCO will place purchase and sale orders for portfolio securities of the Accounts through brokerage firms which it may select from time to time with the objective of seeking the best execution by responsible brokerage firms at reasonably competitive rates. To the extent consistent with this policy, certain brokerage transactions may be placed with firms which provide brokerage and research services to TIMCO, and such transactions may be paid for at higher rates than other firms would charge. The term "brokerage and research services" includes advice as to the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities for purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). These brokerage and research services may be utilized in providing investment advice to Accounts GIS, TGIS, TSB and TAS, and may also be utilized in providing investment advice and management to all accounts over which TIMCO exercises investment discretion, but not all of such services will necessarily be utilized in providing investment advice to all accounts. This practice may be expected to result in greater cost to the Accounts than might otherwise be the case if brokers whose charges were based on execution alone were used for such transactions. TIMCO believes that brokers' research services are very important in providing investment advice to the Accounts, but is unable to give the services a dollar value. While research services are not expected to reduce the expenses of TIMCO, TIMCO will, through the use of these services, avoid the additional expenses which would be incurred if it should attempt to develop comparable information through its own staff. Transactions in the over-the-counter market are placed with the principal market makers unless better price and execution may be obtained otherwise. Brokerage fees will be incurred in connection with futures transactions, and Accounts GIS, TGIS and TAS will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. The overall reasonableness of brokerage commissions paid is evaluated by personnel of TIMCO responsible for trading and managing the portfolios of Accounts GIS, TGIS, TSB and TAS by comparing brokerage firms utilized by TIMCO to other firms with respect to the following factors: the prices paid or received in securities transactions, speed of execution and settlement, size and difficulty of the brokerage transactions, the financial soundness of the firms, and the quality, timeliness and quantity of research information and reports. The total brokerage commissions paid by Account GIS for the fiscal years ended December 31, 1992, 1993 and 1994 were $1,682,034, $801,002 and $991,682, respectively. For the fiscal year ended December 31, 1994, portfolio transactions in the amount of $620,478,015 were directed to certain brokers because of research services, of which $889,970 was paid in commissions with respect to these transactions. The total brokerage commissions paid by Account TGIS for the fiscal years ended December 31, 1992, 1993 and 1994 were $314,055, $328,616 and $40,276, respectively. For the fiscal year ended December 31, 1994, portfolio transactions in the amount of $20,416,591 were directed to certain brokers because of research services, of which $10,390 was paid in commissions with respect to these transactions. The total brokerage commissions paid by Account TAS for the fiscal years ended December 31, 1992, 1993 and 1994 were $109,626, $181,952 and $458,081, respectively. For the fiscal year ended December 31, 1994, portfolio transactions in the amount of $193,183,450 were directed to certain brokers because of research services, of which $351,777 was paid in commissions with respect to these transactions. No formulas were used in placing portfolio transactions with brokers which provided research services, and no specific amount of transactions was allocated for research services. No brokerage business was placed with any brokers affiliated with TIMCO or its predecessors during the last three fiscal years. TAMIC TAMIC, an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment management and advisory services to Accounts QB, MM and TB, TAMIC also acts as investment adviser for the following investment companies: High Yield Bond Trust, Managed Assets Trust, Cash Income Trust and the U.S. Government Securities Portfolio of The Travelers Series Trust. These investment companies are among the investment alternatives which serve as the funding media for certain variable annuity and variable life insurance contracts offered by The Travelers Insurance Company and which had aggregate net assets of $178,328,172 at December 31, 1994. TAMIC also acts as investment adviser for individual and pooled pension and profit-sharing accounts, and for offshore and domestic insurance companies affiliated with The Travelers Insurance Company. Investment advice and management for TAMIC's clients are furnished in accordance with their respective investment objectives and policies and investment decisions for the Accounts will be made independently from those of any other accounts managed by TAMIC. However, securities owned by Accounts QB, MM or TB may also be owned by other clients and it may occasionally develop that the same investment advice and decision for more than one client is made at the same time. Furthermore, it may develop that a particular security is bought or sold for only some clients even though it might be held or bought or sold for other clients, or that a particular security is bought for some clients when other clients are selling the security. When two or more accounts are engaged in the purchase or sale of the same security, the transactions are allocated as to amount in accordance with a formula which is equitable to each account. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as Accounts QB, MM or TB are concerned. In other cases, however, it is believed that the ability of the accounts to participate in volume transactions will produce better executions for the accounts. BROKERAGE Subject to approval of the Board of Managers, it is the policy of TAMIC, in executing transactions in portfolio securities, to seek best execution of orders at the most favorable prices. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net economic result to Accounts QB and TB, involving both price paid or received and any commissions and other cost paid, the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, the availability of the broker to stand ready to execute possible difficult transactions in the future, and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by management in determining the overall reasonableness of brokerage commissions paid. Subject to the foregoing, a factor in the selection of brokers is the receipt of research services, analyses and reports concerning issuers, industries, securities, economic factors and trends, and other statistical and factual information. Any such research and other statistical and factual information provided by brokers is considered to be in addition to and not in lieu of services required to be performed by TAMIC under its Investment Advisory Agreements. The cost, value and specific application of such information are indeterminable and hence are not practicably allocable among Accounts QB and TB and other clients of TAMIC who may indirectly benefit from the availability of such information. Similarly, Accounts QB and TB may indirectly benefit from information made available as a result of transactions for such clients. Purchases and sales of bonds and money market instruments will usually be principal transactions and will normally be purchased directly from the issuer or from the underwriter or market maker for the securities. There usually will be no brokerage commissions paid for such purchases. Purchases from the underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include the spread between the bid and asked prices. Where transactions are made in the over-the- counter market, Accounts QB and TB will deal with primary market makers unless more favorable prices are otherwise obtainable. Brokerage fees will be incurred in connection with futures transactions, and Accounts QB and TB will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. TAMIC may follow a policy of considering the sale of units of Account QB and TB a factor in the selection of broker- dealers to execute portfolio transactions, subject to the requirements of best execution described above. The policy of TAMIC with respect to brokerage is and will be reviewed by the Board of Managers periodically. Because of the possibility of further regulatory developments affecting the securities exchanges and brokerage practices generally, the foregoing practices may be changed, modified or eliminated. The total brokerage commissions paid by Account QB for the fiscal years ended December 31, 1992, 1993 and 1994 were $80,374, $87,444 and $82,390, respectively. For the fiscal year ended December 31, 1994, no portfolio transactions were directed to certain brokers because of research services. The total brokerage commissions paid by Account TB for the fiscal years ended December 31, 1992, 1993 and 1994 were $275,151, $128,480 and $46,680, respectively. For the fiscal year ended December 31, 1994, no portfolio transactions were directed to certain brokers because of research services. No brokerage business was placed with any brokers affiliated with TAMIC or its predecessors during the last three fiscal years. PORTFOLIO TRANSACTIONS Subject to the general supervision of the Board of Managers, TAMIC is responsible for the investment decisions and the placement of orders for portfolio transactions of Account MM. Portfolio transactions occur primarily with issuers, underwriters or major dealers in money market instruments acting as principals. Such transactions are normally on a net basis and do not involve payment of brokerage commissions. The cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriter, and transactions with dealers normally reflect the spread between the bid and asked prices. TAMIC seeks to obtain the best net price and most favorable execution of orders for the purchase and sale of portfolio securities. VALUATION OF ASSETS The value of the assets of each Separate Account is determined on each Valuation Date as of the close of the New York Stock Exchange. If the New York Stock Exchange is not open for trading on any such day, then such computation shall be made as of the normal close of the New York Stock Exchange. Each security traded on a national securities exchange is valued at the last reported sale price on the Valuation Date. If there has been no sale on that day, then the value of the security is taken to be the mean between the reported bid and asked prices on the Valuation Date or on the basis of quotations received from a reputable broker or any other recognized source. Any security not traded on a securities exchange but traded in the over-the-counter market and for which market quotations are readily available is valued at the mean between the quoted bid and asked prices on the Valuation Date or on the basis of quotations received from a reputable broker or any other recognized source. Securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. Short-term investments for which a quoted market price is available are valued at market. Short-term investments maturing in more than sixty days for which there is no reliable quoted market price are valued by "marking to market" (computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity). "Marking to market" takes into account unrealized appreciation or depreciation due to changes in interest rates or other factors which would influence the current fair values of such securities. Short-term investments maturing in sixty days or less for which there is no reliable quoted market price are valued at amortized cost which approximates market. PERFORMANCE DATA YIELD QUOTATIONS OF ACCOUNT MM Yield quotations of Account MM are calculated using the base period return for a seven-day period. The base period return is calculated using a hypothetical pre-existing account having a balance of one accumulation unit at the beginning of the period; base period return per accumulation unit is equal to accrued interest on portfolio securities plus or minus amortized purchase discount or premium less all accrued expenses for investment advisory fees and mortality and expense guarantees, and less a pro rata portion of the contract administrative charge (calculated in the manner described under "Average Annual Total Return" below), divided by the accumulation unit value at the beginning of the period. Realized capital gains or losses and unrealized appreciation or depreciation of the portfolio are not included in the base period return, but are included in accumulation unit values. Current yield is equal to the base period return multiplied by 365, and the result divided by 7. The current yield for Account MM for the seven-day period ended December 31, 1994 was 4.65%. Effective yield, which includes the effects of compounding, is equal to the sum of 1 plus the base period return, raised to a power equal to 365 divided by 7, minus 1. The effective yield for Account MM for the seven-day period ended December 31, 1994 was 4.76%. These quotations do not reflect a deduction for any applicable surrender charge. If the surrender charge was included, yield and effective yield would be reduced. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS OF ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS, TB AND FUND U STANDARDIZED METHOD. Quotations of average annual total return are computed according to a formula in which a hypothetical initial investment of $1,000 is applied to an Investment Alternative, and then related to ending redeemable values over one, five and ten year periods (or fractional portions thereof). The quotations reflect the deduction of all recurring charges during each period (on a pro rata basis in the case of fractional periods). The deduction for the semi-annual administrative charge ($15) is converted to a percentage of assets based on the actual fee collected, divided by the average net assets per contract sold under the Prospectus to which this Statement of Additional Information relates. Each quotation assumes a total redemption at the end of each period with the assessment of any applicable surrender charge at that time. For sub-accounts of Fund U that invest in underlying funds that were in existence prior to the date the underlying fund became available under Fund U, average annual total return calculations may include periods prior to the inception of the Fund U subaccount. Such returns will be calculated by adjusting the actual returns of the underlying funds to reflect the charges that would have been assessed under the Fund U sub-account had the underlying fund been available under Fund U during that period. For Accounts TGIS, TSB, TAS and TB, market timing fees are included in expenses in the calculation of performance for periods on or after May 1, 1990, the date on which the market timing fee became a charge against the daily assets of the timed accounts. The performance for periods prior to May 1, 1990 does not reflect the deduction of the market timing fee. NON-STANDARDIZED METHOD. Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U may also show the percentage change in the value of an Accumulation Unit based on the performance of the Account over a period of time, usually for the calendar year-to-date, and for the past one-year, three- year, five-year and seven-year periods, determined by dividing the increase (decrease) in value for that unit by the Accumulation Unit Value at the beginning of the period. This percentage figure will reflect the deduction of any asset based charges under the contracts, but will not reflect the deduction of the semi-annual administrative charge or surrender charge. The deduction of the semi-annual administrative charge or surrender charge would reduce any percentage increase or make greater any percentage decrease. For sub-accounts of Fund U that invest in underlying funds that were in existence prior to the date the underlying funds became available under Fund U, the percentage change in the value of an accumulation unit based on the performance of Fund U over a period of time may include periods prior to the inception of the Fund U sub-account. Such returns will be calculated by adjusting the actual returns of the underlying funds to reflect the charges that would have been assessed under the Fund U sub-account had the underlying fund been available under Fund U during that period. TOTAL RETURN QUOTATIONS FOR TIMED ACCOUNTS. Because Accounts TGIS, TSB, TAS and TB are primarily available to Contract Owners who have entered into third party market timing services agreements, the Accounts may experience wide fluctuations in assets over a given time period. Consequently, performance data computed according to both the standardized and non-standardized methods for Accounts TGIS, TSB, TAS and TB may not always be useful in evaluating the performance of these Accounts. In addition, performance data for Accounts TGIS, TSB, TAS and TB alone will not generally be useful to the purchase of evaluating the performance of a market timing strategy that uses these Accounts. GENERAL. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. Advertisements may include data comparing performance to well-known indices of market performance (including, but not limited to, the Dow Jones Industrial Average, the Standard & Poor's (S&P) 500 Index, and the S&P 400 Index, the Lehman Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan Stanley Capital International's EAFE Index). Advertisements may also include published editorial comments and performance rankings compiled by independent organizations (including, but not limited to, Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that monitor the performance of separate accounts and mutual funds. Average annual total returns of each Separate Account computed according to the standardized and non-standardized methods for the periods ended December 31, 1994 are set forth in the following table.
STANDARDIZED NON-STANDARDIZED INCEPTION DATE 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years Account GIS (6.48)% 4.32% 9.40% (1.27)% 2.37% 5.48% 9.74% 5/83 Account QB (7.57)% 5.31% 7.26% (2.42)% 4.01% 6.44% 7.50% 5/83 Account MM (2.55)% 2.46% 4.67% 2.75% 2.26% 3.67% 5.00% 5/83 Account TGIS (9.64)% 1.98% 7.50%* (4.61)% 1.02% 3.21%* -- 1/88 Account TSB(1) (3.96)% 1.13% 3.38%* 1.33% 0.91% 2.38%* -- 11/87 Account TAS (12.07)% 6.39% 7.40%* (7.16)% 4.50% 7.50%* -- 11/87 Account TB (6.69)% 2.02% 2.42%* (1.49)% 3.77% 3.24%* -- 11/87 Fund U **-- Managed Assets Trust (8.57)% 4.52% 9.89% (3.47)% 2.67% 5.67% 10.24% 5/83 High Yield Bond Trust (7.64)% 5.49% 6.36% (2.49)% 7.04% 6.61% 6.69% 5/83 Capital Appreciation Fund(2) (10.93)% 7.93% 8.88% (5.96)% 7.47% 8.99% 9.23% 5/83 U.S. Government Securities Portfolio (11.74)% 0.48%* -- (6.82)% 2.48%* -- -- 1/92 Social Awareness Stock Portfolio (8.90)% 1.83% -- (3.83)% 3.95%* -- -- 5/92 Utilities Portfolio (4.71)%* -- -- 0.55%* -- -- -- 2/94 Templeton Bond Fund (11.02)% 4.13% 5.09%* (6.06)% 2.50% 5.29% 5.41%* 8/88 Templeton Stock Fund (8.52)% 7.30% 8.72%* (3.42)% 10.56% 8.38% 9.05%* 8/88 Templeton Asset Allocation Fund (9.32)% 6.76% 8.12%* (4.17)% 8.39% 7.85% 8.44%* 8/88 Fidelity's High Income Portfolio (7.90)% 11.69% 9.21%* (2.77)% 12.11% 12.66% 9.55%* 9/85 Fidelity's Equity-Income Portfolio 0.44% 8.08% 9.23%* 5.74% 12.55% 9.14% 9.57%* 10/86 Fidelity's Growth Portfolio (6.47)% 8.46% 10.83%* (1.26)% 7.93% 9.51% 11.17%* 10/86 Fidelity's Asset Manager Portfolio (12.15)% 8.28% 8.51% (7.26)% 6.99% 9.33% 8.84% 9/89 Dreyfus Stock Index Fund (5.63)% 5.70% 6.52% (0.37)% 4.40% 6.82% 6.85% 9/89 American Odyssey Core Equity Fund (7.40)% (3.98)% -- (2.24)% 0.62%* -- -- 5/93 American Odyssey Emerging Opportunities Fund 3.00% 6.61%* -- 8.31% 9.80%* -- -- 5/93 American Odyssey International Equity Fund (12.99)% 1.72%* -- (8.13)% 4.98%* -- -- 5/93 American Odyssey Long-Term Bond Fund (11.84)% (2.76)%* -- (6.93)% 0.58%* -- -- 5/93 American Odyssey Intermediate-Term Bond Fund (9.12)% (3.79)%* -- (4.05)% 0.43%* -- -- 5/93 American Odyssey Short-Term Bond Fund (6.58)% (2.98)%* -- (1.38)% 0.36%* -- -- 5/93 Smith Barney Income and Growth Portfolio (6.94)%* -- -- (1.89)%* -- -- -- 6/94 STANDARDIZED NON-STANDARDIZED INCEPTION DATE 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years Alliance Growth Portfolio (0.48)% -- -- 4.68%* -- -- -- 6/94 Smith Barney International Equity Portfolio (6.36)%* -- -- (4.55)%* -- -- -- 6/94 Putnam Diversified Income Portfolio (4.34)%* -- -- 0.81%* -- -- -- 6/94 G.T. Global Strategic Income Portfolio (10.41)%* -- -- (5.54)%* -- -- -- 6/94 Smith Barney High Income Portfolio (6.36)%* -- -- (1.28)%* -- -- -- 6/94 MFS Total Return Portfolio (7.20)%* -- -- (2.16)%* -- -- -- 6/94 * Since inception date. ** For those Fund U sub-accounts that invest in underlying funds that were in existence prior to the date on which the underlying fund became available under the Contract, performance figures represent actual returns of the underlying funds, adjusted to reflect the charges that would have been assessed had those underlying funds been offered under Fund U during the entire period shown. (1) Formerly The Travelers Timed Money Market Account for Variable Annuities (Account TMM). (2) Formerly Aggressive Stock Trust.
THE BOARD OF MANAGERS The investments and administration of each of the Separate Accounts are under the direction of the Board of Managers, listed below. Members of the Board of Managers of Accounts GIS, QB, MM, TGIS, TSB, TAS and TB are elected annually by those Contract Owners participating in the Separate Accounts. A majority of the members of the Board of Managers are persons who are not affiliated with The Travelers Insurance Company, TIMCO, TAMIC or their affiliates. Name Present Position and Principal Occupation During Last Five Years * Heath B. McLendon Managing Director (1993-present), Smith Barney Chairman and Member Inc. ("Smith Barney"); Chairman (1993-present), 388 Greenwich Street Smith Barney Strategy Advisors, Inc.; President New York, New York (1994-present), Smith Barney Mutual Funds Age 61 Management Inc.; Chairman and/or Director and President of thirty investment companies associated with Smith Barney; Chairman, Board of Trustees, Drew University; Trustee, The East New York Savings Bank; Advisory Director, First Empire State Corporation; Chairman, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Chairman, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company++; prior to July 1993, Senior Executive Vice President of Shearson Lehman Brothers Inc. Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Member Edwards & Angell, Attorneys; Member, Advisory 2700 Hospital Trust Tower Board (1973-1994), thirty-one mutual funds Providence, Rhode Island sponsored by Keystone Group, Inc.; Member, Age 71 Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Robert E. McGill, III Director (1983-present), Executive Vice Member President (1989-1994) and Senior Vice President, One Elm Street Finance and Administration (1983-1989), Windsor Locks, Connecticut The Dexter Corporation (manufacturer of Age 63 specialty chemicals and materials); Vice Chairman (1990-1992), Director (1983-present), Life Technologies, Inc. (life science/biotechnology products); Director (1993-present), Analytical Technology, Inc. (manufacturer of measurement instruments); Director (1994-present), The Connecticut Surety Corporation (insurance); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Lewis Mandell Professor of Finance (1980-present) and Member Associate Dean (1993-present), School of Business 368 Fairfield Road, U41F Administration, and Director, Center for Research Storrs, Connecticut and Development in Financial Services Age 52 (1980-present), University of Connecticut; Director (1992-present), GZA Geoenvironmental Tech, Inc. (engineering services); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Frances M. Hawk Portfolio Manager (1992-present), HLM Management Member Company, Inc. (investment management); Assistant 222 Berkeley Street Treasurer, Pensions and Benefits Management Boston, Massachusetts (1989-1992), United Technologies Corporation Age 47 (broad-based designer and manufacturer of high technology products); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Ernest J. Wright Assistant Secretary (1994-present), Counsel Secretary to the Board (1987-present), The Travelers Insurance Company; One Tower Square Secretary, Board of Managers, seven Variable Hartford, Connecticut Annuity Separate Accounts of The Travelers Age 54 Insurance Company+; Secretary, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company++. + These seven Variable Annuity Separate Accounts are: The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short- Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and The Travelers Timed Bond Account for Variable Annuities. ++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers Series Trust. * Mr. McLendon in an "interested person" within the meaning of the Investment Company Act of 1940 by virtue of his position as Managing Director of Smith Barney Inc., an indirect wholly owned subsidiary of Travelers Group Inc. and also owns shares and options to purchase shares of Travelers Group Inc., the indirect parent of The Travelers Insurance Company. The Dexter Corporation, of which Mr. McGill is a director, entered into contracts with The Travelers Insurance Company to provide short-term disability and life insurance benefits to employees of The Dexter Corporation, and to administer the health and dental benefits program for employees of The Dexter Corporation. The Company is responsible for payment of the fees and expenses of the Board of Managers, for the expenses of audit of the Separate Accounts, and for certain other expenses for services related to the operation of the accounts, for which it deducts certain amounts from purchase payments and from the accounts. Members of the Board of Managers who are also officers or employees of Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members of the Board of Managers who are not affiliated as employees of Travelers Group Inc. or its subsidiaries receive an aggregate annual retainer of $10,000 for service on the Boards of the nine Variable Annuity Separate Accounts established by The Travelers Insurance Company and the five Mutual Funds sponsored by The Travelers Insurance Company. They also receive an aggregate fee of $1,800 for each meeting of such Boards attended. DISTRIBUTION AND MANAGEMENT SERVICES Under the terms of a Distribution and Management Agreement between each Separate Account, the Company and Travelers Equities Sales, Inc., the Company provides all sales and administrative services and mortality and expense risk guarantees related to variable annuity contracts issued by the Company in connection with the Separate Accounts and assumes the risk of minimum death benefits, as applicable. The Company also pays all sales costs (including costs associated with the preparation of sales literature); all costs of qualifying the Separate Accounts and the variable annuity contracts with regulatory authorities; the costs of proxy solicitation; all custodian, accountants' and legal fees; and all compensation paid to the unaffiliated members of the Board of Managers. In addition, under the terms of the Distribution and Management Agreements between the Company and Accounts TGIS, TSB, TAS and TB, the Company deducts amounts necessary to pay fees to third-party registered investment advisers which provide market timing investment advisory services to Contract Owners in those accounts and, in turn, pays such fees to the registered investment advisers. The Company also provides without cost to the Separate Accounts all necessary office space, facilities, and personnel to manage its affairs. The Company received the following amounts from the Separate Accounts in each of the last three fiscal years for services provided under the Distribution and Management Agreements: SEPARATE ACCOUNT 1994 1993 1992 GIS $ 4,025,788 $4,239,811 $3,953,639 QB $ 2,156,643 $1,903,669 $1,564,308 MM $ 1,107,288 $1,050,585 $1,337,875 U $17,248,780 $7,219,329 $2,785,034 TGIS $ 1,409,471 $2,872,771 $3,269,670 TSB $ 3,525,570 $4,308,973 $4,547,489 TAS $ 1,238,375 $ 874,790 $ 471,250 TB $ 47,835 $ 332,985 $ 314,018 PRINCIPAL UNDERWRITER Travelers Equities Sales, Inc. ("TESI"), an affiliate of the Company, serves as principal underwriter for the Separate Accounts. The offering is continuous. TESI is an indirect wholly owned subsidiary of Travelers Group Inc., and its principal executive offices are located at One Tower Square, Hartford, Connecticut. SECURITIES CUSTODIAN Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York, is the custodian of the portfolio securities and similar investments of Accounts GIS, QB, MM, TGIS, TSB, TAS and TB. INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P., Independent Accountants, 100 Pearl Street, Hartford, Connecticut, are the independent auditors for Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U. The services provided to these Separate Accounts include primarily the examination of the Accounts' financial statements. The financial statements of Account GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U included or incorporated by reference in the Prospectus, Statement of Additional Information and their respective Registration Statements have been audited by Coopers & Lybrand L.L.P., as indicated in their reports thereon, and are incorporated herein by reference in reliance upon the authority of said firm as experts in accounting and auditing. FINANCIAL STATEMENTS The financial statements for Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and Fund U contained in the December 31, 1994 Annual Reports to Contract Owners are incorporated herein by reference. A copy may be obtained by writing to The Travelers Insurance Company, Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183, or by calling 1-800-842-0125. The financial statements of the Company, as contained herein, should be considered only as bearing upon the Company's ability to meet its obligations under the Contract, and they should not be considered as bearing on the investment performance of the Separate Accounts. THIS PAGE INTENTIONALLY LEFT BLANK. THIS PAGE INTENTIONALLY LEFT BLANK. THETRAVELERS (logo umbrella) THE TRAVELERS VARIABLE ANNUITIES GROUP VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY Pension and Profit-Sharing, Section 403(b) and Section 408, and Deferred Compensation Programs L-11165S TIC Ed. 5-95 Printed in U.S.A. 1 Independent Auditors' Report The Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the accompanying consolidated balance sheets of The Travelers Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations and retained earnings and cash flows for the year ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Travelers Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for the year ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", in 1994. /s/KPMG PEAT MARWICK LLP Hartford, Connecticut January 17, 1995 16 2 Report of Independent Accountants To the Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the consolidated statements of operations and retained earnings and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1993. These consolidated financial statements are the responsibility of Company management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1993 in conformity with generally accepted accounting principles. /S/ COOPERS & LYBRAND Hartford, Connecticut January 24, 1994 17 3 Report of Independent Accountants To the Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the consolidated statements of operations and retained earnings and cash flows for The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1992. These consolidated financial statements are the responsibility of Company management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1992 in conformity with generally accepted accounting principles. As discussed in Notes 2, 5, 10 and 13 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions, accounting for income taxes and accounting for foreclosed assets in 1992. /S/ COOPERS & LYBRAND Hartford, Connecticut February 9, 1993, except for Notes 2 and 5, as to which the date is January 24, 1994 18 4 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
- --------------------------------------------------------------------------|------------------------------ (for the year ended December 31, in millions) 1994 | 1993 1992 - --------------------------------------------------------------------------|------------------------------ | | REVENUES | Premiums $ 3,861 | $ 2,725 $ 2,686 Net investment income 1,849 | 1,884 2,101 Realized investment gains (losses) 14 | (21) (747) Other 1,023 | 859 785 - --------------------------------------------------------------------------|------------------------------ 6,747 | 5,447 4,825 - --------------------------------------------------------------------------|------------------------------ BENEFITS AND EXPENSES | Current and future insurance benefits 3,421 | 3,121 3,000 Interest credited to contractholders 967 | 1,206 1,456 Claim settlement expenses 193 | 231 264 Amortization of deferred acquisition costs and value of | insurance in force 284 | 55 61 General and administrative expenses 1,025 | 751 987 - --------------------------------------------------------------------------|------------------------------ 5,890 | 5,364 5,768 - --------------------------------------------------------------------------|------------------------------ | Income (loss) before federal income taxes | and cumulative effects | of changes in accounting principles 857 | 83 (943) - --------------------------------------------------------------------------|------------------------------ | Federal income taxes: | Current 36 | 20 2 Deferred 276 | (78) (340) - --------------------------------------------------------------------------|------------------------------ 312 | (58) (338) - --------------------------------------------------------------------------|------------------------------ | Income (loss) before cumulative effects of changes | in accounting principles 545 | 141 (605) Cumulative effect of change in accounting | for postretirement benefits other than | pensions, net of tax - | - (126) Cumulative effect of change in accounting | for income taxes - | - 350 - --------------------------------------------------------------------------|------------------------------ | Net income (loss) 545 | 141 (381) Retained earnings beginning of year 1,017 | 888 1,281 Dividends to parent company - | (14) (14) Preference stock tax benefit allocated by parent - | 2 2 - --------------------------------------------------------------------------|------------------------------ Retained earnings end of year $ 1,562 | $ 1,017 $ 888 - --------------------------------------------------------------------------|------------------------------
See notes to consolidated financial statements. 19 5 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------------------------------- (at December 31, in millions) 1994 1993 - --------------------------------------------------------------------------------------------------------- ASSETS Fixed maturities, available for sale at market in 1994 (cost, $18,579); at lower of aggregate cost or market in 1993 (market, $18,284) $17,260 $18,045 Bonds, held for investment (market, $18) - 18 Equity securities, at market (cost, $173; $199) 169 220 Mortgage loans 4,938 6,845 Real estate held for sale, net of accumulated depreciation of $9; $0 383 954 Policy loans 1,581 1,366 Short-term securities 2,279 1,376 Other investments 885 687 - --------------------------------------------------------------------------------------------------------- Total investments 27,495 29,511 - --------------------------------------------------------------------------------------------------------- Cash 102 50 Investment income accrued 362 379 Premium balances receivable 215 224 Reinsurance recoverable 2,915 2,883 Deferred acquisition costs and value of insurance in force 1,939 1,794 Deferred federal income taxes 950 855 Separate and variable accounts 5,160 4,666 Other assets 1,397 979 - --------------------------------------------------------------------------------------------------------- Total assets $40,535 $41,341 - --------------------------------------------------------------------------------------------------------- LIABILITIES Contractholder funds $16,354 $17,850 Future policy benefits 11,480 11,263 Policy and contract claims 1,222 1,274 Separate and variable accounts 5,128 4,644 Short-term debt 74 - Other liabilities 1,923 2,007 - --------------------------------------------------------------------------------------------------------- Total liabilities 36,181 37,038 - --------------------------------------------------------------------------------------------------------- SHAREHOLDER'S EQUITY Common stock, par value $2.50; 40 million shares authorized, issued and outstanding 100 100 Additional paid-in capital 3,452 3,179 Unrealized investment gains (losses), net of taxes (760) 7 Retained earnings 1,562 1,017 - --------------------------------------------------------------------------------------------------------- Total shareholder's equity 4,354 4,303 - --------------------------------------------------------------------------------------------------------- Total liabilities and shareholder's equity $40,535 $41,341 - ---------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 20 6 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Increase (Decrease) in Cash
- ------------------------------------------------------------------------------------------------------------- (for the year ended December 31, in millions) 1994 | 1993 1992 - ----------------------------------------------------------------------------|-------------------------------- | CASH FLOWS FROM OPERATING ACTIVITIES | Premiums collected $ 3,722 | $ 2,530 $ 2,594 Net investment income received 1,895 | 1,794 2,134 Other revenues received 734 | 568 568 Benefits and claims paid (3,572) | (2,902) (3,123) Interest credited to contractholders (922) | (1,154) (1,404) Operating expenses paid (972) | (859) (869) Income taxes (paid) refunded (27) | 25 (2) Trading account investments, (purchases) sales, net - | (1,576) (364) Other (141) | 202 522 - ----------------------------------------------------------------------------|-------------------------------- Net cash provided by (used in) operating activities 717 | (1,372) 56 - ----------------------------------------------------------------------------|-------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES | Investment repayments | Fixed maturities 2,783 | 2,624 2,084 Mortgage loans 1,337 | 1,210 1,063 Proceeds from investments sold | Fixed maturities 1,370 | 102 175 Equity securities 359 | 75 173 Mortgage loans 557 | 310 254 Real estate 728 | 949 235 Investments in | Fixed maturities (4,767) | (3,269) (2,471) Equity securities (340) | (51) (119) Mortgage loans (94) | (246) (63) Policy loans, net (215) | (2) (184) Short-term securities, (purchases) sales, net (903) | 860 (615) Other investments, (purchases) sales, net (50) | 53 191 Securities sold under repurchase agreement (209) | - - Cash from disposition of operations 53 | - 5 - ----------------------------------------------------------------------------|-------------------------------- Net cash provided by investing activities 609 | 2,615 728 - ----------------------------------------------------------------------------|-------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES | Issuance (redemption) of short-term debt, net 74 | - - Contractholder fund deposits 2,197 | 3,159 3,047 Contractholder fund withdrawals (3,529) | (4,418) (5,003) Dividends to parent company - | (14) (14) Return of capital to parent company (23) | - - Contributions from parent company - | - 500 Other 7 | 6 2 - ----------------------------------------------------------------------------|-------------------------------- Net cash used in financing activities (1,274) | (1,267) (1,468) - ----------------------------------------------------------------------------|-------------------------------- Net increase (decrease) in cash $ 52 | $ (24) $ (684) - ----------------------------------------------------------------------------|-------------------------------- | Cash at December 31 $ 102 | $ 50 $ 74 - -------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 21 7 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Travelers Insurance Company and its subsidiaries (the Company) is a wholly owned subsidiary of The Travelers Insurance Group Inc. (TIG). TIG is an indirect wholly owned subsidiary of The Travelers Inc. Significant accounting policies used in the preparation of the accompanying financial statements follow. Basis of presentation In December 1992, Primerica Corporation (Primerica) acquired approximately 27% of the common stock of the Company's then parent, The Travelers Corporation (the Acquisition). The Acquisition was accounted for as a purchase. In connection with the Acquisition, Primerica transferred 100% of the preferred provider organization and third party administrator networks of Transport Life Insurance Company (a wholly owned subsidiary of Primerica) to The Travelers Corporation, which contributed them to the Company. The Company realized an increase to shareholder's equity of $23 million related to this contribution. Effective December 31, 1993, Primerica acquired the approximately 73% of The Travelers Corporation common stock which it did not already own, and The Travelers Corporation was merged into Primerica, which was renamed The Travelers Inc. This was effected through the exchange of .80423 shares of The Travelers Inc. common stock for each share of The Travelers Corporation common stock (the Merger). All subsidiaries of The Travelers Corporation were contributed to TIG. In conjunction with the Merger, The Travelers Inc. contributed Travelers Insurance Holdings Inc. (formerly Primerica Insurance Holdings, Inc.) and its subsidiaries (TIHI) to TIG, which in turn contributed TIHI to the Company. TIHI is an intermediate holding company whose primary subsidiaries are Primerica Life Insurance Company (Primerica Life) and its subsidiary National Benefit Life Insurance Company (NBL), and Transport Life Insurance Company (Transport). Through its subsidiaries, TIHI primarily offers individual insurance and specialty accident and health insurance. The Company realized an increase to shareholder's equity of $2.1 billion at December 31, 1993 related to the contribution of TIHI. At December 31, 1993 and subsequent, TIHI is included in the Life and Annuities segment. The consolidated financial statements and the accompanying notes reflect the historical operations of the Company for the years ended December 31, 1993 and 1992. The results of operations of TIHI and its subsidiaries are not included in the 1993 and 1992 financial statements. The Company's consolidated balance sheet and related data at December 31, 1994 and 1993 include TIHI on a fully consolidated basis. The Acquisition and the Merger are being accounted for as a "step acquisition." The consolidated balance sheet and related data at December 31, 1993 reflect adjustments of assets and liabilities of the Company (except TIHI) to their fair values determined at each acquisition date (i.e., 27% of values at December 31, 1992 as carried forward and 73% of the values at December 31, 1993). These assets and liabilities are reflected in the consolidated balance sheet at December 31, 1993 based upon management's then best estimate of their fair values. Evaluation and appraisal of assets and liabilities, including investments, the value of insurance in force, reinsurance recoverable, other insurance assets and liabilities and related deferred income taxes were completed during 1994. 22 8 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued The excess of the 27% share of assigned value of identifiable net assets over cost at December 31, 1992, which was allocated to the Company through the "pushdown" basis of accounting, was approximately $56 million and is being amortized over ten years on a straight-line basis. The excess of the purchase price of the common stock over the fair value of the 73% of net assets acquired at December 31, 1993, which was allocated to the Company through the "pushdown" basis of accounting, was approximately $340 million and is being amortized over 40 years on a straight-line basis. The consolidated statement of operations and retained earnings, the consolidated statement of cash flows and the related accompanying notes for the year ended December 31, 1994, which are presented on a purchase accounting basis, are separated from the corresponding 1993 and 1992 information, which is presented on a historical accounting basis, to indicate the difference in valuation bases. Principles of Consolidation The financial statements have been prepared in conformity with generally accepted accounting principles and include the Company and its significant insurance and noninsurance subsidiaries. Certain prior year amounts have been reclassified to conform with the 1994 presentation. Investments Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities are valued based upon quoted market prices, or if quoted market prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. Securities are classified as "available for sale" and are reported at fair value, with unrealized investment gains and losses, net of income taxes, charged or credited directly to shareholder's equity. As of December 31, 1993, in conjunction with the Merger, the majority of fixed maturities were classified as "available for sale" and recorded at the lower of aggregate cost or market value. Fixed maturities classified as "held for investment" were carried at amortized cost. Equity securities, which include common and nonredeemable preferred stocks, are available for sale and carried at fair value based primarily on quoted market prices. Changes in fair values of equity securities are charged or credited directly to shareholder's equity, net of income taxes. Mortgage loans are carried at amortized cost. Real estate held for sale is carried at the lower of cost or fair value less estimated costs to sell. Fair value was established at time of foreclosure by appraisers, both internal and external, using discounted cash flow analyses and other acceptable techniques. 23 9 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Accrual of income is suspended on fixed maturities or mortgage loans that are in default, or on which it is likely that future interest payments will not be made as scheduled. Interest income on investments in default is recognized only as payment is received. Gains or losses arising from futures contracts used to hedge investments are treated as basis adjustments and are recognized in income over the life of the hedged investments. Gains and losses arising from forward contracts used to hedge foreign investments in the Company's U.S. portfolios are a component of realized investment gains and losses. Gains and losses arising from forward contracts used to hedge investments in foreign operations (primarily Canadian) are reflected directly in shareholder's equity, net of income taxes. Interest rate swaps are used to manage interest rate risk in the investment portfolio and are marked to market with unrealized gains and losses recorded as a component of shareholder's equity, net of income taxes. Rate differentials on interest rate swap agreements are accrued between settlement dates and are recognized as an adjustment to interest income from the related investment. Investment Gains and Losses Realized investment gains and losses are included as a component of pretax revenues based upon specific identification of the investments sold on the trade date and, prior to the Merger, included adjustments to investment valuation reserves. These adjustments reflected changes considered to be other than temporary in the net realizable value of investments. Also included are gains and losses arising from the translation of the local currency value of foreign investments to U.S. dollars, the functional currency of the Company. Policy Loans Policy loans are carried at the amount of the unpaid balances that are not in excess of the net cash surrender values of the related insurance policies. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. Deferred Acquisition Costs Costs of acquiring individual life insurance, annuities, and health business, principally commissions and certain expenses related to policy issuance, underwriting and marketing, all of which vary with and are primarily related to the production of new business, are deferred. Acquisition costs relating to traditional life insurance and guaranteed renewable health contracts are amortized over the period of anticipated premiums; universal life in relation to estimated gross profits; and annuity contracts employing a level yield method. For life insurance, a 10- to 25-year amortization period is used; for guaranteed renewable health, a 10-year period, and a 10- to 15-year period is employed for annuities. Deferred acquisition costs are reviewed periodically for recoverability to determine if any adjustment is required. 24 10 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Value of Insurance In Force The value of insurance in force represents the actuarially determined present value of anticipated profits to be realized from life insurance, annuities and health contracts at the date of the Merger using the same assumptions that were used for computing related liabilities where appropriate. The value of insurance in force was the actuarially determined present value of the projected future profits discounted at interest rates ranging from 14% to 18% for the business acquired. The value of the business in force is amortized over the contract period using current interest crediting rates to accrete interest and using amortization methods based on the specified products. Traditional life insurance and guaranteed renewable health policies are amortized over the period of anticipated premiums; universal life is amortized in relation to estimated gross profits; and annuity contracts are amortized employing a level yield method. The value of insurance in force is reviewed periodically for recoverability to determine if any adjustment is required. Separate and Variable Accounts Separate and variable accounts primarily represent funds for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholders. Each account has specific investment objectives. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. The assets of these accounts are carried at market value. Certain other separate accounts provide guaranteed levels of return or benefits and the assets of these accounts are carried at amortized cost, except at December 31, 1993 the assets and liabilities of these accounts were recorded at the value assigned at the acquisition dates. Amounts assessed to the contractholders for management services are included in revenues. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses. Goodwill The excess of the 27% share of assigned value of identifiable assets over cost at December 31, 1992 allocated to the Company as a result of the Acquisition amounted to approximately $56 million and is being amortized over 10 years on a straight-line basis. Goodwill resulting from the excess of the purchase price over the fair value of the 73% of net assets acquired related to the Merger amounted to approximately $340 million at December 31, 1993 and is being amortized over 40 years on a straight-line basis. TIHI has goodwill of $246 million. 25 11 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Contractholder Funds Contractholder funds represent receipts from the issuance of universal life, pension investment and certain individual annuity contracts. Such receipts are considered deposits on investment contracts that do not have substantial mortality or morbidity risk. Account balances are also increased by interest credited and reduced by withdrawals, mortality charges and administrative expenses charged to the contractholders. Calculations of contractholder account balances for investment contracts reflect lapse, withdrawal and interest rate assumptions based on contract provisions, the Company's experience and industry standards. Interest rates credited to contractholder funds range from 3.4% to 8.0%. Contractholder funds also include other funds that policyholders leave on deposit with the Company. Benefit Reserves Benefit reserves represent liabilities for future insurance policy benefits. Benefit reserves for traditional life insurance, annuities, and accident and health policies have been computed based upon mortality, morbidity, persistency and interest assumptions applicable to these coverages, which range from 2.5% to 12.0%, including adverse deviation. These assumptions consider Company experience and industry standards and may be revised if it is determined that the future experience will differ substantially from that previously assumed. The assumptions vary by plan, age at issue, year of issue and duration. Appropriate recognition has been given to experience rating and reinsurance. Operating Leases At December 31, 1993, operating leases were recorded at the value assigned at the acquisition dates and included in the consolidated balance sheet as a component of other liabilities. This liability is being amortized over the average lease period. Permitted Statutory Accounting Practices The Company, domiciled principally in Connecticut and Massachusetts, prepares statutory financial statements in accordance with the accounting practices prescribed or permitted by the insurance departments of those states. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The impact of any permitted accounting practices on statutory surplus of the Company is not material. Premiums Premiums are recognized as revenues when due. Reserves are established for the portion of premiums that will be earned in future periods and for deferred profits on limited-payment policies that are being recognized in income over the policy term. At December 31, 1993, the deferred profits on limited-payment policies were recorded at the values assigned at the acquisition dates. 26 12 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Other Revenues Other revenues include surrender, mortality and administrative charges and fees as earned on investment, universal life and other insurance contracts. Other revenues also include gains and losses on dispositions of assets and operations other than realized investment gains and losses, revenues of noninsurance subsidiaries, and the pretax operating results of real estate joint ventures. Interest Credited to Contractholders Interest credited to contractholders represents amounts earned by universal life, pension investment and certain individual annuity contracts in accordance with contract provisions. Federal Income Taxes The provision for federal income taxes is comprised of two components, current income taxes and deferred income taxes. Deferred federal income taxes arise from changes in the Company's deferred federal income tax asset during the year. The deferred federal income tax asset is recognized to the extent that future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. Accounting Standards not yet Adopted Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (FAS 118), and Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FAS 114), describe how impaired loans should be measured when determining the amount of a loan loss accrual. These statements also amend existing guidance on the measurement of restructured loans in a troubled debt restructuring involving a modification of terms. The adoption of these statements, effective January 1, 1995, will not have a material effect on results of operations or financial position. 2. CHANGES IN ACCOUNTING PRINCIPLES Accounting for Certain Debt and Equity Securities Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), which addresses accounting and reporting for investments in equity securities that have a readily determinable fair value and for all debt securities. Investment securities have been classified as "available for sale" and are reported at fair value, with unrealized gains and losses, net of income taxes, charged or credited directly to shareholder's equity. Previously, securities classified as available for sale were carried at the lower of aggregate cost or market value. Initial adoption of this standard resulted in an increase of approximately $232 million (net of taxes) to net unrealized gains which is included in shareholder's equity. This increase included an unrealized gain of $133 million (net of income taxes) on TIHI's investment in the common stock of The Travelers Inc. See note 15 for additional disclosures. 27 13 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. CHANGES IN ACCOUNTING PRINCIPLES, Continued Offsetting of Amounts Related to Certain Contracts Effective January 1, 1994, the Company adopted Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts" (Interpretation 39). The general principle of Interpretation 39 states that amounts due from and due to another party may not be offset in the consolidated balance sheet unless a right of setoff exists and the parties intend to exercise the right of setoff. Implementation of Interpretation 39 did not have a material impact on the Company's financial position; however, assets and liabilities were both increased by $68 million as of December 31, 1994. Accounting and Reporting for Reinsurance Contracts In the first quarter of 1993, the Company implemented Statement of Financial Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113). FAS 113 requires the reporting of reinsurance receivables and prepaid reinsurance premiums as assets and precludes the immediate recognition of gains for all reinsurance contracts unless the liability to the policyholder has been extinguished. Implementation of FAS 113 did not have an impact on the Company's earnings, however, assets and liabilities increased by like amounts. See note 5 for additional reinsurance disclosures. Postretirement Benefits Other Than Pensions In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). As required, the Company changed its method of accounting for retiree benefit plans effective January 1, 1992, to accrue for the Company's share of the costs of postretirement benefits over the service period rendered by employees. Previously these benefits were charged to expense when paid. The Company elected to recognize immediately the liability for postretirement benefits as the cumulative effect of a change in accounting principle. This resulted in a noncash after-tax charge to net income of $126 million. See note 10 for additional information relating to FAS 106. Accounting for Income Taxes In the third quarter of 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109) with retroactive application to January 1, 1992. FAS 109 establishes new principles for calculating and reporting the effects of federal income taxes in financial statements. FAS 109 replaces the income statement orientation inherent in the prior income tax accounting standard with a balance sheet approach. Under the new approach, deferred tax assets and liabilities are generally determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. FAS 109 allows recognition of deferred tax assets if future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. 28 14 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. CHANGES IN ACCOUNTING PRINCIPLES, Continued The implementation of FAS 109 resulted in a one time increase to earnings of $350 million in the first quarter of 1992. This increase in earnings was principally due to tax rate differences and the recognition of a portion of previously unrecognized deferred tax assets. See note 13 for further discussion of FAS 109. Accounting for Foreclosed Assets In February 1993, The Travelers Corporation announced its intent to accelerate the sale of foreclosed real estate and, effective December 31, 1992, changed its method of accounting for foreclosed assets in compliance with the American Institute of Certified Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP 92-3). This guidance requires that in-substance foreclosures and foreclosed assets held for sale be carried at the lower of cost or fair value less estimated costs to sell. Previously, all foreclosed assets were carried at cost less accumulated depreciation. This accounting change resulted in a pretax charge of $412 million to realized investment losses in 1992. 3. ACQUISITIONS AND DISPOSITIONS In December 1994, the Company and its affiliates sold its group dental insurance business to Metropolitan Life Insurance Company (MetLife) and realized a gain on the sale of $9 million (aftertax). On January 3, 1995, the Company and its affiliates completed the sale of its group life and related businesses to MetLife, and completed the formation of The MetraHealth Companies, Inc. (MetraHealth), a joint venture of the medical businesses of the Company and its affiliates and MetLife. The Company and its affiliates sold its group life business as well as related non-medical group insurance businesses to MetLife for $350 million. The assets transferred included customer lists, books and records, and furniture and equipment. In connection with the sale, the Company and its affiliates agreed to cede 100% of its risks in the group life and related businesses to MetLife on an indemnity reinsurance basis, effective January 1, 1995. In connection with the reinsurance transaction, the Company and its affiliates transferred assets with a fair market value of approximately $1.5 billion to MetLife, equal to the statutory reserves and other liabilities transferred. On January 3, 1995, the Company and MetLife and certain of their affiliates formed the MetraHealth joint venture by contributing their group medical businesses to MetraHealth, in exchange for shares of common stock of MetraHealth. The assets transferred included cash, fixed assets, customer lists, books and records, certain trademarks and other assets used exclusively or primarily in the medical businesses. The Company also contributed all of the capital stock of its wholly owned subsidiary, The Travelers Employee Benefits Company, to MetraHealth. The total contribution by the Company amounted to $336 million at carrying value on the date of contribution. No gain was recognized upon the formation of the joint venture. Upon formation of the joint venture the Company owned 42.6% of the outstanding capital stock of MetraHealth, TIG owned 7.4% and the other 50% was owned by MetLife and its affiliates. 29 15 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 3. ACQUISITIONS AND DISPOSITIONS, Continued In connection with the formation of the joint venture, the transfer of the fee based medical business (Administrative Services Only) and other noninsurance business to MetraHealth was completed on January 3, 1995. As the medical insurance business of the Company comes due for renewal and after obtaining regulatory approvals, the risks will be transferred to MetraHealth. In the interim the related operating results for this medical insurance business will be reported by the Company. All of the businesses sold to MetLife or contributed to MetraHealth were included in the Company's Managed Care and Employee Benefits Operations (MCEBO). Revenues and net income from MCEBO for the year ended 1994 amounted to $3.5 billion and $157 million, respectively. Beginning in 1995 the Company's results will reflect the runoff medical insurance business, plus its equity interest in the earnings of MetraHealth. On December 31, 1993, in conjunction with the Merger, The Travelers Inc. contributed TIHI to TIG, which TIG then contributed to the Company at a carrying value of $2.1 billion. Through its subsidiaries TIHI primarily offers individual life insurance and specialty accident and health insurance. In December 1992, in conjunction with the Acquisition, The Travelers Corporation acquired Transport Life Insurance Company's preferred provider and third party administrator organizations from Primerica Corporation (see note 1), and on December 30, 1992 contributed these businesses to the Company. 4. COMMERCIAL PAPER AND LINES OF CREDIT The Company issues commercial paper directly to investors and had $74 million outstanding at December 31, 1994. The Company maintains unused credit availability under bank lines of credit at least equal to the amount of the outstanding commercial paper. In 1994, The Travelers Inc., Commercial Credit Company (an indirect wholly owned subsidiary of The Travelers Inc.) and the Company entered into an agreement with a syndicate of banks to provide $1.5 billion of revolving credit, to be allocated to any of the above-indicated companies. The revolving credit facility consists of a 364-day revolving credit in the amount of $300 million and a 5-year revolving credit in the amount of $1.2 billion. The participation of the Company in this facility is limited to $300 million, and at December 31, 1994, the Company's allocation was $200 million, all of which was unused. 30 16 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. REINSURANCE The Company participates in reinsurance in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and to effect business-sharing arrangements. Reinsurance is accomplished through various plans of reinsurance, primarily coinsurance, modified coinsurance and yearly renewable term. The Company remains primarily liable as the direct insurer on all risks reinsured. It is the policy of the Company to obtain reinsurance for amounts above certain retention limits on individual life policies which vary with age and underwriting classification. Generally, the maximum retention on an ordinary life risk is $1.5 million. The Company writes workers' compensation business through its Accident Department. This business is ceded 100% to the Travelers Indemnity Company. A summary of reinsurance financial data reflected within the consolidated statement of operations and retained earnings is presented below (in millions):
- -----------------------------------------------------------------|------------------------------ 1994 | 1993 1992 - -----------------------------------------------------------------|------------------------------ | Written Premiums: | Direct $ 4,529 | $ 3,308 $ 3,163 | Assumed from: | Affiliated companies 59 | 31 15 Non-affiliated companies 33 | 60 115 | Ceded to: | Affiliated companies (358) | (496) (522) Non-affiliated companies (341) | (98) (62) - -----------------------------------------------------------------|------------------------------ | Total Net Written Premiums $ 3,922 | $ 2,805 $ 2,709 =================================================================|============================== | Earned Premiums: | Direct $ 4,475 | $ 3,256 $ 3,124 | Assumed from: | Affiliated companies 65 | 32 15 Non-affiliated companies 30 | 32 110 | Ceded to: | Affiliated companies (384) | (512) (491) Non-affiliated companies (333) | (87) (64) - -----------------------------------------------------------------|------------------------------ | Total Net Earned Premiums $ 3,853 | $ 2,721 $ 2,694 =================================================================|==============================
31 17 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. REINSURANCE, Continued Reinsurance recoverables at December 31 include amounts recoverable on unpaid and paid losses and were as follows (in millions):
------------------------------------------------------------------------------ 1994 1993 ------------------------------------------------------------------------------ Reinsurance Recoverables: Life and accident and health business: Affiliated companies $ 3 $ 3 Non-affiliated companies 661 689 Property-casualty business: Affiliated companies 2,251 2,191 ------------------------------------------------------------------------------ Total Reinsurance Recoverables $ 2,915 $ 2,883 ==============================================================================
6. SHAREHOLDER'S EQUITY Additional Paid-In Capital The increase of $273 million in additional paid-in capital during 1994 is due primarily to the finalization of the evaluations and appraisals used to assign fair values to assets and liabilities under purchase accounting. The increase of $1.7 billion in additional paid-in capital during 1993 arose from a contribution of $400 million from The Travelers Corporation and the contribution of TIHI (see notes 1 and 3). This was partially offset by the impact of the initial evaluations and appraisals used to assign fair values to assets and liabilities under purchase accounting. The increase in additional paid-in capital during December 31, 1992 arose from a contribution of $500 million in 1992 from The Travelers Corporation and the contribution of Transport Life Insurance Company's preferred provider and third party administrator organizations in 1992 (see note 3). Unrealized Investment Gains (Losses) An analysis of the change in unrealized gains and losses on investments is shown in note 15. 32 18 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 6. SHAREHOLDER'S EQUITY, Continued Shareholder's Equity and Dividend Availability The statutory net income, including TIHI, was $100 million for the year ended December 31, 1994. The statutory net loss, excluding TIHI, was $648 million and $346 million for the years ended December 31, 1993 and 1992, respectively. Statutory capital and surplus was $2.1 billion and $1.8 billion at December 31, 1994 and 1993, respectively. The Company is currently subject to various regulatory restrictions that limit the maximum amount of dividends available to TIG without prior approval of insurance regulatory authorities. Under statutory accounting practices, there is no statutory surplus available in 1995 for dividends to TIG without prior approval of the Connecticut Insurance Department. Dividend payments to the Company from its insurance subsidiaries are subject to similar restrictions and statutory surplus of the subsidiaries is not available in 1995 for dividends to the Company without prior approval of insurance regulatory authorities. 7. ADDITIONAL OPERATING INFORMATION The Company has segmented its business by major product lines. TIHI was contributed to the Company on December 31, 1993, and its assets at that date and subsequent and its operations for the year ended December 31, 1994 are included in the following table in the Life and Annuities segment. Transport Life Insurance Company's preferred provider and third party administrator organizations were contributed to the Company in December 1992 and are included in the Managed Care and Employee Benefits segment. 33 19 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 7. ADDITIONAL OPERATING INFORMATION, continued Results included in the table below reflect 1993 fourth quarter after-tax charges of $103 million for an addition to reserves for foreclosed properties held for sale and 1992 fourth quarter after-tax charges of $272 million for implementation of SOP 92-3 and $193 million for an addition to mortgage loan valuation reserves.
Managed Care Corporate Travelers Life and Employee and Other (in millions) and Annuities Benefits Operations Consolidated - ------------------------------------------------------------------------------------------------------------------------ 1994 - ---- Revenues Premiums $ 1,492 $ 2,369 $ - $ 3,861 Net investment income 1,603 246 - 1,849 Realized investment gains 13 - 1 14 Other 173 850 - 1,023 - ------------------------------------------------------------------------------------------------------------------------ Total $ 3,281 $ 3,465 $ 1 $ 6,747 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes $ 604 $ 257 $ (4) $ 857 Net income (loss) 392 157 (4) 545 Assets 33,078 5,131 2,326 40,535 - ------------------------------------------------------------------------------------------------------------------------ 1993 - ---- Revenues Premiums $ 330 $ 2,395 $ - $ 2,725 Net investment income 1,616 265 3 1,884 Realized investment gains (losses) (45) 24 - (21) Other 120 737 2 859 - ------------------------------------------------------------------------------------------------------------------------ Total $ 2,021 $ 3,421 $ 5 $ 5,447 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes $ (87) $ 173 $ (3) $ 83 Net income (loss) 19 123 (1) 141 Assets (purchase accounting value) 34,155 4,744 2,442 41,341 - ------------------------------------------------------------------------------------------------------------------------ 1992 - ---- Revenues Premiums $ 278 $ 2,408 $ - $ 2,686 Net investment income 1,799 290 12 2,101 Realized investment gains (losses) (725) (22) - (747) Other 140 645 - 785 - ------------------------------------------------------------------------------------------------------------------------ Total $ 1,492 $ 3,321 $ 12 $ 4,825 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes and cumulative effects of changes in accounting principles $ (844) $ (100) $ 1 $ (943) Cumulative effect of change in accounting for postretirement benefits other than pensions, net of tax (25) (101) - (126) Cumulative effect of change in accounting for income taxes 223 124 3 350 Net income (loss) (343) (42) 4 (381) Assets 31,378 4,498 2,191 38,067 - ------------------------------------------------------------------------------------------------------------------------
34 20 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, including financial futures, interest rate swaps and forward contracts, as a means of prudently hedging exposure to price, foreign currency and/or interest rate risk on anticipated investment purchases or existing assets and liabilities. Also, in the normal course of business, the Company has fixed and variable rate loan commitments and unfunded commitments to partnerships. The Company does not hold or issue derivative instruments for trading purposes. These derivative financial instruments have off-balance-sheet risk. Financial instruments with off-balance-sheet risk involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instrument. However, the maximum credit loss or cash flow associated with these instruments can be less than these amounts. For forward contracts and interest rate swaps, credit risk is limited to the amounts calculated to be due the Company on such contracts. For unfunded commitments to partnerships, credit exposure is the amount of the unfunded commitments. For fixed and variable rate loan commitments, credit exposure is represented by the contractual amount of these instruments. The Company monitors creditworthiness of counterparties to these financial instruments by using criteria of acceptable risk that are consistent with on-balance-sheet financial instruments. The controls include credit approvals, limits and other monitoring procedures. Many transactions include the use of collateral to minimize credit risk and lower the effective cost to the borrower. The Company may occasionally enter into interest rate swaps in connection with other financial instruments to provide greater risk diversification and better match an asset with a corresponding liability. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating rate interest amounts calculated by reference to an agreed notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each due date. Swap agreements are not exchange traded so they are subject to the risk of default by the counterparty. In all cases, counterparties under these agreements are major financial institutions with the risk of non-performance considered remote. At December 31, 1994 and 1993, the Company had entered into interest rate swaps with contract values of $145 million and $153 million, respectively. At both December 31, 1994 and 1993, the fair value of interest rate swaps was $1 million (loss position) which is determined using a discounted cash flow method. The off-balance-sheet risks of financial futures contracts, forward contracts, fixed and variable rate loan commitments and unfunded commitments to partnerships were not considered significant at December 31, 1994 and 1993. 35 21 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued Fair Value of Certain Financial Instruments The Company uses various financial instruments in the normal course of its business. Fair values of financial instruments which are considered insurance contracts are not required to be disclosed and are not included in the amounts discussed. At December 31, 1994 and 1993, investments in fixed maturities have a fair value of $17.3 billion and $18.3 billion, respectively. See note 15. At December 31, 1994, mortgage loans have a carrying value of $4.9 billion, which approximates fair value, compared with a carrying value and a fair value of $6.8 billion at December 31, 1993. In estimating fair value, the Company used interest rates reflecting the higher returns required in the current real estate financing market. The carrying value of $417 million and $320 million of financial instruments classified as other assets approximates fair values at December 31, 1994 and 1993, respectively. The carrying value of $1.2 billion and $878 million of financial instruments classified as other liabilities also approximates their fair values at December 31, 1994 and 1993, respectively. Fair value is determined using various methods including discounted cash flows and carrying value, as appropriate for the various financial instruments. At December 31, 1994, contractholder funds with defined maturities have a carrying value of $4.2 billion and a fair value of $4.0 billion, compared with a carrying value and a fair value of $5.0 billion at December 31, 1993. The fair value of these contracts is determined by discounting expected cash flows at an interest rate commensurate with the Company's credit risk and the expected timing of cash flows. Contractholder funds without defined maturities have a carrying value of $9.1 billion and a fair value of $8.8 billion at December 31, 1994, compared with a carrying value of $13.0 billion and a fair value of $12.7 billion at December 31, 1993. These contracts generally are valued at surrender value. The assets of separate accounts providing a guaranteed return have a carrying value and a fair value of $1.5 billion and $1.4 billion, respectively, at December 31, 1994, compared with a carrying value and a fair value of $1.5 billion and $1.6 billion, respectively, at December 31, 1993. The liabilities of separate accounts providing a guaranteed return have a carrying value and a fair value of $1.5 billion and $1.3 billion, respectively, at December 31, 1994, compared with a carrying value and a fair value of $1.5 billion and $1.7 billion, respectively, at December 31, 1993. 36 22 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued The carrying values of cash, short-term securities and investment income accrued approximate their fair values. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. 9. COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance-Sheet Risk See Note 8 for a discussion of financial instruments with off-balance-sheet risk. Litigation In April 1989, a lawsuit was filed against the Company by the federal government alleging the Company improperly handled health benefit claims for individuals who are actively employed and eligible for Medicare coverage. In November 1992, the court ruled on cross motions for summary judgment. The court found that the Company had no liability when acting in the capacity of an administrator of claims. However, the court also recognized that, while the government's right of recovery with respect to insured claims is governed by the substantive terms of our customers' health benefit plan, the right of recovery is independent of procedural limitations in the Company's contracts. The Company is a defendant or codefendant in various litigation matters. Although there can be no assurances, as of December 31, 1994, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition or liquidity. 10. BENEFIT PLANS Pension Plans The Company participates in qualified and nonqualified, noncontributory defined benefit pension plans covering the majority of the Company's U.S. employees. Benefits for the qualified plan are based on an account balance formula. Under this formula, each employee's accrued benefit can be expressed as an account that is credited with amounts based upon the employee's pay, length of service and a specified interest rate, all subject to a minimum benefit level. This plan is funded in accordance with the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. For the nonqualified plan, contributions are based on benefits paid. Certain subsidiaries of TIHI participate in a noncontributory defined benefit plan sponsored by their ultimate parent, The Travelers Inc. 37 23 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 10. BENEFIT PLANS, Continued The Company's share of net pension expense was $6 million, $8 million and $22 million for 1994, 1993 and 1992, respectively. Through plans sponsored by TIG, the Company also provides defined contribution pension plans for certain agents. Company contributions are primarily a function of production. The expense for these plans was $2 million in 1994, 1993 and 1992. Certain non-U.S. employees of TIHI are covered by noncontributory defined benefit plans. These plans are funded based upon local laws. Other Benefit Plans In addition to pension benefits, the Company provides certain health care and life insurance benefits for retired employees through a plan sponsored by TIG. This plan does not include employees of TIHI. Covered employees may become eligible for these benefits if they reach retirement age while working for the Company. These retirees may elect certain prepaid health care benefit plans. Life insurance benefits generally are set at a fixed amount. The cost recognized by the Company for these benefits represents its allocated share of the total costs of the plan, net of employee contributions. In the third quarter of 1992, TIG adopted FAS 106 and elected to recognize the accumulated postretirement benefit obligation (i.e., the transition obligation) as a change in accounting principle retroactive to January 1, 1992. The Company's pretax share of the total cost of the plan for 1994, 1993 and 1992 was $14 million, $29 million and $26 million, respectively. The Merger resulted in a change in control of The Travelers Corporation as defined in the applicable plans, and provisions of some employee benefit plans secured existing compensation and benefit entitlements earned prior to the change in control, and provided a salary and benefit continuation floor for employees whose employment was affected. The costs related to these changes have been assumed by TIG. Savings, Investment and Stock Ownership Plan Under the savings, investment and stock ownership plan available to substantially all employees of TIG (except TIHI), the Company matches a portion of employee contributions. Effective April 1, 1993, the match decreased from 100% to 50% of an employee's first 5% contribution and a variable match based on TIG's profitability was added. The Company's matching obligations were $7 million, $10 million and $16 million in 1994, 1993 and 1992, respectively. 38 24 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 11. RELATED PARTY TRANSACTIONS The principal banking functions for certain subsidiaries and affiliates of TIG, and salaries and expenses for TIG and its insurance subsidiaries (excluding TIHI), are handled by the Company. Settlements for these functions between the Company and its affiliates are made regularly. The Company provides various insurance coverages, principally life and health, to employees of certain subsidiaries of TIG. The premiums for these coverages were charged in accordance with normal cost allocation procedures. In addition, investment advisory and management services, data processing services and claims processing services are provided by affiliated companies. TIG and its subsidiaries maintain short-term investment pools in which the Company participates. The positions of each company participating in the pools are calculated and adjusted daily. At December 31, 1994 and 1993, the pools totaled approximately $1.5 billion and $1.3 billion, respectively. The Company's share of the pools amounted to $1.1 billion and $439 million at December 31, 1994 and 1993, respectively, and is included in short-term securities in the consolidated balance sheet. The Company markets a variable annuity product through its affiliate, Smith Barney. Sales of this product were $158 million in 1994. The Company leases new furniture and equipment from a noninsurance subsidiary of TIG. The rental expense charged to the Company for this furniture and equipment was $9 million, $10 million and $9 million in 1994, 1993 and 1992, respectively. At December 31, 1994 and 1993, TIC has an investment of $23 million and $27 million, respectively, in bonds of its affiliate, Commercial Credit Company. This is included in fixed maturities in the consolidated balance sheet. TIHI has an investment of $231 million and $110 million in common stock of The Travelers Inc. at December 31, 1994 and 1993, respectively. This is carried at fair value at December 31, 1994 and at cost at December 31, 1993. At December 31, 1994, TIHI has an investment of $35 million in redeemable preferred stock of The Travelers Inc. which is carried at fair value. TIHI has notes receivable from The Travelers Inc. of $30 million at December 31, 1994 and 1993, which are carried at cost. These assets are included in other investments in the consolidated balance sheet. 39 25 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 12. LEASES The Company has entered into various operating and capital lease agreements for office space and data processing and certain other equipment. Rental expense under operating leases was $99 million, $113 million and $122 million in 1994, 1993 and 1992, respectively. Future net minimum rental and lease payments are estimated as follows:
------------------------------------------------------------------------------------------ Minimum operating Minimum capital ------------------------------------------------------------------------------------------ (in millions) rental payments lease payments ------------------------------------------------------------------------------------------ Year ending December 31, 1995 $ 112 $ 7 1996 85 7 1997 69 4 1998 54 4 1999 47 4 Thereafter 36 64 ------------------------------------------------------------------------------------------ $ 403 $ 90 ------------------------------------------------------------------------------------------
The Company is reimbursed by affiliates of TIG for utilization of space and equipment. The following is a summary of assets under capital leases:
------------------------------------------------------------------------- (in millions) 1994 1993 ------------------------------------------------------------------------- Buildings $ 25 $ 25 Equipment 14 14 ------------------------------------------------------------------------- 39 39 Less accumulated depreciation 17 14 ------------------------------------------------------------------------- Net $ 22 $ 25 -------------------------------------------------------------------------
The net carrying value of the assets is recorded at amortized cost and at the value assigned at the acquisition dates at December 31, 1994 and 1993, respectively. 40 26 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES
------------------------------------------------------------------------------------------- (in millions) 1994 | 1993 1992 ------------------------------------------------------------|------------------------------ | Effective tax rate | | Income (loss) before federal | income taxes $ 857 | $ 83 $ (943) ------------------------------------------------------------|------------------------------ Statutory tax rate 35% | 35% 34% ------------------------------------------------------------|------------------------------ | Expected federal income taxes $ 300 | $ 29 $ (321) Tax effect of: | Nontaxable investment income (4) | (1) (1) Adjustments to benefit and other reserves - | (46) (18) Adjustment to deferred tax asset for | enacted change in tax rates from | 34% to 35% - | (25) - Goodwill 12 | - - Other 4 | (15) 2 ------------------------------------------------------------|------------------------------ Federal income taxes $ 312 | $ (58) $ (338) ------------------------------------------------------------|------------------------------ | Effective tax rate 36% | (70%) 36% ------------------------------------------------------------|------------------------------ | Composition of federal income taxes | Current: | United States $ 22 | $ 17 $ (3) Foreign 14 | 3 5 ------------------------------------------------------------|------------------------------ Total 36 | 20 2 ------------------------------------------------------------|------------------------------ | Deferred: | United States 271 | (78) (340) Foreign 5 | - - ------------------------------------------------------------|------------------------------ Total 276 | (78) (340) ------------------------------------------------------------|------------------------------ Federal income taxes $ 312 | $ (58) $ (338) -------------------------------------------------------------------------------------------
41 27 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES, Continued The net deferred tax assets at December 31, 1994 and 1993 were comprised of the tax effects of the temporary differences related to the following assets and liabilities:
---------------------------------------------------------------------------------------------- (in millions) 1994 1993 ---------------------------------------------------------------------------------------------- Deferred tax assets: Benefit, reinsurance and other reserves $ 453 $ 575 Contractholder funds 158 184 Investments 690 492 Other employee benefits 87 65 Other 257 146 ---------------------------------------------------------------------------------------------- Total 1,645 1,462 ---------------------------------------------------------------------------------------------- Deferred tax liabilities: Deferred acquisition costs and value of insurance in force 529 504 Prepaid pension expense 5 3 Other 61 - ---------------------------------------------------------------------------------------------- Total 595 507 ---------------------------------------------------------------------------------------------- Net deferred tax asset before valuation allowance 1,050 955 Valuation allowance for deferred tax assets (100) (100) ---------------------------------------------------------------------------------------------- Net deferred tax asset after valuation allowance $ 950 $ 855 ----------------------------------------------------------------------------------------------
Starting in 1994 and continuing for at least five years, the Company and its life insurance subsidiaries will file a consolidated federal income tax return. Federal income taxes are allocated to each member of the consolidated return on a separate return basis adjusted for credits and other amounts required by the consolidation process. Any resulting liability will be paid currently to the Company. Any credits for losses will be paid by the Company to the extent that such credits are for tax benefits that have been utilized in the consolidated federal income tax return. The Company has no receivable for unreimbursed credits from its previous allocation agreement with The Travelers Corporation. 42 28 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES, Continued A net deferred tax asset valuation allowance of $100 million has been established to reduce the net deferred tax asset on investment losses to the amount that, based upon available evidence, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future capital gains in the Company's consolidated life insurance company federal income tax return through 1998, and the consolidated federal income tax return of The Travelers Inc. commencing in 1999 or a change in circumstances which causes the recognition of the benefits to become more likely than not. There was no net change in the valuation allowance during 1994. The initial recognition of any benefit produced by the reversal of the valuation allowance will be recognized by reducing goodwill. The Company has a net deferred tax asset, after the valuation allowance of $100 million, which relates to temporary differences that are expected to reverse as net ordinary deductions except for a deferred tax asset of $319 million which relates to the unrealized loss on fixed maturity investments. Management does not intend to realize the unrealized loss on the fixed maturity investments except to the extent of offsetting capital gains. The Company will have to generate approximately $1.8 billion of taxable income, before reversal of these temporary differences, primarily over the next 10 to 15 years, to realize the remainder of the deferred tax asset, exclusive of the unrealized loss on fixed maturity investments. Management expects to realize the remainder of the deferred tax asset based upon its expectation of future positive taxable income, after the reversal of these deductible temporary differences, in the consolidated life insurance company federal income tax return through 1998, and the consolidated federal income tax return of The Travelers Inc. commencing in 1999. The taxable income of The Travelers Inc. consolidated return, after reversal of the deductible temporary differences, is expected to be at least $1 billion annually. At December 31, 1994, the Company has no ordinary or capital loss carryforwards. The "policyholders surplus account", which arose under prior tax law, is generally that portion of the gain from operations that has not been subjected to tax, plus certain deductions. The balance of this account, which, under provisions of the Tax Reform Act of 1984, will not increase after 1983, is estimated to be $932 million. This amount has not been subjected to current income taxes but, under certain conditions that management considers to be remote, may become subject to income taxes in future years. At current rates, the maximum amount of such tax (for which no provision has been made in the financial statements) is approximately $326 million. See note 2 for a discussion of the implementation of new principles for accounting for income taxes. 43 29 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 14. NET INVESTMENT INCOME
------------------------------------------------------------------|------------------------------ (For the year ended December 31, in millions) 1994 | 1993 1992 ------------------------------------------------------------------|------------------------------ | Gross investment income | Fixed maturities $ 1,253 | $ 1,221 $ 1,242 Mortgage loans 534 | 692 868 Real estate 177 | 383 384 Policy loans 112 | 106 109 Other 7 | (23) - ------------------------------------------------------------------|------------------------------ 2,083 | 2,379 2,603 ------------------------------------------------------------------|------------------------------ | Investment expenses 234 | 495 502 ------------------------------------------------------------------|------------------------------ Net investment income $ 1,849 | $ 1,884 $ 2,101 ------------------------------------------------------------------|------------------------------
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES) Realized investment gains (losses) for the periods were as follows:
-------------------------------------------------------------------|----------------------------- (For the year ended December 31, in millions) 1994 | 1993 1992 -------------------------------------------------------------------|----------------------------- | Realized | | Fixed maturities $ (3) | $ 182 $ (11) Equity securities 19 | 14 9 Mortgage loans - | (32) (386) Real estate - | (222) (400) Other (2) | 37 41 -------------------------------------------------------------------|----------------------------- Realized investment gains (losses) $ 14 | $ (21) $ (747) -------------------------------------------------------------------|-----------------------------
44 30 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Changes in net unrealized investment gains (losses) that are included as a separate component of shareholder's equity were as follows:
------------------------------------------------------------------------------------------------- (For the year ended December 31, in millions) 1994 | 1993 1992 -------------------------------------------------------------------|----------------------------- | Unrealized | | Fixed maturities $ (1,319) | $ (235) $ 146 Equity securities (25) | (17) 6 Other 165 | 28 4 -------------------------------------------------------------------|----------------------------- (1,179) | (224) 156 Related taxes (412) | (83) 53 -------------------------------------------------------------------|----------------------------- | Net unrealized investment gains (losses) (767) | (141) 103 Contribution of TIHI - 5 | - Balance beginning of year 7 143 | 40 --------------------------------------------------------------------------------------|---------- Balance end of year $ (760) $ 7 | $ 143 -------------------------------------------------------------------------------------------------
The initial adoption of FAS 115 resulted in an increase of approximately $232 million (net of taxes) to net unrealized gains in 1994. Fixed Maturities Proceeds from sales of fixed maturities classified as available for sale were $1.4 billion in 1994, resulting in gross realized gains of $15 million and gross realized losses of $27 million. There were no sales of fixed maturities classified as available for sale in 1993 or 1992 as, in conjunction with the Merger, fixed maturities were first classified as "available for sale" effective December 31, 1993. Prior to December 31, 1993, fixed maturities that were intended to be held to maturity were recorded at amortized cost and classified as held for investment. Sales from the amortized cost portfolios have been made periodically. Such sales were $97 million and $195 million in 1993 and 1992, respectively. Gross gains of $7 million and $10 million in 1993 and 1992, respectively, and gross losses of $1 million and $6 million in 1993 and 1992, respectively, were realized on those sales. Prior to December 31, 1993, the carrying values of the trading portfolio fixed maturities were adjusted to market value as it was likely they would be sold prior to maturity. At December 31, 1992, these fixed maturities had market values of $4.8 billion. Sales of trading portfolio fixed maturities were $4.0 billion and $642 million in 1993 and 1992, respectively. Gross gains of $165 million and $24 million in 1993 and 1992, respectively, and gross losses of $2 million and $4 million in 1993 and 1992, respectively, were realized on those sales. 45 31 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued The amortized cost and market value of investments in fixed maturities were as follows:
------------------------------------------------------------------------------------------------ December 31, 1994 ------------------------------------------------------------------------------------------------ Gross Gross Amortized unrealized unrealized Market (in millions) cost gains losses value ------------------------------------------------------------------------------------------------ Available for sale: Mortgage-backed securities - CMOs and pass through securities $ 3,779 $ 3 $ 304 $ 3,478 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 3,080 3 306 2,777 Obligations of states, municipalities and political subdivisions 87 - 7 80 Debt securities issued by foreign governments 398 - 26 372 All other corporate bonds 11,225 14 696 10,543 Redeemable preferred stock 10 - - 10 ------------------------------------------------------------------------------------------------ Total $ 18,579 $ 20 $ 1,339 $ 17,260 ------------------------------------------------------------------------------------------------
46 32 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
------------------------------------------------------------------------------------------------ December 31, 1993 ------------------------------------------------------------------------------------------------ Gross Gross Carrying unrealized unrealized Market (in millions) value gains losses value ------------------------------------------------------------------------------------------------ Available for sale: Mortgage-backed securities - CMOs and pass through securities $ 4,219 $ 18 $ 18 $ 4,219 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 2,807 67 6 2,868 Obligations of states, municipalities and political subdivisions 259 9 - 268 Debt securities issued by foreign governments 333 6 - 339 All other corporate bonds 10,474* 125 29 10,570 Redeemable preferred stock 20 - - 20 Held for investment 18 - - 18 ------------------------------------------------------------------------------------------------ Total $ 18,130 $ 225 $ 53 $ 18,302 ------------------------------------------------------------------------------------------------
* Before valuation reserves of $67 million. The amortized cost and market value of fixed maturities at December 31, 1994, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
------------------------------------------------------------------------------------------------ Maturity Amortized Market (in millions) cost value ------------------------------------------------------------------------------------------------ Due in one year or less $ 1,217 $ 1,197 Due after 1 year through 5 years 4,691 4,434 Due after 5 years through 10 years 5,731 5,310 Due after 10 years 3,161 2,841 ------------------------------------------------------------------------------------------------ 14,800 13,782 Mortgage-backed securities 3,779 3,478 ------------------------------------------------------------------------------------------------ Total $ 18,579 $ 17,260 ------------------------------------------------------------------------------------------------
47 33 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued The Company makes significant investments in collateralized mortgage obligations (CMOs). CMOs typically have high credit quality, offer good liquidity, and provide a significant advantage in yield and total return compared to U.S. Treasury securities. The Company's investment strategy is to purchase CMO tranches which are protected against prepayment risk, primarily planned amortization class (PAC) tranches. Prepayment protected tranches are preferred because they provide stable cash flows in a variety of scenarios. The Company does invest in other types of CMO tranches if a careful assessment indicates a favorable risk/return tradeoff. The Company does not purchase residual interests in CMOs. At December 31, 1994 and 1993, the Company held CMOs with a market value of $2.2 billion and $2.5 billion, respectively. Approximately 88% of the Company's CMO holdings are fully collateralized by GNMA, FNMA or FHLMC securities at December 31, 1994 and 1993. The majority of these are GNMA-backed securities. In addition, the Company held $1.3 billion and $1.9 billion of GNMA, FNMA or FHLMC mortgage-backed securities at December 31, 1994 and 1993, respectively. Virtually all of these securities are rated AAA. The Company also held $927 million and $899 million of securities that are backed primarily by credit card or car loan receivables at December 31, 1994 and 1993, respectively. Equity Securities The cost and market values of investments in equity securities were as follows:
------------------------------------------------------------------------------------------------ December 31, 1994 ------------------------------------------------------------------------------------------------ Gross Gross unrealized unrealized Market (in thousands) Cost gains losses value ------------------------------------------------------------------------------------------------ Common stocks $ 133 $ 19 $ 21 $ 131 Nonredeemable preferred stocks 40 - 2 38 ------------------------------------------------------------------------------------------------ Total $ 173 $ 19 $ 23 $ 169 ------------------------------------------------------------------------------------------------ December 31, 1993 ------------------------------------------------------------------------------------------------ Common stocks $ 129 $ 22 $ 3 $ 148 Nonredeemable preferred stocks 70 3 1 72 ------------------------------------------------------------------------------------------------ Total $ 199 $ 25 $ 4 $ 220 ------------------------------------------------------------------------------------------------
Proceeds from sales of equity securities were $359 million in 1994, resulting in gross realized gains of $24 million and gross realized losses of $6 million. 48 34 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Mortgage loans and real estate Underperforming assets include delinquent mortgage loans, loans in the process of foreclosure, foreclosed loans and loans modified at interest rates below market. The Company continues its strategy, adopted in conjunction with the Merger, to dispose of these real estate assets and some of the mortgage loans and to reinvest the proceeds to obtain current market yields. At December 31, 1994 and 1993, the Company's mortgage loan and real estate held for sale portfolios consisted of the following (in millions):
------------------------------------------------------------------------------ 1994 1993 ------------------------------------------------------------------------------ Current mortgage loans $ 4,467 $ 5,680 Underperforming mortgage loans 471 1,165 ------------------------------------------------------------------------------ Total mortgage loans 4,938 6,845 ------------------------------------------------------------------------------ Real estate held for sale 383 954 ------------------------------------------------------------------------------ Total mortgage loans and real estate $ 5,321 $ 7,799 ------------------------------------------------------------------------------
Aggregate annual maturities on mortgage loans at December 31, 1994 are as follows:
----------------------------------------------------- (in millions) ----------------------------------------------------- Past maturity $ 196 1995 708 1996 517 1997 550 1998 614 1999 611 Thereafter 1,742 ----------------------------------------------------- Total $ 4,938 -----------------------------------------------------
Concentrations At December 31, 1994 and 1993, the Company had no concentration of credit risk in a single investee exceeding 10% of consolidated shareholder's equity. The Company participates in two short-term investment pools maintained by TIG and its subsidiaries. These pools are discussed in note 11. 49 35 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Included in fixed maturities are below investment grade assets totaling $922 million and $814 million at December 31, 1994 and 1993, respectively. The Company defines its below investment grade assets as those securities rated "Ba1" or below by external rating agencies, or the equivalent by the internal analysts when a public rating does not exist. Such assets include publicly traded below investment grade bonds, highly leveraged transactions and certain other privately issued bonds that are classified as below investment grade loans. The Company also has significant concentrations of investments in the following industries:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ Finance $ 1,241 $ 1,442 Electric utilities 1,222 1,348 Banking 953 743 Oil and gas 859 651 ------------------------------------------------------------------------------------------------
Below investment grade assets included in the totals above, are as follows:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ Finance $ 75 $ 45 Electric utilities 32 47 Banking 21 21 Oil and gas 33 38 ------------------------------------------------------------------------------------------------
At December 31, 1994 and 1993, significant concentrations of mortgage loans were for properties located in highly populated areas in the states listed below. The amounts are shown below:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ California $ 929 $ 1,174 New York 558 780 Florida 432 588 Texas 380 584 Illinois 347 485 ------------------------------------------------------------------------------------------------
Other mortgage loan investments are fairly evenly dispersed throughout the United States, with no holdings in any state exceeding $273 million and $324 million at December 31, 1994 and 1993, respectively. 50 36 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Concentrations of mortgage loans by property type at December 31, 1994 and 1993 are shown below:
----------------------------------------------------------------------------------------------- (in millions) 1994 1993 ----------------------------------------------------------------------------------------------- Office $ 2,065 $ 2,769 Apartment 1,029 1,635 Retail 606 891 Agricultural 540 643 Hotel 402 547 -----------------------------------------------------------------------------------------------
Real estate investments are dispersed throughout the United States, with no holdings in any state exceeding $111 million or $191 million at December 31, 1994 or 1993, respectively. Real estate assets at December 31, 1994 and 1993 included office properties with carrying values of $205 million and $568 million, respectively. The Company monitors creditworthiness of counterparties to all financial instruments by using controls that include credit approvals, limits and other monitoring procedures. Collateral for fixed maturities often includes pledges of assets, including stock and other assets, guarantees and letters of credit. The Company's underwriting standards with respect to new mortgage loans generally require loan to value ratios of 75% or less at the time of mortgage origination. Investment Valuation Reserves At December 31, 1994, 1993 and 1992, total investment valuation reserves, which are deducted from the applicable investment carrying values in the consolidated balance sheet, were as follows:
------------------------------------------------------------------------------------------------- (in millions) 1994 | 1993 1992 ------------------------------------------------------------------|------------------------------ | Beginning of year $ 67 | $ 1,417 $ 864 Increase - | 195 821 Impairments, net of gains/recoveries - | (602) (268) FAS 115/Purchase accounting adjustment (67) | (943) - ------------------------------------------------------------------------------------------------- End of year $ - $ 67 | $ 1,417 -------------------------------------------------------------------------------------------------
At December 31, 1993, investment valuation reserves were comprised of $67 million for securities. Increases in the investment valuation reserves are reflected as realized investment losses. 51 37 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Nonincome Producing Investments included in the consolidated balance sheets that were nonincome producing for the preceding 12 months were as follows:
----------------------------------------------------------------------------------------------- (in millions) 1994 1993 ----------------------------------------------------------------------------------------------- Mortgage loans $ 127 $ 249 Real estate 73 147 Fixed maturities 6 24 ----------------------------------------------------------------------------------------------- Total $ 206 $ 420 -----------------------------------------------------------------------------------------------
Restructured The Company has mortgage loans and debt securities which were restructured at below market terms totaling approximately $259 million and $796 million at December 31, 1994 and 1993, respectively. At December 31, 1993, the Company's restructured assets are recorded at purchase accounting value. The new terms typically defer a portion of contract interest payments to varying future periods. The accrual of interest is suspended on all restructured assets, and interest income is reported only as payment is received. Gross interest income on restructured assets that would have been recorded in accordance with the original terms of such loans amounted to $52 million in 1994 and $121 million in 1993. Interest on these assets, included in net investment income, aggregated $17 million and $52 million in 1994 and 1993, respectively. 16. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES At December 31, 1994, the Company has $23.2 billion of life and annuity deposit funds and reserves. Of that total, $11.6 billion are not subject to discretionary withdrawal based on contract terms and related market conditions. The remaining $11.6 billion are for life and annuity products that are subject to discretionary withdrawal by the contractholder. Included in the amount that is subject to discretionary withdrawal are $1.9 billion of liabilities that are surrenderable with market value adjustments. An additional $5.7 billion of the life insurance and individual annuity liabilities are subject to discretionary withdrawals with an average surrender charge of 5.5%. Another $1.4 billion of liabilities are surrenderable at book value over 5 to 10 years. In the payout phase, these funds are credited at significantly reduced interest rates. The remaining $2.6 billion of liabilities are surrenderable without charge. Approximately 30% of these liabilities relate to individual life products. These risks would have to be underwritten again if transferred to another carrier, which is considered a significant deterrent for long-term policyholders. Insurance liabilities that are surrendered or withdrawn from the Company are reduced by outstanding policy loans and related accrued interest prior to payout. 52 38 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 17. RESTRUCTURING COSTS During 1992, the Company announced a series of organizational restructuring initiatives associated with its plan to streamline its business and corporate operations. These initiatives have been substantially completed. These initiatives resulted in a pretax charge in 1992 of $151 million, consisting of $96 million for severance, benefits, accrued vacation and outplacement costs, $5 million for relocation costs due to consolidation efforts, $19 million for lease costs, $15 million for writeoff of goodwill related to identified divestitures and $16 million of miscellaneous other costs. 18. RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES In the first quarter of 1992, the Company changed its presentation of cash flows from operating activities from the indirect method to the direct method. The following table reconciles net income (loss) to net cash provided by operating activities:
------------------------------------------------------------------------------------------------ (For the year ended December 31, in millions) 1994 | 1993 1992 ----------------------------------------------------------------|------------------------------- | Net income (loss) $ 545 | $ 141 $ (381) Reconciling adjustments | Realized gains (losses) (14) | 21 747 Deferred federal income taxes 276 | (78) (340) Amortization of deferred policy acquisition | costs and value of insurance in force 284 | 55 61 Additions to deferred policy acquisition costs (429) | 5 (2) Trading account investments, | (purchases) sales, net - | (1,576) (364) Investment income accrued 17 | 1 29 Premium balances receivable 9 | 41 3 Insurance reserves and accrued expenses 165 | 542 (81) Restructuring reserves - | (79) 121 Cumulative effects of changes in | accounting principles - | - (224) Other, including investment valuation reserves | in 1993 and 1992 (136) | (445) 487 ----------------------------------------------------------------|------------------------------- | Net cash provided by (used in) | operating activities $ 717 | $ (1,372) $ 56 ------------------------------------------------------------------------------------------------
53 39 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 19. NONCASH INVESTING AND FINANCING ACTIVITIES Significant noncash investing and financing activities include: a) the 1994 exchange of $23 million of TIHI's investment in The Travelers Inc. common stock for $35 million of The Travelers Inc. nonredeemable preferred stock; b) the acquisition of real estate through foreclosures of mortgage loans amounting to $229 million, $563 million and $753 million in 1994, 1993 and 1992, respectively; c) the acceptance of purchase money mortgages for sales of real estate aggregating $96 million, $190 million and $72 million in 1994, 1993 and 1992, respectively; d) the 1993 contribution of TIHI by The Travelers Inc. (see note 3); e) the 1993 contribution of $400 million of bond investments by The Travelers Corporation (see note 6); f) increases in investment valuation reserves in 1993 and 1992 for securities, mortgage loans and/or investment real estate (see note 15); g) the 1993 transfer of $352 million of mortgage loans and bonds from the Company's general account to two separate accounts; and h) the contribution in 1992 of Transport Life Insurance Company's preferred provider and third party administrator organizations by The Travelers Corporation (see note 3). 54 THETRAVELERS (logo umbrella) STATEMENT OF ADDITIONAL INFORMATION THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES GROUP VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY FOR FUNDING QUALIFIED RETIREMENT PLANS UNDER PENSION AND PROFIT-SHARING PROGRAMS May 1, 1995 This Statement of Additional Information is not a prospectus but relates to, and should be read in conjunction with, the Prospectus dated May 1, 1995. A copy of the Prospectus may be obtained by writing to The Travelers Insurance Company (the "Company"), Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183-5030, or by calling 1-800-842-0125. TABLE OF CONTENTS
PAGE DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS 1 The Insurance Company 1 The Separate Accounts 1 INVESTMENT OBJECTIVES AND POLICIES 1 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES 1 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES 3 DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS 4 WRITING COVERED CALL OPTIONS 4 BUYING PUT AND CALL OPTIONS 5 FUTURES CONTRACTS 5 MONEY MARKET INSTRUMENTS 7 INVESTMENT MANAGEMENT AND ADVISORY SERVICES 9 Advisory Fees 10 TIMCO 10 TAMIC 11 VALUATION OF ASSETS 12 THE BOARD OF MANAGERS 12 DISTRIBUTION AND MANAGEMENT SERVICES 14 SECURITIES CUSTODIAN 14 INDEPENDENT ACCOUNTANTS 14 FINANCIAL STATEMENTS 15 FINANCIAL STATEMENTS - THE TRAVELERS INSURANCE COMPANY F-1 DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS THE INSURANCE COMPANY The Travelers Insurance Company (the "Company") is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group Inc. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. THE SEPARATE ACCOUNTS Each of the Separate Accounts which serve as the funding vehicles for the Variable Annuity contracts described in this Statement of Additional Information meets the definition of a separate account under the federal securities laws, and will comply with the provisions of the Investment Company Act of 1940, as amended (the "1940 Act"). Additionally, the operations of each of the Separate Accounts are subject to the provisions of Section 38a-433 of the Connecticut General Statutes which authorizes the Connecticut Insurance Commissioner to adopt regulations under it. The Section contains no restrictions on investments of the Separate Accounts, and the Commissioner has adopted no regulations under the Section that affect the Separate Accounts. The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) was established on September 22, 1967, and The Travelers Quality Bond Account for Variable Annuities (Account QB) was established on July 29, 1974. Each of the Separate Accounts, although an integral part of the Company, is registered with the Securities and Exchange Commission as a diversified, open-end management investment company under the 1940 Act. The assets of Accounts GIS and QB are invested directly in securities (such as stocks, bonds or money market instruments) which are compatible with the stated investment policies of each account. Purchase Payments may be allocated to either of the Separate Accounts. The Company may make additions to or deletions from the investment alternatives available under the Contract, as permitted by law. The investment objectives of each of the Separate Accounts are as follows: ACCOUNT GIS: The primary objective of Account GIS is long-term accumulation of principal through capital appreciation and retention of net investment income. The assets of Account GIS will normally be invested in a portfolio of common stocks spread over industries and companies. ACCOUNT QB: The primary objective of Account QB is current income, moderate capital volatility and total return. Assets of Account QB will be invested in short-term to intermediate- term bonds or other debt securities with a market value- weighted average maturity of five years or less. INVESTMENT OBJECTIVES AND POLICIES Each Separate Account has a different investment objective and different investment policies, and each Separate Account has certain fundamental investment restrictions, all of which are set forth below. Neither the investment objective nor the fundamental investment restrictions can be changed without a vote of a majority of the outstanding voting securities of the Accounts, as defined in the 1940 Act. Additionally, in accomplishing their respective investment objectives, each Account uses certain types of investments and investment techniques which are discussed under "Investments and Investment Techniques" on page 4. The percentage restrictions (for either fundamental investment policies or investment restrictions) are interpreted such that if they are adhered to at the time of investment, a later increase in a percentage beyond the specified limit resulting from a change in the values of portfolio securities or in the amount of net assets shall not be considered a violation. It must be recognized that there are risks inherent in the ownership of any investment and that there can be no assurance that the investment objectives of the Separate Accounts will be achieved. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account GIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account GIS will primarily be invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may also be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States Government securities. These investments generally would not have a prospect of long-term appreciation. Investments in other than equity securities are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account GIS may use exchange-traded financial futures contracts as a hedge to protect against changes in stock prices. The use of stock index futures by Account GIS is intended primarily to limit transaction and borrowing costs. Account GIS expects that risk management transactions involving futures contracts will not impact more than thirty percent (30%) of Account GIS's assets at any one time. Account GIS may also write covered call options on securities which it owns, and may purchase index or individual equity call or put options. INVESTMENT RESTRICTIONS The investment restrictions for Account GIS set forth in items 1 through 9 are fundamental and may not be changed without a vote of a majority of the outstanding voting securities, as defined in the 1940 Act. Items 10 through 13 may be changed by a vote of the Board of Managers. 1. Not more than 5% of the assets of the Account will be invested in the securities of any one issuer, except obligations of the United States Government and its instrumentalities. 2. Borrowings will not be made, except that the right is reserved to borrow from banks for emergency purposes, provided that such borrowings will not exceed 5% of the value of the assets of the Account and that immediately after the borrowing, and at all times thereafter, and while any such borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of the Account. 3. Securities of other issuers will not be underwritten, except that the Account could be deemed an underwriter when engaged in the sale of restricted securities. (See item 13.) 4. Interests in real estate will not be purchased, except as may be represented by securities for which there is an established market. 5. No purchase of commodities or commodity contracts will be made, except transactions involving financial futures in order to limit transaction and borrowing costs and for hedging purposes, as discussed above. 6. Loans will be made only through the acquisition of a portion of privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors. (See item 13.) 7. Investments will not be made in the securities of a company for the purpose of exercising management or control. 8. Not more than 10% of the voting securities of any one issuer will be acquired. (It is the present practice of Account GIS not to exceed 5% of the voting securities of any one issuer.) 9. Senior securities will not be issued. 10. Short sales of securities will not be made. 11. Purchases will not be made on margin, except for short-term credits which are necessary for the clearance of transactions, and for the placement of not more than 5% of its net asset value in total margin deposits for positions in futures contracts. 12. The Account will not invest in the securities of other investment companies, except as part of a plan of merger, consolidation or acquisition of assets. 13. Not more than 5% of the value of the assets of the Account may be invested in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). Changes in the investments of Account GIS may be made from time to time to take into account changes in the outlook for particular industries or companies. Account GIS's investments will not, however, be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of its assets will be invested in any one industry. While Account GIS may occasionally invest in foreign securities, it is not anticipated that such investments will, at any time, account for more than ten percent (10%) of its investment portfolio. The assets of Account GIS will be kept fully invested, except that (a) sufficient cash may be kept on hand to provide for variable annuity contract obligations, and (b) reasonable amounts of cash, United States Government or other liquid securities, such as short-term bills and notes, may be held for limited periods, pending investment in accordance with their respective investment policies. PORTFOLIO TURNOVER Although Account GIS intends to purchase securities for long-term appreciation of capital and income, and does not intend to place emphasis on obtaining short-term trading profits, such short-term trading may occur. A higher turnover rate should not be interpreted as indicating a variation from the stated investment policy of seeking long- term accumulation of capital, and will normally increase the brokerage costs of Account GIS. However, negotiated fees and the use of futures contracts will help to reduce brokerage costs. While there is no restriction on portfolio turnover, Account GIS expects to have a moderate to high level of portfolio turnover in the range of 150% to 300%. The portfolio turnover rate for Account GIS for the years ended December 31, 1992, 1993 and 1994 was 189%, 81% and 103%, respectively. THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. It is contemplated that the assets of Account QB will be invested in money market obligations, including, but not limited to, Treasury bills, repurchase agreements, commercial paper, bank certificates of deposit and bankers' acceptances, and in publicly traded debt securities, including bonds, notes, debentures, equipment trust certificates and short-term instruments. These securities may carry certain equity features such as conversion or exchange rights or warrants for the acquisition of stocks of the same or different issuer, or participations based on revenues, sales or profits. It is currently anticipated that the market value-weighted average maturity of the portfolio will not exceed five years. (In the case of mortgage-backed securities, the estimated average life of cash flows will be used instead of average maturity.) Investments in longer term obligations may be made if the Board of Managers concludes that the investment yields justify a longer term commitment. Account QB may purchase and sell futures contracts on debt securities ("interest rate futures") to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account QB's securities. The portfolio will be actively managed and Account QB may sell investments prior to maturity to the extent that this action is considered advantageous in light of factors such as market conditions or brokerage costs. While the investments of Account QB are generally not listed securities, there are firms which make markets in the type of debt instruments which Account QB holds. No problems of salability are anticipated with regard to the investments of Account QB. The Board of Managers will weigh considerations of risks, yield and ratings in implementing Account QB's fundamental investment policies. There are no specific criteria with regard to quality or ratings of the investments of Account QB, but it is anticipated that they will be of investment grade or its equivalent as determined in good faith by the Board of Managers. There may or may not be more risk in investing in debt instruments where there are no specific criteria with regard to quality or ratings of the investments. INVESTMENT RESTRICTIONS The investment restrictions set forth in items 1 through 9 below are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account QB, as defined in the 1940 Act. Items 10 through 14 may be changed by a vote of the Board of Managers of Account QB. 1. Not more than 15% of the value of the assets of Account QB will be invested in the securities of any one issuer, except obligations of the United States Government and its instrumentalities, for which there is no limit. 2. Borrowings will not be made, except that the right is reserved to borrow from banks for emergency purposes, provided that these borrowings will not exceed 5% of the value of the assets of Account QB and that immediately after the borrowing, and at all times thereafter, and while any borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of Account QB. 3. Securities of other issuers will not be underwritten, except that Account QB could be deemed to be an underwriter when engaged in the sale of restricted securities. (See item 13.) 4. Interests in real estate will not be purchased, except as may be represented by securities for which there is an established market. 5. No purchase of commodities or commodity contracts will be made, except transactions involving financial futures used as a hedge against unanticipated changes in prevailing levels of interest rates. 6. Loans will be made only through the acquisition of a portion of privately placed issue of bonds, debentures and other evidences of indebtedness of a type customarily purchased by institutional investors. (See item 13.) 7. Investments will not be made in the securities of a company for the purpose of exercising management or control. 8. Not more than 10% of the voting securities of any one issuer will be acquired. 9. Senior securities will not be issued. 10. Short sales of securities will not be made. 11. Purchases will not be made on margin, except for any short- term credits that are necessary for the clearance of transactions and to place up to 5% of the value of its net assets in total margin deposits for positions in futures contracts. 12. Account QB will not invest in the securities of other investment companies, except as part of a plan of merger, consolidation or acquisition of assets. 13. Not more than 5% of the value of the assets of Account QB may be invested in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). 14. The average period of maturity (or in the case of mortgage- backed securities, the estimated average life of cash flows) of all fixed interest debt instruments held by Account QB will not exceed five years. The investments of Account QB will not be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of its assets will be invested in any one industry. There is no investment policy as to Account QB's investment in foreign securities. PORTFOLIO TURNOVER Brokerage costs associated with short-term debt instruments are significantly lower than those incurred on equity investments, and thus, a high portfolio turnover rate would not adversely affect the brokerage costs of Account QB to the same extent as high turnover in a separate account which invests primarily in common stock. The portfolio turnover rate for Account QB for the years ended December 31, 1992, 1993 and 1994 was 23%, 24% and 27%, respectively. DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS WRITING COVERED CALL OPTIONS Account GIS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. These call options generally will be short-term contracts with a duration of nine months or less. Account GIS will write only "covered" call options, that is, it will own the underlying securities which are acceptable for escrow when it writes the call option and until the obligation to sell the underlying security is extinguished by exercise or expiration of the call option, or until a call option covering the same underlying security and having the same exercise price and expiration date is purchased. Account GIS will receive a premium for writing a call option, but gives up, until the expiration date, the opportunity to profit from an increase in the underlying security's price above the exercise price. Account GIS will retain the risk of loss from a decrease in the price of the underlying security. Writing covered call options is a conservative investment technique which is believed to involve relatively little risk, but which is capable of enhancing an account's total returns. The premium received for writing a covered call option will be recorded as a liability in the Account's Statement of Assets and Liabilities. This liability will be adjusted daily to the option's current market value, which will be the latest sale price at the close of the New York Stock Exchange, or, in the absence of such sale, at the latest bid quotation. The liability will be extinguished upon expiration of the option, the purchase of an identical option in a closing transaction, or delivery of the underlying security upon exercise of the option. The Options Clearing Corporation is the issuer of, and the obligor on, the covered call options written by Account GIS. In order to secure an obligation to deliver to the Options Clearing Corporation the underlying security of a covered call option written by Account GIS, the Account will be required to make escrow arrangements. In instances where Account GIS believes it is appropriate to close a covered call option, it can close out the previously written call option by purchasing a call option on the same underlying security with the same exercise price and expiration date. Account GIS may also, under certain circumstances, be able to transfer a previously written call option. A previously written call option can be closed out by purchasing an identical call option only on a national securities exchange which provides a secondary market in the call option. There is no assurance that a liquid secondary market will exist for a particular call option at such time. If Account GIS cannot effect a closing transaction, it will not be able to sell the underlying security while the previously written option remains outstanding, even though it might otherwise be advantageous to do so. If a substantial number of the call options are exercised, the Account's rate of portfolio turnover may exceed historical levels. This would result in higher brokerage commissions in connection with the writing of covered call options and the purchase of call options to close out previously written options. Such brokerage commissions are normally higher than those applicable to purchases and sales of portfolio securities. BUYING PUT AND CALL OPTIONS Account GIS may purchase put options on securities held, or on futures contracts whose price volatility is expected to closely match that of securities held, as a defensive measure to preserve contract owners' capital when market conditions warrant. Account GIS may purchase call options on specific securities, or on futures contracts whose price volatility is expected to closely match that of securities, eligible for purchase by Account GIS, in anticipation of or as a substitute for the purchase of the securities themselves. These options may be listed on a national exchange or executed "over-the-counter" with a broker-dealer as the counterparty. While the investment adviser anticipates that the majority of option purchases and sales will be executed on a national exchange, put or call options on specific securities or for non-standard terms are likely to be executed directly with a broker-dealer when it is advantageous to do so. Option contracts will be short-term in nature, generally less than nine months. Account GIS will pay a premium in exchange for the right to purchase (call) or sell (put) a specific number of shares of an equity security or futures contract at a specified price (the strike price) on or before the expiration date of the options contract. In either case, Account GIS's risk is limited to the option premium paid. Account GIS may sell the put and call options prior to their expiration and realize a gain or loss thereby. A call option will expire worthless if the price of the related security is below the contract strike price at the time of expiration; a put option will expire worthless if the price of the related security is above the contract strike price at the time of expiration. Put and call options will be employed for bona fide hedging purposes only. Liquid securities sufficient to fulfill the call option delivery obligation will be identified and segregated in an account; deliverable securities sufficient to fulfill the put option obligation will be similarly identified and segregated. In the case of put options on futures contracts, portfolio securities whose price volatility is expected to match that of the underlying futures contract will be identified and segregated. FUTURES CONTRACTS STOCK INDEX FUTURES Account GIS will invest in stock index futures. A stock index futures contract provides for one party to take and the other to make delivery of an amount of cash over the hedging period equal to a specified amount times the difference between a stock index value at the close of the last trading day of the contract or the selling price and the price at which the futures contract is originally struck. The stock index assigns relative values to the common stocks included in the index and reflects overall price trends in the designated market for equity securities. Therefore, price changes in a stock index futures contract reflect changes in the specified index of equity securities on which the futures contract is based. Stock index futures may also be used, to a limited extent, to hedge specific common stocks with respect to market (systematic) risk (involving the market's assessment of overall economic prospects) as distinguished from stock-specific risk (involving the market's evaluation of the merits of the issuer of a particular security). By establishing an appropriate "short" position in stock index futures, Account GIS may seek to protect the value of its equity securities against an overall decline in the market for equity securities. Alternatively, in anticipation of a generally rising market, Account GIS can seek to avoid losing the benefit of apparently low current prices by establishing a "long" position in stock index futures and later liquidating that position as particular equity securities are in fact acquired. Account GIS will not be a hedging fund; however, to the extent that any hedging strategies actually employed are successful, Account GIS will be affected to a lesser degree by adverse overall market price movements unrelated to the merits of specific portfolio equity securities than would otherwise be the case. Gains and losses on futures contracts employed as hedges for specific securities will normally be offset by losses or gains, respectively, on the hedged security. INTEREST RATE FUTURES Account QB may purchase and sell futures contracts on debt securities ("interest rate futures") to hedge against anticipated changes in interest rates that might otherwise have an adverse effect upon the value of an Account's debt securities. An interest rate futures contract is a binding contractual commitment which, if held to maturity, will result in an obligation to make or accept delivery, during a particular future month, of debt securities having a standardized face value and rate of return. By purchasing interest rate futures (assuming a "long" position), Account QB will be legally obligated to accept the future delivery of the underlying security and pay the agreed price. This would be done, for example, when Account QB intends to purchase particular debt securities when it has the necessary cash, but expects the rate of return available in the securities markets at that time to be less favorable than rates currently available in the futures markets. If the anticipated rise in the price of the debt securities should occur (with its concurrent reduction in yield), the increased cost of purchasing the securities will be offset, at least to some extent, by the rise in the value of the futures position taken in anticipation of the securities purchase. By selling interest rate futures held by it, or interest rate futures having characteristics similar to those held by it (assuming a "short" position), Account QB will be legally obligated to make the future delivery of the security against payment of the agreed price. Such a position seeks to hedge against an anticipated rise in interest rates that would adversely affect the value of Account QB's portfolio debt securities. Open futures positions on debt securities will be valued at the most recent settlement price, unless such price does not appear to the Board of Managers to reflect the fair value of the contract, in which case the positions will be valued at fair value determined in good faith by or under the direction of the Board of Managers. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. FUTURES MARKETS AND REGULATIONS When a futures contract is purchased, Accounts GIS and QB will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. The Accounts will incur brokerage fees in connection with their futures transactions, and will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. Positions taken in the futures markets are not normally held to maturity, but instead are liquidated through offsetting transactions which may result in a profit or a loss. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the stock index or interest rate futures contract and the same delivery date. If the offsetting purchase price is less than the original sale price, the Accounts realize a gain; if it is more, the Accounts realize a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Accounts realize a gain; if less, a loss. While futures positions taken by the Accounts will usually be liquidated in this manner, the Accounts may instead make or take delivery of the underlying securities whenever it appears economically advantageous for them to do so. In determining gain or loss, transaction costs must also be taken into account. There can be no assurance that the Accounts will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. A clearing corporation associated with the exchange on which futures are traded guarantees that the sale and purchase obligations will be performed with regard to all positions that remain open at the termination of the contract. All stock index and interest rate futures will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). Stock index futures are currently traded on the New York Futures Exchange and the Chicago Mercantile Exchange. Interest rate futures are actively traded on the Chicago Board of Trade and the International Monetary Market at the Chicago Mercantile Exchange. The investment advisers do not believe any of the Accounts to be a "commodity pool" as defined under the Commodity Exchange Act. The Accounts will only enter into futures contracts for bona fide hedging or other appropriate risk management purposes as permitted by CFTC regulations and interpretations, and subject to the requirements of the Securities and Exchange Commission. The Accounts will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of their individual assets, after taking into account unrealized profits and unrealized losses on any such contracts which they have entered into. The Accounts will further seek to assure that fluctuations in the price of any futures contracts that they use for hedging purposes will be substantially related to fluctuations in the price of the securities which they hold or which they expect to purchase, although there can be no assurance that the expected result will be achieved. As evidence of their hedging intent, the Accounts expect that on seventy-five percent (75%) or more of the occasions on which they purchase a long futures contract, they will effect the purchase of securities in the cash market or take delivery at the close of a futures position. In particular cases, however, when it is economically advantageous, a long futures position may be terminated without the corresponding purchase of securities. SPECIAL RISKS While certain futures contracts may be purchased and sold to reduce certain risks, these transactions may entail other risks. Thus, while the Accounts may benefit from the use of such futures, unanticipated changes in stock price movements or interest rates may result in a poorer overall performance for the Account than if it had not entered into such futures contracts. Moreover, in the event of an imperfect correlation between the futures position and the portfolio position which is intended to be protected, the desired protection may not be obtained and the Accounts may be exposed to risk of loss. The investment advisers will attempt to reduce this risk by engaging in futures transactions, to the extent possible, where, in their judgment, there is a significant correlation between changes in the prices of the futures contracts and the prices of any portfolio securities sought to be hedged. In addition to the possibility that there may be a less than perfect correlation between movements in the futures contracts and securities in the portfolio being hedged, the prices of futures contracts may not correlate perfectly with movements in the underlying security due to certain market distortions. First, rather than meeting variation margin deposit requirements should a futures contract value move adversely, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, since margin requirements in the futures market are less onerous than in the securities market, the futures market may attract more speculators than the securities market. Increased participation by speculators may cause temporary price distortions. Due to the possibility of such price distortion, and also because of the imperfect correlation discussed above, even a correct forecast of general market trends by the investment advisers may not result in a successful hedging transaction in the futures market over a short time period. However, as is noted above, the use of financial futures by the Accounts is intended primarily to limit transaction and borrowing costs. At no time will the Accounts use financial futures for speculative purposes. Successful use of futures contracts for hedging purposes is also subject to the investment advisers' ability to predict correctly movements in the direction of the market. However, the investment advisers believe that over time the value of the Accounts' portfolios will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. MONEY MARKET INSTRUMENTS Money market securities are instruments with remaining maturities of one year or less, such as bank certificates of deposit, bankers' acceptances, commercial paper (including master demand notes), and obligations issued or guaranteed by the United States Government, its agencies or instrumentalities, some of which may be subject to repurchase agreements. CERTIFICATES OF DEPOSIT Certificates of deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market prior to maturity. Certificates of deposit will be limited to U.S. dollar- denominated certificates of United States banks which have at least $1 billion in deposits as of the date of their most recently published financial statements (including foreign branches of U.S. banks, U.S. branches of foreign banks which are members of the Federal Reserve System or the Federal Deposit Insurance Corporation). The Accounts will not acquire time deposits or obligations issued by the International Bank for Reconstruction and Development, the Asian Development Bank or the Inter- American Development Bank. Additionally, the Accounts do not currently intend to purchase such foreign securities (except to the extent that certificates of deposit of foreign branches of U.S. banks may be deemed foreign securities) or purchase certificates of deposit, bankers' acceptances or other similar obligations issued by foreign banks. BANKERS' ACCEPTANCES Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by the bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Bankers' acceptances acquired by the Accounts must have been accepted by U.S. commercial banks, including foreign branches of U.S. commercial banks, having total deposits at the time of purchase in excess of $1 billion, and must be payable in U.S. dollars. COMMERCIAL PAPER RATINGS Investments in commercial paper are limited to those rated A-1 by Standard & Poor's Corporation and Prime-1 by Moody's Investors Service, Inc. Commercial paper rated A-1 by S&P has the following characteristics: (1) liquidity ratios are adequate to meet cash requirements; (2) the issuer's long- term senior debt is rated "A" or better, although in some cases "BBB" credits may be allowed; (3) the issuer has access to at least two additional channels of borrowing; (4) basic earnings and cash flow have an upward trend with allowances made for unusual circumstances; and (5) the issuer's industry is typically well established and the issuer has a strong position within the industry. The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluating the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationship which exists with the issuer; and (8) recognition by the management of obligations which may be present or may arise as a result of public preparations to meet such obligations. The relative strength or weakness of the above factors determines how the issuer's commercial paper is rated within various categories. MASTER DEMAND NOTES Master demand notes are unsecured obligations that permit the investment of fluctuating amounts at varying rates of interest pursuant to direct arrangements between the lender (issuer) and the borrower. Master demand notes may permit daily fluctuations in the interest rate and daily changes in the amounts borrowed. An Account has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount, and the borrower may repay up to the full amount of the note without penalty. Notes purchased by a separate account must permit it to demand payment of principal and accrued interest at any time (on not more than seven days notice) or to resell the note at any time to a third party. Master demand notes may have maturities of more than one year, provided they specify that (i) the account be entitled to payment of principal and accrued interest upon not more than seven days notice, and (ii) the rate of interest on such notes be adjusted automatically at periodic intervals which normally will not exceed 31 days, but which may extend up to one year. Because these types of notes are direct lending arrangements between the lender and the borrower, such instruments are not normally traded, and there is no secondary market for these notes, although they are redeemable and thus repayable by the borrower at face value plus accrued interest at any time. Accordingly, the right to redeem is dependent upon the ability of the borrower to pay principal and interest on demand. In connection with master demand note arrangements, the investment adviser considers earning power, cash flow, and other liquidity ratios of the borrower to pay principal and interest on demand. These notes, as such, are not typically rated by credit rating agencies. Unless they are so rated, a separate account may invest in them only if at the time of an investment the issuer meets the criteria set forth above for commercial paper. The notes will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period. UNITED STATES GOVERNMENT SECURITIES Securities issued or guaranteed by the United States Government include a variety of Treasury securities that differ only in their interest rates, maturities and dates of issuance. Treasury Bills have maturities of one year or less, Treasury Notes have maturities of one to ten years, and Treasury Bonds generally have maturities of greater than ten years at the date of issuance. Securities issued or guaranteed by the United States Government or its agencies or instrumentalities include direct obligations of the United States Treasury and securities issued or guaranteed by the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley Authority, District of Columbia Armory Board and Federal National Mortgage Association. Some obligations of United States Government agencies and instrumentalities, such as Treasury Bills and Government National Mortgage Association pass-through certificates, are supported by the full faith and credit of the United States; others, such as securities of Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; still others, such as bonds issued by the Federal National Mortgage Association, a private corporation, are supported only by the credit of the instrumentality. Because the United States Government is not obligated by law to provide support to an instrumentality it sponsors, the Accounts will invest in the securities issued by such an instrumentality only when the investment advisers determine that the credit risk with respect to the instrumentality does not make the securities unsuitable investments. United States Government securities will not include international agencies or instrumentalities in which the United States Government, its agencies or instrumentalities participate, such as the World Bank, the Asian Development Bank or the Inter-American Development Bank, or issues insured by the Federal Deposit Insurance Corporation. REPURCHASE AGREEMENTS Interim cash balances may be invested from time to time in repurchase agreements with approved counterparties. Approved counterparties are limited to national banks or reporting broker-dealers meeting the Advisor's credit quality standards as presenting minimal risk of default. All repurchase transactions must be collateralized by U.S. Government securities with market value no less than 102% of the amount of the transaction, including accrued interest. Repurchase transactions generally mature the next business day but, in the event of a transaction of longer maturity, collateral will be marked to market daily and, when required, additional cash or qualifying collateral will be required from the counterparty. In executing a repurchase agreement, a portfolio purchases eligible securities subject to the seller's simultaneous agreement to repurchase them on a mutually agreed upon date and at a mutually agreed upon price. The purchase and resale prices are negotiated with the counterparty on the basis of current short-term interest rates, which may be more or less than the rate on the securities collateralizing the transaction. Physical delivery or, in the case of "book-entry" securities, segregation in the counterparty's account at the Federal Reserve for the benefit of the Portfolio is required to establish a perfected claim to the collateral for the term of the agreement in the event the counterparty fails to fulfill its obligation. As the securities collateralizing a repurchase transaction are generally of longer maturity than the term of the transaction, in the event of default by the counterparty on its obligation, the Portfolio would bear the risks of delay, adverse market fluctuation and transaction costs in disposing of the collateral. INVESTMENT MANAGEMENT AND ADVISORY SERVICES The investments and administration of the separate accounts are under the direction of the Board of Managers. The Travelers Investment Management Company (TIMCO) furnishes investment management and advisory services to Account GIS, and Travelers Asset Management International Corporation (TAMIC) furnishes investment management and advisory services to Account QB, according to the terms of written Investment Advisory Agreements. The agreement between Account GIS and TIMCO was approved by a vote of the Variable Annuity Contract Owners at their meeting held on April 23, 1993, and amended effective May 1, 1994 by virtue of Contract Owner approval at a meeting held on April 22, 1994. The agreement between Account QB and TAMIC was approved by a vote of the Variable Annuity Contract Owners at their meeting held on April 23, 1993. Each of these agreements will continue in effect as described below in (3), as required by the 1940 Act. Each of the agreements: 1. provides that for investment management and advisory services, the Company will pay to TIMCO and TAMIC, an advisory fee based on the current value of the assets of the accounts for which TIMCO and TAMIC act as investment adviser (see "Advisory Fees" below:); 2. may not be terminated by TIMCO or TAMIC without prior approval of a new investment advisory agreement by those casting a majority of the votes entitled to be cast and will be subject to termination without the payment of any penalty, upon sixty days written notice, by the Board of Managers or by a vote of those casting a majority of the votes entitled to be cast; 3. will continue in effect for a period more than two years from the date of its execution, only so long as its continuance is specifically approved at least annually by a vote of a majority of the Board of Managers, or by a vote of a majority of the outstanding voting securities of the Account. In addition, and in either event, the terms of the agreement must be approved annually by a vote of a majority of the Board of Managers who are not parties to, or interested persons of any party to, the agreement, cast in person, at a meeting called for the purpose of voting on the approval and at which the Board of Managers has been furnished the information that is reasonably necessary to evaluate the terms of the agreement; 4. will automatically terminate upon assignment. ADVISORY FEES For furnishing investment management and advisory services to Account GIS, TIMCO is paid an amount equivalent on an annual basis to 0.45% of the average daily net assets of Account GIS. The total advisory fees paid to TIMCO by Account GIS for the fiscal years ended December 31, 1992, 1993 and 1994 were $1,062,527, $1,136,509 and $1,368,700, respectively. For furnishing investment management and advisory services to Account QB, TAMIC is paid an amount equivalent on an annual basis to 0.3233% of the average daily net assets of Account QB. For the years ended December 31, 1992, 1993 and 1994 the advisory fees were $418,671, $508,762 and $572,484, respectively. TIMCO TIMCO, an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment management and advisory services to Account GIS, TIMCO also acts as investment adviser for the following investment companies: The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short- Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and Capital Appreciation Fund. These investment companies are among the investment alternatives which serve as the funding media for certain variable annuity and variable life insurance contracts offered by The Travelers Insurance Company and which had aggregate net assets of $455,625,900 at December 31, 1994. TIMCO also acts as investment adviser for individual and pooled pension and profit-sharing accounts and for affiliated companies of The Travelers Insurance Company, and as sub-adviser for Managed Assets Trust. Investment decisions for Account GIS will be made independently from those of any other accounts managed by TIMCO. If, however, accounts managed by TIMCO are simultaneously engaged in the purchase of the same security, then available securities may be allocated to each account and may be averaged as to price in whatever manner TIMCO deems to be fair. In some cases, this system might adversely affect the price or volume of securities being bought or sold by an account, while in other cases it may produce better executions or lower brokerage rates. BROKERAGE Subject to approval of the Board of Managers, and in accordance with the Investment Advisory Agreement, TIMCO will place purchase and sale orders for the portfolio securities of Account GIS through brokerage firms which it may select from time to time with the objective of seeking the best execution by responsible brokerage firms at reasonably competitive rates. To the extent consistent with this policy, certain brokerage transactions may be placed with firms which provide brokerage and research services to TIMCO, and such transactions may be paid for at higher rates than other firms would charge. The term "brokerage and research services" includes advice as to the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities for purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). These brokerage and research services may be utilized in providing investment advice to Account GIS and may also be utilized in providing investment advice and management to all accounts over which TIMCO exercises investment discretion, but not all of such services will necessarily be utilized in providing investment advice to all accounts. This practice may be expected to result in greater cost to the Accounts than might otherwise be the case if brokers whose charges were based on execution alone were used for such transactions. TIMCO believes that brokers' research services are very important in providing investment advice to the Accounts but is unable to give the services a dollar value. While research services are not expected to reduce the expenses of TIMCO, TIMCO will, through the use of these services, avoid the additional expenses which would be incurred if it should attempt to develop comparable information through its own staff. Transactions in the over-the-counter market are placed with the principal market makers unless better price and execution may be obtained otherwise. Brokerage fees will be incurred in connection with futures transactions, and Account GIS will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. The overall reasonableness of brokerage commissions paid is evaluated by personnel of TIMCO responsible for trading and for managing Account GIS's portfolio by comparing brokerage firms utilized by TIMCO and other firms with respect to the following factors: the prices paid or received in securities transactions, speed of execution and settlement, size and difficulty of the brokerage transactions, the financial soundness of the firms, and the quality, timeliness and quantity of research information and reports. The total brokerage commissions paid by Account GIS for the fiscal years ending December 31, 1992, 1993 and 1994 were $1,682,034, $801,002 and $991,682, respectively. For the fiscal year ended December 31, 1994, portfolio transactions in the amount of $620,478,015 were directed to certain brokers because of research services, of which $889,970 was paid in commissions with respect to such transactions. No formula was used in placing such transactions and no specific amount of transactions was allocated for research services. No brokerage business was placed with any brokers affiliated with TIMCO during the last three fiscal years. TAMIC TAMIC, an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment management and advisory services to Account QB, TAMIC also acts as investment adviser for the following investment companies: The Travelers Money Market Account for Variable Annuities, The Travelers Timed Bond Account for Variable Annuities, High Yield Bond Trust, Managed Assets Trust, Cash Income Trust and the U.S. Government Securities Portfolio of The Travelers Series Trust. These investment companies are among the investment alternatives which serve as the funding media for certain variable annuity and variable life insurance contracts offered by The Travelers Insurance Company and its affiliates and which had aggregate net assets of $261,481,676 at December 31, 1994. TAMIC also acts as investment adviser for individual and pooled pension and profit-sharing accounts, for offshore insurance companies affiliated with The Travelers Insurance Company, and for non-affiliated insurance companies, both domestic and offshore. Investment advice and management for TAMIC's clients are furnished in accordance with their respective investment objectives and policies and investment decisions for the Accounts will be made independently from those of any other accounts managed by TAMIC. However, securities owned by Account QB may also be owned by other clients and it may occasionally develop that the same investment advice and decision for more than one client is made at the same time. Furthermore, it may develop that a particular security is bought or sold for only some clients even though it might be held or bought or sold for other clients, or that a particular security is bought for some clients when other clients are selling the security. When two or more accounts are engaged in the purchase or sale of the same security, the transactions are allocated as to amount in accordance with a formula which is equitable to each account. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as Account QB is concerned. In other cases, however, it is believed that the ability of Account QB to participate in volume transactions will produce better executions for the account. BROKERAGE Subject to approval of the Board of Managers, it is the policy of TAMIC, in executing transactions in portfolio securities, to seek best execution of orders at the most favorable prices. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net economic result to Account QB, involving both price paid or received and any commissions and other cost paid, the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, the availability of the broker to stand ready to execute potentially difficult transactions in the future and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by management in determining the overall reasonableness of brokerage commissions paid. Subject to the foregoing, a factor in the selection of brokers is the receipt of research services, analyses and reports concerning issuers, industries, securities, economic factors and trends, and other statistical and factual information. Any such research and other statistical and factual information provided by brokers is considered to be in addition to and not in lieu of services required to be performed by TAMIC under its Investment Advisory Agreements. The cost, value and specific application of such information are indeterminable and hence are not practicably allocable among Account QB and other clients of TAMIC who may indirectly benefit from the availability of such information. Similarly, Account QB may indirectly benefit from information made available as a result of transactions for such clients. Purchases and sales of bonds and money market instruments will usually be principal transactions and will normally be purchased directly from the issuer or from the underwriter or market maker for the securities. There usually will be no brokerage commissions paid for such purchases. Purchases from the underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include the spread between the bid and asked prices. Where transactions are made in the over-the- counter market, Account QB will deal with primary market makers unless more favorable prices are otherwise obtainable. Brokerage fees will be incurred in connection with futures transactions, and Account QB will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. TAMIC may follow a policy of considering the sale of units of Account QB a factor in the selection of broker-dealers to execute portfolio transactions, subject to the requirements of best execution described above. The policy of TAMIC with respect to brokerage is and will be reviewed by the Board of Managers periodically. Because of the possibility of further regulatory developments affecting the securities exchanges and brokerage practices generally, the foregoing practices may be changed, modified or eliminated. The total brokerage commissions paid by Account QB for the fiscal years ended December 31, 1992, 1993 and 1994 were $80,374, $87,444 and $82,390, respectively. For the fiscal year ended December 31, 1994, no portfolio transactions were directed to certain brokers because of research services. No formula is used in placing portfolio transactions with brokers which provide research services, and no specific amount of transactions is allocated for research services. No brokerage business was placed with any brokers affiliated with TAMIC or its predecessors during the last three fiscal years. VALUATION OF ASSETS The value of the assets of each Separate Account is determined on each Valuation Date as of the close of the New York Stock Exchange. If the New York Stock Exchange is not open for trading on any such day, then such computation shall be made as of the normal close of the New York Stock Exchange. Each security traded on a national securities exchange is valued at the last reported sale price on the Valuation Date. If there has been no sale on that day, then the value of the security is taken to be the mean between the reported bid and asked prices on the Valuation Date or on the basis of quotations received from a reputable broker or any other recognized source. Any security not traded on a securities exchange but traded in the over-the-counter market and for which market quotations are readily available is valued at the mean between the quoted bid and asked prices on the Valuation Date or on the basis of quotations received from a reputable broker or any other recognized source. Securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. Short-term investments for which a quoted market price is available are valued at market. Short-term investments maturing in more than sixty days for which there is no reliable quoted market price are valued by "marking to market" (computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity). "Marking to market" takes into account unrealized appreciation or depreciation due to changes in interest rates or other factors which would influence the current fair values of such securities. Short-term investments maturing in sixty days or less for which there is no reliable quoted market are valued at amortized cost which approximates market. THE BOARD OF MANAGERS The investment and administration of each of the Separate Accounts are under the direction of the Board of Managers, listed below. Members of the Board of Managers are elected annually by those Contract Owners participating in the Separate Accounts. A majority of the members of the Board of Managers are persons who are not affiliated with The Travelers Insurance Company, TIMCO, TAMIC or their affiliates. Name Present Position and Principal Occupation During Last Five Years * Heath B. McLendon Managing Director (1993-present), Smith Barney Chairman and Member Inc. ("Smith Barney"); Chairman (1993-present), 388 Greenwich Street Smith Barney Strategy Advisors, Inc.; President New York, New York (1994-present), Smith Barney Mutual Funds Age 61 Management Inc.; Chairman and/or Director and President of thirty investment companies associated with Smith Barney; Chairman, Board of Trustees, Drew University; Trustee, The East New York Savings Bank; Advisory Director, First Empire State Corporation; Chairman, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Chairman, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company++; prior to July 1993, Senior Executive Vice President of Shearson Lehman Brothers Inc. Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Member Edwards & Angell, Attorneys; Member, Advisory 2700 Hospital Trust Tower Board (1973-1994), thirty-one mutual funds Providence, Rhode Island sponsored by Keystone Group, Inc.; Member, Age 71 Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Robert E. McGill, III Director (1983-present), Executive Vice President Member (1989-1994) and Senior Vice President, Finance One Elm Street and Administration (1983-1989), The Dexter Windsor Locks, Connecticut Corporation (manufacturer of specialty chemicals Age 63 and materials); Vice Chairman (1990-1992), Director (1983-present), Life Technologies, Inc. (life science/biotechnology products); Director (1993-present), Analytical Technology, Inc. (manufacturer of measurement instruments); Director (1994-present), The Connecticut Surety Corporation (insurance); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Lewis Mandell Professor of Finance (1980-present) and Member Associate Dean (1993-present), School of 368 Fairfield Road, U41F Business Administration, and Director, Storrs, Connecticut Center for Research and Development in Age 52 Financial Services (1980-present), University of Connecticut; Director (1992- present), GZA Geoenvironmental Tech, Inc. (engineering services); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Frances M. Hawk Portfolio Manager (1992-present), HLM Management Member Company, Inc. (investment management); Assistant 222 Berkeley Street Treasurer, Pensions and Benefits Management Boston, Massachusetts (1989-1992), United Technologies Corporation Age 47 (broad-based designer and manufacturer of high technology products); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Ernest J. Wright Assistant Secretary (1994-present), Counsel Secretary to the Board (1987-present), The Travelers Insurance Company; One Tower Square Secretary, Board of Managers, seven Variable Hartford, Connecticut Annuity Separate Accounts of The Travelers Age 54 Insurance Company+; Secretary, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company++. + These seven Variable Annuity Separate Accounts are: The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short- Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and The Travelers Timed Bond Account for Variable Annuities. ++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers Series Trust. * Mr. McLendon in an "interested person" within the meaning of the 1940 Act by virtue of his position as Managing Director of Smith Barney Inc., an indirect wholly owned subsidiary of Travelers Group Inc. and also owns shares and options to purchase shares of Travelers Group Inc., the indirect parent of The Travelers Insurance Company. The Dexter Corporation, of which Mr. McGill is a director, entered into contracts with The Travelers Insurance Company to provide short-term disability and life insurance benefits to employees of The Dexter Corporation, and to administer the health and dental benefits program for employees of The Dexter Corporation. The Company is responsible for payment of the fees and expenses of the Board of Managers, and the expenses of audit of the Separate Accounts, as well as other expenses for services related to the operations of the accounts, for which it deducts certain amounts from purchase payments and from the accounts. Members of the Board of Managers who are also officers or employees of The Travelers Inc. or its subsidiaries are not entitled to any fee. Members of the Board of Managers who are not affiliated as employees of The Travelers Inc. or its subsidiaries receive an aggregate retainer of $10,000 for service on the Boards of the seven Variable Annuity Separate Accounts established by The Travelers Insurance Company and the five Mutual Funds sponsored by The Travelers Insurance Company. They also receive an aggregate fee of $1,800 for each meeting of such Boards attended. DISTRIBUTION AND MANAGEMENT SERVICES Under the terms of a Distribution and Management Agreement between each Separate Account, the Company and Travelers Equities Sales, Inc., the Company provides all sales and administrative services and mortality and expense risk guarantees related to variable annuity contracts issued by the Company in connection with the Separate Accounts, and assumes the risk of minimum death benefits, as applicable. The Company also pays all sales costs (including costs associated with the preparation of sales literature); all costs of qualifying the Separate Accounts and the variable annuity contracts with regulatory authorities; the costs of proxy solicitation; all custodian, accountants and legal fees; and all compensation paid to the unaffiliated members of the Board of Managers. The Company also provides without cost to the Separate Accounts all necessary office space, facilities, and personnel to manage its affairs. The Company received the following amounts from the Separate Accounts in each of the last three fiscal years for services provided under the Distribution and Management Agreements: SEPARATE ACCOUNT 1994 1993 1992 GIS $ 4,025,788 $ 4,239,811 $ 3,953,639 QB $ 2,156,643 $ 1,903,669 $ 1,564,308 SECURITIES CUSTODIAN Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York, is the custodian of the portfolio securities and similar investments of Accounts GIS and QB. INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P., Independent Accountants, 100 Pearl Street, Hartford, Connecticut, are the independent auditors for Accounts GIS and QB. The services provided to these Separate Accounts include primarily the examination of the Accounts' financial statements. The financial statements of Accounts GIS and QB included or incorporated by reference in the Prospectus, Statement of Additional Information and Registration Statements have been audited by Coopers & Lybrand L.L.P., as indicated in their reports thereon, and are incorporated herein by reference in reliance upon the authority of said firm as experts in accounting and auditing. FINANCIAL STATEMENTS The financial statements for Accounts GIS and QB contained in the December 31, 1994 Annual Report to Contract Owners are incorporated herein by reference. A copy may be obtained by writing to The Travelers Insurance Company, Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183, or by calling 1-800-842-0125. The financial statements of the Company, as contained herein, should be considered only as bearing upon the Company's ability to meet its obligations under the Contract, and they should not be considered as bearing on the investment performance of the Separate Accounts. THIS PAGE INTENTIONALLY LEFT BLANK. THETRAVELERS (logo umbrella) THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES AND THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES GROUP VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY Pension and Profit-Sharing Programs L-11162S TIC Ed. 5-95 Printed in U.S.A. 1 Independent Auditors' Report The Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the accompanying consolidated balance sheets of The Travelers Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations and retained earnings and cash flows for the year ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Travelers Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for the year ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", in 1994. /s/KPMG PEAT MARWICK LLP Hartford, Connecticut January 17, 1995 16 2 Report of Independent Accountants To the Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the consolidated statements of operations and retained earnings and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1993. These consolidated financial statements are the responsibility of Company management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1993 in conformity with generally accepted accounting principles. /S/ COOPERS & LYBRAND Hartford, Connecticut January 24, 1994 17 3 Report of Independent Accountants To the Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the consolidated statements of operations and retained earnings and cash flows for The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1992. These consolidated financial statements are the responsibility of Company management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1992 in conformity with generally accepted accounting principles. As discussed in Notes 2, 5, 10 and 13 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions, accounting for income taxes and accounting for foreclosed assets in 1992. /S/ COOPERS & LYBRAND Hartford, Connecticut February 9, 1993, except for Notes 2 and 5, as to which the date is January 24, 1994 18 4 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
- --------------------------------------------------------------------------|------------------------------ (for the year ended December 31, in millions) 1994 | 1993 1992 - --------------------------------------------------------------------------|------------------------------ | | REVENUES | Premiums $ 3,861 | $ 2,725 $ 2,686 Net investment income 1,849 | 1,884 2,101 Realized investment gains (losses) 14 | (21) (747) Other 1,023 | 859 785 - --------------------------------------------------------------------------|------------------------------ 6,747 | 5,447 4,825 - --------------------------------------------------------------------------|------------------------------ BENEFITS AND EXPENSES | Current and future insurance benefits 3,421 | 3,121 3,000 Interest credited to contractholders 967 | 1,206 1,456 Claim settlement expenses 193 | 231 264 Amortization of deferred acquisition costs and value of | insurance in force 284 | 55 61 General and administrative expenses 1,025 | 751 987 - --------------------------------------------------------------------------|------------------------------ 5,890 | 5,364 5,768 - --------------------------------------------------------------------------|------------------------------ | Income (loss) before federal income taxes | and cumulative effects | of changes in accounting principles 857 | 83 (943) - --------------------------------------------------------------------------|------------------------------ | Federal income taxes: | Current 36 | 20 2 Deferred 276 | (78) (340) - --------------------------------------------------------------------------|------------------------------ 312 | (58) (338) - --------------------------------------------------------------------------|------------------------------ | Income (loss) before cumulative effects of changes | in accounting principles 545 | 141 (605) Cumulative effect of change in accounting | for postretirement benefits other than | pensions, net of tax - | - (126) Cumulative effect of change in accounting | for income taxes - | - 350 - --------------------------------------------------------------------------|------------------------------ | Net income (loss) 545 | 141 (381) Retained earnings beginning of year 1,017 | 888 1,281 Dividends to parent company - | (14) (14) Preference stock tax benefit allocated by parent - | 2 2 - --------------------------------------------------------------------------|------------------------------ Retained earnings end of year $ 1,562 | $ 1,017 $ 888 - --------------------------------------------------------------------------|------------------------------
See notes to consolidated financial statements. 19 5 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------------------------------- (at December 31, in millions) 1994 1993 - --------------------------------------------------------------------------------------------------------- ASSETS Fixed maturities, available for sale at market in 1994 (cost, $18,579); at lower of aggregate cost or market in 1993 (market, $18,284) $17,260 $18,045 Bonds, held for investment (market, $18) - 18 Equity securities, at market (cost, $173; $199) 169 220 Mortgage loans 4,938 6,845 Real estate held for sale, net of accumulated depreciation of $9; $0 383 954 Policy loans 1,581 1,366 Short-term securities 2,279 1,376 Other investments 885 687 - --------------------------------------------------------------------------------------------------------- Total investments 27,495 29,511 - --------------------------------------------------------------------------------------------------------- Cash 102 50 Investment income accrued 362 379 Premium balances receivable 215 224 Reinsurance recoverable 2,915 2,883 Deferred acquisition costs and value of insurance in force 1,939 1,794 Deferred federal income taxes 950 855 Separate and variable accounts 5,160 4,666 Other assets 1,397 979 - --------------------------------------------------------------------------------------------------------- Total assets $40,535 $41,341 - --------------------------------------------------------------------------------------------------------- LIABILITIES Contractholder funds $16,354 $17,850 Future policy benefits 11,480 11,263 Policy and contract claims 1,222 1,274 Separate and variable accounts 5,128 4,644 Short-term debt 74 - Other liabilities 1,923 2,007 - --------------------------------------------------------------------------------------------------------- Total liabilities 36,181 37,038 - --------------------------------------------------------------------------------------------------------- SHAREHOLDER'S EQUITY Common stock, par value $2.50; 40 million shares authorized, issued and outstanding 100 100 Additional paid-in capital 3,452 3,179 Unrealized investment gains (losses), net of taxes (760) 7 Retained earnings 1,562 1,017 - --------------------------------------------------------------------------------------------------------- Total shareholder's equity 4,354 4,303 - --------------------------------------------------------------------------------------------------------- Total liabilities and shareholder's equity $40,535 $41,341 - ---------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 20 6 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Increase (Decrease) in Cash
- ------------------------------------------------------------------------------------------------------------- (for the year ended December 31, in millions) 1994 | 1993 1992 - ----------------------------------------------------------------------------|-------------------------------- | CASH FLOWS FROM OPERATING ACTIVITIES | Premiums collected $ 3,722 | $ 2,530 $ 2,594 Net investment income received 1,895 | 1,794 2,134 Other revenues received 734 | 568 568 Benefits and claims paid (3,572) | (2,902) (3,123) Interest credited to contractholders (922) | (1,154) (1,404) Operating expenses paid (972) | (859) (869) Income taxes (paid) refunded (27) | 25 (2) Trading account investments, (purchases) sales, net - | (1,576) (364) Other (141) | 202 522 - ----------------------------------------------------------------------------|-------------------------------- Net cash provided by (used in) operating activities 717 | (1,372) 56 - ----------------------------------------------------------------------------|-------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES | Investment repayments | Fixed maturities 2,783 | 2,624 2,084 Mortgage loans 1,337 | 1,210 1,063 Proceeds from investments sold | Fixed maturities 1,370 | 102 175 Equity securities 359 | 75 173 Mortgage loans 557 | 310 254 Real estate 728 | 949 235 Investments in | Fixed maturities (4,767) | (3,269) (2,471) Equity securities (340) | (51) (119) Mortgage loans (94) | (246) (63) Policy loans, net (215) | (2) (184) Short-term securities, (purchases) sales, net (903) | 860 (615) Other investments, (purchases) sales, net (50) | 53 191 Securities sold under repurchase agreement (209) | - - Cash from disposition of operations 53 | - 5 - ----------------------------------------------------------------------------|-------------------------------- Net cash provided by investing activities 609 | 2,615 728 - ----------------------------------------------------------------------------|-------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES | Issuance (redemption) of short-term debt, net 74 | - - Contractholder fund deposits 2,197 | 3,159 3,047 Contractholder fund withdrawals (3,529) | (4,418) (5,003) Dividends to parent company - | (14) (14) Return of capital to parent company (23) | - - Contributions from parent company - | - 500 Other 7 | 6 2 - ----------------------------------------------------------------------------|-------------------------------- Net cash used in financing activities (1,274) | (1,267) (1,468) - ----------------------------------------------------------------------------|-------------------------------- Net increase (decrease) in cash $ 52 | $ (24) $ (684) - ----------------------------------------------------------------------------|-------------------------------- | Cash at December 31 $ 102 | $ 50 $ 74 - -------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 21 7 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Travelers Insurance Company and its subsidiaries (the Company) is a wholly owned subsidiary of The Travelers Insurance Group Inc. (TIG). TIG is an indirect wholly owned subsidiary of The Travelers Inc. Significant accounting policies used in the preparation of the accompanying financial statements follow. Basis of presentation In December 1992, Primerica Corporation (Primerica) acquired approximately 27% of the common stock of the Company's then parent, The Travelers Corporation (the Acquisition). The Acquisition was accounted for as a purchase. In connection with the Acquisition, Primerica transferred 100% of the preferred provider organization and third party administrator networks of Transport Life Insurance Company (a wholly owned subsidiary of Primerica) to The Travelers Corporation, which contributed them to the Company. The Company realized an increase to shareholder's equity of $23 million related to this contribution. Effective December 31, 1993, Primerica acquired the approximately 73% of The Travelers Corporation common stock which it did not already own, and The Travelers Corporation was merged into Primerica, which was renamed The Travelers Inc. This was effected through the exchange of .80423 shares of The Travelers Inc. common stock for each share of The Travelers Corporation common stock (the Merger). All subsidiaries of The Travelers Corporation were contributed to TIG. In conjunction with the Merger, The Travelers Inc. contributed Travelers Insurance Holdings Inc. (formerly Primerica Insurance Holdings, Inc.) and its subsidiaries (TIHI) to TIG, which in turn contributed TIHI to the Company. TIHI is an intermediate holding company whose primary subsidiaries are Primerica Life Insurance Company (Primerica Life) and its subsidiary National Benefit Life Insurance Company (NBL), and Transport Life Insurance Company (Transport). Through its subsidiaries, TIHI primarily offers individual insurance and specialty accident and health insurance. The Company realized an increase to shareholder's equity of $2.1 billion at December 31, 1993 related to the contribution of TIHI. At December 31, 1993 and subsequent, TIHI is included in the Life and Annuities segment. The consolidated financial statements and the accompanying notes reflect the historical operations of the Company for the years ended December 31, 1993 and 1992. The results of operations of TIHI and its subsidiaries are not included in the 1993 and 1992 financial statements. The Company's consolidated balance sheet and related data at December 31, 1994 and 1993 include TIHI on a fully consolidated basis. The Acquisition and the Merger are being accounted for as a "step acquisition." The consolidated balance sheet and related data at December 31, 1993 reflect adjustments of assets and liabilities of the Company (except TIHI) to their fair values determined at each acquisition date (i.e., 27% of values at December 31, 1992 as carried forward and 73% of the values at December 31, 1993). These assets and liabilities are reflected in the consolidated balance sheet at December 31, 1993 based upon management's then best estimate of their fair values. Evaluation and appraisal of assets and liabilities, including investments, the value of insurance in force, reinsurance recoverable, other insurance assets and liabilities and related deferred income taxes were completed during 1994. 22 8 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued The excess of the 27% share of assigned value of identifiable net assets over cost at December 31, 1992, which was allocated to the Company through the "pushdown" basis of accounting, was approximately $56 million and is being amortized over ten years on a straight-line basis. The excess of the purchase price of the common stock over the fair value of the 73% of net assets acquired at December 31, 1993, which was allocated to the Company through the "pushdown" basis of accounting, was approximately $340 million and is being amortized over 40 years on a straight-line basis. The consolidated statement of operations and retained earnings, the consolidated statement of cash flows and the related accompanying notes for the year ended December 31, 1994, which are presented on a purchase accounting basis, are separated from the corresponding 1993 and 1992 information, which is presented on a historical accounting basis, to indicate the difference in valuation bases. Principles of Consolidation The financial statements have been prepared in conformity with generally accepted accounting principles and include the Company and its significant insurance and noninsurance subsidiaries. Certain prior year amounts have been reclassified to conform with the 1994 presentation. Investments Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities are valued based upon quoted market prices, or if quoted market prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. Securities are classified as "available for sale" and are reported at fair value, with unrealized investment gains and losses, net of income taxes, charged or credited directly to shareholder's equity. As of December 31, 1993, in conjunction with the Merger, the majority of fixed maturities were classified as "available for sale" and recorded at the lower of aggregate cost or market value. Fixed maturities classified as "held for investment" were carried at amortized cost. Equity securities, which include common and nonredeemable preferred stocks, are available for sale and carried at fair value based primarily on quoted market prices. Changes in fair values of equity securities are charged or credited directly to shareholder's equity, net of income taxes. Mortgage loans are carried at amortized cost. Real estate held for sale is carried at the lower of cost or fair value less estimated costs to sell. Fair value was established at time of foreclosure by appraisers, both internal and external, using discounted cash flow analyses and other acceptable techniques. 23 9 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Accrual of income is suspended on fixed maturities or mortgage loans that are in default, or on which it is likely that future interest payments will not be made as scheduled. Interest income on investments in default is recognized only as payment is received. Gains or losses arising from futures contracts used to hedge investments are treated as basis adjustments and are recognized in income over the life of the hedged investments. Gains and losses arising from forward contracts used to hedge foreign investments in the Company's U.S. portfolios are a component of realized investment gains and losses. Gains and losses arising from forward contracts used to hedge investments in foreign operations (primarily Canadian) are reflected directly in shareholder's equity, net of income taxes. Interest rate swaps are used to manage interest rate risk in the investment portfolio and are marked to market with unrealized gains and losses recorded as a component of shareholder's equity, net of income taxes. Rate differentials on interest rate swap agreements are accrued between settlement dates and are recognized as an adjustment to interest income from the related investment. Investment Gains and Losses Realized investment gains and losses are included as a component of pretax revenues based upon specific identification of the investments sold on the trade date and, prior to the Merger, included adjustments to investment valuation reserves. These adjustments reflected changes considered to be other than temporary in the net realizable value of investments. Also included are gains and losses arising from the translation of the local currency value of foreign investments to U.S. dollars, the functional currency of the Company. Policy Loans Policy loans are carried at the amount of the unpaid balances that are not in excess of the net cash surrender values of the related insurance policies. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. Deferred Acquisition Costs Costs of acquiring individual life insurance, annuities, and health business, principally commissions and certain expenses related to policy issuance, underwriting and marketing, all of which vary with and are primarily related to the production of new business, are deferred. Acquisition costs relating to traditional life insurance and guaranteed renewable health contracts are amortized over the period of anticipated premiums; universal life in relation to estimated gross profits; and annuity contracts employing a level yield method. For life insurance, a 10- to 25-year amortization period is used; for guaranteed renewable health, a 10-year period, and a 10- to 15-year period is employed for annuities. Deferred acquisition costs are reviewed periodically for recoverability to determine if any adjustment is required. 24 10 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Value of Insurance In Force The value of insurance in force represents the actuarially determined present value of anticipated profits to be realized from life insurance, annuities and health contracts at the date of the Merger using the same assumptions that were used for computing related liabilities where appropriate. The value of insurance in force was the actuarially determined present value of the projected future profits discounted at interest rates ranging from 14% to 18% for the business acquired. The value of the business in force is amortized over the contract period using current interest crediting rates to accrete interest and using amortization methods based on the specified products. Traditional life insurance and guaranteed renewable health policies are amortized over the period of anticipated premiums; universal life is amortized in relation to estimated gross profits; and annuity contracts are amortized employing a level yield method. The value of insurance in force is reviewed periodically for recoverability to determine if any adjustment is required. Separate and Variable Accounts Separate and variable accounts primarily represent funds for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholders. Each account has specific investment objectives. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. The assets of these accounts are carried at market value. Certain other separate accounts provide guaranteed levels of return or benefits and the assets of these accounts are carried at amortized cost, except at December 31, 1993 the assets and liabilities of these accounts were recorded at the value assigned at the acquisition dates. Amounts assessed to the contractholders for management services are included in revenues. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses. Goodwill The excess of the 27% share of assigned value of identifiable assets over cost at December 31, 1992 allocated to the Company as a result of the Acquisition amounted to approximately $56 million and is being amortized over 10 years on a straight-line basis. Goodwill resulting from the excess of the purchase price over the fair value of the 73% of net assets acquired related to the Merger amounted to approximately $340 million at December 31, 1993 and is being amortized over 40 years on a straight-line basis. TIHI has goodwill of $246 million. 25 11 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Contractholder Funds Contractholder funds represent receipts from the issuance of universal life, pension investment and certain individual annuity contracts. Such receipts are considered deposits on investment contracts that do not have substantial mortality or morbidity risk. Account balances are also increased by interest credited and reduced by withdrawals, mortality charges and administrative expenses charged to the contractholders. Calculations of contractholder account balances for investment contracts reflect lapse, withdrawal and interest rate assumptions based on contract provisions, the Company's experience and industry standards. Interest rates credited to contractholder funds range from 3.4% to 8.0%. Contractholder funds also include other funds that policyholders leave on deposit with the Company. Benefit Reserves Benefit reserves represent liabilities for future insurance policy benefits. Benefit reserves for traditional life insurance, annuities, and accident and health policies have been computed based upon mortality, morbidity, persistency and interest assumptions applicable to these coverages, which range from 2.5% to 12.0%, including adverse deviation. These assumptions consider Company experience and industry standards and may be revised if it is determined that the future experience will differ substantially from that previously assumed. The assumptions vary by plan, age at issue, year of issue and duration. Appropriate recognition has been given to experience rating and reinsurance. Operating Leases At December 31, 1993, operating leases were recorded at the value assigned at the acquisition dates and included in the consolidated balance sheet as a component of other liabilities. This liability is being amortized over the average lease period. Permitted Statutory Accounting Practices The Company, domiciled principally in Connecticut and Massachusetts, prepares statutory financial statements in accordance with the accounting practices prescribed or permitted by the insurance departments of those states. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The impact of any permitted accounting practices on statutory surplus of the Company is not material. Premiums Premiums are recognized as revenues when due. Reserves are established for the portion of premiums that will be earned in future periods and for deferred profits on limited-payment policies that are being recognized in income over the policy term. At December 31, 1993, the deferred profits on limited-payment policies were recorded at the values assigned at the acquisition dates. 26 12 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Other Revenues Other revenues include surrender, mortality and administrative charges and fees as earned on investment, universal life and other insurance contracts. Other revenues also include gains and losses on dispositions of assets and operations other than realized investment gains and losses, revenues of noninsurance subsidiaries, and the pretax operating results of real estate joint ventures. Interest Credited to Contractholders Interest credited to contractholders represents amounts earned by universal life, pension investment and certain individual annuity contracts in accordance with contract provisions. Federal Income Taxes The provision for federal income taxes is comprised of two components, current income taxes and deferred income taxes. Deferred federal income taxes arise from changes in the Company's deferred federal income tax asset during the year. The deferred federal income tax asset is recognized to the extent that future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. Accounting Standards not yet Adopted Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (FAS 118), and Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FAS 114), describe how impaired loans should be measured when determining the amount of a loan loss accrual. These statements also amend existing guidance on the measurement of restructured loans in a troubled debt restructuring involving a modification of terms. The adoption of these statements, effective January 1, 1995, will not have a material effect on results of operations or financial position. 2. CHANGES IN ACCOUNTING PRINCIPLES Accounting for Certain Debt and Equity Securities Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), which addresses accounting and reporting for investments in equity securities that have a readily determinable fair value and for all debt securities. Investment securities have been classified as "available for sale" and are reported at fair value, with unrealized gains and losses, net of income taxes, charged or credited directly to shareholder's equity. Previously, securities classified as available for sale were carried at the lower of aggregate cost or market value. Initial adoption of this standard resulted in an increase of approximately $232 million (net of taxes) to net unrealized gains which is included in shareholder's equity. This increase included an unrealized gain of $133 million (net of income taxes) on TIHI's investment in the common stock of The Travelers Inc. See note 15 for additional disclosures. 27 13 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. CHANGES IN ACCOUNTING PRINCIPLES, Continued Offsetting of Amounts Related to Certain Contracts Effective January 1, 1994, the Company adopted Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts" (Interpretation 39). The general principle of Interpretation 39 states that amounts due from and due to another party may not be offset in the consolidated balance sheet unless a right of setoff exists and the parties intend to exercise the right of setoff. Implementation of Interpretation 39 did not have a material impact on the Company's financial position; however, assets and liabilities were both increased by $68 million as of December 31, 1994. Accounting and Reporting for Reinsurance Contracts In the first quarter of 1993, the Company implemented Statement of Financial Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113). FAS 113 requires the reporting of reinsurance receivables and prepaid reinsurance premiums as assets and precludes the immediate recognition of gains for all reinsurance contracts unless the liability to the policyholder has been extinguished. Implementation of FAS 113 did not have an impact on the Company's earnings, however, assets and liabilities increased by like amounts. See note 5 for additional reinsurance disclosures. Postretirement Benefits Other Than Pensions In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). As required, the Company changed its method of accounting for retiree benefit plans effective January 1, 1992, to accrue for the Company's share of the costs of postretirement benefits over the service period rendered by employees. Previously these benefits were charged to expense when paid. The Company elected to recognize immediately the liability for postretirement benefits as the cumulative effect of a change in accounting principle. This resulted in a noncash after-tax charge to net income of $126 million. See note 10 for additional information relating to FAS 106. Accounting for Income Taxes In the third quarter of 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109) with retroactive application to January 1, 1992. FAS 109 establishes new principles for calculating and reporting the effects of federal income taxes in financial statements. FAS 109 replaces the income statement orientation inherent in the prior income tax accounting standard with a balance sheet approach. Under the new approach, deferred tax assets and liabilities are generally determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. FAS 109 allows recognition of deferred tax assets if future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. 28 14 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. CHANGES IN ACCOUNTING PRINCIPLES, Continued The implementation of FAS 109 resulted in a one time increase to earnings of $350 million in the first quarter of 1992. This increase in earnings was principally due to tax rate differences and the recognition of a portion of previously unrecognized deferred tax assets. See note 13 for further discussion of FAS 109. Accounting for Foreclosed Assets In February 1993, The Travelers Corporation announced its intent to accelerate the sale of foreclosed real estate and, effective December 31, 1992, changed its method of accounting for foreclosed assets in compliance with the American Institute of Certified Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP 92-3). This guidance requires that in-substance foreclosures and foreclosed assets held for sale be carried at the lower of cost or fair value less estimated costs to sell. Previously, all foreclosed assets were carried at cost less accumulated depreciation. This accounting change resulted in a pretax charge of $412 million to realized investment losses in 1992. 3. ACQUISITIONS AND DISPOSITIONS In December 1994, the Company and its affiliates sold its group dental insurance business to Metropolitan Life Insurance Company (MetLife) and realized a gain on the sale of $9 million (aftertax). On January 3, 1995, the Company and its affiliates completed the sale of its group life and related businesses to MetLife, and completed the formation of The MetraHealth Companies, Inc. (MetraHealth), a joint venture of the medical businesses of the Company and its affiliates and MetLife. The Company and its affiliates sold its group life business as well as related non-medical group insurance businesses to MetLife for $350 million. The assets transferred included customer lists, books and records, and furniture and equipment. In connection with the sale, the Company and its affiliates agreed to cede 100% of its risks in the group life and related businesses to MetLife on an indemnity reinsurance basis, effective January 1, 1995. In connection with the reinsurance transaction, the Company and its affiliates transferred assets with a fair market value of approximately $1.5 billion to MetLife, equal to the statutory reserves and other liabilities transferred. On January 3, 1995, the Company and MetLife and certain of their affiliates formed the MetraHealth joint venture by contributing their group medical businesses to MetraHealth, in exchange for shares of common stock of MetraHealth. The assets transferred included cash, fixed assets, customer lists, books and records, certain trademarks and other assets used exclusively or primarily in the medical businesses. The Company also contributed all of the capital stock of its wholly owned subsidiary, The Travelers Employee Benefits Company, to MetraHealth. The total contribution by the Company amounted to $336 million at carrying value on the date of contribution. No gain was recognized upon the formation of the joint venture. Upon formation of the joint venture the Company owned 42.6% of the outstanding capital stock of MetraHealth, TIG owned 7.4% and the other 50% was owned by MetLife and its affiliates. 29 15 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 3. ACQUISITIONS AND DISPOSITIONS, Continued In connection with the formation of the joint venture, the transfer of the fee based medical business (Administrative Services Only) and other noninsurance business to MetraHealth was completed on January 3, 1995. As the medical insurance business of the Company comes due for renewal and after obtaining regulatory approvals, the risks will be transferred to MetraHealth. In the interim the related operating results for this medical insurance business will be reported by the Company. All of the businesses sold to MetLife or contributed to MetraHealth were included in the Company's Managed Care and Employee Benefits Operations (MCEBO). Revenues and net income from MCEBO for the year ended 1994 amounted to $3.5 billion and $157 million, respectively. Beginning in 1995 the Company's results will reflect the runoff medical insurance business, plus its equity interest in the earnings of MetraHealth. On December 31, 1993, in conjunction with the Merger, The Travelers Inc. contributed TIHI to TIG, which TIG then contributed to the Company at a carrying value of $2.1 billion. Through its subsidiaries TIHI primarily offers individual life insurance and specialty accident and health insurance. In December 1992, in conjunction with the Acquisition, The Travelers Corporation acquired Transport Life Insurance Company's preferred provider and third party administrator organizations from Primerica Corporation (see note 1), and on December 30, 1992 contributed these businesses to the Company. 4. COMMERCIAL PAPER AND LINES OF CREDIT The Company issues commercial paper directly to investors and had $74 million outstanding at December 31, 1994. The Company maintains unused credit availability under bank lines of credit at least equal to the amount of the outstanding commercial paper. In 1994, The Travelers Inc., Commercial Credit Company (an indirect wholly owned subsidiary of The Travelers Inc.) and the Company entered into an agreement with a syndicate of banks to provide $1.5 billion of revolving credit, to be allocated to any of the above-indicated companies. The revolving credit facility consists of a 364-day revolving credit in the amount of $300 million and a 5-year revolving credit in the amount of $1.2 billion. The participation of the Company in this facility is limited to $300 million, and at December 31, 1994, the Company's allocation was $200 million, all of which was unused. 30 16 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. REINSURANCE The Company participates in reinsurance in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and to effect business-sharing arrangements. Reinsurance is accomplished through various plans of reinsurance, primarily coinsurance, modified coinsurance and yearly renewable term. The Company remains primarily liable as the direct insurer on all risks reinsured. It is the policy of the Company to obtain reinsurance for amounts above certain retention limits on individual life policies which vary with age and underwriting classification. Generally, the maximum retention on an ordinary life risk is $1.5 million. The Company writes workers' compensation business through its Accident Department. This business is ceded 100% to the Travelers Indemnity Company. A summary of reinsurance financial data reflected within the consolidated statement of operations and retained earnings is presented below (in millions):
- -----------------------------------------------------------------|------------------------------ 1994 | 1993 1992 - -----------------------------------------------------------------|------------------------------ | Written Premiums: | Direct $ 4,529 | $ 3,308 $ 3,163 | Assumed from: | Affiliated companies 59 | 31 15 Non-affiliated companies 33 | 60 115 | Ceded to: | Affiliated companies (358) | (496) (522) Non-affiliated companies (341) | (98) (62) - -----------------------------------------------------------------|------------------------------ | Total Net Written Premiums $ 3,922 | $ 2,805 $ 2,709 =================================================================|============================== | Earned Premiums: | Direct $ 4,475 | $ 3,256 $ 3,124 | Assumed from: | Affiliated companies 65 | 32 15 Non-affiliated companies 30 | 32 110 | Ceded to: | Affiliated companies (384) | (512) (491) Non-affiliated companies (333) | (87) (64) - -----------------------------------------------------------------|------------------------------ | Total Net Earned Premiums $ 3,853 | $ 2,721 $ 2,694 =================================================================|==============================
31 17 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. REINSURANCE, Continued Reinsurance recoverables at December 31 include amounts recoverable on unpaid and paid losses and were as follows (in millions):
------------------------------------------------------------------------------ 1994 1993 ------------------------------------------------------------------------------ Reinsurance Recoverables: Life and accident and health business: Affiliated companies $ 3 $ 3 Non-affiliated companies 661 689 Property-casualty business: Affiliated companies 2,251 2,191 ------------------------------------------------------------------------------ Total Reinsurance Recoverables $ 2,915 $ 2,883 ==============================================================================
6. SHAREHOLDER'S EQUITY Additional Paid-In Capital The increase of $273 million in additional paid-in capital during 1994 is due primarily to the finalization of the evaluations and appraisals used to assign fair values to assets and liabilities under purchase accounting. The increase of $1.7 billion in additional paid-in capital during 1993 arose from a contribution of $400 million from The Travelers Corporation and the contribution of TIHI (see notes 1 and 3). This was partially offset by the impact of the initial evaluations and appraisals used to assign fair values to assets and liabilities under purchase accounting. The increase in additional paid-in capital during December 31, 1992 arose from a contribution of $500 million in 1992 from The Travelers Corporation and the contribution of Transport Life Insurance Company's preferred provider and third party administrator organizations in 1992 (see note 3). Unrealized Investment Gains (Losses) An analysis of the change in unrealized gains and losses on investments is shown in note 15. 32 18 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 6. SHAREHOLDER'S EQUITY, Continued Shareholder's Equity and Dividend Availability The statutory net income, including TIHI, was $100 million for the year ended December 31, 1994. The statutory net loss, excluding TIHI, was $648 million and $346 million for the years ended December 31, 1993 and 1992, respectively. Statutory capital and surplus was $2.1 billion and $1.8 billion at December 31, 1994 and 1993, respectively. The Company is currently subject to various regulatory restrictions that limit the maximum amount of dividends available to TIG without prior approval of insurance regulatory authorities. Under statutory accounting practices, there is no statutory surplus available in 1995 for dividends to TIG without prior approval of the Connecticut Insurance Department. Dividend payments to the Company from its insurance subsidiaries are subject to similar restrictions and statutory surplus of the subsidiaries is not available in 1995 for dividends to the Company without prior approval of insurance regulatory authorities. 7. ADDITIONAL OPERATING INFORMATION The Company has segmented its business by major product lines. TIHI was contributed to the Company on December 31, 1993, and its assets at that date and subsequent and its operations for the year ended December 31, 1994 are included in the following table in the Life and Annuities segment. Transport Life Insurance Company's preferred provider and third party administrator organizations were contributed to the Company in December 1992 and are included in the Managed Care and Employee Benefits segment. 33 19 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 7. ADDITIONAL OPERATING INFORMATION, continued Results included in the table below reflect 1993 fourth quarter after-tax charges of $103 million for an addition to reserves for foreclosed properties held for sale and 1992 fourth quarter after-tax charges of $272 million for implementation of SOP 92-3 and $193 million for an addition to mortgage loan valuation reserves.
Managed Care Corporate Travelers Life and Employee and Other (in millions) and Annuities Benefits Operations Consolidated - ------------------------------------------------------------------------------------------------------------------------ 1994 - ---- Revenues Premiums $ 1,492 $ 2,369 $ - $ 3,861 Net investment income 1,603 246 - 1,849 Realized investment gains 13 - 1 14 Other 173 850 - 1,023 - ------------------------------------------------------------------------------------------------------------------------ Total $ 3,281 $ 3,465 $ 1 $ 6,747 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes $ 604 $ 257 $ (4) $ 857 Net income (loss) 392 157 (4) 545 Assets 33,078 5,131 2,326 40,535 - ------------------------------------------------------------------------------------------------------------------------ 1993 - ---- Revenues Premiums $ 330 $ 2,395 $ - $ 2,725 Net investment income 1,616 265 3 1,884 Realized investment gains (losses) (45) 24 - (21) Other 120 737 2 859 - ------------------------------------------------------------------------------------------------------------------------ Total $ 2,021 $ 3,421 $ 5 $ 5,447 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes $ (87) $ 173 $ (3) $ 83 Net income (loss) 19 123 (1) 141 Assets (purchase accounting value) 34,155 4,744 2,442 41,341 - ------------------------------------------------------------------------------------------------------------------------ 1992 - ---- Revenues Premiums $ 278 $ 2,408 $ - $ 2,686 Net investment income 1,799 290 12 2,101 Realized investment gains (losses) (725) (22) - (747) Other 140 645 - 785 - ------------------------------------------------------------------------------------------------------------------------ Total $ 1,492 $ 3,321 $ 12 $ 4,825 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes and cumulative effects of changes in accounting principles $ (844) $ (100) $ 1 $ (943) Cumulative effect of change in accounting for postretirement benefits other than pensions, net of tax (25) (101) - (126) Cumulative effect of change in accounting for income taxes 223 124 3 350 Net income (loss) (343) (42) 4 (381) Assets 31,378 4,498 2,191 38,067 - ------------------------------------------------------------------------------------------------------------------------
34 20 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, including financial futures, interest rate swaps and forward contracts, as a means of prudently hedging exposure to price, foreign currency and/or interest rate risk on anticipated investment purchases or existing assets and liabilities. Also, in the normal course of business, the Company has fixed and variable rate loan commitments and unfunded commitments to partnerships. The Company does not hold or issue derivative instruments for trading purposes. These derivative financial instruments have off-balance-sheet risk. Financial instruments with off-balance-sheet risk involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instrument. However, the maximum credit loss or cash flow associated with these instruments can be less than these amounts. For forward contracts and interest rate swaps, credit risk is limited to the amounts calculated to be due the Company on such contracts. For unfunded commitments to partnerships, credit exposure is the amount of the unfunded commitments. For fixed and variable rate loan commitments, credit exposure is represented by the contractual amount of these instruments. The Company monitors creditworthiness of counterparties to these financial instruments by using criteria of acceptable risk that are consistent with on-balance-sheet financial instruments. The controls include credit approvals, limits and other monitoring procedures. Many transactions include the use of collateral to minimize credit risk and lower the effective cost to the borrower. The Company may occasionally enter into interest rate swaps in connection with other financial instruments to provide greater risk diversification and better match an asset with a corresponding liability. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating rate interest amounts calculated by reference to an agreed notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each due date. Swap agreements are not exchange traded so they are subject to the risk of default by the counterparty. In all cases, counterparties under these agreements are major financial institutions with the risk of non-performance considered remote. At December 31, 1994 and 1993, the Company had entered into interest rate swaps with contract values of $145 million and $153 million, respectively. At both December 31, 1994 and 1993, the fair value of interest rate swaps was $1 million (loss position) which is determined using a discounted cash flow method. The off-balance-sheet risks of financial futures contracts, forward contracts, fixed and variable rate loan commitments and unfunded commitments to partnerships were not considered significant at December 31, 1994 and 1993. 35 21 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued Fair Value of Certain Financial Instruments The Company uses various financial instruments in the normal course of its business. Fair values of financial instruments which are considered insurance contracts are not required to be disclosed and are not included in the amounts discussed. At December 31, 1994 and 1993, investments in fixed maturities have a fair value of $17.3 billion and $18.3 billion, respectively. See note 15. At December 31, 1994, mortgage loans have a carrying value of $4.9 billion, which approximates fair value, compared with a carrying value and a fair value of $6.8 billion at December 31, 1993. In estimating fair value, the Company used interest rates reflecting the higher returns required in the current real estate financing market. The carrying value of $417 million and $320 million of financial instruments classified as other assets approximates fair values at December 31, 1994 and 1993, respectively. The carrying value of $1.2 billion and $878 million of financial instruments classified as other liabilities also approximates their fair values at December 31, 1994 and 1993, respectively. Fair value is determined using various methods including discounted cash flows and carrying value, as appropriate for the various financial instruments. At December 31, 1994, contractholder funds with defined maturities have a carrying value of $4.2 billion and a fair value of $4.0 billion, compared with a carrying value and a fair value of $5.0 billion at December 31, 1993. The fair value of these contracts is determined by discounting expected cash flows at an interest rate commensurate with the Company's credit risk and the expected timing of cash flows. Contractholder funds without defined maturities have a carrying value of $9.1 billion and a fair value of $8.8 billion at December 31, 1994, compared with a carrying value of $13.0 billion and a fair value of $12.7 billion at December 31, 1993. These contracts generally are valued at surrender value. The assets of separate accounts providing a guaranteed return have a carrying value and a fair value of $1.5 billion and $1.4 billion, respectively, at December 31, 1994, compared with a carrying value and a fair value of $1.5 billion and $1.6 billion, respectively, at December 31, 1993. The liabilities of separate accounts providing a guaranteed return have a carrying value and a fair value of $1.5 billion and $1.3 billion, respectively, at December 31, 1994, compared with a carrying value and a fair value of $1.5 billion and $1.7 billion, respectively, at December 31, 1993. 36 22 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued The carrying values of cash, short-term securities and investment income accrued approximate their fair values. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. 9. COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance-Sheet Risk See Note 8 for a discussion of financial instruments with off-balance-sheet risk. Litigation In April 1989, a lawsuit was filed against the Company by the federal government alleging the Company improperly handled health benefit claims for individuals who are actively employed and eligible for Medicare coverage. In November 1992, the court ruled on cross motions for summary judgment. The court found that the Company had no liability when acting in the capacity of an administrator of claims. However, the court also recognized that, while the government's right of recovery with respect to insured claims is governed by the substantive terms of our customers' health benefit plan, the right of recovery is independent of procedural limitations in the Company's contracts. The Company is a defendant or codefendant in various litigation matters. Although there can be no assurances, as of December 31, 1994, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition or liquidity. 10. BENEFIT PLANS Pension Plans The Company participates in qualified and nonqualified, noncontributory defined benefit pension plans covering the majority of the Company's U.S. employees. Benefits for the qualified plan are based on an account balance formula. Under this formula, each employee's accrued benefit can be expressed as an account that is credited with amounts based upon the employee's pay, length of service and a specified interest rate, all subject to a minimum benefit level. This plan is funded in accordance with the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. For the nonqualified plan, contributions are based on benefits paid. Certain subsidiaries of TIHI participate in a noncontributory defined benefit plan sponsored by their ultimate parent, The Travelers Inc. 37 23 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 10. BENEFIT PLANS, Continued The Company's share of net pension expense was $6 million, $8 million and $22 million for 1994, 1993 and 1992, respectively. Through plans sponsored by TIG, the Company also provides defined contribution pension plans for certain agents. Company contributions are primarily a function of production. The expense for these plans was $2 million in 1994, 1993 and 1992. Certain non-U.S. employees of TIHI are covered by noncontributory defined benefit plans. These plans are funded based upon local laws. Other Benefit Plans In addition to pension benefits, the Company provides certain health care and life insurance benefits for retired employees through a plan sponsored by TIG. This plan does not include employees of TIHI. Covered employees may become eligible for these benefits if they reach retirement age while working for the Company. These retirees may elect certain prepaid health care benefit plans. Life insurance benefits generally are set at a fixed amount. The cost recognized by the Company for these benefits represents its allocated share of the total costs of the plan, net of employee contributions. In the third quarter of 1992, TIG adopted FAS 106 and elected to recognize the accumulated postretirement benefit obligation (i.e., the transition obligation) as a change in accounting principle retroactive to January 1, 1992. The Company's pretax share of the total cost of the plan for 1994, 1993 and 1992 was $14 million, $29 million and $26 million, respectively. The Merger resulted in a change in control of The Travelers Corporation as defined in the applicable plans, and provisions of some employee benefit plans secured existing compensation and benefit entitlements earned prior to the change in control, and provided a salary and benefit continuation floor for employees whose employment was affected. The costs related to these changes have been assumed by TIG. Savings, Investment and Stock Ownership Plan Under the savings, investment and stock ownership plan available to substantially all employees of TIG (except TIHI), the Company matches a portion of employee contributions. Effective April 1, 1993, the match decreased from 100% to 50% of an employee's first 5% contribution and a variable match based on TIG's profitability was added. The Company's matching obligations were $7 million, $10 million and $16 million in 1994, 1993 and 1992, respectively. 38 24 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 11. RELATED PARTY TRANSACTIONS The principal banking functions for certain subsidiaries and affiliates of TIG, and salaries and expenses for TIG and its insurance subsidiaries (excluding TIHI), are handled by the Company. Settlements for these functions between the Company and its affiliates are made regularly. The Company provides various insurance coverages, principally life and health, to employees of certain subsidiaries of TIG. The premiums for these coverages were charged in accordance with normal cost allocation procedures. In addition, investment advisory and management services, data processing services and claims processing services are provided by affiliated companies. TIG and its subsidiaries maintain short-term investment pools in which the Company participates. The positions of each company participating in the pools are calculated and adjusted daily. At December 31, 1994 and 1993, the pools totaled approximately $1.5 billion and $1.3 billion, respectively. The Company's share of the pools amounted to $1.1 billion and $439 million at December 31, 1994 and 1993, respectively, and is included in short-term securities in the consolidated balance sheet. The Company markets a variable annuity product through its affiliate, Smith Barney. Sales of this product were $158 million in 1994. The Company leases new furniture and equipment from a noninsurance subsidiary of TIG. The rental expense charged to the Company for this furniture and equipment was $9 million, $10 million and $9 million in 1994, 1993 and 1992, respectively. At December 31, 1994 and 1993, TIC has an investment of $23 million and $27 million, respectively, in bonds of its affiliate, Commercial Credit Company. This is included in fixed maturities in the consolidated balance sheet. TIHI has an investment of $231 million and $110 million in common stock of The Travelers Inc. at December 31, 1994 and 1993, respectively. This is carried at fair value at December 31, 1994 and at cost at December 31, 1993. At December 31, 1994, TIHI has an investment of $35 million in redeemable preferred stock of The Travelers Inc. which is carried at fair value. TIHI has notes receivable from The Travelers Inc. of $30 million at December 31, 1994 and 1993, which are carried at cost. These assets are included in other investments in the consolidated balance sheet. 39 25 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 12. LEASES The Company has entered into various operating and capital lease agreements for office space and data processing and certain other equipment. Rental expense under operating leases was $99 million, $113 million and $122 million in 1994, 1993 and 1992, respectively. Future net minimum rental and lease payments are estimated as follows:
------------------------------------------------------------------------------------------ Minimum operating Minimum capital ------------------------------------------------------------------------------------------ (in millions) rental payments lease payments ------------------------------------------------------------------------------------------ Year ending December 31, 1995 $ 112 $ 7 1996 85 7 1997 69 4 1998 54 4 1999 47 4 Thereafter 36 64 ------------------------------------------------------------------------------------------ $ 403 $ 90 ------------------------------------------------------------------------------------------
The Company is reimbursed by affiliates of TIG for utilization of space and equipment. The following is a summary of assets under capital leases:
------------------------------------------------------------------------- (in millions) 1994 1993 ------------------------------------------------------------------------- Buildings $ 25 $ 25 Equipment 14 14 ------------------------------------------------------------------------- 39 39 Less accumulated depreciation 17 14 ------------------------------------------------------------------------- Net $ 22 $ 25 -------------------------------------------------------------------------
The net carrying value of the assets is recorded at amortized cost and at the value assigned at the acquisition dates at December 31, 1994 and 1993, respectively. 40 26 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES
------------------------------------------------------------------------------------------- (in millions) 1994 | 1993 1992 ------------------------------------------------------------|------------------------------ | Effective tax rate | | Income (loss) before federal | income taxes $ 857 | $ 83 $ (943) ------------------------------------------------------------|------------------------------ Statutory tax rate 35% | 35% 34% ------------------------------------------------------------|------------------------------ | Expected federal income taxes $ 300 | $ 29 $ (321) Tax effect of: | Nontaxable investment income (4) | (1) (1) Adjustments to benefit and other reserves - | (46) (18) Adjustment to deferred tax asset for | enacted change in tax rates from | 34% to 35% - | (25) - Goodwill 12 | - - Other 4 | (15) 2 ------------------------------------------------------------|------------------------------ Federal income taxes $ 312 | $ (58) $ (338) ------------------------------------------------------------|------------------------------ | Effective tax rate 36% | (70%) 36% ------------------------------------------------------------|------------------------------ | Composition of federal income taxes | Current: | United States $ 22 | $ 17 $ (3) Foreign 14 | 3 5 ------------------------------------------------------------|------------------------------ Total 36 | 20 2 ------------------------------------------------------------|------------------------------ | Deferred: | United States 271 | (78) (340) Foreign 5 | - - ------------------------------------------------------------|------------------------------ Total 276 | (78) (340) ------------------------------------------------------------|------------------------------ Federal income taxes $ 312 | $ (58) $ (338) -------------------------------------------------------------------------------------------
41 27 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES, Continued The net deferred tax assets at December 31, 1994 and 1993 were comprised of the tax effects of the temporary differences related to the following assets and liabilities:
---------------------------------------------------------------------------------------------- (in millions) 1994 1993 ---------------------------------------------------------------------------------------------- Deferred tax assets: Benefit, reinsurance and other reserves $ 453 $ 575 Contractholder funds 158 184 Investments 690 492 Other employee benefits 87 65 Other 257 146 ---------------------------------------------------------------------------------------------- Total 1,645 1,462 ---------------------------------------------------------------------------------------------- Deferred tax liabilities: Deferred acquisition costs and value of insurance in force 529 504 Prepaid pension expense 5 3 Other 61 - ---------------------------------------------------------------------------------------------- Total 595 507 ---------------------------------------------------------------------------------------------- Net deferred tax asset before valuation allowance 1,050 955 Valuation allowance for deferred tax assets (100) (100) ---------------------------------------------------------------------------------------------- Net deferred tax asset after valuation allowance $ 950 $ 855 ----------------------------------------------------------------------------------------------
Starting in 1994 and continuing for at least five years, the Company and its life insurance subsidiaries will file a consolidated federal income tax return. Federal income taxes are allocated to each member of the consolidated return on a separate return basis adjusted for credits and other amounts required by the consolidation process. Any resulting liability will be paid currently to the Company. Any credits for losses will be paid by the Company to the extent that such credits are for tax benefits that have been utilized in the consolidated federal income tax return. The Company has no receivable for unreimbursed credits from its previous allocation agreement with The Travelers Corporation. 42 28 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES, Continued A net deferred tax asset valuation allowance of $100 million has been established to reduce the net deferred tax asset on investment losses to the amount that, based upon available evidence, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future capital gains in the Company's consolidated life insurance company federal income tax return through 1998, and the consolidated federal income tax return of The Travelers Inc. commencing in 1999 or a change in circumstances which causes the recognition of the benefits to become more likely than not. There was no net change in the valuation allowance during 1994. The initial recognition of any benefit produced by the reversal of the valuation allowance will be recognized by reducing goodwill. The Company has a net deferred tax asset, after the valuation allowance of $100 million, which relates to temporary differences that are expected to reverse as net ordinary deductions except for a deferred tax asset of $319 million which relates to the unrealized loss on fixed maturity investments. Management does not intend to realize the unrealized loss on the fixed maturity investments except to the extent of offsetting capital gains. The Company will have to generate approximately $1.8 billion of taxable income, before reversal of these temporary differences, primarily over the next 10 to 15 years, to realize the remainder of the deferred tax asset, exclusive of the unrealized loss on fixed maturity investments. Management expects to realize the remainder of the deferred tax asset based upon its expectation of future positive taxable income, after the reversal of these deductible temporary differences, in the consolidated life insurance company federal income tax return through 1998, and the consolidated federal income tax return of The Travelers Inc. commencing in 1999. The taxable income of The Travelers Inc. consolidated return, after reversal of the deductible temporary differences, is expected to be at least $1 billion annually. At December 31, 1994, the Company has no ordinary or capital loss carryforwards. The "policyholders surplus account", which arose under prior tax law, is generally that portion of the gain from operations that has not been subjected to tax, plus certain deductions. The balance of this account, which, under provisions of the Tax Reform Act of 1984, will not increase after 1983, is estimated to be $932 million. This amount has not been subjected to current income taxes but, under certain conditions that management considers to be remote, may become subject to income taxes in future years. At current rates, the maximum amount of such tax (for which no provision has been made in the financial statements) is approximately $326 million. See note 2 for a discussion of the implementation of new principles for accounting for income taxes. 43 29 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 14. NET INVESTMENT INCOME
------------------------------------------------------------------|------------------------------ (For the year ended December 31, in millions) 1994 | 1993 1992 ------------------------------------------------------------------|------------------------------ | Gross investment income | Fixed maturities $ 1,253 | $ 1,221 $ 1,242 Mortgage loans 534 | 692 868 Real estate 177 | 383 384 Policy loans 112 | 106 109 Other 7 | (23) - ------------------------------------------------------------------|------------------------------ 2,083 | 2,379 2,603 ------------------------------------------------------------------|------------------------------ | Investment expenses 234 | 495 502 ------------------------------------------------------------------|------------------------------ Net investment income $ 1,849 | $ 1,884 $ 2,101 ------------------------------------------------------------------|------------------------------
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES) Realized investment gains (losses) for the periods were as follows:
-------------------------------------------------------------------|----------------------------- (For the year ended December 31, in millions) 1994 | 1993 1992 -------------------------------------------------------------------|----------------------------- | Realized | | Fixed maturities $ (3) | $ 182 $ (11) Equity securities 19 | 14 9 Mortgage loans - | (32) (386) Real estate - | (222) (400) Other (2) | 37 41 -------------------------------------------------------------------|----------------------------- Realized investment gains (losses) $ 14 | $ (21) $ (747) -------------------------------------------------------------------|-----------------------------
44 30 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Changes in net unrealized investment gains (losses) that are included as a separate component of shareholder's equity were as follows:
------------------------------------------------------------------------------------------------- (For the year ended December 31, in millions) 1994 | 1993 1992 -------------------------------------------------------------------|----------------------------- | Unrealized | | Fixed maturities $ (1,319) | $ (235) $ 146 Equity securities (25) | (17) 6 Other 165 | 28 4 -------------------------------------------------------------------|----------------------------- (1,179) | (224) 156 Related taxes (412) | (83) 53 -------------------------------------------------------------------|----------------------------- | Net unrealized investment gains (losses) (767) | (141) 103 Contribution of TIHI - 5 | - Balance beginning of year 7 143 | 40 --------------------------------------------------------------------------------------|---------- Balance end of year $ (760) $ 7 | $ 143 -------------------------------------------------------------------------------------------------
The initial adoption of FAS 115 resulted in an increase of approximately $232 million (net of taxes) to net unrealized gains in 1994. Fixed Maturities Proceeds from sales of fixed maturities classified as available for sale were $1.4 billion in 1994, resulting in gross realized gains of $15 million and gross realized losses of $27 million. There were no sales of fixed maturities classified as available for sale in 1993 or 1992 as, in conjunction with the Merger, fixed maturities were first classified as "available for sale" effective December 31, 1993. Prior to December 31, 1993, fixed maturities that were intended to be held to maturity were recorded at amortized cost and classified as held for investment. Sales from the amortized cost portfolios have been made periodically. Such sales were $97 million and $195 million in 1993 and 1992, respectively. Gross gains of $7 million and $10 million in 1993 and 1992, respectively, and gross losses of $1 million and $6 million in 1993 and 1992, respectively, were realized on those sales. Prior to December 31, 1993, the carrying values of the trading portfolio fixed maturities were adjusted to market value as it was likely they would be sold prior to maturity. At December 31, 1992, these fixed maturities had market values of $4.8 billion. Sales of trading portfolio fixed maturities were $4.0 billion and $642 million in 1993 and 1992, respectively. Gross gains of $165 million and $24 million in 1993 and 1992, respectively, and gross losses of $2 million and $4 million in 1993 and 1992, respectively, were realized on those sales. 45 31 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued The amortized cost and market value of investments in fixed maturities were as follows:
------------------------------------------------------------------------------------------------ December 31, 1994 ------------------------------------------------------------------------------------------------ Gross Gross Amortized unrealized unrealized Market (in millions) cost gains losses value ------------------------------------------------------------------------------------------------ Available for sale: Mortgage-backed securities - CMOs and pass through securities $ 3,779 $ 3 $ 304 $ 3,478 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 3,080 3 306 2,777 Obligations of states, municipalities and political subdivisions 87 - 7 80 Debt securities issued by foreign governments 398 - 26 372 All other corporate bonds 11,225 14 696 10,543 Redeemable preferred stock 10 - - 10 ------------------------------------------------------------------------------------------------ Total $ 18,579 $ 20 $ 1,339 $ 17,260 ------------------------------------------------------------------------------------------------
46 32 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
------------------------------------------------------------------------------------------------ December 31, 1993 ------------------------------------------------------------------------------------------------ Gross Gross Carrying unrealized unrealized Market (in millions) value gains losses value ------------------------------------------------------------------------------------------------ Available for sale: Mortgage-backed securities - CMOs and pass through securities $ 4,219 $ 18 $ 18 $ 4,219 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 2,807 67 6 2,868 Obligations of states, municipalities and political subdivisions 259 9 - 268 Debt securities issued by foreign governments 333 6 - 339 All other corporate bonds 10,474* 125 29 10,570 Redeemable preferred stock 20 - - 20 Held for investment 18 - - 18 ------------------------------------------------------------------------------------------------ Total $ 18,130 $ 225 $ 53 $ 18,302 ------------------------------------------------------------------------------------------------
* Before valuation reserves of $67 million. The amortized cost and market value of fixed maturities at December 31, 1994, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
------------------------------------------------------------------------------------------------ Maturity Amortized Market (in millions) cost value ------------------------------------------------------------------------------------------------ Due in one year or less $ 1,217 $ 1,197 Due after 1 year through 5 years 4,691 4,434 Due after 5 years through 10 years 5,731 5,310 Due after 10 years 3,161 2,841 ------------------------------------------------------------------------------------------------ 14,800 13,782 Mortgage-backed securities 3,779 3,478 ------------------------------------------------------------------------------------------------ Total $ 18,579 $ 17,260 ------------------------------------------------------------------------------------------------
47 33 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued The Company makes significant investments in collateralized mortgage obligations (CMOs). CMOs typically have high credit quality, offer good liquidity, and provide a significant advantage in yield and total return compared to U.S. Treasury securities. The Company's investment strategy is to purchase CMO tranches which are protected against prepayment risk, primarily planned amortization class (PAC) tranches. Prepayment protected tranches are preferred because they provide stable cash flows in a variety of scenarios. The Company does invest in other types of CMO tranches if a careful assessment indicates a favorable risk/return tradeoff. The Company does not purchase residual interests in CMOs. At December 31, 1994 and 1993, the Company held CMOs with a market value of $2.2 billion and $2.5 billion, respectively. Approximately 88% of the Company's CMO holdings are fully collateralized by GNMA, FNMA or FHLMC securities at December 31, 1994 and 1993. The majority of these are GNMA-backed securities. In addition, the Company held $1.3 billion and $1.9 billion of GNMA, FNMA or FHLMC mortgage-backed securities at December 31, 1994 and 1993, respectively. Virtually all of these securities are rated AAA. The Company also held $927 million and $899 million of securities that are backed primarily by credit card or car loan receivables at December 31, 1994 and 1993, respectively. Equity Securities The cost and market values of investments in equity securities were as follows:
------------------------------------------------------------------------------------------------ December 31, 1994 ------------------------------------------------------------------------------------------------ Gross Gross unrealized unrealized Market (in thousands) Cost gains losses value ------------------------------------------------------------------------------------------------ Common stocks $ 133 $ 19 $ 21 $ 131 Nonredeemable preferred stocks 40 - 2 38 ------------------------------------------------------------------------------------------------ Total $ 173 $ 19 $ 23 $ 169 ------------------------------------------------------------------------------------------------ December 31, 1993 ------------------------------------------------------------------------------------------------ Common stocks $ 129 $ 22 $ 3 $ 148 Nonredeemable preferred stocks 70 3 1 72 ------------------------------------------------------------------------------------------------ Total $ 199 $ 25 $ 4 $ 220 ------------------------------------------------------------------------------------------------
Proceeds from sales of equity securities were $359 million in 1994, resulting in gross realized gains of $24 million and gross realized losses of $6 million. 48 34 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Mortgage loans and real estate Underperforming assets include delinquent mortgage loans, loans in the process of foreclosure, foreclosed loans and loans modified at interest rates below market. The Company continues its strategy, adopted in conjunction with the Merger, to dispose of these real estate assets and some of the mortgage loans and to reinvest the proceeds to obtain current market yields. At December 31, 1994 and 1993, the Company's mortgage loan and real estate held for sale portfolios consisted of the following (in millions):
------------------------------------------------------------------------------ 1994 1993 ------------------------------------------------------------------------------ Current mortgage loans $ 4,467 $ 5,680 Underperforming mortgage loans 471 1,165 ------------------------------------------------------------------------------ Total mortgage loans 4,938 6,845 ------------------------------------------------------------------------------ Real estate held for sale 383 954 ------------------------------------------------------------------------------ Total mortgage loans and real estate $ 5,321 $ 7,799 ------------------------------------------------------------------------------
Aggregate annual maturities on mortgage loans at December 31, 1994 are as follows:
----------------------------------------------------- (in millions) ----------------------------------------------------- Past maturity $ 196 1995 708 1996 517 1997 550 1998 614 1999 611 Thereafter 1,742 ----------------------------------------------------- Total $ 4,938 -----------------------------------------------------
Concentrations At December 31, 1994 and 1993, the Company had no concentration of credit risk in a single investee exceeding 10% of consolidated shareholder's equity. The Company participates in two short-term investment pools maintained by TIG and its subsidiaries. These pools are discussed in note 11. 49 35 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Included in fixed maturities are below investment grade assets totaling $922 million and $814 million at December 31, 1994 and 1993, respectively. The Company defines its below investment grade assets as those securities rated "Ba1" or below by external rating agencies, or the equivalent by the internal analysts when a public rating does not exist. Such assets include publicly traded below investment grade bonds, highly leveraged transactions and certain other privately issued bonds that are classified as below investment grade loans. The Company also has significant concentrations of investments in the following industries:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ Finance $ 1,241 $ 1,442 Electric utilities 1,222 1,348 Banking 953 743 Oil and gas 859 651 ------------------------------------------------------------------------------------------------
Below investment grade assets included in the totals above, are as follows:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ Finance $ 75 $ 45 Electric utilities 32 47 Banking 21 21 Oil and gas 33 38 ------------------------------------------------------------------------------------------------
At December 31, 1994 and 1993, significant concentrations of mortgage loans were for properties located in highly populated areas in the states listed below. The amounts are shown below:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ California $ 929 $ 1,174 New York 558 780 Florida 432 588 Texas 380 584 Illinois 347 485 ------------------------------------------------------------------------------------------------
Other mortgage loan investments are fairly evenly dispersed throughout the United States, with no holdings in any state exceeding $273 million and $324 million at December 31, 1994 and 1993, respectively. 50 36 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Concentrations of mortgage loans by property type at December 31, 1994 and 1993 are shown below:
----------------------------------------------------------------------------------------------- (in millions) 1994 1993 ----------------------------------------------------------------------------------------------- Office $ 2,065 $ 2,769 Apartment 1,029 1,635 Retail 606 891 Agricultural 540 643 Hotel 402 547 -----------------------------------------------------------------------------------------------
Real estate investments are dispersed throughout the United States, with no holdings in any state exceeding $111 million or $191 million at December 31, 1994 or 1993, respectively. Real estate assets at December 31, 1994 and 1993 included office properties with carrying values of $205 million and $568 million, respectively. The Company monitors creditworthiness of counterparties to all financial instruments by using controls that include credit approvals, limits and other monitoring procedures. Collateral for fixed maturities often includes pledges of assets, including stock and other assets, guarantees and letters of credit. The Company's underwriting standards with respect to new mortgage loans generally require loan to value ratios of 75% or less at the time of mortgage origination. Investment Valuation Reserves At December 31, 1994, 1993 and 1992, total investment valuation reserves, which are deducted from the applicable investment carrying values in the consolidated balance sheet, were as follows:
------------------------------------------------------------------------------------------------- (in millions) 1994 | 1993 1992 ------------------------------------------------------------------|------------------------------ | Beginning of year $ 67 | $ 1,417 $ 864 Increase - | 195 821 Impairments, net of gains/recoveries - | (602) (268) FAS 115/Purchase accounting adjustment (67) | (943) - ------------------------------------------------------------------------------------------------- End of year $ - $ 67 | $ 1,417 -------------------------------------------------------------------------------------------------
At December 31, 1993, investment valuation reserves were comprised of $67 million for securities. Increases in the investment valuation reserves are reflected as realized investment losses. 51 37 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Nonincome Producing Investments included in the consolidated balance sheets that were nonincome producing for the preceding 12 months were as follows:
----------------------------------------------------------------------------------------------- (in millions) 1994 1993 ----------------------------------------------------------------------------------------------- Mortgage loans $ 127 $ 249 Real estate 73 147 Fixed maturities 6 24 ----------------------------------------------------------------------------------------------- Total $ 206 $ 420 -----------------------------------------------------------------------------------------------
Restructured The Company has mortgage loans and debt securities which were restructured at below market terms totaling approximately $259 million and $796 million at December 31, 1994 and 1993, respectively. At December 31, 1993, the Company's restructured assets are recorded at purchase accounting value. The new terms typically defer a portion of contract interest payments to varying future periods. The accrual of interest is suspended on all restructured assets, and interest income is reported only as payment is received. Gross interest income on restructured assets that would have been recorded in accordance with the original terms of such loans amounted to $52 million in 1994 and $121 million in 1993. Interest on these assets, included in net investment income, aggregated $17 million and $52 million in 1994 and 1993, respectively. 16. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES At December 31, 1994, the Company has $23.2 billion of life and annuity deposit funds and reserves. Of that total, $11.6 billion are not subject to discretionary withdrawal based on contract terms and related market conditions. The remaining $11.6 billion are for life and annuity products that are subject to discretionary withdrawal by the contractholder. Included in the amount that is subject to discretionary withdrawal are $1.9 billion of liabilities that are surrenderable with market value adjustments. An additional $5.7 billion of the life insurance and individual annuity liabilities are subject to discretionary withdrawals with an average surrender charge of 5.5%. Another $1.4 billion of liabilities are surrenderable at book value over 5 to 10 years. In the payout phase, these funds are credited at significantly reduced interest rates. The remaining $2.6 billion of liabilities are surrenderable without charge. Approximately 30% of these liabilities relate to individual life products. These risks would have to be underwritten again if transferred to another carrier, which is considered a significant deterrent for long-term policyholders. Insurance liabilities that are surrendered or withdrawn from the Company are reduced by outstanding policy loans and related accrued interest prior to payout. 52 38 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 17. RESTRUCTURING COSTS During 1992, the Company announced a series of organizational restructuring initiatives associated with its plan to streamline its business and corporate operations. These initiatives have been substantially completed. These initiatives resulted in a pretax charge in 1992 of $151 million, consisting of $96 million for severance, benefits, accrued vacation and outplacement costs, $5 million for relocation costs due to consolidation efforts, $19 million for lease costs, $15 million for writeoff of goodwill related to identified divestitures and $16 million of miscellaneous other costs. 18. RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES In the first quarter of 1992, the Company changed its presentation of cash flows from operating activities from the indirect method to the direct method. The following table reconciles net income (loss) to net cash provided by operating activities:
------------------------------------------------------------------------------------------------ (For the year ended December 31, in millions) 1994 | 1993 1992 ----------------------------------------------------------------|------------------------------- | Net income (loss) $ 545 | $ 141 $ (381) Reconciling adjustments | Realized gains (losses) (14) | 21 747 Deferred federal income taxes 276 | (78) (340) Amortization of deferred policy acquisition | costs and value of insurance in force 284 | 55 61 Additions to deferred policy acquisition costs (429) | 5 (2) Trading account investments, | (purchases) sales, net - | (1,576) (364) Investment income accrued 17 | 1 29 Premium balances receivable 9 | 41 3 Insurance reserves and accrued expenses 165 | 542 (81) Restructuring reserves - | (79) 121 Cumulative effects of changes in | accounting principles - | - (224) Other, including investment valuation reserves | in 1993 and 1992 (136) | (445) 487 ----------------------------------------------------------------|------------------------------- | Net cash provided by (used in) | operating activities $ 717 | $ (1,372) $ 56 ------------------------------------------------------------------------------------------------
53 39 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 19. NONCASH INVESTING AND FINANCING ACTIVITIES Significant noncash investing and financing activities include: a) the 1994 exchange of $23 million of TIHI's investment in The Travelers Inc. common stock for $35 million of The Travelers Inc. nonredeemable preferred stock; b) the acquisition of real estate through foreclosures of mortgage loans amounting to $229 million, $563 million and $753 million in 1994, 1993 and 1992, respectively; c) the acceptance of purchase money mortgages for sales of real estate aggregating $96 million, $190 million and $72 million in 1994, 1993 and 1992, respectively; d) the 1993 contribution of TIHI by The Travelers Inc. (see note 3); e) the 1993 contribution of $400 million of bond investments by The Travelers Corporation (see note 6); f) increases in investment valuation reserves in 1993 and 1992 for securities, mortgage loans and/or investment real estate (see note 15); g) the 1993 transfer of $352 million of mortgage loans and bonds from the Company's general account to two separate accounts; and h) the contribution in 1992 of Transport Life Insurance Company's preferred provider and third party administrator organizations by The Travelers Corporation (see note 3). 54 THETRAVELERS (logo umbrella) STATEMENT OF ADDITIONAL INFORMATION THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY May 1, 1995 This Statement of Additional Information is not a prospectus but relates to, and should be read in conjunction with, the Prospectus dated May 1, 1995. A copy of the Prospectus may be obtained by writing to The Travelers Insurance Company (the "Company"), Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183-5030, or by calling 1-800-842- 0125. TABLE OF CONTENTS PAGE DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS 1 The Insurance Company 1 The Separate Accounts 1 INVESTMENT OBJECTIVES AND POLICIES 1 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES 1 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES 3 DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS 4 WRITING COVERED CALL OPTIONS 4 BUYING PUT AND CALL OPTIONS 5 FUTURES CONTRACTS 5 MONEY MARKET INSTRUMENTS 7 INVESTMENT MANAGEMENT AND ADVISORY SERVICES 9 Advisory Fees 10 TIMCO 10 TAMIC 11 VALUATION OF ASSETS 12 THE BOARD OF MANAGERS 12 DISTRIBUTION AND MANAGEMENT SERVICES 14 SECURITIES CUSTODIAN 14 INDEPENDENT ACCOUNTANTS 14 FINANCIAL STATEMENTS 15 FINANCIAL STATEMENTS - THE TRAVELERS INSURANCE COMPANY F-1 DESCRIPTION OF THE TRAVELERS AND THE SEPARATE ACCOUNTS THE INSURANCE COMPANY The Travelers Insurance Company ( the "Company") is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct a life insurance business in all states of the United States, the District of Columbia, Puerto Rico, Guam, the Virgin Islands, Canada and the Bahamas. The Company is an indirect wholly owned subsidiary of Travelers Group Inc. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183. THE SEPARATE ACCOUNTS Each of the Separate Accounts which serve as the funding vehicles for the Variable Annuity contracts described in this Statement of Additional Information meets the definition of a separate account under the federal securities laws, and will comply with the provisions of the Investment Company Act of 1940, as amended (the "1940 Act"). Additionally, the operations of each of the Separate Accounts are subject to the provisions of Section 38a-433 of the Connecticut General Statutes which authorizes the Connecticut Insurance Commissioner to adopt regulations under it. The Section contains no restrictions on investments of the Separate Accounts, and the Commissioner has adopted no regulations under the Section that affect the Separate Accounts. The Travelers Growth and Income Stock Account for Variable Annuities (Account GIS) was established on September 22, 1967, and The Travelers Quality Bond Account for Variable Annuities (Account QB) was established on July 29, 1974. Each of the Separate Accounts, although an integral part of the Company, is registered with the Securities and Exchange Commission as a diversified, open-end management investment company under the 1940 Act. The assets of Accounts GIS and QB are invested directly in securities (such as stocks, bonds or money market instruments) which are compatible with the stated investment policies of each account. Purchase Payments may be allocated to either of the Separate Accounts. The Company may make additions to or deletions from the investment alternatives available under the Contract, as permitted by law. The investment objectives of each of the Separate Accounts are as follows: ACCOUNT GIS: The primary objective of Account GIS is long-term accumulation of principal through capital appreciation and retention of net investment income. The assets of Account GIS will normally be invested in a portfolio of common stocks spread over industries and companies. ACCOUNT QB: The primary objective of Account QB is current income, moderate capital volatility and total return. Assets of Account QB will be invested in short-term to intermediate-term bonds or other debt securities with a market value-weighted average maturity of five years or less. INVESTMENT OBJECTIVES AND POLICIES Each Separate Account has a different investment objective and different investment policies, and each Separate Account has certain fundamental investment restrictions, all of which are set forth below. Neither the investment objective nor the fundamental investment restrictions can be changed without a vote of a majority of the outstanding voting securities of the Accounts, as defined in the 1940 Act. Additionally, in accomplishing their respective investment objectives, each Account uses certain types of investments and investment techniques which are discussed under "Investments and Investment Techniques" on page 4. The percentage restrictions (for either fundamental investment policies or investment restrictions) are interpreted such that if they are adhered to at the time of investment, a later increase in a percentage beyond the specified limit resulting from a change in the values of portfolio securities or in the amount of net assets shall not be considered a violation. It must be recognized that there are risks inherent in the ownership of any investment and that there can be no assurance that the investment objectives of the Separate Accounts will be achieved. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account GIS is the selection of investments from the point of view of an investor concerned primarily with long-term accumulation of principal through capital appreciation and retention of net investment income. This principal objective does not preclude the realization of short-term gains when conditions would suggest the long-term goal is accomplished by such short-term transactions. The assets of Account GIS will primarily be invested in a portfolio of equity securities, mainly common stocks, spread over industries and companies. However, when it is determined that investments of other types may be advantageous on the basis of combined considerations of risk, income and appreciation, investments may also be made in bonds, notes or other evidence of indebtedness, issued publicly or placed privately, of a type customarily purchased for investment by institutional investors, including United States Government securities. These investments generally would not have a prospect of long-term appreciation. Investments in other than equity securities are temporary for defensive purposes. Such investments may or may not be convertible into stock or be accompanied by stock purchase options or warrants for the purchase of stock. Account GIS may use exchange-traded financial futures contracts as a hedge to protect against changes in stock prices. The use of stock index futures by Account GIS is intended primarily to limit transaction and borrowing costs. Account GIS expects that risk management transactions involving futures contracts will not impact more than thirty percent (30%) of Account GIS's assets at any one time. Account GIS may also write covered call options on securities which it owns, and may purchase index or individual equity call or put options. INVESTMENT RESTRICTIONS The investment restrictions for Account GIS set forth in items 1 through 9 are fundamental and may not be changed without a vote of a majority of the outstanding voting securities, as defined in the 1940 Act. Items 10 through 13 may be changed by a vote of the Board of Managers. 1. Not more than 5% of the assets of the Account will be invested in the securities of any one issuer, except obligations of the United States Government and its instrumentalities. 2. Borrowings will not be made, except that the right is reserved to borrow from banks for emergency purposes, provided that such borrowings will not exceed 5% of the value of the assets of the Account and that immediately after the borrowing, and at all times thereafter, and while any such borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of the Account. 3. Securities of other issuers will not be underwritten, except that the Account could be deemed an underwriter when engaged in the sale of restricted securities. (See item 13.) 4. Interests in real estate will not be purchased, except as may be represented by securities for which there is an established market. 5. No purchase of commodities or commodity contracts will be made, except transactions involving financial futures in order to limit transaction and borrowing costs and for hedging purposes, as discussed above. 6. Loans will be made only through the acquisition of a portion of privately placed issue of bonds, debentures or other evidences of indebtedness of a type customarily purchased by institutional investors. (See item 13.) 7. Investments will not be made in the securities of a company for the purpose of exercising management or control. 8. Not more than 10% of the voting securities of any one issuer will be acquired. (It is the present practice of Account GIS not to exceed 5% of the voting securities of any one issuer.) 9. Senior securities will not be issued. 10. Short sales of securities will not be made. 11. Purchases will not be made on margin, except for short-term credits which are necessary for the clearance of transactions, and for the placement of not more than 5% of its net asset value in total margin deposits for positions in futures contracts. 12. The Account will not invest in the securities of other investment companies, except as part of a plan of merger, consolidation or acquisition of assets. 13. Not more than 5% of the value of the assets of the Account may be invested in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). Changes in the investments of Account GIS may be made from time to time to take into account changes in the outlook for particular industries or companies. Account GIS's investments will not, however, be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of its assets will be invested in any one industry. While Account GIS may occasionally invest in foreign securities, it is not anticipated that such investments will, at any time, account for more than ten percent (10%) of its investment portfolio. The assets of Account GIS will be kept fully invested, except that (a) sufficient cash may be kept on hand to provide for variable annuity contract obligations, and (b) reasonable amounts of cash, United States Government or other liquid securities, such as short-term bills and notes, may be held for limited periods, pending investment in accordance with their respective investment policies. PORTFOLIO TURNOVER Although Account GIS intends to purchase securities for long-term appreciation of capital and income, and does not intend to place emphasis on obtaining short-term trading profits, such short-term trading may occur. A higher turnover rate should not be interpreted as indicating a variation from the stated investment policy of seeking long-term accumulation of capital, and will normally increase the brokerage costs of Account GIS. However, negotiated fees and the use of futures contracts will help to reduce brokerage costs. While there is no restriction on portfolio turnover, Account GIS expects to have a moderate to high level of portfolio turnover in the range of 150% to 300%. The portfolio turnover rate for Account GIS for the years ended December 31, 1992, 1993 and 1994 was 189%, 81% and 103%, respectively. THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT OBJECTIVE The basic investment objective of Account QB is the selection of investments from the point of view of an investor concerned primarily with current income, moderate capital volatility and total return. It is contemplated that the assets of Account QB will be invested in money market obligations, including, but not limited to, Treasury bills, repurchase agreements, commercial paper, bank certificates of deposit and bankers' acceptances, and in publicly traded debt securities, including bonds, notes, debentures, equipment trust certificates and short-term instruments. These securities may carry certain equity features such as conversion or exchange rights or warrants for the acquisition of stocks of the same or different issuer, or participations based on revenues, sales or profits. It is currently anticipated that the market value-weighted average maturity of the portfolio will not exceed five years. (In the case of mortgage-backed securities, the estimated average life of cash flows will be used instead of average maturity.) Investments in longer term obligations may be made if the Board of Managers concludes that the investment yields justify a longer term commitment. Account QB may purchase and sell futures contracts on debt securities ("interest rate futures") to hedge against changes in interest rates that might otherwise have an adverse effect upon the value of Account QB's securities. The portfolio will be actively managed and Account QB may sell investments prior to maturity to the extent that this action is considered advantageous in light of factors such as market conditions or brokerage costs. While the investments of Account QB are generally not listed securities, there are firms which make markets in the type of debt instruments which Account QB holds. No problems of salability are anticipated with regard to the investments of Account QB. The Board of Managers will weigh considerations of risks, yield and ratings in implementing Account QB's fundamental investment policies. There are no specific criteria with regard to quality or ratings of the investments of Account QB, but it is anticipated that they will be of investment grade or its equivalent as determined in good faith by the Board of Managers. There may or may not be more risk in investing in debt instruments where there are no specific criteria with regard to quality or ratings of the investments. INVESTMENT RESTRICTIONS The investment restrictions set forth in items 1 through 9 below are fundamental and may not be changed without a vote of a majority of the outstanding voting securities of Account QB, as defined in the 1940 Act. Items 10 through 14 may be changed by a vote of the Board of Managers of Account QB. 1. Not more than 15% of the value of the assets of Account QB will be invested in the securities of any one issuer, except obligations of the United States Government and its instrumentalities, for which there is no limit. 2. Borrowings will not be made, except that the right is reserved to borrow from banks for emergency purposes, provided that these borrowings will not exceed 5% of the value of the assets of Account QB and that immediately after the borrowing, and at all times thereafter, and while any borrowing is unrepaid, there will be asset coverage of at least 300% for all borrowings of Account QB. 3. Securities of other issuers will not be underwritten, except that Account QB could be deemed to be an underwriter when engaged in the sale of restricted securities. (See item 13.) 4. Interests in real estate will not be purchased, except as may be represented by securities for which there is an established market. 5. No purchase of commodities or commodity contracts will be made, except transactions involving financial futures used as a hedge against unanticipated changes in prevailing levels of interest rates. 6. Loans will be made only through the acquisition of a portion of privately placed issue of bonds, debentures and other evidences of indebtedness of a type customarily purchased by institutional investors. (See item 13.) 7. Investments will not be made in the securities of a company for the purpose of exercising management or control. 8. Not more than 10% of the voting securities of any one issuer will be acquired. 9. Senior securities will not be issued. 10. Short sales of securities will not be made. 11. Purchases will not be made on margin, except for any short-term credits that are necessary for the clearance of transactions and to place up to 5% of the value of its net assets in total margin deposits for positions in futures contracts. 12. Account QB will not invest in the securities of other investment companies, except as part of a plan of merger, consolidation or acquisition of assets. 13. Not more than 5% of the value of the assets of Account QB may be invested in restricted securities (securities which may not be publicly offered without registration under the Securities Act of 1933). 14. The average period of maturity (or in the case of mortgage-backed securities, the estimated average life of cash flows) of all fixed interest debt instruments held by Account QB will not exceed five years. The investments of Account QB will not be concentrated in any one industry; that is, no more than twenty-five percent (25%) of the value of its assets will be invested in any one industry. There is no investment policy as to Account QB's investment in foreign securities. PORTFOLIO TURNOVER Brokerage costs associated with short-term debt instruments are significantly lower than those incurred on equity investments, and thus, a high portfolio turnover rate would not adversely affect the brokerage costs of Account QB to the same extent as high turnover in a separate account which invests primarily in common stock. The portfolio turnover rate for Account QB for the years ended December 31, 1992, 1993 and 1994 was 23%, 24% and 27%, respectively. DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS WRITING COVERED CALL OPTIONS Account GIS may write covered call options on portfolio securities for which call options are available and which are listed on a national securities exchange. These call options generally will be short-term contracts with a duration of nine months or less. Account GIS will write only "covered" call options, that is, it will own the underlying securities which are acceptable for escrow when it writes the call option and until the obligation to sell the underlying security is extinguished by exercise or expiration of the call option, or until a call option covering the same underlying security and having the same exercise price and expiration date is purchased. Account GIS will receive a premium for writing a call option, but gives up, until the expiration date, the opportunity to profit from an increase in the underlying security's price above the exercise price. Account GIS will retain the risk of loss from a decrease in the price of the underlying security. Writing covered call options is a conservative investment technique which is believed to involve relatively little risk, but which is capable of enhancing an account's total returns. The premium received for writing a covered call option will be recorded as a liability in the Account's Statement of Assets and Liabilities. This liability will be adjusted daily to the option's current market value, which will be the latest sale price at the close of the New York Stock Exchange, or, in the absence of such sale, at the latest bid quotation. The liability will be extinguished upon expiration of the option, the purchase of an identical option in a closing transaction, or delivery of the underlying security upon exercise of the option. The Options Clearing Corporation is the issuer of, and the obligor on, the covered call options written by Account GIS. In order to secure an obligation to deliver to the Options Clearing Corporation the underlying security of a covered call option written by Account GIS, the Account will be required to make escrow arrangements. In instances where Account GIS believes it is appropriate to close a covered call option, it can close out the previously written call option by purchasing a call option on the same underlying security with the same exercise price and expiration date. Account GIS may also, under certain circumstances, be able to transfer a previously written call option. A previously written call option can be closed out by purchasing an identical call option only on a national securities exchange which provides a secondary market in the call option. There is no assurance that a liquid secondary market will exist for a particular call option at such time. If Account GIS cannot effect a closing transaction, it will not be able to sell the underlying security while the previously written option remains outstanding, even though it might otherwise be advantageous to do so. If a substantial number of the call options are exercised, the Account's rate of portfolio turnover may exceed historical levels. This would result in higher brokerage commissions in connection with the writing of covered call options and the purchase of call options to close out previously written options. Such brokerage commissions are normally higher than those applicable to purchases and sales of portfolio securities. BUYING PUT AND CALL OPTIONS Account GIS may purchase put options on securities held, or on futures contracts whose price volatility is expected to closely match that of securities held, as a defensive measure to preserve contract owners' capital when market conditions warrant. Account GIS may purchase call options on specific securities, or on futures contracts whose price volatility is expected to closely match that of securities, eligible for purchase by Account GIS, in anticipation of or as a substitute for the purchase of the securities themselves. These options may be listed on a national exchange or executed "over-the-counter" with a broker-dealer as the counterparty. While the investment adviser anticipates that the majority of option purchases and sales will be executed on a national exchange, put or call options on specific securities or for non-standard terms are likely to be executed directly with a broker-dealer when it is advantageous to do so. Option contracts will be short-term in nature, generally less than nine months. Account GIS will pay a premium in exchange for the right to purchase (call) or sell (put) a specific number of shares of an equity security or futures contract at a specified price (the strike price) on or before the expiration date of the options contract. In either case, Account GIS's risk is limited to the option premium paid. Account GIS may sell the put and call options prior to their expiration and realize a gain or loss thereby. A call option will expire worthless if the price of the related security is below the contract strike price at the time of expiration; a put option will expire worthless if the price of the related security is above the contract strike price at the time of expiration. Put and call options will be employed for bona fide hedging purposes only. Liquid securities sufficient to fulfill the call option delivery obligation will be identified and segregated in an account; deliverable securities sufficient to fulfill the put option obligation will be similarly identified and segregated. In the case of put options on futures contracts, portfolio securities whose price volatility is expected to match that of the underlying futures contract will be identified and segregated. FUTURES CONTRACTS STOCK INDEX FUTURES Account GIS will invest in stock index futures. A stock index futures contract provides for one party to take and the other to make delivery of an amount of cash over the hedging period equal to a specified amount times the difference between a stock index value at the close of the last trading day of the contract or the selling price and the price at which the futures contract is originally struck. The stock index assigns relative values to the common stocks included in the index and reflects overall price trends in the designated market for equity securities. Therefore, price changes in a stock index futures contract reflect changes in the specified index of equity securities on which the futures contract is based. Stock index futures may also be used, to a limited extent, to hedge specific common stocks with respect to market (systematic) risk (involving the market's assessment of overall economic prospects) as distinguished from stock-specific risk (involving the market's evaluation of the merits of the issuer of a particular security). By establishing an appropriate "short" position in stock index futures, Account GIS may seek to protect the value of its equity securities against an overall decline in the market for equity securities. Alternatively, in anticipation of a generally rising market, Account GIS can seek to avoid losing the benefit of apparently low current prices by establishing a "long" position in stock index futures and later liquidating that position as particular equity securities are in fact acquired. Account GIS will not be a hedging fund; however, to the extent that any hedging strategies actually employed are successful, Account GIS will be affected to a lesser degree by adverse overall market price movements unrelated to the merits of specific portfolio equity securities than would otherwise be the case. Gains and losses on futures contracts employed as hedges for specific securities will normally be offset by losses or gains, respectively, on the hedged security. INTEREST RATE FUTURES Account QB may purchase and sell futures contracts on debt securities ("interest rate futures") to hedge against anticipated changes in interest rates that might otherwise have an adverse effect upon the value of an Account's debt securities. An interest rate futures contract is a binding contractual commitment which, if held to maturity, will result in an obligation to make or accept delivery, during a particular future month, of debt securities having a standardized face value and rate of return. By purchasing interest rate futures (assuming a "long" position), Account QB will be legally obligated to accept the future delivery of the underlying security and pay the agreed price. This would be done, for example, when Account QB intends to purchase particular debt securities when it has the necessary cash, but expects the rate of return available in the securities markets at that time to be less favorable than rates currently available in the futures markets. If the anticipated rise in the price of the debt securities should occur (with its concurrent reduction in yield), the increased cost of purchasing the securities will be offset, at least to some extent, by the rise in the value of the futures position taken in anticipation of the securities purchase. By selling interest rate futures held by it, or interest rate futures having characteristics similar to those held by it (assuming a "short" position), Account QB will be legally obligated to make the future delivery of the security against payment of the agreed price. Such a position seeks to hedge against an anticipated rise in interest rates that would adversely affect the value of Account QB's portfolio debt securities. Open futures positions on debt securities will be valued at the most recent settlement price, unless such price does not appear to the Board of Managers to reflect the fair value of the contract, in which case the positions will be valued at fair value determined in good faith by or under the direction of the Board of Managers. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. FUTURES MARKETS AND REGULATIONS When a futures contract is purchased, Accounts GIS and QB will set aside, in an identifiable manner, an amount of cash and cash equivalents equal to the total market value of the futures contract, less the amount of the initial margin. The Accounts will incur brokerage fees in connection with their futures transactions, and will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. Positions taken in the futures markets are not normally held to maturity, but instead are liquidated through offsetting transactions which may result in a profit or a loss. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the stock index or interest rate futures contract and the same delivery date. If the offsetting purchase price is less than the original sale price, the Accounts realize a gain; if it is more, the Accounts realize a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Accounts realize a gain; if less, a loss. While futures positions taken by the Accounts will usually be liquidated in this manner, the Accounts may instead make or take delivery of the underlying securities whenever it appears economically advantageous for them to do so. In determining gain or loss, transaction costs must also be taken into account. There can be no assurance that the Accounts will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. A clearing corporation associated with the exchange on which futures are traded guarantees that the sale and purchase obligations will be performed with regard to all positions that remain open at the termination of the contract. All stock index and interest rate futures will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). Stock index futures are currently traded on the New York Futures Exchange and the Chicago Mercantile Exchange. Interest rate futures are actively traded on the Chicago Board of Trade and the International Monetary Market at the Chicago Mercantile Exchange. The investment advisers do not believe any of the Accounts to be a "commodity pool" as defined under the Commodity Exchange Act. The Accounts will only enter into futures contracts for bona fide hedging or other appropriate risk management purposes as permitted by CFTC regulations and interpretations, and subject to the requirements of the Securities and Exchange Commission. The Accounts will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of their individual assets, after taking into account unrealized profits and unrealized losses on any such contracts which they have entered into. The Accounts will further seek to assure that fluctuations in the price of any futures contracts that they use for hedging purposes will be substantially related to fluctuations in the price of the securities which they hold or which they expect to purchase, although there can be no assurance that the expected result will be achieved. As evidence of their hedging intent, the Accounts expect that on seventy-five percent (75%) or more of the occasions on which they purchase a long futures contract, they will effect the purchase of securities in the cash market or take delivery at the close of a futures position. In particular cases, however, when it is economically advantageous, a long futures position may be terminated without the corresponding purchase of securities. SPECIAL RISKS While certain futures contracts may be purchased and sold to reduce certain risks, these transactions may entail other risks. Thus, while the Accounts may benefit from the use of such futures, unanticipated changes in stock price movements or interest rates may result in a poorer overall performance for the Account than if it had not entered into such futures contracts. Moreover, in the event of an imperfect correlation between the futures position and the portfolio position which is intended to be protected, the desired protection may not be obtained and the Accounts may be exposed to risk of loss. The investment advisers will attempt to reduce this risk by engaging in futures transactions, to the extent possible, where, in their judgment, there is a significant correlation between changes in the prices of the futures contracts and the prices of any portfolio securities sought to be hedged. In addition to the possibility that there may be a less than perfect correlation between movements in the futures contracts and securities in the portfolio being hedged, the prices of futures contracts may not correlate perfectly with movements in the underlying security due to certain market distortions. First, rather than meeting variation margin deposit requirements should a futures contract value move adversely, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, since margin requirements in the futures market are less onerous than in the securities market, the futures market may attract more speculators than the securities market. Increased participation by speculators may cause temporary price distortions. Due to the possibility of such price distortion, and also because of the imperfect correlation discussed above, even a correct forecast of general market trends by the investment advisers may not result in a successful hedging transaction in the futures market over a short time period. However, as is noted above, the use of financial futures by the Accounts is intended primarily to limit transaction and borrowing costs. At no time will the Accounts use financial futures for speculative purposes. Successful use of futures contracts for hedging purposes is also subject to the investment advisers' ability to predict correctly movements in the direction of the market. However, the investment advisers believe that over time the value of the Accounts' portfolios will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. MONEY MARKET INSTRUMENTS Money market securities are instruments with remaining maturities of one year or less, such as bank certificates of deposit, bankers' acceptances, commercial paper (including master demand notes), and obligations issued or guaranteed by the United States Government, its agencies or instrumentalities, some of which may be subject to repurchase agreements. CERTIFICATES OF DEPOSIT Certificates of deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market prior to maturity. Certificates of deposit will be limited to U.S. dollar- denominated certificates of United States banks which have at least $1 billion in deposits as of the date of their most recently published financial statements (including foreign branches of U.S. banks, U.S. branches of foreign banks which are members of the Federal Reserve System or the Federal Deposit Insurance Corporation). The Accounts will not acquire time deposits or obligations issued by the International Bank for Reconstruction and Development, the Asian Development Bank or the Inter-American Development Bank. Additionally, the Accounts do not currently intend to purchase such foreign securities (except to the extent that certificates of deposit of foreign branches of U.S. banks may be deemed foreign securities) or purchase certificates of deposit, bankers' acceptances or other similar obligations issued by foreign banks. BANKERS' ACCEPTANCES Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by the bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Bankers' acceptances acquired by the Accounts must have been accepted by U.S. commercial banks, including foreign branches of U.S. commercial banks, having total deposits at the time of purchase in excess of $1 billion, and must be payable in U.S. dollars. COMMERCIAL PAPER RATINGS Investments in commercial paper are limited to those rated A-1 by Standard & Poor's Corporation and Prime-1 by Moody's Investors Service, Inc. Commercial paper rated A-1 by S&P has the following characteristics: (1) liquidity ratios are adequate to meet cash requirements; (2) the issuer's long-term senior debt is rated "A" or better, although in some cases "BBB" credits may be allowed; (3) the issuer has access to at least two additional channels of borrowing; (4) basic earnings and cash flow have an upward trend with allowances made for unusual circumstances; and (5) the issuer's industry is typically well established and the issuer has a strong position within the industry. The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluating the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationship which exists with the issuer; and (8) recognition by the management of obligations which may be present or may arise as a result of public preparations to meet such obligations. The relative strength or weakness of the above factors determines how the issuer's commercial paper is rated within various categories. MASTER DEMAND NOTES Master demand notes are unsecured obligations that permit the investment of fluctuating amounts at varying rates of interest pursuant to direct arrangements between the lender (issuer) and the borrower. Master demand notes may permit daily fluctuations in the interest rate and daily changes in the amounts borrowed. An Account has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount, and the borrower may repay up to the full amount of the note without penalty. Notes purchased by a separate account must permit it to demand payment of principal and accrued interest at any time (on not more than seven days notice) or to resell the note at any time to a third party. Master demand notes may have maturities of more than one year, provided they specify that (i) the account be entitled to payment of principal and accrued interest upon not more than seven days notice, and (ii) the rate of interest on such notes be adjusted automatically at periodic intervals which normally will not exceed 31 days, but which may extend up to one year. Because these types of notes are direct lending arrangements between the lender and the borrower, such instruments are not normally traded, and there is no secondary market for these notes, although they are redeemable and thus repayable by the borrower at face value plus accrued interest at any time. Accordingly, the right to redeem is dependent upon the ability of the borrower to pay principal and interest on demand. In connection with master demand note arrangements, the investment adviser considers earning power, cash flow, and other liquidity ratios of the borrower to pay principal and interest on demand. These notes, as such, are not typically rated by credit rating agencies. Unless they are so rated, a separate account may invest in them only if at the time of an investment the issuer meets the criteria set forth above for commercial paper. The notes will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period. UNITED STATES GOVERNMENT SECURITIES Securities issued or guaranteed by the United States Government include a variety of Treasury securities that differ only in their interest rates, maturities and dates of issuance. Treasury Bills have maturities of one year or less, Treasury Notes have maturities of one to ten years, and Treasury Bonds generally have maturities of greater than ten years at the date of issuance. Securities issued or guaranteed by the United States Government or its agencies or instrumentalities include direct obligations of the United States Treasury and securities issued or guaranteed by the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley Authority, District of Columbia Armory Board and Federal National Mortgage Association. Some obligations of United States Government agencies and instrumentalities, such as Treasury Bills and Government National Mortgage Association pass-through certificates, are supported by the full faith and credit of the United States; others, such as securities of Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; still others, such as bonds issued by the Federal National Mortgage Association, a private corporation, are supported only by the credit of the instrumentality. Because the United States Government is not obligated by law to provide support to an instrumentality it sponsors, the Accounts will invest in the securities issued by such an instrumentality only when the investment advisers determine that the credit risk with respect to the instrumentality does not make the securities unsuitable investments. United States Government securities will not include international agencies or instrumentalities in which the United States Government, its agencies or instrumentalities participate, such as the World Bank, the Asian Development Bank or the Inter-American Development Bank, or issues insured by the Federal Deposit Insurance Corporation. REPURCHASE AGREEMENTS Interim cash balances may be invested from time to time in repurchase agreements with approved counterparties. Approved counterparties are limited to national banks or reporting broker-dealers meeting the Advisor's credit quality standards as presenting minimal risk of default. All repurchase transactions must be collateralized by U.S. Government securities with market value no less than 102% of the amount of the transaction, including accrued interest. Repurchase transactions generally mature the next business day but, in the event of a transaction of longer maturity, collateral will be marked to market daily and, when required, additional cash or qualifying collateral will be required from the counterparty. In executing a repurchase agreement, a portfolio purchases eligible securities subject to the seller's simultaneous agreement to repurchase them on a mutually agreed upon date and at a mutually agreed upon price. The purchase and resale prices are negotiated with the counterparty on the basis of current short-term interest rates, which may be more or less than the rate on the securities collateralizing the transaction. Physical delivery or, in the case of "book-entry" securities, segregation in the counterparty's account at the Federal Reserve for the benefit of the Portfolio is required to establish a perfected claim to the collateral for the term of the agreement in the event the counterparty fails to fulfill its obligation. As the securities collateralizing a repurchase transaction are generally of longer maturity than the term of the transaction, in the event of default by the counterparty on its obligation, the Portfolio would bear the risks of delay, adverse market fluctuation and transaction costs in disposing of the collateral. INVESTMENT MANAGEMENT AND ADVISORY SERVICES The investments and administration of the separate accounts are under the direction of the Board of Managers. The Travelers Investment Management Company (TIMCO) furnishes investment management and advisory services to Account GIS, and Travelers Asset Management International Corporation (TAMIC) furnishes investment management and advisory services to Account QB, according to the terms of written Investment Advisory Agreements. The agreement between Account GIS and TIMCO was approved by a vote of the Variable Annuity Contract Owners at their meeting held on April 23, 1993, and amended effective May 1, 1994 by virtue of Contract Owner approval at a meeting held on April 22, 1994. The agreement between Account QB and TAMIC was approved by a vote of the Variable Annuity Contract Owners at their meeting held on April 23, 1993. Each of these agreements will continue in effect as described below in (3), as required by the 1940 Act. Each of the agreements: 1. provides that for investment management and advisory services, the Company will pay to TIMCO and TAMIC, an advisory fee based on the current value of the assets of the accounts for which TIMCO and TAMIC act as investment adviser (see "Advisory Fees" below); 2. may not be terminated by TIMCO or TAMIC without prior approval of a new investment advisory agreement by those casting a majority of the votes entitled to be cast and will be subject to termination without the payment of any penalty, upon sixty days written notice, by the Board of Managers or by a vote of those casting a majority of the votes entitled to be cast; 3. will continue in effect for a period more than two years from the date of its execution, only so long as its continuance is specifically approved at least annually by a vote of a majority of the Board of Managers, or by a vote of a majority of the outstanding voting securities of the Account. In addition, and in either event, the terms of the agreement must be approved annually by a vote of a majority of the Board of Managers who are not parties to, or interested persons of any party to, the agreement, cast in person, at a meeting called for the purpose of voting on the approval and at which the Board of Managers has been furnished the information that is reasonably necessary to evaluate the terms of the agreement; 4. will automatically terminate upon assignment. ADVISORY FEES For furnishing investment management and advisory services to Account GIS, TIMCO is paid an amount equivalent on an annual basis to 0.45% of the average daily net assets of Account GIS. The total advisory fees paid to TIMCO by Account GIS for the fiscal years ended December 31, 1992, 1993 and 1994 were $1,062,527, $1,136,509 and $1,368,700, respectively. For furnishing investment management and advisory services to Account QB, TAMIC is paid an amount equivalent on an annual basis to 0.3233% of the average daily net assets of Account QB. For the years ended December 31, 1992, 1993 and 1994 the advisory fees were $418,671, $508,762 and $572,484, respectively. TIMCO TIMCO, an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment management and advisory services to Account GIS, TIMCO also acts as investment adviser for the following investment companies: The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and Capital Appreciation Fund. These investment companies are among the investment alternatives which serve as the funding media for certain variable annuity and variable life insurance contracts offered by The Travelers Insurance Company and its affiliates and which had aggregate net assets of $455,625,900 at December 31, 1994. TIMCO also acts as investment adviser for individual and pooled pension and profit-sharing accounts and for affiliated companies of The Travelers Insurance Company, and as sub-adviser for Managed Assets Trust. Investment decisions for Account GIS will be made independently from those of any other accounts managed by TIMCO. If, however, accounts managed by TIMCO are simultaneously engaged in the purchase of the same security, then available securities may be allocated to each account and may be averaged as to price in whatever manner TIMCO deems to be fair. In some cases, this system might adversely affect the price or volume of securities being bought or sold by an account, while in other cases it may produce better executions or lower brokerage rates. BROKERAGE Subject to approval of the Board of Managers, and in accordance with the Investment Advisory Agreement, TIMCO will place purchase and sale orders for the portfolio securities of Account GIS through brokerage firms which it may select from time to time with the objective of seeking the best execution by responsible brokerage firms at reasonably competitive rates. To the extent consistent with this policy, certain brokerage transactions may be placed with firms which provide brokerage and research services to TIMCO, and such transactions may be paid for at higher rates than other firms would charge. The term "brokerage and research services" includes advice as to the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities for purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). These brokerage and research services may be utilized in providing investment advice to Account GIS and may also be utilized in providing investment advice and management to all accounts over which TIMCO exercises investment discretion, but not all of such services will necessarily be utilized in providing investment advice to all accounts. This practice may be expected to result in greater cost to the Accounts than might otherwise be the case if brokers whose charges were based on execution alone were used for such transactions. TIMCO believes that brokers' research services are very important in providing investment advice to the Accounts but is unable to give the services a dollar value. While research services are not expected to reduce the expenses of TIMCO, TIMCO will, through the use of these services, avoid the additional expenses which would be incurred if it should attempt to develop comparable information through its own staff. Transactions in the over-the-counter market are placed with the principal market makers unless better price and execution may be obtained otherwise. Brokerage fees will be incurred in connection with futures transactions, and Account GIS will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. The overall reasonableness of brokerage commissions paid is evaluated by personnel of TIMCO responsible for trading and for managing Account GIS's portfolio by comparing brokerage firms utilized by TIMCO and other firms with respect to the following factors: the prices paid or received in securities transactions, speed of execution and settlement, size and difficulty of the brokerage transactions, the financial soundness of the firms, and the quality, timeliness and quantity of research information and reports. The total brokerage commissions paid by Account GIS for the fiscal years ending December 31, 1992, 1993 and 1994 were $1,682,034, $801,002 and $991,682, respectively. For the fiscal year ended December 31, 1994, portfolio transactions in the amount of $620,478,015 were directed to certain brokers because of research services, of which $889,970 was paid in commissions with respect to such transactions. No formula was used in placing such transactions and no specific amount of transactions was allocated for research services. No brokerage business was placed with any brokers affiliated with TIMCO during the last three fiscal years. TAMIC TAMIC, an indirect wholly owned subsidiary of Travelers Group Inc., is located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment management and advisory services to Account QB, TAMIC also acts as investment adviser for the following investment companies: The Travelers Money Market Account for Variable Annuities, The Travelers Timed Bond Account for Variable Annuities, High Yield Bond Trust, Managed Assets Trust, Cash Income Trust and the U.S. Government Securities Portfolio of The Travelers Series Trust. These investment companies are among the investment alternatives which serve as the funding media for certain variable annuity and variable life insurance contracts offered by The Travelers Insurance Company and its affiliates and which had aggregate net assets of $261,481,676 at December 31, 1994. TAMIC also acts as investment adviser for individual and pooled pension and profit-sharing accounts, for offshore insurance companies affiliated with The Travelers Insurance Company, and for non-affiliated insurance companies, both domestic and offshore. Investment advice and management for TAMIC's clients are furnished in accordance with their respective investment objectives and policies and investment decisions for the Accounts will be made independently from those of any other accounts managed by TAMIC. However, securities owned by Account QB may also be owned by other clients and it may occasionally develop that the same investment advice and decision for more than one client is made at the same time. Furthermore, it may develop that a particular security is bought or sold for only some clients even though it might be held or bought or sold for other clients, or that a particular security is bought for some clients when other clients are selling the security. When two or more accounts are engaged in the purchase or sale of the same security, the transactions are allocated as to amount in accordance with a formula which is equitable to each account. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as Account QB is concerned. In other cases, however, it is believed that the ability of Account QB to participate in volume transactions will produce better executions for the account. BROKERAGE Subject to approval of the Board of Managers, it is the policy of TAMIC, in executing transactions in portfolio securities, to seek best execution of orders at the most favorable prices. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net economic result to Account QB, involving both price paid or received and any commissions and other cost paid, the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, the availability of the broker to stand ready to execute potentially difficult transactions in the future and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by management in determining the overall reasonableness of brokerage commissions paid. Subject to the foregoing, a factor in the selection of brokers is the receipt of research services, analyses and reports concerning issuers, industries, securities, economic factors and trends, and other statistical and factual information. Any such research and other statistical and factual information provided by brokers is considered to be in addition to and not in lieu of services required to be performed by TAMIC under its Investment Advisory Agreements. The cost, value and specific application of such information are indeterminable and hence are not practicably allocable among Account QB and other clients of TAMIC who may indirectly benefit from the availability of such information. Similarly, Account QB may indirectly benefit from information made available as a result of transactions for such clients. Purchases and sales of bonds and money market instruments will usually be principal transactions and will normally be purchased directly from the issuer or from the underwriter or market maker for the securities. There usually will be no brokerage commissions paid for such purchases. Purchases from the underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include the spread between the bid and asked prices. Where transactions are made in the over-the-counter market, Account QB will deal with primary market makers unless more favorable prices are otherwise obtainable. Brokerage fees will be incurred in connection with futures transactions, and Account QB will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. TAMIC may follow a policy of considering the sale of units of Account QB a factor in the selection of broker-dealers to execute portfolio transactions, subject to the requirements of best execution described above. The policy of TAMIC with respect to brokerage is and will be reviewed by the Board of Managers periodically. Because of the possibility of further regulatory developments affecting the securities exchanges and brokerage practices generally, the foregoing practices may be changed, modified or eliminated. The total brokerage commissions paid by Account QB for the fiscal years ended December 31, 1992, 1993 and 1994 were $80,374, $87,444 and $82,390, respectively. For the fiscal year ended December 31, 1994, no portfolio transactions were directed to certain brokers because of research services. No formula is used in placing portfolio transactions with brokers which provide research services, and no specific amount of transactions is allocated for research services. No brokerage business was placed with any brokers affiliated with TAMIC or its predecessors during the last three fiscal years. VALUATION OF ASSETS The value of the assets of each Separate Account is determined on each Valuation Date as of the close of the New York Stock Exchange. If the New York Stock Exchange is not open for trading on any such day, then such computation shall be made as of the normal close of the New York Stock Exchange. Each security traded on a national securities exchange is valued at the last reported sale price on the Valuation Date. If there has been no sale on that day, then the value of the security is taken to be the mean between the reported bid and asked prices on the Valuation Date or on the basis of quotations received from a reputable broker or any other recognized source. Any security not traded on a securities exchange but traded in the over-the-counter market and for which market quotations are readily available is valued at the mean between the quoted bid and asked prices on the Valuation Date or on the basis of quotations received from a reputable broker or any other recognized source. Securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. Short-term investments for which a quoted market price is available are valued at market. Short-term investments maturing in more than sixty days for which there is no reliable quoted market price are valued by "marking to market" (computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity). "Marking to market" takes into account unrealized appreciation or depreciation due to changes in interest rates or other factors which would influence the current fair values of such securities. Short-term investments maturing in sixty days or less for which there is no reliable quoted market are valued at amortized cost which approximates market. THE BOARD OF MANAGERS The investment and administration of each of the Separate Accounts are under the direction of the Board of Managers, listed below. Members of the Board of Managers are elected annually by those Contract Owners participating in the Separate Accounts. A majority of the members of the Board of Managers are persons who are not affiliated with The Travelers Insurance Company, TIMCO, TAMIC or their affiliates. Present Position and Principal Occupation During Name Last Five Years *Heath B. McLendon Managing Director (1993-present), Smith Barney Chairman and Member Inc. ("Smith Barney"); Chairman (1993-present), 388 Greenwich Street Smith Barney Strategy Advisors, Inc.; President New York, New York (1994-present), Smith Barney Mutual Funds Age 61 Management Inc.; Chairman and/or Director and President of thirty investment companies associated with Smith Barney; Chairman, Board of Trustees, Drew University; Trustee, The East New York Savings Bank; Advisory Director, First Empire State Corporation; Chairman, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Chairman, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company++; prior to July 1993, Senior Executive Vice President of Shearson Lehman Brothers Inc. Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Member Edwards & Angell, Attorneys; Member, Advisory 2700 Hospital Trust Tower Board (1973-1994), thirty-one mutual funds Providence, Rhode Island sponsored by Keystone Group, Inc.; Member, Board Age 71 of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Robert E. McGill, III Director (1983-present), Executive Vice Member President (1989-1994) and Senior Vice President, One Elm Street Finance and Administration (1983-1989), The Windsor Locks, Connecticut Dexter Corporation (manufacturer of specialty Age 63 chemicals and materials); Vice Chairman (1990-1992), Director (1983-present), Life Technologies, Inc. (life science/ biotechnology products); Director (1993-present), Analytical Technology, Inc. (manufacturer of measurement instruments); Director (1994-present), The Connecticut Surety Corporation (insurance); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Lewis Mandell Professor of Finance (1980-present) and Associate Member Dean (1993-present), School of Business 368 Fairfield Road, U41F Administration, and Director, Center for Research Storrs, Connecticut and Development in Financial Services Age 52 (1980-present), University of Connecticut; Director (1992-present), GZA Geoenvironmental Tech, Inc. (engineering services); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Frances M. Hawk Portfolio Manager (1992-present), HLM Management Member Company, Inc. (investment management); Assistant 222 Berkeley Street Treasurer, Pensions and Benefits Management Boston, Massachusetts (1989-1992), United Technologies Corporation Age 47 (broad-based designer and manufacturer of high technology products); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company++. Ernest J. Wright Assistant Secretary (1994-present), Counsel Secretary to the Board (1987-present), The Travelers Insurance Company; One Tower Square Secretary, Board of Managers, seven Variable Hartford, Connecticut Annuity Separate Accounts of The Travelers Age 54 Insurance Company+; Secretary, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company++. + These seven Variable Annuity Separate Accounts are: The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and The Travelers Timed Bond Account for Variable Annuities. ++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers Series Trust. * Mr. McLendon in an "interested person" within the meaning of the 1940 Act by virtue of his position as Managing Director of Smith Barney Inc., an indirect wholly owned subsidiary of Travelers Group Inc. and also owns shares and options to purchase shares of Travelers Group Inc., the indirect parent of The Travelers Insurance Company. The Dexter Corporation, of which Mr. McGill is a director, entered into contracts with The Travelers Insurance Company to provide short-term disability and life insurance benefits to employees of The Dexter Corporation, and to administer the health and dental benefits program for employees of The Dexter Corporation. The Company is responsible for payment of the fees and expenses of the Board of Managers, and the expenses of audit of the Separate Accounts, as well as other expenses for services related to the operations of the accounts, for which it deducts certain amounts from purchase payments and from the accounts. Members of the Board of Managers who are also officers or employees of The Travelers Inc. or its subsidiaries are not entitled to any fee. Members of the Board of Managers who are not affiliated as employees of The Travelers Inc. or its subsidiaries receive an aggregate retainer of $10,000 for service on the Boards of the seven Variable Annuity Separate Accounts established by The Travelers Insurance Company and the five Mutual Funds sponsored by The Travelers Insurance Company. They also receive an aggregate fee of $1,800 for each meeting of such Boards attended. DISTRIBUTION AND MANAGEMENT SERVICES Under the terms of a Distribution and Management Agreement between each Separate Account, the Company and Travelers Equities Sales, Inc., the Company provides all sales and administrative services and mortality and expense risk guarantees related to variable annuity contracts issued by the Company in connection with the Separate Accounts, and assumes the risk of minimum death benefits, as applicable. The Company also pays all sales costs (including costs associated with the preparation of sales literature); all costs of qualifying the Separate Accounts and the variable annuity contracts with regulatory authorities; the costs of proxy solicitation; all custodian, accountants and legal fees; and all compensation paid to the unaffiliated members of the Board of Managers. The Company also provides without cost to the Separate Accounts all necessary office space, facilities, and personnel to manage its affairs. The Company received the following amounts from the Separate Accounts in each of the last three fiscal years for services provided under the Distribution and Management Agreements: SEPARATE ACCOUNT 1994 1993 1992 GIS $ 4,025,788 $ 4,239,811 $ 3,953,639 QB $ 2,156,643 $ 1,903,669 $ 1,564,308 SECURITIES CUSTODIAN Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York, is the custodian of the portfolio securities and similar investments of Accounts GIS and QB. INDEPENDENT ACCOUNTANTS Coopers & Lybrand, L.L.P., Independent Accountants, 100 Pearl Street, Hartford, Connecticut, are the independent auditors for Accounts GIS and QB. The services provided to these Separate Accounts include primarily the examination of the Accounts' financial statements. The financial statements of Accounts GIS and QB included or incorporated by reference in the Prospectus, Statement of Additional Information and Registration Statements have been audited by Coopers & Lybrand, L.L.P., as indicated in their reports thereon, and are incorporated herein by reference in reliance upon the authority of said firm as experts in accounting and auditing. FINANCIAL STATEMENTS The financial statements for Accounts GIS and QB contained in the December 31, 1994 Annual Report to Contract Owners are incorporated herein by reference. A copy may be obtained by writing to The Travelers Insurance Company, Annuity Services--5 SHS, One Tower Square, Hartford, Connecticut 06183, or by calling 1-800-842-0125. The financial statements of the Company, as contained herein, should be considered only as bearing upon the Company's ability to meet its obligations under the Contract, and they should not be considered as bearing on the investment performance of the Separate Accounts. THIS PAGE INTENTIONALLY LEFT BLANK. THETRAVELERS (logo umbrella) THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES AND THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY THE TRAVELERS INSURANCE COMPANY Individual Purchasers L-11895S TIC Ed. 5-95 Printed in U.S.A. 1 Independent Auditors' Report The Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the accompanying consolidated balance sheets of The Travelers Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations and retained earnings and cash flows for the year ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Travelers Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for the year ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", in 1994. /s/KPMG PEAT MARWICK LLP Hartford, Connecticut January 17, 1995 16 2 Report of Independent Accountants To the Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the consolidated statements of operations and retained earnings and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1993. These consolidated financial statements are the responsibility of Company management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1993 in conformity with generally accepted accounting principles. /S/ COOPERS & LYBRAND Hartford, Connecticut January 24, 1994 17 3 Report of Independent Accountants To the Board of Directors and Shareholder of The Travelers Insurance Company and Subsidiaries: We have audited the consolidated statements of operations and retained earnings and cash flows for The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1992. These consolidated financial statements are the responsibility of Company management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of The Travelers Insurance Company and Subsidiaries for the year ended December 31, 1992 in conformity with generally accepted accounting principles. As discussed in Notes 2, 5, 10 and 13 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions, accounting for income taxes and accounting for foreclosed assets in 1992. /S/ COOPERS & LYBRAND Hartford, Connecticut February 9, 1993, except for Notes 2 and 5, as to which the date is January 24, 1994 18 4 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
- --------------------------------------------------------------------------|------------------------------ (for the year ended December 31, in millions) 1994 | 1993 1992 - --------------------------------------------------------------------------|------------------------------ | | REVENUES | Premiums $ 3,861 | $ 2,725 $ 2,686 Net investment income 1,849 | 1,884 2,101 Realized investment gains (losses) 14 | (21) (747) Other 1,023 | 859 785 - --------------------------------------------------------------------------|------------------------------ 6,747 | 5,447 4,825 - --------------------------------------------------------------------------|------------------------------ BENEFITS AND EXPENSES | Current and future insurance benefits 3,421 | 3,121 3,000 Interest credited to contractholders 967 | 1,206 1,456 Claim settlement expenses 193 | 231 264 Amortization of deferred acquisition costs and value of | insurance in force 284 | 55 61 General and administrative expenses 1,025 | 751 987 - --------------------------------------------------------------------------|------------------------------ 5,890 | 5,364 5,768 - --------------------------------------------------------------------------|------------------------------ | Income (loss) before federal income taxes | and cumulative effects | of changes in accounting principles 857 | 83 (943) - --------------------------------------------------------------------------|------------------------------ | Federal income taxes: | Current 36 | 20 2 Deferred 276 | (78) (340) - --------------------------------------------------------------------------|------------------------------ 312 | (58) (338) - --------------------------------------------------------------------------|------------------------------ | Income (loss) before cumulative effects of changes | in accounting principles 545 | 141 (605) Cumulative effect of change in accounting | for postretirement benefits other than | pensions, net of tax - | - (126) Cumulative effect of change in accounting | for income taxes - | - 350 - --------------------------------------------------------------------------|------------------------------ | Net income (loss) 545 | 141 (381) Retained earnings beginning of year 1,017 | 888 1,281 Dividends to parent company - | (14) (14) Preference stock tax benefit allocated by parent - | 2 2 - --------------------------------------------------------------------------|------------------------------ Retained earnings end of year $ 1,562 | $ 1,017 $ 888 - --------------------------------------------------------------------------|------------------------------
See notes to consolidated financial statements. 19 5 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------------------------------- (at December 31, in millions) 1994 1993 - --------------------------------------------------------------------------------------------------------- ASSETS Fixed maturities, available for sale at market in 1994 (cost, $18,579); at lower of aggregate cost or market in 1993 (market, $18,284) $17,260 $18,045 Bonds, held for investment (market, $18) - 18 Equity securities, at market (cost, $173; $199) 169 220 Mortgage loans 4,938 6,845 Real estate held for sale, net of accumulated depreciation of $9; $0 383 954 Policy loans 1,581 1,366 Short-term securities 2,279 1,376 Other investments 885 687 - --------------------------------------------------------------------------------------------------------- Total investments 27,495 29,511 - --------------------------------------------------------------------------------------------------------- Cash 102 50 Investment income accrued 362 379 Premium balances receivable 215 224 Reinsurance recoverable 2,915 2,883 Deferred acquisition costs and value of insurance in force 1,939 1,794 Deferred federal income taxes 950 855 Separate and variable accounts 5,160 4,666 Other assets 1,397 979 - --------------------------------------------------------------------------------------------------------- Total assets $40,535 $41,341 - --------------------------------------------------------------------------------------------------------- LIABILITIES Contractholder funds $16,354 $17,850 Future policy benefits 11,480 11,263 Policy and contract claims 1,222 1,274 Separate and variable accounts 5,128 4,644 Short-term debt 74 - Other liabilities 1,923 2,007 - --------------------------------------------------------------------------------------------------------- Total liabilities 36,181 37,038 - --------------------------------------------------------------------------------------------------------- SHAREHOLDER'S EQUITY Common stock, par value $2.50; 40 million shares authorized, issued and outstanding 100 100 Additional paid-in capital 3,452 3,179 Unrealized investment gains (losses), net of taxes (760) 7 Retained earnings 1,562 1,017 - --------------------------------------------------------------------------------------------------------- Total shareholder's equity 4,354 4,303 - --------------------------------------------------------------------------------------------------------- Total liabilities and shareholder's equity $40,535 $41,341 - ---------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 20 6 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Increase (Decrease) in Cash
- ------------------------------------------------------------------------------------------------------------- (for the year ended December 31, in millions) 1994 | 1993 1992 - ----------------------------------------------------------------------------|-------------------------------- | CASH FLOWS FROM OPERATING ACTIVITIES | Premiums collected $ 3,722 | $ 2,530 $ 2,594 Net investment income received 1,895 | 1,794 2,134 Other revenues received 734 | 568 568 Benefits and claims paid (3,572) | (2,902) (3,123) Interest credited to contractholders (922) | (1,154) (1,404) Operating expenses paid (972) | (859) (869) Income taxes (paid) refunded (27) | 25 (2) Trading account investments, (purchases) sales, net - | (1,576) (364) Other (141) | 202 522 - ----------------------------------------------------------------------------|-------------------------------- Net cash provided by (used in) operating activities 717 | (1,372) 56 - ----------------------------------------------------------------------------|-------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES | Investment repayments | Fixed maturities 2,783 | 2,624 2,084 Mortgage loans 1,337 | 1,210 1,063 Proceeds from investments sold | Fixed maturities 1,370 | 102 175 Equity securities 359 | 75 173 Mortgage loans 557 | 310 254 Real estate 728 | 949 235 Investments in | Fixed maturities (4,767) | (3,269) (2,471) Equity securities (340) | (51) (119) Mortgage loans (94) | (246) (63) Policy loans, net (215) | (2) (184) Short-term securities, (purchases) sales, net (903) | 860 (615) Other investments, (purchases) sales, net (50) | 53 191 Securities sold under repurchase agreement (209) | - - Cash from disposition of operations 53 | - 5 - ----------------------------------------------------------------------------|-------------------------------- Net cash provided by investing activities 609 | 2,615 728 - ----------------------------------------------------------------------------|-------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES | Issuance (redemption) of short-term debt, net 74 | - - Contractholder fund deposits 2,197 | 3,159 3,047 Contractholder fund withdrawals (3,529) | (4,418) (5,003) Dividends to parent company - | (14) (14) Return of capital to parent company (23) | - - Contributions from parent company - | - 500 Other 7 | 6 2 - ----------------------------------------------------------------------------|-------------------------------- Net cash used in financing activities (1,274) | (1,267) (1,468) - ----------------------------------------------------------------------------|-------------------------------- Net increase (decrease) in cash $ 52 | $ (24) $ (684) - ----------------------------------------------------------------------------|-------------------------------- | Cash at December 31 $ 102 | $ 50 $ 74 - -------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 21 7 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Travelers Insurance Company and its subsidiaries (the Company) is a wholly owned subsidiary of The Travelers Insurance Group Inc. (TIG). TIG is an indirect wholly owned subsidiary of The Travelers Inc. Significant accounting policies used in the preparation of the accompanying financial statements follow. Basis of presentation In December 1992, Primerica Corporation (Primerica) acquired approximately 27% of the common stock of the Company's then parent, The Travelers Corporation (the Acquisition). The Acquisition was accounted for as a purchase. In connection with the Acquisition, Primerica transferred 100% of the preferred provider organization and third party administrator networks of Transport Life Insurance Company (a wholly owned subsidiary of Primerica) to The Travelers Corporation, which contributed them to the Company. The Company realized an increase to shareholder's equity of $23 million related to this contribution. Effective December 31, 1993, Primerica acquired the approximately 73% of The Travelers Corporation common stock which it did not already own, and The Travelers Corporation was merged into Primerica, which was renamed The Travelers Inc. This was effected through the exchange of .80423 shares of The Travelers Inc. common stock for each share of The Travelers Corporation common stock (the Merger). All subsidiaries of The Travelers Corporation were contributed to TIG. In conjunction with the Merger, The Travelers Inc. contributed Travelers Insurance Holdings Inc. (formerly Primerica Insurance Holdings, Inc.) and its subsidiaries (TIHI) to TIG, which in turn contributed TIHI to the Company. TIHI is an intermediate holding company whose primary subsidiaries are Primerica Life Insurance Company (Primerica Life) and its subsidiary National Benefit Life Insurance Company (NBL), and Transport Life Insurance Company (Transport). Through its subsidiaries, TIHI primarily offers individual insurance and specialty accident and health insurance. The Company realized an increase to shareholder's equity of $2.1 billion at December 31, 1993 related to the contribution of TIHI. At December 31, 1993 and subsequent, TIHI is included in the Life and Annuities segment. The consolidated financial statements and the accompanying notes reflect the historical operations of the Company for the years ended December 31, 1993 and 1992. The results of operations of TIHI and its subsidiaries are not included in the 1993 and 1992 financial statements. The Company's consolidated balance sheet and related data at December 31, 1994 and 1993 include TIHI on a fully consolidated basis. The Acquisition and the Merger are being accounted for as a "step acquisition." The consolidated balance sheet and related data at December 31, 1993 reflect adjustments of assets and liabilities of the Company (except TIHI) to their fair values determined at each acquisition date (i.e., 27% of values at December 31, 1992 as carried forward and 73% of the values at December 31, 1993). These assets and liabilities are reflected in the consolidated balance sheet at December 31, 1993 based upon management's then best estimate of their fair values. Evaluation and appraisal of assets and liabilities, including investments, the value of insurance in force, reinsurance recoverable, other insurance assets and liabilities and related deferred income taxes were completed during 1994. 22 8 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued The excess of the 27% share of assigned value of identifiable net assets over cost at December 31, 1992, which was allocated to the Company through the "pushdown" basis of accounting, was approximately $56 million and is being amortized over ten years on a straight-line basis. The excess of the purchase price of the common stock over the fair value of the 73% of net assets acquired at December 31, 1993, which was allocated to the Company through the "pushdown" basis of accounting, was approximately $340 million and is being amortized over 40 years on a straight-line basis. The consolidated statement of operations and retained earnings, the consolidated statement of cash flows and the related accompanying notes for the year ended December 31, 1994, which are presented on a purchase accounting basis, are separated from the corresponding 1993 and 1992 information, which is presented on a historical accounting basis, to indicate the difference in valuation bases. Principles of Consolidation The financial statements have been prepared in conformity with generally accepted accounting principles and include the Company and its significant insurance and noninsurance subsidiaries. Certain prior year amounts have been reclassified to conform with the 1994 presentation. Investments Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities are valued based upon quoted market prices, or if quoted market prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. Securities are classified as "available for sale" and are reported at fair value, with unrealized investment gains and losses, net of income taxes, charged or credited directly to shareholder's equity. As of December 31, 1993, in conjunction with the Merger, the majority of fixed maturities were classified as "available for sale" and recorded at the lower of aggregate cost or market value. Fixed maturities classified as "held for investment" were carried at amortized cost. Equity securities, which include common and nonredeemable preferred stocks, are available for sale and carried at fair value based primarily on quoted market prices. Changes in fair values of equity securities are charged or credited directly to shareholder's equity, net of income taxes. Mortgage loans are carried at amortized cost. Real estate held for sale is carried at the lower of cost or fair value less estimated costs to sell. Fair value was established at time of foreclosure by appraisers, both internal and external, using discounted cash flow analyses and other acceptable techniques. 23 9 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Accrual of income is suspended on fixed maturities or mortgage loans that are in default, or on which it is likely that future interest payments will not be made as scheduled. Interest income on investments in default is recognized only as payment is received. Gains or losses arising from futures contracts used to hedge investments are treated as basis adjustments and are recognized in income over the life of the hedged investments. Gains and losses arising from forward contracts used to hedge foreign investments in the Company's U.S. portfolios are a component of realized investment gains and losses. Gains and losses arising from forward contracts used to hedge investments in foreign operations (primarily Canadian) are reflected directly in shareholder's equity, net of income taxes. Interest rate swaps are used to manage interest rate risk in the investment portfolio and are marked to market with unrealized gains and losses recorded as a component of shareholder's equity, net of income taxes. Rate differentials on interest rate swap agreements are accrued between settlement dates and are recognized as an adjustment to interest income from the related investment. Investment Gains and Losses Realized investment gains and losses are included as a component of pretax revenues based upon specific identification of the investments sold on the trade date and, prior to the Merger, included adjustments to investment valuation reserves. These adjustments reflected changes considered to be other than temporary in the net realizable value of investments. Also included are gains and losses arising from the translation of the local currency value of foreign investments to U.S. dollars, the functional currency of the Company. Policy Loans Policy loans are carried at the amount of the unpaid balances that are not in excess of the net cash surrender values of the related insurance policies. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. Deferred Acquisition Costs Costs of acquiring individual life insurance, annuities, and health business, principally commissions and certain expenses related to policy issuance, underwriting and marketing, all of which vary with and are primarily related to the production of new business, are deferred. Acquisition costs relating to traditional life insurance and guaranteed renewable health contracts are amortized over the period of anticipated premiums; universal life in relation to estimated gross profits; and annuity contracts employing a level yield method. For life insurance, a 10- to 25-year amortization period is used; for guaranteed renewable health, a 10-year period, and a 10- to 15-year period is employed for annuities. Deferred acquisition costs are reviewed periodically for recoverability to determine if any adjustment is required. 24 10 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Value of Insurance In Force The value of insurance in force represents the actuarially determined present value of anticipated profits to be realized from life insurance, annuities and health contracts at the date of the Merger using the same assumptions that were used for computing related liabilities where appropriate. The value of insurance in force was the actuarially determined present value of the projected future profits discounted at interest rates ranging from 14% to 18% for the business acquired. The value of the business in force is amortized over the contract period using current interest crediting rates to accrete interest and using amortization methods based on the specified products. Traditional life insurance and guaranteed renewable health policies are amortized over the period of anticipated premiums; universal life is amortized in relation to estimated gross profits; and annuity contracts are amortized employing a level yield method. The value of insurance in force is reviewed periodically for recoverability to determine if any adjustment is required. Separate and Variable Accounts Separate and variable accounts primarily represent funds for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholders. Each account has specific investment objectives. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. The assets of these accounts are carried at market value. Certain other separate accounts provide guaranteed levels of return or benefits and the assets of these accounts are carried at amortized cost, except at December 31, 1993 the assets and liabilities of these accounts were recorded at the value assigned at the acquisition dates. Amounts assessed to the contractholders for management services are included in revenues. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses. Goodwill The excess of the 27% share of assigned value of identifiable assets over cost at December 31, 1992 allocated to the Company as a result of the Acquisition amounted to approximately $56 million and is being amortized over 10 years on a straight-line basis. Goodwill resulting from the excess of the purchase price over the fair value of the 73% of net assets acquired related to the Merger amounted to approximately $340 million at December 31, 1993 and is being amortized over 40 years on a straight-line basis. TIHI has goodwill of $246 million. 25 11 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Contractholder Funds Contractholder funds represent receipts from the issuance of universal life, pension investment and certain individual annuity contracts. Such receipts are considered deposits on investment contracts that do not have substantial mortality or morbidity risk. Account balances are also increased by interest credited and reduced by withdrawals, mortality charges and administrative expenses charged to the contractholders. Calculations of contractholder account balances for investment contracts reflect lapse, withdrawal and interest rate assumptions based on contract provisions, the Company's experience and industry standards. Interest rates credited to contractholder funds range from 3.4% to 8.0%. Contractholder funds also include other funds that policyholders leave on deposit with the Company. Benefit Reserves Benefit reserves represent liabilities for future insurance policy benefits. Benefit reserves for traditional life insurance, annuities, and accident and health policies have been computed based upon mortality, morbidity, persistency and interest assumptions applicable to these coverages, which range from 2.5% to 12.0%, including adverse deviation. These assumptions consider Company experience and industry standards and may be revised if it is determined that the future experience will differ substantially from that previously assumed. The assumptions vary by plan, age at issue, year of issue and duration. Appropriate recognition has been given to experience rating and reinsurance. Operating Leases At December 31, 1993, operating leases were recorded at the value assigned at the acquisition dates and included in the consolidated balance sheet as a component of other liabilities. This liability is being amortized over the average lease period. Permitted Statutory Accounting Practices The Company, domiciled principally in Connecticut and Massachusetts, prepares statutory financial statements in accordance with the accounting practices prescribed or permitted by the insurance departments of those states. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The impact of any permitted accounting practices on statutory surplus of the Company is not material. Premiums Premiums are recognized as revenues when due. Reserves are established for the portion of premiums that will be earned in future periods and for deferred profits on limited-payment policies that are being recognized in income over the policy term. At December 31, 1993, the deferred profits on limited-payment policies were recorded at the values assigned at the acquisition dates. 26 12 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Other Revenues Other revenues include surrender, mortality and administrative charges and fees as earned on investment, universal life and other insurance contracts. Other revenues also include gains and losses on dispositions of assets and operations other than realized investment gains and losses, revenues of noninsurance subsidiaries, and the pretax operating results of real estate joint ventures. Interest Credited to Contractholders Interest credited to contractholders represents amounts earned by universal life, pension investment and certain individual annuity contracts in accordance with contract provisions. Federal Income Taxes The provision for federal income taxes is comprised of two components, current income taxes and deferred income taxes. Deferred federal income taxes arise from changes in the Company's deferred federal income tax asset during the year. The deferred federal income tax asset is recognized to the extent that future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. Accounting Standards not yet Adopted Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (FAS 118), and Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FAS 114), describe how impaired loans should be measured when determining the amount of a loan loss accrual. These statements also amend existing guidance on the measurement of restructured loans in a troubled debt restructuring involving a modification of terms. The adoption of these statements, effective January 1, 1995, will not have a material effect on results of operations or financial position. 2. CHANGES IN ACCOUNTING PRINCIPLES Accounting for Certain Debt and Equity Securities Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), which addresses accounting and reporting for investments in equity securities that have a readily determinable fair value and for all debt securities. Investment securities have been classified as "available for sale" and are reported at fair value, with unrealized gains and losses, net of income taxes, charged or credited directly to shareholder's equity. Previously, securities classified as available for sale were carried at the lower of aggregate cost or market value. Initial adoption of this standard resulted in an increase of approximately $232 million (net of taxes) to net unrealized gains which is included in shareholder's equity. This increase included an unrealized gain of $133 million (net of income taxes) on TIHI's investment in the common stock of The Travelers Inc. See note 15 for additional disclosures. 27 13 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. CHANGES IN ACCOUNTING PRINCIPLES, Continued Offsetting of Amounts Related to Certain Contracts Effective January 1, 1994, the Company adopted Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts" (Interpretation 39). The general principle of Interpretation 39 states that amounts due from and due to another party may not be offset in the consolidated balance sheet unless a right of setoff exists and the parties intend to exercise the right of setoff. Implementation of Interpretation 39 did not have a material impact on the Company's financial position; however, assets and liabilities were both increased by $68 million as of December 31, 1994. Accounting and Reporting for Reinsurance Contracts In the first quarter of 1993, the Company implemented Statement of Financial Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113). FAS 113 requires the reporting of reinsurance receivables and prepaid reinsurance premiums as assets and precludes the immediate recognition of gains for all reinsurance contracts unless the liability to the policyholder has been extinguished. Implementation of FAS 113 did not have an impact on the Company's earnings, however, assets and liabilities increased by like amounts. See note 5 for additional reinsurance disclosures. Postretirement Benefits Other Than Pensions In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). As required, the Company changed its method of accounting for retiree benefit plans effective January 1, 1992, to accrue for the Company's share of the costs of postretirement benefits over the service period rendered by employees. Previously these benefits were charged to expense when paid. The Company elected to recognize immediately the liability for postretirement benefits as the cumulative effect of a change in accounting principle. This resulted in a noncash after-tax charge to net income of $126 million. See note 10 for additional information relating to FAS 106. Accounting for Income Taxes In the third quarter of 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109) with retroactive application to January 1, 1992. FAS 109 establishes new principles for calculating and reporting the effects of federal income taxes in financial statements. FAS 109 replaces the income statement orientation inherent in the prior income tax accounting standard with a balance sheet approach. Under the new approach, deferred tax assets and liabilities are generally determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. FAS 109 allows recognition of deferred tax assets if future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. 28 14 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. CHANGES IN ACCOUNTING PRINCIPLES, Continued The implementation of FAS 109 resulted in a one time increase to earnings of $350 million in the first quarter of 1992. This increase in earnings was principally due to tax rate differences and the recognition of a portion of previously unrecognized deferred tax assets. See note 13 for further discussion of FAS 109. Accounting for Foreclosed Assets In February 1993, The Travelers Corporation announced its intent to accelerate the sale of foreclosed real estate and, effective December 31, 1992, changed its method of accounting for foreclosed assets in compliance with the American Institute of Certified Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP 92-3). This guidance requires that in-substance foreclosures and foreclosed assets held for sale be carried at the lower of cost or fair value less estimated costs to sell. Previously, all foreclosed assets were carried at cost less accumulated depreciation. This accounting change resulted in a pretax charge of $412 million to realized investment losses in 1992. 3. ACQUISITIONS AND DISPOSITIONS In December 1994, the Company and its affiliates sold its group dental insurance business to Metropolitan Life Insurance Company (MetLife) and realized a gain on the sale of $9 million (aftertax). On January 3, 1995, the Company and its affiliates completed the sale of its group life and related businesses to MetLife, and completed the formation of The MetraHealth Companies, Inc. (MetraHealth), a joint venture of the medical businesses of the Company and its affiliates and MetLife. The Company and its affiliates sold its group life business as well as related non-medical group insurance businesses to MetLife for $350 million. The assets transferred included customer lists, books and records, and furniture and equipment. In connection with the sale, the Company and its affiliates agreed to cede 100% of its risks in the group life and related businesses to MetLife on an indemnity reinsurance basis, effective January 1, 1995. In connection with the reinsurance transaction, the Company and its affiliates transferred assets with a fair market value of approximately $1.5 billion to MetLife, equal to the statutory reserves and other liabilities transferred. On January 3, 1995, the Company and MetLife and certain of their affiliates formed the MetraHealth joint venture by contributing their group medical businesses to MetraHealth, in exchange for shares of common stock of MetraHealth. The assets transferred included cash, fixed assets, customer lists, books and records, certain trademarks and other assets used exclusively or primarily in the medical businesses. The Company also contributed all of the capital stock of its wholly owned subsidiary, The Travelers Employee Benefits Company, to MetraHealth. The total contribution by the Company amounted to $336 million at carrying value on the date of contribution. No gain was recognized upon the formation of the joint venture. Upon formation of the joint venture the Company owned 42.6% of the outstanding capital stock of MetraHealth, TIG owned 7.4% and the other 50% was owned by MetLife and its affiliates. 29 15 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 3. ACQUISITIONS AND DISPOSITIONS, Continued In connection with the formation of the joint venture, the transfer of the fee based medical business (Administrative Services Only) and other noninsurance business to MetraHealth was completed on January 3, 1995. As the medical insurance business of the Company comes due for renewal and after obtaining regulatory approvals, the risks will be transferred to MetraHealth. In the interim the related operating results for this medical insurance business will be reported by the Company. All of the businesses sold to MetLife or contributed to MetraHealth were included in the Company's Managed Care and Employee Benefits Operations (MCEBO). Revenues and net income from MCEBO for the year ended 1994 amounted to $3.5 billion and $157 million, respectively. Beginning in 1995 the Company's results will reflect the runoff medical insurance business, plus its equity interest in the earnings of MetraHealth. On December 31, 1993, in conjunction with the Merger, The Travelers Inc. contributed TIHI to TIG, which TIG then contributed to the Company at a carrying value of $2.1 billion. Through its subsidiaries TIHI primarily offers individual life insurance and specialty accident and health insurance. In December 1992, in conjunction with the Acquisition, The Travelers Corporation acquired Transport Life Insurance Company's preferred provider and third party administrator organizations from Primerica Corporation (see note 1), and on December 30, 1992 contributed these businesses to the Company. 4. COMMERCIAL PAPER AND LINES OF CREDIT The Company issues commercial paper directly to investors and had $74 million outstanding at December 31, 1994. The Company maintains unused credit availability under bank lines of credit at least equal to the amount of the outstanding commercial paper. In 1994, The Travelers Inc., Commercial Credit Company (an indirect wholly owned subsidiary of The Travelers Inc.) and the Company entered into an agreement with a syndicate of banks to provide $1.5 billion of revolving credit, to be allocated to any of the above-indicated companies. The revolving credit facility consists of a 364-day revolving credit in the amount of $300 million and a 5-year revolving credit in the amount of $1.2 billion. The participation of the Company in this facility is limited to $300 million, and at December 31, 1994, the Company's allocation was $200 million, all of which was unused. 30 16 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. REINSURANCE The Company participates in reinsurance in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and to effect business-sharing arrangements. Reinsurance is accomplished through various plans of reinsurance, primarily coinsurance, modified coinsurance and yearly renewable term. The Company remains primarily liable as the direct insurer on all risks reinsured. It is the policy of the Company to obtain reinsurance for amounts above certain retention limits on individual life policies which vary with age and underwriting classification. Generally, the maximum retention on an ordinary life risk is $1.5 million. The Company writes workers' compensation business through its Accident Department. This business is ceded 100% to the Travelers Indemnity Company. A summary of reinsurance financial data reflected within the consolidated statement of operations and retained earnings is presented below (in millions):
- -----------------------------------------------------------------|------------------------------ 1994 | 1993 1992 - -----------------------------------------------------------------|------------------------------ | Written Premiums: | Direct $ 4,529 | $ 3,308 $ 3,163 | Assumed from: | Affiliated companies 59 | 31 15 Non-affiliated companies 33 | 60 115 | Ceded to: | Affiliated companies (358) | (496) (522) Non-affiliated companies (341) | (98) (62) - -----------------------------------------------------------------|------------------------------ | Total Net Written Premiums $ 3,922 | $ 2,805 $ 2,709 =================================================================|============================== | Earned Premiums: | Direct $ 4,475 | $ 3,256 $ 3,124 | Assumed from: | Affiliated companies 65 | 32 15 Non-affiliated companies 30 | 32 110 | Ceded to: | Affiliated companies (384) | (512) (491) Non-affiliated companies (333) | (87) (64) - -----------------------------------------------------------------|------------------------------ | Total Net Earned Premiums $ 3,853 | $ 2,721 $ 2,694 =================================================================|==============================
31 17 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. REINSURANCE, Continued Reinsurance recoverables at December 31 include amounts recoverable on unpaid and paid losses and were as follows (in millions):
------------------------------------------------------------------------------ 1994 1993 ------------------------------------------------------------------------------ Reinsurance Recoverables: Life and accident and health business: Affiliated companies $ 3 $ 3 Non-affiliated companies 661 689 Property-casualty business: Affiliated companies 2,251 2,191 ------------------------------------------------------------------------------ Total Reinsurance Recoverables $ 2,915 $ 2,883 ==============================================================================
6. SHAREHOLDER'S EQUITY Additional Paid-In Capital The increase of $273 million in additional paid-in capital during 1994 is due primarily to the finalization of the evaluations and appraisals used to assign fair values to assets and liabilities under purchase accounting. The increase of $1.7 billion in additional paid-in capital during 1993 arose from a contribution of $400 million from The Travelers Corporation and the contribution of TIHI (see notes 1 and 3). This was partially offset by the impact of the initial evaluations and appraisals used to assign fair values to assets and liabilities under purchase accounting. The increase in additional paid-in capital during December 31, 1992 arose from a contribution of $500 million in 1992 from The Travelers Corporation and the contribution of Transport Life Insurance Company's preferred provider and third party administrator organizations in 1992 (see note 3). Unrealized Investment Gains (Losses) An analysis of the change in unrealized gains and losses on investments is shown in note 15. 32 18 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 6. SHAREHOLDER'S EQUITY, Continued Shareholder's Equity and Dividend Availability The statutory net income, including TIHI, was $100 million for the year ended December 31, 1994. The statutory net loss, excluding TIHI, was $648 million and $346 million for the years ended December 31, 1993 and 1992, respectively. Statutory capital and surplus was $2.1 billion and $1.8 billion at December 31, 1994 and 1993, respectively. The Company is currently subject to various regulatory restrictions that limit the maximum amount of dividends available to TIG without prior approval of insurance regulatory authorities. Under statutory accounting practices, there is no statutory surplus available in 1995 for dividends to TIG without prior approval of the Connecticut Insurance Department. Dividend payments to the Company from its insurance subsidiaries are subject to similar restrictions and statutory surplus of the subsidiaries is not available in 1995 for dividends to the Company without prior approval of insurance regulatory authorities. 7. ADDITIONAL OPERATING INFORMATION The Company has segmented its business by major product lines. TIHI was contributed to the Company on December 31, 1993, and its assets at that date and subsequent and its operations for the year ended December 31, 1994 are included in the following table in the Life and Annuities segment. Transport Life Insurance Company's preferred provider and third party administrator organizations were contributed to the Company in December 1992 and are included in the Managed Care and Employee Benefits segment. 33 19 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 7. ADDITIONAL OPERATING INFORMATION, continued Results included in the table below reflect 1993 fourth quarter after-tax charges of $103 million for an addition to reserves for foreclosed properties held for sale and 1992 fourth quarter after-tax charges of $272 million for implementation of SOP 92-3 and $193 million for an addition to mortgage loan valuation reserves.
Managed Care Corporate Travelers Life and Employee and Other (in millions) and Annuities Benefits Operations Consolidated - ------------------------------------------------------------------------------------------------------------------------ 1994 - ---- Revenues Premiums $ 1,492 $ 2,369 $ - $ 3,861 Net investment income 1,603 246 - 1,849 Realized investment gains 13 - 1 14 Other 173 850 - 1,023 - ------------------------------------------------------------------------------------------------------------------------ Total $ 3,281 $ 3,465 $ 1 $ 6,747 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes $ 604 $ 257 $ (4) $ 857 Net income (loss) 392 157 (4) 545 Assets 33,078 5,131 2,326 40,535 - ------------------------------------------------------------------------------------------------------------------------ 1993 - ---- Revenues Premiums $ 330 $ 2,395 $ - $ 2,725 Net investment income 1,616 265 3 1,884 Realized investment gains (losses) (45) 24 - (21) Other 120 737 2 859 - ------------------------------------------------------------------------------------------------------------------------ Total $ 2,021 $ 3,421 $ 5 $ 5,447 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes $ (87) $ 173 $ (3) $ 83 Net income (loss) 19 123 (1) 141 Assets (purchase accounting value) 34,155 4,744 2,442 41,341 - ------------------------------------------------------------------------------------------------------------------------ 1992 - ---- Revenues Premiums $ 278 $ 2,408 $ - $ 2,686 Net investment income 1,799 290 12 2,101 Realized investment gains (losses) (725) (22) - (747) Other 140 645 - 785 - ------------------------------------------------------------------------------------------------------------------------ Total $ 1,492 $ 3,321 $ 12 $ 4,825 - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before federal income taxes and cumulative effects of changes in accounting principles $ (844) $ (100) $ 1 $ (943) Cumulative effect of change in accounting for postretirement benefits other than pensions, net of tax (25) (101) - (126) Cumulative effect of change in accounting for income taxes 223 124 3 350 Net income (loss) (343) (42) 4 (381) Assets 31,378 4,498 2,191 38,067 - ------------------------------------------------------------------------------------------------------------------------
34 20 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, including financial futures, interest rate swaps and forward contracts, as a means of prudently hedging exposure to price, foreign currency and/or interest rate risk on anticipated investment purchases or existing assets and liabilities. Also, in the normal course of business, the Company has fixed and variable rate loan commitments and unfunded commitments to partnerships. The Company does not hold or issue derivative instruments for trading purposes. These derivative financial instruments have off-balance-sheet risk. Financial instruments with off-balance-sheet risk involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instrument. However, the maximum credit loss or cash flow associated with these instruments can be less than these amounts. For forward contracts and interest rate swaps, credit risk is limited to the amounts calculated to be due the Company on such contracts. For unfunded commitments to partnerships, credit exposure is the amount of the unfunded commitments. For fixed and variable rate loan commitments, credit exposure is represented by the contractual amount of these instruments. The Company monitors creditworthiness of counterparties to these financial instruments by using criteria of acceptable risk that are consistent with on-balance-sheet financial instruments. The controls include credit approvals, limits and other monitoring procedures. Many transactions include the use of collateral to minimize credit risk and lower the effective cost to the borrower. The Company may occasionally enter into interest rate swaps in connection with other financial instruments to provide greater risk diversification and better match an asset with a corresponding liability. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating rate interest amounts calculated by reference to an agreed notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each due date. Swap agreements are not exchange traded so they are subject to the risk of default by the counterparty. In all cases, counterparties under these agreements are major financial institutions with the risk of non-performance considered remote. At December 31, 1994 and 1993, the Company had entered into interest rate swaps with contract values of $145 million and $153 million, respectively. At both December 31, 1994 and 1993, the fair value of interest rate swaps was $1 million (loss position) which is determined using a discounted cash flow method. The off-balance-sheet risks of financial futures contracts, forward contracts, fixed and variable rate loan commitments and unfunded commitments to partnerships were not considered significant at December 31, 1994 and 1993. 35 21 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued Fair Value of Certain Financial Instruments The Company uses various financial instruments in the normal course of its business. Fair values of financial instruments which are considered insurance contracts are not required to be disclosed and are not included in the amounts discussed. At December 31, 1994 and 1993, investments in fixed maturities have a fair value of $17.3 billion and $18.3 billion, respectively. See note 15. At December 31, 1994, mortgage loans have a carrying value of $4.9 billion, which approximates fair value, compared with a carrying value and a fair value of $6.8 billion at December 31, 1993. In estimating fair value, the Company used interest rates reflecting the higher returns required in the current real estate financing market. The carrying value of $417 million and $320 million of financial instruments classified as other assets approximates fair values at December 31, 1994 and 1993, respectively. The carrying value of $1.2 billion and $878 million of financial instruments classified as other liabilities also approximates their fair values at December 31, 1994 and 1993, respectively. Fair value is determined using various methods including discounted cash flows and carrying value, as appropriate for the various financial instruments. At December 31, 1994, contractholder funds with defined maturities have a carrying value of $4.2 billion and a fair value of $4.0 billion, compared with a carrying value and a fair value of $5.0 billion at December 31, 1993. The fair value of these contracts is determined by discounting expected cash flows at an interest rate commensurate with the Company's credit risk and the expected timing of cash flows. Contractholder funds without defined maturities have a carrying value of $9.1 billion and a fair value of $8.8 billion at December 31, 1994, compared with a carrying value of $13.0 billion and a fair value of $12.7 billion at December 31, 1993. These contracts generally are valued at surrender value. The assets of separate accounts providing a guaranteed return have a carrying value and a fair value of $1.5 billion and $1.4 billion, respectively, at December 31, 1994, compared with a carrying value and a fair value of $1.5 billion and $1.6 billion, respectively, at December 31, 1993. The liabilities of separate accounts providing a guaranteed return have a carrying value and a fair value of $1.5 billion and $1.3 billion, respectively, at December 31, 1994, compared with a carrying value and a fair value of $1.5 billion and $1.7 billion, respectively, at December 31, 1993. 36 22 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued The carrying values of cash, short-term securities and investment income accrued approximate their fair values. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. 9. COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance-Sheet Risk See Note 8 for a discussion of financial instruments with off-balance-sheet risk. Litigation In April 1989, a lawsuit was filed against the Company by the federal government alleging the Company improperly handled health benefit claims for individuals who are actively employed and eligible for Medicare coverage. In November 1992, the court ruled on cross motions for summary judgment. The court found that the Company had no liability when acting in the capacity of an administrator of claims. However, the court also recognized that, while the government's right of recovery with respect to insured claims is governed by the substantive terms of our customers' health benefit plan, the right of recovery is independent of procedural limitations in the Company's contracts. The Company is a defendant or codefendant in various litigation matters. Although there can be no assurances, as of December 31, 1994, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition or liquidity. 10. BENEFIT PLANS Pension Plans The Company participates in qualified and nonqualified, noncontributory defined benefit pension plans covering the majority of the Company's U.S. employees. Benefits for the qualified plan are based on an account balance formula. Under this formula, each employee's accrued benefit can be expressed as an account that is credited with amounts based upon the employee's pay, length of service and a specified interest rate, all subject to a minimum benefit level. This plan is funded in accordance with the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. For the nonqualified plan, contributions are based on benefits paid. Certain subsidiaries of TIHI participate in a noncontributory defined benefit plan sponsored by their ultimate parent, The Travelers Inc. 37 23 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 10. BENEFIT PLANS, Continued The Company's share of net pension expense was $6 million, $8 million and $22 million for 1994, 1993 and 1992, respectively. Through plans sponsored by TIG, the Company also provides defined contribution pension plans for certain agents. Company contributions are primarily a function of production. The expense for these plans was $2 million in 1994, 1993 and 1992. Certain non-U.S. employees of TIHI are covered by noncontributory defined benefit plans. These plans are funded based upon local laws. Other Benefit Plans In addition to pension benefits, the Company provides certain health care and life insurance benefits for retired employees through a plan sponsored by TIG. This plan does not include employees of TIHI. Covered employees may become eligible for these benefits if they reach retirement age while working for the Company. These retirees may elect certain prepaid health care benefit plans. Life insurance benefits generally are set at a fixed amount. The cost recognized by the Company for these benefits represents its allocated share of the total costs of the plan, net of employee contributions. In the third quarter of 1992, TIG adopted FAS 106 and elected to recognize the accumulated postretirement benefit obligation (i.e., the transition obligation) as a change in accounting principle retroactive to January 1, 1992. The Company's pretax share of the total cost of the plan for 1994, 1993 and 1992 was $14 million, $29 million and $26 million, respectively. The Merger resulted in a change in control of The Travelers Corporation as defined in the applicable plans, and provisions of some employee benefit plans secured existing compensation and benefit entitlements earned prior to the change in control, and provided a salary and benefit continuation floor for employees whose employment was affected. The costs related to these changes have been assumed by TIG. Savings, Investment and Stock Ownership Plan Under the savings, investment and stock ownership plan available to substantially all employees of TIG (except TIHI), the Company matches a portion of employee contributions. Effective April 1, 1993, the match decreased from 100% to 50% of an employee's first 5% contribution and a variable match based on TIG's profitability was added. The Company's matching obligations were $7 million, $10 million and $16 million in 1994, 1993 and 1992, respectively. 38 24 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 11. RELATED PARTY TRANSACTIONS The principal banking functions for certain subsidiaries and affiliates of TIG, and salaries and expenses for TIG and its insurance subsidiaries (excluding TIHI), are handled by the Company. Settlements for these functions between the Company and its affiliates are made regularly. The Company provides various insurance coverages, principally life and health, to employees of certain subsidiaries of TIG. The premiums for these coverages were charged in accordance with normal cost allocation procedures. In addition, investment advisory and management services, data processing services and claims processing services are provided by affiliated companies. TIG and its subsidiaries maintain short-term investment pools in which the Company participates. The positions of each company participating in the pools are calculated and adjusted daily. At December 31, 1994 and 1993, the pools totaled approximately $1.5 billion and $1.3 billion, respectively. The Company's share of the pools amounted to $1.1 billion and $439 million at December 31, 1994 and 1993, respectively, and is included in short-term securities in the consolidated balance sheet. The Company markets a variable annuity product through its affiliate, Smith Barney. Sales of this product were $158 million in 1994. The Company leases new furniture and equipment from a noninsurance subsidiary of TIG. The rental expense charged to the Company for this furniture and equipment was $9 million, $10 million and $9 million in 1994, 1993 and 1992, respectively. At December 31, 1994 and 1993, TIC has an investment of $23 million and $27 million, respectively, in bonds of its affiliate, Commercial Credit Company. This is included in fixed maturities in the consolidated balance sheet. TIHI has an investment of $231 million and $110 million in common stock of The Travelers Inc. at December 31, 1994 and 1993, respectively. This is carried at fair value at December 31, 1994 and at cost at December 31, 1993. At December 31, 1994, TIHI has an investment of $35 million in redeemable preferred stock of The Travelers Inc. which is carried at fair value. TIHI has notes receivable from The Travelers Inc. of $30 million at December 31, 1994 and 1993, which are carried at cost. These assets are included in other investments in the consolidated balance sheet. 39 25 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 12. LEASES The Company has entered into various operating and capital lease agreements for office space and data processing and certain other equipment. Rental expense under operating leases was $99 million, $113 million and $122 million in 1994, 1993 and 1992, respectively. Future net minimum rental and lease payments are estimated as follows:
------------------------------------------------------------------------------------------ Minimum operating Minimum capital ------------------------------------------------------------------------------------------ (in millions) rental payments lease payments ------------------------------------------------------------------------------------------ Year ending December 31, 1995 $ 112 $ 7 1996 85 7 1997 69 4 1998 54 4 1999 47 4 Thereafter 36 64 ------------------------------------------------------------------------------------------ $ 403 $ 90 ------------------------------------------------------------------------------------------
The Company is reimbursed by affiliates of TIG for utilization of space and equipment. The following is a summary of assets under capital leases:
------------------------------------------------------------------------- (in millions) 1994 1993 ------------------------------------------------------------------------- Buildings $ 25 $ 25 Equipment 14 14 ------------------------------------------------------------------------- 39 39 Less accumulated depreciation 17 14 ------------------------------------------------------------------------- Net $ 22 $ 25 -------------------------------------------------------------------------
The net carrying value of the assets is recorded at amortized cost and at the value assigned at the acquisition dates at December 31, 1994 and 1993, respectively. 40 26 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES
------------------------------------------------------------------------------------------- (in millions) 1994 | 1993 1992 ------------------------------------------------------------|------------------------------ | Effective tax rate | | Income (loss) before federal | income taxes $ 857 | $ 83 $ (943) ------------------------------------------------------------|------------------------------ Statutory tax rate 35% | 35% 34% ------------------------------------------------------------|------------------------------ | Expected federal income taxes $ 300 | $ 29 $ (321) Tax effect of: | Nontaxable investment income (4) | (1) (1) Adjustments to benefit and other reserves - | (46) (18) Adjustment to deferred tax asset for | enacted change in tax rates from | 34% to 35% - | (25) - Goodwill 12 | - - Other 4 | (15) 2 ------------------------------------------------------------|------------------------------ Federal income taxes $ 312 | $ (58) $ (338) ------------------------------------------------------------|------------------------------ | Effective tax rate 36% | (70%) 36% ------------------------------------------------------------|------------------------------ | Composition of federal income taxes | Current: | United States $ 22 | $ 17 $ (3) Foreign 14 | 3 5 ------------------------------------------------------------|------------------------------ Total 36 | 20 2 ------------------------------------------------------------|------------------------------ | Deferred: | United States 271 | (78) (340) Foreign 5 | - - ------------------------------------------------------------|------------------------------ Total 276 | (78) (340) ------------------------------------------------------------|------------------------------ Federal income taxes $ 312 | $ (58) $ (338) -------------------------------------------------------------------------------------------
41 27 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES, Continued The net deferred tax assets at December 31, 1994 and 1993 were comprised of the tax effects of the temporary differences related to the following assets and liabilities:
---------------------------------------------------------------------------------------------- (in millions) 1994 1993 ---------------------------------------------------------------------------------------------- Deferred tax assets: Benefit, reinsurance and other reserves $ 453 $ 575 Contractholder funds 158 184 Investments 690 492 Other employee benefits 87 65 Other 257 146 ---------------------------------------------------------------------------------------------- Total 1,645 1,462 ---------------------------------------------------------------------------------------------- Deferred tax liabilities: Deferred acquisition costs and value of insurance in force 529 504 Prepaid pension expense 5 3 Other 61 - ---------------------------------------------------------------------------------------------- Total 595 507 ---------------------------------------------------------------------------------------------- Net deferred tax asset before valuation allowance 1,050 955 Valuation allowance for deferred tax assets (100) (100) ---------------------------------------------------------------------------------------------- Net deferred tax asset after valuation allowance $ 950 $ 855 ----------------------------------------------------------------------------------------------
Starting in 1994 and continuing for at least five years, the Company and its life insurance subsidiaries will file a consolidated federal income tax return. Federal income taxes are allocated to each member of the consolidated return on a separate return basis adjusted for credits and other amounts required by the consolidation process. Any resulting liability will be paid currently to the Company. Any credits for losses will be paid by the Company to the extent that such credits are for tax benefits that have been utilized in the consolidated federal income tax return. The Company has no receivable for unreimbursed credits from its previous allocation agreement with The Travelers Corporation. 42 28 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 13. FEDERAL INCOME TAXES, Continued A net deferred tax asset valuation allowance of $100 million has been established to reduce the net deferred tax asset on investment losses to the amount that, based upon available evidence, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future capital gains in the Company's consolidated life insurance company federal income tax return through 1998, and the consolidated federal income tax return of The Travelers Inc. commencing in 1999 or a change in circumstances which causes the recognition of the benefits to become more likely than not. There was no net change in the valuation allowance during 1994. The initial recognition of any benefit produced by the reversal of the valuation allowance will be recognized by reducing goodwill. The Company has a net deferred tax asset, after the valuation allowance of $100 million, which relates to temporary differences that are expected to reverse as net ordinary deductions except for a deferred tax asset of $319 million which relates to the unrealized loss on fixed maturity investments. Management does not intend to realize the unrealized loss on the fixed maturity investments except to the extent of offsetting capital gains. The Company will have to generate approximately $1.8 billion of taxable income, before reversal of these temporary differences, primarily over the next 10 to 15 years, to realize the remainder of the deferred tax asset, exclusive of the unrealized loss on fixed maturity investments. Management expects to realize the remainder of the deferred tax asset based upon its expectation of future positive taxable income, after the reversal of these deductible temporary differences, in the consolidated life insurance company federal income tax return through 1998, and the consolidated federal income tax return of The Travelers Inc. commencing in 1999. The taxable income of The Travelers Inc. consolidated return, after reversal of the deductible temporary differences, is expected to be at least $1 billion annually. At December 31, 1994, the Company has no ordinary or capital loss carryforwards. The "policyholders surplus account", which arose under prior tax law, is generally that portion of the gain from operations that has not been subjected to tax, plus certain deductions. The balance of this account, which, under provisions of the Tax Reform Act of 1984, will not increase after 1983, is estimated to be $932 million. This amount has not been subjected to current income taxes but, under certain conditions that management considers to be remote, may become subject to income taxes in future years. At current rates, the maximum amount of such tax (for which no provision has been made in the financial statements) is approximately $326 million. See note 2 for a discussion of the implementation of new principles for accounting for income taxes. 43 29 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 14. NET INVESTMENT INCOME
------------------------------------------------------------------|------------------------------ (For the year ended December 31, in millions) 1994 | 1993 1992 ------------------------------------------------------------------|------------------------------ | Gross investment income | Fixed maturities $ 1,253 | $ 1,221 $ 1,242 Mortgage loans 534 | 692 868 Real estate 177 | 383 384 Policy loans 112 | 106 109 Other 7 | (23) - ------------------------------------------------------------------|------------------------------ 2,083 | 2,379 2,603 ------------------------------------------------------------------|------------------------------ | Investment expenses 234 | 495 502 ------------------------------------------------------------------|------------------------------ Net investment income $ 1,849 | $ 1,884 $ 2,101 ------------------------------------------------------------------|------------------------------
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES) Realized investment gains (losses) for the periods were as follows:
-------------------------------------------------------------------|----------------------------- (For the year ended December 31, in millions) 1994 | 1993 1992 -------------------------------------------------------------------|----------------------------- | Realized | | Fixed maturities $ (3) | $ 182 $ (11) Equity securities 19 | 14 9 Mortgage loans - | (32) (386) Real estate - | (222) (400) Other (2) | 37 41 -------------------------------------------------------------------|----------------------------- Realized investment gains (losses) $ 14 | $ (21) $ (747) -------------------------------------------------------------------|-----------------------------
44 30 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Changes in net unrealized investment gains (losses) that are included as a separate component of shareholder's equity were as follows:
------------------------------------------------------------------------------------------------- (For the year ended December 31, in millions) 1994 | 1993 1992 -------------------------------------------------------------------|----------------------------- | Unrealized | | Fixed maturities $ (1,319) | $ (235) $ 146 Equity securities (25) | (17) 6 Other 165 | 28 4 -------------------------------------------------------------------|----------------------------- (1,179) | (224) 156 Related taxes (412) | (83) 53 -------------------------------------------------------------------|----------------------------- | Net unrealized investment gains (losses) (767) | (141) 103 Contribution of TIHI - 5 | - Balance beginning of year 7 143 | 40 --------------------------------------------------------------------------------------|---------- Balance end of year $ (760) $ 7 | $ 143 -------------------------------------------------------------------------------------------------
The initial adoption of FAS 115 resulted in an increase of approximately $232 million (net of taxes) to net unrealized gains in 1994. Fixed Maturities Proceeds from sales of fixed maturities classified as available for sale were $1.4 billion in 1994, resulting in gross realized gains of $15 million and gross realized losses of $27 million. There were no sales of fixed maturities classified as available for sale in 1993 or 1992 as, in conjunction with the Merger, fixed maturities were first classified as "available for sale" effective December 31, 1993. Prior to December 31, 1993, fixed maturities that were intended to be held to maturity were recorded at amortized cost and classified as held for investment. Sales from the amortized cost portfolios have been made periodically. Such sales were $97 million and $195 million in 1993 and 1992, respectively. Gross gains of $7 million and $10 million in 1993 and 1992, respectively, and gross losses of $1 million and $6 million in 1993 and 1992, respectively, were realized on those sales. Prior to December 31, 1993, the carrying values of the trading portfolio fixed maturities were adjusted to market value as it was likely they would be sold prior to maturity. At December 31, 1992, these fixed maturities had market values of $4.8 billion. Sales of trading portfolio fixed maturities were $4.0 billion and $642 million in 1993 and 1992, respectively. Gross gains of $165 million and $24 million in 1993 and 1992, respectively, and gross losses of $2 million and $4 million in 1993 and 1992, respectively, were realized on those sales. 45 31 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued The amortized cost and market value of investments in fixed maturities were as follows:
------------------------------------------------------------------------------------------------ December 31, 1994 ------------------------------------------------------------------------------------------------ Gross Gross Amortized unrealized unrealized Market (in millions) cost gains losses value ------------------------------------------------------------------------------------------------ Available for sale: Mortgage-backed securities - CMOs and pass through securities $ 3,779 $ 3 $ 304 $ 3,478 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 3,080 3 306 2,777 Obligations of states, municipalities and political subdivisions 87 - 7 80 Debt securities issued by foreign governments 398 - 26 372 All other corporate bonds 11,225 14 696 10,543 Redeemable preferred stock 10 - - 10 ------------------------------------------------------------------------------------------------ Total $ 18,579 $ 20 $ 1,339 $ 17,260 ------------------------------------------------------------------------------------------------
46 32 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
------------------------------------------------------------------------------------------------ December 31, 1993 ------------------------------------------------------------------------------------------------ Gross Gross Carrying unrealized unrealized Market (in millions) value gains losses value ------------------------------------------------------------------------------------------------ Available for sale: Mortgage-backed securities - CMOs and pass through securities $ 4,219 $ 18 $ 18 $ 4,219 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 2,807 67 6 2,868 Obligations of states, municipalities and political subdivisions 259 9 - 268 Debt securities issued by foreign governments 333 6 - 339 All other corporate bonds 10,474* 125 29 10,570 Redeemable preferred stock 20 - - 20 Held for investment 18 - - 18 ------------------------------------------------------------------------------------------------ Total $ 18,130 $ 225 $ 53 $ 18,302 ------------------------------------------------------------------------------------------------
* Before valuation reserves of $67 million. The amortized cost and market value of fixed maturities at December 31, 1994, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
------------------------------------------------------------------------------------------------ Maturity Amortized Market (in millions) cost value ------------------------------------------------------------------------------------------------ Due in one year or less $ 1,217 $ 1,197 Due after 1 year through 5 years 4,691 4,434 Due after 5 years through 10 years 5,731 5,310 Due after 10 years 3,161 2,841 ------------------------------------------------------------------------------------------------ 14,800 13,782 Mortgage-backed securities 3,779 3,478 ------------------------------------------------------------------------------------------------ Total $ 18,579 $ 17,260 ------------------------------------------------------------------------------------------------
47 33 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued The Company makes significant investments in collateralized mortgage obligations (CMOs). CMOs typically have high credit quality, offer good liquidity, and provide a significant advantage in yield and total return compared to U.S. Treasury securities. The Company's investment strategy is to purchase CMO tranches which are protected against prepayment risk, primarily planned amortization class (PAC) tranches. Prepayment protected tranches are preferred because they provide stable cash flows in a variety of scenarios. The Company does invest in other types of CMO tranches if a careful assessment indicates a favorable risk/return tradeoff. The Company does not purchase residual interests in CMOs. At December 31, 1994 and 1993, the Company held CMOs with a market value of $2.2 billion and $2.5 billion, respectively. Approximately 88% of the Company's CMO holdings are fully collateralized by GNMA, FNMA or FHLMC securities at December 31, 1994 and 1993. The majority of these are GNMA-backed securities. In addition, the Company held $1.3 billion and $1.9 billion of GNMA, FNMA or FHLMC mortgage-backed securities at December 31, 1994 and 1993, respectively. Virtually all of these securities are rated AAA. The Company also held $927 million and $899 million of securities that are backed primarily by credit card or car loan receivables at December 31, 1994 and 1993, respectively. Equity Securities The cost and market values of investments in equity securities were as follows:
------------------------------------------------------------------------------------------------ December 31, 1994 ------------------------------------------------------------------------------------------------ Gross Gross unrealized unrealized Market (in thousands) Cost gains losses value ------------------------------------------------------------------------------------------------ Common stocks $ 133 $ 19 $ 21 $ 131 Nonredeemable preferred stocks 40 - 2 38 ------------------------------------------------------------------------------------------------ Total $ 173 $ 19 $ 23 $ 169 ------------------------------------------------------------------------------------------------ December 31, 1993 ------------------------------------------------------------------------------------------------ Common stocks $ 129 $ 22 $ 3 $ 148 Nonredeemable preferred stocks 70 3 1 72 ------------------------------------------------------------------------------------------------ Total $ 199 $ 25 $ 4 $ 220 ------------------------------------------------------------------------------------------------
Proceeds from sales of equity securities were $359 million in 1994, resulting in gross realized gains of $24 million and gross realized losses of $6 million. 48 34 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Mortgage loans and real estate Underperforming assets include delinquent mortgage loans, loans in the process of foreclosure, foreclosed loans and loans modified at interest rates below market. The Company continues its strategy, adopted in conjunction with the Merger, to dispose of these real estate assets and some of the mortgage loans and to reinvest the proceeds to obtain current market yields. At December 31, 1994 and 1993, the Company's mortgage loan and real estate held for sale portfolios consisted of the following (in millions):
------------------------------------------------------------------------------ 1994 1993 ------------------------------------------------------------------------------ Current mortgage loans $ 4,467 $ 5,680 Underperforming mortgage loans 471 1,165 ------------------------------------------------------------------------------ Total mortgage loans 4,938 6,845 ------------------------------------------------------------------------------ Real estate held for sale 383 954 ------------------------------------------------------------------------------ Total mortgage loans and real estate $ 5,321 $ 7,799 ------------------------------------------------------------------------------
Aggregate annual maturities on mortgage loans at December 31, 1994 are as follows:
----------------------------------------------------- (in millions) ----------------------------------------------------- Past maturity $ 196 1995 708 1996 517 1997 550 1998 614 1999 611 Thereafter 1,742 ----------------------------------------------------- Total $ 4,938 -----------------------------------------------------
Concentrations At December 31, 1994 and 1993, the Company had no concentration of credit risk in a single investee exceeding 10% of consolidated shareholder's equity. The Company participates in two short-term investment pools maintained by TIG and its subsidiaries. These pools are discussed in note 11. 49 35 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Included in fixed maturities are below investment grade assets totaling $922 million and $814 million at December 31, 1994 and 1993, respectively. The Company defines its below investment grade assets as those securities rated "Ba1" or below by external rating agencies, or the equivalent by the internal analysts when a public rating does not exist. Such assets include publicly traded below investment grade bonds, highly leveraged transactions and certain other privately issued bonds that are classified as below investment grade loans. The Company also has significant concentrations of investments in the following industries:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ Finance $ 1,241 $ 1,442 Electric utilities 1,222 1,348 Banking 953 743 Oil and gas 859 651 ------------------------------------------------------------------------------------------------
Below investment grade assets included in the totals above, are as follows:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ Finance $ 75 $ 45 Electric utilities 32 47 Banking 21 21 Oil and gas 33 38 ------------------------------------------------------------------------------------------------
At December 31, 1994 and 1993, significant concentrations of mortgage loans were for properties located in highly populated areas in the states listed below. The amounts are shown below:
------------------------------------------------------------------------------------------------ (in millions) 1994 1993 ------------------------------------------------------------------------------------------------ California $ 929 $ 1,174 New York 558 780 Florida 432 588 Texas 380 584 Illinois 347 485 ------------------------------------------------------------------------------------------------
Other mortgage loan investments are fairly evenly dispersed throughout the United States, with no holdings in any state exceeding $273 million and $324 million at December 31, 1994 and 1993, respectively. 50 36 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Concentrations of mortgage loans by property type at December 31, 1994 and 1993 are shown below:
----------------------------------------------------------------------------------------------- (in millions) 1994 1993 ----------------------------------------------------------------------------------------------- Office $ 2,065 $ 2,769 Apartment 1,029 1,635 Retail 606 891 Agricultural 540 643 Hotel 402 547 -----------------------------------------------------------------------------------------------
Real estate investments are dispersed throughout the United States, with no holdings in any state exceeding $111 million or $191 million at December 31, 1994 or 1993, respectively. Real estate assets at December 31, 1994 and 1993 included office properties with carrying values of $205 million and $568 million, respectively. The Company monitors creditworthiness of counterparties to all financial instruments by using controls that include credit approvals, limits and other monitoring procedures. Collateral for fixed maturities often includes pledges of assets, including stock and other assets, guarantees and letters of credit. The Company's underwriting standards with respect to new mortgage loans generally require loan to value ratios of 75% or less at the time of mortgage origination. Investment Valuation Reserves At December 31, 1994, 1993 and 1992, total investment valuation reserves, which are deducted from the applicable investment carrying values in the consolidated balance sheet, were as follows:
------------------------------------------------------------------------------------------------- (in millions) 1994 | 1993 1992 ------------------------------------------------------------------|------------------------------ | Beginning of year $ 67 | $ 1,417 $ 864 Increase - | 195 821 Impairments, net of gains/recoveries - | (602) (268) FAS 115/Purchase accounting adjustment (67) | (943) - ------------------------------------------------------------------------------------------------- End of year $ - $ 67 | $ 1,417 -------------------------------------------------------------------------------------------------
At December 31, 1993, investment valuation reserves were comprised of $67 million for securities. Increases in the investment valuation reserves are reflected as realized investment losses. 51 37 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued Nonincome Producing Investments included in the consolidated balance sheets that were nonincome producing for the preceding 12 months were as follows:
----------------------------------------------------------------------------------------------- (in millions) 1994 1993 ----------------------------------------------------------------------------------------------- Mortgage loans $ 127 $ 249 Real estate 73 147 Fixed maturities 6 24 ----------------------------------------------------------------------------------------------- Total $ 206 $ 420 -----------------------------------------------------------------------------------------------
Restructured The Company has mortgage loans and debt securities which were restructured at below market terms totaling approximately $259 million and $796 million at December 31, 1994 and 1993, respectively. At December 31, 1993, the Company's restructured assets are recorded at purchase accounting value. The new terms typically defer a portion of contract interest payments to varying future periods. The accrual of interest is suspended on all restructured assets, and interest income is reported only as payment is received. Gross interest income on restructured assets that would have been recorded in accordance with the original terms of such loans amounted to $52 million in 1994 and $121 million in 1993. Interest on these assets, included in net investment income, aggregated $17 million and $52 million in 1994 and 1993, respectively. 16. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES At December 31, 1994, the Company has $23.2 billion of life and annuity deposit funds and reserves. Of that total, $11.6 billion are not subject to discretionary withdrawal based on contract terms and related market conditions. The remaining $11.6 billion are for life and annuity products that are subject to discretionary withdrawal by the contractholder. Included in the amount that is subject to discretionary withdrawal are $1.9 billion of liabilities that are surrenderable with market value adjustments. An additional $5.7 billion of the life insurance and individual annuity liabilities are subject to discretionary withdrawals with an average surrender charge of 5.5%. Another $1.4 billion of liabilities are surrenderable at book value over 5 to 10 years. In the payout phase, these funds are credited at significantly reduced interest rates. The remaining $2.6 billion of liabilities are surrenderable without charge. Approximately 30% of these liabilities relate to individual life products. These risks would have to be underwritten again if transferred to another carrier, which is considered a significant deterrent for long-term policyholders. Insurance liabilities that are surrendered or withdrawn from the Company are reduced by outstanding policy loans and related accrued interest prior to payout. 52 38 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 17. RESTRUCTURING COSTS During 1992, the Company announced a series of organizational restructuring initiatives associated with its plan to streamline its business and corporate operations. These initiatives have been substantially completed. These initiatives resulted in a pretax charge in 1992 of $151 million, consisting of $96 million for severance, benefits, accrued vacation and outplacement costs, $5 million for relocation costs due to consolidation efforts, $19 million for lease costs, $15 million for writeoff of goodwill related to identified divestitures and $16 million of miscellaneous other costs. 18. RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES In the first quarter of 1992, the Company changed its presentation of cash flows from operating activities from the indirect method to the direct method. The following table reconciles net income (loss) to net cash provided by operating activities:
------------------------------------------------------------------------------------------------ (For the year ended December 31, in millions) 1994 | 1993 1992 ----------------------------------------------------------------|------------------------------- | Net income (loss) $ 545 | $ 141 $ (381) Reconciling adjustments | Realized gains (losses) (14) | 21 747 Deferred federal income taxes 276 | (78) (340) Amortization of deferred policy acquisition | costs and value of insurance in force 284 | 55 61 Additions to deferred policy acquisition costs (429) | 5 (2) Trading account investments, | (purchases) sales, net - | (1,576) (364) Investment income accrued 17 | 1 29 Premium balances receivable 9 | 41 3 Insurance reserves and accrued expenses 165 | 542 (81) Restructuring reserves - | (79) 121 Cumulative effects of changes in | accounting principles - | - (224) Other, including investment valuation reserves | in 1993 and 1992 (136) | (445) 487 ----------------------------------------------------------------|------------------------------- | Net cash provided by (used in) | operating activities $ 717 | $ (1,372) $ 56 ------------------------------------------------------------------------------------------------
53 39 THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 19. NONCASH INVESTING AND FINANCING ACTIVITIES Significant noncash investing and financing activities include: a) the 1994 exchange of $23 million of TIHI's investment in The Travelers Inc. common stock for $35 million of The Travelers Inc. nonredeemable preferred stock; b) the acquisition of real estate through foreclosures of mortgage loans amounting to $229 million, $563 million and $753 million in 1994, 1993 and 1992, respectively; c) the acceptance of purchase money mortgages for sales of real estate aggregating $96 million, $190 million and $72 million in 1994, 1993 and 1992, respectively; d) the 1993 contribution of TIHI by The Travelers Inc. (see note 3); e) the 1993 contribution of $400 million of bond investments by The Travelers Corporation (see note 6); f) increases in investment valuation reserves in 1993 and 1992 for securities, mortgage loans and/or investment real estate (see note 15); g) the 1993 transfer of $352 million of mortgage loans and bonds from the Company's general account to two separate accounts; and h) the contribution in 1992 of Transport Life Insurance Company's preferred provider and third party administrator organizations by The Travelers Corporation (see note 3). 54 COPY OF ANNUAL REPORT DATED DECEMBER 31, 1994 TO WHICH THE REGISTRANT'S FINANCIAL STATEMENTS ARE INCORPORATED IN THE PROSPECTUS/STATEMENT OF ADDITIONAL INFORMATION BY REFERENCE TO THIS FILING Annual Report for The Travelers Quality Bond Account for Variable Annuities UNIVERSAL ANNUITY ANNUAL REPORT THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES DECEMBER 31, 1994 THETRAVELERS (logo with picture of umbrella) THE TRAVELERS INSURANCE COMPANY ONE TOWER SQUARE HARTFORD, CONNECTICUT 06183 THETRAVELERS (logo with umbrella) THE TRAVELERS VARIABLE PRODUCT SEPARATE ACCOUNTS INVESTMENT ADVISORY COMMENTARY AS OF DECEMBER 31, 1994 ECONOMIC REVIEW AND OUTLOOK Economic growth kicked into high gear in 1994, and the economy used up any excess capacity in product and labor markets. The fitful recovery of the previous three years was replaced by a broad-based expansion. Unemployment fell to 5.4% at year-end, from 7.0% at the end of 1993. This robust economic activity was accompanied by few signs of higher inflation. The Consumer Price Index rose just 2.7% during 1994, the same as during the prior year. However, certain commodity prices showed large gains, and there was evidence by year-end of a modest acceleration in wage gains. The Federal Reserve ("Fed") started a tightening policy in February, while there still appeared to be slack in the economy. Fed actions served to push 3-month T-bill rates up from 3.1% at the start of the year to 5.7% at year-end. The yield curve rose and flattened significantly during the year. Yields on one-year Treasury bills rose by over 350 basis points, while yields on the 30-year bond were up over 150 basis points. At year-end, there was little evidence that Fed tightening had started to slow growth. In the fourth quarter, the economy grew at an annual rate of 4.5%, well above the 2.0-2.5% pace that many economists think is compatible with price stability. There is normally a lag of 6-12 months between Federal Reserve actions and the resulting impact on the economy. Coming into 1994, Fed policy was very accommodative of economic growth, with real money market interest rates (adjusted for inflation) close to zero. Monetary policy became truly restrictive only with the last 2 or 3 rates hikes. With unemployment at levels that many economists view as inflationary, we expect the Fed to push money market interest rates somewhat higher in 1995. We think that the Federal Reserve will succeed in slowing economic growth, and that inflation will stay below 4% during 1995 and into 1996. However, convincing evidence of the slowdown may take a while longer to emerge. FIXED-INCOME MARKET COMMENTARY Like a neutron bomb, which kills people but leaves buildings intact, rising interest rates in 1994 decimated complicated strategies much more than it hurt broad market averages. During the fourth quarter, Orange County and emerging markets investors were added to the casualty list, joining the hedge funds and various corporate users of derivatives that were hurt earlier in the year. While derivatives and mortgage backed securities have taken much of the blame for these incidents, the rise in short-term interest rates hurt any strategy that was based on leverage or benefited from the prior three years of low short-term rates. For the year, cash was the best performing asset, while stocks treaded water and bonds had their worst year in recent history. The Lehman Long Treasuries Index showed a negative return of 7.6% for the full year 1994. The long end of the yield curve stabilized late in the year, allowing long Treasuries to outperform cash during the fourth quarter. For the year as a whole, mortgage backed securities and corporates outperformed similar duration Treasuries. Late in the year, corporate spreads widened modestly with growing concerns over the 1995 economic outlook; as a result, long corporates underperformed similar duration Treasuries in the fourth quarter. We have been concerned by tight spreads on corporate issues throughout 1994. We expect issuance of new corporates to be light in the first half of 1995; this will help to support prices of corporate issues. Corporates are still likely to underperform Treasuries if a significant economic slowdown develops. We think inflation will stay below 4% in 1995. We also expect stable to modestly lower yields on Treasuries with maturities of 5 years or longer. If we are correct, bond investors will enjoy real returns, after inflation, of 4-7% in 1995. If the Federal Reserve is successful in containing economic growth and inflation, lower interest rates (stronger bond prices) are likely in 1996. EQUITY MARKET COMMENTARY Despite increased pressure by the Federal Reserve Board and a string of potentially dangerous financial crises, the U.S. stock market managed to achieve a broad-based gain in the second half of 1994. Surprisingly strong corporate earnings offset the negative effect of higher interest rates on equity valuations. During the final six months of 1994, the S&P 500 Stock Index provided a total return of 4.9%, including dividends. The stocks of small and medium sized companies provided comparable returns over that period, but with considerably higher volatility. Technology stocks led the market during the second half. The office and business equipment group was up over 25%, owing to continued booming sales of personal computers and a sharp rebound in networking stocks. Semi conductor stocks advanced in concert, reflecting strong demand for memory chips and microprocessors. Investors also returned to many defensive and recently out-of-favor "growth" groups in the second half. In the consumer staples sector, for example, beverage stocks rose 24% on earnings surprising and improving international growth prospects. In the health care sector, drug and medical product stocks rebounded over 20%. On the negative side, rising interest rates and fears of an impending economic slowdown hurt many interest sensitive and early cycle groups. Airline, trucking and railroad stocks were down over 10%. Auto stocks were off 8%. Regional banks declined 12%. In the energy sector, independent producers and drilling companies were down 12%, due to weaker oil and gas prices and the poor outlook for new production. We remain constructive, but cautious, in our outlook for stocks in 1995. With the S&P 500 Stock Index trading at only 14.5 times operating earnings, the equity market starts the year with reasonable valuation support. A more stable interest rate environment could even help to reverse the broad-based market price to earnings ratio contraction that has occurred over the past year. Where we think the stock market is most likely to run into problems is on the earnings front. Corporate earnings are expected to grow 8-10% in 1995, but most of that growth is expected to occur in the first half of the year. By the third quarter, we expect a noticeable deceleration in earnings growth. With equity indices near their all-time highs, the stock market is probably more vulnerable than the bond market to negative surprises, given the relative performance of the two asset classes over the past year. TIMCO (logo) A COMPANY OF THE TRAVELERS (logo with umbrella) The Travelers Investment Management Company ("TIMCO") provides equity management and advisory services for the following Travelers Variable Product Separate Account contained in this report: The Travelers Growth and Income Stock Account for Variable Annuities. TAMIC (logo) TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION Travelers Asset Management International Corporation ("TAMIC") provides fixed income management and advisory services for the following Travelers Variable Product Separate Accounts contained in this report: The Travelers Quality Bond Account for Variable Annuities and the Travelers Money Market Account for Variable Annuities. THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES Interest rates rose sharply in 1994, as the yield curve flattened. Yields on 1-3 year Treasuries rose by over 3 percentage points, while yields on long bonds rose 1.5 percentage points. By year-end, only 20 basis points separated yields on 2-year Treasuries from yields on long bonds. Corporate issues outperformed similar duration Treasuries by 40-50 basis points on average for all of 1994, but in the fourth quarter, long corporates underperformed. Federal Reserve actions to push up short-term interest rates increase the likelihood that economic growth in 1995 will slow from the strong pace of 1994. We think that bond yields have moved higher than justified by economic fundamentals. In December, we moved the duration (interest rate exposure) of the portfolio to 15% above the benchmark. As the yield curve flattened, purchases were focused on 3-5 year assets to take advantage of increased yields at those maturities. For much of the year, we have been concerned about tight yield spreads on corporates and the risk that slower economic growth in 1995 could pose for pricing of corporate issues. With corporate spreads tight, we have found somewhat better value in 3-5 year asset-backed securities and have been selectively increasing their use. We have reduced credit risk at longer maturities by swapping out of selected corporate issues into similar maturity Treasuries. We used these sales to reduce holdings in airlines and banks. It is the fund's long-run strategy to overweight corporate issues; for the near-term, we are reducing that overweighting in response to tight pricing and the risk of an economic slowdown. (Bar Chart showing comparison between The Travelers Quality Bond Account and Lipper Short Intermediate Investment Grade Debt Category Average) 1 year 3 year 5 year The Travelers Quality Bond Account -2.42% 4.01% 6.44% Lipper Short Intermediate Investment Grade Debt Category Average -2.98% 3.04% 5.36%
This is a comparison of The Travelers Quality Bond Account versus Lipper Analytical Services' variable annuity composite index, which provides the average performance of variable annuity funds with similar objectives as of December 31, 1994. Lipper Analytical Services is a leading independent Variable Insurance Product Performance Analysis Service. The performance of the composite is net of all asset based fees such as mortality and expense charges and portfolio management fees. Performance reflects the charges associated with Universal Annuity, which became available on May 16, 1983. Contracts issued prior to May 16, 1983 have different contract charges that result in different performance than presented above. Universal Annuity fund performance information is net of: 1) the 1.25% annual mortality and expense risk charge, and 2) portfolio management fees. The deduction of the $15 semi-annual administrative charge and the deferred sales charge (5% maximum) is not reflected. The deduction of those charges would reduce any percentage increase or make greater any percentage decrease. Performance data quoted represents past performance. Investment return and principal value of an investment will fluctuate so that an investor's units, when redeemed, may be worth more or less than their original cost. The following is the performance data required by SEC rules governing uniform performance reporting: one year -7.57% five year 5.31% and ten year 7.26%. This performance data is based on a $1,000 hypothetical investment and reflects deductions of all fees and charges including the semi-annual administrative charge and deferred sales charge. THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1994 ASSETS: Investments securities, at market value (identified cost $166,628,106) $ 159,998,791 Cash 58,841 Receivables Interest 2,690,652 Investment securities sold 3,457,200 Purchase payments and transfers from other Travelers accounts 120,384 ------------ Total Assets 166,325,868 ------------ LIABILITIES: Payables: Investment securities purchased 3,497,500 Contract surrenders and transfers to other Travelers account 82,251 Investment management and advisory fees 5,791 Accrued liabilities 21,535 ------------ Total Liabilities 3,607,077 ------------ NET ASSETS 162,718,791 ------------ ------------ See Notes to Financial Statements
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 INVESTMENT INCOME: Interest $ 12,724,370 EXPENSES: Investment management and advisory fees $ 572,484 Insurance charges 2,073,736 ------------ Total expenses 2,646,220 ------------ Net investment income 10,078,150 ------------ REALIZED AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized loss from investment security transactions: Proceeds from investment securities sold 53,234,790 Cost of investment securities sold 54,429,118 ------------ Net realized loss (1,194,328) Change in unrealized gain (loss) on investment securities: Unrealized gain at December 31, 1993 6,564,986 Unrealized loss at December 31, 1994 (6,629,315) ------------- Net change in unrealized gain (loss) for the year (13,194,301) ------------- Net realized and change in unrealized gain (loss) (14,388,629) ------------- Net decrease in net assets resulting from operations $ (4,310,479) ------------- ------------- See Notes To Financial Statements
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993 ------ ------ OPERATIONS: Net Investment income $ 10,078,150 $ 8,626,326 Net realized gain (loss) from investment security transactions (1,194,328) 1,688,340 Net change in unrealized gain (loss) on investment securities (13,194,301) 1,367,169 ------------ ------------ Net income (decrease) in net assets resulting from operations (4,310,479) 11,681,835 ------------ ------------ UNIT TRANSACTIONS: Participant purchase payments (applicable to 6,301,055 and 6,501,996 units, respectively) 27,333,447 28,070,158 Participant transfers from other Travelers accounts (applicable to 5,749,483 and 9,776,371 units, respectively) 24,892,067 42,307,297 Administrative charges (applicable to 36,754 and 32,165 units, respectively) (157,847) (140,219) Contract surrenders (applicable to 4,071,409 and 2,617,359 units, respectively) (17,682,850) (11,312,644) Participant transfers to other Travelers accounts (applicable to 11,082,480 and 6,187,092 units, respectively) (47,893,070) (26,736,382) Other payments to participants (applicable to 93,315 and 146,935 units, respectively) (408,660) (637,715) ------------ ------------ Net increase (decrease) in net assets resulting from unit transactions (13,916,913) 31,550,495 ------------ ------------ Net increase (decrease) in net assets (18,227,392) 43,232,330 NET ASSETS: Beginning of year 180,946,183 137,713,853 End of year $ 162,718,791 $ 180,946,183 ------------- ------------- ------------- ------------- See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Quality Bond Account for Variable Annuities ("Account QB") is a separate account of The Travelers Insurance Company ("Travelers Insurance"), an indirect wholly owned subsidiary of The Travelers Inc., and is available for funding certain variable annuity contracts issued by Travelers Insurance. Account QB is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by Account QB in the preparation of its financial statements. SECURITY VALUATION. - ------------------- Investments in securities traded on a national securities exchange are valued at the last reported sale price as of the close of business of the New York Stock Exchange on the last business day of the year; securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. When market quotations are not considered to be readily available for long-term corporate bonds and notes, such investments are generally stated at fair value on the basis of valuations furnished by a pricing service. These valuations are determined for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Securities, including restricted securities, for which pricing services are not readily available, are valued by management at prices which it deems in good faith to be fair. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued by computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity. FUTURES CONTRACTS. - ------------------ Account QB uses 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 (including short-term investments) in an amount at least equal to the notional value of outstanding purchased futures contracts. 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 specified indexes 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. FEDERAL INCOME TAXES. - --------------------- The operations of Account QB form a part of the total operations of Travelers Insurance and are not taxed separately. Travelers Insurance 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. - ------ Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. NOTES TO FINANCIAL STATEMENTS -- CONTINUED 2.INVESTMENTS Purchases and sales of securities other than short-term investments aggregated $43,161,055 and $41,915,438, respectively, for the year ended December 31, 1994. Realized gains and losses from security transactions are reported on an identified cost basis. Net realized gains (losses) resulting from futures contracts were ($132,050) and $708,055 for the years ended December 31, 1994 and 1993, respectively. These gains (losses) are included in the net realized gain (loss) from investment security transactions on both the Statement of Operations and the Statement of Changes in Net Assets. At December 31, 1994, Account QB did not hold any open futures contracts, and therefore, there was no cash settlement for December 31, 1994. 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 The Travelers Inc. Insurance charges are paid to Travelers Insurance for the mortality and expense risks assumed by Travelers Insurance. 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 and level of participation in other Travelers Insurance separate accounts) is deducted from participant account balances and paid to Travelers Insurance to cover administrative charges. On contracts issued prior to May 16, 1983, Travelers Insurance, as principal underwriter, retained from Account QB sales charges of $30,136 and $38,082 for the years ended December 31, 1994 and 1993, respectively. Travelers Insurance generally assesses a 5% contingent deferred sales charge if a participant's purchase payment is surrendered within five years of its payment date. Contract surrender payments are stated prior to the deduction of $67,230 and $49,565 of contingent deferred sales charges for the years ended December 31, 1994 and 1993, respectively. 4. NET ASSETS HELD BY AFFILIATE Approximately $722,000 and $804,000 of the net assets of Account QB were held on behalf of an affiliate of Travelers Insurance as of December 31, 1994 and 1993, respectively. Transactions with this affiliate during the years ended December 31, 1994 and 1993, were comprised of participant purchase payments of approximately $50,000 and $791,000, and contract surrenders of approximately $115,000 and $193,000, respectively. 5. NET CONTRACT OWNERS' EQUITY
DECEMBER 31, 1994 ------------------------------------ UNIT NET UNITS VALUE ASSETS ---------- ------- ------------ Contracts issued prior to May 16, 1983........ 10,631,340 $ 4.400 $ 46,809,093 Annuity Contracts issued prior to May 16, 1983 62,948 4.400 277,156 Contracts issued on or after May 16, 1983..... 27,023,621 4.274 115,591,937 Annuity Contracts issued on or after May 16, 1983 9,493 4.274 40,605 ----------- Net Contract Owners' Equity................... $ 162,718,791 --------------- ---------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED 6. SUPPLEMENTARY INFORMATION (Per unit data for a unit outstanding throughout each year.) Contracts issued prior to May 16, 1983
YEAR ENDED DECEMBER 31, ----------------------------------- 1994 1993 1992 ----- ----- ----- SELECTED PER UNIT DATA: Total investment income $ .318 $ .306 $ .317 Operating expenses .059 .058 .050 -------- -------- -------- Net investment income .259 .248 .267 Unit value at beginning of year 4.498 4.150 3.880 Net realized and change in unrealized gains (losses) (.357) .100 .003 -------- -------- -------- Unit value at end of year $ 4.400 $ 4.498 $ 4.150 -------- -------- -------- -------- -------- -------- SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value (.10) .35 .27 Ratio of operating expenses to average net assets 1.33% 1.33% 1.33% Ratio of net investment income to average net assets 5.87% 5.66% 6.61% Number of units outstanding at end of year (thousands) 10,694 12,489 13,416 Portfolio turnover rate 27% 24% 23% YEAR ENDED DECEMBER 31, ----------------------------------- 1991 1990 ---- ---- SELECTED PER UNIT DATA: Total investment income $ .304 $ .281 Operating expenses .048 .040 -------- -------- Net investment income .256 .241 Unit value at beginning of year 3.421 3.181 Net realized and change in unrealized gains (losses) .203 (.001) -------- -------- Unit value at end of year $ 3.880 $ 3.421 -------- -------- -------- -------- SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .46 .24 Ratio of operating expenses to average net assets 1.33% 1.33% Ratio of net investment income to average net assets 7.09% 7.31% Number of units outstanding at end of year (thousands) 14,629 16,341 Portfolio turnover rate 21% 41% Contracts issued on or after May 16, 1983 YEAR ENDED DECEMBER 31, ----------------------------------- 1994 1993 1992 ----- ----- ----- SELECTED PER UNIT DATA: Total investment income $ .310 $ .299 $ .311 Operating expenses .069 .067 .061 -------- -------- -------- Net investment income .241 .232 .250 Unit value at beginning of year 4.381 4.052 3.799 Net realized and change in unrealized gains (losses) (.348) .097 .003 -------- -------- -------- Unit value at end of year $ 4.274 $ 4.381 $ 4.052 -------- -------- -------- -------- -------- -------- SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value (.11) .33 .25 Ratio of operating expenses to average net assets 1.57% 1.57% 1.58% Ratio of net investment income to average net assets 5.62% 5.41% 6.38% Number of units outstanding at end of year (thousands) 27,033 28,472 20,250 Portfolio turnover rate 27% 24% 23% YEAR ENDED DECEMBER 31, ----------------------------------- 1991 1990 ------ ------ SELECTED PER UNIT DATA: Total investment income $ .299 $ .277 Operating expenses .056 .048 -------- -------- Net investment income .243 .229 Unit value at beginning of year 3.357 3.129 Net realized and change in unrealized gains (losses) .199 (.001) -------- -------- Unit value at end of year $ 3.799 $ 3.357 -------- -------- -------- -------- SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .44 .23 Ratio of operating expenses to average net assets 1.57% 1.57% Ratio of net investment income to average net assets 6.84% 7.06% Number of units outstanding at end of year (thousands) 17,211 14,245 Portfolio turnover rate 21% 41%
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS DECEMBER 31, 1994
PRINCIPAL MARKET AMOUNT VALUE --------- --------- BONDS (75.3%) AUTO RECEIVABLES (1.2%) Premier Auto Trust 1993-6 A2, 4.65% Pass Through, 1999 $ 1,016,891 $ 971,243 Premier Auto Trust 1994-4 A5, 6.65% Pass Through, 1998 1,000,000 959,860 ------------ 1,931,103 ------------ BANKING (6.3%) Bank of New York Co., Inc., 6.50% Notes, 2003 3,150,000 2,726,640 J.P. Morgan & Co., Inc. 0.00% Notes, 1998 2,000,000 1,545,440 Shawmut National Corp., 7.20% Notes, 2003 1,500,000 1,360,815 Star Bank NA, 6.375% Notes, 2004 2,000,000 1,714,640 Wells Fargo & Co., 6.875% Notes, 2003 3,000,000 2,666,970 ------------ 10,014,505 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS (12.6%) American Southwest Financial Corp., 9.00% Pass Through, 2018 889,952 900,765 FNMA Remic Trust 1993-13, 6.50% Pass Through, 2000 2,252,391 1,977,712 FNMA Remic Trust 1994-22, 5.00% Pass Through, 2023 2,775,000 2,116,465 FNMA Remic Trust 1994-39, 6.35% Pass Through, 2023 2,000,000 1,690,360 FNMA Remic Trust 1994-42, 5.75% Pass Through, 2018 2,500,000 2,197,150 FNMA Remic Trust 1992 G-30, 7.00% Pass Through, 2003 2,000,000 1,882,440 GNMA Backed Trust II, 8.50% Pass Through, 2018 886,382 881,507 GS Trust 3D, 8.00% Pass Through, 2014 459,043 457,987 Kidder Peabody Mortgage Assets Trust 23, 9.88% Pass Through, 2019 1,246,684 1,279,185 Oxford Acceptance Corp., 9.70% Pass Through, 2017 393,173 402,275 PB CMO Trust II, 9.20% Pass Through, 2018 673,826 688,414 Prudential Home Mortgage 1992-17, 8.00% Pass Through, 2007 2,000,000 1,856,580 Residential Funding Mortgage Securities 1993-MZ3, 6.97% Pass Through, 2023 2,425,212 2,174,154 PRINCIPAL MARKET AMOUNT VALUE --------- --------- COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) Ryland Acceptance Corp., Four, 9.00% Pass Through, 2015 $ 735,338 $ 745,272 Vendee Mortgage Trust 1992-1 2J, 7.75% Pass Through, 2005 950,000 915,563 ------------ 20,165,829 ------------ COMMUNICATION (3.1%) AT&T Corp., 6.00% Debentures, 2000 1,400,000 1,269,660 Tele-Communications, Inc., 10.125% Notes, 2001 1,500,000 1,568,850 Time Warner, Inc., 9.625% Notes, 2002 2,000,000 2,032,900 ------------ 4,871,410 ------------ CREDIT CARD RECEIVABLES (10.7%) Chase Manhattan Credit Card Master Trust, 8.75% Pass Through, 1996 2,100,000 2,127,489 Discover Card Trust, 7.50% Pass Through, 2000 3,000,000 2,918,460 First Chicago Master Trust II, 6.25% Pass Through, 1999 1,650,000 1,577,664 First Chicago Master Trust II, 8.40% Pass Through, 1998 2,000,000 2,016,700 Household Private Label CC MT 1994-2 B Ctf, 8.00% Pass Through, 2003 3,500,000 3,450,510 MBNA Master Credit Card Trust 1992-1, 7.25% Pass Through, 1999 1,000,000 981,050 Sears Credit Account Trust 1990-A, 8.75% Pass Through, 1997 2,000,000 1,996,600 Standard Credit Card MT 1992-3 B, 5.686% Pass Through, 1998 (A) 2,000,000 2,010,620 ------------ 17,079,093 ------------ FINANCE (9.2%) Associates Corp. of North America, 9.125% Notes, 2000 2,500,000 2,571,675 Banponce Financial Corp., 6.00% Notes, 1997 2,000,000 1,900,340 Ford Motor Credit Co., 6.25% Bonds, 1998 5,600,000 5,266,968 General Motors Acceptance Corp., 8.75% Notes, 1996 2,000,000 2,014,240 General Motors Acceptance Corp., 7.75% Notes, 1999 2,000,000 1,936,460 General Motors Acceptance Corp., 8.00% Notes, 1997 1,000,000 992,100 ------------ 14,681,783 ------------ STATEMENT OF INVESTMENTS -- CONTINUED
PRINCIPAL MARKET AMOUNT VALUE --------- --------- FOOD AND BEVERAGE (1.3%) Barcardi Martini, 5.75% Notes, 1998 (A) $ 2,250,000 $ 2,063,520 ------------ FOREIGN GOVERNMENT NON-NATIONAL (3.6%) Province of Ontario, 7.375% Notes, 2003 2,500,000 2,354,350 Province of Ontario, 8.00% Bonds, 2001 3,500,000 3,431,120 ------------ 5,785,470 ------------ MACHINERY (0.6%) Xerox Credit Corp., 10.125% Notes, 1999 1,000,000 1,025,890 ------------ MISCELLANEOUS MANUFACTURING (1.9%) Becton Dickinson & Co., 8.80% Notes, 2001 3,000,000 3,069,630 ------------ OIL & GAS (1.6%) Exxon Corp., 9.35% Bonds, 1995 2,500,000 2,531,825 ------------ PAPER AND ALLIED PRODUCTS (1.2%) Champion International Corp., 7.70% Notes, 1999 1,000,000 970,430 Kimberly Clark Corp., 8.625% Notes, 2001 1,000,000 1,017,470 ------------ 1,987,900 ------------ PETROLEUM REFINING AND RELATED INDUSTRIES (0.6%) BP America, Inc., 8.75% Debentures, 2003 1,000,000 1,018,970 ------------ RETAIL (5.1%) Dayton-Hudson Corp., 9.65% Notes, 2000 1,900,000 1,995,000 Sears Roebuck & Co., 8.55% Notes, 1996 2,500,000 2,515,550 Sears Roebuck & Co., 8.98% Notes, 1996 (A) 1,500,000 1,514,880 Sears Roebuck & Co., 9.38% Notes, 1998 550,000 566,588 Sears Roebuck & Co., 9.23% Notes, 1998 1,500,000 1,541,490 ------------ 8,133,508 ------------ TOBACCO MANUFACTURERS (1.9%) Philip Morris, Inc., 9.80% Notes, 1998 3,000,000 3,053,730 ------------ PRINCIPAL MARKET AMOUNT VALUE --------- --------- TRANSPORTATION (3.3%) American Airlines, Inc., 1993-A4, 6.50% Notes, 1997 $ 1,896,000 $ 1,799,209 Delta Airlines, Inc., 9.25% Sinking Fund, 2007 (A) 1,947,655 1,826,063 Delta Airlines, Inc., 8.27% Sinking Fund, 2007 1,854,945 1,640,495 ------------ 5,265,767 ------------ UTILITIES (11.1%) Baltimore Gas & Electric Co., 9.125% Bonds, 1995 1,750,000 1,771,910 Boston Edison Co., 5.95% Debentures, 1998 1,000,000 921,900 DQU II Funding, 7.23% Bonds, 1999 1,772,000 1,665,042 Hydro Quebec, 8.625% Notes, 2002 3,100,000 3,084,500 Long Island Lighting Co., 8.75% Bond, 1996 1,500,000 1,503,975 NIPSCO Capital Market, Inc., 0.00% Bonds, 1997 4,500,000 3,510,675 System Energy Resources, Inc., 6.12% Bonds, 1995 2,000,000 1,971,500 United Illuminating Co., 7.375% Debentures, 1998 3,500,000 3,358,845 ------------ 17,788,347 ------------ TOTAL BONDS (COST $125,015,328) 120,468,280 ------------ U.S. GOVERNMENT SECURITIES (19.6%) United States of America Treasury, 5.625% Notes, 1997 175,000 166,031 United States of America Treasury, 6.875% Notes, 1999 5,000,000 4,815,650 United States of America Treasury, 8.50% Notes, 1997 1,500,000 1,524,375 United States of America Treasury, 9.125% Notes, 1999 2,000,000 2,092,500 United States of America Treasury, 4.25% Notes, 1995 2,000,000 1,941,880 United States of America Treasury, 4.75% Notes, 1998 2,000,000 1,807,500 United States of America Treasury, 5.75% Notes, 2003 2,000,000 1,738,760 United States of America Treasury, 6.25% Notes, 2003 8,660,000 7,831,931 United States of America Treasury, 7.875% Notes, 2004 6,000,000 6,018,780 United States of America Treasury, 5.875% Notes, 2004 4,000,000 3,490,000 ------------ TOTAL U.S. GOVERNMENT SECURITIES (COST $33,509,987) 31,427,407 ------------ STATEMENT OF INVESTMENTS -- CONTINUED PRINCIPAL MARKET AMOUNT VALUE --------- --------- SHORT-TERM INVESTMENTS (5.1%) COMMERCIAL PAPER (5.1%) J.P. Morgan & Co., Inc., 6.03% due January 18, 1995 $ 3,000,000 $ 2,985,225 PACCAR Financial Corp., 5.90% due January 3, 1995 1,132,000 1,131,257 Progress Capital Holdings, Inc., 6.08% due January 5, 1995 4,000,000 3,986,622 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $8,102,791) 8,103,104 ------------ TOTAL INVESTMENTS (100%) (COST $166,628,106) (B) $159,998,791 ------------ ------------ NOTES (A) Management Priced Security. (B) At December 31, 1994, net unrealized depreciation for all securities was $6,629,315. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $1,326,910 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $7,956,225. See Notes to Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Managers and Owners of Variable Annuity Contracts of The Travelers Quality Bond Account for Variable Annuities: We have audited the accompanying statement of assets and liabilities of THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES including the statement of investments, as of December 31, 1994, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the per unit data for each of the five years in the period then ended. These financial statements and per unit data are the responsibility of management. Our responsibility is to express an opinion on these financial statements and per unit data based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and per unit data are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1994, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and per unit data referred to above present fairly, in all material respects, the financial position of The Travelers Quality Bond Account for Variable Annuities as of December 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the per unit data for each of the five years in the period then ended, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 15, 1995 This page intentionally left blank. Investment Advisers ------------------- (THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT) THE TRAVELERS INVESTMENT MANAGEMENT COMPANY Hartford, Connecticut (THE TRAVELERS QUALITY BOND AND MONEY MARKET ACCOUNTS) TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION Hartford, Connecticut Independent Accountants ----------------------- COOPERS & LYBRAND L.L.P. Hartford, Connecticut Custodian --------- SHAWMUT BANK CONNECTICUT, N.A. Hartford, Connecticut This report is prepared for the general information of contract owners and is not an offer of shares of The Travelers Growth and Income Stock, Quality Bond and Money Market Accounts. It should not be used in connection with any offer except in conjunction with the Universal Annuity Prospectus which contains all pertinent information, including the applicable selling commissions. VG-137 (Annual) (12-94) Printed in U.S.A. PART C OTHER INFORMATION Item 28. Financial Statements and Exhibits (a) The financial statements of the Registrant, as well as of The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short- Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities, The Travelers Timed Bond Account for Variable Annuities and The Travelers Fund U for Variable Annuities, and the Reports of Independent Accountants thereto, are contained in the December 31, 1994 Annual Reports to Contract Owners and are incorporated by reference in Part B of this Registration Statement. For each of the Accounts, these financial statements include as applicable: Statement of Assets and Liabilities as of December 31, 1994 (except The Travelers Timed Bond Account for Variable Annuities which was timed out as of December 31, 1994) Statement of Operations for the year ended December 31, 1994 Statement of Changes in Net Assets for the years ended December 31, 1994 and 1993 Statement of Investments as of December 31, 1994 (except The Travelers Timed Bond Account for Variable Annuities which was timed out as of December 31, 1994) Notes to Financial Statements The consolidated financial statements of The Travelers Insurance Company and Subsidiaries and the Reports of Independent Accountants are contained in the Statement of Additional Information. The consolidated financial statements of The Travelers Insurance Company and Subsidiaries include: Consolidated Statement of Operations and Retained Earnings for the years ended December 31, 1994, 1993 and 1992 Consolidated Balance Sheet as of December 31, 1994 and 1993 Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements (b) Exhibits *1. Resolution of The Travelers Insurance Company's Board of Directors authorizing the establishment of the Registrant. (Incorporated herein by reference to Exhibit 1 to the Registration Statement on Form N-8B-2 filed on May 9, 1975.) *2. Rules and Regulations of the Registrant. (Incorporated herein by reference to Exhibit 2 to the Registration Statement on Form N-8B-2 filed on May 9, 1975.) 3. Custody Agreement between the Registrant and Chase Manhattan Bank, N. A., Brooklyn, New York. *4. Investment Advisory Agreement between the Registrant and Travelers Asset Management International Corporation. (Incorporated herein by reference to Exhibit 4 to Post-Effective Amendment No. 38 to the Registration Statement on Form N-3 filed on February 17, 1993.) 5. Distribution and Management Agreement between the Registrant, The Travelers Insurance Company and Travelers Equities Sales, Inc. *6. Form of Variable Annuity Contracts. (Incorporated herein by reference to Exhibits 1, 2 and 3 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1 filed on May 11, 1983.) *7. Form of Applications. (Incorporated herein by reference to Exhibits 4, 5 and 6 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1 filed on May 11, 1983.) *8(a). Charter of The Travelers Insurance Company, as amended on October 19, 1994. (Incorporated herein by reference to Exhibit 3(a)(i) to the Registration Statement on Form S-2, File No. 33-58677, filed via EDGAR on April 18, 1995.) *8(b). By-Laws of The Travelers Insurance Company, as amended on October 20, 1994. (Incorporated herein by reference to Exhibit 3(b)(i) to the Registration Statement on Form S-2, File No. 33-58677, filed via EDGAR on April 18, 1995.) *12. Opinion of Counsel as to the legality of the securities being registered. (Incorporated herein by reference to the Registrant's most recent 24f-2 Notice filed on February 27, 1995.) 13(a). Consent of Coopers & Lybrand L.L.P., Independent Accountants, to the incorporation by reference in this Form N-3 of their report on the audited financial statements of the Registrant, to the inclusion of their reports on the financial statements of The Travelers Insurance Company contained in Part B of this Registration Statement, and to the reference in the Statements of Additional Information to such firm as "Experts" in accounting and auditing. 13(b). Consent of KPMG Peat Marwick LLP, Independent Auditors, to the inclusion in this Form N-3 of their report on the financial statements of The Travelers Insurance Company contained in Part B of this Registration Statement. 16. Schedule for Computation of Total Return Calculations - Standardized and Non-Standardized. 17. Representation concerning reliance upon No-Action Letter IP-6-88. 18(a). Powers of Attorney authorizing Ernest J. Wright as signa- tory for Heath B. McLendon, Knight Edwards, Robert E. McGill III, Lewis Mandell and Frances M. Hawk. 18(b). Power of Attorney authorizing Ernest J. Wright as signa- tory for Jay S. Fishman. 18(c). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as signatories for Robert I. Lipp, Charles O. Price, III, Marc P. Weill, Irwin R. Ettinger, Michael A. Carpenter, Donald T. DeCarlo and James L. Morgan. 27. Financial Data Schedule. *Previously filed and incorporated herein by reference. Item 29. Directors and Officers of The Travelers Insurance Company Name and Principal Positions and Offices Positions and Offices Business Address with Insurance Company with Registrant - ------------------ ---------------------- --------------------- Robert I. Lipp* Director, Chairman of the Board and President ---- Jay S. Fishman* Director and Chief Financial Officer ---- Charles O. Prince, III ** Director ---- Marc P. Weill** Director and Senior Vice President ---- Irwin R. Ettinger** Director ---- Michael A. Carpenter* Director ---- Donald T. DeCarlo* Director, General Counsel and ---- Secretary Robert E. Evans* Senior Vice President ---- Jay S. Benet* Senior Vice President ---- James L. Morgan* Senior Vice President and ---- Chief Accounting Officer William H. White* Vice President and Treasurer ---- Ian R. Stuart* Vice President and Financial Officer ---- Kathleen M. D'Auria* Vice President ---- George C. Kokulis* Vice President ---- Gene S. Lunman* Vice President and Actuary ---- Kathleen A. Preston* Vice President ---- Charles N. Vest* Vice President and Actuary ---- Robert Hamilton* Second Vice President ---- Kyle Rotherie* Second Vice President ---- Elizabeth Charron* Second Vice President ---- Ernest J. Wright* Assistant Secretary Secretary to the Board of Managers *Principal Business Address: ** Principal Business Address: The Travelers Insurance Company Travelers Group Inc. One Tower Square 388 Greenwich Street Hartford, CT 06183 New York, N.Y. 10013 Item 30. Person Controlled by or Under Common Control with the Depositor or Registrant OWNERSHIP OF THE TRAVELERS INSURANCE COMPANY
Company State of Organization Ownership Principal Business - ------- --------------------- --------- ------------------ Travelers Group Inc. Delaware Publicly Held -------------- Associated Madison Companies Inc. Delaware 100.00 -------------- The Travelers Insurance Group, Inc. Connecticut 100.00 -------------- The Travelers Insurance Company Connecticut 100.00 Insurance - --------------------------------------------------------------------------------------------------------------
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRAVELERS INSURANCE COMPANY
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- AC Health Ventures, Inc. Delaware 100.00 Inactive AMCO Biotech, Inc. Delaware 100.00 Inactive Associated Madison Companies, Inc. Delaware 100.00 Holding company. American National Life Insurance Turks and Caicos 100.00 Insurance (T & C), Ltd. Islands ERISA Corporation New York 100.00 Inactive Mid-America Insurance Services, Inc. Georgia 100.00 Third party administrator National Marketing Corporation Pennsylvania 100.00 Inactive PFS Custodial Services, Inc. Georgia 100.00 General partner PFS Distributors, Inc. Georgia 100.00 General partner PFS Investments Inc. Georgia 100.00 Broker dealer PFS Services, Inc. Georgia 100.00 General partner Primerica Finance Corporation Delaware 100.00 Holding company
1
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- American Capital Custodial Delaware 100.00 Limited partner Services, Inc. American Capital T.A., Inc. Delaware 100.00 Joint venture partner Primerica Financial Services Home Georgia 100.00 Mortgage loan broker Mortgages, Inc. Primerica Financial Services, Inc. Nevada 100.00 General agency Primerica Financial Services New York 100.00 General agency licensing Agency of New York, Inc. Primerica Financial Services Connecticut 100.00 General agency licensing Insurance Marketing of Connecticut, Inc. Primerica Financial Services Idaho 100.00 General agency licensing Insurance Marketing of Idaho, Inc. Primerica Financial Services Nevada 100.00 General agency licensing Insurance Marketing of Nevada, Inc. Primerica Financial Services Pennsylvania 100.00 General agency licensing Insurance Marketing of Pennsylvania, Inc. Primerica Financial Services United States 100.00 General agency licensing Insurance Marketing of Virgin Islands the Virgin Islands, Inc. Primerica Financial Services Wyoming 100.00 General agency licensing Insurance Marketing of Wyoming, Inc. Primerica Financial Services Delaware 100.00 General agency licensing Insurance Marketing, Inc. Primerica Financial Services of Alabama 100.00 General agency licensing Alabama, Inc. Primerica Financial Services of New Mexico 100.00 General agency licensing New Mexico, Inc. Primerica Insurance Agency of Massachusetts 100.00 General agency licensing Massachusetts, Inc. Primerica Insurance Marketing Puerto Rico 100.00 Insurance agency Services of Puerto Rico, Inc. Primerica Insurance Services of Louisiana 100.00 General agency licensing Louisiana, Inc. Primerica Insurance Services of Maryland 100.00 General agency licensing Maryland, Inc. Primerica Services, Inc. Georgia 100.00 Inactive RCM Acquisition Inc. Delaware 100.00 Investments SCN Acquisitions Company Delaware 100.00 Investments SL&H Reinsurance, Ltd. Turks and Caicos 100.00 Reinsurance Islands Southwest Service Agreements, North Carolina 100.00 Warranty/service agreements Inc. Southwest Warranty Corporation Florida 100.00 Extended automobile warranty The Travelers Insurance Group Inc. Connecticut 100.00 Holding company Harbour Associates I, Inc. Delaware 100.00 Real estate holding Deer Run II, Inc. Delaware 100.00 Real estate holding Net & Twine II Corporation Delaware 100.00 Real estate holding KP Properties Corporation Massachusetts 100.00 Real estate KPI 85, Inc. Massachusetts 100.00 Real estate
2
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- KRA Advisers Corporation Massachusetts 100.00 Real estate KRP Corporation Massachusetts 100.00 Real estate La Metropole S.A. Belgium 98.83 P-C insurance/reinsurance The Plaza Corporation Connecticut 100.00 Holding company Joseph A. Wynne Agency California 100.00 Inactive The Copeland Companies New Jersey 100.00 Holding company American Odyssey Funds New Jersey 100.00 Investment advisor Management, Inc. American Odyssey Maryland 100.00 Investment management Funds, Inc. Copeland Administrative New Jersey 100.00 Administrative services Services, Inc. Copeland Associates, Delaware 100.00 Fixed/variable annuities Inc. Copeland Ohio 99.00 Fixed/variable annuities Associates Agency of Ohio, Inc. Copeland Alabama 100.00 Fixed/variable annuities Associates of Alabama, Inc. Copeland Montana 100.00 Fixed/variable annuities Associates of Montana, Inc. Copeland Benefits New Jersey 51.00 Investment marketing Management Company Copeland Equities, New Jersey 100.00 Fixed/variable annuities Inc. H.C. Copeland Massachusetts 100.00 Fixed annuities Associates, Inc. of Massachusetts Copeland Financial New Jersey 100.00 Investment advisory services. Services, Inc. Copeland Healthcare New Jersey 100.00 Life insurance marketing Services, Inc. H.C. Copeland and Texas 100.00 Fixed/variable annuities Associates, Inc. of Texas The Parker Realty and Vermont 57.98 Real estate Insurance Agency, Inc. Travelers General Agency of Hawaii 100.00 Insurance agency Hawaii, Inc. The Prospect Company Delaware 100.00 Investments 89th & York Avenue New York 100.00 Real estate Corporation 979 Third Avenue Delaware 100.00 Real estate Corporation Meadow Lane, Inc. Georgia 100.00 Real estate development Panther Valley, Inc. New Jersey 100.00 Real estate management Prospect Management Delaware 100.00 Real estate management Services Company The Travelers Asset Funding Connecticut 100.00 Investment adviser Corporation Travelers Capital Connecticut 100.00 Furniture/equipment Funding Corporation The Travelers Corporation of Bermuda 99.99 Pensions Bermuda Limited
3
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- The Travelers Indemnity Company Connecticut 100.00 P-C insurance Commercial Insurance Delaware 100.00 Holding company Resources, Inc. Gulf Insurance Company Missouri 100.00 P-C insurance Atlantic Insurance Texas 100.00 P-C insurance Company Gulf Risk Delaware 100.00 Claims/risk management Services, Inc. Gulf Underwriters North Carolina 100.00 P-C ins/surplus lines Insurance Company Penn Casualty Missouri 100.00 P-C insurance Insurance Company Select Insurance Texas 100.00 P-C insurance Company Countersignature Agency, Florida 100.00 Countersign ins policies Inc. First Trenton Indemnity New Jersey 100.00 P-C insurance Company Laramia Insurance Agency, North Carolina 100.00 Flood insurance Inc. Lynch, Ryan & Associates, Massachusetts 100.00 Cost containment Inc. The Charter Oak Fire Connecticut 100.00 P-C insurance Insurance Company The Exchange Agency, Inc. Delaware 100.00 Insurance agency The Phoenix Insurance Connecticut 100.00 P-C insurance Company Constitution State Montana 100.00 Service company Service Company The Travelers Georgia 100.00 P-C insurance Indemnity Company of America The Travelers Connecticut 100.00 Insurance Indemnity Company of Connecticut The Travelers Illinois 100.00 P-C insurance Indemnity Company of Illinois The Premier Insurance Massachusetts 100.00 Insurance Company of Massachusetts The Travelers Home and Indiana 100.00 P-C insurance Marine Insurance Company The Travelers Lloyds Texas 100.00 Non-life insurance Insurance Company TI Home Mortgage Brokerage, Delaware 100.00 Mortgage brokerage services Inc. TravCo Insurance Company Indiana 100.00 P-C insurance Travelers Medical Delaware 100.00 Managed care Management Services Inc. The Travelers Insurance Company Connecticut 100.00 Insurance Delaware Windtree Realty Delaware 100.00 Real estate holdings Corporation Market Funding Corporation Delaware 100.00 Real estate management I Market Funding Corporation Delaware 100.00 Real estate management II Red Oak Plaza Holding Delaware 100.00 Inactive Company, Inc.
4
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- The Travelers Life and Connecticut 100.00 Life insurance Annuity Company Three Parkway Inc. - I Pennsylvania 100.00 Investment real estate Three Parkway Inc. - II Pennsylvania 100.00 Investment real estate Three Parkway Inc. - III Pennsylvania 100.00 Investment real estate Travelers Insurance Georgia 100.00 Holding company Holdings Inc. AC RE, Ltd. Bermuda 100.00 Reinsurance American Financial Texas 100.00 Insurance Life Insurance Company Transport Life Texas 100.00 Insurance Insurance Company Continental Texas 100.00 Insurance Life Insurance Company Primerica Life Massachusetts 100.00 Life insurance Insurance Company National Benefit New York 100.00 Insurance Life Insurance Company Primerica Canada 100.00 Holding company Financial Services (Canada) Ltd. PFSL Canada 100.00 Mutual fund dealer Investments Canada Ltd. Primerica Canada 82.82 General agent Financial Services Ltd. Primerica Canada 100.00 Life insurance Life Insurance Company of Canada The Travelers Insurance Australia 100.00 Inactive Corporation Proprietary Limited The Travelers Marine Corporation California 100.00 General insurance brokerage The Travelers Realty Investment Connecticut 100.00 Real estate investment advisor Company AdVision, Inc. Connecticut 100.00 Advertising agency Constitution Plaza, Inc. Connecticut 100.00 Real estate brokerage Travelers Asset Management New York 100.00 Investment adviser International Corporation Travelers Canada Corporation Canada 100.00 Inactive Travelers Equities Sales, Inc. Connecticut 100.00 Broker dealer Travelers Mortgage Securities Delaware 100.00 Collateralized obligations Corporation Travelers of Ireland Limited Ireland 99.90 Data processing Travelers Specialty Property Connecticut 100.00 Insurance management Casualty Company, Inc. CCC Holdings, Inc. Delaware 100.00 Holding company Commercial Credit Company Delaware 100.00 Holding company. American Health and Life Maryland 100.00 LH&A Insurance Insurance Company Brookstone Insurance Company Vermont 100.00 Insurance managers
5
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- CC Finance Company, Inc. New York 100.00 Consumer lending CC Financial Services, Inc. Hawaii 100.00 Financial services CCC Fairways, Inc. Delaware 100.00 Investment company City Loan Financial Services, Ohio 100.00 Consumer finance Inc. Commercial Credit Banking Oregon 100.00 Consumer finance Corporation Commercial Credit Consumer Minnesota 100.00 Consumer finance Services, Inc. Commercial Credit Corporation Alabama 100.00 Consumer finance (AL) Commercial Credit Corporation California 100.00 Consumer finance (CA) Commercial Credit Corporation Iowa 100.00 Consumer finance (IA) Commercial Credit Corporation Kentucky 100.00 Consumer finance (KY) Certified Insurance Agency, Kentucky 100.00 Insurance agency Inc. Commercial Credit Kentucky 100.00 Investment company Investment, Inc. National Life Insurance Kentucky 100.00 Insurance agency Agency of Kentucky, Inc. Union Casualty Insurance Kentucky 100.00 Insurance agency Agency, Inc. Commercial Credit Corporation Maryland 100.00 Consumer finance (MD) Action Data Services, Inc. Missouri 100.00 Data processing Commercial Credit Plan, Oklahoma 100.00 Consumer finance Incorporated (OK) Commercial Credit Corporation New Jersey 100.00 Consumer finance (NJ) Commercial Credit Corporation New York 100.00 Consumer finance (NY) Commercial Credit Corporation South Carolina 100.00 Consumer finance (SC) Commercial Credit Corporation West Virginia 100.00 Consumer finance (WV) Commercial Credit Corporation NC North Carolina 100.00 Consumer finance Commercial Credit Europe, Inc. Delaware 100.00 Inactive Commercial Credit Far East Inc. Delaware 100.00 Inactive Commercial Credit Insurance Maryland 100.00 Insurance broker Services, Inc. Commercial Credit Insurance Mississippi 100.00 Insurance agency Agency (P&C) of Mississippi, Inc. Commercial Credit Insurance Alabama 100.00 Insurance agency Agency of Alabama, Inc. Commercial Credit Insurance Kentucky 100.00 Insurance agency Agency of Kentucky, Inc. Commercial Credit Insurance Massachusetts 100.00 Insurance agency Agency of Massachusetts, Inc. Commercial Credit Insurance Nevada 100.00 Credit LH&A, P-C insurance Agency of Nevada, Inc.
6
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- Commercial Credit Insurance Ohio 100.00 Insurance agency/broker Agency of Ohio, Inc. Commercial Credit Insurance New Mexico 100.00 Insurance agency/broker Agency of New Mexico, Inc. Commercial Credit International, Delaware 100.00 Holding company Inc. Commercial Credit Oregon 100.00 International lending International Banking Corporation Commercial Credit Canada 100.00 Second mortgage loans Corporation CCC Limited Commercial Credit Brazil 99.00 Inactive Services do Brazil Ltda. Commercial Credit Services Belgium 100.00 Inactive Belgium S.A. Commercial Credit Services Israel 100.00 Equipment leasing Israel Limited Industrial Leasing Israel 99.71 Equipment leasing Services Limited Comlease Ltd. Israel 99.99 Equipment leasing Commercial Credit Limited Delaware 100.00 Inactive Commercial Credit Loan, Inc. New York 100.00 Consumer finance (NY) Commercial Credit Loans, Inc. Delaware 100.00 Consumer finance (DE) Commercial Credit Loans, Inc. Ohio 100.00 Consumer finance (OH) Commercial Credit Loans, Inc. Virginia 100.00 Consumer finance (VA) Commercial Credit Management Maryland 100.00 Intercompany services Corporation Commercial Credit Plan Tennessee 100.00 Consumer finance Incorporated (TN) Commercial Credit Plan Utah 100.00 Consumer finance Incorporated (UT) Commercial Credit Plan Delaware 100.00 Consumer finance Incorporated of Georgetown Commercial Credit Plan Virginia 100.00 Consumer finance Industrial Loan Company Commercial Credit Plan, Colorado 100.00 Consumer finance Incorporated (CO) Commercial Credit Plan, Delaware 100.00 Consumer finance Incorporated (DE) Commercial Credit Plan, Georgia 100.00 Consumer finance Incorporated (GA) Commercial Credit Plan, Missouri 100.00 Consumer finance Incorporated (MO) Commercial Credit Securities, Delaware 100.00 Broker dealer Inc. DeAlessandro & Associates, Inc. Delaware 100.00 Insurance consulting Park Tower Holdings, Inc. Delaware 100.00 Holding company CC Retail Services, Inc. Delaware 100.00 Leasing, financing Troy Textiles, Inc. Delaware 100.00 Factoring. Company is inactive. COMCRES, Inc. Delaware 100.00 Inactive
7
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- Commercial Credit Delaware 100.00 Direct loan Development Corporation Myers Park Properties, Delaware 100.00 Inactive Inc. Penn Re, Inc. North Carolina 100.00 Management company Plympton Concrete Products, Inc. Delaware 100.00 Inactive Resource Deployment, Inc. Texas 100.00 Management company The Travelers Bank Delaware 100.00 Banking services The Travelers Bank USA Delaware 100.00 Credit card bank Travelers Home Equity, Inc. 100.00 Financial services CC Consumer Services of Alabama 100.00 Financial services Alabama, Inc. CC Home Lenders Financial, Georgia 100.00 Financial services Inc. CC Home Lenders, Inc. Ohio 100.00 Financial services Commercial Credit Texas 100.00 Consumer finance Corporation (TX) Commercial Credit Financial Kentucky 100.00 Consumer finance of Kentucky, Inc. Commercial Credit Financial West Virginia 100.00 Consumer finance of West Virginia, Inc. Commercial Credit Plan Pennsylvania 100.00 Financial services Consumer Discount Company Commercial Credit Services Kentucky 100.00 Financial services. of Kentucky, Inc. Travelers Home Equity North Carolina 100.00 Financial services Services, Inc. Verochris Corporation Delaware 100.00 Joint venture company AMC Aircraft Corp. Delaware 100.00 Aviation Voyager Guaranty Insurance Missouri 100.00 P-C insurance Company World Service Life Insurance Colorado 100.00 Life insurance Company D.I.R.E.C.T. Resources, Inc. Delaware 100.00 Fraud/subrogation recovery Greenwich Street Capital Partners, Inc. Delaware 100.00 Investments Greenwich Street Investments, Inc. Delaware 100.00 Investments Greenwich Street Capital Partners Delaware 100.00 Investments Offshore Holdings, Inc. Margco Holdings, Inc. Delaware 100.00 Holding company Berg Associates New Jersey 100.00 Inactive Berg Enterprises Realty, Inc. (NY) New York 100.00 Inactive Dublin Escrow, Inc. California 100.00 Inactive M.K.L. Realty Corporation New Jersey 66.67 Holding company
8
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- MFC Holdings, Inc. Delaware 100.00 Inactive MRC Holdings, Inc. Delaware 100.00 Real estate The Berg Agency, Inc. (NJ) 100.00 Inactive Mirasure Insurance Company, Ltd. Bermuda 100.00 Inactive PA/RCM Corporation Delaware 100.00 Inactive Pacific Basin Investments Ltd. Delaware 100.00 Inactive Primerica Corporation (WY) Wyoming 100.00 Inactive Primerica, Inc. Delaware 100.00 Name saver RCM Capital Trust Company California 100.00 Trust company Smith Barney Corporate Trust Company 100.00 Trust company Smith Barney Holdings Inc. Delaware 100.00 Holding company Mutual Management Corp. New York 100.00 Investment adviser Smith Barney Asset Management Japan 100.00 Investment manager Co., Ltd. R-H Sports Enterprises Inc Georgia 100.00 Investment banking SB Cayman Holdings I Inc. Delaware 100.00 Holding company SB Cayman Holdings II Inc. Delaware 100.00 Holding company SBS Software Inc. Delaware 100.00 Financial software Smith Barney (Delaware) Inc. Delaware 100.00 Investment banking 1345 Media Corp. Delaware 100.00 Holding company Americas Avenue Corporation Delaware 100.00 Holding company Corporate Realty Advisors, Inc. Delaware 100.00 Investment adviser CRA Acquisition Corp. Delaware 100.00 Real estate IPO Holdings Inc. Delaware 100.00 Holding company Institutional Property Delaware 100.00 Sale leaseback transactions Owners, Inc. IV Institutional Property Delaware 100.00 Sale leaseback transactions Owners, Inc. V Institutional Property Delaware 100.00 Sale leaseback transactions Owners, Inc. VI Institutional Property Delaware 100.00 Sale leaseback transactions Owners, Inc. VII MLA 50 Corporation Delaware 100.00 Real estate MLA GP Corporation Delaware 100.00 Real estate Municipal Markets Advisors Delaware 100.00 Real estate Incorporated
9
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- SBF Corp. Delaware 100.00 General partner Smith Barney Acquisition Delaware 100.00 Investment advisor Corporation Smith Barney Commercial Corp. Delaware 100.00 Consumer credit Smith Barney Funding Holding Delaware 100.00 Broker dealer Corp. Smith Barney Global Capital Delaware 100.00 Investment advisor Management, Inc. Smith Barney Investment, Inc. Delaware 100.00 Investment advisor Smith Barney Offshore, Inc. Delaware 100.00 Investment advisor Decathlon Offshore Limited Cayman Islands 100.00 Commodity fund Smith Barney Pension Advisors Delaware 100.00 Investment advisor Corp. Smith Barney Realty Advisors, Delaware 100.00 Inactive Inc. Smith Barney Realty, Inc. Delaware 100.00 Real estate broker Smith Barney Risk Investors, Inc. Delaware 100.00 General partner Smith Barney Venture Corp. Delaware 100.00 Venture capital First Century Company Delaware 100.00 Holding company First Century Management Delaware 100.00 Investment adviser Company Smith Barney Asia Inc. Delaware 100.00 Corporate finance Smith Barney Asset Management Group Singapore 100.00 Asset management (Asia) Pte. Ltd. Smith Barney Canada Inc. Canada 100.00 Investment advisor Smith Barney Capital Services Inc. Delaware 100.00 Derivative product transactions Smith Barney Cayman Islands, Ltd. Cayman Islands 100.00 Market debt securities Smith Barney Commercial Corporation Hong Kong 99.00 Investment adviser Asia Limited Smith Barney Europe Holdings, Ltd. United Kingdom 100.00 Holding company Smith Barney Europe, Ltd. United Kingdom 100.00 Broker dealer Smith Barney Shearson Futures, United Kingdom 100.00 Broker dealer Ltd. Smith Barney Futures Management Inc. Delaware 100.00 Investment banking Harbourer Fund, Ltd. Bahama Islands 100.00 Investment fund Smith Barney Offshore Fund Ltd. 100.00 Investment fund Smith Barney Shearson Overview Dublin 100.00 Investment company Fund PLC Smith Barney Inc. Delaware 100.00 Broker dealer SBHU Life Agency, Inc. Delaware 100.00 Insurance broker
10
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- Robinson-Humphrey Insurance Georgia 100.00 Insurance Services Inc. Robinson-Humphrey Alabama 100.00 Insurance Insurance Services of Alabama, Inc. SBHU Life & Health Agency, Delaware 100.00 Insurance broker Inc. SBHU Life Agency of Arizona, Arizona 100.00 Insurance broker Inc. SBHU Life Agency of Indiana, Indiana 100.00 Insurance broker Inc. SBHU Life Agency of Utah, Utah 100.00 Insurance broker Inc. SBHU Life Insurance Agency Massachusetts 100.00 Insurance broker of Massachusetts, Inc. SBS Insurance Agency of Hawaii 100.00 Insurance broker Hawaii, Inc. SBS Insurance Agency of Idaho 100.00 Insurance broker Idaho, Inc. SBS Insurance Agency of Maine 100.00 Insurance broker Maine, Inc. SBS Insurance Agency of Montana 100.00 Insurance broker Montana, Inc. SBS Insurance Agency of Nevada 100.00 Insurance broker Nevada, Inc. SBS Insurance Agency of North Carolina 100.00 Insurance broker North Carolina, Inc. SBS Insurance Agency of Ohio 100.00 Insurance broker Ohio, Inc. SBS Insurance Agency of South Dakota 100.00 Insurance broker South Dakota, Inc. SBS Insurance Agency of Wyoming 100.00 Insurance broker Wyoming, Inc. SBS Insurance Brokerage Arkansas 100.00 Insurance broker Agency of Arkansas, Inc. SBS Insurance Brokers of Arizona 100.00 Insurance broker Arizona, Inc. SBS Insurance Brokers of Kentucky 100.00 Insurance broker Kentucky, Inc. SBS Insurance Brokers of Louisiana 100.00 Insurance broker Louisiana, Inc. SBS Insurance Brokers of New Hampshire 100.00 Insurance broker New Hampshire, Inc. SBS Insurance Brokers of North Dakota 100.00 Insurance broker North Dakota, Inc. SBS Life Insurance Agency of Puerto Rico 100.00 Insurance broker Puerto Rico, Inc. SLB Insurance Agency of Maryland 100.00 Insurance broker Maryland, Inc. Smith Barney Life Agency Louisiana 100.00 Insurance broker Inc. Smith Barney (France) S.A. France 100.00 Commodities trading Smith Barney (Hong Kong) Limited Hong Kong 100.00 Commodities trading Smith Barney (Netherlands) Inc. Delaware 100.00 Commodities trading Smith Barney International Oregon 100.00 Commodities trading Incorporated Smith Barney Pacific British Virgin 100.00 Holding company Holdings, Inc. Islands
11
% of Voting Securities Owned Directly or Indirectly by Travelers State of Group Organization Inc. Principal Business ------------ --------- ------------------- Smith Barney Shearson Hong Kong 100.00 Commodities trading (Asia) Limited Smith Barney Shearson Singapore 100.00 Futures broker (Singapore) Pte Ltd Smith Barney Shearson, HG Singapore 100.00 Securities broker Asia (Singapore) Pte Ltd HG Asia (Singapore) Singapore 100.00 Securities broker Pte. Ltd. The Robinson-Humphrey Company, Delaware 100.00 Broker dealer Inc. Smith Barney Mortgage Brokers Inc. Delaware 100.00 Home equity loans Smith Barney Mortgage Capital Corp. Delaware 100.00 Sponsor CMOs Smith Barney Mortgage Capital Group, Delaware 100.00 Trade whole loans Inc. Smith Barney Mutual Funds Management Delaware 100.00 Investment adviser Inc. Smith Barney Strategy Advisers Delaware 100.00 Investment advisor Inc. E.C. Tactical Management Luxembourg 100.00 Investment advisor S.A. Smith Barney Private Trust Company Cayman Islands 100.00 Trust company (Cayman) Limited Greenwich (Cayman) Services I Cayman Islands 100.00 Investment advisor Limited Greenwich (Cayman) Services II Cayman Islands 100.00 Investment advisor Limited Greenwich (Cayman) Services III Cayman Islands 100.00 Investment advisor Limited Smith Barney S.A. France 99.00 Commodities trading Smith Barney Shearson (Chile) Chile 100.00 Commodities trading Corredora de Seguro Limitada Smith Barney Shearson (Ireland) Ireland 100.00 Commodities trading Limited Structured Mortgage Securities Delaware 100.00 Issue CMOs Corporation The Travelers Investment Management Connecticut 100.00 Investment advisor Company Smith Barney Private Trust Company New York 100.00 Trust company. Smith Barney Private Trust Company of Florida 100.00 Trust company Florida Tinmet Corporation Delaware 100.00 Inactive Travelers Services Inc. Delaware 100.00 Holding company TRV Employees Investments, Inc. Delaware 100.00 Investments
12 Item 31. Number of Contract Owners As of March 31, 1995, 13,117 qualified and non-qualified contract owners held contracts offered by the Registrant. Item 32. Indemnification Pursuant to the provisions of Article VI of the Rules and Regulations of the Registrant, indemnification is provided to members of the Board of Managers, officers and employees of the fund in accordance with the standards established by Section 33-320a of the Connecticut General Statutes ("C.G.S.") to indemnification under the Connecticut Stock Corporation Act. Section 33-320a of the Connecticut General Statutes regarding indemnification of directors and officers of Connecticut corporations provides in general that Connecticut corporations shall indemnify their officers, directors and certain other defined individuals against judgments, fines, penalties, amounts paid in settlement and reasonable expenses actually incurred in connection with proceedings against the corporation. The corporation's obligation to provide such indemnification generally does not apply unless (1) the individual is successful on the merits in the defense of any such proceeding; or (2) a determination is made (by persons specified in the statute) that the individual acted in good faith and in the best interests of the corporation; or (3) the court, upon application by the individual, determines in view of all of the circumstances that such person is fairly and reasonably entitled to be indemnified, and then for such amount as the court shall determine. With respect to proceedings brought by or in the right of the corporation, the statute provides that the corporation shall indemnify its officers, directors and certain other defined individuals, against reasonable expenses actually incurred by them in connection with such proceedings, subject to certain limitations. C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut corporation cannot indemnify a director or officer to an extent either greater or less than that authorized by the statute, e.g., pursuant to its certificate of incorporation, by-laws, or any separate contractual arrangement. However, the statute does specifically authorize a corporation to procure indemnification insurance to provide greater indemnification rights. The premiums for such insurance may be shared with the insured individuals on an agreed basis. Travelers Group Inc. also provides liability insurance for its directors and officers and the directors and officers of its subsidiaries, including the Registrant. This insurance provides for coverage against loss from claims made against directors and officers in their capacity as such, including, subject to certain exceptions, liabilities under the Federal securities laws. Rule 484 Undertaking Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liability (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 33. Business and Other Connections of Investment Adviser Officers and Directors of Travelers Asset Management International Corporation (TAMIC), the Registrant's Investment Adviser, are set forth in the following table: Name Position with TAMIC Other Business - ---- ------------------- -------------- Marc P. Weill Director, Chairman and Senior Vice President** President David A. Tyson Director and Senior Vice Senior Vice President * President David Amaral Vice President Fixed Income Trader** John R. Calcagni Vice President Second Vice President* Gene Collins Vice President Investment Officer** Eric Dobbin Vice President Investment Officer** Phillip A. Duncan Vice President Investment Officer** Emil Molinaro Vice President Vice President** F. Denney Voss Vice President Senior Vice President** William H. White Treasurer Vice President and Treasurer * Charles B. Chamberlain Assistant Treasurer Assistant Treasurer * George C. Quaggin Assistant Treasurer Assistant Treasurer * John R. Britt Secretary Assistant Secretary Marla A. Berman Assistant Secretary Assistant General Counsel** Paul Danie Compliance Officer Assistant Director* Frank J. Fazzina Controller Securities - Director* * All positions are held with The Travelers Insurance Company, One Tower Square, Hartford, Connecticut 06183. ** All positions are held with Travelers Group Inc., 388 Greenwich Street, New York, New York 10013. Item 34. Principal Underwriter (a) Travelers Equities Sales, Inc. One Tower Square Hartford, Connecticut 06183 Travelers Equities Sales, Inc. also serves as principal underwriter for the following: The Travelers Growth and Income Stock Account for Variable Annuities The Travelers Money Market Account for Variable Annuities The Travelers Timed Growth and Income Stock Account for Variable Annuities The Travelers Timed Short-Term Bond Account for Variable Annuities The Travelers Timed Aggressive Stock Account for Variable Annuities The Travelers Timed Bond Account for Variable Annuities The Travelers Fund U for Variable Annuities The Travelers Fund UL for Variable Life Insurance The Travelers Fund BD for Variable Annuities The Travelers Fund VA for Variable Annuities (b) Name and Principal Positions and Offices Positions and Offices Business Address* With Underwriter With Registrant ------------------ --------------------- --------------------- George C. Kokulis Chairman of the Board ----- and President Robert E. Evans Director ----- Gregory C. MacDonald Director ----- Kathleen A. Preston Director and Executive ----- Vice President Robert C. Hamilton Director and Senior ----- Vice President Donald R. Munson, Jr. Director and Vice President, ----- Annuity Marketing Thomas P. Tooley Vice President, Life Marketing ----- George A. Ryan Vice President ----- Jeffrey A. Barker Regional Vice President ----- Walter Melnik, Jr. Regional Vice President ----- Raymond W. Sheridan Regional Vice President ----- William F. Scully, III Treasurer ----- William H. White Assistant Treasurer ----- Charles B. Chamberlain Assistant Treasurer ----- George M. Quaggin Assistant Treasurer ----- Kathleen A. McGah General Counsel Assistant Secretary and Secretary Alison K. George Director of Compliance ----- and Assistant Corporate Secretary * Principal business address: One Tower Square, Hartford, Connecticut 06183 (c) Prior to February 1, 1995, The Travelers Insurance Company served as the principal underwriter. The compensation listed below is for the year ending December 31, 1994 Name of Net Underwriting Compensation upon Principal Discounts and Redemption or Brokerage Other Underwriter Commissions Annuitization Commissions Compensation* - ----------- ---------------- ----------------- ----------- ------------ The Travelers $0 $0 $0 $2,156,643 Insurance Co. * Other compensation consists of $2,073,736 in mortality and expense risk fees and $82,907 in sales and administrative charges. Item 35. Location of Accounts and Records (1) The Travelers Insurance Company One Tower Square Hartford, Connecticut 06183 (2) Chase Manhattan Bank, N. A. Chase MetroTech Center Brooklyn, New York 11245 Item 36. Management Services Inapplicable. Item 37. Undertakings The undersigned Registrant hereby undertakes: (a) To file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for so long as payments under the variable annuity contracts may be accepted; (b) To include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information; (c) To deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-3 promptly upon written or oral request; and (d) To include in any registration statement filed in connection with a contract used as a funding vehicle for retirement plans meeting the requirements of Section 403(b) of the Internal Revenue Code a representation that the Registrant is relying upon No-Action Letter IP-6-88 issued to the American Council of Life Insurance. (See Exhibit 17.) SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this post-effective amendment to this Registration Statement and has caused this amendment to this Registration Statement to be signed on its behalf, in the City of Hartford, State of Connecticut, on April 26, 1995. THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES (Registrant) By: *HEATH B. McLENDON ------------------------- Heath B. McLendon Chairman of the Board of Managers Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on April 26, 1995. *HEATH B. McLENDON Chairman, Board of Managers - ---------------------- (Heath B. McLendon) *KNIGHT EDWARDS Member, Board of Managers - ---------------------- (Knight Edwards) *ROBERT E. McGILL, III Member, Board of Managers - ---------------------- (Robert E. McGill, III) *LEWIS MANDELL Member, Board of Managers - ---------------------- (Lewis Mandell) *FRANCES M. HAWK Member, Board of Managers - ---------------------- (Frances M. Hawk) *By: /s/Ernest J. Wright --------------------------------- Ernest J. Wright, Attorney-in-Fact Secretary, Board of Managers SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this post-effective amendment to this Registration Statement and has caused this amendment to this Registration Statement to be signed on its behalf, in the City of Hartford, State of Connecticut, on April 26, 1995. THE TRAVELERS INSURANCE COMPANY (Insurance Company) By: * Jay S. Fishman -------------------------- Jay S. Fishman Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on April 26, 1995. *ROBERT I. LIPP Director, Chairman and President - ---------------------- (Principal Executive Officer) (Robert I. Lipp) *JAY S. FISHMAN Director and Chief Financial Officer - ---------------------- (Jay S. Fishman) *CHARLES O. PRINCE, III Director - ---------------------- (Charles O. Prince, III) *MARC P. WEILL Director - ---------------------- (Marc P. Weill) *IRWIN R. ETTINGER Director - ---------------------- (Irwin R. Ettinger) *MICHAEL A. CARPENTER Director - ---------------------- (Michael A. Carpenter) *DONALD T. DeCARLO Director - ---------------------- (Donald T. DeCarlo) /s/JAMES L. MORGAN Senior Vice President - Finance - ---------------------- and Chief Accounting Officer (James L. Morgan) *By: /s/Ernest J. Wright --------------------------------- Ernest J. Wright, Attorney-in-Fact EXHIBIT INDEX
Exhibit No. Description Method of Filing - ------- ----------- --------------- 1. Resolution of The Travelers Insurance Company's Board of Directors authorizing the establishment of the Registrant. (Incorporated herein by reference to Exhibit 1 to the Registration Statement on Form N-8B-2 filed on May 9, 1975.) 2. Rules and Regulations of the Registrant. (Incorporated herein by reference to Exhibit 2 to the Registration Statement on Form N-8B-2 filed on May 9, 1975.) 3. Custody Agreement between the Registrant and Electronically Chase Manhattan Bank, N.A., Brooklyn, New York 4. Investment Advisory Agreement between the Registrant and Travelers Asset Management International Corporation. (Incorporated herein by reference to Exhibit 4 to Post-Effective Amendment No. 38 to the Registration Statement on Form N-3 filed on February 17, 1993.) 5. Distribution and Management Agreement between Electronically the Registrant, The Travelers Insurance Company. and Travelers Equities Sales, Inc. 6. Form of Variable Annuity Contracts. (Incorporated herein by reference to Exhibits 1, 2 and 3 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1 filed on May 11, 1983.) 7. Form of Applications. (Incorporated herein by reference to Exhibits 4, 5 and 6 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1 filed on May 11, 1983.) 8(a). Charter of The Travelers Insurance Company, as amended on October 19, 1994. (Incorporated herein by reference to Exhibit 3(a)(i) to the Registration Statement filed on Form S-2, File No. 33-58677, filed via Edgar on April 18, 1995.) 8(b). By-Laws of The Travelers Insurance Company, as amended on October 20, 1994. (Incorporated herein by reference to Exhibit 3(b)(ii) to the Registration Statement filed on Form S-2., File No. 33-58677, filed via Edgar on April 18, 1995.) 12. Opinion of Counsel as to the legality of the securites being registered. (Incorporated herein by reference to the Registrant's most recent 24f-2 Notice filed on February 27, 1995.) 13(a). Consent of Coopers & Lybrand L.L.P., Independant Electronically Accountants, to the incorporation by reference in this Form N-3 of their report on the auditied financial statements of the Registrant, to the inclusion of their reports on the financial statements of The Travelers Insurance Company contained in Part B of this Registration Statement, and to the reference in the Statements of Additional Information to such firm as "Experts" in accounting and auditing. 13(b). Consent of KPMG Peat Marwick LLP, Independent Electronically Auditors, to the inclusion in this Form N-3 of their report on the financial statements of The Travelers Insurance Company contained in Part B of this Registration Statement. 16. Schedule for Computation of Total Return Calculations - Electronically Standardized and Non-Standardized. 17. Representation concerning reliance upon No-Action Electronically Letter IP-6-88. 18(a). Powers of Attorney authorizing Ernest J. Wright as Electronically signatory for Heath B. McLendon, Knight Edwards, Robert E. McGill III, Lewis Mandell and Frances M. Hawk. 18(b). Power of Attorney authorizing Ernest J. Wright as Electronically signatory for Jay S. Fishman. 18(c). Powers of Attorney authorizing Jay S. Fishman or Ernest Electronically J. Wright as signatory for Robert I. Lipp, Charles O. Prince, III, Marc P. Weill, Irwin R. Ettinger, Michael A. Carpenter, Donald T. DeCarlo and James L. Morgan. 27. Financial Data Schedule. Electronically
EX-3 2 EXHIBIT 3 CUSTODY AGREEMENT Agreement made as of the 1st day of February, 1995 between each of the registered management investment companies of The Travelers Insurance Company listed below, and such others as may be added from time to time on Schedule A attached hereto (each individually hereinafter called the "Customer"), and The Chase Manhattan Bank, N.A., (hereinafter called the "Bank"), whereby the Customer appoints the Bank, and the Bank hereby agrees to act, as Custodian of the cash and securities ("Assets") of the Customer, subject to the terms of this Agreement. 1. CUSTOMER ACCOUNTS. The Bank agrees to establish and maintain the following accounts ("Accounts"): (a) A custody account in the name of the Customer ("Custody Account") for any and all stocks, shares, bonds, debentures, notes, mortgages or other obligations for the payment of money, bullion, coin and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe for the same or evidencing or representing any other rights or interests therein and other similar property whether certificated or uncertificated as may be received by the Bank for the account of the Customer ("Securities"); and (b) A deposit account in the name of the Customer ("Deposit Account") for any and all cash in any currency received by the Bank for the account of the Customer, which cash shall not be subject to withdrawal by draft or check. The Customer warrants its authority to: 1) deposit the cash and Securities (Assets) received in the Accounts and 2) give instructions (as defined in Section 9) concerning the Accounts. Upon written agreement between the Bank and the Customer, additional Accounts may be established and separately accounted for as additional Accounts under the terms of this Agreement. 2. MAINTENANCE OF SECURITIES AND CASH AT BANK. Unless instructions (as defined in Section 9) specifically require another location acceptable to the Bank: (a) Securities will be held in the country or other jurisdiction in which the principal trading market for such Securities is located, where such Securities are to be presented for payment or where such Securities are acquired; and (b) Cash will be credited to an account in a country or other jurisdiction in which such cash may be legally deposited or it is the legal currency for the payment of public or private debts. Cash may be held pursuant to Instructions (as defined in Section 9) in either interest or non-interest bearing accounts as may be available for the particular currency. To the extent Instructions are issued and the Bank can comply with such Instructions, the Bank is authorized to maintain cash balances on deposit for the Customer with itself or one of its affiliates at such reasonable rates of interest as may from time to time be paid on such accounts, or in non-interest bearing accounts as the Customer may direct, if acceptable to the Bank. 1 3. DEPOSIT ACCOUNT TRANSACTIONS. (a) The Bank will make payments from the Deposit Account upon receipt of Instructions which include all information required by the Bank. (b) In the event that any payment to be made under this Section 3 exceeds the funds available in the Deposit Account, the Bank, in its discretion, may advance the Customer such excess amount which shall be deemed a loan payable on demand, bearing interest at the rate customarily charged by the Bank on similar loans. (c) If the Bank credits the Deposit Account on a payable date, or at any time prior to actual collection and reconciliation to the Deposit Account, with interest, dividends, redemptions or any other amount due, the Customer will promptly return any such amount upon oral or written notification: (i) that such amount has not been received in the ordinary course of business or (ii) that such amount was incorrectly credited. If the Customer does not promptly return any amount upon such notification, the Bank shall be entitled, upon oral or written notification to the Customer, to reverse such credit by debiting the Deposit Account for the amount previously credited. The Bank shall have no duty or obligation to institute legal proceedings, file a claim or a proof of claim in any insolvency proceeding or take any other action with respect to the collection of such amount, but may act for the Customer upon Instructions after consultation with the Customer. 4. CUSTODY ACCOUNT TRANSACTIONS. (a) Securities will be transferred, exchanged or delivered by the Bank upon receipt by the Bank of Instructions which include all information required by the Bank. Settlement and payment for Securities received for, and delivery of Securities out of, the Custody Account may be made in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of Securities to a purchaser, dealer or their agents against a receipt with the expectation of receiving later payment and free delivery. Delivery of Securities out of the Custody Account may also be made in any manner specifically required by Instructions acceptable to the Bank. (b) The Bank, in its discretion, may credit or debit the Accounts on a contractual settlement date with cash or Securities with respect to any sale, exchange or purchase of Securities. Otherwise, such transactions will be credited or debited to the Accounts on the date cash or Securities are actually received by the Bank and reconciled to the Account. (i) The Bank may reverse credits or debits made to the Accounts in its discretion if the related transaction fails to settle within a reasonable period, determined by the Bank in its discretion, after the contractual settlement date for the related transaction. (ii) If any Securities delivered pursuant to this Section 4 are returned by the recipient thereof, the Bank may reverse the credits and debits of the particular transaction at any time. 2 5. ACTIONS OF THE BANK. The Bank shall follow Instructions received regarding assets held in the Accounts. However, until it receives Instructions to the contrary, the Bank will: (a) Present for payment any Securities which are called, redeemed or retired or otherwise become payable and all coupons and other income items which call for payment upon presentation, to the extent that the Bank is actually aware of such opportunities. (b) Execute in the name of the Customer such ownership and other certificates as may be required to obtain payments in respect of Securities. (c) Exchange interim receipts or temporary Securities for definitive Securities. (d) Appoint brokers and agents for any transaction involving the Securities, including, without limitation, affiliates of the Bank. (e) Issue statements to the Customer, at times mutually agreed upon, identifying the Assets in the Accounts. The Bank will send the Customer an advice or notification of any transfers of Assets to or from the Accounts. Such statements, advices or notifications shall indicate the identity of the entity having custody of the Assets. Unless the Customer sends the Bank a written exception or objection to any Bank statement within sixty (60) days of receipt, the Customer shall be deemed to have approved such statement. In such event, or where the Customer has otherwise approved any such statement, the Bank shall, to the extent permitted by law, be released, relieved and discharged with respect to all matters set forth in such statement or reasonably implied therefrom as though it had been settled by the decree of a court of competent jurisdiction in an action where the Customer and all persons having or claiming an interest in the Customer or the Customer's Accounts were parties. All collections of funds or other property paid or distributed in respect of Securities in the Custody Account shall be made at the risk of the Customer. The Bank shall have no liability for any loss occasioned by delay in the actual receipt of notice by the Bank of any payment, redemption or other transaction regarding Securities in the Custody Account in respect of which the Bank has agreed to take any action under this Agreement. 6. CORPORATE ACTIONS; PROXIES. Whenever the Bank receives information concerning the Securities which requires discretionary action by the beneficial owner of the Securities (other than a proxy), such as subscription rights, bonus issues, stock repurchase plans and rights offerings, or legal notices or other material intended to be transmitted to securities holders ("Corporate Actions"), the Bank will give the Customer notice of such Corporate Actions to the extent that the Bank's central corporate actions department has actual knowledge of a Corporate Action in time to notify its customers. When a rights entitlement or a fractional interest resulting from a rights issue, stock dividend, stock split or similar Corporate Action is received which bears an expiration date, the Bank will endeavor to obtain Instructions from the Customer or its Authorized Person, but if Instructions are not received in time for the Bank to take timely action, or actual notice of such Corporate Action was received too late to seek Instructions, the Bank is authorized to sell such rights entitlement or fractional interest and to credit the Deposit Account with the proceeds or take any other action it deems in good faith, to be appropriate in which case it shall be held harmless for any such action. The Bank will deliver proxies to the Customer or its designated agent pursuant to special arrangements which may have been agreed to in writing. Such proxies shall be executed in the appropriate nominee name relating to Securities in the Custody Account registered in the name of 3 such nominee but without indicating the manner in which such proxies are to be voted; and where bearer Securities are involved, proxies will be delivered in accordance with Instructions. 7. NOMINEES. Securities which are ordinarily held in registered form may be registered in a nominee name of the Bank or securities depository, as the case may be. The Bank may without notice to the Customer cause any such Securities to cease to be registered in the name of any such nominee and to be registered in the name of the Customer. In the event that any Securities registered in a nominee name are called for partial redemption by the issuer, the Bank may allot the called portion to the respective beneficial holders of such class of security in any manner the Bank deems to be fair and equitable. The Customer agrees to hold the Bank and their respective nominees harmless from any liability arising directly or indirectly from their status as a mere record holder of Securities in the Custody Account. All securities accepted by the Bank on behalf of the Customer under the terms of this Agreement shall be in "street name" or other good delivery from. 8. AUTHORIZED PERSONS. As used in this Agreement, the term "Authorized Person" means employees or agents including investment managers as have been designated by written notice from the Customer or its designated agent to act on behalf of the Customer under this Agreement. Such persons shall continue to be Authorized Persons until such time as the Bank receives Instructions from the Customer or its designated agent that any such employee or agent is no longer an Authorized Person. 9. INSTRUCTIONS. The term "Instructions" means instructions of any Authorized Person received by the Bank, via telephone, tested telex, TWX, facsimile transmission, bank wire or other teleprocess or electronic instruction or trade information system acceptable to the Bank which the Bank believes in good faith to have been given by Authorized Persons or which are transmitted with proper testing pursuant to terms and conditions which the Bank may specify. Unless otherwise expressly provided, all Instructions shall continue in full force and effect until canceled or superseded. Any instructions delivered to the Bank by telephone shall promptly thereafter be confirmed in writing by an Authorized Person (which confirmation may bear the facsimile signature of such Person), but the Customer will hold the Bank harmless for the failure of an Authorized Person to send such confirmation in writing, the failure of such confirmation to conform to the telephone instructions received or the Bank's failure to produce such confirmation at any subsequent time. The Bank may electronically record any Instructions given by telephone, and any other telephone discussions with respect to the Custody Account or transactions pursuant to the Agreement. The Customer shall be responsible from safeguarding any testkeys, identification codes or other security devices which the Bank shall make available to the Customer or its Authorized Persons. The Bank agrees to safeguard and maintain the confidentiality of all passwords or numbers and to limit access to this information for the purpose of acting pursuant to this agreement. 4 10. STANDARD OF CARE; LIABILITIES. (a) The Bank shall be responsible for the performance of only such duties as are set forth in this Agreement or expressly contained in Instructions which are consistent with the provisions of this Agreement as follows: (i) The Bank will use reasonable care with respect to its obligations under this Agreement and the safekeeping of Assets. In the event of any loss to the Customer by reason of the failure of the Bank to utilize reasonable care, the Bank shall be liable to the Customer only to the extent of the Customer's direct damages, to be determined based on the market value of the property which is the subject of the loss at the date of discovery of such loss and without reference to any special conditions or circumstances. (ii) The Bank will not be responsible for any act, omission, default or for the solvency of any broker or agent which it appoints unless such appointment was made negligently or in bad faith. (iii) The bank shall be indemnified by, and without liability to the Customer for any action taken or omitted by the Bank whether pursuant to Instructions or otherwise within the scope of this Agreement if such act or omission was in good faith, without negligence. In performing its obligations under this Agreement, the Bank may rely on the genuineness of any document which it believes in good faith to have been validly executed. (iv) The Customer agrees to pay for and hold the Bank harmless from any liability or loss resulting from the imposition or assessment of any taxes or other governmental charges, and any related expenses with respect to income from or Assets in the Accounts. (v) The Bank will use its best efforts to maintain, during the term of this Agreement, insurance coverage comparable to the types, amounts and limits set forth below: Standard Limit Per Form No. 24 Loss Aggregate ------------ ----------- ----------- * Insuring Agreements $75,000,000 $75,000,000 ABC-Basic Coverages * Insuring Agreement 75,000,000 75,000,000 D-Forgery or Alteration * Insuring Agreement 75,000,000 75,000,000 E-Securities (1) * Extortion Coverage (2) A. Threat to Persons 20,000,000 20,000,000 B. Threat to Property 20,000,000 20,000,000 * Computer Systems 75,000,000 75,000,000 Coverage (3) * Deductible Amount 2,500,000 Notes: (1) An additional $125,000,000 insurance coverage for securities located at custodian's head office or at The Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York 11245, Attention: Global Custody Division. (2) No deductible (separate policy). 5 (3) This coverage is for electronic funds transfer systems. There is additional coverage for all EDP equipment and Media under Commercial Property Insurance. The limits of this coverage are $583,000,000. (vi) Without limiting the foregoing, the Bank shall not be liable for any loss which results from: 1) the general risk of investing, or 2) investing or holding Assets in a particular country including, but not limited to, losses resulting from nationalization, expropriation or other governmental actions; regulation of the banking or securities industry; currency restrictions, devaluations or fluctuations; and market conditions which prevent the orderly execution of securities transactions or affect the value of Assets. (vii) Neither party shall be liable to the other for any loss due to forces beyond their control including, but not limited to strikes or work stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion, fission or radiation, or acts of God. (b) Consistent with and without limiting the first paragraph of this Section 10, it is specifically acknowledged that the Bank shall have no duty or responsibility to: (i) question Instructions or make any suggestions to the Customer or an Authorized Person regarding such Instructions; (ii) supervise or make recommendations with respect to investments or the retention of Securities; (iii)advise the Customer or an Authorized Person regarding any default in the payment of principal or income of any security other than as provided in Section 3(c) of this Agreement; (iv) evaluate or report to the Customer or an Authorized Person regarding the financial condition of any broker, agent or other party to which Securities are delivered or payments are made pursuant to this Agreement: (v) review or reconcile trade confirmations received from brokers. The Customer or its Authorized Persons (as defined in Section 8) issuing Instructions shall bear any responsibility to review such confirmations against Instructions issued to and statements issued by the Bank. (c) The Customer authorizes the Bank to act under this Agreement notwithstanding that the Bank or any of its divisions or affiliates may have a material interest in a transaction, or circumstances are such that the Bank may have a potential conflict of duty or interest including the fact that the Bank or any of its affiliates may provide brokerage services to other customers, act as financial advisor to the issuer of Securities, act as a lender to the issuer of Securities, act in the same transaction as agent for more than one customer, have a material interest in the issue of Securities, or earn profits from any of the activities listed herein. 11. FEES AND EXPENSES. The Customer agrees to pay to the Bank for its services under this Agreement such amount as may be agreed upon in writing, together with the Bank's reasonable out-of-pocket expenses. 12. MISCELLANEOUS. 6 (a) Certification of Residency, etc. The Customer certifies that it is a resident of the United States with its principal place of business in the State of Connecticut and agrees to notify the Bank of any changes in residency. The Bank may rely upon this certification or the certification of such other facts as may be required to administer the Bank's obligations under this Agreement. The Customer will indemnify the Bank against all losses, liability, claims or demands arising directly or indirectly from any such certifications. (b) Access to Records. The Bank shall allow the Customer's independent public accountant reasonable access to the records of the Bank relating to the Assets as is required in connection with their examination of books and records pertaining to the Customer's affairs. (c) Periodic Statements, Books and Records. The Bank shall notify the Customer of each transaction involving securities in the Account and will render a statement of transactions with respect to the Account on a regular basis. Periodic statements shall be rendered as the Customer may reasonably require, but not less frequently than monthly. The Bank shall at all times maintain proper books and records that shall separately identify the securities. Books and records of the Bank (and of any agent or depository) relating to the Account shall at all times during regular business hours of the Bank (or of any agent or depository) be available for inspection by duly authorized officers, employees or agents of Customer, or by legally authorized regulatory officers who are then in the process of reviewing the Customer's financial affairs upon adequate proof to the Bank of such official status. The Bank agrees to maintain such records as may be sufficient to determine and verify information concerning the custodied securities which must be included in the Annual and Semi-Annual Reports of the Customer, or any other report required by applicable law. (d) Books and Records Are Property of Customer. The Bank hereby acknowledges that all books and records relating to the services provided to Customer hereunder are the property of the Customer and subject to its control; provided, however, that during the term of the Agreement, the Customer shall not exercise such control so as to interfere with the performance of the Bank's duties hereunder. (e) Governing Law; Successors and Assigns. This Agreement shall be governed by the laws of the State of New York. (f) Entire Agreement; Applicable Riders. Customer represents that the Assets deposited in the Accounts are (Check one): __ Employee Benefit Plan or other assets subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); X Investment company assets subject to certain __ Securities and Exchange Commission ("SEC") rules and regulations; __ Neither of the above. This Agreement consists exclusively of this document together with Schedule A and Exhibit 1. There are no other provisions of this Agreement and this Agreement supersedes any other agreements, whether written or oral, between the parties. Any amendment to this Agreement must be in writing, executed by both parties. (g) Severability. In the event that one or more provisions of this Agreement are held invalid, illegal or enforceable in any respect on the basis of any particular circumstances or in any jurisdiction, the validity, legality and enforceability of such 7 provision or provisions under other circumstances or in other jurisdictions and of the remaining provisions will not in any way be affected or impaired. (h) Waiver. Except as otherwise provided in this Agreement, no failure or delay on the part of either party in exercising any power or right under this Agreement operates as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right. No waiver by a party of any provision of this Agreement, or waiver of any breach or default, is effective unless in writing and signed by the party against whom the waiver is to be enforced. (i) Notices. All notices under this Agreement shall be effective when actually received. Any notices or other communications which may be required under this Agreement are to be sent to the parties at the following addresses or such other addresses as may subsequently be given to the other party in writing: Bank: The Chase Manhattan Bank, N.A. Chase MetroTech Center Brooklyn, New York 11245 Attention: Global Custody Division Customer: The Travelers Insurance Company One Tower Square Hartford, Connecticut 06183-2030 Attention: Securities Department, Cashier Division 13. CONFIDENTIALITY OF RECORDS. The Bank agrees to treat all records and other information relating to the Customer or the Custody Account as confidential, except that it may disclose such information after prior notification to and prior approval of the Customer, which will not be unreasonably withheld. Nothing in this paragraph shall prevent the Bank from divulging information to civil, criminal, bank, or securities regulatory authorities or where the Bank may be exposed to civil or criminal proceedings or penalties for failure to comply. 14. RELIANCE UPON DATA. The Bank may rely on the accuracy of all data received by it through electronic means and initiated by any person authorized by the Customer. Every person who uses the correct passwords to obtain information by electronic means or to make permissible transactions shall be presumed to have the Customer's authority unless the Customer can prove that: (a) a person using a correct password was not authorized to have access to this information; (b) the person using the password obtained it through or as a result of the Bank's disclosure (whether direct or indirect); and (c) the disclosure by the Bank was not authorized by the Customer prior to its unauthorized use. 15. OPTION GUARANTEE LETTERS OR ESCROW RECEIPTS. The Customer covenants and agrees that in the event that the Bank shall at any time at the Customer's request enter into an "Option Guarantee Letter" or execute an "SD Option Clearing Corporation Escrow Receipt" at the request of the Customer covering securities deposited with the Bank pursuant to the Agreement, the Customer will hold the Bank harmless from any and all loss, cost, or damage which the Bank may suffer by reason of being requested to deliver securities or 8 other property under such Option Guarantee Letters or Escrow Receipts which securities and/or other property were not in fact delivered to the Bank or to the Bank's agent for transmittal to the Bank. 16. SUBROGATION OF RIGHTS. At the election of the Customer, the Customer shall be entitled to be subrogated to the rights of the Bank, with respect to any claim against any other person or institution which the Bank may have, as a consequence of any loss or damage to custodied securities. In such event, the Customer shall consult with the Bank concerning selection of counsel and management of any litigation to cover for such loss. 17. RESOLUTION OF DISPUTES. In the event of any loss of or damage to custodied securities or dispute between the Bank and the Customer concerning the Account, the Bank and the Customer agree to attempt to resolve the dispute through negotiation or a method of alternative dispute resolution. No litigation shall be commenced without a certification by an authorized officer, employee, or agent of either party that the dispute cannot be resolved by negotiation or alternative dispute resolution provided in writing at least 10 days before commencing legal action. 18. TRUSTEES AND SHAREHOLDERS OF MUTUAL FUNDS NOT PERSONALLY LIABLE. To the extent this Agreement is made on behalf of the mutual funds (the "Funds"), it shall be made by an officer of the Fund, not individually, but solely as an officer or Trustee of the Fund under its Declaration of Trust, and the obligations under this Agreement are not binding upon, nor shall any resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Funds personally, but shall bind only the Funds' property. 19. INFORMATION TO CALIFORNIA COMMISSIONER OF INSURANCE. The Bank agrees that it shall furnish to the California Commissioner of Insurance, at the Customer's expense, any information or reports concerning the funds as the Commissioner, in the performance of his or her duties, may request. 9 20. DEPOSIT OF SECURITIES IN SECURITIES SYSTEM. If the Customer wishes to deposit securities with the Bank to be held in the Bank's account with one or more depositories or clearinghouses or in the book-entry system authorized by the U.S. Department of the Treasury or other federal agency (collectively referred to as "Securities Systems") pursuant to an arrangement which is approved by the Customer, then the Bank will do the following: (a) The Bank's official records shall separately identify the securities owned by the customer which are held in the account and indicate the location of the securities. (b) All registered securities held by the Bank pursuant to the agreement shall be registered in the name of the Customer or its nominee, the Bank or its nominee, or a Securities System or its nominee. (c) The Bank will send to the Customer a confirmation of the transfer of securities held for the Customer and furnish regular reports of holdings of securities in the account. (d) Upon written instructions from an authorized officer of the Customer, any representative of the Connecticut Insurance Department shall be entitled to examine, on the Bank's premises, the Bank's records relating to the securities held in the account. (e) The Bank shall maintain records sufficient to determine and verify information relating to securities held in the account that may be reported in the Annual and Semi-Annual Reports of the Customer, as filed with regulatory authorities. (f) The Bank shall be responsible for any loss of the securities held in the account caused by the negligence of the Bank or its agents. (g) In the event of loss of any of the securities held in the account, the Bank shall promptly replace the securities or the value thereof and the value of any loss of rights or privileges resulting from said loss or securities. (h) The Bank will hold the securities in the account subject to the instructions of the Customer and will permit withdrawal thereof upon the demand of the Customer. (i) The Bank shall send to the Customer all (i) reports which it receives from the Securities System on its systems of internal accounting control and (ii) reports prepared by outside auditors with respect to the Bank's systems of internal accounting control pertaining to custodian recordkeeping, promptly upon the Bank's receipt of such reports. (j) Securities in the account may be held only in Connecticut or in reciprocal states under the Insurers Supervision, Rehabilitation and Liquidation Model Act or a similar act (the Model Act). (k) If a reciprocal state under the Model Act repeals or modifies the Model Act so as to impair the Connecticut Insurance Commissioner's authority over the assets of an insolvent insurer, any securities held in the account and located in that state will be relocated to another reciprocal state or Connecticut prior to the effective date of said repeal or modification, unless the Connecticut Insurance Commissioner deems the repeal or modification acceptable. (l) The Bank may only deposit the securities in a nonproprietary account with the Securities System that includes only assets held for the Bank's customers. 10 (m) Should a Securities System cease to act on behalf of the Bank, then the securities in the account shall be promptly transferred to the Bank or another Securities System approved by the Customer. 21. EFFECTIVE PERIOD, TERMINATION, ASSIGNMENT AND AMENDMENT. This Agreement shall become effective as of the effective date named herein, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto, and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however, that the Bank shall not act under paragraph 20 hereof in the absence of receipt of an initial certificate of the Secretary that the board of the Customer has approved the initial use of a particular Securities System and the receipt of an annual certificate of the Secretary that the Board has reviewed the use by the Customer of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended, and provided further, however, that the Customer shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of its Rules and Regulations or by-laws and further provided, that the Customer may at any time by action of its Board (a) substitute another bank or trust company for the Bank by giving notice as described above to the Bank, or (b) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Bank by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Agreement, the Customer shall pay the Bank such compensation as may be due as of the date of such termination and shall likewise reimburse the Bank for its costs, expenses and disbursements. This Agreement may not be assigned by the Bank without the consent of the Customer, authorized or approved by a resolution of its Board (The Board of Managers of the Variable Annuity Accounts or the Board of Trustees of the Mutual Funds). Additional Investment Company Separate Accounts or mutual funds may be added to this Agreement upon the execution by the Bank and any additional party of an amended "Schedule A" to be attached to this Agreement, which shall list such additional Separate Accounts or mutual funds. 22. INDEMNIFICATION AND HOLD HARMLESS. The Customer agrees to indemnify and hold harmless the Bank and its nominees from all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or its nominees in Connecticut with the performance of this Agreement in good faith, except such as may arise from the Bank's or its nominee's own negligent action, negligent failure to act or willful misconduct. 11 IN WITNESS WHEREOF, the Customer and the Bank have each executed this Custody Agreement as of the 1st day of February, 1995, by their duly authorized representatives. THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES By: /s/Heath B. McLendon ------------------------ Chairman Board of Managers CAPITAL APPRECIATION FUND CASH INCOME TRUST HIGH YIELD BOND TRUST MANAGED ASSETS TRUST THE TRAVELERS SERIES TRUST U.S. GOVERNMENT SECURITIES PORTFOLIO SOCIAL AWARENESS STOCK PORTFOLIO UTILITIES PORTFOLIO By: /s/Heath B. McLendon ------------------------ Chairman Board of Trustees THE CHASE MANHATTAN BANK, N.A. By: /s/George S. Synder Title: Vice President 12 EXHIBIT I MUTUAL FUND RIDER TO GLOBAL CUSTODY AGREEMENT BETWEEN THE TRAVELERS INSURANCE COMPANY AND THE CHASE MANHATTAN BANK, N.A. EFFECTIVE FEBRUARY 1, 1995 Customer represents that the Assets being placed in the Bank's custody are subject to the Investment Company Act of 1940 (the "1940 Act"), as the same may be amended from time to time. Except to the extent that the Bank has specifically agreed to comply with a condition of a rule, regulation, interpretation promulgated by or under the authority of the Securities and Exchange Commission ("SEC") or the Exemptive Order applicable to accounts of this nature issued to the Bank (Investment Company Act of 1940, Release No. 12053, November 20, 1981), as amended, or unless the Bank has otherwise specifically agreed, the Customer shall be solely responsible to assure that the maintenance of Assets under this Agreement complies with such rules, regulations, interpretations or exemptive order promulgated by or under the authority of the SEC. The following modifications are made to the Agreement: Section 9. Instructions. Add the following language to the end of Section 9: Deposit Account Payments and Custody Account Transactions made pursuant to Section 3 and 4 of this Agreement may be made only for the purposes listed below. Instructions must specify the purpose for which any transaction is to be made and Customer shall be solely responsible to assure that Instructions are in accord with any limitations or restrictions applicable to the Customer by law or as may be set forth in its prospectus. (a) In connection with the purchase or sale of Securities at prices as confirmed by Instructions; (b) When Securities are called, redeemed or retired, or otherwise become payable; (c) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan or merger, consolidation, reorganization, recapitalization or readjustment; (d) Upon conversion of Securities pursuant to their terms into other securities; (e) Upon exercise of subscription, purchase or other similar rights represented by Securities; (f) For the payment of interest, taxes, management or supervisory fees, distributions or operating expenses; (g) In connection with any borrowings by the Customer requiring a pledge of Securities, but only against receipt of amounts borrowed; (h) In connection with any loans, but only against receipt of adequate collateral as specified in Instructions which shall reflect any restrictions applicable to the Customer; 13 (i) For the purpose of redeeming shares of the capital stock of the Customer and the delivery to, or the crediting to the account of the Bank or the Customer's transfer agent, such shares to be purchased or redeemed; (j) For the purpose of redeeming in kind shares of the Customer against delivery to the Bank or the Customer's transfer agent of such shares to be so redeemed; (k) For delivery in accordance with the provisions of any agreement among the Customer, the Bank and a broker-dealer registered under the Securities Exchange Act of 1934 and a member of The National Association of Securities Dealers, Inc., relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Customer; (l) For release of Securities to designated brokers under covered call options, provided, however, that such Securities shall be released only upon payment to the Bank of monies for the premium due and a receipt for the Securities which are to be held in escrow. Upon exercise of the option, or at expiration, the Bank will received from brokers the Securities previously deposited. The Bank will act strictly in accordance with Instructions in the delivery of Securities to be held in escrow and will have no responsibility or liability for any such Securities which are not returned promptly when due other than to make proper request for such return; (m) For spot or forward foreign exchange transactions to facilitate security trading, receipt of income from Securities or related transactions; (n) For other proper purposes as may be specified in Instructions issued by an officer of the Customer which shall include a statement of the purpose for which the delivery or payment is to be made, the amount of the payment or specific Securities to be delivered, the name of the person or persons to whom delivery or payment is to be made, and a certification that the purpose is a proper purpose under the instruments governing the Customer; and (o) Upon the termination of this Agreement as set forth in Section 21. Section 10. Standard of Care; Liabilities. Add the following subsection (c) to Section 10: (c) The Bank hereby warrants to the Customer that in its opinion, after due inquiry, the established procedures to be followed by each of its branches, each branch of a qualified U.S. bank, holding the Customer's Securities, pursuant to this Agreement afford protection for such Securities at least equal to that afforded by the Bank's established procedures with respect to similar securities held by the Bank and its securities depositories in New York. Section 12. Access to Records. Add the following language to the end of Section 12(b): Upon reasonable request from the Customer, the Bank shall furnish the Customer such reports (or portions thereof) of the Bank's system of internal account controls applicable to the Bank's duties under this Agreement. 14 SCHEDULE A Short Name Long Name - ---------- --------- VTM The Travelers Timed Short-Term Bond Account for Variable Annuities VTA The Travelers Timed Growth and Income Stock Account for Variable Annuities VA1 The Travelers Quality Bond Account for Variable Annuities VAA The Travelers Growth and Income Stock Account for Variable Annuities VM The Travelers Money Market Account for Variable Annuities MAT Managed Assets Trust AST Capital Appreciation Fund HYBT High Yield Bond Trust CIT Cash Income Trust USGF US Government Securities Portfolio SOAP Social Awareness Stock Portfolio VTAS The Travelers Timed Aggressive Stock Account for Variable Annuities VTB The Travelers Timed Bond Account for Variable Annuities GRUF Utilities Portfolio 15 EX-5 3 EXHIBIT 5 DISTRIBUTION AND MANAGEMENT AGREEMENT DISTRIBUTION AND MANAGEMENT AGREEMENT (the "Agreement") made this 1st day of February, 1995, by and among The Travelers Insurance Company, a Connecticut stock insurance company (hereinafter the "Company"), Travelers Equities Sales, Inc., a Connecticut general business corporation (hereinafter "TESI"), and The Travelers Quality Bond Account for Variable Annuities (hereinafter "Account QB"), a separate account of the Company established by authority of a resolution of the Company's Board of Directors on July 29, 1974, pursuant to Public Act 529 of the 1967 Connecticut General Assembly. This Agreement supersedes the Distribution and Management Agreement dated December 30, 1992 between the Company and Account QB. 1. The Company hereby agrees to provide all administrative services relative to variable annuity contracts and revisions thereof (hereinafter "Contracts") sold by the Company, the net proceeds of which or reserves for which are maintained in Account QB. 2. TESI hereby agrees to perform all sales functions relative to the Contracts. The Company agrees to reimburse TESI for commissions paid, other sales expenses and properly allocable overhead expenses incurred in performance thereof. 3. For providing the administrative services referred to in paragraph 1 above, and for reimbursing TESI for the sales functions referred to in paragraph 2 above, the Company will receive the deductions for sales and administrative expenses which are stated in the Contracts. 4. The Company will furnish at its own expense and without cost to Account QB the administrative expenses of Account QB, including but not limited to: (a) office space in the offices of the Company or in such other place as may be agreed upon from time to time, and all necessary office facilities and equipment; (b) necessary personnel for managing the affairs of Account QB, including clerical, bookkeeping, accounting and other office personnel; (c) all information and services, including legal services, required in connection with registering and qualifying Account QB or the Contracts with federal and state regulatory authorities, preparation of registration statements and prospectuses, including amendments and revisions thereto, all annual, semi-annual and periodic reports, notices and proxy solicitation materials furnished to variable annuity Contract Owners or regulatory authorities, including the costs of printing and mailing such items; (d) the costs of preparing, printing, and mailing all sales literature; (e) all registration, filing and other fees in connection with compliance requirements of federal and state regulatory authorities; (f) the charges and expenses of any custodian or depository appointed by Account QB for the safekeeping of its cash, securities and other property; (g) the charges and expenses of independent accountants retained by Account QB; (h) expenses of Contract Owners' and Board of Managers' meetings; -1- (i) all expenses of and compensation paid to Members of the Board of Managers of Account QB; and (j) reimbursement for amounts paid by Account QB for indemnification of the Board of Managers of Account QB, the officers, and agents of Account QB pursuant to Article VI of Account QB's Rules and Regulations, provided that in the case of any person who is a director, officer or agent of the Company, the Company's obligation will be limited to such amount as the Board of Directors of the Company determines to be reasonable. Provided, however, that the Company shall not be obligated to pay capital gains taxes, and any other taxes based on income of, assets in or the existence of Account QB. 5. The Company hereby agrees to provide any guarantees contained in the Contracts applicable to minimum death proceeds payable prior to the commencement of annuity payments. In return for providing this benefit, the Company shall receive the deduction made from each contribution under the Contracts for the minimum death benefit guaranteed. 6. The services of the Company and TESI to Account QB hereunder are not to be deemed exclusive and the Company and TESI shall be free to render similar services to others so long as its services hereunder are not impaired or interfered with thereby. 7. The Company agrees to guarantee that the annuity payments will not be affected by mortality experience (under Contracts the reserves for which are invested in Account QB) and assumes the risks (a) that the actuarial estimate of mortality rates among annuitants may prove erroneous and that reserves set up on the basis of such estimates will not be sufficient to meet the Company's variable annuity payment obligations, and (b) that the charges for services and expenses of the Company set forth in the Contracts, including the payment of any guaranteed minimum death benefit prior to the Maturity Date specified in the Contract, may not prove sufficient to cover its actual expenses. For providing these mortality and expense risk guarantees, the Company will receive from Account QB an amount per valuation period of Account QB, as provided from time to time. 8. This Agreement shall continue in effect for a period of more than two years from the date of its execution, only so long as such continuance after said date is specifically approved at least annually by vote of a majority of the Board of Managers, who are parties to such Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, or by a vote of a majority of the outstanding voting securities of Account QB; provided, however, that this Agreement shall terminate automatically in the event of its assignment by any of the parties hereto. 9. Notwithstanding termination of this Agreement, the Company shall continue to provide administrative services, minimum death benefit guarantee and mortality and expense risk guarantees provided for herein with respect to Contracts in effect on the date of termination, and the Company shall continue to receive the compensation provided under this Agreement. 10. This Agreement is subject to the provisions of the Investment Company Act of 1940, as amended, and the rules of the Securities and Exchange Commission. -2- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officials thereunto duly authorized and, in the case of the Company and TESI, seals to be affixed as of the day and year first above written. THE TRAVELERS INSURANCE COMPANY (Seal) By: /s/Robert E. Evans Title: Senior Vice President ATTEST: /s/Ernest J. Wright Assistant Secretary THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES By: /s/Heath B. McLendon Title: Chairman, Board of Managers WITNESS: /s/Ernest J. Wright Secretary to the Board of Managers TRAVELERS EQUITIES SALES, INC. By: /s/ George C. Kokulis Title: President ATTEST: (SEAL) /s/Ernest J. Wright Corporate Secretary -3- EX-13 4 EXHIBIT 13(A) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Post-Effective Amendment No. 41 of this Registration Statement on Form N-3 of our reports dated February 15, 1995, on our audits of the financial statements of The Travelers Quality Bond Account for Variable Annuities, The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities, The Travelers Timed Bond Account for Variable Annuities and The Travelers Fund U for Variable Annuities, and to the inclusion of our reports on the financial statements of The Travelers Insurance Company and Subsidiaries (the "Company") dated January 24, 1994 and February 9, 1993 (except for Notes 2 and 5, as to which the date is January 24, 1994), which includes an explanatory paragraph regarding the change in the methods of accounting for post-retirement benefits other than pensions, income taxes and foreclosed assets in 1992, on our audits of the consolidated financial statements of the Company. We also consent to the reference to our Firm as experts under the caption "Independent Accountants". /s/ Coopers & Lybrand L.L.P COOPERS & LYBRAND L.L.P. . Hartford, Connecticut April 24, 1995 EXHIBIT 13(B) The Board of Directors The Travelers Insurance Company: We consent to the inclusion in this Post-Effective Amendment No. 41 to the registration statement (No. 2-53757) on Form N-3, filed for The Travelers Quality Bond Account for Variable Annuities, of our reports, dated January 17, 1995. Our reports refer to a change in accounting for investments in accordance with the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." /s/KPMG PEAT MARWICK LLP ------------------------- KPMG PEAT MARWICK LLP Hartford, Connecticut April 12, 1995 EX-16 5 EXHIBIT 16 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS Total Return Calculation (Standardized) The "1-year rate" represents fund performance for the period January 1, 1994 through December 31, 1994. The "5-year rate" is for the period January 1, 1990 through December 31, 1994. The "10-year rate" is from January 1, 1985 through December 31, 1994. T = (ERV/P)1/n where: T = average annual total return P = a hypothetical initial payment of $1,000 n = 1 for the "1-year rate", 5 for the "5-year rate", and 10 for the "10-year rate" ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of each of the periods For calculating the redeemable value, the $15 semiannual administrative charge was expressed as a percentage of assets based on the actual fee collected divided by the average net assets per contracts sold under that prospectus for each year for which performance was shown, and was assumed to be deducted on June 30 and December 31 of each year. The unit values used in the calculation reflect the deduction for the investment advisory fees for the fund and the mortality and expense risk charge. Since the 5% contingent deferred sales charge applies only for five years, the ERV for the end of the 5-year period and the 10-year period does not reflect this charge. Total Return Calculation (Non-Standardized) The non-standardized rate represents fund performance for the calendar year-to-date, and for the most recent 1-year, 3-year, 5-year and 10-year periods. The 1-year rate is for the period January 1, 1994 through December 31, 1994; the 3-year rate is for the period January 1, 1992 through December 31, 1994; the 5-year rate is for the period January 1, 1990 through December 31, 1994; and the 10-year rate is for the period January 1, 1985 through December 31, 1994. The non-standardized total returns reflect a percentage change in the value of an Accumulation Unit based on the performance of an account over periods of 1 year, 3 years, 5 years and 10 years, determined by dividing the increase ( decrease) in value for that unit by the Accumulation Unit Value at the beginning of the period. This percentage figure reflects the deduction of asset based charges, but does not reflect the deduction of semiannual administrative charges or contingent deferred sales charges. The deduction of the semiannual administrative charge or the contingent deferred sales charge would reduce any percentage increase or make greater any percentage decrease. For a Schedule of the Computation of the Total Return Quotations, both Standardized and Non-Standardized, see attached.
INDIVIDUAL STANDARDIZED PERFORMANCE QUALITY BOND FUND PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 SEMFEE - ---- ----- ------- ----- ------- ----- -------- ------ ------ 12/31/84 2.056472 1,000.00 486.270 .008250 03/29/85 2.099025 .004090 06/28/85 2.218077 -2.13 -.958 .004090 09/30/85 2.257871 .004090 12/31/85 2.371032 -2.28 -.960 .004090 03/31/86 2.484173 .003410 06/30/86 2.510261 -2.02 -.803 .003410 09/30/86 2.562290 . .003410 12/31/86 2.629004 -2.12 -.806 .003410 03/31/87 2.671202 .003090 06/30/87 2.629709 -1.96 -.746 .003090 09/30/87 2.591627 .003090 12/31/87 2.697586 -1.98 -.735 .003090 03/31/88 2.795872 .002850 06/30/88 2.806798 -1.89 -.672 .002850 09/30/88 2.831701 .002850 12/30/88 2.852210 -1.94 -.679 .002850 03/31/89 2.856949 .002450 06/30/89 3.019819 -1.73 -.572 .002450 09/29/89 3.045791 .002450 12/29/89 3.128870 1,000.00 319.604 -1.81 -.577 .002450 03/30/90 3.126373 .002120 06/29/90 3.211662 -1.07 -.334 -1.61 -.501 .002120 09/28/90 3.250241 .002120 12/31/90 3.356924 -1.11 -.331 -1.66 -.496 .002120 03/28/91 3.442096 .001840 06/28/91 3.510775 -1.01 -.287 -1.51 -.430 .001840 09/30/91 3.657534 .001840 12/31/91 3.798712 -1.07 -.282 -1.60 -.423 .001840 03/31/92 3.784626 .001810 06/30/92 3.906250 -1.11 -.284 -1.66 -.426 .001810 09/30/92 4.068601 .001810 12/31/92 4.051961 -1.15 -.283 -1.72 -.423 .001810 03/31/93 4.209075 .001960 06/30/93 4.301122 -1.30 -.302 -1.95 -.453 .001960 09/30/93 4.387422 .001960 12/31/93 4.380675 1,000.00 228.275 -1.35 -.308 -2.02 -.462 .001960 03/31/94 4.286274 .001790 06/30/94 4.267932 -.88 -.207 -1.23 -.288 -1.84 -.431 .001790 09/30/94 4.288726 .001790 12/30/94 4.274446 -.87 -.204 -1.21 -.283 -1.81 -.425 .001790
ONE YEAR FIVE YEAR TEN YEAR ENDING UNITS 227.864 316.621 474.292 ACCOUNT VALUE 973.99 1,353.38 2,027.34 SURRENDER VALUE 925.29 1,303.38 TOTAL RETURN -7.47 % 30.34 % 102.73 % ANNUALIZED RETURN 5.44 % 7.32 %
GROUP STANDARDIZED PERFORMANCE QUALITY BOND FUND PRDT PRICE DOLLAR1 UNIT1 DOLLAR5 UNIT5 DOLLAR10 UNIT10 SEMFEE 12/31/84 2.056472 1,000.00 486.270 .007220 03/29/85 2.099025 .003520 06/28/85 2.218077 -1.83 -.825 .003520 09/30/85 2.257871 .003520 12/31/85 2.371032 -1.96 -.827 .003520 03/31/86 2.484173 .002800 06/30/86 2.510261 -1.66 -.66O .002800 09/30/86 2.562290 .002800 12/31/86 2.629004 -1.74 -.662 .002800 03/31/87 2.671202 .003960 06/30/87 2.629709 -2.52 -.957 .003960 09/30/87 2.591627 .003960 12/31/87 2.697586 -2.54 -.943 .003960 03/31/88 2.795872 .003150 06/30/88 2.806798 -2.09 -.743 .003150 09/30/88 2.831701 .003150 12/30/88 2.852210 -2.14 -.751 .003150 03/31/89 2.856949 .002680 06/30/89 3.019819 -1.89 -.625 .002680 09/29/89 3.045791 .002680 12/29/89 3.128870 1,000.00 319.604 -1.97 -.631 .002680 03/30/90 3.126373 .002830 06/29/90 3.211662 -1.43 -.446 -2.15 -.669 .002830 09/28/90 3.250241 .002830 12/31/90 3.356924 -1.48 -.442 -2.22 -.662 .002830 03/28/91 3.442096 .002970 06/28/91 3.510775 -1.63 -.463 -2.43 -.693 .002970 09/30/91 3.657534 .002970 12/31/91 3.798712 -1.73 -.455 -2.59 -.681 .002970 03/31/92 3.784626 .003500 06/30/92 3.906250 -2.14 -.548 -3.21 -.821 .003500 09/30/92 4.068601 .003500 12/31/92 4.051961 -2.21 -.545 -3.31 -.817 .003500 03/31/93 4.209075 .003410 06/30/93 4.301122 -2.26 -.524 -3.38 -.785 .003410 09/30/93 4.387422 .003410 12/31/93 4.380675 1,000.00 228.275 -2.34 -.534 -3.50 -.800 .003410 03/31/94 4.286274 .002910 06/30/94 4.267932 -1.44 -.337 -1.99 -.465 -2.97 -.697 .002910 09/30/94 4.288726 .0029l0 12/30/94 4.274446 -1.42 -.331 -1.96 -.458 -2.93 -.686 .002910
ONE YEAR FIYE YEAR TEN YEAR ENDING UNITS 227.607 314.723 471.335 ACCOUNT VALUE 972.90 1,345.26 2,014.70 SURRENDER VALUE 924.25 1,295.26 TOTAL RETURN -7.57 % 29.53 % 101.47 % ANNUALIZED RETURN 5.31 % 7.26 %
EX-17 6 EXHIBIT 17 In connection with the solicitation and sale of variable annuity contracts to participants of plans qualified under Section 403(b) of the Internal Revenue Code, the Registrant hereby represents, in reliance upon No-Action Letter IP-6-88, that it has: (1) included appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in each registration statement, including the prospectus, used in connection with the offer of the contract; (2) included appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in any sales literature used in connection with the offer of the contract; (3) instructed sales representatives who solicit participants to purchase the contract specifically to bring the redemption restrictions imposed by Section 403(b)(11) to the attention of the potential participants; and (4) obtained from each plan participant who purchases a Section 403(b) annuity contact, prior to or at the time of such purchase, a signed statement acknowledging the participant's understanding of (i) the restrictions on redemption imposed by Section 403(b)(11), and (ii) the investment alternatives available under the employer's Section 403(b) arrangement, to which the participant may elect to transfer his or her contract value. By: /s/Robert C. Hamilton Name: Robert C. Hamilton Title: Second Vice President Date: April 25, 1995 EX-18 7 Exhibit 18 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Heath B. McLendon of Summit, New Jersey, Chair man of the Board of Managers of The Travelers Quality Bond Account for Variable Annuities of The Travelers Insurance Com pany, do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Fund, and KATHLEEN A. McGAH, Assistant Secretary of said Fund, either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements of said Fund on Form N-3 or other applicable form under the Securities Act of 1933 for the registration of Variable Annuity Contracts funded in The Travelers Quality Bond Account for Variable Annuities and to sign any and all amendments thereto that may be filed. IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of February, 1995. /s/Heath B. McLendon Chairman of the Board of Managers The Travelers Quality Bond Account for Variable Annuities THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Knight Edwards of Providence, Rhode Island, a member of the Board of Managers of The Travelers Quality Bond Account for Variable Annuities of The Travelers Insurance Com pany, do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Fund, and SARA CHAMBERLAIN, Assistant Secretary of said Fund, either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements of said Fund on Form N-3 or other applicable form under the Securities Act of 1933 for the regis tration of Variable Annuity Contracts funded in The Travelers Quality Bond Account for Variable Annuities and to sign any and all amendments thereto that may be filed. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of October, 1994. /s/Knight Edwards Member of the Board of Managers The Travelers Quality Bond Account for Variable Annuities THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Robert E. McGill, III of Williamstown, Massa chusetts, a member of the Board of Managers of The Travelers Quality Bond Account for Variable Annuities of The Travelers Insurance Company, do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Fund, and SARA CHAMBERLAIN, Assis tant Secretary of said Fund, either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements of said Fund on Form N-3 or other applicable form under the Securities Act of 1933 for the registration of Variable Annuity Contracts funded in The Travelers Quality Bond Account for Variable Annuities and to sign any and all amendments thereto that may be filed. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of October, 1994. /s/Robert E. McGill Member of the Board of Managers The Travelers Quality Bond Account for Variable Annuities THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Lewis Mandell of Storrs, Connecticut, a member of the Board of Managers of The Travelers Quality Bond Account for Variable Annuities of The Travelers Insurance Company, do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Fund, and SARA CHAMBERLAIN, Assistant Secretary of said Fund, either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements of said Fund on Form N-3 or other applicable form under the Securities Act of 1933 for the regis tration of Variable Annuity Contracts funded in The Travelers Quality Bond Account for Variable Annuities and to sign any and all amendments thereto that may be filed. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of October, 1994. /s/Lewis Mandell Member of the Board of Managers The Travelers Quality Bond Account for Variable Annuities THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Frances M. Hawk of Sherborn, Massachusetts, a member of the Board of Managers of The Travelers Quality Bond Account for Variable Annuities of The Travelers Insurance Com pany, do hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Fund, and SARA CHAMBERLAIN, Assistant Secretary of said Fund, either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements of said Fund on Form N-3 or other applicable form under the Securities Act of 1933 for the regis tration of Variable Annuity Contracts funded in The Travelers Quality Bond Account for Variable Annuities and to sign any and all amendments thereto that may be filed. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of October, 1994. /s/Frances M. Hawk Member of the Board of Managers The Travelers Quality Bond Account for Variable Annuities Exhibit 18(b) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, JAY S. FISHMAN of Haworth, New Jersey, director and Chief Financial Officer of The Travelers Insurance Company (hereinafter the "Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT, Assistant Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-3, Form N-4, S-2 and Form S-6 or other appropriate form under the Securities Act of 1933 which registrants are dedicated specifically to the funding of variable annuity contracts, modified guaranteed annuity contracts and variable life insurance contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of April, 1995. /s/ Jay S. Fishman ____________________________________ Director and Chief Financial Officer The Travelers Insurance Company THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Robert I. Lipp of Scarsdale, New York, director of The Travelers Insurance Company (hereafter the "Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-3 or other appropriate form under the Securities Act of 1933 for The Travelers Quality Bond Account for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of April, 1995. /s/Robert I. Lipp Director The Travelers Insurance Company THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Charles O. Prince, III of Weston, Connecticut, director of The Travelers Insurance Company (hereafter the "Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-3 or other appropriate form under the Securities Act of 1933 for The Travelers Quality Bond Account for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of April, 1995. /s/Charles O. Prince, III Director The Travelers Insurance Company THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Marc P. Weill of New York, New York, director of The Travelers Insurance Company (hereinafter the "Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-3 or other appropriate form under the Securities Act of 1933 for The Travelers Quality Bond Account for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amend ments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of November, 1994. /s/Marc P. Weill Director The Travelers Insurance Company THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Irwin R. Ettinger of Stamford, Connecticut, director of The Travelers Insurance Company (hereinafter the "Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-3 or other appropriate form under the Securities Act of 1933 for The Travelers Quality Bond Account for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity con tracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of April, 1994. /s/Irwin R. Ettinger Director The Travelers Insurance Company THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, MICHAEL A. CARPENTER of Greenwich, Connecticut, a director of The Travelers Insurance Company (hereinafter the "Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney- in-fact, for me, and in my name, place and stead, to sign regis- tration statements on behalf of said Company on Form N-3 or other appropriate form under the Securities Act of 1933 for The Trav- elers Quality Bond Account for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amendments thereto, including post effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of February, 1995. /s/Michael A. Carpenter Director The Travelers Insurance Company THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, Donald T. DeCarlo of Douglaston, New York, director of The Travelers Insurance Company (hereinafter the "Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-3 or other appropriate form under the Securities Act of 1933 for The Travelers Quality Bond Account for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity con tracts to be offered by the Company, and further, to sign any and all amendments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of April, 1995. /s/Donald T. DeCarlo Director The Travelers Insurance Company THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, James L. Morgan of Simsbury, Connecticut, Senior Vice President and Chief Accounting Officer of The Travelers Insurance Company (hereinafter the "Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and Chief Finan cial Officer of said Company, and JULIE E. ROCKMORE, Assistant Secretary of said Company, or either one of them acting alone, my true and lawful attorney-in-fact, for me, and in my name, place and stead, to sign registration statements on behalf of said Company on Form N-3 or other appropriate form under the Securi ties Act of 1933 for The Travelers Quality Bond Account for Variable Annuities, a separate account of the Company dedicated specifically to the funding of variable annuity contracts to be offered by the Company, and further, to sign any and all amend ments thereto, including post-effective amendments, that may be filed by the Company on behalf of said registrant. IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of September, 1994. /s/James L. Morgan Senior Vice President and Chief Accounting Officer The Travelers Insurance Company EX-27 8
6 1 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 166,628,106 159,998,791 6,268,236 58,841 0 166,325,868 3,497,500 0 109,577 3,607,077 0 0 37,727,402 40,960,822 0 0 0 0 0 162,718,791 0 12,724,370 0 2,646,220 10,078,150 (1,194,328) (13,194,301) (4,310,479) 0 0 0 0 0 0 0 (18,227,392) 0 0 0 0 572,484 0 2,646,220 0 0 0 0 0 0 0 0 0 0 0
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