-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SLjLQcUf0uNXV75Dcn+S2AR9M35dm+4SvJ/GOQ7bN3Fj2u9P+u3vRZ5TbajRRf+g xd0fMa6DiE++dTYL6DM5sQ== 0000930413-03-000607.txt : 20030228 0000930413-03-000607.hdr.sgml : 20030228 20030227183657 ACCESSION NUMBER: 0000930413-03-000607 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030228 EFFECTIVENESS DATE: 20030228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0000700871 IRS NUMBER: 060566090 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03409 FILM NUMBER: 03584377 BUSINESS ADDRESS: STREET 1: ONE TOWER SQ STREET 2: C/O TRAVELERS INSURANCE CO CITY: HARTFORD STATE: CT ZIP: 06183 BUSINESS PHONE: 8602770111 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 FORMER COMPANY: FORMER CONFORMED NAME: TRAVELERS FUND MM FOR VARIABLE ANNUITIES DATE OF NAME CHANGE: 19851103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS GROWTH & INCOME STOCK ACCT FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0000099444 IRS NUMBER: 060566090 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01539 FILM NUMBER: 03584378 BUSINESS ADDRESS: STREET 1: ONE TOWER SQ STREET 2: C/O TRAVELERS INSURANCE CO CITY: HARTFORD STATE: CT ZIP: 06183-2020 BUSINESS PHONE: 8602770111 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 FORMER COMPANY: FORMER CONFORMED NAME: TRAVELERS FUND A FOR VARIABLE ANNUITIES DATE OF NAME CHANGE: 19851103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0000099440 IRS NUMBER: 060566090 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02571 FILM NUMBER: 03584379 BUSINESS ADDRESS: STREET 1: ONE TOWER SQ STREET 2: C/O TRAVELERS INSURANCE CO CITY: HARTFORD STATE: CT ZIP: 06183-2020 BUSINESS PHONE: 8602770111 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 FORMER COMPANY: FORMER CONFORMED NAME: TRAVELERS FUND A-1 FOR VARIABLE ANNUITIES DATE OF NAME CHANGE: 19851103 N-30D 1 c26591_n30d.txt ANNUAL REPORT UNIVERSAL ANNUITY ANNUAL REPORTS DECEMBER 31, 2002 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES TRAVELERSLife&Annuity[Graphic Omitted] The Travelers Insurance Company The Travelers Life and Annuity Company One Cityplace Hartford, CT 06103 [Graphic Omitted] Travelers Asset Management International Company, LLC ("TAMIC") provides fixed income management and advisory services for the following Travelers Variable Products Separate Accounts contained in this report: The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities and The Travelers Money Market Account for Variable Annuities. [Graphic Omitted] A member of citigroup[Graphic Omitted] The Travelers Investment Management Company ("TIMCO") provides equity management and subadvisory services for The Travelers Growth and Income Stock Account for Variable Annuities. TABLE OF CONTENTS PAGE - -------------------------------------------------------------------------------- INVESTMENT ADVISORY COMMENTARY ................................................1 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES.........................................................3 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES.....................17 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES.....................29 BOARD OF MANAGERS AND OFFICERS................................................38 TRAVELERSLife&Annuity[Graphic Omitted] TRAVELERS LIFE & ANNUITY VARIABLE PRODUCT SEPARATE ACCOUNTS INVESTMENT ADVISORY COMMENTARY AS OF DECEMBER 31, 2002 MARKET AND ECONOMIC OVERVIEW The economy looks to have barely grown in the fourth quarter and is still following the same erratic up-and-down pattern that has been in place since late 2001. For all of 2002, however, growth looks to have been around 2.6% - a slow recovery, but a recovery nonetheless. Although still facing headwinds, growth is expected to be somewhat stronger in 2003 than last year. The primary source of growth appears set to shift from the consumer sector to a better-balanced mix of business investment and consumer spending. First quarter Gross Domestic Product ("GDP") growth was measured at a robust, inventory-driven 5% pace. Since the 2001 recession was mild by historic measures, the economy was still operating well below its potential output level and was able to absorb strong growth in the first quarter. GDP growth slowed down to 1.1% in the second quarter. Factors contributing to the second quarter slowdown included slower consumer spending, a surge in imports, slower inventory adjustment, and a decline in state and local government spending. Business investment spending on equipment and software grew in the second quarter for the first time since early 2000. The third quarter was marred by corporate governance scandals and heightened geopolitical risks. The U.S. equity market fell sharply on new fears of a double-dip recession as the growing uncertainty was projected to translate into weaker business spending and slower job growth. CEO certification of financial statements and anticipation of added fiscal stimulus through more tax cuts triggered a sharp market rally in the fourth quarter even as economic growth remained sluggish. We believe low inflation, uncertainties related to Iraq, and an economic recovery that is too slow to create significant numbers of new jobs give the Federal Reserve Board ("Fed") the latitude necessary to keep monetary policy in its current highly accommodative stance. The Fed has called the current stance of monetary policy "accommodative" in policy statements released following every FOMC meeting in 2002 including the November meeting that resulted in the Fed easing another 50 basis points to 1.25%. The Fed's "bias" was changed back to neutral following the November 6 Federal Open Market Committee ("FOMC") meeting. The statement released after that meeting pointed toward heightened uncertainties from geopolitical risks that have acted to slow spending, investment and job creation. We believe that the unexpectedly large size of the ease, the shift to a neutral bias, and the FOMC's characterization of the current state of economic growth as a "soft spot" lead to an expectation that the Fed is done easing for the foreseeable future. Corporate financial health appears to be slowly improving. Modest gains in profits have been accomplished in an environment of very little pricing power and consequently low inflation. We believe that cost cutting has resulted in large gains in productivity and is largely responsible for the improving earnings environment. Although business investment spending on equipment and software grew modestly in each of the last two quarters, the outlook for continued capital spending remains clouded by near-term uncertainty. Excess capacity in office and manufacturing space looks to continue to depress commercial construction activity well into 2003. The bottom line is that we feel the economy looks to continue a modest, below-trend pace of growth in 2003. Although consumer spending is expected to slow somewhat, the corporate sector is poised to take up the slack. Federal government spending strength should largely offset weakness in state and local spending. Inventories, still at very low levels, are expected to add only modestly to growth. The weaker dollar and improvement in the technology sector look to allow exports to grow fast enough to offset import growth, but not much more. -1- Large cap stocks underperformed their small cap counterparts in 2002 while value stocks outperformed growth stocks. During the twelve months ending in December 2002, the Standard & Poor's 500 Stock Index ("S&P 500"), a value-weighted equity index comprised primarily of large-company stocks, declined 22.1% while the Russell 2000 index declined 20.5%. The Russell 1000 Value index declined 15.5% ahead of the Russell 1000 Growth index decline of 27.9%. The possibility of reduced tax rates on dividends and increased allowances for capital losses should be the key policy issues in the next few weeks. Also, investors will undoubtedly pay attention to financial reports on adjustments to defined benefit pension and employee stock option programs. Although the risks of accounting irregularities have mitigated due to unprecedented scrutiny, geopolitical risks centered on terrorism as well as Iraq and North Korea have intensified. Despite a recent pullback, corporate bond yield spreads have remained high. We do not believe that the intense risk aversion has derailed the long-term economic recovery, which is progressing gradually and steadily. Nevertheless, investors could face increased market volatility in the next few months as global political events impact oil prices and other economic activities. The recent recovery in stock prices was led by lower quality, higher risk speculative companies. We have now observed a zigzag pattern of investor sentiment for several months where bursts of optimism based on stimulative policy has alternated with bouts of pessimism based on prospects of weaker earnings in the short term. It remains to be seen if the current expectation of a continued economic recovery is realized during 2003. We maintain our dual focus on low valuation and rising earnings expectations as the key stock selection parameters during this difficult market environment. DAVID A. TYSON, CFA, CHAIRMAN, TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC SANDIP A. BHAGAT, CFA, PRESIDENT AND CHIEF INVESTMENT OFFICER, THE TRAVELERS INVESTMENT MANAGEMENT COMPANY THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET OR OTHER CONDITIONS. -2- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES The Travelers Growth and Income Stock Account for Variable Annuities ("Account GIS") is managed by the Travelers Asset Management International Company, LLC ("TAMIC") with the Travelers Investment Management Company ("TIMCO") serving as sub-adviser. Account GIS is managed to provide diversified exposure to the large-company segment of the U.S. equity market. Stock selection is based on a quantitative screening process favoring companies that are able to grow earnings above consensus expectations and offer attractive relative value. In order to achieve consistent relative performance, we manage the portfolio to mirror the overall risk, sector weightings and growth/value style characteristics of the Standard & Poor's 500 Stock Index ("S&P 500"). The S&P 500 is a value-weighted equity index comprised primarily of large-company stocks. For the twelve months ending December 31, 2002, Account GIS declined 20.2%, before fees and expenses, outperforming the S&P 500 index, which declined 22.1%. Net of fees and expenses, Account GIS's loss of 21.7% for 2002 was ahead of the 24.2% loss for variable annuity stock accounts in the Lipper Growth & Income category. A discussion of portfolio performance for 2002 is presented next with a closer look at the second half of the year. Our stock selection factors produced favorable results versus the benchmark for the year. During the first six months of the year, our earnings and price momentum components generated favorable returns. Specifically, our estimates revision factors worked well during the period of negative investor sentiment as companies with sustainable earnings growth prospects were rewarded with relatively superior performance. In the third quarter, concerns over corporate governance led investors to focus on quality of earnings. Our bias towards strong earnings fundamentals helped us outperform the index. However, a speculative rally in low-quality stocks during the fourth quarter hurt us and reduced our outperformance versus the benchmark. Overall, our stock selection was most favorable in the Consumer Discretionary and Health Care sectors, but adverse in the Technology sector. In the Consumer Discretionary sector, we benefited from overweight positions in Proctor & Gamble and Apollo Group, and an underweight position in Clear Channel Communications. Proctor & Gamble continued to gain business momentum with its new products and aggressive sales initiatives. The stock traded lower during the currency crisis in Argentina and Brazil, but quickly recovered after some analysts upgraded the stock due to valuation and its diversified client base around the world. Apollo Group, which provides higher education programs for working adults, successfully expanded into new markets with their learning centers and customized training programs. During the past several quarters, the company was able to meet or exceed consensus earnings estimates. As a result, the stock moved higher steadily throughout the year. Clear Channel Communications suffered from concerns that radio advertising growth might be slowing. Along with changes in senior management, the stock performed poorly. In the Health Care sector, our underweight position in Bristol-Myers Squibb and our overweight positions in Wellpoint Health Networks and Forest Laboratories, Inc. helped us. Forest Lab benefited from a strong product pipeline with potential blockbuster therapies. Through the success of several product launches, the company remained highly profitable and generated healthy operating margins. Wellpoint Health Networks, which operates Blue Cross Blue Shield health plans, gained share in the national account business through the strength of the national Blue Cross program. Especially during the third quarter, investors were willing to pay a premium for its high quality of earnings and its upside profit potential from further consolidation within the Blue Cross program. Bristol-Myers Squibb announced that the SEC began an inquiry into its excess inventory stocking. The focus of the inquiry was whether the company misled shareholders by improperly inflating sales through excess inventory stocking. On the other hand, in the Technology sector, our overweight positions in Motorola, Texas Instruments, and Siebel Systems hurt us. Motorola reduced a significant level of its workforce to compensate for the weak demand of its wireless infrastructure products. The company struggled to divest some of its peripheral products as revenue and profits continued to decline. Similarly, Texas Instruments reported sales and earnings that were below consensus estimates for the past quarter due to sluggish demand for its semiconductor products. Siebel Systems, which develops customer relationship management software, traded lower due to a drastic reduction in capital expenditure from major corporations. Strong pricing pressure from major software companies led to significant decline on operating margins and profits. -3- The possibility of reduced tax rates on dividends and increased allowances for capital losses should be the key policy issues in the next few weeks. Also, investors will undoubtedly pay attention to financial reports on adjustments to defined benefit pension and employee stock option programs. Although the risks of accounting irregularities have mitigated due to unprecedented scrutiny, geopolitical risks centered on terrorism as well as Iraq and North Korea have intensified. Despite a recent pullback, corporate bond yield spreads have remained high. We do not believe that the intense risk aversion has derailed the long-term economic recovery, which is progressing gradually and steadily. Nevertheless, investors could face increased market volatility in the next few months as global political events impact oil prices and other economic activities. The recent recovery in stock prices was led by lower quality, higher risk speculative companies. We have now observed a zigzag pattern of investor sentiment for several months where bursts of optimism based on stimulative policy has alternated with bouts of pessimism based on prospects of weaker earnings in the short term. It remains to be seen if the current expectation of a continued economic recovery is realized during 2003. We maintain our dual focus on low valuation and rising earnings expectations as the key stock selection parameters during this difficult market environment. In our disciplined approach to stock selection, we screen our research universe of over 1000 large cap securities for companies that offer improving earnings fundamentals at discounted stock valuations. We continue to focus on this dual theme of low valuations and improving earnings outlook as the basis of our stock selection. DAVID A. TYSON, CFA, CHAIRMAN, TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC PORTFOLIO MANAGER: SANDIP A. BHAGAT, CFA, PRESIDENT AND CHIEF INVESTMENT OFFICER, THE TRAVELERS INVESTMENT MANAGEMENT COMPANY THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET OR OTHER CONDITIONS. [GRAPHIC OMITTED] [GRAPHIC OMITTED] A member of citigroup[GRAPHIC OMITTED] -4- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002 ASSETS: Investment securities, at fair value (cost $538,761,183) ...... $454,884,194 Cash .......................................................... 21,729 Receivables: Dividends ................................................... 665,240 Investment securities sold .................................. 1,622,717 Purchase payments and transfers from other funding options .. 134,817 Variation on futures margin ................................. 17,500 Other assets .................................................. 22,268 ------------ Total Assets .............................................. 457,368,465 ------------ LIABILITIES: Payables: Investment securities purchased ............................. 3,102,707 Contract surrenders and transfers to other funding options .. 93,167 Investment management and advisory fees ..................... 32,219 Insurance charges ........................................... 58,470 Accrued liabilities ........................................... 868 ------------ Total Liabilities ......................................... 3,287,431 ------------ NET ASSETS: ..................................................... $454,081,034 ============ See Notes to Financial Statements -5- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 INVESTMENT INCOME: Dividends ......................................................... $ 8,029,077 Interest .......................................................... 297,663 -------------- Total income .................................................... $ 8,326,740 EXPENSES: Investment management and advisory fees ........................... 3,528,283 Insurance charges ................................................. 6,522,616 -------------- Total expenses .................................................. 10,050,899 -------------- Net investment income (loss) .................................. (1,724,159) -------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized gain (loss) from investment security transactions: Proceeds from investment securities sold ........................ 398,033,650 Cost of investment securities sold .............................. 442,107,745 -------------- Net realized gain (loss) ...................................... (44,074,095) Change in unrealized gain (loss) on investment securities: Unrealized gain (loss) at December 31, 2002 ..................... (83,876,989) Unrealized gain (loss) at December 31, 2001 ..................... 8,265,805 -------------- Net change in unrealized gain (loss) for the year ............. (92,142,794) -------------- Net realized gain (loss) and change in unrealized gain (loss) (136,216,889) -------------- Net increase (decrease) in net assets resulting from operations ... $ (137,941,048) ==============
See Notes to Financial Statements -6- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001 ------------- ------------- OPERATIONS: Net investment income (loss) ........................................... $ (1,724,159) $ (2,987,580) Net realized gain (loss) from investment security transactions ......... (44,074,095) (22,557,605) Net change in unrealized gain (loss) on investment securities .......... (92,142,794) (107,684,036) ------------- ------------- Net increase (decrease) in net assets resulting from operations ...... (137,941,048) (133,229,221) ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 1,672,473 and 1,952,537 units, respectively) .......... 25,669,656 35,651,317 Participant transfers from other funding options (applicable to 688,693 and 979,445 units, respectively) .............. 10,328,582 17,842,644 Administrative charges (applicable to 36,141 and 32,349 units, respectively) ................ (517,226) (585,466) Contract surrenders (applicable to 3,628,838 and 3,126,520 units, respectively) .......... (55,346,598) (57,723,353) Participant transfers to other funding options (applicable to 3,238,862 and 2,986,184 units, respectively) .......... (47,526,395) (53,433,740) Other payments to participants (applicable to 157,894 and 190,128 units, respectively) .............. (2,436,118) (3,564,069) ------------- ------------- Net increase (decrease) in net assets resulting from unit transactions (69,828,099) (61,812,667) ------------- ------------- Net increase (decrease) in net assets .............................. (207,769,147) (195,041,888) NET ASSETS: Beginning of year ...................................................... 661,850,181 856,892,069 ------------- ------------- End of year ............................................................ $ 454,081,034 $ 661,850,181 ============= =============
See Notes to Financial Statements -7- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Growth and Income Stock Account for Variable Annuities ("Account GIS") is a separate account of The Travelers Insurance Company ("The Company"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding Universal Annuity contracts issued by The Company. Account GIS is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by Account GIS in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the 4:00 p.m. Eastern Standard Time price of such exchanges; 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 are reported at fair value based on quoted market prices. Short-term investments, for which there is no reliable quoted market price, are recorded at amortized cost which approximates fair value. SECURITY TRANSACTIONS. Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Premiums and discounts are amortized to interest income utilizing the constant yield method. FUTURES CONTRACTS. Account GIS may use stock index futures contracts as a substitute for the purchase or sale of individual securities. When Account GIS enters into a futures contract, it agrees to buy or sell a specified index of stocks at a future time for a fixed price, unless the contract is closed prior to expiration. Account GIS is obligated to deposit with a broker an "initial margin" equivalent to a percentage of the face, or notional value of the contract. It is Account GIS's practice to hold cash and cash equivalents in an amount at least equal to the notional value of outstanding purchased futures contracts, less the initial margin. Cash and cash equivalents include cash on hand, securities segregated under federal and brokerage regulations, and short-term highly liquid investments with maturities generally three months or less when purchased. Generally, futures contracts are closed prior to expiration. Futures contracts purchased by Account GIS are priced and settled daily; accordingly, changes in daily prices are recorded as realized gains or losses and no asset is recorded in the Statement of Investments. Therefore, when Account GIS holds open futures contracts, it assumes a market risk generally equivalent to the underlying market risk of change in the value of the specified indexes associated with the futures contract. OPTIONS. Account GIS may purchase index or individual equity put or call options, thereby obtaining the right to sell or buy a fixed number of shares of the underlying asset at the stated price on or before the stated expiration date. Account GIS may sell the options before expiration. Options held by Account GIS are listed on either national securities exchanges or on over-the-counter markets and are short-term contracts with a duration of less than nine months. The market value of the options will be based on the 4:00 p.m. Eastern Standard Time price of the respective exchange, or in the absence of such price, the latest bid quotation. REPURCHASE AGREEMENTS. When Account GIS enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed upon date and price), the repurchase price of the securities will generally equal the amount paid by Account GIS plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Account GIS securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Account GIS monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Account GIS's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. -8- NOTES TO FINANCIAL STATEMENTS - CONTINUED FEDERAL INCOME TAXES. The operations of Account GIS form a part of the total operations of The Company and are not taxed separately. The Company is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended (the "Code"). Under existing federal income tax law, no taxes are payable on the investment income and capital gains of Account GIS. Account GIS is not taxed as a "regulated investment company" under Subchapter M of the Code. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments (other than short-term securities), were $288,336,497 and $359,803,039, respectively; the costs of purchases and proceeds from sales of direct and indirect U.S. government securities were $5,066,012 and $4,453,699, respectively, for the year ended December 31, 2002. Realized gains and losses from investment security transactions are reported on an identified cost basis. At December 31, 2002, Account GIS held 50 open S&P 500 Stock Index futures contracts expiring in March, 2003. The underlying face value, or notional value, of these contracts at December 31, 2002 amounted to $10,986,250. In connection with these contracts, short-term investments with a par value of $1,700,000 had been pledged as margin deposits. Net realized losses resulting from futures contracts were $1,116,889 and $5,571,408 for the years ended December 31, 2002 and, 2001, respectively. These 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. The cash settlement for December 31, 2002 is shown on the Statement of Assets and Liabilities as a receivable for variation on futures margin. 3. CONTRACT CHARGES Investment management and advisory fees are calculated daily at annual rates which start at 0.65% and decrease, as net assets increase, to 0.40% of Account GIS's average net assets. These fees are paid to Travelers Asset Management International Company, LLC ("TAMIC"), an indirect wholly owned subsidiary of Citigroup Inc. Pursuant to a subadvisory agreement between TAMIC and The Travelers Investment Management Company ("TIMCO"), an indirect wholly owned subsidiary of Citigroup Inc., TAMIC pays TIMCO a subadvisory fee calculated daily at annual rates which start at 0.45% and decrease, as net assets increase, to 0.20% of Account GIS's average net assets. Insurance charges are paid for the mortality and expense risks assumed by The Company. Each business day, The Company deducts a mortality and expense risk charge which is reflected in the calculation of accumulation and annuity unit values. This charge equals, on an annual basis, 1.0017% for contracts issued prior to May 16, 1983 and 1.25% on an annual basis for contracts issued on or after May 16, 1983. For certain contracts in the accumulation phase, a semi-annual charge of $15 (prorated for partial years) is deducted from participant account balances and paid to The Company to cover administrative charges. On contracts issued prior to May 16, 1983, The Company retained from Account GIS sales charges of $12,734 and $14,254 for the years ended December 31, 2002 and 2001, respectively. The Company 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 net of contingent deferred sales charges of $375,583 and $349,711 for the years ended December 31, 2002 and 2001, respectively. -9- NOTES TO FINANCIAL STATEMENTS - CONTINUED 4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $10,255,000 and $15,668,000 of the net assets of Account GIS were held on behalf of an affiliate of The Company as of December 31, 2002 and 2001, respectively. Transactions with this affiliate during the years ended December 31, 2002 and 2001, were comprised of participant purchase payments of approximately $70,000 and $123,000 and contract surrenders of approximately $1,045,000 and $374,000, respectively. 5. NET CONTRACT OWNERS' EQUITY
DECEMBER 31, 2002 ------------------------------------------- UNIT NET UNITS VALUE ASSETS ----- ----- ------ Accumulation phase of contracts issued prior to May 16, 1983 ....... 8,870,705 $ 14.172 $ 125,725,520 Annuity phase of contracts issued prior to May 16, 1983 ............ 217,440 14.172 3,081,798 Accumulation phase of contracts issued on or after May 16, 1983 .... 24,029,207 13.496 324,321,864 Annuity phase of contracts issued on or after May 16, 1983 ......... 70,523 13.496 951,852 ------------- Net Contract Owners' Equity .................................................................... $ 454,081,034 =============
-10- NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each year.)
Contracts issued prior to May 16, 1983 FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ......................................... $ .240 $ .266 $ .242 $ .267 $ .243 Operating expenses .............................................. .261 .311 .376 .347 .272 -------- ------- ------- ------- ------- Net investment income (loss) ..................................... (.021) (.045) (.134) (.080) (.029) Unit value at beginning of year .................................. 18.064 21.418 24.427 20.017 15.510 Net realized and change in unrealized gains (losses) ............. (3.871) (3.309) (2.875) 4.490 4.536 -------- ------- ------- ------- ------- Unit value at end of year ........................................ $ 14.172 $18.064 $21.418 $24.427 $20.017 ======== ======= ======= ======= ======= SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ........................... $ (3.89) $ (3.35) $ (3.01) $ 4.41 $ 4.51 Ratio of operating expenses to average net assets ............... 1.64% 1.63% 1.60% 1.60% 1.56% Ratio of net investment income (loss) to average net assets ...... (.12)% (.24)% (.57)% (.37)% (.16)% Number of units outstanding at end of year (thousands) .......... 9,088 10,329 11,413 12,646 13,894 Portfolio turnover rate ......................................... 54% 32% 52% 47% 50% Contracts issued on or after May 16, 1983 FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ELECTED PER UNIT DATA: Total investment income ......................................... $ .229 $ .254 $ .232 $ .256 $ .234 Operating expenses .............................................. .287 .343 .416 .385 .303 --------- -------- --------- --------- -------- Net investment income (loss) .................................... (.058) (.089) (.184) (.129) (.069) Unit value at beginning of year ................................. 17.245 20.498 23.436 19.253 14.955 Net realized and change in unrealized gains (losses) ............ (3.691) (3.164) (2.754) 4.312 4.367 --------- ------- --------- --------- --------- Unit value at end of year ....................................... $ 13.496 $ 17.245 $ 20.498 $ 23.436 $ 19.253 ========= ======== ========= ========= ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ........................... $ (3.75) $ (3.25) $ (2.94) $ 4.18 $ 4.30 Ratio of operating expenses to average net assets ............... 1.89% 1.88% 1.85% 1.85% 1.81% Ratio of net investment income (loss) to average net assets ..... (.37)% (.49)% (.82)% (.62)% (.41)% Number of units outstanding at end of year (thousands) .......... 24,100 27,559 29,879 32,648 32,051 Portfolio turnover rate ......................................... 54% 32% 52% 47% 50%
-11- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS DECEMBER 31, 2002 NO. OF FAIR SHARES VALUE ----------- -------------- COMMON STOCK (97.4%) AEROSPACE (0.8%) Boeing Co. 65,130 $ 2,148,639 General Dynamics 15,743 1,249,522 Goodrich Corp. 9,805 179,628 ------------- 3,577,789 ------------- AIRLINES (0.2%) Southwest Airlines 64,805 900,789 ------------- AUTOMOTIVE (1.3%) Dana Corp 14,257 167,662 Eaton Corp. 13,534 1,057,141 Ford Motor Co. 84,264 783,655 General Motors Corp. 58,723 2,164,530 Harley-Davidson 8,283 382,674 Johnson Controls, Inc. 16,254 1,303,083 ------------- 5,858,745 ------------- BANKING (8.9%) Bank of America Corp. 98,454 6,849,445 Bank of New York 40,079 960,293 Bank One Corp. 82,443 3,013,292 BB&T Corp. 14,216 525,850 Capital One Financial Corp. 12,106 359,790 Comerica Inc. 3,903 168,766 Fifth Third BanCorp 18,531 1,087,028 FleetBoston Financial Corp. 72,187 1,754,144 Golden West Financial Corp 18,467 1,326,115 J.P. Morgan Chase & Co. 127,626 3,063,024 MBNA Corp. 129,091 2,455,311 National City Corp. 63,022 1,721,761 Northern Trust 13,733 480,174 PNC Financial Services Group 17,792 745,485 Regions Financial Corp. 13,538 451,628 SouthTrust Corp. 19,090 474,673 State Street Corp. 17,908 698,412 SunTrust Banks 16,256 925,291 Synovus Financial 19,757 383,286 U. S. Bancorp 90,739 1,925,482 Union Planters 40,764 1,147,099 Wachovia Corp. 58,407 2,128,351 Washington Mutual, Inc. 77,833 2,687,573 Wells Fargo & Co. 107,553 5,041,009 ------------- 40,373,282 ------------- BEVERAGE (3.4%) Adolph Coors Co. 16,277 996,966 Anheuser-Busch Cos. 61,192 2,961,693 Coca-Cola Co. 135,707 5,946,681 Coca-Cola Enterprises Inc. 24,595 534,203 Pepsi Bottling Group 43,304 1,112,913 PepsiCo, Inc. 90,782 3,832,816 ------------- 15,385,272 ------------- BROKERAGE (2.3%) Charles Schwab Corp. 125,636 1,363,151 Goldman Sachs Group, Inc. 32,393 2,205,963 Lehman Brothers Holding, Inc. 23,258 1,239,419 Merrill Lynch & Co. 92,466 3,509,085 Morgan Stanley Dean Witter & Co. 59,470 2,374,042 ------------- 10,691,660 ------------- BUILDING MATERIALS (0.4%) Centex Corp. 15,897 798,029 Masco Corp. 38,742 815,519 ------------- 1,613,548 ------------- CAPITAL GOODS (0.5%) Applied Materials, Inc. (A) 95,225 1,241,258 Deere & Co. 19,655 901,182 Nucor Corp. 6,985 288,480 ------------- 2,430,920 ------------- CHEMICALS (1.4%) Air Products & Chemical, Inc. 24,905 1,064,689 Dow Chemical Co. 46,281 1,374,546 E.I. Dupont de Nemours & Co. 50,341 2,134,458 Eastman Chemical Co. 11,637 427,892 Monsanto Co. 11,110 213,867 PPG Industries 9,292 465,994 Praxair, Inc. 8,221 474,927 Rohm & Haas Co. 10,795 350,622 ------------- 6,506,995 ------------- CONGLOMERATES (4.8%) Emerson Electric Co. 14,414 732,952 General Electric Co. 553,349 13,474,048 Honeywell International, Inc. 59,341 1,424,184 3M Co. 21,154 2,608,288 Tyco International Ltd. 109,945 1,877,861 United Technologies Corp. 25,638 1,588,018 ------------- 21,705,351 ------------- CONSTRUCTION MACHINERY (0.2%) Ingersoll-Rand Co. 21,687 933,842 ------------- CONSUMER (3.7%) Alberto-Culver 17,453 879,631 Avery Dennison Corp. 14,077 859,823 Ball Corp. 11,870 607,625 Black & Decker Corp. 4,966 212,992 Colgate-Palmolive Co. 21,673 1,136,315 Eastman Kodak 14,771 517,576 Gillette Co. 38,456 1,167,524 Kimberly Clark Corp. 20,481 972,233 Leggett & Platt, Inc. 40,940 918,694 Maytag Corp. 27,353 779,561 Newell Rubbermaid Inc. 34,099 1,034,222 Procter & Gamble Co. 79,020 6,790,979 Reebok International (A) 8,644 254,134 Sealed Air (A) 18,909 705,306 ------------- 16,836,615 ------------- DEFENSE (0.9%) Lockheed Martin Corp. 35,242 2,035,226 Northrop Grumman Corp. 9,329 904,913 Raytheon Co. 33,652 1,034,799 ------------- 3,974,938 ------------- -12- STATEMENT OF INVESTMENTS - CONTINUED NO. OF FAIR SHARES VALUE ----------- ------------- ENTERTAINMENT (1.5%) Harrah's Entertainment, Inc. (A) 28,024 $ 1,109,750 Viacom, Inc. (A) 95,627 3,897,757 Walt Disney Co. 124,079 2,023,728 ------------- 7,031,235 ------------- FINANCE (2.1%) American Express Co. 116,371 4,113,715 Countrywide Credit 22,317 1,152,673 Industries, Inc. Household Finance Corp. 47,116 1,310,296 Mellon Financial 21,761 568,180 MetLife Capital Trust 43,617 1,179,404 Moody's Corp. 22,570 931,915 Providian Financial (A) 67,320 436,907 ------------- 9,693,090 ------------- FOOD (1.5%) ConAgra Foods 29,580 739,796 Hershey Foods Corp. 19,475 1,313,394 Kellogg Co. 38,762 1,328,374 McDonald's Corp. 48,080 773,126 Sysco Corp. 36,587 1,089,927 Tyson Foods, Inc. 53,892 604,668 Yum! Brands, Inc. (A) 35,505 859,931 ------------- 6,709,216 ------------- GAMING (0.1%) MGM MIRAGE, Inc. (A) 18,131 597,779 ------------- HEALTHCARE (2.9%) Abbott Laboratories 85,925 3,437,000 Bausch & Lomb, Inc. 24,262 873,432 Cardinal Health, Inc. 32,705 1,935,809 Caremark Rx, Inc. (A) 28,637 465,351 Guidant Corp. (A) 14,639 451,613 HCA-The Healthcare Company 47,444 1,968,926 McKesson Corp. 15,827 427,804 UnitedHealth Group, Inc. 23,627 1,972,855 Varian Medical Systems (A) 9,603 476,309 Wellpoint Health Networks (A) 13,719 976,244 ------------- 12,985,343 ------------- HOME CONSTRUCTION (0.1%) K.B. HOME 4,923 210,950 Pulte Homes 4,780 228,819 ------------- 439,769 ------------- INDEPENDENT ENERGY (0.8%) Apache Corp. 9,383 534,737 Burlington Resources 23,032 982,315 Devon Energy 8,608 395,107 Entergy Corp. 33,427 1,523,937 ------------- 3,436,096 ------------- INSURANCE (4.1%) Aetna Inc. 8,035 330,399 AFLAC Inc. 14,070 423,788 Allstate Corp. 62,561 2,314,131 Ambac Financial Group 37,335 2,099,720 American International Group 136,841 7,916,252 Lincoln National Corp. 18,679 589,883 Marsh & McLennan Co. 12,621 583,216 MGIC Investment Corp. 20,929 864,368 Prudential Financial 31,527 1,000,667 PMI Group 27,071 813,213 Progressive Corp. 15,053 747,080 Torchmark Corp. 32,197 1,176,156 ------------- 18,858,873 ------------- INTEGRATED ENERGY (4.7%) Amerada Hess Corp. 5,647 310,867 Anadarko Petroleum 15,868 760,077 Chevron Texaco Corp. 56,655 3,766,424 Conoco, Inc. 36,791 1,780,316 Exxon Mobil Corp. 368,632 12,880,002 Marathon Oil Corp. 19,149 407,682 Occidental Petroleum 20,675 588,204 Unocal Corp. 22,140 677,041 ------------- 21,170,613 ------------- LODGING (0.2%) Marriott International 27,929 918,026 ------------- MEDIA (2.1%) AOL Time Warner (A) 267,687 3,506,700 Clear Channel Communications, Inc. (A) 41,617 1,551,898 Comcast Corp. (A) 131,423 2,966,874 Gannett Company, Inc. 10,560 758,208 Omnicom Group 10,301 665,445 Tribune Co. 7,131 324,175 ------------- 9,773,300 ------------- METALS (0.7%) Alcoa, Inc. 45,775 1,042,755 Illinois Tool Works 16,413 1,064,547 Pactiv Corp. (A) 44,783 978,956 ------------- 3,086,258 ------------- NATURAL GAS DISTRIBUTORS (0.5%) Questar Corp. 40,012 1,113,134 Kinder Morgan, Inc. 28,699 1,213,107 ------------- 2,326,241 ------------- OIL FIELD (0.9%) Baker Hughes, Inc. 36,961 1,189,775 Halliburton Co. 55,053 1,030,042 Schlumberger Ltd. 27,755 1,168,208 Transocean, Inc. 23,559 546,569 ------------- 3,934,594 ------------- PAPER (0.7%) Georgia-Pacific Corp. 19,492 314,991 International Paper Co. 41,424 1,448,597 Temple-Inland 17,825 798,738 Weyerhaeuser Co. 10,987 540,670 ------------- 3,102,996 ------------- -13- STATEMENT OF INVESTMENTS - CONTINUED NO. OF FAIR SHARES VALUE ------------ -------------- PHARMACEUTICALS (11.1%) AmerisourceBergen Corp. 5,774 $ 313,586 Amgen, Inc. (A) 96,123 4,648,508 Baxter International, Inc. 30,677 858,956 Biomet, Inc. 38,961 1,117,596 Bristol-Myers Squibb Co. 121,756 2,818,651 Eli Lilly & Co. 56,867 3,611,055 Forest Laboratories, Inc. (A) 22,464 2,206,414 Johnson & Johnson 178,095 9,565,482 King Pharmaceuticals (A) 35,069 602,836 Merck & Co., Inc. 123,103 6,968,861 Pfizer, Inc. 340,659 10,413,946 Pharmacia Corp. 65,128 2,722,350 Schering-Plough Corp. 80,722 1,792,028 Wyeth 73,278 2,740,597 -------------- 50,380,866 -------------- RAILROADS (0.2%) Union Pacific 13,560 811,837 -------------- REAL ESTATE (0.2%) Equity Office Properties Trust 25,856 645,883 Equity Residential 18,664 458,761 -------------- 1,104,644 -------------- REFINING (0.1%) Newmont Management Corp. 21,569 626,148 -------------- RETAILERS (6.6%) AutoZone, Inc (A) 13,623 962,465 Bed Bath & Beyond, Inc. (A) 37,251 1,288,698 Costco Wholesale (A) 20,869 586,523 Dillard's, Inc. 9,531 151,162 Federated Department Stores, Inc. (A) 11,075 318,517 Gap Inc. 57,855 897,910 Home Depot, Inc. 126,407 3,028,712 Kohl's Corp. (A) 31,871 1,783,182 Limited Brands, Inc. 80,973 1,127,954 Lowe's Cos. 61,135 2,292,563 Staples Inc. (A) 76,386 1,396,718 Target Corp. 43,336 1,300,080 Walgreen Co. 61,509 1,795,448 Wal-Mart Stores, Inc. 258,753 13,069,614 -------------- 29,999,546 -------------- SERVICES (2.2%) Apollo Group, Inc. (A) 26,387 1,161,160 Boston Scientific Corp. (A) 22,656 963,333 Cendant Corp. (A) 57,433 601,898 Concord EFS (A) 35,901 565,082 eBay, Inc. (A) 11,967 811,781 H & R Block 25,742 1,034,828 KLA-TenCor Corp. (A) 10,634 375,540 Medtronic, Inc. 65,825 3,001,620 Paychex, Inc. 18,615 519,638 Waste Management 38,194 875,406 -------------- 9,910,286 -------------- SUPERMARKETS (0.3%) Kroger Co. (A) 33,647 519,846 Safeway, Inc. (A) 24,075 562,392 Supervalue, Inc. 28,920 477,469 -------------- 1,559,707 -------------- TECHNOLOGY (14.7%) Adobe System, Inc. 45,698 1,134,453 Altera Corp. (A) 39,142 484,969 Analog Devices, Inc. (A) 21,816 520,748 Automatic Data Processing 32,429 1,272,838 Avaya Inc. (A) 272,325 667,196 Cisco Systems, Inc. (A) 429,340 5,622,207 Computer Associates International 53,746 725,571 Computer Sciences Corp. (A) 25,239 869,484 Dell Computer Corp. (A) 155,424 4,161,478 Electronic Data Systems 79,219 1,460,006 EMC Corp. (A) 210,823 1,294,453 First Data Corp. 53,905 1,908,776 Fiserv Inc. (A) 23,191 786,407 Hewlett Packard Co. 176,732 3,068,068 Intel Corp. 368,125 5,733,547 International Business Machines Corp. 90,781 7,035,528 Intuit Inc. (A) 11,651 547,073 Lexmark International Group, Inc. (A) 13,882 839,861 Linear Technologies 17,500 449,488 Lucent Technologies (A) 202,411 255,038 Mattel, Inc. (A) 56,642 1,084,694 Maxim Integrated Products 14,801 488,877 Micron Technologies, Inc. (A) 33,121 322,599 Microsoft (A) 297,235 15,372,994 Motorola, Inc. 191,251 1,654,321 National Semiconductor (A) 46,688 700,787 Oracle Corp. (A) 309,680 3,347,641 QUALCOMM, Inc. (A) 42,402 1,541,737 Sanmina Corp. (A) 101,206 453,403 Scientific-Atlanta, Inc. 42,650 505,829 Sun Microsystems, Inc. (A) 251,660 782,663 Texas Instruments, Inc. 93,014 1,396,140 Unisys Corp. (A) 60,043 594,426 -------------- 67,083,300 -------------- TELECOMMUNICATIONS (4.3%) ALLTEL Corp. 35,006 1,785,306 AT&T Corp. 44,476 1,161,268 AT&T Wireless Group (A) 250,870 1,417,416 BellSouth Corp. 110,808 2,866,603 CenturyTel, Inc. 8,627 253,461 SBC Communications, Inc. 186,845 5,065,368 Sprint Corp - PCS Group 80,601 1,167,102 Verizon Global Funding Corp. 150,378 5,827,148 -------------- 19,543,672 -------------- -14- STATEMENT OF INVESTMENTS - CONTINUED NO. OF FAIR SHARES VALUE ------------ -------------- TEXTILE (0.3%) NIKE, Inc. 4,893 $ 217,592 VF Corp. 28,114 1,013,510 -------------- 1,231,102 -------------- TOBACCO (1.3%) Fortune Brands 25,177 1,170,982 Philip Morris Cos. 114,430 4,637,848 -------------- 5,808,830 -------------- TRANSPORTATION SERVICES (1.0%) FedEx Corp. 25,714 1,394,213 United Parcel 47,457 2,993,588 -------------- 4,387,801 -------------- U.S. AGENCY (1.9%) Federal Association National Mortgage 67,114 4,317,444 Federal Home Loan Mortgage Corp. 52,890 3,123,155 SLM Corp. 13,433 1,395,151 -------------- 8,835,750 -------------- UTILITIES (1.5%) Centerpoint Energy, Inc. 46,146 392,241 Dominion Resources, Inc. 17,929 984,302 Duke Energy 52,313 1,022,196 Edison International (A) 18,528 219,557 Exelon Corp. 35,873 1,893,018 FirstEnergy Corp. 6,767 223,108 Mirant Corp. (A) 154,082 291,215 Southern Co. 69,040 1,960,046 -------------- 6,985,683 -------------- TOTAL COMMON STOCKS (COST $527,000,145) 443,122,347 -------------- PRINCIPAL FAIR AMOUNT VALUE ------------ --------------- SHORT-TERM INVESTMENTS (2.6%) COMMERCIAL PAPER (2.2%) American General Financial Corp., 1.32% due February 19, 2003 $ 1,527,000 $ 1,524,215 Societe Generale North America, 1.35% due February 20, 2003 5,000,000 4,990,700 Blueridge Asset Funding Corp., 1.60% due January 6, 2003 3,550,000 3,549,215 -------------- 10,064,130 -------------- U.S. TREASURY (0.4%) United States of America Treasury, 1.61% due February 13, 2003 (B) 1,700,000 1,697,717 --------------- TOTAL SHORT-TERM INVESTMENTS (COST $11,761,038) 11,761,847 --------------- NOTIONAL VALUE ------------- FUTURES CONTRACTS (0.0%) S&P 500 Stock Index, Exp. March, 2003 (C) $ 10,986,250 - --------------- TOTAL INVESTMENTS (100%) --------------- (COST $538,761,183) (D) $ 454,884,194 =============== NOTES (A) Non-income Producing Security. (B) Par value of $1,700,000 pledged to cover margin deposits on futures contracts. (C) As more fully discussed in Note 1 to the financial statements, it is Account GIS's practice to hold cash and cash equivalents (including short-term investments) at least equal to the underlying face value, or notional value, of outstanding purchased futures contracts, less the initial margin. Account GIS uses futures contracts as a substitute for holding individual securities. (D) At December 31, 2002, net unrealized depreciation for all securities was $83,876,989. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of fair value over cost of $22,811,111 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over fair value of $106,688,100. See Notes to Financial Statements -15- INDEPENDENT AUDITORS' REPORT The Board of Managers and the Owners of Variable Annuity Contracts of The Travelers Growth and Income Stock Account for Variable Annuities: We have audited the accompanying statement of assets and liabilities of The Travelers Growth and Income Stock Account for Variable Annuities, including the statement of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the selected per unit data and ratios for each of the years in the four-year period then ended. These financial statements and selected per unit data and ratios are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and selected per unit data and ratios based on our audits. The accompanying selected per unit data and ratios for the one-year period ended December 31, 1998 was audited by other auditors whose report thereon dated February 15, 1999, expressed an unqualified opinion on those selected per unit data and ratios. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 and selected per unit data and ratios. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodians 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 selected per unit data and ratios referred to above present fairly, in all material respects, the financial position of The Travelers Growth and Income Stock Account for Variable Annuities as of December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the selected per unit data and ratios for each of the years in the four-year period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Hartford, Connecticut February 14, 2003 -16- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES In 2002, Travelers Quality Bond Account for Variable Annuities ("Account QB") had a gross return of 2.34% versus the Lehman Intermediate Government/Credit Index, ("the Lehman") which returned 9.84%. The year-to-date underperformance was mainly due to our credit exposure, in particular to telecom and energy sectors. Even with the end of year rally, 2002 was the third worst in history for excess returns in the credit markets since 1989. (-187 basis points in 2002, - -463 basis points in 2000; -265 basis points in 1998 in the U.S.). The fourth quarter brought a measure of relief, sparked mainly by the Federal Reserve Board's ("Fed") 50 basis points ease in November and a slowdown in the pace of negative headlines. Except Healthcare and Airlines, the sectors that underperformed generally held their ground while the rest of the market moved significantly tighter. Many of the companies that had traded at distressed levels for much of 2002 recovered significant ground in the fourth quarter. Top performing issuers included AOL Time Warner, Clear Channel, Comcast, Cox and Sprint. Telecom bond prices improved in the fourth quarter as the credit stories have stabilized or improved. Investors recognized progress made as companies focused on improving balance sheet/liquidity, stabilizing revenue and margins, and increasing free cash flow. Market technicals improved as bond buyers returned to the telecom sector after being sidelined by a stream of bad news during the first three quarters of the year. During the fourth quarter of 2002, Account QB had a gross return of 3.02% versus the Lehman, which returned 1.69%. On balance, we think current valuations in the corporate market remain attractive, given the strong technical backdrop, but do not expect significant outperformance in higher-quality issues. With treasuries near decades long lows, and "safe haven" sector spreads approaching 5-year tights, investors seem to be looking for any rationale to reach for yield. On the technical front, the seasonal increase in risk appetites, as well as pent-up cash balances, should bolster credit in the near future. Fundamentals remain mixed as war concerns and weak growth impinge on corporate profit outlooks and investor confidence. During the fourth quarter 2002, we have further diversified the individual credit and sector concentrations in the portfolio. As the economy makes its way out of recession and the market jitters dissipate, we will remain diligent in seeking issues with total return potential. PORTFOLIO MANAGER: DAVE TYSON, CFA THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET OR OTHER CONDITIONS [Graphic Omitted] -17- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002 ASSETS: Investment securities, at fair value (cost $117,509,385) ...... $110,673,096 Cash .......................................................... 916 Receivables: Interest .................................................... 1,662,028 Purchase payments and transfers from other funding options .. 61,349 Other assets .................................................. 1,451 ------------ Total Assets .............................................. 112,398,840 ------------ LIABILITIES: Payables: Contract surrenders and transfers to other funding options... 192,851 Investment management and advisory fees ..................... 3,995 Insurance charges ........................................... 14,292 Accrued liabilities ........................................... 9 ------------ Total Liabilities ......................................... 211,147 ------------ NET ASSETS: ..................................................... $112,187,693 ============ See Notes to Financial Statements -18- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 INVESTMENT INCOME: Interest ......................................................... $ 6,953,729 EXPENSES: Investment management and advisory fees .......................... $ 384,157 Insurance charges ................................................ 1,405,446 -------------- Total expenses ................................................. 1,789,603 ---------------- Net investment income (loss) ................................. 5,164,126 ---------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized gain (loss) from investment security transactions: Proceeds from investment securities sold ....................... 130,534,711 Cost of investment securities sold ............................. 133,642,809 -------------- Net realized gain (loss) ..................................... (3,108,098) Change in unrealized gain (loss) on investment securities: Unrealized gain (loss) at December 31, 2002 .................... (6,836,289) Unrealized gain (loss) at December 31, 2001 .................... (5,187,051) -------------- Net change in unrealized gain (loss) for the year ............ (1,649,238) ---------------- Net realized gain (loss) and change in unrealized gain (loss) (4,757,336) ---------------- Net increase (decrease) in net assets resulting from operations .. $ 406,790 ================
See Notes to Financial Statements -19- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001 ---- ---- OPERATIONS: Net investment income (loss) ........................................... $ 5,164,126 $ 6,125,350 Net realized gain (loss) from investments security transactions ........ (3,108,098) 2,198,958 Net change in unrealized gain (loss) on investments .................... (1,649,238) (3,642,244) ------------- ------------- Net increase (decrease) in net assets resulting from operations ...... 406,790 4,682,064 ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 970,567 and 824,666 units, respectively) .............. 6,020,842 5,257,007 Participant transfers from other funding options (applicable to 1,840,387 and 4,622,095 units, respectively) .......... 11,390,851 29,722,165 Administrative charges (applicable to 15,036 and 13,608 units, respectively) ................ (93,554) (86,730) Contract surrenders (applicable to 2,477,747 and 1,960,150 units, respectively) .......... (15,412,418) (12,599,764) Participant transfers to other funding options (applicable to 3,053,338 and 2,598,052 units, respectively) .......... (18,818,812) (16,607,051) Other payments to participants (applicable to 157,757 and 101,586 units, respectively) .............. (993,160) (655,559) ------------- ------------- Net increase (decrease) in net assets resulting from unit transactions (17,906,251) 5,030,068 ------------- ------------- Net increase (decrease) in net assets .............................. (17,499,461) 9,712,132 NET ASSETS: Beginning of year ...................................................... 129,687,154 119,975,022 ------------- ------------- End of year ............................................................ $ 112,187,693 $ 129,687,154 ============= =============
See Notes to Financial Statements -20- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Quality Bond Account for Variable Annuities ("Account QB") is a separate account of The Travelers Insurance Company ("The Company"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding Universal Annuity contracts issued by The Company. Account QB is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by Account QB in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the 4:00 p.m. Eastern Standard Time price of such exchanges; 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 value. Short-term investments are reported at fair value based on quoted market prices. Short-term investments, for which there is no reliable quoted market price, are recorded at amortized cost, which approximates fair value. SECURITY TRANSACTIONS. Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Premiums and discounts are amortized to interest income utilizing the constant yield method. FUTURES CONTRACTS. Account QB may use interest rate futures contracts as a substitute for the purchase or sale of individual securities. When Account QB enters into a futures contract, it agrees to buy or sell specified debt securities at a future time for a fixed price, unless the contract is closed prior to expiration. Account QB is obligated to deposit with a broker an "initial margin" equivalent to a percentage of the face, or notional value of the contract. It is Account QB's practice to hold cash and cash equivalents in an amount at least equal to the notional value of outstanding purchased futures contracts, less the initial margin. Cash and cash equivalents include cash on hand, securities segregated under federal and brokerage regulations, and short-term highly liquid investments with maturities generally three months or less when purchased. Generally, futures contracts are closed prior to expiration. Futures contracts purchased by Account QB are priced and settled daily; accordingly, changes in daily prices are recorded as realized gains or losses and no asset is recorded in the Statement of Investments. Therefore, when Account QB holds open futures contracts, it assumes a market risk generally equivalent to the underlying market risk of change in the value of the debt securities associated with the futures contract. REPURCHASE AGREEMENTS. When Account QB enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed upon date and price), the repurchase price of the securities will generally equal the amount paid by Account QB plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Account QB securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Account QB monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Account QB's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. -21- NOTES TO FINANCIAL STATEMENTS - CONTINUED FEDERAL INCOME TAXES. The operations of Account QB form a part of the total operations of The Company and are not taxed separately. The Company is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended (the "Code"). Under existing federal income tax law, no taxes are payable on the investment income and capital gains of Account QB. Account QB is not taxed as a "regulated investment company" under Subchapter M of the Code. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments (other than short-term securities) were $69,501,297 and $78,510,853, respectively; the costs of purchases and proceeds from sales of direct and indirect U.S. government securities were $51,240,473 and $67,257,292, respectively, for the year ended December 31, 2002. Realized gains and losses from investment security transactions are reported on an identified cost basis. 3. CONTRACT CHARGES Investment management and advisory fees are calculated daily at an annual rate of 0.3233% of Account QB's average net assets. These fees are paid to Travelers Asset Management International Company, LLC, an indirect wholly owned subsidiary of Citigroup Inc. Insurance charges are paid for the mortality and expense risks assumed by The Company. Each business day, The Company deducts a mortality and expense risk charge which is reflected in the calculation of accumulation and annuity unit values. This charge equals, on an annual basis, 1.0017% for contracts issued prior to May 16, 1983 and 1.25% on an annual basis for contracts issued on or after May 16, 1983. For certain contracts in the accumulation phase, a semi-annual charge of $15 (prorated for partial years) is deducted from participant account balances and paid to The Company to cover administrative charges. On contracts issued prior to May 16, 1983, The Company retained from Account QB sales charges of $4,708 and $5,870 for the years ended December 31, 2002 and 2001, respectively. The Company 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 net of contingent deferred sales charges of $78,280 and $65,357 for the years ended December 31, 2002 and 2001, respectively. -22- NOTES TO FINANCIAL STATEMENTS - CONTINUED 4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $131,000 and $319,000 of the net assets of Account QB were held on behalf of an affiliate of The Company as of December 31, 2002 and 2001, respectively. Transactions with this affiliate during the years ended December 31, 2002 and 2001, were comprised of participant purchase payments of approximately $80,000 and $270,000 and contract surrenders of approximately $152,000 and $300,000, respectively. 5. NET CONTRACT OWNERS' EQUITY
DECEMBER 31, 2002 ------------------------------------------- UNIT NET UNITS VALUE ASSETS ----- ----- ------ Accumulation phase of contracts issued prior to May 16, 1983 ......... 4,622,062 $ 6.674 $ 30,847,922 Annuity phase of contracts issued prior to May 16, 1983 .............. 61,565 6.674 410,890 Accumulation phase of contracts issued on or after May 16, 1983 ...... 12,725,236 6.356 80,878,234 Annuity phase of contracts issued on or after May 16, 1983 ........... 7,969 6.356 50,647 -------------- Net Contract Owners' Equity ........................................................................ $ 112,187,693 ==============
-23- NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each year.) SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each period.)
Contracts issued prior to May 16, 1983 FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- SELECTED PER UNIT DATA: Total investment income ........................................ $ .381 $ .421 $ .446 $ .393 $ .363 Operating expenses ............................................. .086 .089 .081 .080 .076 -------- -------- -------- -------- -------- Net investment income (loss) ................................... .295 .332 .365 .313 .287 Unit value at beginning of year ................................ 6.608 6.335 6.055 5.994 5.593 Net realized and change in unrealized gains (losses) ........... (.229) (.059) (.085) (.252) .114 -------- -------- -------- -------- -------- Unit value at end of year ...................................... $ 6.674 $ 6.608 $ 6.335 $ 6.055 $ 5.994 ======== ======== ======== ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .......................... $ .07 $ .27 $ .28 $ .06 $ .40 Ratio of operating expenses to average net assets .............. 1.33% 1.33% 1.33% 1.33% 1.33% Ratio of net investment income (loss) to average net assets .... 4.56% 4.99% 5.93% 5.22% 4.96% Number of units outstanding at end of year (thousands) ......... 4,684 5,194 5,491 6,224 6,880 Portfolio turnover rate ........................................ 113% 166% 105% 340% 438% Contracts issued on or after May 16, 1983 FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- SELECTED PER UNIT DATA: Total investment income ........................................ $ .363 $ .402 $ .427 $ .378 $ .350 Operating expenses ............................................. .097 .101 .092 .091 .088 -------- -------- -------- -------- -------- Net investment income (loss) ................................... .266 .301 .335 .287 .262 Unit value at beginning of year ................................ 6.309 6.063 5.810 5.765 5.393 Net realized and change in unrealized gains (losses) ........... (.219) (.055) (.082) (.242) .110 -------- -------- -------- -------- -------- Unit value at end of year ...................................... $ 6.356 $ 6.309 $ 6.063 $ 5.810 $ 5.765 ======== ======== ======== ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .......................... $ .05 $ .25 $ .25 $ .04 $ .37 Ratio of operating expenses to average net assets .............. 1.57% 1.57% 1.57% 1.57% 1.57% Ratio of net investment income to average net assets ........... 4.31% 4.74% 5.69% 4.97% 4.71% Number of units outstanding at end of year (thousands) ......... 12,733 15,116 14,045 17,412 21,251 Portfolio turnover rate ........................................ 113% 166% 105% 340% 438%
-24- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS DECEMBER 31, 2002 PRINCIPAL FAIR AMOUNT VALUE ---------- ---------- BONDS (64.7%) AIRLINES (1.0%) Delta Airlines Inc., 9.25% Debentures, 2007 ......... $1,085,671 $1,086,322 ---------- ASSET BACKED SECURITIES (6.1%) CA Infrastructure, 6.42% Debentures, 2008 ........... 1,100,000 1,198,108 Daimler Chrysler Auto, 4.635 Debentures, 2006 ....... 1,500,000 1,575,170 Discover Card Mt, 6.05% Debentures, 2008 ............ 1,100,000 1,208,184 Ford Cr Auto Owner Trust, 4.75% Debentures, 2006 .... 1,400,000 1,482,844 Metris MT, 1.64% Debentures, 2007 ................... 100,000 96,643 Toyota Auto Recovery Owner Trust, 2.65% Debentures, 2006 ............................ 1,200,000 1,216,334 ---------- 6,777,283 ---------- BANKING (1.3%) Fleet Financial Group, 7.13% Debentures, 2006 ....... 1,250,000 1,385,590 ---------- BROKERAGE (0.5%) Goldman Sachs Group Inc., 5.70% Debentures, 2012 .... 500,000 520,988 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS (1.5%) Credit Suisse First Boston Corp., 6.38% Debentures, 2035 ............................ 900,000 1,004,338 LB UBS Commercial Mortgage Trust, 4.85% Debentures, 2031 ............................ 670,000 680,723 ---------- 1,685,061 ---------- CONGLOMERATES (0.9%) General Electric Capital Corp., 5.45% Debentures, 2013 ............................ 1,000,000 1,040,742 ---------- DEFENSE (1.8%) Raytheon Co., 5.70% Debentures, 2003 ................ 1,995,000 2,034,671 ---------- FINANCE (1.2%) General Motors Acceptance Corp., 6.88% Debentures, 2012 ............................ 700,000 691,224 Washington Mutual Inc., 4.38% Debentures, 2008 ...... 600,000 612,068 ---------- 1,303,292 ---------- FOOD (2.1%) General Mills Inc., 6.00% Debentures, 2012 .......... 2,100,000 2,288,093 ---------- INSURANCE (0.2%) SAFECO Corp., 7.25% Debentures, 2012 ................ 200,000 222,512 ---------- MEDIA CABLE (7.7%) AOL Time Warner, 6.15% Debentures, 2007 ............. 2,400,000 2,496,007 Comcast Cable Communications, 8.50% Debentures, 2027 ............................ 500,000 521,960 Clear Channel Communications, 7.25% Debentures, 2003 ............................ 1,300,000 1,326,504 Cox Enterprises Inc., 7.88% Debentures, 2010 ........ 3,800,000 4,214,819 ---------- 8,559,290 ---------- -25- STATEMENT OF INVESTMENTS - CONTINUED PRINCIPAL FAIR AMOUNT VALUE ---------- ---------- NATURAL GAS PIPELINE (6.9%) Duke Energy Field Service, 7.50% Debentures, 2005 ............................. $ 500,000 $ 527,440 El Paso Corp., 6.95% Debentures, 2007 ................ 2,500,000 1,777,042 Gemstone Investment Ltd., 7.71% Debentures, 2004 ............................. 3,000,000 2,306,898 Osprey 8.31% Debentures, 2003 (A) .................... 3,700,000 684,500 Transcontinental Gas Pipeline, 6.13% Debentures, 2005 ............................. 2,400,000 2,304,000 ---------- 7,599,880 ---------- REAL ESTATE (5.1%) EOP Operating LP, 8.10% Debentures, 2010 ............. 300,000 340,198 EOP Operating LP, 6.75% Debentures, 2012 ............. 450,000 484,375 Nationwide Health Properties Inc., 6.90% Debentures, 2037 ............................. 4,500,000 4,800,150 ---------- 5,624,723 ---------- SUPERMARKETS (1.0%) Fred Meyer Inc., 7.45% Debentures, 2008 .............. 1,000,000 1,137,860 ---------- TECHNOLOGY (2.8%) Hewlett Packard Co., 6.50% Debentures, 2012 .......... 400,000 444,721 Pitney Bowes Inc., 4.63% Debentures, 2012 ............ 2,700,000 2,693,523 ---------- 3,138,244 ---------- TELECOMMUNICATIONS (4.3%) CenturyTel Inc., 7.88% Debentures, 2012 .............. 1,000,000 1,185,638 Cingular Wireless, 6.50% Debentures, 2011 ............ 670,000 723,918 Cingular Wireless, 7.13% Debentures, 2031 ............ 240,000 255,676 Qwest Capital Funding, 7.00% Debentures, 2009 ........ 3,000,000 1,935,000 WorldCom Inc., 6.50% Debentures, 2004 (A) ............ 1,000,000 240,000 WorldCom Inc., 7.50% Debentures, 2011 (A) ............ 1,700,000 408,000 ---------- 4,748,232 ---------- TOBACCO (0.3%) R.J. Reynolds Tobacco Holdings Inc., 7.25% Debentures, 2012 ............................. 350,000 366,843 ---------- UTILITIES (20.0%) CMS Energy Corp., 7.63% Debentures, 2004 ............. 1,750,000 1,593,291 CMS Energy Corp., 6.75% Debentures, 2004 ............. 3,000,000 2,790,786 DPL Inc., 6.88 % Debentures, 2011 .................... 5,700,000 4,783,668 Duke Energy Corp., 6.45% Debentures, 2032 ............ 150,000 146,340 FirstEnergy Corp., 6.45% Debentures, 2011 ............ 1,200,000 1,196,201 PSEG Energy Holdings, 8.63% Debentures, 2008 ......... 450,000 376,190 Pepco Holdings, Inc., 5.50% Debentures, 2007 ......... 1,600,000 1,672,224 Pepco Holdings, Inc., 6.45% Debentures, 2012 ......... 1,700,000 1,803,413 Progress Energy, Inc., 6.05% Debentures, 2007 ........ 2,700,000 2,878,826 Utilicorp United, Inc., 6.88% Debentures, 2004 ....... 6,300,000 4,912,828 ---------- 22,153,767 ---------- TOTAL BONDS (COST $79,483,294) .............................................. 71,673,393 ---------- -26- STATEMENT OF INVESTMENTS - CONTINUED PRINCIPAL FAIR AMOUNT VALUE ---------- ------------ UNITED STATES GOVERNMENT AGENCY SECURITIES (1.8%) Federal National Mortgage Association, 6.00% due December, 2005 ......................... $1,750,000 $ 1,939,089 ------------ TOTAL U. S. GOVERNMENT AGENCY SECURITIES (COST $1,905,776) ................................. 1,939,089 ------------ UNITED STATES GOVERNMENT SECURITIES (18.2%) United States of America Treasury, 1.88% due September, 2004 ........................ 1,700,000 1,712,418 United States of America Treasury, 6.63% due May, 2007 .............................. 1,000,000 1,167,579 United States of America Treasury, 6.13% due August, 2007 ........................... 8,850,000 10,179,580 United States of America Treasury, 3.00% due November, 2007 ......................... 400,000 404,938 United States of America Treasury, 3.63% due January, 2008 .......................... 3,492,247 3,832,745 United States of America Treasury, 8.50% due February, 2020 ......................... 2,000,000 2,883,672 ------------ TOTAL U.S. GOVERNMENT SECURITIES (COST $19,297,346) ................................ 20,180,932 ------------ SHORT-TERM INVESTMENTS (15.3%) COMMERCIAL PAPER (15.3%) UBS Financial, Inc., 1.22% due January, 2003 ...... 5,008,000 5,007,634 CalEnergy Co Inc., 6.96% due September, 2003 ...... 920,000 941,213 Nisource Financial Corp., 5.75% due April, 2003 ... 2,400,000 2,393,681 Becton Dickinson & Co., 1.32% due March, 2003 ..... 1,003,000 1,000,481 Preferred Resources Funding Corp., 1.37% due January, 2003 ......................... 4,077,000 4,073,800 Simon DeBartolo Group, 6.63% due June, 2003 ....... 3,400,000 3,462,873 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $16,822,969) ... 16,879,682 ------------ TOTAL INVESTMENTS (100%) (COST $117,509,385) (B) ....................................... $110,673,096 ============ NOTES (A) Restricted Security. (B) At December 31, 2002 net unrealized depreciation for all securities was $6,836,289. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of fair value over cost of $3,258,396 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over fair value of $10,094,685. See Notes to Financial Statements -27- INDEPENDENT AUDITORS' REPORT The Board of Managers and the 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, 2002, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the selected per unit data and ratios for each of the years in the four-year period then ended. These financial statements and selected per unit data and ratios are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and selected per unit data and ratios based on our audits. The accompanying selected per unit data and ratios for the one-year period ended December 31, 1998 was audited by other auditors whose report thereon dated February 15, 1999, expressed an unqualified opinion on those selected per unit data and ratios. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 and selected per unit data and ratios. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodians 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 selected per unit data and ratios 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, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the selected per unit data and ratios for each of the years in the four-year period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Hartford, Connecticut February 14, 2003 -28- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES Throughout the first quarter of 2002 signs of imminent recovery were proliferating. The sharp rise in the index of leading economic indicators and the decline in unemployment claims added to the evidence that the economy was poised for a rebound. Purchasing managers began to see signs of stabilization in the manufacturing sector and consumers continued to feed the momentum of the recovery. Market participants began to believe that the Federal Open Market Committee's ("FOMC") easing cycle had ended after 475 basis points of reduction in the federal funds rate. The second quarter was a reminder that the road to recovery would be challenging. Although purchasing managers continued to see improvement in the manufacturing sector, the labor market began to show signs of renewed weakness. The economy added fewer jobs than expected and the unemployment rate peaked at 6.00% in April 2002. The continued weakness in the equity markets remained a concern as a potential drag on future consumer spending. During the third quarter, economic data confirmed a slower- than-expected recovery. In addition, corporate scandals and impending military action provided the basis for tremendous volatility throughout the quarter. Purchasing managers experienced a sudden stall in manufacturing momentum. However, the most worrisome development was the weaker hiring trends revealed by labor market data, suggesting that corporations increased their pace of layoffs in response to the equity market decline and the manufacturing slowdown. Market participants looked to the Federal Reserve Board ("Fed") for an additional ease in monetary policy. The fourth quarter continued to show signs of a sluggish economic environment. Consumer demand softened and businesses maintained their cautious approach regarding new orders and production. Corporations intent on restoring profit margins continued to control costs by trimming headcount. Consequently, the unemployment rate returned to its cyclical high of 6.00%. According to Chairman Greenspan, increased uncertainty, including geopolitical risk, produced an economic "soft spot". To "insure" against the risk of recession, the FOMC responded for the first time in 2002, by lowering the federal funds rate by 50 basis points to 1.25% from 1.75% at the November FOMC meeting. The strategy in management for the Travelers Money Market Account for Variable Annuities will be to maintain a 30 - 45 day average life. We believe that the economy may be vulnerable to potential shocks including an oil price spike, impending military action, further labor market deterioration, and renewed terrorism in the United States. Any of these events could throw the economy off balance. Therefore, it is our belief that short-term rates are likely to remain unusually low for an extended period of time, as Fed officials will err on the side of monetary accommodation. As a result, we do not expect any tightening in rates until the fourth quarter of 2003. Hence, given our expectations, we anticipate that money market rates will be relatively flat throughout 2003. At year-end, the asset size of the portfolio was $139.0 million, with the yield of 1.37%. PORTFOLIO MANAGER: EMIL J. MOLINARO JR. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET OR OTHER CONDITIONS. [TAMIC LOGO] -29- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002 ASSETS: Investment securities, at fair value (cost $139,048,711) ....... $139,045,122 Receivables: Purchase payments and transfers from other funding options ... 537,145 Other assets ................................................... 291 ------------ Total Assets .............................................. 139,582,558 ------------ LIABILITIES: Cash overdraft ................................................. 169 Payables: Contract surrenders and transfers to other funding options ... 274,824 Investment management and advisory fees ...................... 4,964 Insurance charges ............................................ 19,188 Accrued liabilities ............................................ 5 ------------ Total Liabilities ........................................ 299,150 ------------ NET ASSETS: ...................................................... $139,283,408 ============ -30- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 Investment Income: Interest ............................................ $2,734,998 EXPENSES: Investment management and advisory fees ............. $ 500,554 Insurance charges ................................... 1,934,942 ---------- Total expenses ................................... 2,435,496 ---------- Net investment income (loss) ................... 299,502 ---------- Net increase (decrease) in net assets resulting from operations ........................ $ 299,502 ========== -31- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001 ------------- ------------- OPERATIONS: Net investment income (loss) ............................................. $ 299,502 $ 4,439,118 ------------- ------------- Net increase (decrease) in net assets resulting from operations .......... 299,502 4,439,118 ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 5,858,558 and 5,387,726 units, respectively) .............. 16,062,122 14,622,539 Participant transfers from other funding options (applicable to 64,672,611 and 139,952,024 units, respectively) ........... 177,339,495 379,507,676 Administrative charges (applicable to 54,859 and 55,025 units, respectively) .................... (150,505) (150,109) Contract surrenders (applicable to 13,961,585 and 13,518,648 units, respectively) ............ (38,286,908) (36,707,803) Participant transfers to other funding options (applicable to 68,317,728 and 123,528,651 units, respectively) ........... (187,327,842) (335,165,982) Other payments to participants (applicable to 935,674 and 293,974 units, respectively) .................. (2,566,662) (800,830) ------------- ------------- Net increase (decrease) in net assets resulting from unit transactions ... (34,930,300) 21,305,491 ------------- ------------- Net increase (decrease) in net assets .................................... (34,630,798) 25,744,609 NET ASSETS: Beginning of year .................................................... 173,914,206 148,169,597 ------------- ------------- End of year .............................................................. $ 139,283,408 $ 173,914,206 ============= =============
-32- NOTES TO FINANCIAL STATEMENTS - CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Money Market Account for Variable Annuities ("Account MM") is a separate account of The Travelers Insurance Company ("The Company"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding Universal Annuity contracts issued by The Company. Account MM is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by Account MM in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the 4:00 p.m. Eastern Standard Time price of such exchanges; 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 are reported at fair value based on quoted market prices. Short-term investments, for which there is no reliable quoted market price, are recorded at amortized cost which approximates fair value. SECURITY TRANSACTIONS. Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Premiums and discounts are amortized to interest income utilizing the constant yield method. REPURCHASE AGREEMENTS. When Account MM enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed upon date and price), the repurchase price of the securities will generally equal the amount paid by Account MM plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Account MM securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Account MM monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Account MM's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. FEDERAL INCOME TAXES. The operations of Account MM form a part of the total operations of The Company and are not taxed separately. The Company is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended (the "Code"). Under existing federal income tax law, no taxes are payable on the investment income and capital gains of Account MM. Account MM is not taxed as a "regulated investment company" under Subchapter M of the Code. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. -33- NOTES TO FINANCIAL STATEMENTS - CONTINUED 2. CONTRACT CHARGES Investment management and advisory fees are calculated daily at an annual rate of 0.3233% of Account MM's average net assets. These fees are paid to Travelers Asset Management International Company, LLC, an indirect wholly owned subsidiary of Citigroup Inc. Insurance charges are paid for the mortality and expense risks assumed by The Company. Each business day, The Company deducts a mortality and expense risk charge which is reflected in the calculation of accumulation and annuity unit values. This charge equals, on an annual basis, 1.0017% for contracts issued prior to May 16, 1983 and 1.25% on an annual basis for contracts issued on or after May 16, 1983. For certain contracts in the accumulation phase, a semi-annual charge of $15 (prorated for partial years) is deducted from participant account balances and paid to The Company to cover administrative charges. The Company 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 net of contingent sales charges of $361,097 and $190,130 for the years ended December 31, 2002 and 2001, respectively. 3. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $2,208,000 and $2,456,000 of the net assets of Account MM were held on behalf of an affiliate of The Company as of December 31, 2002 and 2001, respectively. Transactions with this affiliate during the years ended December 31, 2002 and 2001, were comprised of participant purchase payments of approximately $813,000 and $1,049,000 and contract surrenders of approximately $885,000 and $2,619,000, respectively. 4. NET CONTRACT OWNERS' EQUITY
DECEMBER 31, 2002 ------------------------------------ UNIT NET UNITS VALUE ASSETS ---------- ----- ------------ Accumulation phase of contracts issued prior to May 16, 1983 ...... 24,242 $2.882 $ 69,856 Annuity phase of contracts issued prior to May 16, 1983 ........... 25,020 2.882 72,099 Accumulation phase of contracts issued on or after May 16, 1983 ... 50,615,147 2.744 138,903,157 Annuity phase of contracts issued on or after May 16, 1983 ........ 86,833 2.744 238,296 ------------ Net Contract Owners' Equity ................................................................. $139,283,408 ============
-34- NOTES TO FINANCIAL STATEMENTS - CONTINUED 5. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each year.) SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each period.)
Contracts issued prior to May 16, 1983 FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- SELECTED PER UNIT DATA: Total investment income ........................................ $ .051 $ .120 $ .174 $ .135 $ .138 Operating expenses ............................................. .038 .037 .037 .034 .033 -------- -------- -------- -------- -------- Net investment income (loss) ................................... .013 .083 .137 .101 .105 Unit value at beginning of year ................................ 2.869 2.786 2.649 2.548 2.443 -------- -------- -------- -------- -------- Unit value at end of year ...................................... $ 2.882 $ 2.869 $ 2.786 $ 2.649 $ 2.548 ======== ======== ======== ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .......................... $ .01 $ .08 $ .14 $ .10 $ .11 Ratio of operating expenses to average net assets .............. 1.33% 1.33% 1.33% 1.33% 1.33% Ratio of net investment income (loss) to average net assets .... 0.46% 2.89% 5.09% 3.87% 4.20% Number of units outstanding at end of year (thousands) ......... 49 60 70 80 91 Contracts issued on or after May 16, 1983 FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- SELECTED PER UNIT DATA: Total investment income ........................................ $ .048 $ .114 $ .167 $ .130 $ .133 Operating expenses ............................................. .043 .042 .041 .039 .038 -------- -------- -------- -------- -------- Net investment income (loss) ................................... .005 .072 .126 .091 .095 Unit value at beginning of year ................................ 2.739 2.667 2.541 2.450 2.355 -------- -------- -------- -------- -------- Unit value at end of year ...................................... $ 2.744 $ 2.739 $ 2.667 $ 2.541 $ 2.450 ======== ======== ======== ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .......................... $ .01 $ .07 $ .13 $ .09 $ .10 Ratio of operating expenses to average net assets .............. 1.57% 1.57% 1.57% 1.57% 1.57% Ratio of net investment income (loss) to average net assets .... 0.21% 2.64% 4.84% 3.62% 3.95% Number of units outstanding at end of year (thousands) ......... 50,702 63,430 55,477 70,545 41,570
* Annualized -35- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS DECEMBER 31, 2002
PRINCIPAL FAIR AMOUNT VALUE ------------ ------------ SHORT-TERM INVESTMENTS (100%) COMMERCIAL PAPER (94.8%) American Express Credit Corp., 1.33% due February 11, 2003 .............. $ 7,000,000 $ 6,989,248 American General Financial Corp., 1.32% due February 19, 2003 ........... 4,100,000 4,092,522 American Honda Financial Corp., 1.32% due January 22, 2003 .............. 1,200,000 1,199,015 American Honda Financial Corp., 1.33% due January 16, 2003 .............. 3,890,000 3,887,650 American Honda Financial Corp., 1.56% due January 9, 2003 ............... 1,900,000 1,899,365 Becton Dickinson & Co., 1.32% due March 10, 2003 ........................ 1,000,000 997,489 Caterpillar Financial Services Corp., 1.33% due February 13, 2003 ....... 1,698,000 1,695,270 Caterpillar Financial Services Corp., 1.35% due January 22, 2003 ........ 5,000,000 4,995,895 Clipper Receivables Corp., 1.76% due January 16, 2003 ................... 5,000,000 4,996,980 General Dynamics Corp., 1.56% due January 15, 2003 ...................... 6,000,000 5,996,598 ING Funding, 1.32% due February 14, 2003 ................................ 5,300,000 5,291,287 ING Funding, 1.32% due February 5, 2003 ................................. 1,820,000 1,817,599 Marsh & McLennan Cos., 1.34% due January 14, 2003 ....................... 2,540,000 2,538,659 Merck & Co. Inc., 1.32% due January 15, 2003 ............................ 3,930,000 3,927,772 Merck & Co. Inc., 1.32% due January 23, 2003 ............................ 1,944,000 1,942,334 Morgan Stanley Dean Witter & Co., 1.36% due February 4, 2003 ............ 6,757,000 6,748,338 Nestle Capital Corp., 1.32% due March 5, 2003 ........................... 3,330,000 3,322,244 Old Line Funding Corp., 1.38% due January 10, 2003 ...................... 3,181,000 3,179,814 Park Avenue Receivables Corp., 1.36% due February 11, 2003 .............. 4,000,000 3,993,856 Park Avenue Receivables Corp., 1.38% due January 16, 2003 ............... 2,900,000 2,898,248 Parker-Hannifin Corp., 1.37% due January 6, 2003 ........................ 6,900,000 6,898,475 Preferred Resources Funding Corp., 1.36% due January 22, 2003 ........... 1,776,000 1,774,542 Prudential Funding, 1.32% due February 27, 2003 ......................... 7,100,000 7,085,005 Quincy Capital Corp., 1.36% due January 10, 2003 ........................ 1,500,000 1,499,441 Quincy Capital Corp., 1.37% due January 21, 2003 ........................ 3,102,000 3,099,565 Quincy Capital Corp., 1.39% due January 9, 2003 ......................... 1,598,000 1,597,466 Rio Tinto America Inc., 1.34% due January 16, 2003 ...................... 6,463,000 6,459,096 Sheffield Resources Corp., 1.38% due January 24, 2003 ................... 6,000,000 5,994,648 Societe Generale North America 1.32% due February 12, 2003 .............. 3,000,000 2,995,284 Societe Generale North America 1.55% due January 13, 2003 ............... 3,790,000 3,788,147 Starfish Global Funding, 1.36% due January 9, 2003 ...................... 4,000,000 3,998,664 Toyota Motor Credit Corp., 1.34% due January 27, 2003 ................... 6,000,000 5,994,012 UBS Financial, Inc., 1.22% due January 2, 2003 .......................... 3,257,000 3,256,762 UBS Financial, Inc., 1.37% due January 7, 2003 .......................... 3,338,000 3,337,135 Windmill Funding Corp., 1.37% due January 14, 2003 ...................... 1,400,000 1,399,261 Windmill Funding Corp., 1.58% due January 9, 2003 ....................... 260,000 259,913 ------------ 131,847,599 ------------ U.S. AGENCY SECURITIES (5.2%) Federal Home Loan Mortgage Corp., 1.26% due February 19, 2003 ........... 4,900,000 4,892,023 Federal National Mortgage Association, 1.27% due February 26, 2003 ...... 2,310,000 2,305,500 ------------ 7,197,523 ------------ TOTAL INVESTMENTS (100%) (COST $139,048,711) ...................................................................... $139,045,122 ============
See Notes to Financial Statements -36- INDEPENDENT AUDITORS' REPORT The Board of Managers and the Owners of Variable Annuity Contracts of The Travelers Money Market Account for Variable Annuities: We have audited the accompanying statement of assets and liabilities of The Travelers Money Market Account for Variable Annuities, including the statement of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the selected per unit data and ratios for each of the years in the four-year period then ended. These financial statements and selected per unit data and ratios are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and selected per unit data and ratios based on our audits. The accompanying selected per unit data and ratios for the one-year period ended December 31, 1998 was audited by other auditors whose report thereon dated February 15, 1999, expressed an unqualified opinion on those selected per unit data and ratios. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 and selected per unit data and ratios. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodians 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 selected per unit data and ratios referred to above present fairly, in all material respects, the financial position of The Travelers Money Market Account for Variable Annuities as of December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the selected per unit data and ratios for each of the years in the four-year period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Hartford, Connecticut February 14, 2003 -37- BOARD OF MANAGERS AND OFFICERS NAME AND POSITION WITH THE FUND PRINCIPAL OCCUPATION DURING LAST FIVE YEARS *R. Jay Gerken Managing Director (1989 to present) of Salomon Manager Smith Barney Inc. ("SSB"); Chairman, President and 399 Park Avenue CEO of Smith Barney Fund Management LLC; Travelers New York, NY Investment Adviser, Inc. and CitiFund Management Age 51 Inc. Chairman, Chief Executive Officer and President, Board of Managers (2002-present), six Variable Annuity Separate Accounts of The Travelers Insurance Company+; Chairman, Chief Executive Officer and President, Board of Trustees (2002-present), five Mutual Funds sponsored by The Travelers Insurance Company.++ Robert E. McGill, III Retired manufacturing executive. Director Manager (1983-1995), Executive Vice President(1989-1994) 295 Hancock Street and Senior Vice President, Finance and Williamstown, MA Administration (1983-1989), The Dexter Corporation Age 71 (manufacturer of specialty chemicals and materials); Vice Chairman (1990-1992), Director (1983-1995), Life Technologies, Inc. (life science/biotechnology products); Director, (1994-1999), The Connecticut Surety Corporation (insurance); Director (1995-2000), Chemfab Corporation (specialty materials manufacturer); Director (1999-2001), Ravenwood Winery, Inc.; Director (1999-present), Lydall Inc. (manufacturer of fiber materials); Member, Board of Managers (1974-present), six Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee (1990-present), five Mutual Funds sponsored by The Travelers Insurance Company.++ Lewis Mandell Professor of Finance and Managerial Economics, Manager University at Buffalo since 1998. Dean, School of 160 Jacobs Hall Management (1998-2001), University at Buffalo; Buffalo, NY Dean, College of Business Administration Age 60 (1995-1998), Marquette University; Professor of Finance (1980-1995) and Associate Dean (1993-1995), School of Business Administration, and Director, Center for Research and Development in Financial Services (1980-1995), University of Connecticut; Director (2000-present), Delaware North Corp. (hospitality business); Member, Board of Managers (1990-present), six Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee (1990-present), five Mutual Funds sponsored by The Travelers Insurance Company.++ Frances M. Hawk, Private Investor, (1997-present); Portfolio CFA, CFP Manager (1992-1997, HLM Management Company, Inc. Manager (investment management); Assistant Treasurer, 423 Vineyard Lane Pensions and Benefits. Management (1989-1992), Downingtown, PA United Technologies Corporation (broad-based Age 55 designer and manufacturer of high technology products); Member, Board of Managers (1991-present), six Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee (1991-present), five Mutual Funds sponsored by The Travelers Insurance Company.++ Ernest J. Wright Vice President and Secretary (1996-present), Secretary to the Board Assistant Secretary (1994-1996), Counsel One CityPlace (1987-present), The Travelers Insurance Company; Hartford, Connecticut Secretary (1994-present), six Variable Annuity Age 62 Separate Accounts of The Travelers Insurance Company+; Secretary (1994-present), five Mutual Funds sponsored by The Travelers Insurance Company.++ -38- NAME AND POSITION WITH THE FUND PRINCIPAL OCCUPATION DURING LAST FIVE YEARS Kathleen A. McGah Deputy General Counsel (1999 - present); Assistant Secretary to Assistant Secretary (1995-present), The The Board Travelers Insurance Company; Assistant Secretary One CityPlace (1995-present), six Variable Annuity Separate Hartford, Connecticut Accounts of The Travelers Insurance Company+; Age 52 Assistant Secretary, (1995-present), five Mutual Funds sponsored by The Travelers Insurance Company.++ Prior to January 1995, Counsel, ITT Hartford Life Insurance Company. David A. Golino Vice President and Controller (1999-present), Principal Accounting Officer Second Vice President (1996-1999), The Travelers One CityPlace Insurance Company; Principal Accounting Officer Hartford, Connecticut (1998-present), six Variable Annuity Separate Age 41 Accounts of The Travelers Insurance Company.+ Prior to May 1996, Senior Manager (1985-1996), Deloitte & Touche LLP. + The six 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 and The Travelers Timed Aggressive Stock Account for Variable Annuities. ++ The five Mutual Funds are: Capital Appreciation Fund, Money Market Portfolio, High Yield Bond Trust, Managed Assets Trust and The Travelers Series Trust. * Mr. Gerken is an "interested person" within the meaning of the 1940 Act by virtue of his position as Managing Director of Salomon Smith Barney, Inc., an indirect wholly owned subsidiary of Citigroup Inc., and his ownership of shares and options to purchase shares of Citigroup Inc., the indirect parent of The Travelers Insurance Company. -39- INVESTMENT ADVISER ------------------ TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC Hartford, Connecticut THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES INVESTMENT SUB-ADVISER ---------------------- THE TRAVELERS INVESTMENT MANAGEMENT COMPANY Stamford, Connecticut THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES INDEPENDENT ACCOUNTANTS ----------------------- KPMG LLP Hartford, Connecticut CUSTODIAN --------- THE CHASE MANHATTAN BANK, N.A. New York, New York This report is prepared for the general information of contract owners and is not an offer of units of The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities or The Travelers Money Market Account for Variable Annuities. It should not be used in connection with any offer except in conjunction with the Universal Annuity Prospectus which contains all pertinent information, including the applicable sales commissions. VG-137 (Annual) (12-02) Printed in U.S.A. -----END PRIVACY-ENHANCED MESSAGE-----