N-CSRS 1 c38743_ncsrs.txt ---------------------------- OMB APPROVAL ---------------------------- OMB Number: 3235-0570 Expires: September 31, 2007 Estimated average burden hours per response: 19.4 ---------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-01539 811-02571 811-03409 Travelers Growth and Income Stock Account For Variable Annuities Travelers Quality Bond Account For Variable Annuities Travelers Money Market Account For Variable Annuities One Cityplace, Hartford, CT 06103 Kathleen A. McGah One Cityplace Hartford, CT 06103 (860) 308-6894 Date of fiscal year end: December 31, 2005 Date of reporting period: June 30, 2005 ITEM 1. REPORT(S) TO STOCKHOLDERS. SEMI-ANNUAL REPORTS JUNE 30, 2005 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 Insurance Company The Travelers Life and Annuity Company One Cityplace Hartford, CT 06103 [TAMIC LOGO] Travelers Asset Management International Company, LLC ("TAMIC") provides fixed income management and advisory services for the following Travelers Life & Annuity Variable Products Separate Accounts ("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. [TIMCO LOGO] The Travelers Investment Management Company ("TIMCO") provides equity management and subadvisory services for The Travelers Growth and Income Stock Account for Variable Annuities. TABLE OF CONTENTS PAGE -------------------------------------------------------------------------------- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES ..................................................... 1 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES .................. 17 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES .................. 32 FACTORS CONSIDERED BY THE INDEPENDENT MANAGERS IN APPROVING THE INVESTMENT ADVISORY AND THE SUB-ADVISORY AGREEMENTS .................... 42 RESULTS FROM THE COMBINED SPECIAL MEETINGS ................................. 46 BOARD OF MANAGERS AND OFFICERS ............................................. 47 This page intentionally left blank THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2005 ASSETS: Investment securities, at fair value (cost $430,396,608) ........ $483,975,581 Cash ............................................................ 6,803 Receivables: Dividends ..................................................... 594,204 Investment securities sold .................................... 1,565,486 Purchase payments and transfers from other funding options .... 70,218 Other assets .................................................... 25,238 ------------ Total Assets ............................................... 486,237,530 ------------ LIABILITIES: Payables: Contract surrenders and transfers to other funding options .... 99,630 Investment management and advisory fees ....................... 52,125 Insurance charges ............................................. 94,624 Accrued liabilities ............................................. 1,432 ------------ Total Liabilities .......................................... 247,811 ------------ NET ASSETS: ....................................................... $485,989,719 ============ See Notes to Financial Statements -1- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2005 INVESTMENT INCOME: Dividends .................................................................... $ 4,133,950 Interest ..................................................................... 77,262 ------------- Total income ............................................................... $ 4,211,212 EXPENSES: Investment management and advisory fees ...................................... 1,607,952 Insurance charges ............................................................ 2,924,202 ------------- Total expenses ............................................................. 4,532,154 ------------- Net investment income (loss) ............................................ (320,942) ------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized gain (loss) from investment security transactions: Proceeds from investment securities sold ................................... 87,066,445 Cost of investment securities sold ......................................... 80,795,392 ------------- Net Realized gain (loss) ................................................ 6,271,053 Change in unrealized gain (loss) on investment securities: Unrealized gain (loss) at June 30, 2005 .................................... 53,578,973 Unrealized gain (loss) at December 31, 2004 ................................ 68,011,790 ------------- Net change in unrealized gain (loss) for the period ..................... (14,432,817) ------------- Net realized gain (loss) and change in unrealized gain (loss) ...... (8,161,764) ------------- Net increase (decrease) in net assets resulting from operations .............. $ (8,482,706) =============
See Notes to Financial Statements -2- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2005 2004 ---- ---- (UNAUDITED) OPERATIONS: Net investment income (loss) ..................................................... $ (320,942) $ 249,422 Net realized gain (loss) from investment security transactions ................... 6,271,053 24,967,584 Net change in unrealized gain (loss) on investment securities .................... (14,432,817) 28,522,721 ------------- ------------- Net increase (decrease) in net assets resulting from operations ................. (8,482,706) 53,739,727 ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 425,752 and 902,159 units, respectively) ........................ 7,611,155 15,767,591 Participant transfers from other funding options (applicable to 176,276 and 468,530 units, respectively) ........................ 3,270,359 8,184,838 Administrative charges (applicable to 10,205 and 22,684 units, respectively) .......................... (189,740) (412,112) Contract surrenders (applicable to 1,547,611 and 2,787,531 units, respectively) .................... (29,005,867) (49,336,289) Participant transfers to other funding options (applicable to 628,983 and 976,561 units, respectively) ........................ (11,693,192) (17,069,498) Other payments to participants (applicable to 55,663 and 183,493 units, respectively) ......................... (1,070,666) (3,341,401) ------------- ------------- Net increase (decrease) in net assets resulting from unit transactions ........... (31,077,951) (46,206,871) ------------- ------------- Net increase (decrease) in net assets .......................................... (39,560,657) 7,532,856 NET ASSETS: Beginning of period .............................................................. 525,550,376 518,017,520 ------------- ------------- End of period .................................................................... $ 485,989,719 $ 525,550,376 ============= =============
See Notes to Financial Statements -3- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Growth and Income Stock Account for Variable Annuities ("Account GIS") is a separate account of The Travelers Insurance Company ("The Company"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding Universal Annuity, Universal Select Annuity, and Universal Annuity Advantage 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. There were no put or call options in Account GIS at June 30, 2005. 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. There were no repurchase agreements in Account GIS at June 30, 2005. -4- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES (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 $63,951,905 and $87,224,617, respectively; the costs of purchases and proceeds from sales of direct and indirect U.S. government securities were $1,142,607 and $2,300,000, respectively, for the six months ended June 30, 2005. Realized gains and losses from investment security transactions are reported on an identified cost basis. At June 30, 2005, Account GIS held no open futures contracts. Net realized gains (losses) resulting from futures contracts were $158,172 and $601,653 for the six months ended June 30, 2005 and the year ended December 31, 2004, respectively. These gains (losses) are included in the net realized gain (loss) from investment security transactions on both the Statement of Operations and the Statement of Changes in Net Assets. 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. The asset-based charges listed below are deducted, as appropriate, each business day and are assessed through the calculation of accumulation and annuity unit values; - Mortality and Expense Risks assumed by The Company (M&E) - Administrative fees paid for administrative expenses (ADM) - Guaranteed Minimum Withdrawal Benefit, if elected by the contract owner (GMWB) Below is a table displaying total M&E and rider charges with their associated products offered in this Separate Account. The table displays Standard (S) and Annual Step-Up (SU) death-benefit designations. -5- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 3. CONTRACT CHARGES (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------------- TRAVELERS GROWTH AND INCOME STOCK ACCOUNT Asset-based Charges Total M&E and Rider Charges (1) Dth Optional Feature Total (as identified in Note 4) Ben Product M&E GMWB Charge -------------------------------------------------------------------------------------------------------------------------------- Total M&E and Rider Charges 1.00%, 3.5% AIR S Universal Annuity (1) 1.00% 1.00% Total M&E and Rider Charges 1.25%, 3.0% AIR S Universal Select Annuity 1.25% 1.25% Total M&E and Rider Charges 1.25%, 3.5% AIR S Universal Annuity (2) 1.25% 1.25% S Universal Annuity Advantage 1.25% 1.25% Total M&E and Rider Charges 1.40%, 3.0% AIR SU Universal Select Annuity 1.40% 1.40% Total M&E and Rider Charges 1.40%, 3.5% AIR SU Universal Annuity Advantage 1.40% 1.40% Total M&E and Rider Charges 1.65%, 3.0% AIR S Universal Select Annuity 1.25% 0.40% 1.65% Total M&E and Rider Charges 1.65%, 3.5% AIR S Universal Annuity Advantage 1.25% 0.40% 1.65% Total M&E and Rider Charges 1.80%, 3.0% AIR SU Universal Select Annuity 1.40% 0.40% 1.80% Total M&E and Rider Charges 1.80%, 3.5% AIR SU Universal Annuity Advantage 1.40% 0.40% 1.80% --------------------------------------------------------------------------------------------------------------------------------
(1) Contracts issued prior to May 16, 1983 (2) 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 $6,604 and $7,727 for the six months ended June 30, 2005 and the year ended December 31, 2004, 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 $97,506 and $221,650 for the six months ended June 30, 2005 and the year ended December 31, 2004, respectively. 4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $12,092,000 and $13,321,000 of the net assets of Account GIS were held on behalf of an affiliate of The Company as of June 30, 2005 and December 31, 2004, respectively. Transactions with this affiliate during the six months ended June 30, 2005 and the year ended December 31, 2004, were comprised of participant purchase payments of approximately $3,000 and $3,000 and contract surrenders of approximately $1,030,000 and $438,000, respectively. -6- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 5. NET CONTRACT OWNERS" EQUITY
JUNE 30, 2005 ------------------------------------ UNIT UNITS VALUE NET ASSETS ---------- --------- ------------- Total M&E and Rider Charges 1.00%, 3.5% AIR 6,978,395 $ 19.650 $ 137,131,516 Total M&E and Rider Charges 1.25%, 3.5% AIR 18,757,047 18.597 348,841,113 Total M&E and Rider Charges 1.40%, 3.5% AIR 19 1.063 20 Total M&E and Rider Charges 1.65%, 3.5% AIR 75 1.061 80 Total M&E and Rider Charges 1.25%, 3.0% AIR 14,667 1.069 15,679 Total M&E and Rider Charges 1.40%, 3.0% AIR 277 1.068 296 Total M&E and Rider Charges 1.65%, 3.0% AIR 953 1.066 1,015 ------------- Net Contract Owners' Equity $ 485,989,719 =============
Assumed Interest Rate (AIR) is only applicable to contracts in the payout phase. -7- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each period.)
SIX MONTHS Total M&E and Rider Charges 1.00%, 3.5% AIR ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) -------- ---------------------------------------------------- 2005 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ...................................... $ .165 $ .348 $ .264 $ .240 $ .266 $ .242 Operating expenses ........................................... 160 .303 .256 .261 .311 .376 ------- ------- ------- ------- ------- ------- Net investment income (loss) ................................. .005 .045 .008 (.021) (.045) (.134) Unit value at beginning of period ............................ 19.949 17.926 14.172 18.064 21.418 24.427 Net realized and change in unrealized gains (losses) ......... (.304) 1.978 3.746 (3.871) (3.309) (2.875) ------- ------- ------- ------- ------- ------- Unit value at end of period .................................. $19.650 $19.949 $17.926 $14.172 $18.064 $21.418 ======= ======= ======= ======= ======= ======= SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ........................ $ (.30) $ 2.02 $ 3.75 $ (3.89) $ (3.35) $ (3.01) Ratio of operating expenses to average net assets ............ 1.65%* 1.65% 1.65% 1.64% 1.63% 1.60% Ratio of net investment income (loss) to average net assets .. 0.04%* 0.23% 0.06% (0.12) (0.24) (0.57) Number of units outstanding at end of period (thousands) ..... 6,978 7,413 8,139 9,088 10,329 11,413 Portfolio turnover rate ...................................... 13% 43% 68% 54% 32% 52%
SIX MONTHS Total M&E and Rider Charges 1.25%, 3.5% AIR ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) -------- ---------------------------------------------------- 2005 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ...................................... $ .156 $ .330 $ .251 $ .229 $ .254 $ .232 Operating expenses ........................................... 174 .331 .281 .287 .343 .416 ------- ------- ------- ------- ------- ------- Net investment income (loss) ................................. (.018) (.001) (.030) (.058) (.089) (.184) Unit value at beginning of period ............................ 18.903 17.028 13.496 17.245 20.498 23.436 Net realized and change in unrealized gains (losses) ......... (.288) 1.876 3.562 (3.691) (3.164) (2.754) ------- ------- ------- ------- ------- ------- Unit value at end of period .................................. $18.597 $18.903 $17.028 $13.496 $17.245 $20.498 ======= ======= ======= ======= ======= ======= SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ........................ $ (.31) $ 1.88 $ 3.53 $ (3.75) $ (3.25) $ (2.94) Ratio of operating expenses to average net assets ............ 1.90%* 1.90% 1.90% 1.89% 1.88% 1.84% Ratio of net investment income (loss) to average net assets .. (0.20)%* (0.02)% (0.19)% (0.37)% (0.49)% (0.82)% Number of units outstanding at end of period (thousands) ..... 18,757 19,978 21,853 24,100 27,559 29,879 Portfolio turnover rate ...................................... 13% 43% 68% 54% 32% 59%
* Annualized -8- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. SUPPLEMENTARY INFORMATION (CONTINUED) (Selected data for a unit outstanding throughout each period.) FROM JUNE 3, 2005 Total M&E and Rider Charges 1.40%, 3.5% AIR (INCEPTION DATE) TO JUNE 30, ------------------- 2005 ---- SELECTED PER UNIT DATA: Total investment income ........................................ $ .001 Operating expenses ............................................. .001 ------ Net investment income (loss) ................................... 0.00 Unit value at beginning of period .............................. 1.065 Net realized and change in unrealized gains (losses) ........... (.002) ------ Unit value at end of period .................................... $1.063 ====== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .......................... $ (.00) Ratio of operating expenses to average net assets .............. 2.05%* Ratio of net investment income (loss) to average net assets .... (0.68)%* Number of units outstanding at end of period (thousands) ....... --** Portfolio turnover rate ........................................ 13% FROM MARCH 15, 2005 (INCEPTION DATE) Total M&E and Rider Charges 1.65%, 3.5% AIR TO JUNE 30, --------------------- 2005 ---- SELECTED PER UNIT DATA: Total investment income ........................................ $ .005 Operating expenses ............................................. .007 ------ Net investment income (loss) ................................... (.002) Unit value at beginning of period .............................. 1.067 Net realized and change in unrealized gains (losses) ........... (.004) ------ Unit value at end of period .................................... $1.061 ====== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .......................... $ (.01) Ratio of operating expenses to average net assets .............. 2.30%* Ratio of net investment income (loss) to average net assets .... (0.77)%* Number of units outstanding at end of period (thousands) ....... --** Portfolio turnover rate ........................................ 13% * Annualized ** Unit Balance rounds to less than 1,000 units. -9- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. SUPPLEMENTARY INFORMATION (CONTINUED) (Selected data for a unit outstanding throughout each period.)
FROM DECEMBER 10, 2004 SIX MONTHS (INCEPTION DATE) TO Total M&E and Rider Charges 1.25%, 3.0% AIR ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) ----------- -------------------------------------------- 2005 2004 ---- ---- SELECTED PER UNIT DATA: Total investment income .................................... $ .009 $ .001 Operating expenses ......................................... .010 .001 ----------- ----------- Net investment income (loss) ............................... (.001) -- Unit value at beginning of period .......................... 1.087 1.066 Net realized and change in unrealized gains (losses) ....... (.017) .021 ----------- ----------- Unit value at end of period ................................ $ 1.069 $ 1.087 =========== =========== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ...................... $ (.02) $ .02 Ratio of operating expenses to average net assets .......... 1.90% 1.90% Ratio of net investment income (loss) to average net assets (0.20)%* 0.49% Number of units outstanding at end of period (thousands) ... 15 --** Portfolio turnover rate .................................... 13% 43%
FROM MARCH 4, 2005 Total M&E and Rider Charges 1.40%, 3.0% AIR (INCEPTION DATE) TO JUNE 30, ------------------- 2005 ---- SELECTED PER UNIT DATA: Total investment income $ .005 Operating expenses ......................................... .007 --------- Net investment income (loss) ............................... (.002) Unit value at beginning of period .......................... 1.094 Net realized and change in unrealized gains (losses) ....... (.024) --------- Unit value at end of period ................................ $ 1.068 ========= SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ...................... $ (.03) Ratio of operating expenses to average net assets .......... 2.05%* Ratio of net investment income (loss) to average net assets (0.49)%* Number of units outstanding at end of period (thousands) ... --** Portfolio turnover rate .................................... 13% * Annualized ** Unit Balance rounds to less than 1,000 units. -10- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. SUPPLEMENTARY INFORMATION (CONTINUED) (Selected data for a unit outstanding throughout each period.) FROM FEBUARY 24, 2005 (INCEPTION DATE) Total M&E and Rider Charges 1.65%, 3.0% AIR TO JUNE 30, --------------------- 2005 ---- SELECTED PER UNIT DATA: Total investment income .................................... $ .006 Operating expenses ......................................... .008 --------- Net investment income (loss) ............................... (.002) Unit value at beginning of period .......................... 1.072 Net realized and change in unrealized gains (losses) ....... (.004) --------- Unit value at end of period ................................ $ 1.066 ========= SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ...................... $ (.01) Ratio of operating expenses to average net assets .......... 2.30%* Ratio of net investment income (loss) to average net assets (0.59)%* Number of units outstanding at end of period (thousands) ... 1 Portfolio turnover rate .................................... 13% * Annualized 7. SUBSEQUENT EVENTS On June 24, 2005, Citigroup Inc. ("Citigroup") announced that it had signed a definitive agreement, effective July 1, 2005, under which Citigroup will sell substantially all of its worldwide asset management business to Legg Mason, Inc. ("Legg Mason"). As part of this transaction, Account GIS's subadviser, TIMCO, currently an indirect wholly owned subsidiary of Citigroup, would become an indirect wholly owned subsidiary of Legg Mason. The transaction is subject to certain regulatory approvals, as well as other customary conditions to closing. Subject to such approvals and the satisfaction of the other conditions, Citigroup expects the transaction to be completed later in 2005. On July 1, 2005, MetLife, Inc., a Delaware corporation ("MetLife"), acquired all of the outstanding shares of capital stock of certain indirect subsidiaries held by Citigroup, Inc. ("Citigroup") including The Company, The Travelers Life and Annuity Company, a wholly owned subsidiary of The Company and certain other domestic insurance companies of Citigroup and substantially all of the Citigroup"s international businesses for $11.8 billion. TIC filed a Form 8-K Current Report with The United States Securities and Exchange Commission on July 8, 2005, with additional information about the transaction. -11- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES SUMMARY OF HOLDINGS (UNAUDITED) JUNE 30, 2005 % of net assets ------------ COMMON STOCK Technology 14.8 Banking 8.1 Pharmaceuticals 7.6 Insurance 6.2 Retail 5.9 Integrated Energy 5.5 Conglomerates 5.3 Consumer 4.7 Telecommunications 3.9 Brokerage 3.3 Healthcare 2.7 Food 2.6 Medical Supplies 2.1 Finance 2.0 Multimedia 2.0 Oil Companies 1.9 Beverage 1.8 Electric Utilities 1.7 Utilities 1.7 Transportation Services 1.4 Tobacco 1.2 Independent Energy 1.1 United States Agency Securities 1.1 Automotive 1.0 Capital Goods 1.0 Entertainment 1.0 Metals 1.0 Aerospace 0.9 Services 0.9 Chemicals 0.8 Defense 0.8 Home Construction 0.7 Paper 0.7 Lodging 0.6 Media Non-Cable 0.5 Machinery 0.4 Biotechnology 0.3 Building Materials 0.2 ------ TOTAL COMMON STOCK 99.4 ------ SHORT-TERM INVESTMENTS Commercial Paper 0.1 United States Treasury 0.1 ------ TOTAL SHORT-TERM 0.2 ------ TOTAL INVESTMENTS 99.6 ------ OTHER ASSETS AND LIABILITIES 0.4 ------ TOTAL NET ASSETS 100.0 ====== -12- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 2005 NO. OF FAIR SHARES VALUE ---------- ----------- COMMON STOCK (99.4%) AEROSPACE (0.9%) Boeing Co. 27,258 $ 1,799,028 General Dynamics Corp. 24,458 2,679,129 ----------- 4,478,157 ----------- AUTOMOTIVE (1.0%) General Motors Corp. 25,599 870,366 Harley-Davidson 13,348 662,061 Oshkosh Truck 12,467 975,917 PACCAR Inc. 32,842 2,232,599 ----------- 4,740,943 ----------- BANKING (8.1%) Bank of America Corp. 217,845 9,935,910 Capital One Financial Corp. 39,783 3,183,038 Comerica, Inc. 29,659 1,714,290 First Horizon National 186 7,849 JP Morgan Chase & Co. 208,409 7,361,006 KeyCorp 20,039 664,293 Marshall & Ilsley Corp. 17,134 761,606 MBNA Corp. 18,974 496,360 National City Corp. 62,124 2,119,671 Providian Financial Corp. 58,360 1,028,887 U.S. Bancorp 64,725 1,889,970 Wachovia Corp. 101,223 5,020,661 Washington Mutual, Inc. 12,447 506,468 Wells Fargo & Co. 77,391 4,765,738 ----------- 39,455,747 ----------- BEVERAGE (1.8%) Coca-Cola Co. 76,759 3,204,688 Coca-Cola Enterprises Inc. 69,137 1,521,705 PepsiCo, Inc. 74,247 4,004,141 ----------- 8,730,534 ----------- BIOTECHNOLOGY (0.3%) Genetech Inc. (A) 18,811 1,510,147 ----------- BROKERAGE (3.3%) Bear Stearns Companies 33,815 3,514,731 Franklin Resources, Inc. 13,361 1,028,530 Goldman Sachs Group Inc. 31,891 3,253,520 Lehman Brothers Holdings Inc. 28,138 2,793,541 Merrill Lynch & Co. Inc. 44,535 2,449,870 Morgan Stanley 56,000 2,938,320 ----------- 15,978,512 ----------- BUILDING MATERIALS (0.2%) Masco Corp. 33,585 1,066,660 ----------- CAPITAL GOODS (1.0%) Danaher Corp. 41,656 $ 2,180,275 Deere & Co. 33,186 2,173,351 Eaton Corp. 9,256 554,434 ----------- 4,908,060 ----------- CHEMICALS (0.8%) Dow Chemical 52,840 2,352,965 E.I. du Pont de Nemours & Co. 19,717 848,028 Monsanto Co. 11,686 734,699 ----------- 3,935,692 ----------- CONGLOMERATES (5.3%) 3M Co. 24,209 1,750,311 General Electric Co. 467,008 16,181,827 Honeywell International, Inc. 38,200 1,399,266 Parker-Hannifin 21,634 1,341,524 Tyco International Ltd. 95,312 2,783,110 United Technologies Corp. 45,962 2,360,149 ----------- 25,816,187 ----------- CONSUMER (4.7%) Ball Corp. 20,579 740,021 Black & Decker Corp. 3,850 345,922 Colgate-Palmolive Co. 15,336 765,420 Eastman Kodak 43,556 1,169,479 Energizer Holdings, Inc. (A) 12,162 756,112 Fortune Brands 25,685 2,280,828 Gillette Co. 22,437 1,135,985 Mattel, Inc. 58,133 1,063,834 Miller Herman, Inc. 31,809 981,149 Molson Coors Brewing Co. (Class B) 16,134 1,000,308 NIKE, Inc. (Class B) 37,145 3,216,757 Pactiv Corp. (A) 47,910 1,033,898 Procter & Gamble Co. 112,982 5,959,800 Reebok International 27,844 1,164,715 Sealed Air Corp. (A) 25,501 1,269,695 ----------- 22,883,923 ----------- DEFENSE (0.8%) Lockheed Martin Corp. 28,336 1,838,156 Northrop Grumman Corp. 36,874 2,037,288 ----------- 3,875,444 ----------- ELECTRIC UTILITIES (1.7%) American Electric Power 60,355 2,225,289 Edison International 44,962 1,823,209 FirstEnergy Corp. 51,330 2,469,486 Public Service Enterprise Group 12,828 780,199 Southern Co. 26,402 915,357 ----------- 8,213,540 ----------- -13- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED JUNE 30, 2005 NO. OF FAIR SHARES VALUE ---------- ----------- ENTERTAINMENT (1.0%) The Walt Disney Co. 140,456 $ 3,536,682 Viacom, Inc. (Class B) 36,799 1,178,304 ----------- 4,714,986 ----------- FINANCE (2.0%) American Express Co. 68,087 3,624,271 CIT Group Holdings, Inc. 39,646 1,703,589 Countrywide Financial 50,768 1,960,152 E*Trade Financial Corp. (A) 87,610 1,225,664 Principal Financial Group 28,221 1,182,460 ----------- 9,696,136 ----------- FOOD (2.6%) Applebee's International, Inc. 36,321 960,327 Archer-Daniels Midland Co. 110,826 2,369,460 General Mills, Inc. 35,975 1,683,270 Hormel Foods Corp. 16,069 471,304 Kellogg Co. 9,471 420,891 McDonald's Corp. 94,164 2,613,051 Sara Lee Corp. 35,337 700,026 Smithfield Foods (A) 69,649 1,899,328 Starbucks Corp. (A) 17,631 910,377 Yum! Brands 12,545 653,344 ----------- 2,681,378 ----------- HEALTHCARE (2.7%) Aetna Inc. 23,790 1,970,288 Caremark Rx, Inc. (A) 28,868 1,285,203 Humana, Inc. (A) 58,249 2,314,815 Medco Health Solutions (A) 12,869 686,690 UnitedHealth Group, Inc. 99,444 5,185,010 Wellpoint, Inc. (A) 25,398 1,768,717 ----------- 3,210,723 ----------- HOME CONSTRUCTION (0.7%) K.B. HOME 20,413 1,556,083 Pulte Homes, Inc. 22,094 1,861,419 ----------- 3,417,502 ----------- INDEPENDENT ENERGY (1.1%) Anadarko Petroleum Corp. 13,754 1,129,891 Burlington Resources 39,933 2,205,899 Devon Energy Corp. 14,922 756,247 Kerr-McGee Corp. 18,638 1,422,266 ----------- 5,514,303 ----------- INSURANCE (6.2%) ACE Limited 13,472 604,219 AFLAC Inc. 24,399 1,055,989 Allstate Corp. 61,684 3,685,619 Ambac Financial Group 26,313 1,835,595 American International Group, Inc. 123,846 7,195,453 Aon Corp. 13,909 348,281 Chubb Corp. 29,384 $ 2,515,564 CIGNA Corp. 17,547 1,878,055 Hartford Financial Services Group, Inc. 9,727 727,385 Jefferson-Pilot Corp. 6,647 335,142 Lincoln National Corp. 8,875 416,415 Marsh & McLennan Cos., Inc. 23,789 658,955 MGIC Investment Corp. 16,896 1,101,957 Prudential Financial, Inc. 77,160 5,066,326 The Progressive Corp. 25,934 2,562,539 ----------- 29,987,494 ----------- INTEGRATED ENERGY (5.5%) Chevron Corp. 90,070 5,036,714 ConocoPhillips 63,788 3,667,172 Exxon Mobil Corp. 288,311 16,569,233 Marathon Oil 29,648 1,582,314 ----------- 26,855,433 ----------- LODGING (0.6%) Marriott International (Class A) 34,251 2,336,603 Starwood Hotels & Resorts 8,064 472,308 ----------- 2,808,911 ----------- MACHINERY (0.4%) Ingersoll-Rand Co. (Class A) 27,799 1,983,459 ----------- MEDIA NON-CABLE (0.5%) News Corp. Limited 81,150 1,313,007 Pixar, Inc. (A) 20,666 1,033,817 ----------- 2,346,824 ----------- MEDICAL SUPPLIES (2.1%) Abbott Laboratories 69,849 3,423,299 Becton, Dickinson and Company 11,209 588,136 Boston Scientific (A) 37,973 1,025,271 Cardinal Health 7,728 444,978 Hospira, Inc. (A) 4,008 156,312 Medtronic, Inc. 54,538 2,824,523 Zimmer Holdings, Inc. (A) 23,544 1,793,346 ----------- 10,255,865 ----------- METALS (1.0%) Allegheny Technologies, Inc. 47,933 1,057,402 Newmont Mining Corp. 18,697 729,744 Nucor Corp. 30,127 1,374,394 Phelp's Dodge Corp. 15,837 1,464,923 ----------- 4,626,463 ----------- -14- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED JUNE 30, 2005 NO. OF FAIR SHARES VALUE ---------- ----------- MULTIMEDIA (2.0%) Brown-Forman Corp. (Class B) 11,818 $ 714,516 Comcast Corp. (Class A) 96,863 2,971,273 Gannett Co., Inc. 21,483 1,528,086 Time Warner Inc. (A) 276,749 4,624,476 ----------- 9,838,351 ----------- OIL COMPANIES (1.9%) Baker Hughes Inc. 22,355 1,143,682 Halliburton Co. 18,874 902,555 Occidental Petroleum Corp. 17,923 1,378,816 Schlumberger Ltd. 31,058 2,358,545 Sunoco Inc. 7,409 842,255 Transocean, Inc. 20,423 1,102,229 Valero Energy Corp. 17,544 1,387,906 ----------- 9,115,988 ----------- PAPER (0.7%) Georgia-Pacific Corp. 16,897 537,325 International Paper 22,754 687,398 Kimberly Clark Corp. 22,967 1,437,505 Weyerhaeuser Co. 9,523 606,139 ----------- 3,268,367 ----------- PHARMACEUTICALS (7.6%) AmerisourceBergen Corp. 16,014 1,107,368 Amgen, Inc. 59,304 3,585,223 Biogen Idec Inc. (A) 29,934 1,029,730 Bristol-Myers Squibb 86,001 2,148,305 Eli Lilly & Co. 40,675 2,266,004 Gilead Sciences (A) 47,504 2,089,938 IVAX Corp. 46,376 997,084 Johnson & Johnson 132,817 8,633,105 Merck & Co., Inc. 98,412 3,031,090 Pfizer Inc. 332,612 9,173,439 Schering-Plough Corp. 65,364 1,245,838 Wyeth 42,310 1,882,795 ----------- 37,189,919 ----------- RETAIL (5.9%) Autozone, Inc. (A) 5,494 507,975 Borders Group 44,240 1,119,714 Costco Wholesale Corp. 20,855 932,948 CVS Corp. 62,052 1,803,852 Federated Department Stores, Inc. 11,956 876,136 GameStop Corp. (Class A) (A) 14,716 440,008 Home Depot, Inc. 97,600 3,796,640 Jones Apparel Group, Inc. 6,734 209,023 Limited Brands 44,761 958,781 Lowe's Cos. 18,268 $ 1,063,563 Nordstrom, Inc. 22,138 1,504,720 Office Depot, Inc. (A) 55,294 1,262,915 Staples Inc. 34,030 724,658 Supervalu, Inc. 36,506 1,190,461 Target Corp. 12,926 703,304 Toys R Us, Inc. (A) 68,354 1,810,014 Walgreen Co. 53,026 2,438,666 Wal-Mart Stores, Inc. 151,010 7,278,682 ----------- 28,622,060 ----------- SERVICES (0.9%) Cendant Corp. 49,788 1,113,758 eBay Inc. (A) 39,708 1,311,754 Yahoo! Inc. (A) 59,689 2,067,925 ----------- 4,493,437 ----------- TECHNOLOGY (14.8%) Adobe Systems 63,363 1,810,281 Advanced Micro Devices (A) 81,002 1,404,575 Analog Devices, Inc. 17,304 645,612 Apple Computer (A) 49,254 1,811,316 Autodesk, Inc. 64,257 2,208,192 Cisco Systems, Inc. (A) 304,197 5,808,642 Comverse Technology Inc. (A) 78,946 1,865,099 Corning Inc. 90,691 1,507,284 Dell Inc. (A) 112,593 4,441,231 EMC Corp. (A) 111,492 1,528,555 Fiserv Inc. (A) 11,777 505,292 Hewlett Packard Co. 137,035 3,221,693 Intel Corp. 290,880 7,570,152 International Business Machine 80,687 5,986,975 Jabil Circuit (A) 44,049 1,353,626 KLA-Tencor Corp. 9,143 399,412 Lexmark International (Class A) (A) 5,825 377,635 Maxim Intergrated Products 14,330 547,191 Micron Technology, Inc. 96,377 984,009 Microsoft Corp. 426,737 10,593,746 Motorola, Inc. 199,409 3,641,208 NCR Corp. (A) 49,793 1,748,730 Oracle Corp. (A) 224,611 2,965,988 Scientific-Atlanta, Inc. 47,811 1,590,672 Sun Microsystems, Inc. (A) 158,542 587,398 Sybase, Inc. (A) 49,877 915,243 Texas Instruments Inc. 90,528 2,541,121 Thomas & Betts Corp. 41,654 1,176,309 VERITAS Software (A) 52,031 1,269,817 Waters Corp. (A) 27,164 1,009,686 ----------- 72,016,690 ----------- -15- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED JUNE 30, 2005 NO. OF FAIR SHARES VALUE ---------- ------------ TELECOMMUNICATIONS (3.9%) AT&T Corp. 143,285 $ 2,728,146 BellSouth Corp. 71,766 1,906,823 Capital Receivables Corp. 184,615 4,384,606 CenturyTel, Inc. 52,301 1,811,184 NEXTEL Communications (Class A) (A) 28,711 927,509 Polycom, Inc. (A) 47,445 707,642 QUALCOMM, Inc. 66,861 2,207,416 Verizon Communications 122,389 4,228,540 ------------ 18,901,866 ------------ TOBACCO (1.2%) Altria Group 92,199 5,961,587 ------------ TRANSPORTATION SERVICES (1.4%) Burlington Northern Santa Fe 37,346 1,758,250 CSX Corp. 34,293 1,462,939 United Parcel Service (Class B) 51,324 3,549,568 ------------ 6,770,757 ------------ UNITED STATES AGENCY SECURITIES (1.1%) Federal Home Loan Mortgage Corp. 33,629 2,193,620 Federal Association National Mortgage 51,346 2,998,606 ------------ 5,192,226 ------------ UTILITIES (1.7%) AES Corp. (A) 122,460 2,005,895 Constellation Energy Group 45,192 2,607,126 Exelon Corp. 54,443 2,794,559 Kinder Morgan 6,118 509,018 National Fuel Gas Co. 11,814 341,543 ------------ 8,258,141 ------------ TOTAL COMMON STOCKS (COST $429,743,416) 483,322,412 PRINCIPAL AMOUNT SHORT-TERM INVESTMENTS (0.2%) COMMERCIAL PAPER (0.1%) UBS AG, 3.44% due July 1, 2005 $ 404,000 404,000 ------------ UNITED STATES TREASURY (0.1%) United States of America Treasury, 2.89% due August 11, 2005 $ 250,000 $ 249,169 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $653,192) 653,169 ------------ TOTAL INVESTMENTS (99.6%) (COST $430,396,608) (B) 483,975,581 ------------ OTHER ASSETS AND LIABILITIES (0.4%) 2,014,138 TOTAL NET ASSETS (100.0%) $485,989,719 ============ NOTES (A) Non-income Producing Security. (B) At June 30, 2005 net unrealized appreciation for all securities was $53,578,973. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of fair value over cost of $92,223,194 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over fair value of $38,644,221. See Notes to Financial Statements -16- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2005 ASSETS: Investment securities, at fair value (cost $92,960,086) ........ $94,012,950 Cash ........................................................... 13,407 Receivables: Interest ..................................................... 860,684 Purchase payments and transfers from other funding options ... 19,621 Other assets ................................................... 1,409 ----------- Total Assets .............................................. 94,908,071 ----------- LIABILITIES: Payables: Contract surrenders and transfers to other funding options ... 4,393 Investment management and advisory fees ...................... 5,051 Insurance charges ............................................ 18,127 Accrued liabilities ............................................ 5 ----------- Total Liabilities ......................................... 27,576 ----------- NET ASSETS: ...................................................... $94,880,495 =========== See Notes to Financial Statements -17- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2005 INVESTMENT INCOME: Interest ............................................................. $ 2,042,134 EXPENSES: Investment management and advisory fees .............................. $ 155,087 Insurance charges .................................................... 566,169 ------------ Total expenses ..................................................... 721,256 ------------ Net investment income (loss) .................................... 1,320,878 ------------ REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized gain (loss) from investment security transactions: Proceeds from investment securities sold ........................... 47,040,361 Cost of investment securities sold ................................. 46,314,699 ------------ Net Realized gain (loss) ........................................ 725,662 Change in unrealized gain (loss) on investment securities: Unrealized gain (loss) at June 30, 2005 ............................ 1,052,864 Unrealized gain (loss) at December 31, 2004 ........................ 1,600,818 ------------ Net change in unrealized gain (loss) for the period ............. (547,954) ------------ Net realized gain (loss) and change in unrealized gain (loss) 177,708 ------------ Net increase (decrease) in net assets resulting from operations ...... $ 1,498,586 ============
See Notes to Financial Statements -18- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2005 2004 ---- ---- (UNAUDITED) OPERATIONS: Net investment income (loss) ....................................................... $ 1,320,878 $ 3,027,366 Net realized gain (loss) from investment security transactions ..................... 725,662 689,574 Net change in unrealized gain (loss) on investment securities ...................... (547,954) (732,536) ------------- ------------- Net increase (decrease) in net assets resulting from operations ................. 1,498,586 2,984,404 ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 308,352 and 662,081 units, respectively) .......................... 2,191,456 4,637,014 Participant transfers from other funding options (applicable to 190,865 and 469,738 units, respectively) .......................... 1,363,162 3,286,010 Administrative charges (applicable to 4,956 and 10,969 units, respectively) ............................. (35,961) (77,235) Contract surrenders (applicable to 1,193,414 and 1,792,547 units, respectively) ...................... (8,585,152) (12,709,265) Participant transfers to other funding options (applicable to 341,053 and 1,092,374 units, respectively) ........................ (2,431,377) (7,636,339) Other payments to participants (applicable to 36,799 and 111,228 units, respectively) ........................... (265,224) (793,229) ------------- ------------- Net increase (decrease) in net assets resulting from unit transactions ............. (7,763,096) (13,293,044) ------------- ------------- Net increase (decrease) in net assets ............................................ (6,264,510) (10,308,640) NET ASSETS: Beginning of period ................................................................ 101,145,005 111,453,645 ------------- ------------- End of period ...................................................................... $ 94,880,495 $ 101,145,005 ============= =============
See Notes to Financial Statements -19- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Quality Bond Account for Variable Annuities ("Account QB") is a separate account of The Travelers Insurance Company ("The Company"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding Universal Annuity, Universal Select Annuity, and Universal Annuity Advantage 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. There were no repurchase agreements in Account QB at June 30, 2005. -20- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES (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 $16,735,329 and $31,619,586, respectively; the costs of purchases and proceeds from sales of direct and indirect U.S. government securities were $16,692,277 and $15,420,775, respectively, for the six months ended June 30, 2005. 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. The asset-based charges listed below are deducted, as appropriate, each business day and are assessed through the calculation of accumulation and annuity unit values; - Mortality and Expense Risks assumed by The Company (M&E) - Administrative fees paid for administrative expenses (ADM) - Guaranteed Minimum Withdrawal Benefit, if elected by the contract owner (GMWB) Below is a table displaying total M&E and rider charges with their associated products offered in this Separate Account. The table displays Standard (S) and Annual Step-Up (SU) death-benefit designations.
------------------------------------------------------------------------------------------------------------------------------------ TRAVELERS QUALITY BOND ACCOUNT ------------------------------------------------------------------------------------------------------------------------------------ Asset-based Charges ------------------------------------------------------------------------------------------------------------------------------------ Total M&E and Rider Charges (1) Dth Optional Feature Total (as identified in Note 4) Ben Product M&E GMWB Charge ------------------------------------------------------------------------------------------------------------------------------------ Total M&E and Rider Charges 1.00%, 3.5% AIR S Universal Annuity (1) 1.00% 1.00% Total M&E and Rider Charges 1.25%, 3.0% AIR S Universal Select Annuity 1.25% 1.25% Total M&E and Rider Charges 1.25%, 3.5% AIR S Universal Annuity (2) 1.25% 1.25% S Universal Annuity Advantage 1.25% 1.25% Total M&E and Rider Charges 1.40%, 3.0% AIR SU Universal Select Annuity 1.40% 1.40% Total M&E and Rider Charges 1.40%, 3.5% AIR SU Universal Annuity Advantage 1.40% 1.40% Total M&E and Rider Charges 1.65%, 3.0% AIR S Universal Select Annuity 1.25% 0.40% 1.65% Total M&E and Rider Charges 1.65%, 3.5% AIR S Universal Annuity Advantage 1.25% 0.40% 1.65% Total M&E and Rider Charges 1.80%, 3.0% AIR SU Universal Select Annuity 1.40% 0.40% 1.80% Total M&E and Rider Charges 1.80%, 3.5% AIR SU Universal Annuity Advantage 1.40% 0.40% 1.80% ------------------------------------------------------------------------------------------------------------------------------------
(1) Contracts issued prior to May 16, 1983 (2) Contracts issued on or after May 16,1983 -21- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 3. CONTRACT CHARGES (CONTINUED) 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 $1,755 and $3,280 for the six months ended June 30, 2005 and the year ended December 31, 2004, 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 $26,346 and $45,877 for the six months ended June 30, 2005 and the year ended December 31, 2004, respectively. 4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $101,000 and $105,000 of the net assets of Account QB were held on behalf of an affiliate of The Company as of June 30, 2005 and December 31, 2004, respectively. Transactions with this affiliate were comprised of participant purchase payments of approximately $4,000 for the year ended December 31, 2004 and contract surrenders of approximately $5,000 and $18,000, for the six months ended June 30, 2005 and the year ended December 31, 2004, respectively. 5. NET CONTRACT OWNERS" EQUITY Assumed Interest Rate (AIR) is only applicable to contracts in the payout phase.
JUNE 30, 2005 ------------------------------------ UNIT UNITS VALUE NET ASSETS --------- ---------- ------------ Total M&E and Rider Charges 1.00%, 3.5% AIR .... 3,532,201 $ 7.631 $ 26,959,429 Total M&E and Rider Charges 1.25%, 3.5% AIR .... 9,402,472 7.223 67,919,169 Total M&E and Rider Charges 1.25%, 3.0% AIR .... 1,853 1.024 1,897 ------------ Net Contract Owners' Equity .................... $ 94,880,495 ============
Assumed Interest Rate (AIR) is only applicable to contracts in the payout phase. -22- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each period.)
SIX MONTHS Total M&E and Rider Charges 1.00%, 3.5% AIR ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) -------- --------------------------------------------- 2005 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ......................... $ .158 $ .321 $ .345 $ .381 $ .421 $ .446 Operating expenses .............................. .050 .097 .093 .086 .089 .081 ------ ------ ------ ------ ------ ------ Net investment income (loss) .................... .108 .224 .252 .295 .332 .365 Unit value at beginning of period ............... 7.507 7.281 6.674 6.608 6.335 6.055 Net realized and change in unrealized gains (losses) ..................... .016 .002 .355 (.229) (.059) (.085) ------ ------ ------ ------ ------ ------ Unit value at end of period ..................... $7.631 $7.507 $7.281 $6.674 $6.608 $6.335 ====== ====== ====== ====== ====== ====== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ........... $ .12 $ .23 $ .61 $ .07 $ .27 $ .28 Ratio of operating expenses to average net assets ............................ 1.33%* 1.33% 1.33% 1.33% 1.33% 1.33% Ratio of net investment income (loss) to average net assets .................. 2.92%* 3.03% 3.58% 4.56% 4.99% 5.93% Number of units outstanding at end of period (thousands) ......................... 3,532 3,717 4,207 4,684 5,194 5,491 Portfolio turnover rate ......................... 40% 98% 139% 113% 166% 105%
SIX MONTHS Total M&E and Rider Charges 1.25%, 3.5% AIR ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) -------- --------------------------------------------- 2005 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ......................... $ .151 $ .304 $ .328 $ .363 $ .402 $ .427 Operating expenses .............................. .056 .110 .105 .097 .101 .092 ------ ------- ------- ------- ------ ------ Net investment income (loss) .................... .095 .194 .223 .266 .301 .335 Unit value at beginning of period ............... 7.113 6.917 6.356 6.309 6.063 5.810 Net realized and change in unrealized gains (losses) ..................... .015 .002 .338 (.219) (.055) (.082) ------ ------- ------- ------- ------ ------ Unit value at end of period ..................... $7.223 $ 7.113 $ 6.917 $ 6.356 $6.309 $6.063 ====== ======= ======= ======= ====== ====== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ........... $ .11 $ .20 $ .56 $ .05 $ .25 $ .25 Ratio of operating expenses to average net assets ............................ 1.57%* 1.57% 1.57% 1.57% 1.57% 1.57% Ratio of net investment income (loss) to average net assets .................. 2.67%* 2.78% 3.33% 4.31% 4.74% 5.69% Number of units outstanding at end of period (thousands) ......................... 9,402 10,296 11,682 12,733 15,116 14,045 Portfolio turnover rate ......................... 40% 98% 139% 113% 166% 105%
* Annualized -23- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. SUPPLEMENTARY INFORMATION (CONTINUED) (Selected data for a unit outstanding throughout each period.) FROM APRIL 1, 2005 Total M&E and Rider Charges 1.25%, 3.0% AIR (INCEPTION DATE) TO JUNE 30, ------------------- 2005 ---- SELECTED PER UNIT DATA: Total investment income ....................................... $ .011 Operating expenses ............................................ 004 -------- Net investment income (loss) .................................. 007 Unit value at beginning of period ............................. 1.003 Net realized and change in unrealized gains (losses) .......... 014 -------- Unit value at end of period ................................... $ 1.024 ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ......................... $ .02 Ratio of operating expenses to average net assets ............. 1.57%* Ratio of net investment income (loss) to average net assets ... 2.65%* Number of units outstanding at end of period (thousands) ...... 2 Portfolio turnover rate ....................................... 40% * Annualized -24- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 7. SUBSEQUENT EVENTS On July 1, 2005, MetLife, Inc., a Delaware corporation ("MetLife"), acquired all of the outstanding shares of capital stock of certain indirect subsidiaries held by Citigroup, Inc. ("Citigroup") including The Company, The Travelers Life and Annuity Company, a wholly owned subsidiary of The Company and certain other domestic insurance companies of Citigroup and substantially all of the Citigroup"s international businesses for $11.8 billion. TIC filed a Form 8-K Current Report with The United States Securities and Exchange Commission on July 8, 2005, with additional information about the transaction. Effective July 1, 2005, Salomon Brothers Asset Management Inc. entered into a subadvisory agreement with TAMIC to provide asset management services for Account QB. -25- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES SUMMARY OF HOLDINGS (UNAUDITED) JUNE 30, 2005 % of net assets -------- BONDS Collateralized Mortgage Obligations 9.0 Banking 8.1 Finance 6.8 Utilities 4.2 Real Estate 4.1 Asset Backed Securities 3.5 United States Agency Securities 3.5 Brokerage 3.2 Conglomerates 3.2 Multimedia 2.8 Media Cable 2.2 Telecommunications 1.6 Electric Utilities 1.4 Natural Gas Distribution 1.4 Pharmaceuticals 1.3 Beverage 1.2 Food 1.1 Independent Energy 1.1 Supermarkets 1.1 Automotive 1.0 Insurance 1.0 Tobacco 1.0 Technology 0.8 Defense 0.6 Healthcare 0.5 Building Materials 0.4 Home Construction 0.4 Metals 0.4 Airlines 0.3 Machinery 0.2 Natural Gas Pipeline 0.2 Paper 0.2 ----- TOTAL BONDS 67.8 ----- UNITED STATES GOVERNMENT SECURITIES United States Government Securities 14.6 ----- SHORT TERM INVESTMENTS Commercial Paper 16.7 ----- TOTAL INVESTMENTS 99.1 ----- Other Assets and liabilities 0.9 ----- TOTAL NET ASSETS 100.0 ===== -26- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 2005
PRINCIPAL FAIR AMOUNT VALUE ---------- ---------- BONDS (67.8%) AIRLINES (0.3%) Delta Air Lines, Inc., 9.25% Debentures, 2007 (A) ....................................... $ 439,660 $ 255,003 ---------- ASSET BACKED SECURITIES (3.5%) CA Infrastructure, 3.05% Debentures, 2008 ............................................... 418,016 425,465 Chase Funding Mortgage Loan Asset Backed Security Certificate, 4.36% Debentures, 2032 ... 500,000 514,099 Daimler Chrysler Auto, 2.67% Debentures, 2006 ........................................... 414,191 414,525 Discover Card Mt, 2.94% Debentures, 2008 ................................................ 1,100,000 1,115,598 Ford Credit Auto Owner Trust, 2.70% Debentures, 2006 .................................... 722,843 724,601 Toyota Auto Recovery Owner Trust, 2.67% Debentures, 2006 ................................ 153,479 153,408 ---------- 3,347,696 ---------- AUTOMOTIVE (1.0%) Daimler Chrysler NA Holdings, 5.09% Debentures, 2012 .................................... 700,000 783,231 Ford Motor Co., 7.66% Debentures, 2031 .................................................. 200,000 167,390 ---------- 950,621 ---------- BANKING (8.1%) ABN AMRO Holdings ADS, 3.31% Debentures, 2007 ........................................... 920,000 921,300 Bank of America Corp., 4.75% Debentures, 2014 ........................................... 600,000 638,660 Capital One Bank, 4.66% Debentures, 2009 ................................................ 620,000 634,058 Capital One Bank, 5.51% Debentures, 2015 ................................................ 200,000 204,997 Credit Suisse First Boston Corp., 4.50% Debentures, 2009 ................................ 500,000 494,525 Credit Suisse First Boston Corp., 4.86% Debentures, 2011 ................................ 300,000 326,764 HSBC Bank USA, 5.91% Debentures, 2034 ................................................... 400,000 437,481 Huntington National Bank, 4.68% Debentures, 2009 ........................................ 400,000 404,853 JP Morgan Chase & Co., 4.94% Debentures, 2015 ........................................... 200,000 207,073 Royal Bank of Scotland Capital Trust, 4.87% Debentures, 2013 ............................ 300,000 296,462 Royal Bank of Scotland PLC, 5.05% Debentures, 2015 ...................................... 400,000 414,317 U.S. Bancorp NA MN, 2.89% Debentures, 2007 .............................................. 1,000,000 984,252 U.S. Bancorp NA MN, 4.95% Debentures, 2014 .............................................. 200,000 205,931 Wachovia Corp. NA, 3.53% Debentures, 2014 ............................................... 700,000 708,780 Wachovia Corp. NA, 4.87% Debentures, 2014 ............................................... 300,000 304,069 Washington Mutual Bank, 5.36% Debentures, 2015 .......................................... 500,000 508,833 ---------- 7,692,355 ---------- BEVERAGE (1.2%) Pepsi Bottling Group, 4.34% Debentures, 2012 ............................................ 400,000 406,642 PepsiAmericas, Inc., 4.91% Debentures, 2015 ............................................. 700,000 714,336 ---------- 1,120,978 ---------- BROKERAGE (3.2%) Goldman Sachs Group Inc., 4.95% Debentures, 2013 ........................................ 1,100,000 1,136,993 Lehman Brothers Holdings Inc., 4.85% Debentures, 2014 ................................... 700,000 708,581 Merrill Lynch & Co. Inc., 4.20% Debentures, 2009 ........................................ 400,000 398,681 Merrill Lynch & Co. Inc., 4.68% Debentures, 2010 ........................................ 400,000 399,419 Merrill Lynch & Co. Inc., 5.09% Debentures, 2015 ........................................ 400,000 410,346 ---------- 3,054,020 ----------
-27- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED JUNE 30, 2005
PRINCIPAL FAIR AMOUNT VALUE ---------- ---------- BUILDING MATERIALS (0.4%) D.R. Horton, 5.41% Debentures, 2015 ....................................................... $ 400,000 $ 389,258 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS (9.0%) Bank of America Commercial Mortgage Inc. , 4.84% Debentures, 2042 ......................... 1,400,000 1,423,528 Credit Suisse First Boston Commercial Mortgage Corp., 4.85% Debentures, 2037 .............. 220,000 224,002 JP Morgan Chase & Co. Commercial Mortgage, 4.78% Debentures, 2042 ......................... 3,000,000 3,034,077 JP Morgan Chase & Co. Commercial Mortgage, 4.88% Debentures, 2042 ......................... 1,600,000 1,631,904 JP Morgan Chase & Co. Commercial Mortgage, 5.00% Debentures, 2046 ......................... 775,000 803,025 LB UBS Commercial Mortgage Trust, 4.74% Debentures, 2031 .................................. 670,000 685,986 Morgan Stanley Capital, 4.61% Debentures, 2056 ............................................ 700,000 705,963 ---------- 8,508,485 ---------- CONGLOMERATES (3.2%) Berskshire Hathaway, Inc., 3.33% Debentures, 2008 (B) ..................................... 200,000 200,071 Berskshire Hathaway, Inc., 4.81% Debentures, 2012 ......................................... 400,000 404,238 General Electric Co., 4.66% Debentures, 2013 .............................................. 1,300,000 1,344,370 Tyco International Ltd., 4.28% Debentures, 2008 ........................................... 1,000,000 1,059,650 ---------- 3,008,329 ---------- DEFENSE (0.6%) Northrop Grumman Corp., 3.41% Debentures, 2006 ............................................ 600,000 598,463 ---------- ELECTRIC UTILITIES (1.4%) Dominion Resources Inc., 5.22% Debentures, 2033 ........................................... 400,000 410,400 PSEG Energy Holdings, 21.80% Debentures, 2008 ............................................. 450,000 480,375 TransAlta Corp., 5.22% Debentures, 2013 ................................................... 400,000 421,312 ---------- 1,312,087 ---------- FINANCE (6.8%) AIG SunAmerica Global Financials, 3.55% Debentures, 2008 (B) .............................. 500,000 521,594 American General Financial Corp., 3.98% Debentures, 2009 .................................. 900,000 879,878 Caterpillar Financial Services Corp., 4.72% Debentures, 2012 .............................. 800,000 815,864 Countrywide Financial Corp., 4.54% Debentures, 2010 ....................................... 400,000 399,944 Countrywide Home Loan, 4.44% Debentures, 2011 ............................................. 710,000 685,603 Ford Motor Credit Co., 5.75% Debentures, 2010 ............................................. 100,000 92,324 Ford Motor Credit Co., 6.56% Debentures, 2006 ............................................. 1,000,000 1,010,135 Glencore Funding LLC, 6.70% Debentures, 2014 (B) .......................................... 300,000 288,150 Household Financial Corp., 4.70% Debentures, 2011 ......................................... 1,400,000 1,532,665 Rabobank Capital Funding Trust III, 5.25% Debentures, 2016 (B) ............................ 200,000 205,584 ---------- 6,431,741 ---------- FOOD (1.1%) Fred Meyer Inc., 4.83% Debentures, 2008 ................................................... 1,000,000 1,076,328 ---------- HEALTHCARE (0.5%) Anthem Inc., 4.86% Debentures, 2012 ....................................................... 400,000 451,997 ---------- HOME CONSTRUCTION (0.4%) Pulte Homes Inc., 5.59% Debentures, 2015 .................................................. 400,000 396,405 ----------
-28- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED JUNE 30, 2005
PRINCIPAL FAIR AMOUNT VALUE ---------- ---------- INDEPENDENT ENERGY (1.1%) Anadarko Financial Co., 4.88% Debentures, 2011 .................................... $ 400,000 $ 444,983 Devon Energy Corp., 5.42% Debentures, 2011 ........................................ 500,000 560,201 ---------- 1,005,184 ---------- INSURANCE (1.0%) GE Global Insurnace, 6.18% Debentures, 2026 ....................................... 100,000 107,478 Massmutual Global Funding, 2.58% Debentures, 2008 (B) ............................. 900,000 859,615 ---------- 967,093 ---------- MACHINERY (0.2%) Cooper Cameron Corp. , 2.67% Debentures, 2007 ..................................... 200,000 194,118 ---------- MEDIA CABLE (2.2%) Comcast Cable Communications, 8.70% Debentures, 2027 .............................. 500,000 672,410 Cox Communications Inc., 4.98% Debentures, 2012 ................................... 800,000 898,424 Liberty Media Corp., 5.15% Debentures, 2006 ....................................... 484,000 487,102 ---------- 2,057,936 ---------- METALS (0.4%) Phelps Dodge Corp., 5.31% Debentures, 2011 ........................................ 300,000 363,150 ---------- MULTIMEDIA (2.8%) Clear Channel Communications Inc., 4.72% Debentures, 2011 ......................... 200,000 188,265 Time Warner Inc., 9.66% Debentures, 2007 .......................................... 2,400,000 2,484,394 ---------- 2,672,659 ---------- NATURAL GAS DISTRIBUTION (1.4%) Duke Capital LLC, 3.77% Debentures, 2006 .......................................... 400,000 400,666 Duke Energy Field Service, 5.68% Debentures, 2005 ................................. 500,000 501,979 Southern California Gas Co., 4.38% Debentures, 2011 ............................... 400,000 400,151 ---------- 1,302,796 ---------- NATURAL GAS PIPELINE (0.2%) Cons Natural Gas Co., 5.04% Debentures, 2014 ...................................... 200,000 202,702 ---------- PAPER (0.2%) International Paper, 5.38% Debentures, 2015 ....................................... 200,000 200,965 ---------- PHARMACEUTICALS (1.3%) Wyeth, 5.52% Debentures, 2014 ..................................................... 1,200,000 1,266,600 ---------- REAL ESTATE (4.1%) Avalonbay Communties, Inc., 5.00% Debentures, 2013 ................................ 100,000 100,920 Colonial Realty LP, 4.75% Debentures, 2010 ........................................ 200,000 198,631 Health Retirement Properties, 6.39% Debentures, 2016 .............................. 300,000 325,474 iStar Financial, 6.03% Debentures, 2010 ........................................... 440,000 458,192 Kimco Reality, 3.41% Debentures, 2006 ............................................. 100,000 100,131 Nationwide Health Properties Inc., 6.90% Debentures, 2037 ......................... 2,100,000 2,359,308 Simon Property Group, Inc., 4.63% Debentures, 2010 (B) ............................ 200,000 200,330 Simon Property Group, Inc., 5.10% Debentures, 2015 (B) ............................ 200,000 200,279 ---------- 3,943,265 ----------
-29- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) " CONTINUED JUNE 30, 2005
PRINCIPAL FAIR AMOUNT VALUE ----------- ---------- SUPERMARKETS (1.1%) Delhaize America, Inc., 7.37% Debentures, 2031 ...................................... $ 200,000 $ 250,696 ----------- Safeway Inc., 4.96% Debentures, 2011 ................................................ 700,000 757,471 1,008,167 ----------- TECHNOLOGY (0.8%) Computer Associates International, 4.72% Debentures, 2009 (B) ....................... 800,000 798,238 ----------- TELECOMMUNICATIONS (1.6%) Deutsche Telecomm International Financial, 6.10% Debentures, 2030 ................... 200,000 271,637 SBC Communications, Inc., 5.89% Debentures, 2034 .................................... 400,000 451,293 Sprint Capital Corp., 4.90% Debentures, 2008 ........................................ 720,000 759,095 ----------- 1,482,025 ----------- TOBACCO (1.0%) Altria Group, 5.74% Debentures, 2008 ................................................ 900,000 934,405 ----------- UNITED STATES AGENCY SECURITIES (3.5%) Federal Association National Mortgage, 2.13% Debentures, 2006 ....................... 1,300,000 1,275,793 Federal Association National Mortgage, 3.00% Debentures, 2007 ....................... 1,400,000 1,397,829 Federal Home Loan Mortgage Corp., 2.90% Debentures, 2019 ............................ 700,000 696,158 ----------- 3,369,780 ----------- UTILITIES (4.2%) Kinder Morgan , 5.14% Debentures, 2014 .............................................. 200,000 202,658 Pepco Holdings, 5.15% Debentures, 2007 .............................................. 1,600,000 1,636,283 SP Powerassets Ltd., 5.08% Debentures, 2013 ......................................... 900,000 934,340 Xcel Energy Inc., 3.44% Debentures, 2008 (B) ........................................ 1,200,000 1,170,259 ----------- 3,943,540 ----------- TOTAL BONDS (COST $63,204,832) .................................................................. 64,306,389 ----------- UNITED STATES GOVERNMENT SECURITIES (14.6%) United States of America Treasury, 1.50% Debentures, 2005 ........................... 6,060,000 6,118,237 United States of America Treasury, 3.65% Debentures, 2006 ........................... 3,000,000 2,970,354 United States of America Treasury, 3.01% Debentures, 2007 ........................... 2,400,000 2,356,502 United States of America Treasury, 3.74% Debentures, 2010 ........................... 100,000 100,602 United States of America Treasury, 3.75% Debentures, 2010 ........................... 100,000 99,594 United States of America Treasury, 4.04% Debentures, 2015 ........................... 2,200,000 2,232,828 ----------- TOTAL UNITED STATES GOVERNMENT SECURITIES (COST $13,925,543) .................................................................. 13,878,117 -----------
-30- THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED JUNE 30, 2005
PRINCIPAL FAIR AMOUNT VALUE ----------- ---------- SHORT TERM INVESTMENTS (16.7%) COMMERCIAL PAPER (16.7%) Beethoven Funding Corp., 3.35% Debentures, 2012 (B) ............................. $ 2,400,000 $ 2,397,367 Credit Suisse First Boston NY, 3.30% Debentures, 2005 ........................... 1,321,000 1,320,396 Galleon Capital Corp., 3.43% Debentures, 2005 ................................... 2,282,000 2,282,000 MICA Funding LLC, 3.30% Debentures, 2005 (B) .................................... 1,892,000 1,890,789 Polonius Inc., 3.35% Debentures, 2005 (B) ....................................... 1,670,000 1,668,322 Scaldis Capital LLC, 3.35% Debentures, 2005 ..................................... 2,425,000 2,422,563 Sheffield Receivable Corp., 3.35% Debentures, 2005 .............................. 1,450,000 1,448,543 Tasman Funding, Inc., 3.25% Debentures, 2005 (B) ................................ 2,400,000 2,398,464 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $15,829,711) .............................................................. 15,828,444 ----------- TOTAL INVESTMENTS (99.1%) (COST $92,960,086) (C) .......................................................... 94,012,950 ----------- OTHER ASSETS AND LIABILITIES (0.9%) .............................................. 867,545 ----------- TOTAL NET ASSETS (100.0%) ........................................................ $94,880,495 ===========
NOTES (A) Restricted Security. (B) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of June 30, 2005, The Travelers Quality Bond Account for Variable Annuities held 13.5% of its net assets, with a current market value of $12,799,063, in securities restricted as to resale. (C) At June 30, 2005 net unrealized appreciation for all securities was $1,052,864. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of fair value over cost of $1,571,120 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over fair value of $518,256. -31- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2005 ASSETS: Investment securities, at fair value (cost $64,501,230) ........ $64,493,332 Cash ........................................................... 1,161 Receivables: Interest ..................................................... 6,386 Purchase payments and transfers from other funding options ... 123,791 Other assets ................................................... 437 ----------- Total Assets .............................................. 64,625,107 ----------- LIABILITIES: Payables: Contract surrenders and transfers to other funding options ... 10,160 Investment management and advisory fees ...................... 3,426 Insurance charges ............................................ 13,245 ----------- Total Liabilities ......................................... 26,831 ----------- NET ASSETS: ...................................................... $64,598,276 =========== See Notes to Financial Statements -32- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2005 INVESTMENT INCOME: Interest ......................................................... $ 900,050 EXPENSES: Investment management and advisory fees .......................... $ 106,521 Insurance charges ................................................ 411,765 ---------- Total expenses ................................................. 518,286 --------- Net investment income (loss) ................................ 381,764 --------- Net increase (decrease) in net assets resulting from operations .. $ 381,764 =========
See Notes to Financial Statements -33- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31 2005 2004 ---- ---- (UNAUDITED) OPERATIONS: Net investment income (loss) ......................................... $ 381,764 $ (160,977) ----------- ------------ Net increase (decrease) in net assets resulting from operations ...... 381,764 (160,977) ----------- ------------ UNIT TRANSACTIONS: Participant purchase payments (applicable to 1,294,049 and 2,876,976 units, respectively) ........ 3,486,365 7,848,289 Participant transfers from other funding options (applicable to 5,309,944 and 15,177,654 units, respectively) ....... 14,514,808 41,410,773 Administrative charges (applicable to 16,620 and 36,552 units, respectively) .............. (45,199) (99,678) Contract surrenders (applicable to 2,544,195 and 7,406,612 units, respectively) ........ (6,956,171) (20,205,133) Participant transfers to other funding options (applicable to 4,916,561 and 18,609,573 units, respectively) ....... 13,442,634) (50,776,513) Other payments to participants (applicable to 79,310 and 89,026 units, respectively) .............. (217,817) (244,258) ----------- ------------ Net increase (decrease) in net assets resulting from unit transactions (2,660,648) (22,066,520) ----------- ------------ Net increase (decrease) in net assets .............................. (2,278,884) (22,227,497) NET ASSETS: Beginning of period .................................................. 66,877,160 89,104,657 ----------- ------------ End of period ........................................................ $64,598,276 $ 66,877,160 =========== ============
See Notes to Financial Statements -34- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Money Market Account for Variable Annuities ("Account MM") is a separate account of The Travelers Insurance Company ("The Company"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding Universal Annuity, Universal Select Annuity, and Universal Annuity Advantage 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. There were no repurchase agreements in Account MM at June 30, 2005. 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. -35- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - 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. The asset-based charges listed below are deducted, as appropriate, each business day and are assessed through the calculation of accumulation and annuity unit values; - Mortality and Expense Risks assumed by The Company (M&E) - Administrative fees paid for administrative expenses (ADM) - Guaranteed Minimum Withdrawal Benefit, if elected by the contract owner (GMWB) Below is a table displaying Total M&E and Rider Charges with their associated products offered in this Separate Account . The table displays Standard (S) and Annual Step-Up (SU) death-benefit designations. ------------------------------------------------------------------------------------------------------------------------------------ TRAVELERS MONEY MARKET ACCOUNT Asset-based Charges ------------------------------------------------------------------------------------------------------------------------------------ Total M&E and Rider Charges (1) Dth Optional Feature Total (as identified in Note 4) Ben Product M&E GMWB Charge ------------------------------------------------------------------------------------------------------------------------------------ Total M&E and Rider Charges 1.00%, 3.5% AIR S Universal Annuity (1) 1.00% 1.00% Total M&E and Rider Charges 1.25%, 3.0% AIR S Universal Select Annuity 1.25% 1.25% Total M&E and Rider Charges 1.25%, 3.5% AIR S Universal Annuity (2) 1.25% 1.25% S Universal Annuity Advantage 1.25% 1.25% Total M&E and Rider Charges 1.40%, 3.0% AIR SU Universal Select Annuity 1.40% 1.40% Total M&E and Rider Charges 1.40%, 3.5% AIR SU Universal Annuity Advantage 1.40% 1.40% Total M&E and Rider Charges 1.65%, 3.0% AIR S Universal Select Annuity 1.25% 0.40% 1.65% Total M&E and Rider Charges 1.65%, 3.5% AIR S Universal Annuity Advantage 1.25% 0.40% 1.65% Total M&E and Rider Charges 1.80%, 3.0% AIR SU Universal Select Annuity 1.40% 0.40% 1.80% Total M&E and Rider Charges 1.80%, 3.5% AIR SU Universal Annuity Advantage 1.40% 0.40% 1.80% ------------------------------------------------------------------------------------------------------------------------------------
(1) Contracts issued prior to May 16, 1983 (2) 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 $32,895 and $148,520 for the six months ended June 30, 2005 and the year ended December 31, 2004, respectively. 3. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $436,000 and $1,060,000 of the net assets of Account MM were held on behalf of an affiliate of The Company as of June 30, 2005 and December 31, 2004, respectively. Transactions with this affiliate during the six months ended June 30, 2005 and the year ended December 31, 2004, were comprised of participant purchase payments of approximately $69,000 and $515,000 and contract surrenders of approximately $697,000 and $638,000, respectively. -36- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 4. NET CONTRACT OWNERS" EQUITY
JUNE 30, 2005 -------------------------------------- UNIT UNITS VALUE NET ASSETS ---------- -------- ------------ Total M&E and Rider Charges 1.00%, 3.5% AIR ......... 21,541 $ 2.899 $ 62,454 Total M&E and Rider Charges 1.25%, 3.5% AIR ......... 23,507,608 2.744 64,506,316 Total M&E and Rider Charges 1.25%, 3.0% AIR ......... 29,301 1.007 29,506 ------------ Net Contract Owners' Equity ......................... $ 64,598,276 ============
Assumed Interest Rate (AIR) is only applicable to contracts in the payout phase. -37- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 5. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each period.)
SIX Total M&E and Rider Charges 1.00%, 3.5% AIR MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) --------- ----------------------------------------------------- 2005 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ................................... $ .039 $ .040 $ .033 $ .051 $ .120 $ .174 Operating expenses ........................................ .019 .038 .038 .038 .037 .037 --------- -------- --------- --------- -------- -------- Net investment income (loss) .............................. .020 .002 (.005) .013 .083 .137 Unit value at beginning of period ......................... 2.879 2.877 2.882 2.869 2.786 2.649 --------- -------- --------- --------- -------- -------- Unit value at end of period ............................... $ 2.899 $ 2.879 $ 2.877 $ 2.882 $ 2.869 $ 2.786 ========= ======== ========= ========= ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ..................... $ .02 $ .00 $ (.01) $ .01 $ .08 $ .14 Ratio of operating expenses to average net assets ......... 1.33%* 1.33% 1.33% 1.33% 1.33% 1.33% Ratio of net investment income (loss) to average net assets 1.41%* 0.07% (0.16)% 0.46% 2.89% 5.09% Number of units outstanding at end of period (thousands) .. 22 26 39 49 60 70
SIX Total M&E and Rider Charges 1.25%, 3.5% AIR MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) --------- ----------------------------------------------------- 2005 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ................................... $ .037 $ .038 $ .032 $ .048 $ .114 $ .167 Operating expenses ........................................ .021 .043 .043 .043 .042 .041 -------- -------- -------- -------- -------- -------- Net investment income (loss) .............................. .016 (.005) (.011) .005 .072 .126 Unit value at beginning of period ......................... 2.728 2.733 2.744 2.739 2.667 2.541 -------- -------- -------- -------- -------- -------- Unit value at end of period ............................... $ 2.744 $ 2.728 $ 2.733 $ 2.744 $ 2.739 $ 2.667 ======== ======== ======== ======== ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ..................... $ .02 $ (.01) $ (.01) $ .01 $ .07 $ .13 Ratio of operating expenses to average net assets ......... 1.57%* 1.57% 1.57% 1.57% 1.57% 1.57% Ratio of net investment income (loss) to average net assets 1.17%* (0.18)% (0.41)% 0.21% 2.64% 4.84% Number of units outstanding at end of period (thousands) .. 23,508 24,485 32,559 50,702 63,430 55,477
* Annualized -38- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 5. SUPPLEMENTARY INFORMATION (CONTINUED) (Selected data for a unit outstanding throughout each period.)
SIX FROM DECEMBER 28, 2004 MONTHS (INCEPTION DATE) TO Total M&E and Rider Charges 1.25%, 3.0% AIR ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) -------- --------------------------------------------- 2005 2004 ---- ---- SELECTED PER UNIT DATA: Total investment income $ .014 $ -- Operating expenses .008 -- ------ ------- Net investment income (loss) .006 -- Unit value at beginning of period 1.001 1.001 ------ ------- Unit value at end of period $1.007 $ 1.001 ====== ======= SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value $ .01 $ -- Ratio of operating expenses to average net assets 1.57%* 1.57% Ratio of net investment income (loss) to average net assets 1.17%* 0.74% Number of units outstanding at end of period (thousands) 29 --**
* Annualized ** Unit balance rounds to less than 1,000 units. 6. SUBSEQUENT EVENTS On July 1, 2005, MetLife, Inc., a Delaware corporation ("MetLife"), acquired all of the outstanding shares of capital stock of certain indirect subsidiaries held by Citigroup, Inc. ("Citigroup") including The Company, The Travelers Life and Annuity Company, a wholly owned subsidiary of The Company and certain other domestic insurance companies of Citigroup and substantially all of the Citigroup"s international businesses for $11.8 billion. TIC filed a Form 8-K Current Report with The United States Securities and Exchange Commission on July 8, 2005, with additional information about the transaction. Effective July 1, 2005, Salomon Brothers Asset Management Inc. entered into a subadvisory agreement with TAMIC to provide asset management services for Account MM. -39- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES SUMMARY OF HOLDINGS (UNAUDITED) JUNE 30, 2005 % OF NET ASSETS --------- SHORT-TERM INVESTMENTS Commercial Paper 99.8 ----- TOTAL SHORT-TERM INVESTMENTS 99.8 ----- TOTAL INVESTMENTS 99.8 ----- Other Assets and Liabilities 0.2 ----- TOTAL NET ASSETS 100.0 ===== -40- THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 2005
PRINCIPAL FAIR AMOUNT VALUE ----------- ----------- SHORT-TERM INVESTMENTS (99.8%) COMMERCIAL PAPER (99.8%) Atlantic Asset Security Corp., 3.36% due July 7, 2005 ............................... $ 1,252,000 $ 1,251,199 Becton Dickinson & Co., 3.29% due July 25, 2005 ..................................... 3,174,000 3,166,748 Bryant Park Funding LLC, 3.23% due July 15, 2005 .................................... 3,204,000 3,199,607 Canadian Imperial Bank of Commerce, 3.13% due July 13, 2005 ......................... 3,100,000 3,096,317 General Electric Capital Corp., 3.09% due July 8, 2005 .............................. 3,124,000 3,121,716 Goldman Sachs Group Inc., 3.15% due July 14, 2005 ................................... 3,100,000 3,096,035 HSBC Finance Corp., 3.16% due July 13, 2005 ......................................... 3,207,000 3,203,190 ING U.S. Funding LLC, 3.31% due July 27, 2005 ....................................... 3,176,000 3,168,165 Merrill Lynch & Co. Inc., 3.28% due July 5, 2005 .................................... 3,167,000 3,165,553 Morgan Stanley, 3.34% due July 26, 2005 ............................................. 3,175,000 3,167,456 Nestle Capital Corp., 3.23% due July 20, 2005 ....................................... 3,179,000 3,173,189 Park Avenue Receivables Corp., 3.15% due July 11, 2005 .............................. 3,202,000 3,198,782 Regency Markets, LLC, 3.15% due July 7, 2005 ........................................ 3,196,000 3,193,955 Royal Bank of Scotland PLC, 3.18% due July 18, 2005 ................................. 3,200,000 3,194,736 Sheffield Resources Corp., 3.25% due July 19, 2005 .................................. 3,210,000 3,204,428 Societe Generale North America, 3.19% due July 15, 2005 ............................. 3,204,000 3,199,607 Toronto Dominion Holdings USA, Inc., 3.09% due July 6, 2005 ......................... 3,200,000 3,198,246 Toyota Motor Credit Corp., 3.09% due July 7, 2005 ................................... 3,231,000 3,228,932 UBS AG, 3.44% due July 1, 2005 ...................................................... 3,001,000 3,001,000 USAA Capital Corp., 3.27% due July 8, 2005 .......................................... 3,167,000 3,164,685 Well Fargo Bank NA, 3.09% due July 12, 2005 ......................................... 3,100,000 3,099,786 ----------- TOTAL INVESTMENTS (99.8%) (COST $64,501,230) .................................................................. 64,493,332 ----------- OTHER ASSETS AND LIABILITIES (0.2%) .................................................. 104,944 ----------- TOTAL NET ASSETS (100.0%) ............................................................ $64,598,276 ===========
-41- FACTORS CONSIDERED BY THE INDEPENDENT MANAGERS IN APPROVING THE INVESTMENT ADVISORY AGREEMENTS AND THE SUBADVISORY AGREEMENTS FOR THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES, THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES AND THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES Beginning at a telephonic meeting on March 17, 2005 and in person meetings on March 29 and 30, 2005, the Independent Managers for The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, and the Travelers Quality Bond Account for Variable Annuities (the "Accounts") approved the investment advisory agreements (the "Agreements") between TAMIC and the Accounts. In addition, at the in person meetings on March 29 and 30, 2005 and April 27 and 28, 2005, the Independent Managers approved the investment advisory agreements (the "Subadvisory Agreements") for The Travelers Money Market Account for Variable Annuities ("MM Account") and The Travelers Quality Bond Account for Variable Annuities ("QB Account") between TAMIC and Salomon Brothers Asset Management Inc. ("Salomon") and approved the Subadvisory Agreement for The Travelers Growth and Income Stock Account for Variable Annuities ("GIS Account") between TAMIC and TIMCO. In voting to approve the Agreements and the Subadvisory Agreements, the Independent Managers considered whether the approval of the Agreements and the Subadvisory Agreements would be in the best interests of the Accounts and their contract owners, an evaluation largely based on the nature and quality of the services provided under the Agreements and the Subadvisory Agreements and the overall fairness of the Agreements and the Subadvisory Agreements to the contract owners. The Independent Managers did not identify any one factor, piece of information or written document as all important or controlling, and each Independent Manager attributed different weight to different factors. Prior to voting, the Independent Managers reviewed the proposed continuance of the Agreements and the Subadvisory Agreements with management and with experienced independent and fund counsel and received materials from counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and the Subadvisory Agreements. The Independent Managers also reviewed the proposed continuation of the Agreements and the Subdvisory Agreements in private sessions alone and with their independent counsel at which no representatives of management were present. Based on an evaluation of all material factors including those described below, the Independent Managers concluded that the Agreements and the Subadvisory Agreements were reasonable and fair and in the best interest of the Accounts and their contract owners. As background, MetLife Inc. ("MetLife") and Citigroup Inc. ("Citigroup") announced an agreement for the sale of TIC and certain affiliates by Citigroup to MetLife (the "MetLife Transaction"). The MetLife Transaction included the acquisition of the TIC subsidiary TAMIC, the investment adviser to the Accounts, by MetLife. The MetLife Transaction closed on July 1, 2005. The approval of the Agreements and the TIMCO Subadvisory Agreement was necessary under the 1940 Act, because the change in control of TAMIC resulted in the termination of TAMIC's investment advisory agreements for the Accounts and the subadvisory agreement for GIS Account on the closing of the MetLife Transaction. The approval of the Salomon Subadvisory Agreements was necessary because there were no subadvisory agreements in place for the QB and MM Accounts prior to the closing of the MetLife Transaction. The Agreements and the Subadvisory Agreements for the Accounts were approved by the Independent Managers and the Agreements were submitted to a vote of the contract owners. The Independent Managers met in executive session and considered: (a) the nature, extent and quality of the services to be provided by TAMIC, TIMCO, and Salomon under the Agreements and the Subadvisory Agreements;(b) the investment performance of each Account, TAMIC, TIMCO, and Salomon for the Accounts; (c) the cost of services to be provided and the profit realized by TAMIC, TIMCO and Salomon, and their affiliates, which information was to be reviewed in depth at the July, 2005 Board meeting; (d) the extent to which TAMIC realizes economies of scale as each Account grows; and (e) whether the fee levels reflect these economies of scale for the benefit of the contract owners. THE AGREEMENTS As part of the process, legal counsel to the Accounts requested certain information from MetLife and in response MetLife provided certain written and oral information that addressed certain factors designed to inform the Independent Managers regarding their consideration of the Agreements. In making their determination, the Independent Managers were provided with information about MetLife and its purchase of The Travelers Insurance Company from Citigroup. At the various meetings, MetLife representatives discussed MetLife's intentions regarding the preservation and strengthening of TAMIC's business and MetLife's intentions regarding staffing changes and executive leadership changes at TAMIC. The MetLife representatives also discussed and provided certain written information on MetLife's business and products, including MetLife's advisory subsidiaries and their experience in overseeing subadvised mutual funds. The Independent Managers also discussed the plans and anticipated role and responsibilities of certain employees and officers after the closing of the MetLife Transaction. -42- THE AGREEMENTS (CONTINUED) With respect to the nature, scope and quality of the services to be provided by TAMIC after the MetLife Transaction, the Board considered the experience of MetLife's advisory subsidiaries and MetLife's efforts to build and maintain a strong investment team in TAMIC. The Board also considered the level and depth of knowledge of TAMIC, including the professional experience and qualifications of its personnel as well as current staffing levels. The Independent Managers also considered: o The ability of TAMIC to continue the oversight of both the investment and compliance operations of TIMCO and Salomon after the MetLife transaction, o The intention of MetLife to integrate The Travelers Insurance Company and its affiliates, including TAMIC, into MetLife's current businesses to create a single business operation, o MetLife's compliance with certain conditions set forth in Section 15(f) of the 1940 Act regarding placing unfair burdens on the Accounts, o Anticipated changes to back office operations to the Accounts, including the provision of administrative and transfer agency services, after the MetLife Transaction, and o The fact that the Agreements including the investment advisory fees would be identical to the current agreements, except for the inception date and the express authority for TAMIC to retain subadvisers. In addition, the Independent Managers noted that the performance of the Accounts, which the Independent Managers receive and review on a quarterly basis, had generally been satisfactory. As to the profits realized by TAMIC from its relationship with the Accounts, the Board noted that it was satisfied that TAMIC's profits were not excessive in the past, and that it was not possible to predict how the MetLife Transaction would affect such profits at this time, but would reconsider this factor at its annual review of the agreements under Section 15(c) of the 1940 Act in July 2005. As to whether economies of scale would be realized as the Accounts grow and whether fee levels reflect any such economies of scale, the Board noted that the investment advisory fee rates for the GIS Account included breakpoints that reduced the fees payable at higher asset levels, and noted its intention to explore the possibility of instituting breakpoints for the QB and MM Accounts where they were not currently in place. Finally, the Independent Managers considered the level of service expected to be provided by TAMIC after the closing of the MetLife Transaction. The Independent Managers considered its plans to perform the annual review of the Agreements pursuant to Section 15(c) of the 1940 Act at its regularly scheduled Board meeting which was scheduled to occur three weeks after the closing of the MetLife Transaction. In light of the continuity of investment management under the Agreements, the short period between the effective date of those Agreements and the upcoming annual review, the information provided by MetLife, and MetLife's plans to conduct a search for a subadvisor for the Accounts for which Salomon would serve as subadviser, the Board considered the information provided to it sufficient for its consideration of the Agreements at this time. Finally, in the event that the contract owners of an Account had not approved the Agreement for their Account by the closing of the MetLife Transaction, the Independent Managers approved an interim advisory agreement for that Account pursuant to Rule 15a-4 under the 1940 Act, which would take effect immediately following the closing of the MetLife Transaction. The interim advisory agreement for an Account would be in substantially the form of the proposed advisory agreement for the Account but also would include certain provisions required by Rule 15a-4. In fact, an interim advisory agreement with Salomon as the investment adviser was in effect for the MM Account from July 1, 2005 until July 18, 2005 when the Agreement for the MM Account with TAMIC as the investment adviser was approved by the contract owners. The Independent Managers considered the same factors with respect to the interim advisory agreement as they had considered regarding the Salomon Subadvisory Agreements, as discussed below. -43- THE SUBADVISORY AGREEMENTS MetLife recommended and the Independent Managers approved the retention of Salomon which was an affiliate of TAMIC before the MetLife Transaction, as a subadviser for the QB and MM Accounts that had been managed directly by TAMIC without a subadviser, effective on or about the closing of the MetLife Transaction. The portfolio managers employed by Salomon were also employees of TAMIC and the then current portfolio managers of the Accounts. For these Accounts, there would be no change in the day-to-day portfolio management. The Independent Managers noted that MetLife might in the future recommend to the Independent Managers such additional changes to any Accounts, including changes to the investment objectives, policies and restrictions of the Accounts or merging one or more Accounts into other MetLife-sponsored funds, as it determines are appropriate and as permitted by applicable law. As part of the process, legal counsel to the Accounts requested certain information from Salomon and in response Salomon provided certain written and oral information that addressed certain factors designed to inform the Independent Managers regarding their consideration of the Subadvisory Agreements. With respect to the nature, scope and quality of the services to be provided by Salomon after the MetLife Transaction, the Board considered the experience and commitment of Salomon's personnel, which included the same portfolio managers prior the closing of the MetLife Transaction, and the nature and quality of its investment process. The Independent Managers noted that the performance of the QB and MM Accounts, which the Independent Managers review on a quarterly basis, had generally been satisfactory. In determining whether the terms of the Subadvisory Agreements are reasonable and fair the Board considered the terms and structure of the Subadvisory Agreement. The Board reviewed information about the fee schedule for the Subadvisory Agreements for the QB and MM Accounts. The Board noted that the subadvisory fees would be paid by TAMIC out of its investment advisory fees and so the cost of services to be provided by Salomon and its profitability with regard to the QB and MM Accounts along with the economies of scale in its management of the Accounts were not material factors in the Independent Trustees consideration of the QB and MM Subadvisory Agreements. The Independent Managers also noted that the overall investment advisory fee was not changing. The Independent Managers considered its plans to perform an annual review of the Subadvisory Agreements pursuant to Section 15(c) of the 1940 Act at its regularly scheduled Board meeting which was scheduled to occur three weeks after the closing of the MetLife Transaction. In light of the continuity of portfolio management under the Subadvisory Agreements, the short period between the effective date of those Agreements and the upcoming annual review, the information provided by Salomon, and MetLife's plans to conduct a search for a subadvisor for the Accounts for which Salomon would serve as subadviser, the Board considered the information provided to it sufficient for its consideration of the Subadvisory Agreements at this time. Also, MetLife recommended and the Independent Managers reapproved the subadvisory agreement for the GIS Account between TAMIC and TIMCO. As discussed above, a change in control of TAMIC resulted in the termination of TAMIC's subadvisory agreement with TIMCO for Account GIS on the closing of the MetLife Transaction. With respect to the nature, scope and quality of the services to be provided by TIMCO after the MetLife Transaction, the Board considered that they would remain the same after the MetLife Transaction. The Independent Managers noted that the subadvisory fee, which was paid by TAMIC from its investment advisory fees, was not changing. Because the subadvisory fees were being paid out of TAMIC's advisory fees, the cost of services to be provided by TIMCO and its profitability with regard to the GIS Account, along with the economies of scale in its management of the GIS Account, were not material factors in the Independent Trustees consideration of the GIS Subadvisory Agreement. The Independent Managers considered its plans to perform the annual review of the Subadvisory Agreements pursuant to Section 15(c) of the 1940 Act at its regularly scheduled Board meeting which was scheduled to occur three weeks after the closing of the MetLife Transaction. The Board also considered that it had received quarterly performance information regarding the GIS Account. In light of the continuity of portfolio management under the Subadvisory Agreement, the performance of the GIS Account, the economies of scale at the advisory level and the short period between the effective date of those Agreements and the upcoming annual review, the Board considered the information provided to it sufficient for its consideration of the Subadvisory Agreement at this time. OTHER BUSINESS RELATIONSHIPS The Independent Directors considered other business relationships that MetLife and TAMIC would enter into with Citigroup, including its affiliate Salomon. In connection with the closing of the MetLife Transaction, MetLife, Citigroup and certain of their affiliates entered into a Distribution Agreement under which Citigroup-affiliated broker-dealers will continue to offer certain TIC and MetLife insurance contracts until July 1, 2015. In addition, MetLife, Citigroup and certain of their affiliates entered into an Investment Products Agreement under which certain TIC and MetLife insurance products will include certain Citigroup-sponsored funds as investment options including Salomon advised mutual funds until July 1, 2010. -44- CONCLUSION Based on the deliberations of the Independent Managers and their evaluation of the information described above, the Independent Managers unanimously concluded that (a) the terms of the Agreements and the Subadvisory Agreements are fair and reasonable; (b) the fees are reasonable in light of the services TAMIC, TIMCO and Salomon provided to the Accounts and its contract owners; (d) TAMIC, TIMCO and Salomon possess the capabilities to perform the duties required of them under the Agreements and the Subadvisory Agreements; (e) the investment performance of the Accounts are satisfactory; and (f) the Agreements and the Subadvisory Agreements are approved. -45- RESULTS FROM THE COMBINED SPECIAL MEETINGS OF THE GIS, QB, AND MM ACCOUNTS Combined Special Meetings of the GIS, QB and MM Accounts were held on June 23, 2005 and adjourned to June 30, 2005. The Special Meeting for the MM Account was further adjourned until July 18, 2005. There were three proposals submitted to contract owners. Proposal 1 was the approval of the investment advisory contracts between the Accounts and TAMIC. The agreements terminated as a matter of law at the closing of the MetLife Transaction. Proposal 2 was the approval of future subadvisory agreements without a contract owner vote. Proposal 3 was the election of a new member of the Board of Managers, Elizabeth Forget, who is affiliated with MetLife. The contract owners approved all proposals. The following table sets forth the number of contract owner units voted for, against and withheld as to each Proposal. PROPOSAL 1 GIS Account For 11,291,066 Against 954,275 Withhold 1,021,494 QB Account For 5,848,216 Against 443,149 Withhold 364,747 MM Account For 8,113,310 Against 864,258 Withhold 1,049,214 PROPOSAL 2 GIS Account For 9,938,444 Against 2,225,593 Withhold 1,102,798 QB Account For 5,244,318 Against 966,597 Withhold 445,198 MM Account For 7,018,882 Against 2,086,801 Withhold 921,099 PROPOSAL 3 GIS Account For 12,213,351 Withhold 1,053,484 QB Account For 6,251,739 Withhold 404,374 MM Account For 8,792,126 Withhold 1,234,656 -46- THE BOARD OF MANAGERS AND OFFICERS The investments and administration of each of the Accounts are under the direction of the Board of Managers, listed below. Members of the Board of Managers of Accounts GIS, QB, MM, TGIS, TSB and TAS are elected annually by those Contract Owners participating in the Accounts. A majority of the members of the Board of Managers are persons who are not affiliated with The Travelers Insurance Company, TIMCO, TAMIC or their affiliates. BOARD OF MANAGERS(1) R. Jay Gerken, CFA(2)(3) CHAIRMAN Frances M. Hawk, CFA, CFP Lewis Mandell Robert E. McGill, III OFFICERS R. Jay Gerken, CFA CHIEF EXECUTIVE OFFICER AND PRESIDENT Kathleen A. McGah SECRETARY TO THE BOARD David A. Golino(3) PRINCIPAL ACCOUNTING OFFICER William D. Wilcox CHIEF ANTI-MONEY LAUNDERING COMPLIANCE OFFICER CHIEF COMPLIANCE OFFICER -------------------------------------------------------------------------------- (1) Mr. Knight Edwards is an Emeritus Manager. An Emeritus Manager is permitted to attend meetings, but has no voting power. (2) 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. (3) Effective July 1, 2005, Elizabeth M. Forget replaced Mr. Gerkin as Chairman. (4) Effective July 1, 2005, Alan C. Leland Jr. replaced Mr. Golino as Principal Accounting Officer. Each Manager and Officer serves until his or her respective successor has been duly elected and qualified. -------------------------------------------------------------------------------- The Statement of Additional Information for Universal Annuity, Universal Select Annuity, and Universal Annuity Advantage contains additional information about the Trustees and Officers, and is available without charge, upon request, by calling 1-800-842-9406. -47- 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 CUSTODIAN JPMORGAN CHASE BANK 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. All figures represent past performance and the information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Principal value and investment returns will fluctuate and investors" units may be worth more or less than their original cost Each Account files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. You may find these forms on the Securities and Exchange Commission's website at http://www.sec.gov. These forms may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (toll free) 1-800-SEC-0330. Contract owners can also call the Account at 1-800-842-9406 to obtain information on Form N-Q. A description of the policies and procedures that the Accounts use to determine how to vote proxies and information on how the Accounts voted proxies relating to portfolio securities during the 12-month period ended June 30, 2005 is currently available. You may obtain these materials upon request and without charge by calling the Accounts (toll-free) at 1-800-842-9406. The Semi-Annual Report to stockholders is filed herewith. ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS Please see the schedule of investments contained in the report to shareholders included under item 1 of this form N-CSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED END MANAGEMENT INVESTMENTCOMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's Board of Managers since the accounts last provided disclosure in response to this item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a - 3 (c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934 as of a date within 90 days of the filing date of this document. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal quarter that have materially affected, or are likely to materially affect the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 99.CERT (b) Certifications pursuant to section 906 of the Sarbanes-Oxley Act of 2002 are furnished as Exhibit 99.906CERT SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Travelers Growth and Income Stock Account For Variable Annuities Travelers Quality Bond Account For Variable Annuities Travelers Money Market Account For Variable Annuities By: /s/ Elizabeth M. Forget Elizabeth M. Forget Chairman of the Board Chief Executive Officer Travelers Growth and Income Stock Account For Variable Annuities Travelers Quality Bond Account For Variable Annuities Travelers Money Market Account For Variable Annuities Date August 26, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Elizabeth M. Forget Elizabeth M. Forget Chairman of the Board Chief Executive Officer Travelers Growth and Income Stock Account For Variable Annuities Travelers Quality Bond Account For Variable Annuities Travelers Money Market Account For Variable Annuities Date August 26, 2005 By: /s/ Alan C. Leland Jr. Alan C. Leland Jr. Principal Accounting Officer Travelers Growth and Income Stock Account For Variable Annuities Travelers Quality Bond Account For Variable Annuities Travelers Money Market Account For Variable Annuities Date August 26, 2005