-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NkbGOXqobhuCTKBFX1uAKqrqooGuy2E+Ag7vWOGuWcogB4D0pGAv8sAo4k14F2Rf 83JAr1AzlR0ttj4ylUmKIg== 0000091155-99-000624.txt : 19991018 0000091155-99-000624.hdr.sgml : 19991018 ACCESSION NUMBER: 0000091155-99-000624 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MANAGED ASSETS TRUST CENTRAL INDEX KEY: 0000706453 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046480345 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03568 FILM NUMBER: 99721240 BUSINESS ADDRESS: STREET 1: ONE TOWER SQ STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 BUSINESS PHONE: 2032777379 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 N-30D 1 THE TRAVELERS VARIABLE PRODUCTS FUNDS SEMI-ANNUAL REPORTS JUNE 30, 1999 MANAGED ASSETS TRUST HIGH YIELD BOND TRUST CAPITAL APPRECIATION FUND MONEY MARKET PORTFOLIO THE TRAVELERS TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO SOCIAL AWARENESS STOCK PORTFOLIO UTILITIES PORTFOLIO [TravelersLife&Annuity Logo] The Travelers Insurance Company The Travelers Life and Annuity Company One Tower Square Hartford, CT 06183 SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS - -------------------------------------------------------------------------------- DEAR SHAREHOLDER: We are pleased to provide the semi-annual report for The Travelers Series Trust -- Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund, Money Market Portfolio ("Trust" or "Fund") and the Travelers Series Trust -- U.S. Government Securities, Social Awareness Stock and Utilities Portfolios; ("Portfolio") for the period ended June 30, 1999. In this letter, we briefly discuss general economic and market conditions. In addition, more detailed comparisons showing the growth of a hypothetical $10,000 investment in each Trust or Portfolio for a 10 year period can be found in this report. A more detailed summary of performance and current holdings for each Trust or Portfolio can be found in the pages listed below.
MARKET SCHEDULE OF SUBACCOUNT COMMENTARY INVESTMENTS - ---------- ---------- ----------- Managed Assets Trust.................................. 3 8 High Yield Bond Trust................................. 3 17 Capital Appreciation Fund............................. 4 22 Money Market Portfolio................................ 5 24 U.S. Government Securities Portfolio.................. 35 39 Social Awareness Stock Portfolio...................... 35 40 Utilities Portfolio................................... 36 43
ECONOMIC UPDATE The first half of 1999 was a period of economic growth at home and recovery abroad. Following the events surrounding the Russian debt default in August of 1998 -- which included a decline in bond yields and a 0.75% decrease in interest rates -- yields have increased. Investor optimism, however, was tempered by concerns about inflation, interest rates, and continued economic growth. EQUITY MARKET COMMENTARY The year began on a volatile note for global financial markets as a new threat emerged in Latin America. The devaluation of the Brazilian currency raised concerns for U.S. companies with exposure to Latin America and took its toll on the stock market in the middle of January. The Dow Jones Industrial Average ("DJIA") swung from intra-day levels of above 9700 to below 9000. Stock prices did recover, however, to finish higher at the end of January. Interest rate concerns dominated market psychology during February. Despite low inflation, interest rates moved higher amid fears of Federal Reserve Board ("Fed") tightening in response to the strong U.S. economy. In February, the yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market valuations became a concern as investors focused on the rise in interest rates, the lack of a substantial earnings recovery and high price/earnings multiples. During the month of March, market sentiment reversed and investors focused on the reality of DJIA 10,000. After repeated assaults, the DJIA did reach 10,000 on March 16, 1999, retreated and then went on to close at 10,006 on March 29. Economic activity remained brisk and it became obvious that first quarter Gross Domestic Product ("GDP") growth would be above expectations. Consumer prices rose 0.1% in February, up 1.6% from the prior year. The Standard & Poor's ("S&P") 500 Index gained 5.0% in the first quarter of 1999. The S&P 400 Mid Cap Index fell by 6.4% while the Russell 2000 Index declined by 5.4%. The S&P 500 Growth Index produced a 6.9% total return, outpacing the 2.9% total return of the S&P 500 Value Index. All sectors except consumer staples (-11%) registered respectable gains in the first quarter of 1999. The market rally was led by the energy services (22%) and technology (9%) sectors. The financial services (7%) and Consumer Discretionary (6%) sectors also performed well. Despite a rise in interest rates in the second quarter, the U.S. stock market finished firmly in positive territory. Evidence of stronger-than-expected economic growth prompted hopes of a meaningful earnings recovery during the quarter and, at the same time, triggered concerns about rising interest rates. This led to a rally in small cap and value stocks. Interest rates began to climb in the month of May as investors worried about inflation concerns on the heels of recent economic strength. First quarter GDP growth was revised down to 4.1% from 4.5%, but other indicators provided evidence of 1 SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS - -------------------------------------------------------------------------------- continued strength in the economy. The stock market sagged during May under the burden of lofty valuations and higher rates. The Fed took center stage in the month of June as investors anxiously awaited its next monetary policy move. Even though inflation data released in June was lower than consensus expectations, the bond and stock markets had clearly anticipated a 25 basis point rate hike as a result of unexpected economic strength. The decision to raise the federal-funds rate by 25 basis points on June 30, 1999, therefore, came as no surprise and markets rallied when the Fed announced that it had now switched to a neutral bias in monetary policy. The rotation into value and small cap stocks began in the middle of April and continued through May. This trend reversed in June, as investors became comfortable that a proactive Fed policy would preempt inflation and keep interest rates in check. The S&P 500 Index advanced by 7.1% in the second quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return, outpacing the 3.8% total return of the S&P 500 Growth Index. All sectors within the S&P 500 except health care (-4%) registered respectable gains in the second quarter. The economically sensitive, value-oriented materials and processing (19%), energy services (14%) and producer durables (14%) sectors led the market rally. The utilities (13%) and technology (10%) sectors also performed well. The focus in the U.S. stock market has now switched from the earnings front to the future direction of interest rates. The early second quarter earnings reports project a healthy growth in corporate profits from the prior year. With the stock market now trading well above DJIA 10,000 and at unprecedented valuation levels, any further increase in interest rates could trigger a compression in the price/earnings multiple for the stock market. FIXED INCOME MARKET COMMENTARY The long anticipated slowdown in U.S. economic activity again failed to happen during the reporting period. Global stock markets continued to rise led by better than expected profit growth and continued merger and acquisition activity. The risks of higher U.S. economic growth were more fairly reflected in the yield curve in the U.S. at the end of the first quarter of 1999 than they were at the beginning. The stronger than expected growth caused interest rates to rise in the first quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The Lehman Government/Corporate Index declined about 1.2% in the first quarter of 1999. U.S. Treasuries underperformed as spreads narrowed in all sectors. During the first half of 1999, U.S. economic growth continued at a robust pace, posting a 4.1% annualized GDP growth rate for the first quarter of 1999. Furthermore, the labor market continued to be extremely tight, as the unemployment rate fell to a 29-year low of 4.2% in March. Defying the expectations of many economists, inflation -- as measured by the Consumer Price Index ("CPI") -- was virtually absent. Productivity gains and sagging global demand were credited with keeping inflation under control. However, in the month of April, the CPI rose by 0.7%, its largest monthly increase in nine years. This, coupled with signs that many world economies were in the nascent stages of growth and recovery, deepened fears that inflationary pressures were reaching a breaking point. These concerns brought about an increase in the yield of the benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April 8 and June 24 to close at 6.16%. To counter these inflationary pressures, the Fed raised short-term interest rates by 0.25% in late June, and subsequently adopted a neutral stance on monetary policy. Meanwhile, during the months of May and June, the CPI remained unchanged, generating considerable optimism that inflation had retreated. Further reports that of rising U.S. jobless claims added to the optimism. The unwillingness of consumer spending to slow down keeps the Fed's monetary policy on watch. With the world economic crisis abating, we cannot rule out the possibility of the Fed raising rates before year-end. However, in our view, the most likely case is that the Fed's monetary policy will remain neutral through the third quarter of 1999. By next year, we think that nominal growth should slow below 5% and may allow room for additional short-term rates cuts. However, if global economic growth accelerates unexpectedly and signs of inflation emerge during the remainder of 1999, the Fed will not hesitate to raise rates again. 2 SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS - -------------------------------------------------------------------------------- MANAGED ASSETS TRUST Managed Assets Trust ("Trust") seeks to provide a high total investment return through a fully managed investment policy. For the six months ended June 30, 1999, the Trust had a total return of 6.86% versus 7.43% for the 60% versus the return of percentage for a composite of the S&P 500 and a negative 0.91% for the 40% of the Lehman Government/Corporate Index benchmark. During the first quarter of 1999, stock selection was most favorable in the technology, financial services and utilities sectors while relative portfolio performance was disappointing in the consumer discretionary and consumer staples sectors. The team's holdings in the technology sector added value relative to the benchmark as several successful growth stocks rebounded sharply from their early 1999 sell-off. Higher P/E growth stocks such as America Online, Sun Microsystems and EMC Corp, which fell in February, posted gains of over 20% in March and helped Trust performance. In the financial services sector, the overweight positions in Merrill Lynch, Morgan Stanley Dean Witter and Lehman Brothers performed better than the rest of the investment banking and brokerage industry. In the utilities sector, their positions in long-distance and cellular telephone companies such as Sprint PCS, Nextel Communications and MCI Worldcom performed better than the regional telephone companies and the electric utilities group. The performance of Managed Assets Trust was hurt in the consumer discretionary sector as a result of a small overweight position in Rite Aid Corp., a discount drug retailer, which warned of an earnings shortfall in mid-March and still disappointed relative to lower expectations. The managers were also hurt by their overweight position in Suiza Foods, a leading producer of dairy products in the consumer staples sector, where the threat of rising milk prices cast doubts on the near term earnings outlook. (Please note as of June 30, 1999 some of the securities discussed in this report may no longer be held in the Trust. In addition, the views discussed in this report are exclusively those of the Portfolio's management and are not meant as investment advice.) Market conditions changed in the second quarter of 1999 as successful stocks with high P/E ratios declined and out-of-favor, value-oriented stocks came surging back. As a general rule, the managers tend to exclude those stocks which lack earnings visibility and we, therefore, underperformed our benchmark. Stock selection was least favorable in the technology, health care and consumer cyclicals sectors and favorable in the materials and processing sector. In the technology sector, this philosophy led the managers to underweight positions in Computer Associates and Hewlett Packard which rose in the second quarter rally in value stocks. Their overweight position in high growth stocks such as America Online lost ground as investors expressed concerns about high valuation levels. In the health care sector, McKesson HBOC, a medical services company, hurt performance as investors punished the stock for a negative restatement of earnings and concerns about prior accounting irregularities. The trust's positions in high growth companies like Pfizer, Watson Pharmaceuticals and Guidant Corp. lost ground. In the consumer cyclicals sector, a similar theme repeated itself as its position in Costco lost ground and inexpensive stocks with previous earnings woes such as Eastman Kodak rose sharply. The materials and processing sector produced the best relative performance. A number of overweight positions such as Lyondell Chemicals, Alcoa and W.R. Grace produced strong gains in anticipation of increased demand and higher commodity prices from a strong economy. In their disciplined approach to stock selection, the manager's screen their research universe of over 1,000 large cap securities for companies that they believe offer improving earnings fundamentals at discounted stock valuations. A small sample of their current holdings is presented here to illustrate their investment approach. In the technology sector, a recent emphasis in lower P/E growth stocks such as Compuware and BMCS Software has paid off well. The managers are also positioned to benefit from a continued rally in value stocks through their positions in materials stocks such as Alcoa, Georgia Pacific and W.R. Grace. HIGH YIELD BOND TRUST The High Yield Bond Trust ("Trust") seeks generous income. The assets of the Trust will be invested in bonds which, as a class, sell at discounts from par value and are typically higher-risk securities. For the six months ended June 30, 1999, the 3 SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS - -------------------------------------------------------------------------------- High Yield Bond Trust had a total return of 4.31%. In comparison, the Lehman Aggregate Bond Index posted a total return of a negative 1.37% for the same period. In the first quarter of 1999, the high yield bond market's average annual return was roughly 1.77%. The high yield average for the first quarter did better than the roughly negative 3.26% return for 10-year U.S. Treasuries but not as well as the 4.98% return for the S&P 500 Index as investor confidence grew. According to the managers, the combination of low inflation and low rates as well as investor perceptions that economic growth would continue caused demand for high yield bonds in the first quarter to rise. In the second quarter of 1999, the high yield bond market returned approximately 0.65% and outperformed the 10-year U.S. Treasury bond (-4.74%) but lost ground to the U.S. stock market as measured by the S&P 500 Index (approximately 7.05%) as investors became concerned about rising rates and increased new issuance. The Fund's second quarter 1999 underperformance versus its benchmark was due to its underweighting in cyclical sectors that had rebounded because of an improving economy, negative earnings surprises on the part of Special Devices and Advantica Restaurants, the Global Crossing merger hitting a snag and general weakness in the textile sector. The weakening of the bond market has spilled into the third quarter of 1999 as rising interest rates negatively impact the bond market. On the demand side, while flows into high yield bond funds remain anemic, structured products continue to drive demand for high yield bonds. The managers expect a continuation of market volatility and low liquidity in the high yield bond market as investors are still unclear about the future direction of Fed monetary policy. Despite more turbulent market conditions, they are committed to our strategy of identifying what we believe are valuable long-term opportunities. CAPITAL APPRECIATION FUND The Capital Appreciation Fund ("Fund") seeks growth of capital through the use of common stocks. Income is not an objective. The Fund invests principally in common stocks of small to large companies that are expected to experience wide fluctuations in price in both rising and declining. For the six months ended June 30, 1999, the Capital Appreciation Fund posted a total return of 16.03%. In comparison, the Russell 2000 Index returned 9.28% for the same period. Although stocks finished the first six months of 1999 in positive ground, continuing volatility characterized the period. In the first quarter of 1999, strong corporate earnings and continued economic strength provided support for many equities; however, higher interest rates pressured stocks in the second quarter. While May was a difficult month for most issues, particularly growth stocks, the market rebounded broadly following the Federal Reserve's 25 basis point rate hike and concurrent announcement that it had adopted a neutral stance toward future monetary policy. Against this backdrop, the Capital Appreciation Fund outperformed its benchmark, the S&P 500 Index. Overall, the managers enjoyed strong performance from their holdings in a diverse mix of industries, such as technology, cable, telecommunications, and retail. Nokia, the wireless communications hardware manufacturer, performed particularly well, benefiting from positive sentiment surrounding the potential offered by wireless voice and data transmission. Cisco Systems also moved higher after making several strategic acquisitions that will protect its position as the dominant supplier of Internet infrastructure equipment. Meanwhile, the Fund's pharmaceutical holdings declined on fears of potential governmental drug price regulation. Additional pressure fell on Pfizer when FDA placed restrictive labels on its new antibiotic. Although the managers remain positive on the long-term prospects of many of the drug companies, they elected to selectively trim the positions because several potential blockbuster compounds will not hit the market for at least 18 months. As a result, many of the best companies in the sector could trade sideways for the next year or so. According to the Fund's investment team, volatility and uncertainty may continue in the second half of the year as investors wrestle with the possibility of additional Federal Reserve rate-hikes. If these hikes materialize, then many companies should find the business environment more inhospitable and stocks could be in for a challenging period. Nevertheless, the managers are optimistic about the long-term prospects of their holdings because each possesses an open-ended, organic growth story that they believe the market ultimately should reward. (Of course, past performance is not indicative of future results). 4 SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS - -------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO The Money Market Portfolio seeks to provide shareholders with high current income from short-term money market instruments while emphasizing preservation of capital and maintaining a high degree of liquidity. Money Market Portfolio pursues this objective by investing in securities maturing in one year or less. For the six-months ended June 30, 1999, Money Market Portfolio generated an effective yield of 2.21% and as of June 30, 1999, had an average maturity of 30 days. Money Market Portfolio continues to invest primarily in U.S. Treasuries and government agency securities. This investment strategy has provided Money Market Portfolio with safety, liquidity and stability. You should be aware that your investment in the Money Market Portfolio is neither insured nor guaranteed by the U.S. Government. Moreover, no assurance can be given that the Fund will be able to maintain a stable net asset value of $1.00 per share. In closing, we would like to thank you for your investment in Managed Asset Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market Portfolio. We look forward to continuing to help you pursue your financial goals. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman July 30, 1999 5 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------------------------- Six Months Ended 6/30/99+ 6.86% Year Ended 6/30/99 15.10% Five Years Ended 6/30/99 18.39% Ten Years Ended 6/30/99 13.51% CUMULATIVE TOTAL RETURN ---------------------------------------------- 4/8/83* through 6/30/99 452.36% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on June 30, 1989, assuming reinvestment of dividends, through June 30, 1999. The Lehman Government/Corporate Bond Index is a weighted composite of the Lehman Government Bond Index, which is a broad-based index of all public debt obligations of the U.S. Government and its agencies and has an average maturity of nine years and the Lehman Corporate Bond Index, which is comprised of all public fixed-rate non-convertible investment-grade domestic corporate debt, excluding collateralized mortgage obligations. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. The Standard & Poor's 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter market.
MANAGED ASSETS TRUST LEHMAN CONSUMER PRICE INDEX -------------------- GOVERNMENT/CORPORATION -------------------- STANDARD & POOR'S BOND INDEX 500 INDEX ---------------------- ----------------- 6/89 10000.00 10000.00 10000.00 10000.00 12/89 11127.00 10458.00 10161.00 11297.00 12/90 11402.00 11325.00 10781.00 10946.00 12/91 13877.00 13151.00 11111.00 14274.00 12/92 14950.00 14148.00 11433.00 15361.00 12/93 15958.00 15709.00 11747.00 16905.00 12/94 15594.00 15157.00 12062.00 17128.00 12/95 19822.00 18074.00 12368.00 20883.00 12/96 22554.00 18598.00 12778.00 25675.00 12/97 27360.00 20412.00 12995.00 34240.00 12/98 33227.00 22346.00 13204.00 44080.00 6/99 35508.00 21836.00 13388.00 49537.00
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 4.31% Year Ended 6/30/99 5.71% Five Years Ended 6/30/99 12.04% Ten Years Ended 6/30/99 9.10% CUMULATIVE TOTAL RETURN ---------------------------------------------- 3/19/82* THROUGH 6/30/99 429.04% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on June 30, 1989, assuming reinvestment of dividends, through June 30, 1999. The Lehman Aggregate Bond Index, an unmanaged index, is composed of the Lehman Intermediate Government/Corporate Bond Index and the Mortgage Backed Securities Index and includes treasury issues, agency issues, corporate bond issues and mortgage-backed securities. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. The First Boston High Yield Index Top Tier is a broad-based market measure of high yield bonds, commonly known as "junk bonds."
LEHMAN AGGREGATE FIRST BOSTON HIGH HIGH YIELD BOND TRUST BOND INDEX CONSUMER PRICE INDEX YIELD INDEX TOP TIER --------------------- ---------------- -------------------- -------------------- 6/89 10000 10000 10000 10000 12/89 9427 10489 10161 11319 12/90 8567 11429 10781 11424 12/91 10803 13258 11111 14038 12/92 12225 14238 11433 15264 12/93 13937 15627 11747 17648 12/94 13761 15171 12062 17614 12/95 15890 17973 12368 20905 12/96 18440 18625 12778 23146 12/97 21494 20422 12995 25923 12/98 22904 22197 13204 26144 6/99 23891 21893 13388 26685
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 6 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 16.03% Year Ended 6/30/99 44.27% Five Years Ended 6/30/99 34.19% Ten Years Ended 6/30/99 21.62% CUMULATIVE TOTAL RETURN ---------------------------------------------- 3/19/82* through 6/30/99 1,916.07% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on June 30, 1989, assuming reinvestment of dividends, through June 30, 1999. The Standard & Poor's 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter market. The Russell 2000 Index is a capitalization weighted total return index which is comprised of 2,000 of the smallest capitaled U.S. domiciled companies with less than average growth orientation whose common stock is traded in the United States of the New York Stock Exchange, American Stock Exchange and NASDAQ. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services.
CAPITAL APPRECIATION STANDARD & POOR'S FUND 500 INDEX RUSSELL 2000 INDEX CONSUMER PRICE INDEX -------------------- ----------------- ------------------ -------------------- 6/89 10000 10000 10000 10000 12/89 10479 11297 10148 10161 12/90 9825 10946 8171 10781 12/91 13280 14274 11934 11111 12/92 15617 15361 14130 11433 12/93 17974 16905 16798 11747 12/94 17118 17128 6970 12062 12/95 23343 20883 8954 12368 12/96 29927 25675 10431 12778 12/97 37751 34263 12764 12995 12/98 61017 44110 12440 13204 6/99 70795 49570 13594 13388
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gains or losses from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 7 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCK -- 62.4% - ----------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS -- 6.4% 4,092 Colgate-Palmolive Co. ...................................... $ 404,085 21,900 Comcast Corp., Class A Shares (a)........................... 841,781 7,100 Costco Cos., Inc. .......................................... 568,444 14,127 CVS Corp. .................................................. 716,945 5,400 Eastman Kodak Co. .......................................... 365,850 11,594 Fruit of the Loom Inc., Class A Shares (a).................. 113,042 12,862 Gap Inc. ................................................... 647,948 13,146 Gillette Co. ............................................... 538,986 25,330 Home Depot Inc. ............................................ 1,632,202 3,410 J.C. Penney Co. Inc. ....................................... 165,598 29,284 KMart Corp. (a)............................................. 481,356 13,664 Kimberly-Clark Corp. ....................................... 778,848 16,168 Kroger Co. ................................................. 451,694 4,725 May Department Stores Co. .................................. 193,134 6,721 Maytag Corp. ............................................... 468,370 30,222 McDonalds Corp. ............................................ 1,248,546 13,361 New York Times Co., Class A Shares.......................... 491,852 10,200 Nike Inc., Class B Shares................................... 645,788 19,542 Proctor & Gamble Co. ....................................... 1,744,124 9,700 Rohm & Haas Co. ............................................ 415,888 11,762 Safeway Inc. (a)............................................ 582,219 18,026 Staples Inc. (a)............................................ 557,679 7,558 Times Mirror Co., Class A Shares............................ 447,812 16,565 TJX Cos., Inc. ............................................. 551,822 7,200 Tricon Global Restaurants................................... 389,700 8,275 Unilever NV................................................. 577,181 82,560 Wal-Mart Corp. ............................................. 3,983,520 - ----------------------------------------------------------------------------------------------------- 20,004,414 - ----------------------------------------------------------------------------------------------------- CONSUMER STAPLES -- 3.2% 14,027 Anhueser-Busch Co., Inc. ................................... 995,040 6,500 Campbell Soup Co. .......................................... 301,438 5,204 Clorox Co. ................................................. 555,852 34,205 Coca-Cola Co. .............................................. 2,137,813 7,500 General Mills Inc. ......................................... 602,813 10,269 H.J. Heinz Co. ............................................. 514,734 5,260 Kellogg Co. ................................................ 173,580 3,215 Loews Corp. ................................................ 254,387 26,980 PepsiCo Inc. ............................................... 1,043,789 50,615 Philip Morris Cos., Inc. ................................... 2,034,090 15,026 Sara Lee Corp. ............................................. 340,902 12,000 Seagram Co. Ltd. ........................................... 604,500 12,479 Suiza Foods Corp. (a)....................................... 522,558 - ----------------------------------------------------------------------------------------------------- 10,081,496 - -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 8 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------------------- ENTERTAINMENT/MEDIA -- 1.9% 17,148 CBS Corp. .................................................. $ 744,866 10,800 Carnival Corp. ............................................. 523,800 9,111 Gannett Co. ................................................ 650,298 13,977 MediaOne Group, Inc. (a).................................... 1,039,539 9,354 Meredith Corp. ............................................. 323,882 23,722 Time Warner, Inc. .......................................... 1,743,567 8,770 Viacom Inc. Non-Voting, Class B Shares ..................... 385,880 20,295 The Walt Disney Co. ........................................ 625,340 - ----------------------------------------------------------------------------------------------------- 6,037,172 - ----------------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 9.7% 4,581 Ambac Financial Group, Inc. ................................ 261,689 11,683 American Express Co. ....................................... 1,520,250 23,384 American International Group, Inc. ......................... 2,737,389 15,300 Amsouth Bancorp. ........................................... 354,769 9,221 Bank One Corp. ............................................. 549,226 21,600 Bank of New York Co., Inc. ................................. 792,450 285,776 BankAmerica Corp. (a)....................................... 2,109,640 10,619 BankBoston Corp. ........................................... 542,896 10,608 Capital One Financial Co. .................................. 590,733 34,600 Cendant Corp. (a)........................................... 709,300 8,300 Charles Schwab Corp. ....................................... 911,963 20,268 Chase Manhattan Corp. ...................................... 1,755,716 5,797 Comerica Inc. .............................................. 344,559 9,434 Countrywide Credit Industries, Inc. ........................ 403,304 21,352 Fannie Mae.................................................. 1,459,943 24,400 Firstar Corp. .............................................. 683,200 17,792 First Union Corp. (N.C.).................................... 836,224 5,700 Fifth Third Bancorp. ....................................... 379,406 13,446 Fleet Financial Group, Inc. ................................ 596,666 16,650 Freddie Mac................................................. 965,700 7,404 Hartford Financial Services Group, Inc. .................... 431,746 15,000 Household International Inc. ............................... 710,625 3,213 J.P. Morgan & Co. .......................................... 451,427 12,081 Lehman Brothers Holdings, Inc. ............................. 752,042 25,400 MBNA Corp. ................................................. 777,875 5,500 Marshall & Ilsley Corp. .................................... 354,063 16,775 Merrill Lynch & Co., Inc. .................................. 1,340,952 17,141 Morgan Stanley Dean Witter & Co. ........................... 1,756,952 8,600 National City Corp. ........................................ 563,300 8,100 Providian Financial Corp. .................................. 757,350 13,400 Southtrust Corp. ........................................... 514,225 5,748 State Street Corp. ......................................... 490,736 9,938 Summit Bancorp. ............................................ 415,533 8,411 Suntrust Banks Inc. ........................................ 584,039
SEE NOTES TO FINANCIAL STATEMENTS. 9 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 9.7% (CONTINUED) 8,246 Washington Mutual Inc. ..................................... $ 291,702 32,400 Wells Fargo & Co. .......................................... 1,385,100 - ----------------------------------------------------------------------------------------------------- 30,082,690 - ----------------------------------------------------------------------------------------------------- HEALTH CARE -- 6.7% 20,946 Abbott Laboratories......................................... 953,043 6,200 Aetna, Inc. ................................................ 554,513 7,100 Allergan, Inc. ............................................. 788,100 25,013 American Home Products Corp. ............................... 1,438,247 14,020 Amgen, Inc. (a)............................................. 853,467 8,100 Baxter International, Inc. ................................. 491,062 26,696 Bristol Myers Squibb Co. ................................... 1,880,400 21 Crescendo Pharmaceutical Corp. (a).......................... 362 17,304 Eli Lilly & Co. ............................................ 1,239,399 11,904 Guidant Corp. (a)........................................... 612,312 22,311 Healthsouth Corp. (a)....................................... 333,271 26,411 Johnson & Johnson........................................... 2,588,278 4,446 McKesson HBOC Inc. ......................................... 142,828 10,533 Medtronic Inc. ............................................. 820,257 38,838 Merck & Co. ................................................ 2,874,012 21,299 Pfizer Inc. ................................................ 2,337,565 6,721 Pharmacia & Upjohn, Inc. ................................... 381,837 20,168 Schering-Plough Corp. ...................................... 1,068,904 14,907 Warner-Lambert Co. ......................................... 1,034,173 3,200 Wellpoint Heath Networks, Inc. (a).......................... 271,600 - ----------------------------------------------------------------------------------------------------- 20,663,630 - ----------------------------------------------------------------------------------------------------- INSURANCE -- 0.4% 8,379 20th Century Industries..................................... 158,154 20,854 Allstate Corp. ............................................. 748,137 7,209 Everest Reinsurance Holdings, Inc. ......................... 235,194 4,092 Mercury General Corp. ...................................... 139,128 - ----------------------------------------------------------------------------------------------------- 1,280,613 - ----------------------------------------------------------------------------------------------------- MATERIALS & PROCESSING -- 2.3% 18,470 Alcoa, Inc. ................................................ 1,142,831 20,167 Bethlehem Steel Corp. (a)................................... 155,034 14,127 Dayton-Hudson Corp. ........................................ 918,255 13,738 E.I. Du Pont de Nemours & Co. .............................. 938,477 12,084 Georgia-Pacific Corp. ...................................... 572,480 3,311 Georgia-Pacific (Timber Group).............................. 83,603 12,702 International Paper Co. .................................... 641,451 31,988 Lyondell Chemical Co. ...................................... 659,753 16,565 Masco Corp. ................................................ 478,314 12,406 Mead Corp. ................................................. 517,951 11,808 Monsanto Co. ............................................... 465,678 602 Raytheon Co., Class A Shares................................ 41,463
SEE NOTES TO FINANCIAL STATEMENTS. 10 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------------------- MATERIALS & PROCESSING -- 2.3% (CONTINUED) 5,163 Raytheon Co., Class B Shares................................ $ 363,463 2,435 Weyerhauser Co. ............................................ 167,406 - ----------------------------------------------------------------------------------------------------- 7,146,159 - ----------------------------------------------------------------------------------------------------- OIL/ENERGY -- 3.7% 13,900 Apache Corp. ............................................... 542,100 7,990 Atlantic Richfield Co. ..................................... 667,670 8,084 Chevron Corp. .............................................. 769,496 3,994 Enron Corp. ................................................ 326,510 41,617 Exxon Corp. ................................................ 3,209,711 3,410 Halliburton Co. ............................................ 154,303 12,242 Mobil Corp. ................................................ 1,211,958 29,334 Royal Dutch Petroleum Co. ADR............................... 1,767,374 14,038 Schlumberger LTD............................................ 894,045 11,400 Texaco Inc. ................................................ 712,500 13,834 Unocal Corp. ............................................... 548,172 10,854 Williams Cos., Inc. ........................................ 461,973 - ----------------------------------------------------------------------------------------------------- 11,265,812 - ----------------------------------------------------------------------------------------------------- PRODUCER DURABLES -- 5.3% 26,043 Boeing Co. ................................................. 1,150,775 5,067 Caterpillar Inc. ........................................... 304,020 7,209 Cordant Technologies Inc. .................................. 325,757 14,503 Crane Co. .................................................. 455,938 7,696 Deere & Co. ................................................ 304,954 4,919 Dow Chemical Co. ........................................... 624,098 19,488 Edison International........................................ 521,304 5,554 Emerson Electric Co. ....................................... 349,208 16,127 Entergy Corp. .............................................. 503,969 6,275 General Dynamics Corp. ..................................... 460,663 58,334 General Electric Co. ....................................... 6,482,366 11,800 General Instrument Corp. (a)................................ 501,500 4,286 Honeywell Inc. ............................................. 496,640 9,059 Ingersoll-Rand Co. ......................................... 585,438 8,865 Kaufman & Broad Home Corp. ................................. 220,517 6,600 Lear Corp. (a).............................................. 328,350 4,700 Minnesota Mining & Manufacturing Co. ....................... 408,606 3,100 Phelps Dodge Corp. ......................................... 192,006 10,231 Pulte Corp. ................................................ 235,952 7,113 Sealed Air Corp. (a)........................................ 461,456 10,500 Solectron Corp. (a)......................................... 700,219 7,696 Waste Management Inc. ...................................... 413,660 25,200 W.R. Grace & Co. (a)........................................ 463,050 - ----------------------------------------------------------------------------------------------------- 16,490,446 - ----------------------------------------------------------------------------------------------------- TECHNOLOGY -- 14.5% 24,668 America Online Inc. ........................................ 2,725,814 13,963 Applied Materials Inc. (a).................................. 1,031,517 13,600 BMC Software, Inc. ......................................... 734,400
SEE NOTES TO FINANCIAL STATEMENTS. 11 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------------------- TECHNOLOGY -- 14.5% (CONTINUED) 10,518 Ceridian Corp. ............................................. $ 343,807 58,964 Cisco Systems Inc. (a)...................................... 3,803,178 15,482 Compaq Computer Corp. ...................................... 366,730 8,800 Computer Associates International, Inc. .................... 484,000 6,644 Computer Sciences Corp. (a)................................. 459,682 24,934 Compuware Corp. ............................................ 793,213 43,184 Dell Computer Corp. (a)..................................... 1,597,808 12,959 EG&G Inc. .................................................. 461,664 16,358 EMC Corp. (a)............................................... 899,690 2,242 Gateway 2000 Inc. (a)....................................... 132,278 17,400 Hewlett Packard Co. ........................................ 1,748,700 56,526 Intel Corp. ................................................ 3,363,297 34,288 International Business Machines Corp. ...................... 4,431,724 55,145 Lucent Technologies Inc. ................................... 3,718,841 91,434 Microsoft Corp. (a)......................................... 8,246,204 6,500 Micron Technology Inc. ..................................... 262,031 7,990 Motorola Inc. .............................................. 757,053 8,200 Nortel Networks Corp. ...................................... 711,863 39,015 Oracle Corp. (a)............................................ 1,448,432 20,500 Sun Microsystems Inc. (a)................................... 1,411,938 7,251 Symbol Technologies, Inc. .................................. 267,381 17,344 Sysco Corp. ................................................ 517,068 5,458 Tellabs Inc. (a)............................................ 368,756 5,667 Texas Instruments Inc. ..................................... 821,715 14,323 Tyco International Ltd. .................................... 1,357,104 14,222 United Technologies Corp. .................................. 1,019,540 11,576 Xerox Corp. ................................................ 683,708 - ----------------------------------------------------------------------------------------------------- 44,969,136 - ----------------------------------------------------------------------------------------------------- TRANSPORTATION -- 1.7% 2,474 AMR Corp. .................................................. 168,851 6,627 CSX Corp. .................................................. 300,286 7,700 Delta Airlines Inc. ........................................ 443,713 11,200 FDX Corp. .................................................. 607,600 22,117 Ford Motor Co. ............................................. 1,248,228 17,042 General Motors Corp. ....................................... 1,124,772 10,923 Navistar International Corp. ............................... 546,150 13,400 Ryder Systems Inc. ......................................... 348,400 6,800 TRW Inc. ................................................... 373,150 2,729 Union Pacific Corp. ........................................ 159,135 - ----------------------------------------------------------------------------------------------------- 5,320,285 - ----------------------------------------------------------------------------------------------------- UTILITIES -- 6.6% 61,445 AT&T Corp. ................................................. 3,429,399 8,769 Alltell Corp. .............................................. 626,984 14,323 Ameritech Corp. ............................................ 1,052,740 22,614 Bell Atlantic Corp. ........................................ 1,478,390 19,418 Bellsouth Corp. ............................................ 910,219
SEE NOTES TO FINANCIAL STATEMENTS. 12 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------------------- UTILITIES -- 6.6% (CONTINUED) 16,563 Central & South West Corp. ................................. $ 387,160 13,700 Centurytel Inc. ............................................ 544,575 11,242 Clear Channel Communications Inc. (a)....................... 774,995 9,325 FPL Group Inc. ............................................. 509,378 10,673 GTE Corp. .................................................. 808,480 37,235 MCI WorldCom, Inc. (a)...................................... 3,211,519 14,400 Nextel Communications, Inc. (a)............................. 722,700 12,100 Pennsylvania Power & Light Resources Inc. .................. 372,075 31,097 SBC Communications Inc. .................................... 1,803,626 5,944 Sonat Inc. ................................................. 196,895 8,673 Southern Co. ............................................... 229,835 21,106 Sprint Corp. ............................................... 1,114,661 18,376 Sprint Corp. PCS Group...................................... 1,049,729 12,081 Texas Utilities Co. ........................................ 498,341 15,023 U.S. West Communications Group.............................. 882,475 - ----------------------------------------------------------------------------------------------------- 20,604,176 - ----------------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $133,003,875)................... 193,946,029 ===================================================================================================== CONVERTIBLE PREFERRED STOCK -- 1.7% - ----------------------------------------------------------------------------------------------------- FINANCIAL -- 0.9% 2,000 Canadian National Railway 5.250%............................ 107,000 6,000 Equity Office Properties Trust, 5.250%...................... 256,500 8,000 Equity Residential Properties, 2.150%....................... 224,000 18,564 Equity Residential Properties, 7.250%....................... 426,972 2,000 Finova Finance, 5.500%...................................... 138,000 12,000 General Growth Properties, 7.250%........................... 288,000 8,000 National Australia Bank, 7.7875%............................ 243,000 3,220 New Plan Excel Realty Insurance, 8.500%..................... 85,330 6,000 Newell Financial Trust, 5.250%.............................. 335,250 9,000 Reckson Associates Realty Services, 7.625%.................. 205,313 5,000 Tosco Financial Trust, 5.750%............................... 243,750 2,245 Union Pacific Capital Trust, 6.250%......................... 116,740 - ----------------------------------------------------------------------------------------------------- 2,669,855 - ----------------------------------------------------------------------------------------------------- INDUSTRIAL -- 0.8% 4,000 Amcor Ltd., 7.250%.......................................... 195,750 10,000 Calenergy Capital II, 6.250% (b)............................ 502,500 2,230 El Paso Energy Capital, 4.750%.............................. 110,385 12,000 International Paper Co., 5.250%............................. 633,000 10,990 News Corp. Ltd., 5.000%..................................... 1,103,121 - ----------------------------------------------------------------------------------------------------- 2,544,756 - ----------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $4,929,014)...... 5,214,611 =====================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 13 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MANAGED ASSETS TRUST
FACE AMOUNT RATING+ SECURITY VALUE - ------------------------------------------------------------------------------------------------------------------ CORPORATE BONDS AND NOTES -- 8.1% - ------------------------------------------------------------------------------------------------------------------ FINANCIAL -- 3.1% $5,000,000 Baa2* Nationwide Health Properties, Inc. Notes, 6.900% due 10/31/37.................................................... $ 4,762,500 2,500,000 Baa1* Simon Debartolo, Company Guaranteed, 6.750% due 7/15/04..... 2,418,750 2,500,000 Baa2* Spieker Properties Inc., Notes, 8.000% due 7/19/05.......... 2,553,125 - ------------------------------------------------------------------------------------------------------------------ 9,734,375 - ------------------------------------------------------------------------------------------------------------------ INDUSTRIAL -- 2.4% 2,500,000 Baa* Prologics Trust, Sr. Notes, 7.050% due 7/15/06.............. 2,321,875 5,000,000 A Xerox Corp., Notes, 6.250% due 11/15/26..................... 4,968,750 - ------------------------------------------------------------------------------------------------------------------ 7,290,625 - ------------------------------------------------------------------------------------------------------------------ TELEPHONE -- 1.6% 5,000,000 AAA Bellsouth Capital Funding, Debentures, 6.040% due 11/15/26.................................................... 5,012,500 - ------------------------------------------------------------------------------------------------------------------ TRANSPORTATION -- 1.0% 3,000,000 Baa2* CSX Corp., Debentures, 6.950% due 5/1/00.................... 3,037,500 - ------------------------------------------------------------------------------------------------------------------ TOTAL CORPORATE BONDS AND NOTES (Cost -- $25,523,535)....... 25,075,000 ================================================================================================================== CONVERTIBLE CORPORATE BONDS -- 2.7% - ------------------------------------------------------------------------------------------------------------------ FINANCIAL -- 0.6% Bell Atlantic Corp., Bonds: 297,000 A+ 5.750% due 4/1/03........................................... 306,088 500,000 A1* 4.250% due 9/15/05.......................................... 511,900 400,000 BBB- Elan International Finance Ltd., Company Guaranteed, zero coupon due 12/12/18....................................... 206,000 300,000 AAA Finlayson Global Corp., Private Placement, zero coupon due 2/19/04..................................................... 469,499 300,000 BBB Hellenic Finance, 2.000% due 7/15/03........................ 307,650 300,000 Baa* Security Capital U.S. Real Estate Inc., 2.000% due 5/22/03..................................................... 230,813 - ------------------------------------------------------------------------------------------------------------------ 2,031,950 - ------------------------------------------------------------------------------------------------------------------ INDUSTRIAL -- 1.9% 146,000 BBB- Athena Neurosciences Inc., Notes 4.750% due 11/15/04........ 154,213 321,000 A- Diamond Offshore Drilling Inc., Sub. Notes, 3.750% due 2/15/07..................................................... 318,191 300,000 Aa2* GVC Corp. Ltd., Bonds, zero coupon due 5/21/02 (b).......... 330,750 300,000 NR Genzyme Corp., Sub. Notes, 5.250% due 6/1/05................ 419,625 300,000 BBB- Inco Ltd., Debentures, 7.750% due 3/15/16................... 277,500 300,000 AA- Indian Petrochemicals Corp. Ltd., Bonds, 2.500% due 3/11/02 (b)......................................................... 304,500 600,000 BBB Ingram Micro Inc., Debenture, zero coupon due 6/9/18........ 200,250 300,000 BB+ Interim Services Inc., Sub. Notes, 4.500% due 6/1/05........ 255,375 121,000 NR Interpublic Group of Cos., Inc., Sub. Notes, 1.800% due 9/16/04..................................................... 110,413 570,000 A- Koninklijke Ahold, Sub. Notes, 3.000% due 9/30/03........... 334,227 431,000 BBB- Lennar Corp., Debenture, zero coupon due 7/29/18............ 189,640 1,000,000 B2* Marriott International Inc., Debenture, zero coupon due 3/25/11..................................................... 712,500 300,000 NR Nabors Industries, 5.000% due 5/15/06....................... 401,625 120,000 A- Omnicom Group Inc., Sub. Debenture, 2.250% due 1/6/13....... 198,000 200,000 BBB- Rite Aid Corp., Sub. Notes, 5.250% due 9/15/02.............. 200,625 500,000 BBB Scholastic Corp., Sub. Notes, 5.000% due 8/15/05............ 484,375 662,400 BBB Solectron Corp., Private Placement, zero coupon due 1/27/19..................................................... 385,020
SEE NOTES TO FINANCIAL STATEMENTS. 14 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MANAGED ASSETS TRUST
FACE AMOUNT RATING+ SECURITY VALUE - ------------------------------------------------------------------------------------------------------------------------- $ 200,000 Aa1* Taiwan Semiconductor Manufacturing Co., zero coupon due 7/3/02 (b). $ 263,500 98,000 A+ Telefonica Europa, Company Guaranteed, 4.000% due 7/15/02...... 159,740 100,000 A- Thermo Electron Corp., Sub. Debenture, 4.250% due 1/1/03....... 90,250 100,000 A- Thermo Instruments Inc., Company Guaranteed, 4.000% due 1/15/05... 82,000 - ------------------------------------------------------------------------------------------------------------------------- 5,872,319 - ------------------------------------------------------------------------------------------------------------------------- UTILITY - ELECTRIC -- 0.2% 600,000 A- Potomac Electric Power, 5.000% due 9/1/02...................... 590,250 - ------------------------------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $7,764,728)......... 8,494,519 =========================================================================================================================
FACE AMOUNT SECURITY VALUE - ------------------------------------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.3% 787,543 Wilmington Trust 9.250% due 1/2/07 (Cost -- $787,272)......... 789,087 ========================================================================================================================= U.S. GOVERNMENT OBLIGATIONS -- 14.0% 1,000,000 U.S. Treasury Note, 6.500% due 10/15/06....................... 1,032,620 15,227,000 U.S. Treasury Note, 3.625% due 1/15/08........................ 14,803,385 3,100,000 U.S. Treasury Bond, 7.125% due 2/15/23........................ 3,436,381 2,500,000 U.S. Treasury Strips 0.00% due 5/15/21........................ 6,396,750 15,011,100 U.S. Treasury Inflation Index, 3.875% due 4/15/29............. 14,804,697 - ------------------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS(Cost -- $41,130,809)........ 40,473,833 ========================================================================================================================= U.S. GOVERNMENT AGENCIES -- 3.1% Federal Home Loan Mortgage Corp. (FHLMC): 2,424,573 8.000% due 9/1/04............................................. 2,498,814 119,820 8.500% due 9/1/02............................................. 123,116 Federal National Mortgage Mortgage Association (FNMA): 3,042,445 Dwarf, 6.000% due 1/1/13...................................... 2,938,789 145,246 5.500% due 5/1/28............................................. 132,219 927,340 5.500% due 6/1/28............................................. 844,168 1,101,203 5.500% due 8/1/28............................................. 1,002,436 1,037,447 6.000% due 3/1/28............................................. 975,202 423,525 6.000% due 6/1/28............................................. 398,114 187,565 6.000% due 4/1/28............................................. 176,311 480,386 6.000% due 5/1/28............................................. 451,564 450,073 6.000% due 7/1/28............................................. 423,070 1,253,182 6.000% due 8/1/28............................................. 1,177,992 959,264 6.500% due 12/1/27............................................ 926,583 92,126 8.050% due 3/1/05............................................. 95,552 Government National Mortgage Association (GNMA): 169,319 7.500% due 5/15/23 (c)........................................ 171,118 123,170 9.000% due 12/15/16 (c)....................................... 130,791 131,165 9.000% due 11/15/19 (c)....................................... 139,280 101,026 9.500% due 3/15/20 (c)........................................ 108,888 109,238 9.500% due 1/15/20 (c)........................................ 117,738 - ------------------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $13,151,833).......... 12,831,745 =========================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 15 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MANAGED ASSETS TRUST
FACE AMOUNT SECURITY VALUE - ------------------------------------------------------------------------------------------------------------------ SHORT TERM U.S. GOVERNMENT INSTRUMENTS -- 0.1% $ 300,000 U.S. Treasury Bill, 4.500% due 9/17/99 (Cost -- $297,113)... $ 297,113 ================================================================================================================== SUB-TOTAL INVESTMENTS (Cost -- $226,588,179)................ 287,121,937 ================================================================================================================== REPURCHASE AGREEMENT -- 7.6% 23,630,000 Morgan Stanley Dean Witter & Co., 4.770% due 7/1/99; Proceeds at maturity -- $23,633,131; (Fully collateralized by U.S. Treasury Notes, 6.250% due 5/31/01; Market value -- $24,182,233) (Cost -- $23,630,000)................. 23,630,000 ================================================================================================================== TOTAL INVESTMENTS -- 100% (Cost -- $250,218,179**).......... $310,751,937 ==================================================================================================================
(a) Non-income producing security. (b) Security is exempt from registration under rule 144A of the Securities Act of 1933. This security may be sold in transactions that are exempt from registration, normally to qualified institutional buyers. (c) Date shown represents the last in range of maturity dates of mortgage certificates owned. + All ratings are by Standard & Poor's Ratings Service, except those identified by an asterisk (*) which are rated by Moody's Investors Service Inc. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 21 for definitions of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 16 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 HIGH YIELD BOND TRUST
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 90.6% - --------------------------------------------------------------------------------------------------- CHEMICALS -- 1.0% $ 275,000 B+ Lyndell Chemical Co., Sr. Sub. Notes, 10.875% due 5/1/09.... $ 286,688 - --------------------------------------------------------------------------------------------------- CONSUMER NON-DURABLES -- 2.0% 550,000 B- Tropical Sportswear International Corp., Company Guaranteed, 11.000% due 6/15/08....................................... 573,375 - --------------------------------------------------------------------------------------------------- ENERGY -- 3.3% 200,000 B Comstock Resourses Inc., Sr. Notes, 11.250% due 5/1/07...... 204,500 310,000 B- International Utility Structures Inc., Sr. Sub. Notes, 10.750% due 2/1/08........................................ 312,325 125,000 B+ Parker Drilling Co., Company Guaranteed, 9.750% due 11/15/06.................................................. 116,250 75,000 B+ Pogo Producing Co., Sr. Sub. Notes, 10.375% due 2/15/09..... 78,000 250,000 BB+ Tuscon Electric Power Co., Collateral Trust, 7.500% due 8/1/08.................................................... 250,625 - --------------------------------------------------------------------------------------------------- 961,700 - --------------------------------------------------------------------------------------------------- FOOD AND DRUG -- 3.3% 100,000 B Archibald Candy Corp., Company Guaranteed, 10.250% due 7/14/04................................................... 101,250 385,000 B- Duane Reade Inc., Company Guaranteed, 9.250% due 2/15/08.... 385,963 475,000 B- Triarc Consumer Beverage, Sr. Sub. Notes, 10.250% due 2/15/09................................................... 459,563 - --------------------------------------------------------------------------------------------------- 946,776 - --------------------------------------------------------------------------------------------------- GAMING/LEISURE -- 8.9% 330,000 B+ Bally Total Fitness Holdings Corp., Sr. Sub. Notes, 9.875% due 10/15/07.............................................. 320,100 120,000 B+ Bally Total Fitness Holdings Corp., Sr. Sub. Notes, 9.875% due 10/15/07.............................................. 116,400 300,000 BB+ Harrahs Operating Co. Inc., Company Guaranteed, 7.875% due 12/15/05.................................................. 291,000 350,000 B Isle Of Capri Casinos, Sr. Sub. Notes, 8.750% due 4/15/09... 329,000 425,000 BB+ Park Place Entertainment, Sr. Sub. Notes, 7.875% due 12/15/05.................................................. 404,813 450,000 B+ Prime Hospitality Corp., Sr. Sub. Notes, 9.750% due 4/1/07.................................................... 444,375 315,000 B+ Regal Cinemas Inc., Sr. Notes, 9.500% due 6/1/08............ 295,313 360,000 B Station Casinos Inc., Sr. Sub. Notes, 10.125% due 3/15/06... 373,500 - --------------------------------------------------------------------------------------------------- 2,574,501 - --------------------------------------------------------------------------------------------------- HEALTH CARE -- 2.3% 350,000 B- Production Resource Group, Sr. Sub. Notes, 11.500% due 1/15/08................................................... 353,500 275,000 B+ Unilab Corp., Sr. Notes, 11.000% due 4/1/06................. 302,500 - --------------------------------------------------------------------------------------------------- 656,000 - --------------------------------------------------------------------------------------------------- HOUSING -- 2.2% 50,000 B Atrium Cos. Inc., Sr. Sub. Notes, 10.500% due 5/1/09........ 49,250 310,000 B+ Beazer Homes USA Inc., Company Guaranteed, 8.875% due 4/1/08.................................................... 297,600 450,000 B Falcon Building Corp., Sr. Notes, 10.250% 6/15/02........... 299,250 - --------------------------------------------------------------------------------------------------- 646,100 - --------------------------------------------------------------------------------------------------- INFORMATION/TECHNOLOGY -- 6.4% 50,000 B- Anteon Corp., Sr. Sub. Notes, 12.000% due 5/15/99........... 49,750 275,000 B- Intergrated Circuit Systems, Sr. Sub. Notes, 11.500% due 5/15/09................................................... 275,688 425,000 B- PSINet Inc., Sr. Notes, 10.000% due 2/15/05................. 426,063 160,000 BB- Unisys Corp., Sr. Notes, 12.000% due 4/15/03................ 174,800 175,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08.................. 183,750
SEE NOTES TO FINANCIAL STATEMENTS. 17 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 HIGH YIELD BOND TRUST
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- $ 500,000 B- Viasystems Group, Sr. Sub. Notes, 9.750% due 6/1/07......... $ 438,750 275,000 B- Viatel Inc., Sr. Notes, 11.500% due 3/15/09................. 285,313 - -------------------------------------------------------------------------------------------------- 1,834,114 - -------------------------------------------------------------------------------------------------- MANUFACTURING -- 12.1% 220,000 B- Advance Holding Corp., step bond to yield 12.645% due 4/15/09................................................... 124,300 350,000 B Advanced Glassfiber Yarn, Sr. Sub. Notes, 9.875 due 1/15/09................................................... 341,250 475,000 B American Axle & Manufacturing Inc., 9.750% due 3/1/09....... 476,188 550,000 B+ Avondale Mills Inc., 10.250% due 5/1/06..................... 541,750 250,000 B BGF Industries Inc., Sr. Sub. Notes, 10.250% due 1/15/09.... 228,750 200,000 B- Cherokee International, Sr. Sub. Notes, 10.250% due 5/1/09.................................................... 200,500 450,000 B- Fisher Scientific International Inc., Sr. Sub. Notes, 9.000% due 2/1/08................................................ 427,500 250,000 BB- Imax Corp., Sr. Notes, 7.875% due 12/1/05................... 235,625 300,000 B- Roller Bearing Co., Company Guaranteed, 9.625% due 6/15/07................................................... 285,000 275,000 B- Special Devices Inc., Sr. Sub. Notes, 11.375% due 12/15/08 (a)....................................................... 246,125 400,000 B- Transdigm Inc., Sr. Sub. Notes, 10.375% due 12/1/08......... 394,000 - -------------------------------------------------------------------------------------------------- 3,500,988 - -------------------------------------------------------------------------------------------------- MEDIA/ENTERTAINMENT -- 12.3% 525,000 B Chancellor Media Corp., Sr. Sub. Notes, 9.000% due 10/1/08................................................... 536,813 500,000 B Jacor Communication Co., Company Guaranteed, 9.750% due 12/15/06.................................................. 541,250 525,000 CCC+ J Crew Operating Corp., Sr. Sub. Notes, 10.375% due 10/15/07.................................................. 514,500 340,000 CCC+ Paxson Communication Corp., Sr. Sub. Notes, 11.625% due 10/1/02................................................... 353,600 Pegasus Media & Communication Corp.: 500,000 B- Notes, 12.500% due 7/1/05................................... 550,000 250,000 B- Sr. Notes, 9.625% due 10/15/05.............................. 245,625 455,000 B- SFX Entertainment Inc., Company Guaranteed, 9.125% due 2/1/08.................................................... 445,900 550,000 B United International Holdings Inc., step bond to yield 10.767% due 2/15/08....................................... 365,750 - -------------------------------------------------------------------------------------------------- 3,553,438 - -------------------------------------------------------------------------------------------------- METALS/MINERALS -- 5.3% 500,000 B- Diamond Holdings PLC, Company Guaranteed, 9.125% due 2/1/08.................................................... 502,500 300,000 BB Great Central Mines Ltd., Sr. Notes, 8.875% due 4/1/08...... 285,000 120,000 CCC+ Kaiser Aluminum & Chemicals, Sr. Sub. Notes, 12.750% due 2/1/03.................................................... 125,400 600,000 CCC+ Republic Engineer Steel, 1st Mortgage, 9.875% due 12/15/01.................................................. 625,500 - -------------------------------------------------------------------------------------------------- 1,538,400 - -------------------------------------------------------------------------------------------------- PAPER -- 3.0% 385,000 B+ Phoenix Color Corp., Sr. Sub. Notes, 10.375% due 2/1/09..... 377,300 500,000 B- Russell Stanley Holdings Inc., Sr. Sub. Notes, 10.875% due 2/15/09................................................... 488,750 - -------------------------------------------------------------------------------------------------- 866,050 - -------------------------------------------------------------------------------------------------- RETAIL -- 6.0% 410,000 B- Advance Stores Co. Inc., Sr. Sub. Notes, 10.250% due 4/15/09 (a)....................................................... 394,625 425,000 B Advantica Restaurant Group, Sr. Notes, 11.250% due 1/15/03................................................... 406,938 425,000 B+ Ames Department Stores, Sr. Notes, 10.000% due 4/15/06...... 416,500 500,000 BB KMart Corp., Medium Term Notes, 7.900% due 12/14/00......... 509,375 - -------------------------------------------------------------------------------------------------- 1,727,438 - --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 18 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 HIGH YIELD BOND TRUST
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- SERVICES -- 4.3% $ 530,000 B AFC Enterprises, Sr. Sub. Notes, 10.250% due 5/15/07........ $ 541,925 250,000 B+ Equimar Shipholdings Ltd., Company Guaranteed, 9.875% due 7/1/07.................................................... 162,500 236,896 B FRD Acquisition, Sr. Notes, 12.500% due 7/15/04............. 217,944 325,000 B- Williams Scotsman Inc., Company Guaranteed, 9.875% due 6/1/07.................................................... 323,375 - -------------------------------------------------------------------------------------------------- 1,245,744 - -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 12.6% 350,000 B+ Bresnan Communications Co., Sr. Discount Notes, 9.250% due 2/1/09.................................................... 228,375 150,000 B Caprock Communications, Sr. Notes, 11.250% due 5/1/09....... 152,250 300,000 CCC+ Centennial Cellular Corp., Sr. Sub. Notes, 10.750% due 12/15/08 (a).............................................. 310,500 900,000 B+ Charter Communications Holdings, Sr. Discount Notes, 9.920% due 4/1/11................................................ 560,250 250,000 B- Classic Communications Ins., Sr. Discount Notes, 13.250% due 8/1/09.................................................... 166,875 325,000 CCC+ Intermedia Communication Inc., Sr. Discount Notes, 12.250% due 3/1/09................................................ 186,875 275,000 B+ McLeodUSA Inc., Sr. Notes, 8.125% due 2/15/99............... 258,500 300,000 BB+ Qwest Communication Corp., step bond to yield 7.608% due 2/1/08.................................................... 224,250 600,000 B+ Telewest Communication, Sr. Discount Notes, 9.250% due 4/15/09................................................... 496,126 485,000 B- T/SF Communications Corp., Company Guaranteed, 10.375% due 11/1/07................................................... 488,638 800,000 B- NTL Inc., step bond to yield 9.750% due 4/1/08.............. 549,000 - -------------------------------------------------------------------------------------------------- 3,621,639 - -------------------------------------------------------------------------------------------------- TEXTILES -- 3.8% 535,000 B+ Delta Mills Inc., Company Guaranteed, 9.625% due 9/1/07..... 505,575 300,000 B- Panolam Industries International, Sr. Sub. Notes, 11.500% due 2/15/09............................................... 309,000 275,000 B- Supreme International, Company Guaranteed, 12.250% due 4/1/06.................................................... 279,813 - -------------------------------------------------------------------------------------------------- 1,094,388 - -------------------------------------------------------------------------------------------------- TRANSPORTATION -- 1.8% 325,000 B- Atlas Air Inc., Sr. Notes, 10.750% due 8/1/05............... 333,938 200,000 B- Pacer International Inc., Sr. Sub. Notes, 11.750% due 6/1/07.................................................... 194,500 - -------------------------------------------------------------------------------------------------- 528,438 - -------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $26,585,020)....... 26,155,777 ==================================================================================================
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------------------- STOCK -- 4.6% - -------------------------------------------------------------------------------------------------- MEDIA/ENTERTAINMENT -- 0.2% 750 Classic Communications...................................... 12,503 5,625 Park Place Entertainment.................................... 54,670 9 Paxson Communications Corp., Preferred, Payment-in-kind, Exchangable 12.500%....................................... 880 - -------------------------------------------------------------------------------------------------- 68,053 - --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 19 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 HIGH YIELD BOND TRUST
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------- TECHNOLOGY -- 2.0% 4,500 Eagle-Picher Holdings, Preferred, 11.750% Expire 3/1/08..... $ 238,500 2,000 R&B Falcon Corp., Preferred, 13.875% Expire 5/1/09.......... 206,000 71 Source Media Inc., Preferred, Payment-in-kind, Exchangable 13.500%................................................... 1,385 9,000 Viasystems Group Inc., Preferred, Series B.................. 119,250 - -------------------------------------------------------------------------------------------------- 565,135 - -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 2.4% 479 Capstar Communication, Preferred, 12.625%................... 57,480 5,900 Global Crossing Holding Ltd., Preferred, 10.500% (a)........ 625,400 - -------------------------------------------------------------------------------------------------- 682,880 - -------------------------------------------------------------------------------------------------- TOTAL STOCK (Cost -- $1,282,698)............................ 1,316,068 - -------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $27,867,718)................. 27,471,845 - --------------------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 4.8% $1,394,000 CS First Boston Corp., 4.800% due 7/1/99; Proceeds at Maturity -- $1,394,186; (Fully collateralized by U.S. Treasury Notes, 6.875% due 3/31/00; Market value -- $1,422,752) (Cost -- $1,394,000)................... 1,394,000 - -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost -- $29,261,718**)................... $28,865,845 ==================================================================================================
+ All ratings are by Standard & Poor's Ratings Service, except those identified by an asterisk (*) which are rated by Moody's Investors Service Inc. (a) Security is exempt from registration under rule 144A of the Securities Act of 1933. This security may be sold in transactions that are exempt from registration, normally to qualified institutional buyers. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 21 for definition of bond ratings. SUMMARY OF BONDS BY COMBINED RATINGS
STANDARD & % OF TOTAL CORPORATE MOODY'S AND/OR POOR'S BONDS & NOTES - ------------------------------------------------- Ba BB 82.8% B B 9.1 Caa CCC 8.1 - ------------------------------------------------- 100.0% - -------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 - -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to "C" may be modified by the addition of a plus (+) or a minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issue only in a small degree. A -- Bonds rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB, B -- Bonds rated "BB" and "B" are regarded, on balance, as and CCC predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents a lower degree of speculation than "B", and "CCC" the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C -- The rating "C" is reserved for income bonds on which no interest is being paid. D -- Bonds rated "D" are in default, and payment of interest and/or repayment of principal is in arrears.
Moody's Investors Service Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aa" to "C", where 1 is the highest and 3 the lowest rating within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment fisk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A -- Bonds rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered to be medium grade obligations; that is, they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. These bonds lack outstanding investment characteristics and may have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated "Caa" are of poor standing. These issues may be in default, or present elements of danger may exist with respect to principal or interest. Ca -- Bonds rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
21 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------- COMMON STOCK -- 84.1% - ------------------------------------------------------------------------------------------- BEVERAGE -- 1.0% 206,960 Coca-Cola Co. .............................................. $ 12,935,000 - ------------------------------------------------------------------------------------------- BROKERAGE -- 3.7% 433,700 Charles Schwab Corp. ....................................... 47,652,787 - ------------------------------------------------------------------------------------------- COMMUNICATIONS -- 0.8% 321,290 Qwest Communications International, Inc.+................... 10,622,651 - ------------------------------------------------------------------------------------------- COMPUTERS -- 18.6% 1,016,490 Cisco Systems Inc.+......................................... 65,563,605 1,167,775 Dell Computer Corp.+........................................ 43,207,675 150,000 International Business Machines Corp. ...................... 19,387,500 104,290 Intuit, Inc.+............................................... 9,399,136 691,600 Microsoft Corp. ............................................ 62,373,675 428,380 Veritas Software Corp. ..................................... 40,669,326 - ------------------------------------------------------------------------------------------- 240,600,917 - ------------------------------------------------------------------------------------------- CONSUMER PRODUCTS -- 1.2% 544,940 Kroger Co.+................................................. 15,224,261 - ------------------------------------------------------------------------------------------- DIVERSIFIED OPERATIONS -- 7.7% 361,405 General Electric Co. ....................................... 40,838,765 801,435 Time Warner Inc. ........................................... 58,905,472 - ------------------------------------------------------------------------------------------- 99,744,237 - ------------------------------------------------------------------------------------------- DRUGS AND HEALTH CARE -- 4.7% 211,970 Eli Lilly & Co. ............................................ 15,182,351 38,700 MedImmune, Inc.+............................................ 2,621,925 271,190 Pfizer, Inc. ............................................... 29,763,102 191,865 Warner-Lambert Co. ......................................... 13,310,635 - ------------------------------------------------------------------------------------------- 60,878,013 - ------------------------------------------------------------------------------------------- ELECTRONICS -- 6.7% 235,560 EMC Corp.+.................................................. 12,955,800 509,130 Texas Instruments Inc. ..................................... 73,823,850 - ------------------------------------------------------------------------------------------- 86,779,650 - ------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 3.0% 265,520 Fannie Mae.................................................. 18,154,930 200,000 Morgan Stanley Dean Witter & Co. ........................... 20,500,000 - ------------------------------------------------------------------------------------------- 38,654,930 - ------------------------------------------------------------------------------------------- INSURANCE -- 3.2% 348,625 American International Group, Inc. ......................... 40,810,914 - ------------------------------------------------------------------------------------------- MEDICAL EQUIPMENT -- 4.2% 695,160 Medtronic, Inc. ............................................ 54,135,585 - -------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 22 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------- RETAIL -- 9.7% 200,000 Amazon.com Inc.+............................................ $ 25,025,000 530,220 Costco Cos., Inc.+.......................................... 42,450,738 406,825 Home Depot Inc. ............................................ 26,214,786 437,055 Safeway, Inc.+.............................................. 21,634,222 329,775 Staples Inc.+............................................... 10,202,414 - ------------------------------------------------------------------------------------------- 125,527,160 - ------------------------------------------------------------------------------------------- SOFTWARE -- 9.7% 1,132,360 America Online, Inc.+....................................... 125,125,780 - ------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 9.9% 127,820 Global TeleSystems Group, Inc.+............................. 10,353,420 291,000 Level 3 Communications Inc.+................................ 17,478,187 366,195 MCI WorldCom, Inc.+......................................... 31,584,318 739,040 Nokia Corp. ADR............................................. 67,668,354 - ------------------------------------------------------------------------------------------- 127,084,279 - ------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $620,043,930)................... 1,085,776,164 =========================================================================================== FACE AMOUNT SECURITY VALUE - ------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 15.9% $204,864,000 Morgan Stanley Dean Witter Co., 4.770% due 7/1/99; Proceeds at maturity -- $204,891,144; (Fully collateralized by U.S. Treasury Notes, 7.250% due 5/15/16; Market value -- $209,035,002) (Cost -- $204,864,000)........ 204,864,000 =========================================================================================== TOTAL INVESTMENTS -- 100% (Cost -- $824,907,930*)........... $1,290,640,164 ===========================================================================================
+ Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 23 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MONEY MARKET PORTFOLIO
FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE - ---------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 100% $2,700,000 Allied Signal Inc. matures 9/28/99.......................... 4.80% $ 2,667,960 2,600,000 American Express Credit Corp. matures 8/26/99............... 4.78 2,580,668 2,600,000 American Home Products mature 7/28/99 to 8/6/99............. 4.78 to 4.79 2,589,116 3,000,000 Asset Securitization Corp. matures 7/22/99.................. 5.17 2,990,953 2,600,000 Becton Dickinson & Co. matures 7/9/99....................... 4.78 2,597,238 2,800,000 Boeing Capital Corp. matures 7/12/99........................ 5.00 2,795,722 2,675,000 Delaware Funding Corp. matures 7/20/99...................... 4.81 2,668,209 2,650,000 Eastman Kodak matures 7/27/99............................... 4.79 2,640,832 2,100,000 Ford Motor Credit Corp. matures 7/8/99...................... 4.77 2,098,052 1,600,000 GA Muni Gas & Electric matures 7/19/99...................... 4.80 1,596,160 2,750,000 General Mills Inc. matures 7/6/99........................... 4.85 2,748,148 5,200,000 General Motors Acceptance Corp. mature 7/23/99 to 7/30/99... 4.81 to 4.90 5,182,272 2,500,000 H.J. Heinz Co. mature 7/19/99 to 7/28/99.................... 4.83 to 4.85 2,492,129 940,000 Household Finance Corp. matures 7/1/99...................... 5.88 940,000 2,600,000 Johnson & Johnson matures 8/23/99........................... 4.77 2,581,742 2,500,000 Morgan Stanley Dean Witter & Co. matures 7/22/99............ 4.83 2,492,956 2,700,000 National Rural Utilities matures 8/20/99.................... 4.82 2,681,917 2,750,000 Occidental Petroleum matures 7/14/99........................ 4.89 2,745,144 2,400,000 Progress Capital Holdings matures 7/8/99.................... 5.04 2,397,648 1,391,000 Providian Master Trust matures 7/13/99...................... 4.88 1,388,737 2,750,000 Prudential Funding Co. matures 7/12/99...................... 4.95 2,745,841 2,500,000 Transamerica Finance Corp. matures 7/26/99.................. 4.84 2,491,597 2,750,000 Xerox Corp. matures 7/7/99.................................. 4.83 2,747,786 - ---------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $58,860,827*)............ $58,860,827 ================================================================================================================
* Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 24 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO - ------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost............................ $226,588,179 $27,867,718 $ 620,043,930 $58,860,827 Repurchase agreements, at cost.................. 23,630,000 1,394,000 204,864,000 -- - ------------------------------------------------------------------------------------------------------------- Investments, at value........................... $287,121,937 $27,471,845 $1,085,776,164 $58,860,827 Repurchase agreements, at value................. 23,630,000 1,394,000 204,864,000 -- Cash............................................ 72,906 -- 661 3,673 Receivable for securities sold.................. 1,888,132 152,573 -- -- Dividends and interest receivable............... 1,281,793 635,283 149,950 65 - ------------------------------------------------------------------------------------------------------------- TOTAL ASSETS.................................... 313,994,768 29,653,701 1,290,790,775 58,864,565 ============================================================================================================= LIABILITIES: Payable for securities purchased................ 419,938 195,020 -- -- Investment advisory fees payable................ 135,512 13,033 818,568 -- Payable to broker -- variation margin........... 31,250 -- -- -- Administration fees payable..................... 16,261 1,564 65,486 3,224 Payable to bank................................. -- 4,314 -- -- Dividends payable............................... -- -- -- 102,170 Accrued expenses................................ 66,250 8,771 102,044 81,156 - ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES............................... 669,211 222,702 986,098 186,550 - ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS.................................. $313,325,557 $29,430,999 $1,289,804,677 $58,678,015 - ------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital................................. $221,761,830 $29,831,372 $ 772,810,067 $58,678,015 Undistributed (overdistributed) net investment income....................................... 3,131,030 1,294,033 (49,528) -- Accumulated net realized gain (loss) from security transactions, futures contracts and foreign currencies........................... 28,010,651 (1,298,533) 51,308,369 -- Net unrealized appreciation (depreciation) of investments, futures contracts and foreign currencies................................... 60,422,046 (395,873) 465,735,769 -- - ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS.................................. $313,325,557 $29,430,999 $1,289,804,677 $58,678,015 ============================================================================================================= SHARES OUTSTANDING................................ 15,853,964 3,111,485 15,685,265 58,678,015 - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE........................ $19.76 $9.46 $82.23 $1.00 - -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 25 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO - ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest............................................ $ 2,708,330 $1,406,229 $ 3,003,526 $1,247,688 Dividends........................................... 1,316,415 -- 1,574,111 -- Less: Foreign withholding tax....................... (24,882) -- (62,957) -- - ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME............................. 3,999,863 1,406,229 4,514,680 1,247,688 - ------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 3)................... 726,136 71,630 4,122,157 82,078 Administration fees (Note 3)........................ 87,136 8,596 329,772 15,290 Audit and legal..................................... 20,000 15,000 21,000 16,000 Custody............................................. 10,000 3,900 20,000 7,515 Shareholder communications.......................... 10,000 2,000 39,000 5,233 Registration fees................................... 5,000 -- 5,000 -- Shareholder and system servicing fees............... 5,000 4,500 5,000 6,327 Pricing fees........................................ 2,500 4,500 -- -- Trustees' fees...................................... 1,870 1,870 1,870 2,290 Other............................................... 1,251 200 3,000 2,824 - ------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES...................................... 868,893 112,196 4,546,799 137,557 - ------------------------------------------------------------------------------------------------------------- Less: Expense reimbursement......................... -- -- -- (35,623) - ------------------------------------------------------------------------------------------------------------- NET EXPENSES........................................ 868,893 112,196 4,546,799 101,934 - ------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS).......................... 3,130,970 1,294,033 (32,119) 1,145,754 - ------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 4 AND 6): Realized Gain (Loss) From: Security transactions (excluding short-term securities*)................................... 28,079,076 337,881 51,453,371 (37) Futures contracts................................ (804,484) -- -- -- Foreign currency transactions.................... -- -- (17,528) -- - ------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS)............................ 27,274,592 337,881 51,435,843 (37) - ------------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments, Futures Contracts and Foreign Currencies: Beginning of period.............................. 71,272,240 48,086 365,205,909 -- End of period.................................... 60,422,046 (395,873) 465,735,769 -- - ------------------------------------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION)...................................... (10,850,194) (443,959) 100,529,860 -- - ------------------------------------------------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES.................................. 16,424,398 (106,078) 151,965,703 (37) - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS................ $ 19,555,368 $1,187,955 $151,933,584 $1,145,717 =============================================================================================================
* Except for Money Market Portfolio where the net realized losses are only from the sale of short-term securities. SEE NOTES TO FINANCIAL STATEMENTS. 26 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO - ------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)................... $ 3,130,970 $ 1,294,033 $ (32,119) $ 1,145,754 Net realized gain (loss)....................... 27,274,592 337,881 51,435,843 (37) Change in net unrealized appreciation (depreciation).............................. (10,850,194) (443,959) 100,529,860 -- - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS......... 19,555,368 1,187,955 151,933,584 1,145,717 - ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income.......................... (5,732,184) (2,318,362) (1,059,034) (1,145,717) Net realized gains............................. (17,063,313) -- (30,268,308) -- - ------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS............... (22,795,497) (2,318,362) (31,327,342) (1,145,717) - ------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 11): Net proceeds from sale of shares............... 19,657,301 3,777,684 263,126,420 99,238,237 Net asset value of shares issued for reinvestment of dividends................... 22,795,497 2,318,362 31,327,342 1,117,839 Cost of shares reacquired...................... (2,068,786) (3,623,081) (16,116,250) (83,747,390) - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS................................ 40,384,012 2,472,965 278,337,512 16,608,686 - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS........................... 37,143,883 1,342,558 398,943,754 16,608,686 NET ASSETS: Beginning of period............................ 276,181,674 28,088,441 890,860,923 42,069,329 - ------------------------------------------------------------------------------------------------------------- END OF PERIOD*................................. $313,325,557 $29,430,999 $1,289,804,677 $ 58,678,015 ============================================================================================================= * Includes undistributed (overdistributed) net investment income of:.......................... $3,131,030 $1,294,033 $(49,528) -- - -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 27 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO - ------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income............................ $ 5,681,892 $ 2,382,367 $ 1,062,648 $ 1,460,011 Net realized gain (loss)......................... 18,004,909 443,848 31,704,572 (215) Increase (decrease) in net unrealized appreciation.................................. 24,712,837 (1,095,487) 268,745,690 -- - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS........... 48,399,638 1,730,728 301,512,910 1,459,796 - ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income............................ (6,031,526) (1,906,452) (1,757,481) (1,459,796) Net realized gains............................... (11,032,250) -- (15,276,070) -- - ------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS................. (17,063,776) (1,906,452) (17,033,551) (1,459,796) - ------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 11): Net proceeds from sale of shares................. 17,716,235 7,689,311 206,554,463 103,475,184 Net asset value of shares issued for reinvestment of dividends.................................. 17,063,776 1,906,452 17,033,551 1,409,254 Cost of shares reacquired........................ (13,804,479) (6,603,776) (24,907,667) (76,308,910) - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS.................................. 20,975,532 2,991,987 198,680,347 28,575,528 - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS............................. 52,311,394 2,816,263 483,159,706 28,575,528 NET ASSETS: Beginning of year................................ 223,870,280 25,272,178 407,701,217 13,493,801 - ------------------------------------------------------------------------------------------------------------- END OF YEAR*..................................... $276,181,674 $28,088,441 $890,860,923 $ 42,069,329 ============================================================================================================= * Includes undistributed net investment income of:.............................................. $5,732,244 $2,318,362 $1,059,153 -- - -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 28 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market Portfolio (collectively, "Fund(s)") are each a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment companies. Shares of the Funds are offered only to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts. The significant accounting policies consistently followed by the Funds are: (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing prices on such markets; securities for which no sales price were reported and U.S. government and agency obligations are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from reputable brokers or other recognized sources; (c) securities for which market quotations are not available will be valued in good faith at fair value by or under the direction of the Board of Trustees; (d) securities maturing within 60 days are valued at cost plus accreted discount, or minus amortized premium, which approximates value; (e) securities, other than U.S. government agencies and obligations, that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (f) interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis and dividend income is recorded on the ex-dividend date; foreign dividends are recorded on the ex-dividend date or as soon as practical after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence; (g) gains or losses on the sale of securities are calculated by using the specific identification method; (h) dividends and distributions to shareholders are recorded on the ex-dividend date; (i) the accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars on the date of valuation. Purchases and sales of securities and income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income and expense amounts recorded and collected or paid are adjusted when reported by the custodian; (j) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. At December 31, 1998, reclassifications were made to the capital accounts of the Managed Assets Trust, High Yield Bond Trust and Capital Appreciation Fund to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Accordingly, for the Managed Assets Trust, a portion of undistributed net investment income amounting to $116 and a portion of accumulated net realized gains amounting to $31,374 was reclassified to paid-in capital. In addition, for the High Yield Bond Trust, a portion of accumulated net realized loss amounting to $1,352,578 was reclassified to paid-in capital. Net investment income, net realized gains and net assets were not affected by this change; (k) the Funds intend to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; and (l) estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. 2. DIVIDENDS Money Market Portfolio declares and records a dividend of substantially all of its net investment income on each business day. Such dividends are paid or reinvested on the payable date. 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Corporation ("TAMIC"), an indirect wholly owned subsidiary of Citigroup, Inc., acts as investment manager and advisor to the Managed Assets Trust ("MAT"), High Yield Bond Trust ("HYBT"), Capital Appreciation Fund ("CAF") and Money Market Portfolio ("MMP"). MAT, CAF and MMP pay TAMIC an investment management and advisory fee calculated at the annual rate of 0.50%, 0.75% and 0.3233%, respectively of its average daily net assets. HYBT pays TAMIC an investment management and advisory fee calculated at an annual rate of 0.50% on the first $50,000,000, 0.40% on the next $100,000,000, 0.30% on the next $100,000,000 and 0.25% on the amount over $250,000,000 of its average daily net assets. This fee is calculated daily and paid monthly. TAMIC has a sub-advisory agreement with The Travelers Investment Management Company, Inc. ("TIMCO"), an indirect wholly owned subsidiary of Citigroup, Inc. Pursuant to the sub-advisory agreement, TIMCO is responsible for the day-to-day portfolio operations and investment decisions for MAT. As a result, TAMIC pays TIMCO, as sub-advisor, 0.25% of the average daily net assets of MAT. 29 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TAMIC also has a sub-advisory agreement with Janus Capital Corporation ("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the day-to-day portfolio operations and investment decisions for CAF. As a result, TAMIC pays Janus, as sub-advisor, 0.55% of the average daily net assets of CAF. Travelers Insurance Company ("Travelers Insurance") acts as administrator to the Funds. The Funds pay Travelers Insurance an administration fee calculated at an annual rate of 0.06% of its average daily net assets. Travelers Insurance has entered into a sub-administrative services agreement with SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"). Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% for the average daily net assets of each Fund. This fee is calculated daily and paid monthly. Brokerage commissions of $6,451 were received from affiliated brokers. One Trustee and all officers of the Funds are employees of Citigroup, Inc., or its subsidiaries. 4. INVESTMENTS During the six months ended June 30, 1999, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows:
MANAGED HIGH CAPITAL ASSETS YIELD BOND APPRECIATION TRUST TRUST FUND - ------------------------------------------------------------------------------------------------------ Purchases................................................... $97,622,533 $18,598,319 $320,374,974 - ------------------------------------------------------------------------------------------------------ Sales....................................................... 99,307,625 16,556,925 183,856,035 ======================================================================================================
At June 30, 1999, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
MANAGED HIGH CAPITAL ASSETS YIELD BOND APPRECIATION TRUST TRUST FUND - ----------------------------------------------------------------------------------------------------- Gross unrealized appreciation............................... $65,938,129 $ 426,188 $475,781,632 Gross unrealized depreciation............................... (5,404,371) (822,061) (10,049,398) - ----------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation).................. $60,533,758 $(395,873) $465,732,234 =====================================================================================================
5. REPURCHASE AGREEMENTS The Funds purchase (and its custodian takes possession of) U.S. Government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Funds require continual maintenance of the market value of the collateral in amounts at least equal to the repurchase price. 6. FUTURES CONTRACTS Initial margin deposits made upon entering into futures contracts are recognized as assets. The initial margin is segregated by the custodian and is noted in the schedule of investments. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Funds' basis in the contract. The Funds enter into such contracts to hedge portions of their respective portfolios. The Funds bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). 30 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) At June 30, 1999, MAT had sold 5 financial futures contracts on the Standard & Poor's 500 Index expiring in September 1999. The basis value of such contracts was $1,615,413. The market value of such contracts on June 30, 1999, was $1,727,125, resulting in an unrealized loss of $111,712. 7. OPTIONS CONTRACTS Premiums paid when put or call options are purchased by the Funds, represent investments, which are "marked-to-market" daily. When a purchased option expires, the Funds realize a loss in the amount of the premium paid. When the Funds enter into closing sales transactions, the Funds realize a gain or loss depending on whether the proceeds from the closing sales transaction are greater or less than the premium paid for the option. When the Funds exercise a put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Funds exercise a call option, the cost of the security which the Funds purchase upon exercise will be increased by the premium originally paid. At June 30, 1999, the Funds had no open purchased call or put options contracts. 8. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS The Funds may trade securities on a "to-be-announced" ("TBA") basis. In a TBA transaction, the Funds commit to purchasing or selling securities for which specific information is not yet known at the time of the trade, particularly the face amount and maturity date in GNMA/FNMA transactions. Securities purchased on a TBA basis are not settled until they are delivered to the Funds, normally 15 to 45 days later. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. At June 30, 1999, the Funds held no TBA securities. 9. CAPITAL LOSS CARRYFORWARD At December 31, 1998, HYBT had, for Federal income tax purposes, approximately $1,311,000 of capital loss carryforwards available to offset future capital gains. To the extent that these carryforward losses can be used to offset realized capital gains, it is probable that such gains will not be distributed. The amount and expiration of the carryforwards are indicated below. Expiration occurs on December 31 of the year indicated:
1999 2000 2001 2002 2004 - -------------------------------------------------------------------------------------------------------- Carryforward Amounts.......................... $748,000 $48,000 $134,000 $38,000 $343,000 ========================================================================================================
10. FOREIGN SECURITIES Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of many foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and the U.S. Government. 31 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 11. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Fund were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 - --------------------------------------------------------------------------------------------------- MANAGED ASSETS TRUST Shares sold................................................. 955,211 955,576 Shares issued on reinvestment............................... 1,187,265 921,867 Shares reacquired........................................... (100,913) (747,496) - --------------------------------------------------------------------------------------------------- Net Increase................................................ 2,041,563 1,129,947 =================================================================================================== HIGH YIELD BOND TRUST Shares sold................................................. 370,492 772,815 Shares issued on reinvestment............................... 245,326 196,339 Shares reacquired........................................... (355,073) (673,313) - --------------------------------------------------------------------------------------------------- Net Increase................................................ 260,745 295,841 =================================================================================================== CAPITAL APPRECIATION FUND Shares sold................................................. 3,239,048 3,602,035 Shares issued on reinvestment............................... 400,400 292,021 Shares reacquired........................................... (201,099) (448,218) - --------------------------------------------------------------------------------------------------- Net Increase................................................ 3,438,349 3,445,838 =================================================================================================== MONEY MARKET PORTFOLIO Shares sold................................................. 99,238,237 103,475,184 Shares issued on reinvestment............................... 1,117,839 1,409,254 Shares reacquired........................................... (83,747,390) (76,308,910) - --------------------------------------------------------------------------------------------------- Net Increase................................................ 16,608,686 28,575,528 ===================================================================================================
32 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
MANAGED ASSETS TRUST 1999(1)(2) 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD............................. $19.99 $17.65 $14.98 $15.50 $12.85 $14.21 - ------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income.............. 0.22 0.41 0.48 0.46 0.49 0.46 Net realized and unrealized gain (loss).......................... 1.11 3.27 2.70 1.50 2.83 (0.73) - ------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations......................... 1.33 3.68 3.18 1.96 3.32 (0.27) - ------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM (3): Net investment income.............. (0.39) (0.47) (0.12) (0.89) (0.50) (0.67) Net realized gains................. (1.17) (0.87) (0.39) (1.59) (0.17) (0.42) - ------------------------------------------------------------------------------------------------------------------- Total Distributions.................. (1.56) (1.34) (0.51) (2.48) (0.67) (1.09) - ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD....... $19.76 $19.99 $17.65 $14.98 $15.50 $12.85 - ------------------------------------------------------------------------------------------------------------------- TOTAL RETURN......................... 6.86%++ 21.44% 21.31% 13.78% 27.12% (2.24)% - ------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S).... $313,326 $276,182 $223,870 $188,610 $171,276 $140,887 - ------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses........................... 0.60%+ 0.60% 0.63% 0.58% 0.58% 0.61% Net investment income.............. 2.15+ 2.30 2.91 3.51 3.49 3.59 - ------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.............. 35% 74% 90% 108% 110% 97% - -------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST 1999(1)(2) 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD.............................. $9.85 $9.89 $8.49 $9.00 $8.49 $9.25 - -------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income............... 0.45 0.77 0.76 0.91 0.80 0.66 Net realized and unrealized gain (loss)........................... (0.03) (0.13) 0.65 0.41 0.41 (0.76) - -------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations... 0.42 0.64 1.41 1.32 1.21 (0.10) - -------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM (3): Net investment income............... (0.81) (0.68) (0.01) (1.83) (0.70) (0.66) - -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD........ $9.46 $9.85 $9.89 $8.49 $9.00 $8.49 - -------------------------------------------------------------------------------------------------------------------- TOTAL RETURN.......................... 4.31%++ 6.56% 16.56% 16.05% 15.47% (1.26)% - -------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)..... $29,431 $28,088 $25,272 $17,291 $12,902 $11,716 - -------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (4)........................ 0.78%+ 0.82% 0.84% 0.97% 1.25% 1.25% Net investment income............... 9.02+ 8.42 9.04 11.01 9.37 7.71 - -------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE............... 60% 147% 137% 84% 222% 146% - --------------------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) Distributions from realized gains include both net realized short-term and long-term capital gains. Prior to 1996 net realized short-term capital gains were included in distributions from net investment income. (4) The ratio of expenses to average net assets reflects an expense reimbursement by The Travelers in connection with voluntary expense limitations. Without the expense reimbursement, the ratios of expenses to average net assets would have been 1.28% and 1.33% for the years ended December 31, 1995 and 1994, respectively. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 33 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
CAPITAL APPRECIATION FUND 1999(1)(2) 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................... $72.74 $46.32 $36.72 $33.18 $24.50 $25.87 - --------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income (loss)..... (0.02) 0.06 0.19 0.23 0.24 0.19 Net realized and unrealized gain (loss)........................ 11.57 28.07 9.41 8.49 8.61 (1.41) - --------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations....................... 11.55 28.13 9.60 8.72 8.85 (1.22) - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM (3): Net investment income............ (0.07) (0.18) -- (0.41) (0.17) (0.15) Net realized gains............... (1.99) (1.53) (0.00)* (4.77) -- -- - --------------------------------------------------------------------------------------------------------------------- Total Distributions................ (2.06) (1.71) (0.00)* (5.18) (0.17) (0.15) - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD..... $82.23 $72.74 $46.32 $36.72 $33.18 $24.50 - --------------------------------------------------------------------------------------------------------------------- TOTAL RETURN....................... 16.03%++ 61.63% 26.14% 28.21% 36.37% (4.76)% - --------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S).......................... $1,289,805 $890,861 $407,701 $224,132 $122,155 $78,494 - --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses......................... 0.82%+ 0.85% 0.84% 0.83% 0.85% 0.89% Net investment income (loss)..... (0.01)+ 0.18 0.54 0.69 0.84 0.79 - --------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE............ 19% 53% 89% 84% 124% 106% - ---------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 1999(1)(2) 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------------------------------------------------------------------------------- Net investment income (4)........ 0.022 0.049 0.049 0.0412 0.0417 0.0278 Distributions from net investment income........................ (0.022) (0.049) (0.049) (0.0412) (0.0417) (0.0278) - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------------------------------------------------------------------------------- TOTAL RETURN....................... 2.21%++ 5.08% 5.03% 4.20% 4.17% 2.78% - --------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S).......................... $58,678 $42,069 $13,494 $3,543 $1,417 $1,203 - --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (4)(5).................. 0.40%+ 0.65% 0.57% 0.78% 1.25% 1.25% Net investment income............ 4.50+ 5.37 5.03 3.72 -- -- - ---------------------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) Distributions from realized gains include both net realized short-term and long-term capital gains. Prior to 1996 net realized short-term capital gains were included in distributions from net investment income. (4) The Travelers reimbursed Money Market Portfolio for $35,623, $31,300 and $43,376 in expenses for the six months ended June 30, 1999 and for the years ended December 31, 1997 and December 31, 1996, respectively. If expenses were not reimbursed, the per share decreases of net investment income would have been $0.001, $0.002 and $0.02, respectively, and the actual expense ratios would have been 0.54%, 1.39% and 1.71%, respectively. (5) The ratio of expenses to average net assets for 1995 and 1994 reflects an expense reimbursement by The Travelers in connection with voluntary expense limitations. Without the expense reimbursement, the ratios of expenses to average net assets would have been 7.37% and 6.40% for the years ended December 31, 1995 and 1994, respectively. * Amount represents less than $0.01 per share. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 34 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES PORTFOLIO U.S. Government Securities Portfolio ("Portfolio") seeks to select investments from the point of view of an investor concerned primarily with highest credit quality, current income and total return. The assets of the Portfolio will be invested in direct obligations of the United States, its agencies and instrumentalities. For the six months ended June 30, 1999, the Portfolio had a total return of negative 3.89%, which was below its Lipper, Inc. peer group total return average of a negative 2.67%. (Lipper is an independent fund-tracking organization.) As of June 30, 1999, the composition of assets was roughly 58% in mortgage-backed securities and approximately 42% in U.S. Government securities. The first half of 1999 was a period of sustained economic growth at home and recovery abroad. Following the events surrounding the Russian debt default in August of 1998 -- which included a decline in bond yields and a 0.75% fall in Fed funds -- yields have risen. Investor optimism, however, was tempered by concerns about inflation and continued economic growth. In addition, both Russia and Argentina remain economic hot spots and deserve close monitoring. The reconstruction of Kosovo and peacekeeping efforts in that war-torn country will also be an ongoing challenge. Another issue facing the bond market is Y2K, a phrase referring to the fact that some dates were coded into computers using only the last two digits of the year, assuming the first two digits were "19." On or after January 1, 2000, some computers may misread or not recognize dates and cause potential dislocations. And while the extent of the Y2K problem is impossible to predict, it is safe to say the immediate future promises to be interesting. During the first half of 1999, U.S. economic growth continued at a robust pace, posting a 4.1% annualized GDP growth rate for the first quarter. Furthermore, the labor market continued to be tight, as the unemployment rate fell to a 29-year low of 4.2% in March. Defying the expectations of many economists, inflation -- as measured by the Consumer Price Index ("CPI") -- was virtually absent. Productivity gains and sagging global demand were credited with keeping inflation under control. However, in the month of April, the CPI rose by 0.7%, its largest monthly increase in nine years. This, coupled with signs that many world economies were in the nascent stages of growth and recovery, deepened fears that inflationary pressures were reaching a breaking point. These concerns brought about an increase in the yield of the benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April 8 and June 24 to close at 6.16%. To counter these inflationary pressures, the Fed raised short-term interest rates by 0.25% in late June, and subsequently adopted a neutral stance on monetary policy. Meanwhile, during the months of May and June, the CPI remained constant, generating considerable optimism that inflation had retreated. Further reports of rising U.S. jobless claims added to the optimism. This sparked a rise in demand for fixed-income investments, effectively lowering the 30-year U.S. Treasury yield to 5.89% on July 19. However, the Fed has signaled its willingness to raise rates if there are any signs of inflationary pressures. The Fund seeks high current income, liquidity and security of principal. The Fund invests primarily in debt securities issued or guaranteed by the U.S. government, its agencies or instrumentalities and in related repurchase and reverse repurchase agreements. These U.S. government securities in which the Fund invests consist primarily of mortgage-related securities and U.S. Treasury securities. Mortgage-related securities issued by federal agencies or instrumentalities may be backed by the full faith and credit of the U.S. Treasury, by the right of the issuer to borrow from the U.S. government or only by the credit of the issuer itself. As rates have risen, the Fund's duration has increased from 4.34 years at December 31, 1998, to 4.94 years as of June 30, 1999. Mortgage-backed securities continue to represent approximately 95% of current holdings with the remainder in 10-year U.S. Treasuries. During the reporting period, the managers have increased the average coupon of the Fund to take advantage of higher income potential in the marketplace. The investment team anticipates that interest rates should decline as the end of 1999 approaches. In their view, the potential for more moderate economic growth should assuage current inflation concerns. The managers should expect a period in which economic growth can co-exist with relatively low levels of inflation. SOCIAL AWARENESS STOCK PORTFOLIO The Social Awareness Stock Portfolio ("Portfolio") seeks long-term capital appreciation by selecting investments, primarily common stocks, that meet the social criteria established for the Portfolio. The Portfolio's social criteria currently excludes companies that derive a significant portion of their revenues from the production of tobacco, tobacco products, alcohol, or 35 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- military defense related services or gambling services. For the six months ended June 30, 1999, the Portfolio returned 12.65% and outperformed the S&P 500 Index, which posted a total return of 12.38% for the same period. The managers have downsized representation in capital goods, communications services, energy and technology. Their largest holdings include stocks such as EMC Corp., Cisco Systems, Readers' Digest, Home Depot, Wal-Mart, Alcoa, Staples, Chase Manhattan, Lowe's Companies and International Business Machines. The investment team's strategy is to use normal stock market volatility as their ally, by taking advantage of intermediate-term downside price corrections to invest new investment inflows, which are running quite strong. While cautious through the second half of 1999, the managers remain optimistic on the U.S. economy and its major corporations for the next several years. UTILITIES PORTFOLIO The Utilities Portfolio ("Portfolio") seeks to provide current income by investing in equity and debt securities of companies in the utility industries. For the six months ended June 30, 1999, the Portfolio had a total return of 4.31%. In comparison, the Lipper Inc. peer group total return average was 5.70%. (Lipper is an independent fund-tracking organization.) For the first six months of 1999, the Utilities Portfolio recorded a total investment return of approximately 4.3%, versus a virtual flat performance for the S&P Utilities Index. These results follow 1998's full year appreciation of 18.21%. The Portfolio's investments in telecommunications related companies were the most positive contributors to its overall performance, led by such names as Mediaone Group (being acquired by AT&T), Nextlink Communications, Williams Companies, MCI Worldcom and Montana Power (fiber network). At the end of the first half, the Portfolio was invested as follows -- electric utilities 57%, telecommunications 23%, natural gas 15%, bonds 3% and cash 2%. The team's investment strategy seeks to identify "core" investments, those which they expect to own long-term because they represent the best quality total return potential. In addition, the managers seek opportunistic investments that may offer more intermediate return potential, or may be in the early stages of developing as future core holdings. The infrastructure sector of the economy offers some very interesting restructuring prospects, while the communications -- technology field continues in the midst of its revolutionary redefinition. In closing, we thank you for your investment in The Travelers Series Trust. We look forward to continuing to help you pursue your financial goals. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman July 30, 1999 36 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ (3.89)% Year Ended 6/30/99 0.92% Five Years Ended 6/30/99 8.61% 1/24/92* through 6/30/99 7.21% CUMULATIVE TOTAL RETURN ---------------------------------------------- 1/24/92* through 6/30/99 67.84% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on January 24, 1992, assuming reinvestment of dividends, through June 30, 1999. The Lehman Government Bond Index is a broad-based Index of all public debt obligations of the U.S. Government and its agencies and has an average maturity of nine years. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services.
U.S. GOVERNMENT SECURITIES LEHMAN GOVERNMENT BOND PORTFOLIO INDEX CONSUMER PRICE INDEX -------------------------- ---------------------- -------------------- 1/24/92 10000 10000 10000 12/92 10790 10723 10275 12/93 11813 11866 10557 12/94 11147 11464 10840 12/95 13869 13567 11115 12/96 14077 13943 11484 12/97 15846 15280 11679 12/98 17463 16785 11866 6/99 16784 16404 12032
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 12.65% Year Ended 6/30/99 25.42% Five Years Ended 6/30/99 25.50% 5/1/92* through 6/30/99 19.00% CUMULATIVE TOTAL RETURN ---------------------------------------------- 5/1/92* through 6/30/99 247.80% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on May 1, 1992, assuming reinvestment of dividends, through June 30, 1999. The Standard & Poor's 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and the over-the-counter market. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services.
SOCIAL AWARENESS STOCK STANDARD & POOR'S 500 PORTFOLIO INDEX CONSUMER PRICE INDEX ---------------------- --------------------- -------------------- 5/1/92 10000 10000 10000 12/92 10950 10673 10157 12/93 11777 11745 10436 12/94 11461 11900 10716 12/95 15285 14509 10988 12/96 18340 17838 11353 12/97 23343 23789 11545 12/98 30875 30626 11731 6/99 34780 33498 11895
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 37 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 4.31% Year Ended 6/30/99 14.07% 2/4/94* through 6/30/99 16.30% CUMULATIVE TOTAL RETURN ---------------------------------------------- 2/4/94* through 6/30/99 126.15% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on February 4, 1994, assuming reinvestment of dividends, through June 30, 1999. Standard & Poor's 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter market. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services.
Standard & Utilities Poor's 500 Consumer Portfolio Index Price Index --------- ---------- ----------- 2/4/94 10000 10000 10000 12-94 10170 10072 10205 12-95 13149 13852 10464 12-96 14638 17031 10811 12-97 18340 22712 10995 6-98 19825 26737 11110
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 38 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999 U.S. GOVERNMENT SECURITIES PORTFOLIO
FACE AMOUNT SECURITY VALUE - -------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 29.7% U.S. Treasury Notes: $3,000,000 5.000% due 2/28/01.......................................... $ 2,979,000 8,660,000 8.125% due 8/15/21.......................................... 10,543,463 9,000,000 U.S. REFCO Strips, zero coupon due 10/15/13................. 3,600,000 1,000,530 U.S. Treasury Inflation Index, 3.875% due 4/15/29........... 986,773 - -------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $19,574,489)..... 18,109,236 ====================================================================================== U.S. GOVERNMENT AGENCIES -- 61.2% 3,642,003 FGLMC Certificates, 7.000% due 1/1/28....................... 3,608,970 FHLMC Certificates: 3,000,000 5.705% due 3/2/09........................................... 2,820,180 3,951,971 6.500% due 3/15/28.......................................... 3,640,754 872,974 FHLMC Gold Certificates, 7.000% due 12/1/27................. 865,057 FNMA Certificates: 1,407,402 6.000% due 10/1/13.......................................... 1,359,452 3,872,520 7.000% due 6/1/24 @......................................... 3,845,462 2,877,795 6.500% due 12/1/27.......................................... 2,779,748 GNMA Certificates: 1,879,265 9.000% due 9/15/09 @........................................ 1,995,536 664,058 8.500% due 7/15/18 @........................................ 695,183 9,023,761 6.000% due 4/20/28.......................................... 7,345,532 2,009,164 6.500% due 12/15/28......................................... 1,935,067 4,476,873 7.000% due 2/15/29 @........................................ 4,422,300 2,000,000 Tennessee Valley Authority Debenture, 6.250% due 12/15/17... 1,927,500 - -------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $38,599,894)........ 37,240,741 ====================================================================================== REPURCHASE AGREEMENT -- 9.1% 5,516,000 CS First Boston, 4.800% due 7/1/99; Proceeds at maturity -- $5,516,733; (Fully collateralized by U.S. Treasury Notes, 6.875% due 3/31/00; Market value -- $5,627,272) (Cost -- $5,516,000)................... 5,516,000 - -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $63,690,383*)............ $60,865,977 ======================================================================================
@ Date shown represents the last in range of maturity dates of mortgage certificates owned. * Aggregate cost for federal income tax purpose is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 39 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- COMMON STOCK -- 91.3% - ----------------------------------------------------------------------------------------- BASIC MATERIALS -- 3.5% 4,000 Air Products & Chemicals, Inc. ............................. $ 161,000 19,000 Alcoa Inc. ................................................. 1,175,625 15,000 Engelhard Corp. ............................................ 339,375 8,000 Praxair, Inc. .............................................. 391,500 - ----------------------------------------------------------------------------------------- 2,067,500 - ----------------------------------------------------------------------------------------- CAPITAL GOODS -- 3.1% 24,500 Anixter International Inc. (a).............................. 447,125 4,500 Belden, Inc. ............................................... 107,718 15,000 Deere & Co. ................................................ 594,375 9,800 Pitney Bowes, Inc. ......................................... 629,650 - ----------------------------------------------------------------------------------------- 1,778,868 - ----------------------------------------------------------------------------------------- COMMUNICATION -- 4.2% 13,800 AT&T Corp. ................................................. 770,212 8,000 Bell Atlantic Corp. ........................................ 523,000 11,836 MCI Worldcom Inc. (a)....................................... 1,020,855 5,000 Time Warner Telecom Inc. ................................... 145,000 - ----------------------------------------------------------------------------------------- 2,459,067 - ----------------------------------------------------------------------------------------- CONSUMER CYCLICALS -- 22.5% 14,200 Black & Decker Corp. ....................................... 896,375 12,125 Caliber Learning Network, Inc. (a).......................... 57,594 16,991 Dollar General Corp. ....................................... 492,739 900 eTOYS Inc. ................................................. 36,675 18,800 Home Depot, Inc. ........................................... 1,211,425 50,000 Interface, Inc. ............................................ 431,250 1,000 Juniper Networks, Inc. ..................................... 149,000 21,000 Kaufman & Broad Home Corp. ................................. 522,375 6,532 Koninklijke Philips Electronics N.V. ....................... 658,916 17,000 Liz Claiborne, Inc. ........................................ 620,500 20,100 Lowe's Cos., Inc. .......................................... 1,139,419 24,500 May Department Stores Co. .................................. 1,001,437 25,000 Office Depot, Inc. ......................................... 551,562 31,200 Reader's Digest Association, Inc. .......................... 1,240,200 10,000 Ross Stores, Inc. .......................................... 503,750 37,600 Staples, Inc. (a)........................................... 1,163,250 19,500 Sylvan Learning Systems, Inc. (a)........................... 530,156 8,600 Tribune Co. ................................................ 749,275 25,000 Wal-Mart Stores, Inc. ...................................... 1,206,250 - ----------------------------------------------------------------------------------------- 13,162,148 - ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 9.3% 5,922 Albertson's, Inc. .......................................... 305,353 18,000 Brinker International, Inc. (a)............................. 489,375 17,400 Kroger Co. (a).............................................. 486,113 14,800 Newell Co. ................................................. 688,200
SEE NOTES TO FINANCIAL STATEMENTS. 40 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 9.3% (CONTINUED) 25,000 Pepsi Bottling Group, Inc. ................................. $ 576,562 4,800 PepsiCo, Inc. .............................................. 185,700 19,200 Rite Aid Corp. ............................................. 472,800 22,700 Sysco Corp. ................................................ 676,744 7,480 Tricon Global Restaurants, Inc. (a)......................... 404,855 7,142 Unilever N.V. .............................................. 498,154 4,800 Walt Disney Co. ............................................ 147,900 18,000 Wendy's International, Inc. ................................ 509,625 - ----------------------------------------------------------------------------------------- 5,441,381 - ----------------------------------------------------------------------------------------- ENERGY -- 1.6% 6,600 Anadarko Petroleum Corp. ................................... 242,962 6,413 BP Amoco PLC ADR............................................ 695,811 - ----------------------------------------------------------------------------------------- 938,773 - ----------------------------------------------------------------------------------------- FINANCIALS -- 15.5% 21,700 ACE, Ltd. .................................................. 613,025 9,200 Allstate Corp. ............................................. 330,050 4,000 American Express Co. ....................................... 520,500 6,112 American International Group Inc. .......................... 715,486 14,400 Associates First Capital Corp. ............................. 638,100 9,962 Bank of America Corp. ...................................... 730,339 5,400 BankBoston Corp. ........................................... 276,075 13,300 Chase Manhattan Corp. ...................................... 1,152,113 450 DLJdirect................................................... 13,275 9,400 Freddie Mac................................................. 545,200 10,000 Hartford Financial Services Group, Inc. .................... 583,125 14,000 IndyMac Mortgage Holdings, Inc. ............................ 224,000 14,000 Lincoln National Corp. ..................................... 732,375 11,800 Provident Cos., Inc. ....................................... 472,000 13,300 St. Paul Cos., Inc. ........................................ 423,106 6,800 State Street Corp. ......................................... 580,550 6,000 Transamerica Corp. ......................................... 450,000 2,540 Washington Mutual, Inc. .................................... 89,852 - ----------------------------------------------------------------------------------------- 9,089,171 - ----------------------------------------------------------------------------------------- HEALTH CARE -- 9.3% 16,400 Amgen Inc. (a).............................................. 998,350 11,400 C. R. Bard, Inc. ........................................... 545,063 12,000 DENTSPLY International, Inc. ............................... 336,000 20,000 HEALTHSOUTH Corp. .......................................... 298,750 6,200 Johnson & Johnson........................................... 607,600 11,600 Merck & Co., Inc. .......................................... 858,400 2,400 Pfizer, Inc. ............................................... 263,400 17,700 Schering-Plough Corp. ...................................... 938,100 7,200 Stryker Corp. .............................................. 432,900 10,000 Tenet Healthcare Corp. (a).................................. 185,625 - ----------------------------------------------------------------------------------------- 5,464,188 - -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 41 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- TECHNOLOGY -- 15.0% 17,200 Automatic Data Processing, Inc. ............................ $ 756,800 20,700 Cisco Systems Inc. (a)...................................... 1,335,150 19,000 Compaq Computer Corp. ...................................... 450,063 15,000 Electronic Data Systems Corp. .............................. 848,438 28,000 EMC Corp. (a)............................................... 1,540,000 10,400 Intel Corp. ................................................ 618,800 8,800 International Business Machines Corp. ...................... 1,137,400 10,400 Lucent Technologies Corp. .................................. 701,350 6,200 Sun Microsystems Inc. (a)................................... 427,025 15,800 Xerox Corp. ................................................ 933,187 - ----------------------------------------------------------------------------------------- 8,748,213 - ----------------------------------------------------------------------------------------- TRANSPORTATION -- 3.6% 31,700 Norfolk Southern Corp. ..................................... 954,963 14,125 Southwest Airlines Co. ..................................... 439,641 15,000 USFreightways Corp. ........................................ 694,687 - ----------------------------------------------------------------------------------------- 2,089,291 - ----------------------------------------------------------------------------------------- UTILITIES -- 3.7% 9,100 AES Corp. .................................................. 528,938 11,000 Enron Corp. ................................................ 899,250 17,200 Williams Cos., Inc. ........................................ 732,075 - ----------------------------------------------------------------------------------------- 2,160,263 - ----------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $35,648,026).................... 53,398,863 =========================================================================================
FACE AMOUNT SECURITY VALUE - ----------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 8.7% $5,106,000 CS First Boston Corp., 4.800% due 7/1/99; Proceeds at maturity -- $2,512,225; (Fully collateralized by U.S. Treasury Notes, 5.375% due 1/31/00; Market value -- $2,561,220) (Cost -- $5,106,000)................... 5,106,000 - ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $40,754,026*)............ $58,504,863 =========================================================================================
(a) Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 42 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 UTILITIES PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- COMMON STOCK -- 95.8% - --------------------------------------------------------------------------------------- BROADCASTING & CABLE -- 4.2% 20,000 MediaOne Group, Inc. ....................................... $ 1,487,500 - --------------------------------------------------------------------------------------- COMMUNICATIONS - EQUIPMENT -- 0.7% 4,650 Covad Communications Group, Inc.+........................... 247,904 - --------------------------------------------------------------------------------------- ELECTRIC - UTILITIES -- 57.4% 20,000 Allegheny Energy, Inc. ..................................... 641,250 1,000 American Electric Power Co., Inc.+.......................... 37,562 20,000 BEC Energy.................................................. 825,000 7,500 Calpine Corp. .............................................. 405,000 15,000 Cinergy Corp. .............................................. 480,000 25,000 CMS Energy Corp. ........................................... 1,046,875 30,000 DQE, Inc. .................................................. 1,203,750 11,000 Duke Energy Corp. .......................................... 598,125 21,800 Edison International........................................ 583,150 25,000 El Paso Energy Corp. ....................................... 879,687 20,000 Energy East Corp. .......................................... 520,000 29,000 FirstEnergy Corp. .......................................... 899,000 20,000 Florida Progress Corp. ..................................... 826,250 10,000 FPL Group, Inc. ............................................ 546,250 20,000 GPU, Inc. .................................................. 843,750 20,000 Illinova Corp. ............................................. 545,000 15,000 The Montana Power Co. ...................................... 1,057,500 11,000 New Century Energies, Inc. ................................. 426,937 53,000 Niagara Mohawk Holdings Inc.+............................... 851,312 20,000 NiSource Inc. .............................................. 516,250 30,000 Northeast Utilities+........................................ 530,625 20,000 Northern States Power Co. .................................. 483,750 21,000 PECO Energy Co. ............................................ 879,375 25,000 Pinnacle West Capital Corp. ................................ 1,006,250 10,000 Public Service Enterprise Group Inc. ....................... 408,750 10,000 Reliant Energy, Inc. ....................................... 276,250 15,000 SCANA Corp. ................................................ 350,625 25,000 Sierra Pacific Resources.................................... 909,375 10,000 Texas Utilities Co. ........................................ 412,500 30,000 Unicom Corp. ............................................... 1,156,875 - --------------------------------------------------------------------------------------- 20,147,023 - --------------------------------------------------------------------------------------- NATURAL GAS -- 14.8% 16,000 Coastal Corp. .............................................. 640,000 10,000 Consolidated Natural Gas Co. ............................... 607,500 22,000 Energen Corp. .............................................. 409,750 15,000 MCN Energy Group Inc. ...................................... 311,250 15,000 MDU Resources Group, Inc. .................................. 342,188 15,000 National Fuel Gas Co. ...................................... 727,500 20,000 Sempra Energy............................................... 452,500
SEE NOTES TO FINANCIAL STATEMENTS. 43 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 UTILITIES PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- NATURAL GAS -- 14.8% (CONTINUED) 20,000 Southwest Gas Corp. ........................................ $ 572,500 26,000 The Williams Cos., Inc. .................................... 1,106,625 - --------------------------------------------------------------------------------------- 5,169,813 - --------------------------------------------------------------------------------------- TELEPHONE -- 18.7% 9,450 AT&T Corp. ................................................. 527,429 10,000 Bell Atlantic Corp. ........................................ 653,750 10,000 GTE Corp. .................................................. 757,500 20,000 MCI Worldcom, Inc. ......................................... 1,725,000 8,000 NEXTLINK Communications, Inc.+.............................. 595,000 12,000 Qwest Communications International Inc.+.................... 396,750 20,000 SBC Communications Inc. .................................... 1,160,000 14,000 Sprint Corp. (Fon Group).................................... 739,375 - --------------------------------------------------------------------------------------- 6,554,804 - --------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $25,891,120).................... 33,607,044 =======================================================================================
FACE AMOUNT RATING(a) SECURITY VALUE - ------------------------------------------------------------------------------------------------------ CORPORATE BONDS -- 1.2% - ------------------------------------------------------------------------------------------------------ ELECTRIC - UTILITIES -- 0.6% $200,000 A- Arizona Public Service Co., 7.250% due 8/1/23............... 190,500 - ------------------------------------------------------------------------------------------------------ TELEPHONE -- 0.6% 230,000 A- MCI Communications Corp., 7.750% due 3/23/25................ 225,112 - ------------------------------------------------------------------------------------------------------ TOTAL CORPORATE BONDS (Cost -- $404,813).................... 415,612 - ------------------------------------------------------------------------------------------------------ U.S. TREASURY OBLIGATIONS -- 1.4% 500,000 U.S. Treasury Notes, 7.750% due 11/30/99 (Cost -- $499,969).......................................... 505,545 - ------------------------------------------------------------------------------------------------------ REPURCHASE AGREEMENT -- 1.6% 551,000 CS First Boston, 4.800% due 7/1/99; Proceeds at maturity -- $551,073; (Fully Collateralized by U.S. Treasury Notes, 6.875% due 3/31/00; Market value -- $562,316) (Cost -- $551,000).......................................... 551,000 - ------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100% (Cost -- $27,346,902**)........... $35,079,201 ======================================================================================================
+ Non-income producing security. (a) All ratings are by Standard & Poor's Ratings Service, except those identified by an asterisk (*) which are rated by Moody's Investors Service Inc. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 45 for definitions of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 44 - -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to "C" may be modified by the addition of a plus (+) or a minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issue only in a small degree. A -- Bonds rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB, B -- Bonds rated "BB" and "B" are regarded, on balance, as and CCC predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents a lower degree of speculation than "B", and "CCC" the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C -- The rating "C" is reserved for income bonds on which no interest is being paid. D -- Bonds rated "D" are in default, and payment of interest and/or repayment of principal is in arrears.
Moody's Investors Service Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating from "Aa" to "C", where 1 is the highest and 3 the lowest rating within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A -- Bonds rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered to be medium grade obligations; that is, they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. These bonds lack outstanding investment characteristics and may have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated "Caa" are of poor standing. These issues may be in default, or present elements of danger may exist with respect to principal or interest. Ca -- Bonds rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
45 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at value (Cost -- $63,690,383, $40,754,026 and $27,346,902, respectively)........ $60,865,977 $58,504,863 $35,079,201 Cash................................................. 986 331 -- Dividends and interest receivable.................... 607,134 26,552 106,571 Receivable for securities sold....................... -- -- 646,484 Other assets......................................... 8,484 -- -- - ------------------------------------------------------------------------------------------------------------- TOTAL ASSETS......................................... 61,482,581 58,531,746 35,832,256 - ------------------------------------------------------------------------------------------------------------- LIABILITIES: Investment advisory fees payable..................... 16,088 32,000 20,876 Administration fees payable.......................... 3,133 3,008 1,927 Payable to bank...................................... -- -- 20,775 Payable for securities purchased..................... -- -- 532,370 Accrued expenses..................................... 3,721 16,588 17,706 - ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.................................... 22,942 51,596 593,654 - ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS....................................... $61,459,639 $58,480,150 $35,238,602 ============================================================================================================= NET ASSETS: Paid-in capital...................................... $63,843,195 $40,206,222 $27,035,165 Undistributed net investment income.................. 1,781,892 188,126 436,612 Accumulated net realized gain (loss) from security transactions...................................... (1,341,042) 334,965 34,526 Net unrealized appreciation (depreciation) of investments....................................... (2,824,406) 17,750,837 7,732,299 - ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS....................................... $61,459,639 $58,480,150 $35,238,602 ============================================================================================================= SHARES OUTSTANDING..................................... 5,422,040 2,044,339 2,121,529 - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE............................. $11.34 $28.61 $16.61 - -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 46 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest................................................ $ 1,931,497 $ 113,478 $ 64,754 Dividends............................................... -- 288,362 520,780 Less: Foreign withholding tax........................... -- (17,313) -- - ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................. 1,931,497 384,527 585,534 - ------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2)....................... 102,536 153,762 110,913 Administration fees (Note 2)............................ 18,889 14,269 10,238 Audit and legal......................................... 15,500 15,500 15,500 Shareholder and system servicing fees................... 4,500 4,500 4,500 Custody................................................. 2,000 2,000 1,500 Shareholder communications.............................. 2,000 2,500 1,900 Trustees' fees.......................................... 1,870 1,870 1,870 Registration fees....................................... -- 1,000 500 Pricing service fees.................................... 350 -- -- Other................................................... 1,960 1,000 2,001 - ------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES.......................................... 149,605 196,401 148,922 - ------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME..................................... 1,781,892 188,126 436,612 - ------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3): Realized Gain (Loss) From Security Transactions (excluding short-term securities): Proceeds from sales.................................. 35,718,570 2,371,803 2,035,717 Cost of securities sold.............................. 36,715,339 2,025,896 2,001,194 - ------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS)................................ (996,769) 345,907 34,523 - ------------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation of Investments: Beginning of period.................................. 471,702 12,473,196 6,697,308 End of period........................................ (2,824,406) 17,750,837 7,732,299 - ------------------------------------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION).... (3,296,108) 5,277,641 1,034,991 - ------------------------------------------------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS............................ (4,292,877) 5,623,548 1,069,514 - ------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... $(2,510,985) $5,811,674 $1,506,126 =============================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 47 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income............................ $ 1,781,892 $ 188,126 $ 436,612 Net realized gain (loss)......................... (996,769) 345,907 34,523 Change in net unrealized appreciation (depreciation)................................ (3,296,108) 5,277,641 1,034,991 - ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.................................... (2,510,985) 5,811,674 1,506,126 - ------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income............................ (5,474) (185,510) (791,288) Net realized gains............................... -- (952,059) (1,799,094) - ------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.................................. (5,474) (1,137,569) (2,590,382) - ------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 8): Net proceeds from sale of shares................. 8,151,550 13,417,635 4,587,273 Net asset value of shares issued for reinvestment of dividends.................................. 5,474 1,137,569 2,590,382 Cost of shares reacquired........................ (10,634,936) (231,412) (3,763,847) - ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS.................................. (2,477,912) 14,323,792 3,413,808 - ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS.................. (4,994,371) 18,997,897 2,329,552 NET ASSETS: Beginning of period.............................. 66,454,010 39,482,253 32,909,050 - ------------------------------------------------------------------------------------------------------- END OF PERIOD*................................... $ 61,459,639 $58,480,150 $35,238,602 ======================================================================================================= * Includes undistributed net investment income of:........................................... $1,781,892 $188,126 $436,612 - -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 48 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income............................ $ 2,553,087 $ 185,510 $ 793,468 Net realized gain................................ 3,015,324 952,131 1,796,917 Increase (decrease) in net unrealized appreciation.................................. (1,235,350) 7,147,456 1,908,703 - ------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS........... 4,333,061 8,285,097 4,499,088 - ------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income............................ (2,585,952) (156,005) (643,885) Net realized gains............................... (2,807,849) (535,723) (609,017) - ------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.................................. (5,393,801) (691,728) (1,252,902) - ------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 8): Net proceeds from sale of shares................. 37,655,108 12,345,818 10,648,592 Net asset value of shares issued for reinvestment of dividends.................................. 5,393,801 691,728 1,252,902 Cost of shares reacquired........................ (10,813,602) (2,161,874) (3,651,686) - ------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS.................................. 32,235,307 10,875,672 8,249,808 - ------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS............................. 31,174,567 18,469,041 11,495,994 NET ASSETS: Beginning of year................................ 35,279,443 21,013,212 21,413,056 - ------------------------------------------------------------------------------------------------------- END OF YEAR*..................................... $ 66,454,010 $39,482,253 $32,909,050 ======================================================================================================= * Includes undistributed net investment income of:........................................... $5,474 $185,510 $791,288 - -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 49 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The U.S. Government Securities, Social Awareness Stock and Utilities Portfolios (collectively, "Portfolio(s)") are separate investment portfolios of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company and consists of these portfolios and 16 other separate investment portfolios: Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, Large Cap, Equity Income, Disciplined Mid Cap Stock, Convertible Bond, Strategic Stock, Disciplined Small Cap Stock, MFS Mid Cap Growth, MFS Research, Zero Coupon Bond Fund Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio Series 2005 Portfolios. Shares of the Trust are offered only to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts. The financial statements and financial highlights for the other portfolios are presented in separate shareholder reports. The significant accounting policies consistently followed by the Portfolios are: (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing prices on such markets; securities for which no sales prices were reported and U.S. Government and Agency obligations are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from reputable brokers or other recognized sources; (c) securities for which market quotations are not available will be valued in good faith at fair value by or under the direction of the Board of Trustees; (d) securities maturing within 60 days are valued at cost plus accreted discount, or minus amortized premium, which approximates value; (e) securities, other than U.S. government agencies and obligations, that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (f) interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis and dividend income is recorded on the ex-dividend date; (g) gains or losses on the sale of securities are calculated by using the specific identification method; (h) dividends and distributions to shareholders are recorded on the ex-dividend date; (i) the Portfolios intend to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; (j) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. At December 31, 1998, reclassifications were made to the capital accounts of the U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Utilities Portfolio to reflect permanent book/tax differences and income and gains available for distribution under income tax regulations. Accordingly, for the Social Awareness Stock Portfolio, a portion of undistributed net investment income amounting to $44 and a portion of accumulated net realized gains amounting to $23 was reclassified to paid-in capital. In addition, for the Utilities Portfolio, a portion of undistributed net investment income amounting to $45 and a portion of accumulated net realized gains amounting to $115 was reclassified to paid-in capital. Net investment income, net realized gains and net assets for each Portfolio were not affected by these changes; and (k) estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Corporation ("TAMIC"), an indirect wholly owned subsidiary of Citigroup, Inc., acts as investment manager and advisor to the U.S. Government Securities Portfolio ("USGS"). USGS pays TAMIC an investment management and advisory fee calculated at the annual rate of 0.3233% of its average daily net assets. This fee is calculated daily and paid monthly. SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH") and an indirect wholly owned subsidiary of Citigroup, Inc., acts as investment manager and advisor to the Social Awareness Stock ("SAS") and Utilities ("Utilities") Portfolios. SAS pays SSBC an investment management and advisory fee calculated at an annual rate of: 0.65% on the first $50 million, 0.55% on the next $50 million, 0.45% on the next $100 million and 0.40% on amounts over $200 million of the average daily net assets. Utilities pays SSBC investment management and advisory fees calculated at an annual rate of 0.65% of the average daily net assets. These fees are calculated daily and paid monthly. 50 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Travelers Insurance Company ("Travelers Insurance") acts as administrator to the Portfolios. The Portfolios pay Travelers Insurance an administration fee calculated at an annual rate of 0.06% of the average daily net assets. Travelers Insurance has entered into a sub-administrative services agreement with SSBC. Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% of the average daily net assets of each Portfolio. This fee is calculated daily and paid monthly. One Trustee and all officers of the Trust are employees of Citigroup, Inc., or its subsidiaries. 3. INVESTMENTS During the six months ended June 30, 1999, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows:
USGS SAS UTILITIES - ---------------------------------------------------------------------------------------------------- Purchases................................................... $38,881,925 $13,093,687 $4,641,969 - ---------------------------------------------------------------------------------------------------- Sales....................................................... 35,718,570 2,371,803 2,035,717 ====================================================================================================
At June 30, 1999, aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
USGS SAS UTILITIES - ---------------------------------------------------------------------------------------------------- Gross unrealized appreciation............................... $ 116,631 $18,600,278 $8,162,760 Gross unrealized depreciation............................... (2,941,037) (849,441) (430,461) - ---------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation).................. $(2,824,406) $17,750,837 $7,732,299 ====================================================================================================
4. REPURCHASE AGREEMENTS The Portfolios purchase (and their custodian takes possession of) U.S. Government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Portfolios require continual maintenance of the market value of the collateral in amounts at least equal to the repurchase price. 5. FUTURES CONTRACTS Initial margin deposits made upon entering into futures contracts are recognized as assets. The initial margin is segregated by the custodian and is noted in the schedule of investments. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Portfolios record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Portfolio's basis in the contract. The Portfolios enter into such contracts to hedge portions of their respective portfolios. The Portfolios bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). At June 30, 1999, the Portfolios had no open futures contracts. 51 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. OPTIONS CONTRACTS Premiums paid when put or call options are purchased by the Portfolios, represent investments, which are "marked-to-market" daily. When a purchased option expires, the Portfolios will realize a loss in the amount of the premium paid. When the Portfolios enter into closing sales transactions, the Portfolios will realize a gain or loss depending on whether the proceeds from the closing sales transactions are greater or less than the premium paid for the option. When the Portfolios exercise a put option, they will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Portfolios exercise a call option, the cost of the security which the Portfolios purchase upon exercise will be increased by the premium originally paid. At June 30, 1999, the Portfolios had no open purchased call or put options contracts. 7. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS The Portfolios may trade securities on a "to-be-announced" ("TBA") basis. In a TBA transaction, the Portfolios commit to purchasing or selling securities for which specific information is not yet known at the time of the trade, particularly the face amount and maturity date in GNMA/FNMA transactions. Securities purchased on a TBA basis are not settled until they are delivered to the Portfolios, normally 15 to 45 days later. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. At June 30, 1999, the Portfolios held no TBA securities. 8. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Portfolio were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 - -------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES PORTFOLIO Shares sold................................................. 702,052 3,036,112 Shares issued on reinvestment............................... 489 457,035 Shares reacquired........................................... (912,591) (888,165) - ---------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... (210,050) 2,604,982 ============================================================================================== SOCIAL AWARENESS STOCK PORTFOLIO Shares sold................................................. 488,206 542,975 Shares issued on reinvestment............................... 40,998 29,867 Shares reacquired........................................... (8,340) (96,777) - ---------------------------------------------------------------------------------------------- Net Increase................................................ 520,864 476,065 ============================================================================================== UTILITIES PORTFOLIO Shares sold................................................. 270,208 663,583 Shares issued on reinvestment............................... 154,824 80,676 Shares reacquired........................................... (218,804) (229,307) - ---------------------------------------------------------------------------------------------- Net Increase................................................ 206,228 514,952 ==============================================================================================
52 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
U.S. GOVERNMENT SECURITIES PORTFOLIO 1999(1)(2) 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD...... $11.80 $11.65 $10.86 $12.43 $10.58 $11.63 - ----------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income................... 0.32 0.49 0.58 0.68 0.65 0.60 Net realized and unrealized gain (loss)............................... (0.78) 0.70 0.79 (0.52) 1.80 (1.23) - ----------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations....... (0.46) 1.19 1.37 0.16 2.45 (0.63) - ----------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM (3): Net investment income................... (0.00)* (0.50) (0.58) (1.55) (0.60) (0.39) Net realized gains...................... -- (0.54) -- (0.18) -- (0.03) - ----------------------------------------------------------------------------------------------------------------------- Total Distributions....................... (0.00)* (1.04) (0.58) (1.73) (0.60) (0.42) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD............ $11.34 $11.80 $11.65 $10.86 $12.43 $10.58 - ----------------------------------------------------------------------------------------------------------------------- TOTAL RETURN.............................. (3.89)%++ 10.20% 12.62% 1.46% 24.42% (5.64)% - ----------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)......... $61,460 $66,454 $35,279 $26,009 $28,192 $24,522 - ----------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses................................ 0.48%+ 0.45% 0.49% 0.62% 0.56% 0.71% Net investment income................... 5.66+ 5.31 6.10 5.68 5.80 5.56 - ----------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE................... 59% 349% 208% 501% 214% 16% - -----------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO 1999(1)(2) 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD...... $25.92 $20.06 $15.76 $14.32 $11.05 $11.64 - ----------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income (4)............... 0.07 0.10 0.15 0.31 0.12 0.16 Net realized and unrealized gain (loss)............................... 3.19 6.30 4.15 2.42 3.47 (0.45) - ----------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations....... 3.26 6.40 4.30 2.73 3.59 (0.29) - ----------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM (3): Net investment income................... (0.09) (0.12) -- (0.43) (0.14) (0.24) Net realized gains...................... (0.48) (0.42) -- (0.86) (0.18) (0.06) - ----------------------------------------------------------------------------------------------------------------------- Total Distributions....................... (0.57) (0.54) -- (1.29) (0.32) (0.30) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD............ $28.61 $25.92 $20.06 $15.76 $14.32 $11.05 - ----------------------------------------------------------------------------------------------------------------------- TOTAL RETURN.............................. 12.65%++ 32.27% 27.28% 19.98% 33.37% (2.69)% - ----------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)......... $58,480 $39,482 $21,013 $11,040 $7,055 $3,879 - ----------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (4)(5)......................... 0.82%+ 0.84% 0.98% 1.25% 1.25% 1.25% Net investment income................... 0.79+ 0.63 0.97 0.43 0.99 1.43 - ----------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE................... 5% 14% 19% 26% 73% 137% - -----------------------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) Distributions from realized gains include both net realized short-term and long-term capital gains. Prior to 1996 net realized short-term capital gains were included in distributions from net investment income. (4) For the year ended December 31, 1996, The Travelers reimbursed the Social Awareness Stock Portfolio for $25,093 in expenses. If such fees were not waived and expenses not reimbursed, the per share decrease of net investment income would have been $0.06 and the actual expense ratio would have been 1.69%. (5) The ratios of expenses to average net assets for the years ended December 31, 1995 and 1994 reflect an expense reimbursement by The Travelers in connection with voluntary expense limitations. Without the expense reimbursements, the ratios of expenses to average net assets would have been 1.75% and 3.34%, respectively. * Amount represents less than $0.01 per share. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 53 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
UTILITIES PORTFOLIO 1999(1)(2) 1998 1997 1996 1995 1994(3) - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD....... $17.18 $15.29 $12.22 $12.85 $10.17 $10.00 - ------------------------------------------------------------------------------------------------------------------------ INCOME FROM OPERATIONS: Net investment income.................... 0.20 0.37 0.46 0.47 0.48 0.35 Net realized and unrealized gain (loss)................................ 0.55 2.33 2.63 0.47 2.44 (0.18) - ------------------------------------------------------------------------------------------------------------------------ Total Income From Operations............... 0.75 2.70 3.09 0.94 2.92 0.17 - ------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM (4): Net investment income.................... (0.40) (0.42) (0.01) (0.84) (0.24) -- Net realized gains....................... (0.92) (0.39) (0.01) (0.73) -- - ------------------------------------------------------------------------------------------------------------------------ Total Distributions........................ (1.32) (0.81) (0.02) (1.57) (0.24) -- - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD............. $16.61 $17.18 $15.29 $12.22 $12.85 $10.17 - ------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN............................... 4.31%++ 18.21% 25.29% 7.47% 29.29% 1.70%++ - ------------------------------------------------------------------------------------------------------------------------ NET ASSETS, END OF PERIOD (000'S).......... $35,239 $32,909 $21,413 $18,214 $15,340 $5,757 - ------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses (5)............................. 0.87%+ 0.80% 1.06% 1.07% 1.25% 1.25%+ Net investment income.................... 2.54+ 3.06 3.58 3.88 4.29 3.86+ - ------------------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE.................... 6% 51% 68% 39% 25% 32% - ------------------------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from February 4, 1994 (commencement of operations) to December 31, 1994. (4) Distributions from realized gains include both net realized short-term and long-term capital gains. Prior to 1996 net realized short-term capital gains were included in distributions from net investment income. (5) The ratios of expenses to average net assets for the year ended December 31, 1995 and the period ended December 31, 1994 reflect expense reimbursements by The Travelers in connection with voluntary expense limitations. Without the expense reimbursements, the ratios of expenses to average net assets would have been 1.27% and 3.49% (annualized), respectively. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 54 This page intentionally left blank. This page intentionally left blank. Investment Advisers -------------------- MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY MARKET PORTFOLIO AND THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION Hartford, Connecticut THE TRAVELERS SERIES TRUST: SOCIAL AWARENESS STOCK PORTFOLIO AND UTILITIES PORTFOLIO SSBC FUND MANAGEMENT INC. New York, New York Independent Auditors --------------------- KPMG LLP New York, New York Custodian ---------- PNC BANK, N.A. This report is prepared for the general information of contract owners and is not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund, Money Market Portfolio, The Travelers Series Trust: U.S. Government Securities Portfolio, Social Awareness Stock Portfolio or Utilities Portfolio. It should not be used in connection with any offer except in conjunction with the Prospectuses for the Variable Annuity and Variable Universal Life Insurance products offered by The Travelers Insurance Company or Travelers Life & Annuity Company and the Prospectuses for the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. Printed in U.S.A. VG-181 (Semi-Annual)(8-99) THE TRAVELERS VARIABLE PRODUCTS FUNDS SEMI-ANNUAL REPORTS June 30, 1999 The Travelers Series Trust: Travelers Quality Bond Portfolio Lazard International Stock Portfolio MFS Emerging Growth Portfolio Federated High Yield Portfolio Federated Stock Portfolio Disciplined Mid Cap Stock Portfolio [TravelersLife&Annuity A member of citigroup LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Tower Square Hartford, CT 06183 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- DEAR SHAREHOLDER: We are pleased to provide the semi-annual report for six of the fourteen portfolios of The Travelers Series Trust -- Travelers Quality Bond Portfolio, Lazard International Stock Portfolio, MFS Emerging Growth Portfolio, Federated High Yield Portfolio, Federated Stock Portfolio and Disciplined Mid Cap Stock Portfolio ("Portfolios") for the period ended June 30, 1999. In this letter, we briefly discuss general economic and market conditions and outline each Portfolio's investment strategy. A market commentary and detailed summary of performance and current holdings for each Portfolio or Fund can be found on the pages listed below.
MARKET SCHEDULE OF SUBACCOUNT COMMENTARY INVESTMENTS - ---------- ---------- ----------- Travelers Quality Bond Portfolio...................... 3 11 Lazard International Stock Portfolio.................. 3 13 MFS Emerging Growth Portfolio......................... 4 16 Federated High Yield Portfolio........................ 4 28 Federated Stock Portfolio............................. 5 38 Disciplined Mid Cap Stock Portfolio................... 6 42
ECONOMIC UPDATE The first half of 1999 was a period of economic growth at home and recovery abroad. Following the events surrounding the Russian debt default in August of 1998 -- which included a dive in bond yields and a 0.75% decrease in interest rates -- yields have recovered quite well. Investor optimism, however, was tempered by concerns about inflation, interest rates, and continued economic growth. EQUITY MARKET COMMENTARY The year began on a volatile note for global financial markets as a new threat emerged in Latin America. The devaluation of the Brazilian currency raised concerns for U.S. companies with exposure to Latin America and took its toll on the stock market in the middle of January. The Dow Jones Industrial Average ("DJIA") swung from intra-day levels of above 9700 to below 9000. Stock prices did recover, however, to finish higher at the end of January. Interest rate concerns dominated market psychology during February. Despite low inflation, interest rates moved higher amid fears of Federal Reserve Board ("Fed") tightening in response to the strong U.S. economy. In February, the yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market valuations became a concern as investors focused on the rise in interest rates, the lack of a substantial earnings recovery and high price/earnings multiples. During the month of March, market sentiment reversed and investors focused on the reality of DJIA 10,000. After repeated assaults, the DJIA did reach 10,000 on March 16, 1999, retreated and then went on to close at 10,006 on March 29. Economic activity remained brisk and it became obvious that first quarter Gross Domestic Product ("GDP") growth would be above expectations. Consumer prices rose 0.1% in February up 1.6% from the prior year. The Standard & Poor's ("S&P") 500 Index gained 5.0% in the first quarter of 1999. The S&P 400 Mid Cap Index fell by 6.4% while the Russell 2000 Index declined by 5.4%. The S&P 500 Growth Index produced a 6.9% total return, outpacing the 2.9% total return of the S&P 500 Value Index. All sectors except consumer staples (-11%) registered respectable gains in the first quarter of 1999. The market rally was led by the energy services (22%) and technology (9%) sectors. The financial services (7%) and consumer discretionary (6%) sectors also performed well. Despite a rise in interest rates in the second quarter, the U.S. stock market finished firmly in positive territory. Evidence of stronger-than-expected economic growth prompted hopes of a meaningful earnings recovery during the quarter and, at the same time, triggered concerns about rising interest rates. This led to a rally in small cap and value stocks. Interest rates began to climb in the month of May as investors worried about inflation concerns on the heels of recent economic strength. First quarter GDP growth was revised down to 4.1% from 4.5%, but other indicators provided evidence of continued strength in the economy. The stock market sagged during May under the burden of lofty valuations and higher rates. 1 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- The Fed took center stage in the month of June as investors anxiously awaited its next monetary policy move. Even though inflation data released in June was lower than consensus expectations, the bond and stock markets had clearly anticipated a 25 basis point rate hike as a result of unexpected economic strength. The decision to raise the federal-funds rate by 25 basis points on June 30, 1999, therefore, came as no surprise and markets rallied when the Fed announced that it had now switched to a neutral bias in monetary policy. The rotation into value and small cap stocks began in the middle of April and continued through May. This trend reversed in June, as investors became comfortable that a proactive Fed policy would pre-empt inflation and keep interest rates in check. The S&P 500 Index advanced by 7.1% in the second quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return, outpacing the 3.8% total return of the S&P 500 Growth Index. All sectors within the S&P 500 except health care (-4%) registered respectable gains in the second quarter. The economically sensitive, value-oriented materials and processing (19%), energy services (14%) and producer durables (14%) sectors led the market rally. The utilities (13%) and technology (10%) sectors also performed well. The focus in the U.S. stock market has now switched from the earnings front to the future direction of interest rates. The early second quarter earnings reports project a healthy growth in corporate profits from the prior year. With the stock market now trading well above DJIA 10,000 and at unprecedented valuation levels, any further increase in interest rates could trigger a compression in the price/earnings multiple for the stock market. FIXED INCOME MARKET COMMENTARY The long anticipated slowdown in U.S. economic activity again failed to happen during the reporting period. Global stock markets continued to rise led by better than expected profit growth and continued merger and acquisition activity. The risks of higher U.S. economic growth were more fairly reflected in the yield curve in the U.S. at the end of the first quarter of 1999 than they were at the beginning. The stronger than expected growth caused interest rates to rise in the first quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The Lehman Government/Corporate Index declined about 1.2% in the first quarter of 1999. U.S. Treasuries underperformed as spreads narrowed in all sectors. During the first half of 1999, U.S. economic growth continued at a robust pace, posting a 4.1% annualized GDP growth rate for the first quarter of 1999. Furthermore, the labor market continued to be extremely tight, as the unemployment rate fell to a 29-year low of 4.2% in March. Defying the expectations of many economists, inflation -- as measured by the Consumer Price Index ("CPI") -- was virtually absent. Productivity gains and sagging global demand were credited with keeping inflation under control. However, in the month of April, the CPI rose by 0.7%, its largest monthly increase in nine years. This, coupled with signs that many world economies were in the nascent stages of growth and recovery, deepened fears that inflationary pressures were reaching a breaking point. These concerns brought about an increase in the yield of the benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April 8 and June 24 to close at 6.16%. To counter these inflationary pressures, the Fed raised short-term interest rates by 0.25% in late June, and subsequently adopted a neutral stance on monetary policy. Meanwhile, during the months of May and June, the CPI remained unchanged, generating considerable optimism that inflation had retreated. Further reports that of rising U.S. jobless claims added to the optimism. The unwillingness of consumer spending to slow down keeps the Fed's monetary policy on watch. With the world economic crisis abating, we cannot rule out the possibility of the Fed raising rates before year-end. However, in our view, the most likely case is that the Fed's monetary policy will remain neutral through the third quarter of 1999. By next year, we think that nominal growth should slow below 5% and may allow room for additional short-term rates cuts. However, if global economic growth accelerates unexpectedly and signs of inflation emerge during the remainder of 1999, the Fed will not hesitate to raise rates again. 2 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- TRAVELERS QUALITY BOND PORTFOLIO The Travelers Quality Bond Portfolio seeks current income, moderate capital volatility and total return. For the six months ended June 30, 1999, the Portfolio posted a 0.06% total return versus the Lehman Government/Corporate Bond Index of negative 2.28%. (The Lehman Government/Corporate Bond Index is a combination of publicly issued intermediate- and long-term U.S. government bonds and corporate bonds.) Rates rose during the second quarter of 1999. The Salomon Corporate Bond Index widened 12 basis points, with the 5-year U.S. Treasury bond ending up at 5.65%, up from 5.10%. In the view of the investment team, the rise in interest rates reflected continued market concern over strong U.S. economic growth. The market continues to price in the possibility of additional tightening by the Fed which is possible later this year if continued growth exceeds the Fed's estimates for GDP capacity. Current domestic economic statistics generally favor continued growth. In addition to monitoring market sentiment regarding the Fed's bias, the Portfolio's management team is closely watching price indices for signs of inflation and will continue to monitor the progress of global economic recovery. Strong corporate issuance has resulted in wider spreads and the Portfolio will remain overweighted in corporate bonds over the near term. Moreover, the Portfolio's management team continues to favor the energy sector and cyclical bonds. LAZARD INTERNATIONAL STOCK PORTFOLIO The Lazard International Equity Portfolio seeks capital appreciation through investing primarily in the stocks of non-U.S. companies (i.e., incorporated or organized outside the U.S.). The Portfolio had a total return of 4.66% for the six months ended June 30, 1999, the MSCI EAFE Index posted 3.97%. (The MSCI EAFE Index consists of the equity total returns for Europe, Australia, New Zealand and the Far East.) The last twelve months have been volatile for equity markets around the world. The Lazard International Stock Portfolio has been effected by record high stock markets as well as financial crises, unprecedented corporate consolidation, the beginning phases of the European Monetary Union (EMU) and even the fall and rise of the Brazilian market. Mergers, acquisitions, and restructuring drove equity markets to all time highs last summer before a sense of deja vu struck as an emerging market financial crisis sent markets tumbling with indiscriminate selling. The last several months have seen positive economic hopes and concerns influence stock price movements and corporate actions to improve financial productivity amidst heightening global competition. The Lazard International Stock Portfolio did not undergo any significant changes over the last twelve months. The investment philosophy remains based on value creation through bottom-up stock selection. This style enables Lazard to add value by evaluating companies the same way managements measure their own performance, by focusing on financial productivity and the long-term sustainability of returns. Lazard's investment team continues to find value opportunities in the international arena. Several strategic purchases have been made over the last twelve months including NTT Mobile Communications (Japan). At the time of purchase, NTT Mobile Communications had the most inexpensive cellular business globally, yet controlled a premier brand with dominant market share making it an attractive investment. Smithkline Beecham (UK), a particularly strong pharmaceutical company in the vaccine areas, also has a promising drug pipeline that was purchased in the fourth quarter of 1998. In addition, Endesa, Spain's dominant electric utility, was recently purchased. Other purchases included: Sankyo (Japan), Kao (Japan), Roche Holdings (Switzerland) and ING (Netherlands). Sales over the last year included Credit Suisse (Switzerland) and Wharf Holdings (Hong Kong). In addition, due to the deterioration of fundamentals, Lazard sold Fiat (Italy) and Dresdner Bank (Germany). Swisscom (Switzerland) was also removed from the Portfolio when it reached its target valuation. Despite the recent broadening of the market, and its benefit to diversified portfolios, the latest rotation of the market cycle should be carefully weighed. The vast changes that have taken place in the market over the past twenty-five years have forced the best managers to demand more than absolute valuations for their clients. Presaged by the volume of Merger & Acquisition activity over the past several years, during which large companies acquired undervalued smaller companies with a strong concentration on real financial productivity, the current environment has become newly competitive. Therefore, smaller companies must continue to streamline their operations to ensure an attractive level of capital efficiency. Similarly, portfolios with broad diversification should benefit in the new environment, as long as they take into account the financial 3 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- productivity of their value purchases. The rebound is unlikely to mimic the performance of the spring, but will most likely be stock by stock. The managers think that a thorough investigation of the companies themselves will be essential. MFS EMERGING GROWTH PORTFOLIO The MFS Emerging Growth Portfolio seeks to provide long-term growth of capital. For the six-months ended June 30, 1999, the Portfolio provided a total return of 12.57%. This compares to a 9.28% return for the Russell 2000 Index and a 12.38% return for the S&P 500 Index for the same period. (The Russell 2000 Index is made up of 2,000 smaller-capitalized U.S.-based companies whose common stocks trade on either the New York, American or Nasdaq stock exchanges. The S&P 500 Index is a capitalization-weighted measure of 500 widely held common stocks.) The Portfolio's performance was impacted by three important factors. First, the Portfolio has holdings in small, mid-sized, and large companies. Until early April, when the market began to broaden, its best-performing segment was made up of a narrow group of about 50 of the largest-company growth stocks in the S&P 500 Index, as well as some Internet stocks. As a result, prices of the large-company stocks, relative to their earnings, reached excessive levels. Now, investors have moved into a broader range of stocks that are selling at cheaper prices relative to their earnings. The managers think the broadening of the market should continue, and that should be a positive for the Portfolio because it invests in companies of all market capitalizations. Secondly, the Portfolio was affected by the fact that the managers have not invested in many of the Internet stocks. While they have been reluctant to own Internet companies that have unproven business models, they do own established companies such as Cisco Systems, which provides systems to support Internet traffic, and Oracle, which is the Internet database of choice. Many of the Internet stocks, including new companies that have shown no profit, performed very well in the early part of the year. However, when investors became nervous over their valuations, they rushed out of them. The team's investments in stocks with proven business models helped to protect the Portfolio somewhat from a decline in Internet stock speculation. The third factor has been the Portfolio's exposure to computer software companies. Many software companies have faced uncertainty over the Year 2000 ("Y2K") computer issue. Earlier this year, it looked like many businesses would reduce their spending on computer software and systems to give themselves time to ensure their existing systems were Y2K ready. Although it now looks like spending will not be cut as much as people feared, the stocks have been impacted. The manager thinks that the Y2K issue should be resolved by next spring. At that time, companies such as BMC Software and Computer Associates, which are dominant in their markets, should be among the best positioned in what they expect to be a very rapidly growing industry. Technology continues to be the Portfolio's largest sector. Companies are still increasing earnings growth by aggressively downsizing, restructuring and outsourcing many business functions. Technology allows these companies to be more productive without necessarily hiring more people. The team believes these trends will continue both domestically and internationally, benefiting holdings such as Microsoft and Compuware. Several of the Portfolio's telecommunications and media holdings also have performed well. MCI WorldCom is a dominant player in telecommunications and the backbone of worldwide cellular traffic. MediaOne, which is being acquired by AT&T, has been a big beneficiary of the growth of cable, both for entertainment and for Internet access. Also, after several years of not being able to increase prices, health maintenance organizations such as United HealthCare have been raising their rates, which should make them more profitable. Please note that the opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. FEDERATED HIGH YIELD PORTFOLIO The Federated High Yield Portfolio seeks high current income by investing primarily in a professionally managed, diversified portfolio of bonds. The Portfolio posted a total return of 3.46% for the six months ended June 30, 1999. In comparison, the Lehman Brothers High Yield Bond Index returned 2.20% for the six months versus a negative 1.37% for the Lehman Aggregate Index, a measure of high quality bond performance. (The Lehman Aggregate Bond Index is an unmanaged index 4 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- composed of the Lehman Intermediate Government/Corporate Bond Index and the Mortgage-Backed Securities Index and includes treasury issues, agency issues, corporate bond issues and mortgage-backed securities.) High yield bonds delivered excellent relative returns for the six months ending June 30, 1999. These returns were driven by continued strong domestic economic growth coupled with stable to improving foreign economies. Reflecting the strong domestic economic situation, the yield spread between the CS First Boston High Yield Index and a comparable U.S. Treasury security narrowed 83 basis points during the period. Given the bright economic outlook, the basic material sectors such as forest products, metals and mining were standouts while health care was a noticeable laggard as concerns about government reimbursements in the long term care segment negatively impacted the sector. In general, credit risk was rewarded as illustrated by the performance of the Lehman CCC Index, which returned 8.58%, while the BB and B indices returned 0.4% and 2.09% respectively. While relative returns were attractive, absolute returns were negatively impacted by rising interest rates in the high quality fixed income markets. Early in the period, the rise in interest rates was absorbed by spread tightening. However, from mid-May through the end of June, high yield bonds fell in price along with high quality bonds as rates continued to rise in anticipation of Fed tightening moves to protect against inflation. The Federated High Yield Portfolio outperformed both the Lehman High Yield Bond Index and the Lipper high current yield fund average for the period. Several factors led to the Portfolio's outperformance. First, the Portfolio was overweight in the telecommunication sector which outperformed the overall market. Also, within the telecommunications sector, the Portfolio had no exposure to the satellite segment as disappointments at Iridium, a satellite phone company, dragged the sector lower. In addition, the Portfolio was also underweight in health care which substantially underperformed and had little exposure to the long-term care segment within health care which led to the sector's problems. Specific holdings in Fox/Liberty and Metronet outperformed as stronger credits took operating control of both companies. Triton PCS, Telesystems International and Teligent, three aggressive telecommunications issuers, outperformed as lower quality issues surged. On the negative side, the Portfolio was underweight in the basic material sectors which outperformed given the strong economy. Also, positions in Jitney Jungle, a southern supermarket chain, Paging Network, the largest U.S. paging company and Stena Lines, a major European ferry operator, underperformed because of disappointing financial performance. Quality weightings both helped and hurt the Portfolio as the underweight in BB-rated securities helped performance while the underweight in the more aggressive CCC and non-rated sectors hurt performance especially versus the Lipper average. For the balance of 1999, the managers believe that high yield bonds offer attractive relative returns given strong domestic economic growth and stable to improving international economies. That in turn should lead to additional spread tightening between high yield bonds and Treasuries. Absolute returns will be influenced by the direction of interest rates. The June 30, 1999 hike in the federal-funds rate by the Federal Reserve Board signals its concern about strong economic growth leading to inflationary pressures and its willingness to raise rates to head off inflation. From a portfolio perspective, the Portfolio's Managers continue to be overweight in the telecommunications sector given the powerful secular growth characteristics of the sector. They remain biased to modestly decreasing interest rate risk and increasing credit risk given the strong economic conditions while also looking to increase exposure to basic materials. This bias will be carefully implemented given the rising trend in default rates. FEDERATED STOCK PORTFOLIO The Federated Stock Portfolio seeks to provide growth of income and capital by investing principally in a professionally managed and diversified portfolio of common stock of high quality companies. These companies generally are leaders in their industries and are characterized by sound management teams and the ability to finance future growth. For the six months ended June 30, 1999, the Portfolio had a total return of 13.08% versus the 11.88% and 12.38% total returns for the Lipper growth and income funds average index and the S&P 500, respectively. The six-month period ended June 30, 1999 was a strong continuation of the bull market with the S&P 500 Index returning 12.38%. The period started as 1998 had finished: strong market returns during the first quarter were provided by a handful of large capitalization growth stocks. However, market conditions shifted dramatically in April. Sparked by surprisingly strong first quarter 1999 earnings, a revival in oil prices and signs of a global economic recovery, market leadership rotated to a 5 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- broader group of cyclical, commodity and smaller capitalization stocks. After three years of returns being dominated by a limited list of large capitalization growth stocks, the perceived revival of global economic activity benefited areas of the market that had not been the "safe havens" from the global economic turmoil of the past two years and whose earnings should benefit with a marked increase in global growth. Due to this dramatic improvement in market breadth, the second quarter 1999 provided the average active equity manager their best performance relative to the S&P 500 Index in quite some time. Aiding performance relative to the S&P 500 for the half was favorable security performance in health care (United Healthcare, up 44% and Healthsouth, up 41%), retail trade and publishing, (Dillards, up 31% and News Corp., up 26%) and technology sectors (Sun Microsystems, up 61% and First Data, up 54%) as well as an underweight position in the poor performing consumer staples sector. Somewhat offsetting these positive influences was underweight positions in the technology and communication services sectors as well as unfavorable relative security performance in the telecommunications services (U.S. West, down 5%), transportation (Ryder Systems, down 1%) and insurance and finance sectors (Loews, down 19% and CIT Group, down 7%). The top six performing stocks in the Portfolio for the period were ENSCO International, up 87%, Sun Microsystems, up 61%, First Data, up 54%, Allied Signal, up 46% Morgan Stanley, up 45% and United Healthcare, up 44%. The bottom five performing stocks were Storage Technology, down 36%, Philip Morris, down 25%, Loews, down 19%, Unilever, down 18% and Tenneco, down 18%. The stock market outlook of the managers remains basically unchanged -- the market appears overvalued by all traditional measures, but no visible catalyst is positioned to change this. Money flows and investor sentiment remain quite strong. Relative to interest rates, the markets are extremely overvalued -- the dividend discount models maintained by the Federal Reserve Board and leading market strategists show that the S&P 500 is now more than 30% overvalued given the increase in interest rates during 1999. To offset this overvaluation relative to interest rates, the equity markets are betting on continued earnings strength and muted inflation. Real interest rates are extremely high as the bond market believes that inflation is around the corner. However, the equity markets, fueled by the Fed's late June neutral stance towards monetary policy, believe that technology and continued growth in productivity will keep inflation at bay. The market's April rotation toward cyclical and small capitalization stocks is both encouraging and frightening at the same time. On the plus side, an improvement in market breadth and the revival of some of the market's worst performing sectors indicates that the global economy is recovering and that a new overall market base is building onto which future market advances can move from. On the negative side, the rotation indicates that the low interest rates that have helped drive the performance of large growth stocks are no longer accepted as the norm and that one of the market's major underpinnings, low inflation, may be in question. The managers believe that the valuation disparities between ultra-large growth stocks and the rest of the market, combined with a strong near-term earnings outlook, can fuel a continuation of the market's rotation towards a broader array of value and smaller capitalization stocks. DISCIPLINED MID CAP STOCK PORTFOLIO The Disciplined Mid Cap Stock Portfolio seeks growth of capital by investing primarily in a broadly diversified portfolio of U.S. common stocks. For the six months ended June 30, 1999, the Portfolio posted a total return of 4.24%, comparing unfavorably to the 13.47% total return of the Lipper, Inc. peer group average. In addition, the Fund's performance lagged the 6.87% total return of S&P 400 Index. The Disciplined Mid Cap Stock Portfolio is managed to provide diversified exposure to the mid- and small-capitalization sector of the U.S. equity market. Stock selection is based on a disciplined quantitative screening process that favors companies that are able to grow earnings above consensus expectations and offer attractive relative value. In order to achieve consistent relative performance, the team manages the Portfolio to mirror the overall risk, sector weightings and growth/value style characteristics of the Standard & Poor's 400 Stock Index. 6 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- During the first quarter of 1999, stock selection in the consumer discretionary, transportation and utilities sectors had a positive impact on relative portfolio performance but proved to be adverse in the consumer staples and energy services sectors. In the consumer discretionary sector, Portfolio performance was helped by our emphasis on both strong earnings fundamentals and low valuation. In the transportation sector, emphasis on Alaska Air Group, with higher growth prospects, and Navistar International, which rose on takeover speculation from Volvo's interest in the company, helped performance. The Portfolio also benefited from avoiding earnings disappointments from SPX Corp and Meritor Automotive. In the utilities sector over the last several months, the managers have been emphasizing long-distance and cellular telephone companies such as Winstar Communications, Qwest Communication and Century Telephone at the expense of the local/regional telephone companies and the electric utilities group. (Please note as of June 30, 1999, some of the securities discussed in this report may no longer be held in the portfolio. In addition, the views discussed in this report are exclusively those of the portfolio's management and are not meant as investment advice.) In the consumer staples sector, the Portfolio was hurt by its overweight position in Suiza Foods, a leading producer of dairy products, where the threat of rising milk prices cast doubts on the near term earnings outlook. In the technology sector, a shortfall in relative performance came largely from being underweight stocks with poor recent earnings which bounced strongly in the second quarter. In the health care sector, biotech and drug stocks like Biogen, Forest Laboratories and Genzyme lost ground during the sell-off in growth stocks. Stocks such as Oxford Health Plans and ICN Pharmaceuticals, which had experienced large price declines in 1998 due to earnings problems, rebounded sharply in the second quarter. A similar theme was observed in the consumer discretionary sector where several down-and-out stocks like Callaway Golf and Fastenal bounced back sharply in April and May. In closing, thank you for your investment in The Travelers Series Trust. We look forward to continuing to help you pursue your financial goals. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman August 3, 1999 7 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- TRAVELERS QUALITY BOND PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS -------------------------------------------- Six Months Ended 6/30/99+ 0.06% Year Ended 6/30/99 5.29% 8/30/96* through 6/30/99 6.78% CUMULATIVE TOTAL RETURN -------------------------------------------- 8/30/96* through 6/30/99 20.44% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on August 30, 1996, assuming reinvestment of dividends, through June 30, 1999. The Lehman Government/ Corporate Bond Index is a weighted composite of the Lehman Government Bond Index, which is a broad- based index of all public debt obligations of the U.S. Government and its agencies and has an average maturity of nine years and the Lehman Corporate Bond Index, which is comprised of all public fixed-rate non-convertible investment-grade domestic corporate debt, excluding collateralized mortgage obligations. [Travelers Quality Performance Graph]
TRAVELERS QUALITY BOND PORTFOLIO LEHMAN GOVT/CORP. BOND INDEX -------------------------------- ---------------------------- 8/30/96 10000 10000 12/96 10356 10489 6/97 10602 10776 12/97 11095 11512 6/98 11439 11992 12/98 12036 12603 6/30/99 12044 12316
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- LAZARD INTERNATIONAL STOCK PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS -------------------------------------------- Six Months Ended 6/30/99+ 4.66% Year Ended 6/30/99 2.04% 8/1/96* through 6/30/99 11.64% CUMULATIVE TOTAL RETURN -------------------------------------------- 8/1/96* through 6/30/99 37.82% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on August 1, 1996, assuming reinvestment of dividends, through June 30, 1999. The Morgan Stanley Capital International ("MSCI") EAFE-GDP Weighted Index is a composite portfolio consisting of equity total returns for the countries of Europe, Australia, New Zealand and the Far East, weighted based on each country's gross domestic product. [Lazard Int. Performance Graph]
LAZARD INTERNATIONAL STOCK PORTFOLIO MSCI EAFE -------------------------- --------- 8/1/96 10000.00 10000.00 12/96 10780.00 10533.00 6/97 11859.00 11815.00 12/97 11696.00 11180.00 6/98 13507.00 13649.00 12/98 13168.00 14149.00 6/30/99 13782.00 14711.00
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 8 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MFS EMERGING GROWTH PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 12.57% Year Ended 6/30/99 24.52% 8/30/96* through 6/30/99 26.40% CUMULATIVE TOTAL RETURN --------------------------------------------- 8/30/96* through 6/30/99 94.17% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on August 30, 1996, assuming reinvestment of dividends, through June 30, 1999. The Standard & Poor's 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter market. The Russell 2000 Index is a capitalization weighted total return index which is comprised of 2,000 of the smallest capitalized U.S. domiciled companies with less than average growth orientation whose common stock is traded in the United States of the New York Stock Exchange, American Stock Exchange and NASDAQ. [MFS Emerging Growth Portfolio Performance Graph]
MFS EMERGING GROWTH STANDARD & POOR'S 500 PORTFOLIO INDEX RUSSELL 2000 INDEX ------------------- --------------------- ------------------ 8/30/96 10000.00 10000.00 10000.00 12/96 10600.00 11441.00 10931.00 6/97 11726.00 13798.00 12046.00 12/97 12843.00 15258.00 13376.00 6/98 15593.00 17961.00 14035.00 12/98 17250.00 19642.00 13036.00 6/30/99 19417.00 22074.00 14246.00
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- FEDERATED HIGH YIELD PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 3.46% Year Ended 6/30/99 3.31% 8/30/96* through 6/30/99 10.96% CUMULATIVE TOTAL RETURN --------------------------------------------- 8/30/96* through 6/30/99 34.27% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on August 30, 1996, assuming reinvestment of dividends, through June 30, 1999. The Lehman Aggregate Bond Index, an unmanaged index, is composed of the Lehman Intermediate Government/Corporate Bond Index and the Mortgage Backed Securities Index and includes treasury issues, agency issues, corporate bond issues and mortgage-backed securities. The Lehman High Yield Bond Index is composed of fixed rate noninvestment grade debt with at least one year remaining to maturity that are dollar-denominated, nonconvertible and have an outstanding par value of at least $100 million. [Federated High Yield Portfolio Performance Graph]
FEDERATED HIGH YIELD LEHMAN HIGH YIELD BOND LEHMAN AGGREGATE BOND PORTFOLIO INDEX INDEX -------------------- ---------------------- --------------------- 8/30/96 10000.00 10000.00 10000.00 12/96 10761.00 10599.00 10480.00 6/97 11484.00 11216.00 10804.00 12/97 12394.00 11952.00 11491.00 6/98 12997.00 12489.00 11943.00 12/98 12978.00 12161.00 12490.00 6/30/99 13427.00 12429.00 12319.00
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 9 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- FEDERATED STOCK PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 13.08% Year Ended 6/30/99 17.38% 8/30/96* through 6/30/99 27.76% CUMULATIVE TOTAL RETURN --------------------------------------------- 8/30/96* through 6/30/99 100.16% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on August 30, 1996, assuming reinvestment of dividends, through June 30, 1999. Standard & Poor's 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter market. [Federated Stock Performance Graph]
FEDERATED STOCK PORTFOLIO STANDARD & POOR'S 500 INDEX ------------------------- --------------------------- 8/30/96 10000.00 10000.00 12/96 11261.00 11441.00 6/97 13482.00 13798.00 12/97 15023.00 15258.00 6/98 17051.00 17961.00 12/98 17701.00 19642.00 6/30/99 20016.00 22074.00
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- DISCIPLINED MID CAP STOCK PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 4.24% Year Ended 6/30/99 11.80% 4/1/97* through 6/30/99 24.55% CUMULATIVE TOTAL RETURN --------------------------------------------- 4/1/97* through 6/30/99 63.76% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations
This chart assumes an initial investment of $10,000 made on April 1, 1997, assuming reinvestment of dividends, through June 30, 1999. The Standard & Poor's 400 Index is an unmanaged index composed of 400 widely held mid cap common stocks listed on the New York Stock Exchange, American Stock Exchange and the over-the-counter market. [Disciplined Mid Cap Stock Performance Graph]
DISCIPLINED MID CAP STOCK PORTFOLIO STANDARD & POOR'S 400 INDEX ------------------------- --------------------------- 4/1/97 10000.00 10489.00 6/97 10360.00 10776.00 12/97 13438.00 11512.00 6/98 14647.00 11992.00 12/98 15710.00 12603.00 6/30/99 16376.00 13469.00
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 10 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999 TRAVELERS QUALITY BOND PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - ------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT OBLIGATIONS -- 14.8% U.S. Treasury Notes: $2,000,000 AAA 5.750% due 11/30/02....................................... $ 2,002,200 1,200,000 AAA 7.250% due 8/15/04........................................ 1,272,804 2,600,000 AAA 6.875% due 5/15/06........................................ 2,738,268 2,000,000 AAA 5.500% due 5/15/09........................................ 1,958,160 - ------------------------------------------------------------------------------------------------------ TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $7,934,100)........................................ 7,971,432 - ------------------------------------------------------------------------------------------------------ CORPORATE BONDS & NOTES -- 67.9% - ------------------------------------------------------------------------------------------------------ AUTOMOTIVE -- 2.3% 1,200,000 A General Motors Acceptance Corp., 6.850% due 6/17/04......... 1,216,500 - ------------------------------------------------------------------------------------------------------ BANKING -- 5.2% 1,000,000 BBB+ BanPonce Financial, Medium Term Note, 7.300% due 6/5/02..... 1,015,000 1,800,000 BBB- Capital One Bank, Sr. Notes, 6.570% due 1/27/03............. 1,770,750 - ------------------------------------------------------------------------------------------------------ 2,785,750 - ------------------------------------------------------------------------------------------------------ CABLE TV -- 1.8% 1,000,000 BBB- TCI Communications Inc., Debenture, 6.375% due 5/1/03....... 992,500 - ------------------------------------------------------------------------------------------------------ ELECTRIC -- 6.2% 2,300,000 BBB+ Appalachian Power Co., Sr. Notes, 6.600% due 5/1/09......... 2,212,545 CMS Energy Corp., Sr. Notes: 500,000 BB 6.750% due 11/15/04....................................... 476,875 650,000 BB 7.625% due 11/15/04....................................... 640,250 - ------------------------------------------------------------------------------------------------------ 3,329,670 - ------------------------------------------------------------------------------------------------------ HEALTH CARE -- 2.5% 1,400,000 BBB Columbia HCA Healthcare, Medium Term Notes, 6.630% due 7/15/45..................................................... 1,324,750 - ------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES -- 12.0% 1,700,000 BBB AT&T Capital Corp., 6.875% due 1/16/01...................... 1,706,375 1,000,000 BBB+ Comdisco Inc., 6.130% due 8/1/01............................ 996,250 1,500,000 A- Finova Capital Corp., Debenture, 6.250% due 11/1/02......... 1,483,125 Orix Credit Alliance: 700,000 NR 6.400% due 11/22/99....................................... 700,000 1,600,000 BBB+ 6.780% due 5/15/01........................................ 1,586,000 - ------------------------------------------------------------------------------------------------------ 6,471,750 - ------------------------------------------------------------------------------------------------------ INTEGRATED OIL -- 7.1% 1,750,000 A Atlantic Richfield, 5.900% due 4/15/09...................... 1,653,750 1,000,000 BBB Noram Energy Corp., Debenture, 7.500% due 8/1/00............ 1,011,250 1,150,000 BBB Occidental Petroleum, Sr. Notes, 7.650% due 2/15/06......... 1,162,938 - ------------------------------------------------------------------------------------------------------ 3,827,938 - ------------------------------------------------------------------------------------------------------ RAILROADS -- 2.1% 1,100,000 BBB+ Norfolk Southern, Debenture, 6.875% due 5/1/01.............. 1,112,375 - ------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUST -- 3.4% 1,600,000 BBB CarrAmerica Realty Corp., Company Guaranteed, 6.625% due 10/1/00..................................................... 1,581,488 250,000 BBB Nationwide Health Properties, Inc., Medium Term Notes, 6.900% due 10/1/37.......................................... 238,125 - ------------------------------------------------------------------------------------------------------ 1,819,613 - ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 11 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 TRAVELERS QUALITY BOND PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - ------------------------------------------------------------------------------------------------------ RETAIL -- 4.1% $ 500,000 A- Dayton Hudson Corp., 6.800% due 10/1/01..................... $ 505,625 1,700,000 BB+ Saks Inc., Company Guaranteed, 7.500% due 12/1/10........... 1,700,000 - ------------------------------------------------------------------------------------------------------ 2,205,625 - ------------------------------------------------------------------------------------------------------ SOVEREIGN AGENCY -- 10.9% 1,250,000 Aaa* Fannie Mae, 5.625% due 5/14/04.............................. 1,225,200 4,700,000 Aaa* Freddie Mac, 6.300% due 6/1/04.............................. 4,672,316 - ------------------------------------------------------------------------------------------------------ 5,897,516 - ------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS -- 1.0% 545,000 BBB+ MCI Worldcom Inc., Sr. Notes, 6.400% due 8/15/05............ 532,056 - ------------------------------------------------------------------------------------------------------ TOBACCO -- 0.9% 500,000 BBB Nabisco Inc., Debenture, 6.700% due 6/15/02................. 498,750 - ------------------------------------------------------------------------------------------------------ UTILITIES -- 2.8% 1,500,000 BBB Marlin Water Trust, Sr. Notes, 7.090% due 12/15/01 (a)...... 1,485,000 - ------------------------------------------------------------------------------------------------------ YANKEE -- 5.6% 2,400,000 A HSBC Holding PLC, 7.500% due 7/15/09........................ 2,389,248 175,000 BBB Noranda Forest, Debenture, 8.875% due 10/15/99.............. 176,313 500,000 AA- Telecom Corp. of New Zealand, 6.250% due 2/10/03............ 495,992 - ------------------------------------------------------------------------------------------------------ 3,061,553 - ------------------------------------------------------------------------------------------------------ TOTAL CORPORATE BONDS & NOTES (Cost -- $36,968,317)......... 36,561,346 - ------------------------------------------------------------------------------------------------------ SUB-TOTAL INVESTMENTS (Cost -- $44,902,417)................. 44,532,778 - ------------------------------------------------------------------------------------------------------ REPURCHASE AGREEMENTS -- 17.3% 2,333,000 Morgan Stanley Dean Witter & Co., 4.770% due 7/1/99; Proceeds at maturity -- $2,333,309; (Fully collateralized by U.S. Treasury Notes, 6.250% due 10/31/01; Market value -- $2,380,066)........................................ 2,333,000 7,000,000 Chase Securities, Inc., 4.800% due 7/1/99; Proceeds at maturity -- $7,000,933; (Fully collateralized by U.S. Treasury Notes, 7.125% due 2/15/23; Market value -- $7,140,000)........................................ 7,000,000 - ------------------------------------------------------------------------------------------------------ TOTAL REPURCHASE AGREEMENTS (Cost -- $9,333,000)............ 9,333,000 - ------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100% (Cost -- $54,235,417**)........... $53,865,778 - ------------------------------------------------------------------------------------------------------
+ All ratings are by Standard & Poor's Ratings Service, except those identified by an asterisk (*) which are rated by Moody's Investors Service, Inc. (a) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 48 for definition of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 12 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 LAZARD INTERNATIONAL STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ STOCK -- 94.2% - ------------------------------------------------------------------------------------------ AUSTRALIA -- 2.3% 127,206 Broken Hill Proprietary Co. Ltd. ........................... $ 1,473,461 57,600 Westpac Banking Corp. Ltd. ................................. 373,630 - ------------------------------------------------------------------------------------------ 1,847,091 - ------------------------------------------------------------------------------------------ DENMARK -- 0.9% 11,180 Unidanmark A/S, Class A Shares.............................. 746,162 - ------------------------------------------------------------------------------------------ FINLAND -- 1.0% 59,100 Merita PLC, Class A Shares.................................. 335,834 1 The Rauma Group Oyj......................................... 12 14,500 UPM-Kymmene Oyj............................................. 415,717 - ------------------------------------------------------------------------------------------ 751,563 - ------------------------------------------------------------------------------------------ FRANCE -- 13.5% 7,760 Alcatel..................................................... 1,092,394 9,830 Axa-Uap..................................................... 1,199,287 17,600 Banque Nationale de Paris................................... 1,466,591 7,280 Compagnie de Saint Gobain................................... 1,159,965 11,000 Compagnie Generale des Establissements Michelin, Class B 450,028 Shares (a).................................................. 22,550 Rhone-Poulenc SA............................................ 1,030,465 9,380 Elf Aquitaine SA............................................ 1,376,552 5,130 Suez Lyonnaise des Eaux..................................... 925,320 23,754 Vivendi..................................................... 1,924,279 - ------------------------------------------------------------------------------------------ 10,624,881 - ------------------------------------------------------------------------------------------ GERMANY -- 8.9% 3,261 Allianz AG (a).............................................. 911,392 10,228 DaimlerChrysler AG.......................................... 893,427 7,900 Deutsche Telecom AG......................................... 332,001 7,900 Deutche Telecom Rights (b).................................. 1,548 25,400 Hoechst AG.................................................. 1,144,722 19,134 Metro AG (a)................................................ 1,217,520 15,800 Siemens AG.................................................. 1,218,831 26,250 Thyssen AG.................................................. 575,272 13,000 Veba AG..................................................... 766,875 - ------------------------------------------------------------------------------------------ 7,061,588 - ------------------------------------------------------------------------------------------ HONG KONG -- 1.3% 27,073 HSBC Holdings PLC........................................... 987,467 - ------------------------------------------------------------------------------------------ ITALY -- 4.0% 176,700 ENI S.p.A. (a).............................................. 1,042,360 57,800 Istituto Bancario San Paolo imi S.p.A. ..................... 788,390 240,800 Telecom Italia S.p.A. di Risp NC (c)........................ 1,309,978 - ------------------------------------------------------------------------------------------ 3,140,728 - ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 13 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 LAZARD INTERNATIONAL STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ JAPAN -- 21.3% 61,000 Asahi Breweries Ltd. ....................................... $ 758,972 41,000 Canon, Inc. ................................................ 1,178,784 52,000 Fuji Bank Ltd. (a).......................................... 362,591 100,000 Industrial Bank of Japan Ltd. .............................. 793,126 1,070 Japan Tobacco, Inc. ........................................ 1,184,567 35,000 Kao Corp. .................................................. 983,146 6,100 Nintendo Co. Ltd. .......................................... 857,246 800 Nippon Telegraph & Telephone Corp. ......................... 931,923 232,000 Nissan Motor Co. Ltd. ...................................... 1,107,865 1,250 NTT Mobile Communication Network, Inc. ..................... 1,693,655 15,200 Orix Corp. ................................................. 1,356,246 13,600 Promise Co., Ltd. .......................................... 803,371 20,000 Ricoh Co., Ltd. (a)......................................... 275,281 32,000 Sankyo Co. Ltd. ............................................ 806,345 11,900 Sony Corp. ................................................. 1,283,006 273,000 Sumitomo Trust & Banking Co. (a)............................ 1,312,673 12,000 TDK Corp. .................................................. 1,097,488 - ------------------------------------------------------------------------------------------ 16,786,285 - ------------------------------------------------------------------------------------------ MALAYSIA -- 0.3% 60,000 Genting Berhad.............................................. 220,404 - ------------------------------------------------------------------------------------------ NETHERLANDS -- 4.3% 21,000 Heineken N.V. .............................................. 1,075,285 19,700 ING Groep N.V. ............................................. 1,066,622 12,512 Koninklijke Philips Electronics N.V. ....................... 1,234,232 - ------------------------------------------------------------------------------------------ 3,376,139 - ------------------------------------------------------------------------------------------ SINGAPORE -- 1.8% 54,000 Oversea-Chinese Banking Corp. Ltd. ......................... 450,396 134,000 United Overseas Bank Ltd. .................................. 936,623 - ------------------------------------------------------------------------------------------ 1,387,019 - ------------------------------------------------------------------------------------------ SPAIN -- 5.1% 57,300 Argentaria, Caja Postal y Banco Hipotecario de Espana, 1,305,375 S.A. ....................................................... 40,400 Endesa S.A. ................................................ 861,622 38,875 Telefonica S.A. ............................................ 1,872,699 - ------------------------------------------------------------------------------------------ 4,039,696 - ------------------------------------------------------------------------------------------ SWEDEN -- 6.3% 68,000 ABB AB, Class A Shares...................................... 903,787 28,628 Astrazeneca Group PLC....................................... 1,114,536 48,000 Electrolux AB, Class B Shares............................... 1,004,940 56,900 Nordbanken Holding AB....................................... 332,619 75,900 Svenska Handelsbanken, Class A Shares (a)................... 910,586 24,700 Volvo AB, Class B Shares (a)................................ 716,131 - ------------------------------------------------------------------------------------------ 4,982,599 - ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 14 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 LAZARD INTERNATIONAL STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ SWITZERLAND -- 3.5% 330 Nestle SA................................................... $ 594,577 95 Roche Holding AG............................................ 976,521 536 Swatch Group AG, Class B Shares............................. 360,643 1,510 Zurich Allied AG............................................ 858,639 - ------------------------------------------------------------------------------------------ 2,790,380 - ------------------------------------------------------------------------------------------ UNITED KINGDOM -- 19.7% 54,500 Allied Zurich AG............................................ 680,820 234,100 British Aerospace PLC....................................... 1,530,469 112,600 British American Tobacco PLC................................ 1,050,744 23,600 British Energy PLC.......................................... 202,742 62,100 British Petroleum Co. PLC................................... 1,112,005 66,996 Cadbury Schweppes PLC....................................... 427,701 104,174 Diageo PLC.................................................. 1,085,420 65,900 Granada Group PLC........................................... 1,229,912 75,500 Great Universal Stores PLC.................................. 844,377 93,200 Imperial Chemical Industries PLC............................ 921,129 74,600 National Westminster Bank PLC............................... 1,580,429 74,900 Prudential Corp. PLC........................................ 1,108,624 126,400 Royal Sun Alliance Insurance Group PLC...................... 1,136,683 276,200 Siebe PLC................................................... 1,308,293 52,700 Smithkline Beecham PLC...................................... 684,087 73,811 Unilever PLC................................................ 668,418 - ------------------------------------------------------------------------------------------ 15,571,853 - ------------------------------------------------------------------------------------------ TOTAL STOCK (Cost -- $68,390,334)........................... 74,313,855 - ------------------------------------------------------------------------------------------ FACE AMOUNT SECURITY VALUE - ------------------------------------------------------------------------------------------ REPURCHASE AGREEMENT -- 5.8% $ 4,600,000 CIBC Wood Gundy Securities Inc., 4.650% due 7/1/99; Proceeds at maturity -- $4,600,594; (Fully collateralized by U.S. Treasury Notes, 5.375% due 6/30/00; Market value -- $4,692,653) (Cost -- $4,600,000)............ 4,600,000 - ------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100% (Cost -- $72,990,334**)........... $78,913,855 - ------------------------------------------------------------------------------------------
(a) All or a portion of this security is on loan (See Note 9). (b) Non-income producing security. (c) Risp NC -- Risparmio Non-Convertible (non-convertible saving shares). ** Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 15 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ---------------------------------------------------------------------------------------- COMMON STOCK -- 90.7% - ---------------------------------------------------------------------------------------- ADVERTISING -- 0.1% 200 Lamar Advertising Co. (a)................................... $ 8,187 2,200 Omnicom Group Inc. ......................................... 176,000 1,500 Telefonica Publicidad....................................... 29,933 - ---------------------------------------------------------------------------------------- 214,120 - ---------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 0.1% 100 EchoStar Communications Corp. .............................. 15,344 4,800 General Motors, Class H Shares (a).......................... 270,000 600 Whittaker Corp. (a)......................................... 16,800 - ---------------------------------------------------------------------------------------- 302,144 - ---------------------------------------------------------------------------------------- AIR TRANSPORT -- 0.0% 300 Airborne Freight Corp. ..................................... 8,306 - ---------------------------------------------------------------------------------------- AUTO PARTS -- 0.0% 200 Dura Automotive Systems, Inc. (a)........................... 6,650 - ---------------------------------------------------------------------------------------- AUTO PARTS - ORIGINAL EQUIPMENT -- 0.0% 500 Gentex Corp. (a)............................................ 14,000 - ---------------------------------------------------------------------------------------- AUTO RELATED -- 0.4% 10,200 Eaton Corp. ................................................ 938,400 500 SPX Corp. (a)............................................... 41,750 - ---------------------------------------------------------------------------------------- 980,150 - ---------------------------------------------------------------------------------------- AUTO TRUCKS & PARTS -- 0.1% 3,800 Dana Corp. ................................................. 175,038 900 New Holland N.V. ........................................... 15,412 - ---------------------------------------------------------------------------------------- 190,450 - ---------------------------------------------------------------------------------------- AVIATION COMPONENTS -- 0.0% 300 Gulfstream Aerospace Corp. ................................. 20,269 - ---------------------------------------------------------------------------------------- BANKS -- 0.0% 300 First Tennessee National Corp. ............................. 11,493 - ---------------------------------------------------------------------------------------- BANKS - COMMERCIAL -- 0.0% 700 U.S. Trust Corp. ........................................... 64,750 - ---------------------------------------------------------------------------------------- BASIC INDUSTRIES -- 0.0% 400 Atwood Oceanics, Inc. (a)................................... 12,500 800 Veritas DGC, Inc. (a)....................................... 14,650 - ---------------------------------------------------------------------------------------- 27,150 - ---------------------------------------------------------------------------------------- BIOTECHNOLOGY -- 0.1% 1,800 Biogen, Inc. (a)............................................ 115,762 - ---------------------------------------------------------------------------------------- BROADCAST MEDIA -- 0.2% 11,800 Cox Communications, Inc., Class A Shares (a)................ 434,387 300 Hispanic Broadcasting Corp. ................................ 22,763
SEE NOTES TO FINANCIAL STATEMENTS. 16 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ BROADCAST MEDIA -- 0.2% (CONTINUED) 300 TV Guide Inc., Class A Shares (a). $ 10,987 400 Univision Communications, Inc. (a).......................... 26,400 - ---------------------------------------------------------------------------------------- 494,537 - ---------------------------------------------------------------------------------------- BROADCASTING - TV & CABLE -- 2.9% 11,800 Cablevision Systems Corp., Class A Shares (a)............... 826,000 29,800 CBS Corp. (a)............................................... 1,294,437 3,800 Century Communications Corp., Class A Shares (a)............ 174,800 43,241 Clear Channel Communications, Inc. (a)...................... 2,980,907 11,700 Cox Radio, Inc., Class A Shares (a)......................... 634,725 6,900 Gemstar International Group Ltd. (a)........................ 450,225 11,700 Infinity Broadcasting Co. .................................. 348,075 400 Outdoor Systems Inc. (a).................................... 14,600 - ---------------------------------------------------------------------------------------- 6,723,769 - ---------------------------------------------------------------------------------------- BROKERAGE -- 0.0% 200 PaineWebber Group, Inc. .................................... 9,350 - ---------------------------------------------------------------------------------------- BUILDING MATERIALS -- 0.0% 400 Sherwin-Williams Co. ....................................... 11,100 - ---------------------------------------------------------------------------------------- BUSINESS SERVICES -- 0.2% 500 CheckFree Holdings Corp. (a)................................ 13,781 450 Clarify Inc. ............................................... 18,563 1,400 Computer Horizons Corp. (a)................................. 19,337 100 Critical Path Inc. ......................................... 5,531 11,500 IMR Global Corp. ........................................... 221,375 2,500 Keane, Inc. (a)............................................. 56,562 300 Pegasus Systems Inc. (a).................................... 11,231 - ---------------------------------------------------------------------------------------- 346,380 - ---------------------------------------------------------------------------------------- CABLE TELEVISION - EQUIPMENT -- 1.6% 95,600 Comcast Corp., Class A Shares............................... 3,674,625 - ---------------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 0.1% 200 Abacus Direct Corp. (a)..................................... 18,300 300 Affiliated Computer Services, Inc., Class A Shares (a)...... 15,188 1,700 Ceridian Corp. (a).......................................... 55,568 400 Dial Corp. ................................................. 14,875 600 Interim Services Inc. (a)................................... 12,375 500 Quanta Services Inc. (a).................................... 22,000 - ---------------------------------------------------------------------------------------- 138,306 - ---------------------------------------------------------------------------------------- COMMUNICATIONS -- 0.3% 21,500 Metromedia Fiber Network, Inc., Class A Shares (a).......... 772,656 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 17 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ COMMUNICATIONS - EQUIPMENT -- 2.0% 3,800 DSP Communications, Inc. (a)................................ $ 109,725 11,900 General Instrument Corp. (a)................................ 505,750 58,300 Tellabs, Inc. (a)........................................... 3,938,893 - ---------------------------------------------------------------------------------------- 4,554,368 - ---------------------------------------------------------------------------------------- COMPUTER SOFTWARE -- 19.2% 200 Adobe Systems Inc. ......................................... 16,431 6,900 The BISYS Group, Inc. (a)................................... 403,650 25,102 BMC Software, Inc. (a)...................................... 1,355,508 54,910 Cadence Design Systems, Inc. (a)............................ 700,102 209,854 Cisco Systems Inc. (a)...................................... 13,535,642 40,302 Computer Associates International Inc. ..................... 2,216,610 60,900 Compuware Corp. (a)......................................... 1,937,381 200 Informatica Corp. .......................................... 7,125 132,200 Microsoft Corp. (a)......................................... 11,922,787 326,150 Oracle Corp. (a)............................................ 12,108,318 400 Synopsys, Inc. (a).......................................... 22,075 300 Verity Inc. (a)............................................. 16,256 - ---------------------------------------------------------------------------------------- 44,241,885 - ---------------------------------------------------------------------------------------- COMPUTER SOFTWARE SERVICES -- 0.0% 400 Business Objects S.A. (a)................................... 14,600 280 CSG Systems International, Inc. (a)......................... 7,332 - ---------------------------------------------------------------------------------------- 21,932 - ---------------------------------------------------------------------------------------- COMPUTERS -- 0.6% 300 NCR Corp. (a)............................................... 14,643 20,300 Sun Microsystems Inc. (a)................................... 1,398,162 - ---------------------------------------------------------------------------------------- 1,412,805 - ---------------------------------------------------------------------------------------- COMPUTERS SERVICES -- 2.1% 300 Ariba, Inc. (a)............................................. 29,175 19,200 Equant NV................................................... 1,807,200 57,200 First Data Corp. ........................................... 2,799,225 3,300 SunGard Data Systems Inc. (a)............................... 113,850 - ---------------------------------------------------------------------------------------- 4,749,450 - ---------------------------------------------------------------------------------------- COMPUTERS - EQUIPMENT -- 0.0% 800 Maxtor Corp. (a)............................................ 4,025 500 Seagate Technology Inc. (a)................................. 12,812 - ---------------------------------------------------------------------------------------- 16,837 - ---------------------------------------------------------------------------------------- COMPUTERS - SYSTEMS -- 0.0% 500 Novell Inc. (a)............................................. 13,250 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 18 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ CONGLOMERATES -- 5.9% 5,100 Allied Signal Inc. ......................................... $ 321,300 310 Conexant Systems, Inc. (a).................................. 17,999 300 Martin Marietta Materials, Inc. ............................ 17,700 139,581 Tyco International Ltd. .................................... 13,225,299 - ---------------------------------------------------------------------------------------- 13,582,298 - ---------------------------------------------------------------------------------------- CONSUMER PRODUCTS -- 0.0% 8,400 Carson, Inc. (a)............................................ 27,825 - ---------------------------------------------------------------------------------------- CONSUMER SERVICES -- 2.2% 244,134 Cendant Corp. (a)........................................... 5,004,747 500 Source Media Inc. .......................................... 8,500 - ---------------------------------------------------------------------------------------- 5,013,247 - ---------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.7% 400 Ace Ltd. ................................................... 11,300 8,100 Honeywell Inc. ............................................. 938,587 300 Level One Communications, Inc. (a).......................... 14,681 7,400 Linear Technology Corp. .................................... 497,650 200 Micrel, Inc. (a)............................................ 14,800 - ---------------------------------------------------------------------------------------- 1,477,018 - ---------------------------------------------------------------------------------------- ELECTRONIC COMPONENTS -- 0.4% 27,040 ARM Holdings PLC ADR (a).................................... 943,020 200 GlobeSpan, Inc. ............................................ 7,950 - ---------------------------------------------------------------------------------------- 950,970 - ---------------------------------------------------------------------------------------- ELECTRONICS -- 6.5% 65,000 Altera Corp. (a)............................................ 2,392,812 4,200 ASM Lithography Holding N.V. (a)............................ 249,375 400 ATMI, Inc. ................................................. 11,900 300 Electro Scientific Industries Inc. (a)...................... 12,534 4,000 EMC Corp. (a)............................................... 220,000 240 Flextronics International Ltd. (a).......................... 13,320 87,000 Hitachi Ltd. ............................................... 815,804 8,228 Koninklijke Philips Electronics............................. 829,999 300 Microchip Technology Inc. (a)............................... 14,212 19,900 Nokia Corp. ADR............................................. 1,822,093 1,700 Oak Industries Inc. (a)..................................... 74,268 470 Photronics Inc. (a)......................................... 11,515 1,400 Sanmina Corp. (a)........................................... 106,225 200 SCI Systems, Inc. (a)....................................... 9,500 300 SIPEX Corp. (a)............................................. 6,150 10,300 Solectron Corp. (a)......................................... 686,881 15,600 Teradyne, Inc. (a).......................................... 1,119,300 27,600 Texas Instruments Inc. ..................................... 4,002,000 43,600 Xilinx, Inc. (a)............................................ 2,496,100 - ---------------------------------------------------------------------------------------- 14,893,988 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 19 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ ELECTRONICS & ELECTRICAL -- 0.0% 280 Jabil Circuit Inc. (a)...................................... $ 12,635 - ---------------------------------------------------------------------------------------- ELECTRONICS - INSTRUMENTATION -- 0.0% 200 C.R. Bard, Inc. ............................................ 9,562 - ---------------------------------------------------------------------------------------- ELECTRONICS - SEMICONDUCTOR -- 1.5% 31,700 Adaptec, Inc. (a)........................................... 1,119,406 30,400 Analog Devices, Inc. (a).................................... 1,525,700 5,100 Atmel Corp. (a)............................................. 133,556 400 Burr-Brown Corp. (a)........................................ 14,650 230 Etec Systems, Inc. (a)...................................... 7,647 800 Galileo Technology Ltd. (a)................................. 36,250 7,300 LSI Logic Corp. (a)......................................... 336,712 210 Maxim Integrated Products, Inc. (a)......................... 13,965 6,100 Micron Technology Inc. (a).................................. 245,906 - ---------------------------------------------------------------------------------------- 3,433,792 - ---------------------------------------------------------------------------------------- ENTERTAINMENT -- 2.1% 131,200 AT & T Corp., Liberty Media Group........................... 4,821,600 300 International Speedway Corp., Class A Shares................ 14,250 400 Penske Motorsports Inc. (a)................................. 19,850 400 Premier Parks Inc. (a)...................................... 14,700 300 Speedway Motorsports Inc. (a)............................... 11,793 600 USA Networks Inc. (a)....................................... 24,075 400 Westwood One Inc. (a)....................................... 14,275 - ---------------------------------------------------------------------------------------- 4,920,543 - ---------------------------------------------------------------------------------------- ENTERTAINMENT - GAMING -- 0.0% 600 Harrah's Entertainment Inc. (a)............................. 13,200 - ---------------------------------------------------------------------------------------- FINANCE COMPANIES - CONSUMER CREDIT -- 0.0% 1,500 Finet.com, Inc. ............................................ 8,343 - ---------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 0.2% 203 Building One Services Corp. (a)............................. 2,816 300 The CIT Group, Inc. ........................................ 8,662 400 Concord EFS, Inc. (a)....................................... 16,925 400 Hambrecht & Quist Inc. (a).................................. 14,850 5,900 Kansas City Southern Industries, Inc. ...................... 376,493 400 Waddell & Reed Financial, Inc., Class A Shares.............. 10,975 - ---------------------------------------------------------------------------------------- 430,721 - ---------------------------------------------------------------------------------------- FURNITURE & APPLIANCES -- 0.0% 500 DII Group, Inc. (a)......................................... 18,656 - ---------------------------------------------------------------------------------------- HEALTH & PERSONAL CARE -- 0.0% 200 Pacificare Health System Inc. (a)........................... 14,387 - ---------------------------------------------------------------------------------------- HEALTH CARE - DRUGS -- 0.0% 400 Biomatrix, Inc. (a)......................................... 8,650 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ HEALTH EQUIPMENT & SERVICES -- 0.9% 1,000 Mid Atlantic Medical Services, Inc. (a)..................... $ 9,875 32,900 United Healthcare Corp. .................................... 2,060,362 - ---------------------------------------------------------------------------------------- 2,070,237 - ---------------------------------------------------------------------------------------- HOSPITAL -- 0.0% 300 Province Healthcare Co. (a)................................. 5,850 - ---------------------------------------------------------------------------------------- HOTELS - MOTELS -- 0.0% 300 Four Seasons Hotels Inc. ................................... 13,218 657 Promus Hotel Corp. (a)...................................... 20,367 - ---------------------------------------------------------------------------------------- 33,585 - ---------------------------------------------------------------------------------------- HOUSING & HOME FURNISHINGS-- 0.0% 400 Sotheby's Holdings, Class A Shares.......................... 15,250 - ---------------------------------------------------------------------------------------- INTERNET CONTENT -- 0.0% 2,800 Internet Comerce Corp. ..................................... 36,400 - ---------------------------------------------------------------------------------------- INTERNET SOFTWARE -- 0.0% 300 Software.com, Inc. (a)...................................... 6,956 - ---------------------------------------------------------------------------------------- INVESTMENT COMPANY -- 0.0% 320 Affiliated Managers Group, Inc. (a)......................... 9,660 - ---------------------------------------------------------------------------------------- MACHINE TOOLS -- 0.0% 600 The Timken Co. ............................................. 11,700 - ---------------------------------------------------------------------------------------- MACHINERY -- 0.2% 5,500 Caterpillar Inc. ........................................... 330,000 1,600 Deere & Co. ................................................ 63,400 - ---------------------------------------------------------------------------------------- 393,400 - ---------------------------------------------------------------------------------------- MACHINERY - CONSTRUCTION -- 0.0% 1,700 Case Corp. ................................................. 81,812 - ---------------------------------------------------------------------------------------- MACHINERY - DIVERSIFIED -- 0.5% 14,200 Applied Materials, Inc. (a)................................. 1,049,025 - ---------------------------------------------------------------------------------------- MACHINERY & MACHINE TOOLS -- 0.3% 6,500 Illinois Tool Works, Inc. .................................. 533,000 300 Navistar International Corp. (a)............................ 15,000 400 Parker-Hannifin Corp. ...................................... 18,300 4,650 SI Handling Systems, Inc. .................................. 48,825 3,300 Smith International Inc. (a)................................ 143,343 - ---------------------------------------------------------------------------------------- 758,568 - ---------------------------------------------------------------------------------------- MAJOR COMPANIES - ELECTRONICS -- 0.0% 1,600 Global Industries Ltd. (a).................................. 20,500 - ---------------------------------------------------------------------------------------- MANUFACTURING -- 0.0% 700 Owens-Illinois Inc. (a)..................................... 22,881 - ---------------------------------------------------------------------------------------- MANUFACTURING - COMMUNICATIONS -- 0.6% 9,300 Mannesmann AG............................................... 1,390,707 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 21 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ MANUFACTURING - SHIPBUILDING -- 0.0% 100 Newport News Shipbuilding, Inc. ............................ $ 2,950 - ---------------------------------------------------------------------------------------- MEDICAL EQUIPMENT -- 0.0% 100 Cyberonics Inc. ............................................ 1,250 - ---------------------------------------------------------------------------------------- MEDICAL PRODUCTS & SUPPLIES -- 0.4% 20,800 Boston Scientific Corp. (a)................................. 913,900 500 IDEXX Laboratories, Inc. (a)................................ 11,656 800 Respironics Inc. (a)........................................ 12,100 - ---------------------------------------------------------------------------------------- 937,656 - ---------------------------------------------------------------------------------------- MEDICAL SERVICES -- 0.0% 1,400 HEALTHSOUTH Corp. (a)....................................... 20,912 900 King Pharmaceuticals, Inc. (a).............................. 23,287 573 Lifepoint Hospitals Inc. (a)................................ 7,699 300 Professional Detailing Inc. (a)............................. 7,050 400 Transkaryotic Therapies, Inc. .............................. 13,200 573 Triad Hospitals Inc. ....................................... 7,735 100 Wellpoint Health Networks, Inc. (a)......................... 8,487 - ---------------------------------------------------------------------------------------- 88,370 - ---------------------------------------------------------------------------------------- MINERALS -- 0.0% 1,000 Cyprus Amax Minerals Co. ................................... 15,187 - ---------------------------------------------------------------------------------------- MISCELLANEOUS -- 0.1% 450 Fiserv, Inc. (a)............................................ 14,090 3,400 Galileo International, Inc. ................................ 181,687 - ---------------------------------------------------------------------------------------- 195,777 - ---------------------------------------------------------------------------------------- NATURAL GAS -- 0.9% 49,400 The Williams Cos., Inc. .................................... 2,102,587 - ---------------------------------------------------------------------------------------- OIL - DOMESTIC -- 0.0% 500 Cal Dive International, Inc. (a)............................ 14,937 - ---------------------------------------------------------------------------------------- OIL - DRILLING & SERVICES -- 1.0% 48,900 Halliburton Co. ............................................ 2,212,725 - ---------------------------------------------------------------------------------------- OIL - EXPLORATION & PRODUCTION -- 0.4% 12,000 Apache Corp. ............................................... 468,000 21,100 ENSCO International Inc. ................................... 420,681 - ---------------------------------------------------------------------------------------- 888,681 - ---------------------------------------------------------------------------------------- OIL - SUPPLIES & CONSTRUCTION -- 0.2% 11,100 Baker Hughes, Inc. ......................................... 371,850 1,000 Rowan Cos., Inc. (a)........................................ 18,437 - ---------------------------------------------------------------------------------------- 390,287 - ---------------------------------------------------------------------------------------- OIL & GAS -- 0.0% 5,500 Global Marine, Inc. (a)..................................... 84,906 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 22 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ OIL & GAS DRILLING -- 0.1% 9,600 Santa Fe International Corp. ............................... $ 220,800 1,000 Varco International, Inc. (a)............................... 10,937 - ---------------------------------------------------------------------------------------- 231,737 - ---------------------------------------------------------------------------------------- OIL & GAS PRODUCTS -- 0.3% 4,300 Nabors Industries, Inc. (a)................................. 105,081 25,300 Noble Drilling Corp. (a).................................... 498,093 - ---------------------------------------------------------------------------------------- 603,174 - ---------------------------------------------------------------------------------------- OIL PRODUCTION - DOMESTIC -- 0.0% 500 BJ Services Co. (a)......................................... 14,718 - ---------------------------------------------------------------------------------------- PACKAGING & BOTTLING -- 0.0% 300 Sealed Air Corp. (a)........................................ 19,462 - ---------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS -- 0.6% 21,100 Weyerhaeuser Co. ........................................... 1,450,625 - ---------------------------------------------------------------------------------------- PAPER PRODUCTS -- 0.6% 1,900 Bowater, Inc. .............................................. 89,775 20,800 International Paper Co. .................................... 1,050,400 7,300 Mead Corp. ................................................. 304,775 600 Smurfit Stone Container Corp. .............................. 12,337 - ---------------------------------------------------------------------------------------- 1,457,287 - ---------------------------------------------------------------------------------------- PHARMACEUTICAL -- 0.4% 300 Alpharma Inc., Class A Shares............................... 10,668 200 Andrx Corp. (a)............................................. 15,425 900 Enzon, Inc. (a)............................................. 18,618 100 Icon PLC ADR (a)............................................ 1,962 800 Liposome Co. Inc. (a)....................................... 15,300 500 Millennium Pharmaceuticals, Inc. (a)........................ 18,000 300 QLT PhotoTherapeutics Inc. ................................. 16,500 9,600 Sepracor Inc. (a)........................................... 780,000 - ---------------------------------------------------------------------------------------- 876,473 - ---------------------------------------------------------------------------------------- PRINT, PUBLISHING & BROADCAST -- 0.1% 4,100 Grupo Televisa S.A. (a)..................................... 183,731 - ---------------------------------------------------------------------------------------- PUBLISHING - NEWSPAPER -- 0.0% 400 Big Flower Holdings, Inc. (a)............................... 12,750 - ---------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST -- 0.0% 400 Starwood Hotels & Resorts Worldwide, Inc. .................. 12,225 - ---------------------------------------------------------------------------------------- RESTAURANT -- 0.0% 500 Applebee's International, Inc. ............................. 15,062 400 Brinker International, Inc. (a)............................. 10,875 300 CEC Entertainment Inc. (a).................................. 12,675 220 CKE Restaurants, Inc. ...................................... 3,575
SEE NOTES TO FINANCIAL STATEMENTS. 23 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ RESTAURANT -- 0.0% (CONTINUED) 400 IHOP Corp. (a). $ 9,625 200 Papa John's International, Inc. (a)......................... 8,937 - ---------------------------------------------------------------------------------------- 60,749 - ---------------------------------------------------------------------------------------- RETAIL -- 0.3% 6,400 Abercrombie & Fitch Co., Class A Shares (a)................. 307,200 300 AnnTaylor Stores Corp. (a).................................. 13,500 325 Bebe Stores, Inc. (a)....................................... 11,050 6,900 Gap, Inc. .................................................. 347,587 945 Intimate Brands, Inc. ...................................... 44,769 300 Linens 'N Things Inc. (a)................................... 13,125 410 Talbots, Inc. .............................................. 15,631 - ---------------------------------------------------------------------------------------- 752,862 - ---------------------------------------------------------------------------------------- RETAIL - DEPARTMENT STORES -- 0.0% 250 Consolidated Stores Corp. (a)............................... 6,750 - ---------------------------------------------------------------------------------------- RETAIL - SPECIALTY -- 1.9% 1,400 AutoNation, Inc. (a)........................................ 24,937 6,600 Best Buy Co., Inc. (a)...................................... 445,500 500 Boise Cascade Office Products Corp. (a)..................... 5,875 1,200 CompUSA, Inc. (a)........................................... 8,925 300 CSK Auto Corp (a)........................................... 8,100 600 General Nutrition Cos., Inc., Class A Shares (a)............ 13,987 400 Group 1 Automotive Inc. .................................... 8,450 200 Henry Schein Inc. .......................................... 6,337 300 Insight Enterprises, Inc. .................................. 7,425 17,400 Micro Warehouse Inc. (a).................................... 311,025 147,250 Office Depot Inc. (a)....................................... 3,248,703 8,200 Staples Inc. (a)............................................ 253,687 200 Tiffany & Co. .............................................. 19,300 200 Tommy Hilfiger Corp. (a).................................... 14,700 - ---------------------------------------------------------------------------------------- 4,376,951 - ---------------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.0% 400 PMC-Sierra, Inc. (a)........................................ 23,575 - ---------------------------------------------------------------------------------------- SOFTWARE -- 0.1% 200 Aspen Technology, Inc. (a).................................. 2,350 300 Aware, Inc. (a)............................................. 13,837 1,000 Inktomi Corp. (a)........................................... 130,562 700 Metamor Worldwide, Inc. (a)................................. 16,844 - ---------------------------------------------------------------------------------------- 163,593 - ---------------------------------------------------------------------------------------- SPORTING GOODS -- 0.0% 1,000 Callaway Golf Co. .......................................... 14,626 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 24 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ TECHNOLOGY -- 0.6% 300 Applied Micro Circuits Corp. (a)............................ $ 24,675 400 Credence Systems Corp. (a).................................. 14,850 300 Electronics for Imaging, Inc. (a)........................... 15,412 300 Harmonic Inc. (a)........................................... 17,231 18,450 Learning Tree International, Inc. (a)....................... 201,796 300 MIPS Technology Inc. ....................................... 14,381 5,700 Uniphase Corp. (a).......................................... 946,200 700 U.S. Satellite Broadcasting Co. (a)......................... 12,597 1,800 Vantive Corp. .............................................. 20,587 2,400 Waters Corp. (a)............................................ 127,500 - ---------------------------------------------------------------------------------------- 1,395,229 - ---------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 17.9% 7,500 ADC Telecommunications, Inc. (a)............................ 341,718 700 Amdocs Ltd. (a)............................................. 15,925 300 Centennial Cellular Corp., Class A Shares (a)............... 10,687 700 CommNet Cellular Inc. (a)................................... 18,375 200 Copper Mountain Networks, Inc. (a).......................... 15,450 56,900 Ericsson LM Telephone ADR................................... 1,874,143 61,300 Global TeleSystems Group, Inc. (a).......................... 4,965,300 9,100 Intermedia Communications, Inc. (a)......................... 273,000 700 ITC DeltaCom, Inc. (a)...................................... 19,600 300 L-3 Communications Holdings Inc. (a)........................ 14,493 33,000 Lucent Technologies Inc. ................................... 2,225,437 3,500 Manugistics Group, Inc. (a)................................. 50,750 62,200 MediaOne Group, Inc. (a).................................... 4,626,125 44,900 Motorola, Inc. ............................................. 4,254,275 19,300 Nextel Communications Inc. (a).............................. 968,618 42,000 Nortel Networks Corp. ...................................... 3,167,419 14,900 NTL Inc. (a)................................................ 1,284,193 1,200 Omnipoint Corp. ............................................ 34,725 500 Power Wave Technologies, Inc. .............................. 16,125 1,000 Premiere Technologies Inc. ................................. 11,500 46,600 QUALCOMM, Inc. (a).......................................... 6,687,100 200 Redback Networks (a)........................................ 25,112 210 RF Micro Devices Inc. (a)................................... 15,671 5,300 SK Telecom Co. LTD ADR...................................... 90,100 64,500 Sprint Corp. ............................................... 3,406,406 58,500 Sprint Corp. (PCS).......................................... 3,341,812 6,900 ST Micoelectronics N.V. .................................... 478,687 8,100 Talk.com Inc. .............................................. 91,125 2,400 Tekelec (a)................................................. 29,250 21,800 Telecomuncacoes Brasileiras S.A. ADR (a).................... 1,362 700 Time Warner Telecom Inc. ................................... 20,300 13,800 Vodafone AirTouch PLC....................................... 2,718,600
SEE NOTES TO FINANCIAL STATEMENTS. 25 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ TELECOMMUNICATIONS -- 17.9% (CONTINUED) 400 VoiceStream Wireless Corp. (a). $ 11,375 400 Western Wireless Corp., Class A Shares (a).................. 10,800 - ---------------------------------------------------------------------------------------- 41,115,558 - ---------------------------------------------------------------------------------------- TELECOMMUNICATIONS EQUIPMENT -- 0.2% 10,200 Scientific-Atlanta, Inc. ................................... 367,200 - ---------------------------------------------------------------------------------------- TELEPHONE -- 1.3% 8,700 ALLTEL Corp................................................. 622,050 19,200 CenturyTel, Inc............................................. 763,200 18,100 Cinncinnati Bell Inc........................................ 451,368 13,150 Covad Communications Group, Inc............................. 701,060 800 Hyperion Telecommunications, Inc., Class A Shares (a)....... 15,050 5,800 Rhythms NetConnections Inc.................................. 338,575 1,900 WinStar Communications, Inc. (a)............................ 92,625 - ---------------------------------------------------------------------------------------- 2,983,928 - ---------------------------------------------------------------------------------------- TELEPHONE - COMMUNICATIONS -- 6.4% 700 ACT Networks, Inc. (a)...................................... 11,943 54,200 Frontier Corp............................................... 3,197,800 130,831 MCI Worldcom, Inc. (a)...................................... 11,284,173 220 Optical Coating Laboratory Inc.............................. 18,397 2,500 Viatel Inc.................................................. 140,312 - ---------------------------------------------------------------------------------------- 14,652,625 - ---------------------------------------------------------------------------------------- TELEVISION -- 1.8% 300 Hearst-Argyle Television, Inc. (a).......................... 7,200 127,000 Qwest Communications International Inc. (a)................. 4,198,937 320 TCA Cable TV, Inc........................................... 17,760 - ---------------------------------------------------------------------------------------- 4,223,897 - ---------------------------------------------------------------------------------------- TEXTILES - APPAREL MANUFACTURING -- 0.0% 600 Lands' End, Inc. (a)........................................ 29,100 450 Quiksilver Inc.............................................. 11,728 - ---------------------------------------------------------------------------------------- 40,828 - ---------------------------------------------------------------------------------------- TRANSPORTATION -- 2.6% 300 Atlas Air, Inc. (a)......................................... 9,675 330 SkyWest Inc................................................. 8,229 81,200 Time Warner, Inc............................................ 5,968,200 - ---------------------------------------------------------------------------------------- 5,986,104 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 26 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------------ UTILITIES -- 0.5% 11,900 AES Corp. (a)............................................... $ 691,687 13,300 Diamond Offshore Drilling, Inc.............................. 377,387 - ---------------------------------------------------------------------------------------- 1,069,074 - ---------------------------------------------------------------------------------------- TOTAL STOCK (Cost -- $153,973,210).......................... 208,889,804 - ---------------------------------------------------------------------------------------- FACE AMOUNT SECURITY VALUE - ---------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 9.3% $13,800,000 Federal Home Loan Mortgage Discount Note, 4.600% due 7/1/99...................................................... 13,800,000 7,600,000 Federal Home Loan Mortgage Discount Note, 5.030% due 7/8/99...................................................... 7,592,566 - ---------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $21,392,566)..... 21,392,566 - ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $175,365,776*)........... $230,282,370 - ----------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 27 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- CORPORATE BONDS & NOTES -- 95.6% - --------------------------------------------------------------------------------------------------- AEROSPACE & DEFENSE -- 0.4% $ 175,000 B- Anteon Corp., Sr. Sub. Notes 12.000% due 5/15/09 (a)........ $ 174,125 - --------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 3.6% 200,000 B- Accuride Corp., Sr. Sub. Notes, 9.250% due 2/1/08........... 192,000 200,000 B- Aftermarket Technology Corp., Sr. Sub. Notes, 12.000% due 8/1/04.................................................... 210,500 225,000 B American Axle & Manufacturing Inc., Company Guaranteed Notes, 9.750% due 3/1/09.................................. 225,563 200,000 B Collins Aikman Products Co., Company Guaranteed, 11.500% due 4/15/06................................................... 204,000 150,000 B- HDA Parts System Inc., Sr. Sub. Notes, 12.000% due 8/1/05 (a)....................................................... 151,500 200,000 B- J.L. French Auto Casting, Sr. Sub. Notes, 11.500% due 6/1/09.................................................... 202,500 Lear Corp., Sub. Notes: 100,000 BB- 9.500% due 7/15/06........................................ 108,125 250,000 BB- 8.110% due 5/15/09 (a).................................... 239,375 200,000 B Motor Coach Industries Ltd., Company Guaranteed Notes, 11.250% due 5/1/09 (a).................................... 200,000 - --------------------------------------------------------------------------------------------------- 1,733,563 - --------------------------------------------------------------------------------------------------- BANKING -- 0.7% 350,000 BB+ GS Escrow Corp., Sr. Sub. Notes, 7.125% due 8/1/05.......... 338,626 - --------------------------------------------------------------------------------------------------- BEVERAGE & TOBACCO -- 0.7% 100,000 B+ Canandaigua Brand Inc., Company Guaranteed Notes, 8.500% due 3/1/09.................................................... 97,250 125,000 BB+ Dimon Inc., Sr. Notes, 8.875% due 6/1/06.................... 114,532 100,000 B National Wine & Spirits Holdings Corp., Sr. Notes, 10.125% due 1/15/09 (a)........................................... 103,000 - --------------------------------------------------------------------------------------------------- 314,782 - --------------------------------------------------------------------------------------------------- BROADCASTING, RADIO, CABLE & TV -- 7.0% 250,000 B- ACME Television LLC Financial Corp., Sr. Discount Notes, 11.028% due 9/30/04....................................... 205,625 225,000 B3* Big City Radio Inc., Company Guaranteed Notes, 13.012% due 3/15/05................................................... 160,875 100,000 B- Capstar Broadcasting Corp., Sr. Sub. Notes, 9.250% due 7/1/07.................................................... 103,500 Chancellor Media Corp.: 50,000 B Company Guaranteed Notes, 10.500% due 1/15/07............... 54,500 100,000 B Sr. Sub. Notes, 9.375% due 10/1/04........................ 103,000 650,000 B Sr. Sub. Notes, 8.125% due 12/15/07....................... 633,750 425,000 B Sr. Sub. Notes, 9.000% due 10/1/08........................ 434,562 200,000 CCC+ Cumulus Media Inc., Company Guaranteed Notes, 10.375% due 7/1/08.................................................... 211,000 500,000 B Fox/Liberty Networks LLC Inc., Sr. Discount Notes, 9.750% due 8/15/07............................................... 397,500 125,000 B Lamar Advertising Co., Company Guaranteed Notes, 8.625% due 9/15/07................................................... 125,625 350,000 B Outdoor Systems Inc., Sr. Sub. Notes, 8.875% due 6/15/07.... 364,876 Sinclair Broadcast Group Inc., Sr. Sub. Notes: 50,000 B 10.000% due 9/30/04....................................... 48,875 100,000 B 9.000% due 7/15/07........................................ 104,500 425,000 B 8.750% due 12/15/07....................................... 417,563 - --------------------------------------------------------------------------------------------------- 3,365,751 - ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 28 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- BUILDING & DEVELOPMENT -- 1.3% $ 100,000 B American Builders & Contractors, Sr. Sub. Notes, 10.625% due 5/15/07................................................... $ 94,250 100,000 BB Building Materials Corp., Sr. Notes, 8.000% due 10/15/07.... 95,875 200,000 B- Falcon Building Products, Inc., Company Guaranteed Notes, step bond to yield 12.615% due 6/15/07.................... 133,000 150,000 B- Formica Corp., Sr. Sub. Notes, 10.875% due 3/1/09 (a)....... 147,000 50,000 B- Juno Lighting Inc., Sr. Sub. Notes, 11.875% due 7/1/09 (a)....................................................... 50,500 125,000 B NCI Building Systems Inc., 9.125% due 5/1/09 (a)............ 125,000 - --------------------------------------------------------------------------------------------------- 645,625 - --------------------------------------------------------------------------------------------------- BUSINESS EQUIPMENT & SERVICES -- 2.0% 150,000 BB- Avis Rent a Car Inc., Sr. Sub. Notes, 11.000% due 5/1/09 (a)....................................................... 150,563 175,000 B- Dialog Corp. PLC, Sr. Sub. Notes, 11.000% due 11/15/07...... 162,750 Fisher Scientific International Inc., Sr. Sub. Notes: 150,000 B- 9.000% due 2/1/07......................................... 142,500 275,000 B- 9.000% due 2/1/08......................................... 261,250 33,000 B United Stationers Inc., Sr. Sub. Notes, 12.750% due 5/1/05.................................................... 36,630 300,000 CCC+ U.S. Office Products Co., Company Guaranteed Notes, 9.750% due 6/15/08............................................... 193,500 - --------------------------------------------------------------------------------------------------- 947,193 - --------------------------------------------------------------------------------------------------- CABLE TELEVISION -- 10.4% 350,000 B+ Charter Communications Holdings LLC, Sr. Discount Notes, step bond to yield, 9.649% due 4/1/11 (a)................. 217,875 CSC Holdings Inc., Sr. Sub. Notes: 300,000 BB- 9.250% due 11/1/05........................................ 320,250 250,000 BB- 9.875% due 2/15/13........................................ 270,625 125,000 B- Diamond Cable Communications PLC, Sr. Discount Notes, step bond to yield 9.900% due 2/15/07.......................... 96,875 150,000 B- Diamond Holdings PLC, Company Guaranteed Notes, 9.125% due 2/1/08.................................................... 150,750 100,000 NR Diva Systems Corp., Sr. Discount Notes, step bond to yield 12.020% due 3/15/04 (b)................................... 33,875 450,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09 (a)........ 460,125 Lenfest Communications, Inc.: 150,000 BB+ Sr. Notes, 8.375% due 11/1/05............................. 156,750 100,000 BB- Sr. Sub. Notes, 8.250% due 2/15/08........................ 105,500 NTL Inc., Sr. Notes, step bond to yield: 375,000 B- 10.564% due 2/1/06........................................ 318,750 850,000 B- 10.885% due 4/1/08........................................ 583,313 475,000 B- 10.564% due 10/1/08....................................... 324,187 425,000 B- Pegasus Communications Corp., Sr. Notes, 9.625% due 10/15/05.................................................. 417,563 200,000 B- RCN Corp., Sr. Discount Notes, step bond to yield 12.698% due 10/15/07.............................................. 134,500 350,000 BB+ Rogers Cable Systems Inc., Sr. Notes, 10.000% due 3/15/05... 378,000 Telewest Communications PLC, Sr. Notes: 50,000 B+ 11.250% due 11/1/08 (a)................................... 57,000 675,000 B+ Step bond to yield 10.758% due 10/1/07.................... 602,438 275,000 B UIH Australia Inc., Sr. Discount Notes, step bond to yield 14.353% due 5/15/06....................................... 184,937
SEE NOTES TO FINANCIAL STATEMENTS. 29 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- CABLE TELEVISION -- 10.4% (CONTINUED) $ 275,000 B United International Holdings, Sr. Discount Notes, step bond to yield 10.647% due 2/15/08............................................ $ 182,875 - ------------------------------------------------------------------------------------------------------------ 4,996,188 - ------------------------------------------------------------------------------------------------------------ CHEMICALS & PLASTICS -- 4.1% Buckeye Cellulose Corp., Sr. Sub. Notes: 75,000 BB- 8.500% due 12/15/05........................................... 75,750 100,000 BB- 9.250% due 9/15/08............................................ 105,375 250,000 B2* Huntsman Corp., Sr. Sub. Notes, 9.500% due 7/1/07............... 240,000 175,000 B+ Huntsman ICI Chemicals, Sr. Sub. Notes, 10.125% due 7/1/09 (a)... 175,875 225,000 BB- ISP Holdings Inc., Sr. Notes, 9.000% due 10/15/03............... 226,125 350,000 B+ Lyondell Chemical Co., Sr. Sub. Notes, 10.875% due 5/1/09 (a)... 364,876 Polymer Group, Inc., Company Guaranteed Notes: 225,000 B 9.000% due 7/1/07............................................. 220,500 300,000 B 8.750% due 3/1/08............................................. 291,000 Sterling Chemicals Inc., Sr. Sub. Notes: 150,000 B 11.750% due 8/15/06........................................... 115,500 50,000 B Step bond to yield 12.485% due 8/15/08........................ 17,500 150,000 B Texas Petrochemical Corp., Sr. Sub. Notes, 11.125% due 7/1/06... 136,125 - ------------------------------------------------------------------------------------------------------------ 1,968,626 - ------------------------------------------------------------------------------------------------------------ CLOTHING & TEXTILES -- 1.3% 150,000 B- Collins & Aikman Corp., Sr. Sub. Notes, 10.000% due 1/15/07..... 151,500 150,000 B- Gear For Sports Inc., Sr. Sub. Notes, 9.625% due 3/1/07......... 132,000 50,000 B- Glenoit Corp., Company Guaranteed Notes, 11.000% due 4/15/07.... 44,000 Pillowtex Corp., Company Guaranteed Notes: 150,000 B+ 10.000% due 11/15/06.......................................... 151,875 175,000 B+ 9.000% due 12/15/07........................................... 168,875 - ------------------------------------------------------------------------------------------------------------ 648,250 - ------------------------------------------------------------------------------------------------------------ COMMERCIAL SERVICES -- 0.2% 100,000 B+ Coinmach Corp., Sr. Notes, 11.750% due 11/15/05................. 109,000 - ------------------------------------------------------------------------------------------------------------ CONGLOMERATES -- 0.5% 250,000 B- Eagle Picher Industries, Inc., Sr. Sub. Notes, 9.375% due 3/1/08... 244,063 - ------------------------------------------------------------------------------------------------------------ CONSUMER PRODUCTS -- 4.7% 200,000 B- Albecca Inc., Company Guaranteed Notes, 10.750% due 8/15/08..... 168,000 100,000 B+ American Safety Razor Co., Sr. Sub. Notes, 9.875% due 8/1/05.... 101,000 175,000 B- Amscan Holdings Inc., Sr. Sub. Notes, 9.875% due 12/15/07....... 145,687 150,000 B- The Boyds Collection, Ltd., Sr. Sub. Notes, 9.000% due 5/15/08 (a)... 147,750 275,000 B- Chattem Inc., Company Guaranteed Notes, 8.875% due 4/1/08....... 272,250 50,000 CCC+ Diamond Brands Operating, Company Guaranteed Notes, 10.125% due 4/15/08....................................................... 44,937 100,000 B+ NBTY Inc., Sr Sub Notes, 8.625% due 9/15/07..................... 88,625 250,000 B Playtex Family Products Corp., Sr. Sub. Notes, 9.000% due 12/15/03... 254,375 500,000 B- Revlon Consumer Products., Sr. Sub. Notes, 8.625% due 2/1/08.... 467,500 125,000 B- Sealy Mattress Co., Sr. Sub. Notes, 9.875% due 12/15/07......... 125,468 100,000 B- Simmons Co., Sr. Sub. Notes, 10.250% due 3/15/09 (a)............ 102,000 100,000 B- True Temper Sports Inc., Sr. Sub. Notes, 10.875% due 12/1/08 (a)... 85,500
SEE NOTES TO FINANCIAL STATEMENTS. 30 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- CONSUMER PRODUCTS -- 4.7% (CONTINUED) $ 100,000 B- United Industries Corp., Sr. Sub. Notes, 9.875% due 4/1/09 (a). $ 95,000 150,000 B- Volume Service America, Sr. Sub. Notes, 11.250% due 3/1/09 (a)........................................................ 175,125 - ------------------------------------------------------------------------------------------------------ 2,273,217 - ------------------------------------------------------------------------------------------------------ CONSUMER SERVICES -- 1.2% 425,000 B Crown Castle International Corp., Sr. Discount Notes, step bond to yield 10.068% due 5/15/11............................... 248,625 175,000 B Sitel Corp., Company Guaranteed Notes, 9.250% due 3/15/06.... 167,343 150,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09 (a)............ 150,375 - ------------------------------------------------------------------------------------------------------ 566,343 - ------------------------------------------------------------------------------------------------------ CONTAINERS -- 0.5% 100,000 B- Russell-Stanley Holdings Inc., Sr. Sub. Notes, 10.875% due 2/15/09 (a)................................................ 97,750 150,000 B- Tekni-Plex Inc., Sr. Sub. Notes, 9.250% due 3/1/08........... 145,500 - ------------------------------------------------------------------------------------------------------ 243,250 - ------------------------------------------------------------------------------------------------------ ECOLOGICAL SERVICES & EQUIPMENT -- 1.4% 700,000 BB- Allied Waste North America, Company Guaranteed Notes, 7.625% due 1/1/06................................................. 652,750 - ------------------------------------------------------------------------------------------------------ ELECTRIC UTILITIES -- 0.8% 100,000 BB CMS Energy Corp., Sr. Notes, 7.500% due 1/15/09.............. 95,250 250,000 BB+ El Paso Electric Co., 1st Mortgage, 9.400% due 5/1/11........ 286,562 - ------------------------------------------------------------------------------------------------------ 381,812 - ------------------------------------------------------------------------------------------------------ ELECTRONICS -- 1.3% 75,000 B- Cherokee International, Sr. Sub. Notes, 10.500% due 5/1/09 (a)........................................................ 75,187 475,000 B- Telecomm Techniques Co., Company Guaranteed Notes, 9.750% due 5/15/08.................................................... 477,375 100,000 B- Viasystems Inc., Sr. Sub. Notes, 9.750% due 6/1/07........... 87,750 - ------------------------------------------------------------------------------------------------------ 640,312 - ------------------------------------------------------------------------------------------------------ FOOD PRODUCTS -- 2.5% 250,000 B Agrilink Foods Inc., Sr. Sub. Notes, 11.875% due 11/1/08 (a)... 258,750 100,000 B+ Aurora Foods Inc., Sr. Sub. Notes, 8.750% due 7/1/08......... 104,250 300,000 CCC+ Eagle Family Foods, Company Guaranteed, 8.750% due 1/15/08... 274,500 350,000 B- International Home Foods, Inc., Company Guaranteed Notes, 10.375% due 11/1/06........................................ 378,438 175,000 B- Triarc Consumer Products Group, Sr. Notes, 10.250% due 2/15/09 (a)........................................................ 169,312 - ------------------------------------------------------------------------------------------------------ 1,185,250 - ------------------------------------------------------------------------------------------------------ FOOD SERVICES -- 1.7% 150,000 B Advantica Restaurant Group Inc., Sr. Notes, 11.125% due 1/15/08.................................................... 143,625 375,000 B- Ameriserve Food Distribution Inc., Company Guarantee, 10.125% due 7/15/07................................................ 318,750 100,000 B- Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08............ 95,750 200,000 B- Dominos Inc., Sr. Sub. Notes, 10.375% due 1/15/09............ 204,000 100,000 B- Nebco Evans Holding Co., Sr. Discount Notes, step bond to yield 10.820% due 7/15/07........................................ 50,000 - ------------------------------------------------------------------------------------------------------ 812,125 - ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 31 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- FOREST PRODUCTS -- 0.7% $ 175,000 B Packaging Corp. of America, Sr. Sub. Notes, 9.625% due 4/1/09.................................................... $ 176,750 175,000 B- Stone Container Corp., Sr. Sub. Debentures, 10.750% due 4/1/02.................................................... 175,656 - --------------------------------------------------------------------------------------------------- 352,406 - --------------------------------------------------------------------------------------------------- HEALTH CARE -- 3.7% 250,000 B- Alliance Imaging Inc., Sr. Sub. Notes, Callable 12/15/01, 9.625% due 12/15/05....................................... 248,437 250,000 B- Dade International Inc., Sr. Sub. Notes, 11.125% due 5/1/06.................................................... 270,937 100,000 B- Everest Healthcare Services, Company Guaranteed, 9.750% due 5/1/08.................................................... 101,625 225,000 CCC+ Genesis Health Ventures, Inc., Sr. Sub. Notes: 9.875% due 1/15/09................................................... 184,750 125,000 B- Kinetic Concepts, Inc., Company Guaranteed, 9.625% due 11/1/07................................................... 115,312 Tenet Healthcare Corp., Sr. Notes: 300,000 BB+ 8.000% due 1/15/05........................................ 294,000 100,000 BB+ 7.625% due 6/1/08......................................... 93,500 400,000 BB+ 8.125% due 12/1/08........................................ 386,001 100,000 B- Triad Hospitals Holdings, Sr. Sub. Notes, 11.000% due 5/15/09 (a)............................................... 102,000 - --------------------------------------------------------------------------------------------------- 1,796,562 - --------------------------------------------------------------------------------------------------- HOTELS/MOTELS -- 1.8% 250,000 B- Florida Panthers Holdings, Company Guaranteed Notes, 9.875% due 4/15/09............................................... 240,000 HMH Properties Inc.: 300,000 BB Sr. Notes, 8.450% due 12/1/08............................. 285,000 350,000 BB Sr. Sub. Notes, 7.875% due 8/1/08......................... 322,000 - --------------------------------------------------------------------------------------------------- 847,000 - --------------------------------------------------------------------------------------------------- INDUSTRIAL PRODUCTS & EQUIPMENT -- 3.6% 225,000 B- Amphenol Corp., Sr. Sub. Notes, Callable 5/15/02, 9.875% due 5/15/07................................................... 230,343 150,000 B- Continental Global Group, Sr. Notes, 11.000% due 4/1/07..... 133,312 150,000 B Euramax International PLC, Sr. Sub. Notes, 11.250% due 10/1/06................................................... 156,000 175,000 B+ Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09 (a)........ 176,093 100,000 B- International Utility Structures, Sr. Sub. Notes, 10.750% due 2/1/08................................................ 100,750 175,000 B- ISG Resources Inc., Sr. Sub. Notes, 10.000% due 4/15/08..... 179,593 50,000 B Johnstown America Industries, Company Guaranteed, 11.750% due 8/15/05............................................... 53,375 225,000 B- MMI Products Inc., Sr. Sub. Notes, 11.250% due 4/15/07...... 232,312 150,000 B- Neenah Corp., 11.125% due 5/1/07............................ 148,687 325,000 B Wesco Distribution Inc., Company Guaranteed Notes, 9.125% due 6/1/08................................................ 316,063 - --------------------------------------------------------------------------------------------------- 1,726,528 - --------------------------------------------------------------------------------------------------- LEISURE & ENTERTAINMENT -- 2.9% 308,000 CCC AMF Bowling Worldwide Inc., Sr. Sub. Discount Notes, step bond to yield 13.034% due 3/15/01......................... 190,960 100,000 B Loews Cineplex Entertainment, Sr. Sub. Notes, 8.875% due 8/1/08.................................................... 97,250 Premier Parks Inc.: 825,000 B- Sr. Discount Notes, step bond to yield 10.000% due 4/1/08. 561,001 150,000 B- Sr. Notes, 10.089% due 6/15/07............................ 152,250 425,000 B Regal Cinemas Inc., Sr. Sub. Notes, 9.500% due 6/1/08....... 398,438 - --------------------------------------------------------------------------------------------------- 1,399,899 - ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 32 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- MACHINERY & EQUIPMENT -- 2.9% $ 35,000 B- Alvey Systems Inc., Sr. Sub. Notes, 11.325% due 1/31/03..... $ 35,262 150,000 B+ Clark Material Holdings Corp., Company Guaranteed Notes, 10.750% due 11/15/06...................................... 133,500 50,000 B Columbus McKinnon Corp., Company Guaranteed Notes, 8.500% due 4/1/08................................................ 48,750 175,000 B- Fairchild Corp., Company Guaranteed Notes, 10.750% due 4/15/09 (a)............................................... 172,375 National Equipment Services Inc., Sr. Sub. Notes: 100,000 B Series A, 10.000% due 11/30/04............................ 102,000 250,000 B Series D, 10.000% due 11/30/04............................ 255,000 200,000 B Nationsrent Inc., Company Guaranteed, 10.375% due 12/15/08.................................................. 198,500 United Rentals Inc., Sr. Sub. Notes: 250,000 BB- 9.250% due 1/15/09........................................ 248,750 200,000 BB- 9.000% due 4/1/09 (a)..................................... 198,000 - --------------------------------------------------------------------------------------------------- 1,392,137 - --------------------------------------------------------------------------------------------------- METALS & MINING -- 1.0% 250,000 B AEI Holdings Co. Inc., 10.500% due 12/15/05 (a)............. 245,000 150,000 B- AEI Resources Inc., Sr. Sub. Notes, 11.500% due 12/15/06 (a)....................................................... 148,125 125,000 BB- Murrin Murrin Holding Property, Sr. Notes, 9.375% due 8/31/07................................................... 110,312 - --------------------------------------------------------------------------------------------------- 503,437 - --------------------------------------------------------------------------------------------------- OIL & GAS -- 3.6% 200,000 B- Chiles Offshore Corp.. LLC/FIN, Company Guaranteed Notes, 10.000% due 5/1/08........................................ 166,000 100,000 B Comstock Resources Inc., Sr. Notes, 11.250% due 5/1/07 (a)....................................................... 102,250 200,000 CCC Continental Resources, Inc., Notes, 10.250% due 8/1/08...... 150,000 250,000 D Dailey International Inc., Company Guaranteed Notes, 9.500% due 5/15/08............................................... 162,500 200,000 B Houston Exploration Co., Sr. Sub. Notes, 8.625% due 1/1/08.................................................... 195,000 175,000 B+ Nuevo Energy Co., Company Guaranteed Notes, 8.875% due 6/1/08.................................................... 168,437 125,000 B+ Pogo Producing Co., Sr. Sub. Notes, 10.375% due 2/15/09..... 130,000 275,000 BB Pride International Inc., Sr. Notes, 9.375% due 5/1/07...... 273,625 150,000 B+ R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06 (a)........ 153,562 100,000 BB- RBF Finance Co., Company Guaranteed Notes, 11.375% due 3/15/09 (a)............................................... 103,500 225,000 B Universal Compress Inc., Sr. Discount Notes, 9.822% due 2/15/08................................................... 146,250 - --------------------------------------------------------------------------------------------------- 1,751,124 - --------------------------------------------------------------------------------------------------- PUBLISHING & PRINTING -- 1.6% 125,000 B Cadmus Communications Corp., Sr. Sub. Notes, 9.750% due 6/1/09.................................................... 125,468 300,000 B+ Garden State Newspapers, Sr. Sub. Notes, 8.750% due 10/1/09................................................... 285,000 Hollinger International Publishing Inc.: 175,000 BB- 9.250% due 3/15/07........................................ 178,937 50,000 BB- Company Guaranteed Notes, 9.250% due 2/1/06............... 51,125 150,000 B Ziff-Davis Inc., Sr. Sub. Notes, 8.500% due 5/1/08.......... 140,250 - --------------------------------------------------------------------------------------------------- 780,780 - --------------------------------------------------------------------------------------------------- RETAIL -- 0.1% 150,000 B- Jitney-Jungle Stores of America, Inc., Company Guaranteed Notes, 10.375% due 9/15/07................................ 69,000 - ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 33 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------- STEEL -- 0.7% $ 250,000 B Metals USA Inc., Company Guaranteed Notes, 8.625% due 2/15/08................................................... $ 245,312 100,000 BBB Ryerson Tull Inc., Notes, 8.500% due 7/15/01................ 102,000 - --------------------------------------------------------------------------------------------------- 347,312 - --------------------------------------------------------------------------------------------------- SURFACE TRANSPORTATION -- 2.5% 250,000 BB- Allied Holdings Inc., Sr. Notes, Callable 10/1/02, 8.625% due 10/1/07............................................... 244,062 200,000 B+ Gearbull Holding Ltd., Sr. Notes, 11.250% due 12/1/04....... 204,000 100,000 BB+ The Holt Group, Sr. Notes, 9.750% due 1/15/06 (a)........... 70,000 100,000 B Railworks Corp., Sr. Sub. Notes, 11.500% due 4/15/09 (a).... 99,000 Stena AB, Sr. Notes: 275,000 BB 10.500% due 12/15/05...................................... 276,719 250,000 BB 8.750% due 6/15/07........................................ 231,563 100,000 B Stena Line AB, Sr. Notes, 10.625% due 6/1/08................ 75,000 - --------------------------------------------------------------------------------------------------- 1,200,344 - --------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS & CELLULAR -- 23.0% 200,000 CCC American Cellular Corp., Sr. Notes, Callable 5/15/06, 10.500% due 5/15/08 (a)................................... 204,000 Call Net Enterprises Inc., Sr. Discount Notes: 375,000 BB- 8.902% due 8/15/07........................................ 255,000 375,000 BB- Step bond to yield 10.148% due 8/15/03.................... 207,187 175,000 BB- Step bond to yield 8.902% due 5/15/04..................... 97,125 200,000 CCC+ Centennial Cellular Corp., Sr. Notes, 10.750%, 12/15/08..... 207,000 300,000 CCC+ Dolphin Telecom, PLC, Sr. Discount Notes, step bond to yield 13.419% due 5/15/09 (a)................................... 148,500 100,000 NR E. Spire Communications, Sr. Discount Notes, 10.798% due 4/1/06.................................................... 63,000 500,000 B Hermes Europe Railtel BV, Sr. Notes, 11.500% due 8/15/07.... 525,000 275,000 B3* ICG Holdings Inc., Company Guaranteed, step bond to yield 10.034% due 5/1/07........................................ 220,000 Intermedia Communications Inc., Sr. Discount Notes: 175,000 B 8.600% due 6/1/08......................................... 162,750 450,000 B Step bond to yield 10.425% due 9/15/05.................... 321,750 225,000 B Step bond to yield 10.183% due 5/15/06.................... 186,187 250,000 CCC+ Step bond to yield 11.805% due 3/1/09..................... 143,750 225,000 CCC+ IXC Communications Inc., Sr. Sub. Notes, 9.000% due 4/15/08................................................... 214,875 Level 3 Communications, Inc., Sr. Notes: 925,000 B 9.125% due 5/1/08......................................... 913,438 525,000 B Step bond to yield 11.085% due 12/1/08.................... 324,187 725,000 B+ McLeod USA Inc., Sr. Discount Notes, step bond to yield 9.608% due 3/1/07......................................... 552,813 Metronet Communications: 50,000 B Sr. Notes, 12.000% due 8/15/07............................ 57,625 100,000 B Sr. Notes, 10.625% due 11/1/08 (a)........................ 112,500 150,000 B Sr. Sub. Notes, step bond to yield 12.990% due 11/1/07.... 120,562 525,000 B Sr. Sub. Notes, step bond to yield 9.981% due 6/15/08..... 391,125
SEE NOTES TO FINANCIAL STATEMENTS. 34 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING+ SECURITY VALUE - --------------------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS & CELLULAR -- 23.0% (CONTINUED) $ 375,000 B- Millicom International Cellular SA, Sr. Sub. Discount Notes, step bond to yield 12.053% due 6/1/06................................................. $ 277,500 Nextel Communications: 825,000 B- Sr. Discount Notes, 10.748% due 9/15/07............................ 604,312 525,000 B- Sr. Sub. Notes, step bond to yield 10.003% due 2/15/08............. 363,562 75,000 B- Nextel International Inc., Sr. Discount Notes, 12.125% due 4/15/08... 37,687 125,000 CCC+ Nextel Partners Inc., Sr. Discount Notes, step bond to yield 13.410% due 2/1/09 (a)............................................. 70,937 NEXTLINK Communications, Inc., Sr. Notes: 100,000 B 9.625% due 10/1/07................................................. 97,500 1,050,000 B 12.197% due 10/1/07................................................ 614,250 250,000 BB- Orange PLC, Sr. Notes, 8.000% due 8/1/08............................. 239,375 225,000 B Paging Network, Inc., Sr. Sub. Notes, 10.000% due 10/15/08........... 164,250 100,000 NR Pathnet Inc., Sr. Notes, 12.250% due 4/15/08......................... 58,000 PSInet Inc., Sr. Notes: 350,000 B- 10.000% due 2/15/05................................................ 350,875 100,000 B- 11.500% due 11/1/08................................................ 105,000 700,000 BB+ Qwest Communications International Inc., Sr. Discount Notes, step bond to yield 8.378% due 10/15/07................................................ 539,000 275,000 BB- Rogers Cantel Inc., Sr. Sub. Notes, 8.800% due 10/1/07............... 278,437 100,000 B- Tele1 Europe AB, 13.000% due 5/15/09................................. 104,250 425,000 CCC+ Telesystem International Wireless, Sr. Discount Notes, step bond to yield 12.970% due 6/30/07................................................ 225,250 Teligent Inc.: 175,000 CCC Sr. Discount Notes, 13.776% due 3/1/08............................. 108,062 350,000 CCC Sr. Notes, 11.500% due 12/1/07..................................... 359,625 225,000 B3* Tritel PCS Inc., Sr. Discount Notes, step bond to yield 12.259% due 5/15/09 (a)................................................................ 122,625 425,000 B3* Triton PCS Inc., Company Guaranteed Notes, step bond to yield 13.043% due 5/1/08................................................. 275,187 150,000 NR US Xchange LLC, Sr. Notes, 15.000% due 7/1/08........................ 155,250 100,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08........................... 105,000 Viatel Inc.: 275,000 Caa1* Sr. Discount Notes, 12.774% due 4/15/08............................ 176,687 100,000 Caa1* Sr. Notes, 11.250% due 4/15/08 (a)................................. 100,750 100,000 Caa1* Sr. Notes, 11.500% due 3/15/09..................................... 103,750 - ---------------------------------------------------------------------------------------------------------------------- 11,065,495 - ---------------------------------------------------------------------------------------------------------------------- UTILITIES -- 1.2% 250,000 BB Caithness Coso Funding Corp., Secured Notes, 9.050% due 12/15/09 (a)... 245,625 450,000 BBB- Niagara Mohawk Power Corp., Sr. Discount Notes, step bond to yield 8.075% due 7/1/10.................................................. 355,500 - ---------------------------------------------------------------------------------------------------------------------- 601,125 - ---------------------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS & NOTES (Cost -- $47,527,265).................. 46,074,000 - ----------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 35 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------- PREFERRED STOCK -- 2.4% - --------------------------------------------------------------------------------------------------- BROADCASTING, RADIO, CABLE & TV -- 0.9% 1,000 Benedek Communications Corp., 11.500% Payment-in-Kind....... $ 95,000 632 Capstar Broadcasting Partners, Sr. Preferred, 12.000%....... 74,389 299 Capstar Communications Corp., Preferred 12.625%............. 35,880 1,127 Cumulus Media Inc., Fixed, 13.750%.......................... 118,102 1,029 Sinclair Capital, 11.625%................................... 108,824 - --------------------------------------------------------------------------------------------------- 432,195 - --------------------------------------------------------------------------------------------------- CABLE TELEVISION -- 0.1% 63 Pegasus Communications, Payment-in-Kind, 12.750%............ 67,170 - --------------------------------------------------------------------------------------------------- FOOD SERVICES -- 0.1% 1,144 Nebco Evans Holding Co., Payment-in-Kind, 11.250%........... 44,616 - --------------------------------------------------------------------------------------------------- OIL & GAS DRILLING -- $0.2% 750 R&B Falcon Corp., Payment-in-kind, 13.875%.................. 77,250 - --------------------------------------------------------------------------------------------------- PUBLISHING & PRINTING -- 0.9% 1,500 Primedia Inc., 8.625%....................................... 144,000 2,850 Primedia Inc., 9.200%....................................... 277,163 - --------------------------------------------------------------------------------------------------- 421,163 - --------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS & CELLULAR -- 0.2% 850 Nextel Communications, Payment-in-Kind, 11.125%............. 89,675 - --------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost -- $1,191,368).................. 1,132,069 - --------------------------------------------------------------------------------------------------- WARRANTS (c) -- 0.0% - --------------------------------------------------------------------------------------------------- BROADCAST MEDIA -- 0.0% 100 UIH Australia Pacific Inc., Expire 5/15/06.................. 200 - --------------------------------------------------------------------------------------------------- CABLE TELEVISION -- 0.0% 300 Diva Systems Corp., Expire 3/1/08........................... 3,600 50 Pegasus Communication Corp., Expire 1/1/07.................. 3,000 - --------------------------------------------------------------------------------------------------- 6,600 - --------------------------------------------------------------------------------------------------- CHEMICALS -- 0.0% 100 Sterling Chemicals Holdings Inc., Expire 8/15/08............ 1,500 - --------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS & CELLULAR -- 0.0% 3 Metronet Communications Corp., Class B, Expire 8/15/07...... 412 100 Pathnet Inc., Expire 5/15/08................................ 1,000 - --------------------------------------------------------------------------------------------------- 1,412 - --------------------------------------------------------------------------------------------------- TOTAL WARRANTS (Cost -- $23,300)............................ 9,712 - --------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost-- $48,741,933).................. 47,215,781 - ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 36 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 2.0% $ 978,000 Chase Securities Inc., 4.800% due 7/1/99; Proceeds at maturity -- $978,128; (Fully collateralized by U.S. Treasury Notes, 6.125% due 8/15/07; Market value -- $999,375) (Cost -- $978,000)................ $ 978,000 - --------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $49,719,933**)........... $48,193,781 - ---------------------------------------------------------------------------------------------------
+ All ratings are by Standard & Poor's Ratings Service, except those identified by an asterisk (*) which are rated by Moody's Investors Service, Inc. (a) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. (b) Security has been issued with attached warrants. (c) Non-income producing security. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 48 for definition of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 37 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- COMMON STOCK -- 95.5% - ------------------------------------------------------------------------------------- AEROSPACE -- 2.2% 9,000 Allied Signal Inc. ......................................... $ 567,000 6,700 Northrop Grumman Corp. ..................................... 444,293 - ------------------------------------------------------------------------------------- 1,011,293 - ------------------------------------------------------------------------------------- AIRLINES -- 0.5% 8,157 KLM Royal Dutch Airlines.................................... 232,985 - ------------------------------------------------------------------------------------- AUTO PARTS & EQUIPMENT -- 1.0% 18,700 Cooper Tire & Rubber Co. ................................... 441,787 - ------------------------------------------------------------------------------------- AUTOMOTIVE -- 1.2% 4,612 Delphi Automotive Systems Corp. ............................ 85,610 7,300 General Motors Corp. ....................................... 481,800 - ------------------------------------------------------------------------------------- 567,410 - ------------------------------------------------------------------------------------- CONSUMER DURABLES -- 1.7% 5,200 Eastman Kodak Co. .......................................... 352,300 15,450 Hasbro, Inc. ............................................... 431,634 - ------------------------------------------------------------------------------------- 783,934 - ------------------------------------------------------------------------------------- CONSUMER NON-DURABLES -- 1.3% 10,700 Kimberly-Clark Corp. ....................................... 609,900 - ------------------------------------------------------------------------------------- CONTAINERS -- 0.8% 12,700 Crown Cork & Seal Co., Inc. ................................ 361,950 - ------------------------------------------------------------------------------------- ELECTRIC - UTILITIES -- 5.0% 16,900 Entergy Corp. .............................................. 528,125 7,700 FPL Group, Inc. ............................................ 420,612 16,100 PG&E Corp. ................................................. 523,250 10,400 Public Services Enterprise Group, Inc. ..................... 425,100 14,200 Reliant Energy Inc. ........................................ 392,275 - ------------------------------------------------------------------------------------- 2,289,362 - ------------------------------------------------------------------------------------- ELECTRONICS -- 1.4% 6,440 Koninklijke Philips Electric NV............................. 649,636 - ------------------------------------------------------------------------------------- ENTERTAINMENT -- 2.1% 13,500 King World Productions, Inc. (a)............................ 469,968 11,600 Viacom Inc., Class A Shares (a)............................. 511,850 - ------------------------------------------------------------------------------------- 981,818 - -------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 38 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 8.9% 34,000 ABB AB-Sponsored ADR (a).................................... $ 463,250 8,500 Bank of America Corp. ...................................... 623,157 7,800 Bank One Co. ............................................... 464,587 10,815 Bear, Stearns & Cos. Inc. .................................. 505,601 23,200 The CIT Group, Inc. ........................................ 669,900 6,400 MBIA, Inc. ................................................. 414,400 5,000 Morgan Stanley Dean Witter & Co. ........................... 512,500 12,100 Washington Mutual, Inc. .................................... 428,037 - ------------------------------------------------------------------------------------- 4,081,432 - ------------------------------------------------------------------------------------- FOOD -- 3.3% 22,840 Archer-Daniels-Midland Co. ................................. 352,592 13,200 Nabisco Group Holdings Corp. ............................... 258,225 19,100 Sara Lee Corp. ............................................. 433,331 6,596 Unilever NV................................................. 460,071 - ------------------------------------------------------------------------------------- 1,504,219 - ------------------------------------------------------------------------------------- HEALTH CARE -- 10.3% 11,500 Abbott Labs, Inc. .......................................... 523,250 7,300 Baxter International Inc. .................................. 442,563 44,200 Beverly Enterprises, Inc. (a)............................... 356,362 11,600 Bristol-Myers Squibb & Co. ................................. 817,075 36,300 Healthsouth Corp. (a)....................................... 542,231 6,800 Merck & Co., Inc. .......................................... 503,200 14,200 Pharmacia & Upjohn, Inc. ................................... 806,739 11,900 United Healthcare Corp. .................................... 745,238 - ------------------------------------------------------------------------------------- 4,736,658 - ------------------------------------------------------------------------------------- INSURANCE -- 10.4% 6,600 Allmerica Financial Corp. .................................. 401,362 15,200 Allstate Corp. ............................................. 545,300 10,600 Cigna Corp. ................................................ 943,400 36,700 Conseco, Inc. .............................................. 1,117,058 6,100 Hartford Financial Services Groups, Inc. ................... 355,707 9,000 Lincoln National Corp. ..................................... 470,812 7,000 Loews Corp. ................................................ 553,875 5,400 Marsh & McLennan, Inc. ..................................... 407,700 - ------------------------------------------------------------------------------------- 4,795,214 - ------------------------------------------------------------------------------------- MACHINERY -- 2.0% 7,500 Deere & Co. ................................................ 297,188 9,400 Ingersoll-Rand Co. ......................................... 607,475 - ------------------------------------------------------------------------------------- 904,663 - -------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 39 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- MANUFACTURING -- 4.6% 8,500 Johnson Controls, Inc. ..................................... $ 589,157 10,600 Parker-Hannifin Corp. ...................................... 484,950 18,600 Tenneco Inc. ............................................... 444,075 6,167 Tyco International Ltd. .................................... 584,324 - ------------------------------------------------------------------------------------- 2,102,506 - ------------------------------------------------------------------------------------- OIL & GAS -- 6.9% 3,100 Atlantic Richfield Co. ..................................... 259,043 3,900 Chevron Corp. .............................................. 371,231 19,900 Ensco International, Inc. .................................. 396,756 5,800 Exxon Corp. ................................................ 447,325 8,100 Royal Dutch Petroleum Co. ADR............................... 488,025 12,900 Sunoco, Inc. ............................................... 389,418 6,300 Texaco Inc. ................................................ 393,750 13,300 USX Marathon Group, Inc. ................................... 433,082 - ------------------------------------------------------------------------------------- 3,178,630 - ------------------------------------------------------------------------------------- PUBLISHING -- 1.3% 19,600 News Corp Ltd., ADR......................................... 618,625 - ------------------------------------------------------------------------------------- RESTAURANTS -- 0.9% 7,300 Tricon Global Restaurants, Inc. (a)......................... 395,112 - ------------------------------------------------------------------------------------- RETAIL TRADE -- 3.5% 15,600 Dillard, Inc. Class A Shares................................ 547,950 24,300 K-Mart Corp. (a)............................................ 399,431 13,400 Wal-Mart Stores, Inc. ...................................... 646,550 - ------------------------------------------------------------------------------------- 1,593,931 - ------------------------------------------------------------------------------------- SERVICES -- 5.8% 7,200 Computer Sciences Corp. (a)................................. 498,150 12,200 Electronic Data Systems Corp. .............................. 690,063 14,500 First Data Corp. ........................................... 709,594 8,300 Galileo International Inc. ................................. 443,531 6,900 H&R Block, Inc. ............................................ 345,000 - ------------------------------------------------------------------------------------- 2,686,338 - ------------------------------------------------------------------------------------- STEEL & IRON -- 0.7% 49,600 LTV Corp. .................................................. 331,700 - ------------------------------------------------------------------------------------- TECHNOLOGY -- 10.4% 7,000 International Business Machines Corp. ...................... 904,750 14,400 Lexmark International Group, Inc., Class A Shares (a)....... 951,301 5,400 Raytheon Co., Class A Shares (a)............................ 371,925 12,300 Seagate Technology Inc. (a)................................. 315,187 14,600 Storage Technology Corp. (a)................................ 332,150 27,600 Sun Microsystems Inc. (a)................................... 1,900,950 - ------------------------------------------------------------------------------------- 4,776,263 - -------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 40 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 FEDERATED STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 5.0% 10,500 AT&T Corp. ................................................. $ 586,031 8,100 Bell Atlantic Corp. ........................................ 529,537 3,200 Bellsouth Corp. ............................................ 150,000 6,400 GTE Corp. .................................................. 484,800 9,800 U.S. West, Inc. ............................................ 575,750 - ------------------------------------------------------------------------------------- 2,326,118 - ------------------------------------------------------------------------------------- TOBACCO -- 2.3% 9,900 Philip Morris Cos., Inc. ................................... 397,856 4,400 RJ Reynolds Tobacco Holdings (a)............................ 138,600 17,800 UST Inc. ................................................... 520,650 - ------------------------------------------------------------------------------------- 1,057,106 - ------------------------------------------------------------------------------------- TRANSPORTATION -- 0.8% 13,300 Ryder System, Inc. ......................................... 345,800 - ------------------------------------------------------------------------------------- WASTE MANAGEMENT -- 1.4% 11,890 Waste Management, Inc. ..................................... 639,087 - ------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $36,295,578).................... 44,003,477 - -------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - -------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 4.5% $2,097,000 Chase Securities Inc., 4.761% due 7/1/99; Proceeds at maturity -- $2,097,277; (Fully collateralized by U.S. Treasury Notes, 7.125% due 1/15/23; Market value -- $2,148,750) (Cost -- $2,097,000)............ 2,097,000 - -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $38,392,578*)............ $46,100,477 - --------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 41 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- COMMON STOCK -- 96.5% - --------------------------------------------------------------------------------------- AUTOS & TRANSPORTATION -- 3.9% 3,828 Airborne Freight Corp. ..................................... $ 105,987 2,104 Alaska Air Group Inc.+ ..................................... 87,842 2,623 Arvin Industries, Inc. ..................................... 99,346 1,884 Borg-Warner Automotive, Inc. ............................... 103,620 3,094 CNF Transportation, Inc. ................................... 118,732 4,593 Clayton Homes Inc. ......................................... 52,533 1,018 Federal-Mogul Corp. ........................................ 52,936 3,753 GATX Corp. ................................................. 142,848 3,220 J. B. Hunt Transportation Services, Inc. ................... 52,325 4,215 Lear Corp.+................................................. 209,696 2,669 Modine Manufacturing Co. ................................... 86,910 3,349 Trinity Industries, Inc. ................................... 112,192 - --------------------------------------------------------------------------------------- 1,224,967 - --------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 19.3% 4,814 Abercrombie & Fitch Co., Class A Shares+.................... 231,072 2,669 Apollo Group, Inc., Class A Shares.......................... 70,896 2,209 Barnes & Noble Inc. ........................................ 60,471 4,658 Bed Bath & Beyond Inc.+..................................... 179,333 4,600 BJ's Wholesale Club, Inc.................................... 138,287 3,800 Bob Evans Farms, Inc. ...................................... 75,525 4,899 Brinker International Inc.+ ................................ 133,191 8,100 Callaway Golf Co. .......................................... 118,462 66 CBRL Group, Inc. ........................................... 1,142 223 Central Newspapers, Inc., Class A Shares.................... 8,391 5,255 Cintas Corp. ............................................... 353,071 5,600 Convergys Corp.+ ........................................... 107,800 3,416 Dial Corp. ................................................. 127,032 1,794 Dollar Tree Stores Inc. .................................... 78,936 10,568 Family Dollar Stores, Inc. ................................. 253,632 3,655 Furniture Brands International, Inc.+ ...................... 101,883 2,528 Hannaford Brothers Co. ..................................... 135,248 5,210 Harley Davidson Inc. ....................................... 283,293 998 Hillenbrand Industries, Inc. ............................... 43,163 3,000 Houghton Mifflin Co. ....................................... 141,187 3,330 Jones Apparel Group, Inc. .................................. 114,260 2,300 Lands' End, Inc. ........................................... 111,550 8,888 Leggett & Platt, Inc. ...................................... 247,198 6,800 Mandalay Resort Group....................................... 143,650 2,100 Media General Inc. ......................................... 107,100 7,700 Modis Professional Services, Inc.+ ......................... 105,875 3,700 Mohawk Industries, Inc. .................................... 112,387 3,665 OfficeMax, Inc.+............................................ 43,980 2,495 Outback Steakhouse, Inc. ................................... 98,084 3,442 Premark International Inc. ................................. 129,075 2,953 Promus Hotel Corp. ......................................... 91,543 3,600 Readers Digest Association Inc., Class A Shares............. 143,100
SEE NOTES TO FINANCIAL STATEMENTS. 42 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 19.3% (CONTINUED) 5,866 Reynolds & Reynolds Co., Class A Shares..................... $ 136,751 3,090 Robert Half International, Inc.+............................ 80,340 3,353 Ross Stores, Inc. .......................................... 168,907 6,596 Saks, Inc.+ ................................................ 190,459 8,532 Shaw Industries Inc. ....................................... 140,778 3,330 Sotheby's Holding Inc....................................... 126,956 6,046 Starbucks Corp.+............................................ 227,102 3,500 Snyder Communications, Inc. ................................ 114,625 1,760 TCA Cable TV, Inc. ......................................... 97,680 1,258 Tiffany & Co. .............................................. 121,397 3,349 U.S. Foodservice+........................................... 142,752 3,500 Univision Communications, Inc. ............................. 231,000 285 Washington Post Co., Class B Shares......................... 153,259 3,500 Westpoint Stevens Inc. ..................................... 104,343 - --------------------------------------------------------------------------------------- 6,126,166 - --------------------------------------------------------------------------------------- CONSUMER STAPLES -- 3.2% 4,889 Flowers Industries Inc. .................................... 106,030 3,800 Hormel Foods Corp. ......................................... 152,950 5,774 IBP, Inc. .................................................. 137,132 253 International Multifoods Corp. ............................. 5,708 4,687 Interstate Bakeries Corp. .................................. 105,164 3,700 R.J. Reynolds Tobacco Holdings, Inc. ....................... 116,550 3,385 Suiza Foods Corp.+ ......................................... 141,746 9,967 Tyson Foods Inc., Class A Shares............................ 224,257 1,047 Universal Corp. ............................................ 29,774 - --------------------------------------------------------------------------------------- 1,019,311 - --------------------------------------------------------------------------------------- FINANCE -- 11.0% 4,097 AG Edwards, Inc. ........................................... 132,128 2,046 Ambac Financial Group, Inc. ................................ 116,877 3,361 American Financial, Inc. ................................... 114,484 1,661 AmSouth Bancorp............................................. 38,514 3,483 Associated Banc-Corp........................................ 144,544 2,565 Capital One Financial Corp. ................................ 142,838 6,537 Charter One Financial, Inc. ................................ 181,811 3,330 City National Corp. ........................................ 124,666 1,341 Countrywide Credit Industries, Inc. ........................ 57,327 3,438 Dime Bancorp, Inc. ......................................... 69,189 2,670 The FINOVA Group Inc. ...................................... 140,508 8,153 First Security Corp. ....................................... 222,169 4,271 First Tennessee National Corp. ............................. 163,632 1,453 First Virginia Banks, Inc. ................................. 71,378 4,103 Greenpoint Financial Corp. ................................. 134,630 1,107 Hartford Life, Inc., Class A Shares......................... 58,255 9,962 Hibernia Corp., Class A Shares.............................. 156,278 4,688 Marshall & Ilsley Corp. .................................... 301,790 3,665 Mercantile Bankshares Corp. ................................ 129,649
SEE NOTES TO FINANCIAL STATEMENTS. 43 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- FINANCE -- 11.0% (CONTINUED) 6,312 North Fork Bancorporation, Inc. ............................ $ 134,524 1,389 Old Kent Financial Corp. ................................... 58,170 4,291 Old Republic International Corp. ........................... 74,287 2,274 The PMI Group Inc. ......................................... 142,835 3,330 Protective Life Corp. ...................................... 109,890 1,832 Reliastar Financial Corp. .................................. 80,150 8,032 Sovereign Bancorp., Inc. ................................... 97,388 4,467 T.Rowe Price Associates, Inc. .............................. 171,421 943 Wilmington Trust Corp. ..................................... 54,104 1,100 Zions Bancorp............................................... 69,850 - --------------------------------------------------------------------------------------- 3,493,286 - --------------------------------------------------------------------------------------- HEALTH CARE -- 8.9% 2,100 Beckman Instruments......................................... 102,112 6,032 Bergen Brunswig Corp., Class A Shares....................... 104,052 6,044 Biogen, Inc.+............................................... 388,704 2,209 Centocor Inc.+ ............................................. 102,994 6,872 Chiron Corp.+............................................... 142,594 1,446 Covance Inc.+ .............................................. 34,613 3,655 Forest Labs Inc., Class A Shares+........................... 169,043 3,442 Genzyme Corp. -- General Division+.......................... 166,937 616 Genzyme Surgical Products................................... 2,714 230 HCR Manor Care, Inc. ....................................... 5,563 12,100 Health Managment Associates, Inc. Class A Shares+........... 136,125 4,244 Lincare Holdings, Inc.+..................................... 106,100 2,700 Medimmune, Inc. ............................................ 182,925 3,714 Mylan Laboratories.......................................... 98,421 2,670 Omnicare, Inc. ............................................. 33,708 2,900 Oxford Health Plans, Inc.+.................................. 45,131 1,474 Pacificare Health System Inc.+ ............................. 106,035 3,231 Quintiles Transnational Corp.+.............................. 135,702 998 Sepracor Inc................................................ 81,087 5,500 Steris Corp................................................. 106,562 3,276 Stryker Corp. .............................................. 196,969 3,655 Trigon Healthcare, Inc...................................... 132,950 3,100 VISX, Inc. ................................................. 245,481 - --------------------------------------------------------------------------------------- 2,826,522 - --------------------------------------------------------------------------------------- MATERIALS & PROCESSING -- 6.2% 6,258 Albemarle Corp. ............................................ 144,716 5,314 Consolidated Papers, Inc. .................................. 142,149 5,889 Crompton & Knowles Corp. ................................... 115,203 4,200 Georgia-Pacific Group....................................... 106,050 5,000 IMC Global Inc. ............................................ 88,125 4,100 Lubrizol Corp. ............................................. 111,725 6,007 Lyondell Petrochemical Co. ................................. 123,895 2,528 Masco Corp. ................................................ 72,996 1,270 Minerals Technologies Inc. ................................. 70,881
SEE NOTES TO FINANCIAL STATEMENTS. 44 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- MATERIALS & PROCESSING -- 6.2% (CONTINUED) 5,812 Ryerson Tull, Inc. ......................................... $ 131,133 8,761 Solutia, Inc. .............................................. 186,718 2,987 Sonoco Products Co. ........................................ 89,423 2,690 Southdown, Inc. ............................................ 172,832 5,706 Vulcan Materials Co. ....................................... 275,314 7,423 Wassau-Mosinee Paper Mills Inc. ............................ 133,614 - --------------------------------------------------------------------------------------- 1,964,774 - --------------------------------------------------------------------------------------- OTHER ENERGY -- 4.8% 9,041 Ensco International, Inc. .................................. 180,254 4,747 Global Marine, Inc.+........................................ 73,281 1,410 Murphy Oil Corp. ........................................... 68,825 7,362 Noble Drilling Corp......................................... 144,939 3,700 Noble Affiliates Inc. ...................................... 104,293 5,707 OCE Energy Corp. ........................................... 135,541 5,302 Tidewater, Inc. ............................................ 161,711 5,380 Transocean Offshore Inc. ................................... 141,225 5,283 Varco International, Inc.+.................................. 57,782 4,847 Tosco Corp. ................................................ 125,719 4,888 Ultramar Diamond Shamrock Corp. ............................ 106,619 4,754 Valero Energy Corp. ........................................ 101,915 3,500 Weatherford International, Inc. ............................ 128,187 - --------------------------------------------------------------------------------------- 1,530,291 - --------------------------------------------------------------------------------------- PRODUCER DURABLES -- 5.3% 4,766 Allied Waste Industries, Inc. .............................. 94,128 1,300 American Standard Co. ...................................... 62,400 12,114 American Power Conversion Corp.+............................ 243,794 3,160 Cordant Technologies, Inc. ................................. 142,792 1,019 Crane Co. .................................................. 32,034 2,332 Gulfstream Aerospace Corp.+ ................................ 157,555 2,100 Litton Industries, Inc.+.................................... 150,675 4,410 Molex Inc. ................................................. 163,170 2,623 Pentair, Inc. .............................................. 120,002 2,484 Precision Castparts Corp. .................................. 105,570 2,331 Tecumseh Products Co., Class A Shares....................... 141,171 2,623 Teleflex Inc. .............................................. 113,936 1,453 Thomas & Betts Corp. ....................................... 68,654 1 United Technologies Corp. .................................. 66 1,900 York International Corp. ................................... 81,343 - --------------------------------------------------------------------------------------- 1,677,290 - --------------------------------------------------------------------------------------- TECHNOLOGY -- 24.5% 4,041 ADC Telecommunications, Inc.+............................... 184,118 6,570 Altera Corp.+............................................... 241,858 5,539 Analog Devices, Inc.+ ...................................... 277,988 3,650 Atmel Corp.+ ............................................... 95,584 7,271 Cadence Design Systems, Inc.+............................... 92,705
SEE NOTES TO FINANCIAL STATEMENTS. 45 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- TECHNOLOGY -- 24.5% (CONTINUED) 2,500 Cambridge Technology Partners Inc. ......................... $ 43,906 4,014 Citrix Systems, Inc. ....................................... 226,791 5,047 Comdisco, Inc. ............................................. 129,329 4,000 Compuware Corp.+............................................ 127,250 2,700 COMSAT Corp. ............................................... 87,750 3,716 Comverse Technology, Inc. .................................. 280,558 5,672 Concord Efs. Inc. .......................................... 239,996 7,706 E*Trade Group, Inc. ........................................ 307,758 2,675 Fiserv, Inc................................................. 83,760 1,687 General Instrument Corp.+................................... 71,697 1,100 Heftel Broadcasting Corp., Class A Shares................... 83,463 2,600 Investment Technology Group, Inc. .......................... 84,175 2,884 Intuit, Inc.+............................................... 259,921 1,800 Jabil Circuit Inc. ......................................... 81,225 3,289 Legato Systems, Inc.+....................................... 189,939 6,168 Lexmark International Group, Inc., Class A Shares+.......... 407,473 5,234 Linear Technology Corp. .................................... 351,986 3,668 Maxim Integrated Products, Inc.+............................ 243,922 4,458 NCR Corp.+.................................................. 217,606 4,764 QUALCOMM, Inc. ............................................. 683,634 4,517 Quantum Corp. .............................................. 108,972 5,101 Rational Software Corp. .................................... 168,014 3,100 Sanmina Corp. .............................................. 235,212 4,660 Siebel Systems Inc.+ ....................................... 309,308 4,000 Sterling Commerce, Inc.+.................................... 146,000 4,921 SunGard Data Systems Inc. .................................. 169,775 2,989 Symbol Technologies, Inc. .................................. 110,219 1,903 Synopsys, Inc.+............................................. 105,021 4,500 Tech Data Corp.+............................................ 172,125 2,557 Teradyne, Inc.+ ............................................ 183,464 2,100 Veritas Software Corp. ..................................... 199,368 9,125 Vishay Intertechnology Inc. ................................ 191,625 4,300 Vitesse Semiconductors Corp.+............................... 289,981 4,874 Xilinx Inc. ................................................ 279,036 - --------------------------------------------------------------------------------------- 7,762,512 - --------------------------------------------------------------------------------------- TELECOMMUNICATION -- 0.7% 1,536 ALLTEL Corp. ............................................... 109,824 1,064 Centurytel, Inc. ........................................... 42,294 1,796 Qwest Communications International Inc...................... 59,380 - --------------------------------------------------------------------------------------- 211,498 - --------------------------------------------------------------------------------------- UTILITIES -- 8.7% 4,422 Aliant Communications, Inc. ................................ 204,241 2,266 Constellation Energy Group.................................. 67,130 1,405 Dominion Resources, Inc. ................................... 60,854 4,601 El Paso Energy Corp. ....................................... 161,897 4,200 Energy East Corp. .......................................... 109,200
SEE NOTES TO FINANCIAL STATEMENTS. 46 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- UTILITIES -- 8.7% (CONTINUED) 3,744 FirstEnergy Corp. .......................................... $ 116,064 3,799 Keyspan Energy Corp. ....................................... 100,198 2,266 MCN Energy Group, Inc. ..................................... 47,019 4,409 MidAmerican Energy Holdings Co. ............................ 152,661 6,145 Minnesota Power Inc. ....................................... 122,131 3,768 The Montana Power Co. ...................................... 265,644 2,301 National Fuel Gas Co. ...................................... 111,598 3,369 New England Electric System................................. 168,871 5,652 Nisource, Inc. ............................................. 145,892 3,879 Northeast Utilities......................................... 68,609 4,826 Pinnacle West Capital Corp. ................................ 194,246 6,300 Public Service Co. of New Mexico............................ 125,212 6,849 SCANA Corp. ................................................ 160,095 7,949 TECO Energy, Inc. .......................................... 180,839 1,750 WinStar Communications, Inc.+............................... 85,312 4,927 Wisconsin Energy Corp. ..................................... 123,544 - --------------------------------------------------------------------------------------- 2,771,257 - --------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $27,863,923).................... 30,607,874 - ---------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------- U.S. TREASURY OBLIGATION -- 0.5% $160,000 U.S. Treasury Bill, 4.500% due 9/16/99 (Cost -- $158,460)(a)....................................... 158,460 - --------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $28,022,383)................. 30,766,334 - --------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.0% 947,000 Morgan Stanley Dean Witter & Co., 4.770% due 7/1/99; Proceeds at maturity -- $947,125; (Fully collateralized by U.S. Treasury Notes, 7.500% due 11/15/01; Market value -- $966,625) (Cost -- $947,000)....................... 947,000 - --------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $28,969,383*)............ $31,713,334 - ---------------------------------------------------------------------------------------
+ Non-income producing security. (a) Security has been segregated by custodian for open futures contracts. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 47 - -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay principal and differ from the highest rated issue only in a small degree. A -- Bonds rated "A" have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories. BB, B and CCC -- Bonds rated "BB" and "B" are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB represents a lower degree of speculation than B, and CCC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D -- Bonds rated "D" are in default, and payment of interest and/or repayment of principal is in arrears.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aa" to "Caa", where 1 is the highest and 3 the lowest rating within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds rated "Aa" are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A -- Bonds rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and therefore not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payment or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated "Caa" are of poor standing. These issues may be in default, or present elements of danger may exist with respect to principal or interest. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
48 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
TRAVELERS LAZARD MFS FEDERATED DISCIPLINED QUALITY INTERNATIONAL EMERGING HIGH FEDERATED MID CAP BOND STOCK GROWTH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost.................... $44,902,417 $68,390,334 $175,365,776 $48,741,933 $36,295,578 $28,022,383 Repurchase agreements, at cost.......... 9,333,000 4,600,000 -- 978,000 2,097,000 947,000 - --------------------------------------------------------------------------------------------------------------------------------- Investments, at value................... $44,532,778 $74,313,855 $230,282,370 $47,215,781 $44,003,477 $30,766,334 Repurchase agreements, at value......... 9,333,000 4,600,000 -- 978,000 2,097,000 947,000 Cash.................................... 666 262,781 18,878 168,327 233 -- Dividends and interest receivable....... 585,363 274,781 75,837 817,970 50,120 16,831 Collateral for securities on loan (Note 9).................................... -- 3,894,016 -- -- -- -- Receivable for securities sold.......... -- 672,399 3,030,314 -- 70,580 508,194 Receivable for open forward foreign currency contracts (Note 7)........... -- 12 -- -- -- -- Receivable from broker -- variation margin................................ -- -- -- -- -- 2,100 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS............................ 54,451,807 84,017,844 233,407,399 49,180,078 46,221,410 32,240,459 - --------------------------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased........ 3,198,618 1,660,230 5,493,277 395,945 -- 145,712 Investment advisory fees payable........ 14,643 55,602 145,378 28,422 25,168 4,673 Administration fees payable............. 2,895 4,077 11,630 2,624 2,416 388 Payable to bank......................... -- -- -- -- -- 72,261 Payable for Fund shares purchased....... -- -- -- -- 140,722 -- Payable for securities on loan (Note 9).................................... -- 3,894,016 -- -- -- -- Payable for open forward foreign currency contracts (Note 7)........... -- 1,529 -- -- -- -- Accrued expenses........................ 23,844 42,710 80,161 20,748 18,869 13,078 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES....................... 3,240,000 5,658,164 5,730,446 447,739 187,175 236,112 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS.......................... $51,211,807 $78,359,680 $227,676,953 $48,732,339 $46,034,235 $32,004,347 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital......................... $51,085,154 $71,623,510 $162,856,722 $48,397,917 $37,218,378 $28,582,153 Undistributed (overdistributed) net investment income..................... 1,234,737 633,440 (285,769) 1,999,281 237,167 41,902 Accumulated net realized gain (loss) on security transactions, foreign currencies and futures contracts...... (738,445) 182,877 10,189,568 (138,707) 870,791 626,775 Net unrealized appreciation (depreciation) of investments, foreign currencies and futures contracts...... (369,639) 5,919,853 54,916,432 (1,526,152) 7,707,899 2,753,517 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS.......................... $51,211,807 $78,359,680 $227,676,953 $48,732,339 $46,034,235 $32,004,347 - --------------------------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING........................ 4,783,018 5,824,859 11,991,397 4,243,683 2,624,117 2,231,837 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE................ $10.71 $13.45 $18.99 $11.48 $17.54 $14.34
SEE NOTES TO FINANCIAL STATEMENTS. 49 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
TRAVELERS LAZARD MFS FEDERATED DISCIPLINED QUALITY INTERNATIONAL EMERGING HIGH FEDERATED MID CAP BOND STOCK GROWTH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest................................... $ 1,359,231 $ 70,190 $ 382,243 $ 2,125,406 $ 32,991 $ 33,381 Dividends.................................. -- 1,237,868 209,707 66,770 381,191 120,412 Less: Foreign withholding tax.............. -- (154,324) (1,540) -- (11,394) -- - --------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME.................... 1,359,231 1,153,734 590,410 2,192,176 402,788 153,793 - --------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2).......... 72,855 265,650 729,919 147,972 125,163 82,268 Audit and legal............................ 15,000 16,000 16,000 16,000 16,000 15,500 Administration fees (Note 2)............... 13,335 19,320 58,394 13,659 12,016 7,052 Pricing service fees....................... 9,000 3,900 4,000 1,000 -- -- Shareholder and system servicing fees...... 4,500 4,500 4,500 4,500 4,500 4,500 Shareholder communications................. 3,500 5,250 20,000 3,750 3,400 1,800 Custody.................................... 2,850 30,000 40,000 3,000 3,000 12,000 Trustees' fees............................. 1,870 1,870 1,870 1,875 1,875 1,870 Registration fees.......................... 1,400 3,000 496 1,000 1,000 1,500 Other...................................... 184 1,000 1,000 139 1,032 600 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES............................. 124,494 350,490 876,179 192,895 167,986 127,090 Less: Expense reimbursement (Note 2)....... -- -- -- -- -- (15,288) - --------------------------------------------------------------------------------------------------------------------------------- NET EXPENSES............................... 124,494 350,490 876,179 192,895 167,986 111,802 - --------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS)................. 1,234,737 803,244 (285,769) 1,999,281 234,802 41,991 - --------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCIES AND FUTURES CONTRACTS (NOTES 3, 5 AND 7): Realized Gain (Loss) From: Security transactions (excluding short-term securities).................. (738,445) 649,153 12,232,892 (138,351) 874,880 639,558 Foreign currency transactions............ -- (249,873) -- -- -- -- Futures contracts........................ -- -- -- -- -- 113,888 - --------------------------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS)................... (738,445) 399,280 12,232,892 (138,351) 874,880 753,446 - --------------------------------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments, Foreign Currencies and Futures Contracts: Beginning of period...................... 123,381 3,756,578 43,126,733 (1,119,433) 3,742,899 1,987,289 End of period............................ (369,639) 5,919,853 54,916,432 (1,526,152) 7,707,899 2,753,517 - --------------------------------------------------------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION)........................... (493,020) 2,163,275 11,789,699 (406,719) 3,965,000 766,228 - --------------------------------------------------------------------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCIES AND FUTURES CONTRACTS........... (1,231,465) 2,562,555 24,022,591 (545,070) 4,839,880 1,519,674 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS....... $ 3,272 $3,365,799 $23,736,822 $ 1,454,211 $5,074,682 $1,561,665 - ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 50 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
TRAVELERS LAZARD MFS FEDERATED DISCIPLINED QUALITY INTERNATIONAL EMERGING HIGH FEDERATED MID CAP BOND STOCK GROWTH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)........ $ 1,234,737 $ 803,244 $ (285,769) $ 1,999,281 $ 234,802 $ 41,991 Net realized gain (loss)............ (738,445) 399,280 12,232,892 (138,351) 874,880 753,446 Change in net unrealized appreciation (depreciation)...... (493,020) 2,163,275 11,789,699 (406,719) 3,965,000 766,228 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS....................... 3,272 3,365,799 23,736,822 1,454,211 5,074,682 1,561,665 - --------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income............... (854) (165,129) -- -- -- (51,243) Net realized gains.................. (264,169) (9,680) -- (59,413) (422,750) (1,191,443) - --------------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.... (265,023) (174,809) -- (59,413) (422,750) (1,242,686) - --------------------------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 10): Net proceeds from sale of shares.... 18,330,639 31,599,968 36,355,191 9,668,359 6,326,672 11,819,045 Net asset value of shares issued for reinvestment of dividends........ 265,023 174,809 -- 59,413 422,750 1,242,686 Cost of shares reacquired........... (2,629,499) (9,614,388) (2,474,184) (3,378,975) (787,246) (836,183) - --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS............... 15,966,163 22,160,389 33,881,007 6,348,797 5,962,176 12,225,548 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS................ 15,704,412 25,351,379 57,617,829 7,743,595 10,614,108 12,544,527 NET ASSETS: Beginning of period................. 35,507,395 53,008,301 170,059,124 40,988,744 35,420,127 19,459,820 - --------------------------------------------------------------------------------------------------------------------------------- END OF PERIOD*...................... $51,211,807 $78,359,680 $227,676,953 $48,732,339 $46,034,235 $32,004,347 - --------------------------------------------------------------------------------------------------------------------------------- * Includes undistributed (overdistributed) net investment income of: $1,234,737 $633,440 $(285,769) $1,999,281 $237,167 $41,902 - ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 51 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998
TRAVELERS LAZARD MFS DISCIPLINED QUALITY INTERNATIONAL EMERGING FEDERATED FEDERATED MID CAP BOND STOCK GROWTH HIGH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)............ $ 1,170,333 $ 234,373 $ (529,699) $ 2,463,131 $ 284,606 $ 51,517 Net realized gain (loss)................ 505,011 188,777 (1,225,490) 196,895 1,324,694 1,087,428 Change in net unrealized appreciation (depreciation)....................... 60,551 3,143,385 37,341,898 (1,637,517) 2,382,644 1,433,700 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS........................... 1,735,895 3,566,535 35,586,709 1,022,509 3,991,944 2,572,645 - --------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income................... (1,166,254) (172,299) -- (2,424,991) (283,680) -- Net realized gains...................... (301,730) (430,710) -- (203,459) (1,053,266) (169,722) - --------------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........ (1,467,984) (603,009) -- (2,628,450) (1,336,946) (169,722) - --------------------------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 10): Net proceeds from sale of shares........ 25,413,325 56,682,700 74,091,479 29,338,305 23,019,020 11,121,611 Net asset value of shares issued for reinvestment of dividends............ 1,467,984 603,009 -- 2,628,450 1,336,946 169,722 Cost of shares reacquired............... (1,109,975) (21,469,988) (9,966,117) (3,421,555) (3,690,826) (403,490) - --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS......................... 25,771,334 35,815,721 64,125,362 28,545,200 20,665,140 10,887,843 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS.................... 26,039,245 38,779,247 99,712,071 26,939,259 23,320,138 13,290,766 NET ASSETS: Beginning of year....................... 9,468,150 14,229,054 70,347,053 14,049,485 12,099,989 6,169,054 - --------------------------------------------------------------------------------------------------------------------------------- END OF YEAR*............................ $35,507,395 $ 53,008,301 $170,059,124 $40,988,744 $35,420,127 $19,459,820 - --------------------------------------------------------------------------------------------------------------------------------- * Includes undistributed net investment income of: $854 $475 -- -- $2,365 $51,154 - ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 52 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock and Disciplined Mid Cap Stock Portfolio ("Portfolio(s)") are separate investment portfolios of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company and consists of these portfolios and fourteen other separate investment portfolios: U.S. Government Securities, Social Awareness Stock, Utilities, Large Cap, Equity Income, Convertible Bond, MFS Research, MFS Mid Cap Growth, Disciplined Small Cap Stock, Strategic Stock, Zero Coupon Bond Fund Portfolio Series 2000, Zero Coupon Bond Fund Portfolio Series 2005, NWQ Large Cap and Jurika & Voyles Core Equity Portfolios. Shares of the Trust are offered only to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts. The financial statements and financial highlights for the other portfolios are presented in separate shareholder reports. The significant accounting policies consistently followed by the Portfolios are: (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing price on such markets or, if there were no sales during the day, at current quoted bid price; securities primarily traded on foreign exchanges are generally valued at the closing values of such securities on their respective exchanges, except that when a significant occurrence exists subsequent to the time a value was so established and it is likely to have significantly changed the value, then the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees; securities traded in the over-the-counter market are valued on the basis of the bid price at the close of business on each day; U.S. government agencies and obligations are valued at the mean between the last reported bid and ask prices; (c) securities for which market quotations are not available will be valued in good faith at fair value by or under the direction of the Board of Trustees; (d) securities maturing within 60 days are valued at cost plus accreted discount or minus amortized premium, which approximates value; (e) securities that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (f) interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis and dividend income is recorded on the ex-dividend date; foreign dividends are recorded on the ex-dividend date or as soon as practical after a Portfolio determines the existence of a dividend declaration after exercising reasonable due diligence; (g) gains or losses on the sale of securities are calculated by using the specific identification method; (h) dividends and distributions to shareholders are recorded on the ex-dividend date; (i) the accounting records of the Portfolios are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income or expense amounts recorded and collected or paid are adjusted when reported by the custodian bank; (j) the Portfolios intend to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; (k) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. At December 31, 1998, reclassifications were made to the Portfolios' capital accounts to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Accordingly, a portion of overdistributed net investment income amounting to $9 and $318,844 was reclassified to paid-in capital for Lazard International Stock and MFS Emerging Growth, respectively. Net investment income, net realized gains and net assets for each Portfolio were not affected by these changes; and (l) estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. In addition, the Lazard International Stock and MFS Emerging Growth Portfolios may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked to market daily, by recognizing the difference between the contract exchange rate and the current market rate as an unrealized gain or loss. Realized gains or losses are recognized when the contracts are settled. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Corporation ("TAMIC"), an indirect wholly owned subsidiary of Citigroup, Inc., acts as investment adviser to the Travelers Quality Bond ("TQB"), Lazard International Stock ("LIS"), MFS Emerging Growth ("MEG"), Federated High Yield ("FHY"), Federated Stock ("FSP") and Disciplined Mid Cap Stock ("DMCS") 53 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Portfolios. TQB, LIS, MEG, FHY, FSP and DMCS each pay TAMIC an investment advisory fee calculated at the annual rate of 0.3233%, 0.825%, 0.75%, 0.65%, 0.625% and 0.70%, respectively, of the average daily net assets. This fee is calculated daily and paid monthly. TAMIC has entered into sub-advisory agreements with Lazard Freres Asset Management ("Lazard"), Massachusetts Financial Services ("MFS"), Federated Investment Counseling ("Federated") and Travelers Investment Management Co., Inc. ("TIMCO"). Pursuant to each sub-advisory agreement, Lazard, MFS and TIMCO are responsible for the day-to-day portfolio operations and investment decisions for LIS, MEG and DMCS, respectively. Federated is responsible for the day-to- day portfolio operations and investment decisions for FHY and FSP. As a result, the following fees are paid and calculated at an annual rate: - TAMIC pays Lazard 0.475% of LIS's average daily net assets. - TAMIC pays MFS 0.375% of MEG's average daily net assets. - TAMIC pays Federated 0.40% and 0.375% of the average daily net assets of FHY and FSP, respectively. - DMCS pays TIMCO 0.35% of DMCS's average daily net assets. These fees are calculated daily and paid monthly. Travelers Insurance Company ("Travelers Insurance") acts as administrator to the Portfolios. The Portfolios pay Travelers Insurance an administration fee calculated at an annual rate of 0.06% of its average daily net assets. Travelers Insurance has entered into a sub-administrative service agreement with SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a subsidiary of Salomon Smith Barney Holdings Inc. Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% of the average daily net assets of the Portfolios. This fee is calculated daily and paid monthly. For the six months ended June 30, 1999, Travelers Insurance reimbursed expenses in the amount of $15,288 for DMCS. One Trustee and all officers of the Trust are employees of Citigroup Inc., or its subsidiaries. 3. INVESTMENTS During the six months ended June 30, 1999, the aggregate costs of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities), were as follows:
PORTFOLIO PURCHASES SALES - ----------------------------------------------------------------------------------------- Travelers Quality Bond Portfolio............................ $115,676,818 $100,336,231 Lazard International Stock Portfolio........................ 26,635,431 6,640,708 MFS Emerging Growth Portfolio............................... 161,201,474 143,312,962 Federated High Yield Portfolio.............................. 14,553,763 3,745,372 Federated Stock Portfolio................................... 8,081,112 3,049,747 Disciplined Mid Cap Stock Portfolio......................... 29,192,247 8,430,765 - -----------------------------------------------------------------------------------------
At June 30, 1999, aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
GROSS GROSS NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION) - ---------------------------------------------------------------------------------------------------------- Travelers Quality Bond Portfolio............................ $ 93,750 $ (463,389) $ (369,639) Lazard International Stock Portfolio........................ 7,790,911 (1,867,390) 5,923,521 MFS Emerging Growth Portfolio............................... 59,175,939 (4,259,345) 54,916,594 Federated High Yield Portfolio.............................. 1,238,075 (2,764,227) (1,526,152) Federated Stock Portfolio................................... 9,052,447 (1,344,548) 7,707,899 Disciplined Mid Cap Stock Portfolio......................... 3,938,337 (1,194,386) 2,743,951 - ----------------------------------------------------------------------------------------------------------
54 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 4. REPURCHASE AGREEMENTS The Portfolios purchase (and their custodians take possession of) U.S. government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Portfolios require continual maintenance of the market value of the collateral in amounts at least equal to the repurchase price. 5. FUTURES CONTRACTS The LIS, MEG and DMCS Portfolios may from time to time enter into futures contracts. Initial margin deposits made upon entering into futures contracts are recognized as assets. Securities equal to the initial margin amount are segregated by the custodian in the name of the broker. Additional securities are also segregated up to the current market value of the futures contracts. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are received or made and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Portfolios record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Portfolio's basis in the contract. The Portfolios enter into such contracts to hedge a portion of their portfolios. The Portfolios bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). At June 30, 1999, DMCS had the following open futures contracts:
EXPIRATION # OF BASIS MARKET UNREALIZED MONTH/YEAR CONTRACTS VALUE VALUE GAIN - -------------------------------------------------------------------------------------------------------- FUTURES CONTRACTS TO BUY: Mid Cap 400 Index...................... 6/99 2 $411,821 $419,350 $7,529 Mid Cap 400 Index...................... 9/99 1 207,637 209,675 2,038 - -------------------------------------------------------------------------------------------------------- $9,567 - --------------------------------------------------------------------------------------------------------
6. OPTIONS CONTRACTS The LIS, MEG, FHY and DMCS Portfolios may from time to time enter into options contracts. Premiums paid when put or call options are purchased by the Portfolios, represent investments, which are "marked-to-market" daily. When a purchased option expires, the Portfolios will realize a loss in the amount of the premium paid. When the Portfolios enter into a closing sales transaction, the Portfolios will realize a gain or loss depending on whether the proceeds from the closing sales transactions are greater or less than the premium paid for the option. When the Portfolios exercises a put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Portfolios exercise a call option, the cost of the security which the Portfolios purchase upon exercise will be increased by the premium originally paid. At June 30, 1999, the Portfolios had no open purchased put or call option contracts. When Portfolios write a covered call or put option, an amount equals to the premium received by the Portfolios is recorded as a liability, the value of which is marked-to-market daily. When a written option expires, the Portfolios realize a gain. When the Portfolios enter into a closing purchase transaction, the Portfolios realize a gain or loss depending upon whether the cost of the closing transaction is greater or less than the premium originally received, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When a written call option is exercised, the cost of the security sold will be decreased by the premium originally received. When a put option is exercised, the amount of the premium originally received will reduce the cost of the security which the Portfolios purchased upon exercise. When written index options are exercised, settlement is made in cash. 55 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) The risk associated with purchasing options is limited to the premium originally paid. The Portfolios enter into options for hedging purposes. The risk in writing a covered call option is that the Portfolios give up the opportunity to participate in any increase in the price of the underlying security beyond the exercise price. The risk in writing a put option is that the Portfolios are exposed to the risk of a loss if the market price of the underlying security declines. During the six months ended June 30, 1999, the Portfolios did not write any options. 7. FORWARD FOREIGN CURRENCY CONTRACTS LIS and MFS may enter into forward foreign currency contracts. At June 30, 1999, LIS had open forward foreign currency contracts as described below. The Portfolio bears the market risk that arises from changes in foreign currency exchange rates. The unrealized gain (loss) on the contracts reflected in the accompanying financial statements were as follows:
LOCAL MARKET SETTLEMENT UNREALIZED FOREIGN CURRENCY CURRENCY VALUE DATE GAIN (LOSS) - -------------------------------------------------------------------------------------------------------- TO BUY: British Pound.................................... 123,538 $194,732 7/1/99 $ (1,470) Japanese Yen..................................... 3,433,992 28,375 7/1/99 (48) Japanese Yen..................................... 3,798,989 31,391 7/1/99 2 Japanese Yen..................................... 11,537,328 95,332 7/1/99 6 - -------------------------------------------------------------------------------------------------------- (1,510) - -------------------------------------------------------------------------------------------------------- TO SELL: Japanese Yen..................................... 21,416,527 176,964 7/1/99 (11) Japanese Yen..................................... 14,109,602 116,604 7/2/99 4 - -------------------------------------------------------------------------------------------------------- (7) - -------------------------------------------------------------------------------------------------------- Net Unrealized Loss on Forward Foreign Currency Contracts...................................... $ (1,517) - --------------------------------------------------------------------------------------------------------
8. FOREIGN SECURITIES Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and the U.S. government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of many foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and the U.S. government. 9. LENDING OF PORTFOLIO SECURITIES The Portfolios have an agreement with their custodian whereby the custodian may lend securities owned by a Portfolio to brokers, dealers and other financial organizations. Fees earned by the Portfolios on securities lending are recorded as interest income. Loans of securities by the Portfolios are collateralized by cash, U.S. government securities or high quality money market instruments that are maintained at all times in an amount at least equal to the current market value of the loaned securities, plus a margin which may vary depending on the type of securities loaned. The custodian establishes and maintains the collateral in a segregated account. The Portfolios maintain exposure for the risk of any losses in the investments of amounts received as collateral. 56 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) At June 30, 1999, LIS loaned common stocks having a value of approximately $3,678,020 and holds the following collateral for loaned securities:
SECURITY DESCRIPTION VALUE - ------------------------------------------------------------------------ TIME DEPOSITS: Abbey National London, 6.500% due 7/1/99.................. $ 165,461 Banca Commerciale Italiano, Singapore, 5.630% due 7/1/99................................................. 165,461 Bank of Austria, 6.000% due 7/1/99........................ 38,733 Bank of Nova Scotia London, 6.500% due 7/1/99............. 165,461 Banque Bruxelles Lambert London, 6.630% due 7/1/99........ 165,461 Bayerische Landesbank, Munich, 6.120% due 7/1/99.......... 165,461 Credit Agricole Indosuez Singapore, 6.000% due 7/1/99..... 165,461 Credit Commerciale de France Brussels, 6.130% due 7/1/99................................................. 165,461 Deutsche Bank London, 6.000% due 7/1/99................... 165,461 Fifth Third Bank, G.C., 5.600% due 7/1/99................. 60,168 Halifax PLC, 5.680% due 7/1/99............................ 165,460 Kreditbank, Brussels, 6.630% due 7/1/99................... 165,461 Nordeutsche Landesbank Singapore, 5.630% due 7/1/99....... 165,461 Rabobank, London, 6.000% due 7/1/99....................... 165,461 Societe Generale, 5.750% due 7/1/99....................... 165,461 Svenska London, 6.000% due 7/1/99......................... 165,461 Toronto Dominion, London, 6.000% due 7/1/99............... 165,461 Union Bank of Switzerland, G.C., 6.250% due 7/1/99........ 165,461 Westdeutsche Landesbank, Singapore, 6.250% due 7/1/99..... 165,460 COMMERCIAL PAPER: Associates First Capital, 5.800% due 7/1/99............... 165,434 Ford Motor Credit Corp., 6.000% due 7/1/99................ 165,434 GE Capital International, 5.750% due 7/1/99............... 165,439 Sheffield Receivable Corp., 5.880% due 7/1/99............. 165,434 Tulip Funding, 5.880% due 7/1/99.......................... 165,434 REPURCHASE AGREEMENTS: Banc of America Securities LLC, 6.050% due 7/1/99......... 155,105 - ------------------------------------------------------------------------ Total....................................................... $3,894,016 - ------------------------------------------------------------------------
Income earned by LIS from securities loaned for the six months ended June 30, 1999 was $7,022. 10. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Portfolio were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 - ----------------------------------------------------------------------------------------------------- TRAVELERS QUALITY BOND PORTFOLIO Shares sold.............................................. 1,700,102 2,353,028 Shares issued on reinvestment............................ 24,905 136,485 Shares reacquired........................................ (243,079) (102,056) - ---------------------------------------------------------------------------------------------------- Net Increase............................................. 1,481,928 2,387,457 - ----------------------------------------------------------------------------------------------------
57 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 - ----------------------------------------------------------------------------------------------------- LAZARD INTERNATIONAL STOCK PORTFOLIO Shares sold.............................................. 2,432,689 4,545,655 Shares issued on reinvestment............................ 12,930 46,711 Shares reacquired........................................ (734,808) (1,708,356) - ----------------------------------------------------------------------------------------------------- Net Increase............................................. 1,710,811 2,884,010 - ----------------------------------------------------------------------------------------------------- MFS EMERGING GROWTH PORTFOLIO Shares sold.............................................. 2,051,591 5,189,246 Shares issued on reinvestment............................ -- -- Shares reacquired........................................ (141,280) (709,159) - ----------------------------------------------------------------------------------------------------- Net Increase............................................. 1,910,311 4,480,087 - ----------------------------------------------------------------------------------------------------- FEDERATED HIGH YIELD PORTFOLIO Shares sold.............................................. 841,020 2,511,163 Shares issued on reinvestment............................ 5,180 236,428 Shares reacquired........................................ (292,211) (296,346) - ----------------------------------------------------------------------------------------------------- Net Increase............................................. 553,989 2,451,245 - ----------------------------------------------------------------------------------------------------- FEDERATED STOCK PORTFOLIO Shares sold.............................................. 385,046 1,542,339 Shares issued on reinvestment............................ 24,736 85,478 Shares reacquired........................................ (47,994) (240,375) - ----------------------------------------------------------------------------------------------------- Net Increase............................................. 361,788 1,387,442 - ----------------------------------------------------------------------------------------------------- DISCIPLINED MID CAP STOCK PORTFOLIO Shares sold.............................................. 844,922 883,471 Shares issued on reinvestment............................ 89,338 12,780 Shares reacquired........................................ (59,369) (34,061) - ----------------------------------------------------------------------------------------------------- Net Increase............................................. 874,891 862,190 - -----------------------------------------------------------------------------------------------------
11. CAPITAL LOSS CARRYFORWARD At December 31, 1998, MFS Emerging Growth Portfolio had, for Federal income tax purposes, approximately $882,000 of capital loss carryforward, expiring in December 2006, available to offset future capital gains. To the extent that these carryforward losses can be used to offset realized capital gains, it is probable that such gains will not be distributed. 58 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
TRAVELERS QUALITY BOND PORTFOLIO 1999(1)(2) 1998 1997 1996(3) - -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD................. $10.76 $10.36 $10.10 $10.00 - -------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(4)........................... 0.30 0.37 0.43 0.19 Net realized and unrealized gain (loss)............ (0.29) 0.51 0.29 0.16 - -------------------------------------------------------------------------------------------------------- Total Income From Operations......................... 0.01 0.88 0.72 0.35 - -------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income.............................. (0.00)* (0.37) (0.43) (0.19) Net realized gain.................................. (0.06) (0.11) (0.03) (0.06) - -------------------------------------------------------------------------------------------------------- Total Distributions.................................. (0.06) (0.48) (0.46) (0.25) - -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD....................... $10.71 $10.76 $10.36 $10.10 - -------------------------------------------------------------------------------------------------------- TOTAL RETURN......................................... 0.06%++ 8.49% 7.14% 3.56%++ - -------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S).................... $51,212 $35,507 $9,468 $5,273 - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)(5)..................................... 0.56%+ 0.63% 0.75% 0.75%+ Net investment income.............................. 5.54+ 5.51 5.80 5.62+ - -------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.............................. 317% 364% 295% 35% - --------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from August 30, 1996 (commencement of operations) to December 31, 1996. (4) Travelers Insurance has waived part or all of its fees for the year ended December 31, 1997 and the period ended December 31, 1996. In addition, Travelers Insurance has reimbursed the Portfolio for $10,901 of the Portfolio's expenses for the period ended December 31, 1996. If such fees were not waived or reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME FEE WAIVERS AND REIMBURSEMENT ------------------------ ------------------------------ 1997 $0.03 1.13% 1996 0.03 1.76+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.75%. * Amount represents less than $0.01 per share. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 59 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
LAZARD INTERNATIONAL STOCK PORTFOLIO 1999(1)(2) 1998(2) 1997 1996(3) - -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD....................... $12.88 $11.57 $10.78 $10.00 - -------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS: Net investment income(4)................................. 0.16 0.10 0.05 0.02 Net realized and unrealized gain......................... 0.44 1.37 0.87 0.76 - -------------------------------------------------------------------------------------------------------- Total Income From Operations............................... 0.60 1.47 0.92 0.78 - -------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income.................................... (0.03) (0.04) (0.09) -- Net realized gain........................................ (0.00)* (0.12) (0.04) -- - -------------------------------------------------------------------------------------------------------- Total Distributions........................................ (0.03) (0.16) (0.13) -- - -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD............................. $13.45 $12.88 $11.57 $10.78 - -------------------------------------------------------------------------------------------------------- TOTAL RETURN............................................... 4.66%++ 12.59% 8.50% 7.80%++ - --------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S).......................... $78,360 $53,008 $14,229 $4,322 - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)(5)........................................... 1.09%+ 1.25% 1.25% 1.25%+ Net investment income.................................... 2.49+ 0.78 0.66 0.42+ - -------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.................................... 11% 44% 22% 9% - --------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from August 1, 1996 (commencement of operations) to December 31, 1996. (4) Travelers Insurance has waived part or all of its fees the year ended December 31, 1997 and the period ended December 31, 1996. In addition, Travelers Insurance has reimbursed the Portfolio for $12,454 of the Portfolio's expenses for the period ended December 31, 1996. If such fees were not waived or reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME FEE WAIVERS AND REIMBURSEMENT ------------------------ ------------------------------ 1997 $0.03 1.76% 1996 0.07 2.87+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.25%. * Amount represents less than $0.01 per share. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 60 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
MFS EMERGING GROWTH PORTFOLIO 1999(1)(2) 1998(2) 1997 1996(3) - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD.................... $16.87 $12.56 $10.55 $10.00 - ------------------------------------------------------------------------------------------------------ INCOME FROM OPERATIONS: Net investment income (loss)(4)....................... (0.02) (0.07) (0.03) 0.03 Net realized and unrealized gain...................... 2.14 4.38 2.26 0.57 - ------------------------------------------------------------------------------------------------------ Total Income From Operations............................ 2.12 4.31 2.23 0.60 - ------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income................................. -- -- -- (0.03) Net realized gain..................................... -- -- (0.21) (0.01) Capital............................................... -- -- (0.01) (0.01) - ------------------------------------------------------------------------------------------------------ Total Distributions..................................... -- -- (0.22) (0.05) - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD.......................... $18.99 $16.87 $12.56 $10.55 - ------------------------------------------------------------------------------------------------------ TOTAL RETURN............................................ 12.57%++ 34.32% 21.15% 6.00%++ - ------------------------------------------------------------------------------------------------------ NET ASSETS, END OF PERIOD (000'S)....................... $227,677 $170,059 $70,347 $12,924 - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses(4)(5)........................................ 0.90%+ 0.89% 0.95% 0.95%+ Net investment income (loss).......................... (0.29)+ (0.47) (0.40) 0.55+ - ------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE................................. 79% 77% 94% 49% - ------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from August 30, 1996 (commencement of operations) to December 31, 1996. (4) Travelers Insurance has waived part or all of its fees for the year ended December 31, 1997 and the period ended December 31, 1996. In addition, Travelers Insurance has reimbursed the Portfolio for $16,407 of the Portfolio's expenses for the period ended December 31, 1996. If such fees were not waived or reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME FEE WAIVERS AND REIMBURSEMENT ------------------------ ------------------------------ 1997 $0.01 1.05% 1996 0.06 2.09+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.95%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 61 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
FEDERATED HIGH YIELD PORTFOLIO 1999(1)(2) 1998 1997 1996(3) - ------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD................ $11.11 $11.34 $10.42 $10.00 - ------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(4).......................... 0.50 0.71 0.60 0.31 Net realized and unrealized gain (loss)........... (0.12) (0.18) 1.01 0.46 - ------------------------------------------------------------------------------------------------------- Total Income From Operations........................ 0.38 0.53 1.61 0.77 - ------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income............................. -- (0.71) (0.60) (0.31) Net realized gain................................. (0.01) (0.05) (0.09) (0.04) - ------------------------------------------------------------------------------------------------------- Total Distributions................................. (0.01) (0.76) (0.69) (0.35) - ------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD...................... $11.48 $11.11 $11.34 $10.42 - ------------------------------------------------------------------------------------------------------- TOTAL RETURN........................................ 3.46%++ 4.71% 15.45% 7.61%++ - ------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)................... $48,732 $40,989 $14,049 $5,381 - ------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)(5).................................... 0.85%+ 0.90% 0.95% 0.95%+ Net investment income............................. 8.77+ 8.60 8.82 8.78+ - ------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE............................. 9% 31% 43% 23% - -------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from August 30, 1996 (commencement of operations) to December 31, 1996. (4) Travelers Insurance has waived part or all of its fees for the year ended December 31, 1997 and the period ended December 31, 1996. In addition, Travelers Insurance has reimbursed the Portfolio for $9,268 of the Portfolio's expenses for the period ended December 31, 1996. If such fees were not waived or reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME FEE WAIVERS AND REIMBURSEMENT ------------------------ ------------------------------ 1997 $0.01 1.14% 1996 0.04 2.19+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.95%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 62 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
FEDERATED STOCK PORTFOLIO 1999(1)(2) 1998 1997 1996(3) - ------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD................ $15.66 $13.83 $11.10 $10.00 - ------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS: Net investment income(4).......................... 0.10 0.13 0.10 0.06 Net realized and unrealized gain.................. 1.94 2.33 3.60 1.20 - ------------------------------------------------------------------------------------------------------- Total Income From Operations........................ 2.04 2.46 3.70 1.26 - ------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income............................. -- (0.13) (0.10) (0.06) Net realized gain................................. (0.16) (0.50) (0.87) (0.09) Capital........................................... -- -- -- (0.01) - ------------------------------------------------------------------------------------------------------- Total Distributions................................. (0.16) (0.63) (0.97) (0.16) - ------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD...................... $17.54 $15.66 $13.83 $11.10 - ------------------------------------------------------------------------------------------------------- TOTAL RETURN........................................ 13.08%++ 17.84% 33.41% 12.61%++ - ------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)................... $46,034 $35,420 $12,100 $3,380 - ------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)(5).................................... 0.84%+ 0.91% 0.95% 0.95%+ Net investment income............................. 1.17+ 1.14 1.11 1.55+ - ------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE............................. 8% 31% 74% 11% - -------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from August 30, 1996 (commencement of operations) to December 31, 1996. (4) Travelers Insurance has waived part or all of its fees for the year ended December 31, 1997 and the period ended December 31, 1996. In addition, Travelers Insurance has reimbursed the Portfolio for $15,460 of the Portfolio's expenses for the period ended December 31, 1996. If such fees were not waived or reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME FEE WAIVERS AND REIMBURSEMENT ------------------------ ------------------------------ 1997 $0.02 1.16% 1996 0.08 3.03+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.95%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 63 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
DISCIPLINED MID CAP STOCK PORTFOLIO 1999(1)(2) 1998 1997(3) - -------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $14.34 $12.47 $10.00 - -------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS: Net investment income(4).................................. 0.01 0.04 0.06 Net realized and unrealized gain.......................... 0.58 2.05 3.37 - -------------------------------------------------------------------------------------------------- Total Income From Operations................................ 0.59 2.09 3.43 - -------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income..................................... (0.02) -- (0.06) Net realized gain......................................... (0.57) (0.22) (0.90) - -------------------------------------------------------------------------------------------------- Total Distributions......................................... (0.59) (0.22) (0.96) - -------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.............................. $14.34 $14.34 $12.47 - -------------------------------------------------------------------------------------------------- TOTAL RETURN................................................ 4.24%++ 16.91% 34.38%++ - -------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)........................... $32,004 $19,460 $6,169 - -------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)(5)............................................ 0.95%+ 0.95% 0.95%+ Net investment income..................................... 0.35+ 0.48 0.85+ - -------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE..................................... 37% 109% 74% - --------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from April 1, 1997 (commencement of operations) to December 31, 1997. (4) Travelers Insurance has waived all or a portion of its fees for the year ended December 31, 1998 and the period ended December 31, 1997. In addition, Travelers Insurance has reimbursed the Portfolio for $15,288 and $3,564 of the Portfolio's expenses for the six months ended June 30, 1999 and for the period ended December 31, 1997. If such fees were not waived or reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME FEE WAIVERS AND REIMBURSEMENT ------------------------ ------------------------------ 1999 $0.01 1.07%+ 1998 0.02 1.22 1997 0.08 1.82+
(5) As a result of voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.95%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 64 Investment Advisers TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION Hartford, Connecticut Independent Auditors KPMG LLP New York, New York Custodians PNC BANK, N.A. THE CHASE MANHATTAN BANK, N.A. This report is prepared for the general information of contract owners and is not an offer of shares of The Travelers Series Trust: Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock and Disciplined Mid Cap Stock Portfolios. It should not be used in connection with any offer except in conjunction with the Prospectuses for the Variable Annuity and Variable Universal Life Insurance products offered by The Travelers Insurance Company or Travelers Life & Annuity Company, and the Prospectuses for the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. Series Trust (Semi-Annual) (8-99) Printed in U.S.A. THE TRAVELERS VARIABLE PRODUCTS FUNDS SEMI-ANNUAL REPORTS June 30, 1999 THE TRAVELERS SERIES TRUST: CONVERTIBLE BOND PORTFOLIO STRATEGIC STOCK PORTFOLIO DISCIPLINED SMALL CAP STOCK PORTFOLIO MFS MID CAP GROWTH PORTFOLIO MFS RESEARCH PORTFOLIO [Travelers LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Tower Square Hartford, CT 06183 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- DEAR SHAREHOLDER: We are pleased to provide the semi-annual report for The Travelers Series Trust -- Convertible Bond Portfolio, Strategic Stock Portfolio, Disciplined Small Cap Stock Portfolio, MFS Mid Cap Growth Portfolio and MFS Research Portfolio ("Portfolios") for the period ended June 30, 1999. A more detailed summary of performance and current holdings for each Trust or Portfolio can be found in the pages listed below.
MARKET SCHEDULE OF SUBACCOUNT COMMENTARY INVESTMENTS - ---------- ---------- ----------- Convertible Bond Portfolio............................ 3 10 Strategic Stock Portfolio............................. 3 14 Disciplined Small Cap Stock Portfolio................. 3 16 MFS Mid Cap Growth Portfolio.......................... 4 25 MFS Research Portfolio................................ 5 29
ECONOMIC UPDATE The first half of 1999 was a period of economic growth at home and recovery abroad. Following the events surrounding the Russian debt default in August of 1998 -- which included a dive in bond yields and a 0.75% decrease in interest rates -- yields have increased. Investor optimism, however, was tempered by concerns about inflation, interest rates, and continued economic growth. EQUITY MARKET COMMENTARY The year began on a volatile note for global financial markets as a new threat emerged in Latin America. The devaluation of the Brazilian currency raised concerns for U.S. companies with exposure to Latin America and took its toll on the stock market in the middle of January. The Dow Jones Industrial Average ("DJIA") swung from intra-day levels of above 9700 to below 9000. Stock prices did recover, however, to finish higher at the end of January. Interest rate concerns dominated market psychology during February. Despite low inflation, interest rates moved higher amid fears of Federal Reserve Board ("Fed") tightening in response to the strong U.S. economy. In February, the yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market valuations became a concern as investors focused on the rise in interest rates, the lack of a substantial earnings recovery and high price/earnings multiples. During the month of March, market sentiment reversed and investors focused on the reality of DJIA 10,000. After repeated assaults, the DJIA did breach 10,000 on March 16, retreated and then went on to close at 10,006 on March 29. Economic activity remained brisk and it became obvious that first quarter Gross Domestic Product ("GDP") growth would be above expectations. Consumer prices rose 0.1% in February and 1.6% from a year ago. The S&P 500 Index gained 5.0% in the first quarter of 1991. The S&P 400 Mid Cap Index fell by 6.4% while the Russell 2000 Index declined by 5.4%. The S&P 500 Growth Index produced a 6.9% total return, outpacing the 2.9% total return of the S&P 500 Value Index. All sectors except consumer staples (-11%) registered respectable gains in the first quarter of 1999. The market rally was led by the energy services (22%) and technology (9%) sectors. The financial services (7%) and consumer discretionary (6%) sectors also performed well. Despite a rise in interest rates in the second quarter, the U.S. stock market finished firmly in positive territory. Evidence of stronger-than-expected economic growth prompted hopes of a meaningful earnings recovery during the quarter and, at the same time, triggered concerns about rising interest rates. This led to a rally in small cap and value stocks. Interest rates began to climb in the month of May as investors worried about inflation concerns on the heels of recent economic strength. First quarter GDP growth was revised down to 4.3% from 4.5%, but other indicators provided evidence of continued strength in the economy. The stock market sagged during May under the burden of lofty valuations and higher rates. 1 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- The Fed took center stage in the month of June as investors anxiously awaited its next monetary policy move. Even though inflation data released in June was lower than consensus expectations, the bond and stock markets had clearly anticipated a 25 basis point rate hike as a result of unexpected economic strength. The decision to raise the federal-funds rate by 25 basis points on June 30, 1999 therefore, came as no surprise and markets rallied when the Fed announced that it had now switched to a neutral bias in monetary policy. The rotation into value and small cap stocks began in the middle of April and continued through May. This trend reversed in June, as investors became comfortable that a proactive Fed policy would pre-empt inflation and keep interest rates in check. The S&P 500 Index advanced by 7.1% in the second quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return, outpacing the 3.8% total return of the S&P 500 Growth Index. All sectors within the S&P 500 except health care (-4%) registered respectable gains in the second quarter. The economically sensitive, value-oriented materials and processing (19%), energy services (14%) and producer durables (14%) sectors led the market rally. The utilities (13%) and technology (10%) sectors also performed well. The focus in the U.S. stock market has now switched from the earnings front to the future direction of interest rates. The early second quarter earnings reports project a healthy growth in corporate profits from the prior year. With the stock market now trading well above DJIA 10,000 and at unprecedented valuation levels, any further increase in interest rates could trigger a compression in the price/earnings multiple for the stock market. FIXED INCOME MARKET COMMENTARY The long anticipated slowdown in U.S. economic activity again failed to happen during the reporting period. Global stock markets continued to rise led by better than expected profit growth and continued merger and acquisition activity. The risks of higher U.S. economic growth were more fairly reflected in the yield curve in the U.S. at the end of the first quarter of 1999 than they were at the beginning. The stronger than expected growth caused interest rates to rise in the first quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The Lehman Government/Corporate Index declined about 1.2% in the first quarter of 1999. U.S. Treasuries underperformed as spreads narrowed in all sectors. During the first half of 1999, U.S. economic growth continued at a robust pace, posting a 4.3% annualized GDP growth rate for the first quarter of 1999. Furthermore, the labor market continued to be extremely tight, as the unemployment rate fell to a 29-year low of 4.2% in March. Defying the expectations of many economists, inflation -- as measured by the Consumer Price Index ("CPI") -- was virtually absent. Productivity gains and sagging global demand were credited with keeping inflation under control. However, in the month of April, the CPI rose by 0.7%, its largest monthly increase in nine years. This, coupled with signs that many world economies were in the nascent stages of growth and recovery, deepened fears that inflationary pressures were reaching a breaking point. These concerns brought about an increase in the yield of the benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April 8 and June 24 to close at 6.16%. To counter these inflationary pressures, the Fed raised short-term interest rates by 0.25% at the end of June, and subsequently adopted a neutral stance on monetary policy. Meanwhile, during the months of May and June, the CPI remained unchanged, generating considerable optimism that inflation had retreated. Further reports that of rising U.S. jobless claims added to the optimism. The unwillingness of consumer spending to slow down keeps the Fed's monetary policy on watch. With the world economic crisis abating, we cannot rule out the possibility of the Fed raising rates before year-end. However, in our view, the most likely case is that the Fed's monetary policy will remain neutral through the third quarter of 1999. By next year we think that nominal growth should slow below 5% and may allow room for additional short-term rates cuts. However, if global economic growth accelerates unexpectedly and signs of inflation emerge during the remainder of 1999, the Fed will not hesitate to raise rates again. 2 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- CONVERTIBLE BOND PORTFOLIO For the six months ended June 30, 1999, the Convertible Bond Portfolio ("Portfolio") posted a total return of 7.83%. The investment objective of the Portfolio is to seek current income and capital appreciation by investing in convertible securities and in combinations of nonconvertible fixed-income securities and warrants or call options that together resemble convertible securities. (Convertible securities are bonds or preferred stocks that can be converted into a preset number of shares of common stocks after a predetermined date.) The Portfolio's Investment Adviser is the Travelers Asset Management International Corporation, an indirect wholly owned subsidiary of Travelers Group Inc. The convertible bond market has improved, and in our opinion is now more fairly valued. The market (as measured by the Merrill Lynch Investment Grade Convertible Bond Index) was up 7.58% for the second quarter of 1999. This compares favorably with the S&P 500's second quarter return of 7.04%. Focus on total return and yield style sectors hurt the Portfolio's performance during the first and second quarters of 1999. Additionally, the Portfolio is underweighted in technology which has been by far the best performing sector so far this year. However, the Portfolio's overweight in real estate investment trusts ("REITs") and energy stocks positively affected the Portfolio during the second quarter of 1999. STRATEGIC STOCK PORTFOLIO For the six months ended June 30, 1999, the Strategic Stock Portfolio ("Portfolio") produced a total return of 12.37% compared to a 19.49% return for the DJIA. The Portfolio invests in stocks with a relatively high yield. The ten highest dividend yielding stocks from the DJIA are identified each month. To supplement the original ten Dow Jones stocks, another fifteen stocks are selected from the S&P Industrials index based on dividend yield and subject to a high standard of quality ranking by Standard and Poors. The list of twenty-five stocks is recreated each month for the investment of new deposits. In order to improve the diversification benefits of the Portfolio, the number of holdings were increased from twenty to twenty five during the quarter. For the first time in nearly two years, small-company stocks outperformed large-company stocks in the second quarter of 1999. Both major small-company stock market benchmarks -- the Russell 2000 and S&P 600 Indexes -- recorded gains of 15% (all returns exclude dividends). Meanwhile, the two major large-company stock market indexes -- the Dow Jones Industrial Average and S&P 500 Index -- registered gains of 12.11% and 6.71%, respectively. DISCIPLINED SMALL CAP STOCK PORTFOLIO For the six months ending June 30, 1999, the Disciplined Small Cap Stock Portfolio ("Portfolio") produced a total return of 7.78% compared with the Russell 2000 Index return of 9.28%. The Portfolio's total return compared favorably with the average return achieved by variable annuity stock funds in the Lipper small cap stock category. The Portfolio is managed to provide diversified exposure to the small-capitalization sector of the U.S. equity market. Stock selection is based on a disciplined quantitative screening process that favors companies that are able to grow earnings above consensus expectations and offer attractive relative value. The U.S. stock market finished the first half of 1999 firmly in positive territory despite a rise in interest rates. Evidence of stronger-than-expected economic growth prompted hopes of a meaningful earnings recovery during the quarter and, at the same time, triggered concerns about rising interest rates. Both implications led to a furious rally in small cap and value stocks. The rotation into small cap and value stocks began in the middle of April and continued through May. This trend reversed in June, as investors became more comfortable that a proactive Fed policy would preempt inflation and keep interest rates in check. 3 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- Small cap stocks were well ahead of large cap stocks in the second quarter but still finished the first half of 1999 with a small deficit. The Russell 2000 Index return of 9.3% lagged the S&P 500 Index of 12.4% by over 300 basis points. Growth stocks performed better than value stocks in the small cap universe during the first six months of 1999. The managers' stock selection was most favorable in the technology and health care sectors in the first quarter of 1999. Internet stocks such as Excite and Lycos and telecommunications stocks such as Comverse Technology and Dycom Industries paid off handsomely. Among the disappointing stocks were Keane Inc., which was hurt by Y2K related concerns, and Safeskin, which was severely penalized for earnings and revenue shortfalls during the first quarter of 1999. Stock selection for the second quarter was adverse in the technology and consumer discretionary sectors and favorable in the health care sector. The shortfall in relative performance in the technology sector came about late in the quarter as the managers were unable to shift into several growth stocks which stormed back in June. Internet stocks produced a high level of volatility after soaring in April and then retreating to prior quarter-end prices by the end of June. In the consumer services sector, the P/E contraction experienced in April and May for several growth stocks overwhelmed the rebound in those stocks in June causing an adverse impact on performance. The health care sector produced gains in relative performance from the portfolio's bio-tech and drug holdings. The stock selection of managers and risk control methods have performed well over the last six months in the midst of increased volatility. The key to the performance of the small cap sector in the coming months lies in the direction of the economy. A strong economy improves the odds of an earnings recovery which should bode well for small cap stocks. Aggressive Fed tightening could, however, derail a small cap rally. MFS MID CAP GROWTH PORTFOLIO For the six months ended June 30, 1999, the Mid Cap Growth Portfolio ("Portfolio") provided a total return of 13.31% which compares to a 9.28% return for the Russell 2000 and a 10.34% return for the Russell Midcap, both of which are unmanaged indices. (The Russell 2000 Index is made up of 2,000 smaller-capitalized U.S.-based companies whose common stocks trade on either the New York, American or NASDAQ stock exchanges.) Until early April, a narrow band of about 50 large-company stocks beat the rest of the stock market by a wide margin, partly because investors were seeking less volatility at a time of global market turmoil. That situation has changed over the past couple of months. Investors, apparently tired of paying excessively high prices for a few big companies with relatively slow growth rates, have found more attractive prices in mid-cap and small-company stocks. The Portfolio's relative performance can be largely attributed to strong stock selection in the technology, leisure and healthcare sectors. Gemstar, the Portfolio's top leisure holding, contributed significantly to the absolute return, gaining 73% in the quarter. The security continues to benefit from healthy growth and is up 127% year-to-date. Semi-conductor and Internet-related holdings led the technology sector's relative out-performance in the quarter. Leaders in the overweighted semi-conductor segment include Teradyne and KLA-Tencor. Edify, a leading provider of Internet self-service software, announced an acquisition by Security First in May, resulting in a 145% return over the last quarter. VeriSign, an Internet-related Business Services holding, is the leading provider of encrypted digital Internet IDs. Within the technology sector, software holdings are underweight in the Russell 2000 Index, as these companies are currently experiencing lock-down impacts resulting from Y2K concerns. The Portfolio also benefited from holdings in the overweighted healthcare sector. Total Renal Care, the portfolio's largest healthcare holding, rebounded from a first quarter earnings disappointment to return nearly 50% in the second quarter. Another leading healthcare performer continues to be Cytyc, up 40% for the quarter. A few sectors experienced weighting shifts during the last six months. Buyout activity in retailing, including the acquisition of Fred Meyer by Kroger in June, prompted a decrease in the overall sector weight. The energy sector weight was increased to roughly 8.5%, with new names in the gas segment including Newfield Exploration and Houston Exploration. 4 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- MFS RESEARCH PORTFOLIO For the six months ended June 30, 1999, the MFS Research Portfolio ("Portfolio") provided a total return of 8.71%. This compares to a 12.38% return for the Standard & Poor's 500 Composite Index ("S&P 500"), a popular, unmanaged index of common stock total return performance, for the same period. The Portfolio relies on MFS(R) Original Research(SM) to incorporate the best ideas of its more than 30 equity analysts, who cover small-, mid-, and large-cap companies; therefore, the Portfolio is broadly diversified. However, the equity market has, until recently, been very narrow, with 25 to 50 large-growth stocks outperforming the rest of the stocks in the S&P 500. This Portfolio is not designed to outperform in a market favoring a small group of stocks. As the market continues to broaden, the managers expect that the Portfolio may benefit. The Portfolio currently has a light position, relative to the S&P 500, in large-cap growth stocks and heavy positions in small-and mid-cap stocks, whose long-term opportunities the managers think are more attractive. Small- and mid-cap stocks are selling at more inexpensive prices relative to earnings than large-cap growth stocks. Stocks with lower prices relative to earnings are less vulnerable to negative events such as earnings disappointments or a broad market downturn. The managers think the companies in the Portfolio will see higher growth rates than many of the large-cap stocks. At the same time, they are avoiding Internet stocks or other companies trading at what they see as unsustainably high prices relative to their earnings. Three industry sectors have helped performance: financial services, leisure, and technology. The Portfolio's gains in financial services largely came from brokerage and investment banking stocks. Specifically, the Portfolio had large holdings in Morgan Stanley Dean Witter and Merrill Lynch, both of which are well managed and experienced in the markets they serve. Companies around the world are using firms like Morgan Stanley and Merrill Lynch to help arrange and facilitate mergers. Most of the Portfolio's leisure stocks are in the restaurant industry. For the past dozen years restaurants, particularly the national chains, generally have been poor investments because the number of new ones has exceeded demand. However, in the past year or so restaurants such as McDonald's and Wendy's have stopped adding domestic capacity. Now, the U.S. economy is strong, and people are eating out more often. The result is greater demand at existing restaurants and higher profits. The leading contributors to technology performance were semiconductor companies such as LSI Logic and Analog Devices. The semiconductor industry was hurt in 1998 by the Asian economic slowdown and the fact that it had built up its manufacturing capability to a point at which there was too much supply in some market segments, so prices came down. Now, demand is beginning to catch up with supply and Asia seems to be recovering, both of which helped semiconductor companies. The continuing strength of the U.S. economy has supported companies whose businesses can benefit from strengthening economic cycles. For example, the Portfolio has benefited from its paper holdings such as Abitibi-Consolidated and Bowater that are, respectively, the number-one and number-two newsprint producers worldwide. Bowater recently acquired a competitor, Avenor, which should give Bowater greater market share as well as the cost-savings benefits that can come from consolidation. Both Bowater and Abitibi are global in scope and are benefiting from favorable supply/demand conditions, which should result in price increases. A few of the Portfolio's retailing holdings have underperformed. Although the retailing environment has been very good and Dayton Hudson, the department store chain, has performed well, the Portfolio was hurt by two stocks, Rite Aid and CompUSA. The managers have had a significant position in Rite Aid because they believe that as the population ages people will use more prescription medicines. However, Rite Aid opened too many stores in a short period of time and underestimated the costs of closing old stores. The company also had inventory and accounting problems. Over the long term, however, the Portfolio's team believes Rite Aid will continue to benefit from increasing prescription sales. CompUSA, meanwhile, is losing computer and software sales to companies that sell over the telephone or on the Internet. Also, some business customers, who tend to buy more expensive equipment, are cutting orders to prepare for any Year 2000 (Y2K) computer problems. By the end of this year, the investment team thinks the Y2K issue will largely be resolved, and the company should perform better. 5 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- Looking ahead, the managers see a continuation of a low-inflation, low-interest-rate environment that would mean steady economic growth and a strong consumer sector. However, they expect the U.S. economy to slow from its rapid pace of the past few quarters and the S&P 500's average growth rate to fall to single digits this year. Given that earnings growth is falling while stock prices are rising, the Portfolio's investment team does not believe prices of many companies, particularly the big ones, are attractive. Therefore, the Portfolio is avoiding companies with declining earnings and, instead, is focusing on companies with at least flat to accelerating growth. For example, Gillette had troubles in Asia and missed its earnings estimates for a couple of quarters. Now, with Asia turning around, the managers think the company should grow at 11% this year and 15% next year, and may represent a good opportunity for the Portfolio. In closing, we thank you for your investment in The Travelers Series Trust. We look forward to continuing to help you pursue your financial goals. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman July 26, 1999 6 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- CONVERTIBLE BOND PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN -------------------------------------------- Six Months Ended 6/30/99+ 7.83% Year Ended 6/30/99 7.60% 5/1/98* through 6/30/99 7.59% CUMULATIVE TOTAL RETURN -------------------------------------------- 5/1/98* through 6/30/99 8.89% * Commencement of operations + Total return is not annualized, as it may not be representative of the total return for the year.
This chart assumes an initial investment of $10,000 made at inception on May 1, 1998, assuming reinvestment of dividends, through June 30, 1999. The Merrill Lynch Investment Grade Convertible Bond Index is comprised of 115 investment grade convertible bond issues. The index excludes those issues that have mandatory conversion features. (Investment grade bonds are those rated in one of the four highest rating categories by any nationally recognized statistical rating organization.)
MERRILL LYNCH INVESTMENT GRADE CONVERTIBLE BOND PORTFOLIO CONVERTIBLE BOND INDEX -------------------------- ------------------------------ 5/1/98 10000 10000 5/98 10000 9857 6/98 10120 9983 7/98 10060 9861 8/98 9390 9007 9/98 9570 9207 10/98 9630 9559 11/98 9910 10024 12/98 10098 10528 1/99 10252 10729 2/99 10037 10537 3/99 10190 10577 4/99 10508 10832 5/99 10559 10673 6/30/99 10889 11208
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- STRATEGIC STOCK PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN ------------------------------------------- Six Months Ended 6/30/99+ 12.37% Year Ended 6/30/99 11.04% 5/1/98* through 6/30/99 6.49% CUMULATIVE TOTAL RETURN ------------------------------------------- 5/1/98* through 6/30/99 7.60% * Commencement of operations + Total return is not annualized, as it may not be representative of the total return for the year.
This chart assumes an initial investment of $10,000 made at inception on May 1, 1998, assuming reinvestment of dividends, through June 30, 1999. The Dow Jones Industrial Average ("DJIA") is a price weighted average based on the price only performance of 30 blue chip stocks.
STRATEGIC STOCK PORTFOLIO DOW JONES INDUSTRIAL AVERAGE ------------------------- ---------------------------- 5/1/98 10000 10000 5/98 9830 9833 6/98 9690 9904 7/98 9530 9842 8/98 8440 8367 9/98 8780 8718 10/98 9180 9566 11/98 9550 10164 12/98 9576 10250 1/99 9515 10463 2/99 9292 10419 3/99 9333 10972 4/99 10456 12113 5/99 10497 11872 6/30/99 10760 12350
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 7 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- DISCIPLINED SMALL CAP STOCK PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN ------------------------------------------- Six Months Ended 6/30/99+ 7.78% Year Ended 6/30/99 0.50% 5/1/98* through 6/30/99 (3.55)% CUMULATIVE TOTAL RETURN ------------------------------------------- 5/1/98* through 6/30/99 (4.12)% * Commencement of operations + Total return is not annualized, as it may not be representative of the total return for the year.
This chart assumes an initial investment of $10,000 made at inception on May 1, 1998, assuming reinvestment of dividends, through June 30, 1999. The Russell 2000 Index is a capitalization weighted total return index which is comprised of 2,000 of the smallest capitalized U.S. domiciled companies with less than average growth orientation whose common stock is traded in the United States on the New York Stock Exchange, American Stock Exchange and NASDAQ.
DISCIPLINED SMALL CAP STOCK PORTFOLIO RUSSELL 2000 INDEX --------------------------- ------------------ 5/1/98 10000 10000 5/98 9400 9461 6/98 9540 9481 7/98 8770 8713 8/98 7110 7021 9/98 7510 7571 10/98 7780 7879 11/98 8240 8292 12/98 8896 8806 1/99 8966 8923 2/99 8254 8200 3/99 8385 8328 4/99 9016 9074 5/99 9137 9207 6/31/99 9588 9623
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MFS MID CAP GROWTH PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN -------------------------------------------- Six Months Ended 6/30/99+ 13.31% Year Ended 6/30/99 16.20% 3/23/98* through 6/30/99 10.76% CUMULATIVE TOTAL RETURN -------------------------------------------- 3/23/98* through 6/30/99 13.87% * Commencement of operations + Total return is not annualized as it may not be representative of the total return for the year.
This chart assumes an initial investment of $10,000 made at inception on March 23, 1998, assuming reinvestment of dividends, through June 30, 1999. The Russell Midcap Index contains the lowest 800 companies in the Russell 1000 Index as ranked by total market capitalization. The Russell Midcap Index accurately captures the medium-sized universe of securities and represents approximately 34.9% of the Russell 1000 total market capitalization.
MFS MID CAP GROWTH PORTFOLIO RUSSELL MIDCAP INDEX ---------------------------- -------------------- 3/23/98 10000 10000 4/98 10110 10025 5/98 9710 9715 6/98 9800 9850 7/98 9230 9380 8/98 7230 7880 9/98 8200 8389 10/98 8990 8962 11/98 9330 9385 12/98 10050 9935 1/99 10390 9918 2/99 9630 9588 3/99 9900 9888 4/99 10250 10619 5/99 10500 10588 6/30/99 11387 10962
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 8 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MFS RESEARCH PORTFOLIO AS OF 6/30/99 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN -------------------------------------------- Six Months Ended 6/30/99+ 8.71% Year Ended 6/30/99 12.39% 3/23/98* through 6/30/99 11.61% CUMULATIVE TOTAL RETURN -------------------------------------------- 3/23/98* through 6/30/99 14.98% * Commencement of operations + Total return is not annualized, as it may not be representative of the total return for the year.
This chart assumes an initial investment of $10,000 made at inception on March 23, 1998, assuming reinvestment of dividends, through June 30, 1999. The S&P 500 Stock Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter market.
MFS RESEARCH PORTFOLIO S&P 500 STOCK INDEX ---------------------- ------------------- 3/23/98 10000 10000 4/98 10050 10102 5/98 9860 9928 6/98 10230 10331 7/98 10000 10222 8/98 8360 8745 9/98 8760 9305 10/98 9300 10061 11/98 9890 10671 12/98 10577 11285 1/99 10877 11757 2/99 10506 11391 3/99 10697 11847 4/99 10927 12305 5/99 10777 12015 6/30/99 11498 12682
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 9 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999 CONVERTIBLE BOND PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK -- 31.3% - -------------------------------------------------------------------------------------------- BANKING -- 3.4% 8,000 National Australia Bank, Exchange 7.875%.................... $ 243,000 - -------------------------------------------------------------------------------------------- ENERGY -- 4.2% Calenergy Capital Trust: 3,070 Exchange 6.500%........................................... 148,128 3,150 Exchange 6.250%........................................... 158,288 - -------------------------------------------------------------------------------------------- 306,416 - -------------------------------------------------------------------------------------------- FINANCE -- 4.1% 3,530 AES Trust II, Exchange 5.500%............................... 203,858 2,200 Fleetwood Capital Trust, Exchange 6.000%.................... 89,100 - -------------------------------------------------------------------------------------------- 292,958 - -------------------------------------------------------------------------------------------- MISCELLANEOUS -- 3.1% 4,245 Union Pacific Cap Trust, Exchange 6.250%.................... 220,740 - -------------------------------------------------------------------------------------------- MULTIMEDIA -- 0.10% 100 News Corp. Ltd., Exchange 5.000%............................ 10,038 - -------------------------------------------------------------------------------------------- PAPER, FOREST PRODUCTS AND PRINTING -- 2.9% 4,000 International Paper Capital Trust, Exchange 5.250%.......... 211,000 - -------------------------------------------------------------------------------------------- PUBLISHING -- 1.1% 637 Tribune Co., Exchange 2.000%................................ 79,784 - -------------------------------------------------------------------------------------------- REAL ESTATE -- 10.9% 4,215 Equity Office PPTYS Trust, Exchange 5.250%.................. 179,664 8,541 Equity Residential Properties, Exchange 7.250%.............. 196,443 4,000 General Growth Properties, Exchange 7.250%.................. 96,000 13,900 Reckson Associates Realty, Exchange 7.625%.................. 317,094 - -------------------------------------------------------------------------------------------- 789,201 - -------------------------------------------------------------------------------------------- TRANSPORTATION -- 1.5% 2,000 Canadian National Railway, Exchange 5.250%.................. 107,000 - -------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $2,221,381)...... 2,260,137 - -------------------------------------------------------------------------------------------- FACE AMOUNT RATING(a) SECURITY VALUE - -------------------------------------------------------------------------------------------- CONVERTIBLE BONDS AND NOTES -- 61.4% - -------------------------------------------------------------------------------------------- ADVERTISING -- 2.9% $ 60,000 A- Omnicom Group Inc., 2.250% due 1/6/13....................... 99,000 121,000 NR Interpublic Group Cos. Inc., 1.800% due 9/16/04 (b)......... 110,413 - -------------------------------------------------------------------------------------------- 209,413 - --------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 10 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 CONVERTIBLE BOND PORTFOLIO
FACE AMOUNT RATING(a) SECURITY VALUE - -------------------------------------------------------------------------------------------- BUILDING AND CONSTRUCTION -- 1.3% $216,000 BBB- Lennar Corp., zero coupon due 7/29/18....................... $ 95,040 - -------------------------------------------------------------------------------------------- COMPUTER SOFTWARE -- 7.6% Bea Systems Inc.: 100,000 NR 4.000% due 6/15/05 (b).................................... 111,375 200,000 NR 4.000% due 6/15/05........................................ 235,260 100,000 Aa2* GVC Corp. Ltd., zero coupon due 5/21/02 (b)................. 110,250 100,000 B- Mindspring Enterprises, 5.000% due 4/15/06.................. 94,375 - -------------------------------------------------------------------------------------------- 551,260 - -------------------------------------------------------------------------------------------- ELECTRONIC -- 4% 100,000 A2* Potomac Electric Power Co., 5.000% due 9/1/02............... 98,375 331,200 BBB Solectron Corp., zero coupon due 1/27/19 (b)................ 192,510 - -------------------------------------------------------------------------------------------- 290,885 - -------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 9.6% Financial Federal Corp: 100,000 NR 4.500% due 5/1/05 (b)..................................... 91,500 100,000 NR 4.500% due 5/1/05......................................... 91,500 600,000 BBB- Elan International Financial, zero coupon due 12/14/18 (b)....................................................... 309,000 200,000 Baa1* Hellenic Finance, 2.000% due 7/15/03........................ 205,100 - -------------------------------------------------------------------------------------------- 697,100 - -------------------------------------------------------------------------------------------- HEALTHCARE -- 5.7% 100,000 NR Genzyme Corp., 5.250% due 6/1/05 (b)........................ 139,875 100,000 BBB Rite Aid Corp., 5.250% due 9/15/02.......................... 100,313 100,000 BB- Tenet Healthcare Corp., 6.000% due 12/1/05.................. 81,625 100,000 A Thermo Instrument System, 4.500% due 10/15/03 (b)........... 89,250 - -------------------------------------------------------------------------------------------- 411,063 - -------------------------------------------------------------------------------------------- HUMAN RESOURCES -- 1.2% 100,000 BB+ Interim Services Inc., 4.500% due 6/1/05.................... 85,125 - -------------------------------------------------------------------------------------------- MISCELLANEOUS -- 6.4% 107,000 A- Diamond Offshore Drilling, 3.750% due 2/15/07............... 106,064 190,000 A- Koninklijke Ahold NV, 3.000% due 9/30/03.................... 111,409 100,000 A- Thermo Electron Corp., 4.250% due 1/1/03 (b)................ 90,250 100,000 AAA Finlayson Global, zero coupon due 2/19/04 (b)............... 156,500 - -------------------------------------------------------------------------------------------- 464,223 - -------------------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 3.4% 300,000 A+ Loews Corp., 3.125% due 9/15/07............................. 242,625 - -------------------------------------------------------------------------------------------- OIL AND NATURAL GAS -- 5.7% 100,000 A Baker Hughes Inc., zero coupon due 5/5/08................... 76,500 100,000 B- Parker Drilling Corp., 5.500% due 8/1/04.................... 66,375 200,000 Baa1* Nabors Industries, 5.000% due 5/15/06....................... 267,749 - -------------------------------------------------------------------------------------------- 410,624 - -------------------------------------------------------------------------------------------- REAL ESTATE -- 1.1% 100,000 NR Security Cap U.S. Realty, 2.000% due 5/22/03 (b)............ 76,938 - --------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 11 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 CONVERTIBLE BOND PORTFOLIO
FACE AMOUNT RATING(a) SECURITY VALUE - -------------------------------------------------------------------------------------------- RETAIL -- 1.4% $300,000 BBB Ingram Micro Inc., zero coupon due 6/9/18 (b)............... $ 100,125 - -------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 11.1% 500,000 NR Aspect Telecommunications, zero coupon due 8/10/18 (b)...... 109,375 Bell Atlantic Financial Service: 99,000 A+ 5.750% due 4/1/03 (b)..................................... 102,029 300,000 A+ 4.250% due 9/15/05 (b).................................... 307,139 198,000 A+ DSC Communications Corp., 7.000% due 8/1/04................. 204,929 100,000 B Total Renal Care Holdings, 7.000% due 5/15/09 (b)........... 81,625 - -------------------------------------------------------------------------------------------- 805,097 - -------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE BONDS AND NOTES (Cost -- $4,265,411)...... 4,439,518 - -------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $6,486,792).................. 6,699,655 - -------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 7.3% 531,000 Chase Securities Inc., 4.800% due 7/1/99; Proceeds at maturity -- $531,069; (Fully collateralized by U.S. Treasury Notes, 7.125% due 2/15/23; Market value -- $543,200) (Cost -- $531,000).......................................... 531,000 - -------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $7,017,792**)............ $7,230,655 - --------------------------------------------------------------------------------------------
(a) All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's") with the exception of those identified by an asterisk(*) , which are rated by Moody's Investor Service, Inc. ("Moody's"). (b) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 13 for a definition of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 12 - -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's -- Ratings from "AAA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" have the highest rating assigned by S&P to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. A -- Bonds rated "A" have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB, B and CCC -- Bonds rated "BB" and "B" are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents a lower degree of speculation than "B", and "CCC" the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
Moody's -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aaa" to "Caa", where 1 is the highest and 3 the lowest rating within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of these bonds. Aa -- Bonds rated "Aa" are judged to be of the high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities. A -- Bonds rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered to be medium grade obligations; that is they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. These bonds lack outstanding investment characteristics and may have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby may not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payment or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated "Caa" are of poor standing. These issues may be in default, or present elements of danger may exist with respect to principal or interest. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
13 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 STRATEGIC STOCK PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- COMMON STOCK -- 87.7% - --------------------------------------------------------------------------------------- AEROSPACE -- 2.3% 4,796 Rockwell International Corp. ............................... $ 291,357 - --------------------------------------------------------------------------------------- AUTO TRUCKS AND PARTS -- 0.9% 2,100 Ford Motor Co. ............................................. 118,518 - --------------------------------------------------------------------------------------- AUTOMOTIVE -- 3.7% 4,175 Delphi Automotive Systems Corp. ............................ 77,493 5,973 General Motors Corp. ....................................... 394,218 - --------------------------------------------------------------------------------------- 471,711 - --------------------------------------------------------------------------------------- BANKS - MONEY CENTER -- 4.9% 4,382 J.P. Morgan & Co. Inc. ..................................... 615,671 - --------------------------------------------------------------------------------------- BEVERAGES - SOFT DRINKS -- 1.5% 4,898 PepsiCo, Inc. .............................................. 189,492 - --------------------------------------------------------------------------------------- CHEMICALS -- 1.5% 3,949 Union Carbide Corp. ........................................ 192,513 - --------------------------------------------------------------------------------------- COMMUNICATIONS - EQUIPMENT -- 1.4% 4,459 Harris Corp. ............................................... 174,737 - --------------------------------------------------------------------------------------- COMPUTER SOFTWARE -- 0.2% 300 Microsoft Corp. ............................................ 27,057 - --------------------------------------------------------------------------------------- CONGLOMERATES -- 3.9% 4,277 Honeywell Inc. ............................................. 495,597 - --------------------------------------------------------------------------------------- CONSUMER PRODUCTS -- 7.8% 6,811 Eastman Kodak Co. .......................................... 461,445 6,130 Minnesota Mining and Manufacturing Co. ..................... 532,926 - --------------------------------------------------------------------------------------- 994,371 - --------------------------------------------------------------------------------------- DRUGS AND HEALTHCARE -- 4.6% 8,202 Bristol-Myers Squibb Co. ................................... 577,729 - --------------------------------------------------------------------------------------- ELECTRONICS -- 2.1% 4,400 Intel Corp. ................................................ 261,800 - --------------------------------------------------------------------------------------- ENGINEERING AND CONSTRUCTION -- 3.9% 12,283 Fluor Corp. ................................................ 497,462 - --------------------------------------------------------------------------------------- FOOD PROCESSING -- 3.5% 8,738 H.J. Heinz & Co. ........................................... 437,993 - --------------------------------------------------------------------------------------- MACHINERY -- 2.9% 6,155 Caterpillar Inc. ........................................... 369,300 - --------------------------------------------------------------------------------------- MANUFACTURER CONSUMER AND INDUSTRIAL -- 3.9% 11,232 International Flavors & Fragrances Inc. .................... 498,420 - --------------------------------------------------------------------------------------- OIL AND GAS -- 4.5% 5,942 Chevron Corp. .............................................. 565,605 - ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 14 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 STRATEGIC STOCK PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- OIL AND GAS PRODUCTS -- 5.7% 5,214 E.I. du Pont de Nemours & Co. .............................. $ 356,181 3,708 Mobil Corp. ................................................ 367,092 - --------------------------------------------------------------------------------------- 723,273 - --------------------------------------------------------------------------------------- OIL - SUPPLIES AND CONSTRUCTION -- 0.7% 2,500 Baker Hughes Inc. .......................................... 83,750 - --------------------------------------------------------------------------------------- OIL PRODUCTION - DOMESTIC -- 2.4% 4,001 Exxon Corp. ................................................ 308,578 - --------------------------------------------------------------------------------------- PAPER PRODUCTS -- 4.2% 10,503 International Paper Co. .................................... 530,401 - --------------------------------------------------------------------------------------- RETAIL -- 0.8% 600 Sears, Roebuck & Co. ....................................... 26,737 1,600 Tandy Corp. ................................................ 78,200 - --------------------------------------------------------------------------------------- 104,937 - --------------------------------------------------------------------------------------- RETAIL - SPECIALTY APPAREL -- 3.1% 8,741 The Limited, Inc. .......................................... 396,622 - --------------------------------------------------------------------------------------- RETAIL - DEPARTMENT STORES -- 3.8% 11,885 May Department Stores Co. .................................. 485,800 - --------------------------------------------------------------------------------------- SEMICONDUCTOR - EQUIPMENT -- 1.1% 2,398 Conexant Systems, Inc. (a) ................................. 139,234 - --------------------------------------------------------------------------------------- TELEPHONE -- 2.3% 5,283 AT&T Corp. ................................................. 294,857 - --------------------------------------------------------------------------------------- TIRE AND RUBBER GOODS -- 2.6% 5,500 Goodyear Tire & Rubber Co. ................................. 323,469 - --------------------------------------------------------------------------------------- TOBACCO -- 3.7% 11,759 Philip Morris Cos. Inc. .................................... 472,565 - --------------------------------------------------------------------------------------- TRANSPORTATION -- 3.8% 15,985 Norfolk Southern Corp. ..................................... 481,548 - --------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $9,959,401)..................... 11,124,367 - --------------------------------------------------------------------------------------- FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 12.3% $1,554,000 Chase Manhattan Bank, 4.800% due 7/1/99; Proceeds at maturity -- $1,554,207; (Fully collateralized by U.S. Treasury Notes, 7.125% due 2/15/23; Market value -- $1,590,400) (Cost -- $1,554,000)................... 1,554,000 - --------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $11,513,401*)............ $12,678,367 - ---------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for Federal income tax purpose is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 15 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- COMMON STOCK -- 94.2% - ----------------------------------------------------------------------------------- ADVERTISING -- 0.8% 1,661 ADVO, Inc. (a).............................................. $ 34,465 1 Outdoor Systems, Inc. (a)................................... 18 1,065 Snyder Communications, Inc. (a) ............................ 34,878 - ----------------------------------------------------------------------------------- 69,361 - ----------------------------------------------------------------------------------- AEROSPACE -- 0.9% 1,115 Cordant Technologies, Inc. ................................. 50,385 1,533 Primex Technologies, Inc. .................................. 33,056 - ----------------------------------------------------------------------------------- 83,441 - ----------------------------------------------------------------------------------- AIR TRANSPORT -- 0.5% 1,545 Airborne Freight Corp. ..................................... 42,777 - ----------------------------------------------------------------------------------- AUTO PARTS -- 0.6% 930 Borg-Warner Automotive, Inc. ............................... 51,150 - ----------------------------------------------------------------------------------- AUTO PARTS - ORIGINAL EQUIPMENT -- 0.8% 1,803 Arvin Industries, Inc. ..................................... 68,289 - ----------------------------------------------------------------------------------- AUTO RELATED -- 0.9% 6 Ogden Corp. ................................................ 161 930 SPX Corp. (a)............................................... 77,655 - ----------------------------------------------------------------------------------- 77,816 - ----------------------------------------------------------------------------------- AUTOMOTIVE -- 0.1% 180 Navistar International Corp. (a)............................ 9,000 - ----------------------------------------------------------------------------------- BANKS -- 1.9% 759 Centura Banks, Inc. ........................................ 42,788 1,184 Mercantile Bankshares Corp. ................................ 41,884 1,679 United Bankshares, Inc. .................................... 44,494 1,052 Westamerica Bancorporation.................................. 38,398 - ----------------------------------------------------------------------------------- 167,564 - ----------------------------------------------------------------------------------- BANKS - COMMERCIAL -- 2.5% 1,114 Associated Banc-Corp. ...................................... 46,231 1,698 Brenton Banks, Inc. ........................................ 26,319 787 CCB Financial Corp. ........................................ 41,613 1,013 City National Corp. ........................................ 37,924 1,052 GBC Bancorp................................................. 21,303 3,035 Republic Bancorp Inc. ...................................... 46,094 - ----------------------------------------------------------------------------------- 219,484 - ----------------------------------------------------------------------------------- BANKS - THRIFT INSTITUTIONS -- 1.1% 655 Astoria Financial Corp. .................................... 28,780 1,490 Dime Bancorp, Inc. ......................................... 29,986 1,533 Flagstar Bancorp, Inc. ..................................... 38,708 - ----------------------------------------------------------------------------------- 97,474 - -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 16 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- BEVERAGES - ALCOHOLIC -- 0.5% 849 Canandaigua Brands, Inc., Class A Shares (a)................ $ 44,520 - ----------------------------------------------------------------------------------- BROADCASTING - TV, CABLE & RADIO -- 0.5% 823 Cox Radio, Inc., Class A Shares (a)......................... 44,648 - ----------------------------------------------------------------------------------- BUILDING MATERIALS -- 2.0% 1,221 Centex Construction Products, Inc........................... 41,666 870 Dycom Industries, Inc. (a).................................. 48,720 983 Lone Star Industries, Inc. ................................. 36,923 983 Simpson Manufacturing Co., Inc. (a)......................... 46,692 - ----------------------------------------------------------------------------------- 174,001 - ----------------------------------------------------------------------------------- CHEMICALS -- 1.3% 1,771 Crompton & Knowles Corp. ................................... 34,645 1,184 Dexter Corp. ............................................... 48,322 1,332 Solutia, Inc. .............................................. 28,388 - ----------------------------------------------------------------------------------- 111,355 - ----------------------------------------------------------------------------------- CHEMICALS - SPECIALTY -- 0.3% 785 OM Group, Inc. ............................................. 27,083 - ----------------------------------------------------------------------------------- CLOTHING - RETAIL -- 0.3% 2,340 The Cato Corp. ............................................. 27,202 - ----------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 2.7% 691 Abacus Direct Corp. (a)..................................... 63,226 1,664 Data Processing Resources Corp. (a)......................... 39,312 1,399 International Network Services (a).......................... 56,484 539 Lason, Inc. (a)............................................. 26,747 500 Priceline.com, Inc. (a)..................................... 57,781 - ----------------------------------------------------------------------------------- 243,550 - ----------------------------------------------------------------------------------- COMMUNICATIONS - EQUIPMENT -- 0.6% 1,753 DSP Communications, Inc. (a)................................ 50,618 - ----------------------------------------------------------------------------------- COMPUTERS -- 4.2% 1,153 Comverse Technology, Inc. (a)............................... 87,052 2,572 E*Trade Group, Inc. (a)..................................... 102,719 1,383 National Computer Systems, Inc.............................. 46,677 1,607 Progress Software Corp. (a)................................. 45,397 1,915 Protein Design Labs, Inc. (a)............................... 42,489 1,490 Xircom, Inc. (a)............................................ 44,794 - ----------------------------------------------------------------------------------- 369,128 - ----------------------------------------------------------------------------------- COMPUTERS SERVICES -- 1.7% 1,383 Complete Business Solutions, Inc. (a)....................... 24,807 1,686 Mastech Corp. (a)........................................... 31,402 1,686 Network Appliance, Inc. (a)................................. 94,206 - ----------------------------------------------------------------------------------- 150,415 - -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 17 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- COMPUTER SOFTWARE -- 3.4% 1,400 AVT Corp. (a)............................................... $ 53,025 2,150 Genesys Telecommunications Laboratories, Inc. (a)........... 53,750 1,246 Legato Systems, Inc. (a).................................... 71,957 1,700 Mercury Interactive Corp. (a)............................... 60,137 5,600 Sybase, Inc. (a)............................................ 61,600 - ----------------------------------------------------------------------------------- 300,469 - ----------------------------------------------------------------------------------- CONSTRUCTION -- 0.9% 1,145 Centex Corp. ............................................... 43,009 2,301 D.R. Horton, Inc. .......................................... 38,254 - ----------------------------------------------------------------------------------- 81,263 - ----------------------------------------------------------------------------------- CONSTRUCTION PLANT AND EQUIPMENT -- 0.6% 1,322 Jacobs Engineering Group Inc. (a)........................... 50,236 - ----------------------------------------------------------------------------------- CONSUMER/BUSINESS SERVICES -- 0.3% 1,100 The Metzler Group, Inc. (a)................................. 30,387 - ----------------------------------------------------------------------------------- CONSUMER DURABLES -- 0.8% 557 Cort Business Services Corp. (a)............................ 13,333 2,417 Tower Automotive, Inc. (a).................................. 61,482 - ----------------------------------------------------------------------------------- 74,815 - ----------------------------------------------------------------------------------- CONSUMER NON-DURABLES -- 0.3% 1,295 United Stationers Supply Co. (a)............................ 28,490 - ----------------------------------------------------------------------------------- CONSUMER PRODUCTS -- 0.7% 1,341 Fossil, Inc. (a)............................................ 64,870 - ----------------------------------------------------------------------------------- CONSUMER SERVICES -- 0.1% 1,065 CareMatrix Corp. (a)........................................ 13,245 - ----------------------------------------------------------------------------------- EDUCATION -- 0.4% 1,686 Education Management Corp. (a).............................. 34,984 - ----------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 1.1% 1,025 Calpine Corp. (a)........................................... 55,350 4,928 El Paso Electric Co. ....................................... 44,044 - ----------------------------------------------------------------------------------- 99,394 - ----------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 1.3% 1,980 Park Electrochemical Corp. ................................. 56,925 1,837 C&D Technologies, Inc....................................... 56,258 - ----------------------------------------------------------------------------------- 113,183 - ----------------------------------------------------------------------------------- ELECTRONICS -- 2.8% 1,600 Brooks Automation, Inc. (a)................................. 43,300 1,870 DII Group, Inc. (a)......................................... 69,774 1,702 Esterline Technologies Corp. (a)............................ 24,466 3,730 Mentor Graphics Corp. (a)................................... 47,790 1,133 Semtech Corp. (a)........................................... 59,057 - ----------------------------------------------------------------------------------- 244,387 - -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 18 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- ELECTRONICS - SEMICONDUCTOR -- 0.6% 1,700 Unitrode Corp. (a).......................................... $ 48,768 - ----------------------------------------------------------------------------------- ENTERTAINMENT -- 0.6% 3,960 Aztar Corp. (a)............................................. 36,382 1,750 Florida Panthers Holdings, Inc. (a)......................... 18,703 - ----------------------------------------------------------------------------------- 55,085 - ----------------------------------------------------------------------------------- FINANCIAL SERVICES -- 2.8% 2,243 Doral Financial Corp. ...................................... 38,691 2,108 Eaton Vance Corp. .......................................... 72,594 1,837 Enhance Financial Services Group, Inc. ..................... 36,280 2,662 National Commerce Bancorporation............................ 58,231 470 SEI Investments Co. ........................................ 41,477 - ----------------------------------------------------------------------------------- 247,273 - ----------------------------------------------------------------------------------- FOOD PROCESSING -- 0.5% 1,607 Pilgrim's Pride Corp., Class B shares....................... 48,210 - ----------------------------------------------------------------------------------- FOOD WHOLESALERS -- 0.4% 2,032 Bob Evans Farms, Inc. ...................................... 40,386 - ----------------------------------------------------------------------------------- FOODS -- 0.8% 1,410 Earth Grains Co. ........................................... 36,395 1,383 IBP, Inc. .................................................. 32,846 - ----------------------------------------------------------------------------------- 69,241 - ----------------------------------------------------------------------------------- FOODS AND BEVERAGES -- 0.6% 1,750 Foodmaker, Inc. (a)......................................... 49,656 - ----------------------------------------------------------------------------------- FOREST PRODUCTS -- 0.6% 1 Pope & Talbot, Inc. ........................................ 12 1,280 Potlatch Corp. ............................................. 56,240 - ----------------------------------------------------------------------------------- 56,252 - ----------------------------------------------------------------------------------- HEALTHCARE -- 1.2% 1,145 Medicis Pharmaceutical Corp., Class A shares (a)............ 29,054 1,573 Res-Care, Inc. (a).......................................... 35,785 1,145 Trigon Healthcare, Inc. (a)................................. 41,649 - ----------------------------------------------------------------------------------- 106,488 - ----------------------------------------------------------------------------------- HEALTHCARE PRODUCTS -- 0.7% 1,276 Xomed Surgical Products, Inc. (a)........................... 62,125 - ----------------------------------------------------------------------------------- HEALTHCARE SERVICES -- 0.7% 1,200 InfoCure Corp. (a).......................................... 63,525 - ----------------------------------------------------------------------------------- HOME BUILDING -- 1.2% 1,875 Lennar Corp. ............................................... 45,000 1,196 NVR, Inc. (a)............................................... 62,416 - ----------------------------------------------------------------------------------- 107,416 - -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 19 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- HOSPITAL SUPPLY -- 0.5% 1,500 Datascope Corp. (a)......................................... $ 48,187 - ----------------------------------------------------------------------------------- HOUSEHOLD FURNISHINGS AND APPLIANCES -- 1.1% 1,273 Ethan Allen Interiors, Inc. ................................ 48,055 1,382 Haverty Furniture Companies, Inc. .......................... 48,715 - ----------------------------------------------------------------------------------- 96,770 - ----------------------------------------------------------------------------------- INDUSTRIALS -- 0.4% 1,013 Everest Reinsurance Holdings, Inc. ......................... 33,049 - ----------------------------------------------------------------------------------- INSURANCE -- 2.2% 1,549 Fidelity National Financial, Inc. .......................... 32,529 655 Financial Security Assurance Holdings, Ltd. ................ 34,060 1,837 First American Financial Corp. ............................. 32,836 1,383 HCC Insurance Holdings, Inc. ............................... 31,376 1,008 Medical Assurance, Inc. (a)................................. 28,476 794 Radian Group Inc. .......................................... 38,757 - ----------------------------------------------------------------------------------- 198,034 - ----------------------------------------------------------------------------------- INTERNET -- 4.1% 812 CMGI Inc. (a)............................................... 92,669 1,533 CSG Systems International, Inc. (a)......................... 40,146 690 Doubleclick Inc. (a)........................................ 63,307 860 Infoseek Corp. (a).......................................... 41,226 406 Lycos, Inc. (a)............................................. 37,301 1,100 Xoom.com, Inc. (a).......................................... 57,750 1,477 USWeb Corp. (a)............................................. 32,770 - ----------------------------------------------------------------------------------- 365,169 - ----------------------------------------------------------------------------------- INVESTMENT COMPANY -- 0.4% 1,276 EVEREN Capital Corp. ....................................... 38,040 - ----------------------------------------------------------------------------------- LEISURE TIME -- 0.5% 983 Coach USA, Inc. (a)......................................... 41,225 - ----------------------------------------------------------------------------------- MACHINERY -- 0.7% 1,601 Astec Industries, Inc. (a).................................. 65,240 - ----------------------------------------------------------------------------------- MACHINERY - DIVERSIFIED -- 0.5% 798 Briggs & Stratton Corp. .................................... 46,084 - ----------------------------------------------------------------------------------- MANUFACTURING -- 1.1% 1,505 AptarGroup, Inc. ........................................... 45,150 1,672 MotivePower Industries, Inc. (a)............................ 29,678 1,314 Tredegar Industries, Inc. .................................. 28,579 - ----------------------------------------------------------------------------------- 103,407 - ----------------------------------------------------------------------------------- MEDICAL EQUIPMENT -- 0.5% 1,800 Gliatech Inc. (a)........................................... 45,900 - ----------------------------------------------------------------------------------- MEDICAL PRODUCTS AND SUPPLIES -- 0.5% 1,400 Conmed Corp. (a)............................................ 42,875 - -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- MEDICAL SERVICES -- 0.8% 1,700 King Pharmaceuticals Inc. (a)............................... $ 43,987 1,183 Renal Care Group, Inc. (a).................................. 30,610 - ----------------------------------------------------------------------------------- 74,597 - ----------------------------------------------------------------------------------- MISCELLANEOUS -- 1.0% 889 Health Care Properties Investors, Inc. ..................... 25,669 1,533 Zale Corp. (a).............................................. 61,320 - ----------------------------------------------------------------------------------- 86,989 - ----------------------------------------------------------------------------------- NATURAL GAS - DIVERSIFIED -- 0.5% 1,609 Newfield Exploration Co. (a)................................ 45,755 - ----------------------------------------------------------------------------------- OFFICE EQUIPMENT SERVICES -- 0.3% 1,634 Daisytek International Corp. (a)............................ 26,654 - ----------------------------------------------------------------------------------- OIL AND GAS PRODUCTS -- 0.5% 2,983 Marine Drilling Cos., Inc. (a).............................. 40,829 - ----------------------------------------------------------------------------------- OIL INTEGRATED - DOMESTIC -- 0.6% 1,490 Barrett Resources Corp. (a)................................. 57,178 - ----------------------------------------------------------------------------------- OIL INTEGRATED - INTERNATIONAL -- 0.5% 983 Murphy Oil Corp. ........................................... 47,982 - ----------------------------------------------------------------------------------- OIL - DOMESTIC -- 0.6% 1,800 Cal Dive International, Inc. (a)............................ 53,775 - ----------------------------------------------------------------------------------- PHARMACEUTICAL -- 1.7% 926 Alpharma, Inc., Class A Shares.............................. 32,930 961 IDEC Pharmaceuticals Corp. (a).............................. 74,057 1,915 Roberts Pharmaceutical Corp. (a)............................ 46,438 - ----------------------------------------------------------------------------------- 153,425 - ----------------------------------------------------------------------------------- PRINT, PUBLISH AND BROADCAST -- 0.5% 676 Adelphia Communications Corp. (a)........................... 43,010 - ----------------------------------------------------------------------------------- PRINTING -- 1.0% 999 Consolidated Graphics, Inc. (a)............................. 49,950 2,237 Mail-Well, Inc. (a)......................................... 36,211 - ----------------------------------------------------------------------------------- 86,161 - ----------------------------------------------------------------------------------- PUBLISHING - NEWSPAPER -- 0.6% 1,533 The McClatchy Co., Class A Shares........................... 50,780 - ----------------------------------------------------------------------------------- REAL ESTATE -- 2.2% 1,052 Arden Realty, Inc. ......................................... 25,905 1,278 First Industrial Realty Trust, Inc. ........................ 35,065 1,533 General Growth Properties, Inc. ............................ 54,421 2,264 Reckson Associates Realty Corp. ............................ 53,204 1,915 Vistana, Inc. (a)........................................... 30,161 - ----------------------------------------------------------------------------------- 198,756 - -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 21 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST -- 4.2% 1,317 Avalonbay Communities, Inc. ................................ $ 48,724 983 Cousins Properties, Inc. ................................... 33,237 1,276 EastGroup Properties, Inc. ................................. 25,599 1,941 Glenborough Realty Trust, Inc. ............................. 33,967 1,843 Liberty Property Trust...................................... 45,844 918 Mid-America Apartment Communities, Inc. .................... 21,228 1,811 Nationwide Health Properties, Inc. ......................... 34,522 1,533 Parkway Properties, Inc. ................................... 50,780 2,301 Prime Retail, Inc........................................... 19,989 1,115 Regency Realty Corp......................................... 24,460 918 Spieker Properties, Inc..................................... 35,687 - ----------------------------------------------------------------------------------- 374,037 - ----------------------------------------------------------------------------------- RESTAURANT -- 1.1% 4,200 Lone Star Steakhouse & Saloon, Inc. (a)..................... 40,818 1,820 Sonic Corp. (a)............................................. 59,377 - ----------------------------------------------------------------------------------- 100,195 - ----------------------------------------------------------------------------------- RETAIL -- 2.1% 1,276 AnnTaylor Stores Corp. (a).................................. 57,420 1,280 Cost Plus, Inc. (a)......................................... 58,240 2,009 Pacific Sunwear of Calif., Inc. (a)......................... 48,957 1,729 Trans World Entertainment Corp. (a)......................... 19,451 - ----------------------------------------------------------------------------------- 184,068 - ----------------------------------------------------------------------------------- RETAIL - SPECIALTY APPAREL -- 0.3% 816 Jones Apparel Group, Inc. (a)............................... 27,999 - ----------------------------------------------------------------------------------- RETAIL - MAIL ORDER/GENERAL -- 0.7% 2,435 Family Dollar Stores, Inc................................... 58,440 - ----------------------------------------------------------------------------------- RETAIL - SPECIALTY -- 1.2% 1,703 Action Performance Co., Inc. (a)............................ 56,199 1,504 Guitar Center, Inc. (a)..................................... 15,698 1,452 The Men's Wearhouse, Inc. (a)............................... 37,026 - ----------------------------------------------------------------------------------- 108,923 - ----------------------------------------------------------------------------------- SAVINGS AND LOAN ASSOCIATION -- 0.8% 1,623 FirstFed Financial Corp. (a)................................ 31,242 2,108 Peoples Heritage Financial Group, Inc....................... 39,656 - ----------------------------------------------------------------------------------- 70,898 - ----------------------------------------------------------------------------------- SOFTWARE -- 0.4% 900 New Era of Networks, Inc. (a)............................... 39,543 - ----------------------------------------------------------------------------------- STEEL -- 1.1% 2,085 AK Steel Holding Corp....................................... 46,912 1,196 Reliance Steel & Aluminum Co................................ 46,644 - ----------------------------------------------------------------------------------- 93,556 - -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 22 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- TECHNOLOGY -- 0.6% 1,989 Mettler-Toledo International Inc. (a)....................... $ 49,352 - ----------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 4.8% 1,206 Commonwealth Telephone Enterprises, Inc. (a)................ 48,767 889 COMSAT Corp................................................. 28,892 936 NTL Inc. (a)................................................ 80,671 1,400 Orckit Communication Ltd. (a)............................... 34,650 1,870 Polycom, Inc. (a)........................................... 72,930 2,065 Skytel Communications, Inc. (a)............................. 43,235 1,971 Voice Stream Wireless Corp. (a)............................. 56,050 2,301 Western Wireless Corp. Class A Shares (a)................... 62,127 - ----------------------------------------------------------------------------------- 427,322 - ----------------------------------------------------------------------------------- TELEPHONE -- 0.6% 2,200 Chico's Fas, Inc. (a)....................................... 51,700 - ----------------------------------------------------------------------------------- TRANSPORTATION -- 1.7% 1,050 Alaska Air Group, Inc. (a).................................. 43,837 1,490 SkyWest, Inc................................................ 37,156 1,533 US Freightways Corp......................................... 70,997 - ----------------------------------------------------------------------------------- 151,990 - ----------------------------------------------------------------------------------- TRANSPORTATION - MISCELLANEOUS -- 0.4% 928 Avondale Industries, Inc. (a)............................... 36,192 - ----------------------------------------------------------------------------------- UTILITIES -- 1.9% 1,201 Connecticut Energy Corp..................................... 46,313 1,890 MDU Resources Group, Inc.................................... 43,115 850 New Jersey Resources Corp................................... 31,821 1,837 NorthWestern Corp........................................... 44,432 - ----------------------------------------------------------------------------------- 165,681 - ----------------------------------------------------------------------------------- UTILITIES - GAS -- 0.8% 1,276 Southwest Gas Corp.......................................... 36,525 1,490 UGI Corp.................................................... 30,079 - ----------------------------------------------------------------------------------- 66,604 - ----------------------------------------------------------------------------------- WHOLESALE DISTRIBUTOR -- 0.6% 1,403 Bindley Western Industries, Inc............................. 32,349 704 Priority Healthcare Corp. (a)............................... 24,288 - ----------------------------------------------------------------------------------- 56,637 - ----------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $7,827,257)..................... 8,372,032 - ----------------------------------------------------------------------------------- WARRANT -- 0.3% 2,925 Equity Inns, Inc. (Cost -- $33,681)......................... 27,056 - -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 23 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 DISCIPLINED SMALL CAP STOCK PORTFOLIO
FACE AMOUNT SECURITY VALUE - ----------------------------------------------------------------------------------- U.S. TREASURIES -- 0.5% $ 40,000 U.S. Treasury Bill due 9/16/99 (Cost -- $39,615 )........... $ 39,615 - ----------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $7,900,553).................. 8,438,703 - ----------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 5.0% 441,000 Chase Manhattan Bank, 4.800% due 7/1/99; Proceeds at maturity -- 441,059; (Fully collateralized by U.S. Treasury Notes, 7.125% due 2/15/23; Market value -- $453,600) (Cost -- $441,000).......................................... 441,000 - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $8,341,553*)............. $8,879,703 - -----------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 24 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS MID CAP GROWTH PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------- COMMON STOCK -- 91.2% - -------------------------------------------------------------------------------------- ADVERTISING -- 0.0% 50 Flycast Communications Corp. (a)............................ $ 956 - -------------------------------------------------------------------------------------- AUTO PARTS -- 0.3% 2,290 Federal-Mogul Corp. ........................................ 119,080 - -------------------------------------------------------------------------------------- BASIC INDUSTRIES -- 0.5% 9,700 Houston Exploration Co. (a)................................. 183,693 - -------------------------------------------------------------------------------------- BIOTECHNOLOGY -- 0.6% 10,900 Cytyc Corp. (a)............................................. 212,550 - -------------------------------------------------------------------------------------- BROADCASTING -- 0.0% 100 Radio One Inc. (a).......................................... 4,650 - -------------------------------------------------------------------------------------- BROADCASTING - TV, CABLE AND RADIO -- 5.5% 25,420 Gemstar International Group Ltd. (a)........................ 1,658,655 8,200 Hearst-Argyle Television, Inc. (a).......................... 196,800 1,700 Sinclair Broadcast Group Inc., Class A Shares (a)........... 27,838 - -------------------------------------------------------------------------------------- 1,883,293 - -------------------------------------------------------------------------------------- BROKERAGE -- 3.1% 32,970 A.G. Edwards, Inc. ......................................... 1,063,282 - -------------------------------------------------------------------------------------- BUSINESS SERVICES -- 21.3% 5,880 Affiliated Computer Services, Inc., Class A Shares (a)...... 297,675 1,900 CheckFree Holdings Corp. (a)................................ 52,369 100 Critical Path Inc. (a)...................................... 5,532 2,600 CSG Systems International, Inc. (a)......................... 68,087 9,890 DST Systems, Inc. (a)....................................... 621,833 14,845 Fiserv, Inc. (a)............................................ 464,834 3,340 Gartner Group, Inc. (a)..................................... 68,470 5,900 Great Atlantic & Pacific Tea Co., Inc. ..................... 199,493 14,400 IMRglobal Corp. (a)......................................... 277,200 7,490 Learning Tree International, Inc. (a)....................... 81,922 100 Net Perceptions Inc. (a).................................... 2,181 20,700 Network Solutions Inc. (a).................................. 1,637,888 4,400 Novellus Systems, Inc. (a).................................. 300,300 20,120 Policy Management Systems Corp. (a)......................... 603,600 38,340 SportsLine USA, Inc. (a).................................... 1,375,447 11,700 SunGard Data Systems Inc. (a)............................... 403,650 26,970 Technology Solutions Co. (a)................................ 291,622 4,050 The BISYS Group Inc. (a).................................... 236,925 100 USinternetworking Inc. (a).................................. 4,200 4,100 VeriSign Inc. (a)........................................... 353,625 - -------------------------------------------------------------------------------------- 7,346,853 - -------------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 0.8% 40 Sylvan Learning Systems, Inc. (a)........................... 1,087 7,200 The Dial Corp. ............................................. 267,750 - -------------------------------------------------------------------------------------- 268,837 - --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 25 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS MID CAP GROWTH PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------- COMPUTER SOFTWARE -- 6.8% 14,860 Aspen Technology, Inc. (a).................................. $ 174,605 50 Ariba Inc. (a).............................................. 4,862 1,530 BMC Software, Inc. (a)...................................... 82,620 19,100 Cadence Design Systems, Inc. (a)............................ 243,525 15,500 Citrix Systems, Inc. (a).................................... 875,750 14,300 Edify Corp. (a)............................................. 191,262 50 Informatica Corp. (a)....................................... 1,781 5,030 Intuit, Inc. (a)............................................ 453,329 50 Marimba (a)................................................. 2,635 2,500 Online Resources & Communication Corp. (a).................. 33,906 4,450 Synopsys, Inc. (a).......................................... 245,585 2,760 Vantive Corp. (a)........................................... 31,567 - -------------------------------------------------------------------------------------- 2,341,427 - -------------------------------------------------------------------------------------- CONSUMER SERVICES -- 1.1% 12,420 BJ's Wholesale Club, Inc. (a)............................... 373,377 50 Mapquest.com Inc. (a)....................................... 816 - -------------------------------------------------------------------------------------- 374,193 - -------------------------------------------------------------------------------------- DISTRIBUTION -- 0.0% 100 Valley Media Inc. (a)....................................... 1,487 - -------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 1.7% 38,130 Cable Design Technologies (a)............................... 588,631 - -------------------------------------------------------------------------------------- ELECTRONIC COMPONENTS -- 0.0% 50 GlobeSpan Inc. (a).......................................... 1,987 - -------------------------------------------------------------------------------------- ELECTRONICS -- 10.9% 15,000 Applied Science & Technology (a)............................ 337,500 10,500 KLA-Tencor Corp. (a)........................................ 681,187 14,100 Kulicke & Soffa Industries, Inc. (a)........................ 378,057 25,470 Lo-Jack Corp. (a)........................................... 213,311 12,600 Teradyne, Inc. (a).......................................... 904,050 41,000 Security Dynamics Technologies Inc. (a)..................... 871,250 18,440 SIPEX Corp. (a)............................................. 378,020 - -------------------------------------------------------------------------------------- 3,763,375 - -------------------------------------------------------------------------------------- ELECTRONICS - SEMICONDUCTOR -- 2.1% 9,900 Analog Devices, Inc. ....................................... 496,857 11,500 MKS Instruments Inc. (a).................................... 214,187 - -------------------------------------------------------------------------------------- 711,044 - -------------------------------------------------------------------------------------- ENERGY -- 0.1% 2,900 CONSOL Energy Inc. (a)...................................... 34,800 - -------------------------------------------------------------------------------------- FOODS -- 0.7% 6,100 Suiza Foods Corp. (a)....................................... 255,438 - -------------------------------------------------------------------------------------- FOODS AND BEVERAGES -- 1.0% 11,300 Keebler Foods Co. (a)....................................... 343,238 - --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 26 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS MID CAP GROWTH PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------- HEALTH EQUIPMENT AND SERVICES -- 0.1% 3,700 Omnicare, Inc. ............................................. $ 46,712 - -------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 0.3% 3,380 McCormick & Co., Inc. ...................................... 106,682 - -------------------------------------------------------------------------------------- INTERNET CONTENT -- 1.0% 7,700 Security First Technologies (a)............................. 347,462 - -------------------------------------------------------------------------------------- INTERNET SOFTWARE -- 0.0% 50 Software.com Inc. (a)....................................... 1,160 - -------------------------------------------------------------------------------------- MEDICAL EQUIPMENT -- 3.5% 54,800 STERIS Corp. (a)............................................ 1,061,750 7,000 Ventana Medical Systems (a)................................. 133,875 - -------------------------------------------------------------------------------------- 1,195,625 - -------------------------------------------------------------------------------------- MEDICAL PRODUCTS AND SUPPLIES -- 3.5% 48,370 IDEXX Laboratories, Inc. (a)................................ 1,127,625 5,800 LaserSight Inc. (a)......................................... 94,250 - -------------------------------------------------------------------------------------- 1,221,875 - -------------------------------------------------------------------------------------- MEDICAL SERVICES -- 8.3% 19,900 Concentra Managed Care Inc. (a)............................. 294,768 40,490 Health Management Associates, Inc., Class A Shares (a)...... 455,512 18,120 Lincare Holdings, Inc. (a).................................. 453,000 25,740 PSS World Medical, Inc. (a)................................. 287,966 89,100 Total Renal Care Holdings, Inc. (a)......................... 1,386,618 - -------------------------------------------------------------------------------------- 2,877,864 - -------------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 0.2% 1,184 XL Capital Ltd., Class A Shares............................. 66,896 - -------------------------------------------------------------------------------------- NATURAL GAS - DIVERSIFIED -- 1.9% 22,800 Newfield Exploration Co. (a)................................ 648,375 - -------------------------------------------------------------------------------------- OIL DRILLING AND SERVICES -- 5.2% 12,580 Cooper Cameron Corp. (a).................................... 466,246 8,150 Diamond Offshore Drilling, Inc. ............................ 231,256 14,240 Global Industries Ltd. (a).................................. 182,450 25,520 Noble Drilling Corp. (a).................................... 502,425 16,300 Transocean Offshore Inc. ................................... 427,875 - -------------------------------------------------------------------------------------- 1,810,252 - -------------------------------------------------------------------------------------- PHARMACEUTICAL -- 3.3% 2,430 Cytoclonal Pharmaceuticals Inc. (a)......................... 15,339 4,840 Sepracor Inc. (a)........................................... 393,250 11,300 United Therapeutics Corp. (a)............................... 134,187 14,360 Quintiles Transnational Corp. (a)........................... 603,120 - -------------------------------------------------------------------------------------- 1,145,896 - --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 27 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS MID CAP GROWTH PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------- PUBLISHING - NEWSPAPER -- 1.9% 4,200 Meredith Corp............................................... $ 145,425 10,070 Scholastic Corp. (a)........................................ 509,793 100 Ziff-Davis Inc. -- ZDNET (a)................................ 2,600 - -------------------------------------------------------------------------------------- 657,818 - -------------------------------------------------------------------------------------- RETAIL - SPECIALTY -- 1.9% 43,300 CompUSA, Inc. (a)........................................... 322,043 30,660 Gymboree Corp. (a).......................................... 321,930 - -------------------------------------------------------------------------------------- 643,973 - -------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 3.2% 36,540 Aerial Communications, Inc. (a)............................. 493,290 50 Copper Mountain Networks Inc. (a)........................... 3,862 50 Inet Technologies Inc. (a).................................. 1,200 20,100 Intermedia Communications, Inc. (a)......................... 603,000 100 Time Warner Telecom -- Class A (a).......................... 2,900 50 Redback Networks (a)........................................ 6,278 - -------------------------------------------------------------------------------------- 1,110,530 - -------------------------------------------------------------------------------------- UTILITIES - GAS -- 0.4% 3,400 Camco International Corp. .................................. 126,012 - -------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $28,267,670).................... 31,505,946 - --------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - -------------------------------------------------------------------------------------- CONVERTIBLE BONDS -- 0.7% Concentra Managed Care: $ 47,000 6.000% due 12/15/01....................................... 44,885 205,000 4.500% due 3/15/03........................................ 193,725 - -------------------------------------------------------------------------------------- TOTAL CONVERTIBLE BONDS (Cost -- $169,883).................. 238,610 - -------------------------------------------------------------------------------------- SHORT-TERM SECURITY -- 8.1% 2,800,000 Federal Home Loan Mortgage Corp., 4.600% due 7/1/99 (Cost -- $2,800,000)........................................ 2,800,000 - -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $31,237,553*)............ $34,544,556 - --------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for Federal income tax purpose is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 28 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS RESEARCH PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------- COMMON STOCK -- 90.2% - -------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 4.1% 13,800 Gulfstream Aerospace Corp. (a).............................. $ 932,362 1,790 Newport News Shipbuilding Inc. ............................. 52,805 8,500 Raytheon Co. ............................................... 598,188 28,020 United Technologies Corp. .................................. 2,008,684 - -------------------------------------------------------------------------------------- 3,592,039 - -------------------------------------------------------------------------------------- AUTOMOTIVE -- 1.0% 15,510 Federal-Mogul Corp. ........................................ 806,520 1,200 SPX Corp. .................................................. 100,200 - -------------------------------------------------------------------------------------- 906,720 - -------------------------------------------------------------------------------------- BANKS AND CREDIT COMPANIES -- 6.0% 19,158 Associates First Capital Corp. ............................. 848,939 6,200 Bank of America Corp. ...................................... 454,537 18,680 Bank of New York Co., Inc. ................................. 685,323 15,700 PNC Bank Corp. ............................................. 904,713 2,100 Providian Financial Corp. .................................. 196,350 5,820 The Chase Manhattan Corp. .................................. 504,157 9,270 The CIT Group, Inc. ........................................ 267,671 11,750 U.S. Bancorp................................................ 399,500 24,550 Wells Fargo Co. ............................................ 1,049,512 - -------------------------------------------------------------------------------------- 5,310,702 - -------------------------------------------------------------------------------------- BASIC MATERIALS -- 0.5% 12,700 Owens-Illinois, Inc. (a).................................... 415,131 - -------------------------------------------------------------------------------------- BROADCAST AND CABLE TV -- 3.5% 9,360 CBS Corp. .................................................. 406,575 8,200 Comcast Corp. .............................................. 315,188 20,100 Infinity Broadcasting Corp. (a)............................. 597,975 6,110 MediaOne Group, Inc. (a).................................... 454,431 17,650 Time Warner Inc. ........................................... 1,297,275 - -------------------------------------------------------------------------------------- 3,071,444 - -------------------------------------------------------------------------------------- BROKERS AND ASSET MANAGERS -- 0.8% 1,900 Charles Schwab Corp. ....................................... 208,763 800 Goldman Sachs Group, Inc. .................................. 57,800 4,300 Morgan Stanley Dean Witter & Co. ........................... 440,750 - -------------------------------------------------------------------------------------- 707,313 - -------------------------------------------------------------------------------------- BUSINESS SERVICES -- 0.7% 9,200 First Data Corp. ........................................... 450,225 1,900 Modis Professional Services, Inc. (a)....................... 26,125 2,100 VeriSign, Inc. (a).......................................... 181,125 - -------------------------------------------------------------------------------------- 657,475 - -------------------------------------------------------------------------------------- CHEMICALS -- 0.2% 7,650 Cambrex Corp. .............................................. 200,812 - --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 29 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS RESEARCH PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------- COMPUTER SOFTWARE SYSTEMS -- 14.0% 300 BackWeb Technologies Ltd. (a)............................... $ 8,212 23,810 BMC Software, Inc. (a)...................................... 1,285,740 6,950 Cadence Design Systems, Inc. (a)............................ 88,613 2,300 Citrix Systems, Inc. (a).................................... 129,950 7,840 Computer Associates International, Inc. .................... 431,200 21,320 Compuware Corp. (a)......................................... 678,243 10,780 EMC Corp. .................................................. 592,900 4,400 Hewlett-Packard Co. (a)..................................... 442,200 100 Intuit Inc. (a)............................................. 9,012 46,740 Microsoft Corp. (a)......................................... 4,215,364 52,915 Oracle Corp. (a)............................................ 1,964,469 700 Phone.com, Inc. (a)......................................... 39,200 100 Software.com, Inc. (a)...................................... 2,319 19,280 Sun Microsystems, Inc. (a).................................. 1,327,910 7,700 Synopsys, Inc. (a).......................................... 424,944 13,460 Xerox Corp. ................................................ 794,981 - -------------------------------------------------------------------------------------- 12,435,257 - -------------------------------------------------------------------------------------- CONGLOMERATES -- 3.1% 28,540 Tyco International Ltd. .................................... 2,704,165 - -------------------------------------------------------------------------------------- CONSUMER STAPLES/HOUSEHOLD AND PERSONAL CARE -- 5.1% 4,900 Colgate-Palmolive Co. ...................................... 483,875 17,700 Gillette Co. ............................................... 728,570 14,400 Newell Rubbermaid Inc. ..................................... 669,600 7,680 The Clorox Co. ............................................. 820,320 18,680 The Dial Corp. ............................................. 694,662 12,670 The Procter & Gamble Co. ................................... 1,130,798 - -------------------------------------------------------------------------------------- 4,527,825 - -------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 1.8% 15,200 Danaher Corp. .............................................. 883,500 5,800 Honeywell Inc. ............................................. 672,075 - -------------------------------------------------------------------------------------- 1,555,575 - -------------------------------------------------------------------------------------- ELECTRONICS -- 4.0% 39,220 Analog Devices, Inc. (a).................................... 1,968,354 33,300 LSI Logic Corp. (a)......................................... 1,535,962 - -------------------------------------------------------------------------------------- 3,504,316 - -------------------------------------------------------------------------------------- ENTERTAINMENT -- 1.3% 36,800 Walt Disney Co. ............................................ 1,133,900 - --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 30 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS RESEARCH PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------- FOOD AND BEVERAGE PRODUCTS -- 3.0% 9,600 Anheuser-Busch Cos., Inc. .................................. $ 681,000 2,100 Bestfoods................................................... 103,950 8,600 Coca-Cola Co. .............................................. 537,500 9,300 Nabisco Holdings Corp. ..................................... 402,225 29,530 Ralston-Ralston Purina Group................................ 898,820 - -------------------------------------------------------------------------------------- 2,623,495 - -------------------------------------------------------------------------------------- FOREST AND PAPER PRODUCTS -- 0.8% 7,400 Abitibi-Consolidated Inc. .................................. 84,175 7,800 Bowater Inc. ............................................... 368,550 12,353 Smurfit-Stone Container Corp. (a)........................... 254,008 - -------------------------------------------------------------------------------------- 706,733 - -------------------------------------------------------------------------------------- GAMING AND LODGING -- 0.5% 9,900 Carnival Corp. ............................................. 480,150 - -------------------------------------------------------------------------------------- HEALTH MAINTENANCE ORGANIZATIONS -- 1.0% 13,540 United HealthCare Corp. .................................... 847,943 - -------------------------------------------------------------------------------------- INSURANCE -- 6.4% 6,100 American International Group, Inc. ......................... 714,081 12,950 CIGNA Corp. ................................................ 1,152,550 10,980 Conseco, Inc. .............................................. 334,204 12,570 Equitable Cos. Inc. ........................................ 842,190 13,600 Hartford Financial Services Group, Inc. .................... 793,050 17,420 Lincoln National Corp. ..................................... 911,284 6,370 Nationwide Financial Services, Inc. ........................ 288,242 13,530 ReliaStar Financial Corp. .................................. 591,938 - -------------------------------------------------------------------------------------- 5,627,539 - -------------------------------------------------------------------------------------- INTEGRATED OILS -- 3.5% 1,100 Atlantic Richfield Co. ..................................... 91,919 11,312 BP Amoco PLC -- ADR......................................... 1,227,352 14,900 Conoco Inc. ................................................ 415,337 13,110 Mobil Corp. ................................................ 1,297,890 1,700 Total Fina SA -- ADR........................................ 109,544 - -------------------------------------------------------------------------------------- 3,142,042 - -------------------------------------------------------------------------------------- MEDICAL EQUIPMENT -- 2.1% 20,650 Guidant Corp. .............................................. 1,062,184 9,900 Medtronic, Inc. ............................................ 770,963 700 VISX, Inc. (a).............................................. 55,431 - -------------------------------------------------------------------------------------- 1,888,578 - -------------------------------------------------------------------------------------- MEDICAL SERVICES -- 1.6% 12,505 Cardinal Health, Inc. ...................................... 801,883 44,130 HEALTHSOUTH Corp. (a)....................................... 659,192 - -------------------------------------------------------------------------------------- 1,461,075 - --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 31 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS RESEARCH PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------- PHARMACEUTICAL -- 4.6% 26,320 American Home Products Corp. ............................... $ 1,513,400 19,900 Bristol-Myers Squibb Co. ................................... 1,401,706 20,360 Pharmacia & Upjohn, Inc. ................................... 1,156,703 - -------------------------------------------------------------------------------------- 4,071,809 - -------------------------------------------------------------------------------------- PRINT/PUBLISHING -- 0.4% 5,600 Gannett Co., Inc. .......................................... 399,700 - -------------------------------------------------------------------------------------- RETAIL/FOOD AND DRUG STORES -- 4.1% 21,000 CVS Corp. .................................................. 1,065,750 35,400 Kroger Co. ................................................. 992,899 26,970 Rite Aid Corp. ............................................. 664,136 18,980 Safeway Inc. (a)............................................ 939,510 - -------------------------------------------------------------------------------------- 3,662,295 - -------------------------------------------------------------------------------------- RETAIL/STORES -- 2.5% 16,800 CompUSA Inc. (a)............................................ 124,950 10,920 Dayton-Hudson Corp. ........................................ 709,800 21,605 Office Depot, Inc. (a)...................................... 476,660 12,950 TJX Cos., Inc. ............................................. 431,397 9,200 Wal-Mart Stores, Inc. ...................................... 443,900 - -------------------------------------------------------------------------------------- 2,186,707 - -------------------------------------------------------------------------------------- RESTAURANTS -- 1.5% 100 CKE Restaurants, Inc. ...................................... 1,625 31,420 McDonald's Corp. ........................................... 1,298,039 - -------------------------------------------------------------------------------------- 1,299,664 - -------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 3.9% 27,300 Cisco Systems, Inc. (a)..................................... 1,760,850 16,700 Motorola, Inc. ............................................. 1,582,325 3,600 Telefonaktiebolaget LM Ericsson -- ADR...................... 118,575 200 Tellabs, Inc. (a)........................................... 13,513 - -------------------------------------------------------------------------------------- 3,475,263 - -------------------------------------------------------------------------------------- UTILITIES - ELECTRIC POWER -- 1.0% 9,900 CMS Energy Corp. ........................................... 414,563 12,940 MidAmerican Energy Holdings (a)............................. 448,047 - -------------------------------------------------------------------------------------- 862,610 - -------------------------------------------------------------------------------------- UTILITIES - GAS -- 0.3% 5,260 Columbia Energy Group....................................... 329,736 - --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 32 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 MFS RESEARCH PORTFOLIO
SHARES SECURITY VALUE - -------------------------------------------------------------------------------------- UTILITIES - TELEPHONE SERVICES -- 6.9% 24,520 Bell Atlantic Corp. ........................................ $ 1,602,995 24,747 MCI WorldCom, Inc. (a)...................................... 2,134,429 13,700 Sprint Corp. ............................................... 723,531 29,100 Sprint Corp. (PCS Group).................................... 1,662,337 - -------------------------------------------------------------------------------------- 6,123,292 - -------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $72,321,408).................... 79,911,305 - -------------------------------------------------------------------------------------- FOREIGN STOCK -- 4.1% - -------------------------------------------------------------------------------------- GERMANY -- 0.8% 4,560 Mannesmann AG............................................... 681,895 - -------------------------------------------------------------------------------------- UNITED KINGDOM -- 0.7% 16,300 AstraZeneca Group PLC....................................... 631,547 - -------------------------------------------------------------------------------------- SPAIN -- 0.5% 21,600 Repsol - YPF, SA............................................ 441,066 - -------------------------------------------------------------------------------------- SWEDEN -- 1.2% 32,400 Telefonaktiebolaget LM Ericsson, Class B Shares............. 1,038,471 - -------------------------------------------------------------------------------------- SWITZERLAND -- 0.9% 2,790 UBS -- AG................................................... 832,728 - -------------------------------------------------------------------------------------- TOTAL FOREIGN STOCK (Cost -- $3,385,613).................... 3,625,707 - --------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - -------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 5.7% Federal Home Loan Mortgage Corp.: $3,200,000 4.84% due 7/1/99.......................................... 3,200,000 1,845,000 4.60% due 7/9/99.......................................... 1,843,016 - -------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (Cost -- $5,043,016)........... 5,043,016 - -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $80,750,037*)............ $88,580,028 - --------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 33 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
DISCIPLINED MFS CONVERTIBLE STRATEGIC SMALL CAP MID CAP MFS BOND STOCK STOCK GROWTH RESEARCH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------- ASSETS: Investments -- Cost............................ $6,486,792 $ 9,959,401 $7,900,553 $31,237,553 $80,750,037 Repurchase agreements -- Cost.................. 531,000 1,554,000 441,000 -- -- - ---------------------------------------------------------------------------------------------------------------------- Investments, at Value.......................... $6,699,655 $11,124,367 $8,438,703 $34,544,556 $88,580,028 Repurchase agreements, at Value................ 531,000 1,554,000 441,000 -- -- Cash........................................... 958 431 860 27,178 -- Dividends and interest receivable.............. 46,256 25,866 9,342 9,313 34,035 Receivable for securities sold................. 220,133 -- 70,145 10,818 661,535 Receivable from broker -- variation margin..... -- -- 1,400 -- -- Receivable from affiliate...................... 14,311 7,600 26,126 20,396 22,538 - ---------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS................................... 7,512,313 12,712,264 8,987,576 34,612,261 89,298,136 ====================================================================================================================== LIABILITIES: Payable for securities purchased............... -- -- 122,458 152,585 664,613 Payable to bank................................ -- -- -- -- 59,914 Investment advisory fees payable............... 3,928 6,609 6,025 21,793 57,726 Administration fees payable.................... 393 661 453 1,634 4,329 Payable for open forward foreign currency contracts (Note 9)........................... -- -- -- -- 844 Accrued expenses............................... 16,261 18,034 24,736 20,711 20,304 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.............................. 20,582 25,304 153,672 196,273 807,730 - ---------------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS................................. $7,491,731 $12,686,960 $8,833,904 $34,415,538 $88,490,406 ====================================================================================================================== NET ASSETS: Paid-in capital................................ $7,022,881 $11,432,832 $8,300,863 $29,688,905 $78,858,644 Undistributed (overdistributed) net investment income....................................... 139,575 90,769 15,095 (34,065) 15,921 Accumulated net realized gain (loss) from security transactions, futures contracts and foreign currencies........................... 116,412 (1,607) (32,407) 1,453,695 1,786,522 Net unrealized appreciation of investments, futures contracts and foreign currencies..... 212,863 1,164,966 550,353 3,307,003 7,829,319 - ---------------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS................................. $7,491,731 $12,686,960 $8,833,904 $34,415,538 $88,490,406 ====================================================================================================================== SHARES OUTSTANDING............................... 705,166 1,193,655 924,476 3,033,924 7,707,889 - ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE....................... $10.62 $10.63 $9.56 $11.34 $11.48 - ----------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 34 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
DISCIPLINED MFS CONVERTIBLE STRATEGIC SMALL CAP MID CAP MFS BOND STOCK STOCK GROWTH RESEARCH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest............................................. $ 109,267 $ 22,819 $ 10,835 $ 55,512 $ 83,491 Dividends............................................ 54,360 112,952 35,690 14,879 229,242 Less: Foreign witholding tax......................... -- -- (15) -- (4,679) - ------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME.............................. 163,627 135,771 46,510 70,391 308,054 - ------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2).................... 18,039 29,876 26,372 83,053 234,356 Audit and legal...................................... 9,000 9,000 7,000 10,000 15,500 Shareholder and system servicing fees................ 4,500 4,500 4,500 4,500 4,500 Trustees' fees....................................... 1,870 1,870 1,870 1,870 1,870 Administration fees (Note 2)......................... 1,804 2,988 1,978 6,229 17,577 Shareholder communications........................... 1,350 2,000 1,300 3,700 8,000 Custody.............................................. 1,000 1,700 14,100 13,000 27,500 Registration fees.................................... 500 -- 986 1,000 5,000 Pricing service fees................................. -- 105 345 -- 180 Other................................................ 300 563 805 1,500 1,000 - ------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES....................................... 38,363 52,602 59,256 124,852 315,483 Less: Expense reimbursements......................... (14,311) (7,600) (26,126) (20,396) (22,538) - ------------------------------------------------------------------------------------------------------------------------- NET EXPENSES......................................... 24,052 45,002 33,130 104,456 292,945 - ------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS)........................... 139,575 90,769 13,380 (34,065) 15,109 - ------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 3, 6 AND 9): Realized Gain (Loss) From: Security transactions (excluding short-term securities)..................................... 116,417 (2) 453,759 1,597,595 2,456,753 Futures contracts.................................. -- -- 2,740 -- -- Foreign currencies................................. -- -- -- -- 830 - ------------------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS)............................. 116,417 (2) 456,499 1,597,595 2,457,583 - ------------------------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments, Futures Contracts and Foreign Currencies: Beginning of period................................ (32,859) (15,341) 347,835 1,054,708 4,168,831 End of period...................................... 212,863 1,164,966 550,353 3,307,003 7,829,319 - ------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET UNREALIZED APPRECIATION.............. 245,722 1,180,307 202,518 2,252,295 3,660,488 - ------------------------------------------------------------------------------------------------------------------------- NET GAIN ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES............................... 362,139 1,180,305 659,017 3,849,890 6,118,071 - ------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS................. $501,714 $1,271,074 $672,397 $3,815,825 $6,133,180 - -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 35 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
DISCIPLINED MFS CONVERTIBLE STRATEGIC SMALL CAP MID CAP MFS BOND STOCK STOCK GROWTH RESEARCH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)................. $ 139,575 $ 90,769 $ 13,380 $ (34,065) $ 15,109 Net realized gain (loss)..................... 116,417 (2) 456,499 1,597,595 2,457,583 Increase in net unrealized appreciation...... 245,722 1,180,307 202,518 2,252,295 3,660,488 - ---------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS....... 501,714 1,271,074 672,397 3,815,825 6,133,180 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income........................ -- (60) -- -- -- Net realized gains........................... (8,610) -- -- (130,585) -- - ---------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS............................... (8,610) (60) -- (130,585) -- - ---------------------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 15): Net proceeds from sale of shares............. 2,577,203 5,338,917 3,314,283 17,370,648 44,554,495 Net asset value of shares issued for reinvestment of dividends.................. 8,610 60 -- 130,585 -- Cost of shares reacquired.................... (204,396) (809,798) (314,994) (4,748) (67,710) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS.................... 2,381,417 4,529,179 2,999,289 17,496,485 44,486,785 - ---------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS......................... 2,874,521 5,800,193 3,671,686 21,181,725 50,619,965 NET ASSETS: Beginning of period.......................... 4,617,210 6,886,767 5,162,218 13,233,813 37,870,441 - ---------------------------------------------------------------------------------------------------------------------------- END OF PERIOD*............................... $7,491,731 $12,686,960 $8,833,904 $34,415,538 $88,490,406 - ---------------------------------------------------------------------------------------------------------------------------- * Includes undistributed (overdistributed) net investment income of: $139,575 $90,769 $15,095 $(34,065) $15,921 - ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 36 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 1998
DISCIPLINED MFS CONVERTIBLE STRATEGIC SMALL CAP MID CAP MFS BOND STOCK STOCK GROWTH RESEARCH PORTFOLIO (a) PORTFOLIO (a) PORTFOLIO (a) PORTFOLIO (b) PORTFOLIO (b) - ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss).................. $ 101,428 $ 82,044 $ 14,466 $ (13,081) $ 46,892 Net realized gain (loss)...................... 16,179 (1,605) (489,073) (234) (659,463) Increase in net unrealized appreciation (depreciation).............................. (32,859) (15,341) 347,835 1,054,708 4,168,831 - ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.................................. 84,748 65,098 (126,772) 1,041,393 3,556,260 - ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income......................... (101,365) (81,984) (12,584) -- (57,678) Net realized gains............................ (7,637) -- -- -- -- Capital....................................... -- -- (2,412) -- (1,158) - ------------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS................................ (109,002) (81,984) (14,996) -- (58,836) - ------------------------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 15): Net proceeds from sale of shares.............. 4,632,057 9,903,403 5,417,586 12,312,206 35,252,585 Net asset value of shares issued for reinvestment of dividends................... 109,002 81,984 14,996 -- 58,836 Cost of shares reacquired..................... (99,595) (3,081,734) (128,596) (119,786) (938,404) - ------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS................................ 4,641,464 6,903,653 5,303,986 12,192,420 34,373,017 - ------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS.......................... 4,617,210 6,886,767 5,162,218 13,233,813 37,870,441 NET ASSETS: Beginning of period........................... -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- END OF PERIOD*................................ $4,617,210 $6,886,767 $5,162,218 $13,233,813 $37,870,441 - ------------------------------------------------------------------------------------------------------------------------------- * Includes undistributed (overdistributed) net investment income of: -- $60 $1,715 -- $(10,432) - -------------------------------------------------------------------------------------------------------------------------------
(a) For the period May 1, 1998 (commencement of operations) to December 31, 1998. (b) For the period March 23, 1998 (commencement of operations) to December 31, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 37 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Convertible Bond, Strategic Stock, Disciplined Small Cap Stock, MFS Mid Cap Growth and MFS Research Portfolios ("Portfolio(s)") are separate investment portfolios of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company and consists of these portfolios and fifteen other separate investment portfolios: Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, Disciplined Mid Cap Stock, U.S. Government Securities, Social Awareness Stock, Utilities, Large Cap, Equity Income, Zero Coupon Bond Fund Portfolio Series 2000, Zero Coupon Bond Fund Portfolio Series 2005, NWQ Large Cap and Jurika & Voyles Core Equity Portfolios. Shares of the Trust are offered only to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts. The financial statements and financial highlights for the other portfolios are presented in separate semi-annual reports. The significant accounting policies consistently followed by the Portfolios are: (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing price on such markets or, if there were no sales during the day, at current quoted bid price; securities primarily traded on foreign exchanges are generally valued at the closing values of such securities on their respective exchanges, except that when a significant occurrence exists subsequent to the time a value was so established and it is likely to have significantly changed the value, then the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees; securities traded in the over-the-counter market are valued on the basis of the bid price at the close of business on each day; U.S. government agencies and obligations are valued at the mean between the last reported bid and ask prices; (c) securities maturing within 60 days are valued at cost plus accreted discount or minus amortized premium, which approximates value; (d) securities, other than U.S. government agencies, that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (e) interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis and dividend income is recorded on the ex-dividend date; foreign dividends are recorded on the ex-dividend date or as soon as practical after the Portfolio determines the existence of a dividend declaration after exercising reasonable due diligence; (f) gains or losses on the sale of securities are calculated by using the specific identification method; (g) dividends and distributions to shareholders are recorded on the ex-dividend date; (h) the accounting records of the Portfolios are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income or expense amounts recorded and collected or paid are adjusted when reported by the custodian bank; (i) the Portfolios intend to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; (j) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. At December 31, 1998, reclassifications were made to the capital accounts of the Convertible Bond Portfolio, Disciplined Small Cap Stock Portfolio, MFS Mid Cap Growth Portfolio and MFS Research Portfolio to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Net investment income, net realized gains and net assets were not affected by this change; and (k) estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. In addition, the MFS Mid Cap Growth and MFS Research Portfolios may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked to market daily, by recognizing the difference between the contract exchange rate and the current market rate as an unrealized gain or loss. Realized gains or losses are recognized when the contracts are settled. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Corporation ("TAMIC"), an indirect wholly owned subsidiary of Citigroup Inc., acts as investment adviser to the Convertible Bond ("CB"), Disciplined Small Cap Stock ("DSCS"), MFS Mid Cap Growth ("MMCG"), MFS Research ("MRP"), and Strategic Stock ("SSP") Portfolios. CB, DSCS, MMCG, MRP, and SSP each pay TAMIC an investment advisory fee calculated at annual rates of 0.60%, 0.80%, 0.80%, 0.80% and 0.60%, respectively. This fee is calculated daily and paid monthly. 38 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TAMIC has entered into sub-advisory agreements with Massachusetts Financial Services ("MFS"), and Travelers Investment Management Co., Inc. ("TIMCO"). Pursuant to each sub-advisory agreement, MFS is responsible for the day-to-day portfolio operations and investment decisions for MMCG and MRP and TIMCO is responsible for the day-to-day portfolio operations and investment decisions for DSCS and SSP. As a result, the following fees are paid and calculated at an annual rate: - TAMIC pays MFS 0.375% of MMCG and MRP's average daily net assets. - TAMIC pays TIMCO 0.40% and 0.20% of the average daily net assets of DSCS and SSP, respectively. These fees are calculated daily and paid monthly. Travelers Insurance Company ("Travelers Insurance") acts as administrator to the Portfolios. The Portfolios pay Travelers Insurance an administration fee calculated at an annual rate of 0.06% of its average daily net assets. Travelers Insurance has entered into a sub-administrative service agreement with SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"). Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% of the average daily net assets of the Portfolios. This fee is calculated daily and paid monthly. For the six months ended June 30, 1999, Travelers Insurance reimbursed expenses in the amounts of $14,311, $7,600, $26,126, $20,396 and $22,538 for CB, SSP, DSCS, MMCG and MRP, respectively. For the six months ended June 30, 1999, DSCS paid Salomon Smith Barney Inc., another subsidiary of SSBH, brokerage commissions of $544. One Trustee and all officers of the Trust are employees of Citigroup Inc., or its subsidiaries. 3. INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities), during the six months ended June 30, 1999 were as follows:
PORTFOLIO PURCHASES SALES - --------------------------------------------------------------------------------------- Convertible Bond Portfolio.................................. $ 3,226,110 $ 659,232 Strategic Stock Portfolio................................... 3,863,944 19 Disciplined Small Cap Stock Portfolio....................... 6,126,149 3,143,680 MFS Mid Cap Growth Portfolio................................ 30,815,296 15,306,464 MFS Research Portfolio...................................... 72,559,267 30,422,091 - ---------------------------------------------------------------------------------------
At June 30, 1999, aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
GROSS GROSS UNREALIZED UNREALIZED NET UNREALIZED PORTFOLIO APPRECIATION DEPRECIATION APPRECIATION - ---------------------------------------------------------------------------------------------------------- Convertible Bond Portfolio.................................. $ 457,479 $ (244,616) $ 212,863 Strategic Stock Portfolio................................... 1,292,285 (127,319) 1,164,966 Disciplined Small Cap Stock Portfolio....................... 939,234 (401,084) 538,150 MFS Mid Cap Growth Portfolio................................ 4,520,892 (1,213,889) 3,307,003 MFS Research Portfolio...................................... 8,961,028 (1,131,037) 7,829,991 - -----------------------------------------------------------------------------------------------------------
4. REPURCHASE AGREEMENTS The Portfolios purchase (and their custodians take possession of) U.S. government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Portfolios require continual maintenance of the market value of the collateral in amounts at least equal to the repurchase price. 5. REVERSE REPURCHASE AGREEMENTS The Portfolios may from time to time enter into reverse repurchase agreements. A reverse repurchase agreement involves a sale by the Portfolio of securities that it holds with an agreement by the Portfolio to repurchase the same securities at an agreed upon price and date. A reverse repurchase agreement involves risk 39 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) that the market value of the securities sold by the Portfolio may decline below the repurchase price of the securities. The Portfolio will establish a segregated account with its custodian, in which the Portfolio will maintain cash, U.S. government securities or other liquid high-grade debt obligations equal in value to its obligations with respect to the reverse repurchase agreements. At June 30, 1999, the Portfolios had no open reverse repurchase agreements. 6. FUTURES CONTRACTS The Portfolios may from time to time enter into futures contracts. Initial margin deposits made upon entering into futures contracts are recognized as assets. Securities equal to the initial margin amount are segregated by the custodian in the name of the broker. Additional securities are also segregated up to the current market value of the futures contracts. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are received or made and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Portfolio's basis in the contract. The Portfolios enter into such contracts to hedge a portion of their portfolios. The Portfolios bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). At June 30, 1999, DSCS had purchased 2 financial futures contracts on the Mid Cap 400 Index expiring in September 1999. The basis value of such contracts was $407,147. The market value of such contracts on June 30, 1999 was $419,350, resulting in an unrealized gain of $12,203. 7. OPTIONS CONTRACTS The Portfolios may from time to time enter into options contracts. Premiums paid when put or call options are purchased by the Portfolios, represent investments, which are "marked-to-market" daily. When a purchased option expires, the Portfolios will realize a loss in the amount of the premium paid. When the Portfolios enter into a closing sales transaction, the Portfolios will realize a gain or loss depending on whether the proceeds from the closing sales transactions are greater or less than the premium paid for the option. When the Portfolio exercises a put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Portfolios exercise a call option, the cost of the security which the Portfolios purchase upon exercise will be increased by the premium originally paid. At June 30, 1999, the Portfolios had no open purchased put or call option contracts. When Portfolios write a covered call or put option, an amount equals to the premium received by the Portfolios is recorded as a liability, the value of which is marked-to-market daily. When a written option expires, the Portfolios realize a gain. When the Portfolios enter into a closing purchase transaction, the Portfolios realize a gain or loss depending upon whether the cost of the closing transaction is greater or less than the premium originally received, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When a written call option is exercised, the cost of the security sold will be decreased by the premium originally received. When a put option is exercised, the amount of the premium originally received will reduce the cost of the security which the Portfolios purchased upon exercise. When written index options are exercised, settlement is made in cash. The risk associated with purchasing options is limited to the premium originally paid. The Portfolios enter into options for hedging purposes. The risk in writing a covered call option is that the Portfolios give up the opportunity to participate in any increase in the price of the underlying security beyond the exercise price. The risk in writing a put option is that the Portfolios are exposed to the risk of a loss if the market price of the underlying security declines. During the six months ended June 30, 1999, the Portfolios did not write any options. 8. FOREIGN SECURITIES Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and the U.S. government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of many foreign companies and foreign 40 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and the U.S. government. 9. FORWARD FOREIGN CURRENCY CONTRACTS MMCG and MRP may enter into forward foreign currency contracts. At June 30, 1999, MRP had open forward foreign currency contracts as described below. The Portfolio bears the market risk that arises from changes in foreign currency exchange rates. The unrealized loss on the contracts reflected in the accompanying financial statements were as follows:
LOCAL MARKET SETTLEMENT UNREALIZED FOREIGN CURRENCY CURRENCY VALUE DATE LOSS - ------------------------------------------------------------------------------------------------------- TO BUY: British Pound......................................... 40,728 $64,800 7/1/99 $(494) British Pound......................................... 12,657 19,952 7/1/99 (97) British Pound......................................... 22,868 36,048 7/2/99 (253) - ------------------------------------------------------------------------------------------------------- Net Unrealized Loss on Forward Foreign Currency Contracts.......................... $(844) - -------------------------------------------------------------------------------------------------------
10. SECURITIES TRADED ON A WHEN-ISSUED BASIS The Portfolios may from time to time purchase securities on a when-issued basis. In a when-issued transaction, the Portfolio commits to purchasing securities for which specific information is not yet known at the time of the trade. Securities purchased on a TBA basis are not settled until they are delivered to the Portfolio. Beginning on the date the Portfolio enters into the when-issued transaction, the custodian maintains cash, U.S. government securities or other liquid high grade debt obligations in a segregated account equal in value to the purchase price of the when-issued security. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. At June 30, 1999, there were no when-issued securities held by the Portfolios. 11. MORTGAGE DOLLAR ROLL TRANSACTIONS The Portfolios have the ability to participate in mortgage dollar rolls. A mortgage dollar roll transaction involves a sale by the Portfolio of securities that it holds with an agreement by the Portfolio to purchase similar securities at an agreed upon price and date. The securities repurchased will bear the same interest as those sold, but generally will be collateralized by pools of mortgages with different prepayment histories than those securities sold. Proceeds of the sale will be invested and the income from these investments, together with any additional income from the Portfolio exceeding the yield on the securities sold. At June 30, 1999, there were no mortgage dollar roll transactions held by the Portfolios. 12. SHORT SALES AGAINST THE BOX The Portfolios have the ability to engage in short sales against the box. A short sale against the box is a short sale of common stock such that, when the short position is open, the Portfolio involved owns an equal amount of the stock or preferred stock or debt securities (convertible or exchangeable) without payment of further consideration, into an equal number of shares of common stock sold short. The proceeds of the sale will be held by the broker until the settlement date, when the Portfolio delivers the stock or the convertible or exchangeable securities to close out its short position. Although prior to delivery a Portfolio will have to pay an amount equal to any dividends paid on the common stock sold short, the Portfolio will receive the dividends from the stock or the preferred stock or the interest from the stock or convertible or exchangeable debt securities plus a portion of the interest earned from the proceeds of the short sale. The Portfolio will deposit in a segregated account with the Portfolio's custodian, the common stock or convertible preferred stock or debt securities in connection with short sales against the box. At June 30, 1999, there were no open short sales against the box. 41 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 13. CAPITAL LOSS CARRYFORWARD At December 31, 1998, DSCS and MRP had, for Federal tax purposes, $455,000 and $308,000, respectively, of capital loss carryforwards available to offset future capital gains through 2006. To the extent that these carryforward losses are used to offset capital gains, it is probable that the gains so offset will not be distributed. 14. LENDING OF SECURITIES The Portfolios have an agreement with their custodian whereby the custodian may lend securities owned by the Portfolios to brokers, dealers and other financial organizations. Fees earned by the Portfolios on securities lending are recorded as interest income. Loans of securities by the Portfolios are collateralized by cash, U.S. government securities or high quality money market instruments that are maintained at all times in an amount at least equal to the current market value of the loaned securities, plus a margin which may vary depending on the type of securities loaned. The custodian establishes and maintains the collateral in a segregated account. The Portfolios maintain exposure for the risk of any losses in the investment of amounts received as collateral. At June 30, 1999, there were no loaned securities held by the Portfolios. 15. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Portfolio were as follows:
SIX MONTHS ENDED PERIOD ENDED JUNE 30, 1999 DECEMBER 31, 1998(a)(b) - ---------------------------------------------------------------------------------------------------------- CONVERTIBLE BOND PORTFOLIO: Shares sold............................................. 256,334 467,540 Shares issued for reinvestment.......................... 825 11,055 Shares reacquired....................................... (20,291) (10,297) - ---------------------------------------------------------------------------------------------------------- Net Increase............................................ 236,868 468,298 - ---------------------------------------------------------------------------------------------------------- STRATEGIC STOCK PORTFOLIO: Shares sold............................................. 547,348 1,041,160 Shares issued for reinvestment.......................... 6 8,666 Shares reacquired....................................... (81,631) (321,894) - ---------------------------------------------------------------------------------------------------------- Net Increase............................................ 465,723 727,932 - ---------------------------------------------------------------------------------------------------------- DISCIPLINED SMALL CAP STOCK PORTFOLIO: Shares sold............................................. 377,582 597,608 Shares issued for reinvestment.......................... -- 1,691 Shares reacquired....................................... (35,300) (17,105) - ---------------------------------------------------------------------------------------------------------- Net Increase............................................ 342,282 582,194 - ---------------------------------------------------------------------------------------------------------- MFS MID CAP GROWTH PORTFOLIO: Shares sold............................................. 1,705,902 1,328,144 Shares issued for reinvestment.......................... 12,273 -- Shares reacquired....................................... (480) (11,915) - ---------------------------------------------------------------------------------------------------------- Net Increase............................................ 1,717,695 1,316,229 - ---------------------------------------------------------------------------------------------------------- MFS RESEARCH PORTFOLIO: Shares sold............................................. 4,127,330 3,675,328 Shares issued for reinvestment.......................... -- 5,571 Shares reacquired....................................... (6,442) (93,898) - ---------------------------------------------------------------------------------------------------------- Net Increase............................................ 4,120,888 3,587,001 - ----------------------------------------------------------------------------------------------------------
(a) For the Convertible Bond Portfolio, the Strategic Stock Portfolio and the Disciplined Small Cap Stock Portfolio, transactions are for the period from May 1, 1998 (commencement of operations) to December 31, 1998. (b) For the MFS Mid Cap Growth Portfolio and the MFS Research Portfolio, transactions are for the period from March 23, 1998 (commencement of operations) to December 31, 1998. 42 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
CONVERTIBLE BOND PORTFOLIO 1999(1)(2) 1998(3) - ------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.86 $10.00 - ------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment income(4).................................. 0.23 0.22 Net realized and unrealized gain (loss)................... 0.54 (0.12) - ------------------------------------------------------------------------------------ Total Income From Operations................................ 0.77 0.10 - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income..................................... -- (0.22) Net realized gains........................................ (0.01) (0.02) - ------------------------------------------------------------------------------------ Total Distribution.......................................... (0.01) (0.24) - ------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD.............................. $10.62 $ 9.86 - ------------------------------------------------------------------------------------ TOTAL RETURN++.............................................. 7.83% 0.98% - ------------------------------------------------------------------------------------ NET ASSETS, END OF PERIOD (000'S)........................... $7,492 $4,617 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS+: Expenses(4)............................................... 0.80% 0.80% Net investment income..................................... 4.63 4.31 - ------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE..................................... 13% 7% - ------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from May 1, 1998 (commencement of operations) to December 31, 1998. (4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in the amounts of $14,311 and $24,996 for the six months ended June 30, 1999 and the period ended December 31, 1998, respectively. If such expenses were not reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT - -------------------------- ---------------------------- 1999 1998 1999 1998 - ----- ----- ------ ------ $0.02 $0.05 1.27%+ 1.86%+
++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 43 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
STRATEGIC STOCK PORTFOLIO 1999(1)(2) 1998(3) - ------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $9.46 $10.00 - ------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(4).................................. 0.09 0.12 Net realized and unrealized gain (loss)................... 1.08 (0.54) - ------------------------------------------------------------------------------------- Total Income (Loss) From Operations......................... 1.17 (0.42) - ------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income..................................... (0.00)* (0.12) Net realized gains........................................ -- -- - ------------------------------------------------------------------------------------- Total Distributions......................................... (0.00)* (0.12) - ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.............................. $10.63 $ 9.46 - ------------------------------------------------------------------------------------- TOTAL RETURN++.............................................. 12.37% (4.24)% - ------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)........................... $12,687 $6,887 - ------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS+: Expenses(4)............................................... 0.90% 0.90% Net investment income..................................... 1.82 2.42 - ------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE..................................... -- 1% - -------------------------------------------------------------------------------------
DISCIPLINED SMALL CAP STOCK PORTFOLIO 1999(1)(2) 1998(3) - ------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $8.87 $10.00 - ------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(4).................................. 0.01 0.03 Net realized and unrealized gain (loss)................... 0.68 (1.13) - ------------------------------------------------------------------------------------- Total Income (Loss) From Operations......................... 0.69 (1.10) - ------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income..................................... -- (0.03) Capital................................................... -- (0.00)* - ------------------------------------------------------------------------------------- Total Distributions......................................... -- (0.03) - ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.............................. $9.56 $ 8.87 - ------------------------------------------------------------------------------------- TOTAL RETURN++.............................................. 7.78% (11.04)% - ------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)........................... $ 8,834 $5,162 - ------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS+: Expenses(4)............................................... 1.00% 1.00% Net investment income..................................... 0.40 0.64 - ------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE..................................... 47% 89% - -------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares methods. (3) For the period from May 1, 1998 (commencement of operations) to December 31, 1998. (4) Travelers Insurance has agreed to reimburse the Strategic Stock Portfolio for expenses in the amounts of $7,600 and $21,016 for the six months ended June 30, 1999 and the period ended December 31, 1998, respectively. In addition, Travelers Insurance also agreed to reimburse the Disciplined Small Cap Stock Portfolio for expenses in the amounts of $26,126 and $45,146 for the six months ended June 30, 1999 and the period ended December 31, 1998, respectively. If such expenses were not reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT -------------------------- ---------------------------- 1999 1998 1999 1998 ----- ----- ------ ------ Strategic Stock Portfolio $0.01 $0.03 1.05%+ 1.51%+ Disciplined Small Cap Stock Portfolio 0.03 0.08 1.79+ 2.98+
* Amount represents less than $0.01. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 44 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
MFS MID CAP GROWTH PORTFOLIO 1999(1)(2) 1998(2)(3) - ---------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.05 $10.00 - ---------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment loss(4).................................... (0.02) (0.02) Net realized and unrealized gain.......................... 1.35 0.07 - ---------------------------------------------------------------------------------------- Total Income From Operations................................ 1.33 0.05 - ---------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net realized gains........................................ (0.04) -- - ---------------------------------------------------------------------------------------- Total Distributions......................................... (0.04) -- - ---------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.............................. $11.34 $10.05 - ---------------------------------------------------------------------------------------- TOTAL RETURN++.............................................. 13.31% 0.50% - ---------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)........................... $34,416 $13,234 - ---------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS+: Expenses(4)............................................... 1.00% 1.00% Net investment loss....................................... (0.33) (0.25) - ---------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE..................................... 79% 100% - ----------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO 1999(1)(2) 1998(3) - ------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.56 $10.00 - ------------------------------------------------------------------------------------- INCOME FROM OPERATIONS: Net investment income(4).................................. 0.00* 0.01 Net realized and unrealized gain.......................... 0.92 0.57 - ------------------------------------------------------------------------------------- Total Income From Operations................................ 0.92 0.58 - ------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income..................................... -- (0.02) Capital................................................... -- (0.00)* - ------------------------------------------------------------------------------------- Total Distributions......................................... -- (0.02) - ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.............................. $11.48 $10.56 - ------------------------------------------------------------------------------------- TOTAL RETURN++.............................................. 8.71% 5.77% - ------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)........................... $88,490 $37,870 - ------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS+: Expenses(4)............................................... 1.00% 1.00% Net investment income..................................... 0.05 0.42 - ------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE..................................... 54% 54% - -------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the average shares method. (3) For the period from March 23, 1998 (commencement of operations) to December 31, 1998. (4) Travelers Insurance has agreed to reimburse the MFS Mid Cap Growth Portfolio for the expenses in the amounts of $20,396 and $32,634 for the six months ended June 30, 1999 and the period ended December 31, 1998, respectively. In addition, Travelers Insurance also agreed to reimburse the MFS Research Portfolio for expenses in the amounts of $22,538 and $41,049 for the six months ended June 30, 1999 and for the period ended December 31, 1998, respectively. If such expenses were not reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT -------------------------- ---------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- MFS Mid Cap Growth Portfolio $0.01 $0.04 1.19%+ 1.62%+ MFS Research Portfolio 0.00* 0.01 1.07+ 1.37+
* Amount represents less than $0.01. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 45 Investment Advisers TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION Hartford, Connecticut Independent Auditors KPMG LLP New York, New York Custodians PNC BANK, N.A. This report is prepared for the general information of contract owners and is not an offer of shares of The Travelers Series Trust: Travelers Convertible Bond, Strategic Stock, Disciplined Small Cap Stock, MFS Mid Cap Growth and MFS Research Portfolios. It should not be used in connection with any offer except in conjunction with the Prospectuses for the Variable Annuity and Variable Universal Life Insurance products offered by The Travelers Insurance Company or The Travelers Life & Annuity Company and the Prospectuses for the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. Series Trust (Semi-Annual) (8-99) Printed in U.S.A. TRAVELERS SERIES TRUST: ZERO COUPON BOND FUND PORTFOLIOS: SERIES 2000 AND 2005 - -------------------------------------------------------------------------------- DEAR SHAREHOLDER: We are pleased to provide the semi-annual report for The Travelers Series Trust: Zero-Coupon Bond Fund Portfolios: Series 2000 and 2005 ("Portfolio(s)") for the period ended June 30, 1999. We hope you find this report to be useful and informative. In this letter, we briefly discuss general economic and market conditions. In addition, more detailed comparisons showing the growth of a hypothetical $10,000 investment in each Portfolio since inception can also be found in this report. A more detailed summary of performance and current holdings for each Portfolio can be found in the appropriate sections that follow. ECONOMIC REVIEW AND OUTLOOK The first half of 1999 was a period of economic growth at home and recovery abroad. Following the events surrounding the Russian debt default in August of 1998 -- which included a decline in bond yields and a 0.75% decrease in interest rates -- yields have risen. Investor optimism, however, was tempered by concerns about inflation, interest rates and continued economic growth. FIXED INCOME MARKET COMMENTARY The long anticipated slowdown in U.S. economic activity again failed to happen during the reporting period. Global stock markets continued to rise led by better than expected profit growth and continued merger and acquisition activity. The risks of higher U.S. economic growth were more fairly reflected in the yield curve in the U.S. at the end of the first quarter of 1999 than they were at the beginning. The stronger than expected growth caused interest rates to rise in the first quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The Lehman Government/Corporate Index declined about 1.2% in the first quarter of 1999. U.S. Treasuries underperformed as spreads narrowed in all sectors. During the first half of 1999, U.S. economic growth continued at a robust pace, posting a 4.3% annualized Gross Domestic Product growth rate for the first quarter of 1999. Furthermore, the labor market continued to be extremely tight, as the unemployment rate fell to a 29-year low of 4.2% in March. Defying the expectations of many economists, inflation -- as measured by the Consumer Price Index ("CPI") -- was virtually absent. Productivity gains and sagging global demand were credited with keeping inflation under control. However, in the month of April, the CPI rose by 0.7%, its largest monthly increase in nine years. This, coupled with signs that many world economies were in the nascent stages of growth and recovery, deepened fears that inflationary pressures were reaching a breaking point. These concerns brought about an increase in the yield of the benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April 8 and June 24 to close at 6.16%. To counter these inflationary pressures, the Federal Reserve Board ("Fed") raised short-term interest rates by 0.25% in late June, and subsequently adopted a neutral stance on monetary policy. Meanwhile, during the months of May and June, the CPI remained constant, generating considerable optimism that inflation had retreated. Further reports that of rising U.S. jobless claims added to the optimism. The unwillingness of consumer spending to slow down keeps the Fed's monetary policy on watch. With the world economic crisis abating, we cannot rule out the possibility of the Fed raising rates before year-end. However, in our view, the most likely case is that the Fed's monetary policy will remain neutral through the third quarter of 1999. By next year we think that nominal growth should slow below 5% and may allow room for additional short-term rates cuts. However, if global economic growth accelerates unexpectedly and signs of inflation emerge during the remainder of 1999, the Fed will not hesitate to raise rates again. Valuations on the vast majority of stocks appear to us to be reasonable. And while the outlook for corporate earnings has improved, the continued popularity of Internet stocks increases our concerns for the overall equity market. In our opinion, as new issuance brings more competition to the Internet economy, risks will increase and profits will decrease. The longer that Internet stocks remain widely popular, the more damaging the ultimate correction may be. 1 ZERO COUPON BOND FUND PORTFOLIO PERFORMANCE The two Zero-Coupon Bond Fund Portfolios commenced operations on October 11, 1995. These Portfolios were set up as an option for the Travelers Single Premium Variable Universal Life Product offered by The Travelers Insurance Co. and the Travelers Life and Annuity Co. The two Portfolios have target maturity dates of December 2000 and December 2005, respectively. The Portfolios invest primarily in U.S. Treasury bonds that have a "locked-in" rate of return. Zero coupons, sometimes referred to as "strips," are long-term U.S. Treasury bonds that have been "stripped" of their interest coupons. Instead of regular interest payments, these securities offer return based on the difference between the purchase price and the value at maturity, or par value. The yield for a zero coupon is the difference in price over the time until the bond matures. Each Fund is managed (immunized) to have a duration equal to a zero-coupon bond due on its maturity date. (Duration is a measure of a fund's volatility relative to a given change in interest rates.) To boost its yield potential, we have added zero-coupon corporate bonds. Because these are generally hard to find, we buy a range of maturities and use U.S. Treasury strips to bring total duration in line. U.S. Treasury strip positions are used to adjust each Fund's durations. ZERO COUPON BOND FUND PORTFOLIO SERIES 2000 The Zero-Coupon Bond Fund Portfolio Series 2000 had a total return of 1.17% for the six months ended June 30, 1999 versus the Merrill Lynch Zero Coupon's Five-Year Index total return of 1.13% for the same period. ZERO-COUPON BOND FUND PORTFOLIO SERIES 2005 The Zero-Coupon Bond Fund Portfolio Series 2005 had a total return of a negative 4.62% for the six months ended June 30, 1999 versus the Merrill Lynch Zero Coupon's Ten-Year Index total return of a negative 5.09% for the same period. In closing, thank you for investing in The Travelers Series Trust: Zero-Coupon Bond Fund Portfolios. We look forward to helping you pursue your financial goals in the future. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman July 28, 1999 2 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO SERIES 2000 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ 1.17% Year Ended 6/30/99 5.23% 10/11/95* through 6/30/99 5.87% CUMULATIVE TOTAL RETURN ----------------------- 10/11/95* through 6/30/99 23.63% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations.
This chart assumes an initial investment of $10,000 made on October 11, 1995, assuming reinvestment of dividends, through June 30, 1999. The Merrill Lynch Zero Coupon 5-Year Index is comprised of U.S. government stripped securities which have a maturity not greater than five years. [Performance graph - Series 2000]
ZERO COUPON BOND FUND PORTFOLIO MERRILL LYNCH ZERO COUPON 5-YEAR SERIES 2000 INDEX ------------------------------- -------------------------------- 10/11/95 10000 10000 12/31/95 10252 10405 12/31/96 10596 10648 6/30/97 10841 10924 12/31/97 11359 11226 6/30/98 11748 11595 12/31/98 12220 12030 6/30/99 12363 12166
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gains or losses from portfolio investments assuming reinvestment of dividends. The returns do not reflect expenses associated with the sub-account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO SERIES 2005 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Six Months Ended 6/30/99+ (4.62)% Year Ended 6/30/99 2.32% 10/11/95 through 6/30/99 6.51% CUMULATIVE TOTAL RETURN ----------------------- 10/11/95* through 6/30/99 26.46% + Total return is not annualized, as it may not be representative of the total return for the year. * Commencement of operations.
This chart assumes an initial investment of $10,000 made on October 11, 1995, assuming reinvestment of dividends, through June 30, 1999. The Merrill Lynch Zero Coupon 10-Year Index is comprised of U.S. government stripped securities which have a maturity not greater than ten years. [Performance graph - Series 2005]
ZERO COUPON BOND FUND PORTFOLIO MERRILL LYNCH ZERO COUPON 10- SERIES 2005 YEAR INDEX ------------------------------- ----------------------------- 10/11/95 10000 10000 12/31/95 10480 10687 12/31/96 10580 10584 6/30/97 10802 10829 12/31/97 11810 11101 6/30/98 12358 11642 12/31/98 13258 12542 6/30/99 12646 11903
- -------------------------------------------------------------------------------- Past performance is not predictive of future performance. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average annual total returns are historical in nature and measure net investment income and capital gains or losses from portfolio investments assuming reinvestment of dividends. The returns do not reflect expenses associated with the sub-account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 3 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999 ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
FACE AMOUNT RATING(a) SECURITY VALUE - ----------------------------------------------------------------------------------------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 54.6% $587,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due 11/15/00.................................................. $ 545,898 167,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due 5/15/01................................................... 150,758 74,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due 11/15/02.................................................. 61,344 47,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due 2/15/03................................................... 38,230 300,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due 8/15/01................................................... 267,009 - ----------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost -- $1,050,363) 1,063,239 - ----------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.4% 49,336 AAA Federal Home Loan Mortgage Corp., zero coupon bond to yield 7.170% due 9/15/18 (Cost -- $46,846)...................... 47,025 - ----------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 12.8% - ----------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 3.0% 65,000 AAA Exxon Capital Ventures, Inc., zero coupon guaranteed notes to yield 6.520% due 2/15/01............................... 59,150 - ----------------------------------------------------------------------------------------------- FOODS -- 3.0% 70,000 AA- Archer-Daniels Midland Co., Debentures, zero coupon bond to yield 6.300% due 5/1/02................................... 58,625 - ----------------------------------------------------------------------------------------------- HOSPITAL SUPPLIES & SERVICES -- 2.9% 65,000 BBB Hospital Corp. of America, Debentures, zero coupon bond to yield 5.790% due 6/1/00................................... 57,200 - ----------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 3.9% 70,000 BBB- Tele-Communications Inc., amortizing note, 9.650% due 10/1/03................................................... 74,725 - ----------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $253,358) 249,700 - ----------------------------------------------------------------------------------------------- FOREIGN BONDS AND NOTES -- 8.7% - ----------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 5.6% 65,000 A+ American Express Co., Bonds, zero coupon bond to yield 6.110% due 12/12/00....................................... 59,413 50,000 A+ IBM International Finance NV, Bonds, 6.250% due 10/10/00.... 50,122 - ----------------------------------------------------------------------------------------------- 109,535 - ----------------------------------------------------------------------------------------------- FOREIGN GOVERNMENT -- 3.1% 64,000 AA+ Kingdom of Sweden, Notes, zero coupon notes to yield 6.395% due 7/31/00............................................... 60,109 - ----------------------------------------------------------------------------------------------- TOTAL FOREIGN BONDS AND NOTES (Cost -- $169,615) 169,644 - ----------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $1,520,182) 1,529,608 - ----------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 21.5% 419,000 CS First Boston Corp., 4.800% due 7/1/99; Proceeds at maturity -- $419,054; (Fully collateralized by U.S. Treasury Note, 6.875% due 3/31/00; Market value -- $427,648) (Cost -- $419,000).......................................... 419,000 - ----------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $1,939,182**) $1,948,608 - -----------------------------------------------------------------------------------------------
(a) All ratings are by Standard & Poor's Ratings Service, except those identified by an asterisk (*) are rated by Moody's Investors Service, Inc. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 6 for definition of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 4 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
FACE AMOUNT RATING(a) SECURITY VALUE - ------------------------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS -- 88.1% $ 450,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due 5/15/03..................................................... $ 360,761 970,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due 11/15/05.................................................... 668,417 1,600,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due 2/15/06..................................................... 1,084,320 910,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due 2/15/09..................................................... 510,364 - ------------------------------------------------------------------------------------------------- TOTAL U.S. TREASURY OBLIGATIONS (Cost -- $2,574,177) 2,623,862 - ------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 7.8% - ------------------------------------------------------------------------------------------------- FINANCE -- 2.0% 80,000 A+ Grand Metro Investment, Notes, zero coupon note to yield 6.530% due 1/6/04........................................... 60,000 - ------------------------------------------------------------------------------------------------- FOODS -- 3.9% 70,000 AA- Archer-Daniels Midland Co., zero coupon bond to yield 6.300% due 5/1/02.................................................. 58,625 80,000 A+ General Mills, zero coupon bond to yield 6.560% due 8/15/04..................................................... 57,900 - ------------------------------------------------------------------------------------------------- 116,525 - ------------------------------------------------------------------------------------------------- INSURANCE -- 1.9% 80,000 AAA American International Group, zero coupon bond to yield 6.380% due 8/15/04.......................................... 57,800 - ------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $232,450) 234,325 - ------------------------------------------------------------------------------------------------- FOREIGN BONDS AND NOTES -- 4.1% - ------------------------------------------------------------------------------------------------- BANKING -- 2.1% 75,000 A Chemical New York NV Corp., zero coupon bond to yield 6.610% due 2/16/02................................................. 62,514 - ------------------------------------------------------------------------------------------------- FINANCE -- 2.0% 80,000 AAA Exxon Capital Corp., zero coupon note to yield 6.350% due 11/15/04.................................................... 58,350 - ------------------------------------------------------------------------------------------------- TOTAL FOREIGN BONDS AND NOTES (Cost -- $119,877) 120,864 - ------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $2,926,504**) $2,979,051 - -------------------------------------------------------------------------------------------------
(a) All ratings are by Standard & Poor's Ratings Service, except those identified by an asterisk (*) are rated by Moody's Investors Service, Inc. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 6 for definition of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 5 - -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to "BBB" may be modified by the addition of a plus (+) or minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. A -- Bonds rated "A" have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories. Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aa" to "Baa", where 1 is the highest and 3 the lowest rating within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of these bonds. Aa -- Bonds rated "Aa" are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A -- Bonds rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered to be medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
6 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
ZERO COUPON ZERO COUPON BOND FUND BOND FUND PORTFOLIO PORTFOLIO SERIES 2000 SERIES 2005 - --------------------------------------------------------------------------------------- ASSETS: Investments, at value (Cost -- $1,520,182 and $2,926,504, respectively).......................................... $1,529,608 $2,979,051 Repurchase agreement, at value (Cost -- $419,000)......... 419,000 -- Cash...................................................... 513 83,731 Dividends and interest receivable......................... 3,994 -- Receivable from affiliate................................. 26,316 26,218 - --------------------------------------------------------------------------------------- TOTAL ASSETS.............................................. 1,979,431 3,089,000 - --------------------------------------------------------------------------------------- LIABILITIES: Accrued expenses.......................................... 7,844 10,302 - --------------------------------------------------------------------------------------- TOTAL LIABILITIES......................................... 7,844 10,302 - --------------------------------------------------------------------------------------- TOTAL NET ASSETS............................................ $1,971,587 $3,078,698 - --------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital........................................... $1,911,782 $2,948,056 Undistributed net investment income....................... 55,258 85,790 Accumulated net realized loss from security transactions........................................... (4,879) (7,695) Net unrealized appreciation of investments................ 9,426 52,547 - --------------------------------------------------------------------------------------- TOTAL NET ASSETS............................................ $1,971,587 $3,078,698 - --------------------------------------------------------------------------------------- SHARES OUTSTANDING.......................................... 190,008 286,612 - --------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE.................................. $10.38 $10.74 - ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 7 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
ZERO COUPON ZERO COUPON BOND FUND BOND FUND PORTFOLIO PORTFOLIO SERIES 2000 SERIES 2005 - ------------------------------------------------------------------------------------------ INVESTMENT INCOME: Interest.................................................. $ 56,709 $ 88,100 - ------------------------------------------------------------------------------------------ EXPENSES: Audit and legal........................................... 15,000 15,000 Shareholder and system servicing fees..................... 4,800 4,500 Shareholder communications................................ 3,250 4,000 Trustees' fees............................................ 1,850 1,850 Management fees (Note 2).................................. 970 1,540 Custody................................................... 650 200 Administration fees (Note 2).............................. 582 930 Pricing service fees...................................... 450 450 Other..................................................... 500 500 - ------------------------------------------------------------------------------------------ TOTAL EXPENSES............................................ 28,052 28,970 Less: Expense reimbursement (Note 2)...................... (26,601) (26,660) - ------------------------------------------------------------------------------------------ NET EXPENSES.............................................. 1,451 2,310 - ------------------------------------------------------------------------------------------ NET INVESTMENT INCOME....................................... 55,258 85,790 - ------------------------------------------------------------------------------------------ UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3): Change in Net Unrealized Appreciation of Investments: Beginning of period.................................... 43,378 286,936 End of period.......................................... 9,426 52,547 - ------------------------------------------------------------------------------------------ DECREASE IN NET UNREALIZED APPRECIATION................... (33,952) (234,389) - ------------------------------------------------------------------------------------------ NET LOSS ON INVESTMENTS..................................... (33,952) (234,389) - ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........... $ 21,306 $(148,599) - ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 8 - --------------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
ZERO ZERO COUPON COUPON BOND FUND BOND FUND PORTFOLIO PORTFOLIO SERIES 2000 SERIES 2005 - --------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 55,258 $ 85,790 Decrease in net unrealized appreciation................... (33,952) (234,389) - --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 21,306 (148,599) - --------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... -- -- - --------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... -- -- - --------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 8): Net proceeds from sales of shares......................... 11,094 191,957 Net asset value of shares issued for reinvestment of dividends.............................................. -- -- Cost of shares reacquired................................. (13,466) (135,067) - --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................................... (2,372) 56,890 - --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS........................... 18,934 (91,709) NET ASSETS: Beginning of period....................................... 1,952,653 3,170,407 - --------------------------------------------------------------------------------------- END OF PERIOD*............................................ $1,971,587 $3,078,698 - --------------------------------------------------------------------------------------- * Includes undistributed net investment income of:.......... $55,258 $85,790 - ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 9 - ------------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998
ZERO ZERO COUPON COUPON BOND FUND BOND FUND PORTFOLIO PORTFOLIO SERIES 2000 SERIES 2005 - --------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 105,564 $ 146,941 Net realized gain......................................... 831 2,812 Increase in net unrealized appreciation................... 28,647 157,294 - --------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 135,042 307,047 - --------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (106,950) (150,107) - --------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (106,950) (150,107) - --------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 8): Net proceeds from sales of shares......................... 154,905 713,026 Net asset value of shares issued for reinvestment of dividends.............................................. 106,950 150,107 Cost of shares reacquired................................. (93,882) (207,036) - --------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 167,973 656,097 - --------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 196,065 813,037 NET ASSETS: Beginning of year......................................... 1,756,588 2,357,370 - --------------------------------------------------------------------------------------- END OF YEAR............................................... $1,952,653 $3,170,407 - ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 10 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Zero Coupon Bond Fund Portfolio Series 2000 ("Series 2000") and Zero Coupon Bond Fund Portfolio Series 2005 ("Series 2005"), (collectively, "Portfolios"), are separate investment portfolios of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company and consists of these portfolios and eighteen other separate investment portfolios: U.S. Government Securities, Social Awareness Stock, Utilities, Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, Large Cap, Equity Income, Disciplined Mid Cap Stock, Convertible Bond, MFS Research, MFS Mid Cap Growth, Disciplined Small Cap Stock, Strategic Stock, NWQ Large Cap and Jurika & Voyles Core Equity Portfolios. Shares of the Trust are offered only to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts. The financial statements and financial highlights for the other portfolios are presented in separate shareholder reports. The significant accounting policies consistently followed by the Portfolios are: (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing prices on such markets; securities for which no sales prices were reported and U.S. government agencies and obligations are valued at the mean between the last reported bid and ask prices or on the basis of quotations received from reputable brokers or other recognized sources; (c) securities maturing within 60 days are valued at cost plus accreted discount, or minus amortized premium, which approximates value; (d) securities that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (e) interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis; (f) gains or losses on the sale of securities are calculated by using the specific identification method; (g) dividends and distributions to shareholders are recorded on the ex-dividend date; (h) the Portfolios intend to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; (i) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. At December 31, 1998, reclassifications were made to the Portfolios' capital accounts to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Accordingly, a portion of overdistributed net investment income amounting to $431 and $1,047, were reclassified to paid-in capital for Series 2000 and Series 2005, respectively. Net investment income, net realized gains and net assets for each Portfolio were not affected by these changes; and (j) estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Corp. ("TAMIC"), an indirect wholly owned subsidiary of Citigroup Inc., acts as investment manager and adviser to the Portfolios. The Portfolios pay TAMIC an investment management and advisory fee calculated at an annual rate of 0.10% of the average daily net assets. This fee is calculated daily and paid monthly. Travelers Insurance Co. ("Travelers Insurance") acts as administrator to the Portfolios. The Portfolios pay Travelers Insurance an administration fee calculated at an annual rate of 0.06% of the average daily net assets. Travelers Insurance has entered into a sub-administrative service agreement with SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp. Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% of the average daily net assets of each Portfolio. This fee is calculated daily and paid monthly. For the six months ended June 30, 1999, Travelers Insurance has agreed to reimburse Series 2000 and Series 2005 for expenses in the amount of $26,601 and $26,660, respectively. 11 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. INVESTMENTS During the six months ended June 30, 1999, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows:
SERIES SERIES 2000 2005 - -------------------------------------------------------------------------------- Purchases................................................... -- $369,477 Sales....................................................... -- -- - --------------------------------------------------------------------------------
At June 30, 1999, the aggregate unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
SERIES SERIES 2000 2005 - --------------------------------------------------------------------------------- Gross unrealized appreciation............................... $14,108 $ 76,855 Gross unrealized depreciation............................... (4,682) (24,308) - --------------------------------------------------------------------------------- Net unrealized appreciation................................. $ 9,426 $ 52,547 - ---------------------------------------------------------------------------------
4. REPURCHASE AGREEMENTS The Portfolios purchase (and their custodian takes possession of) U.S. government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Portfolios require continual maintenance of the market value of the collateral in amounts at least equal to the repurchase price. 5. FUTURES CONTRACTS Initial margin deposits made upon entering into futures contracts are recognized as assets. Securities equal to the initial margin amount are segregated by the custodian in the name of the broker. Additional securities are also segregated up to the current market value of the futures contracts. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are received or made and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Portfolio's basis in the contract. The Portfolios enter into such contracts to hedge a portion of their portfolios. The Portfolios bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). At June 30, 1999, the Portfolios had no open futures contracts. 6. STRIPPED SECURITIES Each Portfolio will invest primarily in "Stripped Securities," a term used collectively for Stripped Treasury Securities, Stripped Government Securities, Stripped Corporate Securities, and Stripped Eurodollar Obligations; as well as other stripped securities. Stripped securities can be securities consisting of debt obligations that have been stripped of unmatured interest coupons, securities consisting of unmatured interest coupons that have been stripped from debt obligations, or debt obligations that are issued without interest coupons and are sold at substantial discounts from their face amounts. Stripped securities do not make periodic payments of interest prior to maturity. The market value of stripped securities will fluctuate in response to changes in economic conditions, interest rates and the market's perception of the securities. Fluctuations in response to interest rates may be greater than those for debt obligations of comparable maturities that pay interest currently. The amount of fluctuation increases with a longer period of maturity. 12 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 7. CAPITAL LOSS CARRYFORWARD At December 31, 1998, Series 2000 and Series 2005 had, for Federal income tax purposes, approximately $4,000 and $6,000, respectively, of capital loss carryforwards available to offset future capital gains. To the extent that these carryforward losses are used to offset capital gains, it is probable that the gains so offset will not be distributed. The amount and expiration of the carryforwards are indicated below. Expiration occurs on December 31 of the year indicated:
2004 2005 - ------------------------------------------------------------------------------ Series 2000................................................. -- $4,000 Series 2005................................................. $1,000 5,000 - ------------------------------------------------------------------------------
8. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Portfolio were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 - ---------------------------------------------------------------------------------------------------- SERIES 2000 Shares sold................................................. 1,074 14,571 Shares issued on reinvestment............................... -- 10,423 Shares reacquired........................................... (1,306) (8,892) - ---------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... (232) 16,102 - ---------------------------------------------------------------------------------------------------- SERIES 2005 Shares sold................................................. 17,337 63,382 Shares issued on reinvestment............................... -- 13,336 Shares reacquired........................................... (12,216) (19,053) - ---------------------------------------------------------------------------------------------------- Net Increase................................................ 5,121 57,665 - ----------------------------------------------------------------------------------------------------
13 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000 1999(1)(2) 1998 1997 1996 1995(3) - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD............ $10.26 $10.09 $9.96 $10.31 $10.00 - ----------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income (4)..................... 0.29 0.59 0.59 0.50 0.13 Net realized and unrealized gain (loss)....... (0.17) 0.17 0.13 (0.22) 0.18 - ----------------------------------------------------------------------------------------------------------------- Total Income From Operations.................... 0.12 0.76 0.72 0.28 0.31 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income......................... -- (0.59) (0.59) (0.63) -- - ----------------------------------------------------------------------------------------------------------------- Total Distributions............................. -- (0.59) (0.59) (0.63) -- - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.................. $10.38 $10.26 $10.09 $9.96 $10.31 - ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN.................................... 1.17%++ 7.58% 7.20% 2.76% 3.10%++ - ----------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)............... $1,972 $1,953 $1,757 $1,565 $1,029 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (4)(5)............................... 0.15%+ 0.15% 0.15% 0.15% 0.15%+ Net investment income......................... 5.70+ 5.74 5.88 5.74 5.61+ - ----------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE......................... 0% 0% 29% 33% 34% - -----------------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the average shares method. (3) For the period from October 11, 1995 (commencement of operations) to December 31, 1995. (4) For the six months ended June 30, 1999, the years ended December 31, 1998, 1997, 1996 and the period ended December 31, 1995, Travelers Insurance reimbursed the Portfolio for $26,601, $35,705, $27,177, $31,032 and $14,257 in expenses, respectively. If such expenses were not reimbursed, the per share decrease of net investment income and actual expense ratios would have been as follows:
EXPENSE RATIOS PER SHARE DECREASES WITHOUT EXPENSE TO NET INVESTMENT INCOME REIMBURSEMENT ------------------------ --------------- 1999 $0.14 2.89%+ 1998 0.19 2.09 1997 0.16 1.80 1996 0.20 2.49 1995 0.14 6.51+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.15%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 14 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005 1999(1)(2) 1998 1997 1996 1995(3) - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...... $11.26 $10.53 $9.97 $10.48 $10.00 - ------------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment income (4)............... 0.30 0.55 0.60 0.48 0.13 Net realized and unrealized gain (loss)............................... (0.82) 0.74 0.56 (0.38) 0.35 - ------------------------------------------------------------------------------------------------------------------------ Total Income (Loss) From Operations....... (0.52) 1.29 1.16 0.10 0.48 - ------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income................... -- (0.56) (0.60) (0.61) -- - ------------------------------------------------------------------------------------------------------------------------ Total Distributions....................... -- (0.56) (0.60) (0.61) -- - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD............ $10.74 $11.26 $10.53 $9.97 $10.48 - ------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN.............................. (4.62)%++ 12.26% 11.63% 0.90% 4.80%++ - ------------------------------------------------------------------------------------------------------------------------ NET ASSETS, END OF PERIOD (000'S)......... $3,079 $3,170 $2,357 $2,054 $1,050 - ------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses (4)(5)......................... 0.15%+ 0.15% 0.15% 0.15% 0.15%+ Net investment income................... 5.55+ 5.63 6.11 6.14 5.89+ - ------------------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE................... 0% 3% 9% 17% 23% - ------------------------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the average shares method. (3) For the period from October 11, 1995 (commencement of operations) to December 31, 1995. (4) For the six months ended June 30, 1999, the years ended December 31, 1998, 1997, 1996 and the period ended December 31, 1995, Travelers Insurance reimbursed the Portfolio for $26,660, $38,063, $28,361, $30,922 and $14,256 in expenses, respectively. If such expenses were not reimbursed, the per share decrease of net investment income and actual expense ratios would have been as follows:
EXPENSE RATIOS PER SHARE DECREASES WITHOUT EXPENSE TO NET INVESTMENT INCOME REIMBURSEMENT ------------------------ ------------------- 1999 $0.09 1.88%+ 1998 0.14 1.61 1997 0.13 1.52 1996 0.15 2.17 1995 0.14 6.48+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.15%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 15 This page intentionally left blank. Investment Adviser TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION Hartford, Connecticut Independent Auditors KPMG LLP New York, New York Custodian PNC BANK, N.A. This report is prepared for the general information of contract owners and is not an offer of shares of Zero Coupon Bond Fund Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio Series 2005. It should not be used in connection with any offer except in conjunction with the Prospectuses for the Variable Universal Life Insurance products offered by The Travelers Insurance Company and The Travelers Life and Annuity Company and the Prospectuses for the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. VG-ZERO (Semi-Annual) (8-99) Printed in U.S.A. SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- DEAR SHAREHOLDER: We are pleased to provide the semi-annual report for The Travelers Series Trust -- NWQ Large Cap Portfolio and the Jurika & Voyles Core Equity Portfolio ("Portfolios") for the period ended June 30, 1999. We hope you find this report to be useful and informative. A more detailed summary of performance and current holdings for each Portfolio can be found in the pages that follow. ECONOMIC UPDATE The first half of 1999 was a period of economic growth at home and recovery abroad. Following the events surrounding the Russian debt default in August of 1998 -- which included a dive in bond yields and a 0.75% decrease in interest rates -- yields have risen. Investor optimism, however, was tempered by concerns about inflation, interest rates, and continued economic growth. EQUITY MARKET COMMENTARY The year began on a volatile note for global financial markets as a new threat emerged in Latin America. The devaluation of the Brazilian currency raised concerns for U.S. companies with exposure to Latin America and took its toll on the stock market in the middle of January. The Dow Jones Industrial Average ("DJIA") swung from intra-day levels of above 9700 to below 9000. Stock prices did recover, however, to finish higher at the end of January. Interest rate concerns dominated market psychology during February. Despite low inflation, interest rates moved higher amid fears of Federal Reserve Board ("Fed") tightening in response to the strong U.S. economy. In February, the yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market valuations became a concern as investors focused on the rise in interest rates, the lack of a substantial earnings recovery and high price/earnings multiples. During the month of March, market sentiment reversed and investors focused on the reality of DJIA reaching 10,000. After repeated assaults, the DJIA did breach 10,000 on March 16, 1999, retreated and then went on to close at 10,006 on March 29. Economic activity remained brisk and it became obvious that first quarter Gross Domestic Product ("GDP") growth would be above expectations. Consumer prices rose 0.1% in February and 1.6% from a year ago. The S&P 500 Index gained 5.0% in the first quarter of 1991. The S&P 400 Mid Cap Index fell by 6.4% while the Russell 2000 Index declined by 5.4%. The S&P 500 Growth Index produced a 6.9% total return, outpacing the 2.9% total return of the S&P 500 Value Index. All sectors except consumer staples (-11%) registered respectable gains in the first quarter of 1999. The market rally was led by the energy services (22%) and technology (9%) sectors. The financial services (7%) and Consumer Discretionary (6%) sectors also performed well. Despite a rise in interest rates in the second quarter, the U.S. stock market finished firmly in positive territory. Evidence of stronger-than-expected economic growth prompted hopes of a meaningful earnings recovery during the quarter and, at the same time, triggered concerns about rising interest rates. This led to a rally in small cap and value stocks. Interest rates began to climb in the month of May as investors worried about inflation concerns on the heels of recent economic strength. First quarter GDP growth was revised down to 4.1% from 4.5%, but other indicators provided evidence of continued strength in the economy. The stock market sagged during May under the burden of lofty valuations and higher rates. The Fed took center stage in the month of June as investors anxiously awaited its next monetary policy move. Even though inflation data released in June was lower than consensus expectations, the bond and stock markets had clearly anticipated a 25 basis point rate hike as a result of unexpected economic strength. The decision to raise the federal-funds rate by 25 basis points on June 30, 1999 therefore, came as no surprise and markets rallied when the Fed announced that it had now switched to a neutral bias in its monetary policy. The rotation into value and small cap stocks began in the middle of April and continued through May. This trend reversed in June, as investors became comfortable that a proactive Fed policy would preempt inflation and keep interest rates in check. The S&P 500 Index advanced by 7.1% in the second quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return, outpacing the 3.8% total return of the S&P 500 Growth Index. 1 All sectors within the S&P 500 except health care (-4%) registered respectable gains in the second quarter. The economically sensitive, value-oriented materials and processing (19%), energy services (14%) and producer durables (14%) sectors led the market rally. The utilities (13%) and technology (10%) sectors also performed well. The focus in the U.S. stock market has now switched from the earnings front to the future direction of interest rates. The early second quarter earnings reports project a healthy growth in corporate profits from the prior year. With the stock market now trading well above DJIA 10,000 and at unprecedented valuation levels, any further increase in interest rates could trigger a compression in the price/earnings multiple for the stock market. NWQ LARGE CAP PORTFOLIO For the six months ended June 30, 1999, the NWQ Large Cap Portfolio ("Portfolio") had a total return of 14.90%. During the same time period, Standard & Poor's 500 ("S&P 500"), an unmanaged index of common stocks, posted a total return of 12.38%. Almost two years after the collapse of Thailand's currency sparked a tidal wave of economic chaos across Asia, Russia and much of Latin America, there are signs that the crisis is waning. There have been 156 interest-rate reductions by central banks around the world since last October. Financial markets have posted strong rallies in many countries. There is still a long way to go before one can claim that the world economy has fully recovered, but the signs of growth have been encouraging. The managers believe that there will be bumps along the road, and the worldwide recovery may take much longer than investors currently believe, leaving room for lofty expectations to be deflated. Nevertheless, conditions have improved markedly in the past few months and may have positive long-term implications for the U.S. economy and its financial markets. A recent magazine cover featured a copy of "Security Analysis," Graham & Dodd's classic work on value investing, smoldering in ashes. The title read, "Can Value Investing Survive?" The managers were reminded of another headline from 1948: "Dewey Defeats Truman." After chasing Internet and growth stocks to valuation levels unrivaled in history, investors suddenly discovered that having a dot-com in one's name does not provide a guaranteed financial reward. In the last few weeks the bubble appears to have lost some altitude, with many Internet stocks falling 40% to 60% from their highs. At the same time, many industrial, capital goods, energy and financial stocks, the poor orphans of the market in 1998, posted strong gains. Numerous market analysts have been posing the same question of late. Is the turn toward value (or cyclical) stocks for real, or a mere flash in the pan? The managers view the recent change in market sentiment toward industrial stocks as the first step in the long overdue process of rationalizing extreme market valuations that were created over the past year. Granted, the Internet is growing more rapidly than anything the investment team has seen in many years, but they question whether America Online is really worth more than the entire domestic airline, aluminum and paper industries combined? The past three months have witnessed some unwinding of this situation, but there is still a long way to go. As long as the Fed does not get so afraid of a strong U.S. economy that it raises rates significantly, the return of value (and more rational pricing in the stock market) appears to be in the first inning. With respect to the Fed, Mr. Greenspan did indeed raise interest rates by 25 basis points at the end of June. The market had clearly discounted this already from his earlier Congressional testimony. In fact, the bond market had discounted quite a bit more. The managers doubt the Fed will become aggressive with Asia's recovery still in its infancy and the weak Euro raising fears about more currency problems in the world. A single 25 basis point rate increase should not derail the U.S. economy, nor the fledgling worldwide rebound. While the overall stock market remains richly valued, the managers believe that the "value" sector should enjoy a gradually improving climate going forward. JURIKA & VOYLES CORE EQUITY PORTFOLIO For the six months ended June 30, 1999, the Jurika & Voyles Core Equity Portfolio ("Portfolio") returned 7.01% which compares to a 12.38% return for S&P 500 during the same time period. Performance of the Portfolio was strong over the second quarter of 1999. The emphasis of the portfolio on medium- to large-, but not mega, capitalization companies positioned the Portfolio well for the increasing depth of the stock market's performance. The low valuation emphasis of the Portfolio also benefited performance. Although the managers are pleased with the market's rotation to the smaller and lower valued stocks, they believe that the rotation to lower quality, highly leveraged companies is not sustainable. Given the high current level of valuations, the high level of profit margins and the maturity of the current economic cycle, the managers believe that this is a high-risk environment where it is important to focus on quality and value. 2 According to the managers, the current environment is very positive for their investment style. The Portfolio continues to comprise companies with strong business models -- sustainable returns, strong cash flow generation and strong financial positions -- which sell at material discounts to their intrinsic values. The managers are finding good opportunities in the energy and technology sectors. They believed that the level of energy prices in the first quarter of 1999 was unsustainably low and that many energy stocks were undervalued based on asset values and the normalized earnings power which the companies would earn over the coming energy price cycle. The investment team is also enthusiastic about the prospects of companies that are at the leading edge of providing energy products and services in the progressively deregulated global environment. The managers continue to be believers in the strong outlook for technology spending. The pressure on companies to control costs is only increasing, driving spending on technology to improve efficiency. The outlook for companies exposed to data storage is particularly positive. Also, the investment team funds the business models of transaction-based technology companies to be very attractive. In closing, we thank you for your investment in The Travelers Series Trust. We look forward to continuing to help you pursue your financial goals. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman January 28, 1999 3 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999 NWQ LARGE CAP PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- STOCK -- 90.8% - ----------------------------------------------------------------------------------------- AEROSPACE -- 2.6% 2,800 Lockheed Martin Corp. ...................................... $ 104,300 3,600 Textron, Inc. .............................................. 296,325 - ----------------------------------------------------------------------------------------- 400,625 - ----------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 10.9% 5,600 Federated Department Stores, Inc. (a)....................... 296,450 7,400 Fortune Brands, Inc. ....................................... 306,175 5,500 MediaOne Group, Inc. (a).................................... 409,063 3,000 Time Warner Inc. ........................................... 220,500 8,000 Waste Management, Inc. ..................................... 430,000 - ----------------------------------------------------------------------------------------- 1,662,188 - ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 10.7% 4,500 Loews Corp. ................................................ 356,062 14,000 Nabisco Group Holdings Corp. ............................... 273,875 14,500 Philip Morris Cos., Inc. ................................... 582,719 4,666 R.J. Reynolds Tobacco Holdings, Inc. (a).................... 146,979 3,807 Unilever NV................................................. 265,538 - ----------------------------------------------------------------------------------------- 1,625,173 - ----------------------------------------------------------------------------------------- DURABLES -- 0.8% 1,729 United Technologies Corp. .................................. 123,948 - ----------------------------------------------------------------------------------------- ENERGY -- 7.1% 7,100 Coastal Corp. .............................................. 284,000 10,800 Halliburton Co. ............................................ 488,700 5,600 Transocean Offshore Inc. ................................... 147,000 4,400 Weatherford International, Inc. (a)......................... 161,150 - ----------------------------------------------------------------------------------------- 1,080,850 - ----------------------------------------------------------------------------------------- FINANCE -- 33.0% 3,100 American International Group, Inc. ......................... 362,894 4,000 Bank of America Corp. ...................................... 293,250 8,100 Bank of New York Co., Inc. ................................. 297,168 5,000 Bank One, Corp. ............................................ 297,813 7,350 Bear Stearns Cos., Inc. .................................... 343,613 6,600 Chase Manhattan Corp. ...................................... 571,725 3,200 Citigroup Inc. ............................................. 152,000 8,400 Fannie Mae.................................................. 574,350 10,000 First Union Corp. .......................................... 470,000 5,300 Fleet Financial Group, Inc. ................................ 235,187 5,400 Hartford Financial Services Group, Inc. .................... 314,887 5,300 Provident Cos., Inc. ....................................... 212,000 12,000 The Allstate Corp. ......................................... 430,500 11,300 Wells Fargo & Co. .......................................... 483,075 - ----------------------------------------------------------------------------------------- 5,038,462 - -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 4 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 NWQ LARGE CAP PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- HEALTH -- 7.1% 4,400 Aetna Inc. ................................................. $ 393,525 4,300 CIGNA Corp. ................................................ 382,700 13,600 Columbia/HCA Healthcare Corp. .............................. 310,250 - ----------------------------------------------------------------------------------------- 1,086,475 - ----------------------------------------------------------------------------------------- MATERIALS AND PROCESSING -- 3.5% 6,100 Air Products and Chemicals, Inc. ........................... 245,525 2,000 E.I. du Pont de Nemours and Co. ............................ 136,625 3,000 Praxair, Inc. .............................................. 146,813 - ----------------------------------------------------------------------------------------- 528,963 - ----------------------------------------------------------------------------------------- PRODUCER DURABLES -- 5.0% 3,400 Case Corp. ................................................. 163,625 2,000 Deere & Co. ................................................ 79,250 3,900 Ingersoll-Rand Co. ......................................... 252,037 5,000 W.W. Grainger, Inc. ........................................ 269,063 - ----------------------------------------------------------------------------------------- 763,975 - ----------------------------------------------------------------------------------------- TECHNOLOGY -- 7.4% 3,600 Hewlett-Packard Co. ........................................ 361,800 3,200 Honeywell Inc. ............................................. 370,800 1,700 Texas Instruments Inc. ..................................... 246,500 2,600 Xerox Corp. ................................................ 153,562 - ----------------------------------------------------------------------------------------- 1,132,662 - ----------------------------------------------------------------------------------------- TRANSPORTATION -- 2.7% 10,000 Delphi Automotive Systems Corp. ............................ 185,625 4,000 Delta Air Lines, Inc. ...................................... 230,500 - ----------------------------------------------------------------------------------------- 416,125 - ----------------------------------------------------------------------------------------- TOTAL STOCK (Cost -- $12,483,901)........................... 13,859,446 - -----------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - ----------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 9.2% $1,410,000 Chase Securities Inc., 4.800% due 7/1/99; Proceeds at maturity -- $1,410,188; (Fully collateralized by U.S. Treasury Notes, 7.125% due 2/15/23; Market value -- $1,439,200) (Cost -- $1,410,000)............................ 1,410,000 - ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $13,893,901*)............ $15,269,446 - -----------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 5 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 JURIKA & VOYLES CORE EQUITY PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- STOCK -- 94.6% - ------------------------------------------------------------------------------------- AIRLINES -- 2.0% 5,050 Southwest Airlines Co. ..................................... $ 157,182 - ------------------------------------------------------------------------------------- BANKS -- 3.2% 2,800 First Union Corp. .......................................... 131,600 3,400 Washington Mutual, Inc. .................................... 120,275 - ------------------------------------------------------------------------------------- 251,875 - ------------------------------------------------------------------------------------- BASIC INDUSTRIES -- 1.6% 2,350 Vastar Resources, Inc. ..................................... 123,228 - ------------------------------------------------------------------------------------- BUILDING MATERIALS -- 0.9% 2,500 Masco Corp. ................................................ 72,187 - ------------------------------------------------------------------------------------- CAPITAL GOODS -- 1.0% 2,100 Valassis Communications, Inc. (a)........................... 76,912 - ------------------------------------------------------------------------------------- CHEMICALS - SPECIALTY -- 1.5% 3,500 OM Group, Inc. ............................................. 120,750 - ------------------------------------------------------------------------------------- COMPUTER SERVICES -- 6.0% 5,150 First Data Corp. ........................................... 252,028 1,500 Galileo International, Inc. ................................ 80,157 2,000 SABRE Group Holdings, Inc. (a).............................. 137,500 - ------------------------------------------------------------------------------------- 469,685 - ------------------------------------------------------------------------------------- COMPUTER SOFTWARE -- 7.6% 2,300 Electronic Arts Inc. (a).................................... 124,775 2,700 i2 Technologies, Inc. ...................................... 116,100 9,700 Parametric Technology Corp. (a)............................. 134,588 4,000 Synopsys, Inc. (a).......................................... 220,750 - ------------------------------------------------------------------------------------- 596,213 - ------------------------------------------------------------------------------------- COMPUTERS -- 1.1% 2,700 Cognex Corp. (a)............................................ 85,218 - ------------------------------------------------------------------------------------- COMPUTER - EQUIPMENT -- 3.3% 6,100 Quantum Corp. (a)........................................... 147,163 4,400 Seagate Technology, Inc. (a)................................ 112,750 - ------------------------------------------------------------------------------------- 259,913 - ------------------------------------------------------------------------------------- CONSUMER PRODUCTS -- 3.3% 5,600 Newell Rubbermaid Inc. ..................................... 260,400 - ------------------------------------------------------------------------------------- DRUG DELIVERY/TESTING -- 1.0% 2,800 Elan Corp. PLC ADR (a)...................................... 77,700 - ------------------------------------------------------------------------------------- DRUG STORES -- 2.5% 3,843 Albertson's, Inc. .......................................... 198,155 - ------------------------------------------------------------------------------------- EDUCATION -- 1.4% 2,100 McGraw-Hill Cos., Inc. ..................................... 113,268 - -------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 6 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 JURIKA & VOYLES CORE EQUITY PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- ELECTRONICS -- 5.0% 1,000 Circuit City Stores-Circuit City Group...................... $ 93,000 1,400 Motorola, Inc. ............................................. 132,650 4,400 Transaction Systems Architects, Inc., Class A Shares (a).... 171,600 - ------------------------------------------------------------------------------------- 397,250 - ------------------------------------------------------------------------------------- ENERGY -- 1.4% 2,600 Suncor Energy, Inc. ........................................ 106,925 - ------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 1.9% 5,050 CIT Group, Inc. ............................................ 145,818 - ------------------------------------------------------------------------------------- FOOD PROCESSING -- 0.7% 1,100 Hannaford Brothers Co. ..................................... 58,850 - ------------------------------------------------------------------------------------- FOOD WHOLESALERS -- 3.0% 1,900 Hormel Foods Corp. ......................................... 76,475 5,400 SYSCO Corp. ................................................ 160,988 - ------------------------------------------------------------------------------------- 237,463 - ------------------------------------------------------------------------------------- HOLDING COMPANIES - DIVERSIFIED -- 2.0% 3,900 Provident Co., Inc. ........................................ 156,000 - ------------------------------------------------------------------------------------- HOSPITAL -- 0.8% 1,600 Avalonbay Communities, Inc. ................................ 59,200 - ------------------------------------------------------------------------------------- INSURANCE -- 6.9% 2,100 CIGNA Corp. ................................................ 186,900 2,100 Everest Reinsurance Holdings, Inc. ......................... 68,512 3,100 Fremont General Corp. ...................................... 58,512 960 Radian Group Inc. .......................................... 46,857 4,100 ReliaStar Financial Corp. .................................. 179,375 - ------------------------------------------------------------------------------------- 540,156 - ------------------------------------------------------------------------------------- MACHINERY -- 0.9% 1,800 Deere & Co.................................................. 71,325 - ------------------------------------------------------------------------------------- MANUFACTURING -- 2.4% 4,200 Parker-Hannifin Corp. ...................................... 192,150 - ------------------------------------------------------------------------------------- MEDICAL PRODUCTS AND SUPPLIES -- 5.0% 4,600 Baxter International Inc. .................................. 278,875 4,600 Mylan Laboratories.......................................... 121,900 - ------------------------------------------------------------------------------------- 400,775 - ------------------------------------------------------------------------------------- NATURAL GAS -- 2.1% 2,600 Texaco Inc. ................................................ 162,500 - ------------------------------------------------------------------------------------- OIL AND GAS -- 1.3% 2,700 Weatherford International, Inc. ............................ 98,887 - ------------------------------------------------------------------------------------- OIL AND GAS DRILLING -- 1.3% 4,400 Santa Fe International Corp. ............................... 101,200 - -------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 7 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999 JURIKA & VOYLES CORE EQUITY PORTFOLIO
SHARES SECURITY VALUE - ------------------------------------------------------------------------------------- OIL - EXPLORATION AND PRODUCTION -- 1.7% 3,500 Apache Corp. ............................................... $ 136,500 - ------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST -- 3.7% 1,600 Equity Residential Properties Trust......................... 72,100 4,900 ProLogis Trust.............................................. 99,225 2,100 Public Storage, Inc. ....................................... 58,800 1,500 Spieker Properties, Inc. ................................... 58,312 - ------------------------------------------------------------------------------------- 288,437 - ------------------------------------------------------------------------------------- TECHNOLOGY RELATED -- 2.4% 3,200 Xerox Corp. ................................................ 189,000 - ------------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.8% 4,150 ECI Telecom Ltd. ........................................... 137,728 - ------------------------------------------------------------------------------------- TELEPHONE -- 2.5% 3,400 SBC Communications, Inc. ................................... 197,200 - ------------------------------------------------------------------------------------- TOYS -- 1.4% 4,200 Mattel, Inc. ............................................... 111,039 - ------------------------------------------------------------------------------------- TRANSPORT - AIR FREIGHT -- 1.4% 2,000 FDX Corp. (a)............................................... 108,500 - ------------------------------------------------------------------------------------- UTILITIES -- 3.6% 4,900 AES Corp. .................................................. 284,814 - ------------------------------------------------------------------------------------- UTILITIES - GAS -- 1.9% 1,850 Enron Corp. ................................................ 151,237 - ------------------------------------------------------------------------------------- WASTE MANAGEMENT -- 3.1% 9,700 Republic Services, Inc. (a)................................. 240,075 - ------------------------------------------------------------------------------------- TOTAL STOCK (Cost -- $6,589,640)............................ 7,435,715 - -------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - -------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 5.4% $422,000 Chase Securities Inc., 4.800% due 7/1/99: Proceeds at maturity -- $422,056; (Fully collateralized by U.S. Treasury Notes, 7.125% due 7/1/99; Market value -- $431,200) (Cost -- $422,000)................................................... 422,000 - -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $7,011,640*)............. $7,857,715 - --------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 8 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
JURIKA & NWQ VOYLES LARGE CAP CORE EQUITY PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------- ASSETS: Investments -- Cost....................................... $13,893,901 $7,011,640 - ---------------------------------------------------------------------------------------- Investments, at value..................................... $15,269,446 $7,857,715 Cash...................................................... 2,665 548 Dividends and interest receivable......................... 19,316 7,824 Receivable for securities sold............................ 16,712 104,175 Receivable from affiliate................................. 10,950 13,561 - ---------------------------------------------------------------------------------------- TOTAL ASSETS.............................................. 15,319,089 7,983,823 - ---------------------------------------------------------------------------------------- LIABILITIES: Investment advisory fees payable.......................... 9,845 5,230 Administration fees payable............................... 788 418 Accrued expenses.......................................... 17,405 17,807 - ---------------------------------------------------------------------------------------- TOTAL LIABILITIES......................................... 28,038 23,455 - ---------------------------------------------------------------------------------------- TOTAL NET ASSETS............................................ $15,291,051 $7,960,368 - ---------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital........................................... $13,760,945 $7,256,186 Undistributed net investment income....................... 68,678 23,931 Accumulated net realized gain (loss) from security transactions............................................ 85,883 (165,824) Net unrealized appreciation of investments................ 1,375,545 846,075 - ---------------------------------------------------------------------------------------- TOTAL NET ASSETS............................................ $15,291,051 $7,960,368 - ---------------------------------------------------------------------------------------- SHARES OUTSTANDING.......................................... 1,406,750 724,324 - ---------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE.................................. $10.87 $10.99 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 9 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
JURIKA & NWQ VOYLES LARGE CAP CORE EQUITY PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends................................................. $ 95,533 $ 39,638 Interest.................................................. 32,727 17,708 Less: Foreign withholding tax............................. (3,352) -- - ---------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................... 124,908 57,346 - ---------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2)......................... 42,046 25,339 Audit and legal........................................... 10,000 8,500 Shareholder and system servicing fees..................... 4,500 4,500 Administration fees (Note 2).............................. 3,364 2,027 Shareholder communications................................ 3,000 2,500 Trustees' fees............................................ 1,870 1,870 Custody................................................... 1,150 1,300 Registration fees......................................... 850 800 Pricing service fees...................................... -- 300 Other..................................................... 400 260 - ---------------------------------------------------------------------------------------- TOTAL EXPENSES............................................ 67,180 47,396 Less: Expense reimbursements (Note 2)..................... (10,950) (13,561) - ---------------------------------------------------------------------------------------- NET EXPENSES.............................................. 56,230 33,835 - ---------------------------------------------------------------------------------------- NET INVESTMENT INCOME....................................... 68,678 23,511 - ---------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3): Realized Gain (Loss) From Security Transactions (excluding short-term securities): Proceeds from sales.................................... 1,310,747 1,891,156 Cost of securities sold................................ 1,216,289 1,988,247 - ---------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS).................................. 94,458 (97,091) - ---------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments: Beginning of period.................................... (114,750) 268,395 End of period.......................................... 1,375,545 846,075 - ---------------------------------------------------------------------------------------- INCREASE IN NET UNREALIZED APPRECIATION................... 1,490,295 577,680 - ---------------------------------------------------------------------------------------- NET GAIN ON INVESTMENTS..................................... 1,584,753 480,589 - ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS...................... $1,653,431 $504,100 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 10 - ------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
JURIKA & NWQ VOYLES LARGE CAP CORE EQUITY PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 68,678 $ 23,511 Net realized gain (loss).................................. 94,458 (97,091) Increase in net unrealized appreciation................... 1,490,295 577,680 - ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 1,653,431 504,100 - ---------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 10): Net proceeds from sale of shares.......................... 5,308,252 1,326,395 Net asset value of shares issued for reinvestment of dividends.............................................. -- -- Cost of shares reacquired................................. (133,488) (39,130) - ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 5,174,764 1,287,265 - ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 6,828,195 1,791,365 NET ASSETS: Beginning of period....................................... 8,462,856 6,169,003 - ---------------------------------------------------------------------------------------- END OF PERIOD*............................................ $15,291,051 $7,960,368 - ---------------------------------------------------------------------------------------- * Includes undistributed net investment income of: $68,678 $23,931 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 11 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 1998(a)
JURIKA & NWQ VOYLES LARGE CAP CORE EQUITY PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 39,888 $ 22,433 Net realized loss......................................... (8,575) (68,818) Increase in net unrealized appreciation (depreciation).... (114,750) 268,395 - --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... (83,437) 222,010 - --------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (39,888) (21,928) Capital................................................... (1,153) (1,047) - --------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (41,041) (22,975) - --------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 10): Net proceeds from sale of shares.......................... 8,565,903 5,954,492 Net asset value of shares issued for reinvestment of dividends.............................................. 41,041 22,975 Cost of shares reacquired................................. (19,610) (7,499) - --------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 8,587,334 5,969,968 - --------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 8,462,856 6,169,003 NET ASSETS: Beginning of period....................................... -- -- - --------------------------------------------------------------------------------------- END OF PERIOD*............................................ $8,462,856 $6,169,003 - --------------------------------------------------------------------------------------- * Includes undistributed net investment income of: -- $420 - ---------------------------------------------------------------------------------------
(a) For the period from July 20, 1998 (commencement of operations) to December 31, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 12 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The NWQ Large Cap and Jurika & Voyles Core Equity Portfolios, ("Portfolio(s)") are separate investment portfolios of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company and consists of these portfolios and eighteen other separate investment portfolios: Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, Disciplined Mid Cap Stock, U.S. Government Securities, Social Awareness Stock, Utilities, Large Cap, Equity Income, Convertible Bond, MFS Research, MFS Mid Cap Growth, Disciplined Small Cap Stock, Strategic Stock, Zero Coupon Bond Fund Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio Series 2005 Portfolios. Shares of the Trust are offered only to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts. The financial statements and financial highlights for the other portfolios are presented in separate semi-annual reports. The significant accounting policies consistently followed by the Portfolios are: (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing price on such markets or, if there were no sales during the day, at current quoted bid price; securities primarily traded on foreign exchanges are generally valued at the closing values of such securities on their respective exchanges, except that when a significant occurrence exists subsequent to the time a value was so established and it is likely to have significantly changed the value, then the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees; securities traded in the over-the-counter market are valued on the basis of the bid price at the close of business on each day; U.S. government agencies and obligations are valued at the mean between the last reported bid and ask prices; (c) securities maturing within 60 days are valued at cost plus accreted discount or minus amortized premium, which approximates value; (d) securities that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (e) interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis and dividend income is recorded on the ex-dividend date; foreign dividends are recorded on the ex-dividend date or as soon as practical after the Portfolio determines the existence of a dividend declaration after exercising reasonable due diligence; (f) gains or losses on the sale of securities are calculated by using the specific identification method; (g) dividends and distributions to shareholders are recorded on the ex-dividend date; (h) the accounting records of the Portfolios are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income or expense amounts recorded and collected or paid are adjusted when reported by the custodian bank; (i) the Portfolios intend to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; (j) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. At December 31, 1998, reclassifications were made to the Portfolios' capital accounts to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Net investment income, net realized gains and net assets for each Portfolio were not affected by these changes; and (k) estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. In addition, the NWQ Large Cap and Jurika & Voyles Core Equity Portfolios may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked to market daily, by recognizing the difference between the contract exchange rate and the current market rate as an unrealized gain or loss. Realized gains or losses are recognized when the contracts are settled. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Corporation ("TAMIC"), an indirect wholly owned subsidiary of Citigroup Inc., acts as investment adviser to the NWQ Large Cap ("NWQ") and Jurika & Voyles Core Equity ("JV") Portfolios. NWQ and JV each pay TAMIC an investment advisory fee calculated at the annual rate of 0.75% of the average daily net assets. This fee is calculated daily and paid monthly. TAMIC has entered into sub-advisory agreements with NWQ Investment Management Co. ("NWQIM") and Jurika & Voyles L.P. ("JVLP"). Pursuant to each sub-advisory agreement, NWQIM and JVLP are responsible for the day-to-day 13 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) portfolio operations and investment decisions for NWQ and JV, respectively. As a result, the following fees are paid and calculated at an annual rate: - TAMIC pays NWQIM 0.375% of NWQ's average daily net assets. - TAMIC pays JVLP 0.375% of JV's average daily net assets. These fees are calculated daily and paid monthly. Travelers Insurance Company ("Travelers Insurance") acts as administrator to the Portfolios. The Portfolios pay Travelers Insurance an administration fee calculated at an annual rate of 0.06% of its average daily net assets. Travelers Insurance has entered into a sub-administrative service agreement with SSBC Fund Management Inc., ("SSBC") formerly known as Mutual Management Corp., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"). Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% of the average daily net assets of the Portfolios. This fee is calculated daily and paid monthly. For the six months ended June 30, 1999, Travelers Insurance reimbursed expenses in the amounts of $10,950 and $13,561 for NWQ and JV, respectively. For the six months ended June 30, 1999, NWQ and JV paid Salomon Smith Barney Inc., another subsidiary of SSBH, brokerage commissions of $318 and $120, respectively. One Trustee and all officers of the Trust are employees of Citigroup Inc., or its subsidiaries. 3. INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities), during the six months ended June 30, 1999 were as follows:
PORTFOLIO PURCHASES SALES - ------------------------------------------------------------------------------------- NWQ Large Cap Portfolio..................................... $6,838,422 $1,310,747 Jurika & Voyles Core Equity Portfolio....................... 3,383,786 1,891,156 - -------------------------------------------------------------------------------------
At June 30, 1999, aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
GROSS GROSS UNREALIZED UNREALIZED NET UNREALIZED PORTFOLIO APPRECIATION DEPRECIATION APPRECIATION - ---------------------------------------------------------------------------------------------------------- NWQ Large Cap Portfolio..................................... $1,743,635 $(368,090) $1,375,545 Jurika & Voyles Core Equity Portfolio....................... 1,044,324 (198,249) 846,075 - ----------------------------------------------------------------------------------------------------------
4. REPURCHASE AGREEMENTS The Portfolios purchase (and their custodians take possession of) U.S. government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Portfolios require continual maintenance of the market value of the collateral in amounts at least equal to the repurchase price. 5. FUTURES CONTRACTS The NWQ and JV Portfolios may from time to time enter into futures contracts. Initial margin deposits made upon entering into futures contracts are recognized as assets. Securities equal to the initial margin amount are segregated by the custodian in the name of the broker. Additional securities are also segregated up to the current market value of the futures contracts. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are received or made and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Portfolios record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Portfolio's basis in the contract. 14 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) The Portfolios enter into such contracts to hedge a portion of their portfolios. The Portfolios bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). At June 30, 1999, the Portfolios had no open futures contracts. 6. OPTIONS CONTRACTS The NWQ and JV Portfolios may from time to time enter into options contracts. Premiums paid when put or call options are purchased by the Portfolios, represent investments, which are "marked-to-market" daily. When a purchased option expires, the Portfolios will realize a loss in the amount of the premium paid. When the Portfolios enter into a closing sales transaction, the Portfolios will realize a gain or loss depending on whether the proceeds from the closing sales transactions are greater or less than the premium paid for the option. When the Portfolios exercises a put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Portfolios exercise a call option, the cost of the security which the Portfolios purchase upon exercise will be increased by the premium originally paid. At June 30, 1999, the Portfolios had no open purchased put or call option contracts. When Portfolios write a covered call or put option, an amount equals to the premium received by the Portfolios is recorded as a liability, the value of which is marked-to-market daily. When a written option expires, the Portfolios realize a gain. When the Portfolios enter into a closing purchase transaction, the Portfolios realize a gain or loss depending upon whether the cost of the closing transaction is greater or less than the premium originally received, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When a written call option is exercised, the cost of the security sold will be decreased by the premium originally received. When a put option is exercised, the amount of the premium originally received will reduce the cost of the security which the Portfolios purchased upon exercise. When written index options are exercised, settlement is made in cash. The risk associated with purchasing options is limited to the premium originally paid. The Portfolios enter into options for hedging purposes. The risk in writing a covered call option is that the Portfolios give up the opportunity to participate in any increase in the price of the underlying security beyond the exercise price. The risk in writing a put option is that the Portfolios are exposed to the risk of a loss if the market price of the underlying security declines. During the six months ended June 30, 1999, the Portfolios did not write any options. 7. FOREIGN SECURITIES Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and the U.S. government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of many foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and the U.S. government. 8. LENDING OF PORTFOLIO SECURITIES The Portfolios have an agreement with their custodian whereby the custodian may lend securities owned by a Portfolio to brokers, dealers and other financial organizations. Fees earned by the Portfolios on securities lending are recorded as interest income. Loans of securities by the Portfolios are collateralized by cash, U.S. government securities or high quality money market instruments that are maintained at all times in an amount at least equal to the current market value of the loaned securities, plus a margin which may vary depending on the type of securities loaned. The custodian establishes and maintains the collateral in a segregated account. The Portfolios maintain exposure for the risk of any losses in the investments of amounts received as collateral. At June 30, 1999, the Portfolios had no securities on loan. 15 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 9. CAPITAL LOSS CARRYFORWARD At December 31, 1998, JV had, for Federal tax purposes, $69,000 of capital loss carryforwards available to offset future capital gains through 2006. To the extent that these carryforward losses can be used to offset realized capital gains, it is probable that such gains will not be distributed. 10. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Portfolio were as follows:
SIX MONTHS ENDED PERIOD ENDED JUNE 30, 1999 DECEMBER 31, 1998(a) - ------------------------------------------------------------------------------------------------------ NWQ LARGE CAP PORTFOLIO: Shares sold............................................... 524,841 892,819 Shares issued on reinvestment............................. -- 4,338 Shares reacquired......................................... (12,883) (2,365) - ------------------------------------------------------------------------------------------------------ Net Increase.............................................. 511,958 894,792 - ------------------------------------------------------------------------------------------------------ JURIKA & VOYLES CORE EQUITY PORTFOLIO: Shares sold............................................... 127,681 599,062 Shares issued on reinvestment............................. -- 2,237 Shares reacquired......................................... (3,880) (776) - ------------------------------------------------------------------------------------------------------ Net Increase.............................................. 123,801 600,523 - ------------------------------------------------------------------------------------------------------
(a) For the period from July 20, 1998 (commencement of operations) to December 31, 1998. 16 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
NWQ LARGE CAP PORTFOLIO 1999(1)(2) 1998(3) - ---------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $9.46 $10.00 - ---------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(4).................................. 0.06 0.05 Net realized and unrealized gain (loss)................... 1.35 (0.54) - ---------------------------------------------------------------------------------- Total Gain (Loss) From Operations........................... 1.41 (0.49) - ---------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income..................................... -- (0.05) Capital................................................... -- (0.00)* - ---------------------------------------------------------------------------------- Total Distributions......................................... -- (0.05) - ---------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.............................. $10.87 $9.46 - ---------------------------------------------------------------------------------- TOTAL RETURN++.............................................. 14.90% (4.94)% - ---------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)........................... $15,291 $8,463 - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS+: Expenses(4)(5)............................................ 1.00% 0.99% Net investment income..................................... 1.22 1.47 - ---------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE..................................... 13% 2% - ----------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from July 20, 1998 (commencement of operations) to December 31, 1998. (4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in the amounts of $10,950 and $17,700 for the six months ended June 30, 1999 and the period ended December 31, 1998, respectively. If such expenses were not reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASE EXPENSE RATIO WITHOUT IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT - ------------------------ ---------------------- 1999 1998 1999 1998 - ------ ------ ------ ------ $0.01 $0.02 1.19%+ 1.64%+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.00%. * Amount represents less than $0.01. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 17 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, except where noted:
JURIKA & VOYLES CORE EQUITY PORTFOLIO 1999(1)(2) 1998(3) - ---------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.27 $10.00 - ---------------------------------------------------------------------------------- INCOME FROM OPERATIONS: Net investment income(4).................................. 0.04 0.04 Net realized and unrealized gain.......................... 0.68 0.27 - ---------------------------------------------------------------------------------- Total Income From Operations................................ 0.72 0.31 - ---------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income..................................... -- (0.04) Capital................................................... -- (0.00)* - ---------------------------------------------------------------------------------- Total Distributions......................................... -- (0.04) - ---------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.............................. $10.99 $10.27 - ---------------------------------------------------------------------------------- TOTAL RETURN++.............................................. 7.01% 3.08% - ---------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)........................... $7,960 $6,169 - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS+: Expenses(4)(5)............................................ 1.00% 0.99% Net investment income..................................... 0.69 1.01 - ---------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE..................................... 31% 26% - ----------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) For the period from July 20, 1998 (commencement of operations) to December 31, 1998. (4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in the amounts of $13,561 and $20,200 for the six months ended June 30, 1999 and the period ended December 31, 1998, respectively. If such expenses were not reimbursed, the per share decrease in net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASE EXPENSE RATIO WITHOUT IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT - ------------------------ ---------------------- 1999 1998 1999 1998 - ------ ------ ------ ------ $0.02 $0.03 1.40%+ 1.89%+
(5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.00%. * Amount represents less than $0.01. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 18 (This page intentionally left blank) Investment Advisers TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION Hartford, Connecticut Independent Auditors KPMG LLP New York, New York Custodians PNC BANK, N.A. THE CHASE MANHATTAN BANK, N.A. This report is prepared for the general information of contract owners and is not an offer of shares of The Travelers Series Trust: NWQ Large Cap and Jurika & Voyles Core Equity Portfolios. It should not be used in connection with any offer except in conjunction with the Prospectuses for the Variable Annuity and Variable Universal Life Insurance products offered by The Travelers Insurance Company or Travelers Life & Annuity Company and the Prospectuses for the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. Series Trust (Semi-Annual) (8-99) Printed in U.S.A. -----END PRIVACY-ENHANCED MESSAGE-----