-----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, EFTCy7G4pBLPiemr0PCQwldEBBTnykd2xlT0LagON4XOdgeaA82WdG4ZXZjhR/9U aHbXWieS9m5eVm1Y/EqH+g== 0000950123-97-003367.txt : 19970423 0000950123-97-003367.hdr.sgml : 19970423 ACCESSION NUMBER: 0000950123-97-003367 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970421 EFFECTIVENESS DATE: 19970501 SROS: NONE 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-79359 FILM NUMBER: 97583835 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03568 FILM NUMBER: 97583836 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 485BPOS 1 N-1/A 1 Registration Statement No. 2-79359 811-3568 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 22 and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 21 MANAGED ASSETS TRUST -------------------- (Exact name of Registrant) ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183 ---------------------------------------------- (Address of Principal Executive Offices) Registrant's Telephone Number, including Area Code: (203) 277-0111 -------------- ERNEST J. WRIGHT Secretary to the Board of Trustees Managed Assets Trust One Tower Square Hartford, Connecticut 06183 --------------------------- (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: -------------------- It is proposed that this filing will become effective (check appropriate box): immediately upon filing pursuant to paragraph (b). - ----- X on May 1, 1997 pursuant to paragraph (b). - ----- 60 days after filing pursuant to paragraph (a)(1). - ----- on pursuant to paragraph (a)(1). - ----- ----------- 75 days after filing pursuant to paragraph (a)(2) - ----- on pursuant to paragraph (a)(2) of Rule 485. - ----- ----------- If appropriate, check the following box: this post-effective amendment designates a new effective date for a - ------ previously filed post-effective amendment. AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL INTEREST OF THE REGISTRANT WERE REGISTERED PURSUANT TO RULE 24f-2 OF THE INVESTMENT COMPANY ACT OF 1940. A RULE 24f-2 NOTICE FOR REGISTRANT'S FISCAL YEAR ENDED DECEMBER 31, 1996 WAS FILED ON FEBRUARY 28, 1997. 2 MANAGED ASSETS TRUST Cross-Reference Sheet pursuant to Rule 495 under the Securities Act of 1933
ITEM NO. CAPTION IN PROSPECTUS - --- --------------------- 1. Cover Page Cover Page 2. Synopsis Cover Page 3. Condensed Financial Information Financial Highlights 4. General Description of Registrant Cover Page; Fund Description; Investment Objective and Policies 5. Management of the Fund Board of Trustees; Investment Advisers; Securities Transaction; Fund Expenses; Additional Information 6. Capital Stock and Other Securities Fund Description; Dividends and Distributions; Shareholder Rights; Net Asset Value 7. Purchase of Securities Being Offered Shareholder Rights 8. Redemption or Repurchase Net Asset Value 9. Legal Proceedings Legal Proceedings CAPTION IN STATEMENT OF ADDITIONAL INFORMATION ------------------------------------------------ 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History Not Applicable 13. Investment Objectives and Policies Investment Objectives and Policies; Investment Restrictions; Appendix 14. Management of the Registrant Trustees and Officers 15. Control Persons and Principal Additional Information Holders of Securities 16. Investment Advisory and Investment Adviser; Additional Information Other Services 17. Brokerage Allocation Brokerage 18. Capital Stock and Other Securities Declaration of Trust 19. Purchase, Redemption and Pricing Valuation of Securities of Securities Being Offered 20. Tax Status Distributions and Taxes 21. Underwriters Not Applicable 22. Calculation of Performance Data Not Applicable 23. Financial Statements Additional Information
3 PART A INFORMATION REQUIRED IN A PROSPECTUS 4 MANAGED ASSETS TRUST One Tower Square Hartford, Connecticut 06183 Telephone 860-422-3985 - -------------------------------------------------------------------------------- Managed Assets Trust (the "Fund") is a diversified open-end management investment company (mutual fund) whose goal is high total investment return through a fully managed investment policy. The Fund has a fully managed investment policy and invests in common stocks, corporate bonds and money market instruments. Shares of the Fund are currently offered without a sales charge only to separate accounts of The Travelers Insurance Company and The Travelers Life and Annuity Company (the "Company" or "The Travelers"). The Fund serves as one of the investment vehicles for certain variable annuity and variable life insurance contracts issued by the Company. The term "shareholder" as used herein refers to any insurance company separate account that may use shares of the Fund as an investment vehicle now or in the future. This Prospectus concisely sets forth the information about the Fund that you should know before investing. Please read it and retain it for future reference. Additional information about the Fund is contained in a Statement of Additional Information ("SAI") dated May 1, 1997 which has been filed with the Securities and Exchange Commission ("SEC") and is incorporated by reference into this Prospectus. A copy may be obtained, without charge, by writing to The Travelers, Annuity Services, One Tower Square, Hartford, Connecticut 06183-5030, or by calling 860-422-3985. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR A VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT ISSUED BY THE TRAVELERS. BOTH THIS PROSPECTUS AND THE CONTRACT PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS MAY 1, 1997. 5 TABLE OF CONTENTS FINANCIAL HIGHLIGHTS.................................................................. 3 FUND DESCRIPTION...................................................................... 4 INVESTMENT OBJECTIVE AND POLICIES..................................................... 4 INVESTMENT RESTRICTIONS............................................................... 5 RISK FACTORS.......................................................................... 5 BOARD OF TRUSTEES..................................................................... 5 INVESTMENT ADVISERS................................................................... 6 TAMIC............................................................................... 6 Portfolio Manager................................................................ 6 TIMCO............................................................................... 6 Portfolio Manager................................................................ 6 FUND ADMINISTRATION................................................................... 7 SECURITIES TRANSACTIONS............................................................... 7 FUND EXPENSES......................................................................... 7 TRANSFER AGENT........................................................................ 8 SHAREHOLDER RIGHTS.................................................................... 8 NET ASSET VALUE....................................................................... 8 TAX STATUS............................................................................ 9 DIVIDENDS AND DISTRIBUTIONS........................................................... 9 LEGAL PROCEEDINGS..................................................................... 9 ADDITIONAL INFORMATION................................................................ 9 EXHIBIT A............................................................................. 10
MAT-2 6 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- MANAGED ASSETS TRUST PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR The following information on per share data for the seven years ended December 31, 1996, has been audited by Coopers & Lybrand L.L.P, Independent Accountants. All other periods presented have been audited by the Fund's prior auditors. Coopers & Lybrand L.L.P.'s report on the per share data for each of the five years in the period ended December 31, 1996 is contained in the Fund's Annual Report which should be read along with this information and which is incorporated by reference into the SAI.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA Net asset value, beginning of year........................ $ 15.50 $ 12.85 $ 14.21 $ 14.02 $ 14.78 Income from operations Net investment income..................................... 0.46 0.49 0.46 0.51 0.64 Net gains or losses on securities (realized and unrealized)............................................. 1.50 2.83 (0.73) 0.72 0.01 -------- -------- -------- -------- -------- Total from investment operations........................ 1.96 3.32 (0.27) 1.23 0.65 Less distributions from (5) Net investment income..................................... (0.89) (0.50) (0.67) (0.85) (1.04) Net realized gains........................................ (1.59) (0.17) (0.42) (0.19) (0.37) -------- -------- -------- -------- -------- Total distributions........................................ (2.48) (0.67) (1.09) (1.04) (1.41) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF YEAR............................... $ 14.98 $ 15.50 $ 12.85 $ 14.21 $ 14.02 ======== ======== ======== ======== ======== TOTAL RETURN(1)............................................ 13.78% 27.12% (2.24)% 9.33% 5.14% Net assets, end of year (thousands)....................... $ 188,610 $ 171,276 $ 140,887 $ 156,767 $ 148,971 RATIOS TO AVERAGE NET ASSETS Expenses(2)............................................... 0.58% 0.58% 0.61% 0.56% 0.56% Net investment income..................................... 3.51% 3.49% 3.59% 3.65% 4.97% PORTFOLIO TURNOVER RATE.................................... 108% 110% 97% 86% 112% AVERAGE COMMISSION RATE PAID(3)............................ $ 0.06 -- -- -- -- 1991 1990(4) 1989 1988 1987 - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA Net asset value, beginning of year........................ $ 12.77 $ 13.03 $ 10.25 $ 9.89 $ 11.03 Income from operations Net investment income..................................... 0.74 0.65 0.52 0.48 0.40 Net gains or losses on securities (realized and unrealized)............................................. 1.91 (0.37) 2.26 0.43 (0.16) -------- -------- -------- -------- -------- Total from investment operations........................ 2.65 0.28 2.78 0.91 0.24 Less distributions from (5) Net investment income..................................... (0.64) (0.54) -- (0.55) (0.38) Net realized gains........................................ -- -- -- -- (1.00) -------- -------- -------- -------- -------- Total distributions........................................ (0.64) (0.54) -- (0.55) (1.38) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF YEAR............................... $ 14.78 $ 12.77 $ 13.03 $ 10.25 $ 9.89 ======== ======== ======== ======== ======== TOTAL RETURN(1)............................................ 21.70% 2.47% 27.12% 9.18% 1.92% Net assets, end of year (thousands)....................... $ 126,021 $ 92,464 $ 84,223 $ 115,111 $ 119,866 RATIOS TO AVERAGE NET ASSETS Expenses(2)............................................... 0.56% 0.59% 0.71% 0.66% 0.67% Net investment income..................................... 5.49% 5.17% 4.41% 4.55% 3.23% PORTFOLIO TURNOVER RATE.................................... 141% 123% 56% 105% 140% AVERAGE COMMISSION RATE PAID(3)............................ -- -- -- -- --
(1) Total return is determined by dividing the increase (decrease) in value of a share during the year, after reflecting the reinvestment of dividends declared during the year, by the beginning of year share price. Shares in Fund MAT are only sold to The Travelers separate accounts in connection with the issuance of variable annuity and variable life insurance contracts. The above return does not reflect the deduction of any contract charges or fees assessed by The Travelers separate accounts. (2) The ratios of expenses to average net assets for 1990 and later years reflect an expense reimbursement by The Travelers in connection with the voluntary expense limitations. Without the expense reimbursement, the ratios of operating expenses to average net assets would have been 0.60%, 0.63%, 0.69% and 0.74% for the years ended December 31, 1993, 1992, 1991 and 1990 respectively. For the years ended December 31, 1994, 1995, and 1996 there were no expense reimbursements by The Travelers in connection with the voluntary expense limitations. (3) The Average Commission Rate Paid is required for funds that have over 10% in equities for which commissions are paid. This information is required for funds with fiscal year ends on or after September 30, 1996. (4) On May 1, 1990, TAMIC replaced Keystone Custodian Funds, Inc. as the investment adviser for the Fund. (5) For the year ended December 31, 1996, 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. MAT-3 7 FUND DESCRIPTION - -------------------------------------------------------------------------------- Managed Assets Trust (the "Fund") is registered with the SEC as a diversified open-end management investment company, commonly known as a mutual fund. The Fund was created under Massachusetts law as a Massachusetts business trust on August 6, 1982. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide a high total investment return through a fully managed investment policy. To do this, the Fund adjusts its overall exposure to risk by spreading its investments among those providing alternatives for capital growth, capital stability and income as market and economic trend change. This fully managed investment policy makes use of equity, debt, convertible and money market securities. The Fund expects that over longer periods a larger portion of the Fund's portfolio will consist of equity securities. The Fund's investment philosophy is based on the belief that, as in the past, the structure of the United States economy and its securities markets will undergo continuous change. Thus, the fully managed approach puts maximum emphasis on flexibility. Because of this flexibility, the Fund may have a high rate of turnover in its portfolio securities and thus higher costs of securities transactions and brokerage. Accordingly, the Fund would expect to have turnover in the range of 100% to 300%. The Fund expects that the portfolio turnover rate will be approximately 50% for debt securities, and 200% to 300% for equity securities. A higher turnover rate should not be interpreted as a variation from the stated investment policy. Portfolio turnover is expected to result when the Fund makes a change in its investments from one investment sector (such as the equity market) to another investment sector (such as the bond market), as well as in response to redemptions when the Fund realizes capital gains, and in response to market conditions. Increased cost to the Fund may result if the Fund makes a change in the investment sector in which the greatest proportion of its assets is invested at a time when subsequent market conditions are unfavorable. The Fund may invest a limited portion of its assets in bonds rated lower than Baa by Moody's Investors Service, Inc. (Moody's) or BBB by Standard & Poor's Corporation (S&P) or which, if unrated, are deemed to be of comparable quality by the Fund's investment adviser. The Fund may not purchase any debt securities rated B or lower by either service or their equivalent. Bonds rated Baa by Moody's are considered medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal 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. Debt rated BBB by S&P is regarded as having an adequate capacity to pay interest and repay principal. While it normally exhibits 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 debt in this category than in higher rated categories. Bonds rated lower than Baa by Moody's or BBB by S&P, but above B by either service, 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. Uncertainty of position characterizes bonds in this class. Travelers Asset Management International Corporation ("TAMIC") expects that securities rated below Baa by Moody's or below BBB by S&P will be primarily subordinated convertible securities of issuers whose senior debt is rated Baa or higher by Moody's, BBB or higher by S&P or, in the absence of such ratings, are deemed to be of comparable quality by TAMIC. The Fund may invest in money market instruments which mature within one year of their purchase, and which consist of U.S. government securities; instruments of banks insured by the Federal Deposit Insurance Corporation which have assets of at least $1 billion, including U.S. branches of foreign banks and foreign branches of U.S. banks, such as certificates of deposit, demand and time deposits MAT-4 8 and bankers' acceptances; prime commercial paper, including master demand notes; and repurchase agreements secured by U.S. government securities. For further information about the types of investments and investment techniques available to the Fund, including the associated investment risks, see Exhibit A to this Prospectus. INVESTMENT RESTRICTIONS - -------------------------------------------------------------------------------- The Fund has adopted the following fundamental investment restrictions which may not be changed without a vote of a majority of the outstanding voting securities of the Fund, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Certain other fundamental restrictions are set forth in the Statement of Additional Information. Unless otherwise stated, all references to the Fund's assets are in terms of current market value. The Fund will not: (1) invest more than 25% of its assets in the securities of a single issuer; (2) borrow money, except that the Fund may borrow money from banks for temporary or emergency purposes in amounts of up to 10% of its assets; (3) pledge more than the lesser of the dollar amounts borrowed or 10% of its assets; (4) invest more than 25% of its assets in the securities of issuers in the same industry; and (5) invest more than 10% of its assets in repurchase agreements maturing in more than seven days and other illiquid securities. In addition, a policy which may be changed without shareholder approval permits the Fund to invest up to 25% of its assets in the securities of foreign issuers. RISK FACTORS - -------------------------------------------------------------------------------- The Fund's net asset value will fluctuate in response to changes in economic conditions, interest rates and the market's perception of the underlying portfolio securities of the Fund. There can be no assurance that the Fund will achieve its investment objective since there is uncertainty in every investment. The investment experience of equity investments over time will tend to reflect levels of stock market prices and dividend payouts. Both are affected by diverse factors, including not only business conditions and investor confidence in the economy, but current conditions in a particular industry or company. Equity securities are subject to financial risks relating to the earning stability and overall financial soundness of an issue. They are also subject to market risks relating to the effect of general changes in the securities market on the price of a security. The yield on debt instruments over a period of time should reflect prevailing interest rates, which depend on a number of factors, including government action in the capital markets, government fiscal and monetary policy, needs of businesses for capital goods for expansion, and investor expectations as to future inflation. The yield on a particular debt instrument is also affected by the risk that the issuer will be unable to pay principal and interest. BOARD OF TRUSTEES - -------------------------------------------------------------------------------- Under Massachusetts law, the Fund's Board of Trustees has absolute and exclusive control over the management and disposition of all assets of the Fund. Subject to the provisions of the Declaration of Trust, the business and affairs of the Fund shall be managed by the Trustees or other parties so designated by the Trustees. Information relating to the Board of Trustees, including its members and their compensation, is contained in the SAI. MAT-5 9 INVESTMENT ADVISERS - -------------------------------------------------------------------------------- TAMIC provides investment advice and, in general, supervises the management and investment program of the Fund. The Travelers Investment Management Company ("TIMCO") provides sub-advisory services to the Fund with respect to the Fund's common stock investments, subject to the supervision of the Board of Trustees and TAMIC. TAMIC TAMIC is a registered investment adviser which has provided investment advisory services since its incorporation in 1978. Under its Advisory Agreement with the Fund, TAMIC is paid an amount equivalent on an annual basis to 0.50% of the average daily net assets of the Fund. The fee is computed daily and paid weekly. TAMIC is an indirect wholly owned subsidiary of Travelers Group Inc., a financial services holding company, and its principal offices are located at One Tower Square, Hartford, Connecticut 06183. In addition to providing investment advice to the Fund, TAMIC acts as investment adviser for other investment companies used to fund variable products issued by the Company. TAMIC also provides investment advice to individual and pooled pension and profit-sharing accounts, domestic insurance companies affiliated with The Travelers, and nonaffiliated insurance companies. PORTFOLIO MANAGER The Fund's fixed income investments have been managed by David A. Tyson, Ph.D. and CFA, since February 1994. Mr. Tyson is currently Senior Vice President and the head of the Company's Portfolio Management Group. He directly manages The Travelers Annuity, Life Surplus and Convertible portfolios. His previous responsibilities have included managing The Travelers Derivatives, Mortgage- Backed and Quantitative Investment Groups. Mr. Tyson joined The Travelers in 1985 and TAMIC in 1994. He previously spent seven years with the Equitable Investment Management Corporation where he was responsible for quantitative equity research and new product development. TIMCO TIMCO is employed by TAMIC as the Fund's sub-adviser with respect to the management of the Fund's common stock investments. For its services under the Sub-Advisory Agreement, TIMCO receives from TAMIC 50% of the investment advisory fees earned by TAMIC. TIMCO, a registered investment adviser, has provided investment advisory services since its incorporation in 1967. TIMCO is an indirect wholly owned subsidiary of Travelers Group Inc. with principal offices located at One Tower Square, Hartford, Connecticut 06183. In addition to serving as sub-adviser to the Fund, TIMCO acts as investment adviser for other investment companies used to fund variable products issued by The Travelers and The Travelers Life and Annuity Company. TIMCO also provides investment advice to individual and pooled pension and profit-sharing accounts, and affiliated companies of The Travelers. PORTFOLIO MANAGER The Fund's common stock investments are managed by a team of TIMCO's investment professionals. TIMCO uses a disciplined stock selection process to review a broad universe of equity securities and identify those that appear most attractive in terms of relative valuation and earnings momentum. A team of experienced investment professionals selects specific holdings and manage the portfolio according to specific diversification guidelines. Effective December 30, 1994, Kent A. Kelley, CFA, became Chief Executive Officer of TIMCO. Mr. Kelley is responsible for the day-to-day management of the Fund's common stock investments and is responsible for directing the activities of TIMCO's portfolio management team. Mr. Kelley was MAT-6 10 President of TIMCO from November 1992 to December 1994. He became responsible for management of the Fund in November 1992. Prior to his appointment as President, Mr. Kelley was the Executive Vice President in charge of the risk management group in TIMCO, which managed index funds and other structured investment strategies. FUND ADMINISTRATION - -------------------------------------------------------------------------------- Managed Assets Trust ("Fund") has entered into an Administrative Services Agreement, whereby Travelers Insurance will be responsible for the pricing and bookkeeping services for the Fund at an annualized rate of 0.06% of the daily net assets of the Fund. The Travelers Insurance Company, at its expense, may appoint a sub-administrator to perform these services. The sub-administrator may be affiliated with The Travelers Insurance Company. SECURITIES TRANSACTIONS - -------------------------------------------------------------------------------- Under policies established by the Board of Trustees, TAMIC and TIMCO will select broker-dealers to execute transactions for the Fund, subject to the receipt of best execution. When selecting broker-dealers to execute portfolio transactions for the Fund, TAMIC and TIMCO may consider the number of Fund shares sold by such broker-dealers. In addition, broker-dealers may from time to time be affiliated with the Fund, TAMIC, TIMCO or their affiliates. The Fund may pay higher commissions to broker-dealers that provide research services. TAMIC and TIMCO may use these services in advising the Fund, as well as in advising other clients for which they act as investment adviser. FUND EXPENSES - -------------------------------------------------------------------------------- In addition to the investment advisory fees discussed above, other expenses of the Fund include the charges and expenses of the transfer agent, the custodian, the independent auditors, and any outside legal counsel employed by either the Fund or the Board of Trustees; the compensation for the disinterested members of the Board of Trustees; the costs of printing and mailing the Fund's prospectuses, proxy solicitation materials, and annual, semiannual and periodic reports; brokerage commissions, interest charges and taxes; and any registration, filing and other fees payable to government agencies in connection with the registration of the Fund and its shares under federal and state securities laws. Additional, high portfolio turnover may involve greater brokerage commissions and other transaction costs, which would be borne directly by the Fund, as well as additional realized gains and/or losses to shareholders. Pursuant to a Management Agreement dated May 1, 1993 between the Fund and The Travelers Insurance Company, the Company has agreed to reimburse the Fund for the amount by which the Fund's aggregate annual expenses, including investment advisory fees but excluding brokerage commissions, interest charges and taxes, exceed 1.25% of the Fund's average net assets for any fiscal year. For the fiscal year ended December 31, 1996, the Fund paid .0.58% of its average net assets in expenses. MAT-7 11 TRANSFER AGENT - -------------------------------------------------------------------------------- First Data Investor Services Group, Inc., Exchange Place, Boston, MA 02109, serves as the Fund's transfer agent and dividend disbursing agent. SHAREHOLDER RIGHTS - -------------------------------------------------------------------------------- Shares of the Fund are currently sold only to insurance company separate accounts in connection with variable annuity and variable life insurance contracts issued by the Company. Shares of the Fund are not sold to the general public. Fund shares are sold on a continuing basis, without a sales charge, at the net asset value next computed after payment is made by the insurance company to the Fund's custodian. However, the separate accounts to which shares are sold may impose sales and other charges, as described in the appropriate contract prospectus. The Fund currently issues one class of shares which participate equally in dividends and distributions and have equal voting, liquidation and other rights. When issued and paid for, the shares will be fully paid and nonassessable by the Fund and will have no preference, conversion, exchange or preemptive rights. Shareholders are entitled to one vote for each full share owned and fractional votes for fractional shares. Shares are redeemable, transferable and freely assignable as collateral. There are no sinking fund provisions. (See the accompanying separate account prospectus for a discussion of voting rights applicable to purchasers of variable annuity and variable life insurance contracts.) Although the Fund is not currently aware of any disadvantages to contract owners of either variable annuity or variable life insurance contracts because the Fund's shares are available with respect to both products, an irreconcilable material conflict may conceivably arise between contract owners of different separate accounts investing in the Fund due to differences in tax treatment, management of the Fund's investments, or other considerations. The Fund's Board of Trustees will monitor events in order to identify any material conflicts between variable annuity contract owners and variable life insurance policy owners, and will determine what action, if any, should be taken in the event of such a conflict. NET ASSET VALUE - -------------------------------------------------------------------------------- The net asset value of a Fund share is computed as of the close of trading on each day on which the New York Stock Exchange ("Exchange") is open, except on days when changes in the value of the Fund's securities do not affect the current net asset value of its shares. The net asset value per share of the Fund is arrived at by determining the value of the Fund's assets, subtracting its liabilities, and dividing the result by the number of shares outstanding. Current values for the Fund's portfolio securities are determined as follows: Securities that are traded on an established exchange or the over-the-counter National Market System (NMS) are valued on the basis of the last sales price on the exchange where primarily traded or on the NMS prior to the time of the valuation, provided that a sale has occurred and that this price reflects current market value according to procedures established by the Board of Trustees. Securities traded in the over-the-counter market, other than NMS, are valued at the mean of the bid and asked prices at the time of valuation. Short-term instruments with maturities of sixty days or less (including all master demand notes) are valued at amortized cost (original purchase cost as adjusted for amortization of premium or accretion of discount) which, when combined with accrued interest or amortized discount, approximates market. Short-term instruments with maturities of more than sixty days, for which market quotations are readily available, are valued at current market value. MAT-8 12 The following are valued at prices deemed in good faith to be fair under procedures established by the Board of Trustees: (a) securities, including restricted securities, for which complete quotations are not readily available; (b) listed securities or those on NMS if, in the Fund's opinion, the last sales price does not reflect a current market value or if no sale occurred; and (c) other assets. Fund shares are redeemed at the redemption value next determined after the Fund receives a redemption request. The redemption value is the net asset value adjusted for fractions of a cent and may be more or less than the shareholder's cost depending upon changes in the value of the Fund's portfolio between purchase and redemption. The Fund computes the redemption value at the close of the Exchange at the end of the day on which it has received all proper documentation from the shareholder. Redemption proceeds are normally wired or mailed either the same or the next business day, but in no event later than seven days thereafter. The Fund may temporarily suspend the right to redeem its shares when (1) the Exchange is closed, other than customary weekend and holiday closings; (2) trading on the Exchange is restricted; (3) an emergency exists as determined by the SEC so that disposal of the Fund's investments or determination of its net asset value is not reasonably practicable; or (4) the SEC, for the protection of shareholders, so orders. TAX STATUS - -------------------------------------------------------------------------------- The Fund has qualified and intends to qualify in the future as a regulated investment company under Subchapter M of the Internal Revenue Code. The Fund qualifies if, among other things, it distributes to its shareholders at least 90% of its net investment income for each fiscal year. DIVIDENDS AND DISTRIBUTIONS - -------------------------------------------------------------------------------- Capital gains and dividends are distributed in cash or reinvested in additional shares of the Fund, without a sales charge. Although purchasers of variable contracts are not subject to federal income taxes on distributions by the Fund, they may be subject to state and local taxes and should review the accompanying contract prospectus for a discussion of the tax treatment applicable to purchasers of variable annuity and variable life insurance contracts. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- There are no pending material legal proceedings affecting the Fund. ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- Except as otherwise stated in this Prospectus or as required by law, the Fund reserves the right to change the terms of the offer stated in this Prospectus without shareholder approval, including the right to impose or change fees for services provided. MAT-9 13 EXHIBIT A - -------------------------------------------------------------------------------- DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES AVAILABLE TO THE FUND OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS The obligations of foreign branches of United States banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by government regulation. Payment of interest and principal upon these obligations may also be affected by governmental action in the country of domicile of the branch (generally referred to as sovereign risk). In addition, evidences of ownership of such securities may be held outside the United States and the Fund may be subject to the risks associated with the holding of such property overseas. Various provisions of federal law governing domestic branches do not apply to foreign branches of domestic banks. OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS Obligations of United States branches of foreign banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation, as well as by governmental action in the country in which the foreign bank has its head office. In addition, there may be less publicly available information about a United States branch of a foreign bank than about a domestic bank. MASTER DEMAND NOTES Master demand notes are unsecured obligations that permit the investment of fluctuating amounts by the Fund at varying rates of interest pursuant to direct arrangements between the Fund as lender and the issuer as borrower. The Fund has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount, and the borrower may repay up to the full amount of the note without penalty. Notes purchased by the Fund permit the Fund to demand payment of principal and accrued interest at any time (on not more than seven days notice). Notes acquired by the Fund may have maturities of more than one year, provided that (i) the Fund is entitled to payment of principal and accrued interest upon not more than seven days notice, and (ii) the rate of interest on such notes is adjusted automatically at periodic intervals which normally will not exceed 31 days but may extend up to one year. The notes will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period. Because these types of notes are direct lending arrangements between the lender and the borrower, such instruments are not normally traded and there is no secondary market for these notes, although they are redeemable and thus repayable by the borrower at face value plus accrued interest at any time. Accordingly, the Fund's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. In connection with master demand notes, TAMIC considers, under standards established by the Board of Trustees, earning power, cash flow and other liquidity ratios of the borrower and will monitor the ability of the borrower to pay principal and interest on demand. These notes are not typically rated by credit rating agencies. Unless rated, the Fund will invest in them only if the issuer meets the criteria established for commercial paper. REPURCHASE AGREEMENTS Interim cash balances may be invested from time to time in repurchase agreements with approved counterparties (i.e., national banks or reporting broker-dealers meeting the Advisor's credit quality standards as presenting minimal risk of default). All repurchase transactions must be collateralized by U.S. Government securities with market value no less than 102% of the amount of the transaction, including accrued interest. Repurchase transactions generally mature the next business MAT-10 14 day but, in the event of a transaction of longer maturity, collateral will be marked to market daily and, when required, additional cash or qualifying collateral will be required from the counterparty. In executing a repurchase agreement, a portfolio purchases eligible securities subject to the seller's simultaneous agreement to repurchase them on a mutually agreed upon date and at a mutually agreed upon price. The purchase and resale prices are negotiated with the counterparty on the basis of current short-term interest rates, which may be more or less than the rate on the securities collateralizing the transaction. Physical delivery or, in the case of "book-entry" securities, segregation in the counterparty's account at the Federal Reserve for the benefit of the Portfolio is required to establish a perfected claim to the collateral for the term of the agreement in the event the counterparty fails to fulfill its obligation. As the securities collateralizing a repurchase transaction are generally of longer maturity than the term of the transaction, in the event of default by the counterparty on its obligation, the Portfolio would bear the risks of delay, adverse market fluctuation and transaction costs in disposing of the collateral. FOREIGN SECURITIES The Fund may invest in securities principally traded in securities markets outside the United States. While investment in foreign securities is intended to reduce risk by providing further diversification, such investments involve sovereign risk in addition to the credit and market risks normally associated with domestic securities. Foreign investments may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees are generally higher than in the United States. Investments in foreign securities may also be subject to other risks different from those affecting U.S. investments, including political or economic developments, expropriation or nationalization of assets, imposition of withholding taxes on dividend or interest payments and currency blockage (which would prevent cash from being brought back to the United States). These risks are carefully considered by the investment adviser prior to the purchase of these securities. WHEN-ISSUED SECURITIES The Fund may, from time to time, purchase new-issue Government or Agency securities on a "when-issued" or "to-be-announced" ("TBA") basis ("when-issued securities"). The prices of such securities will be fixed at the time the commitment to purchase is made, and may be expressed in either dollar price or yield maintenance terms. Delivery and payment may be at a future date beyond customary settlement time. It is the customary practice of the Fund to make when-issued or TBA purchases for settlement no more than 90 days beyond the commitment date. The commitment to purchase a when-issued security may be viewed as a senior security, and will be marked to market and reflected in the Fund's net asset value daily from the commitment date. While it is the adviser's intention to take physical delivery of these securities, offsetting transactions may be made prior to settlement, if it is advantageous to do so. The Fund does not make payment or begin to accrue interest on these securities until settlement date. In order to invest its assets pending settlement, the Fund will normally invest in short-term money market instruments and other securities maturing no later than the scheduled settlement date. The Fund does not intend to purchase when-issued securities for speculative or "leverage" purposes. Consistent with Section 18 of the 1940 Act and the General Policy Statement of the SEC thereunder, when the Fund commits to purchase a when-issued security, it will identify and place in a segregated account high-grade money market instruments and other liquid securities equal in value to the purchase cost of the when-issued securities. MAT-11 15 The adviser believes that purchasing when-issued securities in this manner will be advantageous to the Fund. However, this practice does entail certain additional risks, namely the default of the counterparty on its obligations to deliver the security as scheduled. In this event, the Fund would experience a gain or loss equal to the appreciation or depreciation in value from the commitment date. The adviser employs a rigorous credit quality procedure in determining the counterparties with which it will deal in when-issued securities, and in some circumstances, will require the counterparty to post cash or some other form of security as margin to protect the value of its delivery obligation pending settlement. FUTURES CONTRACTS The Fund may use exchange-traded financial futures contracts as a hedge to protect against anticipated changes in interest rates or stock prices. Financial futures contracts consist of stock index futures contracts and futures contracts on debt securities ("interest rate futures"). A stock index futures contract is a contractual obligation to buy or sell a specified index of stocks at a future date for a fixed price. Unlike most other financial futures, stock index futures require cash settlement on a daily basis. An interest rate futures contract is a contract to buy or sell specified debt securities at a future time for a fixed price. Stock index futures may be used, to a limited extent, to hedge specific common stocks with respect to market (systematic) risk (involving the market's assessment of overall economic prospects) as distinguished from stock-specific risk (involving the market's evaluation of the merits of the issuer of a particular security). Gains and losses on futures contracts employed as hedges for specific securities will normally be offset by losses or gains, respectively, on the hedged security. Hedging by use of interest rate futures seeks to establish, with more certainty than would otherwise be possible, the effective rate of return on portfolio securities. When hedging is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. Conversely, any appreciation in the value of the portfolio securities will substantially be offset by depreciation in the value of the futures position. At no time will the Fund's transactions in such financial futures be employed for speculative purposes. When a futures contract is purchased, the Fund will set aside liquid securities equal to the total market value of the futures contract, less the amount of the initial margin. Positions taken in the futures market are not normally held to maturity, but instead are liquidated through offsetting transactions which may result in a profit or a loss. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the stock index or security and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if less, a loss. While futures positions taken by the Fund will usually be liquidated in this manner, the Fund may instead make or take delivery of the underlying securities whenever it appears economically advantageous for it to do so. In determining gain or loss, transaction costs must be taken into account. There can be no assurance that the Fund will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. All stock index and interest rate futures contracts will be traded on exchanges that are licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). The Fund will not purchase or sell futures contracts for which the aggregate initial margin exceeds five percent (5%) of the fair market value of its assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into. To ensure that its futures transactions meet CFTC standards, the Fund will enter into futures contracts for hedging purposes only, i.e., for the purposes or with the intent specified in CFTC regulations and MAT-12 16 interpretations, subject to the requirements of the SEC. The Fund will further seek to assure that fluctuations in the price of any futures contracts that it uses for hedging purposes will be substantially related to fluctuations in the price of the securities held by it or which it expects to purchase, or for other risk reduction strategies, though there can be no assurance the expected result will always be achieved. SPECIAL RISKS RELATING TO FUTURES CONTRACTS While certain futures contracts may be purchased and sold to reduce certain risks, these transactions may entail other risks. Thus, while the Fund may benefit from the use of such futures, unanticipated changes in stock price movements or interest rates may result in a poorer overall performance for the Fund than if it had not entered into such futures contracts. Moreover, in the event of an imperfect correlation between the futures position and the portfolio position which is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss. The adviser will attempt to reduce this risk by engaging in futures transactions, to the extent possible, where, in its judgment, there is a significant correlation between changes in the prices of the futures contracts and the prices of any portfolio securities sought to be hedged. Successful use of futures contracts for hedging purposes is also subject to the adviser's ability to predict correctly movements in the direction of the market. BUYING PUT AND CALL OPTIONS The Fund may purchase put options on securities held, or on futures contracts whose price volatility is expected to closely match that of securities held, as a defensive measure to preserve shareholders' capital when market conditions warrant. The Fund may purchase call options on specific securities, or on futures contracts whose price volatility is expected to closely match that of securities eligible for purchase by the Fund, in anticipation of or as a substitute for the purchase of the securities themselves. These options may be listed on a national exchange or executed "over-the-counter" with a broker-dealer as the counterparty. While the adviser anticipates that the majority of option purchases and sales will be executed on a national exchange, put or call options on specific securities or for non-standard terms are likely to be executed directly with a broker-dealer when it is advantageous to do so. Option contracts will be short-term in nature, generally less than nine months in duration. The Fund will pay a premium in exchange for the right to purchase (call) or sell (put) a specific number of shares of an equity security or futures contract at a specified price (the strike price) on or before the expiration date of the option contract. In either case, the Fund's risk is limited to the option premium paid. The Fund may sell the put and call options prior to their expiration and thereby realize a gain or loss. A call option will expire worthless if the price of the related security is below the contract strike price at the time of expiration; a put option will expire worthless if the price of the related security is above the contract strike price at the time of expiration. Put and call options will be employed for bona fide hedging purposes only. Liquid securities sufficient to fulfill the call option delivery obligation will be identified and segregated in an account; deliverable securities sufficient to fulfill the put option obligation will be similarly identified and segregated. In the case of put options on futures contracts, portfolio securities whose price volatility is expected to match that of the underlying futures contract will be identified and segregated. MAT-13 17 WRITING COVERED CALL OPTIONS The Fund may write or sell covered call options. By writing a call option, the Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. The Fund may only write "covered" options. This means that as long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option or in the case of call options on U.S. Treasury bills, the Fund might own substantially similar U.S. Treasury bills. The principal reason for writing call options is to obtain, through a receipt of premiums, a greater current return than would be realized on the underlying securities alone. The Fund receives a premium from writing a call option which it retains whether or not the option is exercised. By writing a call option, the Fund might lose the potential for gain on the underlying security while the option is open. Options on some securities are relatively new and it is impossible to predict the amount of trading interest that will exist in such options. There can be no assurance that viable markets will develop or continue. The failure of such markets to develop or continue could significantly impair the Fund's ability to use such options to achieve its investment objectives. COMMERCIAL PAPER RATINGS The Fund's investments in commercial paper are limited to those rated A-1 by Standard & Poor's Corporation or Prime-1 by Moody's Investors Service, Inc. These ratings and other money market instruments are described as follows. Commercial paper rated A-1 by S&P has the following characteristics: Liquidity ratios are adequate to meet cash requirements. The issuer's long-term senior debt is rated "A" or better although in some cases "BBB" credits may be allowed. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by the management of obligations which may be present or which may arise as a result of public preparations to meet such obligations. Relative strength or weakness of the above factors determines how the issuer's commercial paper is rated within various categories. UNITED STATES GOVERNMENT SECURITIES Securities issued or guaranteed by the United States Government include a variety of Treasury securities that differ only in their interest rates, maturities and dates of issuance. Treasury bills have maturities of one year or less; Treasury notes have maturities of one to ten years; and Treasury bonds generally have maturities of greater than ten years at the date of issuance. Securities issued or guaranteed by the United States Government or its agencies or instrumentalities include direct obligations of the United States Treasury and securities issued or guaranteed by the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, The MAT-14 18 Tennessee Valley Authority, District of Columbia Armory Board, Student Loan Marketing Association and Federal National Mortgage Association. Some obligations of United States Government agencies and instrumentalities, such as Treasury bills and Government National Mortgage Association pass-through certificates, are supported by the full faith and credit of the United States; others, such as securities of Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; still others, such as bonds issued by the Federal National Mortgage Association, a private corporation, are supported only by the credit of the instrumentality. Because the United States Government is not obligated by law to provide support to an instrumentality which it sponsors, the Fund will invest in the securities issued by such an instrumentality only when the adviser determines that the credit risk with respect to the instrumentality does not make its securities unsuitable investments. United States Government securities will not include international agencies or instrumentalities in which the United States Government, its agencies or instrumentalities participate, such as the World Bank, the Asian Development Bank or the Inter-American Development Bank, or issues insured by the Federal Deposit Insurance Corporation. CERTIFICATES OF DEPOSITS Certificates of deposit are receipts issued by a bank in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate can usually be traded in the secondary market prior to maturity. Certificates of deposit will be limited to U.S. dollar-denominated certificates of United States banks which have at least $1 billion in deposits as of the date of their most recently published financial statements (including foreign branches of U.S. banks, U.S. branches of foreign banks which are members of the Federal Reserve System or the Federal Deposit Insurance Corporation, and savings and loan associations which are insured by the Federal Deposit Insurance Corporation). The Fund will not acquire time deposits or obligations issued by the International Bank for Reconstruction and Development, the Asian Development Bank or the Inter-American Development Bank. Additionally, the Fund does not currently intend to purchase such foreign securities (except to the extent that certificates of deposit of foreign branches of U.S. banks may be deemed foreign securities) or purchase certificates of deposit, bankers' acceptances or other similar obligations issued by foreign banks. BANKERS' ACCEPTANCES Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by the bank which, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Bankers' acceptances acquired by the Fund must have been accepted by U.S. commercial banks, including foreign branches of U.S. commercial banks, having total deposits at the time of purchase in excess of $1 billion and must be payable in U.S. dollars. MAT-15 19 MANAGED ASSETS TRUST PROSPECTUS TIC Ed. 5-97 L-11172 Printed in U.S.A. 20 PART A INFORMATION REQUIRED IN A PROSPECTUS 21 STATEMENT OF ADDITIONAL INFORMATION MANAGED ASSETS TRUST MAY 1, 1997 This Statement of Additional Information ("SAI") is not a prospectus but relates to, and should be read in conjunction with, the Fund's prospectus dated May 1, 1997. A copy of the prospectus is available from The Travelers Insurance Company, Annuity Services, One Tower Square, Hartford, Connecticut 06183-5030, or by calling 860-422-3985. This SAI should be read in conjunction with the accompanying 1996 Annual Report for the Fund. TABLE OF CONTENTS
PAGE INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . 1 INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 1 VALUATION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . 2 DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . 3 PORTFOLIO TURNOVER . . . . . . . .. . . . . . . . . . . . . . . . . . . 3 TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 3 DECLARATION OF TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . 5 INVESTMENT ADVISORY SERVICES. . . . . . . . . . . . . . . . . . . . . . 6 The Investment Adviser. . . . . . . . . . . . . . . . . . . . . . . 6 Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The Subadviser. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 REDEMPTIONS IN KIND . . . . . . . . . . . . . . . . . . . . . . . . . . 7 BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 8 APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
22 INVESTMENT OBJECTIVE AND POLICIES The investment objective of the Managed Assets Trust (the "Fund") is to provide a high total investment return. To do this, the Fund adjusts its overall exposure to risk by spreading its investments among those providing alternatives for capital growth, capital stability and income as market and economic trends change. INVESTMENT RESTRICTIONS None of the restrictions enumerated in this paragraph may be changed without a vote of a majority of the Fund's outstanding shares, as defined in the Investment Company Act of 1940 (the "1940 Act"). The Fund will not: (1) purchase any securities which are rated lower than BBB by S&P, Baa by Moody's or, if unrated by such services, are, in TAMIC's opinion, of equivalent quality, if as a result more than 10% of the Fund's assets which are invested in debt securities would be invested in such securities; or purchase any debt securities rated B or lower by either service or their equivalent; (2) purchase any securities (other than securities issued by the United States Government, its agencies or instrumentalities or securities which are backed by the full faith and credit of the United States) of any issuer if as a result more than 5% of its total assets would be invested in the securities of the issuer, except that up to 25% of its total assets may be invested without regard to this 5% limitation; (3) invest in securities of a single issuer if, as a result, the Fund owns more than 10% of the outstanding voting securities of such issuer; (4) borrow money, except from banks as a temporary measure in an amount not to exceed 10% of its total assets to facilitate redemptions or for emergency or extraordinary purposes, and any such borrowings will be repaid before additional investments are made; (5) pledge assets, except to secure indebtedness permitted by restriction (4) above and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the Fund's total assets; (6) underwrite securities of other issuers, except that the Fund may purchase securities from the issuer thereof or others and dispose of such securities in a manner consistent with its investment objective and policies; (7) purchase or sell real estate, except that the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which invest in real estate or interests therein; (8) purchase or sell commodities or commodity contracts, except transactions involving financial futures contracts in order to limit transaction and borrowing costs and for hedging purposes; (9) invest for the purpose of control or management; (10) purchase securities on margin, except that the Fund may obtain such short term credits as may be necessary for the clearance of purchases and sales of securities and place up to 5% of the value of its net assets in total margin deposits for positions in futures contracts; (11) make short sales of securities or maintain short positions; 1 23 (12) make loans, except that the Fund may purchase or hold debt obligations and repurchase agreements in a manner consistent with its investment objective and restrictions; (13) purchase any security if as a result more than 25% of its total assets would be invested in a single industry; (14) purchase securities of other investment companies, except in the open market and at customary brokerage rates and in no event more than 3% of the voting securities of any investment company or in connection with a merger, consolidation, purchase of assets or similar transaction approved by the Fund's shareholders; (15) invest more than 10% of its total assets in illiquid securities. Additional investment restrictions adopted by the Fund, which may be changed by the Board of Trustees, provide that the Fund may not: (1) invest in securities of foreign issuers if at the time of acquisition more than 25% of its total assets, taken at market value, would be invested in such securities; (2) purchase or sell interests in oil, gas or other mineral exploration or development programs; (3) invest in warrants if at the time of acquisition more than 5% of its total assets would be invested in warrants (for the purposes of this restriction, warrants acquired by the Fund in units or attached to securities will be deemed to be without value); (4) invest more than 5% of its total assets in securities of companies having a record, together with predecessors, of less than three years of continuous operation, and securities of issuers that are not readily marketable; and (5) purchase or retain securities of an issuer if, to the knowledge of the Fund, officers, Trustees or Directors of the Fund or Travelers Asset Management International Corporation (TAMIC), each owning beneficially more than 0.5% of the securities of such issuer, own in the aggregate more than 5% of the securities of such issuer, or such persons or management personnel of the Fund or TAMIC have a substantial beneficial interest in the securities of such issuer. Portfolio securities of the Fund may not be purchased from or sold or loaned to TAMIC or any affiliate thereof or any of its Directors, officers or employees. VALUATION OF SECURITIES Current value for the Fund's portfolio securities is determined as follows: 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 ask prices or on the basis of quotations received from reputable brokers or other recognized sources; securities maturing within 60 days are valued at cost plus accreted discount and, or minus amortized premium, which approximates market value; and 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. 2 24 DISTRIBUTIONS AND TAXES It is the Fund's intention to distribute dividends from net investment income and all net realized capital gains annually in shares or, at the option of the shareholder, in cash. When the Fund makes a distribution, it intends to distribute only its net capital gains and such income as has been predetermined to the best of the Fund's ability to be taxable as ordinary income. Therefore, net investment income distributions will not be made on the basis of distributable income as computed on the Fund's books, but will be made on a federal taxation basis. If the Fund qualifies as a regulated investment company, shareholders will not be subject to federal income taxes on distributions by the Fund but may be subject to state and local taxes. See the accompanying separate account prospectus for a discussion of the tax treatment applicable to purchasers of variable annuity and variable life insurance contracts. PORTFOLIO TURNOVER The Fund's portfolio turnover for the fiscal years ended December 31, 1994, 1995 and 1996 were 97%, 110%, and 108%, respectively. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund. TRUSTEES AND OFFICERS
Name Present Position and Principal Occupation During Last Five Years ---- ---------------------------------------------------------------- *Heath B. McLendon Managing Director (1993-present), Smith Barney Inc. ("Smith Barney"); Chairman and Member Chairman (1993-present), Smith Barney Strategy Advisors, Inc.; 388 Greenwich Street President (1994-present), Smith Barney Mutual Funds Management Inc.; New York, New York Chairman and Director of forty-one investment companies associated with Age 63 Smith Barney; Chairman, Board of Trustees, Drew University; Trustee, The East New York Savings Bank; Advisory Director, First Empire State Corporation; Chairman, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Chairman, Board of Trustees, five Mutual Funds sponsored by The Travelers Insurance Company++; prior to July 1993, Senior Executive Vice President of Shearson Lehman Brothers Inc. Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Edwards & Angell, Member Attorneys; Member, Advisory Board (1973-1994), thirty-one mutual funds 2700 Hospital Trust Tower sponsored by Keystone Group, Inc.; Member, Board of Managers, seven Providence, Rhode Island Variable Annuity Separate Accounts of The Travelers Insurance Company+; Age 73 Trustee, five Mutual Funds sponsored by The Travelers Insurance Company.++
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Name Present Position and Principal Occupation During Last Five Years ---- ---------------------------------------------------------------- Robert E. McGill, III Retired manufacturing executive. Director (1983-1995), Executive Vice Member President (1989-1994) and Senior Vice President, Finance and 295 Hancock Street Administration (1983-1989), The Dexter Corporation (manufacturer of Williamstown, Massachusetts specialty chemicals and materials); Vice Chairman (1990-1992), Director Age 65 (1983-1995), Life Technologies, Inc. (life science/biotechnology products); Director, (1994-present), The Connecticut Surety Corporation (insurance); Director (1995-present), Calbiochem Novachem International (life science/biotechnology products); Director (1995-present), Chemfab Corporation (specialty materials manufacturer); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company.++ Lewis Mandell Dean, College of Business Administration (1995-present), Marquette Member University; Professor of Finance (1980-1995) and Associate Dean (1993- 606 N. 13th Street 1995), School of Business Administration, and Director, Center for Milwaukee, WI 53233 Research and Development in Financial Services (1980-1995), University Age 54 of Connecticut; Director (1992-present), GZA Geoenvironmental Tech, Inc. (engineering services); Member, Board of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company.++ Frances M. Hawk Portfolio Manager (1992-present), HLM Management Company, Inc. Member (investment management); Assistant Treasurer, Pensions and Benefits. 222 Berkeley Street Management (1989-1992), United Technologies Corporation (broad- based Boston, Massachusetts designer and manufacturer of high technology products); Member, Board Age 49 of Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance Company.++ Ernest J. Wright Assistant Secretary (1994-present), Counsel (1987-present), The Secretary to the Board Travelers Insurance Company; Secretary, Board of Managers, seven One Tower Square Variable Annuity Separate Accounts of The Travelers Insurance Company+; Hartford, Connecticut Secretary, Board of Trustees, five Mutual Funds sponsored by The Age 56 Travelers Insurance Company.++ Kathleen A. McGah Assistant Secretary and Counsel (1995-present), The Travelers Insurance Assistant Secretary to the Board Company; Assistant Secretary, Board of Managers, seven Variable Annuity One Tower Square Separate Accounts of The Travelers Insurance Company+; Assistant Hartford, Connecticut Secretary, Board of Trustees, five Mutual Funds sponsored by The Age 46 Travelers Insurance Company.++ Prior to January 1995, Counsel, ITT Hartford Life Insurance Company. Lewis E. Daidone Managing Director of Smith Barney, Senior Vice President and Treasurer Treasurer of 41 investment companies associated with Smith Barney since January 1990, 388 Greenwich Street and Director and Vice President of SBMFM and TIA; Treasurer, Board of Trustees, New York, NY five Mutual Funds sponsored by The Travelers Insurance Company.++ Age 38
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Name Present Position and Principal Occupation During Last Five Years ---- ---------------------------------------------------------------- Irving David Vice President of Smith Barney, Asset Management Division (March 1994- Controller present) ); Controller, Board of Trustees, five Mutual Funds sponsored 388 Greenwich Street by The Travelers Insurance Company.++ Prior to March, 1994, Director of New York, NY Smith Barney, Controller and Assistant Treasurer of 41 investment companies Age 35 associated with Smith Barney. Thomas M. Reynolds Director of Smith Barney, Asset Management Division; Controller and Controller Assistant Secretary of 35 investment companies associated with Smith 388 Greenwich Street Barney, (September 1991-present) ); Controller, Board of Trustees, five New York, NY Mutual Funds sponsored by The Travelers Insurance Company.++ Age 36
+ These seven Variable Annuity Separate Accounts are: The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities and The Travelers Timed Bond Account for Variable Annuities. ++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers Series Trust. * Mr. McLendon is an "interested person" within the meaning of the 1940 Act by virtue of his position as Managing Director of Smith Barney Inc., an indirect wholly owned subsidiary of Travelers Group Inc. and also owns shares and options to purchase shares of Travelers Group Inc., the indirect parent of The Travelers Insurance Company. Members of the Board of Trustees who are also officers or employees of Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members of the Board of Trustees who are not affiliated as employees of Travelers Group Inc. or its subsidiaries receive an aggregate retainer of $19,000 for service on the Boards of the five Mutual Funds sponsored by The Travelers Insurance Company and the seven Variable Annuity Separate Accounts established by The Travelers Insurance Company. Once a Board Member retires, 50% of the retainer amount will be paid annually. They also receive an aggregate fee of $2,500 for each meeting of such Boards attended. DECLARATION OF TRUST The Fund is organized as a Massachusetts business trust. Pursuant to certain decisions of the Supreme Judicial Court of Massachusetts, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for the obligations of the trust. However, even if the Fund were held to be a partnership, the possibility of its shareholders incurring financial loss for that reason appears remote because the Fund's Declaration of Trust contains an express disclaimer of shareholder liability for obligations of the Fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Fund or the Trustees, and because the Declaration of Trust provides for indemnification out of Fund property for any shareholder held personally liable for the obligations of the Fund. The Declaration of Trust provides that a Trustee shall be liable only for his own willful defaults and, if reasonable care has been exercised in the selection of officers, agents, employees or investment advisers, a Trustee shall not be liable for the neglect or wrongdoing of any such person; provided, however, that nothing in the Declaration of Trust shall protect a Trustee against any liability for his willful misfeasance, bad faith, gross negligence or the reckless disregard of his duties. 5 27 Shareholders first elected Trustees at a meeting held on April 23, 1984, and most recently elected Trustees on April 23, 1993. No further meetings of shareholders for the purpose of electing Trustees will be held, unless required by law, and unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Except as set forth above, the Trustees shall continue to hold office indefinitely, unless otherwise required by law and may appoint successor Trustees. Trustees may voluntarily resign from office, or a Trustee may be removed from office (1) at any time by two-thirds vote of the Trustees; (2) by a majority vote of Trustees where any Trustee becomes mentally or physically incapacitated; and (3) either by declaration in writing or at a meeting called for such purpose by the holders of not less than two-thirds of the outstanding shares or other voting interests of the Fund. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as trustee, if requested in writing to do so by the holders of not less than 10% of the outstanding shares or other voting interests of the Fund. The Fund is required to assist in Shareholders' communications. In accordance with current laws, insurance companies using the Fund as an underlying investment option within their variable contract will request voting instructions from contract owners participating in such contracts, and will vote shares of the Fund in the same proportion as the voting instructions received. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting on the election of Trustees can, if they choose to do so, elect all of the Trustees of the Fund, in which event the holders of the remaining shares will be unable to elect any person as a Trustee. No amendment may be made to the Declaration of Trust without a "vote of a majority of the outstanding voting securities" of the Fund (as defined in the 1940 Act). INVESTMENT ADVISORY SERVICES THE INVESTMENT ADVISER Travelers Asset Management International Corporation (TAMIC), an indirect wholly owned subsidiary of Travelers Group Inc., furnishes investment management and advisory services to the Fund in accordance with the terms of an Investment Advisory Agreement which was approved by shareholders on April 23, 1993. As required by the 1940 Act, the Advisory Agreement will continue in effect for a period more than two years from the date of its execution only so long as its continuance is specifically approved at least annually (i) by a vote of a majority of the Board of Trustees, or (ii) by a vote of a majority of the outstanding voting securities of the Fund. In addition, and in either event, the terms of the Advisory Agreement must be approved annually by a vote of a majority of the Board of Trustees who are not parties to, or interested persons of any party to, the Advisory Agreement, cast in person at a meeting called for the purpose of voting on such approval and at which the Board of Trustees is furnished such information as may be reasonably necessary to evaluate the terms of the Advisory Agreement. The Advisory Agreement further provides that it will terminate automatically upon assignment; may be amended only with prior approval of a majority of the outstanding voting securities of the Fund; may be terminated without the payment of any penalty at any time upon sixty days' notice by the Board of Trustees or by a vote of a majority of the outstanding voting securities of the Fund; and may not be terminated by TAMIC without prior approval of a new investment advisory agreement by a vote of a majority of the outstanding voting securities of the Fund. Under the terms of the Advisory Agreement, TAMIC shall: (1) obtain and evaluate pertinent economic, statistical and financial data and other information relevant to the investment policy of the Fund, affecting the economy generally and individual companies or industries, the securities of which are included in the Fund's portfolio or are under consideration for inclusion therein; 6 28 (2) be authorized to purchase supplemental research and other services from brokers at an additional cost to the Fund; (3) regularly furnish recommendations to the Board of Trustees with respect to an investment program for approval, modification or rejection by the Board of Trustees; (4) take such steps as are necessary to implement the investment program approved by the Board of Trustees; and (5) regularly report to the Board of Trustees with respect to implementation of the approved investment program and any other activities in connection with the administration of the assets of the Fund. ADVISORY FEES For furnishing investment management and advisory services to the Fund, TAMIC is paid an amount equivalent on an annual basis to 0.50% of the average daily net assets of the Fund. The fee is computed daily and paid monthly. For the three years ended December 31, 1994, 1995 and 1996 the advisory fees were $738,883, $776,392, and $891,042, respectively. THE SUBADVISER The Travelers Investment Management Company (TIMCO), an indirect wholly owned subsidiary of Travelers Group Inc., serves as subadviser to the Fund with respect to its common stock investments pursuant to the terms of a Subadvisory Agreement between TAMIC and TIMCO. The Subadvisory Agreement, which was approved by shareholders of the Fund at a meeting held on April 23, 1993, provides that TIMCO will receive from TAMIC a fee equal to 50% of the advisory fee earned by TAMIC for its services as subadviser. For the fiscal years ended December 31, 1994, 1995 and 1996, TIMCO received $369,442, $388,196 and $445,521, respectively, in advisory fees. REDEMPTIONS IN KIND If conditions arise that would make it undesirable for the Fund to pay for all redemptions in cash, the Fund may authorize payment to be made in portfolio securities or other property. However, the Fund has obligated itself under the 1940 Act to redeem for cash all shares presented for redemption by any one shareholder up to $250,000, or 1% of the Fund's net assets if that is less, in any 90-day period. Securities delivered in payment of redemptions would be valued at the same value assigned to them in computing the net asset value per share. Shareholders receiving such securities would incur brokerage costs when these securities are sold. BROKERAGE Subject to approval of the Board of Trustees, it is the policy of TAMIC and TIMCO, in executing transactions in portfolio securities, to seek best execution of orders at the most favorable prices. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net economic result to the Fund, involving both price paid or received and any commissions and other cost paid, the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, the availability of the broker to stand ready to execute potentially difficult transactions in the future, and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by management in determining the overall reasonableness of brokerage commissions paid. Subject to the foregoing, a factor in the selection of brokers is the receipt of research services, analyses and reports concerning issuers, industries, securities, economic factors 7 29 and trends, and other statistical and factual information. Any such research and other statistical and factual information provided by brokers, TAMIC or TIMCO is considered to be in addition to and not in lieu of services required to be performed by TAMIC under its Investment Advisory Agreement, or by TIMCO under the Subadvisory Agreement with TAMIC. The cost, value and specific application of such information are indeterminable and hence are not practicably allocable among the Fund and other clients of TAMIC or TIMCO who may indirectly benefit from the availability of such information. Similarly, the Fund may indirectly benefit from information made available as a result of transactions for such clients. Purchases and sales of bonds and money market instruments will usually be principal transactions and will normally be purchased directly from the issuer or from the underwriter or market maker for the securities. There usually will be no brokerage commissions paid for such purchases. Purchases from the underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include the spread between the bid and asked prices. Where transactions are made in the over-the-counter market, the Fund will deal with primary market makers unless more favorable prices are otherwise obtainable. Brokerage fees will be incurred in connection with futures transactions, and the Fund will be required to deposit and maintain funds with brokers as margin to guarantee performance of future obligations. TAMIC and TIMCO may follow a policy of considering the sale of shares of the Fund a factor in the selection of broker-dealers to execute portfolio transactions, subject to the requirements of best execution described above. The policy of TAMIC and TIMCO with respect to brokerage is and will be reviewed by the Board of Trustees periodically. Because of the possibility of further regulatory developments affecting the securities exchanges and brokerage practices generally, the foregoing practices may be changed, modified or eliminated. The total brokerage commissions paid by the Fund for the fiscal years ended December 31, 1994, 1995 and 1996 were $374,918, $363,916 and $197,655, respectively. For the fiscal year ended December 31, 1996, portfolio transactions in the amount of $131,924,847 were placed with certain brokers because of research services, of which $138,474 was paid in commissions with respect to such services. No formula was used in placing such transactions and no specific amount of transactions was allocated for research services. Commissions in the amount of $12,782 were paid to Smith Barney and $13,818 to Robinson Humphrey, both affiliates of TAMIC and TIMCO, which equals 6.5% for Smith Barney, and 7.0% for Robinson Humphrey, of Managed Assets Trust's aggregate brokerage commissions paid to such affiliated brokers during 1996. The percentage of the Managed Assets Trust's aggregate dollar amount of transactions involving the payment of commissions was .01 % per affiliated broker. ADDITIONAL INFORMATION On April 1, 1997, The Travelers Insurance Company and its affiliates owned 100% of the Fund's outstanding shares. The Travelers Insurance Company is a stock insurance company chartered in 1864 in Connecticut and continuously engaged in the insurance business since that time. It is a wholly owned subsidiary of The Travelers Insurance Group Inc., which is an indirect wholly owned subsidiary of Travelers Group Inc., a financial services holding company. The Company's Home Office is located at One Tower Square, Hartford, Connecticut 06183, telephone number 860-422-3985. First Data Investor Services Group, Inc., Exchange Place, Boston, MA, 02109, acts as transfer agent and dividend disbursing agent for the Fund. PNC Bank NA, 200 Stevens Drive, Lester, PA, 19113 and Barclay's Bank, PLC, 75 Wall Street, New York, NY, 10265 are the custodians of all securities and cash of the Fund. The Fund terminated its audit relationship with its former principal accountant, Coopers & Lybrand L.L.P. on January 31, 1997. On that same day, KPMG Peat Marwick; LLP, independent certified public accountants, 345 Park Ave., New York, NY 10154, was engaged as principal accountant for the Fund. KPMG Peat Marwick serves as the principal accountant for several other affiliated mutual funds. 8 30 The report by Coopers & Lybrand L.L.P. on the financial statements for fiscal years ended December 31, 1996 and 1995, did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles. The decision to change principal accountants was approved by the Board of Trustees on January 31, 1997, where it was decided to engage KPMG Peat Marwick LLP as the principal accountant to audit the Fund's financial statements since it would promote consistency among affiliated mutual funds. During the past two fiscal years and any subsequent interim period preceding such termination, there were no disagreements with Coopers & Lybrand L.L.P. on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of the former accountant would have caused it to make reference to the subject matter of disagreement in connection with its report. The services provided to the Fund by Coopers & Lybrand L.L.P. include primarily the examination of the Fund's financial statements. The financial statements for the year ended December 31, 1996 have been audited by Coopers & Lybrand L.L.P., as indicated in their report thereon, and are included in the Fund's Annual Report which is incorporated herein by reference, in reliance upon the authority of said firm as experts in accounting and auditing. Except as otherwise stated in its prospectus or as required by law, the Fund reserves the right to change the terms of the offer stated in its prospectus without shareholder approval, including the right to impose or change fees for services provided. No dealer, salesman or other person is authorized to give any information or to make any representation not contained in the Fund's prospectus, this SAI or any supplemental sales literature issued by the Fund, and no person is entitled to rely on any information or representation not contained therein. The Fund's prospectus and this SAI omit certain information contained in the Fund's registration statement filed with the Securities and Exchange Commission which may be obtained from the Commission's principal office in Washington, D.C. upon payment of the fee prescribed by the Rules and Regulations promulgated by the Commission. 9 31 APPENDIX COMMON AND PREFERRED STOCK RATINGS MOODY'S COMMON STOCK RATINGS Moody's Investors Service, Inc. (Moody's) presents a concise statement of the important characteristics of a company and an evaluation of the grade (quality) of its common stock. Data presented includes: (a) capsule stock information which reveals short and long term growth and yield afforded by the indicated dividend, based on a recent price; (b) a long term price chart which shows patterns of monthly stock price movements and monthly trading volumes; (c) a breakdown of a company's capital account which aids in determining the degree of conservatism or financial leverage in a company's balance sheet; (d) interim earnings for the current year to date, plus three previous years; (e) dividend information; (f) company background; (g) recent corporate developments; (h) prospects for a company in the immediate future and the next few years; and (I) a ten year comparative statistical analysis. This information provides investors with information on what a company does, how it has performed in the past, how it is performing currently and what its future performance prospects appear to be. These characteristics are then evaluated and result in a grading, or indication of quality. The grade is based on an analysis of each company's financial strength, stability of earnings and record of dividend payments. Other considerations include conservativeness of capitalization, depth and caliber of management, accounting practices, technological capabilities and industry position. Evaluation is represented by the following grades: (1) High Grade (2) Investment Grade (3) Medium Grade (4) Speculative Grade MOODY'S PREFERRED STOCK RATINGS Preferred stock ratings and their definitions are as follows: 1. aaa: An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. 2. aa: An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance that earnings and asset protection will remain relatively well maintained in the foreseeable future. 3. a: An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. 4. baa: An issue which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. 10 32 5. ba: An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. 6. b: An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small. 7. caa: An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments. 8. ca: An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments. 9. c: This is the lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies numerical modifiers 1, 2 and 3 in each rating classification: the modifier 1 indicates that the security ranks in the higher end of its generic rating category, the modifier 2 indicates a midrange ranking, and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. CORPORATE BOND RATINGS S&P CORPORATE BOND RATINGS A Standard & Poor's Corporation (S&P) corporate bond rating is a current assessment of the creditworthiness of an obligor, including obligors outside the United States, with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. Ratings of foreign obligors do not take into account currency exchange and related uncertainties. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. The ratings are based, in varying degrees, on the following considerations: a. Likelihood of default capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; b. Nature of and provisions of the obligation; and c. Protection afforded by and relative position of the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. PLUS (+) OR MINUS (-): To provide more detailed indications of credit quality, ratings from "AA" to "A" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Bond ratings are as follows: 1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. 2. AA - Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. 11 33 3. A - Debt 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. 4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Although it normally exhibits 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 debt in this category than in higher rated categories. 5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is 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 indicates the lowest degree of speculation, and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. MOODY'S CORPORATE BOND RATINGS Moody's ratings are as follows: 1. Aaa - Bonds which are 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 not likely to impair the fundamentally strong position of such issues. 2. Aa - Bonds which are 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, 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. 3. A - Bonds which are 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 sometime in the future. 4. Baa - Bonds which are 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. 5. Ba - Bonds which are 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. 6. B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. 12 34 MANAGED ASSETS TRUST STATEMENT OF ADDITIONAL INFORMATION 35 THE TRAVELERS VARIABLE PRODUCTS FUNDS ANNUAL REPORTS December 31, 1996 MANAGED ASSETS TRUST HIGH YIELD BOND TRUST CAPITAL APPRECIATION FUND CASH INCOME TRUST THE TRAVELERS SERIES TRUST: U.S. Government Securities Portfolio Social Awareness Stock Portfolio Utilities Portfolio [TRAVELERSLIFE LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Tower Square Hartford, CT 06183 36 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS - -------------------------------------------------------------------------------- ECONOMIC REVIEW AND OUTLOOK As 1996 began, the federal government found itself paralyzed by a prolonged budget dispute. In the financial markets, investors were focused on signs of a slowing economy. With two-year Treasury notes priced to yield less than the federal funds rate, the bond market clearly expected the Federal Reserve Board (the "Fed") to cut interest rates significantly. The Fed lowered the federal funds rate by 0.25% in January, but strong employment growth over the next several months sent the bond market into a tailspin reminiscent of 1994. Interest rates hit their highest levels for the year in the June to September period as investors prepared for the Fed to raise interest rates at their September meeting. The policy makers at the Fed decided to hold interest rates steady at their September meeting and interest rates declined through the autumn as economic growth once again slowed. The financial markets also responded positively to the Republicans' success in retaining control of Congress in the November election. Going into December, the bond and stock markets reflected a "best of all worlds" scenario of moderate economic growth with low inflation, low unemployment and a benign to positive political landscape. Interest rates started to move back up again in December as some economic indicators strengthened, but ended the year well below the levels seen in the second and third quarters. We expect real economic growth to average around 2% in 1997. The consumer sector, which makes up two-thirds of Gross Domestic Product ("GDP"), should show modest growth. The factors that would otherwise contribute to strong consumer spending -- low unemployment, high consumer confidence, and the wealth effects from the strong stock market -- should be muted by high consumer debt levels (particularly at lower income levels) and lack of pent-up demand. The export sector should continue to grow 5% to 10% in 1997, helped by the United States' strong competitive position and continued robust growth in emerging markets. Growth should improve slightly in Europe and Japan, helped by the recent strengthening of the dollar against those currencies. The stronger dollar is likely to be a mixed blessing, by making the prices of foreign imports more attractive and thereby helping to dampen inflation. The capital goods sector has slowed in recent quarters, but is still expected to grow faster than the overall U.S. economy. The government sector should continue to be a drag on GDP growth. Overall, we believe that the U.S. economy is likely to remain on a path of moderate non-inflationary growth in 1997. However, because of the current low level of unemployment, we also expect that the Fed will remain cautious and biased towards a tighter monetary policy. Whether the Fed acts may depend in part on market psychology. Upward shifts in long-term bond yields have served to moderate economic growth in recent years and reduced the need for any major changes in Fed policy. FIXED INCOME COMMENTARY The U.S. bond market had its best quarter of the year in the fourth quarter. The Lehman Intermediate Government/Corporate Index returned 2.5% for the quarter and 4.1% for the full year. For the year, the Lehman Long Government/Corporate Index provided a total return of only 0.1%. Treasury bonds with maturities longer than 10 years had negative total returns. Within the fixed income market, all private issuer sectors outperformed Treasury bonds as quality spreads continued to narrow. While Treasuries performed almost as poorly in 1996 as in 1994, the effect on other sectors was relatively neutral, unlike 1994 when there were problems with mortgage-backed derivatives, Mexico, and Orange County. The yield curve was also remarkably stable in 1996, unlike 1994 when short-term interest rates rose considerably. The mortgage-backed, high yield, and municipal sectors were the best performing areas in 1996 on a duration-adjusted basis. Within the corporate sector, lower quality and foreign issues were the best performers based on both higher coupons and spread tightening. We expect interest rates to stay in the trading range established in 1996 (the yield of the 30-year Treasury bond ranged between 6.0% and 7.2%). On one hand, investors are concerned that low unemployment will eventually give rise to inflationary wage growth. We believe this sets a floor for long-term bond yields at about 6.0%. At the upper end of the range, the 7.2% level has proved to be sufficient to generate increased demand for bonds and depress high risk asset classes and interest sensitive sectors of the economy. We feel that central bank vigilance against inflation, globalization, and productivity improvements will keep inflation under control, preventing interest rates from rising much above their 1996 high. 1 37 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS - -------------------------------------------------------------------------------- Within the fixed income markets, demand for corporate, mortgage-backed and asset-backed issue continues to be high. Yield spreads (relative to Treasury issues) for lower and higher quality corporate bonds are quite narrow. The mortgage-backed and asset-backed markets are similarly compressed, with investors digging for yield. There is nothing in our economic outlook that is likely to change the tight spread environment in the near future. We are being careful, however, to weed out riskier credits and issues that do not offer enough yield premium to offset their potential for negative surprises. The foreign area continues to offer opportunities, particularly foreign corporate bonds that sometimes have very strong balance sheets but are capped by the rating of their home country. Foreign sovereign credits are also continuing to improve based on solid global economic growth and increased acceptance of the need for sound fiscal and monetary policy. EQUITY COMMENTARY During 1996, financial markets were repeatedly jolted by changes in sentiment about the strength of the U.S. economy and the direction of Fed policy. When investors gained confidence that the economy was continuing on a track of moderate, non-inflationary growth, the stock market advanced strongly and posted another year of outstanding performance. For the year ended December 31, 1996, the Standard & Poor's 500 Stock Index ("S&P 500") (a capitalization-weighted index of 500 widely held common stocks) provided a total return of 22.95%. Over the same period, the Russell 2000 Stock Index, a measure of the performance of the small company segment of the equity market, provided a total return of 16.5%. After a weak start in January, the stock market moved broadly higher through the first months of spring. Small company shares advanced strongly in April and May, led by the technology sector. In late June and July, when long-term bond yields moved back over 7%, the stock market traded back down to where it began the year. Recent initial public offerings and more speculative issues were particularly hard hit during the reversal. Large company stocks quickly recovered their losses when the bond market stabilized at the end of July. However, small company stocks continued to struggle. During the autumn, against the backdrop of lower bond yields, low inflation and surprisingly resilient corporate earnings, the stock market made its strongest advance of the year, with large company issues leading the way. As measured by the S&P 500, the U.S. stock market has provided a cumulative total return of nearly 70% over the past two years, capping a six-year bull market that began in October of 1990. Notwithstanding the strong overall environment for equities, 1996 marked the third consecutive year of underperformance by small and mid-sized company stocks relative to "blue chip" indices. The underperformance of small company stocks can be explained in part by the sharper falloff in earnings growth experienced by smaller companies in the 1995-96 period. The performance lag also reflected a backing away by investors from higher risk growth stocks, in an environment of rising interest rates and market volatility. Given the frequent alarms raised in 1996 about slowing earnings growth, investors showed an understandable preference for industry sectors with visible earnings momentum. In the energy sector, analysts' earnings estimates and share prices moved sharply higher in response to firmer prices for oil and natural gas. Stocks in the finance sector also performed exceptionally well despite emerging credit quality concerns. In the consumer sector, specialty and broad-line retail stocks were up strongly in response to higher than expected levels of consumer spending. The technology sector provided superior returns for investors last year, led by Intel and Microsoft. Within the technology sector, software, semiconductor and computer product stocks had the strongest relative performance. Industrial cyclical stocks underperformed, as soft domestic and export demand led to declining commodity prices for paper, copper, aluminum, steel and fertilizer products. The health care sector was mixed. Drug stocks kept pace with the market due to strong earnings gains, while the HMO group declined sharply on repeated earnings disappointments. Utilities were the weakest overall sector during the year, held back by the relatively poor performance of local telephone carriers and electrical companies. We are taking a more cautious position toward the U.S. stock market at this point. Over the past year, the price-to-earnings ratio of the S&P 500 on 12-month forward earnings has increased from 15 to 17 times earnings per share. This level of valuation is consistent with earlier periods of moderate growth and low inflation, but leaves no cushion for earnings or inflation disappointments. After a prolonged period of underperformance, relative valuations for small company stocks are becoming more attractive. However, we believe that caution should still be exercised since the small capitalization segment of the equity market has a relatively high exposure to cyclical industries and would be vulnerable to any combination of higher interest rates and slower profit growth. 2 38 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS - -------------------------------------------------------------------------------- MANAGED ASSETS TRUST The first nine months of 1996 were almost as bad as 1994 for bonds in general. U.S. Treasuries performed poorly but there were much fewer problems in other types of bonds. Stocks performed well through May of 1996, but suffered a slight correction in June and July. Large capitalization stocks rebounded smartly from the summer correction and reached new highs by November. Small capitalization stocks, which clearly were doing well in May, recovered much more slowly and still had not reached new highs by the end of 1996. The fourth quarter of 1996 was the best quarter of the year for both the stock and bond markets. Bonds rallied as the U.S. economy slowed down and the Republicans maintained control of the U.S. Congress. Stocks benefited from the decline in interest rates as well as ongoing expectations for high corporate earnings growth. Managed Assets Trust's total return was 13.78% gross for 1996, 0.23% behind the 60% S&P 500 and 40% Lehman Government/Corporate blended benchmark. However, for the fourth quarter, Managed Assets Trust outperformed the blended benchmark by 0.05% (6.29% versus 6.24%). Managed Assets Trust was helped by its stock portion outperforming the S&P 500 three out of four quarters and the biggest drag on its performance was its underweighting in stocks during the first half of 1996. Looking ahead at 1997, we expect interest rates to stay in the relatively narrow trading range established in 1996. In our view, low unemployment is the biggest risk of higher interest rates but a 7% yield has proven to be sufficient in attracting more investors to bonds and has helped to cool interest-sensitive sectors of the economy. In our opinion, the biggest risk ahead for stocks is if interest rates go above 7%. While stock valuations are high, corporate earnings growth is expected to be slightly faster in 1997. In addition, we also expect the U.S. dollar to be strong in 1997 and that could pose a risk to future earnings growth. We plan on increasing the duration of the bond portion of Managed Assets Trust if rates get closer to their 1996 highs and reduce its duration if rates go down. Moreover, we continue to hold convertible bonds to provide some defensive characteristics and in keeping with our relatively neutral stance regarding stocks. HIGH YIELD BOND TRUST High Yield Bond Trust closed out the year successfully, ending with a particularly strong fourth quarter performance. For the year ended December 31, 1996, the High Yield Bond Trust generated a total return of 16.05%, exceeding both the First Boston High-Yield Index and the Bear Stearns High-Yield Index, both of which had a total return of approximately 12.40% for the same period. Investor interest in high yield bonds remained strong for the first three quarters of the year. As mutual fund inflows into high yield bond funds continued at a brisk pace, we viewed the fixed-income market in general as skittish. Lower interest rate expectations and investor uncertainty of lower-quality bonds caused many investors to gravitate toward the higher-rated issues. We remained especially cautious toward lower-quality issues and telecommunications issues that we believed may have disappointing earnings reports. Our cautious stance with respect to these sectors allowed us to avoid the heavy losses incurred in the fourth quarter by many high-profile and high-yield issues such as Marvel Entertainment, MobileMedia, and CAI Wireless. Although we maintained a relatively high cash position of 23%, this position proved to be prudent during this volatile period. The Trust's biggest winners of the year include Renaissance Cosmetics and Transamerican Refining bonds. Renaissance Cosmetics recently announced a very attractive tender offer for bonds that we hold and Transamerican Refining appears to be nearing completion of a successful refinancing effort. Among the Trust's other significant winners during 1996 were U.S. Banknote, Fleming, Gulf States Steel, and Sheffield Steel. In addition, we are pleased by the performance of K mart, Great Dane bonds, and the FRD Acquisition notes, all of which produced handsome returns by year's end. Our biggest disappointments in the past year were Alliance Entertainment and Trump Castle. Alliance Entertainment suffered a sharp decline following a lower-than-expected earnings report in the third quarter. We were initially attracted to the Trump Castle issues because of its proposed partnership with Hard Rock Cafe to "re-theme" Trump Castle. With much new development coming to the Atlantic City marina area, we were also attracted by Trump Castle's underlying asset value. However, after the proposed partnership with Hard Rock Cafe fell apart, the bonds experienced a loss. Nevertheless, despite our disappointments, we remain confident in the Trump Castle high-yield bonds and believe that they will make a strong contribution to the High Yield Bond Trust going forward. 3 39 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS - -------------------------------------------------------------------------------- We remain bullish on the prospects for high-yield bonds for 1997. In the year ahead, we also believe that many investors will probably avoid the more speculative issues. Given the lack of progress among wireless cable companies, on-going capital expenditure concerns among paging companies, and the uncertain prospect of lower-quality cable companies to fulfill their debt obligations, we do, however, expect more higher volatility in the telecommunications sector. In our view, although many high-yield sectors will continue to experience volatility, our investment strategy of careful security selection should provide investors with competitive total returns in the year ahead. CAPITAL APPRECIATION FUND Stocks moved ahead in the fourth quarter of 1996, ending the year near record highs. The S&P 500 gained 8.34% for the fourth quarter. For the year ended December 31, 1996, the Capital Appreciation Fund appreciated 28.21% versus a 22.95% gain for the S&P 500 over the same period. While the Capital Appreciation Fund's fourth quarter performance was respectable, we are especially proud of the Janus research team's performance this past year. Of course, the powerful performance of the stock market deserves some credit, as do nearly ideal economic conditions and record corporate profits, all of which have lifted stock valuations. While moderate economic growth, mild inflation and low interest rates have made business conditions healthy, our research team's solid fundamental research have contributed to the Capital Appreciation Fund's stock selection process. In terms of individual holdings, the Capital Appreciation Fund has a substantial weighting in financial services stocks. We believe companies such as Wells Fargo, Citicorp and Chase Manhattan should continue to enjoy excellent lending margins and should be able to extend their domination in select markets. Low interest rates and a mild economic climate tend to boost profits at dominant franchise competitors across a broad spectrum of industries. The Capital Appreciation Fund holds a number of familiar technology names such as International Business Machines, Microsoft, Cisco Systems and Intel to established drug manufacturers such as Pfizer, Eli Lilly and Monsanto (an organization that is transforming itself from an old-line chemical producer into a far more dynamic life sciences company). These stocks performed well during the fourth quarter. The Capital Appreciation Fund also benefited from the excellent returns of UAL (parent company to United Airlines), which gained roughly more than 30%. We believe the employee management at UAL has done a good job. In our view, UAL (and the airline industry in general) have attractive valuations. For example, UAL is currently selling at 6 1/2 times our 1998 earnings estimate. In general, the airlines industry has undergone huge changes in the last few years, becoming more rational with fewer overlapping and unprofitable competitors. Instead of adding capacity, many airline managements have focused on pulling back from unprofitable routes and increasing loads in existing routes. In addition, average airline ticket prices are up as well. In our view, the only negative for the industry is rising fuel prices but most, if not all, of the increase is probably already factored into their stock prices. During the fourth quarter, we trimmed Microsoft and long-time holding Merrill Lynch when both reached high valuations. Moreover, we sold sports apparel manufacturer Fila at a profit due to valuation concerns and because its products have begun to lose momentum in the branded sportswear industry. Lastly, Centocor and Trans World Airlines were sold at losses. With respect to Centocor, we had to revise our earnings and revenues estimates downward due to a slower-than-anticipated sales upturn of Reopro, the company's new drug to fight cardiovascular disease. As many of you know, Trans World Airlines was a far more tragic situation. In addition to the crash of Flight 800 which may affect bookings for some time to come, management turnover at TWA has also raised some concerns. Although we expect greater stock market volatility in 1997, we continue to be very excited about the stock market for all of the reasons outlined at the beginning of this market commentary. We stayed the course in 1996 and, unless there is a radical change in the current economic and business environment, we intend to do the same in 1997. We believe the Capital Appreciation Fund's focus on primarily large, high-quality growth companies should continue to serve our shareholders well in the days ahead. 4 40 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS - -------------------------------------------------------------------------------- CASH INCOME TRUST Cash Income Trust seeks to provide shareholders with high current income from short-term money market investments while emphasizing preservation of capital and maintaining a high degree of liquidity. Cash Income Trust pursues this objective by investing in securities maturing in one year or less. For the year ended December 31, 1996, Cash Income Trust generated an annual effective yield of 4.20% and as of December 31, 1996 had an average maturity of 38.8 days. Cash Income Trust continues to invest primarily in U.S. Treasuries and government agency securities. This investment strategy has provided Cash Income Trust with safety, liquidity, and stability. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman January 15, 1997 5 41 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/96 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN --------------------------------------------- Year Ended 12/31/96 13.78% Five Years Ended 12/31/96 8.83% Ten Years Ended 12/31/96 9.76%
This chart assumes an initial investment of $10,000 made on December 31, 1986 assuming reinvestment of dividends through December 31, 1996. 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.
Lehman Measurement Govern- Period Managed ment/Corporate Consumer Standard (Fiscal Year Assets Bond Price & Poor's Covered) Trust Index Index 500 Index 12/86 10000 10000 10000 10000 12/87 11905 10229 10441 10525 12/88 12134 11004 10903 12269 12/89 13247 12570 11410 16150 12/90 16840 13612 12106 15648 12/91 17256 15807 12476 20406 12/92 21001 17006 12838 21960 12/93 22080 18883 13191 24167 12/94 24140 18218 13544 24485 12/95 23599 21725 13888 29853 12/96 26837 22354 14348 36704
- -------------------------------------------------------------------------------- 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 12/31/96 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN --------------------------------------------- Year Ended 12/31/96 16.05% Five Years Ended 12/31/96 9.90% Ten Years Ended 12/31/96 7.21%
This chart assumes an initial investment of $10,000 made on December 31, 1986 assuming reinvestment of dividends through December 31, 1996. 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 issued, 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."
First Boston Measurement High Lehman High Period Yield Aggre- Consumer Yield (Fiscal Year Bond gate Bond Price Index Top Covered) Trust Index Index Tier 12/86 10000 10000 10000 10000 12/87 10798 10276 10441 11254 12/88 10761 11086 10903 12630 12/89 12329 12698 11410 14296 12/90 12502 13835 12106 14429 12/91 11361 16050 12476 17731 12/92 14328 17236 12838 19279 12/93 16214 18918 13191 22290 12/94 18485 18365 13544 22248 12/95 18252 21758 13888 26403 12/96 21181 22548 14348 29234
- -------------------------------------------------------------------------------- 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 42 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 12/31/96 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN --------------------------------------------- Year Ended 12/31/96 28.21% Five Years Ended 12/31/96 16.18% Ten Years Ended 12/31/96 11.44%
This chart assumes an initial investment of $10,000 made on December 31, 1986 assuming reinvestment of dividends through December 31, 1996. 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.
Measurement Period Capital Standard Russell Consumer (Fiscal Year Apprecia- & Poor's 2000 Price Covered) tion Fund 500 Index Index Index 12/86 10000 10000 10000 10000 12/87 11005 10525 9120 10441 12/88 10111 12269 11402 10903 12/89 11129 16150 13256 11410 12/90 12877 15648 10674 12106 12/91 12073 20406 15589 12476 12/92 16318 21960 18458 12838 12/93 19190 24167 21943 13191 12/94 22086 24485 9105 13544 12/95 21035 29853 11696 13888 12/96 26976 36704 13626 14348
- -------------------------------------------------------------------------------- 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 43 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 1996 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS -- 54.7% - --------------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS -- 7.6% 15,400 Accustaff Inc.+................................................................ $ 325,325 10,200 American Stores Co............................................................. 416,925 8,200 Borders Group, Inc.+........................................................... 294,175 10,400 Clear Channel Communications, Inc.+............................................ 375,700 2,700 Colgate-Palmolive Co........................................................... 249,075 10,000 Corrections Corp. of America+.................................................. 306,250 9,700 Dollar General................................................................. 310,400 5,200 Duracell International......................................................... 363,350 6,100 Eastman Kodak Co............................................................... 489,525 12,100 Federated Department Stores Inc.+.............................................. 412,913 6,500 Gannett Co..................................................................... 486,688 15,500 Gap Inc........................................................................ 466,938 12,700 Gillette Co.................................................................... 987,425 8,800 HFS Inc.+...................................................................... 525,800 13,800 Hilton Hotels Corp............................................................. 360,525 9,400 Home Depot Inc................................................................. 471,175 5,174 Kimberly-Clark Corp............................................................ 492,824 11,200 Lowes Co....................................................................... 397,600 11,600 McDonalds Corp................................................................. 524,900 10,100 New York Times Co., Class A Shares............................................. 383,800 10,700 Nike Inc., Class B Shares...................................................... 639,325 13,000 Procter & Gamble Co............................................................ 1,397,500 7,000 Sears Roebuck & Co............................................................. 322,875 1,250 TCI Satellite Entertainment Inc.+.............................................. 12,344 12,500 Tele-Communications Inc.+...................................................... 163,281 12,477 The Walt Disney Co............................................................. 868,711 8,700 Tiffany & Co................................................................... 318,638 10,000 Time Warner Inc................................................................ 375,000 2,600 Unilever N.V................................................................... 455,650 5,700 VF Corp........................................................................ 384,750 32,600 Wal-Mart Stores, Inc........................................................... 745,725 - --------------------------------------------------------------------------------------------------------- 14,325,112 - --------------------------------------------------------------------------------------------------------- CONSUMER STAPLES -- 4.5% 3,100 American Brands Inc............................................................ 153,838 9,200 Anheuser-Busch Co.............................................................. 368,000 1,900 Campbell Soup Co............................................................... 152,475 44,800 Coca-Cola Co................................................................... 2,357,600 13,900 Conagra Inc.................................................................... 691,525 6,500 CPC International Inc.......................................................... 503,750 11,700 Dean Foods..................................................................... 377,325 2,900 General Mills Inc.............................................................. 183,788 29,000 PepsiCo Inc.................................................................... 851,875
SEE NOTES TO FINANCIAL STATEMENTS. 8 44 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- CONSUMER STAPLES -- 4.5% (CONTINUED) 18,100 Philip Morris Cos. ............................................................ $ 2,038,513 6,800 Pioneer Hi-Bred International.................................................. 476,000 9,000 Sara Lee Corp. ................................................................ 335,250 - --------------------------------------------------------------------------------------------------------- 8,489,939 - --------------------------------------------------------------------------------------------------------- ENERGY -- 0.7% 5,700 Chesapeake Energy Corp.+....................................................... 317,091 6,800 Halliburton Co................................................................. 409,700 6,400 Louisiana Land & Exploration Co................................................ 343,200 2,800 Schlumberger Ltd. ............................................................. 279,650 - --------------------------------------------------------------------------------------------------------- 1,349,641 - --------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 8.2% 8,265 Allstate Corp. ................................................................ 478,337 8,200 Ambac Inc...................................................................... 544,275 9,200 American Express Co. .......................................................... 519,800 8,850 American International Group Inc. ............................................. 958,012 7,289 Banc One Corp. ................................................................ 313,427 7,300 Bank of Boston Corp............................................................ 469,025 10,400 BankAmerica Corp. ............................................................. 1,037,400 3,600 Barnett Banks Inc. ............................................................ 148,050 12,736 Chase Manhattan Corp. ......................................................... 1,136,688 7,000 Chubb Corp..................................................................... 376,250 3,600 Cigna Corp..................................................................... 491,850 13,700 Citicorp....................................................................... 1,411,100 3,500 Federal Home Loan Mortgage Corp................................................ 385,437 20,600 Federal National Mortgage Association.......................................... 767,350 2,600 First Bank System Inc.......................................................... 177,450 6,000 First Chicago NBD Corp......................................................... 322,500 1,500 General Reinsurance Corp. ..................................................... 236,625 4,700 Golden West Financial Corp..................................................... 296,687 4,900 Household International Inc.................................................... 452,025 7,200 ITT Hartford Group, Inc........................................................ 486,000 8,300 Mellon Bank Corp............................................................... 589,300 3,100 Merrill Lynch & Co............................................................. 252,650 3,000 Morgan Stanley Group Inc. ..................................................... 171,375 6,000 NationsBank Corp............................................................... 586,500 8,400 Northern Trust Corp. .......................................................... 304,500 16,200 Norwest Corp................................................................... 704,700 3,500 Student Loan Marketing Association............................................. 325,938 6,900 SunAmerica Inc................................................................. 306,188 4,100 SunTrust Banks Inc............................................................. 201,925 5,400 Transatlantic Holdings Inc..................................................... 434,700 1,800 Wells Fargo & Co............................................................... 485,550 - --------------------------------------------------------------------------------------------------------- 15,371,614 - --------------------------------------------------------------------------------------------------------- HEALTHCARE -- 6.0% 9,100 Abbott Laboratories............................................................ 461,825 7,000 American Home Products Corp.................................................... 410,375
SEE NOTES TO FINANCIAL STATEMENTS. 9 45 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- HEALTHCARE -- 6.0% (CONTINUED) 10,000 Amgen Inc.+.................................................................... $ 543,750 13,100 Bristol-Meyers Squibb Co....................................................... 1,424,625 12,300 Columbia/HCA Healthcare Corp................................................... 501,225 6,400 Eli Lilly & Co................................................................. 467,200 6,800 Guidant Corp................................................................... 387,600 7,900 HBO & Co....................................................................... 469,063 29,600 Johnson & Johnson.............................................................. 1,472,600 12,600 Medpartners, Inc.+............................................................. 264,600 4,500 Medtronic Inc.................................................................. 306,000 25,900 Merck & Co..................................................................... 2,052,575 11,700 Pfizer Inc. ................................................................... 969,637 11,400 Schering-Plough Corp........................................................... 738,150 9,600 Vencor Inc.+ .................................................................. 303,600 5,000 Warner-Lambert Co.............................................................. 375,000 - --------------------------------------------------------------------------------------------------------- 11,147,825 - --------------------------------------------------------------------------------------------------------- MATERIALS & PROCESSING -- 3.1% 5,000 Aluminum Co. of America........................................................ 318,750 5,000 Armstrong World Industries Inc................................................. 347,500 13,100 Black & Decker Corp............................................................ 394,638 8,800 Cytec Industries Inc.+......................................................... 357,500 10,200 E.I. du Pont de Nemours & Co. ................................................. 962,625 13,900 Freeport-McMoRan Copper........................................................ 415,262 4,900 Georgia-Pacific Corp. ......................................................... 352,800 18,100 Homestake Mining Co............................................................ 257,925 18,000 Monsanto Co.................................................................... 699,750 9,700 Morton International Inc....................................................... 395,275 1,600 Nucor Corp..................................................................... 81,600 10,400 Union Carbide Corp............................................................. 425,100 5,100 USX-US Steel Group............................................................. 160,012 3,700 Weyerhauser Co................................................................. 175,287 5,900 Willamette Industries Inc. .................................................... 414,475 - --------------------------------------------------------------------------------------------------------- 5,758,499 - --------------------------------------------------------------------------------------------------------- PRODUCER DURABLES -- 5.2% 5,200 Allied Signal Inc.............................................................. 348,400 9,900 Boeing Co. .................................................................... 1,053,113 3,700 Caterpillar Inc. .............................................................. 278,425 13,950 Crane Co....................................................................... 404,550 11,400 Deere & Co..................................................................... 463,125 4,100 Emerson Electric Co............................................................ 396,675 6,200 Fluor Corp..................................................................... 389,050 31,200 General Electric Co............................................................ 3,084,900 6,700 Honeywell Inc. ................................................................ 440,525 6,400 Illinois Tool Works............................................................ 511,200 3,680 Lockheed Martin Corp. ......................................................... 336,720 7,800 Minnesota Mining & Manufacturing Co. .......................................... 646,425 4,700 Raychem Corp................................................................... 376,587
SEE NOTES TO FINANCIAL STATEMENTS. 10 46 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- PRODUCER DURABLES -- 5.2% (CONTINUED) 10,800 United Technologies Corp....................................................... $ 712,800 5,000 W.W. Grainger Inc. ............................................................ 401,250 - --------------------------------------------------------------------------------------------------------- 9,843,745 - --------------------------------------------------------------------------------------------------------- TECHNOLOGY -- 7.2% 6,150 Andrew Corp.+.................................................................. 326,334 11,100 Atmel Corp.+................................................................... 367,687 5,700 Automatic Data Processing Inc.................................................. 244,388 18,800 Cisco Systems Inc.+............................................................ 1,196,150 5,400 Compaq Computer Corp.+......................................................... 400,950 11,575 Computer Associates International Inc.......................................... 575,856 8,200 First Data Corp. .............................................................. 299,300 5,600 Gateway 2000 Inc.+............................................................. 299,950 18,600 Hewlett Packard Co............................................................. 934,650 17,400 Intel Corp..................................................................... 2,278,312 9,500 International Business Machines Corp........................................... 1,434,500 11,569 Lucent Technologies Inc........................................................ 534,974 22,200 Microsoft Corp.+............................................................... 1,834,275 10,600 Motorola Inc. ................................................................. 650,575 12,000 Oracle Corp.+.................................................................. 501,000 19,600 Sun Microsystems Inc.+......................................................... 503,475 3,200 Texas Instruments Inc.......................................................... 204,000 3,200 3Com Corp.+ ................................................................... 234,800 4,900 U.S. Robotics Corp.+........................................................... 352,800 6,000 Xerox Corp. ................................................................... 315,750 - --------------------------------------------------------------------------------------------------------- 13,489,726 - --------------------------------------------------------------------------------------------------------- TRANSPORTATION -- 1.9% 6,300 Burlington Northern Sante Fe................................................... 544,163 17,600 Chrysler Corp.................................................................. 580,800 1,448 Conrail Inc.................................................................... 144,257 11,200 Continental Airlines, Inc., Class B Shares+.................................... 316,400 21,100 Ford Motor Co.................................................................. 672,562 12,900 General Motors Corp............................................................ 719,175 7,800 Lear Corp.+.................................................................... 266,175 4,000 Union Pacific Corp. ........................................................... 240,500 - --------------------------------------------------------------------------------------------------------- 3,484,032 - --------------------------------------------------------------------------------------------------------- OIL -- 4.5% 7,100 Amerada Hess Corp.............................................................. 410,913 9,000 Amoco Corp..................................................................... 724,500 8,100 Ashland Inc. .................................................................. 355,388 2,100 Atlantic Richfield Co.......................................................... 278,250 12,000 Chevron Corp................................................................... 780,000 19,400 Exxon Corp. ................................................................... 1,901,200 9,800 Mobil Corp..................................................................... 1,198,050 7,900 Royal Dutch Petroleum Co....................................................... 1,348,925
SEE NOTES TO FINANCIAL STATEMENTS. 11 47 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- OIL -- 4.5% (CONTINUED) 10,200 Texaco Inc. ................................................................... $ 1,000,875 11,100 Unocal Corp.................................................................... 450,937 - --------------------------------------------------------------------------------------------------------- 8,449,038 - --------------------------------------------------------------------------------------------------------- UTILITIES -- 5.8% 8,400 AES Corp.+..................................................................... 390,600 9,700 Allegheny Power System, Inc.................................................... 294,638 22,000 American Telephone & Telegraph Corp............................................ 957,000 10,500 Ameritech Corp................................................................. 636,562 9,900 Baltimore Gas & Electric Co.................................................... 264,825 8,200 Bell Atlantic Corp............................................................. 530,950 19,000 BellSouth Corp................................................................. 767,125 10,100 CalEnergy Inc.+................................................................ 337,088 6,500 CMS Energy Corp................................................................ 218,563 5,900 Columbia Gas System............................................................ 375,387 7,300 Consolidated Natural Gas....................................................... 403,325 3,800 Duke Power Co.................................................................. 175,750 4,700 Enron Corp..................................................................... 202,688 3,200 FPL Group Inc.................................................................. 147,200 15,600 GTE Corp. ..................................................................... 709,800 4,900 Houston Industries Inc......................................................... 110,862 22,700 MCI Communications Corp. ...................................................... 742,006 8,300 Nynex Corp. ................................................................... 399,438 4,100 Pacific Enterprises............................................................ 124,537 6,600 Pacific Telesis Group.......................................................... 242,550 15,400 SBC Communications Inc......................................................... 796,950 7,900 Sonat Inc. .................................................................... 406,850 20,300 Southern Co.................................................................... 459,287 6,300 Sprint Corp.................................................................... 251,213 11,400 Texas Utilities Co. ........................................................... 464,550 3,400 U.S. West Communications Group................................................. 109,650 15,100 Worldcom Inc.+................................................................. 393,542 - --------------------------------------------------------------------------------------------------------- 10,912,936 - --------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost -- $78,744,955)...................................... 102,622,107 - --------------------------------------------------------------------------------------------------------- PREFERRED STOCKS -- 2.1% - --------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 0.5% 2,000 FINOVA Group, Convertible 5.500%............................................... 105,000 4 Fuji Finance, Convertible 0.250%............................................... 105,140 8,000 Merry Land & Investment, Inc., Convertible 2.150%.............................. 211,000 4,000 St. Paul Capital, Convertible 6.000%........................................... 221,500 5,000 Tosco Financial Trust, Convertible 5.750%...................................... 258,750 - --------------------------------------------------------------------------------------------------------- 901,390 - ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 12 48 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 MANAGED ASSETS TRUST
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- INDUSTRIAL -- 1.6% 4,000 Amcor Ltd., Convertible 7.250%................................................. $ 204,000 10,000 Corning Delaware L.P........................................................... 636,250 12,000 International Paper............................................................ 552,000 10,990 News Corp Ltd., Convertible 5.000%............................................. 1,050,919 9,000 Occidental Petroleum Corp...................................................... 510,750 - --------------------------------------------------------------------------------------------------------- 2,953,919 - --------------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS (Cost -- $3,510,971).................................... 3,855,309 - ---------------------------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------------------------- CORPORATE BONDS -- 22.9% - --------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 4.5% $ 2,500,000 American Express Co., zero coupon due 12/12/00............................. 1,971,875 500,000 Great Western Financial Corp., Notes, 6.375% due 7/1/00.................... 497,500 5,000,000 New Plan Reality, 5.950% due 11/2/26....................................... 4,993,750 1,000,000 Signet Credit Card, Master Trust 1993-4B, 5.800% due 3/15/98............... 991,620 - --------------------------------------------------------------------------------------------------------- 8,454,745 - --------------------------------------------------------------------------------------------------------- GOVERNMENT, NATIONAL -- 2.1% 2,000,000 Canada - Global Bond, 6.750% due 8/28/06................................... 2,010,000 2,000,000 Poland, 6.438% due 10/27/24................................................ 1,945,000 - --------------------------------------------------------------------------------------------------------- 3,955,000 - --------------------------------------------------------------------------------------------------------- INDUSTRIAL -- 3.4% 2,000,000 Becton Dickinson & Co., 8.800% due 3/1/01.................................. 2,160,000 2,000,000 Cox Communications Inc., 6.875% due 6/15/05................................ 1,982,500 2,020,000 Tele-Communications Inc. 9.650% due 10/1/03................................ 2,191,700 - --------------------------------------------------------------------------------------------------------- 6,334,200 - --------------------------------------------------------------------------------------------------------- MATERIALS & PROCESSING -- 5.7% 9,000,000 Weyerhauser Mortgage Co., 8.500% due 1/15/25............................... 10,794,330 - --------------------------------------------------------------------------------------------------------- OIL -- 1.9% 500,000 Apache Corp., 6.000% due 1/15/02........................................... 640,000 3,000,000 Texaco Capital Inc., 7.750% due 2/15/33.................................... 3,052,500 - --------------------------------------------------------------------------------------------------------- 3,692,500 - --------------------------------------------------------------------------------------------------------- TRANSPORTATION -- 0.5% 929,255 Delta Airlines, Inc., 9.250% due 1/2/07.................................... 960,376 - ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 13 49 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 MANAGED ASSETS TRUST
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------------------------- UTILITY - ELECTRIC -- 0.6% $ 1,100,000 Niagara Mohawk Power Corp., 8.000% due 6/1/04.............................. $ 1,050,500 - --------------------------------------------------------------------------------------------------------- UTILITY - TELEPHONE -- 4.2% 5,000,000 BellSouth Cap Funding, 6.040% due 11/15/26................................. 4,956,250 3,000,000 BellSouth Telecommunications, 7.000% due 12/1/2095......................... 2,887,500 - --------------------------------------------------------------------------------------------------------- 7,843,750 - --------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (Cost -- $41,691,641)................................ 43,085,401 - --------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BONDS -- 5.1% - --------------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS -- 0.6% 580,000 Hilton Hotels Corp., 5.000% due 5/15/06.................................... 608,275 500,000 Home Depot Inc., 3.250% due 10/1/01........................................ 492,500 - --------------------------------------------------------------------------------------------------------- 1,100,775 - --------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 0.7% 500,000 Equitable Cos., 6.125% due 12/15/24........................................ 580,625 500,000 Sappi BVI Finance Ltd., 7.500% due 8/1/02.................................. 460,000 500,000 USF&G Corp., zero coupon due 3/3/09........................................ 316,250 - --------------------------------------------------------------------------------------------------------- 1,356,875 - --------------------------------------------------------------------------------------------------------- GOVERNMENT - NATIONAL -- 0.3% 500,000 Republic of Italy, 5.000% due 6/28/01...................................... 492,500 - --------------------------------------------------------------------------------------------------------- INDUSTRIAL -- 3.2% 1,400,000 Alza Corp., zero coupon due 7/14/14........................................ 588,000 300,000 Berkshire Hathaway Inc., 1.000% due 12/3/01................................ 280,125 1,000,000 Comcast Corp., 1.125% due 4/15/07.......................................... 512,500 877,000 Cooper Industries Inc., 7.050% due 1/1/15.................................. 940,582 300,000 Inco Ltd., 7.750% due 3/15/16.............................................. 317,250 1,000,000 Marriott International Inc., zero coupon due 3/25/11....................... 561,250 500,000 McKesson Corp., 4.500% due 3/1/04.......................................... 443,125 100,000 Omnicom Group, Inc., zero coupon due 1/3/07................................ 100,000 500,000 Pennzoil Co., 4.750% due 10/1/03........................................... 571,250 400,000 Rouse Co., 5.750% due 7/23/02.............................................. 438,000 300,000 RPM Inc., zero coupon due 9/30/12.......................................... 134,625 200,000 Scholastic Corp., 5.000% due 8/15/05....................................... 208,750 200,000 Tenet Healthcare Corp., 6.000% due 12/1/05................................. 212,250 200,000 The Sports Authority Inc., 5.250% due 9/15/01.............................. 187,750 500,000 Trinova Corp., 6.000% due 10/15/02......................................... 496,875 - --------------------------------------------------------------------------------------------------------- 5,992,332 - --------------------------------------------------------------------------------------------------------- UTILITY - ELECTRIC -- 0.3% 600,000 Potomac Electric Power Co., 5.000% due 9/1/02.............................. 558,000 - --------------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $9,194,761)..................... 9,500,482 - ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 14 50 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 MANAGED ASSETS TRUST
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECTOR -- 7.9% - --------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 7.9% $ 75,000 U.S. Treasury Notes, 6.900% due 8/21/97*................................... $ 72,519 3,000,000 U.S. Treasury Strip, zero coupon due 5/15/07............................... 1,530,000 11,000,000 U.S. Treasury Strip, zero coupon due 5/15/09............................... 4,868,160 493,534 FHLMC, 8.500% due 9/1/02................................................... 508,958 2,000,000 FNMA Principal Strips, 7.890% due 3/9/97................................... 1,976,420 184,841 FNMA, 8.500% due 3/1/05.................................................... 192,408 3,333,217 FNMA, 7.500% due 10/1/25................................................... 3,333,217 318,618 GNMA, 7.500% due 3/15/07................................................... 318,914 60,555 GNMA, 7.500% due 6/15/07................................................... 60,612 209,632 GNMA, 9.000% due 12/15/16.................................................. 220,900 255,165 GNMA, 9.000% due 11/15/19.................................................. 268,881 379,737 GNMA, 9.500% due 1/15/20................................................... 410,473 209,395 GNMA, 9.500% due 3/15/20................................................... 226,342 194,535 GNMA, 7.500% due 5/15/23................................................... 194,717 745,284 GNMA, 7.500% due 12/15/25.................................................. 745,976 - --------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT SECTOR (Cost -- $15,170,051)......................... 14,928,497 - --------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 1.6% 3,000,000 GE Capital Corp, 5.532% due 2/20/97 (Cost -- $2,977,583)................... 2,975,160 - --------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 5.7% 10,715,000 Citibank, 6.900% due 1/2/97; Proceeds at maturity -- $10,719,107; (Fully collateralized by U.S. Treasury Notes, 5.750% due 12/31/98; Market value -- $10,936,313) (Cost -- $10,715,000)......................... 10,715,000 - --------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $162,004,962**)......................... $187,681,956 - ---------------------------------------------------------------------------------------------------------
+ Non-income producing security. * Segregated security for futures contracts commitments. ** Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 15 51 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 HIGH YIELD BOND TRUST
FACE AMOUNT RATINGS SECURITY VALUE - ---------------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 77.0% - ---------------------------------------------------------------------------------------------------------- AMUSEMENTS -- 5.9% $500,000 NR Live Entertainment Inc., Sr. Sub. Notes, 12.000% due 3/23/99........... $ 485,000 500,000 B- Plitt Theaters Inc., Sr. Sub. Notes, 10.875% due 6/15/04............... 510,000 - ---------------------------------------------------------------------------------------------------------- 995,000 - ---------------------------------------------------------------------------------------------------------- CHEMICALS, PHARMACEUTICALS AND ALLIED PRODUCTS -- 3.5% 500,000 NR Renaissance Cosmetics Inc., Sr. Notes, Series B, 13.750% due 8/15/01... 585,000 - ---------------------------------------------------------------------------------------------------------- COMMUNICATIONS -- 10.2% 500,000 B3* Commodore Media Inc., Sr. Sub. Notes, 7.500% due 5/1/03................ 526,250 400,000 B- Paxson Communications Corp., Sr. Sub. Notes, 11.625% due 10/1/02+...... 417,000 400,000 B- Pegasus Media Communications Inc., Notes 12.500% due 7/1/05+........... 433,000 500,000 BB Telewest Communications PLC, Sr. Discount Debentures, step bond to yield 10.751% due 10/1/07................................. 348,750 - ---------------------------------------------------------------------------------------------------------- 1,725,000 - ---------------------------------------------------------------------------------------------------------- CONSTRUCTION -- 3.7% 250,000 B Greystone Homes Inc., Sr. Notes, 10.750% due 3/1/04.................... 250,313 400,000 B Johnston America Industries, Inc., Sr. Sub. Notes, 11.750% due 383,000 8/15/05................................................................ - ---------------------------------------------------------------------------------------------------------- 633,313 - ---------------------------------------------------------------------------------------------------------- ELECTRICAL -- 3.0% 500,000 NR Emcor Group Inc., Notes, 11.000% due 12/15/01.......................... 504,375 - ---------------------------------------------------------------------------------------------------------- FINANCE -- 5.4% 400,000 B- B.F. Saul Real Estate Investment Trust, Sr. Secured Notes, 11.625% due 431,000 4/1/02+................................................................ 36,896 B3* FRD Acquisition Co., Sr. Notes, Series B, 12.500% due 7/15/04.......... 37,634 500,000 Caa* Trump Castle Funding, 1st Mortgage, 11.750% due 11/15/03............... 442,500 - ---------------------------------------------------------------------------------------------------------- 911,134 - ---------------------------------------------------------------------------------------------------------- INSURANCE -- 2.9% 500,000 NR I.C.H. Corp., Sr. Sub. Notes, 11.250% due 12/1/03++.................... 490,000 - ---------------------------------------------------------------------------------------------------------- MANUFACTURING -- 2.9% 500,000 NR Great Dane Holdings, Inc., Sr. Sub. Notes, 12.750% due 8/1/01.......... 503,750 - ---------------------------------------------------------------------------------------------------------- METAL PRODUCTS/MINING -- 8.7% 500,000 B Gulf States Steel Alabama Inc., 1st Mortgage, 13.500% due 4/15/03++.................................................. 473,750 500,000 NR Parker Drilling Co., Guaranteed Notes, 9.750% due 11/15/06+............ 527,500 500,000 B- Sheffield Steel Corp., 1st Mortgage Notes, 12.000% due 11/1/01......... 475,000 - ---------------------------------------------------------------------------------------------------------- 1,476,250 - ---------------------------------------------------------------------------------------------------------- PAPER AND ALLIED PRODUCTS -- 2.4% 400,000 B Mail-Well Corp., Sr. Sub. Notes, 10.500% due 2/15/04+.................. 398,500 - ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 16 52 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 HIGH YIELD BOND TRUST
FACE AMOUNT RATINGS SECURITY VALUE - ---------------------------------------------------------------------------------------------------------- PETROLEUM REFINING AND RELATED INDUSTRIES -- 3.0% $500,000 CCC+ Transamerican Refining Corp., Guaranteed 1st Mortgage Notes, 16.500% due 2/15/02................................................... $ 505,000 - ---------------------------------------------------------------------------------------------------------- PRINTING, PUBLISHING AND ALLIED INDUSTRIES -- 5.8% 500,000 Caa* Sullivan Graphics Inc., Sr. Sub. Notes, 12.750% due 8/1/05+........... 490,000 500,000 B- U.S. Banknote Corp., Sr. Notes, 11.625% due 8/1/02+................... 482,500 - ---------------------------------------------------------------------------------------------------------- 972,500 - ---------------------------------------------------------------------------------------------------------- RETAIL -- 4.2% 250,000 B Flagstar Corp., Sr. Notes, 10.750% due 9/15/01........................ 230,000 500,000 B+ K mart Corp., Notes, 7.900% due 12/14/00.............................. 481,250 - ---------------------------------------------------------------------------------------------------------- 711,250 - ---------------------------------------------------------------------------------------------------------- SERVICES -- 8.5% 500,000 B+ Americold Corp., 1st Mortgage Series B, 11.500% due 3/1/05............ 524,375 500,000 B- Florists Transworld Delivery Inc., Sr. Sub. Notes, Series B, 14.000% due 12/15/01........................................ 506,250 400,000 B- Regency Health Services Inc., Sr. Sub. Notes, 9.875% due 10/15/02..... 406,000 - ---------------------------------------------------------------------------------------------------------- 1,436,625 - ---------------------------------------------------------------------------------------------------------- TEXTILE MILL PRODUCTS -- 2.8% 500,000 B CMI Industries Inc., Sr. Sub. Notes, 9.500% due 10/1/03............... 466,250 - ---------------------------------------------------------------------------------------------------------- TRANSPORTATION -- 2.6% 400,000 B- Terex Corp., Sr. Secured Notes, 13.250% due 5/15/02+++................ 432,000 - ---------------------------------------------------------------------------------------------------------- WHOLESALE TRADE -- 1.5% 250,000 B+ Fleming Co. Inc., Sr. Notes, 10.625% due 12/15/01..................... 254,375 - ---------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $12,350,130)................................................. 13,000,322 - ---------------------------------------------------------------------------------------------------------- SHARES SECURITY VALUE - ---------------------------------------------------------------------------------------------------------- COMMON STOCKS -- 0.0% - ---------------------------------------------------------------------------------------------------------- UTILITIES -- 0.0% 264 Great Bay Power Co.+ (Cost -- $0)..................................... 2,210 - ---------------------------------------------------------------------------------------------------------- WARRANTS -- 0.0% - ---------------------------------------------------------------------------------------------------------- METAL PRODUCTS/MINING -- 0.0% 500 Gulf State Steel Alabama Inc., Expire 4/15/03+........................ 2,500 - ---------------------------------------------------------------------------------------------------------- TRANSPORTATION -- 0.0% 1,600 Terex Corp., Expire 5/15/02++......................................... 3,200 - ---------------------------------------------------------------------------------------------------------- TOTAL WARRANTS (Cost -- $0).......................................................... 5,700 - ---------------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $12,350,130)................................................. 13,008,232 - ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 17 53 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 HIGH YIELD BOND TRUST
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 23.0% - --------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 3.5% $ 600,000 Bankers Trust N.Y. Corp., 5.400% due 2/19/97............................ $ 595,590 - --------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 19.5% 3,298,000 Chase Manhattan Bank, 6.550% due 1/2/97; Proceeds at maturity -- $3,299,200; (Fully collateralized by U.S. Treasury Bill due 10/31/98; Market value -- $3,363,993)................................... 3,298,000 - --------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (Cost -- $3,893,590).................................................... 3,893,590 - --------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $16,243,720**)................................................. $16,901,822 - ---------------------------------------------------------------------------------------------------------
+ Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions exempt that are from registration, normally to qualified institutional buyers. ++ Non-income producing security. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 19 for definition of bond ratings. SUMMARY OF BONDS BY COMBINED RATINGS
% OF TOTAL CORPORATE STANDARD & POOR'S BONDS & NOTES - ------------------------------------------ BB 2.7% B 58.8 CCC 7.8 NR 30.7 - ------------------------------------------ 100.0% - ------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 18 54 - -------------------------------------------------------------------------------- BOND RATINGS All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's"), except that those identified by an asterisk (*) are rated by Moody's Investors Service, Inc. ("Moodys"). The definitions of the applicable rating symbols are set forth below: Standard & Poor's -- Rating 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 -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Debt 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 -- Debt 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 -- Debt 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 -- Debt 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. C -- The rating "C" is reserved for income bonds on which no interest is being paid. D -- Debt rated "D" are in default, and payment of interest and/or repayment of principal is in arrears.
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 that are 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 that are 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 that are 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 that are 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 that are 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 that are 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 that are 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 that are rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds that are 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.
19 55 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE - ---------------------------------------------------------------------------------------------------------- COMMON STOCKS -- 89.5% - ---------------------------------------------------------------------------------------------------------- AIRCRAFT & AEROSPACE -- 4.8% 68,375 Boeing Co................................................................ $ 7,273,391 13,875 Gulfstream Aerospace Corp.+.............................................. 336,469 33,025 Textron Inc.............................................................. 3,112,606 - ---------------------------------------------------------------------------------------------------------- 10,722,466 - ---------------------------------------------------------------------------------------------------------- AIRLINES -- 3.9% 138,650 UAL Corp.+............................................................... 8,665,625 - ---------------------------------------------------------------------------------------------------------- AUTO RELATED -- 0.1% 7,925 Cross-Continent Auto Retailers+.......................................... 165,434 - ---------------------------------------------------------------------------------------------------------- BANKING -- 11.7% 10,000 Catskill Financial Corp.+................................................ 140,000 90,475 Chase Manhattan Corp. ................................................... 8,074,894 63,190 Citicorp................................................................. 6,508,570 10,000 Community Federal Bancorp................................................ 170,000 10,000 First Bergen Bancorp..................................................... 115,000 10,000 GA Financial Inc......................................................... 151,250 28,550 Mercantile Bancorp Inc................................................... 1,466,756 10,000 PFF Bancorp Inc.+........................................................ 148,750 47,000 R & G Financial Corp..................................................... 1,116,250 30,666 Wells Fargo & Co......................................................... 8,272,154 - ---------------------------------------------------------------------------------------------------------- 26,163,624 - ---------------------------------------------------------------------------------------------------------- BEVERAGES -- 5.9% 93,250 Coca-Cola Co............................................................. 4,907,281 15,650 Coca-Cola Enterprises.................................................... 759,025 257,750 PepsiCo, Inc. ........................................................... 7,571,406 - ---------------------------------------------------------------------------------------------------------- 13,237,712 - ---------------------------------------------------------------------------------------------------------- BUSINESS SERVICES -- 4.5% 7,800 Alco Standard Corp....................................................... 402,675 75,675 Danka Business Systems PLC ADR........................................... 2,677,003 20,725 Diebold Inc.............................................................. 1,303,084 117,100 First Data Corp. ........................................................ 4,274,150 40,850 First USA Paymentech Inc.+............................................... 1,383,794 - ---------------------------------------------------------------------------------------------------------- 10,040,706 - ---------------------------------------------------------------------------------------------------------- CAPITAL GOODS -- 0.1% 3,175 Raychem Corp............................................................. 254,397 - ---------------------------------------------------------------------------------------------------------- CHEMICAL -- 6.3% 175,575 Cytec Industries Inc.+................................................... 7,132,734 177,775 Monsanto Co.............................................................. 6,911,003 - ---------------------------------------------------------------------------------------------------------- 14,043,737 - ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 56 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE - ---------------------------------------------------------------------------------------------------------- COMMUNICATIONS -- 0.8% 29,200 Ascend Communications, Inc.+............................................. $ 1,814,050 - ---------------------------------------------------------------------------------------------------------- COMPUTERS -- 10.9% 92,875 Clarify Inc.+............................................................ 4,458,000 67,375 Dell Computer Corp.+..................................................... 3,579,297 40,625 Electronics For Imaging+................................................. 3,341,406 15,200 HBO & Co................................................................. 902,500 13,850 Intel Corp............................................................... 1,813,484 60,325 International Business Machines Corp..................................... 9,109,075 21,525 Oracle Systems Corp.+.................................................... 898,669 5,750 Parametric Technology+................................................... 295,406 3,075 Transaction Systems Architects -- Class A Shares+........................ 102,244 - ---------------------------------------------------------------------------------------------------------- 24,500,081 - ---------------------------------------------------------------------------------------------------------- DIVERSIFIED OPERATIONS -- 1.8% 41,750 General Electric Co...................................................... 4,128,031 - ---------------------------------------------------------------------------------------------------------- DRUGS AND HEALTHCARE -- 8.6% 15,000 American Home Products Corp. ............................................ 879,375 1,650 Bristol-Myers Squibb Co. ................................................ 179,438 78,825 Eli Lilly & Co........................................................... 5,754,225 39,550 Merck & Co., Inc. ....................................................... 3,134,338 63,475 Pfizer, Inc.............................................................. 5,260,491 52,225 Warner-Lambert Co........................................................ 3,916,875 - ---------------------------------------------------------------------------------------------------------- 19,124,742 - ---------------------------------------------------------------------------------------------------------- ENERGY -- 0.4% 36,100 Peco Energy Co........................................................... 911,525 - ---------------------------------------------------------------------------------------------------------- ENTERTAINMENT AND LEISURE TIME -- 4.1% 98,100 G-TECH Holdings Corp.+................................................... 3,139,200 113,075 Hilton Hotels Corp....................................................... 2,954,084 146,250 Mirage Resorts Inc.+..................................................... 3,162,656 - ---------------------------------------------------------------------------------------------------------- 9,255,940 - ---------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 5.0% 8,825 Chester Bancorp Inc. .................................................... 115,828 4,375 Federal Home Loan Mortgage Corp. ........................................ 481,797 101,630 Federal National Mortgage Association.................................... 3,823,829 10,000 First Defiance Financial Corp............................................ 123,750 80,465 Merrill Lynch & Co., Inc. ............................................... 6,557,898 10,000 South Street Financial Co.+.............................................. 140,000 - ---------------------------------------------------------------------------------------------------------- 11,243,102 - ---------------------------------------------------------------------------------------------------------- HOSPITAL RELATED -- 0.5% 43,275 Fresenius Medical Care ADR+.............................................. 1,217,109 - ---------------------------------------------------------------------------------------------------------- INSURANCE -- 0.4% 26,600 CMAC Investment Corp. ................................................... 977,550 - ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 21 57 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE - ---------------------------------------------------------------------------------------------------------- NATURAL GAS -- 1.6% 75,500 Praxair Inc.............................................................. $ 3,482,438 - ---------------------------------------------------------------------------------------------------------- NETWORKING -- 3.4% 119,375 Cisco Systems Inc.+...................................................... 7,595,234 - ---------------------------------------------------------------------------------------------------------- PRINTING & PUBLISHING -- 2.3% 133,350 Gartner Group+........................................................... 5,192,316 - ---------------------------------------------------------------------------------------------------------- RETAIL -- 5.2% 50,400 Gucci Group N.V.......................................................... 3,219,300 115,975 Nike Inc., Class B Shares................................................ 6,929,506 18,600 The Finish Line, Class A Shares+......................................... 392,925 17,800 Vons Companies Inc.+..................................................... 1,065,775 - ---------------------------------------------------------------------------------------------------------- 11,607,506 - ---------------------------------------------------------------------------------------------------------- SOFTWARE -- 2.9% 77,975 Microsoft Corp.+......................................................... 6,442,684 - ---------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 4.3% 14,225 Cincinnati Bell, Inc..................................................... 876,616 186,900 Lucent Technologies Inc.................................................. 8,644,125 - ---------------------------------------------------------------------------------------------------------- 9,520,741 - ---------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost -- $154,608,059)............................... 200,306,750 - ----------------------------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - ---------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 10.5% $23,489,000 Citibank, 6.898% due 1/2/97; Proceeds at maturity -- $23,579,002; (Fully collateralized by U.S. Treasury Notes, 5.750% due 12/13/98; Market value -- $23,970,000) (Cost -- $23,489,000).............................. 23,489,000 - ---------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $178,097,059*)........................ $223,795,750 - ----------------------------------------------------------------------------------------------------------
+ Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 22 58 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 CASH INCOME TRUST
FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE - ------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 19.6% $ 275,000 Federal Home Loan Mortgage Corp. matures 2/18/97............... 5.28% to 5.41% $ 273,068 425,000 Federal National Mortgage Association mature 1/3/97 to 5.28 to 5.31 3/3/97....................................................... 422,648 - ------------------------------------------------------------------------------------------------------------ TOTAL U.S. GOVERNMENT AGENCIES AND OBLIGATIONS (Cost -- $695,716)............................................. 695,716 - ------------------------------------------------------------------------------------------------------------ U.S. TREASURY BILLS -- 38.7% 1,385,000 U.S. Treasury Bills mature 1/9/97 to 4/17/97 5.07 to 5.11 (Cost -- $1,374,750)......................................... 1,374,750 - ------------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER -- 41.7% 150,000 Associates Corp. of North America matures 2/4/97............... 5.36 149,251 150,000 Chevron Oil Finance matures 2/4/97............................. 5.34 149,253 150,000 CIT Group Holdings, Inc. matures 1/16/97....................... 5.37 149,668 150,000 Ford Motor Credit Corp. matures 1/16/97........................ 5.36 149,669 150,000 General Electric Capital Corp. matures 1/9/97.................. 5.48 149,820 150,000 H.J. Heinz Co. matures 1/23/97................................. 5.45 149,507 150,000 Household Finance Corp. matures 2/13/97........................ 5.48 149,032 135,000 Potomac Electric Power Co. matures 1/15/97..................... 5.83 134,698 150,000 Prudential Funding Co. matures 1/16/97......................... 5.34 149,671 150,000 Xerox Corp. matures 1/16/97.................................... 5.45 149,664 - ------------------------------------------------------------------------------------------------------------ TOTAL COMMERCIAL PAPER (Cost -- $1,480,233).................... 1,480,233 - ------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100% (Cost -- $3,550,699*)................ $3,550,699 - ------------------------------------------------------------------------------------------------------------
* Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 23 59 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1996
MANAGED HIGH YIELD CAPITAL CASH ASSETS BOND APPRECIATION INCOME TRUST TRUST FUND TRUST - ------------------------------------------------------------------------------------------------------------ ASSETS: Investments -- Cost............................... $162,004,962 $12,350,130 $154,608,059 $3,550,699 Short-term investments -- Cost.................... -- 3,893,590 23,489,000 -- - ------------------------------------------------------------------------------------------------------------ Investments, at value............................. $187,681,956 $13,008,232 $200,306,750 $3,550,699 Short-term investments, at value.................. -- 3,893,590 23,489,000 -- Cash.............................................. 518 -- 855 4,509 Receivable for securities sold.................... 409,824 -- -- -- Dividends and interest receivable................. 1,128,214 360,137 147,193 -- Receivable for Fund shares sold................... -- 52,645 454,681 -- Receivable from affiliate......................... -- -- -- 15,843 - ------------------------------------------------------------------------------------------------------------ TOTAL ASSETS...................................... 189,220,512 17,314,604 224,398,479 3,571,051 - ------------------------------------------------------------------------------------------------------------ LIABILITIES: Payable for securities purchased.................. 519,223 -- 109,975 -- Investment advisory fees payable.................. 77,599 7,420 141,259 1,147 Payable for Fund shares purchased................. 3,504 -- -- -- Dividends payable................................. -- -- -- 5,696 Accrued expenses.................................. 9,705 16,141 15,494 21,553 - ------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES................................. 610,031 23,561 266,728 28,396 - ------------------------------------------------------------------------------------------------------------ TOTAL NET ASSETS.................................... $188,610,481 $17,291,043 $224,131,751 $3,542,655 - ------------------------------------------------------------------------------------------------------------ NET ASSETS: Paid-in capital................................... $158,673,246 $21,746,024 $179,434,374 $3,542,655 Undistributed (overdistributed) net investment income......................................... 689,249 (172,955) 219,605 -- Accumulated net realized gain (loss) from security transactions and futures contracts............. 3,570,992 (4,940,128) (1,220,919) -- Net unrealized appreciation of investments........ 25,676,994 658,102 45,698,691 -- - ------------------------------------------------------------------------------------------------------------ TOTAL NET ASSETS.................................... $188,610,481 $17,291,043 $224,131,751 $3,542,655 - ------------------------------------------------------------------------------------------------------------ SHARES OUTSTANDING.................................. 12,594,215 2,036,482 6,103,983 3,542,673 - ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, PER SHARE.......................... $14.98 $8.49 $36.72 $1.00 - ------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 24 60 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
MANAGED HIGH YIELD CAPITAL CASH ASSETS BOND APPRECIATION INCOME TRUST TRUST FUND TRUST - ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest............................................... $ 5,087,435 $1,774,958 $ 853,439 $114,317 Dividends.............................................. 2,160,122 -- 1,687,610 -- - ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................ 7,247,557 1,774,958 2,541,049 114,317 - ------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 3)...................... 891,042 72,800 1,261,284 19,000 Custody................................................ 49,323 12,866 65,089 -- Administration fees (Note 3)........................... 48,885 24,332 25,243 6,622 Shareholder communications............................. 22,028 16,446 17,563 16,446 Trustees' fees......................................... 6,544 6,544 6,544 6,544 Audit and legal........................................ 5,918 6,440 9,521 13,330 Registration fees...................................... 1,267 1,267 1,267 1,267 Shareholder and system servicing fees.................. 1,000 1,000 2,000 -- Other.................................................. 104 1,569 3,083 -- - ------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES......................................... 1,026,111 143,264 1,391,594 63,209 Less: Expense reimbursement (Note 3)................... -- -- -- (43,376) - ------------------------------------------------------------------------------------------------------------- NET EXPENSES........................................... 1,026,111 143,264 1,391,594 19,833 - ------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME.................................... 6,221,446 1,631,694 1,149,455 94,484 - ------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS (NOTES 4 & 6): Realized Gain (Loss) From: Security transactions (excluding short-term securities)....................................... 14,175,095 (304,388) 13,938,060 -- Futures contracts................................... (744,302) -- -- -- - ------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS)............................... 13,430,793 (304,388) 13,938,060 -- - ------------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments: Beginning of year................................... 22,303,922 (199,726) 21,220,176 -- End of year......................................... 25,676,994 658,102 45,698,691 -- - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET UNREALIZED APPRECIATION................ 3,373,072 857,828 24,478,515 -- - ------------------------------------------------------------------------------------------------------------- NET GAIN ON INVESTMENTS AND FUTURES CONTRACTS............ 16,803,865 553,440 38,416,575 -- - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS................... $23,025,311 $2,185,134 $ 39,566,030 $ 94,484 - -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 25 61 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1996
MANAGED HIGH YIELD CAPITAL CASH ASSETS BOND APPRECIATION INCOME TRUST TRUST FUND TRUST - ------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income............................. $ 6,221,446 $ 1,631,694 $ 1,149,455 $ 94,484 Net realized gain (loss).......................... 13,430,793 (304,388) 13,938,060 -- Increase in net unrealized appreciation........... 3,373,072 857,828 24,478,515 -- - ------------------------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS............ 23,025,311 2,185,134 39,566,030 94,484 - ------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income............................. (10,914,123) (2,978,125) (1,741,271) (94,502) Net realized gains................................ (17,258,729) -- (23,015,510) -- - ------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.................. (28,172,852) (2,978,125) (24,756,781) (94,502) - ------------------------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 9): Net proceeds from sale of shares.................. 7,067,309 5,233,862 72,301,317 9,941,686 Net asset value of shares issued for reinvestment of dividends...................... 28,172,852 2,978,125 24,756,781 94,502 Cost of shares reacquired......................... (12,757,653) (3,030,251) (9,891,028) (7,910,199) - ------------------------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS................................... 22,482,508 5,181,736 87,167,070 2,125,989 - ------------------------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS.............................. 17,334,967 4,388,745 101,976,319 2,125,971 NET ASSETS: Beginning of year................................. 171,275,514 12,902,298 122,155,432 1,416,684 - ------------------------------------------------------------------------------------------------------------ END OF YEAR*...................................... $188,610,481 $17,291,043 $224,131,751 $3,542,655 - ------------------------------------------------------------------------------------------------------------ * Includes undistributed (overdistributed) net investment income of: ............................ $689,249 $(172,955) $219,605 -- - ------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 26 62 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995
MANAGED HIGH YIELD CAPITAL CASH ASSETS BOND APPRECIATION INCOME TRUST TRUST FUND TRUST - ------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income............................. $ 5,381,926 $ 1,173,476 $ 811,421 $ 51,414 Net realized gain................................. 7,915,343 395,891 12,852,764 -- Increase in net unrealized appreciation........... 23,599,777 221,759 16,423,842 -- - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS............ 36,897,046 1,791,126 30,088,027 51,414 - ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income............................. (5,441,569) (960,192) (540,784) (51,414) Net realized gains................................ (1,783,880) -- -- -- - ------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.................. (7,225,449) (960,192) (540,784) (51,414) - ------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 9): Net proceeds from sale of shares.................. 5,376,731 1,749,523 26,600,150 3,284,741 Net asset value of shares issued for reinvestment of dividends...................... 7,225,449 960,192 540,784 52,033 Cost of shares reacquired......................... (11,885,171) (2,354,757) (13,026,347) (3,122,783) - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS................................... 717,009 354,958 14,114,587 213,991 - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS.............................. 30,388,606 1,185,892 43,661,830 213,991 NET ASSETS: Beginning of year................................. 140,886,908 11,716,406 78,493,602 1,202,693 - ------------------------------------------------------------------------------------------------------------- END OF YEAR*...................................... $171,275,514 $12,902,298 $122,155,432 $ 1,416,684 - ------------------------------------------------------------------------------------------------------------- * Includes undistributed net investment income of:............................................... $5,381,926 $1,173,476 $811,421 -- - -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 27 63 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Cash Income Trust (collectively, "Fund(s)") are each a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as 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 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 and, or minus amortized premium, which approximates market 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 the accrual basis and dividend income is recorded on the ex-dividend date; (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 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, 1996, reclassifications were made to the capital accounts of the High Yield Bond Trust, Capital Appreciation Fund and Cash Income Trust to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Accordingly, for the High Yield Bond Trust a portion of accumulated net realized loss amounting to $1,893,310 was reclassified to paid-in capital. Net investment income, net realized gains and net assets were not affected by this change; (i) 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 (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. In addition, for the year ended December 31, 1996, distributions from realized gains include both net realized short-term and long-term capital gains. Previous to 1996 net realized short-term capital gains were included in distributions from net investment income. 2. DIVIDENDS Cash Income Trust 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 Travelers Group Inc., acts as investment manager and advisor to the Managed Assets Trust ("MAT"), High Yield Bond Trust ("HYBT") and Cash Income Trust ("CIT"). MAT and CIT pay TAMIC an investment management and advisory fee calculated at the annual rate of 0.50% 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 Travelers Group 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. In addition, TIMCO acts as investment manager and advisor to the Capital Appreciation Fund ("CAF"). CAF pays TIMCO an investment management and advisory fee calculated at an annual rate of 0.75% of the average daily net assets. This fee is calculated daily and paid monthly. 28 64 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) TIMCO 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, TIMCO 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 Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith Barney Holdings Inc. ("SBH"). Travelers Insurance pays SBMFM, 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. MAT received brokerage commissions of $1,380 from affiliated brokers. One Trustee and all officers of the Funds are employees of Travelers Group Inc., or its subsidiaries. 4. INVESTMENTS During the year ended December 31, 1996, 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.................................................... $177,030,601 $10,021,937 $180,570,344 - ----------------------------------------------------------------------------------------------------------- Sales........................................................ 189,051,386 9,367,054 126,712,795 - -----------------------------------------------------------------------------------------------------------
At December 31, 1996, the aggregate gross unrealized appreciation and depreciation of investments were as follows:
MANAGED HIGH CAPITAL ASSETS YIELD BOND APPRECIATION TRUST TRUST FUND - ----------------------------------------------------------------------------------------------------------- Gross unrealized appreciation*............................... $26,911,202 $779,745 $47,569,236 Gross unrealized depreciation*............................... (1,234,208) (121,643) (1,870,545) - ----------------------------------------------------------------------------------------------------------- Net unrealized appreciation*................................. $25,676,994 $658,102 $45,698,691 - -----------------------------------------------------------------------------------------------------------
* Substantially the same for Federal income tax purposes. 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 102% of 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 bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts) and the credit risk should a counterparty fail to perform under such contracts. At December 31, 1996, the Funds had no open futures contracts. 29 65 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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. As of December 31, 1996, the Funds had no open purchased call or put options contracts. 8. CAPITAL LOSS CARRYFORWARD At December 31, 1996, HYBT had, for Federal income tax purposes, approximately $4,751,000 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:
1996 1997 1998 1999 2000 2001 2002 2004 - ---------------------------------------------------------------------------------------------------------------------- Carryforward Amounts............ $530,000 $1,094,000 $1,970,000 $748,000 $48,000 $135,000 $38,000 $188,000 - ----------------------------------------------------------------------------------------------------------------------
9. 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:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 - -------------------------------------------------------------------------------------------------------- MANAGED ASSETS TRUST Shares sold.................................................... 469,580 375,304 Shares issued on reinvestment.................................. 1,926,518 581,291 Shares redeemed................................................ (847,611) (871,567) - -------------------------------------------------------------------------------------------------------- Net Increase................................................... 1,548,487 85,028 - -------------------------------------------------------------------------------------------------------- HIGH YIELD BOND TRUST Shares sold.................................................... 591,013 206,291 Shares issued on reinvestment.................................. 356,007 122,473 Shares redeemed................................................ (343,196) (276,334) - -------------------------------------------------------------------------------------------------------- Net Increase................................................... 603,824 52,430 - -------------------------------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND Shares sold.................................................... 1,994,300 900,317 Shares issued on reinvestment.................................. 716,103 22,109 Shares redeemed................................................ (287,644) (445,510) - -------------------------------------------------------------------------------------------------------- Net Increase................................................... 2,422,759 476,916 - -------------------------------------------------------------------------------------------------------- CASH INCOME TRUST Shares sold.................................................... 9,941,686 3,284,741 Shares issued on reinvestment.................................. 94,502 52,033 Shares redeemed................................................ (7,910,199) (3,122,783) - -------------------------------------------------------------------------------------------------------- Net Increase................................................... 2,125,989 213,991 - --------------------------------------------------------------------------------------------------------
30 66 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year:
MANAGED ASSETS TRUST 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................. $15.50 $12.85 $14.21 $14.02 $14.78 - -------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income............................ 0.46 0.49 0.46 0.51 0.64 Net realized and unrealized gain (loss).......... 1.50 2.83 (0.73) 0.72 0.01 - -------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations................ 1.96 3.32 (0.27) 1.23 0.65 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM (1): Net investment income............................ (0.89) (0.50) (0.67) (0.85) (1.04) Net realized gains............................... (1.59) (0.17) (0.42) (0.19) (0.37) - -------------------------------------------------------------------------------------------------------------- Total Distributions................................ (2.48) (0.67) (1.09) (1.04) (1.41) - -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR....................... $14.98 $15.50 $12.85 $14.21 $14.02 - -------------------------------------------------------------------------------------------------------------- TOTAL RETURN....................................... 13.78% 27.12% (2.24)% 9.33% 5.14% - -------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S).................... $188,610 $171,276 $140,887 $156,767 $148,971 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (2)..................................... 0.58% 0.58% 0.61% 0.56% 0.56% Net investment income............................ 3.51 3.49 3.59 3.65 4.97 - -------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE............................ 108% 110% 97% 86% 112% - -------------------------------------------------------------------------------------------------------------- AVERAGE COMMISSIONS PER SHARES PAID ON EQUITY TRANSACTIONS (3)................................. $0.06 -- -- -- -- - --------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................. $9.00 $8.49 $9.25 $8.91 $8.75 - -------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income............................ 0.91 0.80 0.66 0.68 0.88 Net realized and unrealized gain (loss).......... 0.41 0.41 (0.76) 0.47 0.18 - -------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations................ 1.32 1.21 (0.10) 1.15 1.06 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTION FROM (1): Net investment income............................ (1.83) (0.70) (0.66) (0.81) (0.90) - -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR....................... $8.49 $9.00 $8.49 $9.25 $8.91 - -------------------------------------------------------------------------------------------------------------- TOTAL RETURN....................................... 16.05% 15.47% (1.26)% 14.01% 13.16% - -------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S).................... $17,291 $12,902 $11,716 $12,765 $10,289 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (4)..................................... 0.97% 1.25% 1.25% 0.99% 0.56% Net investment income............................ 11.01 9.37 7.71 7.69 10.24 - -------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE............................ 84% 222% 146.% 19% 52% - --------------------------------------------------------------------------------------------------------------
(1) For the year ended December 31, 1996, distributions from realized gains include both net realized short-term and long-term capital gains. Previous to 1996 net realized short-term capital gains were included in distributions from net investment income. (2) The ratios of expenses to average net assets for the years 1993 and 1992 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 0.60% and 0.63%, for the years ended December 31, 1993 and 1992, respectively. (3) For the fiscal years beginning after 1995, the SEC instituted new guidelines requiring the disclosure of average commissions per share on Funds which held more than 10% of their assets in commissionable equity securities. (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%, 1.33%, 1.31% and 1.28%, for the years ended December 31, 1995, 1994, 1993 and 1992, respectively. 31 67 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year:
CAPITAL APPRECIATION FUND 1996 1995 1994 1993(1) 1992 - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............ $33.18 $24.50 $25.87 $22.72 $19.63 - ------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income....................... 0.23 0.24 0.19 0.19 0.28 Net realized and unrealized gain (loss)..... 8.49 8.61 (1.41) 3.21 3.13 - ------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations........... 8.72 8.85 (1.22) 3.40 3.41 - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTION FROM (2): Net investment income....................... (0.41) (0.17) (0.15) (0.25) (0.32) Net realized gains.......................... (4.77) -- -- -- -- - ------------------------------------------------------------------------------------------------------------- Total Distributions........................... (5.18) (0.17) (0.15) (0.25) (0.32) - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR.................. $36.72 $33.18 $24.50 $25.87 $22.72 - ------------------------------------------------------------------------------------------------------------- TOTAL RETURN.................................. 28.21% 36.37% (4.76)% 15.09% 17.60% - ------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)............... $224,132 $122,155 $78,494 $62,414 $29,506 - ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (3)................................ 0.83% 0.85% 0.89% 0.87% 0.56% Net investment income....................... 0.69 0.84 0.79 0.81 1.39 - ------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE....................... 84% 124% 106% 155% 126% - ------------------------------------------------------------------------------------------------------------- AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY TRANSACTIONS (4).................. $0.06 -- -- -- -- - -------------------------------------------------------------------------------------------------------------
CASH INCOME TRUST 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............ $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------------------------------------------------------------------------- Net investment income (5)................... 0.0412 0.0417 0.0278 0.0214 0.0322 Distributions from net investment income.... (0.0412) (0.0417) (0.0278) (0.0214) (0.0322) - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR.................. $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------------------------------------------------------------------------- TOTAL RETURN.................................. 4.20% 4.17% 2.78% 2.14% 3.22% - ------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)............... $3,543 $1,417 $1,203 $647 $697 - ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (5)(6)............................. 0.78% 1.25% 1.25% 0.94% 0.38% Net investment income....................... 3.72 -- -- -- -- - -------------------------------------------------------------------------------------------------------------
(1) Effective May 1, 1993, Janus Capital Corporation became sub-adviser for Capital Appreciation Fund. (2) For the year ended December 31, 1996, distributions from realized gains include both net realized short-term and long-term capital gains. Previous to 1996 net realized short-term capital gains were included in distributions from net investment income. (3) The ratio of expenses to average net assets for 1993 and 1992 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 0.96% and 0.91%, for the years ended December 31, 1993 and 1992, respectively. (4) For the fiscal years beginning after 1995, the SEC instituted new guidelines requiring the disclosure of average commissions per share on Funds which held more than 10% of their assets in commissionable equity securities. (5) For the year ended December 31, 1996, The Travelers reimbursed CIT for $43,376 in expenses. If such fees were not waived and expenses not reimbursed, the per share decrease of net investment income would have been $0.002 and the expense ratio would have been 1.71%. (6) The ratio of expenses to average net assets for 1995-1992 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%, 6.40%, 8.47% and 7.70% for the years ended December 31, 1995, 1994, 1993 and 1992, respectively. - -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) The amount of long-term capital gains paid for the fiscal year ended December 31, 1996, are $13,912,800 for the Managed Assets Trust and $19,412,512 for the Capital Appreciation Portfolio. 32 68 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Shareholders of Managed Assets Trust: We have audited the accompanying statement of assets and liabilities of Managed Assets Trust including the schedule of investments as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Managed Assets Trust as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 24, 1997 33 69 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Shareholders of High Yield Bond Trust: We have audited the accompanying statement of assets and liabilities of High Yield Bond Trust including the schedule of investments as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of High Yield Bond Trust as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 24, 1997 34 70 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Shareholders of Capital Appreciation Fund: We have audited the accompanying statement of assets and liabilities of Capital Appreciation Fund including the schedule of investments as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Capital Appreciation Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 24, 1997 35 71 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Shareholders of Cash Income Trust: We have audited the accompanying statement of assets and liabilities of Cash Income Trust including the schedule of investments as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Cash Income Trust as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 24, 1997 36 72 ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES PORTFOLIO For the year ended December 31, 1996, the U.S. Government Securities Portfolio generated a total return of 1.46%. As of December 31, 1996 the composition of assets contained in the Portfolio was 47% in mortgage-backed securities, 31% in U.S. Treasuries, 12% in U.S. agency securities and 10% in cash. Prospects for bond investors appeared promising as the year began. In Washington, D.C., there were talks of federal deficit reduction through a balanced budget amendment while the outlook for inflation was tame. Long-term U.S. Treasuries were yielding less than 6% and the expectation of a Federal Reserve easing of monetary policy drove down yields on 2 year U.S. Treasuries to under 5%. However, as the year progressed, bullish sentiments were shattered as balanced budget talks stalled, energy prices began to rise and U.S. economic growth resumed. Heightened investor concerns over rising inflation drove up the yield on long-term U.S. Treasuries to over 7%. Toward the end of the year, these inflation fears proved to be unfounded and the long-term U.S. Treasury dropped to a range of around 6.6%. Against this backdrop of volatile interest rates, the Portfolio lagged behind the Lehman Government Bond Index for the first three quarters of the year. By shortening the maturity and through careful selection of securities, we were able to recoup lost ground to finish the year in line with the Portfolio's benchmark. Specifically, we added securities from Financing Corporation ("FICO") and Tennessee Valley Authority ("TVA"). In our view, FICO securities were very attractively priced due to concerns about the solvency of the Savings Association Insurance Fund, the agency responsible for making interest payments on the FICO securities. The U.S. Congress subsequently passed a bill that would shore up funds required to ensure payment of interest which resulted in the FICO bond's rise in price. In the case of TVA bonds, we utilized a hedging strategy to boost the yield as well as to provide investors with an additional cushion against interest rate volatility. Looking ahead to 1997, we expect a continuation of higher interest rate volatility. Therefore, we have reduced the Portfolio's weighting in mortgage-backed securities while increasing the exposure to other U.S. agency bonds. In addition, we believe the recently introduced inflation-indexed securities by the U.S. Treasury may represent a good investment opportunity for the Portfolio. SOCIAL AWARENESS STOCK PORTFOLIO Social Awareness Stock Portfolio finished 1996 with a competitive total return of 19.98%. Our exposure to the financial and technology sectors were major contributors to the Portfolio's positive results. As of December 31, 1996, the Portfolio consisted of about 15% cash reserves and 71 stock holdings, with some 75% of those considered to be "core" investments. The weighted market capitalization of the stocks owned by the Portfolio averages about $24.5 billion, approximating a 50/50 mix of large and mid-capitalization companies. As the year ended, the Portfolio was overweighted in the consumer cyclical, financial, and technology industries while underweighted in capital goods, communications services, energy, and utilities industries. This composition proved to be an advantage for the Portfolio during the period. While the Portfolio's beta ( the comparative movement of a security's price relative to the overall market) was approximately 10% more than the rest of the stock market, the slightly increased risk taken was generally well rewarded. The stocks in the Portfolio generated more earnings and more growth potential compared to their cost than that offered by the overall market. Our investment strategy for 1997 continues to focus on owning quality companies. The overall Portfolio's quality remains strong with a Standard & Poor's average rating of A minus (a ranking of common stocks from A+ through C on the basis of growth and stability). We remain cautiously optimistic about the stock market's 1997 potential, but hold some cash reserves to take advantage of buying opportunities from normal market volatility following two years of very strong performance. UTILITIES PORTFOLIO Utilities Portfolio seeks to provide current income and as a secondary goal, capital appreciation, by investing at least 25% of its assets in the utilities industry. For the year ended December 31, 1996, the Utilities Portfolio had a total return of 7.47%. The past year was frustrating for electric utility investors. As a group, utilities underperformed the broad based equity market. A strong stock market combined with a relatively weak bond market caused attention to move away from defensive sectors such as utilities. Nevertheless, we believe the electric utility sector should continue to benefit from industry restructuring and the rapid pace of mergers and acquisitions. For example, several state restructuring proposals have focused on the need to 37 73 ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- lower customer rates and creating opportunities for electric utilities to recover their capital investments. In our opinion, these proposals should create a more positive environment for investors by removing some of the uncertainty that has plagued utilities over the past few years. The consolidation of electric utility and natural gas companies dominated merger activity during 1996 as management teams attempted to enlarge their customer base and become full service energy providers in a more competitive industry. Furthermore, several electric utility companies continue to diversify by aggressively expanding into foreign markets. We remain positive for electric utilities in 1997 based on continued clarification of the impact of deregulation and competition in the industry and its favorable defensive characteristics. In addition, we expect more individual state initiatives regarding electric utility industry restructuring. Consolidation should continue involving electric sector and electric companies with natural gas companies. In this dynamic and rapidly changing environment, individual stock selection will continue to be extremely important in achieving competitive total returns. We expect performance among individual companies to vary significantly. In our view, special situation companies, with above average dividend growth, favorable regulatory rulings or positive deregulatory proposals are exciting new investment opportunities. We continue to focus on higher quality companies with strong earnings and dividend growth, superior management teams and favorable environments. Moreover, we favor lower-cost companies in this more competitive environment. We believe investors should view utility investing from a total return perspective and not simply evaluate the sector's current yield. The economic outlook for 1997 calls for a continuance of slow to moderate U.S. economic growth without renewed inflation and the long-term U.S. Treasury bond is expected to trade in a range of 6.25% to 7%. These conditions should be generally favorable for fixed-income markets and interest rate-sensitive sectors such as electric utilities. However, higher overall market volatility may increase if there is a surprise regarding the economy or corporate earnings. Our portfolio strategy continues to focus on income and long-term growth. We have increased our natural gas holdings and gradually reduced telecommunications holdings awaiting a clearer competitive picture or more favorable valuations in that industry. After two years of above historical returns, an increase in stock market volatility could enhance the appeal of electric utilities as a stable long-term investment vehicle. In closing, we thank you for your investment in The Travelers Series Trust Portfolios. We look forward to continuing to help you achieve your financial goals. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman January 15, 1997 38 74 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/96 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN --------------------------------------------- Year Ended 12/31/96 1.46% 1/24/92* through 12/31/96 5.84% CUMULATIVE TOTAL RETURN --------------------------------------------- 1/24/92* through 12/31/96 32.33% * Commencement of operations
This chart assumes an initial investment of $10,000 made on January 24, 1992 and assuming reinvestment of dividends through December 31, 1996. 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. Gov- ernment Lehman Measurement Period Securities Government Consumer (Fiscal Year Covered) Portfolio Bond Index Price Index 1/24/92 10000 10000 10000 12/92 10290 10920 10275 12/93 11813 12125 10557 12/94 11147 11699 10840 12/95 13869 13950 11115 12/31/96 14077 14354 11484
- -------------------------------------------------------------------------------- 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 12/31/96 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN --------------------------------------------- Year Ended 12/31/96 19.98% 5/1/92* through 12/31/96 12.62% CUMULATIVE TOTAL RETURN --------------------------------------------- 5/1/92* through 12/31/96 73.33% * Commencement of operations
This chart assumes an initial investment of $10,000 made on May 1, 1992 assuming reinvestment of dividends through December 31, 1996. 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 Standard & Measurement Period Stock Poor's 500 Consumer (Fiscal Year Covered) Portfolio Index Price Index 5/1/92 10000 10000 10000 12/92 10850 10673 10157 12/93 11777 11745 10436 12/94 11461 11900 10716 12/95 16285 14509 10988 12/31/96 18340 17838 11353
- -------------------------------------------------------------------------------- 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. 39 75 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 12/31/96 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN --------------------------------------------- Year Ended 12/31/96 7.47% 2/4/94* through 12/31/96 11.24% CUMULATIVE TOTAL RETURN --------------------------------------------- 2/4/94* through 12/31/96 36.26% * Commencement of operations
This chart assumes an initial investment of $10,000 made on February 4, 1994 assuming reinvestment of dividends through December 31, 1996. 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 & Measurement Period Utilities Poor's 500 Consumer (Fiscal Year Covered) Portfolio Index Price Index 2/4/94 10000 10000 10000 12/94 10170 10072 10205 12/95 13149 13852 10464 12/31/96 14139 17031 10811
- -------------------------------------------------------------------------------- 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. 40 76 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 1996 U.S. GOVERNMENT SECURITIES PORTFOLIO
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 89.8% $ 1,000,000 U.S. Treasury Bond, 9.250% due 2/15/16...................................... $ 1,269,950 700,000 U.S. Treasury Bond, 8.125% due 5/15/21...................................... 813,281 3,000,000 U.S. Treasury Bond, 6.875% due 8/15/25...................................... 3,058,440 10,000,000 U.S. Treasury Strip, zero coupon due 2/15/15................................ 2,940,700 2,955,466 FHLMC, 6.000% due 3/1/26.................................................... 2,749,500 988,365 FHLMC, 8.000% due 5/1/26.................................................... 1,008,131 2,019,999 FNMA, 7.000% due 6/1/24..................................................... 1,977,075 2,964,852 FNMA, 7.500% due 11/1/26@................................................... 2,964,850 392,192 GNMA, 8.500% due 3/15/18.................................................... 406,530 595,113 GNMA, 8.500% due 5/15/18.................................................... 616,871 251,104 GNMA, 8.500% due 6/15/18.................................................... 260,285 177,531 GNMA, 8.500% due 7/15/18.................................................... 184,022 1,974,160 GNMA, 7.000% due 6/15/24.................................................... 1,931,578 3,000,000 Tennessee Valley Authority Debenture, 5.980% due 4/1/36..................... 3,041,250 - --------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost -- $23,037,806).......... 23,222,463 - --------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 10.2% 2,626,000 Citibank, 6.900% due 1/2/97; Proceeds at maturity -- $2,627,007; (Fully collateralized by U.S. Treasury Notes, 5.750% due 12/31/98; Market value -- $2,686,638) (Cost -- $2,626,000)............................ 2,626,000 - --------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $25,663,806*)............................ $25,848,463 - ---------------------------------------------------------------------------------------------------------
@ Date shown represents the last in range of maturity dates of mortgage certificates owned. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 41 77 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS -- 83.7% - --------------------------------------------------------------------------------------------------------- BASIC MATERIALS -- 3.8% 2,000 Air Products & Chemicals, Inc..................................................... $ 138,250 5,000 Engelhard Corp.................................................................... 95,625 4,000 Praxair, Inc...................................................................... 184,500 - --------------------------------------------------------------------------------------------------------- 418,375 - --------------------------------------------------------------------------------------------------------- CAPITAL GOODS -- 2.9% 1,500 AMP, Inc.......................................................................... 57,562 2,000 Pitney Bowes, Inc................................................................. 109,000 2,800 York International, Inc........................................................... 156,450 - --------------------------------------------------------------------------------------------------------- 323,012 - --------------------------------------------------------------------------------------------------------- COMMUNICATION -- 1.1% 800 Bell Atlantic Corp................................................................ 51,800 2,300 MCI Communications Corp........................................................... 75,181 - --------------------------------------------------------------------------------------------------------- 126,981 - --------------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS -- 11.6% 2,900 Fleetwood Enterprises, Inc........................................................ 79,750 2,900 Home Depot, Inc................................................................... 145,363 3,500 Kaufman & Broad Home Corp......................................................... 45,063 1,864 Lucas Variety PLC+................................................................ 70,832 3,000 May Department Stores............................................................. 140,250 2,000 Nine West Group, Inc.+............................................................ 92,750 6,000 Olsten Corp....................................................................... 90,750 4,000 Pep Boys -- Manny, Moe & Jack..................................................... 123,000 4,000 Toys "R" Us, Inc.+................................................................ 120,000 1,900 Tribune Co........................................................................ 149,862 3,500 Wal-Mart Stores, Inc.............................................................. 80,062 3,000 Xerox Corp........................................................................ 157,875 - --------------------------------------------------------------------------------------------------------- 1,295,557 - --------------------------------------------------------------------------------------------------------- CONSUMER STAPLES -- 10.5% 2,000 Coca-Cola Co...................................................................... 105,250 2,000 Gillette Co....................................................................... 155,500 3,000 Kroger Co.+....................................................................... 139,500 2,000 McDonald's Corp................................................................... 90,500 5,000 Newell Co......................................................................... 157,500 4,800 PepsiCo, Inc...................................................................... 141,000 2,800 Sysco Corp........................................................................ 91,350 1,000 Unilever N.V...................................................................... 175,250 1,600 Walt Disney Co.................................................................... 111,400 - --------------------------------------------------------------------------------------------------------- 1,167,250 - --------------------------------------------------------------------------------------------------------- ENERGY -- 1.6% 2,800 Anadarko Petroleum Corp........................................................... 181,300 - ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 42 78 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- FINANCE -- 17.8% 1,600 Aetna Inc......................................................................... $ 128,000 3,500 American Express Co............................................................... 197,750 1,250 American International Group Inc.................................................. 135,313 3,000 Associates 1st Capital Corp....................................................... 132,375 2,700 Bank of Boston Corp............................................................... 173,475 3,000 Barnett Banks, Inc................................................................ 123,375 1,800 Citicorp.......................................................................... 185,400 1,200 Federal Home Loan Mortgage Corp................................................... 132,150 3,000 H. F. Ahmanson & Co............................................................... 97,500 2,500 Lincoln National Corp............................................................. 131,250 2,200 NationsBank Corp.................................................................. 215,050 3,400 State Street Boston Corp.......................................................... 219,300 1,500 Transamerica Corp................................................................. 118,500 - --------------------------------------------------------------------------------------------------------- 1,989,438 - --------------------------------------------------------------------------------------------------------- HEALTH CARE -- 10.3% 2,200 Amgen Inc.+....................................................................... 119,625 3,750 Columbia/HCA Healthcare Corp...................................................... 152,813 3,300 DENTSPLY International, Inc....................................................... 156,750 3,600 Johnson & Johnson................................................................. 179,100 2,300 Merck & Co., Inc.................................................................. 182,275 1,200 Pfizer, Inc....................................................................... 99,450 1,200 Schering-Plough Corp.............................................................. 77,700 6,200 Stryker Corp...................................................................... 185,225 - --------------------------------------------------------------------------------------------------------- 1,152,938 - --------------------------------------------------------------------------------------------------------- TECHNOLOGY -- 20.5% 4,500 Belden, Inc....................................................................... 166,500 4,400 Cabletron Systems, Inc.+.......................................................... 146,300 2,000 Compaq Computer Corp.+............................................................ 148,500 3,000 Computer Associates International................................................. 149,250 3,000 DSC Communications, Inc.+......................................................... 53,625 2,500 Electronic Data Systems Corp...................................................... 108,125 7,000 EMC Corp.+........................................................................ 231,875 2,000 Intel Corp........................................................................ 261,875 700 International Business Machines Corp.............................................. 105,700 3,600 Lucent Technologies Corp.......................................................... 166,500 2,000 Madge Networks N.V.+.............................................................. 19,750 3,300 Marshall Industries+.............................................................. 101,062 2,800 Microsoft Corp.+.................................................................. 231,350 3,500 Oracle Corp.+..................................................................... 146,125 2,500 Perkin-Elmer Corp................................................................. 147,187 4,000 Sun Microsystems Inc.+............................................................ 102,750 - --------------------------------------------------------------------------------------------------------- 2,286,474 - ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 43 79 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- TRANSPORTATION -- 2.0% 4,500 Mesaba Holdings, Inc.+............................................................ $ 66,938 1,400 Norfolk Southern Corp. ........................................................... 122,500 1,300 Southwest Airlines................................................................ 28,763 - --------------------------------------------------------------------------------------------------------- 218,201 - --------------------------------------------------------------------------------------------------------- UTILITIES -- 1.6% 4,000 Enron Corp........................................................................ 172,500 - --------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost -- $6,883,357).......................................... 9,332,026 - ---------------------------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 16.3% $1,822,000 CS First Boston, 6.48% due 1/2/97; Proceeds at maturity -- $1,822,658; $ 1,822,000 (Fully collateralized by U.S. Treasury Notes, 7.25% due 2/15/98; Market value -- $1,861,755) (Cost -- $1,822,000)............................ - --------------------------------------------------------------------------------------------------------- $11,154,026 TOTAL INVESTMENTS -- 100% (Cost -- $8,705,357*)............................. - ---------------------------------------------------------------------------------------------------------
+ Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 44 80 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 UTILITIES PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS -- 82.9% - --------------------------------------------------------------------------------------------------------- ELECTRIC - UTILITY -- 65.5% 15,000 Allegheny Power System, Inc.................................................... $ 455,625 11,000 American Electric Power Co..................................................... 452,375 7,500 Baltimore Gas & Electric Co.................................................... 200,625 15,000 Carolina Power & Light......................................................... 547,500 9,000 Central & Southwest Corp. ..................................................... 230,625 15,000 CINergy Corp................................................................... 500,625 5,000 CIPSCO, Inc. .................................................................. 180,625 15,000 CMS Energy Corp................................................................ 504,375 10,000 Dominion Resources, Inc. ...................................................... 385,000 10,000 DPL Inc........................................................................ 245,000 12,750 DQE Inc........................................................................ 369,750 20,000 Edison International........................................................... 397,500 15,000 Entergy Corp. ................................................................. 416,250 10,000 Florida Progress Corp.......................................................... 322,500 12,000 FPL Group Inc.................................................................. 552,000 12,000 GPU Inc........................................................................ 403,500 11,000 Houston Industries............................................................. 248,875 12,000 Illinova Corp. ................................................................ 330,000 15,000 Long Island Lighting........................................................... 331,875 10,000 NIPSCO Industries, Inc......................................................... 396,250 18,000 PacifiCorp. ................................................................... 369,000 15,000 Pinnacle West Capital.......................................................... 476,250 7,500 Public Service Co. of Colorado................................................. 291,563 15,000 Public Service Co. of New Mexico............................................... 294,375 15,000 SCANA Corp..................................................................... 401,250 15,000 Sierra Pacific Resources....................................................... 431,250 12,500 Southern Co.................................................................... 282,813 15,000 Texas Utilities Co. ........................................................... 611,250 10,000 Unicom Corp.................................................................... 271,250 12,000 UtiliCorp. United, Inc......................................................... 324,000 13,000 Wisconsin Energy Corp.......................................................... 349,375 - --------------------------------------------------------------------------------------------------------- 11,573,251 - --------------------------------------------------------------------------------------------------------- NATURAL GAS -- 11.0% 10,000 Coastal Corp. ................................................................. 488,750 10,000 Enron Corp. ................................................................... 431,250 5,000 Equitable Resources Inc. ...................................................... 148,750 10,000 Pacific Enterprises............................................................ 303,750 15,000 Southwest Gas Corp. ........................................................... 288,750 7,500 Williams Cos................................................................... 281,250 - --------------------------------------------------------------------------------------------------------- 1,942,500 - ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 45 81 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996 UTILITIES PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------------- TELEPHONE -- 6.4% 15,000 Frontier Corp.................................................................. $ 339,375 7,500 GTE Corp....................................................................... 341,250 2,000 MCI Communications............................................................. 65,375 10,000 Teleport Communications+....................................................... 305,000 5,000 US West Media Group+........................................................... 92,500 - --------------------------------------------------------------------------------------------------------- 1,143,500 - --------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost -- $12,839,147)...................................... 14,659,251 - ---------------------------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE - --------------------------------------------------------------------------------------------------------- CORPORATE BONDS -- 3.6% - --------------------------------------------------------------------------------------------------------- TELEPHONE -- 1.3% $ 230,000 MCI Communication Corp., 7.75% due 3/23/25................................... 232,875 - --------------------------------------------------------------------------------------------------------- UTILITY - ELECTRIC -- 2.3% 200,000 Arizona Public Service Co., 7.25% due 8/1/23................................. 188,750 200,000 Philadelphia Electric, 8.75% due 4/1/22...................................... 212,250 - --------------------------------------------------------------------------------------------------------- 401,000 - --------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (Cost -- $605,853)..................................... 633,875 - --------------------------------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS -- 3.0% 500,000 U.S. Treasury Notes, 7.75% due 11/30/99 (Cost -- $499,802)................... 522,605 - --------------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $13,944,802).................................. 15,815,731 - --------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 10.5% 1,859,000 CS First Boston Corp., 6.50% due 1/2/97; Proceeds at maturity -- $1,859,671; (Fully collateralized by U.S. Treasury Note, 7.25% due 2/15/98; Market value -- $1,898,260) (Cost -- $1,859,000).................................... 1,859,000 - --------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $15,803,802*)............................. $17,674,731 - ---------------------------------------------------------------------------------------------------------
+ Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 46 82 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1996
U.S. SOCIAL GOVERNMENT AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------------ ASSETS: Investments -- Cost.................................... $23,037,806 $ 6,883,357 $13,944,802 Repurchase agreements -- Cost.......................... 2,626,000 1,822,000 1,859,000 - ------------------------------------------------------------------------------------------------------------ Investments, at value.................................. $23,222,463 $ 9,332,026 $15,815,731 Repurchase agreements, at value........................ 2,626,000 1,822,000 1,859,000 Cash................................................... 268 697 519,418 Receivable from affiliate.............................. -- 25,093 -- Dividends and interest receivable...................... 239,298 8,769 60,046 - ------------------------------------------------------------------------------------------------------------ TOTAL ASSETS........................................... 26,088,029 11,188,585 18,254,195 - ------------------------------------------------------------------------------------------------------------ LIABILITIES: Payable for Fund shares purchased...................... 35,299 30,508 13,724 Investment advisory fees payable....................... 9,932 -- 9,697 Payable for securities purchased....................... -- 77,340 -- Accrued expenses....................................... 34,264 40,742 16,548 - ------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES...................................... 79,495 148,590 39,969 - ------------------------------------------------------------------------------------------------------------ TOTAL NET ASSETS......................................... $26,008,534 $11,039,995 $18,214,226 - ------------------------------------------------------------------------------------------------------------ NET ASSETS: Paid-in capital........................................ $26,527,392 $ 8,594,239 $16,338,333 Undistributed (overdistributed) net investment income.............................................. (2,726) -- 4,964 Accumulated net realized loss on security transactions........................................ (700,789) (2,913) -- Net unrealized appreciation of investments............. 184,657 2,448,669 1,870,929 - ------------------------------------------------------------------------------------------------------------ TOTAL NET ASSETS......................................... $26,008,534 $11,039,995 $18,214,226 - ------------------------------------------------------------------------------------------------------------ SHARES OUTSTANDING....................................... 2,393,878 700,357 1,490,143 - ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, PER SHARE............................... $10.86 $15.76 $12.22 - ------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 47 83 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
U.S. SOCIAL GOVERNMENT AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO - ----------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest................................................... $ 1,705,367 $ 42,150 $ 209,151 Dividends.................................................. -- 107,312 647,584 - ----------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME.................................... 1,705,367 149,462 856,735 - ----------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2).......................... 86,625 58,250 113,601 Administration fees (Note 2)............................... 24,429 23,155 23,970 Audit and legal............................................ 24,309 24,075 18,415 Shareholder communications................................. 11,714 15,063 11,714 Custody.................................................... 8,711 18,907 7,335 Trustees' fees............................................. 6,544 6,544 6,544 Shareholder and system servicing fees...................... 1,000 1,000 1,000 Registration fees.......................................... 212 212 212 Other...................................................... 1,436 1,500 2,998 - ----------------------------------------------------------------------------------------------------------- TOTAL EXPENSES............................................. 164,980 148,706 185,789 Less: Expense reimbursement (Note 2)....................... -- (36,367) -- - ----------------------------------------------------------------------------------------------------------- NET EXPENSES............................................... 164,980 112,339 185,789 - ----------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME........................................ 1,540,387 37,123 670,946 - ----------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3): Realized Gain (Loss) From Security Transactions (excluding short-term securities): Proceeds from sales..................................... 125,294,879 2,106,414 6,065,073 Cost of securities sold................................. 125,999,485 1,705,595 5,235,457 - ----------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS)................................... (704,606) 400,819 829,616 - ----------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation of Investments: Beginning of year....................................... 797,061 1,289,613 2,093,137 End of year............................................. 184,657 2,448,669 1,870,929 - ----------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION......... (612,404) 1,159,056 (222,208) - ----------------------------------------------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS............................... (1,317,010) 1,559,875 607,408 - ----------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS....................... $ 223,377 $1,596,998 $1,278,354 - -----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 48 84 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1996
U.S. SOCIAL GOVERNMENT AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO - ----------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income...................................... $ 1,540,387 $ 37,123 $ 670,946 Net realized gain (loss)................................... (704,606) 400,819 829,616 Increase (decrease) in net unrealized appreciation......... (612,404) 1,159,056 (222,208) - ----------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS..................... 223,377 1,596,998 1,278,354 - ----------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income...................................... (3,539,054) (233,199) (1,107,181) Net realized gains......................................... (423,418) (525,148) (974,527) - ----------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS............................................ (3,962,472) (758,347) (2,081,708) - ----------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 8): Net proceeds from sale of shares........................... 6,750,676 4,848,116 7,458,285 Net asset value of shares issued for reinvestment of dividends............................................... 3,962,472 758,347 2,081,708 Cost of shares reacquired.................................. (9,157,807) (2,459,930) (5,862,088) - ----------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS........ 1,555,341 3,146,533 3,677,905 - ----------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS............................ (2,183,754) 3,985,184 2,874,551 NET ASSETS: Beginning of year.......................................... 28,192,288 7,054,811 15,339,675 - ----------------------------------------------------------------------------------------------------------- END OF YEAR*............................................... $26,008,534 $11,039,995 $18,214,226 - ----------------------------------------------------------------------------------------------------------- * Includes undistributed (overdistributed) net investment income of:................................................. $(2,726) -- $4,964 - -----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 49 85 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995
U.S. SOCIAL GOVERNMENT AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income....................................... $ 1,520,848 $ 55,079 $ 441,157 Net realized gain........................................... 1,110,792 265,239 144,953 Increase in net unrealized appreciation..................... 3,171,708 1,316,045 2,170,686 - ------------------------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS...................... 5,803,348 1,636,363 2,756,796 - ------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income....................................... (1,404,917) (51,494) (150,491) Net realized gains.......................................... -- (68,327) -- - ------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS... (1,404,917) (119,821) (150,491) - ------------------------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 8): Net proceeds from sale of shares............................ 5,439,282 2,552,645 9,178,587 Net asset value of shares issued for reinvestment of dividends................................................ 1,404,917 119,821 150,491 Cost of shares reacquired................................... (7,572,507) (1,013,468) (2,352,367) - ------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS............................................. (728,308) 1,658,998 6,976,711 - ------------------------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS........................................ 3,670,123 3,175,540 9,583,016 NET ASSETS: Beginning of year........................................... 24,522,165 3,879,271 5,756,659 - ------------------------------------------------------------------------------------------------------------ END OF YEAR*................................................ $28,192,288 $7,054,811 $15,339,675 - ------------------------------------------------------------------------------------------------------------ * Includes undistributed net investment income of:............ $1,520,848 $55,079 $441,157 - ------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 50 86 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 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 ten other separate investment portfolios: Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, Large Cap, Equity Income, Zero Coupon Bond Fund Portfolio Series 1998, 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 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 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 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 and, or minus amortized premium, which approximates market 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 the accrual basis and dividend income is recorded on the ex-dividend date; (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, 1996, reclassifications were made to the Portfolio capital accounts to reflect permanent book/tax differences and income and gains available for distribution under income tax regulations. Accordingly, a portion of overdistributed net investment income and accumulated net realized loss amounting to $6,915 and $9,045, respectively, were reclassified to paid-in capital for Social Awareness Stock Portfolio. 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. In addition, for the year ended December 31, 1996, distributions from realized gains include both net realized short-term and long-term capital gains. Previous to 1996 net realized short-term capital gains were included in distributions from net investment income. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Corporation ("TAMIC"), an indirect wholly owned subsidiary of Travelers Group 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. Greenwich Street Advisors ("GSA"), a division of Smith Barney Mutual Funds Management Inc. ("SBMFM") which is a subsidiary of Smith Barney Holdings Inc. ("SBH") and an indirect wholly owned subsidiary of Travelers Group Inc., acts as investment manager and advisor to the Social Awareness Stock ("SAS") and Utilities ("Utilities") Portfolios. SAS pays GSA 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 GSA an 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. For the year ended December 31, 1996, GSA waived $11,274 of investment advisory fee and has agreed to reimburse expenses in the amount of $25,093 for SAS. 51 87 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (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 SBMFM. Travelers Insurance pays SBMFM, 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 Travelers Group Inc., or its subsidiaries. 3. INVESTMENTS During the year ended December 31, 1996, 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....................................................... $123,349,711 $3,047,308 $8,414,809 - ----------------------------------------------------------------------------------------------------------- Sales........................................................... 125,294,879 2,106,414 6,065,073 - -----------------------------------------------------------------------------------------------------------
At December 31, 1996, aggregate gross unrealized appreciation and depreciation of investments were as follows:
USGS SAS UTILITIES - ----------------------------------------------------------------------------------------------------------- Gross unrealized appreciation*...................................... $239,436 $2,624,768 $2,025,482 Gross unrealized depreciation*...................................... (54,779) (176,099) (154,553) - ----------------------------------------------------------------------------------------------------------- Net unrealized appreciation*........................................ $184,657 $2,448,669 $1,870,929 - -----------------------------------------------------------------------------------------------------------
* Substantially the same for Federal income tax purposes. 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 102% of 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 bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts) and the credit risk should a counterparty fail to perform under such contracts. At December 31, 1996, the Portfolios had no open futures contracts. 52 88 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (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. As of December 31, 1996, the Portfolios had no open purchased call or put options contracts. 7. CAPITAL LOSS CARRYFORWARD At December 31, 1996, U.S. Government Securities Portfolio had, for Federal income tax purposes, approximately $715,000 of capital loss carryforwards available to offset future capital gains through 2004. 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. 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:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 - -------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES PORTFOLIO Shares sold.................................................... 606,114 484,178 Shares issued on reinvestment.................................. 355,511 138,279 Shares redeemed................................................ (834,803) (672,686) - -------------------------------------------------------------------------------------------------------- Net Increase (Decrease)........................................ 126,822 (50,229) - -------------------------------------------------------------------------------------------------------- SOCIAL AWARENESS STOCK PORTFOLIO Shares sold.................................................... 323,694 205,312 Shares issued on reinvestment.................................. 51,251 10,913 Shares redeemed................................................ (167,210) (74,604) - -------------------------------------------------------------------------------------------------------- Net Increase................................................... 207,735 141,621 - -------------------------------------------------------------------------------------------------------- UTILITIES PORTFOLIO Shares sold.................................................... 590,496 822,640 Shares issued on reinvestment.................................. 169,391 14,594 Shares redeemed................................................ (463,451) (209,288) - -------------------------------------------------------------------------------------------------------- Net Increase................................................... 296,436 627,946 - --------------------------------------------------------------------------------------------------------
53 89 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year:
U.S. GOVERNMENT SECURITIES PORTFOLIO 1996 1995 1994 1993 1992(1) - ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR..................... $12.43 $10.58 $11.63 $10.79 $10.00 - ------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment income................................ 0.68 0.65 0.60 0.57 0.53 Net realized and unrealized gain (loss).............. (0.52) 1.80 (1.23) 0.44 0.26 - ------------------------------------------------------------------------------------------------------------ Total Income (Loss) From Operations.................... 0.16 2.45 (0.63) 1.01 0.79 - ------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM (2): Net investment income................................ (1.55) (0.60) (0.39) (0.17) -- Net realized gains................................... (0.18) -- (0.03) -- -- - ------------------------------------------------------------------------------------------------------------ Total Distributions.................................... (1.73) (0.60) (0.42) (0.17) -- - ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR........................... $10.86 $12.43 $10.58 $11.63 $10.79 - ------------------------------------------------------------------------------------------------------------ TOTAL RETURN........................................... 1.46% 24.42% (5.64)% 9.48% 7.90%++ - ------------------------------------------------------------------------------------------------------------ NET ASSETS, END OF YEAR (000'S)........................ $26,009 $28,192 $24,522 $25,520 $9,017 - ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses (3)......................................... 0.62% 0.56% 0.71% 0.58% 0.38%+ Net investment income................................ 5.68 5.80 5.56 5.04 4.72+ - ------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE................................ 501% 214% 16% 51% 25% - ------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO 1996 1995 1994 1993 1992(4) - ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR..................... $14.32 $11.05 $11.64 $10.95 $10.00 - ------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment income (5)............................ 0.31 0.12 0.16 0.17 0.16 Net realized and unrealized gain (loss).............. 2.42 3.47 (0.45) 0.65 0.79 - ------------------------------------------------------------------------------------------------------------ Total Income (Loss) From Operations.................... 2.73 3.59 (0.29) 0.82 0.95 - ------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM (2): Net investment income................................ (0.43) (0.14) (0.24) (0.13) -- Net realized gains................................... (0.86) (0.18) (0.06) -- -- - ------------------------------------------------------------------------------------------------------------ Total Distributions.................................... (1.29) (0.32) (0.30) (0.13) -- - ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR........................... $15.76 $14.32 $11.05 $11.64 $10.95 - ------------------------------------------------------------------------------------------------------------ TOTAL RETURN........................................... 19.98% 33.37% (2.69)% 7.55% 9.50%++ - ------------------------------------------------------------------------------------------------------------ NET ASSETS, END OF YEAR (000'S)........................ $11,040 $7,055 $3,879 $3,361 $1,394 - ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses (5)(6)...................................... 1.25% 1.25% 1.25% 1.05% 0.71%+ Net investment income................................ 0.43 0.99 1.43 1.50 2.22+ - ------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE................................ 26% 73% 137% 60% 56% - ------------------------------------------------------------------------------------------------------------ AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY TRANSACTIONS(7)............................ $0.06 -- -- -- -- - ------------------------------------------------------------------------------------------------------------
(1) For the period from January 24, 1992 (commencement of operations) to December 31, 1992. (2) For the year ended December 31, 1996, distributions from realized gains include both net realized short-term and long-term capital gains. Previous to 1996 net realized short-term capital gains were included in distributions from net investment income. (3) The expense ratios for the year ended December 31, 1993 and the period ended December 31, 1992 reflect expense reimbursement by The Travelers in connection with voluntary expense limitations. Without the expense reimbursement, the expense ratios would have been 0.77% and 0.72% (annualized), respectively. (4) For the period from May 1, 1992 (inception date) to December 31, 1992. (5) For the year ended December 31, 1996, The Travelers reimbursed the 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 expense ratio would have been 1.69%. (6) The expense ratios for the years ended December 31, 1995, 1994, 1993 and the period ended December 31, 1992 reflect expense reimbursement by The Travelers in connection with voluntary expense limitations. Without the expense reimbursement, the expense ratios would have been 1.75%, 3.34%, 3.73% and 2.19% (annualized), respectively. (7) For the fiscal years beginning after 1995, the SEC instituted new guidelines requiring the disclosure of average commissions per share on Funds which held more than 10% of their assets in commissionable equity securities. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 54 90 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year:
UTILITIES PORTFOLIO 1996 1995 1994(1) - -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR....................................... $12.85 $10.17 $10.00 - -------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS: Net investment income.................................................. 0.47 0.48 0.35 Net realized and unrealized gain (loss)................................ 0.47 2.44 (0.18) - -------------------------------------------------------------------------------------------------------- Total Income From Operations............................................. 0.94 2.92 0.17 - -------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM (2): Net investment income.................................................. (0.84) (0.24) -- Net realized gains..................................................... (0.73) -- -- - -------------------------------------------------------------------------------------------------------- Total Distributions...................................................... (1.57) (0.24) -- - -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR............................................. $12.22 $12.85 $10.17 - -------------------------------------------------------------------------------------------------------- TOTAL RETURN............................................................. 7.47% 29.29% 1.70%++ - -------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S).......................................... $18,214 $15,340 $5,757 - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses (3)........................................................... 1.07% 1.25% 1.25%+ Net investment income.................................................. 3.88 4.29 3.86+ - -------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.................................................. 39% 25% 32% - -------------------------------------------------------------------------------------------------------- AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY TRANSACTIONS (4)............ $0.06 -- -- - --------------------------------------------------------------------------------------------------------
(1) For the period from February 4, 1994 (commencement of operations) to December 31, 1994. (2) For the year ended December 31, 1996, distributions from realized gains include both net realized short-term and long-term capital gains. Previous to 1996 net realized short-term capital gains were included in distributions from net investment income. (3) 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. (4) For the fiscal years beginning after 1995, the SEC instituted new guidelines requiring the disclosure of average commissions per share on Funds which held more than 10% of their assets in commissionable equity securities. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized - -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) The amount of long-term capital gains paid for the fiscal year ended December 31, 1996, are $479,773 for the Social Awareness Stock Portfolio and $638,099 for Utilities Portfolio. 55 91 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Shareholders of The Travelers Series Trust: We have audited the accompanying statements of assets and liabilities of the U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and the Utilities Portfolio of The Travelers Series Trust, including the schedules of investments as of December 31, 1996, and the related statements of operations for the year then ended, the statements of changes in net assets for the periods ended December 31, 1996 and 1995, and the financial highlights for each of the applicable periods ended December 31, 1996, 1995, 1994, 1993 and 1992. These financial statements and financial highlights are the responsibility of management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and also with brokers for the Social Awareness Stock Portfolio. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the U.S. Government Securities Portfolio, Social Awareness Stock Portfolio, and Utilities Portfolio of The Travelers Series Trust as of December 31, 1996, the results of their operations for the year then ended, the changes in their net assets for the periods ended December 31, 1996 and 1995, and the financial highlights for each of the applicable periods ended December 31, 1996, 1995, 1994, 1993 and 1992, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 24, 1997 56 92 Investment Advisers -------------------- CAPITAL APPRECIATION FUND THE TRAVELERS INVESTMENT MANAGEMENT COMPANY Hartford, Connecticut MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CASH INCOME TRUST 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 SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC. New York, New York Independent Accountants ------------------------- COOPERS & LYBRAND L.L.P. Hartford, Connecticut 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, Cash Income Trust, 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 and the Prospectuses for the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. VG-181 (Annual)(12-96) Printed in U.S.A. 93 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) The financial statements of the Registrant and the Report of Independent Accountants are contained in the Fund's Annual Report which is incorported in the Statement of Additional Information by reference. The Registrant's financial statements include: Statement of Assets and Liabilities as of December 31, 1996 Statement of Operations for the year ended December 31, 1996 Statement of Changes in Net Assets for the years ended December 31, 1996 and 1995 Statement of Investments as of December 31, 1996 Notes to Financial Statements (b) Exhibits 1. Declaration of Trust. (Incorporated herein by reference to Exhibit 1 to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) 2. By-Laws of Managed Assets Trust (Incorporated herein by reference to Exhibit 2 to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) 5(A). Investment Advisory Agreement between the Registrant and Travelers Asset Management International Corporation. Incorporated herein by reference to Exhibit 5(A) to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) 5(B). Sub-Advisory Agreement between Travelers Asset Management International Corporation and The Travelers Investment Management Company. (Incorporated herein by reference to Exhibit 5(B) to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) 8(A). Custody Agreement between the Registrant and PNC Bank, N.A., Lester, PA. To be filed by amendment. 8(B). Custody Agreement between the Registrant and Barclay's Bank, PLC, New York, NY. To be filed by amendment. 9. Administrative Services Agreement between the Registrant and The Travelers Insurance Company. (Incorporated herein by reference to Exhibit 9 to Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A filed on February 20, 1997.) 10. An Opinion and Consent of counsel as to the legality of the securities registered by the Registrant. (Incorporated herein by reference to the Registrant's most recent Rule 24f-2 Notice filing on February 28, 1997.) 11(A). Consent of Coopers & Lybrand L.L.P., Independent Accountants. 94 11(B). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Heath B. McLendon, Knight Edwards, Robert E. McGill III, Lewis Mandell, Frances M. Hawk and Ian R. Stuart. (Incorporated herein by reference to Exhibit 11(B) to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1 filed April 11, 1996.) Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Lewis E. Daidone. (Incorporated herein by reference to Exhibit 11(B) to Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A filed on February 20, 1997.) 27. Financial Data Schedule. Item 25. Persons Controlled By or Under Common Control With the Registrant Not Applicable. Item 26. Number of Holders of Securities
Number of Record Holders Title of Class as of February 20, 1997 -------------- --------------------------- Shares of beneficial interest, Tour (4) without par value
Item 27. Indemnification Provisions for the indemnification of the Fund's Trustees and officers are contained in the Fund's Declaration of Trust which was filed with Post-Effective Amendment No. 19 to this Registration Statement as Exhibit 1 on April 11, 1996. Rule 484 Undertaking Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liability (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 95 Item 28. Business and Other Connections of Investment Adviser Officers and Directors of Travelers Asset Management International Corporation (TAMIC), the Fund's Investment Adviser, are set forth in the following table:
Name Position with TAMIC Other Business - ---- ------------------- -------------- Marc P. Weill Director and Chairman Senior Vice President ** David A. Tyson Director, President and Senior Vice President * Chief Investment Officer Joseph E. Rueli, Jr. Director, Vice President Vice President* and Chief Financial Officer F. Denney Voss Director, and Senior Vice President* Senior Vice President John R. Britt Director and Secretary Assistant Secretary * Joseph M. Mullally Senior Vice President Vice President* David Amaral Vice President Assistant Director* John R. Calcagni Vice President Second Vice President* Gene Collins Vice President Vice President* Kathyrn D. Karlic Vice President Vice President* David R. Miller Vice President Vice President* Emil J. Molinaro Vice President Vice President* Jordan M. Stitzer Vice President Vice President William H. White Treasurer Vice President and Treasurer * Charles B. Chamberlain Assistant Treasurer Assistant Treasurer * George C. Quaggin, Jr. Assistant Treasurer Assistant Treasurer * Marla A. Berman Assistant Secretary Assistant Secretary** Patricia A. Uzzel Compliance Officer Assistant Director* Frank J. Fazzina Controller Director *
* Positions are held with The Travelers Insurance Group Inc., One Tower Square, Hartford, Connecticut 06183. ** Positions are held with Travelers Group Inc., 388 Greenwich Street, New York, N.Y. 10013. 96 Officers and Directors of The Travelers Investment Management Company (TIMCO), the Fund's Sub-Adviser, are set forth in the following table:
Name Position with TIMCO Other Business - ---- ------------------- -------------- Jeffrey B. Lane Director and Chairman Vice Chairman Smith Barney Inc.* Kent A. Kelley Director and Chief** Not Applicable Executive Officer Sandip A. Bhagat Director and President** Not Applicable Heath B. McLendon Director Managing Director Smith Barney Inc.* Jacob E. Hurwitz Senior Vice President** Not Applicable Emil Molinaro Vice President Vice President Travelers Group Inc.** Daniel Willey Vice President** Not Applicable Gloria G. Williams Assistant Vice President** Not Applicable Michael F. Rosenbaum Corporate Secretary General Counsel to Asset Management Smith Barney Inc.* Michael Day Treasurer Managing Director Smith Barney Inc.*
*Address: Smith Barney Inc., 388 Greenwich Street, New York, New York 10013 **Address: One Tower Square, Hartford, Connecticut 01683 Item 29. Principal Underwriter Not Applicable. Item 30. Location of Accounts and Records (1) Smith Barney Mutual Funds Management Inc. 388 Greenwich Street New York, NY 10013 (2) PNC Bank, N.A. 200 Stevens Drive Lester, PA 19113 (3) Barclay's Bank, PLC 75 Wall Street New York, New York 10265 97 Item 31. Management Services Not Applicable. Item 32. Undertakings The undersigned Registrant hereby undertakes to provide to each person to whom a prospectus is delivered a copy of the Registrant's latest annual report to shareholders, upon request and without charge. 98 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Managed Assets Trust, certifies that it meets all of the requirements for effectiveness of this post-effective amendment to this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and that it has duly caused this amendment to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hartford, State of Connecticut, on April 17, 1997. MANAGED ASSETS TRUST -------------------- (Registrant) By: *HEATH B. McLENDON --------------------------------- Heath B. McLendon Chairman, Board of Trustees Pursuant to the requirements of the Securities Act of 1933, this post-effective amendment to this Registration Statement has been signed below by the following persons in the capacities indicated on April 17, 1997. *HEATH B. McLENDON Chairman of the Board - ------------------ (Heath B. McLendon) *KNIGHT EDWARDS Trustee - --------------------------------------- (Knight Edwards) *ROBERT E. McGILL III Trustee - --------------------------------------- (Robert E. McGill III) *LEWIS MANDELL Trustee - --------------------------------------- (Lewis Mandell) *FRANCES M. HAWK Trustee - --------------------------------------- (Frances M. Hawk *LEWIS E. DAIDONE Treasurer - --------------------------------------- (Lewis E. Daidone) *By: Ernest J. Wright, Attorney-in-Fact Secretary, Board of Trustees 99 EXHIBIT INDEX
Exhibit No. Description Method of Filing - ------- ----------- ---------------- 1. Declaration of Trust. (Incorporated herein by reference to Exhibit 1 to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) 2. By-Laws of Managed Assets Trust. (Incorporated herein by reference to Exhibit 2 to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) 5(A). Investment Advisory Agreement between the Registrant and Travelers Asset Management International Corporation. (Incorporated herein by reference to Exhibit 5(A) to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) 5(B). Sub-Advisory Agreement between Travelers Asset Management International Corporation and The Travelers Investment Management Company. (Incorporated herein by reference to Exhibit 5(B) to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) 8(A). Custody Agreement between the Registrant and To be filed by PNC Bank, N.A. of Lester, PA. amendment 8(B). Custody Agreement between the Registrant and To be filed by Barclay's Bank, PLC of New York, NY. amendment 9. Administrative Services Agreement between the Registrant and The Travelers Insurance Company. (Incorporated herein by reference to Exhibit 9 to Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A filed on February 20, 1997.) 10. An Opinion and Consent of counsel as to the legality of the securities registered by the Registrant. (Incorporated herein by reference to the Registrant's most recent Rule 24f-2 Notice filing on February 28, 1997.) 11(A). Consent of Coopers & Lybrand L.L.P., Independent Electronically Accountants.
100
Exhibit No. Description Method of Filing - ------- ----------- ---------------- 11(B). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Heath B. McLendon, Knight Edwards, Robert E. McGill III, Lewis Mandell, Frances M. Hawk and Ian R. Stuart. (Incorporated herein by reference to Exhibit 11(B) to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A filed on April 11, 1996.) Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Lewis E. Daidone. (Incorporated herein by reference to Exhibit 11(B) to Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A filed on February 20, 1997.) 27. Financial Data Schedule. Electronically
EX-27 2 FINANCIAL DATA SCHEDULE
6 0000706453 MANAGED ASSETS TRUST YEAR DEC-31-1996 DEC-31-1996 162,004,962 187,681,956 1,538,038 518 0 189,220,512 519,223 0 90,808 610,031 0 158,673,246 12,594,215 11,045,728 689,249 0 3,570,992 0 25,676,994 188,610,481 2,160,122 5,087,435 0 1,026,111 6,221,446 13,430,793 3,373,072 23,025,311 0 10,914,123 17,258,729 0 469,580 847,611 1,926,518 23,025,311 5,381,926 7,398,928 0 0 891,042 0 1,026,111 177,249,173 15.50 00.46 01.50 00.89 01.59 0 14.98 00.58 0 0
EX-99.11.A 3 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 11(A) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Post-Effective Amendment No. 22 to the Registration Statement of Managed Assets Trust (the "Fund") on Form N-1A (File Nos. 2-79359; 811-3568) of our report dated February 24, 1997, on our audits of the financial statements and financial highlights of the Fund, which report is included in the Fund's Annual Report for the year ended December 31, 1996 which is incorporated by reference in the Post-Effective Amendment to the Registration Statement. We also consent to the reference to our Firm as experts in accounting and auditing under the caption "Additional Information" in the Statement of Additional Information. COOPERS & LYBRAND L.L.P. Hartford, Connecticut April 18, 1997 -----END PRIVACY-ENHANCED MESSAGE-----