-----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, Ud+Om5RGh7MvOlrfl5XfTbzYYHIh53UroZ2oxN9sNioeW7bLllR8win9CYyoCxwK tGcQoRQWBzmQwGhHgFbJ0A== 0000950123-96-004618.txt : 19960928 0000950123-96-004618.hdr.sgml : 19960928 ACCESSION NUMBER: 0000950123-96-004618 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960821 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: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03568 FILM NUMBER: 96618422 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASH INCOME TRUST CENTRAL INDEX KEY: 0000355751 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046465300 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03274 FILM NUMBER: 96618423 BUSINESS ADDRESS: STREET 1: ONE TOWER SQUARE 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 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE MONEY TRUST DATE OF NAME CHANGE: 19850806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGH YIELD BOND TRUST CENTRAL INDEX KEY: 0000701387 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046475146 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03428 FILM NUMBER: 96618424 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 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE BOND TRUST DATE OF NAME CHANGE: 19600201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL APPRECIATION FUND/CT CENTRAL INDEX KEY: 0000701388 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046475147 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03429 FILM NUMBER: 96618425 BUSINESS ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 BUSINESS PHONE: 2032775134 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 FORMER COMPANY: FORMER CONFORMED NAME: FIRST CAPITAL APPRECIATION FUND DATE OF NAME CHANGE: 19950420 FORMER COMPANY: FORMER CONFORMED NAME: AGGRESSIVE STOCK TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE STOCK TRUST DATE OF NAME CHANGE: 19860113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS SERIES TRUST CENTRAL INDEX KEY: 0000880583 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 061346133 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06465 FILM NUMBER: 96618426 BUSINESS ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: C/O TRAVELERS INSURANCE CO CITY: HARTFORD STATE: CT ZIP: 06183-2020 BUSINESS PHONE: 2032777379 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 N-30D 1 N-30D 1 THE TRAVELERS VARIABLE PRODUCTS FUNDS - ------------------------------------------------------------------------------- SEMI-ANNUAL REPORTS - ------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------- JUNE 30, 1996 - ------------------------------------------------------------------------------- [TRAVELERS INSURANCE LOGO] THE TRAVELERS INSURANCE COMPANY ONE TOWER SQUARE HARTFORD, CONNECTICUT 06183 2 [TIMCO LOGO] The Travelers Investment Management Company ("TIMCO") provides management and advisory services for the Capital Appreciation Fund. Additionally, TIMCO is a sub-adviser for Managed Assets Trust. Effective July 1, 1996, Travelers Asset Managaement International Corporation replaces TIMCO as investment adviser for Capital Appreciation Fund. [TAMIC LOGO] Travelers Asset Management International Corporation ("TAMIC") provides fixed income management and advisory services for the following Travelers Variable Products Funds contained in the report: U.S. Government Securities Portfolio, High Yield Bond Trust, Managed Assets Trust and Cash Income Trust. Effective July 1, 1996, TAMIC replaces TIMCO as investment adviser for Capital Appreciation Fund. [JANUS LOGO] Janus Capital Corporation ("Janus") is the sub-adviser for Capital Appreciation Fund. As sub-adviser, Janus is responsible for the daily management of Capital Appreciation Fund. [SMITH BARNEY LOGO] A division of Smith Barney Mutual Funds Management Inc., Greenwich Street Advisors provides mangement and advisory services for the following Travelers Variable Products Funds contained in this report: Social Awareness Stock Portfolio and Utilities Portfolio. 3 [TRAVELERS LOGO] THE TRAVELERS VARIABLE PRODUCTS FUNDS INVESTMENT ADVISORY COMMENTARY AS OF JUNE 30, 1996 ECONOMIC REVIEW AND OUTLOOK The economy finished the first half of the year on a strong note. The broadest measure of the rate of growth for the U.S. economy, the Gross Domestic Product ("GDP"), is expected to be a robust 4% to 4.5% for the second quarter. This follows a stronger than expected first quarter GDP of 2.2%. Numerous economic reports released in the second quarter pointed to an accelerating trend. Most notably, consumer spending increased 5.2% during the first half of the year, despite high levels of personal debt. This appears to have been the key factor in the economy's good first half performance. Sales in both the housing and auto sectors were surprisingly strong. Employment growth continued, and unemployment declined to 5.3%. Business investment also remained strong, with first quarter capital spending increasing by approximately 14%. Furthermore, companies maintained low inventories, leaving room for future growth as inventories are rebuilt to normal levels. Finally, renewed growth was observed in major overseas economies, creating an improved outlook for the export sector of the U.S. economy. This picture of solid economic momentum increases the probability that the Federal Reserve Board ("Fed") will shift to a tighter monetary policy and raise short-term interest rates before the end of the year. In order to maintain wage and price stability, Fed policy is focused on constraining economic growth. For investors, the key issue is whether fears of future Fed tightening will drive long-term yields toward levels reached during 1994. It appears to be a foregone conclusion among private analysts that current levels of unemployment will cause wage pressures to increase. The question remains whether corporations will be able to pass these increases into consumer prices and if so, what impact it will have on inflationary expectations. On the plus side, other sources of inflation have been under control. Commodity prices have been weak lately and the dollar has been strong. Short-term interest rates are more than 2% over the Consumer Price Index ("CPI"), keeping downward pressure on inventories. Inflation expectations in the consumer sentiment surveys are still below 3%, compared to 4% in 1994. With the steep rise in long bond yields during the first half of the year, we expect housing and auto sales to slow in the second half. If demand in these sectors does not slow in the second half, we doubt that the Fed will have any choice but to raise short-term interest rates aggressively. Interest rates for both long and short maturities are unlikely to have a sustained decline until the Fed is judged to have placed an effective damper on the cyclical build-up in wage and inflation pressures. FIXED INCOME COMMENTARY Surprisingly strong consumer spending and employment growth in the first half of the year banished the slow growth expectations that dominated the bond market at year end. Interest rates rose sharply during the first half of the year, resulting in generally poor performance for bonds. The Lehman Government/Corporate Bond Index, a broad based bond index, declined 1.9% for the first six months. The bond market finally stabilized late in the second quarter, with most bond indices posting a positive price return in June. Corporate bonds returned a negative 2.1% and lagged the Treasury sector for the first six months. The best performing issuer sectors were tobacco, airlines, Canadians and sovereigns. A favorable decision in the Castano case enabled the tobacco issues to rally as yields declined relative to Treasuries. Airlines continue to post strong earnings and are buying back their debt with excess cashflow. Against the backdrop of favorable international developments, including an upgrade in Italy's credit rating, sovereign bonds also increased in price. Issuer sectors that lagged were cable, gaming, autos and banks. Credit downgrades in the media sector and new issuance in the auto sector put pressure on yield spreads in those sectors. As the market began to anticipate the need for the Fed to increase short-term interest rates, finance and bank issues declined in price. Despite recent underperformance, yields on investment grade corporate bonds remain below the normal range relative to Treasuries. -1- 4 In the mortgage backed sector, fears of consumer refinancing vanished as interest rates rose. With yield volatility reduced, mortgage backed securities outperformed similar Treasury securities. Moreover, narrow corporate yield spreads relative to Treasuries prompted a shift of investor interest to this sector. During the first half, the Lehman Mortgage Index returned 0.4%. Over the same period, the high yield market also performed relatively well. The First Boston High-Yield Index reported a return of 3.8%. The last two years have seen heavy issuance of high-yield debt, in the midst of a hot initial public offering market for equities, and active competition by banks for loan syndication. It is uncertain how well high yield securities will weather the next downturn in the credit cycle if these other sources of financing are shut down. If the stock market were to unravel, more speculative financings may find themselves in trouble. In the second quarter, municipal bonds performed relatively well as tax exempt yields continued to decline relative to Treasuries. Municipal bonds with maturities shorter than 10 years, still relatively cheap at year end, rallied in price and now trade at more normal yield spreads. EQUITY COMMENTARY Better than expected corporate earnings gains and unprecedented inflows into equity mutual funds helped stock prices to move broadly higher during the first six months of 1996. For the six-month period ending June 30, the Standard and Poor's 500 Stock Index ("S&P 500"), a broad based stock market index, recorded a total return (including dividends) of 10.1%. The Russell 2000 Stock Index, a measure of performance for the small cap sector, provided a total return of 10.4% over the same period. Against the inclement backdrop of rising interest rates and diminishing earnings momentum, liquidity factors - record mutual fund inflows and corporate stock buybacks - appeared to provide the critical catalyst for the market advance. As signs of the economy's strength emerged early in the year, investor focus shifted away from stable growth stocks and towards consumer cyclical stocks, particularly those in the department store, airline and auto groups. In the energy sector, the drilling equipment and oil field service stocks rose on strong earnings gains and expectations for increased capital spending by major global energy companies. Technology stocks rebounded somewhat after their late 1995 decline, but weaker earnings momentum continued to dampen valuations in most technology related groups. While more than half of all companies announced positive earnings surprises for the first quarter, the 6% average gain in operating earnings was the most sluggish year-over-year rate of profit growth observed during the current business expansion. Early in the second quarter, however, equity investors reversed course and began to rotate back into more defensive, growth-oriented sectors on the expectation that higher interest rates would translate into slower economic growth by year end. In the staples sector, beverage stocks performed well in response to solid revenue gains. In the consumer sector, improving sales fueled a rally in the retail and apparel groups. Energy exploration, pipeline and distribution stocks benefited from strong natural gas pricing. However, basic material stocks continued to weaken on declining prices for many industrial commodities and concern over the possibility of an economic slowdown. Within the technology sector, performance was mixed. While most of the stocks in the semiconductor group continued to trade lower, the networking and software groups were strong, reflecting continued order growth from corporate customers. We are currently somewhat cautious towards the equity market. The bear case is built upon a valuation argument that points to price-to-book and price-to-dividend ratios in excess of historical norms. There is also a growing concern that the Fed may tighten monetary policy in the near term if employment and economic reports show continued strength. Clearly, Fed action in the direction of higher interest rates will curtail the supply of liquidity that has been so important for recent stock market performance. On the other hand, optimists hold that slower economic growth, while perhaps placing earnings temporarily at risk, would forestall aggressive tightening by the Fed and eventually set the stage for lower interest rates. They also point to the fact that stocks do not appear expensive if consensus earnings forecasts are evaluated relative to interest rates and observed inflation. The second quarter earnings reports probably hold the key to short-term equity performance. If the majority of earnings announcements meet or exceed analyst estimates, the downside risk of holding stocks should be limited. -2- 5 TABLE OF CONTENTS
PAGE - ------------------------------------------------------------------------------------------------------- MANAGED ASSETS TRUST.............................................................................. 4 HIGH YIELD BOND TRUST.............................................................................16 CAPITAL APPRECIATION FUND.........................................................................25 CASH INCOME TRUST.................................................................................34 THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO..............................................................42 SOCIAL AWARENESS STOCK PORTFOLIO..................................................................47 UTILITIES PORTFOLIO...............................................................................54
-3- 6 MANAGED ASSETS TRUST Stock prices moved broadly higher during the first half of 1996, helped by continued corporate earnings growth. However, while slightly more than half of all companies announced positive earnings surprises in the first quarter, the 6% gain in operating earnings was the most sluggish year-over-year rate of profit growth observed during the current business expansion. In the credit markets, the yield on 30-year Treasury bonds moved back over 7%; and consensus shifted toward the probability of a more restrictive Federal Reserve Board ("Fed") policy in the second half of the year. The Standard & Poor's 500 Stock Index was up 10.1% in the first half. Small capitalization stocks as measured by the Russell 2000 Stock Index were up 10.4% for the same period. Against the backdrop of surprisingly strong economic growth and rising interest rates, bonds performed poorly during the first half of the year. The Lehman Government/Corporate Bond Index, a broad based bond index, returned a negative 1.9% for the first six months. Managed Assets Trust performed in line with its 60/40% equity/bond benchmark over this period. A modest underweighting in stocks hurt the fund's performance relative to our benchmark, but was offset by favorable stock selection and the portfolio's holdings of convertible securities. The bond holdings in our portfolio slightly lagged the Lehman Government/Corporate Bond Index as the result of having a longer average maturity. We are currently somewhat cautious towards the equity market. The stock market's performance in the first half was strong despite lackluster earnings and the steep backup in interest rates. The market's price earnings ratio is fair to slightly rich relative to what it should be given the current level of interest rates. This may leave stocks vulnerable to any further rise in interest rates. When the 30-year Treasury yield has crossed the 7% level (as it did in June and early July), the stock market has sold off. Historically, stock prices correlate inversely to changes in short-term interest rates; and therefore an extended Fed tightening cycle would hurt stocks. PORTFOLIO MANAGERS: KENT A. KELLEY, CFA - DAVID A. TYSON, PH.D., CFA -4- 7 MANAGED ASSETS TRUST STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1996 ASSETS: Investment securities, at market value (identified cost $157,628,585)...... $ 176,874,603 Receivables: Dividends............................................................... 169,631 Interest................................................................ 874,216 Investment securities sold.............................................. 163,044 Variation on futures margin............................................. 18,750 -------------- Total Assets......................................................... 178,100,244 -------------- LIABILITIES: Cash overdraft............................................................. 135,913 Payables: Investment securities purchased......................................... 142,472 Investment management and advisory fees................................. 14,521 Accrued expenses........................................................... 20,618 -------------- Total Liabilities.................................................... 313,524 -------------- NET ASSETS.................................................................... $ 177,786,720 ============== NET ASSETS REPRESENTED BY: Paid-in capital............................................................ $ 147,882,048 Undistributed net investment income........................................ 2,532,516 Accumulated net realized gains (losses) on investment security transactions 8,126,138 Net unrealized appreciation on investment securities....................... 19,246,018 -------------- Total net assets (applicable to 11,870,041 shares outstanding at $14.97 per share)............................................................ $ 177,786,720 ==============
See Notes to Financial Statements -5- 8 MANAGED ASSETS TRUST STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1996 INVESTMENT INCOME: Dividends.................................................. $ 1,086,939 Interest................................................... 1,945,124 -------------- Total income............................................ $ 3,032,063 EXPENSES: Investment management and advisory fees.................... 434,042 Accounting and audit fees.................................. 28,010 Custodian fees............................................. 16,502 Printing and postage....................................... 14,182 Trustees' fees............................................. 5,478 Registration fees.......................................... 268 Legal fees................................................. 1,065 -------------- Total expenses.......................................... 499,547 -------------- Net investment income................................ 2,532,516 -------------- REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON INVESTMENT SECURITIES: Realized gain from investment security transactions: Proceeds from investment securities sold................ 120,519,331 Cost of investment securities sold...................... 111,842,435 -------------- Net realized gain.................................... 8,676,896 Change in unrealized gain on investment securities: Unrealized gain at December 31, 1995.................... 22,303,922 Unrealized gain at June 30, 1996........................ 19,246,018 -------------- Net change in unrealized gain for the period......... (3,057,904) -------------- Net realized gain and change in unrealized gain .. 5,618,992 -------------- Net increase in net assets resulting from operations....... $ 8,151,508 ==============
See Notes to Financial Statements -6- 9 MANAGED ASSETS TRUST STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED DECEMBER JUNE 30, 31, 1996 1995 ---- ---- (UNAUDITED) OPERATIONS: Net investment income......................................... $ 2,532,516 $ 5,381,926 Net realized gain from investment security transactions....... 8,676,896 7,915,343 Net change in unrealized gain (loss) on investment securities. (3,057,904) 23,599,777 -------------- -------------- Net increase in net assets resulting from operations....... 8,151,508 36,897,046 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income and net short-term realized gains from investment security transactions........................... (8,598,409) (5,441,569) Net long-term realized gains from investment security transactions............................................... (4,733,203) (1,783,880) -------------- -------------- Total distributions to shareholders........................ (13,331,612) (7,225,449) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold..................................... 3,381,554 5,376,731 Dividend reinvestment......................................... 13,331,612 7,225,449 Payments for shares redeemed.................................. (5,021,856) (11,885,171) -------------- -------------- Net increase in net assets resulting from capital share transactions............................................. 11,691,310 717,009 -------------- -------------- Net increase in net assets.............................. 6,511,206 30,388,606 NET ASSETS: Beginning of period........................................... 171,275,514 140,886,908 -------------- -------------- End of period (including undistributed net investment income as follows: June, 1996 $2,532,516 and December, 1995 $5,381,926)....... $ 177,786,720 $ 171,275,514 ============== ==============
See Notes to Financial Statements -7- 10 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES Managed Assets Trust ("Fund MA") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Shares of Fund MA are currently offered, without a sales charge, to separate accounts of The Travelers Insurance Company ("The Travelers") and The Travelers Life and Annuity Company, indirect wholly owned subsidiaries of Travelers Group Inc., in connection with the issuance of certain variable annuity and variable life insurance contracts. The following is a summary of significant accounting policies consistently followed by Fund MA in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the last-reported sale price as of the close of business of the New York Stock Exchange on the last business day of the period; securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last-reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. When market quotations are not considered to be readily available for long-term corporate bonds and notes, such investments are generally stated at fair value on the basis of valuations furnished by a pricing service. These valuations are determined for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Securities, including restricted securities, for which pricing services are not readily available are valued by management at prices which it deems in good faith to be fair. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued by computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity. FUTURES CONTRACTS. Fund MA may use stock index futures contracts, and may also use interest rate futures contracts, as a substitute for the purchase or sale of individual securities. When Fund MA enters into a futures contract, it agrees to buy or sell a specified index of stocks or debt securities at a future time for a fixed price, unless the contract is closed prior to expiration. Fund MA is obligated to deposit with a broker an "initial margin" equivalent to a percentage of the face, or notional value of the contract. It is Fund MA's practice to hold cash and cash equivalents in an amount at least equal to the notional value of outstanding purchased futures contracts, less the initial margin. Cash and cash equivalents include cash on hand, securities segregated under federal and brokerage regulations, and short-term highly liquid investments with maturities generally three months or less when purchased. When Fund MA holds futures contracts to sell a specified index of stocks (hedging), there is no requirement to hold cash and cash equivalents in an amount at least equal to the notional value of the contracts, less the initial margin. Generally, futures contracts are closed prior to expiration. Futures contracts purchased by Fund MA are priced and settled daily; accordingly, changes in daily prices are recorded as realized gains or losses and no asset is recorded in the Statement of Investments. However, when Fund MA holds open futures contracts, it assumes a market risk generally equivalent to the underlying market risk of changes in the value of the specified indexes or debt securities associated with the futures contract. OPTIONS. Fund MA may purchase index or individual equity put or call options, thereby obtaining the right to sell or buy a fixed number of shares of the underlying asset at the stated price on or before the stated expiration date. Fund MA may sell the options before expiration. Options held by Fund MA are listed on either national securities exchanges or on over-the-counter markets, and are short-term contracts with a duration of less than nine months. The market value of the options will be the latest sale price at the close of the New York Stock Exchange, or in the absence of such sale, the latest bid quotation. -8- 11 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED REPURCHASE AGREEMENTS. When Fund MA enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed-upon date and price), the repurchase price of the securities will generally equal the amount paid by Fund MA plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Fund MA securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Fund MA monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Fund MA's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. TAXES. Fund MA has qualified, and intends to continue to qualify each year, as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment company, Fund MA is relieved of any federal income tax liability by distributing all of its net taxable investment income and net taxable capital gains, if any, to its shareholders. Fund MA further intends to avoid excise tax liability by distributing substantially all of its investment income. Therefore, no federal income tax provision has been made by Fund MA in its financial statements. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded at the close of business on the record date. 2. INVESTMENTS Purchases and sales of investment securities excluding short-term investments aggregated $65,593,910 and $73,562,023, respectively, for common stocks and bonds; purchases and sales of direct and indirect U.S. government obligations were $39,602,926 and $47,718,819, respectively, for the six months ended June 30, 1996. Realized gains and losses from security transactions are reported on an identified-cost basis. Fund MA placed a portion of its security transactions with brokerage firms which are affiliates of The Travelers. The commissions paid to these affiliated firms were $10,027 and $18,409 for the six months ended June 30, 1996 and the year ended December 31, 1995, respectively. At June 30, 1996, Fund MA held 10 open S&P 500 Stock Index futures contracts with a maturity date of September 20, 1996. The face value, or notional value, of these contracts at June 30, 1996, amounted to $3,384,000. In connection with these contracts, short-term investments with a par value of $1,200,000 had been pledged as margin deposits. Net realized losses resulting from futures contracts were $761,511 and $5,401,042 for the six months ended June 30, 1996 and the year ended December 31, 1995, respectively. These losses are included in the net realized gain from investment security transactions on both the Statement of Operations and the Statement of Changes in Net Assets. The cash settlement for June 30, 1996 is shown on the Statement of Assets and Liabilities as a receivable for variation on futures margin. -9- 12 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 3. FUND CHARGES Investment management and advisory fees are calculated daily at an annual rate of 0.50% of Fund MA's average net assets. These fees are paid to Travelers Asset Management International Corporation ("TAMIC"), an indirect wholly owned subsidiary of Travelers Group Inc. Pursuant to a sub-advisory agreement between The Travelers Investment Management Company ("TIMCO"), an indirect wholly owned subsidiary of Travelers Group Inc., and TAMIC, 50% of the investment management and advisory fees earned by TAMIC are paid to TIMCO for investment management and advisory services relating to the equity investments of Fund MA. The Travelers has agreed to reimburse Fund MA for the amount by which Fund MA's aggregate annualized operating expenses, excluding brokerage commissions and any interest charges and taxes, exceed 1.25% of Fund MA's average net assets. Trustees and officers of Fund MA who are also officers and employees of Travelers Group Inc., or its subsidiaries, receive no compensation directly from Fund MA. 4. 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 Fund MA were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------- ------------- 1996 1995 ---- ---- Shares sold............................................ 229,488 375,304 Shares redeemed........................................ (341,384) (871,567) Shares issued in reinvestment of distributions: from net investment income and net short-term realized gains.................................... 603,507 433,799 from net long-term realized gains................... 332,702 147,492 ------------ ------------- Net.................................................... 824,313 85,028 ============ =============
As of June 30, 1996 all outstanding shares of beneficial interest were owned by The Travelers Fund U for Variable Annuities and The Travelers Fund UL for Variable Life Insurance, both of which are separate accounts of The Travelers. -10- 13 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 5. FINANCIAL HIGHLIGHTS (Selected data for a share outstanding throughout each period.)
SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) -------- ------------------------------------------------- 1996 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- PER SHARE DATA: - --------------- Net asset value, beginning of period......... $ 15.50 $ 12.85 $ 14.21 $ 14.02 $ 14.78 $ 12.77 Income from operations ---------------------- Net investment income...................... 0.22 0.49 0.46 0.51 0.64 0.74 Net gains or losses on securities (realized and unrealized)................ 0.46 2.83 (0.73) 0.72 0.01 1.91 -------- --------- -------- --------- -------- -------- Total from investment operations.......... 0.68 3.32 (0.27) 1.23 0.65 2.65 Less distributions ------------------ Distributions from net investment income and net short-term realized gains........ (0.78) (0.50) (0.67) (0.85) (1.04) (0.64) Distributions from net long-term realized gains.................................... (0.43) (0.17) (0.42) (0.19) (0.37) - -------- --------- -------- --------- -------- -------- Total distributions....................... (1.21) (0.67) (1.09) (1.04) (1.41) (0.64) Net asset value, end of period............... $ 14.97 $ 15.50 $ 12.85 $ 14.21 $ 14.02 $ 14.78 ======== ========= ======== ========= ======== ======== TOTAL RETURN* 4.79 % 27.12 % (2.24)% 9.33 % 5.14 % 21.70 % - ------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------- Net assets, end of period (thousands)...... $ 177,787 $171,276 $140,887 $ 156,767 $148,971 $126,021 Ratio of expenses to average net assets**.. 0.58%# 0.58% 0.61% 0.56% 0.56% 0.56% Ratio of net investment income to average net assets............................... 2.92%# 3.49% 3.59% 3.65% 4.97% 5.49% Portfolio turnover rate.................... 64% 110% 97% 86% 112% 141% Average commission rate paid##............. $ 0.0460 - - - - -
* Total return is determined by dividing the increase (decrease) in value of a share during the period, after reflecting the reinvestment of dividends declared during the period, by the beginning of period share price. As described in Note 1, shares in Fund MA are only sold to separate accounts of The Travelers Insurance Company and the Travelers Life and Annuity Company in connection with the issuance of variable annuity and variable life insurance contracts. The total return does not reflect the deduction of any contract charges or fees assessed by these separate accounts. For periods of less than one year, total returns are not annualized. ** The ratio of expenses to average net assets for the years 1991-1993 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%, 0.63%, and 0.69% for the years ended December 31, 1993, 1992, and 1991, respectively. For the six months ended June 30, 1996 and the years ended December 31, 1995 and 1994, there were no expense reimbursements by The Travelers in connection with the voluntary expense limitations described in Note 3. # Annualized. ## Calculated by dividing the total dollar amount of commissions paid for equity securities by the total number of shares purchased and sold during the period. -11- 14 MANAGED ASSETS TRUST STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 1996
NO. OF MARKET SHARES VALUE ------- -------------- COMMON STOCKS (53.0%) AMUSEMENTS (0.8%) Mirage Resorts, Inc. (A) 8,200 $ 442,800 Walt Disney Co. 17,577 1,105,153 -------------- 1,547,953 -------------- BANKING (3.5%) Banc One Corp. 7,289 247,826 Bank of Boston Corp. 2,200 108,900 Bank of New York Co., Inc. 3,500 179,375 BankAmerica Corp. 7,000 530,250 Barnett Banks, Inc. 1,800 109,800 Chase Manhattan Corp. 12,736 899,480 Citicorp 13,700 1,131,963 Golden West Financial Corp. 4,700 263,200 Mellon Bank Corp. 2,400 136,800 NationsBank Corp. 8,400 694,050 Norwest Corp. 19,200 669,600 Star Banc Corp. 4,700 316,662 SunTrust Banks, Inc. 11,800 436,600 Wells Fargo & Co. 1,800 429,975 -------------- 6,154,481 -------------- CHEMICALS, PHARMACEUTICALS AND ALLIED PRODUCTS (7.2%) Abbott Laboratories 14,700 639,450 American Home Products Corp. 8,600 517,075 Amgen Inc. (A) 5,100 274,762 Bristol-Myers Squibb Co. 12,400 1,116,000 Cabot Corp. 3,300 80,850 Dow Chemical Co. 5,100 387,600 E.I. Dupont de Nemours & Co. 10,200 807,075 Eastman Chemical Co. 5,200 316,550 Eli Lilly & Co. 10,400 676,000 Hercules, Inc. 6,800 375,700 Johnson & Johnson 31,600 1,564,200 Merck & Co., Inc. 22,900 1,479,912 Monsanto Co. 11,000 357,500 Morton International, Inc. 9,700 361,325 Pfizer, Inc. 11,700 835,088 Pharmacia & Upjohn, Inc. 9,600 426,000 Procter & Gamble Co. 16,300 1,477,188 Schering-Plough Corp. 12,900 809,475 Warner-Lambert Co. 4,800 264,000 -------------- 12,765,750 -------------- COMMUNICATION (4.3%) Ameritech Corp. 10,500 623,437 AT&T Corp. 35,700 2,213,400 Bell Atlantic Corp. 8,200 522,750 BellSouth Corp. 19,000 805,125 GTE Corp. 15,600 698,100 MCI Communications Corp. 11,000 281,188 NYNEX Corp. 11,900 565,250 Pacific Telesis Group 6,600 222,750 Sprint Corp. 6,300 264,600 SBC Communications, Inc. 15,400 758,450 360 Communications Company (A) 2,100 50,400 Tele-Communications Int'l (A) 6,100 110,181 U S West Communications Group 3,400 108,375 U S West Media Group (A) 9,000 164,250 Viacom International, Inc. (A) 7,100 276,013 -------------- 7,664,269 -------------- CONSTRUCTION (0.2%) Toll Brothers, Inc. (A) 17,900 293,112 -------------- CONTRACTORS (0.4%) Fluor Corp. 6,200 405,325 Halliburton Co. 6,800 377,400 -------------- 782,725 -------------- ELECTRONIC MACHINERY (3.7%) ELECTRICAL AND Amphenol Corp. (A) 14,200 326,600 Andrew Corp. (A) 6,150 332,869 General Electric Corp. 31,200 2,698,800 Intel Corp. 15,100 1,108,906 KEMET Corp. (A) 10,300 207,287 LSI Logic Corp. (A) 12,500 325,000 Micron Technology, Inc. 4,100 106,088 Motorola, Inc. 8,200 515,575 Raychem Corp. 5,800 416,875 Tellabs, Inc. (A) 1,600 107,000 Texas Instruments, Inc. 3,200 159,600 Time Warner, Inc. 5,500 215,875 -------------- 6,520,475 -------------- FINANCE (2.2%) Advanta Corp. 5,800 294,712 American Express Co. 9,200 410,550 Dean Witter Discover & Co. 5,500 314,875 Federal Home Loan Mortgage Corp. 3,500 299,250 Federal National Mortgage Association 20,600 690,100 Green Tree Financial Co. 21,400 668,750 Household International 5,800 440,800 Merrill Lynch & Co., Inc. 3,100 201,888 Morgan Stanley Group, Inc. 3,000 147,375 Student Loan Marketing Association 4,800 355,200 -------------- 3,823,500 -------------- FOOD (4.4%) Campbell Soup Co. 3,900 274,950 Coca-Cola Co. 44,800 2,189,600 ConAgra, Inc. 10,900 494,587 CPC International, Inc. 6,500 468,000 General Mills, Inc. 3,100 168,950 Kellogg Co. 3,300 241,725 PepsiCo, Inc. 46,000 1,627,250 Philip Morris, Inc. 16,600 1,726,400 Seagram Co. Ltd. 5,900 198,388 Unilever N.V. 2,600 377,325 -------------- 7,767,175 -------------- HOTELS & LODGING (0.5%) Hilton Hotels Corp. 3,600 405,000 ITT Corp. (A) 6,500 430,625 -------------- 835,625 -------------- INSURANCE (1.8%) Aetna Life & Casualty Co. 2,000 143,000 Allstate Corp. 5,865 267,591 American International Group 8,850 872,831 Chubb Corp. 7,000 349,125 General Reinsurance Corp. 4,900 746,025 ITT Hartford Group, Inc. 11,400 607,050 U.S. HealthCare, Inc. 400 21,975 United Healthcare Corp. 3,200 161,600 -------------- 3,169,197 -------------- LUMBER AND WOOD PRODUCTS (0.3%) Georgia-Pacific Corp. 4,900 347,900 Weyerhaeuser Co. 3,700 157,250 -------------- 505,150 --------------
-12- 15 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
NO. OF MARKET SHARES VALUE ------- ------------- MACHINERY (2.8%) Apple Computer, Inc. 2,100 $ 43,969 Black & Decker Corp. 6,700 258,787 Caterpillar, Inc. 3,700 250,675 Cisco Systems, Inc. (A) 14,900 844,644 Deere & Co. 11,400 456,000 Digital Equipment Corp. (A) 3,700 166,500 Harnischfeger Corp. 9,100 302,575 Hewlett Packard Co. 9,300 926,512 International Business Machines Corp. 8,600 851,400 Silicon Graphics, Inc. (A) 12,700 304,800 Sun Microsystems (A) 8,000 471,000 Tenneco, Inc. 3,200 163,600 ------------ 5,040,462 ------------ METAL PRODUCTS (0.6%) Bethlehem Steel Corp. (A) 20,200 239,875 Nucor Corp. 1,600 81,000 Phelps Dodge Corp. 4,100 255,738 Reynolds Metals Co. 5,900 307,538 USX-U.S. Steel Group 5,100 144,712 ------------ 1,028,863 ------------ MINING (0.3%) Freeport-McMoRan Copper & Gold 5,200 165,750 Homestake Mining Co. 18,100 309,962 ------------ 475,712 ------------ MISCELLANEOUS MANUFACTURING (1.9%) Boston Scientific Corp. (A) 12,087 543,915 Eastman Kodak Co. 6,100 474,275 Emerson Electric Co. 7,600 686,850 Honeywell, Inc. 7,900 430,550 Mattel, Inc. 15,000 429,375 Medtronics, Inc. 7,700 431,200 Xerox Corp. 6,000 321,000 ------------ 3,317,165 ------------ OIL & GAS (0.4%) Anadarko Petroleum Corp. 6,700 388,600 Schlumberger Ltd. 4,700 395,975 ------------ 784,575 ------------ PAPER AND ALLIED PRODUCTS (0.8%) Champion International Corp. 8,300 346,525 Kimberly Clark Corp. 9,274 716,417 Mead Corp. 1,100 57,063 Willamette Industries, Inc. 5,900 350,312 ------------ 1,470,317 ------------ PETROLEUM REFINING AND RELATED INDUSTRIES (4.0%) Amoco Corp. 12,300 890,212 Atlantic Richfield Co. 2,900 343,650 Chevron Corp. 6,600 389,400 Exxon Corp. 22,500 1,954,687 Kerr McGee Corp. 8,000 487,000 Mobil Corp. 11,900 1,334,288 Phillips Petroleum Co. 4,700 196,813 Royal Dutch Petroleum Co. 7,000 1,076,250 Texaco, Inc. 4,900 410,988 ------------ 7,083,288 ------------ PRINTING, PUBLISHING AND ALLIED INDUSTRIES (0.5%) Gannet Co. 6,500 459,875 New York Times Co. 12,800 417,600 ------------ 877,475 ------------ RETAIL (3.5%) Federated Depertment Stores, Inc. (A) 15,900 542,587 General Nutrition Cos., Inc. (A) 21,700 378,394 Home Depot, Inc. 9,400 507,600 May Department Stores Co. 10,600 463,750 McDonalds Corp. 11,600 542,300 OfficeMax, Inc. (A) 19,400 463,175 Payless ShoeSource, Inc. (A) 1,696 53,848 Price/Costco, Inc. (A) 25,100 539,650 Safeway Inc. (A) 5,500 181,500 Sears Roebuck & Co. 17,400 846,075 The GAP, Inc. 15,600 501,150 Vons Cos. (A) 7,400 276,575 Wal-Mart Stores, Inc. 32,600 827,225 ------------ 6,123,829 ------------ RUBBER AND PLASTIC PRODUCTS (0.3%) Nike, Inc. 5,900 606,225 ------------ SERVICES (2.2%) America Online, Inc. (A) 8,000 349,000 Automatic Data Processing 5,700 220,163 Columbia/HCA Healthcare Corp. 8,200 437,675 Computer Associates International 7,050 502,312 First Data Corp. 4,100 326,462 Microsoft Corp. (A) 11,100 1,332,694 Omnicom Group, Inc. 4,800 223,200 Oracle Corp. (A) 12,000 473,250 ------------ 3,864,756 ------------ STONE, CLAY, GLASS, AND CONCRETE PRODUCTS (0.3%) Minnesota Mining & Manufacturing Co. 7,800 538,200 ------------ TRANSPORTATION (0.7%) AMR Corp. (A) 4,400 400,400 Burlington Northern Santa Fe 4,600 372,025 Norfolk Southern Corp. 2,400 203,400 Union Pacific Corp. 4,000 279,500 ------------ 1,255,325 ------------ TRANSPORTATION MANUFACTURING (2.6%) Boeing Co. 9,900 862,537 Chrysler Corp. 8,800 545,600 Eaton Corp. 5,200 304,850 Ford Motor Co. 21,100 683,113 General Motors Corp. 12,900 675,638 ITT Industries, Inc. 5,000 125,625 Lockheed Martin Corp. 3,680 309,120 McDonnell Douglas Corp. 9,600 465,600 United Technologies Corp. 5,800 667,000 ------------ 4,639,083 ------------ UTILITIES (2.4%) Baltimore Gas & Electric Co. 17,500 496,562 Browning-Ferris Ind. 4,200 121,800 Consolidated Natural Gas Co. 12,700 663,575 Duke Power Co. 3,800 194,750 Duquesne Light Co. 13,500 371,250 Florida Power & Light Co. 12,900 593,400 Houston Industries, Inc. 4,900 120,663 Pacific Enterprises 4,100 121,462 Southern Co. 27,000 664,875 Texas Utilities Co. 13,300 568,575 WMX Technologies, Inc. 9,100 298,025 ------------ 4,214,937 ------------
-13- 16 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
NO. OF MARKET SHARES VALUE -------- ----------- WHOLESALE TRADE (0.4%) Crane Co. 7,700 $ 315,700 Enron Corp. 9,200 376,050 ------------ 691,750 ------------ TOTAL COMMON STOCKS (COST $75,346,637) 93,841,374 ------------ PREFERRED STOCKS (1.8%) BANKING (0.5%) First Chicago Corp. 4,300 286,488 H.F. Ahmanson & Co. 10,000 593,750 ------------ 880,238 ------------ FINANCE (0.1%) Merry Land & Investment, Inc. 8,000 214,000 ------------ OIL & GAS (0.3%) Occidental Petroleum Corp. 9,000 536,625 ------------ PAPER AND ALLIED PRODUCTS (0.6%) International Paper Co. 12,000 531,000 James River Corp. 12,000 562,500 ------------ 1,093,500 ------------ SERVICES (0.3%) Corning Inc. 10,000 571,250 ------------ TOTAL PREFERRED STOCKS (COST $2,854,089) 3,295,613 ------------
PRINCIPAL AMOUNT --------- BONDS (24.2%) BANKING (0.3%) Great Western Financial Corp., 6.375% Notes, 2000 $ 500,000 491,752 ------------ CHEMICALS, PHARMACEUTICALS AND ALLIED PRODUCTS (3.2%) Alza Corp., 0.00% Debentures, 2014 1,400,000 586,250 Becton Dickinson & Co., 8.80% Notes, 2001 2,000,000 2,145,546 McKesson Corp., 4.50% Debentures, 2004 500,000 438,125 Procter & Gamble Co., 9.36% Debentures, 2021 2,000,000 2,394,194 ------------ 5,564,115 ------------ COMMUNICATION (9.6%) BellSouth Corp., 5.85% Debentures, 2045 5,000,000 4,841,475 BellSouth Corp. 7.00% Debentures, 2095 3,000,000 2,759,820 Cox Communication, Inc., 6.875% Notes, 2005 2,000,000 1,932,870 New England Telephone & Telegraph Co., 7.875% Debentures, 2029 7,000,000 7,435,799 ------------ 16,969,964 ------------ CREDIT CARD RECEIVABLES (0.6%) Signet Credit Card Master Trust 1993-4B, 5.80% Pass Through, 1999 $1,000,000 $ 976,689 ------------ FINANCE (3.2%) American Express Co., 0.00% Bonds, 2000 2,565,000 1,859,375 Rouse Co., 5.75% Bonds, 2002 400,000 397,000 Sappi BVI Financial Limited, 7.50% Debentures, 2002 500,000 462,500 Texaco Capital, Inc., 7.75% Debentures, 2033 3,000,000 2,986,212 ------------ 5,705,087 ------------ FOREIGN GOVERNMENT (1.1%) Republic of Poland, 6.438% Bonds, 2024 2,000,000 1,880,000 ------------ HOTELS & LODGING (1.2%) Hilton Hotels Corp., 5.00% Notes, 2006 2,080,000 2,189,200 ------------ INSURANCE (0.5%) Equitable Cos., Inc., 6.125% Notes, 2024 500,000 568,750 USF&G Corp., 0.00% Debentures, 2009 500,000 292,500 ------------ 861,250 ------------ LUMBER AND WOOD PRODUCTS (1.2%) Weyerhaeuser Co., 8.50% Debentures, 2025 2,000,000 2,193,912 ------------ MINING (0.2%) Inco Limited, 7.75% Debentures, 2016 300,000 315,750 ------------ MISCELLANEOUS MANUFACTURING (0.9%) Cooper Industries, Inc., 7.05% Bonds, 2015 877,000 936,198 RPM, Inc., 0.00% Notes, 2012 300,000 130,500 Trinova Corp., 6.00% Notes, 2002 500,000 472,500 ------------ 1,539,198 ------------ OIL & GAS (0.3%) Apache Corp., 6.00% Debentures, 2002 500,000 587,500 ------------ PETROLEUM REFINING AND RELATED INDUSTRIES (0.3%) Pennzoil Co., 4.75% Bonds, 2003 500,000 544,375 ------------ PRINTING, PUBLISHING AND ALLIED INDUSTRIES (0.1%) Scholastic Corp., 5.00% Notes, 2005 200,000 213,500 ------------ SERVICES (0.1%) Tenet Healthcare Corp., 6.00% Notes, 2005 200,000 202,000 ------------
-14- 17 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
PRINCIPAL MARKET AMOUNT VALUE --------- ---------- TRANSPORTATION (0.5%) Delta Airlines, Inc., 9.25% Sinking Fund, 2007 $ 929,255 $ 956,352 ------------ UTILITIES (0.9%) Niagara Mohawk Power Co., 8.00% Bonds, 2004 1,100,000 996,356 Potomac Electric Power Co., 5.00% Debentures, 2002 600,000 543,000 ------------ 1,539,356 ------------ TOTAL BONDS (COST $42,154,544) 42,730,000 ------------ U.S. GOVERNMENT AGENCY SECURITIES (3.9%) Federal Home Loan Mortgage Corp., 8.50% Pass Through, 2002 542,830 557,893 FNMA 15-Year Intermediate Term, 8.50% Pass Through, 2005 130,281 134,760 FNMA 15-Year Intermediate Term, 8.50% Pass Through, 2005 207,508 214,641 FNMA 30-Year Long Term, 7.50% Pass Through, 2025 3,374,169 3,335,126 GNMA 30-Year Single Family, 7.50% Pass Through, 2007 341,566 336,972 GNMA 30-Year Single Family, 7.50% Pass Through, 2007 68,198 67,281 GNMA 30-Year Single Family, 7.50% Pass Through, 2023 214,323 211,441 GNMA 30-Year Single Family, 7.50% Pass Through, 2025 84,925 83,783 GNMA 30-Year Single Family, 7.50% Pass Through, 2025 672,920 663,872 GNMA 30-Year Single Family, 9.00% Pass Through, 2016 241,617 253,092 GNMA 30-Year Single Family, 9.00% Pass Through, 2019 282,742 296,170 GNMA 30-Year Single Family, 9.50% Pass Through, 2020 210,741 225,426 GNMA 30-Year Single Family, 9.50% Pass Through, 2020 423,478 452,987 ------------ TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $6,744,827) 6,833,444 ------------ U.S. GOVERNMENT SECURITIES (6.8%) United States of America Treasury, 0.00% Bonds, 2007 5,500,000 2,627,801 United States of America Treasury, 6.875% Notes, 2006 2,000,000 2,022,500 United States of America Treasury, 7.875% Notes, 2004 2,600,000 2,795,809 US Physical Callable Corpus, 0.00% Bonds, 2009 11,000,000 4,548,236 ------------ TOTAL U.S. GOVERNMENT SECURITIES (COST $12,348,875) 11,994,346 ------------ SHORT-TERM INVESTMENTS (10.3%) Commercial Paper (9.0%) Goldman Sachs Group LP, 5.34% due July 9, 1996 $4,000,000 $ 3,979,297 Morgan Stanley Group, Inc., 5.39% due July 24, 1996 4,000,000 3,979,725 PHH Corp., 5.34% due July 15, 1996 4,000,000 3,975,127 Toyota Motor Credit Corp., 5.33% due July 8, 1996 4,000,000 3,980,512 ------------ 15,914,661 ------------ U.S. GOVERNMENT SECURITIES (0.7%) United States of America Treasury, 5.51% due September 19, 1996 (B) 1,200,000 1,137,165 ------------ REPURCHASE AGREEMENTS (0.6%) Merrill Lynch Government Securities, Inc., 5.25% Repurchase Agreement dated June 28, 1996 due July 1, 1996, collateralized by: United States of America Treasury, $1,095,000, 7.50% due November 15, 2001 1,128,000 1,128,000 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $18,179,613) 18,179,826 ------------
-15- 18
NOTIONAL VALUE -------- FUTURES CONTRACTS (0.0%) S&P 500 Stock Index, Exp. September, 1996 (C) $3,384,000 - ------------- TOTAL INVESTMENTS (100%) (COST $157,628,585) (D) $ 176,874,603 =============
NOTES (A) Non-income Producing Security. (B) Par value of $1,200,000 pledged to cover margin deposits on futures contracts. (C) As more fully discussed in Note 1 to the financial statements, it is Fund MA's practice to hold cash and cash equivalents (including short-term investments) at least equal to the underlying face value, or notional value, of outstanding purchased futures contracts, less the initial margin. Fund MA uses futures contracts as a substitute for holding individual securities. (D) At June 30, 1996, net unrealized appreciation for all securities was $19,246,018. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $21,187,945 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $1,941,927. -16- 19 HIGH YIELD BOND TRUST Results in High Yield Bond Trust continued to be solid for the quarter ending June 30, 1996, outperforming the First Boston High-Yield Index, the Lipper High-Yield Index and the Bear Stearns High-Yield Index. Our return was 7.97% for the six months ending June 30, 1996. By comparison, the First Boston High-Yield Index reported 3.8%, the Lipper High-Yield Bond Mutual Fund reported 4.6%, the Bear Stearns High-Yield Index reported 3.9% and the Bear Stearns B-Rated High-Yield Sub-Index reported 4.7%, for the comparable six month periods ending June 30, 1996. Therefore, our portfolio out-performed comparable six-month indices by approximately 3.3% to 4.2% year-to-date. While we have continued to focus on being defensive with the portfolio, and thereby watch for credits which could have potential downside surprises, we have made several investment moves in high-yield credits which we believed were under-appreciated by the overall market. For example, we purchased 10.625% bonds of the Fleming Corp., the number one wholesaler in the U.S., at 87 which had been trading down due in part to litigation concerns. After a favorable outcome to pending litigation the bonds have traded up to 91, and interest continues to accrue. Similarly, we purchased the 12.0% senior secured bonds of TWA at 101.5 on the expectation that the airline, the 7th largest in the U.S., would continue its turnaround and soon refinance out these bonds. The bonds traded "flat", and had 4.0 points of interest built into their price. The bonds traded at 104 at the end of the quarter, and recently traded at the equivalent of 105.5, providing an annualized 23% return since purchase. Kmart intermediate bonds, with a 7.9% coupon, were also added to the portfolio. These bonds remain where we purchased them, but we expect them to improve should Kmart continue to report improved same-store sales comparisons and completes an expected $1.3 billion in asset sales to repay its bank term loan. In the meantime, we are earning an 8.7% current yield. On our existing positions, we received expected positive news of the sale of Commodore Media to Hicks, Muse. With the perceived credit improvement of the combined companies, these bonds have continued to strengthen. Similarly, Renaissance Cosmetics has continued to announce acquisitions in its goal of consolidating the branded perfume and cologne market, which has been a positive development. Terex has continued to improve its operations and there is anticipation of a large asset sale which should reduce debt levels; these bonds strengthened four points during the quarter. The two steel companies in our portfolio were weaker during the quarter and we continue to monitor their performance. Similarly, we experienced flat returns from the discount note investment in U.K. and international cable, phone and media companies. Telewest and International Cabletel collectively were at the same all-in price at the end of the quarter as they were at the beginning of the quarter, thereby providing a drag on returns during the period. We remain long-term optimistic on these credits, although our current credit analysis has become more demanding on expectations for near-term returns from these collective investments. The proposed Kluge/Metromedia acquisition of Alliance Entertainment fell through in April, dropping bond prices six points. We remain positive on these bonds and expect the bonds to rally back to par over the next several months. As we continue to monitor the results of our portfolio companies and assess the shifting patterns of the U.S. economy and high-yield bond markets, we expect to continue to make adjustments in our portfolio weightings over the coming months. In general, we believe the U.S. economy remains strong, that emerging world economies continue to seek products and innovations from U.S. companies, and that non-commodity based inflation factors may prove to be lower than current expectations. While the next three months should be a challenging investment environment, we continue to seek out high-yield investment opportunities of companies with solid underlying fundamentals, which may be poised for an event-related improvement, and are consistent with our evolving view of the U.S. economy. PORTFOLIO MANAGER: F. DENNEY VOSS -17- 20 HIGH YIELD BOND TRUST STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1996 ASSETS: Investment securities, at market value (identified cost $13,280,355)....... $ 13,458,754 Receivables: Interest................................................................ 417,106 Investment securities sold.............................................. 395,875 Other assets............................................................... 63 -------------- Total Assets......................................................... 14,271,798 -------------- LIABILITIES: Cash overdraft............................................................. 198 Payable for investment management and advisory fees........................ 1,167 Accrued expenses........................................................... 10,637 -------------- Total Liabilities.................................................... 12,002 -------------- NET ASSETS.................................................................... $ 14,259,796 ============== NET ASSETS REPRESENTED BY: Paid-in capital............................................................ $ 20,135,507 Undistributed net investment income........................................ 628,520 Accumulated net realized gains (losses) on investment security transactions (6,682,630) Net unrealized appreciation on investment securities....................... 178,399 -------------- Total net assets (applicable to 1,634,029 shares outstanding at $8.72 per share)...................................................... $ 14,259,796 ==============
See Notes to Financial Statements -18- 21 HIGH YIELD BOND TRUST STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1996 INVESTMENT INCOME: Interest................................................... $ 699,962 EXPENSES: Investment management and advisory fees.................... $ 34,042 Accounting and audit fees.................................. 15,916 Custodian fees............................................. 3,664 Printing and postage....................................... 10,788 Trustees' fees............................................. 5,441 Registration fees.......................................... 538 Legal fees................................................. 1,053 -------------- Total expenses.......................................... 71,442 -------------- Net investment income................................ 628,520 -------------- REALIZED GAIN AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized gain from investment security transactions: Proceeds from investment securities sold................ 5,361,813 Cost of investment securities sold...................... 5,337,925 -------------- Net realized gain.................................... 23,888 Change in unrealized gain (loss) on investment securities: Unrealized loss at December 31, 1995.................... (199,726) Unrealized gain at June 30, 1996........................ 178,399 -------------- Net change in unrealized gain (loss) for the period.. 378,125 -------------- Net realized gain and change in unrealized gain (loss).......................................... 402,013 -------------- Net increase in net assets resulting from operations....... $ 1,030,533 ==============
See Notes to Financial Statements -19- 22 HIGH YIELD BOND TRUST STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1996 1995 ---- ---- (UNAUDITED) OPERATIONS: Net investment income......................................... $ 628,520 $ 1,173,476 Net realized gain from investment security transactions....... 23,888 395,891 Net change in unrealized gain (loss) on investment securities. 378,125 221,759 -------------- -------------- Net increase in net assets resulting from operations....... 1,030,533 1,791,126 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME......... (1,350,944) (960,192) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold..................................... 1,620,856 1,749,523 Dividend reinvestment......................................... 1,350,944 960,192 Payments for shares redeemed.................................. (1,293,891) (2,354,757) -------------- -------------- Net increase in net assets resulting from capital share transactions............................................. 1,677,909 354,958 -------------- -------------- Net increase in net assets.............................. 1,357,498 1,185,892 NET ASSETS: Beginning of period........................................... 12,902,298 11,716,406 -------------- -------------- End of period (including undistributed net investment income as follows: June, 1996 $628,520 and December, 1995 $1,173,476)......... $ 14,259,796 $ 12,902,298 ============== ==============
See Notes to Financial Statements -20- 23 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES High Yield Bond Trust ("Fund HY") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Shares of Fund HY are currently offered, without a sales charge, to separate accounts of The Travelers Insurance Company ("The Travelers"), an indirect wholly owned subsidiary of Travelers Group Inc., in connection with the issuance of certain variable annuity and variable life insurance contracts. The following is a summary of significant accounting policies consistently followed by Fund HY in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the last-reported sale price as of the close of business of the New York Stock Exchange on the last business day of the period; securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last-reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. When market quotations are not considered to be readily available for long-term corporate bonds and notes, such investments are stated at fair value on the basis of valuations furnished by a pricing service. These valuations are determined for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Securities, including restricted securities, for which pricing services are not readily available are valued by management at prices which it deems in good faith to be fair. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued by computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity. REPURCHASE AGREEMENTS. When Fund HY enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed-upon date and price), the repurchase price of the securities will generally equal the amount paid by Fund HY plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Fund HY securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Fund HY monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Fund HY's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. TAXES. Fund HY has qualified, and intends to continue to qualify each year, as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment company, Fund HY is relieved of any federal income tax liability by distributing all of its net taxable investment income and net taxable capital gains, if any, to its shareholders. Fund HY further intends to avoid excise tax liability by distributing substantially all of its investment income. Therefore, no federal income tax provision has been made by Fund HY in its financial statements. As of December 31, 1995, Fund HY had capital loss carryovers totaling $4,562,238 which may be available to offset any future realized taxable gains, to the extent provided by regulations. These amounts expire during the period 1996-2003. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded at the close of business on the record date. -21- 24 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 2. INVESTMENTS Purchases and sales of securities other than short-term investments aggregated $5,528,463 and $4,366,967, respectively, for the six months ended June 30, 1996. Realized gains and losses from security transactions are reported on an identified-cost basis. 3. FUND CHARGES Investment management and advisory fees are calculated daily at annual rates which start at 0.50% and decrease, as net assets increase, to 0.25% of Fund HY's average net assets. These fees are paid to Travelers Asset Management International Corporation, an indirect wholly owned subsidiary of Travelers Group Inc. The Travelers has agreed to reimburse Fund HY for the amount by which Fund HY's aggregate annualized operating expenses, excluding brokerage commissions and any interest charges and taxes, exceed 1.25% of Fund HY's average net assets. Trustees and officers of Fund HY who are also officers and employees of Travelers Group Inc., or its subsidiaries, receive no compensation directly from Fund HY. 4. 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 Fund HY were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------- ------------- 1996 1995 ---- ---- Shares sold................................................. 187,864 206,291 Shares redeemed............................................. (150,841) (276,334) Shares issued in reinvestment of distributions from net investment income......................................... 164,348 122,473 ------------- ------------- Net......................................................... 201,371 52,430 ============= =============
As of June 30, 1996, all outstanding shares of beneficial interest were owned by The Travelers Fund U for Variable Annuities and The Travelers Fund UL for Variable Life Insurance, both of which are separate accounts of The Travelers. -22- 25 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 5. FINANCIAL HIGHLIGHTS (Selected data for a share outstanding throughout each period.)
SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) -------- -------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- PER SHARE DATA: - --------------- Net asset value, beginning of period......... $ 9.00 $ 8.49 $ 9.25 $ 8.91 $ 8.75 $ 7.87 Income from operations ---------------------- Net investment income...................... 0.40 0.80 0.66 0.68 0.88 0.94 Net gains or losses on securities (realized and unrealized)................ 0.26 0.41 (0.76) 0.47 0.18 0.88 -------- ------- -------- ------- -------- -------- Total from investment operations......... 0.66 1.21 (0.10) 1.15 1.06 1.82 Less distributions ------------------ Distributions from net investment income... (0.94) (0.70) (0.66) (0.81) (0.90) (0.94) -------- -------- -------- ------- -------- -------- Net asset value, end of period............... $ 8.72 $ 9.00 $ 8.49 $ 9.25 $ 8.91 $ 8.75 ======== ======== ======== ======= ======== ======== TOTAL RETURN* 7.97% 15.47% (1.26)% 14.01% 13.16% 26.11% - ------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------- Net assets, end of period (thousands)...... $14,260 $12,902 $11,716 $12,765 $10,289 $ 7,724 Ratio of expenses to average net assets**. 1.05%# 1.25% 1.25 % 0.99% 0.56% 0.56% Ratio of net investment income to average net assets............................... 9.19%# 9.37% 7.71 % 7.69% 10.24% 11.93% Portfolio turnover rate.................... 37% 222% 146 % 19% 52% 35%
* Total return is determined by dividing the increase (decrease) in value of a share during the period, after reflecting the reinvestment of dividends declared during the period, by the beginning of period share price. As described in Note 1, shares in Fund HY are only sold to The Travelers separate accounts in connection with the issuance of variable annuity and variable life insurance contracts. The total return does not reflect the deduction of any contract charges or fees assessed by The Travelers separate accounts. For periods of less than one year, total returns are not annualized. ** The ratio of expenses to average net assets reflects an expense reimbursement by The Travelers in connection with voluntary expense limitations, including those described in Note 3. Without the expense reimbursement, the ratios of expenses to average net assets would have been 1.28 %, 1.33%, 1.31%, 1.28% and 1.87% the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. For the six months ended June 30, 1996, there was no expense reimbursement by The Travelers in connection with the voluntary expense limitations described in Note 3. # Annualized. -23- 26 HIGH YIELD BOND TRUST STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 1996
PRINCIPAL MARKET AMOUNT VALUE ------------- ----------- BONDS (92.2%) AMUSEMENTS (7.0%) Genmar Holdings, Inc., 13.50% Notes, 2001 $ 500,000 $ 438,750 Plitt Theatres, 10.875% Notes, 2004 500,000 505,000 ---------------- 943,750 ---------------- CHEMICALS, PHARAMACEUTICALS AND ALLIED PRODUCTS (3.6%) Renaissance Cosmetics, Inc., 13.75% Notes, 2001 500,000 486,250 ---------------- COMMUNICATION (17.4%) Adelphia Communications, 9.50% Notes, 2004 (A) 287,344 249,988 Clearnet Communications, 0.00% Notes, 2005 500,000 310,000 Commodore Media, Inc., 7.50% Notes, 2003 500,000 508,750 International Cabletel, Inc., 0.00% Notes, 2006 500,000 282,500 Paxson Communication, 11.625% Notes, 2002 400,000 418,000 Pegasus Media & Communications, 12.50% Notes, 2005 400,000 430,000 Telewest PLC, 0.00% Debentures, 2007 250,000 148,750 ---------------- 2,347,988 ---------------- CONSTRUCTION (1.8%) Greystone Homes, Inc., 10.75% Notes, 2004 250,000 248,750 ---------------- ELECTRICAL AND ELECTRONIC MACHINERY (2.8%) Alliance Entertainment Corp., 11.25% Notes, 2005 400,000 378,000 ---------------- FINANCE (3.1%) B.F. Saul REIT, 11.625% Notes, 2002 400,000 412,000 ---------------- FOOD (2.8%) Pilgrim Pride Corp., 10.875% Notes, 2003 400,000 382,000 ---------------- METAL PRODUCTS (6.6%) Gulf States Steel, 13.50% Notes, 2003 500,000 447,500 Sheffield Steel, 12.00% Bonds, 2001 500,000 437,500 ---------------- 885,000 ---------------- PAPER AND ALLIED PRODUCTS (2.9%) Mail-Well, Inc., 10.50% Notes, 2004 400,000 384,000 ---------------- PETROLEUM REFINING AND RELATED INDUSTRIES (3.4%) Transamerican Refining, Inc., 16.50% Notes, 2002 500,000 455,000 ---------------- PRINTING, PUBLISHING AND ALLIED INDUSTRIES (3.6%) Sullivan Graphics, 12.75% Notes, 2005 500,000 482,500 ---------------- RETAIL (10.9%) Family Restaurant, Inc., 0.00% Notes, 2004 250,000 33,750 Flagstar Corp., 10.75% Notes, 2001 250,000 218,750 Kmart Corp., 7.90% Notes, 2000 500,000 455,413 Phar-Mor, Inc., 11.72% Notes, 2002 400,000 398,520 Pueblo Xtra International, 9.50% Notes, 2003 400,000 355,000 ---------------- 1,461,433 ---------------- SERVICES (10.3%) Americold Corp., 11.50% Bonds, 2005 500,000 508,125 Florists Transworld Delivery, 14.00% Notes, 2001 500,000 487,500 Regency Health Services, Inc., 9.875% Notes, 2002 400,000 385,000 ---------------- 1,380,625 ---------------- TEXTILE MILL PRODUCTS (2.9%) CMI Industries, 9.50% Notes, 2003 500,000 390,000 ---------------- TRANSPORTATION (6.9%) Terex Corp., 13.75% Notes, 2002 400,000 416,000 Trans World Airlines, Inc., 12.00% Notes, 1998 (A) 500,000 520,000 ---------------- 936,000 ---------------- TRANSPORTATION MANUFACTURING (2.8%) Johnstown America Inds, Inc., 11.75% Notes, 2005 400,000 378,000 ---------------- WHOLESALE TRADE (3.4%) Fleming Cos., Inc., 10.625% Notes, 2001 500,000 456,250 ---------------- TOTAL BONDS (COST $12,236,502) 12,407,546 ----------------
NO. OF SHARES ---------- COMMON STOCKS (0.0%) METAL PRODUCTS (0.0%) Gulf States Steel (B) 500 2,500 ---------------- TRANSPORTATION (0.0%) Terex Corp. (C) 1,600 3,000 ---------------- UTILITIES (0.0%) Great Bay Power Co. (C) 264 1,865 ---------------- TOTAL COMMON STOCKS (COST $0) 7,365 ----------------
-24- 27 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
PRINCIPAL MARKET AMOUNT VALUE ------------- ---------- SHORT-TERM INVESTMENTS (7.8%) COMMERCIAL PAPER (3.7%) Knight-Ridder, Inc., 5.35% due July 19, 1996 $ 500,000 $ 497,843 -------------- REPURCHASE AGREEMENTS (4.1%) Merrill Lynch Government Securities, Inc., 5.25% Repurchase Agreement dated June 28, 1996 due July 1, 1996, collateralized by: United States of America Treasury, 530,000, 7.50% due November 15, 2001 546,000 546,000 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $1,043,853) 1,043,843 -------------- TOTAL INVESTMENTS (100%) (COST $13,280,355) (D) $ 13,458,754 ==============
NOTES (A) Paid-in-kind Security. (B) Warrant. (C) Non-income Producing Security. (D) At June 30, 1996, net unrealized appreciation for all securities was $178,399. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $545,559 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $367,160. See Notes to Financial Statements -25- 28 CAPITAL APPRECIATION FUND During the second quarter of 1996, interest rates continued to rise and financial markets remained volatile. Despite the pressure from rates, the Standard & Poor's 500 Stock Index ("S&P 500") managed to post a new record, and gained 4.5% for the quarter. Capital Appreciation Fund outperformed the index, gaining 6.1% for the second quarter. The debate over the strength of economic growth intensified during the last three months. Employment data, demand at the manufacturing level, and auto and housing sales all pointed to a robust economy. But commodity prices, which tend to be a good indicator of future economic strength, began to correct. The downturn in commodities suggests inflation could remain benign. Another sign of possible economic weakness is the unusually high rate of consumer loan delinquencies, which may indicate an abatement in consumer spending. Whichever side of the debate proves correct, we intend to maintain Janus' long-term strategy of selecting good business selling at reasonable prices. If rates rise, however, it will lift the hurdle. The ability of the companies we own to make their earnings objectives will be even more crucial. If rates stabilize, or decline, and the economy continues to grow moderately, that will be positive for equities. With interest rates at 7.0% or less and low inflation, it would not be unreasonable to expect the S&P 500 to carry a price to earnings ratio ("PE") of 16-17. The S&P 500's earnings could hit $42-$44 this year, implying a potential gain of roughly 14.0%. However, until the economic outlook becomes clearer, we intend to monitor the situation closely. Financial stocks remain a major theme in the portfolio. Large money-center banks are still a principle focus. Holdings include two recent mergers: Chase Manhattan which was acquired by Chemical Bank but chose to retain the Chase name; and Wells Fargo, which completed its acquisition of First Interstate. Both Wells Fargo and Chase will implement substantial cost savings and produce a number of synergies via the integration of their many complementary businesses. The new banks will generate exceptional cash flow, and some of this money will be used to repurchase their own shares. We also continue to hold Citicorp, whose international operations remain very profitable, Merrill Lynch, the premier asset gatherer in the financial industry, and Federal National Mortgage Association, the dominant lender in the home mortgage market. Pharmaceutical companies make up a second area of concentration. Eli Lilly was added because the company has a number of potentially blockbuster drugs newly in the market. These include a faster-acting synthetic insulin for diabetes, a new drug for the treatment of schizophrenia, and a treatment for acute heart disease that was developed in conjunction with another holding, Centocor. Lilly's new drugs, along with the continued growth of Prozac, should cause earnings to accelerate rapidly. Pfizer and Amgen round out our pharmaceutical holdings. We also own a number of special situations. Gucci was the top performer in this group. Gucci has redesigned its line of high-end accessories and refocused on core markets. Another member, Microsoft, dominates the huge market for PC operating software, much as Boeing dominates the market for large commercial aircraft. Boeing is benefiting from international demand and from shorter, more predictable productivity and delivery cycles. With the decline of athletic footwear manufacturer Reebok, Nike and Fila are capturing market share. Nike enjoys international brand awareness in both its athletic shoe and apparel products. The Olympics will serve to strengthen Nike's position. Nike has proven itself to be very adept at hiring the right professional athletes as spokespersons, and is now invading the soccer market in Europe and South America with both footwear and apparel. The company has also introduced specialized athletic clothing designed to handle the conditions encountered in individual sports, from running to biking to skiing. Nike's chairman recently said that the opportunities for his company are now as great as they were in the 1980s, when Nike's growth was explosive. These remarks were lent credibility by Nike's earnings release for fiscal 1996. Earnings per share were up 39.0%, while future orders rose by 55.0%. -27- 29 CAPITAL APPRECIATION FUND IBM proved a disappointment during the second quarter. We sold the position at a moderate loss when it became clear that pricing power for IBM's mainframes was much softer than our estimates. Danka Business Systems also declined. Danka sells and services copiers and other office equipment. The industry is consolidating, and Danka stands to be one of the chief competitors going forward. Unfortunately, costs associated with the company's rapid growth were higher than analysts had anticipated, and the stock sold off. We believe the reaction was overdone. The copier industry is shifting to color and network solutions, and Danka has the expertise to capitalize on this trend. The company should grow at 25%-30% over the next three years, and yet carries a PE of less than 16. While interest rates will probably determine the course of the market in the near term, in the long run we believe stock selection is the most important performance factor in the portfolio, and we remain very excited about the prospects for our individual holdings. Though market volatility can be nerve-wracking, it can also provide opportunities to purchase shares of great companies at better prices. PORTFOLIO MANAGER: THOMAS F. MARSICO -28- 30 CAPITAL APPRECIATION FUND STATEMENT OF ASSETS AND LIABILITES (UNAUDITED) JUNE 30, 1996 ASSETS: Investment securities, at market value (identified cost $133,685,003)...... $ 168,794,519 Cash....................................................................... 7,651 Receivables: Dividends............................................................... 36,855 Interest................................................................ 16,810 Investment securities sold.............................................. 2,498,849 -------------- Total Assets......................................................... 171,354,684 -------------- LIABILITIES: Payables: Investment securities purchased......................................... 5,663,810 Investment management and advisory fees................................. 20,336 Accrued expenses........................................................... 21,478 -------------- Total Liabilities.................................................... 5,705,624 -------------- NET ASSETS.................................................................... $ 165,649,060 ============== NET ASSETS REPRESENTED BY: Paid-in capital............................................................ $ 122,852,049 Undistributed net investment income........................................ 555,754 Accumulated net realized gains (losses) on investment security transactions 7,131,741 Net unrealized appreciation on investment securities....................... 35,109,516 -------------- Total net assets (applicable to 4,590,596 shares outstanding at $36.08 per share)............................................................ $ 165,649,060 ==============
See Notes to Financial Statements -29- 31 CAPITAL APPRECIATION FUND STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1996 INVESTMENT INCOME: Dividends.................................................. $ 809,424 Interest................................................... 346,593 -------------- Total income............................................ $ 1,156,017 EXPENSES: Investment management and advisory fees.................... 537,619 Accounting and audit fees.................................. 19,920 Custodian fees............................................. 23,599 Printing and postage....................................... 11,573 Trustees' fees............................................. 5,491 Registration fees.......................................... 996 Legal fees................................................. 1,065 -------------- Total expenses.......................................... 600,263 -------------- Net investment income................................ 555,754 -------------- REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON INVESTMENT SECURITIES: Realized gain from investment security transactions: Proceeds from investment securities sold................ 99,026,216 Cost of investment securities sold...................... 91,951,304 -------------- Net realized gain.................................... 7,074,912 Change in unrealized gain on investment securities: Unrealized gain at December 31, 1995.................... 21,220,176 Unrealized gain at June 30, 1996........................ 35,109,516 -------------- Net change in unrealized gain for the period......... 13,889,340 -------------- Net realized gain and change in unrealized gain... 20,964,252 -------------- Net increase in net assets resulting from operations....... $ 21,520,006 ==============
See Notes to Financial Statements -30- 32 CAPITAL APPRECIATION FUND STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED DECEMBER JUNE 30, 31, 1996 1995 ---- ---- (UNAUDITED) OPERATIONS: Net investment income...................................... $ 555,754 $ 811,421 Net realized gain from investment security transactions.... 7,074,912 12,852,764 Net change in unrealized gain on investment securities..... 13,889,340 16,423,842 -------------- -------------- Net increase in net assets resulting from operations.... 21,520,006 30,088,027 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income and net short-term realized gains from investment security transactions........................ (4,920,974) (540,784) Net long-term realized gains from investment security transactions............................................ (3,690,149) - -------------- -------------- Total distributions to shareholders..................... (8,611,123) (540,784) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold.................................. 27,856,452 26,600,150 Dividend reinvestment...................................... 8,611,123 540,784 Payments for shares redeemed............................... (5,882,830) (13,026,347) -------------- -------------- Net increase in net assets resulting from capital share transactions.......................................... 30,584,745 14,114,587 -------------- -------------- Net increase in net assets........................... 43,493,628 43,661,830 NET ASSETS: Beginning of period........................................ 122,155,432 78,493,602 -------------- -------------- End of period (including undistributed net investment income as follows: June, 1996 $555,754 and December, 1995 $811,421)...... $ 165,649,060 $ 122,155,432 ============== ==============
See Notes to Financial Statements -31- 33 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES Capital Appreciation Fund ("Fund CA") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Shares of Fund CA are currently offered, without a sales charge, to separate accounts of The Travelers Insurance Company ("The Travelers") and The Travelers Life and Annuity Company, indirect wholly owned subsidiaries of Travelers Group Inc., in connection with the issuance of certain variable annuity and variable life insurance contracts. The following is a summary of significant accounting policies consistently followed by Fund CA in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the last-reported sale price as of the close of business of the New York Stock Exchange on the last business day of the period; securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last-reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. When market quotations are not considered to be readily available for long-term corporate bonds and notes, such investments are generally stated at fair value on the basis of valuations furnished by a pricing service. These valuations are determined for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Securities, including restricted securities, for which pricing services are not readily available are valued by management at prices which it deems in good faith to be fair. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued by computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity. OPTIONS. Fund CA may purchase index or individual equity put or call options, thereby obtaining the right to sell or buy a fixed number of shares of the underlying asset at the stated price on or before the stated expiration date. Fund CA may sell the options before expiration. Options held by Fund CA are listed on either national securities exchanges or on over-the-counter markets, and are short-term contracts with a duration of less than nine months. The market value of the options will be the latest sale price at the close of the New York Stock Exchange, or in the absence of such sale, the latest bid quotation. REPURCHASE AGREEMENTS. When Fund CA enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed-upon date and price), the repurchase price of the securities will generally equal the amount paid by Fund CA plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Fund CA securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Fund CA monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Fund CA's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. TAXES. Fund CA has qualified, and intends to continue to qualify each year, as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment company, Fund CA is relieved of any federal income tax liability by distributing all of its net taxable investment income and net taxable capital gains, if any, to its shareholders. Fund CA further intends to avoid excise tax liability by distributing substantially all of its investment income. Therefore, no federal income tax provision has been made by Fund CA in its financial statements. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. -32- 34 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded at the close of business on the record date. 2. INVESTMENTS Purchases and sales of securities other than short-term investments aggregated $100,051,586 and $73,176,051 respectively, for the six months ended June 30, 1996. Realized gains and losses from security transactions are reported on an identified-cost basis. 3. FUND CHARGES Investment management and advisory fees are calculated daily at an annual rate of 0.75% of Fund CA's average net assets. These fees are paid to The Travelers Investment Management Company ("TIMCO"), an indirect wholly owned subsidiary of Travelers Group Inc. Pursuant to a sub-advisory agreement between TIMCO and Janus Capital Corporation ("Janus Capital"), TIMCO pays Janus Capital an amount equivalent on an annual basis to 0.55% of Fund CA's average net assets for investment management and advisory services as sub-adviser. The Travelers has agreed to reimburse Fund CA for the amount by which Fund CA's aggregate annualized operating expenses, excluding brokerage commissions and any interest charges and taxes, exceed 1.25% of Fund CA's average net assets. Trustees and officers of Fund CA who are also officers or employees of Travelers Group Inc. or its subsidiaries receive no compensation directly from Fund CA. 4. 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 Fund CA were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, -------------- -------------- 1996 1995 ---- ---- Shares sold............................................... 806,702 900,317 Shares redeemed........................................... (173,948) (445,510) Shares issued in reinvestment of distributions: from net investment income and net short-term realized gains................................................ 158,585 22,109 from net long-term realized gains...................... 118,033 - -------------- -------------- Net....................................................... 909,372 476,916 ============== ==============
As of June 30, 1996, all outstanding shares of beneficial interest were owned by The Travelers Fund U for Variable Annuities and The Travelers Fund UL for Variable Life Insurance, both of which are separate accounts of The Travelers. 5. SUBSEQUENT EVENT Effective July 1, 1996, Travelers Asset Management International Corporation, an indirect wholly owned subsidiary of Travelers Group Inc. replaces TIMCO as investment adviser. -33- 35 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. FINANCIAL HIGHLIGHTS (Selected data for a share outstanding throughout each period.)
SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) --------- ---------------------------------------------------------------- 1996 1995 1994 1993* 1992 1991 ---- ---- ---- ---- ---- ---- PER SHARE DATA: - --------------- Net asset value, beginning of period......... $ 33.18 $ 24.50 $ 25.87 $ 22.72 $ 19.63 $ 14.62 Income from operations ---------------------- Net investment income...................... 0.13 0.24 0.19 0.19 0.28 0.36 Net gains or losses on securities (realized and unrealized)................ 5.09 8.61 (1.41) 3.21 3.13 4.75 ------- -------- -------- -------- -------- ------- Total from investment operations......... 5.22 8.85 (1.22) 3.40 3.41 5.11 Less distributions ------------------ Distributions from net investment income and net short-term realized gains........ (1.33) (0.17) (0.15) (0.25) (0.32) (0.10) Distributions from net long-term realized gains.................................... (0.99) - - - - - ------- -------- -------- -------- -------- ------- Total distributions...................... (2.32) (0.17) (0.15) (0.25) (0.32) (0.10) Net asset value, end of period............... $ 36.08 $ 33.18 $ 24.50 $ 25.87 $ 22.72 $ 19.63 ======= ======== ======== ======== ======== ======= TOTAL RETURN** 16.84% 36.37% (4.76)% 15.09% 17.60% 35.16% - ------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------- Net assets, end of period (thousands)...... $165,649 $122,155 $78,494 $62,414 $29,506 $20,497 Ratio of expenses to average net assets##.. 0.84%# 0.85% 0.89% 0.87% 0.56% 0.56% Ratio of net investment income to average net assets............................... 0.80%# 0.84% 0.79% 0.81% 1.39% 2.05% Portfolio turnover rate.................... 56% 124% 106% 155% 126% 205% Average commission rate paid###............ $ 0.0420 - - - - -
* Effective May 1, 1993, Janus Capital Corporation became sub-adviser for Fund CA. ** Total return is determined by dividing the increase (decrease) in value of a share during the period, after reflecting the reinvestment of the dividends declared during the period, by the beginning of period share price. As described in Note 1, shares in Fund CA are only sold to separate accounts of The Travelers Insurance Company and The Travelers Life and Annuity Company in connection with the issuance of variable annuity and variable life insurance contracts. The total return does not reflect the deduction of any contract charges or fees assessed by these separate accounts. For periods of less than one year, total returns are not annualized. # Annualized. ## The ratio of expenses to average net assets for 1991-1993 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%, 0.91%, and 1.28% for the years ended December 31, 1993, 1992, and 1991, respectively. For the six months ended June 30, 1996 and the years ended December 31, 1995 and 1994, there were no expense reimbursements by The Travelers in connection with the voluntary expense limitations described in Note 3. ### Calculated by dividing the total dollar amount of commissions paid for equity securities by the total number of shares purchased and sold during the period. -34- 36 CAPITAL APPRECIATION FUND STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 1996
NO. OF MARKET SHARES VALUE ---------- ---------- COMMON STOCKS (92.3%) BANKING (11.2%) Chase Manhattan Corp. 81,475 $ 5,754,172 Citicorp 71,190 5,882,074 Wells Fargo & Co. 30,666 7,325,340 ---------------- 18,961,586 ---------------- CHEMICALS, PHARMACEUTICALS AND ALLIED PRODUCTS (16.6%) Amgen Inc. (A) 64,300 3,464,163 Centocor, Inc. (A) 48,100 1,439,994 Cytec Industries, Inc. (A) 58,525 5,003,887 Eli Lilly & Co. 86,900 5,648,500 Monsanto Co. 145,125 4,716,562 Pfizer, Inc. 63,475 4,530,528 Praxair, Inc. 75,500 3,189,875 ---------------- 27,993,509 COMMUNICATION (1.0%) MFS Communication (A) 42,850 1,609,553 ---------------- ELECTRICAL AND ELECTRONIC MACHINERY (3.3%) General Electric Corp. 41,750 3,611,375 U.S. Robotics, Inc. 22,700 1,938,013 ---------------- 5,549,388 ---------------- FINANCE (11.1%) Charles Schwab Corp. 26,450 648,025 Federal Home Loan Mortgage Corp. 4,375 374,062 Federal National Mortgage Association 104,155 3,489,193 HFS Inc. (A) 69,150 4,840,500 Merrill Lynch & Co., Inc. 100,965 6,575,346 Morgan Stanley Group, Inc. 28,900 1,419,712 Reuters Holdings PLC 7,425 537,848 Student Loan Marketing Association 11,375 841,750 ---------------- 18,726,436 ---------------- FOOD (5.4%) Coca-Cola Co. 93,250 4,557,594 PepsiCo, Inc. 105,050 3,716,144 Starbucks Corp. (A) 29,575 833,645 ---------------- 9,107,383 ---------------- HOTELS & LODGING (1.9%) Hilton Hotels Corp. 14,400 1,620,000 ITT Corp. (A) 24,600 1,629,750 ---------------- 3,249,750 ---------------- INSURANCE (1.8%) CMAC Investment Corp. 13,300 764,750 Oxford Health Plans (A) 56,200 2,307,713 ---------------- 3,072,463 ---------------- MACHINERY (8.8%) Ascend Communications (A) 64,475 3,622,689 Cisco Systems (A) 79,800 4,523,662 Diebold, Inc. 23,175 1,118,194 Electronics For Imaging (A) 58,000 4,027,375 Shiva Corp. (A) 20,450 1,636,000 ---------------- 14,927,920 ---------------- MISCELLANEOUS MANUFACTURING (3.1%) Danka Business Systems PLC 61,075 1,782,627 Fila Holdings SpA 39,100 3,372,375 ---------------- 5,155,002 ---------------- RETAIL (3.0%) Gucci Group N.V. (A) 50,400 3,250,800 Home Depot, Inc. 32,000 1,728,000 ---------------- 4,978,800 ---------------- RUBBER AND PLASTIC PRODUCTS (2.2%) Nike, Inc. 36,825 3,783,769 ---------------- SERVICES (13.6%) First Data Corp. 62,625 4,986,516 Flightsafety International, Inc. 51,125 2,773,531 Gartner Group, Inc. (A) 133,350 4,892,278 Gtech Holdings Corp. (A) 98,100 2,906,213 Microsoft Corp. (A) 53,125 6,378,320 Oracle Corp. (A) 21,525 848,892 Parametric Technology Co. (A) 5,750 249,047 ---------------- 23,034,797 ---------------- TRANSPORTATION (3.2%) AMR, Corp. (A) 15,975 1,453,725 Trans World Airlines, Inc. (A) 100,000 1,425,000 UAL Corp. (A) 47,000 2,526,250 ---------------- 5,404,975 ---------------- TRANSPORTATION MANUFACTURING (6.1%) Boeing Co. 70,575 6,148,847 McDonnell Douglas Corp. 30,550 1,481,675 Textron, Inc. 33,025 2,637,872 ---------------- 10,268,394 ---------------- TOTAL COMMON STOCKS (COST $120,714,233) 155,823,725 ----------------
PRINCIPAL AMOUNT -------------- SHORT-TERM INVESTMENTS (7.7%) COMMERCIAL PAPER (4.7%) Ford Motor Credit Co., 5.49% due July 1, 1996 $ 8,000,000 7,996,340 U.S. GOVERNMENT AGENCY Securities (3.0%) FNMA 30-Year Long Term, 5.29% due July 18, 1996 5,000,000 4,974,454 ---------------- TOTAL SHORT-TERM INVESTMENTS (COST $12,970,770) 12,970,794 ---------------- TOTAL INVESTMENTS (100%) (COST $133,685,003) (B) 168,794,519 ================
NOTES (A) Non-income Producing Security. (B) At June 30, 1996, net unrealized appreciation for all securities was $35,109,516. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $36,864,034 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $1,754,518. See Notes to Financial Statements -35- 37 CASH INCOME TRUST The Trust's investment objective is 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. The Trust pursues this objective by investing in securities maturing in one year or less. The assets in Cash Income Trust continue to be invested in U.S. Treasuries. This has provided the portfolio with safety, liquidity and stability. PORTFOLIO MANAGER: EMIL J. MOLINARO JR. -34- 38 CASH INCOME TRUST STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1996 ASSETS: Investment securities, at market value (identified cost $2,455,363)........ $ 2,455,169 Cash....................................................................... 30,513 Receivables: Interest................................................................ 14,394 Receivable from The Travelers........................................... 23,337 -------------- Total Assets......................................................... 2,523,413 -------------- LIABILITIES: Payables: Investment management and advisory fees................................. 134 Dividends............................................................... 6,545 Accrued expenses: Reimbursable expenses................................................... 23,337 Other expenses.......................................................... 4,321 -------------- Total Liabilities.................................................... 34,337 -------------- NET ASSETS: (Applicable to 2,489,076 shares outstanding at $1.00 per share)......... $ 2,489,076 ==============
See Notes to Financial Statements -35- 39 CASH INCOME TRUST STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1996 INVESTMENT INCOME: Interest................................................... $ 49,649 EXPENSES: Investment management and advisory fees.................... $ 3,222 Accounting and audit fees.................................. 13,940 Printing and postage....................................... 11,520 Trustees' fees............................................. 5,503 Registration fees.......................................... 486 Legal fees................................................. 1,065 -------------- Total expenses before reimbursement from The Travelers.. 35,736 Less: Reimbursement from The Travelers..................... (23,337) -------------- Net expenses............................................ 12,399 -------------- Net investment income................................ 37,250 -------------- Net increase in net assets resulting from operations....... $ 37,250 ==============
See Notes to Financial Statements -36- 40 CASH INCOME TRUST STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED DECEMBER JUNE 30, 31, 1996 1995 ---- ---- (UNAUDITED) OPERATIONS: Net investment income......................................... $ 37,250 $ 51,414 -------------- -------------- Net increase in net assets resulting from operations....... 37,250 51,414 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDER FROM NET INVESTMENT INCOME.......... (37,250) (51,414) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold..................................... 4,543,520 3,284,741 Dividends reinvested.......................................... 36,207 52,033 Payments for shares redeemed.................................. (3,507,335) (3,122,783) -------------- -------------- Net increase in net assets resulting from capital share transactions............................................. 1,072,392 213,991 -------------- -------------- Net increase in net assets.............................. 1,072,392 213,991 NET ASSETS: Beginning of period........................................... 1,416,684 1,202,693 -------------- -------------- End of period................................................. $ 2,489,076 $ 1,416,684 ============== ==============
See Notes to Financial Statements -37- 41 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES Cash Income Trust ("Fund CI") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Shares of Fund CI are currently offered, without a sales charge, to separate accounts of The Travelers Insurance Company ("The Travelers") and The Travelers Life and Annuity Company, indirect wholly owned subsidiaries of Travelers Group Inc., in connection with the issuance of certain variable life insurance contracts. The following is a summary of significant accounting policies consistently followed by Fund CI in the preparation of its financial statements. SECURITY VALUATION. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued by computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity. REPURCHASE AGREEMENTS. When Fund CI enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed-upon date and price), the repurchase price of the securities will generally equal the amount paid by Fund CI plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Fund CI securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Fund CI monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Fund CI's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. TAXES. Fund CI has qualified, and intends to continue to qualify each year, as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment company, Fund CI is relieved of any federal income tax liability by distributing all of its net taxable investment income and net taxable capital gains, if any, to its shareholder. Fund CI further intends to avoid excise tax liability by distributing substantially all of its investment income. Therefore, no federal income tax provision has been made by Fund CI in its financial statements. As of December 31, 1995, Fund CI had capital loss carryovers totaling $1,785, which may be available to offset any future realized taxable gains, to the extent provided by regulations. These amounts expire during the period 1996-2002. DIVIDENDS. Fund CI declares dividends daily, pays dividends monthly, and automatically reinvests such dividends in additional shares at net asset value. Dividends are declared from the total of net investment income. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. -38- 42 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 2. FUND CHARGES Investment management and advisory fees are calculated daily at an annual rate of 0.3233% of Fund CI's average net assets. These fees are paid to Travelers Asset Management International Corporation, an indirect wholly owned subsidiary of Travelers Group Inc. The Travelers has agreed to reimburse Fund CI for the amount by which Fund CI's aggregate annualized operating expenses, excluding brokerage commissions and any interest charges and taxes, exceed 1.25% of Fund CI's average net assets. Trustees and officers of Fund CI who are also officers or employees of Travelers Group Inc., or its subsidiaries, receive no compensation directly from Fund CI. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest with a par value of $0.10 per share. Transactions in shares of Fund CI were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------ ------------- 1996 1995 ---- ---- Shares sold............................................ 4,543,520 3,284,741 Shares redeemed........................................ (3,507,335) (3,122,783) Shares issued in reinvestment of distributions......... 36,207 52,033 ------------ ------------- Net.................................................... 1,072,392 213,991 ============ =============
As of June 30, 1996 all outstanding shares of beneficial interest were owned by The Travelers Fund UL for Variable Life Insurance, a separate account of The Travelers. -39- 43 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 4. FINANCIAL HIGHLIGHTS (Selected data for a share outstanding throughout each period.)
SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) --------- ------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- PER SHARE DATA: - --------------- Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from operations................. 0.0182 0.0417 0.0278 0.0214 0.0322 0.0650 Less distributions from net investment income............................... (0.0182) (0.0417) (0.0278) (0.0214) (0.0322) (0.0650) --------- --------- -------- --------- --------- --------- Net asset value, end of period (unchanged during the period).......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========= ========= ======== ========= ========= ========= TOTAL RETURN* 1.82% 4.17% 2.78% 2.14% 3.22% 6.50% - ------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------- Net assets, end of period (thousands).. $ 2,489 $ 1,417 $ 1,203 $ 647 $ 697 $ 690 Ratio of expenses to average net assets**............................. 1.25%# 1.25% 1.25% 0.94% 0.38% 0.38%
* Total return is determined after reflecting the reinvestment of dividends declared during the period, by dividing net investment income by average net assets. As described in Note 1, shares in Fund CI are only sold to separate accounts of The Travelers Insurance Company and The Travelers Life and Annuity company in connection with the issuance of variable life insurance contracts. The total return does not reflect the deduction of any contract charges or fees assessed by these separate accounts. For periods of less than one year, total returns are not annualized. Prior period amounts have been reclassified to conform to the current period's presentation. ** The ratio of expenses to average net assets reflects an expense reimbursement by The Travelers in connection with voluntary expense limitations, including those described in Note 3. Without the expense reimbursement, the ratios of expenses to average net assets would have been 3.60% annualized, for the six months ended June 30, 1996 and 7.37%, 6.40%, 8.47%, 7.70%, and 11.61% the years ended December 31, 1995, 1994, 1993, 1992, and 1991, respectively. # Annualized. 5. SUBSEQUENT EVENT Effective August 1, 1996, The Travelers has agreed to reimburse Fund CI for the amount by which Fund CI's aggregate annualized operating expenses, excluding brokerage commissions and any interest charges and taxes, exceed 0.60% of Fund CI's average net assets. -40- 44 CASH INCOME TRUST STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 1996
PRINCIPAL MARKET AMOUNT VALUE -------- --------- SHORT-TERM INVESTMENTS (100%) U.S. GOVERNMENT SECURITIES (100%) United States of America Treasury, 4.97% due July 25, 1996 $ 225,000 $ 222,975 United States of America Treasury, 4.99% due July 25, 1996 100,000 99,194 United States of America Treasury, 5.03% due August 1,1996 400,000 394,947 United States of America Treasury, 5.04% due August 1, 1996 165,000 163,027 United States of America Treasury, 5.07% due August 29, 1996 250,000 246,748 United States of America Treasury, 5.11% due August 22, 1996 200,000 197,642 United States of America Treasury, 5.13% due September 5, 1996 400,000 394,890 United States of America Treasury, 5.15% due October 10, 1996 375,000 365,534 United States of America Treasury, 5.14% due September 19, 1996 175,000 172,740 United States of America Treasury, 5.18% due September 19, 1996 200,000 197,472 ---------- TOTAL INVESTMENTS (100%) (COST $2,455,363) $2,455,169 ==========
See Notes to Financial Statements -41- 45 THE TRAVELERS SERIES TRUST U.S. GOVERNMENT SECURITIES PORTFOLIO The bear market for bonds began in February and continued through the second quarter. Yields on Treasuries with maturities between 5 and 10 years rose 1.09% or more. The yield curve flattened, with the difference between 2 year to 30 year Treasuries ending at 78 basis points, while trading in a range of 68 to 93 basis points over the first half. Mortgage backed securities outperformed similar Treasury securities as fears of refinancing all but vanished. As an asset class, tight corporate spreads also provided greater returns to this sector. During the first half, the Lehman Mortgage Index returned 0.4% versus a negative 1.9% for the Lehman Government/Corporate Bond Index. As the market has repriced the mortgage landscape, we are selectively looking at adding more convex securities. Cusp coupon mortgages (those that are at-the-money in terms of refinancing) and premiums have fared well recently. Traditionally, when the mortgage market has offered convexity cheaply, it has paid to take it. Agency debentures that offer incremental value versus Treasuries are attractive as bullet substitutes. We will keep our exposure to Financing Corporation ("FICO") coupon strips, which we believe can tighten over 10 basis points during the next several months. The portfolio duration will be kept close to neutral, erring modestly on the long side, as technical signals indicate a near-term reprieve in the bear market may be in store. The portfolio will maintain its AAA quality rating. PORTFOLIO MANAGER: JOSEPH M. MULLALLY -42- 46 THE TRAVELERS SERIES TRUST U.S. GOVERNMENT SECURITIES PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1996 ASSETS: Investment securities, at market value (identified cost $26,543,346)....... $ 26,443,311 Interest receivable........................................................ 203,959 -------------- Total Assets......................................................... 26,647,270 -------------- LIABILITIES: Cash overdraft............................................................. 718 Payables: Investment management and advisory fees................................. 1,400 Variation on futures margin............................................. 30,800 Accrued expenses........................................................... 8,895 -------------- Total Liabilities.................................................... 41,813 -------------- NET ASSETS.................................................................... $ 26,605,457 ============== NET ASSETS REPRESENTED BY: Paid-in capital............................................................ $ 27,142,086 Undistributed net investment income........................................ 633,628 Accumulated net realized gains (losses) on investment security transactions (1,070,222) Net unrealized depreciation on investment securities....................... (100,035) -------------- Total net assets (applicable to 2,451,213 shares outstanding at $10.85 per share)............................................................ $ 26,605,457 ==============
See Notes to Financial Statements -43- 47 THE TRAVELERS SERIES TRUST U.S. GOVERNMENT SECURITIES PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1996 INVESTMENT INCOME: Interest................................................... $ 702,621 EXPENSES: Investment management and advisory fees.................... $ 43,991 Accounting and audit fees.................................. 14,797 Custodian fees............................................. 1,113 Printing and postage....................................... 6,726 Trustees' fees............................................. 887 Registration fees.......................................... 414 Legal fees................................................. 1,065 -------------- Total expenses.......................................... 68,993 -------------- Net investment income................................ 633,628 -------------- REALIZED LOSS AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized loss from investment security transactions: Proceeds from investment securities sold................ 100,308,532 Cost of investment securities sold...................... 101,347,451 -------------- Net realized loss.................................... (1,038,919) Change in unrealized gain (loss) on investment securities: Unrealized gain at December 31, 1995.................... 797,061 Unrealized loss at June 30, 1996........................ (100,035) -------------- Net change in unrealized gain (loss) for the period.. (897,096) -------------- Net realized loss and change in unrealized gain (loss) (1,936,015) -------------- Net decrease in net assets resulting from operations....... $ (1,302,387) ==============
See Notes to Financial Statements -44- 48 THE TRAVELERS SERIES TRUST U.S. GOVERNMENT SECURITIES PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED DECEMBER JUNE 30, 31, 1996 1995 ---- ---- (UNAUDITED) OPERATIONS: Net investment income......................................... $ 633,628 $ 1,520,848 Net realized gain (loss) from investment security transactions (1,038,919) 1,110,792 Net change in unrealized gain (loss) on investment securities. (897,096) 3,171,708 -------------- -------------- Net increase (decrease) in net assets resulting from operations............................................... (1,302,387) 5,803,348 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME AND NET SHORT-TERM REALIZED GAINS FROM INVESTMENT SECURITY TRANSACTIONS.............................................. (2,449,724) (1,404,917) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold..................................... 4,446,227 5,439,282 Dividend reinvestment......................................... 2,449,724 1,404,917 Payments for shares redeemed.................................. (4,730,671) (7,572,507) -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions.............................. 2,165,280 (728,308) -------------- -------------- Net increase (decrease) in net assets................... (1,586,831) 3,670,123 NET ASSETS: Beginning of period........................................... 28,192,288 24,522,165 -------------- -------------- End of period (including undistributed net investment income as follows: June, 1996 $633,628 and December, 1995 $1,520,848)......... $ 26,605,457 $ 28,192,288 ============== ==============
See Notes to Financial Statements -45- 49 THE TRAVELERS SERIES TRUST U.S. GOVERNMENT SECURITIES PORTFOLIO STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 1996
PRINCIPAL MARKET AMOUNT VALUE -------------- ------------- U.S. GOVERNMENT AGENCY SECURITIES (76.0%) FHLMC Gold 30-Year PC, 8.00% Pass Through, 2026 $ 1,009,375 $ 1,019,775 FICO Strip, 0.00% Debentures, 2011 4,810,000 1,547,714 FICO Strip, 0.00% Debentures, 2015 7,681,000 1,917,731 FICO Strip, 0.00% Notes, 2010 6,987,000 2,589,242 FNMA,1993-05 H, 7.50% Pass Through, 2008 1,000,000 997,319 FNMA,1993-13 Z1, 6.50% Pass Through, 2000 1,241,204 1,216,726 GNMA 30-Year Single Family, 7.00% Pass Through, 2024 2,004,481 1,924,911 GNMA 30-Year Single Family, 7.50% Pass Through, 2017 1,939,675 1,936,900 GNMA 30-Year Single Family, 7.50% Pass Through, 2026 1,005,265 991,748 GNMA 30-Year Single Family, 7.50% Pass Through, 2026 1,007,411 993,866 GNMA 30-Year Single Family, 7.50% Pass Through, 2026 2,015,227 1,988,130 GNMA 30-Year Single Family, 8.50% Pass Through, 2018 434,009 446,755 GNMA 30-Year Single Family, 8.50% Pass Through, 2018 359,962 370,533 GNMA 30-Year Single Family, 8.50% Pass Through, 2018 296,598 305,308 GNMA 30-Year Single Family, 8.50% Pass Through, 2018 280,169 288,397 GNMA 30-Year Single Family, 8.50% Pass Through, 2018 248,971 256,283 GNMA 30-Year Single Family, 9.00% Pass Through, 2016 29,332 30,725 GNMA 30-Year Single Family, 9.00% Pass Through, 2019 71,479 74,874 Resolution Funding, 8.875% Bonds, 2030 1,000,000 1,202,710 ------------- TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $20,287,883) 20,099,647 ------------- U.S. GOVERNMENT SECURITIES (13.7%) United States of America Treasury, 8.875% Bonds, 2019 3,000,000 3,618,750 ------------- TOTAL U.S. GOVERNMENTSECURITIES (COST $3,530,625) 3,618,750 SHORT-TERM INVESTMENTS (10.3%) U.S. GOVERNMENT AGENCY SECURITIES (4.5%) FHLMC, 5.31% due July 24, 1996 1,200,000 1,194,917 ---------------- U.S. GOVERNMENT SECURITIES (2.4%) United States of America Treasury, 5.13% due September 19, 1996 (A) 150,000 146,317 United States of America Treasury, 5.17% due September 19, 1996 500,000 493,680 ---------------- 639,997 ---------------- REPURCHASE AGREEMENTS (3.4%) Merrill Lynch Government Securities, Inc., 5.25% Repurchase Agreement dated June 28, 1996 due July 1, 1996, collateralized by: United States of America Treasury, $865,000, 7.50% due November 15, 2001 890,000 890,000 ---------------- TOTAL SHORT-TERM INVESTMENTS (COST $2,724,838) 2,724,914 ---------------- Notional Value ---------------- FUTURES CONTRACTS (0.0%) Treasury Bond, Exp. September, 1996 $ 3,833,594 - Treasury Note, Exp. - September, 1996 10,575,000 ---------------- TOTAL INVESTMENTS (100%) (COST $26,543,346) (B) $ 26,443,311 ================
NOTES (A) Par value of $90,000 is pledged to cover margin deposits on futures contracts. -46- 50 (B) At June 30, 1996, net unrealized depreciation for all securities was $100,035. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $110,022 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $210,057. See Notes to Financial Statements -47- 51 THE TRAVELERS SERIES TRUST SOCIAL AWARENESS STOCK PORTFOLIO Greenwich Street Advisors assumed management responsibility for the portfolio in May 1995, and since that time has transitioned the fund from one which replicated the sector allocation of the Standard & Poor's 500 Stock Index ("S&P 500"), with over 225 individual equities, to a more focused portfolio implementing a value-oriented discipline. Sector weightings are closely monitored and adjusted relative to the S&P 500 -- choosing an under, over or neutral weighting -- in order to potentially enhance portfolio returns. At mid year, the portfolio held 77 stocks and we anticipate further consolidation in the number of individual holdings. The Social Awareness Stock Portfolio seeks to provide competitive risk-adjusted returns by investing in equities of medium and large size companies which meet the social criteria established for the portfolio. The stock selection has a value bias and the fund seeks to maintain a more fully invested posture, typically with 90% - 100% invested in equities. For the first half of 1996 the portfolio's total return was approximately 9%. Strength in the portfolio, during the first half of the year, emanated from the specialty retail, consumer staples, and from selected basic industries and interest rate sensitive stocks. Areas of modest under performance were health care and telephone utility companies. As of the end of June our asset allocation stood at approximately 93% in equities and 7% in cash equivalents. Our top five holdings were State Street Boston Bank, PepsiCo, Praxair Inc., Johnson & Johnson, and Microsoft. Our social screening process seeks to avoid investment in equities of weapons producers; manufacturers of tobacco products, alcoholic beverages, and gambling devices; owners or designers of nuclear facilities; and companies whose businesses cause substantial environmental damage. Provided investment criteria are satisfied, the stock selection process seeks to incorporate a supportive element by identifying and investing in companies that actively promote social and environmental well-being through community activities and charitable giving, environmental problem-solving, and innovative employee benefits and programs. While the first half of the year has seen the equity markets continue along their upward path, some stark economic contrasts to 1995 have developed. In 1995, the interest rate environment was very favorable, declining throughout the year. Market breadth (a measure of market participation) was focused in a few groups, inflation was not a concern and corporate earnings growth continued to exceed expectations by a wide margin. Additionally, and perhaps most important, liquidity was very strong. These elements made for a "perfect world" in which financial instruments were clearly the asset of choice. Now halfway through 1996, the equity markets remain positive, but the underpinnings of the market are indicating some weakness. By many traditional methods of valuation, the U.S. equity markets appear fair to somewhat overvalued. Dividend yields are falling to new lows and stock price-to-book values continue to rise. The economic environment is also signaling change. Inflation concerns and strength in the economy have pushed up interest rates. Corporate earnings trends, while positive, are not expected to grow at the same high rates of recent years. This has clearly made for a difficult environment for bonds during the first half of the year and, going forward, an increasingly challenging one for stocks. Still, the fact remains that while many of these market concerns have been waving a caution flag for quite some time, investors who have reduced equity exposure in recent quarters have under performed the markets on a relative basis. This positive performance in equities can at least in part be attributed to liquidity -- or cash flowing into the equity market -- which has maintained its trend and remains strong. While we continue to remain positive in the long term, we are conscious of the concerns about recent economic and market trends, as well as the fact that the market (as measured by the S&P 500) has risen over 50% since the lows of December 1994. It is our expectation that the higher level of market volatility we have experienced in recent months will continue through out the rest of the year and will be dependent on the prevailing economic opinion. (Economic scenarios perceived as being either too strong or too weak can both be unsettling for the equity markets.) Our focus continues to be on individual companies that can prosper in the moderate growth/modest inflation environment we expect going forward. -48- 52 THE TRAVELERS SERIES TRUST SOCIAL AWARENESS STOCK PORTFOLIO On the corporate social responsibility front, increasing attention is being focused on issues of global human rights, particularly in manufacturing operations in developing countries, and especially with lower-skilled labor pools in industries such as apparel. Investors, consumers, and the media are asking corporations how their products are made, by whom, and in what type of workplace environment. While there is certainly agreement about the need to eradicate the very worst practices (e.g., forced labor), in general these are, to say the least, extremely complex issues to evaluate, often going right to the core of fundamental cultural and economic differences. To date, companies have dealt with these issues in a variety of ways. More and more corporations are developing "Codes of Conduct" that set the standards for a fair and safe workplace for both company-owned operations and those of suppliers. The most committed companies have created teams to monitor and enforce the Codes of Conduct, particularly with suppliers. At the same time, a number of companies have joined working groups in which they dialogue with other corporations and human rights experts to share information about what programs have been most effective. Finally, a number of corporations have chosen not to do business in select countries because of what they've evaluated to be pervasive problems with human rights. The corporate community, human rights groups, and social investors share the continuing challenge to develop effective and workable standards for improving working conditions throughout the world. PORTFOLIO MANAGERS: ROBERT J BRADY, CFA - GENE H. MARTINO ASSISTED BY LISA M. LEFF, ROBERT ALLAN, AND ROBERT YUEN -49- 53 THE TRAVELERS SERIES TRUST SOCIAL AWARENESS STOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1996 ASSETS: Investment securities, at market value (identified cost $6,821,900)........ $ 8,558,036 Cash....................................................................... 817 Receivables: Dividends............................................................... 5,706 Interest................................................................ 246 Receivable from The Travelers........................................... 4,918 -------------- Total Assets......................................................... 8,569,723 -------------- LIABILITIES: Payable for investment management and advisory fees........................ 914 Accrued expenses: Reimbursable expenses................................................... 4,918 Other expenses.......................................................... 8,275 -------------- Total Liabilities.................................................... 14,107 -------------- NET ASSETS.................................................................... $ 8,555,616 ============== NET ASSETS REPRESENTED BY: Paid-in capital............................................................ $ 6,564,536 Undistributed net investment income........................................ 18,075 Accumulated net realized gains (losses) on investment security transactions 236,869 Net unrealized appreciation on investment securities....................... 1,736,136 -------------- Total net assets (applicable to 573,036 shares outstanding at $14.93 per share) $ 8,555,616 ==============
See Notes to Financial Statements -50- 54 THE TRAVELERS SERIES TRUST SOCIAL AWARENESS STOCK PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1996 INVESTMENT INCOME: Dividends.................................................. $ 54,277 Interest................................................... 15,887 ------------- Total income............................................ $ 70,164 EXPENSES: Investment management and advisory fees.................... 27,089 Accounting and audit fees.................................. 14,135 Custodian fees............................................. 4,777 Printing and postage....................................... 8,930 Trustees' fees............................................. 887 Registration fees.......................................... 124 Legal fees................................................. 1,065 ------------- Total expenses before reimbursement from The Travelers.. 57,007 Less: Reimbursement from The Travelers..................... (4,918) ------------- Net expenses............................................ 52,089 -------------- Net investment income................................ 18,075 -------------- REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON INVESTMENT SECURITIES: Realized gain from investment security transactions: Proceeds from investment securities sold................ 1,194,936 Cost of investment securities sold...................... 946,109 ------------- Net realized gain.................................... 248,827 Change in unrealized gain on investment securities: Unrealized gain at December 31, 1995.................... 1,289,613 Unrealized gain at June 30, 1996........................ 1,736,136 ------------- Net change in unrealized gain for the period......... 446,523 -------------- Net realized gain and change in unrealized gain... 695,350 -------------- Net increase in net assets resulting from operations....... $ 713,425 ==============
See Notes to Financial Statements -51- 55 THE TRAVELERS SERIES TRUST SOCIAL AWARENESS STOCK PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1996 1995 ---- ---- (UNAUDITED) OPERATIONS: Net investment income......................................... $ 18,075 $ 55,079 Net realized gain from investment security transactions....... 248,827 265,239 Net change in unrealized gain on investment securities........ 446,523 1,316,045 -------------- -------------- Net increase in net assets resulting from operations....... 713,425 1,636,363 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income and net short-term realized gains from investment security transactions........................... (140,441) (51,494) Net long-term realized gains from investment security transactions............................................... (173,049) (68,327) -------------- -------------- Total distributions to shareholders........................ (313,490) (119,821) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold..................................... 2,170,462 2,552,645 Dividend reinvestment......................................... 313,490 119,821 Payments for shares redeemed.................................. (1,383,082) (1,013,468) -------------- -------------- Net increase in net assets resulting from capital share transactions............................................. 1,100,870 1,658,998 -------------- -------------- Net increase in net assets.............................. 1,500,805 3,175,540 NET ASSETS: Beginning of period........................................... 7,054,811 3,879,271 -------------- -------------- End of period (including undistributed net investment income as follows: June, 1996 $18,075 and December, 1995 $55,079)............. $ 8,555,616 $ 7,054,811 ============== ==============
See Notes to Financial Statements -52- 56 THE TRAVELERS SERIES TRUST SOCIAL AWARENESS STOCK PORTFOLIO STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 1996
NO. OF MARKET SHARES VALUE --------- ---------- COMMON STOCKS (93.5%) AMUSEMENTS (1.2%) Walt Disney Co. 1,600 $ 100,600 -------------- BANKING (8.3%) Associated 1st Capital Corp. (A) 2,000 75,250 Bank of Boston Corp. 1,500 74,250 Barnett Banks, Inc. 1,000 61,000 Citicorp 1,500 123,937 H.F. Ahmanson & Co. 2,400 64,800 NationsBank Corp. 1,700 140,463 State Street Boston Corp. 3,400 173,400 -------------- 713,100 -------------- CHEMICALS, PHARMACEUTICALS AND ALLIED PRODUCTS (12.5%) Air Products & Chemicals, Inc. 2,000 115,500 Amgen Inc. (A) 1,800 96,975 Bristol-Myers Squibb Co. 1,100 99,000 Johnson & Johnson 3,400 168,300 Merck & Co., Inc. 2,300 148,637 Pfizer, Inc. 1,200 85,650 Praxair, Inc. 4,000 169,000 Procter & Gamble Co. 1,200 108,750 Schering-Plough Corp. 1,200 75,300 -------------- 1,067,112 -------------- COMMUNICATION (3.5%) Ameritech Corp. 1,400 83,125 Bell Atlantic Corp. 800 51,000 BellSouth Corp. 1,800 76,275 MCI Communications Corp. 3,500 89,468 -------------- 299,868 -------------- CONSTRUCTION (0.6%) Kaufman & Broad Home Corp. 3,500 50,750 -------------- ELECTRICAL AND ELECTRONIC MACHINERY (4.7%) AMP, Inc. 1,500 60,187 DSC Communications, Inc. (A) 3,000 90,188 Intel Corp. 2,000 146,875 Lucent Technology Corp. (A) 2,000 75,750 Madge Networks NV (A) 2,000 29,500 -------------- 402,500 -------------- FINANCE (4.2%) American Express Co. 2,700 120,488 Federal Home Loan Mortgage Corp. 1,000 85,500 Federal National Mortgage Association 2,000 67,000 Merrill Lynch & Co., Inc. 500 32,562 Mesaba Holdings, Inc. (A) 4,500 51,750 -------------- 357,300 -------------- FOOD (4.5%) Coca-Cola Co. 2,000 97,750 PepsiCo, Inc. 4,800 169,800 Unilever N.V. 800 116,100 -------------- 383,650 -------------- INSURANCE (4.9%) Aetna Life & Casualty Co. 1,400 100,100 American International Group 1,250 123,281 Transamerica Corp. 1,500 121,500 United Healthcare Corp. 1,400 70,700 -------------- 415,581 -------------- LEATHER AND LEATHER PRODUCTS (0.9%) Nine West Group, Inc. (A) 1,500 76,688 -------------- MACHINERY (8.9%) Cabletron System, Inc. (A) 1,500 102,938 Compaq Computer Corp. (A) 1,700 83,725 Digital Equipment Corp. (A) 700 31,500 EMC Corp. (A) 7,000 130,375 International Business Machines Corp. 1,200 118,800 Pitney Bowes, Inc. 2,000 95,500 Sun Microsystems (A) 1,000 58,875 York International, Inc. 2,800 144,900 -------------- 766,613 -------------- METAL PRODUCTS (4.8%) Belden, Inc. 4,500 135,000 Gillette Co. 2,000 124,750 Newell Company 5,000 153,125 -------------- 412,875 -------------- MISCELLANEOUS MANUFACTURING (6.6%) Dentsply International, Inc. 3,300 139,631 Perkin-Elmer Corp. 2,500 120,625 Stryker Corp. 6,200 140,663 Xerox Corp. 3,000 160,500 -------------- 561,419 -------------- OIL & GAS (1.4%) Anadarko Petroleum Corp. 2,000 116,000 -------------- PAPER AND ALLIED PRODUCTS (0.7%) Tambrands, Inc. 1,500 61,313 -------------- PRINTING, PUBLISHING AND ALLIED INDUSTRIES (1.4%) Tribune Co. 1,700 123,463 -------------- RETAIL (9.1%) Home Depot, Inc. 2,900 156,600 Kroger Co. (A) 2,700 106,650 May Department Stores 2,500 109,375 McDonalds Corp. 2,000 93,500 Payless ShoeSource, Inc. (A) 160 5,080 Pep Boys - Manny, Moe & Jack 4,000 136,000 Toys R Us, Inc. (A) 3,000 85,500 Wal-Mart Stores, Inc. 3,500 88,812 -------------- 781,517 -------------- SERVICES (7.6%) Columbia/HCA Healthcare Corp. 2,500 133,437 Computer Associates International 1,000 71,250 Microsoft Corp (A) 1,400 168,088 Olsten Corp. 5,400 158,625 Oracle Corp. (A) 3,000 118,313 -------------- 649,713 -------------- TRANSPORTATION (1.3%) Norfolk Southern Corp. 900 76,275 Southwest Airlines 1,300 37,862 -------------- 114,137 TRANSPORTATION MANUFACTURING (2.6%) FLEETWOOD Enterprises, Inc. 2,900 89,900 Varity Corp. (A) 2,800 134,750 -------------- 224,650 --------------
-53- 57 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
NO. OF MARKET SHARES VALUE ---------- ---------- WHOLESALE TRADE (3.8%) Enron Corp. 3,300 $ 134,887 Marshall Industries (A) 3,300 92,400 Sysco Corp. 2,800 95,900 -------------- 323,187 -------------- TOTAL COMMON STOCKS (Cost $6,265,900) 8,002,036 -------------- PRINCIPAL AMOUNT SHORT-TERM INVESTMENTS (6.5%) ------------ REPURCHASE AGREEMENTS (6.5%) First Boston, 5.30% Repurchase Agreement dated June 28, 1996 due July 1,1996 collateralized by: United States of America Treasury, $545,000, 7.50% due December 31, 1996 $ 556,000 556,000 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $556,000) 556,000 -------------- TOTAL INVESTMENTS (100%) (Cost $6,821,900) (B) $ 8,558,036 ==============
NOTES (A) Non-income Producing Security. (B) At June 30, 1996, net unrealized appreciation for all securities was $1,736,136. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $1,831,277 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $95,141. See Notes to Financial Statements -54- 58 THE TRAVELERS SERIES TRUST UTILITIES PORTFOLIO The electric utility industry continues its evolutionary transition to a more competitive structure where customers will have a greater choice of energy suppliers. Utility company management continues to monitor these changes and examine ways to best position their corporate assets. This could include a corporate realignment or disaggregation of business units into generation and transmission components. We also expect additional corporate mergers with the goal of creating larger more efficient companies. We believe the lines separating the electric utility and natural gas industry will fade as the focus becomes how best to serve the customer. These changes mean the investment risk profile of the electric utility industry will increase with some companies becoming clear winners and others facing increasing competitive challenges. Stock selection will be critical to achieving competitive investment performance. The financial markets are continuing to favor the lower cost electric provider over the company with a higher embedded cost structure. During most of the second quarter, electric utilities traded in a narrow range as investors avoided the group favoring the more volatile technology and cyclical sectors. At the end of the quarter, electric utility stocks rallied in conjunction with a more positive fixed income environment and more importantly, due to very attractive valuation levels relative to the broad based equity market. The current yield on the Standard and Poor's Utility Index was close to three times that of the Standard & Poor's 500 Stock Index ("S&P 500"). This has occurred only three prior times during the last twenty years and has proven to be a good time to buy utilities. The relative price to earnings ratio of the utility sector was also below historical averages. Our investment strategy continues to focus on a combination of long term growth and current income. During the quarter, we have continued to increase our weightings in growth oriented electric utilities that have lower than average current yields but more clearly defined growth prospects. We feel these companies will continue to be priced at premium valuation levels and provide the best total return prospects. New portfolio positions and additions to our current holdings include American Electric Power, Cinergy Corporation and Southern Company. Our telecommunication and natural gas weightings remained stable as we await more attractive valuation levels. On June 30, 1996, our portfolio mix was 83% equity, 8% bonds and 9% cash or cash equivalents. We continue to expect competitive total returns from the electric utility sector with less volatility than the overall equity market. During the second quarter of 1996, the total return of the Utilities Portfolio closely matched the returns recorded by the S&P 500 and the Standard and Poor's Utilities Index. The Portfolio outperformed the Lipper Utility Fund Annuity Index. Year-to-date the Utilities Portfolio substantially outpaced the Standard and Poor's Utilities Index but lagged the S&P 500 which continued to rally fueled by substantial inflows in equity mutual funds. We expect this gap to close during the second half of the year as market volatility may increase. PORTFOLIO MANAGER: JACK S. LEVANDE -56- 59 THE TRAVELERS SERIES TRUST UTILITIES PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1996 ASSETS: Investment securities, at market value (identified cost $15,552,503)....... $ 17,796,024 Cash....................................................................... 1,337 Receivables: Dividends............................................................... 38,307 Interest................................................................ 33,247 Investment securities sold.............................................. 86,000 -------------- Total Assets......................................................... 17,954,915 -------------- LIABILITIES: Payables: Investment securities purchased......................................... 240,000 Investment management and advisory fees................................. 1,877 Accrued expenses........................................................... 7,313 -------------- Total Liabilities.................................................... 249,190 -------------- NET ASSETS.................................................................... $ 17,705,725 ============== NET ASSETS REPRESENTED BY: Paid-in capital............................................................ $ 14,838,951 Undistributed net investment income........................................ 326,086 Accumulated net realized gains (losses) on investment security transactions 297,167 Net unrealized appreciation on investment securities....................... 2,243,521 -------------- Total net assets (applicable to 1,365,857 shares outstanding at $12.96 per share)............................................................ $ 17,705,725 ==============
See Notes to Financial Statements -57- 60 THE TRAVELERS SERIES TRUST UTILITIES PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1996 INVESTMENT INCOME: Dividends.................................................. $ 307,602 Interest................................................... 95,893 -------------- Total income............................................ $ 403,495 EXPENSES: Investment management and advisory fees.................... 54,443 Accounting and audit fees.................................. 13,048 Custodian fees............................................. 1,309 Printing and postage....................................... 6,531 Trustees' fees............................................. 1,013 Legal fees................................................. 1,065 -------------- Total expenses.......................................... 77,409 -------------- Net investment income................................ 326,086 -------------- REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON INVESTMENT SECURITIES: Realized gain from investment security transactions: Proceeds from investment securities sold................ 2,599,828 Cost of investment securities sold...................... 2,302,661 -------------- Net realized gain.................................... 297,167 Change in unrealized gain on investment securities: Unrealized gain at December 31, 1995.................... 2,093,137 Unrealized gain at June 30, 1996........................ 2,243,521 -------------- Net change in unrealized gain for the period......... 150,384 -------------- Net realized gain and change in unrealized gain... 447,551 -------------- Net increase in net assets resulting from operations....... $ 773,637 ==============
See Notes to Financial Statements -58- 61 THE TRAVELERS SERIES TRUST UTILITIES PORTFOLIO STATEMENT OF CHANGES IN NET ASSET
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1996 1995 ---- ---- (UNAUDITED) OPERATIONS: Net investment income......................................... $ 326,086 $ 441,157 Net realized gain from investment security transactions....... 297,167 144,953 Net change in unrealized gain on investment securities........ 150,384 2,170,686 -------------- -------------- Net increase in net assets resulting from operations....... 773,637 2,756,796 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME AND NET SHORT-TERM REALIZED GAINS FROM INVESTMENT SECURITY TRANSACTIONS................................................. (586,110) (150,491) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold..................................... 4,486,425 9,178,587 Dividend reinvestment......................................... 586,110 150,491 Payments for shares redeemed.................................. (2,894,012) (2,352,367) -------------- -------------- Net increase in net assets resulting from capital share transactions............................................. 2,178,523 6,976,711 -------------- -------------- Net increase in net assets.............................. 2,366,050 9,583,016 NET ASSETS: Beginning of period........................................... 15,339,675 5,756,659 -------------- -------------- End of period (including undistributed net investment income as follows: June, 1996 $326,086 and December, 1995 $441,157)........... $ 17,705,725 $ 15,339,675 ============== ==============
See Notes to Financial Statements -59- 62 THE TRAVELERS SERIES TRUST UTILITIES PORTFOLIO STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 1996
NO. OF MARKET SHARES VALUE ------------ ------------- COMMON STOCKS (83.2%) COMMUNICATION (11.4%) Ameritech Corp. 3,500 $ 207,813 AT&T Corp. 7,500 465,000 BellSouth Corp. 10,000 423,750 Frontier Corp. 10,000 306,250 GTE Corp. 7,500 335,625 Teleport Communication, Inc.(A) 10,000 190,000 U S West Media Group (A) 5,000 91,250 -------------- 2,019,688 -------------- ELECTRICAL AND ELECTRONIC MACHINERY (1.6%) Lucent Technology 7,500 284,063 -------------- UTILITIES (67.9%) Allegheny Power Systems, Inc. 15,000 463,125 American Electric Power Co. 11,000 468,875 Baltimore Gas & Electric Co. 7,500 212,812 Carolina Power & Light Co. 12,000 456,000 Cinergy Corp. 12,000 384,000 Coastal Corp. 10,000 417,500 CIPSCO, Inc. 5,000 193,125 CMS Energy Corp. 12,500 385,938 Dayton Power & Light Co. 10,000 243,750 Dominion Resources, Inc. 7,000 280,000 Duke Power Co. 10,000 512,500 Duquesne Light Co. 12,750 350,625 Edison International 15,000 264,375 Entergy Corp. 12,000 340,500 Florida Power & Light Co. 12,500 575,000 Florida Progress Corp. 10,000 347,500 General Public Utilities 10,000 352,500 Houston Industries, Inc. 16,000 394,000 Kansas City Power & Light Co. 15,000 412,500 New York State Electric & Gas Co. 7,500 182,812 NIPSCO Industries, Inc. 10,000 402,500 Ohio Edison Co. 10,000 218,750 Pacific Enterprises 10,000 296,250 Pacificorp 18,000 400,500 Pinnacle West Capital Corp. 17,500 531,562 Portland General Electric Corp. 8,100 250,088 Public Service of New Mexico (A) 15,000 307,500 Public Service Co. Of Colorado 7,500 275,625 Southern Co. 12,500 307,812 SCANA Corp. 11,000 309,375 Texas Utilities Co. 15,000 641,250 Unicom Corp. 10,500 292,688 Williams Companies 5,000 247,500 Wisconsin Energy 13,000 375,375 -------------- 12,094,212 -------------- WHOLESALE TRADE (2.3%) Enron Corp. 10,000 408,750 -------------- TOTAL COMMON STOCKS (COST $12,600,568) 14,806,713 --------------
PRINCIPAL AMOUNT ------------- BONDS (2.2%) UTILITIES (2.2%) Arizona Public Service Co., 7.25% Bonds, 2023 $ 200,000 $ 179,511 Peco Energy Co., 8.75% Bonds, 2022 200,000 206,864 -------------- 386,375 -------------- TOTAL BONDS (Cost $376,458) 386,375 -------------- U.S. GOVERNMENT SECURITIES (5.7%) United States of America Treasury, 7.50% Notes, 1996 500,000 505,156 United States of America Treasury, 7.75% Notes, 1999 500,000 520,780 -------------- -------------- 1,025,936 -------------- TOTAL U.S. GOVERNMENT SECURITIES (COST $998,477) 1,025,936 SHORT-TERM INVESTMENTS (8.9%) REPURCHASE AGREEMENTS (8.9%) First Boston, 5.30% Repurchase Agreement dated June 28, 1996 due July 1, 1996 collateralized by: United States of America Treasury, $1,540,000, 7.50% due December 31, 1996 1,577,000 1,577,000 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $1,577,000) 1,577,000 -------------- TOTAL INVESTMENTS (100%) (COST $15,552,503) (B) $ 17,796,024 ==============
NOTES (A) Non-income Producing Security. (B) At June 30, 1996, net unrealized appreciation for all securities was $2,243,521. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $2,271,304 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $27,783. -60- 63 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Series Trust (the "Series Trust") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Declaration of Trust authorizes the shares of the Series Trust to be divided into two or more series. As of June 30, 1996, the Series Trust consisted of six series: U.S. Government Securities Portfolio, Social Awareness Stock Portfolio, Utilities Portfolio (the "Portfolios"), Zero Coupon Bond Fund Portfolio Series 1998, Zero Coupon Bond Fund Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio Series 2005. Shares in each Portfolio are currently offered, without a sales charge, to separate accounts of The Travelers Insurance Company ("The Travelers") and The Travelers Life and Annuity Company, indirect wholly owned subsidiaries of Travelers Group Inc., in connection with the issuance of certain variable annuity and variable life insurance contracts. The accompanying notes do not specifically pertain to the Zero Coupon Bond Fund Portfolios, as the financial statements and accompanying notes for those portfolios are published in their own semi-annual report. The following is a summary of significant accounting policies consistently followed by each Portfolio in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the last-reported sale price as of the close of business of the New York Stock Exchange on the last business day of the period; securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last-reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. When market quotations are not considered to be readily available for long-term corporate bonds and notes, such investments are generally stated at fair value on the basis of valuations furnished by a pricing service. These valuations are determined for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Securities, including restricted securities, for which pricing services are not readily available are valued by management at prices which it deems in good faith to be fair. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued by computing a market value based upon quotations from dealers or issuers for securities of a similar type, quality and maturity. FUTURES CONTRACTS. Each Portfolio may use stock index futures contracts, and may also use interest rate futures contracts, as a substitute for the purchase or sale of individual securities. When a Portfolio enters into a futures contract, it agrees to buy or sell a specified index of stocks, or debt securities, at a future time for a fixed price, unless the contract is closed prior to expiration. Each Portfolio is obligated to deposit with a broker an "initial margin" equivalent to a percentage of the face, or notional value of the contract. It is each Portfolio's practice to hold cash and cash equivalents in an amount at least equal to the notional value of outstanding purchased futures contracts, less the initial margin. Cash and cash equivalents include cash on hand, securities segregated under federal and brokerage regulations, and short-term highly liquid investments with maturities generally three months or less when purchased. Generally, futures contracts are closed prior to expiration. Futures contracts purchased by each Portfolio are priced and settled daily; accordingly, changes in daily prices are recorded as realized gains or losses and no asset is recorded in the Statements of Investments. However, when each Portfolio holds open futures contracts, it assumes a market risk generally equivalent to the underlying market risk of changes in the value of the specified indexes or debt securities associated with the futures contract. OPTIONS. Each Portfolio may purchase index or individual equity put or call options, thereby obtaining the right to sell or buy a fixed number of shares of the underlying asset at the stated price on or before the stated expiration date. Each Portfolio may sell the options before expiration. Options held in each Portfolio are listed on either national securities exchanges or on over-the-counter markets, and are short-term contracts with a duration of less than nine months. The market value of the options will be the latest sale price at the close of the New York Stock Exchange, or in the absence of such sale, the latest bid quotation. -61- 64 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED REPURCHASE AGREEMENTS. When each Portfolio enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed-upon date and price), the repurchase price of the securities will generally equal the amount paid by each Portfolio plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to each Portfolio securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Each Portfolio monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Each Portfolio's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. TAXES. Each Portfolio has qualified, and intends to continue to qualify each year, as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment company, each Portfolio is relieved of any federal income tax liability by distributing all of its net taxable investment income and net taxable capital gains, if any, to its shareholders. Each Portfolio further intends to avoid excise tax liability by distributing substantially all of its investment income. Therefore, no federal income tax provision has been made by each Portfolio in its financial statements. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded at the close of business on the record date. 2. INVESTMENTS Purchases and sales of common stocks and bonds excluding short-term investments aggregated $5,553,867 and $12,655,063, respectively, for U.S. Government Securities Portfolio; $1,670,366 and $1,194,936, respectively, for Social Awareness Stock Portfolio; and $5,014,445 and $2,599,828, respectively, for Utilities Portfolio; for the six months ended June 30, 1996. Purchases and sales of direct and indirect U.S. government obligations were $84,082,567 and $79,759,444, respectively, for U.S. Government Securities Portfolio for the six months ended June 30, 1996. Realized gains and losses from security transactions are reported on an identified cost-basis. Social Awareness Stock Portfolio placed a portion of its security transactions with brokerage firms which are affiliates of The Travelers. The commissions paid to these affiliated firms were $145 for the year ended December 31, 1995. At June 30, 1996, U.S. Government Securities Portfolio held 35 open Treasury Bond futures and 100 open Treasury Note futures with maturity dates of September 30, 1996. The face value, or notional value, of these contracts at June 30, 1996, amounted to $3,833,594 and $10,575,000, respectively. In connection with these contracts, short-term investments with a par value of $90,000 had been pledged as margin deposits. Net realized gains from options transactions in the Social Awareness Stock Portfolio were $21,118 for the year ended December 31, 1995. These gains are included in the net realized gain from investment security transactions on both the Statement of Operations and the Statement of Changes in Net Assets. Net realized losses resulting from futures contracts in the U.S. Government Securities Portfolio were $83,189 for the six months ended June 30, 1996. These losses are included in the net realized loss from investment security transactions on both the Statement of Operations and the Statement of Changes in Net Assets. The cash settlement for June 30, 1996 is shown on the Statement of Assets and Liabilities as a payable for variation on futures margin. -62- 65 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 3. PORTFOLIO CHARGES Investment management and advisory fees for U.S. Government Securities Portfolio are calculated daily at an annual rate of 0.3233% of the Portfolio's average net assets. These fees are paid to Travelers Asset Management International Corporation, an indirect wholly owned subsidiary of Travelers Group Inc. Investment management and advisory fees for Social Awareness Stock Portfolio are calculated daily at annual rates which start at 0.65% and decrease, as net assets increase, to 0.40% of the Portfolio's average net assets. These fees are paid to Greenwich Street Advisors, a division of Smith Barney Mutual Funds Management Inc. ("SBMFM"), an indirect wholly owned subsidiary of Travelers Group Inc. Investment management and advisory fees for Utilities Portfolio are calculated daily at an annual rate of 0.65% of the Portfolio's average net assets. These fees are paid to Greenwich Street Advisors, a division of SBMFM, an indirect wholly owned subsidiary of Travelers Group Inc. The Travelers has agreed to reimburse U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Utilities Portfolio for the amount by which each Portfolio's aggregate annualized operating expenses, excluding brokerage commissions and any interest charges and taxes, exceed 1.25% of each Portfolio's average net assets. Trustees and officers of the Series Trust, who are also officers and employees of Travelers Group Inc., or its subsidiaries, receive no compensation directly from the Series Trust. -63- 66 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 4. 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:
U.S. GOVERNMENT SECURITIES PORTFOLIO --------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, -------------- -------------- 1996 1995 ---- ---- Shares sold........................................... 402,855 484,178 Shares redeemed....................................... (434,914) (672,686) Shares issued in reinvestment of distributions from net investment income and net short-term realized gains............................................ 216,216 138,279 ============== ============== Net................................................... 184,157 (50,229) ============== ============== SOCIAL AWARENESS STOCK PORTFOLIO --------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, -------------- -------------- 1996 1995 ---- ---- Shares sold........................................... 151,263 205,312 Shares redeemed....................................... (93,765) (74,604) Shares issued in reinvestment of distributions: from net investment income and net short-term realized gains................................... 10,349 4,774 from net long-term realized gains.................. 12,567 6,139 -------------- -------------- Net................................................... 80,414 141,621 ============== ============== UTILITIES PORTFOLIO --------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, -------------- -------------- 1996 1995 ---- ---- Shares sold........................................... 357,691 822,640 Shares redeemed....................................... (232,543) (209,288) Shares issued in reinvestment of distributions from net investment income and net short-term realized gains............................................ 47,002 14,594 -------------- -------------- Net................................................... 172,150 627,946 ============== ==============
As of June 30, 1996, all outstanding shares of beneficial interest of each Portfolio were owned by The Travelers Fund U for Variable Annuities, and/or The Travelers Fund UL for Variable Life Insurance, both of which are separate accounts of The Travelers. -64- 67 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 5. FINANCIAL HIGHLIGHTS (Selected data for a share outstanding throughout each period.) U.S. GOVERNMENT SECURITIES PORTFOLIO
SIX JANUARY MONTHS 24,* ENDED FOR THE YEARS ENDED TO JUNE 30, DECEMBER 31, DECEMBER 31, --------- ---------------------------- ------------ 1996 1995** 1994** 1993** 1992** ---- ---- ---- ---- ---- PER SHARE DATA: - --------------- Net asset value, beginning of period........... $ 12.43 $ 10.58 $ 11.63 $ 10.79 $ 10.00 Income from operations ---------------------- Net investment income........................ 0.26 0.65 0.60 0.57 0.53 Net gains or losses on securities (realized and unrealized)............................ (0.78) 1.80 (1.23) 0.44 0.26 -------- -------- -------- ------- -------- Total from investment operations........... (0.52) 2.45 (0.63) 1.01 0.79 Less distributions ------------------ Distributions from net investment income and net short-term realized gains............... (1.06) (0.60) (0.39) (0.17) - Distributions from net long-term realized gains...................................... - - (0.03) - - -------- -------- -------- ------- -------- Total distributions........................ (1.06) (0.60) (0.42) (0.17) - Net asset value, end of period................. $ 10.85 $ 12.43 $ 10.58 $ 11.63 $ 10.79 ======== ======== ======== ======= ======== TOTAL RETURN*** (4.54)% 24.42 % (5.64) % 9.48 % 7.90% - ------------ RATIOS/SUPPLEMENTAL DATA - ------------------------ Net assets, end of period (thousands)........ $ 26,605 $ 28,192 $ 24,522 $ 25,520 $ 9,017 Ratio of expenses to average net assets#..... 0.51%## 0.56% 0.71% 0.58% 0.38%## Ratio of net investment income to average net assets ................................ 4.68%## 5.80% 5.56% 5.04% 4.72%## Portfolio turnover rate...................... 372% 214% 16% 51% 25%
* Date operations commenced. ** Derived from audited financial information. *** Total return is determined by dividing the increase (decrease) in value of a share during the period, after reflecting the reinvestment of dividends declared during the period, by the beginning of period share price. As described in Note 1, shares in the U.S. Government Securities Portfolio are only sold to separate accounts of The Travelers Insurance Company and The Travelers Life and Annuity Company in connection with the issuance of variable annuity and variable life insurance contracts. The total return does not reflect the deduction of any contract charges or fees assessed by these separate accounts. For periods of less than one year, total returns are not annualized. # The ratio of expenses to average net assets for 1992-1993 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 0.77% and 0.72% for the year ended December 31, 1993 and the period ended December 31, 1992, respectively. For the six months ended June 30, 1996 and the years ended December 31, 1995 and 1994, there were no expense reimbursements by The Travelers in connection with the voluntary expense limitations described in Note 3. ## Annualized. -65- 68 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. FINANCIAL HIGHLIGHTS (Selected data for a share outstanding throughout each period.) SOCIAL AWARENESS STOCK PORTFOLIO
SIX MONTHS MAY 1,* ENDED FOR THE YEARS ENDED TO JUNE 30, DECEMBER 31, DECEMBER 31, ---------- ------------------------------ ------------ 1996 1995**@ 1994** 1993** 1992** ---- ---- ---- ---- ---- PER SHARE DATA: - ---------------- Net asset value, beginning of period........... $ 14.32 $ 11.05 $ 11.64 $ 10.95 $ 10.00 Income from operations ---------------------- Net investment income........................ 0.03 0.12 0.16 0.17 0.16 Net gains or losses on securities (realized and unrealized).................. 1.20 3.47 (0.45) 0.65 0.79 -------- -------- -------- -------- -------- Total from investment operations........... 1.23 3.59 (0.29) 0.82 0.95 Less distributions ------------------ Distributions from net investment income and net short-term realized gains.......... (0.28) (0.14) (0.24) (0.13) - Distributions from net long-term realized gains...................................... (0.34) (0.18) (0.06) - - -------- -------- -------- -------- -------- Total distribution......................... (0.62) (0.32) (0.30) (0.13) - Net asset value, end of period................. $ 14.93 $ 14.32 $ 11.05 $ 11.64 $ 10.95 ======== ======== ======== ======== ======== TOTAL RETURN*** 8.99% 33.37% (2.69)% 7.55% 9.50% - ------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------- Net assets, end of period (thousands)........ $ 8,556 $ 7,055 $ 3,879 $ 3,361 $ 1,394 Ratio of expenses to average net assets #.... 1.25%## 1.25% 1.25% 1.05% 0.71%## Ratio of net investment income to average 0.45%## 0.99% 1.43% 1.50% 2.22%## net assets................................. Portfolio turnover rate...................... 16% 73% 137% 60% 56 Average commission rate paid###.............. $0.0460 - - - -
* Date operations commenced. ** Derived from audited financial information. *** Total return is determined by dividing the increase (decrease) in value of a share during the period, after reflecting the reinvestment of dividends declared during the period, by the beginning of period share price. As described in Note 1, shares in the Social Awareness Stock Portfolio are only sold to separate accounts of The Travelers Insurance Company and The Travelers Life and Annuity Company in connection with the issuance of variable annuity contracts. The total return does not reflect the deduction of any contract charges or fees assessed by these separate accounts. For periods of less than one year, total returns are not annualized. # The ratio of expenses to average net assets for 1992-1995 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 1.38%, annualized for the six months ended June 30, 1996 and 1.75%, 3.34%, 3.73% and 2.19% for the years ended December 31, 1995, 1994, 1993 and the period ended December 31, 1992, respectively. ## Annualized. ### Calculated by dividing the total dollar amount of commissions paid for equity securities by the total number of shares purchased and sold during the period. @ Effective May 1, 1995, Greenwich Street Advisors became sub-adviser for the Social Awareness Stock Portfolio. -66- 69 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 7. FINANCIAL HIGHLIGHTS (Selected data for a share outstanding throughout each period.) UTILITIES PORTFOLIO
SIX MONTHS FOR THE FEBRUARY ENDED YEAR 4,* JUNE ENDED TO 30, DECEMBER 31, DECEMBER 31, ----------- ------------- ------------- 1996 1995** 1994** ---- ---- ---- PER SHARE DATA: - --------------- Net asset value, beginning of period............... $ 12.85 $ 10.17 $ 10.00 Income from operations ---------------------- Net investment income............................ 0.24 0.48 0.35 Net gains or losses on securities (realized and unrealized).................................... 0.34 2.44 (0.18) ---------- ---------- ----------- Total from investment operations............... 0.58 2.92 0.17 Less distributions ------------------ Distributions from net investment income and net short-term realized gains.................. (0.47) (0.24) - ---------- ---------- ----------- Total distributions.......................... (0.47) (0.24) - Net asset value, end of period..................... $ 12.96 $ 12.85 $ 10.17 ========== ========== =========== TOTAL RETURN*** 4.66% 29.29% 1.70% - ------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------- Net assets, end of period (thousands)............ $ 17,706 $ 15,340 $ 5,757 Ratio of expenses to average net assets#......... 0.92%## 1.25% 1.25%## Ratio of net investment income to average net assets......................................... 3.94%## 4.29% 3.86%## Portfolio turnover rate.......................... 17% 25% 32% Average commission rate paid###.................. $ 0.0540 - -
* Date operations commenced. ** Derived from audited financial information. *** Total return is determined by dividing the increase (decrease) in value of a share during the period, after reflecting the reinvestment of dividends declared during the period, by the beginning of period share price. As described in Note 1, shares in the Utilities Portfolio are only sold to separate accounts of The Travelers Insurance Company and The Travelers Life and Annuity Company in connection with the issuance of variable annuity and variable life insurance contracts. The total return does not reflect the deduction of any contract charges or fees assessed by these separate accounts. For periods of less than one year, total returns are not annualized. # The ratio of expenses to average net assets for 1994-1995 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 1.27% and 3.49% annualized for the year ended December 31, 1995 and the period ended December 31, 1994, respectively. For the six months ended June 30, 1996, there was no expense reimbursement by The Travelers in connection with the voluntary expense limitations described in Note 3. ## Annualized. ### Calculated by dividing the total dollar amount of commissions paid for equity securities by the total number of shares purchased and sold during the period. -67- 70 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 THE CHASE MANHATTAN BANK, N.A. New York, New York The financial information included herein has been taken from the records 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 and Utilities Portfolio. This financial information has not been audited by the Funds' independent accountants, who therefore express no opinion concerning its accuracy. However, it is management's opinion that all proper adjustments have been made. 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 Travelers Life and Annuity Company in addition to the Prospectuses for the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. VG-181 (S/A) (6-96) Printed in U.S.A. -----END PRIVACY-ENHANCED MESSAGE-----