N-CSRS 1 y99362nvcsrs.txt THE TRAVELERS SERIES TRUST UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-6465 THE TRAVELERS SERIES TRUST (Exact name of registrant as specified in charter) 125 Broad Street, New York, NY 10004 (Address of principal executive offices) (Zip code) Robert I. Frenkel, Esq. Smith Barney Fund Management LLC 300 First Stamford Place Stamford, CT 06902 (Name and address of agent for service) Registrant's telephone number, including area code: (800) 451-2010 Date of fiscal year end: DECEMBER 31 Date of reporting period: JUNE 30, 2004 ITEM 1. REPORT TO STOCKHOLDERS. The Semi-Annual Report to Stockholders is filed herewith. [INSERT SHAREHOLDER REPORT] SEMI-ANNUAL REPORT JUNE 30, 2004 [UMBRELLA ART TOP] [UMBRELLA ART BOTTOM] THE TRAVELERS SERIES TRUST: MFS VALUE PORTFOLIO [TRAVELERS LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Cityplace Hartford, CT 06103 SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- WHAT'S INSIDE LETTER FROM THE CHAIRMAN.................................... 1 SCHEDULE OF INVESTMENTS..................................... 3 STATEMENT OF ASSETS AND LIABILITIES......................... 8 STATEMENT OF OPERATIONS..................................... 9 STATEMENTS OF CHANGES IN NET ASSETS......................... 10 NOTES TO FINANCIAL STATEMENTS............................... 11 FINANCIAL HIGHLIGHTS........................................ 14
-------------------------------------------------------------------------------- LETTER FROM THE CHAIRMAN [R. JAY GERKEN PHOTO] R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer DEAR SHAREHOLDER, After a torrid second half of 2003, the equity markets took a breather in the first half of this year. Markets typically abhor uncertainty, so as the year progressed, investors grew increasingly lethargic amid questions over Iraq, global terrorism, a rise in oil prices, interest rates, inflation, and the presidential election. The good news -- solid corporate earnings, the improving economy, renewed job growth, and the still low level of interest rates -- largely was ignored. As a result, stock market returns for the first six months of 2004 generally were modest, as opposed to the strong, double-digit gains late last year. As was the case in 2003, small- and mid-capitalization stocks generally outperformed their larger brethren in the first half of this year. Value- and growth-oriented stocks frequently traded short-term performance leadership during the past six months, but value stocks slightly outperformed growth stocks over the full six-month period. The performance of foreign stock markets in the first half largely was in-line with that of the broad U.S. market. Stocks continued to outpace bonds in the first half of the year. Bonds generally suffered, particularly during the spring, due to heightened worries about resurgent inflation, rising rates, and anticipation that the Federal Reserve Bank ("Fed") would begin to raise key short-term rates after a long accommodative stance on monetary policy. Indeed, the Fed edged up its federal funds target rate(i) at the end of June to 1.25%. Over the six-month period, bonds generally experienced slightly negative returns. After a sharp drop early in the year, by the end of the period the U.S. Consumer Confidence Index(ii) rose to levels not seen since June of 2002. The domestic unemployment rate held steady for the six-month period, but the rate of job growth slowed following a strong increase in the first three months of the year. Real (inflation-adjusted) gross domestic product ("GDP")(iii) increased at an annual rate of 3.90% in the first fiscal quarter of 2004, the most recent figure available at the close of the period, down slightly from the 4.10% increase in the last quarter of 2003.(iv) PORTFOLIO PERFORMANCE Within this environment, the MFS Value Portfolio performed as follows:(1) During the period ended June 30, 2004, the MFS Value Portfolio returned 3.70%. The Portfolio slightly underperformed its unmanaged benchmark, the Russell 1000 Value Index(v), which returned 3.94%, but outperformed its Lipper large-cap value variable funds category average(2), which was 2.64% over the same period. PERFORMANCE OF THE FUND AS OF JUNE 30, 2004
6 MONTHS MFS Value Portfolio 3.70% Russell 1000 Value Index 3.94% Lipper Large-Cap Value Variable Funds Category Average 2.64%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN ABOVE. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE AND INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The performance returns set forth above do not reflect the reduction of sales charges and expenses imposed in connection with investing in variable annuity and life contracts such as administrative fees, account charges, and surrender charges; which, if reflected, would reduce the performance of the fund. Fund performance also reflects fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would be reduced. (1) The fund is an underlying investment option of various variable annuity and life products. Fund performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and life contracts such as administrative fees, account charges, and surrender charges, which if reflected, would reduce the performance of the fund. An investor cannot invest directly in the fund. PAST PERFORMANCE IS NO INDICATION OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the six-month period ended June 30, 2004, and include the reinvestment of dividends and capital gains, if any. Returns were calculated among the 79 funds in the Lipper large-cap value variable funds category. 1 SPECIAL SHAREHOLDER NOTICE Effective July 7, 2004, Edward B. Baldini replaced Lisa B. Nurme on the team of Portfolio Managers. Steven R. Gorham remains on the team. INFORMATION ABOUT YOUR FUND In recent months several issues in the mutual fund and variable product industries have come under the scrutiny of federal and state regulators. Travelers Life & Annuity and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, revenue sharing and other mutual fund and variable product issues in connection with various investigations. The fund has been informed that Travelers Life & Annuity and its affiliates are responding to those information requests and cooperating with the regulators, but are not in a position to predict the outcome of these requests and investigations. In November 2003, Citigroup Asset Management disclosed an investigation by the Securities and Exchange Commission ("SEC") and the U.S. Attorney relating to Citigroup Asset Management's entry into the transfer agency business during 1997-1999. On July 20, 2004, Citigroup disclosed that it had been notified by the Staff of the SEC that the Staff is considering recommending a civil injunctive action and/or an administrative proceeding against certain advisory and transfer agent entities affiliated with Citigroup relating to the creation and operation of its internal transfer agent unit to serve primarily the Smith Barney family of mutual funds. Citigroup is cooperating with the SEC and will seek to resolve this matter in discussion with the SEC Staff. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the fund. As always, thank you for your continued confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals. Sincerely, /s/ R. Jay Gerken R. Jay Gerken, CFA Chairman, President and Chief Executive Officer July 20, 2004 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Please note an investor cannot invest directly in an index. Past performance is no guarantee of future results. The performance returns set forth above do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and life contracts, including, but not limited to, administrative fees, account charges, and surrender charges, which if reflected, would reduce performance. Portfolio holdings and breakdowns are as of June 30, 2004 and are subject to change. Please refer to pages 3 through 7 for a list and percentage breakdown of the fund's holdings. The commentary provided is as of July 20, 2004 and is subject to change based on the market and other conditions. The views expressed are those of the portfolio manager and are not intended to be a forecast of future events, a guarantee of future results or investment advice. These views may differ from those of other portfolio managers or the firm as a whole. (i) The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. (ii) Source: June 2004 Consumer Confidence Index, The Conference Board. (iii) Gross domestic product is a market value of goods and services produced by labor and property in a given country. (iv) Source: Bureau of Economic Analysis, U.S. Department of Commerce, June 25, 2004. (v) The Russell 1000 Value Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth rates. 2 -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 2004
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- COMMON STOCK -- 91.1% ----------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 7.3% HOTELS, RESTAURANTS & LEISURE -- 0.6% 8,410 McDonald's Corp. ........................................... $ 218,660 ----------------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS -- 0.2% 4,400 Hasbro, Inc. ............................................... 83,600 ----------------------------------------------------------------------------------------- MEDIA -- 6.0% 19,450 Comcast Corp., Special Class A Shares+...................... 537,014 6,880 Cox Communications, Inc., Class A Shares+................... 191,195 17,050 Time Warner Inc.+........................................... 299,739 9,620 Tribune Co. ................................................ 438,095 19,070 Viacom Inc., Class B Shares................................. 681,180 3,800 The Walt Disney Co. ........................................ 96,862 ----------------------------------------------------------------------------------------- 2,244,085 ----------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 0.5% 7,680 The TJX Cos., Inc. ......................................... 185,395 ----------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 2,731,740 ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 9.0% BEVERAGES -- 0.2% 1,520 PepsiCo, Inc. .............................................. 81,898 ----------------------------------------------------------------------------------------- FOOD PRODUCTS -- 4.8% 33,906 Archer-Daniels-Midland Co. ................................. 568,943 9,540 H.J. Heinz Co. ............................................. 373,968 14,850 Kellogg Co. ................................................ 621,472 10,600 Sara Lee Corp. ............................................. 243,694 ----------------------------------------------------------------------------------------- 1,808,077 ----------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 1.8% 10,550 Kimberly-Clark Corp. ....................................... 695,034 ----------------------------------------------------------------------------------------- TOBACCO -- 2.2% 16,220 Altria Group, Inc. ......................................... 811,811 ----------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES...................................... 3,396,820 ----------------------------------------------------------------------------------------- ENERGY -- 11.1% ENERGY EQUIPMENT & SERVICES -- 1.6% 3,100 GlobalSantaFe Corp. ........................................ 82,150 8,150 Noble Corp.+................................................ 308,804 3,450 Schlumberger Ltd. .......................................... 219,110 ----------------------------------------------------------------------------------------- 610,064 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 3 -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2004
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- OIL & GAS -- 9.5% 13,640 BP PLC, Sponsored ADR....................................... $ 730,695 1,160 ChevronTexaco Corp. ........................................ 109,168 10,200 ConocoPhillips.............................................. 778,158 2,370 Devon Energy Corp. ......................................... 156,420 2,900 EOG Resources, Inc. ........................................ 173,159 15,160 Exxon Mobil Corp. .......................................... 673,256 4,450 Total S.A., Sponsored ADR................................... 427,556 13,210 Unocal Corp. ............................................... 501,980 ----------------------------------------------------------------------------------------- 3,550,392 ----------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 4,160,456 ----------------------------------------------------------------------------------------- FINANCIALS -- 28.5% BANKS -- 13.5% 24,119 Bank of America Corp. ...................................... 2,040,950 18,970 Bank One Corp. ............................................. 967,470 20,750 Mellon Financial Corp. ..................................... 608,597 8,970 PNC Financial Services Group................................ 476,128 4,340 SouthTrust Corp. ........................................... 168,435 12,650 SunTrust Banks, Inc. ....................................... 822,124 ----------------------------------------------------------------------------------------- 5,083,704 ----------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 9.0% 15,970 American Express Co. ....................................... 820,539 11,100 Fannie Mae.................................................. 792,096 1,200 Franklin Resources, Inc. ................................... 60,096 11,290 The Goldman Sachs Group, Inc. .............................. 1,063,066 5,700 MBNA Corp. ................................................. 147,003 9,270 Merrill Lynch & Co., Inc. .................................. 500,395 ----------------------------------------------------------------------------------------- 3,383,195 ----------------------------------------------------------------------------------------- INSURANCE -- 6.0% 3,280 AFLAC, Inc. ................................................ 133,857 12,800 Allstate Corp. ............................................. 595,840 2,560 The Chubb Corp. ............................................ 174,541 5,190 The Hartford Financial Services Group, Inc. ................ 356,761 2,040 Marsh & McLennan Cos., Inc. ................................ 92,575 25,330 MetLife, Inc. .............................................. 908,080 ----------------------------------------------------------------------------------------- 2,261,654 ----------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 10,728,553 ----------------------------------------------------------------------------------------- HEALTHCARE -- 6.3% HEALTHCARE EQUIPMENT & SUPPLIES -- 0.6% 3,870 Baxter International, Inc. ................................. 133,554 1,460 Guidant Corp. .............................................. 81,585 ----------------------------------------------------------------------------------------- 215,139 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 4 -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2004
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- PHARMACEUTICALS -- 5.7% 11,000 Abbott Laboratories......................................... $ 448,360 1,710 Eli Lilly and Co. .......................................... 119,546 14,260 Johnson & Johnson........................................... 794,282 4,000 Merck & Co., Inc. .......................................... 190,000 9,980 Pfizer Inc. ................................................ 342,114 6,750 Wyeth....................................................... 244,080 ----------------------------------------------------------------------------------------- 2,138,382 ----------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 2,353,521 ----------------------------------------------------------------------------------------- INDUSTRIALS -- 7.7% AEROSPACE & DEFENSE -- 3.3% 13,720 Lockheed Martin Corp. ...................................... 714,538 9,640 Northrop Grumman Corp. ..................................... 517,668 ----------------------------------------------------------------------------------------- 1,232,206 ----------------------------------------------------------------------------------------- BUILDING PRODUCTS -- 0.5% 6,300 Masco Corp. ................................................ 196,434 ----------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 1.6% 2,400 Cooper Industries, Ltd., Class A Shares..................... 142,584 7,350 Emerson Electric Co. ....................................... 467,092 ----------------------------------------------------------------------------------------- 609,676 ----------------------------------------------------------------------------------------- MACHINERY -- 0.7% 3,920 Deere & Co. ................................................ 274,949 ----------------------------------------------------------------------------------------- ROAD & RAIL -- 1.6% 9,040 Burlington Northern Santa Fe Corp. ......................... 317,033 4,620 Union Pacific Corp. ........................................ 274,659 ----------------------------------------------------------------------------------------- 591,692 ----------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 2,904,957 ----------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 2.6% COMPUTERS & PERIPHERALS -- 1.0% 5,230 Hewlett-Packard Co. ........................................ 110,353 2,890 International Business Machines Corp. ...................... 254,753 ----------------------------------------------------------------------------------------- 365,106 ----------------------------------------------------------------------------------------- IT CONSULTING & SERVICES -- 0.6% 8,100 Accenture Ltd., Class A Shares+............................. 222,588 ----------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 0.5% 6,310 Novellus Systems, Inc.+..................................... 198,386 ----------------------------------------------------------------------------------------- SOFTWARE -- 0.5% 6,530 Microsoft Corp. ............................................ 186,497 ----------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 972,577 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 5 -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2004
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- MATERIALS -- 8.6% CHEMICALS -- 6.3% 8,090 Air Products & Chemicals, Inc. ............................. $ 424,320 8,540 The Dow Chemical Co. ....................................... 347,578 12,780 E.I. du Pont de Nemours & Co. .............................. 567,688 9,100 Monsanto Co. ............................................... 350,350 9,030 PPG Industries, Inc. ....................................... 564,285 3,070 Praxair, Inc. .............................................. 122,524 ----------------------------------------------------------------------------------------- 2,376,745 ----------------------------------------------------------------------------------------- CONTAINERS & PACKAGING -- 0.5% 8,770 Smurfit-Stone Container Corp.+.............................. 174,961 ----------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS -- 1.8% 3,560 Bowater Inc. ............................................... 148,060 12,140 International Paper Co. .................................... 542,658 ----------------------------------------------------------------------------------------- 690,718 ----------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 3,242,424 ----------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 4.6% DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.6% 15,210 SBC Communications, Inc. ................................... 368,842 31,480 Sprint Corp., Series 1 FON Shares........................... 554,048 22,060 Verizon Communications Inc. ................................ 798,351 ----------------------------------------------------------------------------------------- TOTAL TELECOMMUNICATION SERVICES............................ 1,721,241 ----------------------------------------------------------------------------------------- UTILITIES -- 5.4% ELECTRIC UTILITIES -- 4.7% 5,380 Cinergy Corp. .............................................. 204,440 5,420 Dominion Resources, Inc. ................................... 341,894 8,010 Energy East Corp. .......................................... 194,242 4,160 Entergy Corp. .............................................. 233,002 2,700 Exelon Corp. ............................................... 89,883 2,610 FirstEnergy Corp. .......................................... 97,640 1,970 NSTAR....................................................... 94,324 3,710 PPL Corp. .................................................. 170,289 8,610 TXU Corp. .................................................. 348,791 ----------------------------------------------------------------------------------------- 1,774,505 ----------------------------------------------------------------------------------------- GAS UTILITIES -- 0.7% 3,720 KeySpan Corp. .............................................. 136,524 4,480 National Fuel Gas Co. ...................................... 112,000 ----------------------------------------------------------------------------------------- 248,524 ----------------------------------------------------------------------------------------- TOTAL UTILITIES............................................. 2,023,029 ----------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $30,052,411).................... 34,235,318 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 6 -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2004
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- FOREIGN STOCK -- 5.2% ----------------------------------------------------------------------------------------- CANADA -- 0.1% 1,650 Finning International Inc. ................................. $ 40,924 ----------------------------------------------------------------------------------------- SWITZERLAND -- 2.6% 6,580 Novartis AG+................................................ 290,395 3,870 Roche Holding AG............................................ 383,321 3,380 Syngenta AG+................................................ 283,489 ----------------------------------------------------------------------------------------- 957,205 ----------------------------------------------------------------------------------------- UNITED KINGDOM -- 2.5% 13,220 Diageo PLC+................................................. 178,191 43,730 Reed Elsevier PLC........................................... 424,931 159,740 Vodafone Group PLC.......................................... 349,683 ----------------------------------------------------------------------------------------- 952,805 ----------------------------------------------------------------------------------------- TOTAL FOREIGN STOCK (Cost -- $1,718,173).................... 1,950,934 -----------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE ----------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT -- 3.7% $1,399,000 Federal Home Loan Bank Discount Notes, zero coupon bond to yield 1.000% due 7/1/04 (Cost -- $1,399,000).............. 1,399,000 ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $33,169,584*).......... $37,585,252 -----------------------------------------------------------------------------------------
+ Non-income producing security. * Aggregate cost for Federal income tax purposes is substantially the same. Abbreviation used in this schedule: ADR -- American Depositary Receipt SEE NOTES TO FINANCIAL STATEMENTS. 7 -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2004 ASSETS: Investments, at value (Cost -- $33,169,584)............... $37,585,252 Cash...................................................... 16 Dividends and interest receivable......................... 58,828 Receivable for securities sold............................ 37,623 Receivable for Fund shares sold........................... 10,945 Receivable from administrator............................. 9,237 ------------------------------------------------------------------------- TOTAL ASSETS.............................................. 37,701,901 ------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased.......................... 72,500 Investment advisory fee payable........................... 22,695 Payable for Fund shares reacquired........................ 251 Accrued expenses.......................................... 34,693 ------------------------------------------------------------------------- TOTAL LIABILITIES......................................... 130,139 ------------------------------------------------------------------------- TOTAL NET ASSETS............................................ $37,571,762 ------------------------------------------------------------------------- NET ASSETS: Paid-in capital........................................... $33,180,484 Undistributed net investment income....................... 240,091 Accumulated net realized loss on investment transactions........................................... (264,973) Net unrealized appreciation of investments and foreign currencies............................................. 4,416,160 ------------------------------------------------------------------------- TOTAL NET ASSETS............................................ $37,571,762 ------------------------------------------------------------------------- SHARES OUTSTANDING.......................................... 3,344,691 ------------------------------------------------------------------------- NET ASSET VALUE............................................. $11.23 -------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 8 -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2004 INVESTMENT INCOME: Interest.................................................. $ 2,288 Dividends................................................. 434,303 Less: Foreign withholding tax............................. (5,745) ------------------------------------------------------------------------ TOTAL INVESTMENT INCOME................................... 430,846 ------------------------------------------------------------------------ EXPENSES: Investment advisory fee (Note 2).......................... 142,329 Audit and legal........................................... 16,275 Custody................................................... 15,840 Shareholder communications................................ 11,802 Administration fee (Note 2)............................... 11,386 Pricing fees.............................................. 5,527 Trustees' fees............................................ 3,116 Transfer agency services.................................. 2,493 Other..................................................... 7,072 ------------------------------------------------------------------------ TOTAL EXPENSES............................................ 215,840 Less: Expense reimbursement (Note 2)...................... (25,163) ------------------------------------------------------------------------ NET EXPENSES.............................................. 190,677 ------------------------------------------------------------------------ NET INVESTMENT INCOME....................................... 240,169 ------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES (NOTE 3): Realized Gain From: Investment transactions................................ 1,635,462 Foreign currency transactions.......................... 196 ------------------------------------------------------------------------ NET REALIZED GAIN......................................... 1,635,658 ------------------------------------------------------------------------ Change in Net Unrealized Appreciation From: Investments............................................ (412,025) Foreign currencies..................................... (18) ------------------------------------------------------------------------ DECREASE IN NET UNREALIZED APPRECIATION................... (412,043) ------------------------------------------------------------------------ NET GAIN ON INVESTMENTS AND FOREIGN CURRENCIES.............. 1,223,615 ------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS...................... $1,463,784 ------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 9 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2003
2004 2003 --------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 240,169 $ 486,498 Net realized gain......................................... 1,635,658 268,945 Increase (decrease) in net unrealized appreciation........ (412,043) 7,155,432 --------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 1,463,784 7,910,875 --------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (3,331) (493,786) --------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (3,331) (493,786) --------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 1,560,489 5,804,112 Net asset value of shares issued for reinvestment of dividends.............................................. 3,331 493,786 Cost of shares reacquired................................. (5,580,500) (4,566,914) --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................................... (4,016,680) 1,730,984 --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS........................... (2,556,227) 9,148,073 NET ASSETS: Beginning of period....................................... 40,127,989 30,979,916 --------------------------------------------------------------------------------------- END OF PERIOD*............................................ $37,571,762 $40,127,989 --------------------------------------------------------------------------------------- * Includes undistributed net investment income of:.......... $240,091 $3,057 ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 10 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES MFS Value Portfolio ("Fund") is a separate investment fund of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company and consists of this fund and fifteen other separate investment funds: Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, Disciplined Mid Cap Stock, U.S. Government Securities, Social Awareness Stock, Pioneer Fund, formerly known as Utilities, Large Cap, Equity Income, Convertible Securities, Merrill Lynch Large Cap Core, MFS Mid Cap Growth and Zero Coupon Bond Fund Portfolio (Series 2005) Portfolios. Shares of the Trust are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies. The financial statements and financial highlights for the other funds are presented in separate shareholder reports. The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles ("GAAP"): (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing prices on such markets or, if there were no sales during the day, at the mean between the bid and ask prices; securities primarily traded on foreign exchanges are generally valued at the preceding closing values of such securities on their respective exchanges, except that when a significant event, subsequent to the time a value was so established, is likely to have significantly changed the value then, the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees or its delegates; over-the-counter securities are valued on the basis of the bid price at the close of business on each day; U.S. government and agency obligations are valued at the average between bid and asked prices in the over-the-counter market; securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price on that day, at the last sales price; (c) securities maturing within 60 days are valued at cost plus accreted discount or minus amortized premium, which approximates value; (d) securities that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (e) securities for which market quotations are not available will be valued in good faith at fair value by or under the direction of the Board of Trustees; (f) interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis and dividend income is recorded on the ex-dividend date; foreign dividends are recorded on the ex-dividend date or as soon as practical after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence; (g) gains or losses on the sale of securities are calculated by using the specific identification method; (h) dividends and distributions to shareholders are recorded on the ex-dividend date; the Fund distributes dividends and capital gains, if any, at least annually; (i) the accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income or expense amounts recorded and collected or paid are adjusted when reported by the custodian bank; (j) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP; (k) the Fund intends to comply with the provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; and (l) estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Company LLC ("TAMIC"), an indirect wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment adviser to the Fund. The Fund pays TAMIC an investment advisory fee calculated at the annual rate of 0.75% of the Fund's average daily net assets. This fee is calculated daily and paid monthly. TAMIC has entered into a sub-advisory agreement with Massachusetts Financial Services ("MFS"). Pursuant to the sub-advisory agreement, MFS is responsible for the day-to-day portfolio operations and investment decisions for the Fund. TAMIC pays MFS 0.375% of the Fund's average daily net assets. The Travelers Insurance Company ("TIC"), another indirect wholly-owned subsidiary of Citigroup, acts as administrator to the Fund. The Fund pays TIC an administration fee calculated at an annual rate of 0.06% of the Fund's average daily net assets. This fee is calculated daily and paid monthly. TIC has entered into a sub-administrative service agreement with Smith Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of Citigroup. 11 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02% of the Fund's average daily net assets, plus $30,000, subject to a maximum of 0.06% of the Fund's average daily net assets. For the six months ended June 30, 2004, the Fund had a voluntary expense limitation in place of 1.00%. As a result, TIC has agreed to reimburse the Fund for expenses in the amount of $25,163. This expense limitation can be terminated at any time by TIC. Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the Fund's transfer agent. CTB receives account fees and asset-based fees that vary according to the size and type of account. For the six months ended June 30, 2004, the Fund paid transfer agent fees of $2,500 to CTB. For the six months ended June 30, 2004, Citigroup Global Markets Inc., another indirect wholly-owned subsidiary of Citigroup, and its affiliates did not receive any brokerage commissions. One Trustee and all officers of the Trust are employees of Citigroup or its affiliates. 3. INVESTMENTS During the six months ended June 30, 2004, the aggregate cost of purchases and proceeds from sales of investments (including maturities of long-term investments, but excluding short-term investments) were substantially as follows: ------------------------------------------------------------------------- Purchases................................................... $ 8,567,799 Sales....................................................... 12,652,347 -------------------------------------------------------------------------
At June 30, 2004, aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows: ------------------------------------------------------------------------ Gross unrealized appreciation............................... $4,768,176 Gross unrealized depreciation............................... (352,508) ------------------------------------------------------------------------ Net unrealized appreciation................................. $4,415,668 ------------------------------------------------------------------------
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 the Fund were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------------------------------------------------------------------------------------------ Shares sold................................................. 141,338 629,956 Shares issued on reinvestment............................... 299 45,825 Shares reacquired........................................... (503,324) (490,506) ------------------------------------------------------------------------------------------------------ Net Increase (Decrease)..................................... (361,687) 185,275 ------------------------------------------------------------------------------------------------------
5. ADDITIONAL INFORMATION Citigroup has been notified by the Staff of the Securities and Exchange Commission ("SEC") that the Staff is considering recommending a civil injunctive action and/or an administrative proceeding against Citigroup Asset Management ("CAM"), including its applicable investment advisory companies and Citicorp Trust Bank ("CTB"), an internal transfer agent, relating to the creation and operation of the internal transfer agent unit to serve certain CAM-managed funds, including the Fund. This notification arises out of a previously disclosed investigation by the SEC and the U.S. Attorney and relates to CTB's entry in 1999 into the transfer agency business, CAM's retention of, and agreements with an unaffiliated sub transfer agent, the adequacy of the disclosures made to the fund boards that approved the transfer agency arrangements, (including CAM's failure to disclose a related revenue guarantee agreement benefiting CAM and its affiliates), and CAM's operation of and compensation for the transfer agency business. The revenue guarantee described above was terminated in 1999 and CAM will be paying the applicable funds, primarily through fee waivers, a total of approximately $17 million (plus interest) that is the amount of the revenue received by Citigroup relating to the revenue guarantee. Citigroup is cooperating fully in the investigation and will seek to resolve the matter in discussions with the SEC Staff. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the Fund. On August 12, 2004, CAM paid the Fund $1,726, its allocable share of the amount described above through a waiver of its fees. 12 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. SUBSEQUENT EVENT The Board of Trustees of the Trust, on behalf of the Fund, has approved an amendment to the investment advisory agreement between the Fund and TAMIC, and an amendment to the sub-advisory agreement between TAMIC and MFS. Effective September 1, 2004, the investment advisory fee and sub-advisory fee will be revised from the annual rates of 0.75% and 0.375%, respectively, of the average daily net assets of the Fund, to a fee calculated at the annual rates in accordance with the following schedule:
INVESTMENT ADVISORY SUB-ADVISORY AVERAGE DAILY NET ASSETS FEE RATE FEE RATE -------------------------------------------------------------------------------------------- First $600 million.......................................... 0.750% 0.375% Next $300 million........................................... 0.725 0.350 Next $600 million........................................... 0.700 0.325 Next $1 billion............................................. 0.675 0.300 Over $2.5 billion........................................... 0.625 0.250 --------------------------------------------------------------------------------------------
13 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
2004(1) 2003 2002 2001(2) 2000(2) 1999(2) -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........ $10.83 $8.80 $10.83 $10.89 $9.93 $9.46 -------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(3).................. 0.07 0.13 0.12 0.11 0.11 0.13 Net realized and unrealized gain (loss)... 0.33 2.04 (1.53) (0.00)* 1.02 0.34 -------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations......... 0.40 2.17 (1.41) 0.11 1.13 0.47 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income..................... (0.00)* (0.14) (0.21) (0.08) (0.08) -- Net realized gains........................ -- -- (0.41) (0.09) (0.09) -- -------------------------------------------------------------------------------------------------------------- Total Distributions......................... (0.00)* (0.14) (0.62) (0.17) (0.17) -- -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.............. $11.23 $10.83 $8.80 $10.83 $10.89 $9.93 -------------------------------------------------------------------------------------------------------------- TOTAL RETURN(4)............................. 3.70%++ 24.61% (13.14)% 1.00% 11.59% 4.97% -------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (000'S)........... $37,572 $40,128 $30,980 $32,295 $23,326 $19,908 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3)(5)............................ 1.00%+ 1.00% 1.00% 1.00% 1.00% 0.99% Net investment income..................... 1.27+ 1.44 1.38 1.01 1.05 1.26 -------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE..................... 23% 57% 60% 123% 54% 41% --------------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 2004 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) The Travelers Insurance Company has agreed to reimburse the Fund for expenses in the amounts of $25,163, $26,185, $44,292, $28,095, $15,528 and $24,087 for the six months ended June 30, 2004 and years ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively. If such expenses were not reimbursed, the per share decreases to net investment income and the actual expense ratios would have been as follows:
PER SHARE DECREASES EXPENSE RATIOS WITHOUT TO NET INVESTMENT INCOME EXPENSE REIMBURSEMENT ---------------------------------------- ---------------------------------------- 2004 2003 2002 2001 2000 1999 2004 2003 2002 2001 2000 1999 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- $0.01 $0.01 $0.01 $0.01 $0.01 $0.02 1.14%+ 1.08% 1.13% 1.11% 1.07% 1.15%
(4) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would be reduced. Past performance is no guarantee of future results. (5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.00%. * Amount represents less than $0.01 per share. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 14 (This page intentionally left blank.) (This page intentionally left blank.) THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- TRUSTEES INVESTMENT ADVISER R. Jay Gerken, CFA Chairman Travelers Asset Management International Company LLC Frances M. Hawk, CFA, CFP Lewis Mandell ADMINISTRATOR Robert E. McGill, III Travelers Insurance Company OFFICERS R. Jay Gerken, CFA CUSTODIAN President and Chief Executive Officer State Street Bank and Trust Company Andrew B. Shoup Senior Vice President and TRANSFER AGENT Chief Administrative Officer Citicorp Trust Bank, fsb. Andrew Beagley Chief Anti-Money Laundering Compliance Officer William D. Wilcox* Chief Compliance Officer Kaprel Ozsolak Controller Kathleen A. McGah Secretary Ernest J. Wright Assistant Secretary --------------- * As of July 23, 2004.
The Fund is a separate investment fund of The Travelers Series Trust, a Massachusetts business trust. This report is prepared for the general information of variable annuity and life contract owners and is not an offer of shares of The Travelers Series Trust: MFS Value Portfolio. Beginning August 31, 2004, information on how the Fund voted proxies relating to portfolio securities during the 12 month period ended June 30, 2004 will be available (1) without charge, upon request, by calling 1-800-842-9368 and (2) on the SEC's web site at www.sec.gov. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to Portfolio Securities is available without charge upon request, by telephoning the Fund (toll-free) at 1-800-842-9368 and by visiting the SEC's web site at www.sec.gov. Series Trust Semi-Annual (8-04) Printed in U.S.A. ITEM 2. CODE OF ETHICS. Not Applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not Applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 10. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a) Not applicable. (b) Attached hereto. Exhibit 99.CERT Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 99.906CERT Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. THE TRAVELERS SERIES TRUST By: /s/ R. Jay Gerken R. Jay Gerken Chief Executive Officer of THE TRAVELERS SERIES TRUST Date: September 8,2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ R. Jay Gerken R. Jay Gerken Chief Executive Officer of THE TRAVELERS SERIES TRUST Date: September 8,2004 By: /s/ Andrew B. Shoup Andrew B. Shoup Chief Administrative Officer of THE TRAVELERS SERIES TRUST Date: September 8,2004