<PAGE> 1
THE TRAVELERS VARIABLE PRODUCTS
FUNDS
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
DECEMBER 31, 1995
[LOGO]
THE TRAVELERS INSURANCE COMPANY
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
<PAGE> 2
The Travelers Investment Management Company ("TIMCO") provides
management and advisory services for the Capital Appreciation
[TIMCO LOGO] Fund. Additionally, TIMCO is a sub-adviser for Managed Assets
Trust.
The Travelers Asset Management International Corporation
("TAMIC") provides fixed income management and advisory services
[TAMIC LOGO] for the following Travelers Variable Product Funds contained in
this report. US Government Securities Portfolio, High Yield Bond
Trust, Managed Assets Trust and Cash Income Trust.
Janus Capital Corporation ("Janus") is the sub-adviser for
[JANUS LOGO] Capital Appreciation Fund. As sub-adviser, Janus is responsible
for the daily management of Capital Appreciation Fund.
A division of Smith Barney Mutual Funds Management Inc.,
Greenwich Street Advisors provides management and advisory
[SMITH LOGO] services for the following Travelers Variable Product Funds
contained in this report: Social Awareness Stock Portfolio and
Utilities Portfolio.
<PAGE> 3
[LOGO]
THE TRAVELERS VARIABLE PRODUCTS FUNDS
INVESTMENT ADVISORY COMMENTARY AS OF DECEMBER 31, 1995
FINANCIAL MARKET REVIEW AND OUTLOOK
Financial markets had a great year in 1995 with the Standard & Poors 500 Stock
Index having its best year since 1958 (+37.6%) and the Lehman
Government/Corporate Bond Index having its best performance since 1985
(+19.2%). Beyond Wall Street, however, signs of economic stress are becoming
apparent. Consumer delinquencies and defaults are increasing. A number of
corporate defaults have already occurred, causing some negative fallout in the
high yield bond market. December retail sales came in below already
pessimistic expectations. Cyclical industries such as paper, steel, and autos
are starting to see price declines, closing plants and laying off workers. In
Washington, many government workers are on furlough as the two parties debate
how much (not whether or not) the Federal deficit will be reduced. Against
this backdrop, the Federal Reserve Board ("Fed") dropped short term interest
rates 25 basis points on December 19th, its first cut since July, 1995.
Looking towards 1996, the slowdown in economic growth combined with few sources
of upside surprises make lower money market rates our most confident forecast.
Current economic weakness will keep the Fed in an easing mode even if budget
talks remain in a stalemate. Theoretical policy rules for determining federal
funds targets argue that short-term interest rates should be between 4% and 5%,
not their current 5.5%. Unlike 1993, when growth had been slow for several
years, there is no pent-up demand for housing, autos, or even capital goods
that can cause an upside surprise in economic growth. The key question for the
bond market is whether slow economic growth causes short rates to go
significantly below 5%. We think they will because the economy continues to
weaken and any backup in rates caused by the budget negotiations in Washington
will further weaken the economy. We are focusing on intermediate maturities
because the yield curve is likely to steepen. We also continue to be
comfortable with an overweighting in corporate issues, although we need to be
diligent to protect against credit surprises. We also continue to think that
mortgaged-backed securities are cheap and have maintained our overweighting in
that area.
In the stock market, cyclical issues led by the railroad, aluminum, machinery,
and semiconductor groups rallied early in the third quarter on strong earnings
momentum, rising analyst estimates, and expectations for a rebound in economic
growth. Mergers in the banking, utility, and media industries also gave an
optimistic tone to the market. However by early September, investors turned
less optimistic about prospects for economic growth, earnings momentum, and
profit margins in late 1995 and 1996. During the fourth quarter, investors
continued to rotate out of cyclical and into defensive groups, such as drugs,
food, and beverages, which were expected to produce the best relative earnings
and gains in 1996. In the energy sector, rising prices for oil and natural
gas, as well as attractive relative yields, supported higher valuations.
Technology stocks declined dramatically on signs of weakening demand for
personal computers and softer prices for semiconductors and other PC
components.
The performance of the stock market in 1996 will be driven by corporate
earnings. The impetus for much of last year's advance to new record highs was
generated by positive earnings surprises. The weaker economic environment that
exists now makes it unlikely that the stock market will repeat its performance.
Generally, the U.S. stock market is fairly valued given the current level of
interest rates and should be able to muddle through with a "normal" 10% year as
long as we avoid a recession. If the economy does worsen, the extent of the
equity market decline will be a function of how quickly companies can adjust
their cost structure to changes in revenues. Judged by the ability of most
companies to sustain earnings growth even in the face of weakening demand in
1995, we think that the most negative "bears" on the outlook for the stock
market are too pessimistic, especially given the valuation support that will be
provided by lower interest rates.
-1-
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
MANAGED ASSETS TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
HIGH YIELD BOND TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CAPITAL APPRECIATION FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
CASH INCOME TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
THE TRAVELERS SERIES TRUST:
U.S. GOVERNMENT SECURITIES PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SOCIAL AWARENESS STOCK PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
UTILITIES PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
-2-
<PAGE> 5
MANAGED ASSETS TRUST
Financial markets had a great year in 1995 with the Standard & Poors 500 Stock
Index ("S&P 500") having its best year since 1958 (+37%) and the Lehman
Government/Corporate Bond Index having its best performance since 1985 (+19%).
The fourth quarter exhibited a similar pattern with the S&P 500 up 6.0% and the
Lehman Government/Corporate Bond Index up 4.7%. Economic growth slowed
significantly in the final half of 1995, prompting the Federal Reserve Board
("Fed") to cut short-term interest rates by another 25 basis points in
December, its second cut of 1995. Market expectations of future short term
rates shifted from 8%-8.5% in December 1994 to a forecast level of 5% in 1996.
For the twelve months ending December 31, 1995, Managed Assets Trust achieved a
total return of 27%, well ahead of the 21% average total return for variable
annuity stock accounts in the Flexible Portfolio category.
Looking further into 1996, the slowdown in economic growth combined with few
sources of upside surprises make lower money market rates our most confident
forecast. Current economic weakness will keep the Fed in an easing mode even
if budget talks remain in a stalemate. Theoretical policy rules for determining
Federal Funds targets argue that short-term interest rates should be between 4%
and 5%, not their current 5.5%. Unlike 1993, when growth had been slow for
several years, there is no pent-up demand for housing, autos, or even capital
goods that can cause an upside surprise in economic growth. The key question
for the bond market is whether slow economic growth causes short rates to go
significantly below 5%. We think they will because the economy continues to
weaken and any backup in rates caused by the budget negotiations in Washington
will further weaken the economy. We are focusing on intermediate maturities
because the yield curve is likely to steepen. We also continue to be
comfortable with an overweighting in corporate issues, although we need to be
diligent to protect against credit surprises. We also continue to think that
mortgaged-backed securities are cheap and have maintained our overweighting in
that area.
Equity returns will again be driven by earnings progress. Much of last year's
returns were generated by positive earnings surprises. The weaker economic
environment that exists now makes it unlikely that this will happen again (like
it did in both 1994 and 1995.) Generally, the market is fairly valued given
the level of rates and should be able to muddle through with a "normal" 10%
year as long as we avoid a recession. If the economy does worsen, the extent
of the equity market decline will be a function of how well companies can
adjust their costs (i.e. employees) to changes in revenues. Based on their
quick adjustment in 1995, the most negative "bears" will likely be
disappointed. Overall though, we think intermediate bonds offer better
risk-adjusted returns.
-3-
<PAGE> 6
MANAGED ASSETS TRUST
[MANAGED ASSETS TRUST GRAPH]
STANDARD
AVERAGE ANNUAL RETURN
ENDED DECEMBER 31, 1995:
1 YEAR 20.19%
5 YEARS 9.40%
10 YEARS 9.93%
<TABLE>
<CAPTION>
Managed Assets Trust
INITIAL
INVESTMENT 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95
---------- ------ ------ ------ ------ ------ ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Managed Assets Trust 10,000 11,905 12,134 13,247 16,840 17,256 21,001 22,080 24,140 23,599 30,000
S&P 500 Stock Index 10,000 11,855 12,474 14,572 19,166 18,557 24,230 26,093 28,700 29,070 36,965
Lehman Gov't/Corporate Bond Index 10,000 11,562 11,827 12,724 14,535 15,740 18,279 19,664 21,839 21,073 25,127
Consumer Price Index 10,000 10,119 10,566 11,032 11,544 12,266 12,631 13,008 13,364 13,370 14,108
</TABLE>
This chart assumes an initial investment of $10,000 made on December 31, 1985.
Returns include the reinvestment of all distributions at Net Asset Value and
the change in share price for the stated period, but exclude insurance and
administration charges assessed by Travelers Insurance separate accounts.
The Standardized Average Annual Returns for 1, 5 and 10 years shown above are
net of the 1.25% annual mortality and expense risk charge and the contingent
deferred sales charge (5% maximum) assessed by certain Travelers Insurance
separate accounts. Although the contingent deferred sales charge is included,
it is applied only if a surrender is made while assets are under the penalty
period. Other Travelers Insurance separate accounts that invest in Managed
Assets Trust have different charges.
Past performance is not predictive of future performance. Investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
-4-
<PAGE> 7
MANAGED ASSETS TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $147,584,296) . . . . . . . . $169,888,218
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,886
Receivables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,556
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 812,584
Investment securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,131,265
------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,079,509
------------
LIABILITIES:
Payables:
Investment securities purchased . . . . . . . . . . . . . . . . . . . . . . . . . 754,898
Investment management and advisory fees . . . . . . . . . . . . . . . . . . . . . 11,684
Variation on futures margin . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,300
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,113
------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803,995
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $171,275,514
============
NET ASSETS REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $136,190,738
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 5,381,926
Accumulated net realized gains (losses) on investment security transactions . . . . . 7,398,928
Net unrealized appreciation on investment securities . . . . . . . . . . . . . . . . 22,303,922
------------
Total net assets (applicable to 11,045,728 shares outstanding at $15.50 per share) $171,275,514
============
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 8
MANAGED ASSETS TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,486,515
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,789,554
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ $ 6,276,069
EXPENSES:
Investment management and advisory fees . . . . . . . . . . . . . . 776,392
Accounting and audit fees . . . . . . . . . . . . . . . . . . . . . 77,230
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . 3,105
Printing and postage . . . . . . . . . . . . . . . . . . . . . . . 26,634
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . 8,379
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . 347
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,056
------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . 894,143
-----------
Net investment income . . . . . . . . . . . . . . . . . . . 5,381,926
-----------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold . . . . . . . . . . . . 176,769,048
Cost of investment securities sold . . . . . . . . . . . . . . . 168,853,705
------------
Net realized gain . . . . . . . . . . . . . . . . . . . . . 7,915,343
Change in unrealized gain (loss) on investment securities:
Unrealized loss at December 31, 1994 . . . . . . . . . . . . . . (1,295,855)
Unrealized gain at December 31, 1995 . . . . . . . . . . . . . . 22,303,922
------------
Net change in unrealized gain (loss) for the year . . . . . 23,599,777
-----------
Net realized gain and change in unrealized gain (loss) . 31,515,120
-----------
Net increase in net assets resulting from operations . . . . . . . $36,897,046
===========
</TABLE>
See Notes to Financial Statements
-6-
<PAGE> 9
MANAGED ASSETS TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . $ 5,381,926 $ 5,313,706
Net realized gain from investment security transactions . . . . . . . 7,915,343 1,907,694
Net change in unrealized gain (loss) on investment securities . . . . 23,599,777 (10,603,386)
------------ ------------
Net increase (decrease) in net assets resulting from operations . 36,897,046 (3,381,986)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and net short-term realized gains from
investment security transactions . . . . . . . . . . . . . . . . . (5,441,569) (7,278,778)
Net long-term realized gains from investment security transactions . (1,783,880) (4,589,354)
------------ ------------
Total distributions to shareholders . . . . . . . . . . . . . . . (7,225,449) (11,868,132)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . 5,376,731 4,758,206
Dividend reinvestment . . . . . . . . . . . . . . . . . . . . . . . . 7,225,449 11,868,132
Payments for shares redeemed . . . . . . . . . . . . . . . . . . . . (11,885,171) (17,256,475)
------------ ------------
Net increase (decrease) in net assets resulting from capital share
transactions . . . . . . . . . . . . . . . . . . . . . . . . . 717,009 (630,137)
------------ ------------
Net increase (decrease) in net assets . . . . . . . . . . . . 30,388,606 (15,880,255)
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 140,886,908 156,767,163
------------ ------------
End of year (including undistributed net investment income as follows:
December, 1995 $5,381,926 and December, 1994 $5,313,706) . . . . . $171,275,514 $140,886,908
============ ============
</TABLE>
See Notes to Financial Statements
-7-
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
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"), 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 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 year; 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 (including
short-term investments) in an amount at least equal to the notional value of
outstanding purchased futures 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-
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS - 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 $128,222,186 and $123,694,704, respectively, for common stocks and
bonds; purchases and sales of direct and indirect U.S. goverment obligations
were $37,299,210 and $42,308,720, for the year ended December 31, 1995.
Realized gains and losses from security transactions are reported on an
identified-cost basis.
At December 31, 1995, Fund MA held 58 open S&P 500 Stock Index futures
contracts with a maturity date of March 15, 1996. The face value, or notional
value, of these contracts at December 31, 1995, amounted to $17,935,050. 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 $5,401,042 and
$471,650 for the years ended December 31, 1995 and 1994, 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 December 31, 1995 is shown on the
Statement of Assets and Liabilities as a payable for variation on futures
margin.
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 common stock 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.
-9-
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS - 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
Fund MA were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 375,304 365,254
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . (871,567) (1,321,839)
Shares issued in reinvestment of distributions:
from net investment income and net short-term realized gains 433,799 542,808
from net long-term realized gains . . . . . . . . . . . . . 147,492 340,238
-------- ----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,028 (73,539)
======== ==========
</TABLE>
As of December 31, 1995, 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
On January 23, 1996, in accordance with the Board of Trustees, a dividend was
declared with a distribution of net investment income and net short-term
realized gains of $0.78 per share and a distribution from net long-term
realized gains of $0.43 per share, payable on January 23, 1996, to shareholders
of record as of January 22, 1996. These distributions are not reflected in the
accompanying financial statements.
-10-
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. FINANCIAL HIGHLIGHTS*
(Selected data for a share outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of year . . . . . . . . $ 12.85 $ 14.21 $ 14.02 $ 14.78 $ 12.77
Income from operations
----------------------
Net investment income . . . . . . . . . . . . . 0.49 0.46 0.51 0.64 0.74
Net gains or losses on securities (realized and unrealized) 2.83 (0.73) 0.72 0.01 1.91
-------- -------- -------- -------- -------
Total from investment operations . . . . . . 3.32 (0.27) 1.23 0.65 2.65
Less distributions
------------------
Distributions from net investment income and
net short-term realized gains . . . . . . . (0.50) (0.67) (0.85) (1.04) (0.64)
Distributions from net long-term realized gains (0.17) (0.42) (0.19) (0.37) -
-------- -------- -------- -------- -------
Total distributions . . . . . . . . . . . . (0.67) (1.09) (1.04) (1.41) (0.64)
Net asset value, end of year . . . . . . . . . . . $ 15.50 $ 12.85 $ 14.21 $ 14.02 $ 14.78
======== ======== ======== ======== ========
TOTAL RETURN** 27.12 % (2.24) % 9.33 % 5.14 % 21.70 %
------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of year (thousands) . . . . . . . $171,276 $140,887 $156,767 $148,971 $126,021
Ratio of expenses to average net assets*** . . . 0.58 % 0.61 % 0.56 % 0.56 % 0.56 %
Ratio of net investment income to average net assets 3.49 % 3.59 % 3.65 % 4.97 % 5.49 %
Portfolio turnover rate . . . . . . . . . . . . . 110 % 97 % 86 % 112 % 141 %
</TABLE>
* The information set forth in Note 6 replaces the data presented in
prior years as supplementary information.
** Total return is determined by dividing the increase (decrease) in
value of a share during the year, after reflecting the reinvestment of
dividends declared during the year, by the beginning of year share
price. As described in Note 1, shares in Fund MA 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.
*** The ratios 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 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.
-11-
<PAGE> 14
MANAGED ASSETS TRUST
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ ------
<S> <C> <C>
COMMON STOCKS (60.7%)
AMUSEMENTS (0.8%)
Harrah's Entertainment, Inc. (A) 14,800 $ 358,900
Walt Disney Co. 17,200 1,014,800
-----------
1,373,700
-----------
BANKING (4.0%)
Banc One Corp. 17,172 648,243
Bank of Boston Corp. 2,600 120,250
Bank of New York Co., Inc. 4,200 204,750
BankAmerica Corp. 14,800 958,300
Barnett Banks, Inc. 7,300 430,700
Chase Manhattan Corp. 4,100 248,562
Chemical Banking Corp. 5,800 340,750
Citicorp 16,500 1,109,625
First Interstate Bancorp 1,800 245,700
First Union Corp. 4,000 222,500
Golden West Financial Corp. 5,700 314,925
Mellon Bank Corp. 2,900 155,875
NationsBank Corp. 14,200 988,675
Norwest Corp. 14,200 468,600
SunTrust Banks, Inc. 2,600 178,100
Wells Fargo & Co. 1,000 216,000
-----------
6,851,555
-----------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (8.8%)
Abbott Laboratories 22,800 951,900
Air Products & Chemicals, Inc. 10,700 564,425
American Home Products Corp. 6,700 649,900
Amgen (A) 12,100 717,681
Bristol Myers Squibb Co. 7,400 635,475
Cabot Corp. 2,900 156,237
Clorox Co. 5,500 393,937
Colgate-Palmolive Co. 3,200 224,800
Dow Chemical Co. 6,100 429,287
E.I. Dupont de Nemours & Co. 12,300 859,462
Eastman Chemical Company 6,300 394,537
Eli Lilly & Co. 11,800 663,750
International Flavors & Fragrances 8,400 403,200
Johnson & Johnson 14,700 1,258,687
Merck & Co., Inc. 27,300 1,794,975
Monsanto Co. 2,700 330,750
Morton International, Inc. 11,700 419,737
Pfizer, Inc. 20,100 1,266,300
Pharmacia & Upjohn, Inc. (A) 11,500 445,625
Procter & Gamble Co. 19,600 1,626,800
Schering-Plough Corp. 14,200 777,450
-----------
14,964,915
-----------
COMMUNICATION (6.2%)
Ameritech Corp. 16,100 949,900
AT&T Corp. 42,900 2,777,775
Bell Atlantic Corp. 9,900 662,062
Bellsouth Corp. 26,100 1,135,350
Capital Cities ABC, Inc. 3,600 444,150
GTE Corp. 18,800 827,200
ITT Industries, Inc. (A) 6,000 144,000
MCI Communications Corp. 13,200 345,675
NYNEX Corp. 14,300 772,200
Sprint Corp. 7,600 303,050
SBC Communications, Inc. 18,500 1,063,750
Tele-Communications, Inc. (A) 7,300 145,543
U.S. West, Inc. 4,100 146,575
U.S. West Media (A) 4,100 77,900
Viacom International, Inc. (A) 15,500 734,312
-----------
10,529,442
-----------
CONSTRUCTION (0.2%)
Pulte Corp. 8,500 $ 285,812
-----------
CONTRACTORS (0.2%)
Fluor Corp. 7,400 488,400
ELECTRICAL AND
ELECTRONIC MACHINERY (3.8%)
Alliance Semiconductor (A) 2,800 32,200
Amphenol Corp. (A) 21,000 509,250
Andrew Corp. (A) 10,200 393,975
Cypress Semiconductor (A) 27,400 349,350
General Electric Co. 37,500 2,700,000
Intel Corp. 16,000 909,000
LSI Logic Corp. (A) 2,900 94,975
Micron Technology 8,600 340,775
Motorola, Inc. 10,000 570,000
Tellabs, Inc. (A) 2,500 92,812
Texas Instruments, Inc. 3,900 201,825
Time Warner, Inc. 6,600 249,975
-----------
6,444,137
-----------
FINANCE (2.2%)
American Express Co. 11,100 459,262
Dean Witter Discover & Co. 9,800 460,600
Federal Home Loan Mortgage Corp. 4,200 350,700
Federal National Mortgage Assoc. 6,200 769,575
Green Tree Financial Corp. 16,600 437,825
Household International 7,000 413,875
Lehman Brothers Holding, Inc. 10,900 231,625
Merrill Lynch & Co., Inc. 9,600 489,600
Morgan Stanley Group, Inc. 1,800 145,125
-----------
3,758,187
-----------
FOOD (5.5%)
Anheuser-Busch Cos. 3,000 200,625
Campbell Soup Co. 4,700 282,000
Coca-Cola Co. 27,800 2,064,150
CONAGRA, Inc. 13,100 540,375
CPC International, Inc. 6,100 418,612
General Mills, Inc. 3,700 213,675
H.J. Heinz Co. 17,100 566,437
IBP, Inc. 3,500 176,750
Kellogg Co. 5,200 401,700
PepsiCo, Inc. 23,200 1,296,300
Philip Morris, Inc. 22,200 2,009,100
Ralston-Purina Group 7,100 442,862
Seagram Co. Ltd. 7,100 245,837
Unilever NV 3,100 436,325
-----------
9,294,748
-----------
INSURANCE (2.2%)
Aetna Life & Casualty Co. 2,400 166,200
Allstate Corp. 7,065 290,548
American International Group 13,450 1,244,125
Chubb Corp. 4,200 406,350
General Reinsurance Corp. 3,500 542,500
HealthCare COMPARE (A) 8,000 349,500
ITT Corp. (A) 6,000 318,000
ITT Hartford Group, Inc. (A) 6,000 290,250
United Healthcare Corp. 4,000 262,000
-----------
3,869,473
-----------
</TABLE>
-12-
<PAGE> 15
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ ----------
<S> <C> <C>
LUMBER AND WOOD PRODUCTS (0.1%)
Georgia-Pacific Corp. 2,200 $ 150,975
----------
MACHINERY (3.6%)
Apple Computers, Inc. 2,500 79,531
Applied Materials (A) 11,100 436,368
Baker Hughes, Inc. 16,300 397,312
Black & Decker Corp. 8,100 285,525
Cabletron System, Inc. (A) 1,800 145,800
Caterpillar, Inc. 4,500 264,375
Cisco Systems, Inc. (A) 6,700 500,406
Compaq Computer Corp. (A) 3,100 148,800
Duriron, Inc. 3,400 78,625
Harnischfeger Industries Corp. 11,000 365,750
Hewlett Packard Co. 11,200 938,000
International Business Machines Corp. 10,300 945,025
Silicon Graphics, Inc. (A) 15,300 420,750
Sun Microsystems (A) 4,700 214,731
3Com Corp. (A) 10,900 508,894
Varity Corp. (A) 8,800 326,700
----------
6,056,592
----------
METAL PRODUCTS (1.2%)
Ball Corp. 8,700 239,250
Danaher Corp. 10,000 317,500
Gillette Co. 6,300 328,388
Inland Steel Industries, Inc. 7,700 193,463
Parker-Hannifin Corp. 10,300 352,775
Phelps Dodge Corp. 4,900 305,025
Reynolds Metals Co. 4,900 277,463
----------
2,013,864
----------
MINING (0.3%)
Freeport-McMoran Copper & Gold 6,300 177,188
Homestake Mining Co. 21,800 340,625
----------
517,813
----------
MISCELLANEOUS MANUFACTURING (2.2%)
Baxter International, Inc. 2,600 108,875
Eastman Kodak Co. 7,300 489,100
Emerson Electric Co. 9,100 743,925
Heart Tech., Inc. (A) 10,500 343,219
Honeywell, Inc. 9,500 461,938
Mattel, Inc. 14,400 442,800
Medtronic, Inc. 14,900 832,538
Xerox Corp. 2,400 328,800
----------
3,751,195
----------
OIL & GAS (0.3%)
Anadarko Petroleum 3,500 189,438
Schlumberger Ltd. 5,600 387,800
----------
577,238
----------
PAPER AND ALLIED PRODUCTS (0.6%)
Bowater, Inc. 5,800 205,900
Champion International Corp. 7,400 310,800
International Paper Co. 5,600 212,100
Kimberly Clark Corp. 2,574 212,999
----------
941,799
----------
PETROLEUM REFINING AND
RELATED INDUSTRIES (4.8%)
Amoco Corp. 14,800 1,063,750
Atlantic Richfield, Inc. 3,619 400,804
Chevron Corp. 14,200 745,500
Exxon Corp. 27,000 2,163,375
Mobil Corp. 11,900 1,332,800
Phillips Petroleum Co. 5,700 194,513
Royal Dutch Petroleum Co. 14,500 2,046,313
Texaco, Inc. 2,500 196,250
----------
8,143,305
----------
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ ----------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (0.5%)
Gannett Co. 7,800 $ 478,725
New York Times Co. 12,500 370,313
----------
849,038
----------
RETAIL (3.5%)
Federated Department Stores, Inc. (A) 15,800 434,500
General Nutrition Cos., Inc. (A) 700 15,575
Home Depot, Inc. 18,500 885,688
J.C. Penney Co. 11,300 538,163
May Department Stores 12,700 536,575
McDonalds Corp. 14,000 631,750
Officemax, Inc. (A) 13,800 308,775
Price/Costco, Inc. (A) 22,800 350,550
Safeway, Inc. (A) 7,400 381,100
Tandy Corp. 7,200 298,800
The GAP, Inc. 3,300 138,600
Wal-Mart Stores, Inc. 39,200 877,100
Walgreen Co. 16,100 480,988
----------
5,878,164
----------
RUBBER AND PLASTIC PRODUCTS (0.4%)
Nike, Inc. 9,300 647,513
----------
SERVICES (1.7%)
Autodesk, Inc. 6,900 236,325
Columbia/HCA Healthcare Corp. 9,900 502,425
Computer Associates International 4,850 275,844
Microsoft (A) 12,300 1,080,094
Oracle Systems Corp. (A) 18,600 788,175
----------
2,882,863
----------
STONE, CLAY, GLASS, AND
CONCRETE PRODUCTS (0.4%)
Minnesota Mining & Manufacturing Co. 9,400 622,750
----------
TRANSPORTATION (1.0%)
AMR, Inc. (A) 5,300 393,525
Conrail, Inc. 5,700 399,000
CSX Corp. 10,800 492,750
Norfolk Southern Corp. 6,200 492,125
----------
1,777,400
----------
TRANSPORTATION MANUFACTURING (2.8%)
Boeing Co. 11,900 932,663
Chrysler Corp. 10,600 586,975
Eaton Corp. 6,200 332,475
Ford Motor Co. 25,400 736,600
General Motors Corp. 15,500 819,563
Lockheed Martin Corp. 4,380 346,020
McDonnell Douglas Corp. 5,800 533,600
United Technologies Corp. 4,300 407,963
----------
4,695,859
----------
UTILITIES (2.9%)
Baltimore Gas & Electric Co. 17,100 487,350
Browning and Ferris Ind. 12,900 380,550
Duquesne Light Co. 12,600 387,450
Florida Power & Light Co. 13,000 602,875
Houston Industries 19,600 475,300
Pacific Enterprises 4,900 138,425
Panhandle Eastern Corp. 12,900 359,588
Public Service Enterprises Group 16,300 499,188
Southern Co. 27,900 687,038
Texas Utilities Co. 13,300 546,963
WMX Technologies, Inc. 11,000 328,625
----------
4,893,352
----------
</TABLE>
-13-
<PAGE> 16
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ ------
<S> <C> <C>
WHOLESALE TRADE (0.5%)
Crane Co. 9,800 $ 361,375
Enron Corp. 14,000 533,750
------------
895,125
------------
TOTAL COMMON STOCKS
(COST $84,482,472) 103,155,214
------------
PREFERRED STOCKS (2.2%)
BANKING (0.6%)
Ahmanson (HF) & Co. 10,000 591,250
First Chicago Corp. 7,000 469,000
------------
1,060,250
------------
FINANCE (0.1%)
Merry Land & Investment, Inc. 8,000 230,000
------------
OIL & GAS (0.3%)
Occidental Petroleum Corp. 9,000 492,750
------------
PAPER AND ALLIED PRODUCTS (0.7%)
International Paper Co. 12,000 543,000
James River Corp. 12,000 556,500
------------
1,099,500
------------
RETAIL (0.2%)
TJX Cos., Inc. 7,000 313,250
------------
SERVICES (0.3%)
Corning Del. 10,000 503,750
------------
TOTAL PREFERRED STOCKS
(COST $3,281,078) 3,699,500
------------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
BONDS (18.5%)
BANKING (0.3%)
Great Western Financial Corp.,
6.375% Notes, 2000 $ 500,000 508,451
------------
CHEMICALS AND ALLIED PRODUCTS (2.2%)
Alza Corp.,
0.00% Debentures, 2014 1,400,000 572,250
McKesson Corp.,
4.50% Debentures, 2004 500,000 473,125
Procter & Gamble Co.,
9.36% Debentures, 2021 2,000,000 2,629,566
------------
3,674,941
------------
COMMUNICATION (2.5%)
Cox Communication, Inc.,
6.875% Notes, 2005 2,000,000 2,079,420
Tele-Communications, Inc.,
8.00% Notes, 2005 2,000,000 2,138,300
------------
4,217,720
------------
CREDIT CARD RECEIVABLES (0.6%)
Signet Credit Card
Master Trust 1993-4 B,
5.80% Pass Through, 1999 1,000,000 1,002,109
------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
FINANCE (3.5%)
American Express Co.,
0.00% Bonds, 2000 $ 2,500,000 $ 1,871,875
Chrysler Auburn Hills Trust,
12.00% Notes, 2020 2,000,000 3,129,100
Rouse Co.,
5.75% Debentures, 2002 400,000 392,000
SAPPI BVI Financial Limited,
7.50% Debentures, 2002 500,000 472,500
------------
5,865,475
------------
FOOD (1.2%)
PepsiCo, Inc.,
0.00% Notes, 1999 2,500,000 2,062,500
------------
INSURANCE (1.0%)
Aegon NV,
4.75% Debentures, 2004 500,000 775,000
Equitable Cos., Inc.,
6.125% Debentures, 2024 500,000 565,000
USF&G Corp.,
0.00% Debentures, 2009 500,000 288,125
------------
1,628,125
------------
MINING (0.2%)
Inco Ltd.,
7.75% Debentures, 2016 300,000 320,250
------------
MISCELLANEOUS MANUFACTURING (0.9%)
Cooper Industries, Inc.,
7.05% Bonds, 2015 877,000 907,695
RPM, Inc,. Ohio,
0.00% Debentures, 2012 300,000 128,625
Trinova Corp.,
6.00% Debentures, 2002 500,000 497,500
------------
1,533,820
------------
OIL & GAS (0.3%)
Apache Corp.,
6.00% Debentures, 2002 500,000 567,500
------------
PETROLEUM REFINING AND RELATED
INDUSTRIES (0.3%)
Pennzoil Co.,
4.75% Bonds, 2003 500,000 504,375
------------
PHARMACEUTICAL AND
HEALTH CARE PRODUCTS (1.3%)
Becton Dickson & Co.,
8.80% Notes, 2001 2,000,000 2,255,730
------------
TRANSPORTATION MANUFACTURING (3.3%)
Arvin Industries, Inc.,
10.00% Debentures, 2000 1,000,000 1,128,503
Delta Airlines, Inc.,
9.25% Sinking Fund, 2007 (D) 955,121 1,062,878
Loral Corp.,
7.625% Notes, 2025 3,000,000 3,206,820
Scholastic Corp.,
5.00% Notes, 2005 200,000 228,000
------------
5,626,201
------------
</TABLE>
-14-
<PAGE> 17
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
UTILITIES (0.9%)
Niagara Mohawk Power Co.,
8.00% Bonds, 2004 $ 1,100,000 $ 1,067,963
Potomac Electric Power Co.,
5.00% Debentures, 2002 600,000 562,500
------------
1,630,463
------------
TOTAL BONDS
(COST $29,459,777) 31,397,660
------------
U.S. GOVERNMENT AGENCY
SECURITIES (4.5%)
Federal Home Loan Mortgage Corp.,
8.50% Pass Through, 2002 678,786 698,894
FNMA Pool,
8.50% Pass Through, 2005 151,255 157,778
FNMA Pool,
8.50% Pass Through, 2005 352,590 367,795
FNMA Pool,
7.50% Pass Through, 2025 3,494,680 3,584,231
GNMA Pool,
7.50% Pass Through, 2007 70,455 72,525
GNMA Pool,
7.50% Pass Through, 2007 379,501 390,649
GNMA Pool,
9.00% Pass Through, 2016 243,884 258,593
GNMA Pool,
9.00% Pass Through, 2019 284,490 301,648
GNMA Pool,
9.50% Pass Through, 2020 493,420 529,963
GNMA Pool,
9.50% Pass Through, 2020 246,861 265,145
GNMA Pool,
7.50% Pass Through, 2023 215,514 221,845
GNMA Pool,
7.50% Pass Through, 2025 85,357 87,864
GNMA Pool,
7.50% Pass Through, 2025 678,925 698,868
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(COST $ 7,310,645) 7,635,798
------------
U.S. GOVERNMENT
SECURITIES (13.2%)
United States of America Treasury,
0.00% Bonds, 1997 5,550,000 5,045,228
United States of America Treasury,
0.00% Bonds, 2007 5,500,000 2,861,798
United States of America Treasury,
4.75% Notes, 1998 1,200,000 1,184,250
United States of America Treasury,
6.875% Bonds, 2025 5,400,000 6,093,554
United States of America Treasury,
6.875% Notes, 1999 3,000,000 3,152,808
United States of America Treasury,
7.875% Notes, 2004 3,600,000 4,170,369
------------
TOTAL U.S. GOVERNMENT
SECURITIES (COST $21,560,600) 22,508,007
============
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.9%)
REPURCHASE AGREEMENTS (0.2%)
Merrill Lynch Government Securities,
Inc., 5.50% Repurchase Agreement
dated December 29, 1995, due
January 2, 1996, collateralized
by: United States of America
Treasury, $355,000,
5.625% due October 31, 1997 $ 353,000 $ 353,000
------------
U.S. GOVERNMENT SECURITIES (0.7%)
United States of America Treasury
5.50% due September 19, 1996(C) 1,200,000 1,139,039
------------
TOTAL SHORT-TERM
INVESTMENTS
(COST $1,489,724) 1,492,039
------------
<CAPTION>
NOTIONAL
VALUE
------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%)
S&P 500 Stock Index,
Exp. March, 1996 $ 17,935,050
------------
TOTAL INVESTMENTS (100%)
(COST $147,584,296)(B)(E) $169,888,218
============
</TABLE>
-15-
<PAGE> 18
STATEMENT OF INVESTMENTS - CONTINUED
NOTES
(A) Non-income Producing Security.
(B) At December 31, 1995, net unrealized appreciation for all securities
was $22,303,922. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over cost of $24,057,252 and aggregate gross unrealized
depreciation for all securities in which there was an excess of cost
over market value of $1,753,330.
(C) Par value of $1,200,000 is pledged to cover margin deposits on futures
contracts.
(D) Management Priced Security.
(E) The cost of investments for federal income tax purposes amounted to
$148,342,273. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost at December 31, 1995 were as
follows:
<TABLE>
<S> <C>
Gross unrealized appreciation....... $ 23,436,072
Gross unrealized depreciation....... (1,890,127)
------------
Net unrealized appreciation......... $ 21,545,945
============
</TABLE>
See Notes to Financial Statements
-16-
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of Managed Assets Trust:
We have audited the accompanying statement of assets and liabilities of Managed
Assets Trust including the statement of investments as of December 31, 1995,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Managed Assets Trust as of December 31, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 7, 1996
-17-
<PAGE> 20
HIGH YIELD BOND TRUST
The High Yield Bond Trust performed in line with the general high yield market
in 1995. The overall level of performance masks several significant gains over
the course of the year as well as several poorly performing investments which
declined during the course of 1995. Most of the big gains came earlier in the
year while we cleaned out the losing investments mostly in the second half of
1995. The sectors showing the most strength in 1995 included the media area,
homebuilding, and value-added consumer products. The weak sectors included
retailing, steel manufacturers, and textile companies.
The high yield market has continued to change and mature and we think the
changes in the market will influence the risk and reward spectrum available to
investors in this sector. A greater number of intermediaries are now willing
to make tight markets in the higher quality "double B" sector while the
liquidity in the lower rated "single B" sector has declined. The strength in
the higher quality segment of the market means that lower rates of return
relative to treasury rates should accrue to investors in this segment while the
reduced liquidity in the lower rated bond segment means that higher relative
rates of return should be available to investors in this part of the market.
Of course, reduced market liquidity puts a greater stress on investors making
the right decision up front upon initial investment because there may not be
sufficient liquidity in the marketplace for investors to easily change their
positions.
The High Yield Bond Trust is currently invested based upon the assumptions that
the economy will grow at a very low rate, but above recessionary levels, and
that inflation and treasury bond rates will not move materially from current
levels. The Trust contains mainly bonds issued by companies which have a
reason to grow profits because of some change in their business: major cost
cutting programs, new products, new more efficient plants, new technologies or
technical approaches, or a combination of these factors. We have placed an
emphasis on near-term corporate liquidity in structuring our investments
because the market has recently shown no flexibility in supporting companies
which have a questionable ability to access cash.
The two largest sectors where the trust is currently invested include the media
segment and basic manufacturing. The media investment thesis is that most of
our companies can grow significantly even if the economy slows as they realize
merger synergies or roll out new products. Our basic manufacturing investments
are mostly mortgage bonds or senior notes issued by companies undergoing a
change in their cost structures through new capital investments or other means.
-18-
<PAGE> 21
HIGH YIELD BOND TRUST
[HIGH YIELD BOND TRUST GRAPH]
STANDARD
AVERAGE ANNUAL RETURNS
ENDED DECEMBER 31, 1995:
1 YEAR 8.77%
5 YEARS 11.02%
10 YEARS 6.11%
<TABLE>
<CAPTION>
High Yield Bond Trust
INITIAL
INVESTMENT 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95
---------- ------ ------ ------ ------ ------ ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Bond Trust 10,000 10,798 10,761 12,329 12,502 11,362 14,328 16,214 18,485 18,252 21,076
Lehman Aggregate Bond Index 10,000 11,527 11,844 12,778 14,635 15,945 18,496 19,865 21,802 21,165 25,077
First Boston High Yield Index
Top Tier 10,000 12,176 13,548 15,190 17,190 18,000 22,568 25,258 29,494 29,329 34,807
Consumer Price Index 10,000 10,119 10,566 11,032 11,544 12,266 12,631 13,008 13,008 13,364 14,108
</TABLE>
This chart assumes an initial investment of $10,000 made on December 31, 1985.
Returns include the reinvestment of all distributions at Net Asset Value and
the change in share price for the stated period, but exclude insurance and
administration charges assessed by Travelers Insurance separate accounts.
The Standardized Average Annual Returns for 1, 5 and 10 years shown above are
net of the 1.25% annual mortality and expense risk charge and the contingent
deferred sales charge (5% maximum) assessed by certain Travelers Insurance
separate accounts. Although the contingent deferred sales charge is included,
it is applied only if a surrender is made while assets are under the penalty
period. Other Travelers Insurance separate accounts that invest in High Yield
Bond Trust have different charges.
The Lehman Brothers Aggregate Bond Index is an unmanaged, but commonly used
measure of bond performance. The First Boston High Yield Index Top Tier is a
broad-based market measure of high yield bonds, commonly known as "junk bonds."
Past performance is not predictive of future performance. Investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
-19-
<PAGE> 22
HIGH YIELD BOND TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $12,791,407) . . . . . . . . $12,591,681
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,401
Receivables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,270
Receivable from The Travelers . . . . . . . . . . . . . . . . . . . . . . . . . . 3,156
-----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,924,571
-----------
LIABILITIES:
Payable for investment management and advisory fees . . . . . . . . . . . . . . . . . 881
Accrued expenses:
Reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,156
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,236
-----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,273
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,902,298
===========
NET ASSETS REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,457,598
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 1,173,476
Accumulated net realized gains (losses) on investment security transactions . . . . . (6,529,050)
Net unrealized depreciation on investment securities . . . . . . . . . . . . . . . . (199,726)
-----------
Total net assets (applicable to 1,432,658 shares outstanding at $9.00 per share) $12,902,298
===========
</TABLE>
See Notes to Financial Statements
-20-
<PAGE> 23
HIGH YIELD BOND TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,329,872
EXPENSES:
Investment management and advisory fees . . . . . . . . . . . . . . $ 62,591
Accounting and audit fees . . . . . . . . . . . . . . . . . . . . . 61,639
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . 3,136
Printing and postage . . . . . . . . . . . . . . . . . . . . . . . 21,401
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . 8,378
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . 352
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055
-----------
Total expenses before reimbursement from The Travelers . . . . . 159,552
Less: Reimbursement from The Travelers . . . . . . . . . . . . . . (3,156)
-----------
Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 156,396
----------
Net investment income . . . . . . . . . . . . . . . . . . . 1,173,476
----------
REALIZED GAIN AND CHANGE IN UNREALIZED LOSS ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold . . . . . . . . . . . . 25,261,753
Cost of investment securities sold . . . . . . . . . . . . . . . 24,865,862
-----------
Net realized gain . . . . . . . . . . . . . . . . . . . . . 395,891
Change in unrealized loss on investment securities:
Unrealized loss at December 31, 1994 . . . . . . . . . . . . . . (421,485)
Unrealized loss at December 31, 1995 . . . . . . . . . . . . . . (199,726)
-----------
Net change in unrealized loss for the year . . . . . . . . . 221,759
----------
Net realized gain and change in unrealized loss . . . . . 617,650
----------
Net increase in net assets resulting from operations . . . . . . . $1,791,126
==========
</TABLE>
See Notes to Financial Statements
-21-
<PAGE> 24
HIGH YIELD BOND TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,173,476 $ 949,721
Net realized gain (loss) from investment security transactions . . . 395,891 (30,534)
Net change in unrealized gain (loss) on investment securities . . . . 221,759 (1,108,223)
----------- -----------
Net increase (decrease) in net assets resulting from operations . 1,791,126 (189,036)
----------- -----------
DISTRIBUTION TO SHAREHOLDERS FROM NET INVESTMENT INCOME . . . . . . . . . (960,192) (919,615)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . 1,749,523 2,094,990
Dividend reinvestment . . . . . . . . . . . . . . . . . . . . . . . . 960,192 919,615
Payments for shares redeemed . . . . . . . . . . . . . . . . . . . . (2,354,757) (2,954,925)
----------- -----------
Net increase in net assets resulting from capital share transactions 354,958 59,680
----------- -----------
Net increase (decrease) in net assets . . . . . . . . . . . . 1,185,892 (1,048,971)
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 11,716,406 12,765,377
----------- -----------
End of year (including undistributed net investment income as follows:
December, 1995 $1,173,476 and December, 1994 $949,721) . . . . . . $12,902,298 $11,716,406
=========== ===========
</TABLE>
See Notes to Financial Statements
-22-
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
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 year; 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.
-23-
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. INVESTMENTS
Purchases and sales of securities other than short-term investments
aggregated $24,892,284 and $24,762,913, respectively, for the year
ended December 31, 1995. 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994
-------- ---------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,291 243,214
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (276,334) (348,173)
Shares issued in reinvestment of distributions from net investment 122,473 105,582
-------- --------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,430 623
======== ========
</TABLE>
As of December 31, 1995, 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
On January 23, 1996, in accordance with the Board of Trustees, a
dividend was declared with a distribution of net investment income of
$0.94 per share, payable on January 23, 1996, to shareholders of
record as of January 22, 1996. This distribution is not reflected in
the accompanying financial statements.
-24-
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. FINANCIAL HIGHLIGHTS*
(Selected data for a share outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year . . . . . . . . . $ 8.49 $ 9.25 $ 8.91 $ 8.75 $ 7.87
Income from operations
Net investment income . . . . . . . . . . . . . . 0.80 0.66 0.68 0.88 0.94
Net gains or losses on securities (realized and unrealized) 0.41 (0.76) 0.47 0.18 0.88
------- ------- ------- ------- ------
Total from investment operations . . . . . . . 1.21 (0.10) 1.15 1.06 1.82
Less distributions
Distributions from net investment income . . . . (0.70) (0.66) (0.81) (0.90) (0.94)
------- ------- ------- ------- ------
Net asset value, end of year . . . . . . . . . . . . $ 9.00 $ 8.49 $ 9.25 $ 8.91 $ 8.75
======= ======= ======= ======= ======
TOTAL RETURN** 15.47 % (1.26)% 14.01 % 13.16 % 26.11 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (thousands) . . . . . . . $12,902 $11,716 $12,765 $10,289 $7,724
Ratio of expenses to average net assets*** . . . 1.25 % 1.25 % 0.99 % 0.56 % 0.56 %
Ratio of net investment income to average net assets 9.37 % 7.71 % 7.69 % 10.24 % 11.93 %
Portfolio turnover rate . . . . . . . . . . . . . 222 % 146 % 19 % 52 % 35 %
</TABLE>
* The information set forth in Note 6 replaces the data presented in
prior years as supplementary information.
** Total return is determined by dividing the increase (decrease) in
value of a share during the year, after reflecting the reinvestment of
dividends declared during the year, by the beginning of year share
price. 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.
*** 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% for the years ended
December 31, 1995, 1994, 1993, 1992, and 1991, respectively.
-25-
<PAGE> 28
HIGH YIELD BOND TRUST
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ -----------
<S> <C> <C>
COMMON STOCKS (0.1%)
UTILITIES (0.1%)
Great Bay Power Co. (A) 1,500 $ 11,062
-----------
TOTAL COMMON STOCKS
(COST $ 131,522 ) 11,062
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
BONDS (86.1%)
AMUSEMENTS (7.5%)
Genmar Holdings, Inc.,
13.50% Notes, 2001 $500,000 490,000
Plitt Theatres,
10.875% Notes, 2004 500,000 452,500
-----------
942,500
-----------
CHEMICALS, PHARAMACEUTICALS AND
ALLIED PRODUCTS (3.9%)
Renaissance Cosmetics, Inc.,
13.75% Notes, 2001 500,000 498,750
-----------
COMMUNICATION (21.0%)
Adelphia Communication,
9.50% Notes, 2004 (B) 274,314 229,052
Adelphia Communication,
9.875% Notes, 2005 75,000 68,250
Clearnet Communications,
0.00% Notes, 2005 500,000 260,000
Commodore Media, Inc.,
7.50% Notes, 2003 500,000 475,000
Galaxy Telecommunication LP,
12.375% Notes, 2005 400,000 398,000
Pagemart Nationwide,
0.00% Notes, 2005 368,000 245,640
Paxson Communications,
11.625% Notes, 2002 400,000 404,000
Peoples Telecommunication Co.,
12.25% Notes, 2002 500,000 412,500
Telewest PLC,
11.00% Debentures, 2007 250,000 151,563
-----------
2,644,005
-----------
CONSTRUCTION (1.8%)
Greystone Homes, Inc.,
10.75% Notes, 2004 250,000 231,250
-----------
FINANCE (5.7%)
B.F. Saul REIT,
11.625% Notes, 2002 400,000 410,000
Trizec Financial,
10.875% Notes, 2005 300,000 310,875
-----------
720,875
-----------
METAL PRODUCTS (7.2%)
Gulf States Steel,
13.50% Notes, 2003 500,000 443,750
Sheffield Steel,
12.00% Bonds, 2001 500,000 465,000
-----------
908,750
-----------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
PAPER AND ALLIED PRODUCTS (3.1%)
Mail-Well, Inc.,
10.50% Notes, 2004 $400,000 $ 386,000
-----------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (3.9%)
Sullivan Graphics,
12.75% Notes, 2005 500,000 488,750
-----------
RETAIL (13.0%)
Family Restaurant, Inc.,
0.00% Notes, 2004 (B) 250,000 27,500
Flagstar Corp.,
10.75% Notes, 2001 250,000 230,625
Flagstar Corp.,
11.25% Debentures, 2004 250,000 178,750
Foodmaker, Inc.,
9.75% Notes, 2002 500,000 455,000
Phar-Mor, Inc.,
11.72% Notes, 2002 400,000 364,000
Pueblo Xtra International,
9.50% Notes, 2003 400,000 376,000
-----------
1,631,875
-----------
SERVICES (15.5%)
Americold Corp.,
11.50% Bonds, 2005 500,000 503,750
Florists Transworld Delivery,
14.00% Notes, 2001 500,000 493,750
Regency Health Services, Inc.,
9.875% Notes, 2002 400,000 399,000
United International Holdings,
0.00% Notes, 1999 500,000 312,500
Webcraft Techs., Inc.,
9.375% Notes, 2002 250,000 238,750
-----------
1,947,750
-----------
TRANSPORTATION (3.5%)
Terex Corp.,
13.75% Notes, 2002 (C) 500,000 440,002
-----------
TOTAL BONDS
(COST $10,919,578 ) 10,840,505
-----------
SHORT-TERM INVESTMENTS (13.8%)
COMMERCIAL PAPER (9.5%)
Potomac Electric Power Co.,
5.63% due January 23, 1996 600,000 596,810
Xerox Corp.,
5.62% due January 18, 1996 600,000 597,302
-----------
1,194,112
-----------
REPURCHASE AGREEMENTS (4.3%)
Merrill Lynch Government Securities, Inc.,
5.50% Repurchase Agreement
dated December 29, 1995, due
January 2, 1996, collateralized
by: United States of America
Treasury, $550, 000,
5.625% due October 31, 1997 546,000 546,000
-----------
TOTAL SHORT-TERM
INVESTMENTS (COST $1,740,307) 1,740,112
-----------
TOTAL INVESTMENTS (100%)
(COST $ 12,791,407) (D) (E) $12,591,681
===========
</TABLE>
-26-
<PAGE> 29
NOTES
(A) Non-income Producing Security.
(B) Paid-in-kind Security.
(C) Market value of $2 warrant included.
(D) The cost of investments for federal income tax purposes amounted to
$12,826,995. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost at December 31, 1995 were as
follows:
<TABLE>
<S> <C>
Gross unrealized appreciation ......... 358,053
Gross unrealized depreciation ......... (593,367)
---------
Net unrealized depreciation ........... (235,314)
=========
</TABLE>
(E) At December 31, 1995, net unrealized depreciation for all securities
was $199,726. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over cost of $358,053 and aggregate gross unrealized
depreciation for all securities in which there was an excess of cost
over market value of $557,779.
See Notes to Financial Statements
-27-
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of High Yield Bond Trust:
We have audited the accompanying statement of assets and liabilities of High
Yield Bond Trust including the statement of investments as of December 31,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of High
Yield Bond Trust as of December 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 7, 1996
-28-
<PAGE> 31
CAPITAL APPRECIATION FUND
The financial markets achieved excellent gains in 1995. Although the fourth
quarter witnessed a moderate deceleration in the market's momentum, results
were still substantial. For the year the Standard & Poors 500 Stock Index (S&P
500) gained 37.58% and 5.94% in the fourth quarter, while the Russell 1000
Growth Index was up 37.19% and 4.55% for the same time periods.
The year was notable for several reasons. Growth stocks outperformed value
stocks for the first time in three years, which helped portfolio results. This
trend is expected to continue into 1996, and the portfolio is positioned in
companies that have strong unit growth. The budget debate in Washington,
accompanied by the temporary government shutdown, was the most serious in
memory and was the cause of both euphoria and fear in the financial markets.
In December, the bond market was confident that a responsible budget resolution
could be achieved, and yield on the benchmark 30-year Treasury dropped below
the crucial psychological level of 6%. But in early January of 1996, yields on
the 30-year T-bond has backed up again and the market is exhibiting increased
volatility. The resolution of the budget debate will certainly influence stock
valuations going forward, but it is heartening to see both political camps have
agreed to frame the debate using the more conservative projections prepared by
the Congressional Budget Office.
The year was also notable for the very strong performance of technology,
telecommunications, and financial stocks. Even though the broad indexes posted
exceptional results, these groups outpaced the indexes for the first three
quarters, then declined sharply in the fourth quarter. We had selectively
trimmed or sold many technology positions before the quarter began and we
continued this process during the period, taking profits in our semiconductor
and related companies such as Texas Instruments, LSI Logic, Intel, and Applied
Materials. Microsoft was sold and modem manufacturer U.S. Robotics was
trimmed. Cellular manufacturers Nokia and Ericsson were also liquidated. We
put some funds to work in network system companies like Cisco Systems, which
has established a significant industry franchise, and Ascend Communications.
These companies gave the portfolio additional exposure to the accelerating
growth of the Internet.
Positions in pharmaceutical, chemical, and food sectors were either added or
increased. Cytec, which makes specialty chemicals, and Monsanto are new
positions. Pharmaceutical manufacturer Bristol Myers was added, and Amgen and
Merck were increased. Fast food provider McDonald's is another significant new
holding. These companies all have steady earnings growth visibility and should
perform well in a moderately expanding economy.
We continue to favor financial stocks. Citicorp, Chemical Bank, and Merrill
Lynch each have unique industry characteristics. Citicorp is a dominant
franchise in emerging markets and is cutting costs at home. Chemical Bank is
integrating Chase Manhattan into its operations and the two banks'
complimentary product lines create a very competitive entity. Long-time
holding Merrill Lynch continues to benefit from outstanding earnings at its
asset management division, from its participation in international markets and
underwritings, and from a low share valuation. Another long-term holding,
Fannie Mae, enjoys excellent spreads between costs of funds and current lending
rates. All these companies are repurchasing significant amounts of their own
stock. They also are benefiting from positively sloped yield curve, which we
believe will continue into the first half of 1996.
The portfolio continues to emphasize large multinationals such as McDonald's,
Coca-Cola, PepsiCo, and Monsanto. Defense contractors McDonnell Douglas and
Lockheed are attractive in light of industry consolidation, stable defense
programs, and an improving commercial aerospace market. Share repurchase
programs are also supporting share price.
The additional volatility we are seeing in the stock market as the year begins
may signal a return to more normal levels of fluctuation. On a historical
basis, the market indexes have climbed steadily for the past four years, so a
return to mean fluctuation levels would not be surprising. Volatility can
create additional buying opportunities however, and we expect your portfolio to
continue to perform well during the new year.
-29-
<PAGE> 32
CAPITAL APPRECIATION FUND
[CAPITAL APPRECIATION FUND GRAPH]
STANDARDIZED
AVERAGE ANNUAL RETURNS
ENDED DECEMBER 31, 1995:
1 YEAR 29.31%
5 YEARS 16.31%
10 YEARS 9.41%
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
INITIAL
INVESTMENT 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95
---------- ------ ------ ------ ------ ------ ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation Fund 10,000 11,005 10,111 11,129 12,877 12,073 16,318 19,190 22,086 21,035 28,685
S&P 500 Stock Index 10,000 11,855 12,474 14,572 19,166 18,557 24,230 26,093 28,700 29,070 39,965
Russell 2000 Index 10,000 10,568 9,640 12,041 13,997 11,265 16,541 19,481 23,163 22,742 29,210
Consumer Price Index 10,000 10,119 10,566 11,032 11,544 12,266 12,631 13,008 13,364 13,370 14,108
</TABLE>
This chart assumes an initial investment of $10,000 made on December 31, 1985.
Returns include the reinvestment of all distributions at Net Asset Value and
the change in share price for the stated period, but exclude insurance and
administration charges assessed by Travelers Insurance separate accounts.
The Standardized Average Annual Returns for 1, 5 and 10 years shown above are
net of the 1.25% annual mortality and expense risk charge and the contingent
deferred sales charge (5% maximum) assessed by certain Travelers Insurance
separate accounts. Although the contingent deferred sales charge is included,
it is applied only if a surrender is made while assets are under the penalty
period. Other Travelers Insurance separate accounts that invest in Capital
Appreciation Fund have different charges.
The Russell 2000 is a broad-based small stock index.
Past performance is not predictive of future performance. Investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
-30-
<PAGE> 33
CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $105,543,730) . . . . . . . . $ 126,763,906
Receivables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,032
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,104
Investment securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,129
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,908,171
---------------
LIABILITIES:
Cash overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,721,430
Payable for investment management and advisory fees . . . . . . . . . . . . . . . . . 12,475
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,834
---------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,752,739
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,155,432
===============
NET ASSETS REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,267,304
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 811,421
Accumulated net realized gains (losses) on investment security transactions . . . . . 7,856,531
Net unrealized appreciation on investment securities . . . . . . . . . . . . . . . . 21,220,176
---------------
Total net assets (applicable to 3,681,224 shares outstanding at $33.18 per share) $ 122,155,432
===============
</TABLE>
See Notes to Financial Statements
-31-
<PAGE> 34
CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends..................................................................... $ 939,493
Interest ..................................................................... 724,635
--------------
Total income ......................................................... $ 1,664,128
EXPENSES:
Investment management and advisory fees....................................... 752,372
Accounting and audit fees .................................................... 66,339
Printing and postage ......................................................... 23,201
Trustees' fees ............................................................... 8,379
Registration fees ............................................................ 360
Legal fees ................................................................... 2,056
--------------
Total expenses ........................................................... 852,707
---------------
Net investment income ................................................ 811,421
---------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold ................................. 152,626,630
Cost of investment securities sold ....................................... 139,773,866
--------------
Net realized gain .................................................... 12,852,764
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1994 ......................................... 4,796,334
Unrealized gain at December 31, 1995 ......................................... 21,220,176
--------------
Net change in unrealized gain for the year ............................... 16,423,842
---------------
Net realized gain and change in unrealized gain ...................... 29,276,606
---------------
Net increase in net assets resulting from operations ............................. $ 30,088,027
===============
</TABLE>
See Notes to Financial Statements
-32-
<PAGE> 35
CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income ............................................................ $ 811,421 $ 559,581
Net realized gain (loss) from investment security transactions ................... 12,852,764 (4,598,572)
Net change in unrealized gain on investment securities ........................... 16,423,842 752,650
--------------- ---------------
Net increase (decrease) in net assets resulting from operations ............... 30,088,027 (3,286,341)
--------------- ---------------
DISTRIBUTION TO SHAREHOLDERS FROM NET INVESTMENT INCOME ............................. (540,784) (359,166)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ........................................................ 26,600,150 29,010,545
Dividend reinvestment ............................................................ 540,784 359,166
Payments for shares redeemed ..................................................... (13,026,347) (9,644,753)
--------------- ---------------
Net increase in net assets resulting from capital share transactions ,......... 14,114,587 19,724,958
--------------- ---------------
Net increase in net assets ................................................. 43,661,830 16,079,451
NET ASSETS:
Beginning of year ................................................................ 78,493,602 62,414,151
--------------- ---------------
End of year (including undistributed net investment income as follows:
December, 1995 $811,421 and December, 1994 $559,581)........................... $ 122,155,432 $ 78,493,602
=============== ===============
</TABLE>
See Notes to Financial Statements
-33-
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
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"), 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 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 year; 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.
-34-
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
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 $128,860,523 and $109,731,302, respectively, for the year
ended December 31, 1995. 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.
-35-
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS - 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 Fund CA were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,317 1,167,145
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . (445,510) (388,338)
Shares issued in reinvestment of distributions from net investment . . . 22,109 13,442
---------- -----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476,916 792,249
========== ===========
</TABLE>
As of December 31, 1995, 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
On January 23, 1996, in accordance with the Board of Trustees, a
dividend was declared with a distribution of net investment income and
net short-term realized gains of $1.33 per share and a distribution
from net long-term realized gains of $0.99 per share, payable on
January 23, 1996, to shareholders of record as of January 22, 1996.
These distributions are not reflected in the accompanying financial
statements.
-36-
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. FINANCIAL HIGHLIGHTS*
(Selected data for a share outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993# 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year . . . . . . . . . . . . . . . . $ 24.50 $ 25.87 $ 22.72 $ 19.63 $ 14.62
Income from operations
Net investment income . . . . . . . . . . . . . . . . . . . . . 0.24 0.19 0.19 0.28 0.36
Net gains or losses on securities (realized and unrealized) . . 8.61 (1.41) 3.21 3.13 4.75
-------- ------- ------- ------- -------
Total from investment operations . . . . . . . . . . . . . . 8.85 (1.22) 3.40 3.41 5.11
Less distributions
Distributions from net investment income . . . . . . . . . . . (0.17) (0.15) (0.25) (0.32) (0.10)
-------- ------- ------- ------- -------
Net asset value, end of year . . . . . . . . . . . . . . . . . . . $ 33.18 $ 24.50 $ 25.87 $ 22.72 $ 19.63
======== ======= ======= ======= =======
TOTAL RETURN** 36.37 % (4.76) % 15.09 % 17.60 % 35.16 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (thousands) . . . . . . . . . . . . . . $122,155 $78,494 $62,414 $29,506 $20,497
Ratio of expenses to average net assets *** . . . . . . . . . . 0.85 % 0.89 % 0.87 % 0.56 % 0.56 %
Ratio of net investment income to average net assets . . . . . 0.84 % 0.79 % 0.81 % 1.39 % 2.05 %
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . 124 % 106 % 155 % 126 % 205 %
</TABLE>
* The information set forth in Note 6 replaces the data presented in prior
years as supplementary information.
** Total return is determined by dividing the increase (decrease) in value of
a share during the year, after reflecting the reinvestment of the
dividends declared during the year, by the beginning of year share price.
As described in Note 1, shares in Fund CA 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.
*** 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
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.
# Effective May 1, 1993, Janus Capital Corporation became sub-adviser for
Fund CA.
-37-
<PAGE> 40
CAPITAL APPRECIATION FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ -----------
<S> <C> <C>
COMMON STOCKS (85.2%)
AGRICULTURE (0.3%)
Pioneer Hi-Bred International, Inc. 6,575 $ 365,734
------------
AMUSEMENTS (2.5%)
Walt Disney Co. 52,750 3,112,250
------------
BANKING (10.2%)
Chemical Banking Corp. 81,475 4,786,656
Citicorp 67,390 4,531,977
First Bank Systems, Inc. 26,050 1,292,731
First Chicago NBD 13,325 526,338
First Interstate Bancorp 13,150 1,794,975
------------
12,932,677
------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (14.9%)
Amgen (A) 64,300 3,813,794
Bristol-Myers Squibb Co. 13,950 1,197,956
Cytec Industries, Inc. (A) 25,525 1,592,122
Hercules, Inc. 21,350 1,203,606
Lynx Therapeutics (A)(C) 2,592 518
Merck & Co., Inc. 48,975 3,220,106
Monsanto Co. 19,700 2,413,250
Pfizer, Inc. 65,050 4,098,150
Warner-Lambert Co. 13,425 1,303,903
------------
18,843,405
------------
COMMUNICATION (1.6%)
Infinity Broadcasting (A) 5,362 199,735
Sprint Corp. 30,800 1,228,150
Telecommunications
International, Inc. (A) 24,350 552,441
------------
1,980,326
------------
CONSTRUCTION (0.1%)
D.R. Horton (A) 10,920 128,310
------------
ELECTRICAL AND
ELECTRONIC MACHINERY (5.5%)
Altera Corp. (A) 46,675 2,319,164
Duracell International, Inc. 21,700 1,122,975
General Electric Co. 8,050 579,600
National Semiconductor (A) 34,025 757,056
U.S. Robotics, Inc. 25,050 2,201,269
------------
6,980,064
------------
FINANCE (10.6%)
American Express Co. 1,000 55,500
Federal Home Loan Mortgage Corp. 4,375 365,313
Federal National Mortgage Assoc. 29,070 3,608,314
HFS Inc. (A) 19,075 1,559,381
Merrill Lynch & Co., Inc. 88,915 4,534,665
Morgan Stanley Group, Inc. 16,975 1,368,609
Reuters Holding PLC 7,425 410,695
Schwab Charles Corp. 39,150 787,894
Smithkline Beecham PLC 14,100 782,550
------------
13,472,921
------------
FOOD (6.5%)
Coca-Cola Co. 46,625 3,461,906
Coca-Cola Enterprises, Inc. 43,600 1,166,300
PepsiCo, Inc. 65,275 3,647,241
------------
8,275,447
------------
<CAPTION>
NO. OF MARKET
SHARES VALUE
--------- ------------
INSURANCE (0.6%)
Oxford Health Plans, Inc. (A) 11,125 $ 820,469
------------
LUMBER AND WOOD PRODUCTS (0.2%)
Georgia-Pacific Corp. 3,575 245,334
------------
MACHINERY (9.8%)
Ascend Communications, Inc. (A) 28,150 2,285,428
Caterpillar, Inc. 13,050 766,687
Cisco Systems, Inc. (A) 47,850 3,573,797
Diebold, Inc. 15,450 855,544
Sun Microsystems (A) 108,350 4,950,241
------------
12,431,697
------------
METAL PRODUCTS (1.7%)
Phelps Dodge Corp. 33,925 2,111,831
------------
MISCELLANEOUS MANUFACTURING (1.6%)
Fila Holdings SpA 32,950 1,499,225
Medtronic, Inc. 10,450 583,894
------------
2,083,119
------------
PAPER AND ALLIED PRODUCTS (0.6%)
Willamette Industries 13,575 763,594
------------
RETAIL (4.7%)
Boston Chicken, Inc. (A) 22,125 709,383
Lowe's Co.'s, Inc. 51,925 1,739,487
McDonalds Corp. 76,925 3,471,241
------------
5,920,111
------------
RUBBER AND PLASTIC PRODUCTS (0.7%)
Nike, Inc. 12,800 891,200
------------
SERVICES (7.2%)
CUC International, Inc. (A) 38,000 1,296,750
First Data Corp. 62,625 4,188,047
Gartner Group, Inc. (A) 75,000 3,590,625
------------
9,075,422
------------
TRANSPORTATION (3.6%)
AMR, Inc. (A) 38,450 2,854,912
Delta Airlines, Inc. 14,075 1,039,791
UAL Corp. (A) 3,900 696,150
------------
4,590,853
------------
TRANSPORTATION MANUFACTURING (2.3%)
Lockheed Martin Corp. 32,050 2,531,950
McDonnell Douglas Corp. 4,650 427,800
------------
2,959,750
------------
TOTAL COMMON STOCKS
(COST $86,763,576) 107,984,514
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
SHORT-TERM INVESTMENTS (14.8%)
COMMERCIAL PAPER (2.3%)
Ford Motor Credit Co.,
5.75% due January 2, 1996 $ 2,900,000 2,898,167
------------
</TABLE>
-38-
<PAGE> 41
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
<S> <C> <C>
U.S. GOVERNMENT
AGENCY SECURITIES (12.5%)
Federal Home Loan Banks,
5.45% due February 27, 1996 $2,000,000 $ 1,981,083
Federal Home Loan Banks,
5.50% due January 16, 1996 2,000,000 1,993,382
Federal Home Loan Banks,
5.66% due January 12, 1996 2,000,000 1,982,614
Federal Mortgage Corp.,
5.56% due March 7, 1996 2,000,000 1,971,991
Federal Mortgage Corp.,
5.69% due January 16, 1996 2,000,000 1,988,680
FNMA,
5.48% due February 13, 1996 2,000,000 1,985,652
FNMA,
5.68% due January 16, 1996 2,000,000 1,989,558
FNMA,
5.70% due January 19, 1996 2,000,000 1,988,265
------------
15,881,225
------------
TOTAL SHORT-TERM
INVESTMENTS
(COST $18,780,154) 18,779,392
------------
TOTAL INVESTMENTS (100%)
(COST $105,543,730)(B)(D) $126,763,906
============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At December 31, 1995, net unrealized appreciation for all securities
was $21,220,176. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over cost of $21,885,319 and aggregate gross unrealized
depreciation for all securities in which there was an excess of cost
over market value of $665,143.
(C) Management Priced Security.
(D) The cost of investments for federal income tax purposes amounted to
$105,548,172. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost at December 31, 1995, were
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 21,885,319
Gross unrealized depreciation (669,585)
------------
Net unrealized appreciation $ 21,215,734
============
</TABLE>
See Notes to Financial Statements
-39-
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of Capital Appreciation Fund:
We have audited the accompanying statement of assets and liabilities of Capital
Appreciation Fund including the statement of investments as of December 31,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital Appreciation Fund as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 7, 1996
-40-
<PAGE> 43
CASH INCOME TRUST
The Fund'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 fund 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 and
its asset size has remained constant throughout the year. This has provided
the portfolio with safety, liquidity and stability.
-41-
<PAGE> 44
CASH INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $1,392,214) . . . . . . . . . $ 1,393,052
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,805
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,736
Receivable from The Travelers . . . . . . . . . . . . . . . . . . . . . . . . . . 75,914
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,504,507
---------------
LIABILITIES:
Payables:
Investment management and advisory fees . . . . . . . . . . . . . . . . . . . . . 64
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,501
Accrued expenses:
Reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,914
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,344
---------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,823
---------------
NET ASSETS
(Applicable to 1,416,684 shares outstanding at $1.00 per share) . . . . . . . . . $ 1,416,684
===============
</TABLE>
See Notes to Financial Statements
-42-
<PAGE> 45
CASH INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,799
EXPENSES:
Investment management and advisory fees . . . . . . . . . . . . . . $ 4,034
Accounting and audit fees . . . . . . . . . . . . . . . . . . . . . 53,554
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . 1,512
Printing and postage . . . . . . . . . . . . . . . . . . . . . . . 21,413
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . 8,380
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . 351
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055
--------------
Total expenses before reimbursement from The Travelers . . . . . 91,299
Less: Reimbursement from The Travelers . . . . . . . . . . . . . . (75,914)
--------------
Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 15,385
-------------
Net investment income . . . . . . . . . . . . . . . . . . . 51,414
-------------
Net increase in net assets resulting from operations . . . . . . . $ 51,414
=============
</TABLE>
See Notes to Financial Statements
-43-
<PAGE> 46
CASH INCOME TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,414 $ 29,710
--------------- ---------------
Net increase in net assets resulting from operations . . . . . . . . . 51,414 29,710
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDER FROM NET INVESTMENT INCOME . . . . . . . . . . . (51,414) (29,710)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . 3,284,741 3,009,583
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . 52,033 24,539
Payments for shares redeemed . . . . . . . . . . . . . . . . . . . . . . (3,122,783) (2,478,281)
--------------- ---------------
Net increase in net assets resulting from capital share transactions . 213,991 555,841
--------------- ---------------
Net increase in net assets . . . . . . . . . . . . . . . . . . . . 213,991 555,841
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,202,693 646,852
--------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,416,684 $ 1,202,693
=============== ===============
</TABLE>
See Notes to Financial Statements
-44-
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS
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"), an indirect
wholly owned subsidiary 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.
2. INVESTMENTS
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 0.3233% 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.
-45-
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 3,284,741 3,009,583
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . (3,122,783) (2,478,281)
Shares issued in reinvestment of distributions . . . . . . . . 52,033 24,539
---------- ----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,991 555,841
========== ==========
</TABLE>
As of December 31, 1995 all outstanding shares of beneficial interest
were owned by The Travelers Fund UL for Variable Life Insurance, a
separate account of The Travelers.
5. FINANCIAL HIGHLIGHTS*
(Selected data for a share outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
---------------
Net asset value, beginning of year . . . . . . . . . $ 1.00 $ 1.00 $1.00 $1.00 $ 1.00
Income from operations . . . . . . . . . . . . . 0.0417 0.0278 0.0214 0.0322 0.0650
Less distributions from net investment income . . (0.0417) (0.0278) (0.0214) (0.0322) (0.0650)
-------- -------- ------- ------- --------
Net asset value, end of year (unchanged during the year) $ 1.00 $ 1.00 $1.00 $1.00 $ 1.00
======== ======== ======= ======= ========
TOTAL RETURN** 4.17% 2.78% 2.14% 3.22% 6.50%
------------
RATIOS/SUPPLEMENTAL DATA:
-------------------------
Net assets, end of year (thousands) . . . . . . . $ 1,417 $1,203 $ 647 $ 697 $ 690
Ratio of expenses to average net assets *** . . . 1.25% 1.25% 0.94% 0.38% 0.38%
</TABLE>
* The information set forth in Note 5 replaces the data presented in
prior years as supplementary information.
** Total return is determined after reflecting the reinvestment of
dividends declared during the year, by dividing net investment income
by average net assets. As described in Note 1, shares in Fund CI are
only sold to The Travelers separate accounts 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
The Travelers separate accounts. Prior year amounts have been
reclassified to conform to the current year'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 7.37%, 6.40%, 8.47%, 7.70%, and 11.61% for the years ended
December 31, 1995, 1994, 1993, 1992, and 1991, respectively.
-46-
<PAGE> 49
CASH INCOME TRUST
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100%)
U.S. GOVERNMENT SECURITIES (100%)
United States of America Treasury,
4.91% due March 21, 1996 $ 250,000 $ 247,159
United States of America Treasury,
5.29% due April 4, 1996 200,000 196,895
United States of America Treasury,
5.28% due January 18, 1996 360,000 355,673
United States of America Treasury,
5.30% due February 29, 1996 200,000 198,083
United States of America Treasury,
5.32% due March 7, 1996 300,000 296,600
United States of America Treasury,
5.36% due January 11, 1996 100,000 98,642
-----------
1,393,052
-----------
TOTAL INVESTMENTS (100%)
(COST $1,392,214) (A) $ 1,393,052
===========
</TABLE>
NOTE
(A) The cost of investments for federal income tax purposes is identical.
See Notes to Financial Statements
-47-
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholder of Cash Income Trust:
We have audited the accompanying statement of assets and liabilities of Cash
Income Trust including the statement of investments as of December 31, 1995,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Cash
Income Trust as of December 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 7, 1996
-48-
<PAGE> 51
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
For the full year of 1995, U.S. Government Securities Portfolio outperformed
its benchmark. The Treasury component of the index turned in the best
performance benefitting from call protection in the sharp rallies of the second
and fourth quarters. Mortgage-backed securities had a tough time in the
second and fourth quarters as the sharp declines in yields raised fears of
prepayments. The relatively flat yield curve that persisted throughout 1995
also reduced the opportunities to profitably create collateralized mortgage
obligations, a historically large source of demand for mortgage-backed
pass-throughs.
Prepayment protection and high option adjusted spreads are found in some of the
seasoned premium collateral that is owned. Seasoned pass-throughs (1991 and
earlier originations) offer protection from lower rates because they have
already had a chance to prepay in at least one period that was more attractive
to refinance than the current one, yet did not. Newer production securities
have prepaid much quicker, particularly those originated in 1994 and 1995, and
we are avoiding them in higher coupon securities.
Agency debentures and collateralized mortgage obligations are the other two
asset classes being used to outperform the index. Callable agency debentures
trading at implied volatilities in excess of at-the-money options on Treasuries
provide some additional income and a better way to sell volatility than the
mortgage market. The collateralized mortgage obligations offer better
protection in a rally and a back-up from shortening and extending than discount
mortgages, and are used to beat that part of the mortgage index.
[U.S. GOVERNMENT SECURITIES PORTFOLIO GRAPH]
STANDARD
AVERAGE ANNUAL RETURN
ENDED DECEMBER 31, 1995:
1 YEAR 17.60%
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO
INITIAL
INVESTMENT
1/24/92 3/92 6/92 9/92 12/92 3/93 6/93 9/93 12/93
---------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Securities
Portfolio 10,000 10,070 10,340 10,740 10,791 11,306 11,581 11,937 11,815
Lehman Government Bond Index 10,000 9,941 10,332 10,842 10,847 11,337 11,665 12,043 12,003
Consumer Price Index 10,000 10,060 10,141 10,205 10,291 10,370 10,436 10,487 10,573
</TABLE>
<TABLE>
<CAPTION>
3/94 6/94 9/94 12/94 3/95 6/95 9/95 12/95
------ ------ ------ ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Securities
Portfolio 11,264 11,107 10,991 11,149 11,774 12,845 13,012 13,871
Lehman Government Bond Index 11,641 11,508 11,566 11,598 12,144 12,897 13,124 13,724
Consumer Price Index 10,638 10,703 10,797 10,866 10,954 11,040 11,091 11,161
</TABLE>
This chart assumes an initial investment of $10,000 made on December 31, 1985.
Returns include the reinvestment of all distributions at Net Asset Value and
the change in share price for the stated period, but exclude insurance and
administration charges assessed by Travelers Insurance separate accounts.
The Standardized Average Annual Returns for 1, 5 and 10 years shown above are
net of the 1.25% annual mortality and expense risk charge and the contingent
deferred sales charge (5% maximum) assessed by certain Travelers Insurance
separate accounts. Although the contingent deferred sales charge is included,
it is applied only if a surrender is made while assets are under the penalty
period. Other Travelers Insurance separate accounts that invest in Managed
Assets Trust have different charges.
Past performance is not predictive of future performance. Investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
This chart assumes an initial investment of $10,000 made on January 24, 1992.
Returns include the reinvestment of all distributions at Net Asset Value and
the change in share price for the stated period, but exclude insurance and
administration charges assessed by Travelers Insurance separate accounts.
The Standardized Average Annual Return for the 1 year shown above is net of the
1.25% annual mortality and expense risk charge and the contingent deferred
sales charge (5% maximum) assessed by certain Travelers Insurance separate
accounts. Although the contingent deferred sales charge is included, it is
applied only if a surrender is made while assets are under the penalty period.
Other Travelers Insurance separate accounts that invest in U.S. Government
Securities Portfolio have different charges.
Past performance is not predictive of future performance. Investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
-49-
<PAGE> 52
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $29,445,550) . . . . . . . . $ 30,242,611
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,159
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,433
Investment securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,657,031
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,342,234
---------------
LIABILITIES:
Payables:
Investment securities purchased . . . . . . . . . . . . . . . . . . . . . . . . . 6,147,812
Investment management and advisory fees . . . . . . . . . . . . . . . . . . . . . 1,242
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 892
---------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,149,946
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,192,288
===============
NET ASSETS REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,976,806
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 1,520,848
Accumulated net realized gains (losses) on investment security transactions . . . . . 897,573
Net unrealized appreciation on investment securities . . . . . . . . . . . . . . . . 797,061
---------------
Total net assets (applicable to 2,267,056 shares outstanding at $12.43 per share) $ 28,192,288
===============
</TABLE>
See Notes to Financial Statements
-50-
<PAGE> 53
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,667,448
EXPENSES:
Investment management and advisory fees . . . . . . . . . . . . . . $ 85,175
Accounting and audit fees . . . . . . . . . . . . . . . . . . . . . 45,266
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Printing and postage . . . . . . . . . . . . . . . . . . . . . . . 12,124
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . 1,388
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . 123
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055
--------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . 146,600
---------------
Net investment income . . . . . . . . . . . . . . . . . . . 1,520,848
===============
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold . . . . . . . . . . . . 56,107,352
Cost of investment securities sold . . . . . . . . . . . . . . . 54,996,560
--------------
Net realized gain . . . . . . . . . . . . . . . . . . . . . 1,110,792
Change in unrealized gain (loss) on investment securities:
Unrealized loss at December 31, 1994 . . . . . . . . . . . . . . (2,374,647)
Unrealized gain at December 31, 1995 . . . . . . . . . . . . . . 797,061
--------------
Net change in unrealized gain (loss) for the year . . . . . 3,171,708
---------------
Net realized gain and change in unrealized gain (loss) . 4,282,500
---------------
Net increase in net assets resulting from operations . . . . . . . $ 5,803,348
===============
</TABLE>
See Notes to Financial Statements
-51-
<PAGE> 54
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,520,848 $ 1,418,225
Net realized gain (loss) from investment security transactions . . . 1,110,792 (211,271)
Net change in unrealized gain (loss) on investment securities . . . . 3,171,708 (2,752,337)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations . 5,803,348 (1,545,383)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and net short-term realized gains from
investment security transactions . . . . . . . . . . . . . . . . . (1,404,917) (883,624)
Net long-term realized gains from investment security transactions - (63,504)
--------------- ---------------
Total distributions to shareholders . . . . . . . . . . . . . . . (1,404,917) (947,128)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . 5,439,282 7,137,525
Dividend reinvestment . . . . . . . . . . . . . . . . . . . . . . . . 1,404,917 947,128
Payments for shares redeemed . . . . . . . . . . . . . . . . . . . . (7,572,507) (6,590,182)
--------------- ---------------
Net increase (decrease) in net assets resulting from
capital share transactions . . . . . . . . . . . . . . . . . . (728,308) 1,494,471
-------------- ---------------
Net increase (decrease) in net assets . . . . . . . . . . . 3,670,123 (998,040)
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 24,522,165 25,520,205
--------------- ---------------
End of year (including undistributed net investment income as follows:
December, 1995 $1,520,848 and December, 1994 $1,418,225) . . . . . $ 28,192,288 $ 24,522,165
=============== ===============
</TABLE>
See Notes to Financial Statements
-52-
<PAGE> 55
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
<S> <C> <C>
BONDS (14.0%)
COLLATERALIZED MORTGAGE
OBLIGATIONS (14.0%)
Federal Farm Credit Banks,
5.93% Notes, 2003 $ 1,000,000 $ 1,009,065
FNMA Remic Trust 1993-05,
7.50% Pass Through, 2008 1,000,000 1,050,009
FNMA Remic Trust 1993-13,
6.50% Pass Through, 2000 1,201,619 1,195,645
Guaranteed Export Certificate 1994-A,
7.12% Sinking Fund, 2006 916,189 969,144
------------
TOTAL BONDS (COST $ 3,971,385) 4,223,863
------------
U.S. GOVERNMENT AGENCY
SECURITIES (31.1%)
Federal Home Loan Mortgage Corp,
7.00% Pass Through, 2010 4,000,000 4,076,252
FNMA,
7.55% Notes, 2004 1,000,000 1,044,571
GNMA 30-Year Single Family,
9.00% Pass Through, 2016 32,417 34,372
GNMA 30-Year Single Family,
9.00% Pass Through, 2019 71,940 76,279
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 371,732 390,551
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 437,973 460,146
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 434,297 456,283
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 394,478 414,449
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 330,407 347,134
GNMA 30-Year Notification,
8.50% Pass Through, 2025 2,000,000 2,100,000
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(COST $9,345,280) 9,400,037
------------
U.S. GOVERNMENT
SECURITIES (42.1%)
United States of America Treasury,
0.00% Notes, 2015 4,000,000 1,242,396
United States of America Treasury,
7.875% Bonds, 2021 5,000,000 6,156,250
United States of America Treasury,
8.75% Bonds, 2017 1,000,000 1,323,125
United States of America Treasury,
11.25% Bonds, 2015 2,500,000 4,009,375
------------
TOTAL U.S. GOVERNMENT
SECURITIES (COST $12,241,249) 12,731,146
------------
SHORT-TERM INVESTMENTS (12.8%)
U.S. GOVERNMENT AGENCY
SECURITIES (12.8%)
Federal Farm Credit Banks,
5.45% due January 11, 1996 $ 2,000,000 $ 1,993,626
Federal Home Loan Banks,
5.46% due January 11, 1996 1,900,000 1,893,939
------------
TOTAL SHORT-TERM
INVESTMENTS (COST $3,887,636) 3,887,565
------------
TOTAL INVESTMENTS (100%)
(COST $ 29,445,550) (A) (B) $ 30,242,611
============
</TABLE>
NOTES
(A) At December 31, 1995, net unrealized appreciation for all securities
was $797,061. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over cost of $803,354 and aggregate gross unrealized
depreciation for all securities in which there was an excess of cost
over market value of $6,293.
(B) The cost of investments for federal income tax purposes amounted to
$29,475,915. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost at December 31, 1995, were
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 772,989
Gross unrealized depreciation (6,293)
-------------
Net unrealized appreciation $ 766,696
=============
</TABLE>
See Notes to Financial Statements
-53-
<PAGE> 56
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS
STOCK PORTFOLIO
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 near to fully invested posture,
typically with 95% - 100% invested in equities. During the second half of 1995
the portfolio appreciated 11.4%. For calendar year 1995, the portfolio was up
33.4% vs. the Standard & Poors 500 Stock Index ("S&P 500") at 37.5%. Year end
asset allocation stood at approximately 98% in equities and 2% in cash and cash
equivalents.
The portfolio avoids 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. Providing 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.
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 S&P 500, with over 225 individual
equities, to a more consolidated portfolio following 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 year end, the portfolio held 94
stocks and we anticipate further consolidation in the number of individual
holdings.
The modest underperformance for the second half of the year was primarily due
to our average cash position of about 5% - 6% through most of the second half.
During this period, the portfolio was also negatively impacted by its exposure
to the areas of technology, basic industry, and capital goods. Exposure to
technology was modestly reduced during the fourth quarter. On the positive
side, heavier than market exposure to the interest rate sensitive and health
care areas enhanced portfolio returns.
With 1995 being one of the best return years on record, it certainly begs the
question of what we should expect for 1996. Let us concede right up front
that, at some unknown time and for some unforeseen reason, the stockmarket can
experience a temporary setback again. And, given how far and how fast stocks
have come, and how one-sided the advance has been, the setback could be quick
and sharp. If and when that occurs, the essential thing is that we recognize it
for what it will be -- a pause in an otherwise positive long-term trend. Why
are we so confident about that? Because, as asset managers, we recognize that
there are three basic factors that drive investment price changes: supply and
demand, quality, and relative price. And for the past dozen years, all three of
these conditions have been positive for financial markets -- and continue to be
so.
Until these three essential conditions (supply and demand, quality, relative
price) deteriorate, we remain constructive on the stock market. We anticipate
that investors will see a return to more historic performance for the equity
markets in 1996, with expectations ranging from the high single digit to low
double digit returns.
-54-
<PAGE> 57
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS
STOCK PORTFOLIO
[SOCIAL AWARENESS STOCK PORTFOLIO GRAPH]
STANDARDIZED
AVERAGE ANNUAL RETURN
ENDED DECEMBER 31, 1995:
1 YEAR 26.39%
Social Awareness Stock Portfolio
<TABLE>
<CAPTION>
INITIAL
INVESTMENT
5/1/92 6/92 12/92 3/93 6/93 9/93 12/93 3/94 6/94 9/94
---------- ------ ------ ------ ------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Social Awareness Stock Portfolio 10,000 10,130 10,950 11,452 11,402 11,847 11,776 11,252 11,168 11,688
S&P 500 Stock Index 10,000 10,215 10,738 11,199 11,256 11,545 11,812 11,362 11,409 11,971
Consumer Price Index 10,000 10,122 10,207 10,288 10,351 10,401 10,467 10,551 10,615 10,708
</TABLE>
<TABLE>
<CAPTION>
12/94 3/95 6/95 9/95 12/95
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Social Awareness Stock Portfolio 11,640 12,522 13,717 14,527 15,274
S&P 500 Stock Index 11,968 13,133 14,382 15,527 16,453
Consumer Price Index 10,776 10,862 10,948 10,998 11,067
</TABLE>
This chart assumes an initial investment of $10,000 made on May 1, 1992.
Returns include the reinvestment of all distributions at Net Asset Value and
the change in share price for the stated period, but exclude insurance and
administration charges assessed by Travelers Insurance separate accounts.
The Standardized Average Annual Return for the 1 year shown above is net of the
1.25% annual mortality and expense risk charge and the contingent deferred
sales charge (5% maximum) assessed by certain Travelers Insurance separate
accounts. Although the contingent deferred sales charge is included, it is
applied only if a surrender is made while assets are under the penalty period.
Past performance is not predictive of future performance. Investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
-55-
<PAGE> 58
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $5,699,643) . . . . . . . . . $ 6,989,256
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,458
Receivables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,928
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Receivable from The Travelers . . . . . . . . . . . . . . . . . . . . . . . . . . 29,069
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,092,780
---------------
LIABILITIES:
Payable for investment management and advisory fees . . . . . . . . . . . . . . . . . 625
Accrued expenses:
Reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,069
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,275
---------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,969
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,054,811
===============
NET ASSETS REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,463,666
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 55,079
Accumulated net realized gains (losses) on investment security transactions . . . . . 246,453
Net unrealized appreciation on investment securities . . . . . . . . . . . . . . . . 1,289,613
---------------
Total net assets (applicable to 492,622 shares outstanding at $14.32 per share) . $ 7,054,811
===============
</TABLE>
See Notes to Financial Statements
-56-
<PAGE> 59
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,832
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,038
----------------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 128,870
EXPENSES:
Investment management and advisory fees . . . . . . . . . . . . . . 38,490
Accounting and audit fees . . . . . . . . . . . . . . . . . . . . . 43,095
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . 2,157
Printing and postage . . . . . . . . . . . . . . . . . . . . . . . 15,556
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . 1,388
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . 118
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,056
----------------
Total expenses before reimbursement from The Travelers . . . . . 102,860
Less: Reimbursement from The Travelers . . . . . . . . . . . . . . (29,069)
----------------
Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 73,791
---------------
Net investment income . . . . . . . . . . . . . . . . . . . 55,079
---------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold . . . . . . . . . . . . 3,980,329
Cost of investment securities sold . . . . . . . . . . . . . . . 3,715,090
----------------
Net realized gain . . . . . . . . . . . . . . . . . . . . . 265,239
Change in unrealized gain (loss) on investment securities:
Unrealized loss at December 31, 1994 . . . . . . . . . . . . . . (26,432)
Unrealized gain at December 31, 1995 . . . . . . . . . . . . . . 1,289,613
----------------
Net change in unrealized gain (loss) for the year . . . . . 1,316,045
---------------
Net realized gain and change in unrealized gain (loss) . 1,581,284
---------------
Net increase in net assets resulting from operations . . . . . . . $ 1,636,363
===============
</TABLE>
See Notes to Financial Statements
-57-
<PAGE> 60
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,079 $ 51,650
Net realized gain from investment security transactions . . . . . . . . . 265,239 50,675
Net change in unrealized gain (loss) on investment securities . . . . . . 1,316,045 (195,236)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations . . . 1,636,363 (92,911)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and net short-term realized gains from
investment security transactions . . . . . . . . . . . . . . . . . . . (51,494) (70,411)
Net long-term realized gains from investment security transactions . . . (68,327) (17,258)
---------------- ----------------
Total distributions to shareholders . . . . . . . . . . . . . . . . . (119,821) (87,669)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . 2,552,645 1,378,970
Dividend reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . 119,821 87,669
Payments for shares redeemed . . . . . . . . . . . . . . . . . . . . . . (1,013,468) (768,126)
---------------- ----------------
Net increase in net assets resulting from capital share transactions . 1,658,998 698,513
---------------- ----------------
Net increase in net assets . . . . . . . . . . . . . . . . . . . . 3,175,540 517,933
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,879,271 3,361,338
---------------- ----------------
End of year (including undistributed net investment income as follows:
December, 1995 $55,079 and December, 1994 $51,650) . . . . . . . . . . $ 7,054,811 $ 3,879,271
================ ================
</TABLE>
See Notes to Financial Statements
-58-
<PAGE> 61
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ -----------
<S> <C> <C>
COMMON STOCKS (97.7%)
AMUSEMENTS (1.0%)
Walt Disney Co. 1,200 $ 70,800
-----------
BANKING (10.6%)
Banc One Corp. 1,200 45,300
Bank of Boston Corp. 500 23,125
Barnett Banks, Inc. 1,000 59,000
Chase Manhattan Corp. 300 18,187
Citicorp 1,500 100,875
First Chicago NBD 500 19,750
First Union Corp. 600 33,375
H.F. Ahmanson & Co. 1,400 37,100
Mellon Bank Corp. 2,000 107,500
MBNA Corp. 650 23,969
NationsBank Corp. 1,300 90,513
Norwest Corp. 900 29,700
State Street Boston Corp. 3,400 153,000
-----------
741,394
-----------
CHEMICALS, PHARMACEUTICALS, AND
ALLIED PRODUCTS (13.5%)
Air Products & Chemicals, Inc. 1,700 89,675
Amgen (A) 1,200 71,176
Bristol Myers Squibb Co. 1,100 94,463
Johnson & Johnson 1,500 128,437
Merck & Co., Inc. 2,300 151,225
Pfizer, Inc. 1,200 75,600
Praxair, Inc. 5,000 168,125
Procter & Gamble Co. 1,200 99,600
Schering-Plough Corp. 1,200 65,700
-----------
944,001
-----------
COMMUNICATION (5.6%)
Ameritech Corp. 1,400 82,600
Bell Atlantic Corp. 800 53,500
Bellsouth Corp. 1,800 78,300
Capital Cities ABC, Inc. 400 49,350
MCI Communications Corp. 1,000 26,188
NYNEX Corp. 700 37,800
Sprint Corp. 800 31,900
Tele-Communications, Inc. (A) 1,700 33,894
-----------
393,532
-----------
CONSTRUCTION (0.6%)
Kaufman & Broad Home CP 2,800 41,650
-----------
ELECTRICAL AND
ELECTRONIC MACHINERY (2.4%)
AMP, Inc. 500 19,187
DSC Communications, Inc. (A) 200 7,400
Intel Corp. 2,000 113,625
Time Warner, Inc. 700 26,513
-----------
166,725
-----------
FINANCE (4.7%)
American Express Co. 2,700 111,712
Dean Witter Discover & Co. 600 28,200
Federal Home Loan Corp. 1,000 83,500
Federal National Mortgage Assoc. 500 62,062
Green Tree Financial Corp. 600 15,825
Merrill Lynch & Co., Inc. 500 25,500
-----------
326,799
-----------
FOOD (3.9%)
Coca-Cola Co. 1,000 $ 74,250
Kellogg Co. 500 38,625
PepsiCo, Inc. 2,400 134,100
Unilever NV 200 28,150
-----------
275,125
-----------
INSURANCE (4.5%)
Aetna Life & Casualty Co. 200 13,850
American International Group 1,050 97,125
Transamerica Corp. 1,500 109,313
United Healthcare Corp. 1,400 91,700
-----------
311,988
-----------
MACHINERY (7.8%)
Cabletron System, Inc. (A) 300 24,300
Compaq Computer Corp. (A) 1,200 57,600
Deere & Co. 600 21,150
Digital Equipment Corp. (A) 700 44,887
EMC Corp. (A) 7,000 107,625
International Business Machines Corp. 1,100 100,925
Pitney Bowes, Inc. 700 32,900
Sun Microsystems (A) 600 27,413
York International, Inc. 2,800 131,600
-----------
548,400
-----------
METAL PRODUCTS (4.1%)
Belden, Inc. 4,500 115,875
Gillette Co. 800 41,700
Newell Company 5,000 129,375
-----------
286,950
-----------
MISCELLANEOUS MANUFACTURING (9.9%)
Beckman Instruments, Inc. 500 17,687
Dentsply International, Inc. 3,300 131,794
Emerson Electric Co. 1,000 81,750
Medtronic, Inc. 600 33,525
Perkin-Elmer Corp. 2,500 94,375
Stryker Corp. 3,100 162,557
Xerox Corp. 1,200 164,400
-----------
686,088
-----------
OIL & GAS (1.2%)
Anadarko Petroleum 1,500 81,187
-----------
PAPER AND ALLIED PRODUCTS (1.0%)
Tambrands, Inc. 1,500 71,625
-----------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (1.0%)
Tribune Co. 1,200 73,350
-----------
RETAIL (9.5%)
Home Depot, Inc. 2,900 138,837
Kroger Co. (A) 2,700 101,250
May Department Stores 1,500 63,375
McDonalds Corp. 2,000 90,250
Pep Boys-Manny, Moe, Jack 4,000 102,500
The GAP, Inc. 300 12,600
Toys R Us (A) 2,000 43,500
Wal-Mart Stores, Inc. 3,500 78,312
Wendy's International, Inc. 1,700 36,125
-----------
666,749
-----------
RUBBER AND PLASTIC PRODUCTS (0.4%)
Nike, Inc. 400 27,850
-----------
</TABLE>
-59-
<PAGE> 62
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ ------
<S> <C> <C>
SERVICES (6.5%)
Columbia/HCA Healthcare Corp. 2,500 $ 126,875
Computer Associates International 1,000 56,875
Microsoft (A) 1,100 96,594
Olsten Corp. 3,600 142,200
Oracle Systems Corp. (A) 700 29,663
-------------
452,207
-------------
TEXTILE MILL PRODUCTS (1.3%)
VF Corp. 1,700 89,675
-------------
TRANSPORTATION (1.3%)
Norfolk Southern Corp. 900 71,437
Southwest Airlines 800 18,600
-------------
90,037
-------------
TRANSPORTATION MANUFACTURING (3.6%)
Fleetwood Enterprises, Inc. 5,800 149,350
Varity Corp. (A) 2,800 103,950
-------------
253,300
-------------
WHOLESALE TRADE (3.3%)
Enron Corp. 3,300 125,813
Marshall Industries (A) 3,300 106,011
-------------
231,824
-------------
TOTAL COMMON STOCKS
(COST $ 5,541,643) 6,831,256
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.3%)
REPURCHASE AGREEMENTS (2.3%)
Barclays Bank PLC,
5.25% Repurchase Agreement
dated December 29, 1995 due
January 2, 1996 collateralized
by: United States of America
Treasury, $156,000,
5.875% due July 31, 1997 $ 158,000 $ 158,000
-------------
TOTAL SHORT-TERM
INVESTMENTS (COST $158,000) 158,000
-------------
TOTAL INVESTMENTS (100%)
(COST $5,699,643) (B) (C) $ 6,989,256
=============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At December 31, 1995, net unrealized appreciation for all securities
was $1,289,613. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$1,379,690 and aggregate gross unrealized depreciation for all securities in
which there was an excess of cost over market value of $90,077.
(C) The cost of investments for federal income tax purposes amounted to
$5,711,602. Gross unrealized appreciation and depreciation of investments,
based on identified tax cost at December 31, 1995 were as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 1,360,418
Gross unrealized depreciation (82,763)
-------------
Net unrealized appreciation $ 1,277,655
=============
</TABLE>
See Notes to Financial Statements
-60-
<PAGE> 63
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
This past year was an excellent one for investors in the utility sector
(electric utility, telecommunications and natural gas). The shares of these
companies rose substantially, reflecting both a decline in long-term (30-year)
Treasury Bond yields to 5.95% from 7.88% at the beginning of the year and a
more accommodative regulatory environment. The electric utility industry
continues to evolve toward a more competitive structure, but many of the state
regulatory commissions have taken a "Go Slow" approach to utility deregulation
and restructuring. Utility earnings have also benefited from ongoing cost
reduction and cost containment programs and favorable summer weather. Electric
utilities provided excellent returns in both absolute and relative terms
considering they are substantially less volatile than the average common stock
and are often viewed as defensive investments.
This past year has witnessed a number of merger proposals in the electric
utility sector which helped to generate increased institutional investor
interest in the group. The goal of these mergers is to lower cost structures
and improve competitiveness. We expect this trend to continue into 1996.
Another important trend during 1995 was the aggressive diversification efforts
of several electric utility companies, particularly into Australia and England,
as a means of improving long-term profitability. Electric utility stock
prices, as measured by the Standard & Poor's Utility Index, provided investors
with a total return of 30.7%.
Our portfolio strategy focuses on attractive relative valuations as we expect a
wide variance in stock price performance. The competitive evolution continues
to move forward on a state-by-state basis and our goal is to identify those
companies with the ability to grow earnings at levels above the industry
average. We have been placing increasing emphasis on total return which has
resulted in adding to our holdings of companies with a lower current yield, but
the ability to increase dividends at rates substantially above that of its
peers. This has led to additional investments in Allegheny Power, CIPSCO,
Florida Progress, PacifiCorp, Pacific Enterprises, Unicom and Washington
Energy. During this past year we have witnessed a substantial increase in the
size of the utilities portfolio as investors recognized the attractive features
of this market sector. Thus, our cash holdings are larger than normal as we
await attractive long-term investment opportunities. On December 29, 1995 the
portfolio mix was 77% stocks, 9% bonds and 14% cash.
Our outlook for 1996 continues to favor utilities as part of a well-balanced,
diversified investment portfolio. The domestic economy continues to grow at
slow pace which is positive for interest rates and utility stocks. After the
dramatic market rally of 1995, it is important to have realistic expectations
for the new year. We expect utilities to provide investors with competitive
total returns in 8%- 10% range with less volatility than the broad-based equity
market. The utilities portfolio is an excellent investment for conservative
investors seeking a balanced investment strategy.
-61-
<PAGE> 64
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
[UTILITIES PORTFOLIO GRAPH]
STANDARDIZED
AVERAGE ANNUAL RETURN
ENDED DECEMBER 31, 1995:
1 YEAR 22.34%
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
INITIAL
INVESTMENT 2/24/94 3/94 4/94 5/94 6/94 7/94 8/94 9/94 10/94 11/94 12/94
---------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Utilities Portfolio 10,000 10,010 10,000 10,100 10,070 9,889 10,210 10,300 10,070 10,160 10,090 10,169
S&P 500 Stock Index 10,000 9,770 9,345 9,466 9,621 9,384 9,695 10,089 9,846 10,072 9,702 9,844
Consumer Price Index 10,000 10,023 10,057 10,071 10,091 10,119 10,153 10,187 10,208 10,215 10,243 10,273
</TABLE>
<TABLE>
<CAPTION>
1/95 2/95 3/95 4/95 5/95 6/95 7/95 8/95 9/95 10/95 11/95 12/95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Utilities Portfolio 10,641 10,743 10,682 10,887 11,378 11,358 11,470 11,613 12,135 12,350 12,646 13,147
S&P 500 Stock Index 10,100 10,491 10,802 11,118 11,558 11,829 12,223 12,256 12,771 12,726 13,286 13,532
Consumer Price Index 10,307 10,335 10,356 10,397 10,424 10,438 10,459 10,472 10,486 10,520 10,520 10,552
</TABLE>
This chart assumes an initial investment of $10,000 made on February 4, 1994.
Returns include the reinvestment of all distributions at Net Asset Value and
the change in share price for the stated period, but exclude insurance and
administration charges assessed by Travelers Insurance separate accounts.
The Standardized Average Annual Return for the 1 year shown above is net of the
1.25% annual mortality and expense risk charge and the contingent deferred
sales charge (5% maximum) assessed by certain Travelers Insurance separate
accounts. Although the contingent deferred sales charge is included, it is
applied only if a surrender is made while assets are under the penalty period.
Other Travelers Insurance separate accounts that invest in Utilities Portfolio
have different charges.
Past performance is not predictive of future performance. Investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
-62-
<PAGE> 65
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $11,263,719) . . . . . . . . $ 13,356,856
Repurchase agreement, at market value (identified cost $2,144,000) . . . . . . . . . 2,144,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,210
Receivables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,122
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,846
Receivable from The Travelers . . . . . . . . . . . . . . . . . . . . . . . . . . 1,870
----------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,700,904
----------------
LIABILITIES:
Payables:
Investment securities purchased . . . . . . . . . . . . . . . . . . . . . . . . . 353,662
Investment management and advisory fees . . . . . . . . . . . . . . . . . . . . . 1,350
Accrued expenses:
Reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,870
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,347
----------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361,229
----------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,339,675
================
NET ASSETS REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,660,428
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 441,157
Accumulated net realized gains (losses) on investment security transactions . . . . . 144,953
Net unrealized appreciation on investment securities . . . . . . . . . . . . . . . . 2,093,137
----------------
Total net assets (applicable to 1,193,707 shares outstanding at $12.85 per share) $ 15,339,675
================
</TABLE>
See Notes to Financial Statements
-63-
<PAGE> 66
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 391,560
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,952
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 571,512
EXPENSES:
Investment management and advisory fees . . . . . . . . . . . . . . 67,791
Accounting and audit fees . . . . . . . . . . . . . . . . . . . . . 48,925
Printing and postage . . . . . . . . . . . . . . . . . . . . . . . 11,947
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . 115
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,056
---------------
Total expenses before reimbursement from The Travelers . . . . . 132,225
Less: Reimbursement from The Travelers . . . . . . . . . . . . . . 1,870
---------------
Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 130,355
---------------
Net investment income . . . . . . . . . . . . . . . . . . . 441,157
---------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold . . . . . . . . . . . . 2,272,015
Cost of investment securities sold . . . . . . . . . . . . . . . 2,127,062
---------------
Net realized gain . . . . . . . . . . . . . . . . . . . . . 144,953
Change in unrealized gain (loss) on investment securities:
Unrealized loss at December 31, 1994 . . . . . . . . . . . . . . (77,549)
Unrealized gain at December 31, 1995 . . . . . . . . . . . . . . 2,093,137
---------------
Net change in unrealized gain (loss) for the year . . . . . 2,170,686
---------------
Net realized gain and change in unrealized gain (loss) . 2,315,639
---------------
Net increase in net assets resulting from operations . . . . . . . $ 2,756,796
===============
</TABLE>
See Notes to Financial Statements
-64-
<PAGE> 67
\ THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FEBRUARY 4, 1994 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . $ 441,157 $ 139,138
Net realized gain from investment security transactions . . . . . . . 144,953 11,353
Net change in unrealized gain (loss) on investment securities . . . . 2,170,686 (77,549)
----------- ----------
Net increase in net assets resulting from operations . . . . . . . 2,756,796 72,942
----------- ----------
DISTRIBUTION TO SHAREHOLDERS FROM NET INVESTMENT INCOME AND
NET SHORT-TERM REALIZED GAINS FROM INVESTMENT SECURITY TRANSACTIONS . . (150,491) -
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . 9,178,587 7,595,972
Dividend reinvestment . . . . . . . . . . . . . . . . . . . . . . . . 150,491 -
Payments for shares redeemed . . . . . . . . . . . . . . . . . . . . (2,352,367) (1,912,255)
----------- ----------
Net increase in net assets resulting from capital share transactions 6,976,711 5,683,717
----------- ----------
Net increase in net assets . . . . . . . . . . . . . . . . . . 9,583,016 5,756,659
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . 5,756,659 -
----------- ----------
End of period (including undistributed net investment income as follows:
December, 1995 $441,157 and December, 1994 $139,138) . . . . . . . $15,339,675 $5,756,659
=========== ==========
</TABLE>
See Notes to Financial Statements
-65-
<PAGE> 68
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ ------
<S> <C> <C>
COMMON STOCKS (76.7%)
COMMUNICATION (12.0%)
Ameritech Corp. 3,500 $ 206,500
AT&T Corp. 5,000 323,750
Bellsouth Corp. 10,000 435,000
GTE Corp. 7,500 330,000
NYNEX Corp. 3,500 189,000
Sprint Corp. 2,500 99,688
U.S. West, Inc. 5,000 178,750
US West Media (A) 5,000 95,000
-----------
1,857,688
-----------
UTILITIES (64.7%)
Allegheny Power System, Inc. 10,000 286,250
American Electric Power Co. 7,500 303,750
Baltimore Gas & Electric Co. 7,500 213,750
Carolina Power & Light Co. 7,500 258,750
Cinergy Corp. 10,000 306,250
Coastal Corp. 10,000 372,500
CIPSCO, Inc. 5,000 195,000
Dominion Resources, Inc. 7,000 288,750
Duquesne Light Co. 12,750 392,063
DPL, Inc. 10,000 247,500
El Paso Natural Gas Co. 5,000 141,875
Florida Power & Light Co. 12,500 579,687
Florida Progress Corp. 10,000 353,750
General Public Utilities 10,000 340,000
Houston Industries 16,000 388,000
Kansas City Power & Light Co. 10,000 261,250
New York State Electric & Gas Co. 7,500 194,063
NIPSCO Industries, Inc. 10,000 382,500
Ohio Edison Co. 10,000 235,000
Pacific Enterprises 10,000 282,500
Pacificorp 15,000 318,750
Peco Energy Co. 11,000 331,375
Portland General Electric Co. 13,100 381,537
Public Service of New Mexico (A) 15,000 264,375
Public Service Co. of Colorado 7,500 265,313
Public Service Enterprises Group 5,500 168,437
Southern Co. 7,500 184,688
SCE Corp. 6,000 106,500
Tenneco, Inc. 7,000 347,375
Texas Utilities Co. 12,000 493,500
Unicom Corporation 10,500 343,875
Wa Energy Co. 15,000 279,375
Westcoast Energy, Inc. 5,000 73,125
Williams Companies 5,000 219,375
Wisconsin Energy 7,500 229,687
-----------
10,030,475
-----------
TOTAL COMMON STOCKS
(COST $9,888,785)
11,888,163
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
BONDS (2.7%)
UTILITIES (2.7%)
Arizona Public Service Co.,
7.25% Bonds, 2023 $ 200,000 198,262
PECO Energy Co.,
8.75% Bonds, 2022 200,000 217,307
-----------
TOTAL BONDS (COST $376,457) 415,569
-----------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
U.S. GOVERNMENT
SECURITIES (6.8%)
United States of America Treasury,
7.50% Notes, 1996 $ 500,000 $ 511,250
United States of America Treasury,
7.75% Notes, 1999 500,000 541,874
-----------
TOTAL U.S. GOVERNMENT
SECURITIES (COST $998,477) 1,053,124
-----------
SHORT-TERM INVESTMENTS (13.8%)
REPURCHASE AGREEMENTS (13.8%)
Barclays Bank PLC,
5.25% Repurchase Agreement
dated December 29, 1995 due
January 2, 1996 collateralized
by: United States of America
Treasury, $2,114,000,
5.875% due July 31, 1997 2,144,000 2,144,000
-----------
TOTAL SHORT-TERM
INVESTMENTS (COST $2,144,000) 2,144,000
-----------
TOTAL INVESTMENTS (100%)
(COST $13,407,719) (B)(C) $15,500,856
===========
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At December 31, 1995, net unrealized appreciation for all securities
was $2,093,137. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over cost of $2,123,451 and aggregate gross unrealized
depreciation for all securities in which there was an excess of cost
over market value of $30,314.
(C) The cost of investments for federal income tax purposes is identical.
See Notes to Financial Statements
-66-
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS
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 December 31, 1995, 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 these portfolios are
published in their own 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 year; 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
(including short-term investments) 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.
-67-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - 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, or intends 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 $7,228,738 and $7,019,978, respectively, for
U.S. Government Securities Portfolio; $5,748,355 and $3,959,211,
respectively, for Social Awareness Stock Portfolio; and $7,493,306 and
$2,272,015, respectively, for Utilities Portfolio; for the year ended
December 31, 1995. Purchases and sales of direct and indirect U.S.
government obligations were $45,759,332 and $44,807,698, respectively,
for U.S. Government Securities Portfolio; and $498,789 for purchases
of Utilities Portfolio. Realized gains and losses from security
transactions are reported on an identified cost-basis.
Net realized gains (losses) from options transactions in the Social
Awareness Stock Portfolio were $21,118 and ($3,020) for the years
ended December 31, 1995 and 1994, respectively. These gains (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.
-68-
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS - 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. Prior to May 1, 1995, these fees were paid to The
Travelers Investment Management Company, an indirectly wholly owned
subsidiary of Travelers Group Inc. Effective May 1, 1995, these fees
are paid to Greenwich Street Advisors, a division of Smith Barney
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 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.
-69-
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS - 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:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES
PORTFOLIO
------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . 484,178 655,046
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . (672,686) (616,041)
Shares issued in reinvestment of distributions:
from net investment income and net short-term realized gains 138,279 77,901
from net long-term realized gains . . . . . . . . . . . . - 5,990
------------- -------------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,229) 122,896
============= =============
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK
PORTFOLIO
------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . 205,312 122,407
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . (74,604) (67,708)
Shares issued in reinvestment of distributions:
from net investment income and net short-term realized gains 4,774 6,067
from net long-term realized gains . . . . . . . . . . . . 6,139 1,517
------------- -------------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,621 62,283
============= =============
</TABLE>
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO
-------------------------------------
FOR THE YEAR FEBRUARY 4,*
ENDED TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------- --------------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . 822,640 754,802
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . (209,288) (189,041)
Shares issued in reinvestment of distributions from
net investment income and net short-term realized gains . 14,594 -
------------- --------------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627,946 565,761
============= ==============
</TABLE>
* Date operations commenced.
As of December 31, 1995, 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.
5. SUBSEQUENT EVENT
On January 23, 1996, in accordance with the Board of Trustees, a
dividend was declared with a distribution of net investment income and
net short-term realized gains of $1.06 per share from the
U.S.Government Securities Portfolio; a distribution of net investment
income of $0.28 and a distribution from net long-term realized gains
of $0.34 per share from Social Awareness Stock Portfolio; and a
distribution of net investment income and net short-term realized
gains of $0.47 per share from the Utilites Portfolio, payable on
January 23, 1996, to shareholders of record as of January 22, 1996.
These distributions are not reflected in the accompanying financial
statements.
-70-
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. FINANCIAL HIGHLIGHTS*
(Selected data for a share outstanding throughout each period.)
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
JANUARY 24,**
TO
FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31,
--------------------------------- -------------
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period . . . . . . . . . . . . . . $ 10.58 $ 11.63 $ 10.79 $ 10.00
Income from operations
----------------------
Net investment income . . . . . . . . . . . . . . . . . . . . 0.65 0.60 0.57 0.53
Net gains or losses on securities (realized and unrealized).. 1.80 (1.23) 0.44 0.26
------- ------- ------- -------
Total from investment operations . . . . . . . . . . . . . 2.45 (0.63) 1.01 0.79
Less distributions
------------------
Distributions from net investment income and
net short-term realized gains . . . . . . . . . . . . . . (0.60) (0.39) (0.17) -
Distributions from net long-term realized gains . . . . . . . - (0.03) - -
------- ------- ------- -------
Total distributions . . . . . . . . . . . . . . . . . . . (0.60) (0.42) (0.17) -
Net asset value, end of period . . . . . . . . . . . . . . . . . $ 12.43 $ 10.58 $ 11.63 $ 10.79
------- ------- ------- -------
TOTAL RETURN*** 24.42 % (5.64)% 9.48 % 7.90%
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (thousands) . . . . . . . . . . . . $ 28,192 $ 24,522 $ 25,520 $ 9,017
Ratio of expenses to average net assets ## . . . . . . . . . 0.56 % 0.71 % 0.58 % 0.38%#
Ratio of net investment income to average net assets 5.80 % 5.56 % 5.04 % 4.72%#
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . 214 % 16 % 51 % 25%
</TABLE>
* This information set forth in Note 6 replaces the data presented in
prior periods as supplemental information.
** Date operations commenced.
*** 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 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.
# 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 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.
-71-
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. FINANCIAL HIGHLIGHTS*
(Selected data for a share outstanding throughout each period.)
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
MAY 1,** TO
FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31,
1995 1994 1993 1992
------ ------- ------- -----------
<S> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period . . . . . . . . . $ 11.05 $ 11.64 $ 10.95 $ 10.00
Income from operations
----------------------
Net investment income . . . . . . . . . . . . . . . 0.12 0.16 0.17 0.16
Net gains or losses on securities (realized and
unrealized) . . . . . . . . . . . . . . . . . . . . 3.47 (0.45) 0.65 0.79
------- ------- ------- -------
Total from investment operations . . . . . . . . 3.59 (0.29) 0.82 0.95
Less distributions
------------------
Distributions from net investment income and
net short-term realized gains . . . . . . . . . (0.14) (0.24) (0.13) -
Distributions from net long-term realized gains . . (0.18) (0.06) - -
------- ------- ------- -------
Total distribution . . . . . . . . . . . . . . . (0.32) (0.30) (0.13) -
Net asset value, end of period . . . . . . . . . . . . $ 14.32 $ 11.05 $ 11.64 $ 10.95
======= ======= ======= =======
TOTAL RETURN*** 33.37% (2.69)% 7.55% 9.50%
- ------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (thousands) . . . . . . . $ 7,055 $ 3,879 $ 3,361 $ 1,394
Ratio of expenses to average net assets ## . . . . 1.25% 1.25% 1.05% 0.71%#
Ratio of net investment income to average net assets 0.99% 1.43% 1.50% 2.22%#
Portfolio turnover rate . . . . . . . . . . . . . . 73% 137% 60% 56%
</TABLE>
* This information set forth in Note 7 replaces the data presented in
prior periods as supplementary information.
** Date operations commenced.
*** 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 The Travelers separate accounts 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 The Travelers separate accounts. For periods of less
than one year, total returns are not annualized.
# 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 1.75%, 3.34%, 3.73% and
2.19% for the years ended December 31, 1995, 1994, 1993 and the period
ended December 31, 1992, respectively.
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<PAGE> 75
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each period.)
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR FEBRUARY 4,*
ENDED TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period . . . . . . . . . $ 10.17 $ 10.00
Income from operations
----------------------
Net investment income . . . . . . . . . . . . . . . 0.48 0.35
Net gains or losses on securities (realized and unrealized) 2.44 (0.18)
--------- ---------
Total from investment operations . . . . . . . . 2.92 0.17
Less distributions
------------------
Distributions from net investment income and
net short-term realized gains . . . . . . . . . (0.24) -
--------- ---------
Total distributions . . . . . . . . . . . . . (0.24) -
Net asset value, end of period . . . . . . . . . . . . $ 12.85 $ 10.17
========= =========
TOTAL RETURN** 29.29 % 1.70 %
- ------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (thousands) . . . . . . . $ 15,340 $ 5,757
Ratio of expenses to average net assets ## . . . . 1.25 % 1.25 %#
Ratio of net investment income to average net assets 4.29 % 3.86 %#
Portfolio turnover rate . . . . . . . . . . . . . . 25 % 32 %
</TABLE>
* Date operations commenced.
** 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 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.
# 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.
-73-
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The Travelers Series Trust:
We have audited the accompanying statements of assets and liabilities of the
U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and the
Utilities Portfolio of The Travelers Series Trust, including the statements of
investments as of December 31, 1995, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of
the applicable periods ended December 31, 1995 and 1994, and the financial
highlights for each of the applicable periods ended December 31, 1995, 1994,
1993 and 1992. These financial statements and financial highlights are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and also
with brokers for the U.S. Government Securities Portfolio and the Utilities
Portfolio. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Government Securities Portfolio, Social Awareness Stock Portfolio, and
Utilities Portfolio of The Travelers Series Trust as of December 31, 1995, the
results of their operations for the year then ended, the changes in their net
assets for each of the applicable periods ended December 31, 1995 and 1994, and
the financial highlights for each of the applicable periods ended December 31,
1995, 1994, 1993 and 1992, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 7, 1996
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<PAGE> 78
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<PAGE> 79
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
This report is prepared for the general information of contract owners and is
not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Cash Income Trust, The Travelers Series Trust: U.S.
Government Securities Portfolio, Social Awareness Stock Portfolio or Utilities
Portfolio. It should not be used in connection with any offer except in
conjunction with the Prospectuses for the Variable Annuity and Variable
Universal Life Insurance products offered by The Travelers Insurance Company
and the Prospectuses for the underlying funds, which collectively contain all
pertinent information, including the applicable sales commissions.
VG-181 (Annual) (12-95) Printed in U.S.A.
