<PAGE> 1
THE TRAVELERS VARIABLE PRODUCTS
FUNDS
- -------------------------------------------------------------------------------
SEMI-ANNUAL REPORTS
- -------------------------------------------------------------------------------
MANAGED ASSETS TRUST
HIGH YIELD BOND TRUST
CAPITAL APPRECIATION FUND
CASH INCOME TRUST
THE TRAVELERS SERIES TRUST:
U.S. GOVERNMENT SECURITIES PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
UTILITIES PORTFOLIO
- -------------------------------------------------------------------------------
JUNE 30, 1996
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[TRAVELERS INSURANCE LOGO]
THE TRAVELERS INSURANCE COMPANY
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
<PAGE> 2
[TIMCO LOGO]
The Travelers Investment Management Company ("TIMCO") provides management and
advisory services for the Capital Appreciation Fund. Additionally, TIMCO is a
sub-adviser for Managed Assets Trust. Effective July 1, 1996, Travelers Asset
Managaement International Corporation replaces TIMCO as investment adviser for
Capital Appreciation Fund.
[TAMIC LOGO]
Travelers Asset Management International Corporation ("TAMIC") provides fixed
income management and advisory services for the following Travelers Variable
Products Funds contained in the report: U.S. Government Securities Portfolio,
High Yield Bond Trust, Managed Assets Trust and Cash Income Trust. Effective
July 1, 1996, TAMIC replaces TIMCO as investment adviser for Capital
Appreciation Fund.
[JANUS LOGO]
Janus Capital Corporation ("Janus") is the sub-adviser for Capital Appreciation
Fund. As sub-adviser, Janus is responsible for the daily management of Capital
Appreciation Fund.
[SMITH BARNEY LOGO]
A division of Smith Barney Mutual Funds Management Inc., Greenwich Street
Advisors provides mangement and advisory services for the following Travelers
Variable Products Funds contained in this report: Social Awareness Stock
Portfolio and Utilities Portfolio.
<PAGE> 3
[TRAVELERS LOGO]
THE TRAVELERS VARIABLE PRODUCTS FUNDS
INVESTMENT ADVISORY COMMENTARY AS OF JUNE 30, 1996
ECONOMIC REVIEW AND OUTLOOK
The economy finished the first half of the year on a strong note. The
broadest measure of the rate of growth for the U.S. economy, the Gross
Domestic Product ("GDP"), is expected to be a robust 4% to 4.5% for the
second quarter. This follows a stronger than expected first quarter GDP of
2.2%. Numerous economic reports released in the second quarter pointed to
an accelerating trend. Most notably, consumer spending increased 5.2%
during the first half of the year, despite high levels of personal debt.
This appears to have been the key factor in the economy's good first half
performance. Sales in both the housing and auto sectors were surprisingly
strong. Employment growth continued, and unemployment declined to 5.3%.
Business investment also remained strong, with first quarter capital
spending increasing by approximately 14%. Furthermore, companies maintained
low inventories, leaving room for future growth as inventories are rebuilt
to normal levels. Finally, renewed growth was observed in major overseas
economies, creating an improved outlook for the export sector of the U.S.
economy.
This picture of solid economic momentum increases the probability that the
Federal Reserve Board ("Fed") will shift to a tighter monetary policy and
raise short-term interest rates before the end of the year. In order to
maintain wage and price stability, Fed policy is focused on constraining
economic growth. For investors, the key issue is whether fears of future
Fed tightening will drive long-term yields toward levels reached during
1994. It appears to be a foregone conclusion among private analysts that
current levels of unemployment will cause wage pressures to increase. The
question remains whether corporations will be able to pass these increases
into consumer prices and if so, what impact it will have on inflationary
expectations. On the plus side, other sources of inflation have been under
control. Commodity prices have been weak lately and the dollar has been
strong. Short-term interest rates are more than 2% over the Consumer Price
Index ("CPI"), keeping downward pressure on inventories. Inflation
expectations in the consumer sentiment surveys are still below 3%, compared
to 4% in 1994.
With the steep rise in long bond yields during the first half of the year,
we expect housing and auto sales to slow in the second half. If demand in
these sectors does not slow in the second half, we doubt that the Fed will
have any choice but to raise short-term interest rates aggressively.
Interest rates for both long and short maturities are unlikely to have a
sustained decline until the Fed is judged to have placed an effective
damper on the cyclical build-up in wage and inflation pressures.
FIXED INCOME COMMENTARY
Surprisingly strong consumer spending and employment growth in the first
half of the year banished the slow growth expectations that dominated the
bond market at year end. Interest rates rose sharply during the first half
of the year, resulting in generally poor performance for bonds. The Lehman
Government/Corporate Bond Index, a broad based bond index, declined 1.9%
for the first six months. The bond market finally stabilized late in the
second quarter, with most bond indices posting a positive price return in
June.
Corporate bonds returned a negative 2.1% and lagged the Treasury sector for
the first six months. The best performing issuer sectors were tobacco,
airlines, Canadians and sovereigns. A favorable decision in the Castano
case enabled the tobacco issues to rally as yields declined relative to
Treasuries. Airlines continue to post strong earnings and are buying back
their debt with excess cashflow. Against the backdrop of favorable
international developments, including an upgrade in Italy's credit rating,
sovereign bonds also increased in price. Issuer sectors that lagged were
cable, gaming, autos and banks. Credit downgrades in the media sector and
new issuance in the auto sector put pressure on yield spreads in those
sectors. As the market began to anticipate the need for the Fed to increase
short-term interest rates, finance and bank issues declined in price.
Despite recent underperformance, yields on investment grade corporate bonds
remain below the normal range relative to Treasuries.
-1-
<PAGE> 4
In the mortgage backed sector, fears of consumer refinancing vanished as
interest rates rose. With yield volatility reduced, mortgage backed
securities outperformed similar Treasury securities. Moreover, narrow
corporate yield spreads relative to Treasuries prompted a shift of investor
interest to this sector. During the first half, the Lehman Mortgage Index
returned 0.4%. Over the same period, the high yield market also performed
relatively well. The First Boston High-Yield Index reported a return of
3.8%. The last two years have seen heavy issuance of high-yield debt, in
the midst of a hot initial public offering market for equities, and active
competition by banks for loan syndication. It is uncertain how well high
yield securities will weather the next downturn in the credit cycle if
these other sources of financing are shut down. If the stock market were to
unravel, more speculative financings may find themselves in trouble. In the
second quarter, municipal bonds performed relatively well as tax exempt
yields continued to decline relative to Treasuries. Municipal bonds with
maturities shorter than 10 years, still relatively cheap at year end,
rallied in price and now trade at more normal yield spreads.
EQUITY COMMENTARY
Better than expected corporate earnings gains and unprecedented inflows
into equity mutual funds helped stock prices to move broadly higher during
the first six months of 1996. For the six-month period ending June 30, the
Standard and Poor's 500 Stock Index ("S&P 500"), a broad based stock market
index, recorded a total return (including dividends) of 10.1%. The Russell
2000 Stock Index, a measure of performance for the small cap sector,
provided a total return of 10.4% over the same period. Against the
inclement backdrop of rising interest rates and diminishing earnings
momentum, liquidity factors - record mutual fund inflows and corporate
stock buybacks - appeared to provide the critical catalyst for the market
advance.
As signs of the economy's strength emerged early in the year, investor
focus shifted away from stable growth stocks and towards consumer cyclical
stocks, particularly those in the department store, airline and auto
groups. In the energy sector, the drilling equipment and oil field service
stocks rose on strong earnings gains and expectations for increased capital
spending by major global energy companies. Technology stocks rebounded
somewhat after their late 1995 decline, but weaker earnings momentum
continued to dampen valuations in most technology related groups. While
more than half of all companies announced positive earnings surprises for
the first quarter, the 6% average gain in operating earnings was the most
sluggish year-over-year rate of profit growth observed during the current
business expansion.
Early in the second quarter, however, equity investors reversed course and
began to rotate back into more defensive, growth-oriented sectors on the
expectation that higher interest rates would translate into slower economic
growth by year end. In the staples sector, beverage stocks performed well
in response to solid revenue gains. In the consumer sector, improving sales
fueled a rally in the retail and apparel groups. Energy exploration,
pipeline and distribution stocks benefited from strong natural gas pricing.
However, basic material stocks continued to weaken on declining prices for
many industrial commodities and concern over the possibility of an economic
slowdown. Within the technology sector, performance was mixed. While most
of the stocks in the semiconductor group continued to trade lower, the
networking and software groups were strong, reflecting continued order
growth from corporate customers.
We are currently somewhat cautious towards the equity market. The bear case
is built upon a valuation argument that points to price-to-book and
price-to-dividend ratios in excess of historical norms. There is also a
growing concern that the Fed may tighten monetary policy in the near term
if employment and economic reports show continued strength. Clearly, Fed
action in the direction of higher interest rates will curtail the supply of
liquidity that has been so important for recent stock market performance.
On the other hand, optimists hold that slower economic growth, while
perhaps placing earnings temporarily at risk, would forestall aggressive
tightening by the Fed and eventually set the stage for lower interest
rates. They also point to the fact that stocks do not appear expensive if
consensus earnings forecasts are evaluated relative to interest rates and
observed inflation. The second quarter earnings reports probably hold the
key to short-term equity performance. If the majority of earnings
announcements meet or exceed analyst estimates, the downside risk of
holding stocks should be limited.
-2-
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGED ASSETS TRUST.............................................................................. 4
HIGH YIELD BOND TRUST.............................................................................16
CAPITAL APPRECIATION FUND.........................................................................25
CASH INCOME TRUST.................................................................................34
THE TRAVELERS SERIES TRUST:
U.S. GOVERNMENT SECURITIES PORTFOLIO..............................................................42
SOCIAL AWARENESS STOCK PORTFOLIO..................................................................47
UTILITIES PORTFOLIO...............................................................................54
</TABLE>
-3-
<PAGE> 6
MANAGED ASSETS TRUST
Stock prices moved broadly higher during the first half of 1996, helped by
continued corporate earnings growth. However, while slightly more than half
of all companies announced positive earnings surprises in the first
quarter, the 6% gain in operating earnings was the most sluggish
year-over-year rate of profit growth observed during the current business
expansion. In the credit markets, the yield on 30-year Treasury bonds moved
back over 7%; and consensus shifted toward the probability of a more
restrictive Federal Reserve Board ("Fed") policy in the second half of the
year.
The Standard & Poor's 500 Stock Index was up 10.1% in the first half. Small
capitalization stocks as measured by the Russell 2000 Stock Index were up
10.4% for the same period. Against the backdrop of surprisingly strong
economic growth and rising interest rates, bonds performed poorly during
the first half of the year. The Lehman Government/Corporate Bond Index, a
broad based bond index, returned a negative 1.9% for the first six months.
Managed Assets Trust performed in line with its 60/40% equity/bond
benchmark over this period. A modest underweighting in stocks hurt the
fund's performance relative to our benchmark, but was offset by favorable
stock selection and the portfolio's holdings of convertible securities. The
bond holdings in our portfolio slightly lagged the Lehman
Government/Corporate Bond Index as the result of having a longer average
maturity.
We are currently somewhat cautious towards the equity market. The stock
market's performance in the first half was strong despite lackluster
earnings and the steep backup in interest rates. The market's price
earnings ratio is fair to slightly rich relative to what it should be given
the current level of interest rates. This may leave stocks vulnerable to
any further rise in interest rates. When the 30-year Treasury yield has
crossed the 7% level (as it did in June and early July), the stock market
has sold off. Historically, stock prices correlate inversely to changes in
short-term interest rates; and therefore an extended Fed tightening cycle
would hurt stocks.
PORTFOLIO MANAGERS: KENT A. KELLEY, CFA - DAVID A. TYSON, PH.D., CFA
-4-
<PAGE> 7
MANAGED ASSETS TRUST
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $157,628,585)...... $ 176,874,603
Receivables:
Dividends............................................................... 169,631
Interest................................................................ 874,216
Investment securities sold.............................................. 163,044
Variation on futures margin............................................. 18,750
--------------
Total Assets......................................................... 178,100,244
--------------
LIABILITIES:
Cash overdraft............................................................. 135,913
Payables:
Investment securities purchased......................................... 142,472
Investment management and advisory fees................................. 14,521
Accrued expenses........................................................... 20,618
--------------
Total Liabilities.................................................... 313,524
--------------
NET ASSETS.................................................................... $ 177,786,720
==============
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................ $ 147,882,048
Undistributed net investment income........................................ 2,532,516
Accumulated net realized gains (losses) on investment security transactions 8,126,138
Net unrealized appreciation on investment securities....................... 19,246,018
--------------
Total net assets (applicable to 11,870,041 shares outstanding at $14.97
per share)............................................................ $ 177,786,720
==============
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 8
MANAGED ASSETS TRUST
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 1,086,939
Interest................................................... 1,945,124
--------------
Total income............................................ $ 3,032,063
EXPENSES:
Investment management and advisory fees.................... 434,042
Accounting and audit fees.................................. 28,010
Custodian fees............................................. 16,502
Printing and postage....................................... 14,182
Trustees' fees............................................. 5,478
Registration fees.......................................... 268
Legal fees................................................. 1,065
--------------
Total expenses.......................................... 499,547
--------------
Net investment income................................ 2,532,516
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 120,519,331
Cost of investment securities sold...................... 111,842,435
--------------
Net realized gain.................................... 8,676,896
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.................... 22,303,922
Unrealized gain at June 30, 1996........................ 19,246,018
--------------
Net change in unrealized gain for the period......... (3,057,904)
--------------
Net realized gain and change in unrealized gain .. 5,618,992
--------------
Net increase in net assets resulting from operations....... $ 8,151,508
==============
</TABLE>
See Notes to Financial Statements
-6-
<PAGE> 9
MANAGED ASSETS TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER
JUNE 30, 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 2,532,516 $ 5,381,926
Net realized gain from investment security transactions....... 8,676,896 7,915,343
Net change in unrealized gain (loss) on investment securities. (3,057,904) 23,599,777
-------------- --------------
Net increase in net assets resulting from operations....... 8,151,508 36,897,046
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and net short-term realized gains from
investment security transactions........................... (8,598,409) (5,441,569)
Net long-term realized gains from investment security
transactions............................................... (4,733,203) (1,783,880)
-------------- --------------
Total distributions to shareholders........................ (13,331,612) (7,225,449)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold..................................... 3,381,554 5,376,731
Dividend reinvestment......................................... 13,331,612 7,225,449
Payments for shares redeemed.................................. (5,021,856) (11,885,171)
-------------- --------------
Net increase in net assets resulting from capital share
transactions............................................. 11,691,310 717,009
-------------- --------------
Net increase in net assets.............................. 6,511,206 30,388,606
NET ASSETS:
Beginning of period........................................... 171,275,514 140,886,908
-------------- --------------
End of period (including undistributed net investment income
as follows:
June, 1996 $2,532,516 and December, 1995 $5,381,926)....... $ 177,786,720 $ 171,275,514
============== ==============
</TABLE>
See Notes to Financial Statements
-7-
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Managed Assets Trust ("Fund MA") is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. Shares of Fund MA are
currently offered, without a sales charge, to separate accounts of The
Travelers Insurance Company ("The Travelers") and The Travelers Life and
Annuity Company, indirect wholly owned subsidiaries of Travelers Group Inc.,
in connection with the issuance of certain variable annuity and variable
life insurance contracts.
The following is a summary of significant accounting policies consistently
followed by Fund MA in the preparation of its financial statements.
SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last-reported sale price as of the
close of business of the New York Stock Exchange on the last business day of
the period; securities traded on the over-the-counter market and listed
securities with no reported sales are valued at the mean between the
last-reported bid and asked prices or on the basis of quotations received
from a reputable broker or other recognized source.
When market quotations are not considered to be readily available for
long-term corporate bonds and notes, such investments are generally stated
at fair value on the basis of valuations furnished by a pricing service.
These valuations are determined for normal institutional-size trading units
of such securities using methods based on market transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Securities, including restricted
securities, for which pricing services are not readily available are valued
by management at prices which it deems in good faith to be fair.
Short-term investments for which a quoted market price is available are
valued at market. Short-term investments for which there is no reliable
quoted market price are valued by computing a market value based upon
quotations from dealers or issuers for securities of a similar type, quality
and maturity.
FUTURES CONTRACTS. Fund MA may use stock index futures contracts, and may
also use interest rate futures contracts, as a substitute for the purchase
or sale of individual securities. When Fund MA enters into a futures
contract, it agrees to buy or sell a specified index of stocks or debt
securities at a future time for a fixed price, unless the contract is closed
prior to expiration. Fund MA is obligated to deposit with a broker an
"initial margin" equivalent to a percentage of the face, or notional value
of the contract.
It is Fund MA's practice to hold cash and cash equivalents in an amount at
least equal to the notional value of outstanding purchased futures
contracts, less the initial margin. Cash and cash equivalents include cash
on hand, securities segregated under federal and brokerage regulations, and
short-term highly liquid investments with maturities generally three months
or less when purchased. When Fund MA holds futures contracts to sell a
specified index of stocks (hedging), there is no requirement to hold cash
and cash equivalents in an amount at least equal to the notional value of
the contracts, less the initial margin. Generally, futures contracts are
closed prior to expiration.
Futures contracts purchased by Fund MA are priced and settled daily;
accordingly, changes in daily prices are recorded as realized gains or
losses and no asset is recorded in the Statement of Investments. However,
when Fund MA holds open futures contracts, it assumes a market risk
generally equivalent to the underlying market risk of changes in the value
of the specified indexes or debt securities associated with the futures
contract.
OPTIONS. Fund MA may purchase index or individual equity put or call
options, thereby obtaining the right to sell or buy a fixed number of shares
of the underlying asset at the stated price on or before the stated
expiration date. Fund MA may sell the options before expiration. Options
held by Fund MA are listed on either national securities exchanges or on
over-the-counter markets, and are short-term contracts with a duration of
less than nine months. The market value of the options will be the latest
sale price at the close of the New York Stock Exchange, or in the absence of
such sale, the latest bid quotation.
-8-
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
REPURCHASE AGREEMENTS. When Fund MA enters into a repurchase agreement (a
purchase of securities whereby the seller agrees to repurchase the
securities at a mutually agreed-upon date and price), the repurchase price
of the securities will generally equal the amount paid by Fund MA plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Fund MA securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Fund MA monitors the value of collateral on a daily basis.
Repurchase agreements will be limited to transactions with national banks
and reporting broker dealers believed to present minimal credit risks. Fund
MA's custodian will take actual or constructive receipt of all securities
underlying repurchase agreements until such agreements expire.
TAXES. Fund MA has qualified, and intends to continue to qualify each year,
as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, Fund MA
is relieved of any federal income tax liability by distributing all of its
net taxable investment income and net taxable capital gains, if any, to its
shareholders. Fund MA further intends to avoid excise tax liability by
distributing substantially all of its investment income. Therefore, no
federal income tax provision has been made by Fund MA in its financial
statements.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Security transactions are accounted for on the trade date. Interest income
is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to shareholders are recorded at the close of
business on the record date.
2. INVESTMENTS
Purchases and sales of investment securities excluding short-term
investments aggregated $65,593,910 and $73,562,023, respectively, for common
stocks and bonds; purchases and sales of direct and indirect U.S. government
obligations were $39,602,926 and $47,718,819, respectively, for the six
months ended June 30, 1996. Realized gains and losses from security
transactions are reported on an identified-cost basis.
Fund MA placed a portion of its security transactions with brokerage firms
which are affiliates of The Travelers. The commissions paid to these
affiliated firms were $10,027 and $18,409 for the six months ended June 30,
1996 and the year ended December 31, 1995, respectively.
At June 30, 1996, Fund MA held 10 open S&P 500 Stock Index futures contracts
with a maturity date of September 20, 1996. The face value, or notional
value, of these contracts at June 30, 1996, amounted to $3,384,000. In
connection with these contracts, short-term investments with a par value of
$1,200,000 had been pledged as margin deposits.
Net realized losses resulting from futures contracts were $761,511 and
$5,401,042 for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively. These losses are included in the net
realized gain from investment security transactions on both the Statement of
Operations and the Statement of Changes in Net Assets. The cash settlement
for June 30, 1996 is shown on the Statement of Assets and Liabilities as a
receivable for variation on futures margin.
-9-
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
3. FUND CHARGES
Investment management and advisory fees are calculated daily at an annual
rate of 0.50% of Fund MA's average net assets. These fees are paid to
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc.
Pursuant to a sub-advisory agreement between The Travelers Investment
Management Company ("TIMCO"), an indirect wholly owned subsidiary of
Travelers Group Inc., and TAMIC, 50% of the investment management and
advisory fees earned by TAMIC are paid to TIMCO for investment management
and advisory services relating to the equity investments of Fund MA.
The Travelers has agreed to reimburse Fund MA for the amount by which Fund
MA's aggregate annualized operating expenses, excluding brokerage
commissions and any interest charges and taxes, exceed 1.25% of Fund MA's
average net assets. Trustees and officers of Fund MA who are also officers
and employees of Travelers Group Inc., or its subsidiaries, receive no
compensation directly from Fund MA.
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
Fund MA were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------- -------------
1996 1995
---- ----
<S> <C> <C>
Shares sold............................................ 229,488 375,304
Shares redeemed........................................ (341,384) (871,567)
Shares issued in reinvestment of distributions:
from net investment income and net short-term
realized gains.................................... 603,507 433,799
from net long-term realized gains................... 332,702 147,492
------------ -------------
Net.................................................... 824,313 85,028
============ =============
</TABLE>
As of June 30, 1996 all outstanding shares of beneficial interest were owned
by The Travelers Fund U for Variable Annuities and The Travelers Fund UL for
Variable Life Insurance, both of which are separate accounts of The
Travelers.
-10-
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
5. FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each period.)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- -------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period......... $ 15.50 $ 12.85 $ 14.21 $ 14.02 $ 14.78 $ 12.77
Income from operations
----------------------
Net investment income...................... 0.22 0.49 0.46 0.51 0.64 0.74
Net gains or losses on securities
(realized and unrealized)................ 0.46 2.83 (0.73) 0.72 0.01 1.91
-------- --------- -------- --------- -------- --------
Total from investment operations.......... 0.68 3.32 (0.27) 1.23 0.65 2.65
Less distributions
------------------
Distributions from net investment income
and net short-term realized gains........ (0.78) (0.50) (0.67) (0.85) (1.04) (0.64)
Distributions from net long-term realized
gains.................................... (0.43) (0.17) (0.42) (0.19) (0.37) -
-------- --------- -------- --------- -------- --------
Total distributions....................... (1.21) (0.67) (1.09) (1.04) (1.41) (0.64)
Net asset value, end of period............... $ 14.97 $ 15.50 $ 12.85 $ 14.21 $ 14.02 $ 14.78
======== ========= ======== ========= ======== ========
TOTAL RETURN* 4.79 % 27.12 % (2.24)% 9.33 % 5.14 % 21.70 %
- ------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (thousands)...... $ 177,787 $171,276 $140,887 $ 156,767 $148,971 $126,021
Ratio of expenses to average net assets**.. 0.58%# 0.58% 0.61% 0.56% 0.56% 0.56%
Ratio of net investment income to average
net assets............................... 2.92%# 3.49% 3.59% 3.65% 4.97% 5.49%
Portfolio turnover rate.................... 64% 110% 97% 86% 112% 141%
Average commission rate paid##............. $ 0.0460 - - - - -
</TABLE>
* Total return is determined by dividing the increase (decrease) in value of
a share during the period, after reflecting the reinvestment of dividends
declared during the period, by the beginning of period share price. As
described in Note 1, shares in Fund MA are only sold to separate accounts
of The Travelers Insurance Company and the Travelers Life and Annuity
Company in connection with the issuance of variable annuity and variable
life insurance contracts. The total return does not reflect the deduction
of any contract charges or fees assessed by these separate accounts. For
periods of less than one year, total returns are not annualized.
** The ratio of expenses to average net assets for the years 1991-1993
reflects an expense reimbursement by The Travelers in connection with
voluntary expense limitations. Without the expense reimbursement, the
ratios of expenses to average net assets would have been 0.60%, 0.63%, and
0.69% for the years ended December 31, 1993, 1992, and 1991, respectively.
For the six months ended June 30, 1996 and the years ended December 31,
1995 and 1994, there were no expense reimbursements by The Travelers in
connection with the voluntary expense limitations described in Note 3.
# Annualized.
## Calculated by dividing the total dollar amount of commissions paid for
equity securities by the total number of shares purchased and sold during
the period.
-11-
<PAGE> 14
MANAGED ASSETS TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------- --------------
<S> <C> <C>
COMMON STOCKS (53.0%)
AMUSEMENTS (0.8%)
Mirage Resorts, Inc. (A) 8,200 $ 442,800
Walt Disney Co. 17,577 1,105,153
--------------
1,547,953
--------------
BANKING (3.5%)
Banc One Corp. 7,289 247,826
Bank of Boston Corp. 2,200 108,900
Bank of New York Co., Inc. 3,500 179,375
BankAmerica Corp. 7,000 530,250
Barnett Banks, Inc. 1,800 109,800
Chase Manhattan Corp. 12,736 899,480
Citicorp 13,700 1,131,963
Golden West Financial Corp. 4,700 263,200
Mellon Bank Corp. 2,400 136,800
NationsBank Corp. 8,400 694,050
Norwest Corp. 19,200 669,600
Star Banc Corp. 4,700 316,662
SunTrust Banks, Inc. 11,800 436,600
Wells Fargo & Co. 1,800 429,975
--------------
6,154,481
--------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (7.2%)
Abbott Laboratories 14,700 639,450
American Home Products Corp. 8,600 517,075
Amgen Inc. (A) 5,100 274,762
Bristol-Myers Squibb Co. 12,400 1,116,000
Cabot Corp. 3,300 80,850
Dow Chemical Co. 5,100 387,600
E.I. Dupont de Nemours & Co. 10,200 807,075
Eastman Chemical Co. 5,200 316,550
Eli Lilly & Co. 10,400 676,000
Hercules, Inc. 6,800 375,700
Johnson & Johnson 31,600 1,564,200
Merck & Co., Inc. 22,900 1,479,912
Monsanto Co. 11,000 357,500
Morton International, Inc. 9,700 361,325
Pfizer, Inc. 11,700 835,088
Pharmacia & Upjohn, Inc. 9,600 426,000
Procter & Gamble Co. 16,300 1,477,188
Schering-Plough Corp. 12,900 809,475
Warner-Lambert Co. 4,800 264,000
--------------
12,765,750
--------------
COMMUNICATION (4.3%)
Ameritech Corp. 10,500 623,437
AT&T Corp. 35,700 2,213,400
Bell Atlantic Corp. 8,200 522,750
BellSouth Corp. 19,000 805,125
GTE Corp. 15,600 698,100
MCI Communications Corp. 11,000 281,188
NYNEX Corp. 11,900 565,250
Pacific Telesis Group 6,600 222,750
Sprint Corp. 6,300 264,600
SBC Communications, Inc. 15,400 758,450
360 Communications Company (A) 2,100 50,400
Tele-Communications Int'l (A) 6,100 110,181
U S West Communications Group 3,400 108,375
U S West Media Group (A) 9,000 164,250
Viacom International, Inc. (A) 7,100 276,013
--------------
7,664,269
--------------
CONSTRUCTION (0.2%)
Toll Brothers, Inc. (A) 17,900 293,112
--------------
CONTRACTORS (0.4%)
Fluor Corp. 6,200 405,325
Halliburton Co. 6,800 377,400
--------------
782,725
--------------
ELECTRONIC MACHINERY (3.7%)
ELECTRICAL AND
Amphenol Corp. (A) 14,200 326,600
Andrew Corp. (A) 6,150 332,869
General Electric Corp. 31,200 2,698,800
Intel Corp. 15,100 1,108,906
KEMET Corp. (A) 10,300 207,287
LSI Logic Corp. (A) 12,500 325,000
Micron Technology, Inc. 4,100 106,088
Motorola, Inc. 8,200 515,575
Raychem Corp. 5,800 416,875
Tellabs, Inc. (A) 1,600 107,000
Texas Instruments, Inc. 3,200 159,600
Time Warner, Inc. 5,500 215,875
--------------
6,520,475
--------------
FINANCE (2.2%)
Advanta Corp. 5,800 294,712
American Express Co. 9,200 410,550
Dean Witter Discover & Co. 5,500 314,875
Federal Home Loan Mortgage Corp. 3,500 299,250
Federal National Mortgage Association 20,600 690,100
Green Tree Financial Co. 21,400 668,750
Household International 5,800 440,800
Merrill Lynch & Co., Inc. 3,100 201,888
Morgan Stanley Group, Inc. 3,000 147,375
Student Loan Marketing Association 4,800 355,200
--------------
3,823,500
--------------
FOOD (4.4%)
Campbell Soup Co. 3,900 274,950
Coca-Cola Co. 44,800 2,189,600
ConAgra, Inc. 10,900 494,587
CPC International, Inc. 6,500 468,000
General Mills, Inc. 3,100 168,950
Kellogg Co. 3,300 241,725
PepsiCo, Inc. 46,000 1,627,250
Philip Morris, Inc. 16,600 1,726,400
Seagram Co. Ltd. 5,900 198,388
Unilever N.V. 2,600 377,325
--------------
7,767,175
--------------
HOTELS & LODGING (0.5%)
Hilton Hotels Corp. 3,600 405,000
ITT Corp. (A) 6,500 430,625
--------------
835,625
--------------
INSURANCE (1.8%)
Aetna Life & Casualty Co. 2,000 143,000
Allstate Corp. 5,865 267,591
American International Group 8,850 872,831
Chubb Corp. 7,000 349,125
General Reinsurance Corp. 4,900 746,025
ITT Hartford Group, Inc. 11,400 607,050
U.S. HealthCare, Inc. 400 21,975
United Healthcare Corp. 3,200 161,600
--------------
3,169,197
--------------
LUMBER AND WOOD PRODUCTS (0.3%)
Georgia-Pacific Corp. 4,900 347,900
Weyerhaeuser Co. 3,700 157,250
--------------
505,150
--------------
</TABLE>
-12-
<PAGE> 15
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------- -------------
<S> <C> <C>
MACHINERY (2.8%)
Apple Computer, Inc. 2,100 $ 43,969
Black & Decker Corp. 6,700 258,787
Caterpillar, Inc. 3,700 250,675
Cisco Systems, Inc. (A) 14,900 844,644
Deere & Co. 11,400 456,000
Digital Equipment Corp. (A) 3,700 166,500
Harnischfeger Corp. 9,100 302,575
Hewlett Packard Co. 9,300 926,512
International Business Machines Corp. 8,600 851,400
Silicon Graphics, Inc. (A) 12,700 304,800
Sun Microsystems (A) 8,000 471,000
Tenneco, Inc. 3,200 163,600
------------
5,040,462
------------
METAL PRODUCTS (0.6%)
Bethlehem Steel Corp. (A) 20,200 239,875
Nucor Corp. 1,600 81,000
Phelps Dodge Corp. 4,100 255,738
Reynolds Metals Co. 5,900 307,538
USX-U.S. Steel Group 5,100 144,712
------------
1,028,863
------------
MINING (0.3%)
Freeport-McMoRan Copper & Gold 5,200 165,750
Homestake Mining Co. 18,100 309,962
------------
475,712
------------
MISCELLANEOUS MANUFACTURING (1.9%)
Boston Scientific Corp. (A) 12,087 543,915
Eastman Kodak Co. 6,100 474,275
Emerson Electric Co. 7,600 686,850
Honeywell, Inc. 7,900 430,550
Mattel, Inc. 15,000 429,375
Medtronics, Inc. 7,700 431,200
Xerox Corp. 6,000 321,000
------------
3,317,165
------------
OIL & GAS (0.4%)
Anadarko Petroleum Corp. 6,700 388,600
Schlumberger Ltd. 4,700 395,975
------------
784,575
------------
PAPER AND ALLIED PRODUCTS (0.8%)
Champion International Corp. 8,300 346,525
Kimberly Clark Corp. 9,274 716,417
Mead Corp. 1,100 57,063
Willamette Industries, Inc. 5,900 350,312
------------
1,470,317
------------
PETROLEUM REFINING AND
RELATED INDUSTRIES (4.0%)
Amoco Corp. 12,300 890,212
Atlantic Richfield Co. 2,900 343,650
Chevron Corp. 6,600 389,400
Exxon Corp. 22,500 1,954,687
Kerr McGee Corp. 8,000 487,000
Mobil Corp. 11,900 1,334,288
Phillips Petroleum Co. 4,700 196,813
Royal Dutch Petroleum Co. 7,000 1,076,250
Texaco, Inc. 4,900 410,988
------------
7,083,288
------------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (0.5%)
Gannet Co. 6,500 459,875
New York Times Co. 12,800 417,600
------------
877,475
------------
RETAIL (3.5%)
Federated Depertment Stores, Inc. (A) 15,900 542,587
General Nutrition Cos., Inc. (A) 21,700 378,394
Home Depot, Inc. 9,400 507,600
May Department Stores Co. 10,600 463,750
McDonalds Corp. 11,600 542,300
OfficeMax, Inc. (A) 19,400 463,175
Payless ShoeSource, Inc. (A) 1,696 53,848
Price/Costco, Inc. (A) 25,100 539,650
Safeway Inc. (A) 5,500 181,500
Sears Roebuck & Co. 17,400 846,075
The GAP, Inc. 15,600 501,150
Vons Cos. (A) 7,400 276,575
Wal-Mart Stores, Inc. 32,600 827,225
------------
6,123,829
------------
RUBBER AND PLASTIC PRODUCTS (0.3%)
Nike, Inc. 5,900 606,225
------------
SERVICES (2.2%)
America Online, Inc. (A) 8,000 349,000
Automatic Data Processing 5,700 220,163
Columbia/HCA Healthcare Corp. 8,200 437,675
Computer Associates International 7,050 502,312
First Data Corp. 4,100 326,462
Microsoft Corp. (A) 11,100 1,332,694
Omnicom Group, Inc. 4,800 223,200
Oracle Corp. (A) 12,000 473,250
------------
3,864,756
------------
STONE, CLAY, GLASS, AND
CONCRETE PRODUCTS (0.3%)
Minnesota Mining & Manufacturing Co. 7,800 538,200
------------
TRANSPORTATION (0.7%)
AMR Corp. (A) 4,400 400,400
Burlington Northern Santa Fe 4,600 372,025
Norfolk Southern Corp. 2,400 203,400
Union Pacific Corp. 4,000 279,500
------------
1,255,325
------------
TRANSPORTATION MANUFACTURING (2.6%)
Boeing Co. 9,900 862,537
Chrysler Corp. 8,800 545,600
Eaton Corp. 5,200 304,850
Ford Motor Co. 21,100 683,113
General Motors Corp. 12,900 675,638
ITT Industries, Inc. 5,000 125,625
Lockheed Martin Corp. 3,680 309,120
McDonnell Douglas Corp. 9,600 465,600
United Technologies Corp. 5,800 667,000
------------
4,639,083
------------
UTILITIES (2.4%)
Baltimore Gas & Electric Co. 17,500 496,562
Browning-Ferris Ind. 4,200 121,800
Consolidated Natural Gas Co. 12,700 663,575
Duke Power Co. 3,800 194,750
Duquesne Light Co. 13,500 371,250
Florida Power & Light Co. 12,900 593,400
Houston Industries, Inc. 4,900 120,663
Pacific Enterprises 4,100 121,462
Southern Co. 27,000 664,875
Texas Utilities Co. 13,300 568,575
WMX Technologies, Inc. 9,100 298,025
------------
4,214,937
------------
</TABLE>
-13-
<PAGE> 16
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
-------- -----------
<S> <C> <C>
WHOLESALE TRADE (0.4%)
Crane Co. 7,700 $ 315,700
Enron Corp. 9,200 376,050
------------
691,750
------------
TOTAL COMMON STOCKS
(COST $75,346,637) 93,841,374
------------
PREFERRED STOCKS (1.8%)
BANKING (0.5%)
First Chicago Corp. 4,300 286,488
H.F. Ahmanson & Co. 10,000 593,750
------------
880,238
------------
FINANCE (0.1%)
Merry Land & Investment, Inc. 8,000 214,000
------------
OIL & GAS (0.3%)
Occidental Petroleum Corp. 9,000 536,625
------------
PAPER AND ALLIED PRODUCTS (0.6%)
International Paper Co. 12,000 531,000
James River Corp. 12,000 562,500
------------
1,093,500
------------
SERVICES (0.3%)
Corning Inc. 10,000 571,250
------------
TOTAL PREFERRED STOCKS
(COST $2,854,089) 3,295,613
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
BONDS (24.2%)
BANKING (0.3%)
Great Western Financial Corp.,
6.375% Notes, 2000 $ 500,000 491,752
------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (3.2%)
Alza Corp.,
0.00% Debentures, 2014 1,400,000 586,250
Becton Dickinson & Co.,
8.80% Notes, 2001 2,000,000 2,145,546
McKesson Corp.,
4.50% Debentures, 2004 500,000 438,125
Procter & Gamble Co.,
9.36% Debentures, 2021 2,000,000 2,394,194
------------
5,564,115
------------
COMMUNICATION (9.6%)
BellSouth Corp.,
5.85% Debentures, 2045 5,000,000 4,841,475
BellSouth Corp.
7.00% Debentures, 2095 3,000,000 2,759,820
Cox Communication, Inc.,
6.875% Notes, 2005 2,000,000 1,932,870
New England Telephone &
Telegraph Co.,
7.875% Debentures, 2029 7,000,000 7,435,799
------------
16,969,964
------------
CREDIT CARD RECEIVABLES (0.6%)
Signet Credit Card
Master Trust 1993-4B,
5.80% Pass Through, 1999 $1,000,000 $ 976,689
------------
FINANCE (3.2%)
American Express Co.,
0.00% Bonds, 2000 2,565,000 1,859,375
Rouse Co.,
5.75% Bonds, 2002 400,000 397,000
Sappi BVI Financial Limited,
7.50% Debentures, 2002 500,000 462,500
Texaco Capital, Inc.,
7.75% Debentures, 2033 3,000,000 2,986,212
------------
5,705,087
------------
FOREIGN GOVERNMENT (1.1%)
Republic of Poland,
6.438% Bonds, 2024 2,000,000 1,880,000
------------
HOTELS & LODGING (1.2%)
Hilton Hotels Corp.,
5.00% Notes, 2006 2,080,000 2,189,200
------------
INSURANCE (0.5%)
Equitable Cos., Inc.,
6.125% Notes, 2024 500,000 568,750
USF&G Corp.,
0.00% Debentures, 2009 500,000 292,500
------------
861,250
------------
LUMBER AND WOOD PRODUCTS (1.2%)
Weyerhaeuser Co.,
8.50% Debentures, 2025 2,000,000 2,193,912
------------
MINING (0.2%)
Inco Limited,
7.75% Debentures, 2016 300,000 315,750
------------
MISCELLANEOUS MANUFACTURING (0.9%)
Cooper Industries, Inc.,
7.05% Bonds, 2015 877,000 936,198
RPM, Inc.,
0.00% Notes, 2012 300,000 130,500
Trinova Corp.,
6.00% Notes, 2002 500,000 472,500
------------
1,539,198
------------
OIL & GAS (0.3%)
Apache Corp.,
6.00% Debentures, 2002 500,000 587,500
------------
PETROLEUM REFINING AND
RELATED INDUSTRIES (0.3%)
Pennzoil Co.,
4.75% Bonds, 2003 500,000 544,375
------------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (0.1%)
Scholastic Corp.,
5.00% Notes, 2005 200,000 213,500
------------
SERVICES (0.1%)
Tenet Healthcare Corp.,
6.00% Notes, 2005 200,000 202,000
------------
</TABLE>
-14-
<PAGE> 17
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ----------
<S> <C> <C>
TRANSPORTATION (0.5%)
Delta Airlines, Inc.,
9.25% Sinking Fund, 2007 $ 929,255 $ 956,352
------------
UTILITIES (0.9%)
Niagara Mohawk Power Co.,
8.00% Bonds, 2004 1,100,000 996,356
Potomac Electric Power Co.,
5.00% Debentures, 2002 600,000 543,000
------------
1,539,356
------------
TOTAL BONDS (COST $42,154,544) 42,730,000
------------
U.S. GOVERNMENT AGENCY
SECURITIES (3.9%)
Federal Home Loan Mortgage Corp.,
8.50% Pass Through, 2002 542,830 557,893
FNMA 15-Year Intermediate Term,
8.50% Pass Through, 2005 130,281 134,760
FNMA 15-Year Intermediate Term,
8.50% Pass Through, 2005 207,508 214,641
FNMA 30-Year Long Term,
7.50% Pass Through, 2025 3,374,169 3,335,126
GNMA 30-Year Single Family,
7.50% Pass Through, 2007 341,566 336,972
GNMA 30-Year Single Family,
7.50% Pass Through, 2007 68,198 67,281
GNMA 30-Year Single Family,
7.50% Pass Through, 2023 214,323 211,441
GNMA 30-Year Single Family,
7.50% Pass Through, 2025 84,925 83,783
GNMA 30-Year Single Family,
7.50% Pass Through, 2025 672,920 663,872
GNMA 30-Year Single Family,
9.00% Pass Through, 2016 241,617 253,092
GNMA 30-Year Single Family,
9.00% Pass Through, 2019 282,742 296,170
GNMA 30-Year Single Family,
9.50% Pass Through, 2020 210,741 225,426
GNMA 30-Year Single Family,
9.50% Pass Through, 2020 423,478 452,987
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(COST $6,744,827) 6,833,444
------------
U.S. GOVERNMENT
SECURITIES (6.8%)
United States of America Treasury,
0.00% Bonds, 2007 5,500,000 2,627,801
United States of America Treasury,
6.875% Notes, 2006 2,000,000 2,022,500
United States of America Treasury,
7.875% Notes, 2004 2,600,000 2,795,809
US Physical Callable Corpus,
0.00% Bonds, 2009 11,000,000 4,548,236
------------
TOTAL U.S. GOVERNMENT
SECURITIES (COST $12,348,875) 11,994,346
------------
SHORT-TERM INVESTMENTS (10.3%)
Commercial Paper (9.0%)
Goldman Sachs Group LP,
5.34% due July 9, 1996 $4,000,000 $ 3,979,297
Morgan Stanley Group, Inc.,
5.39% due July 24, 1996 4,000,000 3,979,725
PHH Corp.,
5.34% due July 15, 1996 4,000,000 3,975,127
Toyota Motor Credit Corp.,
5.33% due July 8, 1996 4,000,000 3,980,512
------------
15,914,661
------------
U.S. GOVERNMENT SECURITIES (0.7%)
United States of America Treasury,
5.51% due September 19, 1996 (B) 1,200,000 1,137,165
------------
REPURCHASE AGREEMENTS (0.6%)
Merrill Lynch Government Securities, Inc.,
5.25% Repurchase Agreement
dated June 28, 1996 due July 1, 1996,
collateralized by: United States of
America Treasury, $1,095,000,
7.50% due November 15, 2001 1,128,000 1,128,000
------------
TOTAL SHORT-TERM
INVESTMENTS
(COST $18,179,613) 18,179,826
------------
</TABLE>
-15-
<PAGE> 18
<TABLE>
<CAPTION>
NOTIONAL
VALUE
--------
<S> <C> <C>
FUTURES CONTRACTS (0.0%)
S&P 500 Stock Index,
Exp. September, 1996 (C) $3,384,000 -
-------------
TOTAL INVESTMENTS (100%)
(COST $157,628,585) (D) $ 176,874,603
=============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) Par value of $1,200,000 pledged to cover margin deposits on futures
contracts.
(C) As more fully discussed in Note 1 to the financial statements, it is
Fund MA's practice to hold cash and cash equivalents (including
short-term investments) at least equal to the underlying face value, or
notional value, of outstanding purchased futures contracts, less the
initial margin. Fund MA uses futures contracts as a substitute for holding
individual securities.
(D) At June 30, 1996, net unrealized appreciation for all securities
was $19,246,018. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
cost of $21,187,945 and aggregate gross unrealized depreciation for all
securities in which there was an excess of cost over market value of
$1,941,927.
-16-
<PAGE> 19
HIGH YIELD BOND TRUST
Results in High Yield Bond Trust continued to be solid for the quarter
ending June 30, 1996, outperforming the First Boston High-Yield Index, the
Lipper High-Yield Index and the Bear Stearns High-Yield Index. Our return
was 7.97% for the six months ending June 30, 1996. By comparison, the First
Boston High-Yield Index reported 3.8%, the Lipper High-Yield Bond Mutual
Fund reported 4.6%, the Bear Stearns High-Yield Index reported 3.9% and the
Bear Stearns B-Rated High-Yield Sub-Index reported 4.7%, for the comparable
six month periods ending June 30, 1996. Therefore, our portfolio
out-performed comparable six-month indices by approximately 3.3% to 4.2%
year-to-date.
While we have continued to focus on being defensive with the portfolio, and
thereby watch for credits which could have potential downside surprises, we
have made several investment moves in high-yield credits which we believed
were under-appreciated by the overall market. For example, we purchased
10.625% bonds of the Fleming Corp., the number one wholesaler in the U.S.,
at 87 which had been trading down due in part to litigation concerns. After
a favorable outcome to pending litigation the bonds have traded up to 91,
and interest continues to accrue.
Similarly, we purchased the 12.0% senior secured bonds of TWA at 101.5 on
the expectation that the airline, the 7th largest in the U.S., would
continue its turnaround and soon refinance out these bonds. The bonds traded
"flat", and had 4.0 points of interest built into their price. The bonds
traded at 104 at the end of the quarter, and recently traded at the
equivalent of 105.5, providing an annualized 23% return since purchase.
Kmart intermediate bonds, with a 7.9% coupon, were also added to the
portfolio. These bonds remain where we purchased them, but we expect them to
improve should Kmart continue to report improved same-store sales
comparisons and completes an expected $1.3 billion in asset sales to repay
its bank term loan. In the meantime, we are earning an 8.7% current yield.
On our existing positions, we received expected positive news of the sale of
Commodore Media to Hicks, Muse. With the perceived credit improvement of the
combined companies, these bonds have continued to strengthen. Similarly,
Renaissance Cosmetics has continued to announce acquisitions in its goal of
consolidating the branded perfume and cologne market, which has been a
positive development. Terex has continued to improve its operations and
there is anticipation of a large asset sale which should reduce debt levels;
these bonds strengthened four points during the quarter.
The two steel companies in our portfolio were weaker during the quarter and
we continue to monitor their performance. Similarly, we experienced flat
returns from the discount note investment in U.K. and international cable,
phone and media companies. Telewest and International Cabletel collectively
were at the same all-in price at the end of the quarter as they were at the
beginning of the quarter, thereby providing a drag on returns during the
period. We remain long-term optimistic on these credits, although our
current credit analysis has become more demanding on expectations for
near-term returns from these collective investments. The proposed
Kluge/Metromedia acquisition of Alliance Entertainment fell through in
April, dropping bond prices six points. We remain positive on these bonds
and expect the bonds to rally back to par over the next several months.
As we continue to monitor the results of our portfolio companies and assess
the shifting patterns of the U.S. economy and high-yield bond markets, we
expect to continue to make adjustments in our portfolio weightings over the
coming months. In general, we believe the U.S. economy remains strong, that
emerging world economies continue to seek products and innovations from U.S.
companies, and that non-commodity based inflation factors may prove to be
lower than current expectations. While the next three months should be a
challenging investment environment, we continue to seek out high-yield
investment opportunities of companies with solid underlying fundamentals,
which may be poised for an event-related improvement, and are consistent
with our evolving view of the U.S. economy.
PORTFOLIO MANAGER: F. DENNEY VOSS
-17-
<PAGE> 20
HIGH YIELD BOND TRUST
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $13,280,355)....... $ 13,458,754
Receivables:
Interest................................................................ 417,106
Investment securities sold.............................................. 395,875
Other assets............................................................... 63
--------------
Total Assets......................................................... 14,271,798
--------------
LIABILITIES:
Cash overdraft............................................................. 198
Payable for investment management and advisory fees........................ 1,167
Accrued expenses........................................................... 10,637
--------------
Total Liabilities.................................................... 12,002
--------------
NET ASSETS.................................................................... $ 14,259,796
==============
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................ $ 20,135,507
Undistributed net investment income........................................ 628,520
Accumulated net realized gains (losses) on investment security transactions (6,682,630)
Net unrealized appreciation on investment securities....................... 178,399
--------------
Total net assets (applicable to 1,634,029 shares outstanding at
$8.72 per share)...................................................... $ 14,259,796
==============
</TABLE>
See Notes to Financial Statements
-18-
<PAGE> 21
HIGH YIELD BOND TRUST
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 699,962
EXPENSES:
Investment management and advisory fees.................... $ 34,042
Accounting and audit fees.................................. 15,916
Custodian fees............................................. 3,664
Printing and postage....................................... 10,788
Trustees' fees............................................. 5,441
Registration fees.......................................... 538
Legal fees................................................. 1,053
--------------
Total expenses.......................................... 71,442
--------------
Net investment income................................ 628,520
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 5,361,813
Cost of investment securities sold...................... 5,337,925
--------------
Net realized gain.................................... 23,888
Change in unrealized gain (loss) on investment securities:
Unrealized loss at December 31, 1995.................... (199,726)
Unrealized gain at June 30, 1996........................ 178,399
--------------
Net change in unrealized gain (loss) for the period.. 378,125
--------------
Net realized gain and change in unrealized gain
(loss).......................................... 402,013
--------------
Net increase in net assets resulting from operations....... $ 1,030,533
==============
</TABLE>
See Notes to Financial Statements
-19-
<PAGE> 22
HIGH YIELD BOND TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 628,520 $ 1,173,476
Net realized gain from investment security transactions....... 23,888 395,891
Net change in unrealized gain (loss) on investment securities. 378,125 221,759
-------------- --------------
Net increase in net assets resulting from operations....... 1,030,533 1,791,126
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME......... (1,350,944) (960,192)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold..................................... 1,620,856 1,749,523
Dividend reinvestment......................................... 1,350,944 960,192
Payments for shares redeemed.................................. (1,293,891) (2,354,757)
-------------- --------------
Net increase in net assets resulting from capital share
transactions............................................. 1,677,909 354,958
-------------- --------------
Net increase in net assets.............................. 1,357,498 1,185,892
NET ASSETS:
Beginning of period........................................... 12,902,298 11,716,406
-------------- --------------
End of period (including undistributed net investment income
as follows:
June, 1996 $628,520 and December, 1995 $1,173,476)......... $ 14,259,796 $ 12,902,298
============== ==============
</TABLE>
See Notes to Financial Statements
-20-
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
High Yield Bond Trust ("Fund HY") is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. Shares of Fund HY are
currently offered, without a sales charge, to separate accounts of The
Travelers Insurance Company ("The Travelers"), an indirect wholly owned
subsidiary of Travelers Group Inc., in connection with the issuance of
certain variable annuity and variable life insurance contracts.
The following is a summary of significant accounting policies consistently
followed by Fund HY in the preparation of its financial statements.
SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last-reported sale price as of the
close of business of the New York Stock Exchange on the last business day of
the period; securities traded on the over-the-counter market and listed
securities with no reported sales are valued at the mean between the
last-reported bid and asked prices or on the basis of quotations received
from a reputable broker or other recognized source.
When market quotations are not considered to be readily available for
long-term corporate bonds and notes, such investments are stated at fair
value on the basis of valuations furnished by a pricing service. These
valuations are determined for normal institutional-size trading units of
such securities using methods based on market transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Securities, including restricted
securities, for which pricing services are not readily available are valued
by management at prices which it deems in good faith to be fair.
Short-term investments for which a quoted market price is available are
valued at market. Short-term investments for which there is no reliable
quoted market price are valued by computing a market value based upon
quotations from dealers or issuers for securities of a similar type, quality
and maturity.
REPURCHASE AGREEMENTS. When Fund HY enters into a repurchase agreement (a
purchase of securities whereby the seller agrees to repurchase the
securities at a mutually agreed-upon date and price), the repurchase price
of the securities will generally equal the amount paid by Fund HY plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Fund HY securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Fund HY monitors the value of collateral on a daily basis.
Repurchase agreements will be limited to transactions with national banks
and reporting broker dealers believed to present minimal credit risks. Fund
HY's custodian will take actual or constructive receipt of all securities
underlying repurchase agreements until such agreements expire.
TAXES. Fund HY has qualified, and intends to continue to qualify each year,
as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, Fund HY
is relieved of any federal income tax liability by distributing all of its
net taxable investment income and net taxable capital gains, if any, to its
shareholders. Fund HY further intends to avoid excise tax liability by
distributing substantially all of its investment income. Therefore, no
federal income tax provision has been made by Fund HY in its financial
statements. As of December 31, 1995, Fund HY had capital loss carryovers
totaling $4,562,238 which may be available to offset any future realized
taxable gains, to the extent provided by regulations. These amounts expire
during the period 1996-2003.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Security transactions are accounted for on the trade date. Interest income
is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to shareholders are recorded at the close of
business on the record date.
-21-
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
2. INVESTMENTS
Purchases and sales of securities other than short-term investments
aggregated $5,528,463 and $4,366,967, respectively, for the six months ended
June 30, 1996. Realized gains and losses from security transactions are
reported on an identified-cost basis.
3. FUND CHARGES
Investment management and advisory fees are calculated daily at annual rates
which start at 0.50% and decrease, as net assets increase, to 0.25% of Fund
HY's average net assets. These fees are paid to Travelers Asset Management
International Corporation, an indirect wholly owned subsidiary of Travelers
Group Inc.
The Travelers has agreed to reimburse Fund HY for the amount by which Fund
HY's aggregate annualized operating expenses, excluding brokerage
commissions and any interest charges and taxes, exceed 1.25% of Fund HY's
average net assets. Trustees and officers of Fund HY who are also officers
and employees of Travelers Group Inc., or its subsidiaries, receive no
compensation directly from Fund HY.
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
Fund HY were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------- -------------
1996 1995
---- ----
<S> <C> <C>
Shares sold................................................. 187,864 206,291
Shares redeemed............................................. (150,841) (276,334)
Shares issued in reinvestment of distributions from net
investment income......................................... 164,348 122,473
------------- -------------
Net......................................................... 201,371 52,430
============= =============
</TABLE>
As of June 30, 1996, all outstanding shares of beneficial interest were
owned by The Travelers Fund U for Variable Annuities and The Travelers Fund
UL for Variable Life Insurance, both of which are separate accounts of The
Travelers.
-22-
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
5. FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each period.)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
-------- --------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period......... $ 9.00 $ 8.49 $ 9.25 $ 8.91 $ 8.75 $ 7.87
Income from operations
----------------------
Net investment income...................... 0.40 0.80 0.66 0.68 0.88 0.94
Net gains or losses on securities
(realized and unrealized)................ 0.26 0.41 (0.76) 0.47 0.18 0.88
-------- ------- -------- ------- -------- --------
Total from investment operations......... 0.66 1.21 (0.10) 1.15 1.06 1.82
Less distributions
------------------
Distributions from net investment income... (0.94) (0.70) (0.66) (0.81) (0.90) (0.94)
-------- -------- -------- ------- -------- --------
Net asset value, end of period............... $ 8.72 $ 9.00 $ 8.49 $ 9.25 $ 8.91 $ 8.75
======== ======== ======== ======= ======== ========
TOTAL RETURN* 7.97% 15.47% (1.26)% 14.01% 13.16% 26.11%
- ------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (thousands)...... $14,260 $12,902 $11,716 $12,765 $10,289 $ 7,724
Ratio of expenses to average net assets**. 1.05%# 1.25% 1.25 % 0.99% 0.56% 0.56%
Ratio of net investment income to average
net assets............................... 9.19%# 9.37% 7.71 % 7.69% 10.24% 11.93%
Portfolio turnover rate.................... 37% 222% 146 % 19% 52% 35%
</TABLE>
* Total return is determined by dividing the increase (decrease) in value of
a share during the period, after reflecting the reinvestment of dividends
declared during the period, by the beginning of period share price. As
described in Note 1, shares in Fund HY are only sold to The Travelers
separate accounts in connection with the issuance of variable annuity and
variable life insurance contracts. The total return does not reflect the
deduction of any contract charges or fees assessed by The Travelers
separate accounts. For periods of less than one year, total returns are not
annualized.
** The ratio of expenses to average net assets reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations, including those described in Note 3. Without the expense
reimbursement, the ratios of expenses to average net assets would have been
1.28 %, 1.33%, 1.31%, 1.28% and 1.87% the years ended December 31, 1995,
1994, 1993, 1992 and 1991, respectively. For the six months ended June 30,
1996, there was no expense reimbursement by The Travelers in connection
with the voluntary expense limitations described in Note 3.
# Annualized.
-23-
<PAGE> 26
HIGH YIELD BOND TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
------------- -----------
<S> <C> <C>
BONDS (92.2%)
AMUSEMENTS (7.0%)
Genmar Holdings, Inc.,
13.50% Notes, 2001 $ 500,000 $ 438,750
Plitt Theatres,
10.875% Notes, 2004 500,000 505,000
----------------
943,750
----------------
CHEMICALS, PHARAMACEUTICALS
AND ALLIED PRODUCTS (3.6%)
Renaissance Cosmetics, Inc.,
13.75% Notes, 2001 500,000 486,250
----------------
COMMUNICATION (17.4%)
Adelphia Communications,
9.50% Notes, 2004 (A) 287,344 249,988
Clearnet Communications,
0.00% Notes, 2005 500,000 310,000
Commodore Media, Inc.,
7.50% Notes, 2003 500,000 508,750
International Cabletel, Inc.,
0.00% Notes, 2006 500,000 282,500
Paxson Communication,
11.625% Notes, 2002 400,000 418,000
Pegasus Media & Communications,
12.50% Notes, 2005 400,000 430,000
Telewest PLC,
0.00% Debentures, 2007 250,000 148,750
----------------
2,347,988
----------------
CONSTRUCTION (1.8%)
Greystone Homes, Inc.,
10.75% Notes, 2004 250,000 248,750
----------------
ELECTRICAL AND
ELECTRONIC MACHINERY (2.8%)
Alliance Entertainment Corp.,
11.25% Notes, 2005 400,000 378,000
----------------
FINANCE (3.1%)
B.F. Saul REIT,
11.625% Notes, 2002 400,000 412,000
----------------
FOOD (2.8%)
Pilgrim Pride Corp.,
10.875% Notes, 2003 400,000 382,000
----------------
METAL PRODUCTS (6.6%)
Gulf States Steel,
13.50% Notes, 2003 500,000 447,500
Sheffield Steel,
12.00% Bonds, 2001 500,000 437,500
----------------
885,000
----------------
PAPER AND ALLIED PRODUCTS (2.9%)
Mail-Well, Inc.,
10.50% Notes, 2004 400,000 384,000
----------------
PETROLEUM REFINING AND
RELATED INDUSTRIES (3.4%)
Transamerican Refining, Inc.,
16.50% Notes, 2002 500,000 455,000
----------------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (3.6%)
Sullivan Graphics,
12.75% Notes, 2005 500,000 482,500
----------------
RETAIL (10.9%)
Family Restaurant, Inc.,
0.00% Notes, 2004 250,000 33,750
Flagstar Corp.,
10.75% Notes, 2001 250,000 218,750
Kmart Corp.,
7.90% Notes, 2000 500,000 455,413
Phar-Mor, Inc.,
11.72% Notes, 2002 400,000 398,520
Pueblo Xtra International,
9.50% Notes, 2003 400,000 355,000
----------------
1,461,433
----------------
SERVICES (10.3%)
Americold Corp.,
11.50% Bonds, 2005 500,000 508,125
Florists Transworld Delivery,
14.00% Notes, 2001 500,000 487,500
Regency Health Services, Inc.,
9.875% Notes, 2002 400,000 385,000
----------------
1,380,625
----------------
TEXTILE MILL PRODUCTS (2.9%)
CMI Industries,
9.50% Notes, 2003 500,000 390,000
----------------
TRANSPORTATION (6.9%)
Terex Corp.,
13.75% Notes, 2002 400,000 416,000
Trans World Airlines, Inc.,
12.00% Notes, 1998 (A) 500,000 520,000
----------------
936,000
----------------
TRANSPORTATION MANUFACTURING (2.8%)
Johnstown America Inds, Inc.,
11.75% Notes, 2005 400,000 378,000
----------------
WHOLESALE TRADE (3.4%)
Fleming Cos., Inc.,
10.625% Notes, 2001 500,000 456,250
----------------
TOTAL BONDS (COST $12,236,502) 12,407,546
----------------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
SHARES
----------
<S> <C> <C>
COMMON STOCKS (0.0%)
METAL PRODUCTS (0.0%)
Gulf States Steel (B) 500 2,500
----------------
TRANSPORTATION (0.0%)
Terex Corp. (C) 1,600 3,000
----------------
UTILITIES (0.0%)
Great Bay Power Co. (C) 264 1,865
----------------
TOTAL COMMON STOCKS
(COST $0) 7,365
----------------
</TABLE>
-24-
<PAGE> 27
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
------------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (7.8%)
COMMERCIAL PAPER (3.7%)
Knight-Ridder, Inc.,
5.35% due July 19, 1996 $ 500,000 $ 497,843
--------------
REPURCHASE AGREEMENTS (4.1%)
Merrill Lynch Government
Securities, Inc.,
5.25% Repurchase Agreement
dated June 28, 1996 due
July 1, 1996, collateralized
by: United States of America
Treasury, 530,000,
7.50% due November 15, 2001 546,000 546,000
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $1,043,853) 1,043,843
--------------
TOTAL INVESTMENTS (100%)
(COST $13,280,355) (D) $ 13,458,754
==============
</TABLE>
NOTES
(A) Paid-in-kind Security.
(B) Warrant.
(C) Non-income Producing Security.
(D) At June 30, 1996, net unrealized appreciation for all securities was
$178,399. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$545,559 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $367,160.
See Notes to Financial Statements
-25-
<PAGE> 28
CAPITAL APPRECIATION FUND
During the second quarter of 1996, interest rates continued to rise and
financial markets remained volatile. Despite the pressure from rates, the
Standard & Poor's 500 Stock Index ("S&P 500") managed to post a new record,
and gained 4.5% for the quarter. Capital Appreciation Fund outperformed the
index, gaining 6.1% for the second quarter.
The debate over the strength of economic growth intensified during the last
three months. Employment data, demand at the manufacturing level, and auto
and housing sales all pointed to a robust economy. But commodity prices,
which tend to be a good indicator of future economic strength, began to
correct. The downturn in commodities suggests inflation could remain benign.
Another sign of possible economic weakness is the unusually high rate of
consumer loan delinquencies, which may indicate an abatement in consumer
spending.
Whichever side of the debate proves correct, we intend to maintain Janus'
long-term strategy of selecting good business selling at reasonable prices.
If rates rise, however, it will lift the hurdle. The ability of the
companies we own to make their earnings objectives will be even more
crucial. If rates stabilize, or decline, and the economy continues to grow
moderately, that will be positive for equities. With interest rates at 7.0%
or less and low inflation, it would not be unreasonable to expect the S&P
500 to carry a price to earnings ratio ("PE") of 16-17. The S&P 500's
earnings could hit $42-$44 this year, implying a potential gain of roughly
14.0%. However, until the economic outlook becomes clearer, we intend to
monitor the situation closely.
Financial stocks remain a major theme in the portfolio. Large money-center
banks are still a principle focus. Holdings include two recent mergers:
Chase Manhattan which was acquired by Chemical Bank but chose to retain the
Chase name; and Wells Fargo, which completed its acquisition of First
Interstate. Both Wells Fargo and Chase will implement substantial cost
savings and produce a number of synergies via the integration of their many
complementary businesses. The new banks will generate exceptional cash flow,
and some of this money will be used to repurchase their own shares. We also
continue to hold Citicorp, whose international operations remain very
profitable, Merrill Lynch, the premier asset gatherer in the financial
industry, and Federal National Mortgage Association, the dominant lender in
the home mortgage market.
Pharmaceutical companies make up a second area of concentration. Eli Lilly
was added because the company has a number of potentially blockbuster drugs
newly in the market. These include a faster-acting synthetic insulin for
diabetes, a new drug for the treatment of schizophrenia, and a treatment for
acute heart disease that was developed in conjunction with another holding,
Centocor. Lilly's new drugs, along with the continued growth of Prozac,
should cause earnings to accelerate rapidly. Pfizer and Amgen round out our
pharmaceutical holdings.
We also own a number of special situations. Gucci was the top performer in
this group. Gucci has redesigned its line of high-end accessories and
refocused on core markets. Another member, Microsoft, dominates the huge
market for PC operating software, much as Boeing dominates the market for
large commercial aircraft. Boeing is benefiting from international demand
and from shorter, more predictable productivity and delivery cycles. With
the decline of athletic footwear manufacturer Reebok, Nike and Fila are
capturing market share. Nike enjoys international brand awareness in both
its athletic shoe and apparel products. The Olympics will serve to
strengthen Nike's position. Nike has proven itself to be very adept at
hiring the right professional athletes as spokespersons, and is now invading
the soccer market in Europe and South America with both footwear and
apparel. The company has also introduced specialized athletic clothing
designed to handle the conditions encountered in individual sports, from
running to biking to skiing. Nike's chairman recently said that the
opportunities for his company are now as great as they were in the 1980s,
when Nike's growth was explosive. These remarks were lent credibility by
Nike's earnings release for fiscal 1996. Earnings per share were up 39.0%,
while future orders rose by 55.0%.
-27-
<PAGE> 29
CAPITAL APPRECIATION FUND
IBM proved a disappointment during the second quarter. We sold the position
at a moderate loss when it became clear that pricing power for IBM's
mainframes was much softer than our estimates. Danka Business Systems also
declined. Danka sells and services copiers and other office equipment. The
industry is consolidating, and Danka stands to be one of the chief
competitors going forward. Unfortunately, costs associated with the
company's rapid growth were higher than analysts had anticipated, and the
stock sold off. We believe the reaction was overdone. The copier industry is
shifting to color and network solutions, and Danka has the expertise to
capitalize on this trend. The company should grow at 25%-30% over the next
three years, and yet carries a PE of less than 16.
While interest rates will probably determine the course of the market in the
near term, in the long run we believe stock selection is the most important
performance factor in the portfolio, and we remain very excited about the
prospects for our individual holdings. Though market volatility can be
nerve-wracking, it can also provide opportunities to purchase shares of
great companies at better prices.
PORTFOLIO MANAGER: THOMAS F. MARSICO
-28-
<PAGE> 30
CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $133,685,003)...... $ 168,794,519
Cash....................................................................... 7,651
Receivables:
Dividends............................................................... 36,855
Interest................................................................ 16,810
Investment securities sold.............................................. 2,498,849
--------------
Total Assets......................................................... 171,354,684
--------------
LIABILITIES:
Payables:
Investment securities purchased......................................... 5,663,810
Investment management and advisory fees................................. 20,336
Accrued expenses........................................................... 21,478
--------------
Total Liabilities.................................................... 5,705,624
--------------
NET ASSETS.................................................................... $ 165,649,060
==============
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................ $ 122,852,049
Undistributed net investment income........................................ 555,754
Accumulated net realized gains (losses) on investment security transactions 7,131,741
Net unrealized appreciation on investment securities....................... 35,109,516
--------------
Total net assets (applicable to 4,590,596 shares outstanding at $36.08
per share)............................................................ $ 165,649,060
==============
</TABLE>
See Notes to Financial Statements
-29-
<PAGE> 31
CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 809,424
Interest................................................... 346,593
--------------
Total income............................................ $ 1,156,017
EXPENSES:
Investment management and advisory fees.................... 537,619
Accounting and audit fees.................................. 19,920
Custodian fees............................................. 23,599
Printing and postage....................................... 11,573
Trustees' fees............................................. 5,491
Registration fees.......................................... 996
Legal fees................................................. 1,065
--------------
Total expenses.......................................... 600,263
--------------
Net investment income................................ 555,754
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 99,026,216
Cost of investment securities sold...................... 91,951,304
--------------
Net realized gain.................................... 7,074,912
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.................... 21,220,176
Unrealized gain at June 30, 1996........................ 35,109,516
--------------
Net change in unrealized gain for the period......... 13,889,340
--------------
Net realized gain and change in unrealized gain... 20,964,252
--------------
Net increase in net assets resulting from operations....... $ 21,520,006
==============
</TABLE>
See Notes to Financial Statements
-30-
<PAGE> 32
CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER
JUNE 30, 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income...................................... $ 555,754 $ 811,421
Net realized gain from investment security transactions.... 7,074,912 12,852,764
Net change in unrealized gain on investment securities..... 13,889,340 16,423,842
-------------- --------------
Net increase in net assets resulting from operations.... 21,520,006 30,088,027
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and net short-term realized gains from
investment security transactions........................ (4,920,974) (540,784)
Net long-term realized gains from investment security
transactions............................................ (3,690,149) -
-------------- --------------
Total distributions to shareholders..................... (8,611,123) (540,784)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.................................. 27,856,452 26,600,150
Dividend reinvestment...................................... 8,611,123 540,784
Payments for shares redeemed............................... (5,882,830) (13,026,347)
-------------- --------------
Net increase in net assets resulting from capital share
transactions.......................................... 30,584,745 14,114,587
-------------- --------------
Net increase in net assets........................... 43,493,628 43,661,830
NET ASSETS:
Beginning of period........................................ 122,155,432 78,493,602
-------------- --------------
End of period (including undistributed net investment income
as follows:
June, 1996 $555,754 and December, 1995 $811,421)...... $ 165,649,060 $ 122,155,432
============== ==============
</TABLE>
See Notes to Financial Statements
-31-
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Capital Appreciation Fund ("Fund CA") is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. Shares of Fund CA are
currently offered, without a sales charge, to separate accounts of The
Travelers Insurance Company ("The Travelers") and The Travelers Life and
Annuity Company, indirect wholly owned subsidiaries of Travelers Group Inc.,
in connection with the issuance of certain variable annuity and variable
life insurance contracts.
The following is a summary of significant accounting policies consistently
followed by Fund CA in the preparation of its financial statements.
SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last-reported sale price as of the
close of business of the New York Stock Exchange on the last business day of
the period; securities traded on the over-the-counter market and listed
securities with no reported sales are valued at the mean between the
last-reported bid and asked prices or on the basis of quotations received
from a reputable broker or other recognized source.
When market quotations are not considered to be readily available for
long-term corporate bonds and notes, such investments are generally stated
at fair value on the basis of valuations furnished by a pricing service.
These valuations are determined for normal institutional-size trading units
of such securities using methods based on market transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Securities, including restricted
securities, for which pricing services are not readily available are valued
by management at prices which it deems in good faith to be fair.
Short-term investments for which a quoted market price is available are
valued at market. Short-term investments for which there is no reliable
quoted market price are valued by computing a market value based upon
quotations from dealers or issuers for securities of a similar type, quality
and maturity.
OPTIONS. Fund CA may purchase index or individual equity put or call
options, thereby obtaining the right to sell or buy a fixed number of shares
of the underlying asset at the stated price on or before the stated
expiration date. Fund CA may sell the options before expiration. Options
held by Fund CA are listed on either national securities exchanges or on
over-the-counter markets, and are short-term contracts with a duration of
less than nine months. The market value of the options will be the latest
sale price at the close of the New York Stock Exchange, or in the absence of
such sale, the latest bid quotation.
REPURCHASE AGREEMENTS. When Fund CA enters into a repurchase agreement (a
purchase of securities whereby the seller agrees to repurchase the
securities at a mutually agreed-upon date and price), the repurchase price
of the securities will generally equal the amount paid by Fund CA plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Fund CA securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Fund CA monitors the value of collateral on a daily basis.
Repurchase agreements will be limited to transactions with national banks
and reporting broker dealers believed to present minimal credit risks. Fund
CA's custodian will take actual or constructive receipt of all securities
underlying repurchase agreements until such agreements expire.
TAXES. Fund CA has qualified, and intends to continue to qualify each year,
as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, Fund CA
is relieved of any federal income tax liability by distributing all of its
net taxable investment income and net taxable capital gains, if any, to its
shareholders. Fund CA further intends to avoid excise tax liability by
distributing substantially all of its investment income. Therefore, no
federal income tax provision has been made by Fund CA in its financial
statements.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
-32-
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Security transactions are accounted for on the trade date. Interest income
is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to shareholders are recorded at the close of
business on the record date.
2. INVESTMENTS
Purchases and sales of securities other than short-term investments
aggregated $100,051,586 and $73,176,051 respectively, for the six months
ended June 30, 1996. Realized gains and losses from security transactions
are reported on an identified-cost basis.
3. FUND CHARGES
Investment management and advisory fees are calculated daily at an annual
rate of 0.75% of Fund CA's average net assets. These fees are paid to The
Travelers Investment Management Company ("TIMCO"), an indirect wholly owned
subsidiary of Travelers Group Inc.
Pursuant to a sub-advisory agreement between TIMCO and Janus Capital
Corporation ("Janus Capital"), TIMCO pays Janus Capital an amount equivalent
on an annual basis to 0.55% of Fund CA's average net assets for investment
management and advisory services as sub-adviser.
The Travelers has agreed to reimburse Fund CA for the amount by which Fund
CA's aggregate annualized operating expenses, excluding brokerage
commissions and any interest charges and taxes, exceed 1.25% of Fund CA's
average net assets. Trustees and officers of Fund CA who are also officers
or employees of Travelers Group Inc. or its subsidiaries receive no
compensation directly from Fund CA.
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
Fund CA were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------- --------------
1996 1995
---- ----
<S> <C> <C>
Shares sold............................................... 806,702 900,317
Shares redeemed........................................... (173,948) (445,510)
Shares issued in reinvestment of distributions:
from net investment income and net short-term realized
gains................................................ 158,585 22,109
from net long-term realized gains...................... 118,033 -
-------------- --------------
Net....................................................... 909,372 476,916
============== ==============
</TABLE>
As of June 30, 1996, all outstanding shares of beneficial interest were
owned by The Travelers Fund U for Variable Annuities and The Travelers Fund
UL for Variable Life Insurance, both of which are separate accounts of The
Travelers.
5. SUBSEQUENT EVENT
Effective July 1, 1996, Travelers Asset Management International
Corporation, an indirect wholly owned subsidiary of Travelers Group Inc.
replaces TIMCO as investment adviser.
-33-
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
6. FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each period.)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
--------- ----------------------------------------------------------------
1996 1995 1994 1993* 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period......... $ 33.18 $ 24.50 $ 25.87 $ 22.72 $ 19.63 $ 14.62
Income from operations
----------------------
Net investment income...................... 0.13 0.24 0.19 0.19 0.28 0.36
Net gains or losses on securities
(realized and unrealized)................ 5.09 8.61 (1.41) 3.21 3.13 4.75
------- -------- -------- -------- -------- -------
Total from investment operations......... 5.22 8.85 (1.22) 3.40 3.41 5.11
Less distributions
------------------
Distributions from net investment income
and net short-term realized gains........ (1.33) (0.17) (0.15) (0.25) (0.32) (0.10)
Distributions from net long-term realized
gains.................................... (0.99) - - - - -
------- -------- -------- -------- -------- -------
Total distributions...................... (2.32) (0.17) (0.15) (0.25) (0.32) (0.10)
Net asset value, end of period............... $ 36.08 $ 33.18 $ 24.50 $ 25.87 $ 22.72 $ 19.63
======= ======== ======== ======== ======== =======
TOTAL RETURN** 16.84% 36.37% (4.76)% 15.09% 17.60% 35.16%
- ------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (thousands)...... $165,649 $122,155 $78,494 $62,414 $29,506 $20,497
Ratio of expenses to average net assets##.. 0.84%# 0.85% 0.89% 0.87% 0.56% 0.56%
Ratio of net investment income to average
net assets............................... 0.80%# 0.84% 0.79% 0.81% 1.39% 2.05%
Portfolio turnover rate.................... 56% 124% 106% 155% 126% 205%
Average commission rate paid###............ $ 0.0420 - - - - -
</TABLE>
* Effective May 1, 1993, Janus Capital Corporation became sub-adviser for
Fund CA.
** Total return is determined by dividing the increase (decrease) in value of
a share during the period, after reflecting the reinvestment of the
dividends declared during the period, by the beginning of period share
price. As described in Note 1, shares in Fund CA are only sold to separate
accounts of The Travelers Insurance Company and The Travelers Life and
Annuity Company in connection with the issuance of variable annuity and
variable life insurance contracts. The total return does not reflect the
deduction of any contract charges or fees assessed by these separate
accounts. For periods of less than one year, total returns are not
annualized.
# Annualized.
## The ratio of expenses to average net assets for 1991-1993 reflects an
expense reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 0.96%, 0.91%, and 1.28% for the years
ended December 31, 1993, 1992, and 1991, respectively. For the six months
ended June 30, 1996 and the years ended December 31, 1995 and 1994, there
were no expense reimbursements by The Travelers in connection with the
voluntary expense limitations described in Note 3.
### Calculated by dividing the total dollar amount of commissions paid for
equity securities by the total number of shares purchased and sold during
the period.
-34-
<PAGE> 36
CAPITAL APPRECIATION FUND
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
---------- ----------
<S> <C> <C>
COMMON STOCKS (92.3%)
BANKING (11.2%)
Chase Manhattan Corp. 81,475 $ 5,754,172
Citicorp 71,190 5,882,074
Wells Fargo & Co. 30,666 7,325,340
----------------
18,961,586
----------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (16.6%)
Amgen Inc. (A) 64,300 3,464,163
Centocor, Inc. (A) 48,100 1,439,994
Cytec Industries, Inc. (A) 58,525 5,003,887
Eli Lilly & Co. 86,900 5,648,500
Monsanto Co. 145,125 4,716,562
Pfizer, Inc. 63,475 4,530,528
Praxair, Inc. 75,500 3,189,875
----------------
27,993,509
COMMUNICATION (1.0%)
MFS Communication (A) 42,850 1,609,553
----------------
ELECTRICAL AND
ELECTRONIC MACHINERY (3.3%)
General Electric Corp. 41,750 3,611,375
U.S. Robotics, Inc. 22,700 1,938,013
----------------
5,549,388
----------------
FINANCE (11.1%)
Charles Schwab Corp. 26,450 648,025
Federal Home Loan Mortgage Corp. 4,375 374,062
Federal National Mortgage Association 104,155 3,489,193
HFS Inc. (A) 69,150 4,840,500
Merrill Lynch & Co., Inc. 100,965 6,575,346
Morgan Stanley Group, Inc. 28,900 1,419,712
Reuters Holdings PLC 7,425 537,848
Student Loan Marketing Association 11,375 841,750
----------------
18,726,436
----------------
FOOD (5.4%)
Coca-Cola Co. 93,250 4,557,594
PepsiCo, Inc. 105,050 3,716,144
Starbucks Corp. (A) 29,575 833,645
----------------
9,107,383
----------------
HOTELS & LODGING (1.9%)
Hilton Hotels Corp. 14,400 1,620,000
ITT Corp. (A) 24,600 1,629,750
----------------
3,249,750
----------------
INSURANCE (1.8%)
CMAC Investment Corp. 13,300 764,750
Oxford Health Plans (A) 56,200 2,307,713
----------------
3,072,463
----------------
MACHINERY (8.8%)
Ascend Communications (A) 64,475 3,622,689
Cisco Systems (A) 79,800 4,523,662
Diebold, Inc. 23,175 1,118,194
Electronics For Imaging (A) 58,000 4,027,375
Shiva Corp. (A) 20,450 1,636,000
----------------
14,927,920
----------------
MISCELLANEOUS MANUFACTURING (3.1%)
Danka Business Systems PLC 61,075 1,782,627
Fila Holdings SpA 39,100 3,372,375
----------------
5,155,002
----------------
RETAIL (3.0%)
Gucci Group N.V. (A) 50,400 3,250,800
Home Depot, Inc. 32,000 1,728,000
----------------
4,978,800
----------------
RUBBER AND PLASTIC PRODUCTS (2.2%)
Nike, Inc. 36,825 3,783,769
----------------
SERVICES (13.6%)
First Data Corp. 62,625 4,986,516
Flightsafety International, Inc. 51,125 2,773,531
Gartner Group, Inc. (A) 133,350 4,892,278
Gtech Holdings Corp. (A) 98,100 2,906,213
Microsoft Corp. (A) 53,125 6,378,320
Oracle Corp. (A) 21,525 848,892
Parametric Technology Co. (A) 5,750 249,047
----------------
23,034,797
----------------
TRANSPORTATION (3.2%)
AMR, Corp. (A) 15,975 1,453,725
Trans World Airlines, Inc. (A) 100,000 1,425,000
UAL Corp. (A) 47,000 2,526,250
----------------
5,404,975
----------------
TRANSPORTATION MANUFACTURING (6.1%)
Boeing Co. 70,575 6,148,847
McDonnell Douglas Corp. 30,550 1,481,675
Textron, Inc. 33,025 2,637,872
----------------
10,268,394
----------------
TOTAL COMMON STOCKS
(COST $120,714,233) 155,823,725
----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------
<S> <C>
SHORT-TERM INVESTMENTS (7.7%)
COMMERCIAL PAPER (4.7%)
Ford Motor Credit Co.,
5.49% due July 1, 1996 $ 8,000,000 7,996,340
U.S. GOVERNMENT AGENCY
Securities (3.0%)
FNMA 30-Year Long Term,
5.29% due July 18, 1996 5,000,000 4,974,454
----------------
TOTAL SHORT-TERM
INVESTMENTS (COST $12,970,770) 12,970,794
----------------
TOTAL INVESTMENTS (100%)
(COST $133,685,003) (B) 168,794,519
================
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At June 30, 1996, net unrealized appreciation for all securities was
$35,109,516. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$36,864,034 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $1,754,518.
See Notes to Financial Statements
-35-
<PAGE> 37
CASH INCOME TRUST
The Trust's investment objective is to provide shareholders with high
current income from short-term money market investments while emphasizing
preservation of capital and maintaining a high degree of liquidity. The
Trust pursues this objective by investing in securities maturing in one
year or less.
The assets in Cash Income Trust continue to be invested in U.S.
Treasuries. This has provided the portfolio with safety, liquidity and
stability.
PORTFOLIO MANAGER: EMIL J. MOLINARO JR.
-34-
<PAGE> 38
CASH INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $2,455,363)........ $ 2,455,169
Cash....................................................................... 30,513
Receivables:
Interest................................................................ 14,394
Receivable from The Travelers........................................... 23,337
--------------
Total Assets......................................................... 2,523,413
--------------
LIABILITIES:
Payables:
Investment management and advisory fees................................. 134
Dividends............................................................... 6,545
Accrued expenses:
Reimbursable expenses................................................... 23,337
Other expenses.......................................................... 4,321
--------------
Total Liabilities.................................................... 34,337
--------------
NET ASSETS:
(Applicable to 2,489,076 shares outstanding at $1.00 per share)......... $ 2,489,076
==============
</TABLE>
See Notes to Financial Statements
-35-
<PAGE> 39
CASH INCOME TRUST
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 49,649
EXPENSES:
Investment management and advisory fees.................... $ 3,222
Accounting and audit fees.................................. 13,940
Printing and postage....................................... 11,520
Trustees' fees............................................. 5,503
Registration fees.......................................... 486
Legal fees................................................. 1,065
--------------
Total expenses before reimbursement from The Travelers.. 35,736
Less: Reimbursement from The Travelers..................... (23,337)
--------------
Net expenses............................................ 12,399
--------------
Net investment income................................ 37,250
--------------
Net increase in net assets resulting from operations....... $ 37,250
==============
</TABLE>
See Notes to Financial Statements
-36-
<PAGE> 40
CASH INCOME TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER
JUNE 30, 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 37,250 $ 51,414
-------------- --------------
Net increase in net assets resulting from operations....... 37,250 51,414
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDER FROM NET INVESTMENT INCOME.......... (37,250) (51,414)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold..................................... 4,543,520 3,284,741
Dividends reinvested.......................................... 36,207 52,033
Payments for shares redeemed.................................. (3,507,335) (3,122,783)
-------------- --------------
Net increase in net assets resulting from capital share
transactions............................................. 1,072,392 213,991
-------------- --------------
Net increase in net assets.............................. 1,072,392 213,991
NET ASSETS:
Beginning of period........................................... 1,416,684 1,202,693
-------------- --------------
End of period................................................. $ 2,489,076 $ 1,416,684
============== ==============
</TABLE>
See Notes to Financial Statements
-37-
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Cash Income Trust ("Fund CI") is a Massachusetts business trust registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. Shares of Fund CI are currently
offered, without a sales charge, to separate accounts of The Travelers
Insurance Company ("The Travelers") and The Travelers Life and Annuity
Company, indirect wholly owned subsidiaries of Travelers Group Inc., in
connection with the issuance of certain variable life insurance contracts.
The following is a summary of significant accounting policies consistently
followed by Fund CI in the preparation of its financial statements.
SECURITY VALUATION. Short-term investments for which a quoted market price
is available are valued at market. Short-term investments for which there is
no reliable quoted market price are valued by computing a market value based
upon quotations from dealers or issuers for securities of a similar type,
quality and maturity.
REPURCHASE AGREEMENTS. When Fund CI enters into a repurchase agreement (a
purchase of securities whereby the seller agrees to repurchase the
securities at a mutually agreed-upon date and price), the repurchase price
of the securities will generally equal the amount paid by Fund CI plus a
negotiated interest amount. The seller under the repurchase agreement will
be required to provide to Fund CI securities (collateral) whose market
value, including accrued interest, will be at least equal to 102% of the
repurchase price. Fund CI monitors the value of collateral on a daily basis.
Repurchase agreements will be limited to transactions with national banks
and reporting broker dealers believed to present minimal credit risks. Fund
CI's custodian will take actual or constructive receipt of all securities
underlying repurchase agreements until such agreements expire.
TAXES. Fund CI has qualified, and intends to continue to qualify each year,
as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, Fund CI
is relieved of any federal income tax liability by distributing all of its
net taxable investment income and net taxable capital gains, if any, to its
shareholder. Fund CI further intends to avoid excise tax liability by
distributing substantially all of its investment income. Therefore, no
federal income tax provision has been made by Fund CI in its financial
statements. As of December 31, 1995, Fund CI had capital loss carryovers
totaling $1,785, which may be available to offset any future realized
taxable gains, to the extent provided by regulations. These amounts expire
during the period 1996-2002.
DIVIDENDS. Fund CI declares dividends daily, pays dividends monthly, and
automatically reinvests such dividends in additional shares at net asset
value. Dividends are declared from the total of net investment income.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Security transactions are accounted for on the trade date. Interest income
is recorded on the accrual basis.
-38-
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
2. FUND CHARGES
Investment management and advisory fees are calculated daily at an annual
rate of 0.3233% of Fund CI's average net assets. These fees are paid to
Travelers Asset Management International Corporation, an indirect wholly
owned subsidiary of Travelers Group Inc.
The Travelers has agreed to reimburse Fund CI for the amount by which Fund
CI's aggregate annualized operating expenses, excluding brokerage
commissions and any interest charges and taxes, exceed 1.25% of Fund CI's
average net assets. Trustees and officers of Fund CI who are also officers
or employees of Travelers Group Inc., or its subsidiaries, receive no
compensation directly from Fund CI.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with a par value of $0.10 per share.
Transactions in shares of Fund CI were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------ -------------
1996 1995
---- ----
<S> <C> <C>
Shares sold............................................ 4,543,520 3,284,741
Shares redeemed........................................ (3,507,335) (3,122,783)
Shares issued in reinvestment of distributions......... 36,207 52,033
------------ -------------
Net.................................................... 1,072,392 213,991
============ =============
</TABLE>
As of June 30, 1996 all outstanding shares of beneficial interest were owned
by The Travelers Fund UL for Variable Life Insurance, a separate account of
The Travelers.
-39-
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
4. FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each period.)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION)
--------- -------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from operations................. 0.0182 0.0417 0.0278 0.0214 0.0322 0.0650
Less distributions from net investment
income............................... (0.0182) (0.0417) (0.0278) (0.0214) (0.0322) (0.0650)
--------- --------- -------- --------- --------- ---------
Net asset value, end of period
(unchanged during the period).......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ======== ========= ========= =========
TOTAL RETURN* 1.82% 4.17% 2.78% 2.14% 3.22% 6.50%
- ------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (thousands).. $ 2,489 $ 1,417 $ 1,203 $ 647 $ 697 $ 690
Ratio of expenses to average net
assets**............................. 1.25%# 1.25% 1.25% 0.94% 0.38% 0.38%
</TABLE>
* Total return is determined after reflecting the reinvestment of dividends
declared during the period, by dividing net investment income by average
net assets. As described in Note 1, shares in Fund CI are only sold to
separate accounts of The Travelers Insurance Company and The Travelers Life
and Annuity company in connection with the issuance of variable life
insurance contracts. The total return does not reflect the deduction of any
contract charges or fees assessed by these separate accounts. For periods
of less than one year, total returns are not annualized. Prior period
amounts have been reclassified to conform to the current period's
presentation.
** The ratio of expenses to average net assets reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations, including those described in Note 3. Without the expense
reimbursement, the ratios of expenses to average net assets would have been
3.60% annualized, for the six months ended June 30, 1996 and 7.37%, 6.40%,
8.47%, 7.70%, and 11.61% the years ended December 31, 1995, 1994, 1993,
1992, and 1991, respectively.
# Annualized.
5. SUBSEQUENT EVENT
Effective August 1, 1996, The Travelers has agreed to reimburse Fund CI for
the amount by which Fund CI's aggregate annualized operating expenses,
excluding brokerage commissions and any interest charges and taxes, exceed
0.60% of Fund CI's average net assets.
-40-
<PAGE> 44
CASH INCOME TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------- ---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100%)
U.S. GOVERNMENT SECURITIES (100%)
United States of America Treasury,
4.97% due July 25, 1996 $ 225,000 $ 222,975
United States of America Treasury,
4.99% due July 25, 1996 100,000 99,194
United States of America Treasury,
5.03% due August 1,1996 400,000 394,947
United States of America Treasury,
5.04% due August 1, 1996 165,000 163,027
United States of America Treasury,
5.07% due August 29, 1996 250,000 246,748
United States of America Treasury,
5.11% due August 22, 1996 200,000 197,642
United States of America Treasury,
5.13% due September 5, 1996 400,000 394,890
United States of America Treasury,
5.15% due October 10, 1996 375,000 365,534
United States of America Treasury,
5.14% due September 19, 1996 175,000 172,740
United States of America Treasury,
5.18% due September 19, 1996 200,000 197,472
----------
TOTAL INVESTMENTS (100%)
(COST $2,455,363) $2,455,169
==========
</TABLE>
See Notes to Financial Statements
-41-
<PAGE> 45
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
The bear market for bonds began in February and continued through the second
quarter. Yields on Treasuries with maturities between 5 and 10 years rose
1.09% or more. The yield curve flattened, with the difference between 2 year
to 30 year Treasuries ending at 78 basis points, while trading in a range of
68 to 93 basis points over the first half.
Mortgage backed securities outperformed similar Treasury securities as fears
of refinancing all but vanished. As an asset class, tight corporate spreads
also provided greater returns to this sector. During the first half, the
Lehman Mortgage Index returned 0.4% versus a negative 1.9% for the Lehman
Government/Corporate Bond Index.
As the market has repriced the mortgage landscape, we are selectively
looking at adding more convex securities. Cusp coupon mortgages (those that
are at-the-money in terms of refinancing) and premiums have fared well
recently. Traditionally, when the mortgage market has offered convexity
cheaply, it has paid to take it. Agency debentures that offer incremental
value versus Treasuries are attractive as bullet substitutes. We will keep
our exposure to Financing Corporation ("FICO") coupon strips, which we
believe can tighten over 10 basis points during the next several months. The
portfolio duration will be kept close to neutral, erring modestly on the
long side, as technical signals indicate a near-term reprieve in the bear
market may be in store. The portfolio will maintain its AAA quality rating.
PORTFOLIO MANAGER: JOSEPH M. MULLALLY
-42-
<PAGE> 46
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $26,543,346)....... $ 26,443,311
Interest receivable........................................................ 203,959
--------------
Total Assets......................................................... 26,647,270
--------------
LIABILITIES:
Cash overdraft............................................................. 718
Payables:
Investment management and advisory fees................................. 1,400
Variation on futures margin............................................. 30,800
Accrued expenses........................................................... 8,895
--------------
Total Liabilities.................................................... 41,813
--------------
NET ASSETS.................................................................... $ 26,605,457
==============
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................ $ 27,142,086
Undistributed net investment income........................................ 633,628
Accumulated net realized gains (losses) on investment security transactions (1,070,222)
Net unrealized depreciation on investment securities....................... (100,035)
--------------
Total net assets (applicable to 2,451,213 shares outstanding at $10.85
per share)............................................................ $ 26,605,457
==============
</TABLE>
See Notes to Financial Statements
-43-
<PAGE> 47
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 702,621
EXPENSES:
Investment management and advisory fees.................... $ 43,991
Accounting and audit fees.................................. 14,797
Custodian fees............................................. 1,113
Printing and postage....................................... 6,726
Trustees' fees............................................. 887
Registration fees.......................................... 414
Legal fees................................................. 1,065
--------------
Total expenses.......................................... 68,993
--------------
Net investment income................................ 633,628
--------------
REALIZED LOSS AND CHANGE IN UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized loss from investment security transactions:
Proceeds from investment securities sold................ 100,308,532
Cost of investment securities sold...................... 101,347,451
--------------
Net realized loss.................................... (1,038,919)
Change in unrealized gain (loss) on investment securities:
Unrealized gain at December 31, 1995.................... 797,061
Unrealized loss at June 30, 1996........................ (100,035)
--------------
Net change in unrealized gain (loss) for the period.. (897,096)
--------------
Net realized loss and change in unrealized gain
(loss) (1,936,015)
--------------
Net decrease in net assets resulting from operations....... $ (1,302,387)
==============
</TABLE>
See Notes to Financial Statements
-44-
<PAGE> 48
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER
JUNE 30, 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 633,628 $ 1,520,848
Net realized gain (loss) from investment security transactions (1,038,919) 1,110,792
Net change in unrealized gain (loss) on investment securities. (897,096) 3,171,708
-------------- --------------
Net increase (decrease) in net assets resulting from
operations............................................... (1,302,387) 5,803,348
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME AND
NET SHORT-TERM REALIZED GAINS FROM INVESTMENT SECURITY
TRANSACTIONS.............................................. (2,449,724) (1,404,917)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold..................................... 4,446,227 5,439,282
Dividend reinvestment......................................... 2,449,724 1,404,917
Payments for shares redeemed.................................. (4,730,671) (7,572,507)
-------------- --------------
Net increase (decrease) in net assets resulting from
capital share transactions.............................. 2,165,280 (728,308)
-------------- --------------
Net increase (decrease) in net assets................... (1,586,831) 3,670,123
NET ASSETS:
Beginning of period........................................... 28,192,288 24,522,165
-------------- --------------
End of period (including undistributed net investment income
as follows:
June, 1996 $633,628 and December, 1995 $1,520,848)......... $ 26,605,457 $ 28,192,288
============== ==============
</TABLE>
See Notes to Financial Statements
-45-
<PAGE> 49
THE TRAVELERS SERIES TRUST
U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS (Unaudited)
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- -------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
SECURITIES (76.0%)
FHLMC Gold 30-Year PC,
8.00% Pass Through, 2026 $ 1,009,375 $ 1,019,775
FICO Strip,
0.00% Debentures, 2011 4,810,000 1,547,714
FICO Strip,
0.00% Debentures, 2015 7,681,000 1,917,731
FICO Strip,
0.00% Notes, 2010 6,987,000 2,589,242
FNMA,1993-05 H,
7.50% Pass Through, 2008 1,000,000 997,319
FNMA,1993-13 Z1,
6.50% Pass Through, 2000 1,241,204 1,216,726
GNMA 30-Year Single Family,
7.00% Pass Through, 2024 2,004,481 1,924,911
GNMA 30-Year Single Family,
7.50% Pass Through, 2017 1,939,675 1,936,900
GNMA 30-Year Single Family,
7.50% Pass Through, 2026 1,005,265 991,748
GNMA 30-Year Single Family,
7.50% Pass Through, 2026 1,007,411 993,866
GNMA 30-Year Single Family,
7.50% Pass Through, 2026 2,015,227 1,988,130
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 434,009 446,755
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 359,962 370,533
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 296,598 305,308
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 280,169 288,397
GNMA 30-Year Single Family,
8.50% Pass Through, 2018 248,971 256,283
GNMA 30-Year Single Family,
9.00% Pass Through, 2016 29,332 30,725
GNMA 30-Year Single Family,
9.00% Pass Through, 2019 71,479 74,874
Resolution Funding,
8.875% Bonds, 2030 1,000,000 1,202,710
-------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(COST $20,287,883) 20,099,647
-------------
U.S. GOVERNMENT
SECURITIES (13.7%)
United States of America Treasury,
8.875% Bonds, 2019 3,000,000 3,618,750
-------------
TOTAL U.S. GOVERNMENTSECURITIES
(COST $3,530,625) 3,618,750
SHORT-TERM INVESTMENTS (10.3%)
U.S. GOVERNMENT AGENCY
SECURITIES (4.5%)
FHLMC,
5.31% due July 24, 1996 1,200,000 1,194,917
----------------
U.S. GOVERNMENT SECURITIES (2.4%)
United States of America Treasury,
5.13% due September 19, 1996 (A) 150,000 146,317
United States of America Treasury,
5.17% due September 19, 1996 500,000 493,680
----------------
639,997
----------------
REPURCHASE AGREEMENTS (3.4%)
Merrill Lynch Government Securities, Inc.,
5.25% Repurchase Agreement
dated June 28, 1996 due July 1, 1996,
collateralized by: United States of
America Treasury, $865,000,
7.50% due November 15, 2001 890,000 890,000
----------------
TOTAL SHORT-TERM
INVESTMENTS (COST $2,724,838) 2,724,914
----------------
Notional
Value
----------------
FUTURES CONTRACTS (0.0%)
Treasury Bond, Exp.
September, 1996 $ 3,833,594 -
Treasury Note, Exp. -
September, 1996 10,575,000
----------------
TOTAL INVESTMENTS (100%)
(COST $26,543,346) (B) $ 26,443,311
================
</TABLE>
NOTES
(A) Par value of $90,000 is pledged to cover margin deposits on futures
contracts.
-46-
<PAGE> 50
(B) At June 30, 1996, net unrealized depreciation for all securities was
$100,035. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over cost of
$110,022 and aggregate gross unrealized depreciation for all securities
in which there was an excess of cost over market value of $210,057.
See Notes to Financial Statements
-47-
<PAGE> 51
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS
STOCK PORTFOLIO
Greenwich Street Advisors assumed management responsibility for the
portfolio in May 1995, and since that time has transitioned the fund from
one which replicated the sector allocation of the Standard & Poor's 500
Stock Index ("S&P 500"), with over 225 individual equities, to a more
focused portfolio implementing a value-oriented discipline. Sector
weightings are closely monitored and adjusted relative to the S&P 500 --
choosing an under, over or neutral weighting -- in order to potentially
enhance portfolio returns. At mid year, the portfolio held 77 stocks and we
anticipate further consolidation in the number of individual holdings.
The Social Awareness Stock Portfolio seeks to provide competitive
risk-adjusted returns by investing in equities of medium and large size
companies which meet the social criteria established for the portfolio. The
stock selection has a value bias and the fund seeks to maintain a more fully
invested posture, typically with 90% - 100% invested in equities. For the
first half of 1996 the portfolio's total return was approximately 9%.
Strength in the portfolio, during the first half of the year, emanated from
the specialty retail, consumer staples, and from selected basic industries
and interest rate sensitive stocks. Areas of modest under performance were
health care and telephone utility companies. As of the end of June our asset
allocation stood at approximately 93% in equities and 7% in cash
equivalents. Our top five holdings were State Street Boston Bank, PepsiCo,
Praxair Inc., Johnson & Johnson, and Microsoft.
Our social screening process seeks to avoid investment in equities of
weapons producers; manufacturers of tobacco products, alcoholic beverages,
and gambling devices; owners or designers of nuclear facilities; and
companies whose businesses cause substantial environmental damage. Provided
investment criteria are satisfied, the stock selection process seeks to
incorporate a supportive element by identifying and investing in companies
that actively promote social and environmental well-being through community
activities and charitable giving, environmental problem-solving, and
innovative employee benefits and programs.
While the first half of the year has seen the equity markets continue along
their upward path, some stark economic contrasts to 1995 have developed. In
1995, the interest rate environment was very favorable, declining throughout
the year. Market breadth (a measure of market participation) was focused in
a few groups, inflation was not a concern and corporate earnings growth
continued to exceed expectations by a wide margin. Additionally, and perhaps
most important, liquidity was very strong. These elements made for a
"perfect world" in which financial instruments were clearly the asset of
choice.
Now halfway through 1996, the equity markets remain positive, but the
underpinnings of the market are indicating some weakness. By many
traditional methods of valuation, the U.S. equity markets appear fair to
somewhat overvalued. Dividend yields are falling to new lows and stock
price-to-book values continue to rise. The economic environment is also
signaling change. Inflation concerns and strength in the economy have pushed
up interest rates. Corporate earnings trends, while positive, are not
expected to grow at the same high rates of recent years. This has clearly
made for a difficult environment for bonds during the first half of the year
and, going forward, an increasingly challenging one for stocks. Still, the
fact remains that while many of these market concerns have been waving a
caution flag for quite some time, investors who have reduced equity exposure
in recent quarters have under performed the markets on a relative basis.
This positive performance in equities can at least in part be attributed to
liquidity -- or cash flowing into the equity market -- which has maintained
its trend and remains strong.
While we continue to remain positive in the long term, we are conscious of
the concerns about recent economic and market trends, as well as the fact
that the market (as measured by the S&P 500) has risen over 50% since the
lows of December 1994. It is our expectation that the higher level of market
volatility we have experienced in recent months will continue through out
the rest of the year and will be dependent on the prevailing economic
opinion. (Economic scenarios perceived as being either too strong or too
weak can both be unsettling for the equity markets.) Our focus continues to
be on individual companies that can prosper in the moderate growth/modest
inflation environment we expect going forward.
-48-
<PAGE> 52
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS
STOCK PORTFOLIO
On the corporate social responsibility front, increasing attention is being
focused on issues of global human rights, particularly in manufacturing
operations in developing countries, and especially with lower-skilled labor
pools in industries such as apparel. Investors, consumers, and the media are
asking corporations how their products are made, by whom, and in what type
of workplace environment. While there is certainly agreement about the need
to eradicate the very worst practices (e.g., forced labor), in general these
are, to say the least, extremely complex issues to evaluate, often going
right to the core of fundamental cultural and economic differences. To date,
companies have dealt with these issues in a variety of ways. More and more
corporations are developing "Codes of Conduct" that set the standards for a
fair and safe workplace for both company-owned operations and those of
suppliers. The most committed companies have created teams to monitor and
enforce the Codes of Conduct, particularly with suppliers. At the same time,
a number of companies have joined working groups in which they dialogue with
other corporations and human rights experts to share information about what
programs have been most effective. Finally, a number of corporations have
chosen not to do business in select countries because of what they've
evaluated to be pervasive problems with human rights. The corporate
community, human rights groups, and social investors share the continuing
challenge to develop effective and workable standards for improving working
conditions throughout the world.
PORTFOLIO MANAGERS: ROBERT J BRADY, CFA - GENE H. MARTINO
ASSISTED BY LISA M. LEFF, ROBERT ALLAN, AND ROBERT YUEN
-49-
<PAGE> 53
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $6,821,900)........ $ 8,558,036
Cash....................................................................... 817
Receivables:
Dividends............................................................... 5,706
Interest................................................................ 246
Receivable from The Travelers........................................... 4,918
--------------
Total Assets......................................................... 8,569,723
--------------
LIABILITIES:
Payable for investment management and advisory fees........................ 914
Accrued expenses:
Reimbursable expenses................................................... 4,918
Other expenses.......................................................... 8,275
--------------
Total Liabilities.................................................... 14,107
--------------
NET ASSETS.................................................................... $ 8,555,616
==============
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................ $ 6,564,536
Undistributed net investment income........................................ 18,075
Accumulated net realized gains (losses) on investment security transactions 236,869
Net unrealized appreciation on investment securities....................... 1,736,136
--------------
Total net assets (applicable to 573,036 shares outstanding at $14.93 per
share) $ 8,555,616
==============
</TABLE>
See Notes to Financial Statements
-50-
<PAGE> 54
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 54,277
Interest................................................... 15,887
-------------
Total income............................................ $ 70,164
EXPENSES:
Investment management and advisory fees.................... 27,089
Accounting and audit fees.................................. 14,135
Custodian fees............................................. 4,777
Printing and postage....................................... 8,930
Trustees' fees............................................. 887
Registration fees.......................................... 124
Legal fees................................................. 1,065
-------------
Total expenses before reimbursement from The Travelers.. 57,007
Less: Reimbursement from The Travelers..................... (4,918)
-------------
Net expenses............................................ 52,089
--------------
Net investment income................................ 18,075
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 1,194,936
Cost of investment securities sold...................... 946,109
-------------
Net realized gain.................................... 248,827
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.................... 1,289,613
Unrealized gain at June 30, 1996........................ 1,736,136
-------------
Net change in unrealized gain for the period......... 446,523
--------------
Net realized gain and change in unrealized gain... 695,350
--------------
Net increase in net assets resulting from operations....... $ 713,425
==============
</TABLE>
See Notes to Financial Statements
-51-
<PAGE> 55
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 18,075 $ 55,079
Net realized gain from investment security transactions....... 248,827 265,239
Net change in unrealized gain on investment securities........ 446,523 1,316,045
-------------- --------------
Net increase in net assets resulting from operations....... 713,425 1,636,363
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and net short-term realized gains from
investment security transactions........................... (140,441) (51,494)
Net long-term realized gains from investment security
transactions............................................... (173,049) (68,327)
-------------- --------------
Total distributions to shareholders........................ (313,490) (119,821)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold..................................... 2,170,462 2,552,645
Dividend reinvestment......................................... 313,490 119,821
Payments for shares redeemed.................................. (1,383,082) (1,013,468)
-------------- --------------
Net increase in net assets resulting from capital share
transactions............................................. 1,100,870 1,658,998
-------------- --------------
Net increase in net assets.............................. 1,500,805 3,175,540
NET ASSETS:
Beginning of period........................................... 7,054,811 3,879,271
-------------- --------------
End of period (including undistributed net investment income
as follows:
June, 1996 $18,075 and December, 1995 $55,079)............. $ 8,555,616 $ 7,054,811
============== ==============
</TABLE>
See Notes to Financial Statements
-52-
<PAGE> 56
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
STATEMENT OF INVESTMENTS (Unaudited)
JUNE 30, 1996
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
--------- ----------
<C> <C> <C>
COMMON STOCKS (93.5%)
AMUSEMENTS (1.2%)
Walt Disney Co. 1,600 $ 100,600
--------------
BANKING (8.3%)
Associated 1st Capital Corp. (A) 2,000 75,250
Bank of Boston Corp. 1,500 74,250
Barnett Banks, Inc. 1,000 61,000
Citicorp 1,500 123,937
H.F. Ahmanson & Co. 2,400 64,800
NationsBank Corp. 1,700 140,463
State Street Boston Corp. 3,400 173,400
--------------
713,100
--------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (12.5%)
Air Products & Chemicals, Inc. 2,000 115,500
Amgen Inc. (A) 1,800 96,975
Bristol-Myers Squibb Co. 1,100 99,000
Johnson & Johnson 3,400 168,300
Merck & Co., Inc. 2,300 148,637
Pfizer, Inc. 1,200 85,650
Praxair, Inc. 4,000 169,000
Procter & Gamble Co. 1,200 108,750
Schering-Plough Corp. 1,200 75,300
--------------
1,067,112
--------------
COMMUNICATION (3.5%)
Ameritech Corp. 1,400 83,125
Bell Atlantic Corp. 800 51,000
BellSouth Corp. 1,800 76,275
MCI Communications Corp. 3,500 89,468
--------------
299,868
--------------
CONSTRUCTION (0.6%)
Kaufman & Broad Home Corp. 3,500 50,750
--------------
ELECTRICAL AND
ELECTRONIC MACHINERY (4.7%)
AMP, Inc. 1,500 60,187
DSC Communications, Inc. (A) 3,000 90,188
Intel Corp. 2,000 146,875
Lucent Technology Corp. (A) 2,000 75,750
Madge Networks NV (A) 2,000 29,500
--------------
402,500
--------------
FINANCE (4.2%)
American Express Co. 2,700 120,488
Federal Home Loan Mortgage Corp. 1,000 85,500
Federal National Mortgage Association 2,000 67,000
Merrill Lynch & Co., Inc. 500 32,562
Mesaba Holdings, Inc. (A) 4,500 51,750
--------------
357,300
--------------
FOOD (4.5%)
Coca-Cola Co. 2,000 97,750
PepsiCo, Inc. 4,800 169,800
Unilever N.V. 800 116,100
--------------
383,650
--------------
INSURANCE (4.9%)
Aetna Life & Casualty Co. 1,400 100,100
American International Group 1,250 123,281
Transamerica Corp. 1,500 121,500
United Healthcare Corp. 1,400 70,700
--------------
415,581
--------------
LEATHER AND LEATHER PRODUCTS (0.9%)
Nine West Group, Inc. (A) 1,500 76,688
--------------
MACHINERY (8.9%)
Cabletron System, Inc. (A) 1,500 102,938
Compaq Computer Corp. (A) 1,700 83,725
Digital Equipment Corp. (A) 700 31,500
EMC Corp. (A) 7,000 130,375
International Business Machines Corp. 1,200 118,800
Pitney Bowes, Inc. 2,000 95,500
Sun Microsystems (A) 1,000 58,875
York International, Inc. 2,800 144,900
--------------
766,613
--------------
METAL PRODUCTS (4.8%)
Belden, Inc. 4,500 135,000
Gillette Co. 2,000 124,750
Newell Company 5,000 153,125
--------------
412,875
--------------
MISCELLANEOUS MANUFACTURING (6.6%)
Dentsply International, Inc. 3,300 139,631
Perkin-Elmer Corp. 2,500 120,625
Stryker Corp. 6,200 140,663
Xerox Corp. 3,000 160,500
--------------
561,419
--------------
OIL & GAS (1.4%)
Anadarko Petroleum Corp. 2,000 116,000
--------------
PAPER AND ALLIED PRODUCTS (0.7%)
Tambrands, Inc. 1,500 61,313
--------------
PRINTING, PUBLISHING AND
ALLIED INDUSTRIES (1.4%)
Tribune Co. 1,700 123,463
--------------
RETAIL (9.1%)
Home Depot, Inc. 2,900 156,600
Kroger Co. (A) 2,700 106,650
May Department Stores 2,500 109,375
McDonalds Corp. 2,000 93,500
Payless ShoeSource, Inc. (A) 160 5,080
Pep Boys - Manny, Moe & Jack 4,000 136,000
Toys R Us, Inc. (A) 3,000 85,500
Wal-Mart Stores, Inc. 3,500 88,812
--------------
781,517
--------------
SERVICES (7.6%)
Columbia/HCA Healthcare Corp. 2,500 133,437
Computer Associates International 1,000 71,250
Microsoft Corp (A) 1,400 168,088
Olsten Corp. 5,400 158,625
Oracle Corp. (A) 3,000 118,313
--------------
649,713
--------------
TRANSPORTATION (1.3%)
Norfolk Southern Corp. 900 76,275
Southwest Airlines 1,300 37,862
--------------
114,137
TRANSPORTATION MANUFACTURING (2.6%)
FLEETWOOD Enterprises, Inc. 2,900 89,900
Varity Corp. (A) 2,800 134,750
--------------
224,650
--------------
</TABLE>
-53-
<PAGE> 57
STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
---------- ----------
<S> <C> <C>
WHOLESALE TRADE (3.8%)
Enron Corp. 3,300 $ 134,887
Marshall Industries (A) 3,300 92,400
Sysco Corp. 2,800 95,900
--------------
323,187
--------------
TOTAL COMMON STOCKS
(Cost $6,265,900) 8,002,036
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (6.5%) ------------
REPURCHASE AGREEMENTS (6.5%)
First Boston,
5.30% Repurchase Agreement dated
June 28, 1996 due July 1,1996
collateralized by: United
States of America Treasury,
$545,000, 7.50% due
December 31, 1996 $ 556,000 556,000
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $556,000) 556,000
--------------
TOTAL INVESTMENTS (100%)
(Cost $6,821,900) (B) $ 8,558,036
==============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At June 30, 1996, net unrealized appreciation for all securities was
$1,736,136. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
cost of $1,831,277 and aggregate gross unrealized depreciation for all
securities in which there was an excess of cost over market value of
$95,141.
See Notes to Financial Statements
-54-
<PAGE> 58
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
The electric utility industry continues its evolutionary transition to a
more competitive structure where customers will have a greater choice of
energy suppliers. Utility company management continues to monitor these
changes and examine ways to best position their corporate assets. This could
include a corporate realignment or disaggregation of business units into
generation and transmission components. We also expect additional corporate
mergers with the goal of creating larger more efficient companies. We
believe the lines separating the electric utility and natural gas industry
will fade as the focus becomes how best to serve the customer. These changes
mean the investment risk profile of the electric utility industry will
increase with some companies becoming clear winners and others facing
increasing competitive challenges. Stock selection will be critical to
achieving competitive investment performance. The financial markets are
continuing to favor the lower cost electric provider over the company with a
higher embedded cost structure.
During most of the second quarter, electric utilities traded in a narrow
range as investors avoided the group favoring the more volatile technology
and cyclical sectors. At the end of the quarter, electric utility stocks
rallied in conjunction with a more positive fixed income environment and
more importantly, due to very attractive valuation levels relative to the
broad based equity market. The current yield on the Standard and Poor's
Utility Index was close to three times that of the Standard & Poor's 500
Stock Index ("S&P 500"). This has occurred only three prior times during the
last twenty years and has proven to be a good time to buy utilities. The
relative price to earnings ratio of the utility sector was also below
historical averages.
Our investment strategy continues to focus on a combination of long term
growth and current income. During the quarter, we have continued to increase
our weightings in growth oriented electric utilities that have lower than
average current yields but more clearly defined growth prospects. We feel
these companies will continue to be priced at premium valuation levels and
provide the best total return prospects. New portfolio positions and
additions to our current holdings include American Electric Power, Cinergy
Corporation and Southern Company. Our telecommunication and natural gas
weightings remained stable as we await more attractive valuation levels. On
June 30, 1996, our portfolio mix was 83% equity, 8% bonds and 9% cash or
cash equivalents. We continue to expect competitive total returns from the
electric utility sector with less volatility than the overall equity market.
During the second quarter of 1996, the total return of the Utilities
Portfolio closely matched the returns recorded by the S&P 500 and the
Standard and Poor's Utilities Index. The Portfolio outperformed the Lipper
Utility Fund Annuity Index. Year-to-date the Utilities Portfolio
substantially outpaced the Standard and Poor's Utilities Index but lagged
the S&P 500 which continued to rally fueled by substantial inflows in equity
mutual funds. We expect this gap to close during the second half of the year
as market volatility may increase.
PORTFOLIO MANAGER: JACK S. LEVANDE
-56-
<PAGE> 59
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $15,552,503)....... $ 17,796,024
Cash....................................................................... 1,337
Receivables:
Dividends............................................................... 38,307
Interest................................................................ 33,247
Investment securities sold.............................................. 86,000
--------------
Total Assets......................................................... 17,954,915
--------------
LIABILITIES:
Payables:
Investment securities purchased......................................... 240,000
Investment management and advisory fees................................. 1,877
Accrued expenses........................................................... 7,313
--------------
Total Liabilities.................................................... 249,190
--------------
NET ASSETS.................................................................... $ 17,705,725
==============
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................ $ 14,838,951
Undistributed net investment income........................................ 326,086
Accumulated net realized gains (losses) on investment security transactions 297,167
Net unrealized appreciation on investment securities....................... 2,243,521
--------------
Total net assets (applicable to 1,365,857 shares outstanding at $12.96
per share)............................................................ $ 17,705,725
==============
</TABLE>
See Notes to Financial Statements
-57-
<PAGE> 60
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 307,602
Interest................................................... 95,893
--------------
Total income............................................ $ 403,495
EXPENSES:
Investment management and advisory fees.................... 54,443
Accounting and audit fees.................................. 13,048
Custodian fees............................................. 1,309
Printing and postage....................................... 6,531
Trustees' fees............................................. 1,013
Legal fees................................................. 1,065
--------------
Total expenses.......................................... 77,409
--------------
Net investment income................................ 326,086
--------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold................ 2,599,828
Cost of investment securities sold...................... 2,302,661
--------------
Net realized gain.................................... 297,167
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1995.................... 2,093,137
Unrealized gain at June 30, 1996........................ 2,243,521
--------------
Net change in unrealized gain for the period......... 150,384
--------------
Net realized gain and change in unrealized gain... 447,551
--------------
Net increase in net assets resulting from operations....... $ 773,637
==============
</TABLE>
See Notes to Financial Statements
-58-
<PAGE> 61
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSET
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 326,086 $ 441,157
Net realized gain from investment security transactions....... 297,167 144,953
Net change in unrealized gain on investment securities........ 150,384 2,170,686
-------------- --------------
Net increase in net assets resulting from operations....... 773,637 2,756,796
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME AND
NET SHORT-TERM REALIZED GAINS FROM INVESTMENT SECURITY
TRANSACTIONS................................................. (586,110) (150,491)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold..................................... 4,486,425 9,178,587
Dividend reinvestment......................................... 586,110 150,491
Payments for shares redeemed.................................. (2,894,012) (2,352,367)
-------------- --------------
Net increase in net assets resulting from capital share
transactions............................................. 2,178,523 6,976,711
-------------- --------------
Net increase in net assets.............................. 2,366,050 9,583,016
NET ASSETS:
Beginning of period........................................... 15,339,675 5,756,659
-------------- --------------
End of period (including undistributed net investment income
as follows:
June, 1996 $326,086 and December, 1995 $441,157)........... $ 17,705,725 $ 15,339,675
============== ==============
</TABLE>
See Notes to Financial Statements
-59-
<PAGE> 62
THE TRAVELERS SERIES TRUST
UTILITIES PORTFOLIO
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------------ -------------
<S> <C> <C>
COMMON STOCKS (83.2%)
COMMUNICATION (11.4%)
Ameritech Corp. 3,500 $ 207,813
AT&T Corp. 7,500 465,000
BellSouth Corp. 10,000 423,750
Frontier Corp. 10,000 306,250
GTE Corp. 7,500 335,625
Teleport Communication, Inc.(A) 10,000 190,000
U S West Media Group (A) 5,000 91,250
--------------
2,019,688
--------------
ELECTRICAL AND
ELECTRONIC MACHINERY (1.6%)
Lucent Technology 7,500 284,063
--------------
UTILITIES (67.9%)
Allegheny Power Systems, Inc. 15,000 463,125
American Electric Power Co. 11,000 468,875
Baltimore Gas & Electric Co. 7,500 212,812
Carolina Power & Light Co. 12,000 456,000
Cinergy Corp. 12,000 384,000
Coastal Corp. 10,000 417,500
CIPSCO, Inc. 5,000 193,125
CMS Energy Corp. 12,500 385,938
Dayton Power & Light Co. 10,000 243,750
Dominion Resources, Inc. 7,000 280,000
Duke Power Co. 10,000 512,500
Duquesne Light Co. 12,750 350,625
Edison International 15,000 264,375
Entergy Corp. 12,000 340,500
Florida Power & Light Co. 12,500 575,000
Florida Progress Corp. 10,000 347,500
General Public Utilities 10,000 352,500
Houston Industries, Inc. 16,000 394,000
Kansas City Power & Light Co. 15,000 412,500
New York State Electric & Gas Co. 7,500 182,812
NIPSCO Industries, Inc. 10,000 402,500
Ohio Edison Co. 10,000 218,750
Pacific Enterprises 10,000 296,250
Pacificorp 18,000 400,500
Pinnacle West Capital Corp. 17,500 531,562
Portland General Electric Corp. 8,100 250,088
Public Service of New Mexico (A) 15,000 307,500
Public Service Co. Of Colorado 7,500 275,625
Southern Co. 12,500 307,812
SCANA Corp. 11,000 309,375
Texas Utilities Co. 15,000 641,250
Unicom Corp. 10,500 292,688
Williams Companies 5,000 247,500
Wisconsin Energy 13,000 375,375
--------------
12,094,212
--------------
WHOLESALE TRADE (2.3%)
Enron Corp. 10,000 408,750
--------------
TOTAL COMMON STOCKS
(COST $12,600,568) 14,806,713
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
BONDS (2.2%)
UTILITIES (2.2%)
Arizona Public Service Co.,
7.25% Bonds, 2023 $ 200,000 $ 179,511
Peco Energy Co.,
8.75% Bonds, 2022 200,000 206,864
--------------
386,375
--------------
TOTAL BONDS (Cost $376,458) 386,375
--------------
U.S. GOVERNMENT
SECURITIES (5.7%)
United States of
America Treasury,
7.50% Notes, 1996 500,000 505,156
United States of
America Treasury,
7.75% Notes, 1999 500,000 520,780
--------------
--------------
1,025,936
--------------
TOTAL U.S. GOVERNMENT
SECURITIES (COST $998,477) 1,025,936
SHORT-TERM INVESTMENTS (8.9%)
REPURCHASE AGREEMENTS (8.9%)
First Boston,
5.30% Repurchase Agreement
dated June 28, 1996 due July 1,
1996 collateralized by: United
States of America Treasury,
$1,540,000, 7.50% due
December 31, 1996 1,577,000 1,577,000
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $1,577,000) 1,577,000
--------------
TOTAL INVESTMENTS (100%)
(COST $15,552,503) (B) $ 17,796,024
==============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At June 30, 1996, net unrealized appreciation for all securities was
$2,243,521. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
cost of $2,271,304 and aggregate gross unrealized depreciation for all
securities in which there was an excess of cost over market value of
$27,783.
-60-
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Series Trust (the "Series Trust") is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Declaration of
Trust authorizes the shares of the Series Trust to be divided into two or
more series. As of June 30, 1996, the Series Trust consisted of six series:
U.S. Government Securities Portfolio, Social Awareness Stock Portfolio,
Utilities Portfolio (the "Portfolios"), Zero Coupon Bond Fund Portfolio
Series 1998, Zero Coupon Bond Fund Portfolio Series 2000 and Zero Coupon
Bond Fund Portfolio Series 2005. Shares in each Portfolio are currently
offered, without a sales charge, to separate accounts of The Travelers
Insurance Company ("The Travelers") and The Travelers Life and Annuity
Company, indirect wholly owned subsidiaries of Travelers Group Inc., in
connection with the issuance of certain variable annuity and variable life
insurance contracts. The accompanying notes do not specifically pertain to
the Zero Coupon Bond Fund Portfolios, as the financial statements and
accompanying notes for those portfolios are published in their own
semi-annual report.
The following is a summary of significant accounting policies consistently
followed by each Portfolio in the preparation of its financial statements.
SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last-reported sale price as of the
close of business of the New York Stock Exchange on the last business day of
the period; securities traded on the over-the-counter market and listed
securities with no reported sales are valued at the mean between the
last-reported bid and asked prices or on the basis of quotations received
from a reputable broker or other recognized source.
When market quotations are not considered to be readily available for
long-term corporate bonds and notes, such investments are generally stated
at fair value on the basis of valuations furnished by a pricing service.
These valuations are determined for normal institutional-size trading units
of such securities using methods based on market transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Securities, including restricted
securities, for which pricing services are not readily available are valued
by management at prices which it deems in good faith to be fair.
Short-term investments for which a quoted market price is available are
valued at market. Short-term investments for which there is no reliable
quoted market price are valued by computing a market value based upon
quotations from dealers or issuers for securities of a similar type, quality
and maturity.
FUTURES CONTRACTS. Each Portfolio may use stock index futures contracts, and
may also use interest rate futures contracts, as a substitute for the
purchase or sale of individual securities. When a Portfolio enters into a
futures contract, it agrees to buy or sell a specified index of stocks, or
debt securities, at a future time for a fixed price, unless the contract is
closed prior to expiration. Each Portfolio is obligated to deposit with a
broker an "initial margin" equivalent to a percentage of the face, or
notional value of the contract.
It is each Portfolio's practice to hold cash and cash equivalents in an
amount at least equal to the notional value of outstanding purchased futures
contracts, less the initial margin. Cash and cash equivalents include cash
on hand, securities segregated under federal and brokerage regulations, and
short-term highly liquid investments with maturities generally three months
or less when purchased. Generally, futures contracts are closed prior to
expiration.
Futures contracts purchased by each Portfolio are priced and settled daily;
accordingly, changes in daily prices are recorded as realized gains or
losses and no asset is recorded in the Statements of Investments. However,
when each Portfolio holds open futures contracts, it assumes a market risk
generally equivalent to the underlying market risk of changes in the value
of the specified indexes or debt securities associated with the futures
contract.
OPTIONS. Each Portfolio may purchase index or individual equity put or call
options, thereby obtaining the right to sell or buy a fixed number of shares
of the underlying asset at the stated price on or before the stated
expiration date. Each Portfolio may sell the options before expiration.
Options held in each Portfolio are listed on either national securities
exchanges or on over-the-counter markets, and are short-term contracts with
a duration of less than nine months. The market value of the options will be
the latest sale price at the close of the New York Stock Exchange, or in the
absence of such sale, the latest bid quotation.
-61-
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
REPURCHASE AGREEMENTS. When each Portfolio enters into a repurchase
agreement (a purchase of securities whereby the seller agrees to repurchase
the securities at a mutually agreed-upon date and price), the repurchase
price of the securities will generally equal the amount paid by each
Portfolio plus a negotiated interest amount. The seller under the repurchase
agreement will be required to provide to each Portfolio securities
(collateral) whose market value, including accrued interest, will be at
least equal to 102% of the repurchase price. Each Portfolio monitors the
value of collateral on a daily basis. Repurchase agreements will be limited
to transactions with national banks and reporting broker dealers believed to
present minimal credit risks. Each Portfolio's custodian will take actual or
constructive receipt of all securities underlying repurchase agreements
until such agreements expire.
TAXES. Each Portfolio has qualified, and intends to continue to qualify each
year, as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, each
Portfolio is relieved of any federal income tax liability by distributing
all of its net taxable investment income and net taxable capital gains, if
any, to its shareholders. Each Portfolio further intends to avoid excise tax
liability by distributing substantially all of its investment income.
Therefore, no federal income tax provision has been made by each Portfolio
in its financial statements.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Security transactions are accounted for on the trade date. Interest income
is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to shareholders are recorded at the close of
business on the record date.
2. INVESTMENTS
Purchases and sales of common stocks and bonds excluding short-term
investments aggregated $5,553,867 and $12,655,063, respectively, for U.S.
Government Securities Portfolio; $1,670,366 and $1,194,936, respectively,
for Social Awareness Stock Portfolio; and $5,014,445 and $2,599,828,
respectively, for Utilities Portfolio; for the six months ended June 30,
1996. Purchases and sales of direct and indirect U.S. government obligations
were $84,082,567 and $79,759,444, respectively, for U.S. Government
Securities Portfolio for the six months ended June 30, 1996. Realized gains
and losses from security transactions are reported on an identified
cost-basis.
Social Awareness Stock Portfolio placed a portion of its security
transactions with brokerage firms which are affiliates of The Travelers. The
commissions paid to these affiliated firms were $145 for the year ended
December 31, 1995.
At June 30, 1996, U.S. Government Securities Portfolio held 35 open Treasury
Bond futures and 100 open Treasury Note futures with maturity dates of
September 30, 1996. The face value, or notional value, of these contracts at
June 30, 1996, amounted to $3,833,594 and $10,575,000, respectively. In
connection with these contracts, short-term investments with a par value of
$90,000 had been pledged as margin deposits.
Net realized gains from options transactions in the Social Awareness Stock
Portfolio were $21,118 for the year ended December 31, 1995. These gains are
included in the net realized gain from investment security transactions on
both the Statement of Operations and the Statement of Changes in Net Assets.
Net realized losses resulting from futures contracts in the U.S. Government
Securities Portfolio were $83,189 for the six months ended June 30, 1996.
These losses are included in the net realized loss from investment security
transactions on both the Statement of Operations and the Statement of
Changes in Net Assets. The cash settlement for June 30, 1996 is shown on the
Statement of Assets and Liabilities as a payable for variation on futures
margin.
-62-
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
3. PORTFOLIO CHARGES
Investment management and advisory fees for U.S. Government Securities
Portfolio are calculated daily at an annual rate of 0.3233% of the
Portfolio's average net assets. These fees are paid to Travelers Asset
Management International Corporation, an indirect wholly owned subsidiary of
Travelers Group Inc.
Investment management and advisory fees for Social Awareness Stock Portfolio
are calculated daily at annual rates which start at 0.65% and decrease, as
net assets increase, to 0.40% of the Portfolio's average net assets. These
fees are paid to Greenwich Street Advisors, a division of Smith Barney
Mutual Funds Management Inc. ("SBMFM"), an indirect wholly owned subsidiary
of Travelers Group Inc.
Investment management and advisory fees for Utilities Portfolio are
calculated daily at an annual rate of 0.65% of the Portfolio's average net
assets. These fees are paid to Greenwich Street Advisors, a division of
SBMFM, an indirect wholly owned subsidiary of Travelers Group Inc.
The Travelers has agreed to reimburse U.S. Government Securities Portfolio,
Social Awareness Stock Portfolio and Utilities Portfolio for the amount by
which each Portfolio's aggregate annualized operating expenses, excluding
brokerage commissions and any interest charges and taxes, exceed 1.25% of
each Portfolio's average net assets.
Trustees and officers of the Series Trust, who are also officers and
employees of Travelers Group Inc., or its subsidiaries, receive no
compensation directly from the Series Trust.
-63-
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
each Portfolio were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES
PORTFOLIO
---------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------- --------------
1996 1995
---- ----
<S> <C> <C>
Shares sold........................................... 402,855 484,178
Shares redeemed....................................... (434,914) (672,686)
Shares issued in reinvestment of distributions from
net investment income and net short-term realized
gains............................................ 216,216 138,279
============== ==============
Net................................................... 184,157 (50,229)
============== ==============
<CAPTION>
SOCIAL AWARENESS STOCK
PORTFOLIO
---------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------- --------------
1996 1995
---- ----
<S> <C> <C>
Shares sold........................................... 151,263 205,312
Shares redeemed....................................... (93,765) (74,604)
Shares issued in reinvestment of distributions:
from net investment income and net short-term
realized gains................................... 10,349 4,774
from net long-term realized gains.................. 12,567 6,139
-------------- --------------
Net................................................... 80,414 141,621
============== ==============
<CAPTION>
UTILITIES PORTFOLIO
---------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------- --------------
1996 1995
---- ----
<S> <C> <C>
Shares sold........................................... 357,691 822,640
Shares redeemed....................................... (232,543) (209,288)
Shares issued in reinvestment of distributions from
net investment income and net short-term realized
gains............................................ 47,002 14,594
-------------- --------------
Net................................................... 172,150 627,946
============== ==============
</TABLE>
As of June 30, 1996, all outstanding shares of beneficial interest of each
Portfolio were owned by The Travelers Fund U for Variable Annuities, and/or The
Travelers Fund UL for Variable Life Insurance, both of which are separate
accounts of The Travelers.
-64-
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
5. FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each period.)
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
SIX JANUARY
MONTHS 24,*
ENDED FOR THE YEARS ENDED TO
JUNE 30, DECEMBER 31, DECEMBER 31,
--------- ---------------------------- ------------
1996 1995** 1994** 1993** 1992**
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period........... $ 12.43 $ 10.58 $ 11.63 $ 10.79 $ 10.00
Income from operations
----------------------
Net investment income........................ 0.26 0.65 0.60 0.57 0.53
Net gains or losses on securities (realized
and unrealized)............................ (0.78) 1.80 (1.23) 0.44 0.26
-------- -------- -------- ------- --------
Total from investment operations........... (0.52) 2.45 (0.63) 1.01 0.79
Less distributions
------------------
Distributions from net investment income and
net short-term realized gains............... (1.06) (0.60) (0.39) (0.17) -
Distributions from net long-term realized
gains...................................... - - (0.03) - -
-------- -------- -------- ------- --------
Total distributions........................ (1.06) (0.60) (0.42) (0.17) -
Net asset value, end of period................. $ 10.85 $ 12.43 $ 10.58 $ 11.63 $ 10.79
======== ======== ======== ======= ========
TOTAL RETURN*** (4.54)% 24.42 % (5.64) % 9.48 % 7.90%
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (thousands)........ $ 26,605 $ 28,192 $ 24,522 $ 25,520 $ 9,017
Ratio of expenses to average net assets#..... 0.51%## 0.56% 0.71% 0.58% 0.38%##
Ratio of net investment income to average
net assets ................................ 4.68%## 5.80% 5.56% 5.04% 4.72%##
Portfolio turnover rate...................... 372% 214% 16% 51% 25%
</TABLE>
* Date operations commenced.
** Derived from audited financial information.
*** Total return is determined by dividing the increase (decrease) in value of
a share during the period, after reflecting the reinvestment of dividends
declared during the period, by the beginning of period share price. As
described in Note 1, shares in the U.S. Government Securities Portfolio are
only sold to separate accounts of The Travelers Insurance Company and The
Travelers Life and Annuity Company in connection with the issuance of
variable annuity and variable life insurance contracts. The total return
does not reflect the deduction of any contract charges or fees assessed by
these separate accounts. For periods of less than one year, total returns
are not annualized.
# The ratio of expenses to average net assets for 1992-1993 reflects an
expense reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 0.77% and 0.72% for the year ended
December 31, 1993 and the period ended December 31, 1992, respectively. For
the six months ended June 30, 1996 and the years ended December 31, 1995
and 1994, there were no expense reimbursements by The Travelers in
connection with the voluntary expense limitations described in Note 3.
## Annualized.
-65-
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
6. FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each period.)
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SIX
MONTHS MAY 1,*
ENDED FOR THE YEARS ENDED TO
JUNE 30, DECEMBER 31, DECEMBER 31,
---------- ------------------------------ ------------
1996 1995**@ 1994** 1993** 1992**
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
- ----------------
Net asset value, beginning of period........... $ 14.32 $ 11.05 $ 11.64 $ 10.95 $ 10.00
Income from operations
----------------------
Net investment income........................ 0.03 0.12 0.16 0.17 0.16
Net gains or losses on securities
(realized and unrealized).................. 1.20 3.47 (0.45) 0.65 0.79
-------- -------- -------- -------- --------
Total from investment operations........... 1.23 3.59 (0.29) 0.82 0.95
Less distributions
------------------
Distributions from net investment income
and net short-term realized gains.......... (0.28) (0.14) (0.24) (0.13) -
Distributions from net long-term realized
gains...................................... (0.34) (0.18) (0.06) - -
-------- -------- -------- -------- --------
Total distribution......................... (0.62) (0.32) (0.30) (0.13) -
Net asset value, end of period................. $ 14.93 $ 14.32 $ 11.05 $ 11.64 $ 10.95
======== ======== ======== ======== ========
TOTAL RETURN*** 8.99% 33.37% (2.69)% 7.55% 9.50%
- ------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (thousands)........ $ 8,556 $ 7,055 $ 3,879 $ 3,361 $ 1,394
Ratio of expenses to average net assets #.... 1.25%## 1.25% 1.25% 1.05% 0.71%##
Ratio of net investment income to average 0.45%## 0.99% 1.43% 1.50% 2.22%##
net assets.................................
Portfolio turnover rate...................... 16% 73% 137% 60% 56
Average commission rate paid###.............. $0.0460 - - - -
</TABLE>
* Date operations commenced.
** Derived from audited financial information.
*** Total return is determined by dividing the increase (decrease) in value of
a share during the period, after reflecting the reinvestment of dividends
declared during the period, by the beginning of period share price. As
described in Note 1, shares in the Social Awareness Stock Portfolio are
only sold to separate accounts of The Travelers Insurance Company and The
Travelers Life and Annuity Company in connection with the issuance of
variable annuity contracts. The total return does not reflect the
deduction of any contract charges or fees assessed by these separate
accounts. For periods of less than one year, total returns are not
annualized.
# The ratio of expenses to average net assets for 1992-1995 reflects an
expense reimbursement by The Travelers in connection with voluntary
expense limitations. Without the expense reimbursement, the ratios of
expenses to average net assets would have been 1.38%, annualized for the
six months ended June 30, 1996 and 1.75%, 3.34%, 3.73% and 2.19% for the
years ended December 31, 1995, 1994, 1993 and the period ended December
31, 1992, respectively.
## Annualized.
### Calculated by dividing the total dollar amount of commissions paid for
equity securities by the total number of shares purchased and sold during
the period.
@ Effective May 1, 1995, Greenwich Street Advisors became sub-adviser for
the Social Awareness Stock Portfolio.
-66-
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
7. FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each period.)
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SIX
MONTHS FOR THE FEBRUARY
ENDED YEAR 4,*
JUNE ENDED TO
30, DECEMBER 31, DECEMBER 31,
----------- ------------- -------------
1996 1995** 1994**
---- ---- ----
<S> <C> <C> <C>
PER SHARE DATA:
- ---------------
Net asset value, beginning of period............... $ 12.85 $ 10.17 $ 10.00
Income from operations
----------------------
Net investment income............................ 0.24 0.48 0.35
Net gains or losses on securities (realized and
unrealized).................................... 0.34 2.44 (0.18)
---------- ---------- -----------
Total from investment operations............... 0.58 2.92 0.17
Less distributions
------------------
Distributions from net investment income and
net short-term realized gains.................. (0.47) (0.24) -
---------- ---------- -----------
Total distributions.......................... (0.47) (0.24) -
Net asset value, end of period..................... $ 12.96 $ 12.85 $ 10.17
========== ========== ===========
TOTAL RETURN*** 4.66% 29.29% 1.70%
- ------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (thousands)............ $ 17,706 $ 15,340 $ 5,757
Ratio of expenses to average net assets#......... 0.92%## 1.25% 1.25%##
Ratio of net investment income to average net
assets......................................... 3.94%## 4.29% 3.86%##
Portfolio turnover rate.......................... 17% 25% 32%
Average commission rate paid###.................. $ 0.0540 - -
</TABLE>
* Date operations commenced.
** Derived from audited financial information.
*** Total return is determined by dividing the increase (decrease) in value of
a share during the period, after reflecting the reinvestment of dividends
declared during the period, by the beginning of period share price. As
described in Note 1, shares in the Utilities Portfolio are only sold to
separate accounts of The Travelers Insurance Company and The Travelers
Life and Annuity Company in connection with the issuance of variable
annuity and variable life insurance contracts. The total return does not
reflect the deduction of any contract charges or fees assessed by these
separate accounts. For periods of less than one year, total returns are
not annualized.
# The ratio of expenses to average net assets for 1994-1995 reflects an
expense reimbursement by The Travelers in connection with voluntary
expense limitations. Without the expense reimbursement, the ratios of
expenses to average net assets would have been 1.27% and 3.49% annualized
for the year ended December 31, 1995 and the period ended December 31,
1994, respectively. For the six months ended June 30, 1996, there was no
expense reimbursement by The Travelers in connection with the voluntary
expense limitations described in Note 3.
## Annualized.
### Calculated by dividing the total dollar amount of commissions paid for
equity securities by the total number of shares purchased and sold during
the period.
-67-
<PAGE> 70
Investment Advisers
CAPITAL APPRECIATION FUND
THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
Hartford, Connecticut
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CASH INCOME TRUST AND
THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
THE TRAVELERS SERIES TRUST: SOCIAL AWARENESS STOCK PORTFOLIO AND
UTILITIES PORTFOLIO
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
New York, New York
Independent Accountants
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
Custodian
THE CHASE MANHATTAN BANK, N.A.
New York, New York
The financial information included herein has been taken from the records of
Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund, Cash
Income Trust, The Travelers Series Trust: U.S. Government Securities Portfolio,
Social Awareness Stock Portfolio and Utilities Portfolio. This financial
information has not been audited by the Funds' independent accountants, who
therefore express no opinion concerning its accuracy. However, it is
management's opinion that all proper adjustments have been made.
This report is prepared for the general information of contract owners and is
not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Cash Income Trust, The Travelers Series Trust: U.S.
Government Securities Portfolio, Social Awareness Stock Portfolio or Utilities
Portfolio. It should not be used in connection with any offer except in
conjunction with the Prospectuses for the Variable Annuity and Variable
Universal Life Insurance products offered by The Travelers Insurance Company and
The Travelers Life and Annuity Company in addition to the Prospectuses for the
underlying funds, which collectively contain all pertinent information,
including the applicable sales commissions.
VG-181 (S/A) (6-96) Printed in U.S.A.
