<PAGE> 1
Registration No. 2-74285
811-3274
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 24
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 24
CASH INCOME TRUST
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(Exact name of Registrant)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (203) 277-0111
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ERNEST J. WRIGHT
Secretary to the Board of Trustees
Cash Income Trust
One Tower Square
Hartford, Connecticut 06183
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
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It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b).
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X on May 1, 1997 pursuant to paragraph (b).
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60 days after filing pursuant to paragraph (a)(1).
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on pursuant to paragraph (a)(1).
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75 days after filing pursuant to paragraph (a)(2).
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on pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
- ------ previously filed post-effective amendment.
AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL INTEREST OF THE REGISTRANT WERE
REGISTERED PURSUANT TO RULE 24f-2 OF THE INVESTMENT COMPANY ACT OF 1940. A
RULE 24f-2 NOTICE FOR REGISTRANT'S FISCAL YEAR ENDED DECEMBER 31, 1996 WAS
FILED ON FEBRUARY 28, 1997.
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CASH INCOME TRUST
Cross-Reference Sheet pursuant to Rule 495 under the Securities Act of 1933
<TABLE>
<CAPTION>
ITEM
NO. CAPTION IN PROSPECTUS
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Cover Page
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Fund Description; Investment
Objective and Policies
5. Management of the Fund Board of Trustees; Investment Adviser;
Securities Transactions; Fund Expenses;
Additional Information
6. Capital Stock and Other Securities Fund Description; Dividends and Distributions;
Shareholder Rights; Net Asset Value
7. Purchase of Securities Being Offered Shareholder Rights
8. Redemption or Repurchase Net Asset Value
9. Legal Proceedings Legal Proceedings
<CAPTION>
CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION
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<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objectives and Policies;
Investment Restrictions; Appendix
14. Management of the Registrant Trustees and Officers
15. Control Persons and Principal Additional Information
Holders of Securities
16. Investment Advisory and Investment Adviser; Additional Information
Other Services
17. Brokerage Allocation Brokerage
18. Capital Stock and Other Securities Declaration of Trust
19. Purchase, Redemption and Pricing Valuation of Securities
of Securities Being Offered
20. Tax Status Distributions and Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Data Not Applicable
23. Financial Statements Additional Information
</TABLE>
<PAGE> 3
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 4
CASH INCOME TRUST
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE 860-422-3985
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Cash Income Trust (the "Fund") is a diversified open-end management investment
company (mutual fund) which seeks high current income from short-term money
market instruments while preserving capital and maintaining a high degree of
liquidity.
Shares of the Fund are currently offered without a sales charge only to separate
accounts of The Travelers Insurance Company and The Travelers Life and Annuity
Company (the "Company" or "The Travelers"). The Fund may serve as one of the
investment vehicles for certain variable life insurance and variable annuity
contracts issued by the Company. The term "shareholder" as used herein refers to
any insurance company separate account that may use shares of the Fund as an
investment vehicle now or in the future.
This Prospectus concisely sets forth the information about the Fund that you
should know before investing. Please read it and retain it for future reference.
Additional information about the Fund is contained in a Statement of Additional
Information ("SAI") dated May 1, 1997 which has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus. A copy may be obtained, without charge, by writing to The Travelers
Insurance Company, One Tower Square, Hartford, Connecticut 06183-5030, or by
calling 860-422-3985.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR A VARIABLE
ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT ISSUED BY THE TRAVELERS. BOTH THIS
PROSPECTUS AND THE CONTRACT PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF A DOLLAR PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS.................................................................. 3
FUND DESCRIPTION...................................................................... 4
INVESTMENT OBJECTIVE AND POLICIES..................................................... 4
INVESTMENT RESTRICTIONS............................................................... 5
RISK FACTORS.......................................................................... 5
BOARD OF TRUSTEES..................................................................... 5
INVESTMENT ADVISER.................................................................... 5
Portfolio Manager................................................................... 6
SECURITIES TRANSACTIONS............................................................... 6
FUND EXPENSES......................................................................... 6
TRANSFER AGENT........................................................................ 6
SHAREHOLDER RIGHTS.................................................................... 7
NET ASSET VALUE....................................................................... 7
TAX STATUS............................................................................ 8
DIVIDENDS AND DISTRIBUTIONS........................................................... 8
LEGAL PROCEEDINGS..................................................................... 8
ADDITIONAL INFORMATION................................................................ 8
EXHIBIT A............................................................................. 9
</TABLE>
CIT-2
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FINANCIAL HIGHLIGHTS
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CASH INCOME TRUST
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
The following information on per share data for the seven years ended December
31, 1996, has been audited by Coopers & Lybrand L.L.P., Independent Accountants.
All other periods presented have been audited by the Fund's prior auditors.
Coopers & Lybrand L.L.P.'s report on the per share data for each of the five
years in the period ended December 31, 1996 is contained in the Fund's Annual
Report which should be read along with this information and which is
incorporated by reference into the SAI.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990
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<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value,
beginning of
year.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from
operations.......... 0.0412 0.0417 0.0278 0.0214 0.0322 0.0650 0.0744
Less distributions
from net investment
income.............. (0.0412) (0.0417) (0.0278) (0.0214) (0.0322) (0.0650) (0.0744)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end
of year (unchanged
during the year).... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN*......... 4.20% 4.17% 2.78% 2.14% 3.22% 6.50% 7.44%
Net assets, end of
year (thousands).. $ 3,543 $ 1,417 $ 1,203 $ 647 $ 697 $ 690 $ 619
RATIOS TO AVERAGE NET ASSETS
Expenses............ 0.78%** 1.25%** 1.25%** 0.94%** 0.38%** 0.38%** 0.08%**
Net investment
income.............. 3.72 -- -- -- -- -- --
<CAPTION>
<S> <C> <C> <C> <C>
1989 1988 1987
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<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value,
beginning of
year.............. $ 1.00 $ 1.00 $ 1.00
Income from
operations.......... 0.0753 0.0690 0.0606
Less distributions
from net investment
income.............. (0.0753) (0.0690) (0.0606)
-------- -------- --------
Net asset value, end
of year (unchanged
during the year).... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
TOTAL RETURN*......... 7.57% 6.82% 6.09%
Net assets, end of
year (thousands).. $ 656 $ 107,850 $ 116,849
RATIOS TO AVERAGE NET
Expenses............ 1.00%+ 0.67% 0.65%
Net investment
income.............. -- -- --
</TABLE>
* Total return is determined after reflecting the reinvestment of dividends
declared during the year, by dividing net investment income by average net
assets. Shares in Fund CIT are only sold to The Travelers separate accounts
in connection with the issuance of variable life insurance contracts. The
above total return does not reflect the deduction of any contract charges or
fees assessed by The Travelers separate accounts.
** The ratios of expenses to average net assets for 1990 and later years reflect
an expense reimbursement by Travelers Insurance in connection with voluntary
expense limitations. Without the expense reimbursement, the ratio of expenses
to average net assets would have been 7.37%, 6.40%, 8.47%, 7.70%, 11.61% and
20.99% for the years ended December 31, 1996, 1995, 1994, 1993, 1992, 1991
and 1990, respectively. For the year ended December 31, 1996, there were no
expense reimbursements by the Travelers in connection with the voluntary
expense limitations.
+ The amount represented reflects an expense reimbursement by Keystone
Custodian Funds, Inc. (the prior investment adviser) in connection with a
voluntary expense limitation. Before the expense reimbursement, the "Ratio of
expenses to average net assets" would have been 8.95%.
CIT-3
<PAGE> 7
FUND DESCRIPTION
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Cash Income Trust (the "Fund") is registered with the SEC as a diversified
open-end management investment company, commonly known as a mutual fund. The
Fund was created under Massachusetts law as a Massachusetts business trust on
October 1, 1981.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide high current income from
short-term money market instruments while emphasizing preservation of capital
and maintaining a high degree of liquidity. The Fund pursues this objective by
investing in securities maturing in one year or less as follows: (1) obligations
issued or guaranteed by the United States government or by any agency or
instrumentality of the United States; (2) certificates of deposit and bankers'
acceptances of banks which are members of the Federal Deposit Insurance
Corporation and which have total assets of at least $1 billion, including U.S.
branches of foreign banks and foreign branches of U.S. banks; (3) prime
commercial paper, including master demand notes; and (4) repurchase agreements
secured by United States government securities. Securities issued or guaranteed
by the United States government include a variety of Treasury securities that
differ only in their interest rates, maturities and dates of issuance. Treasury
Bills have maturities of one year or less, Treasury Notes have maturities of one
to ten years, and Treasury Bonds generally have maturities of greater than ten
years at the date of issuance.
Securities issued or guaranteed by the United States government or its agencies
or instrumentalities include direct obligations of the United States Treasury
and securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal
Land Banks, Maritime Administration, The Tennessee Valley Authority, District of
Columbia Armory Board and Federal National Mortgage Association. Some
obligations of United States government agencies and instrumentalities, such as
Treasury Bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; still others, such as bonds
issued by the Federal National Mortgage Association, a private corporation, are
supported only by the credit of the instrumentality. Because the United States
government is not obligated by law to provide support to an instrumentality it
sponsors, the Fund will invest in the securities issued by such an
instrumentality only when the investment adviser determines that the credit risk
with respect to the instrumentality does not make its securities unsuitable
investments for the Fund. United States government securities do not include
international agencies or instrumentalities in which the United States
government, its agencies or instrumentalities participate, such as the World
Bank, the Asian Development Bank or issues insured by the Federal Deposit
Insurance Corporation. The Fund offers a convenient alternative to investing
directly in money market instruments by eliminating the mechanical problems
normally associated with direct investments while, most importantly, providing
the opportunity to obtain the higher yields often available from money market
investments made in large denominations.
For further information about the types of investments and investment techniques
available to the Fund, including the associated investment risks, see Exhibit A
to this Prospectus.
CIT-4
<PAGE> 8
INVESTMENT RESTRICTIONS
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The Fund has adopted the following fundamental investment restrictions which may
not be changed without a vote of a majority of the outstanding voting securities
of the Fund, as defined in the Investment Company Act of 1940, as amended. These
restrictions and certain other fundamental restrictions are set forth in the
SAI. Unless otherwise stated, all references to the Fund's assets are in terms
of current market value.
The Fund's fundamental policies permit it to invest up to 100% of its assets in
securities issued or guaranteed by the United States government, its agencies or
instrumentalities. The Fund will not: (1) invest more than 5% of its assets in
the securities of other single issuers; (2) borrow money, except that the Fund
may borrow money from banks for temporary or emergency purposes in amounts of up
to one-third of its assets, including the amount borrowed, and such borrowings
will be repaid before additional investments are made; (3) pledge more than 15%
of its assets to secure borrowings; and (4) invest more than 10% of its assets
in repurchase agreements maturing in more than seven days and securities for
which market quotations are not readily available.
RISK FACTORS
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Because interest rates on money market instruments fluctuate in response to
economic factors, the rates on short-term investments made by the Fund and the
daily dividend paid to shareholders will vary, rising or falling with short-term
rates generally. Yields from short-term securities may be lower than yields from
longer-term securities. Also, the value of the Fund's securities will fluctuate
inversely with interest rates, the amount of outstanding debt and other factors.
In addition, the Fund's investments in certificates of deposit issued by U.S.
branches of foreign banks and foreign branches of U.S. banks involve somewhat
more risk, but also more potential reward, than investments in comparable
domestic obligations.
There can be no assurance that the Fund will achieve its investment objective
since there is uncertainty in every investment.
BOARD OF TRUSTEES
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Under Massachusetts law, the Fund's Board of Trustees has absolute and exclusive
control over the management and disposition of all assets of the Fund. Subject
to the provisions of the Declaration of Trust, the business and affairs of the
Fund shall be managed by the Trustees of other parties so designated by the
Trustees. Information relating to the Board of Trustees, including its members
and their compensation, is contained in the SAI.
INVESTMENT ADVISER
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Travelers Asset Management International Corporation (TAMIC) provides investment
advice and, in general, supervises the management and investment program of the
Fund.
TAMIC is a registered investment adviser which has provided investment advisory
services since its incorporation in 1978. Under its Advisory Agreement with the
Fund, TAMIC is paid an amount equivalent on an annual basis to 0.3233% of the
average daily net assets of the Fund. The fee is computed daily and paid weekly.
TAMIC is an indirect wholly owned subsidiary of Travelers Group Inc., a
financial services holding company, and its principal offices are located at One
Tower Square, Hartford, Connecticut 06183.
CIT-5
<PAGE> 9
In addition to providing investment advice to the Fund, TAMIC acts as investment
adviser for other investment companies which fund variable contracts issued by
the Company. TAMIC also provides investment advice to individual and pooled
pension and profit-sharing accounts, domestic insurance companies affiliated
with The Travelers and nonaffiliated insurance companies.
PORTFOLIO MANAGER
The Cash Income Trust has been managed by Emil J. Molinaro, Jr. since March
1995. Mr. Molinaro joined an affiliate of The Travelers Insurance Company in
1980 and is a Vice President of The Travelers Insurance Company's Securities
Department. For the past six years he has managed short term investment
portfolios backing various insurance company products and is currently
responsible for managing the Travelers Money Market Pool.
The Fund has entered into an Administrative Service Agreement, whereby Travelers
Insurance will be responsible for the pricing and bookkeeping services for the
Fund at an annualized rate of 0.06% of the daily net assets of the Fund. The
Travelers Insurance Company, at its expense, may appoint a sub-administrator to
perform these services. The sub-administrator may be affiliated with The
Travelers Insurance Company.
SECURITIES TRANSACTIONS
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Under policies established by the Board of Trustees, TAMIC selects
broker-dealers to execute transactions for the Fund, subject to the receipt of
best execution. When selecting broker-dealers to execute portfolio transactions
for the Fund, TAMIC may consider the number of shares of the Fund sold by such
broker-dealers. In addition, broker-dealers may from time to time be affiliated
with the Fund, TAMIC or their affiliates. The Fund will not trade in securities
for short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held.
FUND EXPENSES
- --------------------------------------------------------------------------------
In addition to the investment advisory fees discussed above, other expenses of
the Fund include the charges and expenses of the transfer agent, the custodian,
the independent auditors, and any outside legal counsel employed by either the
Fund or the Board of Trustees; the compensation for the disinterested members of
the Board of Trustees; the costs of printing and mailing the Fund's
prospectuses, proxy solicitation materials, and annual, semiannual and periodic
reports; brokerage commissions, interest charges and taxes; and any
registration, filing and other fees payable to government agencies in connection
with the registration of the Fund and its shares under federal and state
securities laws.
Pursuant to a Management Agreement dated May 1, 1993 between the Fund and The
Travelers Insurance Company, the Company has agreed to reimburse the Fund for
the amount by which the Fund's aggregate annual expenses, including investment
advisory fees but excluding brokerage commissions, interest charges and taxes,
exceed 1.25% of the Fund's average net assets for any fiscal year. For the
fiscal year ended December 31, 1996, there was no expense reimbursement.
TRANSFER AGENT
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First Data Investor Services Group, Inc., Exchange Place, Boston, MA, 02109,
serves as the Fund's transfer agent and dividend disbursing agent.
CIT-6
<PAGE> 10
SHAREHOLDER RIGHTS
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Shares of the Fund are currently sold only to insurance company separate
accounts in connection with variable annuity and variable life insurance
contracts issued by the Company. Shares are not sold to the general public. Fund
shares are sold on a continuing basis, without a sales charge, at the net asset
value next computed after payment is made by the insurance company to the Fund's
custodian. However, separate accounts to which shares are sold may impose sales
and other charges, as described in the appropriate contract prospectus.
The Fund currently issues one class of shares which participates equally in
dividends and distributions and have equal voting, liquidation and other rights.
When issued and paid for, the shares will be fully paid and nonassessable by the
Fund and will have no preference, conversion, exchange or preemptive rights.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares are redeemable, transferable and freely
assignable as collateral. There are no sinking fund provisions. (See the
accompanying separate account prospectus for a discussion of voting rights
applicable to purchasers of variable life insurance contracts.)
In the event that the Fund serves as an investment vehicle for both variable
annuity and variable life insurance contracts, an irreconcilable material
conflict may conceivably arise between contract owners of different separate
accounts investing in the Fund due to differences in tax treatment, management
of the Fund's investments, or other considerations. The Fund's Board of Trustees
will monitor events in order to identify any material conflicts between variable
annuity contract owners and variable life insurance policy owners, and will
determine what action, if any, should be taken in the event of such a conflict.
NET ASSET VALUE
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The net asset value of a Fund share, which is expected to remain constant at
$1.00, is computed as of the close of trading on each day on which the New York
Stock Exchange ("Exchange") is open, except on days when changes in the value of
the Fund's securities do not affect the current net asset value of its shares.
The net asset value per share is arrived at by determining the value of the
Fund's assets, subtracting its liabilities, and dividing the result by the
number of shares outstanding.
The Fund values short-term money market instruments with maturities of sixty
days or less at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount) which when combined with
accrued interest approximates market. All other investments are valued at market
value or, where market quotations are not readily available, at fair value as
determined in good faith by the Fund's Board of Trustees.
Fund shares are redeemed at the net asset value per share, normally $1.00, next
determined after the Fund receives a redemption request. The Fund computes the
net asset value at the close of the Exchange at the end of the day on which it
has received all documentation from the shareholder. Redemption proceeds are
normally wired or mailed either the same or the next business day, but in no
event later than seven days thereafter.
The Fund may temporarily suspend the right to redeem its shares when: (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists as determined by
the SEC so that disposal of the Fund's investments or determination of its net
asset value is not reasonably practicable; or (4) the SEC, for the protection of
shareholders, so orders.
CIT-7
<PAGE> 11
TAX STATUS
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The Fund has qualified and intends to qualify in the future as a regulated
investment company under Subchapter M of the Internal Revenue Code. The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for each fiscal year.
DIVIDENDS AND DISTRIBUTIONS
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Capital gains and dividends are distributed in cash or reinvested in additional
shares of the Fund, without a sales charge. Although purchasers of variable
insurance contracts are not subject to federal income taxes on distributions by
the Fund they may be subject to state and local taxes and should review the
accompanying contract prospectus for a discussion of the tax treatment
applicable to purchasers of variable life insurance contracts.
LEGAL PROCEEDINGS
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There are no pending material legal proceedings affecting the Fund.
ADDITIONAL INFORMATION
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Except as otherwise stated in this Prospectus or as required by law, the Fund
reserves the right to change the terms of the offer stated in this Prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
CIT-8
<PAGE> 12
EXHIBIT A
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DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS
AND INVESTMENT TECHNIQUES AVAILABLE TO THE FUND
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury bills have maturities of one year or
less; Treasury notes have maturities of one to ten years; and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the United States Government or its agencies
or instrumentalities include direct obligations of the United States Treasury
and securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal
Land Banks, Maritime Administration, The Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Federal National
Mortgage Association.
Some obligations of United States Government agencies and instrumentalities,
such as Treasury bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; still others, such as bonds
issued by the Federal National Mortgage Association, a private corporation, are
supported only by the credit of the instrumentality. Because the United States
Government is not obligated by law to provide support to an instrumentality it
sponsors, the Fund will invest in the securities issued by such an
instrumentality only when the adviser determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable
investments. United States Government securities will not include international
agencies or instrumentalities in which the United States Government, its
agencies or instrumentalities participate, such as the World Bank, the Asian
Development Bank or the Inter-American Development Bank, or issues insured by
the Federal Deposit Insurance Corporation.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated certificates
of United States banks which have at least $1 billion in deposits as of the date
of their most recently published financial statements (including foreign
branches of U.S. banks, U.S. branches of foreign banks which are members of the
Federal Reserve System or the Federal Deposit Insurance Corporation, and savings
and loan associations which are insured by the Federal Deposit Insurance
Corporation).
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
CIT-9
<PAGE> 13
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of United States banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by government regulation.
Payment of interest and principal upon these obligations may also be affected by
governmental action in the country of domicile of the branch (generally referred
to as sovereign risk). In addition, evidences of ownership of such securities
may be held outside the United States and the Fund may be subject to the risks
associated with the holding of such property overseas. Various provisions of
federal law governing domestic branches do not apply to foreign branches of
domestic banks.
OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as by governmental action in the country in which the foreign
bank has its head office. In addition, there may be less publicly available
information about a United States branch of a foreign bank than about a domestic
bank.
COMMERCIAL PAPER
The Fund's investments in commercial paper are limited to those rated A-1 by
Standard & Poor's Corporation (S&P) or Prime-1 by Moody's Investors Service,
Inc. (Moody's). Commercial paper rated A-1 by Standard & Poor's has the
following characteristics: liquidity ratios are adequate to meet cash
requirements. The issuer's long-term senior debt is rated "A" or better,
although in some cases "BBB" credits may be allowed. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public preparations to meet such
obligations. Relative strength or weakness of the above factors determines how
the issuer's commercial paper is rated within various categories.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund as lender and the issuer as borrower. The Fund has
the right to increase the amount under the note at any time up to the full
amount provided by the note agreement, or to decrease the amount, and the
borrower may repay up to the full amount of the note without penalty. Notes
purchased by the Fund permit the Fund to demand payment of principal and accrued
interest at any time (on not more than seven days notice). Notes acquired by the
Fund may have maturities of more than one year, provided that (i) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days notice, and (ii) the rate of interest on such notes is adjusted
automatically at periodic intervals which normally will not exceed 31 days but
may extend up to one year. The notes will be deemed to have a maturity equal to
the longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and the borrower, such instruments are not
normally traded and there is no secondary market
CIT-10
<PAGE> 14
for these notes, although they are redeemable and thus repayable by the borrower
at face value plus accrued interest at any time. Accordingly, the Fund's right
to redeem is dependent on the ability of the borrower to pay principal and
interest on demand. In connection with master demand notes, TAMIC considers,
under standards established by the Board of Trustees, earning power, cash flow
and other liquidity ratios of the borrower and will monitor the ability of the
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, the Fund will invest in them only
if the issuer meets the criteria established for commercial paper.
REPURCHASE AGREEMENTS
Interim cash balances may be invested from time to time in repurchase agreements
with approved counterparties. Approved counterparties are limited to national
banks or reporting broker-dealers meeting the investment adviser's credit
quality standards as presenting minimal risk of default. All repurchase
transactions must be collateralized by U.S. Government securities with market
value no less than 102% of the amount of the transaction, including accrued
interest. Repurchase transactions generally mature the next business day but, in
the event of a transaction of longer maturity, collateral will be marked to
market daily and, when required, additional cash or qualifying collateral will
be required from the counterparty.
In executing a repurchase agreement, the Fund purchases eligible securities
subject to the seller's simultaneous agreement to repurchase them on a mutually
agreed upon date and at a mutually agreed upon price. The purchase and resale
prices are negotiated with the counterparty on the basis of current short-term
interest rates, which may be more or less than the rate on the securities
collateralizing the transaction. Physical delivery or, in the case of
"book-entry" securities, segregation in the counterparty's account at the
Federal Reserve for the benefit of the Fund is required to establish a perfected
claim to the collateral for the term of the agreement in the event the
counterparty fails to fulfill its obligation.
As the securities collateralizing a repurchase transaction are generally of
longer maturity than the term of the transaction, in the event of default by the
counterparty on its obligation, the Fund would bear the risks of delay, adverse
market fluctuation and transaction costs in disposing of the collateral.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank which, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion, and must be
payable in U.S. dollars.
CIT-11
<PAGE> 15
CASH INCOME TRUST
PROSPECTUS
TIC Ed. 5-97
L-11170 Printed in U.S.A.
<PAGE> 16
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 17
STATEMENT OF ADDITIONAL INFORMATION
CASH INCOME TRUST
MAY 1, 1997
This Statement of Additional Information ("SAI") is not a prospectus
but relates to, and should be read in conjunction with, the Fund's prospectus
dated May 1, 1997. A copy of the prospectus is available from The Travelers
Insurance Company, Life Services One Tower Square, Hartford, Connecticut
06183-5030, or by calling 860-422-3985. The SAI should be read in conjunction
with the accompanying 1996 Annual Report for the Fund.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
VALUATION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DECLARATION OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
REDEMPTIONS IN KIND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
BROKERAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 18
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Cash Income Trust (the "Fund") is to
provide the highest possible current income from short-term money market
instruments while emphasizing preservation of capital and maintaining a high
degree of liquidity. The Fund pursues this objective by investing in
short-term money market securities maturing in one year or less which are
deemed to present minimal credit risks.
INVESTMENT RESTRICTIONS
None of the restrictions enumerated in this paragraph may be changed
without a vote of the holders of a majority of the Fund's outstanding shares,
as defined in the Investment Company Act of 1940 (the "1940 Act"). The Fund
will not:
(1) purchase any security which has a maturity date more than one
year from the date of the Fund's purchase;
(2) invest more than 25% of its assets in the securities of issuers
in any single industry, exclusive of securities issued by banks
or securities issued or guaranteed by the United States
Government, its agencies or instrumentalities;
(3) invest more than 5% of its assets in the securities of any one
issuer, including repurchase agreements with any one bank or
dealer, exclusive of securities issued or guaranteed by the
United States Government, its agencies or instrumentalities;
however, in accordance with Rule 2a-7 of the 1940 Act, to which
the Fund is subject, agencies of the U.S. Government are not
excluded from this 5% limitation;
(4) invest in more than 10% of the outstanding securities of any one
issuer, exclusive of securities issued or guaranteed by the
United States Government, its agencies or instrumentalities;
(5) borrow money except from banks on a temporary basis in an
aggregate amount not to exceed one-third of the Fund's assets,
including the amount borrowed, and to be used exclusively to
facilitate the orderly maturation and sale of portfolio
securities during any periods of abnormally heavy redemption
requests, if they should occur; such borrowings may not be used
to purchase investments and the Fund will not purchase any
investments while any such borrowings exist;
(6) pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Fund except as
may be necessary in connection with any borrowing mentioned
above and in an aggregate amount not to exceed 15% of the Fund's
assets;
(7) make loans, provided that the Fund may purchase money market
securities or enter into repurchase agreements;
(8) enter into repurchase agreements if, as a result thereof, more
than 10% of the Fund's assets would be subject to repurchase
agreements maturing in more than seven days;
(9) make investments for the purpose of exercising control;
(10) purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization;
(11) invest in real estate, other than money market securities
secured by real estate or interests therein, or money market
securities issued by companies which invest in real estate or
interests therein,
1
<PAGE> 19
commodities or commodity contracts, interests in oil, gas or
other mineral exploration or development programs;
(12) purchase any securities on margin;
(13) make short sales of securities or maintain a short position or
write, purchase or sell puts, calls, straddles, spreads or
combinations thereof;
(14) invest in securities of issuers, other than agencies and
instrumentalities of the United States Government, having a
record, together with predecessors, of less than three years of
continuous operation if more than 5% of the Fund's assets would
be invested in such securities;
(15) purchase or retain securities of any issuer if those officers,
Trustees or Directors of the Fund or TAMIC who own individually
more than 0.5% of the outstanding securities of such issuer
together own more than 5% of the securities of such issuer; or
(16) act as an underwriter of securities.
VALUATION OF SECURITIES
Current value for the Fund's portfolio securities is determined as
follows: Securities traded on national securities markets are valued at the
closing prices on such markets; securities for which no sales prices were
reported and U.S. Government and Agency obligations are valued at the mean
between the last reported bid and ask prices or on the basis of quotations
received from reputable brokers or other recognized sources; securities
maturing within 60 days are valued at cost plus accreted discount and, or minus
amortized premium, which approximates market value; and securities that have a
maturity of 60 days or more are valued at prices based on market quotations for
securities of similar type, yield and maturity.
DISTRIBUTIONS
All net income of the Fund is determined as of the close of trading on
the New York Stock Exchange, currently 4:00 p.m., on each day that the Exchange
is open for trading, and at such other times as the Trustees may determine, and
credited immediately thereafter to each shareholder's account. Net income will
consist of (1) all accrued interest income on Fund portfolio assets, (2) plus
or minus all realized and unrealized gains or losses on Fund portfolio assets,
and (3) less the Fund's estimated expenses, including accrued expenses and fees
payable to
2
<PAGE> 20
TAMIC applicable to that dividend period. Net income is distributed as
dividends as of the close of business each calendar month either in cash or in
the form of additional shares. Dividends are reinvested in full and fractional
shares at the rate of one share for each one dollar distributed.
Since the net income of the Fund is declared as a dividend each time
net income is determined, the net asset value per share remains at $1.00 per
share immediately after each dividend declaration. The Fund expects to have
net income at the time of each dividend determination. If for any reason there
is a net loss, the Fund will first offset such amount pro rata against
dividends accrued during the month in each shareholder account. To the extent
that such a net loss would exceed such accrued dividends, the Fund will reduce
the number of its outstanding shares by having each shareholder contribute to
the Fund's capital the pro rata portion of the total number of shares required
to be canceled in order to maintain a net asset value per share of the Fund at
a constant value of $1.00. Each shareholder will be deemed to have agreed to
such a contribution under these circumstances by investment in the Fund.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
me Present Position and Principal Occupation During Last Five Years
- -- ----------------------------------------------------------------
<S> <C>
*Heath B. McLendon Managing Director (1993-present), Smith Barney Inc. ("Smith Barney");
Chairman and Member Chairman (1993-present), Smith Barney Strategy Advisors, Inc.;
388 Greenwich Street President (1994-present), Smith Barney Mutual Funds Management Inc.;
New York, New York Chairman and Director of forty-one investment companies associated with
Age 63 Smith Barney; Chairman, Board of Trustees, Drew University; Trustee,
The East New York Savings Bank; Advisory Director, First Empire State
Corporation; Chairman, Board of Managers, seven Variable Annuity
Separate Accounts of The Travelers Insurance Company+; Chairman, Board
of Trustees, five Mutual Funds sponsored by The Travelers Insurance
Company++; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc.
Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Edwards & Angell,
Member Attorneys; Member, Advisory Board (1973-1994), thirty-one mutual funds
2700 Hospital Trust Tower sponsored by Keystone Group, Inc.; Member, Board of Managers, seven
Providence, Rhode Island Variable Annuity Separate Accounts of The Travelers Insurance Company+;
Age 73 Trustee, five Mutual Funds sponsored by The Travelers Insurance
Company.++
Robert E. McGill, III Retired manufacturing executive. Director (1983-1995), Executive Vice
Member President (1989-1994) and Senior Vice President, Finance and
295 Hancock Street Administration (1983-1989), The Dexter Corporation (manufacturer of
Williamstown, Massachusetts specialty chemicals and materials); Vice Chairman (1990-1992), Director
Age 65 (1983-1995), Life Technologies, Inc. (life science/biotechnology
products); Director, (1994-present), The Connecticut Surety Corporation
(insurance); Director (1995-present), Calbiochem Novachem International
(life science/biotechnology products); Director (1995-present), Chemfab
Corporation (specialty materials manufacturer); Member, Board of
Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company.++
</TABLE>
3
<PAGE> 21
<TABLE>
<S> <C>
Lewis Mandell Dean, College of Business Administration (1995-present), Marquette
Member University; Professor of Finance (1980-1995) and Associate Dean (1993-
606 N. 13th Street 1995), School of Business Administration, and Director, Center for
Milwaukee, WI 53233 Research and Development in Financial Services (1980-1995), University
Age 54 of Connecticut; Director (1992-present), GZA Geoenvironmental Tech,
Inc. (engineering services); Member, Board of Managers, seven Variable
Annuity Separate Accounts of The Travelers Insurance Company+;
Trustee, five Mutual Funds sponsored by The Travelers Insurance
Company.++
Frances M. Hawk Portfolio Manager (1992-present), HLM Management Company, Inc.
Member (investment management); Assistant Treasurer, Pensions and Benefits.
222 Berkeley Street Management (1989-1992), United Technologies Corporation (broad- based
Boston, Massachusetts designer and manufacturer of high technology products); Member, Board
Age 49 of Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company.++
Ernest J. Wright Assistant Secretary (1994-present), Counsel (1987-present), The
Secretary to the Board Travelers Insurance Company; Secretary, Board of Managers, seven
One Tower Square Variable Annuity Separate Accounts of The Travelers Insurance Company+;
Hartford, Connecticut Secretary, Board of Trustees, five Mutual Funds sponsored by The
Age 56 Travelers Insurance Company.++
Kathleen A. McGah Assistant Secretary and Counsel (1995-present), The Travelers Insurance
Assistant Secretary to the Board Company; Assistant Secretary, Board of Managers, seven Variable Annuity
One Tower Square Separate Accounts of The Travelers Insurance Company+; Assistant
Hartford, Connecticut Secretary, Board of Trustees, five Mutual Funds sponsored by The
Age 46 Travelers Insurance Company.++ Prior to January 1995, Counsel, ITT
Hartford Life Insurance Company.
Lewis E. Daidone Managing Director of Smith Barney, Senior Vice President and Treasurer
Treasurer of 41 investment companies associated with Smith Barney, and Director
388 Greenwich Street and Vice President of SBMFM and TIA; Treasurer, Board of Trustees, five
New York, NY Mutual Funds sponsored by The Travelers Insurance Company.++
Age 38
Irving David Vice President of Smith Barney, Asset Management Division (March 1994-
Controller present) ); Controller, Board of Trustees, five Mutual Funds sponsored
388 Greenwich Street by The Travelers Insurance Company.++
New York, NY
Age 35
Thomas M. Reynolds Director of Smith Barney, Asset Management Division; Controller and
Controller Assistant Secretary of 35 investment companies associated with Smith
388 Greenwich Street Barney, (September 1991-present) ); Controller, Board of Trustees, five
New York, NY Mutual Funds sponsored by The Travelers Insurance Company.++
Age 36
</TABLE>
+ These seven Variable Annuity Separate Accounts are: The Travelers Growth
and Income Stock Account for Variable Annuities, The Travelers Quality
Bond Account for Variable Annuities, The Travelers Money Market Account
for Variable Annuities, The Travelers Timed Growth and Income Stock
Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers
4
<PAGE> 22
Timed Aggressive Stock Account for Variable Annuities and The Travelers
Timed Bond Account for Variable Annuities.
++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income
Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers
Series Trust.
* Mr. McLendon is an "interested person" within the meaning of
the 1940 Act by virtue of his position as Managing Director of Smith Barney
Inc., an indirect wholly owned subsidiary of Travelers Group Inc. and also owns
shares and options to purchase shares of Travelers Group Inc., the indirect
parent of The Travelers Insurance Company.
Members of the Board of Trustees who are also officers or employees of
Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members
of the Board of Trustees who are not affiliated as employees of Travelers Group
Inc. or its subsidiaries receive an aggregate retainer of $19,000 for service
on the Boards of the five Mutual Funds sponsored by The Travelers Insurance
Company and the seven Variable Annuity Separate Accounts established by The
Travelers Insurance Company. Once a Board Member retires, 50% of the retainer
amount will be paid monthy. They also receive an aggregate fee of $2,500 for
each meeting of such Boards attended.
DECLARATION OF TRUST
The Fund is organized as a Massachusetts business trust. Pursuant to
certain decisions of the Supreme Judicial Court of Massachusetts, shareholders
of such a trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, even if the Fund were held
to be a partnership, the possibility of its shareholders incurring financial
loss for that reason appears remote because the Fund's Declaration of Trust
contains an express disclaimer of shareholder liability for obligations of the
Fund and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the Trustees,
and because the Declaration of Trust provides for indemnification out of Fund
property for any shareholder held personally liable for the obligations of the
Fund.
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, a Trustee
shall not be liable for the neglect or wrongdoing of any such person; provided,
however, that nothing in the Declaration of Trust shall protect a Trustee
against any liability for his willful misfeasance, bad faith, gross negligence
or the reckless disregard of his duties.
Shareholders first elected Trustees at a meeting held on April 30,
1985, and most recently elected Trustees on April 23, 1993. No further
meetings of shareholders for the purpose of electing Trustees will be held,
unless required by law, and unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees.
Except as set forth above, the Trustees shall continue to hold office,
unless required by law, and may appoint successor Trustees. Trustees may
voluntarily resign from office, or a Trustee may be removed from office (1) at
any time by two-thirds vote of the Trustees; (2) by a majority vote of Trustees
where any Trustee becomes mentally or physically incapacitated; and (3) either
by declaration in writing or at a meeting called for such purpose by the
holders of not less than two-thirds of the outstanding shares or other voting
interests of the Fund. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as trustee, if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares or other voting interests of the Fund. The Fund is required to assist
in Shareholders' communications. In accordance with current laws, insurance
companies using the Fund as an underlying investment option within their
variable contract will request voting instructions from contract owners
participating in such contracts, and will vote shares of the Fund in the same
proportion as the voting instructions received.
5
<PAGE> 23
Voting rights are not cumulative; therefore, the holders of more than
50% of the shares voting on the election of Trustees can, if they choose to do
so, elect all of the Trustees of the Fund, in which event the holders of the
remaining shares will be unable to elect any person as a Trustee.
No amendment may be made to the Declaration of Trust without a "vote
of a majority of the outstanding voting securities" of the Fund (as defined in
the 1940 Act).
INVESTMENT ADVISER
Travelers Asset Management International Corporation (TAMIC), an
indirect wholly owned subsidiary of Travelers Group Inc., furnishes investment
management and advisory services to the Fund in accordance with the terms of an
Investment Advisory Agreement which was approved by shareholders on April 23,
1993.
As required by the 1940 Act, the Advisory Agreement will continue in
effect for a period more than two years from the date of its execution only so
long as its continuance is specifically approved at least annually (i) by a
vote of a majority of the Board of Trustees, or (ii) by a vote of a majority of
the outstanding voting securities of the Fund. In addition, and in either
event, the terms of the Advisory Agreement must be approved annually by a vote
of a majority of the Board of Trustees who are not parties to, or interested
persons of any party to, the Advisory Agreement, cast in person at a meeting
called for the purpose of voting on such approval and at which the Board of
Trustees is furnished such information as may be reasonably necessary to
evaluate the terms of the Advisory Agreement. The Advisory Agreement further
provides that it will terminate automatically upon assignment; may be amended
only with prior approval of a majority of the outstanding voting securities of
the Fund; may be terminated without the payment of any penalty at any time upon
sixty days' notice by the Board of Trustees or by a vote of a majority of the
outstanding voting securities of the Fund; and may not be terminated by TAMIC
without prior approval of a new investment advisory agreement by a vote of a
majority of the outstanding voting securities of the Fund.
Under the terms of the Advisory Agreement, TAMIC shall:
(1) obtain and evaluate pertinent economic, statistical and
financial data and other information relevant to the investment
policy of the Fund, affecting the economy generally and
individual companies or industries, the securities of which are
included in the Fund's portfolio or are under consideration for
inclusion therein;
(2) be authorized to purchase supplemental research and other
services from brokers at an additional cost to the Fund;
(3) regularly furnish recommendations to the Board of Trustees with
respect to an investment program for approval, modification or
rejection by the Board of Trustees;
(4) take such steps as are necessary to implement the investment
program approved by the Board of Trustees; and
(5) regularly report to the Board of Trustees with respect to
implementation of the approved investment program and any other
activities in connection with the administration of the assets
of the Fund.
ADVISORY FEES
For furnishing investment management and advisory services to the
Fund, TAMIC is paid an amount equivalent on an annual basis to 0.3233% of the
average daily net assets of the Fund. The fee is computed daily and paid
weekly. For the three years ended December 31, 1994, 1995, and 199 the
advisory fees were $3,325, $4,034 and $19,000, respectively.
6
<PAGE> 24
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay for all
redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property.
However, the Fund has obligated itself under the 1940 Act to redeem
for cash all shares presented for redemption by any one shareholder up to
$250,000, or 1% of the Fund's net assets if that is less, in any 90-day period.
Securities delivered in payment of redemptions would be valued at the same
value assigned to them in computing the net asset value per share.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
BROKERAGE
Subject to the general supervision of the Board of Trustees, TAMIC
shall be responsible for the investment decisions and the placement of orders
for portfolio transactions of the Fund. The Fund's portfolio transactions
occur primarily with issuers, underwriters or major dealers in money market
instruments acting as principals. Such transactions will normally be on a net
basis which will not involve payment of brokerage commissions. The cost of
securities purchased from an underwriter usually will include a commission paid
by the issuer to the underwriter; transactions with dealers normally will
reflect the spread between the bid and asked prices.
TAMIC will seek to obtain the best net price and most favorable
execution of orders for the purchase and sale of portfolio securities.
ADDITIONAL INFORMATION
The Travelers Insurance Company acts as transfer agent and dividend
disbursing agent for the Fund. The Travelers Insurance Company is a stock
insurance company chartered in 1864 in Connecticut and continuously engaged in
the insurance business since that time. It is a wholly owned subsidiary of The
Travelers Insurance Group Inc., which is indirectly owned, through a wholly
owned subsidiary, by Travelers Group Inc., a financial services holding
company. The Company's Home Office is located at One Tower Square, Hartford,
Connecticut 06183, telephone 860- 422-3985. On April 1, 1997, The Travelers
Insurance Company owned 100% of the Fund's outstanding shares.
Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York
11245, is custodian of all securities and cash of the Fund.
The Fund terminated its audit relationship with its former principal
accountant, Coopers & Lybrand L.L.P. on January 31, 1997. On that same day,
KPMG Peat Marwick, LLP, independent certified public accountants, 345 Park
Ave., New York, NY 10154, was engaged as principal accountant for the Fund.
KPMG Peat Marwick LLP serves as the principal accountant for several other
affiliated mutual funds.
The report by Coopers & Lybrand L.L.P. on the financial statements for
fiscal years ended December 31, 1996 and 1995, did not contain an adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.
The decision to change principal accountants was approved by the Board
of Trustees on January 31, 1997, where it was decided to engage KPMG Peat
Marwick LLP as the principal accountant to audit the Fund's financial
statements since it would promote consistency among affiliated mutual funds.
During the past two fiscal years and any subsequent interim period
preceding such termination, there were no disagreements with Coopers & Lybrand
L.L.P. on any matters of accounting principles or practices, financial
7
<PAGE> 25
statement disclosure, or auditing scope or procedure, which disagreements if
not resolved to the satisfaction of the former accountant would have caused it
to make reference to the subject matter of disagreement in connection with its
report.
The services provided to the Fund by Coopers & Lybrand L.L.P. included
primarily for the year ended December 31, 1996 the examination of the Fund's
financial statements. The financial statements have been audited by Coopers &
Lybrand L.L.P., as indicated in their report thereon, and are included in the
Fund's Annual Report which is incorporated herein by reference, in reliance
upon the authority of said firm as experts in accounting and auditing.
Except as otherwise stated in its prospectus or as required by law,
the Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or
change fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, this SAI or any supplemental sales literature issued by the Fund,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and this SAI omit certain information contained
in the Fund's registration statement filed with the Securities and Exchange
Commission which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the Rules and
Regulations promulgated by the Commission.
8
<PAGE> 26
CASH INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
9
<PAGE> 27
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant and the Report of Independent
Accountants are contained in the Fund's Annual Report which is
incorporated in the Statement of Additional Information by reference.
The Registrant's financial statements include:
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statement of Changes in Net Assets for the years ended December
31, 1996 and 1995.
Statement of Investments as of December 31, 1996
Notes to Financial Statements
(b) Exhibits
1. Declaration of Trust. (Incorporated herein by reference to
Exhibit 1 to Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A filed on April 11, 1996.)
2. By-Laws of Cash Income Trust. (Incorporated herein by reference
to Exhibit 2 to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A filed on April 11, 1996.)
5. Investment Advisory Agreement between the Registrant and
Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit 5 to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A filed
on April 11, 1996.)
8(A). Custody Agreement between the Registrant and PNC Bank, N.A. To
be filed by amendment.
8(B). Custody Agreement between the Registrant and Barclay's Bank. To
be filed by amendment.
9. Administrative Services Agreement between the Registrant and The
Travelers Insurance Company.
10. An opinion and consent of counsel as to the legality of the
securities registered by the Fund. (Incorporated herein by
reference to the Registrant's most recent Rule 24f-2 Notice
filing on February 28, 1997.)
11(A) Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
11(B). Powers of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatories for Heath B. McLendon, Knight Edwards,
Robert E. McGill III, Lewis Mandell, Frances M. Hawk and Ian R.
Stuart. (Incorporated herein by reference to Exhibit 11(b) to
Post-Effective Amendment No. 23 to the Registration Statement on
Form N-1A filed April 11, 1996.)
<PAGE> 28
11(B) Power of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for Lewis E. Daidone.
27. Financial Data Schedule.
Item 25. Persons Controlled By or Under Common Control With the Registrant
Not Applicable.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of February 21, 1997
-------------- -----------------------
<S> <C>
Shares of beneficial
interest, without par value Five (5)
</TABLE>
Item 27. Indemnification
Provisions for the indemnification of the Fund's Trustees and officers are
contained in the Fund's Declaration of Trust which was filed with
Post-Effective Amendment No. 23 to this Registration Statement as Exhibit 1 on
April 11, 1996.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liability (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 29
Item 28. Business and Other Connections of Investment Adviser
Officers and Directors of Travelers Asset Management International Corporation
(TAMIC), the Fund's Investment Adviser, are set forth in the following table:
<TABLE>
<CAPTION>
Name Position with TAMIC Other Business
- ---- ------------------- --------------
<S> <C> <C>
Marc P. Weill Director and Chairman Senior Vice President **
David A. Tyson Director, President and Senior Vice President *
Chief Investment Officer
Joseph E. Rueli, Jr. Director, Vice President Vice President*
and Chief Financial Officer
F. Denney Voss Director and Senior Senior Vice President*
Vice President
John R. Britt Director and Secretary Assistant Secretary *
Joseph M. Mullally Senior Vice President Vice President*
David Amaral Vice President Assistant Director*
John R. Calcagni Vice President Second Vice President*
Gene Collins Vice President Vice President*
Kathyrn D. Karlic Vice President Vice President*
David R. Miller Vice President Vice President*
Emil J. Molinaro Vice President Vice President*
Jordan M. Stitzer Vice President Vice President
William H. White Treasurer Vice President and Treasurer *
Charles B. Chamberlain Assistant Treasurer Assistant Treasurer *
George C. Quaggin, Jr. Assistant Treasurer Assistant Treasurer *
Marla A. Berman Assistant Secretary Assistant Secretary**
Patricia A. Uzzel Compliance Officer Assistant Director*
Frank J. Fazzina Controller Director *
</TABLE>
* Positions are held with The Travelers Insurance Group Inc., One Tower
Square, Hartford, Connecticut 06183.
** Positions are held with Travelers Group Inc., 388 Greenwich Street, New
York, N.Y. 10013.
<PAGE> 30
Item 29. Principal Underwriter
Not Applicable.
Item 30. Location of Accounts and Records
(1) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, NY 10013
(2) PNC Bank, N.A. N. A.
200 Stevens Drive
Lester, PA 19113
(3) Barclay's Bank, PLC
75 Wall Street
New York, NY 10265
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
The undersigned Registrant hereby undertakes to provide to each person to whom
a prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Cash Income Trust, certifies that it meets
all of the requirements for effectiveness of this post-effective amendment to
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and that it has duly caused this amendment to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Hartford, State of Connecticut, on April 17, 1997.
CASH INCOME TRUST
-----------------
(Registrant)
By: *HEATH B. McLENDON
---------------------------------
Heath B. McLendon
Chairman, Board of Trustees
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to this Registration Statement has been signed below by the following
persons in the capacities indicated on April 17, 1997.
*HEATH B. McLENDON Chairman of the Board
- ---------------------------------------
(Heath B. McLendon)
*KNIGHT EDWARDS Trustee
- ---------------------------------------
(Knight Edwards)
*ROBERT E. McGILL III Trustee
- ---------------------------------------
(Robert E. McGill III)
*LEWIS MANDELL Trustee
- ---------------------------------------
(Lewis Mandell)
*FRANCES M. HAWK Trustee
- ---------------------------------------
(Frances M. Hawk)
*LEWIS E. DAIDONE Treasurer
- ---------------------------------------
(Lewis E. Daidone)
*By: Ernest J. Wright, Attorney-in-Fact
Secretary, Board of Trustees
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
1. Declaration of Trust. Incorporated herein by reference
to Exhibit 1 to Post-Effective Amendment No.23 to the
Registration Statement on Form N-1A filed on April 11, 1996.)
2. By-Laws of Cash Income Trust. (Incorporated herein by
reference to Exhibit 2 to Post-Effective Amendment
No.23 to the Registration Statement on Form N-1A filed
on April 11, 1996.)
5. Investment Advisory Agreement between the Registrant
and Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit 5 to Post-Effective
Amendment No.23 to the Registration Statement on Form N-1A
filed on April 11, 1996.)
8(a). Custody Agreement between the Registrant and To be filed by
PNC Bank, N.A. amendment
8(b). Custody Agreement between the Registrant and To be filed by
Barclay's Bank, PLC. amendment
9. Administrative Services Agreement between the Electronically
Registrant and The Travelers Insurance Company.
10. An opinion and consent of counsel as to the legality
of the securities registered by the Fund. (Incorporated
herein by reference to the Registrant's most recent
Rule 24f-2 Notice filing on February 28, 1997.)
11(A). Consent of Coopers & Lybrand L.L.P., Independent Electronically
Accountants.
11(B). Powers of Attorney authorizing Ernest J. Wright or
Kathleen A. McGah as signatories for Heath B. McLendon,
Knight Edwards, Robert E. McGill III, Lewis Mandell,
Frances M. Hawk and Ian R. Stuart. (Incorporated herein
by reference to Exhibit 11(B) to Post-Effective Amendment
No. 23 to the Registration Statement on Form N-1A filed
April 11, 1996.)
Power of Attorney authorizing Ernest J. Wright or Electronically
Kathleen A. McGah as signatory for Lewis E. Daidone.
27. Financial Data Schedule. Electronically
</TABLE>
<PAGE> 33
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
ANNUAL REPORTS
December 31, 1996
MANAGED ASSETS TRUST
HIGH YIELD BOND TRUST
CAPITAL APPRECIATION FUND
CASH INCOME TRUST
THE TRAVELERS SERIES TRUST:
U.S. Government Securities Portfolio
Social Awareness Stock Portfolio
Utilities Portfolio
[TRAVELERSLIFE LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 34
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
ECONOMIC REVIEW AND OUTLOOK
As 1996 began, the federal government found itself paralyzed by a prolonged
budget dispute. In the financial markets, investors were focused on signs of a
slowing economy. With two-year Treasury notes priced to yield less than the
federal funds rate, the bond market clearly expected the Federal Reserve Board
(the "Fed") to cut interest rates significantly. The Fed lowered the federal
funds rate by 0.25% in January, but strong employment growth over the next
several months sent the bond market into a tailspin reminiscent of 1994.
Interest rates hit their highest levels for the year in the June to September
period as investors prepared for the Fed to raise interest rates at their
September meeting.
The policy makers at the Fed decided to hold interest rates steady at their
September meeting and interest rates declined through the autumn as economic
growth once again slowed. The financial markets also responded positively to the
Republicans' success in retaining control of Congress in the November election.
Going into December, the bond and stock markets reflected a "best of all worlds"
scenario of moderate economic growth with low inflation, low unemployment and a
benign to positive political landscape. Interest rates started to move back up
again in December as some economic indicators strengthened, but ended the year
well below the levels seen in the second and third quarters.
We expect real economic growth to average around 2% in 1997. The consumer
sector, which makes up two-thirds of Gross Domestic Product ("GDP"), should show
modest growth. The factors that would otherwise contribute to strong consumer
spending -- low unemployment, high consumer confidence, and the wealth effects
from the strong stock market -- should be muted by high consumer debt levels
(particularly at lower income levels) and lack of pent-up demand. The export
sector should continue to grow 5% to 10% in 1997, helped by the United States'
strong competitive position and continued robust growth in emerging markets.
Growth should improve slightly in Europe and Japan, helped by the recent
strengthening of the dollar against those currencies. The stronger dollar is
likely to be a mixed blessing, by making the prices of foreign imports more
attractive and thereby helping to dampen inflation. The capital goods sector has
slowed in recent quarters, but is still expected to grow faster than the overall
U.S. economy. The government sector should continue to be a drag on GDP growth.
Overall, we believe that the U.S. economy is likely to remain on a path of
moderate non-inflationary growth in 1997. However, because of the current low
level of unemployment, we also expect that the Fed will remain cautious and
biased towards a tighter monetary policy. Whether the Fed acts may depend in
part on market psychology. Upward shifts in long-term bond yields have served to
moderate economic growth in recent years and reduced the need for any major
changes in Fed policy.
FIXED INCOME COMMENTARY
The U.S. bond market had its best quarter of the year in the fourth quarter. The
Lehman Intermediate Government/Corporate Index returned 2.5% for the quarter and
4.1% for the full year. For the year, the Lehman Long Government/Corporate Index
provided a total return of only 0.1%. Treasury bonds with maturities longer than
10 years had negative total returns.
Within the fixed income market, all private issuer sectors outperformed Treasury
bonds as quality spreads continued to narrow. While Treasuries performed almost
as poorly in 1996 as in 1994, the effect on other sectors was relatively
neutral, unlike 1994 when there were problems with mortgage-backed derivatives,
Mexico, and Orange County. The yield curve was also remarkably stable in 1996,
unlike 1994 when short-term interest rates rose considerably. The
mortgage-backed, high yield, and municipal sectors were the best performing
areas in 1996 on a duration-adjusted basis. Within the corporate sector, lower
quality and foreign issues were the best performers based on both higher coupons
and spread tightening.
We expect interest rates to stay in the trading range established in 1996 (the
yield of the 30-year Treasury bond ranged between 6.0% and 7.2%). On one hand,
investors are concerned that low unemployment will eventually give rise to
inflationary wage growth. We believe this sets a floor for long-term bond yields
at about 6.0%. At the upper end of the range, the 7.2% level has proved to be
sufficient to generate increased demand for bonds and depress high risk asset
classes and interest sensitive sectors of the economy. We feel that central bank
vigilance against inflation, globalization, and productivity improvements will
keep inflation under control, preventing interest rates from rising much above
their 1996 high.
1
<PAGE> 35
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
Within the fixed income markets, demand for corporate, mortgage-backed and
asset-backed issue continues to be high. Yield spreads (relative to Treasury
issues) for lower and higher quality corporate bonds are quite narrow. The
mortgage-backed and asset-backed markets are similarly compressed, with
investors digging for yield. There is nothing in our economic outlook that is
likely to change the tight spread environment in the near future. We are being
careful, however, to weed out riskier credits and issues that do not offer
enough yield premium to offset their potential for negative surprises. The
foreign area continues to offer opportunities, particularly foreign corporate
bonds that sometimes have very strong balance sheets but are capped by the
rating of their home country. Foreign sovereign credits are also continuing to
improve based on solid global economic growth and increased acceptance of the
need for sound fiscal and monetary policy.
EQUITY COMMENTARY
During 1996, financial markets were repeatedly jolted by changes in sentiment
about the strength of the U.S. economy and the direction of Fed policy. When
investors gained confidence that the economy was continuing on a track of
moderate, non-inflationary growth, the stock market advanced strongly and posted
another year of outstanding performance. For the year ended December 31, 1996,
the Standard & Poor's 500 Stock Index ("S&P 500") (a capitalization-weighted
index of 500 widely held common stocks) provided a total return of 22.95%. Over
the same period, the Russell 2000 Stock Index, a measure of the performance of
the small company segment of the equity market, provided a total return of
16.5%.
After a weak start in January, the stock market moved broadly higher through the
first months of spring. Small company shares advanced strongly in April and May,
led by the technology sector. In late June and July, when long-term bond yields
moved back over 7%, the stock market traded back down to where it began the
year. Recent initial public offerings and more speculative issues were
particularly hard hit during the reversal. Large company stocks quickly
recovered their losses when the bond market stabilized at the end of July.
However, small company stocks continued to struggle. During the autumn, against
the backdrop of lower bond yields, low inflation and surprisingly resilient
corporate earnings, the stock market made its strongest advance of the year,
with large company issues leading the way.
As measured by the S&P 500, the U.S. stock market has provided a cumulative
total return of nearly 70% over the past two years, capping a six-year bull
market that began in October of 1990. Notwithstanding the strong overall
environment for equities, 1996 marked the third consecutive year of
underperformance by small and mid-sized company stocks relative to "blue chip"
indices. The underperformance of small company stocks can be explained in part
by the sharper falloff in earnings growth experienced by smaller companies in
the 1995-96 period. The performance lag also reflected a backing away by
investors from higher risk growth stocks, in an environment of rising interest
rates and market volatility.
Given the frequent alarms raised in 1996 about slowing earnings growth,
investors showed an understandable preference for industry sectors with visible
earnings momentum. In the energy sector, analysts' earnings estimates and share
prices moved sharply higher in response to firmer prices for oil and natural
gas. Stocks in the finance sector also performed exceptionally well despite
emerging credit quality concerns. In the consumer sector, specialty and
broad-line retail stocks were up strongly in response to higher than expected
levels of consumer spending. The technology sector provided superior returns for
investors last year, led by Intel and Microsoft. Within the technology sector,
software, semiconductor and computer product stocks had the strongest relative
performance. Industrial cyclical stocks underperformed, as soft domestic and
export demand led to declining commodity prices for paper, copper, aluminum,
steel and fertilizer products. The health care sector was mixed. Drug stocks
kept pace with the market due to strong earnings gains, while the HMO group
declined sharply on repeated earnings disappointments. Utilities were the
weakest overall sector during the year, held back by the relatively poor
performance of local telephone carriers and electrical companies.
We are taking a more cautious position toward the U.S. stock market at this
point. Over the past year, the price-to-earnings ratio of the S&P 500 on
12-month forward earnings has increased from 15 to 17 times earnings per share.
This level of valuation is consistent with earlier periods of moderate growth
and low inflation, but leaves no cushion for earnings or inflation
disappointments. After a prolonged period of underperformance, relative
valuations for small company stocks are becoming more attractive. However, we
believe that caution should still be exercised since the small capitalization
segment of the equity market has a relatively high exposure to cyclical
industries and would be vulnerable to any combination of higher interest rates
and slower profit growth.
2
<PAGE> 36
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
MANAGED ASSETS TRUST
The first nine months of 1996 were almost as bad as 1994 for bonds in general.
U.S. Treasuries performed poorly but there were much fewer problems in other
types of bonds. Stocks performed well through May of 1996, but suffered a slight
correction in June and July. Large capitalization stocks rebounded smartly from
the summer correction and reached new highs by November. Small capitalization
stocks, which clearly were doing well in May, recovered much more slowly and
still had not reached new highs by the end of 1996.
The fourth quarter of 1996 was the best quarter of the year for both the stock
and bond markets. Bonds rallied as the U.S. economy slowed down and the
Republicans maintained control of the U.S. Congress. Stocks benefited from the
decline in interest rates as well as ongoing expectations for high corporate
earnings growth.
Managed Assets Trust's total return was 13.78% gross for 1996, 0.23% behind the
60% S&P 500 and 40% Lehman Government/Corporate blended benchmark. However, for
the fourth quarter, Managed Assets Trust outperformed the blended benchmark by
0.05% (6.29% versus 6.24%). Managed Assets Trust was helped by its stock portion
outperforming the S&P 500 three out of four quarters and the biggest drag on its
performance was its underweighting in stocks during the first half of 1996.
Looking ahead at 1997, we expect interest rates to stay in the relatively narrow
trading range established in 1996. In our view, low unemployment is the biggest
risk of higher interest rates but a 7% yield has proven to be sufficient in
attracting more investors to bonds and has helped to cool interest-sensitive
sectors of the economy. In our opinion, the biggest risk ahead for stocks is if
interest rates go above 7%. While stock valuations are high, corporate earnings
growth is expected to be slightly faster in 1997. In addition, we also expect
the U.S. dollar to be strong in 1997 and that could pose a risk to future
earnings growth. We plan on increasing the duration of the bond portion of
Managed Assets Trust if rates get closer to their 1996 highs and reduce its
duration if rates go down. Moreover, we continue to hold convertible bonds to
provide some defensive characteristics and in keeping with our relatively
neutral stance regarding stocks.
HIGH YIELD BOND TRUST
High Yield Bond Trust closed out the year successfully, ending with a
particularly strong fourth quarter performance. For the year ended December 31,
1996, the High Yield Bond Trust generated a total return of 16.05%, exceeding
both the First Boston High-Yield Index and the Bear Stearns High-Yield Index,
both of which had a total return of approximately 12.40% for the same period.
Investor interest in high yield bonds remained strong for the first three
quarters of the year. As mutual fund inflows into high yield bond funds
continued at a brisk pace, we viewed the fixed-income market in general as
skittish. Lower interest rate expectations and investor uncertainty of
lower-quality bonds caused many investors to gravitate toward the higher-rated
issues. We remained especially cautious toward lower-quality issues and
telecommunications issues that we believed may have disappointing earnings
reports. Our cautious stance with respect to these sectors allowed us to avoid
the heavy losses incurred in the fourth quarter by many high-profile and
high-yield issues such as Marvel Entertainment, MobileMedia, and CAI Wireless.
Although we maintained a relatively high cash position of 23%, this position
proved to be prudent during this volatile period.
The Trust's biggest winners of the year include Renaissance Cosmetics and
Transamerican Refining bonds. Renaissance Cosmetics recently announced a very
attractive tender offer for bonds that we hold and Transamerican Refining
appears to be nearing completion of a successful refinancing effort. Among the
Trust's other significant winners during 1996 were U.S. Banknote, Fleming, Gulf
States Steel, and Sheffield Steel. In addition, we are pleased by the
performance of K mart, Great Dane bonds, and the FRD Acquisition notes, all of
which produced handsome returns by year's end.
Our biggest disappointments in the past year were Alliance Entertainment and
Trump Castle. Alliance Entertainment suffered a sharp decline following a
lower-than-expected earnings report in the third quarter. We were initially
attracted to the Trump Castle issues because of its proposed partnership with
Hard Rock Cafe to "re-theme" Trump Castle. With much new development coming to
the Atlantic City marina area, we were also attracted by Trump Castle's
underlying asset value. However, after the proposed partnership with Hard Rock
Cafe fell apart, the bonds experienced a loss. Nevertheless, despite our
disappointments, we remain confident in the Trump Castle high-yield bonds and
believe that they will make a strong contribution to the High Yield Bond Trust
going forward.
3
<PAGE> 37
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
We remain bullish on the prospects for high-yield bonds for 1997. In the year
ahead, we also believe that many investors will probably avoid the more
speculative issues. Given the lack of progress among wireless cable companies,
on-going capital expenditure concerns among paging companies, and the uncertain
prospect of lower-quality cable companies to fulfill their debt obligations, we
do, however, expect more higher volatility in the telecommunications sector. In
our view, although many high-yield sectors will continue to experience
volatility, our investment strategy of careful security selection should provide
investors with competitive total returns in the year ahead.
CAPITAL APPRECIATION FUND
Stocks moved ahead in the fourth quarter of 1996, ending the year near record
highs. The S&P 500 gained 8.34% for the fourth quarter. For the year ended
December 31, 1996, the Capital Appreciation Fund appreciated 28.21% versus a
22.95% gain for the S&P 500 over the same period.
While the Capital Appreciation Fund's fourth quarter performance was
respectable, we are especially proud of the Janus research team's performance
this past year. Of course, the powerful performance of the stock market deserves
some credit, as do nearly ideal economic conditions and record corporate
profits, all of which have lifted stock valuations. While moderate economic
growth, mild inflation and low interest rates have made business conditions
healthy, our research team's solid fundamental research have contributed to the
Capital Appreciation Fund's stock selection process.
In terms of individual holdings, the Capital Appreciation Fund has a substantial
weighting in financial services stocks. We believe companies such as Wells
Fargo, Citicorp and Chase Manhattan should continue to enjoy excellent lending
margins and should be able to extend their domination in select markets. Low
interest rates and a mild economic climate tend to boost profits at dominant
franchise competitors across a broad spectrum of industries.
The Capital Appreciation Fund holds a number of familiar technology names such
as International Business Machines, Microsoft, Cisco Systems and Intel to
established drug manufacturers such as Pfizer, Eli Lilly and Monsanto (an
organization that is transforming itself from an old-line chemical producer into
a far more dynamic life sciences company). These stocks performed well during
the fourth quarter. The Capital Appreciation Fund also benefited from the
excellent returns of UAL (parent company to United Airlines), which gained
roughly more than 30%. We believe the employee management at UAL has done a good
job. In our view, UAL (and the airline industry in general) have attractive
valuations. For example, UAL is currently selling at 6 1/2 times our 1998
earnings estimate. In general, the airlines industry has undergone huge changes
in the last few years, becoming more rational with fewer overlapping and
unprofitable competitors. Instead of adding capacity, many airline managements
have focused on pulling back from unprofitable routes and increasing loads in
existing routes. In addition, average airline ticket prices are up as well. In
our view, the only negative for the industry is rising fuel prices but most, if
not all, of the increase is probably already factored into their stock prices.
During the fourth quarter, we trimmed Microsoft and long-time holding Merrill
Lynch when both reached high valuations. Moreover, we sold sports apparel
manufacturer Fila at a profit due to valuation concerns and because its products
have begun to lose momentum in the branded sportswear industry. Lastly, Centocor
and Trans World Airlines were sold at losses. With respect to Centocor, we had
to revise our earnings and revenues estimates downward due to a
slower-than-anticipated sales upturn of Reopro, the company's new drug to fight
cardiovascular disease. As many of you know, Trans World Airlines was a far more
tragic situation. In addition to the crash of Flight 800 which may affect
bookings for some time to come, management turnover at TWA has also raised some
concerns. Although we expect greater stock market volatility in 1997, we
continue to be very excited about the stock market for all of the reasons
outlined at the beginning of this market commentary. We stayed the course in
1996 and, unless there is a radical change in the current economic and business
environment, we intend to do the same in 1997. We believe the Capital
Appreciation Fund's focus on primarily large, high-quality growth companies
should continue to serve our shareholders well in the days ahead.
4
<PAGE> 38
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
CASH INCOME TRUST
Cash Income Trust seeks to provide shareholders with high current income from
short-term money market investments while emphasizing preservation of capital
and maintaining a high degree of liquidity. Cash Income Trust pursues this
objective by investing in securities maturing in one year or less.
For the year ended December 31, 1996, Cash Income Trust generated an annual
effective yield of 4.20% and as of December 31, 1996 had an average maturity of
38.8 days. Cash Income Trust continues to invest primarily in U.S. Treasuries
and government agency securities. This investment strategy has provided Cash
Income Trust with safety, liquidity, and stability.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 15, 1997
5
<PAGE> 39
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/96 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/96 13.78%
Five Years Ended 12/31/96 8.83%
Ten Years Ended 12/31/96 9.76%
</TABLE>
This chart assumes an initial investment of $10,000 made on December 31, 1986
assuming reinvestment of dividends through December 31, 1996. The Lehman
Government/Corporate Bond Index is a weighted composite of the Lehman
Government Bond Index, which is a broad-based index of all public debt
obligations of the U.S. Government and its agencies and has an average maturity
of nine years and the Lehman Corporate Bond Index, which is comprised of all
public fixed-rate non-convertible investment-grade domestic corporate debt,
excluding collateralized mortgage obligations. The Consumer Price Index is a
measure of the average change in prices over time in a fixed market basket of
goods and services. The Standard & Poor's 500 Index is an unmanaged index
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market.
<TABLE>
<CAPTION>
Lehman
Measurement Govern-
Period Managed ment/Corporate Consumer Standard
(Fiscal Year Assets Bond Price & Poor's
Covered) Trust Index Index 500 Index
<S> <C> <C> <C> <C>
12/86 10000 10000 10000 10000
12/87 11905 10229 10441 10525
12/88 12134 11004 10903 12269
12/89 13247 12570 11410 16150
12/90 16840 13612 12106 15648
12/91 17256 15807 12476 20406
12/92 21001 17006 12838 21960
12/93 22080 18883 13191 24167
12/94 24140 18218 13544 24485
12/95 23599 21725 13888 29853
12/96 26837 22354 14348 36704
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 12/31/96 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/96 16.05%
Five Years Ended 12/31/96 9.90%
Ten Years Ended 12/31/96 7.21%
</TABLE>
This chart assumes an initial investment of $10,000 made on
December 31, 1986 assuming reinvestment of dividends through
December 31, 1996. The Lehman Aggregate Bond Index, an unmanaged
index, is composed of the Lehman Intermediate Government/Corporate
Bond Index and the Mortgage Backed Securities Index and includes
treasury issues, agency issued, corporate bond issues and
mortgage-backed securities. The Consumer Price Index is a measure
of the average change in prices over time in a fixed market basket
of goods and services. The First Boston High Yield Index Top Tier
is a broad-based market measure of high yield bonds, commonly known
as "junk bonds."
<TABLE>
<CAPTION>
First
Boston
Measurement High Lehman High
Period Yield Aggre- Consumer Yield
(Fiscal Year Bond gate Bond Price Index Top
Covered) Trust Index Index Tier
<S> <C> <C> <C> <C>
12/86 10000 10000 10000 10000
12/87 10798 10276 10441 11254
12/88 10761 11086 10903 12630
12/89 12329 12698 11410 14296
12/90 12502 13835 12106 14429
12/91 11361 16050 12476 17731
12/92 14328 17236 12838 19279
12/93 16214 18918 13191 22290
12/94 18485 18365 13544 22248
12/95 18252 21758 13888 26403
12/96 21181 22548 14348 29234
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
6
<PAGE> 40
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 12/31/96 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/96 28.21%
Five Years Ended 12/31/96 16.18%
Ten Years Ended 12/31/96 11.44%
</TABLE>
This chart assumes an initial investment of $10,000 made on
December 31, 1986 assuming reinvestment of dividends through
December 31, 1996. The Standard & Poor's 500 Index is an unmanaged
index composed of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange and over-the-counter
market. The Russell 2000 Index is a capitalization weighted total
return index which is comprised of 2,000 of the smallest capitaled
U.S. domiciled companies with less than average growth orientation
whose common stock is traded in the United States of the New York
Stock Exchange, American Stock Exchange and NASDAQ. The Consumer
Price Index is a measure of the average change in prices over time
in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Measurement
Period Capital Standard Russell Consumer
(Fiscal Year Apprecia- & Poor's 2000 Price
Covered) tion Fund 500 Index Index Index
<S> <C> <C> <C> <C>
12/86 10000 10000 10000 10000
12/87 11005 10525 9120 10441
12/88 10111 12269 11402 10903
12/89 11129 16150 13256 11410
12/90 12877 15648 10674 12106
12/91 12073 20406 15589 12476
12/92 16318 21960 18458 12838
12/93 19190 24167 21943 13191
12/94 22086 24485 9105 13544
12/95 21035 29853 11696 13888
12/96 26976 36704 13626 14348
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gains or losses from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
7
<PAGE> 41
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1996
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS -- 54.7%
- ---------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 7.6%
15,400 Accustaff Inc.+................................................................ $ 325,325
10,200 American Stores Co............................................................. 416,925
8,200 Borders Group, Inc.+........................................................... 294,175
10,400 Clear Channel Communications, Inc.+............................................ 375,700
2,700 Colgate-Palmolive Co........................................................... 249,075
10,000 Corrections Corp. of America+.................................................. 306,250
9,700 Dollar General................................................................. 310,400
5,200 Duracell International......................................................... 363,350
6,100 Eastman Kodak Co............................................................... 489,525
12,100 Federated Department Stores Inc.+.............................................. 412,913
6,500 Gannett Co..................................................................... 486,688
15,500 Gap Inc........................................................................ 466,938
12,700 Gillette Co.................................................................... 987,425
8,800 HFS Inc.+...................................................................... 525,800
13,800 Hilton Hotels Corp............................................................. 360,525
9,400 Home Depot Inc................................................................. 471,175
5,174 Kimberly-Clark Corp............................................................ 492,824
11,200 Lowes Co....................................................................... 397,600
11,600 McDonalds Corp................................................................. 524,900
10,100 New York Times Co., Class A Shares............................................. 383,800
10,700 Nike Inc., Class B Shares...................................................... 639,325
13,000 Procter & Gamble Co............................................................ 1,397,500
7,000 Sears Roebuck & Co............................................................. 322,875
1,250 TCI Satellite Entertainment Inc.+.............................................. 12,344
12,500 Tele-Communications Inc.+...................................................... 163,281
12,477 The Walt Disney Co............................................................. 868,711
8,700 Tiffany & Co................................................................... 318,638
10,000 Time Warner Inc................................................................ 375,000
2,600 Unilever N.V................................................................... 455,650
5,700 VF Corp........................................................................ 384,750
32,600 Wal-Mart Stores, Inc........................................................... 745,725
- ---------------------------------------------------------------------------------------------------------
14,325,112
- ---------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 4.5%
3,100 American Brands Inc............................................................ 153,838
9,200 Anheuser-Busch Co.............................................................. 368,000
1,900 Campbell Soup Co............................................................... 152,475
44,800 Coca-Cola Co................................................................... 2,357,600
13,900 Conagra Inc.................................................................... 691,525
6,500 CPC International Inc.......................................................... 503,750
11,700 Dean Foods..................................................................... 377,325
2,900 General Mills Inc.............................................................. 183,788
29,000 PepsiCo Inc.................................................................... 851,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 42
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
CONSUMER STAPLES -- 4.5% (CONTINUED)
18,100 Philip Morris Cos. ............................................................ $ 2,038,513
6,800 Pioneer Hi-Bred International.................................................. 476,000
9,000 Sara Lee Corp. ................................................................ 335,250
- ---------------------------------------------------------------------------------------------------------
8,489,939
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 0.7%
5,700 Chesapeake Energy Corp.+....................................................... 317,091
6,800 Halliburton Co................................................................. 409,700
6,400 Louisiana Land & Exploration Co................................................ 343,200
2,800 Schlumberger Ltd. ............................................................. 279,650
- ---------------------------------------------------------------------------------------------------------
1,349,641
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 8.2%
8,265 Allstate Corp. ................................................................ 478,337
8,200 Ambac Inc...................................................................... 544,275
9,200 American Express Co. .......................................................... 519,800
8,850 American International Group Inc. ............................................. 958,012
7,289 Banc One Corp. ................................................................ 313,427
7,300 Bank of Boston Corp............................................................ 469,025
10,400 BankAmerica Corp. ............................................................. 1,037,400
3,600 Barnett Banks Inc. ............................................................ 148,050
12,736 Chase Manhattan Corp. ......................................................... 1,136,688
7,000 Chubb Corp..................................................................... 376,250
3,600 Cigna Corp..................................................................... 491,850
13,700 Citicorp....................................................................... 1,411,100
3,500 Federal Home Loan Mortgage Corp................................................ 385,437
20,600 Federal National Mortgage Association.......................................... 767,350
2,600 First Bank System Inc.......................................................... 177,450
6,000 First Chicago NBD Corp......................................................... 322,500
1,500 General Reinsurance Corp. ..................................................... 236,625
4,700 Golden West Financial Corp..................................................... 296,687
4,900 Household International Inc.................................................... 452,025
7,200 ITT Hartford Group, Inc........................................................ 486,000
8,300 Mellon Bank Corp............................................................... 589,300
3,100 Merrill Lynch & Co............................................................. 252,650
3,000 Morgan Stanley Group Inc. ..................................................... 171,375
6,000 NationsBank Corp............................................................... 586,500
8,400 Northern Trust Corp. .......................................................... 304,500
16,200 Norwest Corp................................................................... 704,700
3,500 Student Loan Marketing Association............................................. 325,938
6,900 SunAmerica Inc................................................................. 306,188
4,100 SunTrust Banks Inc............................................................. 201,925
5,400 Transatlantic Holdings Inc..................................................... 434,700
1,800 Wells Fargo & Co............................................................... 485,550
- ---------------------------------------------------------------------------------------------------------
15,371,614
- ---------------------------------------------------------------------------------------------------------
HEALTHCARE -- 6.0%
9,100 Abbott Laboratories............................................................ 461,825
7,000 American Home Products Corp.................................................... 410,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 43
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
HEALTHCARE -- 6.0% (CONTINUED)
10,000 Amgen Inc.+.................................................................... $ 543,750
13,100 Bristol-Meyers Squibb Co....................................................... 1,424,625
12,300 Columbia/HCA Healthcare Corp................................................... 501,225
6,400 Eli Lilly & Co................................................................. 467,200
6,800 Guidant Corp................................................................... 387,600
7,900 HBO & Co....................................................................... 469,063
29,600 Johnson & Johnson.............................................................. 1,472,600
12,600 Medpartners, Inc.+............................................................. 264,600
4,500 Medtronic Inc.................................................................. 306,000
25,900 Merck & Co..................................................................... 2,052,575
11,700 Pfizer Inc. ................................................................... 969,637
11,400 Schering-Plough Corp........................................................... 738,150
9,600 Vencor Inc.+ .................................................................. 303,600
5,000 Warner-Lambert Co.............................................................. 375,000
- ---------------------------------------------------------------------------------------------------------
11,147,825
- ---------------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 3.1%
5,000 Aluminum Co. of America........................................................ 318,750
5,000 Armstrong World Industries Inc................................................. 347,500
13,100 Black & Decker Corp............................................................ 394,638
8,800 Cytec Industries Inc.+......................................................... 357,500
10,200 E.I. du Pont de Nemours & Co. ................................................. 962,625
13,900 Freeport-McMoRan Copper........................................................ 415,262
4,900 Georgia-Pacific Corp. ......................................................... 352,800
18,100 Homestake Mining Co............................................................ 257,925
18,000 Monsanto Co.................................................................... 699,750
9,700 Morton International Inc....................................................... 395,275
1,600 Nucor Corp..................................................................... 81,600
10,400 Union Carbide Corp............................................................. 425,100
5,100 USX-US Steel Group............................................................. 160,012
3,700 Weyerhauser Co................................................................. 175,287
5,900 Willamette Industries Inc. .................................................... 414,475
- ---------------------------------------------------------------------------------------------------------
5,758,499
- ---------------------------------------------------------------------------------------------------------
PRODUCER DURABLES -- 5.2%
5,200 Allied Signal Inc.............................................................. 348,400
9,900 Boeing Co. .................................................................... 1,053,113
3,700 Caterpillar Inc. .............................................................. 278,425
13,950 Crane Co....................................................................... 404,550
11,400 Deere & Co..................................................................... 463,125
4,100 Emerson Electric Co............................................................ 396,675
6,200 Fluor Corp..................................................................... 389,050
31,200 General Electric Co............................................................ 3,084,900
6,700 Honeywell Inc. ................................................................ 440,525
6,400 Illinois Tool Works............................................................ 511,200
3,680 Lockheed Martin Corp. ......................................................... 336,720
7,800 Minnesota Mining & Manufacturing Co. .......................................... 646,425
4,700 Raychem Corp................................................................... 376,587
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 44
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
PRODUCER DURABLES -- 5.2% (CONTINUED)
10,800 United Technologies Corp....................................................... $ 712,800
5,000 W.W. Grainger Inc. ............................................................ 401,250
- ---------------------------------------------------------------------------------------------------------
9,843,745
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 7.2%
6,150 Andrew Corp.+.................................................................. 326,334
11,100 Atmel Corp.+................................................................... 367,687
5,700 Automatic Data Processing Inc.................................................. 244,388
18,800 Cisco Systems Inc.+............................................................ 1,196,150
5,400 Compaq Computer Corp.+......................................................... 400,950
11,575 Computer Associates International Inc.......................................... 575,856
8,200 First Data Corp. .............................................................. 299,300
5,600 Gateway 2000 Inc.+............................................................. 299,950
18,600 Hewlett Packard Co............................................................. 934,650
17,400 Intel Corp..................................................................... 2,278,312
9,500 International Business Machines Corp........................................... 1,434,500
11,569 Lucent Technologies Inc........................................................ 534,974
22,200 Microsoft Corp.+............................................................... 1,834,275
10,600 Motorola Inc. ................................................................. 650,575
12,000 Oracle Corp.+.................................................................. 501,000
19,600 Sun Microsystems Inc.+......................................................... 503,475
3,200 Texas Instruments Inc.......................................................... 204,000
3,200 3Com Corp.+ ................................................................... 234,800
4,900 U.S. Robotics Corp.+........................................................... 352,800
6,000 Xerox Corp. ................................................................... 315,750
- ---------------------------------------------------------------------------------------------------------
13,489,726
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.9%
6,300 Burlington Northern Sante Fe................................................... 544,163
17,600 Chrysler Corp.................................................................. 580,800
1,448 Conrail Inc.................................................................... 144,257
11,200 Continental Airlines, Inc., Class B Shares+.................................... 316,400
21,100 Ford Motor Co.................................................................. 672,562
12,900 General Motors Corp............................................................ 719,175
7,800 Lear Corp.+.................................................................... 266,175
4,000 Union Pacific Corp. ........................................................... 240,500
- ---------------------------------------------------------------------------------------------------------
3,484,032
- ---------------------------------------------------------------------------------------------------------
OIL -- 4.5%
7,100 Amerada Hess Corp.............................................................. 410,913
9,000 Amoco Corp..................................................................... 724,500
8,100 Ashland Inc. .................................................................. 355,388
2,100 Atlantic Richfield Co.......................................................... 278,250
12,000 Chevron Corp................................................................... 780,000
19,400 Exxon Corp. ................................................................... 1,901,200
9,800 Mobil Corp..................................................................... 1,198,050
7,900 Royal Dutch Petroleum Co....................................................... 1,348,925
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 45
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
OIL -- 4.5% (CONTINUED)
10,200 Texaco Inc. ................................................................... $ 1,000,875
11,100 Unocal Corp.................................................................... 450,937
- ---------------------------------------------------------------------------------------------------------
8,449,038
- ---------------------------------------------------------------------------------------------------------
UTILITIES -- 5.8%
8,400 AES Corp.+..................................................................... 390,600
9,700 Allegheny Power System, Inc.................................................... 294,638
22,000 American Telephone & Telegraph Corp............................................ 957,000
10,500 Ameritech Corp................................................................. 636,562
9,900 Baltimore Gas & Electric Co.................................................... 264,825
8,200 Bell Atlantic Corp............................................................. 530,950
19,000 BellSouth Corp................................................................. 767,125
10,100 CalEnergy Inc.+................................................................ 337,088
6,500 CMS Energy Corp................................................................ 218,563
5,900 Columbia Gas System............................................................ 375,387
7,300 Consolidated Natural Gas....................................................... 403,325
3,800 Duke Power Co.................................................................. 175,750
4,700 Enron Corp..................................................................... 202,688
3,200 FPL Group Inc.................................................................. 147,200
15,600 GTE Corp. ..................................................................... 709,800
4,900 Houston Industries Inc......................................................... 110,862
22,700 MCI Communications Corp. ...................................................... 742,006
8,300 Nynex Corp. ................................................................... 399,438
4,100 Pacific Enterprises............................................................ 124,537
6,600 Pacific Telesis Group.......................................................... 242,550
15,400 SBC Communications Inc......................................................... 796,950
7,900 Sonat Inc. .................................................................... 406,850
20,300 Southern Co.................................................................... 459,287
6,300 Sprint Corp.................................................................... 251,213
11,400 Texas Utilities Co. ........................................................... 464,550
3,400 U.S. West Communications Group................................................. 109,650
15,100 Worldcom Inc.+................................................................. 393,542
- ---------------------------------------------------------------------------------------------------------
10,912,936
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost -- $78,744,955)...................................... 102,622,107
- ---------------------------------------------------------------------------------------------------------
PREFERRED STOCKS -- 2.1%
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.5%
2,000 FINOVA Group, Convertible 5.500%............................................... 105,000
4 Fuji Finance, Convertible 0.250%............................................... 105,140
8,000 Merry Land & Investment, Inc., Convertible 2.150%.............................. 211,000
4,000 St. Paul Capital, Convertible 6.000%........................................... 221,500
5,000 Tosco Financial Trust, Convertible 5.750%...................................... 258,750
- ---------------------------------------------------------------------------------------------------------
901,390
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 46
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
INDUSTRIAL -- 1.6%
4,000 Amcor Ltd., Convertible 7.250%................................................. $ 204,000
10,000 Corning Delaware L.P........................................................... 636,250
12,000 International Paper............................................................ 552,000
10,990 News Corp Ltd., Convertible 5.000%............................................. 1,050,919
9,000 Occidental Petroleum Corp...................................................... 510,750
- ---------------------------------------------------------------------------------------------------------
2,953,919
- ---------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (Cost -- $3,510,971).................................... 3,855,309
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS -- 22.9%
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 4.5%
$ 2,500,000 American Express Co., zero coupon due 12/12/00............................. 1,971,875
500,000 Great Western Financial Corp., Notes, 6.375% due 7/1/00.................... 497,500
5,000,000 New Plan Reality, 5.950% due 11/2/26....................................... 4,993,750
1,000,000 Signet Credit Card, Master Trust 1993-4B, 5.800% due 3/15/98............... 991,620
- ---------------------------------------------------------------------------------------------------------
8,454,745
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT, NATIONAL -- 2.1%
2,000,000 Canada - Global Bond, 6.750% due 8/28/06................................... 2,010,000
2,000,000 Poland, 6.438% due 10/27/24................................................ 1,945,000
- ---------------------------------------------------------------------------------------------------------
3,955,000
- ---------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 3.4%
2,000,000 Becton Dickinson & Co., 8.800% due 3/1/01.................................. 2,160,000
2,000,000 Cox Communications Inc., 6.875% due 6/15/05................................ 1,982,500
2,020,000 Tele-Communications Inc. 9.650% due 10/1/03................................ 2,191,700
- ---------------------------------------------------------------------------------------------------------
6,334,200
- ---------------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 5.7%
9,000,000 Weyerhauser Mortgage Co., 8.500% due 1/15/25............................... 10,794,330
- ---------------------------------------------------------------------------------------------------------
OIL -- 1.9%
500,000 Apache Corp., 6.000% due 1/15/02........................................... 640,000
3,000,000 Texaco Capital Inc., 7.750% due 2/15/33.................................... 3,052,500
- ---------------------------------------------------------------------------------------------------------
3,692,500
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.5%
929,255 Delta Airlines, Inc., 9.250% due 1/2/07.................................... 960,376
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 47
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
UTILITY - ELECTRIC -- 0.6%
$ 1,100,000 Niagara Mohawk Power Corp., 8.000% due 6/1/04.............................. $ 1,050,500
- ---------------------------------------------------------------------------------------------------------
UTILITY - TELEPHONE -- 4.2%
5,000,000 BellSouth Cap Funding, 6.040% due 11/15/26................................. 4,956,250
3,000,000 BellSouth Telecommunications, 7.000% due 12/1/2095......................... 2,887,500
- ---------------------------------------------------------------------------------------------------------
7,843,750
- ---------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $41,691,641)................................ 43,085,401
- ---------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 5.1%
- ---------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 0.6%
580,000 Hilton Hotels Corp., 5.000% due 5/15/06.................................... 608,275
500,000 Home Depot Inc., 3.250% due 10/1/01........................................ 492,500
- ---------------------------------------------------------------------------------------------------------
1,100,775
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.7%
500,000 Equitable Cos., 6.125% due 12/15/24........................................ 580,625
500,000 Sappi BVI Finance Ltd., 7.500% due 8/1/02.................................. 460,000
500,000 USF&G Corp., zero coupon due 3/3/09........................................ 316,250
- ---------------------------------------------------------------------------------------------------------
1,356,875
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT - NATIONAL -- 0.3%
500,000 Republic of Italy, 5.000% due 6/28/01...................................... 492,500
- ---------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 3.2%
1,400,000 Alza Corp., zero coupon due 7/14/14........................................ 588,000
300,000 Berkshire Hathaway Inc., 1.000% due 12/3/01................................ 280,125
1,000,000 Comcast Corp., 1.125% due 4/15/07.......................................... 512,500
877,000 Cooper Industries Inc., 7.050% due 1/1/15.................................. 940,582
300,000 Inco Ltd., 7.750% due 3/15/16.............................................. 317,250
1,000,000 Marriott International Inc., zero coupon due 3/25/11....................... 561,250
500,000 McKesson Corp., 4.500% due 3/1/04.......................................... 443,125
100,000 Omnicom Group, Inc., zero coupon due 1/3/07................................ 100,000
500,000 Pennzoil Co., 4.750% due 10/1/03........................................... 571,250
400,000 Rouse Co., 5.750% due 7/23/02.............................................. 438,000
300,000 RPM Inc., zero coupon due 9/30/12.......................................... 134,625
200,000 Scholastic Corp., 5.000% due 8/15/05....................................... 208,750
200,000 Tenet Healthcare Corp., 6.000% due 12/1/05................................. 212,250
200,000 The Sports Authority Inc., 5.250% due 9/15/01.............................. 187,750
500,000 Trinova Corp., 6.000% due 10/15/02......................................... 496,875
- ---------------------------------------------------------------------------------------------------------
5,992,332
- ---------------------------------------------------------------------------------------------------------
UTILITY - ELECTRIC -- 0.3%
600,000 Potomac Electric Power Co., 5.000% due 9/1/02.............................. 558,000
- ---------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $9,194,761)..................... 9,500,482
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 48
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT SECTOR -- 7.9%
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 7.9%
$ 75,000 U.S. Treasury Notes, 6.900% due 8/21/97*................................... $ 72,519
3,000,000 U.S. Treasury Strip, zero coupon due 5/15/07............................... 1,530,000
11,000,000 U.S. Treasury Strip, zero coupon due 5/15/09............................... 4,868,160
493,534 FHLMC, 8.500% due 9/1/02................................................... 508,958
2,000,000 FNMA Principal Strips, 7.890% due 3/9/97................................... 1,976,420
184,841 FNMA, 8.500% due 3/1/05.................................................... 192,408
3,333,217 FNMA, 7.500% due 10/1/25................................................... 3,333,217
318,618 GNMA, 7.500% due 3/15/07................................................... 318,914
60,555 GNMA, 7.500% due 6/15/07................................................... 60,612
209,632 GNMA, 9.000% due 12/15/16.................................................. 220,900
255,165 GNMA, 9.000% due 11/15/19.................................................. 268,881
379,737 GNMA, 9.500% due 1/15/20................................................... 410,473
209,395 GNMA, 9.500% due 3/15/20................................................... 226,342
194,535 GNMA, 7.500% due 5/15/23................................................... 194,717
745,284 GNMA, 7.500% due 12/15/25.................................................. 745,976
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR (Cost -- $15,170,051)......................... 14,928,497
- ---------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 1.6%
3,000,000 GE Capital Corp, 5.532% due 2/20/97 (Cost -- $2,977,583)................... 2,975,160
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.7%
10,715,000 Citibank, 6.900% due 1/2/97; Proceeds at maturity -- $10,719,107;
(Fully collateralized by U.S. Treasury Notes, 5.750% due 12/31/98;
Market value -- $10,936,313) (Cost -- $10,715,000)......................... 10,715,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $162,004,962**)......................... $187,681,956
- ---------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Segregated security for futures contracts commitments.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 49
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS AND NOTES -- 77.0%
- ----------------------------------------------------------------------------------------------------------
AMUSEMENTS -- 5.9%
$500,000 NR Live Entertainment Inc., Sr. Sub. Notes, 12.000% due 3/23/99........... $ 485,000
500,000 B- Plitt Theaters Inc., Sr. Sub. Notes, 10.875% due 6/15/04............... 510,000
- ----------------------------------------------------------------------------------------------------------
995,000
- ----------------------------------------------------------------------------------------------------------
CHEMICALS, PHARMACEUTICALS AND ALLIED PRODUCTS -- 3.5%
500,000 NR Renaissance Cosmetics Inc., Sr. Notes, Series B, 13.750% due 8/15/01... 585,000
- ----------------------------------------------------------------------------------------------------------
COMMUNICATIONS -- 10.2%
500,000 B3* Commodore Media Inc., Sr. Sub. Notes, 7.500% due 5/1/03................ 526,250
400,000 B- Paxson Communications Corp., Sr. Sub. Notes, 11.625% due 10/1/02+...... 417,000
400,000 B- Pegasus Media Communications Inc., Notes 12.500% due 7/1/05+........... 433,000
500,000 BB Telewest Communications PLC, Sr. Discount Debentures,
step bond to yield 10.751% due 10/1/07................................. 348,750
- ----------------------------------------------------------------------------------------------------------
1,725,000
- ----------------------------------------------------------------------------------------------------------
CONSTRUCTION -- 3.7%
250,000 B Greystone Homes Inc., Sr. Notes, 10.750% due 3/1/04.................... 250,313
400,000 B Johnston America Industries, Inc., Sr. Sub. Notes, 11.750% due 383,000
8/15/05................................................................
- ----------------------------------------------------------------------------------------------------------
633,313
- ----------------------------------------------------------------------------------------------------------
ELECTRICAL -- 3.0%
500,000 NR Emcor Group Inc., Notes, 11.000% due 12/15/01.......................... 504,375
- ----------------------------------------------------------------------------------------------------------
FINANCE -- 5.4%
400,000 B- B.F. Saul Real Estate Investment Trust, Sr. Secured Notes, 11.625% due 431,000
4/1/02+................................................................
36,896 B3* FRD Acquisition Co., Sr. Notes, Series B, 12.500% due 7/15/04.......... 37,634
500,000 Caa* Trump Castle Funding, 1st Mortgage, 11.750% due 11/15/03............... 442,500
- ----------------------------------------------------------------------------------------------------------
911,134
- ----------------------------------------------------------------------------------------------------------
INSURANCE -- 2.9%
500,000 NR I.C.H. Corp., Sr. Sub. Notes, 11.250% due 12/1/03++.................... 490,000
- ----------------------------------------------------------------------------------------------------------
MANUFACTURING -- 2.9%
500,000 NR Great Dane Holdings, Inc., Sr. Sub. Notes, 12.750% due 8/1/01.......... 503,750
- ----------------------------------------------------------------------------------------------------------
METAL PRODUCTS/MINING -- 8.7%
500,000 B Gulf States Steel Alabama Inc., 1st Mortgage,
13.500% due 4/15/03++.................................................. 473,750
500,000 NR Parker Drilling Co., Guaranteed Notes, 9.750% due 11/15/06+............ 527,500
500,000 B- Sheffield Steel Corp., 1st Mortgage Notes, 12.000% due 11/1/01......... 475,000
- ----------------------------------------------------------------------------------------------------------
1,476,250
- ----------------------------------------------------------------------------------------------------------
PAPER AND ALLIED PRODUCTS -- 2.4%
400,000 B Mail-Well Corp., Sr. Sub. Notes, 10.500% due 2/15/04+.................. 398,500
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 50
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
PETROLEUM REFINING AND RELATED INDUSTRIES -- 3.0%
$500,000 CCC+ Transamerican Refining Corp., Guaranteed 1st Mortgage Notes,
16.500% due 2/15/02................................................... $ 505,000
- ----------------------------------------------------------------------------------------------------------
PRINTING, PUBLISHING AND ALLIED INDUSTRIES -- 5.8%
500,000 Caa* Sullivan Graphics Inc., Sr. Sub. Notes, 12.750% due 8/1/05+........... 490,000
500,000 B- U.S. Banknote Corp., Sr. Notes, 11.625% due 8/1/02+................... 482,500
- ----------------------------------------------------------------------------------------------------------
972,500
- ----------------------------------------------------------------------------------------------------------
RETAIL -- 4.2%
250,000 B Flagstar Corp., Sr. Notes, 10.750% due 9/15/01........................ 230,000
500,000 B+ K mart Corp., Notes, 7.900% due 12/14/00.............................. 481,250
- ----------------------------------------------------------------------------------------------------------
711,250
- ----------------------------------------------------------------------------------------------------------
SERVICES -- 8.5%
500,000 B+ Americold Corp., 1st Mortgage Series B, 11.500% due 3/1/05............ 524,375
500,000 B- Florists Transworld Delivery Inc., Sr. Sub. Notes,
Series B, 14.000% due 12/15/01........................................ 506,250
400,000 B- Regency Health Services Inc., Sr. Sub. Notes, 9.875% due 10/15/02..... 406,000
- ----------------------------------------------------------------------------------------------------------
1,436,625
- ----------------------------------------------------------------------------------------------------------
TEXTILE MILL PRODUCTS -- 2.8%
500,000 B CMI Industries Inc., Sr. Sub. Notes, 9.500% due 10/1/03............... 466,250
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.6%
400,000 B- Terex Corp., Sr. Secured Notes, 13.250% due 5/15/02+++................ 432,000
- ----------------------------------------------------------------------------------------------------------
WHOLESALE TRADE -- 1.5%
250,000 B+ Fleming Co. Inc., Sr. Notes, 10.625% due 12/15/01..................... 254,375
- ----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $12,350,130)................................................. 13,000,322
- ----------------------------------------------------------------------------------------------------------
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 0.0%
- ----------------------------------------------------------------------------------------------------------
UTILITIES -- 0.0%
264 Great Bay Power Co.+ (Cost -- $0)..................................... 2,210
- ----------------------------------------------------------------------------------------------------------
WARRANTS -- 0.0%
- ----------------------------------------------------------------------------------------------------------
METAL PRODUCTS/MINING -- 0.0%
500 Gulf State Steel Alabama Inc., Expire 4/15/03+........................ 2,500
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.0%
1,600 Terex Corp., Expire 5/15/02++......................................... 3,200
- ----------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $0).......................................................... 5,700
- ----------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS
(Cost -- $12,350,130)................................................. 13,008,232
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 51
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS -- 23.0%
- ---------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 3.5%
$ 600,000 Bankers Trust N.Y. Corp., 5.400% due 2/19/97............................ $ 595,590
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 19.5%
3,298,000 Chase Manhattan Bank, 6.550% due 1/2/97; Proceeds at
maturity -- $3,299,200; (Fully collateralized by U.S. Treasury Bill due
10/31/98; Market value -- $3,363,993)................................... 3,298,000
- ---------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $3,893,590).................................................... 3,893,590
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $16,243,720**)................................................. $16,901,822
- ---------------------------------------------------------------------------------------------------------
</TABLE>
+ Security is exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt that are from
registration, normally to qualified institutional buyers.
++ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 19 for definition of bond ratings.
SUMMARY OF BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
% OF TOTAL CORPORATE
STANDARD & POOR'S BONDS & NOTES
- ------------------------------------------
<S> <C>
BB 2.7%
B 58.8
CCC 7.8
NR 30.7
- ------------------------------------------
100.0%
- ------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 52
- --------------------------------------------------------------------------------
BOND RATINGS
All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's"),
except that those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moodys"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Rating from "AA" to "C" may be modified by the addition of
a plus (+) or a minus (-) sign to show relative standings within the major
rating categories.
<TABLE>
<S> <C> <C>
AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and repay principal and
differs from the highest rated issue only in a small degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
BBB -- Debt rated "BBB" are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
BB, B and CCC -- Debt rated "BB" and "B" are regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" represents a lower degree of speculation than "B",
and "CCC" the highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
C -- The rating "C" is reserved for income bonds on which no interest is being paid.
D -- Debt rated "D" are in default, and payment of interest and/or repayment of
principal is in arrears.
</TABLE>
Moody's -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating
from "Aa" to "C", where 1 is the highest and 3 the lowest rating within its
generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds that are rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment fisk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds that are rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection may
not be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
A -- Bonds that are rated "A" possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa -- Bonds that are rated "Baa" are considered to be medium grade obligations; that is,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and may have
speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B -- Bonds that are rated "B" generally lack characteristics of desirable investments.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa -- Bonds that are rated "Caa" are of poor standing. These issues may be in default, or
present elements of danger may exist with respect to principal or interest.
Ca -- Bonds that are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds that are rated "C" are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
</TABLE>
19
<PAGE> 53
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS -- 89.5%
- ----------------------------------------------------------------------------------------------------------
AIRCRAFT & AEROSPACE -- 4.8%
68,375 Boeing Co................................................................ $ 7,273,391
13,875 Gulfstream Aerospace Corp.+.............................................. 336,469
33,025 Textron Inc.............................................................. 3,112,606
- ----------------------------------------------------------------------------------------------------------
10,722,466
- ----------------------------------------------------------------------------------------------------------
AIRLINES -- 3.9%
138,650 UAL Corp.+............................................................... 8,665,625
- ----------------------------------------------------------------------------------------------------------
AUTO RELATED -- 0.1%
7,925 Cross-Continent Auto Retailers+.......................................... 165,434
- ----------------------------------------------------------------------------------------------------------
BANKING -- 11.7%
10,000 Catskill Financial Corp.+................................................ 140,000
90,475 Chase Manhattan Corp. ................................................... 8,074,894
63,190 Citicorp................................................................. 6,508,570
10,000 Community Federal Bancorp................................................ 170,000
10,000 First Bergen Bancorp..................................................... 115,000
10,000 GA Financial Inc......................................................... 151,250
28,550 Mercantile Bancorp Inc................................................... 1,466,756
10,000 PFF Bancorp Inc.+........................................................ 148,750
47,000 R & G Financial Corp..................................................... 1,116,250
30,666 Wells Fargo & Co......................................................... 8,272,154
- ----------------------------------------------------------------------------------------------------------
26,163,624
- ----------------------------------------------------------------------------------------------------------
BEVERAGES -- 5.9%
93,250 Coca-Cola Co............................................................. 4,907,281
15,650 Coca-Cola Enterprises.................................................... 759,025
257,750 PepsiCo, Inc. ........................................................... 7,571,406
- ----------------------------------------------------------------------------------------------------------
13,237,712
- ----------------------------------------------------------------------------------------------------------
BUSINESS SERVICES -- 4.5%
7,800 Alco Standard Corp....................................................... 402,675
75,675 Danka Business Systems PLC ADR........................................... 2,677,003
20,725 Diebold Inc.............................................................. 1,303,084
117,100 First Data Corp. ........................................................ 4,274,150
40,850 First USA Paymentech Inc.+............................................... 1,383,794
- ----------------------------------------------------------------------------------------------------------
10,040,706
- ----------------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 0.1%
3,175 Raychem Corp............................................................. 254,397
- ----------------------------------------------------------------------------------------------------------
CHEMICAL -- 6.3%
175,575 Cytec Industries Inc.+................................................... 7,132,734
177,775 Monsanto Co.............................................................. 6,911,003
- ----------------------------------------------------------------------------------------------------------
14,043,737
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 54
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
COMMUNICATIONS -- 0.8%
29,200 Ascend Communications, Inc.+............................................. $ 1,814,050
- ----------------------------------------------------------------------------------------------------------
COMPUTERS -- 10.9%
92,875 Clarify Inc.+............................................................ 4,458,000
67,375 Dell Computer Corp.+..................................................... 3,579,297
40,625 Electronics For Imaging+................................................. 3,341,406
15,200 HBO & Co................................................................. 902,500
13,850 Intel Corp............................................................... 1,813,484
60,325 International Business Machines Corp..................................... 9,109,075
21,525 Oracle Systems Corp.+.................................................... 898,669
5,750 Parametric Technology+................................................... 295,406
3,075 Transaction Systems Architects -- Class A Shares+........................ 102,244
- ----------------------------------------------------------------------------------------------------------
24,500,081
- ----------------------------------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS -- 1.8%
41,750 General Electric Co...................................................... 4,128,031
- ----------------------------------------------------------------------------------------------------------
DRUGS AND HEALTHCARE -- 8.6%
15,000 American Home Products Corp. ............................................ 879,375
1,650 Bristol-Myers Squibb Co. ................................................ 179,438
78,825 Eli Lilly & Co........................................................... 5,754,225
39,550 Merck & Co., Inc. ....................................................... 3,134,338
63,475 Pfizer, Inc.............................................................. 5,260,491
52,225 Warner-Lambert Co........................................................ 3,916,875
- ----------------------------------------------------------------------------------------------------------
19,124,742
- ----------------------------------------------------------------------------------------------------------
ENERGY -- 0.4%
36,100 Peco Energy Co........................................................... 911,525
- ----------------------------------------------------------------------------------------------------------
ENTERTAINMENT AND LEISURE TIME -- 4.1%
98,100 G-TECH Holdings Corp.+................................................... 3,139,200
113,075 Hilton Hotels Corp....................................................... 2,954,084
146,250 Mirage Resorts Inc.+..................................................... 3,162,656
- ----------------------------------------------------------------------------------------------------------
9,255,940
- ----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.0%
8,825 Chester Bancorp Inc. .................................................... 115,828
4,375 Federal Home Loan Mortgage Corp. ........................................ 481,797
101,630 Federal National Mortgage Association.................................... 3,823,829
10,000 First Defiance Financial Corp............................................ 123,750
80,465 Merrill Lynch & Co., Inc. ............................................... 6,557,898
10,000 South Street Financial Co.+.............................................. 140,000
- ----------------------------------------------------------------------------------------------------------
11,243,102
- ----------------------------------------------------------------------------------------------------------
HOSPITAL RELATED -- 0.5%
43,275 Fresenius Medical Care ADR+.............................................. 1,217,109
- ----------------------------------------------------------------------------------------------------------
INSURANCE -- 0.4%
26,600 CMAC Investment Corp. ................................................... 977,550
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE> 55
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
NATURAL GAS -- 1.6%
75,500 Praxair Inc.............................................................. $ 3,482,438
- ----------------------------------------------------------------------------------------------------------
NETWORKING -- 3.4%
119,375 Cisco Systems Inc.+...................................................... 7,595,234
- ----------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 2.3%
133,350 Gartner Group+........................................................... 5,192,316
- ----------------------------------------------------------------------------------------------------------
RETAIL -- 5.2%
50,400 Gucci Group N.V.......................................................... 3,219,300
115,975 Nike Inc., Class B Shares................................................ 6,929,506
18,600 The Finish Line, Class A Shares+......................................... 392,925
17,800 Vons Companies Inc.+..................................................... 1,065,775
- ----------------------------------------------------------------------------------------------------------
11,607,506
- ----------------------------------------------------------------------------------------------------------
SOFTWARE -- 2.9%
77,975 Microsoft Corp.+......................................................... 6,442,684
- ----------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 4.3%
14,225 Cincinnati Bell, Inc..................................................... 876,616
186,900 Lucent Technologies Inc.................................................. 8,644,125
- ----------------------------------------------------------------------------------------------------------
9,520,741
- ----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost -- $154,608,059)............................... 200,306,750
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 10.5%
$23,489,000 Citibank, 6.898% due 1/2/97; Proceeds at maturity -- $23,579,002; (Fully
collateralized by U.S. Treasury Notes, 5.750% due 12/13/98; Market
value -- $23,970,000) (Cost -- $23,489,000).............................. 23,489,000
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $178,097,059*)........................ $223,795,750
- ----------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE> 56
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
CASH INCOME TRUST
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 19.6%
$ 275,000 Federal Home Loan Mortgage Corp. matures 2/18/97............... 5.28% to 5.41% $ 273,068
425,000 Federal National Mortgage Association mature 1/3/97 to 5.28 to 5.31
3/3/97....................................................... 422,648
- ------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES AND OBLIGATIONS
(Cost -- $695,716)............................................. 695,716
- ------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS -- 38.7%
1,385,000 U.S. Treasury Bills mature 1/9/97 to 4/17/97 5.07 to 5.11
(Cost -- $1,374,750)......................................... 1,374,750
- ------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 41.7%
150,000 Associates Corp. of North America matures 2/4/97............... 5.36 149,251
150,000 Chevron Oil Finance matures 2/4/97............................. 5.34 149,253
150,000 CIT Group Holdings, Inc. matures 1/16/97....................... 5.37 149,668
150,000 Ford Motor Credit Corp. matures 1/16/97........................ 5.36 149,669
150,000 General Electric Capital Corp. matures 1/9/97.................. 5.48 149,820
150,000 H.J. Heinz Co. matures 1/23/97................................. 5.45 149,507
150,000 Household Finance Corp. matures 2/13/97........................ 5.48 149,032
135,000 Potomac Electric Power Co. matures 1/15/97..................... 5.83 134,698
150,000 Prudential Funding Co. matures 1/16/97......................... 5.34 149,671
150,000 Xerox Corp. matures 1/16/97.................................... 5.45 149,664
- ------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -- $1,480,233).................... 1,480,233
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $3,550,699*)................ $3,550,699
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE> 57
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1996
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments -- Cost............................... $162,004,962 $12,350,130 $154,608,059 $3,550,699
Short-term investments -- Cost.................... -- 3,893,590 23,489,000 --
- ------------------------------------------------------------------------------------------------------------
Investments, at value............................. $187,681,956 $13,008,232 $200,306,750 $3,550,699
Short-term investments, at value.................. -- 3,893,590 23,489,000 --
Cash.............................................. 518 -- 855 4,509
Receivable for securities sold.................... 409,824 -- -- --
Dividends and interest receivable................. 1,128,214 360,137 147,193 --
Receivable for Fund shares sold................... -- 52,645 454,681 --
Receivable from affiliate......................... -- -- -- 15,843
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS...................................... 189,220,512 17,314,604 224,398,479 3,571,051
- ------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased.................. 519,223 -- 109,975 --
Investment advisory fees payable.................. 77,599 7,420 141,259 1,147
Payable for Fund shares purchased................. 3,504 -- -- --
Dividends payable................................. -- -- -- 5,696
Accrued expenses.................................. 9,705 16,141 15,494 21,553
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................. 610,031 23,561 266,728 28,396
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.................................... $188,610,481 $17,291,043 $224,131,751 $3,542,655
- ------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital................................... $158,673,246 $21,746,024 $179,434,374 $3,542,655
Undistributed (overdistributed) net investment
income......................................... 689,249 (172,955) 219,605 --
Accumulated net realized gain (loss) from security
transactions and futures contracts............. 3,570,992 (4,940,128) (1,220,919) --
Net unrealized appreciation of investments........ 25,676,994 658,102 45,698,691 --
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.................................... $188,610,481 $17,291,043 $224,131,751 $3,542,655
- ------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING.................................. 12,594,215 2,036,482 6,103,983 3,542,673
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.......................... $14.98 $8.49 $36.72 $1.00
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> 58
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest............................................... $ 5,087,435 $1,774,958 $ 853,439 $114,317
Dividends.............................................. 2,160,122 -- 1,687,610 --
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................ 7,247,557 1,774,958 2,541,049 114,317
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)...................... 891,042 72,800 1,261,284 19,000
Custody................................................ 49,323 12,866 65,089 --
Administration fees (Note 3)........................... 48,885 24,332 25,243 6,622
Shareholder communications............................. 22,028 16,446 17,563 16,446
Trustees' fees......................................... 6,544 6,544 6,544 6,544
Audit and legal........................................ 5,918 6,440 9,521 13,330
Registration fees...................................... 1,267 1,267 1,267 1,267
Shareholder and system servicing fees.................. 1,000 1,000 2,000 --
Other.................................................. 104 1,569 3,083 --
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES......................................... 1,026,111 143,264 1,391,594 63,209
Less: Expense reimbursement (Note 3)................... -- -- -- (43,376)
- -------------------------------------------------------------------------------------------------------------
NET EXPENSES........................................... 1,026,111 143,264 1,391,594 19,833
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.................................... 6,221,446 1,631,694 1,149,455 94,484
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 4 & 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term
securities)....................................... 14,175,095 (304,388) 13,938,060 --
Futures contracts................................... (744,302) -- -- --
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)............................... 13,430,793 (304,388) 13,938,060 --
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of year................................... 22,303,922 (199,726) 21,220,176 --
End of year......................................... 25,676,994 658,102 45,698,691 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION................ 3,373,072 857,828 24,478,515 --
- -------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS AND FUTURES CONTRACTS............ 16,803,865 553,440 38,416,575 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS................... $23,025,311 $2,185,134 $ 39,566,030 $ 94,484
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE> 59
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................. $ 6,221,446 $ 1,631,694 $ 1,149,455 $ 94,484
Net realized gain (loss).......................... 13,430,793 (304,388) 13,938,060 --
Increase in net unrealized appreciation........... 3,373,072 857,828 24,478,515 --
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 23,025,311 2,185,134 39,566,030 94,484
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income............................. (10,914,123) (2,978,125) (1,741,271) (94,502)
Net realized gains................................ (17,258,729) -- (23,015,510) --
- ------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS.................. (28,172,852) (2,978,125) (24,756,781) (94,502)
- ------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.................. 7,067,309 5,233,862 72,301,317 9,941,686
Net asset value of shares issued for
reinvestment of dividends...................... 28,172,852 2,978,125 24,756,781 94,502
Cost of shares reacquired......................... (12,757,653) (3,030,251) (9,891,028) (7,910,199)
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS................................... 22,482,508 5,181,736 87,167,070 2,125,989
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS.............................. 17,334,967 4,388,745 101,976,319 2,125,971
NET ASSETS:
Beginning of year................................. 171,275,514 12,902,298 122,155,432 1,416,684
- ------------------------------------------------------------------------------------------------------------
END OF YEAR*...................................... $188,610,481 $17,291,043 $224,131,751 $3,542,655
- ------------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net
investment income of: ............................ $689,249 $(172,955) $219,605 --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE> 60
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................. $ 5,381,926 $ 1,173,476 $ 811,421 $ 51,414
Net realized gain................................. 7,915,343 395,891 12,852,764 --
Increase in net unrealized appreciation........... 23,599,777 221,759 16,423,842 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 36,897,046 1,791,126 30,088,027 51,414
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income............................. (5,441,569) (960,192) (540,784) (51,414)
Net realized gains................................ (1,783,880) -- -- --
- -------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS.................. (7,225,449) (960,192) (540,784) (51,414)
- -------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.................. 5,376,731 1,749,523 26,600,150 3,284,741
Net asset value of shares issued for
reinvestment of dividends...................... 7,225,449 960,192 540,784 52,033
Cost of shares reacquired......................... (11,885,171) (2,354,757) (13,026,347) (3,122,783)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS................................... 717,009 354,958 14,114,587 213,991
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS.............................. 30,388,606 1,185,892 43,661,830 213,991
NET ASSETS:
Beginning of year................................. 140,886,908 11,716,406 78,493,602 1,202,693
- -------------------------------------------------------------------------------------------------------------
END OF YEAR*...................................... $171,275,514 $12,902,298 $122,155,432 $ 1,416,684
- -------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of:............................................... $5,381,926 $1,173,476 $811,421 --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE> 61
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund
and Cash Income Trust (collectively, "Fund(s)") are each a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended,
as diversified, open-end management investment companies. Shares of the Funds
are offered only to insurance company separate accounts that fund certain
variable annuity and variable life insurance contracts.
The significant accounting policies consistently followed by the Funds are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price were reported and U.S. Government and Agency
obligations are valued at the mean between the last reported bid and ask prices
or on the basis of quotations received from reputable brokers or other
recognized sources; (c) securities maturing within 60 days are valued at cost
plus accreted discount and, or minus amortized premium, which approximates
market value; (d) securities that have a maturity of 60 days or more are valued
at prices based on market quotations for securities of similar type, yield and
maturity; (e) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on the accrual basis and dividend income is
recorded on the ex-dividend date; (f) gains or losses on the sale of securities
are calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At December 31, 1996, reclassifications were made to the capital
accounts of the High Yield Bond Trust, Capital Appreciation Fund and Cash Income
Trust to reflect permanent book/tax differences and income and gains available
for distributions under income tax regulations. Accordingly, for the High Yield
Bond Trust a portion of accumulated net realized loss amounting to $1,893,310
was reclassified to paid-in capital. Net investment income, net realized gains
and net assets were not affected by this change; (i) the Funds intend to comply
with the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (j) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
In addition, for the year ended December 31, 1996, distributions from
realized gains include both net realized short-term and long-term capital gains.
Previous to 1996 net realized short-term capital gains were included in
distributions from net investment income.
2. DIVIDENDS
Cash Income Trust declares and records a dividend of substantially all of
its net investment income on each business day. Such dividends are paid or
reinvested on the payable date.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc., acts as investment manager and
advisor to the Managed Assets Trust ("MAT"), High Yield Bond Trust ("HYBT") and
Cash Income Trust ("CIT"). MAT and CIT pay TAMIC an investment management and
advisory fee calculated at the annual rate of 0.50% and 0.3233%, respectively of
its average daily net assets. HYBT pays TAMIC an investment management and
advisory fee calculated at an annual rate of: 0.50% on the first $50,000,000,
0.40% on the next $100,000,000, 0.30% on the next $100,000,000 and 0.25% on the
amount over $250,000,000 of its average daily net assets. This fee is calculated
daily and paid monthly.
TAMIC has a sub-advisory agreement with The Travelers Investment Management
Company, Inc. ("TIMCO"), an indirect wholly owned subsidiary of Travelers Group
Inc. Pursuant to the sub-advisory agreement, TIMCO is responsible for the
day-to-day portfolio operations and investment decisions for MAT. As a result,
TAMIC pays TIMCO, as sub-advisor, 0.25% of the average daily net assets of MAT.
In addition, TIMCO acts as investment manager and advisor to the Capital
Appreciation Fund ("CAF"). CAF pays TIMCO an investment management and advisory
fee calculated at an annual rate of 0.75% of the average daily net assets. This
fee is calculated daily and paid monthly.
28
<PAGE> 62
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TIMCO also has a sub-advisory agreement with Janus Capital Corporation
("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the
day-to-day portfolio operations and investment decisions for CAF. As a result,
TIMCO pays Janus, as sub-advisor, 0.55% of the average daily net assets of CAF.
Travelers Insurance Company ("Travelers Insurance") acts as administrator
to the Funds. The Funds pay Travelers Insurance an administration fee calculated
at an annual rate of 0.06% of its average daily net assets. Travelers Insurance
has entered into a sub-administrative services agreement with Smith Barney
Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith Barney Holdings
Inc. ("SBH"). Travelers Insurance pays SBMFM, as sub-administrator, a fee
calculated at an annual rate of 0.06% for the average daily net assets of each
Fund. This fee is calculated daily and paid monthly.
MAT received brokerage commissions of $1,380 from affiliated brokers.
One Trustee and all officers of the Funds are employees of Travelers Group
Inc., or its subsidiaries.
4. INVESTMENTS
During the year ended December 31, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
MANAGED HIGH CAPITAL
ASSETS YIELD BOND APPRECIATION
TRUST TRUST FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases.................................................... $177,030,601 $10,021,937 $180,570,344
- -----------------------------------------------------------------------------------------------------------
Sales........................................................ 189,051,386 9,367,054 126,712,795
- -----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
<TABLE>
<CAPTION>
MANAGED HIGH CAPITAL
ASSETS YIELD BOND APPRECIATION
TRUST TRUST FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized appreciation*............................... $26,911,202 $779,745 $47,569,236
Gross unrealized depreciation*............................... (1,234,208) (121,643) (1,870,545)
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation*................................. $25,676,994 $658,102 $45,698,691
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Substantially the same for Federal income tax purposes.
5. REPURCHASE AGREEMENTS
The Funds purchase (and its custodian takes possession of) U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Funds require continual maintenance
of the market value of the collateral in amounts at least equal to 102% of the
repurchase price.
6. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Funds' basis in the contract. The Funds bear the market risk that arises
from changes in the value of the financial instruments and securities indices
(futures contracts) and the credit risk should a counterparty fail to perform
under such contracts.
At December 31, 1996, the Funds had no open futures contracts.
29
<PAGE> 63
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Funds,
represent investments, which are "marked-to-market" daily. When a purchased
option expires, the Funds realize a loss in the amount of the premium paid. When
the Funds enter into closing sales transactions, the Funds realize a gain or
loss depending on whether the proceeds from the closing sales transaction are
greater or less than the premium paid for the option. When the Funds exercise a
put option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. When the Funds exercise a call option, the cost of the security
which the Funds purchase upon exercise will be increased by the premium
originally paid.
As of December 31, 1996, the Funds had no open purchased call or put
options contracts.
8. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, HYBT had, for Federal income tax purposes,
approximately $4,751,000 of capital loss carryforwards available to offset
future capital gains. To the extent that these carryforward losses can be used
to offset realized capital gains, it is probable that such gains will not be
distributed. The amount and expiration of the carryforwards are indicated below.
Expiration occurs on December 31 of the year indicated:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2004
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carryforward
Amounts............ $530,000 $1,094,000 $1,970,000 $748,000 $48,000 $135,000 $38,000 $188,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
9. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
MANAGED ASSETS TRUST
Shares sold.................................................... 469,580 375,304
Shares issued on reinvestment.................................. 1,926,518 581,291
Shares redeemed................................................ (847,611) (871,567)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 1,548,487 85,028
- --------------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST
Shares sold.................................................... 591,013 206,291
Shares issued on reinvestment.................................. 356,007 122,473
Shares redeemed................................................ (343,196) (276,334)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 603,824 52,430
- --------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
Shares sold.................................................... 1,994,300 900,317
Shares issued on reinvestment.................................. 716,103 22,109
Shares redeemed................................................ (287,644) (445,510)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 2,422,759 476,916
- --------------------------------------------------------------------------------------------------------
CASH INCOME TRUST
Shares sold.................................................... 9,941,686 3,284,741
Shares issued on reinvestment.................................. 94,502 52,033
Shares redeemed................................................ (7,910,199) (3,122,783)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 2,125,989 213,991
- --------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 64
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................. $15.50 $12.85 $14.21 $14.02 $14.78
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............................ 0.46 0.49 0.46 0.51 0.64
Net realized and unrealized gain (loss).......... 1.50 2.83 (0.73) 0.72 0.01
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................ 1.96 3.32 (0.27) 1.23 0.65
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (1):
Net investment income............................ (0.89) (0.50) (0.67) (0.85) (1.04)
Net realized gains............................... (1.59) (0.17) (0.42) (0.19) (0.37)
- --------------------------------------------------------------------------------------------------------------
Total Distributions................................ (2.48) (0.67) (1.09) (1.04) (1.41)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR....................... $14.98 $15.50 $12.85 $14.21 $14.02
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN....................................... 13.78% 27.12% (2.24)% 9.33% 5.14%
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).................... $188,610 $171,276 $140,887 $156,767 $148,971
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)..................................... 0.58% 0.58% 0.61% 0.56% 0.56%
Net investment income............................ 3.51 3.49 3.59 3.65 4.97
- --------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................ 108% 110% 97% 86% 112%
- --------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARES PAID ON EQUITY
TRANSACTIONS (3)................................. $0.06 -- -- -- --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND TRUST 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................. $9.00 $8.49 $9.25 $8.91 $8.75
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............................ 0.91 0.80 0.66 0.68 0.88
Net realized and unrealized gain (loss).......... 0.41 0.41 (0.76) 0.47 0.18
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................ 1.32 1.21 (0.10) 1.15 1.06
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTION FROM (1):
Net investment income............................ (1.83) (0.70) (0.66) (0.81) (0.90)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR....................... $8.49 $9.00 $8.49 $9.25 $8.91
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN....................................... 16.05% 15.47% (1.26)% 14.01% 13.16%
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).................... $17,291 $12,902 $11,716 $12,765 $10,289
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)..................................... 0.97% 1.25% 1.25% 0.99% 0.56%
Net investment income............................ 11.01 9.37 7.71 7.69 10.24
- --------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................ 84% 222% 146.% 19% 52%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the year ended December 31, 1996, distributions from realized gains
include both net realized short-term and long-term capital gains. Previous
to 1996 net realized short-term capital gains were included in distributions
from net investment income.
(2) The ratios of expenses to average net assets for the years 1993 and 1992
reflects an expense reimbursement by The Travelers in connection with
voluntary expense limitations. Without the expense reimbursement, the ratios
of expenses to average net assets would have been 0.60% and 0.63%, for the
years ended December 31, 1993 and 1992, respectively.
(3) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
(4) The ratio of expenses to average net assets reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 1.28%, 1.33%, 1.31% and 1.28%, for the
years ended December 31, 1995, 1994, 1993 and 1992, respectively.
31
<PAGE> 65
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1996 1995 1994 1993(1) 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............ $33.18 $24.50 $25.87 $22.72 $19.63
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income....................... 0.23 0.24 0.19 0.19 0.28
Net realized and unrealized gain (loss)..... 8.49 8.61 (1.41) 3.21 3.13
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations........... 8.72 8.85 (1.22) 3.40 3.41
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTION FROM (2):
Net investment income....................... (0.41) (0.17) (0.15) (0.25) (0.32)
Net realized gains.......................... (4.77) -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions........................... (5.18) (0.17) (0.15) (0.25) (0.32)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $36.72 $33.18 $24.50 $25.87 $22.72
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................. 28.21% 36.37% (4.76)% 15.09% 17.60%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............... $224,132 $122,155 $78,494 $62,414 $29,506
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)................................ 0.83% 0.85% 0.89% 0.87% 0.56%
Net investment income....................... 0.69 0.84 0.79 0.81 1.39
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE....................... 84% 124% 106% 155% 126%
- -------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (4).................. $0.06 -- -- -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CASH INCOME TRUST 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............ $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
Net investment income (5)................... 0.0412 0.0417 0.0278 0.0214 0.0322
Distributions from net investment income.... (0.0412) (0.0417) (0.0278) (0.0214) (0.0322)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................. 4.20% 4.17% 2.78% 2.14% 3.22%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............... $3,543 $1,417 $1,203 $647 $697
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (5)(6)............................. 0.78% 1.25% 1.25% 0.94% 0.38%
Net investment income....................... 3.72 -- -- -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective May 1, 1993, Janus Capital Corporation became sub-adviser for
Capital Appreciation Fund.
(2) For the year ended December 31, 1996, distributions from realized gains
include both net realized short-term and long-term capital gains. Previous
to 1996 net realized short-term capital gains were included in distributions
from net investment income.
(3) The ratio of expenses to average net assets for 1993 and 1992 reflects an
expense reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 0.96% and 0.91%, for the years ended
December 31, 1993 and 1992, respectively.
(4) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
(5) For the year ended December 31, 1996, The Travelers reimbursed CIT for
$43,376 in expenses. If such fees were not waived and expenses not
reimbursed, the per share decrease of net investment income would have been
$0.002 and the expense ratio would have been 1.71%.
(6) The ratio of expenses to average net assets for 1995-1992 reflects an
expense reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 7.37%, 6.40%, 8.47% and 7.70% for the
years ended December 31, 1995, 1994, 1993 and 1992, respectively.
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
The amount of long-term capital gains paid for the fiscal year ended
December 31, 1996, are $13,912,800 for the Managed Assets Trust and $19,412,512
for the Capital Appreciation Portfolio.
32
<PAGE> 66
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Managed Assets Trust:
We have audited the accompanying statement of assets and liabilities of Managed
Assets Trust including the schedule of investments as of December 31, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Managed Assets Trust as of December 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 24, 1997
33
<PAGE> 67
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
High Yield Bond Trust:
We have audited the accompanying statement of assets and liabilities of High
Yield Bond Trust including the schedule of investments as of December 31, 1996,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of High
Yield Bond Trust as of December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 24, 1997
34
<PAGE> 68
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Capital Appreciation Fund:
We have audited the accompanying statement of assets and liabilities of Capital
Appreciation Fund including the schedule of investments as of December 31, 1996,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital Appreciation Fund as of December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 24, 1997
35
<PAGE> 69
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Cash Income Trust:
We have audited the accompanying statement of assets and liabilities of Cash
Income Trust including the schedule of investments as of December 31, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Cash
Income Trust as of December 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 24, 1997
36
<PAGE> 70
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
For the year ended December 31, 1996, the U.S. Government Securities Portfolio
generated a total return of 1.46%. As of December 31, 1996 the composition of
assets contained in the Portfolio was 47% in mortgage-backed securities, 31% in
U.S. Treasuries, 12% in U.S. agency securities and 10% in cash.
Prospects for bond investors appeared promising as the year began. In
Washington, D.C., there were talks of federal deficit reduction through a
balanced budget amendment while the outlook for inflation was tame. Long-term
U.S. Treasuries were yielding less than 6% and the expectation of a Federal
Reserve easing of monetary policy drove down yields on 2 year U.S. Treasuries to
under 5%. However, as the year progressed, bullish sentiments were shattered as
balanced budget talks stalled, energy prices began to rise and U.S. economic
growth resumed. Heightened investor concerns over rising inflation drove up the
yield on long-term U.S. Treasuries to over 7%. Toward the end of the year, these
inflation fears proved to be unfounded and the long-term U.S. Treasury dropped
to a range of around 6.6%.
Against this backdrop of volatile interest rates, the Portfolio lagged behind
the Lehman Government Bond Index for the first three quarters of the year. By
shortening the maturity and through careful selection of securities, we were
able to recoup lost ground to finish the year in line with the Portfolio's
benchmark. Specifically, we added securities from Financing Corporation ("FICO")
and Tennessee Valley Authority ("TVA"). In our view, FICO securities were very
attractively priced due to concerns about the solvency of the Savings
Association Insurance Fund, the agency responsible for making interest payments
on the FICO securities. The U.S. Congress subsequently passed a bill that would
shore up funds required to ensure payment of interest which resulted in the FICO
bond's rise in price. In the case of TVA bonds, we utilized a hedging strategy
to boost the yield as well as to provide investors with an additional cushion
against interest rate volatility.
Looking ahead to 1997, we expect a continuation of higher interest rate
volatility. Therefore, we have reduced the Portfolio's weighting in
mortgage-backed securities while increasing the exposure to other U.S. agency
bonds. In addition, we believe the recently introduced inflation-indexed
securities by the U.S. Treasury may represent a good investment opportunity for
the Portfolio.
SOCIAL AWARENESS STOCK PORTFOLIO
Social Awareness Stock Portfolio finished 1996 with a competitive total return
of 19.98%. Our exposure to the financial and technology sectors were major
contributors to the Portfolio's positive results. As of December 31, 1996, the
Portfolio consisted of about 15% cash reserves and 71 stock holdings, with some
75% of those considered to be "core" investments. The weighted market
capitalization of the stocks owned by the Portfolio averages about $24.5
billion, approximating a 50/50 mix of large and mid-capitalization companies. As
the year ended, the Portfolio was overweighted in the consumer cyclical,
financial, and technology industries while underweighted in capital goods,
communications services, energy, and utilities industries. This composition
proved to be an advantage for the Portfolio during the period. While the
Portfolio's beta ( the comparative movement of a security's price relative to
the overall market) was approximately 10% more than the rest of the stock
market, the slightly increased risk taken was generally well rewarded. The
stocks in the Portfolio generated more earnings and more growth potential
compared to their cost than that offered by the overall market.
Our investment strategy for 1997 continues to focus on owning quality companies.
The overall Portfolio's quality remains strong with a Standard & Poor's average
rating of A minus (a ranking of common stocks from A+ through C on the basis of
growth and stability). We remain cautiously optimistic about the stock market's
1997 potential, but hold some cash reserves to take advantage of buying
opportunities from normal market volatility following two years of very strong
performance.
UTILITIES PORTFOLIO
Utilities Portfolio seeks to provide current income and as a secondary goal,
capital appreciation, by investing at least 25% of its assets in the utilities
industry. For the year ended December 31, 1996, the Utilities Portfolio had a
total return of 7.47%.
The past year was frustrating for electric utility investors. As a group,
utilities underperformed the broad based equity market. A strong stock market
combined with a relatively weak bond market caused attention to move away from
defensive sectors such as utilities. Nevertheless, we believe the electric
utility sector should continue to benefit from industry restructuring and the
rapid pace of mergers and acquisitions. For example, several state restructuring
proposals have focused on the need to
37
<PAGE> 71
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
lower customer rates and creating opportunities for electric utilities to
recover their capital investments. In our opinion, these proposals should create
a more positive environment for investors by removing some of the uncertainty
that has plagued utilities over the past few years. The consolidation of
electric utility and natural gas companies dominated merger activity during 1996
as management teams attempted to enlarge their customer base and become full
service energy providers in a more competitive industry. Furthermore, several
electric utility companies continue to diversify by aggressively expanding into
foreign markets.
We remain positive for electric utilities in 1997 based on continued
clarification of the impact of deregulation and competition in the industry and
its favorable defensive characteristics. In addition, we expect more individual
state initiatives regarding electric utility industry restructuring.
Consolidation should continue involving electric sector and electric companies
with natural gas companies. In this dynamic and rapidly changing environment,
individual stock selection will continue to be extremely important in achieving
competitive total returns. We expect performance among individual companies to
vary significantly. In our view, special situation companies, with above average
dividend growth, favorable regulatory rulings or positive deregulatory proposals
are exciting new investment opportunities. We continue to focus on higher
quality companies with strong earnings and dividend growth, superior management
teams and favorable environments. Moreover, we favor lower-cost companies in
this more competitive environment. We believe investors should view utility
investing from a total return perspective and not simply evaluate the sector's
current yield.
The economic outlook for 1997 calls for a continuance of slow to moderate U.S.
economic growth without renewed inflation and the long-term U.S. Treasury bond
is expected to trade in a range of 6.25% to 7%. These conditions should be
generally favorable for fixed-income markets and interest rate-sensitive sectors
such as electric utilities. However, higher overall market volatility may
increase if there is a surprise regarding the economy or corporate earnings.
Our portfolio strategy continues to focus on income and long-term growth. We
have increased our natural gas holdings and gradually reduced telecommunications
holdings awaiting a clearer competitive picture or more favorable valuations in
that industry. After two years of above historical returns, an increase in stock
market volatility could enhance the appeal of electric utilities as a stable
long-term investment vehicle.
In closing, we thank you for your investment in The Travelers Series Trust
Portfolios. We look forward to continuing to help you achieve your financial
goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 15, 1997
38
<PAGE> 72
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/96
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/96 1.46%
1/24/92* through 12/31/96 5.84%
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------
<S> <C>
1/24/92* through 12/31/96 32.33%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on January
24, 1992 and assuming reinvestment of dividends through December
31, 1996. The Lehman Government Bond Index is a broad-based Index
of all public debt obligations of the U.S. Government and its
agencies and has an average maturity of nine years. The Consumer
Price Index is a measure of the average change in prices over time
in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
U.S. Gov-
ernment Lehman
Measurement Period Securities Government Consumer
(Fiscal Year Covered) Portfolio Bond Index Price Index
<S> <C> <C> <C>
1/24/92 10000 10000 10000
12/92 10290 10920 10275
12/93 11813 12125 10557
12/94 11147 11699 10840
12/95 13869 13950 11115
12/31/96 14077 14354 11484
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO AS OF 12/31/96
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/96 19.98%
5/1/92* through 12/31/96 12.62%
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------
<S> <C>
5/1/92* through 12/31/96 73.33%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on May 1,
1992 assuming reinvestment of dividends through December 31, 1996.
The Standard & Poor's 500 Index is an unmanaged index composed of
500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and the over-the-counter market.
The Consumer Price Index is a measure of the average change in
prices over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Social
Awareness Standard &
Measurement Period Stock Poor's 500 Consumer
(Fiscal Year Covered) Portfolio Index Price Index
<S> <C> <C> <C>
5/1/92 10000 10000 10000
12/92 10850 10673 10157
12/93 11777 11745 10436
12/94 11461 11900 10716
12/95 16285 14509 10988
12/31/96 18340 17838 11353
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
39
<PAGE> 73
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 12/31/96 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/96 7.47%
2/4/94* through 12/31/96 11.24%
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------
<S> <C>
2/4/94* through 12/31/96 36.26%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on
February 4, 1994 assuming reinvestment of dividends through
December 31, 1996. Standard & Poor's 500 Index is an unmanaged
index composed of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange and over-the-counter
market. The Consumer Price Index is a measure of the average change
in prices over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Standard &
Measurement Period Utilities Poor's 500 Consumer
(Fiscal Year Covered) Portfolio Index Price Index
<S> <C> <C> <C>
2/4/94 10000 10000 10000
12/94 10170 10072 10205
12/95 13149 13852 10464
12/31/96 14139 17031 10811
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
40
<PAGE> 74
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1996
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 89.8%
$ 1,000,000 U.S. Treasury Bond, 9.250% due 2/15/16...................................... $ 1,269,950
700,000 U.S. Treasury Bond, 8.125% due 5/15/21...................................... 813,281
3,000,000 U.S. Treasury Bond, 6.875% due 8/15/25...................................... 3,058,440
10,000,000 U.S. Treasury Strip, zero coupon due 2/15/15................................ 2,940,700
2,955,466 FHLMC, 6.000% due 3/1/26.................................................... 2,749,500
988,365 FHLMC, 8.000% due 5/1/26.................................................... 1,008,131
2,019,999 FNMA, 7.000% due 6/1/24..................................................... 1,977,075
2,964,852 FNMA, 7.500% due 11/1/26@................................................... 2,964,850
392,192 GNMA, 8.500% due 3/15/18.................................................... 406,530
595,113 GNMA, 8.500% due 5/15/18.................................................... 616,871
251,104 GNMA, 8.500% due 6/15/18.................................................... 260,285
177,531 GNMA, 8.500% due 7/15/18.................................................... 184,022
1,974,160 GNMA, 7.000% due 6/15/24.................................................... 1,931,578
3,000,000 Tennessee Valley Authority Debenture, 5.980% due 4/1/36..................... 3,041,250
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost -- $23,037,806).......... 23,222,463
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 10.2%
2,626,000 Citibank, 6.900% due 1/2/97; Proceeds at maturity -- $2,627,007;
(Fully collateralized by U.S. Treasury Notes, 5.750% due 12/31/98;
Market value -- $2,686,638) (Cost -- $2,626,000)............................ 2,626,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $25,663,806*)............................ $25,848,463
- ---------------------------------------------------------------------------------------------------------
</TABLE>
@ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE> 75
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS -- 83.7%
- ---------------------------------------------------------------------------------------------------------
BASIC MATERIALS -- 3.8%
2,000 Air Products & Chemicals, Inc..................................................... $ 138,250
5,000 Engelhard Corp.................................................................... 95,625
4,000 Praxair, Inc...................................................................... 184,500
- ---------------------------------------------------------------------------------------------------------
418,375
- ---------------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 2.9%
1,500 AMP, Inc.......................................................................... 57,562
2,000 Pitney Bowes, Inc................................................................. 109,000
2,800 York International, Inc........................................................... 156,450
- ---------------------------------------------------------------------------------------------------------
323,012
- ---------------------------------------------------------------------------------------------------------
COMMUNICATION -- 1.1%
800 Bell Atlantic Corp................................................................ 51,800
2,300 MCI Communications Corp........................................................... 75,181
- ---------------------------------------------------------------------------------------------------------
126,981
- ---------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 11.6%
2,900 Fleetwood Enterprises, Inc........................................................ 79,750
2,900 Home Depot, Inc................................................................... 145,363
3,500 Kaufman & Broad Home Corp......................................................... 45,063
1,864 Lucas Variety PLC+................................................................ 70,832
3,000 May Department Stores............................................................. 140,250
2,000 Nine West Group, Inc.+............................................................ 92,750
6,000 Olsten Corp....................................................................... 90,750
4,000 Pep Boys -- Manny, Moe & Jack..................................................... 123,000
4,000 Toys "R" Us, Inc.+................................................................ 120,000
1,900 Tribune Co........................................................................ 149,862
3,500 Wal-Mart Stores, Inc.............................................................. 80,062
3,000 Xerox Corp........................................................................ 157,875
- ---------------------------------------------------------------------------------------------------------
1,295,557
- ---------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 10.5%
2,000 Coca-Cola Co...................................................................... 105,250
2,000 Gillette Co....................................................................... 155,500
3,000 Kroger Co.+....................................................................... 139,500
2,000 McDonald's Corp................................................................... 90,500
5,000 Newell Co......................................................................... 157,500
4,800 PepsiCo, Inc...................................................................... 141,000
2,800 Sysco Corp........................................................................ 91,350
1,000 Unilever N.V...................................................................... 175,250
1,600 Walt Disney Co.................................................................... 111,400
- ---------------------------------------------------------------------------------------------------------
1,167,250
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 1.6%
2,800 Anadarko Petroleum Corp........................................................... 181,300
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE> 76
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
FINANCE -- 17.8%
1,600 Aetna Inc......................................................................... $ 128,000
3,500 American Express Co............................................................... 197,750
1,250 American International Group Inc.................................................. 135,313
3,000 Associates 1st Capital Corp....................................................... 132,375
2,700 Bank of Boston Corp............................................................... 173,475
3,000 Barnett Banks, Inc................................................................ 123,375
1,800 Citicorp.......................................................................... 185,400
1,200 Federal Home Loan Mortgage Corp................................................... 132,150
3,000 H. F. Ahmanson & Co............................................................... 97,500
2,500 Lincoln National Corp............................................................. 131,250
2,200 NationsBank Corp.................................................................. 215,050
3,400 State Street Boston Corp.......................................................... 219,300
1,500 Transamerica Corp................................................................. 118,500
- ---------------------------------------------------------------------------------------------------------
1,989,438
- ---------------------------------------------------------------------------------------------------------
HEALTH CARE -- 10.3%
2,200 Amgen Inc.+....................................................................... 119,625
3,750 Columbia/HCA Healthcare Corp...................................................... 152,813
3,300 DENTSPLY International, Inc....................................................... 156,750
3,600 Johnson & Johnson................................................................. 179,100
2,300 Merck & Co., Inc.................................................................. 182,275
1,200 Pfizer, Inc....................................................................... 99,450
1,200 Schering-Plough Corp.............................................................. 77,700
6,200 Stryker Corp...................................................................... 185,225
- ---------------------------------------------------------------------------------------------------------
1,152,938
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 20.5%
4,500 Belden, Inc....................................................................... 166,500
4,400 Cabletron Systems, Inc.+.......................................................... 146,300
2,000 Compaq Computer Corp.+............................................................ 148,500
3,000 Computer Associates International................................................. 149,250
3,000 DSC Communications, Inc.+......................................................... 53,625
2,500 Electronic Data Systems Corp...................................................... 108,125
7,000 EMC Corp.+........................................................................ 231,875
2,000 Intel Corp........................................................................ 261,875
700 International Business Machines Corp.............................................. 105,700
3,600 Lucent Technologies Corp.......................................................... 166,500
2,000 Madge Networks N.V.+.............................................................. 19,750
3,300 Marshall Industries+.............................................................. 101,062
2,800 Microsoft Corp.+.................................................................. 231,350
3,500 Oracle Corp.+..................................................................... 146,125
2,500 Perkin-Elmer Corp................................................................. 147,187
4,000 Sun Microsystems Inc.+............................................................ 102,750
- ---------------------------------------------------------------------------------------------------------
2,286,474
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE> 77
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
TRANSPORTATION -- 2.0%
4,500 Mesaba Holdings, Inc.+............................................................ $ 66,938
1,400 Norfolk Southern Corp. ........................................................... 122,500
1,300 Southwest Airlines................................................................ 28,763
- ---------------------------------------------------------------------------------------------------------
218,201
- ---------------------------------------------------------------------------------------------------------
UTILITIES -- 1.6%
4,000 Enron Corp........................................................................ 172,500
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost -- $6,883,357).......................................... 9,332,026
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT -- 16.3%
$1,822,000 CS First Boston, 6.48% due 1/2/97; Proceeds at maturity -- $1,822,658; $ 1,822,000
(Fully collateralized by U.S. Treasury Notes, 7.25% due 2/15/98;
Market value -- $1,861,755) (Cost -- $1,822,000)............................
- ---------------------------------------------------------------------------------------------------------
$11,154,026
TOTAL INVESTMENTS -- 100% (Cost -- $8,705,357*).............................
- ---------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE> 78
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS -- 82.9%
- ---------------------------------------------------------------------------------------------------------
ELECTRIC - UTILITY -- 65.5%
15,000 Allegheny Power System, Inc.................................................... $ 455,625
11,000 American Electric Power Co..................................................... 452,375
7,500 Baltimore Gas & Electric Co.................................................... 200,625
15,000 Carolina Power & Light......................................................... 547,500
9,000 Central & Southwest Corp. ..................................................... 230,625
15,000 CINergy Corp................................................................... 500,625
5,000 CIPSCO, Inc. .................................................................. 180,625
15,000 CMS Energy Corp................................................................ 504,375
10,000 Dominion Resources, Inc. ...................................................... 385,000
10,000 DPL Inc........................................................................ 245,000
12,750 DQE Inc........................................................................ 369,750
20,000 Edison International........................................................... 397,500
15,000 Entergy Corp. ................................................................. 416,250
10,000 Florida Progress Corp.......................................................... 322,500
12,000 FPL Group Inc.................................................................. 552,000
12,000 GPU Inc........................................................................ 403,500
11,000 Houston Industries............................................................. 248,875
12,000 Illinova Corp. ................................................................ 330,000
15,000 Long Island Lighting........................................................... 331,875
10,000 NIPSCO Industries, Inc......................................................... 396,250
18,000 PacifiCorp. ................................................................... 369,000
15,000 Pinnacle West Capital.......................................................... 476,250
7,500 Public Service Co. of Colorado................................................. 291,563
15,000 Public Service Co. of New Mexico............................................... 294,375
15,000 SCANA Corp..................................................................... 401,250
15,000 Sierra Pacific Resources....................................................... 431,250
12,500 Southern Co.................................................................... 282,813
15,000 Texas Utilities Co. ........................................................... 611,250
10,000 Unicom Corp.................................................................... 271,250
12,000 UtiliCorp. United, Inc......................................................... 324,000
13,000 Wisconsin Energy Corp.......................................................... 349,375
- ---------------------------------------------------------------------------------------------------------
11,573,251
- ---------------------------------------------------------------------------------------------------------
NATURAL GAS -- 11.0%
10,000 Coastal Corp. ................................................................. 488,750
10,000 Enron Corp. ................................................................... 431,250
5,000 Equitable Resources Inc. ...................................................... 148,750
10,000 Pacific Enterprises............................................................ 303,750
15,000 Southwest Gas Corp. ........................................................... 288,750
7,500 Williams Cos................................................................... 281,250
- ---------------------------------------------------------------------------------------------------------
1,942,500
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE> 79
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
TELEPHONE -- 6.4%
15,000 Frontier Corp.................................................................. $ 339,375
7,500 GTE Corp....................................................................... 341,250
2,000 MCI Communications............................................................. 65,375
10,000 Teleport Communications+....................................................... 305,000
5,000 US West Media Group+........................................................... 92,500
- ---------------------------------------------------------------------------------------------------------
1,143,500
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost -- $12,839,147)...................................... 14,659,251
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS -- 3.6%
- ---------------------------------------------------------------------------------------------------------
TELEPHONE -- 1.3%
$ 230,000 MCI Communication Corp., 7.75% due 3/23/25................................... 232,875
- ---------------------------------------------------------------------------------------------------------
UTILITY - ELECTRIC -- 2.3%
200,000 Arizona Public Service Co., 7.25% due 8/1/23................................. 188,750
200,000 Philadelphia Electric, 8.75% due 4/1/22...................................... 212,250
- ---------------------------------------------------------------------------------------------------------
401,000
- ---------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $605,853)..................................... 633,875
- ---------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 3.0%
500,000 U.S. Treasury Notes, 7.75% due 11/30/99 (Cost -- $499,802)................... 522,605
- ---------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $13,944,802).................................. 15,815,731
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 10.5%
1,859,000 CS First Boston Corp., 6.50% due 1/2/97; Proceeds at maturity -- $1,859,671;
(Fully collateralized by U.S. Treasury Note, 7.25% due 2/15/98; Market
value -- $1,898,260) (Cost -- $1,859,000).................................... 1,859,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $15,803,802*)............................. $17,674,731
- ---------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE> 80
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1996
<TABLE>
<CAPTION>
U.S. SOCIAL
GOVERNMENT AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments -- Cost.................................... $23,037,806 $ 6,883,357 $13,944,802
Repurchase agreements -- Cost.......................... 2,626,000 1,822,000 1,859,000
- ------------------------------------------------------------------------------------------------------------
Investments, at value.................................. $23,222,463 $ 9,332,026 $15,815,731
Repurchase agreements, at value........................ 2,626,000 1,822,000 1,859,000
Cash................................................... 268 697 519,418
Receivable from affiliate.............................. -- 25,093 --
Dividends and interest receivable...................... 239,298 8,769 60,046
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS........................................... 26,088,029 11,188,585 18,254,195
- ------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares purchased...................... 35,299 30,508 13,724
Investment advisory fees payable....................... 9,932 -- 9,697
Payable for securities purchased....................... -- 77,340 --
Accrued expenses....................................... 34,264 40,742 16,548
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES...................................... 79,495 148,590 39,969
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS......................................... $26,008,534 $11,039,995 $18,214,226
- ------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital........................................ $26,527,392 $ 8,594,239 $16,338,333
Undistributed (overdistributed) net investment
income.............................................. (2,726) -- 4,964
Accumulated net realized loss on security
transactions........................................ (700,789) (2,913) --
Net unrealized appreciation of investments............. 184,657 2,448,669 1,870,929
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS......................................... $26,008,534 $11,039,995 $18,214,226
- ------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING....................................... 2,393,878 700,357 1,490,143
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE............................... $10.86 $15.76 $12.22
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE> 81
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
U.S. SOCIAL
GOVERNMENT AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 1,705,367 $ 42,150 $ 209,151
Dividends.................................................. -- 107,312 647,584
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME.................................... 1,705,367 149,462 856,735
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2).......................... 86,625 58,250 113,601
Administration fees (Note 2)............................... 24,429 23,155 23,970
Audit and legal............................................ 24,309 24,075 18,415
Shareholder communications................................. 11,714 15,063 11,714
Custody.................................................... 8,711 18,907 7,335
Trustees' fees............................................. 6,544 6,544 6,544
Shareholder and system servicing fees...................... 1,000 1,000 1,000
Registration fees.......................................... 212 212 212
Other...................................................... 1,436 1,500 2,998
- -----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................. 164,980 148,706 185,789
Less: Expense reimbursement (Note 2)....................... -- (36,367) --
- -----------------------------------------------------------------------------------------------------------
NET EXPENSES............................................... 164,980 112,339 185,789
- -----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME........................................ 1,540,387 37,123 670,946
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions (excluding
short-term securities):
Proceeds from sales..................................... 125,294,879 2,106,414 6,065,073
Cost of securities sold................................. 125,999,485 1,705,595 5,235,457
- -----------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)................................... (704,606) 400,819 829,616
- -----------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year....................................... 797,061 1,289,613 2,093,137
End of year............................................. 184,657 2,448,669 1,870,929
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION......... (612,404) 1,159,056 (222,208)
- -----------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS............................... (1,317,010) 1,559,875 607,408
- -----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS....................... $ 223,377 $1,596,998 $1,278,354
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE> 82
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
U.S. SOCIAL
GOVERNMENT AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income...................................... $ 1,540,387 $ 37,123 $ 670,946
Net realized gain (loss)................................... (704,606) 400,819 829,616
Increase (decrease) in net unrealized appreciation......... (612,404) 1,159,056 (222,208)
- -----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS..................... 223,377 1,596,998 1,278,354
- -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................... (3,539,054) (233,199) (1,107,181)
Net realized gains......................................... (423,418) (525,148) (974,527)
- -----------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (3,962,472) (758,347) (2,081,708)
- -----------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares........................... 6,750,676 4,848,116 7,458,285
Net asset value of shares issued for reinvestment of
dividends............................................... 3,962,472 758,347 2,081,708
Cost of shares reacquired.................................. (9,157,807) (2,459,930) (5,862,088)
- -----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS........ 1,555,341 3,146,533 3,677,905
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS............................ (2,183,754) 3,985,184 2,874,551
NET ASSETS:
Beginning of year.......................................... 28,192,288 7,054,811 15,339,675
- -----------------------------------------------------------------------------------------------------------
END OF YEAR*............................................... $26,008,534 $11,039,995 $18,214,226
- -----------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net investment
income of:................................................. $(2,726) -- $4,964
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE> 83
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
U.S. SOCIAL
GOVERNMENT AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income....................................... $ 1,520,848 $ 55,079 $ 441,157
Net realized gain........................................... 1,110,792 265,239 144,953
Increase in net unrealized appreciation..................... 3,171,708 1,316,045 2,170,686
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... 5,803,348 1,636,363 2,756,796
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (1,404,917) (51,494) (150,491)
Net realized gains.......................................... -- (68,327) --
- ------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS... (1,404,917) (119,821) (150,491)
- ------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares............................ 5,439,282 2,552,645 9,178,587
Net asset value of shares issued for reinvestment of
dividends................................................ 1,404,917 119,821 150,491
Cost of shares reacquired................................... (7,572,507) (1,013,468) (2,352,367)
- ------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS............................................. (728,308) 1,658,998 6,976,711
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS........................................ 3,670,123 3,175,540 9,583,016
NET ASSETS:
Beginning of year........................................... 24,522,165 3,879,271 5,756,659
- ------------------------------------------------------------------------------------------------------------
END OF YEAR*................................................ $28,192,288 $7,054,811 $15,339,675
- ------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:............ $1,520,848 $55,079 $441,157
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE> 84
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The U.S. Government Securities, Social Awareness Stock and Utilities
Portfolios (collectively, "Portfolio(s)") are separate investment portfolios of
The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company and consists of these
portfolios and ten other separate investment portfolios: Travelers Quality Bond,
Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated
Stock, Large Cap, Equity Income, Zero Coupon Bond Fund Portfolio Series 1998,
Zero Coupon Bond Fund Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio
Series 2005 Portfolios. Shares of the Trust are offered only to insurance
company separate accounts that fund certain variable annuity and variable life
insurance contracts. The financial statements and financial highlights for the
other portfolios are presented in separate annual reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities for which no sales prices were reported and U.S. Government
and Agency obligations are valued at the mean between the last reported bid and
ask prices or on the basis of quotations received from reputable brokers or
other recognized sources; (c) securities maturing within 60 days are valued at
cost plus accreted discount and, or minus amortized premium, which approximates
market value; (d) securities that have a maturity of 60 days or more are valued
at prices based on market quotations for securities of similar type, yield and
maturity; (e) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on the accrual basis and dividend income is
recorded on the ex-dividend date; (f) gains or losses on the sale of securities
are calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) the
Portfolios intend to comply with the requirements of the Internal Revenue Code
of 1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (i) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At December 31, 1996,
reclassifications were made to the Portfolio capital accounts to reflect
permanent book/tax differences and income and gains available for distribution
under income tax regulations. Accordingly, a portion of overdistributed net
investment income and accumulated net realized loss amounting to $6,915 and
$9,045, respectively, were reclassified to paid-in capital for Social Awareness
Stock Portfolio. Net investment income, net realized gains and net assets for
each Portfolio were not affected by these changes; and (j) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
In addition, for the year ended December 31, 1996, distributions from
realized gains include both net realized short-term and long-term capital gains.
Previous to 1996 net realized short-term capital gains were included in
distributions from net investment income.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc., acts as investment manager and
advisor to the U.S. Government Securities Portfolio ("USGS"). USGS pays TAMIC an
investment management and advisory fee calculated at the annual rate of 0.3233%
of its average daily net assets. This fee is calculated daily and paid monthly.
Greenwich Street Advisors ("GSA"), a division of Smith Barney Mutual Funds
Management Inc. ("SBMFM") which is a subsidiary of Smith Barney Holdings Inc.
("SBH") and an indirect wholly owned subsidiary of Travelers Group Inc., acts as
investment manager and advisor to the Social Awareness Stock ("SAS") and
Utilities ("Utilities") Portfolios. SAS pays GSA an investment management and
advisory fee calculated at an annual rate of : 0.65% on the first $50 million,
0.55% on the next $50 million, 0.45% on the next $100 million and 0.40% on
amounts over $200 million of the average daily net assets. Utilities pays GSA an
investment management and advisory fees calculated at an annual rate of 0.65% of
the average daily net assets. These fees are calculated daily and paid monthly.
For the year ended December 31, 1996, GSA waived $11,274 of investment advisory
fee and has agreed to reimburse expenses in the amount of $25,093 for SAS.
51
<PAGE> 85
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Travelers Insurance Company ("Travelers Insurance") acts as administrator
to the Portfolios. The Portfolios pay Travelers Insurance an administration fee
calculated at an annual rate of 0.06% of the average daily net assets. Travelers
Insurance has entered into a sub-administrative services agreement with SBMFM.
Travelers Insurance pays SBMFM, as sub-administrator, a fee calculated at an
annual rate of 0.06% of the average daily net assets of each Portfolio. This fee
is calculated daily and paid monthly.
One Trustee and all officers of the Trust are employees of Travelers Group
Inc., or its subsidiaries.
3. INVESTMENTS
During the year ended December 31, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
USGS SAS UTILITIES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases....................................................... $123,349,711 $3,047,308 $8,414,809
- -----------------------------------------------------------------------------------------------------------
Sales........................................................... 125,294,879 2,106,414 6,065,073
- -----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, aggregate gross unrealized appreciation and
depreciation of investments were as follows:
<TABLE>
<CAPTION>
USGS SAS UTILITIES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized appreciation*...................................... $239,436 $2,624,768 $2,025,482
Gross unrealized depreciation*...................................... (54,779) (176,099) (154,553)
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation*........................................ $184,657 $2,448,669 $1,870,929
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Substantially the same for Federal income tax purposes.
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes possession of) U.S.
Government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to 102% of the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Portfolios record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Portfolio's basis in the contract. The Portfolios bear the market risk that
arises from changes in the value of the financial instruments and securities
indices (futures contracts) and the credit risk should a counterparty fail to
perform under such contracts.
At December 31, 1996, the Portfolios had no open futures contracts.
52
<PAGE> 86
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Portfolios,
represent investments, which are "marked-to-market" daily. When a purchased
option expires, the Portfolios will realize a loss in the amount of the premium
paid. When the Portfolios enter into closing sales transactions, the Portfolios
will realize a gain or loss depending on whether the proceeds from the closing
sales transactions are greater or less than the premium paid for the option.
When the Portfolios exercise a put option, they will realize a gain or loss from
the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Portfolios exercise a call
option, the cost of the security which the Portfolios purchase upon exercise
will be increased by the premium originally paid.
As of December 31, 1996, the Portfolios had no open purchased call or put
options contracts.
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, U.S. Government Securities Portfolio had, for Federal
income tax purposes, approximately $715,000 of capital loss carryforwards
available to offset future capital gains through 2004. To the extent that these
carryforward losses are used to offset capital gains, it is probable that the
gains so offset will not be distributed.
8. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares sold.................................................... 606,114 484,178
Shares issued on reinvestment.................................. 355,511 138,279
Shares redeemed................................................ (834,803) (672,686)
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease)........................................ 126,822 (50,229)
- --------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares sold.................................................... 323,694 205,312
Shares issued on reinvestment.................................. 51,251 10,913
Shares redeemed................................................ (167,210) (74,604)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 207,735 141,621
- --------------------------------------------------------------------------------------------------------
UTILITIES PORTFOLIO
Shares sold.................................................... 590,496 822,640
Shares issued on reinvestment.................................. 169,391 14,594
Shares redeemed................................................ (463,451) (209,288)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 296,436 627,946
- --------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 87
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 1996 1995 1994 1993 1992(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR..................... $12.43 $10.58 $11.63 $10.79 $10.00
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................................ 0.68 0.65 0.60 0.57 0.53
Net realized and unrealized gain (loss).............. (0.52) 1.80 (1.23) 0.44 0.26
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................... 0.16 2.45 (0.63) 1.01 0.79
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income................................ (1.55) (0.60) (0.39) (0.17) --
Net realized gains................................... (0.18) -- (0.03) -- --
- ------------------------------------------------------------------------------------------------------------
Total Distributions.................................... (1.73) (0.60) (0.42) (0.17) --
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................... $10.86 $12.43 $10.58 $11.63 $10.79
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................... 1.46% 24.42% (5.64)% 9.48% 7.90%++
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)........................ $26,009 $28,192 $24,522 $25,520 $9,017
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)......................................... 0.62% 0.56% 0.71% 0.58% 0.38%+
Net investment income................................ 5.68 5.80 5.56 5.04 4.72+
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................................ 501% 214% 16% 51% 25%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO 1996 1995 1994 1993 1992(4)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR..................... $14.32 $11.05 $11.64 $10.95 $10.00
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (5)............................ 0.31 0.12 0.16 0.17 0.16
Net realized and unrealized gain (loss).............. 2.42 3.47 (0.45) 0.65 0.79
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................... 2.73 3.59 (0.29) 0.82 0.95
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income................................ (0.43) (0.14) (0.24) (0.13) --
Net realized gains................................... (0.86) (0.18) (0.06) -- --
- ------------------------------------------------------------------------------------------------------------
Total Distributions.................................... (1.29) (0.32) (0.30) (0.13) --
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................... $15.76 $14.32 $11.05 $11.64 $10.95
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................... 19.98% 33.37% (2.69)% 7.55% 9.50%++
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)........................ $11,040 $7,055 $3,879 $3,361 $1,394
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (5)(6)...................................... 1.25% 1.25% 1.25% 1.05% 0.71%+
Net investment income................................ 0.43 0.99 1.43 1.50 2.22+
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................................ 26% 73% 137% 60% 56%
- ------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS(7)............................ $0.06 -- -- -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from January 24, 1992 (commencement of operations) to
December 31, 1992.
(2) For the year ended December 31, 1996, distributions from realized gains
include both net realized short-term and long-term capital gains. Previous
to 1996 net realized short-term capital gains were included in distributions
from net investment income.
(3) The expense ratios for the year ended December 31, 1993 and the period ended
December 31, 1992 reflect expense reimbursement by The Travelers in
connection with voluntary expense limitations. Without the expense
reimbursement, the expense ratios would have been 0.77% and 0.72%
(annualized), respectively.
(4) For the period from May 1, 1992 (inception date) to December 31, 1992.
(5) For the year ended December 31, 1996, The Travelers reimbursed the Portfolio
for $25,093 in expenses. If such fees were not waived and expenses not
reimbursed, the per share decrease of net investment income would have been
$0.06 and the expense ratio would have been 1.69%.
(6) The expense ratios for the years ended December 31, 1995, 1994, 1993 and the
period ended December 31, 1992 reflect expense reimbursement by The
Travelers in connection with voluntary expense limitations. Without the
expense reimbursement, the expense ratios would have been 1.75%, 3.34%,
3.73% and 2.19% (annualized), respectively.
(7) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
54
<PAGE> 88
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR....................................... $12.85 $10.17 $10.00
- --------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income.................................................. 0.47 0.48 0.35
Net realized and unrealized gain (loss)................................ 0.47 2.44 (0.18)
- --------------------------------------------------------------------------------------------------------
Total Income From Operations............................................. 0.94 2.92 0.17
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income.................................................. (0.84) (0.24) --
Net realized gains..................................................... (0.73) -- --
- --------------------------------------------------------------------------------------------------------
Total Distributions...................................................... (1.57) (0.24) --
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR............................................. $12.22 $12.85 $10.17
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN............................................................. 7.47% 29.29% 1.70%++
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).......................................... $18,214 $15,340 $5,757
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)........................................................... 1.07% 1.25% 1.25%+
Net investment income.................................................. 3.88 4.29 3.86+
- --------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.................................................. 39% 25% 32%
- --------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY TRANSACTIONS (4)............ $0.06 -- --
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from February 4, 1994 (commencement of operations) to
December 31, 1994.
(2) For the year ended December 31, 1996, distributions from realized gains
include both net realized short-term and long-term capital gains. Previous
to 1996 net realized short-term capital gains were included in distributions
from net investment income.
(3) The ratios of expenses to average net assets for the year ended December 31,
1995 and the period ended December 31, 1994 reflect expense reimbursements
by The Travelers in connection with voluntary expense limitations. Without
the expense reimbursements, the ratios of expenses to average net assets
would have been 1.27% and 3.49% (annualized), respectively.
(4) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
The amount of long-term capital gains paid for the fiscal year ended
December 31, 1996, are $479,773 for the Social Awareness Stock Portfolio and
$638,099 for Utilities Portfolio.
55
<PAGE> 89
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The Travelers Series Trust:
We have audited the accompanying statements of assets and liabilities of the
U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and the
Utilities Portfolio of The Travelers Series Trust, including the schedules of
investments as of December 31, 1996, and the related statements of operations
for the year then ended, the statements of changes in net assets for the periods
ended December 31, 1996 and 1995, and the financial highlights for each of the
applicable periods ended December 31, 1996, 1995, 1994, 1993 and 1992. These
financial statements and financial highlights are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and also with brokers
for the Social Awareness Stock Portfolio. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Government Securities Portfolio, Social Awareness Stock Portfolio, and
Utilities Portfolio of The Travelers Series Trust as of December 31, 1996, the
results of their operations for the year then ended, the changes in their net
assets for the periods ended December 31, 1996 and 1995, and the financial
highlights for each of the applicable periods ended December 31, 1996, 1995,
1994, 1993 and 1992, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 24, 1997
56
<PAGE> 90
Investment Advisers
--------------------
CAPITAL APPRECIATION FUND
THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
Hartford, Connecticut
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CASH INCOME TRUST AND
THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
THE TRAVELERS SERIES TRUST: SOCIAL AWARENESS STOCK PORTFOLIO AND UTILITIES
PORTFOLIO
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
New York, New York
Independent Accountants
-------------------------
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
Custodian
----------
PNC BANK, N.A.
This report is prepared for the general information of contract owners and is
not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Cash Income Trust, The Travelers Series Trust: U.S.
Government Securities Portfolio, Social Awareness Stock Portfolio or Utilities
Portfolio. It should not be used in connection with any offer except in
conjunction with the Prospectuses for the Variable Annuity and Variable
Universal Life Insurance products offered by The Travelers Insurance Company and
the Prospectuses for the underlying funds, which collectively contain all
pertinent information, including the applicable sales commissions.
VG-181 (Annual)(12-96) Printed in U.S.A.
<PAGE> 1
EXHIBIT 9
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (the "Agreement") is hereby
made as of October 28, 1996, by and between The Travelers Insurance Company,
("Travelers") a Connecticut corporation with its principal offices in Hartford,
Connecticut, and Cash Income Trust (the "Trust") which is a registered open end
management investment company with its principal office in Hartford,
Connecticut.
In consideration of the premises and the mutual promises hereinafter
set forth, Travelers and the Trust hereby agree as follows:
1. Appointments. Trust hereby appoints and employs Travelers as agent to
provide the services described in this Agreement for the Trust. Travelers
shall perform the obligations and the services set forth herein in accordance
with the terms and conditions hereto.
2. Services to be Performed
A. Travelers shall be responsible for performing as agent, as of
the date of this Agreement, the pricing and bookkeeping services
commonly referred to as "back office" services described as
follows:
(1) Accounting relating to portfolio transactions of the
Trust.
(2) The determination of net asset value per share of the
outstanding shares of the Trust and the offering price, if
any, at which shares are to be sold, at the times and in
the manner described in the declaration of trust or other
organizational document, as amended, and the Prospectus of
the Trust.
(3) The determination of distributions, if any.
(4) Maintaining the books of account of the Trust.
(5) In conjunction with the Trust's custodian ("Custodian"),
receiving information and keeping records about all
corporate actions, including, but not limited to, cash and
stock distributions or dividends, stock splits and reverse
stock splits, taken by companies whose securities are held
by the Trust.
(6) Monitoring foreign corporate actions and foreign trades
and entering orders to convert foreign currency or
establish contracts for future settlement of foreign
currency.
(7) Processing and monitoring of settlement of Variable Rate
Demand Notes, GNMA's and similar instruments.
(8) Monitoring and accounting for futures and options.
<PAGE> 2
B. Travelers shall be responsible for administering a program of
securities lending for the Trust by:
(1) Carrying out security loan transactions between approved
borrowers and the Trust, including assisting the Custodian
in receiving and returning collateral for loans;
(2) Marking to market loans outstanding each day; and
(3) Ensuring that the value of collateral for loans is 100% or
more of loaned securities at market price and issuing
demands for additional collateral should the percentage
fall below 100%.
C. Travelers shall not be responsible for any other services
provided to the Trust, including, but not limited to, investment
advisory, legal, auditing and clerical services.
The Trust will be responsible for the following expenses,
including, but not limited to, (i) interest and taxes; (ii)
brokerage commissions and other costs in connection with the
purchase or sale of securities and other investment instruments;
(iii) fees and expenses of the Trust's trustees other than those
who are "interested persons" of the Trust, the Manager, the
Subadviser; (iv) legal and audit expenses; (v) custodian and
registrar fees and expenses; (vi) fees and expenses related to
the registration and qualification of the Trust's shares for
distribution under state and federal securities laws; (vii)
expenses of printing and mailing reports and notices and proxy
material to shareholders of the Trust; (viii) all other expenses
incidental to holding meetings of the Trust's shareholders,
including proxy solicitations therefor; (ix) insurance premiums
for fidelity bond and other coverage; (x) investment management
fees; (xi) expenses of typesetting for printing prospectuses and
statements of additional information and supplements thereto;
(xii) expenses of printing and mailing prospectuses and
statements of additional information and supplements thereto;
and (xiii) such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings
to which the Trust is a party and any legal obligation that the
Trust may have to indemnify the Trust's trustees, officers
and/or employees or agents with respect thereto.
Operating procedures and standards to be followed for each function
may be established from time to time by agreement between the Trust and
Travelers.
3. Record Keeping and Other Information. Travelers shall create and
maintain all records required by all applicable laws, rules and regulations
relating to the services to be performed herein, including but not limited to,
all applicable records required by Section 31(a) of the Investment Company Act
of 1940 ("1940 Act") and the rules thereunder, as the same be amended from time
to time. All records shall be the property of the Trust and shall be available
for inspection and use by the Trust at all times. Where applicable, such
records shall be maintained by Travelers for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
2
<PAGE> 3
4. Audits, Inspections and Visits. Travelers shall make available during
regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by each Trust,
any agent or person designated by the Trust, or any regulatory agency having
authority over the Trust. Upon reasonable notice by the Trust, Travelers shall
make available during regular business hours its facilities and premises
employed in connection with its performance of this Agreement for reasonable
visits by the Trust, any agent or person designated by the Trust, or any
regulatory agency having authority over the Trust.
5. Compensation. For the performance of its obligations hereunder, the
Trust agrees to pay fees to Travelers at the annualized rate of .06% of the
daily net assets. Fees will be accrued daily and quarterly within ten days of
the end of each calendar quarter.
6. Appointment of Agents. Travelers, at its expense, may at any time or
times in its discretion appoint (and may at any time remove) one or more other
parties as agent to perform any or all of the services specified hereunder and
carry out such provisions of this Agreement as Travelers may from time to time
direct; provided, however, that the appointment of any such agent shall not
relieve Travelers of any of its responsibilities or liabilities hereunder.
7. Security. Travelers represents and warrants that, to the best of its
knowledge, the various procedures and systems which Travelers has implemented
with regard to the safeguarding from loss or damage attributable to fire, theft
or any other cause (including provision for twenty-four hours a day restricted
access) of the Trust's blank checks, certificates, records and other data and
Travelers records, data, equipment, facilities and other property used in the
performance of its obligations hereunder are adequate, and that it will make
such changes therein from time to time as in its judgment are required for the
secure performance of its obligations hereunder. Travelers shall review such
systems and procedures on a periodic basis and the Trust shall have access to
review these systems and procedures.
8. Insurance. Travelers shall maintain insurance of the types and in the
amounts deemed by it to be appropriate and shall notify the Trust should any of
its insurance coverage be changed for any reason. Such notification shall
include the date of change and the reason or reasons therefor. Travelers shall
notify the Trust of any material claims against Travelers whether or not they
may be covered by insurance, and shall notify the Trust from time to time as
may be appropriate of the total outstanding claims made by Travelers under its
insurance coverage. To the extent that policies of insurance may provide for
coverage of claims for liability or indemnity by the parties set forth in this
Agreement, the contracts of insurance shall take precedence, and no provision
of this Agreement shall be construed to relieve any insurer of any obligation
to pay claims to the Trust, Travelers or other insured party which would
otherwise be a covered claim in the absence of any provision of this Agreement.
3
<PAGE> 4
9. Indemnification.
A. The Trust shall indemnify and hold Travelers harmless against
any losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person
other than the Trust, including by a shareholder, which
names Travelers and/or the Trust as a party and is not
based on and does not result from Travelers willful
misfeasance, bad faith or reckless disregard of its
duties, and arises but of or in connection with Travelers
performance hereunder, or
(2) any claim, demand, action or suit (except to the extent
contributed to by Travelers willful misfeasance, bad faith
or reckless disregard of its duties) which results from
the negligence of the Trust, or from Travelers acting upon
any instruction(s) reasonably believed by it to have been
executed or communicated by any person duly authorized by
the Trust, or as a result of Travelers acting in reliance
with advice reasonably believed by Travelers to have been
given by counsel for the Trust, or as a result of
Travelers acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine
and signed, countersigned or executed by the proper
person.
B. Travelers shall indemnify and hold the Trust harmless against
any losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit brought by any person other than
Travelers, which names the Trust and/or Travelers as a party and
is based upon and arises out of Travelers willful misfeasance,
bad faith or reckless disregard of its duties in connection with
its performances hereunder.
In the event that either party requests the other to indemnify or hold
it harmless hereunder, the party requesting indemnification (the "Indemnified
Party") shall inform the other party (the "Indemnifying Party") of the relevant
facts known to the Indemnified Party concerning the matter in question. The
Indemnified Party shall use reasonable care to identify and promptly to notify
the Indemnifying Party concerning any matter which presents, or appears likely
to present, a claim for indemnification. The Indemnifying Party shall have the
election of defending the Indemnified Party against any claim which may be the
subject of indemnification or of holding the Indemnified Party harmless
hereunder. In the event the Indemnifying Party so elects, it will so notify
the Indemnified Party and thereupon the Indemnifying Party shall take over
defense of the claim and, if so requested by the Indemnifying Party, the
Indemnified Party shall incur no further legal or other expenses related
thereto for which it shall be entitled to indemnify or to being held harmless
hereunder; provided, however, that nothing herein shall prevent the Indemnified
Party from retaining counsel at its own expense to defend any claim. Except
with the Indemnifying Party's prior written consent, the Indemnified Party
shall in no event confess any claim or make any compromise in any matter in
which the Indemnifying Party will be asked to indemnify or hold the Indemnified
Party harmless hereunder.
4
<PAGE> 5
10. Acts of God, etc. Travelers shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication equipment of common carriers or power supply. In the
event of equipment breakdowns beyond it control, Travelers shall, at no
additional expense to the Trust, take reasonable steps to minimize service
interruptions and mitigate their effects but shall have no liability with
respect thereto. Travelers shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provision for
emergency use of electronic data processing equipment.
11. Amendments. Travelers and the Trust shall regularly consult with each
other regarding Travelers performance of its obligations and its compensation
hereunder. In connection therewith, the Trust shall submit to Travelers at a
reasonable time in advance of filing with the Securities and Exchange
Commission copies of any amended or supplemented registration statements
(including exhibits) under the Securities Act of 1933, as amended, and the 1940
Act and, a reasonable time in advance of their proposed use, copies of any
amended or supplemented forms relating to any plan, program or service offered
by the Trust. Any change in such material which would require any change in
Travelers obligations hereunder shall be subject to Travelers approval, which
shall not be unreasonably withheld. In the event that a change in such
documents or in the procedures contained therein materially increases the cost
to Travelers of performing its obligations hereunder, Travelers shall be
entitled to receive reasonable compensation therefor.
12. Duration, Termination, etc. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated, except by written
instrument which shall make specific reference to this Agreement and which
shall be signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
This Agreement shall continue in effect with respect to the Trust
until October 31, 1998 and indefinitely thereafter so long as such continuance
is approved at least annually by vote of such Trust's Board of Trustees;
provided, however, that this Agreement may be terminated at any time with
respect to such Trust by sixty (60) days' written notice given by Travelers to
the Trust or sixty (60) days' written notice given by the Trust to Travelers,;
and provided further that this Agreement may be terminated immediately at any
time for cause either by the Trust or by Travelers in the event that such cause
remains unremedied for a reasonable period of time not to exceed ninety (90)
days after receipt of written specification of such cause. Any such
termination shall not affect the rights and obligations of the parties under
Paragraph 9 hereof.
Upon the termination hereof, the Trust shall pay to Travelers such
compensation as may be due for the period prior to the date of such
termination. In the event that the Trust designates a successor to any
Traveler's obligations hereunder, Travelers shall, at the expense and direction
of the Trust, transfer to such successor all relevant books, records and other
data established or maintained by Travelers hereunder. To the extent that
Travelers incurs expenses related to a transfer of responsibilities to a
successor, Travelers shall be entitled to be reimbursed for such expenses,
including any out-of-pocket expenses reasonably incurred by Travelers in
connection with the transfer.
5
<PAGE> 6
13. LIABILITY. NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT IS NOT EXECUTED
ON BEHALF OF THE TRUSTEES OF ANY TRUST AS INDIVIDUALS, AND THE OBLIGATIONS OF
THIS AGREEMENT ARE NOT BINDING UPON ANY OF THE TRUSTEES, OFFICERS OR
SHAREHOLDERS OF A TRUST INDIVIDUALLY, BUT ARE BINDING ONLY UPON THE ASSETS AND
PROPERTY OF THE TRUST. TRAVELERS AGREES THAT NO SHAREHOLDER, TRUSTEE, OR
OFFICER OF THE TRUST MAY BE HELD PERSONALLY LIABLE OR RESPONSIBLE FOR ANY
OBLIGATIONS OF THE TRUST ARISING OUT OF THIS AGREEMENT. WITH RESPECT TO ANY
OBLIGATIONS OF THE TRUST ARISING OUT OF THIS AGREEMENT, TRAVELERS SHALL LOOK
FOR PAYMENT OR SATISFACTION OF ANY OBLIGATION SOLELY TO THE ASSETS AND PROPERTY
OF THE TRUST.
15. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Connecticut, without giving effect to the
choice of laws provisions thereof. The captions in this Agreement are intended
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in counterparts, each of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement by
their respective officials thereunto duly authorized and seals to be affixed,
in the case of the Company.
CASH INCOME TRUST
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
THE TRAVELERS INSURANCE COMPANY
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
6
<PAGE> 1
EXHIBIT 11(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 24 to the Registration Statement of Cash Income Trust (the "Fund") on Form
N-1A (File Nos. 2-74285; 811-3274) of our report dated February 24, 1997, on our
audits of the financial statements and financial highlights of the Fund, which
report is included in the Fund's Annual Report for the year ended December 31,
1996 which is incorporated by reference in this Post-Effective Amendment to the
Registration Statement. We also consent to the reference to our Firm as experts
in accounting and auditing under the caption "Additional Information" in the
Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 15, 1997
<PAGE> 1
EXHIBIT 11(b)
CASH INCOME TRUST
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Lewis E. Daidone of Holmdel, New Jersey, Treasurer of
Cash Income Trust, do hereby make, constitute and appoint ERNEST J. WRIGHT,
Secretary of said Trust, and KATHLEEN A. McGAH, Assistant Secretary of said
Trust, either one of them acting alone, my true and lawful attorney-in-fact,
for me, and in my name, place and stead, to sign registration statements of
said Trust on Form N-1A or other applicable form under the Securities Act of
1933 for the registration of shares of Beneficial Interest of Cash Income Trust
and to sign any and all amendments, including post-effective amendments
thereto, that may be filed.
IN WITNESS WHEREOF I have hereunto set my hand this 18th day
of February, 1997.
Lewis E. Daidone
Treasurer, Cash Income Trust
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355751
<NAME> CASH INCOME TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 3,550,699
<INVESTMENTS-AT-VALUE> 3,550,699
<RECEIVABLES> 15,843
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,509
<TOTAL-ASSETS> 3,571,051
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,396
<TOTAL-LIABILITIES> 3,542,655
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,542,673
<SHARES-COMMON-STOCK> 3,542,673
<SHARES-COMMON-PRIOR> 1,416,684
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,542,673
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 114,317
<OTHER-INCOME> 0
<EXPENSES-NET> 19,833
<NET-INVESTMENT-INCOME> 94,484
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 94,484
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 94,484
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,941,686
<NUMBER-OF-SHARES-REDEEMED> 7,910,199
<SHARES-REINVESTED> 94,502
<NET-CHANGE-IN-ASSETS> 2,125,971
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63,209
<AVERAGE-NET-ASSETS> 3,306,529
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
